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137 comments:
Tyrone has become slow ;)
Hi FOFOA --
I've been enjoying your latest work, and once again you have to know you're irreplaceable. Once again, thanks for answering questions for the 100th time and giving us yet another chance to put the pieces together.
In the words of J.P. Morgan: "Gold is money; and nothing else."
@DP, Laszlo, MystryBox,
re: Amerman strategy etc.
I, as stated previously, have read everything free Amerman has published in the last couple of years, and found his insights to be both compelling and unique.
I was at one time tempted to purchase his DVDs, but as MystryBox pointed out if you read his free material it is not hard to deduce the solutions he sells, and besides I am not an American, so his strategies are not necessarily applicable to me.
My point about his having something to sell has nothing to do with my feelings toward capitalism, MystryBox; creating a problem for which you are supplying a solution is the basis of Marketing 101 I believe. I was merely trying to point out that Amerman has a dog in this fight.
FWIW, I have two problems with Amerman's solutions:
1) Freegold. This alters the playing field dramatically, and it is not factored in. None of his arguments assume any fundamental change to our monetary system.
2) The use of leverage. For a start, it introduces risk, even if the risk of deflation is pretty much non-existent in actuality, I value highly sleeping soundly at night. But this is only a minor objection.
My major objection to leverage is that I find it to be both unethical and hypocritical. Those of us who find ourselves at a blog like this understand full well the role of leverage in the current situation. The use of leverage simply sustains that which all would benefit from ending, for one's own personal benefit.
It is one thing to employ these strategies in ignorance, but another to do so once cognizant of the role it plays.
I can happily live without any wealth procured in such a way. At a guess, I'd say everyone who reads this blog has more than enough nous to make their way quite successfully in the world without employing leverage, and will be even more empowered (as will be everyone) by the move to Freegold. Once again, I find a good nights sleep to be more valuable to me.
It is always a good time to consider just how much wealth one actually requires as opposed to how much one can actually accrue.
"Quality of Life" vs "Standard of Living".
The things of highest value are not available from others, placing them outside the monetary system, and are thus "priceless", IMHO.
Disclosure: No debt, long physical gold.
Well said Blondie .... it's so easy to forget that in the game of life we are all losers eventually. I do what it takes to provide comfort for myself and my family, and make sure that peace of mind and a good nights sleep are daily occurences.
That's my little .02
testing the creepy map ;)
DP,
I haven't thanked you yet for your reply. I really think hard about the "Destroy" button in Euro machine.
I mean, is it that easy to just press "Delete"? What about some TBTF banks (like a bank incarnation of the Goldman Sucks fame becoming the minister of EU treasury) accumulating toxic assets on the way toward world debtonization; what about some nations start weeping to let them have more deficit candies as jobs have been scarce for many years after becoming World Reserve Currency; what about military spending to crush Euronian Revolution or to secure Petroeuro deals in the Middle East?
Debt can only be cross-deleted from asset and liabilities columns if at least the principal has been returned to the bank (or CB). What if they are stuck in their Fractional lending?
What if ECB then becomes the sole buyer of EU bonds when there are simply too much EU debt in circulation (can they withstand deficit limit? or can Germany keep subsidizing some other nations?).
Thanks for more of your insight. I am also looking for answer from your Ye Olde Blogge.
But I guess they have unlimited supply of Euro via the ever increasing Gold Valuation.
This story may be of interest: Fraud caused Great Depression.
@Syafrin Djohan:
Namaste. It's a pleasure to have a conversation with someone who doesn't simply feel they must turn it into a confrontation. (Sometimes it is necessary of course, but not always.) :-)
Perhaps when we look for the "Destroy" button, we will find that it is really labelled "Do not rollover"?
My perception is that the liquidity injections the ECB has been pumping into the system, are term based. They put in €X for X duration. If it is still required after X duration, they roll it over by pumping in more € for another X duration, otherwise it gets sterilised back out of the system. This seems to me to be in contrast to the Fed, BoJ, BoE, who appear to be simply creating new digital currency without an expiration date each time. Perhaps I misunderstand though, perhaps they will all also sterilise the new currency once it has served their purposes - I will welcome the clarification from someone if that's the case.
@costata: +1 to your observation regarding Blondie's work. I also agree that we cannot know with certainly what a desperate government will do, so I try to put myself in the shoes of those in government. They live their lives through Limited Companies, plus I am pretty confident they have gold too and it seems like it's no coincidence legal tender coins are tax exempt while other coins are not. We have to decide on some course of action, and this one happens to feel, to me, like it's the most likely to come out OK!
@Laszlo: I hear what you're saying about buying income-producing assets with cheap long term debt leverage now, while the debt is readily accessible, but I'm concerned about the ability to sustain the debt costs during the transition (the period while gold will not be able to help you) if the economy takes a bath and your tenants stop paying the rent. Clearly, I wish you good luck in your enterprise, but I am with Blondie here when he says leverage is a no. Each to their own! :-)
@ zenscreamer
Shouldn't it be "Gold is the store of value function for currency. And nothing else"
x2 on thankfulness to FOFOA.
Another said all digital currencies are tied to the fate of the dollar. Presumably, then, nations such as Australia, Canada, Japan, UK, will hyperinflate with the dollar. US has a gold cache while these other nations do not. Should not US be in better position to recover than these other nations?
I also have read Amerman free courses. I have physical gold but I still don't know how to hedge against capital gains taxes (in the event that Freegold does not play out exactly as we expect).
I don't feel confortable right now getting into any debt in Euros or Dollars in order to short the depreciating currency. Are there other options to hedge without taking any liabilities?
What are your opinions? I'm currently in Spain (about to be rescued, things are not very pretty here).
Thank you and keep the good work FOFOA, this blog is truly a great finding, I'm reading all the 2010 articles right now in order to get all the angles in this Freegold concept.
Take care!
Blondie said:
My major objection to leverage is that I find it to be both unethical and hypocritical. Those of us who find ourselves at a blog like this understand full well the role of leverage in the current situation. The use of leverage simply sustains that which all would benefit from ending, for one's own personal benefit.
I agree with what blondie is saying, in that the use of leverage (ie. USA raising the debt ceiling rather than defaulting) simply sustains that which humanity would benefit from ending. But I would like to slide off on a tangent from there. Because what humanity would benefit from ending is not "leverage" itself, but rather the monopoly on the initiation and use of force that is the state.
I think it's of utmost importance to our desire for clear understanding, that we do not overstate the role of "leverage" or "fractional reserve banking" or other "ills" that are easily recognizable as a surface cause of the 'current situation,' while drastically understating the fundamental cause for our 'current situation,' which is a monopoly on force.
Without a state monopoly on initiation of force, any and all economic/financial "ills" are subject to the will of free market (is that the same guy as Mr. Market?), and our economic corpus can be cleansed organically.
A free market is predicated on voluntary, peaceful interaction, which allows for leverage, fractional reserves, and all sorts of other financial and economic styles. Handshakes instead of guns. It allows for fiat currencies backed by gold, by silver, by oil, by salt, by whatever. It doesn't matter. Don't back it by gold, just use gold as a reference. It doesn't matter. What is most sustainable and most effective and efficient will naturally survive and thrive. Because what free market ultimately allows for is competition, and it does NOT allow for monopoly on force and the lobbying/use of that monopoly on force to further one's own agendas.
Until stateless free market reigns, freegold will not really accompany a free situation. It will be reference point gold, but will we still be forced to garnish wages for pensions and other wealth redistribution programs? Will we be allowed to store our labour value in our medium of choice (which would be gold), or will we be forced to hand over some of our earnings in order for a financial broker or advisor to manage it for us in some sort of fund?
Actually this is the first time that question has popped up for me. In the freegold scenario, are we still dealing in pension funds and social security/welfare state policies? Or does freegold necessitate a significant loosening of the financial/economic stranglehold the state has over the individual humans that compose its citizenry?
I think we are several generations away from shifting towards using voluntary solutions rather than solutions predicated on initiation of force. I wonder if that's an inevitable progression for any complex social species of high potential intelligence.
Or, are we (and other intelligent species from other planets) doomed to suffer the consequences of violent pyramidal power hierarchy into perpetuity? Man's predatory nature might still win it all?
It is my contention that anybody whose Thoughts question the nature of money, savings, and what is best in that regard, should also move on to question the nature of social organization and in general what is best in that regard, for example the validity of statism as a solution vs. free market. Because ultimately, money, savings, economy, are all a function of the degree to which force is initiated on a network of humans to limit their voluntary interactions.
Philosophy of Money, and Economics in general (which is highly philosophical) is so important.
Ultimately, I think what draws me so strongly to FOFOA and his writing is its philosophical density. I find his work rather fractal.
Thanks FOFOA et al.
- Julian
Julian Phillips: The Internationalization of the Yuan – Progress report
First line: The Chinese government has allowed the Bank of China Ltd’s to allow trading in Yuan for the first time in the U.S.
Blonde and other debt haters,
If you run the math, debt is the only way to preserve your net worth in a hyper-inflative environment. Gold alone is not enough due to the tax effect on your capital gains. Let's assume you buy an ounce of gold, and it tracks perfectly with inflation, tripling in value to say $4000 an ounce, the dollar dropping to 33 cents of it's original value. You make $2700 in profit, as you bought it at roughly $1300. But you have to pay a 28% cap gains rate on gold collectibles (.28 x $2700, or $756), so your new after tax net worth is $3244. But wait--you must now adjust your new net worth for inflation, as your money now only buys $1070 worth of goods. Your gold purchase has helped minimize the damage (your original $1300 would have only been worth $433 if you had not bought gold), but your net worth STILL GOT HAMMERED by 18% (1300 original vs. $1070. Through some leverage into the equation, and you can not only preserve all of your net worth, but increase it. For those posters worried about renters leaving, etc.. I would submit that an inflative environment will not only increase your rent rates, but will make renting demand increase as rising interest rates and home costs price many folks out of that market. You don't have to go crazy with debt, and lever every property 90%, but use more leverage than equity, buy gold, and you can actually increase your net worth in a hyper inflative environment,
Blondie said: "MystryBox; creating a problem for which you are supplying a solution is the basis of Marketing 101"
Good point.
OT but in case someone needs a healthy laugh;
PM Boc attempts to esquew the Central European Bank and cut salaries at the National Central Bank by 25% / Trichet, CEB chief warns that what the government attempts is illegal
de A.C. HotNews.ro
Luni, 30 august 2010, 18:09 English
Romania's Finance ministry sent, on August 19, another ordinance draft to the Central European Bank in which the 25% cut of salaries within the National Central Bank is hidden, after the previous draft which ruled the same cut received a negative response from the Central European Bank. CEB President, Jean Claude Trichet expressed his concern that Romania's Finance ministry cannot understand that they cannot cut salaries in a central bank. The project reads that the sums reduced from salaries should remain at the National Central Bank from which the government takes 80% - the profit that the central bank sends to the government.
The opinion of the European bank is loud and clear and can be translated into "please do not attempt to bully us, it is not working" which means that the Treaty is not respected. The decision of the government to cut salaries of the National Central Bank employees and the forced trasfer of those sums to the budget was criticized by the CEB that urged the government to modify the law, by the European Commission that threated to launch the infringement procedure and to the IMF that insisted to include the commitment that the government will cancel their recent reckless initiatives.
Hello Joel. Please take a look around the many posts and their comments across this blog (it is evident that you have not already done so). I think you will find a lot of ready-made responses for the various different positions you have laid out above in your comment, which most people here will disagree with, if you take some time to think long and hard about what you find.
Have a great day! :-)
@ Julian,
I agree entirely with your sentiment, but would like to clarify some of your points:
"Until stateless free market reigns, freegold will not really accompany a free situation."
Freegold is the stateless free market. Freegold does not accompany it, Freegold causes it.
