Wednesday, February 9, 2011

Reply to Bron

A Note: I originally started writing this reply to Bron to be posted in the last comments section. But somewhere around page 7 I realized it was too long to be a "comment." To anyone I have ever replied to: While my replies may be addressed to you, they are often written for everyone but you. To Bron: Once this reply got away from me a bit, I just sort of let it run. Hope you understand. End of note.

Ah, Bron,

I see now that it is true, that there is little new under the sun. (Bron, meet ORO.)

You write: "The phrase "always leads" I think is only true where fractional reserve banking is allowed.

"If… the law only allowed 100% reserve banking and time deposits (what I refered to previously as NON-maturity transformation) then you do not have credit being created or volume expanded.

"I don't think the problem is gold being used as a currency, rather the rules around banking."


I remember when FOA and Aristotle had similar conversations. So let's pretend we've eliminated fractional reserve banking yet we still have gold loans. The big difference would be that the banks (or whomever) could only lend gold that was put on deposit for the expressed purpose of lending. And the note held by the depositor would be a time deposit, not a demand deposit. Demand deposits could not be lent. Does this sound like what you are imagining?

So the depositor could not spend that gold note as it is not a spendable currency, not a bearer bond redeemable on demand. Problem solved, right? Wrong. The depositor can no longer spend the gold he deposited, but the borrower can! And he will give it to someone in exchange for something, and that someone may deposit it with the expressed purpose of lending.

Now we will have two notes out on one piece of gold. The second borrower will now spend that piece of gold and soon we'll have three notes out on that same piece of gold. This leads to a "synthetic supply" of savings, granted they are time deposits, as well as an increased velocity of the underlying reserve (which suppresses its value just like volume expansion), all with 100% reserve banking.

Now these time deposit notes are more like Treasuries than base money, I'll agree with that. But 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. But when this happens on a large enough scale (a chain reaction?), 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.

It seems the ingredient that you (and most everyone) miss is the ever present evolution, due to what FOA called the changing "political will." You (meaning y'all) point with great precision at the maths and structures that add up to: here is how it will work if we do this. "If we only constrain and regulate da banks in this or that way, the problem will be solved…" It's all the banks' fault, not the political will that flows directly from human nature. It reminds me of what I wrote about deflationists in Just Another Hyperinflation Post – Part 1:

"What is a deflationist? It is one who looks very closely at the present structure of everything, the laws, the rules, the regulations, what is supposed to happen, who should fail, etc… but ignores the political (collective) will that backs it all up."

What you (and virtually everyone) ignore is that 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.

I present now a few discussions from the past along these same lines of Thought. Please don't be angry at the length. I am not trying to bury you with words. Quite the opposite. I am trying to do you a favor by hand-picking a few key "off-Trail" posts and selections from what is actually quite a lot of fantastic material on this subject (as well as a couple brief detours). First up is Aristotle summarizing the logical journey of the mind he laid out in a 5-part series that developed into an extended discussion about Freegold, prior to the start of the Gold Trail.

(I recommend reading the full 5-part series at the link, but I'll warn you that it is 50% longer than this entire post! So I offer his very brief summary.)

From Hall Discussion Page 1:

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

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

[time for concessions to the real world]

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

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

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

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

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

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

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

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

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

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

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

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

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

FOFOA: Next, ORO objects. Just a snip:

ORO: Wrong. Non fractional lending does not increase the money supply because the great variety of non-bank notes are not bearer bonds, and not redeemable upon demand. They don't function fully as money substitutes - $1 of bank debt = $2 of money supply, $1 of bonds = $1 to $1.2 in money supply, and up to $1.5 for the most liquid bonds. (I am assuming that the situation is the one you refer to in the brackets). This bond type lending only increases the velocity of circulation and has little effect on gold's purchasing power.

FOFOA: FOA comes to the rescue explaining how the issue of political will applies, with shades of what I later covered in The Debtors and the Savers.

From Hall Discussion – Page 2:

Trail Guide (2/12/2000; 9:52:36MDT - Msg ID:25137)
Reality

Hello ORO,
Well, I knew that if I only asked, we would all receive! Boy did you deliver in ORO (Msg ID:25113).
Good stuff for everyone to read, my friend. You mentioned; """ The comments below - particularly those to Aristotle, are somewhat harsh. I hope this is taken in the spirit of friendly criticism."""

Sir, you can serve me (and probably everyone here) your "harsh" anytime. Waiter ,,,,,,,, I'll have a double order of that please! (smile)

OK, brace yourself ORO ,,,,,, a big plate of my "Trail" harsh coming up!

You write:
-------There are consequences to the existence of a fiat currency and for the use of debt money for trade settlement. FIAT HAS NEVER BEEN THE CHOICE OF THE PEOPLE ACTING IN COMMERCE OF THEIR OWN ACCORD. Even when wildly popular, fiat money has not had a single instance when it had not been established by force - by laws imposing its use.-----------

ORO,

On a larger scale there was always more to it than this. Human society has from the very beginnings formed tribes and picked sides against each other. When we are not battling nation against nation, we jockey for position within our own groups. Right down to "me and my neighbour against the three houses down the street". As a tribe ,,, as a nation ,,,,,, as a group ,,,,,, our war is really a human problem with each other and always has been. In better context; the problems are in the way we use our laws and governments to gain advantage over the next in line.

Whether through force (war) or democratic means, we subject ourselves to the order of governments. We rightly perceive that,,,,,, the order gained from this action ,,,,,,, the security of a group, overcomes the rights and property lost on a individual level that living in a tribe requires. It's been this way through the ages. It's a political process that has always had its in-house battles ,,,,, namely portions of society try to circumvent their percentage of lost rights and property by maneuvering the rules (laws) in their favor. Yes,,,,,if I can gain the advantages of tribe life and still keep my "portions lost",,,,,I'm gaining wealth to the disadvantage of the group. Truly, the most obvious action of not paying your taxes,,,,,and that's only a small item when viewing the world battle as a whole.

So, how does this apply to money?

When you and others say """ FIAT HAS NEVER BEEN THE CHOICE OF THE PEOPLE ACTING IN COMMERCE OF THEIR OWN ACCORD """ ,,,,,this is true.

This is true, but this was never the thrust of the argument. The use of money in any context, fiat, gold or seashells, has always entailed the use of borrowing and lending... And as long as economies function at a profit, debts are made and paid back without argument. However, when the eventual downturn arrives, some portions (perhaps a large portion) of the owed wealth (debt) cannot be returned.

It's here,,,,at this point in tribal life,,,,,,,that all of the context from above comes into play. The "reality" of life on this earth is this: ,,,,,,Some portion of society will use their influence or control of the leaders to make their debts easier to pay. In fact,,,,,it's times 2 for that number of government influencers ,,,, because even the ones that have debt owed to them will try to alleviate an impossible payback situation the ones that owe them face.

You see,,,,,tribal life and the human nature that comes with it,,,,,,,,will not allow any money system to "completely" destroy the wealth of a good portion of society. Even if everyone is plainly shown that they are going to lose something ,,,,,,they would still option for the good of the overall tribe. This is why we return,,,,time and again to fiat monetary systems. In the few examples where a gold system brings the harsh reality of loses to bear on a nation,,,,,,usually war is the result. Not a good outcome.

Yes, we can break gold into many small parts,,,,,,stamp it into coins and circulate gold certificates as money. We can borrow it, lend it and also circulate gold bonds as the economy grows. It is the perfect "weights and measures" monetary system. Exactly representing our productive efforts in every faucet of human endeavour. But, when the loses mount, our tribal human tendencies will not allow us to support a government or banking system that forces these real loses on only a portion of the group. Never has,,,,and never will! Without this escape valve, we go to war ,,,,,, internaly or on a world scale,,, so we all can share the loss,,,one way or another. As a human society of thousands of years,,,outside of war,,,,,we have learned to inflate our loses upon everyone as a whole,,,,,for the good of the keeping the whole from each others throats. Even to the point of a total loss of the current system,,,,,and all the destruction that entails for everyone.

Yes, indeed,,,,,,,we will transition to the next fiat system from the dollar, when the time comes. Believe it!

Further:

For myself and other observers ,,,,, we know about "peace on earth" and live our life in this context but,,,,as a member of the world tribe,,,,,,and following our best interest,,,,,, one must still arrange his affairs to shield their family from the "I'm going to get yours" times we live in. Should we get our leaders to help us? Well, the leaders of this world can only be but a reflection of us as a whole. Yes, many things are not right, but they can only strive to do what can be done, not what must be done.

Consider the dilemma:

If a small portion of society telegraphs thoughts that "if we cannot have our oil we will go to war",,,,,,,,how would you force them to not elect officials that ease their pain in a gold money system? What's right and what's wrong is not the issue,,,,,,it's what this present generation will live with that rules. If they will break the gold yoke, no matter,,,,then why place gold on them? Is it not better to at least free the "knight" (gold) for the good of those that would stand with him?

During the period we are now entering,,,,,we can see all the ugly aspects of a fiat system that is failing its tribe. Look far and wide and witness the various groups ,,,, all jockeying for position as they use whatever influence they have to lessen their own private loses. If this had been a gold system, the outcome would be the same,,,,,as players force their leaders to lessen the gold debts that could not be paid. They would raise the price of gold and inflate their way out of it,,,,,,for better or worse ,,,, come hell or high water.

So, my friend (smile),,,,,,,as you can see,,,,,I completely agree with all of your post. Only, my trail is hiked with a different mind. "Another" mind set, if you will. We use the life experiences of man to dictate the best path to follow. As such,,,,,,Gold must not be part of any money system,,,,,,it must reside as a freely traded asset without debt or paper to resemble it. In this position ,,,,, its value can fully represent the ebb and flow of the affairs of man. And in doing so retain the wealth of man as a holding of things. Truly, the "Wealth of Nations" in the peoples' hands. We move forward by starting at the beginning of time.

Trail Guide (2/14/2000; 8:08:19MDT - Msg ID:25302)
Gold

http://www.fame.org/HTM/Mundell%20and%20Parks.htm

NOTE: These are (see the bottom) segments of questions and answers copied from this interview. I PLACE THEM OUT OF CONTEXT TO UNDERSCORE THE THOUGHT! Please see the link above for the full discussion. It's very good and so is Mr. Park's and his site.

ALSO: The point I was trying to make in #25137 (and the question I was asking) was this;
A full gold money system works during level and rising economic dynamics. It also works "VERY" well during a downturn. In fact it works "Perfectly" all the time! It's the lending of money that creates debt, be it gold debt or fiat debt ,,,, and the failure of that debt during a downturn is what causes the pain.

I ,,,,, we as gold bugs ,,,,,, most financial thinkers ,,,,, do not debate this point. The argument is that:
If the pain dynamic (loses) of a financial downturn is not "Somewhat" shared by society as a whole ,,,,, the economic dislocation always intensifies until we go to conflict. (see my earlier post)

It's during the downturns that society in general will not tolerate a full gold system because it concentrates the loses upon their rightful owners. As such "these same" are usually "wiped completely out" and their fallout effects on the social and economic structure can be widespread and very destructive to tribal life.
Again, history has proven, time and time again that humans will not allow the full (natural) effects of gold money ,,,,, if it threatens to create factions. They accept gold during long periods until conflict (internally political or externally war) forces a break in the gold bond.
We as nations will break the "gold bond" by calling for the shared pain of inflation. Whether we (as countrymen) understand the reasoning behind it or not; currency inflation (not price inflation) in the modern world is carried out until its debt destroys the current system ,,, there by, sharing all the pain of the loses before it. We then move into the next fiat system.

The question:

Is it not better for all ,,,, if we remove gold from the official currency structure by forcing derivitives failure and creating a free physical only marketplace,,,,, so as to keep "US" ,,,,,, ourselves ,,,,,, from controlling it through our politicians?
Through "legal tender laws" currently in place ,,, let's force us (ourselves) to continue to create debts only in paper.
As such, "they" ,, "we" can manipulate the fiat as needed for society.
Does this not place gold in its rightful position of being a "real currency asset" as it was chosen to be used from the beginning of time?
A private money for trade and savings that's outside the "contract / debt' system. Your thoughts?

Trail Guide

Robert Mundell:
--------I think that legal tender is a very old institution. It certainly goes back thousands of years and legal tender is an institution, whether we like it or not is going to stay. ----------

Robert Mundell :
------There's no institutional mechanism by which we could ever duplicate the kind of financial system we have under a system that relied almost entirely upon gold. Of course you could always have a system that used a lot of paper that was in some sense convertible into gold. You could always find a price of gold that you could convert that paper theoretically into gold. But I don't think anyone has thought in terms of the enormous price of gold that would be required in order to achieve that.-----------

Larry Parks:
---------George Soros says in his book Soros on Soros that the gold standard had to be given up because it did not make possible a lender of last resort. And says Soros, because financial markets are in his words ìinherently unstableî you have to have a lender of last resort.-------

Trail Guide (2/14/2000; 18:20:51MDT - Msg ID:25335)
Freegold

…Yes, our present financial system gives the impression of total insanity,,,, but we are looking at the very "end of the timeline",,,, not how it began. It all starts with the very first loan and progresses until everyone has borrowed "too much", but no one wants the music to stop. Last resort lenders then become the norm because society will lose "across the board" if everything is "marked to the market". It is not a circle (smile) as it starts and ends with the currency system (gold or fiat) everyone demands to borrow into. It all ends in the shared pain of debt collapse as the debt is discounted to zero from price inflation ,,,, even if it's based on gold ,,,,,, gold that cannot be returned. Not much different from our present gold loan structure.

We will move on to the next money system when this one ends.

If it were gold we started with? The banker would lend his gold only to find the same metal returned to his bank as a new deposit. The "society at large" would remove his franchise if he did not re-lend that same gold during "good times", "booming times" no less! Round and round the gold goes. Reserve lending hits its limit and society demands the limits be raised again ,,, and again ,,, and again! Lender of last ,,,,,, or not.

In our modern world we must remove gold from the official money system, place it in a free market and people will use it as wealth money, not borrowing money. Then the fiat can come and go as the wind! Yes?
You agree now!
I'm so very glad!

Trail Guide


From Hall Discussion – Page 3

Trail Guide (2/16/2000; 16:14:06MDT - Msg ID:25476)
Freegold (debate)

Hello Journeyman:
Just read again your post of: Journeyman (02/15/00; 11:10:43MDT - Msg ID:25391)
Good post!

[…]

Journeyman:
-----The writing of IOUs, that is, lending, is unavoidable, and when done "correctly," is good. (There is "consumer debt," which except for rare instances is in the long run inherently "bad," and "commercial debt" which is good or bad based, ultimately, on whether or not it increases productivity.) But how are you going to stop Uncle Joe from writing an IOU and using his gold sovereign as collateral?--

FOA: When gold is trading in a free physical market,, outside the currency perception,, Uncle Joe can use his "Swiss 20 Franc Helvetia's" all he wants for collateral in a currency loan. In this context gold is no different from any other item of wealth we own. Be it a car, house, furniture or a petroleum cracking unit in a "Texas City Texas refinery ,,,,,, we are borrowing the fiat currency not the item of wealth.

As long as gold is "ideally" implicated as some form of "official money", modern society will try to lend "it" (the gold) and borrow "it" (the gold). Then it becomes part of the debt itself and is entangled in all kinds of ,,, "oh where am I going to get the gold to pay off this loan",,,,, issues! This throws it right back into the arena of "currency manipulations" by officials,,,,, all in an effort to maintain the economic momentum. The very same thing we are into today.

Again, today gold still carries the baggage of past associations with "official currency / money schemes of yesterday year. As time has progressed, and our economy has developed, each passing stage of using gold in the official money / currency mix has become more convoluted. As I noted to ORO, it's a shame we cannot just use gold,, outright,, but modern society has proven that it will never leave it alone.

We have evolved to a point where no one,,,, gold bankers, gold miners, politicians or private savers even knows what the term "today's gold market" really means! We have distorted the physical gold market to the point that the trading of "paper contracts",,, that have virtually no call on real gold (ABX cash settle calls as example??) price the supply and demand of real gold. All in an effort to keep the dollar looking good. And do we blame them for doing it?

Think about it,,,, prior to the birth of another possible currency system (Euro),,,,,, looking from 1990 backwards,,,, the amount of economic loss that would have been associated with a dollar failure made the minor loss of killing the gold industry look,,,,, well,,,, like nothing! Kind of like sending in your best troops to be mowed down,,,,all to build time to assemble a full army.

Thanks for discussing Jman,,,,,,, I have more for Cman and ORO later.

Trail Guide

Trail Guide (02/16/00; 19:22:58MDT - Msg ID:25485)
FREEGOLD

ALL:
My FREEGOLD discussion with ORO and others is not a change of venue for me. Actually, I am laying the foundation for much of the discussion I will undertake on the "Gold Trail". Here, as Trail Guide I am debating the issues as myself. As FOA I will be offering the Thoughts and Reasoning of others.

Trail Guide (02/17/00; 06:45:40MDT - Msg ID:25508)
Freegold

Hello Elwood,

You write:

----- During the few times in history in which man has chosen this path, great leaders have arose to lead them there and thence out again once the danger has passed. Wherefore are such leaders today? Are the spirits of Jefferson and Jackson truly dead?---------------(and)--Was Freeman Tilden truly correct when he wrote the following in his book, A World in Debt? "Nothing, has been more amply demonstrated during the past three thousand years than this: that the great majority of men do not esteem, or understand, or even desire personal liberty. What they value is the semblance of liberty accompanied by indulgence."-----

TG:
Oh boy, Tilden said it right,,,,, "semblance of liberty accompanied by indulgence"! This very aspect of modern life is clearly visible in our money systems today,,, and will most likely be the norm for some time.

It's one of the reasons I brought up Freegold,,,,,, so we can all air our feelings and perceptions about money and life,,,,,, past and present. I submit that most goldbugs are not preparing themselves for the trail ahead. "Reality",,,, in today's context is that the world is going to use a fiat system for the foreseeable future,,,,, come what may.

If we can understand the impact a currencies "timeline" has on its value, we can position ourselves to dodge "at least" the "worst effects" of that speeding truck you speak of.

You write:

------Haven't you, yourself, argued that our entire standard of living is but an illusion based on that robbery of others?---

Yes,,,, AND eventually??,,,,, or perhaps most likely??,,,, the fiat Euro will also create the same illusion of wealth that the dollar has given today. But, the size,,,,,, scope,,,, perception of that wealth illusion is most evident at the end time of a currency's life,,,,,, not the beginning.

