Friday, November 5, 2010

Dilemma 2 – Homeless Dollars


Since my last post we have had the announcement that $600 billion new dollars will be printed over the next six months. A day later we heard from the ROW (the rest of the world):
China, Brazil and Germany on Thursday criticised the Fed’s action…

the Brazilian finance minister who was the first to warn of a “currency war”, said: “Everybody wants the US economy to recover, but it does no good at all to just throw dollars from a helicopter.”

… the Chinese central bank called unbridled printing of dollars the biggest risk to the global economy…

Backlash against Fed’s $600bn easing
FT.com
11/4/10

So in keeping with the theme of Monday's post, "the network effect," I thought it would be interesting to explore what might happen to all those "homeless dollars" if "the effect's" feedback loop were to turn sharply negative. In looking at this I will let others do the writing for me, posting excerpts of my choosing with the credit and date at the bottom of each excerpt. This should keep the lively discussion going. Beginning here, it is no longer me writing...

The "Chartalists" (and their useful idiots everywhere) claim that the Federal Government simply spends money into existence, and thus they can do this all they want. Well, technically true - you can print all the money you want. However, you cannot control its value except through relative scarcity!

The Bond Market, rather than being a monetary tool as these people claim, is in fact a fiscal discipline enforcement device.

This is what The Fed with its QE and now QE2 has destroyed.

When Ben Bernanke said "we will not monetize the debt" what he was saying is that he would not permit that fiscal discipline device to be removed from the scales of financial balance. He lied - he not only removed it with QE1, he has now ratified that this discipline function will remain removed via QE2.

QE is effectively naked emission of currency into the economy by government spending.

Eventually The Fed ends up being, for all intents and purposes, the entire government bond market.

At that point the issuance of credit money is no longer backed by anything at all - it is simply emitted raw, and for every dollar emitted in this fashion you have both a 100% transmission into prices and a premium applied on your threat to do more of it.

That's Weimar Germany folks - it is exactly what happened there, and exactly what will happen here unless Bernanke stops this crap. Since he won't stop on his own volition it is up to Congress and the people to stop him.

Karl Denninger
11/4/10

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How does the Fed print money? It’s easy; they simply buy bonds from the market and credit the seller’s bank account with electronic cash that comes out of thin air.

How risky is the Fed’s program of bond purchases? Very.

If inflation takes off, the Fed will have to choose between holding bonds and letting inflation get worse or selling bonds and going bankrupt in the process. Since no entity goes down without a fight, the Fed will naturally hold the bonds and let inflation take off.

Jim Rickards on
King World News
11/5/10

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His point being, only Americans and those in contracts governed by American law have to use dollars. The real deal is international trade and the settlement and clearing of trade flows among central banks. Right now most of that is done via the dollar.

Jim Rickards is suggesting that current policy (creating base reserves to pay over market price for crap and then burying said crap on the balance sheet at mark-to-fantasy valuation till term, or playing a game of hide the ball) may lead to that no longer being the case. Which isn't good for the FED, because they really just have dollars. If nobody wants what you have, you're broke.

JR
11/5/10

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People who worry about the dollar's international primacy are confused about how exactly currencies are used, as well as exaggerating by how much the US economy benefits from oil sales between, say, Kazakhstan and South Korea being denominated in dollars.

Yes, international oil trade is generally conducted in US dollars, as is much other trade in commodities and goods, and the dollar's use in international transactions is larger than the US economy's share of world trade. But, then, so is the Swiss franc's share. All that tells you is that most companies and countries prefer to do business in some currencies (dollars, Swiss francs, euros) than others.

Open any reputable economics textbook and you will find a chapter on the role of money. They pretty much all say the same thing: money is a unit of account, a store of value and a medium of exchange. The US dollar is regarded a reliable store of value - in the same way that gold, sterling or Swiss francs are - because of the strength of the US economy and the stability of its institutional support.

But the "medium of exchange" and "unit of account" elements are just functions of liquidity and convenience. If South Korea buys oil from Kazakhstan by converting Korean won into US dollars, then Kazakhstan can either keep the payment in dollars or convert it into Kazakh tenge for domestic use. In any case, all that happens is a transfer from one bank account outside the US to another one.

For all three reasons of value, exchange and account, the world's central banks tend to hold large proportions of their foreign exchange reserves in US dollars - in part because, as in the Kazakhstan example, that's what they receive a lot of in the first place.

So what does the US gain from the dollar's international role? In theory it means the US can borrow money more cheaply, receiving a lower interest rate for dollar-denominated loans or bonds than would otherwise be the case, because those dollars have to go somewhere. Unfortunately, there is no evidence that US interest rates would be higher if the dollar were not a widely held reserve currency - for many years Germany paid lower interest rates on its bonds than the US, despite the German mark not being internationally as popular.

The only tangible benefit comes from forgone interest that would have been paid on US currency - actual notes - held outside the US. According to the Federal Reserve, about $300bn in hard cash circulates outside the boundaries of the US, with much of it held by criminals and black-economy participants.

The US economy does gain a benefit from this, but it is only a tiny benefit. If this hoard were kept in interest-bearing assets, the US economy would be paying out about $10bn a year in one way or another. Instead, the US economy is subsidised to that extent. In an economy the size of the US, that is chicken-feed - the equivalent of £25 a year to an average full-time wage earner in Britain.

Let's be clear what this does not mean. Just because Kazakhstan has a US dollar-denominated bank account in London or Basle does not mean that it is in hock to the US, or that it is forced to buy American assets or exports. Nor is Kazakhstan subsidising the US economy, at least not to any appreciable extent.

It certainly does not mean the US somehow gets to import oil for "free" because it pays for it in dollars - it can't simply print money to pay for barrels of black stuff. Or, to be theoretically correct, it could do so but not for long - the value of the US dollar would sink on foreign exchange markets as a result, and cost the US economy far more.

A little dollars and sense
Richard Adams
The Guardian (UK)
5/5/03

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Why does this article by Richard Adams worry me? Has he got it right or wrong?

I thought that if oil was paid for in Euros, say, instead of dollars, then that would encourage most countries to divest themselves of an appropriate number of "dollar asset reserves" in favour of "Euro asset reserves", thereby reducing the demand for dollars and lowering its "value", and increasing the demand for the Euro and raising its value.

...and in his last paragraph, I thought that the US HAS been "simply printing money" - maybe not to "get oil for nothing" directly, but to support US asset prices…

Any other opinions out there?

Sundeck (5/5/03; 03:56:35MT -
usagold.com msg#: 102354)
Dollars for oil - how important is it?


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Like Sundeck, I was surprised at the Guardian author's blunt dismissal of the importance of the dollar's being a reserve currency. Don't get me wrong: I am not for a moment suggesting that preserving reserve status is the ONLY factor in deciding US foreign policy; but I do believe that losing reserve status would knock the US quantity of money wildly out of balance and that the US Treasury knows this.

His argument about the unimportance of oil's being priced in dollars is then expressed as: '... the "medium of exchange" and "unit of account" elements are just functions of liquidity and convenience. If South Korea buys oil from Kazakhstan by converting Korean won into US dollars, then Kazakhstan can either keep the payment in dollars or convert it into Kazakh tenge for domestic use.'

It's an argument I've seen before: if I have dollars, and oil is priced in euros, then this makes no difference -- I can "convert" my dollars to euros before I buy the oil. And to me, his use of the word "convert" seems to confuse the "medium of exchange" and "unit of account" uses of money.

Let me explain what I mean. There are some transactions which are much the same whether they are carried out by me or by the United States ... give or take an extra eight zeros on the numbers involved. But there are others where the large transaction is different in kind from the small.

If I want to buy an ounce of gold, I can go into any coin dealer in the High Street and buy a Krugerrand for a few per cent over the intrinsic metal value.

If I want to buy 200 times as much, 200 Krugerrands, I can telephone Centennial, where I'll pay a smaller percentage premium because of the quantity I am buying.

If I want to buy 200 times as much again, 40,000 ounces, then everything changes. "Economies of scale" become less important than "supply and demand." I am probably buying most of the available physical gold in the market and need to compete against other major buyers of physical gold. My purchase will take time and cost more.

If I want to buy 200 times as much again, 8,000,000 ounces, then probably nobody anywhere has that much on sale. This is 10% of the gold mined worldwide in a year.

Much the same holds for "converting" from one currency to another for the purposes of exchange. As a unit of account, I can just use multiplication: "Your account at present stands at 1,000 pounds sterling, John, which is the equivalent of 1,500 US dollars." But if I want to use those dollars as a medium of exchange -- to buy something with them -- I first have to use my pounds to buy the dollars.

If I want to buy 1,000 pounds-worth of dollars, then first I must come out of the coin dealer in the High Street -- or I shall wind up with 1,500 Sacagawea golden dollar coins -- and go into any bank, which will give me Federal Reserve notes in exchange for Bank of England notes, at the tourist rate. I can "convert" the currency easily.

If I want to buy a thousand times as much -- 1,000,000 pounds-worth of dollars -- then I can still convert the currency easily. In foreign exchange terms, a million pounds is a very modest amount, though large enough for me to get the forex (rather than the tourist) exchange rate. My own bank will have an account with USD 1,500,000 in it, which it can withdraw and pay into a dollar account in my name; at the same time deducting GBP 1,000,000 from my sterling account. (I should perhaps point out that I have never actually done this!)

If I want to buy a thousand times as much again -- 1,000,000,000 pounds-worth of dollars -- then it becomes clear that I am buying dollars, rather than converting pounds to dollars. The extra demand for dollars that I have created will increase the price of a dollar. My bank, however, will have no great difficulty finding that many dollars. The reason for this is that there is a huge quantity of dollars in the London foreign exchange market ... because the US dollar is the principal reserve currency. These are the dollars that European oil users buy so that they can buy oil, and which the oil producers later use to buy euros so that they can buy the things they need from the Eurozone. These dollars are, in practice, never taken back to the US and spent there.

It is this need to find dollars -- in practice, to find banks which have large dollar deposits which they are willing to sell to me -- that makes the big difference between a "medium of exchange" and a "unit of account". And it affects the monetary policy of the owner of the reserve currency. If there was no longer a demand in London for US dollars to buy oil, then the banks in London would no longer need large dollar deposits. Where can these dollars be spent if they cannot be spent on oil? In the United States.

This is what I meant when I wrote that losing reserve status would knock the US quantity of money wildly out of balance. The repatriation of the petrodollars would considerably increase the quantity of money available for spending in the US ... with an immediate inflationary effect.

How much of an effect, I don't know. Does any of the Folk of the Forum know?

John the Jute (05/05/03; 16:04:12MT -
usagold.com msg#: 102381)

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Enjoyed your post John the Jute - thanks for painting the circumstances surrounding "medium of exchange" so clearly. You've got me thinking about repatriation of dollars now.

From first principles, I suspect that the net global "float" of petrodollars is related to the cumulative total-dollar-expenditure on oil by all countries per unit time, and to the time-rate at which the dollars are recycled. On top of this will be the "oil-portion" of dollar-reserves set aside by all countries to buffer their balance of payments at any give time. Do away with the dollar-oil symbiosis and both the "whirlpool" of circulating dollars and the oil-portion of reserves will look for another home...back in the U.S of A.

Probably heaps been written about this here and elsewhere in the past, but how to find a definitive and succinct treatise???

Sundeck (5/6/03; 03:46:21MT -
usagold.com msg#: 102414)

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Good post, John the Jute! Very nice way of explaining the relativeness of scale.

Regarding your musings re: dollar repatriation, it can be a tough one to answer. The obvious take is of course as you express, that without use for dollars, they would simply find their way back to US shores, and help drive (hyper-)inflationary pressure. Yet, if you will permit me also to think out loud for a moment ;->, perhaps we can take a look at this currency as the derivative instrument it effectively is, and then try to figure out its ultimate fate. Let's view it specifically as a kind of call option; one that commands a premium as a price paid for its exercise-ability at any time for any of the goods or investment media that exchange in the currency's universe (or the settlement of debts). This amounts effectively to a liquidity premium.

This premium gives it a trade value in its own right, and as such, as long as there is a market that believes in the currency's stability, the currency itself trades on its own merits. Not unlike futures and options. And just as many of these contract instruments get exercised for whatever underlying asset they represent, most are simply exchanged among speculators and hedgers trying to benefit from movements in the contract price, never actually intending to exercise or take delivery. The paper remains viable so long as the holder is confident that the next guy believes the contract is generally good.

While many holders of a currency intend to "exercise" the currency for real things, especially those in the currency's principal use domain, most of these currency units are likewise exchanged among speculators and hedgers (including all those private individuals, who own dollar denominated savings and investment accounts overseas), who are only trying to profit (speculate) from the currency's movement, or preserve (hedge) their own currency's seemingly endless trek of depreciation vis-a-vis this US dollar. Most of these have no intention whatsoever of "taking delivery" of things with these currency instruments.

So, what happens to the dollars they sell? For these average citizen types, the banks that held their accounts buy them. They then either sell them to another institution or may enter the foreign exchange markets themselves (depending on how they are regulated). They also may hold some back, depending on how they wish to balance their own portfolio. So, now these dollars that have not ended up remaining in reserves at these banks have entered the foreign exchange markets putting upward pressure on the currency of the seller, and downward pressure on the dollar.

Historically, the paradigm was to do as little of this as was necessary in order to keep the seller's currency "competitively" weak (among other reasons). As the influence of export to the US wanes (tapped out US consumer + growing size and sophistication of other markets), the need to keep one's currency weak vs. the USD, so as to compete for this market also wanes. Instead the stabilizing and strengthening of one's currency becomes more important (thereby encouraging borrowing in the local capital markets), and allowing local workers to enjoy a bit more the fruit of their labors, instead of always helplessly watching the value of their labors get sucked into the vortex of a dollar-dominant currency paradigm.

So, do these orphaned dollars eventually come home to roost in the US domestic markets? We will be told that. The media will wring their hands over anecdotal wake-up stories like Arabs buying up vast tracts of property, and how "they" will soon "own" the country... (This has been going on for ages in the U.K., as you're aware... every other lovely English manor is seemingly owned by some Saudi mogul...) We experienced the same with the Japanese in the 80's (Rockefeller Center...). Hence part of the political response will be to enact capital flow restrictions. But anecdote amounts to chump change, in a purely financial evaluation.

The really big holders of dollars are the central banks. What they do with their reserves will make or break. Their influence over other banks and financial institutions will also largely dictate the destiny of these dollars. In the gold standard, the currency acted as something of a title deed for a specific good at a specific price. Central Banks could and did take these "receipts" and claim gold from each other. In this day, there is nothing for CBs to "claim," as these dollars are no longer "title deeds." Rather, they are like non-expiring calls for things on demand, at the variable and going price. CBs are likely to neither a) dump them on the forex markets, as this would simply devastate the currency, and risk dreaded instability globally -- something banks are NOT prone to do; or b) race to our markets to try and buy things (like gold), as this would also be fruitless, since a market revaluation for this action would instantly make gold unpriceable, and it would not even be offered. Again, why engender the instability?

Without a certain weapon in the arsenal of the euro's design, the foreign CBs would indeed be over a barrel. Previously they were forced to evermore be on a dollar standard, since they would realistically only opt for this as the lesser of two evils. The alternative of saying no to the dollar at that time, would only have meant a return to a gold standard, and the politically unacceptable bone-crushing depression that would follow (as well as instability). In 1979, the European CBs began marking their gold reserves to market. This one act demonstrated immense foresight, and would provide the escape valve from the rock-and-hard-place no-win choices between eternal dollar support, or global depression.

Quietly, the euro-system banks have been divesting themselves of dollars. Collectively they retain something like 211 bn. currently. (This is not a large amount relatively speaking, but consider fractional reserve lending, and quickly we perceive the immesity of euro-dollar infestation.) This decline in dollar holdings is desired to take place concurrently with a rise in the price of gold to offset this. Spoonfeeding dollars into the system won't crash it, as well a slow commensurate rise in gold. The discipline that they have thus far maintained is indicative of the tectonic movement of the geopolitical strata. Ideally there will be no rash or even discernible activity. The perfect result is to simply keep shifting these plates until we wake up one day and the world has been remapped. Reality of course is that there are points of friction that cause tremors of unpredictable frequency and proportion all along the way. At some point critical mass will be reached, and the dollar contract markets for gold will no longer be able to contain its price as market perception on a large enough scale discounts paper parity with the real metal accordingly. It is at this juncture that the gold reserves of the CBs will provide immense expansionary leeway, as they are for a season revalued constantly upward. This bona fide liabilityless reserve base will make the ECB member banks the premier lending institutions to fuel the economic growth of the euro zone, and those align themselves with it.

In this respect it is important to curry the cooperation of the more maverick dollar holders, like China and Russia, as their track record of unpredictablility, may lead them to use their dollars as weapons... (And don't think that their dollar debt is of much concern to them, as they know all too well that those totals can be reduced in real terms to pocket change, if such a hyper-inflation were to manifest.) Indeed as far as the books are concerned, this one use for these dollars overseas -- the repayment of dollar debts -- would actually provide a contractionary effect as these receivables are cleared from the balance sheet... One reason why Goldendome's sought after interest rate hikes can't happen... (gotta keep expanding..., and making it more expensive to borrow, isn't gonna help matters...) [Goldendome, there is much to this discussion, and I would like to provide my opinion in response to you -- as I used to think exactly the same... I likely won't have time, but the Trail provides some excellent discussion along these lines...]

The strategy of the level-headed is to slowly remap the globe financially. This involves as much as possible a SLOW transformation from one currency paradigm to Another. These dollars en masse will not return home. They were born in exile and will die in exile. We will hyperinflate ourselves, and won't need help from overseas...

Take care John the Jute,
miner

"Homeless Dollars"
miner49er

USAGold Hall of Fame
5/6/03

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Gosh, what a thorough response, miner! You've clearly thought about this matter in considerable detail. Thank you for sharing the results of your thoughts with me.

John

John the Jute (05/06/03; 11:25:50MT -
usagold.com msg#: 102432)
miner49er @ 102429 -- Homeless Dollars


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Miner-man,

As I read your post I was held in rapt admiration. So many folks stubbornly live in the past, but when a few guys like you (y'all know who you are) can lay it out so clearly for general consumption, surely the future for everyone is brought forward by *at least* a few days.
:-D

Thanks for your contribution toward making the world, in aggregate, a more rational place one post at a time.

Gold. You know the drill. --- Ari

Aristotle (05/06/03; 13:54:06MT -
usagold.com msg#: 102444)

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Aristotle (05/07/03; 18:17:02MT - usagold.com msg#: 102497)
TRUTH!

"*Money* in its purest form is a mental association of values in trade...a concept IN MEMORY...NOT A REAL ITEM!!! Understand money and you understand Gold!" --- Belgian

Amen. And further:

"The exhorbitant growing confetti-creation, policies... NEED TO BECOME DETERMINED BY WEALTH *OUTSIDE* THIS OFFICIAL MONEY REALM!" --- Belgian

Amen. Hence the primary universal function of global physical Gold comes into view -- an asset for savings that lets its owner know the true size and shape of his wealth.

True Wealth. Get you some. --- Ari


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Aristotle (05/07/03; 20:44:46MT - usagold.com msg#: 102502)
omegaman -- money is also known as a time value judgment

Sure!

The key point to recognize is that it's the multitude of goods prices that we're exposed to along with our various wage-level associations that we hold in our minds which gives money a functional *unit valueness* even though it's not a standard weight or measure of any single physical thing. Physicality be damned. As a *nominal* (mental value) measuring unit it serves perfectly as the lubricating *unit of account* in the ever-adjusting network of purchase orders, loan contracts and labor agreements which all form the backbone of our economy and monetary system.

To deny ourselves that pure nominal form for our monetary system is to deny that we are human with warts and all. Although Gold has no right place *IN* the monetary system, it is by natural selection the nearest neighbor living in the real *OUTSIDE* world that can act as a universal translator to judge and announce *without bias(!!)* the temporal values of the many monetary pricing units being wiggled and jiggled around *inside* the "gamey" system.

Only if and when *observed* by Gold like this can we begin to call it a *perfect* monetary System for our admittedly imperfect world. Don't worry, we'll get there from here on that vehicle -- even if only by default as every other sort of vehicle will break down during the journey.

Gold. Rolling rolling rolling along like a song. --- Ari


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Aristotle (05/07/03; 21:10:04MT - usagold.com msg#: 102506)
steady -- it's VERY good to know the true size and shape of your wealth

I was deep in your vest pocket up until you offered this extreme:


"gold [...] is constant . [...] its value doesnt ever change all that is changing is the amount of fiat one gets for it."

Wellllllll,,,, I suppooooose we *could* accept Gold as the fixed-value center of the relative value universe. But what's wrong with accepting that its value in human affairs could in fact climb even higher than it is relative to other real things like butter and bread and eggs as we put it to this special modern (ancient!!) usage we're describing?

You went onward to ask and bemoan:


"isnt it unfair that some group of bankers can meet and make your life worthless by devaluing your capital? That simply is not fair, not honest, most importantly not cool."

Take heart! If we can finally rid ourselves of the paperGold games that are played in parallel with money games, they can then only make your life worthless if you let them. That is, if you hold your primary savings in the form of money instead of Gold.

It doesn't take much training to fall into the excellent rhythm of Gold savings as the harmony to accompany your monetary melody of earnings and spendings. Billions of little easterlings and southrons are in graceful step even as we westerners only begin to hearken to the distant hum.

Gold. Get you some. --- Aristotle


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201 comments:

1 – 200 of 201   Newer›   Newest»
Tyrone said...

FreeGold, Ben needs your help!

Cheers!

Tyrone said...

BTW, I love how you used Karl "I hate Gold" Denninger in this post.

Everything this guys writes says get out of the dollar, yet he won't do it and he continues to bash the "gold bugs".

FOFOA said...

Ha! His very next line in that post was, "Metals will not save you if this spiral occurs. Nothing will save you..."

I chose not to include that drivel.

http://market-ticker.org/akcs-www?post=171242

FOFOA said...

This is a "must see" description of QE2. Some of you may have seen it already. I have set the time to start at 8:55...

http://www.youtube.com/watch?v=gk33gnUvCgc#t=8m55s

FOFOA said...

Here's part 2 for those that are interested:

http://www.youtube.com/watch?v=GJmJqG7YJuo

Yes, I know this was on ZH and Denninger. But if you didn't see it...

Pete said...

Actually pretty good videos. The commenters on YouTube sure don't like Beck though.

Thanks for the last two articles FOFOA. It is all becoming much clearer.

I am beginning to think that the issue many people may have in understanding these topics is the time period they are focussing on.

Prior to visiting this website my focus was a 1-5 year period.

Now I can see that these things are more than 100 years in the making. It makes day-to-day events pretty insignificant in comparison. It also makes the precise timing of events fairly unimportant.

Desperado said...

Wow Fofoa, Glenn Beck! Here! And I have had people like Robert ("not let this blog get too political") jumping on me for being too political!

I particularly love Becks quip about the one "behind the curtains" on the end of Obama's telephone being Soros (who was being interviewed by Ariana Huffington).

Fofoa, you have in the past attacked those who delve too deep into NWO and OWC, have you changed your views on this?

Glenn Beck has been telling it like it is for years now, he is the one who exposed all the Marxists in Obama's shadow government. He is as vilified by the left as Sarah Palin and considered racist, stupid, and made taboo for all leftists.

I am sure costada would ask Beck the same question he asked me: "What do you "understand" aside from your own beliefs and firmly held convictions?".

I only wish that I could get Foxnews in Switzerland.

Dimmed aurum said...

FOFOA, others thank you for your thoughts.
Here are mine (and I am sorry that my English is not up to the high standard set by ANOTHER, FOA, FOFOA and others).
Gold and Silver proponents rejoice, your long waiting will be vindicated! And yes, it is gold and silver (other PM included for what they are - PRECIOUS) .“This speaks to a much higher monetary demand for gold than for silver, because much more gold is held tightly as a wealth reserve by the really big money, including Central Banks. - See FOFOA/FOA @http://fofoa.blogspot.com/2009/03/some-thoughts-from-foa.html?showComment=1238122104748#c6401750437166472551 – Is this true anymore or should it be true for all of us sake?
Here are some expectations of mine.
1. Gold will be CORNERED after freegold happens.
a. the flow of “new”gold will still be cornered by fossil fuel exporters as today - see ANOTHER/FOA
b. the stock of gold will be cornered (absent Fekete`s real bills clearing system) by the commodities banks – copperbanks; tinbanks; rhodiumbanks, wheatbanks at al. (for the paper and bullion(?) banks will be long extinct) as a collateral in exchange for resources needed in production. This will be the next big boys` play – their share (in the form of interest on commodities) of the “real world” so to speak but only after –>
c. Governments impose strict regulation on gold circulation in order to secure that all important flow of oil (to prevent society from imploding). Especially as it is in my case, when the country cannot supply directly the oil exporting countries (the monopoly of supplying food for the Arabs will be hotly contended issue – it may well be reserved for the US and its big nuclear guns) – see Miked. A self defeating strategy I would agree but one of many none the less. It might prevent the freegold system from self organizing fast enough and so comes the case for silver….

Continued…

Dimmed aurum said...

for silver to take its place as a monetary metal.
Expectations:
2. Silver will be UNLEASHED in a kind of a FREEgoldandsilver.
a. If given enough time (in a strictly regulated world where gold will be used as a collateral for obtaining resources; a guarantee of trade balance in a national/international clearing system) silver may assume its role as a monetary metal and organize relative value system around itself just fast enough to create positive feedback loops within the local community. (Using silver locally and gold for longer distances was a feature well explained by FOFOA in previous posts).
b. Silver is not a giants` play (it was tossed long ago from their small coins jar) and as such it is more of a rebellious metal that can create low entropy environment for the little guy too (a way to escape servitude to the government and its lackeys) - see Shelby Moore. I am a proponent of peak oil theory and probably FOFOA and I will agree to disagree on this one but I digress.
c. The silver:gold ration being 5:1 or 500:1 is unimportant as long as trust and floating interchangeability is established. And if using, even possessing gold might put you to jail (and yes FOFOA I have read your articles on that issue – it is the end of 2010 and we still do not have freegold so my worries are it might have been a premeditated postponement in order to keep the low entropy world for the elite class and their stooges only. Peak oil/resources again, I cannot help it. And in doing so – high entropy for the ordinary, almost useless overpopulation that must “in their elitist thoughts” stop exporting entropy to the biosphere = no consumption for the worthless f…).