The monetary system is the fractal formula around which society crystalizes, the DNA code if you will. Change the formula, and the structure alters radically. Society does not organize itself, the monetary system we collectively agree upon and utilize supplies the motivations and thus incentivizes some aspects of "human nature", while disincentivizing others, organizing the structure of society as a result.
We then treat the resulting behaviours as "unalterable intrinsic human nature", which is not true at all. If our monetary system did not create scarcity, competition etc, we would all behave quite differently. The use of force is incentivized by the current system.
Any monetary system is applied fractally by humanity. The current system is not in accord with natural, fundamental, universal law, which is why it is breaking down. Not having "infinite resolution", this system has reached one of those black areas which appear in fractal patterns. An evolutionary dead-end. I have a lot of currently unposted ideas on this, but your comment has pre-empted them.
"It allows for fiat currencies backed by gold, by silver, by oil, by salt, by whatever. It doesn't matter."
Indeed. It doesn't matter so much that currencies need be backed by absolutely nothing.
Whether or not any currency will find usage demand in the real world is predicated upon its exchange rate with Freegold, nothing more.
Freegold employs physical gold as the single objective yardstick (reference point) in humanity's otherwise subjective existence, enabling the free and fair flow of value through society.
It's only requirement is personal responsibility.
One can only be as free as one is responsible.
This is why people find themselves currently losing their freedoms, as they continue to abdicate their responsibilities.
Within Freegold, the responsible action, indeed the required action, will be to store your excess of value as your own reserves for your own "rainy day", should such a thing occur. Most taxation as we currently know it would then no longer be needed (and you would have a lot more excess to store as a result, or perhaps you would like more time to pursue other endeavours).
"I think we are several generations away from shifting towards using voluntary solutions rather than solutions predicated on initiation of force."
I think months rather than generations, myself, but I guess we will see, won't we?
cont...
cont...
Juilian said:
"I wonder if that's an inevitable progression for any complex social species of high potential intelligence[?]"
Fractal evidence indicates this is a sure thing, as does the mere existence of Fractal theory itself.
What is DNA but a fractal formula?
Deliberately altering the formula to achieve infinite resolution is conscious evolution. This is what altering our monetary system does to humanity on a collective scale: shifts from the current dead-end formula to one with a sustainable future, one that is similar at all scales, in accord with natural law.
This is the evolution of the collective human organism, as it becomes self aware. The internet is the firing of the neurons in this organism, and we are the brain cells, if you like. This forum is us collectively becoming self aware.
The implications of what is currently occurring globally, of which Freegold is a crucial fulcrum, but certainly only small potatoes in the larger context, are most humbling. To think that in the face of this we want to argue tax policy and personal wealth acquisition is ironic in the extreme, but then I think that irony rather than stupidity may be the most abundant element in the universe, so it is to be expected, no?
This is the logical path that Fractals take our awareness down. We are all conscious of this pattern of self-similarity at all scales. Who among us has not wondered at the marvelous "coincidence" that the solar system shares the same structure as the atom?
This and this are the two fractal videos that I found most illuminating, FWIW.
"Or, are we (and other intelligent species from other planets) doomed to suffer the consequences of violent pyramidal power hierarchy into perpetuity? Man's predatory nature might still win it all?"
Both man's humanity (empathy/goodness) and inhumanity (predatory/badness) are inherent, but the fractal formula through which he interacts dictates which of these inherencies will dominate.
Our collectively agreed upon monetary system is this formula, and as such, I believe that we can expect to witness change.
Gandhi said:
"Be the change you wish to see in the world."
We are human beings, after all.
Another pair of chillingly good comments, Blondie. Thank you very much indeed. I have been impatiently awaiting the second continuation comment since reading the first, but I see that many will have to wait because it's been spammed again. :-(
However, already on the basis of the sentiment in the first (the death of socialism) I had gone in search of the following, which is not enough but it is something.
http://www.youtube.com/watch?v=4HYM4HoCGd8
Blondie,
Freegold is not the stateless free market.
Freegold is a market reaction to the existence of states and their attempt to fuse the store of wealth with their their fiat medium of exchange.
Sure Freegold with certainly limit statist encroachment, as it makes it harder of State's to spend beyond their means and exploit seigniorage, but Freegold does not equal market anarchy.
Freegold is in some respects the re-emergence of the market's dominance vis a vie states, but its not the absence of the state.
FOFOA sez 1) its not about ending debt and 2) the state wont get very far under freegold
They can try a welfare state with an "easy medium of exchange," but it won't get very far in Freegold. There will be an uncontrollable transition whereby the "free stuff crowd" goes back to work out of necessity.
....
It is easy to blame this on debt as a principle, but unless you don't mind being wrong , there are some deeper explanations out there. Debt under Freegold will not reach such destructive levels.
"Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.
JR,
Thanks for your clarification re stateless free markets.
O/T: We should be very careful when discussing lending/borrowing that we differentiate between lending that which we actually have (are long) as opposed to that we simply lever into existence (are short). The lending of a physical reality as opposed to the lending of an abstract conception. The abstract should never trade at par with the physical, as this is at odds with nature, and thus destroys our infinite resolution.
Wow, a lot to Ponder!
BOO!!! *8o}
Hey DP, thanks for the comment, but not much on target there. I have been reading the blogs and posts. But just to be sure I didn't miss something on inflation, I did a new search on inflation and reread all those posts and blogs as well. I saw no "ready made" responses for the "different positions" I laid out at all. In fact,I don't really have a different position on Freegold at all. I am a big holder of physical gold. I am simply trying to counter the tax effect of our eventual capital gains by holding debt. You write a bit curtly, probably British; even so you should still have some version of a capital gains tax over there as well. Anyway, I brought it up not to win a point or covert anyone to my way of thinking, I simply want to understand why it is not a good trade to go along with physical gold. If people have some "moral" reason not to do it, as in Blondie's reaction, fine, but not taking out a loan because she hates the idea of lending in principle is admirable, but I am just trying to feed my family in the meltdown, so I will have to put off trying to single-handedly take down the lending world some other day. DP, FOFOA, anyone if I am missing some good posts or blogs they show me going long debt is not profitable or wise, I would love to see them, but not interested in any anti lending spiels. I know it's what got us into this mess, but personally I don't see it going away, as I believe FOFOA said as well.
@ Blondie; good analysis of Amerman's work in relation to freegold - well done. His inflation writings helped me open my eyes to the wider picture but he is still just some guy thrashing to get to the top of the heap at someone else's expense.
Going long debt is an interesting conundrum. My new home loan upsets me because I know the 'money' was created by fractional reserve accounting - but by borrowing, our gold was left untouched. For me, that is acceptable; and overall we are increasing allocation of 'wealth' away from paper FIAT.
The propsect of a large 26-year long debt is frightening and I wanted to avoid it. The ownership of debt (for me at least) is a huge incentive to learn about managing it ... and everything FOFOA has written shouts volumes to me. If Amerman is right - that erosion of debt value does take place as inflation proceeds, then the real interest rate has to rise to counter that loss. Game on.
Disclosure: no credit cards.
@ Warren,
re: Debt
I wasn't intending to be self righteous. This was simply my personal opinion, and one that I had not seen acknowledged previous.
To clarify: I have no beef with the lending of that which one is currently long.
One of the only things of which I am certain is that everyone should follow the path that feels right for them, and I do not presume to know how another should navigate theirs.
Joel surely there is something amiss in your calculation? If gold appreciates with inflation all you will lose is the tax. The value of goods it will buy will be the smae relative to gold, so your loss would be 28% of your profit and nothing else.
However I think you are not thinking far enough ahead to imagine how you will pay this tax bill. Imagine a hyper inflationary period. You will get a
bill from the tax man, but you can delay payment. By doing this, even with fines, your tax bill will shrink to peanuts.
Under hyperinflation legislation always lags the reality. Delay in payment of taxes was common in the 70s and that was not even a real hyperinflation.
@Blondie: Absolutely, I very much agree.
@miked: (in passing) Here in Australia late tax payments get compounded with a high 'General Interest Charge' of ~12% (professional extortionists, they don't miss a beat).
The combination of these trail of thoughts: for myself, a freegold comprehension has led to an interesting kind of financial discipline. We now have the language to describe our situation, along with the tools to act. The only missing thing is the price discovery of the real value of gold (a reference point) which would expose fiat's dirty little secrets.
@Joel/Warren
Two points:
1) Freegold will not be taxed. This is to encourage populations to have gold. If people won't admit to having it, it's as good as not having it, economically speaking.
Can't remember which article is along those lines, but there have been a few.
2) Who can prove when you bought your gold? Who can prove how much capital gains you actually have from gold? Gold items are not individual or unique (unless serial numbered bars, but still you can melt it down), so there is no telling which item is which.
If someone argued about CGT, surely you could say "actually, I sold my gold as soon as I bought it, for exactly the sum I bought it for. This new gold I bought anonymously just yesterday."
I just don't see how people can prove these things without a paper trail. When money changes hands electronically, there is a paper trail. But physical items do not need to leave a trail.
How long is it exactly that bullion sellers need to keep sales records?
@Pete,
re: #1 yes, hopefully not taxed. But on that front here in AUS, not much hope for us if Gillard/Labour is still in power - they will find a way to make it happen!! They will give it a fancy name and it's own acronym.
re: #2 denial of ownership. Yep, absolutely! ... I just had a good laugh at one of those xtranormal videos: "..all of my G&S were lost in an unfortunate boating accident.."
Capital Gains Tax is an interesting topic and it always seems to keep popping up because trading the metal under the current fiat regime people must ultimately reckon with the transaction in dollar terms. That CGT part of Dan Amerman's work I found interesting; the whole DOW 36,000 scenario where you end up poorer. It underscored my own simple philosophy which boils down to 'avoid possessing fiat where possible', it is the instrument through which we are fleeced.
Hiding stuff from the ATO is neither my practice nor my recommendation. It's not so much a 'render-unto-caesar' attitude, more about 'doing-the-right-thing-has-its-own-power'.
Personally I stick to legal tender gold coinage (which was later lost in that boating accident) and (if i ever get more of them) I look forward to the day when I will swap some of those legal tender shiny gold coins for a new legal shiny big boat.
Miked,
You are not adjusting for the effect of inflation on your purchasing power. Yes, you are correct, all I will lose non inflation adjusted is the the capital gains taxes on my gold. But when I convert some of my gold back into currency of some sort (provided that it hasn't completely crashed already, which is a whole different discussion), it will have by definition lost 66 percent of it's purchasing power, so my inflation adjusted net worth still takes a hit unless I have some debt to counter it with that I can pay off with those much more worthless dollars. And "delaying payment on my taxes?" No thanks. I don't look that good in an orange jumpsuit. But clearly I would agree that if I could postpone the payments in a hyper-inflationary environment and pay for it later with a further devalued dollar it would be smart, as that is basically the same as my strategy, to be long debt to protect against the inflation capital gains tax that is the big net worth killer.
Warren, to your point, "Freegold will not be taxed." Fantastic when it happens, but right now it IS taxed, so I am trying to protect my net worth given the current tax structure. If they remove the tax, my strategy increases my net worth even more. I don't know where you guys live, but they are tracking the gold dealer's sales and purchases of gold to get their hands on the capital gains income. The IRS doesn't have to prove anything, you do. So I would have to dummy up a bill of sale to someone? I would rather stay above board on all my stuff, again, don't like orange. Don't know the answer to your question on records keeping longevity.
Warren, sorry, that last post of mine was in response to Pete. You feel the same way I do about paying your taxes.