This is one of the reasons my friends question the over dependence,,,,,, the over positioning of ones wealth in dollar based wealth and gold derivatives for this transition. For myself, it amazes me what a difference there is from Western perceptions and much of the rest of the world. In America, for instance,,,, investors know little about the true need for "real gold" and put perhaps 10% into it at best. And even little of that position is real metal. Major private players elsewhere consider 30% a good mark for our present time. It used to be 90% (talking about the hard money portion of ones overall wealth) of our (American view) metal holdings was in derivatives with 10% in metal. In the 70s that meant gold futures and mining stocks as the paper portion and 7% silver, 2% gold and 1% other as hard metal. Today, many do the same thing and also "trade" extensively, thinking it's the way to catch up. What they do not realize is that the mechanics of the entire "gold market" as we know, it has changed dramatically. The risk today is that the whole gold market place,,, and all the equity structure that depends on it,,,,,, will fail and shut down as the dollar reserve currency system suffers the first (and largest portion) phases of its long term downward drift.

In ground reserves (ore),,,,, future delivery against contract gold,,,,, cash delivery against contract gold and its implied later purchase of gold on the open market,,,,,, will all be discounted heavily in a mad scramble to exit dollar assets.

This recent paper evolution of our gold market is the natural, end result of an old dollar / gold relationship being mutated in an effort to prop up and extend our dollar system. Once this strategy was / is abandoned, it will collapse with and before the dollar,,,,,, and in doing so "take out" the perceived "equity" in almost every gold derivative asset.

This is the reason why many major private gold investors today believe physical gold will far outrun all of its modern contemporaries,,,,,, and do so by a huge amount. As such we (that's me too) now place 95% (again this is the hard asset portion of their overall wealth) of their hard money in physical "gold" only! I not only expect gold to keep up with any hyperinflation of the dollar,,,,, but out- pace even that ,,,,,, by a large amount!

This position was promoted and considered very radical only a few years ago. Today, many are reconsidering it. Again, on the Trail I'll build quite a foundation to support this view.

Thanks Trail Guide

Aristotle (02/18/00; 15:34:00MDT - Msg ID:25618)
A little help, please.

In scanning through the posts today, I find myself largely confused by the letter to the NYMEX president from Ted Butler. 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.

Trail Guide (02/19/00; 10:58:10MDT - Msg ID:25663)
(No Subject)

Hello Aristotle,
You are right about Ted Butler. I truly think he and many other traders are a generation that grew up thinking that paper trading of all kinds is equal to the real thing. Yet, look around us,,,,, in reality our whole economic structure is always in the courts fighting over contract clauses someone could not make good on. Rents, leases, buy outs! Even on time delivery of new aircraft often defaults! Just because it's in writing,,,, guaranteed,,,,,, and has good counter party support doesn't mean a contract is the same as "in my hand"! Contracts are just agreements between two parties and mean nothing until concluded.

Far too many players take paper gold as a sure thing. They lost the perception that these items are just a bet on the price change performance, not delivery performance. It was barely real in the beginning and has lost even that early perception now,,,, by a factor of 1,000%. Still, we read of how it's all illegal and "they" are doing us in! Yet, I can place $2,000 down and create a contract for delivery ,,,,,, and that could be all the wealth I have ,,,, period. What's illegal about that?

We usually hear these arguments in court when somebody is losing big. They try their best to match a moral concept against a legal concept and hope the jury is out to lunch (smile). It's the same in Las Vegas,,,,,,, a guy loses big,,,,,, then tries to tell the jury that the house should have stopped him,,,,,, because he didn't know the house rules were established against him winning!

The real answer to all of this is,,,,, "boy don't play these games in their house, if you don't want to lose". Yet, people still gamble the futures and options in gold and get mad when they find out that the rules were always against them. Ha! Ha!,,,, they never cry a moral story when they are
winning???

Same thing today for the gold mine stock holders. How many would have said a word if the paper gold markets were manipulated in their favour??????? Not a word I bet! Yet, still illegal, no?

ALL: They tell this tale for their own advantage. Gold can't rise that much so use leverage ,,,,,, Gold can't rise that much so buy silver ,,,,, Gold can't rise that much so buy gold stocks. Then gold falls,,, they lose over and over from trading in and out and cry it's all illegal ,,,,,, we pack physical in and wait for the world to swing our way and pray for more of this illegal stuff to keep the price down!

Next play ,,,,, gold spikes way up ,,,, crashes the entire paper marketplace ,,,,,, destroying the finances of most mines and players in the process ,,,,,, same cries again ,,,,,,, it's all illegal ,,,,, they forced it too high!!!!! It will never end!

As Another said "Out bet? They can never cover. Because we play "our" game in "their" house"

Also: Aristotle ,,,,, you write,

"I hope I didn't undermine any natural progression of ideas you had planned by tossing this out on the Table too early"

I saw some while back that you had caught on to what was happening. Funny, there is but a very small group, world-wide, that are working on this. I guess thoughts travel through space and time?

Go for it my friend.

Thanks Trail Guide


FOFOA: Then some 15 months later FOA is brought back to the subject of gold lending:

FOA (05/08/01; 20:54:48MT - usagold.com msg#71)
A Tree in the Making #03

Hello Econoclast,
I'm going to take parts of your find and comment on it out of sequence. You write in #52646:


------Any system that could possibly be thought of or proposed must include the use of law. Part of the answer (transparency) includes a complete treatise of the "new" laws written in simple, direct English (8th grade level-2 pages instead of 2000). The laws would be directed towards controlling the bankers, not the people for a change. The laws would be written with input from bankers, but not by bankers. Penalties for financial fraud/counterfeiting/etc. would be severe. ---------------------------------This new gold dollar system would function alongside the current FED system. Any large debts (mortgages, business debt, most importantly, govt debt) would be denominated in fiat dollars. That way govt could continue to operate (maybe, ha ha) and the banksters could still have their play money to manipulate and try to capitalize on. A free market would exist to redeem back and forth as necessary. This free market would show the relative worth between the two currencies. ---------------

===================
Excellent thought sir. Econoclast, using your thrust as my platform:

One of the major problems faced by past hard money planners was that any time real wealth, gold, is denominated as credit money, it always placed the relationship between the rule of law and the rule of gold at odds. If our laws defined gold as official money, and lent it, then by association the law had to define a portion of gold that did not exist in circulation. That portion was the contract asset held as bank savings. Yet, a person's claims against it identified said gold as real. This was and is an inherent contradiction because no law can define the value of real wealth held in contract.

This particular fiat form of hard money owed its existence upon a continuous function of the economy. What the above means is that you cannot take something real and lend it over and over, as banks do when lending fiat, and still demand that the law recognize said contract moneys as hard legal tender.

I would state that no form of lent gold be recognizable or enforceable in the court of law as a legal tender contract. One may borrow gold, relend it, or even borrow against it, but that gold would not be valid in the payment of all debts both public or private. It could not, by law be legal tender. This is not to say the trading of gold would not somewhat supplant currency in function. It could and most likely would to a degree, but it would no longer carry a credit quality that fiat would in the form of a time function. Indeed, in our modern economic structure, a credit time function is very valuable and gives digital contract currencies their demand.

To deal in the future,,,,, to borrow,,,,, to capitalize would require the use of a fiat function. Gold could / would be a final trade; I'll give you ten cars (or gold) for your house,,, deal done. If I want more time to pay, I and we must engage a fiat loan.

==========
You write:

-------weaving OUR gold supply, literally, into gold dollars--------Contracts could be denominated in gold dollars, however these "gold notes" are strictly non-transferable. If someone wants to sell their gold note, they can't. It is only enforceable between the parties that entered into it originally. All forms of paper gold are illegal-fraudulent. Any debt larger than the legal tender law amount has to be denominated in fiat, smaller can be negotiated.------------

Well sir,
Once again, it looks good at first but later evolves. By mingling your gold currency into the contract / credit realm, it once again creates gold loans that are at odds with human nature. Yes, the gold notes may not be transferable, but the lent gold currency is. It is at once someone's asset while also another's liability. The gold currency in circulation expands thru the nature of loans. When these loans fail on a national scale (major downturn) the legal tender laws defining our new gold currency will be changed. We thin our gold again in an ages old cycle aimed at covering debts that are the common citizen's savings.

Still, we are not far from the position you see. We must remember that neither currencies or gold define society's economy. Business can function using fiat alone. We have been doing just that for a number of decades. Installing a trading medium outside lawful money that acts as a wealth savings and a final trade will not destroy the bankers, governments or paper credit inflation. But, it will allow society a way to judge political efficiency. A nation's productivity will then have two scales to measure with, one it must live with (final payment) and another it cannot live without (future payment).

We shall see (smile)


And also for Atticus:

FOA (5/9/01; 07:20:23MT - usagold.com msg#72)
A Tree in the Making #04

Our modern gold market and the price illusion it creates, is little more than a fiat dollar system that denominates gold credits in contract form. Is it a free market? Why yes, very free. But only free in the sense that supply is unlimited. Investors and the industry in total, bought into paper based gold and yet they fully well knew 90% of it had only cash equity as the collateral on the other side. Then, somehow expected that those contracts were limited in creation by the fixed amount of gold in the world. Their mistake, not the markets.

…Indeed, a currency without a country! In order to implement such a currency, gold would require laws that would keep it within its wealth concept. Gold in possession would be wealth in possession as long as governments could not use it as credit money. In my discussion with Econoclast, I took his legal meanings and applied them to this "wealth without a country" position.

Keeping gold out of the fiat arena would be more simple than many hard school advocates envision. The key to that is found in the implementation of international law. The leading economic countries (EuroZone in the future) would have but to establish a protocol that forbid the enforcement of collateral attachment anytime physical gold is traded, lent or involved in a trade. In this context, no banker would lend you gold to buy a house if, in a default, he could not claim your house in a court of law. Even private parties would never lend gold if the asset behind the loan could not be claimed for nonpayment. It's that simple. With a stroke of written law, the trading of gold as wealth would become a final payment with no possible credit implications. Our official fiats and wealth without a country would never again function as one.


Bron, think of this as more of a natural law, a little like Gresham's law. You save the good money while you lend, or circulate, the bad money. And sometimes you codify natural (good) laws simply to protect the morons from the sharks.

As Atticus wrote, it can be as simple as non-enforcement of gold lending contracts in the courts. The intent of the law would be not so much to prevent you from lending your gold as it would be to protect you from unscrupulous borrowers who would take it and spend it without the ability to get it back.

Why would a rational person want to lend gold? How about two friends; why would you want to lend gold to your friend? So he could spend it into the marketplace? That act alone puts downward pressure on the value of your gold savings, which could have instead been lying very still under your bed.

And then there is the issue that you cannot squeeze blood from a turnip. You cannot force the repayment of something real that someone no longer has. This issue can become especially problematic internationally if you really think about it. Countries have gone to war for less. Which is another good reason for an internationally codified (natural) law to protect the morons from the sharks, as well as the sharks from armed and dangerous morons.

Bron, can you give me a good reason why the morons should have the Libertarian freedom to lend their gold to sharks, presuming that "freedom" destabilizes the foundation on which the rest of the global economy builds?

Sincerely,
FOFOA

Addendum:

Aristotle (10/13/03; 23:29:04MT - usagold.com msg#: 110354)

…To say "Gold is money" is to give bankers full license to treat it like money, thus throwing open the door to lost purchasing power of the metal and giving rise to ambiguous notions of OWNERSHIP…

Aristotle (10/14/03; 03:01:32MT - usagold.com msg#: 110359)
on the topic of honest money

To offer up the culmination of a long inquiry into the nature of money from the humblest beginnings, two things come immediately to the fore.

1.) An understanding of money -- Form and Function -- requires *REQUIRES* an understanding of banking. This, to the extent that a person can't hope to claim a mastery of the monetary phenomenon ever exceeding his or her mastery of banking as a System of Practices.

2.) Money is more about the Rule of Law than anything else.

Long trudging will eventually root out even the most entrenched preconceived notions about Gold in all of this. In the end, we're left with this unobstructed view of the horizon: Banking institutionalizes the accounting of Money; Rule of Law provides the vitality of contracts (wages, loans, purchase orders) which, forming an interconnected network of settlements and expectations of settlements, gives rise to (and, at the same time, gives insight into) the Value that a society engenders in its monetary unit.

The role of Gold in the whole affair can be seen naturally as a passing phase in which the universal barter agent of Gold lumps evolved into standard Gold currency serving furthermore as a catalyst helping the Monetary phenomenon to set up and gel as a pure numerical system.

The problem with Gold's low bartering/exchange/market/wealth value today is that it hasn't yet been set free again to behave a pure Property. It remains encumbered in a certain element of the banking system as a token behind an artificial valuation established by derivatives.

As I tend to characterize it, it would seem that the Dollar-brand prototype of Money was never fully and fairly allowed to "gel" under standard Rule of Law within an uncoerced marketplace. As a result, the risk today is that the Dollar would collapse in a heap like so much premature quiche if LOW PRICED Gold were removed (i.e., becomes high priced Gold) as the ongoing stabilizing agent in the dollar's ongoing attempt at earning its own monetary wings.

The euro is trying not to make that mistake. It wants the marketplace to form a stable network of pricing and contracts without false pretenses with respect to Gold. If it succeeds, it will be the world's first fully fledged Money -- in the most Proper use of the word!

The euro could in fact be called honest money, if you like. That is, as honest and as trustworthy as the Rule of Law that stands in the background to enforce contracts.

But as we know, Rule of Law today is not one and the same predictable Rule of Law we want to be able to count on tomorrow. It blows around a bit due to political will. Therefore, we'll always want honest Gold property used as our core Wealth Savings. We'll own it to compensate for our human inabilities to provide ourselves with a PERFECT Money.

In other words, because we have to settle for using, at BEST, a system of honest money which is always humanly flawed, we need Gold to return to its ANCIENT job description as perfect property. The kind of stuff that can be OWNED, not "as money," but rather, OWNED....... (wait for it......).... UNAMBIGUOUSLY!!!!

I hope this doesn't make anyone choke on their breakfast!

Gold. Get you some. --- Aristotle


Belgian (10/14/03; 03:13:19MT - usagold.com msg#: 110361)
Ari.....AAAAARIIIIII.....

THIS IS ONE OF YOUR GREATESTS POSTINGS I HAD THE HONOR OF READING !!!
I am speechless and saw the "unobstructed horizon " !
THANK YOU SIR !

180 comments:

Bron said...

FOFOA,

Thanks for that, appreciate the work that went into it. It is a post that requires an evening to read and reply, however I have a committment tonight so will won't be able to get anything back until Friday night Perth time.

Andy said...

FOFOA said: "I remember when FOA and Aristotle had similar conversations."

You remember???

Rui said...

@ FOFOA
As Bron pointed out, it's fractional reserve lending (rather than gold being a currency) causing the problem in the past hard money standard system.

I think the soundness of a monetary system is measured by how much respect it has for the savers and producers, the backbone of any economy. FRL is not sound b/c it steals off S&P and thus should be abolished.

We need full reserve so there's no credit inflation and the combined money available for both saving and lending are in fixed supply. That's the real respect for S&P as we let them call the shot on how to spend their hard earned money.

If S&P are OK with a little risk they can allocate some as lending credits. If not, they just pay a storage fee to warehouse the money. No one touches their warehoused savings and no interest is paid.

It only makes sense that way b/c #1 it's S&P's own money; #2 since they are productive enough to make money then letting them control it has a better chance to generate more valuable production and money.

Such hard, gold-backed monetary system imposes a natural, market driven risk management and individual responsibility. It's not fool-proof but it lets individuals take care of their own acts. Chances are most of them will behave.

As an S&P it's your money & your decision. You are an adult. So make the best judgment for and keep the gain or loss to yourself.

As a banker you'd better have a sound lending record, or no S&P would provide you their savings and you'd lose business or even go bust.

As a borrower you have to compete with others for that limited credits so you'd better have some worthiness. Alternatively, you can try to be an S&P as well to avoid such hassle altogether.

Government will stay outta this system. Their role is limited to provide law enforcement to prevent fraud and liquidate bad investment.

There's no need of so-called "lender of last resort" central banks whose real role is socializing the loss of last resort. No need of FDIC, either.

As for FreeGold, well, firstly a soft fiat currency is in the play along with gold. I doubt we either really need it or, as Gresham's law points out, would be able to exchange the fiat for gold when called upon.

The next I noticed the fiat is propped up by changing the legal tender law and inserted demand. If I were an S&P in that system, I wouldn't feel being respected if my labor were compensated in a fiat that can be inflated.

Like I said before it feels artificial and heavy-handed. I doubt it's as effective as my hard-money system described above.

FOFOA said...

Hello Rui,

It's still going way over your head, I see. Let me help you a little more...

In your last comment you wrote, "A healthy economy starts from people willing to produce [something] valuable rather than borrow from others, and hopefully produce more than they consume so they can trade the surplus. It is only at then that we need money to certify and measure our productivity. So production comes 1st. Money comes 2nd. Strictly in that order."

And in this comment you write, "It only makes sense that way [because] #1 it's [saver's and producer's] own money; #2 since they are productive enough to make money then letting them control it has a better chance to generate more valuable production and money."

Since you refuse to read the older posts that explain this, you are confusing yourself by using the term money rather than distinguishing between currency and gold savings. I will try a little word replacement with your own statements to try and make my point (although I suspect it will go right over your head as well). Word replacements are in bold/italics:

In your last comment you wrote, "A healthy economy starts from people willing to produce [something] valuable rather than borrow from others, and hopefully produce more than they consume so they can save the surplus. It is only at then that we need gold to certify and measure our net-productivity. So production/currency for trade comes 1st. Gold for savings comes 2nd. Strictly in that order."

And in this comment you write, "It only makes sense that way [because] #1 it's [saver's and producer's] own gold savings; #2 since they are productive enough to save then letting them control their savings has a better chance to generate more valuable production and money."

Again, I don't expect this to sink in, and as I wrote in the post above that you apparently didn't read, "While my replies may be addressed to you, they are often written for everyone but you."

This appears to be one of those situations where I deeply understand your hard money position but you have no clue about mine. Rui, read The Debtors and the Savers, linked in the post above. You are "hard money." Pay attention to the part about guillotines.

Sincerely,
FOFOA

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

@FOFOA, many thanks for yet another great article that has provided a nourishing start to my day.

@RUI may I suggest you try switching your emphasis from the word "Fractional" to the word "Lending"? 100% reserve lending, still results in a synthetic supply that is larger than the underlying reserve.

Paul said...

The dutch central bank orders a pensionfund to seld it's gold today !

The pesnionfund for the glassindustry was 13% physical gold and has to sell until they are maximun 3% in gold. They held their gold in australia, bron probably knows more about it :-)

reason for this is the pricevolatilty.
DNB claims they do not qualify for the "prudent person" rule. have to sell within 2 months !

What to think about that one ?
since Wellink, who is BIS, is chairman of DNB ...

Paul said...

the 13% is about 1400 kilo's

Jonathan said...

Previously I asked the question,

"FOFOA seeing the end of paper claims on gold is one thing, but getting a liberty enjoying people to value their labour with regards to the reference point of (remonetised) gold and only gold seems fanciful. Surely this system would have to be imposed upon them, by the very ones that have cornered the market for gold."

