Wednesday, April 8, 2009

Sucker's Rally

No Way You're Getting Me Back in This Market
Posted Apr 08, 2009 11:34am EDT by Henry Blodget

After the biggest 4-week bull market since 1933, stocks have taken a pause. But the debate is still raging:

Was that it? The bottom? The end of the second-worst bear market ever? Should you get in now while you still can? Or is this just yet another in a long string of sucker's rallies that will draw you in and then vaporize whatever capital you have left?

Some observers are on the fence. Fortunately for us, TechTicker host Aaron Task isn't. He's not tempted to jump back in, because he's sure this is a sucker's rally. And he's not just saying that because that's what yesterday's guest, George Soros thinks. (Though Soros's endorsement doesn't hurt.)

Aaron's logic:

--We still haven't dealt with the bank problem
--Q1 earnings are going to be horrific
--Investors are still too positive--salivating at the thought of calling the bottom and jumping back in.
--Aaron thinks that when this bear market finally bottoms, only whack-jobs will be interested in buying stocks ever again. I hope he's wrong, but I suspect that he isn't.


The Mad Scientist said...

come on FOFOA,
Last I checked there was no inflation adjusted DOW. Considering the outcome you and I are expecting you would expect the DOW to rise right?
If I recall correctly German stocks during Weimar rose from 88 to 29 billion?
Still lost 90% value versus Gold.

FOFOA said...

Hi Mad,

I see economic collapse and monetary collapse as different animals, yet fully compatible with each other. You make the good point that in late stage hyperinflation even nominal stock prices will rise while their real value is plummeting. This is also true for houses, boats, TVs, and most other non-essential products or assets.

For the most part, I agree with the deflationists, because they predict an unstoppable collapse. My dispute with them is semantic regarding hyperinflation. The inflationists generally predict inflation expectations to assist in a recovery of sorts, which is really no recovery at all. I, on the other hand, recognize that a monetary crisis and collapse is more likely to occur. The result of which is hyperinflation, which is 180 degrees different than inflation.

I don't think the markets will have an inflation response. I could be wrong about this, but I think economic collapse will overpower any "inflation expectations" in the stock market. And then the monetary event we call hyperinflation, which is really just the collapse of the monetary system, will follow. As you say, stocks can go up millions of percent nominally yet still fall dramatically in real value. In other words, asset deflation and monetary hyperinflation are completely consistent with each other.

But when the Dow finally begins to rise for this reason, it is not where you want your money to be.


FOFOA said...

One more thing. I mentioned "late stage hyperinflation". Let me explain.

The deflationists cannot imagine hyperinflation because they think Bernanke would need to do his literal "helicopter drop" before this could occur. This is incorrect. Hyperinflation could begin right now if something triggered a loss of confidence in the US dollar. Hyperinflation would first appear in the necessities of life, and the quick disappearance of such necessities from store shelves.

The next stage of hyperinflation would be the government's response to this, which would be price controls, rationing, currency controls and state-sponsored direct monetary aid. This response will only add fuel to the raging hyperinflation fire.

The next response will be more of the same, but sooner or later they will need to add zeros, and then later drop zeros. During this phase, the price of everything from houses to the stock market to used TV's will rise out of sheer necessity because of the added zeros. But they will still be crashing in real value.


FOFOA said...

In 1930 we faced an economic collapse, but not a monetary collapse, because the dollar was still tied to honest money.

In 1934 we experienced inflation because the dollar was partially detached from honest money.

In 1971 we faced a monetary collapse, but not an economic collapse. But the dollar was rescued by its usage demand in the international oil market.

Today we face both an economic collapse AND a monetary collapse because both the economy AND the money supply have been so inflated over the last 38 years. And also, there is no tie between the dollar and honest money. So both will collapse.

The deflationists believe that an economic/financial collapse is inconsistent with a monetary collapse because as value flows out of assets it must flow into currency, strengthening that currency. But this flow is still ongoing and its final destination will not be in the dollar.


The Mad Scientist said...

You are absolutely correct FOFOA.
If the US were in the position of Norway (huge trade and budget surpluses plus huge saved up capital by the Govt from surpluses ..about $60,000 USD per Norwegian citizen)
then deflation might be possible but not here

FOFOA said...

Exactly. The issuer of the NOK has credibility because it holds a wealth reserve. This is one of the keys to the concept of Freegold.

FOFOA said...

Freegold will force irresponsible governments into policies that encourage production and savings. And it will reward responsible (productive) governments with the honest fruits of their labor. It will also give productive citizens a defensive position to take against their irresponsible governments.

And it will do all this WITHOUT switching to a gold standard. Governments can still print their fiat currencies. But they will be judged credible or not by the wealth reserve they hold, and against the price of gold in that currency which will reflect irresponsible printing.

And the best part is that this system will emerge naturally once "the strong dollar policy" fails. Because it is this policy which views gold as the enemy. Without it, the world will see clearly once again. We are on the road there right now.


Anonymous said...

Insight :

Thirteen questions and answers about the future developments of the global systemic crisis (1st episode)
- Excerpt GEAB N°30 (December 16, 2008) - If you were a subscriber to the GEAB, you would have read what follows as early as December 16, 2008. As the crisis is getting out of its phase of impact and entering its decanting phase, and as the first consequences are starting to burst out in all kinds of sectors and...

Anonymous said...

Naked capitalism - Willem Buiter

Anonymous said...

Gold : The universal value-standard.

J said...

Have you thought about changing the layout of your blog to make your comments viewable without having to open up a separate box? I find your comment section as informative if not more informative than a lot of your postings.

It may get more viewers if people could easily see the discussions that take place here.

Just a thought.

Anonymous said...

The ongoing lost decade will be crescendo stagflationarry.

An harmonious globalizing world, with a level playing field, can only be achieved with gold as the universal value standard as an anchor.
A conditio for further functionning of this globalizing world.

