Sunday, November 14, 2010

FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios


Somewhere out there, FOA is walking this trail alone. He told us as much: "I will walk this trail in silence." :( <--That's me sad.

FOA (11/12/01; 16:31:28MT - usagold.com msg#132)
There comes a time

There comes a time in all things when one must do nothing and simply wait. This is an ages old truth that crosses all the boundaries of life's endeavors; for everything is not always in the doing, but also in the watching. Any good farmer knows that he does not grow a crop; he only prepares his field so the growing he knows is coming can take nature's course.

My friends, we have crossed time and space, while plowing these fields of understanding, and the unfolding drama before us must now sprout its own life. For now, it is my time to watch the trail and let the crop develop. Indeed, it will and it will do so for all to see.

Enough has been said to prove our reasoning is true, especially when the fields become full and in a shade of physical green only our seeds will produce. And planted them, we did, by hand, one at a time, over many years.

Enough has also been said about myself as this story was never about me; perhaps too much untruth was also said by others?

I am going to travel for a while and watch the trail from a distance. It won't be long before the rains come and the ground begins to open; in that time I will return. Until then; this farmer will rest from this work.

Thank you USAGOLD and all the fine people that make this media the best gold site in the world! Another time, we WILL hike again.

Sir Douglas
Your Trail Guide


FOA was the master at answering people's questions. And I often see the same questions and comments today that he was getting back in early 2001. It's almost as if we've been held in a state of limbo since then and little has changed. But much has changed. The euro has risen 60% against the dollar and gold has rocketed an astounding 425% since the posts below were written.

Also, today we can view the clash of currency styling in stark relief, which Costata illuminated in this comment:
In one sentence:
"Bondholders will discover burden-sharing. Debt relief will be enforced, either by interest holidays or haircuts on the value of the bonds. Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk."

Angela Merkel consigns Ireland, Portugal and Spain to their fate

FOA:
"Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold."

8/10/98 Friend of ANOTHER

IMO the key word in the AEP article is "mechanical". This is why the ECB politics are a "sideshow" (Another). This is the effect of severing the Euro's "ties to the nation state" (Duisenberg) and marking gold to market. A mechanism will now perform its sole function.

Stability (the sole mandate of the ECB) isn't a "fixed" price target. If the exchange rate of a currency is too high (demand exceeds supply) then more currency can be issued. Conversely currency can be withdrawn if the exchange rate is too low (supply exceeds demand).

The Euro Freegold architecture isn't a Utopian dream. It's a Grandfather clock. Tick tock!

I wish we had FOA (Trail Guide) here to answer a few questions today. But since we don't, I thought it would be fun to repost some of his answers from 2001 that are, perhaps, as timely today as they were when they were written. I can see that some of "auspec's" questions are still on the minds of many today.

It should be interesting to watch the comments that will follow. We should easily be able to distinguish between those who are only here to discredit FOA, and those who are able to glimpse the very deep wisdom that he shared with the help of his friend, Another.

I can tell you that, for me, it was only after reading the archives all the way through TWICE that I was able to go back a third time and see deep enough to find the "infinite resolution" that has powered this blog for two years now. Following the train of thoughts present in these posts, through the different links to which they lead, takes a lot of effort. Hopefully this post turns out to be a small capsule of one such train of thought.

In any case, it should spur an interesting conversation for us all to read this same excerpt at the same time. The archives contain thousands of pages and are always enlightening to read. But one can easily get lost, walking alone through the past. So let's do it together and see if there's anything in these 9 ½ year old posts that is still relevant today. Actually, that's the way I like to read them: as if they were written today. Please tell me what you think…

auspec (4/19/01; 08:48:52MT - usagold.com msg#: 52175)
ANOTHER And FOA

Thank you, wise men, for your trail illuminations, much appreciated! Please forgive my persistent questions in posts #s 51479, 51935, and 51992 and this summary of these questions, once again. Little in my life has been accomplished without an uncommon level of persistence so I must "return to my roots" and give the maximum effort, as it is all I know. Still hoping and trusting that these perspectives will be addressed by you. Thanks in advance!

From USAGOLD post #51479 {with a few additions} "In Defense of the DOLLAR"

This is your humble correspondent, trying to make sense of our rapidly changing currency world. Please bear with me as explanations for the "end game" scenario are sought. Am I really going to defend the US Dollar? Only relatively speaking, because I can't see the hyperinflation script coming to pass that we so readily toss about on this Forum. No problem whatsoever in visioning the rise of the EURO, just in what degree of demise of the dollar. The USD will get its "just desserts", the EURO is clearly a "comer".


FOA, your 3-10-01 piece, "On the Road", is classic excellence so I would like to take excerpts from it as this "Defense of the Dollar" takes format. My questions/comments are surrounded by *s.


Trail Guide: Well,,,,,,, things are not as before,,,, are they? (smile)

In my last post USAGOLD Forum post (#48858) we noted that the paper gold game was reaching its limits. The BOE was almost asking "what do you want us to do"? The answer came as plain as day as the paper price was driven a little lower in return for a gold sale reduction. Yes, clear as a mountain stream,,,, the unwinding has begun! It will continue until the big event when the gold rules are officially changed. Not much different than when the dollar hit its credibility limit in 1971. As Randy has often pointed out; the US printed gold contracts back then until they (dollars on the gold exchange standard) lost their mathematical ability to be converted into gold.


Auspec: *If the dollar's status is now so similar to what it was in 1971, why would we see the Brazil type hyperinflation now as opposed to the simple ongoing degradation of fiat that we have all come to know and hate? Why the extreme portrayal of the dollar? It's clear the dollar is an old toad and there are young stallions waiting in the wings, but it's hard to see this as an all-or-none issue where the dollar {banana} goes from being the world's reserve currency to being "nada". Where's the middle ground with dual and competing reserve currencies in common use?*

Trail Guide: What's in process now??:

The Washington Agreement placed in context where the Euro system is going with gold. That pronouncement drove home the fact that our Dollar gold pricing system was going to die with the dollar reserve function. The WA placed us "on the road" to high priced physical gold and low priced contract gold. It could have been the end of the LBMA pricing structure, right then and there, except that it would have clocked the global financial structure too fast.

Indeed, our Euro friends helped the system out by giving it some more of the same poison, more paper gold inflation. Yes, all the while since the WA, people have been falling all over each other trying to explain why so much new European gold has entered the market through lending. Yet, all that was mostly lent was more paper credits built upon a failing dollar gold pricing system. You see, they left the maintaining of system credibility [supplying token amounts of physical] to the dollar faction. Kind of strange how gold keeps showing up as part of the US trade deficit? Even if it's only a trickle.

Gold bugs cry that the paper market is not free because government endorsed inflation in this arena is killing its price structure. Almost as if they want fiat gold that less inflated? Well, that's great if your "gold" money is in our modern gold producing industry that's hip deep in committing its product to satisfy these same paper contracts. Yes, this mistake of "hard money" allocation by Western savers is the result of ignoring history and how currency systems evolve. Gold industry investments work if the current fiat system is remaining "in use" but showing price inflation. However, when currency systems fall "out of use" while moving into super price inflation,,,,, the next competing system will side with physical gold! It doesn't happen often, but when it does real wealth in one's hand becomes worth many times investments in "almost gold". Truly, the dollar price of physical gold is going higher than anyone expects. END

*Comments: Again it is easy to see the dollar as losing a large piece of the action, but hard to see its total demise or its falling out of use. The US as the largest military force in the world certainly has its overriding benefits. The US has enormous resources; physical, financial, and spiritual. American creativity and "know how" has changed the world. This country will not turn over and simply give in! Let's look forward to the next 5 years and place probabilities on what is likely to happen as far as the dollar/euro is concerned. I will rank these various scenarios in what I see as their most likely odds of happening:

1} Ongoing MODERATE debasement of US Dollar. {Brisker} Business as {than} usual.

2} Gold and/or Oil breaks away from the dollar.

3} Dual and competing reserve currencies. "Co-Currencies" in Reserves. The currency war that is in clear sight {thanks to ANOTHER and FOA}.

4} Status quo.

5} All-out war that distracts/rescues the dollar and extends its life. Wag the dollar.

6} Dollar merged with euro/backed by euro.

7} Brazillian or Weimar style hyperinflation of the USD, the Big Banana, or the 'little banana'.

What ranking would you give these possible scenarios? And yes, we all know the DEBT is a monster lurking closer and closer! Debt is designed for default as fiats are for debasement. Looking for a catalyst to get the EURO kick started a bit? All that is necessary is for ECB to get rid of a % of dollar reserves about the time the common coinage comes into play. Ouch! But still, "death" of the USD?? At $30,000 POG the US as we know it will be no more, agreed?

Another question comes to mind: What advantage would it be to the Power Elite to destroy the dollar. Yes, a one world government and currency would suffice as a legitimate reason, but the old guy likely has many deeds yet to perform. Do you respond to questions in regards to mentioning the "Power Elite"? Some won't "go there" and that is their free choice, no problema.

The dollar has defaulted twice to date, yet chugs along. What "history lessons" best show us the endline that awaits the dollar? The end of a currency's lifetime always ends in gold debasement? By "super price inflation" are you referring to something much worse than the US in the 1970's? You must be, as that fiasco was "successfully" negotiated. The 13% mortgage wasn't a world stopper. Are we looking for a low probability event that has only happened a few times in history, or a high probability event that has happened EVERY time in history as a currency reserve ages? Odds or the END?

As per gold "industry" investments, they will do just fine at your $360 POG from today's level [gold was at $260/oz. when this was written]. The Romanian deposit that contains 8-10 million ounces should fare well regardless of what currency is "reserve". You stated: "Gold industry investments work if the current fiat system is remaining "in use", but showing price inflation." Are you talking all or none with the dollar as reserve currency of the entire world or reserve currency of none? The dollar will remain in use, imho, until there is a one world currency, even Brazil "uses" their currency of old. So we have the dollar and we have the inflation, and we get gold stock appreciation. Yes, a gold stock is a problem if it must sell gold in dollars and the dollars are TOTALLY worthless, but I'll take those odds, thank you. Please don't misunderstand me, as I have a greater current appreciation for physical {thanks to the brain trust of this fine establishment} than stocks, but just can't see this as 'all or none'.

Maybe a lesson is needed in "how currency systems evolve". The waiter replies: "Sorry sir, we're out of the hyperinflation, but there is ALWAYS plenty of inflation available in the kitchen."

There are many on the Forum that struggle to see a USD "cataclysm" as a high probability event and it does seem to be a KEY question to address if you would. These questions are, or possibly ought to be, in the minds of all of us as we make our financial decisions.

Thanks, ANOTHER & Trail Guide, for your many and fine efforts. I remain, on the trail.*

au{in}spec{tor} Clouseau

FOA (4/19/01; 17:50:29MT - usagold.com msg#65)
Reply

Hello again everyone,

I thought it would be a good idea to make some clear comments and replies regarding my perceptions. Using some questions and thoughts from the main forum will also help. This may make it easier for us all as we "follow in the footsteps"!

Auspec makes several points and contention for me to address. Please read his complete post first (and all the others I'll address). Hello auspec, you write in reference to my hike #61 here on the trail:


auspec (4/19/01; 08:48:52MT - usagold.com msg#: 52175)
-------*If the dollar's status is now so similar to what it was in 1971, why would we see the Brazil type hyperinflation now as opposed to the simple ongoing degradation of fiat that we have all come to know and hate? Why the extreme portrayal of the dollar? It's clear the dollar is an old toad and there are young stallions waiting in the wings, but it's hard to see this as an all-or-none issue where the dollar {banana} goes from being the world's reserve currency to being "nada". Where's the middle ground with dual and competing reserve currencies in common use?*
--------------------


Well sir, I'm going to try and reply in context to the way you asked these questions. Considering well all your prefacing stated before asking for info.

Using the 1971 dollar incident is a perfect way to engage common ground thinking about our contract gold market today. No it's not a perfect analogy, but it's real, real close, and sharpens our understanding and ability to see the subject clearly. Especially considering the tremendous number of different hard money people that read this Centennial Forum. But we must not confuse the point by thinking a similar break today will cause the coming price inflation we speak of.

Yes, after the 71 dollar gold break, we did see some good price inflation. But was that caused by the wholesale cancellation of international dollar convertibility into gold? No! That price inflation was not gold backing related because we had already, years before, been printing dollars far beyond our stated gold to dollar conversion ratio. That spell of price run ups was the result of too many dollars being printed before and after the 71 gold breaking event.

Sure, the gold price run up after that didn't help the dollar's image. But, by then it didn't make any difference what the gold price was. Even if it went back to $10/oz. we were never going back to governing the volume of dollars in supply. Not by using gold, not by silver, not in any way that would fix or slow the presses! We couldn't. Any long term slowdown, then or now, in such an established fiat was well past the politically survivable stage. This is the way fiats work, whether gold backed or not, they always break from strict printing discipline. The history behind us says so and the future before us says so. As an example in dollar terms, look at any five year average of money supply growth from 71 till now. Truly, we were and are printing our way towards the end time of dollar use. The only question was how long would the world keep using dollars? How much longer would the timeline extend?

Some hard money people thought that the world would simply convert to gold itself, in place of dollars. But, the simple fact, as I and most especially Another have said so often, is that the modern world must use a fiat form of currency to operate. And, considering that point, after the 71 gold break, there was no other strong, fluid currency for us to revert to. It wasn't until the end part of the 70s that the Europeans started down the long road of creating something else.

There were times when our foreign trading partners were thinking of breaking away. This is when the US spiked rates. Again, we confuse this action with stopping the inflation presses. Quite the contrary, the killing rise in rates was just a signal that we would not go completely hyper. On our side, the only reason we could afford to take this economy-killing gamble was because oil was still priced and settled in dollars. But that is a whole Another book.

The prestige of many international dollar holders took a real bath because they held dollars in place of gold. When they tried to initially bid for gold, the US and London made sure the price rose fast enough to tell a story to these dollar converters. That is; "bid for gold and it will soar" cutting off your conversion. Sure the US made all sorts of noise about how awful and incorrect the rising gold price was. Even showed their hand at managing the price a little so it didn't go up too fast. All the while saying they were fighting for all they were worth to keep it down! Truly, the last decade shows naive Gold Bugs just how much in control they were and are of this so called "free commodity market in gold". Oh well, back to your point.
---------

You see, the dollar is going to fail now because a good alternative is available now. All this has something to do with the coming new gold valuation, but that new price level is not related so much to gold backing a currency again. (more on that in a min). The dollar is toast because most of the world doesn't like the management policy. They didn't like it in 71, but tolerated it because gold was supposed to keep flowing in repatriation payments. And if they didn't like it back then, they god awful hate it now!

We like to think that the dollar is what it is because we are so good. (smile) But the truth is that for over a two decade period +, none of our economic policy, our trade financing policy, our defense policy or our internal lifestyle policy has pleased anyone outside these borders. We managed the dollar for us (U.S.) and the rest could just follow along.

Our fiat currency has survived all these years because others have supported our dollar flow in a way that kept it from crashing its exchange rate. We talk and think like we are winning the tug-of-war when, in fact, they just aren't pulling to hard. Waiting for their own system to form up.

Truly, most of the world likes the most conspicuous aspect of the euro that we describe as its biggest weakness; its management by several varied nation states. All supporting different thoughts, cultures, backgrounds and perceptions of government policy. Some compare it to the many nationalities in the US, but it's much more competitive than that. It's thought that this mixture will produce a "more good for all" management of a Euro world reserve currency. Truly, because gold plays no part in today's dollar management or the Euro, then political styling is all that's left.

My friends, a national fiat in our modern world only functions if the whole world uses and supports its flow and most importantly likes its management (political styling is the catch word). This support and use of our dollar can and will change faster than many think possible once the Euro is finished. Our dollar is not going to become a "banana" or "nada" in the future, as auspec notes. It already is and has carried this trait for some time now as does every fiat today. The only thing that keeps them from cascading away is world support and use.

Point:
When most of the major players that styled the Euro decide to swing even 1/2 support toward that new money, the exchange rate for our dollar will plunge to its true worth! That dollar value is there now, you just don't see it yet. The price inflation that many (auspec) don't / can't see happening, will be the result of our currency management changing to confront the nature of all the above. The world economic financing, pricing, saving, settlement and opinion is shifting toward the Euro. As this happens the US will have to raise rates ever higher, even as it massively prints more currency to support our internal economy. Our entire economy will slow and fail as this price inflating process moves on. Some will call it stag / flation, but will change that description as it becomes more of a crash / hyperinflation.

Right now, the actions of our fed is telling this truth. We must inflate while we watch the Eurozone enjoy its basically internal trade economy. As other nation blocks embrace that zone, they will pull economic function from us.

You write:

------

*Comments: Again it is easy to see the dollar as losing a large piece of the action, but hard to see its total demise or its falling out of use. The US as the largest military force in the world certainly has its overriding benefits. The US has enormous resources; physical, financial, and spiritual. American creativity and "know how" has changed the world. This country will not turn over and simply give in! Let's look forward to the next 5 years and place probabilities on what is likely to happen as far as the dollar/euro is concerned. I will rank these various scenarios in what I see as their most likely odds of happening:

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


Auspec, before I list your most likely odds, I would like to comment on your above.

We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nation's identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Usually, they function alongside whatever major reserve currency is in vogue. Today the dollar, tomorrow the Euro. Make no mistake, the entire internal US sector can and will function as its currency runs a price inflation just like these third world countries. We will adapt as they have by dropping our living standard accordingly and adopting the Euro as our second money. Also:

The prestige that we have the largest military force in the world does not help our money problem. We talk as if we will let any country die that does not use our money or support our currency. I point out that the British also made such comments and it didn't stop their downfall. Nor the Russians. Also:

I point out that many, many other countries also have the same "enormous resources; physical, financial, and spiritual" that we have. But the degrading of our economic trading unit, the dollar, places the good use of these attributes in peril. Besides, the issue beyond these items is our current lifestyle. We buy far more than we sell, a trade deficit. Collectively, net / net, using our own attributes and requiring the use of other nation's as well. Not unlike Black Blade's Kalifornians sucking up their neighbor's energy supplies (smile). We cannot place your issues up as example of our worth to other nations unless we crash our lifestyle to a level that will allow their export! Something our currency management policy will confront with dollar printing to avert. Also:

NO, "this country will not turn over and simply give in" as you state. But, we will give up on our currency! Come now, let's take reason in grasp. Our American society's worth is not its currency system. Around the world and over decades other fine people states have adopted dollars as their second money, only to see their society and economy improve. Even though we see only their failing first tier money. What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living. In the US this function will be a reverse example from these others. We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an overvalued dollar that we spent without the pain of work.
--------

Your "various scenarios" with mine notes added :


1} Ongoing MODERATE debasement of US Dollar. {Brisker} Business as {than} usual.

----Near term, yes.-----

2} Gold and/or Oil breaks away from the dollar.

---- Oil is already doing so for a year now. The gold market is in the process of self-inflating its paper side of the function. The first minor lease rate signals are already behind us. [March 9, 2001] The ECB and BIS are coming more in control as the dollar faction must either sell its gold also or begin to fold. If they want the game to continue a little longer, the US must not put its gold on the market or the BIS and ECB would bid it with their dollar reserves. Ending it all then and there.------

3} Dual and competing reserve currencies. "Co-Currencies" in Reserves. The currency war that is in clear sight {thanks to ANOTHER and FOA}.

----- I would add that the vision of co-currencies is just a passing function as we get from here, dollar reserve, to there, Euro reserve.-----

4} Status quo.

----- We have not been here in our life times (smile).--

5} All-out war that distracts/rescues the dollar and extends its life. Wag the dollar.

------ As we enter the down side of our economic function (like we are doing now) the massive money printing by the Fed will risk the dollar's slow slide to becoming a super slide if a war breaks out. People run to the best managed world money in a war, not just the one with the current best exchange rate value. In the past the dollar was the one, today the Euro would receive the flow. The US would be risking killing its last bit of dollar timeline with any war today. [unless, perhaps, A) it wasn't an "all-out war" and B) it has the backing of Europe and the Saudis in pursuing the war?]---------

6} Dollar merged with euro/backed by euro.

------ I know a few people that made a lot of sudden money wealth and gave almost all of it to the church (or charity). Others are much more smarter and support the church (or charity) for the rest of their life. Retaining some control over how the charity is used. This is how the EuroZone would handle us. Actually, it's the same way we handled them after the war. We didn't just merge our checkbook into theirs, did we? Net / Net, they will have the wealth to be offered, not us.-----

7} Brazillian or Weimar style hyperinflation of the USD, the Big Banana, or the 'little banana'?

------- Full on, wide open, in your seat, flat out! It's in the pipeline!------

You write and I comment:

Debt is designed for default as fiats are for debasement.

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

What advantage would it be to the Power Elite to destroy the dollar.