I am patient, as I am happy to tag along with the readership as you present your info the best way you see fit. Now I read from above

FOFOA - "... And sometimes you codify natural (good) laws simply to protect the morons from the sharks. The intent of the law is not so much to prevent you from lending your gold, but rather to prevent some unscrupulous borrower from taking it from you and spending it.
... Which is another good reason for an internationally codified (natural) law to protect the morons from the sharks."

So we come to the same conclusion FOFOA and I; the need for a law, NO a global law of dictatorial proportions in order for Freegold to come into existence.


"This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.
This is the free in Freegold." - FOFOA

Another previous observation of mine:
"However is there not a difference between Freegold as defined above, and a system of Freegold par excellence economics being implemented. There seems to be a massive disparity between the two."

I hope FOFOA at some time in the future that you may comment further on the implementation of Freegold.

FOFOA - "Bron, can you give me a good reason why the morons should have the Libertarian freedom to lend their gold to sharks, presuming that "freedom" destabilizes the foundation on which the rest of the global economy builds?"

Pardon me Bron.
From my perspective; Yeah, kind of like teaching children NOT to throw hair dryers in to the bath, rather than employing a sadistic paedophile to stand guard.

No wonder Freegold (by decree) gold will be worth so much, with globally implemented dictatorial laws behind it. And the banking cartels having cornered the gold prior to its implementation.

I am not saying FOFOA is wrong about Feegold, I am just wondering about how he sees the implementation of it. 'Libertarian freedom' moron, now that's harsh.

mortymer said...

A little bit of commercial and educational material:
Repost: MK (7/11/03; 10:41:57MT - usagold.com msg#: 105678)
"A Note about The Gilded Opinion page (TGO). . . http://www.usagold.com/THEGILDEDOPINION.html"

mortymer said...

Wendy, this one is for you, (I think it was you who asked about the contained crisis in around 2000). I think this may help:
http://suddendebt.blogspot.com/2011/01/its-not-game-over-but-were-in-overtime.html

burningfiat said...

Paul, Thanks for the story about the dutch central bank ordering the private pension fund to sell its gold.

More here

Could someone help my freegold understanding along... How does this harmonize with the theory that european bankers (primarily) anticipates and eventually will openly encourage a completely free physical gold market?
Right now it doesn't fit in my head...

Thanks.

Wendy said...

Are "comments" fixed now?

Wendy said...

Thanks for the links mortymer, the guilded opinion will provide me reading material for a long time.

DP said...

Hmm... International Monetary Fund director Dominique Strauss-Kahn calls for new world currency

FOFOA said...

Hello Jonathan,

As I've written in the past, if I didn't respond to your special question, you can safely assume that I was unimpressed by it. And now that I see your question for the second time, I am happy with my initial decision to ignore it. That said, I can now see that you have really uncovered the essence of Freegold.

Freegold is a global dictatorial regime!?!

Jonathan, no, we have not come to anywhere near the same conclusion. Freegold does not need laws of any proportion "to come into existence." There are no decrees involved in Freegold. That's what makes it so elegant... and LIBERTARIAN.

And what's this nonsense about people valuing their labor in gold? People won't be working for gold. They'll be working for fiat, just like today. You haven't read much here, have you? Once again, a single comment reminds me why we do need some rules, to steer lemmings away from cliffs.

Would it be "dictatorial" to the "liberty enjoying" lemmings to put a fence at the edge of the cliff?

Think of it this way, Jonathan: A war ends and peace resumes. Is it dictatorial, at that point, to pass a law that says the courts will not enforce contracts that could potentially lead us back into war?

Sincerely,
FOFOA

FOFOA said...

Hello Wejn,

There is no compendium that I know of. Maybe some day. But for now, I have added three more archive links in the right-hand column:

Hall Discussion page 1
The Golden Chalkboard
Gilded Opinion page

I would draw special attention to The Golden Chalkboard. There's lots of great stuff in there, and don't miss this one by "Flatliner"...

"Toward the new monetary system"

Sincerely,
FOFOA

enough said...

All,
I must admit alot of what'd wtitten here goes over my head. I believe I understand the bones of what is necessary. That we need a free floating gold price as a store of wealth alongside a transactional fiat currency. That gold and fiat need each other. Jonathan's question about implimentation does cause me headaches. On on hand it seems that it will be spontaneous as the paper gold system suddenly unravels under its own weight and freegold is born out of the ashes as banks can not meet the demand for physical from allocated and unallocated acct holders. It will just happen. On the other it seems like under another scenerio we will wake up one day and turn on the tv and the CB's will have formally revalued gold to rapair their tattered balance sheets. So not a spontaneous "outbreak" of freegold but a deliberate planned implimentation. Now imho the CB's are currently in bed with the banks, I recently posted questions regarding the fact that the CB's could give a privledged place to the banks to be the "primary dealers" so to speak of freegold. Blondie reponded to this and I certainly dont wish to put words in his mouth but the way I understood it freegold kiosks would appear in a very widespread spontaneous fiat/gold exchange system. I suggested that there might be something more structured and blondie said this was structure. That is true but I guess what I meant by strucute has a negetive connotation. Where the CB's continue to enrich their banker friends with oligarchic power over freegold. So this is my question I guess. Under one scenerio the banks blow themselves up with paper gold and freegold is spontaneous and we have freegold kiosks on every corner or will it be completely a planned event with the possibility of the same greedy jerks that screwed everything up be given a privledged position from which to continue to scalp from the saving (physical gold) of the public. Or does none of this make sense at all which is a distinct possibility:-) thanks

Free gold? Yes please! said...

"Enough"- You wrote: "I must admit alot of what'd wtitten here goes over my head. I believe I understand the bones of what is necessary."

This FOFOA post might as well have been written in ancient Egyptian sandscript or some Star Trek language....I fell asleep twice and had to take 3 Advils before I could finish it.

FOFOA, for those of us who may or may not fully understand what your posts are saying, I have a simple request: if you still like gold when you write your next post, at the bottom can you please put a large picture of a gold nugget with an arrow that reads "Buy Me" pointing at it? If you DON'T like gold then put a large X on the nugget.

Your humble servant, FGYP

sean said...

I'm still intrigued by the question raised by Blondie in a previous comment trail about the likely societal/cultural consequences of the shift to Freegold. I was talking to an Indian friend to try to gain some understanding of his attitude towards gold and savings. He told me, as we have often heard, that gold is still seen widely as a sensible investment (... although as with many customs this has been slowly changing over the past generation). I was surprised though that he said it is very rare for a person in India to take a loan to buy a house, and the custom is usually to buy one outright using savings (with the help of the family I think... I forget the details).

Perhaps under Freegold, society will see that if the value of one's saving are secure in gold, there is no need to find investment vehicles such as property to fight dollar depreciation and eke out a possible profit. As investors leave the market, house prices will more accurately reflect supply and demand, and descend from the stratosphere to become relatively affordable once again.
More generally we may come to see housing mortgages as unnecessary and exhorbitant. Long-term renting may be more "socially acceptable" (as it has been for many years in many countries in Europe).

Just some thoughts...

FOFOA said...

Hello Burningfiat,

You ask, "How does this harmonize with the theory that european bankers (primarily) anticipates and eventually will openly encourage a completely free physical gold market?
Right now it doesn't fit in my head..."

Burningfiat, I would caution against over-weighting individual "eddies" like this against the overwhelming flow of the river. I have a number of questions about, and alternative interpretations of this story. What we can see is certainly not a clear indication of anything at this point.

For example, what kind of gold was SPVG holding? Was it the kind that will be a 40-bagger, exploding the fund's value over 400% upon a Freegold revaluation? Or was it the kind that will collapse in value by 90% when precious paper gold loses its luster?

Could there be a concern about the glassworkers gaining a huge windfall while the dockworkers and windmill teamsters are wiped out?

The FOFOA view of the CB gold sales over the last 15 or so years is that they were a "pre-Freegold" rebalancing of the gold supervised by the BIS. Perhaps not unlike a CB worried about the glassworkers profiting more than the clogmaker's union.

Also, as far as expecting individual Central Bankers to speak or act publicly in support of Freegold, I don't expect that at all. Have you ever heard of insider trading? If I was a Central Banker and could see what they see, I would have all my personal savings in physical gold bullion knowing the meaning of "inevitable." But at the same time, I might be worried about the impression that this very act of "saving" might be considered "insider trading" by some of the more envious politicians in the future.

So I would be very careful about saying or doing anything for which I could be accused of being the spark that lit the powderkeg that set my family up for life. Capiche?

@ Wendy,

Blogger tagged you (and only you) as a spammer the other day. I have no idea why, but that's what happened.

@ Enough,

I enjoy your comments, but could you please add paragraph breaks every few lines. It is really hard to read without them. Thanks!

@ FGYP,

If I stop liking gold I will change my profile image of gold coins to whatever the new wealth reserve par excellence is. Does that work for you?

Sincerely,
FOFOA

Free gold? Yes please! said...

FOFOA: That works for me :)

I've never been accused of being the sharpest knife in the drawer, so I appreciate the extra help!

Keep up the great work BTW...

enough said...

FOFOA,
sorry bout that, always cut english class and never took a typing class....pretty fast for 2 fingers :-)

DP said...

My feeling is you can look a lot "closer to home" than India, Germany is quite far enough.

My understanding is it's also very common to rent your home there, that they already have gold vending machines in many public spaces, and that you can exchange cash for gold at bank teller windows.

Perhaps some Germans among the readership might step in to confirm/deny these observations? Maybe describing to what extent they are the case, if so? I think this might be quite enlightening for the rest of us.

For that matter, it may be interesting to hear from other countries if any of the above are applicable for them also?

Atticus said...

@FOFOA,

So, then, running with your idea a little, it would be a good idea to have a gold standard - that is, to define the dollar (for example) in gold terms. It would then be a good idea to have the official currency notes, whether Federal Reserve Notes or some other official currency denominated in dollars, as "legal tender", because human nature will always demand a fiat currency for trade and borrowing. Finally, it would be a good idea to legislatively declare any gold lending or borrowing contracts unenforceable, more or less ensuring that gold itself - physical gold - would not be lent or borrowed.

Then, as the fiat money supply (which could be loaned) expanded beyond the quantity of gold that could satisfy the claims against them, as they inevitably do, we would have a neat measure of "political efficiency".

This system would still become debt saturated and collapse over time, but it would also be clear to those who understand the law that "savings" could only be reliably held in physical gold, which would either be physically possessed or stored.

I also take it - and this is one of the difficult parts - that a legislative decree that nothing but gold and silver coin could be made a tender in payment of debts, as provided in Article I, section 10 of the US constitution would be a mistake.

In other words, you view substantially irredeemable paper money - fiat money - as an inevitable political development that is pointless to fight. The best that can be done is to define the money - the "dollars" - in gold terms, declare official currency notes legal tender, let them be loaned and borrowed as people please, but through the legal scheme outlined above ensure that the wise will be able to save and preserve wealth by holding physical gold, which would be transferred or traded only in "final payment" situations.

Is that about right?

I'll write about this idea over on my blog if you'll confirm that I've understood your idea correctly. I must say it is quite interesting.

Atticus said...

My blog is here:

http://strikelawyer.wordpress.com

DP said...

Atticus: it would be a good idea to have a gold standard - that is, to define the dollar (for example) in gold terms

To make a clarification, in order to be sure you understand this as I do (or to be corrected myself of course :-) ), the Dollar would be defined in a non-static, floating way. As is the case on the ECB quarterly marked-to-market balance sheet (to illustrate exactly how it would work and whose website to visit to find an example already in place).

Gabriel said...

@DP

"My understanding is it's also very common to rent your home there"
yes, also because housing is prohibitively expensive, and sales profits are heavily taxed.

"that they already have gold vending machines in many public spaces,"
Yes, they invented the machines

" and that you can exchange cash for gold at bank teller windows."
yes, but better go for dedicated gold banks, where choice and spread is better. Usual business here.

"describing to what extent they are the case,"
easy - standard operation - anonymous up to 15KEuro per transaction - VAT tax free - no capital gain tax on physical (ETF taxed as usual)

FOFOA said...

Hello Atticus,

You write, "it would be a good idea to have a gold standard - that is, to define the dollar (for example) in gold terms."

Please give me an example of what you mean by "define the dollar in gold terms." Give me a "sample definition" if you don't mind.

You write, "This system would still become debt saturated and collapse over time..."

Why do you think this? No, this is not the way I see it. What do you think is more likely to bring a system to the brink of a catastrophic collapse? 1.) The gradual adjustment (dilution) process of currency debasement/inflation caused by easy money policy? Or 2.) the expansion of debt-based savings as savers indirectly lend to debtors forcing bank lending standards down the tubes through a competition for yield?

In other words, what do you imagine would happen if the debtors could still borrow as freely as during the last decade yet all the savers (and pension funds) held gold rather than bonds, MBS, munis, and dollar denominated savings of all stripes? What would happen to the price of gold? And how would that affect your "definition?"

It feels like you are so close, yet a universe away from my view. :) Perhaps like a parallel dimension away! Do you watch Fringe?

Sincerely,
FOFOA

PS. If you open your profile up you can put a link to your blog in there, and then you won't have to keep pasting it which makes you look like a spammer (which I'm sure you are not! ;)

enough said...

Gabriel,

you said "better go for the dedicated gold banks"

given the massive capital needed to exchange fiat for gold and vice versa when gold is $50,000 per oz.

Wont it only be "gold banks" the old CB sanctioned fractional reserve fiat banks with some new suits that can accomodate these transactions?

given the continued oligopoly could not their "spreads be outrageous and abusive, again scalping the "savings" of the public ......same old same old?

Gabriel said...

@FOFOA

Thanks for sharing your understanding.
This last post clarifies a very interesting point: Gold lending must be prohibited to ensure its status.

However, its usage as collateral have to be permitted, in the same way a house is a collateral. Housing mortgage is a good example of the acrobatic financial operations made allowed by the banking system, that ultimately came down destroying wealth to both the lender and the creditor, at the same time that house value crashed.

In the case of gold as a collateral, an example could be the development of "fractional lending": several loans against the same gold, assuming a risk factor for default on each separate loan. The outcome is similar to gold lending or the current gold paper.

What law or regulation could ensure this (or any other type of loophole) doesn't happen?

Gabriel said...

@Enough

I have no idea what you are talking about.
today (erm, tomorrow), you can go to your local bullion bank, armed with your credit card, debit card, or cash, and exchange for nice physical gold, in any shape or form you like.

If you want to exchange $ for Euro, you go to the exchange window at your bank, or at any dedicated exchange agency. Same here.

enough said...

Gabriel,

yes today you can....how about when gold is $50k p/oz. ? when gold is the store of wealth par excellence.

I've already spoken to lots of neighborhood/regional coin dealers that say they can no longer afford to stock gold...eats too much capital! maybe I make no sense...certainly possible

Atticus said...

@FOFOA:

OK, I've adjusted my profile so that my blog's URL is "My Webpage" link.

And no, I don't watch "Fringe". Never heard of it. Should I have?

A sample definition of the gold standard can be found in the constitutional amendment I've drafted, which appears over on my blog over a number of posts. The way I figure, after a jubilee the dollar-gold ratio would be about $27,000 per ounce.

When I say the system would become debt saturated, I mean that the "dollars", assuming they were legal tender, could be loaned and would multiply beyond the actual gold physically available to redeem them. Since redemption - a "final payment" event - would be a rarity this would go on until confidence in the fiat currency was lost, at which time you have a crisis like the one we have now, the dollar-gold ratio is defined dramatically upwards again, and we go on with a re-defined dollar-gold ratio.

At one time, you may be aware, the dollar was defined by law as 1/20th of an ounce of gold. Thus the $20 one ounce gold piece. A beautiful coin, but that's another subject.

I take your observations and musings to mean that currency will always be debased in gold terms through lending, whether the currency is legal tender or not.

What I have suggested as my understanding of your thesis is that the lending of physical gold itself would be an unenforceable contract, not the lending of paper or digits supposedly redeemable in gold. In such a situation, a wise person would hold physical gold for savings, and would spend it only in a final payment event by physically transferring it simultaneously with an exchange.

On the other hand, legal tender currency and digits, even though ostensibly representing a given quantity of gold, would be loaned and borrowed in the usual fashion.

This would set up a two tiered monetary system, where lending and borrowing would go on in the currency - thus the currency supply would increase as it is loaned through the usual fractional reserve process - but physical gold itself would not be loaned. Over time the gold would increase in value relative to the currency notwithstanding the currency's gold definition, and so would be a sound method of saving.

I can see some problems with this but I'm trying to understand it first.

As to which of 1 or 2 is more likely to bring about a collapse, I think it's a trick question since the things you cite are flip sides of the same coin.

Not to get back to discussing coins, of course. It's an expression.

enough said...

Maybe this a an eddy as FOFOA writes sometimes

My concern is the very same financial institutions that rob us now will find a way with official sanctioning from the CB's to skim "savings" in freegold era as they do now on financial transactions of every kind.

If the capital necessary to facilitate gold/fiat transactions is too large for competition then the few institutions that can could create bid/ask spreads you could drive an RV thru...

this may be an eddy and not important..it just bothers me TPTB cronies could win again at our expense

Dimmed aurum said...

@Gabriel
Gold as collateral is possible but totally unnecessary.
Better sell it outright and then recoup it if successful in your endeavors.
Still if for some reason one must set it as a collateral in a fiat loan then better in a independent institution the same way CBs pledge their gold and take a fiat loan using BIS. So that this institution guarantees no multiple claims ensue as a result of pledging the same lump of gold multiple times by either party. And no receipt for that obligation shall be given that can be further used as collateral in another deal etc. It can be a public vault of some sort… but I digress. Again gold as a collateral makes no sense.
-==Dimmed==-

tdfxman said...

http://www.zerohedge.com/article/here-comes-executive-order-6102-qe-generation-dutch-central-bank-orders-pension-fund-sell-it

FOFOA, when do eddies become a river in you eyes? I wonder what you need to observe to doubt.

Desp are you here anymore or did this freegold idea turn into something not really challenged anymore since it is a different paradigm that can't be explained with the current one? It can't be proven right or wrong.

I have missed a few articles now but I still think TPTB are gonna run us over.

That change the Fed made 1-1-11 re: they can't go bankrupt now, only the US Treasury can. I was shocked reading all about it and how J6P just does nothing. The media is certainly captive. Legally now the Fed is safe from dollar implosion. They made a nice little accounting trick happen. A Little eddie. Then this in Europe (link above). Sell (us) your gold NOW. Bigger eddie.

Like Desp would always post, the freedom of freegold is the opposite of what seems to be coming down the pike. I took that whole episode with the Fed to mean they don't need capital the way you guys here think of it. They can create the bancor and be done with it. They have gold cornered, I don't think it will help people. The eddies will continue to build and rage.

" The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal." Alan Greenspan 1966

"And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers" Matthew 21:12

The money changers are gonna be tough in round 2 as well.

