Friday, February 12, 2010

Greece is the Word


We take the pressure and we throw away
Conventionality belongs to yesterday
There is a chance that we can make it so far
We start believing now that we can be who we are

Greece is the word
Greece is the word, is the word that you heard
It's got groove it's got meaning
Greece is the time, is the place is the motion
Greece is the way we are feeling

This is the life of illusion
Wrapped up in trouble laced with confusion
What are we doing here?

We take the pressure and we throw away
Conventionality belongs to yesterday
There is a chance that we can make it so far
We start believing now that we can be who we are
Greece is the word

The situation with Greece and the euro presents us with a fresh opportunity to explore what is really wrong within the system from a macro perspective. And I am not talking about the euro system. I am talking about our global system of savings that are value-fixed directly to a transactional currency unit whose value doesn't even matter in the context of its primary function.

This problem is what we call a Catch-22, or a no-win situation for the system as a whole. This means that because of its fatal flaw and current precarious position, the global financial system faces threats from too many fronts, any one of which can bring it down like a house of cards. And attempts to shore up the system on one side are kneecapping the legs supporting it on the other. Our global monetary/financial/economic system today lies in a "critical state", barely surviving on a "knife-edge of instability".

In order to understand the greater systemic problem that is presenting today as a boiling pustule in Greece, we must first understand the flow of capital and the growth of debt. With debt growth as the deadly tumor in the cycle, it is easiest to visualize the flow of money as a circular feedback loop, where the debt cycle feeds back on itself in a sustained growth pattern.


The denouement or final shakeout of this systemic crisis will include two separate events, no matter what decisions are made along the way. In this statement I have full confidence. For semantic simplicity I call these two events freegold and hyperinflation. But these terms seem to cause consternation and confusion in many readers, so you can think of them simply as the dramatic devaluation of paper gold and the catastrophic devaluation of the dollar. Two inevitable devaluations. Two unavoidable outcomes.

In order to understand how we get there, we must think about the three main forces at work in today's systemic crisis. The three forces are nature (you can call it "math" or "physics"), politics (call it socialism or "the collective will"), and self preservation (of the giants and the savers). These three forces are interacting in ways that appear chaotic here on Earth, but that form a clear, emergent pattern when viewed from outer space.

Further, we must understand the dynamics that brought us to where we are today. And those are the dynamics of debt, the global dollar system and the roles of money in the collective mind. Imagine that I am the debtor in the above diagram and you are the saver. I am going to keep living off credit as long as you keep buying my debt repackaged by the banks as a bond. The more you buy, the more the banks are going to offer me credit cheaper and on easier terms. Can you really blame me? Who should know better? Little ol' negative-net-worth me or super-producer giant you?

You see, by buying my debt from the banks you have become my enabler. You are feeding the dynamic that will bury me in debt until I hit the mathematical limit of my ability to pay. Eventually it will become clear that life is simply not long enough for me to pay back the principle I have borrowed. And ultimately it will be impossible for me to even pay the monthly interest. But can you really blame me? I have always had an out. Have you? I have always had the option to default and declare bankruptcy! I know this, and even though I am not the sharpest tool in the drawer, at least I know where my escape route lies. Do you know where yours is?

Credit Money

The first thing we must understand is that almost no one holds actual dollars as their savings. When I talk about the problem of transactional currency being used as a wealth reserve, I am talking about the paper assets that are denominated in dollars, fixed to a specific number/flow of dollars, and therefore whose value is directly fixed to the value of an actual dollar.

And when I talk about dollars, I am talking about the actual physical bills, cash, monetary base and bank reserves (which are all basically the same thing). So the only people who hold actual dollars as savings are those who employ a shoe box or a mattress at home. Even if you keep your entire savings in a checking account earning no interest, I am not calling those dollars. Those are credits to you from a corporate counterparty authorized to call its units dollars.

So all the money circulating through the economy without physical Federal Reserve notes passing from hand to hand I am going to call "credit money", not dollars. We do think of them as dollars when they come from special institutions that are authorized to call them dollars (banks). But they are really just credits from an institution.

Think of it this way: You have two credit cards, one from Citibank and one from Macy's. Citibank is an authorized institution so its credits can be called dollars and spent anywhere just like dollars. They can even be used to pay the IRS. Macy's is not an authorized institution so its credits can only be spent at Macy's. They are truly just credits. Try paying your taxes with your Macy's card if you don't believe me.

Now think about the cash you just deposited at the bank. Did the bank put that stack of cash in a safety deposit box with your name on it? Nope, it went right into the general reserve pool with all the other cash at the bank and they issued you an equal number of their institutional credits! Got it?

Now, think about money circulation in terms of the above diagram. Imagine the rotation as a small hurricane inside of a large hurricane, each spinning in opposite directions. 99% of the flow of money never moves a single dollar. It is just the balancing and shuffling of institutional credits. Bank A credits 100 to bank B and vice versa. At the end of the day they just cancel out for the most part.

Furthermore, we think of new credit money as being created out of thin air every time a loan is originated. It is true, but that new credit money is offset within the system as a whole by two things. The first is the sale of a new financial product by the bank to the savers, a financial product that represents the claim on that new debt. And the second is that inner circle on the diagram above. Investment, income and debt service all work against credit creation in the systematic accumulation of credit money.

That's not to say there is no growth within the system. On the contrary, there is constant and infinite growth and almost never any contraction in the aggregation of debt-related assets. This pile on the right side of the diagram grows uncontrolled like an undiagnosed tumor until it ultimately kills the host. But for "the money supply" that generally affects our inflation expectations, there is very little real movement. And likewise, there is very little visible inflation within the dollar's spending zone.

The base money or cash around which this system swirls is rarely needed or even touched. Yet it is each unit of that base which determines the ultimate value of that mountain of savings growing to the right, a mountain that is more than two orders of magnitude larger than the unit on which its value is fixed.

I realize this is new and probably contradictory to what you have learned about money and the banking system, but this is the way it really works. 99% of the economic activity that swirls in these circles has no effect on the number of actual dollars in existence. But what it does have an effect on is the growth of paper assets held as savings by the entire world, paper tied directly to the value of a single physical dollar. With each rotation the pile of "paper wealth" on the right side grows larger and the hole of debt on the left side is dug deeper. There is no balancing mechanism in this system of debt, only an ever-increasing imbalance.

Religious tradition teaches of a Jubilee, or a debt-forgiveness cycle. Such a theoretical policy would periodically reset the balance between the left and right back to its starting point. And what the awareness and anticipation of an event like this would cause is that debt would be structured in a way to be paid off by the time Jubilee rolls around. If it wasn't paid off, then the savers would lose their savings. So the debt would grow for roughly half the cycle and then shrink for the remaining half and at Jubilee, any debt that remained would have to be forgiven. An imperfect system to be sure, because it does not have a dynamic balancing function, but one that would at least be sustainable through periodic resets.

But considering this hypothetical solution begs the question of where the savings would flow during the debt contraction period of the Jubilee cycle. They would have to flow into either physical goods or reinvestments into the economy, equity positions similar to our stock market today. As the debtors paid down their debt during this latter portion of the cycle the savers would have to choose between equity reinvestment or physical wealth storage. And it would be the collective's job to encourage the former as that would grow the economy and create a larger tax base to feed the collective hunger. But for the latter, the physical wealth storage vehicle par excellence has always been gold.

What we are about to experience today is a natural Jubilee of sorts, a hundred-year reset, only this one will happen at the point when the debt mountain is at its all-time peak, and right when nobody expects it to happen. A grand surprise. An ultimate shock. This will be catastrophic for the savers of debt and will be so traumatic to the system that total systemic entropy will be achieved. And a new system will have no choice but to emerge naturally from an absolute void of confidence.

But I am getting ahead of myself. Let's go back to Greece and my diagram.

If you have been following the news lately you have seen plenty of criticism directed at Greece, "the PIIGS", the euro and the ECB. But what you probably haven't seen in the news is what you get here, and what you get in the archives of Another and FOA, a more historic and proper perspective on the euro and what it means, why it was formed, and how it was designed like an iron bunker to weather just this sort of a systemic collapse. How, in fact, the architects saw this coming decades ago and planned accordingly.

Many pundits and analysts have been speculating that this "Greek debt crisis" could mean the end of the euro, the end of a broad-based euro, the break-up of the Eurozone, or something along those lines. But this analysis flows from the shallow and short-sighted thinking that has become the very hallmark of Wall Street and Washington. The euro was and is a political movement (remember I said that politics is one of the three key forces to watch) that spans decades if not centuries, and encompasses much more than just a transactional currency. It is comical to watch some of these Wall Street hot shots criticizing what is really quite an impressive accomplishment in the euro.

Jim Rickards explains some of the history behind the euro and its relation to the Greek debt crisis in a recent interview on King World News:

Eric King: I want to ask you about Greece. Because the Greek situation seems over-hyped as a way to talk down the euro. What are your thoughts on that, Jim? Because I know in another interview you pointed out that the Greeks have a lot of gold and could just sell some if they had to.

Jim Rickards: Yeah, the Greek gold position is not the whole story and it's not the whole answer, but it is significant. What's interesting is that people talk about the PIIGS, you know, with two I's. And of course that stands for Portugal, Ireland, Italy, Greece and Spain. And these are considered to be the weak members, if you will, of the euro system... of the Eurozone. And they all have different fiscal problems in various ways. But the amount of gold they have varies widely from a high which is Italy which has over 2,000 tonnes. Actually about 2,400 tonnes according to the World Gold Council.

Greece is less than that but still has a significant amount at over 100 tonnes, and then you have Ireland which only has 5 tonnes. So the amount of gold they have to back up their reserve positions, to, in effect, back up their central banks varies widely. And I've actually read the S&P and the Moody's, the ratings agency reports on these countries and they don't even mention gold!

[FOFOA: The PIIGS combined gold hoard is 3,233.8 tonnes, more than three times that of China. And their combined population is only 133 million. So the PIIGS actually have about the same amount of gold per capita as the US. And they have 34 times as much gold per citizen as China. In fact, Greece alone has 14 times as much gold per capita as China. China has 0.7 tonnes per million citizens. Greece has 10 tonnes per million and the PIIGS as a whole have 24 tonnes per million!]

I'm not saying it's the whole story. It isn't. And they don't have enough gold [at today's price] to retire their national debt. And I'm not saying that. I'm just saying that it's more dry powder. And it's another foundation for your monetary system. And to completely ignore it or disregard it, which the rating agencies do, is a little bit of a mistake.

So Greece does have a little backstop there and what you could do, for example, is that the Greek central bank could, with a phone call and a couple book entries, swap out their gold for euros and again, it wouldn't be enough to retire their debt, but it would be 3 or 4 billion euros at current market rates and that's not an insignificant amount of money. So it does give them a little bit of a lifeline.

But it's impossible to think about Greece without thinking about the euro system as a whole, because, of course, Greece is a member of that. I mean, does it have its fiscal house in order? No, not completely, but its debt to GDP ratio is only about one half of Japan's. Its deficit to GDP ratio is not that much worse than the United States. So they look bad compared to Germany, but they don't look that bad compared to other members of the G7 for that matter! So it's not as if they've been reckless, or it's not as if they're that different from all these other countries, but they have become the eye of the storm. For a while the Greek stock market was going down. Their interest rates were going up. Credit default swaps spreads were widening out. You know, maybe that was a good opportunity for day traders, but I wasn't really worried about Greece defaulting. I'm quite sure Greece will not default at the end of the day. They seem to be moving in the right direction.

But because their debts are denominated in euro, and because they're a member of the euro system, at the end of the day they are going to be backstopped by the ECB which ultimately is controlled by Germany. And the reason I say that is if you're Germany, and you're the ECB, and you're Trichet, and you start throwing members under the bus, where does that end? I mean if you allow Greece to default and, in effect, impugn the value of sovereign bonds denominated in euros, who's next? I mean it probably will be Ireland, and it will be Spain, and then it will be Portugal. And if you start losing four or five members, there goes the whole euro system. The whole thing falls apart and there's a flight from that currency.

Now the history of this is very significant. The euro system, and Greece in particular, those are not Wall Street piñata. I know traders like to bang them around, you know the spreads widen and then the spreads come in. There are trading opportunities there. But this is taken much more seriously by the Europeans. I mean you go all the way back to the Counter-Reformation in the late 16th century which was extremely bloody. And then the Thirty Years' War which was devastating. And then the Seven Years' War and the Napoleonic Wars, the Franco-Prussian War, World War One, World War Two... this is one catastrophe after another! And Europe literally destroyed itself and exhausted itself in fighting all these wars. And finally after WWII they said enough! We're going to pursue unification. It's the only way to keep from fighting each other.

Now, political unification has had modest success. Military and foreign policy unification has really had no success at all. But the crown jewel of European unification is their monetary system, the euro and the European Central Bank. So that's the pinnacle of their world historical efforts to unify the continent. They're not going to give that away lightly. I mean, they view it in a much broader historical context than Wall Street and Americans. And so it's of the utmost importance to them. And they're going to do everything they can to preserve it. And that's one reason, along with the gold, why I have confidence that Greece will not default.


And then following WWII and joining with the dollar in the new Bretton Woods system for stability, Europe stumbled through the shock of the London Gold Pool in 1968 and the end of Bretton Woods in 1971. And then in 1979, at the height of the dollar crisis, they formed the European Currency Unit (ECU) with an eye toward eventually introducing a unified currency. The ECU ultimately became the EMU with the introduction of the euro.

As I said in my Dead End post, "They came to the realization that the path the dollar (and the entire international monetary and financial system) was on was essentially a DEAD END. It was not sustainable! At some point in the future this system, and its MONETARY FOUNDATION, would (MUST) collapse. This was not a plot to collapse the dollar. It was, instead, a RECOGNITION of the inevitable!"

But I'm getting ahead of myself again. Let's get back to the money...

The current system of infinite debt accumulation is unsustainable and has been destined for collapse from the very beginning. There is no device in place for a periodic reset, and there is no automatic counterweight to balance ongoing trade deficits, correct imbalances and hold profligacy accountable. If it weren't for the hard fixed currency zone of the euro, Greece would be headed toward currency collapse and hyperinflation right now, just like in 1944, and just like Iceland, Argentina, Brazil, Zimbabwe, Weimar Germany, Bulgaria, Hungary, Peru, Bolivia, Ukraine, Yugoslavia and so many more.

The euro did not cause Greece's troubles. It has actually spared Greece the worst of it. The problem is the dollar system of debt accumulation that simply continues unabated until finally someone can no longer pay.

Jumping around a bit, what do you think gold, the stock market, fine art and houses all have in common? Their value is inversely related to the value of a dollar. If the dollar tumbles in value all of the above rise in their dollar price in response. This is the opposite of the relation between debt/bond instruments and the dollar. And this **THIS** is the concept we must all assimilate into the core of our being. On one side there is the transactional currency and the debt markets, and on the other side is everything else. And the transactional currency does not depend on a high valuation to perform its primary function. It can do its job as a medium of exchange with literally ANY valuation. So why is the global debt market, which is tied inseparably to this symbolic unit so damn big?

Why? Because of this...


Unfortunately ^_THIS_^ is about to collapse. The mountain has grown too large and the debt hole has been dug too deep. The ability to pay has come to its mathematical limit and now threatens the value of an entire planet-full of savings. First the US consumer and homeowner dropped off from the left side. Then Iceland and now Greece. Here is roughly what it looks like right now...


It is now a broken system where credit money is not circulating with sufficient steam to keep it viable. It is now reliant on A) the one debtor that can print its own debt service and B) the expansion of the monetary base at the center in order to replace the outlying losses.

Notice the growing concentric circles around the central bank and the cash. Here is what that looks like in an official graph...


All the other monetary aggregates contain credit money and debt assets that are generally very liquid and directly tied to the value of a physical dollar. These assets that we are taught are the same as dollars are the direct debt of certain approved corporate institutions. They are mere credits while the institutions engage in a murky game of financial smoke and mirrors with your real money. These credits may be the most dangerous of all during a systemic collapse as they are cloaked in a morass of legalese small print.

And as I have shown to some degree in this post, and in greater depth in past writings, these wider aggregates have little effect on the consumer price index we all watch so closely. The big secret of the central bankers is that it is the monetary base, the cash, that has the most effect from a quantity theory perspective. And it is systemic confidence (YOUR confidence in the system) that has an equal effect from a velocity perspective.