Continued…

Dimmed aurum said...

d. The question of small change. A nonstarter for me is that gold`s infinite ability to be divided into lesser end lesser denominations and subsequent dilution (as people experience the loss of gold`s “obtainability” on the route to freegold) in alloys “up to an atom” (god forbid scraping that atom off and ending with perfectly worthless bullion LOL). I had a pretty bad time telling apart standard sovereign bullion coins (8gr.) from forgeries already, not to mention what I would have done with smaller coins (Do you have magnifying glass, microscope or acid, somebody?). As far as small change is concerned, weight for weight, 90% purity (as most of the world`s coins) coins made of gold and silver will do the trick nicely. Forget ounces, grams, kilos etc. and let the market decide the ratio of exchange too!
e. Velocity. It will not be an easy one. (Presumption – currency hyperinflates to a point where freegold will not be possible but only trade in specie). FOFOA thinks it was because gold changed hands faster than silver it was relatively undervalued (http://www.goldsubject.com/thoughts-on-silver-as-a-store-of-value/comment-page-1/#comment-749). I beg to differ –see george hartje`s “My grandfather left me with some advice Iwill pass it on.One,water is for fighting over,whiskey is for drinking. Two,gold is for bragging about, silvers for spending.Three,It really dont pay to back talk a man with a pistol in his hand.” - http://www.goldsubject.com/thoughts-on-silver-as-a-store-of-value/comment-page-1/#comment-631; and surely my silver coins are in order of magnitude more battered than my gold ones. I think silver will be better accepted on local level and gold in international level. It may also be that a conjoined system is developed in which proportionately more gold is used when buying stuff and a larger percentage of silver for services. Money supply or the silver escape hatch …

Continued…

Dimmed aurum said...

f. What is money? Alan Greenspan couldn`t answer that question. For me it is the ability to liquefy (into a medium of exchange/media of exchange) one`s assets, labour, trustworthiness, special rights etc. And I don`t care what the giants might think that medium/ a of exchange should be, because this depression (just like the previous one) should reset everybody`s position in this world I think, clearing much of the existing wealth disparity by means of settling the social scores in due process. So, may be, it is the giants that should worry what the medium or media (e.g. floating comparative ratios of the resources between the commodity banks) of exchange should be. This is the “crucifixion on golden cross” story told anew. It is a plea for redemption from eternal debt slavery through means of general acknowledgement of such a medium of exchange that expands and contracts with the economy – silver and other PM (see the writings of ORO somewhere around here http://www.usagold.com/hall/hallfame2.html)! Lean years tend to “eat up” PM stock (save gold), whereas fat years increase it as a byproduct of the base metals` production along with the propensity to consume energy.

Conclusion.

You may try to follow the giants, or act according to the perception of doing it. Still the jury is out there and the verdict may well be against the giants and their predilection for gold.

Desperado said...

Yes Andrew, that's right. Anybody who watches Beck is to be outcast. Right out of Orwell.

This is why politics have become so acrimonious. One side insists that it is intellectually superior and refuses to "lower" itself to allow discussion and debate. Hence "Faux News". Hence "There is nothing I can learn from you that isn't present in some popular rag or tabloid. You might believe your experiences are a mile wide, but unfortunately they are only an inch deep." This is why the teaparty is so "angry". Andrew, you, like costada and the rest of the left, are an arrogant prick.

Now back to Becks piece, I have been thinking about this video in relation to Fofoa's post. Beck, with his chalkboard image of the unions bribing the government in order to keep the pensions flowing, is implying that the difference between QE-I and QE-II is the QE-I was to try to "kick start the economy". He implies that QE-II is to bail out the pension funds.

This seems to be an important aspect of Fofoa's thread.

I found this interesting:

"Quietly, the euro-system banks have been divesting themselves of dollars. Collectively they retain something like 211 bn. currently. (This is not a large amount relatively speaking, but consider fractional reserve lending, and quickly we perceive the immesity of euro-dollar infestation.) This decline in dollar holdings is desired to take place concurrently with a rise in the price of gold to offset this. Spoonfeeding dollars into the system won't crash it, as well a slow commensurate rise in gold.

miner49er
USAGold Hall of Fame
5/6/03"


There was $500B of FX swaps made in 2008. There have been more FX swaps recently. These swaps are not the actions of central banks that "have been divesting themselves of dollars".

The real question is: Is QE-II just stimulus and pump priming, or is QE-II necessary to finance pension funds, states, unemployment insurance and FDIC? If it is the former, then we may yet have some time before hyperinflation hits. If it is the latter, then Hyperinflation might start in Q2-2011.

Greg said...

QE is NOT adding new money for the Treasury to spend it is a simple asset swap. The amount of money in the system doesnt even change as a result. All this does is lower long term interest rates. Adding new money for Treasury to spend is a FISCAL operation and requires congresses approval.

Your badly wrong on this one.

Tyrone said...

Ben says:
"I don't need no stinking FreeGold!"

2010-11-06: Bernanke defends new Fed plan to boost economy
Speaking to a conference on the Georgia coast, Bernanke said the new program, announced Wednesday, won't push inflation to "super ordinary" levels.

The Fed will buy $600 billion worth of government bonds in a bid to make loans cheaper and get Americans to spend more. Doing so would help the economy and prompt companies to boost hiring.

John said...

Greg,

You wrote: "QE is NOT adding new money for the Treasury to spend, it is simply an asset swap..."

Not quite accurate...
Firstly, you are correct that it does not directly give the Treasury new money....but it does create new money, new base money in fact directly into the banking system as it creates free credit balances of cash in those banking entities selling the Treasuries the Fed buys. All pixel money conjured by keystrokes on a computer terminal.
You would find the latest Jim Rickards interview helpful as he describes the "plumbing" of the primary dealer network as it applies to money printing operations by the Fed...and he appropriately points out that all of us should stop using the Fed's
phrase: "QE" and all call it for what it really is...Money Printing!
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/11/6_Jim_Rickards.html

tdfxman said...

I have been away, mom in final stages of cancer battle, for about a month and have not read a single thing in that time, can't wait to read some stuff, but I saw this and thought if they could do it before, they can do it again. Just wanted to post it.

While taking some flights and thinking about he worldly system we have, it seems like FOFOA has to be right to a point and then things fall into a political situation, when things are bad, and then Desperado has to be right. I mean it seems like FOFOA is the flight data recorder telling us in advance how this plane is gonna crash and what happened, what broke, to put us on the ground. But after this thing hits the ground I think all of FOFOA/FOA/A’s knowledge and insights go out the window. As I last posted, and then saw it was last post in thread and then I have never been back, there has to be a solution that FOFOA and then me and desperado are keying in on. Does that makes sense? Gov’t WILL “solve” this. Full stop. The BIS is gonna be player in the end and so are the Bilderberg’s. I think that is clear. But if the below can happen in the US back then, who knows what can happen globally going forward. It will be fun to watch.

How Americans Gave Up Their Gold
http://news.goldseek.com/GoldSeek/1288976400.php

Have you ever wondered how the American people could surrender their one means of keeping government at bay? Garet Garrett gives us some details in his 1953 book, The People's Pottage (pp. 33-41):

In view of further intentions not yet disclosed it was imperative for the government to get possession of all the gold. With a lot of gold in private hands its control of money, banking, and credit could have been seriously challenged. All that the government asked for at first was possession of the gold, as if it were a trust. For their gold as they gave it up people received paper money, but this paper money was still gold standard money—that is to say, it had always been exchangeable for gold dollar for dollar, and people supposed that it would be so again, when the crisis passed. Not a word had yet been said about devaluing the dollar or repudiating the gold standard. The idea held out was that as people surrendered their gold they were supporting the nation's credit.

This decree calling in the gold was put forth on April 5 [1933]. There was then an awkward interlude. The Treasury was empty. It had to sell some bonds. If people knew what was going to happen they might hesitate to buy new Treasury bonds. Knowing that it was going to devalue the dollar, knowing that it was going to repudiate the gold redemption clause in its bonds, even while it was writing the law of repudiation, the government nevertheless issued and sold to the people bonds engraved as usual, that is, with the promise of the United States Government to pay the interest and redeem the principal "in United States gold coin of the present standard of value." . . . .

tdfxman said...

By resolution June 5, 1933, the Congress repudiated the gold redemption clause in all government obligations, saying they should be payable when due in any kind of money the government might see fit to provide; and, going further, it declared that the same traditional redemption clause in all private contracts, such, for example, as railroad and other corporation bonds, was contrary to public policy and therefore invalid. . . .

[What eventually followed] was a modern version of the act for which kings had been hated and sometimes hanged, namely to clip the coin of the realm and take the profit into the king's revenue. . .

At the President's request the Congress, on January 30, 1934, passed a law vesting in the Federal government absolute title to all that gold which people had been obliged to exchange for gold standard paper dollars the year before, thinking as they did that it was for the duration of the emergency only and that they were supporting the nation's credit. They believed the statement issued at the time by the Secretary of the Treasury, saying : "Those surrendering the gold of course receive an equivalent amount of other forms of currency and those other forms of currency may be used for obtaining gold in an equivalent amount when authorized for proper purposes."

Having by such means got physical possession of the gold, it was a very simple matter for the government to confiscate it. All that it had to do was to have Congress pass a law vesting title in the government.

The following day, on January 31, 1934, the government devalued the dollar and pocketed the roughly $2 billion in profit. Relying on Americans' trust, Roosevelt had accomplished a revolutionary feat in four steps:

1. Give us your gold so we can build up the nation's credit. In exchange, we'll give you receipts you can later turn in to get your gold back. Incidentally, if you don't cooperate we'll hit you with a heavy fine and throw you in prison.

2. We've decided not to honor the gold clause in the bonds we've sold you. In other words, your bonds will be redeemable in paper money rather than gold. The same goes for private contracts that stipulate payment in gold. You can only use government paper money to meet contractual obligations.

3. Remember that promise we made about exchanging your paper gold for the gold you turned in? We've decided to break that promise. We're keeping the gold.

4. We hereby declare gold to exchange for more dollars than it did when we took it from you. We'll keep the profit. It will help the recovery.

In ruling on the subsequent "gold cases," the Supreme Court said yes, it was all done legally, if perhaps underhandedly. How could government get away with an immoral act? No one had the power to stop it.

Garrett later concludes (pp. 103-104):

Those who take the New Deal to have been the beginning of revolutionary change in the character of government are wont to cite its laws, and its many innovations within the law and to forget that if it had been without the means to enforce them all of its intentions would have died in the straw. It had to have money; and not only a great deal of money, but freedom from the conventional limitations of money. It knew that.
George Smith

http://barbarous-relic.blogspot.com/

Tyrone said...

Latest Denninger video; just released...

2010-11-06: How I Hate Bernanke
Karl, "Our Economy Will Die"
(but don't buy gold, everyone should go down with the ship)

Kevin said...

Really folks? That is what we are to discuss?

What about the fact that minimum wage labor @ $7 per hour can be replicated in one microsecond. 10.8 million people just worked for free today.

Here is what I see since May:

Big bank asset valuations have come into question.

Gold has gone up from around 1.1k to 1.4k.

Banks continue to fail.

The very root of the system has been challenged on all three fronts; govvies, gold/silver market, mortgage loans.

i just saw a cheese it commercial confirming that putting money into your 401k made you wise. Cheeze Its!

Fret not my brothers! Nor fight. The way is clear and while being ahead of the curve can lead to doubt, be glad you have arrived to see the new world first in regard to this exercise.

I picked a noble horse today and he ran valiantly! We know the chasm defined by those who transact above our heads and beyond our reach but we have been given a gift here. Shall we not rejoice together or shall we fret over what we have already confirmed as truth as a matter of our own being?

Infinite resolution of strength of heart, your confirmation gives breath the the whisper in your ear. Let us stand large together! because our gift will need to be passed to those cannot stand on their own. Be the light for all those who cannot find the strength to seek it.

It will be your time in the days ahead so be strong, be firm and be kind.

I thank you all for your insight and the knowledge you have bestowed upon me.

KJR

FOFOA said...

Hello Greg,

I am going to take issue with statement as well:

"QE is NOT adding new money for the Treasury to spend it is a simple asset swap."

John hit the nail on the head when he wrote:

"it does create new money, new base money in fact"

I will take this thought a little further for you and try to show you, using your own comments on a couple other posts, where your MMT theory goes wrong in the conclusions it leads you to.

"Your badly wrong on this one."

There is nothing "badly wrong" in what I wrote. Even so, I removed the offending part in the post in an attempt to put us on somewhat common ground. What is badly wrong are the conclusions that MMT has led you to. There is more than one way to view the monetary loop that Glenn Beck had up on his chalkboard in the first part of that video. Yet the MMT crowd loves to tell others that they just don't understand how banking works today with statements as abrasive as yours above.

For the rest of you, Greg is one of the Chartalists mentioned by Denninger in my post:

"The "Chartalists" (and their useful idiots everywhere) claim that the Federal Government simply spends money into existence, and thus they can do this all they want. Well, technically true - you can print all the money you want. However, you cannot control its value except through relative scarcity!"

Greg has been reading some of my older posts and commenting under them, trying to find some sort of reconciliation between his MMT view of the monetary system and my view of hyperinflation and Freegold. Greg, I will answer those other comments in this one. Hopefully you will find your reconciliation between MMT and Freegold in this comment.

Continued…

FOFOA said...

Let's start with your MMT description of the monetary loop. Please correct me if I have any of this wrong.

The federal government is not revenue-constrained by taxes and debt, which can be seen most clearly in QE2, when the Federal Reserve buys US debt with freshly "printed" Fed liabilities as payment. In this way the federal government is different than all private entities that must finance their spending prior to actually spending. Rather, the federal government just spends money into existence and then controls that money supply by taking it back in through taxes and bond (debt) sales.

Let's call this "high powered money" because it is essentially Fed liabilities as opposed to private institution liabilities which make up the credit money supply and cycle. This "high powered money" is base money, Fed notes and US coins plus "reserves" held at the Fed. Private institution credit money, or "balance sheet money" as I like to call it can swell or contract in large swings but it is always net neutral since the banks' balance sheets must have assets that swell and contract along with the "money" (liability side of the balance sheet).

If the federal government were to run a balanced budget, with all federal spending balanced by taxes, this would also be net neutral on the money supply, with all money put into the system then taken out by taxes, not leaving any to be hoarded (saved). So with a net neutral money supply (and a balanced federal budget) you simply cannot have any savings without causing deflationary pressure.

Therefore, your theory shows, federal deficit spending is the only source of funds for net private (paper) savings. If net private (paper) savings are desired, the federal government must run a big deficit. This yields the conclusion (to your theory) that persistent government deficits are necessary to a growing economy that wants to avoid deflation. And that unbridled government spending is the way to get us out of our current (paper) mess.

But where your theory really goes wrong is viewing "money" and government spending as the engine of the economy. Money is only a lubricant for the real economic engine, which is private production. The government doesn't produce anything. All it does is mess with free market private production, sending capital here and there in a big tangled mess of system-wide malinvestment.

Money to an economy does the same as oil to an engine: it produces no output, but allows many parts to work smoothly together. Too little oil, and the engine seizes; too much oil, and the crankshaft whips the oil into mayonnaise, an air-oil emulsion that takes a little longer but will again ruin the engine, and often leaves mechanics baffled about the causes.

I'm going to repost part of your second-latest comment here because it exposes one of the most flawed conclusions you have drawn from your MMT view of the monetary cycle:

" You alluded to something in this post which I think is critical. Its apart of human nature which our monetary system only makes worse. It has to do with decisions we make today with our money. Many forgo consumption of real goods today and simply save the money in the expectation that they will get the same later with the saved money. Why would anyone ever make that assumption? The future is never guaranteed. The idea that they really had the option to consume more at some point in the past seems unrealstic as well. They consumed all that they needed and yes they could have bought more real goods but where to store them? How to maintain them so their value will not erode? The hypersavers have some very unrealistic ideas about what they are saving and what the rest of us need to sacrifice so their savings are protected.

Continued...

FOFOA said...

"Its this discontinuity of expectations between savers and consumers that is the road to our extreme inequalities today. The system as you pointed out is politically biased towards saving the savers, mainly because all the people with power ARE the savers.

"Its clear form your story though that the MMT crowd is right about a lot of things, especially the idea that we are still operating our soft money software on hard money hardware."


If you will read my post The Debtors and the Savers like I recommended, you will find that the people in power today are actually the debtors, not the savers. I know, it seems counterintuitive, but it's true.

A saver is someone who produces more than they consume. This is the very engine that drives our economy, yet your view reveals it to be a burden on society, because you view money as the engine. You have it completely backwards. I suggest you read the last three excerpts from Aristotle in the above post very carefully.

" *Money* in its purest form is a mental association of values in trade...a concept IN MEMORY...NOT A REAL ITEM!!!"

"As a *nominal* (mental value) measuring unit it serves perfectly as the lubricating *unit of account* in the ever-adjusting network of purchase orders, loan contracts and labor agreements which all form the backbone of our economy and monetary system."

"The exhorbitant growing confetti-creation, policies... NEED TO BECOME DETERMINED BY WEALTH *OUTSIDE* THIS OFFICIAL MONEY REALM!"

"Although Gold has no right place *IN* the monetary system, it is by natural selection the nearest neighbor living in the real *OUTSIDE* world that can act as a universal translator to judge and announce *without bias(!!)* the temporal values of the many monetary pricing units being wiggled and jiggled around *inside* the "gamey" system."


You do have one thing right. Saving paper debt is a burden on the system. And yes, the system will preserve those savings nominally, destroying the currency in a hyperinflationary fire. This is why savings belong OUTSIDE the currency. This is why the system is collapsing. Not because we are constraining the federal government from spending enough cash into the system. Not because we don't understand how the modern monetary system works.

The system is collapsing because 30 years of savings has been piled into a currency, through assets denominated in that currency that will rise or fall in value right along with the temporal value of the unit of account itself. When the debtors cannot generate economic output sufficient to cover their debt in full, the monetary base will be expanded to save the savers. Yes, you have that part right. But it is not the savers that crashed the system. It is the system that crashed itself. It is your own modern monetary theory that is imploding.

Above I wrote, describing the MMT view: "If the federal government were to run a balanced budget, with all federal spending balanced by taxes, this would also be net neutral on the money supply, with all money put into the system then taken out by taxes, not leaving any to be hoarded (saved). So with a net neutral money supply (and a balanced federal budget) you simply cannot have any savings without causing a deflationary spiral."

Continued...

FOFOA said...

And now I'll add that if the federal government were to run a balanced budget, with all federal spending balanced by taxes plus debt sales to private entities only, this would be net neutral on the high powered base money supply in the system. This is where QE2 differs from normal federal deficits. It expands the monetary base, which today is magically possible!

In a normal Treasury issuance, private balance sheet money is contracted (and then spent back into the economy by the USG) and the monetary base remains constant. In QE2, private balance sheet money remains constant and the monetary base is expanded. And because this $600 billion is indirectly matched by federal spending, it is fair to say that the Treasury will be spending $600 billion in fresh new high powered base money into our economy over the next six months.

You said, "QE is NOT adding new money for the Treasury to spend it is a simple asset swap. The amount of money in the system doesnt even change as a result."

Can you see how your statement is wrong? Sure, the Treasury would have spent that $600 billion either way. We all are aware of that. The difference here is that new bank reserves were created to offset this particular $600 billion of spending.

You also said, "Its clear form your story though that the MMT crowd is right about a lot of things, especially the idea that we are still operating our soft money software on hard money hardware."

Your implication in this statement is that the federal government should be printing more money to accommodate savings and growing the economy since we are now on a purely symbolic (not gold-based) currency. But this view of savings is the very flaw that is collapsing the system. That savings are held WITHIN the monetary system as the flipside of someone's currency debt, be it the debt of an underwater homeowner or the debt of the nation's printing press.

This is a SYSTEMIC flaw. It is NOT a flaw in the understanding of how our system is built (supposed) to work as the MMT crowd suggests. The MMT solution would simply collapse the system faster, perhaps immediately upon adoption.

A saver produces more economic goods than he consumes. The present system allows for all excess production to be consumed in the present. Therefore the savings of foregone consumption by the producer/savers needs to be in a vehicle separate from the monetary system. A physical asset, that floats in value. And as you said, "yes they could have bought more real goods but where to store them?

This is where physical gold performs exceptionally well! A million dollars' worth can be stored in a small safe. And as the price floats ever higher, storage becomes less and less of a problem.

I would like you to look at a series of illustrations I created for this post (and you may want to read the whole post.)

Continued...

FOFOA said...

Illustration #1

Illustration #1 shows the modern monetary cycle. You can see the high powered base money at the center of the circle, like the eye of a hurricane. On the outside are cycles spinning in opposite directions. These represent the credit money (or balance sheet money) cycle. The outer circle turning clockwise shows all the activities that put expansionary pressure on the credit money supply. And the inner circle turning counterclockwise shows those activities which put contractionary pressure on the system.

As this system churned for 30 years the hole on the left grew deeper and deeper and the mountain on the right rose higher and higher. This is the growing (malignant tumor) imbalance that is built into the modern monetary system today. This is the system that is collapsing.

Illustration #2

Illustration #2 shows you the current phase of systemic breakdown. I'm sure your MMT sensibilities can appreciate this one. As you can see the private debtor has reached his mathematical limit of debt accumulation so now the federal government has taken over the role of debt-creator par excellence, to feed the savings mountain on the right. And you'll notice that the center portion of high powered base money is growing (which we can miraculously do today, unlike during the gold standard) thanks to QE2.

Illustration #3

Illustration #3 is a continuation of the process. Here is what I wrote in my post last February:

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

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

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

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

Politics will force devaluation over default, inevitably, presently.

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

Freegold, then hyperinflation.


Continued...

FOFOA said...

Illustration #4

Illustration #4 is the Weimar effect, or the Zimbabwe effect, when base money eventually takes over the entire collapsing credit money cycle. From my post:

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

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


Deflationists assume that the world of necessary physical goods has already been efficiently priced to the credit money aggregates. And therefore, if credit money disappears and base money expands to take its place, prices will not rise. The money supply will remain constant. But this is simply not the case. Credit money and base money are qualitatively different. One contracts with the real economy, the other expands when the real economy contracts.

The world of PAPER debt assets may be priced into the credit money aggregates, but only based on the value of the reserves, the high powered base money, on which the real value of paper goods is dependent.

Illustration #5

This last one is pretty much self-explanatory.

In your first comment you asked:

"I do wonder why that didnt happen during the Great Depression. Why didnt we see the hyperinflation then?

Today we have a credit money contraction concurrent with an easily expandable monetary reserve base. Leading up to the Great Depression (and perhaps causing it) there was a bank reserve contraction (through gold hoarding) at a time when the reserves were not only not easily expandable, but also when the banking system was on strict fractional reserves with gold as the reserve.

It is today's easily expandable reserves that make it possible to guarantee all deposits (FDIC) as well as all kinds of other things like pension funds etc... The guarantees are only nominal, of course, as are the bank deposit guarantees. Unfortunately, the FDIC does not insure value.

Continued...

FOFOA said...

Hyperinflation is always hyperinflation of the bank reserves, the monetary base, not credit money. You can only have hyperinflation if the banking system reserves are hyperinflatable. Gold was not. Dollars are. Look at Weimar and Zimbabwe.

After gold was removed as bank reserves in 1933/1934 bank failures slowed and we turned on a dime from deflation into inflation. Also, the federal government was not as big as today requiring an ever larger piece of a shrinking real economic pie.

So the majority of lost savings in bank accounts had already occurred prior to the unbacked dollar of 1933. Today they are all nominally guaranteed, along with implicit nominal guarantees of virtually the entire banking system. As well as the federal budget deficit and all of its unfunded liabilities. All are guaranteed through the printing press not to fail nominally. This will all be printed if necessary. This was not possible prior to '33 and not needed after '33 because the banking collapse had happened and the pain had been taken. Today we will not take pain. We will not put up with such pain, at least not nominally.

This is not an argument for the gold standard. Quite the contrary! It is an argument for Freegold which is purely symbolic fiat currency in the medium of exchange/unit of account role as well as the short term store of value role (which is just what you MMT guys like.) And gold in the long term store of value role, marked to market, just as it is in the reserve asset column of the Eurosystem's consolidated balance sheet today, marked to market every quarter, fluctuating opposite that of the currency as a counterbalance.

Securitized debt as the long term store of value reserve asset on CB balance sheets is a flawed system because it fluctuates in value WITH the currency. It doesn't float opposite the currency.

Here's an academic paper you might not find on your MMT blogs:

Did France cause the Great Depression?

Abstract:

The gold standard was a key factor behind the Great Depression, but why did it produce such an intense worldwide deflation and associated economic contraction? While the tightening of U.S. monetary policy in 1928 is often blamed for having initiated the downturn, France increased its share of world gold reserves from 7 percent to 27 percent between 1927 and 1932 and effectively sterilized most of this accumulation. This “gold hoarding” created an artificial shortage of reserves and put other countries under enormous deflationary pressure. Counterfactual simulations indicate that world prices would have increased slightly between 1929 and 1933, instead of declining calamitously, if the historical relationship between world gold reserves and world prices had continued. The results indicate that France was somewhat more to blame than the United States for the worldwide deflation of 1929-33. The deflation could have been avoided if central banks had simply maintained their 1928 cover ratios.


Kinda cool for the gold bugs when their gold was finally forced up in value. But not exactly a good argument for a fixed exchange rate between gold and transactional currency unless you enjoy depressions.

Continued...

FOFOA said...

Incidentally, the above paper makes the case that when gold is money it can transmit inflation or deflation into commodities and consumer price levels while it (gold) remains stable in "price". By inference if it is not money, but instead a floating monetary reserve asset, it can absorb both inflation and deflation in the same sense as a shock absorber in a car cushions the ride.

In this way the paper provides further evidence that gold must be de-monetized (allowed to float in price) to function in its best and highest value role, as a store of value and a central bank reserve asset. The paper makes a case that gold simply cannot perform successfully in either role when it is money without undesirable side effects.

So, in conclusion, it is the collapse of the modern monetary system (the $IMFS) and the concurrent shift in gold's role to a central reserve asset that guarantee the two things my blog focuses on, hyperinflation and Freegold. As FOA (the clearly advertised primary source on this blog) wrote, "Once fully understood, I think most would then agree with its inevitable outcome. Indeed, a "free gold market", based only on physical holdings would impact the world economic system unlike anything seen before it. And Yes, its impact on the relative value of gold will make that metal the monetary wealth investment for the next thousand years!"