Free gold? Yes please! said...

tdfxman-That Greenspan quote makes my blood run cold...

This makes me think of a saying I heard once: "Sheep are led to slaughter by the farmer, never the other way around."

We are the sheep I'm afraid...

enough said...

I'm getting frustrated. I know this is not nearly as philosophical as most discussions here but I want to try one more time then I will get it.... That my point is there isn't one in anyone elses eyes here and I will crawl back into my RV, sig sauer and ROO's in hand

I like to think about the mechanics of how freegold will work...the exchange on a periodic basis of physical for fiat and vice versa

I've got alot of fiat I want
to change into gold at the mkt rate. I'd like a kilo bar please. gold is 50k p/oz. I'm going to take my $1,750,000 of fiat where??? to get this bar !!!

Gabriel says oh just anywhere...get your credit debit card and go to any gold kiosk and get yourself a kilo bar for 1.75 mil...right !!! no problem

Joe's coin and jewelry going to have inventory of kilo bars and even if joe could get them, where does he get the capital to take them into inventory?

Am I just out to lunch? does not the mechanics of from whom and how we are going to be able to buy/sell gold when price is revalued.

Is someone off the street just going to buy some gold directly from me? Like have a little test kit to make sure he's not forking over 100k for some fake stuff or just take my word for it?

It seems to me the only transactions that I will have confidence in as far as authenticity/credibility and who will have the capital to offer kilo bars or the fiat to take my kilo bar off me for 1.75 mil is an agent of a CB......anyone in the audience..... AM I WRONG?

If the only institutions that have the capital and public trust to handle fiat /gold transactions are agents of CB's( large financial institutions with little competition then why cant their market be I'm $45,000 bid and $55,000 offered...wadda wanna do? now I've had enough !!!

Free gold? Yes please! said...

Enough- I'm hoping someone can answer your post because what you're saying sounds logical and potentially problematic for holders of large amounts of physical gold.

I think you're on to something regarding the HUGE price spreads that could take place if gold shoots up to $50k or even $10k.

Whenever something has enormous "value" isn't there always a huge risk for fraud and/or exploitation? Anyone have an answer for this?

Wendy said...

Enough,


Today if you want to spend 1.5M on gold, you have to go through an official exchange. That will be the case in the future.

If no official exchange exists, then those who are interested in both buying and selling will set up a system to do so. (auction?)

With any item of interest, there will always be a means to sell and a means to buy.

enough said...

Hi Wendy,
I'm definitely not saying there wont be a means....just that with scarce supply and the astronomical fiat amounts involved and capital required ones CREDIBLE options will be very limited and subject to potencially massive bid/offer spreads by an oligopoly of greedy CB agents provided with fiat and bullion by the CB's

just as the CB's lavish risk free profits on their agents (the banks) at public expense now...sorry for then run on papragraph

FOFOA said...

Hello Atticus,

You write, "a wise person would hold physical gold for savings," but why would he? If the price is fixed at $27,000, what would be the rationale for holding gold? If the currency is being debased, and the price of consumer goods and other assets is rising with inflation while gold is not rising because it is fixed at $27,000/oz, where would be the incentive to hold gold?

Would it be that the savers are just waiting for, hoping for, as you put it, "a crisis like the one we have now, [in which] the dollar-gold ratio is defined dramatically upwards again?"

Is this your ideal monetary system? Faux stability punctuated by periodic crises?

This seem strangely familiar to me. I wonder if there is not a better system that would have an ongoing (perhaps quarterly) adjustment mechanism that would not only reward those "wise person savers" for their wisdom, but also avoid the pain of periodic financial crises by exposing monetary profligacy on a daily basis. What do you think?

Sincerely,
FOFOA

enough said...

Wendy,
these exchanges you speak of...you mean like comex, lbma?......are they providing physical gold liquidity? I thought they provided 95% paper liquidity...


If I understand correctly freegold will be inspired by CB revaluation of gold..they will have agents to do these fiat/physical transactions just as they are entwined with the banks now. Banks with this mandate could turn this mandate into another profit engorgement.

That sucking sound at the other end of the phone will be the giants AGENT paying you 45K and selling it to the giant for 70K

Diamond Jack said...

I guess he wasn't talking about paper gold?

@enough
here in the states we can buy gold in weights smaller than a kilo. A gram of gold will set you back a couple thousand. I'll have placer gold available, the peoples' gold. Couple of hundred.

Greenie said...

I just do not understand why you folks do not get the concept of freegold despite repeated attempts by our host. If you do that, we can take this discussion to the next level.

Let's take FOFOA's argument in parts -

i) Freegold - Freegold is the concept of taking gold completely outside of monetary realm. Governments do not choose houses or cars as money. Government won't consider gold as money either. That's all. Right now, legacy reasons of Bretton Woods force US government to control the price of gold. Even though US rejected Bretton Woods in 1971, gold-dollar tie has not been completely broken. Gold is still being seen as the monetary enemy of US dollar by the US government.

ii) gold as wealth asset - FOFOA argues that once gold is freed, it will be seen as the primary wealth asset by savers. Why? Gold is indestructible, mobile, cannot be easily created grown like cauliflower or mined like copper, and most importantly useless (unlike sacks of rice....food crisis).

That's all.

enough said...

Thanks Diamond,
I still dont see how the Tulvings, Apmex, CSG, CMI, CNI are going to be able to remain in business when the capital necessary is going to rise by 50x.

I still feel it's possible liquidity could actually diminish and dealing spreads could balloon due to calital requirements to offer liquidity.

This comes down to my initial question...if freegold erupts due to bank defaults on paper promises then the banks wont be "gold/fiat" agents for the CB's

If freegold is deliberate and timed by the CB's with the banking system still alive and kicking with its tenticles firmly wrapped around the CB's then a grotesque mutation of freegold might emerge where the banks are permitted to continue to skim the savings of the public with some mandate from the CB's...

but I'm done with this. Its obviously off the mark...sorry for belaboring it...goodnight all

Casper said...

test

Greenie said...

They second part of FOFOA's argument says when gold is removed from dollar's control, it will be repriced significantly higher. I do not understand why there is so much confusion about that either. You do not consider a guy putting a large poster of Mercedez in his office equivalent to a guy with a Mercedez parked outside his office. Only when it comes to gold, people are trained to consider a paper with gold written on it equivalent to gold itself. Don't you think that would distort the gold market and keep the price down significantly?

Casper said...

@enough


As I understand you're questioning the amount of capital the Tulvings, Apmex, ... have to buy gold.

Have you considered this:

The corner stone of freegold is the support of giants, among them Central banks. You say that things are going to change when freegold erupts... what if your Tulvings, Apmexs,... climb the career ladder and become....Primary Dealers! - of sort.

Casper

enough said...

Casper,
why do this to me..I was just about to go to sleep:-0

I just look at the way the US fed does the bidding of the banks. Treasury issues bonds to primary dealers which get fees and then the fed buys them from the primary dealers at a premium

fed lends to banks at 0% then allows them to charge 20% on credit cards etc.

why should this relationship change under freegold?

Just because CB's see the light that gold is the remedy to their failure does not mean their desire to feed the banks sinister unwarranted profit will diminish. Why would the CB's not allow the banks to abuse freegold as they have allowed tehm to abuse everything else?

GoldSilverClub.ca said...

Love your blog, and I see your point of view... I also almost agree with it. When I say almost, its not because I have doubts about it, it is that I have doubts about when. I have a feeling we will not see freegold in our life time, but I hope I am wrong.

One more thing, I hate reading the comments of your blog, too many don't get it and it just shows me more and more why it will most likely not happen in our lifetime.

Greenie said...

Third concept hammered by FOFOA again and again is price control. The current monetary system ($IFMS) is similar to price control by communist governments. When government tries to control price of something and keep it low, the commodity disappears from the market. For example, when government makes a rule to keep bread price to be $1, you cannot buy bread from the market any more and you will have to go to black market. Right now, US government is trying to force down the price of gold, not overtly, but through various covert mechanisms (paper gold market). So gold is disappearing.

Now you may say that gold is not disappearing, because you can buy few coins or even small bars. However, what you need to keep in mind is that gold is the 'bread' for very wealthy. Can someone with few hundred million dollars buy gold easily? Can a central bank with 50B of reserve buy gold easily? I do not have the answer, but Another suggested that they could not,

Greenie said...

" too many don't get it and it just shows me more and more why it will most likely not happen in our lifetime"

In 2005, too many people did not see house price could fall. Did that prevent the top in housing market?

costata said...

Paul and Gabriel,

Interesting contrast between the treatment of the retail gold buyer in Germany versus the forced divestiture, by the Netherlands CB, of that pension fund's allocated(?) gold at the Perth Mint depository.

As Gabriel described the situation for the German "shrimp" gold buyer:
"easy - standard operation - anonymous up to 15KEuro per transaction - VAT tax free - no capital gain tax on physical (ETF taxed as usual)"

Whenever I see a set of incentives so widely divergent I have to wonder; why?

The pension fund is discouraged from holding a large hoard of physical gold while the private citizen is offered strong incentives to anonymously build a substantial (in shrimp terms) personal hoard.

This touches on enough's concerns as well. It seems that ways and means are being developed to facilitate the holding of "small" quantities of gold by us shrimps while larger entities are being hampered in their attempts to take large positions in physical gold.

Could this be a form of rationing?

FOFOA said...

Hello Enough,

Why do you think the capital necessary to run a gold dealership will change after Freegold? This thought does not compute in my small brain.

And I don't see how the gold dealers of today will end up with a smaller role versus the big Bullion Banks. I think the opposite will occur!! The BB's will shrink to become mere utilities for vaulting / exchanging / transferring large quantities of gold bullion. But I think the small dealer network will boom as a price discovery spread business!

Remember, it's all about price discovery in each currency zone! Freegold is not a centrally controlled / defended price.

I have no idea what the average single daily gold purchase or sale is today, but let's guess it is $10,000. If so, I think that average will be roughly $10,000 in Freegold, give or take. Same for weekly and monthly averages. Why would it change? Will everyone suddenly have a lot more money to pour into gold? In fact, it will be more balanced between the buy and sell sides as gold will be at equilibrium with cash on a physical supply and demand basis. And in any case, if the small dealer has some of his capital sitting in inventory at the moment of revaluation, he'll be very well capitalized to handle any change in the flow.

I recommend you give some quiet contemplation time to the concepts of divisibility and equilibrium. It might answer a lot of your questions.

Sincerely,
FOFOA

costata said...

enough,

(I was typing this comment while FOFOA posted his comment. Rather than waste the time I will throw my 0.02 on the table as well.)

I think you are worrying about nothing. If necessary gold can be bought and sold by the "atom" as A/FOA and others have pointed out.

Let me field a couple of examples. The Perth Mint is expanding its range of small sized offerings in tamper proof blister packs. From memory these "bars" come in sizes as small as 5 grams.

A while back a branch of the Rothschild banking dynasty bought a 12.5% stake in BullionVault in a JV with the World Gold Council. This provides the platform for a "digital" gold offering down to fractions of a gram.

There is a significant difference between BV and GoldMoney. BV matches buyers and sellers (bid/offer) whereas GM acts as the market maker by providing a buy and sell price.

In regard to the issue of scale. It is certainly possible that there will be a different price offered to the seller of 1 m/t versus 1 gram but it depends on the buyer's or dealer's priorities.

The premium price could lie in either size of transaction. A supplier of the retail investor might look at the 1 m/t and see a very large fabrication cost to break that down to 1 gram lots for his market. A Treasury or CB seeking to settle a trade imbalance would, IMHO, view the 1 gram seller as a nuisance and offer a derisory price (or no offer) to direct that 1 gram seller elsewhere.

Free markets tend to resolve these kinds of issues naturally.

Wendy said...

I spent alot of time drafting a really great essay. I've trashed it!!

I'll have a look at it again tomorrow, because I think it has value

But for tonight I've grown impatient with the circular conversation. MOREOVER, I have the flu which indicts crankiness!!

costata said...

Atticus,

Under a Freegold-RPG regime fiat currency will still be legal tender. Please correct me if I am wrong, but is it not already the case in most Western legal jurisdictions that regardless of the collateral pledged the borrower has the right to repay a debt in fiat currency and redeem/retain the pledged collateral.

I can see two reasons for discouraging any form of gold lending under the new IMFS discussed here. Firstly the desire of the issuer of the fiat currency to protect its' status as the sole legal tender.

Secondly the need to control the supply of "currency" in the system as a key tool of the issuer in maintaining a stable currency. If the universal store of value in the new IMFS (gold) can be fractionalised in some jurusdiction it could make controlling the amount, of any specific currency, on issue - impossible.

FOFOA said...

Hello tdfxman,

Boy, you must have studied really hard to make such a "special" comment. Is that the best you can do? You show up here once every three or four months, disclose that you haven't read the recent posts, and proceed to make the same lame argument which always amounts to little more than "TPTB are gonna run us over." You're like a broken record.

"…or did this freegold idea turn into something not really challenged anymore…"

Kinda funny that you made this comment under a post called "Reply to Bron." Thing is, guys like you want it challenged from a conspiracy theory angle. Maybe you should go back to Shelby's forum.
______

And because we have many new faces here that may be inclined to give his comments equal weight, I think it is only fair for me to disclose the premises on which tdfxman bases his very "special" analysis.

He belongs to a church that preaches that we are in the "End Times" right now. His position on gold is based on his belief that David Wilkerson prophesied back in 1975 that gold would fail the gold bugs in the end. It is based on this quote from Wilkerson's 1975 book:

"Those investing in this commodity, gold, hoping to find security are in for a tragic surprise. The price of gold is going to rise astronomically but will not be sustained over a long period of time. Silver will also become a very precious metal and it’s price will go wild. But neither silver nor gold will offer real security. The fluctuating and uncertain value of gold and silver will be a part of the economic confusion that grips the world. Believe it or not gold will not hold it’s value and gold hoarders will get hurt badly."

Here is how tdfxman explains his method of "analysis" in his own words:

"I am just a trend guy. When I see he world moving towards what the bible predicts, I get excited. But I try to remain analytical.

Several prophecies have been fulfilled in this generation and the generation that sees them happen is the last one.

So I am either right and the predicted events are coming or I am like everyone else and more has to happen. The next step is the Rapture, no more biblical prophecy has to be fulfilled (thus live in expectation etc) so if I stop posting and various conspiracy posts around the net are saying folks are gone, you know where I am. :)"


Now you can all make your own informed judgment as to the credulity you want to give his "analysis."

Sincerely,
FOFOA

Robert Leroy Parker said...

Hello Fofoa,

Thanks for the latest. I'm curious as to responses you have received from msm folks with the growing popularity of your blog.

Perhaps you have plans to write on this subject at some point?

Regards,
Butch

FOFOA said...

Hi Butch,

If you can land me an honest-to-goodness MSM book deal, I'll write a book. In the meantime, I am writing on this subject! :)

Sincerely,
FOFOA

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

costata,

I agree with FOFOA we can not draw conclusions out of this CB action. Too much we don't know about the deal. But it is remarkable and worth investigating all the same. Will be cracking my head over it the comming days, and will try to find out more details.

This could be an all paper deal, but I don't think so, they speciffically mention an australian dealer here. For me, I also concluded this would then be allocated gold in perth. but it is still an assumption. we don't know for sure. yet.
But when this would all be paper, then why go public and go to court ? I could imagine much more subtle ways to get this deal of the table. also when this would be an all paper gold deal, I would say DNB is totally wright in getting them off the hook. But on the other hand, when this is allocated perth gold, and I was the treasurer of the fund and made that call, I would be furious and go to court as well.

this is 13% of the total now ? they had it for 2 years, it wasn't 13% of the total in 2009 was it ?
As euro users, we don't ask ECB to sell gold after MtM revaluates because the gold fluctuates to much, do we ?

FOFOA's remark about one workerspensionfund having it all while others having nothing would be unacceptable, is interesting. Didn't know a central banker was also a politician. I have to think about that one as well.

Knowing dutch history, as a CB, I would stick with the "dokwekers(harbourlabour)" fund.
theis union were the ones to take on the nazi's back in the days. Would not want to have to explain to them why they were not allowed to have a credible future now.

All in all really nice to see some dutch still fight the powers that be. history repeats in funny ways :-)

Paul said...

funny

I just made a slip up by confusing unions and pensionfunds and had to correct. That made me think.

Unions were the real labourpowers in the old babyboom working days, but my generation is not part of them anymore. Unions are getting weaker since babyboomers getting older,
they stop working, leave the unions, they still vote, so power will shift slowly from unions to pensionfunds. Or old people getting together on other levels,, newley formed 50+ party in the netherlands would be an exapmle of that.

CB will have to deal with them one way or the other. soory grandpa, gold is not allowed, you are much too old, for gold you need strong hands and teeth !

Paul said...

and I would really like an edit option FOFOA !
I for one need it because typo is my middle name ...

FOFOA said...

Me too, Paul. I can't edit comments either.

Paul said...

then let's leave it this way

Things are so much better when there is something to wish for.

Did you know the best part of the sixteenth chapel is hidden from scratch ? Michelangelo claimed the most beautifull part, he covered up again so noone could see. that thought alone, makes the whole work, amazing as it already is now, that much stronger.

tina said...

@ Greenie
Congrats, at least one gets it.

@Fofoa
If someone dont get it after this post, he will never.
I read this blog since 2008 but with this post you have answered the last questions.
I admire your patience with the commentatores.
Thanks

Paul said...

sixteenth chapel ? haha
sistine chapel that is ...

time to keep my mouth shut for a while ;-)

enough said...

thank you FOFOA and COSTATA,

I feel better now, I think...

will contemplate....quietly , cheers !!

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

Next dive in the history, WGA, some details: http://www.usagold.com/newgoldmarket.html

Ps: I should make some end post quote... "Gold, educate yourself"? :o)

zenscreamer said...

Enough and FreeGold,

RE: your question about fiat-seeking-gold transactions after the transition

I know that costata gave you one answer having to do with tiny bars and such, and FOFOA has said the same elsewhere. However, I got to thinking about how gold "lies very still." And would put this to you:

On the pacific island of Yap there evolved a traditional "money" system (before Western contact)in which wealth is stored in large stones that stand along the paths around the island. Each member of their society learns who "owns" each stone, and the bigger the stone the more it is "worth." The reason I mention this is that when "ownership" of one of these stones changes, the stone rarely moves; there are even cases of stones that have been lost at the bottom of the sea and are still "owned" and "exchanged" based on community perception of "transaction." This small society has, in effect, a 100% physical, 100% transparent, publicly audited bullion banking system.

Similarly, after the Freegold transition, if you and I want to transact fiat for a kilo of physical gold, and we both have independently audited and put our faith in a third-party bullion bank, we may make such an "exchange" in the same way, while the gold itself "lies very still" in the BB vault.

This is not equivalent to having faith in a third party DURING the Freegold transition; the pressures and incentives are different in the two different systems of social organization.

