Wednesday, November 10, 2010

Open Forum










194 comments:

Reginald said...

Businesses are still purchasing gold from the public. I wonder if this changes is that a sign of a top in gold's price is near.

Pete said...

Those 'cash for gold' programs are pretty low.

We have some here in Australia. Apparently they offer people about 1/3rd of the gold value of their jewelry.

Of course the poor people struggling with mortgages and other expenses don't know any better, and they think they're getting a good deal.

Alan2102 said...

Comments on the following story would be of interest to me.

The assumption seems to be that the new currency would be instantly embraced, with no misgivings or fear -- presumably after the fall of the dollar. I just cannot see that happening, but maybe I am missing something...

http://blogs.forbes.com/robertlenzner/2010/11/10/new-world-currency-to-replace-the-dollar-would-slay-the-gold-bull-market/?
Robert Lenzner
THE BOTTOM LINE
New World Currency To Replace The Dollar Would Slay The Gold Bull Market
Nov. 10 2010 - 5:36 pm | 425 views
QE2 will be followed by QE3 until we see “the end of the U.S. dollar standard,” a leading gold enthusiast and emerging markets expert, declared yesterday. No one can predict the timing, but the signal to sell all your gold will be an emergency economic meeting to create a new global currency, says Asia-based investment analyst Christopher Wood, who has been recommending gold as an investment since 2002.
Wood is on record as predicting that gold will sell over $3,000 an ounce some day. His portfolio allocation for U.S. pension funds includes 25% gold bullion and 15% gold mining shares.
Another signal that gold is in danger of big price slippage is when Ben Bernanke raises interest rates by 1/4 of 1%, but he sees no reasonable chance that would happen anytime in the near future– and certainly not unless there is inflationary growth in the U.S. economy.
[snip]

Jenn said...

Hello Reginald-

A top in the gold price is not near. If businesses stop purchasing gold from the public -- it won't be a signal of a market top. It's a signal that physical gold advocates are unwilling to part with their gold.

--Jenn

Jenn said...

Hello Greg-

I forgot to include this in my earlier post.

"No difference it seems AFAICT. Whether gold is the currency or the anchor of the currency, IT cannot promise a productive world. People dont work for gold (unless its THE money) they work to provide their needs and wants."

Gold does not promise a productive world any more than a piece of paper does. Gold is a store of excess wealth (production).

You are correct in that people will continue to work for fiat currencies. That's not going to change anytime soon. The problem today is that the world is using the US dollar as both a unit of account and a store of wealth. The store of wealth function is coming to an end. This is precisely the function gold offers us today.

--Jenn

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

Welcome back Costata, hope your holiday was restful. Now soldier-on and get the new recruits busy. See to it that they get shit, shined and shaved. Have them "police the area" and prepare for FreeGold. Work them hard and put-em up wet.
My best wishes and thoughts to all the veterans tomorrow.



KWN Source - Asian Buyers Have Silver Shorts Checkmated

The contact out of London has updated King World News on the Asian buyers which have been squeezing the shorts in the silver market. The London source stated, “There is an insatiable appetite for physical silver here and the shorts know that, the shorts know they are checkmated. The Asian buyers are layering in bids to take advantage of bear raids in the paper market which have been used to shake out the weak hands.”


Asian buyers were able to pick up silver at a discount at the lows of yesterday. They are continuing to buy today and tomorrow. People have to remember that spot trades 24 hours a day, so as the shorts raid the market, physical buyers already have orders in to buy tonnage of silver at a time on that weakness.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/10_KWN_Source_-_Asian_Buyers_Have_Silver_Shorts_Checkmated.html

Paul said...

FWIW, the following is my very basic understanding of what Modern Monetary Theory states. I hope this may be useful for readers unfamiliar with MMT, as I was until recently. I’ve posted this as there has been debate around MMT, with I think a fair bit of misunderstanding flying around.

Firstly, MMT makes the simple observation that sovereign nations have the option to issue currency to fund spending. (EU included, members still have the option). The belief that nations must borrow to fund spending is a myth, perpetuated for various reasons. Nations can add currency to their system and use it to fund spending (for example to purchase spare labour, reduce unemployment and fund infrastructure projects, otherwise known as nation building). This process is often described by the emotive but accurate term “printing money”. Nations can also remove currency from their system, if it is deemed there is too much of it, via taxation. Debt issuance by governments should be used purely to regulate the cost of money to the private sector, and is not needed to fund government spending. So print to fund, tax to remove. The theory postulates that economic slumps and periods of high employment can be mitigated almost completely by either increasing spending or reducing taxation or both.

When to fund, what to spend it on, when to remove, who to tax, all then become collective decisions dependant on the political system in place. MMTists believe this process can be used for full employment, does not necessarily lead to high inflation, and has been demonized by vested interests such as banks and the financial industry, for financial gain.

Personally I find interesting parallels between MMTists and the right-wing libertarians who want to abolish the Fed and take back the right to issue currency.

Most criticisms of MMT are really criticisms of the political systems used to manage it. “Honest money” proponents usually believe it’s impossible to manage this process equitably, and so the process must be managed by a physically limited substance, usually gold or silver. MMTists would respond that that then limits the productive capacity of the nation, and condemns a significant section of the population to unemployment and poverty.

It seems to me that a combination of MMT and freegold would allow nations to fund nation building without fear of bond vigilante blackmail, allow super producers to insulate their wealth from profligate government spending, and most importantly allow us to take the current financial blood sucking parasitical scum sucking dirt grubbing shits for bankers and tell them to stick their financial system up their collective arseholes.

Thankyou for your time.

Greg said...

Well done Paul

Pretty fair summation from where I live. I think its fair to add that MMTers view "money" as a public utility primarily, which I think has some merit. This certainly jives with some views of our founding fathers when commenting on money in some of their writings (for the STRICT constitutionalists out there).

I see you hold the financial system in as high regard as myself Mr Mosler and Mr Mitchell.


@Jenn

So it stores your wealth but there may not be anything to buy later, just like now. Does it make you feel better to have that gold though?

Again, I know I tread in "hostile" territory here (dont mean it literally y'all have been very patient with my long rambling posts) but shouldnt we all be really trying to figure out HOW to keep our economy producing at the capacity it can, funding the research we need to address future supply issues in critical areas we know are coming, keeping ourselves healthy and participating in a system that truly does reward hard work and not pay CEOs 50 million for cutting thousands of jobs and killing companies. Isnt now the time to ask "what job is worth 50million a year" ? Everyones salary is coming out of the price to customers, theres no where else for it to come from.

Question for the board:

In your freegold world, if you had 20 ozs of gold today saved, which could buy an Acura say, are you expecting that in 30 yrs it will still buy the Acura equivalent? Is that what inflation hedge means to you?

FOFOA said...

Greg,

Does MMT imply the possibility of a purely electronic currency system, with no circulating physical bank notes or coins? Or does it recognize the need for physical reserves like the FRNs we use right now?

Sincerely,
FOFOA

Greg said...

FOFOA

Honestly I've never seen that issue specifically talked about. I've never seen a commenter ask that question either...... maybe you could be the first?

I will say this with 110% confidence, the possibility is there from an operational standpoint. It wouldnt change any of the dynamics of the system. It might send some alarm bells with the electorate, which is a valid concern. The peeps' cant be too nervous ya know.

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

The Fractal Nature of Markets-The Death of Mandelbrot
By Martin A. Armstrong

http://www.martinarmstrong.org/files/The%20Fractal%20Nature%20of%20Markets%2011-1-10.pdf

Paul said...

My vision of the future, by Paul

My vision of the future, post dollar, is one of massive financial furcation. This furcation, or splitting, will lead to numerous local, regional, national and international financial systems, each evolving from the ground up to satisfy the needs and philosophies of the users.

LETS (local enterprise trading schemes), honest money, copper, silver and gold coins and plastic imbedded 1g wafers, USB finance, MMT and traditional fiat systems at state and national level. What they all have in common is the physical size of trading area will be directly related to the general level of trust in each system.

A Chinese electric bicycle manufacturer will sell to an Indian importer for Yuan or Rupees. The Indian importer will sell to a regional retailer for Rupees, Rajasthani MMTs or 1g gold wafers. The retailer will sell to a local flower grower for Rupees, Rajasthani MMTs , Hadoti LETS or silver coins. And the flower grower exports flowers to China using ebay. And of course they are all sensible enough to save their profits in Gold.

It’s the diversity of systems which often give them their resilience, and it’s this diversity that is currently lacking in our global system. So the cleansing collapse of the existing monoculture will allow, indeed force, this diversity to flourish from the ground up. I look forward to watching it grow.

And the best part is, is allows us to take the current financial blood sucking parasitical scum sucking dirt grubbing shits for bankers and tell them to stick their financial system up their collective arseholes.

Paul said...

FOFOA

Are you Martin Armstrong?
And if so, how are you getting access to the internet?

Laszlo said...

Thanks to Jim Sinclair, here is a link to Martin Armstrong's latest on fractals, economics and panics. http://www.martinarmstrong.org/files/The%20Fractal%20Nature%20of%20Markets%2011-1-10.pdf

FOFOA said...

Greg,

Let's explore this topic together. You said, "I will say this with 110% confidence, the possibility is there from an operational standpoint."

I'll try to show you why it's not. But that is a little beside my point.

Anyway today, in our non-hypothetical world, when the government spews out some new spending to pump money into the economy, what actually happens, from a technical standpoint? The government credits someone's personal bank account, right? Like say a new worker who just got hired by the big G. G-worker's bank account will be at a private institution, like say BofA. And when BofA accepts that deposit from the big G it is taking on the liability, the obligation to provide actual reserves, actual FRN's to G-worker upon demand. Perhaps G-worker will not ask for cash. But the liability is still there, and BofA has only a small reserve of FRN's. So what has the big G given BofA in exchange for taking on this liability to G-worker?

Can you see where I'm leading? What did BofA get from the US Government in exchange for taking on this liability to the new government employee?

Sincerely,
FOFOA

Edwardo said...

"So it stores your wealth but there may not be anything to buy later, just like now."

Just like now? There's always something to buy, and this has been the case even in the middle of the most trying times in human history. And unless things change in radical ways that one can scarcely imagine, there will be things to buy in future. In short, and at best, I find your posed hypothetical-a world with nothing (available) to buy- just a tad stupefying.

Texan said...

FOFOA,

I think I just got your hyperinflation post. Those dollars are coming back to the States, aren't they?

Oh shit.

Pete said...

@Greg

Seriously, can you stop treating the US as it's own insulated financial habitat?

As an Australian, I find it a bit offensive that you continue to do it, especially after you have been 'informed' that is not how the world works.

It just makes you look like more of a fool to all the readers here who hail from countries other than yours.

You have two things completely wrong:
a) that the US can ignore trade relations
b) that the US can employ whatever fiscal activity it wishes with impunity

Now do you realise that your MMT model is too simplistic? All of the global financial interconnectivity cannot be effectively managed by the US. And if you think that the US can 'do without' the rest of the world, then you might like to try living in North Korea for a while.

FOFOA said...

Hello Texan,

You'll have to be more specific than that.

FOFOA

Texan said...

The Asian and ME CBs are going to quietly ratchet down their USD savings in favor of "anything but". They will sell into the Bernanke put. That will increase the velocity of the USD and soon it will be understood that it's only real value is back in the States, in exchange for exports of stores of value and essentials, like grain, coal, etc., and of course whatever gold can be physically moved.

Foreigners hold trillion and trillions of US securities. And the Fed just offered them a bid, so now the game is to convert the cash into stuff without huge price spikes, which isn't working very well. So they could panic, and the hyperinflation will effectively start abroad.

I had always assumed it would be here first.

costata said...

Texan,

Are you ready to take the next step?

If Stewart Thomson (Graceland Updates) is right a lot of those dollars will be coming back with a huge discount already built-in.

Here's the scenario. The banksters (Thomson's term) have been layering into massive amounts of foreign currencies with the aim of buying US dollars when they smash the USDX down to 40-60. According to Thomson they will be buying all the way down in increasing volume as US$ holders are panicked out of their positions.

If true this would make life interesting for US citizens who have a pile of US dollars they intend to deploy when prices are more realistic. They will have competitors holding identical FRNs who bought their dollars for roughly 0.40 - 0.60 cents on the dollar.

For the "banksters" there will be a 40% to 60% off sign on US assets and a price tag for the locals that reads 0% off.

Just to reinforce the narrative. Marked to market prices for the banksters and marked to myth for the locals unless they own physical gold.

Texan said...

Costata, I don't understand what banksvlayering into foreign currencies means?

costata said...

Texan,

Sorry I should have explained. Picture a pyramid shaped pattern of buy orders. Small at the highest prices and as the price falls the volume of buy orders expands in size.

Thomson is inferring that his "banksters" have massive amounts of foreign currencies with which to buy the US dollar when they are ready.

"The Asian and ME CBs are going to quietly ratchet down their USD savings in favor of "anything but". They will sell into the Bernanke put."

They will then be fleeced of as many of those self same US dollars as possible. Bernanke just guaranteed the supply of the dollars to the marks in this sting.

Texan said...

Costata, thank you, I found him on safe haven..he is pretty fired up!

I did not find the post on USD though, what date is it?

Texan said...

Costata, ok, I see. But what I mean is they will sell their bonds for cash and then quickly use the cash to buy anything and everything. It is high powered money and we are going to be flooded with cash that no one wants offshore, so it will all have to come back onshore in exchange for ANYTHING it can be exchanged for.

This will start as a trickle and then become a river and then it will just burst.

The Fed is the mark. They have been induced by someone(s) to maintain a bid for the securities.

Midas II said...

I've never understood why after some 12 years of 'Freegold' discussion, it has yet to be revealed what that system would really encompass, other than a free floating gold price and a certain role that it would have in global finance. In particular, I wondered how gold (if not tied to currencies through a fixed value) could force the issuers of currency to, basically, remain honest.

Well, I had some ideas about that, and I was pleasantly surprised to see those more or less confirmed today in CNBC's interview with the Worldbank president, Robert Zoellick (http://www.youtube.com/watch?v=okJdmy5TSRo), in which he further explained his call for a new role for gold in the global monetary system.

He was smart enough not to reveal any specifics, but the gist of his message was that we are heading to a new international monetary system, a Bretton Woods III, that would involve multiple large reserve currencies (dollar, euro, renminbi, etc), and gold, but not at fixed rates. Also, it would involve the IMF, whose role would be to improve cooperation between the reserve currencies by monitoring the issuers' current accounts and capital accounts.

What I think he was really hinting at is that in the future, issuers of the large international trade- and reserve currencies will have to settle their deficits on these accounts in gold. In other words, if you want to trade large quantities of your (inherently worthless) fiat money for valuable goods from other nations, like the US has been doing for some 40 years now, you will have to put up some real collateral -gold- to fill the balance and to maintain worldwide confidence in your currency. That would put a price, and so a brake, on some nations' habit of freeloading at the expense of the rest of the world.

The next question, of course, is how the introduction of this system might affect the price of gold. Well, I'll save you my calculations (they're mostly estimates anyway), but in my view this system could work if the gold price would increase roughly ten- to twentyfold from where it is now. So, while I wouldn't count on $100K/oz gold, the introduction of this system would (in my opinion) be sure to lead to a significant price increase. The bad news is that if and when all this is over and global trade stabilizes, much less gold would be needed to offset trade differences, and the gold price would drop again.

I'm not saying that what the Worldbank president seems to be proposing is actualy Freegold, but there are parallels. What it doesn't explain, for instance, is how this could turn gold into the preferred asset for saving.

Midas II said...

I've never understood why after some 12 years of 'Freegold' discussion, it has yet to be revealed what that system would really encompass, other than a free floating gold price and a certain role that it would have in global finance. In particular, I wondered how gold (if not tied to currencies through a fixed value) could force the issuers of currency to, basically, remain honest.

Well, I had some ideas about that, and I was pleasantly surprised to see those more or less confirmed today in CNBC's interview with the Worldbank president, Robert Zoellick (http://www.youtube.com/watch?v=okJdmy5TSRo), in which he further explained his call for a new role for gold in the global monetary system.

He was smart enough not to reveal any specifics, but the gist of his message was that we are heading to a new international monetary system, a Bretton Woods III, that would involve multiple large reserve currencies (dollar, euro, renminbi, etc), and gold, but not at fixed rates. Also, it would involve the IMF, whose role would be to improve cooperation between the reserve currencies by monitoring the issuers' current accounts and capital accounts.

