Thursday, March 18, 2010

Open Forum

Must see!!


costata said...

At the risk of preaching to the choir......

"In conclusion, let us reiterate: “Don’t say you haven’t been forewarned.” But of course, this warning is just as good as giving a moralizing speech about drinking in a packed bar – no one would listen anyway. However, you have been warned – protect yourself, buy gold!"

The Road to Hyperinflation
by Alar Tamming, Tavex, Estonia and
Dr. Krassimir Petrov, Ahlia University, Bahrain
March 16, 2010

John said...

If you shoot somebody with a gun, you go to jail; on the other hand, if you shoot somebody with an "exotic instrument" - well, what's the problem?

Museice said...

Central Banks Rapidly Accumulating Gold: What's the Message?

"It will take some time and a considerably higher price of gold in order to accomplish a gold-backed currency system. Historically, when the world has operated under such a system - which was really up until the Bretton Woods Agreement in 1944, Central Banks held 40% of their currency reserves in gold. Consider now that most CB's hold well under 10% of their reserves in gold. Given the declining output in gold -something which can be partially remedied by a much higher price of gold, which would stimulate more exploration and production - it will take a significantly higher valuation price for gold in order to achieve this historical 40% reserve metric.

Thus, the message of the market with respect to gold is clear: smart investors should shift a considerable portion of their investment portfolio into gold (and silver and mining stocks) and the price of gold is going to go much higher for several years. If you think I'm whacked out in my view, please take a few minutes to read this essay on using gold as a currency backing written by none other than Alan Greenspan in 1966: GOLD AND ECONOMIC FREEDOM"

costata said...


"Central Banks held 40% of their currency reserves in gold. Consider now that most CB's hold well under 10% of their reserves in gold."

..... and that 10% may be 10 times as much as they need. OR

"Central Banks held 40% of their currency reserves in gold" .... and as every currency was on a gold standard 100% of their reserves were indirectly redeemable in gold.

Some of these guys are being too superficial in their analysis. The ECB selected 15% as their original asset allocation to gold. They could have selected any percentage. As FOFOA pointed out some time ago marking to market has naturally raised the ratio to a much, much higher level.

I suspect that this over-emphasis of the importance of the CB's accumulation of gold indicates that this topic has been co-opted by the disinformation brigade. Remember that Financial Times piece we exchanged comments on recently.

The FT were basically saying "we cannot see the CBs diving into gold en masse so where is the impetus for gold to rise". IMO they are setting up a straw man to knock down eg. Central Banks "drive" the gold price. Another example of MOPE?

As A/FOA pointed out in several different posts, after Freegold anyone who has real stuff to trade will be able to acquire gold. Govt will take gold from the miners in their jurisdiction through taxation.

IMHO we will be "clipped" on our gold via taxation as well but the politicians will have a tough time justifying gold-specific taxes on private citizens when other countries such as the EU have none.

Tyrone said...

From "The Road to Hyperinflation", linked above...
if a bank has made bad loans, then we should let it fail. Failure is part of capitalism. Individuals and businesses that have deposited their money in this bank and, therefore, made a wrong decision, should also lose their money. Simple and logical, this is what capitalism is all about.

Unfortunately, governments and central banks do not want to accept that. They think that trying to feed a dead horse will bring it back to life. And if it won’t revive, then it has to be fed even more.

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


Desperado said...

This Zürich Cantonal Bank warrant called RUNNER on worst of ZKB Gold ETF / ZKB Silber ETF / ZKB Platin ETF / ZKB Palladium ETF is kind of interesting.

I carries a guaranteed coupon of 16.5% and is based on the 4 PM ETF's from ZKB (Gold,Silver,Platinum,Palladium). It is called a "Worst of" because if any one of the 4 metals closes in one year lower that it was at the issue price, it pays out in shares of the PM ETF with the WORST performance (biggest drop) on April 1, 2011. These ZKB ETF's are all redeemable in the underlying PM.

Oh, Americans need not even consider this investment because this and many, many, others are illegal for US citizens (IRS tax slaves).

S said...


Any thoughts on the us of procedural vote in DC to ram through healthcare. Reminds me of Justice Roberts scathing remarks about being upbraided by Obama at the SOU. Furthermore any insights into the strategy of France / Germany playing good cop bad cop. Also this week Portugal - yes Portugal - is issuing dollar denominated debt. Is this an attempted replay of the Brady bond - albeit with the dollar the "bad bank"? My recollection is that Spain, Germany have also been issuing in dollars?

Martijn said...

Could we say that issuing in dollars helps in buying the USD some time?

Mike said...

or we can say that issuing in us dollars is the easiest way to allow the wall street gang back in since they have been shunned form the euro offers.

Portugal and other similar countries might be just looking for anyone to buy their debt and what better way to offer then in dollars.

Aleksandar said...

Exactly Mike. It disgusts me to see a country issuing debt in a currency other than its own.

They take the benefits but not the responsibilities of euro membership. They screwed us on the introduction of the euro, when in the West we had instant inflation, while now the euro is inconvenient when the time comes to pay up.

