Friday, November 6, 2009

Open Forum

The last thread was getting a little full! :)

FANNIE MAE IN THE NEWS AGAIN...

News Snips:
Nov. 6 (Bloomberg) -- The U.S. Treasury rejected Fannie Mae’s request to sell $2.6 billion in low-income housing tax credits that the mortgage-finance company wasn’t likely to use.

“Every politician on Capitol Hill right now hates Goldman,” said Paul Miller, a bank analyst with FBR Capital Markets in Arlington, Virginia. “Politically, this would look really bad.”

Fannie Mae has posted $120.5 billion in net losses over the past nine quarters and requested $59.9 billion in Treasury aid.

A Goldman Sachs spokesman, Lucas van Praag, declined to comment, as did a Fannie Mae spokesman, Brian Faith.

The blocked sale illustrates the political and policy challenges facing the government as it looks to conserve both companies' capital while balancing larger policy and political goals.

The deal pitted two government agencies against each other over how best to run Fannie and its smaller rival, Freddie Mac. The government took over both mortgage-finance companies 14 months ago through a legal procedure known as conservatorship.

A Goldman Sachs spokesman declined comment. A representative of Berkshire Hathaway couldn't immediately be reached.

A Goldman Sachs spokesman declined to comment.

The sale of the tax credits would have helped stabilize Fannie Mae. The company on Thursday said bad mortgages and a federal foreclosure prevention program left it with a $18.9 billion loss, forcing it to tap a Treasury line of credit again to plug a hole in its net worth.

FLASHBACK! (14 months ago)

54 comments:

FOFOA said...

@ Martijn (November 6, 2009 1:25 AM),

"Good post on Federal reserve policy!"

Karl may sound doom and gloomy in that post, but I say he is a Pollyanna. Like most deflationists, he believes the Fed will ultimately do the right thing and let all the debt collapse as it should. He is wrong. Jim Sinclair is right when he says Ben Bernanke will do whatever the polity wants him to do. He doesn't have a choice. This is why full blown hyperinflation is practically a foregone conclusion. This is not an analysis focused on one irrelevant, short-sighted Fed statement. It is an analysis from a much, much wider view. FOA knew back in 2001 that we had set ourselves on this path years earlier:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

FOFOA

Desperado said...

FOFOA, if you think think hyperinflation is a foregone conclusion, then I don't see how freegold can ever come to pass.

After all debts have been hyperinflated away, TPTB will be desperate to find some anchor to tie the dollar to. IMO that will be gold, and would likely include a seizure of gold. At this point the masses won't care as long as someone can stop the hyperinflation.

May I ask what your advice would be as to the best physical form of gold to hold, cheaper bullion or coin? And would you prefer 24K maple leafs over 23K eagles and Krugerands?

FOFOA said...

Hello Desperado,

Hyperinflation is a psychological event. A specific currency-related event. No one can stop it. And the problem is that the collective reflex makes it worse!

Freegold and hyperinflation are separate, non-mutually exclusive events.

TPTB, as you say, will not be concerned with saving "the currency" during the heat of the fire. They will be printing like crazy just to pay each other. They will not be able to seize the gold that you worry about, but they will likely seize the gold in the ground, and the gold in the NYC vaults.

As for form, just get the most gold bullion for your money. Personally I prefer recognizable coins over bars or generic rounds. I also like smaller coins if you can get them at a low premium. In answer to your question, I would go with a split of the two, favoring the 24K Maples. But this is not advice. Just sharing my preference.

Sincerely,
FOFOA

Anonymous said...

India gold - Must read !

http://economictimes.indiatimes.com/news/economy/finance/RBI-mayve-sold-US-T-bills-to-buy-gold/articleshow/5205038.cms

Confirms gold's nearby future as A/FOA/FOFOA/Some others, are seeing it !
Big Smile :))

B.

Anonymous said...

raptor:

many times i've seen posts from gold bashers why gold has no value cause you cant eat it, is just another metal and so on, and so forth... I agree factually with this ;), yeah i really agree... and I will agree with them that paper-currencies or anything else are better if they had the following qualities :

1. Are scarce
2. Quantity increase is max 1-2% per year and is constrained to not expand exponentially
3. There is enough of it in circulation
4. Historically was used for a long period of time w/o collapsing. More than 50-100y i.e. people start inventing motto's "as Good as gold"..etc
5. Is easy devise able and countable


Show me something that is not gold and all of these things.. and i will switch in a beat.

PS>
6. Is hoarded by the banks
.. add your own here

Desperado said...

FOFOA,

You say "They will not be able to seize the gold that you worry about, but they will likely seize the gold in the ground, and the gold in the NYC vaults."

I agree that the GLD/Comex/Fort Knox gold will be "nationalized", and I have read many of your posts as well as others about how the private gold cannot be seized. However, when the run-away hyperinflation has finished doing it's "magic", then TPTB will be desperate to stop the train. But all trust and confidence in fiat paper will be destroyed, and the rest of the world will be both unable and unwilling to help. TPTB will try all sorts of things, but in the end they will have to pin the "new" dollar to gold, and even if they don't seize private gold, this would be the end of freegold (as far as I understand your definition of freegold anyway).