Freegold plus one single freegold law : One can never claim delivery of physical gold for settlement in a dispute. The ultimate halt of the gold-derivatization.

Anonymous said...

The globalizing world :

For a global reserve currency to work, it must be backed by a resource we want people to use less, like carbon
Mark Braund
Thursday 9 April 2009 08.00 BST
[Zhou Xiaochuan, governor of the Chinese central bank]'s motivation is not a desire for greater global economic justice. It is, understandably, to protect China's interests at a time when millions of Chinese have yet to experience the benefits of his country's recent economic miracle. Russia's motivation is even more transparent: Dmitry Medvedev suggested that any new reserve currency should be at least partially backed by gold. As one of the world's leading producers of gold, this would put Russia at a distinct advantage.

FOFOA said...


To read the comments, try clicking on the title of the post instead of the comments link at the bottom. The comments will open up below the main post in the same window. For a while I had it set to enter your new comments in that same space, but there were technical problems with Blogger which discouraged people from posting comments. I recommend only using the pop up window for posting, not for reading.

Thank you for the comment about the comments being more informative than the posts themselves. I agree. That is something I strive for.


FOFOA said...


Thanks for the links, I will check them out tomorrow. My thoughts on a new global reserve currency...

I think it is too late, and it will not be done in time. I think that enough nations will not get their act together nor will there be enough consensus among nations to make anything work on a global scale.

Therefore, we will fall back on the old default which will happen when all else fails. That is Freegold. It is not a system that nations must agree on. It is not a system that is made by governments. Instead, it the lack of one.

There was once a good chance for an alternative world reserve currency to be formed, to the benefit of all. But I believe that time is now gone. And all the talk of new reserve currencies will simply speed up the failure of the dollar reserve system. Perhaps something else will be tried. But don't expect international cooperation. Everyone is in self-preservation mode right now. Instead, expect the everyone-for-themselves-nations to fall back on the [g]old standard of trade imbalance settlement. It is a simple, turnkey system that is all ready to go.


Martijn said...

That argument of the guy in the clip about the fanmail.
How can we compare mail received in 1974 and now while in between these periods the internet has come into existence?

Martijn said...

For anyone interested (don't know how you guys feel about Alex Jones) here is Max Keiser interviewed by Alex.

Not that I am that big a Keiser fan, but he has been saying some interesting things lately. He manages to do that on this interview again.

Martijn said...

It's an old one, so you've probably heard it before, but the Keiser interview reminded me that a good way do describe the current situation is the invisible hand in the taxpayer's pocket .
Therefore congrats on your taxes FOFOA, right now it's our duty to keep the invisible hand away from out pocket in order to stop the redicule government policies being undertaken these days.

Btw, the aforementioned Keiser interview is bit over the top due to a screaming and grawling Mr. Jones. Max does make up for some of that though. Hope I didn't irritate anyone to much by posting it.

Anonymous said...

@ FOFOA : Your thoughts on a new global reserve currency...

Freegold - A Free floating goldprice, means dysfunctional, when it exists in a vacuum. The Freegold must have a function in the IMFSystem. More precisely a wealth-reserve-function.

What function has the governed goldreserve in the present $-IMFS !? Is it purely the $-antithesis and nothing else ?

A constant devaluating $-system cannot survive etenally with only the gold-antithesis as ultimate defence.

It is the gold-concept that needs to become officially changed. The new gold-window must be reopened.

The systemic increasing deficits of the debt-driven-political-economy, need an evolving value-standard collateral = Freegold fitting in a structure (rules).

This globalizing $-world needs to get rid of permanent unilateral gold/goldprice governance.

Nobody elaborates on this. Why ?

Martijn said...


I've been reading a bit of ANOTHER and I'm wondering where he gets the idea that "Gold ... is truly "the wealth of nations " meant to last thru the ages!".

Is it because it has served as money before in history? (I can't think of any other reason..)

FOFOA said...

Hello Anonymous,

You seem familiar. :)

I think the underlying function, although this use will eventually be avoided and ultimately act more as an incentive or threat on governments to apply productive and responsible policies, is to settle trade imbalances.

We can trade products using dollars or yuan or whatever to provide the liquidity to keep the ships moving. Just like in Fekete's Medieval Fair. But as an imbalance develops (a few empty ships going in one direction), gold will be required to keep things moving because I don't believe they can all come together and agree on something else that will satisfy everyone.

I believe that the goods will stop flowing before this new reserve currency can be resolved.

And when the goods stop flowing to the stores, all kinds of hell breaks loose.

So the function of gold in the IMFSystem will be to settle the imbalance to restart the shipping lanes with what little remains waiting to be shipped.

The devaluing dollar system is close to its tipping point right now. The rest of the world is tired of having to use dollars while watching Washington fund trillions through seignorage, a privilege no one else has.

The "strong dollar policy" cannot survive long in this environment. Just imagine one country running a "strong dollar policy" over gold when the rest of the world doesn't want it. At some point it becomes futile and must be abandoned. (When the American King bows to the Saudi King, what does this say about the dollar/oil deal?)

Without a "strong dollar policy", a new kind of "gold window" will open. Gold, priced in a free market, will flow freely. Right now there is no liquidity in the gold market. (Liquidity of gold, not dollars) Because the spread is too wide. Just like in housing and toxic assets, the bid and the ask are separated from each other by too much to be reconciled. This creates illiquidity. But without price suppression, the bid and ask for gold will close and it will flow.

Then, with the privilege of seignorage gone, the systemic increasing deficits of the debt-driven-political-economy will come under the extreme pressure of shortages and hyperinflation. The value standard (Freegold "rules") will evolve quickly from that point out of necessity in order to prevent people from dying of starvation.

Unilateral gold price governance can only survive in this world as long as the physical, visible symptoms of the depression/economic collapse remain hidden. How much longer until they rear their ugly heads? They are like "Black Swans" to the MSM, but still they are hiding everywhere in plain sight. As Taleb says, they are not Black Swans to me. The Black Swan to me would be if we somehow avoided all this.


