Allow me to start by beating a dead horse. There is a vital difference between what may in fact be the ideal, perfect monetary system and what are the real monetary changes we are heading straight into today. My purpose for writing this blog is to share with you, and in return to receive your feedback on my own discovery and understanding of the latter. There are plenty of other sites that discuss the former.
If we can discover together where we are heading financially, economically and monetarily, and why we are heading there, then perhaps we can know, in advance, how the understanding of the global consciousness will evolve and unfold in the coming weeks, months and years. And, with this understanding, hopefully we can gain a certain peace of mind with regard to our own financial decisions, positions and future as we head into very stormy waters.
I know from my own experience that a little peace of mind is a priceless asset. It is one worth sharing, and one worth growing. Sharing and growing this asset together with you is my goal. Onward...
Our Understanding of Money
Let us quickly run through an assortment of common understandings of the term 'money'. The most common, mainstream understanding of money is that of a device bearing three functions. The three functions are 1) medium of exchange, 2) unit of account and 3) store of value.
A more purist understanding states that money is only a medium of exchange. And that the usability of money in other roles flows from its declared form. For example, if our common medium of exchange is physical gold only, then it is also an excellent store of value.
In fact, as a medium of exchange, money is only one half of a full barter exchange. The other half is when you change your money into that item you desire. But when physical gold is the common medium of exchange, then it is possible that the concept of a "medium" (or middleman) is incorrectly applied, because if gold was what you were after (for its store of value function), then the exchange is completed in only one step! Direct barter!
Finally, there is our new understanding of "the pure concept of money" which is our innate human ability to associate relative values. And within this understanding of 'money', it became clear that in order for our ability to function properly and efficiently in the way it has evolved over millennia, gold must be free for each of us to impute value to it.
Gold Exchange Standard
Our most recent experiment with gold as the conceptual medium of exchange ended badly. The purist understanding of money, the common medium of exchange, longs for it to be a real commodity, or at least linked to a commodity so that the actual medium can have a relatively stable value and double as a store of wealth. But when we lock a finite commodity into a parity relationship with an inflating paper currency, we only drag down that commodity's relative value compared to the rest of the real world as the related currency is inflated.
Over time, pressure builds up in this relationship set at par, the same as pressure builds between two business partners where one is lazy and unproductive and the other must carry the business through hard work. Sooner or later some of that pressure must be released and parity must be broken. Perhaps the lazy partner's equity position in the business is cut or reduced to reflect his lack of contribution, buying the ill fated relationship a little more time. This is what Roosevelt did with the dollar/gold relationship in 1933. But eventually these mismatched partners will have to part company once and for all. Just as gold and the dollar did in 1971.
In 1971 official parity was broken, but not forgotten. In the years since, an unofficial parity of sorts has been maintained through the paper gold market. Paper gold, like dollars, can be expanded and inflated while being locked at a par with the real thing. This is still going on today. But the pressure has been building for a long time now. This pressure held in the parity relationship between paper and physical gold is about to blow.
Gold Coin Standard
Even the gold coin standard we had leading up to the creation of the Federal Reserve System ended badly. You see, people put their gold coins into the banks and the banks lent them out. And then when confidence suffered a shock and the banks faced a run on gold, the system collapsed, many banks failed, and people lost their gold.
Human people want to be able to borrow money in the present that they plan to earn in the future. Not all people want to do this, but enough to influence the system certainly do. And this practice, by its very nature, expands the money supply beyond its physical commodity limits, even in a pure gold coin standard.
During the late nineteenth century, all the major nations of the world moved toward a gold coin standard, wherein the gold coin itself was the common currency and medium of exchange. Between 1873 and 1912 some forty nations used it. [Answers.com]
The following is a post by Randy (@ The Tower) describing the end of the gold coin standard and the dawn of the Federal Reserve System (in blue).
Continuing our investigation into the meaning/essence of "money"... In 1907 America was on the Gold standard and WITHOUT any central bank. Many modern goldbugs might be inclined to yearn for those "good ol’ days" when "money was money and banking was as it should be!"
However, that year is best known by the Panic of 1907 in which the people's economy was plagued by runs on trust companies, banking panics, and a bear market in stocks. Across the nation, banks were unable (and refused) to deliver gold coins and currency to satisfy the requests of depositors for withdrawals of money from their own accounts -- and 246 banks collapsed. It is not difficult to see how the frustration of depositors unable to obtain currency from banks (even solvent ones!) holding their deposits would lead to pressure for political intervention and change.
