Wednesday, March 10, 2010

"The Gold Man" (not Goldman) at the BIS

This Global Financial Crisis is not so much about the dollar as it is about the dollar system, the $IMFS. The dollar system is a system of selling debt as a wealth reserve. This system went global in July of 1944 at a meeting in Bretton Woods, New Hampshire. All 44 Allied nations participated in the meeting that took place a year before the end of the war.

Here is an important Q&A with Another that I used in part in my last post, now presented in its entirety.

5/5/98 ANOTHER (THOUGHTS!)
Mr. Kosares,

A few thoughts for you, as the questions are asked.

Q: ** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **

A: Sir,

I would say, "Old World Order" to return. To understand/explain better: "A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed. Many thinkers of that period thought that the world was about to enter a decades-long depression as it worked to rebuild real assets lost in the conflict. It was this war that so impacted the idea of looking positively toward the future. The past ideals of building solid, enduring, long term wealth were lost in the conception of a whole generation possibly doing without! In these fertile grounds people escaped reality with the New Idea of long term debt, being held as a money asset. Yes, here was born the American Experience that comes to maturity today.

New world order, regionalism and tribalism are but modern phrases that denote "group retreat to avoid paying up". The worldwide currency system is truly a reflection of an economy built from war, using the American Experience, the US$ and the debt that it represents. But, for the American dollar to continue as the representative of the global financial system, in the form of being the reserve currency, maturing generations of all countries must accept it, and the tax on real production it clearly imposes! In the very same mindset that people buy the best value for the lowest price (Japanese cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal. And because we are speaking of currencies here, the transition will be brutal!

As you ponder these thoughts, consider that; all economies today are truly equal in production as the exchange rates are the manufactures of profit!

Q: ** Is Europe (led behind the scenes by the BIS) an opponent to the United States?**

A: Sir, Yes, but not in the ways of war, as it is in the feelings of "pride" and "we go our own way". The downfall of the Russia, did allow for the Euro and all that it will build. They now see the debt of the US$, as a reserve money, can be escaped! As even the US citizen will leave its own workers to die as products are purchased "overseas", how much easier will the world also flee the dollar! Opponents? No, I would say they are learners of the "American Way" as they embrace the "American Idea" of a "free world market economy".

Q: *** If so which countries are in which camp? Your associate seems to feel that Asia is split between the United States which has Japan as an ally, and Europe which has China as an ally (a notion I found particularly intriguing). Where is Britain in this? Japan? And most importantly, the Gulf States, particularly Saudi Arabia? **

A: Sir, I feel he is correct in this thought. Europe does grasp for a relationship with Asia as the US did have with Japan. It would build a mighty economy on a foundation of oil and gold as backing for new money. As China and Arabia were once a part of the Europe economy, in a small way, they may now return with no fear of Russia. Britain? A lost nation. Japan? This one is "of the American Economy" and is to live and die by it! They will seek your Alaska oil before loss of face with gold. A dead Yen be a dead Japan.

Q: **Along these lines, I too believe that currency movements will flow through Europe because the Euro currency will be gold backed. Where does that leave Japan with over $200 billion in dollar reserves, let alone its massive U.S. Treasuries' holding? **

A: Perhaps, they be like Korea? Rich in paper until the world says, "this paper, it is not good"!

Q: ***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***

A: The BIS is the gold broker for all interbank sales/purchases. Bullion Banks are for sales to other entities. I think, at first, China was leverage against the oil producers. Then Arabia was allowed into BIS for Euro.

Q: **One other item you might clarify for me is "Who is really behind BIS?**

A: Perhaps, "who control them"?

Q: **The Swiss?

A: Yes.

Q: **The eurocentral banks?

A: Yes.

Q: **Who does BIS really represent?

A: "old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".

Q: **Why was Saudi Arabia just included in BIS?

A: answered.

Q: **Has Saudi Arabia gone with Europe?

A: Yes.

Sir, there is much more to this, but we talk over time, yes? I will be away for perhaps ten days. We speak again.

Thank You

--------------------------------------------------------------------------------

5/5/98 USAGOLD

Dear ANOTHER, my great respect for you has just deepened further. Have a pleasant ten days and I will consider your words. Yes, we will talk over time. Thank you Mike Kosares

The Catch-22

Here is the big Catch-22. The dollar and the $IMFS are dependent on each other for survival, just like Siamese twins that share vital organs. If one dies, so does the other. But in Gold is Money - Part 2, I showed you that the dollar and its system are also at odds with each other, and that only one can be supported at a time - by sacrificing the other! I explained that without a shadow of a doubt, the dollar is being sacrificed in a futile attempt to save the system...
Saving the System - Not its Value

It was said, many years before Paulson, Bernanke and TARP, that the financial system will be saved at any cost! Apparently this statement has proven to be true. But at what cost?

You see they are now faced with a dilemma they will not discuss publicly. On one side is their product, the conceptual unit of credit account, their currency. And on the other side is their offspring, the financial system, Wall Street. What saves one will kill the other. They can save the present value of their product and kill their offspring through starvation. Or they can save their offspring by delivering what it desperately needs to survive... a constant expansion of credit (aka monetary inflation). But this will, of course, kill the value of their product, the currency.

They can save one or the other, but not both. And it was always known, but has now been proven, that the system will be saved at ANY cost. (Unfortunately for them, they did not think it through far enough to realized that the cost of saving their offspring will also kill it and a whole lot more. But that line of Thought is straying a little too far from the topic of this post.)

In order to survive, the system, the financial industry, Wall Street NEEDS a constantly increasing supply of CREDIT! If the population won't give their own blood to save this dying Frankenstein monster, then the CB's and governments WILL! It is happening now. Right under our noses. For more than a year now!

...The bottom line is that the banking system will be "saved" at the expense of sacrificing the market value of every last credit instrument they have created. Anyone and everyone with their savings inside the system will take a serious purchasing power haircut. The only people that will enjoy the full value of their wealth (and more) are the ones who hold it outside of the imploding system. Inside the system, credit of any color, green OR yellow, is only credit.

Perhaps now you can see that "the dollar" clearly represents the transactional function of money, a role in which the specific value of a dollar does not matter. And the $IMFS represents the wealth reserve or store of value function of money. In the dollar's case these two functions are, at the very same time, co-dependent for survival yet they must kill each other through sacrificial abandonment.

Please read the very end of my post Say Goodbye to Wall Street understanding that Wall Street IS the $IMFS...

You see, the Siamese twins, credit and equity, have finally been separated. Gold has been demonetized! It is now a world class wealth asset. A tradable wealth asset. A portable wealth asset. A durable wealth asset. Money, which has been deemed by society to be fiat currency only, no longer needs to carry the heavy burden of ALSO being a store of value. No longer must we raise entire industries that suck in generations of our best and brightest talent for the sole purpose of designing paper wealth derivative products in a vain attempt to make money be a store of value. No longer. Say goodbye to Wall Street.

The $IMFS

The US Dollar International Monetary and Financial System is represented in visible form by the big Wall Street banks. These banks control the Fed, the money distribution system, and the debt, the "wealth reserve" distribution system. And the global expanse of the this system can be viewed most easily by simply looking at their websites.

Here is the list of countries where the Goldman Sachs parasite has attached itself as found on goldmansachs.com > Careers > Locations:

The Americas:
Argentina
Brazil
Canada
Mexico
United States

Europe, Middle East, and Africa:
France
Germany
Ireland
Israel
Italy
Russia
South Africa
Spain
Sweden
Switzerland
United Arab Emirates
United Kingdom

Asia:
Australia & New Zealand
China
India
Japan
Korea
Hong Kong
Singapore
Taiwan
Thailand

And here is Morgan Stanley's list from morganstanley.com > Global Offices. And yes, there are a few differences like Greece, Hungary, Netherlands, Saudi Arabia and Russia:

Argentina
Australia
Brazil
Canada
China
France
Germany
Greece
Hong Kong
Hungary
India
Ireland
Israel
Italy
Japan
Mexico
Netherlands
Russia
Saudi Arabia
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
United Arab Emirates
United Kingdom
United States

As I explained in an answer to a question in a recent comment, there are two things I am watching for right now. The first is any sign that the non-dollar factions are starting to abandon the $IMFS, and the second is the emerging favorability of gold as the reserve of choice to replace the dollar.

Here is my comment:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed."

What is the problem with Greece and the other so-called PIIGS? Is it profligate public spending/financing, the credit that enabled it, the system that helped hide it, and the mountain of unserviceable debt that resulted?

The difference between the $IMFS and Freegold is that the former encourages and enables the above while the latter never lets it get this far along so as to become a systemic risk. It's called 'balance as you go', as opposed to enabling the growth of an imbalance so large that it finally collapses back into balance.

I cannot give you the blow by blow that you ask for, but I can still show you what must happen. And it is helpful in this regard to work backward from the future until we come to two choices that will both result in the same end.

First is that we are facing a systemic shift from the $IMFS to Freegold. Don't forget that the actual value of an individual transactional currency unit (even a euro) doesn't really matter in the context of its primary function. So even though one currency is built for the new, emergent system, I would still not want to be holding that currency through the transition.

Second is that Greece's debt cannot be paid back in real terms, and neither can the aggregate planetary debt. It doesn't really matter if it is not paid back through default (bankruptcy) or through devaluation of the currency... it will not be paid back in real terms. But devaluation of the currency is certainly the more politically acceptable route.

Third is that all this planetary debt (including Greece's) is a function of the $IMFS. The eurosystem, even though it was built to thrive under Freegold, is still supporting the $IMFS. The action to look for is the passive action of withdrawal of support.

The way the $IMFS works is that, at the very end, it either bails you out or kills you dead, depending on who your friends are. Freegold spanks you along the way with a little pain here and there until you get your finances back in order.

I expect Greece and the PIIGS to get spanked hard at the beginning of the new system. I do not expect Greece to leave the euro, but it will certainly have to get its public finances in order.

You see, the shift is going to be swift and it will reveal a change in perception that is almost impossible to imagine right now. Physical gold is going to rise so high, so fast that it will become known as the most prized treasure a collective state can hold. And immediately upon this recognition Greece will have to either part with or encumber its most prized "monetary" treasure while it restructures its newly devalued debt and its economy.

No longer will unlimited Ponzi finance be an option for ANYONE'S financial difficulties. But at the same time, the worst of the financial predicaments will have been significantly devalued, as they were bad bets by creditors from the start.

