Sunday, September 20, 2009

Shake the Disease

Here is a plea
From my heart to you
Nobody knows me
As well as you do
You know how hard it is for me
To shake the disease
That takes a hold of my wealth
In situations like these

On this blog I write mostly about two things: the dollar and gold. The disease and the cure. On the dollar side, I usually focus on the inflation-deflation debate and my view that hyperinflation is both imminent and inevitable. On the gold side I focus mostly on freegold, the impending emergence of a physical-only gold market, and also on the tremendous benefit of holding physical gold through this transition.

These two subjects relate fractally to everyone. What is best for the individual producer/saver. What is best for the various collective producer/saver groups. And what is best for the entire planet. This is not a patriotic issue. It is common sense!

Today we have a disease that has crippled our global economy. All existing real-world capital is still out there, but for some reason it won't circulate. Forcing paper capital through our planetary veins is not a solution any more than transfusing water to replace the blood stream would keep a dying man alive. We need real blood to survive. This is a natural law.

Our disease is a parasite which has spread throughout the entire circulatory system, collecting and clotting blood in only non-vital, non-productive organs like the appendix and Goldman Sachs. To cure this disease we will have to remove the parasite, the diseased organs, and transfuse new, healthy blood. This disease is in violation of natural laws, and its cure will be a natural solution.
"Early in life there is one thing that people learn about natural laws: laws of nature do their own enforcing, and when not obeyed, they do their own punishing. The mere attempt to disobey a natural law, intended or not, exposes a person to whatever punishment that law imposes."
-Richard W. Wetherill (1906-1989) Quote found in an advertisement in Scientific American, Sept. 2009, p. 103

Let us imagine this long, stringy parasite as a Matrix that is covering the entire planet. Yes, like the movie.

Today, all of our perceptions exist inside this Matrix, the "transactional currency matrix". A transactional currency is any medium of exchange. It is any currency used to transact the exchange of real goods needed for life, liberty and the pursuit of happiness. The exchange, or flow, of these real goods is the life blood of our global economy. The flow of purely symbolic digital currency units used as an arbitrary unit of account at that fleeting moment of exchange, is not life blood. But according to Ben Bernanke, it is.

Ben Bernanke has announced that he conquered the recession by creating enough new symbolic digital currency units to raise the nominal GDP. Wow! With his mouse and keyboard, Ben has raised the sea level of this arbitrary unit of account by which we measure the GDP. So now the recession is over, huh?

Well, a recession is two or more quarters of contracting GDP. So, I guess if Ben printed the GOV and PPT enough dough to stop that GDP mess, then it must be over. Hooray!

While we're on the subject, let's take a quick look at a couple more definitions. A "depression" is a contraction of real GDP growth of 10%. And a "Great Depression" is a contraction of real GDP growth of 25%. But what happens if they just keep on printing money, so that in the accountants' fancy books, nothing contracts ever again? All is well. Right?

In his ongoing series of interviews focused on the inflation-deflation debate, Jim Puplava's latest offering is a "face to face debate" between Daniel Amerman (who's writings heavily influenced my popular post, All Paper is STILL a short position on gold) and Mike Shedlock (Mish). This program is good and worth your time:
The Great Deflation/Inflation Debate with Daniel R. Amerman & Michael 'Mish' Shedlock
WindowsMedia MP3 RealPlayer WinAmp

One thing that Mish has difficulty understanding is the sheer frivolity of a completely unbacked, purely symbolic currency. Sure, it has lasted for 38 years now. And sure, it supports a matrix of great weight that has its tentacles in every corner of the world. But neither of these weighty arguments changes the core nature of the dollar to anything more than a purely symbolic idea or thought. Mish just doesn't get this point. To him, the weight of the world scrambling for dollars as global credit and debt collapses makes the dollar as good as gold.

And here is something I think they both missed in this debate. See my diagram above. They both seem to agree that the Fed is the fulcrum between the global dollar matrix and the value of the dollar. Daniel Amerman argues that the Fed can crush the dollar's value at will. And Mish argues that the sheer weight of the global matrix prevents the Fed from having any control over the value of a dollar.

The way I see it, the Fed is not the fulcrum. As I have said many times, first in The Judgement of Value, the Fed makes your money, but it cannot tell you what it is worth. That judgement of value is reserved for the recipient of those dollars. The Fed has no control over the value. In fact, I believe the weight of the Fed itself belongs on the side that puts constant downward pressure on the dollar, 24/7. And everything the Fed does adds weight to that side. Here is how I see the fulcrum...

