Saturday, October 10, 2009

Your Own, Personal, Freegold

Feeling unknown and you're all alone
flesh and bone, by the telephone
lift up the receiver, I'll make you a believer

Take second best, put me to the test
things on your chest, you need to confess
I will deliver, you know I'm a forgiver

Reach out and touch faith
Your own, personal, Freegold

Paying for Profligacy

The financial people of the world, Wall Street, and the "big money banksters" have all been bailed out by the Fed, the US Treasury and Congress through TARP and dozens of other Ponzi schemes. In addition to these bailouts, the Obama socialist dream including the ill-conceived stimulus plan has, and is, being funded totally through public debt. Does this mean that you will owe it all back in the future? Does it mean that you, your children, your grandchildren and your great grandchildren will be paying for all this profligacy and theft sometime in the future?

No it doesn't! The fact of the matter is that transfers of real wealth always happen in the present. When you borrow money, you are bringing your future earnings into the present and spending them now. So, in other words, you are acquiring real goods and services in the present and promising to work it off in the future.

But what if you die tomorrow? Or what if you go bankrupt in a year and never pay off your debt. Or what if hyperinflation makes it possible for you to pay off your debt with a single gold coin in your pocket?

Let's say you borrowed $100,000 to buy a fast boat. You now have a boat, a real hard asset transferred to you in the present. Someone somewhere had to work hard for many months to build you that boat. And now that wealth has been transferred to you in the present for nothing more than a promise of future payment. And as I have recently shown, that future payment is far from guaranteed.

So if all transfers of wealth always happen in the present, how should we properly view the transfer of wealth to Wall Street and Washington, DC by pure government fiat, that is happening right before our eyes?

First of all, we must understand that in today's world, this transfer of wealth will NOT be paid by our children and grandchildren in the future. Instead, this theft of present real, hard equity will be paid in the present, right now! It will be paid through the total loss of purchasing power by anyone holding dollars, dollar denominated long term contracts, dollar denominated bonds, or dollar denominated Ponzi paper promises of any kind including annuities, corporate debt, and even those promises made by the present Congress of the United States of America.

Our future obligations like Social Security and Medicare will not be paid in this way. In fact, they may never be paid at all. But the current debt will, as will the present transfer of wealth to Wall Street and Washington DC! (See: Washington, DC - BOOMTOWN in No Free Lunch)

The good news is that there is a way for you to avoid paying your share. If you are a good little socialist that would like to pay your fair share of Washington, DC's present profligacy, you can stop reading this blog right now and turn on CNBC. Just follow the advice you hear and you will be sure to pay your fair share!

Gold Standard?

There are plenty of blogs about what we should do as a society. About how we need to start a new gold standard; a return to honest money. How we must return to a hard, commodity-based currency that will restrain the profligate governments and their greedy bankers from inflating the money supply at will. But what we must understand, what is often difficult to understand, is that there is a big difference between what SHOULD happen and what WILL happen. There is a difference between FIGHTING for something and simply OBSERVING the real world to plan your next move. There is a difference between being an ADVOCATE or PROPONENT and being a PASSIVE OBSERVER of the changes we are actually living through.

This blog takes the latter position in all of these cases. If you would like to be an activist for a better world, this may not be the blog for you. But if you are a hard working producer and a saver worried about how to protect your purchasing power from the hungry collective, this blog may be just what you are looking for!

Money Versus Wealth

Modern man has dug himself so deep into the hole of debt that he will never get out!

What I mean by this statement is that he will never again accept a 100% Pay-As-You-Go monetary system. This is not to say that every man in the world wants it this way. Indeed, most of "our crowd" would like to go back to a gold standard of some sort. But for the Global Collective, this is simply not acceptable.

As we know, some nations, corporations and individuals are already so deep in debt that they will never get out. But what I am talking about is mankind's addiction to money being a form of credit. Man can no longer live with the idea of a gold money that cannot be inflated. Better said, "if you cannot borrow it, lend it or inflate it, it's not a money we can use."

It is with this understanding that I attempt to show you how natural evolution is returning to those of us that wish to live a "pay-as-you-go" lifestyle, the most important role of gold: the store of value function! The ability to retain hard-earned purchasing power intact, over any period of time.

The idea of any "basket" of finite commodities used to back a "super-sovereign currency" is this same supposed "perfect vehicle" as the old gold standard. It is the same concept that we used to tie gold into a credit inflating system. Just as the early bankers did by first promising to issue singular gold storage notes instead of circulating actual bullion through the economy.