This is why it is so important to understand the implications of Freegold now, because the cascade of events once "the plug is pulled" will be mind-numbing. The ability to understand events as they unfold will be quite rare (and quite valuable) as we are in uncharted waters.

And now here are a couple examples of the kinds of stories I am watching for.

Europe Begins Abandonment of the $IMFS

Europe bars Wall Street banks from government bond sales
Guardian UK
Monday 8 March 2010 21.36 GMT

"Governments do not have the confidence that the excessive risk-taking culture of the big Wall Street banks has changed and they still cannot be trusted to put the stability of the financial system before profit," said Arlene McCarthy, vice chair of the European parliament's economic and monetary affairs committee. "It is no surprise therefore that governments are reluctant to do business with banks that have failed to learn the lesson of the crisis. The banks need to acknowledge the mistakes that were made and behave in an ethical way to regain the trust and confidence of governments."

And from Jesse yesterday:

Wall Street Excluded from European Government Bond Sales

The Ugly American is a novel that was published in 1958, and was later made into a movie starring Marlon Brando. It tells the story how America was losing the hearts and minds of the people in Asia after its heroic performance in the Second World War by the predatory business practices and exploitation of US multinationals. The book was a bit of a scandal, coming on the heels of Nixon's visit to South America where he was spat upon by angry mobs.

At the time people talked about the way in which US corporations were alienating the developing world (we called it 'third world' then), and how it would create a generation of political difficulties for the US around the world. This was an initial wake up call to the American public, which was lost and forgotten in the fervor of the Go-Go Sixties. What was good for General Bullmoose was good for the USA. Or so we all thought.

Regrettably, once again US corporations, the Wall Street banks, are busy alienating the world against America's interests through their unethical and shockingly predatory business practices. It will be interesting if Asia and South America pick up this theme of banning the Wall Street banks on ethical considerations from doing certain types of business in their regions...

"The Gold Man"

BIS Board elects Christian Noyer as new Chairman
8 March 2010

The Board of Directors of the Bank for International Settlements (BIS) elected as its new Chairman, Christian Noyer, Governor of the Bank of France. His term is for a period of three years, commencing on 7 March 2010.

Mr Noyer succeeds Guillermo Ortiz, Governor of the Bank of Mexico, who served as Chairman of the Board until the end of December 2009, when he left his post as central bank Governor.

Members of the Board of Directors expressed their sincere gratitude to Mr Ortiz for his excellent services to the Bank.

FLASHBACK: JANUARY 1999 - ONE OF THE FIRST ECB PRESS CONFERENCES

ECB: ECB Press conference: Introductory statement

Transcript of the questions asked and the answers given by Dr. Willem F. Duisenberg, President of the ECB, and Christian Noyer, Vice-President of the ECB

Question: I'd just like to talk to you about gold reserves. The ECB said it will readjust the value of its gold reserves on its books each quarter, and I think it is also decided to keep about 15% of its exchange reserves in gold. If there was a major change in the price of gold on the world market, that percentage would be likely to change, and so I would like to ask you if that means that the ECB would buy or sell gold in order to keep its proportion of reserves at that amount of percent.

Wim Duisenberg: Christian, you're the gold man!

Christian Noyer: No, there is no such conclusion to draw, because it was not a decision to hold 15% of foreign exchange reserves in gold, as a structural decision of the Governing Council. The decision of the Governing Council at the time was that in the initial transfer 15% would be made of gold, but that has no consequence on the structure of foreign exchange reserve to develop in the future, nor has it any consequence on the total percentage of gold holdings of the system, including the reserves that are still in the balance sheet of national central banks, and we know that in some cases they have more than 15% gold, and in some cases they have less, but they are for the moment and for the foreseeable future keeping the proportion they have.

Duisenberg: And in this case, the foreseeable future is much longer than in the earlier case

A Final Thought

I'll end with this latest poignant piece from Bill Holter:

U.S. States and Sovereigns

To all; the talk has recently been all about Greece and the PIIGS because that's where the media has steered attention. Of course Moodys downgraded Greece and the media went on its "the Euro is dead" frenzy at a most opportune time as the Dollar was looking very sickly on the charts at the time. Divert attention in other words.

Attention was diverted from several (many) US states that were and still are walking financial zombies. California, New Jersey, Illinois etc. are running deficits and debt levels similar to and in some cases far worse than Greece in percentage terms. What is truly humorous is even with retarded budget projections the numbers aren't working. How many states have "proposed" budgets that have turned out to be pie in the sky dreams after only 6 months? The tax revenue projections that have and are being used by many states are so far out of whack that the ink doesn't even get a chance to dry before a 3rd grader puts a pencil to the projections and figures out they are wrong!

This goes for many big cities, counties, and municipalities. The point is...EVERYTHING is broke! The only thing not broke is the stock market but that's only because of the PPT support and rigging. Unemployment insurance is being extended further and further into the future while tax revenues decline. Much of the so called "employment" has been in the public sector that will obviously weigh further on all government budgets. It is not sustainable in any way even if the credit markets don't seize up.

Anyone who doesn't believe we have a stock market crash and train wreck directly ahead must believe we have a hyperinflationary event coming immediately or they can't do math. You cannot have sovereign governments, US states, cities etc. (and federal government) on the verge of bankruptcy and stocks not panic and stay at these levels. In my opinion the only justification for "Dow 10,000" is the probability (guarantee) of hyperinflation, period!

There is no recovery in real estate, employment, main street or anywhere else except for Wall Street because of the $ trillions pumped in and running through its veins. About once every 10 days or so we hear about the Fed raising rates and withdrawing stimulus. This cannot happen without an immediate fatal heart attack to Wall Street and Main Street taking a final body blow. It is now and has been for years, "inflate or die". The Fed is having a difficult time "reinflating" with their foot through the floor boards on the accelerator, taking their foot off the gas (not to mention tapping the break) is entirely out of the question and nothing more than poor humor..

It is now only a matter of time before investors get spooked by the fear of sovereign defaults spreading like a disease. The day is not far off where ALL paper gets shunned and real money gets bids that swamp actual supply. Once the thought process turns to "there's no place to hide", the amount of fake capital trying to enter metal and the ridiculously small Gold stock arena will bid these assets to never before dreamed of values. When there is no place to hide "within" the system, capital will move outside the system.

The problem is very simple indeed. This week alone the U.S. Treasury is borrowing 1 1/2 times the entire annual global production of Gold. And how much have they borrowed the week before that and the week before that...? The math is impossible and the lifeboat far too small to accommodate anyone even 1 second too late! What could "never happen" 2 or 3 years ago has already happened and then some. Now we wait for sovereigns, U.S. states and cities, even the U.S. Treasury to default...........or hyperinflate. It is only a matter of time now and no longer a question of if! Regards, Bill H.


Sincerely,
FOFOA

Thanks go out to HK, GI and Muse for elements of this post.

96 comments:

Tyrone said...

FOFOA, reveal thyself!!!

Thanks for the article, and Cheers!

GG said...

HALLELUJAH! Let Rome burn. Let the system die. Can't wait for it! The day it all implodes on itself will be THE HAPPIEST day of my life.

capt goodvibes said...

Gold Man indeed.

From a recent Bullion Vault article about Russias' Nov 09 sale of gold to itself -

"In three gold-holding countries, politicians have tried to rule their central bankers and press for national gold to be sold. One governor of the Banque de France, Christian Noyer, likened it to "selling the family jewels". When the German government felt that gold in the Bundesbank should be sold, there was a public debate that cost the job of the Bundesbank president. He was replaced by Axel Weber, the present incumbent, who also did not want the gold to be sold."

Seems the right people are in place; the nuclear option is perhaps only a matter of time....

costata said...

FOFOA,

I liked the Gold Man touch. Also interesting anecdote on Noyer from capt goodvibes. Thank you both.

FOFOA said...

Fixed the link to the ECB press conference. Notice that exclamation point came from the ECB transcript, even though it might look like something I added.

Duisenberg: Christian, you're the gold man! <--

capt goodvibes said...

And isn't Axel Weber considered frontunner to succeed Trichet as ECB President next year?

Martijn said...

HALLELUJAH! Let Rome burn. Let the system die. Can't wait for it! The day it all implodes on itself will be THE HAPPIEST day of my life.

Hehe.

I can understand the sentiment. On a more serious note it would off course be a better option to create your own hapiness in life, in stead of depending on external circumstances. Self reliance in that sense might be considered somewhat equal to owning gold in the financial world...

Martijn said...

Unfortunately for them, they did not think it through far enough to realized that the cost of saving their offspring will also kill it and a whole lot more.

While it may be true I find these types of claims rather unfunded when one has no insight in "their" total books.

Perhaps there is a plan B. I find it rather difficult to believe that a couple of bloggers (however good they may be) are able to think that much further then an institution that has been professionally focusing on the topic for many years.

Martijn said...

The bottom line is that the banking system will be "saved" at the expense of sacrificing the market value of every last credit instrument they have created.

Correct me if I'm wrong, but if the dollar is a credit instrument and so are MBSs, how can they try to save one by printing the other and at the same time sacrifice both?

Martijn said...

Economic Warfare? Europe versus Wall Street

idi said...

FOFOA; excellent post. exclusion of wall street from european bond sales deeply ominous.

bill holter's clear eyed assessment is jarring.

here is the latest from the always extraordinarily prescient jim willie (www.goldenjackass.com an absolute must subscription IMHO);

http://www.24hgold.com/english/news-gold-silver-distress-signals-on-crisis-watch.aspx?article=2725483282G10020&redirect=false&contributor=Jim+Willie+CB

Kewl said...

Here is also nice article from ZeroHedege. It even has link to this blog.

It's Going To Implode: Buy Physical Gold - NOW

No King But God said...

"I find it rather difficult to believe that a couple of bloggers (however good they may be) are able to think that much further then an institution that has been professionally focusing on the topic for many years."

Martijn, you may be right, but I think that those who have spent any length of time either involved with or studying large, “establishment-type” organizations with a history of success, can attest to their sometimes maddening tendency to be blind to absolutely critical dangers. This is especially true if such organizations are used to operating with the force of law! If something either falls outside of their established paradigm, or goes against one of their fundamental assumptions, then in their mind it simply does not exist or cannot happen!

