I see this a lot. People say "the US dollar cannot experience Zimbabwe-style hyperinflation because:
A) it is the global reserve currency, and
B) all US debt is denominated in its own currency."
Other arguments I have seen have to do with low money velocity, which can reverse globally within a couple hours based on fear alone, and the shrinking quantity of "balance sheet money" or credit money. I'll address this second fallacious argument in a later post since it is more involved.
How wrong people are. FOA intuited this back in 1998:
Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold. Michael, you are absolutely correct in that the USA will see a hyper inflation of its currency and a gold price in dollars that reflects it. Unfortunately, for most investors, the gold price rise will be sudden and also hyper fast, as it will occur just after a rapid plunge in dollar based assets including, stocks, debt and the entire banking system. This action will destroy virtually all gold based paper assets as they are also dependent on a functioning economic system.
...So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the worlds working poor. But this is not about to last!
...A grand hyper inflation is now ahead on the trail. It should be ushered in with a large "crackup" in the currency derivatives market. Once this event is "in process" the paper gold markets will quickly rush to discount against physical gold. A discount that will break our gold market pricing and physical allocation system.
...Baloney! The evolution of Political will is now driving the dollar into an end time hyper inflation from where we will not return. That is our call. Bet your wealth on the other theorist's call if you want more of Their last 30 years of hard money success.
These are from FOA's posts between 1998 and 2001. Was he wrong? Or was he early? You decide.
The following is an exchange I had just today in the comments section of an older post, so most of you probably missed it:
FOFOA,
You describe the inflation that will take place as "hyperinflation".
I am wondering if instead you meant strong inflation, e.g. a 1:5 gold revaluation upwards, as hyperinflation is usually attributed to Weimar/Zimbabwe-style inflation.
Currently debating this with a fine mind, so if you could clear this up, it will be much appreciated.
Hello Dave,
The circulating medium is what lubricates the real economy. As such, its specific value is meaningless except to say short-term stability of value is important to its function as a lubricant.
But the dollar is so much more than just a circulating medium. It is the very yard stick of a mountain of global debt that has reached its growth limit. And when that debt structure collapses it will bring down the value of a dollar to zero, or as close to zero as is physically possible.
Study the assignat and the mandat in France in the late 18th century if you want to see the future of the dollar. Study John Law's Mississippi paper. Every time a government that runs a debt and a deficit also gets control of issuing money, it always takes it to zero.
This has been coming at the dollar for a long time now. The hyperinflation is already present in all the debt. Every penny of one man's debt is a penny of another man's retirement plan. It will all be liquidated at the speed of a lightning bolt when the US Treasury market finally burps, or when the paper gold window finally mandates "paper only".
The dollar's value will already be decimated before Bernanke even gets started issuing the high denomination bills like we saw in Zimbabwe and Weimar Germany. Yet he will issue them, as that will be the only way for the US government to pay its current account, its debt service and its other liabilities, all denominated in dollars, some structural and indexed to inflation, others simply nominal. But it will be a mad dash to print like "crazy".
"Old money" and "public money" has seen this coming for a long time now. This is why the Central Banks in aggregate have switched from dishoarding gold to hoarding gold. When the debt brings down the dollar to zero and all paper investments tied to the value of the dollar evaporate, gold, in global aggregate, will inherit all the purchasing power lost in the dollar's collapse. Currency is a small part of this loss. Debt is the motherlode!
This is different from past currency collapses because the dollar is the global reserve currency. To view this properly, you have to realize that because gold is globally fungible, and the dollar is the global reserve currency and global accounting standard, gold's value reset will have nothing to do with inflation.
Gold's value reset will be from a shift in function, as it absorbs and inherits the global purchasing power that was previously stored in dollar-denominated contracts, including US Treasury bonds, on the balance sheets of the most powerful Central Banks in the world.
Everything else that is a fine store of value like fine art, classic cars, gem stones and commodities, will retain their present purchasing power (or close to it), but gold will be different. Gold will switch roles, from commodity to wealth reserve par excellence.
Central banks like China that hold a lot of dollars and a little gold will retain their present purchasing power at the least. The bonds will become kindling while the gold becomes priceless. A simple balance sheet weighting adjustment.
Anyone who tells you the global debt pyramid scheme has reached its mathematical limit, but then says the numéraire of that system will only see a gradual "strong inflation"; or anyone who tells you that the paper gold market's fractional reserves can fail and gold will only go up 5:1... hasn't thought through the real world implications very far.
We are playing 7-layer, multi-dimensional poker here. You have to be able to see beyond your glass fishbowl if you want to avoid the psychological trauma of reality when it comes crashing in.
Yes, we will see something resembling Weimar and Zimbabwe-style hyperinflation with the dollar. And the level of gold's revaluation will have nothing to do with this currency collapse. It will have everything to do with a separation of the monetary roles in the global collective conscience and on the balance sheets of the richest Giants in the world.
Gold will not rise like an undervalued commodity... 5:1 as you say. It will be more in the range of 50:1 to 100:1, and when you add in the hyperinflation, an ounce of gold will easily pay off the US national debt as it stands right now.
Of course the US will not be able to do that. Not if it wants to keep trading certain "essential" commodities with certain "essential" trading partners. It will have to honor certain paper gold contracts at the rate they were written to keep the "lubrication" flowing. So to speak.
Sincerely,
FOFOA
Thank you FOFOA,
IMO the debate comes down to severity and (most importantly) timing.
AFA severity, I expect it will be anywhere from far more severe than the majority expects to catastrophic (EOTWAWKI).
I picked 5:1 because that would bring the paper currency in line with the modern metal US currency (the melt value of quarters etc. are worth ~20% of their nominal value). Also, it's my gut feeling that they think 5:1 can be 'gotten away with' (which is wrong, naturally, but they will try as there is nothing to lose).
20:1 is slightly less likely, and at that point the pain from a 50-100:1 devaluation is not that much greater, so I can see TPTB shrugging their shoulders and printing away.
AFA timing is concerned, on or around 2012 seems right, not just from the apocalyptic expectations (which will aid it), but because round two of US mortgage resets peak out at that time, making it patently obvious there is no escape.
Any thoughts on timing would be appreciated. Have a big to-do list between now and then, would be nice to schedule it properly. : p
Hello Dave,
Money and power, good and evil, right and wrong, grand conspiracies and plain dumb luck all play a role in building unbalanced systems and blowing bubbles. But when it comes time for them to pop or collapse, these human endeavors are all completely irrelevant. I don't employ moral judgement nor geopolitics in my currency analysis for this very reason; they are irrelevant. Collapse is only organized by the Superorganism and it cannot be stopped, although under special circumstances it can be delayed.
The dollar system should have collapsed between 1971 and 1980, but it didn't. It received an assist from Europe, the Middle East, and later from the Far East. The purpose of this assist was to buy the time necessary to build another currency large enough to lubricate international trade in the event of the disappearance of the dollar. That ended in 1999 with the launch of the euro. What kept the dollar afloat since then is anyone's guess. I have a few theories. But they all seem to be expiring in 2010.
The euro was special in two ways. And by special, I mean special on an astronomical time scale. It was the first man-made circulating medium to separate itself from the nation-state, from the very ones who always crush a currency to zero. And it was also the first to sever its ties to gold. In other words, it was the first unbacked, irredeemable paper currency that not only acknowledged but supported an external store of value, gold. This can all be found in a famous speech here.
I don't know how much of my blog you have read, but I don't find the euro's present troubles overly alarming or existentially threatening because I understand why it is the way it is. Some European politicians and political appointees today are doing it great harm, but not existential harm, yet. The currency exchange numbers today are meaningless because all mediums must devalue against the debt paradigm. "It's the debt, stupid" is more than just the title of one of my posts. But please forgive me for meandering "aimlessly" in this reply.
It appears to me that you are expecting a controlled devaluation of the dollar by the Fed and the USG. This is something that is totally impossible in my judgement. First of all, there's nothing to devalue it against today, technically speaking. The only thing they can do is print base money to fill the credit money hole and the USG coffers, and they are already doing this. And they must do this. And they will keep doing this.