It didn't take long for the basic cravings of humans to demand a subtle change in the workings of that system. That is, "lend us some of those gold receipts so we can buy a better lifestyle today and pay for it tomorrow". "If later we cannot pay for it, all of us will get the rules changed so you bullion storage guys can just print some more gold storage receipts".

Any "commodity basket" currency will ultimately be inflated beyond the commodity itself, punishing those who save that currency as if it truly represented those commodities.

Think of the IMF right now printing a trillion brand new SDRs, supposedly a balanced "basket" of national currencies. Yet they can print them at will, whenever the global collective demands more money. Remember, the collective demands that money be available whenever it is needed, no matter what money is declared to be!

History has proven that when real wealth units are tied to our credit money, credit inflation blurs our ability to measure our worth. It is for this reason the Austrian definition of monetary inflation is so important. To view inflation only as it is reflected through rigged CPI pricing measurements removes the perspective necessary to see what is actually happening to our paper-denominated wealth.

And once again, we as a society make the demand that drives the "buy now pay later" illusion. So, our demands will be met with bankers' supply in the form of more Ponzi credit IOUs for gold, or commodities, or national currencies (or whatever) that doesn't actually exists. Both then, now and in the future!

Further, people today never value their wealth in terms of other wealth items. Such as in an ancient "gold wealth barter system" context. Modern Western thought cannot conceive this because there is no standing wealth medium that can mark to the real market all forms of real value! Gold is and was the only wealth asset that could do this well. Again, as long as gold is tied into a money credit system - as the dollar reserve still tries to do - its value will be subjugated by the credit inflating needs of society. In this function, gold cannot be saved as a "wealth asset" that measures our true worth. A worth that carries our savings from generation to generation. But it will again... soon.

Be HAPPY that our collective WILL NOT go back to a gold standard, but will instead leave gold FOR US as a stand-alone wealth reserve asset that will put anyone who holds it on an equal footing!

Official money has always... ALWAYS been a political beast. As I said in a recent post, when the collective decides it needs money, it will have it. It will take it by force, or it will print it. Always has... always will. Even if we returned to an "honest money", this simple fact of life will not change!

Another simple fact of life: The people want credit! They don't want to "pay as you go". Ever since the concept of money and credit combined, this has always been the case, and it always will be the case, at least for the rest of our lifetime.

This is the basic reason modern economic systems use a fiat as their trading unit. Barter along with its finite payment is no longer wanted as a trade vehicle. You see, once society has a "money" unit declared and usable, the credit expansion qualities of said fiat money are restrained by tying the "transfer of ownership" to some physical barter unit. In other words, gold only gets in the way of man's socialist credit expansions.

If we combine credit with "honest money", the "honest" money supply becomes automatically inflated and subsequently DISHONEST as a store of value. This is unavoidable. It happens in a gold standard, in a gold exchange standard, and today, under the global, purely symbolic fiat "trust me" standard.

Money is always subjugated to the needs of the state. And when it is, who pays? The savers do!

Here is a simple equation. (Savings) = (Production) - (Consumption).

And another one. (Debt) = (Consumption) - (Production).

Production and consumption both happen in the present. Savings and Debt represent the belief that this PRESENT transfer of real wealth will be settled some time in the FUTURE. This is not the case today! To believe it is to put your faith (and savings) into highly flammable paper "promises to pay" as some sort of rickety store of value.

The monetary economy is like a see-saw, with money on one side and all the real, solid 'wealth of the world' on the other. As the money supply is expanded and diluted it is weighted down driving up the nominal value of all real wealth.

In our modern world of collective control over money dilution, any real, solid wealth item tied to the monetary system is wrongfully placed on the money side of the see-saw, and must be taken down in value along with the money.

Freegold is different as it places gold opposite the money supply for the first time in history! Gold can still be held as a wealth reserve by the money-diluting collective, but it will automatically offset any profligacy by rising in price as money is weighed down through printing. Gold will be truly demonetized. We are almost there. All that is left is for gold to break the chains of the dollar, the Fed, and its proxies like Goldman Sachs and JP Morgan. We are so close!

Freegold for Everyone!

I will now demonstrate from a practical perspective how the transition to Freegold will work using the Eurosystem as a primary example. This same, simple principle demonstrated by the balance sheet of Freegold's very own architects will also work on all scales, even for you as an individual. Yes, you can have your own, personal, Freegold!

