Monday, December 20, 2010

Kicking the Hornets' Nest

As someone here wrote in the comments, it sure seems like I kicked the hornet's nest on Friday. That wasn't my intention. Clearly the post was a message to "my readers," that is, to those with a little more background on the esoteric nature of this blog and the foundation on which it builds (i.e., the writings of Another and FOA). But it was a pleasant surprise for me to feel all the warmth and love in the superb comments over at ZH. Some of the silverbugs even posted thoughtful counterpoints to my post, like this one from the author of the ZH piece I quoted.

Perhaps this little episode will dispel the notion that Freegold can be distilled into an easily digestible pill for mass consumption. Of course that's not to say it is not accessible. It is accessible to anyone and everyone with the time and inclination to put in the effort. Just start here:

FOA's The Gold Trail

A more complete list can be found at the bottom of Freegold in the Proper Perspective.

The point is not which metal is going to give you a better return on your investment at any given time in the future or the past. The point is, given a choice between silver and gold, which physical metal should you buy now… today? And this is where Freegold comes in. Because the more you learn about Freegold, the more you will want to buy physical gold only. Dismiss this notion if you want. I don't care. I'm here to help those that want help understanding Freegold.

If you are here reading this blog, then you deserve to know my position on silver in the midst of all this silver hype. That's why I wrote the post.

In our Freegold future, gold will not provide a yield or a return. Instead, it will protect the purchasing power you have earned through hard effort. The idea of a risk free yield is an illusion propagated by the $IMFS.

A real yield can only come from risk taken in the pursuit of economic expansion. The "risk free yields" of today may well be nominally risk free in today's system, but that risk of nominal loss has been replaced with currency risk, the risk of value loss. The risk that your "lines in the sand" might become worth less, or even worthless. And just when nominal yields are reaching their nadir of zero, currency risk is reaching its apex. It is a systemic conundrum.

The purpose of a nominally "risk free" yield in the $IMFS is to try to keep up with inflation. Inflation is always with us, even when it is disguised by the financial system. It is the storage of value in dollar denominated paper assets that disguises the inflation. This slows dollar velocity and masks the systematic expansion. In other words, the Chinese letting their wealth reserves "lie very still" in dollar bonds gives the dollar value.

In Freegold, gold will simply float on the currency and represent the expansion or contraction of the economy. Scepticus was correct that after the Freegold transition, if the economy contracts because of an aging population, or simply from too many Lazy Bens, then gold's purchasing power at that time will fall. It will track the economy, not the currency. It will float on the currency, unlike anything today. But it will also perform better than any supposedly risk free paper investments today as well.

The problem today is that, like Chen on the beach, the Chinese are accumulating a whole lot of worthless "lines in the sand" that they know can never be spent. These lines hold perceived value as long as you don't spend them, but they lose value as soon as you do. And in the case of "non-floating" bonds that accumulate even more of the same thing, the "lines in the sand," the math is simply untenable. And what makes the situation even worse is that these lines are only legal tender in one place, on Ben's beach. So clearly, the necessary hyper-devaluation of Ben's lines will wipe out the stored value of all your past efforts.

On the other hand, in a real world with hundreds of Bens and Chens and millions of people (both lazy and not) behind each money, the floating gold solution works quite well. It can be spent anywhere. It doesn't lose value with the issue of more lines, because it is not denominated in lines like bonds are, but instead it floats and rises priced in that currency. And all the competing Bens will find that they can control the exchange value of their currency with gold. Selling gold will raise the value of your currency, and buying gold will lower it. And because all currencies will be judged relative to their gold price, even if Ben has no more official gold to sell, gold can still be purchased with his currency from other sources at the floating price of gold in that currency, which will be a reflection of management of the currency relative to the domestic economy behind it.

If this works for you, you can think of it as a multilateral floating gold standard. And in this gold standard, the money printer doesn't even need a hoard of gold if he has a strong economy and a well managed currency. Without those, you'd probably want some gold.

Okay, I have to post this video, because Davincij has me laughing hysterically. I watched this at least three times. Every time he laughs, I laugh. I just can't help it. I love this guy! He obviously doesn't get the point of my post, but he sure is fun to watch...

Here's the thing about silver and Freegold. If you really think about it, Freegold is the pure embodiment of Gresham's law. The masses are never going to demand silver money, only the modern Silverites are. The masses always want easy money. And that's because the masses use money mostly to pay expenses and service debt (in case you haven't noticed). And also, if you haven't noticed, there is a big overlap between the silver movement and the various easy money movements like Bill Still and The Secret of Oz.

But the easy money camp has a newer and better easy money in fiat currency today. Silver was out of that job a long time ago. Perhaps that is why it re-trained and found a new job in industry. I doubt that silver will voluntarily go back on "benefits" to please the silverbugs. It may not feel inclined to "lie very still" under a bridge drinking moonshine.

In Gresham's law there is good money and bad money. There are two moneys, not three. Good and bad, not good, so-so, and bad. The bad money drives the good money out of circulation. In other words, the bad money circulates (and becomes the medium of exchange) and the good money lies very still (becoming the store of value). Look at this latest Eurosystem quarterly report again:

You see, the international monetary and financial system (the IMFS) is in transition today. It is transitioning from the old $IMFS into the new IMFS. And through this transition gold is going to replace dollar assets as the monetary reserve asset, and in so doing, will recapitalize the failing system of today. This is the esoteric part, where you need to put in a little effort to understand why I say this with such confidence. Without that effort you will most likely dismiss my words when I say that gold's value will soar during this transition and deliver a one-time gain to physical gold holders in a sort of "punctuated equilibrium."

This means that one day gold is cruising along with its known relationship/ratio to things like silver, oil and bread, and then the next day (or over a brief, one-time period) it gaps up ~40x and then reestablishes a new equilibrium with the aforementioned commodities. And the gain of this transition is only afforded to the physical quantities of gold in the world, which is why the chain of paper promises (of gold) floating throughout the financial system is so dangerous.

Yes, silver will run with inflation just like all physical assets. But it will not have the additional boost of being the new system's official reserve asset. This probably doesn't seem so significant to the silverbugs, but then again, most of you who have taken the time to understand Freegold now call yourselves ex-silverbugs.

The majority of the silverbug articles I read today seem to boil down to the "scarcity = value" argument. This is a weak argument because stock stability is much more important in a monetary metal than scarcity. And stock instability is definitely NOT a plus for a monetary store of value. It is pretty good, however, for the volatility where JPM makes outrageous profits churning, front running and sheering the traders. But it's not what makes for a monetary paradigm shift.

Someone wrote, "Is silver money? I have a bag of 1964 coins that says it is." Good point. But as I said in the post, silver's commodity value overran its monetary face value that year and it has run (just like a commodity) with inflation ever since. Does that make it money? Not in the sense that I am talking about, which is the role of global reserve asset par excellence riding out a systemic phase transition.

Someone else said that I had money all wrong because I wrote that gold is debt. Perhaps I should have said that gold is "a credit" for future goods and services instead of using the loaded word "debt." (But, actually, I did that on purpose.)

All of these are fine arguments. But they are also all completely missing the point of the post.

Yes I still have some physical silver. But I am a seller today and have been for a year now. And I was only a buyer before I discovered the wonderful archives linked above. And for the record, I am not playing the GSR. And I won't sell ALL of my silver. I plan to keep a little bit of it. And if I didn't have any silver, I would probably buy an amount equal in weight to my gold position, as Desperado said in his comment. That means, if I had 100 ounces of gold, I'd also buy 100 ounces of silver. But that's just me (and Desperado).

Randy Strauss, who has been the sitemaster and an active forum participant at since the very beginning, is probably the finest Freegold observer there is (other than a couple of great guys that stopped posting back in 2001). He doesn't write much anymore, but what little he does write is worth following every day. It can be found here following the notation RS View.

He has been on the trail for about 10 years longer than I have. And when the systemic phase transition didn't happen as expected (and thank goodness it didn’t, otherwise I wouldn't be here nor would I have any gold), he started looking for signs in the international monetary realm as to any kind of a sweeping plan. And he found the signs he was looking for! Much has been evolving in the IMFS over the last decade. The signs are everywhere! (I think Costata has been working up a list.)

Anyway, starting around 2005, many international policy stirrings gave Randy every indication that 2010 was to be the targeted year for assertively rolling forth the Freegold paradigm. But the ongoing financial crisis that began with the subprime fiasco has caused instability of such magnitude that the central bankers have been forced to delay briefly and "play it safe" – one does not dare rock the boat (if there remains any choice in the matter) when the financial waters have become so turbulent and choppy.

As for a new timeframe, Randy is seeing good indications of a mid-2013 benchmark. Of course he is also cognizant, as are the central bankers, that any number of potential and unplanned events could force the transition at literally any moment. Luckily, for the most part, things are already in place. Which begs the question, is your gold already in place? And with this background, here is Randy's week ending post from last Friday.

[News & Views -- main page]

The beginning of the End of Dollar Hegemony

by Randall Forsyth
Friday December 17, 2010 (Barron’s) — When the monetary history of the year coming to an end is written decades from now, the headlines of European debt crisis and Federal Reserve’s adoption of QE2 may turn out to be mere footnotes to the bigger story: 2010 could be a watershed marking the beginning of the end of the dollar-based, Western-centric monetary system.

… This year, the idea of reform was advanced by World Bank President Robert Zoellick, who proposed in a widely read and commented-upon Financial Times op-ed piece “a cooperative monetary system that reflects emerging economic conditions.” That would include the dollar, the euro, the yen, the pound and the renminbi — plus gold “as an international reference point of market expectations about inflation, deflation and future currency values.”

Zoellick’s November commentary followed the outbreak of the so-called “currency wars,” as Brazil’s finance minister dubbed the tensions in the foreign-exchange markets resulting from Fed’s liquidity expansion through the purchase of $600 billion of Treasury securities, dubbed QE2, for the second phase of quantitative easing. The downward pressure on the dollar from the surfeit of greenbacks was viewed by finance officials abroad from Asia to Europe as well as Latin America as tantamount to a competitive devaluation to boost the U.S. economy while beggaring its neighbors.

… Dissatisfied with the options of the dollar or the euro, the ascendant economic powers are essentially cutting out these middlemen. Just Wednesday, Micex, Russia’s largest securities exchange, began trading in the ruble vs. the Chinese renminbi. It was largely symbolic given the volume traded was equal to about $700,000. More importantly, Russia and China have agreed to settle their bilateral trade of about $50 billion in their respective currencies.

That means Chinese importers don’t need to obtain dollars to buy oil from Russia. Nor does Russia need greenbacks to buy Chinese goods.

[RS Note: Think about this for a good long while...]

… Because the rest of the world uses the dollar for transactions and a store of value, the U.S. has been able to take advantage of that. Indeed, the greenback is America’s most successful export.

So, Americans get the goods, allowing us to consume more than we produce, simply because the rest of the world wants our paper. …… American ingenuity produced triple-A mortgage-backed out of subprime loans, which dollar holders around the globe eagerly scooped up.

These foreign dollar holders are funneling their funds into Treasury securities, effectively funding the U.S. budget deficit. But they’re not doing it as willingly as before.

… None of this suggests that the dollar is about to be toppled from its perch as the premier global currency in 2011. Strains in the original Bretton Woods system were evident long before President Nixon abrogated the promise to redeem dollars for gold at $35 an ounce for foreign monetary authorities on Aug. 15, 1971. Even then, the floating exchange-rate system didn’t come into being fully until 1973.

… How long this process goes on depends on the availability of alternatives to the dollar.

… The demand for dollars from the rest of the world has been of inestimable benefit to the U.S. economy. It quite simply allows Americans to consume more than they produce and save less than they invest; in other words, to live beyond our means. The dollar’s dominance will not be toppled in 2011 but will wane over the coming decade and beyond. And America will have to start picking up the tab for what had been a free lunch.


RS View: For the wealth-preservation minded individual, the important question centers upon this comment made in the article: “How long this process goes on depends on the availability of alternatives to the dollar.”

Frankly, the answer is surprisingly simple, and the preparatory timeline is surprisingly short.

As evidenced in the commentary about the new trade arrangements between Russia and China, it should be obvious and intuitive that bilateral trade between any two given countries could be similarly invoiced in their respective currencies. The timeline is effectively zero given that these currencies already exist and are in local use. At issue, mostly, is the simple matter of breaking with mere tradition — the habit of invoicing/contracting in this third party currency, the dollar. Given the suitable functionality of most national currencies for the invoicing/payment of their bilateral trade, there is no need for the world to spend time and effort conjuring up a new supra-national currency unit to replace the dollar as a universal invoicing agent.

With invoicing/payment alternatives ready and waiting, the only other aspect of usage in the dollar’s international role is that as a reserve currency — that is, as a store of value.

Store of value is a significant element because at the end of any given trade cycle (monthly or annually for example) a nation actively trading with its international peers as described above will inevitably end up with a net position in various foreign currencies. It becomes a matter of national importance to consolidate those paper positions into a more reliable form that is not dependent upon the fiscal policies and monetary management skills of your international trading partners. It is the form of asset chosen for this consolidation of the net position that embodies the “store of value” function from one trade cycle to the next and beyond.

But as this article points out [see the article link to read more than the few excerpts above], “Since 1973, the dollar has been unanchored and has been anything but a stable store of value.” Gold, on the other hand, serves this role uniquely well because it resists the degrees of artificial inflation and depreciation commonly afflicting national currencies driven by naturally self-centric national management.

The central banks of the world, throughout their long history, have more or less developed the requisite infrastructure and ample experience in the fine art and science of gold storage and allocation transfer. Therefore, not only is an alternative to the dollar available for the store of value role, it is readily available with no significant timeline to accommodate the practice. To be sure, many central banks have already in place the mark-to-market accounting structure to accommodate (and benefit from) the significant upward revaluation of gold reserves as would be expected to occur through the dollar-to-gold transition.

Various policy signs over the past several years had indeed pointed toward 2010 to be the watershed point in the international monetary transition, but the depth of the current commercial banking crisis likely argued strongly for a delay under the thought that calmer waters would facilitate a better transition. As such, the existing infrastructure and policy is largely in place at the present time, so a timeline for this store of value transition can be every bit as short as that for invoicing — essentially, no time needed for flipping the switch.

But in light of the current crisis and some of the policy efforts underway to restore calm to the commercial markets, it looks to me that the new timeline for significant transitions is mid-2013 consistent with the current policy talks driving the permanent European Stability Mechanism to that timeframe, but with that said, it could be set into motion at any given moment between now and then, and between your breakfast one day and breakfast the next. Hence, it is best that you work to actively establish your desired gold position without undue delay, and then with peace of mind you can turn your full attention to the business of living your life as it was meant to be. Spending significantly further time obsessing over currencies and investments is a fool’s errand.


The bottom line is that silver could do anything short term. The essence of the message here is that silver is not gold's trusty sidekick or heir apparent. The silver price could go up or down, but silver is not part of the Freegold transition. Only time will prove this one way or another. In the interim, here's some more music.



costata said...


Excellent follow up to Focal Point.

"And through this transition gold is going to replace dollar assets as the monetary reserve asset, and in so doing, will recapitalize the failing system of today."

