Monday, July 12, 2010

Debtors v. Savers II - FOA Retro House Mix

Trail Guide [FOA] (2/12/2000; 9:52:36MDT - Msg ID:25137)

Hello ORO,
Well, I knew that if I only asked, we would all receive! Boy did you deliver in ORO (Msg ID:25113).

Good stuff for everyone to read, my friend. You mentioned; """ The comments below - particularly those to Aristotle, are somewhat harsh. I hope this is taken in the spirit of friendly criticism."""

Sir, you can serve me (and probably everyone here) your "harsh" anytime. Waiter ,,,,,,,, I'll have a double order of that please! (smile)

OK, brace yourself ORO ,,,,,, a big plate of my "Trail" harsh coming up!


You write:
-------There are consequences to the existence of a fiat currency and for the use of debt money for trade settlement. FIAT HAS NEVER BEEN THE CHOICE OF THE PEOPLE ACTING IN COMMERCE OF THEIR OWN ACCORD. Even when wildly popular, fiat money has not had a single instance when it had not been established by force - by laws imposing its use.-----------


On a larger scale there was always more to it than this. Human society has from the very beginnings formed tribes and picked sides against each other. When we are not battling nation against nation, we jockey for position within our own groups. Right down to "me and my neighbour against the three houses down the street. As a tribe ,,, as a nation ,,,,,, as a group ,,,,,, our war is really a human problem with each other and always has been. In better context; the problems are in the way we use our laws and governments to gain advantage over the next in line.

Whether through force (war) or democratic means, we subject ourselves to the order of governments. We rightly perceive that,,,,,, the order gained from this action ,,,,,,, the security of a group, overcomes the rights and property lost on a individual level that living in a tribe requires. It's been this way through the ages. It's a political process that has always had its in-house battles ,,,,, namely portions of society try to circumvent their percentage of lost rights and property by maneuvering the rules (laws) in their favor. Yes,,,,,if I can gain the advantages of tribe life and still keep my "lost portions",,,,, I'm gaining wealth to the disadvantage of the group. Truly, the most obvious action of not paying your taxes,,,,, and that's only a small item when viewing the world battle as a whole.

So, how does this apply to money?


This is true, but this was never the thrust of the argument. The use of money in any context, fiat, gold or seashells, has always entailed the use of borrowing and lending... And as long as economies function at a profit, debts are made and paid back without argument. However, when the eventual downturn arrives, some portions (perhaps a large portion) of the owed wealth (debt) cannot be returned.

It's here,,,,at this point in tribal life,,,,,,,that all of the context from above comes into play. The "reality" of life on this earth is this: ,,,,,,Some portion of society will use their influence or control of the leaders to make their debts easier to pay. In fact,,,,,it's times 2 for that number of government influencers ,,,, because even the ones that have debt owed to them will try to alleviate an impossible pay back situation to save the ones that owe them face.

You see,,,,,tribal life and the human nature that comes with it ,,,,,,,, will not allow any money system to "completely" destroy the wealth of a good portion of society. Even if everyone is plainly shown that they are going to lose something ,,,,,,they would still opt for the good of the overall tribe. This is why we return,,,,time and again to fiat monetary systems. In the few examples where a gold system brings the harsh reality of loses to bear on a nation,,,,,, usually war is the result. Not a good outcome.

Yes, we can break gold into many small parts,,,,, 'stamp it into coins and circulate gold certificates as money. We can borrow it, lend it and also circulate gold bonds as the economy grows. It is the perfect "weights and measures" monetary system. Exactly representing our productive efforts in every facet of human endeavour. But, when the losses mount, our tribal human tendencies will not allow us to support a government or banking system that forces these real losses on only a portion of the group. Never has,,,, and never will! Without this escape valve, we go to war ,,,,,, internally or on a world scale,,, so we all can share the loss,,,one way or another. As a human society of thousands of years,,, outside of war,,,,, we have learned to inflate our loses upon everyone as a whole,,,,,for the good of the keeping the whole from each others throats. Even to the point of a total loss of the current system,,,,, and all the destruction that entails for everyone.

