Monday, August 31, 2009

Dollar Repudiation

Every day I read new articles about how and why a purely symbolic unit of account, a book entry, a piece of freaking manmade paper is going to RISE in value simply because a couple hundred million sheep can no longer be trusted to pay their bills. Are you kidding me? It is the SYSTEM that is failing. The system IS the dollar. The dollar IS the system! And the trusted administrators of this system are right now FLAUNTING their power to create new digits at will TO BUY THEIR OWN FREAKING DEBT!

Sure, I have some dollars. I have just what I need to pay my bills for the next few months. But not in my savings. Not in my portfolio. I just gotta wonder how confident these deflationists really are, that they have gone to 100% cash. 100% TOILET PAPER! Or are they just trying to conjure up some confidence through repetition? I suppose if you say it enough, it must be true! But I'll tell you, it sure feels good to know I'm holding real physical gold right now, not some silly piece of paper. Or worse, some quack's digital book entry that says I'm entitled to some silly paper!

What exactly is a dollar? And what value does it hold?


Of course a dollar holds the momentary value that producers and hoarders of real goods and services are willing to surrender for silly paper at any given point in time. The key is that value is determined by producers and hoarders of real stuff (not by printers and hoarders of paper stuff), and that their opinion of paper changes its value over time.

During the credit expansion phase of the system there are opposing forces that magically manage the value of a dollar. The first force is that credit creates many new plastic digits that bid on the same stock of real goods and services, putting upward pressure on prices. The second force is that the credit expansion process creates a paper Ponzi profit pyramid which lures producers and hoarders of real stuff into the paper world, putting upward pressure on paper. These opposing forces keep common prices in check. Another see-saw balancing act that makes price and value appear stable when it is most certainly not.

Then in the next phase, as the paper Ponzi profit pyramid pops, we see these forces play out in reverse! A flight from Ponzi paper and at the same time a disappearance of plastic phantom digits bidding on real stuff. More price and value stability! Well I'll be...

This economics thing can sure be confusing! By the way, please review my April post, The Judgment of Value to see who exactly sets the value of a dollar. It is this "judge" who is currently and temporarily dazed by these confusing forces!

What formerly made this "judge" want our worthless paper (the paper Ponzi profit pyramid) is no longer functioning properly. Yet he is still accepting our paper at the same previous rate. At least he is for the time being, probably because we are shoveling into his wheelbarrow a little slower now. But what is he going to do with all this paper now that it is paying 0% interest, and now that the paper Ponzi profit pyramid seems to have morphed into a black hole space vacuum monster?

It is true that we did hit him upside the head pretty hard with our shovel last September. And he may still be dazed and confused from the blow. Or maybe he is only pretending to be as he plans his escape.

About these "value judges", from The Judgement of Value:
The mechanism by which they pass this judgement [on our dollar] is an enormously complex concept. Our government tells us this concept is called "inflation" (or "deflation"). They tell us that these people of great control either "inflate" prices or "deflate" them. But in reality, these people are simply trying to balance the goods they can receive in the future against what they are willing to part with in the present. To do this, they weigh what they have in stock against what they need and want. And they pay close attention to the cost of those other things as well as the availability and time horizon for acquiring them.

So these "judges", these price-makers and value-setters are actually looking at the dollar's "store of value" function. And they are analyzing it relative to their own time horizon for purchases. Presently they cannot count on interest or the paper Ponzi profit pyramid to protect their paper holdings over time. They can only look at their own FUTURE JUDGEMENT as it pertains to and creates either future inflation or future deflation. They must judge the present based on a guess at their own FUTURE JUDGEMENT!

The problem right now is that these "value judges" are seeing the trend AGAINST future goods being offered in exchange for US dollars. Sure, the US will always offer its exports in exchange for dollars. But the main export of the US is paper Ponzi pyramids, which have fallen out of fashion. It is the rest of the world's "real stuff" exports being PRICED EXCLUSIVELY IN DOLLARS that gives this paper any value over time. And on this front, the future looks grim.

Of course we are now talking about the "medium of exchange" function of the dollar. And while this function will continue INSIDE the US, the only thing that matters to our "value judges" is if it will continue OUTSIDE the US. And remember, the dollar, like a drunken sailor, has sowed its seeds far and wide! But it is not the holders of those global dollars that determines their value, it is the holders of the real stuff they buy!

Of course, over time some of these producers have also become hoarders of US dollars in the form of Treasury debt! These dollar stockpiles are now stored in the central banks and sovereign wealth funds of some powerful judges. And based on this knowledge, we silly Americans tend to think, A-HA, we've got them! They are caught in our paper trap! They are in a Catch-22! They HAVE to keep shipping us their real stuff in exchange for our worthless paper! But do they? Is there really no escape from this "trap"?

There is no way these powerful judges could ever sell or unload all of those dollars they hold as US debt. But remember, it is held by their central banks, not private interests. So, the CB's would not be looking to "spend" these reserves in the usual way. They obtained them as their local economy generated excess sales to the US (for them a trade surplus) and their private citizens wanted to hold local currency assets, not dollars. So the CB's printed local currency and traded it with their citizens for these excess dollars. Then they traded the dollars for US debt so as to earn interest.

Now, exactly what good are these debt holdings as long as their country continues to run a trade surplus? Not much if the locals don't want to hold dollar Ponzi pyramids. In the end, if the CB's were to sell these Treasury holdings it would crater the US debt markets long before any real value was obtained. And, to further their problem, the real value could only come after spending the dollars to buy something real. Now what does a CB spend its reserves on, cars, TVs, other currencies?

No, the way CB's balance paper currency Ponzi value risk is through the age old asset of gold. Indeed, if a CB already has enough gold, all it needs to do to secure its net value is to use the medium in jeopardy, the dollar, to bid on its counterbalancing asset, gold. Then as dollar assets crash, gold rises in value to fill any void left by the dollars... and then some!