For example, from the article I linked to yesterday, Public Pension Funds Are ‘Going to Vegas’ - States, government bodies are increasing investment risk to raise returns:

"Government pension plans cannot beef up their bonds that mature many, many years from now without dashing their business models. They use long-range estimates that presume high investment returns will cover most of the cost of the benefits they must pay. And that, they say, allows them to make smaller contributions along the way.
....
A growing number of experts say that governments need to lower the assumptions they make about rates of return, to reflect today’s market conditions.
But plan officials say they cannot.
'Nobody wants to adjust the rate, because liabilities would explode,' said Trent May, chief investment officer of Wyoming’s state pension fund."

These organizations, when confronted with a reality that says change your fundamental assumptions or die, choose to ignore that reality! In effect, they are choosing to die! They are closing their eyes and hoping the printing press will bail them out.

Now, I will admit that when we are dealing with the Fed Reserve, the Treasury, and the IMF, we are dealing with a whole different caliber of player. I think it was Another or FOA who noted that these guys were not dumb, in fact they were the best and the brightest. So is it possible that they know what’s coming and have a plan B? Yes, but if so, then I think that plan B likely just involves delaying the inevitable, saving their personal wealth, and then doing their best to make it look like they were the victims of “speculators” of some sort.

IMHO, all the signs I have seen point to what FOFOA and others are predicting – the US and IMF will not change, because they lack the political vision and/or will to do it! So the hard decisions will be made for them by the super-producers, FOFOA’s Supreme Court of Judgment of Value .

S said...

No King But God said...

+10

I think the US/IMF can't change (instead of will not) as they know that any pivot would expose a bluff with catastrophic implications geopolitically/strategically. The US HAS to project strategic power to keep the capital hole filled - but that trend is slowing iobviously and hence you have comments like China coming out saying they support Treasuries. As they say, when you have to say it...(geithner and strong dolalr comes to mind)

Consider this article from the Atimes. Then look at what Japan is saying in Okinawa (or the tussling in the South China Sea re Us Navy and China/ or the Sub collision down by Australia last year. Perhaps this is natural rising/balanceing etc. time will tell.
http://www.atimes.com/atimes/China/LC11Ad01.html

Never to be outdone The mad man from iran: "Iranian President Ahmadinejad warned Gulf countries against the US presence in the region, saying Washington aimed to dominate their energy resources in the name of fighting terrorism"

As for the best and the brightest well virtually all of them lost hordes of money in 2007/8 - the only winners were those smart enough to bet AGAINST the complex. Don;t discount those outside the complex who are of equal caliber/repute. What kept the B&B afloat was the unsaid cooperation (tition) heretofore. But as the margin benefits fade from the wage labor arb and those emerging ecolonies look to trade up the zero sum nature of the "system" reveals itself. And those multinationals find themselves with nowhere to hide and consequently cutting their only real margin cost left: labor.

costata said...

No King But God,

+10

Martijn,

"Correct me if I'm wrong, but if the dollar is a credit instrument and so are MBSs, how can they try to save one by printing the other and at the same time sacrifice both?"

You just answered your own question. The process of attempting to "save one" by "printing the other" destroys both. The debt is notionally repaid in nominal terms only but at some point the purchasing power of the debt based paper used in "settlement" collapses (burns?). To make matters worse the paper/fiat currency is itself a debt. In other words NO settlement of the debt takes place. The debt is merely shifted.

Look at the process occurring in these bailouts of the banksters. The objective of this game is NOT to "pay down" anyone's debt. The aim is to transfer responsibility for the debt to another party. Ultimately to the State. The presumption is that the State's ability to repay from the future productivity of its citizens and the ecosystem will allow the debt to be repaid at some point. This fantasy ignores the fact that this future "income stream" has already been mortgaged to the hilt. There is no excess production capacity or "free" ecosystem services to pledge against the additional debt.

Unfortunately in a debt based monetary and economic system no wealth is retained by attempting to store value in debt based paper. The exponential function eventually kills the system through compounding interest. This is equally true for an ecosystem. The mathematics is knowable but NOT refutable.

The key issue that the various factions of the Giants, the Politicians and the other PTB are fighting over is who is left holding the bag?. This is now the WRONG question. It was the RIGHT question for a planet with untapped resources and small human populations who could be colonised, or parasitised if you prefer that characterisation.

When all of the impossible solutions have been fully tested IMHO they will settle on the only viable one left that leaves them with a semblance of the old system. Fiat currencies used purely for transactions and a hierarchy of tangible stores of value with gold at the pinnacle of this hierarchy.

The journey along this path of failure after failure in attempts to maintain the status quo MAY destroy so much of the fabric of society and the system of production that the survivors have to reacquaint themselves with hunting and gathering.

FWIW I remain hopeful that the Giants sponsoring the Euro/Freegold project will take one of FOFOA's "nuclear" economic options before we get to the point of no return. This hope is based on the fact that the Lisbon Treaty has given birth to an appointed EU "federal" Govt (fascist dictatorship?) that can make a trilateral (EU Govt + BIS + ECB) decision to push the button.

Aleksandar said...

If the decision to ban $IMFS banks from financing European debts is true in the form as it is given in the articles above, I must say it is upping the ante quite a bit. This closes an avenue of $ growth.

There is already some EU-US bickering going on about "speculators" on souverign debt and all kinds of investigations in "illegal" activity. Add to that the Swiss situation and we are getting back to the high-tension 70s.

Martijn said...

@No king but god

I agree that organisations of any kind have been proven to be blind to certain risks in the past. I deem it however higly unlikely that they have not seen that their system would eventually default by design as so many have pointed out already. While I agree that it is in their very best interest to delay as far as possible, they are quite likely to have a plan B, as you already indicated yourself.

@Costata

The process of attempting to "save one" by "printing the other" destroys both.
Agreed as well; they know they are buying time. Btw I misread that sentence. They are destroying the market value of all paper indeed to save the banking system, just as FOFOA said.

As for the plan B: I do believe the speculation of bank holidays and the like to hold some water. Just as we are buying yellow stuff they seem to be taking some precautions as well.

Mike said...

the bis doesn't even calculate financial statements in dollar terms, it uses SDR's.

http://www.bis.org/publ/arpdf/ar2009e8.pdf

lots of mention about gold assets in this document also.

Paul said...

Geithner warns of rift over regulation

March 10 Financial Times

Tim Geithner, US Treasury secretary, has delivered a blunt warning to the European Commission that its plans to regulate the hedge fund and private equity industries could cause a transatlantic rift by discriminating against US groups.

A letter sent by Mr Geithner this month to Michel Barnier, Europe’s internal market commissioner, makes it clear that the European Union is heading for a clash with Washington if it pushes ahead with what the US – and Britain – fear could be a protectionist l

costata said...

Paul,

I think this nascent "rift" is the next big test of the Euro Freegold project sponsors after Greece. If they hold firm I think we can anticipate a rapid escalation of the events predicted by A/FOA and in FOFOA's extrapolations.

Fasten your seatbelts.

Martijn,

I think you may be mistaken about the existence of a Plan B in some of these large corporations and bureaucracies. Groupthink and "toeing the party line" tend to be very pervasive in large organisations.

IMO the Giant's control is more likely to be through small, close knit groups such as the Capital Group Companies. This group controls over US$1 trillion in assets managed though 22 offices with only 8,000 "associates".

http://www.capgroup.com/

An overview of one attempt to identify the global influence in markets by the Giants.

World's Stocks Controlled by Select Few
by Lauren Schenkman

http://www.globalresearch.ca/index.php?context=va&aid=14934

John said...

@ costata,

Small groups like the European CB heads that meet once a month?

Small groups like the ex-Goldman CEOs that have each other on speed dial?

costata said...

John,

Agreed and following a similar principal within some relatively large organisations the true insiders may be only a small group. In the BIS the innermost circle of their hierarchy is a small group. The outermost circle includes all of their member's representatives. It appears to be large and inclusive but this outer circle has no power.

Also as John Perkins described in "Confessions Of An Economic Hitman" only he and (if memory serves me) one Director in the company knew the real agenda. Every other staff member was oblivious. Just doing the job they were paid to do.

Cheers

costata said...

FOFOA,

Recalling your response to a comment recently on reports of falling PM demand expressed in tonnage. I came across this today.

"Gold Demand: Not What You Think"
http://www.kitco.com/ind/Crigger/mar092010.html

"Gold demand has never been higher. Or has it?

Last month, the World Gold Council released its annual supply and demand report on the yellow metal, and it revealed more than a few surprises.

2009: A Down Year for Demand
In reality, total gold demand actually fell in 2009, down 11% year-over-year. But due to the higher average price per ounce in 2009, the dollar value of gold demand remained roughly the same."

Take a bow.

Mike said...

i was thinking more about FOFOA's freegold philosophy and thought of the following if it happens to be true.

1. US banks are short gold stocks. When the gold revaluation occurs, no stocks will be public companies, governments will take over operations because of gold's new status. therefore being short gold stocks is a win for them just like going long would be a loss for average investors. Another advocates no paper gold.

2. US banks are short the US$. If freegold turns to be true, this will also be a winning trade for the banks as the dollar will have no where to go but down in value to other currencies. Goldman Sachs told clients recently to go long euro as zerohedge reported.

3. banks (hsbc, jpm etc) are on the short end of the comex/lbma contracts. again if freegold does work out this will be another win for them. they supply the paper, the exchange busts and they pay them in dollars for whatever it is worth. ya some people might go to jail but what do they care. whatever they need to do to control the system again.

i think the bb supplying the paper only prolongs this game from ending. remember another said that the increase supply of paper for a commodity exchange is bullish to investors. the reverse (decrease) is true on the physical side of the trade. so as long as they have all the chimps playing their game, i am sure they can keep the fiat/debt game going, and that's whats happened all these years.

when investors start to realize that there are physical shortages and they can't get their gold that their long contracts state, thats when they stop playing the game. so no more of these supposed 25% premiums to take cash instead of gold.
imo the faster we start to see OI drop, the faster we know we are closer to the end. i think most people might disagree with this but the OI has been increasing heavily since Another started posting.

so that being said, the biggest banks all have access to gold either through the cb's or through bb which would go through the miners if needed as the US gov will end up doing with their IOU's if fort knox is empty.
the cb's control the gold supply so no worries there.
the wealthy all have gold so dont worry about them, they are wealthy because they are liars and they will be the first to tell you they have the gold if the revaluation takes place.

who loses? everyone else holding non physical gold as fofoa says.

what triggers this? revaluation i think only occurs when the system is most at risk through the destruction of fiat/debt.
perhaps a 2nd wave down in the stock market from bad earnings, maybe china appreciating their currency creates a negative affect to the global economy.
will the gold/silver commodity shortage break it?
not much talk lately about food supplies, maybe the exchange of a particular agriculture commodity breaks it even.

another said the following

There are only two threats to the world fiat currency system at present. The oil states could stop buying US$ for oil and drop all paper gold for real bullion. Or, the masses could buy up all the physical supplies thereby breaking the OIL/GOLD/US$ bond.

what happens if we start to see the gold commodity price rise against oil like in 3rd-4th quarter of 2008? wasn't that when there were physical shortages of gold? if gold was playing the money role for a brief moment then looking at the chart (peaked at a ratio of 26 to 1 from 7 to 1 in the 2nd quarter 2008), it really seemed that there was a gold shortage as big oil couldn't get their hands on gold during those times even though the price of oil was falling through the floor. currently the ratio is at 14 to 1 which i think is historical avg.