I thought this statement was worth repeating. We have a solvency crisis in the current IMFS. The poster children for this problem are the TBTF banks.

A credit crunch (liquidity crisis) can be solved by providing cash loans or cash gifts/bailouts. Insolvency can only be addressed by an infusion of capital or bankruptcy and restructuring.

mortymer said...

“A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.” Douglas Adams

Pete said...

Great couple of articles before the holiday break FOFOA!

What I find interesting is how much people protest your writing. If they don't like it, so what?

Well, people are emotionally invested. Not necessarily rationally, and it shows.

There is a clear difference between what some 'want to happen' and what 'will happen'.

So far FreeGold is the most comprehensive explanation I have seen, simply because it addresses the real systemic issues from almost every angle (although for me there's still that small gap regarding the 'gold rush').

I hope you can remain confident in the face of some of these speculators, because the readers who 'get it' really appreciate it.

Happy holidays...

PS @ Costata - thanks for your posts, I find them to be great reading. Also thanks to the other regulars here who 'get it' - including you Desperado, more posts pls ;)

ebikeguru said...

"The bottom line is that silver could do anything short term. The essence of the message here is that silver is not gold's trusty sidekick or heir apparent. The silver price could go up or down, but silver is not part of the Freegold transition. Only time will prove this one way or another. In the interim, here's some more music."

Echoing my thoughts as per my last post. We cannot know what silver will do, because we are not TPTB of the silver world. That said, I did so well with the last silver "investment" I did, it would be rude not to chuck at least some of the profits back at silver strike 35???!!

I think I will mostly be adding some Vrenelis and English Sovs though after having now slept on the FOFOA silver piece...

P.S can you limit newbies posts to 40 characters haha!! Dimmed etc really are diluting the FOFOA comments thread goodness!!



haywoodjablowme said...

It's to be expected FOFOA.

Especially when you get a bunch of numb-nuts that recently jumped on the metals train in the past year or two and don't completely understand or haven't taken the time to do their due diligence outside of the de-facto hyper / high-inflation scenario to support their likely speculative position.

In the davincij15 youtube video case, it's one thing to be an idiot. It's a completely different level of idiocy when you showcase your idiocy on a global scale such everyone can see it.

It's becoming waaaaay to easy these days to tell who has actually spent the time to really understand their positions.

Haywood Jablowme @ ZH

DP said...

Quite a good show. Thanks for putting it on, I've enjoyed the popcorn :-)

Michael H said...

Here are some speculations regarding silver:

A couple of posts ago there was discussion regarding the question: Why hasn't freegold happened yet, when A and FOA were predicting that it was imminent? It boils down to:

1. What has the $ system done to extend its lifetime in the past 10 years?

2. What other events could further extend the $ system lifetime for the next several years?

FOA wrote that the collapse of the dot-com bubble would lead to hyperinflation as reduced asset values were papered over. This did not happen partially because of the inflation of an even larger real-estate bubble to cover up the losses. Now that the real estate bubble has burst, there are two options: inflate or die.

Which brings me to silver. What if the next bubble is in silver?

Here are a few reasons why:

1. Silver is an industrial metal but is not being recycled. New sources of silver must be made economically feasible so that no interruption occur in its supply. This situation is reminiscent of the non-middle-eastern oil in the 70's. The US producers needed a higher oil price to make exploration viable. Then, when these sources came on-line, the need for an increasing oil price went away.

2. The goal of a bubble is to siphon off paper wealth into financial assets, and thus to keep the general price level stable. While high silver prices will translate into higher silver-using-product prices, food prices (for example) will not be impacted.

3. A second goal of a bubble is to maintain the illusion of the dollar as a store of wealth, and to maintain oil-for-dollar convertibility through the dollar-for-gold link. By diverting precious metals investments into silver, gold flows can be relatively freed up for oil. The idea would be to play gold against silver.

In an earlier comment I had speculated that perhaps a paper-gold bubble would be inflated (requiring one to exchange physical gold for paper gold certificates to play in the casino). But a gold bubble is just too dangerous -- juggling live hand grenades -- because the death of the dollar is the end of the dollar gold market.

So perhaps a silver bubble would serve the dollar's ends.

Amagnon said...


Your ongoing failure to recognize silver as money is not a local phenomenon - it is surprisingly widespread.

I am not a silverbug, or a goldbug for that matter - I am simply an observer.

Your paradigm appears to have impaired your objectivity.

Firstly some context: I can say categorically - I don't believe anything, all belief is unfounded - because human beings lack the capacity to reliably divide truth from falsehood.

So, I feel we need turn to empirical evidence, to make inference - once established by some evidence, we must refine our theories, always vigilant of internal bias, and ready to toss them away at any time with no regret.

The case for silver and gold

Historically, where gold circulated as currency, silver also circulated. It is instructive to note that its value tended towards its relative abundance with respect to gold.

This infers that silver was historically valued as being EQUAL to gold. So, silvers monetary characteristics were valued equally with gold, or close enough to equal as to create no visible discount to its value.

It is further instructive to note the distribution of silver and gold throughout economies where these metals circulated - and I reference the repellent phrase, 'poor mans gold'.

Golds scarcity afforded it higher value for a lower weight - making it superior for any large transaction - therefore it was used in preference by those conducting large transactions.

So gold is money, but silver is not?

Some feel the need to draw that conclusion, rather than actually examine the premise.

Silver was circulated where transaction amounts were small - a small silver coin would purchase food, clothing etc - to conduct such a transaction with gold would require dust, or clippings from a coin. This poses one of two problems - first if accurate scales are available this is inconvenient, if scales are not present then it is inaccurate.

Silver was therefore SUPERIOR to gold for use in small transactions.

I have read through the historical record of Another and so on - and I feel he is being misrepresented - he had no beef with silver as money.

The very prominent point he was making in regards to gold specifically, was this; the market is being cornered - and revaluation of paper assets will be made with respect to gold alone.

In his opinion then, this made a far stronger case for gold.

There is merit in that position - and I would not denounce it.

'Another' was an interesting character - and I certainly enjoyed his commentary - but he was in my opinion, not possessed of any divine characteristics that would warrant some religious cult formed in his absence.

His message is important, and the (badly translated) axioms are timeless - but I think it is far better to consider the future holistically, and with due consideration of our own, and others capacity for error, and also with respect for the past.

History tells us a revaluation of assets with respect to gold will cause silver to tend towards a value dependent on its relative abundance with respect to gold.

This may be incorrect, but without further contrary data it is a valid conclusion.

The unknown factor is 'what is the impact of valuation with respect to gold, where gold is a cornered market'? This may well negatively impact a revaluation of silver - on the other hand, history tends to infer, silver and gold are equals.

Michael H said...


You make many good points. I do have a comment regarding silver as money.

You say, "Historically, where gold circulated as currency, silver also circulated. It is instructive to note that its value tended towards its relative abundance with respect to gold."

My comment: do you think that the modern industrial uses of silver have affected the relationship between gold and silver? If yes, how so?

lagedargent said...

@ mortymer
>> “A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.”
Douglas Adams <<

Absolutely true, from which I gather, when the complete fools turn out to be the Central Bankers Freegold may be up to trouble.

MystryBox said...

FOFOA, silver bugs are pissed because you blow holes in their view using the very points they think are the positives about silver. It hilarious to watch them say "but FOFOA is wrong and silver is awesome because..." and then they list the very reasons you've explained are the reasons why silver is vastly inferior to gold. It's like they either didn't read your essay or didn't understand it in the least.

You're going to get very little in reply from silver bugs but repetition of the same arguments (from those that don't understand or didn't bother to read your post) or name calling (from those that do understand but don't want to hear the truth).

But give it time. It takes a while to digest the points you make, especially when you don't WANT to consider the points. I know it took me a while to understand the first time I read your position on silver a long time back.

miked said...

I wonder Michael H. Do you know of any numbers for how much non-investment grade silver is sitting in peoples' homes?

The big argument for the silver bull is the small amount of investment grade silver above the ground, but isn't that ignoring the elephant in the room?

Motley Fool said...

Quoting FOFOA from :

"1. There is less above ground silver left in the world than gold.
2. The CB's do not have any silver, so they can't come to the rescue with fresh supply.
3. Investor demand is rising while industrial demand is falling.
4. As recently as 136 years ago the gold to silver price ratio was 16:1.
5. All the gold ever mined is still with us, but silver has been mostly used up by industry."

I agree with FOFOA that the above are all bearish reasons for silver. Except point 3. That is bullish imho.

The Fool

DP said...

But if even as few as 1 of the visiting silverbugs "gets it", it was all worth it, right?

If nothing else, there are now a solid couple posts in FOFOAland that future Silverites can be referred to as a starter for ten points. That has to be worth something.

GOLD FREAK said...

Excellent words as always FOFOA

Great song choice as well ;)

In the end your paper profits and leveraged silver play didn't even matter.

JR said...

Hi Amagon,

Historically, where gold circulated as currency, silver also circulated.

FOFOA's post discussed the historical circulation of silver extensively, yet you raise it here in much more brevity as if FOFOA had not discussed this matter at all. Perhaps a closer read might be beneficial? Did you miss this part?

This infers that silver was historically valued as being EQUAL to gold. So, silvers monetary characteristics were valued equally with gold, or close enough to equal as to create no visible discount to its value.

FOFOA presented information on the exchange ratio between the metals during various bimetallic eras, and it certainly wasn't one to one.

Why would you suggest it is so. Even most silver advocates acknowledge a much larger relationship, like a 16:1 ratio.

And as FOFOA further detailed, to maintain even those ratio's the G had to intervene to suppress gold and prop up silver. G intervention to maintain a gold/silver relationship is proof, is it not, that the market favored a valuation different than the intervening governments?


meechai said...

While I agree gold is king I cannot ignore the profits I have made since 2008 in physical silver

Yes when I started I divided my liquid assets 50/50 cash & metals
In the metals I went 1/3 Silver
& 2/3 gold

Yet looking at it I have a 64% gain in Gold
140% gain in Silver

So I cannot find fault with Silver there.

Yes I am converting a little to gold now at 47/1 & that looks good because I got in at close to 80/1

But I am not 100% certain I am doing the right thing given the track record of Silver thus far

Rui said...

Silver is no soft currency at all. It's interesting that FOFOA himself already answers the question why silver CAN BE money and then he turns around to reject it: All you need is a big pile of silver and then over-value it. It becomes money after that.

Both gold and silver have industrial usage but what causes the instability in silver then? It's the price. Silver is priced too low that encourages over-consumption so the stockpile goes down. If we price gold too low we will see too much consumption in gold jewelry and stockpile shrinking as well.

Once you remove the CRIMEX shenanigans and so on to let market set the price for silver then a stable supply and demand will be achieved for it to be money again. Remember silver's yearly supply is 5-6 times of that of gold so there's no real shortage if you price it correctly. Already in Mexico people are talking about re-introducing silver to be money.

costata said...


"Once you remove the CRIMEX shenanigans and so on to let market set the price for silver then a stable supply and demand will be achieved for it to be money again."

Comex silver is apparently FIVE PER CENT of the global silver market.

Julian D W Phillips writes:
"This report (Comex COT) is of data only the US silver futures market, a small corner of the global derivatives market for the precious metal, which is centered in London and largely traded via private over-the-counter deals. As we have said many times before, this data only covers up to 5% of transactions in the physical market. We have had this confirmed by COMEX itself. The market’s opinion is that J.P. Morgan's large short positions on New York's COMEX exchange, a division of NYMEX, were hedges for the bank's long positions in physical silver and London's over-the-counter market." (My emphasis)

Polaris said...

I have enjoyed the "Focal Point" discussions on this site immensely! Jude Wanniski made many of same points in many of his writings -- calling it the "Gold Polaris" - see his landmark essay at

From my understanding of his writings, the reason why gold won out as "Money, par excellence" over everything else (i.e. the Polaris, or "Focal Point"), including silver, is that it is the commodity that is the least affected by supply and demand (making it the most stable and constant in value), and therefore is the best unit of account (the yardstick for measuring the value of all other goods and services). A major reason for this is because it has very few industrial uses (unlike silver, for which the industrial uses has increased exponentially over the past 150 years).

I remember Jude explaining that if someone suddenly invented a cure for cancer using large amounts of gold (new industrial uses), then its role as the Polaris might be compromised, and that role may go to something else (maybe silver)?

Just because silver is not "Money, Par Excellence" doesn't mean that is undervalued or overvalued relative to gold at any given time.

raptor said...

Scroll down to What Trips Gold Up? – Answers to Your Letters

Why Government is More Afraid of Debt than Depression
(Michael Hudson)

costata said...

Michael H,

I think your points about the bubble potential in silver are well made.


No argument with your arithmetic. Your timing also appears to have been just about perfect.

FOFOA wrote:
Yes I still have some physical silver. But I am a seller today and have been for a year now. (My emphasis)

A year! Mmmm

While gold is priced in US dollars there is also the issue of exchange rates. For example an Australian reading A/FOA would have done equally well ignoring gold and buying a house during the period in which they were writing.

In the last couple of years gold has powered ahead of house price appreciation and a new problem has emerged. Housing in Australia appears to have been even more of a bubble than the US and the UK markets. If we revert to the mean then history suggests house prices could fall as much as 40%.

This is the conundrum in trading - liquidity. When you want to sell will there be buyers? When you want to buy will there be sellers?

Rui said...

Let’s not forget transactions in LME are not that “physical” after all as Jeff Christen revealed in that incredible CFTC hearings sth like “100 to 1” paper contracts to the underline physical are traded. I’ll give you a URL below to the chart shows that bankers are shorting 140+ days of world annual silver production @CRIMEX. You can get a feeling of how criminal the price suppressing game is in the silver market. They would not short silver this much if it’s only a commodity.

If there’s one take away from this post it’s that silver instability is artificial rather than free market price discovery. FOFOA’s points about silver being soft, needing gold support and so on are not that valid. It would need no artificial support if you let it float, correct? Politicians applied an artificial fix only to screw it up in 19th century. Its 1934’s collapse was mostly b/c those silver owners were scared after seeing what happened to gold owners a year ago so they switched away from silver, fearing it would have been the next to confiscate. See? That’s another government intervention generated fix.

oldinvestor said...


I have a question that I can not answer.

I live in a small town of about 25,000, so most of us know each other.

I do believe that the best way to store wealth is in physical gold.

During this holiday season I interact with a number of my friends. Naturally the question of the economy comes up.

My dilemma is that if I come out and actively advocate for gold purchases, the message gets out that I own physical gold. I believe that when the times get as hard, as they may, people will get tortured to revel people who own gold.

This does not bid well for the welfare of me and my family

On the other hand, I think that if my local community would as a whole own gold, we would be in a much better position to weather the coming storm.

This presents a dilemma, should I accumulate gold and keep this an absolute secret, or should I come out as an advocate for gold and reveal that I probably own some?

I am going to a local gathering of my friends tonight for a celebration of today’s solstice. I know this question is going to come up.

I put it out to our community, what do you think I should do?

Rui said...


How could silver be in a bubble? Have you ever seen a commodity bubble that has been in depletion mode for decades b/c of perennial government suppression?

What happened when there’s a real estate bubble?

