Saturday, May 9, 2009

Martin Armstrong Makes The Case for FreeGold

Or something pretty close to it.

In his latest article, Martin argues for a One World Currency. He shows how gold has for centuries been the de facto one world currency. And he points out the problems of a fixed gold price in a gold standard, as well as the benefits of a floating gold price. Everything he describes seems to dance nicely around the Freegold concept. Here are the first few pages followed by a link at the bottom...


The Coming One World Currency
How do we do it?
by: Martin A. Armstrong
former Chairman of Princeton Economics International, Ltd.
and Foundation for the Study of Cycles

May 1st, 2009

There is no doubt we will see a new One World Currency. This is the next step in the evolution process of Okinomikos (Economics) as Xenophon (431-352BC ca) first coined the word as the title to his book that today probably would have been given the illustrious title - How to manage your estate including your wife and slaves - for Dummies! (meaning = how to regulate the household).

Until 1971, the world for the most part, relied upon gold as money. It was the neutral store of wealth that was recognized around the world. There were times when the gold standard was suspended, such as during the American Civil War. And there were times when some countries adopted a silver standard because they had too little gold to create a viable money supply domestically such as in China and Mexico during the last quarter-century in the 1800s. There was a suspension of the gold standard during periods of war, but we must exclude these interregnum periods for now.

The Monetary Crisis Cycle of 37.33 years has come on target - 2008 as calculated from 1971 turning point when the gold standard died. Go back another 37 years and we come to 1934 when Franklin D. Roosevelt confiscated gold and created a Two-Tier Gold Standard whereas gold was illegal domestically, but served as the ultimate store of wealth to settle the balance of payments among nations. Go back yet another 37 years and we come to the crisis of 1986 where J.P. Morgan had to gather a consortium of banks to lend the US Treasury a $100 million in gold because it was bankrupt. If we go back yet another 37 years, we come to 1860 with the break of the Union and the abandonment of the gold standard thereafter for the Civil War. We can keep going back in time and find amazing correlations to the various currency crisis periods that seem to appear like clockwork. Perhaps it just takes 37 years before man routinely screws up everything one way or another. The answer to the regularity is a bit deep than that and is interlinked with a host of other regular events including weather. That is for another day.

There is a rising discontent politically behind closed doors where some of the noise is filtering out through the cracks. Both China and Russia are raising the question about the dollar and its global reserve currency status. China has even suggested that it wants a "guarantee" that its $1 trillion reserve will not be just devalued by spendthrift domestic stimulus packages. Those who seem to have great difficulty in believing there are even cycles, fail to understand that there are a limited number of options, and the one thing that remains unchanging, is human nature. Just as China has asked for a "guarantee" now, so did Britain in 1971 that fueled the closing of the gold window by Nixon. History does repeat!

The One World Currency Cometh

There will be no avoiding a One World Currency - after all is said and done, that is what the gold standard was. There will be the biblical soothsayers who will be carrying their signs that the end is here and repent. But for the most part, we always had a One World Currency meaning gold. The real issue that seems to get the juices flowing is the idea that the Anti-Christ will control all commerce and thus will prevent the buying or selling of anything with a One World Currency and accepting the number of his name 666 stamped on your forehead or right hand. Perhaps the Anti-Christ was really Karl Marx, and his posterity are organized governments who follow Adam Smith's Invisible Hand insofar as their self-interest dictates more and more power is needed to control the population. Look well at the shenanigans of government, for there lies the true threat to the liberty of the people.

For now, the real problem we have is that the floating exchange rate system is causing economic distress that may break the back of the average person. On the one hand the United States wants to be the world leader. On the other, it wants freedom to expand Marxism to create a social state. Either we abandon the world leader shit and worry about our own, or we abandon our own and tell the people you must suffer because the politicians want to play king of the mountain. We cannot have our cake and eat it too under such a current system.