-------- Wrong context. What advantage does the Power Elite gain by expending assets to save an already failed currency. Better to do what major players have done for centuries and are doing now, buy gold and evolve your power base to use the next reserve.-----------

The end of a currency's lifetime always ends in gold debasement?

---- In almost every case. Sometimes in the open, sometimes hidden.------

Ok, this is going overtime (smile). I will try to cover more (and others) in a day or so. Also, the question of Another at his keyboard? I reword things from him quite a bit for bare readability. But, his delivery is pure. I don't always pretend to understand it. Then, that's a whole other story (smile)

Thanks
TrailGuide

_______________________________________________________
Sidebar:

The above reference to ANOTHER was because he resurfaced with a series of comments just prior to FOA's post. Here are those comments…

ANOTHER (THOUGHTS!) (04/14/01; 18:08:54MT - usagold.com msg#: 51887)
Thoughts!

To this USAGOLD Forum and Mr. Kosares, good evening.

Thank you FOA for your time and work.

We talk once again my friends. This forum, it grows strong for all ages and nature of peoples. Read they do, from all places on earth. I read and see the knowledge as written, but it be the knowledge we still must see that speaks with greater strength.

Walk the gold trails of my good friend, do I. On my feet are "strong sole" of thick leather, purchased with much knowledge of physical gold. These shoes not go bare before our journey is done. On trail I see your "thin sole" gold investments cast aside and scavenged by beasts. Their owners walk no more as these investments took not this hard road of dollar transition. Many more will wear paper gold wealth thin before this walk be done. Only physical gold will see sun after this storm.

Some say dollar strong and holds much value still. It bends not and is strong and worthy. I say their vision is limited to see only post supporting roof. Not what on roof already or what must be placed on roof. When new Euro currency is done, full weight of dollars will return as your wet snow. In that day, we check curve of this good post, not before.

Some say dollar buys much gold and is strong in metal. I say, paper gold be not metal! We have more dollars than gold in world. As long as your system works, you sell gold to gain real dollars and we sell dollars to gain real gold. All be well in your world and mine, yes? Soon, dollar return in bank and Euro return in bank be equal, no? More later, dollar return become even less than Euro. Tell me about your paper gold value then, my friend. Perhaps, dollar then seen strong in this lesser gold only. You think long and hard on this before end of year?

I think Euro buy much more oil then. We shall see. I will return often now. Discuss our future then.

We watch this new gold market together, yes?

Thank You
Another

ANOTHER (THOUGHTS!) (04/15/01; 18:58:39MT - usagold.com msg#: 51943)
Mr Gresham

Welcome Mr. Gresham. We talk for a time, yes?

You write:

"We who read here generally buy the coins, one ounce and less. The "Giants" you speak of are usually buying the large bars (100 ounce?), yes?"

I ask you, how many of your bars in tonne? This is the small purchase size.

"Is there a limited supply for them to get, and only through the large brokers with their "private wealth management" programs?"

I would say the BIS is best broker, always. It best to sell dollars for gold when gold is offered.

"I am trying to understand why this knowledge you bring is not being acted upon by some others with "deep pockets", such that the markets would be moved, or shortages occur, even before the dollar is seen in weakness."

My friend, you see the gold with "Western eyes". In mind, it be always, "how much currency does my gold bring". In this world of much paper gold, it bring not much dollars yes. In such matter, your currency makers do make your wealth lay low. This dream of much dollar currency for gold is the illusion in the "Western Mind". Your men of "deep pockets" do probe for shortages, however, their wish for low supply is not to be found. Their pockets are full with "credit gold" and sad are they at currency price this brings. It is the fools game to corner paper gold printing press, no? Sir, I stand with no fools!

Days and nights do pass and one morning will bring a dollar price for gold you have never known. In that day, I will cast this currency down and walk with real wealth. In this day, the gold will trade in Euros and no bribe of credit gold will be needed to mark this new money.

Today, I my world it be how much gold does dollar currency bring. A difference in understanding from yours, I think. Today, amount of bullion available for dollars no longer the reflection of bullion dollar exchange, it be now the most terrible bribe for world dollar use. An acceptable deal in most of world, such is real world outside your laws, no?

But, it is here, in act of making extra credit gold, where the "shortage" you speak of, is measured my friend. A good man with one eye does see this time as of but few years and short days. Aside from our Euro political changes, history alone does show all great currencies end with this overselling of credit gold as last of era. This paper gold credit is always for the fools first and last. It value is later reduced to same as currency, along with holders of no gold.

It be our good fortune (and yours) that bullion is offered still. For the simple man, such as I, this wealth is that for kings but more so for his people. For all peoples, gold will be again the wealth of ages.

In this day, at end of dollar era, all do see real bullion sold for sake of market credibility, only. Perhaps too, bank credibility, I think. In this world, the lower this dollar paper price, the more bullion becomes available for credibility sake. It is the good thing for men of "small pockets" and the curse against traders and fools.

I bid you the good fortune of "small pockets" with much physical gold! We watch this new gold market together, yes?

Thank You
Another

ANOTHER (THOUGHTS!) (04/18/01; 06:19:54MT - usagold.com msg#: 52086)
Reply

USAGOLD (04/16/01; 19:15:36MT - usagold.com msg#: 51997)

----- I would also like to take this opportunity to welcome Another back to this Table. The circle is now joined in continuity again -- all around. Already I have added to my own file of vintage "Another (Thoughts!)" with this shrewd observation:

"This dream of much dollar currency for gold is the illusion in the "Western Mind". Your men of "deep pockets" do probe for shortages, however, their wish for low supply is not to be found. Their pockets are full with "credit gold" and sad are they at currency price this brings. It is the fools game to corner paper gold printing press, no? Sir, I stand with no fools!"

The smile of recognition returns to my face as this point is made in these few, short sentences better than I have seen it made in entire articles on the subject. Welcome back, my friend. --------

Mr. Kosares,

Thank you for your welcome and acknowledgment. I add that within this circle many feet have walked and the prints of the Kosares show most lasting impression. I see the stature of this man as American, however no Western mind is found within him. One day all will rush and follow your path before strong tide washes the deepest heal mark from sand.

It be true, my friend, in history no man does corner printing press. Many have taken this path before. Even declare themselves "leaders" of "financial knowledge" and "sophistication", do they. The Gresham does make wonder about such things and asks for reason no one does claim gold from printer?

Such demand be as 100 men with contract asking Spanish farmer for 100 basket of olives where clear examination in field display only 10 basket. Such good reasoning have these men, demand delivery and illusion of wealth to others be none! None ask full collection for fear of illusion to become reality, no? Perhaps, take what offered and wait next year. Better, sell claims for olives to Western investors with little eyes and clean shoes? Perhaps financial knowledge and sophistication of these paper sellers is more considerable than average fool. In the days that come,

"better one olive in house than six blooms on tree"!

We watch this new gold market together, yes?

Thank You
Another

ANOTHER (THOUGHTS!) (04/18/01; 06:41:33MT - usagold.com msg#: 52088)
Reply

Mr Gresham (04/17/01; 10:33:51MT - usagold.com msg#: 52041)
ANOTHER: WA, BIS
Was the Washington Agreement the most significant event in gold since you were last posting in 1998? Do you have any reflections on those events?

Mr. Gresham,

One must weigh the mind of this Randy. It be heavy, yes? Do read the thoughts of the BIS for these same are printed review as #52046. Hold a mirror to these events for reflection. Such descriptions I discuss come next day.

Thank You
Another

[And here are Mr. Gresham's and Randy's posts referenced by ANOTHER]

Mr Gresham (04/17/01; 10:33:51MT - usagold.com msg#: 52041)
ANOTHER: WA, BIS

Was the Washington Agreement the most significant event in gold since you were last posting in 1998? Do you have any reflections on those events?

Who were the players that made the price spike upward so quickly in 1999, and how was it managed back down? (How were so many "fearless" shorts recruited so quickly?)

What is the BIS' role in the "currency war"? Is it somewhat trying to walk the middle of the road? Did the US members take their seats recently as an attempt to manage BIS' involvement, or does this express any measure of US control over BIS?

Randy (@ The Tower) (04/17/01; 13:37:02MT - usagold.com msg#: 52046)
Mr Gresham, nice question

--- "Was the Washington Agreement the most significant event in gold since you were last posting in 1998?"---

If I may be so bold, let me anticipate ANOTHER's answer with an answer of my own.

The most significant event in gold since the dollar's gold default in 1971 has been the successful launch in 1999 of a long-awaited new currency system built upon neutral (meaning, multi-national) management and, more importantly, a floating gold reserve structure that finally abandoned the now obsolete "fixed" gold legacy of the failed Bretton Woods structure.

With this new reserve structure, the prevailing institutional incentive, from '71 to the end of the millennium, need no longer be one of "price suppression" for the perceived market value of gold.

In this light, the most significant element of the Washington Agreement is seen to be NOT the amount of pre-announced gold sales, but rather, the self-imposed curb on gold lending operations by these European central banks. And if you think about it, this action with the Washington Agreement was nearly just a predictable inevitability from the moment the eurosystem committed to provide for freely floating gold reserves. The "tools" of the prior suppression are on the outs. Believe it. The WA simply announced the foregone conclusion in a package suitable for newspaper headlines.

Just as the value of the post-'71 paper dollar has long been propped by the international yet artificial "mandate" to hold these dollars almost exclusively as reserves (acting in tandem with the dollar settlement for oil and the overhanging debts of the "Third World"), through this new currency structure gold (and its price/value!) has now been "officially" set free to replace these dollar reserves (savings).

The reason this full transition has not already occurred is that institutional interest still exists to foster the smoothest practicable transition until that unknowable moment where the final remaining *SNAP* in the adjustment occurs.

Speaking for The Tower and personally, I continue to buy gold with excess funds because I prefer the real wealth of gold over managed paper (and digital) contract currency. As a bonus, the real wealth value of same gold will provide a pleasant benefit upon full completion of the transition in world currencies' reserve structures. (An understatement, to be sure.)

End Sidebar
_______________________________________________________

FOA (04/21/01; 21:12:52MT - usagold.com msg#66)
Of Money and Men

Hello again!

Continuing along with our discussion, clarifying some points and positions, we once again offer some straight talk. Elwood has some points in his Elwood (04/19/01msg#: 52225). Sir, you referenced our last full hike on the GoldTrail #64, quoting first this portion:

FOA: "Many hard money philosophers have pointed their finger at others for the fiat situation we use today. It was the bankers and governments, the kings and cohorts, big business and robber barons or some communist manifesto that forced us to use this type of money. Well, you may not like the process and consider yourself above or apart from it all. You may even declare all of them evil. But, in the end, one fact remains; society may govern itself in many ways over thousands of years, but it has never stopped the evolution that corrupts the use of real money as official money."

Then you write:


------ Thank you, sir, for sharing your deep thoughts. True, your words are, but why is this a reason to abandon the fight for sound money? Surely you must be aware of the massive inefficiencies that will accompany a system with two moneys. There will be two prices for every good, one stable, the other not. Would not the timeline of such a system be extremely short compared to that of a system of sound money even though the sound money eventually becomes corrupted? How is this system better (or even different) than what we have today?---------

Hello Elwood (smile),

The fight for sound money is not dissimilar from the ages old fight for peace in the world. Mankind has been striving for peace over our entire existence and still it does not come. Countless lives and fortunes have been lost and the same battle continues. Perhaps we should reexamine our collective needs and try something different. Truly, what is to be lost? This is the same mind set our new political styling is shooting for. It's a good effort because history is on their side.

Yes, it's a noble effort to try and get the world on a sound money program, but after failing at it for centuries, a little side trip cannot hurt. (smile) Most people, like yourself, say sound money and think sound currency. Usually it's some form of gold backing that makes the currency sound. The trouble is it cannot be maintained. The logic in my words above are evident and the last part of the statement demonstrates the self-replicating nature of our dealings with "sound money". Again, in a restructured form:

""""Society has never stopped the evolution that corrupts the use of real wealth (gold) as it strives to use it as official money""""

Elwood, I don't care if all of it is legal or illegal, moral or not, right or wrong, because the larger issue overwhelms these arguments. That being; we have never been able to control our power structures in a way that disciplines the printing of currency. The Romans alloyed other metals into their gold in a form of modern day paper printing. Even in the so called wonderful days of the various gold standards, be they actual coins or paper substitutes, the world debased the system from the start. Also you write:

----Surely you must be aware of the massive inefficiencies that will accompany a system with two moneys. There will be two prices for every good, one stable, the other not.-----

We never intend to have two moneys. The concept is better seen as the Euro and a wealth reserve. Still, to defend against your thrust, what do we have now? Travel the world, my friend, and mingle in the world of currency. In almost every country of the planet there are several prices for every good sold! All depending on what nation's currency you choose to use. Today's system is working with perhaps hundreds of moneys!

------Would not the timeline of such a system be extremely short compared to that of a system of sound money even though the sound money eventually becomes corrupted? -------

My goodness, we have used a dollar system that has been debased and on the way out for 40+ years. Well before our 1971 gold break, this country was printing IOUs as if they were currency. Yet, the thinkers of our time, the same ones that employ two week trades on the stock markets, all ask for guarantees of decades before considering a new currency? Planners simply cannot employ the logic of a group that trades options, futures, strips and swaps, then asks for longevity before the fact.

-----How is this system [euro-Freegold] better (or even different) than what we have today?---------

The real issue is our misunderstanding and misuse of the term "sound money". That thought has been bantered around for hundreds of years. Truly it does not exist except in the minds of men.

Money, the term, the idea, perhaps the ideal,,,,,,, is something we dreamed up to apply to one of our chosen units of tradable wealth. Usually gold. We could take almost every item in the world and use it in this same "money fashion". Still, this form of trading real for real is just exchanging wealth. It isn't exchanging money as we understand money.

Gold is no different than anything else you possess as your wealth, it just so happened to be the most perfect type of tradable wealth in the world.
So it evolved to be used the most and eventually labeled in the same function of what we consider to be "sound money".

Now, consider that all wealth is represented in and of itself. You cannot reproduce wealth through substitution, like giving someone five pieces of copper for one piece of gold and then have them think they now have five pieces of gold! This is the process we try to perform within the realm of man's money ideals. We have always debased trading wealth by duplicating it into other forms and calling all of it, collectively, "our money".

This duplicating, this replicating, this debasement is the result of taking the concept of a credit / contract function (paying in the future) and combining it with the concept of completing a trade at the moment. Think about that for a moment.

As an example, I'll give you a paper contract to pay you later for some oranges and you give me the basket of oranges. Better said, I just gave you modern man's actual concept of money.

Or… I trade you a basket of apples (or gold) for those same oranges and the deal is finished, done! We have been taught to think that this is also the concept of money trade.

The first uses what our currency system has evolved into, what is really money in our mind. Where the second uses no credit form at all and is more comparable to trading real wealth as the ancients traded using gold.

Contemporary thought has always blurred these two notion; saying that these two methods of trading are one in the same and both forms use the same idea of what we think money is.

Further refined; we evolved our money ideals into a perception that credits and contract payments can be used as if they contain the same value in payment as trading real wealth. They could and can if managed correctly. But we have never managed credit money to match the same proportions as existing real wealth (gold). We have tried to manage this combination of wealth trading and money credit for as long as we have been seeking "peace"!

So:
We use, today, many forms of wealth holdings, all standing right beside our dollar use. Many of these wealth items have and do perform much better than our fiat currency. One has but to use one stock holdings as an example.

You may have $5,000 in cash in hand and in a checking account, while also owning $200,000 of, say, Microsoft? Obviously, the stock is a competing, dual form of currency wealth. Its value rise has overshadowed the gain on your fiat. But, is it driving your currency out of circulation? Seen anyone recently using this superior form of competing wealth to pay for a fill up at the station? No?

We all need and must use some form of fiat currency to operate in this modern world. It makes little difference if MSFT went to $10 or $10-billion, you would still use the currency system in trade as a more efficient form of modern trade. Society now uses these "money" systems without any form of gold backing, not because they are "strong" or "stable", but because they work more than they fail.

Still, over the last several decades, we now have come to expect an attempt at "political styling" our fiat money that benefits more than one nation block. Further, we expect a wealth asset to not so much stand behind the system but to measure its speed of failure or success. Knowing full well we will accept and expect some loss of value as payment for this use convince of Fiat Euro.

This is the road ahead. A fiat no different from the dollar in function, yet a universe away in management. A wealth asset that also stands beside this money, yet has no modern label or official connection as money. In this way modern society can circle the earth, to once again begin where we started. Having learned that the concept of wealth money and man's money were never the same. We shall see.

Thanks
TrailGuide


FOA, you need not walk alone any longer. From where I sit, it sure seems like the rains have come and the ground is beginning to open. I, and many others here, would give anything for you to share your latest thoughts in proper posts or simple comments. You can email me at fofoamail@gmail.com if you want. How wonderful that would be. :) <--That's me happy!

Sincerely,
FOFOA

(All emphases and [brackets] in the above posts are mine)

257 comments:

1 – 200 of 257   Newer›   Newest»
Tyrone said...

FreeGold always first!!

numeflua said...

OT: Basic question about "freegold"

I've read all the archives but still don't know how this "freegold" comes about. If freegold means fiat currencies float freely against gold, aren't we already in freegold? Have we been in freegold since 1971?

If not, what has to change to reach freegold?

Texan said...

FOFOA,

I think you should see Jim Grant's op-ed in the NYT.

Two Sundays in a row - two HUGE op-eds.

It is now in full play. Let's see how the easy money responds....

Tyrone said...

The US would be risking killing its last bit of dollar timeline with any war today. [unless A) it wasn't an "all-out war" and B) it has the backing of Europe and the Saudis in pursuing the war]

How do Iraq and Afghanistan play into this, if at all?

Paul said...

"Also, the question of Another at his keyboard? I reword things from him quite a bit for bare readability. But, his delivery is pure. I don't always pretend to understand it. Then, that's a whole other story (smile)"

Was Another using Yodish (Yoda-speak) as a disguise? There are many online English-to-Yodish translators available on-line now. Was Another using an early prototype, which FOA then reworded for readability?

In honour of Another and his experiments in early Yodic identity shielding, the following comment has been rendered into Yodish.

Allow debt defaults to destroy the euro system, the ECB will not, but walk right to the very edge and peer over, they will. Purpose, this brinksmanship has. Want its major reserve asset to appreciate as far and as fast as possible, the ECB do. This revaluation, dependant on fear, both devalue the euro and recapitalize the banking system, will. But, also destroy the $IMF system, will it, so be seen to promote it the ECB must not. Afoot, a very delicate game is. Delicate, but for the highest stakes in history, it is played.

FOFOA said...

Hello Paul,

See this comment: July 28, 2010 3:08 AM:

"Then, a month later, after his work on the new Yoda-Speak Generator was finished, ANOTHER returned to the forum..."

Paul said...

Ha Ha FOFOA.
That's funny. That's the same translator I used. Great minds think alike.

Paul said...

Articles like this

http://www.nytimes.com/2010/11/14/opinion/14grant.html

this

http://www.telegraph.co.uk/finance/comment/rogerbootle/8132581/At-least-we-seem-no-nearer-to-falling-for-the-gold-delusion.html

and this

http://www.guardian.co.uk/business/2010/nov/08/gold-standard-strong-reasons-against-it

are coming thick and fast now. All of them are arguments for or against the re-introduction of a classic gold standard.

What one realizes, after reading A/FOA/FOFOA and the gold trails for only a few short months, is how embarrassingly simplistic the current analysis of the commentators is. Like this for instance;

“To reinstitute a modern gold standard today would take time, too. The United States would first have to call an international monetary conference ... the delegates could get down to the technical work of proposing a rate of exchange between gold and the dollar (probably it would be even higher than the current price of gold)”

Duh, you don’t say?

The level of the debate around Gold and the current financial crisis is just so basic it makes you laugh. It’s like watching rats trying to find their way out of a maze. However, the great thing is that at least the rats have started to look for the exit. And once one starts looking, it doesn’t take too long to find the answer. I think the world has started looking in earnest.

Has anyone read an plausible description of Freegold in a MSM article? If not, lets award a prize to the first MSM commentator to "get it". Any ideas for the name of an award?

Texan said...

Yoda speak is apparently "OSV" word order, and English, Dutch, and German all occasionally use this word order.

Yes Paul, the chickens are coming home to roost.

Texan said...

Paul, JG is also writing for THE paper of record (still). So he is naturally going to be extremely simplistic and try to make bland statements to avoid having his oped dismissed as the ravings of a goldbug.

What he is saying is extremely profound in that it is almost a follow up "playbook" on how one MIGHT start to implement what Zoellick said in his oped the previous Sunday.

Of course he knows the price would be much, much higher if this was implemented.

Ender said...