In July of 1998 the ECB and Eurosystem Freegold concept went public. The ECB would take in a small portion of the overall Eurosystem foreign exchange reserves as its own. Of those reserves held by the ECB itself, 15% would be gold. Furthermore, any change in the Eurosystem's consolidated foreign exchange reserves, consisting of 30% gold at that time, would be subject to the approval of the ECB.
ECB Press conference: Introductory statement

The Governing Council furthermore agreed that this initial transfer should be in gold in an amount equivalent to 15% of the sum I have just mentioned, with the remaining 85% being transferred in foreign currency assets. I should stress that the decision on the percentage of gold to be transferred to the ECB will have no implications for the consolidated gold holdings of the ESCB.

The precise modalities of the initial transfer will be finalised before the end of the year.

Before the end of the current year the Governing Council will also have to adopt an ECB Guideline pursuant to Article 31.3 of the Statute of the ESCB, which will subject all operations in foreign reserve assets remaining with the national central banks -including gold - to approval by the ECB.

In connection with the setting-up of common market standards, the Governing Council also reached agreement on a number of issues related to the quotation and publication of reference exchange rates for the euro. Specifically, it was agreed to recommend to market participants the "certain" method for quoting the exchange rates for the euro (i.e. 1 euro = X foreign currency units) and to have daily reference exchange rates for the euro computed and published by the ECB.

So, upon establishment of the Euro, the plan was that gold would remain an important part of the foreign exchange reserves for the entire Eurosystem, and that their value would be quoted each quarter in the consolidated statement priced in euros. That was step one. Put 30% of your savings into physical gold and then mark it to the market price quarterly!

Step 2 said that going forward there was no need to worry about keeping the physical gold portion of your savings at 30%. Just do it once and watch what happens!!

Remember, this was 1999. And ever since they have been net sellers of gold under the control of the Washington Agreement which was signed on Sept. 26, 1999, renewed on Mar. 8, 2004 and again on Aug. 7, 2009.

So in 1999 they had 30% of their savings in gold. Since then they have liquidated a small, controlled amount of that gold on a regular basis. Now let's take a look at where they stand today, in 2009!

Eurosystem International Reserves

Today the total Eurosystem reserve assets stand at 428 billion, including foreign currency reserves, IMF reserve positions, SDRs, foreign assets and, of course, gold! 428 billion Euros total. And the gold reserves now total 233 billion Euros. So in the past 10 years, through many liquidations, gold has now grown to 54.4% of the total reserves!!

But wait! There's more. Have a look at this news article from last Wednesday, Oct. 7:
ECB-Gold reserves up 6.26 bln euros after repricing

FRANKFURT, Oct 7 (Reuters) - Gold and gold receivables held by euro zone central banks rose by 6.26 billion euros to 238.169 billion euros in the week ending Oct. 2 after a quarterly revaluation, the European Central Bank said on Tuesday...

Gold holdings rose because the quarterly revaluation more than offset the sale of 15 million euros worth of gold by one euro zone central bank, consistent with the 2004 Central Bank Gold Agreement, the ECB said.

So in just this latest quarterly report filed on October 7th covering through Oct. 2, 2009, despite selling more gold, the Eurosystem's total gold holdings ROSE another 6 billion Euros through the simple process of marking to market the gold held in reserve! You can see it here on the official quarterly financial statement, line 1 (a seriously bold position to place a very serious wealth reserve... LINE 1)...

Eurosystem Consolidated financial statement - as of Oct. 2, 2009

So let's see. Just in the past quarter of 2009 those Eurosystem gold reserves have swollen from 54.4% to 55.6%!

Can you see what is happening? Can you see what will happen when gold heads for the moon? Can you see how "dollar reserves" are becoming less and less significant at exactly the same time as physical gold is taking over the balance sheet?

This is why China is buying gold. Very soon China's balance sheet will be swelling in size even as it writes off its remaining dollar holdings. They will become worthless. Even so, their balance sheet will EXPLODE in real value!

Now think about your personal balance sheet. Think about your savings. Would you like to lever your savings so that your purchasing power is preserved even as the dollar is devalued? Or would you rather lever your savings to EXPLODE in purchasing power as gold explodes in value?

In the 90's it was fairly common advice to put 10% or 15% of your portfolio into gold. What do you think was the reasoning for this advice? Can you see now that we are living the last days before this "insurance" will pay off big time?