Well there’s a mountain of houses they cannot offload. People cannot afford it at that price. Government has to provide all sorts tax gimmicks, zero down, ARMs and so on to sell the real estate, correct?

Have you seen that kinda things in silver market?

One theme I've noticed on this forum is that many people think little of the supply and demand dynamics, and that includes (w/ all due respect) Another when he discussed about central banks traded gold for oil.

Dave Narby said...

Lol, just getting in line...

Pete said...

One day, maybe, people on here will stop trying to argue that gold (or other PM's) is 'money' rather than a 'store of value'. Until then, there's plenty of learning to be had.


"This is the conundrum in trading - liquidity. When you want to sell will there be buyers? When you want to buy will there be sellers? "

I concur with that. Previous experience with low trade-volume equities put me in exactly that position - and it's not pretty.

And for these people that want to sell silver, what are they selling for? "Buy silver, it will go up in value". Go up relative to what? USDs?

Also I feel a little bit sorry for those that will want to sell their houses in Australia to realise their 'profits' only to find that buyers are slim pickings and that they are in competition with many others to reduce the price.

The upper end of the market, especially QLD is already mush.

costata said...


You wrote:
"Have you ever seen a commodity bubble that has been in depletion mode for decades b/c of perennial government suppression?"

Yes, though I would use the word manipulation rather than suppression.

mortymer said...

Hi Fofoa & others,
one next jewel for you.

lagedargent: what do you mean? please explain.

The chosen Quote was meant this way: "If you do not get it, you do not get it." Mrt

Davinci Jeremie said...

I have to say this blog was much better than the last post. I have to agree with everything you said here except your 100% confidence that silver can never be money again.

With that we do not have to agree, I thing money can be anything and the free market decides what's best for each person.

In your example I can see 3 types of money, international money (Gold) local currency (dollars) and worker money (silver).

Since the worker bee is a slave if he accepts currency as a way to save, he should save silver, because currency can be created easily by the rich for free, thus transferring wealth from the worker bee to the rich. Silver and gold stands firmly in the way of that wealth transfer even if manipulated up or down.

Finally international use of gold for settling up currency exchanges is brilliant, and thus such brilliance can also work for the average Joe.

I hope you know I was not being sarcastic when I called you "Very smart".

BTW: I want you to know silver and gold has changed my out look on life, I no longer worry if I will have enough for retirement, and I know longer spend money frivolously. The reason I was so careless in the past was because there was no guarantee that the money I saved for retirement would be there, combine that with inflation, it made me feel like spending because it would be worthless to save.

costata said...

Davinci Jeremie,


"BTW: I want you to know silver and gold has changed my out look on life, I no longer worry if I will have enough for retirement, and I know longer spend money frivolously. The reason I was so careless in the past was because there was no guarantee that the money I saved for retirement would be there, combine that with inflation, it made me feel like spending because it would be worthless to save.

One of the best, most easily understood and sanest arguments for this new IMFS ever posted on this blog.

I am absolutely sincere in saying this. It should be re-posted everytime someone posts a question such as "what will the new system be like? how will it change the way we live?"


Tyrone said...

davancij has been posting videos and exposing himself for a long time. He should do himself and his family a favor and stop.

mortymer said...

I am a bit wandering that there are just few who study those "giants" when the importance is very significant...
Anyway, here is one small dip for your toes:

"...As for asset prices, Greenspan and Bernanke both argued against any role for asset prices in policy setting. In regard to bubbles, Greenspan (1999) told Congress that policy should “mitigate the fallout when it occurs.” This has led famously to the notion that the role of the central bank is to mop up after the bubble bursts. Similarly, Bernanke (2002) said “’leaning against the bubble’ is unlikely to be productive in practice.” Other central bankers seemed to agree that the policy tightening needed to prick a bubble would have to be large enough to push an economy into recession. The danger of false positives – tightening when there really was not a bubble – was viewed as too great to warrant any concern ex ante about bubbles.
As I noted earlier, this emphasis on bubbles was misplaced. Central bankers chose not to be concerned with bubbles for these reasons and as result, policy makers paid little attention to significant developments. Asset price increases are more often than not associated with increased lending, increasing leverage ratios and weakening financial institutions. By choosing to ignore asset price inflation, the Fed chose to ignore these other developments as well..."

Syafrin Djohan said...

When the 2008 event horizon finally gives way to the dawn of monetary enlightenment, Gold will assume the central role of monetary confidence (with built-in MTM architecture) at a price reaching say $50,000 (just in case).

At that level, the majority working slave bees, I assume, would also have learnt the tear-sheding education in storage of value.

When presented with the choice of receiving fiat currency (a then convertible bond to pay gold at the end of the cycle or anytime after maturity), OR silver which is readily convertible to gold or consumables at any store, I guess people will find silver softer than paper (no waiting time).

Furthermore, at $50,000 an ounce, it is just impossible for poor men to convert their savings to even 1g of gold worth $1607; and is too much for just small transactions at the local store for a cart of daily necessities.

And at only 4g (0,13 toz) yearly average silver for each person on earth, silver is a collector's
dream. Its luster is as beautiful as the moon. And I also cannot imagine a world with a Betelgeuse sun in the morning and no moon to shine the bridge.

costata said...

Brilliant analysis by Gary Tanashian IMHO

We Are Already Hyper Inflating

"That is because we are once again at a flash point. Ben Bernanke is trying like hell to keep the inflation going, and with the mind boggling trillions in still increasing debt, there is only one politically expedient way out. That would be to keep the scheme going as long as possible. But please do not tell me that here, on the doorstep to 2011, sublime levels of unpayable debt in tow, we have not already hyper inflated. We have, but the ongoing T Bond confidence scheme continues to cover it up… for now."

Radek said...


I read your previous post and I did not mind your strong support for gold and bad outlook for silver.

However, I think in this article when you try to explain the previous one you actually make mistakes which I would like to point out.

First transparency issue. 66% of my precious metals is physical gold. The remaining 33% is physical silver.

I buy your point that gold is the only metal that would become monetary metal and command a high premium comparing to other metals and high price jump at the transition point.

However, you SHOULD not make a mistake by saying that the boost of gold becoming a monetary asset can not be smaller than silver boost of finally being freed from paper based manipulation. Silver scarcity is still important for its price but not as a monetary metal but as an industrial one.

Silver is a great complement to gold and makes me feel comfortable in my huge bet in precious metals. Even if we are completely wrong about gold in short/medium term I have at least chance to be right about the silver in short/medium term.

Moreover, I will also leave some room for new age of information and the effect of internet on peoples perception.

If poor people decide that silver is their store of value there is nothing to stop them from doing it. You may have both gold and silver being used as store of wealth and even if gold is being officially monetized the silver may become monetized unofficially by the distrustful masses.

The price level is also not neglible. People may bid the price of silver much higher than gold on a relative basis just because they feel more comfortable in paying 100$ per ounce than 3000$. People are often not rational and they want to have more of stuff not less (in ounces) for the same amount of money.

Silver has a great story but from industrial point of view. I will not make a bet that this story is of less explosive potential than gold explosive potential as a monetary metal. If by mistake the people will treat silver as their own trusted form of store of value/monetary metal then we can see the unbelievable fireworks
in silver market.

I think the best play is to be monetary gold-bug and industrial silver-bug.


Wandee said...

Gold is superior to silver as money because that is it's highest marginal utility. silver has other important industrial uses that have a very high utility and very inelastic demand. Therefore as I understand it a requirement for something to be used as money is that it's value must far exceed any other valuable use for it. So if we priced silver close to gold the industrial demand may still eventually catch up with that price and silver money would again be melted for use in industry.
JP Morgan once said " gold is money and nothing else"
Did he mean that nothing else is money or gold is nothing else but money? both I would say.
Before the transition to freegold silve may outperform gold- I hope so I own a lot but afterwards probably not. 2013 makes sense to me for the freegold transition. Whoever gets elected will probably do so in the midst of an out of control financial crisis and freegold wil be the only way out. Hopefully we can wait.
Or we could get the Orwellian/Brave new world nightmare.

forwhatitsw0rth said...


Thank you for your blog and insight.

I am a follower of the yellow brick road, whilst wearing my silver shoes.

I am just trying to swap my cotton paper for metal and preserve what little I have.

I believe that the incredible uselessness of Gold is why it will be prefered over silver as the one true wealth measuring stick.

I do hope you continue this journey; some of us are really listening and my ears will not bite.

In the end it doesn't really matter.



costata said...


I think you make some excellent points. In one sense your comment goes to the heart of any gold versus silver debate.

If silver is to rise to great heights then the people, average citizens, will have to drive the price. The industrial users want the price of silver as low as possible. It will be Joe Public who will have to carry the load.

This is where gold is different. Sovereign currency issuers who want to default on their debts by devaluing their currency have no objective limit on the amount of fiat currency they can issue. They manufacture it out of thin air.

This process wont be driven by investors or savers or the logic, aims and objectives that drives investment decisions.

The Fed and the US Government have now become open currency manipulators. There is a political imperative to save themselves and their most indebted constituents - banks etc. They can drive the price of gold to any level they want in US dollars.

Do you see the crucial difference? The Fed and the ECB will ultimately drive the gold price upwards. The proof that silver is not part of the agenda is clear, CB's don't own it.

This blog is about a coming transition where suppressing prices will be the exact opposite of the Central Bank's mandate ie. their mandate is, or will be, to increase prices.

Pete said...

Could those who keep referring to gold and silver as MONEY please stop?

That is NOT what FreeGold is about at all.

Anything non-consumable, non-counterfeitable and easy to handle can be money. Even electronic digits can be money.

The STORE OF VALUE on the other hand is very limited and needs to be something stable, unconsumable, unreplicatable, divisible to a certain extent, uniform, and available to all countries.

Edwardo said...

The $IMF frees itself of gold.

Rui said...

CBs have no silver simply b/c they unloaded them long time ago and cannot just, "poof", add a truck full if now they want it. Plus if they would add they'd upset JPM and other agent banks naked-shorting it. We do know China is buying both metals at LME for a reason.

I would not set too much focus on what CBs and IMF are doing, what they had for 2010 and now 2013 target kinda things. Remember these guys are clueless central planners. They first traded gold too cheaply for gulf oil. Then they then turned LBMA into a complete Ponzi mess. After that they could not see the current financial collapse coming despite guys like Marc Faber, Peter Schiff, Doug Casey and so on warning about it way ahead of time. Screw-up after screw-up.

It will not be a smooth planned transition, make no mistake about it. This will be modern day Rome empire collapse. It'll be the market that will set the money after all said and done, not central planners any more.

Robert Kiyousaki talked about 5Gs to get through the main event: Gold, Gasoline, Goods, Ground to store them and Guns for self-protection.

ShamefulPath said...


I'm wondering how many of the big players know about the idea of Freegold and a one time revaluation?

Now naturally any big player, or indeed any player knowing of a coming MASSIVE profit opportunity would take advantage of it. That's just human nature. What would keep these players from sinking their own personal and family fortunes into gold before such a revaluation? Would not this very act suck up all physical like a vacuum and drive prices on it's own?

I know you have written before about them holding only a % in it to preserve their purchasing power, but this argument makes little sense. Big players did not get that way by being passive or willing to just get by, these people by their very nature are quiet competitive. To get that wealth be it personal or family some proactive measures were taken. In a literal sure bet for an insider I'm having difficulty thinking of a situation that wold keep insiders at less then 90% of wealth in gold assuming a massive revaluation is in the pipe and known to them.

costata said...


In the first half of the 20th Century CBs and Treasuries had 80-90 percent of the above ground gold.

Of the estimated 160,000 m/t above ground today they have around 30,000 m/t.

Who do you imagine to be holding this vast hoard? The Giants have plenty of gold stashed away IMHO.

costata said...


Your reply indicates that you have an unshakeable conviction about silver. I hope it works out for you.

GOLD FREAK said...

Rui "If we price gold too low we will see too much consumption in gold jewelry and stockpile shrinking as well."

You mistake gold jewelry with gold consumption. The majority of the gold jewelry trade is done outside the west and is looked at through a much different set of eyes. It is a form of savings and wearable wealth. It is near pure and it is bought when one has more cash than they need to purchase the CONSUMABLES which feed them day to day. A gold shop is a bank account with a much better form of savings. You turn your cash in for gold and if a rainy day comes along you can return your gold for cash. They do not pay ridiculous mark-ups when they buy and get robbed when they sell, the bid/ask is only a few $'s apart.

The Freegold infrastructure is already in place in the East, the only thing that will change is the quantity being traded.

The western gold trade is set up much differently.. but is the gold really being consumed or does much of the gold sit in jewelry boxes and sock drawers?

costata said...


If this GATA piece is accurate investment demand has priced the Western jewellers out of the gold market. A few snippets below.

"Fashion has driven jewellers away from gold too. At the mid-market UK jewellery chain Ernest Jones, some of the best-selling items contain little or no gold: a silver bracelet which can be accessorised with charms, many of which are made of stone rather than precious metals, or a leather necklace with a pendant made of silver." (My emphasis)

"Jewellery is not the only traditional area of gold demand to be hit by high prices. The watch industry is struggling: Metalor has closed its business supplying gold to watchmakers because it "crashed," Mr Morrison says."

As Jim Sinclair has pointed out many times 'jewellery' demand in the East is a bullion market not a fashion market. After you strip out this component of the GFMS figures the demand from the fashion jewellery market is effectively zero.

GOLD FREAK said...

In the West there are huge mark-ups over the spot metal price and it is looked at purely as fashion. As you the East it is an investment. I prefer to look at it as savings though rather than a play to make them cash. It is savings, it is fashion, and it is damn sexy draped across a South East Asian girls skin.

It is a fashionable way to show off your savings. It is not a fashion that comes and goes with the times. It has been a way for the rich to show their wealth off for thousands of years.

They look at their necklaces as pretty gold bars. To say that it isn't fashion would be wrong but I agree that it is always an "investment" first.

Rui said...

@ Gold Freak

My "consumption" was not in the sense of like eating food - "open mouth, swallow it, gone". Not like that. What I meant by consumption was that people buy it off the market into private ownership.

I was simply giving a supply and demand scenario where if price is suppressed artificially low then lots of demand that should not be there all the sudden finds themselves being able to afford it. They could then come in to buy (consume) and therefore dry the stockpile up.

That's exactly the case where Another described how oil exporting nations cornered the gold market: BIS and CBs myopically supplied the gold to them at too cheap a price in order to secure artificially affordable crude oil.

They did get a good deal for a couple of decades (in Another’s words “CBs were buying some time”) but ran out of gold at the end. Oops!! Now what can they do? They end up still having to pay the high oil price they were trying to dodge while oil nations laugh all the way to their gold banks. At the end of the day it wound up a terrible deal.

Had they swallowed the pain of high oil price and ajusted accordingly in 1980’s, they might have started the program of energy independence, nuclear power, alternative energy and so on and got somewhere by now. They instead chose to kick the can down the road and give economy an artificial low oil price stimulus at gold reserve’s expense.

See that’s the problem of central planning. People tend to think they can get market under control but they cannot. They ain’t smarter than the invisible hand so the planning leads to unintended consequences (in this case losing gold reserve) and distortion. Once the distortion blows up, a crisis soon follows.

haywoodjablowme said...