Understand that oil is still traded for a certain number of US$ but after the deal is done a certain amount of gold is also purchased "with the future flow of oil as collateral". If the world price of gold gets to high then the oil price is falling. So long as gold stays cheap in currency terms oil will be in good supply.

Mike said...

costa
does gold not have 2 prices? the commodity value price we see at $1100 and the money value behind the scenes that is only priced for oil and has much greater value in the eyes of those CB's.

As Another/Fofoa says the gold commodity exchanges in the end will seize to exist, this is the reason probably for gold jewlerry melting to add further supply as CB's are no longer providing that. And now that you have the largest gold producing country China taking away roughly 12% and storing it for there own reserves it makes it that much harder to gather gold as a commodity compared to previous years.

how do we know that demand is down when perhaps just supply isn't there.

demand is always shown by wgc as to what the supply was.
if they supplied 2x the amount we seen through say a surge in jewelery melting then would demand not show up there with the new supply numbers. they never show the actual demand, just the actual supply of whatever they can provide.

i could be wrong on all this as i don't pay much attention to what the gold commodity compared to what the cb's are doing.

Ishkabibble said...

Mike et al,

I think you might want to add a few of these observations into your theory. The picture you present looks quite different from this perspective.

http://neithercorp.us/npress/?p=268

The article has been the topic of quite the discussion on GIM if you're interested.

http://www.goldismoney.info/forums/showthread.php?t=454994

Mike said...

without reading it yet..i think this goes more into the whole deflation vs inflation argument, of course the freegold thinking is more inflation because of the revaluation but deflation for gold vs everything else.

one thing i have learned all these years with economics is no one really ever agree's with anyone, there are a million theoretical reasons as to what the future of the markets hold and when someone gets it for a brief period they think they have figured it out what no one in 2000 years has figured.

that is why the markets have booms and busts, shorts and longs, some believe in communism some believe in capitalism, some believe in keynesian some belive in austrian. no one knows the best system as no system has proved to be better then the other.

i don't know what the answer is, no one will ever know. frankly the answer isn't supposed to be easy. i think thats what keeps everyone interested. we hear some good points from 1 guy, other good points from another guy and then try to figure out which one makes the most sense or tie them in, its a losing battle.

i gave observations to the freegold theory only but i prefer this to happen then a deflationary collapse.

Mike said...

would this be freegold? is the BIS behind this?

(AFX UK Focus) 2010-03-13 12:47
Germany considers c.bank gold reserves for EMF-paper

http://www.iii.co.uk/shares/?type=news&articleid=7791115&subject=economic&action=article

BERLIN, March 13 (Reuters) - Germany is considering the possibility of euro zone countries using their central banks' gold reserves to back a European Monetary Fund, German magazine Focus reported on Saturday.
The German Finance Ministry declined to comment on the report by Focus, which did not specify its sources.
"A proposal from the finance ministry suggests pooling the gold reserves of the former central banks of euro zone countries in a stabilisation fund," Focus wrote.
According to Focus, Greece still has around 112 tonnes of gold, while the German Bundesbank has 3,407 tonnes with a market value of around 90 billion euros.
German Finance Minister Wolfgang Schaeuble on Friday repeated his call for a fund which could, as a last resort, offer help to euro zone states facing bankruptcy.
Greece is battling a debt crisis and EU policymakers have been debating ways of providing support for it and other troubled euro zone members. (Reporting by Stefanie Huber, Writing by Sarah Marsh; editing by Patrick Graham) Keywords: GERMANY EMF/GOLD

John said...

My thanks to FOFOA and other dedicated contributors to this thread which continues to illuminate
and educate in the dangerous financial times....as a longtime lurker and former asset manager I appreciate this creative and refreshingly independent point of view. I can tell you that among many seasoned and well known investment professionals I call personal friends, the levels of ignorance of matters that relate to the nature and genesis of money
is truly shocking and disappointing. Very few see the potential for momentous and damaging change. They stand on a bed of quicksand that they assume is a rock solid foundation on which they ply their trade of picking stocks and bonds within an edifice so riddled with termites that there will be little even of the detritus left behind when it all comes crashing down. Signals that the Europeans have begun a defensive assault against the dollar and US derivative banksters indeed look to be rather ominous.

Shanti said...

An EMF with gold reserves, that sounds like "deployment of nuclear weapons of gold"....

Mike said...

In "of Currency Wars" it is quoted as ... Since it (Greece) cannot devalue or exit, something else has to give.

sounds like the EMF has a plan to use those nuclear weapons of gold but will it be right away or will it be when the other PII*S are in worse problems then they face now (as a last resort).

its also funny how CDS traders in the US which are paid for in euro's in case of a USD collapse want to be paid in gold instead of euro's.
Is the BIS behind this also.
what do they know about the future of the dollar. then the same week S&P says US could loose AAA.

idi said...
This comment has been removed by the author.
Museice said...

From Harvey's Organ:

"The report is from the federal reserve government releases and it shows the flow of funds in the 4th quarter.

I checked the government data and sure enough on page 24, line 14 the usa sold 190.7 billion dollars of gold (SDR's translated into real oz). At 1000 dollars per oz that translates into 5937 tonnes of gold.

The previous quarter on the flow of funds reports showed no gold activity. Looks like the usa is trying to paper over their sale of 6000 metric tonnes of gold.

The usa has 8133 tonnes of gold so 73% of the usa gold reserves have been liquidated.

The problem here is that the gold belongs to its citizens and not government. The government needs congressional approval to sell the gold.

Trouble ahead on this front!"

This seems fairly important. I remember reading somewhere that the US couldn't sell gold (whether there is gold in Fort Knox is not the question). It is because Nixon reneged on our gold promises to other Nations so future gold sales were out of the question because the gold was already owed. If this story is true (and I have no reason not to believe it) something extremely dangerous for the Dollar is in the works. Why sell US gold? The money generated from the sale is laughable compared to billions tossed to banks. It sounds like someone (take your picks from the big players) just acquired physical gold. A large chunk of gold. Perhaps one of the last available large chunks. Why? Why does a Big Player want what could be considered the last of The United States Gold?

Museice said...

Mike:

From- Economy Kept On Life Support While Global Governance Is Organized

There were many points made in the article but I believe the main one is:

"The illusion of U.S. recovery seems to be paramount in the plan for Globalist centralization. Every scam imaginable has been fashioned to lure the public into a sense of false comfort. In my original observations on the economic collapse, I believed that we would likely see a “trigger” event in 2010, which would set off a “rolling breakdown” that would not fully climax for a few years. Now, I am not so sure. After examining the facts behind the implementation of SDRs as well as the potentially explosive situation in the treasury market, I believe that a “shock and awe” scenario is becoming more probable. The behavior of the Fed, along with that of the IMF seems to suggest that they are preparing for a focused collapse, peaking within weeks or months instead of years, and the most certain fall of the dollar.

As I think of it now, the advantages of a sudden financial flash flood are numerous. In a drawn out collapse, the Liberty Movement is given a tremendous time advantage, allowing us to double and redouble our membership while the public opinion of the Federal Reserve and the government in general would deteriorate. In a sudden breakdown, our time will be cut short, and the public will be distracted and fearful, desperate for an organized authority to offer any semblance of “order.” A slow collapse allows for the Liberty Movement to work peacefully within the system to build a third party capable of dethroning the current two party farce. A sudden collapse erases all political activity and opens the door to martial law and illegitimate government. And finally, a fast moving meltdown leaves a much stronger psychological impression; a catastrophic waking nightmare, instead of a slow grinding depression. A world government could never be brought about due to the “monotony” of a long slow economic burnout. Too many factors could present themselves in such an extended period that might interfere with the desired end result. Too many variables to calculate. In an abrupt collapse, the Globalists would need only to gage and influence the amount of fear in the populace to a sufficient boiling point then leap in with their intended solution to the problem; centralized global governance.

I feel that in either method, the Central Bankers will fail to reach their ultimate goal, but the prospect of a direct monetary break with limited warning does make the atmosphere much heavier. One can only prepare as much as possible mentally and emotionally, and keep his eyes wide open…"

Add this to my previous post concerning the US selling gold and it begins to sound like the clock is ticking faster and faster.

SatyaPranava said...

museice...i was planning on reading HO later tonight....you just ruined the ending of the movie!!

now i can't even think straight to be critical at the moment...i'm wanting to see some documentation on this. if true is this not an absolute monstrosity of a story?

i'm curiosu to hear what your various thoughts are on the a) the veracity of the story, and b) assuming true, it's short and medium-term implications (i believe we're all in agreement what the long-term implications are). And, please feel free to speak about things other than gold.

satya

FOFOA said...

A must-read:
Jean-Claude Trichet speaking in California yesterday

Mike said...

Museice
no doubt that the 3 points i said about banks winning on the gold stock shorts, shorting the dollar and shorting gold physical contract will be paid out in US$.

when we think about it in the big picture of things, they won't win compared to gold but someone has to win in those trades and it wont be joe6pack. the way i see it is i think sometimes we see the actions of banks and governments and say man these guys are gonna loose and have no way out.
GS, JPM will not loose, the big guys calling the shots there have it all covered and i am sure they are well protected better then we will ever be. how stupid do we think these people are. even jim sinclair says the same about these people lately. they will run to their gold when the shit burns down. what else is there.

lets get this party started, its been too long. too much talk not enough action. too many theories out there and none of them are coming true.

who knows what will happen, i think if you are in 50% cash (hopefully some of it in physical cash) and 50% gold, i think you have a better shot of winning no matter what financial scenario occurs at least in the short - mid term.

costata said...