Understanding MMT may give you a unique insight into the inner working of a collapsing and dying monetary system. But it does not – it cannot – offer any useful prescription for fixing the system. The system cannot be fixed. Nor does it offer a personal strategy for surviving the collapse.

Understanding Freegold, on the other hand, offers both a unique window into the future international monetary and financial system and a useful prescription for personally surviving and thriving through the systemic transition. I hope you'll continue to explore the gold trail!

Sincerely,
FOFOA

Dimmed aurum said...

A way to blow that $IMFS par excellence(a devil`s advocate play).
If you are hedge fund operator, managing other people`s money here is what to do:
1. Buy gold up to the point where you feel that no physical will come online (CB goldsales cease for good and scrapgold sales dry up) than stop and move onto silver.
2. Buy silver and all others PM until the paper markets in those fail.
3. At this point frightened CB will be trying to launch freegold FOFOA`s way by setting its price higher to 10000USD/ounce (lets assume) – don`t buy that scam to 56000USD or whatever price for they will help that bid higher by selling gold on the table and then buying it under the mattress (or vice versa) in a vain attempt to soak up all those high powered QEI, QEII, QExxx papers by promoting this wealth preservation mindgame.
4. Go right for the soft underbelly – zinc and tin and shrink the available world stock to a couple of days (1-4days for example). After that lets have fun is coppertime, nickeltime… it is only street dust bidding for dollars time.
5. Watch all the industries that use commodities with marginally thin profits burn. It will soon cause negative chain reaction (negative feedback loops, mass lay-offs etc.) in all the sectors of the economy wiping out this on the division of labour based civilization.aa
6. Now you will have it done. Complete supply destruction. Your trustees savings will go to the moon based on past energy invested (saved), whereas nobody can save a thing anymore – the world in shambles. Gold being tossed on the streets in digust…

samix said...

FOFOA, how far do you see the can kicked down the road by the dollar carry trade ?

Hans said...

FOFOA, first of all my compliments for this great blog and excellent quality articles!

Now on the hot inflation-yes-or-no debate: while your arguments sound convincing, others disagree and even Ben Bernanke has stated that QE II is not inflationary:

http://pragcap.com/ben-bernanke-explains-fed-qe

Could you please comment on this PragCap article and their arguments? Thanks!

Aleksandar said...

@dimmed aurum

I am getting the impression that your intentions on this blog are less than sincere. Your bumblings are not going to create the desired effects here.


@FOFOA

Brilliant stuff.

Desperado said...

Glenn Beck on 5 November, the follow up, he discusses the collapse over 14 days...

http://www.youtube.com/watch?v=hoOh08KmGvU

I think it is too compressed, but interesting none the less.

Aleksandar said...

@Hans

Government sells a bond for X$. It receives X$ cash from the banks (the economy) that buy the bond. The government then spends the X$ in the economy. Enter QE. Central bank buys the bond from the bank for X$ cash. The CB creates the cash ex nihilio. The bank has now X$ in cash instead of a government bond. For the bank, the situation is just like it was before it bought the bond.

Unless the bank lends the newly created X$, there is no increase in the money supply in the economy. That is simply because there neeeds to be economic activity (lending) for the X$ cash (times the money multiplier) to reach the street. And if there is growing economic activity, then mission accomplished. Money supply grew with the economy, all is as it should be according to the monetarists.

If the bank does not lend the newly created X$ , they simply sit parked at the bank's account with the CB (the "reserve"). It is then just an overnight deposit and it earns 0.25% or less. This is the essence of the argument of the MMTs that QE is not inflationary: the CB just "swaps" an interest bearing asset (the government bond) with a non-(or barely 0.25%)interest bearing asset. Or, equivalently, the CB reduces the duration of the assets that the commercials banks hold, from a 5-year bond for instance to overnight cash.

What they have wrong is the following: the federal government now has room to issue more debt as the central bank simply removed part of the marketable government debt. And without being punished by investors that, as we saw in Greece, would demand greater rates if the government overspends. But that is the just view from the chartalist perspective! The investors see that the government, in fact, overspends and that there is not enough economic activity underlying that speding.

Continued...

Aleksandar said...

Artificially lowering government borrowing rates does not materially reduce the risk of the USG to default. The measure of that risk is the interest rate. QE simply masks it. Hence, the Fed makes it impossible for investors in USG debt to manage their risks: they may turn to somewhere where they can in fact do that!

And this doesnt even start to take into account whether the banks would, in fact, simply buy up existing assets with the newly created money instead of lending them productively to create new assets (i.e. healthy economic activity).

The crux of the MMTs misconception is that money (funding) creates value! But Aristotle above just said the opposite: money is a thought concept and value can only exists in the physical realm! We dont create reality with our thoughts (although some may disagree)

Aristotle copied again for effect:

" *Money* in its purest form is a mental association of values in trade...a concept IN MEMORY...NOT A REAL ITEM!!!"

"As a *nominal* (mental value) measuring unit it serves perfectly as the lubricating *unit of account* in the ever-adjusting network of purchase orders, loan contracts and labor agreements which all form the backbone of our economy and monetary system."

"The exhorbitant growing confetti-creation, policies... NEED TO BECOME DETERMINED BY WEALTH *OUTSIDE* THIS OFFICIAL MONEY REALM!"

"Although Gold has no right place *IN* the monetary system, it is by natural selection the nearest neighbor living in the real *OUTSIDE* world that can act as a universal translator to judge and announce *without bias(!!)* the temporal values of the many monetary pricing units being wiggled and jiggled around *inside* the "gamey" system."

Aleksandar said...

Read for instance this excerpt from Bernanke's WaPo op-ed:

"This approach [of buying longer-term securities] eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

He is describing a Ponzi scheme!!! The term value has been replaced by valuation. The term creating value (meaningful economic activity) has been replaced with spending. Dont you sense the collective illusion!

It exactly the insanity of this type of "world improvement" that creates tragedies of generational precedence. This thinking, that funding is what creates value, is the root of most of the evil that we have today.

Texan said...

Wow. See the FT op-Ed by new head of World Bank. Calls for a "modified gold standard".

Wow.

Paul said...

Wow indeed. Things must be getting desperate.

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."

The FT chooses to interpret this as a "modified gold standard". Doesn't sound like a gold standard at all, does it?

Museice said...

"He doesn't go much further down the road on this idea, and it doesn't sound like a truly hard gold standard, but rather that the world would respect gold as the ultimate arbiter of a currency's value, as a measure of who is failing to keep their currency stable." BusinessInsider

Museice said...

World Bank president Robert Zoellick said, "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

Museice said...

"By calling for a role for gold, while at the same time calling for inclusion of the dollar, the euro, the pound and the renminbi, in a new international monetary system, it may be a desperate move by the global banking elite to head off a move toward a full international gold standard.

What is clear is that the elite no longer feel it is safe to simply ignore gold. " EconomicPolicyJournal

Aleksandar said...

The point of Freegold is that there is no need to create complex super-national monetary schemes, if that is what Zoellick suggests.

It seems to me that they are focussing on gold as a discounting mechanism of monetary value. That is what a gold standard is IMO. Freegold demonetizes gold on the other hand.

Gold as an asset that will replace the universe of paper reserves is still beyond their grasp.

Paul said...

I think Zoellick (who has got to be the definition of "elite") has gone pretty close to describing freegold, without actually spelling it out.

The US is obviously under immense pressure from every other nation present at G20. That a US "friendly" publicly uttered the G word in relation to global finance shows this. And China is all of a sudden in conciliatory mode.

Maybe we have just had an "either you tell them, or we will" moment.

Texan said...

Paul - exactly. And right away Brad Delong (Krugman acolyte) came out with a hit job calling him perhaps the stupidest person alive because markets were not buying gold as a store of value, but to speculate! Seriously, my jaw dropped. So there is major division in the ranks, as they say....

Texan said...

Actually I am not sure WB is a US friendly. I think it is more a Euro-bloc/BIS friendly, no? That is what I meant by division in the ranks. Looks like the split is happening with the $IMFs.

Paul said...

Well what an exciting day! Gold at a new high, world bank advocating freegold, and Queen Elizabeth joining Facebook.

Almost forgot to comment on FOFOA's latest post! I think miner49er's comment was very insightful:

"This decline in dollar holdings is desired to take place concurrently with a rise in the price of gold to offset this. Spoonfeeding dollars into the system won't crash it, as well as a slow commensurate rise in gold. The discipline that they have thus far maintained is indicative of the tectonic movement of the geopolitical strata. Ideally there will be no rash or even discernible activity. The perfect result is to simply keep shifting these plates until we wake up one day and the world has been remapped."

It feels like we are at this point in his prediction. The gold price has been managed upwards, and the remapping being revealed on what feels like a daily basis.

Now how close are we to this:

"At some point critical mass will be reached, and the dollar contract markets for gold will no longer be able to contain its price as market perception on a large enough scale discounts paper parity with the real metal accordingly. It is at this juncture that the gold reserves of the CBs will provide immense expansionary leeway, as they are for a season revalued constantly upward."

And I suspect the Zoellick release is related to this:

"In this respect it is important to curry the cooperation of the more maverick dollar holders, like China and Russia, as their track record of unpredictablility, may lead them to use their dollars as weapons... "

What's that Another quote?

"We watch this new gold market, together, yes?"

Cool

Paul said...

Hi Texan

You could well be right that WB has defected. Looking at Zoellick as an individual though, he seems US through and through. But you never know peoples' ultimate motives I guess. He's probably got a vault load of gold from his Goldman days, and that's where his true allegiance lies!

Paul said...

Talking of Brad Delong, did you read that Gonzalo Lira piece on him as Krugman's fluffer?

http://gonzalolira.blogspot.com/2010/11/contradictions-in-life-of-fluffer.html

Very funny.

Aleksandar said...

Paul,

Again, I dont believe that Zoellick is describing freegold. His op-ed is for western public consumption ahead of the G20 and is full of monetarist cliches. This should comfort us that there is an agenda for a solution and should make them look important. It is all a part of pre-G20 diplomatic positioning.

What he describes as the role of gold is so unclear and shadowy that it is obvious that he is sayng this just to secure some vague support from someone with a lot to lose from paper and a lot to win with a gold standard.

But there is a stir in the monetary universe, that for sure. As momentum builds up, there wont be long before someone actually proposes freegold in some such meeting. I will not be surprised if it comes out from the old money. The UK for instance.

FOFOA said...

Hello Aleksandar,

"I will not be surprised if it comes out from the old money."

I think some of you would be surprised at who is reading this blog. I know I am, constantly. Perhaps you noticed the short money/motor oil analogy in my reply to Greg. I didn't write that. It came from an email.

Earlier this year, long before my "Public Opinion Poll," I received a donation from a European Royal. A Prince. And not just any prince. A direct descendant of Kings dating back to at least the early Renaissance from what I can tell through Wikipedia.

He didn't identify himself as royalty or "old money," but his long name caught my eye, so I looked it up. I emailed him and he confirmed his identity along with an elegant message from which I took that analogy. If he's reading this, I hope that he doesn't mind my sharing his message, and I certainly won't reveal his identity.

Here was the message:

The note that came with the donation: In grateful appreciation for the quality of your thoughts

And here's the email, with a few identifying remarks redacted:

Thank you, Sir.

Mercifully, the sins of ancestors do not burden their descendants, or your cheerful message might have been different...

Just look at:

*redacted*

and read there about my great(etc)grandfather, *redacted*

For me, money to an economy does the same as oil to an engine: it produces no output, but allows many parts to smoothly work together.

Too little oil, and the engine seizes; too much oil, and the crankshaft whips the oil to mayonnaise, an air-oil emulsion that takes a little longer but will again ruin the engine, and often leaves mechanics baffled about the causes.

Without oil, our modern civilization would stop, but no government has yet nationalized oil because of its critical function.

Unfortunately, money attracted government's attention, and there is little difference about what Philippe d'Orleans did with the help of John Law, and what Sarkozy is doing with the help of Trichet.

I believe that it was Einstein who said: Only savages constantly repeat the same experiment, and wonder why the result is always the same.

Still, I'm very afraid that this time it will end up in tears; the 1.5 billion people present when I was born have now more than quadrupled, but are better fed, etc., than many years ago.

My explanation of this miracle is a silent army of a hundred thousand accountants constantly churning ROI's to evaluate countless ideas and opportunities, efficiently allocating capital and allowing innovation to do its magic during the past century.

To do so they need good price information -- if it gets too volatile (is oil's price 40 or 140 $/bl?), the resulting ROI's uncertainty will kill many investment decisions.

Bad money destroys price information, makes budgets uncertain, slows down capital allocation decisions.

This means hunger behind the corner for many, many people.

To avoid this, the right oil must lubricate the engine, pardon, the right money must lubricate the economy.

Please consider the simple thoughts above as another appreciation of your, in my view, VERY special contribution to understand what is happening to our money, and to our future as it depends on it.

Kindest greetings,
*redacted*


Cont...

FOFOA said...

This "old money" didn't stay in the same hands for 500 years by buying into the various paper savings schemes that came and went. These people know something about storing wealth through generations.

Here are a couple appropriate quotes from a hundred year-old book brought to my attention in a comment a few months back. (Sorry, I still haven't read the book so I cannot comment on his overall economic theory. But I did like the two quotes!):

"And it is clear that money cannot be simultaneously the medium of exchange and the medium of saving - simultaneously spur and brake."

"I therefore propose a complete separation of the medium of exchange from the medium of saving. All the commodities of the world are at the disposal of those who wish to save, so why should they make their savings in the form of money? Money was not made to be saved!"


That was written almost a hundred years ago!

Sincerely,
FOFOA

Paul said...

Hi Aleksandar

I agree that Zoellick's comment is brief and lacking detail, but to me what he does state sounds exactly like freegold.

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

If gold is an international reference point against which you can measure currency values, then firstly he is talking about the physical only market. The paper market itself is subject to the same manipulations as fiat, and his intended audience knows this.

To measure currency values using gold, the gold obviously cannot be coupled by price to the currency, so he's describing de-monetized gold.

And he describes gold being used today as an alternative monetary asset, not an alternative currency or commodity, so he's implicity recognizing what the ECB, Russian Central bank etc have done in floating their gold reserves.

That's why I think he is clearly talking about freegold, and more importantly he's announcing that the WorldBank recognises the inevitable end of the dollar as reserve currency, and describes freegold as a possible solution.

Greg said...


Wow FOFOA.

That was quite a talkin' to. That was longer than one of Bill Mitchells blog posts. I guess I had it comin' to me though since you thought I was kinda sassy with my "you're badly wrong" comment.

Lots to think about in that post.

I must say you have been knocked down a notch on the credibility scale by quoting Glen Beck though.... he's a pure lunatic. Were the Illuminati free golders?

Sorry, no more smart ass here.

Let me ask you, when I sell a bond and turn around and buy a stock and the stock holder buys a bond (because in aggregate that is exactly what happens) is any new financial asset or money created? No its an asset swap. Yes the price of the stock may be higher but that is not any new money. This is what QE does.
Its a horizontal transaction as Mitchell or Mosler would say. It only a vertical transaction (new money injection) when deficit spending happens.

THIS;

"The "Chartalists" (and their useful idiots everywhere) claim that the Federal Government simply spends money into existence, and thus they can do this all they want. Well, technically true - you can print all the money you want. However, you cannot control its value except through relative scarcity!"

Is pure strawman. No Chartalist ever says the govt can print all they want. That is simply the wrong starting point to discuss MMT. And it not factual that scarcity is the only way to control moneys value. Thats the quantity theory which has been thoroughly discredited along with fractional reserve lending.

I wont quibble with much about your description of what MMT says except this;

"And that unbridled government spending is the way to get us out of our current (paper) mess"

Unbridled is no less inflammatory and misconstruing
than "all they want". You really need to look at things that Bill Mitchell has to say. Its not a scary place, just a bunch of guys talking banking.


cont

Greg said...

"But where your theory really goes wrong is viewing "money" and government spending as the engine of the economy"

Not the engine per se but the gas pump that keeps the engine going. It is THE support system.

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


"Money is only a lubricant for the real economic engine, which is private production"

Agreed

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

"The government doesn't produce anything. All it does is mess with free market private production, sending capital here and there in a big tangled mess of system-wide malinvestment"

Please, can we agree that "its" not only about production but actually supporting production via consumption as well. We are not just a bunch of producers we need consumers. Yes if everyone simply worked for the govt support system we'd all freeze to death in the dark because no one would be running our power plants or we'd starve to death in our homes because no one would be growing food but NO ONE is advocating that and I'm pretty sure we will ALWAYS make sure someone ids doing those things and they will be paid to do that.

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



"Money to an economy does the same as oil to an engine: it produces no output, but allows many parts to work smoothly together. Too little oil, and the engine seizes; too much oil, and the crankshaft whips the oil into mayonnaise, an air-oil emulsion that takes a little longer but will again ruin the engine, and often leaves mechanics baffled about the causes."

I can go along with this

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

"If you will read my post The Debtors and the Savers like I recommended, you will find that the people in power today are actually the debtors, not the savers. I know, it seems counterintuitive, but it's true."


I'll read the post soon cause I need further explanation of this. You may mean debtors as in owing the system, as in over leveraged. I can see that if thats what you mean

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


"A saver is someone who produces more than they consume. This is the very engine that drives our economy, yet your view reveals it to be a burden on society, because you view money as the engine."

No money is the fuel, its like glucose in our body. Our heart pumps glucose to the cells that facilitates metabolism. I dont disagree with your idea of saving but it cannot be done to much of a degree on a macrolevel, There must be someone to consume your oversupply after a certain level. Savings is a burden when excessive. How to predetermine the "right" amount ? Dont know. How to know it when you see it....... right now. We have OVER produced a lot of things.

As Mosler is fond of saying economics is the opposite of religion, in economics its better to receive than to give. If you produce extra and sell it to me so I dont have to produce it myself .....THANKS is the proper response.
--------------------------


" *Money* in its purest form is a mental association of values in trade...a concept IN MEMORY...NOT A REAL ITEM!!!"

Agreed. This is actually quite consistent with MMT as I understand it. This is why they say we can NEVER run out of it.

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

"As a *nominal* (mental value) measuring unit it serves perfectly as the lubricating *unit of account* in the ever-adjusting network of purchase orders, loan contracts and labor agreements which all form the backbone of our economy and monetary system."

No quibble here. Although you may be getting notional mixed in with nominal.

cont,

Greg said...

"The exhorbitant growing confetti-creation, policies... NEED TO BECOME DETERMINED BY WEALTH *OUTSIDE* THIS OFFICIAL MONEY REALM!"

Yes. I see no conflict at all here with what Bill Mitchell would say.

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

"Although Gold has no right place *IN* the monetary system, it is by natural selection the nearest neighbor living in the real *OUTSIDE* world that can act as a universal translator to judge and announce *without bias(!!)* the temporal values of the many monetary pricing units being wiggled and jiggled around *inside* the "gamey" system."


I must say this is a little unclear for me. Not sure exactly what you are getting at here. You seem to be claiming gold as some sort of anchor of value. Randall Wray talks about gold as a buffer stock of value in the old system and suggests we could use a labor as a buffer stock in our current system. All the buffer stock does is set a floor to prices. It seems you want a floor to money prices (or a ceiling too), but if money is simply mental it has no price.

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

"You do have one thing right. Saving paper debt is a burden on the system."

Gee thanks!


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


" And yes, the system will preserve those savings nominally, destroying the currency in a hyperinflationary fire. This is why savings belong OUTSIDE the currency. This is why the system is collapsing. Not because we are constraining the federal government from spending enough cash into the system. Not because we don't understand how the modern monetary system works."


I think I agree with most of this, except maybe the hyperinflationary fire. The part about saving outside the currency rings true and displays to me why there is such a disparity between the people who work outside of finance and are really producing while many inside finance "produce" NOTHING yet take from the labors of others.

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


"The system is collapsing because 30 years of savings has been piled into a currency, through assets denominated in that currency that will rise or fall in value right along with the temporal value of the unit of account itself. When the debtors cannot generate economic output sufficient to cover their debt in full, the monetary base will be expanded to save the savers. Yes, you have that part right."

Sooooooo "they", those the system will bail out (is bailing out), ARE the savers...... not the debtors as you alluded to earlier. You've changed your tune here.

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

" But it is not the savers that crashed the system. It is the system that crashed itself. It is your own modern monetary theory that is imploding."


MMT is not imploding, because A) the system is NOT following the rules that many of the MMT advocates talk about. We are operating unfortunately under a monetarist paradigm which applies gold standard thinking to flexible exchange rate currency and B) MMT cant implode, its a description on its most basic level of how a fiat system operates. Thats it, pure and simple. Knowing that, there are still decisions which must be made as to how to spend this money which you can create at will. We have been making some poor ones of late.


Cont

Greg said...

"Can you see how your statement (regarding QE) is wrong? Sure, the Treasury would have spent that $600 billion either way. We all are aware of that. The difference here is that new bank reserves were created to offset this particular $600 billion of spending."

No, its NOT treasury spending. Thats a fiscal operation that requires congressional approval this is a monetary operation not fiscal. Its balance sheet swapping attempting to influence interest rates THATS ALL IT IS!

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

" The MMT solution would simply collapse the system faster, perhaps immediately upon adoption"

First off the "MMT solution" has already been adopted, in this sense; The govt creates money before it taxes. There is no money to collect in taxes until the govt spends it. Banks only create loans which net to zero. So really your comment is nonsensical, there is no MMT solution. There are political choices that people like Mosler and Mitchell would encourage us to make in order to stabilize our monetary system but there is not a way in which MMT solution could collapse anything. There is not a monolithic MMT solution. Your getting off track here

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

"A saver produces more economic goods than he consumes. The present system allows for all excess production to be consumed in the present."

RIIIIIGHT!!!! Have you looked around you? Thanks to supply side bullshit we have lots of excess. Ad it aint being saved its ROTTING.
----------------------------------

"Therefore the savings of foregone consumption by the producer/savers needs to be in a vehicle separate from the monetary system. A physical asset, that floats in value. And as you said, "yes they could have bought more real goods but where to store them? This is where physical gold performs exceptionally well! A million dollars' worth can be stored in a small safe. And as the price floats ever higher, storage becomes less and less of a problem."

All true. Gold is a fine commodity to own. As part of a portfolio of other things as well


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


"Politics will force devaluation over default, inevitably, presently."


We shall see. I'm betting on a debt jubilee.

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


"Deflationists assume that the world of necessary physical goods has already been efficiently priced to the credit money aggregates"

I guess Im not a deflationista then because I certainly dont believe this, Im not sure Mosler or Mitchell do either but I'm not sure. I guess the definition of efficient is necessary.


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

Cont

Greg said...

"It is today's easily expandable reserves that make it possible to guarantee all deposits (FDIC) as well as all kinds of other things like pension funds etc... The guarantees are only nominal, of course, as are the bank deposit guarantees. Unfortunately, the FDIC does not insure value."


Well, NOTHING insures value. Are you trying to tell me you can guarantee that under a free gold system my gold will always buy me enough food? Shelter?

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

"This is not an argument for the gold standard. Quite the contrary! It is an argument for Freegold which is purely symbolic fiat currency in the medium of exchange/unit of account role as well as the short term store of value role (which is just what you MMT guys like.) And gold in the long term store of value role, marked to market, just as it is in the reserve asset column of the Eurosystem's consolidated balance sheet today, marked to market every quarter, fluctuating opposite that of the currency as a counterbalance."


No one, I mean NO ONE in the MMT camp would endorse the handling of our banking system the last three years. In fact Randall Wray and Bill Black are vehemently calling for the fraudulent balance sheet practices like mark to fiction and such to be exposed and prosecuted. I'm not saying you do, but I want you to be clear that no MMT scholar endorses the handling of the banking system, they ALL recognize the need for real reform. Mosler has maintained that the practice of regulating the liability side is 180 degrees from where it should be. The asset side is the side to regulate.

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


" And Yes, its impact on the relative value of gold will make that metal the monetary wealth investment for the next thousand years!"


What? Not for eternity? Why only thousand years?


-----------------------
" I hope you'll continue to explore the gold trail!"


You've piqued my interest I must say


Thanks

Friend Of FOFOA said...

What is it that leads commenters here to believe Freegold is some sort of secret?

Some at the highest levels of power (CBs) have been aware of the fatal flaw of the $IMFS for decades.
Big Trader found out in '97. Another didn't work all this out on his own, and he was quite upfront about this, that he had been educated in it himself, by others.

What do you think Bernanke makes regular trips to Basle and the BIS for?

"Ten times a year— once a mouth except in August and October— a small elite of well dressed men arrives in Basel, Switzerland. Carrying overnight bags and attache cases, they discreetly check into the Euler Hotel, across from the railroad station. They have come to this sleepy city from places as disparate as Tokyo, London, and Washington, D.C., for the regular meeting of the most exclusive, secretive, and powerful supranational club in the world. Each of the dozen or so visiting members has his own office at the club, with secure telephone lines to his home country... include the governors of the U.S. Federal Reserve, the Bank of England, the Bank of Japan, the Swiss National Bank, and the German Bundesbank... Basel, a safe and convenient repository for the gold holdings of the European central banks, it quickly evolved into the bank for central banks...

[preWWII]... even though an isolationist Congress officially refused to allow the U.S. Federal Reserve to participate in the BIS... the chairman of the Fed quietly slipped over to Basel for important meetings. World monetary policy was evidently too important to leave to national politicians... the American government backed a resolution at the Bretton Woods Conference calling for the liquidation of the BIS. The naive idea was that the settlement and monetary-clearing functions it provided could be taken over by the new International Monetary Fund.

What could not be replaced, however, was what existed behind the mask of an international clearing house: a supranational organization for setting and implementing global monetary strategy, which could not be accomplished by a democratic, United Nations-like international agency. The central bankers, not about to let their club be taken from them, quietly snuffed out the American resolution... When the dollar came under attack in the 1960s, massive swaps of money and gold were arranged at the BIS for the defense of the American currency. It was undeniably ironic that, as the president of the BIS observed, "the United States, which had wanted to kill the BIS, suddenly finds it indispensable." In any case, the Fed has become a leading member of the club, with either Chairman Paul Volcker or Governor Henry Wallich attending every "Basel weekend."