CB's deal in paper and gold. When the value of one starts to fail, they transfer that value to the other. This is what they do.

They certainly aren't done yet. But they have definitely started.
India Times
Central banks turn net buyers of gold in second quarter of 2009: WGC
19 Aug 2009, 1905 hrs IST, Devangi Joshi, ET Bureau

Another interesting development during the quarter was that Central banks were net buyers for the first time since at least 2000. They bought 14 tonnes of gold, more than what they sold.

And it appears that some judges have already ruled.
The Times of India
China world's 5th largest gold holder
Saibal Dasgupta, TNN 25 April 2009

BEIJING: Large scale hoarding of gold by China may have been partly responsible for the near tripling in prices of the yellow metal in the past six years. Figures released by the country’s State Administration of Foreign Exchange shows Beijing boosted its gold reserves by 76% since 2003 to become the 5th largest holder of gold in the world.

And others are taking notice.
Gulf News
Oil pulls Saudi economy down
By Vidya Diwakar, Staff Reporter
Published: August 19, 2009

"I think that eventually we are going to need to run an exchange rate more independent from the one fixed to the dollar, but this should best wait until there is a GCC currency," Dalton Garis, an Associate Professor of Economics and Market Behavior at The Petroleum Institute in Abu Dhabi, told Gulf News.

The dollar repudiation has begun!
China to Boost Yuan Swaps, Payments on Dollar Concern
By Bob Chen and Judy Chen

April 2 (Bloomberg) -- China’s leaders, increasingly concerned about the nation’s $740 billion of U.S. Treasuries, are making it easier for trading partners and consumers to do business in yuan.

The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. More such arrangements are being planned so importers can avoid paying for Chinese goods with dollars, the central bank said. In Hong Kong, which has pegged the currency to its U.S. counterpart since 1983, stores from Park’n Shop supermarkets to jewelers accept yuan.

And the endgame may be sprung at any time.
How China Will Handle the Yuan
Minyanville
Aug 28, 2009

Lance Lewis: You notice the extra chunky volume in the Chinese Yuan ETF (CYB) yesterday at the same time that the dollar reversed violently?

Ryan Krueger: I do now. And the cash markets in beans are way above the futes even with this ramp job. Hmmm...

Lance: I’m telling ya. Something is up with China and the yuan. It would explain a lot. What if it were close to revaluing against the dollar?

...

Lance: Exactly! That’s my point. It’s the only thing that fits. If so, the dollar would get smoked, literally, “overnight” and gold would explode. Bonds would probably get crushed, too.

So what happens when a currency is repudiated by the world?

Let's take a look at what happened in Iceland ten months ago. Practically overnight the Krona lost more than half of its purchasing power. Luckily the Krona was a small fish in a big pond and a number of bigger fish came to its rescue including Germany, the Netherlands, the UK, Norway, Sweden, Finland, Denmark, Poland, Russia and the IMF. These big fish put a bottom under the Krona waterfall, but for the local Icelandic population, the damage was already done.

Call it a currency collapse, a hyperinflation, a devaluation or a repudiation; call it whatever you want. But the cost of everything people use and need in Iceland doubled or tripled in one month. And at the same time, the things they counted on as a store of value, the banks, real estate and the local financial industry collapsed. Hit from both sides! A brutal double whammy!

You see, in Iceland almost everything produced is an export, and almost everything needed is an import. And imports and exports are the hardest hit in local hyperinflations.

Local hyperinflations primarily affect imports and any domestic product that can be exported. In other words, if it can be sold somewhere else for better money then it EXPLODES in price. But locally produced and consumed products and services become quite cheap in real terms. And by real terms, I mean for those who have some gold! This includes real estate, which is difficult to import or export!

But who is going to come to the rescue of the biggest fish of all? Who is going to bail out the dollar and put in a bottom? The aliens? I have a sneaking suspicion that the dollar's collapse will be a little different (read: worse) than past recorded events. It will certainly be a sight to behold. Just think about it; Where will you be, what will you be doing, how will you react, and how will you be feeling when it starts? Gold delivers a LOT of peace of mind in this regard!


Where is your nest egg tonight? Is your portfolio all "in cash" right now, ready for the deflation? How nimble are you? Are you fast enough to swim up a waterfall?

FOFOA

63 comments:

Shanti said...

Some nice quotes together brings more light on the subject, you realy made a great point for deflationistas :-)

Think the latest of Armstrong comes to the same conclusion as a bit from another angle, and this one is also clearly in the matter;

http://www.gold-eagle.com/editorials_08/greyerz082709.html

But above all i like your quote:

"How nimble are you? Are you fast enough to swim up a waterfall?"

Anonymous said...

FOFOA: Do you read any of Mish's postings? Here is his latest as of this comment:

http://globaleconomicanalysis.blogspot.com/2009/08/countdown-to-dollar-implosion-madness.html

Tablemaker said...

I've noticed that you rarely talk about silver. I would love your insight, as I have my portfolio based in the physical white metal. Will the waterfall crush me along with the cash holders?

Anonymous said...

*sigh* if/when the us$ paper money system implodes and the food and toilet paper distribution system is disrupted, will you wipe your ass with so many gold coins?

I know, I know- gld has been one of the only worthwhile investments in my portfolio the last few years (and ps, is gld a fake too??) I just don't know. It's really all comes down to trust - can you trust your fellow human/computer to be telling you the truth anymore? How do you even know that 1oz gold eagle you just eagerly bought for $950 worthless pieces of paper (or magnetic credit stripes) is really 1oz of .999 pure Au?? Do you need to have a mass spectrometer in your basement, too (along with the flu masks [got em ;)] and all the other mad max survivalist equipment)? *sigh* it all comes down to trust, and sadly there seems to be 0 of that crucial value left in the world. So we're all fucked- us$ holders, au holders, everyone. Good luck.

Ender said...

@Tablemaker 7:26 above

If it helps, my take on it is that - gold is for savings, silver is for spending.

