Sunday, February 13, 2011

Defending the Precious

This blog must be confusing to first-time visitors. I can only imagine. I remember the first time I came across an excerpt of ANOTHER's writings posted in a forum thread. It was a bit strange, but somewhere deep inside of me a spark was lit and a hunger began to grow. The excerpt I came across was on a popular thread asking other participants what they thought about the quote. No one ever responded. ANOTHER went completely ignored.

After that I spent about a month reading the archives, soaking them in, and trying to wrap my head around what I had found. Then once I had a pretty good idea of just how big this thing was, I went on a quest for someone, anyone willing to talk about it. But this Freegold view, it turned out, was either banned or ignored on every forum I tried. I even had my account deleted on one forum for mentioning Freegold and ANOTHER. Eventually, sometime after I started my own blog out of pure frustration, I did find a small group, maybe a couple dozen people, that had been discussing events as seen through the Freegold lens, but it was no wonder I didn't find them sooner; it was all in Dutch!

Today my stats report tells me that in the last 12 months this blog has had 267,000 absolute unique visitors who visited 900,000 times and clicked on a total of 1.35 million pages during those 900,000 visits. That since Feb. 13, 2010. For the last four or five months, it has been around 100,000 visits per month. Seems I've found a few people to talk to now! :)

While this is very exciting, I am still conflicted about the concept of promoting my view. Many have offered me the means to drive traffic to my blog in the thousands. But this thought makes me very uncomfortable. I remember that little spark that was first lit deep inside of me, but now with a wider perspective I can see how rare it is that one gets caught up in the hunger for more that I experienced. And it is for this reason that I do not promote my blog. In fact, I never even send people I know to my blog. Not family, not friends, not even my gold dealer friend. He does not know that I am FOFOA. This blog is simply too… what's the word I'm looking for? Abstruse? Esoteric?

I am aware of this, and I am fine with it. I do realize that I am not simply extolling the known virtues of gold repetitively. There are plenty of places on the Internet where you can find that kind of sustenance, if that is your hunger. What I try to do here is to push the envelope of understanding… in plain-spoken English. And I am continually amazed that a few of you are right up to speed with me, so much so that you can actually pick out that same brightest point of light that I too saw when writing a post.

After reading The View: A Classic Bank Run, Blondie wrote a comment that knocked my socks off. He wrote:

"I read this to find FOFOA has cut the Gordian Knot which was the cryptic words of Another. Seems he was simply telling it as is all the while, but the ascent to the spot from which to see it was the difficulty, and yet the view is relatively simple.

"And the implications are... fairly urgent.

"A highly recommended investment of one's time, in my humble opinion."

While I covered much ground in that post (as I usually do), what struck Blondie like a lightning bolt was exactly the same thing that to me was the pinnacle of the post. I saw maybe one other comment that revealed another reader saw the same thing as Blondie. You see, unless you have read the ANOTHER archives at least two or three times and spent some time quietly contemplating the deep meaning in his words, you could have easily missed the significance of what Blondie found in that post. But that is why I write. Not necessarily for the masses, but for Blondie, and a few others. And I know that one out of (gosh, I don't know how many) will also experience that spark and the hunger that follows. There are few personal experiences as rewarding as a light bulb suddenly lit.

I remember this song from church as a little kid. It went something like, "This little light of mine, I'm gonna let it shine…" This is how I try to live my life. I lead only by example. I may not send my family and friends to my blog, but I am not shy about sharing the peace of mind that gold has brought me after leaving the stress of stock marketing my savings. And I suspect that each of us has a light inside that is worth sharing with others.

I would like to share with you an email I received last week from someone who got "the hunger" a while ago and then read through not only my entire blog, but also the A/FOA archives twice. Jenn is an FOFOA supporter and also a commenter on the blog. Jenn works at a college:

Speaking of funny, a funny thing happened to me yesterday.

The day before yesterday I was reading one of your older posts -- can't remember which one -- and a whole slew of things started to click for me. Anyway, for whatever reason, I thought to myself, "Good thing I have this new understanding. I bet you that means I'm going to run into Robert soon (the former chair of the econ department) so I can try to explain Freegold to him again. Well wouldn't you know it, yesterday I head over to the student center around 9am to hear the president's speech. The president of our college has been meeting with the 700 faculty/staff about every 3 months with updates on our budget challenges (they are basically asking us which benefits we are willing to give up -- faculty are unionized, staff are not). So I show up, get some coffee, and who walks in the student center and looks right at me? Robert! He comes over to say hi, I return the salutation and ask him,

"So can I try to explain Freegold to you again?"

"Sure" he says. So we sit at the same table and I start talking about gold and he says to me,
"Bad idea."

"What's that?" I said.

"Going back to a gold standard" he said.

"No Rob, not a gold standard. The world is never going back to a gold standard."

So I keep talking and 3 or 4 more times he says,
"I can't understand what you are talking about if it is something other than gold backing a currency."

So I say to him,
"Okay, think of this. Imagine you buy an AM/FM radio in USD for say, 10 bucks, then go to Japan and see the same radio for 900 Yen, do you see how this radio can be priced in two currencies?"

He says,
"yeah, that's called purchasing power parity".

"Exactly! Now think of gold in terms of purchasing power parity".

So he thinks for quite some time and says to me,
"So, countries are going to settle balance of trade in real gold?"


"And who is going to clear these trades?"

"I'm not sure, but my best guess is the BIS."

"Do you own gold?"

"Yes, I own gold."

BIG SHOCK. He moves his chair back.

"How much?"

"I'm not going to tell you that Robert. Why don't you tell me how much you have in your retirement plan, how much your salary is, and how much debt you have?"

"Which one should I answer first?"

"Rob, I'm not going to tell you how much gold I have."

"And when did you start buying?"

"Oh, I made my first purchase back in 2005. But I started trading silver for gold about 3 weeks ago."

"But wait, then you were steering Joe (another economics professor) in the wrong direction when he bought those 20 silver eagles!"

"I hear ya Rob. I didn't understand back then. But silver is still going to hold up in hyperinflation, it's just not going to perform the way gold is."

"Why won't it go up in value like gold?"

"Can you show me a central bank with silver on the asset side of their balance sheet."

"Ah. I see." he says.

I said to him,
"You should buy gold too."

"I can't afford gold", he says.

"Sure you can. They sell 1/20 ounce eagles at the bank down the street for $75."

Long look from him again -- and then a big smile.

"So ok, can you give me something short to read?"

"Robert, I can't. You've got to read a couple of thousand of pages to get this concept."

"C'mon Jenn, isn't there something short you can give me?"

Knowing that he also studies oil as do I, I printed out Aristotle's 5 part post from the Hall of Fame. That should get him thinking, don't cha think? ;-)

Anyway, I'm PUMPED he's finally starting to understand. He still uses me as an example in his classes (without using my name) as the one that goes to the bank every so often to exchange FRNs for silver eagles. "Not anymore" I told him. "Tell your students that now I only buy gold -- and now that we've had this conversation you can tell them why."

Being able to bring that kind of understanding to professor of econ that will be teaching for years to come -- and no less a Keynesian(!) -- is just incredibly awesome -- and I have you to thank for it.


No Jenn, YOU rock!

I would now like to thank Jenn and several others (you know who you are!) that have been consistently contributing to my "gold defense fund" since June, multiple donations, as many as twelve from one supporter, to enable me to keep this blog going at a consistent pace.

But why do I need donations, you ask?

Well, I used to be a small business owner, but today this blog is my only job. And the funny thing about running a not-for-profit blog that I'm finding out is that it doesn't generate income. Now I have modest gold savings, modest living expenses and almost no debt. And no, I am not a Giant pretending to be poor. In fact, I'm not poor. I simply have no income with which to defend my gold savings against my expenses. And frankly, the defense of my savings against the call of expenses is my top priority, although this blog is a close second.

None of the donations that have come in have gone to buy me more gold. They are only used to defend the gold I already had when I started this blog two and a half years ago. And I want to thank all of you, from the deepest recesses of my heart, that have made it possible for me to keep writing during this most-interesting (and important!) period of time. The amount of content you see here is the result of a full-time effort, whether it seems like it or not.

So here's the thing. I can get a job if I need to. I am somewhat competent in several areas. And I will take a job before I have to sell one single gold coin in order to meet my humble expenses. And while the donations so far have been absolutely stunning, there is a reason why I am making this post right now. As much as I detest having to write posts like this one, I must, in defense of the precious. If I have to take a job in order to defend my gold you will see a lot less in the way of contributions from me on this blog. So if you value this forum of discussion, please consider lending me a little support.

There are around 3,000 of you that come here every single day, some more than once. 200 of you have supported my gold defense fund enabling me to focus on writing about Freegold. To the other 2,800 of you, I ask, please consider a small donation relative to how much you value my efforts. I know some of you do not value my efforts and you only come here for the opportunity to make that clear. If that is you, you do not need to contribute. You can continue coming for free.

I do not publish a list of donations, but at this time I would like to thank some of the public names that you all know; those that have supported my ability to keep this blog going through monetary donations. If I missed your pseudonym, please send me an email and I will add it to the list. Likewise, if you want your name off the list let me know. Like I said, there are 200 of you so this is only a list of the names everyone should recognize. Again, thank you deeply to everyone who supports this effort!! The list is in no particular order:

Randy Strauss
Eric Lemaire
Aragorn III
Rocky Racoon
Jeff Allen
Golden Tube
Greyfox It's the Debt Stupid

We all need to defend our treasure. I simply need your help. If you appreciate what I am doing here and would like to contribute to my ability to keep doing it, you can do so by clicking this button:

Thank you very much!



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DP said...

To those among you who happen to visit my blog from here, please be aware that all AdSense revenue there will be donated to FOFOA as and when the threshold is reached and a cheque comes to me. There is not a great deal of traffic, and only 1% of visitors to date click an ad, so it might take a while before the cheques get cut - but every little helps.

So if you wish to help FOFOA, perhaps in addition to directly donating cash here, you might consider habitually clicking on an ad at my place too when you are visiting anyway.

I did try putting up a notice to this effect on my site, but Google were very quick to spot it and shut me down sharpish! :-D (Fair enough...) Hence I post this note here instead. ;-)

costata said...


Interesting stats you quote:

Today my stats report tells me that in the last 12 months this blog has had 267,000 absolute unique visitors who visited 900,000 times and clicked on a total of 1.35 million pages during those 900,000 visits. That since Feb. 13, 2010. For the last four or five months, it has been around 100,000 visits per month.

And yet... and yet:

"There are around 3,000 of you that come here every single day, some more than once. 200 of you have supported my gold defense fund enabling me to focus on writing about Freegold. To the other 2,800 of you, I ask, please consider a small donation relative to how much you value my efforts."

Probably an unrealistic hope but it would be nice to see the 2,800 kick in a few bucks and even better as well if the "100,000 visits per month" for "the last four or five months" kick in one US dollar each. Easy. No pain.

FOFOA, so that we can continue to discuss Freegold-RPG and hyperinflation in an open, free, generally intelligent* forum I'm in for AUS$500 that used to buy US$250 a few years ago, then US$350, then US$418, then US$498. Meanwhile gold (in both currencies) has ......

Thanks mate, keep up the good work.


* If you think the comments section of this blog is infested with idiots, you need to get out more.

Yannick said...

FOFOA, average Joes have difficulties to understand Freegold because they do not see how it will happen, concretely in their daily lives. They don't understand ECB balance sheets and have not the capacity to read and understand your posts.

May I try to submit a small scenario, that have so far successfully initiated some relatives to Freegold?

"Imagine you have worked a lot, and you saved $100k in retirement. Everything is fine. Now prices are starting to go higher, slowly, then more rapidly.
Now, every year, all the prices double. So you loose half your purchasing power every year. You will want to save your retirement at any cost, right? You worked for it, and you cannot keep this money that loose value. So you will want to exchange it. For what? Real estate? Price are falling. Stock market? Risky. Bonds? Have you seen Greece, Ireland? (Then I ask for others options... and after a while:)
No, what is the only thing which is in (almost) fixed quantity and cannot be printed? Gold. You will naturally tend towards gold. Like during all human history.

BUT gold for your savings only. Everything else will stay the same, euros/dollars/whatever for job salary, buying groceries.

(Then I explain why prices will go up: some quick explanation about money creation by loans, and QE, and govs inflating their way out of debt).

So everybody will go naturally towards gold for savings again, as it was done before in history."

OK, not perfect, but at least they get the idea.

Jeff said...

OK, I admit it; I read this blog daily, including the comments. I even read the full goldtrail, thoughts of another and the USA Gold archives, so I must be an addict.

You can have some of my fiat, so I remain a FOFOFOA in good standing. Cheers!

David said...

I'll be donating again. Although I don't seem to have the capacity to understand all of FOFOA's writings, I get the concept and appreciate his efforts.

I'm also grateful to FOFOA for turning me from a 'silverfish' to a 'goldbug'. My "gut" has always told me that gold is better to have than silver in the grand scheme of things, but FOFOA laid out the reason why this is so.


Museice said...

We pay teachers for our children.
I will pay FOFOA for his/her lessons.

Think about the value of a single piece of FOFOA's teachings. Each written lesson, with all the professional commentary from around the world directly focused on the class at hand, is worthy of compensation.

I will help defend the 'Precious'.
Kneeling, I am your humble servant.

Patrick said...

send some paper soldiers.. they still are usefull.. but they will get killed in action...

a platoon is on its way

Dante_Eu said...

First small donation done and more is to come. I hope to be monthly subscriber. :-)

Thank You FOFOA!

PS Here is a swedish punk/rock song "Kulisser" or "It's all smoke and mirrors". Enjoy: :-)

Greenie said...

FOFOA, I have not donated any money and possibly will not be able to in the near future, but I keep recommending your blog to all of my blog readers, friends and family as the best financial blog. The honor used to go to Mish before, but he is demoted to #2 now. Please keep up the good work !

Personally, I expect freegold to arise around 2016. I would like to see money crowd into long-term US treasuries first. You know that US treasuries had been in a bull market since 1982 and the bull market is supposed to end some time. However, bull markets do not end with extreme pessimism as US treasuries encountered during the entire period. Until US treasuries are universally accepted, no freegold transition is expected IMHO.

enough said...

Greenie and all,

it does not seem necessary to me to publicly state whether you are /have/can/will/ donate or not. Just do it or dont.

IMHO if you spend time here you should give something. If you do spend time here then you have the TIME to spend here. If you have the time to spend here then you must have ENOUGH financial resources not to be out at your 3rd job.......

The things that are offered freely in this world are the ones most deserving of reward. Quite like that...have to remember that one :-)

Dostep said...

Done it, I think:)
Thank you for what you're doing.
Having said this, could you please stop/slow down? Leaders must be protected. Get them jobs please and buy more silver. [I have read enough to know I am creating a diversion here]. The reading material is enough for months. Stockpile of food and a deal with a local farmer will protect your [real] money very well, I think. Can't produce much more sense at my level of understanding. Looking forward to posting something more sensible in the months ahead. Respectfully, a [tiny] silver bug with a [microscopic] position in the other department:P

forestgump said...

First post after months of reading and slowly getting the big picture.

I am from Germany and my english should and could be better.
Therefore just appologize some typing errors ;-)

Fofoa, I started buying gold early last year but since my first read on your Blog , I not only apreciate your extensive detailed explanations but also enjoy all disscussions here.

Since 1 year now I never missed one article nor any comment.

Therefore I do thing it `s realy time to send you some digital money ;-)

Actually this blog did help me even during the small downtimes last summer to buy not only the dips ( in Euro) but also since then acumulation on a monthly basis kinda like a savings plan.