To demonstrate my point, I have adapted the above diagram to show what it looked like in Zimbabwe last year...


The important thing to remember is that the pile of debt on the right side of the diagram is fixed to the value of each individual physical dollar. So as the physical stuff is diluted to fill the void left by the failing credit/debt system, it directly impacts the real value of the debt market.

This is exactly where we are heading. So you have to ask yourself: With a whole planet-full of paper debt wealth, how long are the savers going to sit there waiting for their value to disappear? But the fact is that it doesn't matter how long they sit there. The only difference that will make is how much value they are going to lose. You see the system can no longer support their value on its own. This is clear from the housing crisis, Iceland and now Greece. But the system must go on so the very unit their value is fixed to must be diluted to infinity just to keep the circle spinning.

And infinity is truly the limit. Don't expect austerity or a deflationary collapse. Don't expect them "to do the right thing" and let the bad debt fail. There is simply too much of it out there. It is our entire global monetary system, not just the bond investors. There is no political will anywhere in the world to let the people's wealth simply vanish in order to maintain the value of a silly little physical dollar. This **THIS** is the big Catch-22!

In order to save the people's "money" it will be destroyed!

And the first thing to go will be the low price of gold. The depressed price of gold did many things for this failing debt system. It kept the savers, that didn't feel like braving the equity markets, going to the debt markets instead of physical items... "for a yield". It kept the heat on the debtors of the world, forcing them to pay off their debt in real, difficult terms, even though the same system made it ironically easy to get into debt. It made the dollar appear strong, as the numéraire of the debt markets. And it allowed the central banks a certain ease in shuffling reality around while maintaining a myth.

But most importantly, it provided an escape route for those savers who noticed the finite timeline of this system and sought safety. We can see that this group now includes the Saudis, the Chinese, the Russians, the Indians and the euro architects, among many others.

Probably the biggest and most visible (and visibility is one of the keys to collapse) problem with our system, reliant as it is on infinite debt accumulation, is that with the majority of the world at its mathematical limit, only one entity remains that is both willing and able to dig itself the infinite debt hole required to keep the system churning.

The problem is that this entity also controls the printing press of the numéraire of its own debt, so no one, or certainly not enough people with real credit money on the periphery, are willing to feed this black hole of moral hazard. So the only one left to fund this debt hole to the extent that is required is the Fed itself. And that means that the fuel needed to churn the credit money system is now fresh base money. And as this fuel flows out from the center of our diagram into the formerly credit-driven periphery, the center base swells like a red giant about to consume its own solar system.


This dilution of the base diminishes the real value of each unit with each unit of fuel that flows. And like an advanced alien civilization fleeing its dying sun, the savers will flee as they see this visible threat swell. Either that or their savings will be swallowed whole by that which was meant to protect them from the default of the "deadbeat" borrowers.

Default or devaluation. Only two ways to go. Catch-22. Math. Inevitable. Unavoidable.

Politics will force devaluation over default, inevitably, presently.

Self preservation will choose the only escape route not subject to economic health nor subject to credit-driven bubble deflation.

Freegold, then hyperinflation.

You see, the system, because it is made up of billions of humans, is like a living organism itself. It will seek out and find what it needs, which is an automatic mechanism to deal with imbalances and bring them back into sustainable equilibrium. That mechanism is extremely high-value gold. And the only way that can be achieved is the destruction of the paper gold-promise market.

The Nuclear Option

The ECB and the BIS have a secret weapon. They don't want to have to use it because they don't want to be seen as the instigators of the dollar's collapse. They would prefer the market to take care of it for them. But don't doubt for a second that they won't use it before sitting back and watching permanent damage come to the euro system.

Just imagine how Greece could deal with its problems if its gold were valued at $55,000 usd per ounce. In terms of current exchange rates that would raise Greece's liquid assets to 50% of its public debt. In other words, instead of being a "sub-prime" borrower, Greece would instantly become a PRIME borrower.

Let's say you owe $200,000 on your home which has fallen in value to $200,000. You aren't exactly underwater yet but your loan to value is 100% now, a precarious situation for someone with income and asset problems. Now let's say you also have $100,000 worth of gold. You could still walk away from your home if you chose to, but you are certainly not a foreclosure candidate anymore. And your future needs would be backed by your new asset base. Of course this would also give you a newfound incentive to get your fiscal house in order, lest you have to part with your gold!

This is freegold. And this is the secret weapon. Although it is not so much of a weapon as it is a defense... against the inevitable.

Rumors have been circulating for a few months now about some large physical buyers on the public LBMA being cashed out with a 25% premium and being sent to the private cash market to get their gold where such a purchase at a premium would not move the official price. This rumor suggests a relative shortage to demand for physical on the official price-setting markets. And this tightness is confirmed by the low GOFO or Gold Forward Offered rate reported by the LBMA which is currently languishing at lows only seen twice before. Both times in close proximity to backwardation events that both times signaled that the system was teetering on the edge of collapse, only to be rescued by some entity supplying physical gold to market at an intentional loss.

COMEX being in the US and the LBMA being in London leaves the ECB and the BIS with "the nuclear option" if things ever get desperate enough to use it. This nuclear option is A) for the BIS to begin operation of a public "physical only" market for gold to be used by the really giant participants, primarily sovereign entities and billionaires, and B) for the ECB to use the price discovered by the BIS in its quarterly reserve asset "marked to market" adjustments.

Such a move would put Greece, and all the PIIGS for that matter, in a much better position almost overnight. Of course it would have devastating effects on the value of the dollar and the rest of the paper gold market. You see, in order for the BIS to supply actual physical gold to each and every giant that was ready to buy, the price would have to rise high enough that someone else with an equally huge amount of gold was willing to become a seller. And right now, at today's prices, we know that the central banks of the world have become net buyers! So the question is, just how high would the price have to rise in order to balance out the demand of the world with the supply, in a physical-only official price discovery market?

Chances are that what would be revealed by such a market would have an eye-opening and breathtaking effect on the rest of the world and demand would skyrocket. What passes today for enough demand to almost break the paper markets would quickly shift all players from paper to physical and add new savers that hadn't even considered gold before. Literally, the entire world would shift its view to gold.

And because this would be a physical-only market in the presence of a credit money contraction it would have no way to bubble in price beyond actual demand. Instead it will finally plateau once the Thoughts of all the giants and savers of the world reach their Nash equilibrium. And the price will be high enough that it becomes a coin toss as to whether you'd rather be in cash or gold. What it will come down to is your own time preference and your appetite for investing back into an economy that must be rebuilt.

The euro architects knew the difference between the monetary functions. They knew that the infinite growth, store of value function was the dollar's Achilles' heel. So they designed the euro to be a stable transactional and accounting currency even if the world chose non-euro physical assets as a store of value. The dollar does not have this design.

This is not to say that the euro will not devalue against gold right along with the dollar. All infinite, symbolic, transactional currencies will, which is to say all currencies will. And to a lesser extent, all currencies will have to devalue against the rest of the finite real world as well. But they will not all hyperinflate to infinity in the aftermath as the dollar will be forced to. Some will. Others will not. The euro probably will not.

This is freegold. It is coming whether or not the euro uses its secret weapon. Like I said, they would prefer not to be seen destroying the paper gold market proactively. They would rather just wait until it destroy itself (which, by the way, it is doing pretty well).

But the unfortunate effect of this transition will be the panic that will ensue within the dollar camp. What has already started through QE, bailouts, stimulus and liquidity operations (base money creators all) will have no option but to accelerate to infinity. When I say no option, I mean that there will be absolutely no political will to do anything else.

So as we can see, we have math, political will and self preservation all coming together in a perfect storm as our entire system of infinite debt accumulation teeters on a knife-edge of instability. What could possibly go wrong?

Well, there's Greece I suppose. It usually only takes one little shock to bring down a house of cards. And this is why I say you cannot be prepared too early. There is no such thing when the stakes are so high. Preparation must happen early and completely. Because once this thing starts to unravel it will be too late to prepare and to even prosper from the foresight of an inevitable event. Once it all starts unraveling you will be completely preoccupied just trying to limit your losses.

Gold

This is where physical gold comes in. I have shown you what is wrong with the system when viewed from outer space. And I have shown you what is missing, and what will be found. And I have shown you how the really big money with really big foresight has prepared.

Notice that Greece and the ECB do not have palladium in their reserves. Just sayin'.

Of course you should also make other preparations to ensure that your bare necessities of food, clothing and shelter are taken care of. Some silver and even some dollar currency makes sense in this regard. This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year. And it is for those that would like to store that excess wealth in the most universally liquid vehicle since they don't know exactly what they will be needing a year from now.

Perhaps they will need a generator. Or maybe a cow. Or maybe a gun. Maybe a new Ford F150. This is where gold comes in handy. You can store your wealth securely now in a universal package that should be convertible into the most needed things later. It can cost a pretty penny to be totally prepared now for every possible eventuality. Instead, it is best to prepare for the most probable events and keep a universal reserve for the unexpected!

But as a practical matter, because of the explosive potential in gold and because of the proximity of a likely event, many smaller investors are now piling in with their "six-months-out" money and then some. And to be honest, I can't really argue with their reasoning.

But what about the stock market? Someone emailed me saying,
"During a currency crisis in the western world, we may see a very powerful stock market rally as equities are a form of real asset. Better to own a piece of Procter and Gamble than a unit of currency that can devalue quickly. Look to the Argentina general equity market MERVAL index during the peso crisis. It shot up – although not as much as the 3:1 currency devaluation."

The writer answered his own point. The stock market shot up LESS than the currency devalued. So while the stock market in Argentina performed MUCH better than debt fixed to the value of the currency, it only chased - and lagged - actual inflation. (Actually, short term hyperinflation.)This is partly because the economy is usually in shambles at the time of a currency devaluation. So while you would expect real things like real companies to compensate for a falling currency, you must also weigh in any previous bubbling that might deflate and any economic factors that might reduce company profits.

But Argentina is still a good example for us to look at. In January of 2002 the currency devalued 3:1. At the same time the stock market rose in response to the devaluation and then stayed up (because the currency stayed down). But what is interesting about Argentina is that just prior to the devaluation, in December of 2001, inflation dipped into negative territory (deflation?) and the stock market dipped as well. Then they almost immediately exploded out of this head-fake in an unexpected devaluation. See the charts. The first is the MERVAL and the second is CPI:



Hmm... look familiar?

Bottom line: The stock market, because it represents equity not debt, will fare much better than the rest of the paper world. But the stock market does suffer from dilution, manipulation and bubbles. Expect the stock market to languish in economic chaos as it chases real inflation only to fall a little short.

But gold is different. The system desperately needs a counterweight, and gold is it. The counter is already in place, only the weight is yet to come. And once we have seen the reset in gold as it performs its phase transition from commodity to wealth reserve, it will then chase (hyper)inflation along with the rest of the "non-dollar" world, only it will be the ONE AND ONLY THING that will be immune to the economic mess that will still need to be worked out.

Got any gold yet?

Greece does.



Sincerely,
FOFOA

203 comments:

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Desperado said...

Excellent explanation of where the dollar is going, Fofoa!

But I don't understand why the Euro isn't credit money too. Don't the European banks hold bonds from their CB's that they use as collateral for fractional reserve lending? Isn't this exactly what the US banks have done?

Also, Greece's 100 tons of gold isn't going to go very far considering their demographics and the size of their public sector.

stibot said...

@costata

"To put that US$56,000 number into context it has to be looked at as the inverse of the realisable value of the US Treasury securities it is offsetting. This is a catastrophe scenario where, say, a 2010 US$1 = 0.01 cent of purchasing power in the future and US debt is repudiated."

What you are explaining is simply (hyper)inflation. But what FOFOA is telling is gold will be revalued. That means while you need 50 ozs to buy a home today, you will be able to buy that home with a single coin in future. I don't say i believe it is going to happen but this is how i understand FOFOA.

greta said...

@FOFOA

Thank you for writing this blog. I get it now. One of the most important reason for buying gold coins is " to store our excess wealth in the most universally liquid vehicle" instead of in a bank.

I'm sorry, I didn't understand your reference to palladium though. What will platinums value be in this scenario?

Kewl said...

I think he meant that central banks are interested only in gold. No silver, palladium, platinum etc. Those are likely to remain commodities.
Great article by the way! Thanks!

TomB said...

One thing I don't really get is why European countries have sold so much of their gold if they see it as the strength of the euro.

Belgium for instance used to have 1303 tonnes of gold in 1988, but by 2005 they had only 218 tonnes left.

costata said...

stibot,

I take your point. Perhaps I expressed that badly. I was trying to put a context around the figure I used in an earlier comment about China's acquisition of 454 tonnes of gold reserves between 2003 and the end of 2008. I suggested that this could represent "insurance" for their US Treasury securities if the gold price was high enough.

At the same time I did not want to imply that the upward revaluation of gold would be uniform across all currencies. In order not to confuse the issue I kept the Euro at a constant price in the poor example I gave.

If I had written US$56,000 gold and US$10 = 1 Euro that would have reflected Euro 5,600 per ounce of gold and captured both the hyperinflation implied for the USD and an upward revaluation of gold in terms of the Euro.

TomB said...

Here's a chart that shows how much gold central banks have sold since 1980.

http://img203.imageshack.us/img203/5521/centralbankgoldsales.jpg

costata said...

FOFOA,

Thank you for another great article.

Who do you think will be assigned the role of being the "instigators of the dollar's collapse" if the Euro architects and the EU want to avoid the blame?

FWIW my money is on Japan.

TomB,

How much gold did Belgium contribute to the ECB?

I also recall many references in A/FOA's writing to Central Banks "moving" gold around without actually physically transferring it. In other words the Belgians may have more gold than they appear to or a "behind the scenes" deal that compensates them for the reduced reserves.

Tyrone said...

FOFOA, reveal thyself!!!

Thanks for the article, and Cheers!

Jeff said...

Dollar collapse when the US has the largest gold stack? Couldn't the US back their debt with gold just as the EU nations? Why will the Euro fare better than the USD if both are backed by gold?

TomB said...

>How much gold did Belgium contribute to the ECB?

I think they sold 27 tonnes to the ECB.

Mike said...

the USA doesn't have anywhere near its gold anymore, that's why its a dollar collapse. gata proves this with there leasing and swaps.

that's why they don't want to audit the fed and that's why the boys at goldman and jp morgan etc.. are doing their best to get whatever they can (last dip of the well) so they can get out and also trying to destroy other countries/companies in the process.
china is standing up to this already.

the failed 30yr is the beginning of the dollar death which has taken a long time..these guys come up with every scheme (ie QE and currency swaps) to postpone the inevitable, but in order to destroy the rest of the world (ie: piigs default etc..) and for the boys to win the derivative game, they would also have to destroy themselves in the process that's how the fiat system works..by the end of the year the way the world see's the dollar might be very different then in the past 39 year bubble.
in time's like this everyone saves their own ass and if you think the other world currency's will all be destroyed and the US dollar will be left standing you got another thing coming...that will be the exact reason why the USA will suffer the worst in the new world.

in the end the bis might make new rules...from what i know the bis is sick of the USA.
gold is still the champ in whatever way you see it.

as martin armstrong says gold goes up because of a loss of confidence in the government which includes fiat destruction (extreme cases of deflation) and hyperinflation.
fiat was designed to continuously grow in supply not fall.

Desperado said...
This comment has been removed by the author.
Desperado said...

@TomB: That's a very interesting point. And if your chart is true, then that means that the EU alone has sold hundreds of tons of gold in the last decade, while other CB's around the world were selling too. It looks like Norway even exceeded the idiocy of "Brown's Bottom".

If the US has simultaneously leased tons of its gold, then the question becomes: Where has all this ex-CB gold gone? Into jewelry for India? I doubt it. If Another was correct, then the Saudi's and a few other OPEC countries are going to get a heck-of-a lot richer than they already are.

On a different vein, if all this paper gold is going to collapse in a pile of dust, then the mere fact that some instrument, CB created or other, is backed by gold doesn't necessarily make it any less risky. In the end the degree of leverage can easily cause a collapse of even gold backed instruments.

stibot said...