Martijn said...


I have indeed been around on this blog in a different color.

About your reaction:

Why do it all in gold and not something else? Is that because of gold's history?

Apart from that one could argue that using gold does not benefit all people and nations fairly, since some countries have it in their grounds while others don't.

What I mean is that I do see the flaws in fiat currency and current scams being pulled by bankers, so I can see the need for a new, more fair system. However, should one devise such a system purely from ideological considerations without taking into account historical systems one might not end up at using gold. The main reason for getting there is gold's historical function as a value store, which it has only attained by people putting their trust in the shiny yellow metal though the ages. There is no nature law or anything alike dictating that gold is the only way to store value.

FOFOA said...

Hello Martijn,

I've been reading a bit of ANOTHER and I'm wondering where he gets the idea that "Gold ... is truly "the wealth of nations " meant to last thru the ages!".

That is a very good question. The answer could be very long, but I will try to keep it short.

It is not because gold was used as money, but because gold was, and IS (still) used as a wealth reserve.

Look at this Wikipedia page. Why do you think it even exists? Is there a page for "Official Silver Reserves"? Or "Official Wheat Reserves"? Or even "Official US Dollar Reserves"?

The answer is no. The closest is the page for "Official Foreign Exchange Reserves" which includes all currencies AND gold.

Historically, the picture is even more striking. Kings and rulers have long held wealth and power in the form of a controlling hoard of gold. In fact, the downfall of civilizations often began by the King debasing the gold he let out to the people in order to keep more for himself.

Today, the biggest players on the planet are the Central Banks and Sovereign Wealth Funds. And they have become net buyers of gold, often through back-door channels, but sometimes on the open market.

It is this trend that Another refers to when he says "follow in the footsteps of the giants." The point is that we face a systemic collapse. And it can be very difficult for an individual with private wealth to navigate through such a collapse intact. But as Another points out, the solution is simple, and it is right in front of us. Simply follow in the footsteps of the Giants.

Does this answer your question?


Martijn said...

It answers my question in so far as the function ascribed to gold (wealth reserve) seems to have historically grown.

Would it be fair to conclude that should we start using freegold we are "falling back" on a concept (that of gold as a store of wealth) historically grown?

FOFOA said...


You are correct, there is no natural law dictating gold is the only way to store value. There is only historical precedence. And a long one at that. 6,000 years by some accounts.

One thing about life is that it is not fair. You can spend your whole life trying to make things totally fair and you will find yourself at the end of a futile life. Often this noble quest has ended in the death of millions of people.

Today we find ourselves on the verge of a collapse of the current system. A new system will likely take its place. You used the word "devise". In order to devise a new system, there must be a consensus. We are far from any consensus.

So we must look at what will emerge from the collapse.

The most likely scenario (by a long shot) includes gold.

All the major players have some. Many countries can mine some. It is simply the best available resource to fulfill this need. It fits the requirements. It may not be totally fair, but it is the best that exists in an imperfect world.

Would it be fair to conclude that should we start using freegold we are "falling back" on a concept (that of gold as a store of wealth) historically grown?

To this question, I would say the answer is yes. And the key to this is a shift in the mind of the people. I believe this is underway now.


Martijn said...

Thanks for the reply.

I agree with you that devising a new system (or multiple systems) requires consensus and that gold has an historical background that could aid it's function in building that consensus.

I have not yet studied the the concept of freegold enough to ask adequate questions so forgive me for asking "familiar" things.

However, in the way the world currently works we need to be able to somehow transfer value in a digital way, do you agree?
As gold cannot be digitalized, I can see a problem there. How would that be countered?

FOFOA said...


Think of it this way. Everything will be the same. If you use Euros right now, you will keep using Euros. When you work, you will earn Euros. When you pay your bills, you will do so by wire transfer using Euros. You will even have physical Euros to buy your food.

If you buy a new car, you will take a loan in Euros and you will repay that loan in Euros with interest. None of this needs to change.

However, if you earn a lot of money, more than you need to live on, then you will want to save that wealth for future consumption. Perhaps for retirement.

Without the US Dollar faction "governing" the price of gold, gold will be the best and safest way to store your excess wealth for future use. The price of gold will float against the Euro and all other fiat currencies and will therefore cover any inflation that takes place between now and when you need to consume that wealth or pass it on to your kin.

There will be other ways to store wealth for the future that may (I stress MAY) return you more than just the rate of inflation. But they will all carry the risk of default, or loss of capital investment. So you will have to decide if it is worth the risk.

This risk has always been present (but hidden) in the paper markets of stocks and bonds (and even banks), but it is only now being realized on a planetary scale. And up until now, there was no place to store your wealth with zero risk and a guaranteed return against inflation.

But the exciting part of this is that if you buy some of that gold now and hold it through the transition... well, you know the rest of this story.


Anonymous said...

I believe silver will be used for settlement of domestic transactions and gold for international trade.

Martijn said...

I know that story and own some gold (I like the way it shines ;) )

So if I understand this correctly gold will only be the store for value in the freegold system. All flows related to daily operations would be in digital currency? And by relating that digital currency to gold we would have some certainty that the "real value" of that currency remains more or less te same? Wouldn't there be a risk for fraud in that system also? After all that is more or less how the fractional reserve system emerged if I understand correctly.

In the thoughts of another the relation between gold and oil was stressed a lot I believe. What would happen if some invention were to set energy free for everyone? We are after all in increasing speed persuing a society with less oil consumption..

Martijn said...

BTW there will never be a place for storing wealth with zero risk as gold (or anything) might always get stolen or you might die yourself and not be able to reclaim your stored wealth, although that is not really relevant to this discussion I believe.

FOFOA said...


Of course there are always risks and there will always be fraudsters. But risks can be minimized. For example, for about 1.5% per year you can insure the value of your gold. Of course there is risk that the insurance company could become insolvent. But in a Freegold world you should be able to safely store your gold at the bank. The minimal risk there could be spread around by spreading your gold around. And as always, secrecy is the most important security measure.