I remember when I did ask my banker about gold and he was stunned when I asked him to sell some to me.
Well he asked me if I did`nt know that I would buy at an all time high ;-))
Actuallly this would have been true for a lot of times since 2001.
You should have seen him when I neglected his offer for gold certificates.
But I guess this has happend to most of you as well.

To bad that I missed thes opportunities, but better be late then never ...

Thanks a lot for all these huge basic information offered in the Goldtrail and all articles here.

greetings from germany

DP said...

Caixin online: Liquidity Crunch Hangs China's Banks on a Drying Rack

Wonder what all those Chinese savers are putting their cash into instead of bank savings accounts?

S said...


Thew article in De Speigel is a must read on German politics and the Weber departure. Merkel is under assual from both parties and her policies on Europe are being rejected across the continent. As if to add insult to injury the Constiutional Court is said to be still in play. Taken in the context of the Irish opposition minister saying Sr bondholders may take a loss afterall and the Euro situation grows more precarious by the day. The comments by Axel Weber on the reason for his departure are particulary interesting for their degree of resignation.

S said...

"Last Wednesday, however, the morning discussion was abruptly interrupted. The ministers belonging to Merkel's center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), were just perusing the first items on the agenda when a Chancellery employee told Merkel that she had an urgent call. Jens Weidmann, Merkel's economic advisor, was on the line to tell her that Axel Weber, president of the German Central Bank, the Bundesbank, intended to announce his resignation that day.

When Merkel returned, the cabinet members could tell by the expression on her face that something very unpleasant had happened -- so unpleasant, in fact, that close associates would later call it a "catastrophe." Merkel conferred briefly with Finance Minister Wolfgang Schäuble before calling Weber. It quickly became clear that there was nothing that could be done.

He had given careful thought to his decision, the banker told Merkel. He said that he felt isolated as a result of his strict, anti-inflation policies, and that he was practically alone in his views within the European Central Bank (ECB). Under these circumstances, Weber explained, he could not continue in office, and certainly could not become ECB president."

Der Speigel

Mike said...

Hello FOFOA,

Surprised i was mentioned.
Just so you know i am clicking on the donate button right after this post. i will send money using a different email that i have associated with paypal but ill leave a comment.

I stumbled across this site about 14-15 months ago sometime in the fall but don't remember how, but i guess via some link on a forum.

I too had read some of your current posts only before hand and I remember asking a lot of questions on the subject (a lot that could have been answered if i would have read more of yours/Anothers/FOA's work) and i can say a lot of new theories that i didn't know came my way thanks to yourself and others answering my questions(costata, blondie, alexsander, ender, etc...)

Since then i have learned a lot more about freegold reading the majority of your posts several times and i spend more time reading the comment section then anything else.

i use to follow the likes of all the other gold/silver analysts (ie Jim Sinclair, James Turk etc..) but now pretty much just follow this blog and a few other ones but i take it with a grain of salt on what others say.

All i can say is keep up the great work you do and i hope you don't leave like FOA/Another did. I have some other friends who have checked out this site and have been impressed with the different view points also. You have lots of followers up here in Canada now.

. said...

Speaking also as a "former small business owner" who is also simply trying to defend what little gold he's hoarded previously, I also wish I had the discretionary funds to support your effort. As one who enjoys thinking for its own sake, I can assure you that your blog has been a pleasure to visit. Unfortunately, my wife would object most strenuously to any deviation from The Budget --but I'll see what I can slip you under the table :)

That said, I have to say that 'Defending the Precious' has raised a couple of questions, one trivial and the other, perhaps a bit more pertinent.

First of all, by my own lights, it seems to me that 2011 will bring truly major changes. Red flags are springing up everywhere. Should everything spoken of on this blog come to fruition, isn't its purpose about to become obsolete? In other words, what preparations are you making to deploy or defend your gold in the event of a Freegold revolution?

Secondly, I'm trying to get my head around the implications for silver. You point out that no central bank has silver on its balance sheet. My gut response is: So What?? Do we really care? And why? What are the practical implications? Just because they (these branch offices for global crime syndicate) may still be standing tall after a global conflagration of paper assets, and, if so, may very well act as the primary clearing houses for international trade settlements, in what way does this really make gold superior to silver as money?

True, silver corrodes, while gold is the more noble element. But I can assure you that what silver I hold will not be corroding away in my lifetime... So what, really, is the source for the primary distinction you are making?

Thanks, FOFOA! I think that, all in all, we are on the same page and I sincerely appreciate your work.

old-swift-boat-vet said...

First comment here, but have been reading posts and archives for a couple of months also.
I think I have the basic concept down pretty well and must say that I believe we will go to a Freegold system after this fiat mess collapses. I have been a super silverbug because I remember discovering, after the fact, in 1980, that my silver purchases (made because there was no gold to be had) made a better %age gain.
After studying here, I've decided to swap my silver into gold as the GSR declines. I've decided to start at about 30-35 to 1 and continue it approaches historical ratios. I am hoping, and do believe, that there is time enough left for my plans to complete before Freegold.
I have come to respect the opinions of a lot of the contributors here, in addition to FOFOA and any discussion about the errors of my ways will be seriously considered. I know a lot of silverbugs and have already informed my local PM dealer of my plan so he is ready. Thank you again FOFOA and all.

Joel said...

I set up a Paypal account and must wait 2-3 days for confirmation deposits, but a donation is forthcoming. Thank you again for all of your work. I do not find it abstruse at all, in fact I sort of think of you as my "translator" for Another's writings. His (at times questionable) command of the English language, and esoteric style is often difficult for me to grasp, and you have a knack of putting not only his thoughts but many times thoughts of others on the site in layman's terms where I can understand them. I can't tell you how many times I have read people's posts, not fully understood their point, read your reply, and based on an analogy or refutation of yours, gained understanding of their point. Keep it up, man.

drillfillbill said...

A small donation from my 4 month old son as well. He will know that you were equally responsible for his very sound finances. Keep going. As time goes on life will throw in more challenges, you might be among the few who could perhaps answer those questions.

Pete said...


Is there another way to donate other than signing up to PayPal?

@ .

There are plenty of silver articles on this blog that cover the kind of things you ask.

Start here:

The Dork of Cork said...

Funny you should say that , I was removed from a Blog recently when I mentioned the efficiency of the Irish economy and society was collapsing as a result of the fact that the medium of exchange function of money was being peverted by hoarding , I mentioned some other pseudo freegold concepts and my account was wiped withen a few hours.
Needless to say I went out and bought a Gold Maple.

Something is happening.............

Robert Leroy Parker said...

I wonder how difficult it is to not tell your friends that you're fofoa. I wonder if one of them will deduce it on their own some day soon.

The Dork of Cork said...

Incidently what do you think of Warren Moslers appearence on CNBC and his MMT beliefs - I think theres something to it - giving new money to goverment seems different then adding lets say the M1 to the euro balance sheet.
Also does this money have any assets and if not has it a liability ? or is it just money ?

I have asked similiar questions about the Irish central banks money creation - the assets of this money seems pretty vague and there seems no clear explanations.

Its all very strange to a mere Dork

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

1. Excellence; worth; a claim to respect
2. Something that deserves a reward or commendation
3. The state or fact of deserving
4. To be worthy of; deserve

FOFOA is deserving of our continued support based on merit alone. He has gone where none others have since FOA/A. Many have thanked him and espoused their appreciation for his efforts to teach and inform. As I stated previously, “you can’t put thanks/appreciation in your pocket” and it just won’t pay the bills. Please consider responding accordingly.

Robert said...

DoChenRollingBearing will be making a contribution as soon as he is back, STUFFED with mahi-mahi from Costa Rica!

Thank you, FOFOA, for your unique insights into physical gold, perhaps the MOST important gift you give us...

(Excuse any incoherence, I blame it on Costan Rican rum and beer... :)

costata said...


There's an excellent critique of MMT Chartalism over at Jesse's Cafe Americain.

I have had a few discussions with MMT proponents on another blog. If you look at the math of MMT in a "vacuum" it looks sound. Part of the appeal appears to be that MMT responds well to a double entry accounting treatment without the legal contortions required under the present $IMFS/banking regime. IMO this gives it a veneer of scientific respectability.

The cracks start appearing when you attempt to factor in floating exchange rates along with international trade and capital flows. Adverse international reactions to domestic economic decisions can easily blow up the MMT models and assumptions in an open economy. In a completely closed economy (if such a thing was possible) it might work.

My take on MMT is that it simply makes fiat currency a politically directed creature as opposed to a banker controlled "animal".

I have tried to introduce, into dicussions with MMT proponents, the notion of a floating gold exchange rate as an independant "umpire" to guide the decision making of the issuer of currency under an MMT regime. The reaction has generally been very hostile.

Many MMT advocates seem to see MMT as a way to advance a social welfare agenda (centrally controlled) so I found that I was pigeonholed as an "economic rationalist" or worse. I'm not entirely sure why the MMT folks I was talking to consider being rational a handicap.


matrixsentry said...

Amazing how the things you look so hard for end up falling short on the satisfaction that you imagined they would bring. Many times the unexpected tributary or backwoods trail rewards the traveler when he is not looking for anything in particular, has no preconceived notion as to what the next turn will bring. I discovered such a trail by accident some time ago while pursuing answers to big questions.

The trail as it turns out is easier to follow these days and is probably why I stumbled across it. The people that blazed the thing must have been something I often think. Yes, real pioneers. FOFOA is laying rail for the big push west, to open the way for the common man to find his fortune. I'll be a part of that I think.

Important things are happening here. I am referring to FOFOA and our Freegold site as post-graduate education for those who are ready to see where this crazy world is headed. It is actually fun to watch the surprise when our intrepid newbies discover the unexpected, finding delight again in a journey that had become a chore.

Keep the rail coming FOFOA, we have a lot of people heading this way.

Pinto said...


There are a number of comments above based upon specious logic in justifying fiat currency:

- Soros's comment that we need fiat because financial markets are inherently unstable and thus we need a lender of last resort (i.e. have the public pay for losses of the financial industry)

- we need to inflict losses on the whole of society with inflating fiat

- we should allow governments to manipulate fiat for society and inflate away the debt.

These arguments are clever, however they miss several key aspect of gold as money.

1. Setting of interest rates with gold money is done by the market. With a relatively fixed money supply, as lending demand picks up, the demand for money causes a draw-down in money available for loans and increases interest rates. This draws-in further money to make it available for loans and also slows the economy so that it does not overheat. Gold money is self-modulating.

With a fiat system, interest rates are set by small groups of people in rooms who have no clue what the "right" interest rate is.

You cannot divorce the role of medium of exchange and mechanism of savings and have a stable economy.

2. Economies are made unstable BECAUSE of the use of fiat currency. In a gold money system the loss is inflicted upon the speculators (which they do not like) and the cry goes up for a "lender of last resort"

3. Governments need to "manipulate currency for society". In reality governments manipulate currency for their own cloistered constituency. Governments create wars, they create unsustainable programs, they benefit unevenly. If government needs to do something and it is important the money is available through taxation.

Fiat money always gets the interest rate wrong, it creates instability, it benefits the insiders with access, it leads to wars that would not be fought if everyone had to be taxed immediately.

Vested interests will desperately try to keep fiat money in play for their own purposes while introducing gold at the margin for savings.

Fiat money is about to become historical.



S said...


What do you make of the irish printing? Why in your view hasn't the ecb moved? Also ft ran small blurnb today how the boe changed its supra sov collateral requirements. Merkel is being backed into a corner all the while.

Jenn said...


"You cannot divorce the role of medium of exchange and mechanism of savings and have a stable economy."

We must divorce the role of medium of exchange and mechanism of savings (store of wealth) to have a stable (global) economy.

We must -- and we will.


FOFOA said...

Thank you to everyone who is contributing to my precious defense fund!!

I'm busily writing you all thank you notes!

Hi Pete,

I no longer have my PO box, but you really don't need a PayPal account to use PayPal. It's just like any online purchase. You have to make up a username and password when you put in your CC or debit card, but it's instant. No setup required. You can also do an e-check, which is like a wire transfer, if you don't have a credit card.

Thanks again!


golden tube said...

Donated (again), keep up the education !

Paul said...


I would have donated from the first day I found your blog when there would have been a method for me to do so. I don't use crditcards(obvious me thinks) and have never adopted or trusted paypal.(and now ask julian sssange for a why ...)

I regard the knowledge and thoughts I find here as valuable as gold itself. You do an amazing job, I will be forever in your debt for you running this wonderfull corner of the internet. the true power of sharing ideas is amazing. just look at egypt what can happen, when new ideas are suddenly commonly shared ...

In the Netherlands we use IDEAL for internet transactions, works for me, don'r know if you can implement it internationally, but when so, I will be a regular donator.

The Dork of Cork said...

Yes I caught those articles , excellent - the modern mystic has also tried to discuss this mind bending concept - I am bamboozled to some extent but it is attractive to me on one level.

I feel the weakness of the euro system has a lot to do with the 3% defecit rule - although goverments in Europe have spent too much money they have not in general created it , the sov's have been essentially static in size relative to a growing tumour of private debt.
Centralised MMT theory would suggest that you increase the size of Goverment RELATIVE to private debt via base money to create a new balance but has this money a asset behind it or is it just money ?

The Dork of Cork said...


The bystantine nature of CBs really pisses me off.
Check out this excellent blog from what appears to be a former insider - although one never knows............
There is more then just Gold on the asset side of the euro.

Also NAMAWINE LAKE is pretty good - the scale of the corruption withen Europe is beyond the beyond.

costata said...


You wrote:
"Centralised MMT theory would suggest that you increase the size of Goverment RELATIVE to private debt via base money to create a new balance but has this money a asset behind it or is it just money?"

Lay off the booze. Your liver will love you for it.

Patrick said...

Mr Paul,

If you have friends who use paypal you can give them the money and they will do the transfert for you...don't tell me you don't have friends now ...

The Dork of Cork said...

There is a advantage to living in one of the most banked / globalised (smallish) country on Earth.

You get to see the physical mechanisms in stark relief.
When the Irish goverment decided to go on a spending and saving spree via its pension plot it had no choice.
You see it could not have a negative fiscal defecit - its impossible.
Indeed sov wealth funds are also impossible under a gold standard system as all imbalances go through a gold exchange.
So how did Ireland overspend ?

Private loans created the credit and the goverment taxed it - on a micro level it had to pay a nurse over the odds as the housing stock was being hyperinflated via bank credit.
Bank credit in Ireland could expand explosively as there was no sov demand creating epic malinvestment.
Its not the total spend thats important here its the ratio.............

costata said...


You are putting my New Years Resolution at risk, so I am saying Good Night right now.

sean said...

There is a comment on Gonzalo Lira's latest post ( on hyperinflation that I found fascinating. The author doesn't quite answer the problematic situation in which it is the USD itself that is hyperinflating, but thanks to FOFOA I think there are many people here who could offer a reasonable suggestion for a good hard money alternative in such a situation!

The comment is: "...what happened in Russia is that people switched to a double-currency system during hyperinflationary 90's. The double-currency system worked the following way: everyday small purchases were made with rubles, but any big items including real estate and cars were quoted and purchased either in US dollars or in equivalent amount of rubles at an exchange rate existing at the moment of purchase. This co-existence of two currencies solved many problems. There was "hard" money that people saved their wealth in, and "soft" money to buy food, pay taxes etc. The real estate was indeed incredibly cheap in early 90's but only in "hard" currency. A decent apartment in Moscow could be bought for $5-10k USD. Now the same apartment costs anywhere from $200k to $1 million depending on location. ...

