Saturday, March 12, 2011

More Freegold Fodder


This is a continuation of the last post. Freegold fodder for a lively and relevant discussion! Part of what makes the following comments so interesting (aside from their mind-bending, perspective-altering content) is that they were all posted in the 48 hours leading up to the Washington Agreement on Gold, the first CBGA which took place at the IMF annual meeting in Washington DC on Sunday, Sept. 26, 1999. In fact, the last few comments in this post were probably right around the time of the actual WAG signing!

FOA (9/25/99; 12:15:48MDT - Msg ID:14354)
HOF
TownCrier,
I see where I.V. Holtzman has reworked his "Street Gold" post so as to make it more on point and in context. It is a remarkably clear description of how the dynamics of a market can distort "real price reality". I think it will be a major reference item as our gold markets evolve. Therefore, (I don't often do this) I, FOA nominate it for HOF. Also consider that Another seconds that nomination (I'll ask him to make that official when here). Can someone else also second this, please? Thanks FOA

Note: for the Holtzman article see: USAGOLD (09/24/99; 13:03:31MDT - Msg ID:14297)


USAGOLD (09/24/99; 13:03:31MDT - Msg ID:14297)
Latest from Holtzman...
Holtzman here,

--------------
More than one POG
--------------

There are many different prices for gold. Or, more accurately, there are many different ways in which gold is formed and stored, and those differences cause prices to differ between the resulting products.

A one-ounce gold JM bar, a Krugerrand, a 1999 U.S. gold Eagle, a slabbed 1908 MS-65 St. Gaudens (ignoring for the moment that it's not precisely one ounce of fine gold), a one-ounce portion of a London Good Delivery bar, a one-ounce portion of a vault claim ticket for same, a one-ounce portion of a futures contract, a one-ounce portion of a derivative contract for same, and one ounce of fine gold formed into a piece of jewellery, all have prices which are somewhat independent of one another.

True, at their core, they all centre around what the market currently feels an ounce of gold is worth, but each has its own additional factors (premiums, risks and quantities) which cause its price to differ, often substantially, from the others.

The U.S. gold Eagle differs in price from both the JM bar and the Krugerrand because of a Patriotism premium. The St. Gaudens differs in price from similarly sized bullion coins because of a Numismatic Rarity premium.

The officially quoted Spot POG differs from the price of one JM bar bought at a coin shop because Spot POG is the price per-ounce at which very large quantities of physical gold trade. By large quantities I mean hundreds-to-thousands of ounces and upwards. Some of these sales are between mining companies and refiners or mints or jewellery manufacturers, where the buyer intends to reshape the metal into some new form, be it ingots, coins, or next month's necklace special at Marks & Spencer.

But in many cases, the purchaser has no plans to remanufacture the gold. Rather, he simply wants to own it. In such cases, the gold itself typically remains in a third-party repository in forms such as London Good Delivery bars (400 ounces), with only the Right to Claim those bars being transferred from buyer to seller.

Since these rights can be transferred electronically, this allows Spot market participants to make brief forays into the market, then retreat, with minimal overhead expense. Money centre banks are better known for their similar operations between paper currencies (buy Swiss Franc sell Yen this morning, then reverse that this afternoon, etc.), but no doubt a great deal of daily Spot POG setting is the result of trading rather than buying to own. Regrettably, I do not have detailed information on the various global Spot markets, so I have no way to discern the proportion of speculators to commercial traders.

In any event, this speculative access to Spot POG makes it susceptible to the same sorts of "professional" day trading which is usually associated with paper markets.

In addition, most of the gold sold at Spot POG has yet another factor influencing it, one which can easily place it more in alignment with the various paper forms of gold when market conditions become abnormal: the risk that the gold is not entirely under the supposed owner's control.

If you have a few gold coins buried in your back yard, and if you bought those coins anonymously with cash, you control that gold. If you have a claim ticket for a few hundred kilograms of gold held at the Federal Reserve Bank of New York, or a few hundred tonnes of proven reserves in a mine whose location is known to tax assessors, or even a few dozen U.S. gold Eagles in a unit trust, don't be so sure you're the one in control of that gold.

If or when a breakdown in the paper gold market occurs, it's quite possible we may see the officially quoted Spot POG remain in lockstep with paper prices, very possibly plummeting even in the face of blatant shortages of physical metal. But all this would mean is that a make-believe price is being impressed on market participants who are large enough to be easily identified and coerced.

If a private citizen holds the claim ticket to a London Good Delivery bar stored at the Fed, guess who has the power to insist on knowing details of any sale of said bar. Even if a private citizen takes possession of the bar and buries it in his back yard, Uncle Sam will be very keen to periodically bother him about its whereabouts. Although Spot POG is a measure of physical gold, it adheres to the paper world more so than to the physical world because of this one point: the risk of governmental intervention.

This ties in with points about gold mining shares made by Another and FOA: mining companies theoretically are at liberty to sell to the highest bidder, but governments have a way of convincing their subjects to accept less and be happy with it. If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.

By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.

The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's far too likely to start a revolution (or in your case, re-start one :-).

And yet, despite the very convincing scenario of complete meltdown painted by FOA and Another, I still find myself clinging to the hope that the supply/demand cycle will re-assert itself as has happened in other industries (the recent history of the airline industry being my beacon in the darkness).

I would never touch futures or their derivatives even under normal market conditions, but a small stock investment in the most efficient, best established global mining companies seems to me still to be worth the risk (note again my use of the word "small"). Whether those shares are ultimately sold for Euros instead of dollars, I still am optimistic enough to wager that they will indeed trade on some market for some price in some currency. In any event, though, I plan to keep an eye on potential warning signs that such optimism may be about to be dashed.

So where will we find a "real" price of gold amidst the make-believe? Clearly neither Spot POG nor futures POG will be realistic during a full-blown emergency, nor will the share prices of gold mining stocks. Of course, if I find myself still in possession of such papers during an emergency, their official resale value will be all too real to me.

Even under normal market conditions, the paper price of gold is not the perfect guide because it is determined by constant repetitions of FOA's analogy of the two neighbours betting over the fence. Perhaps one in a thousand participants in the daily setting of the official prices of gold plans to acquire or deliver physical gold. The other 999 participants are merely there to bet on it and claim their winnings in some other currency.

Put another way, how many people at a racetrack are attempting to buy a horse? If you want to know the going price of a physical horse, don't look to a racetrack for answers. And don't assume that being a partial owner in a horse farm (thanks FOA) in any way assures you of being able to own a physical horse at some future date.

Likewise, if you want to know the going price of physical gold, don't look to the paper chase, most especially during any sort of financial emergency when paper-related numbers will become very distorted. Frankly, even though the emergency has yet to be publicly declared, things in that arena are already becoming increasingly distorted.

Most of us here at the USAGOLD Forum do not buy and sell thousands of ounces at once, and most of us take immediate possession of our purchases. From that, it's clear where we should look to find the price of physical gold which is most appropriate for our activities: in fact, our very conversations here are being hosted by someone who spends most of his waking hours discovering that price.

--------------
Street POG
--------------

The Cash or Street price of gold is the number of dollars (or pounds, or euros) you take out of your wallet and hand to your friendly, neighbourhood coin dealer in return for a one-ounce Krugerrand.

Why a Krugerrand? Because it's the least numismatic, most commonly encountered, least lovely form of gold. It has no numismatic premium and no jewellery premium and no patriotic premium. It's even less attractive than a one-ounce JM bar.

That makes the Krugerrand the perfect unit of measure for Street POG. Its only special quality is that it contains exactly one ounce of gold (mixed with much too much copper).

The only circumstance which would disqualify the Krugerrand would be if suddenly coin dealers were willing to sell Maple Leaves or Eagles for less than Krugerrands. But to deal with that case, let us define Street POG as the price of the cheapest one-ounce coin or wafer available for sale at that moment.

You will know that the governmentally influenced markets are becoming highly distorted when you see a Krugerrand selling on the street for significantly more dollars than the Spot POG quoted by the paper markets that day.

A Krugerrand will always have a little premium built into its price (hi, I just bought these coins and I'd like to sell them to you without making any profit at all on the sale... my, that would be daft).

At some point in August 1999 when Spot POG was quoted at $260, I bought a single Krugerrand for $268. That's within the range of normality. We're not in uncharted waters yet.

But let's say that Spot POG drops to $200 (sadly still not out of the question even with the September 1999 rise in POG towards $270). What will a Krugerrand cost on the street then? If Spot POG drops no more abruptly than has been its wont in recent months, there's a decent chance Michael and his fellow coin dealers might then be able to profitably sell Krugerrands for $205 each. In that case, the shorts and the financial ministers are still in control.

But if you see Spot POG drop below $200 while a Krugerrand selling on the street never falls below $230-$240 ... or if you see Spot POG remain at $256 yet Krugerrands leap to $300 and Eagles to $310 ... hello new gold market. That would be a clarion call that things are starting to become seriously distorted. [FOFOA: Note that things did get spooky just four days after this post. You can see it graphically in the large spike
here, here and here. The price of gold jumped more than 25% in nine days, from $257 on Sept. 22 to $325 on Oct. 5. That would be like gold rocketing from $1,420 today up to $1,795 by March 24. Imagine what that was like!]

--------------
The American Civil War
--------------

I think maybe the hardest mental hurdle for people to clear in understanding Another and FOA is this notion of two gold markets occurring simultaneously. There's an historical example (and it's Western :-) in which very much the same thing transpired...

In 1864, the USA and the CSA were reaching something of a stalemate in their war. Contrary to what most Americans learn today in (the winner's) school system, had but a very few decisions been made differently, the Confederacy would have won.

This, by the way, is why we see so many Americans (descended from both sides) re-enact Civil War battles over and over. How often (except on Monty Python) have you seen re-enactments of Pearl Harbour? The only battles worth replaying are the ones that could have gone either way.

In any event, to the average person living in Either the USA or CSA in 1864, the near term future was incredibly unclear and terrifying.

In the pre-war USA, national government funding was handled by the levying of import/export duties. The IRS was not yet a glimmer in politicians' eyes. For a nation at peace, duties provided sufficient income to run a minimalist national government.

In time of war, however, expenses magnify dramatically. Both the remnant USA and the new CSA needed to acquire vast funding very rapidly to raise an effective military. The both of them did so in the time honoured way: they borrowed the money. Have a peek at Lincoln greenbacks and Confederate paper money sometime. They are promises to pay the bearer with gold and/or silver at some significant time following the cessation of hostilities.

These documents were by no means the equivalent of today's Federal Reserve Notes (try redeeming a $20 FRN for a St. Gaudens sometime). No, Civil War paper banknotes were the equivalent of today's Gold Futures Contracts.

Oh, Lincoln greenbacks and Confederate dollars passed from wallet to wallet during the Civil War years as if they were currency, and in the first year or so they were regarded as 1-for-1 equivalents of coin. But as 1864 drew nearer, something odd began to happen.

"Howdy, I'd like to hand you this crisp $1 greenback in return for ten silver dimes change."

"I'll give you 8 silver dimes for a paper dollar, not a penny more."

Realise that this happened in the North, in the remnant USA. It happened too in the Confederacy, but modern people remember it there only in association with the final default on paper which happened when the CSA government was extinguished.

But the sole difference between a Confederate dollar and a Lincoln greenback was that one paper issuer was still in existence in 1866 and one was not. In 1864, no one could confidently say that either government would still be there a mere two years hence.

Notice that, in this regard, not much has changed since then. In 1933 for US citizens, then in 1971 for the rest of us, the USA government voided its obligation to pay gold for paper dollars.

If you hand me silver or gold, I won't care whether the symbols impressed on it are from a reliable government, an unreliable one, or a defunct one. But if you hand me paper, I'd better be firmly assured the issuer will live long enough (and be inclined) to pay off this debt to me. Even if you hand me a paper claim ticket to silver or gold stored in a vault somewhere, I'd better be firmly assured the vault keeper is of a mind to let me take possession of that metal without the slightest hesitation.

Another and FOA, by saying wise people should avoid paper and only hold physical, are indicating that they expect the LBMA and Comex Gold Contract documents will go the way of the Confederate Dollar (or maybe more appropriately, the way of the pre-1933 paper dollar: "Yes, a dollar is still a dollar, we just won't live up to it in quite the way we used to.").

At the very least, they're saying the risk of such a systemic change is so substantial that one should not be standing too near the fault line should the quake come sooner than predicted.

What the both of them are describing is an official Spot POG (and its kindred future months' POGs) which may well plummet to $200 or even, as Another allowed some time ago, perhaps $10. Realise, though, that Another is by no means predicting that Michael will be able to profitably sell Krugerrands at $10 each. Far from it.

What Another and FOA are anticipating is a situation much like the paper money situation in both the USA and the CSA in 1864: how likely is it that the paper contract you're handing me today will be redeemable for any amount of gold by this time next year?

Tell you what, I've got a spare ten bob I feel no desperate attachment to. I'll buy your one-ounce IOU just for kicks. If LBMA completely expires, I'm out only a small amount. If LBMA unaccountably fails to expire, I've struck it rich. Of course, I may still not receive a physical ounce of gold on settlement day. I may find I've become the proud owner of a 1/400th part of a London Good Delivery bar, which I'm then told may not be removed from the vault. If I'm lucky, I might be able to sell my claim ticket for some amount of whatever paper currency is still worth accepting.

Meanwhile, those of us with less of a gambling inclination will sleep more soundly holding physical. After all, a silver or gold coin firmly in your possession remains silver or gold even after its issuer expires.

Yours,
I.V. Holtzman


FOA (9/25/99; 12:28:42MDT - Msg ID:14356)
Question?
Goldspoon (9/25/99; 12:08:04MDT - Msg ID:14353)
One reason $ilver may do better than gold in the late stages is because $ilver is also known a Poor Man's Gold... There is alot more poor people than ritch ones...Poor people generally come late to the party and buy what they can afford ($ilver) so $ilver will be a late bloomer but Oh what a flower....


Hello Goldspoon,
Could you please elaborate. Your above comment that "silver is more affordable than gold", brings my question.
Which is more affordable $100 of gold or $100 of silver? Even if gold was $1,000 an ounce, why then, at that time would $1,000 in silver be more desirable as a "poor man's gold"?

I'll be back with more. thanks FOA

FOA (9/25/99; 14:29:40MDT - Msg ID:14367)
Comment
To ALL:
When a person tries to protect their assets against the effects of fiat money, what are they really fighting against? The first inclination is to say "rising prices". Yet, it's much more than that! Most everyone agrees that interest in the bank never covers the loss of buying power brought on by price inflation. Especially the "after tax" return. It's the same old story, played out decade after decade. We must "invest our savings" (or become a day trader?) because the money will erode in value! Even at 3%, price inflation can eat away at any cash equivalents.

But, price inflation isn't the only story that impacts us. Rising prices come and go, but money inflation continues to affect us without fail. So why do people feel better when price increases slow or stop, even as money inflation runs ever upward? The good feelings usually evolve from the effects that money inflation (increases in the money supply) has on financial instruments. These assets take on the very same characteristic that the rising prices of goods once exhibited. They run up in currency price.

During these periods of "less goods inflation" another sinister form of mind set lurks in the shadows. Credibility inflation! Yes, it has been here many times before as every fiat currency alternates it's effects upon the feelings of the populous.

Fiat currencies must, by definition always expand in quantity. Their continued usage and acceptance is always obtained with the bribe of "more wealth to come"! Without that bribe, humans would never fall for holding a debt to receive the same goods in the future if they could get the real thing today. Human nature has always dictated that we buy what we need now instead of holding someone's IOU to receive it later. That nature is only changed through the "greed to obtain more". Like this: "I'll hold my wealth in dollars currency if my assets are going up. Later those increased assets will buy me a better lifestyle as I purchase more goods and services than I could buy before".

This is the hidden dynamic we see today and the exact antithesis of the past price inflation's. Just as destructive as "goods price increases", "credibility inflation" impacts our emotions to "hold on for the future", more is coming! In every way, "credibility inflation" is just as much a product of an increase in the money stock as "regular price inflation is. As cash money streams out to cover any and all financial failures, we begin to attach an ever high credibility to the continued function of the fiat system. In effect, the more money that is printed, the higher we price the credibility factor.

Onward:

ORO, the GDP is one of the great deceivers in the Fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavours. Yet, throughout this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.

The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality". The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. A currency run induced by an IMF stalemate would qualify as just such a function change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!

Further:
The GDP has been the relative gauge to mark all other measurements against. Even so it's numbers reflect little more that the result of an "expanding fiat money supply". Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.

Someone I know said; "your wealth is not what your money say it is"!

What should we be looking at to see the real picture? Be back a few hours from now.

Thanks FOA

FOA (9/25/99; 19:11:59MDT - Msg ID:14375)
Comment
ALL:
When it comes to silver, I agree with all of you. But then "along comes reality"! Many of the current analysts persist with their analogy that "silver is used to make change and small transactions". A concept I completely agree with, only if we sink to that point? The valuations placed on silver will mostly be established by the kind of "currency turmoil" we experience.

Look at today's US paper currency. It's all dollars and yet $100 bills are used readily right alongside $1.00 bills. It seems that we found a way to create ever smaller denominations of dollars to satisfy the demand for making change. I don't see anyone carrying around Canadian currency for the small purchases a US $100 would not work for.

My point is that gold has in the past and will again in the future be broken down, "if needed", into alloyed coins for the very smallest of transactions. One can easily carry a one gram gold coin that is made the size of a quarter. Even a 1/10 gram will do the trick. As Mr. Gresham points out, someone will always be around to create money change. Be it in silver or gold, the most efficient money will rule the day. In the worst of war like conditions, paper money is traded. German marks were spent as the booms fell!

My question of which is more affordable $100 in gold or $100 in silver? A poor man will accept and use either that is offered, no contest.

Again, the future demand for "Metal money" will be established by "how the currency markets evolve". I believe (and have written on this before) that throughout all that is to come, US dollars will continue to circulate as will most all the established currencies today. "Come what may", we will use them for whatever value and efficiency they will offer. Just as the much lesser moneys of the world presently circulate, while their citizens hold dollars, gold and silver, so too will we act in a similar fashion.

The question for our immediate future is in what form will you hold metal money to represent the "bulk" of your tradable wealth? As all the currency and economic turmoil swirl around us, the pressure will be to not only hold reserves that will not be at risk, but hold them in the largest "tradable form". Gold and it's high future price will certainly fit that bill. Again, contrary to what many think, when the dollar falls off the reserve currency tower, most everyone will still be getting paid in dollars. Yes, they will be greatly devalued from price inflation, but buying your gas with dollars will still be a weekly chore.

The future will see the Euro currency as the value reserve all other currencies will trade off of. Beside it will trade a "free gold" market denominated in Euros. The implications of this will be for US nationals to continue using dollars while holding gold (or Euros?) for a bulk, risk free tradable reserve. One can see that in this picture, the purpose for silver is greatly diminished, no?

Got silver? Don't need it, cause I got gold!

We shall see, back in an hour or so. FOA

FOA (9/25/99; 20:31:48MDT - Msg ID:14388)
Comment
Gold Dancer (9/25/99; 18:36:32MDT - Msg ID:14373)
Silver/Gold/


Hello Gold Dancer,
I think I paralleled some parts of your thinking. Thanks for offering your reasoning.

