Wednesday, July 22, 2009

Bondage or Freegold?


"When confronted with a situation that appears fragmented or impossible, step back, close your eyes, and envision perfection where you saw brokenness."
- Alan Cohen

"To visualize is to see what is not there, what is not real -- a dream. To visualize is, in fact, to make visual lies. Visual lies, however, have a way of coming true."
- Peter McWilliams

"What the mind can conceive and believe it can achieve."
- Napoleon Hill

Spend Currency, Save Gold

It is the concept of becoming a Super-Producer (producing more than you consume) that creates the need for savings. We all do this over the course of our lives if we plan to live a long time. It is a well-known fact that old people have a difficult time producing. There comes a time when we must retire on our Super-Producer fruits of yesteryear.

John Locke made the point in 1690 that metal money gives men something lasting to keep, that will not spoil, and does not infringe on anyone else's daily lives.

Today, while in our producing years, we transfer our excess value into bonds. That is, someone else's bondage to us. A SPECIFIC SOMEONE! We hold as wealth reserve a contract that says someone SPECIFIC will provide for us later when we can no longer provide for ourselves. These contracts are reputed to be better than gold! But are they?

This system on its surface is clearly a Ponzi scheme, requiring an ever-growing future army of laborers lured into debt in order to service the Super-Producers of yesteryear. But there are bigger problems than just the pyramid structure of the system.

Rather than staying balanced, the globe has divided into hemispheres where one side is producing more and the other is consuming more. The producing side is accumulating enormous amounts of contracts holding the consuming side in bondage well into the future. So it would seem that future generations in the West would be supporting an aging East (net-net) at some point in time.

The problem is that the trend is now visible to all. The West is shrinking while the East is growing, both in population and economically. Futurecrash is clear to anyone with eyes! So I ask again, are these contracts really better than gold?

If we hold gold as a wealth reserve instead of A SPECIFIC ENTITY'S bondage, we have exchanged SPECIFICITY for DIVERSITY. We now hold a claim on the future services of ANYONE IN THE WORLD who is willing to work for us (for gold)!! We eliminate the risk that our PERSONAL, SPECIFIC SERVANT may fail to perform for us in our time of need.

In the opaque world of paper investments we must CHOOSE which entity we want to service us in the future. Perhaps we choose a Vanguard Mutual Fund. Or a global company like General Electric. But how do we know they will perform for us when we need them.

With gold we have eliminated the risk of choosing the wrong entity. Instead, we have our own small share of a future claim on the entire workforce of the planet!

This simple difference between holding debt and holding gold is getting a lot of publicity right now, not through the media, but through the window of reality!

The journey through China

There was an interesting article in (I think) early '08 when the dollar was tumbling fast. It was about Chinese merchants dumping US dollars on their local banks as fast as they came in. In China, it was illegal to exchange dollars for yuan anywhere except the banks. And the banks were overwhelmed by the demand for renminbi. The PBOC was printing currency as fast as possible to keep up with the demand, but it was not fast enough. Long lines were forming at the local banks and some merchants were being turned away at the close of business, doomed to hold their depreciating US dollars for one more day.

I think it is helpful to consider the journey of a dollar in today's system.

If I am an importer of goods into the US, I simply pay foreigners with my home currency. But if I happen to be an importer elsewhere, there is a good chance I will have to first buy US dollars before I can pay for my shipment. If I am an exporter in China, I am prepared to receive both yuan and US dollars. But for my operating expenses I need only yuan. So I must go to the bank often to turn in my dollars.

My local Chinese bank then gives the dollars to the PBOC who prints new renminbi ("people's currency" in Chinese, denominated in "yuan and jiao" like "dollars and cents").

Sitting at the core of the Chinese economy of 1.3 billion Super-Producers, the PBOC ends up with an astounding amount of US dollars which it pays for with its printing press. This yuan inflation (printing) is a burden on the Chinese economy which must be offset by the central bank's investment of the accumulated US dollars in future usable wealth reserves.

Today, US Treasury debt is the primary option for such large hoards of greenbacks. No other entity offers as large of a future "debt service" as the US government. So the PBOC ships the accumulated dollars back to Washington DC who spends them back into the US economy. In exchange, China receives a contract stating that future US taxpayers will labor in service to China.

The problem is that our debt has grown so large that we are now servicing it Ponzi-style and with the printing press.


So the Chinese printing press (yuan) is backed by the US Fed printing press (dollars) which is backed by Chinese REAL labor (and goods) which is backed by the Chinese printing press (yuan) which is backed by the US Fed printing press... and on and on and on....

Jumping back to the Chinese merchant who needs yuan to pay his operating expenses, we must remember that he is also a Super-Producer, producing more than he consumes. So he has an inflow of EXTRA yuan to store for future retirement. His three choices are keep the paper yuan (not a good idea with inflation), buy a specific entity's future bondage, or buy a share of the entire future global workforce (gold). This third option has only recently been made available to Chinese citizens.

If our merchant chooses gold, he settles the world's debt to him for the time being, a debt which he can reactivate later by selling his gold in exchange for whatever paper medium is best at that future time for obtaining the goods and services he needs at that time.

It is helpful also to follow the path of the renminbi he exchanges for gold. His gold dealer will redeploy the majority of that renminbi in search of replacement gold, because that is his business. That is his operating cost. This path leads ultimately to either the public's gold, the CB gold, or new gold from the mines. This path of yuan seeking gold bids for the best value from each of these three sources. This yuan is now a heat-seeking missile aimed directly at Freegold. Multiply this effect over the entire globe and imagine the force of trillions of heat-seeking missiles all seeking the same thing! What do you think would be the result?

Note also that China recently offered its own bondage (backed by the printing press) as an option to help absorb some of this massive yuan monetary inflation, an offering that was basically rejected.

No Reserve? Yin and yang!

Let us now visualize what global trade would be like without a global reserve currency. Most people seem to believe that a global currency is necessary for global trade. That if the dollar were to lose reserve currency status because of mismanagement, it would have to be replaced with a One World Currency, or an SDR, or some other existing currency like the yuan, euro or dinar. But is this really true?

Importers from many countries other than the United States must already use currency exchanges in order to transact business. It is only the privileged importers that are allowed to skip this step. In many cases, the trade is done in US dollars even if the US is not involved in the transaction! This is because of the wide availability and convertibility of US dollars. But if the importer, instead of purchasing US dollars, purchased the local currency of his exporting country, the whole process would be simplified by one step. All exporters would receive payment in their local currency and would avoid the need to visit the bank so often!


The only transactions which would be complicated by this change would be those originating in the zone of the reserve currency. There the importers would have to do the currency exchange from dollars to yuan INSTEAD of the Chinese exporter!

This simplification of global trade would eliminate the journey the dollar makes back to the Washington DC spending machine. Each currency would only circulate between the public within its own zone, importers and exporters, the banks and the currency exchanges. And the exchange rate of all currencies would match the purchasing power parity (PPP) between countries based on the balance of trade! If the PPP got out of whack, then arbitrage would automatically step in to equal it out. How? Through the free trade of GOLD within each currency zone!

You see, with no global reserve currency in play, no single currency zone will have the wherewithal to manage the price of gold. It will float FREELY against all currencies within their own zones! And the only entities that will NOT benefit from this transition are the US Federal Reserve and the US Treasury! Yes, all other "evil powers that be" will benefit along with J6P! This is why there will not be resistance once the dollar goes!

If one country exports more than it imports, a shortage of its currency will develop on the currency exchange. This will drive up the price of that currency, also driving up its purchasing power relative to gold which trades in all currency zones. If exchange rates resist this gold PPP then gold will become underpriced within that surplus zone and the arbitrageurs will swoop in and bid it back up!

Thinking back to our Chinese merchant who buys gold with his extra yuan, under this new system, without a global reserve currency, his purchase of gold is one small piece of the global puzzle that both settles AND balances international trade!

Ender says it well

If you and I are allowed to buy gold with our currency, we have settled other's debts to us. On a personal level, acquiring gold allows you to settle other's debt to you. This act of settling others debt to me (as the case may be) does not destroy any currency nor relieve those that are still in debt to others of any burden. What it does offer is a means for me to buy a wealth reserve that stands on its own merit.

Doing a little calculus, if you sum an infinite number of little gold buying transactions you end up with a means of settlement for economies as all the little gold bugs enter the market and buy wealth reserve with their surplus currency. The currency remains in circulation and gold moves into its settlement role. 'Nations' and 'States' worth of people may be seen as settling, but the Nation and State still have the same amount of currency in circulation.

Independent of the nation state, those with surpluses that are currently held in currencies may find that the nation state is placed in a position to create MORE currency rather than less. That design in the system will always, over time, create a situation where more currency will be available to chase items that work as wealth reserve.

Now, back to the Freegold concept. Because gold is a wealth reserve, it will work just as well for a person as it will a nation state. In the marketplace, if gold is plentiful, its 'price' will be low. Likewise, if it is scarce its price will be high. If a nation state marks its gold to market and thins the gold market, it may find a high 'price' for all the nuggets the nation holds on reserve. This implies that if the nation state does NOT SELL gold in the open public market, all us little gold bugs (advocates) will be the ones that offer up our gold (in exchange for currency) that helps settle the imbalances that occur in global/national/local trade. If 60 billion needs to be settled every month and only a few ounces are available, those few ounces may absorb the imbalance.

In a Freegold system, the actual gold metal market determines the exchange rate of a currency. The nation state can liquidate/acquire less/more gold but the balance sheets will show the change allowing the businessman to determine where or not the currency is being managed respectably.

In a Freegold system, the incentive is for the nation state to create an environment where the gold price is continually falling in that local currency. If so, people will want to hold that currency knowing that they will be able to buy MORE gold tomorrow (or in the future). It will setup an environment where the businessman will WANT TO invest in that economy knowing that when the payoff comes - years from now - they will be able to convert it into wealth reserve.

Freegold is beneficial to everyone - except those that can print a currency out of thin air that can be used to buy goods anywhere in the world. You and I CANNOT print money. You and I can only go into debt for currency today (Committing future work for currency today). That going in debt subjects us to the political ramifications of the management of the currency. That may be good or bad depending on how it's managed.

Gold stands separate of this mis-management.

And, as you may have already figured, the way the reserve-currency of the world has been managed, gold is extremely undervalued. We are going through the process of discovery - where those with paper riches figure out that it's really not real until it is settled. As the settlement process accelerates, so will the scarcity of gold.

Stand for Gold settlement. It is the honorable thing to do.

Sincerely,
FOFOA (and Ender)

153 comments:

Martijn said...

Fofoa,

Did we overlook the wealth pyramid in the flation debate? By guaranteeing all sort of financial nonsense paper with freshly printed dollars a rather important (downward) shift happened in that pyramid.
The difficulty in it is that wealth remains wealth, and it's not prescribed which levels of the pyramid are and which aren't to be used. We know which one is best, but others also seem to work to a certain extend. However, downward shifts - collapse - has not occurred to often. And now we have a higher level being guaranteed to fit in a lower one. How does that relate to the Zimbabwe theory?

FOFOA said...

The guarantees transfer default risk to the currency. This IS the Zimbabwe theory! Default would collapse the pyramid one step at a time. The denominator will implode it all at once.

Shanti said...

FOFOA, 11:58

"The denominator will implode it all at once."

---- Cristalized Wisdom ----

Anonymous said...

The uniqueness of this blog consists of Fofoas brilliancy monetary contexts to explain at such an extent you'll find nowhere else. Most of the gold bugs look upon gold as a commodity to be "sold", traded when achieving a good price.All economic newsletters advice upon "making money" without considering long term consistentcy. Fofoa is the unique publisher explaining gold as money on internatinal level.We only have to hope that the forces driving this Ponzi scheme will weaken at once and their desperate attempt to stop the ongoing process will not conduce the world into a war.

Fauvi

SatyaPranava said...

@fauvi.

so true. thank you for articulating just how interesting it is. It's amazing to see how his head processes all of this. Monetary policy is not my realm of expertise at all, but when he writes, it's as if he sees through the matrix and can explain the code.