Typical for politics. But I am still waiting for the new libertarian movement, a solution to all this perversity, to shape itself. We have had two attempts here in NL (Fortyn and now Wilders) in that direction but they are still hitting the wrong target. In France Le Pen (still active I think) and in Austria Jaeger (killed in an accident) were promissing but still boiled down to old-fashioned bigorty. Maybe Libertas, but they are only active on the European level and not national.

A grassroots movement? Maybe something outside politics? How about that Check President, rejecting the EU constitution until he was pushed hard?

FOFOA said...

Hello Alek,

"It disgusts me to see a country issuing debt in a currency other than its own. They take the benefits but not the responsibilities of euro membership."

Forgetting for the moment their past transgressions, I see this issue of "buck bonds" a little differently.

Yes, Portugal is selling "buck bonds" through GS, seemingly invalidating the previous ban of GS from selling Eurobonds. And yes, selling bonds in a currency you cannot print or control is dangerous, especially for a profligate government.

But Portugal cannot print euros either. Portugal gave up the right to print currency when it joined the euro. So are these buck bonds really more dangerous for Portugal than eurobonds would be?

And the essence of this trade is short-selling the dollar and going long the euro. Portugal is borrowing dollars, selling them short, and then buying euros (which are what it actually needs).

In the process it is shoring up its own short-term financial problems at the expense of the dollar (shorting the buck) in an attempt to delay becoming the next Greece (perhaps buying time until the introduction of Freegold?), and possibly setting itself up to reap a big (Jubilee) windfall when the dollar collapses and the euro doesn't.

One could wonder, did Portugal have the ECB's blessing to do this special "deal with the devil", er, I mean Goldman Sachs?

costata said...


Can I throw my two cents worth in with FOFOA's response?

"One could wonder, did Portugal have the ECB's blessing to do this special "deal with the devil", er, I mean Goldman Sachs?"

I would suggest issuing debt in US$ was done with the ECB's active encouragement. IMO the tip off will be if other indebted members of the EMU do the same or have done so already in a less visible way.

Martijn said...

One could wonder, did Portugal have the ECB's blessing to do this special "deal with the devil", er, I mean Goldman Sachs?

Agreed. And I'm quite sure they did.

Selling in dollars is obviously shorting the buck. I tend to believe that the eurozone's fiat on this is a sure thing.

Apart from that it allows for an extra dollar debt and extra perceived credibility for the dollar. Even though they are basically shorting the buck people might believe they are turning to a "strong currency" to save them.

A believe I believe is totally off.

Mike said...

i have been to Portugal many times in life and let me tell you i am not surprised they are having debt issues.

you can go up and down the entire country and you will not find any production other then the old generation working the farmland. no factories, unless its cement related.

Portugal is very poor because they continuously exchange money that was made from either a bar, bakery or restaurant with each other in the city. basically they are heavily into the service economy and no real wealth can be obtained. very big separation between the rich and the poor, no middle class.

not to mention they live a better life materialistically then some of the new real estate "rich" middle-class Canadians that i live with and that with having a very poor national average income. so they're spending is catching up to them finally.

at least they have gold (382mt) but they have sold quite a bit of it this past decade but still more then most countries and pretty big for the euro zone, number 4 i think.

lets see what the revaluation can do for them. maybe FOFOA should write the next article on Portugal and their gold like he did for Greece.

Costata i would agree with you that the ECB i am sure pushed them to use the US$ for their debt. Genius.

How about that headline about the Yaun becoming an international reserve currency by a GS guy today. what do those guys know. aren't the US banks short the dollar big time?

Aleksandar said...

A government should not engage in speculation on exchange rates. A government should not borrow money with promisses to deliver to foreign entities that show little regard for sound accounting. Nor should they use the same institutions to hedge exposure (see point 1, this exposure should not even exists at the first place). And at last, a government should not lie to the constituents about the state of the country's finances by taking part in the global masquerade.

It used to be such that political economy was heavily used only in the communistic societies in the past. What these countries do now, including NL, is practically applying the same macroeconomic practicies that destroyed Yugoslavia and the rest of the East block.

What happened to the 80s liberal economics that have birth to the European economic giant? The ECB is the last bastion of that era.

Martijn said...

Jim Rogers argues that the Yuan could become the new reserve currency replacing the dollar.

This has been discussed here before. The Yuan is another fiat and would shift the advantage of printing from the West to the East, which will not be applauded by most powers.

However, I would still give this a small chance of happening. What are your opinions and arguments guys?

costata said...


A/FOA were quite clear that China is with the EU/ECB/BIS in the Euro Freegold project.

FWIW I think that some very bright people are still locked into an outmoded paradigm ie. the single, hegemonic reserve currency. In other words the US$ model.

IMHO this is where we part company with these fine folks. A free market in gold, pure transactional fiat currencies marked-to-market in gold and a multi-polar world based on trade.

The yuan/renmimbi may well become the strongest trade currency in Asia.

What happens if the Euro project fails?