Leutwiler from the Swiss National Bank (then BIS head)..."To be frank," he said, "I have no use for politicians. They lack the judgment of central bankers."

Friend Of FOFOA said...

..The inner-club members also share a strong preference for pragmatism and flexibility over any ideology, whether that of Lord Keynes or Milton Friedman. Rather than resorting to rhetoric and invoking principles, the inner club seeks any remedy that will relieve a crisis... "We are constantly engaged in a balancing act-without a safety net," Leutwiler explained.
...The final and by far the most important belief of the inner club is the conviction that when the bell tolls for any single central bank, it tolls for them all.

...Inner club members publicly pay lip service to the ideal of preserving the character of the BIS and not turning it into a lender of last resort for the world at large. Privately, however, they will undoubtedly continue their maneuvers to protect the banking system at whatever point in the world it seems most vulnerable. After all, it is ultimately the central banks' money at risk, not the BIS's. And the inner club will also keep using the BIS as its public mask, and pay the requisite price for the disguise."


From the only substantive public article on the BIS, published in Harpers, Nov 1983.

Friend Of FOFOA said...

The world monetary system faces two clear options: systemic default, or Fed sponsored hyperinflation.

The only way out of this predicament is a change in the medium we all collectively use as the monetary store of value. With that change, all holders of the new medium, gold, will be automatically recapitalized.

The CBs cannot be seen to force this change.
The people must collectively arrive at this conclusion and force the change themselves. This is what we are all waiting for.

Do you really believe that the BIS stood by while the biggest player in the game, the US, quietly divested all its gold?

Do you really think this group, higher than any government, which has been aware of the ultimate conclusion to Triffin's Dilemma for decades, and have everything to lose in systemic collapse didn't see this coming?

They are waiting, waiting for YOU to look in the mirror and see the culprit, before, unable to take any more pain, you collectively (and belatedly, but what do we expect of sheep?) stampede to gold and change the monetary store of value.

This change must be from the bottom up.

Friend Of FOFOA said...

To recap, if I may:

"...the [BIS] inner club seeks any remedy that will relieve a crisis...The final and by far the most important belief of the inner club is the conviction that when the bell tolls for any single central bank, it tolls for them all...they will undoubtedly continue their maneuvers to protect the banking system at whatever point in the world it seems most vulnerable. After all, it is ultimately the central banks' money at risk, not the BIS's.


Freegold will recapitalize them(CBs), and yet you think they haven't thought of it before, even though we know the Euro was constructed to fix the flaw?
That all Central Bankers did not examine the finest details and implications of the Euro even before its introduction?

FOFOA said...

Hello Greg,

"I must say you have been knocked down a notch on the credibility scale by quoting Glen Beck though.... he's a pure lunatic. Were the Illuminati free golders?"

I guess you didn't see that I posted the link to Glenn Beck before you even posted your comment. Either that or referencing Beck to you is a greater violation than simply posting it.

First of all, I didn't quote Beck, I referenced a diagram he used, on a chalkboard, in a video I linked prior to your comment. Clearly you didn't look at it. Second, I'm not an illuminati-tard and neither is Glenn Beck. His "illuminati" is George Soros and the leftist progressive movement, which he clearly and historically defines. For proof, watch this short clip. He makes fun of another guy's illuminati statement. I set the time in the link to 11:08 so you only have to watch 30 seconds and not be waterboarded too long watching a pure lunatic.

http://www.youtube.com/watch?v=hoOh08KmGvU#t=11m8s

Third, Beck's progressive leftists are part of the debtor camp in my paradigm description. They are in the easy money camp. That doesn't mean all easy money campers are leftists. Even Denninger and Bill Still are in the easy money camp. But MMT is certainly in the easy money camp, so it is not surprising that you don't like Beck. More on this in a moment.

Freegold, unlike "hard money," is a natural, emergent hybrid system that makes room for both camps. It is neither hard money nor easy money. It is neither Beck nor Mosler. It is both. It is a separation of the monetary roles into different mediums.
__________________

"I'll read the post soon cause I need further explanation of this. You may mean debtors as in owing the system, as in over leveraged. I can see that if thats what you mean"

In that post I showed that we historically swing back and forth between easy money systems and hard money systems, "hard" meaning difficult, not necessarily metallic. And I put the people that desire each type of system into camps: "the hard money camp" and "the easy money camp." "The debtors" and "the savers" are synonyms for the two camps in the paradigm that I outlined in that post. A debtor by my definition does not necessarily have to be in debt. In fact, many people are in debt on their home but they are also savers in their pension fund. The camps have more to do with a preference for a monetary system than an actual balance sheet.

Savers prefer to earn their own money and then spend it, either on consumption or savable assets. Debtors want a system that provides the option to consume someone else's excess production or spend someone else's money, one way or another.
__________________

"I dont disagree with your idea of saving but it cannot be done to much of a degree on a macrolevel, There must be someone to consume your oversupply after a certain level. Savings is a burden when excessive. How to predetermine the "right" amount ? Dont know. How to know it when you see it....... right now. We have OVER produced a lot of things.

As Mosler is fond of saying economics is the opposite of religion, in economics its better to receive than to give. If you produce extra and sell it to me so I dont have to produce it myself .....THANKS is the proper response."


Continued...

FOFOA said...

I don't mean this to sound too derogatory, but this clearly puts you in the easy money (debtor) camp. Contrary to what you say, savings can reach ANY level the producer is willing to achieve. Just not in paper. Put this post on your "to read" list if you're still around: How Can We Possibly Calculate the Future Value of Gold?

Here's a little teaser:

Gold as storage for purchasing power has no limit whatsoever to its total size relative to normal prices. This is because it uses the time dimension with unequalled confidence. Absolute confidence allows it to stretch as far out into time as it wants. And this confidence is a self-reinforcing, self-sustaining feedback loop in the same way that a faulty store of purchasing power [paper debt] is self-limiting by its intrinsic lack of infinite durability.

…gold as a store of purchasing power has an infinite time horizon. These Giants are not interested in "catching the top" like Western traders. They are interested in storing purchasing power well into the future.

I guarantee to you that the Noble families of Europe still possess some of the same exact pieces of gold that were in their families in the 16th, 17th and 18th centuries. And this is purchasing power stored (and increased) through several currency collapses!

So, cutting to the chase once again, the biggest fallacy in your model is using "Total above ground gold" as your point of comparison. It's not the stock that matters, it's the flow.


And to understand why gold is not only the best, but the ONLY commodity that can fulfill this role, you should study John Locke's Second Treatise of Government. Scroll down to the bolded part. It explains why it is "bad" to hoard (save in) something that other people might need.
____________________

" Sooooooo "they", those the system will bail out (is bailing out), ARE the savers...... not the debtors as you alluded to earlier. You've changed your tune here."

No change of tune here. You just brought your own assumptions to the game. The paper savers (bank account holders, pension funds, foreign CBs) are not being bailed out. They will simply be made whole in nominal terms, not real terms. How do you define "bail out?" Please explain your implication in the above statement.
____________________

" MMT is not imploding, because A) the system is NOT following the rules that many of the MMT advocates talk about. We are operating unfortunately under a monetarist paradigm which applies gold standard thinking to flexible exchange rate currency and B) MMT cant implode, its a description on its most basic level of how a fiat system operates. Thats it, pure and simple. Knowing that, there are still decisions which must be made as to how to spend this money which you can create at will. We have been making some poor ones of late."

Continued...

FOFOA said...

Yes, MMT is a description of how the system that is collapsing actually operates. A description that's pretty accurate in a lot of respects. A good description – MMT – of a system that is imploding. But it is also a prescription for how to better optimize this system so that it can (supposedly) continue. The prescription is more like a self-destruct button.

If only Warren Mosler had made it to the Senate… we'd be that much closer to Freegold.
______________________

"No, its NOT treasury spending. Thats a fiscal operation that requires congressional approval this is a monetary operation not fiscal. Its balance sheet swapping attempting to influence interest rates THATS ALL IT IS!

Tell me, what does the Fed swap from ITS balance sheet? And don't just say deposits. The Fed doesn't have its own deposits to swap. Deposits given out from the Fed are new Fed liabilities. And what exactly is the Fed obligating itself to do? What does the Fed have to do to fulfill that new liability if/when it is called?
______________________

"First off the "MMT solution" has already been adopted, in this sense; The govt creates money before it taxes. There is no money to collect in taxes until the govt spends it. Banks only create loans which net to zero. So really your comment is nonsensical, there is no MMT solution. There are political choices that people like Mosler and Mitchell would encourage us to make in order to stabilize our monetary system but there is not a way in which MMT solution could collapse anything. There is not a monolithic MMT solution. Your getting off track here"

Political choices like expanding the federal deficit? Like making the federal government the employer of last resort to raise the minimum wage (through the printing press) and "employ" everyone that wants to work?

And what is the underlying premise of MMT as to how the dollar has value that informs those recommended "political choices?" That money gets its value from the ability of the federal government to tax its citizens and because it is the only entity that can cancel tax liabilities? Seriously?

Do you think that savers that produce more than they consume CHOOSING to save in dollar-denominated debt (rather than physical endurables) has anything to do with the dollar's value? How about the global network effect on the dollar, since, after all, it is the global reserve currency?

Legal tender/taxation laws have no stabilizing or upward effect on money's value with regard to external trade, which is where money's value really counts.

If you pretend this is not the case (which I believe MMT does) and you encourage federal deficit spending (which MMT certainly does), the producer/savers of the world will abandon the dollar and crash the system in a heartbeat. Again, if only Warren Mosler had made it to the Senate… we'd be that much closer to Freegold. To others: look around his site! That's a different link. It's pretty interesting. Here's a glimpse:

Warren Mosler, MMT candidate for U.S. Senate: "I know what you are thinking: ‘What about the lost Federal revenues?’ ‘Won’t that mean cutbacks somewhere else?’ ‘Won’t we have to borrow more from China for our children to pay back?’

This is why I’m running. I have the right answer to these questions, which is what sets me apart from the field and uniquely qualifies me to support my proposals.


Continued...

FOFOA said...

Fund an $8/Hour National Service Job for Anyone Willing and Able to Work — This will provide transitional employment for the unemployed, preparing them to find new private-sector employment as businesses look to add millions of new jobs to meet the demand coming from a rise in spending due to the increased take-home pay from my first proposal.

I know how the payment system works. I grew up on the money desk at Banker’s Trust on Wall Street in the 1970′s, ran my own investment funds and securities dealer for 15 years, currently own a small Florida bank, and visit the Fed (Federal Reserve Bank) regularly to discuss monetary policy and operations.

As a result, there is no such thing as the Federal government running out of money, and Social Security and Medicare cannot go bankrupt. Because the Federal government always makes any payment when it’s due by simply marking up numbers in our bank accounts, just like Chairman Bernanke described.

My plan is both very different and highly effective. By increasing the take-home pay of you and your neighbors, you have the ability to make your payments and do your shopping with the money you rightly earned by working at your job. That’s called fixing the economy the Democratic way, from the bottom up, so you get to support the economy with your spending.


Full employment and plenty of MONEY! There is no government solvency issue! Isn't that the theme, Greg? Let's ask the ROW what they think about that. But I guess their opinion won't really matter since the federal government can just "credit deposits into accounts" that will always have value because the same government also has the legal power to tax its own public?? Seriously?
_____________________

"RIIIIIGHT!!!! Have you looked around you? Thanks to supply side bullshit we have lots of excess. Ad it aint being saved its ROTTING."

What's rotting? I don't understand.
____________________

""Politics will force devaluation over default, inevitably, presently."

We shall see. I'm betting on a debt jubilee."


What's the difference? Especially to the paper saver. I can tell you there's NO difference to the gold saver.
________________________

"Unfortunately, the FDIC does not insure value."

Well, NOTHING insures value. Are you trying to tell me you can guarantee that under a free gold system my gold will always buy me enough food? Shelter?"


Yes. If a 2,500 year record is any guide.
____________________

""I hope you'll continue to explore the gold trail!"

You've piqued my interest I must say"


Good! That's the only reason I'm here. Greg, you don't seem to understand the absolute importance of PHYSICAL gold in the international monetary system of our immediate future. This is inconsequential if you have no savings. But if you do have savings, a 401K, a pension, an annuity, a trust fund or whatever, I recommend you start here if you would like to see what I see. It is where I started.

Sincerely,
FOFOA

Aleksandar said...

Greg

When I read your writing, I get this "marxist central planning" alarm bells going off. It is just a feeling so I cant rationally discuss this, but FOFOA does a great job doing that on the other hand.

You equate consumables with wealth. Spending with creating value. It is a modern luddites movement. Collective insanity.

Desperado said...

Hey Fofoa,

Thanks for standing up for Beck in your debate with Greg. I am so sick of these lazy elitists trying to limit free speech by constantly smearing those "flyovers" "clinging to guns and religion" as ignorant, racist or in this case "lunatic". He obviously didn't bother to watch Becks piece and is playing the progressive game of trying to exclude Beck from any mention in his elitist discourse. Greg is the one living in a bubble, treating those who would dare to admit to watching Beck like aborigines in the outback, all the while calling THEM racist for wanting Obama to fail in pushing his marxist-progressive agenda.

As I have said, I do not receive Fox here in Europe, I believe that it was basically censored from the Astra satellite system by the EU. Fox was also banned from Canada and may still be. When a source of information is widely censored by progressive-socialist governments you know that they are providing information that these governments don't want their citizens to hear. The reasoning of these governments is the same as Turkey's banning of youtube: Those flyovers shouldn't be allowed to be confused with notions like freegold, Locke's "Of Property", or anything else that might threaten their government run monopoly on force.

I certainly don't agree with everything that comes on Foxnews or everything that Beck or O'Reilly says. And I don't agree with everything you post here, Fofoa. But I am certain that when the progressive media complex (NYT, Huffpo, Time, Newsweek, NBC (through Stewart, Olbermann, Colbert), FT and even the Economist) devote such massive resources to trying to suppress Fox/Beck/Limbaugh, that the world is far better off with these information sources than without them.

These would-be censors are so wrapped up in their own confirmation bias that they come up with statements like this: "QE is NOT adding new money for the Treasury to spend it is a simple asset swap. The amount of money in the system doesn't even change as a result. ". Any bible clinger will instantly realize that printing money to buy your own bonds is just one more way to juggle those debts that you are no longer able to pay. They don't need over-educated, name dropping, jargon-bloated elitists to tell them that apples are oranges.

This is one of the main aspects of freegold that the flyovers instantly recognize: it is storing your wealth outside of the realm of the ivy league trained, smooth talking liar politicians and all their rent seeking cronies. The flyovers want honest government, honest pay, and honest money, and they know that they won't find any of it in Washington DC.

Cheers,

Desperado

Museice said...

"MMT is not imploding, because A) the system is NOT following the rules that many of the MMT advocates talk about." I love this concept. The 'System' isn't following the rules. Bad 'System', go to your room.

If the 'System' is following rules then SOMETHING wants to crash the 'System'. As Rickards and others have pointed out, to remove the debt the US must remove the dollar. If the 'System' isn't following the rules (you choose who's rules) then so what? What is the difference? It is obvious the 'System' is yelling at anyone willing to listen to buy Gold. When I hear the 'System' begging for help, television pundits today espousing the upside of the DOW all I have to do is envision FOFOA's Inverse Pyramid and I can see the funnel of wealth. This funnel had a plug in the bottom and sloshing around inside, almost to the brim, has been, in my mind, the wealth of the world. All of it, every currency swimming through the various layers as it is traded and exchanged. A Brownian Motion of particles of value trapped in a funnel with a plug in the bottom. But there is an invisible part of the funnel, the tip that was cut off to create the hole in the bottom. This tip still exists and it is the tiny reservoir called GOLD. We here, reading this wonderful Treatise, understand the significance of the bottom of the funnel because when the plug is pulled, and by all rights it just was with QEII, everything sloushing around will suddenly become a vortex trying desperately to reach the bottom as quickly as possible and all wealth particles will plunge into the tiny Golden Tip and obeying the laws of physics in order for all these particles to occupy this tiny space these must be packed together under extreme pressure.

Pressure = Price

I would say the 'System' is following the rule of gravity.

Museice said...

Desperado: Well said about Beck and why, for the balance of the universe, we need to be allowed to hear opposing points of view.

Greg: For the balance of the universe I'm glad I heard your ideas. I hope you take the time to read more of FOFOA's.

Desperado said...

Looks like the ECB is not taking Zoellick's bait...

Trichet Plays Down Currency-War Fears

...Mr. Trichet was speaking in his capacity as chairman of the Global Economy Committee, which meets every two months at the Bank for International Settlements.
...
Mr. Trichet also noted that the committee hadn't discussed an idea floated by World Bank President Robert Zoellick at the weekend, who suggested the G-20 consider using gold as an international reference point of market expectations about inflation, deflation and future currency values as part of a "cooperative monetary system that reflects emerging economic conditions."

"Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today," Mr. Zoellick wrote in a column in the U.K.-based Financial Times newspaper....

Irus said...

Desperado. thankfully, there is more time to buy gold.

julian said...

Thanks for this great discussion.

I always feel like I'm getting a breath-taking view when reading this blog and all the insightful comments.

The footsteps of the Giants are like individual canyons.

Museice said...

Oh... and because it might need to be remembered in each comment thread:

The definitive comment on all fiat currencies post-Freegold:

From Paul: "A bit tattered and shell shocked, and missing a few zeros. It'll probably be found wandering through ... (insert name of city), dazed but still defiant."

Hans said...

Interesting opinion from Steve Keen, would be glad to hear your comments on this:

http://www.chrismartenson.com/blog/straight-talk-steve-keen/47466

Greg said...

FOFOA


"I guess you didn't see that I posted the link to Glenn Beck before you even posted your comment. Either that or referencing Beck to you is a greater violation than simply posting it".

I did see it, just didnt comment initially. I've obviously jumped into the middle of a Glenn Beck fan club here, sorry if Ive offended anyone but I just cant accept as serious anything that man does. He has a picture of himself on his new book with pockets turned out and the title is "Broke". Poor Glen making milkions from Faux and followers, while real hard working Americans ARE broke.... he's pathetic. And his answer to all his minions "Its George Soros and the progressive movement... kill them in the name of your lord Gold,,,,.... er God." What the hell has Glen Beck EVER produced besides fear? You who holds production as the most virtuous of traits ought to ask this. Especially extra production.

I dont want to sensor him, actually I want his rant on TV stations everywhere so his schtick will be exposed for the lie it is. I just dont have to listen to it cuz I know his answer every time "Stop the liberals (any way you must), buy gold"


My dislike of Beck has ZERO to do with what money camp I'm in. He's a scam artist. He may have some good things to say about money... I dont care. I'll find it out if its true from a less reprehensible source.

You say I'm n the easy money camp...OK as you define it... I dont buy that whole dichotomy you create, its way more complex than that.

MMT is in the "How our system actually operates camp" You can call it easy or whatever but the fact remains when your currency is 1) Sovereign (you alone create it) 2) Free floating exchange rate (exchangeable only for itself) The issuer CAN create as much as necessary, IOW does not need to seek funds because "he" creates them.


You obviously find this abhorrent. You think Gold is the only real money, you think hyperinflation is the ONLY result of this arrangement. You made some interesting points in your hyperinflation post that I alluded to and you are NOT so far as I can tell a typical Gold Bug (not that there is anything wrong with gold bugs.... some are nice people).

You seem to be arguing that this freegold is the "third way" the magic blend of everything Chartalists want and everything gold bugs want....... OK. Maybe it is ..... maybe its too good to be true as well. I'm not dismissing it.... but I aint buying it yet either.
(Not that you need ME to buy it.... I'm quite aware you are not in need of MY affirmation.......... just to be clear)


cont

Greg said...

"Savers prefer to earn their own money and then spend it, either on consumption or savable assets. Debtors want a system that provides the option to consume someone else's excess production or spend someone else's money, one way or another."


This is an interesting comment. And certainly govt does consume the excess production of the private sector, while the private sector is the "saver", producing extra.
So the trick (for the govt) is to give some value in return like security, infrastructure, means to settle legal disputes, education ( this is contentious I know but I think there is a role for public education). Some dont do this very well, unargubly.


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



"I don't mean this to sound too derogatory, but this clearly puts you in the easy money (debtor) camp. Contrary to what you say, savings can reach ANY level the producer is willing to achieve. Just not in paper."


Well, man up and own your insults. You think easy money is a perjorative. Thats fine. I dont give a shit.
But I still dont buy your "savings can reach any level" in real terms. It can in paper (nominal terms) or in gold but not in real terms. You cannot over produce grain or over produce housing and not incur huge costs to attempt to preserve its value.

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

"It explains why it is "bad" to hoard (save in) something that other people might need. "

I agree with this, but in YOUR dream monetary system GOLD is something people might need.


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

Museice had a little fun with my comment to your MMT is imploding claim but the FACT remains. Every system has rules; banking rules, lending rules spending rules blah blah blah and to hang the current problems around the neck of the MMT camp is plain wrong.

You have obviously NEVER read anything Bill Mitchell or Warren Mosler has written AND discussed it at their site. Just as I want to hear what you say before I say what the freegold movement is about, I think you owe them the same. I wont hold my breath however. It seems you'd rather snipe from the back row.


cont

Greg said...

"Tell me, what does the Fed swap from ITS balance sheet? And don't just say deposits. The Fed doesn't have its own deposits to swap."


In this particular instance it is taking "bonds" which are exactly the same as a savings account and changing them back to a checking account a lower interest bearing vehicle. If you moved your money from a savings to a checking is that injecting any funds.? The creation of the bond took 1 million say and placed it where it was going to get 3% for 10 yrs. They are getting 1 million plus the interest now, (not waiting ten years) its the same cost, moved forward some, driving interest rates down. As I understand it thats all it is. Which is why its largely uneffective and non inflationary.

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


"And what is the underlying premise of MMT as to how the dollar has value that informs those recommended "political choices?" That money gets its value from the ability of the federal government to tax its citizens and because it is the only entity that can cancel tax liabilities? Seriously?
"


If you were required, and believed it could be credibly enforced, to give 1000lbs of dandelions to the govt as tax, you would grow those dandelions OR you'd get them form someone else somehow. This only demonstrates HOW a fiat currency can gain acceptance in the first place. It is NOT further maintaining its "value" to folks for that prime reason now but that gets the ball rolling. Again I know you find it abhorrent, I get that, I find stepping on kittens with high heels and filming it abhorrent but it is a reality. You may not like it but a govt can AND DOES make something worth seeking (valuable) by requiring it as tax settlement.

BTW -- I dont love taxes..... just so you know.

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


"Do you think that savers that produce more than they consume CHOOSING to save in dollar-denominated debt (rather than physical endurables) has anything to do with the dollar's value? How about the global network effect on the dollar, since, after all, it is the global reserve currency?
"

YES! Of course. Those arent mutually exclusive conditions you've stated.

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

"If you pretend this is not the case (which I believe MMT does) and you encourage federal deficit spending (which MMT certainly does), the producer/savers of the world will abandon the dollar and crash the system in a heartbeat."


You've just proven you never have explored MMT literature any deeper than Glen Beck thinks about life.
Talk me through your scenario where producers/savers "abandon" the dollar. Why would they abandon that which they hold the most of? Are you afraid China wont "buy" our debt anymore?

Do we need China to buy our debt? How does China get dollars to buy our debt? If they dont use those dollars to buy debt what will they buy with it?

Are you concerned about something other than China?

cont

Ender said...

@Friend Of FOFOA

”Freegold will recapitalize them” and “This change must be from the bottom up.”

Exactly. Well said.

Today is a great day to take settlement in full. If you’re sitting on the fence thinking that the current PoG reflects a price that provides for recapitalizing the banks, you are wrong. Dollar settlement is breathing it’s last breaths as bankers fiddle with speeding up the process by gently stoking(stroking) a monetary asset that we’ve already come to understand well.

No need for a gold-foil hat today!

Greg said...

"Well, NOTHING insures value. Are you trying to tell me you can guarantee that under a free gold system my gold will always buy me enough food? Shelter?"

Yes. If a 2,500 year record is any guide"

????????????????????

Whats true about fiat currency is true about ANY money. Just because you have gold in your pocket you will not be able to get what you need under all circumstances. Gold does not have magic properties that just make a person give you what you need.

I'm not saying that a free gold monetary system wouldnt have some advantages but you seem to be imbuing gold with properties that are not physically possible. Your sounding a little like Chiropractors who claim to be able to help with cancer and diabetes, I KNOW of some value of chiropractic adjustments, I've experienced it, but cancer and diabetes?...... Nah

Maybe I'm mis understanding what you're saying


Thanks again

I really enjoy the thought provoking comments you make

zenscreamer said...

I posit the following:

1. Reality is fractal in nature -- infinitely complex (and remaining so at finer and finer resolution).

2. My mind does not have infinite capacity, hence it is not actually possible for my model of reality to be a completely accurate representation of what exists.

3. It is therefore absolutely necessary for me to remain agnostic towards the validity of my model, and be prepared to alter, repair or even replace my model of reality based on new information.

"Emptiness the starting point. — In order to taste my cup of water you must first empty your cup. My friend, drop all your preconceived and fixed ideas and be neutral. Do you know why this cup is useful? Because it is empty." -- Bruce Lee

Museice said...

Well said zenscreamer. I sense many preconceived notions in Greg.

Greg: You have done us a favor. I've been reading FOFOA for a while and we have never, as far as I can remember, talked about Beck. We rarely use emotional words to describe a thought and personal politics has nothing to do with the inevitable, organic structure that is Freegold.. I don't even remember FOFOA ever saying he 'loves' gold. But you, in a few posts, have enlightened us to the power of emotional words like "pathetic" when used to characterize.

If you are new to FOFOA our discourse is never personal. We talk ideas and defend them with structured reason. And my friend, we don't cuss.

Texan said...

Well put Museice.

Paul said...

I fucking do.

Greg said...

Well Museice

Im working on eliminating all preconceived notions and simply going with immediately conceived notions that have nothing to do with prior experience. I think thats called shooting from the hip. Some call it flying blind.

I dont claim "rightness". I do claim to understand certain concepts.... are they RIGHT? We'll see. You are obviously convinced of the rightness of freegold
......... on what evidence?

I will refrain from using profanity, even if at times it IS the best word.

I'll try to refrain from using emotion too. I'll make sure it looks like a computer could have written my post.