One problem that I see here is that in local "soft" currency, ruble or peso or whatever else, real estate never got cheaper during the hyperinflation. In 1989 10k rubles would buy a house in most places of USSR. In 1993 the same 10000 rubles would buy a loaf of bread, and a house was a few millions if not billions of hyperinflated rubles (and at the same time just a few thousand US dollars). Believe it or not, what majority of Soviet people did is they trusted the government until it was too late and watched their money turn into toilet paper.

Now, is it a good idea to hoard US dollars in anticipation of hyperinflation? What do you think? From my experience I can say that hoarding Soviet ruble in 80's was equivalent to a financial suicide. But those who exchanged Soviet rubles into things that hold value such as hard currency (it was officially illegal to exchange rubles to US dollars in the USSR but all smart people I knew were able to do it on black market before shit finally hit the fan in 1991), or used FIXED rate long-term ruble loans to buy real estate, or at least bought gold jewelery, became kings in hyperinflationary 90's. Most "new rich" Russian millionaires built their wealth during those terrible hyperinflationary years. And many of them were not mafia bosses or anything like this. Simply, they were smart people that were able to ignore mass-media, think independently, and get ready for hyperinflation."

The Dork of Cork said...


But getting back to the Irish central bank.......
A quote from corner turned

"The CBI has not borrowed the money it has given to the banks (it has ‘printed’ it) so it has no timescale in which the assets have to make good. It can, in theory, hold the assets at book value on its financial statement forever."

These are classed as other assets but do they really have a liability ?
The author I beleive speculates that the taxpayer through ownership of the CBI is on the hook for these liabilties but is it ?
This could just be part of the money supply - you could argue that tax generally pays interest on debt but is this truelly debt ?

Jeff said...

John Paulson holds over 31 million shares of GLD in his fund, a 'Giant'. Will he, or his clients, redeem GLD baskets for physical?

enough said...


With gold up over $10 and silver attacking multi-decade highs, the London Source has given King World News major news on the activities of the Asian buyers, “Not only have the the Asian buyers been purchasing large numbers of shares of the ETF GLD in order to take delivery of gold, but they have now in fact decided to buy SLV with the intention to take physical delivery of silver directly from that ETF.”
February 15, 2011

The London Source continues:

“You have to remember that BlackRock sponsors SLV and I don’t believe they will let anything happen to tarnish their good name. It would reflect badly on BlackRock if in fact SLV did not contain the physical silver to back up the shares, so the Asians will be successful in draining physical silver directly from SLV. The bottom line is they are comfortable with BlackRock being involved in the ETF SLV.

In the end, BlackRock will have to ensure that the silver ETF makes good on redemptions from SLV.

Another complicating factor is that there are currently 16.12 million shares short on SLV. This is an increase of almost 2 million ounces over the prior reading. In other words BlackRock will also have to make sure that this silver which has been borrowed will be returned.

We have serious backwardation, a supply shortage, short interest growing on SLV and now we have the Chinese waking up to the fact that there is metal in SLV and saying, ‘let’s go get it.’ Let’s not forget the paltry inventories on the Comex. Any short would have to be frightened by that data.

There are two options left for the shorts, one is to naked short the heck out of this market in an attempt to drive the price down. But if they decide take this option it will worsen their position longer-term. The other option is to capitulate and let the price of silver rise in an attempt to let the silver market get into equilibrium.”

Paul said...

I don't have friends that use paypal patrick ...

just looked at echecks, but also no go, don't want them to have any information about me they can and will share with uncle sam

Pinto said...


There is a comment below that :

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

This has never been shown to be the case in gold money economies.

Prices enter a gentle deflation where the relatively fixed amount of money buys more goods over time due to the growth of the economy exceeding growth of the amount of gold money in the economy.



mortymer said...

@ S: NYSE Euronext and Deutsche Börse will merge.

enough said...

Is this like the current Geico advert where the people live under rocks? Have the lot of you never bought anything online?

When/if you go to church do you announce to the congregation your putting something in the tithing box?

CLICK IT (donation tab) AND ZIP IT....lets move on...

DP said...

Pinto, the problem as I see it is not the spending, it's the lending — particularly the lending of that which doesn't yet exist.

You think the world will today summon the political will to turn its back on people borrowing from their future? Not a chance.

Ross D. said...

I'd like to donate bitcoin.

Terry said...

I have had my own business for the last 40 years and have developed an extreme dislike for Paypal, a dislike that I overcame in order to pay tribute to FOFOA and his superb blog. I find the discourse here stimulating for this aged pea brain. I began accumulating my paltry hoard of gold in the seventies after discovering that the fiat system had it's hand so far in my pocket that I saw that I would never be able to accumulate a surplus in fiat. The constant manipulation of the PM's has been very discouraging until I stumbled across FOFOA and Freegold. I may not see it in my lifetime but the journey has become much more exciting. Thanks FOFOA and all participants of this blog.

Pinto said...

DP, there is no problem with lending gold as long as it is not fractional reserve lending (a la LBMA).

There will be lending and borrowing and business as usual.

Lending gold that the saver deposits with a lending institution for that purpose does not have any impact on the gold money stock and does not affect prices.


DP said...

@Ross D.: so do it

TBH, I'm not sure they'll be very useful though...

DP said...

Pinto, methinks you didn't read the last post enough times yet buddy

DP said...

Read Reply to Bron again, if you are having trouble getting the problem with lending (and not just fractionally reserved lending).

This time, may I suggest you cut yourself short once you get to the paragraph starting "I present now a few discussions". Just sit and think long and hard about the few paragraphs you have already got through, perhaps reading them through again and really considering them. It may help to focus on this smaller, key part of the whole. I hope so.

Pinto said...


DP, methinks you should read your history books of what really happens when you have a gold money system.

Please take the time to inform yourself as to what really happens in a gold money system.

The idea that we need to allow governments to inflate our money to nothing is nuts and centralizes control of the government in the hands of those who control the money system.



enough said...

Comment on KWN report above:

The ratio of my G:S holdings are 10:1 with the silver being purchased quite some time ago and I am looking to dump it on next upmove.

Even though I concur with this blogs thesis that silver will not be the offical store of wealth and will be left far behind by gold, I do think it's possible that the default of the BB's and their fractional reserve system could be caused by their defaults on silver promises and could be imminent.

There is no one to bail them out as the CB's "theoretically " could still do for the gold shorts

DP said...

The governments didn't inflate the money supply until it had a blow-out and was deflating. All the rest of us inflated it, and blew it up. The government stepping in to stop innocent depositors losing their life savings was the (collective) change of political will.

If you still don't get it after reading the first part of the post only, here is the cut-out-and-keep version that I hope will distill it down sufficiently:

The depositor can no longer spend the gold he deposited, but the borrower can

increased velocity of the underlying reserve (which suppresses its value just like volume expansion)

at some point we always end up with a borrower who must default on the terms of his loan. And then those depositors will lose their savings.

society simply never gives in to a large segment losing its nominal savings. So the rules are always changed, the repayment terms made easier, the losses are papered over, and the synthetic supply exploded.

the ingredient that you (and most everyone) miss is the ever present evolution, due to what FOA called the changing "political will."

every time something similar is tried, the same tribulations emerge and are dealt with the same way, over and over again, through a changing political will.

Yes, it will "work" until such time as it doesn't. I suppose you are now going to again tell me about how infallible all previous gold money systems have been and therefore it will be a permanent solution if we return to the same now, and yet here we are today in a non-gold money system and debating what will come next. What happened to the last gold money system?

If you still don't get it, I submit. You win!


DP :-)

S said...

What is your point on the NYSE / DB merge? derivatives? For the past several years I have been attune to cross border M/A for a tell (stock deals vs. cash). The GE buying oil services buying spree in the UK is also interesting for thiose prone to belive in back room deals...

S said...


FOFOA to his immense credit repeatedly makes the eloquent freegold case along with philosphical discussion of hard money vs. soft (debtors and savors) but there doesn't seem to be real discussion of the political realm as if it inevitably flows through the font of an inevitable gold clearing mechanism. The logic is simply mistaken historically speaking. it is in fact quite the opposite and you ignorew it at your peril - of holding period perhaps. Even when the gold standard was "intact" it was the political realm that drove the debate. To assume that the political realm capitulates to the "will of the savers" is unbelivebaly nieve at best and negligent at worst. Freegold may be birthed and it may be the logical progression (swing back) to hard money, but given the stucture of the current capital markets it will be born to a large extent out of wedlock.

enough said...


this has been nagging me...the political side of freegold...

if freegold is born out of chaotic default, the current political/economic structures will probably be broken with an opportunity to start fresh and possibly a real "free" gold mkt. With competition and transparancy....

If on the other hand a curtain is pulled back and out steps a CB spokesman with a freegold manual where structure has been deliberaely and carefully defined and refined for years, then old political/economic structures and relationship could keep control and freegold will be less "free".

I keep coming back to this and being reassured "freegold will be free" transparent, competitive etc.

this seems to me to depend on HOW IT IS BORN???? no??

Museice said...


Why are you trying to diminish FOFOA's ability to raise finances by telling possible contributors that they shouldn't be pleased with themselves to the point of wanting to tell others? This particular 'Piece' is about donations so why can't people comment on their personal donation?

Ender said...


It appears that your words carry some weight around the world! The rumor that enough points to above (February 15, 2011 8:09 AM) supports the fact that there are people that have stepped up to test your theory outlined in Who is Draining GLD?

If this rumor is true, I would expect the rules of the game to change … shortly.

As much as I would like to believe that there is physical available for redemption, the evidence seems to indicate that giants must acquire gold from the physical market rather than the financial markets.

If I could give advice (which none of my words should be taken as financial advice,) get to know your local gold dealer. If you need a ‘basket’ or two, but in a standing order to buy whatever the dealer offers. Likewise, visit multiple dealers. If that is not enough, shop where the jeweler does. It will probably be in your best interest to NOT rock the boat and acquire quietly – like the rest of us.

Good day!

enough said...


if that is occuring I apologize but I dont think it is.

This should not be about self recognition but recognizing FOFOA for his work. I find it in poor taste to publically boast of financial support and it might even make FOFOA uncomfortable as well. Generosity IMHO should be done with quiet humble gratification.

But dont worry M. I will not mention it again and I doubt anyone will deny Foofa his due because of it...cheers

Larry said...

Late to the thread here but my contribution will be coming shortly. Not much more to add than has already been said except that the words of FOFOA/FOA/Another have led me to much greater understanding of the reality of this financial world - an understanding through knowledge that is more valuable to me than gold.


Greenie said...

'old-swift-boat-vet', gold to silver ratio may never reach 35. IMHO.

'enough', I recommend FOFOA's blog to as many trusted friends as I can. That is my contribution in 'network currency'. I hope it matters to him.

mortymer said...

@ S: Not much yet, will be gathering some info later, now full hands with the Nokia-Microsoft IMO "takeover deal".
@ Enough: Exactly my words. But should we look at ourselves as being credit junkies with a need to go all the way down to bottom? OR is our common saving/spending herding behavior a certain feedback loop function shaped by rules and we "fit" in? Same questions I have like you. How?
alt+64All depends on point of view but the system from here seems to be more and more unpredictable.

enough said...


COOL...we all do what we can, that's all anyone can ask of us or we can ask of ourselves !! peace bro !

d2thdr said...

Why does Mish claim to be the 'blogger extraordinaire'? IMO no one comes close to FOFOA.

DP said...

S: Even when the gold standard was "intact" it was the political realm that drove the debate. To assume that the political realm capitulates to the "will of the savers" is unbelivebaly nieve at best and negligent at worst.

Under the "gold standard", the coins were gold of a (politically) defined fineness, size and weight. They had a face value in currency terms. When they changed hands, they were measured in that currency face value. $20. £1. etc.

I think you are describing how through debasement of the coins, the debtors were relieved at the expense of the savers -- they were repaid the required face value in coin, but the coins just happened to have been redefined in terms of their fineness; they contained less gold that the ones that were originally lent.

I agree.

But in Freegold/RPG, we're not talking about any coins with currency face values circulating. We are talking about a certain weight and fineness of gold changing hands at a floating market price in terms of currency. This is not a circulating currency that just happens to be cast from (a redefinable fineness of) gold.

We are also talking about people not borrowing gold, but borrowing currency. There is no problem with finding the political will to issue some more currency. The problem is finding "real things" to honour promises, when there are not enough "real things" to go around.

Gold is to be an asset, outside of the realm of currencies and political wills regarding their issuance during any period of loan repayment difficulty.

DP said...

Seriously? Quite a few of you came to check out my blog today, mostly as a result of seeing my comment about AdSense revenues going to FOFOA I'm quite sure, and still only a very small handful of you clicked a link while you were there?

Tough crowd!

mortymer said...

@ Aristotle, Aragorn III, Martijn: Gentlemen, could you please share with us some of your thoughts on the latter development? The alignment is clearly shifting and giants are on the move. Now we know where we have been, many understand direction we are going to, but where are we now in this time of change? Do the main Actors still remember what Thinkers said and still keep walking on this less traveled trail or were they overwhelmed by "bigger ecology" and left with no shoes?

enough said...

@ Ender,

given KWN report which gives complete validations to FOFOA's " who's draining GLD" it seems to me the BB's have to hit the paper mkt hard....and soon, to try to keep the charade going for a little while longer...

If they dont then the chaotic unraveling is close at hand.....

even sooner than Blondie's timetable :-)

enough said...


I would not be surprised if a complete risk asset takedown is in the cards...a deleveraging event initiated by margin calls that kill lots of birds with one stone....smack commodities, gold, silver and probably necessitates taking equities with them....

ah, the sacrifices TPTB have to make

Pete said...


"I no longer have my PO box, but you really don't need a PayPal account to use PayPal. It's just like any online purchase. You have to make up a username and password when you put in your CC or debit card, but it's instant. No setup required. You can also do an e-check, which is like a wire transfer, if you don't have a credit card."

It still seems to require you to sign up to PayPal, provide an address, etc.

Like Paul, I don't want to sign up to PayPal. I have used PayPal in the past like you mention above, just using a credit card, but I have never had to make an account. When I click donate it seems I don't really get the option to donate without signing up.

Maybe there are some settings you can change? If I can avoid setting up a PayPal account I will donate.

Redhill said...


You wrote:

I remember this song from church as a little kid. It went something like, "This little light of mine, I'm gonna let it shine…" This is how I try to live my life. I lead only by example.

Back in my short scouting days, we used to sing this song around a camp fire...

"This is the scouting light of mine, I'm gonna let it shine, let it shine... all the time."

And here's one for our cozy gold trail camp fire:

"This is the golden light of mine, I'm gonna let it shine, let it shine... all the time."

Borrowing the scout motto in our golden light, let's all "Be Prepared".

Deeply appreciate your effort and insights.

Shine on :)

知之为知之,不知为不知,是知也 - 老子
He who thinks he knows, doesn't know. He who knows that he doesn't know, knows - Lao Tse (604 BC)

FOFOA said...

A big THANK YOU to the 103 of you that have donated so far! You should have all received an email from me by now. I must say, there were a couple of nice surprises in there, people I didn't expect to receive support from, and at least one person that I am very happy to know he's still here!

Pete and Paul, if you email me at my email address which is on the top of the PayPal page, I will give you a tip about how you can donate without exposing your vital information to the dreaded Matrix, but only you two. Neo prefers to work alone. ;)

Enough, you wrote, "…seems to me the BB's have to hit the paper mkt hard... and soon, to try to keep the charade going for a little while longer..."