Yes, indeed,,,,,,,we will transition to the next fiat system from the dollar, when the time comes. Believe it!


For myself and other observers ,,,,, we know about "peace on earth" and live our life in this context but,,,, as a member of the world tribe,,,,,, and following our best interest,,,,,, one must still arrange his affairs to shield their family from the "I'm going to get yours" times we live in. Should we get our leaders to help us? Well, the leaders of this world can only be but a reflection of us as a whole. Yes, many things are not right, but they can only strive to do what can be done, not what must be done.

Consider the dilemma:
If a small portion of society telegraphs thoughts that "if we cannot have our oil we will go to war",,,,,,,, how would you force them to not elect officials that ease their pain from a gold money system? What's right and what's wrong is not the issue,,,,,, it's what this present generation will live with that rules. If they will break the gold yoke, no matter what,,,, then why place gold on them? Is it not better to at least free the "knight" (gold) for the good of those that would stand with him?

During the period we are now entering,,,,,we can see all the ugly aspects of a fiat system that is failing its tribe. Look far and wide and witness the various groups ,,,, all jockeying for position as they use whatever influence they have to lessen their own private losses. If this had been a gold system, the outcome would be the same,,,,, as players force their leaders to lessen the gold debts that could not be paid. They would raise the price of gold and inflate their way out of it,,,,,, for better or worse ,,,, come hell or high water.

So, my friend (smile),,,,,,, as you can see,,,,, I completely agree with all of your post. Only, my trail is hiked with a different mind. "Another" mind set, if you will. We use the life experiences of man to dictate the best path to follow. As such,,,,,, Gold must not be part of any money system,,,,,, it must reside as a freely traded asset without debt or paper to resemble it. In this position ,,,,, its value can fully represent the ebb and flow of the affairs of man. And in doing so retain the wealth of man as a holding of things. Truly, the "Wealth of Nations" in the peoples hands. We move forward by starting at the beginning of time.

We'll talk much about this and all the affairs of the world,,,including gold,,,, on the gold trail.

"We walk this new gold trail together, yes?" I hope to see everyone there when I return.

Trail Guide

Trail Guide (2/14/2000; 8:08:19MDT - Msg ID:25302)

ALSO: The point I was trying to make in #25137 (and the question I was asking) was this;
A full gold money system works during level and rising economic dynamics. It also works "VERY" well during a downturn. In fact it works "Perfectly" all the time! It's the lending of money that creates debt, be it gold debt or fiat debt ,,,, and the failure of that debt during a downturn is what causes the pain.

I ,,,,, we as gold bugs ,,,,,, most financial thinkers ,,,,, do not debate this point. The argument is that: If the pain dynamic (losses) of a financial downturn is not "Somewhat" shared by society as a whole ,,,,, the economic dislocation always intensifies until we go to conflict. (see my earlier post)

It's during the downturns that society in general will not tolerate a full gold system because it concentrates the loses upon their rightful owners. As such "these same" are usually "wiped completely out" and the fallout effects on the social and economic structure can be widespread and very destructive to tribal life.

Again, history has proven, time and time again that humans will not allow the full (natural) effects of gold money ,,,,, if it threatens to create factions. They accept gold during long periods until conflict (internally political or externally war) forces a break in the gold bond.

We, as nations, will break the "gold bond" by calling for the shared pain of inflation. Whether we (as countrymen) understand the reasoning behind it or not; currency inflation (not price inflation) in the modern world is carried out until its debt destroys the current system ,,, thereby sharing all the pain of the losses before it. We then move into the next fiat system.

The question:

Is it not better for all ,,,, if we remove gold from the official currency structure by forcing derivatives failure and creating a free physical only marketplace,,,,, so as to keep "us" ,,,,,, ourselves ,,,,,, from controlling it through our politicians?

Through "legal tender laws" currently in place ,,, let's force us (ourselves) to continue to create debts only in paper. As such, "they" ,, "we" can manipulate the fiat as needed for society.