The dollar is "out on a limb" in the truest sense. And its fate lies mostly in external factors. Sure, the US could decide to devalue the dollar. But all it can really do is create more of them. The rest of the world must decide if that is enough to devalue. In this sense, Mish is right. The Fed has less control than it thinks. But Dan Amerman is also right. The dollar is nothing but a concept, a thought, an idea, a purely symbolic unit of account, and if the world decides it is not worth its weight, it will quickly hit the floor.

This part is important, because most people don't get it. The US dollar IS our debt to each other and to the world. The US dollar is backed by all the goods and services WITHIN the United States. Legal tender laws say it is so. The dollar currently buys many things outside of the United States, but there is no law that says it always will. The only law protecting dollar holders all over the world says that their dollars can be exchanged INSIDE the US. So when Ben Bernanke issued $500 billion in swaps to 14 different foreign central banks in 2008, each one of those dollars became a new claim against us, the US. It is here in the US that those dollars are legal tender. No where else. No where else in the world is anyone required by law to accept those dollars for real goods and services.

So when the world was in dire need of $500 billion, it should have come to our markets and bid up the value of our dollar at the window! Just like Ben said it would! But instead, Ben DOUBLED the number of outstanding, external claims on goods and services within the United States. Did our economy double to cover (back) these new claim checks with real goods and services? Nope, the opposite happened. Our economy shrunk. And that is the way things are going, have been going, and will keep going until the dollar hits the floor.

Of course Mish would argue that these trillions being created by Ben are offset by the credit contraction. But there is a qualitative difference between new dollars created through credit, and those claims created by Ben Bernanke. When new dollars are created through the credit system, they are backed by expanding asset values and by the debtor's promise to work them off. When Ben creates dollars to swap with Europe they are backed only by our countries' contracting economy. So in my view, what Mish sees as a mitigating or balancing factor, I see as an exacerbating one.

Mish is right. It boils down to definitions. And Dan Amerman is right too. The focus must be on what the individual investor can do to protect his wealth. What they avoided (seemingly at all costs) was specific questions and answers. Is it best to hold dollars? Or is there something better? Mish would tell you to hold dollars. Dan Amerman will tell you there is something better. I am here to tell you that even though they wouldn't say it, the answer is so very simple, physical gold.

Read my post All Paper is STILL a Short Position on Gold to learn why it is so simple. You don't need a fancy derivative specially positioned to make money in inflation. Not this time, anyway.

The world is now aligned for the emergence of Freegold. There is almost nothing left standing in the way anymore. The time has arrived that the world will shake the disease that drains real wealth from every corner of the globe in a futile, desperate effort to preserve a failing system of oligarchical centralized banking.

As we wait for the next shoe to drop, be it an unexpected collapse of the banking system, an organized bank holiday, an over-expected collapse of the stock market, an overdue collapse of the bond market, a collapse of the paper gold market, a collapse of the currency exchange markets, a planned devaluation, or something else entirely, we must use this time given us to prepare for the worst. What comes at us is the extreme end of the high impact, low frequency end of the Martenson spectrum. It is an event of the rarest possible nature, certainly once in a lifetime, probably once in a century, and perhaps even a one of a kind.

And as for impact, it will be complete. Entire fortunes accumulated over centuries will vanish overnight. And new fortunes will be created in a sweeping transfer of stored wealth from those holding paper to those holding physical gold. This will be a natural event, even though it does have a few "giant" advocates. A natural response to the decades-long violation of natural economic laws. As the global economic organism, the collective mind of the planet comes to the epiphany that paper debt pyramids aren't worth the paper they are written on, this will happen.

And because it is such a complete impact and absolutely the rarest of events, you cannot possibly prepare too early or too much. Mish says that you are a fool to play the inflation trade until it comes time for the government and the Fed to devalue the dollar. He says that you need not worry about the inflationary impact on your savings until all the consumer debt is cleared from the system. This is possibly the worst advice ever. Would you let your children play in a forest because the forest fire still looks like it is a couple miles away? Would you play football at the edge of the Grand Canyon? Would you take your kids swimming at the edge of a giant waterfall?