@costata

I suggest you stop using such simplificatins because it is confusing only. Revaluation of gold in terms of EUR in example above shows not so much if you don't mention purchasing parity of the paper.

When you need 10 USD to buy EUR, i'm in doubt a loaf of bread is still 1 EUR (and a house is 100 thousands EUR); bread can be 5 EUR or 50 EUR as well.

Sai said...

All explanations of how the future will turn out by many 'experts' do seem like wonderfully well thought out and articulated positions backed up by captivating illustrations and compelling logic designed to help us 'plan' our neat escape from the oncoming collapse. but little me thinks that the animal in us is not being paid its due and it will outflank any logic and will ensure that destruction of the system will not be a smooth transfer of power and new found admiration of the 'lucky' gold holders. In reality, the lives of a few lucky gold holders among many unlucky and completely bankrupt or hopeless saver of paper illusion may turn out to be equally tragic.
after all as you said, the system is a living organism and if it is going down in cancer, surely no golden organ is going to live out prosperously in the midst of what may be a hell and fury.

good luck to the planners...but the story isn't going to end the way 'experts' see it. perhaps god has another plan we haven't foreseen.

GOLD FREAK said...

"This is freegold. And this is the secret weapon. Although it is not so much of a weapon as it is a defense... against the inevitable."

Excellent. I imagined Freegold taking off 2 other ways but this scenario is quite plausible too.

We really are sitting on a knife edge

greta said...

@ Sai,
I agree with you. Richard Maybury said it best in his speech - What Obama Does Not Know. "...But the economy is not a machine. It's an ecology, made of biological organisms — people — you and me and our loved ones, and millions of others.

Economics is not a math course. It's not the study of charts, graphs and equations. It's the study of living, breathing, thinking, feeling humans. Economics is not a branch of mechanical engineering, it's a branch of biology — because we are biological organisms.

The economy is an ecology, the human ecology, and it is by far the most complex ecology on earth."

GG said...

Via Mish's blog:

"In an attempt to rein in the shadow economy and collect more tax revenue, Greece outlaws cash transactions greater than 1500 Euros."

It seems Greece has chosen to go the way of idiocy. Doesn't portend a very bright future for that country IMHO as people will just switch to doing black market transactions as they do in many so-called third world nations [US and Europe ain't much better than third world nations these days IMHO].

Fauvi said...

Actually we are looking forward to some kind of "economic European government". If "they" really get to establish one - ok, bye, bye tax evasion in Greece and Spain and so on.Only the richest can escape taxes in Germany. As about black market, I really have no idea how one can manage that if he hasn't any experience.

Tyrone said...

Looking at the debt hole, is this why the government is considering an option allowing us to invest 401Ks and IRAs into annuities? (backed by government bonds and other toxic garbage, of course)

At some point does the option become a requirement?

GG said...

@fauvi:

All you need to do is visit some country like Argentina or India. You don't need any "experience" with black markets - it's just the way things start to evolve under the conditions of poverty coupled with oppressive taxation regimes. You can't squeeze blood from a turnip, now can you? A few more economic implosions and soon the entire West will be headed Argentina's way (BTW, Argentina's government did gobble up it's people's retirement money - as is happening in the US now). It's not all bad. If you're rich you'll live like kings, will have to pay zero taxes and will have a vast army of low paid servants at your disposal (as is the norm in these "third world" countries). Taxes will be ONLY for the salaried/middle class.

@Sai:
Although I agree Gold will be valued much higher in purchasing power terms in the near future, I suspect the "freegold" coming our way will be quite different than the Eurocratic wet dream described by the A/FOA guys.

oldinvestor said...

FOFOA,

The central truth is this I believe;

Everything that you , ANOTHER and FOA see and understand, all of the governments and central bankers also see and understand.

I want to repeat this for effect.

Everything that you , ANOTHER and FOA see and understand, all of the governments and central bankers also see and understand.

Thus, they see and understand the necessity for a new revision of our economic arrangement if we are to avoid a world financial catastrophe.

So what have they been doing to effect this?

They have been effecting a transformation in the ability and opportunity to spread gold ownership out among the worlds population, just what would be necessary for freegold to come into existence.

I quote from your post in “The call of the century”

"Gold's function in society is evolving into something new. It is being spread out among millions and millions of savers, to perform this new function. …

In Europe they can now buy gold at the teller window of the local bank, tax free! They are even putting it in vending machines! In China they buy gold chains by WEIGHT! In India they save weekly in gold. In Vietnam they are pricing houses in gold. In Thailand, gold shops are everywhere, and they post the daily buy/sell price right on the front window! In Russia the last two presidents have posed for photo-ops holding gold bars or coins."


None of this would be possible without the tacit consent and facilitation of the world’s governments. Even in this country (US) they have passed a Law that the mint Must mint enough gold and silver coins to satisfy market demand.

What more stark evidence do we need to deduce that the actual aim of the worlds countries and central banks is to widely distribute gold ownership among the population, thus facilitating the transition to freegold?

I can only see the intent of those countries who are as of yet still buying gold by their central banks, (India, Russia, etc) to have the wherewithal to distribute gold yet more widely among their population.

The bottom line is this;

We are ending the era where gold is a dead asset ensconced among the vaults of the world’s central banks, and we are entering the era where gold is widely dispersed among the worlds population as a store of wealth.

QED

We are seeing it happen. Why? The central bankers see what you see, and they have no choice.

Fauvi said...

GG,

yes, I wonder really what sort of world, environment is about to evolve over the next few years. What I see now is deceit, thieves as politicians plenty of dirt, people sufocated in ignorance. Also the first symptoms of dictatorship. Can it get even worse? I believe so.

I envy Greta. I took the bet on gold and now I only hope I was right. No normal human being could imagine how psychopathic the ruling class can be. We see it now displayed every single day.

Fauvi said...

Amen, oldinvestor.

God help us during transition.

Jimmpy said...

Pretty confident comment from ECB insider Jürgen Stark : Greece must and will make it.

http://www.spiegel.de/international/europe/0,1518,677544,00.html

SPIEGEL: In the United States, the Fed is doing plenty of rescuing. It simply prints money and buys treasury bonds.

Stark: We cannot take that approach. And I am glad that we are not permitted to do so. Our mission is price stability.

SPIEGEL: You are maneuvering yourself around an answer to the main question: What happens if Greece doesn't make it?

Stark: I do not think that is the most important question, but I will answer it with a clear statement: The country must and will make it.

Jimmpy said...

Pretty confident comment from ECB insider Jürgen Stark : Greece must and will make it.

http://www.spiegel.de/international/europe/0,1518,677544,00.html

SPIEGEL: In the United States, the Fed is doing plenty of rescuing. It simply prints money and buys treasury bonds.

Stark: We cannot take that approach. And I am glad that we are not permitted to do so. Our mission is price stability.

SPIEGEL: You are maneuvering yourself around an answer to the main question: What happens if Greece doesn't make it?

Stark: I do not think that is the most important question, but I will answer it with a clear statement: The country must and will make it.

Martijn said...

This Harvey Organ seems a bit biased, and manages to make me smile.

The open interest on the gold comex reported after the market closed, was quite intriguing. The open interest on the gold comex basis Thursday, fell by 5500 contracts to 460,793.
Please recall that gold has a huge advance of 13.00 dollars in regular trading. It looks like banking cartel members are fleeing the ship.


Funny how when open interest rises the "banking cartel" is trying to "slam gold down" or "fears a rise", and when it declines they are "fleeing the ship".

You would never hear Mr. Organ see the "banking cartel" is "jumping aboard" or "trying to blow the gold price to the moon".

costata said...

oldinvestor,

Yes, the planets do seem to be aligning.

David Alexander said...

@stibot,

In your discussion of domestic price changes that would result from a collapse of the dollar, you appear to be assuming that all prices would change by about the same amount if the dollar were to collapse. However, this is not the case. A loaf of bread would rise in price by a large amount because the price of the oil to grow the wheat, make the bread, and distribute the bread to stores would increase sharply. However, the price of a large house in the suburbs might even fall if the dollar collapsed since the oil to heat the house would cost so much and the gas to commute to such a house would cost so much that demand for such houses would be reduced. In addition, banks would reduce their willingness to lend to purchase such a house since they would have a hige risk that the loan would be repaid in dollars that were worth much less if they were repaid at all.

David Alexander said...

@Desperado,

The Euro is credit money, but its increase in value as the economy grows is restrained. As gold falls relative to the dollar, the gold that backs the Euro also falls in value. This partially offsets the increase in value of the Euro as the economy grows, so it falls relative to the dollar for which gains are increased by a falling gold price. When gold rises sharply, the reverse will occur and the Euro will rise relative to the dollar.

Aleksandar said...

Spanish intelligence probing debt "attacks"-report

Spanish intelligence probing debt "attacks"-report
Sun Feb 14, 2010 8:28am EST
Related News

* UPDATE 2-Spain to slash spending to meet deficit target
Fri, Jan 29 2010

MADRID, Feb 14 (Reuters) - Spain's intelligence services are investigating the role of investors and media in debt market turbulence over the last few weeks, El Pais reported on Sunday.

Citing unnamed sources, El Pais said the National Intelligence Centre (CNI) was looking into "speculative attacks" on Spain following the Greek debt crisis.

"The (CNI's) Economic Intelligence division...is investigating whether investors' attacks and the aggressiveness of some Anglo-Saxon media are driven by market forces and challenges facing the Spanish economy, or whether there is something more behind this campaign," El Pais said.

Officials at the CNI were not available for comment.

The report comes days after Public Works Minister Jose Blanco protested "somewhat murky manoeuvres" were behind financial market pressure on Spain.

"None of what is happening in the world, including the editorials of foreign newspapers, is coincidental or innocent," Blanco said.


Economists have cast doubt on forecasts that Spain's economy will grow by some 3 percent by 2012, on which the government has based predictions it will cut back on its gaping budget deficit.

Some economists have said Spain's deficit could be more of a threat than Greece to the euro, the common currency of 16 European countries.

Spain's deficit has soared to 11.4 percent of its gross domestic product amid its deepest recession in decades, but the government has pledged to cut the gap back to a eurozone limit of 3 percent by 2013 by cutting 50 billion euros in spending.

Markets doubt that Spain will be able to cut back drastically on spending with unemployment running at 20 percent and a big slice of the budget in the hands of fiercely independent regional governments.

Underscoring those doubts, the premium demanded by investors for buying Spanish rather than German government bonds ES10YT=RR has risen in recent weeks and the cost of insuring Spanish bonds against default by the government has also risen.


This is rather astonishing, that a mediterranean government official says Anglo-Saxon meda is attacking his country. Clearly the years of Charles de Gaul are coming back.

panika2008 said...

FOFOA, I'm afraid you have it somewahat backwards on money aggregates - prices connection. Tell me, what do you see on the following chart:

http://www.shadowstats.com/imgs/sgs200705-9.gif

Or how about this one:

http://www.nowandfutures.com/images/m2m3_cpi_money_supply.png

Still claiming that the wide aggregates have less influence on inflation than the narrow ones?

FOFOA said...

Hello Panika2008,

I'm afraid you are confusing economic/credit driven CPI with the currency event we are now facing. My point about credit money inflation being largely sterilized by the flow pattern was to explain why CPI has been relatively tame over the past 30 years compared to the massive inflation of perceived global dollar ownership through infinite debt accumulation.

If we were to talk about CPI then sure, it is M2 and M3 that have the most correlation during normal times. And during those years the monetary base hardly moves, because credit creation and the economy are driving the cycle. But when credit creation and the economy slow down and/or stop, it falls to the monetary base to take up the slack through QE, govt-sponsored stimulus, liquidity operations, currency swaps and direct bailouts, all of which are aimed at preventing the loss of perceived dollar ownership by converting it into ACTUAL dollar ownership.

The point is that the normal driver of CPI is not the same as the driver of hyperinflation. I have said it many times. Inflation and hyperinflation are similar in name only.

This is what FOA meant when he said: "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! (bigger smile)"

Sincerely,
FOFOA

FOFOA said...

Great Jim Sinclair interview today from KWN.

MP3
KWN

Jump to 37:15. Jim tells a great story. He's talking about how the COMEX twice accused him of manipulating the metals markets when he was actually innocent (for the most part), and then he tells a great story he has never told before where he actually DID play a questionable "joke" on the shorts.

In essence, rumors had been circulating that Jim was fronting for Saudi money. So he hired an actor to dress up like a Saudi prince and walk out onto the floor of the COMEX and go right up to the biggest gold short and ask "How do you turn this paper into real gold?"

But you have to hear Jim tell all the details. It's great.

Can anyone figure out what year this was? The clues are 1) Sinclair was a member of the COMEX and 2) it was the first time the COMEX allowed guns on the floor. Also, Jim said it was back before all this terror stuff which was how he got the COMEX to allow armed security onto the floor.

FOFOA

greta said...

Fauvi,

It’s ok to envy me – I am a truly a wealthy woman. I have the greatest treasure of all – an incredibly kind, smart, creative and loving partner. For 25 years we have shared the same values, hopes, dreams and pleasures. Together, we came up with a plan for how we could best prepare for the future.

Please know that the choices we made have come at high price in many ways. I don’t think very many Americans could cope with living the way we do – even in a severe depression. Following is an example.

How did you spend Valentines Day? We spent the day mucking out (picking up poop) a barn, shoveling snow, wading through deep snowy pastures to care for animals and cutting firewood. Then we made pizza from scratch for dinner and cleaned up a messy kitchen. We decided to watch a special movie but were so tired we feel asleep half way through it. We woke up too sore and stiff to do anything more than crawl in bed and fall back asleep.

SatyaPranava said...

greta, you're living the life that i've been contemplating more and more over these past few years. after reading The Good Life and then getting certified in permaculture, and really asking myself how one can be more sustainable (despite that being part of the current simulacra program), I expect to be living much that way as well. Though I'm still planning on medical school here in a year or two, it's a great feeling to be (even in small steps) self-sufficient. so kudos to you. just don't forget about all the permaculture that can make that job so much easier!

best of luck,

Satya

EquilibriumTheory said...

"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! (bigger smile)"

Joseph Stiglitz agrees. Dollars will be printed.

It's funny how obvious hyperinflation is if you know what to look for.

Cheers,
EquilibriumTheory (formerly BoilerGold)

Martijn said...

That Sinclair joke does sound great. I'm listening to the interview now.

Martijn said...

My remark on Harvey Organ above btw was merely an observation. In general I do agree that the golden music is getting louder while the number of chairs diminishes.

There was quite a battle over EUR 810, but gold pierced through today.

Those paper boats continue to sink.

costata said...

FOFOA,

I listened to the Jim Sinclair interview. Impressive as always.

(I also listened to the Pierre Lassonde interview on KWN. Well worth listening to, especially on production cost of the gold miners.)

Something strikes me as odd. In the Sinclair interview JS touched lightly and briefly on China's rare earths resources.

FOFOA, Can you ever recall JS talking about mining resources within China as part of their reserve plans, as a hedge against US debt/USD etc?

I cannot and I am wondering if he has been discreetly avoiding the subject out of deference to the Chinese.

I have been working on another timeline (starting January 1, 1997) and gold mining within Chinese territory is emerging as one of the aces up their sleeve.

In the final analysis, if it stacks up the way it looks now, I think it could be argued that the Chinese Govt are locking in all of the gold they will need to reach their minimum reserve target without needing to import any. As they have done elsewhere I assume they will grab anything on offer at the right price.

costata said...

Martijn,

Check out the table on Kitco's home page showing currencies versus USD and gold.

As of a few moments ago every currency in the table was up against the USD. I don't recall seeing that before.

Martijn said...

Check out the table on Kitco's home page showing currencies versus USD and gold.

As of a few moments ago every currency in the table was up against the USD. I don't recall seeing that before.


I have not been looking frequently and long enough to say that such a thing has not happened before.

Jimmy said...

Forbes interview: silver shortage, by Stephen Leeb

Jimmy said...

Funny video: Hitler on Glenn Beck

And again great article! Fofoa, I really like your blog!

Jimmy said...

After reading your brilliant essay in simply written language, rest me only 1 question: What about platinum (=white gold)?

You wrote: Notice that Greece and the ECB do not have palladium in their reserves. Just sayin'.

Don't forget that Palladium is a military important strategic precious metal...