Somewhere between 0% and 100% lies the exact percent that will perfectly preserve the purchasing power of your savings today. Anything above that number will EXPAND your real savings as we transition into Freegold. Anything below it will DIMINISH your purchasing power. So what is the magical number? No one knows. It is unknowable! Is it 1%? Is it 5%? In my view it is probably somewhere between 3% and 10%. But as I say, know one knows. This is why FOA said the REAL LEVERAGE is in physical gold in your possession. Not in leveraged contract paper!

When you buy gold coins, you remove your savings from the reach of the collective. You remove your wealth from the expansionary, dilutionary practices of the entire financial industry. Have you noticed how even good companies like to inflate their stock by issuing more? It's called stock dilution! The entire international financial industry is at risk right now. Remove your wealth from the system! Don't end up paying for the collective's profligacy WITH YOUR SAVINGS!

Some day in the future we will know what that magic number was on October 10th, 2009. And anyone who went double that number, doubled their savings... and so on. Imagine if you put 20% of your savings into gold coins! Or 40%! How about 80%? Or even 90%! Or, God-forbid... 100%. So grab your calculator and have some fun with numbers! Just remember to go with a percentage that matches your personal level of understanding and comfort. This is the best advice I can pass along!



Hakan said...


Another excellent article...
I was thinking how silver would fit into the Freegold environment.
Would silver get left behind and trade as a normal comodity
or would it be used as "poor-mans-freegold".

I think I remember reading somewhere that Another did not
belive that silver was going along for the ride.

What are your thoughts?


Anonymous said...

Knock, knock who is the richest of them all?

The collective gold privately held by India's citizens is around 15,000 tons (yes sir, fifteen thousand tons).

Anyone willing to do the math when gold hits Alf's numbers??

FOFOA said...

Hello Hakan,

Another had a better feeling about silver than FOA did. I am split. On an analytical level I tend to agree with FOA. But I do have some silver myself. And on an emotional level I hope, and think that silver will spike "on the way there". And based on this assessment, I am sitting on my silver right now... but it will (mostly) be the first to go.

Hope this helps.


FOFOA said...

Hello Anon 1:46,

Re: India... This is true. As I have said recently, Indian wives will be the new Sheiks (the new Chic!).

But there is something else happening in India... at the worst possible time! Some are taking out fiat loans using their gold treasure as collateral, physically held by the creditor.

These gold-backed loans will turn out to be final sales that cannot be redeemed in physical gold. This is a shame, and a definite western influence.



FA in CA said...

Great article!

But to more accurately portray the message IMO, I think your see-saw graphs need to be tweaked a little.

For example, on the graph where ECB reserves are at 15%, the see-saw should be tipping the other way.

At 45/55, the fulcrum should be placed much closer to the middle.

Then lastly of course, you could draw a picture up of gold @ ???? and fiat reserves @ ???? but have the gold side tipping waaaay up.

Just the anal engineering side of me.

Great blog! Will be reading often.

Financial Advisor in CA

SatyaPranava said...

@anon 1:46. assuming alf's #s, 1.2 billion will equal some $6800 / person. i can only imagine what that would buy for most indians.

SatyaPranava said...

i guess the fulcrum issue would depend if you're measuring value in euros (or dollars), percentage of balance sheet (clearly not), or respective weight of media of savings (seemingly).

so as gold is getting lighter in weight (minimally), it's attaining a much greater % of the balance sheet.

i think one could even put the fulcrum in the middle, as it seems like it's goign to take a long time for those two weights to counteract.

so now i'm curious what it represents.

FOFOA said...

Hello Satya and FA,

Yes, the see-saw image is a little too simple to describe what is actually happening. And there are different ways to interpret it. I have it as the higher a side is, the more valuable, as in lighter, rarer, and high $-value. As the paper side is diluted it is weighed down in quantity and value and its counterbalance rises. Conversely, you could say that as something gains value it gets heavier. It takes on a heavier role in the total.

As for the fulcrum, I think it will ultimately be in the middle in a freegold world. But during the phase transition period, we will witness leverage in the price of gold.

FA, your description sounds more like a Lady Justice Scale to me. That is also a good image!

It is difficult to show both the counterbalance function of gold and the transitional leverage because they really apply at different times. The former in a future functioning freegold environment and the latter on the way there.

I'll tell you what, draw me your own diagram (or sequence of diagrams) representing Freegold and if I like it, I will use it in the next post. If I get enough submissions, I will make a post out of them! You can email them to me at


Anonymous said...