Goldspoon (9/25/99; 15:37:33MDT - Msg ID:14370)
Some have suggested confiscation....possibly. --


Goldspoon,
I think the confiscation item has always been blown completely out of proportion. Some even go as far as saying that there is no use in holding gold if it gains a lot because it will be taken away from you. Then in the same context, it's offered to buy gold stocks to gain from a more reasonable increase in the gold price! In addition, for the same reasons they see silver as an item that will not be touched. One has but to review "Holtzman's "More Than One POG" #14297" to get what is his beautiful rational and reasonable retake on what confiscation would really mean:

--------If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.

By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.

The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's far too likely to start a revolution (or in your case, re-start one :-).-------------------


Thanks Holtzman, incredible job!

Again, if you think silver is going up because of currency turmoil, is it reasonable to believe it will increase as it did during the 70s style Hunt fiasco? I'm not sure that event wasn't but a one of a kind move. Everyone considers that performance (the only one we have had ) as an example of how silver moves when gold goes up. However, it's entirely possible that that gold move was but a minor side show and in the future gold will dwarf any percentage rise in silver. We didn't know silver could move like that until it happened and we may find that few will understand how gold can outperform everything in the future. As I offered earlier, the coming currency transition may render the "many present reasons" for holding more silver than gold useless. Especially if currency stays in circulation as the demand for industrial silver falls from a economic contraction. If such is the case, the percentage move will fail to match gold.

I know many own silver. I offer this as a balance observation. Good luck to all of us, may we all win! FOA

FOA (9/25/99; 21:11:01MDT - Msg ID:14392)
Reply
Leigh (9/25/99; 19:36:56MDT - Msg ID:14378)
Do you think silver is worth holding as a commodity, the way you would hold platinum? Don't you think the prices will go very high as silver reserves as depleted? Or do you think gold will rise the highest?


Hello Leigh,
All of the investment attributes for these metals are conflicting. On a commodity basis, silver would be the best. Warren B. bought it in his company name expressly for its industrial prospects. He views it in the same light as a stock investment. I doubt he took it for any of its monetary reasons.

Again, invest to make a return. Take your best shot. But for today buy gold to preserve what you have during a global dislocation of currency systems. Because the future may play out as I have outlined, gold will out-perform (on a real basis) most any past investment made during the last 30 years. Not because it's a good investment with great prospect demand, but because it will again perform its ages old function as the world's money. Something it hasn't done in stand-alone fashion for perhaps 60 years?????? That return to money use in this modern world is the attraction that drew in the Giants, in whose footsteps physical gold owners now walk. The rise will make most people feel very foolish not to have purchased at $1,000 while it was cheap (smile)! We shall see.

Thank you and good day FOA

[FOFOA: Next is a short excerpt from Twice D that is relevant to FOA's reply below. It is similar to complaints I hear all the time. "You don't know the future. No one but God can know the future." I like FOA's reply.]

Twice Discipled (9/25/99; 20:40:54MDT - Msg ID:14390)
FOA - Dollars/Gold/Silver

I try not to understand your perspective to hold all knowledge of the future (only One in the universe can make that claim), but to gain an understanding of how we may be required to manage and use that which we have put away for future use.


FOA (9/25/99; 21:12:34MDT - Msg ID:14393)
Reply
Twice Discipled (9/25/99; 20:40:54MDT - Msg ID:14390)

Point 1)
If my above interpretation of your suggestions is correct and the events play out as you see them then with further thought I may come to agree with your remarks regarding silver.


Hello Twice D,
There is actually quite a large group of people that see things this way. Nothing is written because they are very private. [FOFOA: "quite a large group of people (Giants) that see things the A/FOA way!"]

--Point 2) If we move to an environment where bartering becomes the standard, then I would still think silver would be appropriate in some degree because of the smaller value associated with it. I would also ask who I would trust to take my .1867 oz Napolean III and melt it down into a 1 gram gold coin – definitely not the government, I would never see it again. I would also be skeptical of any other organization given that history shows us examples of "shaving" whereby the gold content of coins was reduced.------

-------Of course, when the time arrives we will no longer speculate, but participate in what transpires.--------


Twice,
I agree! Indeed, if history is any guide, we are walking a well-worn trail. After this weekend, Another may have to update his view of current events. Things are moving now! [FOFOA: "Moving now!" –the WAG was signed the very next day! What did FOA know when he wrote this?]

Sorry for the short reply as I must go now...........thanks FOA

Aristotle (9/25/99; 21:28:58MDT - Msg ID:14394)
Hi FOA
I just finished reading the posts of today and your latest. On this debate about Gold and silver you might want to consider one thing that you might be seeing past in your discussion.

First of all, I am in nearly total agreement with you in regard to Gold and its use for currency, with no need for silver. Your Canadian dollar as change for US $100 was brilliant in its clear simplicity.

But here's where you might not be seeing eye-to-eye with some of the others and their silver comments (though not all, because some are interested in silver for yet other reasons too varied for my limited imagination). When they are talking about using silver to make change for small purchases, it seems to me their primary focus must be on some kind of infrastructure collapse as would be a worst-case post-Y2K situation. Only if there were no means to use modern conventional transactional tools such as checks and plastic would anyone be floating the idea of paying with coins. In such an environment (which makes me shudder) silver would certainly be handy as they describe for short term trading. But all roads lead to Gold, and as things got back on their wheels, we will all discover that the same small amount of Gold will be able to buy ever-increasing amounts of silver as time goes on.

Barring any Y2K problems as described above, you've got it nailed down. Gold will outperform silver many times over, and it's easy to see why it would even be in the governments' best interest to support higher values for Gold--they all hold Gold, but no silver. Their Gold stockpiles (savings) could last forever with a high enough valuation. The key, as you well know, is Gold's new VALUE. Its currency price doesn't mean a damn thing. Instead of talking about the future dollar **price** of Gold versus a future price of silver (to see where one's dollar "profits" would be greater), we should be talking about their future **value**. This could be expressed in terms of something like loaves of bread. Here's the example:

Let's say we had four equal stacks of dollars and we today took one stack to buy a year's supply of bread, and then spent two of the remaining three stacks to acquire a pile each of Gold (small pile) and silver (large pile). Right now they are all equivalent values...the dollars, the bread, the Gold, and the silver. Roll the clock forward, well beyond any Y2K mess, or lacking that, simply past the day of reckoning when the dollar folds, and let's re-examine our pile of equivalents.

Ok, our year supply of bread is gone, because we ate it. The remaining stack of dollars will now only buy us a two-week supply of bread, the large silver pile will buy us a year supply of bread, and the small Gold pile will buy us enough bread to last for twenty years.

Certainly, these numbers (two weeks and twenty weeks) could be something else, but I hope I've at least expressed my point clearly for any future discussion on the matter. If we quoted prices in terms of loaves, we would actually be talking about value. A dollar price is somewhat meaningless, wouldn't you agree?

Gotta meet a friend for a brew. Hey you guys out a Peter's place--I'll be thinking about you!

Gold. Get you some. ---Aristotle

Aragorn III (9/26/99; 2:53:37MDT - Msg ID:14408)
Mr. koan, perhaps you might elaborate, or else reconsider?
I shall speak only with the universal language of mathematics...

You said in your post "Silver only has to go to $10 to double. Gold has to go to $500 to double."

Good Sir, my scale is broken this day, and therefore my currency knows nothing of weights and measures. I am told that the silver held in my left hand was purchased for 10 dollars, while the gold in my right hand was purchased for 10 dollars. To "double" (to equate with your example) they must each "go" to $20. How is it that this silver knows the shorter path and may travel the faster, easier road? Consider when you answer that at my feet is also $10 scrap iron. Per ounce, the price of scrap iron is quite low...is this then the "gold" for the most wretchedly poorest of poor men, as you say silver is "gold" for the wealthier version of poor men? Does scrap iron therefore know the shortest path to double and beyond?

To be sure, Black Blade makes a point of psychology that must fit into an equation to be considered. Is this also your unstated rule of mathematics, or do you contend simply that the dollar will lose one-half purchasing power against silver more quickly than against gold because the purchased silver load is heavier to bear? Surely then scrap iron is the best investment of all? Or must we ignore the weight, as often it does not apply as we see here: does the low salary of a blacksmith double more quickly than the high salary of an engineer? I look around, but I see little demand for blacksmithing these days. When did you last read of silver in the national or international news?

You will likely agree that all things are subject to changes with changing times. Perhaps we will need blacksmithing again, and the few that do work for museums will then command a high price on such a day, indeed.

It holds true today, and perhaps always will, the modern use will define the value. Consider that the IMF and BIS, the ECB, and yes...the BOE (even as a seller-in-distress), and frequently our good Federal Reserve Chairman; they all speak only of gold, but never silver. Please be aware they can move the gold price further with a small finger than you or I could ever move silver with a crane. The path has become increasingly clear with the IMF moving to mark to market a portion of gold holdings...an easy addiction with more to follow??? I would say we might hold our breath on this one and yet not risk turning too blue.

Pursue silver if you must do so for your own appeasement. It will certainly serve you better than dollars in a dollar currency crisis. I believe the picture painted by Aristotle on this issue in his recent post was quite reasonable, and worthy of consideration for the two sides. I say only two sides because if you extend the prevailing rationale of our many posters, platinum is right out of a role.

got choices?
got gold?

FOA (9/26/99; 9:54:32MDT - Msg ID:14425)
Comment
Aragorn III (9/26/99; 2:53:37MDT - Msg ID:14408)

Hello Aragorn,
Nice application of clear logic! Let me see it I have this right for a future context:

"Get your scrap iron now because gold and silver have already run up in price. Iron is the only affordable metal for late buyers. You get many more ounces per purchase because the gold / silver / iron ratio is so far in the favour of iron. When the teaming masses can no longer afford "real money" they will most certainly buy iron in 1/10 ounce form to use for small purchases"

I expanded your post with my slanted view to drive home a point to others. From the time that silver ran in the 70s, on one ever had any historical precedent that it could move so much. Yet, from 1980 on, every silver promoter has used the Hunt squeeze as the basis that it will rise again in just such a fashion. It has been the ideal "leveraged sell" for every boiler room to sucker in paper traders. I bet there are many who have lost the most money by taking on silver as a leveraged play.

I say all of this as the proud owner of some silver! Just as Aristotle (and yourself at other times) pointed out, in a complete "currency: breakdown, silver will be needed and used. Yet, in this modern day and age, ironically, inflated fiat currencies will most likely continue to be used for most purchases. I bet CMAX could add some light on this as he is in an "inflating country"!

Further: During the run-up in gold during the late 70s, the governments were selling gold all the way up. In the same light as we look at the YEN today, gold buyers were always afraid of the "next" intervention. Yet, even with the official gold sales, gold soared. During that time silver was never the application of any widespread major sales. Today, we must consider the effects on gold that a major 'Official" policy change would do. While everyone is waiting for the next big sale, others are anticipating the total withdrawal of government selling/ leasing from the markets. Indeed, if the ECB or oil or china start buying official stocks through the BIS, the results will be the reverse of the 70s markets. "Street gold" will be the percentage out performer!

We must bear in mind that there will be a big difference between Official BIS buying through the CBs as opposed to them buying paper gold on the LBMA. I think Mr. Holtsmans "More Than One POG" #14297 will be a hated factor for many current gold mine owners for years to come. With BIS buying from all CBs, the supply of gold will collapse, forcing the "street price" through the roof. Falling demand (buying) for paper gold will drive those securities to the floor because of their inability to secure and deliver enough physical gold. This dynamic will absolutely force the IMF/ dollar governments to lock the trading price of paper gold at below most production costs until new mine supplies can work off some of the paper commitments. Even though cash settlement (at the locked price) will be used, it will cover but a fraction of the outstanding paper. Counter party default will rule the day. No doubt, the majority of the mines in operation today will close, thereby forcing an extended workout period.

It's a simple choose of what is more important to the majority of people? Save the major portion of the banking system whose menders are the who's who of the LBMA, OR save the worlds gold mines? No contest!!

This is where we will see competitive revaluation's upward of IMF and existing CB gold stocks. These source of new equity will be needed to cover aid to failing countries (some from shut down gold mines) and back the massive loses a collapse of the dollar reserve currency will bring.

For years everyone looked for the nations to block any large rise in gold, so they invested in assets that would benefit from what would be perceived as a reasonable gold increase. One that the governments would begrudgingly allow. Of course we think of Gold stocks. Yet few considered the true ramifications if countries suddenly revalue gold not as money, but as a world reserve asset! We approach this dynamic today as world dollar debt has reached its limit. Exciting times for those that "walk in the footsteps of giants", awful times for those that have invested in the gold industry. It's not too late to change course and sail with the wind. With the direction of someone that understands, I have done just that!

With the wind...........we are on the road now!!! FOA

FOA (9/26/99; 11:22:32MDT - Msg ID:14430)
Reply
Leigh (9/26/99; 9:50:43MDT - Msg ID:14424)
Questions for FOA

------------When you and Mr. Holtzman talk about a black market for gold, do you mean an illegal black market? ----


Hello Leigh,
If I answer for both Mr. H and myself, it may get him riled up enough for him to post more of those great works. So I'm going to do it this one time! (smile) Also, it will be best to stay in close contact with Michael Kosares, as he will know the very first changes in the markets (if they occur).

However, in my view: I bet we end up with a very strong "dealer market" with companies like Centennial Precious Metals in the forefront. The difference will be in that they will price their product based on the real investor supply and demand as these dealers trade among themselves. Yes, an official gold market will be in effect, but "street gold" will carry a huge premium over the official "trading price". A premium that will not be profit for the dealers, rather a reflection of the true price of gold.

(TownCrier, you had a great explanation of this somewhere, no?)

Over time most dealers will slowly disregard all paper trading. The present major banking houses that trade bullion and paper will most likely drift far away from the gold business if their loses in that arena build. So; It won't be a black market like in the movies. That will only come about if things "really get out of hand". Something I doubt will happen, even during a Y2K breakdown.

----Do you think it is possible transactions in gold will be outlawed? That wouldn't do our government any good, would it? -----

Outlawed? No possible way! The thing everyone forgets is that during the 1930 gold call in, the governments were trying to place gold in a tight price range. They still had a good dollar system and wanted to keep it for the world's sake. Today, the problem is different in that they have created so much dollar based debt that it can't be serviced any more without a blowing up the world reserve money supply and hence the system. The US knows it's over and must accept a partial defeat. To accomplish this, in opposite fashion from the 30s they must raise the price of gold, not keep it down.

It works like this: To keep the gold price stable you have to get your hands on more of it. Then use that physical to balance existing dollar claims (as in the thirties) or sell it into the marketplace (as in the last 20+ years). For today; To make the price rise, you don't need more physical to use as supply, you simply withdraw supply from the marketplace and revalue what you have. [FOFOA: Note that the WAG was being signed right as FOA was writing this. Curious coincidence.]

The US treasury has some 8,000 tonnes ++/--. They can't back the same dollar with gold that they removed from the gold standard in 71. Major legal problems there (BIS???). Nor can they create a new dollar with the Euro on their backs. They can follow the ECB and the IMF lead and begin to revalue the existing US gold stock to use as equity against the massive reserve loses that are coming. No it won't cover even half the liability (even if it's over $10,000), but it's the only fallback asset any nation has. It will prevent a total World and US contraction.

The trading and owning of "street gold" by the US public will be encouraged, not outlawed. Any demand that raises the gold price further will be welcomed as a "new concept" to save a contracting economy. This was the real reason the Gold Eagle program was started in the first place! Political bases covered when the time comes.

---Wouldn't they want us to spend our gold so that eventually they could get their paws on it?---

No Leigh, in the future they will ask you to spend "your" gold, but not for their accumulation. They have plenty of gold and will just devalue the dollar further by raising the gold price in stair step fashion. Your spending will be to build the economy again. In reality, you will be selling some gold to a dealer for depreciated dollars. Then spend those dollars internally, within the country.

Gold coin sales will be a hard act to follow as we cross this valley of money transition. Mine owners will be screaming for controls of the street price so they can sell into the defunct LBMA at a higher price. It won't happen. Later, everyone will be glad they bought physical while the going seemed rough. Needless it's going to be interesting as this all unfolds. Eventually, paper gold will be out of the way (covered) and a real "mining boom will ensue". That's when we sell some of our gold to buy gold mine stocks! (big smile)

Get ready for that time............buy gold now!

Thank You FOA

FOA (9/26/99; 16:16:08MDT - Msg ID:14449)
Comment
Leigh (9/26/99; 11:58:37MDT - Msg ID:14432)

---- One more question: Will the government tax us gold owners to death, since we'll be among the few who have any money?---


Ha, Ha,,,,,,, Leigh, what do you think?

FOA (9/26/99; 16:18:59MDT - Msg ID:14450)
Comment
koan (9/26/99; 12:32:58MDT - Msg ID:14433)
Silver and gold - relative appreciation - a theory

-----If silver goes to $10 per oz you just doubled your money i.e. now you have $10,000 (1,000 oz times $10). That other $5,000 you put into gold for 20 oz will need to go $500 per oz i.e. 20 times $500 = $10,000.) Elementary my dear Watson.-----------


Mr. Koan,
Watson wants to know why gold can't double at the same time that silver doubles?

He still wants to know why a poor man will buy $100 worth of silver before he'll buy $100 worth of gold?

Does that also mean he will buy ten pounds of dirt for a $1.00 first, if one pound of sand is also selling for a $1.00? Hmmmmm!

I have a few dumb friends but they are not stupid. Seems the most "dumb" among them always understand the relative worth theory better than most any PHD scientist. I also know I'm smarter than they are, even if they have more money than me? (smile)

It's going to take a whole world of "special people" buying silver to make this work out. I'll watch here with everyone to see how this works out. Thanks FOA

FOA (9/26/99; 16:59:38MDT - Msg ID:14456)
Comment
Chicken man (9/26/99; 15:30:12MDT - Msg ID:14446)
FOA @ The Tale of the Golden Egg..


C Man,
That was a good one!
One of the reasons I advocated buying Goldfield stock was to support their actions. I Know most didn't understand, but burning a property deed (or stock certificate) in some cultures is synonymous with stating "you will never sell the investment".

Here, this company does an industry supporting move and no one (even GATA) advocates investing in that company for their strong anti-gold selling stance. Instead people see what happened and went out and bought ABX (or as much)? This Goldfield action was the major catalyst that sparked new interest in the gold arena. It called into attention the delicate nature of the paper gold position if physical is taken out. If everyone starts charging the auctions, this paper gold market will close in a hurry!

Goldfield buys and everyone comes out of the woodwork to proclaim a new bull market for reasons other than what happened. Then they direct new buyers into more paper gold investments, regardless of whether they are controlled "shorters" for the BBs. The Goldfield action clearly stated that they alone (along with Anglo) are independent from the paper control. I support management that take "right minded stands" whether my investment will pay off or not!

Chicken Man, watch this market run for another ten or twenty and see what happens to it! With the G7 fiasco concluded, we may get a blow-out this week! [FOFOA: Oh, boy, did they ever!]