If you took the actual time for due diligence and even to read through the archives that FOFOA has even provided the links for, you'd see that big money had clearly been positioned in gold in the late 90's.

costata said...


".. and it is damn sexy draped across a South East Asian girls skin."

With you there. And damn sexy on a redhead with skin like a pearl.

Quasimojo said...

"Yes I still have some physical silver. But I am a seller today and have been for a year now."...That's what I've been waiting and wanting to hear. I'll now begin the final divesting and conversion of the bulk of my silver hoard in anticipation of the "wealth reserve par excellence." Many thanks FOFOA, my esteemed friend.

mortymer said...

Q&A: US in default description

ShamefulPath said...


1. The CB amount is assumed to rest with the CBs. FOFOA has repeatedly said that he expects that the USA does indeed have all the gold that is on the books. If it is conceded that they do not that argument holds a large amount of weight. But if they do not then the USA would be completely destitute upon Freegold.

2. The East. You know a VAST amount of gold is held on the Indian sub continent and in the world in general as jewelery. Now as a consequence of Freegld India will be vastly wealthy compared to now. Indeed Freegold would be a massive transfer of capital from the West to the East. This is already happening but I wonder if everyone has thought it through the conclusion. The big boys don't hold that jewelry which all of a sudden will be the best investment of a woman's lifetime.

3. Stocking up. As the oligarchy gains more riches via their pillage it would suit them to move it to gold. So as the big players in the know get more wealth from the IMFS system they would immediately buy gold at what is known to be a steal of a price. Yes this will speed up the IMFS death, but game theory basically plays this out. The one player defects as it benefits him greatly to do so. Prisoner's dilemma.

scepticus said...

"Scepticus was correct that after the Freegold transition, if the economy contracts because of an aging population, or simply from too many Lazy Bens, then gold's purchasing power at that time will fall. It will track the economy, not the currency. It will float on the currency, unlike anything today. But it will also perform better than any supposedly risk free paper investments today as well."

Well thanks for that but you missed my point. Of course gold purchasing power will fall if the economy contracts.

My point is more subtle than that though. I am talking about an inverted population age structure, which inverts the traditional returns to labour and capital. If this inversion persists (and it will do so), the labour is a better store of value than gold, since it will be the only asset rising in price.

But how can you monetise it?

Quite easily actually.

A wide securitisation of labour via the selling of scarce educational and possibly medical resources, positioned as an equity investment in young individuals future earnings which are then pooled on the asset side of a financial institution. That institution may then issue as liabilities paper instruments which will serve as a better store of value than gold.

Once gold is displaced as the best store of value, I would suggest to you all that it will never again regain the pole position you claim it holds in people's minds today.

The reason you are missing this crucial issue of the age structure inversion is because it has not happened for 500 years and there is zero cultural memory of it.

ShamefulPath said...


His answer is they agreed not to and that they will keep enough wealth to ride the transition. This is a great idea but ignores game theory and human nature. Have you stopped buying gold at 2% of assets so you keep your wealth static on the transition? If you are over 2% you are cheating! Now if you are over 2%, then tell me why men of dubious moral character and vast wealth wouldn't go over 2%. But if you accept the idea that it's a gentleman's agreement then follow it yourself and sell down to 2% of net worth of gold. Others need to buy as well, don't Bogart the gold.

I'm willing to hazard a bet that anyone that is not a saint would break the 2% cap and move it up. You think guys like Soros are just hapy with keeping what they have and not profiting more and more? No it would be a mad rush to make money off the IMFS system while at the same time feathering ones nest. The gold market is not that big, so these big players would be sucking the physical right out of the market.

sean said...

Some are suggesting silver could be the "poor man's" gold allowing those who can not afford gold to save something in a "pretty metal" too. I don't believe anyone has suggested there is a minimum quantity such as 1 Oz gold which must be used for savings. For example, at Goldmoney, your gold holdings are calculated in units of 0.001 gram. What if all banks calculated your stored value in units of 0.001 g and converted it to cash when you withdrew it from an ATM? This scheme would be accessable to everyone.

mortymer said...

Let us see how far we got and how views changed:

HervĂ© Hannoun: "The Banque de France’s view on gold
and comments on the euro"; 2000

"...I am impressed by what has been achieved during the past years and the National Central Banks as well as the ECB are strongly encouraging governments and businesses to foster structural reforms in the future..."

Michael H said...


I like the idea behind your scheme, but the aspect of having gold be held at an institution to be subdivided makes me leery. After all, that could very well lead to fractional-reserve gold accounting, instead of freely-physically-traded gold. I know it wouldn't be fractional reserve by design but the temptation to move in that direction would be great.


Very interesting point regarding the inversion of population age structure. Do you have some resources that you can point me to, to read more about the implications?

While I don't necessarily agree that labor will be monetized / secruitized (since I think the financial system might not be around to do it), I do agree that the demographic shift facing us will be a major development.

Unfortunately, another way out of the inverted demographics would be a reduction in the population, either through disease, famine, or war. This may set up another 'baby boom'.

Yet another way to 'deal' with expensive labor is coercion and slavery.

The current trend is to devalue labor. The wealthy countries are seeing their industry move to regions where w

Also, can you elaborate on why you 'would suggest ... that (gold) will never again regain the pole position ... in people's minds ..."?


Your #2 point, about vast amounts of gold held in private hands in the east, gives me pause as well. I think it points to a messier transition to freegold, and more protracted, as opposed to a 'poof' moment.

It is similar to the question of what happens when someone wakes up one day and realizes they have $10,000 worth of fillings.

Michael H said...


I neglected to finish my thought in the fifth paragraph of my comment to you.

The current trend is to devalue labor. The wealthy countries are seeing their industry move to regions where where labor is cheap, and are having to respond by cutting wages, pensions, hours, etc. At what point will this trend reverse?

scepticus said...

Hi Michael,

there are some links to demographic stuff in this blog post of mine:

To answer your last question, the point of austerity policies are to try and protect the return to capital at the expense of labour but like any other policy designed to suppress reality, it will fail.

scepticus said...

Oh, and there is no escaping an inverted population structure through war, since to revert the population structure one needs to kill the old, not the young, which is the opposite of what a war achieves.

Likewise a generalised disease scenario if it affects all age sectors of the population equally actually increases the inversion.

The only way out of the demographic destiny which is already written in stone is for people to have more kids, which they won't do while the returns to labour are being suppressed by social policy.

GR8 said...

Think about all married couples globally and their on average 8 -12gram goldrings after freegold. It will recapitalize many poor working couples with 15000 - 20000 $ if 1oz of gold will be about 55 000 $. Would they start to exchange their rings for cash after freegold on bigger scale ? But what they would wear after selling their rings identifying they are married? Would this change the metal preferred on engagement rings and other jewelry favoring silver or palladium?

Michael H said...


I know of several recently-married men that have tungsten-carbide wedding bands. They are touted as being indestructible.

scepticus said...

" Think about all married couples globally and their on average 8 -12gram goldrings after freegold. It will recapitalize many poor working couples with 15000 - 20000 $ if 1oz of gold will be about 55 000 $. "

That is the best statement of why freegold is a fantasy that I have yet seen.

It seems that EVERYONE will be a winner.

Can't fail!

littlepeople said...


A/FOA wrote 10-12 years ago, as we know. China was rising then, but was seen as coming of age much later than has actually occurred.

China is a major silver producer/smelter (they import much scrap silver and smelt it out).

They are among the last countries to be known to have held substantial silver stockpiles, due to their having been on a silver standard until forced out by U.S. buying, as you pointed out.

Ted Butler, who I feel is the world's preeminent expert on all things silver, has released his latest public article:

In it, he discusses his research indicates that the Chinese are behind the JPM massive, concentrated silver short position on COMEX.

Further, he links to a previous article he wrote in late 2009 shortly after China announced to the world that in exchange for the U.S. cheating it out of its just due, that Chinese entities were free to renege on OTC swaps it had arranged with foreign banks.

So, the Chinese are likely one of the largest national holders of physical silver, and have held the silver price way below its otherwise natural price, with short positions it tells the world it will probably renege on as opposed to covering or delivering silver.

If this happens, silver may become "freesilver" instantaneously. What does China gain? Too large to measure.

Regardless how European CBs might desire gold to become freegold to resolve their debt problems, China's got the world over a barrel, and their reneging on their silver shorts may cause freesilver first.

I know these words will stir some freegolders' inner feelings with rancor, but these are different times; sort of a world-wide version of the U.S. Wild West. Nothing is for sure.

littlepeople said...

And you thought silver was heavy??

"A mystery trader has acquired ownership of 80-90% of the copper sitting in London Metal Exchange warehouses, equal to around half the world’s exchange-registered copper stockpile and worth about $3B. The news came as copper prices reached a record high yesterday of $4.2705 per pound, and the metal has notched a 28% gain this year. As the price of copper, as well as other commodities, continues to climb, investors are growing increasingly wary of the ability of a few traders to dominate the market"

From Sinclair website.

Museice said...

Ted Butler's A Show Stopper

littlepeople: It would be 'End Game' funny if China paid for their shorts in silver with US Treasuries.

littlepeople said...

Should it come to pass, that's essentially what they'd be doing! "I'll renege or give you a worthless T-bill--your choice!"

Jeff said...

After re-reading the Gold Trail I am convinced that FOA tipped his hand enough to say that ANOTHER was Japanese. Now I am re-reading Thoughts with the frame of mind that ANOTHER was japanese. I have no idea if this will illuminate anything further, but it seems a worthy exercise.

nook said...

Me too having a problem to see how this FreeGold could work at all.

Quotes from FOA: “changing international law such that no form of debt can force its payment in gold! This opens a one way street for gold and a two way street in fiat currencies. No one will lend gold because they cannot force its return in the courts, thereby making gold a physical only international currency. Yet, on the other hand, we all must borrow in this modern world and currencies will be the only avenue for this. “

Well then aren’t all currency users at the mercy of the debt issuers? If too many currencies are pumped into the market to dilute the existing ones like what these QE programs are doing, who still wants to settle anything in it regardless what the law says about legal tenders?

costata said...


GR8 wrote:
"Think about all married couples globally and their on average 8 -12gram goldrings after freegold. It will recapitalize many poor working couples with 15000 - 20000 $ if 1oz of gold will be about 55 000 $."

septicus responds:
That is the best statement of why freegold is a fantasy that I have yet seen.

Class dismissed, announces Master scepticus.

So scepticus, if you were constructing a new IMFS you would presumably design one in which everyone loses in order to gain broad acceptance.

The Euro Freegold architects have designed a system where the East gains richly in order to win the support of these ascending economic powers.

There is a "consolation prize" for the citizens of the declining Western economies. Many households have some gold jewellery that may give them an unexpected windfall unless they have pawned it or been seduced by the likes of Cash4Gold.

Though in post hyper-inflation US dollars the windfall GR8 descibes may not be quite as impressive as it appears.

BTW I have read some of your writings on your theory that labour will be the core of the 'value' system that replaces the present regime. My immediate reaction was that the medieval period wasn't called the Dark Ages for nothing.

Did you draw on any particular school of economic thought in developing this theory? The 'labour theory of value' perhaps?

Wendy said...


Let me save you a bunch of time ..... FOA said that Another is/was English!!

Syafrin Djohan said...

At 4g per person per year and at this cheap, silver is tiny market that is very easy to corner if the mass decide to (plus again the oil Sheikhs, with ears wide open now to heed what the Hunts had suggested one of them 30 years ago).

Put Middle Eastern countries, South East Asian countries (Indonesia and Malaysia, a combine of 250 million people), add China's extreme lust for any metal, add Industrial demand, we now may be talking about 200 - 300 million people potential energy with a mere but ready $30 piggy bank cash in hand to take part in the sudden or smooth Freegold transition through gold-substitution purchase.

The Hunt brothers' once and only free secret for all lesson will be very precious for who take time and objectivity to respect it (@100 million ounce only!).

I may add that these people may not even need JPM silver suppression scheme even at $100/ounce. It is not about Gold to Silver Ratio, it is the shortage of above-ground supply vs storage of value demand for the poor mass.

At just $2500 for gold, the silver price has to be at least $100 (25:1 is still a wide ratio) without shortage of supply.

At 171,000 ton of Gold, a historical but inapt 16:1 ratio would command 87 billion ounce of above ground silver stock. (read this once more).

My personal conviction is, this time, the 50$ technical resistance level will be easily broken, and leaving the tape readers to ain't see overhead resistance no more.

Monetary historian would recall the 1980 peak and subsequent pullback a necessary technical implication of a sudden rise only to be broken later.

Moore's law: Everything that can go wrong, will go wrong.

"Just look around you and compare the number of silver jewellery shops to those who sell gold. Silver is everywhere these days and it's the new fashion statement," said George Mallak, a Cairo gold maker and trader.

"Yes, demand could increase if rich buyers increase their gold purchases, but the majority of Egyptians are poor and the high gold prices are like the straw that broke the camel's back."

World's industrial demand for silver accounts only for 55,64% of 2010 total demand of 889 million ounce. This immediately implies 44,36% of investment demand (jewelry, coins, hedging, investment).

Not-that-rich Rural Indians consume roughly 2600 tons of silver each year, and industrial demand accounts for 1500 tons.

Silver is always the poor men's gold. It never fails to reflect the goldshine like the moon.

costata said...


Take a look at the central graph in Figure 1. A growing pile of Petrodollars finding a home perhaps?

William said...

My exchange in the video comment section may be of interest to readers here:

Me: "I think you missed the boat on his analogy. To understand the freegold argument takes a lot more than an article, especially an article that assumes prior knowledge about various aspects of freegold. I like silver and am not completely sold on FOFOA's argument that freegold will come to pass, but I think you have to understand it before you knock it."

Davinci: "Free gold is good idea but asuming that never ending promices has value is not. Free gold is the money between nations settle up debts, silver can be use by the common man to settle up debts from his nation should his country miss mange the currency."

Me: " Honestly no offense but the statement that it is a "good idea" completely misses the point and shows that you need a little more reading on the concept. It is not a proposition of one of several possible choices; it is a description/prediction of how the world financial system, will, of necessity, be re-capitalized. And I don't know where you get the idea that FOFOA thinks "assuming never ending promises has value" is a good idea. You need to explore the archives :)"

Me again: "And don't think I am trying to talk down to you please -that is not what I mean to do - I am not 100% convinced by FOFOA myself - but its important to understand that what he is talking about is sufficiently complex that there is no way to understand it from one or two articles. It is outside our normal economic vocabulary."

Wendy said...
This comment has been removed by the author.
William said...

Also I would like to add the following thought:

My uncle was/is an experienced bond trader with a Wharton MBA and is semi-retired from a profitable career in trading USD municipal bonds. He is skeptical about my bullishness on gold, noting that nothing moves in a straight line and that circumstances in markets can change rapidly. "Only the nimble survive" he says (and he should know - 40+ years in the market). To summarize my response, I argued that:

1) The USD/IMF/Fed system cannot last forever and will fall apart one day.
2) Gold is the only asset that can re-capitalize the world financial system when this happens. Renminbi or Yen or Euros will not cut it.