Very happy to have found this site.
Thank you for such well thought out articles that clearly show the possibilities.

Anonymous said...

I have most of my savings in Gold and Silver.

Will i live to see Gold have enormous purchasing power?

I am 42.

I believe in what you are saying...i just wonder how long the mess can be delayed for...

FOFOA said...


You shouldn't have to wait long. Check this out...

Central Banking: A Blight On Humanity

"...Stunningly, if accurate [and there is absolutely no doubt in my mind that this is accurate], this means that gold is already in SEVERE backwardation and this fact is being hidden from the public."


Jum said...

Keep up the good work Fofoa,

I have been doing a lot of catchup reading on your blog and have been much enlightened along the way.

I have noticed that your blog is based on A US perspective and I agree that gold will break free from the US dollar.

What are your views of Freegold in terms of other currencies. As it seems US & UK will be most adversely affected with the freegold concept. Gainers will be the main producers, eg. the BRIC's.

Would you agree for the other currencies, eg. Australia, Canadia, Singapore freegold will have little effect (other than redistribution of wealth within the country)?

FOFOA said...

Hi Jum,

Thanks! I view freegold as a sea change to a fairer system based on merit. Call it a "meritocracy". This phenomenon will be global in scale, and gold will rise in purchasing power in all countries, regaining that which has been suppressed by the $-system.

In this meritocracy you will have to produce in proportion to what you consume. If you consume more than you produce, you will have to part with some hard treasure. Paper promises will no longer do. And if you produce more than you consume, you will find that real treasure comes to you instead of empty promises of future treasure.

Local currency management will determine whether that currency zone with thrive or not. This will change the politics of currency management for the better, the world over.

Those that already have treasure will have credibility. Those that don't, will have to earn it. Credit will still exist, but it will be given out on the basis of credibility and merit. This will be true on all scales.


Anonymous said...

Is this gold/SDR exchange something new or has it always been available? I just came across it.

Anonymous said...

I have strong feelings about gold, but I remind myself that I don't know what tomorrow will bring. Anything can happen. Nothing has to happen. So, the magical number for me is 25%. With the rest, I put 25% in stocks, 25% long term bonds, and 25% in cash (copied from Harry Browne's approach). Feels really comfortable.

Martijn said...

Not that I am dismissing it, but for that source Fofoa posted on backwardation to be credible we will need a confirmation I guess. Has

Martijn said...

... anybody found some more on the topic?

MichaelB said...

If you wish, you may go by the handle FOA2 or something akin to that. As long as you are on the Trail AND promoting freegold and all it implies, you are one of us.
Nothing can shake my faith in precious metals which was instilled nearly 50 years ago by my father who saw action in WW2 and grew up before and during the Great Depression. He was convinced there would be another Depression and gold and silver would save my butt.
Nearly everyone who sees this truth allocates the majority of their savings to tangible hard assets.

FOFOA said...

Hello Michael,

I am confused by this: "If you wish, you may go by the handle FOA2 or something akin to that."

Do you not like my current handle? Or are you trying to offer me a promotion?

FOFOA (FOA2.0Beta?) ;)

Anonymous said...

Hello FOFOA,

Great job and please continue to keep the flow - your articles are the first thing i look for everyday :-)

Your topic was about paying for profligacy - you clearly said this is theft of present real! But you never said who is being robbed?
/FOFOA lover

FOFOA said...

Hello 8:36,

Who is being robbed? Everyone. Primarily the elderly, retirees on a fixed income, widows and orphans with trust accounts, the disabled who live on a limited supply of state-issued credibility receipts, hard working good folks and anyone with dollar savings, including all sovereign nations that still hold our silly debt as if it was worth something. They are robbing the very credibility of the USA and the dollar, what little is left of it after 38 years of living in default. Anyone who is holding dollars, using dollars or depending on future dollar promises is being violated from behind. This includes those of you who were counting on the hope and change socialist dream of free stuff that was supposed to be funded by future credibility. You are being robbed too, of your free stuff. This theft is on a global scale because the dollar is still the global reserve currency. The sooner you remove your savings from the financial system, the less you will be robbed.


Martijn said...

A funny thing is that the debatable honor of being the first (major) currency to slide can actually be an advantage for the dollar. After all a sliding dollar might imply that dollar holders buy more gold than do holders of other currencies.