For a quick exercise in perspective, imagine what you would do today if faced with the same situation in which your bank could not give you any currency ($1s, $5s, $10s, $20s $50 or $100s) to carry away with you as a representation of the money residing in your bank account. No problem. You would simply write a personal check to meet your spending needs, or perhaps ask for a bank draft, or wire the money wherever it needed to go. Amazing! What IS money??? How did you get yours; where did it come from? How do you know what its value is?? Ponder that, and now we return to our glimpse at history...
In the wake of this banking panic, a National Monetary Commission was formed to undertake a scholarly look at the failings of America's financial system. Of these, the four major flaws cited were that the banks were decentralized, clearing methods were inefficient, the huge cash holdings of the federal government were not distributed where most needed, and the currency supply was inelastic. (Please ponder for a moment how or why the CURRENCY supply would ever be an issue if the amount of MONEY found in banks were at a one-to-one ratio with the currency (gold) that represented it. Surely, in this absence of a central bank there couldn't be more money than gold coin! That's impossible!!
Through the coordinated stabilizing actions of three prominent NY bankers to arrest the banking panic [J.P. Morgan, George F. Baker (First National Bank), and James Stillman (National City Bank / Citibank)], their wealth and power was perhaps made more conspicuous in the eyes of the nation than perhaps it would otherwise have been. A prominent Wall Street lawyer named Samuel Untermyer suggested that there was a "Money Trust", and The Wall Street Journal also took notice of affairs and wrote, "So long as Congress will not give us what every other civilized country possesses, a central bank, it forces Wall Street to improvise something of the kind itself."
The House Banking and Currency Committee formed an investigative subcommittee to determine whether a Money Trust existed in NY. The chief counsel was Sam Untermyer, and I think you might gain some insights about the true nature of money from the testimony delivered by Morgan and Baker before the committee in Washington DC at the beginning of 1913.
In questioning Baker about the proposal for banking reform regarding expanded disclosure of bank assets and investments, Untermyer probed, "Why should not the assets, and the detailed assets, be a matter of public knowledge?"
Baker replied, "Business would come to rather a standstill."
Untermyer demanded, "I want you to explain to the committee why."
Baker declined, "I can not explain it."
Untermyer pressed further, "You mean you can give us no reason?"
Baker admitted, "It would be exposing all the details of that business to the whole world."
After following a sidetrack in questioning, Untermyer returned to this issue, asking, "Why should the public do business on confidence when it can get the facts?"
To which Baker proclaimed, "Mr. Untermyer, THE FUNDAMENTAL PRINCIPLE OF BANKING, perhaps more than some others, is CREDIT." [emphasis added]
It seems that George Baker sensed (rightly?) that the public, familiar with their Currency being a tangible asset (gold coin), would NOT be readily comfortable with the truth about Money. That is to say, that they might struggle to accept the reality that their Money Supply, as represented on the books of the bank, was created by credit, and existed through the grace of confidence. In effect, the tangible Currency had become a mere symbol for the Money (credit) it represented while circulating outside of bank account ledgers.
If you don't care to believe my assessment, I have another point for you. When Untermyer had J.P. Morgan on the witness stand, he asked him, "Is not commercial credit based primarily upon money or property?" [In this exchange, it appears that Untermyer ignorantly used the word "money" as equivalent to gold coin, a usage which Morgan plays similarly until his concluding point about granting CREDIT.]
Morgan responded, "No, sir, the first thing is CHARACTER." [emphasis added]
Untermyer, shocked, reiterated, "Before money or property?"
Morgan reassured, "Before money or anything else. Money cannot buy it. [credit]"
Untermyer remained obstinate against this notion, as though there were communication difficulties, and pressed again on this point.
Morgan then conclusively stated his conviction on the point that commercial CREDIT is based on character: "Because a man I do not trust could not get MONEY from me on all the bonds in Christendom."
From two eminent bankers who surely knew their business, you now have it that the creation or granting of Money (the extension of Credit) has more to do with the creditworthiness of the borrowers than the collateral that secures against possible default. And recall, these comments occurred while on a gold standard AND in total absence of a government-sponsored central bank -- which was authorized (against Baker's preference) a year later.
As you come to understand how Money and Credit are interrelated, the more you will understand the separate Wealth of gold and why you need it now more than ever.