Does this not place gold in it's rightful position of being a "real currency asset" as it was chosen to be used from the beginning of time? A private money for trade and savings that's outside the 'contract / debt' system. Your thoughts?

Trail Guide

Robert Mundell:
--------I think that legal tender is a very old institution. It certainly goes back thousands of years and legal tender is an institution, whether we like it or not is going to stay. ----------

Robert Mundell :
------There's no institutional mechanism by which we could ever duplicate the kind of financial system we have under a system that relied almost entirely upon gold. Of course you could always have a system that used a lot of paper that was in some sense convertible into gold. You could always find a price of gold that you could convert that paper theoretically into gold. But I don't think anyone has thought in terms of the enormous price of gold that would be required in order to achieve that.-----------

Larry Parks:
---------George Soros says in his book Soros on Soros that the gold standard had to be given up because it did not make possible a lender of last resort. And says Soros, because financial markets are in his words "inherently unstable" you have to have a lender of last resort.-------

Trail Guide (2/14/2000; 18:20:51MDT - Msg ID:25335)

Thanks for your reply, ORO.
My comments presume that readers have read our full posts.
Your major point, logic and comments that I got from your post (25310) , followed by my comments:

I pointed out that it is the existence of a "lender of last resort" that causes the debt boom

ORO's Logic:
It is obvious then, that had there not been a lender of last resort there would not have been a substantial credit crunch, because the lenders would not have taken the same risks they allowed themselves once a promise of bailout was given, and thus would have avoided the credit boom.

ORO's Comments:
The argument is false in that it is circular. (FOA note: I think he is referring to my logic?) The lender of last resort was there in the first place, the inevitable credit boom followed, the credit crunch followed - just as inevitable - and a further lender of last resort was needed. History shows that the credit policies of the BOE led to its bankruptcy before WWI and before the Fed was created. This was among the reasons for the argument for the Fed being pressed. All the previous lenders of last resort were tapped out and a new one was necessary. In 1929-1930 the Fed was tapped out and the gold standard obligation was abolished shortly after.

My (FOA's) Comments:
ORO, I cannot accept that a "lender of last resort" causes a debt boom. It presumes that a great portion of lending is done for reckless, uneconomic reasons. Yet, at the end of great expansions many projects that were considered "blue chip" in the beginning still go bad. Sometimes, the most necessary economic activity is curtailed because people's needs change during the course of life ,,,
not to mention a recession. Thus changing business dynamics.

How many instances can we document where banks lent into real demand ,,,,,,, backed with the very best demographic patterns ,,,,, only to find the loan blow up from changing demand. Oil in the late seventies would be a convenient example for us (smile). People were breaking down the doors of the old "Texas Commerce Bank" in Houston ,,,,,,, all in an effort to finance hugely profitable petroleum projects. This was no flash in the pan, as the oil industry had a progressive expansion history of 15++ years before this. Truly, a lender of last resort was the very last thing on their minds. Later, even paper based on $10 producing reserves was trashed! Certainly there are many, many other examples,,,,,,,, most are of a more mundane, unglamorous nature, but fine examples.

Was this really circular thinking on our part? Did the Lender of last resort exist during the 'South Sea Bubble" or the "Tulip mania",,,,,, and did the "Black Plague" of Europe shut down a few sound financial systems then? I think gold was the norm in that period?

ORO, this portion of your thinking needs to include the other side of the lending aspect,,,,,, people want and demand loans for sound, economically justifiable, profitable projects,,,, and they get them on sound lending principles. Still, some 90% of them can become only "at the margin" when demand changes. And typical of our human society, we all shift at once.

Truly, my friend, bank loans often fail because human events change the course of money dynamics ,,,,,, and it does so in a way that is beyond the vision of any lender. Be the lender you, me or a group of people such as a bank, large portions of deals go bad just as much from human affairs as from "over lending".

After all, the entire economic structure of the world is nothing more than a people dynamic ,,,,,,,,, in the long run it's just too risky to bet one's physical gold on (huge smile)!