Gold will not ONLY be a store of wealth. It will also be a backstop against trade imbalances. Those who want to consume more than they produce will have to part with some of their gold. And those who produce more than they consume will be able to accumulate gold. This works on all scales of the fractal curve from individuals on up to Central Banks.

Another development of the new world will be that your credibility will be judged based on your wealth reserves. This also works on all scales. Your wealth reserves do not HAVE to be gold, but gold will be the wealth reserve par excellence. In the past, credibility has been judged by a complex system which is hidden from public view. This system has failed miserably as is evidenced by the subprime collapse and the failure of the public ratings agencies. Credibility had nothing to do with reserves, and that system is imploding. This will be a major change. To be credible, you will need reserves.

On gold and oil, this relationship rescued the US dollar during its darkest hour, the early '70s. This relationship is integral to the governing of the price of gold, because the US wanted to pay for cheap oil in printable dollars, but the oil producers wanted more than mere paper. They wanted gold for their EXCESS profits. Paper would suffice to cover paying their employees and covering the overhead expenses, but for the profit portion, they realized that an accumulation of paper was nothing more than a ponzi scheme.

This relationship began to collapse in the late 90's as told by Another. Today, the governing of the gold price is only to extend the dollar a little longer, not to satisfy oil. If we ever develop free energy this will be for the benefit of the whole world. It will not have an effect on Freegold. Until then, oil will be cheap priced in gold, and expensive priced in fiat currency.


FOFOA said...

Martijn (and everyone else on here),

If you would like to hear some of the Thoughts I have been discussing in this thread from a credible, mainstream news source, written YESTERDAY, then this article is a must-read.

By Gillian Tett at the Financial Times in London

Insight: Gold standard debate roars on
A report from the World Economic Forum in Davos


Martijn said...


I would agree that the gold standard indeed seems to correct some of the flaws in the contemporary fiat system. As it might be one of the best alternatives I do give it a chance. However, I don't think it's perfect and I'm still thinking about some shortcomings I see. Besides, history is not full of events were we took a step back, although I am aware that that's no argument for totally ruling out a return to gold.

Still, with the move to more sustainable energy and the presence of the internet I am not sure whether we have already seen an exhaustive list of alternatives.

However, if you enjoy shiny things as I do, it won't hurt buying some gold.

FOFOA said...


The question that is relevant for someone who wants to protect his current wealth is not "what SHOULD be the new system?" The only relevant question is "what WILL be the new system?"

If you accept premise A) "The current system is breaking down."

And premise B) "The idiots in charge could not put a child's toy together as a group exercise, let alone create a new monetary system in the short time they have left."

Then you must ask yourself "what WILL be the new system when all else fails?"

As Another said many times, it matters not what is good and what is bad, all that matters is what IS (paraphrased by me).

If you have some wealth to preserve and you can answer this question with something other than what I have presented in this blog, then by all means, spread your wealth across different scenarios. That way you are "hedged" against one of them being wrong.

If you do not have much wealth to preserve, then it is not such an important question. In this case you can utilize this time to debate different systems that you think SHOULD be the new system. Because you don't have the need "to place your bet".

I did not post that last link to highlight "the gold standard" as mentioned in the article. I posted it for the Thoughts contained in the discussion that happened in Davos pertaining to trade imbalances etc... Those Thoughts cannot be discussed in a setting like Davos in any context other than "the gold standard". But as I have pointed out on this blog, an organized gold standard is a complete pipe dream. Freegold is not.


Anonymous said...

@ FOFOA - Your reply => April 9, 2009 10:35 AM

Yes, we are heading towards le moment supreme,...the moment of truth...the grand finale ! Gold breaking free.

The moment each and everyone can mark its goldmetal property continiously to market. A wealth-reserve that preserves a constant buying-power regardless of the currency zone where the goldmetal is physically held.

But freegold needs a preferent currency unit. One that is a worthy (credible) compagnon. A currency-unit that feels good with freegold running in parallel and is not afraid of marking the buying power of its gold-wealth-reserves constantly to the free floating goldprice.

Does this also sound familiar :))) ?

Thanks for responding.

Anonymous said...

Trichet about gold in a cryptic language :

"Secondly, there is a relationship between poetry and money which has always struck me. Poems, like gold coins, are meant to last, to keep their integrity, sustained by their rhythm, rhymes and metaphors. In that sense, they are like money – they are a “store of value” over the long term. They are both aspiring to inalterability, whilst they are both destined to circulate from hand to hand and from mind to mind.
And thirdly, both culture and money, poems and coins belong to the people."

FOFOA said...

Hello Anonymous (2:50pm),

Yes, of course it sounds familiar. You refer to the Euro. Also the new Gulf currency may qualify as well, it is possible.

However, I disagree that Freegold "NEEDS" this companion. Under a Freegold world, a currency like the Euro that holds reserves in gold will be judged more credible than other currencies. And therefore, it will likely be more widely accepted in international trade. It will even be occasionally acceptable as settlement on trade imbalances as long as credibility remains. But it is unlikely that any country will ever again amass as much paper as China has. So the currency will need to be convertible to gold. And if it is converted on the open market instead of from the central bank, this will drive down the value of that currency. So it is in the currencies' best interest to either NOT settle trade imbalances with paper, or else "to open a gold window".

That said, I believe Freegold can come into being and exist even without a "lead currency" in the world. It is simply the need for credible settlement of trade imbalances to keep the necessities flowing to the people that will bring this about.

The financial crisis, the economic crisis and the monetary crisis are separate but connected events. Financial and/or economic collapses will bring Freegold. Monetary collapse will bring hyperinflation. A strong currency like the Euro could save a large area of the planet from the ravages of hyperinflation. But it is not necessary as a resolution to financial and economic collapse.


FOFOA said...

Anon (3:06pm),

When did he say this? Is there more context?


alek_a said...