I'm not sure if he's right or not, as I have reservations similar to those of Martijn, where I realize not necessarily how brilliant the elite are (that's far from the case, IMO), but how connected, resourceful, temporally patient, and, most importantly dispassionately ruthless they are.

So even if the referee has counted them down and out and the count of 10 ended 20 mins ago, I still don't count them out, no matter how much it seems we should.

I keep seeing takedowns in gold/silver on a regular basis at the start of the NY market. But I also see huge runups at the same time, which makes me wonder if they just want to make their money on volatility if they can't fight the ultimate trend for too long.

then i think of that beach ball fofoa posted, and I feel a bit more comforted.

anyway, listening to girl talk now...thanks again to martijn for posting that fabulous opensourcecinema documentary!

SatyaPranava said...

fofoa: was wondering what you think of the following in jim willie.

"A contact from Europe involved directly in the creation of support systems for global barter sent a message. He said, “Once the melt down occurs, the evolving system will not require reserve currencies any longer, since 95% of all transactions will be barter and/or sophisticated counter trade via a new exchange platform that is being designed and will be up an running in early 2010. This new exchange will pretty much eliminate banks from being the bottleneck in conducting trade locally, regionally, nationally, and internationally. Welcome to a very different new world order.” This process will take time, but seems to be born soon from crisis bathwater. It is not born of speculation, but of actual construction of platforms in progress unbeknownst to US media networks."

http://news.goldseek.com/GoldenJackass/1248379200.php

Jr Deputy Accountant said...

I find it absolutely entertaining that gold bugs are called "nuts" and yet TPTB are the ones trying to pull off a $200+ billion Treasury auction in one week.

Maybe no one will notice. =/

btw, I'm the "barhag at 1am" you referred to on an earlier oil post. Glad I was stalking myself on Google because I was actually able to find your wonderful blog over here. :)

keep up the great work!

FOFOA said...

Welcome Ms. Accountant!

Barhag was meant in the most affectionate way possible, as in "barhags are hot hot hot!". I hope you did not take offense! ;)

A quarter trillion in bondage contracts in one week! That's quite a load, huh? Should we all suit up now for the punishment?

FOFOA said...

Prana,

Interesting article from Jim Willie. It must be that collective mind resonating through the universe!

Here's another quote from the article:

"The facility acts like an Import-Export Bank. Under the arrangements, a counter-party center can lend the Yuan provided by the PBOC to domestic commercial entities toward pay for imports. Chinese exporters are thus paid in their own currency, eliminating exchange rate risks and reducing the cost of fund transfers. Thus the bypass of the US$ in settlements."

His description sounds very reasonable to me. Similar to mine. No need for a ($) middleman once gold is unleashed to do its job "rating" local currencies. International (direct) exchange becomes much easier with the transparency a physical gold market will provide.

It also fits two tenets,

1. A new global currency is a pipe dream at this point and will never be ready in time, and
2. Preparations for a dollar collapse have been underway for some 15 years now.

--> "Trade in the new system will NOT be built atop [bondage] that is easily the object of fraud."

It will be built atop DECENTRALIZED settlement in gold through the new PHYSICAL gold market. This is the logical conclusion!

SDRs will only be used for central bank clearing. You will not see Chinese merchants exchanging SDRs for yuan at the local banks.

Central bank clearing will be less and less necessary as trade is cleared and balanced at the individual level!

SDRs will ultimately die from lack of demand. Contributors to "the basket" will demand back their contributions rather than watching them sit idle in a defunct institutional vault.

"Itself low on funds, the Intl Monetary Fund finally approved the transfer of $13 billion in gold bullion in exchange for various crappy paper owned by China, probably USTreasurys and USAgency Mortgage Bonds. Choosing the lower labor intensive route, using the global banker windows, China will acquire 400 more tonnes of gold. Refusal would have meant purchase of gold in the open market, an option still open to them. The IMF will hold more USTBond confetti and less gold. One must wonder if no more gigantic gold sales can be designed from large vaulted supplies. The last large available quantity has been jacked."

As China ensures its place in the new Freegold system, the IMF ensures its own demise!!

The evolution of world trade will become more clear to the world leaders (currently flailing wildly) as it proceeds.

Remember, many roads, one destination. The road we are on becomes more clear as time passes.

FOFOA

PS. Jim Willie's closing is worth reposting. I will put it below!

FOFOA said...

SECRECY & THE INSIDER TRADE

Bank holiday plan execution must be kept as surprise, since reactive preparations undermine the impact of the vast theft planned, both overt (from devaluations) and hidden (from stolen accounts). Those who wait to take action lose all opportunity to benefit, and will surely lose significantly. The major central banks are very likely accumulating gold bullion on a net basis. Surely the Chinese, Russians, and Arabs are. If a planned US bank system shutdown occurs, its powerful effect would be muted by publicity of an unfolding, hence reducing insider profit potential. The pristine pure-bred Ruling Elite would be forced to share benefits with unwashed unworthy Plebeians. People would remove deposits from banks likely to be gobbled by Wall Street zombies, as withdrawals could later be limited. People would transfer money out of the USDollar and into the Euro or Gold or Oil, before a grand US$ devaluation occurs. Next comes the threat of capital controls, limiting currency transfers across the border. The insider trade of the century will likely remain within the domain of the big bankers and other predators who have succeeded in looting the wealth of the nation. If word of the plan spreads, then people can prepare and take defensive action. No opportunity will be afforded those who wait until the news breaks. They will be subjected to different price structure on assets, perhaps a big quantum change, with the US$ lower, competing currencies higher, gold higher, and all commodities priced in US$ terms higher, led by crude oil and industrial metals. Pay little attention to formal denials, and those by the intellectual servant harlots. They have offered little truth or fair warning of crisis in the last several years. Prepare!!

Martijn said...

@Fofoa

I don't know about the US, but I don't think a bank holiday in Europe would be accepted by the public.

Still, we are in for surprises, that I agree.

Martijn said...

The IMF will hold more USTBond confetti and less gold. One must wonder if no more gigantic gold sales can be designed from large vaulted supplies. The last large available quantity has been jacked."

Is there a confirmation of the IMF doing so? The must understand that they are busy tying there own rope. Perhaps they see no better alternative, and perhaps they're right. Maybe they have no other options. Difficult to judge though.

Martijn said...

Marc Faber on the summer.

FOFOA said...

Martijn,

Here's another view of what a bank holiday might be about. A couple posts I happened across.

Anonymous said...

That stupid M. Bonpasse!!!

Single world (paper) currency: That’s only 15 years away. Who pays him?
Fauvi

Tekin said...

Bob Chapman says:

"We also believe these events could precipitate a short bank holiday in the US due to disruption of capital flows in and out of the US and concern if not panic in the US banking community. We also believe the government will use such events as a trial run for a future major banking shutdown. They will be interested in the public’s reaction as a precursor to what might happen in the future if there were a major banking shutdown."

http://news.goldseek.com/InternationalForecaster/1248270886.php

What is dead ahead could be the dress rehersal and not the main act, Mr. Chapman opines. Since "our leaders" our so much fond of psychological games (Bernays, Propoganda, etc.), one gradually learns to expect the unexpected. What could it be like? Shake and stir wildly. Short banking holiday (something harmless), make gold 5 to 20 thousands. Declare the crisis to be over. After taking the stock market down during the "shake and stir" phase, intiate a stockmarket rally of 3-5 years... Then, surprise! The main act!

Just a scenario to consider!

Martijn said...

More Helicopterman and the 0.5T

It still somewhat puzzles me.

Martijn said...

Any of you guys been watching the S&P and other exchanges?

A couple of months ago nobody wanted to believe we were witnessing the begin of inflation. I was doubtful too, but did consider it an option.

I still do. They're trying to create channeled inflation by manipulating them exchanges. So far it might just be working.

Martijn said...



Imagine two bankers (GS and JPM) standing at an imaginary roulette wheel making bets with chips they borrow from the casino - with each bank agreeing (colluding) to allow the other to ‘win’ every other bet until all the chips are in the pockets of the two bankers forcing the casino (the US economy) to declare bankruptcy wherein the US Fed/Treasury loan trillions more to the casino. Repeat.

This is the history of Wall St. over the past 25 years with the only change being the size of the illegitimate bets are betting bigger until we now have the situation where GS and JPM are making bets equivalent to the entire country’s GDP. Each American goes to sleep at night not knowing if he or she will wake up having had their country lost in craps game the night before.

Martijn said...

Those bank holiday posts are interesting indeed.

I think that from what we have seen so far the pressure for a big change regarding the role of the dollar is piling up. The big question remains: how will that change be brought into the world.

A bank holiday could be a way.

At this time who have the greatest power to influence that change and what are their objectives?

Martijn said...

@Fofoa

By being in Iraq, the US has some extra possibilities of influencing an oil-backed currency, do they not?

Martijn said...

The Washington Post's Mensa Invitational once again asked readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition.

Intaxication (n.): Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.

Dopeler Effect (n.): The tendency of stupid ideas to seem smarter when they come at you rapidly.

Martijn said...

single global currency

Martijn said...

@Fofoa

Interesting thread to keep an eye on indeed.

Martijn said...

Fofoa,

These Gulf region stories certainly seem of interest.

I still have not been able to find any news on the UAE requesting its London gold. Also interesting, isn't it?

Martijn said...

When Helicopterman was pumping 0.5T in foreign CBs, was he already trying to spread inflation? Taking the first step to a USD devaluation?

I still have some difficulty understanding.

Martijn said...

Another interesting post...

Martijn said...

Some say Iraq has some gold

Martijn said...

ECB speech worth reading

FOFOA said...

Martijn,

Re: 0.5T & bank holiday

I do not know the answer, but it seems there are plenty of plausible explanations. I don't know the buyback structure of the swaps, usually it's at the same exchange rate as the swaps were made. But what if it wasn't? If you knew you were going to devalue, you'd want to stock up on foreign currency, right?

Or, the dollar was experiencing high demand during deleveraging. Bernanke saw the opportunity to fill the demand with his beloved helicopter, slowly devaluing the dollar (inflation he wants, not deflation) and to also force foreign CBs to print at the same time, money which would he would hold sterile in his own vault while his little buckaroos were sent out into the workforce. Giving him extra leverage for later (to buy back the bucks with the foreign currency) if the dollar fell too hard.

Or perhaps it DOES have to do with the Covert Market Operations. My suspicion all along has been that the PPT is pumping SHITLOADS of new money into stocks and bonds right now to keep it all aloft. One of two possibilities fit this scheme. One, they truly believe that they can just manipulate everything in the air until things return to normal. This would truly be your inflation theory. The other is the much more insidious scorched earth exit strategy. Which I think the evidence corroborates. This one also goes hand in hand with a planned currency revaluation.

I doubt that a currency revaluation is a plan set in stone. The powers that be ALWAYS create CONTINGENCY plans for stuff they don't want us to know about. Paulson admitted they had contingency plans for social chaos in case the credit markets froze and food supply lines stopped moving. They OBVIOUSLY have contingency plans for a banking crisis. And this one is almost a sure bet given the various pressures on the system.

A bank holiday (which is definitely in the contingency books) is a way to relieve some of the pressure from the system before it explodes. Like a controlled release valve. It is also one of the more likely contingency scenarios to be actually used, because it is fairly easy for the Fed to accomplish, and many benefits will follow. I doubt, however, that the Treasury likes this idea. It is basically the same as a bankruptcy filing for the Treasury, which relies solely on credit. It is one thing to have your debt wiped clean, but it is something else entirely to then have to live within your means. So it is this COUNTER-INCENTIVE of the US Treasury that may keep them from pulling the trigger on a CONTROLLED bank holiday before the whole thing blows up in an UNCONTROLLED way.

But even an uncontrolled explosion in the system (from all the pressure of mis-aligned currency values) could cause a bank holiday. So planned or not, it is still a relatively high-probability event IMO.