Alright, I'm a little too passionate for you, do you care to actually make a SUBSTANTIVE point?

Paul said...

Excellent discussion Greg and FOFOA. Keep going please, seriously.

Greg, yesterday I spent some time reading Bill Mitchell's blog. I must say I am really intrigued by this whole MMT thing.

I understand now why you call it a description of how finance works, and not a prescription of how society should finance itself. Once you've got over that hurdle, it's very freeing.

I need to do more reading, but one thing that jumps out is that some of the innovations MMT make possible (or rather acceptable) may require an external wealth repository, making MMT and freegold naturally complementary.

FOFOA, MMT doesn't necessarily advise that governments print money instead of borrow it, it just states that that is an option that naturally arrives with a fiat money system.

If governments choose to print, lets say to implement a policy of full employment (something that Hitler did with great success unfortunately) then something is needed to allow savers both within and external to that system to insulate themselves from inflation.

(MMTers would say there would be no inflation, but that's just a bit too Utopian for my liking).

Sometimes the immorality of allowing savers to dictate employment levels and resulting poverty, is worse than the immorality printing money.

Mike said...

anyone notice that their dealer is now advocating buying silver over gold?
noticed this today big time, dealer saying that everyone is buying silver because it moves a larger percentage then gold.

didn't bother to debate him but just wondering if everyone is getting silver fever.
im selling silver for gold into this rally.

any thoughts?

Friend Of FOFOA said...

@Ender,

I have had much help to get here (thank you, all PGAs, most particularly ANOTHER, FOA, FOFOA, Aristotle and Ender), but I must say, the view is superb! And the future outlook... (smile)

I hope you don't mind my use of your words here.

This particular quote from you:

"Gold is an asset based currency, thus it represents payment in full, whereas fiat currency is a debt based currency that represents a claim in the system.
In this light, the ‘preservation of wealth’ simply means - he who holds gold has already been paid."


... is one of the most succinct statements on the topic of Freegold. A perfect point of entry for everyone.


@zenscreamer,

I agree 101%, except perhaps with point #2, to which the insertion of "yet" just before the comma, and again before the fullstop, would make it perfect, in my humble opinion.

Greg said...

Thanks Paul


Ya know, I am a health care worker, specializing in cardiovascular anesthesia. The reason MMT rang true with me is that it describes the economy through flows and directions of flow. This allowed me to use analogies which I truly understood, heck I work with them daily and they aren't "theories". Is it "right"? A lot of it is indisputable, pure description. Is it sustainable? Well, is anything sustainable?

I've seen free gold described as organic and evolutionary..... I know evolutionary theory VERY well..... we'll see. Nothing I've seen here has convinced me to fully change my views on monetary paradigms. I have seen some things that have made me think about new things, and thats not bad. I'm not locked in to ANY answers.

As of now, I am not convinced that gold as money is organic. The original forms of "money" (means of lubricating trade) were credit money, gold came later, as an add on. That doesnt make it wrong or anything but , TO ME, MMT answers more questions and seems to be descriptive of the latest "form" of money. The rest is purely deciding what you are going to spend your money on.

I see a lot of people who know deep down that we are being sold a bill of goods by a lot of politicians and economists. "Its" not about money, or gold or debt. Its about real resources and who gets them and in what amount. Everyone knows that if we went to war with China tomorrow we could "afford" it and we wouldnt be borrowing anything form China. So what gives? Most people are content to accept the common dogma until their world is disrupted. Well, we'll see some disruption if all these austerity measures go through because theres a very simple 1+1 = 2 type economic truth called spending = income (Bill Mitchells post today) When we reduce spending, peoples income will go down...... who gets cut? The circular firing squad is what comes to mind for me.... his ....his.....hers..... NOT MINE!!

Aleksandar said...

Greg,

I dont want to mix in your discussion with FOFOA so I will be very brief.

It is because MMT explains how the system works that you find common ground with Freegold. FOFOA also describes how the system works in pretty much the same concepts.

Your quote:

...But I still dont buy your "savings can reach any level" in real terms. It can in paper (nominal terms) or in gold but not in real terms. You cannot over produce grain or over produce housing and not incur huge costs to attempt to preserve its value. ...


Wealth is not consumables like grain or durable consumables like houses. It is through making them that wealth (value) is created. Only the excess value received by the maker is stored in gold.

It is a dynamical equilibrium, just like any other market. At any given moment in time, there is an equal amount of savings withdrawn and savings added. The POG will then fluctuate based on the simple demand-offer market mechanism, its price completely arbitrary. In this way, gold (savings) is taken off the productive economy and hence your "huge costs to attempt to preserve its [savings] value" will not have detrimental effects to funding for economic activity.

Paul said...

Hi Greg,

Agree, much of it is about the resources, and how excess production is distributed. Incredibly unfairly and inefficiently at the moment. I don't think anyone could argue with that, and I take great heart from seeing normally conservative free-marketeers turning their ire on the bankers and financial industry.

Just read Bill Mitchell's latest. To quote him quoting Krugman - "the private sector had prior to the crisis been on a credit binge – “unsustainable borrowing” as “Real estate speculation ran wild” (all over the World). Further, this “borrowing made the world as a whole neither richer nor poorer: one person’s debt is another person’s asset. But it made the world vulnerable”."

That's really what were banging on about here. The world has been made vulnerable by a massive build-up of debt as asset. We can all argue about how it will unwind, and whether deficit spending is immoral or not, but unless the world comes up with (or re-discovers) an alternative way to store wealth (real wealth, not leveraged paper speculation) then we'll get the same outcome next time.

It just so happens that as an added bonus, taking part in this historic re-organization of global finances may re-distribute some of that real wealth our way. Personally I'm egotistical enough to believe that I can come up with much worthier uses for it than a vulgar Ferrari and an endless supply of cocaine and hookers. Then again...

Aleksandar said...

BTW, can we drop the Glenn Beck issue?

On a different note, I now noticed that there is a Friend of FOFOA posting. Even has a piece at ZH. Not very chique to use FOFOFOA as a pseudonym, I think. Also, people may get confused.

Texan said...

Mike,

I think a lot of people are buying silver because they can afford it. $1400 in siver is about 80 ounces. Has a nice heft to it.

Gold Is also selling briskly per the US mint October numbers, but it's a more rarefied customer.

Americans know silver holds value, as there are several generations where it did just that. Gold is very alien to the American psyche, IMO, because the USD is so revered, and because gold was illegal to buy for over 40 very inflationary years. So there is no experience with it. You combine that with the fact the virtually all of Americans' savings are tied up in home equity and the ultimate "gated" asset their 401k, and coming up with cash to buy an ounce or two of gold is pretty difficult. Compared to buying 20 or 40 or 100 ounces of silver " just in case".

Plus it is probably getting gunned by funds who think that the JPM trading book will be forced to cover. But that's a much more speculative theory IMO.

Greg, I appreciate your insight into Chartalism. However, I really don't care how fiat gets created or accounting identities or any of that. All I care about is maintaining PPP of my savings for the long haul against other hard, and generally imported, assets such as oil, which itself pretty much feeds into all prices. If Chartalism has suggestions as to where to park one's zero time fiat currency or whatever the hell y'all call it (I call it "cash"), then I am more than happy to read what you write and will thank you for it.

So?

Greg said...

Paul

Glad your taking the time to investigate Mr Mitchells site. There is a lot of good stuff there.

I dont disagree with anything your saying. I'm not sure Bill Mitchell Or Warren Mosler would disagree with this ;

"unless the world comes up with (or re-discovers) an alternative way to store wealth (real wealth, not leveraged paper speculation) then we'll get the same outcome next time."

either

Regarding deficit spending being immoral or not, its pretty clear that once you understand that the accounting of the three sectors govt, foreign, and domestic must net to zero, when the foreign and domestic want to move toward surplus the govt MUST move towards deficit. We are attempting to get out of private debt (towards surplus) move to less of an importer (towards surplus) and thusly MUST move towards deficit in the third sector, to maintain current incomes. I think its immoral to cut incomes on people servicing debt, when its not necessary.

Texan said...

Sorry Greg if my tone was a liitle abrupt. I didn't mean that. I agree with a lot of MMT, it just doesn't capture relative value between money systems (ie, other currencies) very well so I don't follow it. Really my only concern is PPP.

Mike said...

texan why not just buy 1/10th or 1/2oz of gold. i dont think it has anything to do with golds history in america but more so greed. average people tell average people the past bull market where silver outpaced gold and say you will do better in silver even though most people probably lost money in silver.
the dealer today told me the same story and then i said what would a millionaire do, buy silver? and he had no answer but i knew he wanted to say gold. no person of wealth is going to risk to play this game imo.

Ender said...

@Friend Of FOFOA,

It is good to see that Another as friends twice removed!

For those of you still valuing gold by its dollar price, be cautious. The emotion associated with a weakening currency can feel better than the actual – eventual outcome.

If you hold metal, in hand, you have softened your connection to the great claim that is before us!

And thank FOFOA for allowing space for crafting the words that you now echo on your blog. When thinkers gather, free of random interference, we all learn and grow wealthy from the influence.

Good day.

FOFOA said...

Aleksandar,

It appears I have been bodysnatched!

I agree, that FOFOFOFOA accreditation on ZH is confusing, since it is not my writing. It is also on goldseek now. I wonder how many people think it's me.

You all should know it's only me if it is here at THIS blog. I don't publish anything elsewhere. Some sites repost my words, but they are always here first.

I received a donation today. I guess it must be from Rocky Racoon over at ZH:
---------
by RockyRacoon
on Mon, 11/08/2010 - 20:42
#710256

I'm glad my donation today to FOFOFOA was put to good use.

---------

Thanks Rocky! Sorry you were confused about who authored that ZH piece. Or did you really donate to the other FOFOFOA?

FOFOFOFOA, maybe you should go back to using one of your previous names. Your writing is good enough to stand on its own merit. This bodysnatch may backfire if people feel deceived, even though that wasn't your intention.

Sincerely,
FOFOA

samix said...

FOFOFOA I think you should not use this pseudonym it will be confusing to people. But anyways you may be kind enough to not use it, but the internet is open to all.

Paul said...

Greg

OK "shooting from the hip" on MMT. Very attractive and probably accurate theory from a systems analysis perspective (thats my background).

But it's quite academic isn't it? For example, if there is a lack of demand in the economy, issue currency. Too much demand?, withdraw currency. How? Increase taxes. I like that, it's nice and simple, and makes you realize that all this nonsense with debt issuance should be purely to adjust the cost of money for the private sector.

But in reality, goverments can't increase taxes at will. They lose power if they do. So to a certain degree, it's a fun academic exercise. It would work if everyone was as rational as you, me and Bill Mitchell, but unfortunately the world is populated with people like Glen Beck. ;)

Fauvi said...

FOFOFOFOFOA,

it's not good this mixture or F - O's.

That's confusing for newcomers who might believe he is the writer of more blogs.

You can make good interpretations of FOFOA and help within the community but his name is a BRAND and that should be respected even in web, even without laws. That should be an ethical enough consideration.

Wendy said...

Kinda interesting conversation with regards to the evolution of FOA to FOFOA and now FOFOFOA ... and so on and so on. Although FOFOFOA hasn't posted enough for me to get a feel of the personality behind the "type", wouldn't it be comical if, infact FOFOFOA turns out to be FOA?
=80}

And WTF is this new "no cussing rule" Museice????? ;) I like the F word, it adds emphasis at times

:P

Wendy said...

ooops, I forgot to ask:

Ender you've been around almost since the inception of this blog, as well as Alex: do either of you think that FOFOFOA might be FOA??

Wendy :)

samix said...

Wendy, he may just be Another FOA, kinda AFOA.. haha

Ender said...

Hi Wendy,

The trail established through Another and his friend is well warn and clear to see. What they authored was timely and timeless. For those willing to see and live the truth, the words of Another and his friend will live on – whole – without the need of either revisiting thier work.

As more people come across their words, think, and come to a better understanding of what wealth is, the value of their teachings (and insights) will become even more valuable. As you find value in the gift they provided, you too can stand, anchored, in this turbulent world with a golden understanding. If the spirit grips you, you might even choose to help spread the understanding to others.

Freedom has many friends, yet it takes one that understands the burden of debt (currency) to truly understand what gold in hand represents. If someone is willing to teach this understanding, students will be found.

I, too, find the FOFOFOA moniker a little opportunistic. Yet, the same could be said for FOFOA. {smile}

It is a brave thing to create a blog in honor of Another and his friends. Let a man be judged by his actions, for the words from FOFOA are respected and noted by many.

I do have one request. The works of Another and his friends were generated in the spirit of conversation. The whole point is to allow interactions so as to build a solid understanding between two people. If the words of Another are used, the author should be prepared to receive comments in order to foster the original spirit of the worlds.

Onward my fellow gold advocates! There are many to teach and finding another to assist will lighten the load.

Blondie said...

My sincere apologies to all FOFOA fans who have been offended by my use of the name FOFOFOA.

For the record, I am not FOA.

Also for the record, I did discuss the use of the name with FOFOA at tho outset, and in his words:

"LOL!!!

Someone was gonna grab the name sooner or later. You have my approval."


He did caution that FOFOFOA may cause confusion.

I did not anticipate such emotion; guess I'd figured if FOFOA thought it was fine everyone else would too.
I'd also figured most of you had been by at some stage. Certainly some of you have. Costata actually gave advice via FOFOA as to edits for the first post.

Once again, my sincere apologies.
As per Ender's suggestion, I will activate the comments function. Perhaps some of you would like to visit, and make your feelings known.

You may even have ideas for a more suitable name.

I'm always keen to learn something new. I have today.

FOFOA said...

Hello Blondie,

Thank you. You understand Freegold well and your writing is great. You should be very proud of it!

The reason I privately endorsed your new blog was because you told me you were not going to publicize it. You wrote:

"FYI, I have tentatively started another blog... which you can find here.

"I figured it was going to be done, sooner or later, so it may as well be me.
I intend on sticking absolutely to the definition in the "about" sidebar.
And not linking this site anywhere, at all.
If someone finds it, and finds it useful, good for them.


(...)

"Upon further reflection, however, I have decided that I would not go ahead with the using the name I have without your approval."


Of course I don't own the rights to any of my thoughts. I don't want to! They are public domain! No copyright! I want them to spread far and wide!! I just don't want to be put in the position to defend something I didn't write. And a post called Gold is Not Money is a big step. I wrote a post once called Gold is Money. A three-parter actually. And yes, the underlying message was that gold was not actually money in the purest concept of money, but there's a reason I didn't go with that name. This is why it makes me a little uncomfortable to have someone who really understands this stuff publishing under a name so similar to mine, and then saying I endorsed it.

What I wrote back to you was:

"LOL!!!

Someone was gonna grab the name sooner or later. Better you than someone like *redacted*!!!! LOL

You have my approval..."


I agree with Ender. This subject deserves as many well-spoken messengers as will step up to the plate. I welcome you to the field. But the very public use of that name at a site with over a hundred thousand visitors per day makes me a little uncomfortable. It is not just a brand. It is the only identity I have used online for more than two years. I know you have several. I only have one. So again, thank you for coming out from behind the name.

Sincerely,
FOFOA

Paul said...

FOFOA and FOFOFOA

Do either of you have an objection if I call myself Another Friend of Friend of Friend of Another, or AFOFOFOA?

Seriously though, it is getting confusing.

Blondie said...

@FOFOA,

Fair comment.

I have not followed my word regarding links.
It is quite the temptation, when exchanging comments on a forum to place a link in reply, particularly when you then get a lot of favorable replies. The thin end of the wedge, and all that.
In retrospect it seems so obvious, but I really didn't notice it happen, until today.

I apologize again, publicly, to everyone whom I have offended, especially you. I appreciate your grace.

I see now how you can write so prolifically on this topic. The committing of one's thoughts to text has quite an impact upon one's understanding, as does the odd comment or question in response.

There are a number of commenters here, some more regular than others, whose thoughts I would be very keen to read. Can any of you with blogs post a link? Most profiles are blocked. I encourage everyone who can find the time to write a little, whether they intend to post it or not. You may be surprised at how things can flow. There is certainly some depth of understanding lurking around.

When I started FOFOFOA (now renamed, but I cannot change the address) it was simply my intent to restate what I had gleaned as simply as possible, which I did for a time, but I found I had more and more to say as I went. I should have changed the name a while back in retrospect, but I have been far to busy exploring the concepts for that simple idea to occur.

My exploration has led me to some unexpected conclusions. I marvel at the fractal-like infinite resolution FOFOA alludes to. I understand why this is. I have so much more to say on the topic.

I will say this now: The change will occur through simple necessity, and will alter a whole lot more than just our monetary system. This system is at the heart of a large part of human interaction. Change the money and we change too. The changes will be very positive, whether you hold gold or not. Gold will be at the heart of the new monetary system, but all will benefit.

The implications are immense.

Greg said...

Wow FOFOA

This is becoming quite a comment section! Its rivaling billyblog in that department, I mean that.

Aleksander, when you said

"Wealth is not consumables like grain or durable consumables like houses. It is through making them that wealth (value) is created. Only the excess value received by the maker is stored in gold."

This has a ring of truth to me but I need to flesh out some of the implications of this statement. This is obviously in the "freegold" lexicon so I must translate to my paradigm .

Then this;

"It is a dynamical equilibrium, just like any other market. At any given moment in time, there is an equal amount of savings withdrawn and savings added. The POG will then fluctuate based on the simple demand-offer market mechanism, its price completely arbitrary. In this way, gold (savings) is taken off the productive economy and hence your "huge costs to attempt to preserve its [savings] value" will not have detrimental effects to funding for economic activity."

I have to wrap my head around a little bit. I'm not used to thinking of savings ONLY in gold. Gold is just another commodity to me, which has happened to be something, due to our biology, we humans have been attracted to for millenia (although I think its waning over time ...... in my view)

This freegold, as a dual system, may provide some robustness without being overly restrictive. Im not qualified to analyze it at the level necessary to make that judgement right now. In general though I love 'third way" solutions because I know how we are wired to create dichotomies out of everything, which due to our limited brain power are usually false....... or incomplete lets say.


Texan


I'm not sure what you mean about "capturing relative value between currencies VERY WELL"

I may be totally missing your point but MMT is ALL about relative value of currencies being the ONLY thing that matters. Floating exchange rate currencies do exactly that, they float in value. And because of soft currency dynamics efforts to strengthen or weaken your currency often fail because of what your trading partners or other economic conditions might dictate. Bill and Warren both stress the inanity of defending a currencies value, like was prevalent in gold standard days. Those actions too often lead to races to the bottom of competitive devaluation, in a world interconnected by imports/exports. Do you want "strong" currency so your imports and domestic goods are affordable? OK but now your export market is hampered? Do you want a weak currency so you can be an export engine (China)? OK but your domestic goods will be more expensive? None of these are "bad" outcomes but they ARE mutually exclusive. One must understand these relationships and make choices. Defending currencies is a fools errand imho. You cant have it all. That would be another rule of economics I believe.

Greg said...

Hey Paul

Yes, MMT is "academic" as I think you are defining it, but its NOT just "egghead theory looking at a world of perfectly rational consumers who think about future taxation implications of every dollar they receive, while doing numerous relative value calculations in their head, (along with everyone else) while keeping their govts current budget position firmly in their consciousness and intuitively understanding the optimal supply demand curves of the commodity in question, which will allow them to say " Sure, I'll pay $3.78 for that latte.... thanks!!" That would be the morons of the Chicago school

Sorry for the run on sentence.



"if there is a lack of demand in the economy, issue currency. Too much demand?, withdraw currency. How? Increase taxes. I like that, it's nice and simple, and makes you realize that all this nonsense with debt issuance should be purely to adjust the cost of money for the private sector"


Very well stated. And this is exactly what has attracted me to it. Simple but adequately explanatory. It removes a lot of bull---- veils (I remember the no cussing) form modern academic economics discussion. It has made understanding economics quite accessible to me.

I do agree to a point about it seeming too good to be true, but can we not say the same thing about freegold as well? Arent the claims of the current drivers of our discussion, the deficit terrorists as Bill calls them, that we just need "austerity for others" believing in the same magical thinking? Is it possible that DECREASING expenditures can INCREASE growth? (accepting that always increasing growth is the answer.... which I dont btw)

I do think if you looked a little deeper you might find a more thorough discussion of your concerns regarding people ever accepting adding and removing taxes as necessary as a means of inflation control.

My discovery of MMT has been only during the financial crisis and its emphasis, necessarily so has been to disabuse people of notions of govt debt and private debt and such. This is getting to first base. Once you get THERE, now we can start discussing what an electorate WANTS from their "currency issuer" ,of course with the understanding that there is some PUBLIC PUPOSE to a nations money. Bill and Warren are NOT command economy statists. They DO however believe, and I share the belief, that there is a public purpose for all countries with their own money. What that is requires a political process to flesh out, not claims that "we cant afford that cuz we cant borrow any more money from China"

SO its quite a haul getting folks to even understand that basically they have been lied to by the financiers for decades about how money works and jumping right to "well all we need to do is use your taxes as a way to regulate aggregate demand and control inflation" aint gonna fly. I agree. But once we get to that point there are people like Randall Wray and Bill Mitchell who have addressed how that might happen. Its not a paradigm lacking in thoughtful people. One reason I like it.

Greg said...

Oh and Paul

This comment;

"Sometimes the immorality of allowing savers to dictate employment levels and resulting poverty, is worse than the immorality printing money"

May be the best summation of some of the conflicts Ive seen. I really meant to comment on that before.

I'm going to use that comment somewhere. I promise to credit you for it, its beautiful.

Paul said...

Hi Blondie

Thankyou, and likewise. My flipancy doesn't mean I don't admire your writing. I do. I should have mentioned that earlier. Keep up the good work.

Greg

Talk about like minds! I wish I wwas sober so I could give you reasoned response, but I'm not, so here goes anyway. I too became interested in economics via the GFC. Now, I can't get enough of it. Coming from a scientific background, I had no idea there was a field of thought that was so completely open to disageement! Ha!

To make any difference in Physics for example, you need either a genius brain, or billions in funding for vast experimental projects. Economics seems to be the exact opposite. Anyone with a half believable theory and a big enough mouth gets a hearing! Its so much a nexus of finance, politics, psychology, history, intrigue etc etc.

Mostly I'm running on gut instinct, and feverish back reading. Instinct led me here, and so far back reading has kept me here. Praise be to A, FOA, FOFOA for that ;)

Always contrarian, libertarian, so MMT also hitting the spot. As someone said, a thinking Tea Party is what we need, as they would promote MMT (it's the peoples money, not the banks) as well as freegold to act as the ballast the system needs.

As you say MMT is all about allowing FX rates to do what they need to do. But those rates should versus the anchor of gold, so they don't fuck up other groups who currently hold currencies as reserves. That's the bit that seems to be missing.

Libertarian. If a group wants to print, let them. Sometimes it's what is needed. But insulate other groups, and savers within that group by giving them the option of high ground.

Texan said...

Greg,

I will take your word for it that MMT explains the relative value of currencies.

I still have no use for it. It does not, as far as I know, offer any value in terms of how best to preserve one's savings against a barrage of fiat debasement.

If it does, I would love to hear that.

Greg said...

Paul

Another great comment.

While being way to the left in many of my social views and to the right in some others at heart I'm mostly a contrarian. I dont truly trust "common knowledge", mainly because too many common people listen to unthinking preachers and Beckians. I admire libertarian discussion (the only magazine I will subscribe to is "Reason") and a "thinking" Tea Party would be nice (thats where Mosler first tried to make political inroads.... to little avail... they were having none of that govt spending!!!) but talk about pipe dreams..... Dick Armey and the Koch brothers are not exactly paragons of outside the box thinking.

Still cannot quite "get" a savings money and a spending money. Not dismissing it but just cant visualize it and see what tradeoffs exist. There HAS to be tradeoffs and are they worth it?

Your comment about immorality of savers versus the immorality of printing money beautifully demonstrates the knife edge we live on sometimes. In those times one must pick a side and be sure of it.
Not that its a neat right versus left distinction in that example, but clearly and unapologetically I choose the left side of that knife edge. Mass income loss in the name of saving the savers is NOT an acceptable solution to me. I understand there are those who vehemently disagree but how many people on TV even present the issue this way?

I have way more respect for the person who says "Yes that is the choice and I choose the 10% of savers who have worked hard and done right... screw the little guys" than the person who tries to sound like this is not the choice that is being made. That somehow it "truly is better for everyone , they just dont know it" And use religion and hocus pocus bullshit to perpetuate their immorality.

I'd certainly like a little more protection of my savings. I have no faith in our current Wall St criminals to do anything other than fire employees to cut costs and keep profits up ( why dont they cut salaries to zero so profits would shoot towards infinity!!!) so I'm done with the stock market for now.
I'm suspicious that gold is in bubble territory because while many here may be committed to buying and holding many many more simply are looking to get back into dollars as soon as the price is right. There will be a selloff soon I think because most just want more money and not hold a commodity.

We'll see

Greg said...

Texan

Let me just say that this;

"It does not, as far as I know, offer any value in terms of how best to preserve one's savings against a barrage of fiat debasement"

Has no real meaning. Debasement, in and of itself is a gold standard term, so it is loaded and irrelevant to an MMT analysis.

I am unqualified to give you investment advice, but I would say buy what you like and hold it. If nothing else you will own something you like. Just keep enough money around for food, shelter, etc.

Our financial system is mostly just rife with criminals and sycophants in my view. Having gold backing it would do nothing to eliminate that. Many MMT authors do talk about ways THEY would fix the financial system. Mosler says its more trouble than its worth. All their answers have nothing to do with changing to some fixed exchange rate currency.

Amazingly enough Bill MItchells post today is about some World Bank guys call for a return to the gold standard.

He does a good critique of it I think.

As Libertarians I think pause should be given to any system which is more towards a "common currency".

This will reduce sovereignty and freedom of individual countries.

DP said...

Greg, as far as I see it after quickly finding Bill Mitchells bilbo blog and reading the article you referred to, the issue is not whether countries will keep their liberty to choose devaluing their floating currencies, it's that the currencies are floating against a floating anchor - the US$. The US devalues their currency, and everyone else sinks with them, like it or not.

Freegold seems, to me, to offer a change to a system of freely floating currencies, but they are floating against the cold, dead, impartial anchor of gold. The US can do whatever it likes, and it will not directly affect every other country any longer.

DP said...