Yes, our present financial system gives the impression of total insanity,,,, but we are looking at the very "end of the timeline",,,, not how it began. It all starts with the very first loan and progresses until everyone has borrowed "too much", but no one wants the music to stop. Last resort lenders then become the norm because society will lose "across the board" if everything is "marked to the market". It is not a circle (smile) as it starts and ends with the currency system (gold or fiat) everyone demands to borrow into. It all ends in the shared pain of debt collapse as the debt is discounted to zero from price inflation ,,,, even if it's based on gold ,,,,,, gold that cannot be returned. Not much different from our present gold loan structure. We will move on to the next money system when this one ends.

If it were gold we started with? The banker would lend his gold only to find the same metal returned to his bank as a new deposit. The "society at large" would remove his franchise if he did not re-lend that same gold during "good times", "booming times" no less! Round and round the gold goes.

Reserve lending hits its limit and society demands the limits be raised again ,,, and again ,,, and again! Lender of last resort ,,,,,, or not.

In our modern world we must remove gold from the official money system, place it in a free market and people will use it as wealth money, not borrowing money. Then the fiat can come and go as the wind! Yes?

You agree now! I'm so very glad!

Trail Guide

Trail Guide (2/14/2000; 21:11:17MDT - Msg ID:25350)


I have read much of Mises and even a few others. Actually, I completely agree with them that the Gold money systems of the nineteenth century worked very well. As such we do not fall into any of the groups that argue against that concept. Our problem is with people (smile).

In a Money and Freedom speech at a Mises meeting Mr. Joseph T. Salerno made this point:
-------Unfortunately, the monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War One.----------

Further, he stated:
------Within weeks of the outbreak of World War One, all belligerent nations departed from the gold standard. Needless to say by the wars end the paper fiat currencies of all these nations were in the throes of inflation of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst.---------------

My point (as an extension of earlier posts):
No country, however rich in gold or resources, can continue to fight a war once their money runs out! Consider ,,,,,,, You and your family as a country, a nation ,,,,,, you are under attack and have spent the last of your gold ,,,,,You will print money and continue the effort, no matter the inflationary costs,,,, come what may!

Many nations utterly failed to return to the original gold standard simply because they were mostly tapped out from the war. At the best, the richer, surviving countries would have taken a major economic hit by going back into a full gold system. All the eventual gold deals and non-deals were little more than a part of the progression of events that lead us here today. All in an effort to keep from fully marking to the market the cost of a shared loss in war, defence and other financial failures.

There is not one person among us that ,,,,,,,,, if their family was completely broken from the war experience ,,,,,,,,,, would have asked for a return to gold. In full a honest context, millions would have starved in the process. The world opted to share the loss and spread it out as far and as long as possible.

The war experience is but one example of why society has such a hard time with an official gold system during times of stress. Over and over again we have seen where gold is the very best holding and defence against private and public financial loss. Yet, when large scale national loss threatens society as a whole ,,,,,, it's always the money system that receives the brunt of the demands for change. Society demands that whatever money system is in place at the time of stress be shifted so as to spread the burden amongst all. Is it right?,,,,,, is it just?,,,, I do not think so. But it is what we do and have done for a long time!

Today, if gold can be forced out of the official money system, it will be to the benefit of everyone during times of stress in the future. In times of war people spend the legal tender in commerce. Yet they save the food, liquor and necessities. A common currency of the world would be just such a necessity to hold as part of your wealth.

Trail Guide

Read more here.


Zach said...


New Commenter. btw, thanks for your insights; they are greatly appreciated. I'm learning much here.

So... Your point here was...

That gold should exist apart from the currency system (whatever it is at the time - paper or rocks) as a world-wide "super currency" (for lack of better words) which functions solely as a "Store of Wealth" that is universally accepted and not a Medium of Exchange, itself, or backing for such.

Am I correct here? Is this Freegold?

mortymer said...

Reading archives, those who suppress gold price will suppress as long as they will have resources to do so or in other words, until the lender will say "no more". So China put new competition into rating agencies and that is a BIG first step to say others who are worth clients.

Jimmy said...