The waterfall should be thought of as a psychological change in people where they go from valuing promises to pay to settled transactions. It’s the action that occurs in someone when they realize that the promises that have been made to them cannot transpire. Unlike normal times when the ‘stream’ meanders downhill slowly, the waterfall is when the velocity of dollar transactions explodes as no one wants to be left holding the roll.

When this happens, it is those that expect past promises to be settled at previous prices that get crushed.

When this happens, those that hold metal, that has historically been money, find that they are ahead of the demand curve. And their ability to acquire goods and services can still function – for they still have … money.

The difference between Silver and Gold is that the central banks of the world hold gold and have a vested interest in maintaining its value. Gold unofficially balances their printing. Gold is what they consider money.

Ender.

MichaelB said...

@Anonymous
Gold Eagle coins have been tested many times by many a dealer. They are alloyed with silver and copper so they weigh more than 1oz troy, but are 22Kt, .917 pure of the 1 tr oz gold.
Back in 1986 and 1987, the US Mint produced at least two full color brochures that dealers were giving away free. I have quoted from these leaflets many times at Gold-Eagle forum and Usagold using the handles Mikal, Goldtouch, glowbug and others. These brochures are full of solid bullet points and economic reasons to hold bullion coins as investments that governments rarely, or never articulate.
So these are world class coins. Purchased and held by the richest, most savvy investors and funds in the world, at various times they have been number one in sales globally (not counting proofs, fractionals, Buffaloes, High-Relief, commemorative coins).
Best wishes
MichaelB(AKA Anonymous, my other handle here)
@Tablemaker
Ed Steer's latest free newsletter contained another anecdote of extremely strong German Ag buying. This was the case at various time sin the last two years.
Also, Russ McDougal, Bill Murphy, Adrian Douglas, Jim Willie, Dr. Vronsky, Bob Chapman, Mogambo Guru, Antal Fekete and Rob Kirby among many others, are very bullish on silver as well as gold. Various factors and current indications from the global paper markets in precious metals show tightness and complete backwardation looms. A collapse of the basis along with admission of default and bullion bank capitulation would relieve the shorts of their duties to cap the price and allow some semblence of a global trade in the metals to achieve equilibrium.

MichaelB said...

@Tablemaker
Another brief point, another recent development that many silver bulls, such as yourself have found extraordinary is the announcement that Chinese officials began actively promoting silver investment among their massive populace. As noted before, Germany and places like India are traditional buyers and as CB's cease or slow sales, miners dehedge, Asian incomes grow, nations and sovereign wealth funds seek diversification and emerging nations seek dollar alternatives and safe havens, it becomes more and more difficult to satisfy precious metals demand at anywhere near current prices.
Best Wishes, MB

MichaelB said...

@Tablemaker
When the government began the Silver Eagle program in 1986, this was very good for silver a san investment.
They also produced brochures for dealers that promoted silver ownership, not just gold.
We can see the US Mint continues to have problems coming up with the blanks needed to meet earlier promises and fails to resume making Uncirculated gold bullion fractional gold coins, proofs etc.
Someday soon we may see these sales nowhere near current levels as prices and availability choke off the trade.
With much US demand from IRA's, stipulated by law to allow only certain bullion deposits, the window of opportunity is closing quickly.

MichaelB said...

@Tablemaker
Been posting at four other blogs and forums on precious metals and the economy as well.

Anonymous said...

http://tinyurl.com/nybuec

This Amazon grain scale is surprisingly accurate. 480gn = 1ozt, and I feel confident buying generic rounds with it. 999 has it's own song when dropped or spun on granite.

Ender said...

@MichaelB

I do have to say I miss your old news updates on usagold. Too bad that forum’s been restricted it has a great ‘form’ for posting. I hope you’re enjoying the time away from posting. Yet, then again, if you’re not taking time off, can you post up blogs you interact with?

Welcome, good to see you here.

FOFOA said...

Price of gold: the paradox is revealed
LEAP/E2020 GEAB N°34

"...In conclusion, our team recommends that its subscribers who do not want to speculate (and therefore face the risk of losing their entire investment (10)) must stop investing in paper gold and should limit themselves to physical transactions (11). It This may be difficult in some cases, but as we get closer to the breakdown of the international monetary system in the summer of 2009, we believe that there is now a major risk that owners of paper gold will end up losing all their investment when sellers recognize that they cannot honour their contracts because they are unable to supply the physical gold they contracted to."

MichaelB said...

@Ender
Thanks for the welcome and comments. It's been most inspiring and informative reading your comments here in the last couple months, as well as those of FOFOA, Belgium and others.
I've been leaving comments at http://www.benjaminfulford.typepad.com blog
and SeekingAlpha.com blog, starting this year.
Also I've been posting at Eagle Ranch(one of the sites linked by GATA in their dispatches)for many years, since Thaigold left Usagold. He and Rex(Walking Bear) now have two forums(Express and Hitech). There have been many posters there over the years from Gold Eagle, Kitco and Usagold posting on all subjects, including Tai, Auspec(Russ McDougal), Peter Asher, volavka, RossL, Ironhead, Tree in the Forest, and others.
There I post as Gs (short for Goldustorm) @ eagleranch.net or os2eagle.net.

Many of us, including myself, now post as well at Tree's fine new forum, The Outcasts @ http://www.voy.com/218910/. My handle is Mgs.
Best regards

Nelson said...

I don't see how a 50% devaluation of the ISK constitutes hyperinflation in anybody's book. There are objective definitions of the term, one of which is 50% inflation per month, not once-off.

To compare Iceland with Weimar Germany is hyperbole in the extreme, and to compare a nation of 300 thousand with one of 300 million is at best a stretch. But when we include the lack of resources or productive capacity in Iceland versus the huge built-out infrastructure and natural endowment of the US, well, there's really no comparison.