What I think he was really hinting at is that in the future, issuers of the large international trade- and reserve currencies will have to settle their deficits on these accounts in gold. In other words, if you want to trade large quantities of your (inherently worthless) fiat money for valuable goods from other nations, like the US has been doing for some 40 years now, you will have to put up some real collateral -gold- to fill the balance and to maintain worldwide confidence in your currency. That would put a price, and so a brake, on some nations' habit of freeloading at the expense of the rest of the world.

The next question, of course, is how the introduction of this system might affect the price of gold. Well, I'll save you my calculations (they're mostly estimates anyway), but in my view this system could work if the gold price would increase roughly ten- to twentyfold from where it is now. So, while I wouldn't count on $100K/oz gold, the introduction of this system would (in my opinion) be sure to lead to a significant price increase. The bad news is that if and when all this is over and global trade stabilizes, much less gold would be needed to offset trade differences, and the gold price would drop again.

I'm not saying that what the Worldbank president seems to be proposing is actualy Freegold, but there are parallels. What it doesn't explain, for instance, is how this could turn gold into the preferred asset for saving.

Scisco said...

littlepeople,

Thank you for answering my question about gold not having a price. I realize that I need to stop looking from a "little person's" perspective.

costata said...

Texan,

Firstly here is the Stewart Thomson post where he sets out his views on the coming events for the US$.

http://www.safehaven.com/article/17637/graceland-updates-4am-7am

Bear in mind that ST seems to be convinced that hyper-inflation cannot occur until the printing press fires up.

I will respond to the rest of your comment shortly.

Paul said...

Yes, Zoellick is making the call that the 100 years clearing is needed. That's the elephant in the room.

Why would the gold price fall again after the clearing? Gold would be recognized again as the international settlement instrument. It would have to retain a price sufficient that the flow of gold represented all global trade imbalances, without depleting gold stocks. That's not to mention the investment demand this realization will suck in. Luckily gold can reach any price without it impacting any necessary productive process, unlike silver.

But the best part is, is allows us to take the current financial blood sucking parasitical scum sucking dirt grubbing...

costata said...

Texan,

"This will start as a trickle and then become a river and then it will just burst."

That may be how it ends.

I'm going to construct a post from an e-mail exchange I had recently with a friend to give you the background to a scenario we were discussing. For the moment here is the shorthand version.

Recall what happened after the Fed stopped reporting M3. They were able to disguise their monetary policy. A key indicator was switched off (unless people were following Shadowstats).

Many people are/were speculating that rising interest rates on US bonds would telegraph the collapse of the US$. IMO Bernanke just switched off the price discovery function of the bond market. If the Fed is buying across all maturities, in stealth, the bond market wont signal anything.

Therefore I think that a sting on US dollar holders (mainly outside the USA) may be on the near horizon. A lot of holders inside the USA may get stung as well. If true I think this play is incredibly dangerous. IMO it could trigger contagion (hyper-inflation?).

Midas II said...

"Why would the gold price fall again after the clearing?"

Well, if my interpretation of Zoellick is right, the price of gold would rise in times of increasing trade deficits, and so the cost of running a trade deficit would increase. In response, deficits would decrease or cease to exist, and the price of gold would drop because it is no longer required to back large deficits. At some point, gold will be cheap enough for nations to again print and export more of their own currency, and the circle would recommence.

Paul said...

Sure, the gold price would fluctuate to some degree based on supply and demand. But trade deficit clearing is only part of that demand, albeit a massive one. Just consider oil alone.

Other demands need to be seen in the light of a failed foreign reserve system, potentially a failed US dollar, a failed paper gold market, an increasingly wealthy Eastern market with a predilection for saving in gold, and a Western market with a renewed fear of counterparty risk. I don't think there's going to be any shortage of demand, even if the world does miraculously solve its trade imbalance problems.

Wendy said...

Paul, your comments make me chuckle, thank you.

welcome back costata, we've missed you, and desparado especially has missed you, he has taken to eating newbies for lunch in you absence.

(wink) at desperado :)

costata said...

Midas II,

Under your scenario wouldn't the amount of all currencies in circulation put a floor under the gold price?

If not indefinitely, for at least as long as it takes for the re-balancing in world trade to be trusted as a permanent shift.

Wendy,

Hello and thank you.

costata said...

The following is based on an e-mail exchange concerning the US bond market. (h/t to the long departed Topaz - sorry, I'm a slow learner!)

"Are you saying the bond market won't be able to front run the Fed if the Fed is buying up everything?"

No, that game continues. If anything I would expect it to be be played more
intensively because the Fed is virtually hollering their intentions from the rooftops.

Sorry for being opaque earlier. Of late, I have been thinking about Fekete's mathematically correct analysis of the bond market i.e. everything else being equal, each halving in rates roughly doubles the bond price. So this gift can keep on giving for a long time (in math terms indefinately) as Fekete points out.

I think there is a fatal deficiency in his thinking on this topic. There are only two ways to collect on your "double". Sell the bond on the secondary market or hold to maturity. Obviously if the secondary market evaporates the bondholders are locked in until maturity with no other way to collect on their winning bets. So their risk analysis should be focused on one issue, the purchasing power of the US$ at a given future point in time i.e. maturity. I contend that this "super organism", the bond market, is collectively focused on this very issue.

Continued/

costata said...

\Continued
Look at the maturities that the Fed has stated that they intend to buy. Mostly 3-7 years according to one report I saw. I intuit that they have already been buying, directly or indirectly, most (all?) of the new issues of longer dated bonds because the secondary market for them shrank some time ago.

IMHO Fekete will be proven 100% right on the bonds but the next fall in the dollar will occur before the bond market gives any outward sign of collapse. Not the other way around as some analysts suggest. Thanks to Bernanke it will be undetectable outside of the inner circles of the bond market when the acceptable maturity risk is zero duration.

FRNs have been described as a zero duration or zero coupon bond. In order for one group to pile into US dollars other people have to be encouraged to
stampede out of them. If this doesn't cause the system to completely collapse there is another chapter to this as Stewart Thomson seems to suggest - a voluntary gold revaluation initiated by the USA itself.

fletcher said...

Freegold friends,

I seem to remember reading about the BIS using a gold valuation of USD6,500/oz. If I remember correctly that figure may have been mentioned by Another/FOA, however I cannot seem to find any reference to it.

If anyone finds this familiar, and can point me in the right direction (either in reference to Another/FOA or any other source) I would really appreciate it.

Thanks in advance.

sobione said...

Costata
Talking of TOPAZ - I miss his blog... Is He around somewhere?

Regards
Sobi

costata said...

Sobi,

As far as I know, no-one has heard from Sir Topaz in a long time. I think he stopped blogging due to work and personal commitments.

DP said...

Modern Currency Theory seems to me it would have been a slightly more accurate name than MMT. It would have helped prevent us from the "gold bug luntic fringe" from jumping all over it and pooh-poohing too. "Money" and "currency" are different things. Gold is "money" (store of value), dollars are "currency" (unit of account and medium of exchange).

There is nothing incompatible between using gold as a long term store of value, and doing whatever is politically good for you in terms of your own currency within your local economic zone. Knock yourselves out, just not while you're knocking the whole world out too. This is Freegold.

The issue, for me, is when there is a currency from one economic zone, which is locally manipulated for political and local economic ends (as it should be), but that currency is being forced on the ROW to be used as everyone's long term store of value (as it shouldn't be).

Get them to change the name to MCT instead of MMT, and I for one will leave them alone. They will become irrelevant to my concerns because they will then be discussing a thing of an entirely different nature, one of a scope local to them rather than global.

FOFOA said...

Hello Fletcher,

On the right hand column of this blog there is a section called "Search this blog." Try entering the search term:

$6,000

Don't bother using the Blogger search box at the top of the blog. Use the Google one on the side. It's much better. Your results will appear at the top of the blog so you'll have to scroll up.

Sincerely,
FOFOA

DP said...

Texan:
FOFOA,

I think I just got your hyperinflation post. Those dollars are coming back to the States, aren't they?

Oh shit.





Don't watch the man with the welcome water hose, spraying the parched and very grateful villagers in the valley. Watch the enormous dam full of liquidity that towers behind him. Is... is that a... crack... I see...? Naaaah, sure it'll be fine.

fletcher said...

FOFOA, thanks for sending me down the correct path. $6,000 is indeed the figure I should have been looking for!

Have you seen the BIS 6,000/oz valuation appear elsewhere outside of the A/FOA/FO universe? I am quite sure that I have - resulting in a 'FOFOA' moment. Unfortunately, now that I need the sources I cant find them.

Perhaps stupidly, I mentioned this BIS valuation to a former finance minister, who now wants me to provide evidence!

DP said...

@fletcher: take your pick?

http://www.google.co.uk/search?q=gold+%246000

Desperado said...

Ron Paul on how to end the Fed

"I believe in transitions, but I fear there will be no transition if you have a dollar crisis, a major dollar crisis so I am trying to head that off.

What I would do is legalize competition. we have competition on the international markets. when china gets fed up with our dollar they start buying hard assets. so they can ease out. So the american people should have the right to do this and we should legalize in the constitution allow gold and silver to be legal tender and allow us to carry out transactions in another currency and allow us to go back and forth. I think the fed would just dissappear eventually because nobody would want to deal in dollars. and the competition to the fed will make the fed be more cautious.

A lot more people are saving in gold in spite of the fact that we don't have competing currencies. Everybody can go on a gold reserve standard and they can do a lot better than they can on a dollar reserve standard."


Right on, Ron Paul! Make gold legal tender and this would force the treasury to eliminate their taxes on gold! Waahooo!

I would go one step further and privatize social security, like this:

Calculate the total amount of 20 and 22 carat gold in Ft. Knox remaining from Roosevelt's gold heist, calculate the total amount of commitments in everybody's social security "trust fund". Then create an closed end ETF that is freely traded and also redeemable in 20 and 22 carat gold coins. Make some special allowance, say 20% of the fund for cases with no SS "trust fund" assets. Open up the mint and restore some form of the coinage act with the mint competing with the Fed and the gold price floating. Then abolish social security.

FOFOA said...

Hello Fletcher,

"I mentioned this BIS valuation to a former finance minister, who now wants me to provide evidence!"

Good luck with that! (Thanks DP, maybe he'll find something there on Google)

A finance minister is a political appointment. He would not be privy to this type of thing. Finance ministers are in charge of administering government budgets (spending), stimulating domestic economies (spending) and controlling finance (controlling others). And they serve (temporarily) at the pleasure of their political superiors.

A central banker would probably never share such vital information as this with them. They'd take it right back to their political superior (sucking up) and suggest selling the entire national stockpile of gold for $6,000/oz. without even understanding what they were suggesting. LOL No wonder he wants evidence.

Central bankers are not commercial bankers or politicians. They are a different breed altogether. They think long term and they think big picture. And they do it very well. And this is not always a bad thing. To underestimate a central banker, or to group them in with politicians and shady commercial bankers is a mistake. Don't believe the "mainstream" gold bugs that tell you all central bankers are against gold! It's simply not true.

Sincerely,
FOFOA

webmail4tom said...

Hello all!

I am a silent reader for a few weeks now.

What really spins around in my head and keeps me from sleeping well during the night is the following question:

If something like BrettonWoods 2.0 would come who would fix the price of Gold and what number are we talking about?

Now we have the price at 1,400 in USD and 1,000 in EUR.

Let´s say price goes up another 20% and/or goes down 10% and so on.

At the time when Gold will become the standard they all sit together and fix the gold price to let´s say USD 500 or EUR 350? Or would they choose USD 5,000 and EUR 3,500?

Could this happen? Who would decide where the "fair value" should be?

Sorry for my english, I am, as you can easily tell, not a native speaker living in the middle of the EuroZone.

Cheers
Tom

DP said...

webmail4tom: My friend you have more reading ahead of you, unfortunately. Perhaps just re-reading what you have already gone over before.

Any time you find yourself pondering the Freegold concept and you hear yourself at any point using the word "fix", just stop thinking and go read some more instead. ;-)

Please, don't feel bad. It would appear this is a very common error, to think in terms of fixing something to something else. If you can get past this small but critical fundamental blockage, I suspect everything else will then flow very easily and quickly for you.

Best,

DP :-)

DP said...

By way of an illustration of the point, try going to the ECB's International Reserves page (http://www.ecb.eu/stats/external/reserves/html/index.en.html). Look across lines 1.1.4 and 1.1.4.1 on that page, seeing that each preceding month is laid out in columns extending to the right in reverse chronological order (most recent month on the left).

As you look across, you will notice in line 1.1.4.1 the number of ounces is fairly static, but the valuations above in line 1.1.4 fluctuate to a bigger degree. This is because each month the value of the ounces (in line 1.1.4.1) are marked-to-market based on the price-per-ounce seen in the market on the day of reporting for that period. The present value of the ECB's gold is floating against the present value of the euro.

Or, to put the horse before the cart, the present value of the euro is floating against the present value of gold. The euro is not fixed to anything.

Greg said...

FOFOA



"Anyway today, in our non-hypothetical world, when the government spews out some new spending to pump money into the economy, what actually happens, from a technical standpoint? The government credits someone's personal bank account, right? Like say a new worker who just got hired by the big G. G-worker's bank account will be at a private institution, like say BofA. And when BofA accepts that deposit from the big G it is taking on the liability, the obligation to provide actual reserves, actual FRN's to G-worker upon demand."

Or NOT. It could all remain electronic, accessible only with a debit card or such...... not advocating this but it COULD work that way BofA is just a middleman storer of the money at first and worker is guaranteed not to lose that deposit because of BoAs bad loaning practices... as I understand it.


"Perhaps G-worker will not ask for cash. But the liability is still there, and BofA has only a small reserve of FRN's. So what has the big G given BofA in exchange for taking on this liability to G-worker"

Why do you call it a liability? Does the bank not want the deposit? I understand the accounting nature of that term but the bank is OUT nothing of theirs if you come and take YOUR money out and go to another bank. I think you are hung up on FRNs but I may be missing something in your question.

"Can you see where I'm leading? What did BofA get from the US Government in exchange for taking on this liability to the new government employee?"

Well, part of the answer to this is out of my pay grade I suspect. I will take this to the banking guys at the comment section and see if I can get an answer. As I understand your question I will say that banking IS a public private partnership and banks are allowed to access certain payment settlement facilities at the fed in exchange for being stewards of depositors money. Are you getting at the COST to the govt(taxpayers) of these arrangements?

I'm not entirely sure of where you are heading.

Sorry

DP said...

How many ounces of gold does the US Fed have in its reserves, backing its issued currency, in their equivalent of this line 1.1.4.1? And at what price in Dollars do they claim to value them?

DP said...

Greg, a starter-for-ten to help you get kickstarted on your quest to establish what banks get out of holding your G-worker's new $1...

http://en.wikipedia.org/wiki/Fractional-reserve_banking

DP said...

The link in my previous comment ought to steer you eventually to appreciate the liability question, I hope.

The short answer, however, is the commercial banks do not have $FRNs at 1:1 ratio with deposits. Will they have any $FRN in the ATM when you go to take out your $1 from your G-wages later? Where will they get them from? When will they get them? When will you get them? Will you get them?

Greg said...

Mornin' Pete



"Seriously, can you stop treating the US as it's own insulated financial habitat?"

Seriously can you stop making shit up? Focusing on what the US$ is and how it operationally works from the aspect of the issuer is NOT the same as ignoring what all the users of the currency around the world might decide to do with it. In fact understanding "floating exchange rates" is crucial to having any chance at understanding how trade dynamics are affected.

"As an Australian, I find it a bit offensive that you continue to do it, especially after you have been 'informed' that is not how the world works"

Take a step back from the edge Pete. Aussies are great Bill Mitchell is a hero of mine. He understands how international currencies interact better than you do.


"You have two things completely wrong:
a) that the US can ignore trade relations
b) that the US can employ whatever fiscal activity it wishes with impunity"


Where have I ever maintained A or B?
When someone points to Armageddon scenarios where no one will accept the dollar internationally I simply rightly say, "well in THAT scenario, we will have the option of saying, screw you, we pay with dollars only, what you gonna do about it" No one can hold us hostage unless we make the mistake of using a currency we DONT control. B is just a strawman that is unbecoming of usually reasonably intelligent Aussies...... shame on you.



"Now do you realise that your MMT model is too simplistic? All of the global financial interconnectivity cannot be effectively managed by the US."

US can ONLY manage US$... you are right.