Here's Niall Ferguson's Complete And Definitive Guide To The Sovereign Debt Crisis

FOFOA said...

Hello Zach,

You are close. For one thing, I'm not saying gold "should" do or be anything. I'm not proposing an action, other than perhaps a personal defensive action on your part.

Freegold is about observing and understanding what is actually evolving out of our broken system, partly with an assist from the euro architects, but mostly driven by history. Further, it is about deducing the necessary implications of this process.

Many analysts watch the daily news very closely as if the rest of the tomorrows depend on today's actions. But the way I see it, all of the yesterdays carry much more mass and momentum toward the future than today does.

So I'm not saying gold "should" be a "Store of Wealth" that is universally accepted. I am saying gold "is" the very best reserve asset and this trend will continue to its natural end, most likely in an "inverted waterfall pattern" at some point.

Look at the ECB's Eurosystem foreign reserve assets (reserves NOT denominated in euros) since it began in Jan. 1999, all the while employing its Freegold MTM concept and methodology. The gold portion, while decreasing by 1,743 tonnes over 11.5 years, has still risen in value from 30% of foreign reserves to 65%. It is on its way to ~100% of forex reserves. This is Freegold.

You can see it for yourself. Compare the Consolidated OPENING financial statement of the ECB as of 1 January 1999:

...with the Consolidated Financial Statement from July 7, 2010:

Non euro-denominated reserves are calculated by gold plus all claims denominated in foreign currency (including SDRs) minus all liabilities denominated in foreign currency (and SDR).

In 1999 Eurosystem gold was 30% of its foreign reserves. In July, 2010 it is 65%.

"and not a Medium of Exchange, itself, or backing for such"

As long as you can freely exit the medium of exchange into the store of value as well as return they do not need to be the same thing nor to have any kind of a parity relationship. A "floating" relationship is the opposite of a parity or semi-fixed relationship. This is the very unique idea behind the Freegold MTM concept.

Just look at the ECB's Consolidated Financial Statement for proof. Think about the purpose of foreign or "external" reserves, both in a central bank zone and in your own family unit. The purpose is essentially the same. They are not for everyday transactional purposes. They are "for a rainy day."

As for "backing," traditionally this means a fixed parity price between paper and gold, and a one way flow of physical gold from official sources into private holdings. But as Robert Mundell pointed out above (underlined), a currency can be considered to be "backed" in a floating price regime (with a two way "free" flow) at an "enormous price of gold."

"Am I correct here? Is this Freegold?"

Yes sir, I believe it is.


Mike said...

funny how gold in those ECB reports area always the first lines stated per section.

i know you (FOFOA) have never come up with a specific percentage of what one should have allocated to physical gold (if it even exists) but do you think that perhaps copying the ECB would make sense of having 65% and watching it grow as well?
i know this number fluctuates but i guess even having 30% would be good enough since it was for the ECB.

what do you think will happen when Gold hits 100% of the ECB reserves. Is it even possible? How much longer can the paper gold price rise before the BIS gets their wish of a physical only gold exchange? perhaps they want their paper value of other assets to collapse from the reports of the last G20 and from Germany today instead. if that happens and the commodity price of gold collapsed also it will still be worth more then the paper assets.

austerity would help out with freegold. the US doesn't like this at all, how does the keynesian system work like this lol.

costata said...


Nice follow up to Part I. The quotes from FOA give more clarity to the social history behind this "reversal in polarity". Thank you once again.


Thanks for those ZeroHedge links. The posts themselves and the discussion in the comments were informative and food for thought. I think they are a must read.

If Germany is going to push for debt restructuring IMHO that's an important step in the Euro Freegold transition. Music to my ears.

If A/FOA were right we can expect to see the inflation card hit the table from the ECB following the austerity measures, debt restructuring and bank restructures.

QE to infinity by the Fed, the rising value of CB Eurosystem gold reserves, further contraction in the use of the US$ in trade and a host of other factors will give them scope to inflate the Euro issuance IMHO.

Ivo Cerckel said...