BTW, the PPI continues to fall, so we're still waiting to see how long it will take for our yearlong global trend to reverse itself and debt deflation to subside. In choosing between the opposing views of two obviously smart guys, my money's not on you this year, it's on Ilargi - literally. But I thank you for your freely offered and concise assessments - they are IMO some of the best presentations of the 'inflationistas' arguments out there. I wouldn't have come to as informed a decision without them.

FOFOA said...

Nelson,

Fair enough. I only offer my thoughts for your consideration!

But just to be clear, a 50% plunge in one month constitutes a 100% inflation rate for that period. 100% per month annualized is 409,500% inflation. This equates to a month in Zimbabwe during 2007.

So I suppose your definition argument is really about how long a currency collapse must last in order to be called "hyperinflation". Or how low it must go? Does a currency have to go to zero for it to be called hyperinflation? In the Waterfall Effect I discussed two ways a currency collapse could play out. Rick Ackerman, a deflationist, argues that if and when hyperinflation hits us it will likely play out in only two weeks! He quotes a Peter Schiff prediction when making this assessment.

Regarding your size comparison, I have argued on here several times that the "size" of the dollar (a common argument against currency collapse) is actually not a strength, but its Achilles' heel. If its size were contained within its borders, it might be a strength. But it is spread far and wide, exposing it to repudiation in a world where it does not even have the built-in protection of being legal tender.

The threat discussed in this post (one of many threats that exist) is that foreign goods that don't HAVE to be price in dollars by law, soon will not. And that even the EXPECTATION of this event is enough to collapse the dollar unexpectedly!

Sincerely,
FOFOA

Ben Franklin said...

Mish is right regarding deflation but only up to a point. We'll have both deflation and hyper-inflation, at the same time!!!
Think of the Ganges and the Yangzte rivers meeting head to head. Does anybody win?
Answer: No.

Ender said...

@MichaelB 4:01 above

Thanks for the link to http://www.voy.com/218910/. Seems to be one of the easier sites, out of the collection you provided, to read through. I look forward to figuring out the process there.

In the process of browsing the site, I came across an article that you posted a link to: http://www.stockhouse.com/Columnists/2009/Aug/21/Why-China-is-about-to-buy-a-lot-more-silver... which I found interesting to a point, for change comes from the ants, not the giants.

In the article is stated: “… According to the program, there are some 400 million households in China, with an average ownership of about 0.1 ounces of gold…” My first thought was that that is nothing. 1/10th ounce is a wedding band. It then goes on to say “The average gold ownership in most emerging countries works out to about one ounce per household. The Chinese are beginning to make up that gap.” So, the average Chinese family has a bit more buying to do – just like any other average family anywhere.

The movement that breaks the back of the system will not come from the giants. They could have done that years ago at any time but haven’t because they have too much to loose by doing so. Rather, change will be demanded one tenth of an ounce at a time!

We settle our savings so tomorrow we may spend.

Ender said...

http://in.reuters.com/article/oilRpt/idINPEK33016020090829

Very interesting development.

Ender said...

Worded differently, http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSSP47327420090831?sp=true.

Nothing like an end of August surprise. … It would be nice to see the list of bank names.

Anonymous said...

"Foreign goods that don't HAVE to be priced in dollars by law, soon will not".

Good point FOFOA.
Reading MISH and Denninger today (where each took on J Sinclair and J Willie respectively) the points came up that:
1) one shouldn't expect the dollar to be unilaterally devalued because it floats against many currencies,
2) commodities rise and fall against all currencies more or less

However the USD weakness is that it is possible for it to be flushed out of the herd and marked for destruction (deliberately or by a natural progression of events).
We all know the Dollar is an accident waiting to happen.

A pricing of oil in something other than USD, a demand that US debt be denominated in something other than USD, either of those could be triggers that precipitate an epiphany toward the viability of the Dollar.

Martijn said...

Any of you guys remember the Central Bank of Sweden? They started issuing negative interest a little while ago, and many people believed the country would explode as a result. Now guess what: most Swedish people are still alive. So far I have not read anyone claiming to be witnessing a miracle, although judging from some comments back when it happened that would not be inappropriate.

TomB said...

@Anonymous (August 31, 2009 8:24 AM): With some basic tools you can be 99.9% sure that you have real coins, all you need is a caliper and an accurate scale. You can look up the thickness, diameter and weight of the coin on the Internet.

I've been told that gold coins can only be faked with platinum, uranium and tungsten. The latter one is very hard to work with, platinum costs more than gold and uranium isn't really an option.

As long as you buy from a reputable dealer they should be alright, buying from places like eBay is obviously riskier.

Project said...

Sweden has negative overnight rate on reserves (-0.25%) parked at the CB, they have positive rate on Open Market Operations (0.25%).

Project said...

Also I responded to the latest Mish article in my comments section on This Week In Mayhem.

"
The odds that the BRIC countries (Brazil, Russia, India, China) got together and gave the US an ultimatum on anything for November are none and none." -Mish

--^ Think again. Russia and China have been conducting joint military exercises through the military arm of the SCO. China and Brazil have set up bilateral currency swaps. There might not be a leaked ultimatum -- but it is certainly possible.

http://www.zerohedge.com/article/good-morning-worker-drones-week-mayhem-0#comment-54468

Anonymous said...

Yes measure the coin in size/volume and weight. And just to be sure also apply the old way of the pirates: put your teeth in it. If you break them it's fake, or its only 22K or lower. If you still have your teeth and your coin is damaged: its pure gold;-)

FOFOA said...

Hello Project Mayhem,

You are doing a great job on Zero Hedge. Keep up the good work!

What some people don't seem to understand about predictions is that they are only one of several POSSIBLE outcomes. If there was a 20% probability that you WILL die today on HWY15 in a head-on collision, how valuable would that information be to you? Do you think you might take a different route home?

If there is a 20% chance that your entire nest egg will be decimated in the next 60 days, how valuable is that information?