Interesting comments, Blondie. I agree that society adapts to reflect the monetary system in useage. In fact in any particular system, humans are remarkably adept at altering their behaviour to exploit the system and profit most - even to the detriment of the normal functioning of that system. To explain what I mean take the example of the NHS (National Health Service in the UK). The government introduced performance targets, ratings and quotas etc, to try to improve health care quality and decrease costs (the cynic may say the emphasis was on the latter). Naturally and completely predictably, the result was hospitals shuffling beds to take the more "profitable" cases, increasing patient throughput by reducing recovery time in hospital, and anything else that targetted the performance targets without regard for patient benefit. This situation is well described in "The trap" documentary by Adam Curtis. For example, "NHS managers took the wheels off trolleys and reclassified them as beds, while simultaneously reclassifying corridors as wards, in order to falsify Accident & Emergency waiting times statistics". Ultimately, it had effects on the staff themselves, as job satisfaction was decreased.
In the same way, and completely predictably, banksters have exploited usury for their own profit. If the system is changed, it really does "change the rules of the game". I think FOFOA has written about this too though I don't remember where. Freegold will make saving less risky (ie savings retain value), reducing the perceived need for increased consumption and excessive spending. It can change the whole nature of society. A brilliant, much needed, and much awaited, development. After that, all we'll have left to worry about is peak oil, overpopulation and global warming... ;-)
>> And "delaying payment on my taxes?" No thanks. I don't look that good in an orange jumpsuit
No law against delaying your taxes Joel. That's what the fines are for :)
I still don't follow your point about converting your gold back into currency and your inflation adjusted net worth taking a hit. In your scenario gold tracks inflation exactly so when you convert gold back you will be able to buy exactly what you could before (less the tax you paid). If a gram of gold bought a weeks groceries before it still buys a week's groceries. Only the nominal value has changed.
However most people here believe gold will outperform inflation by far making the taxes less of a big deal.
I also thought of borrowing to get more gold. This is quite risky though as gold go through a period of no price discovery. The official price could also be close to zero and if you used your gold as security to borrow on margin to buy more gold you might find the bank foreclosing on your gold. I would only consider borrowing to buy gold if the debt was unsecured.
@Warren
I'm an Aussie too.
On point number one, FOFOA has gone to lengths to explain about the taxation, putting it in the same category as 'confiscation'. I think there is an article called 'Confiscation Anatomy' or the like that you might want to read.
Essentially, it will become counter-productive for any country to tax gold, when what they will actually want to do is encourage gold ownership/trade in the country.
I also like the coins. And I don't try to avoid the ATO. But here in Australia, how would anyone know you have gold at all, unless you spend it, or trade it for fiat. Spending is a grey area, and trading for fiat seems like it would not be worthwhile until a stable FreeGold environment is in place.
@Joel
Firstly, I do very much understand what you are getting at. I make the same calculations myself for other assets.
So, I assume you want to convert all your gold to fiat at some point?
A few other commenters here have mentioned a mind-shift they have had, whereby they now start to think of value in gold, rather than fiat currency.
Something to ponder: If gold becomes an aspect of currency, how would you calculate the CGT on it? For instance, let's say I owned $10,000 in fiat notes, and held them for 20 years. Due to some crazy (fictional) deflation, those notes can now purchase double what they used to. Do you pay CGT? How will that work exactly? This could be the case with gold too, I suspect.
I guess readers who are in the business of short-term gold trading will find this blog frustrating.
Hello Fellow PGAs-
Seeing as this is the 15 of the month, it's a perfect time to remind our fearless leader how much we value these teachings. I am a simple person of meager means and thus can only donate a fraction of what I believe FOFOA deserves, but many small donations add up -- and we don't want FOFOA to have to quit his day job of blogging only to end up flipping burgers.
Scroll up and click that DONATE button today! I just did!
--Jenn
We may already be in reference point gold environment - a precursor to true Freegold when the market goes physical-only.
I lived in Singapore for a while, and bought a fair bit of physical while I was there, avg cost S$51/gram (generally i got it for around spot+2%). It now goes for S$57/g if you include the shmutz on top of spot (see pecunix.com for real time gram prices in a bunch of currencies). Over this same time period gold went up around 33% in CAD, 40% in USD and around the same level in several other western currencies. Looks like RPG to me.
The SGD is one of the best managed currencies around. A friend of mine who knows some of the top dogs in the monetary authority said that they told him they would sacrifice their entire export industry if they needed to, in order to keep a stable currency. Their #1 mission is to be a hub for capital in the region, and they needed strong banks and a stable currency to do this.
Given the very robust gold trade in Singapore, I have to assume that the real reference point is gold, not the USD. The USD is a joke in Asia among businesspeople and traders. So many people made fun of it ... I remember once calling the USD by (apparently) its old name in Chinese "mei-jin" or "American gold", everyone burst out laughing.
Well, perhaps we are in a proto-RPG environment, but not Freegold in Singapore anyway. Singapore is one of the few places that taxes gold bullion purchases with a 7% GST. It's really quite bizarre, such a centre for gold trading, a meeting place for the gold-loving Chinese, Indian and Muslim cultures, and yet physical bullion purchases are taxed on the island. Of course, with the right connections one can get around the taxman relatively easily.
In Switzerland gold is still legal tender in the sense that there are no capital gains taxes on it. Swiss Vreneli are still legal tender, but at less than 1/10 of the nominal price. There are no capital gains on most financial assets either. Silver has the 8% VAT, but no capital gains.
Currently it is not at all clear that Switzerland "would sacrifice their entire export industry if they needed to, in order to keep a stable currency.". Many exchange rate sensitive industries are reeling, and Austria and the rest of the EU is a real tourist bargain at current exchange rates. I am not at all sure how Switzerland will survive these currency wars, and I am very concerned about what BIS and the SNB may do to appease the world's banking elite. By all appearances, Switzerland, England, Czechoslovakia, Australia, Canada and many other countries sold off all or much of their sovereign gold in what appears to be the crime of the century. It is not yet clear who bought this gold, or if it even physically changed hands, but the giants are battling this out in a far higher plain than we inhabit, and I don't have confidence in any of the giants. These giants are also battling things out in the silver plain as well. Unfortunately, there are no reporters bringing news from the front lines, just little snippets that are often full of misinformation as well. This is why at this point I don't rule anything out, and I try to stay highly diversified across all asset classes and locations.
@DP
Thanks for the comment. Now I finally Have time for a reply.
I consider all forms of mass credit expansion including aggressive FRL, naked margins and leverages as unsound monetary practice. I'm not sure King was that far along with me on it tho.
There's probably been enough discussion on how mass credit expansion by government & bankers distorts the system, encourages malinvestment, leads to unsustainable debt / inflation & TBTF and all that so I'll skip them here.
The question is what freegold does differently to curb such expansion? The selling point of FG is somehow it offers a mechanism to judge the health of easy money. Once it's too easy it self-adjusts.
Problems is we've had that mechanism since Brenton Wood, and it's called gold price. It matters not if dollar was fixed to a gold ratio. Everyone can notice the current gold price and adjust if they want to.
Politicians, however, want you to hold onto their easy money so they cannot afford letting gold price broadcast a warning, which is why they rigged it all time via CBs, BIS, LBMA and so on.
I don't see how they'll quit it under FG. If anything, proposals such as "private/public debt not be settled in gold" is a give-away it'll be business as usual under FG.
Like someone already pointed out, honesty and integrity are not baked in FG. It's still a faith-based system. Trying to achieve a fixed gold ratio like stability on a floating ratio is like trying to have a cake and eat it. Sorry mate, not sold here.
HAS ANYONE HEARD ANYTHING FROM THE TOP AUSTRAIN ECONOMISTS ABOUT FREEGOLD ????
Peter Schiff seems to believe in freegold without realizing it. He is a big believer that the world economy can function without the US and without the dollar. He also talks about decoupling allot which supports freegold more then any classical gold standard or anything. I am going to take him on on his radio show on the freegold topic, stay tuned.
@Pete, yep. I am well read on this forum and versed on all the topics and commentary from all. My humour was possibly a bit dry on Australian politics - my joke was that Gillard will do whatever it takes to put a tax on freegold, specifically *because* it runs counter to good economic policy. They'll have a huge $100M TV campaign and the slogan will be 'repatriating repartiated wealth for all Australians'.
Okay, so that's not so much a joke, knowing our leadership is clueless enough to actually do something like that, remember these are the people that think a profit in excess of the government bond return is classified as 'super profits'. Anyway, this prospect will not stop me accumulating ounces, and that gold will 'lie very still' with me for quite some time. I am just tired of the fiat money pony tricks which these days are so well rehearsed. Random example - my salary is monthly (I work for a multinational corporation). I've done the math - if I were paid weekly, I could pay my home loan off quicker (about 10% less time). So through the monthly pay cycle, the corporation keeps that benefit on their end, invisible to most.
Gold and Fiat: if they were represented by two buckets then Fiat is the bucket with holes in the bottom. You can use either bucket to store water, but if you use the fiat bucket then the next day the water level has gone down by 10%, and it will keep leaking until the bucket is empty. Most people don't notice it because they keep topping the bucket up .. grumbling about evaporation or whatever but they can't see the holes. A banker helps himself to cups of water from the fiat bucket, as does the tax man. In the gold bucket generally no water is lost, provided it doesn't get bumped about or plundered.
Don't know if it helps anyone, but this is why freegold is so accessible. Regardless of your earning capacities or savings volume, assuming you have SOME monthly surplus (hopefully you have some) you have to store it in some fashion for some length of time. Don't choose the leaky bucket. For those using the gold bucket hoping to find the water magically multiply itself (capital gains) you might be disappointed but over time and with discipline you will find yourself with whatever you need later on, whereas anyone else who only used the fiat buckets will have very little. And yes, like anything else there will be transaction costs whenver fiat<->gold are transacted; premiums, CGT, GST(in S'PORE) or even the bus ticket to the bullion dealer, so choose the timing well.
I'm rambling a bit. I can't actually add to the beautiful wisdom that has already been laid out in this blog/forum by so many (wonderful) contributors ... just my own stories which on reflection, tell me that it's all so true, and deep too. That flow of value is why I keep coming back here and is also why I donate.
Nice analogy with the buckets Warren :)
It's not perfect though because the fiat bucket is less likely to be stolen. However, because it is in the care of the bank, you are right, the banker does help himself to drinks from it :)
Unfortunately most of us can't entrust our golden bucket to the bank because the bankers won't accept responsibility for it even when it's stored in their vault.
There are other buckets and those are shares and equities. How you would represent them though I have no idea :)
Blondie:
I am interested in why you feel we are months away from a "shifting"?
In the US the new tax law on gold is, any transaction over $600 USD will be taxed.
This means buy or sell. So let’s do the math, the US government sees gold’s price as $42.22 an oz that’s about 14 and 1/3 oz or at today’s market price close to $20,000.
@ Museice,
My feelings on the timing of fundamental changes to our monetary system are intuitive, but this opinion is based on the absorption of fairly large quantities of contemporary and historic information. It remains no more than my opinion of course.
There appears a relative calm currently over the monetary establishment in general, however I believe there is substantial activity beneath. Fires are burning, and we can see smoke coming out the cracks, but this is not an indication of the scale of the blaze, rather the size of the cracks.
We are not privy to the real events of consequence taking place, being left to decipher the spin put to the few effects that could not be concealed.
An unsustainable system, which has been supported by systemic dishonesty, is collapsing. This dishonesty must by definition be huge, supporting as it does a global structure at odds with natural law, and once it starts to come to light, it will all come rushing out with its own momentum, perpetrators looking to mitigate the personal consequences. Dishonesty can only survive in the dark. This could all come undone really fast.
Stasis is broken by punctuated equilibrium. This is another fractal. Similar at all scales. A raindrop falling, until it is not. A star existing, and then supernova. Your eyes are open and then you blink. You are alive for your whole life(!), and then you're dead (which begs the question: Who are you?).
These are all examples of stasis broken by punctuation. Everything being relative of course, relative to the observer. A mayfly and a sequoia will have differing accounts of the same event.
The more attention you give something, the longer it appears to take.
As keenly interested observers, the consolidation appears to be barely happening. Apart from us, how many other keenly interested observers in this event are there?
"A thing long expected takes the form of the unexpected when at last it comes."