For the sake of your question I am trying to imagine how a controlled devaluation might be attempted, were they stupid enough to try. If the USG was the world biggest creditor, they could possibly devalue the denominator of all that debt 5:1 by forgiving everyone of 80% of their debt while printing more currency for their own needs. But the USG is actually the biggest debtor. So it would instead be forgiving its OWN debt and punishing its creditors... out of 80% of their savings. Do you think those creditors will then say, "more please?"
The best analogy I can come up with is a steep, avalanche-prone ski area. The ski patrol knocks down some of the snow after every snowfall. Because if you let it pile too high, and get packed, the whole lot will come down all at once. Either by gravity, or by a ski patrol cannon, or by skier, or by a deer farting. Any way you cut it, it all comes down if there's too much of it packed on the mountain. Gravity does all the work.
This snow pack is to the mountain what global debt is to the dollar. There's no way to do a centrally controlled devaluation of the dollar at this end stage of its life. It prices and denominates too many things, too many contracts, too much debt in the world today. This is the real essence of the dollar. Its "unit of account" function is, not its medium of exchange quantity.
And the physical plane that underlies it is completely unaligned with this precarious 'snow pack'. It is not representative of reality, therefore it has no sticking power. It's ready to come down on its own, so shhhh... be quiet and very still and let's hope the wind doesn't blow.
Regarding timing, the best I can say is "sooner rather than later." ;)
Sincerely,
FOFOA
For more, please see some of my older posts on Hyperinflation:
"What are you more afraid of? The dollar becoming worthless? Or losing your job and running out of dollars?
"The whole world is constantly shifting back and forth between those two fears, so money demand bounces up and down like a yo-yo, and velocity — the speed at which the money changes hands — does, too.
"These wild shifts in money demand and velocity have the same effect as massive, instantaneous shifts up and down in money supply. It's like we're having a huge inflation, then a deflation, every few hours — because our fears change every few hours — because the politicians have all this arbitrary power and we don't know what they're going to do to us!"
-Richard Maybury from "What Obama Does Not Know"
A Little Perspective
The Waterfall Effect
Shake the Disease
Call Me Contrarian
The End of a Currency
What Obama Does Not Know
Why All Paper Will Burn (In plain English)
All Paper is STILL a short position on gold
Hyperinflation by any other name
Dollar Repudiation
More Deflation/Hyperinflation Fun
Worst Case Scenario (12" Remix)
On "Hyperinflation"
Deflation/Inflation/Hyperinflation
What Modern Hyperinflation Looks Like
Hyperinflation Germany 1923
Time to Warm Up the Printing Press
Deflation or Hyperinflation?
No Go
Like anyone would be
I am flattered by your fascination with me
Like any hot blooded woman
I have simply wanted an object to crave
But you, you're not allowed
You're uninvited
An unfortunate slight
It must be strangely exciting
To watch the stoic squirm
Must be somewhat heartening
To watch shepherd meet shepherd
But you, you're not allowed
You're uninvited
An unfortunate slight
Like any uncharted territory
I must seem greatly intriguing
You speak of my love like
You have experienced love like mine before
But this is not allowed
You're uninvited
An unfortunate slight
I don't think you unworthy
But I need a moment to deliberate
95 comments:
Quote... " First of all, there's nothing to devalue it against today, technically speaking. The only thing they can do is print base money to fill the credit money hole and the USG coffers, and they are already doing this. And they must do this. And they will keep doing this."
this is a very important point, there is nothing to devalue the dollar against !!
Apart from itself Goldentube.
They can issue a new currency. I have also seen speculation of a 2 tier currency with different levels of devaluation toward American citizens and foreign investors.
"Of course the US will not be able to do that. Not if it wants to keep trading certain "essential" commodities with certain "essential" trading partners. It will have to honor certain paper gold contracts at the rate they were written to keep the "lubrication" flowing. So to speak.
Wasn't it exactly this problem that caused the great depression FOFOA? Debts were denominated in gold but it wasn't enough to settle the debts. The gold ran out and the only thing that could happen was for prices to fall relative to gold.
Isn't it a stretch to assume that the gold in storage will be enough to settle the debts? Especially when you consider the disparity in gold stores around the world.
this is a very important point, there is nothing to devalue the dollar against !!
That would depend on what you mean by 'devalue'.
Personally I value a dollar that buys me a whole bread more than one that only buys a single slice, and I would go as far as to say the latter is devalued.
Using that meaning the dollar can off course devalue against the real, tangible (including gold).
If a certain religion or idealism were to be in possession of most of the worlds gold at the time of this US dollar hyperinflation , then the collapse would be dealt with by those super wealthy idealist in a way that meets their religion or idealism expectations. Perhaps this whole re-balancing of wealth we will see, into gold will have far greater consequences than poverty. Do we understand people?
Just saying ; Idealism is what motivates human civilizations. What gives civilizations identity.I don't know who the people are in the world who possess the most gold but who ever they be , they will have the power to set the world on a course as they see fit. Just a guess but Islam comes to my mind.
PS.....Nice to read the views of a mature , intelligent author, writer , and realistic economist like FOFOA.
FOFOA,
I think it owuld be premature to assume there is no way to devalue. Fitts has been an advocate or at least talked about agriculture as a partial backing hence the aggressive push by MON and seeds etc. That is why the article re the Gov't cracking down on Amish farming to be interesting this am. Don't underestimate a cornered animal.
As an aside, Sprott out today saying that the day draws near when a gold bar purchase will not be possible. ZH has been harping on the inflows to GLD and how the ETF can't possibly be buying the gold to back it.
@S,
Link to the Sprott piece please.
Looking at SDR and Carbon credits progress from printing press point of view and Gresham´s low. Can one say that they are more obviously failed tries on implementing new currencies which should be used to prelenghten life of naked king?
Again and again I see articles stating Soros and his comment about gold being in bubble. Uff, give me a break, are our media so dumb? Can someone finally think a bit and say aloud that he reffered to LBMA/comex paper gold bubble not physical whcih he himself was getting?
Nice one, FOFOA. You've done a mans' job, sir.
I can't help but worry that the Feds have a plan for those who become wealthy by avoiding their ponzi scheme. Perhaps a FOFOFOA re-education camp for them.
Bernanke in testimony today played the fool when asked about gold. See no evil, hear no evil, speak no evil. But we know they are evil.
I just found this jolly good advice on a BUS!
Gold ETFs
When investing in physical gold, investors can choose
between exchange-traded funds or a direct investment in
physical gold. Please note that only exchange-traded funds
issued in Switzerland (gold ETFs) are allowed to invest
directly in physical gold. Exchange-traded gold products
that are not issued in Switzerland usually take the form of
asset-backed bonds (such as gold ETCs). Should the issuer
of these instruments go bankrupt, there could in the worst
case be a total loss of the invested capital. In contrast,
Swiss gold ETFs do not harbor any issuer risk, nor are there
any counterparty risks from gold derivatives. In addition,
almost all Swiss gold ETFs include the right of physical
delivery in gold.
Gold ETFs are traded on the SIX Swiss Exchange, which
means they can be bought and sold at any time during the
official trading hours.
Conclusion
For “linear” gold investments, gold ETFs and the purchase
of physical gold offer clear advantages over synthetic gold
products. When making a specific decision, the advantages
and disadvantages of gold ETFs versus the direct purchase
of physical gold must be taken into account."
@ Jeff,
Evil to the core -- I, too, heard Bernspanke's feigned ignorance about gold's movements. What a weasel.
Fofoa, could there be made a statement that interest rates can not increase so high like in eighties since they will make the debt pyramid blow apart?
I was thinking that higher interest rates may actually be hidden in currency CDS and thus not visible. If it is so then market has been already broken when these first appeared hich could support the old Another´s timing. Is that BS or does this hold some argument in it?
Gold mining cost Q1 2010 :
from $372 to $818 per oz
Gold mine cash costs rise in Q1
http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=105722&sn=Detail
miked,
RE: the great depression
hopefully FOFOA chimes in but here are a few amateur thoughts that may be helpful:
Debts were denominated in dollars, which were backed by gold at a government fixed parity.
That there was not enough gold in dollar terms to settle debts is a reflection of the error of the government fixed parity between gold and dollars.
The problem was not a lack of gold, the problem was that the price of gold was fixed. Enter Roosevelt with a temporary fix to the debt problem (a temporary fix until the debt grew too large again) - devalue the dollar with respect to gold, or letting gold appreciate.