At the same time, there is about $5 trillion outstanding in the world dollar reserves outside the United States. Those people holding the dollars believe that they have a right to be heard in economic policies that will affect the value of those reserves. We cannot say; "Here support the dollar, but shut up about our domestic policies." If we double our money supply squandering that on infrastructure payments that do nothing to stimulate either the domestic or international economy, then there is going to be concern about the lack of a voice in those policies. Remember what the slogan was that symbolized the American Revolution? "No taxation without representation."

The complaint of the founders of the United States was that England was raising taxes, but Americans had no seats in Parliament. There was no voice to even object to the spendthrift policies of King George III. We are doing the same thing right now to those who hold $5 trillion worth of dollar reserves. If you want to see a real economic crisis, what if they said here, take them back now! It will be time to turn out the lights.

How do we retain sovereignty?

The real question then is this. How do we retain sovereignty for domestic policy yet at the same time respect the views of those outside the United States? The idea of creating a new enhanced SDR (Special Drawing Right) at the IMF (International Monetary Fund), will not work. The IMF lacks integrity and is long known behind closed doors for being an economic prostitute that can be bought. Those put in charge would be subject to favorite appointments, and this would yield sovereignty to an agency that is just not trust-worthy.

So how do we create a new world monetary system that is still viable, retains individualism among nations, and reduces the threat of global war be it either physical or economic? The answer is to create a new Global Central Bank kind of like the EU where the head rotates among nations, rather than appointments from private Investment Banks groomed for the job. We need not a single currency used in each national locally, but a Two-Tier Currency system where international payments only are filtered.

A Two-Tier Currency System

A Two-Tier Currency System would allow us to retain the individual sovereignty that embraces the "culture" of each nation and simultaneously create accountability among nations. The whole problem with Bretton Woods back in 1944 setting up the U.S. dollar as the reserve currency, was that it was inflexible and polluted the global economy causing it to suffer by exportation of domestic economic policy from the United States.

Bretton Woods was not well planned. It "fixed" the dollar to $35 of gold, but it did not account for domestic policy interfering with international stability. If politicians stood up and ran for office promising new spending programs, they did not consider the impact upon the supply of dollars relative to gold. Had gold been allowed to float, then perhaps the domestic policies would not have been exported to the global economy that led to (1) the establishment of a two-tier gold standard in 1968 when gold began to trade on the London Metals Exchange establishing a "free market price" for gold that rose to $42 at one point, and the "official" standard between nations of $35; (2) the entire collapse of the gold standard by 1971.

Europeans began to see massive increases in dollars, but no corresponding increase in gold reserves. The Europeans began to "put" dollars to the US Treasury demanding gold at $35. This effort was led by the Swiss and French. Yet finally, in 1971 even Britain joined and asked for a "guarantee" that the United States would secure the value of the dollar with gold. That sparked the closing of the gold window where gold was exchanged for dollars, and thus the end of the gold standard officially took place.

Bretton Woods was a total failure. Why? Because it did not recognize that no matter what the nation, politicians always spend more than they have. There was no practical way for the world to force economic responsibility upon American politics. American politicians would never yield sovereignty to the world, for how else could they run for office if they could not promise gifts for the people?

It Must Be Practical

We cannot design a system that sounds nice, but has no possible hope of long-term survivability. It must be Practical or we will end up with another bandaid. Bretton Woods failed because it left the politicians in charge of the money supply with no sense of responsibility whatsoever for its relationship to the gold supply. If gold had floated freely, perhaps we could still have a monetary system that survived. But gold is so rare, there is less than 1 ounce (troy) per person in the entire world. Its real value would probably be in excess of $10,000 per ounce. But we have to be practical and also realize that the supply of gold does not increase automatically with economic growth nor with population growth. Fixing gold would amount to an official form of deflation by decree, for the value of goods and all services would decline against gold when its supply does not increase in proportion to economic growth or population growth. Instead of there being 1 ounce per person, the day would come when there was 1/2 ounce per person. That is institutionalized deflation.