Mark Twain
Interesting and related:
http://wiki.mises.org/wiki/Inflation_in_Nazi_Germany
(link posted by "shortus cynicus" in ZH)
@Joel: Why would you assume that in a hyperinflationary invironment, gold's price will only keep up with inflation? That seems very unlikely to me. In such an environment, under the present circumstances of a gigantic and highly leveraged debt overhang, a disproportionately large amount of (fiat-denominated) wealth would likely flee back into gold, causing its price to increase much more rapidly than those of other assets. There are few viable alternatives for gold (prices of real estate, land, stocks etc. will suffer from a scrambling for cash by that section of the population whose income doesn't keep up with inflation). Historically, some 20% of the world's wealth has been stored in gold. Today, that's less than 1%. So, in a global bout of hyperinflation, I'd expect at least 20% of wealth to return into gold. Given that the qty of available gold is basically static, that would imply a 20-fold increase in its price (on top of any increases due to hyperinflation, which will lift prices of all tangible assets to varying degrees).
Anyway, I wouldn't expect capital gains taxes to make a real dent in your gold's capacity to preserve (more than) your present wealth. Still, you may also want to look into alternative forms of physical gold that qualify as art or collectibles (such as older coins with numismatic value) that in many nations are not subject to capital gains tax. I don't think that applies in the US, if you live there, but this American site does mention some related benefits of purchasing older coins: http://www.eldoradogold.net/what_to_buy.html -- I can't vouch for its veracity but I thought the information might be of possible use.
Many excuses have been offered here as to why neither Another, nor his Friend, nor his Friend's Friend has ever offered a clear definition of the Freegold concept or the real-world mechanisms through which it would operate. As a result, this blog is full of diametrically opposed views and opinions on how it would work, and how it would affect us, and global finance and the world in general.
I see a lot of woolly language here that seems to suggest something, or that may allude to something, but that only rarely ever simply states something. Consequently there's a lot of confusion and I think that's a shame. I love poetry and I'm a sucker for all sorts of mystifications, but not in matters financial; monetary and financial policy are not magic. As such, I'm a little disappointed in this blog because the potential for more concrete and meaningful discussion clearly seems to be there.
I have previously attempted to get a discussion going on this subject (see http://fofoa.blogspot.com/2010/11/open-forum.html?showComment=1289450452316#c5659612260514400300). I've referred to what I currently see as the most likely re-implementation of gold in global finance, based on utterings of Worldbank president Mr. Robert Zoellick. His words, to my mind, seemed to imply a system in which nations that export their own fiat currencies in return for goods and services of actual value, would have to back (if not settle) this excess money creation in physical gold, possibly through the IMF or the Worldbank. I would still greatly appreciate views on this subject from other readers of this blog (or its owner, for that matter), because --all dreaming and speculating aside-- only the actual, real-world reimplementation of gold in the global economy and global financial system will determine gold's destination and allow us to make informed decissions about it.
@ Midas II
Like you, I visit here to gain objective, actionable, practical insights into the process of the grand Freegold revaluation. What are the confirming or non-confirming indicators? What are most likely triggers? How far along the trail are we? How can we gauge the probability of the grand revaluation in our life times? For this to be a positive life-altering, or even a generational wealth creation event, it needs to happen during our life times, in measurable, verifiable steps and sequences.
Mike,
I hope you are right about gold outstripping inflation, I think the potential is there as well, but I am a trader by profession and have learned not to get too excited about my upside, lest I become too attached to my position. And man, do I concur with you on the "wooly" language and "mystifications. Blonde, you write beautifully, but I am with Mike, I want to hear some concrete info: potential gold standard implementation rumblings, current events moving us closer to freegold, central bank manipulation and sales, etc...like you said, real-world details. But I think in the long run you will be wrong about cap gains taxes and their destructive force on our net worth (here in the US anyway.) The idiotic, Obama-worshipping socialists will not be denied, and until the bond markets force our hands on the budgets (no politician will ever be elected that can fix the problem) they will continue to raise every tax available trying to stay afloat.
A short time ago I had the following comment and dialog with "Rotwang" and "Armchair Bear" at Zero Hedge. Since I mentioned that FOFOA is Chief Adviser to the gold tribe I belong to, I thought I would share this back and forth about how much physical gold and silver we as individuals should hold:
by DoChenRollingBearing
on Sun, 01/16/2011 - 22:16
#880824
Rotwang,
Excellent, excellent list! The USA has (Official Gold Holdings, I presume that is Ft. Knox and/or US Fed's holdings of gold belong to .gov) 0.84 oz per capita and yet manages to be in 9th place.
...
Here is the Bearing's way of thinking about gold. There are approximately 6 billion oz of gold being held in the world. And approx. 6 billion people, so there EXISTS about 1 oz / capita worldwide. The existence of gold being held by central banks is essentially irrelevant for me, as it is NOT MINE. How much gold (minimum) should we hold as individuals?
Let us posit that as relatively rich Americans, each individual, being perhaps 10 x as wealthy as the average Earthling, should hold 10 oz each. Married and have a kid? 30 oz.
Are YOU there yet?
reply flag as junk (0)
by Armchair Bear
on Sun, 01/16/2011 - 22:54
#880874
how many oz silver you figure?
reply flag as junk (0)
by DoChenRollingBearing
on Sun, 01/16/2011 - 23:16
#880897
Armchair,
I have not thought through how much silver, so I will just wing this one now. It is said (I do not have the source) that there exists about the same number of oz of silver as there are for gold. Factoid 1.
Factoid 2 would be that gold is approx. 50 times more expensive than silver, over the last century or two the average has been around 16.
Factoid 3 is that silver will be easier to SPEND if things get tough.
Factoid 4 is that gold is probably the BEST wealth preserver in town.
Throw the Factoids into the bowl, toss in a little FOFOA (Chief Adviser to the PM tribe I belong to) and I would say you probably want to be 2:1 or 3:1 silver to gold (weight), so 20 - 30 oz per capita. In addition to the 10 oz gold. Note that MUCH MORE of your PM wealth would be in gold.
If you have LOTS of money, you probably would lean to having more gold.
EDIT: The above analyses would be for the "average" (not median) American. If you are, say, twice as wealthy as "average" there is a very compelling argument to having 20 oz gold / capita and, say, 50 oz silver / capita or more depending on your circumstances.
edit reply flag as junk (0)
Hi Midas II-
"Many excuses have been offered here as to why neither Another, nor his Friend, nor his Friend's Friend has ever offered a clear definition of the Freegold concept or the real-world mechanisms through which it would operate."
I have to admit that I'm new to the concept of Freegold and as such I may be missing something really big, but can you elaborate on which aspects of Freegold mechanics you are interested in?
When I think about Freegold, I remind myself that I have dollars, I have gold, I have a dealer, he has a dealer, and nations trade.
What specifically would you like to know more about?
--Jenn
@Midas II, Laszlo, have you checked out the archives? There's plenty FOFOA material to chew over, with great material in the comments as well - discussion from skeptics and supporters alike. But the success of conceptual reduction (which you seek) depends on your starting point. I don't think there are any shortcuts. There is typically a 'zen' moment after the 50th-hour-of-reading mark. The bonus is that each new FOFOA post normally addresses current world developments. {mystical chime sound}.
Comment from ZH:
by Aristarchan
on Sun, 01/16/2011 - 21:15
#880758
My wife buys gold for herself.....if she put it all on at the same time, she would look like Goldfinger's christmas tree. Indian women have a thing for gold that goes beyond western comprehension.
http://www.zerohedge.com/article/guest-post-strong-indications-gold-silver-shortages
Excellent, Midas & Laszlo!
“Woolly language”!
When asking such prosaic questions here you might be seen as intellectually not being up to understanding this subject.
You just have to enjoy the poetry and develop your own thoughts regarding your financial future. Questions like when and how are prosaic. All I look for are symptoms of FG/RPG and there are plenty of that around, but as you say nobody knows when and for which trigger to look for. I think oil and social unrest will trigger the breakdown. But who am I to have the 0.2…
@Midas II
From the way I read your comment you're basically saying you don't think this blog is up to standards because it doesn't make rigid predictions about the future.
So basically you hatin' because we don't have crystal balls.
That's a funny angle...
@Rui: Hi, I hope you had an enjoyable weekend? :-)
@DP
Thanks for the comment. Now I finally Have time for a reply.
I consider all forms of mass credit expansion including aggressive FRL, naked margins and leverages as unsound monetary practice. I'm not sure King was that far along with me on it tho.
I agree he is not as far along that path as you. Personally, I don't think he ever will be either. He almost certainly knows and understands all of those things, but he won't be doing what you might be suggesting. It's just not going to happen IMO. Unfortunately, what he and his friends all think and do is going to have far more bearing on what is going to happen, than whatever you or I might believe is best. We are best served, IMO, by looking at what is likely to happen and how best to live within than, rather than calling for what we think should happen instead.
There's probably been enough discussion on how mass credit expansion by government & bankers distorts the system, encourages malinvestment, leads to unsustainable debt / inflation & TBTF and all that so I'll skip them here.
Definitely agree -- there are plenty of other forums where we can kick that stuff around until the cows come home (and still not make any difference), so ideally we'll instead attempt to stick to the Freegold-specific topics here and see where we're going.
The question is what freegold does differently to curb such expansion? The selling point of FG is somehow it offers a mechanism to judge the health of easy money. Once it's too easy it self-adjusts.
Problems is we've had that mechanism since Brenton Wood, and it's called gold price. It matters not if dollar was fixed to a gold ratio. Everyone can notice the current gold price and adjust if they want to.
I have a slightly different perspective than you here I think. Since Bretton Woods we have had a floating gold price sure, but it has been heavily manipulated by the issuance in the paper gold market utterly swamping the amount of physical gold that is available for trade. People think they are trading gold, but they are just trading a phantom derivative of gold. They all think they could have this gold, but they categorically could not. Freegold is the time when the paper suppression ceases, that is what is the very core of the whole Freegold concept for me. The rest of the stuff discussed around here are the consequences of that. They are of course myriad since, as Blondie has suggested, the rest of life orbits around the fulcrum of the money concept. Change the money, and the whole system will adjust. Perhaps for 5000 years we had the sun (gold) in the centre of our solarsystem, then 40 years ago a bunch of guys in a room decided they'd change the system so that everything would orbit instead around the USA on planet earth. Almost the whole world believed this story was the truth and reorganised themselves around this modified system. But at the end of the day, Galileo before now calculated that in truth the earth revolves around the sun not the other way around, and all in good time this same truth will be appreciated and accepted by everyone.
cont'd...
...cont'd...
Politicians, however, want you to hold onto their easy money so they cannot afford letting gold price broadcast a warning, which is why they rigged it all time via CBs, BIS, LBMA and so on.
Right, the politicians and bankers, among others, very much benefit from the soft money system we have today. They have created the biggest financial disaster-in-waiting in the history of man, built atop this soft money system that is orbiting around the USA on planet earth. They are fighting the notion of having to relinquish this system with tooth and nail, but ultimately the system is flawed and unsustainable. It will come to an end, whether they like it or not.
I don't see how they'll quit it under FG. If anything, proposals such as "private/public debt not be settled in gold" is a give-away it'll be business as usual under FG.
The way I see it the answer is fairly straightforward. If people like you and I decide in large numbers that they do not like what the politicians are doing, they will opt out of the fiat money system by either buying gold or another currency. We can do this today of course, but it is pretty futile for now because the currencies are (mostly) not measured against gold. When the currencies are openly measured against the golden barometer, which there appear to be signs is approaching now, more people will come to see what you and I already see, and there will therefore be a rising number of people acting against the soft money crowd to keep them in check finally.
Like someone already pointed out, honesty and integrity are not baked in FG. It's still a faith-based system.