Over the last year, I have been gathering 20 frank Swiss gold Vreneli's at close to spot ($200-$220 each) on ebay and the Swiss ricardo.ch on line auction system. Vreneli's were standardized coins from the Latin Monetary Union

My concern with vreneli's is that at 90% gold and .1845 ounces or 5.801 grams of pure gold, that they might be too "diluted" and too small. I have since switched to maple leafs for 100% purity. Do you see any scenario where 100% purity would carry a premium?

Anonymous said...

raptor:

oops forgot also

7. Is not perishable

Anonymous said...

raptor:
(sorry to post again, now i have it more clearer ;))

Why gold ?
Really, why gold ? Why not palladium or platinum ? or why not oil, rice, houses, food ?
Then also you can't eat gold ?

Because :

0. IT HOLDS LIABILITY AGAINST NOBODY (do I say it correclty)
1. IT is scarce
2. IT is easy to store and transport
3. Quantity of IT can't increase more than 1-2% per year
4. There is enough of IT in circulation
5. IT is historically recognizable as store of value
6. IT is easy devise-able and countable
7. IT is not perishable

8. IT is hoarded by the banks

FOFOA said...

Hello Desperado,

Reread Confiscation Anatomy. There will be NO pinning "the new dollar" to gold. Freegold is a global phenomenon. The US must compete globally after this based on merit, that is marked to market production and treasure. This will decentralize (localize) the trade settlement function. There will be no monetary isolationism, especially in the US.

I like 24K. But don't get too obsessed with it. Your small coins are good too.

RAPTOR: John Locke said it very well in 1690. Have you read this? There are some parts in bold toward the bottom.

Sincerely,
FOFOA

Anonymous said...

Gold because:

- it has never changed: a kilo 6000 years ago is still a kilo today

- Putin and Medvedev have their photograph taken with a golden coin in their hands (and not with silver, nor with palladium or platinum)

-since december 2005 the balance-sheet of the ECB shows a higher valuation of their Goldreserves than the valuation of their forexreserves and that's what other CB's want to achieve also!

Krach

Desperado said...

Anon, I can think of several additions (taxes, inheritance) to your list of "why gold ?", but I'm going to play devil's advocate on "why not gold ?".

1. It is not nearly as portable as paper, especially (assuming they still exist) bearer bonds. And I don't even need to mention the portability of electronic funds.

2. Physical gold suffers from a "liquidity and labor time lag". Even in the best of cases getting electronic liquidity for transactions from physical gold takes several hours. In reality in normal circumstances due to the effort and time involved it takes several days to get e-cash from physical gold which reduces convenience and could lead to missed opportunities or losses.

3. In periods of duress gold could suffer from a highly reduced or entirely eliminated liquidity (think 1933-1961?).

4. Gold can be seized or stolen. Fiat money is far easier and cheaper to store.

5. Governments have a long history of seizing their citizens gold.

6. Gold transactions could be taxed at outrageous rates to raise income for the government. Pelosi has already slipped a "non-inflation indexed" tax into the pending medical fiasco. This could consume the vast majority of capital gains after hyperinflation and the expiry of the Bush flat 15% cap gains in 2010. The cap gains tax could easily be supplimented with a special gold VAT or other gold transaction tax. Muni's pay dividends and are tax free.

7. Fiat wealth can earn interest and dividends, and can also appreciate. Gold mines have features of both classes.

8. Fiat wealth can be invested over a far more diversified portfolio than just PM's.

9. Fiat wealth is easily transformable. You can go from stocks to bonds to cash to FX to paper gold with less effort.

I am sure there are other, even better reasons "why not", but IMO the proportion of wealth devoted to either fiat or PM's reflects our personal preference for "why" or "why not". If one has 50% of his wealth in each, then any change in the value of one is counter-balanced by the other, allowing a certain reduction in worry. Land could easily be added to the pie too.

Desperado said...

Grüss FOFOA,

I re-read your confiscation anatomy. In it you wrote:

Well, if the US ever put gold back on the table through another confiscation of its citizens' gold, the BIS would call in all of its outstanding claims in gold at the rate of $42 per ounce. And the BIS would not be alone. Other entities would have legal claims for gold at $20.67 per ounce, and others at $35 per ounce. How much gold was either confiscated or defaulted on without due process of law? Claims of perpetual entities never go away. If the US government ever exposed its own gold (or its citizens' gold through confiscation) to the light of day, it would expose itself to all kinds of claims and an international legal mess. Under international law, the US is still an OUTLAW when it comes to gold!

This is why gold is off the table. This is why we can never go back to a gold backed dollar.


You then back this up with:

But what if the dollar falls all the way to the pits of Zimbabwe hell? What if the US simply declares the dollar dead, confiscates the gold, and then starts a new gold backed currency? Wouldn't that work? I will tell you now that it would never be accepted on the international market as an exchange contract for gold! Even at $10,000 or $100,000 an ounce. The world is not that stupid.

I think your leap of logic is too big here.

After a dollar collapse, there will be no foreign trade and all foreign debts would be repudiated (and inflated away anyway). The new Dollar would be Gold backed only after the old Dollar exchange window had closed. Those old claims on "old-gold" through the past defaults would be completely repudiated. The feds would be without any revenue and totally paniced. Various localities would print their own currencies out of necessity. Foreign countries would wish to sell to the US and would seek some kind of exchange.