The point here is that our modern understanding of money, or any money concept for that matter, combined with our modern taste for borrowing, lending and trading of credit and debt, may not NECESSARILY be a perfect fit with a pure gold standard. Even a gold standard, with gold as the actual currency, is manipulated by the banks through confidence-based lending schemes. Sure, a gold standard somewhat limits the collective in its more nefarious pursuits, but it also has flaws that always seem to lead to the same conclusion... failure.
Perhaps it is time for us to consider another alternative, even a natural one that is happening whether we like it or not. How about a new, de facto, free market-driven stasis instead of the old de jure (rigged) false parity relationship... how about Freegold?
The Fourth Dimension: Time
At any given moment, a snapshot of our world appears to be only three dimensions; left/right, backwards/forwards, up/down. But with the passage of each and every moment, the world changes. Values change! People change. Everything changes. And all of these changes happen as we move through the fourth dimension, time.
This fourth dimension is very important as we consider the pure concept of money. For it is in this fourth dimension that our pure concept of money resides!
If time was not a factor, then anything accepted as a generic medium of exchange could perfectly perform all the functions commonly linked to the term 'money'. You do your work (somehow without the passage of time) and get paid, and then spend your money on anything within that same moment in which your work's value was judged against the entire universe of real things. A perfect stasis of values would exist everywhere, all at once.
But here in the real world we must be concerned about how far we carry our money through the fourth dimension. Without this vital consideration, we stand to lose everything!
Breaking the Triangle
In part 1 of this series I used a diagram I created called The Modern Money Triangle. The three corners of the triangle represented the three primary functions of our modern understanding of money.
But as we pass through the coming phase transition in which the parity between paper gold and physical gold will be broken, cracks will start to form in certain parts of the triangle.
The fractures you see in this diagram are time related. On a short timeline [length of time is the key variable: "t"] fiat currencies will perform our necessary monetary functions, medium of exchange and unit of account. But at some point on the x-axis, 'length of time', we will switch to a different medium, gold.
On a long timeline, gold will perform our necessary monetary functions perfectly, store of value and long term unit of account. By the way, there is no upper limit on the x-axis of 'length of time' when it comes to gold. If plotted out it runs to infinity!
The outcome will be my new Freegold Quadrangle!
The "x-axis" represents the amount of time you are willing to hang onto the fiat currency you either earn or receive in payment. If the monetary authority is printing money, "t" will be shorter and shorter. In a hyperinflationary situation "t" will slide all the way to the left with a value close to zero. 
As the new Freegold system of natural, pristine balance emerges, the fiat monetary authority will find its wisest move is to keep the money supply under control. And with a "wise" CB, gradually the "t" value will shift back to the right, little by little.
The further "t" moves to the right, meaning the longer people are willing to hang on to their fiat, the more investment will flow into new businesses in that currency zone, and the more tax the greedy collective can grab. This is how it will work.
But even MORE interesting to us physical gold advocates is how we will get there!
In part 2 of this series I explained that "they" will save the system at any cost. And that this stance presented them with a dilemma. You see, if they don't save the system then "all paper will burn" and gold will "shoot the moon" as the wealth reserve par excellence. But if they DO save the system, "the cost" will be the devaluation of the dollar along with all fiat currencies... and gold will "shoot the moon" as the wealth reserve par excellence.
Q.E.D. [quod erat demonstrandum].
The Catch-22 of Modern Paper Wealth
The phrase "Catch-22" is common idiomatic usage meaning "a no-win situation" or "a double bind" of any type. [Wikipedia] "The catch" in our modern concept of paper wealth is that on one side it is collapsing from its own unsustainable debt service making it, in fact, a non-wealth. But on the other side, if we rescue it from its own un sustainability by guaranteeing or propping up the debt service, we collapse the very denominator of the wealth itself, the currency, and make it a non-wealth. It is a lose-lose situation... a Catch-22!
Do you remember the 1985 movie Wall Street? In it Gordon Gekko liked to buy whole companies through the stock market, shut them down, break them up, and then sell off the pieces. He had figured out that the pieces were more valuable than the whole. Remember in the end of the movie he went after Blue Star Airlines? My, how things have changed in 24 years.
On Friday we learned that Japan Airlines is now completely worthless. Its net worth is now NEGATIVE $8.8 billion!