" And if you think that the US can 'do without' the rest of the world, then you might like to try living in North Korea for a while."

More adventures in missing my ACTUAL point.


Take a couple valium sir. I'll get you a prescription.

Paul said...

Actually theres evidence to show that credit creation leads base money creation now. Instead of waiting for FRN deposits and then fractionalizing them up, banks create credit and subsequently look for funding. The lag is about 12 months between credit creation and base money creation.

It gets worse however. Recently banks have moved to loan to deposit ratios of greater than 1. Below 1, credit creation grows, but it grows to a finite limit. Greater than 1, there is no limit, and it very quickly spirals up exponentially. A classic ponzi in fact.

http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html

DP said...

Greg, take your thumb off your nose, please.

"US can ONLY manage US$... you are right."

Do you really still not understand that the ROW has been forced into accepting the US$ as the global standard of value, against which everything is measured? And that this is unacceptable to everyone outside of your borders? It is remarkably arrogant of you to seriously consider the ROW really "wants" your pieces of paper. You don't have anything else to offer. When people take those Dollars and attempt to buy something useful like, I dunno, say some US ports or something, they get told to go away. What are they supposed to do with these useless pieces of paper?

The US can ONLY manage the US$, but the US$ is the centrepoint of the global economy today. The US is certainly managing its own currency for its own purposes, that is most definitely true. The thing that is going to change, and it WILL change, is that the US$ is the centrepoint of the global economy. Once that is out of the way, you and your buddies can MMT out teh wazoo for all anyone else cares. Knock yourselves out.

There is a reservoir choc-ful-o-Dollars, just waiting to burst the dam and flood your valley. Maybe you guys enjoy the refreshing spray from Bernanke's cooling hose in these dry economic times of late. But you're going to need a lot more than an umbrella if that dam he stands in front of should burst.

Paul said...

It's all about the oil, my friend, it's all about the oil.

costata said...

Greg,

You wrote:
"Why do you call it a liability? Does the bank not want the deposit?"

It's double entry accounting.

costata said...

Greg,

You wrote:
"Seriously can you stop making shit up?"

Be the change you want to see.

FOFOA said...

Hello Greg,

It is truly surprising to me that someone who subscribes to a monetary theory that purports to explain how modern money REALLY works would marginalize the term "liability" like you did:

"Why do you call it a liability? Does the bank not want the deposit? I understand the accounting nature of that term but the bank is OUT nothing of theirs if you come and take YOUR money out and go to another bank. I think you are hung up on FRNs but I may be missing something in your question."

Liability is not just an accounting term. Hung up on FRN's? Don't you mean "hung up on banking system reserves"? When I take $100 out at the ATM I might as well be taking out gold. That ATM does not print the money. BofA does not print that money I took out. Dollars are a hard currency to private banks, even when they conjure them on their own balance sheet. They are a liability. You say, "Does the bank not want the deposit?" I ask, "What does the bank gain from taking on this liability/obligation to pay me some of its reserves?"

Surely BofA got something from the government in exchange for accepting the liability to pay G-worker, relieving the government of that obligation. Does the government not have its own bank? Who credits BofA? What does that credit consist of? What is its ESSENCE?

"Or NOT. It could all remain electronic, accessible only with a debit card or such...... not advocating this but it COULD work that way BofA is just a middleman storer of the money at first and worker is guaranteed not to lose that deposit because of BoAs bad loaning practices... as I understand it."

No, it cannot work that way. I have written about this before. We can get to it later if you're still around because at this point you don't even understand the basics. And I'm also starting to wonder about your reason for being here.

Sincerely,
FOFOA

costata said...

Greg,

"Take a step back from the edge Pete."

Take your own advice.

"Aussies are great Bill Mitchell is a hero of mine."

I'm an Aussie, what are we great at? The notion that Bill Mitchell is a hero would be bizarre to .... Bill Mitchell.

"He understands how international currencies interact better than you do."

Actually, no he doesn't. In fairness to Bill, he's trying to understand them in a way that doesn't conflict with his theories. It's a natural bias but not excusable.

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

@ Midas II
"Also, it would involve the IMF, whose role would be to improve cooperation between the reserve currencies by monitoring the issuers' current accounts and capital accounts."

I don't think any country other than the U.S. and Britain would 'trust' the IMF to be objective about monitoring the reserve currencies. Certainlly ME, Europe, Russia, and China would not.


@ Midas II
"I'm not saying that what the Worldbank president seems to be proposing is actualy Freegold, but there are parallels. What it doesn't explain, for instance, is how this could turn gold into the preferred asset for saving."

Would 5,000 years of history as money and a savings vehicle influence this decision? Also governments can not click a mouse or operate a printing press to create more of this store of value.


@ Paul
"And the best part is, is allows us to take the current financial blood sucking parasitical scum sucking dirt grubbing shits for bankers and tell them to stick their financial system up their collective arseholes."

Paul you need to grow a bigger pair and tell us how you 'really feel' about the banksters. LOL

DP said...

DP rustles up some popcorn and a comfy chair, ready to enjoy Paul's REAL, unrestrained opinion of banksters shortly... :-)

DP said...

Greg: No one can hold us hostage unless we make the mistake of using a currency we DONT control.

Err... hello? ROW to Greg? Do you still not understand what you are saying?

miked said...

Look what happens when you go away. Thousands of comments to read through. I see the topic hasn't changed much since last month though. We are still on Bill Still ....arrrggghhh :)

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

@ Paul
Perhaps this article will stimulate you to inform us just how you 'really feel' about the banksters.


Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire

http://www.bloomberg.com/news/2010-11-10/wall-street-collects-4-billion-from-taxpayers-as-swaps-backfire.html

miked said...

http://www.alexa.com/siteinfo/secretofoz.com#

The guy gets about 50 hits a day on his website. I don't think this movement is taking off

miked said...

"Based on internet averages, secretofoz.com is visited more frequently by males who are in the age range 55-64, have no children, have no college education and browse this site from home."

I guess Greg must be the exception :)

Александр Ф. Закуцкий said...

In my country, Ukraine, it looks like the CB (National Bank of Ukraine) is staying behind scarp business. What's another reason would be for them to update regularly what they calling "About buying prices for scarp precious metals."

http://www.bank.gov.ua/inf_mat/index.htm

What's more, that information does not available on the english version of the NBU web site. Only on ukrainian.

DP said...

Greg, I was sure you reminded me of someone, and I just realised who it was! Just a bit of light-hearted relief...

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

(No, I don't want to come with you to a club where people wee on each other, thanks. :-) )

julian said...

Hello All,

Paul said,

It’s the diversity of systems which often give them their resilience, and it’s this diversity that is currently lacking in our global system. So the cleansing collapse of the existing monoculture will allow, indeed force, this diversity to flourish from the ground up. I look forward to watching it grow.


That diversity, from what I understand, is the result of free competition. EXACTLY what Ron Paul advocates in the quote provided somewhere above.

The thing about Freegold which makes it so powerful, is not just the gold component, but its FREEDOM from any restraints or constraints.

The long-term trend of human history is toward more free systems, although there is always that parasitical class which prefers to use force and intimidation to serve their own interests at the expense of others. In order to do so, they must "regulate" and restrict freedoms in markets. But the social evolution trend is apparent in the direction of free market solutions.

Free market is peaceful, voluntary interaction between individuals and entities. Statism, and any political system at all, is a direct threat to free market, because competition always expunges the inefficient and ineffective.

This is what Freegold does. It would immediately eliminate the waste, and would serve to disinfect the system, while stabilizing and recapitalizing it.

The way it seems, from what I've been reading around here, is that in a Freegold situation, at least initially, Au would stop trading. I wonder what this might do to the network effect of silver. Perhaps there would be already in place the currencies to be used as unit of account and medium of exchange, already floating against gold. Perhaps the Euro will serve this purpose in transition. Or perhaps the Zoellick et al see this coming and will set up an even more substantive currency system to float against gold, thus providing a smooth(er) transition into the new paradigm.

Still, as much as I see gold ready to sop up all kinds of excess value currently being "stored" in paper debt and equity instruments, I reckon that silver will take on a lot of that value as well. Then again, it's such a highly prized industrial metal, I don't have the critical thoughts yet to determine how that would realistically affect silver's monetary status in a Freegold world.

The beautiful thing, though, is that in an actual Freegold world, the market would freely decide. Meaning the peaceful, voluntary interactions between parties would ultimately determine what is most efficient and most effective.

This is a world that I yearn to experience and live in. I am skeptical that I might see it in my lifetime, even though it is immanent in human intelligence, and therefore imminent at some point.

I wish us all the blessings of such a world.

One question I pondered to myself last evening, and which I put forth to anybody who cares to muse, is "What might the world look like after 3 or 4 generations of Freegold?"

Happy thinking to all, and a Remembrance Day acknowledgement of Another, his Friend, and all those who have done so much to inspire our minds to think clearly and to act accordingly. Lest we forget.

Julian

julian said...

Clarification:

It is the free market which is a threat to statism, and to political systems, because they are inefficient and ineffective, and free markets naturally and organically remove these ineffective and inefficient systems/entities.

Julian

DP said...

Julian: The thing about Freegold which makes it so powerful, is not just the gold component, but its FREEDOM from any restraints or constraints.

Amen to that, brother Julian

Fauvi said...

Desperado, this might get your attention:

http://alethonews.wordpress.com/2010/11/09/german-people-in-unprecedented-rebellion-against-government/#

DP said...

@Fauvi: Got mine. Thanks. ;-)

Bet we don't see that on the BBC news tonight...

Scisco said...

A note on nomenclature.

Please be careful when using positive or negative to describe feedback. Positive and negative should not be used to describe the effect of the feedback on the system rather how the feedback is used to adjust the system. Let me explain.

- Feedback in system modelling, is when error from the output is fed back into the system.

- When feedback is considered negative, it means that the error is added back into the system in such a way that the output error is reduced at the output. Such a system has the possibility of being stable. An example that most should be familiar with is a home thermostat. Lets say your home is set to 21C but the current reading is 19C. The error in this case is 21 - 19 or (-2). The error is then fed back into the system by multiplying it by a negative number, hence the term negative. In our example, the thermostat sees that the temperature needs to be raised. Therefore it will turn on the heat. Eventually the measured temperature will reach 21C making the error 0, causing the thermostat to switch off the heat and thus stabilizing the temperature at 21C.

- When feedback is considered positive, it means that the error is added back into the system in such a way that the error becomes greater at the output. Such a system by definition cannot be stable. Back to our thermostat example. Just like before, the thermostat is set to 21C but the measured temperature is 19C. So the error is -2C. But this time the error is multiplied by a positive number, hence the term positive feedback. The error of -2C is fed back into the system such that the thermostat attempts to adjust the temperature by turning on the AC! Hence the temperature will never never reach 21C but continue to get colder and never be stable.

I would like to request that posters refrain from using terms positive and negative because of the ambiguity of what positive and negative are referring to. May I suggest the terms correcting feedback and destructive feedback instead? Thanks for reading my rant.

Desperado said...

@Fauvi, the coverage of Gorleben was not treated as front page news here in Switzerland, I hadn't realized that it was so big and so violent.

Personally, I think that in the long term nuclear energy will be critical, certainly a far better social investment than wind farms.

The ability of the left to assemble large crowds and then for a small minority of them to get violent is certainly an eye opener. We saw this at Tory headquarters in London yesterday as well, and in France a month ago with their strikes. The EU youth have expectations that will be hard to fulfill, and any budget cuts will surely lead to ugly protests. In the US the youth seem to be much more docile. Unlike the European youth they never received stipends for studying, and tuitions in the states are far higher. Throw in the massive amounts of debts that US students seem forced to take on, and one would think that the youth in the US would be even more furious than the Europeans.

raptor said...

oops, didnt saw the Open forum (repost):

>
Please, can we agree that "its" not only about production but actually supporting production via consumption as well. We are not just a bunch of producers we need consumers.
>
>Savings is a burden when excessive. How to predetermine the "right" amount ? Dont know. How to know it when you see it....... right now. We have OVER produced a lot of things.
>

We don't need consumers per se, we are over-producing in our specialty so we can consume other ppl production, but we don't have to do this just for the sake of consumption itself.

First you need to over-produce something to be able to spend something (the exchange system is just advanced barter system on steroids). So spending is not the natural order of things producing is (ppl produced just what they need).
Here is what worries me over-producing is not that dangerous if it is not matched by over-spending, because if there is no need of the products production will just stop. Who will over-produce something if he does not get anything in return !?
Availability of over-spending on the other hand based on unlimited-money can have a adverse effect on environment because in our case environment is not unlimited.
Good/Bad thing we have this thing called hyper-inflation that is the cure for it.

Do you get the parallel :
Production is constrained by the natural limit.
Spending in fiat system is unlimited.

Fractional banking system causes the fiat system to expand forever unless constrained by some outside force => spending becomes unlimited.

raptor said...

>
The original forms of "money" (means of lubricating trade) were credit money, gold came later, as an add on.
>

Really !!!!!

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


The Sumer civilization developed a large scale economy based on commodity money. ...
The use of gold as proto-money has been traced back to the fourth millennium B.C. when the Egyptians used gold bars of a set weight as a medium of exchange, as the Sumerians earlier had done with silver bars..

raptor said...

http://www.safehaven.com/article/2455/can-a-lower-dollar-really-improve-the-trade-deficit

Why a Dollar Depreciation May Not Close the U.S. Trade Deficit

http://www.ny.frb.org/research/current_issues/ci13-5/ci13-5.html


In short the Fed paper says approx if $ drops 10% trade balance will improve by ~12% in real terms and ~10% in nominal.

conclusion>>

Even a marked rise in exports, however, is by itself unlikely to erase the U.S. trade deficit. In 2006, that deficit stood at $759 billion. If imports and terms of trade remained constant, exports would have to grow 52 percent to single-handedly close this gap
>>

My point is the Fed themselves prove in their own paper that QE2 (devaluing) the $ wont help and the notion of fixing the economy with spending is total baloney, what they meant to say is that those who get the money first make a buck... which is what we already knew anyway.

Tar said...

@ Desperado, 1 word: fluoride.

The US youth cannot work up any serious indignation with the high levels of the toxic element fluoride they are laced with. The European youth are not so highly poisoned as it is banned from their public water supply.

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

>>. So spending is not the natural order of things producing is (ppl produced just what they need). Here is what worries me over-producing is not that dangerous if it is not matched by over-spending, because if there is no need of the products production will just stop.

I wonder about this sometimes. What is production and consumption all about? I read about the need for consumers to match producers and imbalances. I wonder what this economic engine we have built is and if it still serves humanity or if we serve it.

Imagine there was no trade and everyone just made stuff for himself. We would all stop working when the effort of working would not be paid back to us in satisfaction (or utility).

In a world of barter we will work to produce sufficient goods to exchange for the goods and services we desire and no more.

In a world of fiat currency we are encouraged to endlessly grow our production by the government because growth is good. The invisible hand is gone. Politicians set the pace. And why do we work harder than we need to? Our production is being stolen by an illusion. Instead of receiving goods by direct barter immediately after we finish our work we receive only a promissory note which falls in value over time. Hence we must endlessly work to achieve modest goals we thought easily attainable.

Is this progress?

zenscreamer said...

@miked:

Subsistence production (each working for his/her own benefit alone) does not work because some people want things they cannot get -- I can evaporate my own sea salt, collect fish, grow food, dig a well, but I have no sheep and cotton does not grow here, so if I needed to make clothing I would be out of luck. (Just a simple example.) Subsistence production only works at the level of the community and larger.

Barter is better, but get complicated easily. Suppose I find a sheep farmer willing to sell me wool, but she will only take cranberries in exchange. Now I need to seek out a cranberry farmer willing to sell me cranberries so I can buy wool -- If I'm unlucky my pursuit of wool could get very complex indeed, and time consuming.
In the end I may have to hire someone to go gallivanting around the town trying to put together a chain of transactions which will get me my wool. How much better it would be with a common "currency" that all participants would accept (in greater or lesser amounts)!

I agree with you about the trials and tribulations of attempting to store value in a fiat currency that by very design and political expediency is being eroded, to a greater and lesser degree, continuously. This is plainly folly, and yet it is the status quo. Bizarre!

So... a community-recognized currency is necessary to optimize trade, and I hope you see that; but what of a store of value?

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

@Tar,

Flouride is only one of many substances that the highly medicated youth in the US receive, how about ridalin and prozac?