@numeflua

Good day and if you don’t mind.

“If freegold means fiat currencies float freely against gold, aren't we already in freegold?” Freegold means more than this as you will surely discover in time. Today, gold is shackled in the futures markets and made serve the strong dollar. In time humanity will rediscover gold via the loss of function of the dollar and the roll of settlement will ‘balance the books’.

When the world starts thinking (and talking) about gold as a wealth (reserve) asset and not as a currency, we will be on the road to a market driven discoverable price for gold.

Every coin that you acquire is another coin removed from the bankers pool of minimally backed paper gold.

Take advantage of your strong dollar while it still is.

Paul said...

Hi Texan

Surely James Grant would be taken more seriously if he didn't propose returning to a gold standard?

"The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it."

His view will be dismissed as the ravings of a goldbug, rightly so.

I just read the piece again.

"If the classical gold standard in its every Edwardian feature could not, after all, be teleported into the 21st century, there would be plenty of scope for adaptation and, perhaps, improvement."

Interesting. Maybe he's not quite as raving as first meets the eye.

costata said...

Texan,

From Jim Grant's op-ed:
"For a convertible currency is a sophisticated, self-contained information system. By choosing to hold it, or instead the gold that stands behind it, the people tell the central bank if it has issued too much money or too little. It’s democracy in money, rather than mandarin rule. (My emphasis)

A single word changed and he's there:
..... By choosing to hold it, or instead the gold that stands beside it .....

FOFOA,

Thanks for another great post. I had forgotten that line where FOA promised to return. Wait and see I guess.

Ender said...

@ Martin (Nov 10, 10:15AM)

“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.”

Marin, If you have not discovered a reasonable answer to your questions, I hope you’re willing to consider some of my thoughts.

International trade is preformed with goods and services denominated in currency. Billions worth of goods may be exchanged every month and the economy that is a little more productive is the one that ends up with ‘savings’.

In today’s system, those that save currency end up paying more tax on their savings relative to the amount of time that they hold their savings. This holds true for both the businessman and the central banker. And, as we’ve all witnessed, if the savers retain their ‘claims on the system’ too long, the claims will eventually overwhelm the issuing economy. The claims will lose their value.

To prevent this and to continue to reward those that are overly productive, settlement needs to be offered. This is where gold comes into play. In a Freegold system, there will need to be open public markets where the savers can settle their ‘claims on the system’. The savers can redeem their currency for fair market prices in the issuing economy.

The US economy is fairly efficient. It should fare well in a settlement system. It is the political influence that will need to be rethought and, possibly, reworked.

In a Freegold system, the gold is never really gone. If the economy becomes so bad that there is nothing else to offer for the currency, than the price of gold in that economy will surely be astronomical. Human ingenuity will balance things out in the longer runs for there are always over productive people that find ways to bring the gold home.

The standard of living in the US may change for the common folk, but empowering the means of saving for the over productive will be a win everywhere. Economies will be able to rebuild based on their merit rather than political influence.

Ender said...

@Martin (continued)

“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).“

Gold should be thought of as a wealth reserve. It will not be used to cover political and social obligations! Governments create currency to do this. If the politicians hold true to their promises, it will suck the value out of every US fed note savers hold. Savers are starting to figure this out and they are taking settlement now, rather than waiting to redeem their claims later.

To further your research in this area, as Another and his friends have taught us, the dollar is so strong in gold that there is not enough gold available for the big boys to buy. The big boys can’t take settlement, thus they are losing function of their savings. They are forced to stay within the system. You, on the other hand, can settle your claims AND take advantage of the strong dollar in the process.

Blondie said...

@Paul,

"The level of the debate around Gold and the current financial crisis is just so basic it makes you laugh."

It's incredible that it gets published at all, some of it.

I have just been having an interesting discussion with Shameful on a recent ZH thread, where he has just come up with the following gem:


"Ok this just hit me like a ton of bricks. We all know about the swap lines from the Fed to EU banks. This makes little sense, aside from system risk and really that could be the ECB handling it. However if looking at Freegold I there is a rational. The EU banking system could be holding the $IMFS hostage! "Give me dollars or we pull the plug now and kick on freegold". I could still see them putting a bid in for gold, but it would make sense why the Fed is basically handing them dollars. Kick the can and all. I notice Trichet is remarkably cool with QE2 while the rest of the world is screaming bloody murder. So now I wonder if the ECB is holding the $IMFS hostage..."

ShockonT said...

Tyrone:

The wars in Afghanistan and Iraq are supported by the EU and most importantly, the Saudis.

Iran (Shia) and Saudi Arabia (Sunni) are factions that mix much like water and oil.

Consider that when the supply of physical gold for oil became constrained, the dollar faction had but one opportunity to keep the system "going". In place of (XX oz. gold + YY $) for oil, now the equation becomes (X oz. gold + YYY $ + the service of the US military). NATO, aka the US military, is being used as a "strong arm" for the House of Saud to counter-balance the rise of Persia...

Iran is contained on its borders by the arms of the dollar faction...limited in its ability to threaten the House of Saud, yet dangerous enough to prevent popular outcry for withdrawal of forces by the populous of the dollar faction.

There is a significant value in maintaining one's sovereignty, especially when you sit on 25% of the global oil reserves.

ShamefulPath said...

Blondie,

I was going to post that to see what everyone thought of that? Would be quite the move if the ECB is going to force the $IMFS to further grind themselves into dust to save EU banks to delay Freegold a little while.

Paul,

Naturally the ECB would be better served to hide in the shadows, but they could pull the plug whenever they want. Just put a Euro bid under gold and let one of the periphery states default (Ireland, Portugal, Greece). Gold would rocket up in Euros taking the Dollar price with it. Would force a crash in the physical market and the Euro would emerge into the Freegold world in the following weeks. Few could accuse them of causing it since to most it would look like they blew up first because of debt problems and competing interests in the EU but managed to come out of the problem first and in an inventive way. Greece would be perfect of this as they have a fair amount of gold and I believe Portugal does as well.

Assuming I'm getting the system down right.

Blondie said...

@Shameful,

Assuming you're getting the system right, your description seems remarkably congruent with latest European developments, and with Costata's observations posted by FOFOA near the start of the post above.

Blondie said...

Potential award name:

The Golden Floater

Blondie said...
This comment has been removed by the author.
Paul said...

Blondie, ShamefulPath

"A mechanism will now perform its sole function."

So that mechanism gains strength from allowing it's member to drown. That's ruthlessly brilliant.

"The Golden Floater"
That's good. Awards night to be held at the Hollywood Toilet Bowl.

Dave Narby said...

@Shameful

If you could indulge my ignorance, perhaps you could elaborate a little on this? My understanding was that the IMF was the world's loan shark. How can the ECB force the IMF to 'further grind themselves into dust'?

@Paul re: Rats in a maze.

First rat to panic out the exit wins.

ShamefulPath said...

Dave,

Ok theory goes like this. We know there are swap lines and the ECB seems really down with QE2 despite Germany screaming about it. Also the IMF is bailing out Europe, money which largely comes from the US. Now why would the $IMFS bailout out the Euro? The Euro could take the hit and bail it out themselves, but they don't.

My theory is the ECB could at any point pull the trigger on the $IMFS and bring in Freegold. The scenario I described above with bidding gold in Euros and letting a state fail would kill the $IMFS. The reason it would kill them is it's big enough to force gold into hiding and break the COMEX and LBMA. So the world would go into a panic, but after gold trading in physical kicks up the ECB and member states hit the ground running. The events would even look totally natural. Panic in EU country, gold is bought and goes into hiding. ECB uses system to revalue gold, and EU comes out swinging.

So the $IMFS don't want this to happen, it ends their game when paper gold dies. The game is extend and pretend. So to save the $IMFS system they must play the ECBs game. The ECB is basically blackmailing the $IMFS. The EU banks get access to swap lines from the Fed and bailouts from the IMF. It's a no lose situation for the ECB. Either the $IMFS play ball and bail out EU institutions or they scream "No Mas!" and the ECB takes down a member state and ushers in Freegold.

The best thing about taking down a low end member state is it does absolve them of any guilt in the eyes of the public. People are not going to think they did it on purpose, they won't think that deep. And what is the $IMFS going to come out and talk about the blackmail? There is so much blood on their hands they will be to busy running or hiding, not standing tall and calling the ECB out. Because the ECB will catch blame for not figuring out this plan sooner, they'll be called incompetent. But the $IMFS will be seen as the bad guys.

holdinmyown said...

@Shameful
How could the BIS & ECB allow this if it would blow up one or more of their major banks? The problem is that the Euro banks are among the most levered in the world.

numeflua said...

Ender,

Thank you for your response. That does help clarify things. Let me see if I understand more clearly:

Currently, the price of physical gold is suppressed by paper gold as many more paper claims exist than their corresponding amount of physical gold. The market is in the process of discovering this. As it does, these paper claims will be seen for what they are: empty promises.

Once the paper gold market blows up, then the true price of physical gold will be revealed. And that will be freegold?

Blondie said...

@Shameful,

Sounds pretty plausible to me. Excellent explanation.
You've got some awkward pieces to fit.
And here I was trying to convince you why Freegold was inevitable, LOL.

@holdinmyomn,

Ultimately, (most of) the banks are toast anyway. CBs are all they really care about. And all the EU CBs have pretty healthy looking gold reserves...

Blondie said...

@numeflua,

"Once the paper gold market blows up, then the true price of physical gold will be revealed. And that will be freegold?"

In very few words, yeah.
The implications of this are... unprecedented.

Paul said...

Another Green Day classic;

Summer has come and passed
The innocent can never last
wake me up when September ends


http://www.youtube.com/watch?v=JHa16644e-k&feature=fvsr

radix46 said...

Excellent article and comments today!

I was particularly taken by ShamefulPath and ShocktonT, and by an extrapolation of these scenarios. Could this be:

Pre-emptive strike on iran by Saudi faction as the protection of the $IMFS machine is weakened by freegold, in an attempt to get a first punch in during the presumed chaos of the transition?

Talking of which, would anyone like to attempt a projection of what the transition might look like, not on theory basis, but a description of what daily life will be like for the average citizen, not holding gold, totally unaware, worried about their kids, mortgage etc during and after this transition?
On a system-level, would anyone like to attempt an explanation of how the UK might fare during/after freegold ?

ShockonT said...

@ radix46

I doubt you will see any significant military action by the $IMFS against Iran. The $IMFS needs an intact Iran to threaten the Saudi royals just like it needs Osama Bin Laden "at large" to maintain its waning popular support for it's occupation of Iraq and Afghanistan.

If Iran falls, the Saudis no longer need the US Military to defend them.

If the Saudis no longer need the $IMFS, then key support for the USD is lost and the phase transition begins.

radix46 said...

ShocktonT,

I was referring to the period of transition itself, where the $IMFS is failing/has already failed, hence the Saudis no longer have that military protection. Might they (or one of their proxies) be tempted to attack Iran to protect themselves?

In this line of questioning, I am attempting to work out how orderly/disorderly the transition will be, in terms of every day life, especially for the Western countries.

ad said...

Interesting comments about the G20 meet from the South African finance minister.

Gordhan said that while last week's G20 meeting had not been able to come up with conclusive agreements on currency dynamics, a great deal of ground had been covered.

"There certainly is a clear understanding that the kind of idea that World Bank president Robert Zoellick was talking about - on the world needing to look at the currency system differently - is gaining lots of favour and attention," Gordhan said.

http://www.fin24.com/Economy/US-stimulus-still-a-worry-Gordhan-20101115

I mean he specifically mentioned the Zoellick proposal and it was covered and discussed favourably despite all the catcalling from various economists. Interesting..

Greyfox "It's the Debt, Stupid" said...

@ Blondie & Shameful
"Ok this just hit me like a ton of bricks. We all know about the swap lines from the Fed to EU banks. This makes little sense, aside from system risk and really that could be the ECB handling it. However if looking at Freegold there is a rational. The EU banking system could be holding the $IMFS hostage! "Give me dollars or we pull the plug now and kick on freegold". I could still see them putting a bid in for gold, but it would make sense why the Fed is basically handing them dollars. Kick the can and all. I notice Trichet is remarkably cool with QE2 while the rest of the world is screaming bloody murder. So now I wonder if the ECB is holding the $IMFS hostage..."



Possibly an additional alternate motive for the swaps is to insure the U.S. has sufficient foreign currencies (Euro, ect) to purchase necessities (oil, etc) during the transition period to Freegold. With the Yankee dollar “tits up”, the U.S would need an acceptable currency to purchase oil without having to lose it’s pre-revalued gold. You wouldn’t want the nation with the biggest “guns” being without their basic needs. The U.S. military is strong enough and the leadership is dumb enough to make some really uncomfortable decisions for ROW.

holdinmyown said...

Blondie
"Ultimately, (most of) the banks are toast anyway. CBs are all they really care about. And all the EU CBs have pretty healthy looking gold reserves..."

Sorry ... I don't buy it. If the banking system fails then the Euro fails along with it. In a credit based fiat currency system the currency cannot exist without a functioning banking system. Perhaps the only way that Shameful's idea could work is if the Eurozone replaced its failing private banks with a public banking system as Greg suggests.

DP said...

holdinmyown: Sorry ... I don't buy it. If the banking system fails then the Euro fails along with it.

If commercial €-based banks should fail, their extended €credits (I mean the accounting entries of the banks, not physical € notes) will be the thing that collapses. That will be deflation. The € is the 1930's gold that the banks themselves do not have and cannot print for themselves. Even their local sovereign government cannot print them, politic as that might be at home.

In fact, given that no sovereign politicians are able to print them up to paper things over, it seems to me that if a €-based bank suffers a run, the demand for €s (ECB ones, not commercial bank credits) is going to go UP, not down. The ECB has one mandate: monetary stability. The Euro would get MORE precious, not less. Given they have that mandate, and the demand for €s goes up, they will legitimately introduce more € into the system in order to meet their mandate (not to just paper over inconvenient TBTF issues). It won't be inflationary, it will be counterbalancing the deflation. ("Like the shock absorber in your car.")

The difference compared to the Dollar is that the US will without a doubt print the Dollars to buy the bad debts and transfer them onto the taxpayer shoulders, before there is a real deflationary force and any scavenger hunts for the required FRNs under mattresses. This is not a matter of opinion of speculation, this is what we see already. The politics ensure they couldn't NOT do so. This would of course be inflationary, and has nothing to do with maintaining monetary stability. Quite to the contrary.

Again, please someone tell me where I have misunderstood? There is part of me that hopes I have this all wrong.

Roual said...

AR.

Now here is a thought experiment for you, and yes this is not really related to the HO. (Where should this go anyway ?) Let's take Japan for example. Japan has debt at about 250% of GDP, and a currency that is way too strong.

So what will happen if the Japanese Central Bank offers to pay ¥100 million to all comers that delivers one troy ounce of gold to its HQ in Tokyo ?

Well, first of all Mrs Tanaka will dig out her Krugerrand and haul off to HQ for an instant cash bonanza. After all, ¥100 million is equal to about 20 years of Japanese salary earnings. And probably Mrs Tanaka will pay off her debt, and then go shopping in the Ginza district.

But there will still be some money left, and she will invest it, and she will try to be a bit risky, and that means Mrs Tanaka will throw some money at the Stock Market ... I wonder how many such Mrs Tanaka's are in Japan ?

And then there is Mrs Jane Doe with her 3 boutique shops in 2 overpriced shopping malls, that's just making ends meet selling knock-off Chinese Garments. And then Mrs Doe hears about the superior quality of kimono material ... and she can buy a year's supply with some petty cash, if she'll just rush off for a gold Maple Leaf at the nearest coin shop ...

So the Japanese economy booms, there is a massive influx of gold, and since the Yen thus created, does not necessarily leave Japan, the Yen will still trade at normal levels on the Forex market.

Oh yes, with the 765 tonnes of gold that Japan has, it can retire all of its government debt, with half of these holdings. And 90% of Japanese Government Debt is held domestically. Everybody wins methinks.

It almost sounds too good to be true. What am I missing ????

ShamefulPath said...

Blondie,

I never said it could not happen. I still just have my doubts about the specifics and it's lifespan. Noting lasts forever. I'm biased towards wanting to see it so I must attack it aggressively to see where I can find faults. After all most of my savings are held in gold. Just trying to keep an open mind here.

Banks!

Ok guys the banks cannot be saved. Look at their books it's a nightmare horrorshow of toxic waste. Now in the case of dollar denominated debt no problem. After the crash the dollar will get shredded and as FOA points out they will just print to cover it. Now not sure it will be the same for ECB. But even still if the ECB lets the Euro get tanked that would not destroy the system. So gold goes to 100,000 Euro an oz, so what? The banks can then sell their gold and recapitalize their banks, or nationalize them and capitalize them, or just let them fail. It will be a lot of capital losses around hte world. Why not let them write down their bad debts and use it to their advantage?

Bad debt will be purged one way or another. If the ECB uses a default to pull the trigger why not let the banks come down? They could institute a new EU level or national level banking system to kick out Euros. The buildings would still be there even, just change the name :)

ShamefulPath said...

Roual,

If they just made that announcement then everyone with Gold will FLOOD into Japan till their are either forced to stop buying or the Yen gets revalued on the Forex until selling Gold to Japan is no longer a good idea. Because Yen would leave the country, still need to buy commodities after all.

The Yen is not a commodity the same way oil is. Yen can always be created out of thin air, oil cannot, so there is no fear that 600,000,000,000 barrels of oil will show up out of nowhere (like QE2). This is why it could theoretically work for Saudi Arabia but not for Japan.

S said...

In the context of oil, the $IMFS, Saudi/Iran nexus (War option/preemption) ignores the possibility of peak oil. Such a consideration changes the entire dynamic of the positioning especially as it relates to Iran's undertapped potential? The recent spate of articles coming out of Saudi officials claling peak ouil preposterous are a sure tell that they feel the need to push back. The US nuke deal in India within stones throw of India exiting the IPI pipeline probably also isnt a coincidence.

What to make of the BOE role in all of this? Fed light? Or simply playing both ends off the middel. in the context of looking at the enormous challenges facing the PIIGS, the UK is always left off the discussion. If this is a fait accompli, freegold that is, then London has to be thinking of retaining the seat of clearance. Afteall what else besides broken engines do the export?

On the swap lines interesting that as the crisis was in full swing in the US, countries like Portugal and Spain were disucssing issuing dollar backed bonds. Contrary to the IMFS being held hostage, one might argue with the derviative complex settling in dollars and being a far bigger issue than the "minor" sovereign debt issue, the eurozone banks/sovereigns are in fact capitve to the $IMFS web of derivatives. While such logic is reasonable, it does reason that the eurozone could still play the gold card by triggering an event via default via fraudulent conveyance? A virtual M.A.D scenario.

Edwardo said...

Regarding Jim Grant, he has, in my experience, a tendency to analyze things such that his analysis leads to clear conclusions that he subsequently veers away from.

Being a part of-wanting to be a part of-the mainstream (media) has its limitations.

David said...

Has anyone seen this animation? The author agrees with FOFOA and says gold will be revalued to $100,000/oz. The author had never heard of FOFOA until I mentioned him two days ago.

Here's the link.

http://www.youtube.com/watch?v=0TkFnL0HtL4

Edwardo said...

Shameful Path, what you have described with respect to the putative dance between the European monetary authorities and the $IMF isn't blackmail, it's extortion. Blackmail involves the threat of releasing some embarrassing or incriminating information if someone doesn't do one's bidding.

Extortion, which is far more common, and seems to be the preferred tool of gangsters everywhere, simply involves threats of harm and/or injury.

holdinmyown said...

Hello DP

"If commercial €-based banks should fail, their extended €credits (I mean the accounting entries of the banks, not physical € notes) will be the thing that collapses. That will be deflation. The € is the 1930's gold that the banks themselves do not have and cannot print for themselves. Even their local sovereign government cannot print them, politic as that might be at home."

Areed but this is just one scenario. You are assuming that the ECB will not or cannot (politically) print new ECB notes. This would destroy the German export machine as well as all of Europe's. It will be interesting to see if the German fear of inflation is strong enough to overcome the political pressures from the loss of jobs that such a strategy would cause. The europeans are already starting to protest/riot over austerity, pension reforms, increased tuitions, etc. What do you expect will happen when unemployment rises to over 20%? Will the ECB still refuse to print?

No, I believe that it is more likely that we will see hyperinflation in all fiat currencies as all currency blocks try to match (or outdo) the debasement of all other blocks. I don't believe that we will see hyperinflation in $IMFS while the Eurozone experiences a killing deflation.

Alan2102 said...

Most of you here may already have seen this, but in case you haven't: an amusing cartoon story about TPTB raising the price of gold to $100,000 per ounce (and silver to $6600)...

http://www.youtube.com/watch?v=0TkFnL0HtL4&feature=related

Midas II said...