SatyaPranava said...

jimmy...i'll respond about platinum the way Jim and FOFOA have (at least IIRC).

go to the ECB site and notice if Platinum is listed as a reserve asset on their sheet. which metals are?

right... you know the answer. only one reserve metal. platinum, palladium, silver, and others will do fine as far as commodities go, but they don't possess the wealth reserve function.

now that thinking could be totally wrong, but that's the prevailing thinking.

greyfox said...

Perhaps with less demand for paper debt of fiat from the US, Greece, England, etc. that "paper gold" will be the next failure and physical (Freegold) will increase.


http://news.yahoo.com/s/ap/20100216/ap_on_bi_ge/us_foreign_holdings

WASHINGTON – The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.


FOFOA, Outstanding article as always.

Dave in Denver said...

The author makes the assumption that central banks and countries actually own and possess physical custody of all of the gold that they report to owing.

I don't think you can make that assumption, especially w/the U.S.

stibot said...

@Satya

I agree and understand. But consider this: there can not occure shortage of gold. On the contrary, the small silver/platinum/palladium market can be easily cornered and it is unlikely some big seller emerges in case of shortages.

Anyway, i've no clue so i'm keeping a bit of each. ;-)

SatyaPranava said...

@stilbot, i am too, but just want to repeat what the biguns think :) as i'm just a lillun :)

Desperado said...

@David Alexander: My understanding from reading from Another and this blog is that the Euro does have a link to gold based on the reserves pledged by the various EMU CB's. Although these reserves form a solid basis for the currency, I think the real issue is the amount of leverage.

As Reggie Middleton explains in this great article The Coming Pan-European Soverign Debt Crisis:

"I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP"

I think the main point is that the degree of confidence in the currency in question (dollar, euro, frank or pound) is directly related to the degree of leverage and amount of non-performing assets in it's national banking system. If this is true, then it follows that the dollar could possibly be a lot less risky (shall we say worthier of confidence) than the euro despite it's lack of any gold backing. Reggie goes looks at some of these leverage ratios and bank dept to GDP.

BTW: Reggie has some other great articles on boombustblog.com such as What Country is Next in the Coming Pan-European Sovereign Debt Crisis?

costata said...

FOFOA,

Your fame grows. From Ed Steer's commentary Gold and Silver Daily.

http://www.caseyresearch.com/displayGsd.php

"And, lastly, is a very long piece posted over at fofoa.blogspot.com. New commentary by the pseudonymous FOFOA (Friend of Friend of Another), headlined "Greece Is the Word," explains the necessity of the Western financial system to revalue its gold upward by a huge amount to cover its otherwise unpayable debt." The whole story is well worth the read... but the really interesting part related to gold starts under the sub-heading "The Nuclear Option". The link to the entire essay is here."

Jimmy said...

@Satya & Stibot: Same thoughts... Diversification is also a method to protect your wealth against all black swans...

Jimmy said...

4th quarter report World Gold Council

Take a look on p7 about gold lease rates...

Martijn said...

@Satya & Stibot: Same thoughts... Diversification is also a method to protect your wealth against all black swans...

And to expose it to all black swans off course.

Jimmy said...

New COMEX Rule complicates Precious Metal ETFs

Martijn said...

@Jimmy

To address a temporary problem of liquidity, COMEX has systematically created an even bigger problem for investors. The exchange allows investors to make good on their futures positions with gold and silver ETFs rather than the real assets, thus opening up the door for hugely distorted market prices.

If true, this is huge.

Jimmy said...

@Martijn: Yeah, big golden bull is coming... After the big golden bull, it's going to be a ponzigold (little investors would buy also this asset en masse, then it is going to be gold-bubble (not today, Soros is an ugly liar, he's buying physical gold and SPDR with his billions worth fund), bubble = the bid-price is above the real gold-price), then I swap it into Pt and Rh for the next green supercycle... After green ponzibubble, back to gold, then investing in other new supercycle commodity (buy land/property on the moon? ;oP ) Investing has never been so easy... Stupid shareholders...

Jimmy said...

@Martijn: And ask yourself why goldminers are "de-hedging" (to build off their hedgepositions). Goldmines CEO's aren't stupid to sell/delivery their physical gold at lower prices, when they're thinking (or knowing) the goldprice will be (much) higher in the nearly future... So they're cleaning their hedgepositions... They only sell hedge-options when they're thinking that the goldprice would going lower in the future, to get a higher sell-price to make higher profits... Yeah, the golden bull is coming... Be patient... :-)

GG said...

@Martijn:

This is actually old news. CRIMEX did a rule change back in summer of '09.

Martijn said...

@GG

Sure that it was the rule Jimmy's article mentioned that got changed last summer? The article is dated today.

If it was indeed changed in the summer, I guess it has not impacted the market as much as I would have thought. Still it does seem like a rather big change that should scare some people into physical.

Martijn said...

@Jimmy

Investing has never been so easy... Stupid shareholders...

Hehe. You probobly missed the stock market rally and the huge gains in e.g. copper last year?

All paper wins, but you can still change that paper for physical. If you knew it all you'd probably have taken a different course.

robert said...

For those of you who want to know the real name of FOFOA, I'll tell you how to find out - and at the same time financially support this great blog.

At the top of this blog, you'll see where you can give a donation.

I used PayPal to send FOFOA money, and guess what? Now I know his name.

If you find this information as valuable as I do, I encourage you to support it.

Robert Campbell

Jimmy said...

@Martijn: Most important of all is: How big is your annual return for this decade... Guess who won? Yeah, gold...

Martijn said...

@Martijn: Most important of all is: How big is your annual return for this decade... Guess who won? Yeah, gold...

Was golds return also your return this decade? Be careful not to kid yourself in believing investing is easy. Many seem to disagree.

Jeff said...

WASHINGTON (Dow Jones)--The International Monetary Fund said Wednesday it will soon begin selling to the market the remaining 191.3 metric tons of gold it has slated for release, though the sales will be conducted in phases to avoid disrupting markets.

Mike said...

imf selling gold to open market, gold drops $10+ in a minute.

i think gold might get some selling pressure here but it will quickly find a bottom.

http://www.imf.org/external/np/sec/pr/2010/pr1044.htm

Desperado said...

A couple of excellent articles on Europe's coming collapse.

Gary North: Bankrolling the Incontinent Subcontinent

The incentives for irresponsible behavior for these and other countries are clear. Why pay for your expenditures by raising unpopular taxes? Why not issue bonds that will be purchased by the creation of new money, even if it finally increases prices in the whole eurozone? Why not externalize the costs of the government expenditures that are so vital to securing political power?
...
For the member states in the eurozone, the costs of reckless fiscal behavior can also, to some extent, be externalized. Any government whose bonds are accepted as collateral by the ECB can use this printing press to finance its expenditures. The costs of this strategy are partly externalized to other countries when the newly created money bids up prices throughout the monetary union.

Each government has an incentive to accumulate higher deficits than the rest of the eurozone, because its costs can be externalized. Consequently, in the Eurosystem there is a built-in tendency toward continual losses in purchasing power. This overexploitation may finally result in the collapse of the euro.


Steve Malanga: The Demise of the European Welfare Nation

Greece is a good example of a country whose labor laws and social policies are at odds with its population trends. Yes, a series of Greek governments have been profligate, running up debt and financing the welfare state with long-term borrowing. But they've been doing this precisely because they are trying to swim against long-term demographic trends that are inexorable. Greece has one of the lowest fertility rates of any country in Europe, just 1.3 children per woman, nearly a full child below what's considered replacement rate. Moreover, this rate has been falling for decades, so that Greece's 65-and-over population has soared from just 11 percent of the country in 1970 to 24 percent today, and is projected to grow to one-third of the population by 2050. By contrast, Greece's working age population (defined as those ages 15-to-64) has reached its peak and is projected to decline 20 percent over the next 40 years.

My comment: Up to now, Europe has largely dodged the bullet as to bailing out the PIGS in order to keep the good times rolling. The inflection point has arrived, and once the ECB lets any of the PIGS default, then this will start a cascade of bank failures that will suck the entire European welfare state down the drain. The least worst path is to let the banks go down, but the socialists will never let that happen. So the only real question is: will Germany jump off of the train before the crash, since the rest of the EU will gladly run up the tab until everything collapses.

Mike said...

perhaps the price drop was done purposely to buy the IMF gold cheaper by the Asian countries?

didn't Russia or China just finish doing something similar late in 09.

Mike said...

actually if i remember well, there was a report by gata indicating that the gold sales to sri lanka, india, etc..where the exact amounts that these countries had already. something about those countries being a custodian to the imf gold and they were just now double counting all the gold that is out there because the imf says its theirs but yet india, sri lanka etc.. had it in their official reserves too.

anyone remember this story?

the gold didn't really exist it was just a paper trade.

this report now says they are going to the open market which is of course negative for gold...but maybe thats what those countries actually want so they can buy cheaper.

raptor said...

http://danielamerman.com/articles/Containment.htm

Containing Inflation Via Unlimited Money Creation:
The Fed's Strategy

....
What If The Cash Escapes?
The danger with paying cash – which is effectively what excess reserves are, freely expendable cash – is that the banks can do whatever they want with these excess reserves. ....

Museice said...

Why do the worlds central banks manipulate the price of gold?

"From the time when currencies were de linked from gold, central banks have enjoyed the freedom to print as much money as they wish, subject only to inflationary concerns (a loss of purchasing power). In other words, the freedom to print money is limited only by indicators and attitudes about inflation, which then feed inflation itself. The money has no actual value, it is redeemable only for more notes which can be printed in unlimited quantity subject only to inflationary concerns. In other words, in a perfect world, (according to the central banks) they would be unrestrained by any inflationary effects of unlimited money printing; they could simply print as much as they want. This is why manipulation of the gold market is critical to the con. If the price of gold were soaring at the same time they were trying to convince the markets that the currency was sound and inflation was low, that story line wouldn’t make any sense. How often have we all heard the commentary “gold is going down so there must not be any inflation?”"

Desperado said...

@raptor: that is an interesting read on all the money the Fed created.

I find it fascinating to compare what the ECB is doing to what the Fed is doing, but one problem with the ECB is that it is even less transparent than the Fed.

My read of the current situation is that both regions were faced with massive loan losses by their respective banks. The Fed simply printed money and bought shit loads of this worthless crap at the behest of the banks. Somewhere recently I read that all the big US banks are sitting on gobs of cash, and that Citi has nearly $200B! This must be the reserves held at the Fed.

The ECB could not create trillions out of thin air, so each sovereign nation is still faced with their banks teetering on the brink of insolvency.

The issue for the US and the EU both is that all this bad debt still exists. In the US a large part of the bad debt has been socialized and now belongs to the Fed, whereas in the EU it is still the bank's problem. In the UK it has been partially assumed by the BOE, but not to the same degree as in the US.

IMO, this makes the likely hood of bank failures leading to bank runs to be far greater in Europe in the short term. We are seeing this happen in Greece already as depositors click their money northwards. For this reason I think the next phase in the global meltdown will more likely start in the EU than in the US.

The question is how long will the Fed be able to keep buying all the treasuries needed to finance the US government if there is a deflationary collapse in Europe. Many decisions in life (like voting) boil down to the least worst option, and I would not be surprised to see a lot of European wealth propping up the US as the EU implodes.

raptor said...

@desperado interesting idea on the sequence of events..
Also is interesting that almost 90% of the bloggers and commentators think Eurozone will dissolve, which is interesting on itself.
How much strain can the EU endure before it "collapse", I dont think it will, but what is the break point 4-5 countries defaulting !! (If EU leave them to).

Can someone purpose a credible plan that is such so that the ECB does not bail out anyone and at the same time allow the countries under pressure to shrink their debt without defaulting wholesale

Do you guys know a site/blog which have side by side comparison of USA/Fed/Ty/states vs. EU/ECB/countries.
i.e debts,assets,liabilities...and such..

So we can finally see what the facts say.

Charles said...

I would like to hear the writers take on the ETF's.
I think it is just another fractional reserve system?

Chuck P.
Author, EveryDayGenerators.com

FOFOA said...

Hello Charles,

"I would like to hear the writers take on the ETF's. I think it is just another fractional reserve system?"

It is that and probably worse in my opinion. Physical gold is the very best insurance right now... again IMO. Here's a good guest post today from Douglas McLagan on a related topic, posted on rickackerman.com.

Snips:
"...This state of affairs is why everyone is well advised to buy whatever amount of physical gold they can reasonably afford...

The mechanics of a “paper gold” failure could be well examined in a thick book, but not in the remainder of this short essay. I would like to point out, though, that the corporate history of COMEX does not inspire confidence in at least one key respect...

A crisis in the paper gold market might well be “resolved” by government action. Recent financial history suggests the plausibility of a scenario in which the government pulls the plug on the paper gold market and compensates the exchange for the lost business. Some of the market participants might also be assisted, but the full cohort of gold longs? Not likely."



And a comment under the post from Jim Rickards...

"Great essay Doug; you make some excellent points about the basis trade between physical and COMEX gold. One point that does not get enough attention is the impact of size in the physical market. It’s one thing to say that COMEX is $1,100 per ounce and physical might be $1,200 per ounce for one metric tonne if you can find it. But what about 100 tonnes? 500 tonnes? Physical orders of that size are impossible to execute outside of official channels. Size of order is relevant in any market but I have never seen a market (short of a full blown manipulation or short squeeze) with as much price inelasticity as physical gold which is why the buy side overhang keep their intentions to themselves."

FOFOA

idi said...

Greta; though this is not a "survivalist" blog per se, everyone but the most obtuse can now see the clear benefits of the ways of living and nutrition which you extol.

I would take exception to one part though, the hardy and "cheerful" reference to slaughtering your own animals.

The economic benefits of veganism are now as incontrovertible as those to one's health;

http://www.google.ch/search?hl=it&rlz=1G1GGLQ_ITCH364&q=economic+benefits+of+vegetarianism&meta=&aq=f&oq=

www.pcrm.org

www.goveg.com

The far from negligible costs of animal husbandry (feed, care, housing, energy, maintenance, veterinary costs etc) or costs of buying/storing meat/dairy foodstuffs versus the long term storage ease of pulses and grains etc, the low cost and availability of growing/procuring vegetables and the savings to health reflected in diminution of eventual medical bills (with improvement in health and therefore survival) is an easy financial juxtaposition to appreciate.

A decade ago I chose to ignore the pervasive MSM disinformation regardng veganism and dietary/vitamin deficiencies etc and took the plunge. I am healthier than ever and have no urge to consume meat/fish/dairy whatsoever.

I would therefore urge those who increasingly view life through a realistic FOFOA prism, amongst others, to consider this compelling addition to other logical economic lifestyle changes.

GG said...

FOFOA,
How do you reconcile the decade long rise in CRIMEX paper and physical Gold prices in unison with FOA's prediction of paper Gold market collapsing to zero and physical soaring? The paper Gold market seems to be alive and well ten years later. The crash in 2008 was ideal for paper Gold market to be finally discredited, yet it seems to be happily chugging along more than an year later. Perhaps we will not see it's demise within our lifetimes? If so, the correct strategy might be to play BOTH the markets.

Martijn said...

How do you reconcile the decade long rise in CRIMEX paper and physical Gold prices in unison with FOA's prediction of paper Gold market collapsing to zero and physical soaring?
It is not that strange for paper and physical to rise in concert first as it might take investors a while to figure out the difference.

Perhaps we will not see it's demise within our lifetimes? If so, the correct strategy might be to play BOTH the markets.
Perhaps, might... Off course it is an option - as is everything, but not very likely. Besides, if there ever is any risk of loosing what you have it is in the paper market. Playing both markets hence would seem to increase your exposure by quite a bit.

Finally many people turn to gold in order to protect what they have, not to play the markets. If you wanted paper profits copper or the stock market rally for instance would have helped you more than gold has over the past period.

GG said...

I agree with all that you're saying Martijn. It's just that I am simply AMAZED (and frustrated) at the ability of this pig - this fiat dollar - to keep on chugging on and on and on and on. Perhaps this is a testament to the sheer amount of gullibility and stupidity of our race. As advanced as we might like to think ourselves, perhaps we are too primitive to deserve freegold yet.

oldinvestor said...

A bit of levity.

http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as

SatyaPranava said...