As Daniel Amerman says, the United States has no choice now but to keep its dollar-denominated promises and obligations with the printing press. Perform in form, default in substance! But if the external world does not devalue the dollar, the US will be able to perform in form AND substance, through only the printing press, while the rest of the world ships us the goods and services we require to maintain our high standard of living. This is the outcome Mish describes! Sure, he'll say it can't go on forever. But how long? I say no longer. It is done. D-U-N done! But the deflationists say it can continue at least 4 or 5 more years. Most of them believe it will be at least a decade before we see hyperinflation or a total collapse of the dollar.

"Perform in form, default in substance" has already begun. It is underway now. Bernanke is trying to hide it, but doing a poor job. It won't last long. Perhaps weeks. "Perform in form, default in substance". This is the final, terminal stage of the disease. Our creditors know they are already being screwed with every Fed purchase. But as long as they continue to judge the dollar valuable, the US default will remain focused outward on the world, spewing massive losses on everyone but the United States itself. But once the dollar is judged valueless, in that instant, the focus will reverse and nature will impose her justice.

It is now that the world is going to shake the disease. And once it does, we will finally have a tradable wealth asset, existing along side and providing balance to our transactional currency. No more will common working men and women be relegated to saving only a transactional currency while the truly rich save real wealth. "Finally, we will all have a wealth reserve that places our footing in life on equal ground with the giants around us. Gold! Understanding the events that got us here and how they will unfold before us is what the GoldTrail is all about."

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

Finally, here are three concepts to keep in mind as you wade through the barrage of conflicting information day in and day out.

1. Paradigm shifts happen very fast with a distinct element of surprise. As Richard Maybury says, sentiment can turn on a dime. And when it does, that which seems solid can crumble in an instant. For a scale example please see Bear Stearns and Lehman Brothers.

2. Natural paradigm shifts are preceded by a "head fake". In the moments before a tsunami, the water recedes. In the moments before hyperinflation, you will be faked out by pseudo-deflation or rigged stability. For an example please see Argentina and Zimbabwe...

3. Natural paradigm shift transitions, by design, surprise and financially destroy the vast majority while only the smallest minority gains greatly from them. Even some of the staunchest honest money advocates may find that things won't play out as they had expected. Can you imagine the crushing disappointment? In one of Another's very last published messages sent to his American friend FOA, he said this...

"Truly, this failure of current gold will be reflected as anguish in these western goldbugs, both bankers and investors... Your work, good man, has been as trying to reconcile the religions of this world. Telling both they are just, while only one can be right in the end. So it is in this day of gold."

Another's message was to take physical gold into your physical possession. This, he said, will explode in real value as paper wealth burns in the great fire that is coming.



Anonymous said...

Great post FOFOA. Despite the uncertainty, you boil everything down nicely: time to get more metal! Do you have any favorite on what the catalyst will be to push the dollar over the edge of the waterfall? Failed bond auction, banks proactively take a bank holiday, organic spontaneous combustion? Thanks a lot.

Anonymous said...


Saudi banks are beginning to topple, soon to cause deep ripples across the globe. Meanwhile, Saudi royals are under threat of assassination. The Saudi Arabian central bank announced it will not purchase the debts from two family businesses after a major default. The Saudi Arabian Monetary Agency will not cover the debt from Ahmad Hamad Algosaibi & Brothers and Maan al-Sanea's Saad Group. The debt is owed to local banks. Units of the two groups have borrowed at least $15.7 billion from more than 80 regional and international banks. About $5 billion of that is owed to Saudi banks, Standard Chartered stated in an August 26th report. See the Bloomberg article (CLICK HERE). On August 30th, a suicide bomber injured Saudi Prince Mohammed bin Nayef, son of the interior minister and nephew of King Abdullah. The incident took place in Jeddah Saudi Arabia. Reports indicate the motive might be tied to Saudi involvement in the civil war in Yemen. A check reveals that Ramadan ends on September 19th. Expect all hell to break loose in the Persian Gulf after its end. Mayhem will be permitted at that time.