To the europhobes:

1) Swaplines are RECIPROCAL loans. When the FED and the ECB open a swap line, they exchange currency of equal value, and pay eachother the market's interest of each currency for the duration of the swap line (usually one or a few months). When the line is closed, the FED gets it dollars back and the ECB gets its euros back. Swap lines don't increase liquidity as such - they only increase liquidity in a particular currency in a particular part of the world. This helps stabilize exchange rates and it is of vital importance for the dollar's role as the global reserve currency; nations won't use the dollar to pay for their imports or charge for their exports if temporary scarcity, e.g. due to speculation or popping bubbles, can quickly drive the price up (or down) to unsustainable levels.

2) The ECB would be insane to do anything that would devalue the dollar! Not just because it would kill their exports, but simply because European banks, pension funds, investors, corporations, etc, hold trillions of USD-denominated assets. They'd only take themselves down! What few Americans seem to realize is that most of the problems in the European banking system did arise not from any deleveraging in the EU economy itself, but from the American housing market crash. Europe holds more than 50% of American mortgage backed securities, and is paying the price for that just like US banks and investors do.

Paul said...

Ad

That is an interesting report on what the SA finance minister said.

"There certainly is a clear understanding that the kind of idea that World Bank president Robert Zoellick was talking about - on the world needing to look at the currency system differently - is gaining lots of favour and attention," Gordhan said.

He suggested that the world was going through a period of transition to a new set of dynamics and systems regarding currencies.

He said leaders continued to discuss what could be the right policy mix to enable them to move from "the old normal to the new normal."

So now we have Finance Ministers openly discussing Zoellick, new currency systems, and policies designed to transition from old to new!

I’m intrigued by Roual’s Japanese scenario. Sure, if it’s done in isolation, the Yen would blow up the FX markets. But if all CBs agreed on a set of prices, or starting prices, that reflected existing FX rates, how would that play out? Does the discussion Gordhan describes centre around what price each central bank sets for physical gold?

Still needs to be "chosen" by the people though, or else major political backlash from non gold holders. Hence the very subtle positioning. If we continue to see MSM articles and establishment bankers and politicians name dropping gold in relation to a new system, then game on.

Blondie said...

@Shameful,

Indeed, you never said it could not happen. When we began our exchange though, this appeared to me to be your position. Looks to have been beneficial, in any case.
I too endeavour to keep an open mind, but this can be a challenge re: Freegold, as the contrary points continue to fall to the infinite resolution. The presence of a devils advocate is most constructive.


@Edwardo,

I think Greyfox has a very good point above regarding the swaps and the fact that the increased US holding of Euros through these swaps recapitalizes the US currency wise for commodity purchases through the transition, without having to part with any gold. (ie. gives them a usable currency reserve in event of US$ crash).
Not really anything more than a mutually advantageous arrangement, rather than extortion.
Meaningful nevertheless.


@FOFOA,

Some things I gleaned from A/FOA in this post, as per your request as the top:

Rising USD/Gold in 1980 was the US sticking it to those who would bid for gold by showing that they would not be able to secure the reserves before the price went into orbit.
“You want some gold, you support the dollar while you collect it up”. So Freegold was on the US agenda even then. They definitely still have their 8000 tonnes, IMHO, and probably more. I’d wager Uncle Sam is behind Cash4Gold, as I have stated before.

The CBs have bought time. About 30 years so far. CBs only care for the biggest picture.

ROW hates the dollar, and its exorbitant privilege.

Everyone has agreed to support dollar while they build gold reserves on the cheap, in a controlled fashion.

The rise of USD/Gold is the folding of the US, in a controlled fashion.

Much of this seemed self-evident to me, but there is no doubt more I have not seen in there.

I trust others have more to add to the list?

Blondie said...

@ Paul,

Being that this was the South African minister speaking, you'd have to assume that SA have been very much "in the loop" re: Freegold all the while, what with their giant gold reserves; and that their current poor rate of gold extraction may not be accidental.

holdinmyown said...

Ad, Paul, Blondie

As a counterbalance to the comments of Gordhan, SA Finance Minister, you may like to read the comments of Mark Carney, Govenor of the Bank of Canada (Canada's CB). He apparently said that "gold has no role to play in the international monetary system". Of course since Canada is a charter member of the $IMFS what else would you expect him to say?

holdinmyown said...

Of course under Freegold, gold does not have a role to play (officially) in the international monetary system. Any country would be free to use silver, copper, grain or whatever in addition to gold in order to balance their currrent accounts. It is just that 5000 years of history and the unique properties of gold will ultimately prove him wrong (unofficially that is).

Perhaps Canada really has no need to hold gold reserves as they have had a pretty well balanced current account over the past 50 years or so. They have had both deficits as well as surpluses that tend to cancel out over the long run (I think ... though do not have hard facts to back this up). During the past decade they actually used their surpluses to pay down federal debt. What a concept! I thought that sovereign debt was created to never be repaid.

holdinmyown said...

Sorry ... I meant to post this link with the post above

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/11_Bank_of_Canada_Governor_Rejects_Gold_as_Money.html

costata said...

SDR as a "solution" dead in the water?

http://jessescrossroadscafe.blogspot.com/2010/11/imf-reveals-new-sdr-weighting.html

Mike said...

@holdinmyown

Mark Carney backs that up with one of the lowest gold reserves in the world (3.1 mt) for a CB and a very small percentage for international reserves at 0.2% for a CB balance sheet.
so im not exactly sure why Canada has very little reserves but by keeping it low they support the $IMF system to those of the Fed and the UK, by giving little value to gold. They probably do this knowing they still have gold in the ground just in case and perhaps nationalize. i am sure the other commodities they have also might play a role.
they had 800mt in 1980 if not mistaken.

living in canada i am kind of sad by our CB's talk about gold and how that might affect the local citizens that believe in it in the future. what will be canada's take on freegold? perhaps the same as America's when the time comes i hope.

Mark Carney in a speech last month
http://www.bankofcanada.ca/en/speeches/2010/sp100910.pdf
said the following about restoring faith in the international monetary system.

"Rather than turning our backs on
financial globalization, we need to build resilient globalization by changing the design
and operation of both the international monetary and financial systems"

"a new reserve asset is not required. Over the longer term, it is possible to
envision a system with other reserve currencies in addition to the U.S. dollar. However,
with few alternatives ready to assume the role, the U.S. dollar can be expected to remain
the principal reserve currency for the foreseeable future. Despite the exuberant pessimism
reflected in the gold price, total gold stocks represent only US$1 trillion or about 10 per
cent of global reserves and a much smaller proportion of global money supply.7 The
renminbi’s prospects are moot, absent full convertibility and open capital markets, which
would themselves likely do much to reduce pressure for a change."

"At first glance, Special Drawing Rights (SDRs) would be an intriguing alternative reserve
asset.8 Using SDRs appeals to a sense of fairness, in that no one country would enjoy the
exorbitant privilege of reserve currency status. Like a multiple reserve currency system, it
may reduce the aggregate incentives of countries that supply the constituent currencies of
the SDR to run deficits. In addition, there appears to be no technical reason why the use
of SDRs could not be expanded.
However, merely enhancing the role of the SDR would do little either to increase the
flexibility of the system or change the incentives of surplus countries.9 Changes to
reserve currencies would not increase confidence in the global financial system. More
generally, alternatives to the dollar as reserve currency would not materially improve the
functioning of the system. While reserve alternatives would increase pressures on the
United States to adjust, since “artificial” demand for their assets would be shared with
others, incentives for the surplus countries that have thwarted adjustment would not
change.
The common lesson of the gold standard, the Bretton Woods system, and the current
hybrid system is that it is the adjustment mechanism, not the choice of reserve asset that
ultimately matters."

Casper said...

Hi Mike..

I don't want go to some wierd conspiracy theories but you do realize that Carney is a former Goldman Sachs executive? Like it or not Goldman is one of the main pillars that supports $IMF system. Incidentelly he was involved in consulting Russia in 1998 during their financial crisis when Goldman was playing heavily against Russia. If you ask me Putin still has a grudge towards certain western bankers/individuals which may play a role in the transition.

DP said...

Good morning holdinmyown

I agree that it is far from impossible for any body of men, potentially including the ECB, to just decide to change course and do what is begged for rather than what they have previously said they will do.

However, it remains the fact today that the ECB has one objective only. This just copied from the ECB's website a moment ago, so they definitely haven't changed their objective since I last heard, unless it was so recently that even their webmaster hasn't heard yet. I read here recently someone's comment that the Central Bankers are a breed apart from the Politicians, and I would agree wholeheartedly with that sentiment.

Objective
The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.


(http://www.ecb.int/mopo/html/index.en.html)

So it seems they aren't expecting to change tack any time soon. Monetary policy in Euroland is separated from the politics of any nation state. As you say, if anyone in Europe is going to suffer loss of export competitiveness and through that come to beg for a lower FOREX rate, it would be Germany. However, bear in mind the Germans have a cultural aversion to inflation. There is no way they would ever be popularly demanding inflation, short of some truly heinous disaster that would totally warrant the risk.

I think we should also bear in mind the US isn't the only export market in the world to sell products into, and the Dollar isn't the only currency to be stable against. That has been pretty much the case in the recent past, sure, but past performance shouldn't always be extrapolated forward.

The US has pulled forward a lot of future demand, and resources, into the present and past. How long they can continue to do that, who knows. But it won't be forever. I would think at some point they will have no choice but to live as far below their mean as they have lived above it for the last few decades. Meaning, they will be far from the biggest import market at that point.

DP said...

Midas II: When the FED and the ECB open a swap line, they exchange currency of equal value, and pay eachother the market's interest of each currency for the duration of the swap line (usually one or a few months).

Fed rate 0.25%, ECB rate 1.00% - nice spread for doing nothing. Seems like getting a NET 0.75% lease rate on accounting entries.

ad said...

Paul, Blondie,Holdinmyown

Here in SA there are interesting dynamics regarding old and new gov policies. The old apartheid government created the Krugerrand with no face value and a simultaneous legal tender/foreign exchange status here and intended it to circulate locally with the ZAR fiat currency. This was 1967. It never really happened quite like that, I think the action in the 70's put paid to that idea. AFAIK we are the only country besides Malaysia which has legal tender gold at spot. However our population does not hold Krugerrands like we did 20 to 30 years ago and people here are very uninformed economically.

Secondly our nuclear weapons were dismantled in '93 just before the new government came to power. We were the bastion against communism in Africa and after the demise of the USSR this was no longer necessary. I think TPTB didnt want a nuclear power in Africa that didnt see eye to eye with the US/GB.

The old apartheid government cut their own path economically, the new one is actually in the hands of the $IMF. This has been devastating for us as we have lost 90% of our purchasing power since '91.

http://www.humanaction.co.za/2009/11/rand-has-lost-90-of-its-purchasing-power-since-91/

We have had the worlds biggest property bubble, around 450% increase in 10 years, some places as much as 1000%!! This has not popped however and our property market is at a standstill. Our food, fuel prices are astronomical thanks to MMT. Something needs to change.

At the moment the SA gov is trying to become part of BRIC to form BRICSA and have formally applied to BRIC. Since our economy is tiny compared to theirs with a GDP of around $300 billion this is the biggest stumbling block. I think our angle is that SA is the most developed economy in Africa and is a good gateway. China became our biggest trading partner in 2008 leaving behind the US/Europe.

What I am trying to say here in a long winded way is that SA knows the world has changed. They want to throw their hat in with the BRICs. I would suspect that the discussions Gordhan was having were with these nations and Asia, possibly ME, and not the West.

An interesting side note to all this is that Old Money is behind most mining in this country. Africas richest family the Oppenheimers of AngloAmerican/De Beers were originally bankrolled by Herbert Hoover/JP Morgan

http://www.referenceforbusiness.com/history2/35/Anglo-American-Corporation-of-South-Africa-Limited.html

There is currently a lot of discussion around nationalizing of mining in SA.

ad said...

Another thing regarding the oil link and SA.

SECUNDA, South Africa -- Every day, conveyor belts haul about 120,000 metric tons of coal into an industrial complex here two hours east of Johannesburg.

The facility -- resembling a nuclear power plant, with concrete silos looming over nearby potato farms -- superheats the coal to more than 2,000 degrees Fahrenheit. It adds steam and oxygen, cranks up the pressure, and pushes the coal through a series of chemical reactions.

Then it spits out something extraordinary: 160,000 barrels of oil a day.

For decades, scientists have known how to convert coal into a liquid that can be refined into gasoline or diesel fuel. But everyone thought the process was too expensive to be practical.

The lone exception was South Africa, a one-time pariah state that had huge reserves of coal and, thanks to anti-apartheid sanctions, limited access to foreign oil. Sasol Ltd., a partly state-owned company, built several coal-to-liquids plants, including the ones at Secunda, and became the world's leading purveyor of coal-to-liquids technology.

Now, oil prices are above $70 a barrel, and Sasol has emerged as the key player at the center of the world's latest alternative-energy boom.

Read more: http://www.post-gazette.com/pg/06229/714268-28.stm#ixzz15RbtAgq3

Now this oil from coal technology was refined by Sasol during the apartheid gov era. If there was a gold/oil flow SA seems to not have been aware, why else would this technology have been pushed otherwise?

costata said...

DP,

"The US has pulled forward a lot of future demand, and resources, into the present and past. How long they can continue to do that, who knows. But it won't be forever."

China per capita cotton consumption is currently around 4+ pounds vs USA 33+ pounds per head of population.

DP said...

@Costata: :-) either the Chinese are all walking around almost naked and shivering, or the average American has an outsized wardrobe full of clothing they mostly never wear and definitely don't need, eh? Maybe tomorrow they will actually get around to paying for it, who knows...

BTW what was your source? I want to look up a few other countries too. Cheers! ;-)

Roual said...

@ Shamefulpath.

(Your Comment)

If they just made that announcement then everyone with Gold will FLOOD into Japan till their are either forced to stop buying or the Yen gets revalued on the Forex until selling Gold to Japan is no longer a good idea. Because Yen would leave the country, still need to buy commodities after all.

The Yen is not a commodity the same way oil is. Yen can always be created out of thin air, oil cannot, so there is no fear that 600,000,000,000 barrels of oil will show up out of nowhere (like QE2). This is why it could theoretically work for Saudi Arabia but not for Japan.


(End)

Isn't devaluation the idea then ? One of the greatest hindrances against devaluation is the non-existence of a static metric. Japan has tried QE and the effect on the Yen was negligible. In their latest attempt not so long ago, they admitted failure because they had no help from other central banks. Their zero interest rates has all the qualities of a classic Keynesian Liquidity Trap :

(From another site)

Following this logic, in order to prevent a recession from getting out of hand, the central bank must lift the money supply and aggressively lower interest rates. Once consumers have more money in their pockets, their confidence will increase, and they will start spending again, thereby reestablishing the circular flow of money, so it is held. However, Keynes suggested that a situation could emerge when an aggressive lowering of interest rates by the central bank would bring rates to a level from which they could not fall further.

This, according to Keynes, could occur because people might adopt the view that interest rates have bottomed out and that rates will subsequently rise, leading to capital losses on bond holdings. As a result, peoples' demand for money would become extremely high, implying that they would hoard money and refuse to spend it no matter how much the central bank tried to expand the money supply. Keynes wrote,

There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. (John Maynard Keynes, The General Theory of Employment, Interest, and Money, MacMillan & Co. Ltd., 1964, p. 207.)


(End)

Why is it that the belief persists that Central Banks can set interest rates, without influence from the markets ?

The dream of every government is to put money in its citizens' pockets without radical changes to tax policy, grow their economy, while at the same time reducing government debt, maintaining their currency's exchange rate at acceptable levels, and at the same time let interest rates escape from the zero-bound.

You believe that there will be a flood of gold once the Japanese Central Bank makes this “preposterous” bid. And note I said for physical gold, and not some piece of paper. I think there will be an inflow of gold, but not nearly as much as you expect. There is not one commenter on this site that is unaware of the paper gold market and its overleveraging, as well as the stocks-to-flow ratio of gold. If gold gets such a preposterous bid from Japan, these things will happen :

Roual said...

@ Shamefulpath.

(Your Comment)

If they just made that announcement then everyone with Gold will FLOOD into Japan till their are either forced to stop buying or the Yen gets revalued on the Forex until selling Gold to Japan is no longer a good idea. Because Yen would leave the country, still need to buy commodities after all.

The Yen is not a commodity the same way oil is. Yen can always be created out of thin air, oil cannot, so there is no fear that 600,000,000,000 barrels of oil will show up out of nowhere (like QE2). This is why it could theoretically work for Saudi Arabia but not for Japan.


(End)

Isn't devaluation the idea then ? One of the greatest hindrances against devaluation is the non-existence of a static metric. Japan has tried QE and the effect on the Yen was negligible. In their latest attempt not so long ago, they admitted failure because they had no help from other central banks. Their zero interest rates has all the qualities of a classic Keynesian Liquidity Trap.

(From another site)

Following this logic, in order to prevent a recession from getting out of hand, the central bank must lift the money supply and aggressively lower interest rates. Once consumers have more money in their pockets, their confidence will increase, and they will start spending again, thereby reestablishing the circular flow of money, so it is held. However, Keynes suggested that a situation could emerge when an aggressive lowering of interest rates by the central bank would bring rates to a level from which they could not fall further.

This, according to Keynes, could occur because people might adopt the view that interest rates have bottomed out and that rates will subsequently rise, leading to capital losses on bond holdings. As a result, peoples' demand for money would become extremely high, implying that they would hoard money and refuse to spend it no matter how much the central bank tried to expand the money supply. Keynes wrote,

There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. (John Maynard Keynes, The General Theory of Employment, Interest, and Money, MacMillan & Co. Ltd., 1964, p. 207.)


(End)

Why is it that the belief persists that Central Banks can set interest rates, without influence from the markets ?

Roual said...

@ Shamefulpath (Cont)

The dream of every government is to put money in its citizens' pockets without radical changes to tax policy, grow their economy, while at the same time reducing government debt, maintaining their currency's exchange rate at acceptable levels, and at the same time let interest rates escape from the zero-bound.

You believe that there will be a flood of gold once the Japanese Central Bank makes this “preposterous” bid. And note I said for physical gold, and not some piece of paper. I think there will be an inflow of gold, but not nearly as much as you expect. There is not one commenter on this site that is unaware of the paper gold market and its overleveraging, as well as the stocks-to-flow ratio of gold. If gold gets such a preposterous bid from Japan, these things will happen :

Japan gets its economic turnaround. Exports surge. And the money thus generated will be used to retire debt (both public and private). Would the Yen fluctuate a lot ? How ? Would Japan start buying up the world again, like they did 20 years ago ? I doubt it. They will work on securing the supply of strategic materials like China is doing now.

More like as not that money will remain onshore, and fuel inflation in their economy. And Japan wants inflation in their economy. With inflation comes rising interest rates, which means they can stop their carry trade as well. Which means the boom in commodities of today will not get a boost from Japan.

There will be chaos in the Comex and LBMA. More like as not there will be a differentiation made between contracts made on margin, and those made at full price. The margin players will get a haircut because they were speculating, while the parties that paid full price will have their contracts honored.

Other central banks will have no choice but to make their own preposterous bids as well, so as to keep gold from leaving their countries. This means that exchange rates will be stabilized.

My question is this : We all know that all fiat money is visible debt, in other words every dollar/pound/yen/euro is borrowed into existence. So we all know that the ONLY reason that $100 bill in your wallet has any value, is because somewhere else there is some poor bastard working his arse off to earn it, and pay down some debt. It is ink-print slavery with a FINAL NOTICE .

Roual said...

@Shamefulpath (Cont Cont)
Whatever else you can say about the modern financial system, it is the most excellent solution to an age old problem : How does one organize a mass of people ... into doing something … it won't normally do … religion failed at this … slavery too …

And of all debt outstanding, only 5% is visible (wallet money). And we all know that because of fractional reserve banking there is always more debt outstanding than cash in existence. How does a person pay off debt, if his country can no longer extend credit to expand the money supply ???

And the inflation/deflation debate hinges on whether government can be the borrower of last resort. If government can get away with being a borrower of last resort, either via monetization or good faith in its debt, there is inflation (eventually). If not, it is deflation then. No government really likes riots in the streets, or the bond market, or at the G20.

And this debate hinges on how to deal with a monumental amount of debt.

And I for one think that if you owe $100 000, and you have a fig tree in your backyard that can't be cultivated commercially, whose fruit is rare and prized, and suddenly has someone that will pay a ridiculous amount of money for it … what would you do ???

That is the solution of gold. Gold destroys debt. Debt cannot destroy gold. And between us and that is a legion of loosers … who are they ???

samix said...