The problem was not one of quantity of gold, but the inability of gold to perform its settlement function because of the government imposed fixed relationship between dollars and gold.
The solution was for government to allow gold to rise in value by breaking the fixed parity between gold and the dollar.
Something strange is brewing in the geopolitical world which might also be related with the timing of a major (planned) market dislocation.
I get a feeling that Arabs are being herded towards Turkey. Why?
Turkish PM is being branded as the New Hero of Islamic World;
http://www.salem-news.com/articles/june072010/israel-follow-kz.php
a new Nasser:
http://www.alarabiya.net/views/2010/06/07/110668.html
http://www.jamestown.org/programs/edm/single/?tx_ttnews[tt_news]=34359&tx_ttnews[backPid]=485&no_cache=1
While, on the other hand, he has also been awarded ADL's Courage to Care Award.
http://www.adl.org/PresRele/ASInt_13/4730_13.htm
Turkish President is a member of the Order of the Bath.
http://en.wikipedia.org/wiki/Order_of_the_Bath
Turkish Minister of Finance is from Merrill Lynch.
http://www.maliye.gov.tr/bakanozgecmis/minister.htm
----
The actions of these men do not conform to their profiles, unless, they have been ordered to act like that.
One solution that I can find is that US might be planning for ways to control the Arab population after making a devastating attack on Iran.
Just a guess.
Fofoa, I finally got an account so I can post.
I have been following the gold trail and you for some time. Always read your stuff.
Thanks for sharing your knowledge and for helping me see the light!
Getting others to see golds worth is a never ending battle. Keep up the good work.
what the hell is a SHEPARD do you mean shepherd
Haha... Thanks millenia. Fixed it. Lyric fanatics have the worst spelling.
tekin, who knows what's going down, but turkey's power base, while challenged in the past 5 years or more, has been mostly control by the anglo-americans (the bath reference is a good one). also, that they're building them up shows just how much on the Ang/Am side they are.
Setting him up to be Nasser and a pan-Arab unifier, though, I don't think will fly. the powerful arab countries (esp. those ceded to the UK at versailles) are still under the influence of Kissinger/Brzezinski, et al. so i don't see them being on different sides. But, the best way to provoke disagreement in the arab middle east is to try to allow one country to be the pan-arab unifier. in such a scenario, you might be seeing which of them wishes to flex their muscles (even if only their lip muscles) toward Israel.
It's also a possibility that one of these Arab countries will be convinced to attack Israel (in some relatively meaningless way) to help divert attention from both Iran and the state of the Western economies.
but this is pure speculation on my part. but i'll throw a swimming party at the deepwater horizon drill the minute turkey is the head of the pan-arab nation :)
really...that'll fly over like a fart in church.
FOFOA:
I was just wondering, could it be possible that the dollar is deliberately killed to ring in the Amero ?
I mean the dollar is so entrenched in the American lifestyle that the American people won't leave the dollar only if requested.
So I feel after we are done with dollar, and people are confused, angry, devastated and poor, Ben Bernanke, just walks out of the Fed and says, "there is hope guys, so what if the dollar is no more, here use Amero"
And people as they have always been short sighted, will jump on the Amero bandwagon.
I think a dead dollar is the only way to shove Amero down American throats ?
Are we heading towards a revaluation of oil in terms of Amero ?
Or a 2 tier Us currency Samix.
http://www.scribd.com/doc/25357471/25276054-Creating-the-Floating-Exchange-Rate-System-the-Fate-of-the-Dollar-2010-and-Beyond-1-11-10
@samix
Ben Bernanke, just walks out of the Fed and says, "there is hope guys, so what if the dollar is no more, here use Amero"
What exactly does a merging into a currency union with MX ( a hollow state) and CA yierld in terms of increased confidence? Perhaps a closer look at the AZ law in this regard is warranted.
While MX does have significant Silver resources (gold?) and Canada oil shale, coal and base metals that copuld provide backing - in some form of production "potential" never anything hard of course, it simply confounds logic. The US trade with CA/MX amounts to ~30% of total exports
(http://tse.export.gov/MapFrameset.aspx?MapPage=NTDMapDisplay.aspx&UniqueURL=eidvhyzmzltmcf55vggecufq-2010-6-10-11-5-35)
Imports on the other hand from these 2 are likewaise about 30%.
(http://tse.export.gov/MapFrameset.aspx?MapPage=NTDMapDisplay.aspx&UniqueURL=eidvhyzmzltmcf55vggecufq-2010-6-10-11-7-16)
The one worlders thesis may be a bridge too far. The problem the supposed group faces is that the the optimal time to intro a new currency is not in a crisis (the Euro). The death of the dollar will impregnate people with a distrust in fiat that a simple subsitiute at a supra national level will not assuage. marry this with growing advances in media and telecommunication and there is simply no chance that such a move works for any meaningful people of time - that is if you belive the sole intent is to press your ability to exploit relative cross border arbitrages (neocolonialism)
What would happen if the chinese wrote off all the US debt?
The poor Chinese workers would still be poor chinese workers and 'things' could carry on as norm ??
Regarda
Ozzy
asset managers fear obama would confiscate gold:
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=106063&sn=Detail
Gold's value reset will be from a shift in function, as it absorbs and inherits the global purchasing power that was previously stored in dollar-denominated contracts, including US Treasury bonds, on the balance sheets of the most powerful Central Banks in the world.
Although this seems correct I don't think this description is exhaustive.
First I think some purchasing power will flee into things other then gold. Perhaps silver, art, oil or other tangibles, just as people leaving a theater in panic will use all the exits and not just the main door.
Secondly a part of the dollar's purchasing power of the dollar perceived. This part will be recognized for what it is (a fantasy) an evaporate.
Thirdly we will still trade, albeit perhaps by barter. A part of purchasing power will continue to circulate in this trade. We might even use real toilet paper for that as I've read some war survivors from Yugoslavia claiming tp to have been a valued item during those distressed times.
FOFOA,
your comment on this ?
WHAT YOU ALWAYS WANTED TO KNOW ABOUT GOLD*
Antal E. Fekete
http://www.gold-eagle.com/gold_digest_08/fekete060710.html
especially the idea of : Real Bills Doctrine
You should listen to this, I'm serious :
http://www.youtube.com/watch?v=lPDsNjUPZAw
So funny it is sad.
@Raptor re Fekete
He says it all in the first sentence: To say that the gold standard is not practicable is the same to say that honesty is not practicable, and Constitutions are made to be blithely ignored when convenient.
Honesty is not practicable and constitutions get ingnored. We can all see that real life these days, and those who study history can find it in the past too.
I guess a gold standard is for idealists.
An excellent update on "roadplan" if you have missed it: http://home.comcast.net/~lcmgroupe/2010/Article-Extend_and_Pretend-Roadmap.htm
A good read on another person's opinion of "its's the debt, stupid". Includes current state and federal debt levels plus current declining tax receipts. See quote below. Pay close attention as to how the author states a person "should ride out this storm".
June 11, 2010
"This debt crisis will be resolved through inflation. The flaws in the deflationary argument are numerous, but at the very core,?deflationists are implying that the dollar will rise in value. This is positively nuts since we are the greatest debtor nation the world has ever seen. And I don’t care how well the dollar does versus other flawed fiat currencies; I am only concerned with its value relative to good and services.