SatyaPranava said...

martijn, are you suggesting that those in dollars will be the ones who will be likely to be able to find physical metal (as their currency dropped first)? i'm not sure i fully understand wht you're suggesting. advantage for the dollar...why?

S said...

h/t Zerohedge comment section. Rumor of coursebut the math seems to make sense. This grows increasingly interesting...

Anonymous said...

btw, how many 400oz bars do you think are in that storage area?

Martijn said...

martijn, are you suggesting that those in dollars will be the ones who will be likely to be able to find physical metal (as their currency dropped first)? i'm not sure i fully understand wht you're suggesting. advantage for the dollar...why?

People holding dollars have the most reason to get out. And when you want to get out you might start condisering gold. People holding e.g. euro or yen might be more apt to feel strong and retain their cash positions.

alek_a said...

I see at least ((12x3)x4)x2=288 bars. This is assuming they are stacked 1 deep per pallet (not possible to see from the image).

At current prices, this is somewhat over $120M of pure capital. This is IMO quite a good base (of course, Au is the best!) for a bank. I can imagine a multiplier of 10-20 from the gold capital to the market cap of such a bank in a freegold fiat system and then with little risk.

The guy/woman that owns the contents of depicted shed is a future banker! FOFOA SACHS?

MichaelB said...

Re: "I am confused by this: "If you wish, you may go by the handle FOA2 or something akin to that."

Do you not like my current handle? Or are you trying to offer me a promotion?"

Yes, twas a compliment.
While you're the most qualified person I have seen to take up the freegoldian Another lineage, a "promotion" could hardly eminate from the realm I occupy.
As for BOTH gentlemen who preceded you, even though FOA was supposed to return, saying it would be in the time of "the rains", may I still profer "If you wish, you may go by the handle FOA2 or something akin to that" as an offer without an expiration date?
Indeed "as long as you are on the Trail AND promoting freegold and all it implies, you are one of us", but more so, you're one of THEM, teaching us to walk the Freegoldian Trail.

FOFOA said...

Thanks Alek for the math.

Actually that picture comes from a website that makes covers to pimp out your garage.

"The days of boring garage doors are numbered! That’s because there are now photo tarpaulins for garage doors from!

Garage doors have until now mostly been mouse grey and ugly – and often spoil the appearance of well-maintained homes. But now, the days of those hideous garage doors are numbered! That’s because the new photo tarpaulins from can give monochrome up-and-over garage doors a whole new look. The printed-on 3D motifs are deceptively realistic and will cause neighbours, friends and passers-by to stop and stare..."

FOFOA said...

Hi Michael,

Thank you for the compliment. FOA is my Trail Guide. I am a follower more than a friend. Although I would love to meet this man and become his friend! :) Where the heck is he? Surely it is raining now. Sir Douglas, where are you? I will gladly step aside if you should return.

Again, thank you for the grand compliment Michael!


SatyaPranava said...

alek, i'm seeing it a bit differently. Two scenarios: what we see, and the assumption that the back palate is the same as the first.

In the former case, we have 16 rows of 12 (as each 4th row is an inverted row). that would give us 192 bars in the front, and 16 rows of 4 bars in the back, totally 64, equaling 256. that's just what we can see in the pic.

If we assume the back palate is the same as the front, I assume another 192 = 384 bars.

If each palate goes back another row, then we double. I am actually open to the idea that it goes 2 rows deep. Then again, it could be enough room for someone to walk through if desired. But the antifreeze bottle gives some insight into depth. and i bet you could line up about 3 of those bottles facing the same direction it is now (so lengthwise) to go from the front of the front palate to the front of the back palate.

so 384 bars at 400oz per bar and 32,000 troy ounces (rounded) per ton, is 4.8 tons of gold. this would be worth approximately $164,352,000 sad little federal reserve notes. (in jan of 1933 it would be worth about a little over 3 million). wow.

Ender said...

Just think, you too can have 4.8 tons of gold delivered to your garage for just about 250 bucks. Looks impressive, I bought a Mona Lisa a couple weeks ago and got a better deal! ;)

By the way, whatever happened to China defaulting on derivatives with 6 foreign banks? Anyone been following that?

Coin in hand, means settlement has already occurred, thus no loses in situations like the above.

Martijn said...


Important question in my opinion: what about the Renminbi?

People are looking for safety. At this moment it is extremely difficult to obtain the Chinese currency (Yuan/Renminbi), and it is artificially pegged to the dollar. That situation is however destined to change. Someday (soon) the Renminbi will float and might even be widely available. Would that not provide a rather attractive safe haven for many people?