But I think the issue is really a more virulent strain of leftism running through the European education systems. If you look at the pictures, it appears that there is a very strong communist presence in all of these protests. At Stewarts rally for inanity there were also evidence of socialists and communists, but at the European riots the communists seem to be orchestrating the each affair entirely.

The West is turning against big government - but what comes next?

...the consensus politics of post-war Europe, and certainly of the EU, have made it virtually impossible to vote against the basic tenets of democratic socialism.
...
Local sensibilities vary: in France, they go out on the streets and throw things at the police when they are told that they will have to retire at the age of 62, rather than 60. In Britain, there are lobbyists who will defend a housing benefit system that allows people who have never worked to live in accommodation fit for millionaires. So what are the minimum requirements of the new social contract which government must offer to the people if it is to escape from the absurd dilemma of being in charge of everything when it is scarcely any good at running anything?

zenscreamer said...

At the community level, I suppose it could be possible to optimize such that the community only produced precisely as much as was needed for community subsistence (although that could be dangerous considering the possibility of exigent circumstances), BUT...

as an individual, what if I'm what FOFOA calls a "superproducer"? What is I'm Thomas Edison, and I am driven to work and create things that have such obvious use to society that I produce MORE than I need to subsist, and I choose to continue working despite this?

Clearly there needs to be a store of value where I can park the "fruits of my labor" so that I can choose to "retire" later, or give them away to someone else, or leave them for the community or whatever I should choose. A store of value that is NOT a fiat currency must be available to me for me to be truly free to choose whether or not to provide to society the benefits of my creativity.

raptor said...

@miked>>

You hit the nail I have also wondered about these things..of course the answer is that we have to specialize so we can have what we need as society and that is why we have exchange.
But I have always been disgusted by the "GROWTH" per se (growth for the purpose of growth itself).

What I feel alien in this notion of constant growth (paraded by economists an politicians ) is that from mathematical perspective anyone with a knowledge of how exponential function works can easily guess that it is impossible.

contd...

DP said...

@miked/raptor: be nice to have the choice to opt-out of this system, wouldn't it

DP said...

miked: Look what happens when you go away. Thousands of comments to read through. I see the topic hasn't changed much since last month though. We are still on Bill Still ....arrrggghhh :)

Sorry buddy - wrong Bill! ;) I wonder what Alexa has to say about Bill Mitchell...

raptor said...

My other grudge is with over-spenders and the way they forced their fiat money on us.. that is what ppl like @Greg can't understand (at least my feeling...sorry if it not true, not trying to offend you or something)..

I don't want to work as slave all my life...and anything I save to try to preserve speculating on any new fashion that they came up be it stocks, houses,..whatever.

I want to be able to say (generally speaking), according to my experience and knowledge and abilities I can make let say X-monetary units then make a rough plan... OK I can work my butt off even on 2-3 jobs or businesses for 5,10,15,20 y.. and then relax and do what I like more than working..
Of course I can work after that for fun or part time....and even play on the stock market...but.

But I don't want to be forced by the circumstances to gamble my savings in the spenders-rigged-casino and work all my life because of the power hungry elitists wanna play with the lives of millions of people in their "evil" Utopian brainwashed economic theories w/o adhering to a common sense first.

sorry for the rant ;))

Desperado said...

@Raptor,

re: "The original forms of "money"..."

Actually the Swiss claim that the first form of money was the cow. If my money was in a cow, I would want a strong one. If you have ever met a Swiss cow in the Alps, you would understand what one would look for in a robust cow. Compare that to a inanimate US Hereford or Angus and you would have a good metaphor for what has happend to US culture since the WWII. Maybe Texan can tell us about longhorns. I'll bet they are just about extinct. That would certainly be a bigger loss than the California delta snail darter.

Fauvi said...

Desperado,
the protest in Germany are against ELITISM, Corruption, LIES, State POWER.
Full stop. Whatever you may politicvally see into it, it's your choice. I am definetely not a leftist but I will take it to the street whenever I will find it suitable, but not organised by unions. We do have grass root impulses here and I am content that ever more people of the middle class, young or old are fed up with the system.

Martin Millnert said...

This is a comment to the original post.

I was travelling in Salvador, Brazil, around jan/feb 2008, and saw a persons carrying advertising boards that said: "Buy gold!".

Here in Sweden, a gold smith has been running a radio ad for the past six months or so, saying pretty much the same thing as the original picture -- if you have any dead useless gold lying around in your drawers at home, we can buy it from you!

And before that, the past ½ - 1½ years, there's been another campaign. "SMS 'gold' to $number" - sell gold via SMS.


I, at 27 years of age, began my own "enlightenment period" during the fall of 2006 when I first found the weirdness of... oil. My enlightenment period soon lead me to Gold, and only two months ago did I find A, FoA, FoFoA, and even if I haven't come fully through the entire backlog of posts yet, I expect to do so.

Finding A, FoA, FoFoA was thrilling, I somewhat felt I've come "full circle" on a better understanding on how this world operates, monetarily. It made sense to me, and I've found it nearly impossible to even *attempt* to explain all this to friends and family. Which is fine in itself. I appreciate knowing, even if I do not have any wealth myself to invest according to my knowledge. :)

FoFoA, and the ones before you, thank you.

This is surely going to be interesting times.

Greg said...

Edwardo


""So it stores your wealth but there may not be anything to buy later, just like now."

Just like now? There's always something to buy, and this has been the case even in the middle of the most trying times in human history. And unless things change in radical ways that one can scarcely imagine, there will be things to buy in future. In short, and at best, I find your posed hypothetical-a world with nothing (available) to buy- just a tad stupefying."


You cant come in on one comment in a conversation and think you get the gist of it. This was a response to an earlier point about dollars being eventually worthless because markets turn against them. Supposedly, the fable goes, we will all then be destitute, unable to purchase anything or produce anyhting even with trillions of dollars in our accounts.We will be left to fending only for ourselves. This comment is simply pointing out that having gold in your vault doesnt solve the problem being described.

Your actually proving my point with your response, a world with no production is unlikely, whether its operating on fiat or gold.


@DP

"Do you really still not understand that the ROW has been forced into accepting the US$ as the global standard of value, against which everything is measured? And that this is unacceptable to everyone outside of your borders? It is remarkably arrogant of you to seriously consider the ROW really "wants" your pieces of paper."

I understand that the dollar WILL lose some of its favored status, its inevitable, just like the pound did. Nothing lasts forever (except gold!) We will likely pay,and already SHOULD have been paying much more for oil, closer to what Europe pays in the near future. Our system whatever you want to call it, capitalist, crony capitalist, socialist... has absolutely taken advantage of the rest of the world in many ways and it WILL not last. I actually am glad for that.
There is NO arrogance about the US status here, not from me. I pulled for AlQaeda (just kidding). I think it is many of YOU who want it both ways however, profit off our favored status however ill gotten it was and then when everyone says hey thats enough you scream "Hey dont cost me MY savings which I worked hard for, take it from them!!" I dont look at my 401k sitting where it is and say "Hey, Im ENTITLED to every bit of buying power in that account because I worked hard and saved" We are all Americans and we cannot just praise the system when it enriches us and curse the same system when it blows up. We are the system.

And take some of those pieces of paper away and see if they want them or not.

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

" You don't have anything else to offer. When people take those Dollars and attempt to buy something useful like, I dunno, say some US ports or something, they get told to go away. What are they supposed to do with these useless pieces of paper"


Look there is plenty for sale in dollars. We cant buy "anything" we want either. Its stupid to think everything is for sale to anyone with the money.


"The US can ONLY manage the US$, but the US$ is the centrepoint of the global economy today. The US is certainly managing its own currency for its own purposes, that is most definitely true. The thing that is going to change, and it WILL change, is that the US$ is the centrepoint of the global economy."

No argument here, already discussed it above and the prospect does NOT bother me. Its necessary



" Once that is out of the way, you and your buddies can MMT out teh wazoo for all anyone else cares. Knock yourselves out."


MMT out the wazoo?? Nice intelligent sentence there. You WERE doing okay for a while

Desperado said...

@Fauvi,

"We do have grass root impulses here and I am content that ever more people of the middle class, young or old are fed up with the system."

Thanks for the feedback. I don't sense any of that here in Switzerland, as I said, it did not see much coverage.

The photos I have seen, like the ones from France and the UK, do seem to show a lot of banners/signs from communist/socialist organizations. This could very easily be a ploy by the EU media. It would certainly play into my paranoia that Russia is financing communists and ex-communist organizations throughout Europe, and I haven't even started on organized crime which just keeps getting worse in Switzerland.

The grass roots "stop the government" movement is being represented by the teaparty in the US, and I have disdained that this movement has until now been absent in Europe. I certainly hope that these strikes and protests are grass roots movements, but I am always suspicious of the involvement of the left. And to reinforce my suspicions I can point to the issue in Germany: atomic waste. That is sooo '80s. Is this really the best issue the grass roots could find? And then look at England, taking over the Tory building? It just reeks of the left. And in France it was unions and the students just like in England.

I hope you are right, that it is grassroots. But unlike most people, I refuse to forget what the communists have "accomplished" throughout history. Serbian communist "ethnic cleansing" was still going on in my adult lifetime. Look what Russia has done to Georgia and Chechnya in the last decade. I have no doubt but that the ex-KGB are working throughout Europe alongside all their accomplices from the secret police departments across eastern Europe. These guys never had to acknowledge their crimes, let alone suffer punishment. And these organizations have taken over much the organized crime throughout the region.

Desperado said...

An excellent piece by Henninger:

The 1099 Democrats

Ron Paul is pushing to monetize gold, thus making gold exchange tax free. For you gold holding Fofoa readers, this is the equivalent to amnesty for white boys.

Meanwhile, as Henninger points out, the Democrats are offering 1099's for every transaction over $600, including ALL gold transactions. Gold is considered a collectible and taxed at your marginal, means adjusted, AMT superceded, hyperinflation bloated income tax rate. Lotsa luck to you California based gold holders.

Perhaps someone else can come up with better words to describe a non-Republican US citizen Fofoa reader. My only description would be idiot.

Paul said...

Morning all.

Thanks Wendy, glad to hear it.

DP, I love The Mighty Boosh.
“I’m the Spirit of Jazzzzzzzzzzzzz”
http://www.youtube.com/watch?v=oaql3gsspBc

Nicely said Julian.

Fauvi, that was a wonderful read. Positively inspiring.

“We have lost faith in the government until they prove that their politics is for the people and not for the corporations.”

“If this is the resistance for Castor and Stuttgart 21, just imagine what will happen when Germans finally grasp the scale of the banking scam being carried out by their “elite.”

“The Berlin government can no longer rely on the discredited mainstream media to control the way people see issues. Too many people recognise it to be a tool of propaganda”.

The revolution will not be televised, but it will be blogged. It’s good to be reminded that what we are all doing in our small way is spreading the truth.

Miked
“In a world of fiat currency we are encouraged to endlessly grow our production by the government because growth is good”

Totally agree. We’ve ended up enslaved by a growth machine. It’s time to jam a spanner in the hamster wheel.

Desperado
I know this is probably not possible for you, but try and move beyond the BORING old left/right fallacy. It leaves one open to manipulation, to “their strategy of divide and rule through a false left/right political paradigm”. “They” are not the left or the right. “They” are the unspeakable.

Greg said...

FOFOA


"It is truly surprising to me that someone who subscribes to a monetary theory that purports to explain how modern money REALLY works would marginalize the term "liability" like you did:"


You described a situation where a bank took a deposit form the govt in the name of said worker and asked about their liability? The bank is not taking on the liability ultimately in the sense you are using it, the govt is. It is a deposit in the bank from the govt. So what? The guy can come and cash it and the bank HAS the cash, again SO WHAT? You make it sound nefarious? "Just what is the govt giving the bank to take on this liability" The means to settle it. Thats how money is created, like it or not.

Banking system reserves are NOT FRNs. FRNs are accounted for in banking system reserves however.

You ask;

"What does the bank gain from taking on this liability/obligation to pay me some of its reserves?"

How about the privilege of being a bank?


"Surely BofA got something from the government in exchange for accepting the liability to pay G-worker, relieving the government of that obligation."

Its not relieving the govt of its obligation, thats an absurd way to phrase it.


" Does the government not have its own bank? Who credits BofA? What does that credit consist of? What is its ESSENCE? "

Oh yeah, now I see its the "out of thin air" concept you dont like. 'Where did this stuff you call money come from?" he asks. The same place the first money came from...... out of thin air! Its a creation of the state.


"No, it cannot work that way. I have written about this before. We can get to it later if you're still around because at this point you don't even understand the basics. And I'm also starting to wonder about your reason for being here. "

The basics of what? You seem to think all reserves are FRNs (they are not). Reserves arent even necessary to have to make loans, (Canada has a NO reserve system) they come AFTER the fact. Fractional reserve lending is as wrong as a gold standard. MMT literature has dealt with this at length as has Steve Keen (not MMT). Expanding reserves does not mean a later geometric expansion of the spending power and imminent inflation. Yes banks can make a little money off of excess reserves but reserves in and of them selves do not portend more loans and spending. Reserves are not "the water behind the dam"

I came here to learn, discuss, argue, expand the conversation and hopefully find some like minded people. You have an interesting site and some smart commenters. Its been fun

littlepeople said...

SCISCO, DP, FOFOA, Greg:

SCISCO:
You're welcome. I have been there, and it's taken some time to get my mind around gold, silver, money, etc. Luckily, I remember silver coinage when I was a kid, and it helped me understand in some way.

DP-
You said, "There is nothing incompatible between using gold as a long term store of value, and doing whatever is politically good for you in terms of your own currency within your local economic zone. Knock yourselves out, just not while you're knocking the whole world out too. This is Freegold."

Well said!! MMT is not a problem for me--so long as it resides alongside freegold. That is where we are moving as I sit on my arse and type.

As I see it, (I like to boil things down to an essence), there are three general methodologies in terms of monetary systems:
1. gold/silver standard;
2. slavegold;
3. freegold
We had various forms of gold standard for some 200 years recently, til 1971.

We then went to slavegold, where certain entities did everything possible, including creating a paper-gold market, to demonetize and discredit gold. The U.S. was the leader, with the UK her aide. Hence we got COMEX and LBMA "markets" to paper-trade gold and silver.

We are now moving from slavegold to freegold, as the paper-pushers are getting burned from their positions. They are doing extraordinary things to keep freegold at bay, such as "buying off" COMEX and LBMA delvery requests with 25%(+?) premiums if longs will accept dollars instead of gold/silver.

Lately, I've read that the eastern buyers are squeezing the silver shorts--they are demanding delivery, going long in-force against the concentrated shorts (JPM, HSBC), and in general pushing to dismantle the paper-trading strongholds.

Freegold is coming. It must--there is no other way. The fiat, debt-based system has outgrown its usefulness. The banks are losing the battle--fight on they will, as they need time to turn the new system to their advantage.

FOFOA: agreed that all CBs are not against gold. They must have known that a debt-based fiat system would one day be to big to refinance. Still, it seems that 2007/08 caught them unawares; they must have thought they still had time to maximize their profits before flipping the switch.

Paul said...

Hi Greg

Speaking for myself, you are more than welcome here. It's good to have alternative views to stop a "hive mind" from developing.

However, you are arguing from a position of ignorance, which is putting a lot of peoples' backs up.

For example, you do not understand what Steve Keen is saying. Yes he is saying that the system does not work exactly like the classic fractional reserve model espoused by classical economists. But he is also saying that true way it works, based on empirical evidence not theory, produces the very bad outcome that we are seeing all around us today.

Please read the Steve Keen link below. If you don't understand it, asks questions about it. But you have to understand it before you can argue against it, and other ideas.

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit

Greenie said...

http://www.acting-man.com/?p=5495

Aleksandar said...

Actually the Swiss claim that the first form of money was the cow. If my money was in a cow, I would want a strong one. If you have ever met a Swiss cow in the Alps, you would understand what one would look for in a robust cow.

May I suggest a title for the next post:

"Gold Is Not Robust Cows"

LOL

Greg said...

Hey Paul

"For example, you do not understand what Steve Keen is saying. Yes he is saying that the system does not work exactly like the classic fractional reserve model espoused by classical economists. But he is also saying that true way it works, based on empirical evidence not theory, produces the very bad outcome that we are seeing all around us today."