Former Fed chairman Alan Greenspan wrote in his 1967 essay "Gold and Economic Freedom" that the store of value becomes the medium of exchange. (1)

That evolution has happened.

The euro wants now to reverse this process???

The euro severed the link with the store of value,
said European Central Bank president Duisenberg. (2)

As long as you can freely exit the medium of exchange into the store of value as well as return they do not need to be the same thing nor to have any kind of a parity relationship. A "floating" relationship is the opposite of a parity or semi-fixed relationship. This is the very unique idea behind the Freegold MTM concept,
says FOFOA above, July 12, 2010 3:27 PM


A central bank should only look after the currency it administers.

But as Greenspan wrote in his quoted essay, in a welfare state, deficit spending is necessary in order to hide the truth that a welfare state is impossible without excessive taxation.

In his essay, Greenspan does not seem to take into account the fact that the central bank is lender of last resort.

Being lender of last resort means that the central bank injects liquidity into the banking system and that it does this by buying domestic assets from these banks. (3)

The welfare state and the fact of being lender of last resort
led Europe’s politicians
to impose the Stability and Growth Pact upon the euro,
whereas the architects of the euro only wanted freegold?

Jean-Claude Trichet, president of the European Central bank,
is still unable to utter the four-letter word, GOLD. (4)


There is indeed no euro crisis. There is only a crisis of the world (including the eurozone) economy.

Why can’t the guardian of the euro not say that his child is not a thalidomide baby?
Because then he would have to recognise that the welfare state and the fact of having a lender of last resort are the real culprits?
The welfare state and the fact of having a lender of last resort are the real thalidomides.

Gresham’s law says: "Bad money drives good money out of circulation".
Taken at its face value Gresham’s law violates the general rule of the market that the best methods of satisfying consumers tend to win out over the poorer.
Actually, Gresham’s law should read: "Money overvalued by the State will drive money undervalued by the State out of circulation".
Gresham’s law thus says that when government intervenes in monetary matters IN ORDER TO DEBASE CURRENCY, bad money drives out good money. (5)

As long as you can freely exit bad money ????

And exit the welfare state and the lender of last resort? (6)

Ivo Cerckel


Ivo Cerckel said...


In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable.
(Gold and Economic Freedom
by Alan Greenspan

The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state.
(International Charlemagne Prize of Aachen for 2002, Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002

Paul De Grauwe, "Economics of Monetary Union", Oxford University Press, 2007, 7th ed., p. 130)

Is Mr Trichet an economic-policy maker or a monetary-policy maker ?
Last Thursday 08 July 2010, at the press conference after ECB governing council meeting leaving interest rates unchanged,
Trichet said he wants to restore the functioning of the financial system
by minimising moral hazard
but his stress tests
which are intended to restore confidence in the banking system
(strengthen investor confidence)
look only at yesterday’s symptoms.
Since the stress tests don’t address the structural defaults of the financial system, they cannot predict, let alone “remediate” to, tomorrow’s symptoms
(Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions, says Wikipedia.)

Murray N. Rothbard, "Man, Economy, and State – A Treatise on Economics", Auburn, Alabama: Ludwig von Mises Institute 2001, (originally published 1962), p. 783

Mode de gouvernement
Auteur: Cankara
Date: 27-06-2010 22:59

costata said...

Jesse makes a telling point about currency issuance here:

"The underlying value of the dollars are deteriorating. So even though there might be fewer dollars nominally, in fact there should be much fewer dollars because of the contraction in GDP. And the quality of the assets underlying those fewer dollars are much lower quality than only a few years ago." (My emphasis)

Dave Narby said...

A fan?

Ivo Cerckel said...

Yes, I know:
The ECB will not define the euro like the old gold standard as a certain quantity of gold, but will use it as a free trading financial reserve so that each increase in the price of gold will bring about an increase in the value of the euros reserves and thus an increase in the value of the euro itself

But I’m confused,
probably by the welfare state and the lender of last resort,
and most of all, by Trichet’s gold (not: golden) silence.

When will Trichet make that use explicit?
When will he explicitly talk about that use?

Trichet is not interested in the value of euro?