Thanks for your reasoning....... FOA

FOA (9/26/99; 17:11:30MDT - Msg ID:14458)
Reply
Golden Truth (9/26/99; 16:56:35MDT - Msg ID:14455)
TO F.O.A, TIME TO CHANGE SILVER INTO GOLD!!!!!!!!!!!!!!!!!!
Hello F.O.A tomorrow i will be taking all my SILVER Maple Leaf coins and exchanging them for GOLD.

Golden truth,
Don't forget the iron bullion! (SMILE)

-----One question i do have is, could you please explain the comment you made about the "massive reserve loses that are coming" what will cause this? and possibly when? I,am sorry, i know this is a basic question but i have some trouble with figuring this one through Thanks as always G.T -----------

GT,
One of many examples. You are a foreign CB that is holding 100 billion in US treasury debt. The dollar loses half of its value. Treasuries now worth 50% less! The US declared "foreign exchange controls". Good thing you held gold that has now more than ?????? gone up! Throw the treasuries in the trash and forget about them. Now the ECB is offering to buy gold with Euro treasuries, if anyone wants a "special relationship" with europe. You know the rest!!!

I have to go now..........This week will be something..... FOA


Sincerely,
FOFOA

PS. I only posted the comments by FOA and a few others here, but there are many more on those pages. Bear in mind that there is a lot of chaff mixed in with the wheat, but I suspect that a few of you will agree more with the chaff than FOA and Aristotle. Here are the links: Sept. 25; Sept. 26.

It's also fun to read the comments from the following three days after the markets opened post-WAG and gold went into extreme backwardation while the price rocketed.

223 comments:

1 – 200 of 223   Newer›   Newest»
John said...

Hmmmmm. Tyrone is definitely off his game.

-JohnW

victorthecleaner said...

>FOA (9/25/99; 19:11:59MDT - Msg >ID:14375)
>Comment
>ALL:
>[...]
>The future will see the Euro currency as the value reserve all other currencies will trade off of.
>Beside it will trade a "free gold" market denominated in Euros.
>The implications of this will be for US nationals to continue using dollars
>while holding gold (or Euros?) for a bulk, risk free tradable reserve.
>One can see that in this picture, the purpose for silver is greatly diminished, no?

I like much of what has been written by Another, FOA and FOFOA. And I have learned a great amount from them for which I am most grateful.

But the above phrase nicely summarizes what I think is the main fallacy in their argument. I can only conclude that there exist two different things that are called 'Euro'. One is the fiat currency presently in use in a large part of the EU. The other is a fantasy about how one ought to manage a currency which has no relevance outside this blog.

>FOA (9/26/99; 17:11:30MDT - Msg ID:14458)
>Reply
>Golden Truth (9/26/99; 16:56:35MDT - Msg ID:14455)
> [...]
> Now the ECB is offering to buy gold with Euro treasuries, if anyone wants a "special
> relationship" with europe. You know the rest!!!

This one is so surreal it may actually come true when the Euro hyperinflates right along with the US$. This will come as their desperate last call and will only confirm that gold is not for sale when worthless paper is offered.

I think your view of the Euro does matter a lot for your conclusions about the change that is coming. I can only recommend to educate yourselves about Europe and European politics. Find some colleagues, friends or family with connections to Europe. Phone them. Talk to them. Travel there, walk into the next cafe and talk to people.

Read all of the balance sheet of the Eurosystem and do your own research about what is behind the various positions. Read the regulations on what the individual national central banks are allowed to do and find out how much of that is relevant and which of these items are consolidated into the balance sheet of the Eurosystem. Try to find out about the main political parties in France and in Germany. Read up on the decisions about relevant offices and what is happening to the main players. Google 'Axel Weber resignation'. Google 'Mario Draghi vita'.

Try to read European papers. The online edition of the Financial Times is a very good source of facts (with an establishment interpretation attached, but nonetheless useful). Better even is the printed paper, continental European edition.

Victor

Tekin said...

http://www.todayszaman.com/newsDetail_getNewsById.action?load=detay&newsId=237059&link=237059

Google’s famous blog hosting service, blogspot.com/blogger.com, has been banned [in Turkey] following complaints by digital satellite platform Digiturk in Turkey, dipnot.tv reported yesterday.

... a Diyarbakır court has issued an order to block blogspot.com after Digiturk filed a complaint against the website on the grounds that it violated the company’s broadcasting rights of Turkey’s top football division.

----

FOFOA, sorry, I am not interested in gold. Are the football matches broad casted in this blog, or should I go to another blog? :)

losbetos said...

Does any one read this and ask themselves if Another or FOA got anything right? When I first discovered this site, I thought I had truly found the truth, now it seems like an echo chamber.

Speaking as a person that has 30% of my net worth in physical gold, the silver guys were right and here a decade later, this often predicted metamorphosis in gold has yet(and likely will never) happen.

Edwardo said...

Depending on whether one chooses not to dismiss what appears to be a potentially powerful brand of nascent homegrown terrorism-or patriotism as some might prefer to characterize it-directed squarely at key central and commercial banks, this could prove to be something of key development with far reaching implications.

http://economicedge.blogspot.com/2011/03/hacker-group-anonymous-we-demand-that.html

Tekin said...

@losbestos

Another used to post in 1997-1999. Assume that the average cost of accumulated gold is 300 dollars. In 13 years, the compounded annual return is (1410/300)^(1/13)which is about 12.6%. Top class hedge fund performance! Every year a winner - no drawdowns. No management fee. No performance fee. Tax exempt. No counterparty risk. Bypassed the dot.com bust. Bypassed the 2008 bust.

Consider the following hedge fund performances before fees and taxes.

http://online.wsj.com/public/resources/documents/BA_HF100_090511.pdf

The table covers the period Feb 2006 - Feb 2009. During that period gold increased from 563 to 940. The 3 year annualized return is %18.6, placing gold in the top 40 league.

Nice performance!?

Please note that the final word will be spoken when gold *formally* enters into the international monetary system.

The advice A/FOA has worked magically good for me. I wish I had been exposed to this flavor of thinking when I was young.

-----

Note: It seems that the Turkish blocking of this site goes on and off arbitrarily.

pretenana said...

Dear fofoa,
You wrote in Indicium:
1 gram coins will be the norm; being the size of our one ounce now, but with alloys. I doubt gold will ever be used in regular store / retail sales. In other words, I could go into my bank and use 50 Eurolands containing, say one ounce fine gold each, and pay off my $200,000 mortgage;
My thoughts:
We know that 999,9 gold is already mixed with tungsten and 999,9 gold coins are falsified by the dozen.
I think it will be impossible for the man on the street to identify falsified coins, so there is a huge possibility that the ‘euroland coin’ will be falsified by the millions. Don’t you think ?

Greetz,
Michael from the Netherlands

Wejn said...
This comment has been removed by the author.
Robert Leroy Parker said...

Thanks for this post Fofoa,

It certainly addressed some questions of mine from the last topic.

Holtzman said:

"mining companies theoretically are at liberty to sell to the highest bidder, but governments have a way of convincing their subjects to accept less and be happy with it."

Costata mentioned that the miners will be paid a handsome profit in relation to cost and this will keep them happy. But the idea of leakage strikes me as being a major issue, especially if street gold is 55k/oz. If the miners receive 3k (what would cost be after hyperinflation?) as opposed to perhaps 50k on the street, I would think the leakage would be extreme, in fact overwhelming in the end. And that the placer contingent of miners would grow exponentially, especially with high unemployment, and a modern gold rush akin to 1849 would result.

I also wonder how foa comes to his conclusion when he says:

"Yes, an official gold market will be in effect, but "street gold" will carry a huge premium over the official "trading price". A premium that will not be profit for the dealers, rather a reflection of the true price of gold."

This is just conjecture is it not? How will something like the "trading price" for dealers/miners be enforced? Militaristic government tactics might work in some countries, but how can it be assured worldwide? (Will it need to be two tiered world wide?) It seems any number of untrustworthy people with "trading price" access could quickly find themselves amongst the giants if they were to mark at street gold price.

In my view, it will be a challenge for governments to enforce the strict regulations banning paper gold in the freegold system. Wall street greed doesn't have a limit from where I stand, and I would think wall street will have a nagging itch to trade paper gold again after it is gone. (Perhaps wall street will be extinct as I know it after hyperinflation?) Also enforcing a two tiered pricing system would be challenging as well, no?

How many people will try to arb the system by doing under the table deals or going out and mining themselves? How long will it take to break down? The idea of a "trading price" does not seem natural to me, especially next to the naturality exhibited by a reference point monetary system.

Perhaps I am not accounting for the severity of the dollar hyperinflation, and individual mining will not be practical even at 55k/oz. If the average gdp/capita is 47k or so now, what will it be after the hyperinflation has settled down? How does neutrality of money work in hyperinflation?

I have no problem envisioning the collapse of paper gold bullion. It seems essential if gold is to be a true reference point. However, the logistics of the future miner/dealer operations are still vague to me, and because of this, I have not abandoned investments in mining stocks. Not yet anyway.

Aaron said...

Hello Victor

This one is so surreal it may actually come true when the Euro hyperinflates right along with the US$. This will come as their desperate last call and will only confirm that gold is not for sale when worthless paper is offered.

The dollars which will fuel hyperinflation have already been printed and stuffed in global central banks. We don’t need to print even one more piece of paper for hyperinflation to occur. Hyperinflation for the dollar is baked into the USD cake – all that needs to happen is for central banks to send those dollars back home -- not so for the Euro.

Perhaps you are overlooking the design of the currency? As the price of gold escalates, the EU banking system is recapitalized. The Euro is designed to function in the face of a rising gold price, the USD is not. There’s a big structural difference there.

You do remember that the Bretton Woods Agreement was shattered in the space of a single speech, yes? Change can and sometimes does happen in an instant – when few people see it coming.

@pretenana

If I’m going to fake gold, I’m going to do it with 400 oz LGD bars – not one ounce coins.

--Aaron

pretenana said...

pretenana said:
We know that 999,9 gold is already mixed with tungsten and 999,9 gold coins are falsified by the dozen.

Wejn said:
Michael, who exactly is "we"? And how good are those fakes?


With "we" I ment the men on the street who is going to pay with alloy 1 gram Euroland Gold coins where fofoa was talking about.
Fofoa wrote:
And too, 1 gram coins will be the norm; being the size of our one ounce now, but with alloys. I doubt gold will ever be used in regular store / retail sales. In other words, I could go into my bank and use 50 Eurolands containing, say one ounce fine gold each, and pay off my $200,000 mortgage;


So here we have, in a freegold situation, a 1 gram alloy coin worth $ 4000. This coin is not meant for goldbugs but for circulation in the new monetary system. On a small scale 999,9 gold coins are falsified already but what do you think about future alloy coins worth $ 4000 each for starters ?

jc said...

The zen of gold

Gold exists in the physical world. It has physical properties, a stable elemental stock globally, it can only be in one place at one time.

The currency system is also physical, it sits as electrons in computers, symbolic ink on paper. The important part of our currency system is not its physical properties, its what we think about it. Someone can owe me $45, I can then buy 1 gram of gold from a third party. The gold will need to move in physical space to my possession. Also in this sort of transaction, a physical currency token is usually transferred, like some electrons from my debtors bank moving some electrons in the third party's bank. But the currency transaction can still occur if we wish by simply all our thoughts agreeing to transfer that debt.

When our currency system turns out to not be what we thought it was, when all our thoughts around the world no longer exactly and precisely agree on how our electrons will be moved by other people's electrons then gold will jut out into our physical space like a knife. The physics of gold that cannot be denied, suspended or overridden by the thoughts of another person.

Thoughts on breathing:

Most of the time breathing feels like something that happen to us, like growing your hair or digesting your food. Sometimes we actually think about breathing and it feels like something we do, for example when swimming, meditating or blowing up a balloon. Breathing is like a bridge between what feels like us and what we feel happens to us. It can provide a reference point during meditation to remind us we are not just our thoughts but we are also the organism that breathes, we are also the air we breathe, we are all that which is now.

Gold is just this sort of reference point. The physical gift of gold is that it shows us when our collective thoughts about currency no longer match our physical reality, it does it as loudly and rudely as required for the time. Its the rocks in our heads that get smashed by the rocks of the yellow metal.


From the Wall Street Journal showing the current thoughts/rocks of the western mindset.

Gold - Don't Buy: It's a Gift, Not an Investment
"Some may argue that central banks will boost demand for gold, as they use it to support the value of currencies. But given the explosion in world financial transactions, there probably isn't enough of the metal to do so efficiently."
http://online.wsj.com/article/SB10001424052748703584804576144493294520526.html

Paul said...

following from the side line;

Me thinks this piece is important. timingwise IMHO there is no equal to Martin Armstrong.

http://www.martinarmstrong.org/files/how%20and%20when%2003-01-2011.pdf

Jeff said...

Physical gold is not only levered to paper gold; it is levered to the entire paper system which is expanding at an increasing rate. Physical gold is gaining leverage constantly, or as FOFOA says 'all paper is still a short on gold'. But what is silver leveraged against?

Someone asked 'who will be able to afford gold at freegold levels'?

Another (THOUGHTS!) ID#60253: Sir,
I think, that gold will be viewed as money by the USA government. It's new, much higher price will offer a "way out" from many economic sins. In that day, persons will not try to "buy" gold, as it will already be used "as currency". To ask, "how can one afford $30,000 gold" would sound as today as "how can anyone afford $30,000 in savings account"? One does earn money, not afford it, yes?

DP said...

@pretenana: So here we have, in a freegold situation, a 1 gram alloy coin worth $ 4000.

Not wishing to appear picky, but I made the maths in the preceding paragraph of your comment come out at ~$128 or so.

victorthecleaner said...

Perhaps my previous post was a bit too harsh and too direct. Now you are ignoring me instead of discussing. Well, let me try again:

Freegold will come only if there is a major and widely used fiat currency still standing when the dollar collapses.

This will be neither the Yen, nor the Renminbi, nor the British pound. What gives you the confidence that the Euro will survive as a fiat currency and be able to play this role?

Victor

pretenana said...

Why confidence that the Euro will survive in my humble opinion:

The ECU (European Currency Unit) introduced in 1979 was build on a hidden freegold ideology .
The ECU was never legal tender and nor was it represented by official banknotes and coins.
As a basket of virtually all of the European Union's currencies, the ECU served as a unit of account whose value depended on the underlying value of its constituent currencies and local central bank goldholdings.

It did become a store of value in the sense that significant volumes of public and private debt were denominated in ECU and it was used as a means of payment between companies, in foreign trade and, on a very small scale, for individuals for cheque transactions and savings accounts. But it was never a fully-fledged currency.

The euro, its successor, is a true currency in its own right, issued by the European Central Bank.

sean said...

Thanks for the link to Martin Armstrong's recent piece. I find what he writes very intriguing, though when I finish I feel like it's my head that's been going through cycles.
By the way, the good news is he has just been released from prison.

victorthecleaner said...

pretenana,

> The euro, its successor, is a true currency in its own right, issued by the European Central Bank.

Does your conclusion change if the Euro hyperinflates right along with the dollar? What gives you the confidence that it won't?

This is a history question. Do you know of any currency which experienced a major loss of confidence, crash in the FOREX market, and local price inflation of more than 50% p.a. which was then stabilized rather than given up and replaced by some new currency?

The old Reichsmark in 1922/23 Germany was given up and replaced by a new currency that was initially backed by land (the German central bank had lost most of its gold reserve - partly because they had to pay reparations in gold and partly because they had tried to prop up the Mark in spite of ongoing printing of money).

The Icelandic Krona in 2008 does not count - it just had a FOREX crash, but not internally a complete loss of confidence. Its crash was caused by overseas investors dropping it like a hot potato.

You can work off the examples in the book by Reinhart and Rogoff (This Time is Different). I am still looking for a plausible precedent.

Victor

costata said...

Hi All,

Best essay on economics and the $IMFS I have ever read. [Apologies to Another, FOA and FOFOA ;)]

Author:
Former Congressman David A. Stockman was Reagan's OMB director, which he wrote about in his best-selling book, The Triumph of Politics. He was an original partner in the Blackstone Group, and reads LRC the first thing every morning.

http://www.lewrockwell.com/orig11/stockman5.1.1.html

Museice said...

Hey People...
If costata says read Why Deficits Do Matter by David Stockman

costata said...

Thanks Muse.

Aaron said...

Excellent read, Costata. Sounds like Credibility Inflation to me. Some of my choice excerpts:

"In less polite language, a growing portion of the Federal debt has ended up in what amounts to a global chain of monetary roach motels: places where treasury bonds go in but they never come out."

...

"The fly in the Friedmanite theoretical ointment, of course, is that by pegging their currencies, the East Asian exporters and Persian Gulf oilies have permanently forestalled balancing their external accounts by accepting cheaper and cheaper dollars as prescribed by Texas-style monetarism."

...

"In this context, a clue to the next phase of this saga may lie in the contra-factual. Had Nixon kept the gold window open, China would have accumulated bullion, not bonds. America would have experienced deflationary austerity, not inflationary bubbles. And fiscal deficits would have mattered. Thus, today’s terminally imbalanced world has evolved at complete variance with the outcome that could have been expected under a regime of sound money."

The essay as a whole is quite sobering. Quality of life for US citizens is headed off of a HUGE cliff. At least, it is for those loaded with debt that have no gold.

--Aaron

Museice said...

victor:
"Freegold will come only if there is a major and widely used fiat currency still standing when the dollar collapses."

So can paper gold vanish and the dollar not collapse? Because your sentence contains two absolutes and I disagree with both. Reversed it is 'the dollar has to collapse, and another strong currency has to remain standing, for Freegold to manifest'.

Freegold doesn't need the dollar to collapse to be occur. People will seek value.

Another strong currency doesn't have to remain standing because any currency will suffice the transactional needs of any nation or territory after Freegold.

Oh, and if the dollar collapses and their is no strong currency standing and there is no Freegold we have much larger problems to worry about. Garden ready and waiting for planing just in case:)

Aaron said...

Hello Museice-

Hopefully I won't step on any toes if I speak for the two of us.

Looking at my clock it's nearly 11PM and in one hour (I'll be in bed) it will be March 15 -- and you know what that means – time to VOTE!

To everyone that comes here each and every day -- if you value the teachings of our fearless leader and the insightful banter which follows each post, I would strongly encourage you to scroll up a bit and click that DONATE button. I don't know about you, but there's no way I want to see FOFOA flipping burgers in defense of the Precious depriving the world of such needed insight. Let’s face it; there (possibly) isn’t Another person on the face of the planet today that could explain Freegold to us with such openness and clarity that even the least economically educated could grasp. If you agree -- please consider a donation no matter how insignificant you might find it. Even if you can only afford $5, rest assured it is very much appreciated.

Of course donations of $500 or more by resident Giants are also appreciated.

--Aaron

costata said...

Hi victor,

I realise that your question was directed to 'pretenana' but I would like to jump in if you don't mind.

victor wrote:
Does your conclusion change if the Euro hyperinflates right along with the dollar?

Of course it must. But the architecture of the Euro makes this highly unlikely.

What gives you the confidence that it won't?

There are three features of the Euro architecture that make it unique (at present).