I'm curious to know thoughts about the following article: 8 Financial Fault Lines Appear In the Euro Experiment!

also, why in the "links to this post" section, links seem to disappear after a few days?

Satya

Martijn said...

It's just that I am simply AMAZED (and frustrated) at the ability of this pig - this fiat dollar - to keep on chugging on and on and on and on.

Well, assuming that miracles do not really exist, the only explanation is that you're missing something.

Perhaps the theory of A. Fekete on the US bond market and the carry trade is correct after all.

Ishkabibble said...

It's just that I am simply AMAZED (and frustrated) at the ability of this pig - this fiat dollar - to keep on chugging on and on and on and on.

The fiat dollar is at the base of much human conditioning, built and expanded upon for generations. Deprogramming takes time. What you witness is momentum, not ability.

Ishkabibble said...

3 Cheers for economic recovery. This are going so swimmingly, the Fed is raising the rates.

http://www.federalreserve.gov/newsevents/press/monetary/20100218a.htm

Jeff said...

Gold drops $15 on rate rise, dollar index breaks out to new 52 week high.

Topaz said...

Keeping them in the rat-infested Tents?
http://quotes.ino.com/chart/?s=NYBOT_DX&v=s
Good job today on holding el-bucko down until the doors were firmly locked and bolted on this the third SM up-day.
Doesn't get much uglier dead ahead imo.

Mike said...

didn't bernanke realize that a hike in the discount rate is what helped cause the great depression.
why would they want to hike rates? is it to help with their treasury auction?
they wont be able to lie about how good the economy is now since everyone will blame it on the rate hike.

Jeff,
if you ever followed martin armstrong you would know that he has the economic confidence model or pi cycle.
on 2009.3 which was April 23rd it signaled a change in the cycle. funny how that date was the top for the usd at 87 and the bottom for gold.
we usually don't find out what trend change occurred until later on but so far its pretty obvious.
http://www.contrahour.com/contrahour/2006/06/martin_armstron.html

Jeff said...

Mike,

I'm not much of a follower at all, certainly not of Martin Armstrong, a convicted swindler. Or Jim Sinclair who seems a bit kooky and has made plenty of bad predictions. I just read different sites, occasionally share information or ask questions. Then I form my own opinions.

Museice said...

FOFOA:
Check this out-

Gold’s Hollow Greenish Tinge

"Notice the reference to consolidation and re-organization in a manner not apparent to those fixated on the existing contrived system that is permitted by loyalist regulators. The officials in the LBMA, COMEX, USDept Treasury, and elsewhere are struggling to maintain the current system, and reportedly are not in step with awareness of the newly devised structures coming into place. In the background, far from view, new systems are being fabricated from scratch. Some involve complex barter systems soon to emerge and hit the scene with a splash, with impressive vertical integration, and even a gold core in its foundation. At the same time, new currencies for usage are still undergoing planning, foundation setup, contract latticework, and more for actual implementation. They too will contain a gold core component, not a 100% coverage but a component that might serve as an effective cover clause."

The beginning of Freegold?

costata said...

Topaz,

Re: Your USD comment

Were you referring to options expiry?

Museice said...

Question:

If there is demand for physical gold that can't be met by London, and Central Banks are buyers instead of sellers, why this:

Buyers fail to materialise for IMF gold

"When India bought 200 tonnes of gold from the International Monetary Fund late last year, investors assumed other countries would follow, viewing New Delhi’s move as a sign that Asia’s central banks were diversifying their swelling reserves from US dollar assets into bullion.

Sri Lanka and Mauritius made small purchases from the IMF and speculation that China would follow was widespread. But the IMF’s announcement on Wednesday that it has not found further buyers for the remaining 191.3 tonnes it wants to sell – equal to about 5 per cent of annual global demand – signals that other central banks are not ready to buy. Or not publicly, at least."

costata said...

Museice,

IMO this piece from the Financial Times is pure spin.

If other countries had tried to buy some of this gold and been refused would the IMF announce it?

If a country tried to buy and was told no, would that country announce it?

As A/FOA emphasised a number of times tonnage "political" (Nation State reserves) gold is traded by CBs and BIS out of the spotlight. Never publicly.

The import of this article is that the anticipated demand for gold hasn't materialised but the FT offers no evidence other than "we cannot see it, so it must not be there". Pure spin IMO.

Museice said...

Thanks costata

I thought it was another 'Your a fool if you buy physical gold. Just look here' spin piece. Confirmation from others is helpful.

costata said...

Hi FOFOA,

Re: Greece

I'm starting to view this situation in a different light. This simpleton should have expected this. A/FOA gave plenty of warnings.

The architects of the Euro and Freegold never intended this system to be "nice". The overarching objective was to create a viable alternative to the failing US dollar reserve system that suits the broader interests of this faction of the Giants.

As FOA said:
"This not only has "everything to do with a gold bull market", it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too."

http://www.usagold.com/goldtrail/archives/goldtrailfive.html
FOA (08/09/01; 10:27:19MT - usagold.com msg#93)
"everything to do with a gold bull market"

As FOA said even earlier while Another was posting:
"Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold."

http://www.usagold.com/goldtrail/archives/another4.html
8/10/98 Friend of ANOTHER

Perhaps we should listen to what the EU/ECB has been saying consistently and with increasingly strong language:

"The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.

"We certainly won't let them off the hook," said Austria's finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership"."

Ambrose Evans Pritchard via Harvey Organ
http://www.telegraph.co.uk/finance/financetopics/financialcrisis7252288/Greece-loses-EU-voting-power-in-blow-to-sovereignty.html

IMO the boys at Leap2020 may have nailed it with this observation:

"The Greek problem is an internal issue for the Eurozone and the EU, and the current situation provides, at last, a unique occasion for the Eurozone leaders to require Greece (a case of « failed enlargement » since 1982) to leave its feudal political and economic system behind. The other Eurozone countries, led by Germany, will do the necessary to make Greek leaders bring their country into the XXIst century in exchange for their help, at the same time making use of the fact that Greece only represents 2.5% of Eurozone GDP (3) to test the stabilisation mechanisms that the Eurozone needs in times of crisis."

Sounds plausible to me.

JadeDragon said...

Just found your blog as result of a mention at realcent. Very helpful indeed.

Martijn said...

didn't bernanke realize that a hike in the discount rate is what helped cause the great depression.

Yeah right.

If he'd never kiked back then all would have been well...

What kind of remark is that?

Martijn said...

@Museice/link

As you read this, bankers and treasury officials all around the world are wondering what to do next, now that gold bullion bars have been proven to be tampered with
So now it has been proven?

The reality is that any given country’s currency was supposed to be supported by gold reserves, when in fact there has never been enough gold to support a currency
Wouldn't that depend on the price?

An historically unprecedented mess has been created by
Right, historical events such as the fall of Rome whent very structured...

In the background, far from view, new systems are being fabricated from scratch. Some involve complex barter systems soon to emerge and hit the scene with a splash, with impressive vertical integration, and even a gold core in its foundation. At the same time, new currencies for usage are still undergoing planning, foundation setup, contract latticework, and more for actual implementation.
Too bad he does not provide a credible source with that.

Martijn said...

Last August 2009, a busload of former key employees from the USDept Treasury and Wall Street firms arrived in Brussels Belgium. They turned themselves in to legal authorities in an attempt to avoid eventual prosecution. They came loaded with evidence, documents, emails, testimony, boxes of CDs, and much more. They won asylum in exchange for turning state’s evidence.
It probably was all over the news, but I've missed it. My bad, no need for the author to provide a source.

GG said...

@costata:

"The architects of the Euro and Freegold never intended this system to be "nice". The overarching objective was to create a viable alternative to the failing US dollar reserve system that suits the broader interests of this faction of the Giants."

"And I have to admit: if you hated our last one, you will no doubt hate this new one, too."

In their hubris of "the world desperately needs our fiat currencies and central banks just to exist" and megalomaniac dreams of a super highly valued Euro and Gold, the Eurocrats might have forgotten one little detail:

The productive capacity of the world might be so severely diminished after the dollar's collapse (due to the immense misallocations of capital have occurred in the past half century - case in point being Asia's export industry which is fully targeted to the now bankrupt US market) that even Euro 10,000 an ounce Gold might only buy a man's suit. A/FOA were fixated on the advanced modern economy enabled by oil. They think this "advanced economy" will just keep humming along barring a few hiccups, of course, when the world switches to Euro from the dollar. They think that their INTENTIONAL support of the dollar regime for the past half century (which should have been dead long ago had they not supported it) along with the associated massive misallocations of world's capital will have no consequences. Pardon me, but I think the reality will be quite different. Even if they install freegold now, the world economy will take a LONG time to recover from what is to happen. Rest assured, free physical Gold pricing will not be the cure all they are imagining it to be and will not deliver them the purchasing power the Eurocrats so crave. There will be CONSEQUENCES first. I disagree that world "found an indispensable use for fiat currencies" as contended by FOA. The only reason people use them even today is due to physical Gold still being available via the futures market in exchange for fiat paper. It was just a MASSIVE con perpetrated by world governments upon their citizens - with the fiat USD as the biggest bubble in the history of mankind. Unfortunately, people are about to wake up and it will not be pretty. Not even for the Euro.

Martijn said...

@GG

The only reason people use them even today is due to physical Gold still being available via the futures market in exchange for fiat paper.
Would you rather be sending milligrams of gold to amazon.com than wiring digital fiat?

Martijn said...

So China drops out of buying US bonds, and the Fed raises its rate.

One might argue that China has now taken over US monetary policy.

GG said...

"Would you rather be sending milligrams of gold to amazon.com than wiring digital fiat?"

There is nothing wrong with services like Goldmoney. I can choose to have goldgrams transferred to my account online or make payments in it online.

Martijn said...

Nothing wrong with that indeed, but in order to work properly it would require freebanking to be allowed.

I'm not so sure governments are willing to go that far.

Martijn said...

Btw, this guy does believe something is wrong with goldmoney.

This illustrates my point about freebanking. There is indeed nothing wrong with the general type of service, but in order to work properly, some competition (freebanking) wouldn't hurt.

Martijn said...

Would freebanking, if allowed, have the same effect as freegold.

One could argue so...

SatyaPranava said...

@idi, i'm a little behind in the posts so i haven't read further to see if there are replies to your post, but I would love to share w/you a different perspective. I've been studying nutrition and health for much of the last decade. I'm a former raw foodist and try to incorporate as many raw and REAL foods into my diet. with that said, there is no diet that works for everyone.

while i believe very much in mostly-vegan diets, to some degree, I think that is because most of what we call food today, bears no resemblance to what we called food 100 years ago. thus, all the studies that are done (and diet studies are very difficult to assess), have been done with foods called XXXX (beef for example), but from a cow not eating grass, kept in closed, diseased quarters in CAFOs. as for me, i tend to be much more careful about the conclusions I draw from that, then.

In other words, is food made the way our ancestors made it better for us than vegetarian/veganism (which is better than the processed foods being offered). obviously this is not a simple question, answer, or the place to discuss in depth.

also, regarding animal husbandry, and the like, as someone who is certified in Permaculture, I'd also like to take a different view. many animals are amazing assets if you can get them doing what they love and want to do (chickens aerate soil w/their claws, remove pests from areas, fertilize w/their droppings, etc). So animal husbandry is not efficient if you do it like our industry has done--linearly. but if you mimic nature, husbandry has a lot to offer.

so while i eat mostly a vegan diet, i do eat high quality animal products, esp fats from very high quality farmers whom i know. that way, i'm getting quality food. to me, that's more important.

also, grains and pulses, as far as my research goes, need to be consumed in small doses (as does animal protein). all three of these, among other reasons, acidify the body and blood in a tremendous manner, causing serious imbalances that can lead to many "diseases" (which I consider symptoms to the imbalances they've just created).

i just wanted to throw this out there, because over the past decade, i've seen a religious dogma manifest in the alternative communities about veganism, vegetarianism, and raw foods. remember for everything we demonize in our diets here (save highly processed foods), there are cultures all throughout the world who thrive on just that very food.

What does that tell you about the food item vs the system from which it comes? there is no one right path when it comes to diet. all of us are deficient in many aspects of nutrition.

best of luck and keep thinking critically.

Martijn said...

@Satya

Nice post, I can only agree to all you say.

What we call meat is an industrial product full of chemicals from all types of vaccinations and manipulated food.

I tend to eat biological ingredients where possible. In Europe there is quite some supply of those, but I am not sure how that is in the US.

Apart from believing it to be better for my health I prefer to spend my money to people that employ a production process I support.

In a sense our economy is a democracy where every monetary unit spend equals a vote.

I cannot change the world but I can take responsibility for my direct actions.

SatyaPranava said...

@martijn. excellent. glad to hear you're doing it well. as I see it here in the US, the availability of real food is growing, as is awareness. but the power of what I call the social magnet, informed by the industrial machine is part of the greater problem. the multinationals have has captured regulatory agencies in our executive branch, not to mention owns most of the media, and pays for hundreds of billions of dollars in lobbying and other "support" of the legislators who pass the bills industry writes.

Thus, i would argue that even the move to organics was really a coordinated multination coopting of the philosophy as it started in the early-mid twentieth century and gained significant ground (as a holistic philosophy) with Sir Albert Howard's the soil and health around WWII.

martijn, what we call vegetables are also an industrial product too, created not in soil, but dirt with all kinds of chemicals which are supposed to replace the living bio-ecology of real soil, and with GMO seeds to boot. I've noticed Europe initially resistant to such practices, but seemingly at the higher political levels slowly starting to give ground to the monsantos and cargills (do you observe this as well? i forget where you are...germany? netherlands?). but in the US the organic is much poorer than conventional food was 50-60 years ago, sadly. One now has to go "beyond organic."

that's very much why i replied above, because what Greta is doing is exactly what we need. dynamic, sustainable systems that empower individuals and communities and divest people's intersts in the broader corporate world (IMO). even though she's new at it, i'm sure she's on an amazing path. and it's a path i expect to do as well, when i finish my doctorate.

i would agree w/your philosophy of currency units as votes, and i definitely agree. but obviously there are some "persons" (namely corporations, which in the US are legalized persons) which have a lot more money to buy votes here :)

i think that is why you and I in particular find what greta's doing to be so fulfilling...bc she's taking responsibility for her health, wealth, ecology, and (hopefully) community :)

Satya

Museice said...

Hey everyone, good news!

Fed Rate Signals ‘Financial Crisis Is Largely Over,’ Levy Says

There is no longer a reason to buy Gold! Happy Days!

SatyaPranava said...

museice, wanna buy mine then for a discount! ha! :)

GG said...

@Museice:

I guess it's time to load up on puts with you "play money".

Jeff said...

Gold price has totally recovered after the attemps to knock it down for two straight days. What else you got, Bernanke?

GG said...

I think Prof. Fekete's latest article is worth a read. He's spot on, IMHO:

http://www.safehaven.com/article-15857.htm

Museice said...

GG:

From Fekete's, ""The more the Fed tries to pump up commodity prices with its printing presses, the more they will fall". The explanation of this paradox is found in the contrarian behavior of the speculators. Yes, they will snap up the newly printed dollars and run with them. But run they will in the wrong direction. They run not to the commodity market as hoped by Bernanke, but to the bill market where the fun is. They front-run Bernanke and his team. They effectively corner the market for T-bills before Bernanke can buy his quota, without which he cannot print more dollars. Then speculators turn around and feed the T-bills to the Fed on their own terms. Thus the Fed's effort to induce inflation will fail -- just as the effort of the Bank of Japan to pump up prices was a dismal failure in 2002."

So you think we won't have inflation?

costata said...

Museice,

To GG: "So you think we won't have inflation?"

For the sake of clarity, I see hyperinflation as a currency event and different to inflation. IMO at some point A/FOA will be right and some (many?) countries will experience hyperinflation before this is over.

I have great respect for the work of Professor Fekete but I have noticed that he doesn't seem to factor in "supply destruction" in his theories. In a totally debt based system a lack of credit can reduce production.

Can production fall faster than deflation increases the purchasing power of the "money"? Can another currency out-compete a currency that the citizens are trapped in and cause supply to be re-directed to the country with the stronger currency? We may be about to find out.

Museice said...

GG:

This might help...

Antal in Wonderland: Antal Fekete's Theory of Monetary Hyperinflation That Creates a Boom in Bonds and a Falling CPI.

idi said...

satya; thanks for your thoughts.