In all likelihood, we will see the reinstatement of stimulus efforts, such as homebuyer tax credits, which will put renewed pressure on the dollar. Each round of newly issued debt pushes us closer to the tipping point when the dollar and bonds falter. Timing is the only question here. Investors
will be wise to wait out the storm in gold."
http://www.investingcontrarian.com/global/its-the-debt-stupid/
June 10, 2010
Bearish Schultz says hyperinflation may happen suddenly
"But ... hyperinflation is a monetary event, not an economic one, and will happen on an overnight basis, not via a general uptrend in inflation data."
http://www.marketwatch.com/story/hyperinflation-could-happen-suddenly-2010-06-10
www.sprott.com
Reasons to own Gold
#2 "THE INEVITABILITY OF A
COLLAPSE IN THE U.S. DOLLAR
The U.S. dollar is the world’s reserve
currency and thus anchors the world’s
monetary system. Unfortunately, by
virtually any measurement we look at,
the United States is beyond ‘the point
of no return’ with respect to its financial
position. Imbedded federal government
debt of nearly $13 trillion, unfunded future
liabilities in medicare, social security, etc.
well in excess of $50 trillion and a current
budget deficit of over 10% of GDP virtually
ensures ongoing massive monetary
debasement. When the near bankruptcy
of the majority of the fifty states in the
union is factored in, the situation looks
even more dire."
http://www.sprott.com/docs/Reports/reasons_to_own_gold.pdf
@ Shelby
You do edge closer to a revelation in your #2 comment IMHO with the notion that gold will simply go into hiding
The one currency scenario will fail as well which makes gold an almost certain bet as an appreciating store of value. Of course I assume you consider the digital currency as part of the one worlder thesis which facilitiates negative rates as another "tool" of the central bank. It is widely touted, even by the formidable establisment paper FT (Maverikon blog archives). Why shouldn't the gov't have the ability to expropriate your paper overtly isntead of cubtly through inflation?
The notion that one could time a bsuiness sale in the height of hyperinflation and buy a cash flowing business that keeps pace with inflation is a complete joke. First of all, who would sell a business under such conditions as the PV of an ever appreciating currency (unless you run a monte carlo on the end of hyper) even with declining demand would require unlimited capital (then again maybe just gold). And i assume the presumption is that the seller has already lined up another business to invest those deflating profits that turbocharges their "return." Then again there is always the centrally planned stock market. If the scenario you paint is the right one, why not buy out of the money calls (LEAP) on the S&P and avoid the operating risk (as Armstrong contends). Hell, use that as a tax planning strategy to hedge your cap gains risk for Pms owned.
Any move to institute a punative tax as remedy will only exacerbate fiat leakage to alt stores of value. Why is it that when the banks say a tax on capital will simply be passed on to consumer the same logic isn't applied to POG? People aren't buying gold as a tax arb against paper. That afterall is the point. (as an aside Barter would skyrocket and the black market would explode - econ 101 -think illegal drugs which the US gov't itself pegs in the hundreds of billions)
Shelby @
One simple solution would be to sell your gold and buy yourself a mansion after the high inflation period (in the midst of hyper) and sell it after the hyper inflation ends.
Pros: you can rent it
Cons: property taxes
Long time ago I heard an argument that US will have hyperinflation as Japan has deflation. Reasoming was quite simple: Debt in Japan is held internally while in US it is held externally.
IMHO it should of happened long time ago but there is one difference which postpones it as far as it can go - that USD is also a reserve currency and tied to oil so it is harder for CBs to leave the "somehow working" system. But when other CBs see another viable system which could replace it they ALL will not wait a sec and race there. They watch each other very carefully nowadays.
Present system is centralized with leadership of FED and other follows more or less. It still have lot of power. The future system is in a way a competition to them and in a way CBs will be forced to compete so that means a lot of politicions will have hard time :o) thus anticipation. We see already BIG changes in Japan, Germany, GB,... and it is just a mild beginning.
But markets work they way inevitably, day by day it is more obvious where we are heading... it is also visible in the increased amount of fraud and scam failing. Even the big one who were shielded by states are not safe anymore. So THIS increase of honnesty and cleaning of the mess is very positive and one can say already a first step in a new system. We already now see also 2nd trend that money are being made so those who search for information and use it have advantage. In the same time those in "know" in old system also are gaining a lot. So a lot of unfairness on the way but that is unfortunate but how else to change whole system?
You were right, markets will bring us there; the power of CBs is failing and falling, new function of gold guaranteed. It WAS ALL about debt now it is HOW to get out from HERE to THERE. And about HOW LONG does it take. No way gold will be over taxed or confiscated at all places at the same time (all present currencies are via debasement) atm. See what did Swiss many years ago to go with flow to come out at the end with their gold in BIS system hiding. Those who will confiscate/tax it will find themselves left to figure it out and they will find out the hard way.
Fofoa, I have realized you got some nice inspiration or you have same conclusions as LeFevre. :o) (should be a must for all just to make one to think).
http://news.goldseek.com/GoldForecaster/1276304400.php
(...The savings propensity of the average Chinese earner is remarkable, for they save around 40% of their disposable income....)
What would be the result if the western governments spent say 1 trillion on purchasing money ( gold) and not dept? Of course with the intent to drive the price in currency as high as would allow.
Wouldn't the increase in the value of money ( gold) then cause a huge surge of spendable capital into consumption( industry) ? Wouldn't this save the current Fiat system at least for a few decades?
One Intervention Two Interventions One-Two thousand interventions... Ops :o)
http://www.marketskeptics.com/2010/06/draft.html
erik @
In fact that would be the wisest solution of any government.
The reason being, that at the moment as we see all gov/banks do a competitive debasement to get advantage.
AFAIK they did the same thing in great depression, but against the dollar (which of course was based on gold).
But I think this works best in Europe, because the gold on their balance sheet floats..
Can you imagine in a month ECB, comes out of the blue and says.. sorry we don't have the money to help troubled nations.
We bought gold with the 1T we printed ;))), OK 1T is too much, but wiht 25% of the money.... !? still too much
My god,...
Massive BP Coffee Spill!
Cheers!
All,
Two interesting posts on Bron Suchecki's personal blog (Perth Mint exec).
Shortages of fabricated gold products:
http://goldchat.blogspot.com/2010/06/coin-shortages-coming.html
Another interesting short post.
http://goldchat.blogspot.com/2010/06/gold-and-clash-of-civilisations-by-andy.html
Hi FOFOA,
Thanks for all your hard work. I notice you enjoy your anonymity so I hope I don’t insult you with personal questions, but the more I read the more I wonder who the heck you are.
I read Another and FOA before I found you and I understood some of it but not even close to your ability to understand and then dumb it down for me. Am I just dumb or are you some sorta MENSA genius or do you have a day-job that helps you fill in the gaps that I can’t seem to understand on my own?
I seem to remember you saying once that you were advising a client. Are you a big-time Wall Street investment banker type or a financial planner non-Wall Street type?
I seem to remember that you just in the last few years got interested in gold. Do I remember that correctly?
If so, do you spend 20 hours a day studying this stuff so you have all the answers? Are you a mile ahead of everyone else but still learning as you go along? Or has all this knowledge been packed in your head for a long time?
Do you look back on some of your first posts and realize you didn’t know as much then as you do now? If so, are there opinions in your past posts that you no longer agree with?
I read Steve Hickel’s page and a very few other things that talk about the relationship between gold and oil and the dollar and the one-time revaluation. What other sources are there that I should be studying.
I read your posts and they make so much sense to me that I’m sold (rightly or wrongly I’m 100% in gold). But then, every once in a while I think to myself what the heck am I doing? How did I buy into this gold fairytale that nobody I know seems to think makes any sense. FOFOA, what can I read or study or experiment with to help me get over these periodic bouts of buyer’s remorse?
Thank you. Thank you. Thank you.
@ raptor....
Yes but just imagine the anger of citizens of the western world, the nations that really count when the music stops?
Any western nation that takes the lead on spending fiat on gold will be a winner.
It won't matter what other nations think unless you have no gold.
Whoalaaa, seems The $IMFS come with Cards on the table:
http://neuralnetwriter.cylo42.com/node/3025
(sorry to those who have already seen this and reposting is redundant; Thanks Steve Netwriter!)
...note: a nice confirmation of SDR versus something containing gold
...questions arise:
-> timing, why now?
-> real major purpose?
Most natural responses aligned with info from here I would say (the way I understand it)
=> It seems involuntary, in hassle and because it can not be delayed any longer.
=> To save the debt system.
=> Cos gold seems to be "somehow" unstoppable, real people seem to have their vote now.
I would also add to here the news about the move from few nations like Korea and develop. countries to restict OTC.
Shelby: I would say that in China people save 40% of their disposable incom not because of the peg, this is a new issue, they have been like this for ages. Look, they do not have pension funds or state who could pay their generous pension via redistribution, in that you are right. But show me the nation where creation of savings is so big? They save for themselves, for old age, kids, etc. and now they have valuable way how to do it -> in PM. I would say this is quite an issue for gold market no matter how you look at it from inflation/deflation point of view. They look at us "moving for work from city to city" like to nomads and they build their nests. Even if China goes down they have their home, the basic nest in their ownership. The speculative RE market could be wiped off and life goes on, economy is not dependent on it on such scale like on west.