1. It has "severed it's link to the nation state" as Wim Duisenberg pointed out.

2. It has "severed it's link to gold" (Wim Duisenberg again). Presumably he meant this in terms of a fixed exchange standard.

3. ECB reserves are primarily in gold not foreign currencies.

As the Euro falls against gold the value of those gold reserves provide an offset. They strengthen the backing of the Euro.

One of the key drivers of a hyper-inflation is the need to continuously increase the currency wages of the people who keep the political "rulers" of the "nation state" in power.

Also there is no automatic transmission mechanism for a hyper-inflation in the USA (and the US$ itself) to the Euro or the ECB/EMU system countries.

This is a history question. Do you know of any currency which experienced a major loss of confidence, crash in the FOREX market, and local price inflation of more than 50% p.a. which was then stabilized rather than given up and replaced by some new currency?

Arguably Argentina ticks your boxes with a 70% HP and no new currency. I say arguably because I think it matters not what the printing "ink" on a currency displays or whether the ink displays something new after a HP. What matters is that a fiat currency can and has replaced the hyper-inflated currency and gained public acceptance after all HPs of the modern era including Zimbabwe.

Continued/

costata said...

/Continued

The old Reichsmark in 1922/23 Germany was given up and replaced by a new currency that was initially backed by land...

The new currency was notionally backed by land but it was a fiat currency as well in that it was not redeemable. It did however halt the HP and restore confidence very quickly.

...(the German central bank had lost most of its gold reserve - partly because they had to pay reparations in gold and partly because they had tried to prop up the Mark in spite of ongoing printing of money).

You could argue that there were other factors but these two definitely make the list IMHO.

The Icelandic Krona in 2008 does not count - it just had a FOREX crash, but not internally a complete loss of confidence. Its crash was caused by overseas investors dropping it like a hot potato.

Have to disagree here. Prices climbed to HP levels in Iceland, when priced in Krona. Try no land borders, social cohesion and expatriate remittances as possible explanations for there being no total rejection of the Krona within Iceland. They had no choice in their legal tender and they did not run the printing press flat out because they could not spend the currency usefully.

Krona outside Iceland could not fly home for several reasons. It was the UK and Dutch governments who "printed" currency to compensate the depositors outside Iceland.

matt said...

@ losbetos

Yous sound just like a typical gold bug like Eric Sprott or Peter Schiff.

The world has never in history gone through a debt backed fiat reserve currency crisis. 1971 was a gold backed fiat reserve crisis.

So you really think that in the middle of this first ever debt reserve currency crisis, that gold will just turn into a bubbly market similar to Nasdaq stocks in the late 90s ? And serve no real purpose thereafter ?

I couldn't believe what Sprott said the other day, "gold was the metal of the last decade, silver might be the metal of the next decade"

Really ? These guys have no answers. They predict that all fiat, including the Euro is doomed, yet they also seem to think that all through this, the gold market will be no different then all the latest bubbles over the last 10 short years.

They are all traders that don't even believe their own bullshit. Some of the things they say like "even though gold is gold, buy silver because it might run up faster"

Umm ok...

matt said...

Don't get me wrong though, if it was not for Max Kieser and Peter Schiff, I would not have found this site and I would probably not own any gold. These guys are awesome but they never get to the bottom of it.

Another thing Peter Schiff said recently...

"the price of used cars in terms of gold will go way down"

Ah yes Peter but....... Is that all this reserve currency crisis is going to amount to ? The price of used cars falling in terms of gold ?

Doug Casey said on TV recently....
"Gold is not even that cheap anymore, buying now is not like buying at $250. Nothing is cheap"

Marc Faber would disagree, he said "gold could be cheaper now at $1430 then it was at $250, in comparison to the monetary aggregates of the times"

I agree,Marc Faber seems to be slightly ahead of the rest of them.

Blondie said...

jc said:

"The... gift of gold is that it shows us when our collective thoughts about currency no longer match our physical reality, it does it as loudly and rudely as required for the time."

It is as the alarm clock, waking us from a dream that became a nightmare.

Casper said...

Victor,

I've read some of mr. Schacht's (the Reichsbank president at the time of hyperinflation) personal notes which are accessible in internet. He mentions that there were multiple steps required to quel the speculation and the downfall of the mark. And those steps took place over several months. It wasn't like that he decleared a new currency backed by land and that was it. No, no, no... he had to fight the speculators with various monetary, legal and illegal (later declared legal) means to make a new Mark stable ag. dollar (at that time as good as gold).

what he did was creating a huge demand for the new currency (which required no backing by land whatsoever) by the same speculators that were selling old Marks ag. Dollar. He did that by declaring capital controls and demanded that speculators cover their short old Mark positions with new currency. To get them the speculators sold the only thing they got and that were long dollar positions. In essence dollars/gold were bidding for the new currency and by issuing it the Reichsbank filled their vaults with dollars/gold which backed the new currency, not land. The importnat thing here is that the Reichsbank didn't buy gold from their citizens, since tha was fueling hyperinflation as citizens had no place to hide (in monetary sense/perserving their wealth).

For a long time I didn't understand the exact mechanism of how a current monetary system would morph into a Freegold system. I mean the exact monetary steps the ECB and other central banks would make. I would ask FOFOA or anyone else here to share their thoughts on this matter.

As I understand the ECB is going to print and print like there's no tommorow and at the same time standing by as dollar denominated assests go up in flames. Then they will be able to sell! gold for euros they just created thereby reducing the amount of euros in circulation.
This is one thing the FED just can't do since all they have in their reserves is gold at an extremely low price that supports the current system. They don't have enough of it to cover the dollar liabilities, if they did they wouldn't have closed the gold window 40 years ago.


Casper

radix46 said...

Casper,

The Fed's gold is at a low price because they say it is.

Gold is gold. It can be worth exactly the same as the ECB marked-to-market gold by the end of the utterance of one sentence no?

How are the positions of the Fed and the ECB any different here?

Casper said...

Hi Radix,

that is correct, gold is gold the difference is the amount of dollars relativ to amount of euros that can bid for that gold. The US has already shown us that they can't live up to their obligations (selling Gold for dollars)I guess we'll have to see if the ECB can and I think they do since euro is still a currency in it's infancy.

Casper

Paul said...

and also

EURO has no historical claims on the gold, USA defaulted twice on gold, they still have to pay back those "gold"-debts to regain physical honour ...

mortymer said...

Meanhile Jean-Claude Trichet gives his thanks to Roths:
http://www.ecb.int/press/key/date/2011/html/sp110311_1.en.html

...we can in peace listen more interesting speech:

"At the University of Delaware's Global Agenda program on March 9, 2011, Robert B. Zoellick, President of the World Bank, discussed how people in the world's poorest countries relate to the United States through its leadership of the World Bank and other financial institutions, and answered questions about the U.S. role in politics, diplomacy and global finance."

http://www.ums.udel.edu/podcast/watch?c=434

Museice said...

The gold bubble has popped!
Sell, sell, sell! (if it's paper)

On this day, the 15th of the month, we do pay homage to an incredible service. Thanks for the reminder Aaron. I thought I would point Newbies to a previous FOFOA post so they might, next month, feel inclined to sacrifice the cost of one single meal in their donation to FOFOA (those $500 meals are a possible future and a McDonald's lunch donated saves that specific burger, which if you think about it is a direct link to a cow named Dexter in Brazil who FOFOA will not have to grill!)

Once a month. We can do that.
If not for FOFOA, do it for Dexter.

and for newbies, because I remember clarion moments, take the time to read these and then consider your choices.
All Paper is STILL a short position on gold
The 21st Century Bank Run
Gold: The Ultimate Wealth Consolidator

Michael H said...

Victor,

The entire point of freegold is that there will be no world reserve currency to replace the dollar. After the dollar collapse, whatever currency is in use in the USA will probably not be accepted outside its borders, but that will be OK because that's what gold is for.

The same could very well be true for the Euro. The only thing that matters is that it be accepted within its borders.

What will REALLY make a difference is what the oil states choose to accept as payment. The Euro architects are hoping that, by the Euro's connection to gold, the Euro will be the new petro-currency. I believe this is where A / FOA see the Euro gaining strength in the future.

But, even if the Euro fails in this goal, gold will be there to clear international trade balances.

Michael H said...

It boils down to this: after the dollar, there will be no new world reserve currency. The Euro is aiming to become the new world USE/transactional currency.

DP said...

@Michael H:

Perhaps we should discuss CB mandates, and the relative levels of concern WRT national politics when setting the course of monetary policy.

Edwardo said...

I'm not sure that his forecast dovetails much with that of the evolution of Freegold as presented by FOFOA, but Martin Armstrong seems of the opinion that should gold continue in its basing pattern from now until mid-June-as opposed to making a spike high in that time frame- the stage will be set for gold to move 4 to 8 times higher by the middle of this decade.

victorthecleaner said...

Thanks costata, Michael, Aaron and others.

I think I understand what you are saying. If we believe everyone has the gold they claim, then:

1) US have 8000 tonnes
2) Euro area have 11000 tonnes
3) US have custody of 6000 tonnes of these

Or per capita:
1) US: 0.85 oz/head
2) Euro: 1.2 oz/head

Or per GDP:
1) US: 1 oz/ $54000
2) Euro: 1 oz/ EUR 24000

If you calculate it per money supply etc., you get similar results. The Euro area has 50%-100% more gold, depending on how exactly you calculate.

Why is it not the best strategy for the US to abandon the US$ at some suitable moment and ignore all the externally held debt? Like this:

1) US continue QE1,2,3,... and devalue. Deliberately so
2) This puts pressure on all those who want to export to the US to do the same
3) Everyone else is on their own. No cooperation. Imbalances are not resolved. Race to the bottom
4) Dollar tanks first and pulls all the others down with it
5) US wait for a good moment
6) He who pulls the trigger first, wins
7) European politics is not good for a quick and decisive move
8) US indeed pulls trigger first
9) US take their own gold plus all of which they are custodian of and introduce an old fashioned, gold backed, new dollar. Classic currency reform. Europeans get paper receipt for their 6000 tonnes
10) Government does that. Old Fed is abandoned together with old dollar. Treasury or New Fed presides over new dollar
11) US now have a better gold/capita and gold/GDP ratio than the Euro area (thanks to the additional 6000 tonnes)
12) Europeans survive with some damage, but are still standing
13) All the others (Japan, UK, China) find themselves with destroyed currencies and an insufficient amount of gold
14) Free gold never comes
15) The new dollar is gold backed. Why use anything else? Everyone is still used to trading in dollars because until half a year ago, they all wanted to export their stuff into the US
16) If you say velocity is 3.5 and all money supply is backed by gold, you get a POG of about $15000/oz with today's GDP and in today's US$, without taking the 6000 tonnes from the Europeans. If partial backing is enough (2/3 gold, 1/3 commercial paper), then it will be less. If they take the European gold, it will be even less.
17) Inflation or plain default on the external obligations has cleared out all the debt. After a new start without the debt, the US booms like Germany after the war
18) In fact, AG had never changed his mind about gold - everything in between was political tactics. They simply needed to find a way of getting rid of all that debt and stopping all the deficit spending in DC and still come out first.

Victor

Wendy said...

Certainly, I cannot be the only one here wondering if Japan: the worlds third largest economy, that has bascially ground to a halt after an earthquake, tsunami, and the ever increasing likelyhood of a nuclear catastrophe, might be the black swan event that pulls everything over the cliff?

Markets are tanking all over the world ..... Japan will need currency to rebuild ....

Does anyone have any Thoughts on the impact of the events of the last 5 days??

FOFOA said...

Victor writes:

"This one is so surreal it may actually come true when the Euro hyperinflates right along with the US$. This will come as their desperate last call and will only confirm that gold is not for sale when worthless paper is offered.

…Does your conclusion change if the Euro hyperinflates right along with the dollar? What gives you the confidence that it won't?"


And Casper writes:

"For a long time I didn't understand the exact mechanism of how a current monetary system would morph into a Freegold system. I mean the exact monetary steps the ECB and other central banks would make. I would ask FOFOA or anyone else here to share their thoughts on this matter."

Well, Casper, I can certainly share my thoughts even if I can't be as "exact" as you would like. I have no crystal ball that tells me exactly how things will unfold. But I can give you an idea of the general direction.

Fear is the main emotional motivator in any currency collapse, just like it is in financial market meltdowns. And as we saw even just last night, the herd can stop on a dime and reverse course 180 degrees overnight, from greed to fear, based on a single news item.

The initiating spark of hyperinflation (currency collapse) is the loss of confidence in a currency. This drives the fear of loss of purchasing power which drives people to quickly exchange currency for any economic good they can get their hands on. This drives the prices of economic goods up and empties store shelves, which causes more panic and fear in a vicious feedback loop.

The printing of wheelbarrows full of cash is the government's response to price hyperinflation (currency collapse), not its cause. This uncontrollable government response happens in some cases, but not all. Let me repeat: The massive printing that first comes to mind when anyone mentions hyperinflation is not the cause, it is an effect, in the common understanding of hyperinflation which is the collapse of a currency.

Stated another way for the specific case of the US dollar; credibility inflation (financial product hyperinflation) leads to consumer price hyperinflation (collapse of confidence) which leads to monetary base hyperinflation (govt. response). This is a concept I spelled out in my three most recent hyperinflation posts:

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

Before you dismiss my writing on hyperinflation, please take note: After reading these three posts, the last of which led him to All Paper is STILL a short position on gold (also about hyperinflation) last October, Krassimir Petrov, PhD, Economist, Professor and lecturer wrote, "FOFOA is probably one of the very best analysts in the whole world. The more I read from him, the more I am convinced of his vast superiority over most experts and analysts." (http://www.petrovfinancial.com/?p=1014)

Cont...

FOFOA said...

p.2

Silver analyst David Morgan wrote in his subscriber newsletter, "I suggest you print this out, and also forward it to those you wish to inform. As most of you know I take my time almost every day to post articles like this for public consumption at www.silver-investor.com but in this case I thought it was too important to you and your families to understand the argument fully and therefore am sending another's work to you." (http://boards.fool.com/just-another-hyperinflation-post-part-1-28806890.aspx)

And from FerFal's blog which specializes in practical hyperinflation information, called Surviving in Argentina, "The hands-down best explanation I have seen for how hyperinflation must and does occur is in these three posts." (http://ferfal.blogspot.com/2011/01/hyperinflation.html)

Lastly, these three posts are on Harvey Organ's "Required Reading" page linked at the top of his blog. (http://harveyorgan.blogspot.com/p/required-reading.html)

If you have not read these posts (and "All Paper is STILL a Short Position") then you do not know my take on hyperinflation, which I also debated briefly with Mish in the comments below the posts.

So let me recap the two stages again:

1) The initiating spark of hyperinflation is the loss of confidence in a currency. This drives the fear of loss of purchasing power which drives people to quickly exchange currency for any economic good they can get their hands on. This drives the prices of economic goods up and empties store shelves, which causes more panic and fear in a vicious feedback loop.

2) The printing of wheelbarrows full of physical cash is the government's response to hyperinflation, not its cause. This is like pouring fuel on the burning fire of #1.

In stage #1 people frantically exchange their failing currency for economic goods because there is no alternative (harder) currency with sufficient availability to run to. When a harder currency is finally made available (historically the dollar) hyperinflation is immediately arrested as people prefer to lock their purchasing power into a stable currency rather than perishable (and bulky) economic goods.

So what about the euro? It is my understanding (and please correct me if I'm wrong) that throughout most of Europe you can walk into a bank and exchange your euro for physical gold at a floating market price. How do you think this will affect the ability of euro-hyperinflation to even get out of the starting gate?

As confidence is lost in the dollar and the contagion spreads to the euro, do you think people will rush into the stores first, driving up the prices of economic goods (CPI)? Or will they rush into the banks and buy up the gold on offer? Answer: The availability of physical gold in face-to-face cash transactions through official channels like commercial banks will arrest this contagion in its tracks.

As this proceeds, the price of gold (rather than the price of consumer goods) will skyrocket in euro, stretching the supply of gold measured in weight. In other words, you'll get less and less gold the further back you are in the line at the bank. So the bank won't run out like it does in a bank run during a fixed gold standard. The banks will simply be selling gold at the official market price which will be rising rapidly.

Cont...

FOFOA said...

p.3

"But wait," you say. "Because the dollar is simultaneously collapsing, there will be chaos at the COMEX and no known price for physical gold." Correct you are. And that's where the (BIS) Freegold price will enter the picture, stretching the gold at the teller windows as far as the eye can see.

At this point the dollar will be entering stage #2 because the Fed is captive to the Treasury and Congress (see my posts above). But the euro will be taking a different path. Not only has full-on, balls-to-the-wall hyperinflation not taken hold, but the ECB is not captive to the European Nation-State because no such thing exists. The euro has severed its link to both gold and the nation-state, as Duisenberg said:

"It is the first currency that has not only severed its link to gold, but also its link to the nation-state." -2002

Victor writes:

"This is a history question. Do you know of any currency which experienced a major loss of confidence, crash in the FOREX market, and local price inflation of more than 50% p.a. which was then stabilized rather than given up and replaced by some new currency?"

Victor, I think FOA takes a slightly different view than you do:

FOA (4/19/01; 17:50:29MT - usagold.com msg#65)
Reply


"We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nation's identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Usually, they function alongside whatever major reserve currency is in vogue. Today, the dollar, tomorrow the Euro. Make no mistake, the entire internal US sector can and will function as its currency runs a price inflation just like these third world countries. We will adapt as they have, by dropping our living standard accordingly and adopting the Euro as our second money."


And on the subject of US dollar hyperinflation, Auspec asks FOA:

"If the dollar's status is now so similar to what it was in 1971, why would we see the Brazil type hyperinflation now as opposed to the simple ongoing degredation of fiat that we have all come to know and hate? Why the extreme portrayal of the dollar? It's clear the dollar is an old toad and there are young stallions waiting in the wings, but it's hard to see this as an all-or-none issue where the dollar {banana} goes from being the world's reserve currency to being "nada"."

To which FOA replies:

"Brazillian or Weimar style hyperinflation of the USD, the Big Banana, or the 'little banana'?

------- Full on, wide open, in your seat, flat out! It's in the pipeline!------"


(From Gold Trail Three)

Cont...

FOFOA said...

p.4

Victor writes:

"If you calculate it per money supply etc., you get similar results. The Euro area has 50%-100% more gold, depending on how exactly you calculate."

You can calculate the future price of gold on money supply, or anything you want. But it is wrong to relate gold's function today to the current (or even future) money supply. Gold is the wealth consolidator. I think I even wrote a post under that name. That's what you should think in terms of, rather than money supply. Here are a couple others:

How Can We Possibly Calculate the Future Value of Gold?
Relativity: What is Physical Gold REALLY Worth?

As for your 18 point scenario, Victor, I have to chuckle a little bit. You are not the first one to post such a detailed scenario almost exactly like that on this blog, and I'm sure you will not be the last. If your scenario gave me even a moment of pause after all the thought and writing I've applied to this subject, I would most definitely take the time to dissect it.

I would recommend that you and all who even faintly expect a new gold standard take heed of these words that are more true today than when they were written in 1977, by F.A. Hayek:

"I am afraid I am convinced that the hope of ever again placing on government this discipline is gone.