I've read that article three times at least and, as an interesting aside, the first time I read it about two years ago (from Yves Smiths Naked Capitalism) I was floored and if at that time I had found freegold literature I would have likely been an acolyte. I found the idea quite disturbing really. As things go I discovered MMT via a circuitous route and it explained TO ME the other side of the private credit coin. I understood that Keen was describing horizontal money, privately created as debt while MMT added the vertical money picture which completed the circle, for me. So I'm well aware of what Keens saying and I only referenced him as a source to disabuse people of the notion of fractional reserve lending, It seems a few people here still subscribe to that notion.

In addition I might argue that in fact Keen does not blame the MECHANISM of private money creation as the source of our problems today, rather its the wrongly directed regulations of the system and outright fraud surrounding the system. He and Bill Mitchell, being fellow Aussies, have had some interactions and I believe they are finding common ground , so to speak.

I dont want to misquote Mitchell but I believe he would say Keens got the private dead right he's just missing a piece of the puzzle.

Describing a system is one thing, determining if its the best system is another and this is where freegold parts ways with both Keen and Mitchell in a sense.

Greg said...

@DP


"Do you really still not understand that the ROW has been forced into accepting the US$ as the global standard of value, against which everything is measured? And that this is unacceptable to everyone outside of your borders? It is remarkably arrogant of you to seriously consider the ROW really "wants" your pieces of paper."


I actually understand quite well that the US$ has had a position much higher than it "earned" so to speak. I am quite certain that we will be paying a good bit more for oil in a short while, as we should have been paying for a few years now. I actually embrace this. I want our energy habits to change drastically. That will help us out immensely in the long run. Its the Mr Becks and Ms Palins of the world that have been fighting this for their buddies in oil. Well its gonna happen and they are gonna have a heyday blaming the incumbent.......... fucking politics.

People cant have it both ways though, we cant take our paper profits form the early 90s and 2000s and say "we EARNED that" and then cry when it turns against you and say UNFAIR I want gold to protect what I 'earned'. My 401 k has been all over the place but I wont scream that MY savings need to be protected at someone elses expense. Its a zero sum game and the few winners are taking from the multitude of losers. I'm doing the best I can and its not as good as I was but MILLIONS have gone form middle class to poverty. I wont whine too much.

So dont call me arrogant. I care about the dollar because I need to spend it, I dont really give a shit that we live on a piece of land located between Mexico and Canada. I love this place and many people in it but NEVER accuse me cheap "defending America" crap. Thats not my gig at all. My arguments are purely mechanistic. The DOLLLAR is not hostage to anyone else. We own and control it to our welfare or our detriment and there are plenty of others in the ROW who want it, need it and will do anything for it. Thats just how it is..... for now



" When people take those Dollars and attempt to buy something useful like, I dunno, say some US ports or something, they get told to go away. What are they supposed to do with these useless pieces of paper?"


There is plenty for sale in US$. Do you really think anything should be for sale to anyone who has the money?

Paul said...

Hi Greg

Excellent. Sorry if I came across condescending.

How about if I try and translate Keen's language into Freegold language?

The water behind the dam is a 30 year build up of Keen's credit money. It's happened with all currencies to a certain extent, but with US dollars massively so due the petrodollar effect. (This is where A/FOA have some really interesting insights regarding "gold hiding in oil" by the way)

Anyway, as we all know credit money growth has hit the exponential buffers, and is starting to contract. Looked at from a purely systems point of view this results in massive deflation. Keen is at this point. He is a deflationist.

A/FOA/FOFOA's insight is that deflation is politically unacceptable. They predicted that govts would not allow banks to fail due to this deflation. They will not allow creditors credit money to go down with the banks, as this will collapse faith in currency. Dam collapse.

So they are forced to backstop credit money with base money. How much credit money is in the system now? What effect will this have on the value of the dollar? And what will overseas dollar holders and oil exporters do with their oil and dollars when they see this process happening? Dam collapse.

They will run to something that has no counterparty risk. So yes it is a deflation, but denominated in gold not dollars, as FOFOA eloquently puts it.

Hope this helps.

Greg said...

Paul


Here is another one more recent by Keen

http://www.debtdeflation.com/blogs/2010/10/04/jubilee-shares-and-the-american-monetary-act/


Enjoy

Greg said...

Paul

Didnt take it as condescending.

I think I get the Gold deflation/dollar inflation coin. Thats not the way I'm used to thinking of things but it has a ring of truth to it. Its simply shining the mirror in another direction.

Where I'm not so sure is in the idea that govts wont let banks fail. Many have failed already (not the big boys yet I know) and the current crowd is unlikley to go along with another. Interestingly enough it might be Libertarian hero Ron Paul who actually saves the dollar, in a sense, by refusing to let the banksters be saved. Of course if the Fed doesnt step in as direct lender to businesses and consumers it will still be sayonara.

Will Ron Paul be a principled man?

Paul said...

Not lender, buyer. The Fed is buying all and every bad debt because it must.

Credit money was never designed to be free. It should be chained to an institution by debt (in a collective sense.) Normally the credit money disappears in the act of repaying the debt.

By buying all the bad debts, the Fed is freeing the credit money and adding base money, which is now swashing around looking for return everywhere, especially in Emerging Markets.

That's why China, Brazil etc are so angry. Not only are their foreign reserves being debased, but more money is flooding in inflating asset prices.

At some point, what MAY happen, is that these dollars are accepted nowhere outside the US, and then they will all try and flood back home in a wave of dollar selling. Now that's what I call a dam burst.

Pete said...

@ Greg

"The DOLLLAR is not hostage to anyone else. We own and control it to our welfare or our detriment and there are plenty of others in the ROW who want it, need it and will do anything for it. Thats just how it is..... for now"

In regards to ownership, I would suggest that the US owns the rights to create USDs and to declare them as legal tender in the US. Otherwise I would think that whoever holds the USDs technically owns them...

And surely, as for control, you don't think the the US is the only one that controls its currency, right? Any form of currency pressure, can amount to 'control'. I'd say China and Japan have a hefty amount of control of the USD. Either of them could cause immense currency problems for the US whenever they like. Some would argue that China is already doing this, albeit marginally. They may even be using it for political control as we speak.

A good exercise for you may be to consider the US from the perspective of another country, even a conglomerate of countries, such as Europe. Many of them could get by just fine without the USD, except for that pesky problem with the oil trading. But this is not what you are suggesting.

The world is a big place. More than six billion of us live here. Less than 1/12th of that is America. And whilst the US has the largest 'economy' in the world, that is today's economy. A paper economy. A USD economy.

Ok, back to regular programming for me.

Anon said...

@Martin Millnert

The old 'Oscar coinage is still legal tender in Sweden (giltigt betalningsmedel).

Fauvi said...

Desperado,

there is no place without „infiltrations”. I’ve been scratching my head for days about some comments I read on my favourite blogs and their authors….They work so hard to be convincing, are very argumentative until persuasion, I wonder why?

IMO everyone who tries to convince me about something, that’s some sort of manipulation. I better like to come to my conclusions by myself and bear the consequences.

However, for me all these discussions about communism, left, right wing, fascism are only WORDS to give someone the feeling that the counterpart is to be HATED. As long as people accept these tags, yes, they will not see the real foe, the real danger and they will be themselves dangerous for the mankind.

In communist countries everybody knew his enemy, nowadays, in our so called democracy, is worse as the manipulation is by far greater and people live as in trance.

Switzerland seemed to me quite retarded last time I was there (April). They accepted the RFID passes!!! I wanted to buy iodide and shopkeepers were in panic!

I think the Germans are becoming angrier. No wonder why. But it is still a very long way before they understand the history.
BTW, gold is bought here like crazy I was told by dealer today. He is young and thinks people are reacting in a ridiculous way (LOL)!

Fauvi said...

"if the Fed doesnt step in as direct lender to businesses and consumers it will still be sayonara."

Is that the Terminal Solution?

HaHaHa!!!! And LOL!

On FOFOA's blog such a....sentence!

Desperado said...

Gold and Guns

The dialog is perfect. It also ties into Ron Paul's discussion of ending the Fed through making gold legal tender. Those of you that don't have a vault in Switzerland had better start thinking about how you will turn any gold you managed to hang onto into what ever fiat comes next.

"
...
Her: You hate america, thats why your're buying gold. Why don't you move to Switzerland and live in a vault with your gold and your guns.
...
Him: America is broke which is why I am buying gold. Our government currently owes more than 26 years of domestic savings, 13.6 trilion, thats 124,000 for each taxpayer. when my new son comes into life next year he will owe $44,000 dollars.
...
Him: Printing money makes most people poor, but it is very good for rich people like me who buy gold.
...
Her: Rich people shouldn't be allowed to buy gold. You are destroying our country by subverting the good intentions of our government. You plan to become rich at the expense of the poor who will be wiped out by inflation.
...
Him: It is actually the poor who have been living at the expense of me. More than 1/2 of american households are either employed by the government directly or receive substantial financial support by the government such as food stamps, social security or medicare. Meanwhile less than one half of americans pay any federal income tax whatsoever. And, the top 20% of all taxpayers actually foot the bill for the entire government budget.
...
Her: The government should take your gold to pay for the necessary government programs like healthcare. Its not fair for you to become wealthy while our country is in a financial crisis. You should be ashamed of yourself for trying to get rich while everyone else is going broke.
...
Him: If you try to take my gold, I will shoot you in the face, thats why I bought the guns.
...
Her: You threatened my life, Thats why I am calling homeland security. You are a financial terrorist. Stop right there, where are you going?
...
Him: I am taking a private plane to Switzerland. You'll never see me or my gold ever again. Good luck with your new country, the Peoples Republic of America"

FOFOA said...

Here's a very good inflation-deflation debate between Peter Schiff and Robert Prechter:

Part 1
Part 2

It is actually more of a hyperinflation-deflation debate. Peter Schiff is taking a similar position to FOA and me on hyperinflation. You cannot simply replace credit money with base money and expect the value of a dollar to remain the same. This is one of the big mistakes the deflationists and various easy money camps make.

It is the debt side of credit money that gives it its domestic (internal) value. It is the home purchaser toiling day in and day out in the "factory" for dollars to pay his mortgage – not to pay his taxes – that gives the fiat dollar its value. If you just spew out base dollars expecting that your power to tax them back in will keep the dollar valuable you are in for a shocking awakening. (Maybe that's why we haven't adopted MMT as a national monetary/fiscal policy yet? This is just common sense people.)

The same goes for replacing existing credit money with base money, which is exactly what is happening today through QE2, among many other programs and guarantees. Base money and credit money are qualitatively different. This is the a-ha moment I was going to lead Greg into, except that his MMT "education" has given him too many blind spots. It is the base money that is hyperinflationary. Not the credit money.

This is what the AMI is all about with its 100% reserve system. That means 100% base money in the banking system. That's from the Steve Keen link that Greg posted, which is similar to Bill Still's, Ellen Brown's and MMT's easy money schemes, all of which completely miss that which has actually given the dollar its stable international value since 1979. And that is the excess REAL VALUE PRODUCERS (internationally) "storing" their accumulated wealth in dollar-denominated paper promises. This is what the European CB's agreed to do in 1979. This is what the Saudis agreed to do in the early 70's. This is what the Chinese started doing in 2001.

Robert Prechter makes the argument, at about 4:55 in part 2, that replacing M3 entirely with base money would not be inflationary because it would be a simple 1:1 flat asset swap. (Where have I heard that one before?)

This is where we are headed per FOA, me and now Peter Schiff. This is what I was visualizing in my illustrations which Greg conveniently ignored from this comment.

Here is a good article about how QE2 is radically different than QE1 or anything else we've ever done since the Fed was created in 1913. And if you haven't read them yet, the links embedded in the article are just as important.

And here is the actual mechanism that allows base money to flow out of the "tethered" banking system, untethered, as explained by the Fed itself:

(Cont...)

FOFOA said...

http://www.ny.frb.org/aboutthefed/fedpoint/fed01.html

"To meet the demands of their customers, banks get cash from Federal Reserve Banks. Most medium- and large-sized banks maintain reserve accounts at one of the 12 regional Federal Reserve Banks, and they pay for the cash they get from the Fed by having those accounts debited....

"When the public's demand for cash declines—after the holiday season, for example—banks find they have more cash than they need and they deposit the excess at the Fed. Because banks pay the Fed for cash by having their reserve accounts debited, the level of reserves in the nation's banking system drops when the public's demand for cash rises; similarly, the level rises again when the public's demand for cash subsides and banks ship cash back to the Fed."


Here's another common mistake: A high demand for cash is NOT a "high dollar demand." It is the opposite. It is a demand to untether one's self from the banking system.

There is a lot to the relationship between credit and base money and its various subcomponents. And the impact on pricing of various goods is not homogenous across the board. This is sometimes called the cantillon effect because it was first described by Richard Cantillon in the early 18th century, around the same time as John Law. From Wikipedia:

"…he posited that the original recipients of new money enjoy higher standards of living at the expense of later recipients. The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect. Cantillon also considered changes in the velocity of money (quantity of exchanges made within a specific amount of time) influential on prices, although not to the same degree as changes in the quantity of money. While he believed that the money supply consisted only of specie [the modern equivalent being base money], he conceded that increases in money substitutes—or bank notes—could affect prices by effectively increasing the velocity of circulating of deposited specie. Apart from distinguishing money from money substitute, he also distinguished between bank notes offered as receipts for specie deposits and bank notes circulating beyond the quantity of specie—or fiduciary media [broad money]—suggesting that the volume of fiduciary media is strictly limited by people's confidence in its redeemability. He considered fiduciary media a useful tool to abate the downward pressure that hoarding of specie has on the velocity of money."

Yet unlike in Cantillon's time, today we can easily expand the monetary base, "the specie", what he considered "the money supply." And today we are doing just that! Just as FOA predicted. And QE2 is different than last time. Remember all those base money charts from the Fed with vertical lines from 2008 and 2009? Read the Amerman article linked above to see why this time it's different.

Ever since 1971 we've had the ability to do this, yet we've never actually done it until November 2010. This is a big mistake MMT makes in not recognizing the difference between base money spewing (QE2) and credit money redirecting (normal Treasury sales to private parties).

Greg said, "QE is NOT adding new money for the Treasury to spend it is a simple asset swap. The amount of money in the system doesnt even change as a result. All this does is lower long term interest rates. Your badly wrong on this one."

No Greg, you and MMT are wrong on this one.

Sincerely,
FOFOA

Desperado said...

Swiss Vaults

My son once went to goa/trance music festival called "deep under" in a military bunker deep under a Swiss alp. They had plumbing, ventilation and electricity in a giant carved out cavern. In a small densely populated country noise is always an important issue.

Anyway, the Swiss have been selling off these bunkers for years, and it appears the trend will continue. Military bunkers face their Waterloo

"Switzerland’s secret military bunkers should be closed since they no longer correspond to threats the country faces today, according to Defence Minister Ueli Maurer.
...
Switzerland’s bunker system is found all along the border and at key positions inland. A secret construction programme of 100 high-tech bunkers with mortar cannon, which cost a billion francs, was completed only in 2003.
...
But for Bruno Frick, a parliamentarian for the centre-right Christian Democrats and co-president of a lobby group for the defence industry, this was the wrong approach.

“It is certainly not right to get rid of them all – they have a high military value,” he said.

“The smaller the army, the more we rely on high-value bunker systems which can have a big military impact.”
...
“The Swiss army has been massively reduced – in 1995 it was almost halved from 750,000 soldiers to 400,000, then again to 120,000 in 2004. And the government has just decided to reduce the number to 80,000 in the second half of this decade,” Martin Bühler told swissinfo.ch.

“The entire army infrastructure must be adjusted to this – that is to say, made smaller. And taking into account the nature of the military threat, bunkers no longer have the same significance that they once did. In a first phase they were decommissioned yet maintained; now they are to be rebuilt.”



This was part of the Reduit strategy to defend Switzerland against Hitler and Musolini: Militia vs. Nazis


Before and during the Second World War, Switzerland's main goal was to preserve its independence and to stay out of the fighting.

To face the threat of invasion Switzerland increased the training of recruits and built defence works. Reserves were called up to guard the border with Germany.

The population were told to stockpile food and given instructions about how to prepare for air raids. Every available piece of land was dug up for planting crops to ensure food supplies.

In summer 1940 German military staff started drawing up invasion plans for Switzerland known as operation Tannenbaum.

The Nazis aimed to destroy the Swiss army and invade the central part of Switzerland, which was important for strategic and economic reasons. The plan was never carried out.