Yes, it is a faith-based system. Isn't just about everything though? :-) But Freegold/RPG will be one where people can objectively measure the things they are supposed to have faith in, and within which they have a real method to vote on what they see.
Trying to achieve a fixed gold ratio like stability on a floating ratio is like trying to have a cake and eat it.
Fixed gold ratio? Sorry, I must be misunderstanding you Rui, because I am quite sure you are not suggesting gold will be fixed to anything. Perhaps you can clarify what you meant by this?
Sorry mate, not sold here.
Oh well. I'm not really selling. We're just a couple of guys having a chat. You can buy or not buy, it's up to you mate and you're not buying anything from me because what you might want I do not have for sale anyway! ;-D
Cheers!
Hello again, Aussie Joel.
Apologies if you found my earlier comment "curt", I could not know that I was engaging with such a sensitive soul. Yes, I am British, and I can assure you that you should not take that as my version of "curt". I try to avoid being truly curt, unless it is really necessary... ;-) Costata has a new year's resolution, which is along similar lines to my own perennial resolution.
I hope you had a good weekend and enjoyed the comments I see have been directed to you by now? Particularly miked's and Midas II's.
If you are looking to trade and to find analysis that will assist you with trade timing, this is probably the wrong forum for you. Particularly since a trader is most likely another cog in the problem as perceived around here. I think this is a forum more suited to those who would buy-it-and-bury-it, for whom just about any day is a buy day for now. If you're not buying and selling, you're not being taxed, so tax law isn't really an issue. Getting attached to our position is exactly what we're all about here!
FWIW I, personally, think you are wrong about the socialists. I think the tide is turning.
Good luck!
DeepQuote: "RS View: Perhaps it is best to hold gold not for the particular reasons you might foresee, but rather for all the reasons you CAN’T foresee."
Apologies for mistakenly confusing you for an Australian, Yankee Joel. I would not waste other reader's time to correct this ordinarily, since it is far from an insult, however knowing now that you are such a sensitive soul I thought it best to apologise sooner rather than later.
The recent offer of gold for oil by India to Iran might seem strange but its not the first by any means. Gold bidding for oil seems natural when taking into account who has what as a natural resource.
Very soon after the Shah was overthrown, there were many newspaper rumours of gold for oil deals between Iran and South Africa as well as Saudi Arabia and South Africa, all officially denied.
South Africans to trade gold for oil supplies
South Africans fuel gold for oil rumour
Africa’s flow of oil kept open with gold
South African gold keeping pipeline open for bootlegged supplies of oil
The subjects of gold and oil seemed inseparable throughout the seventies. It’s amazing how soon it was all forgotten when the price of gold and oil dropped. The gold/oil connection was so strong, and was such a bone of contention for the whole decade that there is no way a physical for physical deal was not done imo, although the mechanics of this we may never know.
On researching this other South African connection I came across this article with these excerpts:
Contacts with solid Mideastern sources tell me the Arab oil nations, led by Kuwait, are exploring a provocative new plan for the payment for oil – a basket of currencies that would include some gold.
The currency expert, who was updating himself on the latest European assessment of the dollar, gold and the US economy from bankers and foreign exchange dealers, says he had been told by two Arab oil ministers that the inclusion of gold for oil payments was a clear possibility.
Emotion and Opec behind surge in gold
September 1979
Ambrose Evans Pritchard at Telegraph stating it will cost the Germans 10Trillion euros in current and future transfer payments to "save" the peripherals.
So Costata, what's it going to be: print or default?
Please note that Ben Ali did not flee with a BMW or even the controversial wealth asset, silver. When the SHTF, those with a historical prospective will take the barbaric wealth reserve with them to renew their status. The same applies to the $IMF system as it implodes, the barbaric relic will refinance and reset the new system.
Deposed Tunisian President Ben Ali Said To Have Fled Country With 1.5 Tons Of Gold
http://www.zerohedge.com/article/deposed-tunisian-president-ben-ali-said-have-fled-country-15-tons-gold
@Texan: Apologies for interjecting when you have very clearly and specifically requested to get an answer from costata, but I think the Euros for the "bail-outs" can be provided by international investors by changing to an indirect bond issuance arrangement. I think the European Financial Stability Fund should be setup to provide funding to States getting into trouble while attempting to rollover their bonds, using cash from bonds it has itself issued. The fund would be backed by the whole Eurozone and ultimately by the promise to print if necessary by the ECB, so it would have a AAA rating and there would be high investment demand for these instruments even at low rates of return. Japan recently indicated that they would be prepared to invest in a fund like that, whereas they are unprepared to directly take on the bonds of the States in question. The rate to the State receiving the assistance would clearly be higher than the rate paid by the fund, but fair, so the fund would take a spread to help with future activities and of course to pay for the inevitable administration costs. Using a mechanism like this, it seems to me it would not be necessary for the ECB to issue any new Euros for the purpose.
To those out there making the charge that this blog is too non-specific, I have to say I admire the author's technique. He teaches by asking questions. It's such an effective way to learn. It also adds to his credibility as the answers we discover reinforce the questions being asked.
As to some specifics, if anyone is new to the blog, here is a summary of what I consider to be the most important lessons:
What is Freegold? Freegold is a system where countries have fiat currencies which could be backed or unbacked by reserves. More importantly residents of the country would use gold to store their wealth. Gold would float against all currencies as a reference point. Irresponsible or unsuccessful currencies would lose value against gold via a net outflow of physical gold from that currency zone or via straighforward currency inflation as newly printed currency chases the fixed gold supply. Gold traders would mop up any arbitrage opportunities and the relative price of gold to currencies would be efficient.
What might trigger a move to Freegold? Well, that would be a true hyper-inlfation and that has been covered in huge depth here. The triggers have also been covered, such as an inter-bank lending/trust crisis similar to the one from 2009. The ingredients are in place. Only time must pass for events to unfold.
Why would the world choose Freegold over a gold standard? Being able to devalue a currency often prevents violence so that possibility should be preserved. A gold standard is also easier to cheat on if the gold is at the central bank and not in your basement.
Why gold and not silver? Because the gold stock is steady and the siver stock is volatile (being a commodity with industrial applications). A steady money supply is essential for a functioning economy. Gold is also portable in times of strife.
How much will gold appreciate? Here I don't agree with the blog consensus but 50k$ an ounce has been proposed, based on the premise that gold will become money and all assets in the world now are equal to something like 50 to 100 times the current price of gold.
When to sell your gold? The theory here is that you should only sell it when you need liquidity as it is not an investment and should maintain its value when the politics have been removed form the equation.
When to buy your gold? As you go along. Buy some every time you have money to save. Don't worry about the price as the price fluctuations now will look amusing in years to come.
What about ETFs and gold tracking instruments? Gold has no counter-party. Only buy physical gold if you want to be sure to see your money back. In a crisis many of these counter-parties will renege or settle in dollars which will be worthless at the time of settlement.
Taxes: Under freegold there will be no taxes on gold (no VAT and no capital gains taxes). A transaction tax on gold would damage capital flows and hence would be undesirable.
Debt: Admittedly this is not well discussed. One suggestion has been that there would only be equity - no debt at all. It might be possible if prices come down with a bang, but in my opinion people will still want to borrow to leverage their upside and a world without debt seems unlikely in practice, especially at a sovereign level.
Confiscation: Confiscation is a real possibility but should Freegold play out, it would not be necessary as the gold should not be centralized and should remain in the hands of the public for the system to function.
What about those pesky foreigners without gold? Will they agree to this system? That remains to be seen, but the likelihood is that gold will be needed to buy commodities, especially oil because of the middle-east's desire to save for their future as the oil in the ground is depleted, so gold will become the de facto standard.
To those out there making the charge that this blog is too non-specific, I have to say I admire the author's technique. He teaches by asking questions. It's such an effective way to learn. It also adds to his credibility as the answers we discover reinforce the questions being asked.
As to some specifics, if anyone is new to the blog, here is a summary of what I consider to be the most important lessons (apologies to the regular readers - please skip to the next message):
What is Freegold? Freegold is a system where countries have fiat currencies which could be backed or un-backed by reserves. More importantly residents of the country would use gold to store their wealth. Gold would float against all currencies as a reference point. Irresponsible or unsuccessful currencies would lose value against gold via a net outflow of physical gold from that currency zone or via straightforward currency inflation as newly printed currency chases the fixed gold supply. Gold traders would mop up any arbitrage opportunities and the relative price of gold to currencies would be efficient.
What might trigger a move to Freegold? Well, that would be a true hyper-inflation and that has been covered in huge depth here. The triggers have also been covered, such as an inter-bank lending/trust crisis similar to the one from 2009. The ingredients are in place. Only time must pass for events to unfold.
Why would the world choose Freegold over a gold standard? Being able to devalue a currency often prevents violence so that possibility should be preserved. A gold standard is also easier to cheat on if the gold is at the central bank and not in your basement.
Why gold and not silver? Because the gold stock is steady and the silver stock is volatile (being a commodity with industrial applications). A steady money supply is essential for a functioning economy. Gold is also portable in times of strife.
How much will gold appreciate? Here I don't agree with the blog consensus but 50k$ an ounce has been proposed, based on the premise that gold will become money and all assets in the world now are equal to something like 50 to 100 times the current price of gold.
(continued)
To those out there making the charge that this blog is too non-specific, I have to say I admire the author's technique. He teaches by asking questions. It's such an effective way to learn. It also adds to his credibility as the answers we discover reinforce the questions being asked.
As to some specifics, if anyone is new to the blog, here is a summary of what I consider to be the most important lessons (apologies to the regular readers - please skip to the next message):
What is Freegold? Freegold is a system where countries have fiat currencies which could be backed or un-backed by reserves. More importantly residents of the country would use gold to store their wealth. Gold would float against all currencies as a reference point. Irresponsible or unsuccessful currencies would lose value against gold via a net outflow of physical gold from that currency zone or via straightforward currency inflation as newly printed currency chases the fixed gold supply. Gold traders would mop up any arbitrage opportunities and the relative price of gold to currencies would be efficient.
What might trigger a move to Freegold? Well, that would be a true hyper-inflation and that has been covered in huge depth here. The triggers have also been covered, such as an inter-bank lending/trust crisis similar to the one from 2009. The ingredients are in place. Only time must pass for events to unfold.
Why would the world choose Freegold over a gold standard? Being able to devalue a currency often prevents violence so that possibility should be preserved. A gold standard is also easier to cheat on if the gold is at the central bank and not in your basement.
Why gold and not silver? Because the gold stock is steady and the silver stock is volatile (being a commodity with industrial applications). A steady money supply is essential for a functioning economy. Gold is also portable in times of strife.
How much will gold appreciate? Here I don't agree with the blog consensus but 50k$ an ounce has been proposed, based on the premise that gold will become money and all assets in the world now are equal to something like 50 to 100 times the current price of gold.
(continued)
When to sell your gold? The theory here is that you should only sell it when you need liquidity as it is not an investment and should maintain its value when the politics have been removed form the equation.
When to buy your gold? As you go along. Buy some every time you have money to save. Don't worry about the price as the price fluctuations now will look amusing in years to come.
What about ETFs and gold tracking instruments? Gold has no counter-party. Only buy physical gold if you want to be sure to see your money back. In a crisis many of these counter-parties will renege or settle in dollars which will be worthless at the time of settlement.
Taxes: Under Freegold there will be no taxes on gold (no VAT and no capital gains taxes). A transaction tax on gold would damage capital flows and hence would be undesirable.
Debt: Admittedly this is not well discussed. One suggestion has been that there would only be equity - no debt at all. It might be possible if prices come down with a bang, but in my opinion people will still want to borrow to leverage their upside and a world without debt seems unlikely in practice, especially at a sovereign level.
Confiscation: Confiscation is a real possibility but should Freegold play out, it would not be necessary as the gold should not be centralized and should remain in the hands of the public for the system to function.