…My conviction is that the hope of returning to the kind of gold standard system which has worked fairly well over a long period is absolutely vain.

…it is the demand of gold for monetary purposes which determines that value of gold…

… I have said that it is an erroneous belief that the value of gold or any metallic basis determines directly the value of the money."
[Source]

One last thing, Victor. If you have not yet read Confiscation Anatomy - A Different View, you may find it somewhat relevant to your scenario.

Sincerely,
FOFOA

Aaron said...

Hi Wendy-

I for one didn’t really consider the idea -- I’m more or less just waiting for it – but you bring up a great question. The whole system is nothing more than a confidence game waiting to collapse, right? Could the recent catastrophe in Japan be the tipping point?

Although you are not trying to imply Japan’s government might push the issue, for whatever reason that’s the first thing that came to my mind. I guess I was thinking, “cui bono?”

I thought to myself, Japan has 900 billion in US bonds and 800 tonnes of gold. At, let’s say, $55,000/oz, that’s USD 1.4 Trillion in gold. That would certainly cover the debt that is never going to be repaid and perhaps provide a means to run a deficit as they rebuild – trade treasure for goods and services. What if Japan stopped buying our debt securities and started selling big time to raise money and (inadvertently?) broke the system? I guess the political will for the Fed to pick up the slack in sales might be there to avert an instant depression and taking such action would certainly speed Freegold along – but then I remind myself Japan is going to need a lot of international help and burning the system right now might have a lasting effect on their future prosperity. Basically all I did with that mental exercise is convince myself that if things break, Japan’s government most likely won’t be the folks that provoke it.

But then I thought, is anyone really ready to break the system right now – amidst so much turmoil in Japan and the ME? Certainly if the ultra wealthy demanded immediate allocation of gold and those long on the metal demanded (and were legally entitled too) immediately delivery – game over – but that’s a lot of fast destruction. Who wants to be the jerk that wrecked the party?

Of course the party will end someday and something’s got to give, but boy the world is really a mess right now.

What does everyone else think?

--Aaron

Joel said...

@ Victor,
1) why do you think it would be so easy for the US to get away with unilaterally issuing paper receipts for someone else's gold, and further, why do you think they could use this gold as backing for their new dollar, without serious repercussions?
2) after the new dollar and upwardly revised gold price, are you saying the gold price would be fixed to the dollar ala the old standard vs. floating, ala Freegold?Lots of problems going back to a fixed gold standard (see old Fofoa posts). Further, that they will have a fit of altruism and properly manage the new currency? Seems like a waaaaay longer putt than Freegold to me.

Wendy said...

Aaron,

I would not think that Japan would purposely push this, but I think they are developing a need to repatriate funds to deal with the cost of the serial disasters.

I think their debt to GDP is something like 200%, thus leaving them very little wiggle room!

Thanks for responding, hopefully we can generate some more dialogue. I think the outcome might be enormous here.

I'd also like to say my heart goes out to the Japanese people and the horrific events they've had to deal with and continue to deal with.

Can you imagine surviving, to be displaced to a shelter with no heat, electricity, or water in the winter.... very sad!!

Casper said...

FOFOA,

since you have picked up a ball I've dropped, I thank you for the lengthy reply even though I think it was primarily directed to Victor.

I fully agree with you regarding the causes and symptoms of a hyperinflationary event and having been "lucky" to pass one myself I can confirm that whenever there as an alternative store of value available and the government doesn't compete (by issuing currency and buying) with their citizens by transferring wealth into it the hyperinflationary rise in prices (of daily necessities) just doesn't occur since excess liquidity goes to that store of value.

So, you then agree that the ECB will continue to help EMU member states support their debt by issuing euros and at the same time offer gold (or BIS) as a alternative store of value.

Side note: I can confirm that here EU you can walk into a bank and buy gold at a teller. Don't know if that is possible in all member states but I know about 3 of them.

Casper

Robert Leroy Parker said...

I need a chip in my brain to process all the information on this website.

Robert Leroy Parker said...

Perusing through the hyperinflation posts again I came across this FOFOA; you said:

"When a government tries to control an object (think: controlled substance) it sends it into a black market. It loses the control it was seeking. And when that object is the very engine of that government's power (think: physical dollars), it loses that control as well. At that point it must go to the black market to find what it needs. And it will have to pay that black market in the terms of its (the black market's) choosing. You can arrest a man, but you can't arrest a market."

Will this logic not apply to the supply of gold and the government control over the gold miners and dealers? Will it be inevitable that gold mining shuts down?

mortymer said...

HOW JEAN-CLAUDE CHANGED THE ECB REUTERS/THIERRY ROGE
As Jean-Claude Trichet starts his final year as president of the ECB, the institution has been transformed beyond recognition. What is his legacy?

http://graphics.thomsonreuters.com/F/11/Trichet.pdf

"In September 2006, at a meeting of European Union finance ministers in Helsinki, two officials called Jean-Claude were vying for the title of “Mr Euro”. Jean-Claude Juncker, a politician, had been pressing for private talks about the economy with the European Central Bank. Jean-Claude Trichet, the president of the bank which issues the European currency, had spurned that approach, not even bothering to answer a letter on the issue from Juncker. Juncker, Trichet told a news conference, was the finance minister for the euro zone and represented its politicians. But “If you check the banknote, you will see it is signed ... by myself.”

...But the leaders of Europe’s embattled countries will also have a say in the appointment of Trichet’s successor. Weber’s comments for some time went unrebuked by Trichet, but in October, following Weber’s comments in New York, he finally responded, telling Italian newspaper La Stampa that the ECB’s governing council did not agree with him. “We are a very divergent group of nations and you cannot just have one guy saying ‘that’s the way I want it to be, period,’” says Paul de Grauwe, economics professor at Belgium’s Catholic University of Leuven and himself and himself once a candidate for an ECB board position. “I think if he ever becomes president, he’d better learn this quickly or he’ll be in trouble.”..."

Xavi said...

FOFOA wrote:

"It is my understanding (and please correct me if I'm wrong) that throughout most of Europe you can walk into a bank and exchange your euro for physical gold at a floating market price."

Casper then wrote:

"Side note: I can confirm that here EU you can walk into a bank and buy gold at a teller. Don't know if that is possible in all member states but I know about 3 of them."


I am from Spain and I have never heard about such possibility. I have never read of anyone going to a bank and succesfully changing € for gold (what do they give you? 1 oz Austrian Philharmonic?).
That is the reason why we buy at online precious metal shops and pay shipping. I suspect if we could get gold at our local branch most people would be in the queue to get rid of fiat already!

Casper said...

Hi Xavi,

actually you can buy Phillharmonics as many as you want. Also different weights and from different Mints (Swiss, Belgian, Austrian, Australian,...). I can agree with you that the offer isn't as large as with gold dealers but... who cares, an ounce of gold is an ounce of gold.

You can also sell them to banks .. at COMEX prices!

Casper

mortymer said...

Global Challenges in the 21st Century

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

Ernesto Zedillo, Director, Yale Center for the Study of Globalization
Robert B. Zoellick, President of the World Bank

thedeadfauvi said...

>The institution has been transformed beyond recognition: the central bank the Frenchman will handover is a far more complex body, exposed to a much wider array of risks. “Trichet had the bad luck to preside over the politicisation of the ECB,” says Deutsche Bank economist Thomas Mayer. “There were a few principles thrown overboard which will be associated for better or for worse with the Trichet era.”

Some analysts argue that Trichet’s ECB has always paid more attention to the more political concern of economic growth than it has publicly let on. As evidence of this, they cite the fact that inflation consistently
overshot the ECB’s ceiling until 2009. “The reason why they miss their target is not because they are incompetent, but because they do pay attention to growth,” said….

In principle the ECB’s management of its balance sheet is very much like the Fed’s,” says Tullett Prebon G7 economist Lena Komileva. “When there’s no way to inflate credit through policy rates, the central bank
has only one tool: its balance sheet.”

The crisis may have been the catalyst for the ECB’s most dramatic change, but there is also evidence that even before Lehman Brothers, Trichet had begun subtly shifting the ECB away from a purist approach to
monetary policy. “It’s changed from being a central bank interested in the pursuit of price stability to one that’s really facing a much larger remit as a crisis manager, in particular in banking affairs,” says Societe Generale economist Klaus Baader. “It’s developed its own character and is clearly distinct from the
Bundsbank.

“In the early days you had this Bundesbank tradition where basically people were looking at money supply and linking that to inflation. Now they are more willing to buy into the idea that it’s not so much money and inflation, it’s it’s credit and either inflation or deflation.”

The ECB is poised to take a step further away from the old Bundesbank model: next year it will extend its responsibilities to include the health of financial systems in Europe, a move similar to reforms in the United States aimed at giving the Fed more regulatory muscle.

Draghi is a former investment banker who, as head of the Financial Stability Board, is keenly aware of the vulnerabilities of global financial institutions…. <

Thanks for the article, Mortymer. The whole truth from the horse’s mouth. Actually it shows how different the ECB is to that A/FOA saw years ago. A fully to FED affiliated bank, period. I think Victor is closer to the truth
Than some want to believe. However I strongly hope I am WRONG with my pessimism.

Motley Fool said...

Hi FOFOA

I have finished reading your whole blog. It took me a lot longer than expected.

There are some great nuggets of Thought hidden in the comments over the years.

I am loath to invest the time to also read the whole A/FOA trail, since I suspect(and hope) you have extracted and refined the best of it into a more palatable form here on your blog.

As you should know, time is the most precious thing in the world.

13 years is a long time, but on the one hand I am grateful for the delay, since 13 years ago I was still way to young to think or act on these things.

Personally I am somewhat torn, on the one hand I would like Freegold to happen tomorrow, on the other I would appreciate a few more years to stock up.

What will be will be and at least I am not wholly unprepared.

My position remains unchanged. From a practical evolutionary perspective Freegold is the next logical unavoidable step. It is immeasurably better than our current system.

Reading through your blog has pointed to a flaw as regards a purely gold and Real Bills system, the matter of political will wasn't taken into account. Freegold eliminates that flaw. Even so, I still see Real Bills evolving after Freegold. The concepts are compatible, Real Bills also arise spontaneously and would actually increase the efficiency of the economy under Freegold. Granted it would not be exactly as Fekete describes it, since gold would not be paid in specie for consumption.

Thanks for writing this blog.

Regards

The Fool

Michael H said...

FOFOA, regarding Euro hyperinflation stopped by availability of gold: In order for the situation to happen so neatly, the people's psychology will have to be primed in advance. In other words, if Europeans like Xavi are not aware that they can buy gold at the bank, then they will respond to currency collapse in the usual way by emptying the shelves.

What about the US? We have coin shops and dealers here. Why would a similar 'run to gold' not happen here, to arrest a hyperinflation?

If I had to guess, the reasons that wouldn't happen in the US have to do with a) world-wide overhang of dollar assets, including derivatives, may make even a 'gold run' inneffective at stemming the bleeding b) Americans have never lived through a currency collapse and so they are not psychologically prepared to turn to an alternate store of value c) since the US elite power comes from the dollar's function as a store of value, they have incentive to discourage alternate stores of value, even in the face of currency collapse.

DP, we can talk about all those things, but first: do you think the freegold hypothesis is still valid even if the Euro disintegrates? Since I don't live in Europe I can be agnostic on the fate of the Euro, but I am definitely interested in the fate of the Dollar, and thus I have physical gold.

I agree with the comments here that the Euro, in practice, has essentially become a reflection of the fed. So the theory of mandates etc. is somewhat moot -- what part of the ECB's mandate involves buying Portugese debt, or allowing Ireland to monetize its own debt? But, I think these actions are part of "dancing while the music plays", a part of exisiting in a world dominated by the USD financial system. The real question is not what the ECB is doing now, but how it will act when the $IMFS undergoes some severe changes.

thedeadfauvi, do you think freegold is possible without the Euro?

Motley Fool -- congratulations! I must confess that I have not read all of FOFOA's blog yet, but I have read Another and FOA, and found them highly enlightening.

Museice said...

Xavi: Could you ask a bank if you can buy gold? I'm curious from a social topography of common knowledge versus EU banks have gold for sale view. If it has been there the entire time for all without the distribution of the availability I would find that interesting.

RLP: I don't know how FOFOA does it. I can't keep it all in my head but when it distills down I am always left with 'FOFOA's Inverse Pyramid' and the fact that 'Giant's have chosen gold'. Based on everything, the fractured levels of Derivatives, Zombie Banks, Municipal Bonds, and whatever other financial garbage you want to throw in most of the world is lurching back and forth (kind of like a truck tire spinning just barely holding it's ground). FOFOA's writings clearly show the position you want to be in when traction is finally lost.

Wendy & Aaron: There's a worldwide tension and with our technological interconnectivity a global loss of confidence is more likely today than it was yesterday. The word percolate comes to mind (tectonically as well). Here's an idea. Loss of confidence in the Bullion Banks as a Black Swan?

Casper said...

Hi "The Fool",

nice to hear from you again. I thought you were disconected for good.

Thedeadfauvi,

I agree with you also that the ECB is very much different from what it was 10y ago, but you still cannot link it's behaviour to Bundesbank since BUBA operated in the dollar system and the ECB operates in a new (Freegold?) system. I don't want to sound religious but Another/FOA were very much explicit in assertion that euro-politics was/is just a sideshow for the masses. I also think that politicans don't even know what is going on and the true players (Giants) are found somewhere else.

That said I never trust anyone 100% so I'm a bit worried about Draghi being a potential president of the ECB since he worked for Goldman Sachs.

Contrary to you I'm an optimist and believe that past and recent evidence is mounting and pointing to RPG direction, with some key US names supporting it. So maybe what we were seeing this past few years was just a negotiation between all parties involved how to make the process as painless as possible.

Casper

Museice said...

Motley Fool: Congratulations! And now your head can explode from a web of time, oil, gold, dollars, and deceit while simultaneously achieving a zen relaxing peace because you finally understand when a finance becomes a value you can put it to 'rest'.

mortymer said...

@ thedeadfauvi: lets us not take things out of the context. Monetary policy, freegold respectively, is not like a cut-to-bone gold standard and should not be taken as such. There is Freegold AND Managed currencies. We live in interconnected world and seeing policy changes which go along to "that" direction are to be taken positively. It is not "a poker game" winner-takes-it-all as Zeellick says. We know very little about why the launch has not happened, too high risk of failure or time constrains perhaps? Scary took into abbys? Possible dislocations and creation of blocks, etc? Is there more cumulative gain when transition is slower? Who knows, it looks to me more like a careful maneuvering, waiting for big players to position. Some people who decide about this have more data than we; Why should we judge with our narrow perspectives? Lets have a broader point then lets see how China and USA change in time. Anyway if ECB is responsible with their monetary policies to citizens is it "responsible" to launch freegold with their capability when others are not prepared yet? What world would it be with broken societies all around? Did we lose traction? No, I do not think so, we move still forward I think. What could theoretically happen will most likely happen at some point anyway {was it Newton or Einstein?}.

Please listen carefully this one: Global Challenges in the 21st Century
*** http://www.youtube.com/watch?v=eOwgfjnOViA ***
It has few highlights but do I hear about alternative store of value at 45:30 and how that affects policies? Smile.

@MichaelH: imagine IMF as a "referee without the penalty". They bleed the gold over years and so they loose power.

@ Motley Fool
"Personally I am somewhat torn, on the one hand I would like Freegold to happen tomorrow, on the other I would appreciate a few more years to stock up. What will be will be and at least I am not wholly unprepared. My position remains unchanged. From a practical evolutionary perspective Freegold is the next logical unavoidable step. It is immeasurably better than our current system."

Congrats for the investment in reading. I can not imagine doing it now...
Nice summary here about the inevitability evolution. I share the same view.
Does your "being torn up" comes by any chance from the uncertainty about the volume of the impact? I solved this by two things, once my computer crashed I lost the file where I tracked my purchases -> I do not care anymore for long time about gains on "insurance". The freegold is a a transition into a different reserve system; not to be used now when it reaches certain level nor in future. I live now, save a little on the go for rainy-day. Spend currency save gold. If I can save now I will most likely be able to save also in future. That is all there is in it. Good sleep indeed. :o)

Motley Fool said...

Hey all

@museice - Not much has changed for me. I knew gold would be fundamental, I just have certainty now about the inevitable system

@mortymer - My problem is I am young, so dont have much savings to speak of, nor serious income to augment it. I need time.

TF

mortymer said...

@Motley fool: What is better to be young and have a confidence about a direction or to pity years of wrong decisions? Think how feel others who invested in real estate, locked themselves into bad deals, etc :o) You do not have problem that you are young. You have it all. If you have enough passion to read all this "boring" monetary stuff then you will find one day what is your other strength to bring you income, savings are to be created in time :o)

thedeadfauvi said...

Michael H

If Freegold is a fractal development/evolution of the „punctuated equilibrium“ yes, it should be consistent w/o the euro, whatever chaos you might have in between.

Caspar

“euro-politics was/is just a sideshow for the masses” agree, question is which part of the show will now be brought in. I’ve followed Weber’s dismantling closely here. Was he only a “purist” or a player who’s intentions didn’t work with the Fed? This Reuters article (written before his resignation) shows that his retreat has been somehow forced on him and “they” knew very well that Draghi would replace him.
“ process as painless as possible” – I would say at the smallest risk as possible - for them!
And it is true, in Spain you can sell your Au everywhere but buying is difficult, even online they have no dealers (same with Italy).

thedeadfauvi said...

too high risk of failure à first we had to have a bad crisis as to have a “reason”
Creation of blocks à that we might already have
more time to accumulate (for giants and shrimps) à will be always asked for – until when?
Why should we judge with our narrow perspectives? àThat’s what we are doing all day as we only have a life and we wish to live in security and UNDERSTAND where we are being taken to.

It’s also my point that cbankster work together not against each other. And not for the global populus.

Mortymer, did you read Trichet’s bio? His conflict with the law in France? Even his portrait in Reuters is arising my fears and Draghi’s not less.

Due to this I expect FG to come more out of an impossibility to contain the situation than “organised” by these mega oligarchs! Remember, they don’t work for you, you work for them!

Paul said...

dead fauvi

the not saving seems to be the problem for spain and italy no ? so better ask the germans if they can buy gold since they are the real ones losing their savings; well they can, and they are !

pretenana said...

Dear FOFOA and others,
In the Netherlands there is only one small bank “Hollandse Bank Unie Rotterdam” (now Deutsche Bank branch) that exchanges physical gold/silver/platinum and palladium for euro’s at a 2-3% premium. In Spain en Germany there are none. In Belgium almost all banks exchange gold for euro’s. In all mentioned countries there are precious metal shops where you can buy the stuff.
======================

FOFOA wrote:

"It is my understanding (and please correct me if I'm wrong) that throughout most of Europe you can walk into a bank and exchange your euro for physical gold at a floating market price."

Casper then wrote:

"Side note: I can confirm that here EU you can walk into a bank and buy gold at a teller. Don't know if that is possible in all member states but I know about 3 of them."