I am a silver bull, but I recognize the "big boys" are only going to use gold as a reserve asset - not gold and silver. They won't use silver because they don't currently have much and even if they wanted it they would be competing with dozens of industries that desperately need it. Of course freegold assumes that the CBs will continue in their existence - there is always the possibility that popular revolution or other unforeseen turns of events result in the Greenbackers or some other faction implementing their ideas instead.

mortymer said...

Costata: Could be,... "Other financial institutions 2007-2010"... Interesting way connecting dots... Have been thinking about this a lot.

Concerning physical/cash settlement:
- change contract type and judge for yourself. Rules are clear.

Anyone does have more knowledge why palladium spread is so high?

answer2me said...


I would suggest mums the word on talking about gold to your hometown friends. I personaly couldnt handle shooting one of them in the face multiple times then punchuring the body with a nail lined baseball bat to make sure i finished the job, if it came down to it.

One thing i have learned, it is that one mans investment in the future is not another mans. I am sure you have spent countless hours doing your do-dilagence, your friends may or may not. To this extent you have found your solice. It has been my experience that you cannot instill this kind of knowledge in one or two conversations about gold, Just look at the luck FOFOA has when writing about silver, LOL!

BTW, i enjoy reading your thoughts on investments.

you are off your game man! missed the first post the last few times. YOU SUCK!

scepticus said...

"BTW I have read some of your writings on your theory that labour will be the core of the 'value' system that replaces the present regime. My immediate reaction was that the medieval period wasn't called the Dark Ages for nothing."

Costata mate, you have your history upside down.

Fall of Rome: 300-500AD
Dark Ages: 500AD-900AD
Medieval: 1000AD-1250AD

-- black death in 1350 --
14th century: 100 years war, rising labour costs

Renaissance: 1490AD - 1600AD

So the period following the decline of capital against labour was actually followed by a period which was a flowering of human knowledge.

"Did you draw on any particular school of economic thought in developing this theory? The 'labour theory of value' perhaps?""

Nope. I draw upon scepticus' common sense school of economic thought, which says that when a large number of older people having all the capital including gold try to sell it to a smaller number of younger people, the price of those assets including glod must fall.

Gilligan said...

A wise man once said "...what I've seen happen is that the more people understand Freegold, the larger the position they take in physical gold."

A lot of people still talk of ratios as if they mean anything. This is the language of the trader. If you understand this, fine. Everybody likes to play a game of blackjack every now and then. If you are depending on this, then

perhaps the russian style of roulette is your game of choice.

"What is happening now is far, far larger than the interest of a few traders or mining companies. They will be stepped on!" - Another Sat Oct 18 1997 21:04

Yes, the context isn't perfect, but it illustrates my point.


"Historically, where gold circulated as currency, silver also circulated. It is instructive to note that its value tended towards its relative abundance with respect to gold.

This infers that silver was historically valued as being EQUAL to gold. So, silvers monetary characteristics were valued equally with gold, or close enough to equal as to create no visible discount to its value."

Seriously? I detect an error in your reasoning. Or to paraphrase you, an ongoing failure to recognize reality.

I submit to you:

Exhibit A
Exhibit B
Exhibit C
Exhibit D

And so on.

Take any random person off the street and ask them:

- What do you think of when you hear the word gold?


- What do you think of when you hear the word silver?

Those pesky people and their "mind value".

Michael H raised some interesting points re: a silver bubble. I can see this, but then I see this:

Big Trader: "Those crazy Westerners. Here, take my silver. Give me your gold."


"The price level is also not neglible. People may bid the price of silver much higher than gold on a relative basis just because they feel more comfortable in paying 100$ per ounce than 3000$. People are often not rational and they want

to have more of stuff not less (in ounces) for the same amount of money."

Big Trader: "Those crazy Westerners..."


"We do know China is buying both metals at LME for a reason."

Have you ever played Monopoly? One strategy I would use if given the chance would be to take a corner of the board and put four houses on each property. This would deny others houses to build. After I felt secure in my poistion and

enough cries of "No fair!" I would sell my houses and put hotels up.


"I'm willing to hazard a bet that anyone that is not a saint would break the 2% cap and move it up."

So? What's stopping you from breaking your 2% cap? Or does that only apply to the wealthy?


"So the period following the decline of capital against labour was actually followed by a period which was a flowering of human knowledge."

One argument is that the flowering of human knowledge was due to the influx of knowledge escaping from the east after the fall of Constantinople.



Though I prefer blondes

Okay, my heat shields are up.

DP said...

William: its important to understand that what he is talking about is sufficiently complex that there is no way to understand it from one or two articles

I would say the essence of Freegold, measuring everything against free-floating gold rather than US$, is very simple and straightforward. Every other "solution" I've seen has advocated some much more radical adjustments, regular people having to do things differently day to day, and this is why they aren't likely to happen. This very simplicity of the required shift within the IMFS, in combination with the fact it will achieve the desired result of devaluing all debts so they become repayable, is what makes it seem so very likely to happen IMO.

However, I would entirely agree that the implications of making this small adjustment are manifold, and therefore the subject becomes of almost infinite complexity. We could all sit around and talk about this forever, and we would have a series of stimulating conversations but still could not cover everything. A lot of the time it feels like people are getting bogged down trying to understand all of this complexity like it's necessary to do so, but they miss the simple core concept that is all they really need to know. Let's not forget to do something that is going to bring in a little excess income today, and use that to buy a little gold as soon as we have the opportunity.

Happy holidays everyone, wherever you are. :-)

costata said...

In case I don't get the opportunity to post a comment before Christmas I would like to say to everyone, to those I love and to those who give me the shits I wish you all a Merry Christmas and a Happy New Year.

costata said...


Thanks for the link but technically she's a redhead.


Michael H said...

@ Gilligan,

You quote Big Trader: "Those crazy Westerners. Here, take my silver. Give me your gold."

That was exactly the point I was trying to make. Blow a silver bubble to take the interest / buying pressure / focus off of gold, and to keep gold free to bid for oil.

ShamefulPath said...


The 2% was mentioned by FOFOA. I simply find it hard to believe that rich powerful people in the know would be happy watching 98% of their wealth burn in the paper fire knowing they would make it up on 2% rise in Freegold. Is is not easier to believe that such powerful people would be 10-90%+ in gold? Would such a powerful move into gold drive the price itself ad block out the physical market. Remember the gold market is tiny compared to many other asset classes.

The best part is can buy through intermediaries so can even hide the purchase. I'm just stating that if Freegold was known and planned for by a certain class then that class would be basically all in on gold, not merely 2%. Basic game theory tells us this, 79% would violate the 2% limit ,statistically. Most people don't shrug their shoulders at a 50x increase in wealth :)

haywoodjablowme said...


If you're a small player, then you're probably in a position to chase / rape while the getting was good.

I'll put it this way, if you've actually took the time to read through all the archives, you'd already know that in Another's eyes, guys like Soros are small apples.


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

I wish all my friends/acquaintances a wonderful Christmas and a great New Year. My greatest wish for all is on behalf of your family preparation due to the impending financial/economic tempest that lies ahead.
With the above stated, please accept the following story with the intended purpose of children, family, friends and God.

Once upon a time, a man punished his five-year-old daughter for using up the family’s only roll of expensive gold wrapping paper before Christmas.

Money was tight, so he became even more upset when on Christmas Eve, he saw that the child had used the expensive gold paper to decorate a large shoebox she had put under the Christmas tree.

Nevertheless, the next morning the little girl, filled with excitement, brought the gift box to her father and said, "This is for you, Daddy!" As he opened the box, the father was embarrassed by his earlier overreaction, now regretting how he had punished her.

But when he opened the shoebox, he found it was empty and again his anger flared. "Don't you know, young lady,” he said harshly, “when you give someone a present there's supposed to be something inside the package!"

The little girl looked up at him with sad tears rolling from her eyes and whispered: "Daddy, it's not empty. I blew kisses into it until it was all full."

The father was crushed. He fell on his knees and put his arms around his precious little girl. He begged her to forgive him for his unnecessary anger.

An accident took the life of the child only a short time later. It is told that the father kept this little gold box by his bed for all the years of his life. Whenever he was discouraged or faced difficult problems, he would open the box, take out an imaginary kiss, and remember the love of this beautiful child who had put it there.

In a very real sense, each of us as human beings have been given an invisible golden box filled with unconditional love and kisses from our children, family, friends and God.

There is no more precious possession anyone could hold.

haywoodjablowme said...

A wise man once said "...what I've seen happen is that the more people understand Freegold, the larger the position they take in physical gold."

A lot of people still talk of ratios as if they mean anything. This is the language of the trader. If you understand this, fine. Everybody likes to play a game of blackjack every now and then. If you are depending on this, then

perhaps the russian style of roulette is your game of choice.

"What is happening now is far, far larger than the interest of a few traders or mining companies. They will be stepped on!" - Another Sat Oct 18 1997 21:04

Gilligan, a fantastic quote which I'll kindly borrow to further justify my previous response.

haywoodjablowme said...


I'll have to agree with answer2me. It's like that twilight zone episode "The Shelter."

link for your reference:

Instead of blatantly just telling them to get into metals, it's probably best to introduce them to economic articles to test their waters.

For example, you can use the recent 60 minutes segment on the muni-bond bomb that's about to explode:
State Budgets - Day of Reckoning

Guage their interest and from there you can decide if it's worth continuing to hand-hold / direct them. Everyone's learning curve is different.

Unfortunately, you can't save everyone.

littlepeople said...


Touching story, and a good one to live by.

Merry Christmas to you and all the readers and posters here on a great blog.

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

Mish is up to his old tricks again, quoting out of context and commenting on a subject (FreeGold) that he does not understand. Is it so difficult to understand that gold will be the premier store of value and that “store of value” will float via all currency and not just the dollar? The future transactions question will be how many dollars/yen/euro will I receive for a gram of gold and not how much gold can you buy with dollars/yen/euro. Hopefully someone much more capable than me will enlighten Mish.

Rui said...

Free gold = debt monetization. It solves no underline problem. Floating currency guarantees gold-silver ratio re-enforcement.

True floating means going up and down. When CB controls the floating, it only floats down b/c that's their true mandate. CBs are by the banks and for the banks. Their job is to monetize their banker cronies’ bad debt after they blow up in their fractional reserve games.

And it ain’t just their TBTF buddies. D.C.’s endless spending binge needs some love, too. Well no problem. CBs just float it down a little more (can you say QE) for D.C. to get their well deserved funding.

Here’s the thing: Floating DOWN ONLY is no floating any more. The right term is SINKING. Not fixing it to gold guarantees the currency sinks in value.

What happens when you have both a bad money (currency) and a good money (gold) in the system? Well, bad one chases good one off. So if you really believe CBs allow you to freely trade your sinking currencies for their good gold then I have a Hawaii resort in Alaska ...

Once it's apparent people (savers to be exact) for fear of debt monetization wanna trade their bad money for good money, gold window shuts down. Check London Gold Pool 1968 and Nixon 1971. Count down to another gold revaluation starts.

W/ gold window down, people have to resort to other choices to protect their wealth. It ain’t gonna be bond while you have a debt problem, no equity market as their capital is hit by monetization as well, no bank deposits. Maybe farmland, energy stocks.

Wait, they say, there’s silver. It ain’t gold but it protects wealth pretty well when, surprise-surprise, CBs are monetizing debt again. Huge amount of currencies supposed to be mark to gold starts to move into the silver market.

So how do you set the price of silver then. Looks like we have to follow, OMG, gold-silver ratio, AGAIN.

See? FreeGold is what the CBs plan for you. Gold-Silver ratio is what a free market would produce as the result. At the end of the day, the more things change the more they stay the same. You don’t even need to guess what the result is. History puts the answer in front of you.

You wanna break gold-silver ratio you fix the currency onto gold and then disband CBs.

sean said...

Well after reading what Mish describes as FOFOA's "fallacies" I must say that if that's the best he can do, then I'm feeling quite pleased and reassured that we're all on the right path over here with one-Another!
I'll restrict myself to commenting on #2: "Gold used as money represents debt". I thought the term "debt" sounded odd at first too, but FOFOA admitted recently that he used it deliberately, and I suspect it was to get people thinking about the difference between gold and medium-of-exchange. I think the key phrase is "used as money", meaning that even gold in that role is debt, though of course in its preferred role as a store of value, it is not.
However it seems from his "fallacy #3" Mish is still not fully separating these roles in his mind.

oldinvestor said...

On of the best population articles I could find is at

It does not appear to show any “upside down” population pyramid. On table 8 it shows a current (1995) population % of those over 60 years old at 9.5%.

Under their median set of assumptions for fertility, they project this rising to 13.5% for 2020, and 21.1% for 2050. These do not seem unduly worrisome. It is only when they project out to 2100 that this figure rises to a possibly burdensome 41.1%. However no one reading this will be alive then, so personally I would not worry about it.

By the way, if assumptions are changed to one of high fertility, the 2100 projection drops to just 17.2%

scepticus said...

oldinvestor, it shows an inverted population pyramid in figure 4.

Besides, if there is nothing to worry about why do we have a pensions crisis on our hands?

oldinvestor said...

Figure 4 shows very fat in the middle( the prime productive years) and small on top.

Take a look folks. And look at the actual numbers

scepticus said...

old one, there are two issues here for you and the freegold folks.

1) Would you agree in principle that an inverted population pyramid changes the game for all financial assets including gold?

2) Are we going to actuklly have an inverted pop pyramid?

On point 1, I presume you agree. On point 2, there is s legitimate debate to be had.

On that basis bear in mind that never in history has there been a WORLD pop pyramid with a bulge in the middle.

And a bulge in the middle will become a bulge at the top, in say, 15 years. That is not disputable, because the future elderly (that bulge) and the workers that will support them (the narrow bit below the bulge) are all already born and the only thing that can alter the coming inversion is a sudden die off of all the old. In which case, all their assets flood into the market anyway.

ShamefulPath said...


So the answer is there is a secret cabal of the super rich that make billionaires look like paupers and they made a deal not to act like humans and take advantage of the transition? So what are they reptiles or something? Still does not address the why not invest more. Unless they already own the planet then why not move into gold take the value added and then buy more wealth producing assets post transition? Unless the argument really is they are a united front that does to act like humans and own the planet.

FOFOA used game theory so it's fair game to use game theory when looking at the argument is it not? And if Soros is a small fish wouldn't he be all in on gold to try to rank up with the big boys, for example? Or is he a henchmen for said cabal.

Speaking of secret plans, how does India fit in? Lot of gold there, is India to be the economic capital of the world? Seems odd that a plan of Anglo-American oligarchs with the Saudis would get jumped by the Euros and the Chinese but in the end the average Indian would benefit most :)

Rui said...


If only that monopoly game had a central bank in there constantly issuing currencies to dilute everyone's capitals while benefiting their cronies only, you'd then see why the FreeGold fails to solve the problem: Central banks always depreciates the currencies average Joe uses.

Let’s expand the Monopoly further by bringing gold and silver in. Gold is under CBs control while silver is freely traded. Now you want your capitals being in gold to hold its value so you talk to CBs for a trade. They told you to get it from open market.

You could not find anyone that dumb willing to trade their gold for depreciating currencies so you go back to CBs for gold again. CBs ask why you think they are any dumber than anyone else and then show you where the door is.