FOFOA

FOFOA said...

Another way to look at it is that the Treasury and Fed are not exactly aligned. The Treasury is the great credit machine of Congress' socialist spending habits and the Fed is the agent of the banking machine.

The Fed also has the clearest view of the pressures in the system, while the Treasury and Congress do not. And the Fed has been defending its opacity lately, especially to Congress.

So it is possible that the Fed is planning something to the benefit of the bankers that the government will not be happy about. The trick will be to make it look like a normal response to an unforeseen crisis. And the green shoots BS assists in making whatever happens "unforeseen".

Shanti said...

Action instead of talking !

http://www.egovmonitor.com/node/26634

Nibblybits said...

I read here that the IMF would have to move SDRs fast or China would beat them to the punch. Shanti, what you linked suggests it's happening now.

Interesting isn't it?

FOFOA said...

Martijn,

I second your motion that everyone on here should read that speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB.

To me, it makes it clear that the Euro managers not only know what the problem really is, but they are honest enough to speak openly about it. In my mind, this argues very strongly for the ANON Freegold hypothesis!

Of course in public speeches they have to speak about solving the crisis within the existing structure (IMF). But the subtext in this speech is so clear it is practically screaming!

The underlying problem of the entire system and the cause of the crisis is RIGGED currencies and the resultant IMBALANCES. It could not be more clear. China is not totally innocent in this either. It will pay for its small mistakes through the devaluation of its reserves. The US will pay for its cheating (can't call it a mistake) by having to live within its means from here on out. A devastating adjustment.

FOFOA

FOFOA said...

Nibblybits,

Contrary to public opinion and even to Jim Willie, I doubt the Chinese want the yuan to become the new "global reserve currency" like the dollar was. For a surplus country like China, the future risks of having your currency used in 3rd party trade agreements outweigh the benefits (being able to run a huge deficit).

Instead, their moves can simply be viewed as preparation for trade within a freegold-type system like I outlined in the post. They are simply setting up international convertibility, many different bilateral agreements, a big task for a currency that was previously restricted and controlled within its borders!

FOFOA

FOFOA said...

World Prepares to Dump the Dollar

“We are discussing the creation or, to be more correct, the appearance of new reserve currencies,” said Medvedev.

Sarkozy stated on July 9. “Frankly, 60 years afterwards, we’ve got to ask: Shouldn’t a politically multipolar world correspond to an economically multi-currency world?”


My translation --> "Multi-currency world" along side the APPEARANCE OF (not creation of) a new [WEALTH RESERVE]!

"But the next blow to the dollar may come as a complete surprise to Washington policymakers...

America is making a terrible mistake which will result in the greatest fall in all of mankind’s history!...

The highly trained economic theorists who keep telling us that foreigners can’t afford to stop supporting the U.S. are about to get reeducated at Reality U."


The term "A new global currency" used so often by the media is generic. "Currency" can be replaced with "wealth reserve" in this generic reference because the media doesn't understand the different functions of money. So statements about a new global currency can be perfectly compatible with the evolution of Freegold. I have not seen a single manmade "new global currency" that will be able to step in and receive the entire planet's confidence before the fall of the dollar. But there already exists a global wealth reserve par excellence!

We DO NOT need to use the same money for trade and for savings! Think about it. For trade, a regional currency makes more sense because various regions of the planet can be balanced against each other through currency exchange rates. But for savings, a GLOBAL money makes much more sense! It is a future claim on the resources and production of the ENTIRE PLANET! What could be more secure, and impervious to the folly or fraud of individual regions?

FOFOA

Nibblybits said...

I largely agree with you FOFOA. I think China's approach here is simply to sidestep the dollar in transactions. For the US, this is a SHTF moment... a possible trigger to other moments as well.

In the long term, trade must be settled by bipartisan exchange, with limited build up in credit, as indicated in your post. After tangibles have been exchanged, there would need to be a final medium of settlement for the excess. It would need to be wealth related as opposed to a currency instrument or commodity; freegold seems most viable.

I don't think ANY nation will ever hold reserve status again. The entire concept of a reserve system is flawed. There need only be a medium for measure and exchange. There is no need for 'reserve' currency as it functions today... as a store of wealth.

The perception that gold is money needs to change. Gold is realized wealth; money is unpaid debt. They are opposites.

I don't see gold ever becoming currency. I think instead, we will have currency backed by gold, and regular settlement as such.

Your thoughts?

Nibblybits said...

ROFL... my points and your latest posting contain very similar arguements. :)

FOFOA said...

Nibblybits,

Yes! They do. I almost don't need to post this.

We are in agreement. But don't be afraid to call gold money. Fiat is currency, which is the trade function of money. Gold is wealth, or the wealth reserve function of money. The "gold standard" was never true gold currency. It was a facade, a false fabrication.

Way back when pure physical gold was used as a trade currency it was possible to use the same money for earning, spending and saving. The problem is that we lost the function but kept the concept. Today we are seeing the final step in the evolution of money --> separate money for separate functions! Fiat for earning and spending, physical gold for storing excess value over time.

FOFOA

FOFOA said...

TA:

US Dollar Collapse Imminent
Crossroads FX

"This amounts to a price target of around 67 in the USD index. And as prices tend to move lower quickly when breaking down, the future chart may look like this in a few weeks time:

This is looking nasty, isn't it ?"

Siege said...

Hmmm... even if the forecast is questioned, there's no mistaking the descending triangle. What a massive movement.

FOFOA said...

JS:

Key Areas Of Defense For The US Dollar

"Yesterday and today we have been playing with a key area in the US dollar at which intervention is reasonable to assume.

It is key for sure as .7200 and then into the high .6000 is what is lurking in this Battle Royal.

Strong dollar policy is intervention to modify the decline from the rout it has the power to be.

With the entire planet with the exception of GB loudly or quietly wanting dollar diversification, the high .6000s is a magnet of great substance pulling NOW strongly on the USDX."

FOFOA said...

Robert Heller, Former Federal Reserve governor:

"The stock market is certainly not too big for the Fed to handle. The foreign exchange and government securities markets are vastly larger. Daily trading volume in the New York foreign exchange market is $130 billion. The daily volume for Treasury Securities is about $110 billion. The combined value of daily equity trading on the New York Exchange, the American Stock Exchange and the NASDAQ over-the-counter market ranges between $7 billion and $10 billion."
- Wall Street Journal, October 27, 1989

FOFOA said...

Article exploring the collapse (END) of various UNfreegold scenarios and what it could mean (FREEGOLD!):

Fort Knox, Fort Hocks or Fort Shocks:
Three United States Gold Scenarios

Stewart Dougherty

"...U.S. Treasury and Federal Reserve officials actively monitor and seek to suppress the gold price, because a rising price can signal fiscal, economic and/or fiat currency distress, things that are bad for markets and embarrassing for governments... For gold to be selling today at only 40% of its 1980 inflation-adjusted price, in the midst of the worst financial crisis in the nation's history, is curious...

Some consider a country's future tax receipts to be a form of collateral, but in the case of the United States, this is not so, because according to the Congressional Budget Office, the country will run multi-hundred billion dollar annual deficits for the next 70 years and beyond. So according to the CBO, the nation's future tax revenues are already spent. Hypothetically, the nation could sell its national parks, or its mineral and/or energy rights, but this would be a radical, last ditch solution that has not even been publicly debated. For all practical purposes, the country's only true collateral is the gold in Fort Knox and related depositories...

...Inconsistencies like this are worth exploring; sometimes they represent golden opportunities...

...the price per ounce would most likely explode!"


I would love to see how Stewart Dougherty would rewrite this article after studying Freegold, the final stage in the monetary evolution of gold!

FOFOA

Martijn said...

I don't think ANY nation will ever hold reserve status again. The entire concept of a reserve system is flawed. There need only be a medium for measure and exchange. There is no need for 'reserve' currency as it functions today... as a store of wealth.

I agree with this 100%. A national currency cannot fulfill the role of an international currency.
If one country could create something all countries want by simply clicking a mouse, what should it ask in return? This makes absolutely no sense.

Martijn said...

@Fofoa

Assuming the Fort Knocks scenario, an audit proving this scenario would most likely provide support for the USD. I'm not saying the gold is still there, but if it were, I would do such an audit when the dollar is in its direst straits.

Martijn said...

On this article on the dollar dump in the trumpet:

The irony is that America is completely blind to the catastrophe heading its way.

Is really is unbelievable. The demise of the dollar has received so much attention on almost any financial blog that it simply cannot be missed. Perhaps the US acts as if they are blind, but they have not missed it.

A tone like this does not increase the credibility of the author in my opinion.

FOFOA said...

Martijn,

"Assuming the Fort Knocks scenario, an audit proving this scenario would most likely provide support for the USD. I'm not saying the gold is still there, but if it were, I would do such an audit when the dollar is in its direst straits."

Isn't that like Superman counting his Kryptonite in order to get stronger?

"Is really is unbelievable."

I can assure you this statement is true for the vast majority. Including most in Congress and in the media. Perhaps he should have said, "For the most part, America is..."

FOFOA

Anonymous said...

US$ collapse emminent !?

Let us put the question otherwise : Is a stable-strong dollar still serving any practical purpose,...still helpful for recovery from the Systemic Crisis,...???

I don't see any "good" reason why a strong dollar should now remain strong/stable for much longer !

A $-devaluation is now the most "elegant" way out (flight forward) that the $-regime can wish for. Devalue the systemic build up of the to surface astronomical (tripple) DEFICITS when (before) the US fiscal year ends (mid october)(bank holiday(s)). Catapult the green shoots into the air with a dollar-light (Q4).

Make sure that the "vital" $-reserve accumulators/holders are compensated for their int. $-PP loses. Let them accumulate as much non US (friendly) gold as they can.
Unfreeze the $-goldprice in a controlled way. Allow all other currencies to follow the $-devaluation.
Don't let the $-holders profit from this temporary $-strength to acquire strategic important possesions.
The $-regime cannot,...is not going to wait until an outside cartel decides it's opportune to force the US to devalue the dollar for their own (cartel) profitable purposes.

The (economic) powers that lay in the floating currency system works in two directions : When the non $-cartel undervalues its own currencies and forces the US deficits more strongly up,...The cartel destroys (dislocates) the US economy even further. Such is the battle for world power/dominance.

Shanti said...

Anon, 1:05

"The $-regime cannot,...is not going to wait until an outside cartel decides it's opportune to force the US to devalue the dollar for their own (cartel) profitable purposes."

-- Make them an offer they can't refuse --

Here it will be 'very' interesting, to see how creative cartels can be in this war of - TITANS -

Certainly there are different roads, but all roads led to China isn't it.

One road one destination - FREEGOLD -

FOFOA said...

Shanti,

"Here it will be 'very' interesting, to see how creative cartels can be in this war of - TITANS -"

Here is an interesting article about Russia. Who do you think has the upper hand in this game of surprises?

Anonymous said...

Yes Shanti, that's why I label this Big $-devaluation as " EXPERIMENTAL ".

Nobody can know how the world power balance is going to move afterwards.

This Crisis started accelerating exactly in 1985 ($-ATH and peak IRs). $-Finance capitalism is the rot that penetrated deeply into the complex system. Impossible to simply devalue this away with no dramatic consequences ( out of control domino effects).

The old Western US/EU world axis is not in the driving seat anymore ! Old rules will not be repeated. This time it will be really different.

Martijn said...


"Assuming the Fort Knocks scenario, an audit proving this scenario would most likely provide support for the USD. I'm not saying the gold is still there, but if it were, I would do such an audit when the dollar is in its direst straits."

Isn't that like Superman counting his Kryptonite in order to get stronger?


I see your point. But there is a subtile difference. Superman is a physical hero, and his kryptonite is a physical aid, like NOx is to a street racer. However, in financial markets the fight is mainly psychological. The psychological effect also matters in physical sports - like superman's game - although to a lesser extend.

FOFOA said...