JAL faces $8.8 billion excess debt if liquidated: source
TOKYO (Reuters) - Liabilities at Japan Airlines Corp (Tokyo:9205.T - News) would exceed its assets by as much as $8.8 billion if Asia's largest airline by revenues were liquidated, a source with direct knowledge of the matter said on Friday.
The estimate of JAL's negative net worth, calculated by a government-led task force in charge of its restructuring, underscores the depth of the problems facing the airline as it seeks aid from banks and the state to avoid bankruptcy.
Did you know that on Friday people were still buying JAL at a market capitalization price of $3.4 billion even though it was worth [NEGATIVE] -$8.8 billion? One thing I know for sure; Gordon Gekko would NOT have been interested in this one.
Which begs the question, how is the rest of the (publicly traded) economy doing after 24 years of debt accumulation?
This is where the $-debt regime has left us. With empty, hollow shells of corporate entities enslaved to produce revenue only to service their unsustainable debt. What if the owners of JAL decide to leave their vacuous corporate shell behind like a hermit crab abandoning his home, for the greener pastures of a fresh start? That debt hole, the $8.8 billion, is what we hold today as wealth!... inside the financial system! It is gone, not there, if they walk away. Just like an underwater homeowner walking away from his home. If the debt-slave quits, the value illusion is gone!
The entire financial industry today is marked to model, myth, illusion, whatever... just not reality. It is amazing that we even got a story like this, exposing a small portion of the gap between reality and "high finance". JAL is a dead man walking.
At least we are getting some honesty with regard to the real value of JAL. How about the rest of them? How about the banks? Who's debt do YOU hold as wealth? How is THEIR balance sheet doing? Do you have any idea?
Gold is pure equity... no one's debt. No one to walk away. No one to default in bankruptcy. Nothing to liquidate in an attempt to recapture 10 cents on the dollar.
The entire US banking system today is built upon the idea that debt-slaves will continue servicing their debt on millions of underwater houses marked to mythical values at which the loans were established. If you hold your wealth within this freakish system... all I can say is good luck!
The knowledge of the difference between principle and interest must be dead. Everyone is chasing an imaginary yield from entities with negative equity today... with their hard earned principle savings. Can you believe it?
But don't worry about JAL. It won't be quitting. It has been deemed too big to fail! This means that the printing press will guarantee not only its debt-slave service, but its executive bonuses as well (to keep the slaves in the field)!
Next up, the idiotic concept of too big to fail is set to bring down all the imaginary currencies, and with them, the system itself. And once again, gold is not only immune but highly levered in the OPPOSITE direction.
Consider this: You may not fully understand where we are heading. You may be figuring it out at your own pace. But the millions of ungodly fortunes in the world (yes, there are millions of fortunes) don't have that luxury. They must figure it out FAST... or die.
Survival of the Fittest
Try to imagine each and every fortune that exists today as a distinct animal. These "fortunes" can be held by individuals, organizations, by funds, or even by sovereign collectives. They can also be held in any number of vessels at this current time. For instance, the Saudis' fortune is largely held underground in oil deposits. Other fortunes are in paper financial products, like your pension fund, and others are already in gold.
As we move forward, the law of nature, the survival of the fittest will come more and more to the forefront. The wholesale creation of new digits is one way that some of the more inbred fortunes are trying to survive. Will it work? Others, with a deeper gene pool, are fleeing to the safety of gold.
Imagine this world of TOO MANY "fortunes" vying for survival in the limited landscape of the real world which is actually too small for them all to survive. The fortunes that have moved entirely into physical gold have already staked out their claim to a specific volume of real estate that is needed to survive in this brutal world. They now own their own territory, a true slice of the real world pie, on which to live and thrive.
Those that are still trying to increase their claim size by inflating paper digits may miss out because the landscape of reality is quickly being bought up by the more clever and observant animals. Survival of the fittest! Those fortunes that make the right moves in these trying times will be the ones to survive and thrive. The rest will die.
These "fortunes" are the giants. Their titanic battle for survival in the limited real world is what will take us where we are going. They need to figure things out quickly if they want to survive. Natural selection will pick the winners and kill off the losers. Today this epic battle nears its climax.
Stake out your own claim today before this final act unfolds. Then spread the word to as many people as possible. This is the best we can do, Lilliputians that we are.
 No, the y-axis is nothing but a perpendicular connecting line to a parallel function. I am making a point with the help of visual aids and common understanding. I am not making a mathematical proof. Sorry if I offended any mathematicians with my terminology. :)