Trichet is only interested in the promotion of the welfare state and of "lendership" of last resort?
And interested in the "fiscal" (I like the double euphemism) "position" of the guv’mints imposing themselves upon euroland?

Screw the Stability and Growth Pact!

Let the euroland guv'mints go bankrupt.

Who will pay the ECB bureaucrats? Good question!

Answer: the market, stupid.

Wendy said...

Ivo Cerckel

I have followed your comments on this blog since 2008, and very much respect your insight. However I would appreciate if you would "dumb-down" your last comment, so that the simpletons/ME could learn.

Kindest Regards,

Tyrone said...

Mike said...
i know you (FOFOA) have never come up with a specific percentage of what one should have allocated to physical gold

I'd recommend reading Your Own, Personal, Freegold
Somewhere between 0% and 100% lies the exact percent that will perfectly preserve the purchasing power of your savings today. Anything above that number will EXPAND your real savings as we transition into Freegold. Anything below it will DIMINISH your purchasing power. So what is the magical number? No one knows. It is unknowable! Is it 1%? Is it 5%? In my view it is probably somewhere between 3% and 10%. But as I say, know one knows. This is why FOA said the REAL LEVERAGE is in physical gold in your possession. Not in leveraged contract paper!

And... Tyrone will NEVER be revealed! Cheers!

Mike said...

lol ya i read that before.....

the closer to 100% the better for the theory but worse if it doesn't work out.

costata said...

Sir Ivo,

I read your post (from 2003) at Free Europe. Thanks for the link. A cogent description of many important aspects of the Euro Freegold concept.

"This currency concept is closer to the tenets of libertarianism than a gold standard because of the exchange restrictions which inevitably follow."

Very impressive.

costata said...


I don't have an opinion about how much gold anyone should hold (even though we have a table at the All Inn).

I do, however, believe that there is ample evidence to support a "cost of production put" under the price of gold.

I bounced this idea off Greyfox in a comment (one of the last there) on Timing Is Everything.

Leaving Freegold out of the equation, if gold is being managed to maintain a profit margin over production then the question is: Will the gold miner's overheads continue to rise?

If the answer is Yes then owning physical gold is a one way bet. A no-brainer IMO.

The message in this for the newbies reading these discussions is that if limited downside appeals to you then the decision to accumulate some physical gold doesn't have to depend on gaining a perfect understanding of Freegold or even accepting it as inevitable.

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

@Ivo Cerkel

Jean-Claude Trichet, president of the European Central bank, is still unable to utter the four-letter word, GOLD. (4)

Trichet did utter that word. How about this:

"Secondly, there is a relationship between poetry and money which has always struck me. Poems, like gold coins, are meant to last, to keep their integrity, sustained by their rhythm, rhymes and metaphors. In that sense, they are like money – they are a “store of value” over the long term. They are both aspiring to inalterability, whilst they are both destined to circulate from hand to hand and from mind to mind. And thirdly, both culture and money, poems and coins belong to the people."

Tells me he knows gold.

Here's the link.

Martijn said...
This comment has been removed by the author.
Ivo Cerckel said...

Wendy said...
Ivo Cerckel
I have followed your comments on this blog since 2008, and very much respect your insight. However I would appreciate if you would "dumb-down" your last comment, so that the simpletons/ME could learn.
Kindest Regards,

Okay, the difference between taxation and theft is that
the thief does not return periodically,
nor does he pretend to be stealing in the public interest.
If central banksters were paid by the market, many of the existing bureaucrats "employed" at the central banksters would be redundant.
Thou shalt not aggress!

In my 2003 post, "derivates" should be replaced with/by "derivatives".

Here’s the bottom line:
The welfare state needed thalidomide to justify or legitimate itself.
Without thalidomide, there would never have been a welfare state.