Folks,

Re: The Fed Reserve Q3 release

"I checked the government data and sure enough on page 24, line 14 the usa sold 190.7 billion dollars of gold (SDR's translated into real oz). At 1000 dollars per oz that translates into 5937 tonnes of gold."

I would be careful about jumping to conclusions. A/FOA talked often about how opaque the BIS and CBs dealings were.

FWIW I think Rob Kirby is a good, honest analyst but remember his sensational speculations a while back about a report of large increases in US exports of "gold compounds". That was supposed to be USG gold as well.

http://www.financialsense.com/fsu/editorials/kirby/2009/0529.html

costata said...

FOFOA,

Thank you for the link to the transcript of the Trichet speech. I agree it is a must read.

I note he was careful to make no mention of the role of the banks in causing the crisis. To be expected I guess.

SatyaPranava said...

can on e of you provide a link to the Fed report please? thanks in advance.

satya

SatyaPranava said...

NM, here's the

Fed Flow of Funds Report

FOFOA said...

In Sept. 2008 the only true remedy to the crisis was total failure of the $IMFS. In other words, total failure of a completely insolvent Wall Street. But since Wall Street had controlling interests in Congress, the executive branch and in the Fed, this was not an option. So, just like FOA told us 10 years ago, we got "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!"

This was the only possible outcome. FOA and ANOTHER knew it a decade ago. I bring it to you today (at least to those of you who have not been following A/FOA for the past 12 years).

Failure is still not an option today. Do not look for voluntary austerity. Do not look for bankruptcy at high levels. Look for QE to infinity as Jim Sinclair says. The mountain of debt is so astronomical today that the optimism propagated by MOPE and CNBC is no more than pissing into the wind.

To Belgian... ;)

Desperado said...

In this Jim Sinclair on King News part II (See part I here) at about 8:30 Sinclair discusses how he thinks it is inevitable that a world currency will be pegged to a free market gold price in proportion to each countries gold reserve, but that this currency won't be exchangeable for gold. He says this would allow the world would use this as a stabilizer and guarantee of stability in liquidity.

This would not be freegold, but it does seem reasonable that after the crash of all these fiat currencies will required some kind of one world currency. I think this scenario is plausible.

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

Interesting development:

Germany considers c.bank gold reserves for EMF-paper

http://af.reuters.com/article/metalsNews/idAFLDE62C05A20100313

If true, and it is interesting that the German Finance Ministry declined to comment, does this represent a reactionary policy, or one that was in the works already?

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

@desperado,

You state “This would not be freegold,…”. I would highly recommend listening a second time. What Jim outlines is very much in line with what FOFOA has talked about here since the beginning.

Remember, the role of the currency is for trading in the economy. Stability of a currency will come from its function in that economy. Gold is a wealth reserve and it will function as such.

FOFOA, your energy and longevity are to be commended; great series of articles. Keep up the good work. Every person that you can give confidence too regarding holding an ounce of gold will take us one step closer to freegold. Freegold will unfold as people ‘value’ a wealth reserve.

ADC said...

Quick question about the BIS that I had while reading the BIS document Mike linked to, perhaps somebody knows the answer.

Under the BIS member central banks, why is the 'Board of Governors of the Federal Reserve System' listed instead of say, just the 'Federal Reserve System' itself? Every other member is either a 'central bank' (most members) or 'monetary authority/agency' (a few members). Is the board of governors just another term for a monetary authority? Because to my mind a board of governors is a set of people, not the Federal Reserve System itself.

I searched for quite a while but could not find the answer (although I learned quite a bit about the BIS, and the BIS and their gold). The only relevant info I found is that:

A) Initially congress officially refused to allow the U.S. Federal Reserve to participate in the BIS ( http://www.edwardjayepstein.com/archived/moneyclub.htm )

and

B) The Federal Reserve has been a member of the Board of Directors of the BIS since 1994. (from http://www.newyorkfed.org/aboutthefed/fedpoint/fed22.html or http://findarticles.com/p/articles/mi_m4126/is_n10_v80/ai_15850047/ )

Paul said...

Buba would oppose backing EMF with gold

Sun Mar 14, 201
[link to uk.reuters.com]


BERLIN (Reuters) - Germany's Bundesbank would oppose any government initiative to use its gold reserves as backing for a European Monetary Fund (EMF), a spokeswoman said.

German magazine Focus reported on Saturday that the finance ministry was considering the possibility of euro zone countries using their central banks' gold reserves to back an EMF.

A spokeswoman for Germany's central bank said she was not aware of any such plans but the Bundesbank would resist them.

She added that it was up to the Bundesbank to decide autonomously about the use of its gold reserves and not the government or the European Central Bank.

Mike said...

nice article on zerohedge by gata
today

http://www.zerohedge.com/article/gata-present-new-evidence-feds-gold-price-supression-scheme-coming-through-oddly-unredacted-


The words of Alan Greenspan from "Gold and Economic Freedom" could not be more relevant:

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Like clowns at a rodeo, there are too many academics creating a distraction discussing whether we will have deflation or inflation. We are now in an era of unprecedented deficit spending -- which means that confiscation of wealth will also be unprecedented. One of the most prolific money creators of all time has told us what to do to prevent it: Buy gold. But buy real physical gold, not a gold receivable.

costata said...

Mike,

"Buy gold. But buy real physical gold, not a gold receivable."

You are on the right blog to express those sentiments.

Cheers

Desperado said...

@Ender,

It seems to me that CB's backing their currencies with a gold linked "one-world reserve currency" makes their currency a pseudo gold backed currency, like all the worlds currencies were when they used the gold backed dollar as a reserve currency from '33-'71.

Additionally, this one-world currency would surely be used to restrict the ability of gold prices to float freely and this would violate one of the fundamental premises of freegold. Sinclair also explains that this world reserve currency would be based on gold in order to preempt any competition from gold being used as the worlds reserve currency.

I also recall Sinclair alluding to the exchange of gold being restricted.

And finally, not having the time and inclination to go back through Foa's and Anothers writings, I don't recall them delving deeply into the issue of "one world currency".

So I disagree, I don't think this gold "linked" one world reserve currency is freegold.

Fofoa, could you comment on this?

solar said...

Dear FOFOA et. al.

I have followed your dialogue from a distance for some time, and thank you for the wonderful environment of discovery and learning. I have a few questions, that I hope you can help me with.

Below is an excerpt from the GATA piece at ZH that was also mentioned in a comment above. It refers to a FOMC meeting July 1995.

>>
CHAIRMAN GREENSPAN. I think I've got it! [Laughter] You are telling me that the SDR [Special Drawing Rights] certificate comes out of the Treasury and we cancel the Treasury obligation and it is wholly an asset swap so that the debt to the public of the U.S. Treasury goes down by that amount. Is that what happens? That solves President Jordan's problem too! [Laughter]

MR. JORDAN. Can I follow up on that? The same thing happened when we changed the price of an ounce of gold from $35 to $38 and then to $42.22. The Treasury got a windfall of about $1 billion to $1.2 billion in both of those so-called devaluations. So an issue on this is: What was the dollar price of SDRs that we monetized? You say I have an asset on my balance sheet and I don't know what the value of it is.

CHAIRMAN GREENSPAN. It's about $42.

MR. TRUMAN. It's $42.22; it's equivalent to the official price of gold.

MR. JORDAN. We do this at the official U.S. Treasury price of gold?

CHAIRMAN GREENSPAN. Do you mean that we can lower the debt to the public by moving the price of gold up to the market price? That could cut the debt back by a not insignificant amount!

MR. JORDAN. I have been trying not to mention that publicly for fear that someone might want to do it.

CHAIRMAN GREENSPAN. It's probably too late; we just mentioned it.

MR. JORDAN. It will become known five years from now!

MR. LINDSEY. Five years from now it will be read in the transcript for this meeting.

MR. BLINDER. By which time it already will have been done.
<<

First of all. What do they mean, when they say that an issued SDR can cancel a debt obligation (I assume a treasury bond)?. And can the Treasury issue newly created SDRs? I thought that it was the IMF that controlled issuance of SDRs.

Second, I was wondering yesterday about the Flow of Funds reports from Harvey Organs blog. Does this entry really mean that real gold has been sold, and not just SDRs?

(I wonder why these two entities are displayed in the same line item in the first place. Are SDRs issued in even proportion to the country's gold asset, and therefore the "other side of the same coin". What relationship justifies the bundling in one line?)

If it is real sovereign gold, that was sold, it seems totally crazy that this number would be put in a public report unless something is seriously escalating now.

And finally, if SDRs really is the other side of the coin to the national Gold, and given the huge quantity in play, could the price that these SDRs were sold at be exactly what Mr. Greenspan and Mr. Jordan is talking about in the FOMC meeting minutes?. That this sale in fact could represent a so far unannounced revaluation of the US gold stock?

If so, who is to say at what dollar price - it could be a much higher price and lower quantity in oz.

As you can gather from above, my understanding of things are somewhat wanting. I hope that you will bear with me and my potentially clueless questions, but I would very much appreciate, if you could help me fill in the blanks about the connection between SDRs and Gold.

Kind regards
Solar

Jeff said...

BERLIN, March 13 (Reuters) - Germany is considering the possibility of euro zone countries using their central banks' gold reserves to back a European Monetary Fund, German magazine Focus reported on Saturday.

http://www.guardian.co.uk/business/feedarticle/8987750

costata said...

Jeff,

That Focus article and the notion of a gold backed EMF security was subsequently repudiated by the Bundesbank. IMHO you can ignore the Focus article as a trial balloon that was shot down.

FOFOA said...

Hello Desperado,

Picking sides, I'd have to say I'm with Ender on this. But that doesn't mean I think Jim's description of the future will happen. Jim's view of gold and goldprice governance is still through $-glasses and only $-glasses. The IMF and the SDR are both $IMFS creations, and will not hold the confidence of the rest of the world.

That said, let us look closer at Jim's description. "Gold's role will be... tied to the single reserve currency in a ratio to a measure of world liquidity." First of all, "a measure of world liquidity" means the total amount of transactional fiat in the world. The specific measure would be agreed on, probably through market forces, as either global M1 or M2 or something like that.