I know that you prefer freegold and I can surely understand (and second) the reasons for that, but in economics we are forced to deal with (mass) psychology. Many people still uphold a rather high level of trust in fiat money, and hence might feel very comfortable with Renminbi. If the mass believing so is large enough freegold will not make it.

Might that not be the king obstacle to freegold?

FOFOA said...

Hello Martijn,

I may post something shortly in which I wrote a little about the renminbi. It should answer your question. But don't confuse a great value as a modern transactional medium with a horrible value as a store of wealth. The renminbi is as intrinsically worthless as the dollar. Your argument seems to be that people will be smart enough to see the dollar is worthless, but stupid enough to save the renminbi?

The Chinese are printing renminbi at a very fast rate. Certain writers (that you read) even argue that hyperinflation may begin in China! But shifting global dynamics may also end up soaking in a lot of this inflation. The renminbi may turn out to be the transactional medium of choice in certain parts of the world. But the shift to Freegold as a wealth reserve is something entirely different.


Martijn said...

The renminbi is as intrinsically worthless as the dollar. Your argument seems to be that people will be smart enough to see the dollar is worthless, but stupid enough to save the renminbi?

My argument is that people may be smart enough to start running, but stupid enough not to look were the are going.

Panic situations often create those actions, and not many people are as thoroughly prepared as us.

Martijn said...


We should never try to convince ourselves of being right, but always be on the lookout for being wrong.

To me a flight into the Renminbi is the one scenario in were those heavily invested in gold might loose a great deal of their wealth.

Not saying it will happen, but if I had to list one, that would be it.

allen said...

After reading the book "The Lost Science of Money" by Stephen Zarlenga I have a totally different view on the solution to the problem. I have to agree with the author, that money creation should be a matter of law handled by the government, maybe a fourth branch. I know a lot of people gasp at this concept. I, for one, am totally against big government, but this is one area where private entities should not be involved. Private companies (banks) shouldn't be be able to create money. Banks, like all companies, have one agenda... to make money ... and they have succeeded at that very well. Banks do not care about the common well fare of the nation. So here it is, there is a way to stop the madness. Eliminate the fed and eliminate fractional reserve banking and require 100% reserve lending. It's a very simple solution really. No need for more government watch dog groups or extra bureaucracy. Of course the bankers will fight this tooth and nail because they will no longer be able to rape the general public.

FOFOA said...

Hello Allen,

I think the "rape" of the general public comes from "saving" that which is used for credit issuance. Credit does require an expanding money supply. How does your book say that this will be accomplished in a 100% reserve structure? Or are you saying that the 100% reserves are fiat base money? In that case it could work, and I could see how something like this would evolve when and if the Fed is abolished.

The government would issue new base money to fund itself and this would expand the money supply and allow for public credit issuance. This could even be done in lieu of an income tax!

But it would need to be separate from gold as a wealth reserve for those who wish to live a "pay as you go" lifestyle. No government would ever get away with this as the issuer of an international reserve currency. And in such, would never be able to control the global price of gold.

It is one thing for a government to do all its taxing through "the inflation tax", but it is something entirely different to try and make "savers" pay an unfair portion of this tax. This is what the dollar's grip on gold in effect does.

Also, did you notice that I used the word "evolve"? And you used the words "should" and "shouldn't".

Remember there is a difference between what SHOULD happen and what WILL happen. There is also a difference between what WILL happen and what COULD happen. I would put your scenario under "could happen", and certainly not mutually exclusive to my own Thoughts! But on this blog I try to focus mainly on that which I personally endow with the highest probability, approaching near-certainty, when it comes to preserving and enhancing my saved purchasing power into the future.

Martijn thinks my confidence in certain outcomes derives from a myopic view of the landscape. I disagree, and I try to show through my posts that I do consider all things. And I do consider your post, Allen, to be of value.


SDRII said...


In fact a gold standard is in many ways at heart a 100% fractional reserve system that alots for creeping growth. Kind of a dirty peg in other words. The banks would neve go for this just like they have managed to subvert derivatives reform. The banks will always claim that it stifles innovation and restricts growth. And isnt that what the Fed is there for - down 10,000 and all.

It is interesting to watch even the most craven bulls start to ask what is happening? The disconnect between reality and the markets is becoming so divergent that Ben's objective may in fact boomerang.