FOFOA,
I re-read some of your older posts, and the anticipation of a major event was palpable, especially early in 2009. The fact that 'it' hasn't happened just shows how difficult it is to time these things. I wonder if in 20 years people will be reading FOFOFOA blog and discussing the same topics. Ironic, no?
For those who follow Jim Rickards, he has a new interview on King World News today.
Shelby, i did read your second article but still don't get it. My understanding of what you are describing is fiat replacing fiat. My problem is I don't see any gold backing if high interest rate is offered, also countries running trillions in deficits still, fractional reserve banking, ...
You are talking about high interest rates which will attract people, but what about debts going to infinite simultaneously? Are debts already wiped out? If so, how one can became wealthier by obtaining 20 % of freshly printed money? They say they will print another 20+ % of money soon and we should be attracted? Rather get rid of it. Makes no sense to me.
You brought to my attention some very good points but why even to mention gold, gold certificates and gold backing in your article if it is just devaluation to yet another fiat?
@Shelby, :o) but then please explain why also Indonesia, Korea, Malajsia, Thailand have same high savings rates.
Fofoa,
First, Thanks for guideance.
... http://www.imf.org/external/np/pp/eng/2010/041310a.pdf...
Given the fact about SDR being distributed among nations, in the same time must be convertible to gold, :o)
I wander what country calls bluff and following France exchanges?
Isn´t it Russia, China, other nations doing that also already slowly? Isn´t it those 2 big gold producers who no more share their mining results with world?
Shelby @
Read your link.. you've never lived in socialistic country, so you don't know..
But let me tell you there is black market which gov. can't control.. and whatever they invent there will always be.
In my country no one could have a company ... everybody was a gov. worker in a sense.
But still 90% of the ppl were doing services to each other w/o paying taxes and getting their pay in cash or barter or service.
Not many ppl knew about gld/slv but everybody knew about Dollars and Marks.
One more thing it was illegal to have them unless you are working related job like outside of the country and so on..
but still many ppl had Dollars and Marks.
And the most interesting part of all official exchange rate with the dollar was 1:1, but on the black market it was 3:1 (i.e. 3 times more expensive).
My point is whatever is money will be traded on the black market if pushed hard with high taxation or illegal.
So ppl not exchanging "money" in the black market if overtaxed or whatever is a fairy tale.
Of course if gld/slv are not perceived as money then they will not be traded.
But that is another point.
contd....
I think most of the ppl make the mistake that if there is some ID system and everything is electronic you can't do anything !!! (I agree you are constrained, but..)
May be this false impression is because of more that 30-40 years of pervasive non-cash money and alot of sci-fi movies..
But when the "knife-hit-the-bone", most ppl will switch to the real physical world ... because it is a matter of survival not some fancy-shmancy virutal money.
Electronic way of trading may be bigger on volume side, but when it comes to person-to-person trading that is not the case.
I'm talking worldwide, not weastern countries only.
contd...
and to finish ;), my argument... if like you say this new currency is based partially on gold (i.e. government shows clearly it values gld like a money) it is almost sure they will force black market, especially if they try to clamp it down.
Do you think rich ppl wont find loopholes in law to convert their gold into the new money if they want !
Look at today top financial companies CEO's they get less taxes than average worker, event that they make much more.
Shelby: "In fact, those in the blackmarket will be losing 20+% annually of their purchasing power."
Andy: You're contradicting yourself. The 20% interest rates will be, you say, due to the scarcity of the new currency. Due to its sheer robustness. Yet you say those not participating will be losing 20% purchasing power, despite what you say will be a deflationary environment. Unless you've forgotten to tell us about annual increases in taxes, it doesn't make any sense.
Where did you get 20% from anyway?
Shelby
This is great. I have some gold but have always thought FOFOA's idea of "freegold" was never ever going to happen. It implied WAY too much freedom for the sheep. Meritocracy coming is a laughable joke.
Is the link you provided the main place you post, I have not read it all yet. Great stuff that rings so true to me.
With just seeing it just now, I would echo the question of where did the 20% come from? Is that just the carrot to get out of hyper-inflation? TPTB will say here is some new fiat and you will EARN 20% interest and that is what kills the black market since there is no interest earning there.
Your posts seem so much more about reality and how the world has been working, and how you predict it to work, than this freegold utopia of how things SHOULD work.
thanks
tdfxman, there will be no interest earned in the black market, nor the condoned market. Once you spend your money...you cannot earn interest on it. I don't understand earning 20% if you're lucky enough to get the currency and "live like a King on that 20%, because we will be in period of massive deflation (falling prices)", yet "those in the blackmarket will be losing 20+% annually of their purchasing power."
@shelby
>>The reason people went to such extremes in your country was because their survival was threatened.
Incorrect.. :) this was during the happy times before the collapse of socialism.
@shelby
Yeah I find this interesting too how you come up with 20% interest paid by the banks and deflation at the same time :)
Also I find it hard to believe ppl will fall in love with the new currency (whatever it is) after they have been shafted with hyperinflation.
At least in the first 10y.
After high inflation may be, but after hyper inflation !! not so sure.
raptor,
Couldn't help laughing at this:
"Incorrect.. :) this was during the happy times before the collapse of socialism."
It reminded me of Dmitry Orlov's analogy about the collapse of the Soviet Union feeling like falling out of a ground floor window while for the USA it will be like falling out of a tenth floor window.
Cheers
Shelby,
Welcome to the FOFOA blog. In case you missed it the heading reads:
FOFOA
A Tribute to the Thoughts of Another and his Friend.
Clearly you haven't found the time to read any of the archived material available in the links on the right hand side of the home page.
As a favour to you I have extracted Another and FOA's predictions from 1997 and 1998 about taxes on gold under Freegold.
As an additional favour I will break it down for you.
1. The gold miners will be the targets for high taxes. For political and practical reasons they are the soft option.
2. Anyone holding paper gold when the transition to Freegold comes will be burned.
3. Personal holdings of physical gold will be envouraged by EU Governments and their allies.
4. No-one knows what the specific tax regimes will be on the sale of gold in other jurisdictions. At present it ranges from Zero to the equivalent of the taxpayers' marginal income tax rate.
If you cannot be bothered to read FOFOA's archive (BTW did I mention that this is his blog) you will bore the s#@t out of most people with your half-baked theories and predictions.
http://www.usagold.com/goldtrail/archives/another2.html
Date: Sun Dec 07 1997 18:45
ANOTHER (THOUGHTS!) ID#60253:
Try to live in this outcome and see how different the world will be. It will not be the end of all things, only the changing of most things in "western thought". The "Digital Currencies" will still trade, but we will value them as not before.
Anyone who has sold gold they do not have will not be allowed to cover that
position. Anyone who has brought gold they do not have will not be allowed to cover that position. Many will lose all they have in a world without honor!
Looking back , one will ask, "how could I have thought that noone wanted gold, when more of it was being brought than existed"? Indeed, more gold than exists or will be produced in the next ten years! And some say, "only a fool would say the market was cornered".
During that time, a gold stock in the hand will not trade on an open market! And the government of the country, of the land, of the mine, will no doubt speak with you of new taxes on GOLD!
http://www.usagold.com/goldtrail/archives/another3.html
Date: Sat Mar 07 1998 23:37
ANOTHER (THOUGHTS!) ID#60253:
Mr. Mozel,
The USA placed a special "windfall profits" tax on domestic oil during the last major rise in prices. I do think the oil stocks would have shown a greated value had this tax not been in place. Because gold will soon become a currency, mines will be taxed in a much greater way. Also, domestic mines will be asked to sell directly to the treasury at the "preceived commodity value" value of gold, plus an opperating margin. As no private company will be allowed do your treasury job, "produce money". Gold in the hands of the public will be thought of as a good thing, as citizens are asked to "pull own weight" as the government is much under.