Anonymus & FOFOA,

How do you think the mindset of people is going to change when the transition happens? Is it even possible?

I have been living in the "West" for more than 7 years and noticed the worrying signs of elitism as a response to the changing environment. This is true almost for everyone younger than 30 in the higher educated strata of society.

I work with students and 25 year old colleguaes: they are all high-flyers (hoogvliegers), ego-pumped, immature but very intelligent and feel they have the (birth)right to everything. "The state will help us!" - they say silently in their minds.

The more intelligent they are and the better their grades are, the less they are likely to suceed in a meritocratic type of world simply because they lack the concept of respect.

How will such youth, with the above characteristic, accept the path to accumulate wealth with real creative work and not rely on Keynesian political-economy (I call it a social democracy). How will they react when the mirror breaks and the ugly truth comes out?


You are correct that the wheel of history does not repeat. But, this is often said, it rhymes.

Another thing is that we should also look at the reasons why they discontinued the gold standard in the 70s. Before in history, I believe, autocrats debased currencies for their own benefit and without the Keynesian intellectual backing.

In the 70s however, this was done on a more wide basis and with scientific reasoning, together with acknowledgement from "democratic" state representatives embracing social democracy as the intellectual discovery of the millenium.

So, I believe that the gold standard was discontinued on a somewhat different premisse than what happened historically and thus the "reset to the default" configuration of gold-backing will have to be seen through these glasses.

Today, there are no gold-backed currencies. The western way of thinking, perpetuated by Keynesianism after the colonial era ended, has removed the gold standard everywhere. To say that we go back to that, even with freegold, is to say that the west has begun its decline from history.

alek_a said...

Again, I feel the need to clarify myself.

I know I sound as a grumpy old man on the matter of the youngsters. Maybe it came out that way, but I simply tried to elaborate the problem and to convey that, as far as I perceive it, it is real.

There are always those that are down-to-earth, know realities and are not ashamed to accept that they are wrong. These young men and women I respect. But the elitists...

By the way, my comments before were not intended to bash the western way of thinking in general. Keynesianism was the target.

FOFOA said...

Hello Alek,

You emerge from your books for a break?

The social democracy is dying. Have you noticed? This last push for world socialism is tantamount to a last gasp of breath. The social experiment is fiscally insolvent.

In addition, you describe a very real handicap of the youth of today. The entitlement generation. Unfortunately for them, the entitlement vault has been exhausted. All that is left is to print, and that won't last for long.

As for this entitlement generation needing to change a mindset to usher in Freegold, I don't believe this is necessary. As I alluded to in my last comment to Martijn, it is for those who have already accumulated wealth to decide where to place their bets. It is for those 25 year olds in the entitlement generation to debate which system would be fair. Who do you think will win? The real capital flow of real capital? Or the whining of an insolvent elitist social Keynesian political economy? This is where demographics come into play. Remember the famous scene from Fried Green Tomatoes?

[Evelyn is cut off in a parking lot]
Evelyn Couch: Hey! I was waiting for that spot!
Girl #1: Face it, lady, we're younger and faster!
[Evelyn rear-ends the other car six times]
Girl #1: What are you *doing*?
Girl #2: Are you fucking *crazy*?
Evelyn Couch: Face it, girls, I'm older and I have more [money].

How will they react when it all falls apart? Like babies I should think.


The Mad Scientist said...

Although Gold fits the criteria of a perfect currency due to its unique properties almost anything that cannot be created from thin air would do just fine. For example if it was outlawed to have any deficit from this point on,and the Govt could only spend what is received in revenues. It would make one hell of a long depression but remove the need for a Gold backed currency. Unfortunately, none of our politicians have any kind of restraint.
BTW I had another long argument about inflation versus deflation and I had to put this up.

FOFOA said...


You are correct. Anything in finite supply would behave just as gold. If they promised to never ever ever print one more dollar, then dollars could be "as good as gold". There's just one problem with that.

As for gold versus other commodities that could be used, gold has history on its side, it has established value on its side, and it has current distribution among "the Giants" on its side.

Gold also has many other qualities which make it good money.

As a medium of exchange:

It has a high value to weight ratio making it easily transportable.

It is durable also making it easily transportable.

As a unit of account:

It is divisible into small units without destroying its value.

It can be melted down and reformed into any size.

It is fungible unlike diamonds. Every piece is equal in value to every other piece of the same size and purity.

It is easily weighed, measured, and verifiably counted.

As a store of value:

It is long lasting, durable, and not subject to decay.

It has a stable value because it is difficult and expensive to mine.

It is difficult to counterfeit, and the genuine is easily recognizable.

So as I said earlier, the relevant question is not "what SHOULD be used?" But it is "what WILL be used?" The former is asked by those "philosophers" with no real wealth to protect. The latter is asked by "realists" with real wealth to protect that must now place their bet. And believe me, everyone with money is placing a bet right now whether they know it or not.

The bet I suggest people look at is the one with minimal downside potential and astronomical upside potential.


PS. I will check out your post.

Anonymous said...


This is a good essay from Richard Russell of the famed "Dow Theory Letters".

The Mad Scientist said...

"So as I said earlier, the relevant question is not "what SHOULD be used?" But it is "what WILL be used?" The former is asked by those "philosophers" with no real wealth to protect."

That was brilliant.
I agree. Still prefer Silver over Gold. But I own both.

Anonymous said...

Hi Fofoa,

Not sure whether you have seen this but this short documentary movie is really superb. Take a peek of the great depression on 1929...


Anonymous said...


Just adding to the post of Anon, on Trichet.

Presume The Freegold concept was invented by Europeans, how should we place the "cryptic" language of Trichet In his speeche a while ago?

"One of Europe’s founding fathers – Jean Monnet – once said: “When an idea meets the needs of the time, it ceases to belong to its creators and becomes more powerful than those responsible for it”. And he added: “There is no such thing as premature ideas, there are only ripe times that one should wait for”.