The Swiss are also constantly building new tunnels:

Gotthard Tunnel, the worlds longest

FOFOA said...

Desperado,

"You plan to become rich at the expense of the poor who will be wiped out by inflation."

This is a very good description of the common misconception of inflation, and by implication, hyperinflation. That it will wipe out the poor.

In fact, the poor and the young will be only minimally affected by hyperinflation. The rich and the old will be the ones wiped out. The poor have no savings to wipe out and the young will find that wages rise (lagging) behind hyperinflation. And the lag will be no more detrimental than deflation would have been (had it been politically possible).

As for the poor, when a gallon of chunky monkey ice cream rises $1 (or 33%), that will cost each poor ice cream consumer $1 per gallon consumed. On the other hand it will cost the millionaire $333,000 in purchasing power stored in his retirement account. It will cost the $5 billion pension fund $1.67 billion in purchasing power, a loss shared between all the union workers that picketed for more government spending.

Unfortunately for pstansberry, only 1% of the US public has any physical gold bullion. The rest of the paper gold (gold as insurance) investors will be wiped out along with the other savers. And of the 1%, 90% only have 5% of their holdings in physical gold. So they won't exactly become filthy rich. And of the .01% that went for a greater holding than 5%, 90% of those are well aware of the value of absolute secrecy.

So I'm afraid there won't be much for "The People's Republic" to go after, after all.

Sincerely,
FOFOA

DP said...

First of all, littlepeople, thanks for your feedback. This is most welcome - being human, I frequently am concerned by my beliefs while I feel as certain of them as this. It is good to get reassurance I have not totally misunderstood the situation. (Or, at least I am in good company if I have! ;-P )

littlepeople: The fiat, debt-based system has outgrown its usefulness.

Well... per my comment that you were responding to, to some extent I disagree with your statement above.

To clarify that, I think probably local credit-based currencies do provide benefits to a society (I'm sure my new friend Greg will agree here), but they have to be managed and constrained somehow as they simply always get out of hand. Politicians can never get too much of a good thing, right?

Just take a look at the massive progress that was able to take place as a result of extensive credit use, most obviously in Britain and subsequently in the US. These two imperial powers largely obtained their dominant positions as a result of leveraging their credit based economies to totally overwhelm others operating under more traditional pay-and-go systems. They borrowed resources from their future and this enabled them to step ahead of the pack and clean up. The flipside of course, again amply demonstrated by the decline of the British Empire and today we bear witness to the decline of the US empire too, is that the resources borrowed from tomorrow must be repaid -- tomorrow will be less productive than it would naturally have been, had those resources not already been employed yesterday. This is fine and it is the right of any society to make its own choices about how it will use up its resource capacity, and when. It must, however, accept that the price of gluttony today is hunger tomorrow. Tomorrow arrived for the UK a long, long time ago but even now we are still just about getting away with it for a bit longer. The population of the US today are their Tomorrow People.

The problem we have as a global society today, is that the US borrowed the resources of tomorrow not just from its own citizens but of just about all the citizens of the world. The ROW were clearly stupid for agreeing to go along with this for so long, at all in fact, and the US is now heading for the mother of all hangovers. The ROW will not be having a party and getting drunk as they look on and enjoy the show in the US -- like we all collectively did as we stood by and watched Japan, Zimbabwe, etc -- because we concentrated almost all of our lent out resources on the US, and we're not getting most of them back.

It is so very clearly time to stop using anyone's local currency, especially any credit-based currency, as the primary world reserve medium and global reference point of "value". Once that step is out of the way, everyone can do what they like; they will no longer take everyone else out with them when they fail.

The IMF/WorldBank (agencies of the people behind the curtain) continue to tell us all we need to use a basket of credit-based currencies as the primary world reserve medium. They're doing this, understandably, because the people behind the curtain want to continue to benefit from debt. I still say this is a bad idea, just not quite as bad an idea as using only one credit-based currency for that function. For this function, gold is the best vehicle so far known to man, IMO.

webmail4tom said...

@DP

"Any time you find yourself pondering the Freegold concept and you hear yourself at any point using the word "fix", just stop thinking and go read some more instead. ;-)"

Thank you for the reply!!

I will certainly not give up and continue reading and rereading!

Thanks for the ecb link. I was searching the entire ecb site just for this!

I knew before that right now in terms of gold and currencies nothing is fixed.

Please forgive me, it´s not ignorance but what I tried to ask, was that if it would be possible if the world leaders sit together somewhere sometime in the future and think about to fix each currency within a bandwidth to a leading currency and gold like they did after WWII in BrettonWoods.

Thank you for your patience
Tom

DP said...

Aleksandar: @Hans

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


Surely, the commercial bank most often buys the bond from the government using Xcredit$, not X$? Non-high-power$ that could not be parked in reserves at the Fed and get the 0.25% -- it was just bank magic-money. An accounting entry.

That being the case, the bank starts off with Xcredit$ and ends up with X$ from the Fed. High-power$, which it can choose to keep on reserve with the Fed and just collect the 0.25%, or alternatively it can multiply it in accounting entry loans, or buy multiples of the government bonds.

In fact, why not be a bank and buy a government bond with Xcredit$, sell it to the Fed for X$, go back and buy a bigger number of government bonds with XXcredit$, sell those to the Fed for XX$, and go-round with bigger and bigger number of XXX each iteration. Why would you risk loaning out your Xcredit$ accounting entries to probably defaulting borrowers, when you can back up the truck at the Treasury and Fed private party?

When the banks have decided they can eventually find some reliable borrowers again... Party On! They have mucho X$ in reserve than they can multiply into many more Xcredit$ and lend out for a decent yield. Pretty sweet deal.

Seems to me there is a big difference to the banks between getting more of the Fed's high-power$ from QE operations, and creating its own non-high-power$ accounting entries that it can lend out (and perhaps not get back and have to write off) or buy government bonds with (with pathetic yield but no nominal risk).

Perhaps I am missing something.

Desperado said...

Hello Fofoa,

That was an interesting debate. Prechter's insistence that TPTB will somehow miraculously become sane and let the banks and the entitlement seekers go under is laughable, even though he did mention the Paul's as a some kind of a good omen.

Concerning the cartoon clip (those were not my statements, you realize of course) you wrote: "In fact, the poor and the young will be only minimally affected by hyperinflation. The rich and the old will be the ones wiped out."

I think that it is risky to make that generalization, especially since the economic collapse this time will be global and there will likely be few stable fiat currencies to move into. Prechter trumped Schiff and said it will be worse than a cat 5 storm, that it will be like John Laws bubble.

More importantly the US has gone for quantities of scale, emoney, and credit to a degree that is unprecedented. Most of the US "working class" are not tradesmen (butcher, baker, candlestick maker) but are information workers and bureaucrats that produce nothing tangeable and have little training or skills that they can use after a collapse. The youth have not been through trade schools and apprenticeships, but have become useless and brainwashed after a high education devoted to PC orthodoxy.

And in any case, hyperinflations often end up in wars, with the youth being sent forward as canon fodder.

Cheers,

Desperado

FOFOA said...

Hello Desperado,

"And in any case, hyperinflations often end up in wars, with the youth being sent forward as canon fodder."

Which hyperinflations ended in war? Hyperinflation usually comes after war...

Angola (1991-1999)
Argentina (1975-1991, 2001)
Austria (1921-1922)
Belarus (1994-2002)
Bolivia (1984-1986)
Brazil (1986-1994)
Bosnia-Herzegovina (1993)
Bulgaria (1991-1997)
Chile (1971-1973)
China (1939-1950)
Free City of Danzig (1923)
Ecuador (2000)
England (1560)
Georgia (1995)
Germany (1923-1924, 1945-1948)
Greece (1944-1953)
Hungary (1922-1927, 1944-1946)
Israel (1979-1985)
Japan (1944-1948)
Krajina (1993)
Madagascar (2004)
Mexico (1993)
Mongolian Empire (13th and 14th Century AD)
Nicaragua (1987-1990)
Persian Empire (1294)
Peru (1984-1990)
Poland (1922-1924, 1990-1993)
Romania (2000-2005)
Ancient Rome (~270AD)
Russia (1921-1922, 1992-1994)
Taiwan (late-1940's)
Turkey (1990's)
Ukraine (1993-1995)
United States (1812-1814, 1861-1865)
Vietnam (1981-1988)
Yap (late 1800's)
Yugoslavia (1989-1994)
Zaire (1989-1996)
Zimbabwe (1999 - present)

Go back to the Debtors and the Savers: Hard money regimes often end in war while "easy money regimes almost always end in financial suffering when the easy money collapses."

And Debtors v. Savers III:

"But of all the consequences of central banking and fiat money, war is the worst because it exacts the biggest price from citizens and foreigners and everyone else caught in the crossfire. That is why sound money — by which I mean the gold standard — is a key to peace and freedom.

-- Lew Rockwell

Attractive as it would be to simply take Rockwell at his word regarding his association between the making of fiat money and the making of war (essentially saying that war could be abolished if fiat currency were abolished), history begs us to identify that notion as a utopian falsehood. Two handy examples from very close to home (in space and time) provide the necessary instruction on this point.

1) We launched into the U.S. Civil War despite our being on a bi-metallic (gold and silver) currency system.

2) We launched into World War I despite many of the participants being on a gold standard.

Sure, paper greenbacks and confederate currency came along to prominence in the Civil War, as did the abandonment of the gold standard and implementation of fiat currency in WWI, but this development misses a most important point.

That point being, if the metallic monetary standard fails to prevent the war in the first place, then all subsequent arguments about the nature of money go out the window. Because once a nation deems itself engaged in a struggle for its very survival, there is no power on Earth that can compel such a nation to cling fast to its metallic currency standard if the legislators deem that a fiat currency would be expedient to facilitate the war effort.


Cont...

FOFOA said...

Here's the bottom line on it: In the very thick of it, the scale and scope of a nation's participation in war is not limited by the extent of the metal or paper fabric of a nation's currency, but rather by the extent of that nation's real resources. Throughout the affair, the role of money (whether in the form of gold currency or paper) is merely an accounting mechanism that the nation uses in the economic mobilization of its resources and production.

And as it all shakes out, the wealth of a nation in PEACETIME is ALSO determined in very much the same way -- upon the extent of its resources and the efficiency of its production and mobilization of capital. And the role of money is to help organize and lubricate the workings of the economy. To be sure, any gold metal within a nation is counted among the nation's total stock of resources, and very obviously, it need not (and ought not) any more than any other physical resource be enmeshed (underutilized) in the physical makeup of the nation's currency/banking system.

Given the structure of fractional reserve lending as the basis of our monetary system, the cold hard truth is that use of metallic (gold) currency propagates a nasty falsehood -- the coins are just a subset of the entire money supply but it nevertheless causes ill-informed participants to wrongly believe that the entire money supply is "as good as gold".

It is Another cold hard truth for some people to swallow, but in light of the preceding paragraph, the use of a fiat (paper) currency system is a much more honest means to represent the intangible "nothingness" -- the appropriate embodiment of the network of accounting which is the actual basis of a monetary system. [1]

Clearly, the conclusion to be had from all of this is that a nation's monetary/currency system does not represent the wealth of that nation. Money is merely a utility to be used, to be borrowed and spent. Again, think of it solely as a mobilizing lubricant within an economy -- it has value while in use, but none otherwise. The wealth of a nation, and of its people, is not in its artificial money, but rather in its various resources which can be mobilized for both local and international deployment. It makes little sense to "save" money, as money is an ethereal utility which can be mismanaged and hyperinflated into dysfunction.

Because of this difficult truth, "Your wealth is not what your money say it is," as Another used to say. Instead, your wealth, properly measured, is the tangibles you've accumulated, the store of resources you've saved. And among the world of tangibles, gold is globally the most liquid -- the most universally recognized, honored, and accepted.

In time of war, governments may (and history has shown they often do) recognize and declare that gold is too valuable to be wasted underutilized (undervalued) in the representational coinage of national currency. Therefore, fiat currency is adopted, and gold is instead mobilized in its fully-valued form -- a tangible resource uniquely and reliably suitable for any and all international settlements.

Blunt summary:
Our monetary system, in an attempt to be HONEST, chooses mere digits and PAPER as its representational currency. And consequently, in an effort to act WISELY, we unabashedly use this currency for immediate transactions, whereas we SAVE for our livelihoods by acquiring GOLD.

raptor said...

Paul>
At some point, what MAY happen, is that these dollars are accepted nowhere outside the US, and then they will all try and flood back home in a wave of dollar selling. Now that's what I call a dam burst.
>

Exactly, I always thought the ignition of inflation will come from outside i.e. repatriating dollars from foreigners.
From the reaction of QE2, I think the process will start after the announcement of QE3...give it 6m - 1y and then we will have the first higher inflation this time not one hiding in making product packaging smaller and lowering service quality like it is now, but price increases all over the place.. just in time for the next election... or should I say couple of months before Dec. 2012 ;) (wink)

DP said...

webmail4tom: Please forgive me, it´s not ignorance but what I tried to ask, was that if it would be possible if the world leaders sit together somewhere sometime in the future and think about to fix each currency within a bandwidth to a leading currency and gold like they did after WWII in BrettonWoods.

Apologies for misunderstanding you previously, Tom. I am no authority for sure, but I would say nobody of any consequence is likely to seriously suggest FIXING their currency to gold. It is clear what the problem, or at least one half of the problem, was in the 1930s. Nobody will want to be the person remembered for setting that up again. I am no authority as I said a moment ago; maybe others will disagree.

DP said...

I admit to being nervous about how confident I feel in my thoughts on this subject area the last day or two. I can't help feeling I must have something(s!) wrong. I am not usually so sure of my understanding.

It feels unnatural and I am concerned by it. Somebody please be sure to take me down any time you spot a defect in anything I am writing, I beg you! You will be doing me, and everyone else here, a great service by doing so. Thanks in advance! :-)

DP said...

@raptor: Is that an Armstrong-confirming June 2011 that I hear?

Desperado said...

Hey Fofoa,

You are correct that war is more likely to lead to hyperinflation than the other way around. But if you are willing to relax the definition and timing of a related war, I would give you the following cases. Since IMO the weimar hyperinflation lead to Hitler, then it stands to reason that it also lead to WWII. Also, civil war and revolution can be deadlier for young males than a "normal" war:

Argentina (1975-1991, 2001) => Falkland Islands 1982
Austria (1921-1922) => WWII
Bosnia-Herzegovina (1993) =>
Chile (1971-1973) => Revolution
China (1939-1950) => Mao
Free City of Danzig (1923) => WWII
Ecuador (2000) => guerrila war with Columbia, FARC
England (1560) => War with Spain
Georgia (1995) => Russian invasion 2008
Germany (1923-1924) => WWII
Greece (1944-1953) => Attempted Communist Takeover, civil war
Hungary (1922-1927) => WWII
Krajina (1993) => Yugo independence
Madagascar (2004) => Various coup attempts, clashes
Peru (1984-1990) => civil war with shining path
Poland (1922-1924) => WWII
Russia (1921-1922, 1992-1994) => WWII
Taiwan (late-1940's) => Mao, chinese civil war
Turkey (1990's) => Those poor kurds
Yugoslavia (1989-1994) => Civil war
Zaire (1989-1996)=> never ending civil war

Also, the hyperinflations in Eastern Europe leading up to and during the collapse of the warsaw pact could easily be considered a stalemated front in the third world war where by the grace of god shooting never broke out.

Desperado said...

@Paul

Desperado

I know this is probably not possible for you, but try and move beyond the BORING old left/right fallacy. It leaves one open to manipulation, to “their strategy of divide and rule through a false left/right political paradigm”. “They” are not the left or the right. “They” are the unspeakable.


@Fauvi:

for me all these discussions about communism, left, right wing, fascism are only WORDS to give someone the feeling that the counterpart is to be HATED.

The Nazi's, like the Soviets were socialists, so I agree that the "left/right paradigm" is a fallacy. And I certainly don't think that the current rulers of any of these modern "communist" countries are really communists. They are military juntas using brute force to stay in power and communism as a means to dupe those stupid enough to believe their dogma, which many European youths are.

In 1989 China ruthlessly supressed a popular uprising. The guys running the country were in their 20's during the cultural revolution when their party murdered uncounted millions of people. They have set up repressive regimes all along their border from Burma, Tibet all the way to N. Korea. They are drooling over Taiwan where the western government represents the last vestiges of the legimate claim to power, much like the Romanov's after WWI did in Russia. The Chinese communist party's one goal is to cling to power, and the west is, was and will remain one of the principle threats to their remaining in power. China recently tested an ICBM style aircraft carrier killer and their navy is bigger than the US's. They have N. Korea on a short chain like a pitbull, and every now and then they let the Norks break free to shake up their neighbors. They have used the same tactics as the Norks like ramming Japanese boats and US airplanes.