Continued/
/Continued
Date: Sun Apr 19 1998 15:09
ANOTHER (THOUGHTS!) ID#60253:
REPLY:
Date: Sun Apr 19 1998 03:38
Drifter ( ANOTHER'S Thoughts ) ID#270447
Date: Sun Apr 19 1998 14:18
OLD GOLD ( ) ID#238295:
There will be ample time for holders of gold bullion and gold shares to sell their holdings for huge profits. Drifter was right on target here. Let's worry about getting POG to $350 this year. We have a long way to go on the upside before confiscation and/or taxation becomes a realistic concern.
Mr. Drifter and Mr. Old Gold,
If you search the "thoughts" posts provided by Mr. Sharfin, many of your conclusions are addressed. Many do feel that if "the gold mines were safe in the past", "they will be safe in the future". I submit this persons thinking for your consideration:
"The Western public has always thought of gold as money. Even after the 70s and 80s, most private investors held a small side thought, that gold was still, somehow dollar money. It was only during the late 80s and 90s that people started to completely lose the connection of paper spending money and gold.
Clearly, all evidence shows that prior to the 90s and particularly prior to the 50s, the push was to change the publics thinking away from gold money, to paper currency as money. In this political climate, gold mine investments were the correct move, as the business of gold was encouraged over the usage of gold as money! That is why the metal was called in and the mines were untouched.
However, today, the change will be counter to the prevailing public opinion, that gold "is not money". The world debt system and currency exchange, as we have know it will implode and leave little room for political maneuvering.
The governments will revalue gold and "demand" that the public carry it and
use it! It will be the source of all gold, the mines, that will be controlled! That's Controlled, with a capitol "C", not confiscated!"
Mr. Old Gold,
Sir, I do read your writings and consider your thoughts! Thank You
http://www.usagold.com/goldtrail/archives/another4.html
8/10/98 Friend of ANOTHER
Michael Kosares,
Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold. Michael, you are absolutely correct in that the USA will see a hyper inflation of it's currency and a gold price in dollars that reflects it.
Unfortunately, for most investors, the gold price rise will be sudden and also hyper fast. as it will occur just after a rapid plunge in dollar based assets including, stocks, debt and the entire banking system. This action will destroy virtually all gold based paper assets as they are also dependent on a functioning economic system. A local gold mine, in any country, must sell production to realize a profit. The contract system they deal with will not be functioning during this time. Contrary to many hopeful investor, local treasury officials will not allow miners to pay employees or buy equipment with physical gold. When the dust does clear for mining to continue, gold will be recognized worldwide as real money, and the mining of money will, no doubt, carry Extreme taxation. Stock prices of these operations, after being priced to zero, will then double or triple in price. Zero times three equals?
Continued/
/Continued
9/3/98 ANOTHER (THOUGHTS!)
Replies (9/3/98):
However, never before in history has gold been cornered in currency terms. Not physical terms. Never before in history, has a world reserve currency, the dollar, been forced from a high gold valuation to a low gold valuation, along with a destruction of world gold market. Because gold is traded today, worldwide in dollar terms, the transition will destroy the capital assets of 99% of all mines. Please place yourself in " context of future events". Physical gold will not reach $30,000/oz because noone is buying it! It will come to this level
because the dollar, today, is already inflated to level that will bring this price.
The perception that this dollar is "no longer a good reserve", it will bring the flood of buying. This "already printed and in circulationtoday" currency will seek gold!
Governments will tax mines for the right to produce money and force them to sell production in terms of whatever the new world reserve currency" is at that time. Euro? Because gold mines are the "unique" circumstance in world of investments, their owners will suffer a "unique" problem of definingwhat they really own!
Also, remember, gold will rise soon as world trading continues this course of change. However, at some point, when the dollar market is destroyed, noone
will know the currency value of gold thru an official market. Paper gold will not do well as the currency world is at war! The true surge of gold in dollar terms will not show until perhaps a year has gone by. During this time of trouble, physical gold will prove to be "the investment and holding for a lifetime".
ANOTHER: Gw, I would say, all forms of physical gold is good to own. Even the rare ones offer the "art form", yes? Even in war, the art work is looted first, then the jewels, and always food. I prepare for not the war of men, but the war of currencies! This conflict will bring forth a new concept for many: "western governments will encourage people to hold physical gold "! When the Euro has defeated the Dollar, citizens will be asked to use gold as a savings, for holding the Euro will be frowned on. Gold will not bring your "capital gains tax" as the mines will be taxed to compensate.
Yes, rare gold will be good, but not as liquid as "bullion type" gold.
Thank You
"The point is that the new currency will be paying a real, after tax return."
I have no idea, how you can achieve this without hyperinflation.
"I asserted that they are compatible, because with very high interest rates, then it means by definition there is a very high demand for the currency and very low supply of people willing to lend it. That by definition means that money printing has ceased."
I'm definitely not an expert but my understanding is, it is high demand for loans which pushes interest rates higher. You wrote something else.
The discussed IMF$ "plans" with the SDR: there's still alot of talk about this, but honestly, is anyone really taking this serious? I could go into details with arguing (Randy Strauss and FOFOA already expanded on it) but the fact that about 80% of the world has already voted for the MTM freefloating Goldreserve, simply makes it obsolete!
I wouldn't be surprised that behind the scenes, the $ camp already has given in to the facts of FreeGold. In the end, they too own Gold.
And whats going on presently is that the so called PTB have already lost a lot of their power, it actually doesen't take much to move them out completely! I noticed here how much they listen and take up whats coming from below (they know well who's their master in the end!), actually they're quite unsure and clueless on whats going on now. Cooperation, transparency, honesty and putting aside party agendas is the name of the game in these times, with a high degree of urgency!
Of course the time can be filled with talk about SDR, but talk is cheap...
Hey, to close on a funny note, did you also lol on that other posters proposition here of a WOCU (World Currency Unit)? Didn't catch it initially as english is not my native language, but when I spelled it, it described the old $IMS tune so aptly ;-)
FOFOA,
I would be interested to know what you mean by 'the future gold market will be private'. At the prices you describe it seems unlikely that we will find a buyer on craigslist for a one ounce coin. A dealer may be able to provide liquidity, but also a paper trail and 1099.
Do you believe that the G will not attempt to tax the gains on gold? Or are you describing a gold black market?
News hint: European gold demand - Bernhard Schnellmann: Director for Precious Metals Services - Argor-Heraeus:
http://www.mineweb.com/mineweb/view/mineweb/en/page96985?oid=106014&sn=2010+Detail&pid=102055
A Signal from the Stock Market
QE to stock market correlation
http://www.kitco.com/ind/Turk/turk_jun142010.html
During this time gold went from ~950 /march'09/ OR ~865 /april'09/ to ~1221 now.
(may be ~200$ per 1T$, I expect this to get more as the new trillions will be printed in worse conditions. Your thoughts ?)
good to know (always in the back of my mind) :
http://www.dshort.com/charts/mortgage-resets.gif
http://www.mint.com/blog/trends/who-owns-the-worlds-gold/?display=wide
Fofoa, all,
A little follow-up on A/FOA thoughts from the late nineties:
The BIS announced last week that "an economy can also thrive with high inflation"
The IMF has been bragging about the gold standard (see Jim Rickards on KWN), even though still pushing for SDRs as new reserve currency.
All seems very consistent with the A/FOA hypothesis of a rivalry between $IMF vs. €(gold)BIS.
Are we nearing the endgame (1-2 yrs) ?
Also :
Do you still think silver will not perform very well ?
Are you still only bullish on bullion alone, not on goldstocks ?
Kind Regards and keep up the good work.
Gold Will Continue to Shine
http://www.smartmoney.com/investing/economy/gold-will-continue-to-shine/?page=all
I love it when the media, which never told you to get into gold in the first place, is now telling you to get out. It is just classic .....
Came across a quote by Dr.Milton Gilbert, economics adviser of the Bank for International settlements , " Some people seem to have the vision that as the central banks become used to the new reserve assets... they will begin to prefer them to gold, and that gold will gradually disappear as a monetary instrument--- or at least become unimportant. This seems to me to be plain fantasy and about as close to reality as the original idea of Karl Marx that under communism the state would gradually wither away."
Enjoy you're views and keep up the good work.. FOFOA.
raptor,
Would you agree with this statement about the USSR?