See that? Despite all that floating mechanism and a promise to trade gold openly, they will not unload gold for junk currencies. Elites want to hold onto their gold and let average Joe use junk. What has FreeGold changed? Nothing.

You realize your hard earned capital is in jeopardy now so you want an alternative to gold. You then notice silver is still trading freely and know their historical role as storage of wealth during a currency crisis. A move into silver is a no-brainer now for you. Sounds like Hunt Brothers 2.0, yes / no?

More and more people move into silver to avoid CBs’ looting. Price discovery on whatever gold-silver ratio is at then happens. Let’s see every year there’s 7 times as much silver produced as gold, so the ratio could drive it to up and down 1-10. Now it’s 1-40+, there’re 4 times more gain in silver.

That’s how real world works, folks. Silver being storage of value is a choice of marketing force rather than silverbugs’ blind belief. Savers / investors / entrepreneurs will not accept a currency depreciating all the time. Only dead beat consumers and debtors love the endless “lines in the sand” from Ben.

You could now see the problem behind the “Ben-Chen” scenario: Why does Chen need to trade w/ Ben who offeres nothing in return? In real world, all Chen needs is to write down the fish loss and then kick Ben off the island!! W/o having to supply that free-lunch fish to Ben he doesn’t have to produce that much fish any more. He can now spend more time on other hobbies, sitting on the beach tanning or whatever. His living standard improves the moment he gets rid of Ben.

costata said...


Touching story. All the best for Christmas and the New Year.


costata said...


I hope you receive the support you need from donations to continue this blog in 2011. Count me in.

Reading some of the responses to your posts reminds me that a lot of these folks have a long way to go before they even understand what you are saying.

It is also enormously encouraging to see people having those "A-ha" moments. I guess that is what this blog is all about.

Merry Christmas

DP said...

(Xinhua) Zoellick clarifies his previously stated position, confirming that it's quite clearly Freegold he envisions

h/t Fauvi

Pete said...

Holy crap DP, that is pretty big!

Thanks (and to Fauvi)

sean said...

Great find DP!
I couldn't find the exact FT article they mention, though this quotes similar things:
It seems they've also been thinking of appropriate Freegold songs! LOL
Merry Christmas FOFOA, to all your readers, and of course to FOA and Another wherever they are :)

Syafrin Djohan said...

Charles Savoie: "Romero couldn't have liked Seward's British connections, as the British were long against silver money, and Romero wrote a pro-silver article, "The Silver Standard in Mexico" in the North American Review, June 1895.

Another Seward, George was director of Howmet Corporation when its chairman was Pilgrim Society member Eugene Robert Black, ex president of the World Bank, and director of numerous corporations including Royal Dutch Petroleum, Chase Manhattan Bank, Amex, New York Times. Black was chairman of Brooking Institution, an anti-silver organization in Washington, DC.

In reality, Britain earned gold in the 19th century not from export of merchandise because buyers of British goods had a choice of paying in silver or gold under bimetallism.

In reality, Britain accumulated gold by overvaluing gold monetarily all through the 19th century. This allowed Britain to force the world to demonetize silver and to replace bimetallism with the gold standard after enough of the world's gold had flowed into Britain to enable the pound sterling, a paper currency backed by gold, but essentially a fiat current without bimetallism, to act as a reserve currency for world trade with which to finance Britain's role of sole superpower after the fall of Napoleon.

DP said...

Pete/sean: I totally agree this is worthy of note in this forum of all forums.

Fauvi, I was surprised you decided to pass the link to me and didn't put it right here yourself - but thanks again ;-) said...

It rather boggles to think of the social and economic implications globally of a 40X revaluation of gold per the freegold thesis. For example, using current values, gold currently makes up 7% of total Australian exports. But in the higher iterations of gold's value in freegold, the value of gold exports from Australia could be worth as much as 2 or 2.5 times total Australia exports? What happens to the $AUD in such an event? Does the $AUD become a kind of gold currency?

Furthermore, what happens to the societies and villages that so habitually surround gold mining operations in the developing world? The outcomes might not be so beneficial. Already, there is an unsurprising set of negative effects coming to bear down on these areas as gold mining--which is an extremely destructive form of mineral extraction--cranks into gear.

More broadly I'm fascinated however by the paradigmatic shift of wealth from West to East. Freegold means that gold would provide the owner with extraordinary purchasing power in a world of declining net energy. I guess India will have all the coal and oil that they want. However, such an ability to bid away coal and gold from other poorer users has implications for the global economy.

If freegold means many are suddenly wealthy, than others are suddenly not wealthy--as measured in purchasing power. While a minor point, it's more enjoyable to be rich in world not of poverty but in a world of relative wealth. As is already acknowledged in energy-depletion circles, having outwitted everyone else in the wealth accumulation race may itself not carry the advantages it once did, in a world of overall economic decline.


GOLD FREAK said...

Great find Fauvi/DP.

By gold as a reference point he must also mean silver, no?


Museice said...

"What I suggested is that gold serves as a key reference point to allow people to assess the relations between different currencies," Zoellick told the press here at the end of his meeting with French President Nicolas Sarkozy in the Elysee Palace.

That does require a 'Holy Crap'!

oldinvestor said...

I think I am done here.

I have laid out the basic data.

There is indeed a bulge, but one 90 years into the future. And that questionable, depending on future fertility rates.

It is up to everyone here to look at the data and come their own personal opinion of what it portends.

Oh and by the way, I am one of the people in the “over 60” crowd, and I can assure you I will not be dumping my gold on the market. I will be passing it on privately to my heirs, and hopefully to theirs. I suspect most gold will move in this manner.

Diamond Jack said...

Poor people getting 20,000 dollars for wedding bands is proof freegold will not happen?

I remember when middle class people were making 100,000 dollars a year from increase home values. Year after year. Most of the money went for jet skis and such.

Hopefully the poor people will make wiser choices than the middle class. My guess is a lot will go into silver. Ha Ha.

MatthAu said...

Merry Christmas FOFOA, and all posters.

First time posting, long time viewing.

Nothing to add, I'm still a student. Although I consider myself to be one of the fortunate ones who 'get it', I'm not ready to teach yet.

I wish to thank FOFOA for having thick skin and not engaging with those who don't take the time to thoroughly understand the posts, and references to A/FOA. If he did, it would be a dis-service to those of us who have more of an attention span than a goldfish.

Judging by the 400+ comments following the latest reprint over there, it seems that once they have made the decision to allocate capital to silver, emotional attachment to the metal, and to the premise that they held at that time overrides the ability to see the world from a different angle.

I consider myself lucky because the hardest person to admit fault to is myself.

To the silverites:
I am your brother, and I wish only the best for all of you, silver is one of the best investments of our lifetime, no need for convincing. Silver was money, silver will be money, but silver will not be the monetary reference point for the global recapitalization.

When you are so sure of something, when you have studied every angle and you know without a shadow of a doubt that you are right, that's the point when you are able to see that you are wrong (if you are wrong). It's an immensely heavy veil that you must lift, and you might not even know it's there, but lift it you must, for we are all fallable and the learning only stops with death.

My name is Matt, and I'm a recovering Agaholic. I thought I was storing my wealth, but now I realize I was investing.

David said...

Matt, that was a great post...

FOFOA, thanks for all the hard work you've done here. It's much appreciated!


Warren said...
Yes, good point about not-much-fun-living-in-a-haves-and-have-nots world. I personally don't share that pessimism - Society, like nature, has a tremendous way of reaching equilibrium quickly, but it has to be not-interefered with for that process to work. Freegold clips most of the chains which bind this world. If anything, our economic growth (particularly the USA) is going to shoot through the roof after the transition. Many things will change (of course) as we move from 'growth' model to 'sustainable', but otherwise everything looks peachy for the human race.

FOFOA said...

Merry Christmas to everyone here! And especially to those of you who "get it" and support me, and the effort put forth here, in many ways. You all know who you are. And to Wendy, here's your Merry Christmas comment! And to Robert Zoellick, Merry Christmas right back atcha!

You know, we will probably never hear the term Freegold in an official capacity. But perhaps now we know what term we will hear: Reference Point Gold (or something like that). It is the necessary consequences of this seemingly inert concept Zoellick puts forth that we explore here at FOFOA.

Because if you are going to use gold as a stable reference point, you've gotta lose the paper gold markets. Gold can't fulfill this role while it is trading at par with paper promises of gold from private institutions that are backed by more paper promises of gold from other private institutions in a perpetual loop of paper promises. This paper promise loop/"market" is not a stable benchmark.

And when paper gold finally loses its luster, just beware that it is not the paper shorts that will lose. The paper shorts are all hedged. They are either long physical or long paper. Either way they cannot lose. It is only the unhedged paper longs that will lose. Those who are long paper gold will be settled in fiat and told to go get their gold from the physical marketplace. That's where this diagram, from Relativity: What is Physical Gold REALLY Worth?, has meaning.

Along these lines, Jim Rickards writes (and I agree): "The Treasury/Fed are long physical / short paper, so they are hedged. The LBMA banks are long paper (from Fed shorts) and short paper (to market) so they are hedged. Short specs at Comex may get crushed, but if they can't meet margin calls they will be blown out so losses will be limited… Direction and magnitude of gold's move are baked into the pie. The big question is timing."

Mr. Market always wins in the end. Freegold is a Mr. Market creation. And this is what some of the PTB have known for a long time and have been preparing for because of the obvious and eventual end of the dollar's special status.

Please read The Debtors and the Savers again. Several people (including Randy Strauss) have told me that it is my most important post, for it lays out the correct paradigm (that most in our community have never considered) in which to contemplate Freegold. And it may also be the prerequisite context for upcoming posts.

As for Jim Rickard's "magnitude," he thinks it is some fraction against a measurement of the currency. While this is roughly how it was supposed to work under the old gold standard (where gold was the monetary base), I think that today it is against the debt, not the currency.

My reasoning is that in today's system, currency fills the transactional role of money, but debt is the monetary store of value. It is the debt that is failing. And it is the monetary store of value that gold is replacing, not the transactional monetary base. Debt is the money today in the store of value function. "One man's debt is another man's pension."

That last line came from a post on the GIM2 forum. DrStrangeLove is apparently one of the few that gets it, and I just loved his reply to beastie. Thank you, Dr.

Again, Merry Christmas to you all!


Syafrin Djohan said...

Will Freegold make it possible for the people to exchange their fiat currency with gold?

If yes, then swap your currency with gold before the government change the rule again! Now that the new financial system lacks gold manipulation, you can be sure the price will keep moving up as government continues to create more currency, and those who owns a lot of gold don't have to work, because hiers gold can adjust accordingly to the total productivity of the nation.

Freegold without ability to exchange currency with physical gold does not solve the problem of old economic imperialism, as the age-old financial oligarchs will still virtually control all the physical gold. Now they do the control in MTM gold and paper, meaning in the open daylight for everybody to see!

International Bimetallism will spread the political and financial power into people's hands as alternative to government enacted legal tender law in gold-backed promissory notes.

julian said...

Hello All,

Merry Christmas from here!

An early Happy New Year also!!

I did not read all the comments yet, I will pick up again tomorrow XMAR!

I stopped at Pete's comment of Dec.21, 2010 @ 6:30pm

But I do want to comment, that this trail has quite a wonderful community of super-intelligent Ones.

I mean that people really understand and explain things well, to the benefit of any open and eager mind.

I am highly stimulated when I read FOFOA and these insightful comments from you all.

It really is interesting how difficult it seems for people to yet have understood the message of Freegold. Perhaps they could better name it FreeBestStoreOfValue?

This silver and gold debate is just getting it's legs, since silver has shown to "outperform" gold in this recent short term.

Still, since this community is so philosophically thorough, an argument is an argument and a point well made is to be adressed adequately, or else what?

So Many points-well-made around here. Some even for silver too!

But the Focal Point is store of value function? Then Gold, no?

Complete agreement with those that say anything can be money, and certain things make better money than others. And many things "store value" but really, anything better than gold at this point? Anything even equal to gold? Store of value fuction. I am reminded of a criterion of supply stability.

So on that note, on that point, on that argument, Freegold wins the argument.

Who cares about the argument though.

Time will tell us the truth, let's just hope to be witness to it. Sounds like an exciting prospect.

- Julian

julian said...


I forgot to mention settlement of debt function, in addition to store of value function. Is that accurate? To think that the settlements of accounts in some relation to Gold is what would occur in Freegold? And if so, to think that this function of gold stems from its store of value desirability for those settling their accounts?

Rui said...

Right on, Syafrin Djohan.

As you, NOOKE and other “silverites” have pointed out: “FreeGold” forces bad money into peole’s hand while leaving good money in hands of a few “giants” or “big traders”, which is not different from what we have now except that one-shot revaluation.

“FreeGold” does not lead to free gold trading. The completely opposite will happen: Hoarded Gold!!! No people in their right mind will trade gold for bad money. It is almost like another misguided government program: It achieves exactly the opposite of what it has promised.

The flaw is the floating rate. Like I said, it’s not floating at all. It’s sinking. Paper currencies can only sink against gold once a “floating” backdoor is in place. Anyone doesn’t settle debt in good money is clearly gonna cheat.

A sinking currency hurts savers / investors / entrepreneurs, the backbone of economy growth. Like that island economy FOFOA drew up, Chen is the driving force while Ben is only a burden. Any new monetary plan to pull US out of this mess cannot have a catch in it to hurt the backbone of growth, otherwise it’s just another failed experiment.

What we need is one money only: Good money. And it can be achieved by a simple classic gold standard (or silver standard). I’ll leave a quote below and happy Christmas to all FreeGoldBugs and Sivlerites.
“Human freedom rests on gold-redeemable money.” / Howard Buffet

GOLD FREAK said...

Rui - "A sinking currency hurts savers / investors / entrepreneurs, the backbone of economy growth"

This is why freegold is being thrust upon us. Currencies will still exist and depreciate but it does not mean it will continue to have the same negative effect that it currently has. Using gold as a reference point instead of the $ sets off alarm bells when governments are not behaving. It forces them to slow down the print press.

If currencies are depreciating and gold is rising you do not deploy your gold. If nobody is deploying their (gold) savings economic activity slows down and governments lose out because they are in the business of skimming off the top. If your currency is stable and the market is stable you will be comfortable enough to deploy your (gold) savings to chase a return. when you deploy your savings and start or invest in a business the economy grows and the currency skimmers at the top benefit.

Bad currency / bad economy = would be economy growers hold onto their (gold) savings and watch it's price in currency rise as their currency is debased.

Good currency / stable economy = would be economy growers can now deploy their (gold) savings to grow the economy and chase a return on investment which in turn increases tax revenue.

If you are at the top which would you prefer. A shrinking economy or an growing economy? What is the best way to watch the economy grow? Have a stable / slowly depreciating currency!

This also means that those who do not like to remain idle will deploy their savings into economies which are stable. Would you want people to invest in your country or elsewhere?

Larry said...

Hi All,
First post here and I just wanted to introduce myself. I spent a career in Electrical Engineering (satellite systems and architectures) and am now doing farming (Joel Salatin style).