Russia is run by the KGB. They have been waging a subersive war against the west for 100 years with a constant stream of spies being exposed around the world, the latest Russian spy drama: Top Russian spy defects after betraying ring in U.S..

I don't want to get into some kind of debate over jargon, but if you guys think this stuff cannot possibly have a bearing over gold prices, hyperinflation, currency wars, TSA, homeland security, capital controls, your own personal security, and yes, even freegold, then you two are naiive at best. Both China and Russia have billions in rapidly decaying dollar denominated US treasury debt, and they want to use it up while they still can. That some of that deteriorating currency finds its way into financing subversive communist movements around the world I am certain.

Now just don't get me started on radical islam and it's jihad threat to the west.

David said...

"Now just don't get me started on radical islam and it's jihad threat to the west."

Do you think you could manage to relate that discussion to monetary gold? Please have at it, just keep it succinct.

DP said...

Blogger posts could use a "Like" button a-la Facebook.

Desperado said...

@David,

How about freegold instead of "monetary gold"? Sure. China and Iran are allies. Iran is ruled by an Islamic cult, that is in reality a political and economic system masquerading as a religion. Both of these countries have ruthlessly suppressed popular uprisings in the recent past. Both have large military establishments that run large parts of their economies. Both have shared missile technology used to threaten their neighbors and US interests. Every year Iran and China test new, more modern anti ship missiles that Iran could use to shut down the Persian gulf the same way Obama now has the on/off switch to he internet. Both China and Iran are promoting proxy wars around the world. Iran looks to have pulled Syria, Lebanon and likely Iraq into its orbit. Iran sits directly across the Persian gulf from the house of Saud and their extensive oil fields. All of these have fallen within range if Iran's medium range missiles, likely soon to be nuclear tipped. Iran also sits across from Dubai and the largest middle eastern gold markets. Any weakness in capability or resolve displayed by the US in this region will immediately be filled by Iran. A cut off of the flow of oil from the Persian gulf to Japan and Europe would very quickly debilitate their economies. The European and Japanese economies are keystones to the entire $IMFS. This kind of shock would likely be a body blow that would accelerate the crash of the $IMFS. The premature or externally forced crash of the $IMFS would have a profound influence on the timing and possible premature abortion of freegold.

Satisfied?

Midas II said...

@Greyfox: "I don't think any country other than the U.S. and Britain would 'trust' the IMF to be objective about monitoring the reserve currencies."

That's not what the IMF would do. The markets would regulate currency values, just as they do today.

The only thing that the IMF would do is monitor how much new, self-printed currency nations are exporting in return for valuable goods from others. The balances of that would have to be settled in gold to prevent that the nations whose currencies have global trade and reserve status (USD, EUR, GBP, YEN) abuse that privilege to receive much more credit than their actual physical economies justify. This would improve the stability of the global financial economy and it would make for a more fair distribution of wealth. Basically, what the IMF would do is administer the nations' gold accounts.

" (Midas II said : What it doesn't explain, for instance, is how this could turn gold into the preferred asset for saving)

Would 5,000 years of history as money and a savings vehicle influence this decision?"

No. Saving has and always will have two functions: to preserve wealth, and to expand wealth. When I grew up, I was taught to always store at least 5% of my future wealth in gold, 'in case of trouble'. That's preservation. But if you want to make your capital work for you, you'll have to invest it in the economy; either directly by purchasing assets that return a profit or indirectly through assets that pay interest. Unencumbered gold doesn't provide either, except for speculative profits in times like these.


@Paul "Sure, the gold price would fluctuate to some degree based on supply and demand. But trade deficit clearing is only part of that demand, albeit a massive one. Just consider oil alone.

Other demands need to be seen in the light of [..]"

All true, but those are current, temporary concerns. Long term, in a stabile global economy in which bilateral deficits are settled in gold, the value of gold could theoratically return to whatever it costs to mine it, plus the speculative value that arises from nations' opportunity to hoard cheap gold in order to (again) run a trade deficit of greater value (in other words, nations themselves might begin to speculate on the value of gold).

Midas II said...

@FOFOA:

There's no difference between digital currency and paper currency in terms of a bank's liability. In your example, where the government pays an employee, the bank would take $1000 out of the government's checking account and move it into the employee's account. There's no difference in liability.

When you withdraw money from your bank account, it doesn't matter either if you do so in paper or digital form. If the bank runs out of federal reserve notes (which are only an incarnation of otherwise digital funds), it can simply call its regional FED office and tell them to send a new truckload of FRN's. The FED will take the corresponding amount of $$ out of the bank's account (its reserve) at the FED. It does the same thing when you transfer your digits to a different bank.

HOWEVER, for the banking system as a whole, there is a HUGE difference between the withdrawal of paper and digital money: digital money *always* remains within the banking system! It can only flow from one bank account to another. The only 'exit' is when you send your money abroad and change it into another currency. At that point, the banking system would lose some of the funds that underwrite its liabilities.


@FOFOA:

"Given the structure of fractional reserve lending as the basis of our monetary system, the cold hard truth is that use of metallic (gold) currency propagates a nasty falsehood -- the coins are just a subset of the entire money supply but it nevertheless causes ill-informed participants to wrongly believe that the entire money supply is "as good as gold"."

Well, those participants are partially right. Credit is normally only extended to those who are actually credit-worthy; borrowers pledge capital, plus the proceeds of their future labor, when they take out a loan. And so, the money that is created in a fractional reserve system is a representation of the collective current and future wealth on the basis of which that credit was extended. Problems only arise when that wealth was mis-valued (as with US mortgages), or when governments and central banks interfere through interest policy (or when savers demand their deposits *now*, when that money will only 'materialise' in the course of many years). OR when some nations are not held to account for their global seigniorage and abuse this privilege; that is where the new gold-based system that the Worldbank is thinking about could come in.

"Clearly, the conclusion to be had from all of this is that a nation's monetary/currency system does not represent the wealth of that nation."

It does, to the extend that that nation's wealth has been monetized.

raptor said...

@raptor: Is that an Armstrong-confirming June 2011 that I hear?

nope.. the QE2 for now is planned to last until June 2011. So my guess is that around this time they have to start talking about QE3...
But yeah I remember as you mentioned Armstrong had something about the key date at the end of 2011 !! ;)
So may be QE3 will be implemented like QE2 after some period of time...who knows it may be the end of 2011..when they start the next round.

raptor said...

http://www.zerohedge.com/article/max-keiser-buy-silver-coin-destroy-jp-morgan


nice ..;)

Pallav said...

i suspect banking cartel will keep the price at 25 silver and 1400 gold until the last ounce runs out of comex/lbma. after default at comex this will make the price go in dark and price discovery impossible, at least for a while.when we go back online who knows what price the government decides to start re trading gold again, as a commodity.

Desperado said...

@raptor,

re: "buy-silver-coin-destroy-jp-morgan"

Richard Fernandez has a somewhat related post about how Google could have helped get Democrats elected: Data Is King

The Google Refine application shown above allows relatively unsophisticated users to conform data so that meaningful joins between heterogenous sets can be made. In other words, you can take one dataset and find foreign keys to other datasets by applying human intelligence. Once this is done on a widespread basis then everything which has left a data trail can potentially be related to anything else. Since every modern human being or organization leaves a data track, it can reveal a great deal about what anybody does. This can be used for good or for ill. It can uncover featherbedded contracts, secret payments, sweetheart deals. It can uncover cabals, reveal conspiracies, unearth terrorists.
...
With Google Refine, the software giant is laying the groundwork for getting millions of users to connect all the dots in the public domain. Although the video above goes to great lengths to say that the data thereby “refined” will remain on the desktop — and therefore out of Google’s hands — there can be no serious doubt that the next step will be to offer a YouTube like service in which a user can check in his “refined” data and have it connect up with other “refined” sets. From there it is but a short step to providing online journalists with an interface to discover patterns for their next expose.

The existence of this kind of data in Google’s server farms will give it enormous political power — and influence — influence that far exceeds any kind of donations it might make to candidates. Just saying.

zenscreamer said...

@FOFOA

Your patience seems inexhaustable, although methinks that a few of the new freshman got on your nerves the last couple of days. Thanks, as always, for your efforts!

I'm going to put together a spreadsheet of your post URLs by subject so I can be a better sophomore, and post more cogent responses.

What's your take on today's papermetal takedown? Jim Sinclair writes that he thinks that the change is "purely a function of hedge fund algorithms being tripped" and "just money flows being generated by machines without any particular logic behind it."

Is this just the increased volatility we were expecting, or maybe something else?

miked said...

Zenscreamer, perhaps market dynamics. Much as people would like to believe the hype about price manipulation, silver was 47% over it's 200 day moving average at $29.30. In the past it has corrected at around 40% above.

I was expecting it. In fact I shorted it, so I don't blame the boogie man.

David said...

@Desperado

Thank you. From a thermodynamic perspective, I see no flaw in your argument.

DP said...

Midas II: When you withdraw money from your bank account, it doesn't matter either if you do so in paper or digital form. If the bank runs out of federal reserve notes (which are only an incarnation of otherwise digital funds), it can simply call its regional FED office and tell them to send a new truckload of FRN's. The FED will take the corresponding amount of $$ out of the bank's account (its reserve) at the FED. It does the same thing when you transfer your digits to a different bank.

How long will it take to print up 1,000,000,000 $100 bills? That's just for the Fed to provide the FIRST $100B demanded at ATMs. That's less than a month's worth of QE2. I guess perhaps they have them already printed, loaded up on pallets and sitting in a warehouse, waiting to be shipped to the commercial banks by same-hour courier. It's possible. Yeah, they probably do. You're right, there's no difference. I'm sure if one of the big banks got into real trouble one day, and banks were all closed for a while to halt a panic, they would probably still keep the computers on. Nobody would really need physical cash.

What do you mean "you wanted tens not hundreds"..?

costata said...

FOFOA,

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."

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8100412/Angela-Merkel-consigns-Ireland-Portugal-and-Spain-to-their-fate.html

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."

http://www.usagold.com/goldtrail/archives/another4.html
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 it's 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!

Jenn said...

Re: The Money Song

Hello FOFOA-

I must admit, I'm a bit envious of the silver colored desk. ;-)

In all seriousness though, I have to ask -- how is it that folks like James Turk and David Morgan have missed this tectonic shift? They press on relentlessly in advocating silver. I don't know much about Morgan, but looking back at the archive Turk was watching from the very beginning. He presented a curious question to Another in June of 98'. If I recall correctly this was his first and only post.

"How did you come by the handle "ANOTHER"?

Can you help explain the great divide? Why has he and so many others missed the boat? Certainly Turk and Morgan are reading your blog, no?

--Jenn

Museice said...

zenscreamer:

According to Eric King, "Asian buyers were able to pick up silver at a discount at the lows of yesterday. They are continuing to buy today and tomorrow. People have to remember that spot trades 24 hours a day, so as the shorts raid the market, physical buyers already have orders in to buy tonnage of silver at a time on that weakness.


As I said to you the other day, the locals which were short with the banks were overrun when the price of silver stabilized just above $25.50 for a few hours. The local traders were margined out and silver moved over $1 higher later that same day.


In other words, the only entities that are left short here are the Fed backed banks. Nobody in their right mind would be short here."

Silver closed at $26.04

FOFOA said...

Hello Jenn,

I can answer one of your questions with this. ;)

Sincerely,
FOFOA

Jenn said...

Ok. Whoa whoa whoa. Wait a minute.

If Matt1344 is to be trusted (seeing as I am not a paid subscriber of David Morgan) this implies that while Morgan is publicly advocating silver, privately he is espousing your notion that silver will be left behind as a monetary asset.

If this is true, this isn't misunderstanding, this is deception.

Can you tell me how Turk has come to the same false conclusion?

I mean James seems to me someone that not only understands the metals market, but he also appears to be someone that wants to help anyone that is interesting in listening similar to yourself, FOA, and Another. James is telling me to buy silver. You've pointed out where Morgan in this interview is more aligned with your views -- that is -- that silver will not prosper as gold does -- yet this is exactly what Morgan claims in his interview with Turk.

I really need to understand why Turk strayed so far. Can you help explain this?

--Jenn

Jenn said...

Ok. Whoa whoa whoa. Wait a minute.

If Matt1344 is to be trusted (seeing as I am not a paid subscriber of David Morgan) this implies that while Morgan is publicly advocating silver, privately he is espousing your notion that silver will be left behind as a monetary asset.

If this is true, this isn't misunderstanding, this is deception.

Can you tell me how Turk has come to the same false conclusion?

I mean James seems to me someone that not only understands the metals market, but he also appears to be someone that wants to help anyone that is interesting in listening similar to yourself, FOA, and Another. James is telling me to buy silver. You've pointed out where Morgan in this interview is more aligned with your views -- that is -- that silver will not prosper as gold does -- yet this is exactly what Morgan claims in his interview with Turk.

I really need to understand why Turk strayed so far. Can you help explain this?

--Jenn

FOFOA said...

Hi Jenn,

He said it himself in the interview. He's looking for a repeat of 1971-1980. Another explained why this is not simply a repeat of the 70's.

Sincerely,
FOFOA

miked said...

I met James Turk a few weeks ago. A friend asked him if he read this forum and he said he had read some bits and pieces. He didn't comment on Freegold but I got the impression he just looks at it as one of a universe of possibilities. He certainly didn't speak with great enthusiasm about FOFOA above all else.

In a presentation he gave the next day, he showed a logarithmic chart of gold prices vs all major currencies. Until a couple years ago the ascent was a straight line indicating gold is rising exponentially, but recently the line looked exponential itself indicating gold has entered a "hyper-exponential" [his words] phase.

However he also said at the same discussion he believes silver will out-perform gold.

miked said...

Apologies if someone posted this already.

Martin Armstrong on the fractal nature of markets.

http://www.martinarmstrong.org/files/The%20Fractal%20Nature%20of%20Markets%2011-1-10.pdf

Pete said...

4th posting miked :)

Pete said...

@FOFOA

I really do like that 'quantitative easing explained' video above the money song video.

I hope it goes viral

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

FOFOA,
Perhaps you might wish to adopt the song in the link below as your blog theme song. I volunteer to commence next payment (donation) according to the song. Hopefully others will follow suit.

Thanks again for all your time and efforts on this blog.


http://www.lemetropolecafe.com/img2008/Midas/pay_me.mp3

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

FOFOA deserves a good steak once in a while. Having to survive on MacDonald’s Kid-meals is detrimental to his health. We do not wish him having a coronary-arrest due to his poor diet. So please donate.
Just remember, Freedom is Not Free, and neither is good information/comprehension/knowledge.

Greg said...

Hey Miked and others

You might find this interesting

http://www.ritholtz.com/blog/2010/11/quantitative-mining-debasing-gold/

A different way of looking at things

Jenn said...

Hello FOFOA-

I decided to revisit Another's THOUGHTS! on silver and I found it interesting he seemed to swing from "It's on the list" to "too small a market for large economies" to "it will serve better as a personal holding". He was clear it won't be used "as a currency replacement" and that silver has "more use for the industry".

Most importantly, IMHO, he mentioned gold has "no investment reason."

Trying to work through this I also went back to reread some of your earlier comments and what I found most shocking -- was something you left behind your bookmark!

miked said...

>> was something you left behind your bookmark!

Don't keep us in suspense Jenn. At least post a link :)

Desperado said...

Glenn Beck Part 1 - The Puppet Master Soros
Glenn Beck Part 2 - The Puppet Master Soros
Glenn Beck Part 3 - The Puppet Master Soros

I sincerely doubt that Beck is doing this with Soros's good grace. Even the most livid Beck haters of you have to admit that Beck is throwing the gauntlet down and making Soros and all of his cronies his enemy. And there certainly are plenty of radical liberals that would like to see Beck dead. If you just watch Part 3 at 11:00 where Beck discusses Soros's very personal threat to Beck and Beck informs Soros: "Mr Soros, I am not going to jump... All of this can go away tomorrow, but as long as I have breath I will use that breath to speak the truth. I have offered to let you spend an hour with me, I am sorry to hear you have repeatedly turned it down"

@Fofoa, I consider this piece to be another example of the type of journalism that very few aside from Glenn Beck are delivering. I would greatly appreciate it if you would comment on this.