The economic and health benefits of veganism are no longer worthy of serious debate.

Since millions more (formerly) middle class people are/will soon be living on the financial edge, such profound savings to their meagre and dwindling budgets will be lifesaving.

This is the economic issue I brought to the attention of this blog. Other nutritive issues of relevance that may interest you and others I discuss below.

Readers of this blog and others are fully aware of extreme MSM (dis)information as it pertains to national/global financial health. Why should such industrial (dis)information be better when applied to human health? It isn't.

The contention that humans are obligate (compulsory) omnivores is flawed and is founded in abject ignorance. Just a few thoughts from comparative anatomy and anthropology;

1. Our closest ancestors the great apes (and other primates) are essentially 100% vegan (rare exceptions amongst chimps which can cannibalise and baboons which very occasionally consume small prey and insects - the latter will vary according to other factors such as drought which decrease available dietary selection).

2. Obligate (compulsory) herbivores have very long GI tracts to enable the slow enzymatic digestion of vegetarian foodstuffs.

Obligate carnivores such as the great cats have very short GI tracts to rapidly expel the toxic metabolic byproducts of meat protein digestion.

Humans have very long GI tracts characteristic of obligate herbivores.

3. No other weaned adult mammalian (or any other!) species consumes the milk products of another (dairy). Got milk? No, I dont think so!

The idea that dairy products are necessary in any way, shape or form for (hopefully weaned!) adults of another species is, well..... specious at best.

4. Are fish "oils" vital to hominid health? No they are not. Great apes and other primates dont eat them. Many arid inland (vegan) tribes around the world never see them let alone consume them and do not suffer metabolically from their dietary absence.

5. There is a vast body of literature ascribing the western meat/dairy (processed or not) diet to a litany of human ills.

6. Generational transformative data tracks the health of vegan subjects from the third world to omnivorous western cultures.

Well within a generation, basic parameters of human health such as body weight/BMI, cardiovascular indices, liver function/blood fat and cholesterol levels, lifespan, perinatal mortality and morbidity (amongst many others) begin to decline towards the those of the adoptive western omniverous culture.

The scientific data is (IMHO) unassailable.

I would urge readers to research these issues using google.

I agree that industrialised agriculture has worsened health greatly (hormones, antibiotics, GMO) but, due to the above, agree with the contention that a vegan diet is precisely what the human body has evolved to consume.

So non-industrialised animal husbandry is no solution to this omnivore-induced ill-health, despite the romanticised image to the contrary.

Satya, you wrote some days ago that you are heading to medical school after completing your doctorate. The very best of luck.

Disclosure: I am a neurosurgeon with a PhD in molecular genetics and spent time researching the dietary proclivities of primates (mainly baboons) in sub-saharan Africa.

I am always prepared to stand corrected on (and debate) issues of scientific fact or merit, though not anecdote or personal opinion. I can, however, personally attest to the delicious variety of vegan fare over a decade and counting.

If there is one huge similarity between the Austrian School of economics, fiat currencies, precious metals and VEGANISM...

it is that the vast majority of the world's population have not the remotest understanding of the real issues at hand.

costata said...

idi,

That was one of the best comments that I have ever read on any blog.

I'm grateful for your authoritative observations on veganism and diet in general.

You may have helped me reach a decision I have been mulling over for a long time.

Thank you, sincerely.

costata said...

FOFOA,

I have completed the timeline on gold mining in China. It touches on a few other issues that have been discussed on this blog recently as well.

It is quite long. I would appreciate your guidance. Is this the right time and place to post it?

Cheers

FOFOA said...

Costata,

If you want to email it to me at fofoamail@gmail.com I will take a look at it and give you my thoughts.

Sincerely,
FOFOA

Ishkabibble said...

There seems to be a common question arising about why the IMF is trying to sell more gold, at least it's all the buzz at GIM. Here's my response... I'm interested in other thoughts on this line. Is it possible, probable, or am I off my rocker?

The IMF is not selling gold, it is doing the equivalent of taking delivery. You have to understand how the system works and then it becomes clear. First, the IMF has no supreme vault within which it's gold resides. Instead, the IMF relies on certificates redeemable for gold. The IMF holds paper gold and they are selling it to reduce risk. The longer they hold their paper, the less likely it can ever be redeemed for the gold it supposedly represents.

By selling their gold, they get FRNs and a nation can choose to take delivery. The option of taking physical delivery is one the IMF cannot exercise, so selling is their only option. This ensures the value of the gold is realized by the IMF, if only in temporarily FRNs. You would think conversion to FRNs would be a problem, but it is actually the solution.

FRNs received by the IMF don't sit long. They are supplied to other nations for funding, and repayable over time in gold. REAL GOLD, not tungsten and certainly not paper. Remember, debt to the IMF cannot be settled in FRNs. Repeating for emphasis: To convert from a paper certificate to reliable, hard, in your hand gold, the IMF needs a promise of repayment in gold that cannot be reversed, from a party that cannot challenge the IMF's claim.

When the IMF provides FRNs in exchange for a promise of repayment in gold, there is also security. They can secure against national treasures such as the Nile (I believe it is already theirs), park systems, and... well... pretty much anything they want. The point is that the IMF stands to gain regardless of the repayment scenario. Sure, the gold is underpriced now, but the IMF gets a guarantee of more gold when the FRNs are quickly flipped, so underpayment is not a concern. The buyer is getting a steal of a deal, as they can take delivery and as such can end up with real gold, removing the risk held now by the IMF.

I expect we will continue to see IMF gold sold for as long as delivery is possible. It speeds collapse of the gold supply, because the first out with either tangible gold or value in trade for tangible gold wins.

Still wonder why the IMF is selling their gold? They have no more faith in this system's sustainability than you do. They're getting out while they can, and they're ensuring they bring their gold along for the ride. This is the only play they can do to ensure the paper gold they have becomes real physical when the system fails. I strongly suspect the volumes are being kept manageable as a strategy to redeem as much as possible before things blow.

http://goldismoney.info/forums/showthread.php?t=449778

idi said...

costata; I am pleased you found my comments edifying. These above thoughts pertained to the individual (economic, health etc). I omitted other profound global issues of meat/dairy production such as;

"the clearing of rainforests, resource depletion, air and water pollution, land and economic inefficiency, species extinction, and other environmental harms."

http://en.wikipedia.org/wiki/Environmental_effects_of_meat_production

The work of pimental and others is worth googling;

"The data we had indicated that a beef animal consumed 100 kg of hay and 4 kg of grain per 1 kg of beef produced. Using the basic rule that it takes about 1,000 liters of water to produce 1 kg of hay and grain, thus about 100,000 liters were required to produce the 1 kg of beef."

so why not just eat the grain/vegetables/fruit/pulses etc first? kcal for kcal and $$ for $$ it works out more efficiently.

Just a brief indication.

In my #1, I meant to refer to our closest cousins the great apes, not ancestors in strict paleontological terms.

costata, just do it. make the change. google vegan sites (www.goveg.com is just one) for menu suggestions. you will not look back and wonder why it took you so long to join the dots of veganism and action.

When asked by (often incredulous, perhaps sarcastic) people "well, what actually do you eat?" I respond that "I consume what the bushmen of the northern kalahari used to eat (before "embracing" a more western diet brought by the multinationals).... leaves, beans,vegetables cactus fruit and...... the headman's daughter!"

Museice said...

Martijn:

Question- On FOFOA's February 27, 2009 post Gold Price Suppression Explained you wrote "With regard to the suppression of gold I do wonder whether something would not have come out by now if it is true. After all, such an operation should involve quite some people, and usually someone always comes into the open about stuff like that in time."

This sounds to me like you didn't believe there was Gold Price Suppression one year ago.
Do you believe it now? Why or why not?

Martijn said...

@Museice

I tend to believe in the suppression and did the same a year ago. Sometimes I do however try to poke the discussion a bit, and the remark you quoted did indeed make me wonder.
Must be that the scheme does benefit all.
The West can delay its demise, the East can reposition itself for the new reality.

Museice said...

Thanks for the reply. I'm in the process of trying to convince an intellect about Gold Price Suppression and I just wanted some more fodder from another dedicated source like yourself.

steerpike said...

test
hello everybody

oldinvestor said...

Re, the reference to Antal in Wonderland: Antal Fekete's Theory of Monetary Hyperinflation That Creates a Boom in Bonds and a Falling CPI.
February 19, 2010 4:06 PM


This is entirely in line with my recent post on the potential dis-connect between actual paper money and money in electronic form.

Since that post, I have gone to the web sit of the Bureau of Engraving and Printing (that actually prints our Federal Reserve Notes) at http://moneyfactory.gov/uscurrency/annualproductionfigures.html

They show the numbers of notes printed per year. For FY2008 they printed 7.7 billion notes. For FY2009 they printed 6.2 billion notes.

However, at the bottom of that page came a most interesting figure.

“95% of the notes printed each year are used to replace notes already in, or taken out of circulation.”

So if this is true, then in FY 2009 there were actually only 312 million actual new notes printed into existence, everything else was to replace worn out currency.

Thus even if every single one of the 312 new notes printed was a 100 dollar bill, they only would have the physical capacity to print 31.2 billion dollars worth of new currency.

If there is ever a run on the banks due to distrust of their solvency, and people started to hoard real paper money, it would disappear in a heartbeat.

Physical paper money is the last next best thing to gold, and , in my opinion, paper promises to deliver gold are to physical gold as electronic entry promises to pay money are to actual paper dollars.

John said...

It might be interesting to see a post regarding ratios of the value of physical commodities to each other prior to the widespread market manipulation of today's derivatives (ie. options, contracts, etc.). It may prove useful when currency becomes less used and trade becomes more prevalent. I would be particularly interested in edible grains and livestock but the value for softs would be interesting to have as well. Is there anyone on this discussion board who would have access to that type of data?

steerpike said...

I've been visiting this website and blog for over a year now.
Greatfull for the insights and the information.
Very comprehensible,even for a non-economist.
Not sure I understand the entire
gold-trail but well-enough to know
what kind of action to undertake.
And i did.
My respect to the host and the posters.

Keep at it,you are doing god's work.

Yours

costata said...

steerpike,
"Not sure I understand the entire gold-trail but well-enough to know what kind of action to undertake. And i did."

Welcome to the lifeboat. I believe there's a spare seat over there next to Museice and Martijn. Make yourself comfortable. We may need to cast off very soon.

oldinvestor,
Illuminating. Thank you.

Museice,
FWIW I have stopped using the word "suppression". When the subject comes up I stress that it is "manipulation" of a market.

The idea that keeping prices "down" is a bad thing is, for many people, counter-intuitive. Market manipulation seems to be more readily understood as market rigging, cheating etc.

Trying to argue that gold prices are too low when you own some sounds like self interest to some people.

BTW Personally I wish they would suppress it a LOT more. Physical gold at US$500 per oz would suit me just fine.

Jimmy said...

Indians hold 15,000 tonnes of gold privately

jimmy said...
This comment has been removed by the author.
jimmy said...

see latest taibbi on the case for wall street = absolute fraud here;

http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle

in most countries, these crimes would be capital and the gallows would have already been constructed and trials ongoing ..... no ifs, ands, or buts about it! it only takes one spark to ignite the building rage. history tells us that it will be struck soon!

idi; thanks for making an irrefutable case for veganism.

The "need" for dairy products and meat always seemed oversold and suspect to me. You have convinced me and I have switched to a vegan diet.

I also am tired of listening to the imbeciles who argue for the "need" for meat/fish/dairy in a "balanced" human diet. they are the same fools who parrot the anti-PM sound money line.

the logic behind FRNs is indeed parallel to that behind meat/fish/dairy industries and = nefarious + profit$$$$$$$$$... you CAN indeed fool MOST of the sheeple MOST of the time.

jimmy said...

been reading mish for quite a while and have come to the conclusion that he is a complete and unabashed shill. here he is union-bashing (again!) in the case of greece;

http://globaleconomicanalysis.blogspot.com/2010/02/greece-held-hostage-by-unions-warning.html

he gives the financial industry a complete pass and yet endlessly blames its victims.

example; no mention of the bloated defense sector as % GDP or whose interests this serves. these guys always declare themselves over time.

Museice said...

Jimmy: "have come to the conclusion that he is a complete and unabashed shill"... thanks for the laugh (I have always thought there is something odd about Mish's writing)

costata: I will use 'manipulation'

idi: I have to agree with the others. Your post is the absolute best I have every read on human omnivores. As a man of science (I'm a cause and effect kind of guy) what you wrote makes more sense than anything I have ever heard before. (Unless of course the world is only 6000 years old and this is the way we were made instead of their being hundreds upon hundred of thousands of years of wandering hungry humans eating only what they could find). I do have a slight problem with our dental record and the fact that we have canines but I'm sure you can answer that.

Now back to Gold:

Gold Wrecking Ball & OTCD Valuations

"15. Should a deflationary situation develop, what that means is the banksters can't collect on 1.5 quadrillion in OTC derivatives wins. The bankruptcy of most corporate entities would follow, and the banksters would close the banks and the world of Mad Max would quickly ensue. A giant price reflation is therefore the most likely scenario, because it is the scenario that makes the most money for the banksters. I don't think the fundsters have seriously thought through what happens to the world if the dollar soars against the Euro to the point the euro is destroyed."

Museice said...

Canines - remnants of alpha male display/fight teeth? (Sorry for the digression FOFOA but it is interesting)

Jimmy said...

Hey, jimmy, maybe a fan of me? Then you must call Ajoj (Another jimmy of Jimmy) like fofoa (=friend of friend of another) ;o)

Greetz

the authentic Jimmy :o)

Jimmy said...

Few most scary must watch video's about the coming Eurocrash to watch:

Brendan Brown on The Euro Collapse and The Euro Crash

The Coming Euro Collapse- Euro Crisis BBC Special

The Coming Euro Collapse- Euro Crisis BBC Special Part 2

Jimmy said...

Britain at risk of worse deficit crisis than Greece...

Again bad news, bad news, going to have headache and would like to take the blue pill (not viagra, but maybe our economy need it ;-P )...

Jimmy said...

Wanna follow the greek bonds? Here you could find it:

10 years

2 years

3 month

Jimmy said...

Ron Paul about the coming euro collapse

(forgot to post it also on 12:39)

idi said...

Thanks museice, good question about the relevance of canines for
hominid diets (it is one I hear often). However, you answer it correctly in your subsequent post about prominent hominid canines being used for defense only.

All hominids have prominent canines to a greater or lesser degree and yet all are pretty close to 100% vegan (human canines are highly rudimentary you will agree). Study the following photos please;

orangutan skull http://www.connecticutvalleybiological.com/images/sp2002.jpg)

gorilla skull
http://scienceblogs.com/afarensis/upload/2006/08/gorilla%203.jpg

baboon skull
http://www.boneroom.com/casts/images_vap/Primates/vap_hambaboonmal_large.jpg

chimpanzee skull
http://www.boneroom.com/casts/images_bc/primate_chimp.jpg

all four species have highly developed and impressive canines but are close to 100% vegan
(baboons perhaps 96% depending on habitat and meteorological conditions and availability of preferred foliage and fruits etc).

So clearly canines do not a carnivore/omnivore make, despite what we are told by the MSM.

Regarding your (no doubt facetious) 6,000 year time frame, the human lineage diverged from the above four hominid lineages between 6 and 23 million years ago! (http://mbe.oxfordjournals.org/cgi/content/full/20/3/424).

Thus the premise that humans have evolved to be essentially obligate vegans due to comparative anatomy, paleontology, physiology, pathology and the reasons of transformative immigrant health analyses (etc) I outlined above, stands, despite what the MSM would have us believe.

I thank FOFOA and fellow sound money bloggers for their patience in this debate which started with my post highlighting the significant economies of a vegan diet for those whose household budgets are under increasing strain.

Museice said...

Phase 5 of Economic Cycle Fast Approaching: Are you Ready?

Tyrone said...

Museice,
Thanks for the link. In the article, Phase 5 mentions monetary reform. Specifically, it identified "debasement of coins and money". This continues...