But Jim uses the phrase "tied to" (a confusing phrase) to describe the freegold floating price. Don't let his choice of words confuse you. He is very clear that "tied to" is a free market result, not a governed result. He is saying that gold will experience a market float that is "tied to" the Global M1 or whatever. In other words, gold will perfectly reflect monetary inflation from that point forward.

This "tie" can only be established at a very high value for gold (in real terms), and I note that Jim does not distinguish between paper gold and physical so I must assume that he means a physical-only gold market. Because this would be impossible with today's paper gold market.

Next, Jim says, "Gold will not be fixed or convertible but will trade within a market as a close band of the price gold is trading at when the single virtual reserve currency is created and will lend to this construct some real validity." This is actually a fair description of Freegold AFTER the revaluation.

"Gold will not be fixed" means it will float. "or convertible" just like the Euro-model, not "convertible" from official souces at a fixed price. Not a "gold standard". "but will trade within a market as a close band of the price gold is trading at when the single virtual reserve currency is created"

Here's where his description strays from what I think will happen. See my diagram from Bondage or Freegold...
Reserveless Flow

In the absence of a reserve currency, something like my Reserveless Flow will emerge. Jim's "virtual reserve currency" will act as a middleman between local currencies for the purpose of international trade balance and settlement, and will trade in each currency according to that currencies strength or weakness. But this is superfluous to what will emerge naturally AND it requires global confidence in the issuer. I believe it is unlikely for the SDR to gain such confidence as long as the US holds veto power over the IMF. Which leaves us with the emergent system.

...

FOFOA said...

...

Notice that Jim continually uses the phrase, "gold's role in a monetary system". I believe he is referring to the 'store of value' role. The SDR would be for international transactional use and gold would be the store of value.

Jim goes on to say, "gold has to be rendered into a form that would not compete with a single world currency, but rather might even support it". This is a perfect description of the ECB's "Mark to Market" gold concept. A rise in the price of gold does not hurt the currency like it does with the dollar, but instead supports it by floating its reserves.

Jim also says, at 10:16 "and in light of the fact that you can't fix the price of gold"... meaning the end of gold manipulation as we know it today. And he says, "and there will be other currencies at the time that will function for each entity". This is what I was saying about the SDR being an INTERNATIONAL-ONLY transactional currency.

It is simply a superfluous idea that is unnecessary from a practical standpoint, but may be desirable to the $-faction which still controls the IMF. But don't count on it being as inevitable as Jim says it is.

Jim is simply describing Freegold PLUS a superfluous middleman currency. This can only work if A) the SDR currency is absolutely neutral to ALL countries in the world, and B) if all countries in the world have full CONFIDENCE that it will always be neutral. Without A) and B) we simply end up with Freegold.

Another said...

There are nations that will try to "resource a new currency" as the old financial system implodes. Oil or gold or both may be used. If it is done at the correct time, much will be gained by all! Fail this Attempt, and gold will never trade on an open exchange again, in our lifetime! We will see this end in our time.

Sincerely,
FOFOA

costata said...

All,

IMHO this Ambrose Evans Pritchard article is a Must Read for anyone interested in the China USA situation.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7442926/Is-Chinas-Politburo-spoiling-for-a-showdown-with-America.html

Museice said...

SatyaPranava:

My various thoughts on GOLD and how a story like the United States selling physical metal spin through the rinse cycle of possible outcomes and every time I think I have an outcome based on the available information another incredible event is disclosed and I'm back to shaking my head in disbelief and wondering why and how the 5000 year old basis of exchange is currently valued at $1100.

John's post above sheds light on the difficulty of trying to figure out what the hell is gong on. "I can tell you that among many seasoned and well known investment professionals I call personal friends, the levels of ignorance of matters that relate to the nature and genesis of money
is truly shocking and disappointing. Very few see the potential for momentous and damaging change. They stand on a bed of quicksand that they assume is a rock solid foundation on which they ply their trade of picking stocks and bonds within an edifice so riddled with termites that there will be little even of the detritus left behind when it all comes crashing down." I started 'studying' about three years ago and in this short amount of time have come to only a few 'Absolute Conclusions' First and foremost for me is my firm belief that we, The United States, are in a Depression! This is not a recession it is a Depression. Denninger summed it up for me when he wrote that in the past year the Government has spent 1.4 Trillion on our Economy and with a GDP of 14 Trillion our Government has supported 10% of our Economy. A Depression is a 10% decline in GDP. So without Government intervention our Economy would have contracted by 10% and we would have an official Depression (numbers are slightly off but you get the point). My second absolute, and this is thanks to FOFOA & Jim Sinclair, is the undeniable truth that Gold is far, FAR BETTER than Paper. This was a difficult transition. When I told my broker about my desire to own gold he laughed. I was told it was a horrible investment. When I told him the Dollar would cease to be the wold's reserve currency he laughed. I, having spent hours a day educating myself to the true nature of the world economy and the nuclear time bomb that are derivatives came to the conclusion that there was only one course of action. I fired my broker.

The third and final absolute truth that I have learned from reading masters like FOFOA is the fact that GOLD is 'suppressed' and only GOLD will survive the financial Armageddon waiting for the world economies. Everyday something new rears its ugly head (Greece default, Russia's fake bank books, ect. ect.), and everyday I am reminded that GOLD has been patiently waiting to take it's rightful place as the world wide storage center of wealth.

Something big and bad is waiting to happen and The United States can push down on the cork with the weight of Trillions of Dollars.... but eventually.... inevitably.... and with ample warning... POP.

What happens after POP I don't know. Civil Chaos? Martial Law? Bank Holiday? Dollar Devaluation? It could be a number of scenarios but I do know that only one form of wealth will transform middle class into upper class and it is precious metals. (oh... and brass cylinders capped with lead are also precious:)

costata said...

FOFOA,

"Notice that Jim continually uses the phrase, "gold's role in a monetary system". I believe he is referring to the 'store of value' role. The SDR would be for international transactional use and gold would be the store of value."

He is definately "referring to the 'store of value' role". I heard him use those precise words in an earlier interview with Eric King.

I note that he also talks about having presented his proposed certificate-based strategy to monetary and economic experts who couldn't fault it. IMHO this may pinpoint Jim Sinclair's blindspot in regard to Freegold. It makes his very sensible adjustment to the monetary system status quo superfluous.

A friend of mine calls this type of situation ugly baby syndrome. Try telling the proud parents of a baby that it is ugly. The same applies to the "parent" of a pet project, an idea etc.

I also believe it is far too late for this type of tinkering. Any vestige of credibility of the managers of the US$ reserve currency is gone. As A/FOA pointed out they screwed other countries over once too often.

Museice said...

According to Harvey's Organ:

"Many have asked me on the SDR story released by Rob Kirby on Friday.. our resident expert on the SDR's James Turk comments on the SDR sale as simply a way for the treasury to get dollars. Gold movement is not involved. I asked Reg Howe who also told me indepedently that the SDR's sale was simply a way for the usa to get badly needed cash.

GATA’s James Turk on Rob Kirby’s find Friday…

The Treasury didn't provide anything to the IMF. The IMF creates 'money' out of thin air money in this way just like banks do - it is all accounting entries, which is Falk's point.

New SDRs were created by the IMF in Aug 2009, some of which were allocated to the US. But the Treasury can't spend SDRs, so it needed to turn them into dollars. In other words, the Treasury needed to monetize these SDRs to make them useful to it. So they sent their SDRs to the Fed, which then credited the equivalent amount of dollars in the Treasury's checking account at the Fed. SDRs are turned into US dollar currency the same way the Fed turned the US Gold Reserve into dollar currency. You can see that the SDRs were turned into dollar currency on the Fed's balance sheet.
http://www.federalreserve.gov/releases/h41/20091001/

There was no gold flow resulting from this transaction, but Rob's discovery is significant for another reason. It is another example that confirms my view that the Treasury uses SDRs to account for its market interventions."

**So instead of physical it is just people playing with paper but it still shows evidence of a manipulation of dollars and the lengths to which the Fed & Treasury will go to make Dollars appear from nothing**

Sinclair... "Quantitative Easing to Infinity" Museice... "Is Gold's Best Friend".

costata said...

Solar,

This post from Harvey Organ has a link to a 2001 article by James Turk that should answer your question about the FOMC meeting July 1995.

The link to the Turk article:
http://www.fgmr.com/mystery-of-the-disappearing-sdr-certificates.html

I looks to me like they were using the revaluation to create the budget turnaround in the Clinton Rubin era.

http://harveyorgan.blogspot.com/

"Many have asked me on the SDR story released by Rob Kirby on Friday.. our resident expert on the SDR's James Turk comments on the SDR sale as simply a way for the treasury to get dollars. Gold movement is not involved. I asked Reg Howe who also told me indepedently that the SDR's sale was simply a way for the usa to get badly needed cash:"

GATA’s James Turk on Rob Kirby’s find Friday…

The Treasury didn't provide anything to the IMF. The IMF creates 'money' out of thin air money in this way just like banks do - it is all accounting entries, which is Falk's point.

New SDRs were created by the IMF in Aug 2009, some of which were allocated to the US. But the Treasury can't spend SDRs, so it needed to turn them into dollars. In other words, the Treasury needed to monetize these SDRs to make them useful to it. So they sent their SDRs to the Fed, which then credited the equivalent amount of dollars in the Treasury's checking account at the Fed. SDRs are turned into US dollar currency the same way the Fed turned the US Gold Reserve into dollar currency. You can see that the SDRs were turned into dollar currency on the Fed's balance sheet.
http://www.federalreserve.gov/releases/h41/20091001/

There was no gold flow resulting from this transaction, but Rob's discovery is significant for another reason. It is another example that confirms my view that the Treasury uses SDRs to account for its market interventions.

http://www.fgmr.com/mystery-of-the-disappearing-sdr-certificates.html

http://www.fgmr.com/accounting-for-the-esfs-gold-swaps.html

Regards
James Turk.

costata said...

Hi All,

Sorry for doubling up on Muse's comment. His comment wasn't up on screen when I was putting mine together.

Cheers

Desperado said...

Hello FOFOA,

Thank you for your researched and well thought out reply concerning Sinclair's gold linked one world reserve currency.

I have a hard time accepting a "one world" anything because I trust not a single leader coming out of the UN, IMF, World Bank or and other international organization (or the EU or the US for that matter). And I cannot believe that they could create a new SDR and not let their hands be corrupted by big banks and other powerful interests (including groups such as bankers, warmists and socialists). They would surely try to influence the floating gold price to their own advantage (rent seeking).