Oh yeah, FO/A, if you guys are reading this, I think FOFOA has proven himself trust worthy to carry and spread your message, and Indeed we all would be delighted and obliged, We probably now need a hike and a trail guide during these turbulent times.

julian said...

Hello FOFOA et al,

(the following is what happened when I started rambling for a while)

FOA said:

[i]Even if it went back to $10/oz. we were never going back to governing the volume of dollars in supply. Not by using gold, not by silver, not in any way that would fix or slow the presses! We couldn't. Any long term slowdown, then or now, in such an established fiat was well past the politically survivable stage. This is the way fiats work, whether gold backed or not, they always break from strict printing discipline. The history behind us says so and the future before us says so. As an example in dollar terms, look at any five year average of money supply growth from 71 till now. Truly, we were and are printing our way towards the end time of dollar use. [b]The only question was how long would the world keep using dollars? How much longer would the timeline extend?[/b][/i] (my emphasis)

Interestingly enough, I have found myself asking that very question to family, friends, but mostly to random strangers or acquaintances. I've been using it with the hopes of sparking thoughts and surveying where people are in terms of their vision of the historical period in which we find ourselves. I find that most of the time, the train of conversation does not extend very far down this line, and the subject quickly goes off on a related but much less potent tangent.

What surprises me the most, is that people seem to be aware that fiat death is inevitable. But they don't seem to do anything about it, nor do they care to. I wonder if the complacency has to do with an underlying non-belief that it could ever happen to them in their own lifetime. Or else, perhaps they don't care because it's easy to feel good about being on a sinking ship as long as everyone else is going down with you. No big deal, we're all in this together. Even more so, perhaps, like deer in headlights, getting all kinds of mixed messages and confusing political doublespeak, and basically having very little critical thoughts massaging their own minds, they feel stuck in some metaphorical quagmire and they are waiting for authorities to come and save them (in other words, to make decisions for them, to solve the problems for them).

I think the populace has been so miseducated that they don't even want an education. They prefer the blissful ignorance. It hurts their brains to entertain critical, profound thoughts that would reshape their paradigms.

What did that guy say in that movie? "If you don't think about it, it won't come to pass." ??

(continued)

julian said...

Which conversations are the most difficult for people to engage in civilly, without arguing or getting upset at each other because they can't use rationality in their discussion, otherwise the false foundation would be revealed? Religion (or doctrines/ideas about reality and the existence of the world) and Politics (or doctrines/ideas about how to solve complex social problems). Why? Because for the most part, humans are set in their ways (literally, their brains have formed those networks and it's too much of a strain to open the mind for possible change of paradigm), and because they don't use objective, empirical rationality to form critical thoughts. And when confronted by any critical thought, there is a wall erected to defend against it, because the status quo must be maintained at all costs, otherwise paradigms must shift and certain truths must be admitted, while other previously-held "truths" must be conceded as erroneous.

I think it boils down to self-preservation instincts.

But why might humans prefer prolonging the status quo (even if they admit that nothing will last forever, including a fiat currency)? Why would they do anything and everything to deny and deter the inevitable paradigm shift, even if it means being destructive?

There is a critical mass of humans who directly or by proxy are dependent on the current world order. That world order uses violence, or the threat thereof (intimidation/coercion) to solve (aka fund solutions to) the complex social problems that are naturally inherent in socially dependent species like ours. So any change in the status quo is a direct threat to their very survival, at least psychologically it manifests that way.

So they will do all sorts of mental gymnastics and employ convenient irrationality in order to excuse what they cannot rationally accept without having to turn their entire worldview (and the view of their own self) upside down inside out. It is this way for the religiously indoctrinated, and the politically indoctrinated, and the economically indoctrinated, etc.

{I tend to group the political and the economic together, since that is basically how the world treats it. But I don't believe politics to be naturally related to economics. It's just that politics has taken over the economic sphere (at the very outset of social organization), because politics is the fight for control over the authority to dictate solutions to our complex social problems (those solutions being economic, naturally).}



So, how might this relate to the paper gold market?

-from the perspective of the CBs?

-from the perspective of the paper gold savers or traders?

Preservation
(and the extreme fear of significant paradigmatic shifts)

Miseducation
(the "Western Mind" as indicated by Another)

Aside: Do the CB's fear paradigm shift? Or is their goal simply to ease the transition and keep it as smooth and civil as possible?

And what of OIL in all of this?

FOA wrote: [i]Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nation's identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies.[/i]

ShamefulPath said...

Roual,

Are you nuts?!?!? Really gold would not flow in? I would be on the next plan to japan with a pile of gold and a smile! Granted I would immediately trade in, run into a bank and then buy dollars and with those dollars buy gold. And then buy a skyline to take back to the states with me.

It would do nothing to boost Japan it would however succeed in shredding the Yen. This can be done simply by printing and buying normal assets, no need to sue gold.

You follow the misguided belief that devaluation helps an economy grow. This has NEVER been proven in human history, but the PHDs love it. But then their checks come from the debasing central banks. All nations that debase lose economic strength. If debasement was good then why not constantly run the presses and just have all central banks buy bonds. Hell do it big enough and we get hyper inflation and that is always an economic driver. People don't like watching their currency devalued out from under them.

It would leave the Yen a smoking husk, and guys why were quick on the draw would walk out of Japan with assets.

Also the Yen was not inflation because of the strength of their export industry and savings. Trust me the Yen is on the road to a MASSIVE devaluation they need no do it on their own. Their exports are weakening, savings are going down, and debts are added. Trust me the Yen is going to lose value in the coming years.

Roual said...

@ ShamefulPath.

You follow the misguided belief that devaluation helps an economy grow. This has NEVER been proven in human history, but the PHDs love it.

Really ?! The rise of China can be traced back to a 50% devaluation against the Dollar in the early 90's. France devalued the Franc after World War I and their economy boomed. In fact France had a NET INFLOW of gold going into the Great Depression.

When a currency devalues the value of your foreign assets rise. The $700 billion of US Bonds Japan now hold will be worth MORE in Yen when the Yen devalues ...

Japan wants to devalue, but cannot. Devaluations work ... but only if you're allowed ... So against what then ?

Gold me matey ...

ShamefulPath said...

Roual,

So China's rise was because of a currency devaluation? It wasn't because of the trade liberalization and allowing companies to start up? Really? Seems the ruble was devalued a lot why didn't the USSR explode with economics power?

Well then why worry about anything we can print our way to prosperity! I'm sure Wiemar was just about to hit super prosperity, or Zimbabwe and they just stopped a moment short.

You are making the same mistake as most, correlation does not equal causation.

All the devaluation does is rob the people foolish enough to keep value in the currency. It would cure the Japaneses. It would show them to NEVER trust their government again and only trust gold. As it stands now the Yen will eventually crash. To much debt on them and they will be forced to do what you want, print. And I can assure you it will not be a joyous occurrence for Japan and the foolish savers or their economy.

ShamefulPath said...

Devaluations,

It is AMAZINGLY easy to devalue a currency, just run the presses and buy terrible assets. The problem is many don't want to destroy the currency, just pay for their toys and buddies. So they take some measures but not all of them. If Japan wanted to devalue then could just offer 10 million yen per oz of poop, plenty of poop in Japan. I think they could get enough poop to buy the yen in the graveyard of currencies.

Currencies are not meant to be massively devalued. Such a shock is ruinous to the economy and investment. Would you invest in a country where you know the currency is constantly being devalued rapidly making it nearly impossible to conduct business? Take note how hard it was to get investment in Brazil during their wild inflation times. Or Zimbabwe where in effect China came in and told them to stop if they wanted investment.

Blondie said...

"ECB Objective
The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term."


Exactly the same rate (1.5-2%) as the annual increase in physical gold supply from mining.

ad said...

Talking bout the euro, I see Eric Cantona has a few things to say about a new French Revolution

http://www.youtube.com/watch?v=-Uop5R7E314

Museice said...

King World News: How many dollars are circulating for every ounce of gold held by the United States?

Paul said...

Shameful
The point is Japan is desperate to devalue, rightly or wrongly. So why don’t they offer a 10% premium for gold? Capped at say 100 tonnes?

The reason they don’t is that nations and CBs have to consider more than economics when designing financial policies. International politics and diplomacy is just as important. What we’re describing is a true currency war, with Japan issuing a pre-emptive strike against the dollar. Not saying it can’t happen, but there’s a whole host of other considerations for a country to make, not just economic ones. Especially when you’ve got Marines camped on your doorstep.

For me, this is one of the reasons the Euro is seen as so desirable by non-Euro states. There’s far less chance it can be abused for national interests, as well as less chance of good old debauchery.

If Freegold is implemented as government policy, it’s more likely to be done by an alliance of nation states. Then it’s not “currency war”, but “Bretton Woods III” or “Shanghai Surprise Accord” and we’ll all be reading about it on Wikipedia as the agreement that saved the global economy 25 years from now, just as laboratory grown gold is invented.

Paul said...

I have been wondering for a while now why FOFOA’s marvellous blog is just so compulsive. Why can’t I stay away? Why do I keep coming back for more?

There are FOFOA‘s compelling posts of course, always well written, insightful and very persuasive. Following faithfully along are us rag bag gang of Freegolders from all around the globe. The discussions and arguments follow the sun in a 24hr cycle of gold based analysis. And hovering above in the ether are the guiding spirits of Another and Friend of Another, like the Ghost of Christmas Past and his less well known mate, Dave.

All this is awesome, but for me there is more to it than that, and I think I’ve put my finger on it. The Italian Job.

I’ve always been a fan of heist movies. The Asphalt Jungle, Rififi, Ocean’s Eleven, Stanley Kubrick’s The Killing, Heat, Three Kings, Lock Stock and Two Smoking Barrels, and of course the classic The Italian Job (original version only). I can’t get enough of them. And it’s all here, the three act plot.

Act 1 - The set up; One last job before retirement, a final caper to make our fortunes. We’ve got our mastermind, the brains behind the operation (A/FOA/FOFOA of course). We’ve got our mark (the entire commercial banking system of the Western World). And we’ve got our plan (steal as much bullion as we can get our grubby mitts on)

Act 2 - The heist; “With rare exception, the heist will be successful, though some number of unexpected events will occur”. This is from Wikipedia, so it must be true.

Act 3 - The unravelling; Unfortunately this is where the characters in the heist (that’s us) are turned against one other, betray, double cross or otherwise stuff-up. Often they end up dead, captured or without the loot. The good news however; “it is becoming increasingly common for the conspirators to be successful, particularly if the target is portrayed as being of low moral standing, such as casinos, corrupt organisations, or fellow criminals”. I think the entire commercial banking system of the Western World fits that description pretty nicely.

Ever since I was a kid I’ve dreamed of pulling of the big one. So on with the show, stick to the plan, and don’t forget, “You’re only supposed to blow the bloody doors off!”

Paul said...

http://www.youtube.com/watch?v=8g_GeQR8fJo

Edwardo said...

This seems germane-if not necessarily German- as this story involves (deadly) competition between the Dollar and the Euro.

http://www.zerohedge.com/article/us-eu-%E2%80%93-drop-dead

Paul said...

ZH speculation that the Fed is using swap lines as leverage to stop ECB printing to bail out Ireland et al. Like watching King Kong versus Godzilla. Anyone got a bi-plane?

Edwardo said...

I'm reminded of the book,"How The Irish Saved Civilization." Depending on where one stands, this may be their chance to save it again.

ShamefulPath said...

Paul,

Ok who would get the 10% premium, people connected to the central bank. So it would be a wealth transfer to the connected, hardly would help the masses, and if they announced it publicly that is very bad. Now I know the 80s was a long time again and I'm a young guy but does no one remember the Louvre and Plaza Accord? When you make a plan to openly devalue it can get out of hand!

Should a gold buy plan be done unless a country was desperate to bankrupt themselves they would do it secretly. Using agents to go into the market and bid indirectly say thought the Cayman Islands. Could vent currency into the market via the 4x market and buy up gold on the sly. This keeps there from being a panic, weakens the currency, and gets gold. And it's a hell of a lot less chaotic then putting out a sign saying

"Will ruin currency for gold!"

Paul said...

Oh man, now you're talking!
Lets get Brian Cowen, Herman Van Rompuy and a pack of druids into Newgrange, and summon up the spirit of St Patrick. We'll teach The Ben Bernanke about history! Who's with me?!

Paul said...

Shameful

First come, first served. Unless the first joint of your little finger is missing, in which case you get 20% and no questions asked.

ShamefulPath said...

Paul,

Structurally that is no different then saying "First 10 people to ask for 10 Billion Yen get it". And of course insiders and insiders friends and family will be lined up. Might as well just hand the money directly to them and ignore the fiction of a sale or giveaway. After all if you were the BOJ and doing that plan, wouldn't your friends and family know about your giveaway before the public? And if not then you are a saint and can probably walk on water.

Announcing it would be worse, after all the people don't like toe be told that they are being robbed. The illusion that they are not being robbed is more comforting.

Paul said...
This comment has been removed by the author.
costata said...

DP,

Sorry I can't recall the source of the cotton consumption comparison at present. When it comes to me I will make a note and provide a link when I see you are on line.

Cheers

Hi All,

Re: Japan

Don't forget the BOJ and Japanese citizens have a substantial amount of gold. Perhaps enough to rebuild a badly damaged economy down the track.

If the BOJ want to (or are forced to) monetize their debt all they need do is allow it to mature and redeem the bonds for currency. From my reading around 98% of the government debt is owned by Japanese citizens. That could be termed the hyper-inflation option.

China can force deflation on Japan by bidding up their bonds and currency using China's foreign exchange reserves. They have been doing this in the last few months. (BTW China has been doing the same thing to South Korea.)

FWIW I think Japan is in Checkmate. They have no good options open to them. The combination of China's deep animosity toward them, the influence of the USA and Japan's assigned role in the $IMFS is screwing Japan exactly as A/FOA predicted.

Paul said...

More FOA predictions:

"As we proceed with this act, the dollar will come to be seen more and more as "just another currency" rather than the world's reserve settlement money. We see today the makings of this move as national blocks move in this direction. England, Russia, China and South Africa are thinking more and more in terms of using Another currency; in a percentage that more reflects a realistic ratio of their trade flows. Soon oil, debt and all world settlement will be done more so in this same ratio. Soon, investors will match their fiat needs and savings plans so as to be denominated in Euro positions; again equal to a more worldly economic exposure."

Check.

"While, at first, not completely replacing the dollar on a world trading scale, this initial shift will have a dramatic impact on the use, need and overall function of our current paper gold markets as expressed in dollar terms. In order to replace the loss of our international dollar demand and its impact on domestic economic and financial structure, the US fed has and will begin a structural currency inflation that builds upon an already overextended base of world dollar liquidity. This incredible currency expansion will break out into the open with real price inflation as never before witnessed in the US. In turn, foreign holders of dollar based assets will, not only, demand price performance of their "paper gold" hedges, even as they are compelled to shift a larger portion of their asset bases into Euro positions."

incredible currency expansion - Check.
real price inflation - Check.

"The ECB will not only be forcing a higher return to Euro holders, they will also be promoting a shift away from the US method of hedging currency risk. Moving their quarterly marking to the market of gold assets to using a local Euro Zone spot physical price; a price that will prove to out run the dollar "paper gold" market's ability to keep up. Such a play will emphasize "physical gold" positions for hedging as opposed to "paper gold" positions. The latter will become an obvious useless play as investors ratio their exposure into physical and glut the "paper gold" market with no longer needed, unwanted dollar positions. An action that forces a discount upon a market physically unprepared to match real gold against a decade of super inflated paper supply."

marking to market gold assets to a local Euro Zone spot physical price - Pending...

Desperado said...

I decided that the 15 day collapse scenario I posted a few threads ago is too US centric, especially since I think it will start in Europe because the Germans will prevent the ECB from doing QE to infinity.

So some EMU member will finally throw in the cards and default. This will happen almost simultaneously to the collapse of that countries major bank(s), so the order is not very important. Iceland provides a solid clues to what will happen, but for various reasons it is a special case.

When the first country collapses it won't be long until the entire house of cards goes down, but the sequence of events is important.

The government will be forced to make a bank holiday for their biggest bank(s), and after being nationalized and reopening only very limited cash withdrawels will be permitted. Debit/ATM card transactions will also be strictly limited, and credit cards from this bank will be cancelled. In effect the government will have imposed capital controls, as external debts will no longer be able to be serviced and might even end up frozen due to lack of liquidity and attempts to preserve it at all costs. At this point, most imports will be halted. Citizens near the border lucky enough to have back accounts in a neighboring country will proceed to travel over the border to withdraw cash and purchase scarce supplies until Schengen collapses and those borders are closed. Rents, mortgages and utilities will not be able to be paid. Cash will be king until the government has time to print up some kind of new currency, and pegs a starting exchange rate to the Euro. There will be shortages of food and rioting. This will definitely spread to the neighboring countries, and this is when all those parties working together for a NWO turn on each other.

Some great video about how the Tower of Babel was the very first NWO.

Part 1
Part 2
Part 3

Tower of Babel => EU Parliment => NWO => Soros => Nimrod

ShamefulPath said...

Japan Gold,

Correct me if I'm wring but the number I'm seeing is in the 700 ton range. Not terrible, but around what Russia has, but without Russia's oil or gold mining potential. Also for as large as an economy they are the gold holders are small, Italy has 4 times as much. As to the amount citizens have, no idea. I'm guessing they are no India or Thailand but I don't know.

Japan is in a rough place, your right there is no good answer, they will have to default. Since it is internal it might be orderly or disorderly I don't know. They do have some advantages they can use in the future but bad demographics and bad capital allocation will hurt them for a long time. Ideally they would default and do a hard purge. Bad depression for 2-3 years and then come out of it much stronger.

Though I actually like Japan's position better then I like the US position. More accustomed to low or no growth and while the default will be rough they are less dependent on outside capitol. They can go through a brutal restructuring and begin selling products again. The US will be cut off like a junkie. But then I also happen to think the US gold holders were looted a while back. Why loot and totally indebt a nation and leave it's gold reserve intact? Especially when that gold would be in their mind well served to keep the game going longer? I'm somewhat confident that gold has found it's way into the market to extend the game (like with the Saudis) and probably into the old money's hands as well.

ShamefulPath said...

Desperado,

Why the bank holiday? I ask that in all seriousness? Should a bank be nationalized is it not likely that the ECB backstops deposits to make sure there is no panic? And in the age of digital money with the full faith and credit of ECB would there be a run into cash? If there is could the ECB simply so no hard cash, use your card? Now sure people will panic but with electronic currency it may be that the goods will shoot up in price rather then no currency flowing.

I would like to believe Germans would not allow the printing, but how could they stop it? The ECB does not answer to them. The German politicians are all EU centric. Short of a revolt and storming Berlin the people of Germany really don't have a lot of options. They have even less influence over the ECB then we in the states do otver the Fed. Which is to say nearly 0.

I have no doubt there will be an insane amount of printing worldwide. That is the endgame of fiat, and the world will be awash with paper. Paper holders will all be wiped out.

Also I think the $IMFs have a vested interest in printing to make sure a EU nation does not blow up. If there is any shock to the system, it goes. All too interconnected. So if an EU nation goes down it hurts the EU banks which hurts the US banks, and it all comes down barring nearlyy infinite fiat.

costata said...

Paul,

IMHO you may have unearthed a real gem in the archives with this extract:

"(ECB) .... Moving their quarterly marking to the market of gold assets to using a local Euro Zone spot physical price ...."

FOFOA,

Please correct me if I am wrong; hasn't the ECB always marked to market by converting the LBMA fix into Euro?

costata said...

ShamefulPath,

According to my research Japanese citizens have been big buyers of gold since the beginning of this decade. Not enough, for sure.

Also A/FOA advised that Japan (BOJ?) was a bigger buyer of gold than most people realised.

I think a lot of cards are not yet face up on the table :)

Blondie said...

costata,

The key word in FOA's ECB comment being physical.
The ECB Gold Reserve MTM is currently paper valuation, however it is arrived at.

FOFOA said...

Hello Costata,

Yes, the quarterly MTM "snapshot" occurs on the last day of the quarter within the weekly reporting period corresponding with the statement. And since paper gold is priced in dollars the euro reporting price is still to this day a dollar derivative price.

I'll bet your buddy in Dubai might have some insight on how this is likely to shift from an external paper "reference price" to an internal physical "clearing price." Seems pretty simple to me, but as they say, those that can, do, and the rest just teach. Or something like that.

Sincerely,
FOFOA

DP said...

Costata: Please correct me if I am wrong; hasn't the ECB always marked to market by converting the LBMA fix into Euro?

FOFOA: I'll bet your buddy in Dubai might have some insight on how this is likely to shift from an external paper "reference price" to an internal physical "clearing price."