I'm also not saying that the small-to-microscopic bar of certified gold wouldn't exist. I'm just airing another "solution" to the issue of how the problem could be handled.

Atticus said...

@FOFOA:

Like you I see a problem with holding gold for savings when a "dollar" is defined in gold terms by law. I'm not advocating anything yet, I'm just trying to understand your freegold ideas. They are interesting. I don't know if they are sound. I would have to be sure I understand them first.

The law can do a number of things effectively here. It can make a legal tender out of currency notes. It can define the currency unit in gold terms. It can make gold lending unenforceable in courts of law.

You appear to endorse the first and third of these. I'm not sure what your thinking is about the second. I'm getting the sense that you do not endorse it; that is, you do not believe the currency unit should be defined in gold terms.

Do you believe, then, that the currency unit, e.g., the "dollar", should be left undefined as it is now? That it should "float" against other currencies?

Throw in an historical tidbit that you may not be aware of. In the US during the period when there was no central bank, say 1836 to 1913, there was paper money in the form of bank notes. These notes were "bearer paper" and looked a lot like the currency we use today, but they were not legal tender. Nevertheless they were denominated in "dollars" which were defined by law as a quantity of gold, and they were widely accepted, sometimes with a small discount. They were redeemable at the bank that issued them.

Such notes would not be "fiat", but they would be intelligible.

In any case, do you think the currency unit should be left undefined in the law?

Polarny said...

@FOFOA

I've been reading your blog for about a year. Long before that I did read the archives of the discussions your blog is about. (Back in 2004-2005 and I benefited from this lecture greatly).

However I still don't get the benefit of Freed Gold as opposed to Enslaved Gold to overall economy. If the reboot happens, some will get their windfall, but how is is supposed to stabilize things? The Crooks on WS i and Sociopaths in DC will still be around -- this time even without a residual gold restrain...

How do you envision the stabilizing effects of an alternative saving medium when in fact those closest to the "printer" issuing fiat will be free to continue kidnapping all productive resources and energies of the world for their own benefit?

Joel said...

FOFOA,
I love the concept, but what I struggle with is whether freegold can ever take hold, given that most of our govt.s, CBs, and politicians are so entrenched and will be so resistant that the fiat paradigm will be impossible to change. What is to keep them from destroying the wealth (and debt) through inflation, declaring a jubilee, reeling in a boatload of currency, then simply starting the cycle over with the same system, all the while continuing to keep a lid on gold prices through their paper games? I understand that if big oil demands payment in physical gold (as per Another) it will be a game changer. If currencies start to fail, gold demand may skyrocket as it is viewed as a store of wealth. But clearly, there has been record demand in the last four years, and yet hey have done a pretty good job of protecting the paper markets so far. So other than a Saudi move to demand gold for oil, what other events do you for see that could cause the physical/financial bifurcation and paper market implosion that is expected and force their hand? I know the simple answer is a run on physical, but to date they have had no problems keeping their system intact, and demand for physical has already been amazingly strong. Are there enough private players to be able to force their hands? It seems like they have an infinite ability to change the rules and laws to protect their system, I.e. taxes, confiscation, prohibition, sham paper markets, as per Greenspan's comment.

Greenie said...

"If the reboot happens, some will get their windfall, but how is is supposed to stabilize things? The Crooks on WS i and Sociopaths in DC will still be around -- this time even without a residual gold restrain..."

Polarny,

Making gold free of government control will give savers more power over their wealth. Right now, savers are forced to save in $IFMS, which means their savings recirculate as debt in the system. 'Crooks and sociopaths' prosper, because they can borrow that money easily.

You can see that even today savers are trying to find best saving vehicle outside currency, and they are jumping from tech stocks to housing to junk bonds to commodities creating bubbles all over the world. Wouldn't world be more stable with those bubbles gone?

If you want to be more technical, right now all investments use US treasury as benchmark as the safest asset class.
With freegold, gold will replace treasury as the safest asset class and thus the benchmark will be government independent. That is, IMHO, the essence of RPG.

Greenie said...

"what I struggle with is whether freegold can ever take hold, given that most of our govt.s, CBs, and politicians are so entrenched and will be so resistant that the fiat paradigm will be impossible to change"

Are you asking whether freegold can ever take hold? Euro already installed freegold system.

Also regarding fiat, you missed the whole point. Fiat paradigm is not going away. What goes aways is the legacy of US dollar reserve system that was installed after Bretton Woods. And in that respect, interests of all governments are not similarly aligned.

Pawel said...
This comment has been removed by the author.
Polarny said...

@Greenie

This is what I don't get: In order to stop bubbles price of gold would have to be always going up at a faster pace then anything else...

The bubbles form when fiat is being issued in excessive amounts (as it has been ever since the FED was created) -- would FG change that?

February 11, 2011 8:59 AM

Yannick said...

@Joel: You are struggling like I was before. The point you are missing is that once high inflation takes root, people will want to get rid of dollars/euros/... and will ASK for gold.

Imagine you have $100k in retirement, and you know that 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. Real estate? Too expensive. Gold (and maybe silver) will be your choice.

Now multiply this by all people on earth, once inflation hits every country on earth : no way a political entity will stop this. It's like Mubarak trying to stay in place in the face of all Egyptians wanting him to leave.

Gold will then go into orbit.

burningfiat said...

Thanks for the answer, FOFOA.

I agree with you and Paul that it's too early to say something definitively about the case. And we don't know if it's paper gold or physical gold the pension fund holds.

I will be careful not to confuse this ripple on the surface with the direction this mighty river is taking us, and personally most of my net worth is placed accordingly.

Until further details are in, I'm interpreting this as a warning sign though. When public officials here in socialist europe would like to micro-manage whether 3% or 13% of some small pension fund goes in to whatever asset, we can only hope they don't take it a step further and applies these rules to us shrimps.

Let's hope Freegold comes soon. This kind of socialist intervention would be like shooting yourself in the leg, when first Freegold kicks in. Capital would flow elsewhere...

enough said...

Zenscreamer,

thankyou as well !

I am now quietly contemplating pure agency "broking" vs market making ( capital needed) to make mkts hold inventory..

obviously agency broking ( no capital required) would work but market making would require huge capital outlay possibly reducing liquidity.

FOFOA says no and he can take this exponentially deeper than I so I defer to him.....cheers

Wendy said...

Joel: "So other than a Saudi move to demand gold for oil, what other events do you for see that could cause the physical/financial bifurcation and paper market implosion that is expected and force their hand?"

A Chinese raid of GLD vaults will cause additional stress to the house of cards.

JR said...

Joel,

What is to keep them from destroying the wealth (and debt) through inflation, declaring a jubilee, reeling in a boatload of currency, then simply starting the cycle over with the same system, all the while continuing to keep a lid on gold prices through their paper games?

Because they rely on their credibility, on people's confidence in their system to store value. And that's collapsing.

Once lost, its not easily regained.

Consider FOFOA:

Legal tender laws mandate the medium of exchange, but they do not and cannot name the store of value. For that they rely on credibility management by institutions like the Fed and CNBC. Jim Sinclair calls this MOPE. And it is the monetary store of value that is on the move, not the medium of exchange. But thanks to legal tender laws the monetary store of value must pass through (and be priced in) the medium of exchange, dollars, whenever it is on the move.

S said...

FOFOA,

Have you thought about quantifying what the level of "acceptable" malinvestment under the banner of progress that "must" be tolerated to advance the ball forward? In the era of instant communication/gratification, eliminatating fractional lending pull forward would be tantamount to potentially massive civil dislocation (Egypt anyone).

The comments by the Bank of Korea Gov. this am questioning the validity of the US dollar as the backbone of the global currency architecture is profound given the new favorite son status win the US policy environs. Add to it the resignation of Weber and the the IMF comments - which trail those of World Bank head re gold. All of this is to be viewed in the context of the Saudi mystery surrounding the King and the return of Bandar afte a two yr hiatus. The "leaks" about Saudi reserves a few days prior to these rumors may be just a coincidence.

Someone on the "fringe" might see Egpyt as a merely a pawn with an arrow aimed square at the heart of the iranian fields.

What do you make of the Axel Weber resignation? And what do you think will be "China price" for SDR if at all? China Daily this am made clear that China once agaihn is the largest gold producer.

Terry said...

The Illuminati's Secret 20 Trillion Dollar Bank

http://beforeitsnews.com/story/408/276/The_Illuminatis_Secret_20_Trillion_Dollar_Bank.html

It's unlikely that we will ever get an honest money system.

mortymer said...

Some things, links just need to be stressed out more often:
(I read it in the Beginning of my search but this time it hit me hard connecting to world events)

Generous commentary by 'Flatliner ' on the blossoming of gold's operational role among central banks to level the economic playing field within the international monetary system.

Quest for clues

http://www.usagold.com/goldenchalkboard/gc_monetary_system.html

"Springtime is the land awakening. The March winds are the morning yawn." ~Quoted by Lewis Grizzard in Kathy Sue Loudermilk, I Love You

Rudy said...

I am not up to speed on the whole line of his blog... but the last entry, regarding Reply to Bron, about time deposits, is well covered by Sandeep's talk… see http://www.youtube.com/user/rudyfritsch?feature=mhum
Deposits made to the bank are divided into demand deposits, and time deposits. Notes may be printed against demand deposits only... ie, against cash Gold in the vault, or real bills that mature into Gold, and are liquid enough to support full redeemability of the issued notes... 100% reserves.
Borrowers are also time bound; they make promises to repay their debts, and the time factors (maturities of lent and borrowed monies) must match; that is, the business of the banks borrowing short to lend long is illegal.
I must add that this is an ongoing, dynamic process... what computer programmers call iterative. In effect, the balance between lending and borrowing is constantly being (re) established, and the time factors also... strictly at the behest of market forces.
The banks may not impose their ideas on the market, rather the market must make the calls.
Yes, some borrowed money may be spent; so what? Whoever is the recipient of the spending will in turn either re-spend, deposit (into cash accounts) or re invest in longer term instruments. There is no '3 notes from the same piece of Gold'... if the Gold is in the bank's vault, then one note is issued. If in someone's till or pocket, no note is issued... and if the Gold is deposited in a term deposit, then a matching maturity longer term instrument is created... like a bond.
Rudy

FOFOA said...

Hello Rudy,

Perhaps my post would not have gone over your head if I had used the word "debts" instead of "notes." You see, the notes are the time deposits, the savings notes that are the other side of the debt. So read this paragraph again with the word replacement (debts for notes):

"The depositor can no longer spend the gold he deposited, but the borrower can! And he will give it to someone in exchange for something, and that someone may deposit it with the expressed purpose of lending.

"Now we will have two debts out on one piece of gold. The second borrower will now spend that piece of gold and soon we'll have three debts out on that same piece of gold. This leads to a "synthetic supply" of savings, granted they are time deposits, as well as an increased velocity of the underlying reserve (which suppresses its value just like volume expansion), all with 100% reserve banking."

Now, Rudy, I'll ask you the same question I asked Atticus. What do you think is more likely to bring a system to the brink of a catastrophic collapse? 1.) The gradual dilution of currency? Or 2.) the expansion of debt-based savings?

Sincerely,
FOFOA

Michael said...

http://www.zerohedge.com/article/silver-bears-are-here-again-explaining-why-blythe-has-problem

i've heard it all now at 3min, the CB's are selling their tungsten gold to keep there fiat paper high.
and they estimate that 90% of their gold is fake also.

thank god i'm not a dooms day/conspiracy guy or a silver bug otherwise i too would be a nut.

Wendy said...

FOFOA and mortymer,
Thanks for the reference to the golden chalkboard and flatliner's article. flatliner draws the same conclusions that I have. From Buba thinking of throwing uncle off the cliff, to Iraq oil for euros to the creation of GLD.

It's rather cryptic so I'm not clear if flatlliner believes that deep storeage gold is GLD. Also the artile is not dated. Any idea when it was written?

Wendy said...

Also, might I suggest that when any poster starts the "but why hasn't freegold happened? and A/FOA were wrong" that they be told do not pass go, go directly to flatliners article.

It's clear where we were then and where we are now!!

Blondie said...

Great minds, eh Wendy?

Joel said...

Greenie,
Never said a reboot would stabilize things. As long as debt continues, the cycle will repeat, but that does not mean they won’t be able to sell the use of another currency, or a tightened existing dollar. US treasury will pay off (with worthless dollars) or jubilee the debt and attempt to reboot with some other currency, all the while blaming everyone else, China, a stagnant economy, and Republicans for not letting them spend enough to bring us back on the road to recovery. Never their bastardized Keynesian monetary policy.

Re the Euro: the Euro may have marked to market gold reserves to cover their currency, but one fiat with gold backing does not make freegold, my friend. Gold is still trading at $1350, that definitely is not freegold. Yes, a perfect storm type of event, as per Yannick’s worldwide inflation scenario, or a Saudi move to gold for oil, would clearly be a big enough catalyst to start the paper implosion. But the paper players have proven that they have huge staying power. Remember when Another first wrote of this? A long time has passed. I do believe it will happen, I just think it may take longer than we might think (or like), given that they have a vested interest to fight/delay, are in power, and get to make the rules.
Re: fiat: It was you who missed my point. Reread my post, I never said fiat would go away, I said it would be devalued, debt forgiven, and then the system started over again (that would happen with either a new, or massively tightened existing currency, i.e. QT 2, quantitative tightening, lol). Again, they own the media here in the US, and if they can sell Obama, they can sell a new currency without a gold standard. Every fiat default in history has ended with another fiat to replace it, or a tightened existing currency, hasn’t it, with no new gold standard?

JR,
Good comments, you really have me thinking about credibility, and the ability to sell the masses on a new currency is debatable. But not having a credible store of wealth may not be very high on most people’s Maslow’s hierarchy of needs for a while, given that most of their wealth will be wiped out. They will simply be looking for something to transact with.

To me, the wild card is the unpredictable, and always underestimated, ignorance of the masses. People are not always smart enough to act in their best economic interest. Socialism has never worked, but countries continue to go back to it, and the same can be said for fiat currencies. Humble economists (not everyone here, lol) sometimes forget how much smarter they are than everyone else, and harbor grand illusions about rational behavior that never surface.

Irrespective of my skepticism, and with much thanks to FOFOA, the archives of FOA/Another and others here, I do believe strongly in the following:

1) As Voltaire said, “fiat always returns to it’s intrinsic value—zero”;
2) there is a reason that all of the major players in the world are buying gold; and
3) Currencies are an incredibly idiotic store of wealth.

So I buy, I hold, I wait…

julian said...

Greetings All,

Thanks FOFOA for yet another juicy piece of fruit! My eyes are blinded by the glare!

one of the ways I judge whose reason and evidence is more sound and stable and akin to Truth is:

a party to the discussion brings forth a strong line of reason/evidence, and the other party does not approach it directly from their side to deconstruct it


a (rather surprising?) number of people are stuck in their hard ways of wanting things to be tied to gold for gold's sake, rather than just letting reason and evidence dictate what is best (most fair, effective)

what I am beginning to see now, more than ever, is the Mechanics by which an economy's (a society's) wealth asset remains purest and most stable/reliable in its valuation on the longest of time frames


the Form of the wealth asset matters not, philosophically!

the Nature of our reality here on this planet at this time brings the focal point to Gold as that most excellent Reserve Asset

Aside: "To reserve" means to keep or to hold? Something like that.

So it only seems fair that people not be allowed to harm the savings of others, just so they can create synthetic supplies of the best reserve asset we know of right now, (editorial: i think it's that goldbug, or perhaps a more general hardmoney extremis mentality that has people stuck in that other, shackled way of thinking).

There are plenty of things to use to collateralize into loans for productive or even for gambling purposes, the debt default of which is not such a catastrophic blow to the savings base, the very measurement system that accounts for our wealth on a societal scale

Let currency perform its function, and let the wealth reserve asset perform its own, unencumbered by something so perilous as synthetic supply

It truly seems as though in reality humans would quickly and eagerly attach themselves to something so sound as Freegold, even if starting from scratch as a saver, because it offers the prospects for stability and security , and because currencies are already in place so there is still some purchasing power left in the economy.

It would be primarily the then-Free wealth reserve asset's value that will multiply many-fold under those circumstances, where currencies still maintain roughly the same purchasing power (some currencies more than others). I don't know if I'm wrong in that thinking though. Perhaps hyperinflation for some/all currencies?

Please clear up any of my misconceptions.

Love this discussion!!

- Julian

mortymer said...

As Blondie explained, it is important to look at the timing of revaluation from perspectives of others, for example a simple game theory from CBs:

http://www.bis.org/speeches/sp050218.htm

Where do we stand now and what steps should we take to position ourselves the best?
~Gold, educate yourself.

mortymer said...

Repost 1/2: MK (3/10/05; 09:43:25MT - usagold.com msg#: 130048)
"Chris Powell, Townie & ALL!. . . The Implications of Koizumi's slip of the tongue ... If you recall, previoius Japanese dalliances with respect to gold were always a reaction to tough trade talks - times when the United States was pressuring Japan to lower trade barriers and allow its currency to float (presumably higher). The Koizumi comment this time around did not come as a reaction to trade talks and should not be interpreted as a negotiating ploy. This is an important departure that top market analysts will not take casually. These comments register genuine concern about the nature of Japan's reserves and their VALUE, and carry with them long-term implications for the dollar. Koizumi pointedly remarked (in what appears to have been an unguarded moment) that "it's necessary to diversify the investment destinations" of reserves "while considering what's profitable and what's stable." If that is not a well-aimed arrow at the heart of the dollar, then I don't know what is..."

mortymer said...

Repost 2/2: Steve Barrow at London Bear-Stearns captured what I believe to be the main point: "The market will believe Koizumi. This is an issue that's not going to go away. That's going to undermine the dollar.'' In taking this all into consideration, we should not forget the comments last week from South Korea that it might diversify its $200 billion in reserves. South Korea, the third largest holder of dollars in Asia, is in a better position to act on its concern in that its holdings are substantially less than China or Japan. That may be where the dam breaks first, though none of us know what is going on behind the curtain in Asia. In this context, the Koizumi comments may simply be what has bubbled to the surface from a much more intense and pro-active strategy than anyone anticipated until his slip of the tongue.

If and when the euro breaks the $1.40 barrier, we will be in a whole new ballgame. It has been my belief for quite some time now that the G-7 was attempting to manage the dollar's devaluation within a band over the past few years and that the strategy had been successful. Gold has been part of that managed relationship. This explains why analysis of the euro's prospects has also been an analysis of gold's. Now, if the Koizumi slip-up reveals the reality in Tokyo, speculators could blow the strategy out of the water and we could see the beginnings of a run on the dollar. One is left with the mental image of major currency players crowding at the door with Warren Buffett already standing on the other side saying "I told you so."