The creation of money is largely today in the hands of the private sector. This takes place through leverage in debt creating a spiral of velocity whereby the same $100 is multiplied in a cascade of loans. If you really look close at the books of some institutions, you will see net revenues of a few hundred million dollars but the "risk" factor from leverage may be hundreds of billions of dollars.

To be practical, government will not surrender their sovereignty to some one world government. Those notions of grand conspiracy theories are not remotely even possible unless there was a major world war and all government no longer existed. That extreme circumstance set aside along with visions of the Illuminati or whatever else we may call them, neither the people nor the politicians would surrender all their individuality and customs to some sort of central control.

Yet at the same time, we must respect that there has always been one reserve currency since ancient times. Even during the Dark Ages of Western Europe, still it was the currency of the Byzantine Empire that circulated and was the only minted gold coin that circulated among the various regions of the world. While the formal name was the gold "solidus" much as we formally have a "dollar," the slang name became known as the "Byzant" as we call the dollar a "greenback" or a "buck" and a wide variety of other names here and there...

Click here for the full 23 page PDF and you can pick up where I left off on Martin's page 4 (page 5 of the pdf).



Anonymous said...

Armstrong : " Growing salad in the desert " :)))

Will 2009-2011 prove to be a global flight into the dollar because world economy contracts !?
A. seems to suggest this as a serious possibility. He extraploates from the chart-patterns...and cycles connected to it.

Salad in the desert, is a mirage. How can you make a projection out of a mirage ? A fata morgana hologram ?

The history of rise and fall of European mini-empires (castles and citystates, etc) of all kinds, learned me that the rises and falls all had one thing in common : Sudden (abrupt) starts and falls due to unforeseen circumstances. The "It's Time", fenomenon (balance of power).

Armstrong is amalgamating his projections from the floating currency chart-patterns with the It's Time (or This is It) , practice. This is confusing.

The Make or Break-events are not that cyclical as A. tries to prove.

The fact that the $-system/regime are increasingly put into question, the most important current that is leading to the inevitable radical change . "Cycles", can, at best ake a good guess in tops/bottoms.

Anonymous said...

" Salad in the desert " versus "Black Swan " : One can never guess when/why the bucket of water finishes or when/why a black swan appears.

Most of the time, the event that dramatically breaks/makes the ongoing process is an absolute non-event at an absolute unexpected moment.

Armstrong tries to time the processes. Can we "time" life and death ? Investigate your own (personal) history for conclusions...

By the way : The euro reached a serious up-resistance (1,36)...

Anonymous said...

You are not going to believe what you see/hear !

Anonymous said...

Rethinkhing America's decline (!?)

Note that the title says "America" and not the $-system and its regime.

Read the last paragraph : " International Cooperation...under leadership " !?

>>> A snakepit plenty with hazards (salad swans...).

Anonymous said...


The Great Credit Contraction is a fine analytic work. Trace Mayer comes to the gold community with a different slant and background. He is a legal scholar with an emphasis on the Constitution, focusing on gold and currency issues. In his e-book, one can read about the historical significance of a crisis that will surely reshape the world. The global economy is built on an illusion currency that is evaporating before our very eyes. This book is an autopsy of the current worldwide systems and begins with financial history, discusses the current great deflationary credit contraction, projects the future environment, and concludes with suggestions on how to protect, preserve, and generate wealth in this challenging time.

>>> The growing chorus of global gold-advocates remain, for the time being, rather disciplined (restrained).

Women in the Middle East are officially advized to keep on accumulating goldmetal.

FOFOA said...

Hello Anonymous,

Regarding that video, I'm kind of at a loss for words. Uhhh... Inspector General? How much are we paying this woman? She is like a retarded puppet. Did you see the puppeteers sitting behind her?

Regarding Armstrong, I would say that cycles are very powerful things. Like the tide.

But technical analysis means absolutely nothing right now. You can all safely skip the last 9 pages of the PDF. It deals with manipulated fiat currencies measured against other manipulated fiat currencies. Look at the Y-axis of the charts. It is other paper currencies. How can you measure something against a changing standard? Martin's technical analysis means nothing. So what if the dollar hits even 250? 250 what? 250 pieces of shit? It means nothing.