"The word Kryptonite is also used in modern speech as a synonym for Achilles' heel, the one weakness of an otherwise invulnerable hero."

Martijn said...

JS

Asia buys gold as jewellery that trades by weight in grams with practically no value for artistry.

Freeg...?

Martijn said...

"Assuming the Fort Knocks scenario, an audit proving this scenario would most likely provide support for the USD. I'm not saying the gold is still there, but if it were, I would do such an audit when the dollar is in its direst straits."

Isn't that like Superman counting his "one weakness of an otherwise invulnerable hero" in order to get stronger?


Counting gold would indeed signal that all else - and the dollar is based on whatever "else" they could possibly find - is meaningless.

That is true. As soon as the US stresses gold in any way the dollar as the world sees it is gone.

Martijn said...

Phase two of this crisis will tear the veil of MOPE away

Auditing gold will do so also.

Martijn said...

Fofoa,

I agree.

FOFOA said...

Re: Jewelry

In 1998 I sold some equipment to a guy who promised to pay me in installments. He gave me a gold ring with a few small diamonds as collateral. At the time, the collateral I received did not totally cover the amount owed, but he told me it had sentimental value to him and that he wanted it back.

He never paid me and I still have the ring. It probably now covers the money he owed me. But just to be sure I come out way ahead, I'll hang onto it for a few more months at least. ;)

Martijn said...

Smiley

Perhaps one ring will rule them all..

FOFOA said...

There is a Freegold lesson in Jim's Chinese jewelry comment. As gold transitions to one single function, all former premiums will become insignificant compared to its core value.

J said...

Here in Thailand it's priced by the Baht(15.2grams of 23k) and the daily buy/sell price is posted on the outside window. Gold is definitely a wealth reserve in this part of the world. Gold shops are everywhere.

http://www.goldtraders.or.th/index_en.php

http://www.nationmultimedia.com/admin/specials/nationphoto/photo/6U2pWMx.jpg

FOFOA said...

Thanks, J. I saved that picture to use in a post! Keep the good info flowing.

FOFOA

Anonymous said...

Auditing UST-gold !?

1/ 1994 : Summers/Rubin Gibson paradox ($-IRs and $-goldprice)

2/ Greenspam : CBs stand ready to sell gold (intervene) whenever the goldprice rises.

Gold is the anti-thesis of the dollar under the present global $-system/regime.

There are only TWO gold-forces : The unfree $-gold faction (contra) and the non-$-freegold faction
(pro).
That's why the ECB states every move of its goldreserves (included MTM) at the end of each quarter and the UST-gold remains an illustre unknown. Fundamental difference, no !
Russia and China follow the ECB gold-trail (reporting gold & forex reserves).

Anonymous said...

Please read this article (2 pages) :

http://www.reuters.com/article/politicsNews/idUSTRE56N4L520090724?pageNumber=1&virtualBrandChannel=0

If the West really thinks that this is the appropiate way to talk/deal with the Chinese,...

Also consider Biden's Russia bashing.

Rising Western arrogance is a writing on the wall !

Shanti said...

Anon 12:53

Seems the $-camp has forgoten an old (Chinese) saying.

"a new journey begins with the first step" (-ACTION-)

Verbal warfare does produce noise but - NO - action, in contrary it shows the cards to the other camp.

En suite, temps pour le velo

FOFOA said...

@ Anon, Shanti,

Please read this and tell me if you think it has bearing on that 2-page China-talks article!

http://www.thenewamerican.com/index.php/usnews/congress/1402

Anonymous said...

My interpretation : The old transatlantic (US$/EU€) alliance is evolving into the US/China axis (Brezinsky).

Both (US/China) HAVE to restore global balance without much further delay.

The IMF (supranational) is supposed to play a (transfer) vehical role to reach economic/strategic consensus. Again those 400 tonnes of IMF-gold pop up !
IMO, China wants this gold !?

Belgium sold (redistributed) 1,000 tonnes (one thousand) of gold without anyone saying a word about it.
Obama probably wants to do the same trick and claim US/China succes in solving the (systemic debt) Crisis (?).
(horsetrading-?)

The (absolute) power of gold (exchange) is that it can buy precious TIME and temporary goodwill.

This global-systemic US(deficit)/China(surplus) GLOBAL UNBALANCE must...MUST...come to an end ...BY ALL MEANS !!!

We hear the noices (Shanti) and will probably see the gold facts (deeds) ?

Just an opinion...

Anonymous said...

Fofoa,

do you believe that an agreement between Us and China would be benaficial for the rest? Couldn't it be a dividing of the world in two influencial zones? I'm not sure it's going to get to a good result for the rest of us.

Fauvi

Anonymous said...

Unemployment=UP / Tax base=DOWN :

The infernal spiral not to be stopped and reversed...by green shoots or anything else.

July 26, 2009 (LPAC)—As unemployment skyrockets and the tax base shrinks, state unemployment insurance funds are finding it increasingly difficult to meet the needs of the unemployed. Not only are states running out of funds, but the processing of unemployment compensation applications are slowing dramatically. The New York Times reported on July 24 that 16 states, having exhausted their funds, are now paying benefits with borrowed money, and that number could double by year's end. About 9.5 million people are now collecting benefits, up from only 2.5 million people in 2007 and state spending is expected to reach nearly $100 billion, about triple the level of two years ago.

Anonymous said...

Germany's financial system !?

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14094137&source=hptextfeature

And we all keep hping that the global economy will pick up somewhat later !?

I have absolutely no idea where serious economists get this (infantile) optimism from ? Is this a form of "fatalism" ?

Anonymous said...

Gulf money and death !

http://www.reuters.com/article/newsOne/idUSTRE56P0YD20090726

Fraud - Deceit - Plunder ...

FOFOA said...

Fauvi,

--> Hillary included in talks
--> Name changed: "Strategic Economic"-->"Strategic & Economic"
--> Topics to include Climate Change
--> Obama wants to use IMF gold in carrot and stick "negotiations"

The US administration is full of arrogant fools. Their eye is not on the correct ball. It is on climate change, universal healthcare and debt auctions. China has their eye on the right ball. There is no way to restore global balance that is good for Washington.

When China receives 400 tonnes of Kryptonite in exchange for empty promises it will see how weak Superman really is.

FOFOA

Carey said...

FOFOA, hasn't China already taken the first steps with the yuan/real exchange with Brazil among others.

Callistenes

FOFOA said...

Hello Callistenes,

Yes!

See my comment from July 24, 2009 12:33 PM.

Anonymous said...

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

http://www.leap2020.eu/When-China-prepares-its-Great-Escape-from-the-dollar-trap-for-the-end-of-summer-2009_a3582.html

GET YOUR GOLD !

Anonymous said...

Snip :

July 27 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke defended bailouts by the central bank and other unprecedented efforts to end the credit crisis, saying he sought to avoid a “second Great Depression.”

“In a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said yesterday at a town-hall-style meeting in Kansas City, Missouri, taped for broadcast this week on PBS television. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”

>>> May I suggest that global hero Bernanke shall be appointed FOR LIFE on 01/31/'10 !

And shall Greenspan be publicly stoned for causing the risk of second great depression.

Martijn said...

Interesting article from l2020. Also interesting to consider is that relative to commodities the USD holdings of China have been increasing in value rather drastically over the past year.

Martijn said...

Very logically, Beijing is now disposing of these huge surplus exchange reserves which keep Chinese leaders prisoners of US decisions with no further advantage for their country

I would like to add that the Chinese to some extend have already been paid in production capacity.

Martijn said...

With regard to US Treasuries, China has largely stopped buying them (purchases decreased by USD 146 billion in the first quarter of 2009 compared to the same period last year, representing an increase of only USD 7.7 billion! (16)) and only then purchasing short term (three month) Treasuries (17)!

So in short: purchases decreased, representing an increase.

If we are not living in the matrix right now I doubt we will ever.

Smiley.


Judging from the provided source what they mend to say is that the increase of purchases decreased by 146b compared to previous year, leaving an increase of only 7.7b. So the curve was still rising, albeit at a much lower speed.
If we correct for inflation it might even be flat I reckon.

Martijn said...

Guys, while you're at it, be sure to read this one too.

Martijn said...

Fofoa,

Back to the forth knox scenario. If the US gold is still there, they own the biggest reserve in the world.
I could image that in such a case China would not get all too exited in going back to some sort of gold-standard.
If I were China I'd rather pick something that reflects the current economic reality (and China's strong position therein) a bit more.

Martijn said...

Fofoa,

Did you ever see this graph of currencies against gold.

Martijn said...

Fofoa,

How well have you been studying the monetary history of metals?
I am not saying there is, but it could be that the gold-community has missed something in describing the monetary history of gold.
I have found history to be just a little different than the general opinion on many occasions, and I could image the goldcrowd being mainly occupied with current financial markets and not extensively researching the claims of gold as the one and only monetary metal the propose.

Shanti said...

Seems MK pulled "ANOTHER" back on the table ;-))

http://www.usagold.com/cpmforum/?p=172701

Martijn said...

From the usagold article linked by Shanti:

That puts China in a very strong position with respect to the gold market, and from what we can gather, it has decided to play that card.

This somewhat answers an earlier question:
Back to the forth knox scenario. If the US gold is still there, they own the biggest reserve in the world.
I could image that in such a case China would not get all too exited in going back to some sort of gold-standard.
If I were China I'd rather pick something that reflects the current economic reality (and China's strong position therein) a bit more.


However, I would like to keep that one open...

FOFOA said...

Martijn,

You say, "How well have you been studying the monetary history of metals? I am not saying there is, but it could be that the gold-community has missed something in describing the monetary history of gold. I have found history to be just a little different than the general opinion on many occasions, and I could image the goldcrowd being mainly occupied with current financial markets and not extensively researching the claims of gold as the one and only monetary metal the propose."


I assume you are talking about bimetallism, the monetary standard using a fixed exchange rate between two metals, that was debated and then abandoned 136 years ago.

The problem with bimetallism was that it attached an artificially high value to silver (similar to the artificially high value of the dollar during the latter years of Bretton Woods), causing a drastic outflow of gold from the US Treasury as foreigners exchanged their silver for gold at the bloated price, just like exchanging their paper for gold in the late 1960's.

Bimetallism had this fatal flaw, just like other systems, which caused the entire world to evolve to mono-metallism, the gold standard, which had its own flaw demonstrated in the late 60's and early 70's.

From there, gold began trading in a quasi-free marketplace, still able to fulfill its job as the ultimate extinguisher of debt. But even this system has finally revealed its fatal flaw which Antal E. Fekete has dubbed the imminent permanent backwardation of gold.

Fekete's only mistake is that he looks back in time to the gold standard for relief from this collapse of the system, instead of looking forward through evolution to the natural next step.

The Silverites of the 1800's (also known as the "16 to 1'ers") still exist today, and still view the Coinage Act of 1873 which ended bimetallism and de-monetized silver as the "Crime of '73". But viewed another way, as one step in the evolution of gold in a fiat world, we can see now how the end of bimetallism was not only natural, but permanent!

Viewed as an evolution, we can see how Freegold is the natural next and final step in this evolution, and that it is upon us today!

FOFOA

Martijn said...

I was talking about metals monetary history in general. Bimetallism is the first thing that comes to mind indeed.

But I for instance now little of asian monetary history, and I could assume many people involved with the subject in the west have been looking mainly at the Western history.

The text at the bottom of this site for instance is of some interest:

The directory name "arian" in this URL is the Welsh word for money. It also means silver, which was for many centuries the most common metal for making coins.

Martijn said...

As for the bank holiday: FEMA is doing a major international "anti-terrorism" exercise this whole week with troops form among other Mexico, England, Canada and Australia.

FOFOA said...

Coinage, or more specifically the value stamped on the coin, is a form of fiat. It is what the government tells you it is worth. Silver was always a great metal for coinage (early fiat). Even today's one ounce gold coins still say $50! And one ounce of silver says $1. A 50:1 ratio! It used to be 16:1. Do you trust your government to tell you true relative value?