I was recently referred here by one of (many, I’m sure) FOFOFOAs. I have been reading through FOFOA’s posts here and am a good way’s into the Trail Guide archive – long way’s to go. But so far, my whole backdrop and basis for world-level perception has changed. Things are much clearer now and the pieces fit much better together . To FOFOA: I do get it! – at least as far as I can from the reading I have done (your post on debtors and savers is very helpful – I would link that often for newbies). And G/S positions are being adjusted accordingly.

One thing I have studied extensively is Psychopathy and the rise of psychopaths in our corporate and power structures of the world. I’m talking about the real clinical, genetic brand of psychopath – not some qualitative, colorful descriptor - the kind bent on destruction and ultimately self-destruction through self-interest expressed in the extreme. This is also what is happening today and must be understood to round out the picture. Psychopaths are being used in a kind of “controlled demolition” leading to a Pathocracy equivalent to Fascism. The kind I see coming makes the Nazis look like a mild suggestion. Such Fascism is equivalent to the abrogation of the Rule of Law and how this impacts us before/during/after Freegold is worth considering. In other words, getting there alive and well (and free) may be a much bigger problem than we think.

This may not be the best way to introduce myself, but it is the truth from where I sit.

On a lighter note, Merry Christmas Everyone!

Jenn said...

Hello Larry-

"But so far, my whole backdrop and basis for world-level perception has changed."


"Psychopaths are being used in a kind of “controlled demolition” leading to a Pathocracy equivalent to Fascism. The kind I see coming makes the Nazis look like a mild suggestion."

Psychopaths are everywhere! Yes tis true. It was true yesterday, it is true today, and it will be true tomorrow. Enter dwindling resources from stage left and global militarization from stage right and now you really have a show to behold!

With your new view of the world should come great satisfaction as does with all new insight. But on this particular trail however, your new level of understanding comes with one very important bonus -- and that is -- you own gold! That should bring you a little joy during this holiday season. ;-)

I remember in an interview a few years ago someone asked Dalai Lama, "What is the meaning of life?" I believe his response was, "To be happy." Now there’s some good insight!

Happy Holidays everyone. Travel safely.


Larry said...

Thanks Jenn,

"I remember in an interview a few years ago someone asked Dalai Lama, "What is the meaning of life?" I believe his response was, "To be happy." Now there’s some good insight!"

I would add that the Trail to true happiness in Being involves perception of truth in reality of both the inside and the outside.

Take Care,

Larry said...

Forgot to add:

In fact, there’s nothing that keeps its youth,
So far as I know, but a tree and truth.

From: Wonderful "One-hoss Shay
by Oliver Wendell Holmes

julian said...

Happy Boxing Day,

I just read "The Debtors and The Savers"

I think I missed that one first time around, so thanks for the link and the suggestion (and to whomever first suggested it too)

If I were highschool Economics teacher, some choice FOFOA blog entries would be required reading, including "The Debtors and The Savers"


I am looking forward to a heavy discussion with the next Marx-Lover. Thanks again for the thought superfood!

It's incredible how "insight" makes one feel a certain sense of power.

Blessings to All,

- Julian

littlepeople said...

"“FreeGold” does not lead to free gold trading. The completely opposite will happen: Hoarded Gold!!! No people in their right mind will trade gold for bad money. It is almost like another misguided government program: It achieves exactly the opposite of what it has promised.

The flaw is the floating rate. Like I said, it’s not floating at all. It’s sinking. Paper currencies can only sink against gold once a “floating” backdoor is in place. Anyone doesn’t settle debt in good money is clearly gonna cheat."

Freegold, it seems to me, will happen--in fact, it has been slowly happening for 10 years now. The paper gold markets have prevented the quick, one-time revaluation, which is a free-market happening.

Whether it is "right" or "wrong" is a good converstaion piece, but regardless whether or what we think of it, the debt monster created by the fractional reserve system run amuck will allow for, or maybe provide for freegold.

It does seem to me that other real things will also spike in price, and become more difficult to find, as the fiat money we use will see a hyperinflation of some degree. I do not see how only gold can be elevated; gold will likely go very high, higher than most or even all other things. But nothing real will escape hyperinflation should the debt monster be bared for all to see.

David said...


From what I understand, during the Wiemar hyperinflation in the 20's, you could buy an entire city block of real estate in downtown Berlin for just 25 oz of gold.


Rui said...

@ Gold Freak

"If you are at the top which would you prefer. A shrinking economy or an growing economy?"

Every poster here wants a growing economy but none of us is in charge. This nation is controlled by G (government) and W (Wall St). Neither of them cares about long term growth. Think G&W as Ben on mega-steroid.

G does not plan longer than the next election while W cares no more than the next bonus. Look at the debt they gathered: G has trillions in unfunded SS, Medicare/Medicaid, national debt, ObamaCare, pension fund and so on while W has hundreds trillions in their derivative casinos. They are both bad-money-holic, and they need endless bad money to cover their mess.

That's why I'm not too thrilled about what IMF, BIS, WorldBank or whatnot is planning. They work for G and W, so it's unlikely they'd do anything to upset them. Whatever new policies they propose are unlikely to strip G&W of the monopoly power over bad money to squeeze the productive group of people, thus Hoarded Gold.

Both G&W will be pushed aside at the end b/c Mr. Market still wants good money, and market dominates all in the long run. If market force cannot get it in a peaceful way then it WILL get it in a violent way I'm afraid. This decade will be very dicey as to how it is resolved eventually.

miked said...

A statistic for the silver bugs I read somewhere but I cannot find it now.

I believe I read that 95% of the silver above ground is not investment grade and is not counted in official figures. Perhaps someone can correct me?

I believe the cost of smelting is about 200$ per kilo. A significant 6$ an ounce at present - or 20% of the cost of the end product (99% silver) even at today's elevated price of 30$ an ounce. No wonder not much is coming out of the woodwork. Imagine it became economic to smelt: Say silver reached 60$ an ounce. Wouldn't the large amount of sterling silver put a cap on prices for some time? A sudden flooding of the market with multiples of the exisitng stock of investment grade silver would be a significant hurdle for bulls to digest, and would be more of a challenge an increased mining output, I would wager :)

Rui said...

@ littlepeople

My point is free market setting gold price will happen. After that it'd better be a FIXED price rather than "floating" or the system would remain in an unstable mode til the bad money screws it up again.

I don't think only gold will go up either. From pure price discovery point of view it's impossible that "40X gain" can stay.

Look at all the critical resource that is in limited supply such as silver, lithium, uranium, rare earth, etc. If suddenly gold can buy 40X as much of them as before then people having gold will accumulate them to grow more wealth.

Once many gold holders start to buy the same thing that has limited supply that 40X edge will quickly come down. I don't know what the ratio is eventually but it'll be for sure much less than 40X.

Jenn said...

Hello Rui-

I'm not sure what type of system it is you are describing above, but it is definitely not Freegold.

"My point is free market setting gold price will happen. After that it'd better be a FIXED price rather than "floating" or the system would remain in an unstable mode til the bad money screws it up again."

Fixed to what? You just found Freegold only to turn around and lose it again. The point is that as "bad money" starts to circulate, Freegold will be your measuring stick to evaluate just precisely how bad the "bad money" is. "Bad money" can't screw up Freegold, it only serves to further support it.


miked said...

I've been thinking a little bit about what gold's value would really represent in a Freegold system.

In 2009 Fofoa came up with this among other diagrams:

This diagram was what made most sense to me. It's how i could visualize a huge revaluation in gold and I had had the same thought myself before I read the article (here:

However I now have my doubts. Does currency really represent all those assets? Or does it just represent the wealth we wish to store outside those assets? This makes a big difference to any ultimate revaluation.

The average guy holds his wealth in just a few ways: Most of it in his house, then some in securities and the rest in automobiles and collectibles such as art, stamps, jewelry etc. For most people their home is by far their largest asset and with good reason. It is a store of wealth but it also offers utility.

In a Freegold world people would be free to store their wealth where ever they choose. Most would still choose the house and car first because of their extra benefits. Only surplus wealth would flow into other assets (such as gold).

Assuming most surplus wealth does in fact flow into gold (and that is still a big 'if', at least for me), it will not equal the value of all other assets will it? It will be equal to the marginal utility investors get from holding a liquid store of value vs an illiquid one like a property. In other words it will be just another way to store your money, and at best it can represent only surplus wealth - not ALL wealth as the FOFOA diagram depicts.

Wendy said...

'And to Wendy, here's your Merry Christmas comment!"

:) thanks FOFOA, but what about the shitty smilies??

I am just crawling outa THE chrsitmas cave and OMFG >>>>>>>>our over the top,western xmas experience is frankly, vulgar.

Well we're outa here tomorrow

7 hours through shit and sleet again :D

I guess I'll see you people on the other side (of something)

Rui said...


It all goes back the fundamentals of bad money. Notice what FOA proposed: "no form of debt can force its payment in gold". See? That's the problem.

Regardless what is said in theories, the purpose of bad money is to help debtors default easier. Otherwise why would NOT anyone settle debt in good money - gold? If I borrow money from you then isn't it the most basic agreement that I pay it back in full value?

Freegold could be a measuring stick ONLY WHEN NO ONE IS RIGGING IT. Think about it: We actually had FreeGold pre-1971. The yardstick was open market gold price @ LME. What happened next? Government was compelled to cheat so they organized London Gold Pool to run a suppression scheme until it blew up in 1968.

Today government is still running these shenanigans in a much bigger scale. Now we have president’s working group, CRIMEX, paper gold, derivatives, etc. The purpose is the same: rig the yardstick to turn off the warning sign.

Government always has the most incentive and, unfortunately, tools to cheat. They spend money foolishly and get into debt real fast. Once in trouble they debase the currency to cheat. In doing so they tried to rig any signals, putting a fake canary in a coal mine if you will. If it is written in law that debt settlement can be done in bad money then they've just got an outta-jail free card.

We need not only a fixed gold price good money, say 60,000/Oz, but also a series of measures to limit government’s ability to abuse. Fractional Reserve Banking has to go. Federal Reserve has to go. FDIC? Who needs them? No more TBTF. The law of bankcruptcy has to be enforced strictly.

In short we need free market Darwinism but those who enjoy the previledge to abuse are not going to give up w/o a fight so this decade will be a heck of ride.

Syafrin Djohan said...

Crime of 1873:
The response of the middle class to silver demonetization in 1873 was one of terrific outrage. How would you like to be told (from one breakfast to another) that suddenly, your silver money ---which in most cases was all the money they had--- could no longer be used as legal tender for anything exceeding $5?

The politically powerful European banking interests, created a law (with the help of the fronting prostitute politicians) demonetizing silver so they can force their much much worse cotton-pulp money into the hands of the mass, causing the mass to dump their better money into the open market, and the silver price took a plunge into no man's gold.

To see it completely and truthfully: the only money the working bees need is really a sound (stable) money to borrow and to pay,


the only money the vampires prefer is the softest money for them, so they can continue to suck the blood out of bees by silently printing more and more of them and dump it to the unsuspecting economy.
(and convert the bees' honey into the best pot of wealth - gold, and hide all for themselves).

costata said...


You wrote:
"Think about it: We actually had FreeGold pre-1971."

No, we did not. We had a fixed exchange rate gold standard priced in US dollars.

The system termed Freegold by A/FOA is a floating physical gold exchange rate for each fiat currency.

Under the Bretton Woods II system the US dollar was redeemable for a fixed amount of gold and other currencies were valued by reference to the US$.

stibot said...

1. If I was Chen and my wealth is being accumulated in sand lines, or even too many lines which can't be spent: what is an advantage for me, if instead of lines I've got gold? It is only another instrument to count a debt. Gold can be repriced according to debt level later to whatever level and I still have no benefit from money par excellence.

If I were Chen I'm not interested into gold, but into some stuffs from Ben, otherwise i'll rather stop supplying him. Gold provides me no solution.

Also for example:
- from another island later arrives Hundian, buys all the wealth using his single gold ring (very cheap here for a stranger) and gold value crashes (they need a central bank on island to defend gold I suppose).
- Ben is lazy but you forgot to tell he is also a joker: on beginning he has stated he has 10 coins only (in fact he has had 30 coins). Then the paradox, as deeper and deeper he goes into debt, he becomes more and more rich (perhaps this is the case some US senator was trying to explain in an video?).

I believe island story is similar flaw, like that one of 2 men playing cards, one is loosing, his debt is being built into price of gold (whereas all not playing -- but owning gold -- celebrate, since they are becoming wealthier (while no real wealth is being produced)). You introduce us yet another illusion of wealth, that's how i interpret articles.

2. "Very rich men will not save in silver, because they are so rich, therefore buying silver is very impractical for their purpose." Well, they've accumulated more wealth then all not-rich people together. But I believe those men are usually also smart enough to not to accumulate in dollars. And I would not expect them to dump real estates, paintings and their companies to buy gold.

3. If China has 1 trillion reserves in USD (often noted as an important issue) which are very hard or impossible to spend, it is 1000 USD per Chinese. 1000 USD looks like small money in whole picture for me. I believe much more debt resides in West in the form of Ponzi scheme. We are told eg. "you pay into funds to have pensions in the future, so you become rich because you save today". Instead of that, all our savings will disappear, because they are being spent instantly. Seems to me it is MUCH more debt than Chineses have in their reserves.

stibot said...

4. If 10 % of 1 trillion USD move into gold and only 0.2 % of that trillion move into silver. What happen to value of gold, silver? I believe it was stated that there is 5 times less silver above ground accumulated than gold. Gold per oz is 50 times more valued. Silver market is VERY roughly 250 times thinner.

5. According to you people want easy money. I'd add that government and bankers want easy money even more. I can not imagine bankers calling for any form of sound money, they'll fight against. Or politicians, who need easy money to fund all the briberies/deficits (also politicians are just servants to money/bankers). If gold is repriced to such level, the life will be very tough for bankers and politicians with such too soft money. And the other side, as you know, you are always fool if you try to explain gold to your West friends. So where is the hidden power which will turn paper bubble into The ultimate unbubble then?

Chineses? Let me say half of their 1 trillion lifesavings competes for 5 % of gold available on the market. (.5 x 1e12 USD) / (.05 x 5e9 ozs) = 2 000 USD/oz (whether in real terms is a question). Still doesn't look like freegold described. Btw. as Chineses are getting richer, they are being westernized fastly, so I tend to believe they're no longer savers but consumers/debtors.

Arabs? Arabs can corner the market but it is not an issue, because they have no armies while you do have.

6. So do I need to read more A/FOA and mysterious BIS insider? Even if those men are not chatterboxes, things are developing and changing.

Note: 95 % G & S, physical, ZKB.

Jenn said...

Hi Rui-

When I read your post it sounds to me like you are advocating for an entirely hard money supply -- something the world will never find support for, public or otherwise. In fact, one of the most relevant quotes about this came from Aristotle (see msg 25059):

"I was personally shocked when I discovered that we absolutely NEEDED paper currency in order to set Gold free."

Perhaps it might be helpful if I repost some of Aristotle's comments beyond that one quote. You can read the entire excerpt yourself following my link above.

In working on this project, I was personally shocked when I discovered that we absolutely NEEDED paper currency in order to set Gold free. In the perfect world you lapse into in your comments, everything you say is well and good. We don't live in that world, however. My biggest challenge in piecing together my proffered solution was to accept what this real world had to offer and avoid foisting my own preferences onto the world like a square peg in a round hole.