"The Obama administration has taken a page from the government of Soviet leader Mikhail Gorbachev and Chernobyl in censoring the bad news from the Gulf oil mega-disaster. The Chernobyl cover-up largely resulted in the hastening of glasnost and the ultimate collapse of the Soviet Union."
Power Blackouts And Water Shortages Threaten Florida
http://www.zerohedge.com/article/power-blackouts-and-water-shortages-threaten-florida
Costata, that comment about USSR is probably derived from Dmitri Orlov. He has a blog comparing the USSR collapse to USA, recommended. Also, his work Closing the Collapse Gap can be found online. It is eye-opening.
The "Fat Lady" is backstage warming-up.
"The scramble for physical is accelerating. Following in the footsteps of PHYS and GLD, yet another gold trust announces a follow-on offering, in which the entire $800 million outstanding under the firm's previously filed Shelf will be used up. "Substantially all of the net proceeds of the offering will be used for gold bullion purchases, in keeping with the asset allocation provisions outlined in Central GoldTrust's Declaration of Trust and the related policies established by its Board of Trustees." $800 million is equivalent to 640k ounces at today's fixing, or about 20 tonnes. With this 20 tonnes of gold being sucked out of the market, and GLD's gold NAV hittinging another all time high of 1,306 tonnes, (not so) slowly all the gold is being sucked out of the system. So yes, even as stocks were off to the headless chicken races, gold once again staged a rally, which would make absolutely no sense if the market was at least a little bit less broken."
http://www.zerohedge.com/article/physical-scramble-accelerates-central-goldtrust-announces-imminent-purchase-20-tonnes-gold
"Welcome to the New Gold. It moves as a proxy for itself. A weak dollar, a strong dollar, it doesn’t matter. It moves because of its own fundamentals. It is a hedge for inflation like your house but is far more portable. It earns no interest, but it will if someone can’t make delivery...."
"Stop looking for correlations and just ask yourself, who do you know is buying gold to sell it? Who do you know, deep pockets or shallow, that is flipping their investment? The only sellers of Gold are hedge funds with short term perspectives, and the IMF which is selling it to Central Banks."
http://www.zerohedge.com/article/morning-gold-fix-june-16-2010
costata@
>The Chernobyl cover-up largely resulted in the hastening of glasnost and the ultimate collapse of the Soviet Union.
I think this probably was the final pin in the coffin. But a pretty major role also played the unending Russian war in Afganistan.
Can't be so sure about USSR, but I think the top apparatchiks, someway knew about the forthcoming collapse.
Why I think so, you would ask? ... here something to ponder about in pre collapse days ;)... afaik the total debt of my country ~1986 was ~9B$ ... after the collapse 1989++ it went to ~15T$
And very interesting there were alot of communist one-day millionaires which now became capitalists.
The following years there were many anecdotal facts about oldtime apparatchiks having companies abroad and also buying whole companies in my country (in many cases for less than the cost of the buildings).
I think we can see similar things in usa during this switch from capitalism to socialism.
Shelby, I guess noone interested in your crap money here; you can dedicate your own blog or whatever and let your fellows/opponents open their minds there.
Sure, I don't know future but my answer is you are too obsessed with your own IQ and blinded by your Great theory. Perhaps you are being convinced by idea 'because nobody is refuting my theses now, it must be a sign these theories are well based', but that's not the case.
@ Shelby;
At least, we (gold holders) could survive till the end of hyperinflation. Most people would throw the towel long before that.
Next? Well; your insistence on taxing the pm holders until suffocation gives a new meaning to A/FOA thesis, that, "gold could go into hiding".
Your 20% interest rate on gold makes me smile. Doubling time is 3.6 years. See
http://en.wikipedia.org/wiki/Rule_of_72
You are assuming that people would deposit 120,000 tons of gold into world government bank, and after 3.6 years, government would be able to pay them 240,000 tons of gold. Not possible. That much gold simply do not exist.
Assuming that above ground gold stock is 150,000 tons and annual production is 2,500 tons, maximum gold interest could be %1.7 (2500/150e3). Any one offering higher is a con artist.
http://en.wikipedia.org/wiki/Con_artist
Reading Harry Schultz, Jim Sinclair, Doug Casey et. al. it seems that the big players anticipate trouble and have taken precautions (three flags theory, incorporate in one country/hold assets in another/operate in the third country, store gold in Zurich/Hong Kong etc.). It is the small players that are in danger; but that is why black markets exist after all...
How about this for an idea:
Taking possesions of precious metals is insurance (like a CDS) for protection against the bankruptcy of a central bank with Nature as a counterpart.
The bankruptcy of a central bank is not the same as the bankruptcy of a government. Sometimes they happen both at the same time but not necessarily so.
Since central banks are, well, central to this financial system (not the economy) - as set in stone by the currently prevailing monetary philosophy - one may say that gold is insurance against our human folies with Nature as a counterpart.
Jeff,
Thanks for the tip. I'm familiar with Dmitry Orlov's work.
That excerpt was from a MMS article. Since raptor apparently hails from that part of the world I was wondering if he thought it was true ie. that the Chernobyl coverup hastened the collapse of the USSR.
@shelby
There is simple reason why the Fed can't raise the % to 20%, USA is in big debt and 70% of economy is services which is different than the situation in 1980.
If there is jump to 20% it will be because the market impose it not because the Fed want and when the market imposes it will mean austerity not prosperity.
Also as one previous posters said giving 20% to the savers would mean that the gov/fed have to find from somewhere 20% more gold every year.. if you have not followed the news even that the price of gld increased the last 10 y the gold mining production is declining from 2001. The incentive is here but there is no more production.
It is no matter of conspiracy simply supply and demand mechanics.
Not only that but as FOFOA said and I agree to do something like you are explaining usa/europe will have to find something to pay its obligations to the creditors.
Only then a credible new currency can be created otherwise it will be even worse fiasco.
I have refuted every one of your logical arguments on this point ... :)
have a nice day.
raptor,
Thanks for your perspective. FWIW I think the asset stripping of the USA is an "inside job" too. The scenario for Russia that you outlined fits with several accounts I have read.
Tekin,
"Next? Well; your insistence on taxing the pm holders until suffocation gives a new meaning to A/FOA thesis, that, "gold could go into hiding"."
+1,000
Particularly true if it is taxed on sale. Another key point that our taxation seer fails to grasp is that there are invariably loopholes in a tax regime to allow the insiders to minimise their tax. Sadly, it is the poor and those without resources who are usually trapped.
Regarding Volcker:
What I'm essentially claiming is that there's no such thing as a precious-metals bubble.
This assertion may surprise people who remember 1980, when gold touched $850 and silver $50. In the '90s gold bottomed at $250 and silver at $3.50. These numbers are even more extreme when we factor in debasement. Doesn't this look like a bubble?
It does, and it obviously represents a cycle of levitation and delevitation. The only sense in which there is no such thing as a precious-metals bubble is the one in which a "bubble" is sure to pop, like our condom bubble. Remember, markets are perfectly free to store all human savings in a single precious metal, or (if they find some other store of value which seems to work better, such as an artificial collectible) to store no savings at all in any of them.
What happened in 1980 is that the Fed, under the great Paul Volcker, successfully defended the dollar (and other national currencies, which are and were all backed by the dollar) against exactly the same event I'm predicting now: a currency crisis with self-accelerating flight to precious metals.
Volcker faced an existential threat, and he used every weapon at his disposal. The most obvious, and the one he is best remembered for, was ending almost all debasement and letting the market set interest rates. Short-term rates went well above 20%, considerably exceeding the official value of the I-word, and certainly into positive debasement-adjusted territory.
But for another example, one action the Fed took was to just tell banks, on the basis of no legal authority at all, to stop lending to anyone who was buying gold or silver.
This illustrates the tenor of the times. Finance in 1980 was a tame little pussycat. Hedge funds barely existed. Today, the Fed would never do this, not because banks would disobey - banks are still pussycats - but because today's global financial market is a huge, snarling wolf-dog, and displays of fear are unwise...
Gold's main weapon is one we alluded to already: a sudden, self-reinforcing, and complete collapse of the dollar and all other artificial currencies (except maybe the Swiss franc). It's time to look at exactly how this would work.