Barclay's forex department immediately translated the Koizumi comments as a positive for gold. Why? Because Japan has smallish gold reserves for a major world player and the country most in need of a gold diversification. IMF sales in this context become a very small threat to the overall market. As the biggest holders of dollars, Japan, China and South Korea would position themselves as the most likely market for that gold. The problem is that the United States contributed the lion's share of that gold to the IMF and under the circumstances it would take something more than diplomatic niceties to get the United States to part with it. Anyone who thinks that the UN/IMF/World Bank milieu is still strictly joined to the U.S. Treasury Department's hip doesn't understand the Bush administrations view of these organizations."

Umfeld Awareness said...
This comment has been removed by the author.
Rudy said...

More on Reply to Bron; in specific, to 'FOFOA said;
First, your post did not 'go over my head'... in fact, your post shows me you do not clearly understand how the process works. To quote you "The depositor can no longer spend the gold he deposited, but the borrower can!" The fact is, the depositor has already made the decision as to whether the money he deposited can be used as backing for note issue or not. If he made a cash deposit, then indeed the bank can write notes against this... BANK NOTES, what we call Federal Reserve Notes or Dollar bills. That is, if the Dollar bills are to be redeemable.
If the depositor made a time deposit, that is a longer term commitment, then BANK NOTES cannot legitimately be printed or issued against the deposit; only longer term paper, with the maturities mathing. This is because notes are redeemable as cash Gold... and longer term instruments, like bonds are NOT... they must be sold in the marketplace for cash, and are subject to capital losses or gains, depending on movement in the prevailing intrerset rates and in the time remaining to maturity... see the bond formula for the exact numerical value of bonds.
Rudy

julian said...

Dear Rudy, and others -

Please help me better understand that perspective you bring forth.

What motivation would someone have to decide to deposit gold for use in backing note issuance, rather than just depositing gold with the decision not to allow it to be lent? In such a scenario, what is the added benefit to the depositor of their savings to allow the savings to back a debt note? And unless it is risk-free, does that not lead to the same issue of synthetic supply we're trying to avoid for creating pure reserve asset for savings?


I wonder which "Savings System" you consider to be simpler, more effective, and efficient: the one you put forth as solution, or the one put forth by RPG (free-from-synthetic-supply savings asset) proponents? Please compare and contrast the two "Savings Systems - aka Monetary Systems" and explicate your thinking for the benefit of my comprehension.

Thanks in advance,

- Julian

julian said...

I just thought of something, so perhaps this can be a point you consider in terms of where my understanding is at this time:

first of all (my understanding is that there would be no paper gold markets, ie. synthetic supply of gold markets in such a scenario) - also (i'm thinking that the issued note must be repaid (with or without interest - it is a debt instrument)?
please correct me if i am mistaken in my thinking

If a savings (physical gold) depositor deposits gold with the decision to allow it to back a debt note,

my first question is what do you mean by "backing" - does the debt note in any way act as a claim on the gold (unallocated or allocated) that is backing it? - if yes, then we have synthetic supply, if no, then how does the gold "back" the note (a return to the meaning of "backing the note" in this scenario), and is the gold even relevant at all in the note issuance equation?

in addition, can that issued note be used to go into the physical marketplace and purchase physical gold? if so, how does that effect price of gold / asset value of gold and how does that effect purchasing power of the notes in circulation?

I will think more about this, but I'd like some more clarification for my thinking too, so thanks in advance.

- Julian

Blondie said...

Freegold utilizes physical gold as the store of value par excellence in the form of an unencumbered physical asset outside the monetary system.

Consider this carefully before beginning discussion on future banking practices; if they are not compatible it will be the banking that makes the accommodation.
We will be living in a different world, including banking practices.

Rui said...

@ DP & FOFOA

Being "synthetic" is not an issue here. As long as the one gold coin lent out remains as one in the circulation (due to full reserve) then there's no inflated supply. If deadbeat borrowers squander the coin and cannot paid it back, well then too bad, lenders have to eat the loss. Maybe they underestimate the risk, or it's pure bad luck. Bottom-line, no one forces them to lend. They wanna do it then they have to keep both risk and reward to themselves.

Chances are after a few rounds, only the sound lenders survive to form a somewhat stable and profitable system. Darwinism at work. Even though we are human beings, we are not above Darwinism. So why do we refuse to liquidate here? B/c we have to give in to "political will"?? Not really.

It's interesting such ideas as "political will", "concession to the real world" and "evolving" are discussed. If we bring FIAT in to paper the loss over b/c of the political will (to cheat, quite frankly), we are only socializing deadbeats' loss onto innocent people. In other words FIAT helps the unfit survive at the expense of the fit, which is anti-Darwinism. If anti-Darwinism is what we get then are we evolving or devolving here?

Which one runs the real world actually, Darwinism or anti-Darwinism? If a monetary system tries to hack Darwinism for losers then is it still going to be as stable as advertised? If Darwinism trumps all that going against it then shall we concede to Darwinism or the feeble political will to socialize the loss?

This is why people from hard money school dismiss the FIAT proposals quickly. I'm just presenting it technically rather than expecting people here to agree with me as I think most people are already entrenched in their own camps. My 2Cs.

mortymer said...

Any opinion about this?
(and the attached *paper*?)

http://www.imf.org/external/pubs/ft/survey/so/2011/NEW021111A.htm

"...Greater role for SDR

Turning from addressing an influx of capital to ways to ensure liquidity in times of extreme volatility, panelists agreed that the IMF’s Special Drawing Rights (SDRs) could contribute, over time, to a more stable international monetary system and it would be worth experimenting with it.

“There are many things that can be done to promote a greater role for the SDR,” said Bergsten. He suggested regular annual allocations of SDRs—say a trillion dollars of additional SDRs over 5 years—would make a “significant difference over time in the role of the SDR”.

Derviş favored a more measured approach. “It won’t work to have some grand design for how the SDR should behave and be used in the system … it has to evolve from behavior … However, some design that accompanies behavior is feasible and useful, and that’s how I read the IMF’s latest paper,” Derviş.

On that note, Strauss-Kahn outlined some of the ideas in the IMF paper, noting that there were “a number of technical hurdles” to increasing the role of the SDR. It would also “require a major leap in international policy coordination. For this reason, I expect the global reserve asset system to evolve only gradually,” he said."

FOFOA said...

Hello Julian,

Rudy seems to be confused by his own semantic inflexibility. In our hypothetical 100% reserve banking system, when I give the bank my gold, the bank is now liable to return that gold to me. That is the bank's liability, and the bank issues that liability to me in the form of a receipt, which I can then spend or save. In a 100% reserve system that liability to me, the depositor, is the only note that can be issued on my gold, and yes, it is fully redeemable on demand at any time, by me or anyone else I give it to.

If I didn't need to spend all my gold, I could earn some interest (rather than paying for storage) on the "non-demand" portion of it by letting the bank lend out my gold to someone else. If I let the bank lend out my gold, then the bank will give me a "time-dated receipt" (a time deposit savings note) that cannot be redeemed for gold until the time stamped on the note. The bank, to avoid maturity transformation issues, will then lend my gold to a borrower for a similar time period as my redemption note in a 100% reserve system. So that at the same time that I can come back and demand my gold, the borrower will have already returned it, along with my interest.

Let's say for simplicity that my time-dated note is for 5 years. My savings, my "non-demand gold", is now tied up for 5 years, at which time I can go back to the bank and demand it.

Alright, now we are going to forget about me for a moment and talk about the borrower of my gold. He is going to sign a contract at the bank that says he will return the gold to the bank in less than 5 years and then walk out with the gold. The bank is now holding his "repayment contract" as the backing for my "time-dated receipt." This borrower may then go out into the marketplace and buy some farming equipment with the gold. He will then spend the next 5 years farming and selling crops.

Meanwhile, the farming equipment seller will deposit the gold in a different bank (or maybe even the same bank, it doesn't matter) and he will designate a portion of that gold as "non-demand" so as to earn some interest. He will receive a "time-dated receipt" and the bank will lend that gold out to borrower #2 who will sign a "repayment contract" and walk out with the gold.

Borrower #2 may spend that gold on wood to build houses. He will then spend the next 5 years building houses. Meanwhile the lumberjack who sold the wood will deposit some of the gold back in the bank in a "non-demand, time deposit" and get his "time-dated receipt."

At this point, we have three "time-dated receipts" held as savings by three different people, all on the same piece of gold. Additionally, that same piece of gold has bid up the price of farm equipment and wood which in turn, diminishes the purchasing power of gold.

Rudy says, "If the depositor made a time deposit, that is a longer term commitment, then BANK NOTES cannot legitimately be printed or issued against the deposit; only longer term paper, with the maturities matching."

The longer term paper with matching maturities that Rudy is talking about are the "repayment contracts" the borrowers signed. These are what the bank holds on the asset side of its balance sheet against the "time-dated receipts" on the liability side. The bank now has three contract assets and three matching timed liabilities. This is an expanding synthetic supply of "gold savings" while a single piece of gold is circulating with a certain velocity through the farming equipment and logging markets.

Cont...

FOFOA said...

...

This is the problem with debt-based savings, even in gold, even with full reserve banking. It is not fractional reserve banking that brings the system to the brink of collapse. It doesn't help, but it is not the root cause. It is the volume (rather than value) expansion of savings. As I wrote in Freegold Foundations, it is "a system that expands in volume rather than rising in price. ...quantitative expansion of savings! If the pool of savings rose only in value and not quantity, then each new net producer would have to bid "savings" away from an old net producer, and "savings" would retain their proper relationship to the pool of real marketplace capital available for purchase."

With savings in a vehicle that expands only in value and not in volume, the expansion of currency through fractional reserve banking would be an inert nuisance. This is Freegold. And this is why the lending of gold is incompatible.

Meanwhile, in our hypothetical scenario, the banks are still operating on 100% reserves. For every single "demand receipt" that is circulating there is a piece of gold on reserve. Yet the savings portion of peoples deposits, the "time-dated receipts" expand in volume rather than value.

Rudy says, "This is because notes ["demand receipts"] are redeemable as cash Gold... and longer term instruments, like bonds ["time-dated receipts"] are NOT... " which shows me that he completely missed the point I made in the post.

Sincerely,
FOFOA

FOFOA said...

Rui,

If you can think logically about the simple premise that "political will" will always give the debtors a means to borrow, one way or another, then you will eventually come to the conclusion that if gold is tied up in this lendable currency system, in any way, it will be automatically suppressed in value by the system.

And the next conclusion is that if the historic focal point gold is suppressed in value, then the aggregation of global savings must grow in volume rather than value, ultimately exceeding any rational relationship with reality.

It is only by separating gold from this lending process intimately tied to transactional currency that savings can be freed to grow in value rather than volume, thereby retaining a long-run sustainable relation to reality. Quite simple, actually.

Sincerely,
FOFOA

Atticus said...

@FOFOA:

I submit for your consideration a post from this morning at my blog dealing with these issues. See My Website through my profile.

I see a number of difficulties here.

First, it is impossible to "prohibit" lending and borrowing of gold or anything else. What can be done is to afford no enforcement through courts. Doing that across the board has historically resulted in a black market for lending, because as you rightly point out it is human nature that dictates borrowing and lending, notwithstanding the law's position on it.

One intriguing thing about your thesis is that you address this problem by endorsing fiat, which could be borrowed and loaned, while barring loans of physical gold. I suppose the idea here is that such a regime would eliminate or at least reduce a black market in lending, since the enforceable borrowing of fiat would be freely available.

I don't think this has ever been tried. It might work. It might not. I suspect that in such a regime physical gold would be more highly prized, as you do. But collateral consequences would include that there would be that much more of a temptation to lend it and borrow it, whether the contracts were officially enforceable or not.

If I had to guess I would say it would not work, and will never happen by legislation or otherwise. The contrast between gold and fiat being so dramatic, everyone will want gold instead, in payment and for borrowing.

Another problem I see is that, while I've been reconsidering legal tender laws in view of your theory, I do not believe that any monetary unit of account ought to be "fiat", that is, not redeemable and not defined. In the first place this is offensive to natural reason: the promise to pay cannot also be made into payment by simple fiat. The promise to pay must be redeemed by the actual payment of something other than itself.

There was, at one point (memory fails) a concept of "bi-metallism", where both gold and silver were used in definitions of the monetary unit of account. Perhaps the legal tender notes could be redeemable in silver, while the dollar was also defined in gold terms. Perhaps you could lend silver but not gold. I'm not sure if this is relevant to your points or not, but I thought I would throw that out there and solicit your thoughts.

Joel said...

Atticus, when I think about lending my gold out with no legal enforceability, I cannot come up with one friend, business associate, and certainly not any relatives, that I would trust enough to loan my only stable store of wealth out to. Would you? If so, you have much more trust in mankind than I do, lol...

Rui said...

@ FOFOA

I think borrowing should be met only when there's an intention (and capacity) to pay back. If not then, sorry, no go. Is that logical or illogical? I doubt we need a system to satisfy whatever borrowing request out there. That kinda system ended up in a debt collapse throughout the history.

As for the notion of "political will", what is really behind such will then?

I notice credit card companies still jam my mailbox with incentive checks encouraging me to borrow more even tho I don't need any. See it's not people are born debtors as I don't believe most people wanna live as a deadbeat liability. Often times lenders encourage people to act so for them to charge more interests off the debtors.

That is not to say the debtors should absolve themselves of good judgment. It does make me wonder whose "political will" is it here in play mostly, that of debtors or lenders? Looks like our good ol' bankers are doing "God's work" in the top-gear mode.

Those of you think me being harsh here ask yourselves how often you receive those incentive checks (which are really debt traps IMO), if you live in US.

Again I suggest we skip such political will to borrow for instant gratification and focus on what really promotes long-term production, saving and growth. My 2Cs.

Atticus said...

@Joel:

It would certainly be prudent not to lend it at all, or for that matter to borrow it at all, but history shows there will always be lenders and borrowers. If not legal, then black market. But it goes on a lot no matter what anyone does.

Because the lending of money is profitable with no further production.

It would be possible to just make all contracts for the lending of money unenforceable, and live with the results, those being that a lot of desperate people would wind up with painful knee caps, or worse.

That would, however, tend to drive home the point that the borrowing and lending of money is immoral. Which I think it is most of the time. Borrower and lender are both guilty.

I haven't heard from FOFOA on these points. I take it, however, his answer to the question he posed earlier is that the expansion of debt based savings is what is more likely to precipitate a collapse than the simple dilution of the currency.

Anyway, it's interesting over here.

FOFOA said...

Hello Atticus,

"My thesis" (based on accounts presented by Another and verifiable as Martijn's project is revealing) is that this system I am describing was developed among the top European Central Bankers over the period from 1962 until at least 1999, starting in earnest around 1978/79. I am not proposing a possible system. I am describing the one that is set to be the end result of what has already been put into motion by the euro architects of old.

This is not something that requires legislation or treaties at this point in order to unfold. It is now in the process of unfolding. The legislation that, as you describe, would simply be non-enforcement, will be a result of what is unfolding and not a cause.

I am not here at this blog to propose a new system, or legislation, or Constitutional amendment, but rather to develop and help others develop an understanding of what is actually unfolding before us. The concept of "inevitable" or "unavoidable" that I sometimes use means that this is coming no matter what Congress, the Treasury or the Fed try.

Everyone is free to debate the content of this blog, but it can only be a relevant debate to me if the counterpoints are presented in the context to which my content speaks. I have no reason to consider the proposals you offer on your blog because I am not offering a competing idea. I read your many complaints and I know that they have already been addressed here and in the archives to which I so often refer.

For example, you write:

"I do not believe that any monetary unit of account ought to be "fiat", that is, not redeemable and not defined. In the first place this is offensive to natural reason: the promise to pay cannot also be made into payment by simple fiat. The promise to pay must be redeemed by the actual payment of something other than itself."

Well I know that Aristotle did a stellar job on this subject at the "Hall Discussion" link in this very post. So if you want to argue your counterpoints in this paragraph, you will be arguing against the excellent points Ari made in his 5-part series as well as the discussion that followed... 11 years ago!

This is why I don't bother responding to some comments. I'm not here to debate issues that in my mind (and many others here) were settled long ago. I am trying to move forward, not backward. There is no offense intended when I write, "if I didn't respond to your question, you can safely assume that I was unimpressed by it." I simply refuse to get bogged down in that way.

You close with:

"There was, at one point (memory fails) a concept of "bi-metallism", where both gold and silver were used in definitions of the monetary unit of account. Perhaps the legal tender notes could be redeemable in silver, while the dollar was also defined in gold terms. Perhaps you could lend silver but not gold. I'm not sure if this is relevant to your points or not, but I thought I would throw that out there and solicit your thoughts."

This last paragraph is a clear indication to me that you have read very little of my writing. I have thoroughly addressed this subject in many posts. And to be honest, most of the people I converse with here are far more up to speed on what I'm talking about than you are. So if you find my view intriguing, you have some work to do. But if you are here because what little you have read makes you think I will like your proposal, you have yet to give me a taste that would pique my interest enough to read it. I'm just being honest.

With all sincerity,
FOFOA

FOFOA said...

Rui,

Talking to you feels like beating my head against the wall. Anyone got a Little Timmy helmet?

FOFOA

Free gold? Yes please! said...

FOFOA,

You wrote: "This is not something that requires legislation or treaties at this point in order to unfold. It is now in the process of unfolding."

As a person who is usually "out of the loop" on most things, I find your words above very thrilling and surreal!

I can hardly believe that I am fortunate enough to be privy to these dramatic financial changes things AS THEY HAPPEN instead of after the fact (when it's simply too late).

Your posts (as well as A/FOAs) provide us lucky readers with a window into the inner workings of a hidden world. Even if I don't always know what the heck it all means, I want to thank you and commend you for your tireless effort.

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

@ FOFOA

I feel sorry for that headache although I think I did mention I'm not asking anyone to agree with me.

Thanks for telling us it's central planning by European bankers, which explains why there is such persistent political will to allow debtors borrow regardless and under what ground they allowed nations like Greece and Ireland enter the Euro zone.

Have a nice weekend.

FOFOA said...

Hello FGYP,

You may not yet have seen this great comment from Randy Strauss of USAGOLD:

"When you understand how it is that it is economically (and therefore politically) undesirable for other major currencies to appreciate against their peer currencies (which is exactly what would happen to any currency replacing the dollar’s reserve status), you will subsequently know why gold shall continue to emerge as the de facto solution to the international reserve question.

"And here I emphasize de facto rather than de jure because this has become a global phenomenon driven by a natural evolution (survival and ascent of the fittest) and does not require any additional international treaty or enabling legislation as a prerequisite or for motivation.

"The breeze is fair and the road ahead is clear for the ascent of gold."


You can find the full quote and its context at the bottom of my post, Gold: The Ultimate Hedge Fund.

Sincerely,
FOFOA

FOFOA said...

I was at a gun show today visiting a coin dealer friend of mine who had a booth there. He buys and sells gold, silver and numismatics, including collectable old paper currency. He had several display cases of metal and two cases filled with stacks of old US paper.