Currency swaps between €<->$ seems off balance right now, sometime there should be a collateral to back it up, or are we taking just a promish instead?

Ivo has been online again and i noticed in the posts between the lines that there will be taken unusual steps towards end of the month.....

Further several mesages from China are pointing towards a certain direction....

Let's wait en see

Martijn said...


If you accept premise A) "The current system is breaking down."

And premise B) "The idiots in charge could not put a child's toy together as a group exercise, let alone create a new monetary system in the short time they have left."

Then you must ask yourself "what WILL be the new system when all else fails?"
If you do not have much wealth to preserve, then it is not such an important question. In this case you can utilize this time to debate different systems that you think SHOULD be the new system. Because you don't have the need "to place your bet".

I can see the difference. However if a new system will be installed, that shall happen because trust in the current system is lost. In that case the new system will have to gain suffient support from the people, and therefore what the new system should ideally look like might influence the system that finally gets adopted.
Therefore asking oneself what the new system should be, might prove to be quite helpful in deciding where to place ones bets.

About the arguments you posted in favor of gold:

Most of these arguments are not unique properties of gold, so be careful with arguments like this. E.g:

It has a high value to weight ratio making it easily transportable.
Although as we discussed gold has historically proven to be value it does not have intrinsic value by itself. Gold's value is completely dependent on how people regard it, so this value to weight ratio is not an autonomous property of gold and as a matter of fact any rare material can have a high value to weight ratio.

It is easily weighed, measured, and verifiably counted.
That would depend more on the balance used for weighing than on gold itself

History is said to rhyme indeed. In my opinion the previous use of a gold standard is certainly no conclusive argument for not going back, but I do wonder whether it is really the only option as people tend to try to improve, and hence change, stuff all the time.

Btw do you work at a Dutch University?

Anonymous said...

FOFOA said :

The social democracy is dying. Have you noticed? This last push for world socialism is tantamount to a last gasp of breath. The social experiment is fiscally insolvent.

Brilliant analysis AND conclusion !

Nothing can be done anymore to stop & reverse this downward spiral that is now fastly gaining momentum.

Ainsi soit-il.

Martijn said...

Although the end might be near, banks getting stricter on savers again. Guess some worries about liquidity are gone..

Maybe the expected collapse just won't happen as soon as tomorrow.

Martijn said...


But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

FOFOA said...

Hello Shanti!

You certainly tease the curious! By the way, that abbreviated link doesn't work. Here is how you make hyperlinks. Then just preview your comment before posting to make sure the hyperlink worked. If you want to check the hyperlink, be sure to right click it in the preview and open in a new window, otherwise you will lose all your hard work.

Presume The Freegold concept was invented by Europeans, how should we place the "cryptic" language of Trichet In his speeche a while ago?

Are you suggesting Another is still around? At least in spirit? ;)

By the way, thanks for the heads-up on Ivo surfacing after going quiet for two months. In Ivo's last post before going quiet he announced that he hates all nationalists, and that he doesn't recognize nations. He also criticized me for poking fun at "Dr. Gono" who he views as a "realist".

Ivo imputed me as a nationalist, and then he went quiet for two months. But I view the difference between us as idealism versus realism. In any case, you can judge for yourself as the posts are right here.

But now Ivo is back and his new posts are first rate! I just read all of them, and his comments too. He covers all the subjects we care about in great depth; hyperinflation, FreeGold, China, GCC, G20, Euro, Keynes, gold and SDRs. Check out his blog here. He has compiled a lot of good information and he is a true soldier in the fight for FreeGold and honest money.

But I don't expect to see him here anytime soon because this blog is "too American" for him. Of course I don't see it this way. And if you run into him, you can tell him that he is always welcome here! (Perhaps he is here now... Anonymously?)


Anonymous said...


Yes, still around in spirit my friend, remember good spirits never die ;-))

You know the concept is briliant, and in the context of Monnet it is waiting for the ripe time.
Lets try the link again now from the BIS;

Ivo has briljant information concentrated on his blog. All together with great comments. In my discussions with him i found the level he is operating is very profound and that makes it interesting to learn.

By the way if you like, you can see exactly whiche country is visiting your site by putting FEEDJIT. (see also Randy's blog)

Did you saw the comments of Engeldahl today on China? Interesting developments are boiling below the surface.

Happy Easter !

Anonymous said...


I found some old Richard Russell's commentaries.

Here's an excerpt (Notice the last sentence):


March 30, 2006

I see two "musts" in the picture ahead. The first is that dollar must continue to be accepted worldwide. The whole of US prosperity depends on the rest of the world accepting dollars for their goods and services. So far, I see no hints that the dollar is in trouble. The Dollar Index has been in a trading range. As a matter of fact, yesterday, following a period of minor weakness, the Dollar Index rose above its 50-day moving average.

The fact that the dollar continues to be accepted is remarkable when we examine the facts. Over the last year alone the US has "created" roughly $850 billion additional dollars, an enormous amount. Yet the world continues to take these dollars in— in return for the world's goods and services. It's a case of "they sell us the goods, and we pretend to pay them." How long can this go on? That's a question for history to answer— I'm amazed that it's gone on this far.

The second "must" in the picture is that US housing must hold together. The upside of housing, the rising prices, may now be hitting a wall, but housing must not be allowed to fall apart. Housing is where Americans have really been successful as far as gaining wealth is concerned. The average US family has not done well in the stock market as you can see from the article below. But Americans have done very well in housing, and their feeling of "wealth and security" is closely tied to the rise in the price of their homes. If home and condo prices head down, it's going to be a different story. If that happens, consumers will cut back on their spending, and the US could quickly sink into recession.

To offset such an outcome, the Fed is creating massive liquidity. Fed chief Bernanke is an expert on the Great Depression of the '30s, and he believes the Depression could have been avoided if the Fed had greatly increased liquidity. It follows, I believe, that Bernanke will make every effort to ward off a major correction in US housing.