Looking back at the finished text, I see that I could have opted for another method of presentation that would likely have been offered up immediately for canonization, rather than the form I chose that was met largely with...nothing. This was done for a purpose. I wanted the commentary to have a decidedly real world brutality to it to establish its credibility among those (not here) who don't understand Gold. Had I written it for the pure pleasure of those gathered here, I would have written it from back to front. In short, it would have looked like this:

** Gold is the only real money there is--fiat currency is not money--so only Gold should be used as currency.

** Fractional reserve lending destroys a currency's value in trade, and therefore must not be allowed.

[time for concessions to the real world]


Jenn said...


** People will always want to borrow for the things they want to have beyond their current financial means.

** Spending Gold into the marketplace, whether by the owner or by a borrower, would tend to result in prices for goods that weigh more--costs more Gold, that is.

** As ever more Gold is borrowed out of other people's savings to be spent into the economy, the Gold's purchasing power is lessened from what it otherwise would be...hurting those who have elected to hold their Gold instead of risking it by lending it out as a source of income.

[notice in the above that we have all the bad devaluation effects without a single bank entering the equation!]

** For Gold to find its truest value, all savers must retain their Gold for their own use. Its properly retained value will more than make up for the foregone interest income. Gold must not be lent! [Gresham's law alone is adequate to achieve this.]

** With Gold as the only money, people will not be able to get loans. [In the real world, this is hard to imagine!] As an alternative, they will work up complicated contracts for the item they desire (new home or car?) in which they promise to deliver a certain level of their future productivity against a pledge of real wealth collateral.

** These contracts for the delivery of future man-hours would eventually be organized into their own market, and quantified into standardized units (called something like "manos" [generic form for the modern dollar]) functioning as a currency. Everyone would know what the price for a loaf of bread would be in "manos," and they would all revel at the high price of Gold as quoted in "manos".

** As more future productivity is brought forward into today's market, we would see this "manos" currency-supply inflate, and each pledge of future manhours would be seen as less and less valuable when compared to real goods.

** Someone holding Gold in savings who needed to get some work done or to buy goods could purchase it directly with Gold. They could also sell a quantity of their Gold on the free market to buy the Man-hours they needed to get the job done. There will always be people with an excess of "manos" that will want to move them into this supreme monetary asset--Gold.

** Such a system is not prone to shocks (bank runs and currency crises, etc. are like earthquakes where pressure builds and then is suddenly released) because at all points the assets may freely come into balance against each other in the free markets of the world.

There is little difference between a manos in Bangladesh and a manos in Canada where one manos is taken at a moment in time as the work equivalent to a healthy man shovelling sand with a spoon into a soda bottle. Who cares if one manos is actually called one, ten, or 27.34 rupees in one dialect while in another language it is called one, two, or 6.45 dollars? Its really just a mathematical exercise. Who's to stop the real world from pursuing such a system? It's basically what we have now, except the evolution took another route!

The key is that Gold must be assisted towards its own final and perfect destiny through the straightforward mandate (whether social, governmental or religious) that Gold shall not be lent as it has been, or otherwise attached to various financial derivatives. You can work for it, mine it, buy it, and sell it. You can't borrow it. Monetary perfection for an imperfect planet.

Gold. Get you some. We are moving in this direction faster than you imagine. ---Aristotle

Does that help shed some light on the subject, Rui?


Larry said...

Interesting article here:
It also mentions 30,000 tons of gold squirreled away somewhere.

littlepeople said...

This might help kickstart freegold:

Hommel doesn't know, but thinks they can.

holdinmyown said...
"But in the higher iterations of gold's value in freegold, the value of gold exports from Australia could be worth as much as 2 or 2.5 times total Australia exports? What happens to the $AUD in such an event? Does the $AUD become a kind of gold currency?"

Aus would only export enough gold to balance their current accounts. Ohterwise they would end up with excess worthless fiat currencies. It is better to just let the gold lie quietly in the ground until needed. Alternatively the Aus gov't could let the miners dig it up and refine it and buy the gold with newly minted A$. This would transfer the pure gold to the RBA to serve as reserve for the currency.

mortymer said...


Pager 12: "Diversification of Reserves" onward

costata said...


When the Reserve Bank of Australia and Treasury agreed to sell down their gold reserves one of their officials was reported to have said that if they needed to replace those reserves they would "take the gold in the ground".

The miners would still be highly profitable if they were forced to convert to a "toll" mining arrangement. The Aus government would not need to print AUD to "buy" the gold. However, it might be in the government's interest to print in order to lower the AUD exchange rate.

There are a number of countries around the world who are in line for an unexpected windfall under the new IMFS.

costata said...


Thanks for the link. I will download that paper shortly.

Silverbugs and traders take note!

GATA appears to believe that this WSJ article is an attempt to talk the price of silver down. However, if the numbers are true then some ass-covering might be in order.


golden tube said...

Was George Bush Jr. delivered a coffin as a warning?

The winding down of the Federal Reserve Board is now expected to last until August 1, 2011. That is the date when the Bank of Japan, the Bank of England and other central banks will stop printing US dollars.

By that time, most of the gold stolen or received from China in the past 150 years will be returned to China. In exchange China will write off all US and European debt. US dollars held by non-Americans will then become first gold-backed and then commodity backed neutral units of exchange managed by an impartial agency staffed by a meritocratically selected international group of professionals...." someone wants to affect freegold

costata said...


That paper was a great find. You may be interested in the article linked below. There is a rapidly growing informal trade in Yuan/Renmimbi in Central and SE Asia. In Myanmar they call it the "little dollar".

"Myanmar, China's close ally, tied the total Hong Kong/Macau circulation amount, having 5 billion yuan circulating within its borders. However, due to Myanmar's lower gross domestic product and unstable currency, the yuan has become much more important to daily transactions, especially in the north, and has become known throughout the country as the "little dollar"."

Splinter In My Mind said...

OK Jenn, I now see what you mean. 2nd part posted but not the first one. Reattempting part 1...

From Daily Bell's articles: "The Rise of Brownianism" and "Brownian Schism" on Ellen Brown's ideas regarding the government issuance of money and state banking, also author of "Web of Debt - How Banks And The Federal Reserve Are Bankrupting". Where she answered back to the second linked article with the following comment:

"Dear Daily Bell, thanks for your interest in these issues.

My concern is that you seem to have misconstrued what we mean by "public banking." We're not proposing a state-issued currency or some sort of "sovereign money" for the state.

We're just proposing to get the state's money back from Wall Street and into the state's own coffers, by depositing state and municipal revenues into a state-owned bank. The bank could then expand the local money supply by advancing loans as "bank credit," just as all banks are allowed to do.

Loans to the government itself would be interest free, allowing the government to embark on productive infrastructure projects that the bankrupt states cannot now afford because they can't afford the interest on new bond issues. Politicians would not be running the bank; bankers would be running it.

Politicians would not be deciding who gets the money; creditworthy borrowers would get loans, just as they do now. If the borrowers were buying a house, the loan would be backed by real estate; if the borrowers were proposing to build a factory, the loan would be backed by future productivity, on the "real bills" model.

The Wall Street banking scheme has proven itself to be unsustainable, because the profits are creamed off by private owners, who spend very little of this money back into the economy. Rather, it is largely reinvested, either in more loans that must be paid back with additional interest, or in other forms of investments that amount to "money making money."


Splinter In My Mind said...

OK, it said: "Your comment has been saved. It may take a moment for your comment to appear on the site". 16 minutes later part 1 appeared (if we only didn't have to split)... Almost 20 mins and part 2 nada...


"More and more borrowers must be found to support the additional money creamed off by the profiteers, until the pyramid reaches its mathematical limits and collapses, as all "bubbles" do. To keep the bubble afloat in the meantime, the scheme must be underwritten by the FDIC, government bailouts, and the Federal Reserve as lender of last resort.

That means we the people are bearing the costs to keep private bankers rich. A public banking system -- on the model of the land bank of colonial Pennsylvania, the Bank of North Dakota, and the Commonwealth Bank of Australia -- IS mathematically sustainable, because the profits are returned to the commons, alleviating the burden of funding government that would otherwise fall on the taxpayers."

The AMI proposal differs from the state-owned bank model in that it eliminates all bank-created credit from the system. All money would be created at the federal level and delivered to Congress to spend into the economy as it saw fit. Even if Congress were not corrupt, as most people now suspect it is, this trickle-down model seems to me to be a very unpredictable way of getting credit to where it is needed when it is needed.

A more natural, sustainable way to get money into the system is to respond organically to the credit needs of people themselves. That is what the private banking system does now. The flaw in the current banking system, as I see it, is not that it creates credit. In fact the invention of credit may be the most productive advance bankers ever made.

The flaw in the scheme is that bankers are playing a shell game in which they are lending money they don't really have. They periodically get caught in this ruse, leading to economic collapse and bailouts to prop up a mathematically unsustainable model. If we just acknowledged that all we're talking about here is CREDIT ' the full faith and credit of the people, advanced by the people for the people ' the scheme would be sound and sustainable.

Note too that we're not talking about nationalizing the whole banking industry. That may, one day, be perceived to be the most functional solution, but for now, we're just proposing a way for state and local governments to fund themselves interest-free, replacing the money that was lost when the debt-based money supply collapsed in 2007-08. We're talking about getting the wheels of industry turning again, by bringing the money supply back up to a level matching potential productivity.

As for using gold as a currency, gold currencies are freely available now. Currencies such as GoldMoney are up and operating, and anybody who wants to can join. But your grocer or your landlord isn't likely to accept them, because most people don't want to be bothered joining a new and unknown system; and even if they understood the mechanism, they wouldn't want to jump in today because they would think the price of gold is too high.

They'd be risking getting in at the top and having the value of their money collapse when the price of gold dropped again, as it's very prone to do. The only way you could force your grocer or your landlord to take your GoldMoney is through legislation, and that is the very thing you say you don't believe in and are trying to avoid.

Happy New Year, Ellen"

Very interesting. If she would just be introduced to freegold...

holdinmyown said...

Hello Costata.

"The Aus government would not need to print AUD to "buy" the gold. However, it might be in the government's interest to print in order to lower the AUD exchange rate."

Technically you are correct if the Treasury bought the gold, as they could do so out of budgetary surplus or by going (further) into debt. My point was that the RBA could monetize gold in the same way that the Fed buys T-Bills (and bonds) today. Whether they did so by issuing new base money and buying directly from the Treasury (assuming that the Treasury had a monopoly on buying newly mined and refined gold) or indirectly by buying from the open market (gives new meaning to Open Market Operations does it not?) is irrelevant to my point. The fact is that the miners would want to be paid in AUD so that they could put bread on the table and a roof over the heads of their loved ones ... as well as pay their taxes of course :-). If legal to do so, the RBA could monetize gold much as present day CBs monetize debt. Under Freegold this would provide an increasing reserve over time as all world fiat currencies are debased (not just the AUD).

"There are a number of countries around the world who are in line for an unexpected windfall under the new IMFS."

That is one of the properties of gold that makes it the focal point as a store of wealth ... the fact that it is widely dispersed throughout the world. If any one country had a (near) monopoly on the supply of gold it would not be as valuable as a store of wealth. That one country would be in an untennable position and forced to defend its monetary advantage against all envious barbarians.

Wendy said...

Well I just discovered, something that beats the hell out of freegold ………………. 7 hours in a car with a dead ipod battery ……………wooooohoooo!!

(curtsy, bows to the maestro, and resumes her seat at the back of the theatre.)
;) :D :p

Desperado said...

@Syafrin Djohan

I really enjoyed reading those silverite links you have posted. Please keep them coming!

I think they shed a lot of light on how far back money and opinion has been manipulated by $IMFS. If one considers how many wars were fought on their behalf in order to maintain their reserve currency privilege, one could become quite upset.

Wendy said...


I was just wondering about 5 minutes ago where you had disapeared to.


Desperado said...

Howdy Wendy,

I have been trying to keep from getting stung by angry swarms of silverite and freegold hornets!

mortymer said...

one from September 1999; pg 3; section 0103 FUND BALANCE WITH TREASURY AND CASH)

mortymer said...

Some recap:
A nice intro:

mortymer said...

If you missed it:
Federal Reserve Bank of New York
Annual Report For the year ended
December 31, 2009

For the gold centric: page 41,44; for others: all :o)

mortymer said...

Something for Fofoa:
June 23rd, 1931:
"There is, perhaps, no more important object within the field of human technique than that the world as a whole should achieve a sound and scientific monetary system. But there can be little or no hope of progress at any early date for the monetary system of the world as a whole, except as the result of a process of evolution starting from the historic gold standard."

mortymer said...

And another nice part of history description:

bryan-x said...

Quick question:

Freegold is incompatible with fractional-reserve gold lending. True or false?

henq said...

Proof of Suppression of the word "gold" !!

Look Google's new Ngram tool tells us:
Steady suppression of the word "gold" from 1940 unwards, till 2000. Unfortunately, the stats stop at 2008 or so.


costata said...


"Freegold is incompatible with fractional-reserve gold lending. True or false?


mortymer said...

Nice find for you, continuing learning about Asia/pac.reg.:
Contains quite interesting info.
Here is more of it, newer:
(So far I had chance to go briefly through 2005 only)

Back to the question about where are the petrodollars. I have still no idea, could they be somehow neutralized (?); but then the extra "money" in your graph could be just another CBs money which are not finding its usual recycling/reinvestment in USA due to its systemic issues. So we could see CBs being the new kids in the block/markets (!).

Deterioration of the system, page 222, point 2.

Wendy said...


Would you please copy and paste page 222, point 2.

The pages after 221 up to the index are not available to me?


costata said...

Hi mortymer,

Thanks for the links. Some holiday reading for me.

In relation to the Petrodollars:
FWIW I think they are still trying to escape into hard assets but the competition is intense eg. sovereign wealth funds etc (I'm including stocks selectively in the hard asset category.)

IMO the only pools big enough to discreetly park this much cash in are FX and Bonds. If I'm right the volatility in 2011 will be a sight to behold.

mortymer said...

"Since the eruption of the market price of gold in 19630, there has been a steady deterioration in the operation of the system and a change in its character. I summarize the main aspects of this deterioration from the review of developments already recounted.
1 The standing of the dollar as a reserve currency of the system has become compromised as there is less readiness to hold dollars freely. To minimize conversion of dollars to gold under these circumstances, the United States has resorted to giving guarantees on various of its external liabilities.
2 The United States has used moral suasion to prevent dollars being converted to gold. It is no secret such conversions are considered to be at least uncooperative, and in some cases unfriendly. Some foreign central banks have refrained from demanding gold from dollars so as not to rock the boat. Hence, central banks no longer have full freedom over the composition of their reserves; nor is it quite right to say that the dollar is still freely convertible de facto.

Mrt, IMO:
Ad 1 - this we see e.g. on inflation indexed bonds, etc.
Ad 2 - same as today.
Link to previous post:

Wendy said...

I appreciate that mortymer, thank you

Biting said...
This comment has been removed by the author.
DP said...

Alex Stanczyk @FinancialSense : Physical Silver Shortage - Really?

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