Proposed 2011 Budget: Terminations, Reductions, and Savings
Greater flexibility in the composition of coinage materials could enable the Mint to utilize less expensive metals in the minting process and substantially reduce its production costs. Using alternative coinage materials could save $150 million annually after an initial period of development and capital adjustments. These savings result from increased seigniorage, or the difference between the face value of the coin paid by the Federal Reserve and the cost of production. Seigniorage increases the available means of financing, but has no direct budgetary impact. Specifically, the Budget includes provisions that authorize the Department of the Treasury to approve alternative coinage compositions and weights across five denominations (half dollar, quarter, dime, nickel, and penny).

costata said...

FOFOA,

What do Greece and Zimbabwe have in common?

Perhaps the same German(?) "Doctor". I think I may have posted a comment earlier noting that EU based companies enabled Gideon Gono's printfest from 2001 onwards. Apparently EU sanctions and EU Govt intervention shut it down.

The link below is to a Zim activist website. Obviously they approach the issue from a different angle. Some relevant extracts follow.

http://www.sokwanele.com/thisiszimbabwe/archives/1292

"Yesterday, the German Development Minister, Heidemarie Wieczorek-Zeul, requested that Giesecke & Devrient stop delivering banknote paper .....to Zimbabwe."

"Gieseck & Devrient have stopped supplying banknotes and soldiers are now waiting to be paid."

"… the government feared that the licence for the specialist software supplied by another European firm would be withdrawn as part of the boycott of Robert Mugabe’s regime.

The software is supplied by Jura JSP, a Hungarian-Austrian company that specialises in security printing. A knowledgeable source inside Fidelity Printers said the software issue had created an air of panic.

“It’s a major problem. They are very concerned that the licence will be withdrawn or not renewed. They are trying to find ways around it, looking at the software, but it’s very technical. They are in a panic because without the software they can’t print anything,” he said.

As per the Alf Field article you provided a link to. Within a few months after withdrawing the Zim Dollar inflation had subsided and economic recovery had begun.

Gold production in Zimbabwe is now climbing rapidly. Currently around 4m/t from virtually zero during the worst of the crisis. I understand at its peak Zim produced around 24m/t per year.

EU/ECB altruism or a field test on how to shut down a hyperinflation? (Solution: a free market in currency and burn the local paper. Freegold Lite?)

I suppose there are also possible bonuses as well. Say, de-sovereignising the issuance of currency and/or hauling a recalcitrant political regime into line.

greta said...

@Sayta,

Bravo! Your commentary on many of the important issues regarding our modern diet was superb. It all comes down to the way the food is produced and freshness. From the moment a fruit or vegetable is picked it starts losing it's nutritional value.

Jimmy said...

IMF has 3,217 tonnes (103million ounces) of gold reserves. (official supply)

Thanks to Tyler Turden (Zerohedge) and Redburn partners.

You could find it on page 61 of this pdf.

And the pdf is a must read.

@Museice: nice article, thanks! Maybe already phase V in end of march 2010, with QE2...

Museice said...

Paul Brodsky: Gold Isn’t A Crowded Trade
"Only 0.7% of global assets are invested in Gold."

Museice said...

Max Kaiser - US Dollar Likely to Lose 50% Value in Near Future

Museice said...

From the Max Keiser interview:
"The phantasmagorical world of never having to pay your debt that the world has had to suffer through since World War II is coming to a close."

It is absurd to think that the United States has been existing on other peoples money for over six decades.

Reminds me of Peter Schiff's analogy:
"Let us suppose six castaways are stranded on a desert island, five Asians and one American. Their problem is hunger. So they sit down and divide labor as follows: One Asian will do the hunting, another will fish, the third will scrounge for vegetation, the fourth will cook dinner, and the fifth will gather firewood and tend the fire. The sixth, the American, is given the job of eating.

So five Asians work all day to feed one American, who spends his day sunning himself on the beach. The American is employed in the equivalent of the service sector, operating a tanning salon that has one customer: himself. At the end of the day, the five Asians present a painstakingly prepared feast to the American, who sits at the head of a special table built by the Asians specifically for this purpose.

Now the American is practical enough to know that if the Asians are going to continue providing banquets they must also be fed, so he allows them just enough scraps from his table to sustain them for the following day's labor."

GG said...

FWIW - not to hurt all the vegans' sentiments - but I LOVE meat. I love both cooking and eating it; how it tastes, how it smells. And it sure isn't because I read any propaganda promoting meat - it's just the way I've been like that since the day I was born. You'd have to kill me to make me stop eating it. Maybe my ancestors were different than yours, LOL! I've got pretty sharp canines as well ;-)

Jimmy said...

Something strange is happening. Very much of CEO's are resigning or retiring during november 2009 - february 2010...


1,000 bankers quitting RBS??? It looks like an exodus...

Aleksandar said...

This is quite interesting, in a very subtle way. I hold Google Finance up in a browser all the time to check for stock quotes. Today, I find this link U.S. stocks run out of steam after four-day rise as a headline. It is a very short market summary for today.

NEW YORK (MarketWatch) -- U.S. stocks finished mildly lower on Monday, with investors stepping back after a four-session winning streak. "Wall Street largely meandered on either side of flat for the session, as did oil and gold prices," said analysts at Action Economics.

Now, what is so intersting about it? Will somebody guess?

Jimmy said...

Again a shocking video: Do you know what has happen 1 day before 9/11 WTC attack?

2,3 trillion $ has disappeared?

Untrackeable and unbelieveable...

idi said...

GG; its all fun and games... until your eye is put out!

Many people enjoy the taste of meat and dairy but have little understanding of the true costs to their health those decisions engender... until its too late, that is.

There are great similarities with enjoyment of tobacco.... tastes great until your doc comes into the room with a stern expression and an x-ray in his hand. Then its game over!

There are many similarities between the MSM's treatment of vegans and gold bugs. Ridicule, hostility, marginalisation etc.

But when you really start to seriously look into the issues as a curious and self-aware hominid should, the science behind the contrarian's perspective is just unassailable.

As long as you understand the science behind the case that humans (and other hominids) are obligate vegans, and the resulting savings to your health and your wallet, you are free to consume whatever you wish to. You play, you pay.

In my business, sadly, I have seen the "I love meat and dairy" smirks wiped off the rotund faces of all too many who realise that they have succumbed to nasty and (usually) fatal diseases caused in large part by their dietary preferences. It aint pretty sport.
You make the choice and live (or die) with the consequences. It is that simple.

Bon appetit!

costata said...

Jimmy,

"1,000 bankers quitting RBS??? It looks like an exodus..."

IMHO the crucial question is "did they leave voluntarily or were they pushed out?"

costata said...

Hi All,

Without wishing to offend idi's sensibilities or encourage GG's carnivorous proclivities I think we could all use some more Greece in our diets.

Interesting perspectives in the comments on the following article at ZeroHedge. AIG as bagholder for Greek debt???

"Guest Post: Bailout Or No Bailout - That's The Question"
http://www.zerohedge.com/article/guest-post-bailout-or-no-bailout-thats-question

Comments:

"by Miles Kendig
on Sun, 02/21/2010 - 13:44
#239292

Which is why the fed allowed access to its discount window by SocGen and others while backstopping the swaps arena via AIG. The fed will take what the ECB cannot or will not. The focus of European policy makers will shift from the risks posed by Greek paper to the risks posed by all of the swaps that are associated with Greek paper and as you note, the institutions exposed to these swaps on an interconnected basis. In essence, it will be cheaper to pawn off all of the systemic risk issues to the American central bank and the currency it controls.

It appears as though more countries than China find themselves caught in a dollar trap."

"by Zombie Investor
on Sun, 02/21/2010 - 10:46
#239184

My money is on the U.S. bailing out Greece. Via Naked Capitalism:

"London investment bankers name AIG as a further CDS-seller. That company had to be nationalized during the financial crisis due to its having written insolvency insurance on American mortgages. This debt-load would have led to the collapse of the world’s biggest insurer. Prior to the financial crisis AIG is said to have widely held State credit-risk. If yet-larger insurance positions on Greece exist, then the American government would have a strong interest in preventing that country’s insolvency."

http://www.eurosavant.com/2010/02/21/cds-just-another-evanescent-bubble/

If AIG was CDS-seller for Greece, what are the chance they did the same with Spain, Portugal, and Italy?"

Food for thought.

Tablemaker said...

Kind Fofoa -

I have a quick question. Earlier today, (Feb 22, 2010) - The new Credit CARD Act of 2009 went into effect. Such new features include:
Limited Interest Rate Hikes
Limited Universal Default
Right to opt out
Limited credit to young adults
A Graph showing how to long pay off

But one feature that caught my eye was this: (excerpt from creditcards.com)
"Consumers should take note: Although the reforms are the most dramatic changes in credit card laws in decades, they do not protect card users from everything. Issuers can still raise interest rates on future card purchases and there is no cap on how high interest rates can go."

My question is this - Do the mega banks secretly fear a dollar devaluation? Was this possibility the reason the banks pushed hard for this new privilege? Your thoughts would be very helpful -

Thanks very much for your time

Tablemaker

Museice said...

Aleksandar:

I'll guess... Is it because they mentioned stocks, oil, and gold together? Usually gold isn't talked about but this time it was lumped together with the two Big Boys, equities and oil?

Museice said...

Fantastic quote from Adrian Douglas:

"If the U.S. government has a budget of $3.8 trillion and supposedly governs a $10 trillion economy, yet five commercial banks control $198 trillion of derivatives, who do you think really runs the country?"

FOFOA said...

Hello Tablemaker,

I do see what you are getting at, but I doubt that was their specific motivation. In the case of an official one time "dollar devaluation" the interest rates would not need to be raised. And anyway, what you quoted says they cannot raise rates on past purchases. So the banks get screwed on existing balances in the case of an official devaluation (unless the govt passes some draconian law that raises the principle owed proportionally to the devaluation - something that was done during the French hyperinflation of the 1790s! See the email I relayed in this comment).

The CC companies would raise rates on future purchases for a variety of reasons, including inflation and default risk. But not because of a dollar devaluation (nor dollar collapse/hyperinflation). In the case of rising inflation expectations they would need to raise rates or else they would have to withdraw all credit lines. This is probably what they argued and how they got that provision written the way it is.

In the case of an uncontrolled devaluation (actually a hyper-depreciation) of the dollar, a currency collapse or "hyperinflation", all credit lines will be immediately withdrawn anyway. No rate hike will ever be sufficient and they know this. When this happens you will find that your credit card no longer works at the store.

My guess is that when the dollar collapse begins the credit card companies will find some way to prey on people with large balances that want to retain their credit rating. I imagine something like the minimum payment will rise until it reaches a point where it is too high to pay, and then people will be encouraged to sign up for some program in lieu of paying that pegs their principle to the CPI if they want to preserve their credit rating without paying off their large balance. Smaller balances will be paid off or written off.

For the CC companies, the trick will be to get as much of the outstanding debt paid off as quickly as possible. Perhaps they also have CDS hedges in place as well, which they will attempt to cash out with the writer at some "discounted valuation". As I have said, hyperinflation becomes a game of everyone frantically trying to prevent real losses, and the CC companies will be big players in this game.

In the early stages of collapse it may be difficult to pay off your debt if it is large, and those who wish not to show a default on their record may be tricked into something that will remove the one silver lining of a hyperinflation, debt jubilee. The irony is that the credit rating they will be trying to protect will be devaluing in importance right along with the dollar.

This is why it is best to be debt free right now, or, if you are going to carry debt, to have enough money to pay it off all at once in any given month.

Sincerely,
FOFOA

Jimmy said...

@Costata: Yes, I was on my guard of this headline. I was looking out for a reaction. Thanks!

BTW, nobody has remarked my fault on IMF-goldreserves... It was reported in 2007... I looked out if someone readed it to remark my intentionally mistake...

But this pdf is a must read. It looks like a nostradamus predictions... Very sharp analysis about Kondratieff and take a look on p35 (The K-cycle in more detail) and p45 (Why the US must avoid a "K-winter"), it fills the link/article of Museice on February 21, 2010 4:59 PM

Got gold?

Aleksandar said...

Muse: exactly.

It is very minor, but it is the accumulation of small things that build a trend.

Jimmy said...

And the goldreserves are always published, but not % of the total reserves (accounted with fiat money)...

More on IMF:
Last IMF gold sales

Gold in IMF

And IMF borrowed €4.74billion from Belgium on 12 feb 2010

Jimmy said...

@Museice and Aleksandar:

The numbers given, looks peanuts. But this is stronger and very bad for your heart...

DK Matai, chairman of the ACTA Open in his article The Invisible One Quadrillion Dollar Equation — Asymmetric Leverage and Systemic Risk writes:

According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland — the central bankers’ bank — the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion.

The population of the whole planet is about 6 billion people. So the derivatives market alone represents about USD 190,000 per person on the planet.

The value of the derivatives market is 22 times the GDP of the entire world.

This financial crisis is not about sub-prime mortgages or credit swaps. The geniuses of Wall Street have managed to create a bubble that is way beyond any real values.

Consider this:

The real estate of the entire world is valued at about USD 75 trillion.

The world stock and bond markets are valued at about USD 100 trillion.

Add up all the real estate value in the world and all the value of all public businesses in the world and you get to $175 trillion. This is just 15 per cent of the value of the derivatives market.

What’s going to happen as this bubble unravels? What’s going to happen as the value of the underlying securities on which the derivatives are based upon devalue further?

You can’t bail this bubble out. There is not enough money in the world to bail this out. The US money supply is about $15 trillion, 1.3 per cent of the bubble.



Also Warren Buffet said: OTC derivatives are financial weapons of mass destruction...



Got physical gold?

dojufitz said...

Max Kaiser says the US $ will be devalued by 50% in the next few years....i take that against Gold?

It seems all currencies want to be devalued.....

What hapeens to all savers of Bullion if they call a debt jubilee?

There seems to be talk of such?

Jimmy said...

@Fofoa:

It's Niall Ferguson?

Why New Zealand or Costa Rica? And why not Uruguay? It's my favorite: 80% whites (no, I'm not a racist, but it's a surprising chiffre, most immigrants of Portugal, Spain and rest of Europe who has fled WOII), catholic, neutral and most peaceful land of South-America? And the people knows how to survive hyperinflation, they already passed/suffered it. Fernand Hutz of Katoennatie invest there, bought much land and has also builded a big harbor in Montevideo... Maybe there come a second big harbor...

Greetz

Jimmy

Jimmy said...

It fills my remark on February 17, 2010 8:35 AM about dehedging... Be patient...


US bank lending falls at fastest rate in history. BB would scream: "Dude, where is my counterfeinter?"

Jimmy said...

Buffet's Partner Says America Is Finished, The Daily Bell

Martijn said...

From Harvey Organ:

As for gold, the total standing for pure metal dropped from 1.4 million oz at the beginning of the month to .6 million oz as many opted to receive a huge cash premium and try to delivery in April:

Did anyone here happen come across any recent source on these cash premiums?

Museice said...

"Gold will never be well received by the financial industry in general and much of the media that make its living reporting on it because in the end, it’s the enemy to financial assets. Stocks and bonds make the financial services industry go round and round. Gold only makes one person more money. You, so the Industry hates it!

Jimmy said...

10 Amazingly-Abandoned Renewable Energy Plants


Strange...

S said...

FOFOA,

Ferguson out with a call in Foreign Affairs saying empire collapse is fast and furious as opposed to protracted. I know this has been disucssed here, but the consensus is that any/the decline will be long and drawn out with possibility for reversal as events evolve and or are managed.

It seems more and more clear when looking at the EU peripherals and the tax receipts at the US state levels that we are heading to some inflection and fast. Thus far the ECB has remained on the same page as the Fed but what will be that breaking point that forces the hand of the already reluctant players in the game to play their trump card (if they have one) damn the torpedoes? It is becoming clearer by the day that the this is a zerosum race with the Fed and the TBTF banks trying to position themselves as the last gamblers standing. Surely the BIS and ECB, not to mention China know this.

Striking the Merkel comments this morning talking about how bailout out banks are using governement capital to attack the EuR and Greece.

Not at all surprising that the EuR is coming under attack and the Iran rhetoric is heating up. Seems the US is left with tactics but no strategy. Jumping on the Euro short, not to mention the toyota spectacle and the increasing worries over Japanese fiscal policy, are tactics. While all are true concerns none diminish the even graver proboems confronting the US - which has the MOST to lose in any realignment.