After you donated today I emailed you a thank you along with a correction to your comment. I wrote, "Here, I fixed it for you:

"…seems to me the BB's have to hit the paper mkt the upside!... and soon, to try to keep the charade going for a little while longer..."

I thought maybe I would share the rest of my email to you with everyone:

You see, giants don’t like to go for the gold while the price is rising. They wait for pullbacks so their considerable weight does not run the price. China has expressed this strategy openly. Additionally, a higher gold price stretches the scarce reserves across a larger number of dollars.

If they want the paper markets to continue, they need to drive the price quite high and soon. Every time it starts to head down I think, "is this it?" Price rising = good for paper market buying themselves time. Price collapsing means it could be lights out at any moment, IMO.

Remember these are paper markets. Once the longs that want physical give up on paper as a means to physical, they will pull their bids for paper. This is really bad for the banks that make the markets. Therefore the banks need to hit the paper market hard… to the upside! They need to "levitate" their own paper liabilities.

To which you replied…

Enough: I get it now ...I always understood that these "takedowns" were not in the BB's longer term interests...just a very short term "fix"...did not occur to me that at this point in the game they need to take it up to keep the paper charade alive.


FOFOA said...


And then I came back with:

"Takedowns" are only for short term profits, not for price suppression or managing physical. The up-trend over the last 10 years is the only thing keeping paper alive. It is stretching reserves and keeping people interested in paper.

A "takedown" only causes people to puke up paper gold at a loss (not the real thing) which is a quick profit for the traders executing the takedown. But it has nothing to do with "price suppression."

"Price suppression" is a long-line natural function of the fractionally reserved BB system, and the decade-long gold bull market is keeping it alive, but on life support. Takedowns for paper profits threaten this system. I never view them as any kind of a "fix" for the banks.

I view the situation as if gold "wants" to explode to $55K. So if it rises to $2,500 this year, and $7,000 next year, while the paper markets continue, that is suppression in action. Keeping it from exploding to where supply and demand on a physical-only basis would take it. Suppression doesn't just mean price-down action. It can also mean slowing or delaying explosive up-action.

If RS is correct and there is an effort to extend the paper markets until 2013 at a physical cost to the CBs, then I would expect gold to rise to at least $10K by then. The objective being to close the gap-up to Freegold so that it is less of a shock to the system, meanwhile stretching the physical out into more hands = less shock to the people that finally got some. At that point gold would only be a 5-bagger to the late-comers, but there would be a lot less people that would get wiped out. At that point, people that got in at under $1,400 just two years prior would be the stuff of legend.


Blondie said...



Pinto said...


First we have to differentiate between a "gold standard" and "gold money" where only gold is money. For example under the gold standard (post 1913), the US introduced "flexible money" which is really creating multiples of the underlying gold hoping that someone does not redeem enough paper money to clean out your gold.

Second, in a gold money system, not all of the gold is lent out. In fact only a portion of the gold is lent out and those who chose to lend out their gold charge enough interest to reflect the proper risk premium. All borrowers do not default on the fraction of the gold that has been lent out at the same time. Yes some loans in a functioning economy are default loans.

Third, velocity does not impact the value of currency. Velocity can be high in an inflationary or a deflationary environment. Please see:

Fourth in a gold money system, borrowing is self limiting as interest rates rise due to increased borrowing demand using gold available for lending. Your nightmare of an inflation storm through excessive gold lending and "creation" of gold is a feature of fiat money not a gold money system. This is a scenario that simply does not exist and am amazed that you propose it as something creating the need to protect people with fiat money.

Fifth, fiat money with interest rates sent by "wise people" results in distortions in the economy and misallocations of capital and bubbles. I think we are reaching our limits with fiat fueled bubbles through regulatory capture and where a small group parties at the cost to all in society.

In a gold money system, recessions and depressions happen but the losses are cleared relatively quickly and recovery takes hold.



Jenn said...

Hello Pinto

"velocity does not impact the value of currency."



enough said...


clear as a bell!! thank you

But are the BB's so greedy and skitzo that they undertake these "takedowns" for pure short term paper profit when they know full well physical is getting accumulated by the giants on those pulllbacks....

Even when they know that it's highly destructive to the contunuity of their fractional game?

do they really care so little about tomorrow's profit let alone their continued solvency?

Pinto said...

Hi Jenn,

Giants of years past have shown us a path to the light.

We are led from the jungle:

"Is Velocity Like Magic?"

Frank Shostak.



Pinto said...


My comments were continually deleted after 5 minutes then all posted at once.

FOFOA - if you could remove duplicates that would be much appreciated.


mortymer said... ;pg.8:

"...Bank Negara Malaysia's response When asked about the Dinar, one Central Bank officer said the official currency of Malaysia is Ringgit, and the use of Dinar in exchange for goods in a barter deal is a contract between two parties. Hence there is no issue as far as the law is concerned. It is similar to person A exchanging a turkey for 2 ducks with another person B...."

costata said...


Thanks for addressing those repetitions, they are a serious pain in the ass.

Speaking of pains in the ass, I was wondering when you were going to start posting a few links to support your claims about gold's role and performance in earlier iterations of the monetary system. It would be interesting to know the texts etc that you have covered in your research.

Perhaps a few links to the online sources that you favour with your patronage would also help people to form an opinion about the depth and quality of your scholarship.

Rui said...


Risk and reward form their own dynamics. If we just take the risk of losing gold out we'd break the balance to introduce unintended consequences such as unchecked risk taking that leads to bigger mess. Yes, we may lose our gold as a loan but we may also gain if executing it in the form of sound investment.

The right approach is to lay off to allow risk and reward work it out. The last two gold standards failed in US b/c there's too much fraud in the system: fractional reserve lending encouraged by FED was a fraud, big government spending like that of LBJ's "guns & butter" was another. It's not the failure of gold standard.

This so-called political will is the will of the thieves. If we give in to them we'd embolden them to come back to steal more. What do thieves steal? Wealth. Whom do they steal from? Not from debtors who generate very little. So it's from savers. They won't leave savers' gold alone when they are emboldened enough.

There are principles in life we have to stick to, draw a line in the sand and are willing to fight for, else we'd either be overwhelmed or have to be on the run.

FOFOA said...

Hello Pinto,

I have no way to delete comments and then bring them back. So it must have been the Blogger spam filter that targeted you. Apparently Google/Blogger didn't agree with your misapplication of Frank Shostak's argument against someone who obviously argued that an increasing velocity is good for the economy because it facilitates the financing of more real exchanges and thereby enables the creation of real wealth, and that, likewise, a decreasing velocity would then neutralize any massive printing and also be good for the economy. Whoever Frank was debating back in 2002 obviously hadn't yet studied the role of velocity in 2007 Harare, where the hyper-velocity of the medium of exchange represented the people's loss of confidence in its store of value role.

Google must have reconciled that velocity-driven hyperinflation has no effect on the value of 10 loaves of bread versus 5 kg of potatoes (agreeing with Shostak, but not your misapplication of Shostak here), but instead devalues only the medium of exchange, leaving things like gold to store the value in a way that will not rot or mold.

Shostak: "In short, it is individuals' purposeful actions that determine the prices of goods and not some mythical notion of velocity."

Here, Frank is talking about the relative value of goods to show that monetary velocity does not create, protect or destroy real wealth. So true! Even in Zimbabwe, an orange still only cost an apple while that same orange also cost Z$500Billion. Velocity only destroys the wealth of those who try to store value in that medium of exchange.

If you are going to use a "real good" as the medium of exchange, then yes, velocity will be a reflection of the demand for that real good. If demand for that medium of exchange "real good" is low, monetary velocity will rise. And vice versa.

Even in a barter exchange there is a bid and an offer. If gold is the medium of exchange, every time you go out in search of a necessity with your gold, you put downward pressure on gold's purchasing power, imputed across the globe in today's electronic world. Likewise, every time you seek to obtain gold for savings, you put upward pressure. It's quite simple really, and velocity definitely plays a role.

As Google/Blogger somehow deduced, you are pursuing a very weak argument here with velocity.

"Velocity is the speed at which money changes hands. When demand for the money is high, money changes hands more slowly, and velocity is low.

"When demand for the money is low, velocity is high.

"A key point is that velocity and money supply can act as substitutes for each other. A 10% rise in velocity has the same effect as a 10% rise in money supply."

If you can disprove this statement, which the Shostak piece didn't, I will be very impressed! It is from Richard Maybury who is a great Austrian Econ acolyte and an amazing subscription-only analyst. The above comes from my post here.


FOFOA said...


But I'll give you the full section on velocity in this comment, so as to ease your workload in debunking it:

...velocity & money demand.

Jim Powell has pointed out that the tens of millions of people who are still working — and that's 91.5% of the workforce — have received a huge pay raise, because prices of houses, cars, refrigerators and a lot of other things, have been cut drastically. The buying power of their wages has soared!

And, it's the best kind of pay raise, because they didn't need to work any harder to get it, and it's not taxed.

This is a huge windfall. It's probably the biggest, most widely shared windfall in all of world history.

So why aren't these tens of millions of people out celebrating? They should be delirious with joy. Why aren't we seeing dancing in the streets?

Because people are scared and afraid to spend the money. And that brings us to what economists call velocity.

As this war was developing during the 1990s, I repeatedly warned that it was likely to bring a dollar crisis, and advised my readers to always have part of their savings diversified into non-dollar assets such as Swiss francs, New Zealand dollars, gold, silver, platinum, oil, and other raw materials.

Incidentally, in March on our web site, I ran a special bulletin telling my readers that I think there is an 85% probability the bottom in non-dollar assets has occurred, or is occurring, and I think those investment suggestions are now as solid as they were ten years ago.

A major reason is velocity. As far as I know, my Early Warning Report is the only publication that says much about it.

I think velocity has become the key driver in the entire world-wide economic crisis, so here is a quick explanation of it.

Money responds to the law of supply and demand just as everything else does.

If people do not want a particular currency — let's say the British pound — then the value of a pound will fall.

Sellers will demand more pounds in trade for their goods or services, and prices in Britain will rise, even if there has been no change in the supply of pounds.

On the other hand, if the demand for pounds rises, the value will rise and prices will fall even if there has been no change in the supply of the currency.

Velocity is the speed at which money changes hands. When demand for the money is high, money changes hands more slowly, and velocity is low.

When demand for the money is low, velocity is high.

A key point is that velocity and money supply can act as substitutes for each other. A 10% rise in velocity has the same effect as a 10% rise in money supply.


FOFOA said...


The biggest problem with velocity and money demand is they can turn 180 degrees overnight. If people trust the currency, and suddenly perceive some kind of big threat to their futures, money demand can shoot up.

That's exactly what happened last year. The supply of dollars certainly did not go down, but when the real estate crash happened, people became so frightened they were afraid to let go of their dollars.

Within a few days, money demand shot up, people stopped spending and held onto their dollars, and this had the same effect as an instantaneous deflation of the money supply.

If you don't spend your money, that's the same thing as taking it out of circulation.

This can instantly cause the equivalent of a sharp deflation of the money supply by 10 or 20 percent, or more.

That's what happened in the Great Depression. The Fed was inflating. In 1932, the money supply[1] was $20 billion, and by 1940 it was $38 billion. But fear was so great that velocity was falling faster than money supply was rising.

This is why Franklin Roosevelt said in his first inaugural speech, "The only thing we have to fear is fear itself." People were afraid to spend their money, as they are now, and velocity was falling, which has the same effect as deflation, because if you don't spend your money, it's not in circulation.

So, speaking economically, I think that is where we are now. Changes in money demand and velocity are running everything.

And, my key point is, it's all controlled by emotions. By fear.

What are you more afraid of? The dollar becoming worthless? Or losing your job and running out of dollars?

The whole world is constantly shifting back and forth between those two fears, so money demand bounces up and down like a yo-yo, and velocity — the speed at which the money changes hands — does, too.

These wild shifts in money demand and velocity have the same effect as massive, instantaneous shifts up and down in money supply. It's like we're having a huge inflation, then a deflation, every few hours — because our fears change every few hours — because the politicians have all this arbitrary power and we don't know what they're going to do to us!

Now, do you see why it is so important to see the economy not as a machine but as an ecology. Machines don't feel, they don't have fear, or joy, or optimism.

But people, biological organisms, do have feelings. They do fear, and their fears can change instantaneously.

The human ecology, especially these days, is driven very largely by emotions.

How are the politicians and bureaucrats who are playing God ever going to control, or fine tune, or repair, or speed up or slow down, our emotions?


FOFOA said...


In fact, Pinto, and this is something even Richard Maybury and Frank Shostak are both missing, it is the slow velocity of the synthetic supply of dollars that is lending value support to the actual supply of dollars today. If you don't like "synthetic supply," call it "perceived dollars" or "near dollars" or just call it what it is… "debt in dollars." But in this case, the volume has already been hyperinflated through 30 years of "credibility inflation," and all that's left holding this Sword of Damocles in the air is the thin thread of confidence, or low velocity.

You can read about it in these posts:

Credibility Inflation
Just Another Hyperinflation Post - Part 1
Just Another Hyperinflation Post - Part 2
Just Another Hyperinflation Post - Part 3

I'm guessing that your already-made-up-mind will find this somehow inapplicable to the point you were trying to make about gold's velocity not affecting its purchasing power. But before you resume your bloviating, I suggest you give it some quite contemplation time.

I welcome all good and well-thought out arguments. So far what I've seen from you is recycled repetition that has already been discussed here. However, you are named after a fine automobile, so that does carry some weight with me. ;)


Mohd Shafri bin Mohd Shariff said...


Please keep up the good work. I have been following your articles and never miss one of if...It is very good and amazing that you could translate the monetary and gold trail together.

I came from a poor country and it is kinda hard to donate you for the effort you have done...I just pray for your well being and health.

please don't stop...

FOFOA said...

Hello Enough,

"But are the BB's so greedy and skitzo..."

Is it your contention that everyone in the "bullion banking / investment banking / hedge fund management / trading desk camp" has their incentive structure and trading actions aligned and coordinated in some masterful profit-sharing scheme laid out clear to the end game? Just curious.

Ever seen a cockroach cannibalize its own kind?


DP said...

@FOFOA: thanks for picking up the torch with Pinto while I slept. The easiest work I have ever done, just reading and finding you had already done a far superior job than I ever could.

@Rui: Good morning.
This so-called political will is the will of the thieves.

Most of we voters in our democracies don't see themselves as thieves, but yes you are right in my view. They will mostly vote for whoever will "make it all better", having no clue how exactly it will be paid for. The minority who understand will be outnumbered many times over by those who don't understand. Good luck attempting to change this dynamic. Gold circulating as the currency isn't going to permanently fix it while it is also possible to borrow other people's gold, just as it never fixed it before. At some point in the chain of loans, someone will have made a mistake and the chain collapses. There won't be sufficient gold in the chain to ensure all the depositors/investors in the chain can be made whole. Even with 100% reserve lending. While people understand that by depositing and lending they are actually investing and risking their savings, accepting that they may not have them returned, it would be all good. But ask any of your friends what they think happens to their cash when they put it in the bank - I am pretty sure they will not believe that they might not be able to take it back out again. This is what you are up against, not the bankers or the politicians, but your clueless friends.

DP said...

We in the voting minority have the option to opt out of the chain of clueless friends, under Freegold.

DP said...