There was an interesting moment while I was talking with him when two attractive ladies walked up to the booth and proclaimed "oooh, MONEY!" They stood there fascinated with all the paper, completely ignoring the metal.

It reminded me that "the people" love, want and need easy token money, to earn, spend, borrow and lust over. So do the bankers and the politicians. It is really only us savers that want and need a hard money, and then, only for the savings portion of our monetary needs. Every time we try to save in the "oooh MONEY" it ultimately ends in tears for the savers.

Free gold? Yes please! said...

Hello FOFOA,

Thank you for the link! I can't tell in that picture which is more precious, the metal or the hedge hog...

I read that post about a week ago and at the time I meant to ask you/the other readers a question about one of the sections:

"Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps."

Before the huge financial implosion a couple of years ago I had never heard of "interest-rate swaps."

Then, during the height of the panic in 2008, it seemed like these "swaps" were talked about CONSTANTLY on the financial news stations as one of the MAJOR contributors to the meltdown.

Now, fast forward to 2011, there is again NO mention of these "swaps" anywhere.

Here is my question: Does anyone here know if these "swaps" were a ONE TIME problem are no longer a threat OR are they still lurking below the surface like hot lava under a volcano...ready to burst again at any moment?

The reason I ask is that, as we all know, the world debt load has massively increased since 2008 and if these "swaps" blow up again, could that be the final hair that breaks the fiat's back?

Thank you again for the link FOFOA. Any thoughts on this matter would be greatly appreciated as I try to more fully understand the ongoing financial chicanery by the world's governments.

Blondie said...

FGYP,

All you really need to know about financial derivatives such as interest-rate swaps here, in plain English.

They have not gone away, and you will hear much more about them I can assure you, at which time you can safely assume the $IMFS has just broken an axle, or worse.

Free gold? Yes please! said...

In the near future, could 1 ounce of gold cost 87 TRILLION DOLLARS??

Will history repeat itself?

According to a report by the ERSTE Group, "We know a similar situation from history, i.e. from WWI and the Weimar Republic.

From 1914 to 1918, the German money supply soared from 8.5bn to 55bn Reichsmark, which paved
the way for hyperinflation of historic dimensions.

In January 1919 one ounce of gold would
have set you back by 170 Mark, whereas by November 1923 the price had shot up to 87 trillion
Mark. An important feature of high inflation is the rapid loss of trust in the own currency."

Free gold? Yes please! said...

THANK YOU Blondie! I just noticed your reply and checked out the link!

I appreciate the info and I'll dive into it right away.

FGYP :)

costata said...

Hi mortymer,

Regarding the IMF, I wouldn't exert so much effort parsing their proposed "solutions". IMO they are a dinosaur and the meteorite is en route (if a little late). I think the IMF has a legacy role to play in the transition from the $IMFS to the new IMFS but they have nothing constructive to offer the new system on an ongoing basis. I suggest you read the paper linked below for a critical evaluation of the IMF by the IMF itself. The writer, Biagio Bossone, contributed to some of the self-assessments conducted by the IMF's Independent Evaluation Office. Here are a couple of snippets:

"How is it possible that the global organisation mandated to preside over international financial stability could not see the crisis come and warn its members accordingly? This is the question to which the Independent Evaluation Office of the IMF has devoted its just released report (IEO 2010a)1. Its findings are the stuff of a 'psychodrama'."

"A self-delusional ego"


http://www.voxeu.org/index.php?q=node/6099

The article has a multitude of citations to support Bossone's personal views about the IMF, including this blunt assessment:

"In good or bad times, the IMF has always felt the predominant influence of the US. More than that, the US has consistently been the IMF’s dominating ego. Indeed, no major decisions could ever be taken by the IMF without US consent, while it would be next to impossible for the IMF to oppose initiatives that the US wanted the institution to pursue. It is no secret that US government officials enjoy de facto “privileged access” to IMF staff and management, which grants them extra voice on IMF matters (Tabb 2004)."

So the EU is going to support an IMF "led" solution to constructing a new IMFS? Methinks not.

Incidentally here is a link to the home page of the IEO:
http://www.ieo-imf.org/

Continued/

costata said...

\Continued

The IMF is a slave to its historical roots and governance structure. It was set up to be the Anglo-US controlled World Central Bank (Robert Mundell quoting an exchange between J M Keynes and Henry Morgenthau at Bretton Woods in 1944) Look at the results of the latest review of the SDR basket. They basically endorsed the (failing) status quo for another 5 years. Despite the greatest crisis in the $IMFS in decades, they offered no concessions to geopolitical and geo-economic reality.

Even if the Anglo-US interests who control the IMF were prepared to permit radical change it is inconceivable to me that the Europeans, China, India, Russia et al would entrust the IMF with a pivotal role in their economies and international trade relations in the future. Witness the expanding role of currency swaps in trade, pioneered by China.

Looking at the recent statements and actions of Dominique Strauss-Kahn and other IMF luminaries, they could not have done a better job of ensuring the irrelevance of the IMF if they deliberately set out to do so. IMO they were used as a tool to help to enforce the fiscal restructuring that the EU council and ECB sought in Ireland etc and in the process the IMF members were forced to help foot the bill for an EMU problem. (I'm not passing any judgement on whether "austerity" was the correct approach.)

Encouraging your enemy to waste their time and resources in useless activity is a strategy straight out of The Art Of War. I expect in time A/FOA will be proved right about the EU abandoning the IMF (to its fate as a central pillar of the failing $IMFS).

Cheers

Bron said...

FOFOA,

Sorry for the delay in responding. The mundane obligations of life intruded, a statement that would get me into trouble with my other half except for the fact that I can be 100% certain that she nor anyone that she knows will see it - proof in my eyes that we are not in a gold bubble yet :)

I made a rule when I started my blog to reserve my comments to areas of my expertise. Where I have no proper expertise is economics and money, so by commenting on fractional reserve banking and maturity transformation I've broken that rule and put myself into a pickle as I really don't have sufficient knowledge to a) properly articulate what I feel in my gut to be right, b) tell whether my gut is right and c) thereby give a response that does your response justice.

Whilst I have been following your blog for some time, I have not investigated the source material. Today that changed and I am half way through the Hall Discussion so I think you will appreciate that any proper response will be some time away as reading is one thing, but understanding another, especially for this slow thinker.

Anyway, my comments into areas of non-expertise were driven by a (gut) reaction against the idea that gold should not be lent. This is because it create some serious practical problems in the area I am an expert in. However, your subsequent comments and that of others and the break I was forced to take has generated a solution to my problem.

Aristotle (02/11/00; 17:46:56MDT - Msg ID:25059): “Gold shall not be lent as it has been, or otherwise attached to various financial derivatives. You can work for it, mine it, buy it, and sell it. You can't borrow it.”

To that I would propose adding “.. rent it”. If you would agree to that then my “gut” will feel much better. :)

I use the word “rent” and not “lent” because rent means the renter cannot onlend nor sell the item they have rented – they can only use the item then return it back to its owner (who owned it and retained title to it all along).

I hope you will agree that such hiring transactions should not result in "synthetic supply" or “increased velocity” as there is only one physical item that does not move beyond the renter. Because there is no exchange of the item for something else by the renter, there should be no impact on prices.

I trust you have no problem with a landlord renting their house to someone who is yet to save sufficient gold to build/buy a house but who has an immediate need for shelter from the weather?

Now of course gold, whilst a physical “real asset”, is not the same as a house or a (leased) car, so I have to ask: is the idea of a “goldlord” renting their gold to someone incompatible with “the perfect system for a consistently imperfect world”?

Some readers may be puzzled as to the existence of any market for renting gold, but I'm sure FOFOA knows where I am going with this idea.

Atticus said...

@FOFOA,

First, it's perfectly all right for you to respond or not. You don't owe me anything. You don't have to read my blog just like I don't have to read yours.

That said, I've identified some easy to understand problems and you have referred me to a lengthy and apparently 11 year old screed, which in fact I had read earlier and which did not answer the problem I posed about the need to define a monetary unit of account.

I don't mind you referring me to an earlier post or another link in response to a question, but when it's really long and then doesn't answer the question I become suspicious that you don't have a good answer to the question and for some reason just want to blow smoke up my butt and waste my time.

You can do what you want with your own blog and you seem to have a lot of admirers. But you and I also have a very basic and unbridgeable disagreement. At first based on some of the things you said I thought we didn't, but that was incorrect.

Briefly, when you say that the things you describe are going to "unfold" and that the legislation will come later, you have it exactly backwards, and I think that kind of misunderstanding is terminal. You think that economics trumps the law, but the opposite is true. I can't clear that up for you. But a lot of people have the same problem.

It's very basic and without assent to the rule of law there isn't anything we can discuss nor would we make any progress learning anything from each other.

Thanks anyway.

Free gold? Yes please! said...

Atticus,

On your blog you write: "No one, to the author’s knowledge, has suggested strategic or tactical strikes by attorneys to deprive misbehaving judges of their veneer of legitimacy when they deserve it."

I'm no lawyer (happily), but aren't you suggesting that certain changes need to "unfold" BEFORE new legislation can catch up to what you refer to as a problem with "misbehaving judges?"

Isn't this the same thing that Freegold represents??? (ie grassroots change eventually changes archaic laws)???

costata said...

Bron,

Reading your last comment I was wondering if a gold loan to develop a gold mine would be included in your definition of "renting" gold. FWIW I think in that specific application "renting" of gold would make sense as the principal and any interest would be repayable in gold. The net effect would be neutral in terms of the supply of gold compared to any other method of funding the development of new mine supply of gold.

You could also make the argument that "renting" gold to a vertically integrated refiner/fabricator like the Perth Mint would not conflict with the prohibition described by FOA provided it was repaid in gold. If, say, a government wanted to maintain a reliable supply of fabricated gold to its citizens it would make sense to assist in smoothing out supply bottlenecks in the physical gold supply chain if some extreme event disrupted the local flow of gold.

In the free market for gold envisaged under the Freegold-RPG regime (where gold can be freely acquired at any time at a floating fiat currency price) any form of lending, or borrowing against, physical gold by a private citizen would not be superior in its end result to an outright sale of the gold. Simply because gold (barring a total fiat currency collapse) could be reacquired in the future using fiat currency.

Any "derivitisation" (is that a word?) of gold would be unacceptable under this regime because of the potential for creating an artifical supply. In the same way that a metre has to be 1,000 mm 'always' as opposed to 'sometimes' in order to be a reliable, standard, universal measure. To perform its role gold will need to flow freely but the stock cannot be (infinitely?) elastic like the current paper gold markets.

costata said...

Rui writes:
"As Bron pointed out, it's fractional reserve lending (rather than gold being a currency) causing the problem in the past hard money standard system."

Bron later writes:
"I made a rule when I started my blog to reserve my comments to areas of my expertise. Where I have no proper expertise is economics and money, so by commenting on fractional reserve banking and maturity transformation I've broken that rule and put myself into a pickle as I really don't have sufficient knowledge ..."

FOFOA writes:
"Rui,
Talking to you feels like beating my head against the wall. Anyone got a Little Timmy helmet?
FOFOA"

Greenie said...

this may help Rui

SilverPaine said...

BRON - if you are still about the place I have a question about the various ways of holding gold.

I wont go into the Perth Mint allocated, unallocated Certificate Program for which I am a holder of gold and silver. You and the Mint have answered that question previously.

I also hold gold using the Perth Mint ASX listed PMGold which seems to be very similar to PMCertificate unallocated, except traded.

My question is has anyone ever decided to convert their PMGold holding into physical or cash as is allowed, and seems quite a simple process.

Bron said...

costata,

I should have known you would get where I was going. I did not want to mention the Mint as an example of renting gold because there is much hate for us and I thought it would prejudice readers against the idea. I do understand why our competitors hate us, but not why goldbugs do when our business model is one of disintermediating bullion banks – one which if extended across the industry could possibly eliminate the need for futures markets and deny bullion bankers of that crucial legitimacy: “our positions are just the other side of bona fide hedging by commericals.”

Hedging segues us nicely into your question about gold loans to miners. Talk about protecting the morons from the sharks! OK that is a bit harsh, but then I'm reminded of Sons of Gwalia. I don't think the idea of renting gold applies to miners, because they don't need the gold itself, they just sell it or exchange/barter it for equipment to build the mine.

Gold loans I think are also dangerous, because it leads the miner to think of the loan and their operation as a financial/funding transaction. Better I think that miners explicitly raise capital by selling shares.

Under freegold I would think that gold mining would effectively be a sort of combined investment (in that there is some risk hence some return) and annuity (in that there is a future stream of gold dividends). I'm assuming that buying mining shares with gold is an allowed transaction under freegold – selling gold for fiat (allowed), then immediately buying share with that fiat is the same as paying for share directly with gold IMO.

In fact there is no need to wait for freegold – miners could pay dividends directly in gold right now. Very easy for me to design the mechanism by which a miner could credit gold to someone's GoldMoney, BullionVault, Kitco or Perth Mint account and once the shareholder has accumulated enough, take delivery.

Consider the ludicrous situation where a miner delivers physical gold to the Mint for refining, we swap it into London, they sell it for cash, then later some of that cash is given to a shareholder who then sends it to the Mint to buy some physical gold! And who do you think intermediates all that? The bullion bankers.

I would be happy to work on that for a miner pro bono, but I suspect that not many would be interested because it seems they like to retain as much profit as possible for acquisitions (empire building?) rather than just run a mine as a standalone operation to completion and treat it like a discrete gold annuity.

As to renting gold to fabricators, yes I don't see this as expansionary. The primary advantage is that it eliminates the demand side need for a COMEX (the mine supply side being solved by our gold share annuity concept). I would not use the phrase “repaid in gold”, prefer “return of gold” as that emphasises that the gold is not sold or onlent by the fabricator.

Bron said...

SilverPaine,

Yes we have had a number of conversions of PMGOLD into coins and bars. It is a simple process but it is easier and cheaper to simply buy coins and bars directly from a coin dealer.

I included the redeemability into retail physical coins and bars into the design of the product (the only ETF in the world that does allow this, BTW) even though it was not the best way to acquire physical for two reasons:

1. To give holders confidence - they had a mechanism to keep us honest.

2. To make it robust against system failure. I did not want investors locked into having to trade it on the ASX, which would be a problem if the stock exchange had operational problems or had a "holiday". As FOFOA notes it is cold comfort even if GLD is 100% backed by physical if the minimum redeemable size is 10,000oz.

Casper said...

test

costata said...

Bron,

You asked FOFOA to express his view on what a post-Freegold-RPG environment would be like for a Mint. FWIW here is my view:

1. Mints may well be the most consistently profitable businesses on the planet.

2. Honest, in the way that only arithmetic can be. 0.9999 is or it isn't.

3. In the case of the Perth Mint, ready for all eventualities, including Canberra, I hope. (If you know what I mean.)

Casper said...

About lending gold:

Let's suppose that interest rates reflect a productive rate of the current working capital of a society. (similar to what Fekete writes).

As a saver I deposit fiat at the bank in order to participate in this productive rate via positive interests that I get at the maturity of the deposit. In the meantime the bank (banking system) does the usual FRB that it is so good about.

If we forget at the moment the rate of new gold that comes from the mines then the productive rate of the working capital reflects itself in a rising price of gold since there are more goods created against a fixed amount of gold.
This are the interests that the owner of gold gets.

As we can see the owner of fiat must deposit (lend) into the banking system in order to participate in productive rate of the current working capital where the owner of gold can just sit back and see the price of gold rise.

So, why should/would an owner of gold lend anything but fiat?! What is a difference if he just sells gold and loans fiat he gets for that gold to lending gold just to see the borrower selling it?

Not much I would say except it dilutes the savings/gold and decreases! the price of it even though the working capital is productive. If we missed that lecture in Economics class the Giants sure didn't as we will most likely witness in coming events.

Casper

DP said...

Gabriel, thank you for confirming my understanding is correct.

I think we can clearly see the model for future gold/fiat convertibility elsewhere in the world, by just looking at what is already in place in Germany today. Seems like all that will change regarding what you've described above, is the price of the gold.

Prost!

phil said...

Atticus

I encourage you to continue to post here. It helps. This forum benefits from reasoned opinions from all sides. Sometimes folks here get hostile to folks with differing opinions...I can never understand that. Why in the world would you be hostile to a person who has a differing opinion unless your not confident in your own...and I would argue, that while much of what I read on this forum is enlightening to me, (I am heavily invested in gold and gold miners), I have yet to see the smoking gun that says this will happen in my lifetime.

It will happen (gold to $5K, $50K, $500K)? Sure...but not sure in the time that I have left to play in this market.

It seems like often the discussion here is akin to a bunch of folks holding hands and humming kumbaya. Not helpful in my opinion.


So continue here if you like, I appreciate it.

As for the comment



Briefly, when you say that the things you describe are going to "unfold" and that the legislation will come later, you have it exactly backwards, and I think that kind of misunderstanding is terminal. You think that economics trumps the law, but the opposite is true. I can't clear that up for you. But a lot of people have the same problem.

It's very basic and without assent to the rule of law there isn't anything we can discuss nor would we make any progress learning anything from each other.



I would agree with you the rule of law is required to enforce policy. But will you not concede that often the rule of law is shaped by the market. Was not the TARP shaped by the market?

Mr Market is one heck of a powerful lawmaker.





FGYP

You say


I'm no lawyer (happily), but aren't you suggesting that certain changes need to "unfold" BEFORE new legislation can catch up to what you refer to as a problem with "misbehaving judges?"


Are you implying that your happy you do not have a law degree for some strange reason?

Or that we should, for some reason, treat those with such credentials with suspicion, scorn, other?

Not sure I understand why you derive happiness from not possession a particular certificate?

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

Can't speak for FGYP but for my own part, I'm happily not a lawyer. I don't feel the certificate should give one the right to badger others who otherwise would not wish to give him the time of day.

If there are rules of decorum that apply to people, then surely they should also apply to lawyers. 

DS

costata said...

phil,

I know many lawyers. None of them like lawyers.

Two of the lawyers I know are a married couple. They don't like each other (but they know how expensive divorces are).

All of the lawyers I know who are over 45 wish they were doing something else but now that they have seniority, and they are finally making big money, they feel trapped by their lifestyle.

On reflection, only one of the lawyers I know seems to like herself (and she probably wouldn't if she got to know herself better).

I also know a Judge. He doesn't like lawyers either. I know a senior police officer as well. He hates lawyers. Most of the lawyers I know hate cops, so I guess that sort of balances from a karmic perspective.

phil said...

Whoa...lot of lawyer bashing here!

Sorry to see that.

I mean, to each his own...my point was that when you, or anyone, starts to make assertions regarding others based on stereotypes and anecdotal (at best) information, that sure seems an odd way to make decisions regarding protection of wealth. And it is a really poor way to advance an argument.

example

I don't feel the certificate should give one the right to badger others who otherwise would not wish to give him the time of day.