BTW "debasement" is not a "gold standard term". It is a word in the English language that describes the lowering in quality and integrity of some entity. It COULD be reducing the purity of gold/silver content in a coin, but that is merely one use of the word. It is yourself who chooses to attribute a loaded meaning to the word.

zenscreamer said...

I'm all for the network effect, and all -- the comments on this post have been interesting to say the least.

I am however, at heart a pragmatist. I think in terms of what *actually* happens in real time. FOFOA's quote of "John the Jute" in the body of the post resonated with me -- actually going through the process of "converting" currency of one type into either currency of another, or a savings vehicle has scale-based implications.

John's example uses the actions of a single transaction of a variety of sizes, but something similar is created when a large number of people attempt smaller transactions at the same time.

Say I think I own stock in Wacky Widget Corporation (WWC) -- what I "own" is a (somewhat) legally protected rights (as an "investor") to a class of benefits which may be forthcoming from WWC. When I "sell" my stock, my broker does not buy $IMFS, but trades those rights for a different set of rights (as an "account holder")in some Money Market fund or another.

I can call my broker and insist he give me my money, and what happens is his corporation has to cut me a check (they don't like this!) that I need to take to a bank, or may issue a "wire transfer" or "EFT" transaction from the broker bank to another bank of my choice. In terms of my rights, nothing has changed -- I'm still an "account holder", only with a different corporation.

zenscreamer said...

So far so good. Once the local account is credited (this can take some time!) I can go to the local bank and try to get "my" money. The bank is happy for me to use my debit card (electrons flow freely) but actual $IMFS in paper form are something much much different. Withdraw $20, $200, even $2000,and they don't blink -- larger than that and they've told me they don't have it, can't get it, or that I'll be assaulted in broad daylight on the high street (because somehow someone will "know" I have that much money on me)! There is no question that printed $IMFS are only available on a "just in time" basis even now.

Finally, once I have my printed $IMFS in hand, my rights have changed again, as I am no longer an "account holder" but a holder of debt-backed fiat currency with all its flaws, that is, still, an actual THING, rather than a set of rights. I can choose to barter my THING for whatever I choose based on my acceptance of the trade, and my confidence (or lack therof) in the usefulness in trade of the THING I choose to hold going forward.

Exeter's pyramid in action. Right now, I can perform all these transactions, and if I am patient I will get "my" money, by virtue of the "greater fool" principle. When the trade gets crowded in any of these processes, would that still be true? Will a "greater fool" be found to buy my WWC stock? Perhaps POMO is going on and some bank will buy it. Will the my local bank credit my account based on accepting a credit issued by the brokerage's bank? After enough time is passed, if only because the local bank needs depositors. Will printed $IMFS be available to hand me at the teller? I say "No." It is the point where the claim on the system, the set of rights, is turned into an actual THING that is the point where the "virtual" monetary world intersects the actual world.

How is demanding printed $FRN different from buying a tedddy bear from Wally World with my debit card? When I buy the toy, a credit is issued through the credit system from my bank to the bank holding Wally World's account -- part of the daily slush fund of transactions and potentially cancelled by another credit going the other way. Demanding $IMFS along with my toy is different -- that is a direct claim on the FED and even after I "purchase" my printed $IMFS they are still dollars. Not so with the toy.

It's all very well and good to say that the government can just issue every person a debit card and keep pumping it full of virtual money to keep the flow of credits going, but at SOME point those "virtual" $IMFS have to bid for THINGS in the real world -- oil, wheat, iron -- and when it becomes clear that there will be no "cancelling transaction" going the other way, the "virtual" $IMFS will no longer be good enough -- THINGS will seek other THINGS in the marketplace, so trust can be rebuilt from the bottom up.

DP said...

@zenscreamer: "how much for cash?" :-)

ShockOnT said...

FOFOA and Greg:

We can discuss theory and semantics until our teeth fall out. But I believe one only has to observe the actions of the "Giants" to see what is unfolding and realize the wisdom of Another and his Friend....

“Robert Zoelleck, President of the World Bank, wants to start a debate about a new international monetary system. The key quote from his article is, ‘The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

Desperado said...

@Greg,

So you had a brain attack and decided to again promote Bull Mitchell's blog here by linking to his latest post.

"Amazingly enough Bill MItchells post today is about some World Bank guys call for a return to the gold standard.

He does a good critique of it I think."


Mitchell starts his post with the same lie that you repeated, and it is down hill from there:

"Robert Zoellick claims that we should all return to the Gold Standard to restore economic stability in the World economy"

What Zoellick said was this: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. ". This is clearly NOT a call to return to the gold standard.

Then Mitchell repeats this lie continually: Zoellick’s proposal will be added to the agenda... Zoellick’s call for a gold standard is just another one of these conservative smokescreens... Zoellick is thinking of a return to a paper currency system where paper money issued by a central bank is backed by gold.

Mitchell straps that strawman to the bed, gags him, and repeatedly sodomizes him! What a freaking lunatic! But this is just typical for a Soros loving freemoney liberal.

As if these lies from that lunatic Mitchell weren't enough, he goes on to repeat more freemoney drivel:

They are all just expressions of obsessive and moribund fear of fiscal policy and the erroneous allegation that budget deficits cause inflation... All the talk about quantitative easing flooding the world with US dollars and creating an inevitable inflation are just hot air...

My god, these chartalists manage to make even Krugman look deserving of a Nobel prize.

Robert said...

OK, I am staking out the name fofofofofofofofofofoa.blogspot.com, so you others back off! (joke of course)

Today's precious metals action had me feeling like an HFT: zerohedge.com, 24hgold.com, zerohedge.com, 24hgold.com... Zero just put up a post saying the reason for today's wild ride was the CME raised margin for silver trades. Paper silver of course.

Re Zoellick's new idea, the excerpt I read there at ZH was indecipherable to me.

DoChenRollingBearing

DP said...

The concept Zoellick seems to me to be suggesting is essentially what is known here as Freegold: gold is used as a reference point to value individual currencies against as a common anchor that everyone can agree upon. Currently, the common reference point to value all currencies against is USD, but people outside the US are increasingly unwilling to accept that as a solid point of reference due to the unbridled and ongoing debasement.

He also speaks of potentially using a basket of currencies, rather than just the USD, with the possible inclusion of gold in that basket. To me this speaks of the soft money crowd's desperate desire to cling to a monetary anchor that is at least partially paper and therefore malleable to their political desires; a sort of hard-money-lite.

Unlike Mitchell, at no point have I detected any reference to fixing any currencies against anything at all in the Zoellick article. The currencies would all continue to exist as they do today, and they would continue to be floating against each other on their own relative merits. Again, I have read all of this into the Freegold concept.

The reference point that anchors the value of everything is all that is going to change. This is a seemingly small, but critically important distinction. The US will no longer dictate terms to the rest of the world without so much as holding any meetings, let alone getting agreement. Clearly, the current situation is untenable for everyone outside of the US, and it simply will not be tolerated indefinitely.

Museice said...

Here is my "substantive" comment:

The/A Gold Standard is not Freegold
Freegold is not a Gold Standard

The Head of The World Bank did not say anything about a return to a Gold Standard.

DP said...

As stated time and again around these parts, the Euro has already been designed from the outset to effectively float against gold priced in Euros. Zoellick is merely putting it on the table that everyone else could do the same with their currencies, and there would no longer be any issue with the US choosing to devalue itself into oblivion.

It's all there, out in the open on the ECB's website every month

Desperado said...

This piece by Devid Stockman is interesting:

Our Failed National Economy

He makes a very good case that the new Republican congress is not going to be able to change anything:

"the president’s deficit commission will solemnly pronounce that the single largest and most reform-worthy Federal program isn't even part of the deficit problem!

Next, almost upon signal, rancorous partisan warfare will erupt with a frontal assault by the Democrats and their left-labor-elderly allies on Congressman Paul Ryan -- the new leader of the GOP platoon on the House Budget Committee. Ryan is one of the few heroes of the current fiscal debate because he's actually managed to move his lips on the topic of Social Security reform. Indeed, so sweeping is the “Ryan Plan” on the matter of Social Security and other big entitlements that after two years the Congressman has managed to come up with a grand total of 13 Republican co-sponsors! The upcoming campaign to stop the Republican budget committee from “destroying” Social Security will be wrapped in two simple but powerful messages: a) it's not broke according to the president’s deficit commission, so don’t fix it; and b) don’t cut grandma’s $2,000 monthly check in order to increase the after-tax income of millionaires by $2,000 per day. So ferocious will this campaign become that in a matter of months Congressman Ryan’s platoon of supporters will -- unlike in the movie -- abandon him in a field of hostile fire. Indeed, much of the Republican caucus will likely be taking a supplemental pledge even before the first Congressional recess; namely, to oppose the “Ryan Plan” in any way, shape, or form."


The other area of interest is where he states that QE2 is required to finance the ever expanding deficits:

"So the real question from Tuesday night's outcome is how long can the US government issue its own increasingly toxic sovereign debt into the global market at a rate twice as fast as underlying economic growth? The cynic might say: as long as the Fed can continue to monetize 100% of the new debt issue, as it promised in Wednesday's $100 billion per month quantitative easing 2 (QE2) announcement. But it should be obvious to all except the insouciant boys and girls and robots of Wall Street that the world’s leading central bank is now dispensing pure monetary heroin. And, ironically, that’s likely to kill the patient before the fiscal question is even addressed."

Here we really cut to the chase: is the real truth that the Fed has been keeping the federal government solvent for the last year through the primary dealer and other hidden purchases? Or Was QE1 and now QE2 an effort to "prime the pump", or was it only really a last desperate effort to keep the federal government solvent?

intuitivereason said...

The problem I see with MMT is that it must necessarily neglect the monetary nature of gold. The 'canary in the coal mine' nature of it punches an irreparable hole in the theory.

Simply because gold is real, and gold is monetary. Gold cannot be expanded in quantity, only value, but it's value, unlike consumed commodities, can expand near infinitely.

littlepeople said...

Greg:
MMT has two main problems as I see it:

1. We currently trade with the rest of the world. Unlimited government deficits do not sit well with the ROW, as they see it as devaluation--they receive dollars of ever-less value as time goes on. So, we would need to become a closed country to make it work.
2. MMT requires unlimited trust on the part of everyone--savers, consumers, producers, rich, poor, givers and takers. This is unrealistic. In theory, it sounds good, just like socailism/communism, but in practice, producers and savers rebel against such a system.

DP and Museice--I agree with you that Zoellick is describing a system quite synonamous with freegold.

Greg: While gold has been established (or at least an attempt has been made to establish) by the MSM as an outmoded relic from the past, CBs and other power-brokers continue to own it. Why? Of course, for times such as these we experience in the here-and-now. Trying to fix currencies to gold was the "gold standard" that governments chafed against from the very beginning.

Freegold, on the other hand, does not tie gold to a fixed rate to any currency. Currencies "float" against gold based on their own fundamentals. Governments like that of the USA will drop its currency in value against the "dead" anchor (as someone here said a few posts ago) as it embarks on "growth" through QE1, QE2, or QE to infinity as as Sinclair sees it. Fine. Gold holders (savers) will not fret; consumers may dislike having to pay $64 for a loaf of bread, but gold (and silver) holders will see that bread is still $2/loaf in PM terms.

So, in my view, it is each person's choice to prepare, or not prepare for what MUST come. Good luck in your preparations.

Paul said...

Greg

Bill Mitchell has jumped to the wrong conclusion. Yes, a return to a gold standard would be a stupid idea. Zoellick does not appear to be advocating that, and no one here is.

It's not about pegging currencies back to gold, it's about allowing gold to float to it's true value, which will immediately re-capitalize the financial system.

FOFOA as I understand it, is not really espousing a new system, he's explaining the existence of something that is already there, is already in use, and is in the process of being revealed.

The best way to get an in-depth understanding of what this is, is to read the archives of Another, FOA and then all of FOFOAs posts. It takes a while, but trust me, it's worth it. You seem to have a pretty good BS detector, and I think I do too. To me, it "smelt" true, and as the intro says, it "indicates connections at the highest echelons of international finance".

Bill Mitchell says "The national government does not have to issue debt to net spend (that is, run a deficit). So wouldn’t this be more inflationary than if it issued debt? Answer: not at all. The inflation risk is in the spending not the monetary operation."

I agree with this. The problem is there is 100 years worth of issued dollars waiting to be spent.

It's a bit like saying there's a thirsty village below a dam that needs a drink of water. Turning a hose pipe on them is not going to drown them. But Bill should be looking at the dam, not the hose pipe.

That dam is about to break, and all that water will end up where? Nash equilibrium says it will end up where there is no counterparty risk. The inevitability of this process has not escaped the "highest echelons", and appears to be the reason behind the design of the Euro, which has gold reserves that float.

Aleksandar said...

Again, Zoellick is NOT speaking Freegold. He wants some partial gold standard, a.k.a. the vaguely defined Reserve Ratio Certificate of Sinclair. Gold price measuring some international macroeconomic number and fixed by a commitee of CB's daily. Unlike the free market that Freegold predicts.

It is not necessary for anyone to "advocate" Freegold. It just happens at a given moment. Some variable at a given moment goes asymptotic and we have a phase transition to a new system. It is not planned. It is not a Black Swan. It is a natural resolution towards a new monetary stage.

It cant be organized and planned like Zoellick does.

Greg,

We have a lot in common and I appreciate your comments. Sometimes even I cant understand what I wrote, not only here but also at work. It takes a great deal of effort to abstract complex things. A guy gets empty after a while.

I believe what I meant with the "creating value" comment is that value should be connected to the anti-entropic process of creating things that others need.

But today asset prices have a value determined by the level of funding (housing bubble) i.e. the financing in currency. The last is a thought concept and can be created by the stroke of a pen. Yes, it creates growth when funds are lent productively but lending is not the crux of the "added value" concept. It is thus that we are bound to perpetual growth and when it is not possible they wage "funding" wars.

Paul said...

Hi Aleksandar

I'm just going by what Zoellick said in his article. Could you point me to where he talks about a partial gold standard and the Sinclair thing? Cheers.

I agree that freegold doesn't need planning, but a bit of advocating won't hurt. Since it has to be seen to evolve from the bottom up, I'm just speculating whether Zoellick isn't doing a bit of bush beating. But I could well be reading too much into it.

Fauvi said...

A very simple question from someone who hasn't read every comment:
WTF ic MMT?
I have some choices:

* Monetary Mental Trauma
* Multiple Mind Taboo
* Middle Mental Traction
* Mitch & Moss Trash?

Please, endure my ignorance.
I love health care workers, they sometimes save lives.

Jenn said...

Hello Fauvi-

MMT = Modern Monetary Theory

From Wikipedia

"Modern monetary theory distinguishes among different types of monetary aggregates, using a categorization system that focuses on the liquidity of the financial instrument used as money"

--Jenn

Pete said...

@Fauvi

I think it stands for Modern Monetary Theory. Although I'm with you on this one, I don't know.

I like the sound of Methylcyclopentadienyl manganese tricarbonyl or (CH3C5H4)Mn(CO)3 (used in unleaded gasoline). It sounds so much more complex and worthy of discussion, rather than the notion that economic puppet masters can expand and contract the money supply as they wish and masterfully manage an economy to perform at its maximum. Communist much?

Greg said...

Desperado


"What Zoellick said was this: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. ". This is clearly NOT a call to return to the gold standard."

First off I didnt know gold was unemployed. Poor guy, will he work for silver?

The phrase international reference point IS a standard. Thats what a standard is. He's playing word games. Knows he'd be laughed off the stage if he called for a gold standard. AND if there is no way to exchange whatever currency that is issued for gold...... how the hell is that different from now? The only unexplained point is how much and under what circumstances will an exchange take place.

Yeah lets call for gold standards that arent really standards. Brilliant.

Fauvi said...

Thanks, guys.

OK, I see. No free invisible hand, just another organised M(onetary)M(anipulation)T(oll) on sheeple. As I HATE MM (Modern Medicine),I hope we can cure ourselves by nature's forces without sophisticated state compulsory healthcare.
BTW, I think we already have a DC (dollar crisis) and the patient is being reanimated. Now the question is how many universal missiles injections he might need.

Greg said...

@littlepeople

"MMT has two main problems as I see it:"

Two? Thats pretty damn good seeing as the number of problems we are currently dealing with. Im sure freegold has a problem or two..... its not perfect is it?


"1. We currently trade with the rest of the world. Unlimited government deficits do not sit well with the ROW, as they see it as devaluation--they receive dollars of ever-less value as time goes on. So, we would need to become a closed country to make it work."

Alright, the ROW has two options right now. 1) Let us make our citizens intentionally poorer and be LESS of a consumer of eveything they produce and trashing our production of things they may want to spend their dollars on. 2) Let us give our citizens more income via tax cuts and a job guarantee program and continue to consume at closer to present levels.
There is NO DOUBT, and Mosler and Mitchell are the the first to say this, an adjustment is necessary, we have suffered some real economic losses that will not be rectified over night ( we should have dealt with it properly two years ago and avoided much of the job losses) but we can choose support or cut loose. I understand that many relish the idea of cutting the financial legs out from under a lot of their fellow Americans, its a reality I dont relate to yet understand



" MMT requires unlimited trust on the part of everyone--savers, consumers, producers, rich, poor, givers and takers. This is unrealistic. In theory, it sounds good, just like socailism/communism, but in practice, producers and savers rebel against such a system"

MMT is not "just like" socialism/communism. Any system requires a lot of trust. "Lets trust in gold when we cant trust people" is that the mantra you are advocating? Its also unrealistic to expect people to sit back and accept a group of moralizers cutting THEIR jobs while continuing to get pay raises. When is our new "deficit serious congress" going to say "Hey, we all have outside incomes , we're gonna do this for free til our budget is in surplus." Most of this is pure cutting one place to save someone elses investment. Treating prosperity like its a zero sum game............ despicable.

Fauvi said...

I don’t get the meaning of this whole debate regarding Zoellick.

When someone like him (member of CFR!) WANTS to say gold standard then he can simply make the call for it.
But he didn’t. He is expressing his view that gold has to play again his role. Even if he is not an actor. His way to describe gold’s role is so blurred as he wanted to speak about a new Employment, a new job for Mr. Gold, a job without an updated description. FOA/A/FOFOA
Already had the update, even if it might have some modifications

Edwardo said...

I just came across some comments on the Naked Capitalism blog that struck me as, how do I put it, chillingly brilliant. They can be found in the comments section of an entry on attempts to legislatively reign in HFT.

http://www.nakedcapitalism.com/2010/11/lobbying-to-keep-the-capital-markets-a-casino.html

The key comment seems quite germane to the topic of freegold since it asserts that:

1)money can only be a unit of account – something that is measured but not exchanged – and thus cannot be scarce and thus must earn 0. This applies to all forms of the unit of account including government bonds.

2) the economy under such conditions must always be operating at maximum leverage, which implies minimum yield.

viewed in this light the heightened equity PEs since the advent of electronic trading and the fallnig nominal bond yields make perfect sense – the most liquid items and the items most useful as collateral go to zero yield first – hence the hosuign bubble. Carry trades will spread this logic everywhere quickly.

(In order to put the statement above in the proper context, all comments by Liminal Hack-and responses to him- are being put in another post.)

Edwardo said...

Liminal Hack

"I take a slightly different view to the article. The liquidity effects seen over the last 30 years are mostly attributable to technology. HFT wasn’t possible 10 years ago, now it is. It is hard to see how one can legislate so as to try and slow down the speed of communication in financial or any other markets.

The price one pays for increased comms inter-connectedness is that liquidity easily defeats yield – the main purpose of money and leverage now is to hunt down yield and kill it stone dead.

But then these are only natural market forces. Even if you supressed HFT or changed the rules a bit, extrapolate tech out 20 or 30 years and you still end up with very fast moving money that quickly equalises yields everywhere. The equalisation of yield must either translate into asset price rises or declines in income from an asset – it matters not.

The eventual outcome is that there will be no income yielding assets, just asset price volatality. In essence, the market will ensure it is impossible to save.

Cutting out all the ideological fud being flung about just now, this is the real reason rates have fallen and yields been depressed everywhere.

Any idea what the average velocity of a UK GILT is?

7.5

when velocity of base money is, like, 1.5.

What is the right interest rate to be paid on a risk free 25 year security that changes hands once every couple of months?"

Edwardo said...

Yves Smith

No, there’s a very simple solution. It’s called a Tobin tax. tax every trade, better yet according to a sliding scale based on holding times. Only regulated broker dealers would be exempt (and they’d need even stricter Volcker-rule type regulation). Firms not complying with the Tobin Tax regime would not be permitted to trade through any regulated exchange, with any broker dealer, or borrow from any bank. Broker dealers and banks would be prohibited from offering products designed to circumvent the Tobin Tax, would get big fines if they did so, and whistle blowers would get big bounties for turning in violators.

That would do the trick.

Edwardo said...

Liminal Hack


I used to believe in the tobin tax too. To put my cards on the table I’m a digital/semiconductor techie not a trader or finance bod so I’m neutral here. That said:

If you put a tobin tax on then all it will do is ensure that the income from the asset in question will end up being depressed so the yield will still be equalised to within the market noise floor with all the other income yielding assets.

The yield on the asset will thus be the same. It seems to me that the vanishing of yield really scares everyone and various people want to re-instate and essentially fiat yield (e.g. ‘let there be yield’) by various schemes such as tobin taxes, re-introducing the gold standard, raising the bank rate etc etc. These are a selection of ‘right wing’ and ‘left wing’ solutions to the same problem and all are doomed to fail.

You can’t have a ‘fiat’ yield. This is why IMO interest rates have approached zero over the last 30 years.

Edwardo said...

Yves Smith says:

Your argument has a lot of factual and logical holes. Interest rates most decidely have NOT approached zero over the last 30 years, for starters.

In addition, there are plenty of markets that are not terribly liquid where you see the same results you’d see from a Tobin tax, due to wider bid-asked spreads. And you can look at pretty much any market (save Treasuries) pre, say, 1998 or so, and you would see how more functional, less speculative markets operate.

Separately, having the real economy be distorted by the behavior of the financial economy is too high a price to pay.


Nullpointer says:

I think I understand what Liminal Hack is saying. In a world with zero cost of money (to those with first access), fiat currencies, and open markets the fastest computer is king. Now that I think about it… it makes perfect sense. All investing is arbitrage based on informational asymmetry. Most information has been commoditized, such that picking investment has become algorithmic. As wealth concentrates in the hand of a few, the goal becomes just to leverage up as much as possible and then earn a small win. If you leverage up 10^6 times and then earn a .05% yield it’s still quite a bit of return on your capital.

HFT is simply the natural continuation. I see streams of electronic hot money seeking out small arbitrage opportunities. We’re already seeing it in the carry trade and other sorts of similar manifestations.

Liminal Hack says:
November 9, 2010 at 6:44 pm

the interest rate trend has been choppy but down. Any chart of nominal rates over the last 40 years will demonstrate that.

sure, in illiquid markets a yield can be obtained better than in liquid markets. But there seems to have been a trend to transform illiquid markets into liquid ones. Isn’t that what MBS are about?

Would you agree that the reason this removal of illiquidity is ocurring is both a result of technology combined with the existence of nominal risk free assets such as treasuries and insured bank deposits?

As I asked above, what is a fair rate of interest for a 25 year nominal (e.g. risk free) bond that changes hands once every couple of months?
Reply

*

Liminal Hack says:

nullpointer – exactly. Its obvious when you think about it, dare I say.

the endgame of this is that:

1) money can only be a unit of account – something that is measured but not exchanged – and thus cannot be scarce and thus must earn 0. This applies to all forms of the unit of account including government bonds.

2) the economy under such conditions must always be operating at maximum leverage, which implies minimum yield.

viewed in this light the heightened equity PEs since the advent of electronic trading and the fallnig nominal bond yields make perfect sense – the most liquid items and the items most useful as collateral go to zero yield first – hence the hosuign bubble. Carry trades will spread this logic everywhere quickly.

I’ve expanded on all this in more detail on my blog.


My apologies for the length of this post, but as I said I think it is quite germane.

Edwardo said...

Yves Smith says:

Your argument has a lot of factual and logical holes. Interest rates most decidely have NOT approached zero over the last 30 years, for starters.

In addition, there are plenty of markets that are not terribly liquid where you see the same results you’d see from a Tobin tax, due to wider bid-asked spreads. And you can look at pretty much any market (save Treasuries) pre, say, 1998 or so, and you would see how more functional, less speculative markets operate.

Separately, having the real economy be distorted by the behavior of the financial economy is too high a price to pay.


Nullpointer says:

I think I understand what Liminal Hack is saying. In a world with zero cost of money (to those with first access), fiat currencies, and open markets the fastest computer is king. Now that I think about it… it makes perfect sense. All investing is arbitrage based on informational asymmetry. Most information has been commoditized, such that picking investment has become algorithmic. As wealth concentrates in the hand of a few, the goal becomes just to leverage up as much as possible and then earn a small win. If you leverage up 10^6 times and then earn a .05% yield it’s still quite a bit of return on your capital.

HFT is simply the natural continuation. I see streams of electronic hot money seeking out small arbitrage opportunities. We’re already seeing it in the carry trade and other sorts of similar manifestations.

Liminal Hack says:
November 9, 2010 at 6:44 pm

the interest rate trend has been choppy but down. Any chart of nominal rates over the last 40 years will demonstrate that.

sure, in illiquid markets a yield can be obtained better than in liquid markets. But there seems to have been a trend to transform illiquid markets into liquid ones. Isn’t that what MBS are about?

Would you agree that the reason this removal of illiquidity is ocurring is both a result of technology combined with the existence of nominal risk free assets such as treasuries and insured bank deposits?

As I asked above, what is a fair rate of interest for a 25 year nominal (e.g. risk free) bond that changes hands once every couple of months?
Reply

*

Liminal Hack says:

nullpointer – exactly. Its obvious when you think about it, dare I say.

the endgame of this is that:

1) money can only be a unit of account – something that is measured but not exchanged – and thus cannot be scarce and thus must earn 0. This applies to all forms of the unit of account including government bonds.

2) the economy under such conditions must always be operating at maximum leverage, which implies minimum yield.

viewed in this light the heightened equity PEs since the advent of electronic trading and the fallnig nominal bond yields make perfect sense – the most liquid items and the items most useful as collateral go to zero yield first – hence the hosuign bubble. Carry trades will spread this logic everywhere quickly.

I’ve expanded on all this in more detail on my blog.