What about those pesky foreigners without gold? Will they agree to this system? That remains to be seen, but the likelihood is that gold will be needed to buy commodities, especially oil because of the middle-east's desire to save for their future as the oil in the ground is depleted, so gold will become the de facto standard.
On researching this other South African connection I came across this article from September 1979:
Contacts with solid Mideastern sources tell me the Arab oil nations, led by Kuwait, are exploring a provocative new plan for the payment for oil – a basket of currencies that would include some gold.
The currency expert, who was updating himself on the latest European assessment of the dollar, gold and the US economy from bankers and foreign exchange dealers, says he had been told by two Arab oil ministers that the inclusion of gold for oil payments was a clear possibility.
Emotion and Opec behind surge in gold
I believe it was Blondie above who satated he expected FG/RPG to be triggered within months. Although I do not share his optimism on timing (the CBs can extend & pretend for longer than most people here would expect) the following article is interesting and offers a compelling argument for impending shortages of silver (and to a lesser extent gold).
https://marketforceanalysis.com/article/latest_article_011511.html
Blondie:
You said, in part:
"My feelings on the timing of fundamental changes to our monetary system are intuitive, but this opinion is based on the absorption of fairly large quantities of contemporary and historic information. It remains no more than my opinion of course."
Several readers/posters are questioning the specifics of freegold. Your Mark Twain quote hit the nail on the head.
The freegold story was laid out by A/FOA and is retold by FOFOA. The bull markets in gold and silver these last 10 years have borne out the story. Agreed, it has not 100%manifested, but official language referencing gold as a "reference to currency values" is BIG.
Remember, freegold will not happen until paper gold goes to zero. This means, COMEX stops trading. We are very close to this. All here must read this article (posted below)by Adrian Douglas. He is a part of GATA, which has some major differences in belief with FOFOA (as regards CB gold holdings, etc.), but he know the COMEX and their data as well as anyone alive, even Ted Butler. If he is correct about this tipping point, it should be over quite soon, as once it does tip, the short sellers will not be able to maintain their paper selling. Even rules changes will no longer work. It will be game over. My opinion, of course.
https://marketforceanalysis.com/article/latest_article_011511.html
holdinmyown I read that article and I am unconvinced rising price leading to lower open interest means impending shortages.
I think it more likely represents a fear by producers of locking themselves into lower prices. An example is Barrick Gold who always had their production hedged. They have now closed out their hedges so they can speculate on a rising gold price.
Does that mean they expect shortages? Maybe, but perhaps they are just feeling burned from the massive losses on their shorts the last few years.
Hi DP,
Thanks, but no need for apologies. Not a sensitive soul, was merely giving you some feedback--you are failing on your New Years resolution, lol...Anyway, lets get back to the gold dialogue. I am not trading my gold position at all, simple buy and wait strategy like most here, so definitely not using the site to time the market. Timing of the transition (a dreaded prosaic question) though, is very important to me, as I have a big portion of my net worth tied up in private equity, and am trying to protect my remaining liquidity (now mostly gold) from being ravaged by inflation or becoming completely worthless. However, most everyone here believes there will always be currency in some form, and I do believe here in the US there will most likely be a taxable event when I sell my gold and eventually convert back to our currency (even if I don't sell and gift it to my kids).
Sir, I sincerely hope you are right about the tide turning against the socialists, as I am embarrassed to be an American right now, and cannot believe what they have done to our nation. Unfortunately, our goose is already cooked. We can never pay back our debt, as we don't produce anything anymore. As folks get nervous about our balance sheet/currency (already happening big time, in my honest opinion) and interest rates start to rise we will not be able to pay even the interest payments on our debt, not to mention principle. As one of the earlier posts stated, our government budget falls victim to hyperinflation as well, and the dollars needed to fund our debt go exponential in short order.
A question for all the bloggers:
The freegold concept and this blog have been portending this physical/paper bifurcation for quite a while now, and yet the paper game continues to survive (much to my chagrin). Despite the recent substantial physical purchases in India (200 tons!), China (both consumer and governmental), US, etc... the central banks seem perfectly willing to simply ignore the scramble for physical that is going on right in front of their noses. I find it hard to believe they are all idiots, or are naive to the value of physical gold. Why are they so comfortable? What do they know that we don't, and what kind of physical purchase will it take to really force their hand? Nobody expected them to last this long, and given that they get to make their own rules, they clearly are not so easily dislodged.
One last question for Miked: You said our banks won't accept responsibility for our golden bucket if it's stored in their vault. Are you skeptical about the security of safety deposit boxes, and why, and are you referring to US banks?
Thanks to all here for the great dialogue.
Joel, which central banks are ignoring it? Not the BRICS.....not the ECB....
Why do you think the Fed is " ignoring it"? Or put another way, what do you think would happen if the Fed "acknowledged" the run on physical gold? How exactly would they do that? They send out proxies all the time to say that gold is worthless and try and talk it down- see Warren Buffet's recent comments. But they can't say anything, because to do so would give gold legitimacy.
Notice China's comments pre-visit: the dollar is a currency of the past.....that is pretty important signaling to ROW and to the Fed.
Hi Joel
I wasn't referring to US banks but I would be doubly worried if I lived in the US because of political risk.
I just worry that banks take no responsibility for what is stored in their boxes. I could not even find an insurance company to take on the risk of insuring the contents of a bank box because there would be no proof of what had been in there.
When you can't even trust the queen's bankers, who can you trust? http://www.telegraph.co.uk/news/uknews/1322068/Arab-prince-sues-Coutts-over-missing-valuables.html
Hi Texan,
Print or default?
FWIW I think that the ECB can print a much larger amount of Euro without causing inflation to get out of control.
IMO partial default (debt restructure) will be part of the solution but not yet awhile.
As someone commented above this could go on longer than many of us would imagine. 2013 keeps cropping up in reports and proposals coming out of Europe. Perhaps the timetable of the Euro Freegold/RPG sponsors has been shifted from 2010 to 2013 due to the GFC.
Of course the situation is far from stable. I wouldn't bet the farm on them pulling it off.
@Joel, just a suggestion but you might enjoy a book called The Fourth Turning, if you haven't already. It's a pretty dry read, but highly interesting at the same time. It ties in very well with Kondratieff Cycle, and also Martin Armstrong's economic confidence model work; both things I daresay you'll be familiar with already. It is no small part of the reasons I am so confident (and relieved!) in the coming turn of the socialist tide. And that in turn plays no small part in why I not only see Freegold as possible, but also very likely. Fiat to do well under rampant socialism, honest money under liberty.
Best,
DP :-)
Eric deGroot made some interesting comments regarding the nationalization of mines today on Jim Sinclair's website .....
jsmineset.com for those that aren't familiar.
Costata: please elaborate: "Freegold/RPG sponsors". This part is in fog to me.
mortymer,
I'm using the word sponsors as a catch all for the economists, Giants, political forces etc who are taking us "in this direction". (That phrase is from A/FOA).
I understood that to mean the transition to the Euro architecture as a currency model (or template) and Freegold as the valuation mechanism.
I'm happy to discuss this further but I will be short of time over the next couple of weeks. Apologies in advance if I am slow to respond.
Cheers
@ costata+ad [check dates]:
Another: "Mr. Markus Angelicus,
I read the gold-eagle write. You have made the link between London ( LBMA ) and South Africa."
Date: Sat Nov 22 1997 23:13
Markus Angelicus
The Rothschilds, LBMA, and Gold
http://www.gold-eagle.com/gold_digest/markus112297.html
Date: November 21, 1997
The moment I think I understand freegold and what is behind is just a pregnant waiting for next surprise. :o)
" The French House also controlled mining companies ( De Beers and gold mines in South Africa ) , metal plants ( Rio Tinto ), oil interests ( Royal Dutch Shell ) , and chemical industries (Morton, 1962). The Baron was estimated to be the richest Rothschild and probably the most multiple millionaire/billionaire in Europe."
"Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower, in short, what men should believe and strive for." F. A. Hayek.
Oldies-goldies:
http://www.gold-eagle.com/gold_digest/kutyn111597.html
http://www.gold-eagle.com/gold_digest/kutyn112197.html
Hello FOFOA, did you read feketes recent article ? he seems to be suggesting that we will have a deflation...
Oh no by mistake, he says what you have explained before
for the U.S. the forecast is
deflation first, hyperinflation afterwards
how does this fit into the Euro and Freegold? http://www.thedailybell.com/1690/End-of-Euro-Ireland-Prints-Own-Notes.html
Some very interesting (in relation rpg/freegold) point of views of Bernard Lietaer, (who was building the convergence system of ECU) about monetary future, different types of currency models and chaos theory.
Here´s part 1 of 3
http://www.youtube.com/watch?v=ltIidNNcVgo
TEDxBerlin video
http://www.youtube.com/watch?v=ltIidNNcVgo
Sorry, here´s link for TEDx Berlin. http://www.youtube.com/watch?v=nORI8r3JIyw
Thanks DP,
downloaded and reading it now. I need some pro-Capitalism hype to get me out of my Obama-induced depression, lol... Also, a simpler version of Hayek's economic control theory: "He who has the gold, makes the rules."
I still cannot find anything here addressing cons of debt as an inflation tax hedge. I know I will be "golden" in a pure freegold environment where gold vastly outstrips inflation; but any other iteration (where gold simply tracks inflation) WILL result in a loss of net worth under the current tax system here in the US, and I expect the tax rates on collectibles to get worse, not better. Hopefully, after DP's recommended reading I will change my view on that.
Texan,
I understand why the various entities continue to suppress the market and avoid acknowledgement of a run, and agree that some entities BRICs, ECB, China, India are definitely shoring up their balance sheets, many very surreptitiously. But did Gordon Brown, the IMF and others not get the memo? Seems to me there are still a significant number of sellers of physical gold out there. I can still buy more gold here than I can ever afford (Not a very high bar I am afraid, lol...)Just doesn't make sense to me that some of the bankers seem to get it, some don't.
One more question:
I buy into the paper market implosion, but one exception. GLD has it's bullion stored in HSBC London in an allocated account. Allocated means it is not co-mingled with other customers' assets. Per their prospectus, it is legally protected in an HSBC or their affiliate bankruptcy, as opposed to a paper contract that can be defaulted on and settled in dollar damages. So how does it fail?
@Joel: I look forward to maybe hearing your thoughts. Assuming of course you don't slit your wrists before you can finish it! ;>
Thanks mrbeyond - That first one's a great link to Bernard Lietaer discussing how the monetary system defines and shapes society -
"Money is the projection of the collective unconsciousness of a Society"
Oh an for those asking "when", Mr Lietaer believes the bifurcation will arrive in 2012.
>>I buy into the paper market implosion, but one exception. GLD has it's bullion stored in HSBC London in an allocated account. Allocated means it is not co-mingled with other customers' assets. Per their prospectus, it is legally protected in an HSBC or their affiliate bankruptcy, as opposed to a paper contract that can be defaulted on and settled in dollar damages. So how does it fail?
Confiscation?
Bernard A. Lietaer on Monetary blind spots and structural solutions 1v5http://vodpod.com/watch/3804419-bernard-a-lietaer-on-monetary-blind-spots-and-structural-solutions-1v5
Confiscation by whom? The storing bank? Don't see how they could pull that off. 1256 TONS, man. Larceny on a grand scale, people in jail FOREVER. In a crazy gold revaluation environment I would think the GLD folks would probably have someone sleeping in the vault as well. If, however, you are talking about confiscation by governmental authorities, you have that risk owning it yourself too--but granted you may be a little harder to find. Just doesn't seem plausible to me, but feel free to shoot holes in my theory. I like the liquidity of GLD, as it's a much easier and less expensive way to participate in the upside, but I remain nervous about default risk (even though I haven't heard a plausible mechanism for how it might happen.)