I am very glad you have introduced this thread, because the last day or two it has been troubling me. I am now looking forward to the thread unfolding further, because it seems to me it is the key piece in the puzzle. The key that, once put in place, presents the transition for all to see.

DP said...

Edwardo: This seems germane-if not necessarily German- as this story involves (deadly) competition between the Dollar and the Euro.

http://www.zerohedge.com/article/us-eu-%E2%80%93-drop-dead


Indeed.

Deal or no deal?
No deal? Hammertime.

COMEX/LBMA to contract holders: u can't touch this

http://www.youtube.com/watch?v=otCpCn0l4Wo

Break it down

Desperado said...

@Shamefulpath,

First of all, there is no guarantee that the PIGS will continue to agree to pay off the Euro debts they took on in the boom times. Their citizens feel that they got burned and that their elite's skimmed the profits off.

The ECB charter is for price stability and precludes debt monetization. Already Austria and Slovenia are getting antsy:
Austria Withholding €190 Million Tranche. This stabilization fund was also sponsored by the IMF with 20% US dollars. My guess is that after the lame ducks are out, Ron Paul and the teapartiers will make a lot of noise if the IMF helps bail out more PIIGS with US$. Bernanke will be under plenty of pressure just to be able to continue QEII.

As far as a bank holiday goes, this may not be necessary if there is sufficient planning and preparation. If a PIIGS bank run catches their CB and government off guard, then it is quite possible that re-opening the bank(s) on the next work day may not be possible => bank holiday.

You ask: "is it not likely that the ECB backstops deposits to make sure there is no panic? And in the age of digital money with the full faith and credit of ECB would there be a run into cash? If there is could the ECB simply so no hard cash, use your card? "

As I said there are scenarios (the government collapses or simply passes a re-payment moratorium or the government just pays gov't salaries) where they have simply defied the ECB and their creditors. In this case, do you think that they would willing take on more debt from the ECB or that the ECB would try to force them to take liquidity? If the ECB refuses to buy more government bonds and the government has been shut out of the bond markets, what then? IMF rescue with Ron Paul breathing down its neck?

As far as e-money vs. paper there was a long discussion on that in FOFOA's hyperinflation II post. Credit card money would almost surely disappear/ no longer be accepted. Debit card/ATM money still has a clearing lag, but if e-transfers are allowed then there would be a e-run on the failed/nationalized banks, that is why I said that there would be transfer/withdrawel limits, which are de-facto capital controls.

DP said...

@ShamefulPath/Desperado

Seems to me the ECB has stolen a lead on the Fed when it comes to its ability to print (literal printing I mean). A trillion in €500 notes can be produced five times faster than $100s. They'd have a use value for a little longer too I guess. Surely they have tipped their hand long ago by including this significantly higher denomination note. I don't think anyone here is suggesting the € is going to be a good store of value, just perhaps not as bad a store of value as the $. One that at least is objectively measured against something tangible.

Desperado said...

@Shameful,

Mish discusses how Ireland may diss her creditors. I am certain that any PIIGS government that did that while nationalizing the banks and punishing the banksters would be very popular, at least for a while...

DP said...

The way I see it, the € follows the $ down, taking its inflationary lead.

ECB mandate is to provide price stability (I am presuming this means in terms of CPI). If the US (world?) economic backdrop is inflationary depression, demand will shrink massively, and prices would drop for many items. CPI goes down. ECB prints, to stop the currency from becoming too valuable in terms of CPI, which has also the side-effect of keeping export prices down against competing currency regions.

The € becomes less valuable against gold, but against most everything else it remains relatively stable.

Including the dollar. Or silver.

Pass or fail? I kinda like to fail, but I feel I get a pass.

costata said...

Desperado,

"Money" printed by the Treasury and/or Central Bank is around 5% of the "money" supply in most Western countries. Support for the failed banks is a political decision.

AEP:
"Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk."

Oddly enough, if the MMT people grasped this reality they might be right for a nano-second, but no more than that.

Greyfox "It's the Debt, Stupid" said...

FOFOA said:
." Seems pretty simple to me, but as they say, those that can, do, and the rest just teach. Or something like that."



Those that can, do, and the rest just teach OR work for the government.

ShamefulPath said...

Desperado,

If one believes that a CB would follow their mandate then I totally understand your argument. However to me the CB vow is like meaningless. It's something they say and don't mean. If the Fed had "Massive devaluation, and centralization of power" as their dual mandates the public might get a little more upset :)

I read the credit/cash discussion. The credit money will become base money over a period of time. My argument is simply if the digital/credit money flows and enough media confidence is thrown at keeping the credit digital money flowing a bank holiday will not be necessary. I'm not saying it won't happen. With no prior planning or a bungling of the situation it's likely it will, however it's not necessarily a given to happen even in a fiat collapse.

As to debt, when has a bank or nation not been willing to take on more? They are gluttons so while there is a theoretical point where they could be "full" of debt, they never seem to quite reach it.

The EU and ECB are an authoritarian group, you know this. So why would we realistically expect them to listen to the people? The whole system runs contrary to democracy on it's face. Note how there is no system to leave the EU or Eurozone. Merkel has even acknowledge that the bailouts trample the the Constitution, and still no change.

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Michael H said...

There seem to be two predictions for the Euro: it disintegrates, either back into member nation's individual currencies or into a northern / southern Euro, or it thrives in its current form thanks to the supranational nature and gold reserves.

How about this as a third scenario for the Euro going forward:

Just like the Euro will exist alongside gold, the Euro will exist alongside individual nation's currencies. Greece could print Drachmas, which would float (sink) freely against the Euro. Drachmas might be used for internal commerce and Euros for international settlement.

Once one country choses this path, others might follow. The important thing is for the Euro to retain its international settlement function.

This same dynamic is happening with California in the US: that state is paying with scrip IOUs because it does not have enough dollars.

Also, this is similar to how countries with troubled finances operate relative to the dollar: they have a local currency and the dollar trading beside it.

julian said...
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julian said...

Hello all,

Last night I took a walk down part of the road paved by Another, in an attempt to gain greater familiarity with the concepts and understandings discussed at this site. Here are some of his thoughts that struck me. If you could, please elaborate on these for me, as I feel like I understand them, but not well enough to explicate them myself. Also, I sometimes get confused by the writing.

Date: Sat Mar 21 1998 14:33
ANOTHER (THOUGHTS!) ID#60253:

...In that time, as today, oil and gold had to be managed to keep their true value, in terms of currencies from destroying the free market financial system based on low prices for both...


Is he saying that low prices for both were necessary to keep from destroying the fiat financial world system because the true value in those currency terms (without any manipulation) would be way too high to fulfill? And if so, is it that they would be too high in currency price terms because of the heavy supply of fiats and the low supply of physicals (oil/gold)? Therefore the paper markets were created in order to fein supply of physicals, thus keeping prices down?

Date: Sat Mar 21 1998 15:59
ANOTHER (THOUGHTS!) ID#60253:

...I offer this consideration to all, would oil or gold hold the same currency price if no paper future market existed? Think long and hard on this, if oil and gold were bought and sold "marked to the market" physical for cash, would the USD price stay the same in todays economy?...


and could somebody please elaborate on these notions from the same post #60253:

But, what is cheap oil? It is defined in two terms,...and, in another real commodity price that allows producers to value their product as an asset, not subject to the valuations of the world economy, gold.

What does this mean? I don't know if it's the way it's written that confuses me, or if I'm just not understanding the (simple?) point being put forth.

Is he saying that cheap oil allows producers to value their product as it were physical gold itself?

Furthermore, from the same post:

But, from an "oil producing" country, holding world class reserves, a low USD price offeres all the advantages. It produces an ever "dependent" economic system, that, "in real terms of need" "upvalues all inground reserves" with a far higher "future need". That "future need", as expressed in a drive "to maintain current asset values ( dow jones ) " creates the political drive to manage oil prices!

Could someone please elaborate for me on this one too?

What is meant by the production of an ever "dependent" economic system? Is it simply talking about an energy dependence?

What does it mean, "in real terms of need," to "upvalue all inground reserves" with a higher "future need?"

And what is the relationship between the Dow Jones and the future need expressed in a drive to maintain current asset prices?

Is that related to the upside down pyramid built on oil? Every business, asset, debt, currency and army is "priced in currency terms" that reflect a "full supply of cheap oil"!


Thanks in advance for any relevant thoughts.

- julian

Desperado said...

Costata,

I just read the AEP piece, it is a duisy:

The horrible truth starts to dawn on Europe's leaders

This paragraph contradicts A/FOA's statement about the nature of the EMU and the political sideshow:

"Mr Delors told colleagues that any crisis would be a “beneficial crisis”, allowing the EU to break down resistance to fiscal federalism, and to accumulate fresh power. The purpose of EMU was political, not economic, so the objections of economists could happily be disregarded. Once the currency was in existence, EU states would have give up national sovereignty to make it work over time. It would lead ineluctably to the Monnet dream of a fully-fledged EU state. Bring the crisis on.

Behind this gamble, of course, was the assumption that any crisis could be contained at a tolerable cost once the imbalances of EMU’s one-size-fits-none monetary system had already reached catastrophic levels, and once the credit bubbles of Club Med and Ireland had collapsed. It assumed too that Germany, The Netherlands, and Finland would ultimately – under much protest – agree to foot the bill for a ‘Transferunion’.

We may soon find out whether either assumption is correct. Far from binding Europe together, monetary union is leading to acrimony and mutual recriminations. We had the first eruption earlier this year when Greece’s deputy premier accused the Germans of stealing Greek gold from the vaults of the central bank and killing 300,000 people during the Nazi occupation."


Ireland and Greece Keep Decaying

"It doesn't help of course that the EU refuses to audit itself, and has not done so for over a decade now. The amount of institutionalized corruption must be staggering; to believe that somehow the EU's component governmental parts (like Greece or Ireland) can be responsible when the larger entity is not, provides us with a fairly unbelievable scenario."

The primary goal of EMU was not a currency region to reduce exchange OR default risk, but was always to create the single currency to force a crisis and use it to rob the entire EMU of its sovereignty.

Simultaneously we have Soros working diligently to crash the US financial and political systems. If things work out for these guys we are on the threshold of a NWO. It just gives me that warm and fuzzy feeling all over...

Edwardo said...

Mr. Delors does those of us who have no use for his hideous ideas to know with some degree of certainty who the enemy is.

zenscreamer said...

@julian

There's a reason that the FOA and Another posts are quoted as is, rather than reformatted -- I for one would not want to presume to know what was intended by anything they were saying, but I will have a go:

...In that time, as today, oil and gold had to be managed to keep their true value, in terms of currencies from destroying the free market financial system based on low prices for both...

my take:

...Then as now, it was necessary for steps to be taken to manipulate down the fiat currency price of both oil and gold, in order to protect a global corporate structure which had been built up based upon the expectation of continuing low fiat currency prices for those materials....

It sounds to me like you got the message -- it was to the advantage of the oil producing nations to keep the fiat currency price of oil down in order to foster dependance, which then accelerated demand, which pushed up the value of "in the ground" oil for those with the largest reserves.

The global corporate structure (the "Dow Jones") is built to require a low price for oil, and is hence held hostage. Change that one factor and the whole structure changes.

Edwardo said...

Would someone like to explain how this person has it wrong?

http://liminalhack.wordpress.com/2010/11/02/let-there-be-money/

"Some commentators masquerading as economists suggest that one merely needs to divide the gold supply into smaller and smaller pieces, with each piece retaining the same nominal value as before. But of course then one arrives at the silly situation where a gram of gold is worth the same as a BMW, for example. Clearly this cannot be the case in the real world since the BMW embodies a vast amount of energy, human capital expenditure and significant utility in the real world. Gold may be money but it cannot be the only money."

DP said...

@Julian/zenscreamer

Another interesting thread of discussion you've opened up on this post. Thank you.

My take at the moment is:

Gold and oil are both priced by a paper speculator market. The speculators in gold, the 95%(?) or so majority of the market traffic I guess, have not been interested in taking physical delivery of the commodity. Probably it is a significantly smaller degree of speculation in oil than in gold, given it is a good that is actually consumed -- so people actually do need to take delivery. Maybe the numbers are reversed, so 5% is speculation. I am myself speculating on these numbers, clearly. I'm sure Others have some hard number sources they can provide, and they would be very interesting to us all I suspect.

Rather like people keeping their cash in a commercial bank, the gold speculators have largely assumed they could at any time all take out what they thought they had in there, but in reality 95% of contract holders could not if they were all to attempt it en masse. They haven't bought gold as they thought, but have bought a worthless promise that in all likelihood cannot be delivered on. Fortunately for us, they don't collectively call this promise out so far.

Now, I would say the 5% that
got delivery of physical, are people like Big Oil. They got actual physical gold at the paper prices. They probably still are, because there are still a small percentage of contracts being called on for delivery I understand.

They then can lease this physical back out as paper at the COMEX/LBMA twenty times over, and collect the lease income along the way. If anyone actually dares to request delivery, they will get the finger, and COMEX/LBMA will have to try to come up with it somehow or another.

(As a UK resident, my mind instantly wanders for a second to The Brown Bottom.)

Effectively, WTI today is $83 dollars, but it's worth $1660 to Big Oil because their gold is worth $26780 to them, rather than the $1339 they're paying.

Once more, I am horrified that my stream of throughts (that only really come together as I write them out in discussion like this) could be correct. That the illusions might stop sometime soon, exposing the unaffordable reality and the halted flow of oil to our voracious oil-based global economy. :-{

Oh mummy, please tell me I have it all wrong...

Blondie said...

Julian, Zen, Edwardo, DP,

You are all speaking of the exact same thing, which is, to quote Another:

"Many will "think long and hard on this", but will find little reason for this position. For it is in your history to know only "things valued in paper terms"... Your past, holds little of knowing value outside of currencies, this does block the good view!"

The important distinction to be made is that between price and value. They are not the same thing, as you well know, and yet we see them used interchangeably all over the place as if they were.

A thought experiment that may help:

Visualize the world not up close,but from a distance. Think of the flow moving through humanity not in terms of numbers and prices, but in terms of value only. Observe the flow of value. It is real. Prices, numbers, these are purely nominal, and thus misleading. Value is what flows through the monetary system, not money.

Seen through this lens (or perhaps absence of any filter or lens would be more accurate), all the Thoughts of A/FOA/FOFOA become imbued with the meaning they intended, and the way is clear.

This description by Ender here, compiled from comments he left on this blog two years ago, have been very useful for me.

littlepeople said...

Desperado, DP, others:

First, let me say I believe in freegold concept.

Second, I believe the euro will survive, maybe the dollar, too, which fits with freegold. Euro will be seen as stronger than the dollar as freegold takes hold.

Where I see the action that causes freegold is in the COMEX/LBMA and SLV/GLD, formerly strongholds of JPM, HSBC, DeutscheBank, GS, etc.

Here is a quote I took from Harry Organ's website, which he took from lemetropolecafe site:

"I think that this James McShirley commentary posted at Lemetropolecafe.com is very important for all to see.

'Did we really think there wouldn't be an orchestrated takedown prior to both Dec. gold the week before. Actually they're getting maximum bang for the buck with next week's thinly-traded Thanksgiving schedule. Cabal shorts can probably run wild all the way to FND on November 30th. $1,300 gold and $20 silver are no doubt juicy targets. Any attempt to take it there should unleash fierce physical buying. I assume too any ongoing class action suits can include illegal activities right up to the present. If so, they'll be busy updating the future and option traders getting screwed yet again.

They've decreased leverage in silver from 30-1 to 12-1 in less than a week. I wouldn't be surprised if that leverage falls to 10-1 or less. Once this nonsense ends December looks to be a very good month for the metals. Raising margins may cool spec paper traders, but the physical buyers won't be stopped. The robo-signing foreclosure crisis will soak up QE2 and more. Next comes TARP2, endless Fannie and Freddie bailouts, and pension fund insolvency. How this can be construed as dollar-friendly is incomprehensible.'

COMEX futures pricing dictates today's markets, even though the London fix also plays into pricing, it is keyed off COMEX. COMEX is the bankers' paper-PM playground. The SLV and GLD were created to deflect physical PM demand into more paper, so that JPM and their ilk could still maintain control of the gold and silver markets.

cont'd.

Edwardo said...

Blondie wrote:

"The important distinction to be made is that between price and value."

I think the author of the quote below is making that distinction quite clearly.

"Clearly this cannot be the case-that gold could be valued in excess of a BMW- in the real world since the BMW embodies a vast amount of energy, human capital expenditure and significant utility in the real world."

Museice said...

ETFs May Be the Best Way to Buy Gold

Paul said...
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julian said...
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Paul said...

Edwardo

1 gram of gold will definitely be valued more highly than a BMW, and I can prove it too. Take a 1 BMW and 1 gram of gold. Bury them both in the ground. Wait 25 years. Dig them both up. Sell them. Compare prices.

Not sure what point your author is trying to make, to be honest, so it’s hard to take it seriously. He/she seems to be arguing that since gold cannot be infinitely valued upwards, its value cannot be compared to other objects' value at all? Do I have this right?

Or is it that there is no energy or capital expended in securing possession of gold, so it has no intrinsic value?

If it's the later, try telling that the Spanish Armada.

Paul said...

Edwardo’s question actually opens up an interesting concept. We all know that a big part of gold’s value is in its timelessness. The fact that it was valued in the past makes it more likely that it will be valued into the future too. And the nature of the substance means it will survive the years quite nicely, unlike an over-priced German rust bucket. I talk from experience. We used to have a 1976 BMW 2002 until recently, when we started to see more road through the floor than we saw floor. We had to pay to have it removed by the council, so we would have gladly taken 1 gram of gold in return for it.

Anyway, does economics include longevity in its calculations of value? I don’t know, I’m not an economist. I know Net Present Value tries to value a productive process over the lifespan of the process, but it’s always based on a finite period. And my accountant is always banging on about depreciating assets over 5 years.

I’ll bet that’s another reason economists hate gold. Not only does its lack of yield stuff up their pricing formulas, but it also has an infinite period of value. "OK, so that’s 1 gram of gold worth $1700, assuming a capital gain of 2% per annum, depreciated over infinite years, reverse amputated into the pro-rated coupon flow, that works out to be ... bollocks, its infinity again."

holdinmyown said...

Hello Paul.

"I’ll bet that’s another reason economists hate gold. Not only does its lack of yield stuff up their pricing formulas, but it also has an infinite period of value."

I know that my comment has nothing at all to do with the point that you are trying to make but I can't help but comment on the above quote as it touches upon a pet peeve of mine. No monetary unit in existence today provides a monetary yield ... including both dollars and gold. How much yield does that $100 in your wallet provide? Money will only provide a yield if it is used to purchase another yield generating asset. Dollars can be used to purchase yield generating assets today but in most cases gold cannot unless first converted to dollars. This is because
gold is no longer legally legal tender. However the bottom line is that neither an FRN nor an ounce of gold in themselves generate any yield. ... And although you can eat (consume) either, neither will provide any calories either. Gold phobes come up with the dumbest comments that we constantly have to refute.

BTW I know that you are not a gold phobe and that you were simply using this typical anti-gold comment in order to make a point on its time value.

Edwardo said...

Paul, I shouldn't have to point out to you that proof, when one is so bold to claim to have it, must, by definition, be in the here and now, not in some distant future, which a quarter of a century most certainly qualifies as.

As such, this...

"1 gram of gold will definitely be valued more highly than a BMW, and I can prove it too. Take a 1 BMW and 1 gram of gold. Bury them both in the ground. Wait 25 years. Dig them both up. Sell them. Compare prices.

does not constitute proof. However, for the sake of discussion I will say that burying a BMW would seem to be a colossal waste of energy, time and money. I think simply garaging it would suffice. As for the gram of gold, no burial would be necessary. Placing it in a very small box inside a secure location would likely do. After all, given the size of a gram of gold, it is highly likely that one might have difficulty recovering it unless one knew precisely where it was buried.

Having said all that, I thought the point the author was trying to make was crystal clear.

Paul said...

holdinmyown,

Your’re quite right, most people don’t realize the reason they’re getting 0.5% interest on their savings account, is because its been put at risk. You’ve got a 1 in 200 chance of never seeing it again, or a 1 in 1 chance of it being devalued. I have a novel solution, however.

Once we’ve ushered in the NFO (New Freegold Order) I propose a new economic system to administer the fiat side of things. Run on strictly MMT lines, each year’s issuance of new currency (distributed by state lottery Currency Clowns™) will be depreciated over the expected life of the fiat. To this end, each note will have a Best Before date, and citizens will be encouraged to compartmentalize their wallets and purses, spending their stale currency first, keeping the freshest notes out of circulation for as long as possible. New notes will be printed with the images of current celebrities and sports stars, to further incentivise the population to rid themselves of the unfashionable, discredited and imprisoned. I’m going to call it Runny Munny©. “Spend your Money before it goes Runny”.