That website looks interesting. Please let me know if you find something that makes you want to trade some of your gold for silver. I might be able to help you out.

Don't forget Darwin. In evolution it is NATURAL selection that matters. If altering the global monetary landscape was as simple as one nation CHOOSING something new to use as money, we would see the landscape change much more frequently. As it is, changes happen only with the tide. As your trader friends say, "the trend is your friend".

I am not here to propose a new system of Freegold. That is just a name to use for something that hasn't been named yet. I am simply here to draw attention to the trend, the evolution, the tide!

The new system will be whatever it is. But the TRANSITION to the new system will be a once in a lifetime opportunity for those who recognize that the tide is coming in. A chance to get on the receiving end of the greatest transfer of wealth in history.

Either you recognize it or you don't. If you think everything is simply going to continue trading as commodities and go up gradually, then perhaps a good spread of platinum, palladium, silver, gold and oil is a safe diversification.

But if you think our monetary system is close to a paradigm shift, you must pay close attention to WHAT that shift will entail. You must "follow in the footsteps of the giants".

FOFOA said...

**FLASH**

Our new potty-mouthed Jr. Deputy friend adds some literary color to the otherwise-dull China talks:

"This is called the Epic Ball-licking Reacharound Clusterfuck to Beat all Clusterfucks (tm Jr Deputy Accountant) and of course our boy Timmy is in charge of the whole cajones-massaging mess. Since when does America bow down to Communist empires? Well as of about 8a EST this morning, I suppose. Gotta sell those Treasurys you know!!

Make sure you get allllll up in there, Timmy. Who needs to teabag the White House? Instead, let's send Geithy some Chapstick so he doesn't get dry and/or chafed while he's down there licking China's.... err... trying to save the American financial system. Who's your bitch, China? I think we have our answer..."


Link

Ender said...

I’m honored FOFOA. I will try to use fewer words next time.

FOFOA said...

Hi Ender,

You aren't exactly the Gideon Gono (or Ben Bernanke) of words. Then again, if Bernanke was dropping gold coins from his helicopter (like you), I'd be outside with a bucket.

Here's some CNBC MOPE... The benefits of dollar collapse!!!

FOFOA

Anonymous said...

A snip :

Clinton and Geithner renewed US calls for China to open up its financial sector and to ween itself off its dependence on exports by spurring domestic demand in the world's most populous nation. "Raising personal incomes and strengthening the social safety net to address the reasons why Chinese feel compelled to save so much would provide a powerful boost to Chinese domestic demand and global growth," they said.

>>> The global $-regime wants the world,...and now China in particular,... to remain addicted on finance capitalism and deficit spending.

FORGET IT. IT'S NOT GOING TO WORK ANYMORE.

That's indeed the new paradigm shift...the trail of giants.

It is the $-regime that will lose this Battle Royal and it is Freegold that shall win.

FAITES VOS JEUX, mesieurs, dames.

Anonymous said...

" Benefits of the $-collapse " ?????

And does the $-regime really thinks that the entire world is wellcoming this X-th $-fin./mon. maneuver, once again !?
Dream on...

China will not allow his financial market to be broken open by deficit-spenders (plunderers).

The money-masters want everything to FLOAT their way. They will meet FREE FLOATING GOLD !

Martijn said...

The bearded pilot it threatening with inflation!

Anonymous said...

The conclusion after two days US/China showtime : None can give what the other is asking/demanding !

Martijn said...

A Sinclair said: America does not have the power to give China what it wants. China has the power to not give America what it wants.

Martijn said...

According to the Mad Scientist Silver has been the historic monetary metal over gold.

And about coinage being fiat: partly. Coinage started out honest, and the material chosen for it was generally silver. After a while Kings discovered the could fiat their value and did so, but this is not how it begun. Silver coinage hence has a somewhat double background in my opinion.

Martijn said...

Domestication of cattle and cultivation of crops
Cattle are probably the oldest of all forms of money, as domestication of animals tended to precede the cultivation of crops, and were still used for that purpose in parts of Africa in the middle of the 20th century.(9000bc)

Development of Banking in Mesopotamia
Banking originates in Babylonia out of the activities of temples and palaces which provided safe places for the storage of valuables. Initially deposits of grain are accepted and later other goods including cattle, agricultural implements, and precious metals.(3000-2000bc)

Cappadocian rulers guarantee quality of silver ingots
The state guarantee, probably of both the weight and the purity of her silver ingots, helps their wider acceptance as money.(2250-2150bc)

Reign of Hammurabi in Babylon
The Code of Hammurabi includes laws governing banking operations.(1792-1750bc)

Cowries used as money in China
The Chinese character for "money" originally represented a cowrie shell. Cowries have been used as money in many different places at different periods. In parts of Africa they were used for this purpose as recently as the middle of the 20th century.(1200bc)

Tool currencies adopted in China
These were metal models of valuable implements that had previously been accepted in commercial exchanges, e.g. spades, hoes and knives.(1000-500bc)

Crude "coins" invented in Lydia (according to Herodotus)
Herodotus criticises the gross commercialism of the Lydians who are not only the first people to coin money but also the first to open permanent retail shops.(687bc)

The first true coins produced in Lydia
The earliest coins made in Lydia, Asia Minor, consisted of electrum, a naturally occurring amalgam of gold and silver.(640-630bc)

Round, base metal coins invented in China
The date is uncertain but these were probably at least roughly contemporary with the development of coinage in the West, and possibly much earlier. Being made of base metal the Chinese coins were of relatively low value and therefore inconvenient for expensive purchases.(600-300bc)

Lydians produce separate gold and silver coins
During the reign of Croesus the Lydians began to produce coins of pure metal instead of electrum. This is the world's first bimetallic coinage.(550bc)

Croesus King of Lydia is captured by the Persians
As a result, use of coins spreads to Persia. Unlike the Greeks the Persians use mainly gold coins in preference to silver.(546bc)

Athenian Owls produced
These coins are first produced by the tyrant Peisistratus, using silver from the Laurion mines 25 miles south of Athens.(546)

Sparta captures the Laurion Mines
Sparta releases 20,000 slaves from the mines and cuts off supplies of silver to Athens.(407bc)

Martijn said...

Athens issues bronze coins with a silver coating
The Athenian public hoards silver coins which, as a result, quickly disappear from circulation, leaving only the inferior bronze ones.(406-405bc)

Aristophanes' comedy The Frogs is produced
In the play Aristophanes refers to how the new, inferior coins have displaced the old superior ones from circulation - probably the world's first statement of Gresham's law, that bad money drives out good.(405bc)

The Gauls attack Rome
The cackling of geese in the capitol, where the city's reserves of money are kept, alerts the defenders. The grateful Romans build a shrine to Moneta, the goddess of warning, and from Moneta the words money and mint are derived.(390bc)

Reign of Philip II of Macedonia
Philip unites Greece and Macedonia. During his reign he deliberately mints far more coins than required for the immediate needs of his kingdom, probably to support the campaign against Persia that he was planning before his assassination. Among these coins is the golden stater celebrating his triumph in the chariot race in the Olympics in 356 BC - an early example of the use of coins as propaganda. These staters are widely circulated among the Celts of central and northern Europe whose earliest coins are copies of Philip's.(360-336bc)

Normal rate of interest in Greece is 10% except for risky business
According to Demosthenes 10% is the normal rate of interest for run-of-the-mill business. For risky business such as lending for shipping rates of between 20% and 30% are normal.(350bc)

Reign of Alexander the Great
During the conquest of Asia Minor the cost of maintaining Alexander's army reaches about 20 talents or half a ton of silver a day but later enormous quantities of Persian bullion are captured. The coining of the previously stagnant Persian gold stocks and payments to Alexander's soldiers, many of whom settle in new towns founded by him, give an enormous stimulus to trade throughout his empire. Alexander also simplifies the exchange rate between silver and gold by fixing it at 10 units of silver equals one of gold.(336-323bc)

Empire of the Ptolemies in Egypt
For long before Egypt came under Greek control grain had been used as a form of money in addition to precious metals, and state granaries functioned as banks. The Ptolemies transform the local warehouse deposit system into a fully integrated giro system with a central bank in Alexandria. Payments are made by transfer from one account to another without money passing.(323-30bc)

The aes signatum or bronze bars are still commonly used as currency in Rome
These cumbersome bronze bars are later superseded by coins which are much more convenient.(275bc)

Regular issues of silver coins are minted by the Romans and widely circulated
Despite the example of the Greek colonies on the southern Italian mainland and Sicily, and of Carthage, the Romans are relatively late in adopting coinage.(269bc)

2nd Punic War between Rome and Carthage
Because of the enormous demand for coins to pay troops the Roman rulers debase their coinage in purity and weight, causing inflation.(218-201bc)

Leather money issued in China
This consists of pieces of white deerskin, about one foot square, with a value of 40,000 cash. (The cash was the name of a base metal coin).(118BC)

Julius Caesar raids Britain
In his account of his two raids Caesar notes scornfully that the Britons still used sword blades as currency. However a number of the Celtic tribes had begun to mint their own coins of gold, silver, bronze and potin (alloys of copper and tin).(55-54bc)

Reign of Augustus Caesar
Augustus reforms the Roman monetary and taxation systems issuing new, almost pure gold and silver coins, and new brass and copper ones, and also introduces three new taxes: a general sales tax, a land tax, and a flat-rate poll tax.(30bc-14ad)

Martijn said...

In short: first electrum (gold and silver) and later pure metal - silver, gold and some bronze and tin.

Ratio between gold and silver fixed at 1:10.

Money used as propaganda, and first bouts of inflation occur.

Martijn said...

Than shortly after Christ heaps of inflation in the Roman empire, and great difficulties to control it.

In 300AD Constantine issues a new gold coin, the Solidus, which continues to be produced in the Eastern Roman Empire unchanged in weight or purity for the next 700 years.
However he continues to produce debased silver and copper coins. Thus the poor, unlike the rich, are left with an inflation-ridden currency.

Inflation continues, and banking is abandoned in western Europe and does not develop again until the time of the Crusades.

Silver starts to displace gold in Saxon coinage(675)
Initially silver is used with gold as an alloy but early in the 8th century silver and base metals are the only ones used.

Reign of Emperor Hien Tsung and the development of paper money
In China a severe shortage of copper for making coins causes the emperor to issue paper money notes.
(Copper is rising right now. Does copper has a monetary history in China?)

In 1000AD England still uses silver for coinage.

Quantity of Chinese paper money reaches an excessive level(1020AD)
The total amount is nominally worth 2,830,000 ounces of silver. Vast amounts of cash are used to buy off potential invaders from the north and to pay for imports causing a cash famine. As a result the authorities increase the note issues thus fuelling inflation.

1095-1270 The Crusades
The need to transfer large sums of money to finance the Crusades provides a stimulus to the re-emergence of banking in western Europe.

Martijn said...

1100-1135 Reign of Henry I
The quality of England's silver currency falls drastically.

1149 Hung Tsun's Chhuan Chih or A Treatise on Coinage
This Chinese work is the first known on numismatics in any language.

1158 Henry II reforms the English coinage
This restores the prestige of English money which is maintained at a high level for the next four centuries (still silver).

1160-1200 English wooden tallies evolve into instruments of credit
Tallies were wooden sticks originally used as receipts. Notches whose sizes represented a particular sum of money would be cut into the stick which would then be split down the middle. One part would be kept by the creditor, the other by the debtor. Sometimes the loans were fictitiously swollen to get round the prohibition of usury. During the 12th century the English Exchequer starts issuing tallies as a form of credit. Tallies were not finally abolished until 1826.

1166 Hyperinflation in China
The nominal value of the official paper note issues reaches 43,600,000 ounces of silver. In addition there are various local note issues.

1232-1253 Gold coins are issued by several Italian states
Under the influence of Byzantine and Arab coinage Messina and Brindisi (1232), Florence (1252) and Genoa (1253) issue gold coins. The type minted in Florence, the florin, becomes widely copied in other parts of Europe.