A new dollar would have to compete with local currencies and establish some sort of FX rate with other FC's on their local bourses. I can see a scenario where:

1) Foreign (perhaps BIS) entity audits gold reserve/Ft. Knox. This new "virgin" gold backed dollar is issued by the new (probably fascist) US government (there will be several before this is over).

2) The new USG prints the "audited and BIS certified paper" and would have gold backed new dollars, but little trust. After a few months of allowing full exchange for gold, trust would increase.

3) With time, luck and discipline the new Dollar would fall into use within the US (out-competing local currencies) and overseas exchange rates would rise.

On the other hand, if a "new" dollar is not gold backed, I don't see how it could compete with local currencies (perhaps some gold backed). Foreign countries wouldn't know how to value it in the beginning anyway.

I just don't see how we could get to enders end state of An alternative is to put as much gold into the economy as you can and give it the role of being the safe haven for savers and NOT get into the business of facilitating settlement. Rather, let those that want to buy or sell gold in the open public market do so. By doing this, the government will never run out of gold for settling debts until the country is completely gold-less AND the political organizations can continue to print ‘money’ in a hand-shake with the central bank without restraint.
. Putting that gold into the economy exactly how? The feds would sell the gold for what, local state currencies?

MichaelB said...

As foreign central banks severed their link to gold one by one, they also became "outlaws". Their continued issuance of inflating currencies in excess of their respective nations' productive output of goods and services was the frosting on the legal cake.
This is why they will embrace a gold mark-to-market remedy and a new reformed global monetary system with uniform, transparent and unnassailable accounting and standards.
At the same time, they have been complicit in accepting the US dollar as the global reserve currency of choice and principal medium of exchange and denominaire in international settlements.
Therefore they have a vested interest in the dollar's salvation. And the new global monetary system is designed to do just that, preventing their vast accumulations of US dollars and US dollar proxies from complete evaporation with the ensuing world Mad Max apocolypse that entails.
So when many see a "new dollar", it will not exactly occur, but the revitalized sustainable currency Another foresaw.

DiverCity said...

The US has already embarked down the fascist road. You can call it fascism or corporate socialism, but the key is that big corporations are shielded from losses and, indeed, the operation of law. What to do, then? The dystopian future you posit, Desperado, will IMO come to pass. However, don't forget that the US citizenry is well-armed and, in particular areas of the country, especially the Southeastern US, a large demographic of fighting Scotts-Irish obtain and will not be lead to the slaughter quite so easily as long as they understand what's happening. My fear is that the fascist Republicans (as opposed to the fascist Democrats) regain power and are able to delude them as Bush did into believing that they're on their side.

I have NO trust in federal government. I would much rather see a semi-autonomous Southeast that issues its own currency and deals with the other regions of the country under a new paradigm without subservience to Washington.

Sorry for going so far afield and getting into politics, but these things are intertwined.

Desperado said...

DiverCity, I agree with what you write, but believe that the Dems are far more culpable. No matter, we both would agree the current system is completely corrupted and that the only hope now is a system reboot. Hyperinflation will perform this function.

It is interesting that the previous poster, MichaelB, has stated his belief that the new global currency that TPTB are pushing so hard: And the new global monetary system is designed to do just that, preventing their vast accumulations of US dollars and US dollar proxies from complete evaporation with the ensuing world Mad Max apocolypse that entails. So when many see a "new dollar", it will not exactly occur, but the revitalized sustainable currency Another foresaw.

This is precisely the global currency that the IMF, UN and the global elite are working so hard for. I haven't read all of another's posts, but I doubt that he wanted to promote the FED to be the worlds central bank.

IMO this global currency is the cure that is worse than the disease. I will NEVER trust this global elite. I will put my faith in the US Marines first any day! My best hope is that Patraeus will lead a coup and restore the constitution.

Goud.com said...

Regarding to the confiscation theory:

"Behind every fortune there is a crime. (Honoré de Balzac)"

Maybe our crime has already taken place. Still waiting for the fortune though ...:)

If you realy believe in confiscation, buy older gold coins with a numismatic value. They usualy sell a bit over spot.

Anonymous said...

Look guys, Gold is going to heat up so fast its going to burn the paper financial system to the ground. Its obvious at this point.

The only two options now are Freegold like FOFOA points out. Or the worlds hungry collective turn on those that have gold, thus driving gold into permanent hiding which will allow the elite to force on the world their stupid one world currency out of simple necessity.

Anonymous said...

Gold will not be confiscated again and tied to a nation state currency. FOFOFA is right, gold will never be attached to currency again it will only be a wealth asset in the future. It would be far easier for the Governments of the world to drive gold into permanent hiding then to confiscate it. And if its in permanent hiding then the Masters Of The Universe can set up what ever money system they want and never worry about gold again.

If they confiscate, then gold will always be seen as something valuable, because the Governments obviously value it. But if it just permanently disappears then all the better for the Governments.
This could be an extinction event for Gold.

Desperado said...

Goud.com said If you realy believe in confiscation, buy older gold coins with a numismatic value.