What is valuable here are some of the thoughts he articulates in the first part. This is why we will have Freegold. Whether it is brought to us by man, or whether man fails at what he tries. It makes no difference. A global currency... no... a global STANDARD is what is needed. And it already exists. No group of politicians can overpower this. It is too big. Like the tide.


Anonymous said...

I fully agree, Sir.

Martijn said...


General question: what is your opinion on the argument that gold cannot be eaten? It is often argued that such characteristic in a product favors its use as money/store of value.

However, should 1 oz of say "gold+" have all the characteristics of gold, but on top of that allow us not to eat and drink for one year when eating it, I would rather prefer owning gold+ over gold.

Aleksandar said...

Yes, this latest text from Armstrong is not very good. Anyway, we must understand that if he is in prison, the intellectual level cant be held constant.

He has much more eloquent and precise thoughts on the legal system, from experience, than the TA he provides. The last is however valuable if he is indeed as connected with the international financial elite as he says he is and he did provide advice to funds managing trillions.

A different thing is his credibility. Is he indeed in prison? Are these texts his writings or is someone copying his style? Dont you think if he is so deeply connected, the people he might anger with these texts may try to silence him by issuing bogus texts? It should not be very difficult I think.

A third point I want to make is something that I wrote about here some time ago. I believe it was one of my first posts (under alek_a) where I advocate a two-tiered system of currencies that are not exchangeable. The one is a "wealth" currency that you pay and get paid for when you deliver/buy products and sevices of a long lifespan (industrial machines, education, houses, long-term delviery/service contracts etc.) while the second fiat currency is reserved for consumables and perishables (food, computers, iPods etc.).

The price of each product consists of two components: a number in the wealth currency and a number in the fiat currency. You must pay both. Of course, sometimes the price of one is zero but that is OK.

You are paid in both currencies.

There is no interest charged on the wealth currency and it cant be created through fractional banking. The fiat currency is the same as the ones we have now.

This is very similar to what the two-tired approaches that I read about recently propose. I simply go further and propose this system of two-dimensional pricing.

FOFOA said...

Hi Martijn,

My argument is that the fact that gold cannot be eaten makes it an excellent wealth reserve. You don't want to hoard as a wealth reserve something others might need to stay alive. If you hoard a bunch of food and it rots, then you have essentially stolen from the common lot.

Second, gold makes the best monetary metal is because it is not consumed, either by people eating it or by industry. This makes for a stable supply. This is more important than rarity.

The best money is ONLY used as money. That is why it is best. This argument that gold has no intrinsic value is simply bogus. The argument relies on the idea that anything's intrinsic value is based on its usefulness to humans, to eat or consume in industry, or whatever. But the argument completely ignores the use of money or store of wealth or standard of value. It is a convenient slam on gold, but it is simply wrong.

Think long and hard about a world where everyone eats their money. Think about the problems. First of all, you would have constant deflation, unless your gold+ could be easily reproduced. Then you would have inflation. So what is the point? Stability of quantity is most important in a standard of value.


FOFOA said...

Hello Alek,

Indeed, I do remember your two tier pricing system! If I remember correctly, my biggest concern with your system was that it was not natural, because you wanted to outlaw the convertibility of the two kinds of money. You wanted to prevent those that may have accumulated too much fiat from exchanging it for the wealth reserve. Or those with wealth reserve from converting it back to the more useful fiat.

I think Martin's two tier system is close to Freegold because gold will not only be a wealth reserve and a currency standard, but it will also be used as the ultimate extinguisher of debt on the national scale. I think what he is suggesting is a global currency that can be used to settle trade imbalances because it is tied directly to gold (and exchangeable directly FOR gold).