Good lecture by Lietaer, definitely has the problem nailed down, but his solution is goofy. Read his white paper (available on his website: (http://www.lietaer.com/2010/01/terra/)
Proposes the "Terra" as a global trading currency that would be "inflation proof, as it would be backed by "a basket of commodities including gold, wheat, tin, crude, carbon emissions?, etc...
Ever heard of a drought, or wars in the Middle East, or OPEC supply manipulation,? And don't EVEN get me going on carbon emissions. Yeah, those are great backings for our currency, lol. All hail the tin standard!
I contacted Peter Schiff on Schiff radio about freegold.
I just coundn't get it out. All I can conclude is
-Schiff has never heard of the freegold concept.
-Schiff has never made the connection with the MTM gold valuations of the Euro.
-Schiff thinks that all fiat currencies float against gold already.
-Schiff doesnt believe in any secondary gold markets or prices.
Hello Joel-
Does this help?
Thus, for example, when GLD adds a gold bar, there is no assurance that the gold bar really exists unless it is in the vault of the custodian, HSBC. But the prospectus discloses that HSBC uses subcustodians and even sub-subcustodians, and what's worse, "the Custodian is not liable for the acts or omissions of its subcustodians". In other words, if the subcustodian does not have the gold, GLD "Shareholders cannot be assured that the Trustee will be able to recover damages from subcustodians...for any losses relating to the safekeeping of gold by such subcustodian". This means that "Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust."
--Jenn
@DP
Yes. I believe in FIXED GOLD RATIO rather than a floating one as I'm from the Austrian / hard-money camp. I have doubts in central banking, government intervention, credit expansion and so on.
Ideally, under FG, people have the choice to use fiat or gold. My question is: Do they really? They can trade for gold all they want but what if they could not find sellers?
Think of this: Say I have gold while you don't. You are paid in FIAT and would like to have some gold so you wanna trade your FIAT for my gold.
I know full well that FIAT always sinks under government's control so I either refuse to exchange my gold for your FIAT or do it at an absolutely ripped off price at your expense.
My kinda reluctance is very likely. If people here already have doubt in silver, imagine how much doubt they'd have over FIAT now that under FG government overtly states it they may devalue FIAT to cover debt if necessary.
That's why I joked in the past, defining FG as "free debt / hoarded gold" (and upset someone along the way apparently).
Now what do you do? You might go back to your employer saying, "You know what? Could you change the contract to pay me in gold instead 'cause no one trusts FIAT?"
That's where I find FOA's proposal DANGEROUS where he said to the tone that by law public / private debt should not be settled in gold to create an artificially demand for FIAT so you have to use it.
Oh no, that sounds a little like coercion rather than liberty.
That's typically arrogant banker talking. Arrogant in the way that they think they deserve to arrange what kind money you should use instead of making it a free market choice.
I'm not saying FOA meant to be arrogant or harmful. He sounded a very nice guy but the result is the same. It's a dangerous proposal.
You might call it Austrian school bias but I consider government necessarily incompetent and corrupt so I don't see how a government w/ a desire to devalue and the tools to devalue would somehow not do it. I don't see how they can achieve the stability of a fixed-rate currency on a floating-rate.
So it's always our belief that a fixed-rate hard standard is needed to handcuff government from doing crazy things. Tools such as central banks to help government cheat should be abolished to keep government in check.
The notion such as devaluing a currency to prevent violence, imo, is simply socializing the loss and kicking the can down the road rather than fixing a problem head-on, and therefore should not be encouraged.
My 2Cs.
Rui,
if ratio gold/fiat is fixed or not most probably any person in the world that knows something about monetary history knows that fiat sinks ag. gold. The only difference is that in floating regime you notice the "sinkage" and in fixed regime you don't. I consider the latter far more dangerous to one's purchasing power because someday you may wake up and find out that you wealth just sank 50% because you trusted your government/politicians not to print or revalue gold. You're line of thinking appears to be trapped in "what should be" scenario.
Casper
Q: What will happen with the oil supply in a freegold system? Will it be held on full production?
@Rui: Thanks for clarifying your position.
I look back at the time when we had a convertible, fixed price of gold, and what I see is economic restriction. Since we have had soft money, I hope we can agree that society has enjoyed a sustained evolutionary leap. OK, not ALL societies then - but those who were (unfairly) able to take advantage of the present soft money reserve $IMFS.
The 1930's Great Depression was closely related to a scarcity of hard money. People hoarded their cash because they felt there was insufficient to go around. This became a self-fulfilling prophecy since the more scarce money was perceived to become, the more people hoarded what they could get hold of, and the lower consumer prices went because they would rather forego consumption and hold onto the cash. The prices of goods went so low that people could not economically produce, causing widespread unemployment. (This is a great simplification; I am aware that it was also further exacerbated by the actions of some business owners, as well as adverse weather conditions, but that is a whole different story.) The unemployed can't hoard cash, they have to dishoard it to buy the stuff of life, so they gave all their hard-won cash to "the rich", who then did understandably hoard it. This was hard money at its worst, no? This is why we shall never again "be crucified on a cross of gold". Hard money prevents a party getting out of hand, good news, but it also makes everybody go cold turkey when the music does, inevitably, stop. Perhaps it becomes almost impossible to restart the damn record player before the ice age sets in and there is like 90% unemployment or something. Disaster. Shall we start a big war? Perhaps that will finally start the record turning again.
Then I look at the opposite extreme we've enjoyed more recently, where there is no problem whatsoever with obtaining money. If there is any perceived or threatened shortage of money, more is simply pumped in. There is no limit to how much can be created, and there is no real way to measure what is out there and whether it's "the right amount". This was the formula for the longest party in history. It's also, as an Austrian I know you appreciate well, going to result in the mother of all hangovers though, at some point. For every action there is an opposite and equal reaction.
Freegold/RPG is the halfway house between these extremes, where the money is malleable but the issuance is measured (against the universal golden yardstick). If too much is pumped into the system, it will be apparent to anyone paying attention and they will act to put it in check -- they'll spend the money to buy anything that isn't nailed down, particularly gold if it is the barometer of all monies, before they get burnt. If there is too little, we'll start to see the consumers hoard cash and the ice of deflation will start to form as prices of goods drop due to lack of demand. So, this is why the ECB targets mild consumer price inflation - in order to ensure the Goldilocks economy; always not too hot and not too cold. There is no cross of gold that will see widespread and unescapable unemployment forced on society. There is no wild and unconstrained party either. A party, yes quite likely (everyone enjoys a party, right?), but not one where the furniture, pipework and wiring are all removed from the house before the parents get home, and everyone gets checked into rehab the next day. Perhaps a party where everyone gets all dressed up and sips cocktails, before going home before midnight to avoid the carriage turning back into a pumpkin.
So far, I don't think this is yet incompatible with Austrian theory?
Cont'd...
... cont'd...
Moving on to the scarcity of gold concern you express, I agree - for now. While gold is perceived to be underpriced, people will not willingly give it up. However, once it is unmanipulated and fairly priced, people will trade it for currency as and when they need to, in order to purchase goods and services that they desire. There will not be any problem with doing this, because the seller will have confidence that they will be able to buy it back again later if they want to, at a similar price. There is only a problem today because if you were to consider selling me a few ounces of gold today at say $1371/oz, perhaps because you won't be paid until next week but it is your daughters birthday tomorrow and you really want to buy her a car she has been banging on about for months or something, you would be reluctant to part with your gold for now because you feel like it could be a lot more expensive next week, when you will have been paid in your job and will wish to buy some replacement ounces for your personal reserve. If you no longer have this expectation there might be a massive increase, you will not be too worried about going ahead with the arrangement, and will value being able to make your daughter happy with the car on her birthday. You will no longer be reluctant. You might say you would prefer to hold the gold and take out a fiat loan instead, but by the time gold has reached its unmanipulated fair price, as long as the monetary authority is behaving responsibly with the currency, I don't believe you will think it is worth the trouble and interest involved. Perhaps I am wrong about all this.
To address your concern about coercion to use currency rather than gold, this is just the means to ensure the medium of exchange is always the one that is liquid, rather than the hoarded golden cross store of value. Hoarded gold is incompatible with maintaining consumer prices and therefore economic activity and employment. Central Planning by the Communists saw the government attempting to control the price of all things, which was clearly an impossible mission. The difference today is that the ECB are hands-off, simply monitoring the prices of a basket of consumer staple goods that are set in the free market, making short term adjustments to the supply of Euros in circulation, to maintain a stable (gently rising, to prevent deferred purchasing) average price for those consumer staples. This is different to the Fed/BoE/BoJ because the ECB performs short term, often 7 days, sterilised injections of cash into the system, whereas the others simply create new cash with (in my understanding) no expiration date when they will be taken out again. The ECB has stimulus with a programmed short term brake to ensure constant re-evaluation, while the rest only have an accellerator pedal.
I agree government politicians cannot be trusted, particularly with an unmeasurable money system. However, the ECB are specifically not politicians. But if you still don't trust them, you are at liberty to sell cash to buy gold, or something else, perhaps a better-managed currency, to keep in your long term reserves and preserve your purchasing power. Over the short term, only the very worst-managed currency (Zim$?) will lose enough purchasing power to make a significant different to you.
Seems like the folks at LEAP/E2020 believe mid-2011 (in their GEAB No. 51) will be a landmark, or 'crossroads', year. They don't mention gold specifically but, for me, they don't really need to.
LEAP2020 are just globalist scum repeating the MSM meme.
Wrong have they been too.
They expected GB to ask IMF for help in fall 2009.
They pledge for strong government which I call fascism.
Hi Fauvi. Interesting take -- I haven't before considered that they were advocating strong global government. I have seen them to be simply projecting events to come based on present realities, perhaps implying that meaningful regulation should be put in place to avoid the painful outcomes they forecast - which is how I personally see it; in spite of being a (classic) liberal I, against unnecessary State intrusion, there are some parameters where restrictions are necessary (eg: seperating retail and investment banking, for a start). Perhaps I am applying my own bias in this regard to what I have read; I should go back and take a look at their announcements again to see if you're right I think! To date, the bones of their forecasts I have seen to be broadly correct (perhaps the specific details don't come 100% true, as you say).
I haven't subscribed to read any of their bulletins, I only read their announcements with the summaries, which seem so far to me to be sufficient for my needs. Perhaps you have read their full bulletins, and this presents the reason you have this insight I did not [yet?] see?
Cheers! :-)
>>Hello Joel-
>>Does this help?
>>Thus, for example, when GLD adds a gold bar, there is no assurance that the gold bar really exists unless it is in the vault of the custodian, HSBC. But the prospectus discloses that HSBC uses subcustodians and even sub-subcustodians, and what's worse, "the Custodian is not liable for the acts or omissions of its subcustodians". In other words, if the subcustodian does not have the gold, GLD "Shareholders cannot be assured that the Trustee will be able to recover damages from subcustodians...for any losses relating to the safekeeping of gold by such subcustodian". This means that "Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust."
And let's not forget gold receivables. I am sure GLD has a lot of gold receivables on the books which may never get delivered in a crunch.
Joel - yes I was referring to government confiscation. I think political risk is the biggest with GLD, Goldmoney and similar schemes. If the government deems your gold necessary for the common good (and they could well do), beware.
@ Rui,
"I believe in FIXED GOLD RATIO rather than a floating one"
You are always free to believe as you wish, but how can you hope to understand Freegold when you have already decided on a diametrically opposed position?
The system you refer to as Freegold is not the one described by A/FOA/FOFOA. To understand another paradigm one must at least temporarily drop all beliefs pertaining to one's existing paradigm.
Your questions and comments are not relevant until you do so.
Eg:
"I either refuse to exchange my gold for your FIAT or do it at an absolutely ripped off price at your expense."
That "absolutely ripped off" price would be the current market price then, wouldn't it? Otherwise I will get it cheaper elsewhere. You can only set the price artificially high if you have cornered the market or are using force, and if the price is artificially high then the gold will not hold its value any better than the fiat, eliminating the reason for purchasing it at all.