I cannot prove this, but I believe all the evidence points to a deal that was made last October between the Executive and the Fed, that to prevent a repeat of the 1930's, >>anything<< can be done. I believe their focus is almost solely on preventing 1) a bank run and 2) another stock market crash, because those were the two most visible triggers of the 30's. A currency crisis was not a problem then because of gold, but it was already in the pipeline here and now ever since 1999. So everything they are doing to prevent 1 and 2 is exacerbating the main pre-existing condition.

I agree with Mish that Bernanke will fail. I disagree on the nature of the fail and what investors must do to save themselves. And I also disagree on the majority of the timing predictions out there. This thing could blow at any moment. Get the hell off the volcano, I say. Run, don't walk!

Sincerely,
FOFOA

s said...

FOFOA,

To repeat your point,m the fed printing and commodities staying flat to falling is expropriation by another name. There is not a lot of mystery here. The Chinese, Brazilians and Russians know this all to well - indeed the entire world. The UK racing to secure an oil deal smacks of we don;t negotiate with terrorists - wink wink. The "breakthrough" on the Libyan weapons program some years back was an interesting tell - the groundwork laid by none other than Tony Blair and celebrated as a great victory for Bush and the fight for resources, I mean terrorists.

The mutual assured aspect of this debacle is interesting. whatever measure of "wealth" that is rising in thne US - the equity market being really the only channel left tyo reach into conumers pockets, will see commensurate rises across all the peers. Indeed it has to or the US would be getting a a risk free transfer. Therefore, all those coupling theories about the global supply chain have been turned into a mutually assured bulkwork against the Us instituting a we had to burn the rest of the world to save it. The irony of Mish talking about the chinese and how they worry about unrest etc. shows his nievete. I bet Mish would know - google notwithstanding - how many chinese or russians dies in WW2. or the various Mao inititives. The anlysis by the deflationista camp is partially sound and much is to be agreed with. however, it is fatally one sided and presumes the rest of the world shares the one america philosophy. The deflationistas assume the US is on offense when in fact it is desperately trying to hold the line. The capcity for change and suffering is time teated across the Russian and Asian frontier. Who do you think has more capcity for pain - the gen xers and gen yers or the chinese migrants and their ruling central comittee?

Any devaluation by definition would have to be extreme if only to capture the leakage.

MichaelB said...

ECB's Noyer Sees More Currencies as Reserves - Reuters
http://www.iii.co.uk/news/?type=afxnews&articleid=7502984&subject=economic&action=article
Independent observers must increasingly feel there is some 'method to the madness' of dollar hints by banking officials and financial industry leaders such as this that not only broach the subject, but welcome a new monetary system.
Some put their faith in leaders above what they see and experience, so affirmations like this are a familiar sight by now.

MichaelB said...

ECB's Noyer Says Leverage Ratio Makes No Sense - Update 1
http://www.reuters.com/article/governmentFilingsNews/idUSL122427420090901?rpc=401&=undefined&sp=true
Noyer wants Basel 2 rules to be adopted by the US and other countries thta haven't yet done so. He says accounting standards must be uniform across continents and anticipates many of the changes that must go with them:

"The Basel Committee on Banking Supervision, which drew up globally agreed bank capital rules known as Basel II, is working on designing a leverage ratio for banks to supplement its rules.
However, Noyer said it was still essential to enhance the counter-cyclical nature of capital requirements.

"In this regard, and especially in the light of the profits announced by the major banking groups and the large payouts to traders, CEOs or shareholders in the form of dividends, I would like to stress that these profits should primarily be used to bolster capital ratios," he said.

The Basel Committee on Banking Supervision, which drew up globally agreed bank capital rules known as Basel II, is working on designing a leverage ratio for banks to supplement its rules.
The G20 group of countries also agreed on the need for a "simple, transparent, non-risk based measure which is internationally comparable... and can help contain the build up of leverage in the banking system."...

Noyer, who was speaking before attending a meeting of G20 finance ministers and central bankers in London on Friday and Saturday, said G20 views differed on the role of accounting.

"It is vital that the accounting choices of standard setters better take on board the financial stability dimension, since they have an impact on the latter, Noyer said...

Noyer called for an expanded mandate for the IMF.

"Focusing on exchange rate developments alone is no longer sufficient, and if the IMF is to be able to contribute to ensuring international financial stability, it must pay greater attention to capital account developments," Noyer said.

He also said that while the U.S. dollar is the world's main reserve currency and the euro also plays a key role, others may one day join them.

"The increasing prominence of other currencies, provided of course that they become fully convertible and tradable without any restriction, suggests that a new situation may materialise in which a growing number of currencies could enjoy international currency status," he said.

If a multi-currency world did emerge, international financial architecture would need to be adjusted accordingly, Noyer said."

Project said...

FOFOA,

Thanks. I would not have obtained the understanding I have right now if I had not stumbled upon your site a couple of weeks ago , due to someone recommending that I read your site from over at Zerohedge. I immediately went back and read most all your posts. I pretty much agree with everything you write -- the only part where we might differ is I think silver, platinum, and palladium will all benefit as well from any sort of currency swan.

I was thinking about your idea today. Absolutely right... your metaphor is perfect. Suppose you had a 20% chance today of a car crash on the way to work. For me, that knowledge is enough to change my route or take the day off. But I think many people do not understand the significance ... Investors should be putting a portion of their assets (in my opinion at least 20%) into physical gold.

But I noticed people tend to complain about storage etc. Gold is very easy to hide. I think part of it is a lack of understanding of what they actually are doing. Partly I think it is a failure of imagination. If you can't imagine how the world can change overnight, how can you possibly take steps to protect yourself?

I definitely think you may be right in terms of the timing. I don't know if you saw, but today Panarin went on Russia Today. Here is the relevant article.

http://www.russiatoday.com/Top_News/2009-08-31/months-left-us-collapse.html

If we do not see these events unfold by the end if the year, no doubt they will unfold in 2010.