In the year 2000 the great stock market bull market topped out. The first down-wave of the bear market took the Dow into the 7000s in late-2002. In reaction, the Fed opened the floodgates of liquidity and dropped short rates to 1 percent. That halted the bear market, through the greatest creation of liquidity ever seen, plus rates driven to generational lows. Even so, now six years later, the Dow has not been able to match its bull market high of January 2000.

Now Bernanke faces what could be the end of the bull market in housing. His greatest fear must be that housing will correct or worse— sink into a bear market. Therefore, my opinion is that the Fed will go all-out in creating liquidity. The Fed will try to hide what it is doing. The Fed will also try to hide any inflation results. I believe we're going to see an amazing period ahead of us in which the Fed is going to battle with the normal forces of correction and deflation.

How do you fight correction and deflation? You fight them with increased liquidity and negative real interest rates— in other words, you keep interest rates below the inflation rates, thus making borrowing [yhe only] attractive course of action.

The world economy is now closely interconnected. I'm afraid that if [when] the US market runs into real trouble, it's going to rub off on all the world's markets.

Which brings to mind the various currencies. The choices are really the dollar, the euro, the yen. And yes gold, which is the only tangible currency, meaning that it's the only currency that isn't the fantasy-creation of some central bank. Of course, the problem with gold is that it doesn't pay interest— and it doesn't need to. Gold is safe, bankruptcy-proof, and it needs no nation to guarantee its existence. Gold stands alone and outside the world banking system. But as I said, gold pays no interest.

[ Normxxx Here: And suffers from hellacious swings in value, which makes it less than the ideal day-to-day currency! ]

Therefore, there is a need for a security that throws off interest or dividends. The vehicle I choose is the 91-day T-bill. "But the dollar is headed down the drain, everybody says so," complain my subscribers. That may well be true, I answer, but the dollar isn't going to hell in a handbasket tomorrow. It takes a long time for a reserve currency to sink to the "hopeless and unwanted" level.

[ Normxxx Here: Maybe not! In this super world of derivatives, it could happen overnight! ]

In my opinion ALL fiat money is basically garbage, and long-term that includes the dollar. As far as I'm concerned, the dollar is just a unit of exchange. I can buy a loaf of bread or a car or a house with enough of today's dollars, and as long as that's true, then the dollar has practical value. But obviously I want to hedge my bets, so I have a house (free and clear), I have some gold, I have a few stocks that pay dividends— and otherwise the devil with it, I'm just not going to worry about the future of the dollar. Warren Buffett took a huge position against the dollar, and I'll bet he's regretted it ever since. It's the old story, "Don't tell me what to buy— tell me WHEN to buy it."

Wait, there's one other item I want to talk about, and it's DEBT. I dislike debt, I dislike debits, I dislike being in a position where by I have to make money just to pay off what I owe. I grew up at a time when debt was feared and hated. Debt to me means that you've lost control of some area of your life. You're working to pay off something that's not yet yours. There's an old adage that I've repeated to my kids a thousand times. It runs like this— "Those that understand interest earn it. Those who don't understand interest pay it."

Young people today get married and immediately buy a house and furniture and a TV set and kitchen supplies. They take on a mortgage and assorted debts, and they never get out of debt. Instead of building savings, they pay the monthly mortgage bill and the credit card bill with whatever money they have left over after food and doctor bills and entertainment. But the point is— they're buried in debt before they start out in life. And today they accept that as normal. We old codgers from the Depression era see it differently. For instance, every house I ever bought I bought with cash on the line.

So instead of saving and compounding their money, today's kids become slaves to the banks and the mortgage companies and the credit card companies. It's a bum way to start out in life— it's a stupid way. It's also the unhealthy way. It's the path to stress and anxiety.

[From John Mauldin's letter:] "In 2005 the United States is projected to run a trade deficit of $806 billion, up from $668 billion in 2004. The International Monetary Fund forecasts that the trade deficit will rise to $890 billion in 2006 and then to what can only be called a staggering $980 billion in 2007. How in the wide, wide world of global trading can one country run an almost $1 trillion dollar trade deficit? What is the rest of the world going to do with all those dollars?

"Will central banks really want to buy almost $2 trillion more in US debt in just the next two years? They already own approximately $1.5 trillion today, accumulated over many years. Do they want to own all of our government debt? At the level of projected trade deficits, that could happen in just a few years. How can this be sustainable?"

Russell Comment— The simple answer is no, but the correct answer is that this situation can go on a lot longer than one would think. And all because of an odd arrangement that some people call Bretton Woods II.

This is the arrangement whereby China and Asia sells us their goods, and we pretend to pay them with money that our Fed creates out of "thin air." Our Chinese and Asian "friends" know they are accumulating "junk money," but they accept it because this is the arrangement that keeps their enormous populations employed. But what do the Chinese and Asians do with all the dollars they are accumulating? They either buy our bills and bonds, or they buy assets such as US corporations or perhaps world oil assets.

And all the while, seasoned, intelligent investors wonder how long this arrangement can go on. And the non-answer is that nobody on the face of this green earth knows. And that's the question and problem that haunts thinking, intelligent investors. Bretton Woods II is a crazy arrangement, it's a counter-intuitive arrangement— but it's happening, and at least so far it's been "working."

What could go wrong? Well, at some point China could decide that it has accumulated too much in the way of US T-bills and T-bonds and US securities. In fact, China has just announced that it is going to move to diversify, to some extent, out of US securities. But the odds are that it will be limited diversification, since it wouldn't make sense for China to drive the price of US bonds down (which would raise US interest rates) or to drive the international value of the dollar down (every exporting nation wants their currency to be cheap and the dollar to be expensive).

So the game goes on, and on and on. And never forget this— the health of the markets depend on the game going on.