I don't believe in confiscation, I simply don't rule it out. I am agnostic on this as I am with deflation/inflation or freegold/gold backed currency. I do however constantly try to judge which scenario is more likely.

Anonymous says the worlds hungry collective turn on those that have gold, thus driving gold into permanent hiding which will allow the elite to force on the world their stupid one world currency out of simple necessity.

I think this is the most likely scenario. Just as the tax-eaters will parasitically destroy the economic body that funds their existence, so will the global elite kill the same system through suffocation of freedom. As far as they are concerned it is better to be a big fish in a small pond even if half of the earths population perishes. This is what we will have once enviro-elitism has run its course. You can rest assured that Al Gore and George Soros will still have all their private jets, helicopters and estates once they get their global currency.

Anonymous said...

When gold "goes into hiding" this doesn't mean you won't be able to sell your gold. It means you won't be able to BUY any more.

It means the value of gold has gone so damn high that there is no price discovery other than face to face auction.

"They" can force you to use whatever they want in terms of legal transactions. It's called legal tender laws. What they CANNOT force is what you choose to spend your earnings on. If you choose to enter the auction for gold with your savings, that is your choice. "They" will enjoy this because "they" have a lot of the gold!

There will never be an extinction event for gold unless there is an extinction event for mankind. Or if someone figures out how to make gold in quantity, cheaply.

Anonymous said...

"They" may succeed with "their stupid one world currency". But "they" cannot control the reserve function. Countries like China and the oil countries do not have to accumulate this one world currency the way they accumulated dollarz. They will use it for trade if it functions well for pricing and exchange, but not for reserve. This will limit the size of the Gore-Soros Airlines. Perhaps a fleet of Cesnas?

Anonymous said...

If one is able to sell gold, then someone is able of buying it. There is no such thing as permanent hiding.
If there are no transactions in gold, then gold loses all of it usefulness at once.

I like the idea of Freegold, as FOFOA sees it, but I have to agree with Desperado. In my mind, humans are incapable of making a correct decision. Too dumb, you see. If this was not so, then US citizens would be capable of reading TINY constitution and voicing their disagreement with fascists like Wilson and Roosevelt. It was not hard to do at all, again, if humans were capable of at least reading comprehension of third grade.

The sore fact is, that humans are evidently dumb, and there is no reason to think that there have been any progress in this regard. Just look around and imaging anyone around you even being remotely capable of constructing anything as
genius (meaning comprehensive and simple at the same time), as the constitution. There is not a single being.

Thus, my view is that what Disperado said will come to pass. His argument isn't rooted in explanation why another (pun intended) way would be better. Instead, it is rooted in understanding, that what drove us into a current situation, will drive us in the next one as well. And that is the weakness of humans mind. We will have to accept an imperfect solution, because we always yarn for cheap thrills.

Anonymous said...

...Or, put another way, I believe humans will always make a wrong decision, because it is sweeter in the short run.

(I think this summarizes well the secret of Keynes, or how so many people accepted something that kills us all in the long run. The answer is, that a system that destroys one's progeny but makes his life easier, is always preferable to anything else.)

Does this mean that Founding Fathers were aliens?....

Moses said...

I'm trying to see the link between debt and hyperinflation, but I'm not seeing any printing. The Federal Reserve can create debt, but it cannot print money, it orders it from Treasury. When the debt dies, the money dies with it.

Do you expect the Treasury to start printing $100,000 bills to back the existing debt? Or is it a psychological event, and people will still believe in the 1s and 0s on their computer screen, but the Federal Reserve itself will be bankrupt and that will cause the dollar to devalue?

Anonymous said...

"I'm not seeing any printing. The Federal Reserve can create debt, but it cannot print money, it orders it from Treasury."

The Fed itself just said it "will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt."

Where do you think the money comes from for the Fed to buy all this mortgage backed crap? You think the fed orders this money from Treasury??

Anonymous said...

A short comment on the Exported Inflation by Gary North

In his latest article on Lew Rockwell, Gary north explains some of the typical misunderstandings of the Inflation Exportation by the U.S.
Read it here: http://www.lewrockwell.com/north/north780.html


His explanations touch on my comment on this blog regarding the matter:

http://fofoa.blogspot.com/2009/10/gold-is-money-part-3.html?showComment=1257016918103#c2023424057492507419

I don't know if Gary North reads this blog or not. I do not think that he wrote the explanations as a reaction to my words (if you read North as frequently as I do, you'd know that he has a very well thought-through reason of why he doesn't reacts to non established authors), however, his article nevertheless introduces some misunderstandings at the same time as it explains others. One may think that since international trade as explained by North can not export US inflation abroad, then my whole comment therefore is invalidated. You may start thinking that the FED scam is not designed to suck up the wealth of foreign nations. You even may think that a whole giant country of shoppers has a standard of living higher than a that of a whole bunch of producing nations perfectly deserved.

Let us forget for a moment about Exported Inflation. Read North's article. In it he makes a point, that shortages have no meaning other than with mentioning "at some government imposed price". This is the essence of wisdom, because it teaches us that whatever we know and think of any mechanics, we must take in to the consideration with potentially unknown to us forceful action of governments. Only when we remember that we are never free from government tyranny, we can estimate the way things will evolve.