Xavi then wrote:

I am from Spain and I have never heard about such possibility. I have never read of anyone going to a bank and succesfully changing € for gold (what do they give you? 1 oz Austrian Philharmonic?).
That is the reason why we buy at online precious metal shops and pay shipping. I suspect if we could get gold at our local branch most people would be in the queue to get rid of fiat already!

thedeadfauvi said...

It’s not exactly true your info, pretenana.
You can buy coins and bars at every Sparkasse (saving bank like cajas) OTC or order.
In bigger towns, bigger banks you can buy too. My bank was quite sas as I turned them down b/c they are more expensive than the dealers which are over 100 online. What we don’t have are small shops, unfortunately. A big company, proaurum has 4 different locations in 4 towns.
I even saw a bank with a gold ATM. Of course gold is not on display, you have to ask for it.
They don’t offer you gold as investment

Robert Leroy Parker said...

After seeing the USDJPY tank just now I am officially much more freaked out about the possibility of hyperinflation. I am taking steps to move to a much larger physical position right now. FOFOA, I'm officially on board.

matt said...

@ Prentinana

Belgium is not far away from Paris, Amsterdam or Berlin.

FOFOA-

Just something for you and the silver bugs to chew on....

The Diram(gold) and the Denar(silver) are the only money considered by the Arabs. Not just gold but silver.

I never understood silver, I am on FOFOA side when in comes to silver even though I am heavily invested and taking profits in silver stocks.

enough said...

Hi FOFOA,

you write

1) "The initiating spark of hyperinflation is the loss of confidence in a currency. This drives the fear of loss of purchasing power which drives people to quickly exchange currency for any economic good they can get their hands on. This drives the prices of economic goods up and empties store shelves, which causes more panic and fear in a vicious feedback loop."

2) "The printing of wheelbarrows full of physical cash is the government's response to hyperinflation, not its cause. This is like pouring fuel on the burning fire of #1. "

then why do they do it? Why create even more paper to chase a fixed and falling amount of economic goods?

thanks and cheers, E.

costata said...

matt,

If memory serves me the weight and purity of those coins is specified.

If you are actually going to attempt to use silver and gold as your coinage then you must have something to fill the small denomination slots.

The problem is that it would be like attempting to order modern society on the old testament of the Bible. Are cars explicitly permitted by the Koran? Obviously someone has interpreted the Koran, and hence Sharia law, to allow them or at least to conclude that they are not expressly forbidden.

IMO accommodations will be made as required. "God's servants" seem to have the pragmatism gene across all faiths.

costata said...

enough,

Sorry for cutting in here. Again here is my 0.02 from studying a number of hyper-inflations.

"then why do they do it? Why create even more paper to chase a fixed and falling amount of economic goods?"

To enable the people who keep the currency issuers in power to "chase a fixed and falling amount of economic goods". This was one of the stated reasons that Gideon Gono kept printing in Zimbabwe - to pay the army. What's more, it worked for Mugabe.

enough said...

Hi Costata,

So it's not intended in some misguided way to stop the hyperinflationary spiral.....

just to keep TPTB's constituants flush with cash to keep their loyalty by plying them with so much fiat that those CHOSEN SUPPORTERS (army, police etc.) can keep their purchasing power?

victorthecleaner said...

I would like to say thank you for all your replies. I wanted to shake the tree until all the assumptions drop out (is this acceptable English by the way?).

Concerning gold purchases in Europe.

In France, Germany, Switzerland, you can indeed buy (and sell) gold in basically every bank branch. You get the standard coins (Krugerrand, Philharmonic, Maple, Koala, Panda, Eagle) roughly in that order of popularity as well as bars of any size. This is also possible, for example, in Canada.

In small towns, you need to order and it will take a couple of days to deliver (this indicates that only very few people are doing it). In larger cities, usually the main branch has most products in stock. And there are the specialized coin dealers, of course, but also only in large cities.

From some presentations by GFMS, a colleague has extracted that the following amount of gold was sold in 2010:

Europe: 220 tonnes
North America: 90 tonnes
China: 170 tonnes
others: 300 tonnes

During the crisis of September/October 2008 and during the Euro PIIGS crisis of May 2010, basically all banks and all coin dealers in Europe were sold out for one or two weeks weeks.

From this I take it that the PM retail industry, even including the banks, does not have the capacity to supply any substantially larger quantities.

Victor

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

RLP said...
“After seeing the USDJPY tank just now I am officially much more freaked out about the possibility of hyperinflation. I am taking steps to move to a much larger physical position right now. FOFOA, I'm officially on board.”

Good to have you as a member of the “All Inn” group before the door is slammed shut and locked, welcome aboard. Hopefully your appreciation will be transmitted to the person responsible for partially/fully helping you enter the “All Inn”. This person prefers not to consistently eat at McDonald’s daily.

Aaron said...

Hello Enough-

"So it's not intended in some misguided way to stop the hyperinflationary spiral....."

"just to keep TPTB's constituants flush with cash to keep their loyalty by plying them with so much fiat that those CHOSEN SUPPORTERS (army, police etc.) can keep their purchasing power?"

Ding ding ding ding ding!!

From Just Another Hyperinflation Post - Part 2

"Gonzalo correctly points to "palliative printing" as a wheelbarrow-enlarging event, which comes at the very end stage of a hyperinflation. And he presents it as palliative to the people. But this printing is usually most palliative to the government and its expanding rank of stooges. Sure, there will be "welfare" along the way, but for the most part the freshly printed cash will buy the most goods and services for the first hands it touches. And then less for the second. And even less for the third and so on. And this prime purchasing power will be mostly reserved for the government that prints it."

--Aaron

Museice said...

A birdy point me to this post:

Alert: Nuclear (And Economic) Meltdown In Progress

"The risks I am most concerned about striking outside of Japan are:

A derivative-fueled banking crisis. Another banking crisis could shut down international monetary flows for a period of time, which would severely impact your ability to access your money, conduct trades, or otherwise take care of business.
Critical shortages. Already we know that much of Japan's manufacturing output will be crippled for a while due to quake damaged plants being destroyed, workers failing to show up as they attend to their families in a moment of deep crisis, and electricity shortages due to destroyed power plants being taken permanently off-line. How much and which products will be affected will take weeks of effort to discover, as our highly integrated global supply network has an unknowable number of nodes that originate in or pass through Japan.
A global GDP insult. Building on the idea of critical supply chain disruptions and shortages, it is a safe bet that the world economy will take a hit now that various products cannot be manufactured and sold. Rather than a gentle slow-down that can be easily managed, the risk I see here is akin to a large wrench being tossed into a delicate transmission. The risk springs less from how much you slow down, but rather how fast you do it. This global GDP hit will further expose the weakness at the periphery, probably taking down the weaker players once and for all."

You're right Wendy. This classifies as a Black Swan on the highest order.

costata said...

enough,

Aaron has answered eloquently.

Since no trees are sacrificed in this medium let's expand a little, applying this perspective on hyper-inflation we could ask: Has it already begun?

Let's 'follow the money'. Who first received the TARP and other USG largesse? The major campaign donors, Wall Street etc.

How ironic that those much derided "green shoots" could be very real. Perhaps these early flows of e-currency are the first emergence of hyper-inflation, a downpayment if you prefer.

In fact hyper-inflation is very green as it cuts a society's consumption dramatically. Good news for the environment if you can remain sanguine about the suffering HP causes.

IMHO while some are scanning the horizon for wheelbarrows the USA domestic digital HP will be in full swing. Over time it will emerge in the bank accounts of all of the indispensable USG supporters. Exter's pyramid upended with e-currency flowing from the greatest to the least of them (though largest in number at the base).

Meanwhile I imagine the JP Morgan run card based food stamp program will be expanded (digitally) as necessary in order to disguise the emerging facts. A truly modern innovation - the digital soup kitchen.

Alternatively the US dollar holders outside the USA might stampede if that herd get's jittery enough and thereby dramatically accelerate the process. It recalls the phrase "between a rock and a hard place" in this shrimp's mind.

IMVHO time to go long wheelbarrows if you can afford to fill one with gold. For this shrimp a pocket or three will have to suffice. In GG's immortal words:

BUY. PHYSICAL. GOLD. NOW.

Aaron said...

"I think the outcome might be enormous here."

Well Wendy, you may not be too far off the mark. Chris Martenson has just issued his most urgent alert to date.

--Aaron

enough said...

Thanks Aaron and Costata,

I learn something everyday and somedays more profound things than others. This is such a day !!!!

and from my own internal rudimentary reasoning some time ago I began buying only physical gold. Now virtually ALL IN except fiat holdings for business capital and expected/ unexpected personal expenses.

Ask FOFOA....he's seen some of my beauties !!! cheers all !!!

Wendy said...

Thank you for the link Aaron, I have the same aweful sense as the author does.

Also I am seeing other authors post their concerns today regarding the effects of Japan. These were surprisingly absent at the beginning of the week.

Over the next couple of days I plan to take stock of the "real goods" preparations I've made since August 2007 and have somewhat depleted. It's time to restock, fill the gas tank, get some more cash, etc etc.

This may NOT be a DRILL, and if it is, money can be redeposited, and consumables consumed.

matt said...

Enough

they print the money only because they have to in order to keep up with velocity.

matt said...

Not sure why, but Im not "all in" yet.

I just cant stand to see the DOW and the S&P track gold so much. Sure gold has done well but so has allot of things. Im just waiting to see if there will be an interest rate hike by the ECB while the Fed ends QE. That might be a sweet spot for a nice drop in gold prices.

Sure, its 100% logical to go all in now, but this market is anything but logic. It is 100% ass backward. Look at the Yen spiking, and then Japan bitching about it ! just to go out and buy some more treasuries !

costata said...

matt,

I don't think anyone is suggesting that you have to grab a table at the All Inn. It's a personal decision.

A few years ago we set a target holding (later doubling it) and when we recently hit that increased target we stopped buying gold. There are no absolute certainties. If this transition ends in WWIII who knows what the world will look like on the other side of that.

We have some other 'investments' we are keeping and we have no intention of selling the house. On paper that's what we should do to maximise our wealth.

We are older shrimps of modest means. Buying the gold involved postponing other things we wanted to do. Now that we have reached our target we have turned our attention to the things we postponed.

We are also looking at throwing some spare cash at speculative plays to increase our currency holdings. If we make outsize currency profits on these plays we will most likely spend them.

As someone once observed about life "this isn't a dress rehearsal".

Casper said...

Indeed Costata,

indeed... I too have been postponing things in order too hoard some gold and even though I would like more or at least have a feeling I have missed a train in the past, I think that it's time to slowly look forward enjoyin life and spend a bit more on other things.

Casper

radix46 said...

Costata,

I am on the verge of completing my buying program - one more ounce to go, then I am done and will be concentrating mainly on enjoying my life, sleeping well and watching events as an interested bystander. I may add the odd small amount here or there if I find myself flush (I think I've developed a gold buying fetish), but in general I want to get down to the business of life.

Anthemius said...

Hi All

While this "My name is John and I'm a goldaholic" talk is going on, my scenario is I'm 35 and bought my first flat (in UK) literally 2 weeks before the meltdown in Oct 08. I'm an educated person but knew nothing AT ALL about money/banking then.

My friend sent me a link to the "Peter Schiff was right" video in November. I read his book, read up on business cycles, yada yada ended up here, and remain utterly fascinated by the theory and history of money, and cannot believe I didn't know about it earlier. Talk about opening your eyes....

I just about managed to sell my flat (to some lunatic) before the prices tanked. I settled my debts then bought gold with what I had left of the deposit (1 year ago).

Now, I'm not just "all in" in but have borrowed money (around twice my savings again) at around 4% and bought gold (physical obviously, and 25% silver) with that. And, what is odd, is that I am strangely unmoved by the risk. On the contrary, as you say above, it allows me to almost feel like I'm watching the lunacy unfold from the sidelines.

One thing I think about a lot is stocking up on long term provisions (I live alone). The trouble is, my immediate family will never do this - they're too busy frittering away their money on crap and would think i'm NUTS for suggesting it (and I think the same myself sometimes!). So, I could have enough for myself - bu what good is it if they have nothing? I can't buy enough for 7 people.....

costata said...

Anthemius,

You wrote:
And, what is odd, is that I am strangely unmoved by the risk. On the contrary, as you say above, it allows me to almost feel like I'm watching the lunacy unfold from the sidelines.

One of the key points that A/FOA tried to make is that around 3 billion of the people on this planet view the situation exactly the same way. The Westerners think my paper isn't 'working' ie. earning me more paper. The Easterners look at their gold and think 'sit boy', 'stay' and count themselves lucky when it does.

And A/FOA maintained that the Giants (who have cornered a significant chunk of the 130,000 m/t not owned by Central Banks) shared this historical perspective.

You wrote:
The trouble is, my immediate family will never do this - they're too busy frittering away their money on crap and would think i'm NUTS for suggesting it ... So, I could have enough for myself - bu what good is it if they have nothing? I can't buy enough for 7 people.....

Solve that conundrum and some of the people who frequent this blog will shower you with gold coins.

You wrote:
Now, I'm not just "all in" in but have borrowed money (around twice my savings again) at around 4% and bought gold (physical obviously, and 25% silver) with that. (My emphasis)

My Dad was a bookmaker. He'd have said "I'll take those odds."

mortymer said...

“The key to change... is to let go of fear.” ~Rossane Cash

I have a brief memory of time when Gold Carry Trade ended. Japanese Yen Carry Trade died and world changed again.

@ Anthemius, the feeling of ambivalence?

Museice said...

Anthimius: You can't take care of others if you don't take care of yourself first so three months of food and water is a minimum for your personal foundation. You will be way ahead of the curve. With that piece of mind it is then possible to think about others and enjoy "watching the lunacy unfold from the sidelines".

matt: you said, "Im just waiting to see if there will be an interest rate hike by the ECB while the Fed ends QE." There is no way in Purgatory the Fed will end QE (what number are we on now folks?) so I don't know what you are waiting for. I believe the Credit Default Swaps on the zero rate would explode if the Fed raised the rate so aren't we stuck?

Anthemius said...

“One of the key points that A/FOA tried to make is that around 3 billion of the people on this planet view the situation exactly the same way.”

I guess so. The total absence of the history and theory of money from any level of government funded education is no doubt a complete coincidence.

“Solve that conundrum and some of the people who frequent this blog will shower you with gold coins.”

Ha – indeed.

“My Dad was a bookmaker. He'd have said "I'll take those odds."

I engineered it so I’ve got the money on credit cards and can still get 1 year+ balance transfers at 3% handling fee and 0%interest. Some of it’s coming up in September and I’ll have to bank on getting another but…. yes, I’ll take the odds. Where the hell is this money coming from? Is this backdoor QE?

“@ Anthemius, the feeling of ambivalence?”

Even though the future looks bleak indeed (UK has no gold!), there is something calming about knowing why things are happening as they are and how to get out the other side.

“You can't take care of others if you don't take care of yourself first so three months of food and water is a minimum for your personal foundation.”

I guess you’re right. Kind of hard thing to start doing though…

Terry said...

To be young and know about money and PMs would make me ecstatic. I am drawing SS without debt, and am all in. Being in business for myself since 1970, I figured out very early that government doesn't make saving easy. I stumbled on a coin store and was so fascinated by a 1896 $20 dollar gold piece that I bought it. Accumulating my modest hoard has never been easy, and I only hope to survive to see the revaluation. I am really thankful for the Internet and the pundits who post on FOFOA's blog. Being all in with no significant income, and increasing price inflation is difficult. I'm sure accumulating PMs is difficult for everyone. I don't understand why everyone thinks JP Morg is going to cover their shorts. I think they plan on defaulting when the currency collapses, and they are manipulating PMs at the behest of the government.

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

Matt, QE will not end, especially now with the Japanese and ME situations. Your fiat is losing purchasing power each and every day. In the USA inflation is actually about 8.5 percent annually per John Williams at Shadowstats. The governments states it is only 1.5 percent. Whatever paper investments you are in are most likely not keeping up with inflation and the taxes on your profits. The higher your paper returns the greater the risks as a general rule. There is Not any counter party risk to physical gold in your possession.

The only risk with physical is there could be a short term correction as per fiat currency but not in value as physical is way underpriced. Most see any correction as a gift to acquire more. I personally believe that it matters little now the current price in fiat for physical gold. We are near the point of the “All Inn” closing and others being unable to enter.

As Costata said this is a personal decision but do consider joining the group and having a brew while we watch the developing crisis.

Nick said...

Terry,

Being rather young, I was lucky enough to discover PM's (and this blog). After college I realized that that my degree was for the most part worthless (and not near worth the amount it cost) and have since tried to accumulate. It is interesting how no matter how many of my friends I try to nudge into the topic of economics/freegold none of them seem to have much interest in the matter. I feel my generation for the most part ignores anything of real importance or that takes serious thought. They just want to watch jersey shore, lol. Oh well, times are a changing.

Terry said...

Nick, I have children your age who completely ignore my attempts to goad them into reading. Even though I have no formal education, I have learned the hard way that the cards are stacked against the average investor, and the fiat currency is just another scam to capture the production of those of us with a work ethic. You would think that people would be interested in one of humanities greatest tools, currency. My own children can't tell me the properties of money, and when I ask them that question, they weren't even interested enough to get the answer from me. The concept of a store of value or a unit of account doesn't even interest them, and they have degrees. I only know one other person who has PMs, and he was my accountant and the person who recommended The Creature from Jekyll Island for me to read. You have a distinct advantage on your peers, kudos to you. I appreciate the gift of being able to hang out with my friends here on FOFOA.

Museice said...

Anthemius: Don't let it overwhelm you. Three months is just 100 days and you only really need 2 meals a day. It might be boring but a can of soup with a side of rice, peanut butter & jelly crackers, oh, and Ramen can feed a man for 200 meals.

It fed a broke college student.
Toss in vitamins and chocolate and you can build from there. A couple cases of soup and a 50 pound bag of rice and you're on your way.

Greyfox: "Your fiat is losing purchasing power each and every day." It's like pulling a dollar out of your pocket every morning and with your speaking to a baby voice saying, 'Look, look how small you are. You're so cute. Your just getting smaller' while the other hand is fondling a gold coin that has the same weight yesterday as it's going to have tomorrow.

DP said...

Anthemius: Now, I'm not just "all in" in but have borrowed money (around twice my savings again) at around 4% and bought gold (physical obviously, and 25% silver) with that.

What you are doing is called being on margin or using leverage. I hope you can continue not only to feed/clothe/shelter yourself, but also keep up the loan repayments, so that you can hold onto your precious for the whole of the period when you cannot sell gold for the price you want to. I'd hate for you to be a forced seller and wiped out, when you thought you had prepared so thoroughly.

Bonne chance mon ami!

oldinvestor said...

For me the key black swan event will be when some major city, a US state, or some sovereign country defaults and repudiates its debt. This will start a me-too chain reaction, and with the hundreds of trillions of unpayable debt held round the world as wealth storage, this will be the signal for all to see that most of this debt is NO GOOD.

This will really start the run down the inverse pyramid to a safer form of wealth storage. It will take a while to get to gold, the money avalanche will first have to pass through electronic digits, then paper federal reserve notes (causing the massive printing/hyperinflation), until it finally dawns on folks to go directly to wealth-in-and-of-itself.

matt said...