The most insidious person in the Fed may not be Ben, but Kohn. No doubt Kohn is leading the chant for more QE, just like his comments about output gaps and lower for longer. He is a retrograde banker stick in his (and Keynes) false paradigm.

Martijn said...


I do not actively believe that your view is limited, on the contrary. I do however continue to search for what I have missed, as I simply believe no one is perfect. Until now I did not consider a floating Renminbi too much, hence my question. That's all.

FOFOA said...


Peter Schiff wrote about the threat of the floating Rinminbi in his 2007 book, Crash Proof. It is definitely a threat to the dollar and the US. Not so much to gold.

Perfection is not required to see that the tide will come in tomorrow, or that the sun will rise.


Martijn said...


Perhaps freegold really is as easy as that Fofoa, perhaps it is.

Logically I do agree with you. My main point is however that even though logic prescribes freegold, mass psychology to me does not always seem logic. Perhaps the human brain is the true barbaric relic in the equation. After all it was designed for circumstances substantiating millions of years ago and hence today regularly seems to deceive us.

Thanks for the reply anyway!

FOFOA said...


It is an economically Darwinian feature of evolution that drives BIG money to safety when threatened.

No I don't have that kind of money. But it was precisely this trait that directed me to the golden path less than two years ago. So I do know something of what I speak.

Again, it is the giants that will drive this bus. Not all the morons and lemmings that you worry about. They'll learn by witnessing, while the giants will learn through necessity, lest they become poor lemmings themselves!

Hope this helps!


Martijn said...

That is a solid argument, thanks for reminding.

allen said...


"...Or are you saying that the 100% reserves are fiat base money? In that case it could work, and I could see how something like this would evolve when and if the Fed is abolished.

The government would issue new base money to fund itself and this would expand the money supply and allow for public credit issuance. This could even be done in lieu of an income tax!

But it would need to be separate from gold as a wealth reserve for those who wish to live a "pay as you go" lifestyle. "

Yes, this is exactly what the author suggests. He does NOT recommend going back to a gold standard. I know many people think that is the solution, but history has shown the gold standard to have many problems. It is also not an evolution as you mention.

Key points to note. The FDIC was created because of fractional reserve banking. With 100% reserve, this need really goes away because a run on the bank is much less likely.

I agree that this probably won't happen and that this blog is not a call to fix the problem, only to deal with it. I don't believe you can wrestle away the notion that banks should be the slave and not the master. SDRII says above that banks wouldn't be able to innovate. Innovate what???? Innovate how to rape the community at an even faster pace? Banking is not production. Resources spent on banking is a waste of human progression. Think of all the talent that went to work for GS that could have been deployed at science research labs or into medical care.

allen said...


One more key point about the government issuing new money when it needed to expand the money supply. It would do this without borrowing and without going in debt!!!!! Not more wasted tax dollars on interest.

Martijn said...

Banking is not production. Resources spent on banking is a waste of human progression. Think of all the talent that went to work for GS that could have been deployed at science research labs or into medical care.

Only to a certain extend. In a specialized society were people lend each other money (invest), someone could fulfill the role of judging what to lend to whom and under what circumstances. Make no mistake here, this can be a very productive taks.

I do agree however that these days this task sadly enough makes for only a minor task in the financial world, and that the much of the effort indeed goes into "raping the public". A banking sector making 40% of GDP is way too big, and talent is likely to be wasted there indeed.

aleph0 said...


Excellent article!

If I may, I would like to understand better one part of the argument. You said:

Again, as long as gold is tied into a money credit system - as the dollar reserve still tries to do - its value will be subjugated by the credit inflating needs of society. In this function, gold cannot be saved as a "wealth asset" that measures our true worth.

How is gold still tied into the current money credit system?

A worth that carries our savings from generation to generation. But it will again... soon.

How do you know gold will untie itself soon? Does this have anything to do with the loss of confidence in the US dollar?


FOFOA said...

Hello aleph0,

"How do you know gold will untie itself soon? Does this have anything to do with the loss of confidence in the US dollar?"

Yes, it does.

Please read my two newer posts, and they should answer your questions. If not, please ask again. :)


Wendy said...

my 2 cents

"I am going to travel for a while and watch the trail from a distance. It won't be long before the rains come and the ground begins to open; in that time I will return. Until then; this farmer will rest from this work."

Perhaps rains = not weather but "a heavy fall = a rain of arrows

ground = perhaps groundswell = a rapid spntaneous growth (as of political opinion) = a groundswell of support

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