This is why I like Gary North writings so much. He does respect the authority, he believes in numbers put out by the apparatchiks of Saint Luis, and this is his weakness, and it devalues his efforts, true. But at the same time, he frequently gives us gems like that, and they are priceless.

Back to the matter of Exported Inflation. North correctly states that illegal cash payments do export inflation, while digital payments do not. But, he completely omits the practice of foreign nations to accumulate dollar "reserves". In this case, dollars do leave our shores and are being continuously stockpiled in foreign central banks. Is this neutral to the question of inflation export? There is no answer from North.

Second, why didn't North mention another "gem" of US forcing pricing of strategic commodity in US dollars? This gem is to the matter of export of inflation as the "government imposed price" to the matter of meaning of shortages.

There is no meaning to the exported inflation scam, without knowing about "enforcement of one particular currency by US, against all others".

One has to remember that nothing is fair where there is a government involved. Anything and everything we may think of, must be analyzed with government in mind.

Anonymous said...

raptor:

Desperado said: I don't believe in confiscation, I simply don't rule it out. I am agnostic on this as I am with deflation/inflation or freegold/gold backed currency. I do however constantly try to judge which scenario is more likely.

I agree with this. I see the beauty of freeGold, but it is exactly what bothers me.. it is too perfect ;)
"Too good to be true" ;)
And as ANON said gov and the ppl will probably go for the simplest solution (one that alleviates the pain in the short run), something like one world currency or such.
It may not be long lasting, but that does not mean it wont be tried/happen.
I don't think that the majority of the gov. bureaucrats and politics have their wealth in gold and those are the ppl who are deciding.
And because they will be late in the gold accumulation game they wont hesitate to try to hurt the investors who have foreseen the problem, so that 'they' can save/transform their paper-wealth.
And I can certainly see how the majority of ppl will agree with them.
Just yesterday had a conversation with a friend who was in the camp that things are going bad, but under pressure from other ppl he now believes that the crisis is over (he was even more bearish than me before that day, it just amazed me :) how ppl opinion can switch).
And can you guess the reason...wait for it ..:) ... his other friends made 200% or so paper profit from the stock market rally and because he was bearish he only made let say 50% (just for the sake of the argument).
So he is not bearish anymore because other ppl made more paper-money than him ;).
So you see my point...right ? OK here goes.
People surrender their critical thinking at the moment they see somebody profiting when they were critical of the things happening and they forget to think.
I.e. the ppl who now make big paper profits when the crash come will support whatever measure the gov. purposes which will save their profits from burning, no matter how shortsighted it can be or what will be the end result.

I also agree that $ depreciation will be externally induced event rather than internal, but don't forget that majority of bankers and wealthy persons are kensian-thinking and making their profits in the paper-market.

I don't question the end result. I just question the timeline.

Anonymous said...

raptor"

Desperado said:
Anon, I can think of several additions (taxes, inheritance) to your list of "why gold ?", but I'm going to play devil's advocate on "why not gold ?".

1. It is not nearly as portable as paper, especially (assuming they still exist) bearer bonds. And I don't even need to mention the portability of electronic funds.

-1) Depends, how about if the gold price is 10 000, 100 000 ? You've seen the Zimbabve and Germany images right. True story when I bough my first computer it was ~17000 in my local currency (the biggest bill at that time was 20), so I had to go with a bag of money (~850 notes) carring it around..so you see my point ;)


2. Physical gold suffers from a "liquidity and labor time lag". Even in the best of cases getting electronic liquidity for transactions from physical gold takes several hours. In reality in normal circumstances due to the effort and time involved it takes several days to get e-cash from physical gold which reduces convenience and could lead to missed opportunities or losses.

-2) I didn't speak about transactional money (medium of exchange), but about the store of value part.
You don't transact your wealth every day.

3. In periods of duress gold could suffer from a highly reduced or entirely eliminated liquidity (think 1933-1961?).

+3) yeah goverment interference :\, no way around this.

4. Gold can be seized or stolen. Fiat money is far easier and cheaper to store.

-4) Cash can be stollen and electronic account can be hacked. Have a freind who went trough this pain.
I had 2 accidents with my account too. I'm programmer and have worked in a bank, so believe me it is not
so secure as it looks ;), secure yes but not super secure.
The thing that saves you is that if your account have been hacked the bank is liable
to restore whatever you lost and also the perpetrator if found will go to jail.
Paper can burn very easily ;). And cash depreciate for sure this is part of the fractional system innerworking.


5. Governments have a long history of seizing their citizens gold.

+5) True. That is why it is a balance act and you have to be vigilant what,when to do.

6. Gold transactions could be taxed at outrageous rates to raise income for the government. Pelosi has already slipped a "non-inflation indexed" tax into the pending medical fiasco. This could consume the vast majority of capital gains after hyperinflation and the expiry of the Bush flat 15% cap gains in 2010. The cap gains tax could easily be supplimented with a special gold VAT or other gold transaction tax. Muni's pay dividends and are tax free.

+/-6) That is why black markets happen.

7. Fiat wealth can earn interest and dividends, and can also appreciate. Gold mines have features of both classes.

-7) Interest never beats inflation and also interest gain is taxed.