In 2005, advocate general Walter Van Gerven at the European court of justice argued in his book "The European Union – A Polity of States and Peoples", concerning the principle of equality:
Good governance, as we understand it here, is not only about procedures but also about aims and results. An important aim is equal concern for citizens in helping them to achieve their personal goals. It requires public authorities to treat citizens –and residents- alike before the law, to eliminate discrimination and, where appropriate, to take "affirmative action", as it is called in the United States –, "positive action", as it is also called in the EU – to remove consequences of past discrimination. [...]. In the EU, equal concern is understood to IMPLY ALSO [Ivo underlines] that public authorities should regard human dignity and the pursuit of social justice as an aim of the welfare state [...].
(Walter Van Gerven, "The European Union – A Polity of States and Peoples", Stanford University Press, 2005, p. 171)

Andrew H. Bachhuber, S. J.,
An implication is anything that is implied. Now in logic, “to imply” means “to involve the truth or presence of”. If two propositions are so related that if the first is true the second must also be true, the first is said to IMPLY the second. [Ivo underlines]
(Andrew H. Bachhuber, S.J., "Logic", New York, Appleton-Century-Crofts, 1957, p. 2, note 3)

This means that before guv’mint can play welfare state,
before government can deal with the indefinable (1) concept of "social justice"
guv’mint must first pay its debts.

This thalidomide monster,
who was never compensated and whose health is severely deteriorating since reaching middle-age two or three years ago,
because he was born with too few cells in his body due to thalidomide
had to flee the welfare state of Belgium ten years ago.

Without (free-) gold this thalidomide monster would have been broke and dead long ago.

Is that dumbed-down enough?

Ivo Cerckel


Social Justice as viewed by Leuven – first exploration
Posted by Ivo Cerckel on May 25th, 2009
The law department at Leuven University deprives man of his right to exist for his own sake.

Ivo Cerckel said...

Goeiemorgen, deze namiddag.
Yes, Trichet may know about gold coins.
But the euro has severed the coin-link, said Duisenberg.
Trichet should speak about the euro’s gold reserves.
Trichet should know that the euro has free-floating gold reserves whose quantity, or value, was updated above by FOFOA.
But Trichet does not speak about these reserves,
although he knows that gold (coins) is (used to be?) money.

Martijn said...

Ook goeiemorgen Ivo.

Trichet did indeed talk of gold coins, but he did mention that they are "a store of value", and "meant to last". He also said that money; gold (coins) "belongs to the people".

I tend to view is remarks on gold coins and poetry as quite similar to Duisenberg's quote from Sir Thomas Moore, But I agree that he has not touched upon the reserve role of gold as explicitly as Duisenberg did.

Martijn said...

Utopia (in full: Libellus vere aureus, nec minus salutaris quam festivus, de optimo rei publicae statu deque nova insula Utopia) is a fictional work by Thomas More published in 1516.

Zach said...


Thanks for your lucid response.

What is an "inverted waterfall pattern"? How does that relate to gold in current events?

Your argument then is for gold as a CB reserve asset freely trading among currencies (which will come and go), however, with no parity or "backing", as such?

What then is to be done with fiat currencies and the tendency of CBs to inflate ad infinitum? Wouldn't that continue under Freegold if there is no parity? It is my understanding that the gold standard allowed for modest currency inflation in step with the increasing quantity of gold reserves, i.e. kept it in check, and that the absence of a gold parity resulted in our current fiasco.

What is to determine the value of the gold held in reserves if there is no parity? (I understand the paradigm shift of looking at currencies through gold-tinted glasses, although it is still difficult to keep my "focus". )

Isn't the Euro MTM concept valid because of floating fiat valuations for gold, and a tenable link between the two? And how will a enormous price tag for gold help?

If I understand Mundell, he was saying that the current system would be unsustainable if it were duplicated with a parity to gold. I may be wrong, but isn't that non sequitur. Isn't it because of the absence of a gold standard that the current system came to be? We wouldn't have our current mess if we obeyed sound money principles.

Alas, nothing can be done about the current system...

So the next system might function best if gold were a financial asset, as a "store of value", separate from yet freely tradable into the currency??? Ergo, Freegold?

If you can't tell yet, I'm a noob at this. Thanks for your help. If I need to read more, which "chapters" of the A/FOA/FOFOA volumes might I read?

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