Fauvi said...

Thanks for the vids.
Quite enlightening. I guess I have to read some of his books.
He had campaigned against Bush??? WOW!
The main obstacle to a stable world is the US???
There are very many questions for me. He wants to break the US in its actual form?
To break its supremacy??? Well, me too. I hate ANY kind of hegemony.
So maybe I should love Soros???
After all he even loves gold (The ultimative...) and doesn't care for Israel's interests. He's even an atheist! That must be awfull for the Americans.Europe is different.
There are very many questions for me.

Jenn said...

Hello FOFOA-

I was digging around the basement a bit and found an interesting box sitting in the corner.

Way back when in your post Ultimo Contango a Parigi you made reference to one of Fekete's articles entitled, The Last Contango in Washington. From that article you quoted the following:

"People from around the world keep asking me what advance warning for the collapse of our international monetary system, based as it is on irredeemable promises to pay, they should be looking for. My answer invariably is: watch for the last contango in silver."

Contrasting that thought with Another's Thought:

I think [silver] will gain much, but only after a trading halt by gold.

It seems to me if we were to combine these two statements, we might have a interesting map. First gold goes into hiding and gold futures head towards zero, next silver futures spike, following that the price of physical silver spikes, and it is then we see international finance shut down.

Departing from comments by both Fekete and Another and using my own logic with a bit of guesswork, perhaps what we see next is the physical price of silver plummeting, gold revaluing astronomically, and only then world trade resumes.

What do you think?

--Jenn

Jenn said...

On second thought -- perhaps this has nothing to do with my logic nor guesswork. Perhaps this is what you've been trying to say all along and it is only now that I caught your lead.

Now where did I leave my silver? I better get that stuff ready to ship!

Museice said...

If anyone is interested in what happened to the price of Silver & Gold this week here is an answer.

The Day The Silver Suppression Stopped - Tuesday November 9, 2010 - How To Navigate The New Silver Market

Casper said...

Nice link Museice.

Just thought provoking but did you (anyone) notice that the author put forward a fact that silver coin/bullion dealers closed their shops? I wonder if this is just a made up stuff to make the piece more dramatic.

If it isn't then we have 2 possibilities:

1) they closed their shops after the crash (i think that's what the author is suggesting)

2) they have closed their shops prior to the crash (here's your last contango in silver Jenn)

The second scenario fits nicely into the big picture when physical is no longer obtainable and the crash in futures market starts.

miked said...

>> First gold goes into hiding and gold futures head towards zero, next silver futures spike,

Hello Jenn

Surely if gold futures head toward zero it would not be because gold is worthless, but because of the risk that banks could not make good on their promises?

If that was the case all futures would head to zero (as a reflection of the counterparty risk), including silver. There could be spikes only in the physical market. Futures would no longer trade.

An alternative scenario is that banks settle for cash instead of the underlying metal and get bailed out by the government. In this scenario gold futures will rise and will be closed out at some arbitrary level. Silver could take over from gold at that point as a substitute for paper gold. Maybe that is what Another meant.

Aleksandar said...

A few observations regarding the recent margin hikes:

- an operator (ICE I think) of commodity exchanges has recently announced that they will accept gold bullion as margin collateral

- margin hikes only make the affected market more closely resemble a physical market. It reduces leverage in other words.

Hiking margins is a natural process when the chance for a speculative bubble is noted by the exchanges. They are just protecting themselves. It is completely legitimate.

If the margin hike for gold is far greater than for the other commodities, it would be a clear signal that the $IMFS moves towards Zoellick's proposal. Zoellick simply wants a gold reserve asset accounting (like Freegold) but with the POG controlled by the $IMFS.

Leaving margins unchanged for gold is not a good sign as a speculative bubble will then result.

Hiking margins modestly will onlt extend the present status-quo.

julian said...

Some Random Musings on Gold & Silver:

Possible scenarios for the future values of Gold and Silver, relative to each other:

- Silver will outperform Gold = GSR decreases significantly

- Gold will outperform Silver = GSR increases significantly

- Gold and Silver move in tandem = GSR remains around 50-55, no matter their asset price.

The way I foresee things, based on the human population, demand for real savings vehicles, supply of Gold, supply of Silver, utility of Gold and utility of Silver, network effects and monetary history:

The GSR will decrease significantly. I am always wrong when I try to quantify these things, but it seems as though Silver will "outperform" Gold, in those terms. I'm hoping for 1:16 GSR, but even 1:25 or 1:30 is fortunate for me. Since I got into the "savings" game so late, I'm hoping Silver will help me to get roughly twice as much Gold in the long run than I would have been able to purchase outright if I saved straight into Gold. This, of course, assumes that actual Gold will even trade for Silver (or for anything).

But I'm "small change." If I had real wealth to store, a lifetime of savings that I only belatedly realized should be stored in something real, I would have used Gold as the savings vehicle, no matter the possible outperformance of Silver. Historically, silver is rather volatile, even measured against gold, and so I would not claim it to be a sound savings vehicle. But it's got such upside potential, and for a smalltime saver like myself, I figure it's the right play in order to increase my value holdings and indirectly get more Gold than I would have been able to get directly.

I just hope physical gold will still flow in those times. Otherwise greed will have gotten the better of me.

julian said...

On another note:

My cousin and I were debating about the Euro and its gold reserves.

All that I "know" about this topic is that which I have learned from reading A/FOA/FOFOA and the rest of you. But my grasp of the situation is weak, so much so that I couldn't really explain to my cousin the significance of the floating gold reserves against the euro. I tried to explain that the gold reserves are floating freely against the currency, such that the currency will always have reserves which support its value, no matter what happens to its relative fiat value.

My cousin seems to think that they do not have a floating gold reserve, and since my knowledge is so limited, we reached a stalemate rather abruptly. I told him I would post here and try to find any answers or information. He reads this blog on occasion, and is not unfamiliar with the topics covered.

But for my own education, and his, please could someone briefly and succinctly explain the situation for me? Or, if you prefer to link me some information, that's acceptable too. I know that the information is directly available on the ECB (?) balance sheet, but I'm seeking more of an explanation of what it's all about and how it works. I feel like it's probably a very simple explanation.

Thanks in advance,

Julian

Jeff said...

jim grant for the gold standard:

http://www.nytimes.com/2010/11/14/opinion/14grant.html?_r=2&hp

Museice said...

FOFOA:

Why can't people take the next logical step and let Gold Float instead of a fixed price in a 'Gold Standard'?

How To Make The Dollar Sound Again

miked said...

Hi Julian

The US gold isn't marked to market. It sits on the balance sheet at a fixed value that hasn't changed since the early 70s. When the big shakeout comes the US surely will revalue its gold reserves and mark to market, so at that point it will not matter.

In the short term however they are forced to distort markets to defend the dollar against gold. A rising gold price highlights the uselessness of the USD as a store of value. Hence (so the gold bugs say), the US deliberately manipulates the gold price downward using whatever methods they have in their toolbox.

Euroland clearly states its reserves at market value so those reserves do what they are supposed to: support the currency, not compete with it. Recently the value of gold backing the euro surpassed the value of reserve dollars. This was mainly because of gold rising in terms of USD. The euro architects' intention was supposedly for gold to eventually replace the dollar as the main reserve through a slow but relentless decline in the value of the dollar. It could not be done suddenly because dumping the USD in favour of gold would cause a dollar crash which could destabilize the whole world's financial system.

I hope that answers your question :)

Museice said...

Hochreiter: If the Euro Were Backed by Gold, One Ounce Would Cost Far More than €25,000

Jenn said...

Hi Julian-

I'm no expert, but I think you might find your answer in FOFOA's post entitled Open Letter to EMU Heads of State.

I'm sure you are aware that, unlike the US Treasury that keeps its gold booked at $42.22/ounce in perpetuity, the ECB marks all eurosystem gold reserves on its financial statements to the market price each and every quarter. What this does to the balance sheet is quite amazing to watch, even at LBMA/COMEX prices! Just imagine what it would look like at BIS prices!!

Put another way, the price of gold is very low in USD today. Why is that? Because there is much paper gold out there to sop up the peoples' desire to own gold -- only the paper holders don't own anything. There is, however, Another gold market operating as well -- it's the BIS market. They do sell gold, but not at the price you and I know. Let's say you are a very rich person and you want a lot of physical gold -- maybe 100 tonnes. You are not going to be able to buy 100 tonnes of physical gold in the open market. You are going to have to go to the BIS -- and they will sell -- for astronomical prices -- in Euros!

So here we are, some people own physical gold, some do not, but more and more people want to buy it. As more physical gold is pulled out of the market, the folks that are long gold on the COMEX might realize what's happening and ask the shorts for their gold. The shorts unfortunately, won't be able to deliver. The gold market shuts down. No one is willing to part with their gold. The BIS on the other hand will sell you gold -- if you are willing to give them a lot of Euros for it. They aren't going to accept dollars.

That brings us to realizing the value of a given currency based on "network effect" as FOFOA mentioned in his post Dilemma.

When the COMEX/LBMA gold exchanges shut down, the physical market will reopen initially trading in Euros. And why is this? To buy oil.

How am I doing here FOFOA? Any corrections?

Hi Miked-

Surely if gold futures head toward zero it would not be because gold is worthless.

I wasn't trying to imply gold futures would go to zero because gold is worthless.

--Jenn

miked said...

>>
I wasn't trying to imply gold futures would go to zero because gold is worthless.

Hi Jenn

Yes, so if futures go to zero it can only be fore one reason: counterparty risk, and in this case paper silver will also be zero.

fletcher said...

HI Jenn,

It was exactly your point about BIS valued gold that I was looking for more info on, in my much earlier post.

In particular I am looking for any reports / documents (outside of the goldtrail) that back up (support) Another/FOA's claims of a BIS valuation of $6,000/oz relative to the time of their writings.

Any pointers will be much appreciated.

Jenn said...

Hi fletcher-

In particular I am looking for any reports / documents (outside of the goldtrail) that back up (support) Another/FOA's claims of a BIS valuation of $6,000/oz relative to the time of their writings.

In the immortal words of FOFOA earlier in this very thread:

"Good luck with that!"

As he mentioned in his post Open Letter to EMU Heads of State:

I'm going to tell you about a secret market that maybe only 100 people in the whole world know exists

miked said...

Haha, Fletcher, I'd wager Another stuck his finger in the air and said:

"ok gold went from 35$ to about 700$ in the 70s so since gold is 350$ now why not just add a zero?"

miked said...

Actually Flethcer gold was 300$ in 1998-99 so 300*20 is exactly 6000 :)

Desperado said...

@Fauvi,

You wrote: "The main obstacle to a stable world is the US???
There are very many questions for me. He wants to break the US in its actual form?
To break its supremacy??? Well, me too. I hate ANY kind of hegemony."


There are actually 9 youtube's on this 3 day Beck special about "Soros, the puppet master", you should watch all of them before you start hoping for a OWG run by Soros.

Do you know anything about his involvement in German NGO and "charitable" organizations?

Here is a recent promo Soros made on himself through one of his organizations.

Here are some Soros quotes:

The main obstacle to a stable and just world order is the United States...
I am willing to put my life at stake, it is what I believe in...
When you try to improve society you affect different people and different interests differently. They are not actually commensurate so you very often have all kinds of unintended adverse consequences. So I had to experiment, and it was a learning process. The first part was this subversive activity, disrupting repressive regimes. That was a lot of fun, that is what got me hooked on this enterprise...

People generally play with a certain set of rules. I am particularly interested in changes in the rules of the game...


Soros when asked why he doesn't support Israel: "I think there are enough Jews to take care of Israel"

When asked if he felt guilt for seizing the property of Jews going to the gas chamber: "no. I don't deny the jews a right to a national existence, but I don't want to be a part of it"

At 14 Soros says this about the period where he was confiscating propery from fellow Jews while pretending to be jew: "It was probably the happiest year of my life, that period of German occupation. For me, it was a very positive experience, because you see incredible suffering and you are in danger yourself, but you are 14 years old and you don't believe that it can happen to you"

And finally, a SNL skit on Glenn Beck and buying gold

Fofoa, you remind me of Beck, and that is a sincere compliment. Both of you are doing what you can to try to prepare people for the coming ordeal.

fletcher said...

@Jenn, thank you. I will re-read FOFOA's Letter to EMU Heads



@miked your ignorant comments are not worth replying to

miked said...

Do forgive me for breathing Fletcher. I guess I will have to keep my serious face on when you are about :(

I guess you are right. Another must have had a crystal ball, and didn't need a methodology to work out his price.

miked said...

Reading Another's comments = it looks like his method was even dafter than mine :)

"Look even at your "Comex", and divide the daily volume by the "eligible stocks for delivery". That number (perhaps three million ounces divided by 150,000 stocks), deliverable, times the spot close gives close, real world price of physical, $6,000. It follows close to paper trade on LBMA."

Desperado said...

Chinese dollars (or in this case pounds) coming home to roost.

julian said...

miked and jenn,

thanks

miked said...

Hi Desperado

Been a lazy weekend so I watched all the Glenn Beck Soros videos and no matter how shocking and evil Beck tried to make him look it seems to me Soros is on a mission against tyranny. Perhaps that's why he's ready to risk his life for what he believes in? I've even read some of Soros' material and I didn't find anything shocking there.

I admit his teenage years under the Nazis must have been pretty weird, but he could have just said it was terrible to satisfy everyone. The fact that he chose not to doesn't make him evil.

I really doubt this 80 year old man wants to rule the world.

Change it? Yes, sure.

Desperado said...

@miked,

"to me Soros is on a mission against tyranny. Perhaps that's why he's ready to risk his life for what he believes in? I've even read some of Soros' material and I didn't find anything shocking there."

This is clearly what Soros wants you to believe, and on this score you sound like Fauvi. Did you vote for Obama? Sounds like you are already looking for a benevolent dictator before we even hit hyperinflation. It reaffirms my predictions about what is going to happen when the entire state collapses and the hungry masses are ready for a savior who claims to offer quick and painless solutions. It certainly isn't grounds for optimism.

miked said...

Hi Desperado

No, I am not an American so I didn't vote for him. Surprisingly Beck didn't pick up on the fact that it was Soros who discovered Obama when he was nobody. I thought that would be the first thing he would mention.

US supremacy is not in my interest so I think I do agree with Fauvi. I would like to live in a multi-polar world.

What about the countries where Soros had a hand in overthrowing the governments. Are they worse places now than before?

DP said...

fletcher/miked, all posts here are always worth revisiting. You may like http://fofoa.blogspot.com/2010/08/relativity-what-is-physical-gold-really.html

Desperado said...

@miked,

Is Iraq a worse place now for the clear majority of Shia and Kurds than when it was being ruled by Saddam? Since the victors write the history, how does one determine the truth? Do the ends justify the means?

I would also like to live in a multipolar world, as long as all poles are democracies with representative governments. China and Russia clearly need not apply. And Soros? You trust him?

Beck clearly missed a lot of points and you are correct about Obama/Soros. What about Soros in Europe. Could these latest protests in Greece/France/England/Germany be manifestations of Soros's Top Down, bottom up, inside out strategy? What role did/does Soros play in current EU policy? Do you think he is just a bystander?

miked said...

Hi Desperado

I am not saying Soros is a bystander. I am just saying that beck attempted to make him look like the antichrist, but to me (from Beck's own description of Soros' activities) he looks more of a political tactician who believes in what he does.

I really don't know enough on the topic to say if he can be trusted at face value or not, but he didn't lie about some things that could have brought him poor publicity.

I have seen so much bad press on him. So many people dislike him because of how he makes money, so I think it's hard to be objective.

Fauvi said...

Do you find the Iraq war was good for the people there??? The Amis brought them freedom??? Fuck!! The internet is really a dangerous place to engage in stupid conversations1
Looking for the ignore button as I don’t want to get upset what I really am. L
Why don’t YOU live yourself there??? How about some cancer for you and your family even if you are shia or kurd?
End of the discussion for me. I can’t stand/support/accept EXTREMISTS!

globalweimar said...

hello - i am putting on a sound money conferenece at the guildhall in london on jan 27th with turk, salinas-price, andrew maguire, david morgan, chris powell etc all speaking about practical solutions....i kow this is an anonymous blog but i would love someone to come and speak about freegold and its viability - what are my chances?
best
Ned Naylor-Leyland
ned.naylor@cheviot.co.uk

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