A very smart person recently said to me "I have no issue with people objecting to my comments; their responses tend to undermine their own argument. If they undermine mine, then they do me a service, no?" (BTW Special hello to you, smart person :) )

If you ever object to anything in any of my comments, please do us all the service of not letting it pass unchallenged. Thanks.

costata said...

Mohd Shafri bin Mohd Shariff,

I don't know if your prayers moved a god to inspire me but FOFOA will recieve an extra $50 on your behalf from me.

sean said...

Thanks, FOFOA, for posting your interesting conversation with Enough - I hadn't considered that BB might actually be happy that paper gold price is increasing. It's still hard to imagine the change in mindset that will have to occur for the general population to start hoarding gold despite the fact that paper gold price is evaporating. Knowing of this event in advance is perhaps one of the most important things I've learned from this blog, and I worry for the many goldbugs who will get shaken out at this point!

One who definitely wont get shaken out, is Terry - I think you deserve some sort of special prize for getting into gold back in the 70s! Though I eventually started following the same little rocky path and for the same reasons, I was some 30 years behind you! How amazing that all our paths converge together here, on the road to freegold! :)

enough said...


you are right again...

I know these competing interests first hand...

I need to think before asking...sometimes I take the lazy route :-)

One would think those segments which stand to lose much by the takedowns would seek to blunt them and probably do...covering paper shorts and keeping their fingers crossed that the end game is not upon them.....cheers

Joel said...

The Google blogger sarcasm almost made me blow milk out my nose this morning from laughing so hard. Anyone that can make me laugh while teaching economics is held in the highest esteem. It seems to me that it will take a much more definitive physical crisis, (i.e. GLD being drained, or people attempting to take delivery in size on the Comex) to create the paper confidence crisis that would cause bids to disappear. The market clearly still has confidence in paper, irrespective of market direction. Can you elaborate on what other (possibly not so visible) circumstances might cause the bids to start to disappear other than the two I mentioned?

enough said...

Bloomberg) -- Greek, Irish Banks Force ECB to Print More Money:

The European Central Bank is being forced to print money to bolster banks in bailed-out Greece and Ireland, leaving the region’s taxpayers on the hook as the final guarantors of those nations’ debts.

Greek and Irish banks have issued at least 70 billion euros of bonds to create the collateral required to get cash from the ECB.

What you have here is micro-quantitative easing, or money printing. The banks are issuing unsecured loans to themselves.

The ECB has vowed to eschew the type of monetary policy implemented by the Federal Reserve, whose bond-buying to boost growth has left it owning more Treasuries than are held by China, the biggest foreign buyer of U.S. debt. By granting loans against bank debt, the ECB is adding to the monetary base and would be out of pocket were the guarantors to renege.

The yield premium investors demand to hold Irish 10-year bonds rather than German securities is 593 basis points, up from 153 basis points a year ago. The spread between Greek and German 10-year bonds is 852 basis points, up from 305 basis points a year ago.

Access to ECB operations allows the banks in question to obtain funding that is not currently available in the continued stressed market conditions.

Greece’s current state-guaranteed liquidity program is 55 billion euros, according to the IMF country report, equivalent to more than 20 percent of output.

‘Huge Credit Exposures’
To a very significant extent, the ECB is taking the place of capital markets. The ECB is no longer in a position to pursue a clear monetary policy because it is running huge credit exposures.

Ireland has put 46.3 billion euros into its debt-laden banks in the past two years as property prices collapsed and loan losses soared. Irish-based lenders, including foreign-owned banks, received 126 billion euros of ECB funding at the end of January and as much as an additional 51.1 billion euros of “exceptional liquidity” from the Irish central bank, figures published on Feb. 11 show.

“The own-bond issuances are a pragmatic response in exceptional circumstances,” said Donal O’Mahony, global strategist at Davy Capital Markets in Dublin. “While the notes are not backed by the banks’ own assets, they are backed by the government guarantee, which is an important point. State- guaranteed notes are ECB-eligible collateral.”

“The ECB accepts government-guaranteed bonds as collateral,” said Maraffino. “The Irish banks are replacing expensive emergency liquidity with cheaper ECB funding. It’s just the way it works.”

As the lender of last resort, the job of the ECB is to ensure the European banking system has the liquidity it needs to function. While the nascent European Financial Stability Facility probably will have the task of ensuring solvency, for the moment the ECB has that role, too.

“This is a great example of bank risk moving to national government risk, and now to ECB risk,” said Jean Dermine, professor of banking and finance at INSEAD business school in Fontainebleau, France. “The ECB is increasing the money supply and that is raising inflationary pressure. There is also credit risk, the fact that default would lead to a loss for European taxpayers.”

‘Difficult to Distinguish’
Monetary growth in the euro area, as measured by M3 money supply which the ECB uses as a gauge for future inflation, turned positive in June and reached a 15-month high of 2.1 percent in November.

“It’s difficult to distinguish banking and sovereign risk,” said Nicolas Veron, senior fellow at Bruegel, the Brussels-based economics research group. “What happens if there’s a default?

Everyone would like to avoid testing that out in real life. Governments are really scared of the consequences of an actual restructuring.

JR said...

Hi Pinto,

AE has a big semantic thing for velocity, mostly because they want to point out what they perceive to be erroneous aggregation. Example being the infamous M(V) = P(T) of the monetraist bent that Shostak discusses. A big AE idea is instead focusing on people's demand for money. The idea that what Keynsian influenced economists might view hording is to AE rational consumer behavior that conveys an important market pricing signal to producers.

But aside from AE nittiness over "circulation" (for example Rothbard argues in part it never "circulates" because someone always owns the media of exchange, its always in someone's possession), AE is making the same point as FOFOA.

Its all about people's demand for money. Rothbard and Shostak are trying to get the focus on individual actor's and their demand for money. FOFOA quoted this from Maybury's speech:

"A key point is that velocity and money supply can act as substitutes for each other. A 10% rise in velocity has the same effect as a 10% rise in money supply."

What Maybury is talking about is people holding or saving money because of increased demand for money. Like this quote from the same above piece:

This is why Franklin Roosevelt said in his first inaugural speech, "The only thing we have to fear is fear itself." People were afraid to spend their money, as they are now, and velocity was falling, which has the same effect as deflation, because if you don't spend your money, it's not in circulation.

What Maybury and FOFOA call velocity falling is what AE calls demand for money rising. FOFOA contends demand for money influences prices expressed in that money, and AE and Rothbard agree, like for example Rothbard in WHGDTOM::

we will see that movement in the price of money caused by changes in the demand for money yields a positive social benefit--as positive as any conferred by increased supplies of goods and services. We have seen that the total sum of cash balances in society is equal and identical with the total supply of money. Let us assume the supply remains constant, say at 3,000 tons. Now, suppose, for whatever reason--perhaps growing apprehension--people's demand for cash balances increases. Surely, it is a positive social benefit to satisfy this demand. But how can it be satisfied when the total sum of cash must remain the same? Simply as follows: with people valuing cash balances more highly, the demand for money increases, and prices fall. As a result, the same total sum of cash balances now confers a higher "real" balance, i.e., it is higher in proportion to the prices of goods?to the work that money has to perform. In short, the effective cash balances of the public have increased. Conversely, a fall in the demand for cash will cause increased spending and higher prices.

FOFOA and the AE folks are looking at a lot of the same things from different perspectives. Hopefully, like the particular the velocity language confusion at hand here, these semantic differences don't tie up what is otherwise fertile room for agreement and intellectual growth.

Cheers, J.R.

JR said...

The concept of synthetic supply of dollars, or the dollar recycling into debt inflation FOFOA discusses in Credibility inflation and elsewhere is a consequence of people's demand for money.

People believed in the credibility of the debt system and wished to save their money in it instead of demanding goods. Like for example international countries that buy/bought US debt. Whether you call it decreased velocity or increased demand for money, either way it leads to the Greenspan idea of sterilizing inflation by recycling the inflated dollars into dollar debt. Saving dollars in debt.

The reversal of this process of credibility inflation of debt occurs as market actors lose faith in the credibility of the debt to store value. And thus market actors decrease their demand for saving money. And we know what Rothbard thinks will happen when people decrease their demand for saving money:

Conversely, a fall in the demand for cash will cause increased spending and higher prices.

Pinto said...


A couple of comments, then I have to hop. More later.

In citing Harare as an environment where high monetary velocity coincides with goods price inflation, FOFOA and others get caught in the famous causality trap. Because high monetary velocity exists during runaway price inflation, does that mean that high monetary velocity caused the price inflation? Of course not.

Money is a medium and people hold it for a whole host of reasons. During a hyperinflation, people spend the money as quickly as they get it because it has been and is been abusively printed. In the hyperinflationary world, society is swimming in money and, instead of holding more and more of it, they spend it as quickly as they get it because they realize that it will not hold value. It is hot potato currency. Here you have it.

Prices are determined by how much money is in society's "money tank" vs. the value of the economy. People hold money for a whole host of reasons and velocity can be high in a price inflationary or deflationary environment. Again, I recommend this article for valuable insight regarding monetary velocity:

Re. runaway gold lending, the scenario of runaway gold lending causing synthetic gold money creation and extreme gold money velocity does not happen. In the gold money system with its relatively fixed amount of available gold money, as borrowing increases, the money (gold) available for lending declines causing interest rates to rise. This makes borrowing more expensive and decreases borrowing.

Finally, I really recommend the slow reading and digestion of the Shostak article. It sheds a great deal of light on the concept of monetary velocity and price inflation.



Pinto said...


One last quick thought. JR - in your quote above, Rothbard is not referring to monetary velocity causing inflation.



DP said...

Pinto: During a hyperinflation, people spend the money as quickly as they get it because it has been and is been abusively printed.

I think you may have this part slightly wrong. The way I see it, the money is printed after the onset of hyperinflation (lack of confidence in, and desire to hold, the currency). The currency begins to lose confidence value, and goods prices rise as sellers wish to be compensated. This creates a circle feeding in on itself. The process of cranking up the presses in earnest then follows, as the people create the political will to do it. They all want pay rises to be able to buy those things that went "up in price" (in that currency), and the only way for the pols to give them what they want is to print up the new cash. That is then the beginning of the end.

Pinto said...

We have the posting problem again as my comments are being taken down. I responded to FOFOA this morning.

DP - hyperinflotion doesn't just happen. It is the result of currency abuse. The extreme demand for cash (firing up the presses) occurs when people start withdrawing money from banks etc. and spending it quickly. This occurs well into the monetary abuse.

This is when the monetary velocity picks up as people spend whatever they have.



JR said...

Excellent Pinto,

I'm glad you agree, Rothbard is discussing how demand for money influences prices expressed in that money.

Rothbard is clear in his agreement with FOFOA that the price level can change absent monetary inflation (aka the supply of money is constant) because of changes in the demand for money.

It is wonderful to see your open-mindedness and rapid ability to assimilate new information and thereby achieve a deeper understanding of both AE and FOFOA. Its so rare to see a Rothbardian influenced mind that is freed from the shackles of monotheist economic devotion - you are a star!

Cheers to your continued growth,

Greenie said...

an interesting chart

costata said...


LOL, pure gold. You are a star.


costata said...


Applying FOFOA's perspective (as outlined in the exchange with 'enough') this chart appears to be sending a message. For the paper game to continue the paper price of gold needs to go higher. Can it fall in the short term? Perhaps, but the risk grows with every takedown when physical demand is robust.

Blondie said...


The posting problem affects all commenters from time to time, as Blogger automatically sends some comments to the spambox, seemingly arbitrarily (although the placing of links in the comment seem to increase the likelihood), and the blog owner is not notified, so must be checking the spambox regularly on a busy blog such as this. There are no settings with which the blog owner can alter this, so don't take it personally.

You're quite right, hyperinflation does not "just happen".
I also totally agree that currency abuse is the cause, but my definition of this differs from yours:

The currency abuse has already occurred, in the massive synthetic supply that has developed up until now.
The excessive printing still to come is not the abuse, it is the fulfillment of the contractual obligations of the printers and the political will to avoid a crescendo of default.

And who was responsible for that currency abuse?
Not the bankers, they are merely the facilitators.
The responsibility lies at the feet of everyone who at any time spent money they had not yet worked (created value) for.

That's pretty much all of us.

In much he same way I once wondered how the person who felled the last tree on Easter Island felt as they did it, I wonder how the first debtor felt, as they borrowed for the first time. Every debtor since has drawn their confidence from the fact that there are existing debtors, and nothing bad seems to have happened (yet), but the first debtor did not have this excuse. The lemming jumping off the cliff justifies this with "everyone else is doing it, so I should too", but what of the thought of the first one?

We created the demand for the synthetic supply, and now that it has reached its limit, we will witness it deflate.

Against Physical Gold.

enough said...


"can it fall in the short term? perhaps"

going by past experience...when the daily full stochastics reach above 80 (86 now) we have had quite a pullback.

Now with something like S&P where levitation is the national pastime, the dailies have stayed up there for a good while.

Not so with paper gold. Each time we reached up here we've puked. We touched the 50 DMA today and bounced off it like an electrified fence

If we had made a new paper high here then I would say we could levitate but we've come nowhere close to a new high.

None of this amts to a hill of beans because another selloff just removes more physicasl from circulation and brings BB hari kari that much closer.

Maybe just one more opportunity to buy some cheaper coin as premiums at least where I am have not increased....

Or maybre it's different this time and the BB's draw the line and decide to levitiate their liabilities now...

Even fighting some of their banker comrades looking for a quick paper takedown scalp.

Cant wait to see those "cockroaches cannibalize their own kind"

Robert Leroy Parker said...


I would very much like to know your opinion on the concept of import certificates.

Perhaps you have addressed this previously.


Mike said...

Gold in your hand is worth 2 in the bush

Obama Administration calls for 5% royalty on gross proceeds of mines Feb 16th, 2011 10:17 by News
by Dorothy Kosich
Wednesday, 16 Feb 2011 (Mineweb) — President Obama’s Fiscal Year 2012 proposed budget calls for charging a 5% royalty on the gross proceeds of hardrock minerals mined on public lands including silver, gold and copper.

The President is proposing a number of new royalties and fees on both hardrock and coal mining, along with reductions on oil and gas subsidies, which he says will save the country $3 billion over the next 10 years.

The Office of Management and Budget (OMB) said the President’s budget “provides a better return to taxpayers from mineral development.”

“A number of recent studies by the Government Accountability Office and DOI’s Inspector General have found that taxpayers could earn a better return through more rigorous oversight and policy changes, such as charging appropriate fees and reforming how royalties are set,” the OMB said.

… Senate Majority Leader Harry Reid of Nevada, a longtime advocate of Nevada’s gold mining industry, said, “I’m willing to consider any proposal for mining reform that protects the mining industry, doesn’t kill jobs and shares revenue with the state.”


RS View: The old warning still applies — as gold heads ever higher, expect the ever-hungry government to seek an increasing portion of the abundant natural wealth that miners are tapping into. As a gold-minded investor, the easiest way to dodge this official bite is to choose gold in-hand rather than gold in the ground; i.e., invest your money for the metal instead of the mining operation, thus accumulating the output not the input. Capiche?

Robert Leroy Parker said...

Correct me if I'm wrong, but it seems to me that the concept of import certificates is very similar to that of freegold. Except freegold is vastly superior in its inability to succumb to fractional reserve lending. If this is the case I believe I've had my "aha" moment and realize freegold's inevitability.

Perhaps you can clear my thought process since as I said before, it seems you have vision and the rest of the world wears bifocals.


costata said...


I broadly agree but I think this game can continue for quite a while yet. I think Randy Strauss' 2013 target for the launch of the new system is still achievable (delayable?).