8. Fiat wealth can be invested over a far more diversified portfolio than just PM's.

-8) True. But you dont invest your wealth, you hold it until you need to deploy it.
Because of the certain gov. induced inflation you are pushed to invest. Imagine a world were
there is small or no inflation, but also any paper-investment returns alsmost nothing (not talking about capital investment were you have to invent, produce and/or work hard).
You don't need to risk your wealth and invest it you just use it when you need to.
The self perpetuated inflation machine made us believe we need to invest our hard earned
wealth.


9. Fiat wealth is easily transformable. You can go from stocks to bonds to cash to FX to paper gold with less effort.

-9) And be charged a fees, be taxed and all other risks involved

Anonymous said...

Above all the FED wants to avoid bankruns because if everyone wants to retreat his money from the banks, we'll have 'bankholidays' because the money is not there. They'll have to print 10.000$ and 1.000.000 $ notes to be able to pay everyone within two days and there hyperinflation takes visual form.

Anonymous said...

Gold going into permanent hiding cant happen? So what happened during the dark ages? Where was gold then? Yes it finally came out of hiding after hundreds of years, but there was not an oppressive one world monetary authority that started issuing a one world currency out of necessity because of gold going into permanent hiding.

How will you exchange some of your gold for currency or things you need when gold is in hiding? The minute you take yours out of hiding to use it or try to exchange it, the hungry collective will go after you.

If the governments and banks put all the Gold in the peoples hands as FOFOA believes is happening with Freegold, then when the collective turns on those few people that have gold it will surly go into permanent hiding, which the Governments and banks will be so happy to finally see.

Gold will be extinct, and a new kind of tyranny will be unleashed on mankind.

Anonymous said...

Hiding, confiscation, freegold, taxation, extinction, global currency, further supression.... nobody can predict the future for one single day. It always turns out completely different as everybody thought it to be. Perhaps consciousness will be the new currency ... no need for gold backing anymore.

Desperado said...

Anonymous at 3:04 says (it would be great if all of you anonymouses would use a handle)

If this was not so, then US citizens would be capable of reading TINY constitution and voicing their disagreement with fascists like Wilson and Roosevelt. It was not hard to do at all, again, if humans were capable of at least reading comprehension of third grade.

I have been thinking of the financial system as a big Unix server. The US constitution is for America the equivalent of the Unix kernel running in run level 1. Currently, the system has come to a near standstill due to runaway processes (corruption) chewing up all the cpu and memory.

The problem is that only the elite have the root password, and they refuse to kill any of these rogue processes. The elite are like the Bastard Operator from Hell.

The system has not been rebooted in a century, and no one has any idea if a reboot will succeed because the elite have been tampering with all the system code and even the boot strap loader. We need to bring the system up into run level 1 (pure constitutionality and nothing else), and then perform some administration to make sure that the system won't be corrupted as soon as it reaches run level 3 again.

Even worse, even if the system does come back up, the elite have laced the system with viruses and trojan horses that will allow them regain control of the root account and control all the normal users.

These boot viruses are analogous to what this new world currency is about. Sure, it would allow fiat wealth to survive across the reboot, put the price the rest of the world would have to pay is the continued domination by the global elite (soros/gore/GS/et al).

These guys are truly the BOFH!

Anonymous said...

Dark Ages. The secret history no school wants to teach (meaning to us, that there is no true school for kids these days, they do not deserve the education, from the point of view of tyrants).

Gold wasn't in hiding from what I managed to learn. It wasn't coined, in a way similar to our founding fathers prescribed, nor even in a way it was coined before the dark ages commenced. So, it was traded, it just wasn't traded openly, by folks with no guards.

Minority did have gold, and they did trade it, between each-other.

Majority did not have gold and therefore had to choose amongst three options: become guards of those who had gold for crumbs of food, become bandits for crumbs from gang leader, or die outright.

The division of labor broke, because there was not an easily accessible uniform market for gold, which is the whole point of constitution on these matters.

The only thing that is different today, is that we already have a mechanism of organizing into governments and obeying the tyrannic laws. So if same thing happened today, as end of money and with it, the end of division of labor, then the people would form a congress and elect new gang leaders, who will promise the biggest crumbs.
These leaders would create new fiat currency and forcefully confiscate any gold they can find. They would make it a point to support the new gold backed currency until such time that the memory of reset has been erased in the minds of most, and then start inflating and progressively removing the gold backing, just like that thief FDR did.

I believe that literally, all monetary history of twentieth century can be repeated forever without any risk that the people will understand what is going on.
The subject is to hidden, impractical, ridden with propagandist terminology for masses to get it. Even if many do understand it, they will only live few short years and go away, taking their understanding with them.

All one needs to do is to keep the education nonexistent, as it is today, while pretending that it is on a "high level". Use these uneducated people and manipulate their best intentions to inflation-tax them, to wage wars and to build the grand swindle.

Then reset and repeat.

Tekin said...

@ Desperado 6:30

Very interesting. Thanks for the analogy.

Now, I would try another approach:

See:
http://online.itp.ucsb.edu/online/colloq/yakovenko1/oh/20.html

In order to construct a thermal machine you need temperature (money) difference. Since the debt based money system is failing, the thermal machine would come to halt.