[ Normxxx Here: Indeed, the health of the whole world depends on the game going on. ]

We know that at some point ahead— a few weeks, a few months, a few years— the game is going to come to a halt and the trouble will begin— big time... That's the risk we take in investing today. Because if, for some reason, there's a panic to get out of US dollars— the dollar will tank, US interest rates will skyrocket, businesses will be hit hard, housing will cave in, and the global economy will run into a brick wall. Again, it's a question of WHEN, when will the plug be pulled and when will this weird game which we call Bretton Woods II be ended?

And because no one knows that answer to the question of WHEN, we protect ourselves by buying gold.

Now please get this straight— we don't buy gold to build wealth, we buy gold to maintain wealth.

Gold will be wealth no matter what happens. The dollar can collapse, the Fed can inflate to the heavens, the US can invade Iran or Syria, World War III can start, the world can lapse into a deflationary depression, stocks can crash, stocks can climb to the sky— any of these situations can materialize— and gold will still represent wealth. And that is why intelligent people buy and hoard gold.

Anonymous said...


I sense a move toward a gold standard again from this FT report.

"A few months ago, Terry Smith, head of Tullett Prebon, the interdealer broker, chaired a panel at the World Economic Forum meeting in Davos which was asked to produce one concrete recommendation to fix the global financial crisis.

The top pick? Not anything on toxic assets or fiscal spending. Instead, this gaggle of leading financiers called for a new reserve currency, akin to an old-style gold standard.

"Two-thirds of the world's assets are denominated in a fiat currency issued by a country whose authorities are taking policy actions which seem inevitably to lead to its debasement," explains Mr Smith, noting that "it seems . . . the Chinese have now concluded that this is not acceptable".

Just a bit of pie-in-the-sky posturing of the sort that often occurs in high-altitude Davos? Perhaps. But Mr Smith is hardly a do-gooding, state-loving dreamer; on the contrary, Tullett Prebon is about as ruthlessly free-market as they come."

FOFOA said...

Hi Anonymous,

That Russell archive is very interesting. I like the excerpt. The last sentence is very true. And then there is this, which is normally true...

Now please get this straight— we don't buy gold to build wealth, we buy gold to maintain wealth.

Through most of human history, both past and future, the above statement is true. But the message Another went out of his way to deliver was something different.

His message was that because of a confluence of extremely rare events, we now find ourselves in an historic time. A time when gold will be revalued by civilization in a way that will change the life of anyone holding physical gold.

Another did teach the reason why we buy gold, as Russell clearly states. But he also explained the sequence of events that would lead to this revaluation. A rare opportunity that he didn't want to see wasted.

Russell's reasons alone make gold a wise choice right now. But Another's Thoughts make it a no-brainer. What other "investment" out there has such a minimal downside risk and an upside potential of perhaps 3000-5000%? From a risk/reward perspective, there is no competition. Even the silverbugs don't talk about FreeSilver! Their vision of 15:1 silver is not in Another's stratosphere. (Well, actually there are a couple guys that put it there).

Anyway, thanks for the comment. I like Richard Russell!


Anonymous said...


April 10, 2009 9:14 PM

It is the "organized" competition between dollarized paper and goldmetal that is running out of steam.

All paper is losing credibility because of the systemic indebtness and therefore the need to deivatize at astronomical disproportions ($-quadrillion).

The actual & future growth of the physical global economy will be crescendo in the incapacity to back the systemic debt growth. That's where the manic derivatization comes from.

The organized competition between these piles of debt papers and the minuscule weight of goldmetal will progressively break down.

Systemic debt,...a debt driven political economy CANNOT compete for ever with goldmetal as value-standard !

Therefore the brandnew ECB incorporated the freegold wealth reserve as a concept in its governance of the € currency digit.

Many others are getting organized to do exactly the same.

It is the $-system and the regime behind it that killed the concept of currency as a reliable temporary store of buying power.

The present events have been predicted in unsuspected times. Today we already crossed the point of no return and the competitive governance of paper & goldmetal is slowly dying.

Happy Eastern to all.

FOFOA said...

A blog post about the Gillian Tett article about the gold standard discussed at Davos. By the way, did you know she just won Journalist of the Year from the British Press? As a bonus, Ivo Cerckel comments after the post.


Anonymous said...

The -not- so great debate about the (bond) debt timebomb :

The only way to keep this play going on is to control/govern its one and only non-debt competitor - GOLDMETAL !

FOFOA said...

Thanks Anon,

I think it's time for another fine quote from The Privateer...

By its own 0.00 to 0.25 percent official interest rate policy, the Fed has boxed the US Treasury into a corner. From here on, US Treasury yields have only one way to go - UP! That means that all other holders of US Treasury bonds, bills, notes, etc. are staring at assured losses on their investments in US government debt when US yields climb. When yields climb, the principal value of bonds always falls.

Here, one could ask a kind of Three Stooges question: “Why do we have our money in US Treasuries?” The approved answer is: “For safety.” “But how can our money be ‘safe’ there? When US yields climb we can only lose money!” At that point, any further conversation turns into total gibberish.

Anonymous said...

WGC monthly goldprice charts since 1971 in different fiat currencies :

Goldmetal, a very fine paper-competitor (adversary), indeed.

Gold (goldprice) didn't succeed to break itself free during the 1971-1980 period.
Today, the goldprice-governance is becoming more multilateral.

I simply watch for the moment that the goldprice-behavior severs its enforced (organized) link with the silverprice.

FOFOA said...

Expanding on my comment from April 10, 2009 9:14 PM ...

Richard Russell's message about gold is for people who are established with some wealth to preserve:

Now please get this straight— we don't buy gold to build wealth, we buy gold to maintain wealth.

Another's message, on the other hand, was for all people. Another explained that even a person of modest means could gain much:

Hear me now, what the wealthy and powerful know: "real value does not have to always be stated or converted thruout time. It need only be priced once during the experience of life, that will be much more than enough!"

The world is not going back in time for a repeat of gold's historic money function. The future of gold is before us and that future holds it as an asset of great wealth, not a currency for everyday spending. Indeed, it will be more than money, perhaps a wealth beyond money!


Post a Comment