1275-1292 Marco Polo lives in China
From his subsequent account of his Travels, Europe learns of paper money.

1282 The first recorded Trial of the Pyx
A public test of the purity of gold and silver coins, which continues in Britain to this day

1299 Statute of Stepney on Bad Money
The importation of debased coins into England is forbidden and restrictions on the export of silver bullion and coins are introduced. These provisions are strengthened in 1351.

Martijn said...

So far not too much evidence of gold superiority.

Martijn said...

1351 Restrictions on the Export of English Bullion and Coins
Anxieties over the unofficial drain of gold and silver bullion and coinage to the Continent cause the government to tighten the provisions of the Statute of Stepney 1299, but without much effect.
(It remain unclear what importance was given to both gold and silver, but apparently both were used)

1440 Gutenberg invents the modern printing press
Although Europe already knew of the use of paper money in China, the printing press design is subsequently modified, by Leonardo da Vinci among others, for use in minting coins nearly two centuries before printed banknotes are produced in the West.

1450 Portuguese start voyages along the coast of Africa
In the 14th and 15th centuries Europe suffers from a "Great Bullion Famine." This is partially alleviated as the Portuguese open up a new route for sub-Saharan gold via Ghana and Mali.

1455 China abandons paper money
There are no known references to paper money being in circulation after this date. Thus after well over 500 years of experience with paper currencies, during which there have been repeated episodes of inflation and currency reform, China ceases to use paper money.

1487 Fuggers Bank founded in Augsburg
The increased availability of gold from Africa and later, after the discoveries of Columbus, the Caribbean, raises the relative value of silver and consequently the Fuggers profit greatly by financing European silver mines.

1489 Henry VII slashes Mint charges and issues the first gold sovereigns

1500-1540 Huge supplies of New World gold reach Spain
On average between 1,000 and 1,500 kg. of gold reach Spain each year during this period. Initially these supplies are obtained by plunder, especially from the Aztecs and Incas, and later by applying new mining methods to the New World gold deposits.

1519-1521 Cortés conquers Mexico
Before the arrival of the Spaniards the Aztecs and Mayas used gold dust (kept in transparent quills) and cocoa beans (kept for large payments in sacks of 24,000) as money.
(The Mayas apparently used gold and not silver)

1519 Minting of Thalers begins in Joachimsthal in Bohemia
This coin made from locally-mined silver is known as the Joachimsthaler, or thaler for short, from its place of origin, and is widely imitated. The Anglicised form of the name, dollar, is later used for the Spanish peso and the Portuguese eight-real piece which circulate widely in North America both before and after the United States gains its independence.

1532 Pizarro lands in Peru and begins the conquest of the Incas
The Incas were unique in reaching a high degree of civilization without the use of money even though they possessed huge amounts of gold and silver. The more rigid a state's planning system the less the need for money.

Martijn said...

1563 Discovery of mercury deposits at Huancavelica
These deposits enable silver to be extracted from Potosi by the mercury amalgam process already used in silver mines in Mexico. Thereafter huge supplies of silver are sent to Europe and China

1597 Spanish exports of silver to China reach a peak
In this year 345,000 kg. of Peruvian/Bolivian and Mexican silver are shipped from Acapulco to China via Manilla.

1600 The London East India Company is founded
Imports from India subsequently cause a drain of precious metals from England to India.

1609 Bank of Amsterdam is founded
This public bank is established to provide a superior and more controlled service than that available from private bankers. Later its example inspires the establishment of the Bank of England.

1633-1672 The Rise of the goldsmith-bankers
Some British goldsmiths, by dealing in foreign and domestic coins and by letting their safes be used for deposits of valuables, gradually evolve into bankers.

1637 Wampum becomes legal tender in Massachusetts
This is only for sums up to one shilling. Wampum is a type of shell used by the native Americans as currency and adopted by the settlers.

1640 Reduction in silver imports causes slump in Chinese economy
China has become dangerously dependent on New World supplies of silver for its currency. Supplies from this source start to dry up with disastrous consequences for the late Ming economy.

1652-1684 John Hull's unofficial mint operates in Massachusetts
The mint coins threepences, sixpences and pine-tree shillings all of which contain about three-quarters of the silver in their newly minted English equivalents but about as much as most of the old, worn coins in circulation.

1660 Goldsmiths' receipts become banknotes
Because goldsmiths' notes are accepted as evidence of ability to pay they are a convenient alternative to handling coins or bullion. The realisation by goldsmiths that borrowers would find them just as convenient as depositors marks the start of the use of banknotes in England.

1664 Construction of the New York citadel paid for in wampum
Stuyvesant arranges a loan worth over 5,000 Dutch gilders in wampum to pay the wages of workers constructing the citadel.

1672 First state issues of copper coinage in England
There had been occasional licensed issues by private minters since 1613. The attractive new, milled coinage with the image of Britannia, tends to disappear from circulation, in accordance with Gresham's law, though not as quickly as the new silver coins do, while the existing badly worn, unattractive hammered coins and tokens continue to be used.

1694 Bank of England is founded
The main purpose of the Act founding the Bank is to raise money for the War of the League of Augsburg by taxation and by the novel device of a permanent loan on which interest would be paid but the principal would not be repaid.

1696 The Great Recoinage
England's silver coins, many of which are worn or clipped, are replaced by new, full-weight silver coins.

Martijn said...

1715 North Carolina makes 17 different forms of money legal tender
All the British colonies in North America tend to suffer from a dearth of the official British coinage. Consequently they use a variety of substitutes including wampum, copied from the native inhabitants, tobacco and other natural commodities, and Spanish and Portuguese coins. The importance of these substitutes varies according to location.

1727 Tobacco notes become legal tender in Virginia
Certificates attesting to the quality and quantity of tobacco deposited in public warehouses circulate more conveniently than the actual leaf, already used as money for over a century, and these notes are made legal tender.

1760 Wampum factory opened in New Jersey
Demand for wampum as currency, and later ornament, remains strong. In the factory steel drills are used to make the holes that are used for stringing the shells together. This increases output of wampum enormously causing inflation. The factory remains in production for 100 years.

1764 Britain forbids all its American colonies to issue paper money as legal tender
This punishes the colonies that had been careful not to over-issue paper money as well as those that had been irresponsible. The only exception is for strictly military purposes. "No law ... could be more equitable", wrote Adam Smith, "than the act of parliament so unjustly complained of in the colonies." (p 348 of the Wealth of Nations). Adam Smith was in favour of paper money but against it having the status of legal tender.

1770 Rhode Island's paper money rendered worthless by hyperinflation
Many of the British colonies in North America have over-issued notes causing inflation but Rhode Island is the worst.

1775-1783 The American Revolution or War of Independence
The American Congress, and individual states. finance their war effort overwhelmingly by printing money. This eventually leads to hyperinflation rendering the continentals worthless - but the Revolution is successful.

1776 Adam Smith defends paper money
In his Wealth of Nations he draws attention to the benefits of paper money in stimulating business both in Scotland and in the American colonies.

Lots of banks are opened

1786 US Confederation Congress passes the Mint Act
The intention is to meet a currency shortage - but only a few tons of copper coins are minted.

1787-1817 Privately-issued tokens become common in Britain
By the end of the 18th century there is a severe shortage of copper and silver coins in Britain so that many firms have difficulty in obtaining enough currency to pay wages. This leads to a growth in payments in kind, use of foreign coins, and unofficial tokens. The token manufactures greatly expand the amount of currency available.

1789 US Constitution gives Congress power over money creation
The States are not allowed to coin money, issue bills of credit or make anything except gold and silver legal tender.

1792-1815 French Revolutionary and Napoleonic Wars
The pressures of war cause many changes in the financial systems of both France and Britain.

1792 US Coinage Act
The Dollar is adopted as the unit of account, based on a bimetallic standard, subdivided into 100 cents. Foreign coins are supposed to lose their status as legal tender within 3 years of the US coins coming into circulation.

1795 Hyperinflation in France
The total nominal value of the assignats in circulation reaches 20 billion livres. Riots in Paris pave the way for the rise of Napoleon.

1796 France replaces the assignats by a gold-based currency
This has the effect of drawing bullion back from Britain.

c. 1800-1860 Five hundred fold depreciation of the cowrie in Uganda
When cowrie shells are first introduced to Uganda at the end of the eighteenth century two are sufficient to purchase a woman. Thereafter the wholesale importation of cowries causes inflation with the result that by 1860 one thousand cowries are needed for such a purchase.

Martijn said...

1806 President Jefferson suspends the minting of silver coins
This is because of the tendency of these new coins to disappear from circulation, as an unintended consequence of the US 1792 Coinage Act.

1820 Last British silver pennies are minted
This is nearly 1,100 years after the first English silver pennies, though silver continues to be used for higher value coins for another 100 years.

1834 US Coinage Act
This makes a slight reduction in the value of silver relative to gold in order to encourage more gold to be brought to the mint. However, it hastens the disappearance of much of the remaining silver in circulation.

Martijn said...

c. 1840-1844 Currency School versus Banking School
With hundreds of banks issuing notes in Britain in uncoordinated fashion the value of the currency is difficult to control. A controversy arises between the currency school which believes that gold and Bank of England notes are the only real money and the banking school which believes that notes are just one among many forms of money.

1848 Gold Rush in California
The discovery of gold in California leads in the following decade to a massive increase in the production of gold coins by the mint with the result that in practice the US moves away from bimetallism towards a gold standard.

1851 Gold discovered in Australia
Along with the discovery in California 3 years earlier this leads to a huge expansion in the world's supplies of gold for money.

1870-1893 Plentiful silver supplies cause fall in value of Indian and other Asian currencies
After 1870 there is a vast increase in the amount of silver coming on to world markets because of new mines and the demonetization of silver as Germany, Scandinavia and other countries switch to the gold standard. As a result the undebased silver coinage of India, and the currencies of China, Japan and south east Asia, countries comprising half the world's population, suffer an unprecedented fall in value.

Martijn said...

1865-1926 The Latin Monetary Union
This comprises France, Italy, Belgium, Switzerland, and later Greece. The gold and silver coins of each country are legal tender throughout the union. The union has faded away by the 1920s before its formal ending.

1873-1924 The Scandinavian Monetary Union
Denmark, Sweden and Norway form a monetary union similar to the Latin one but with gold as the standard for their currency.

1873-1886 The Great Depression in Britain
The British economy is in decline relative to that of the US and Germany. One effect of the Depression is to cause doubts about the merits of the gold standard.

1886 Gold and Silver Commission considers replacing Britain's gold standard
The Commission is asked to advise the government how best to overcome the fall in prices caused by the Great Depression. Two famous economists, Alfred Marshall and F.Y. Edgeworth, recommend symmetallism where the legal standard would consist of a fixed weight of both gold and silver but nothing comes of this suggestion.

1890 China issues silver coins
Up to this time China has rarely used precious metal coins, its normal coins being base metal cash of a design unchanged since ancient times.

1893 US silver purchase laws cancelled
The abundance of silver on the world market enables gold to be purchased in the US at favourable rates, leading to a gold drain. Fearing that supplies of gold will be insufficient to back note circulation President Cleveland cancels the silver purchase laws.

1893 Herschell Report on India's silver currency
In accordance with the recommendations of the committee set up because of the fall in the value of the Indian rupee, the British authorities close Indian mints to the free coinage of silver. The resulting reduction in the circulation of rupees raises their exchange value and it is stabilized at 15 rupees to the gold sovereign, preparing the way for a move towards the gold standard.

1896 William Jennings Bryan runs for the US Presidency
Bryan is a very vigorous supporter of bimetallism and opponent of the gold standard but he loses the election to the Republican candidate William McKinley.

1897 Japan officially adopts the gold standard
Following the successful conclusion of the Sino-Japanese War two years earlier Japan has accumulated sufficient gold reserves to make the transition from the silver to the gold standard.

Martijn said...