The point is that revaluation of gold achieves two goals. The past debt is cleared. This is the first point. A new thermal machine is constructed where gold holders have higher temp (money). I would bet that the administrators of the current fiat system hold considerable amount of gold. This is my second point.

As an aside; the following slide is interesting.

http://online.itp.ucsb.edu/online/colloq/yakovenko1/oh/06.html

Desperado said...

Tekin said...

The point is that revaluation of gold achieves two goals. The past debt is cleared.

Hyperinflation would clear the debt, but I don't see how a gold revaluation on it's own would achieve this. That is unless the debt holder himself holds gold that is revalued and can be used to pay off debt with a fraction of the gold that would have been required before the revaluation.

One of the anonymouses above said:

The minute you take yours out of hiding to use it or try to exchange it, the hungry collective will go after you.

I think a radical gold revaluation would be the main issue that would lead to gold seizure. One of the reasons the Germans supported Hitler in his orgy of antisemitism was the perception that the jews had profited from the hyper inflation (through gold possession). These forces are hard to see beforehand and cannot be controlled once set in motion.

I guess one lesson to be learned from this is that in the end, the only thing they can't steal from you is your education and skills. The jews seem to have learned this lesson well from all the centuries of oppression that they have endured.

Anonymous said...

Man, Im sorry but I just cant see confiscation. The powers that be keep making it easier and easier to own gold around the world. The other day I went to a local bank (not in the US) and bought a few grams of gold I asked them if it was possible for me to sell the gold back to them in the future if I wanted to, and they said "no". They said they only sell gold, they dont buy it back from people.

They buy it from Switzerland and then sell it. I said, so what do people do with this gold they buy from you if they cant sell it back to you? They said people usually buy it as gifts and give it away, as far as they knew.

So banks are selling to the unwashed masses and myself;-) but they arent interested in buying the gold back?

We must be a long way off from confiscation when gold goes up $100 in just a couple weeks and local banks are selling but arent interested in buying.

Incredible!

Desperado said...

Anonymous (@10:16 AM) said...

The other day I went to a local bank (not in the US) and bought a few grams of gold I asked them if it was possible for me to sell the gold back to them

You didn't mention the price and the form of the gold.

This is one of the issues of gold lag that I described at the beginning of this thread. The risk of buying counterfeit gold is greater than that of counterfeit paper (add that to the list of "why not" above).

I read somewhere that the arabian dinar was going to be based on 24K gold. I also read that the Ft. Knox gold that was seized by Roosevelt was quickly smelted into 22K bars, and when the futures options that were allowed to expire in September 2009, in order to take physical possession, were filled with inferior 22Karat bars that the Comex had to scramble to provide (many figured these were based on this seized gold).

This is why I was asking FOFOA about premiums for 24K gold coins. I think there could be a scenario where 24K gold sells at a significant premium over 22K.

My real point is the fact that someone can make a buck selling grams of gold of unknown purity at an unknown premium does not mean that the CB's are dumping gold. It merely means that someone has found a way to make a quick buck.

Anonymous said...

It was a "real bank" selling real certified and sealed 1 gram pamp swiss bars (more like flakes) but they call them bars.

Anonymous said...

My thoughts on gold purity:

Ideally, it doesn't matter what purity of gold is offered for sale. At a right price, it could be sold.

The problem arises when one entertain a thought of being swindled into buying of gold of lesser purity than advertised. Say, you think you're buying 80% pure gold, and in fact it is 60% pure. This is a show stopper.

The lower the purity of gold offered for sale, the higher is the probability that this gold is of lesser purity than stated.

Why? Because the spectrum of available choices for fill-in widens with lower stated purity.
It is extremely hard to make a counterfeit gold piece that is as small as one troy ounce, and is behaving as true 999 purity gold. It is doable, but cost prohibitive.
It is far easier and cheaper to achieve a prefect fake which only behaves as true 777 gold.

This is why 999 gold will always command the highest premium. The spread between premiums on say 777 gold and 999 gold will widen when the differences I have described above become the matter of survival. They are at their minimum now, because gold is a matter of curiosity or collection interest.

When all you want to have is only gold, then count on significantly higher premium on highest gold purity.

The exception from this rule is big interest. If we're talking about a powerful entity buying a lot of gold, this premium disappears to be replaced by a premium that is there to compensate only for lack of need to have a purification expense. As for purity confirmation, this powerful entity will have no worries firstly because it can afford sophisticated tests, and secondly because it always enjoys implied warranty (their hired guns will find and execute you if you decide to swindle the buyer).

Anonymous said...

RE: 1 gram certified gold.

Take the price of that gold flake and multiply by 31 to see they price you're paying for a troy ounce.

My guess is that it would be roughly twice the going rate.

This makes is the same swindle as jewelry. Of course there is no way you would want to buy it back on similar terms! Only as a scrap metal, meaning that unlike the situation where they sold you gold, they now are going to buy it basing their offer on measured gold content.

Desperado said...

I looked up "pamp swiss bars" and they are 24K.

They appear legit. But I still stand by my assertion that this doesn't mean that CB's are dumping gold, just that someone has found a way to make a profit. What did you pay for them?

Anonymous said...