5/22/98 ANOTHER (THOUGHTS!) page 4

"If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will horde all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does comes, no paper asset of world economic system will survive, nothing! Not a good thought, no?Thank You"

IMHO the Euro is not going to fail because of it's superior design.


"Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will, as Michael Kosares (USAGOLD) notes, be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing! In this system, gold must be traded in a "public physical market", in that currency, Euros! As such, the Euro can "devalue gold" (Euro price of gold falls) thereby making it strong in gold! In today's world, this will happen as a "strong Euro physical market" displaces and defaults " the old dollar settlement paper gold market"! The dollar will become"weak in gold"!"


costata said...

Did the Euro have some challenges along the way? Yes indeed.


"The urgent drive to create a new "reserve currency" began in the early 80s, after the last small "gold war". The road to making this new Euro did never include gold in large amounts, until the last few years! Even one year ago, the news would say, 5% or less. Today, we speak of a much greater amount! This is interesting, yes? The BIS did "hatch" this deal in a very late fashion! The future of the Euro was found to be "weak", as the Middle East oil imports onto the continent would continue in dollars! This was so from the dollar being made strong in gold. Gold priced in dollars at near production cost, offered a "no switch currency" position, for oil. This position has been unstable for the last year, and the alternative of a switch to gold was in progress! You have read my "Thoughts" before. Now the BIS does offer to "change the rules of engagement", a real reserve currency is offered!"

Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"! The holding of large reserves by the ECB and the withholding of sales from the market will not only bring the end of the London paper gold market, it will, thru a high USD gold price, "make the dollar weak in gold"! From this position, the dollar will lose the "oil backing" from the Middle East! At first, all oil for Europe will be in Euro's, then all producers want "strong currency"!

"There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!

The politics of the ECB? It is as a "side show"?"

costata said...

Follow the oil (and gas?) money?

FOA (9/23/2000; 9:26:10MD - msg#39)

"You see, in our day, in our time oil and gold will never flow in the same direction. Both price wise and physical wise."

(Longer extract below)

"High-stakes Eurasian Chess Game: Russia’s New Geopolitical Energy Calculus Tectonic Shift in Heartland Power: Part II"
by F. William Engdahl

"Russia’s North-South-East-West energy strategy

The defusing of major Washington military threats is far from the only gain for Moscow in having a neutral but stable Ukrainian neighbor. Russia now vastly improves its ability to expand the one great power lever it has, outside of its remaining and still formidable nuclear strike force. That lever is to counter Washington’s relentless mililtary pressure by cleverly using export of the world’s largest reserves of natural gas, a fuel much in demand in Western Europe and even in UK where North Sea fields are in decline.

According to west European industry estimates, demand within the European Union countries for natural gas, especially for use in electric power generation where it is seen as a clean and very efficient fuel, is estimated to rise some 40% from today’s levels over the next twenty years. That increase in gas demand will coincide with a decline in current gas output from fields in the UK, Netherlands and elsewhere in the EU. [1] With Ukraine’s shift from hostile opposition to Moscow to what Yanukovych terms ‘non-aligned’ neutrality -- with an early emphasis on stabilizing Russian-Ukrainian gas geopolitics -- Moscow suddenly holds a far stronger array of economic options with which to neutralize Washington’s game of military and economic encirclement....."

FOA (9/23/2000; 9:26:10MD - msg#39)

"Go back a read the most recent speeches and comments by the ECB president, Mr. Duisenberg. Truly, the ECB is not interested in "crashing" the system, rather let's "transition" the system into a more fair order. If intervention is needed, it's needed to keep the American economy from failing too fast from the coming hyperinflation of it's currency. If the ECB is worried about the "exchange rate" being too far out of whack, it a worry about it's effect in generating a dollar system meltdown from deficit trade. Not a total failure of the Euro as so many report. When the time comes, and it will; the dollar will begin it's fall away from it's own past policy failure. Until that time, for the benefit of oil producers and many others, let's move as far down this Euro / gold trail as possible. Without a breakdown.

The very existence of a Euro today makes oil policy in America as never before. One way or Another oil production control is going to expose the "best" system for future use. The one that most values and allows real wealth pricing in currency terms. The first system that allows the price of physical gold to rise will see it's currency price of oil fall. Yet, a rising physical gold price is something the dollar cannot and will not live with. The American and world gold market trading system is going to fail with this currency transition and that prospect will leave some high profile gold owners high and dry. It will also leave some very smart physical and paper gold traders with a real wealth holding Western traders never will understand. You see, in our day, in our time oil and gold will never flow in the same direction. Both price wise and physical wise.

Many American / Western order proponents will always take a nationalist side when writing about the Dollar's position. I think it's called "spinning" the details. Yet, in today's evolving money system, it's the dollar that under stress from a trade deficit dynamic. We shall see!"

miked said...

>>Exactly Mike. It disgusts me to see a country issuing debt in a currency other than its own.

It seems to me from a market perspective a country should always borrow in a foreign currency. Then investors would not need to worry about their debt being monetized.

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