1912 China ceases minting its traditional cash coins
After a couple of millennia use of these traditional Chinese base metal coins comes to an end

1913 Chamberlain Report on Indian Currency and Finance
The report includes a memorandum from one of its members, J.M. Keynes, arguing that there is no need for the internal circulation of gold in India. He also points out that India's strong habits of acting as a sink of the precious metals pose deflationary dangers not only to India itself but also to Europe.

1914 New British notes issued and gold is withdrawn from circulation
New one pound and 10 shilling notes are issued by the Treasury, not the Bank of England, and postal orders and Scottish and Irish banknotes are made legal tender. The success of the new notes allows banks to withdraw gold gradually from internal circulation, thus putting a quiet end to the gold standard.

1925 Britain returns to the gold standard
Keynes argues that the value of sterling has been fixed at an unsustainably high rate.

1928 France returns to the gold standard
Silver convertibility is no longer guaranteed, ending France's attachment to bimetallism. Gold convertibility is only for wholesale transactions of a minimum of 215,000 francs.

1931 US and France hold 75% of world's gold stock
This figure is reached by September. During the previous 6 weeks over £200 million worth of gold was withdrawn from London.

1931 Britain and Japan abandon the gold standard

1934 US Silver Purchase Act
The Act obliges the government to buy large quantities of silver. This raises its price in world markets to such an extent that China is forced off its silver standard and many other countries demonetize their silver currencies. Thus in the long run the Act reduces the demand for silver, contrary to the intention of its supporters.

1936 France abandons the gold standard
The French government's policy of a strong franc is undermined by competitive devaluation. After abandoning the gold standard France continues to be the centre of a Franc bloc including most of the non-German European countries south of Scandinavia until the Second World War.

1944-1960 Prolonged high inflation in France
Following the Liberation in August 1944 economic controls are lifted step-by-step, releasing previously suppressed inflation.

1944-1946 Hungary suffers from the world's worst ever hyperinflation
Hungary's monetary system destroys itself as note issues increase from 12,000 million until at its maximum it comes to a figure containing 27 digits. By July 1946 the 1931 gold pengo is worth 130 trillion paper pengos.

1945-1948 Germany suffers from hyperinflation
Owing to the devastation of the war Germany experiences hyperinflation for the second time in a generation. In the official markets ration cards and permits are more important than currency while on the black market cigarettes, soap, tinned beef and chocolate serve as currency.

1963 Repeal of the US Silver Purchase Act
The longevity of the Act, passed in 1934, was a sign of the lingering power of the silver lobby.

1995 Mondex electronic cash card introduced
Trials of the Mondex smart card which is intended as a replacement for cash begin in Swindon in Britain.

1995 Mark Twain Bank adopts DigiCash
This is an anonymous form of digital money developed by the cryptographer David Chaum.

1999 European single currency is created
On 1st January 1999 the Euro becomes the currency of 11 of the member states of the European Union (Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland). Therefore Europe enters the 3rd millennium with a new currency.

FOFOA said...

Martijn,

That is quite an extensive history you copied and pasted just to make your point. But as much as I appreciate history, the sheer heaping of quantitative loads of information without making an intelligible point is an annoying domination tactic.

Regarding fixed ratios, as I have said, they always prove problematic in the long run. Even in antiquity, a sort of inverse Gresham's Law developed. One metal always performed better than the other. In our modern world of fiat expansion, gold is taken out of circulation due to inflating paper currency. In antiquity, gold performed better than silver in the TRADE ON THE ROAD function regardless of any official ratio (INVERSE Gresham's).

In our modern world of integrated economies, technology and division of labor, the need for the function of wealth reserve has trickled down from the elite to the common man. In antiquity, this was not the case. In antiquity, the elite stored (stole) value while the commoners survived day to day.

There are two basic histories. One is the story of the ancient powers that be. The other is the more illusive story of the ancient market organism. "So far not too much evidence of gold superiority." You have not dug deep enough. But then again, I would guess you have already found what you were looking for.

If you are really here on this blog to disprove A/FOA, then please, at least take the time to read them!

If you are truly interested in digging deeper into the MEANING of this history, then I suggest you start with FOA. In there you will find extensive analyses, with titles like "The Gold Of Troy", "Troy and Beyond, Even to Rome!", "Lombards, Normans and Franks" and "Of Money and Men".

Sincerely,
FOFOA

Martijn said...

I agree.

My point is that both gold and silver were used throughout history, with probably a slight tendency towards silver. And I am not trying to disprove anyone, I am only wondering whether we really have seen everything that was important.

Another interesting notice is that governments have been struggling with inflation on a rather regular basis.

I will read another before commenting further.

In the meantime here is a short read titled "the shadow banking pyramid".

Did you also read the mad scientist on silver/gold?

Martijn said...

Basically my point on monetary history is in line with the Mad Scientist: in my opinion gold and silver are too connected, if gold would rise drastically because many perceive it to be a far better value store than any paper, a part of the market will cause silver to rise as well.

Breaking the historic link between gold and silver is not an easy thing.

Anonymous said...

Fofoa,

I've been searching for information regarding G2 US-China and I've found nothing interesting to hear. Did you dig anything? I'm wondering if we may hear anything or the secrecy is so gigantic...

Thanks,
Fauvi

J said...

Martijn,

This may help you understand why it is GOLD that will benefit the most once this current system is eradicated

writings from FOA

"After 1976 they (oil producers) jumped into gold but soon found that their excess dollar flow could never even partially be shifted into gold as it was traded on this new commodity arena. For them, gold wasn't just a "trade", it was payment in the form of real "reserve assets". Oil assets for gold assets! If the CBs hadn't sold into the storm, gold would have went to the moon from oil flow alone. So they, and everyone else soon found out that there was a world of difference between trading "gold dollars for real gold" at your Central Bank and "buying commodity gold in a trading arena". In truth, the gold market was only a free market for commodity trading. It was never allowed to trade as a "wealth reserve asset"."

-------------------------------
The Middle East wants Gold in exchange for Energy(Oil!) The $ system only functions because oil is purchased with $'s. Silver, copper, platinum, rhodium, or palladium is not what the Energy Providers seek. It is not what the Asian producers seek and use to store their wealth. The WORLDS PRODUCTION AND ENERGY CHASES GOLD. Central Banks(Giants) hold Gold. Follow those who provide the energy, production, and hold the wealth of the world.

-J

FOFOA said...

Martijn,

Since you agree with Mad, you will probably enjoy this new article by Ted Butler:

D-I-V-O-R-C-E

SNIP:
"The US Government, the world’s largest owner of gold reserves, and formerly the largest owner of silver reserves, now owns no silver. For those that are convinced that there is government involvement in the gold and silver price manipulations, this is a difference worth considering."

Ender said...

@Shanti – 11:21

The other day I had a little difficulty locating the archives of USAGold. The obvious links are no longer available, but it seems the content can still be found. If one is curious (or if FOFOA is willing to add a link above) I found it here: http://www.usagold.com/cpmforum/tools/goarchive.html.

It wasn’t long ago that USAGold allowed for feedback on the information posted there. I do not see any public way of doing that today. That is most unfortunate for USAGold.

In any case, I corrected MK once before on his reserve calcuation and I cannot do it there now. You though, and everyone else reading this blog, can find that correction here: http://www.usagold.com/cpmforum/?p=171544 or http://www.usagold.com/cpmforum/?m=20090426.

The wealth of a nation can be counted many different ways, but spending reserves to buy reserves only changes the quality of what’s considered a reserve without deministing the tally of reserves.

FOFOA said...

Ender,

I remembered your correction to MK when I re-read that yesterday. Although I didn't remember it was you.

Another and FOA have been linked in the right column of this blog since day 1. I will add a couple more links to USAGold archives as well, including the one you just posted. Some of those archives are worth sifting through. There were some great posters there over the last decade and some great posts remain in those archives. Who knows, maybe a couple of them are here now. ;)

FOFOA

FOFOA said...

Fauvi,

Nothing groundbreaking yet...

From Drudge:

LECTURE FROM REDS: CHINA WARNS USA ON SOARING DEFICITS...

Geithner Assures...

Dollar Falls to 2009 Low...

From Jim Sinclair:

"Keep in mind that this week has an avalanche of US Treasury instruments offered for sale.

The Chinese financial delegation is visiting Washington with their counterparts in the Administration.

They wish for a Super Sovereign Currency alternative to the US dollar and a cessation of debt offerings as a way of life for US fiscal policies.

Intervention in the dollar was clearly evident from 6 to 7am this US morning off the approximate .4300 level in the Euro which corresponded at that time to .7840 USDX.

This market intervention is purely transitory in the US dollar as there is a planetary desire for dollar diversification and a multi trillion dollar US Federal deficit."


U.S. Budget Is Scrutinized by a Big Creditor

Talks with U.S. focus on banks, not dollar: Zhou

Ender said...

@FOFOA
I have recognized a few and look forward seeing more.

@Anonymous 11:13 & 11:24
How many times have we seen the following quote? (http://www.usagold.com/goldtrail/archives/another1.html)
“Think now, if you are a person of "great worth" is it not better to acquire gold over years, at better prices? …”

Now, with China always being in the news with regards to it’s paper reserves, one has to wonder if they have not already pondered the first two words. It is my belief, and through their actions over the years, they have thought about this and realize that it is in their best interest to continue to acquire gold at bargan basement prices. If they were to bid openly, they would not be able to acquire the volume that they desire – YET - ultimately, maintaining confidence in their currency provides functional value beyound a few extra tonnes of gold in their (most likely unauditted) vaults.

Today, China has a means of production that provides the capability of acquiring reserves. That is a beautiful position to be in. If/when the people of the world actively stand for Freegold, they will be possitioned favoribly in that new world.

Personally, I do not expect any organized action against the current system other than a few more words and colorful soundbites. Actions behind the schenes are in favor of those acquiring gold. While they continue to move towards direct exchanges or contracts for barter outside the dollar system.

The road ahead is golden, yet it is one the people have to choose.

FOFOA said...

A note on the new links:

The USAGold Forum Archive has a full page of posts for each and every day going back to Sept. 22, 1998 up through June 15 of this year. In many ways, this older format is preferable to modern forums because it is easy to observe the flow of the collective mind of a group focused on one specific subject through time. If you think back over the past 11 years, there are many key dates worth looking at. One thing I like to do is if I happen to read a Hall of Fame post that I like, I then search the daily forum entries in the days leading up to and following that HoF post. Just like here, the group effort adds a lot to the Thought process. Also, there are many posts by FOA in those archives from the time period between the end of "Thoughts!" and the beginning of "The Gold Trail".

Sincerely,
FOFOA

Anonymous said...

Fofoa,

I don't quite understand FOA's euphoria on the euro. Yes, those 15% gold backed,competitive towards the $, for exchange in Europe. But otherwise? Haven't they also seen the problems? Actually it also brought many problems - and these differ from country to country. Germany as exporter has different problems compared to Spain. What might happen to Freegold in a country as Germany - highly leveraged banks, high national debt (which like in US cannot be paid back), savings yes, but high taxes too? I don't quite understand their bullish forcast for the euro but by comparison to the $, which dosn't seem very positive to me. Both are misused paper, both are no wealth store!!! I hope the euro in its actual form will go the same way as the $ and that soon!

FOFOA said...

Anonymous,

FOA's euphoria was for gold, not for the Euro. His writings must be viewed in the context of the whole. And a few points should be made:

Point 1 - FOA was writing at the very time the Euro was launched.

Point 2 - At that time, the Euro was a topic of passionate discussion, both pro and con.

Point 3 - The main thrust of Another's and FOA's message was about gold, oil and the dollar, NOT about the Euro. But it was presented in the context of current events which included the launch of the Euro.

Point 4 - With regard to the Euro, FOA claimed that the goal of the ECB and the BIS all along was a "slow boil" of the dollar, to gradually transition gold in as a reserve currency alternative, including even using the dollar's own IMF against it. This complex and gradual plan was to slowly raise the price and prominence of gold while at the same time, gradually marking down the dollar, giving certain dollar asset holders time to hedge BEFORE the dollar collapsed on its own. I think we have witnessed this EXACT EFFECT ever since both the launch of the Euro and since Another and FOA told us about it!