Cheers,
Project Mayhem / Zerohedge

Anonymous said...

mish is correct in the short term but is stubborn and pig-headed.He thinks conventionally and shies from "conspiracy. Those who lose are those with no ability to see beyond. There yoke is heavy.

Jay Midnyte said...

Project
Exactly, I feel that even if the system does not collapse this year, 2010 and 2011 will guarantee whatever is left of the system will be demolished today. I wrote a post on this today on my blog.

Project said...

Thanks Jay. Celente is definitely on point.

You might find this interesting. Quarantine memos were leaked on the CDC web site.

Outrageous if you ask me. There is absolutely zero constitutional authority.

http://cryptogon.com/?p=10690

Jay Midnyte said...

Project
Did you hear of the International Swine Flu Conference that just took place in August. The brochure talks about emergency response in case of mass deaths!

International Swine Flu Conference

Project said...

Yes I did. It was here in my home town of DC. There is something very nefarious afoot.

Project said...

I wrote an article this morning on the leaked quarantine docs, it is available here.

http://www.zerohedge.com/article/cdc-h1n1-forced-quarantine-docs-leak

Ender said...

“What happened here will pave the road of the future”

I’m sure CIGA Sinclair didn’t miss the reuters articles listed above (August 31, @10:39 & 10:45).

Search jsmineset.com for the title above – posted Sept. 2 11:03.

There will be an adjustment to what people value.

FOFOA said...

Bill H...

Are you ready?

To all; are you ready? Never in the history of financial markets have there been so many landmines in place, each one wired directly to a nuclear bomb that sits atop the ENTIRE global financial system. The "master's of the financial universe" have postponed the coming day of reckoning for so long and in so many different ways that they have backed themselves into a corner where almost any movement at all will trip one of these numerous landmines.

The Fed and Treasury have already blown up and destroyed their balance sheets and thus guaranteeing "banana republic" status of the U.S. for years to come. The banks have another wave of home mortgages about to crest directly on their heads, not to mention the mountain of commercial mortgages that are and will become poisonous enough to destroy the banking system. Consumers are completely in over their heads and in no way can they "spend us" out of this depression. This hail Mary play was used after the 2000-2002 recession, you can fool Mother Nature with a hail Mary pass once, she won't fall for it again because the consumer does not have the available credit capacity to spend anymore.

The Chinese have spoken and their words have been dire. They have called for a new reserve currency and now they tell us "you sold us crap that never had a chance to perform, thus neither will we". They have told anyone and everyone willing to listen that they are going to default on their portion of the $1+ quadrillion pie, the entire structure will collapse! Does the U.S. media report on this? Have investors listened to this? No way.

There are "audit proposals" of the Fed that are running rampant. Can the Fed or Treasury pull their pants down and get a clean bill of health? I don't see any possible way. The Gold is not there, the balance sheet and Dollars outstanding are probably far, far beyond what we have been told. What kind of assets has the Fed been buying? And from who? Most hilarious of all is the Fed telling us "we will monetize Treasury debt to the tune of $ trillions", and this is good? Even an idiot could (and will) figure this one out.
...

FOFOA said...

...
In the metals arena we have had anecdotal evidence for years that the West has been disgorging their hoards of Gold to hold the price down, and more importantly to support the artificial values of their paper issuance. The paper game of suppressing Gold is coming to a close as evidenced by zero contangos, lack of metal inventory movement while contracts by the 1,000's stand for delivery, ETF shenanigan's and a lack of transparency in inventories all over the world. Gold is up about $20 today which is certainly a change of pace and breaking the "2%" rule. Normally Gold makes its move early on and is then capped for the rest of the day, this is not happening today and is very different from the action of the past 10+ years. Technically Gold is breaking up and out of a multi month "pennant" pattern, today and tomorrow should clarify this.

I started this piece with "are you ready?". Are you ready for everything, and I do mean EVERYTHING, to change? Are you ready for volatility to move far beyond the levels of last fall? Are you ready to find out whether or not the "piece of paper" you hold in your hand will actually deliver real Gold or Silver? Are you ready for a financial holiday that will bring us a new currency? Are you ready to find out whether your local grocer will accept your "paper" for their goods? Are you ready to watch your bonds, CD's, MM accounts and retirement accounts take a 50% (and probably much more) purchasing power haircut? Are you ready to be told that you need to be "off the streets by sundown" by someone in a uniform? Are you ready to have zero access to your hard earned capital whether it be bank accounts, stocks, bonds or whatever?

I have only issued a "crash alert" two times previously, today I issue the third. I believe a crash is imminent and will be much worse and far more widespread than anything we have seen over the last 18 months. I believe the day of reckoning has arrived. Are you ready? Regards, Bill H.

FOFOA said...

This is better than Seinfeld...

Credit Crisis Fed delivers super profit!
The Federal Reserve (Fed) has so far made 14 billion U.S. dollars profit on loans to the banking sector. Financial Times reports...

TARP CEOs Make More Money Than Almost Everyone Else!
The top five execs at ten of the top 20 TARP banks have enjoyed a combined increase in the value of their stock options of nearly $90 million in the past year


Just remember, the paper mountain exceeds the real mountain by orders of magnitude. Any hint of a rush to value ends the con... for good and fast as lightning!

Jimmpy said...

Sure looks like China is going for the kill.

China pushes silver and gold investment to the masses :

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=88452&sn=Detail

Snip : A cynic (or a raging gold bull) would suggest that this will precede a move to switch a good proportion of the country's reserves into gold which would have a huge effect on the global gold price and could prove disastrous for the dollar.

Anonymous said...

Hong Kong repatriates its gold from London !

http://www.marketwatch.com/story/hong-kong-recalls-gold-reserves-from-london-2009-09-03?link=kiosk

VERY FINE NEWS !

B.

Jay Midnyte said...

Does anyone think the U.S. might see a collapse like Argentina's?

Anonymous said...