It is highly educational to check the prices for gold jewelry and each time to make a calculation of what you're paying for the real gold content in the piece. It is amazing what people are willing to pay for a cheap mechanical output.

No one in his right mind would ever assign so much value to the "labor imputed" if they just analyze the situation without saying the word "gold".

Jewelry is an outright theft. Legalized just like the liquor store by the government. If you could sell gold jewelry without paying the license fees, then this is the best business to be in, ever.

You purchase bullion gold, mix it with crap, stuff it in a machine and take out a chain or a bracelet, which you then sell for three to four times the cost.

If Chinese could only get that kind of "added value" from their machinery!

Anonymous said...

Say you're in a position to confiscate the gold of your subjects at will. OK?

Now, before you grab it all, wouldn't you like to first sell it all to them?

I think this is the reason that China promotes gold ownership to it's subjects. They are able to buy a lot more gold that way, then if only CB was doing it. This privately purchased gold then will be subject to confiscation, and will be added to the hoard of Chinese central bank.

Anonymous said...

@desperado:

about counterfeit:

The real counterfeit is the QE of the FED.

The real counterfeit is the fact that the FED buys its own Bonds and Treasuries.

So leave Gold what it will prove to be.

Desperado said...

Anonymous @11:53 AM said...

The real counterfeit is the QE of the FED.

The real counterfeit is the fact that the FED buys its own Bonds and Treasuries.


Although I agree that QE is far more insidious, the deflation of fiat value holds true whether you buy counterfeit krugerands or not, and is therefore irrelevant to the debate of whether paper fiat is easier to counterfeit than gold or not. However one could make the case that the NORK's have never made counterfeit gold eagles ;->.

Anonymous said...

I've seen those 1g gold bars for sale on some webshops, IIRC they cost about 30-40 percent more per gram than a Krugerrand. Now I understand why you said people only buy this kind of gold for gifts and that banks won't buy them back. Probably they do buy back more recognizable forms of gold like the Krugerrand and Maple Leaf coins.

Anonymous said...

Anonymous (November 8, 2009 11:39 AM): Indeed, jewelry in the West costs significantly more than the gold content in the piece.

However, in places like Dubai and India you can buy jewelry per gram at near-bullion prices.

Anonymous said...

Mortymer -> FOFOA:
Only now I read what you linked in previous post comments: (http://fofoa.blogspot.com/2008/09/freegold-archaeology.html)
How relevant!.
The feeling of connecting dots is like waking up in the morning and rubbing your eyes to see more clearly - it is the brain what starts to work.
Thanks

Desperado said...

Anonymous @11:23 AM said...

Why? Because the spectrum of available choices for fill-in widens with lower stated purity.
It is extremely hard to make a counterfeit gold piece that is as small as one troy ounce, and is behaving as true 999 purity gold. It is doable, but cost prohibitive.


and

They are at their minimum now, because gold is a matter of curiosity or collection interest.

When all you want to have is only gold, then count on significantly higher premium on highest gold purity.


Thanks for this explanation that puts several pieces together for me in the gold jigsaw puzzle.

As gold increases in value and as the economic situation deteriorates one can expect an increasingly larger premium to be placed on 999 gold. All things being equal, Maple Leafs are to be preferred over Krugerands and Eagles.

Anonymous said...

Yes, the same can be observed on Golden Bazaar of Istanbul.

Thus, one can clearly see that in the west, the government is robbing it's people by instituting high fee jewelry licenses.

The additional money paid for gold in jewelry are then shared with smaller part going in the pocket of jewelry industry and a higher part going to the pocket of government.

I believe the western government is doing so with an intent to teach the people that gold ownership equals loss of purchasing power.

In other words, they threat us as cattle. Funny how ANOTHER says that C.Bankers are not evil, but good hearted people.

I laughter. Good hearted? About as good hearted as the one who teaches his pig not to leave the barn!

Anonymous said...

RE: Purity of coins:

My personal point of view is that yes, higher purity coins are more preferred.

And, I think that the same lower premium rule that explains this, also points to bars being preferred over coins. In the end, the purity will be everything. You wouldn't care what is stamped on the bullion, but only how pure is the gold content.

Small bars for small people, big bars for banks, coins for those who can afford to appreciate the beauty.

J said...

RE: Jewelry

Here in Thailand I can get 23k Gold Necklaces/bracelets for a lower premium than most are paying for coins or bars in the west. It's ridiculously easy to buy and sell Gold here. Gold IS the wealth reserve par excellence with Gold shops on every corner

costata said...

Can I jump into the earlier exchange between Tekin and Desparado? ....... Silence is acquiescence, so I shall.

Hyperinflation (or default) deals with the debt but it does not recapitalize the enterprises and institutions in the system.

I think Freegold does this and it provides the Giants with another lane on their road (superhighway?) to riches.

PS. Many thanks FOFOA and the contributors to the comments for helping me to grasp (haltingly) the Euro project and Freegold.

Anonymous said...

fofoa

could it be that the central banks just created 200ton gold

out of thin air

by a newswire ?

i didn't see them move
i don't know where they are

maybe there is 50% less mined in history than stats and recorded proof

your governments just sold and bought 6 billion $ of gold -non existent-

non event
!

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