If they can ration the new supply of physical gold (mine supply and scrap) so that it is exclusively a shrimp-only market, this could allow the can to be kicked further down the road.

Robert Leroy Parker said...

One more question. Does anyone see a Japanese debt crisis being the catalyst to set freegold in motion?


Texan said...

FOFOA, i am really puzzling over your comment that the BBs are net paper buyers, or soon will be.

When I watch paper, I cannot for the life of me fathom who is selling, because really, unless you have gold to sell, why would you bother shorting? And the miners don't hedge anymore. CBs don't sell anymore. Hedge funds and even pension funds are tiptoeing in as buyers. China and India are buyers. So who is selling? Is there just that much scrap supply?

Wendy said...

Does anyone have an opinion regarding the crude markets?

Yesterday Brent crude hit a two year high while WTC hit a 2 month low!!

I find this very confusing.

Edwardo said...

Don't be confused, just know that Brent has the upper hand over WTIC for very good reasons.

enough said...

Hi Wendy,

WTIC is the contract most often used as the measure of crude prices in the usa....

isn't it possible that it is being "managed" as so much data and index's are to a specific effect/end...

to ATTEMPT to keep americans fooled into believing inflation is not out of control( which it is)

Even though the usa measures price inflation ex food/energy, a sharp rise in oil would make any attempt by Mr. Bernanke to continue QE and continue to monetize debt very difficult to sell to congress or the public

costata said...


Two oil specialists analysis of the Brent vs WTI divergence plus Rob Kirby (h/t Harvey Organ). FWIW Kirby's post did not impress me. Take your pick.

Jeff Rubin


Rob Kirby

Wendy said...


Thank you. Can I ask a favour? I know you've read all of these. Would you mind if I cheated and asked for a synopsis? I respect your opion always.

When not at work, my every waking moment this week is spent on learning about the microbial reduction of ammonia in aquaculture/aquaponics .......

it's making my brain really really hurt!

But if I don't figure it out, my fish will be compromised (dead).

I will be grateful if you could make a long story short. ;)

Wendy said...

Oh for christ sake:

I meant to address my post to COSTATA!

WTF is up with the typing??

costata said...


Re: Japan as catalyst.

I was leaning toward this as a possibility a couple of years ago but I now think it is not quite as simple as it appears. Let's review the argument for Japan as the catalyst for the crisis that brings down the $IMFS.

Japan has a huge level of sovereign debt (around 200% of GDP if memory serves me). To date they have been able to meet all of their borrowing requirements internally, in yen, at low interest rates, from their citizens huge pool of savings. It is argued that when Japan has to go to the international debt markets the day of reckoning will have arrived because they will face much higher interest rates which will trigger the crisis.

At present the Japanese government is still able to borrow internally. At some point it appears that demographics will bring this situation to a head. As their baby boomers retire in increasing numbers the pool of domestic savings will shrink and the government will no longer be able to fund its deficits internally.

At that point a number of analysts believe that the Japanese government will have no choice but to hyper-inflate in order to "default" the debt and their unfunded liabilities wiithin Japan.

The argument flows that this could trigger the end of the $IMFS because, say, Japan would dump its US$ and USG debt holdings. This is the part of the scenario that I don't get. If Japan devalues their currency the US dollar holdings become more valuable in terms of Yen.


costata said...


There are a couple of other snags in this Japan scenario. The USA wants to do the same thing ie. default on its debt through inflation and currency debasement. (Many here are convinced that this will only be achievable through hyper-inflation.) In any currency devaluation "contest" the USA has the unique advantage of being the issuer of the international reserve currency. Japan, of course, does not.

There is also another wild card - China. Last year China purchased some Japanese and South Korean government debt. China's motives may not have been precisely the same in each case but the outcome was the same. It lifted the Yen and the Won.

It is no secret that China wants to move into higher added value manufacturing sectors. In this regard Japan and South Korea are both competitors and possible sources for the transfer of technology and expertise.

If China can put a floor under the currencies of these competitors it may be justified by the economic benefits to China.

All in all it seems to me that Japan is merely a pawn in this game and it is more likely to continue to twist in the wind while the main game is played out elsewhere.

costata said...

Hi Wendy,

"my every waking moment this week is spent on learning about the microbial reduction of ammonia in aquaculture/aquaponics..."

Got to admire a girl who knows how to have fun.

Re: Brent vs WTI

Reading between the lines, it's a non-story according to Jeff Rubin and Platts.

Rubin explains that there are infrastructure problems in the USA which have resulted in the right grades of oil not getting to the right places and a build up of certain grades of oil in storage as a result.

Platts explain that the international markets have been evolving and that WTI is simply less important globally as a benchmark these days.

Robert Leroy Parker said...

Interesting thoughts costata. Thanks for your reply.

China backstopping japan does seem plausible. If this does not occur, however, kyle bass's most recent investor letter makes a very strong case that the gig is up for japan in the near future and they will have to print or default.

If this happens, he argues the contagion will be systemic, but perhaps you are right in that its significance is overvalued. Although a significant recession in one of the largest economies does seem difficult to contain.

costata said...


By way of clarification, I'm not suggesting that Japan isn't, at least potentially, totally screwed. My thinking is that Japan is not a likely catalyst for the RPG/Freegold transition.

I have read KB's latest newsletter since posting that reply. FWIW I agree with him on most of the issues that he raises but that does not make Japan a catalyst for a transition. It could be a sacrifice to the maintenance of the status quo.

Again FWIW I think Japan is a victim, in a sense. How has deflation (defined as falling prices) hurt that country over the past 20 years? Why is a gradual deflation an evil?

I'm just thinking out loud at this point.

MatthAu said...


How strange, I'm looking into aquaponics at the moment too, and wondering about the process from ammonia > nitrites > nitrates.

what are you reading?

sorry for off topiccing :)

raptor said...

Joel said...

I think the worldwide sovereign debt crisis will occur much faster than most think, as many of these analysts use either current or moderately higher interest rates in their projections. In the US, for example, each one percent increase in int. rates increases annual interest by 100 billion dollars. Throw in even a modest historical rate of 7% or so, and all of the debt laden economies surpass 100% of GDP, Bass' prescribed tipping point. Imagine how quickly it all comes to a head with hyperinflation. Even Merkel is now playing the bailout game, at the expense of the Germans who had worked so hard to keep their house in order. With Euro now stuck in the trap of debt monetization, a gold revaluation may become a necessity versus an option, and the only politically feasible solution.

Wendy said...


The standard process of nitrification isn't enough for my system as I'm way over stocked. I'm looking into bio floccation.

The process involves bacteria that use ammonia to make protiens that the fish eat. Problem is that no one knows much (if anything) about it, so I'm on my own.

If you want a great source of information try "practical aquaponics", it's a forum based out of australia. Lots of experienced people there.

DP said...

Costata: How has deflation (defined as falling prices) hurt that country over the past 20 years? Why is a gradual deflation an evil?

I'm just thinking out loud too now, but I reckon there are a whole lot of young Japanese 'Freeters', who never had a "proper job" and probably never will, and they probably have our answer

Wendy said...

Thanks Costata,

It's off to work for me now.

moneymaverick said...

the problem with 90% gold asset allocation is we don't know when the "one time price adjustment will occur". "Wealthy" folks might be able to do 90% gold portfolio but hardly any do as the fiat savings work just fine for them now. You need help to "keep this blog going" and I think you are worth it. HOwever, "political actvists" go only spend so much time doing things that "dont bring in fiat dollars" to trade for food.
This cycle will end.....but we just don't know when......and 90% in gold is just too much for many at this time.
That post pic you have is worth a fiat donation.....defend the precious.

moneymaverick said...

.....political activists can only spend.......

Golden said...

Hello everyone,

I just read this at this link:

Bottom of the page


Despite the huge tide of paper pyramided currency and notes which are now flooding the world, at some point, every credit extension must return to be based, in however minuscule a fashion, on some deposit of gold in some bank somewhere in the world.

Because of this factor, the London merchant bankers, with their power to set the price of gold each day, become the final arbiters of the volume of money and the price of money in those countries which must bow to their power. Not the least of these is the United States.


The above paragraph in the middle above caught my attention. It captures the vastness of the top down pyramidal control mechanism that the system of finance really is.

I think everyone becomes confused in FOFOA states...Another had an expansive aerial view of the whole top down system and was trying to describe it in his postings.

The above statement made everything click for me in what FOFOA describes in that you need to change your view point or position in order to 'see' the mental concept of the system as Another tried to describe. The trouble is you have to do the 'moving' and 'changing' of your OWN perspective of the system your living within.

I have given up on 'analysing'. It is a great intellectual and stimulating exercise. However, I now see it as trying to make meaning or connections by looking at the individual bricks or stones falling in a huge collapsing upside down pyramid structure.

Robert Leroy Parker said...

I agree that deflation can hurt the youth's work opportuniy. But i would also say that technology being inherently deflationary effects everone in the long run.

Anyone elses thoughts on import certificatea vs freegold?

DP said...

My thoughts are that it is akin to comparing a lemon with a cherry.

Or perhaps comparing a book of the trade protectionism and extortion of taxes from innocent consumers section of the tax code, with a cherry.

My $0.00

Jeff said...


Such a dramatic price increase to maintain the paper gold market would be difficult to control. Paper gold buying would increase, but so would physical gold buying. You see CBs backing the demand with physical; this is interesting since CB gold is to a degree under control of the BIS, correct? And they do not wish to sell physical at suppressed prices.

If gold suddenly begins to vastly outperform stocks this will be a huge problem for the Fed, etc. 7k gold would put huge pressure on the paper gold structure. I am curious how people see this playing out.

S said...

costata said...

You are right on about Japan being victim. Look at the events occuring around the momentum behind Ozawa and his more independent FP (Okinawa rally/basing) when the Korea incident occured and Kan used it to scream need for US. The US is holding another exercise with korea incoming after exercising in south asia last week. Japan is the lynchpin of boxing China in from open access in the Pacific. As those fleeter or whatever they are called beomc emore active - big if - would not be surprised at all to see Japan move to a more independent voice re China/FP. The sending of troops to Indian Ocean was a milestone and there are lowd calls for rearming the forces. Bass is right, just like all the other widownmakers - recall HH is short Corps in Japan - who went bankrupt trying to call the collapse. Japan may well be sacrificed, but such a move would blow a huge hold in the US Asiapac naval strategy.

costata said...


FWIW I think Freegold-RPG + currency swaps will do what Buffett envisaged with his import certificate concept to some degree without the political bickering and potential for rorting that has characterised other "cap and trade" initiatives such as the carbon emissions "market".

Blondie said...

For those who missed it above,

Golden said:

" "Despite the huge tide of paper pyramided currency and notes which are now flooding the world, at some point, every credit extension must return to be based, in however minuscule a fashion, on some deposit of gold in some bank somewhere in the world."

Another had an expansive aerial view of the whole top down system... you need to change your view point or [perspective]... in order to 'see' the mental concept of the system as Another tried to describe.


If it doesn't seem like an epiphany, cut 'n' paste it to your desktop; one day it will.

Rui said...

@ DP
Remember that Petro-Gold story? Another said sth like “no central banks dare play Saudi for a fool”. That story was probably true as I could imagine Saudis telling US, “You better put some gold on table if you wanna buy our crude as we’ve seen what you did to Dollars in summer of 1971.”

Note that they weren’t convincing Saudi into conceding to the “political will”, were they? They were not warning Saudi of the danger of transacting in gold, were they? Well, I’m not sure. They might have tried only to have Saudis laughing it off. Who knows? Bottom-line, Saudi held onto to their ground, demanded the contracts be settle in gold and got the deal they deserved.

(Now I’m gonna say sth that bankers here may not like. Try taking it technically rather than personally.)

So why do these CBs now offer the rest of us a FG system which not only encourages us to transact in FIAT but also tinkers the system to make it hard to do it in gold? I think it’s b/c they believe you and I are fools they can play for. So what’s the right thing to do here? Shall we give in to this “political will” and admit that we are fools to the CBs, or pull a Saudi of our own?

I’m not saying A/FOA were deliberately setting a scam up for us. Not at all. I think they are nice people. I just find it troubling in this tone of elitism and the tendency to play God with the system that always leads to unintended consequences which lead to more playing God down the road until the system falters and, finally, fails. My 2Cs.

Blondie said...

RS View:

"An escalating price (& value) for gold, relative to all other things, is unique in that it engenders innumerable societal benefits — all while causing no significant negativity or hardships in the process."

DP said...

Hearing you Rui. I think the Saudi gold is the kind that gets put on the table and just stays there, lying very still, not the kind that gets lent out for nickels and dimes interest and artificially expands velocity. Certainly it isn't the kind that doesn't have clear title and ends up fractionally reserved and liable to default. That's the same kind of gold that you and I want to have too of course.

The fiat half of Freegold, the side that is used for trade or short term saving, rather than safe long term saving assets, doesn't suffer with the problem of not being able to locate the wherewithal to make depositors whole when a chain link inevitably breaks and the political will calls for it to happen. What isn't lent can't be lost. So, it seems to me what you and I are being offered is a safe means to escape the problem, while also satisfying the societal demand for borrowing from the future. You're only going to be played for a fool if you choose to keep long term savings in paper still.

DP said...

Do you have something like oil to offer, that the world can't refuse your terms? (Yes, do I hope you do my friend! :-) )

DP said...

Something that seems almost ridiculous to ask now, but I am feeling emboldened to do it anyway right now.

Something I would LOVE to know, is if any of the readership happen to have access to the BIS data on BB unallocated commitments and the reserves held against them. Clearly, if there are they are going to be highly discrete people I suppose (hence I feel it's almost ridiculous to say this at all). But, it seems like Another managed to be both.

Robert Leroy Parker said...

How about busting the silver comex? Could that implement freegold?

oldinvestor said...

"What isn't lent can't be lost."


enough said...


Next week is march options expiration for gold and silver on comex.

Regarding the smackdown that normally occurs just you view this as supression, just a quick scalp or possibly the combo meal?

I mean the very low recently of 1310ish occured precisely on 1/26/11....feb. comex options expiration !!

thanks, E.

enough said...


could this be the one period where all those different trading groups with their diverse interests/strategies/profit motives/suppression motives all form a grand alliance?

This would account for the clockwork like nature and great effectivness.

That all these parties are aware that it suits all their interests and feel confident they can achieve the desired outcome

littlepeople said...

You question a possible smackdown as expiry nears.

As FOFOA said, the PTB need to let prices rise to quell demand for physical, or else the paper markets will evaporate. Silver especially is seeing white-hot demand; the low (suppressed) prices combined with physical tightness is causing some giants and lots of ants to take silver whenever and wherever available--growing OI on COMEX, talk of China raiding SLV to take delivery of baskets of shares, etc.

Unless they let silver run (gold too), they will run out of physical, then the paper markets will be seen as the corrupt facade they really are.

Unless the PTB are ready to loose freegold, it seems to me that they need to let paper gold and silver rise.

enough said...


you said

"Unless the PTB are ready to loose freegold, it seems to me that they need to let paper gold and silver rise"

rise in a staight line?

I understand very well what FOFOA said. But the fact is price was mauled into last opex and many before with the very low in the cycle timed to opex day....

what would be your explanation for this?

FOFOA also points out that the interests of various players are NOT monolithic.....look at FOFOA's post 2/16 1:07am above.....

There is some segment of the bullion trading community that often wants prices down into opex. This is a fact. Your post above seems to be in denial of reality( past reality of course)

No one can predict the future. My comment is related to past opex weeks ( one just 3 weeks ago)..not future ones.