Jim Sinclair is surely right that as the world economy starts falling down around them, the worlds bankers and elites will try to forge some kind of one world reserve currency, and they will have to sugar-coat it in some fashion to make it palatable. I would prefer to see a pure gold reserve standard because only then can we be sure that we aren't being sold out by the world's elites. This is one of the main reasons I find freegold so alluring.

Martijn said...

Interestingly, at a seminar with Marc Faber I attended yesterday he said to believe outright in the plunge protection team, but "not so much in the central banks manipulating the gold price, although it could be possible. Who knows..."

He also said his biggest position was in physical gold.

Jeff said...

another jim rickards interview:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/13_Jim_Rickards.html

solar said...

Hi Costata,
Thank you very much for the explanations aand the links. I will check them out pronto.
Brgds Solar

allen said...

FOFOA,

Thank you for your posts. Your's more than any other's provoke deep thought on key topics, which I imagine was your initial intention.

Anyway, after reading your blog for several months, the main pivot of free gold is when the investing community decides the paper markets are useless and that gold is the only real place to put their money. The question is, when does that happen? When do people stop buying bonds? What finally triggers them (or awakens) them to switch to gold? Do they first try to funnel the money to equities? Does that give the stock market a pop or small bubble? I do believe the change will be dramatic when it does happen. It's just unbelievable to me that some would still put their savings into the debt of others. I guess time will tell.

Tekin said...

A Trigger Candidate?

US Readies Cyberwar, Virtual Flag Terrorism

http://tarpley.net/2010/03/15/us-readies-cyberwar-virtual-flag-terrorism/

One highlight of this US propaganda campaign has been a two-hour docudrama special recently repeated several times on CNN on Feb. 20-21, simulating a massive cyber attack on the United States, starting with cell phones and then taking over into computers.[1] The impact of this attack is to shut down telephone communications, followed by airports and rail services, and finally to knock out most of the US electrical power grid, causing panic and chaos. The simulation is presented in the form of a meeting of the National Security Council while the US is under attack. Several protagonists of the 9/11 cover-up were among the starring players, including Jamie Gorelick (playing the US Attorney General), John Negroponte (playing the Secretary of State), and Michael Chertoff (in the role of the National Security Council Director).

Another important sign of the times is a Feb. 28 op-ed in the Washington Post by Admiral Mike McConnell, who headed up the NSA under Clinton, and is now a top executive for Booz Allen Hamilton, one of the military consulting firms which claims to have the greatest expertise in matters of cyber warfare.[2] Admiral McConnell’s basic idea is that cyber war is now upon us, and that the US must respond using the experience of the Cold War as the relevant model.

SatyaPranava said...

desperado...key word being "propaganda" in this. is it me, or does all the big doom and gloom seem to come from those with military ties (including other pseudo-civilian agencies w/in the govt)

Desperado said...

@Satya,

I gather from your comment that you believe that a "one world reserve currency" should not be feared.

I vehemently disagree! Baron Rothschild said it well: "The man that controls Britain's money supply controls the British Empire. And I control the money supply."

So my question to you is: Who is going to counterbalance the influence of the "world CB", whoever that would be? Will there be a "world constitution" guaranteeing that the big finance industry cannot make a power grab and then influence or control the liquidity calculations used to keep the "world currency" in balance, and thereby gain control of the money supply?

Good luck on that one. The US has a constitution that is ignored by all of the 535 (the politicians running the US).

Paul said...

Beware of Webster Tarpley's Disinformation

http://www.bollyn.com/webster-tarpleys-disinformation-work

SatyaPranava said...

@desperado. re: one world currency, i do not support it at all.

i believe centralization leads to easier coopting of the system by those who are attracted to such low-hanging fruit.

but as paul said, i'm extremely suspicious of tarpley and many o fthe other so-called truthers and alternative media out there. too many seem to work out of ft. bragg. hence w/those who use names, i always do my homework. it helps to understand biases and outright conflicts of interest.

though i must admit, paul, the link you provded is no more...do you have a backup of this site? i'd like to read it.

back to desperado, sorry i wasn't more clear. but what i'm ultimately saying is that w/a guy like tarpley you're likely to get a good degree of truth, just enough to bring you in. but on some of the other stuff you're likely to get spun out into disinfo. Tarpley's been exposed for years now. so i would take weigh what he says very carefully.

i really wish i knew who A/FOA were so we could know more about their backgrounds and potential biases as well.

Your Rothschild quote is right on. very similar to mayer anselm R's quote.

what i would argue, however, is that the Rothschilds and the CBs are the same side.

they are buying PMs; we are buying PMs and IF/when the SHTF, they are going to become wealthier than we, lilliputians are. they will create the new system or, (if it's already created) bring it online.

Knowing the inside-ness of Brzezinski, I think we're likely to fall the way of his between two ages, namely: decentralized and balkanized former large countries w/corporations becoming the new nations-states. i could be very wrong in that perception, but that's what i see at the moment.

i think there may be some world constitution to prevent such a power-grab, but it's likely to be as effective as other constitutions and Carte's...i.e. ineffective in the face of conniving tyranny.

the only thing that can stop power is power. and too many of us allow them to control us w/the decisions we make everyday (i.e. we buy the rope to hang ourselves from those who are profiting and have an inordinate amount of power in the system).

i'm not for world federation by any means. but w/that said, i believe that the corporations are far more powerful than nation-states at the moment, so that MUST be addressed.

i'm sorry to have misled you to the opposite conclusion of what i believe...hope that helps.

Ishkabibble said...

@Desperado

I think the majority here agree. Creation of the world cental bank profides the mechanism through which one controls the world. It seems apparent this is coming to pass, and so the new question becomes, will a tyrant rule from the onset, or will one simply aspire to reach the top?

The path is clear, but the urgency not as much. My view on what Satya was pointing out is that those of military backgrounds see the enemy as a greater threat. Perhaps they are trained to. The majority of Americans aren't aware there is a war; in most cases, they can't even identify the true enemy.

My perspective on Satya's observation: Those with military ties are trained to see and dispatch threats. They witness the damage to our liberties and destruction of a system built for the people. They recognize that there is no management in this battle, no representation of the people, no coordination of those who could win, in short... they see great weakness in the opposition. Anyone with tactical experience knows that amounts to a battle lost before it's fought. I think that's why military people have an a more assertive view; they know that you don't walk into a battlefield without a strategy, because if you do, you don't walk back.

SatyaPranava said...

@paul: after reading bollyn's work on another site, he has tarpley's roots to defense down pat. unfortunately, he's spinning ppl into the zionist/jewish aspect of conspiracy.

good researchers don't fall for that. the elite zionists tie up into the rothschild networks, but they work hand in hand w/the Jesuits and the SMOM. i mean if we're trying to be accurate here. i.e. just another cul-de-sac of half-truths to get people outraged and into a divide and conquer framework.

remember thoreau's qoute that there are always 1000 people hacking at the branches of evil for every one striking at its roots.

but either way, tarpley is very much disinfo IMHO. we agree on that.

SatyaPranava said...

Ishkabibble, i'm really not having luck articulate myself today.

while i appreciate that POV you provide, i am actually arguing that while most who enlist are on our side, the military ultimately is not. that the military is a tool used by the elite (the power arm of tactics, alongside the financial arm). but there's also the information arm, namely counter-intel.

sadly, from my understanding, we, the little people, are the enemy. we are the ones on whom they're spending vast resources to decieve so that we go along w/this global federation plan.

this is why some challenged FOFOA in here as saying that freegold is not likely to happen. i hope they're wrong.

but many of those ppl believe that there're not truly two sides in this globalization war. i hope they're wrong about that as well. but i'm not sure. and according to FOFOA and others here, it's not going to matter.

i hope there are factions fighting each other at the top, instead of the perception that BOTH sidesof most of these conflict originate from the same power-base at the higher levels.

i'm skeptical that there are factions fighting at the top (for real). though i'm open to such an idea.

but one thing is for sure, much of the alternative truth movt is completely infiltrated (started?) with counter-intel. i'm sure we have such people here. it's just the likelihood of the odds.

but that's why it's so important to know where your info comes from ultimately. i'm an academic researcher, and, thus, want to trace the info back to its primary source.

hope that clears things up. feel free to comment, question, agree/disagree, etc.

GG said...

Yeah, I have my doubts about Tarpley.

FOFOA said...

This is not a Truther forum. Please keep your competing "Truth" theories to yourself, or take them elsewhere. I do not want to read about whether one Truther is less credible than another because he doesn't blame the Jews.

If this line of reasoning informs your gold market analysis, then please start your own blog or go over and post comments on Prison Planet. GG's fine post is there now and the comments are horrendous. I'm sure you could all have a field day over there.

http://www.prisonplanet.com/its-going-to-implode-buy-physical-gold-now.html

On a different note, did anyone see this fine summary of Freegold that someone posted?

Freegold theory: the massive revaluation of gold after the collapse of paper assets

Martijn said...

FOFOA

I know you are reading Jim Sinclair as well, but just to inform you - and others reading this blog - in case you might have missed it: here is a vid about Italy trying to sue some large banks on derivative trades.

This could be read as another case of Europe taking a stance against Wall Street and London.

Martijn said...

And more on the Europe - Wall Street/London relationship.

Martijn said...

Trichet also criticizes the Wall-street/London actions in his speech:

the key question, which I would like to highlight in my remarks today, is to what extent financial innovation serves the real economy and to what extent it only serves itself. At some point in our recent past, finance lost contact with its raison d'être...Finance became self-referential...

...But we must also consider fundamental questions about...the role of the financial sector in the economy....

...The financial structures that we thought were in place to assess, absorb and neutralise risk were either dysfunctional, or worked – perversely – to magnify volatility...

...Derivatives activity in the U.S. banking system, for example, is dominated by a small group of large financial institutions. Five large commercial banks represent 97% of total notional amounts and 88% of net exposure. [4] And, of course, the market for credit ratings is famously dominated by three signatures, which act as standard-setters for an enormous volume of financial transactions...

FOFOA said...

Thanks Martijn,

In that video, she says, "...but of course this wasn't an Italian phenomenon. This was a European phenomenon... a WORLD phenomenon..."