What do you think? (Apart from the fact I’ve got too much time on my hands.)

Dave Narby said...

@Edwardo

Perhaps a gram of gold for a BMW is unrealistic to you.

But what about a used BMW?

What about an ounce of gold? Could you conceive that it might buy a low end Bimmer?

Think about that, and then think about how severely the price of gold in dollars has been suppressed (to pay for 40 years of the USA's warfare/welfare state, then realize that 60% of the US population is dependent in part or in whole on transfer payments, and that the USA spends more on 'defense' than the rest of the world combined and has 800+ military bases worldwide).

In the 1920's, you could buy a state of the art, brand new model-T for $290.00, or about 15 ounces of gold. Now imagine 90 years of productivity gains. Now imagine that gold has grown at about 2% per year during that time, and the world's population grew from just under 2B to just under 7B.

Lots to think about there.

costata said...

FOFOA,

In all of this chatter about the Euro, EMU etc there seems to be a severe case of cognitive dissonance. Here is AEP on his major (IMO) criticism of the above:

"..... to comply with EU demands made in May. All are having to knuckle down to Europe’s agenda of austerity, without the offsetting relief of devaluation and looser monetary policy."

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008667/the-horrible-truth-starts-to-dawn-on-europes-leaders/

Let's be even handed here. The link below is to an interview with Chris Whalen of Institutional Risk Analytics. In the interview he states his firm view that California will default on their debts.

He also makes it clear that other States in the USA can retain their sovereignty and choose to default. The Federal government cannot force them to give up their sovereignty.

http://www.ritholtz.com/blog/2010/11/whalen-california-will-default-on-its-debt/

Putting this in AEP terms the sovereign States of the USA do not have "the offsetting relief of devaluation and looser monetary policy". Translation they cannot trash their currency, ergo they must default unpayable debt.

The USA Federal government does have "the offsetting relief of devaluation and looser monetary policy" so they can trash their currency and de facto default on their debts.

Let's connect the dots. In the USA it appears that both flavours of default are about to be served for dessert. A traditional vanilla default by the States and default lite (for the calorie conscious?) served up to sovereign creditors of the Federal government.

The USA Federal government can recapitalize itself through revaluing their gold reserves. How much gold does the sovereign State of California have in its reserves?

Most of the EMU member States have substantial gold reserves. Who has the bigger overall problem, the USA or the EU?

Paul said...

Edwardo,

Yes, it was a ridiculous scenario, and in no way constitutes proof. Just trying to point out that value can be measured in more ways than “how much will it cost right now, on borrowed money, No Deposit, Nothing to pay till 2012, throw it away in 10 years time to buy the new improved model”, which is the modern Western way.

And burying a BMW would seem to be a colossal waste of energy, time and money. Mind you, building one that has a top speed over double most countries speed limits, consumes vast amounts of limited fossil fuels when more efficient alternatives have been available (and suppressed) for decades, and now has components designed to be unrepairable, would seem to be the same. It’s almost as if this excessive inefficient consumption is designed to keep the world guzzling as much oil as possible, as fast as possible ;)

Edwardo said...

Hi Dave,

In the immortal words of some unspecified someone, "Anything is possible." All that by way of saying, yes, of course, I can imagine a future where an ounce of gold might be exchanged for a new or used product of The Bavarian Motor Works. This is especially the case in the age of Peak Oil where autos are likely to become, if not extinct, an endangered species.

In the meantime, my view is that, due to a peculiar and perverse state of affairs that involved the dollar being officially utilized to assume all three of the essential functions of money, namely as a unit of account, a medium of exchange, and a store of value, the global monetary system
has become fatally distorted. This is, almost certainly, an oversimplification of our plight, but, be that as it may, it would appear that the rather spectacular reemergence of gold over these last ten years is a direct response to the very severe malady that is embedded in the globe's monetary architecture.

Given that nothing has been properly resolved where that is concerned. gold's behavior over the last decade has no reason not to continue and, even, intensify.

holdinmyown said...

Hello Paul.

" I propose a new economic system to administer the fiat side of things. Run on strictly MMT lines, each year’s issuance of new currency (distributed by state lottery Currency Clowns™) will be depreciated over the expected life of the fiat. To this end, each note will have a Best Before date, and citizens will be encouraged to compartmentalize their wallets and purses, spending their stale currency first, keeping the freshest notes out of circulation for as long as possible."

Actually this has been done before. The electorate of the Province of Alberta, Canada elected a new party that went by the name Social Credit in the 1930's to do exactly that. From Wikipedia:
"Following the 1937 Social Credit backbenchers' revolt, the party attempted to implement its radical populist policies, such as the issuance of prosperity certificates to Alberta residents (dubbed "funny money" by detractors) in accordance with the theories of Silvio Gesell. Douglas, the originator of the Social Credit movement, did not like the idea of prosperity certificates which depreciated in value the longer they were held, and openly criticized Gesell's theories.[1]"

http://en.wikipedia.org/wiki/Social_Credit_Party_of_Alberta

Nothing new under the sun I guess.

Paul said...

This is interesting stuff;

FOA 26/10/2001
“Check out those new home numbers? How can this be; people are financing and buying homes in the middle of massive layoffs and cutbacks. It just goes to prove that if you expand a fiat enough, the physical market for anything real will be brought. The secret is in "expanding enough" and using the right kind of fiat to expand with.
Well, our fed isn't shy at all. They don't hide behind some hard dollar theory when it comes to giving out free money; especially when the currently they are giving away is the world's reserve. No sir, our American home buyer has the right to buy himself a roof no matter what his economic fate.

This is the game plan that works,,,,,, has worked,,,, for decades. As long as your local economic structure is based on a "fractional credit reserve banking" that is not affected by price inflation: then the people using your internal dollar market will buy goods using whetever "almost free credit" that's avaliable.
Again; this all works as long as the world "buys into" using our dollars. As I said; an expanding fiat works to grow the economy thru expanding credit buying power because the fed can support the system with credit creation that has no "inflation premium". That lack of premium only exists as long as Americans can exchange free credit for real physical goods. Once this perception changes its over. Once the world understands that it's not local US goods that stands behind dollar growth, but less expensive foreign goods,,,,,,,,,, the stage is set for our "supporters" to sell to themselves!
Making themselves "lifestyle rich". All they need is Another currency unit.”

I think what FOA saw here was the beginnings of a plan to extend the life of the dollar beyond what was expected. The sheer audacity and outright fraud in the MBS bubble kept things going much longer than expected. What we now know is that Wall Street banks were shovelling toxic debt into vehicles to sell to European banks and pension funds as fast as possible. The faster they could get them off their balance sheets, the more they could create. Kill two birds with one stone. And low and behold, 10 years later, these mortgage bombs detonate beneath Another currency in Europe. Talk about a currency war! Fiendish.

DP said...

@Blondie: Thanks for the link; very much appreciated. I look forward to in due course also working my way through The Trinity and The Cornering of Gold. Cheers! ;-)

@Edwardo: If you garage the BMW as you suggest, this will also come at a further (significant) cost. You would need to factor this cost in to the end value you might release from the item at whatever point in time you wanted to employ it in some other fashion. (Which might well be NET negative.) The point Paul is making is that gold is inert -- you could simply spend 10 minutes burying it under a rock, when someone comes and digs it back up again 10,000 years later it will probably still have the same kind of real value to them as on the day it was buried. A bomb could go off and break it into many pieces, but if you can find all the little pieces and put them in a bag it will still have this same value.

How about if we turn the table around. How would you like to swap a nearly-new BMW for a brand new 1oz gold coin, fresh out of the mint? How about for a really, really old 1oz gold coin, it has been thumbed many times by many people but the detail on it is still clear if not crisp, it perhaps has the head of some king from when it was struck 5,000 years ago on it? It's almost the same question -- but in fact a rational person is even more likely to say yes to the old coin than the new one. How about a 10 year old very well thumbed BMW, for a new half ounce coin? For a 5,000 year old 1/10oz coin? A car, even a BMW (some would say especially a BMW :) ), seems to me to be a very poor store of value. It does, however, provide utility to the consumer, at least for a while. Like a gallon can of diesel, or a bottle of wine. Use it up now, before it spoils. :-)

Edwardo said...

"Edwardo: If you garage the BMW as you suggest, this will also come at a further (significant) cost."

I thought of that, but I imagined a variety of scenarios that would make the storage cost minimal. For example, since I'm not using the vehicle, except to occasionally turn the engine over a bit, I can find a nice, cheap, old barn in the countryside to store it.

Alternatively I simply leave it outside in my driveway but purchase an excellent cover for it thereby protecting it against the elements.
If I live in the southwest, or the deep south, I have very little to worry about.

In the meantime, my very old Model T Ford and Studebaker are in mint condition and are worth a great deal.

zenscreamer said...

Pardon my bluntness, but the gold-vs-BMW analogy is stupid.

The reason being -- it's not what an individual (who might store one, or even a dozen or two cars) can do, but what a central bank or similar huge entity would be able to use as a store of value.

It's the economy of scale thing, like the understanding of where all the oil money can "hide" -- once you've bought an air force and an armada, what then?

It's not about US it's about THEM.

Dave Narby said...

@ Edwardo

"In the meantime, my very old Model T Ford and Studebaker are in mint condition and are worth a great deal. "

Which brings up the liquidity issue, because while those old cars are nice, it all depends on who's buying when you need to sell. Not an issue with gold.

Edwardo said...

Zenscreamer,

My take away from this lively debate is that there are chinks in the armor of all the arguments presented, mine included.

But chinks in the armor need not sunder the argument since it's all a bit like the story of the two fellows running from the grizzly. Both men don't need to be faster than the grizzly, just one fellow needs to be faster than the other. Of course if one is alone when the hungry grizzly comes along...

holdinmyown said...

"The dollar is now getting back to being what every national currency is supposed to be: the currency and thus the problem of the country that prints it. In fact, in these last weeks of 2010, we have witnessed the end of an era where the dollar was the currency of the US and the problem of the rest of the world, as John Connally put it so neatly in 1971, when the US unilaterally terminated the convertibility of the dollar into gold. Why? Simply because from now on the Fed must take into account the opinion of the outside world (9). It is not yet under guardianship, but it is under “house arrest” (10). According to LEAP/E2020, we can already anticipate that there will be no QE3 (11) regardless of the US leaders’ opinions on the subject (12); or it will take place at the end of 2011 to the tune of major geopolitical conflict and the collapse of the US dollar (13)."

http://www.leap2020.eu/geab-n-49-is-available-warning-global-systemic-crisis-first-quarter-2011-breach-of-the-critical-threshold-of-global_a5458.html

Stolid said...

Maybe I'm misreading it. Why is Obama demanding China to appreciate the yuan? Doesn't that mean Obama is *asking* China to dump the dollar peg? Is there any real possiblity in the future that the US will raise interest rates like Volcker did a long time ago to counter the dollar devaluation?

Dave Narby said...

@ Edwardo

"Both men don't need to be faster than the grizzly, just one fellow needs to be faster than the other. Of course if one is alone when the hungry grizzly comes along..."

Given A or B?

I'll take C:

http://wins.failblog.org/2010/11/17/epic-win-photos-man-bear-win/

Dave Narby said...

@ Zenscreamer

Well said. Thanks for a quick snap back to the central thesis is.

Desperado said...

@Museice "ETFs May Be the Best Way to Buy Gold"

Amazing article, it starts with: "Investors looking to follow George Soros’ lead by getting into gold may want to consider bypassing traditional acquisition in favor of gold exchange traded funds." and then gets more putrified as it goes along.

It seems that we are on a bus. TPTB have long known where this bus is going. They have been driving this bus for years, since at least 1931 when England went off of the gold standard and really since 1914 when the Fed was formed. It was always inevitable. It is no coincidence that all these events are happening simultaneously around the financial world. As Roosevelt said, "In politics, nothing happens by accident". We are continually heading into these mini crises, like recently when the bankrupt US states and the PIIGS hit the headlines. It always happens simultaneously, always increasing in intensity, always solved and put into the back burner, simultaneously, until by events or by design, they reappear. CNBC as I am writing this are saying that now is the time to buy Irish debt. Forbes is telling us to buy gold ETF's. We are being herded. I don't know exactly who is doing the herding, but I am sure that Soros, the Rothschilds, Buffet, and many bankers are all herding us.

I am sick of being herded, and this is one of the reasons why I keep buying PM's. This crash is going to be of biblical proportions. It's significance far exceeds my survival. My goal of me and my spawn making it to the other side of the reset transcends my existence and even that of freegold. What is this significance? In a culture and time where the meaning of life has been degraded to dancing with the stars, gay marriage, and iphones, I find myself seeking some purpose or meaning. Is this freegold?

I think Glenn Beck perceives this yearning. This is why he had his restore America rally. This is why he is trying to get his audience to prepare. He wants them to prepare for something more significant than having enough gold to finally be able to buy that BMW on the other side. He is telling his audience to be prepared to help reunite their communities and that life will be better on the other side. He is offering hope and purpose.

I find myself sympathizing with him far more than Soros. I am an atheist, and perhaps it is my curse to seek some higher meaning in life. I have this inner feeling that events are accelerating towards a moment of absolute clarity, where the purpose of my existence will be revealed.

I would love to discuss this with other readers of this blog, but my suspicion is that most of you are blinded by your refusal to even listen to what Beck is saying and your fear of discussing this aspect of the looming jubilee.

Dave Narby said...

@Desperado

...Who you kiddin'?

I'm right there with you!

It's just that I'm not an atheist (by definition, all rational people must be agnostic. Atheism is IMO more irrational than deism or spiritualism because it ignores the overwhelming anecdotal evidence to the contrary).

Also, I disagree with Beck to the extent that he ignores the role of the multinational corporations in bringing about the NWO. They are just as dangerous and responsible for what is happening as characters like SOROS and the public unions, and he does a disservice to his audience by ignoring half of the 'bad actors. I also wish he'd shut up about God, because I frankly find faith to be a very personal thing. Other than that, Beck is spot on.

We can kick it around at your blog if you want. Or if you live in NYC, shoot me a line and we can do cawfee.

Frankly, I think we need a message board/chat room for FOFOFOAs (Friends Of FOFOFA). Google's comments are IMO very cumbersome for discourse.

Paul said...

Desperado, Dave

“I have this inner feeling that events are accelerating towards a moment of absolute clarity, where the purpose of my existence will be revealed”

Same here. I find myself walking through my city at rush hour looking at everyone around me, thinking “DON’T YOU KNOW WHATS COMING. WAKE UP!” But I think everyone does know at some level. That’s what makes the situation so volatile. It’s all just beneath the surface, people just keeping a veneer of normality in place.

But we must change. We must. It will be voluntarily or it will be forced upon us. Our way of existence must change to one that is not dependant on continuous growth. The first part to change will be the part easiest to change, the most fragile, the most dynamic, fastest moving, most fluid part. Funnily enough that may not be our thoughts & ideas, which can be incredibly resistant to change. The first part to snap into a new paradigm will be our money, our values.

There was an interesting question on the whole EU banking debacle today. A journo was making the point that banking bailouts must happen, since the alternative was unacceptable. A reader asked the question, what is the alternative? Please spell it out so we can make an informed choice. Would ATMs stop working? Would shops empty? Would police go unpaid?

This goes to the root of the situation. People herd together because money is survival. The more imminent the danger, the less thought is given to the future. I’m not focussed on my pension if I’m worried about paying the rent. Bail out the banks, tax me tomorrow, as long as the ATM works today. But if the threat keeps growing, as it will, the herd will get twitchy. It’s such a fine line for TPTB. All they’re focussed on is avoiding that stampede. That’s it. That’s their imminent threat.

So I think it’s hard for any of us, plebs and elites alike, to see beyond that reset. When you’re staring into an abyss you tend to freeze in fear. Time to find out if we’ve got wings I guess.

Don't follow Glenn Beck here in Oz. What's his take on things?

costata said...

Desperado,

This piece in Veterans Today (USA) appears to echo some of your thinking about the state of the world.

http://www.veteranstoday.com/2010/11/17/gordon-duff-the-california-mystery-missile/

Cheers

Dave Narby said...

@Paul

http://www.watchglennbeck.com/

Basically, hyperinflation is coming, buy food, gold as insurance, and Soros is trying to help bring about a Socialist NWO.

He's more than half right, except that the Socialist part is only a portion of what is intended as a a global regeletory democracy (see www.thedailybell.com for discussion on this), hand in hand with corporatism.

Museice said...

Wow... and I posted the 'Buy GLD' link as a lighthearted joke!

Ganesha approves of my interest in gold.

Two thoughts:
Crash JP Morgan

Europe Bank Run December 7

ShamefulPath said...

Desperado,

I agree with the trouble that will be coming. IT will be a catastrophe. You have a bit of an edge living in what I perceive to be a more stable place. I know where I'm at in the SW US will explode into a powder keg of crime and looting. I'd leave but I'm trapped till at least May to finish grad school.

However I can't watch Beck. To much Neocon in him. He sees some of the problem but he is love with the warfare state, and invading nations. And then there is his treatment of Ron Paul. I lost it when he was talking in support of using troops on "the bubbahs". I see him as ether a shill or a lunatic, I don't know which. I'll stick to the Judge if I must watch Faux news.

I hear he is at least starting to talk about Bernard Shaw. It's a step in the right direction but he would do well to point out that most of the "progressives" have a strong anti human agenda. In their world there area a hell of a lot less of us (500 mill - 2 billion). One reason why I don't think they will mind driving us off a cliff and keeping their gold hoard. One hell of a catastrophe if we go from over 6 billion to 500 million world population.

Desperado said...

@Dave Narby,

I am more agnostic than atheist, about the same as I am on 9/11.

I don't get Beck or Fox here in Switzerland, I just watch the odd youtube clip. Very recently I have discovered watchglennbeck.com, and after watching his Soros puppetmaster piece I am "keeping an eye" on him.
I say this so that you understand that I don't have enough knowledge about him to discuss his positions on large corporations or on him being a neocon. My wife hates his presentation and refuses to watch him, as do my brothers who live in the US. I agree about google comments.

@Paul, Beck thinks Soros is the puppet master and is controlling numerous NGO's and other "non-profit" organizations in the US. His most recent move was to finance 100 new reporters for NPR (National "Public" Radio). He is a partner of Arianna Huffington and seems to have many connections in Omana's shadow government through his various organizations like the tides foundation, SEIU, etc, etc.

@Costada,

I read the Gordon Duff piece. I disagree with most of what he write about China, especially that the communists could ever have been our allies. I was an interesting description of meaning of the missile launch.

@Shamefulpath,

Your wrote: "To much Neocon in him. He sees some of the problem but he is love with the warfare state, and invading nations.". I certainly have never seen him say anything like this. Could you be confusing this with his position on Iraq and his support for veterns?

Could you elaborate on Beck and Shaw? My guess is that Beck despises Shaw. I never saw what his position was about Ron Paul, who I greatly admire. Beck is certainly ranting about progressives, so I don't see how you could fault him for not covering them...

@All, I notice some parallels between Beck and Coughlin. I find Beck's appeal to his audience, who are mostly christian conservatives, to prepare for the flip to be quite interesting and a vital public service. I know of no other national "celebrity" who is doing the same thing on any where near the same scale. He also has shown remarkable courage in taking on Soros, Obama, the banks and the entire progressive establishment. And most importantly, He has also been consistently telling people to buy gold.

costata said...

For the China watchers:

"If China indeed experiences a rapid slowdown in GDP growth, the impact on the rest of the world may be far less than we expect. The real key is the evolution of the Chinese trade surplus. If it contracts, it will provide an expansionary boost to the rest of the world, not a contractionary one." (My emphasis)

http://mpettis.com/2010/11/what-happens-if-chinese-growth-slows/

Paul said...

Desperado, Dave,

Thanks for the links to Glenn Beck. Just been listening to him explain puppets and puppet masters. Oh the rich irony. That is some seriously heavy duty propaganda he's got going there. Strongly suggest you stop listening before it fries your brains. Next time the impulse strikes try this instead:

http://www.youtube.com/watch?v=CR3dM-GlZK8

costata said...

Paul,

100% agree.

Desperado said...

@Paul, Costada,

Could you elaborate on why it is propaganda? My suspicion is that it is his talk about American exceptionalism that gets to you. Or is it that you think that a Soros lead or guided NWO would be an improvement?

DP said...

@Desperado: I think the main problem most people have with people like Beck, and yourself, is not what you have to say, but the delivery.

I myself over the years was compared to some kind of a religious zealot over my economic views and how uncharacteristically passionate I was about them in conversation whenever the topic came up (which was a lot, since I was passionate about it and of course economics underpins any topic someone wishes to bring up!). Most people don't share that passion we all have here for the subject; they think it is irrelevant to them and don't want to know. Certainly they don't like feeling like you're a preacher man and they are the clueless idiots that need to be saved.