I don't expect the US to go through such a collapse. The dollar will fail, but there are many strategies to delay failure that we've yet to see. There will be plays to get the new SDR to cover the debt, as well as other approaches to conceal and run from responsibility.

Too many nations hold dollars to allow them to collapse into oblivion. The nations will work with the US to protect their interests, insomuch as they are able. I expect a bumpy ride down as different strategies fail, and then a new currency.

Steve B said...

FOFOA,

Thanks for that post.

Just one quick comment. Don't you think the CFR and others are in the bunker while the bombs are ready to go off?

These guys have written history for the last 100 years. I don't see " The "master's of the financial universe" have postponed the coming day of reckoning for so long and in so many different ways that they have backed themselves into a corner where almost any movement at all will trip one of these numerous landmines. "

They will never be in a corner. Ever.

What does that mean is what I try to figure out. They have WANTED a new world currency nice the early 1900's. This is what they want, how are they BACKED into a corner?

Thanks for great articles.

Also, is the USDX crashes, aren't there 6 parts to it? Isn't this gold v paper not gold v dollar?

sb

Anonymous said...

Advertisements have them chasing cars and clothes, working jobs they hate so they can buy shit they don't need.

We are the middle children of
history, with no purpose or place.
We have no great war, or great
depression. The great war is a
spiritual war. The great depression
is our lives. We were raised by
television to believe that we'd be
millionaires and movie gods and rock stars -- but we won't. And we're learning that fact. And we're very,very pissed-off. - Tyler Durden

FOFOA said...

This is big news, B!

Hong Kong recalls gold reserves

HONG KONG (MarketWatch) -- Hong Kong is pulling all its physical gold holdings from depositories in London...

The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in an earlier statement.


Flashback:
Taking Delivery of Physical

FOFOA said...

Jay,

Does USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity
Eric Janszen

Argentina's Economic Collapse
FOFOA

FOFOA said...

Steve B,

I tend to agree with Bill H.

"Don't you think the CFR and others are in the bunker while the bombs are ready to go off?"

Yes, I think some of them are prepared. But things are not so clear cut. The so-called "master's of the financial universe" are not all on the same team.

How are they backed into a corner? Gravity! Good old Mother Nature!

One team defies gravity for 96 years. The other uses gravity to its advantage as it sees the end approaching. Which team has the best "secret weapon"?

Sincerely,
FOFOA

Anonymous said...

@ FOFOA - Flashback (HK-gold repatriation) :

It might,...most porobably is already inspiring other $-surplus savers (ME-Dubai) to do the same... and bring the precious metal back home from London and FK...where wealth reserves actually belong...away from manipulative goldprice interventions at the sole service of one global dominating fiat regime.

I consider this HK move as another giant step in the complete gold liberalization that China organized for its hard working/saving citizens ! Final step will be the crashing of the $-paper gold contract market...after the G-2 present dynamic balance capsizes.

B;

Jay Midnyte said...

Thanks anon, and fofoa.

I was actually already watching that movie last night, that's what made me curious about what you guys think. I'm not finished yet though, I'm on part 8.

I'll finish watching then read your post fofoa.

FOFOA said...

B,

Perhaps the timing of the Chinese derivative default statement and HK move is not a total coincidence?

FOFOA

Anonymous said...

@ fofoa : The G-2 keeping each other in check...during this present London Gold Pool-II period.

This move to store Asian gold much closer at home is analog with France demanding its gold from the UST in 1971.

Let's see if Germany and Switzerland will (dare to) follow the HK lead ??? Or who knows,...even Japan ?

The bottomline for every systemic crisis finale, is ..."deliver" !!!

B.

Martijn said...

Fofoa,

Bankers try to make you believe that interest is the price of money. In a sense it was. A couple of years ago, if you needed some money, you could ask yourself: what does it cost. The answer would be an interest percentage.

However, on structural bases, interest is money. And money can off course not be the price of money. Gold is also not the price of gold.

What is your opinion on this?

Anonymous said...

GATA and gold price manipulation:
http://www.mmnews.de/index.php/200908313669/Gold-Silber/Gold-Manipulation.html

FOFOA said...

Hello Martijn,

Imagine a perfect gold standard. There is nothing but gold used as money, and its supply remains constant. As man labors and builds, the economy will grow, and gradually one piece of gold will equal more and more real goods and services. Over time, in this perfect gold standard, the value of that piece of gold will rise, and the cost of goods and services will fall.

Now imagine a lender and borrower. The lender lends 10 ounces of gold to the borrower, who then trades it on the open market for the capital he needs to be productive, say, farm equipment.

Let's say the term is a 5 year loan and there is no interest in this perfect world. After 5 years, the borrower must return the 10 ounces of gold that he borrowed.

During those 5 years, the value of gold will rise and prices of goods will fall, what we currently think of as "deflation". So in 5 years when the farmer must reacquire gold on the open market, he will have to surrender more goods than he received for that same gold 5 years earlier. Likewise, the lender will receive his gold back with greater purchasing power than it had 5 years earlier.

In essence, the lender received "interest" and the borrower paid "interest", although the money supply remained the same. All that changed was the economy against which it is measured! The interest was the productivity that the borrower added to the economy. The lender profited from this growing economy and the borrower labored to meet his obligation.

So in this perfect world, the price of money is keeping up with the average productivity of everyone else in a growing economy.

In other words, money is priced in goods and labor. The price of money is goods or labor. You must either create them or surrender them for money.

Now, in our imperfect world, we can borrow without being productive with the money we borrow. We can borrow for pure consumption! But we must pay the interest out of our own body. We must eat away at our own capital to pay the vig if we are not being productive. Like a stranded starving hiker whose body begins to devour itself. Herein lies the flaw in our system. If all borrowing was for honest productive effort, it could literally go on forever.

Fiat systems work the opposite of gold. While gold increases in value against the real goods that price it, fiat money supplies grow commensurate with the goods and services they are priced in, the money supply tracks the economy!