In a Jackass public article entitled "US Bank Enemies at the Gates" from late August (CLICK HERE), the risk of broad Arab bank failures was mentioned. "But the Persian Gulf bank failures represent the clear and present threat - A bank panic in the Persian Gulf could ensue very soon, a back door threat. It would clearly have origins in the United Arab Emirates, spread to the entire Persian Gulf like to Saudi Arabia, Kuwait, and elsewhere. From this global toehold, the bank panic could then spread to London, New York, and points in Europe." Perhaps the origin of Persian Gulf bank shocks will be both Saudi Arabia and the United Arab Emirates. The construction project bust in Dubai, rescued by the Abu Dhabi bankers, will deliver massive shock waves soon. They own a boatload of USTreasurys and US bank stocks. The ugly geopolitical secret is that the reign of the Saudi regime has days that are numbered. The Saudi Royals are already constructing their new enclaves in Southern Spain and Los Angeles. The Saudis have even hired the European Aeronautic Defense & Space Company (EADS) to complete a large MidEast security project, to construct a fence which will encircle Saudi Arabia at a cost of $3.5 billion. These are the same geniuses who created the Airbus flying tomb. Can you say Maginot Line? No students of history in that room!

The Mad Scientist said...

So you did write it! I thought it may take you more time to get all your thoughts together but apparently you got 8 Intel chips linked in your cranium.
Great job!

FOFOA said...

@ Anon 10:19 : Thank you - and - I wish I knew! Spontaneous ($) combustion sounds promising!

@ Anon 10:36 : Good info from "the inside"!

@ Mad : Thank you too! Nothing like a good infla/defla debate to get me going!

BTW, here's some info on those falls. By pure coincidence, they are in Zimbabwe!...

The famous Victoria Falls on the Zambeze River. Located on the border between Zambia and Zimbabwe, in the Livingstone district of Zambia and the Hwange district of Zimbabwe. They are 1.7 km wide and 108 metres high, an extraordinary spectacle. Water dropping into a narrow and very deep abyss. The falls are some of the largest in the world!

David Livingstone, visited the Falls in 1855 and named them in honour of Queen Victoria. Locally they are still called “Mosi-oa-Tunya”, which means the smoke that thunders. It is one of the greatest tourist attractions on the African continent. In 1989 UNESCO declared these falls a Humanity Heritage Site, covering a protected area of 8,780 hectares.

Shanti said...

Another masterpiece !
In one sentence - Un grand Chapeau ! -

Ivo has a new post who is interestingly close to your observations.

Keep up the good work, it is much appreciated !

FOFOA said...

Thank you Shanti! Indeed, Ivo's post is excellent. More info on FreeGold there! Here is a HOT-Link to his post.

Our understanding of the future grows by the day.


Anonymous said...

Bravo FOFOA !!!

It is amazing-extra ordinarry, how fast you reached so much gold * understanding * !

Thank you, Sir.


Andillo said...

Hi Fofoa,

thank you for your blog. I recently came across it and I have to say very very nice. Finally someone who can express the views on inflation and deflation in a way that makes sense to me.

However, when it comes to freegold, i'm a bit skeptical. Sure I'd love it to happen this way, but there's a big problem in my opinion. You assume that freegold will come because it's the only fair system which will allow the average person to store the wealth and so on...
BUT the ones that could change the system are the "elites", but they won't do it, since the current system of wealth distribution is one that favors them and disfavors the average man on the street. So unless the masses understand the current problem, there will be no change (we're still nowhere in this process due to mass-manipulating mass media an human ignorance).

So for me, the most likely outcome currently is that after a crash (fast or slow during many years), a similar fiat system with down-to-top wealth transfer will be installed, and the public will just be assured that new regulations and so on will prevent future problems. I'm pretty sure 90% of the masses would swallow that.

Also, if Freegold is introduced, wouldn't it mean for countries mining gold to become incredibly wealthy? Meaning countries like South Africa running a trade surplus so huge that they could even finance a manned Mars mission?

One more question: who is "Another"? Is it something secret? ;-)


Anonymous said...

@ Andillo

Another = everybody around you, could be the butcher or the fisherman or the banker or the lady in front of you at the grocery store, could even be your barber or your doctor.

Anonymous said...

Beautiful piece FOFOA.

Ender said...