She is talking about the $IMFS! A WORLD phenomenon. Remember Harvard? These entities bought something they thought would save them money over the long run but now, with interests rates being held at artificial lows, these entities are having to fork over BILLIONS to keep going or to buy out of the bad derivatives. It is a ridiculous situation and it will backfire hard on the $IMFS. Harvard paid, China didn't, Milan is fighting... who's next? What entity is going to cough up billions for stupid contracts they didn't understand now that they are being publicly challenged?

Of course this case will be watched closely in the US. Especially by any entity that BOUGHT those ridiculous IR swaps.

The biggest problem is that the IR game is rigged by the entities that SOLD the swaps. Both through influence/ownership over Fed policy and also by the sheer size and one-sidedness of the banks' position. It is big enough to move IR's in the bank's favor causing these poor suckers to owe billions. It's like a bookie that takes all the action against a one-sided bet personally and then rigs the game in his favor. That's what the mafia does. I'll bet the Italian mafia is laughing hard at the banks right now for getting caught.

If this case goes through like Jim says, and it costs the banks big time, and they can't get another bailout because sentiment has turned against them, then these banking giants will be abandoned by the bankers like a hermit crab leaving his shell. That's the nice thing about today's big banks! They are all just corporate shells with negative equity!

Sincerely,
FOFOA

Martijn said...

On gold he mentions its role in capitalisation and argues "Making sure that banks are well-capitalised is the foremost life jacket of our system. Life-support in the form of liquidity assistance cannot act as a surrogate for appropriate management practices inside the banking system." although that quote is from a latter paragraph then the one where he mentions gold.

@FOFOA

What did you make of this speech?

Martijn said...

@FOFOA

A world phenomenon indeed.

If those banks cannot get another bailout, they would collapse, and so would perhaps the $IMFS, wouldn't you agree?

In that case I don't think that a stop on bailouts is likely.

FOFOA said...

"In that case I don't think that a stop on bailouts is likely."

Indeed, Martijn. It's quite a Catch-22! The $IMFS is FULL of Catch-22's! You can think of "bailouts" as Congressionally sanctioned QE. And what you are talking about I think of more as Jim's QE to infinity (but done quietly). Either way the $IMFS is f--ked.

And yes, I took extensive notes on Trichet's speech. I may use some of them in a post. But if you want to try something fun, try a word replacement. Any time Trichet says "financial sector" or "financial markets", replace it with "the $IMFS". And when he is talking about the Fed and says, "making promises about the future" or "making statements about policy", insert "telling lies" or "lying". It brings the speech into a whole new light, like putting on your "They Live" glasses...

Just as we have had to re-evaluate our understanding of the nature of risk of market disruptions and the potential responses in terms of implementation of monetary policy, so we must re-evaluate our understanding of the role of the $IMFS in our economies and our societies... But we must also consider fundamental questions about the relative importance and limits of the pure financial “game” in markets, the potential abuse of market power, and, more generally, the role of the $IMFS in the economy.

Financial reform needs to go beyond the banking sector on which so much attention has been focused. We also have to look very closely at the $IMFS and at the set-up and functioning of the $IMFS. Leverage cycles, for example, have been a constant source of instability for centuries. If left to their own devices, their ultimate outcome has regularly been financial disruption, wealth destruction and economic hardship for our people...
[Interesting he refers to centuries (plural), because the demonetization of gold into a wealth reserve role is a change on that time scale]

Note here a difference between the ECB and the Federal Reserve... rather than part of selective assistance to distressed banks... So the ECB can dispense with telling lies about the future path of the monetary policy stance... This can be done without lying about the future...

It was also interesting that he chose to use the term "life jacket"! And that he bookended with Roman Empire analogies. Very interesting speech IMO!

Sincerely,
FOFOA

Martijn said...

I agree. I replaced financial industry with Wall-Str/London by which I meant the $IMFS indeed.

"Telling lies" indeed substitutes well.

And references to Rome - an empire that eventually declined because of fascism and the accompanying errors in monetary policy - does indeed not seem meaningless.

costata said...

FOFOA et al

The Asian Development Bank has a few thoughts to share on the IMF SDRs and the reserve currency system.

Via jsmineset.com

Global FX reserve system needs reforms - ADB chief
http://in.reuters.com/article/businessNews/idINIndia-46986820100317?pageNumber=2&virtualBrandChannel=0&sp=true

"Kuroda's comments follow growing discussions among policymakers and academics that the world should no longer rely on one single, dominant currency, such as the dollar, as it has done since the end of the gold standard.

Using just one nation's currency for international reserves creates tension between national and global monetary policy making, said Kuroda, a former Japanese vice finance minister for international affairs."

Trichet: "The Euro is for Europe". From his recent speech discussed here earlier. (My emphasis)

"Speaking at the same conference, Nobel Prize-winning economist Joseph Stiglitz also called for a new global reserve system, saying the least ambitious option could be a system based on the Special Drawing Rights (SDR), the International Monetary Fund's in-house unit of account. (My emphasis)

But Kuroda said the key challenge to this proposal would be how to make this super-sovereign currency commercially viable. To make SDRs work on a global scale, a huge amount of SDR-denominated bank deposits and bond markets would be needed.

Moreover, the value of SDRs must be determined by markets and the IMF would have to be given more power and responsibility to control the supply of SDRs in open markets, Kuroda said. (My emphasis)

"This system could be a far better system than the current system but at this moment the international community is not yet prepared to do so," Kuroda said."

A/FOA alluded to a system of this nature as being beneficial if implemented at the right time. I think we could justifiably (10 years later) amend this to read IN TIME.

Translation: Snowball's chance in hell.

Look at how desperately the politicians try to prop up the status quo and their system even when it is obviously failing.

IMHO the politicians will dither and equivocate until it is far too late to even attempt to engineer a new regime. They will then, in desperation, grab anything that is workable and ready to go. IMHO the Euro and Freegold is a solution for adoption when every other option has been tried and failed or been proposed and discarded as unworkable.

I think we should also remember the Euro Freegold model is SIMPLE and it could be launched QUICKLY if adopted because the INFRASTRUCTURE IS IN PLACE. Which of the proposed alternatives has ALL of these THREE essential qualities?

IMHO the only alternative is war which is always "ready to go". If you think that this is the likely outcome, take heart. Wars, too, have to be funded. Who can/will fund this outcome as an alternative to Freegold?

TO the Noobs:
Read FOFOA's archive if you need convincing then buy any quantity, no matter how small, of physical gold and sleep well.

Good Night from your southern hemisphere neighbour.

Martijn said...

@Costata

Did you read the new GEAB?

A reminder that this phase can only be a precursor to a sustained reorganisation of the international system if, between now and the middle of this decade, the consequences of the collapse of the world order inherited from the second world war and the fall of the Iron Curtain fully come home to roost. In particular, this development requires a complete recasting of the international monetary system based on an international currency, replacing the current system founded on the US Dollar, the value of which would be based on a basket of the major world currencies weighted according to the respective size of their economies.

Martijn said...

FOFOA

I have a question regarding the oil-backing of the USD as per A/FOA.

As they argued the world (USD) was able to get off of gold as oil was able to back the dollar:

the new found prosperity from cheap dollar oil was being used to justify mountains of dollar debt.
As long as a barrel of oil could be used to produce more relative real wealth than the dollars used to buy
it represented, dollar inflation worked in the only political measurement that counted. "An increase in
the standard of living"!


This off course was quite relevant in the whole scheme that has been driving world finance since '71.

Now I was wondering in what respect you believe rising prices for oil extraction to play a role in today's crises and the horizon where it all will end. Have you spent any time pondering this issue?

Martijn said...

Apparently Goldman is still welcome in the EU.

S said...

FOFOA,

Ddid you catch the record price of the Picasso that has just been put up...fitting from his blue period

FOFOA said...

@Martijn,

It seems to me that Portugal is borrowing dollars which it will have to sell to buy the euros it needs to pay expenses. Sounds like short selling the dollar and going long the euro. Wasn't that a recent recommendation from Goldman?
Goldman Tells Clients To Go Long Euro

"Now I was wondering in what respect you believe rising prices for oil extraction to play a role in today's crises and the horizon where it all will end."

I think the dollar's timeline is imminently closer to its end than the economic extraction of oil from the ground. So I don't see it playing a big role in the dollar's final days.

@S,

Thanks! $60.9 million expected. Expectations are up 50% since 2006 when it was first scheduled for auction; but stopped by a lawsuit claiming the painting had been taken from its owner by the Nazis in the 30's. Current owner is Andrew Lloyd Webber who, it seems, paid out a settlement on the lawsuit. Or perhaps agreed to a percentage that will go to the heirs? Interesting story.

FOFOA

costata said...

Martijn,

I read the public announcements of GEAB but I don't subscribe. IMO the weak logic in this thinking about a reserve based on a "basket of currencies" is that it seems to assume a store of value function for those fiat currencies.

So my question is this: Have any of these currencies demonstrated an ability to be a reliable store of value over the past 30+ years?

If the answer to that question is "No" then: What role could a "reserve" based on a basket of fiat currencies fulfill?

All I can offer in response to this question is that it may serve some function in international trade. Perhaps a super sovereign legal tender. If so, who wants it and why do we need it? Why not just wade into the forex market and buy the currencies themselves?

Have the Giants backing the One World Currency project lost the game but either don't know it or wont accept the verdict of competitive monetary evolution?

Sorry for a response presenting more questions than answers.

Martijn said...

@FOFOA

I think the dollar's timeline is imminently closer to its end than the economic extraction of oil from the ground. So I don't see it playing a big role in the dollar's final days.

I don't see that either. I do however deem it rather interesting to see that oil prices were rising quite rapidly in the years prior to the crisis. Off course this had a close relationship with the formation of the Euro and the rising gold prices, but it was also partly caused by other factors such as the Iraqi war. In short we could argue that the rising oil price made it more difficult for the US to gain more welfare from oil than they paid for it, and hence partly removed the oil backing of the dollar.

Do you believe that to be entirely related to the formation of the Euro?

Perhaps not that relevant for determining the future of gold, but I thought it to be interesting nonetheless.

Martijn said...

@Costata

I do see your line of reasoning and also do not feel like paying for the report. It would however be somewhat interesting to read more on their line of reasoning as they have repeatedly recommended gold in the past.

FOFOA said...

Martijn,

"In short we could argue that the rising oil price made it more difficult for the US to gain more welfare from oil than they paid for it"

Absolutely! So money printing, debt creation and China picked up the slack. And here we are today! With more money, more debt and a new main creditor that we didn't have 15 years ago.

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