This is supposed to create "price stability" in an expanding economy. You can't have price stability in an expanding economy on a pure gold standard, you get "the evil deflation".

And in a perfect fiat system, where no government or central bank cheats by creating money at will for the "inflation" tax, and all borrowing is for productive purposes, the system could be quite sustainable for a very long time.

Sure, it is essentially a Ponzi game, because if everyone paid back their debt at once the money supply would vanish except for the monetary base (base money, now gov't "cheat money"). But in our perfect scenario, there is always new volume added to the economy to match the production of new money, and prices remain stable.

But that is not good enough for the bankers and governments. They want something for nothing. So they cheat, which leads to a collapsing real economy set against a mountain of debt money which is unsustainable. The only conclusion to this systemic flaw is not deflation like we saw in the perfect gold standard, it is not price stability, nor even normal inflation. The only conclusion is fiat repudiation which will lead to hyperinflation and the end of the system.

So what is the price of money? It is the real economy that it is juxtaposed against.

Sincerely,
FOFOA

Steve B said...

FOFOA,

"The only conclusion is fiat repudiation which will lead to hyperinflation and the end of the system."

They WANT the end to the system. They WANT a new system.
They WANT a global system after they blow up this current one.
They WANT a global currency.
They WANT people to want to get off the dollar.

I believe gold is the least likely thing they will distort as to it's worth.

Gold might do well but an event is coming, and they know it and they planned it.

I have recently read "The Shadows of Power: The Council on Foreign Relations and the American Decline". Old but this is the next chapter we are living to see right now.

Man those guys are good. I just hope gold is better. Those guys have to value something.

FOFOA said...

Dollar devaluation - 1973

http://www.youtube.com/watch?v=g6vzDDo6J1Y

Anonymous said...

FOFOA to Martijn : You simply explained what "real money" exactly is.

This ideal can be approached on the sole condition that the poltical content is taken out of the economic system and we get much closer to "meritocraty" .

I don't see this ever happen and must conclude again that this economic world will continue to evolve from crisis to crisis.

"Freegold", can make the difference : When a rising majority wants to come closer to a less political debt driven economy with a higher meritocracy content,...freegold is a perfect crowbar to reach that goal...

B.

Martijn said...

This ideal can be approached on the sole condition that the poltical content is taken out of the economic system and we get much closer to "meritocraty" .

That will indeed never happen. Economics will remain political economics, like it always has.

And the different forms of government make laws democratical, aristocratical, tyrannical, with a view to their several interests; and these laws, which are made by them for their own interests, are the justice which they deliver to their subjects, and him who transgresses them they punish as a breaker of the law, and unjust. And that is what I mean when I say that in all states there is the same principle of justice, which is the interest of the government; and as the government must be supposed to have power, the only reasonable conclusion is, that everywhere there is one principle of justice, which is the interest of the stronger.

Thrasymachus

Anonymous said...

Yes Martijn, I do agree with your conclusion(s).
That's why freegold is re-inventing itself with the help of some architects.

This evolution cannot be stopped nor reversed !

B.

Ender said...

@Steve B above
You’re writing is in line with another Steve B I’ve read. Do you have a blog or website somewhere? By the way, I enjoy your golden passion.

Steve B said...

Thanks Ender.

I have posted here earlier in August but have been busy lately. I love this site and it's a top bookmark I have.

So no website or anything.

I am not to up on economic theory, but I know people. Folks like A, FOA, FOFOA know economics like I know my wife. We have intimate knowledge of the subjects.

The fun part is economics is not all theory, it's human behavior.

And the folks in power control the economics. They are capable of anything, as we all agree. Their political power gives them economic freedom while it produces economic slavery for most others.

To them "competition is a sin". The Austrian school would not say that, but Rockefeller did. How's it workin out for him lately? Man, in the 1960's being POTUS was a DEmotion for Rockefeller.

It's behavior, and I get people. So I like this topic of what IS money. Where did it come from. It helps when you know WHO made gold.

I love harmonizing this current cycle of politics and economics with biblical prophecy. (There goes the neighborhood). I mean it all makes sense. We are just driving down the road.

I used to be in the stock market years ago, until I woke up. It's a joke. It's a game. And sadly what happens in Wall Street doesn't stay in Wall Street, the stench wafts across the nation.

If we are close to something we will start seeing the signs for that something. If you drive to Disney World, you won't see many signs until ya get closer. Then one sign and then nothing again for awhile. Then signs more frequently.

Well we are building up to some long ago predicted things. We are close. It is very rewarding personally to harmonize what is happening now with what has been predicted to happen a long time ago. So when you see the storm coming it's wise to prepare, whether you use or need your preparation or not. Who knows, I might be out of here or I could help provide for a LOT of folks' needs. Either way is fine with me.

I am just in a phase in life of really studying how the world works, as dark as it is.

An example is freegold. If it does indeed come to pass, I KNOW it will not last. Freegold and having a mark to trade are 2 entirely different things. Opposites. Analog. Digital.

I love this line I read tonight.
"Gold has a limited supply. In fact it is downright scarce and precious. Another characteristic of money is that it should not be easily created. Unfortunately, bits in a computer are the most easily created thing in the computer age. Money should be created by contribution to society (work, production) not by decree. When it is created by decree it becomes worth less."

Exactly. One day, ALL MONEY will be “worthless”. You will work all day to barely feed yourself.

But until then, stock up on the real thing.

Gold.

So while I want to agree with all the gold bugs out there, I just don't trust it, or more importantly, don't trust them.

Gold is likely going to run wild here in phase 1 of this new global system that is birthing right before our eyes. But, eventually, they will tame that golden horse too. At that point is when the 4 Horsemen come in, but that's another story :).

I am just waiting to see, short term, what happens to the dollar and gold in this next event, that I am convinced happens this year. I can't explain it to you but I can FEEL it. It is close.

Anyway, I like to learn and this site is teaching me stuff.

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