Jason said...

What is FOFOA'S view on possible gold confiscation or a future mega tax hike on net revenues from gold?
can someone explain?

Pinto said...


A few comments as I am catching up on some of the discussion.

First, Blondie above says

..." And who was responsible for that currency abuse?
Not the bankers, they are merely the facilitators.
The responsibility lies at the feet of everyone who at any time spent money they had not yet worked (created value) for.

That's pretty much all of us. "...

Excessive borrowing (debt bubbles) occurs when interest rates are set too low by central bankers in a fiat money system. This easy money creates a distorted and false economy and bubble cycles.

As in the 1920s when central bankers got their "flexible money", our current 15 year serial-bubble was caused by loose money policy by the central bank. To pin the blame on "all of us" when the incorrect interest rate is set by central bankers is counter factual.

This power to create bubbles and crashes, which is what central bankers do, is what Another and FOA are ultimately guaranteeing because they want to have a fiat money system projected on a gold saving system. Similar to South American countries that have dual currencies - one for internal use and a second currency for trade - the people are continually impoverished by currency inflation (abuse) by central banks. Another and FOA would have us believe that it is somehow good for us that THE MEDIUM OF EXCHANGE (!!) can be created at will.

It hasn't worked in South America and it won't work in N. America or Europe using gold as the savings medium while the medium of exchange is fiat.

JR notes that Maybury says " A 10% rise in velocity has the same effect as a 10% rise in money supply. " First, Maybury has his terms mixed up. What Maybury means to say is it is the same as a 10% rise in the money stock, not the money supply.

The nub of the whole Another/FOA argument , at its root, against gold money that is being promoted by JR and others is that in a gold money system, a debt storm will be caused by runaway gold lending which simply does not happen. And to suggest that fiat currency will somehow save us by allowing everyone to feel the pain from much bigger speculative booms and crashes typically caused by fiat money is, again, without merit.

In a gold money system, a high rate of lending causes interest rates to rise and lending declines. Endless booms and terminal crashes are a feature of fiat money.

The whole argument about resultant "monetary velocity" from the gold lending storm is a complete distraction.



Manoj Samanta said...

Jason, Freegold is the exact opposite of gold confiscation. FOFOA does not see any gold confiscation, and expects taxes on pure gold to be minimal under freegold regime. Please take a look at the old articles.

costata said...


Here are the links to two of FOFOA's posts on the confiscation issue.

Confiscation Anatomy Part 1 Updated

Confiscation Anatomy Part 2

J said...

I've brought it to FOFOA's attention that he should offer a monthly automatic payment option for those of us who would like to consistantly contribute.

I'm sure it would be nice if FOFOA knew when money was going to come in IMO and it would allow him to concentrate his efforts on this blog.

I hope others will join me once FOFOA provides us with this option.

FOFOA said...

Hello Joel, Texan, J and Enough!

Joel mentioned GLD and COMEX and asked "what else?" Okay, I will give you the "short version" of my present view of all three. And this comment will hopefully address questions from both Texan and Enough as well. J, bless you! And as I said I will investigate how to do that!!

First GLD: While the draining of GLD will be an unstoppable process in my view, it is not necessarily the best way for a small Giant to get physical today. He can simply call up the bullion desk at any BB and place a currency exchange order, say, for $50 million. He has $50 million in his forex account and he would like to exchange it for gold. The BB will then debit his account $50 million and credit it with 36,300 ounces, or just over a tonne of unallocated gold credits.

They do this "currency exchange" without going to the market to source the physical because most "currency exchanges" like this never take delivery. They are simply off-market exchanges granting exposure to on-market movements. So when our small Giant calls back a few days later and asks for his 1.1 tonnes to be put into allocated storage, the BB will suddenly have a problem. They will now have to allocate some of their reserves at the paper price. If they don't have enough reserves, they will now have to go to the market and bid for the gold which could drive up the price and cost the BB a currency loss. This, I think, is probably where the GLD drain comes from.

GLD is a way for the BB who is caught flat-footed to complete an allocation request without booking a currency loss. And because the BBs are all competing commercial enterprises, I can imagine a scenario in which they are now watching each other closely to see who is dipping into this "emergency pool." I imagine that they each have their own troubled "reserve fraction" they are dealing with, known only to them. In other words, how many reserve bars they have against the gold ounce liabilities they have outstanding. It would be different for each bank and probably a well-guarded secret.

So any BB who is caught reaching into the GLD pool of physical is perhaps exposing himself to be one of the "most troubled fractions." And if outside (Asian?) parties are also asking for basket redemption now as some of the KWN reports state, this would add an additional level of stress to this, presumable, interbank paranoia that I can imagine developing.

Next COMEX: As my view develops I can see more and more how clearly irrelevant COMEX is to the physical market. In my "Reply to Bron" post I included this bit from Aristotle:

"Doesn't Mr. Butler realize that thousands of people can bet on the very same Superbowl? It doesn't get much clearer than this: where he states "People who buy COMEX contracts have a reasonable expectation of their contracts being fulfilled [the implication is metal delivery]" I offer this alternate view as one more accurate—'People who enter COMEX contracts have a reasonable expectation that their counterparty will pay up [cash] when the price changes.' And what's more, the price changes are based upon the supply and demand for these wager contracts. Metal has very little to do with the COMEX marketplace.

"The more clearly a person grasps this, more clearly you'll grasp a portion of the point I was making in my recent series of posts. Or else I am COMPLETELY out to lunch with no grip on reality."

Yes, betting - gambling. But this is only one of the non-physical purposes of COMEX. Another is hedging. If we compare the futures contract for February 2012 with February 2011, the price is only .63% higher (as of yesterday when I wrote this).


FOFOA said...


And looking at LIBOR from a few days ago, it looks like I could borrow currency for a year at .79% or "gold liabilities" for a year at .29%. So my gold loan would be .5% cheaper than a comparable currency loan.

Say I'm a hedge fund that wants to borrow $100,000,000 to play with for a year. Say I'm neutral to negative on the future of gold so why not take a loan like this? I can borrow $100,000,000 in paper gold BB liabilities and sell it for $100,000,000 cash. If the price of gold falls in the next 12 months I will make a profit of $1 million for every percent it drops. Of course if it rises over the next 12 months (like it has every year for the last decade), then I lose a mil for every percent it rises (roughly, of course).

So I'm going to hedge this so I can't lose. I'm going to pay the $5 million margin on a Feb. '12 contract for roughly two tonnes of gold, deliverable in a year. Now, if the price drops more than 5% in the next year (roughly), I'll make a million for every percent (in excess of -5%). But if the price of gold rises (like it has been every year) it won't matter to me because I've already locked in my price 12 months out at only .63% more than what I borrowed.

So it turns out that I am paying about .13% more interest for the loan than if I simply took cash ($130,000), but I also have exposure to a huge windfall if the price of gold drops! And being a hedge fund manager, I am clearly smarter than those stupid gold bugs at FOFOA.

Notice that no gold ever need move an inch in this deal. It's all paper, unless someone who buys those BB liabilities from our hedge fund calls the bullion desk and asks for allocated storage. Which is the risk these BBs are running by playing this game of issuing "gold credits" for cash profits. But they still have the GLD trick in their back pocket, at least for now.

So why does the BB even play this game? Well, you'll notice that it is making a nice .29%, or $290,000 profit for doing nothing more than issuing a paper liability out of thin air. Most of the time it never even has to part with reserves, or not more than a minute percent anyway. And the same BB might also sell that 12 month futures contract for $5 million in margin money. It can then earn another $40K during the year on that margin cash and then, at the end of the year, the contract is simply canceled or rolled over when the hedge fund settles up the loan.

All thanks to the COMEX paper gold market! "No gold – All paper!" (That could be their motto.)

So let's see, the BB makes $330,000 for the year (off this one small hedge fund) for literally doing nothing more than managing the public's confidence in its "gold liabilities" ability to deliver. Are you starting to see yet how the COMEX is really just a tool for the BBs to manage their reserves and to try to keep the bullion desk "allocation-line" phone from ringing off the hook?

So what if gold goes into backwardation on COMEX like silver is today? Notice that silver one year out is .07% LESS than silver today. This correlates with the fact that it costs .024% MORE to borrow silver than to borrow cash today. But before you get too excited about silver backwardation, you might want to consider that it could simply be a fabrication bottleneck rather than a system-killing "monetary metal" explosion. As Mantis rightly points out about backwardation:

"Warehousemen know this phenomenon well. It happens from time to time in nearly all commodities... Except gold."


FOFOA said...


And as Costata wrote to me in an email: "I'm listening to Kathy Derbes (PM dealer) being interviewed by Jim Puplava on the Financial Sense Newshour (Silver Hype vs. Reality). She is confirming the advice we saw earlier from the Perth Mint blog. Fabrication backlogs developing but no shortage of metal. She also claims to have received the same advice from a 60,000 oz per day refiner/fabricator."

Okay, so what about gold is different, and what does this have to do with the COMEX paper market and the incredible shrinking BB reserves juggernaut? First of all, there is plenty of gold out there in the world. At least 160,000 tonnes of it! So if a shortage appears in the market, enough to send all "time-dated receipts" into backwardation, it means that the actual reserve holders **IN SIZE** are not willing to part with their physical stash at anywhere near the given price.

Here are a few backwardation quotations from A.E. Fekete taken from my post Red Alert: Gold Backwardation!!!:

"Backwardation in gold should therefore be considered the self-destroying mechanism for the regime of irredeemable currency that “only one man in a million may identify and understand” (my thanks to Keynes for the felicitous phrase). This is where supply/demand analysis is utterly useless. The huge stocks of monetary gold are still in existence, yet zero supply confronts infinite demand."

"When contango gives way to backwardation in all contract spreads, never again to return, it is a foolproof indication that no deliverable monetary [metal] exists. People with inside information have snapped it up in anticipation of an imminent monetary crisis."

"At that point all offers to sell cash gold will be withdrawn. Gold is not for sale at any price. The shorts are absolved of their failure to deliver on their gold futures contracts."

In Confiscation Anatomy – Part 2 I wrote: "There is no shortage of gold at the right price. There is only a shortage of gold when it is confined at a FIXED price."

Today that word "FIXED" means "FIXED to the price of BB (futures & demand) liabilities created out of thin air." The BBs lend unallocated demand liabilities that are then sold at market by the borrower, hopefully only to gamblers and not to redeemers, and all the while the BBs are selling futures contract liabilities as hedges to the borrowers in the case of a rising gold price.

Let's think about this. BBs lend "demand receipts" while selling "time-dated receipts." Is this starting to sound familiar? You see, anyone can short gold like our super-smart hedge fund manager. Then they can buy insurance against a rising "gold" price so that they win big if the POG falls yet they don't lose if it rises. So who or what was doing the losing (if not the hedged shorts) as the price of gold rose year after year for the last decade? Something must be absorbing or containing this leveraged and explosive pressure.

Now flash back to the beginning of my Reply to Bron post, where I describe the 100% reserve bank process. Remember, that hypothetical bank was "selling" "time-dated receipts" for the full price in physical gold. Our BB is selling a similar product for only a margin paid in cash, not gold. Our 100% bank was then lending that gold, and our BB is likewise lending its own gold liabilities, or "demand deposits" backed by its unallocated (fractional) reserves.


FOFOA said...


In my post scenario the borrower would sell the gold into market where it would then come back into the banks as a new deposit. In our BB scenario, the lent liabilities are sold into market where they may or may not be redeemed for BB gold reserves.

Now the first thing I want you to notice is that COMEX is a round-about way, and a price-running way to get some of the prized BB physical reserves. Like I wrote above, you can just call the BB bullion desk and do a currency exchange into gold and later ask for allocation. So this is probably why most of the people that buy gold on the COMEX are only gambling on the price changes in a volatile market and not looking for physical delivery. Also, since they are only looking for ownership of fiat currency in an amount relative to small changes in price, COMEX allows for an attractive kind of leveraged bet.

Why would a giant that really wants physical seek it "on market" where he would likely run the price?

The second thing is that the BBs are not the sellers of "demand receipts" in the COMEX price discovery market. They are the sellers of "time-dated receipts" and the lenders of demand receipts.

Okay, let's grossly simplify this COMEX paper market. I think it will help us to understand why it is not the key physical market, even if it is presented to the flock as "price discovery."

First you have the BBs lending "credits" to the short sellers, the hedge funds, for fiat currency profit. The BBs also used to also lend to the producers for physical profits, but that game is pretty much over. On the COMEX selling side we have producers (physical) and hedge funds (paper shorts). On the buying side we have gamblers and commercial users. Can you see how this might lead to a precarious, unstable "equilibrium" of sorts, where any savvy BB could step in and tip the scales one way or another with minimum effort if it helped to "manage the reserves," which is all that matters to the BBs, and all they have to do in order to earn those "created from thin air" profits?

Now here's an interesting thing about all those "gold credits," those BB liabilities or "demand receipts" floating around in BB fractional reserve gold banking land: Do you think a giant from the past who made a sizable deposit of tonnes of physical gold into the banking system might have a greater (or more actionable) claim on the dwindling reserves than, say, a hedge fund who simply phoned in a currency exchange yesterday from yen to gold, or dollars to gold? Both of these gentlemen hold nothing more than unallocated claims to some ambiguous notion of physical gold somewhere within the (BB) banking system. So whose claim is more real?

Restating – does the person who established his unallocated account with a physical gold payment rank any higher in the pecking order than the earlier or later fellow who established his similarly sized unallocated position at the same bank with a cash payment? Whereas an allocated account sets you more securely above the fray, any UNallocated account puts you in the EXACT SAME large sea of unsecured creditors bobbing in the wake of a Titanic failure.

So, GLD—check. COMEX—check. What else? The "what else" that I foresee is, and will be, 100% UNSEEN until it that oh so fateful moment when it will be seen by everyone. The GLD drain is a mere reflection of what is happening unseen. And COMEX is a sideshow to distract and "MOPE" people away from what is really happening unseen… in the so-called "dark pools." Somewhere in this system all the remaining gold **IN SIZE** is busily being claimed. And at any moment (long before GLD is visibly drained) that process will be complete. Could it be two years from now? Sure. But I wouldn't bet on it. Could it be as soon as tomorrow. You bet! And that's how I placed mine.


Blondie said...


As I have no doubt as to your keen interest in and thorough understanding of monetary theory, I can only assume from your comments you have read little or none of FOFOA's archives.

The "Another/FOA argument" is firstly an attempt to assist particularly those of us of "western thought" to understand gold as it has been utilized as an asset outside the monetary system for most of its, and the monetary system's, history.

They go on to discuss how gold is still understood and utilized in this way by much of the non-western world, with an excellent example being how it is in exchange for a steady flow of physical gold that oil flows to the west at a relatively low price.

They then demonstrate how, as per Golden's quote above, All Paper is STILL a Short Position on Gold.

Finally, they outline how the current fiat system is not only unsustainable and already at the tail end of its timeline, but how much of the non Anglo-American world has already or is currently still positioning themselves for the end of the $IMFS, and for its natural successor.

The successor they describe is Freegold, a remarkably simple system whereby physical gold is the wealth reserve asset par excellence, available to everyone, the exchange rate for which is freely floating against all currencies, resulting in a self-regulating objective reference point with which to assess the relative values of everything else, and supplying a stable, undilutable medium for savers.
The medium of exchange continues to be fiat currency; the store of value is physical gold.