Everything must be convertible and exchangeable at some point in the system or it loses the underlying value of the gold. Under Freegold, gold and currency are exchangeable at all levels. And exchange takes place freely, because the price is right and the free market is determining the price. The only factor determining what you hold will be "do you need your money now to spend, or do you prefer to store it until later". Answer that question and then go freely exchange your money for the one that best suits your needs.


Aleksandar said...

Yes, the two-tiered ideas floated around are in fact Freegold. What I propose is more complex and goes farther. It is completely new. Probably why it is not very feasible at the moment.

But just let me comment on your observation. Look at the system in steady-state. Forget thus the transition to it. Assume it has happened somehow and the new system is now established.

You will get paid in both currencies. You can work for someone (or something) and get a the two-dimensional (2D) compensation, a salary, that you have the freedom to negotiate with your employer periodically, just as we all do now. Or, you can work for yourself, invest, take risks, create new products and ideas etc. and get paid in the currency that is equivalent to the fruits of your labour.

If you make short-term perishables then you earn more fiat, if you offer a longer-life service (like a teacher) then you get paid more in wealth. With the fiat you can grow much faster since fiat is needed to buy consumables and stuff that "burn at a faster rate" for your enterprise's growth, plus in fiat you can borrow more, hedge risks, play derivatives, get government support etc. With wealth you create slowly and methodically but you credit rating is much higher since you do not have leverage. You cant hedge risks and do anything of the sort you can with fiat because there is no political-economic control on fiat (like central banks etc.).

The problem you mention will be the problem of the farmer in such a system. On the one hand, he needs to pay for his pension, agricultural machines and other long-term expenses (example mortgage) in the wealth currency but on the other hand he is creating perishables (tomatoes and lettuce) that he sells for fiat currency. He will need to be able to balance his account. How, you ask, can he do that when the wealth and fiat currencies are not exchangeable?

Well, there is one way he can make a wealth currency. By making long-term contracts for food delivery of a certain standard. You see, when you sell a perishable, you not only sell the thing itself but also the excess of your labour (as you already have demonstrated previously). If you have excess of labour for a longer time, you can convert that to capital by commiting that excess on the mearket and receiving wealth in exchange. This is missing from the current system as we are all selling past labour at this moment and the market has some very nasty ways of pricing-in our longer-term excess labour that we commit to by chasing careers and becoming more educated and knowledgeable in our professions.

The buyer will have to pay extra in wealth for such guarantees. The farmer takes the risk of guaranteeing delivery but hey, risk cant be reduced whatever system you have!

In the case he defaults on his contracts he will have to put up the collateral: his machines and land which, yes you guessed it, cant depreciate very much in value since they are the things he purchased (mostly) with the deflationary wealth currency!

Of course, it is not all black and white. The prices will be both in fiat and in wealth. For instance, a PC may cost something like (F100,W1) while the contract to keep it up to date in software for 5 years will be (F499,W39) ON TOP OF THAT and to keep it up to date with both hardware and software will be additional (F799,W99). A kilogram of first-class apples for consumption will cost (F0.5,W0) but a koligram first-grade consumable apples for 3 years delivered to a restaurant will cost (F655,W100) more. A mining machine will cost thousands of W's and million F's, but the maintenance contract for xx years with certain standards will cost tens of million F's and W's. Gold, for instance will cost (F0,W100). Barrel of oil will cost (F100,W0) but an obligation to deliver oil of a certain quality for 10 years will cost billions of W's and zero F's on top of the fiat price of the very potent consumable like oil (currently this guarantee is paid for in blood in Iraq). If the reserves of oil start to get depleted, the seller can decide to start pricing barrels in W's as well if he can find a buyer.

So there is a free market and you can do everything that we already do, but there is a new quality in the system to accomodate our civilisation's expansion in both knowledge and population. All stock charts will, for example, be 3D instead of 2D graphs.

Maybe it is science fiction but I think as our intellectual abilities progress (look at the children now, how smart they are!) we can use a more complex system to accomodate the more complex economic landscape.

Aleksandar said...