Point 5 - FOA summed up his feelings about the Euro with this final statement: "For this transition I proclaim that "Western Investors" buy mostly gold. But, knowing that everyone holds other assets, we should try to denominate those (other) holdings in Euros if possible." He favored "Euro-denominated assets" over "dollar-denominated assets", but secondary to physical gold.

Point 6 - When FOA was accused of being a Euro shill, he took great offense and felt compelled to defend his message, saying that the "thrust" of his hundreds of posts was most clearly stated as, "Gold, the only investment needed for the next thousand years."


Yes, the Euro certainly has its problems. It is a regional currency which means essentially a FORCED FIXED exchange rate among member countries with differing trade balances. This does NOT allow for balance through the currency.

Think about China and the US. Look at the imbalance that has developed through China's pseudo-peg to the dollar (allowing dollars to flow through China as easily as Spain's official currency now flows through Germany. See my first diagram in the above post). In the Eurozone you have a ROCK SOLID peg. This will create even MORE imbalance, favoring the weak and hurting the strong. It is monetary socialism. It is a fight between price stability and balance of trade. One or the other must float in an unequal world. And if the floater is balance of trade, then the imbalance keeps getting worse and worse until everything snaps and prices must reset.

Freegold, however, would allow for a semblance of balance in the Eurozone in parallel with the single currency. Ultimately nations would have to carry their own weight or run out of gold, and perhaps be kicked out of the union. Not a perfect system, but better than what we have now.

This is why I view the future as many competing currencies. As I said at the end of 'A Little Perspective', "Monetary theory is FAR from being a settled science. We should not rest comfortably on untested, possibly false assumptions."

I don't know if the Euro will follow the fate of the dollar, but if this subject interests you, I encourage you to read this debate between Robert Mundell and Milton Friedman:

One World, One Money?
Robert Mundell and Milton Friedman debate the virtues—or not—of fixed exchange rates, gold, and a world currency. -May, 2001

Sincerely,
FOFOA

Anonymous said...

" The euro " :

Before the succesful €-birth, the $-system/regime was the absolute global monopolist. We all had to live & die by the dollar.
The pound/swiss-french fr/Dm/, were too small as to possibly compete with $-dominance. It was "playtime" in the floating currencies' park.

Now, there is a $-alternative,...there are competitors to the $-monopoly : Euroland - China - BRIC ! NOW, there is a PRO GOLD FACTION ...that can challenge the dollar's gold-antithese !!!

The extreme lucrativity of the privileged $-monopoly has already been "broken" . The international PP of the euro is 40% higher than the dollar's ! This PRO GOLD FACTION is also moving gold's int. PP higher vis a vis the dollar's PP (purchasing power).

It always was the $-regime that never wanted Freegold. This regime always wanted a dollar as good (better) than gold. And the entire world "had" to accept this system.

Now we are in a transition period where the choice between $-gold and freegold becomes gradually free-er. This is undermining-exhausting the old $-regime and will cause the collapse under its own weight.

Martijn said...

Fofoa,

When ANOTHER said:

As for the US$ and T- bills held overseas, "they don't really exist"!

What exactly did he mean?

Martijn said...

Do you think in these terms: "if gold goes up $100+ next week I'll sell my futures, gold stocks and 10 K-rands for a fat profit and laugh all the way to the bank" If the gold market was the same as in the 70s and 80s, that might be a good move. But this market is not the same.

Isn't it funny that trader Dan at JS mineset seems to think this way...

I know Jim has advised people to take delivery of physical, but I wonder to what extend he agrees with the thoughts of ANOTHER.

Martijn said...

Fofoa,

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

Have you already obtained financial privacy?

FOFOA said...

Martijn,

"What exactly did he mean?"

Click Here

"Have you already obtained financial privacy?"

If I told you I'd have to kill you.

FOFOA

Anoniem said...

Fofoa,

On paper and intrinsic value I was thinking the same, but I did want to make sure by checking.

Also relevant: Remember this Sheikh?

Martijn said...

Previous post was mine.

Martijn said...

Fofoa,

That Sheikh might very well have been a friend of another, judging by his lectures.

Smiley

Martijn said...

It is worth watching the whole vid, but if you do not want to: the fun starts at 8 mins.

Martijn said...

And after that clip end you certainly want to see the next one

Martijn said...

The Sheikh argues that when the dollar collapses there is absolutely no way in which the US can maintain its world power status.
According to him, power will then shift to Israel - think of that what you want to.
After that he argues that the only to way survive is to own gold. However, he argues that it is not possible to return gold to the macro world. He says the only option is the micro-level. Bringing back money with intrinsic value to local markets.

He makes an interesting point fofoa. According to him the main struggle is to abandon paper and re-introduce money with intrinsic value. According to him that is the only thing that matters. The form of the intrinsic value is irrelevant. It can be gold, rice, silver, salt, or whatever, as long as it has intrinsic value.

Martijn said...

The Sheikh at 2:00 minutes says buy gold.

He is a thoughtful man that seems to understand many financial things.

Martijn said...

Wow! in the clip linked previously he argues that Saudi does not(!) get oil for gold!

He says that only Malaysia understands the value of gold!

Martijn said...
This comment has been removed by the author.
Martijn said...

Malaysia does however not export a lot of oil.

FOFOA said...

Martijn,

What I have seen of the video so far is interesting. The flaw I see in his view (as you have summarized it) is the failure to recognize that money's different roles can be separated. In antiquity, the difference between the trade and reserve functions of money were always blurred. But in our modern fiat system they need not be blurred any longer.

Go back to Fekete's Medieval Fair: 'A Fairy Tale'. With our modern clearing system the denominating units of trade no longer need to have intrinsic value.

Also, remember what I wrote in "A Little Perspective" about scrip clearing: "Imagine a carpenter, a plumber and a painter. The carpenter banks at Bank A, the plumber at Bank B, and the painter at Bank C. All in the same day the carpenter works on the plumber's home, the plumber works on the painter's home, and the painter paints the carpenter's home. The carpenter writes a $500 check to the painter, the painter writes a $500 check to the plumber and the plumber writes a $500 check to the carpenter. The next day they each deposit their checks and that night the banks pass them around and make book entries. By the next day all debts are settle, all payments made, and no money was needed at all. The banks performed their function as a giant, complex scrip clearinghouse."

It is an outdated view that we must return to a money that can fulfill BOTH functions as it did in ancient times. It is HIGHLY UNLIKELY that we will go back to such a Medieval system in our time, in our modern, technically complex world, even if the man in the hat says we will. Therefore, it is HIGHLY LIKELY that these two separate functions of money will part ways, being ultimately fulfilled by different denominators. Scrip and Freegold!

Think of it as separating space and time from the space-time continuum. Yes, what you hold through time must have intrinsic value or you will lose value to the printers. But what you pass through space in the very moment of exchange need not, as long as there is an efficient clearing mechanism, which we do have! Only the imbalances that show up at the closing bell of the Medieval Fair need to be settled in a money with intrinsic value!

Aside from that and his speculation on who is behind all of the world's ills, the Sheikh makes some very good points.

Regarding the Saudis and the Malaysians, yes, the Malaysians speak loudly and openly about the qualities of returning to a gold dinar for trade. But the Saudis simply and quietly accumulate fresh physical gold reserves. Again, separate functions!

Incidentally, FOA was American and Another was not American nor Muslim. This much we know.

FOFOA

Martijn said...

It is an outdated view that we must return to a money that can fulfill BOTH functions as it did in ancient times.

Well, the Sheikh does use an ancient book (smiley) - although he presents it rather actual. He argues however that going back to sunnah money (money with intrinsic) value is what should be done. He also says that "they" will not allow that. The next step according to him is digital, pushing the concept even farther away from tangibility.

FOFOA said...

Well, as I have said many times, there is a difference in importance between what SHOULD be done and what WILL be done. The importance is your savings!

Once we get to the new system, it won't be so bad to hold scrip for short periods of time. But for longer periods of time you will want to convert your scrip to gold.

But it is this transition phase that we are in where the real danger (and OPPORTUNITY) lies.

"He also says that "they" will not allow that."

Again, he is failing to recognize the separation of functions. "They" will not allow gold to fulfill BOTH roles. At the same time, THE PEOPLE will not allow scrip to fulfill both roles. So we come to a natural separation of roles. This, they WILL allow!!!

"The next step according to him is digital, pushing the concept even farther away from tangibility."

Again, a failure to recognize the obvious, even when it is right in front of you. I once read that our mind blocks out that which it has never imagined, even if it appears before our eyes.

FOFOA said...

On second thought, he is telling people to buy gold or you will lose your money. Then he is saying they will never allow gold to be used as currency, instead we will have a fancy digital unit to denominate trade. Sounds like he's describing Freegold, no?

Martijn said...

He does. I told you: he said we can only start at the micro - read individual - level.

Martijn said...

Only according to him the goal is not so much gold as it is summah money. Freerice would also work for him.

Smiley.

Martijn said...


"The next step according to him is digital, pushing the concept even farther away from tangibility."

Again, a failure to recognize the obvious, even when it is right in front of you. I once read that our mind blocks out that which it has never imagined, even if it appears before our eyes.


He ment that "their" next step will be digital. "They" want to take the concept of money yet a step further away from tangibility. I don't think he sees that wrong.

Btw: the lecture was given in 2003

FOFOA said...

"I don't think he sees that wrong."

That's why I said, "On second thought...". I see now that he is more on point than I thought he was.

"They" can easily control what we earn and spend through legal tender laws. They can push that as far away from tangibles as they want. But they can't control what we save, buy or hold as a reserve as easily. They will have to let that function return to tangibles.

Anonymous said...

Not only the "axis" Moscow-Tehran-Caracas, but also Qatar and Norway, for instance, and sooner or later the Gulf Emirates, are ready to break up with the petrodollar. It goes without saying that the end of the petrodollar - which won't happen tomorrow, of course - means the end of the dollar as the world's reserve currency; the end of the world paying for America's massive budget deficits; and the end of an Anglo-American finance stranglehold over the world that has lasted since the second part of the 19th century.

http://www.atimes.com/atimes/Middle_East/KG25Ak03.html

Anonymous said...

Sorry, I've posted the above without having the time to write more on it.
Fofoa, what do you think, which aspect is preponderant when expecting a dedolarisation - the economic or the geostrategic?

I cannot expect only the economic one as I think that the money masters are/have been to shrewed up to now. I also don't quite understand why A/FOA haven't commented on that and in my opinion they were too keen on the euro. As we see today the European govts are just vassals to US, Sarko and Merkel will lick odunba's boots forever.My conviction is that it is absolutely multifactorial to be seen, and not only gold advocates can change things, but together in multipolarity. US's backbone has to be broken under these two aspects.

Fauvi

FOFOA said...

Fauvi,

I believe economic reality is primary and geopolitical machinations are secondary. Geopolitical will is impotent without economic backing. But economic reality can change the entire world overnight, even without political backing. I think this is why A/FOA focused mainly on economics, and why they liked the Euro. The Euro represented a political course aligned with the future expectation of the end of the dollar reserve function. And perhaps they also had inside information that the architects were helping it along?

Today, however, both are aligned against the dollar. But I still don't think that any political will or geopolitical mishap can change the course of the Titanic. It has too much mass and forward momentum.

It is true that oil and the "petrodollar" play a key role in this transition. I suppose you could say THIS was the geopolitical aspect of the A/FOA message.

Martijn said...

I think the political, military and economic layers of the world are highly intertwined. As in a game of Chess, where the value of the pieces depends on the development of the game and the position of other pieces, the relevance of each layer is determined by the position of the others.

For someone aiming to overtake military power from the US for instance, a demise of the dollar might pose a massive drawback for US international military operations. Many of similar examples can be thought of.

Martijn said...

Should anyone want to explore what else that Sheikh has to say: here is his website.

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