Grey Fox and Museice

We all know QE will not officially end but the yahoo's(mainstream financial world) doesn't. We all know that it is too late to do a Paul Volker, but the yahoo's dont.

The yahoo's and the Fed will have to learn the hard way, that its either print or the system is done. At some point they might actually try raising rates, 1 or 2%. My guess is that gold will temporarily tank. This is the window where you want to go "all in". The way I see it, you go all in while the yahoo's are learning the hard way.

We have a long way to go. The yahoo's are reinforced every day that gold is not really a safe haven, because it falls on every crisis.

When I say yahoo's, I mean guys like Warren Buffet, David Tepper, the whole FOMC, the whole financial media, 99.99% of the politicians in the world and the general public.

matt said...

@ Anthemius

My guess is that you are using margin ? considering that low rate of 4%.

The best I could do at bank of Montreal was 7.7%, no collateral. I also have 4.5% margin. If I really wanted to, I could throw all of that at gold but I think, even if freegold was taking hold, the COMEX/LBMA price would take a beating and I would get a huge margin call. I world effectively have to declare bankruptcy.

Now in that case, you could just take the gold and run. The bank itself would most likely be bankrupt too so I dunno, maybe its a good idea....

The way I look at it, the whole baby boomer generation got rich by levering debt and margin, so I always feel compelled to do the same.

Nick said...

Terry,

Hopefully they will appreciate your wisdom (even if in hindsight) in the near future. Funny how your accountant recommended that book... that was the one that got me started on this trail as well!

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

Matt, best of luck in catching that small time frame window.

DP said...

Anthemius: I engineered it so I’ve got the money on credit cards and can still get 1 year+ balance transfers at 3% handling fee and 0%interest. Some of it’s coming up in September and I’ll have to bank on getting another but…. yes, I’ll take the odds. Where the hell is this money coming from? Is this backdoor QE?

In answer to the question you pose in this last couple of sentences, I refer you to your first sentence - where you chose to inflate the money supply by asking the bank to create the "money" for you. ;-)

I hope come September of this year (1) you can still rollover these debts at similarly favourable rates, because I bet the post-teaser rate on the card will be in double digits, and/or (2) that this doesn't happen to be the period that The Transition takes place and you would be selling your gold for a loss if you were forced to liquidate, and/or (3) that you have sustained income stream for the duration so you can afford to service the payments.

I'm not saying don't do what you're doing, but be aware of the fact that by leveraging up with new debt to buy gold you are taking something of a risk, and also being a contributor to the problem from which you (and the rest of us) are trying to escape. Understand that you are not realising the value of your savings, you are speculating.

Some people here would say you should only buy gold with your surplus - "saving". Certainly, I would advocate that approach, at least when it comes to gold, personally. Rather than speculating on "a sure thing". I'm sure Freegold is "a sure thing", but I think you will agree that it might happen tomorrow, next week, or.... years from now. You can't be sure, you can only be properly prepared or not.

As I said earlier, bonne chance mon ami...

matt said...

@ Greyfox

What evidence do you have that this will be a short window ? It could be 6 months or a year, or two.

Sure, you and all of us feel good because gold has been going up while we are buying. But the people that are buying the Russel 2000 or the DOW feel the same way. They are right for buying but for the wrong reasons, but in a way, so are we. We are riding on the same QE wave as them, even though we have proper reasons. We are the minority.

The whole investment world is so out of touch with gold that I would not even consider this 10 year price rise a bull market. I would describe it as an inevitable, minimal rise in nominal prices, nothing more.

You have to account for the stupidity of the people you are investing with. So far, especially with this latest Japan crisis(gold down $10), there is no evidence that we have any sensible participation in this market.

I still think that if Bernanke raised rates tomorrow, gold could easily crash anywhere from $150 to $300.

Aaron said...

Hello Matt-

"What evidence do you have that this will be a short window?"

"We are riding on the same QE wave as them"

"You have to account for the stupidity of the people you are investing with."

Sorry Matt, but you don't have the slightest understanding of Freegold. You have a lot of reading ahead of you if you want to glean any insight from anyone on this blog.

--Aaron

costata said...

Re: Margin

Here's my 0.02. The key is not to be self delusional and greedy. The thing that has screwed the Western baby boomer generation is that many of us did not have the good sense to take a profit when our leveraged bets paid off. We treated unrealised gains as profit (calling it 'equity' or 'net worth') In fact we did not even understand the concept of 'profit' truth to tell.

If I was playing the margin game today I would divide our gold into a core holding pile and a trading pile. The 'gold' trading pile would include every non-gold speculative bet as well. Until the profits and/or capital in the trading pile became physical ounces I would adopt the attitude that I have not made a profit regardless of what the currency "says" or my computer screen.

I would also view the trading pile as being at risk of a 100% loss. If I could not take the loss I would not play. I would cash out right now and put the money in physical gold.

Zero (z.e.r.o) leverage on the core. Take profit at every oportunity on the trading pile and move the profits to the core.

Provided the borrowings are not collateralised it is the lender who is most at risk if (a) they don't know you have the precious and (b) you have no other visible assets.

Sooo, yes if I was a young graduate with a hefty debt courtesy of a completely corrupt system (and my own youthful inexperience) I think I would not have any qualms about attempting to make the bankers wear the risk.

If history is any guide if (when?) the banks collapse they will take cents on the dollar in settlement of unsecured loans. They sell soured loans to debt collectors for cents on the dollar right now, do they not?

'Credit scores' might matter again some time in this century or the next.

Museice said...

matt: "If I really wanted to, I could throw all of that at gold but I think, even if freegold was taking hold, the COMEX/LBMA price would take a beating and I would get a huge margin call." Let's examine...
'Throw it all at gold' ok
'even if Freegold were taking place' big pause! Freegold will take place because, and this is where we have to go into
'the COMEX/LBMA price would take a beating' yes, but for some reason you fail to understand that when we say "beating" we mean exposed as a paper only charade where the PRICE on the COMEX might as well reflect the expectant dew point in Minnisota (all contracts officially registered and delivered). Freegold manifests when paper promises are traded separately from physical.

matt said...

@ Aaron

What I wrote has nothing to do with freegold.

All that I am talking about is the senseless direction of the paper market(which is how physical gets priced in at this moment) and the chances to buy gold at lower prices for the dollars that I am currently paid in.

Like I said here before, my Dad made a good case that interest rates where going to go up in 1999 and he talked me out of buying a house or two. Those 2 houses where around 160k then, now they are 350+.Just think of how much physical I could have now if I ignored his rational advice.

Aaron said...

@Matt-

If you are talking about the paper markets then I have no comment. My apologies for misunderstanding.

--Aaron

matt said...

@ Museice

So are you assuming that the dark pool/real price of gold will be there for all to see as the COMEX/LBMA price tanks ?

I don't think so. I think that the brain dead world will assume gold was in a bubble, every mining stock will crash to nothing and like FOFOA says, Robert Prechter will have his 15 minutes, days or months of fame.

There might even be some chance of getting even a little bit of physical at the crashing paper price, at least while the brain dead world is figuring it out the hard way.

mortymer said...

Adventures of Lemmings, one brick, two bricks, three bricks,...

"...Understand that oil is still traded for a certain number of US$ but after the deal is done a certain amount of gold is also purchased "with the future flow of oil as collateral". If the world price of gold gets to high then the oil price is falling. So long as gold stays cheap in currency terms oil will be in good supply.

Too hard to follow? If real physical gold trading dries up it's price will rise forcing down the value of oil. All this year physical gold volume kept drying up as paper short volume exploded. But,each time before a squeeze started to run the price the CBs would sell thru LBMA . You see, when paper trading ( of anything ) volume dries up it's a bearish sign but when real physical gold volume drops it's bullish! Thats because gold is being cornered on a scale never seen in history. LBMA is doing it's best to show real volume exists! The problem is, "if the CBs don't expand their roll as "primary suppliers" LBMA will implode and in the process create the greatest bull market in oil and gold the world has ever seen..." ~Date: Tue Oct 07 1997 22:37 ANOTHER (THOUGHTS!) ID#60253:

DP said...

matt: So are you assuming that the dark pool/real price of gold will be there for all to see as the COMEX/LBMA price tanks ?

I am thinking "yes, in 3 months or less", depending on how long after the previous ECB quarterly revaluation "it" happens.

Seems to me the ECB will HAVE to put a price on its reserves in that report from somewhere, and if there is clearly a problem at the usual market, they will turn instead to the alternative market (BIS) for their price indicator. No?

mortymer said...

PRESS RELEASE
18 March 2011 - Statement of G7 Finance Ministers and Central Bank Governors
http://www.ecb.int/press/pr/date/2011/html/pr110318.en.html

"We, the G7 Finance Ministers and central bank governors, discussed the recent dramatic events in Japan and were briefed by our Japanese colleagues on the current situation and the economic and financial response put in place by the authorities.

We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector.

In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on 
18 March 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate."

European Central Bank; Directorate Communications; Press and Information Division

matt said...

@ DP
3 months is a long time.

I am basically asking, how long will it take for it to be common knowledge that the paper price is crashing because it is a ponzi ?

Because if it takes 3 months for people to realize that then we have problems. There might be some physical to be had at crashing COMEX prices. I guess the gold bugs will figure it out and make it known quickly.

I think even FOFOA is under estimating the perverse effects the paper price crash is going to have on people's perception of gold.

mortymer said...

Gold Price Management 101

http://www.dailyreckoning.com.au/gold-price-management-101/2011/03/18/

"...
-- If you think the gold price is not ‘managed' by central banks then you're really not looking hard enough. The management scheme has certainly become very sophisticated via the use of massive amounts of derivatives, which is essentially paper gold...

-- At some point though, they will lose control as they did back in the late 1960s. Back then, within a decade the US dollar went from buying 1/35th of an ounce of gold to just 1/850th of an ounce. It took a central banker with good-old G&D (guts and determination) to raise REAL interest rates to a point that effectively saved the financial system..."

John said...

Costata, Matt, enough and others - great to see more discussion of the ways people are approaching accumulating gold. Anyone feel like critiquing my approach?

I've got a little over 20% of total assets in gold now, and over 40% in paper currency. Though I believe the Freegold thesis, I don't think I can estimate the timing, we may wish to buy real estate soon as we're renting, and I don't feel sure enough to put all of my family's resources into a bet on Freegold. After all, a year ago it would have been silver if I'd elected to go 'all in' with physical... As I'm not saving in USD I'm hopeful that I'll get some warning if our currency starts to inflate in a worrying way, and thus be able to get more gold. Also, I have enough gold that I'd improve my financial situation if all the paper went to zero and the gold went to $55K, or anywhere close. Dough Casey's recommendations at present are for a third of assets in gold, a third in paper (ready for taking advantage of opportunities) and a third in stocks (and particularly mining stocks I think). I quite like the idea although I'm not close to being that heavy on stocks.

The thought of taking on debt to buy gold makes me nervous. However, maybe there's a clever way to use debt to increase my bet on gold? Borrow $100K, covered with $100K in paper savings, and turn it into gold - if Freegold happens, paper debt and savings are gone (unless debts are de-denominated somehow), if not then I can close out at my leisure. Hmmm...

Anyone else wrestled with similar issues / thoughts, or have comments?

sean said...

Hey Matt, I think you are suggesting waiting until paper gold price crashes before buying up cheap gold before its real price is known.
Do you agree that the price of gold is increasing now largely because people are becoming increasingly sceptical of fiat currency? If gold price crashes from 1400 to 300, how many of them will scramble to sell their gold and take fiat in return?
Perhaps you're hoping to buy from coin/bullion dealers, since their price "always" tracks spot price (+premium). As FOFOA recently wrote in Indicium, the Kruggerrand is a good reference point for the price of real gold. So you're banking on dealers selling their Krugerrands at just a little over spot price, while the general populace refuse to sell at any price?
I think there was a reason Another explained this phase as when "gold goes into hiding"!
So, you gotta ask yourself one question: Do I feel lucky? ;-)

Casper said...

Hi John,

since you're already the second one in recent comments that is/was playing with the idea of taking on debt and buying gold I would like to respond.

I too was playing with the idea a few years back but personally came to the conclusion that "I'm just to old for this sh.t!" Too many obligations (not monetary) to real people it just isn't worth it, since if things play out as I think they will, you can get wiped out pretty easily.

Just look at post tsunami Japan ... I hear people can't get to their money to buy food, and that was the 3rd richest country in the world just 1 week ago. I know that the situation is unprecedented but so will the phase transition to RPG be and to expect everything to be working quite normal is a delusion.

If you're young and unattached than I wish you luck if you decide to do it anyway.

Casper

matt said...

@ sean

you wrote-
"Do you agree that the price of gold is increasing now largely because people are becoming increasingly sceptical of fiat currency?"

Not really, I don't see any evidence of that. Do you ? Gold fell by $30 when the Japan crisis hit. Gold only goes up when stocks are going up, typically. Gold is lagging allot of commodities for the last 6 months. The big cap gold mining stocks have been FALLING for 2 years.(kinross at a 3 year low not including 08, Goldcorp ect)

If you consider the amount of forex reserves, paper wealth, CB balance sheets and derivatives created in the last 10 years, $1400 gold is nothing, not even worth calling a bull market in my opinion. $1400 could be cheaper now then $260 was compared to global monetary aggregates.

Look at what the Fed can get away with, day after day. Gold really is a relic in most peoples minds, at best a "risk asset", that falls in value when crisis hits. At least that is the way it trades. That can only mean that the majority of the people in the gold market are just speculators, that don't hold it for the right reasons.

So to answer your question. No, I don't think people are becoming increasingly skeptical of fiat currency. They are too dumb for that.

Its understandable. The rich baby boomers, that got wealthy riding this debt scheme over the last 25 years think they are so smart. Buying gold implies to them, that they didn't rightfully earn this paper wealth. So its simple, they just don't buy any.

FOFOA said...

Here's an interesting Freegold story. Hat tip Fauvi and my apologies because this has been sitting in my email spam folder for nine days. The article is dated Mar. 9, the day Fauvi sent it to me. But I guess it went to spam because the email was mostly in German.

Remember from Indicium that FOA wrote, "1 gram coins will be the norm; being the size of our one ounce now, but with alloys." At other times he also wrote about how gold is divisible to ANY size necessary. Well here we have three Swiss politicians proposing a constitutional amendment to make a new set of official Swiss gold francs down to the smallest size of.... wait for it.... 0.1 grams of gold!

And from the wording of the initiative it sounds like they would be meant to float in value with the price of gold, without a fiat face value. I get this from the use of the term "fixed gold content" and the later reference to the value of the coin relating to the "cost" of its gold.

It also appears to be a vessel designed to absorb "hot money inflows" directing them away from, and to prevent the unwanted appreciation of the fiat Swiss franc: "an attractive alternative to the Swiss franc as a safe haven…"

For reference, 0.1 gram of gold today would be $4.57 at spot. A Freegold valuation of such a coin would be in the ballpark of $175. Furthermore, the references to safe haven use and the attractiveness of Switzerland as a financial center tell me that the intended purpose is as a store of value more so than as a transactional currency. Also, they want it to be commercially (privately) minted and distributed through commercial banks, yet licensed, monitored and the gold content guaranteed by the Swiss government.

And as logic can reveal to even the most hard-headed among us, a monetary store of value need not have denominations as low as a five dollar bill; for those with only $5 are not in need of a monetary store of value! (I remember opening my first savings account. I recall the minimum starting balance was $100. And that was a long time ago!)

So I suppose one could be forgiven for running wild with theories as to the agenda behind the official proposition of what would surely be an overly-expensive minting at today's gold prices. Our 1/10th ounce coins (the size of a dime) are 3.1 grams. So if this coin were that same size it would need a special mix of one part gold, 30 parts something else. Of course this would be much more economically meaningful at $55,000 per ounce, $1,768 per gram, $176.80 per 0.1 gram (which is about what a 3.1 gram 1/10th ounce Eagle costs today)!

Translated by Google:

On Wednesday, the politicians came with a new campaign to the public. They call for the creation of a Swiss gold franc. The goal: New Swiss gold coin with a fixed gold content is strictly controlled licensing and tax-exempt issue to allow according to the wishes of the founders and small savers to invest their assets in gold and thereby safeguard against inflation. The whole thing is in the form of a constitutional amendment be enacted.

The press release also states that upon the gold franc also "an attractive alternative to the Swiss franc as a safe haven created, making the franc's appreciation should be held as a result of currency turmoil in international borders."

The Federal Constitution is supplemented as follows:


Continued…

FOFOA said...

Article 99, paragraph 2 (new) (existing paragraphs 2 - 4 are paragraphs 3 - 5)

"The federal government creates an official Swiss gold francs with a set of coins, each with fixed amount of gold. It regulates the licensing of legitimate tax-free to its publishing institutions. "

The rationale for the initiative reads as follows:

1. At today's gold price of approximately CHF 45'000 .- per kilogram, it is difficult unduly small savers to invest their assets in gold and step by step in order to protect against feared devaluation. This one comes as close as discrimination grievance must be eliminated by an official Swiss gold francs is created with a set of coins that are affordable for everyone. A coin with 0.1 grams of gold content would now be about CHF 4.50, those with 1 gram of gold around CHF 45 - cost.

2. In times of international currency turmoil, the Swiss franc is often a safe haven, not infrequently resulting in a marked appreciation of the franc results with the known competitive impediments, particularly for export trade and tourism. As soon as Switzerland creates an official gold francs, this gold francs offers an attractive currency to escape - which is difficult to be managed price rises in the Swiss franc in check.

3. If the federal government awards licenses for the issuance of Swiss gold francs in Swiss banks alone will increase the attractiveness of Switzerland's financial center significantly. The Swiss gold francs has to do with the held in gold reserves of the National Bank nothing. The issue of Swiss gold francs to the chartered banks obtain the required for its production of gold on the open market - to the extent that there is demand from customers.

4. The federal government is responsible for monitoring as part of the licensing of the gold franc issue legitimate banks, the gold content of the gold franc coins is strictly followed to ensure that the federal government can guarantee the gold content of the official gold franc coins.


Here is one article in German. This is the announcement on the website of one of the three politicians. And this Google search gives you a whole string of articles with the "translate this page" option.

Sincerely,
FOFOA

Museice said...

A coin with only 0.1 grams of gold? Why have a coin as a store of value if it is worth so little? Oh, that's right. It's the same argument as 'there's not enough gold in the world to cover all the debts'. Western thought.

Wendy said...

this stupid f...ing blogger is frustrating tonight!!!

Casper said...

Hi FOFOA

I've been going through some of Mr. Mundell's essays regarding currencies and exchange rates. Among them there was an essay which is also posted at "The Gilded Opinion" where he talks about dollar - euro relationship. It's not long so if anybody cares to check it can also share some thoughts on this:

As the "father" of euro we have to assume he knew what Another knew back when his first post appeared on the USAGold site. What is interesting to me is that he wrote that euro and dollar (later also the japanese yen) form some sort of currency union where the exchange rate EURUSD floats in a fixed band between 0,85 - 1,15.

My question therefore is, if Another thought the USA goes hyper then this means (by Mundells's writing) the euro must go hyper also?

I'm not suggesting that both currencies go extinct just that they would fall against gold in a hyper inferno.