There is no problem with the medium of exchange being created at will in a Freegold system because it cannot dilute the savings. Overissued currencies simply lose value. They are measured against gold by the market, found wanting and their exchang rate diminishes accordingly. This is a self-regulating arrangement.

You are correct that it has not worked in Sth America, or anywhere else, because countries with dual currencies are still without an undilutable savings medium, thus we are not talking about the same thing. While it may seem a small detail, it has seemingly infinite ramifications, when one really gets down to thinking about it.

I believe I have put it in a nutshell for you.

You will, I asssume, be wanting more detail. You will find this post has a list of recommended reading at the end.

mortymer said...

Interview with Die Zeit
Interview between Die Zeit and Jean-Claude Trichet, President of the European Central Bank,
conducted by Mark Schieritz and Uwe Jean Heuser

"DIE ZEIT: Mr Trichet, you’ve been tirelessly battling this euro crisis for quite some time now, and yet it’s still not over.

Jean-Claude Trichet: There is no euro crisis. The currency has retained its value very well and is credible and remarkably stable – not just in one country, but in the euro area as a whole. Our problem is that the fiscal policies of some member countries have not been sound and that some countries are also lacking in competitiveness.

Zeit: What needs to happen?

Trichet: Here in Europe, we have an economic and monetary union. We at the European Central Bank take care of the monetary union; it is up to politicians to very significantly improve the functioning of the economic union. The member countries have to do their homework. We’ve always demanded this, and there is no longer any excuse for sitting back and doing nothing..."

mortymer said...

"...Zeit: So you will have to raise the interest rate?

Trichet: As I said at the last two press conferences in January and early February, all observers know that we will always take the decisions necessary to deliver price stability in the medium term. What is essential is to avoid what we call “second-round effects”: namely a situation where a transitory oil shock becomes entrenched in other prices, particularly through a wage-price spiral.

Zeit: In the 1970s such a spiral of increasing wages and higher prices led to inflation getting out of control. How will you stop history from repeating itself?

Trichet: A central bank must do this – and can, if it is credible and takes the appropriate decisions. The last 12 years have seen prices surge in commodity markets time and again. We have ensured price stability by taking the necessary decisions...."

Blondie said...

I see FOFOA has pulled back the curtain to reveal COMEX, in all its glory [/sarc], which I hereby move be upgraded from comment to post.

We now await his expose on the BIS (to round out the GLD/COMEX/BIS trifecta) as the piece de resistance, and most likely source of the "UNSEEN".

DP said...

Why did Eric King decide to use an image of Hank Paulson on this post? :-D

Short Squeeze in Silver Could Be the Big One

J said...

I guess paypal doesn't like it when I log in from a different country all of the time. I just sent some money to my account and it will be in paypal in 3-5 days. You'll get it once it clears.

enough said...

From UBS PM comment this morning:

silver bottleneck !! as FOFOA mentioned

and FOFOA thanks for your detaile reply and insights...great weekend !!

"Some constraints are specific to the silver market. One refiner notes there is less slack capacity in silver refining than in gold - and even less for the production of higher-grade industrial products. This is because not all silver comes out at, say, 999,9 or 999,99 after a single round of refining; additional refining is usually needed to arrive at the higher purities. Higher demand then sharpens the impact of these bottlenecks, sending the premium for these products higher. In some cases premiums have risen by more than 50%"

Edwardo said...

"Warehousemen know this phenomenon well. It happens from time to time in nearly all commodities... Except gold."

How long will the backwardation have to persist before we dismiss this benign, but, quite possibly, errant explanation? That this scenario might explain the present pricing structure in the silver futures also begs the question of whether folks like James Turk are aware of the effects of delayed fabrication-as opposed to delayed gratification.

Put less delicately, if the locus of the action in silver futures is, indeed, found in fabrication delays, it would, at least for this onlooker, call into question the savvy of Mr. James "I don't have T as my middle initial, and I'm no Captain" Turk.

enough said...

CME hikes margin requirements 50% on all gold and silver products.....


someone is getting very nervous!!!

Pinto said...


Thanks for your thoughts.

In the economy, the medium of exchange plays a critical role as its facilitates human interaction in the marketplace.

By utilizing a fiat money system, false signals are sent in the marketplace and misallocations of capital occur ultimately disrupting commerce through bubbles and crashes.

There are many forms of savings of the fruits of our labor. Whether that be home equity, stocks or other assets. And the value of these assets get distorted in a fiat money system.

Saying that Another's idea of making gold the store of value outside the monetary system does not address the damaging impact of fiat currency within the economic system and its ultimate impact on all asset prices.

Finally, separating the currency from the store of value breaks the critical stabilizing role of gold in the gold money system where interest rates are set by the demand for loans. This market-based modulation of interest rates stabilizes the economy which cannot occur with a separate fiat money medium of exchange and gold as a separate medium of savings.



littlepeople said...

Re: the likelihood of a smackdown, you questioned if I felt that the PTB might let the PM paper prices rise straight up.

As you know, nothing goes straight up for long. Unless it is freegold manifestation.

FOFOA's 4-pge post is right on, IMHO. There is no clear-cut way to know exactly how the paper market will die--will it slowly wither away? Will it explode in a supernova, so as to take many along all at once? Or will it just stop trading by declaration, leaving everyone to wonder what the F___ happened?

A lot depends on how much physical the CBs are willing to expend to keep the game going awhile longer. After all, SOMEONE owns the stocks at GLD, and it is not the ants who own less than a basket of shares. GLD could suddenly go bankrupt, and physical possession is 9/10ths of the law. Especially in today's lawless world of high finance.

Buy. Physical. Gold. Now.

Paul said...


good to thank Blondie for thinking, now I would like to be able to thank you also for reading. could you start with that please.

because you obviously still didn't ...

littlepeople said...

Re: James Turk and fabrication delays vs. short squeeze:

"Recall for a moment how the EE caps price. They do so by flooding the Comex with an almost endless amount of unbacked, paper silver. Think about that trade, though. To sell short, you need a buyer on the other side of the trade. And now, at this late hour, how can you reduce the open interest in the March contract if you're only selling new paper shorts to resolute longs who intend to stand for delivery in eight days? By raiding and selling, you're only compounding your problem because you are creating more open interest! If you're Blythe, you're left with only being able to freely sell the forward contracts in an attempt to influence the spot and nearby price. Does this explain the current backwardation? Probably.

To the point, however, what's a girl to do? You can see by looking at the chart above that Blythe tried to raid today but she didn't seem to do it with the usual bluster and gusto. How could she? Every new March contract she sells only adds to her problem. She is truly caught in a catch-22. Again, what's a girl to do?

If the March longs stay resolute, she's screwed. Even if only 20,000 stand for delivery, thats 100,000,000 ounces that the Comex has to deliver. By most estimates, that's their entire inventory. She and The Evil Empire must, somehow, convince/force March contract holders to close their positions but if they can't scare them by crushing price, how do they do it? They could get the CME to raise margin requirements but if you're ready to stand for delivery by putting up 100% of the cost in eight days, a margin increase today is of zero consequence."

From Along the Watchtower blog. Silver backwaration is due to a true, developing short squeeze--if the resolute silver longs stay that way.

Pinto said...


I did read and understand Anothers's concept of "self regulating reference point".

It does not work because commerce will be disrupted with continued fiat use as there is no stable medium of exchange and no market-based interest rate mechanism in Another's concept.

Again, fiat money, or casino chips if you will, are fine for incidental purchases but the medium of exchange must be (1) stable and (2) feed interest rate information into the market. These these critical requirements cannot be met by Another's Freegold + parallel fiat money concept.



Michael H said...


May I suggest the following: the presence of gold as a separate savings medium will affect the management of the purely fiat currencies for exchange. As Blondie put it, "This is a self-regulating arrangement."

What is your rationale for the statement that "the medium of exchange must be (1) stable and (2) feed interest rate information into the market."

Regarding (1), the USD has not been stable when viewed over the past several decades, yet it has served as an excellent medium of exchange.

Regarding (2), it seems to me that part of the function of 'feeding interest rate information' will be transferred to the gold price, which will feed information about how the market views the management of a particular currency.

Jeff said...

Silverbugs are whipped into a frenzy today, the noise getting deafening. Someone is going to be carried out on their shield soon, and I don't think it will end the way the silverbugs hope.

littlepeople said...

It is possible that the PTB are playing both sides to make it look like silver is cornered, so as to suddenly sell all longs into a death-spiral. We'll see, as expiry of March is only 6 trading days from now.

Looks like the PTB are allowing silver to run as high as it wants--at least today.

JR said...


Despite your conclusory assertion that unbacked fiat cannot be stable:

Again, fiat money, or casino chips if you will, are fine for incidental purchases but the medium of exchange must be (1) stable and (2) feed interest rate information into the market. These these critical requirements cannot be met by Another's Freegold + parallel fiat money concept.

The only Austrian to win a Nobel disagrees:

"The gold standard is a mechanism which was intended and for a long time did successfully force governments to control the quantity of the money in an appropriate manner so as to keep its value equal with that of gold. But there are many historical instances which prove that it is certainly possible, if it is in the self-interest of the issuer, to control the quantity even of a token money in such a manner as to keep its value constant.
"I think it is entirely possible for private enterprise to issue a token money which the public will learn to expect to preserve its value, provided both the issuer and the public understand that the demand for this money will depend on the issuer being forced to keep its value constant; because if he did not do so, the people would at once cease to use his money and shift to some other kind.
"I have no doubt, and I believe that most economists agree with me on that particular point, that it is technically possible so to control the value of any token money which is used in competition with other token monies as to fulfill the promise to keep its value stable."

via FOFOA's "Windmills, Paper Tigers, Straw Men and Fallacious Fallacies " "

Cheer, J.R.

Paul said...


Perfect to start with reading Another, but your claim of understanding might be a little premature me thinks. I would suggest to continue reading with the gold trail by FOA, and after that you have to dig through the archived posts by FOFOA from 2008 until now.

You will thank yourself for the effort !

JR said...


Is it ironic? I dunno but you assert Freegold will fail or cannot come to be because:

there is no stable medium of exchange

Yet this is precisely why your enthusiasm for a resumption of gold backed fiat money is illusory. Hayek:

I do believe that if today all the legal obstacles were removed… people would from their own experience be led to rush for the only thing they know and understand, and start using gold. But this very fact would after a while make it very doubtful whether gold was for the purpose of money really a good standard. It would turn out to be a very good investment, for the reason that because of the increased demand for gold the value of gold would go up; but that very fact would make it very unsuitable as money. You do not want to incur debts in terms of a unit which constantly goes up in value as it would in this case, so people would begin to look for another kind of money: if they were free to choose the money, in terms of which they kept their books, made their calculations, incurred debts or lent money, they would prefer a standard which remains stable in purchasing power.

Via FOFOA's Freegold Foundations

Pinto, you have a grip on many of the important economic concepts, as you keep echoing ideas FOFOA has previously brought to light in explaining Freegold. You just keep rooting for the wrong conclusion despite yourself.

Cognitive dissonance is no fun. Take a step back and apply the arguments you are advancing to their natural conclusion.

Get in the game sir!

Cheers, J.R.

Edwardo said...

Thanks for the reply, EE. As in so many instances, it is quite difficult to ascertain the actual state of play, Having said that, the fabrication story strikes me as a bit of, well, fabrication, a sort of "nothing to see here" equivalent intended to throw cold water on a raging inferno. I'm not saying it's false per se, but it is awfully convenient. And thrown into the bargain it makes folks like Turk look rather an empty suit for not being aware of what is said to be a somewhat pedestrian development. On another related note, I called my local PM dealer to see what he was offering for junk bags and bullion in various quantities. Suffice it to say that sellers were taking quite a haircut, at least from him.

enough said...


bid for silver american eagles in round lot size are spot + $1.75

thedeadfauvi said...

Has anyone seen Zoellick’s last?
I am not quite sure what he’s talking about. He is a strong proponent for the IMF as A monetary supervisor of the world. Did I get it wrong?

A monetary regime for a multipolar world
By Robert Zoellick
Published: February 17 2011 21:59 | Last updated: February 17 2011 21:59
The IMF should be directed to sharpen the multilateral review of “capital account” policies, as part of the G20’s new mutual assessment process (MAP). This review should compare national policies with international information indicators, including commodity prices such as gold. The IMF’s involvement, with its 187 shareholders, offers the G20 the incentive of greater legitimacy and the support of an institution with financial resources

Greenie said...

an interesting chart

costata said...

Hi All,

Re: Silver

First the pump, then the dump.

littlepeople said...

Yes. Top of the 26 year range. If ever there was a time to see what silver/gold are gonna do, now is the time.

Looking at your chart as a technician, now is the time to sell silver hand-over-fist, and buy gold.

Blondie said...

Freegold is not "Another's concept" or "Another's idea", and at no time did he make such a claim.

His claim was that it (Freegold) is simply the perspective and expectation of those at the BIS central banking level, and that as such he (and his Friend) made it available so that those whom were able to grasp this perspective too may "walk in the footsteps of giants" as well.

Jason said...

thanx costata

costata said...


I drafted a longer comment than the "pump and dump" excerpt above. I decided to cut the rest rather than risk stirring up the silverbugs. You have emboldened me, so here is the rest of it.

First the pump, then the dump.

Ironically the silverbugs appear to be in the process of achieving their fondest wish - a physical only silver market trading at silver's "true" value.

FWIW here is my scenario. There is a short squeeze in the silver market in progress. The target of the squeeze is the industrial users of silver. As a bonus the shrimps who buy retail fabricated product, the true believers, are being fed a steady diet of hype by their arch enemy - themselves. So demand in the genuinely tight market for some newly fabricated retail product is strong, but what about the secondary market?

The divergence that Edwardo is, perhaps unknowingly, alluding to in his comment above has been underway for over a year.

"Suffice it to say that sellers were taking quite a haircut, at least from him."

The silverbug pundits who are so vocal in their advocacy of physical silver never interview anyone who is trying to quit a hefty physical silver position. In most, if not all, of the forums where silverbugs congregate the voices are mostly on the buy side of the physical silver market.

Some paper silver is easy to roll. It's easy to get out fast and lock in a price somewhere close to the highs if you are astute and nimble (I'm neither, that's why I don't trade). Try that with physical silver. Put it to the test.


costata said...

Someone, please wake me in June with a list of all the silverbugs who were able to exit their physical silver positions at any currency price close to the peak Comex spot paper silver price.

In June I would also like to see the honour roll of those intrepid silverbugs who were able to exit a hefty physical silver position into a physical gold position at the low in the "official" spot price calculation of the GSR after adjustment for premiums, discounts and other overheads on their transactions.

I have no doubt the pump is underway (I'll even put a target on it - US$40.00 and it could spike higher). After the next dump* I guess the silverbugs will retreat to their usual defense, to whit "they never intended to sell their physical" oblivious to the implications of the words "unrealised profit". Yeh, I know, that's not important because "silver is real money".

*While I'm feeling reckless I'll give you my figures on the dump as well - US$26.00 or a GSR of 65:1.

Robert Leroy Parker said...

Costata, please continue your recklessness. I need the precise date of the top!

der said...


Real-world, OTD 'retail' ratios from the past 3 months (Anything over 50 carries a heavy weighting of 90% coinage):

50.9, 47.3, 48.4, 49.0, 55, 53.3, 53.4

Paul said...


june 13

costata said...


Thanks for the feedback.


"I need the precise date of the top!"

Ha ha, me too.

This post from Max Keiser's blog should be food for thought. Traditionally in order for someone to buy someone had to sell. Apparently this is no longer the case.

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