Well, since I propose a free market, the prices of things will also fluctuate and you can have tomatoes priced in both non-zero W and F as economic cycles progress. Maybe a kilo of tomatoes will cost (F0.5,W0.0001) today and (F0.85,W0.01) in 2 years time. It is a free market!

What I propose is simply an expansion of the system in one more dimension and prohibiting political-economic control on the new currency coordinate. That is the only rule that is necessary for the system to move towards my vision of pricing perishables in fiat and longer-life products and services in wealth.

FOFOA said...


Thank you for the additional explanation of your system. I will have to ponder it for a while.

It seems quite complex. And it seems to me that the advantages found in your system could be mostly achieved in Freegold, especially if gold is allowed to be legal tender backed by the rule of law.

In a Freegold world, a very small amount of gold, like a gram, may be worth two weeks labor, or even a month's labor for an unskilled worker. So, supposing contract law allowed for the inclusion of gold as a portion of the payment, you could negotiate your annual salary to be $50K fiat, and 12 grams of gold. Your monthly income would then be $4,166 + 1 gram. You would live off of the $4,166 and the gold portion would be the equivalent of a 401K or an IRA.

Similar deals could be made in the forward sales of produce, as in your farmer example.

Can you demonstrate an advantage to your system that exceeds Freegold by enough of a margin to justify and validate the considerable relative complexity of your system?


Aleksandar said...

Well, yes I agree it is complex and at the moment I cant pinpoint efficiency increases nor make a claim that it is inherently more anti-corruptive that simple Freegold.

It has also never been tested and you just cant implement something like this without having the proof of time and the experience necessary to cure any beginners ills, if indeed what I propose makes sense to macro and monetary economists.

One thing that I can claim is that absent the exchange mechanism, all avenues of paper manipulation are eliminated.

Also, the 2D system encompasses Freegold as the latter is simply the former but with the exchange mechanism (a gold market) enabled. So the Freegold system is a "simplification" technically of the full 2D pricing system, thus the latter is the more general theory academically. But I think these things are less relevant in social sciences than proven practices and "case law".

Ender said...

IMHO, there is really no need for any complex currency systems. There is no need to label one ‘wealth’ and another ‘currency’. It just doesn’t make sense from a fundamental point of view. That is, a currency is a means of facilitating an exchange of goods and services. Just leave it at that. Make an agreement, use the currency for exchange and move on. It’s that easy.

The wise (wo)man will exchange their currency for items that grow or maintain their value over time. The goal is not to exchange currency for gold, but to exchange currency for that which enriches your life. Live and laugh for nighttime may come in the blink of an eye.

I cannot think of a situation in which there were two functioning currencies functioning in the same economy produced by the same political organization. It just doesn’t make sense.

Ultimately, it is the individual that must come to understand that currency is for spending, assets are for saving. The more functional the asset, the higher the quality of life.

A Freegold system will naturally come on its own as people choose to save gold and spend currency. The People will bring on a Freegold type system out of necessity.


FOFOA said...

Hello Ender,

I agree completely with you. Between you, me, Anonymous and others, I think we are describing the same thing as seen from slightly different angles. But the different angles/perspectives make for deep and interesting Thoughts. Something to occupy the mind while we practice our patience.


Anonymous said...


Have a question for which I don't seem to have clear answer. Maybe you can help.

If like Another says the "great currency wars" are raging then it seems common-sensical that the contenders will each try to have the strongest currency in order to win the war (i.e. strengthen the currency with the backing by gold or gold hiding in oil).

Why then is the USA on this outrageous path to openly, in public view, debase it's currency as compared to strengthening it? (with all the quantitative easing).

Doesn't it want to win the currency wars and price oil in USD?

FOFOA said...

Hello Anonymous,

No matter how many dimensions you use to analyze economics, it will always exceed your capacity. This is the main problem with the study of economics.

But at the same time, some macro principles are very simple.

Regarding your question, the dollar has backed itself into a corner. It has left itself in a position without choices. It must act in the only way it can. Strategy is no longer an option. Neither is winning.


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