My apologies for the length of this post, but as I said I think it is quite germane.

Tyrone said...

What is Fisher talking about?
A "hydrocarbon backed currency"? He talks about the hydrocarbon market being part of the currency solution. How can something that is consumed be a part of the currency backing?

If a proposal to trade oil for gold became a reality, is that essentially accomplishing oil as part of the solution?
(Ref: It's the Flow, Stupid)

Video: Fisher: Commodity Bubble?

Greg said...

Hey Paul


"It's not about pegging currencies back to gold, it's about allowing gold to float to it's true value, which will immediately re-capitalize the financial system"

"True" value? This is really possible. This TRUTH is obtainable? I'm not being a smart ass here. Freegold may have some merits, I'm just getting started in it but some of this talk of "truth", "being revealed". "preparing for the inevitable", "coming from the upper echelons of international finance", this is apocalyptic talk. And for a group of people that seem attracted to bottom up, non manipulated outcomes, I must say this sounds pretty top down. The top is just a smaller group of unelected, mysterious masters of the universe.



"Bill Mitchell says "The national government does not have to issue debt to net spend (that is, run a deficit). So wouldn’t this be more inflationary than if it issued debt? Answer: not at all. The inflation risk is in the spending not the monetary operation."
I agree with this. The problem is there is 100 years worth of issued dollars waiting to be spent."



100 years. Where does that number come from?
But further what conditions do you think would provoke these 100 yrs worth to be spent at once?? Have we ever in the history of man seen this kind of spending frenzy? Weimar? ZImbabwe? I'm sure you are aware of the unusual political situations in both those examples. Not a likely outcome in the US unless we truly trash our productive capacity by cratering demand for goods and services. If customers stop showing up, a lot of businesses will certainly close shop. Even the threatened austerity measures are unlikely to cause this level of demand destruction but maybe we'll see.

The amount of money cannot be a trigger for this in my view. More likely is a fear that something they need wont be available next week would be the trigger to this type of frenzy.

I think our ability to produce everything we NEED will always keep a market for dollars operational. If our trading partners dont want dollars.... OK ... we have nothing else to give you...... go find another customer. Lets see everyone that has sold stuff to the US the last few decades find customers in China (they only save and buy domestic) or EU (they are going austerity supremo)

This is not meant to be flippant. We have much to answer for as to how we've managed our financial obligations the last few decades, (Again, in this realm, MMT authors have reams to offer) and others are not in much of a position to moralize, but we have answers to the threats the ROW might throw at us (and it doesnt have to be ICBMs)

I find it an interesting aside that as this discussion has evolved, the raging communist (me) is thumbing his nose at the ROW while the freedom lovers are fretting what those EU socialists and Chinese statists think about us........ aint life strange.

Now of course none of this is an argument against freegold. I simply dont think the apocalypse being predicted here is inevitable soon.

samix said...

now Zoellick talking about gold in a favorable way scares me.

Considering the fact that gold is now slowly becoming main stream and people around seeking some return to gold, I feel that it's just a ploy by the Powers that are , where they pretend to objectively take a look at gold, discuss it's merits and weak points in the lame stream media and then discard it as not a good enough solution for the 21st century

The sheeple will then blindly be lead and we will be made to look like the orthodox fringe.

Paul said...

Well done young Greg, you have passed the first test. You are ready to be initated to next level.
Meet us in the Palace of the Doges, Venice, 2 nights hence. Travel arrangments have been made, your mobile phone will ring in three minutes...

Seriously though, it's not the usual one world govt tinfoil conspiracy nonsense. It's the story of oil, gold and international finance, and how these interacted through a series of crises, to lead us to where we are now. It's top down in the sense that solutions to each crisis were implemented by TPTB, and some of those solutions are not common knowledge. So it's speculated that the anonymous blogger Another was close to this process in some way.

Anyway, the proof is in the pudding as they say, so just read the archives...

The 100 years was an exaggeration. More like 30. The quantity itself is less important than the confidence of the holders. Read this for more details:

http://fofoa.blogspot.com/2010/08/credibility-inflation.html

Desperado said...

@Pete, you wrote: "the notion that economic puppet masters can expand and contract the money supply as they wish and masterfully manage an economy to perform at its maximum. Communist much?"

Bravo! These guys beat around the bush trying to pretend that they are libertarian when they clearly aren't. AFAIAC discussing their ideas is about as fruitful as discussing dialectical materialism.

@Fauvi, you wrote:

"No free invisible hand, just another organised M(onetary)M(anipulation)T(oll) on sheeple. As I HATE MM (Modern Medicine),I hope we can cure ourselves by nature's forces without sophisticated state compulsory healthcare."

Bravo, once again!

@Edwardo, an interesting thread by Yves/Hack. I think the reason they are stuck in this 0 yield box is because markets around the world have been destroyed by the undo influence of governments, cartels and big players. Combine this with outrageous tax rates and coordinated OECD tax policy, and the small player/entrepreneur doesn't want to play ball any more. They know that they will simply get sucked up into the same kind of corrupt government murdered markets that these MMT guys would have us live in with their complete government control of all money.

Just look at the health care business now that the progressives have had their way. Which small player would want to even start a massage practice, let alone start manufacturing some new device or drug. The government has killed this market, so now only the big players compete and we end up with these infinite arbitrage loops. The Mortgage market is another good example, or energy, or even gold!

FOFOA said...

http://www.usagold.com/cpmforum/?p=180407

Gold takes one more step towards center stage of the global monetary system
Nov 9th, 2010 10:22

by Juliian Phillips
Nov 9 (GoldForecaster) — Before the Gold Forecaster came into being, it had become clear that gold was headed back into the monetary system. Why, you may well ask? It was because of the “Washington Agreement”. This agreement changed the tone of central banker’s approach to gold. This Agreement inspired the start of Gold Forecaster. Since then the newsletter has forecast the very events that are now taking place and has been right on each of gold’s moves in price and in re-acceptance over this last decade.

What did the “Washington Agreement” do? Instead of harping on about it being a ‘barbarous relic’ and continuing to threaten to dump gold into the market and out of the monetary system, the European Central bankers involved in the agreement that bound them, reaffirmed that gold was an important Reserve Asset and restricted the sales of gold…. This established that gold as an important part of the monetary system and that it was not going to be dumped into the market place then or in the future.

… then came the ‘credit crunch’, the banking crises, the Sovereign debt crises and now quantitative easing, all of which has slowly sapped confidence in the system of government issued currencies.

… Riding in tandem with these currency debilitating events, was the emergence of Asia. ……… Asia’s emergence does not mean that it will accept the developed world’s currency system. So far as it is to its advantage it has done so but it is clear from the current friction between China and the U.S. on these matters that China will walk its own road, just as the U.S. will do so too. The system as it stands is a hoch-poch of compromises since the Bretton Woods system was established after the Second World War It suits the U.S. primarily. As the U.S. declines, so will the U.S. initiated currency system, not just the dollar. It is inevitable that monetary reformation will come. The question is, will the west work with the east on the reformation or must it be forged in the friction of discord? How bad is this discord?

Cont...

FOFOA said...

Wang Jun, China’s vice-finance minister, said that instead of helping, QE2 is a shock to financial markets. With $2.5 + trillion in their reserves, China is most unhappy about the devaluation of these reserves through QE. It is taking steps to diversify and we believe that we will see dramatic steps taken soon that will further undermine the U.S. dollar in the global system. QE will push China into accelerating these steps. China is buying its own gold production and has encouraged the importation of gold and its own citizens to buy gold.

Not since the end of the last World War has the world faced so many doubts in the future of currencies and the paper money system. Worse than that there is still no perceived need to do anything about it, with each nation myopically looking inwards. That is until the head of the World Bank wrote his piece in the Financial Times of London. He has advocated that gold should be used as an ‘international reference point and guide to market expectations of inflation, deflation and future currency levels.

… If he feels that gold, a globally accepted form of money, can be used to measure currencies as they decay, then there must be a swell of agreement that as all else is failing gold would at least give some measurability and consequentially, responsibility to correct matters. Please note that this suggestion is not a gold standard, simply a use of gold to value other monetary instruments.

[source]

RS View: Right as rain. Gold won’t be chained down and locked into a fixed price against national currencies. Rather, it will climb in value from usage in the official sector as the world’s primary reserve asset (and increasingly also as a private savings asset), it’s various international prices floating freely as a sort of universal economic barometer — an ongoing market commentary on the strength and condition of any given national currency as priced in gold.

FOFOA said...

By Pham-Duy Nguyen
Nov 8, 2010 (Bloomberg) –

… “No one wants to hold currencies now,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The big money is looking at gold as an alternative asset.”

[source]

RS View: It all really just boils down to choosing the most reliable international economic scorekeeper as the basis for all subsequent “rules of the game”. The choice is between tokens that are easily fabricated digitally on a bank balance sheet and on a printing press, versus tangible wealth such as gold that cannot be so easily conjured forth like endless rabbits from an empty hat.

FOFOA said...

Gold breaks through the $1,400 barrier
Nov 8th, 2010 13:06 by News

By Simon Lambert and Lee Boyce
8 November 2010 (ThisIsMoney) — Gold has broken the $1,400 mark to hit a new record high following comments from the World Bank on adopting a new gold standard. The spot gold price hit $1,407.2 at 5.30pm today – a new record level for bullion.

Bullion investors delivered a new push to the price after World Bank president Robert Zoellick said … that leading economies should consider readopting a modified global gold standard to guide currency movements. … He said: ‘The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.’

This followed a major move up last Thursday as the US announced a further programme of Quantitative Easing. The gold spot price rocketed by $45 that day, closing at $1,393.55 after opening at $1,348.

[source]

RS View: I’ve seen today where the narrow-minded staff at the Petersen Institute for International Economics have balked at the idea on the grounds that, in the words of director Fred Bergsten himself, “I happen to think that gold is a very poor reference point because it fluctuates so widely.”

What Fred Bergsten is failing to comprehend is that gold’s underlying physical basis of supply is stable. And, frankly, what better foundation could one ask for as a starting point for a reference? Alternatively, anything that would currently be meeting his litmus test for stability as a reference point in this present environment would be doing so only as a result of active management of an artificial/mathematical benchmark. Such a disconnection from tangible reality does NOT provide good grounds for any reliable future stability upon which to build.

And to be sure, the fluctuations (upward bias) being currently witnessed in gold’s price is merely a consequence of the period of transition that we are in. After gold’s price moves through its necessary one-off phase transition by more than an order of magnitude, it will indeed reach a stage of relative stability from which point all future floating market price adjustments will be a simple reflection of all that is transpiring in the international currency markets — thus making it a true barometer and reference point as is being somewhat sloppily advocated lately by Zoellick.

FOFOA said...

Nov 8 (Reuters) — Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.

… While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.

“The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth,” said ANZ’s senior commodity analyst Mark Pervan.

[source]

RS View: Green light.

FOFOA said...

By Amanda Cooper and Tamawa Desai
Nov 8, 2010 (Reuters) — The president of the World Bank has made a bold call on leading global economies to consider readopting a modified gold standard to guide currency movements, but the proposal has met with a wall of scepticism.

… The gold price, which is trading near record highs just shy of $1,400 an ounce, has shown little reaction to Zoellick’s idea, at least so far.

The gold standard was effectively an exchange rate mechanism created in 1944 by the Bretton Woods agreement, ratified by the U.S. Congress in 1945. It involved setting par values for currencies in terms of gold and the obligation of member countries to convert foreign official holdings of their currencies into gold at those par values.

The system was set up to help rebuild the international economy as World War Two still raged. It required each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value (plus or minus 1 percent in terms of gold).

This system remained in place until August 1971, when U.S. President Richard Nixon removed the dollar peg to gold, which had been fixed at $35 an ounce.

In its most basic form, the gold standard involves the issuance of coinage in gold. A more sophisticated system involves paper currency that can be converted to preset, fixed quantities of gold.

… HOW MIGHT A NEW GOLD STANDARD WORK?

Zoellick’s comments were vague, but analysts say he may be pushing for a system in which the World Bank’s own currency — Special Drawing Rights or SDRs — is changed to reflect the value of the dollar, euro, pound, yen and the yuan and somehow incorporate gold.

The suggestion does not set out, for example, how such a standard might work when monetary authorities need to make extraordinary provisions such as quantitative easing or sterilised currency intervention.

It also does not make clear how it would prevent monetary authorities from trading around or outside of any bands that might be set.

IS IT A REALISTIC PROPOSAL?

The initial response, given the size of the gold market alone, is no. Gold is a precious metal by virtue of its limited supply, and annual gold supply could not keep pace with any increase in money supply, especially if central banks make use of quantitative easing to flush their economies with cash.

[RS Note: Ummmm... fellas? You're missing the point. This is where the floating price comes in to balance the books and save the day. Given the blessedly predictable, limited supplies of physical gold (unlike the paper alternatives), the necessary adjustments will be manifested primarily through its upwardly floating PRICE, not so much through a need for radical inventory adjustments to the global stockpile.]

… Zoellick’s suggestion that gold be used as an international reference point of market expectations for price pressures and future currency values comes in the middle of a virtual international currency war.

… With a distinct lack of accord over how to correct the surpluses of the emerging world and the deficits of the developed one, the chances of a deal on adopting a gold standard, in any form, appear limited.

… With the Federal Reserve set to pump over half a trillion dollars into the U.S. economy, the rise in money supply and subsequent rise in inflation would make it difficult to hold enough gold.

[source]

RS View: As I said above, that’s why gold will FLOAT! This past decade in the gold market has been just a minor prelude to what will unfold over the next several months.

FOFOA said...

Central banks not seeking weak currencies: Trichet

...

Trichet said the gold standard was not discussed by the central bankers.

RS View: Of course the central bankers wasted no time discussing a gold standard because a fixed (implied) gold standard is too rigid for an international policy prescription that requires greater flexibility. Hence, gold will simply be allowed to float freely in terms of all national currencies as the fair and impartial international monetary arbiter. No muss, no fuss, and its already a done deal… no fancy treaty required.

FOFOA said...

The G20 must look beyond Bretton Woods II

By Robert Zoellick, president of the World Bank Group, served at the US Treasury from 1985-88
Nov 7, 2010 (Financial Times) —

...

[source]

RS View: If you give it any thought you will quickly realize that there is no way that a fixed/frozen gold exchange price can serve the function specified above. Only a freely floating gold market can effectively fill the bill. So be it. It’s exactly what we’ve been forecasting as the inevitable… the key structural component of the only viable solution to the current house of cards.

FOFOA said...

All of the above came from USAGOLD News and Views. For those of you that do not know, RS is Randal Strauss, Randy@TheTower, also Town Crier, the forum administrator for USAGOLD back while ANOTHER and FOA were posting. I suppose he is the original "Friend of FOA."

In any case, his views, recognizable by the RS View tag, are worth following every day. Just FYI for those who did not know.

Sincerely,
FOFOA

FOFOA said...

JR, I've got so much love for you. I hope you don't mind that I repost some of your comments here from time to time. You should do it yourself more often!

Question: I've two books in my amazon wish list, namely Debunking Economics by Steven Keen and A Guide To What Is Wrong With Economics by Edward Fullbrook. Only one can be bought right now, which do I go with? Keen's writing is heavy on mathematics that I don't understand from what I've read of his website Debtwatch.com fwiw.

JR: Keen's got a pretty good idea of how the system would function if it couldn't collapse. In that sense it is very similar to MMT in viewpoint, but not as looney. For example, he gets debt ala minsky.

What he doesn't get is that the system exists not because it is imposed, but because confidence is maintained in it. He is a resolute deflationsta who, like all good deflationists, unwittingly makes the case for hyperinflation.

Desperado said...

Aloha Fofoa,

A very interesting thread of articles, although I often wish that instead of trying to lead your readers to the same conclusions that you have made, that you would just come out and state your opinion.

I think what Zoellick was getting at with his statement "international reference point of market expectations about inflation, deflation and future currency values" is that all the CB's and their governments are playing games by manipulating:
- sovereign and corporate debt ratings
- interest rates
- CPI figures
- published budgets
- published tax revenues
- published spending numbers
- published deficits
- published borrowing
- and especially their own currencies exchange rates.

In this environment, there is one physical truth that is very difficult to lie about: the price of their currency in terms of gold.

The gold price and its trends could be used to:
- calculate price inflation independent of resource price fluctuations
- substantiate charges of currency manipulation
- determine real rates of return so that countries robbing their citizens of wealth through suppressed interest rates and fiat printing would be exposed
- Substantiate credit ratings

IMO, trying to tie Zoellicks statements to him wanting to reinstate a "gold standard" is poppycock.

Gold doesn't lie, governments do. This is why physical gold represents the best path to freedom from government financial control, from government financial theft, and from government lies.

Aloha,

Desperado

FOFOA said...

Hello Desperado,

"..I often wish... that you would just come out and state your opinion."

You're kidding, right? Did you notice that I've got 276 posts up now? And God only knows how many comments. Are you suggesting that I beat around the bush? ;)

Sincerely,
FOFOA

DP said...

Greg, I feel the problem you have with accepting the flaws in both the current system and also the MMT solutions you have read about, is that you myopically look only at your domestic economy. You need to understand that you exist within a global economy, not a US economy that everyone else is an outpost of. The fact is that what the ROW thinks does matter to you. MMT and also socialism/communism, all appear to work great in theory and within the walls of a closed economy. The reason that they all inevitably fail is that their models do not cope gracefully with unanticipated events arising outside of their sphere of control.

Perhaps the US is in a fortunate position that it could, in theory, turn its back on the world and operate as a closed system; isolating itself from the outside world and domestically producing everything that it wishes to consume. However, it most certainly could not do so tomorrow and there would be absolute chaos and societal collapse if it were attempted. I hope for your sake that the ROW doesn't choose some day to show you this is the case, by rejecting the Dollar in international trade and/or dumping Dollar reserves onto the global market, like the dam someone posted a few comments back should be watched carefully rather than staring at the man spraying the villagers with the welcome water hose. Immediately the choice would be taken out of the hands of the US, the onset of societal collapse would be thrust upon it in a matter of hours. I am providing just one possible reply to your suggestion "the amount of money cannot be a trigger for this" and "more likely is a fear that something they need won't be available next week". Do you think that, as things stand today and in light of what I have said above, everyone in the US will definitely have everything they want next week and therefore there can be no panic? Do you think the US government, or your MMT proponents, can guarantee it? You can thumb your nose at the ROW if you like, but it can thumb its nose back at you a lot more significantly. Take your thumb off your nose and start to look beyond it.

Another issue you appear to have is that you keep referring to "the gold standard" when someone mentions gold might play a part in the monetary system. The "gold standard" is something very specific, and nobody of any consequence that I am aware of is suggesting a return to it. Nobody is going to suggest you should be able to once again walk up to the window at a CB, hand in a paper note, and receive some predetermined weight of gold in exchange -- this is just NOT going to happen. More and more people are, however, suggesting that gold be used as a reference point, a touchstone of "what is the baseline of 'value' we can all globally agree to individually measure ourselves against?". They're making this adjustment because the US has increasingly abused its exorbitant privilege, it has significantly debased the current "baseline of value" that is the Dollar and there is every indication they will continue to do so. This is clearly unacceptable. If the US wishes to sink its own boat, so be it. The ROW does not wish to be dragged down with it any more.

How does each currency block go about setting a real-world price on gold in its domestic currency, so we can all objectively value said currency? We look at the price that real-world people are exchanging said currency for gold today, and this tells us the answer immediately to the question: "what is the value of gold today?" This is what is presented on the ECB website each month, the marked-to-market value in €, on each reporting date, of its gold reserves. You can call this a "gold standard" if you like, but when you do so you will be misunderstood, because most everyone else understands you to mean something entirely different if you use that specific term.

FOFOA said...

Okay Desperado, here's my opinion with no beating around the bush:

We are living through the transition right now. It is unstoppable for the same reason that capital controls never work. Because capital can leave the monetary malinvestment madness anytime it wants by buying hard assets. And today there is one in particular that stands out thanks to the European CB's and the WAG.

All this political and CB posturing is a sideshow, as ANOTHER said. We know what's happening. And if you didn't like the last monetary system (notice I said monetary and not political system), you're not going to like the next one much better, as FOA said. It will be much of the same, with the addition of a globally recognized "monetary" (as in not an economically necessary commodity) refuge from the monetary madness.

The paper markets will not survive this transition. There's too much dollar-denominated debt held as savings (capital) in the world for the value of the dollar relative to today's real prices to survive the rebalancing effort that is underway.

"SEOUL, Nov 10 (Reuters) - An all-day G20 planning session grew so intense that officials had to leave the door open to keep the room from overheating, underscoring deep tensions over global economic rebalancing one day before the start of a summit."

Gold is not going to back the M1 or M2 or some basket of international currencies. It is not going to be some sort of NWO gimmick. It is going to float, just like it does today, only from a much more restricted supply once paper-promise-gold hits that inevitable wall.

So if you'd like to get in on the receiving end of this transition, Buy. Physical. Gold. Now. As someone once said. The non-inflation adjusted value of gold, its value relative to today's prices, like a $2 loaf of bread, is going to somewhere between $30,000/oz. and $100,000/oz. once we're dealing with a global physical market. That means an ounce will be worth between 15,000 and 50,000 loaves of bread, anywhere in the world, just to be clear, since I see so many people say "what good is $50,000 gold if bread costs $100?"

How's that? Is it direct enough? Or should I work on my delivery?

Sincerely,
FOFOA

Greg said...

Good morning DP, and all others

Thanks for your comments

Its early for me and I must be out the door soon but I want to acknowledge your post and I will respond in more depth later.

What really stands out in this thread;

Each and every response to me is like a little flashlight highlighting my appearance to others, its quite informative and interesting to see what others see. I say to my self "They've got me ALL wrong" and
I then find my responsibility to get myself right in my own eyes as well as others. Maybe some self deception, maybe some misperception by others( a little of both really) but all in all this is a very nourishing and rewarding effort. I love these internet comment threads and being able to think and write in response. We often do so poorly in face to face confrontations, but these interactions help with those. In that vein I thank all of you who have been trying to take me down, call me names whatever. I KNOW we are hearing each other from the sometimes very far away places we are yelling from. We must hear before we can listen.

Thanks to ALL of you

The internet is a great place, shrinking the distance between ideas....... THANKS MR GORE! ;-)

I'll be back!!

Desperado said...

Hey Fofoa,

I read you loud and clear, and I.have.physical.gold! And one of the reasons I do is due to your sage advice, thanks.

Actually, when I asked for you opinion, I was referring to Zoellick's comments. Do you think he is pushing for some kind of renewed "gold standard"? It wasn't clear to me from your thread of comments, some of which where bolded. That is why I gave my opinion.

I imagine that Zoellick to a certain degree is looking out for the future of the world bank, which must have 1000's of employees with cushy tax free jobs. These guys are looking to Zoellick to keep their positions relevant, and Zoellick wouldn't be a good leader if he didn't look out for them.

We have all these different banking and international organization jockeying for position: IMF, OECD, ECB, UN, Worldbank, BIS, G20, etc, etc. Thousands of people depend on them for their living...

None of us will ever know exactly why Zoellick said what he did, but I am interested in anyone's opinion as long as they don't denigrate me because I have on occasion watched Glenn Beck, listened to Rush Limbaugh and even, gasp, defended Sarah Palin.

Cheers,

Desperado.

DP said...

Good morning Greg. To be sure that we understand each other, I address the comments above directly to you not because I wish to "take you down", but because I perceive a misunderstanding and I hope that I might clarify how I see that misunderstanding (or, indeed, perhaps you will guide me to see the light and appreciate my own misunderstanding, who knows? NONE of us are 100% right 100% of the time. ;-) ).

I would hate for any incorrect assertions to remain on record here for posterity, unchallenged and taken by others later as fact. Those incorrect assertions may be yours, mine, or who knows whose. It doesn't matter, because we are all here to seek the truth and a higher understanding.

Have a great day!

DP :-)

costata said...

I'm on a self-imposed "holiday" from commenting for a while, but I exit it to urge you to watch the Euro price of gold. This is now the key indicator IMVHO.

DP said...

FOFOA: The non-inflation adjusted value of gold, its value relative to today's prices, like a $2 loaf of bread, is going to somewhere between $30,000/oz. and $100,000/oz. once we're dealing with a global physical market. That means an ounce will be worth between 15,000 and 50,000 loaves of bread, anywhere in the world, just to be clear, since I see so many people say "what good is $50,000 gold if bread costs $100?"

Put another way, his forecast is therefore that if bread goes from $2 a loaf in today's Dollars to $100 a loaf in future Dollars as a result of Dollar inflation, gold will also be 50x higher than the $30,000 to $100,000 revaluation in today's Dollars -- $1,500,000 to $5,000,000 per ounce (equivalent value of 15,000 to 50,000 loaves of bread still).

DP said...

The paper silver market: only big boys need apply to come and play.

http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv10-461.pdf


In the immortal words of Hong Kong Phooey, now why'd they wanta do a thing like that?

Tyrone said...

Video: Robert Zoellick & World Bank

Greyfox "It's the Debt, Stupid" said...

@ Costata
“I'm on a self-imposed "holiday" from commenting for a while, but I exit it to urge you to watch the Euro price of gold. This is now the key indicator IMVHO.”

Costata, please make it a very short holiday. I, so very much appreciate your valid and enlightening comments. Your observations are so well thought-out and inclusive and help the many new readers to comprehend FOFOA/FOA/A. Even though I have been involved for many, many years in this process, you are able to render your thoughts much better than myself. Please return soon

Greyfox "It's the Debt, Stupid" said...

Whether or not Zoellick realizes it, his ‘original statement to “consider gold as an indicator to help set foreign exchange rates” is referencing FreeGold with the exception that the 'only' control governments will have on exchange rates verses gold is how well they manage their ‘individual’country’s currency (via spending/debt, QE, trade deficits/surpluses, ect.)



World Bank President: My Words Were Manipulated, I Don't Support A Return To The Gold Standard

World Bank president Robert Zoellick has clarified recent comments about gold.
No, the head of the World Bank isn't advocating a return to the gold standard.
Reuters:
"I don't believe you can return to a fixed exchange rate system and that is the gold standard," he later told the Foreign Correspondents Association."
"Markets are already using gold as an alternative monetary asset because confidence is low...it is saying we have a problem that needs to be fixed."

http://www.businessinsider.com/world-bank-president-no-i-didnt-say-the-world-should-adopt-a-gold-standard-2010-11

Read more: http://www.businessinsider.com/world-bank-president-no-i-didnt-say-the-world-should-adopt-a-gold-standard-2010-11#ixzz14t9WYFIw

David said...