I fail see Atticus' contribution here as badgering. No, I see it as his point of view based on the education/training that he (or she) has. Not better or worse than any other person...just different. And for anyone to discount the thoughts of another based on their education/training??

As I mentioned, the ability to listen to the points of views of others is a good way to understand their views. And to have an understanding of the speakers background? That can be helpful as well.

A person trained in medicine, a person trained in math, a person trained in music and a person trained in the law can all have different views on a subject...their training, in an of itself, will not make the views more or less credible...but the training MAY lend insight into why they hold a particular view.

My point in the question to FGYP was to have folks consider stereotypes such as "lawyers are bad" are just that, stereotypes...if your belief in such stereotypes is how you choose judge credibility of opinions?

Who am I to disagree? That is your call. My opinion is that it does not add to the discussion of "free gold"...best, its a distraction. Worst, it tends to propagate a form of "class" or "social" bias. "hey, look at me, you can trust me...i'm not a lawyer"...which is sort of like "hey trust me, I'm a lawyer".



Full disclosure. I have a JD. I know of lot of great folks, many with and without JD's. I try and not judge folks based solely on the certificates (or lack thereof) achieved over their lives. Rather, I let their words speak for themselves.

So, you say

I know many lawyers. None of them like lawyers.
...nice to meet you...you know know at least one lawyer who likes (at least some) lawyers.

Free gold? Yes please! said...

Phil,

I don't recall ever writing:
"Or that we should, for some reason, treat those with such credentials with suspicion, scorn, other?"

OR-

"lawyers are bad."

I said I'm happy that I'm not a lawyer. I'm also happy I'm not a proctologist, a mortician, the president of the USA, etc...

On a different note, before discovering FOFOA's blog,one of my concerns about buying gold (in the short term) was the possibility that my country (USA) is heading for another DEFLATIONARY depression similar to the Great Depression.

According to the MS Media gold is only a good investment during inflationary times.

Since I usually believe everything I see on TV (wink) I assumed that I should hold off on buying gold in case deflation came to roost.

According to the ERSTE Group's report that I mentioned above, this is NOT the case:

"The central question of whether the next few years will be dominated by inflation or deflation
still remains unanswered. In periods of inflation, tangible assets are the preferred asset class, whereas in times of deflation, cash is king.

Gold is liquid, divisible, indestructible, and can be easily transported. It has a worldwide market and there is no default risk associated with it, which means it is cash of the highest quality. Therefore gold is the optimal investment both in deflation and inflation."

They also include a nifty bar chart that illustrates gold's excellent performance in both deflationary and inflationary environments.

Here is a link to the report:
http://www.usagold.com/publications/erste-2010.pdf

I know I'm preaching to the choir here, but if anyone you know tries to bash gold ownership due to possible deflation, you have some black and white facts to counter with.

costata said...

phil,

"... you know know at least one lawyer who likes (at least some) lawyers."

I'm sorry phil, you're in denial. You need to get professional help with that.

phil said...

FGYP

Thanks much for the reply.

You make my point. I agree, gold is a good investment today.

My point (in general, not to you specifically) is that bashing someone with an opinion that differs from yours for silly reasons does not advance the discussion.

And while I'm all about 'idle banter' my focus on this site is how much, if any, of my wealth should be tied to gold. Atticus's opinion, in that regard, is valued.


Now, for idle banter

Costata

Yea, well I am working on that...but I have this bias against doctors...

Diamond Jack said...

"often the discussion here is akin to a bunch of folks holding hands and humming kumbaya."

I not holding any lawyer's hand, or proctologist's either for that matter.

Free gold? Yes please! said...

LOL!! Good one Diamond Jack!!

Here's one for you (with my apologies to FOFOA in advance):

"A proctologist pulls out a thermometer from his shirt pocket. He looks at it and says, "Oh hell, some a**hole has my pen."

mortymer said...

IMVHO on Friday we have witnessed one of the greatest VALUE destroying announcement delivered ever. (My position is bit bias but still...).
In the moment when global share starts to turn up again, still keeping biggest share of all, still with nice portfolio, few days before introducing great new E7, sales forecasts positive, there is enough good R&D ongoing and now you cut completely down 3 major main stones (Symbian, Meego, Qt) + whole SW developers ecology? Why to slam doors behind? I just do not get it. Exchanging vision for pure business? Loosing independence, control of assets and becoming dependable on having delivered third party sw?
The new partnership is in sum of course a good direction but the deal is asymmetrical, transition badly planned, communication poor and very badly handled so far. 14% shares down in 1day! Time will show.

costata said...

FGYP,

Thanks for that link. I'm still reading the report but it has already provided some very interesting observations. Much appreciated.

Cheers

Free gold? Yes please! said...

Costata,

You're quite welcome! As my dad used to say, "The more we know, the less we don't." LOL

enough said...

@ most recent poster


thanks guys....I dont feel nearly so bad about going off topic anymore

still off on my tangent and possibly preparing an essay entitled "market making vs agency broking in freegold era" guaranteed to put FGYP to sleep...cheers E.

enough said...

FWIW and IMHO,

get ready for a paper takedown. Daily stochs topping after never having come close to making a higher high.

Looks like we just had a modest correction before another downraft possibly taking spot below 1300 toward 1275...

Get ready to back up the truck for the last great buy op.

Free gold? Yes please! said...

Enough,

You are one of this forum's most interesting members and I always look forward to reading your posts.

BUT, with that being said, if your upcoming essay is anything like most of FOFOA's, it's probably best if you give me a "heads-up" so that I can take some 5 Hour Energy before I attempt to read it :)

Diamond Jack said...

Free gold? Yes please!
you are a devil, like me.


Anyway, back to Kumbaya- It's Sunday and I'm leading the round.

Between 1926 and 1928, four more versions of traditional spirituals with the refrain "Come by Here" or "Come by Yah" were recorded in South Carolina and Georgia on wax cylinder.

Come by here Freegold Come by Here

Come by here Freegold Come by Here
Someone's crying, Freegold, Come by Here
Someone's lost their job, freegold, come by here
someone's lost their house, freegold, come by here
My business closing freegold come by here.

Oh Freegold, come by here,

Free gold? Yes please! said...

Diamond Jack,

I think my wife would agree with you that I'm a devil....and that's one of the nicer things she calls me :)

enough said...

the above comment is for informational purposes and should not be considered trading advice

disclosure: LONG PHYSICAL GOLD !!

I have been a trader for 20 years. For 2 major investment banks in London, then with my own capital. And no.... not any of the bullion banks !!

Many look for opinions that confirm their beliefs and reject those that conflict. FOFOA's blog certains confirms ideas I began to develop back in early 2008.

The initial event being the breakdown of th ARPS ( auction rate preferred) mkt in 1/08. These were short term borrowing vehicles used by munis issuers and leveraged closed end funds to borrow short term and invest long in positive yield curve environment to enhance yields and dividends. Retail investors bought these instruments as higher yielding alts. to money mkt. The sponsors ( the banks) had no obligation to buy these from investors. Only when another investor appeared could the prior investor sell to get his principal back.

The sponsor banks "could" buy the paper from their retail acct but were not obliged to. All of a sudden 1 day liquidity dried up. A fear that as there was no "put" investors could be stuck holding the bag with these illiquid instruments with a relatively low yield.

One would think that the sponsor banks would want to keep the appearance of liquidity in the large and important mkt. What did the banks do.....stepped aside .. . the mkt froze...investors stuck. THERE WAS NO BID.

Where one day there was immense liquidity, it was a sham. Within a week there was none. I was brought up in the belief that fiat mkts were liquid and as mkt and economic conditions changed I could exit a fiat investment easily and plow into another. The arps fiasco showed that these fiat products have value based on a facade of liquidity .

With the arps, one day they were worth "par" the next zero with no change in credit conditions. I began change my view on "investments" . That I wanted to invest my savings in something that had value not based liquidity but value in and of its self. A store of value that had no "counterparty risk".

I began to think about gold but as it had risen to over $1000 in early 2008 I went to cash and stayed there. By 9/08 the equity mkt had crashed in a great deleveraging.


I dont know if anyone experienced this but I still had some bonds muni/corp at that time. Did anyone try to get a bid? I did and there WASN"T ONE. Market makers didnt pick up the phone. That was it....a few % yield for this !!!...to be frozen in illiquid paper. F___K that !! So luckily gold had tanked with everything else and I saw my chance. I started plowing in at $700 and just kept buying til all I have is gold and cash.

This was an internal decision based on the experience of where my "savings" value was based purely on the whim/fear of a market maker. I wanted no more counter party risk.

It's great to have ones own decision turn out well. I really never know there was an undergound welling of support for gold until a few years later...maybe late 2009 before I discovered gold blogs.

I have conviction from my experience and not based on writings of others. Like I mentioned earlier, it's great to have confirming thoughts by others. Especially by intellegent people with well reasoned arguemnts like those here. Just wanted to share...cheers

Gold has worked for me. I no longer worry about a "liqudity crisis" where value is primarily derived from that liquidity. I have gold and I sleep very well!!!!

costata said...

enough,

Great post. Thanks for sharing your personal experience.

You wrote:
"I no longer worry about a 'liquidity crisis' where value is primarily derived from that liquidity." (My emphasis)

I wish I had learnt that lesson when I was a kid.

Wendy said...

Pity to the poor souls who raise sons WITHOUT a lawyer in the family ;)

Atticus said...

FWIW, I have posted my opinions about the "freegold" idea on my blog, which can be accessed through the "My Web Page" link on my profile. If anyone is interested. I may come back here to peruse but not to comment, though I think there are a lot of intelligent commenters here. And FOFOA, as much as I may disagree with him (her), is quite interesting.

Diamond Jack said...

Wendy
Happily I have two daughters, so pity me not!

enough said...

Atticus and all,

It's clear FOFOA puts a great deal of time into his/her/it's posts and monitoring of the site. It's a 24/7/12 job.......hitting the donate button enables FOFOA to continue his work and who knows what one might learn in the process of giving? I hope he/she/it is not upset with my plug for donations...cheers

Wendy said...

Jack, I have 2 daughters as well .... one word comes to mind when I think of teenage girls ............. ANTICHRIST!
=8o)

Edwardo said...

Enough wrote:

"The arps fiasco showed that these fiat products have value based on a facade of liquidity."

Indeed, many markets, such as the U.S. stock market-I use the term market advisedly- have a facade of liquidity which is, in fact, nothing more than mere volume. The two, volume, and liquidity, are, of course, as you know, very different indeed. In time, many will discover this truth the hard way.

enough said...

I am living proof that you dont need to know how to type to be a good investor, Just dont have fat fingers !!

Does this comments section have spell check?

Free gold? Yes please! said...

Enough,

Great post from earlier tonight!

I wish I would have had the "intestinal fortitude" to start buying gold in 2008 like you did. Now I'm paying nearly double that, but I guess it's better late than never.

enough said...

Dont fret FGYP,

I've bought plenty more between 1320-1350 and will top it up to max exposure with (if) one more push down to the 200 DMA, currently 1290.48 and rising gently. Even though an intra-day spike below is certainly possible.

I am not seeing premiums on "shrimp size" rise. Currently seeing 1oz. roos/maples/phils at +50 and pandas +60 (I like coins):-)

Free gold? Yes please! said...

E, I'm really hoping for one nice push down below 1300 so I can catch up a little.

I was just reading Harvey Organ's blog (there's a link above in FOFOA's links section) and he has some crazy stats regarding the withdrawals of physical gold from BBs.

As more "Giants" vacuum up physical gold each and every day I can't help but think that the price is getting to skyrocket to the moon.

enough said...

FGYP

last one before sleep mode.

Now I only speak of the paper mkt, not physical but as physical premiums have followed paper I expect a SHORT TERM term move in paper to be followed by physical.

Instability in mid-east...paper g. barely moved....$ up, S down, stocks up, stocks down...gold barely moved....paper .g has corrected back 50% from low (1368) stalled there 5 times last week then fell $10 at close fri. Daily stochs have unwound all oversold conditions. IMHO we go down next but anything can happen !! been wrong before and will be again but I have an amt. of gold where if supply was cut off tomorrow I would feel comfortable.

It is not worth being cut off from supply for a few $'s in the paper price if YOU feel you dont have ENOUGH

Free gold? Yes please! said...

Thank you Enough for pointing out that it's not smart to sit on the sidelines for a few bucks only to watch the price of gold shoot upward again without me.

For some reason I've always been a sideline sitter/fence sitter...thanks to you and some others on this blog I'm much less of a wimp now than I was just a few weeks ago.

I'll get on Apmex tomorrow and lay down some green for some more gold!

G'night E.

FOFOA said...

Hello Bron,

You mentioned "renting" gold. I think the quickest route to explaining my position on this concept is to highlight Aristotle's words above. I a Freegold world, gold will be physically owned **unambiguously** at all times.

No one needs to "rent" gold simply to look at it, or for the purpose of keeping papers from blowing off their desk, or to keep the door from closing unexpectedly. So I think you must be talking about companies that are in the "value adding" business with gold as their operational inventory. Perhaps companies that turn gold nuggets into bars and gold bars into coins or jewelry?

These companies, I presume, make their profit more from the value they add to that raw material than from fluctuations in the price of inventory under ownership. And when that raw material is gold, an assembly line with tonnes of "operational inventory" could carry a raw value far greater than the company's own capital, correct?

Here is how I see it happening in a Freegold world. To an observer, the operations of such a company would likely appear just as they do today. But the ownership of that gold on the assembly line would no longer be as ambiguous as it might seem today. Today such a company might take in a quantity of fungible and divisible "inventory" in an ambiguous pool until it is put it out at the other end of the assembly line back into its previously unambiguous ownership.

In today's world it could be said that this company is in the business of providing liquidity to its market.

However in a Freegold world I imagine that this same company will become more of a service provider, or a mere utility company, than an actual liquidity provider. I can imagine that the ownership of the metal on the assembly line would remain unambiguously owned by an outside party all the way down the line. And that said outside party would likely be considered the de facto liquidity provider that this company once was.

Of course turn-around time might be longer in this case. So I can see where an enterprising gold owner with a few spare tonnes might want to take a piece of that "value added" pie in order to shorten the turnaround and gain a competitive edge for said company.

Cont...

FOFOA said...

...

However, without such unambiguous ownership of the operational inventory at all times, I can imagine that an unnatural market supply could be inferred from the increased rate of production afforded by the "rental" arrangement that you describe. If gold is to be the stable foundation of the global marketplace, there needs to be an unambiguous seller for each new buyer. And if the newly mined inflow from the mines to the "company" does not match the outflow, then the "flow" could only be maintained (price kept down) through the addition of new gold owners looking to earn a "rent."

I can imagine where this "rent" could even be as small as simply waiving the 1.5% storage and insurance fee that most unambiguous gold holders pay. Market liquidity will not be a problem in Freegold. If there is less gold available then the price will rise and the smaller weight available will be all the liquidity that is needed. So I can't foresee any official endorsement of a liquidity scheme that would create a market supply from a growing pyramid of rent-seeking gold owners.

At the very least, I can imagine that international law would not afford the cross-border protection for owners renting their gold into such a scheme. I think that for gold to be the stable foundation of the new global monetary system, it will be evident to all that physical ownership must at all times be unambiguous, right up to the point of sale.

That said, I will have to give this more thought in order to refine my opinion. Thank you, Bron. You have given me a new line of thought which may lead, ultimately, to something you asked me a while ago about the Perth Mint's place in a Freegold world.

Sincerely,
FOFOA

J said...

"It is not worth being cut off from supply for a few $'s in the paper price if YOU feel you dont have ENOUGH"

I'll never know when I have enough. I keep a couple months of cash ( in the bank unfortunately)and then add to my pile every payday.

My location does not allow me to prep as I would like to so I feel the best thing I can do is add to my pile an await the inevitable.

enough said...

Hi J.

I am not a deeeep thinker. I scratch only the subsoil. I need to make things simple for myself.

Premise: Govts/CB's need to debase or default...both of which are certainly physical gold friendly

3rd option: CB's revalue gold to repair their mangled balance sheets AND channel demand for " hard" investments away from those that damage society( energy, ag. etc)

therefore under any scenerio I am totally on board with gold explosion. Lets say $10,000-$50,000

Now how much? I can only answer for myself. I need to keep sufficent fiat income and/or savings to meet any potencial and UNFORSEEN emergency ( losing ones job, medical issues etc.)as well as daily living expenses. I really believe one should give themselves a good cushion here. I do not want to ever have to sell any physical.

Personally I am not self endulgent. Drive a 2002 jeep that looks like crap. In fact in this day and age I want to be viewed as very ordinary. Dont want to stand out.

But here's the important part for me....No one in my circle...family or friends own any physical gold. I have had chats but no luck. In fact most think I'm insane even though I think I pose good arguements on the subject. So I need ENOUGH not just for myself but to also cover those I care about as well.

If one feels as I do then we have an extra burden to prepare for others as well as ourselves and we must accumulate accordingly...cheers

J said...

E - I'd rather be forced to liquidate some metal than be caught with an overload of cash once RPG sets in. No harm in having a little too much physical and having to free up cash on occasion. IMHO of course

enough said...

Of course J,

to each his own and your hunger for gold is sining thru !!

For me , if there was an emergency I would not want to have to worry about selling anything to pay for it...thats just me :-) wish you very best !!

Edwardo said...

At the very least you need currency to pay your taxes. It's no coincidence that creation of The Fed and the creation of the 16th Amendment occurred simultaneously.

tdfxman said...

FOFOA,

You are right, horrible post. Sorry about that. It comes from frustration and not a lot of time lately.

You surgically take my feeble post apart without answering the question. Bravo :).

As I said "when do eddies become a river in you eyes?"

Now this.

http://www.zerohedge.com/article/prepare-give-all-private-data-any-gold-purchase-over-100

I went through the Wilkerson book word for word and have proved to the author and his family that the first 26 pages HAPPENDED. I wasn't happy they knew it happened but he never released any statement or anything else saying he knew. anyway, that was months ago.

I spent days researching old news papers and everything. Every sentence worked out.

Certainly as you said, gold in 1980 fit that description. Reagan revolution etc. As did all the other economic stuff.

Anyway, when would you be concerned?

I just can't get past you should be right but will not be right. But I am unable to tell you how.

Most likely freegold happens and then is taken away. So in the end Desp and I am others will have seen that coming while you saw this.

From the start of reading your great blog more than 2 years ago now, you do have disdain for TPTB and what they can do and for those who think they can mess with your theory. I hope you are right.

I do think gold is the best chance to ride this out. I wish I could better articulate what I so clearly see coming. I guess it would take a blog and putting together a lot of pieces for people. A post here will never do. I appriciate why you do what you do with the style of the post and the amount of data you "see".
Anyway, I came back tonight and wanted to say thanks for the reply but instead of mocking a brutal post, the ending which I cut and pasted from an IV board, I wish you would answer the question. You must be able to.

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