Title: China could buy IMF gold – Source
It is always interesting to see references to the IMF pledged gold. The other day, we saw an article about the sales (here is a link to the Guardian: where it started: “The International Monetary Fund has approved a sale of 403 metric tonnes of gold reserves, in a move likely to raise $13bn (£8bn) of cash to replenish its coffers for lending to low-income countries hit by the global economic downturn. …”
Today, we find a follow up link to an article ( that “China is considering buying gold being offered for sale by the International Monetary Fund, …”
Yet, people that have been around for a while have figured out that the gold held by the IMF is gold that has been pledged to it from central bank sources. In other words, it is a promise to deliver gold to the IMF. It’s a book keeping entry that fits directly into the fractional reserve gold system that we have today.
Now, why would China buy these promises to deliver? Seems to me that when I think back to words from Another, Big Trader had cornered the market in physical. One would not think that China would be in the market to take more promises. Rather, they seem to be in the market for settlement.
It is my opinion, that is gold is sold via the IMF, it will be Central Banks around the world removing their pledged gold.
Looks closely at the Mineweb article “…The huge increase in reserves that China announced earlier this year had had little impact on the market because the gold was accumulated over a long period and mainly through direct purchases from Chinese producers.”
My friends, the only gold available for big traders is gold they have political control over. All else supports the crumbling fractional reserve system.
The Value of gold stands.

Anonymous said...

@ Ender : What if...The controlled big goldpiles are internally priced much higher (!) than the official world goldprices we all see ?

Delayed physical delivery in exchange for much higher unofficial goldprices (between banks and/or gold giants) ?

Sort of a two tier goldmarket ?

What do you reckon ?


Ender said...

@ B.
I would reckon there is a two tier gold market. What we get to watch and what gives the power to the global bankers of the world. Fractional reserve banking is so profitable that any large hoard of gold would prove to be 100’s of times more valuable than what the spot price indicates.
So the question is more political than anything else. Is China (or anyone else subject to the $-system) willing to make an effort to maintain the current game in exchange for more of the international banking … racket?
I’m not sure why they would negotiate for higher unofficial gold prices if it’s still in FRN terms. FRNs have proven to be less than liquid for the Chinese along with many other CBs around the world. Unless, maybe, there is gold flowing for oil. In which case, a higher unofficial price may provide a steady supply of oil for anyone holding those golden promises.
In any case, if physical gold really does move in lots as big as 403 tonnes away from the IMF, the reserve that has been supporting the $-system will be seen as disappearing. The dollar would be hollowed out even more. This is not a good thing for the dollar.

Anonymous said...

@ Ender : When the ultimate purpose is to acquire sufficient goldmetal as wealth reserve,...any set-up is possible.
The metal is extremely scarce and any goldprice explosion would make the metal unavailable in sufficiant quantities for the giants.
How many methods are there to avoid a general goldrush and price explosion ? Remember the WAG-I goldprice spike and the immediate calm down.

Is there already enough goldmetal within Chinese borders to let freegold break free ?


Steve B said...


Very good post. You share my thoughts exactly. If the CFR or the banksters get more competition from the sheep, then no way does freegold as a system happen, no way.
I agree that what is coming is something that maybe some folks will go "hey we can't trust them" but the masses will be too stupid and won't know any better and it will happen. Whatever is "next", this will also happen to as well, a currency meltdown. Book that.

I can't wait to read FOFOA's reply to you. The more I read this blog, the more and more sure I am that freegold ain't gonna happen as a long term solution, if at all. It can not be ALLOWED to happen.

I am trying to figure out if it can happen short term as a transition before the banksters put up the new system. That is the best I can do for it. This is a fascinating topic for me.

I guess my question is does gold need "freegold" to rapidly increase in value, short term, before they corral the golden horse again?

Do the banksters let gold go wild, then sell it and then gold is back to it's "barbaric relic".

Time will tell but Andillo you are spot on, we WILL get what is in THEIR best interest to give us. History speaks to that fact.

It doesn't matter what A or FOA or FOFOA have written in the past about what is in our economic interest (what SHOULD happen).

Those folks control how the world works. I can't see how that doesn't win in the end.

What I wait for is that day to find out if gold is so powerful that even it's crumbs they let us glean from the field should make that much difference for us. And, more importantly, can we keep those crumbs?

FOFOA, what do you see is possible if "freegold" does not happen. What is your Plan B?

Anonymous said...

How much room for manuvering does the $-IMFS still have ?


S said...

This is ann interesting article. The problem with making ETF related arguments is 99% of people who own the ETF think they own "gold" Interesting story nonetheless if only for the "of the dollar rallies" bit. Exactly why would the dollar rally other than some inorganic event. And that only enhances the value of gold.

JR said...

Mish recently offered this article in follow-up to his debate with Mr. Amerman:

"I believe inflation is an increase in money supply and credit while Amerman considers inflation to be a purchasing power phenomenon. This lead to different opinions as to whether or not we are in deflation."

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