Over the years I have much more relaxed into it, come to realise that I am being counterproductive if I attempt to engage people in the problem all the time, they just get turned off right away. I put it out there with what I hope is a much more take-it-or-leave-it tone, in the hope that it might resonate with people and they will come to the subject for themselves.

I don't think anyone at this venue is in any strong general disagreement with your views. I suspect if you took a little more time and effort to tone down the delivery a little, moderate the enthusiasm, try to spell people's names correctly when you address them, boring stuff like that, I think it might work a lot better for you. Just a friendly suggestion, worth what you paid for it. :-)

Museice said...

If you can put this on your 'notepad' and copy/paste story titles & URL's into it we would appreciate the gesture. It helps us click.

copy this [a href="http://www.URL.com"]Title Of Story[/a]

and in your notepad change the '['to'<' and ']'to'>' to complete the code. Use this whenever you want to add a link in comments. Thanks.

ShamefulPath said...

Desperado,

Beck talking about how some Ron Paul supporters are fringe. http://www.youtube.com/watch?v=Eg8M2JBIoqo

Glenn talks up using the military on the people. Guess he must support the troops, after all who will keep the boot on the people? http://www.youtube.com/watch?v=8La5xLYo2-s&feature=related

And calling for preemptive vengeance against Iran, hardly libertarian. Youtube Beck and Iran and you will see countless hours of warmonger talk. Because what America and the world needs right now is another war.

My problem with Beck is the 80% good stuff he says then the 20% wacky madness. Hardly makes my position in the US easier. People associate me with him, and it's hard to debate people when they lump you with a rodeo clown.

Heard him talk a lot about ACORN but a lot less time talking about how GS and JPM are literally getting away with murder. Turns out Beck at a key time supported the bailout. Recanted later, but still supported the financial coup of 08. He's on Faux and mostly just dances the red/blue dance. The Judge is WAY better, but he's stuck on Faux Business.

ShamefulPath said...

Desperado,

Soros is not that major a played. Look at where he got the money for the Quantum fund. Do your own research and fit the pieces together. Maybe check out Tragedy and Hope. Was written by Bill Clinton's mentor so hardly a conspiracy theorist.

Desperado said...

Okay, okay, I'll drop the Beck stuff, he is over the top (thanks for the posts, Shameful). However, I did find the Soros bit interesting, and Beck has spent a lot of time connecting the dots.

@DP, I try to be straight forward and honest. You have to realize that living in Switzerland I "miss" a lot of the background noise that you guys have to endure, and I am often frustrated because I cannot find anyone who cares to debate this stuff with me. My perspective is also different from most Americans because I have spent 20 years filing conflicting tax forms in 2 different countries and I despise what the federal government has become.

Mike said...

http://www.zerohedge.com/article/goldsilver-ratio-silver-going-higher

i guess this is proof that not many people have yet read the work of Another/FOA and FOFOA or understand money and how rarity isn't important in money.

DP said...

@Desperado: I feel your pain, really I do.

I am just saying that, personally, I have come to realise I was being counterproductive by displaying my passion for the subject quite so openly, and I felt I was witnessing a similar phenomenon in your posts and the tone of the responses they sometimes elicit. I attempt to rein myself in these days, and it seems to work a lot better for me, people know I have that interest and knowledge, and increasingly I am being asked for my opinion rather than my unsolicited opinions just being immediately rejected without any reflection.

I'm sure FOFOA, costata and everyone else here all share the passion that you have too, but have probably over time come to a similar conclusion and their posts are much more measured.

However, it would definitely be a shame for the conversation to turn quiet at this tavern. I suspect I might be speaking for most when I say I look forward to your contined engagement in the conversations that you certainly seem, to me, to help foster.

Cheers!

julian said...

Mike,

Thanks for the link

Personally, I do look at the historical ratio and conclude that the freegold ratio would be closer to it (12-25) than to 100, or even 50

I also consider the possibility that gold will not trade, at least it will be too valuable for average masses to acquire as a store of value.

And so after gold, what's left?

I think silver might play the role of physical metal for the people...I mean its name is still "money" in several languages. Yet I am still doubtful and skeptical that it will play out as smoothly and easily as that.

One scenario that I can see widening the GSR is one where freegold is quickly and smoothly implemented/transitioned and where there are functioning currencies that hold stable value in relation to gold value such that the populace can use (and store value in?) currency that's 'as good as gold,' currency that doesn't inhibit the flow of gold (/or oil?).

Yet there will still be a demand for physical metal, and lots of paper claims on silver exist today, so bids could certainly manifest an accurate valuation for the metal.

Being bi-polar, silver is historically monetary, and now heavily industrial. I don't have the slightest clue how that would affect its value relative to gold in a freegold scenario.

I still think gold is the best way to go for storing wealth, but in my humble opinion, I think silver is a better speculative play.

What I do know, though, is that Silver, even in relation to Gold, is historically quite volatile, even year over year. So if silver did for any reason close in to its historic ratio, I would use that as a signal to trade for gold (or land) because the volatility will quickly show up.

But then again, we're imagnining a freegold scenario, an historic shift in the paradigm of humanity collectively, so who knows how strongly they might feel about hard money or physical precious metals, and how that might translate to the GSR.

Anyhow, I look forward to the thoughts of others on this interesting matter.

G'day,

Julian

S said...

@ad
is there really any movement to nationalize mines? The RE prices in Ctown are still astronomical as are property prices in the vineland. S/A is unique in that it is a totally self suffiecient country w/r/t fuel/food etc. Wondering what internally (locally) is viewed to be the most ideal place to own land/property is? Ctown is pretty overbuilt while eastern cape pretty remote. Durban/Jburg industrial? thoughts

Dave Narby said...

@Paul

Either intentionally or unintentionally, you aren't reading my comments on Beck very carefully. If you insist on doing this, just ignore me, and I'll do the same for you. Peace out.

Dave Narby said...

@Desperado, DP, Paul, Costado, et.al.

http://www.zerohedge.com/article/how-persaude-stubborn-people

Dave Narby said...

@Mike

I think the plan is to herd people into silver (keeps them out of gold).

If you own any, just be ready to swap when the GSR seems right.

littlepeople said...

Dave Narby said:

"I think the plan is to herd people into silver (keeps them out of gold)."

I disagree. Based on the size of concentrated silver shorts vs. those of gold, the PTB have tried harder (historically) to keep the lid in silver as opposed to gold.

But where they have REALLY tried to herd us is into ETFs, namely GLD and SLV. That is how they have tried to immunize money from going directly into gold and silver. There is a reason that JPM (largest silver short) is custodian for SLV and HSBC (largest gold short)is custodian for GLD.

Michael H said...

So, Dave, do you want to defend your feelings and beliefs or do you want to know the truth?

;)

littlepeople said...

DP, Desperado, others re: Beck's views:

This link,
http://www.breitbart.com/article.php?id=xprnw.20101113.CL01025

was sent to me by my son. I'm his kids' Grandpa so he figured I could relate. Well, I sure do.

It's not just the Federal court system that has been bought and paid for, however. This will be a very informing case . . .

I can't get into Beck either--he turns me off with delivery, as several here have stated. I do know that we now have a fascist alignment in the U.S. and Europe, wherein multi-nationals and big banks have BECOME the government. The pols are just the puppets (Beck??).

miked said...

Re:Beck

I was saying on the last thread how Beck's "Soros: The Beast" was supposed to make Soros out to be a monster but amusingly, from the portrayal Beck gave him he sounds like a cool guy.

That's not to say he isn't plotting bringing America down. He may well be up to something, but if he is from what Beck showed us, Soros is doing it because he believes he can make the word a better place. He may be misguided, but he doesn't look evil to me.

Mike said...

@Dave and @Julian

maybe silver will get to 30 to 1, and if it does great i have some i can exchange. i bought at 80 to 1 thinking silver would be the best path for the metals, even some platinum in the mix. slowly started selling some of it at 60 for gold and still going at it. waiting for 45 right now to sell the remaining which believe me isn't much left. this forum made me change my mind.

however what i want to bring across is that maybe for you and me based on the amount we have, its a drop in the bucket but no person with lots of money (millions+ for example) would put much of it into physical silver and try to exit at a GSR of 30 lets say. they would need to get say 1000oz+ of gold for the exchange which would be extremely difficult at that GSR time. today it is still possible.

this is also considering that silver is not the last contago when gold is removed from the paper market and real gold hides.

how hard is it going to be to exchange for those people compared to most middle class people buying silver. i read the kitco forums some times talking about how big there stack is and most people get really excited about a few hundred oz's. why would you even gamble with this scenario, why not just buy gold.

you see the guy with the millions wont gamble his money into silver and try to time the GSR exchange for gold.
silver is too small of a market for the truly wealthy ones so its truly poor man's gold because not everyone can store their excess wealth into it.

silvers quick rise will also happen before silvers quick fall as it follows the economic law (more supply as its price rises via refining etc...) that FOFOA pointed out in shoeshine boy.

jim sinclair talked about silver in the 80's saying its a game. how many people really got rich off it during the parabolic era. some paper traders did but not the physical ones, if there were really any physical buyers other then the hunts. the hunts are a perfect example why you shouldn't buy silver if you have money, you aren't going to win, it is a very important metal that will never be free again because it is scarce. gold didn't collapse no where near the same way silver did, it stayed in the 600's for a long time and CB's value it unlike silver. and if Another has taught us anything it is that gold is the one that flows opposite of oil, not silver. it is truly a gamble that will have more losers then winners i think.

silver was more free when there was lots of it and it was money. now its scarce and is required ever more for the industry/economy so it will always have a top and a bottom based on the economy.

Desperado said...

Price of gold

I am watching John Wayne in Rio Grande. The bad guy, who got killed in the bar, had a 50 dollar gold piece in his vest that he had been paid for killing John Wayne's good buddy. Would you trade your loaded BMW 540 to stay out of jail? The answer depends on whether you have a 1oz gold piece in your pocket. It gets back to the question of value.

julian said...

Mike,

Your thoughts seem to echo mine quite closely.

Thanks for sharing.

If I had any semblance of real wealth, there is no way I would gamble on silver. No matter what its upside.

Gold is just too safe and reliable. Silver, historically, is not so.

But, all bets are off when it comes to historic paradigm shifts.

Time will tell.

littlepeople said...

Michael H.

I want to know the truth, thank you. Please release it.

Dave Narby said...

@Michael,

There is no truth.

There is only perception.

Dave Narby said...

@Mike

Hitler, Lenin, Mao, Bush and Obama also believe(d) they were making the world a better place.

Road to Hell being paved with and whatnot, wot, wot.

Dave Narby said...

@Mike

It's inconvenient, but has been done before... http://news.silverseek.com/SilverSeek/1268779599.php

Greg said...

Mr Narby

"Also, I disagree with Beck to the extent that he ignores the role of the multinational corporations in bringing about the NWO. They are just as dangerous and responsible for what is happening as characters like SOROS and the public unions, and he does a disservice to his audience by ignoring half of the 'bad actors. I also wish he'd shut up about God, because I frankly find faith to be a very personal thing. Other than that, Beck is spot on."


So, other than leaving out the largest factor in this "conspiracy", our corporate overlords, Mr Beck is spot on?? This guy is shilling FOR the corporate overlords he conveniently leaves out of his story and you still think he is someone we should listen to.?

This is like a "friend" telling you about your wifes indiscretions without disclosing to you that HE is the one screwing her!

Brilliant, just brilliant


Keep that channel tuned to Faux, you'll hear it there first. They've got your best interest in mind

Mike said...

greed right now tells me to buy silver, it just seems like the better play when both metals are treated as commodities. but i dont want to play the commodity game which is why i agree with fofoa saying i wont add to my stash.

fofoa has talked about the gamble of silver many times before and is probably sick of talking about it. i personally dont mind talking about it because i get to make sure if i made the right decision which i think i have.
he did have a great saying to Dave a few months back talking about the leverage it perceive it has to gold.

when gold ultimately becomes free it will be a massive leverage that silver would never have been able to be. how much more is a wealth reserve(store of value throughout time) worth for the the CB's and wealth producers vs the price of a commodity the world needs for every day use and without low prices, the world wont use it because it is scarce.

if oil is so important why is it not worth so much more? because its a commodity. how can the world demand oil if it is over priced?
oil is the best way to gold.

i am not sure but i think most silver holders dont think of an exit plan at all. who do you sell all this quantity too (assuming you are able to catch the big price spike) and im not talking about 200oz's as if that will make a difference.

will i ever buy silver again? as long as gold is around then no.

i've got a bad image in my mind about silver now if anyone prefers it over gold, probably doesn't have much worth protecting. is it worth having some, i think so but only a few points of your net worth for trading to gold or spending.

costata said...

Angels jizz every time anyone moves their savings out of paper into unleveraged hard assets (gold, silver, land, whatever).

Dave Narby said...

@Greg

So you think the multinationals are the biggest part, and I think they are only 'half'.

Fine.

Just ignore me, please.

Dave Narby said...

@Mike

You might plan on visiting coin dealers in the future to make swaps, or trade your silver for stuff you need (food, clothes, gasoline, cars, apartments...). : )

Dave Narby said...

@Costata

Now *there's* a visual for you...

ad said...

@S There is a faction in the ANC, the Youth League, trying to get mine nationalization on the agenda.

SA used to be near self sufficient but no more, we now import a lot of our food, except maize. We have lost half our productive farms and farmers due to disastrous land policies and continued violence against them. 22 countries around the world have offered land to SA and Zim farmers and 100's have taken up the offer, up to 800 in Mozambique alone. A hidden story.

Sasol produces up to 40% of our fuel but its sold at import parity pricing and we get ripped off. SA used to be cheap to live but no more.

The ideal places are reflected in the price. The small towns and Garden route had a boom and influx, but trend has reversed hence city centres are resilient. CT well run, JHB ok, Eastern Cape a disaster. Denial stage of the bubble at the mo, trad property market in gridlock, auctions where its happening. I think 2015 to 2018 a bottom.

Mike said...

hehe i dont live in a world of misery as i choose not too. i don't believe in a depressed world, i know there's lots of bad out there but i think there is more good so i ignore all the bad.

according to many and during the these times the world should have ended during the great depression, or even during all the wars we had but it didn't and that's the way i see it.

the laws of attraction play wonders if you use them correctly.

i think gold is 1 of the ways out of this misery for the world to give it sense again.

if i ever need to trade my silver for cars or apartments then we will be in a world of trouble meaning then silver to me would be useless and i should stock up on canned food or clothes etc...

so if thats what you want your silver for then keep it. speaking of bad images in the last post, i also think that silver holders are most likely depressed people from what i read in these forums about dooms day and all that nonsense and silver will protect me from the NWO blah blah.
its no wonder i got rid of it along with the attitude it comes along with it seems.

littlepeople said...

Mike:

Have you been drinking? "i also think that silver holders are most likely depressed people from what i read in these forums about dooms day and all that nonsense and silver will protect me from the NWO blah blah."

What blather. Silver holders are the farthest from "doomsayers" that I know of. Basic silver demand is based on growing economies that need steady supplies to provide for the growing needs of civilization. The fact that it is grossly undervalued due to decades of price suppression is now attracting the attention of investors. That is what silver is about, bon amie'.

Gold is a placeholder--silver is a vibrant, needed metal for the efficient progress of the world's people. That is doomsday? Man, wake up!

Greg said...

Ummmm Mr Narby

Its not about the amount of attention you give to multinationals, its about the amount of attention you give to Glen Beck. To say he's spot on when he's only telling half truths ( thats being generous) is laughable. We've had apocalyptic "prophets" of doom for multiple millennia, on the left and the right.

Yes we are at a crossroads in the world, much will be different in two years but Mr Beck doesnt know who the bad guys are. Our problems will be related to energy and our senseless refusal to address it seriously the last few decades is going to haunt us. America will pay the biggest price because we've been the least oil independent, held hostage by oil companies. Pointing at Soros and progressives is just more of the tired old "red scare" narrative from the 50s. Its the blind, ignorant, greedy hypercapitalists driving our world economy in the ditch.

Dave Narby said...

@Greg

Gotta get the last word in, eh?

doug6zj9 said...

Greg is insufferable. He can leave any time now.

Mike said...

littlepeople, im not talking about what silver is, im talking about how traditional silver investors act in my experience.

obviously this can differ from person to person so i would appreciate that you can respect that and i can also respect your view because i know not all silver investors are dooms day guys. take fofoa for example.

im a silver investor and not dooms day at all.

other then my experience with forums, i remember once i went to a local coin shop and this was maybe 3 years ago and i asked for silver ( i usually bought online), he said a lot of people were buying it and i was pleased as i was a big silver bug at the time. i remember my attitude back then about silver sorta matched the attitude i tried to describe also in the posts.
so anyways i then asked how junk silver was doing and then they said its doing good but its mostly for the hardcore guys who think the world is going to end (exactly in those words)

that sounded normal to me at the time and i only started to realize this as i started to get a new and i think correct understanding about the gold market, instead of ones that i was completely being misinformed of. i use to read a lot of gold/silver analysts and i have completely stopped because for some reason they just seem to bring out negative vibes about investing in PM's and the markets/world in general and plus i frankly dont care what they have to say anymore since i dont agree with there views at all.

so i am glad i was able to read a different perspective in this blog and the USAGold archives.

miked said...

Mike I have silver and I am not depressed. Far from it :)

And shock horror: I play in paper silver because I get huge leverage. That's suited me fine no matter what the endgame for paper may be.

It's not a contradiction the belief in the end of the paper markets and Freegold because my profits go into physical gold.

David said...

@Greg

Lol. Nice takedown of Narby for his condoning of corporate shills.  

costata said...

Hi littlepeople, Dave, Mike et al,

If you don't mind I'd like to post a few comments on silver vs gold.

When we first started buying PMs I was heavily weighted (shrimp scale) toward silver. As I studied and thought about the fundamentals I came to the conclusion that I should reduce our silver exposure in favour of more physical gold.

Right now we are poised to exit the last of our silver to be 100% in gold. Take that as a disclosure but NOT a recommendation to anyone.

This is the first in my list of reservations about silver:

1. A 15:1 gold silver ratio harks back to times when both metals were official money. If you think about it, you cannot really prove that there was a "ratio" in periods when there was no central market maker, such as a government, or a need to facilitate trade between countries that used gold as currency and others on a silver currency standard.

Today the GSR is a convention in name only. It's a mental construct that has validity in the minds of the PM community and no counterpart on the physical plane. I don't need to have gold in order to be able to settle a trade with a silver holder or vice versa.

It is no more real than a gold banana ratio or a gold cheddar cheese ratio. You can take any metals and imply ratios where none exist.

Another argument for a 15 to 17:1 GSR is the prevalence of the two metals in the earth's crust. This seems to be a completely hollow argument unless both metals are interchangeable in their uses.

Taking this argument to its logical conclusion the prevalence of bauxite (aluminium) and copper versus silver are more relevant ratios because they all compete, to some degree, for the role of electricity conductor of choice.

IMHO the GSR is the first and most crucial issue in the gold versus silver debate. If gold isn't locked into a ratio with silver then Freegold can take the gold price to levels that silver cannot keep pace with. Silver would have to compete on its own value proposition.

More comments on silver to follow.

fredquimby said...

Morning.

I see your silver post costata and smile. I HAVE to tell you what someone said to me last night.

This guy is a prominent wealth manager in Zurich for one of the ....Mmmmmm...Big 8 banks lets say. I have been throwing him gold and silver written "gems" every now and again for the last 2 years (since I discovered FOFOA basically). He has said he has read all I sent but last night in the pub, he came over and said:

"Hey, you know you said you had some sites you visit about silver? Well I was at a meet with 2 hedge fund managers yesterday, and both wanted to hear nothing else, but my opinion about silver over the next 6 months".

"Now, I know you have been pretty insistant that I listen to your "hopes" about gold and silver, but to be honest, I didn't pay much attention as frankly, I know nothing about silver."

"and to be fair to you, you have pretty much called silver and golds path these last 18 months, so.....can you send me over those site links again?"

Me: "When you say HFManagers, what big ones?"

"Errrrrr (shifty glance left and right)yes, you could say that, so in short, (Hey, what you drinking) whats your call?".

Me: "Thanks, fella, I take a Jackncoke two ice, only a spalsh of coke....Well in short, I am not going short on this one".

Me: "Oh yeah, and perhaps look at the Sprott Silver ETF first of all ;)"

This could get interesting me thinks :)

fredquimby said...

Disclosure:

I couldn't resist picking up some $0.07 put warrants strike 21 for Dec 17th expiry (USD/AG) when it touched 28.50 last week :)

haha

costata said...

fredquimby,

I hear you. Thanks.

Museice said...

Start listening at 11:05

Peter Schiff interviews Adrian Douglas,

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