A willing seller and a willing buyer make the market, setting the current price. The implication of your comment is that gold is dramatically underpriced, but you believe this "leap" in price is caused by someone being "ripped off". All it is really caused by is the removal of paper gold from the pricing equation, thus it would seem that paper gold is the real "rip off", no?
Hi DP!
I’ve only read one complete bulletin and I was not impressed. It was a superficial compilation of MSM data, they cover up European fraud and bash only Am/Br economics. They are definitely not neutral as they push the EU agenda. As about gold… no, I haven’t read any objective analysis. They’ve ignored Zoe/RPG, they’ve ignored every European issue.
They are just some shills with an agenda. Take a look at the articles on their blogroll!
A Spiegel article pleading for big gov’t!!! They are reps of EU socialism! Damn, people pay
money for disinformation, I makes me puke! Sorry for my verbal brutality!
Again, thanks for the further interesting view on the LEAP people. I can much more easily detect a potential pro-European whiff to their bulletin summaries, although to be honest with you I personally agree with their implications that the policies and actions taken in the Eurozone are in fact superior to those in US/UK, beyond the short term at least, so I have myself overlooked this whiff until now. Only time will tell us if they are just biased or it does happen to be correct! I have taken on board your insights and will certainly apply them in future when viewing their pronouncements as they arrive.
Prost! :-)
Fofoa & followers.
Something happened around the time tht Another stopped posting.
It effected & delayed his predictions
& he knew it.
Is anyone brave enough to join the dots ?
911?
unqualified guess?
@PMI
How would costly war delay his prediction ? It would speed them up. A 911 connection is BULLSHIT, don't go there.
Hello Miked-
"Joel - yes I was referring to government confiscation."
Ain't gonna happen. The big G played that card on its citizens in 1933 and then again on the entire planet in 1971.
Besides, trying to obtain gold through confiscation doesn't get you much gold. Offering a large currency price for gold however, will pull gold out of the wood work like a Walker Magnetics National Suspended Electromagnet.
--Jenn
@ PRECIOUS-METAL-INVESTMENT:
"Something happened around the time that Another stopped posting.
It effected & delayed his predictions & he knew it."
Just a brave guess: The first version of the Central Bank Gold Agreement (CBGA) was signed on 26 September 1999.
However, by 2009 the CB gold sales dwindled and are now no more. One impediment removed: CBs are now net buyers.
Hi Laszlo, I was just thinking about same lines. I may be wrong but look at what has been written by Another:
Date: Wed Nov 05 1997 20:33
The oil and gold connection looks to be changing now! After all these years we hear of an end to foolish thought. This should get very interesting.
Date: Fri Nov 07 1997 21:59
How do you get oil to rise? Today, we stop our CBs from selling gold!
wiki:
The Washington Agreement on Gold was signed of 26 September 1999 in Washington DC during the IMF annual meeting.
(So, how long did it take the German Bundesbank to cook the agreement and convince others to join?)
@DP,
If you found GEAB No. 51 informative for their 2011 anticipations, you'd positively love the 2010-2020 anticipation book "The World Crises - The Path to the World Afterwards" by Franck Biancheri on the E2020 team. Excellent work on the financial/economic/geopolitical crises and its plausible unfolding. An unashamedly pro-European global perspective, only tangentially advocating physical gold - certainly no fountainhead of Freegold/RPG wisdom, not aiming to be. After reading each monthly bulletin, I am motivated to buy another ounce of gold due to the big picture. Actually, I find it antidotal to MSM. A worthy geopolitical counter-point to the also very intelligent, pro-American establishment views of Stratfor.com/George Friedman, not surprisingly having no affinity to any form of gold. Make your pick.
@mortimer,
"Date: Fri Nov 07 1997 21:59
How do you get oil to rise? Today, we stop our CBs from selling gold!"
Yes, you nailed it with a direct quote from Another, thanks!
With the Weimar and post-WW2 hyperinflationary experiences burned into their national psyche, I doubt the Bundesbank instigated the betrayal, right under the noses of BIS. Remember, there are occupying forces present in Germany to this day, so their room to maneuver may be limited. Call me cynical, but I suspect subversive, anti-European scheming by Goldman-Sucks, for profits and/or as agents for the $IMF. Remember it was GS who cooked the Greek books to get the Greek Trojan Horse inside Fortress Europe. Consider the Treasury-Fed-GS revolving door.
@ M
"How would costly war delay his prediction ? It would speed them up. A 911 connection is BULLSHIT, don't go there."
Apologies... it was FOA
" FOA (9/29/01; 16:52:01MT - usagold.com msg#108)
Back on the trail.
Hello everyone!
Well,,,,, I have been home for a few days and my travels were more an adventure than a vacation. During this period of terrible tragedy for our nation, and pain felt for those lost in the destruction, my little world was only shaken in comparison. Still,,,,, almost all my communications was lost for weeks.
I'm back now and am facing a mountain of communiqué from friends and associates. With all that is currently going on I have no intentions of "catching up" with the news thread right now. I just try to jump in as I am able. Truly, this is an unspeakable turn of events and only moves our events timetable that much further ahead.
Michael, Randy,,,, all,,, I'll be back later.
TrailGuide"
Apologies for my random posts above. I shouldnt post when tired.
What I should have asked, is whether anyone believes that events on that day delayed the expected event.
Great new post Fofoa,
I'm still wondering how freegold outweighs default in the future? Are you saying the lack of fractional reserve gold will keep governments honest with their fractional reserve fiat currency? I'm wondering why there won't be another freegold revaluation 50 years later when the debts have once again risen to unsustainable levels?
Regards,
Butch
@Laszlo: Thanks also for your views on LEAP. I agree Stratfor provide a good, but US-centric, complement. Again, I have not seen the need to subscribe but just find the free publications are enough for my purposes. I now look forward even more to reading the book, which I had ordered a few days ago for my bedtime reading pile... Cheers! :-)
@PMI: "Truly, this is an unspeakable turn of events and only moves our events timetable that much further ahead."
You imply you take this quote to mean that events will be pushed further out into the future, however to me it reads more like he meant they would be brought closer -- as in advancing that much further ahead along the trail/timeline, rather than moving the objective further away. It is written in a vague way though, it could be taken either way. For my part, I don't see that A/FOA were able to provide any timing guidance, but just laying out the inevitability of the path that we're on. Clearly, this thing is able to stretch out a lot further than anyone discussing it back in 1997 seems to have thought possible -- I sometimes wonder if it can be stretched out a lot further still, perhaps further than many of us can afford to wait! :-D
@Laszlo: continuiing on the previous:
Another: Wed Nov 12 1997 20:41
"A BIS meeting was held and from those doors the world did change. The Bundesbank has now made clear to all what will now be policy for CBs. A crisis is at hand! All physical gold sales will stop. All gold lending will wind down. We will see the results of this as a massive scramble to cover open positions slowly unfolds. All of us will see the destruction of the gold market as we know it, LBMA will be no more!"
-> So it seems this crises has been maintained or postponed.
@Jenn
[..] but can you elaborate on which aspects of Freegold mechanics you are interested in?
Well, in (my understanding of) the Freegold concept, the gold price would not be fixed like under previous gold standards (hence 'free'), but gold would still prohibit governments from spending too much and running up too much debt.
The latter assumes an official role for gold in global finance. To my mind, and from what the Worldbank president has been hinting at, this would mean in practice that nations will have to settle trade imbalances in gold. That way, for instance, it would become impossible for the US (and increasingly, Europe) to keep on appropriating and squandering so much of the world's resources without actually paying for them (it would not necessarily keep governments from running up high domestic debts though).
With today's huge trade imbalances, such a system would greatly increase the price of gold. But once gold begins to reduce these imbalances, its price would decline again. So, I do not subscribe (yet) to the idea that gold, under Freegold, will remain extremely valuable forever. Neither do I believe that people would use gold only as a store of value, and fiat currency only as a means of exchange. Gold as such doesn't generate income - you have to obtain currency by selling or loaning your gold if you want to invest your wealth and use it to generate income and more wealth. I don't see how Freegold would change any of that. In contrary, Freegold should only make currency stronger.
Anyway, to figure out what the future may hold in store for us and for our gold, I think we should discuss, in very practical terms, how gold may be officially re-implemented, what would lead up to it, and what the consequences of such a scenario would be.
@Warren
Midas II, Laszlo, have you checked out the archives?
Yes, much of them, but they do not answer my questions. I enjoyed seeing these words beneath Fofoa's original Freegold article (http://fofoa.blogspot.com/2008/09/freegold.html) though: "I had been more focused on the practical mechanisms for it [Freegold] to come about, and why that may happen very soon." -- those mechanisms are what I'm interested in too.
@thedeadfauvi
When asking such prosaic questions here you might be seen as intellectually not being up to understanding this subject.
Ha! Isn't that the irony of intellect. One becomes smarter by asking questions, but at some point his questions become too difficult or too controversial to still find answers. I like to think that a bit of heresy does more good than blind belief though.
@Martijn
From the way I read your comment [..]
Well, you mis-read it and jumped to the wrong conclusion.
@ Butch,
Freegold floats. That is self-regulating.
There is therefore no need for a "future revaluation", as gold is automatically revalued against currency 24/7. The system never gets out of balance. Gold moves proportionately with currency/debt. The system becomes sustainable.
Genuine question.
What role do the SEC enforcement office & the CTFC play, in relation to Gold ?
FOFOA
how about insert clever image here
my FOFOA basball cap?
http://www.youtube.com/user/dojufitz?feature=mhum
scroll down a little.....btw i do get alot of questions....whats that stand for? Plenty of people are interested when i try explain it.
@ PRECIOUS-METAL-INVESTMENT
Well, I asked the identical question at here:
http://fofoa.blogspot.com/2010/01/living-in-powder-keg-and-giving-off.html
... and received the following answers:
Please note that the Asian debt crisis costata refers to includes the following as well:
Koreans give up their gold to help their country
http://news.bbc.co.uk/2/hi/world/analysis/47496.stm
------------------------------
costata said...
......
Tekin,
I have been accumulating some evidence that supports the theory that in the period 1997 to 2000 enough gold was shaken out to postpone the imminent crisis that Another seemed to be expecting.
The sources include the Asian debt crisis, Russian debt default, Brazil, pressure on the CB of subservient "dollar bloc" countries and developments in the gold mining sector itself.
If correct, perhaps this was what allowed the PTB to kick the can down the road.
February 11, 2010 4:12 PM
-----------------------------
mortymer said...
It took me some time to find out this information :o) I wander why it is nowhere to be found.
"Czech rep. sold their gold in September 1998 in two rounds. When CSFR (CSSR) split to Czech and Slovak rep. it had 102t, it was split to 63,289t and 39,137t. The first part of selling was 31t. Now Cz.rep has 13t.
Timing: http://www.the-privateer.com/chart/gold-pf.html
Buyer? Germany. For what? For some debt cerificates.
I remember Fekete told the same story about his Hungary and the same goes for Poland & other East European + Baltic countries.
February 12, 2010 12:13 AM
PRECIOUS-METAL-INVESTMENT and Tekin,
This document was recently obtained by an Australian newspaper under a Freedom Of Information request.
http://www.theaustralian.com.au/news/nation/reserve-banks-gold-sale-cost-us-5bn/story-e6frg6nf-1225985231872
"The RBA revealed in July 1997 that over a six-month period, it had sold 167 tonnes, reducing Australia's reserves to just 80 tonnes. At this time, the value of its gold assets fell from $3.6bn to about $1.1bn."
"The RBA's sales pushed the world gold price down to an 11-year low, returning just $2.4bn for the gold that was sold via a single broker engaged without a tender." (My emphasis)
Does that sound like a commercial decision (and process) or a political decision?
So, Joel, I was wondering whether you made it far through The Fourth Turning by now, and if so, whether it did help to put your mind at ease on the subject of the death of socialism?
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