In a nutshell, the problem with the dollar is that it's brittle. It's hard to imagine a Volcker-style, contractionary defense of the dollar today. When Volcker did his thing, the US was a net creditor nation with a balance-of-payments surplus. Its financial system was relatively small and stable. And it had much more control over the economic policies of its trading partners - the political relationship between the US and China is very different from the old US/Japanese tension.
Fed policy since the crash of 1987 has been to insure against risk by stabilizing crises with liquidity injections - that is, hefty dollops of new money. It's no secret that the financial industry has responded by taking on more and more risk. This vicious cycle of "moral hazard" is a policy that's hard to change. For today's Fed, short-term rates of 5% are dangerously high. 25% is not a serious option.
Any fractional-reserve banking and monetary system, like the US's, is destabilized by any outflow of dollars. For the Fed, what is really frightening is not a high gold price, but a rapid increase in the gold price. Momentum in gold is the logical precursor to a self-sustaining gold panic.
In a self-sustaining panic, flight to gold destabilizes the banking system and the bond market, causing waves of bankruptcy across the financial industry. The Fed's cure for bankruptcy is more liquidity - but monetary expansion only increases the incentive to buy gold. In the endgame, money flows out of the dollar as fast as the Fed can pump it in. This is the collapse scenario that leads to remonetization.
Cont...
The above is from here. It has been discussed, linked and used in posts here many times, including my post Gold: The Ultimate Un-Bubble in which I wrote:
1980? This Time is Different!
The only way for a purely symbolic fiat currency to survive the sudden, self-reinforcing and complete coup de grâce (death blow) from its nemesis, gold, is for the central banker to get ahead of spontaneously exploding interest rates without completely demolishing the economy on which it feeds like a mutant parasite.
In 1980 this was possible, but only barely, through a drastic rate increase to 20%, and only because the economy and the national debt load was much different at the time. If the same thing was tried today the economy and the government would come to a standstill, followed by a complete and utter collapse. For this reason it is not only unlikely, it is impossible.
In 1980, the US was a net creditor nation with a balance-of-payments surplus. The financial industry was small and stable. And the US was not subservient to foreign creditors. Today the national debt is over $12 Trillion, the US Treasury Secretary must kowtow to the Chinese, and the financial industry is a brittle behemoth built on derivative quicksand.
Because of these fundamental differences in 1980, Paul Volcker was able to successfully defend the dollar against the same existential threat which WILL take it down this time. That threat is capital flow into the dollar's lifelong nemesis, gold!
You can thank all the players and their activities as identified by GATA for making this time different. You can thank the mining giants that sold forward paper contracts for their future gold. You can thank our Central Bankers who leased half of their gold into the market to squash their foe. You can thank Rubin and Summers for their "Strong Dollar Policy". You can thank Alan Greenspan for the easy green. You can thank them all for making damn sure that this time there is absolutely nothing the Fed will be able to do, nor will it want to!
Interest rates will rise with a vengeance, and soon. And the Fed will have no way to get out in front of them, and no desire to do so either, which would make the Fed look like the entity that single handedly destroyed the economy and the government's golden egg-laying goose. No, the Fed will prefer to let Mr. Market destroy its Ponzi currency scam with the Chairman's remote aspiration of avoiding the hangman's noose-wielding angry mob outside with nothing left to lose.
Unlike 1980, this time gold will go up and stay up! I'm not saying there will not be a temporary overshoot in actual purchasing power. But with the specter of hyperinflation looming, it will not be worth the attempt to capture the overshoot. An exit from gold may just capture YOU in the wrong paper at the most wrong time in all of history!
A Functional Change for Gold
Some people call it the spontaneous re-monetization of gold. They mean that gold will resume one of the three basic monetary functions under the common concept of money. I, on the other hand, call it the complete and final demonetization of gold, meaning gold finally breaks all parity with paper equivalents and trades only in its physical form, trading as the inverse of paper. These re/de-monetization differences are only semantic. We are talking about the same thing.
And Shelby, actually it will be quite easy to keep you off my blog. I will just keep the comments on moderate and not put yours through. And when you sneak through under a different name later, I will simply delete them.
Adios amigo.
FOFOA
Shelby,
Please don't try to force your opinions on people who are not interested in your views. Try to have a little respect for FOFOA, his blog, and the other posters. If your thoughts are not solicited, or in this case prohibited, accept it and move on.
I don't understand your resentment toward FOFOA and his views. The bitterness demonstrated in your responses is inappropriate. None wish you any malevolence so behave toward others as you would wish to be treated yourself. Please learn some manners and respect the opinions and property of others. Publish your views and opinions on your own blog as anyone interested in your beliefs can read and respond at that location.
Have a nice day
Aleksandar,
Well said. Nature cannot be bribed or coerced into creating gold at the whim of a politician or central banker.
FOFOA,
Returning to matters Euro, Freegold, A/FOA etc
The weak handed longs keep lining up to get reamed just as A/FOA predicted.
From Harvey Organ's blog:
"You could tell that the banker cartel did not like to see demand rise in both silver and gold. They also see an opportunity to raid these unsuspecting longs who put on stop losses. These stop losses will be exploited by the banking cartel."
Jesse: "...Note 1: The latter case is the most difficult phenomenon to understand, but is behind much of the financial crisis which we are experiencing today. Inflation can occur even if money supply is flat and declining, because it is the level of demand for the money that could be dropping even while supply is constant. A example of this would be Europe in the aftermath of the Black Death, in which case the 'wealth' remained constant but the number of people demanding it were reduced dramatically and precipitously. If the value, the productivity of a country is all that stands behind a fiat currency, if that productive capability is in decline, to be replaced by 'service,' then in fact an inflation can occur even while the nominal money supply is flat or decreasing. One has to consider what is 'backing' the money from an external perspective..."
...nice and deep, all neatly aligned with Another, FOFOA, etc. thoughts on this subject. I can not add more than the internet news move very fast...
I tell you something about a black box model on example.
Somebody wrote:
"...If you think about it, there's a lot of risk have all your wealth tied up in the currency of any one country. Something bad happens to that country, it's currency is worth a lot less..."
Apply on each and every one currency.
Existing precondition:
-> If gold is considered a currency with no counter party (behaves for some time already as currency not as a commodity)
-> If a gold is sold/could be bought in ALL countries
= so we may assume that gold should go little up if in one country there is a small problem, other countries exist still and their production substitutes. Price of gold should be more or less stable.
So, how to explain that gold rises in ALL currencies for last 10 years?
=> We have to get heads examined if we do not see that something very very fundamental is wrong in ALL currencies.
RE: Gold taxes...
If you were in charge of implementing the next monetary system and based it on gold, would you put a tax on the basis of your new system? Assuming that you were wise enough to accumulate a hoard for yourself, would you put a punitive tax on your own weath?
However, if you were to implement another fiat system and people were reluctant to adopt it, you'd probably put a massive tax on that which would compete with your new fiat currency.
I think it was Rickards that pointed out that you tax gold when it competes with your money. And I think Lindsey Williams, fwiw, pointed out that TPTB don't tax what it theirs. And their money is gold and silver.
It doesn't take a conspiracy theory to noodle that one out but I think Lindsey got that one right.
Michael Maloney on Nationalization - 08/02/09
http://www.youtube.com/watch?v=mtYdnCGZbGA
very nice interview. Explains the dynamic of why not.
Just a little adjunct to your comments FOFOA:
"Unlike 1980, this time gold will go up and stay up! I'm not saying there will not be a temporary overshoot in actual purchasing power. But with the specter of hyperinflation looming, it will not be worth the attempt to capture the overshoot. An exit from gold may just capture YOU in the wrong paper at the most wrong time in all of history!"
It will be possible to swap gold for real assets. I think that is more likely to be the mechanism bringing gold down from an overvalued level than currency traders making a quick buck.
Well I was proven correct in the end:
http://goldwetrust.up-with.com/precious-metals-f6/how-will-we-physically-trade-gold-silver-at-5000-500-t61-135.htm#3323
Fofoa, you are a fraud. Now I see you are raising $ from your readers. I have never done that, I have written 6000+ posts in the past 4 years with more valuable truth than the nonsense you preach.
You won't even reveal your identity.
And I know you will censor this post again or only print parts of it (another way you deceive readers).
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