Hi, I've been frequenting this blog for about a month, and have already grown soo tired of the noise factor generated by Desperado's needlessly aggressive and narrow-minded posts. They're nearly the same type of forceful junk we've seen daily from the likes of Limbaugh, Beck and even, gasp, Sarah Palin. 

I can suggest that you respond to only one out of three of his posts, where you can decide for yourself which of the three has more merit. If he then goes further out of control, consider decreasing the response rate to one out of five. It should float :).

Fauvi said...

David, you should have sticked to only reading. It’s not your blog or mine. It’s FOFOA’S.

Greg said...

DP

"Good morning Greg. To be sure that we understand each other, I address the comments above directly to you not because I wish to "take you down", but because I perceive a misunderstanding and I hope that I might clarify how I see that misunderstanding (or, indeed, perhaps you will guide me to see the light and appreciate my own misunderstanding, who knows? NONE of us are 100% right 100% of the time. ;-)"


Trust me, I took your comments exactly as you stated was your intention. Now I want to address more specifically your previous post.

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


"Greg, I feel the problem you have with accepting the flaws in both the current system and also the MMT solutions you have read about, is that you myopically look only at your domestic economy."

It may look like that is all I have looked at but that is certainly NOT true of the MMT paradigm. In fact where I find MMT most useful is in understanding that in order for a country to be sovereign, in every meaning of the word, they MUST issue their own currency. Their currency should reflect their values and those relative values will have a market price. Germans value producing a lot more than they consume, its their culture, other cultures dont value that.... are they less right? The German way is not in fact the BEST way. The problem, as I see it, with having a universal currency is just that, ITS UNIVERSAL. It makes very little room for a divergence of economic goals within the world. Or more precisely a divergence of solutions to the problem of how can a countries citizens provide for themselves.
-------------------------

"You need to understand that you exist within a global economy, not a US economy that everyone else is an outpost of. The fact is that what the ROW thinks does matter to you."

Well aware and agree..... to a point. How much the ROW dictates to you is important, have your values and stick to them. There is not ONE right way to manage an economy. ( *** Alert Alert*** many will have a heyday with previous sentence ***Alert Alert***)


continued

Fauvi said...

@all

I have a “feeling” we are nearing a full blown dollar syncope and we walk into the long awaited transition.

If that’s true, how long could it take? Zoellick is day by day more evidently pleading for gold’s new role.

Except having gold are there other preps to be done?

Could China start something else before freegold comes in?

IMO it looks like the US opposition is getting softer.

Could there still be social unrest or paper bugs/have nots won’t even notice?

Desperado said...

@David,

Every once in a while in a large corporation someone will send an Email with virtually everyone in the corporation on the distribution list. A few people then reply to "all", and everyone in the corporation gets spammed. This situation continues until more people start replying to "all", requesting for other people to take them off of the list or for other people to stop replying. This has been known to bring down entire corporate servers. You, by calling my posts "forceful junk" are writing your own "forceful junk" and are showing that you are the equivalent to one of these mindless corporate spammers. Even worse, you are trying to suppress ideas simply because you don't agree with them.

My suggestion to you, and all the other bitter tea-party haters, is why don't you guys each send a donation of 1 oz (or the corresponding value in fiat) of gold to Fofoa and request that he ban me.

Fofoa, if you do receive donations of the equivalent of more than, say, 2 oz's of gold, please let me know, and I will gladly disappear until you need my lefty-baiting services again to help you finance your excellent blog. You could consider it part of my contribution to your efforts.

Now, David, since you have waved your lefty flag in my face by trying to suppress my right to free speech and by being unable to resist getting your dig in about Beck/Limbaugh/Palin, I feel duty bound to respond.

What is it with you lefties from the fever swamp? What makes you so smug that you think that you have the right to censor what others want to hear, read or believe? Even worse, why is it that you think you can dictate what terms, jokes, expressions or even cartoons are racist, homophobic, islamophobic, mysogonistic, or are in any other way un-PC? We libertarians just want to live our lives without you lefties breathing down our necks and trying to throw us in prison for crimes against political correctness or for refusing to finance your socialist nirvana.

Oh well, the coming fiat crash is going to finally shine the light of truth into the dark recesses of your socialist fever swamp. Freegold will also free us from your shackles.

Greg said...

"MMT and also socialism/communism, all appear to work great in theory and within the walls of a closed economy. The reason that they all inevitably fail is that their models do not cope gracefully with unanticipated events arising outside of their sphere of control."


In a sense, isnt this the problem with ANY system? All the believers go along and then you have to work with the "outsiders". How to do that? This wouldnt go away with a freegold system, you must admit to that... right?
Now about your description of Communism. I must admit to having many incomplete notions about how American capitalism defeated Soviet style communism. I was raised on the "Reagan outspent them" explanation, which is actually still quite prevalent on the American right. Think about that statement... we didnt out borrow and then tax and THEN spend. We didnt outspend them with our private domestic sector.... we "broke" their govt, with our govt spending, so the fable goes. Well Warren Mosler offered what I think is a very succinct and quite consistent with the facts analysis in this interview he did during his run for Senate in Connecticut. I cant do it justice so watch if you will, the part about the Soviet Union is
a few minutes in but the first 12+ minutes is worth watching.

http://www.youtube.com/watch?v=21B3_MmERe8&feature=related

The actual story is that Russia was broken by an export model while we were enriched by an import model.

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


"Perhaps the US is in a fortunate position that it could, in theory, turn its back on the world and operate as a closed system; isolating itself from the outside world and domestically producing everything that it wishes to consume. However, it most certainly could not do so tomorrow and there would be absolute chaos and societal collapse if it were attempted"

Well to be perfectly clear, I am not advocating a closed economy, nor do I consider this a risk free strategy. There is no risk free strategy and I nor MMT authors EVER make that claim. What I was getting at is a response to this Armageddon scenario that gets brought up as the end to OUR (merely imagined supposedly) prosperity, which always involves the ROW saying NO to our dollars at a point in time, and demanding something else. I dont predict the future well so I have to really hear the "story" and figure if it at all rings true with how things seem to work at present. If someone is telling me that basic human actions are going to alter extremely I need to understand why. There is always a reason we are doing what we are doing, usually because it benefits us. For there to be 180 degree turns there would have to be a very good reason to abandon EVERYTHING you hold true. 30 degree turns 45 degree turns, probably occur rather frequently, one direction or another. Complete abandonment, VERY rare in human history on anything other than small scales, not world wide. None of this "disproves" what this site is selling (Lets be honest you are selling something here)

So what else could the world demand of us credibly?
We deal in dollars, we tell them, if you want to burn your dollars instead of spending them here you are free to. If you want to sell us something you will take dollars. The price is negotiable, but it IS a negotiation. What other options would they have with their dollars? If the nightmare scenario is happening, what other currency can they trade their dollars for? Presumably NONE. So they have choices, tradeoffs (the core of economcs) and decisions to make. Buy something from us in dollars (We'll always accept them we say) or get nothing for them..... your choice.

My point is we will always have an option with our sovereign currency. Not promising a risk free or conflict free existence (any body who does should be laughed at and then run away from) but we will NEVER have no choice to make.



cont,

Martin said...

I found this blog a month ago via zerohedge and have been slowly absorbing the idea of Freegold.
I’m trying to understand how Freegold will solve various problems for the USA.

1) Trade imbalances. While the transition to Freegold may change the debt picture, the continued flow of wealth out of the USA can’t continue in the long term. At some point, the gold will all be gone, so no more oil, so lights out.

2) Long term obligations. Social security, Medicare, and pensions all add up to more debt than the shift in the price of gold we’ve been talking about, ie. 40x the current spot. It would need to be another 14x to accommodate the 200 trillion that these long term obligations add up to (this is assuming that we still have 8000 tons).

Economic growth could possibly mitigate some of the above, but that assumes that other countries buy our stuff, or at least we buy our own stuff rather than China’s.

It seems to me that Freegold or not, we here in the USA are looking at a substantial reduction in our standard of living (except perhaps for those that listened to FOFOA and acquired some gold). Any insights to the above would be appreciated.

Thanks,
Martin

Michael H said...

Greg,

In the previous thread I suggested to someone that they read FOA'S series on the gold of troy'; I think you might find it of interest as well.

http://www.usagold.com/goldtrailarchives/goldtrailthree.html

starting with post
FOA (1/25/2001; 16:28:50MT - usagold.com msg#56) The Gold Of Troy!

In that series, FOA discusses the role of gold as a trade-able wealth commodity in ancient times.

This could help in visualizing a system of 'currency with free-floating gold reserve'. Gold would be completely demonetized, and would be just a shiny object you can trade for currency.

As you say, gold is a commodity, but, as FOFOA says, it has two characteristics that make it a great wealth reserve: 1. it is not used up / consumed, and 2. it has a high stock-to-flow ratio and so it can either be hoarded or spent.

So as a wealth-storage medium, gold is not akin to oil or grains because the storage cost of gold is minimal relative to its value, and it doesn't spoil.

Gold is more akin to land as wealth storage, except that land can be put to productive use, and the ownership of land is highly visible and can thus be regulated to landlord's disadvantage. Further, current real estate prices are inflated by cheap financing.

Greg said...

"Do you think that, as things stand today and in light of what I have said above, everyone in the US will definitely have everything they want next week and therefore there can be no panic? Do you think the US government, or your MMT proponents, can guarantee it? "

I've never and never would make such claims. A meteor might strike the earth next week, Yellowstone might erupt.

Freegold cant save us either.

You going to tell me that if I walk around with 5lbs of gold in my pocket, I will ALWAYS have access to adequate food for my family? Does gold just magically keep present production at current levels?
By what mechanism?
-------------------------


"You can thumb your nose at the ROW if you like, but it can thumb its nose back at you a lot more significantly."


I wont quibble nose values here but to suggest that it is MORE SIGNIFICANT what the ROW does seems without merit. Yes if China, EU, Japan, India, the Saudis and Brazil banded together they would have significant power. If it was that easy why hasnt it happened yet? Every thing within our trade relations are voluntary. They WANT what we offer and vice versa. Extreme change from that is unlikely.

Power will change in the world, we are not what our right wing mouthpieces think we are, but the change is more likely to be gradual with some bumps than rapid and cataclysmic. Its quite interesting what stress does to ones allegiances though, Ms Palin has been taking Chinas side recently......... if only a democrat had done that... wow.

---------------------------.


"How does each currency block go about setting a real-world price on gold in its domestic currency, so we can all objectively value said currency? We look at the price that real-world people are exchanging said currency for gold today, and this tells us the answer immediately to the question: "what is the value of gold today?"

Substitute "housing" for gold and tell me if the comment isnt laughable. Gold is still a market determined price and markets are affected by irrationality. Its dangerous to think a market can determine a "real" value. It does tell us the result of a series of auctions using whatever pricing we choose.

The comment section at Bill Mitchells post yesterday on the gold standard talk has a good discussion going on. I urge freegolders to join it. We need the internet to be the source of the national/global discussions that need to happen.


Cheers

Jenn said...

Hello Greg-

Freegold cant save us either.

Freegold can't save the world, but it can preserve your excess wealth far into the future as our currency crisis unfolds.

You going to tell me that if I walk around with 5lbs of gold in my pocket, I will ALWAYS have access to adequate food for my family? Does gold just magically keep present production at current levels?

This is missing the point. Gold will not be used as a currency -- it will be used as a wealth reserve to be converted into which ever fiat currency you wish to buy what your family needs.

Yes if China, EU, Japan, India, the Saudis and Brazil banded together they would have significant power.

Or if the Sauds choose to bid for gold with their oil -- or price it in Euros.

We look at the price that real-world people are exchanging said currency for gold today, and this tells us the answer immediately to the question: "what is the value of gold today?"

Greg, if you are saying that the COMEX tells us the value of gold by way of price discovery, nothing could be further from the truth. The COMEX price is for paper gold, not physical.

Its dangerous to think a market can determine a "real" value.

Not when the market is purely physical and derivatives are removed from the equation.

--Jenn

allen said...

Okay Desperado, here's my opinion with no beating around the bush:

Sounds pretty direct to me. Old system was fixed dollar to gold price. New system will float. New floating balance point has not happened yet. Those in now stand to gain from a huge spike in price when this happens. You go home very happy. End of story.

DP said...

@Jenn: Apologies, I should indeed have included the key word "physical". I present the revised version of that sentence to the court... :-)

We look at the price that real-world people are exchanging said currency for physical gold today, and this tells us the answer immediately to the question: "what is the value placed on gold today?"

DP said...

Greg: It may look like that is all I have looked at but that is certainly NOT true of the MMT paradigm. In fact where I find MMT most useful is in understanding that in order for a country to be sovereign, in every meaning of the word, they MUST issue their own currency. Their currency should reflect their values and those relative values will have a market price. Germans value producing a lot more than they consume, its their culture, other cultures dont value that.... are they less right? The German way is not in fact the BEST way. The problem, as I see it, with having a universal currency is just that, ITS UNIVERSAL. It makes very little room for a divergence of economic goals within the world. Or more precisely a divergence of solutions to the problem of how can a countries citizens provide for themselves.


Freegold, potentially AKA the concept I understand Zoellick to mean, does not in any way impose a "universal currency", any more than we currently have the US$ as the "universal currency". We are just talking about changing the reference point of all currencies to one that is more equitable. Nations would issue and administer their own currencies in any way they see fit, that is their choice. You can do all the MMT you like, but do it with your own currency please and leave everyone else's alone! ;)

You can have as diverse an array of local economic and monetary systems as you want, it will not especially matter to anyone else outside of your local domain if you get it badly wrong. All systems will be individually measured against the integrity of all other currencies, through the intermediary of the globally accepted baseline reference of what represents "value": the cold, dead, impartial anchor of gold. Gold, sitting inertly, imposing no judgements on, or requirements of, anybody. Nobody will have some kind of "right" or "entitlement" to convert their currency somewhere at a fixed rate as you appear to imagine, however at something close to the price recently marked-to-market, anybody can choose to enter the market and in agreement with some other participant exchange their currency for gold.


This is in stark contrast to the impositions on the rest of the world that are created through the current practise of using the US currency as the constantly shifting global baseline reference of "value". An inflatable plastic anchor, with a leaking valve that nobody has any intention of ever fixing, but US politicians and Fed wonks keep coming by with the hand pump and blowing some more hot air in to keep it afloat a bit longer. Everyone else's boat is moored alongside this constantly moving reference point. You can appreciate, I'm sure, why they might not be too happy about this and that it probably couldn't last forever.

Everybody is measured today, with the exception of the US. A privilege that is unwarranted, and is abused. That is the way the ROW sees the current monetary system. The ROW would rather place a firewall between their currencies and others. The best, most inert option known to man through the millenia has been gold. Nothing else has yet proven to be "as good as gold".

When it was agreed to tie everything to the Dollar, the Dollar was "as good as gold", at a convertible rate of $35/oz. If it had not been, it would never have been agreed to. If anyone had realised the convertibility would be reneged on, it again would never have been agreed to. Now we struggle to cope with the fact that a serious collective mistake was made, and it approaches the time when global monetary disaster awaits, if some concrete action is not taken very shortly.

DP said...

Greg: You going to tell me that if I walk around with 5lbs of gold in my pocket, I will ALWAYS have access to adequate food for my family? Does gold just magically keep present production at current levels?
By what mechanism?


No. However, no matter where you find yourself in the world, no matter what has happened, people are always going to exchange their surplus of something that you need, for your gold. This is not something you can rely upon with such certainty, with those pretty pieces of paper in your wallet right now (no matter where you are, this doesn't only apply to Dollarholders).

Ask the Zimbabweans. Or the Argentines. Or the Russians. Or, or, or... Confidence in all paper can disappear in an instant, yes even when it has images of dead US presidents on it.

Do you feel lucky?

Greg said...

Hey Jenn


"This is missing the point. Gold will not be used as a currency -- it will be used as a wealth reserve to be converted into which ever fiat currency you wish to buy what your family needs."

No difference it seems AFAICT. Whether gold is the currency or the anchor of the currency, IT cannot promise a productive world. People dont work for gold (unless its THE money) they work to provide their needs and wants. As long as we have a productive world we will have the ability to meet our needs and our wants. I'm interested in more than my basic needs but it starts there.

A thought occured to me earlier. There is not money needed for production. People were productive before we introduced the concept of money. Once you've monetized the economy however it all revolves around it. If we forgot about money would gold be an especially good store of value? In a world without money how much would you work for gold?

Taking this a step further, are the decisions of individuals any different in a world without money than in a world where money was as ubiquitous as air? This relates to FOFOAs comment in another post about deflation looking no different than hyperinflation when your on the ground, a loss of productive work being done, each man simply finding what he can for himself.

I think most would agree we want our money wealth to simply reflect the work each has done. Valuing all work relatively is quite difficult but its a goal that can be worked towards. Some may say this smacks of Marxs Labor Theory of Value. I dont know, I've never read Marx but I know many espouse the ideals of hard work paying.

AGAIN, none of these notions dismiss some central points of freegold and how it MIGHT lend support to our monetary system. I just thunk we need to not espouse properties to inert metals that they cannot possibly possess.


"Greg, if you are saying that the COMEX tells us the value of gold by way of price discovery, nothing could be further from the truth. The COMEX price is for paper gold, not physical."


NOOOOOOOO, that was not my quote, I was quoting another poster and then responded with the substitute housing comment. I'm sorry that wasnt clear
--------------------------

"Its dangerous to think a market can determine a "real" value."

Not when the market is purely physical and derivatives are removed from the equation."


I'l have to ponder this claim



Cheers

DP said...

Greg: The comment section at Bill Mitchells post yesterday on the gold standard talk has a good discussion going on. I urge freegolders to join it. We need the internet to be the source of the national/global discussions that need to happen.

(Sorry to keep picking you out, Greg, but you just seem at the moment to be lucky I guess. Perhaps it's just time for your 5 minutes! :-) )

Again with "the gold standard"? When are you, and Mitchell, going to forget about this gold standard notion you've picked up on? Nobody is calling for a gold standard. Zoellick is on record today specifically clarifying that was NOT what he was suggesting. This is just something you can put up as a straw man to distract attention from the real conversation and hopefully sidetrack a few people into MMT cul-de-sac.

It IS a cul-de-sac, because the problem that must be addressed is a global monetary system problem. Once that issue is out of the way, you can tinker all you like with MMT or whatever else you think would work for your economy. Go ahead, knock yourselves out.

DP said...

Greg: A thought occured to me earlier. There is not money needed for production. People were productive before we introduced the concept of money. Once you've monetized the economy however it all revolves around it. If we forgot about money would gold be an especially good store of value? In a world without money how much would you work for gold?

So, you are saying it would be good to go back to the days pre-barter? "Money" was a natural progression from bartering. "Money" was a common intermediary that everyone would accept in return for their excess production, as the farmer wants a table and chairs but the carpenter wants bread and the baker wants cheese. Going back to not having any form of "money", or at least "currency", would be totally unworkable.

Over the millenia, gold has through a process of ellimination become the recognised global de facto store of value, sometimes circulating as the currency as during the gold standard, but not always. It's just universally accepted that it's "as good as gold". I'm sure you have heard a version of this phrase at least once in your life, no matter where you come from.

DP said...

Finally for today's responses to your responses, Greg... :-)

You cannot compare "houses" with "gold". Can you sell your house to a person in Mongolia? (Pick your place, it doesn't matter... how about West Virginia? I hear it's nice there.) No, you can't. Only if they happen to want to relocate to where you house is right now. (I'm sure it's very nice, but not today thanks.)

However, if you want to sell me any of your gold coins that you don't have because you think they're worthless, let me know and I'll reimburse you for the postage to offload them on me! ;-D




BTW I too have been reading at this site for approximate a month or so now (it would seem there may have been a rush of new subscribers somehow lately..?). I am learning alongside the rest of you and couldn't pretend to be any kind of leading authority on FOFOA's own Freegold concept. I just feel like it makes total sense to me so far, and when I see someone clearly misunderstanding, or at least not seeing it the way that I have come to understand it, I feel it needs to be discussed to see which of us has it right. As I said earlier, we're all here to seek the truth together and learn from each other.

Have a great day -- it's late here in the UK now and my wife is going to lynch me if I sit at this computer any longer... Cheers! ;-)

DP said...

Sorry, I couldn't resist taking a sneaky further minute to address this comment...

Greg: Taking this a step further, are the decisions of individuals any different in a world without money than in a world where money was as ubiquitous as air?

Maybe you could travel back in time and ask the Mayans what they thought of gold? They had it in spades, and they thought it was worthless. I'm not sure you're ever going to find anywhere with such a prolific amount of easy to get gold in the world today though, but if you do please be sure to remember your new and best friends here at the FOFOA blog first. ;-)

While you're with them, perhaps it's best not to ask them also about their 2012 prophesies though! :->

DP said...

Dollars? Yes, now THERE is something the world has in spades... there is no limit to how many Dollars can be dug up.

Greg said...

DP

Not feeling picked on...... selected!

I wasn't trying to misquote Zoellick, just trying to direct folks to the post. I certainly understand having your ideas being "strawmanned" ( Money printers, deficits with no limits) I'll try to be more accurate.

No I'm not arguing for a pre barter world. I'm simply trying to point to places where I think the merits of gold gets oversold. Its not a magic element and outside a productive economy it too is worthless.

The question we need to answer is how do we maximize productive activity (which leads to wealth) and possibly in addition how do we compensate people for their production in a monetized economy?

My attraction to MMT is that it treats money in an honest fashion. It says "Its a creature of the state and this is how it works operationally". The story of gold as money is insufficient, which of course DOES NOT invalidate a lot that is talked about here.

The system may indeed evolve to something completely different for international settlements.Of that there is no doubt and something needs to be done. MMT is not silent on the issue of international monetary agreements, that is for sure.

In most cases it argues for more sovereignty, more currencies, fewer global banking regulations and more local control of banks. In my view banks run amok is the issue, not governments choosing to support elderly or near poverty level citizens. Private banks have captured govts and railroaded productive investments in lieu of casino type activity in little games of "follow the dow" and such.

One frequent response I see her amongst freegolders is " I dont give a crap what happens just let me save in gold. " ,so while you may have something to add to the discussion about the stability of international finance, that attitude will likely not be shared by a broad majority. But maybe it doesnt need to be, the financial powers that be may have already decided for us...........
.......... ahhh yes the smell of freedom!

littlepeople said...

DP
You said, "Dollars? Yes, now THERE is something the world has in spades... there is no limit to how many Dollars can be dug up."

QE2 is another source for dollars. Some writers (Automaticearth, for one) say that Bernanke, Geitner, et al, know that QE2 won't do a darned thing for the people on Main Street, but it'll buy the bankers on Wall Street a little more.

Besides housing sliding down the chute, JPM is under fire for silver manipulations as is HSBC. It's only a matter of time til gold manipulations are brought forth as well, as HSBC is a major short in that market.

Which brings me to the next issue--JPM manages SLV and HSBC manages GLD. Foxes guarding the henhouses. Make sme think Bernanke figures these bullion banks will need lots of cash to pay off (in fiat) all the burned longs in COMEX and all the fleeced shareholders of the gold/silver ETFs--or their backers on LBMA.

Just saying.

costata said...

littlepeople,

Bernanke co-wrote a paper in 1988 which put forward a very convincing case that QE would not address the kind of problems main street America is currently facing.

His paper made it quite clear that QE would only assist the FIRE sector.

IMHO he will ultimately be proved wrong on that but his decision to dynamite main street was not taken in ignorance of the outcome.

Fasten your seat belt.

Greyfox,

Thank you.

Edwardo said...

"Yes if China, EU, Japan, India, the Saudis and Brazil banded together they would have significant power."

I think you'll find, if you look, that there is quite a lot of such cooperation already in place. And already existing arrangements are continuing to develop amongst powerful players that are, in the main, inspired by the desire to allow trade to occur outside of the influence of the U.S. and its overbearing monetary authorities.

FOFOA said...

We always lose a few readers when the comments roll over to a second page at 200. So I've started a new open forum to continue this thread.

Tyrone, you'd better be quick if you want to be first!

Paul said...

"Markets are already using gold as an alternative monetary asset because confidence is low...it is saying we have a problem that needs to be fixed. There is an elephant in the room and that is what I want people to recognise," Zoellick said.

Brilliant! I think that elephant is about to evacuate it's bowels all over the COMEX.

"I have a long stated belief, that the renminbi should appreciate, that you are more likely to be able to move forward toward appreciation if you get some agreement on some of the underlying economic fundamentals."

That would be the underlying economic fundamental of China saying "Yankees, give us some f***ing gold for all the f***ing dollars we've saved!", and the US saying "F*** off China, or the next Californian Firecracker is coming your way!"

raptor said...

>
Please, can we agree that "its" not only about production but actually supporting production via consumption as well. We are not just a bunch of producers we need consumers.
>
>Savings is a burden when excessive. How to predetermine the "right" amount ? Dont know. How to know it when you see it....... right now. We have OVER produced a lot of things.
>

We don't need consumers per se, we are over-producing in our specialty so we can consume other ppl production, but we don't have to do this just for the sake of consumption itself.

First you need to over-produce something to be able to spend something (the exchange system is just advanced barter system on steroids). So spending is not the natural order of things producing is (ppl produced just what they need).
Here is what worries me over-producing is not that dangerous if it is not matched by over-spending, because if there is no need of the products production will just stop. Who will over-produce something if he does not get anything in return !?
Availability of over-spending on the other hand based on unlimited-money can have a adverse effect on environment because in our case environment is not unlimited.
Good/Bad thing we have this thing called hyper-inflation that is the cure for it.

Do you get the parallel :
Production is constrained by the natural limit.
Spending in fiat system is unlimited.

Fractional banking system causes the fiat system to expand forever unless constrained by some outside force => spending becomes unlimited.

raptor said...

>
The original forms of "money" (means of lubricating trade) were credit money, gold came later, as an add on.
>

Really !!!!!

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


The Sumer civilization developed a large scale economy based on commodity money. ...
The use of gold as proto-money has been traced back to the fourth millennium B.C. when the Egyptians used gold bars of a set weight as a medium of exchange, as the Sumerians earlier had done with silver bars..

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