Therefore, wonder your throughts on the following:

1. Soros was out in FT claiming the EuR is a failure as it has no Treasury function to "deal" with solvency. Not the least bit ironic that he thinks the Treasury can solve the problems, considering his speculative run on the GPB.

2. Begs the question given the dire situation that confronts the epripheral EuR countries what the ECB will do or can do? Pritchard is out with his typical Eurobash quoyting Morgan Stanley on the EuR 1T of debt that needs to be rolled this year (bank debt that is).

3. The gold angle re revaluation, Italy etc. would seem to make sense, but that would run counter to the objectives of the dollar bloc (and perhaps China given their interest in managed stability/reserves).

4. As per your post on a devaluation, it comes back to the question of how the banks would hedge themselves re their loan books in such a scenario? Still not clear how they could possibly hedge themselves in such a scenario.

5. With a quadrillion in notional derivatives that would seem to be the other achilles outside of the barberous relic.

Museice said...

How about this:
Peak gold theory gains impressive adherents

not4sure2 said...

I thought this guy makes a good argument here Taking the Glitter Out of Gold-Based Currency. What say you Gold Bugs?

Thank you in advance for any response. This is a serious question on my part. I am as others here like to say, "a simpleton".

GG said...

Looks like things are taking a turn for the worse in Greece:

http://www.zerohedge.com/article/greeks-scramble-pull-out-€8-billion-local-banks-greece-responds-money-control-measures

What is the ECB/BIS waiting for? For the EU to be torn to shreds? How and why is it allowing the IMF to pillage Greece?

S said...

gold fields reduced their production outlook this am by 5% vs. previous plan. African mines and degrading ores are well telegrpahed. The better question is why BArrick is IPOing their Africa assets to focus on Core Americas exploration?

Martijn said...

Stocks and bonds make the financial services industry go round and round. Gold only makes one person more money. You, so the Industry hates it!

If gold were priced rightly it would not differ that much from stocks and bonds I reckon.

Jimmy said...

@S: Which article on Foreign Affairs do you means about Ferguson?

And very interesting comment.

But one detail: Which superpower has the most goldreserves? After "the monetary big bang", Europe or India have the most purchasing power, because they've the most goldreserves... Forget China or the States for the buying power (if the fort knox is empty and China has one trump card: rare earth metals), only they have the most military power: 1) USA 2) Israël 3)China 4) Europe (France, Germany and Britain) 5) USSR...

This means only a new world order (or new monopoly game) divided on military and gold power. It would be a hard bluff game during the grand shift of an era, much harder than the bluff during the cold war...

jimmy said...

good rant by karl D

http://market-ticker.denninger.net/archives/1993-How-Long-Before-You-Wake-Up,-Politicos.html

hope someone is listening.

FOFOA said...

Hello not4sure2,

I think the answers you are looking for are here in this blog and in the archives of Another and FOA linked in the right column.

In brief, we are entering a phase transition which will separate the two main monetary roles, 1) medium in trade, and 2) store of value or "wealth reserve". For centuries we have been taught by bankers and governments that these two functions are permanently entangled in money. But the facts are different. FOA taught us this.

Your article starts with this statement, "In the first place, it doesn't matter at all what means of exchange you use. Paper, bits and bytes, shells, tally sticks, salt. They have all been used successfully in the past." It is correct! But notice that he only refers to the "medium of exchange" function in this statement.

Your author's main arguments revolve around gold as money, with perhaps the past 200 years as his sample. But we are not headed backward in time, we are moving forward. And what is ahead of us is the continued use of fiat money as our global medium of exchange and debt, but a separate, "demonetized" wealth reserve.

People have trouble with the idea of DEmonetized gold. But I think that understanding WHY I use this term is the key to understanding the separation of the monetary roles, and how it is literally something so new that it has not been seen since before gold was first coined by governments and bankers. This is why the "men's suit" valuation will not hold in the future. Nor will any valuation that does not refer all the way back to certainly before the Renaissance, and maybe even before Rome.

And of course our world today has so many new forms of wealth that were not even imagined in those ancient times. So there is really no possible calculation for a "fair value" of "gold the wealth reserve" that can even be made today. What is coming is truly unprecedented. Gold's relative value is about to be reset to heights unimaginable.

And the point of this blog is that the Giants of our world are well aware of this coming revaluation and transfer of wealth, but few "simpletons", as you say, have even a clue.

If you are a young gun, out to change the world, then perhaps an approach like Migchel's is worthy of your time. But if you have spent decades accumulating savings that you hope to deploy in your retirement years it might be more beneficial to figure out what changes actually ARE coming at us like an unstoppable, runaway locomotive. This is what I write about. Not what you can do to change our broken system. But what you can do right now to protect your wealth and get on the receiving end of this paradigm shift that is happening before our eyes.

I recommend that you start with the following articles on my blog and then move on to the FOA archives in order to understand how the roles of money are separating...

Gold is Money - Part 1
Gold is Money - Part 2
Gold is Money - Part 3
Gold is Wealth
Gold: The Ultimate Wealth Reserve
Freegold
The New Global Reserve
FOA

Sincerely,
FOFOA

FOFOA said...

S,

Believe it or not I view the PIIGS' debt crisis as more of a problem for the dollar than for the euro. And because of this, my gut tells me it is likely that the Fed is supplying liquidity (dollars) in some way behind the scenes to ease the situation. How the ECB will respond to this "foreign bailout" is a question, but not a vital one from my perspective.

Of course the European socialists have huge problems, but you must understand that the entire global financial system is built upon the dollar. Even if Greece's debt is denominated in euros and held by another Eurozone country (France or Germany), the failure of said debt and its complex support structure is a failure of the $IMFS, not of the euro. See: Goldman Sachs

Sincerely,
FOFOA

S said...

fofoa,

I don't disagree and it is much speculated the US will be buying the Greek bonds if they come to market this week. The question is not so much supplying dollars rather it is more a question for malthus. supplying dollars does have a consequence after all. trading increasingly worthless dollars for the real assumes that those made whole by the dollars will remain loyal to the game. But to borrow a term from the economic gurus, there is always leakage. hence the point about game theory. if I have bad debt on the balance sheet and the dollar is being used as the middleman for make goods via QE/printing, the counterparty is clearly aware of this and has every incentive to drain that new make whole into something real. This is a game of confidence and we are at the point of pareto efficiency.

So i wonder your thoughts on the following question?

Why is the ECB willing to play along. Is it simply to countergame the US whilst using the perceived "confidence" in the dollar to swap out bad debt for dollars which are in turn reallocated? Or do yoou belive that the fed has essentially guaranteed the other debt via US debt auctions so long as the proceeds are parked in the Us treasury complex. Clearly the quid pro quo for any dollar funding/bailout would be to support the complex that is providing that debt swap program.

However, the ECB and its members plus china and Asia ex also know that the stranded cost in the system nis only growing. Therefore, is this simply a case of nowhere left to go (unless of course gold was set free)?

the dollar regime is so intricately entwined with the defense complex that it only makes sense at moments of weakness to flex it in support of the current paradigm whcih makes iran situation ever more foreboding as the days wear on. The recent news out of Turkey re a coup are also tantalizing considering the break with Israel after the dismissal of the US requests during GWII.

The central question is why play. Wasn;t the tag line in Wargames "the ony way to wion is to not play?" at what point does the embedded deadweight loss in the system beocme so great the speculated dollar laundering operation collpases on its own weight. And will that inflection amount to a simple overnight loss of confidence in the efficacy of the dollar (or repudiation by those with something real to sell, like oil, gas, gold, copper etc..)

Haas said...

Fofoa and others,

Do you see significance in today's COMEX gold price backwardation?

Regards,
Haas

S said...

Also, wasn;t browns bottom speculated to be aligned with the launch of the euro? also the US is not necessarily interested in preserving the euro block to protect the dollar. In fact when you consider the euro was growing as an allocation for sov wealth funds, intuition says that it was becoming more of a threat than anything else.

while the debt domino that is greece (or spain or Ireland etc.) certainly has tentacles into the euro banking complex and perhaps US banks via counterparty risk, which admittedly may be enough to force the fed's hand, a sovereign default to the extent that it was ring fenced would have little blow back implications for the USD.

So i come back to the question of who is blackmailing who?

It is widely known that socgen and the french banks (and Deutsche) were huge beneficiaries of the AIG bailout (though some have speculated that DB may have been a parking space for GS bad debt). clearly the EU banks were concerned from a capital standpoint then and given they havent raised much equity are arguably still at risk given the peripheral debt issues/risks.

so are the euro banks using the couterparty threat to blackmail the fed into action or is the fed balckmailing the banks into supporting the complex for a make good provision?

Museice said...

jimmy:

Since you brought it up- How Long Before You Wake Up, Politicos?

Besides being a chilling example of what we can expect in the near future Denninger concisely shows why we are in a Depression. "Yes, I know all about the stock market rally from last March. I know all about the claimed GDP "improvement." But I also know that we got both by adding more than $2 trillion in debt to the United States - or roughly 14% of GDP - over the space of the last 18 months. That's about 10% of GDP annualized, and incidentally, a 10% GDP contraction is the common economist's definition of an Economic Depression.

So let's cut the crap - we are in a Depression right now. We are pretending we are not, just like you can pretend you didn't really lose your job so long as your credit card does not reach its limit. We have been in that depression for about 18 months and there is no evidence that we will exit it, as we have yet to find a way to pull back the deficit spending without an instantaneous collapse in the economy."

I suggest reading the entire 'Piece'. It's time to preserve your wealth.

noone said...

Thank you very much for the direction FOFOA. I look forward to wrapping my mind around this.

noone said...

p.s. I was on an open i.d. earlier.

not4sure2

costata said...

S,

Quote from your earlier comment.

"Seems the US is left with tactics but no strategy."

FWIW 100% agree.

Martijn said...

Carbon credits to replace US $ as global currency

SCOTLAND (Commodity Online):Till now the question was whether a group of currencies would replace the dollar or even gold? Now, here comes the prediction amidst global warming and cllimate change concerns that carbon credit will replace the US dollar as the currency of international trading within five years.

costata said...

FOFOA and other contributors,

From Harvey Organ:

"We do not know if any or all of this inventory is encumbered. Many know my theory on this: we have one inventory
for 3 bourses:

1. Comex
2.LBMA/physical wicket London England
3. GLD/SLV with the Bank of England counterparty."

IMHO GLD and each of these other playerz do have physical gold at a given point in time. Click it belongs to GLD, Click it belongs to LBMA, Click it belongs to Comex etc.

Augmented with some new supply from "lapdogs" like Barrick and from a CB in a crisis such as the one faced by Deutsche Bank when they needed around a million ounces last year.

That's why A/FOA stressed that Giants (or their proxies??) standing for delivery is the holy s@#t moment and "ALL paper burns".

As S pointed out, tactics but no strategy.

When does it all blow up? Sometime after 1997 (smile). When will we know for sure? The day AFTER it blows up. That's why we need our insurance in place. Our wealth preserver.

We also need one other thing - steely resolve in the face of grotesquely manipulated markets, data and media outpourings.

Putting away my soapbox now. Cheers!

FOFOA said...

@ Haas: Re: Backwardation - It's certainly something to keep our eyes on. Let's watch the GOFO, primarily the 3 month GOFO rate. It has only gone negative once, in 1999. The one month has gone negative three times, in 1999, 2001 and 2008. The two month went neg in 2008. But in 1999 the 1, 2, 3, 6 and 12 months all went substantially negative for one day, the 1, 2 and 3 months for two days. So let's watch for the 3 month and beyond to go negative and stay there for more than two days. 2010 GOFO

@ Martijn - LOL

@ S,

The end of the dollar's timeline has always been a collapse of the currency. A collapse in the value of an individual dollar unit because the Fed must print to infinity to support the inevitably failing debt that structurally defines the entire $IMFS and therefore the dollar.

So playing the game as you say is just continuing its long term strategy for the euro. It never wanted to destroy the dollar. It always knew this would end but it didn't want to ever be seen as the culprit. And as I say, each effort to prolong the system kneecaps the supports holding it up on the other side. The ECB probably understands this better than anyone else in the world.

This is why I said that the ECB's response is not a big deal either way. They probably see better than anyone else that the system is near its natural end. And they must be weighing the cost/benefit of each choice they face. For them it comes down to politics and appearances at this point. A cosmetic decision to either support a suicidal activity or to proactively and publicly administer euthanasia.

Just a random snippet from FOA about the thoughts behind the creation of the euro...

"Many political problems confronted any drive towards an EMU. In order to build a consensus for a Pan European currency, the architects had to have time, years of it. The last thing they needed was a world-wide economic downturn brought on by a failing dollar system. Working between 1976 and 1982, the software for such a system was only just beginning to really take shape. It was a slow, hard process because during this period and many years prior, the dollar was already experiencing convulsions. They needed at least another ten years, but without something to make the dollar more acceptable even five years was too long.

Working within a large group of nations required painstaking discussion of all ideas out in the open, so their agenda had to offer something for everyone. In addition, this new currency could not be seen as a competition for dollar use, otherwise the US would most certainly try to split the group.

It's important to understand that most of the world wanted to at least see another currency that could share some of the dollar's function. It didn't have to replace it. To this end, most every country gave some philosophical and political support in its creation."


FOFOA

Jeff said...

Greece doesn't seem to be interested in backing debt with its' gold. So far they are making budget cuts and going along with the austerity measures, as well as trying to sell more bonds. Of course they still want a bailout. No mention of gold, though.

jimmy said...
This comment has been removed by the author.
jimmy said...

museice; yes, good denninger piece.

a jarring juxtaposition between his screamingly appropriate "to do" list and the TOTAL lack of ANY appropriate governmental procedural response along the lines of the (existing regulatory) justice dept/Bill Black/S & L template. the take down is deliberate and permanent this time. Soaring unemployment, foreclosures, bankruptcies etc.

metaphor; fire engine is parked quietly next to a house engulfed by a raging inferno. occupants are screaming for water from the hoses.... camera pans to faces of grimly smiling firemen, empty gasoline cans and matches at their feet.

how long before folks realise that this IS the plan and this baby is going down for good?

you can fulminate and hyperventilate all you want but the collapse will continue to its pre-ordained conclusion.

Museice said...

From jsmineset.com:

"China, the world’s biggest gold producer, isn’t a “realistic candidate” to buy bullion from the International Monetary Fund, the World Gold Council said.

“There has been some ill-informed comment that this move tarnished the notion that governments are adding to reserves,” Milling-Stanley said. “There are a lot of central banks out there that are buying local production in local currency. The IMF would have no interest in that local currency. The IMF is looking for dollars.”

(1) Either gold cannot pass from west to east,
(2) Gold is either not available or available in a form China wants, i.e. paper rather than bullion.
(3) The gold counsil is a mouthpiece for the bullion banks."

greyfox said...

From GATA:

Wednesday, February 24, 2010
http://in.reuters.com/article/domesticNews/idINSGE61N01O20100224
NEW DELHI/MUMBAI, India -- India's central bank, which has increased its gold holdings to diversify its reserves, looks set to be a buyer again when the International Monetary Fund begins selling 191.3 tonnes of the precious metal amid volatility in major currencies.
The uncertain outlook for two of the world's major reserve currencies -- the dollar and euro -- provides a spur for central banks, including India's, to buy gold. India's gold holdings lag those of major economies despite a big purchase in October.

China, with about $1.6 trillion in reserves, is a producer of gold and is unlikely to buy the gold being offered by the IMF, the official China Daily reported on Wednesday.
"It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility," said an unidentified official from the China Gold Association.


Greyfox said:
I think China will continue to buy large amounts of gold through it's domestic production (largest gold producer in the world) as none of it's production goes on world markets as far as anyone knows.
It will also continue to purchase as much gold as possible from world markets as clandestine as possible.
China wishes to keep the price low until it accumaltes many more tons and is able to better diversify it's foreign exchange reserves.

raptor said...

http://dshort.com/articles/2010/federal-debt-rolling-estimates.html
Federal Debt: Rolling Six-Year Forecasts

So the gov. think that all foreigners china, uk,japan et all.. will double or triple their holdings in the next 5y !!!

OR may be they have some secret plan !!hmmm... something comes to mind...
something invented by Gutenberg but on steroids ;) ...

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