So, can we say that Mundell was wrong and Another was right or vice versa? As far as I know, Mundell hasn't retracted that essay or declared it as a misconception.

Any thoughts are appreciated,

Casper

mortymer said...

Casper: If one major currency falls all fall. The lesson of Mexican crisis, also you can find it in archives.
What was yesterday´s intervention directed to? To "help" Japanese yen or dollar or the system?
IMO it depends how we define the "extinction", hyperinflation, etc. Is Russian rubble still with us? Yes and no...

Blondie said...

John said:

"I've got a little over 20% of total assets in gold now, and over 40% in paper currency. "

This is meaningless without knowing your total assets, and no one expects that sort of info to be posted, but an indication gives others some relativity.

"Though I believe the Freegold thesis, I don't think I can estimate the timing, we may wish to buy real estate soon as we're renting, and I don't feel sure enough to put all of my family's resources into a bet on Freegold."

If you expect Freegold, why would you purchase RE beforehand? Sure, you cannot know the timing, but you will sustain a relative loss, unless you think the timing is most likely many years away. Only you know your expectation there, and how you value the various options in front of you.
I am renting, and finding it very liberating myself, as well as retaining the option of relocating at little notice, anytime I choose.
If you are not confident in physical gold, you must have more confidence in paper currency?

" a year ago it would have been silver if I'd elected to go 'all in' with physical..."

And now you have set your sights on a higher store of value in gold. Is there something higher still?

"I'm hopeful that I'll get some warning if our currency starts to inflate in a worrying way, and thus be able to get more gold."

Won't you be expecting the gold price in your currency to rise with the inflation? Inflation is a loss of buying power, but you are hopeful of a gain? I think you are after currency deflation in that case...

"I have enough gold that I'd improve my financial situation if all the paper went to zero and the gold went to $55K, or anywhere close. "

Have you considered that as almost no one in the general public owns gold as any significant proportion of their "net worth", your current holdings would make you far wealthier relative to your peers, as they become far poorer en masse? (of course you may become less wealthy than many currently middle-class Indians...)

"Doug Casey's recommendations at present are..."

Doug Casey has no idea about Freegold, which you should have gleaned from his comments on gold in his recent (2-3 days ago) video interview answering subscribers questions with Lobo.
Doug likes gold because gold is the trading vehicle to be in, the one whose future direction is easiest to read in the current situation, and in that he is right, but he has obviously never given much thought as to why it is the place to be. I find this incredibly disappointing given his otherwise outstanding thinking on an incredible range of topics.

The best supercomputer still gives a meaningless answer if you enter incorrect values, doesn't it?

cont...

Blondie said...

...cont

John said:

"The thought of taking on debt to buy gold makes me nervous. "

How highly do you value a good nights sleep?

"Borrow $100K, covered with $100K in paper savings, and turn it into gold"

You've lost me here. Why not just turn the $100K savings into gold and borrow nothing? You do understand that further borrowing exacerbates the current problems? Are you wanting to be part of the problem, or part of the cure? Moving to gold is the cure.

"Anyone else wrestled with similar issues / thoughts, or have comments?"

Yes.
I have extinguished all my debt, ceased trading paper "assets" and started denominating my life in value. I have extracted my payment in full as tangible assets, mostly gold.

I view everything in terms of value.
Sleeping well at night is of higher value to me than lying awake wondering if my stops are set in the right place.
Spending more time with my children is of more value to me than spending my time reading disclosure statements or performing technical analysis on a chart.
Being able to move without having to sell a house in who-knows-what sort of housing market may confront us, having the value that would otherwise be stored in a soon to be devalued house in gold instead, these are things that add value to my life currently, among others.

Rich in dollars but poor in time?

My piece of mind creates a more pleasant environment for not only myself, but for everyone I spend time with due to my more relaxed demeanor, so there is value there not just for me, but for others too.

The bottom line for me is that these things, and no small number of other benefits which flow from these adjustments, cannot be purchased with any amount of money. Not everything can be denominated in dollars, so it makes little sense to denominate one's life in them.

Value can denominate all these things, but it is a personal, subjective process assigning it. What is of value to me is not necessarily to anyone else, and neither should it be, so one persons solution may be another's problem.

Looking to follow another's recommendations, whether a Doug Casey or an FOFOA is abdicating one's responsibilities to oneself, IMO.

I say read recommendations by all means, attempt to understand the world to the best of one's abilities with the best information you can locate, but then make personal choices thinking for oneself and applying one's personal values. In this the heart should have as much say as the head, as this is where much value assessment is made.

Standard of living has nothing on quality of life.

You did request comments...

Blondie said...

edit:peace of mind.
------

A few more thoughts:

I understand your current feelings , John. I encourage you to investigate Freegold further, as well as any other options you feel the future may hold. I think this process will yield far more peace of mind, whatever your conclusions.
------

I said:

"Doug Casey... likes gold because gold is the trading vehicle to be in, the one whose future direction is easiest to read in the current situation, and in that he is right, but he has obviously never given much thought as to why it is the place to be."

If one could put that question to him, or anyone else, "Why gold?", whatever their response I would ask "and why is that?", and continue to do so to every response, and patience of both of us willing, we would end up with an understanding of Freegold, of how gold is our monetary focal point, and as a result we ultimately understand this:

as an unencumbered (no derivatives (ie. paper gold)) physical asset, gold is the single objective reference point from which the relative values of all else can be obtained.

Ultimately, this is the reason why gold is the sure thing.

John said...

Blondie, thanks very much for the comments - just the sort of thing I was looking for ;)

Yes, I understand Casey's lack of understanding of Freegold. I do find some of his content useful, though, and at least he does consider gold to be 'of value'.

I also agree that a person should 'attempt to understand the world to the best of one's abilities with the best information you can locate, but then make personal choices thinking for oneself and applying one's personal values. In this the heart should have as much say as the head'. Personally, I think it's important to appreciate that some things aren't knowable (look at the adamantly held views of the silverbugs for an example of what I try to avoid) - and I do mean personally so I hope this won't be misinterpreted as an attack on the Freegold thesis. I consider Freegold the most persuasive thesis I've come across, but I don't feel certain that gold couldn't stay around present levels, or even fall dramatically, for a long time. And because I have dependents and a sense of shared ownership of resources with my wife, I choose to bet big enough to be very pleased if/when Freegold eventuates, but not big enough that either of us would be crying if that day doesn't come in our lifetimes.

I don't consider deflation at all likely, but not many things are impossible. I'm happy to miss out on maximizing my wealth in place for peace of mind (another of my values) e.g. if gold goes back to $750 and stays there for a long time, I still want to be able to buy the few things we're aiming at e.g. land. I don't need to be 'rich'.

The comment about being able to see inflation increasing and getting more gold was about seeing further confirmation of the direction things seem to be going and so feeling more comfortable with betting bigger on Freegold. Maybe that won't happen, but it will be nice (for me) if it does, even if I have to pay $2500 an ounce.

I have given no prior thought to the idea of borrowing to buy gold, and I can't imagine doing it - perhaps that shows in my example above!

In terms of the size of my gold stake - small shrimp territory, that's for sure, and I think well under some of the people here! More than a few ounces though. In terms of total assets - I guess more than the average average person, but nowhere near 'rich'? Not sure how to quantify it discreetly but usefully :)

Paul said...

I am with blondie 100%

John said...

Oh, and I'm very interested to know what makes up the remainder of 'mostly gold' if you can share that - I'm intrigued to know what other Freegolders consider to be of value :)

Robert Leroy Parker said...

Have FOA or Another ever made contact with this blog?

Joel said...

I believe the concept of Freegold to be the only plausible, asset backed fix to a fiat currency world "gone wild.". Like some here, however, I believe the powers that be have the unique ability to extend the current system much longer than we think, for a couple of reasons. I agree with Matt, that the masses here in the US will have to see a massive currency devaluation to separate themselves from US dollar and US dollar assets as a store of wealth. I have many wealthy friends that still believe I am a crackpot for suggesting even moderate amounts of physical gold in their portfolios. Thet cannot make the mental transition of looking at it as a store of wealth, vs. a risky commodity. It makes me laugh, because even as a commodity, when I look at Gold's "balance sheet" vs. the balance sheet of the US Govt. and US dollar, I still think gold is a much, much less risky asset to hold. They just keep saying there is no inflation, and are making good money in the stock market, so they believe they are okay. At the same time, the US dollar index has repeated record lows as occurred during the 2008 banking crisis, but they don't see the loss of wealth that is occurring to them right under their noses. The timing of an actual move to Freegold is less important to me than the first step to reaching it, and that step is a loss of confidence in currency as a store of wealth. I would not say that Freegold is inevitable right now, many politics and hurdles to leap, but I do say that a MAJOR loss of value in currencies worldwide and a massive upward revaluation of gold, from either 1) pure physical demand as a store of wealth; 2) govt. edict; or 3) a combination of both IS inevitable. It also happens to be the ONLY way out of our debt situation here in the US. Thanks to Fofoa for radically changing the way I look at wealth (with a sense of peace, vs. the mania of managing US dollar denominated assets.)

On a side note, I also appreciate all the vastly differing thoughts on using leverage to buy gold. I think it eventually will be the trade of the century, but as someone mentioned it is not without timeline risks. I have a paid for house that I am considering leveraging to do just that, using half the proceeds for gold and the other half for seven years of payments for my bet to come in. Thoughts?

Edwardo said...

Mortymer asked:

"Is Russian rubble still with us?"

Not sure, but Barney Rubble is. Sorry I couldn't resist.

Diamond Jack said...

We want physical -
We know this from
mental
processes.

Mind/body is as time/space.

To Bridge the gap between what we know and how we know it...
Dig Deeper

The SF Chronicle reported Thursday the sale of an 8.2 pound nugget. Winning bidder paid 460,000 FRN, 3 times the commodity value.

"It was scratched out of the earth by a man wielding a pick in his backyard near the historic town of Washington (Nevada County)...
The seller was so inspired by the sale of the nugget that he asked to sell the land where the nugget was found. It consists of 180 acres about 20 miles east of Nevada City, and assayers have already guessed there are at least 4,000 ounces of gold left to drag out of the dirt."

matt said...

@ Blondie

There is no moral high ground issue for borrowing to buy gold. There is nothing wrong with maximizing your potential.

matt said...

@ Joel

Im not sure that its the powers that be have the unique ability to extend the current system much longer or just plain stupidity on the part of the people.

You mentioned people you know in the stock market, that are clueless on gold. Its not just that.

I know allot of farmers, that have made themselves quite wealthy over the years. These guys are old school, they have never owned a stock or a bond in their life, and even these guys are clueless on gold. All they do with their money is buy more land, and push up land prices to mental values. Land prices keep going up, (totally out of the reach of the next generation), and it just reinforces how smart they think they are for buying land. I probably own more gold then all these local millionaires put together.

John said...

Blondie, another question some might ask is why you extinguished your paper-denominated debts, rather than using that paper to buy gold. Going back to Casey again - and I'm no slavish follower of his, and am not following this advice - he has recently recommended taking on dollar-denominated debt so as to end up with hard(er) assets in place of dollars which (he believes) will be inflated away.

It's not for me, but some may wonder why someone totally persuaded about Freegold wouldn't do this, or at least leave debts unextinguished with a pile of gold instead :)

John said...

Joel, my thoughts on the house idea - determined, as pointed out by Blondie, by my situation and values etc etc:
If hyperinflation / Freegold occurs and debts are not 're-calibrated' somehow (I don't know how if the banks could have a mechanism for this, but read somewhere recently [perhaps here] that it could be possible) then yes, you'd end up with the house you started with, a latte-sized mortgage, and a pile of gold. Great outcome, and I wouldn't be shedding tears for the bank.

However, what if gold dropped to $750 an ounce and stayed thereabouts for ten years (around as long as Another's writings have been circulating i.e. it has already been a long time), coupled with deflation (making your debt very very hard to pay back)? Very unlikely, in my estimation, but ugly enough that I just wouldn't bother with the debt in the first place. Or what if you simply lost your earning ability for whatever reason and had to convert your gold to paper at an inopportune time e.g. at $750 an ounce? The proceeds from the sale of the gold would be only half the size of the loan...

FOFOA said...

@ All who are considering various ways to leverage into the Freegold transition:

For me, personally, peace of mind has been the greatest profit I have received from gold so far. The second has been its steady climb in value. Third is this blog. Sure, I could have optimized my position a little better, even up to this present stage. I recently swapped a little silver for gold and I calculated that I got an extra ounce and a half of gold versus if I had bought gold at the time I bought that silver. But that small extra profit did have a cost in the peace of mind department over the three years I sat on that particular quantity of silver.

At the time I started this blog (2.5 years ago) I had a specific goal in mind for my gold. That goal has not changed. I do see many ways I could increase my exposure (leverage) to the inevitable transition, but I must weigh each against my own personal version of the one percent doctrine. That is, if any action, any change in strategy, has even a 1% chance of diminishing or wiping out my initial goal (which I consider to be basically risk-free), then it must be treated as a certainty and avoided at all costs.

In other words, my initial goal from 2.5 years ago is enough for me. If I can find a way to increase that goal without any risk of canceling it (and I have found a few), then I will take that action. But because of the nature of my initial goal, any increases are only a small percentage of the core.

I'm sorry to write in such general terms, but these decisions are extremely personalized. In fact, there are so many different elements that must be considered in each individual's case that any advice from an outsider, or even any generalized rule of thumb, is rendered not only useless but dangerous.

Some Westerners can only feel peace as long as they still have some chips in the game. They must always have at least one "live" lottery ticket in that back pocket. Others don't get the peace until they cash out and lock in their profits. Do what brings you the peace. That's my best advice. And come to any financial decision based only on your own knowledge and understanding. If you don't have enough knowledge and understanding to make that decision on your own, then this is not the time for a change of strategy. It is the time to gain more knowledge and understanding, not more leverage.

Sincerely,
FOFOA

costata said...

Re: mining company stocks/shares

I think this writer has made an interesting point about the resource sector in Australia that has obvious implications for gold (and silver) mining company shares.

Aside from increases in the currency price of resource stocks there has been a huge increase in the number of listed offerings. Soaking up more capital that theoretically could have resulted in higher stock prices. Some folks also allege that ETFs have diverted investment from mining company shares.

http://www.smh.com.au/business/weve-boomed-will-we-bust-20110319-1c0ue.html

Australia: an open-cut case

Had you picked up a copy of the financial tables from September 13, 2001, as my colleague Gareth Brown did recently, you would have found further evidence of this quite staggering shift.

In 2001, the stock prices section featured about 1250 listed industrial stocks compared with 520 resources stocks and listed options - a ratio of 2.4 to 1.

Today, about 1100 industrial stocks compete for attention with 1150 resources stocks and options. In 10 years industrial stock listings have fallen by 12 per cent while resources stocks and options have exploded by 120 per cent.

The pace of change isn't slowing, either. More than 80 per cent of the additions to the S&P/ASX 300 index released on March 4 were resources or resource-related stocks. More than 70 per cent of the stocks removed were industrials. Australia's sharemarket indices (and most likely your super portfolio) are becoming more resources-heavy.

There is no longer any room for sitting on the fence.

You're either bullish about commodity prices or you're worried by them. The middle ground has all but disappeared because the magnitude of this shift is so great it demands you take a position.

If you believe the boom is the beginning of a long-lasting era of prosperity, a sharemarket pregnant with resources stocks won't concern you. It's a cause for celebration.

But if you believe that current commodity prices may not be sustained, this is the time to take out some insurance.

Anthemius said...

I had no idea I would spark off such a discussion! Good comments - I think it's true that personal circumstances and preferences are the main thing. I live alone and have no dependents, I'm comfortable with some risk.

But my risk is low surely. I have a (small) handful of Krugs from my savings and have borrowed twice as much again at a rate lower than inflation and bought gold and silver with this. Half of this is will lose the low interest in September, the rest next year.

The only way this can go bad is if the gold/silver prices are lower in September than they were last year when I bought it. Not likely.

If i can't roll the debt over for another year, the worst scenario is i sell what I have. It's a half trade/half hold type transaction. If I can roll it over, I have another year during which a parabolic rise will mean I'm in the money (if it hasn't happened before, which i agree it probably won't).

I must disagree with Blondie though and your comment that such debt is adding to the problem in some way meaning it is morally questionable. My actions can't make 1% of 1% of difference compared to that of the state/banking partnership that is eating my country, I see no reason at all not to join in now. As someone said to me above in a different context, you can't help anyone if you don't help yourself.

Blondie said...

John,

I see my last comment has been retrieved by FOFOA from the spambox, but you will have to scroll back up to read it.

Thank you for your good humour. I was aware of the possibility my comment may be taken personally. I simply call it as I see it, with no intent to slight or offend other commenters, but this creates the risk of conflicting with pre-existing baggage. My only hope for any comment is that it will cause someone reading to pause and reconsider something. If I get lucky, someone's further response may do the same for me :)

Your other comments:

"I understand Casey's lack of understanding of Freegold. I do find some of his content useful, though..."

So do I. I considered it possible he had an understanding of gold at a more fundamental level and was simply unable to express this at this time for credibility reasons, but his comments in the recent video show otherwise.
------

"I think it's important to appreciate that some things aren't knowable..."

This could be a can of worms, but I think that is the most important thing to recognize, fullstop. One cannot build a functional perspective on anything without this recognition as the foundation.

Some pertinent commentary I read recently on the Thoughts of one of humanity's deepest thinkers:
"Socrates never thinks that he knows what he does not know...

In Socrates's investigations, he did find people who KNEW MANY FINE THINGS which he did not know. Those people were the craftsmen he interviewed. To that extent they were WISER than Socrates, about what they knew. But they had almost the same failing as the politicians and poets he interviewed. They thought that just because they were knowledgable and wise about their occupations and crafts, that made them also knowledgable and wise about things which they did not know."


It is also most important to acknowledge the existence of the UNKNOWABLE, the largest by an exponential factor of the trinity of the known, the knowable and the unknowable.
But I digress.
------

"I'm very interested to know what makes up the remainder of 'mostly gold' if you can share that - I'm intrigued to know what other Freegolders consider to be of value"

I have a little art, my business, the usual household furnishings and appliances, some cash, some additional longer-life food and other everyday non-perishables (but no great quantities of anything). All the usual stuff. The major one, in currency terms, however is silver. This was not purchased recently; in fact I have been dishoarding it lately in favour of gold, much like FOFOA's example above. That it is providing leverage into more gold than the initial outlay would have is a bonus.

These assets, including the gold, are however not my most valuable asset, not even close, and I could proceed into the future without them without looking back.
------
cont...

costata said...

When the Oil Price Portends Recession

http://dailyreckoning.com/when-the-oil-price-portends-recession/

According to Nomura Securities, every time there is a big increase in the price of oil – 170% or more – there is also a recession.

We mean every time in the last 40 years – ’74, ’79, ’90, and ’00.

And don’t forget, it wasn’t just subprime debt in the US that spelled doom for the economy in ’08. It was also skyrocketing oil prices…that pinched household budgets all over the world.

And guess what? The price of oil has already risen more than 170%.


Date: Tue Nov 25 1997 10:06
ANOTHER (THOUGHTS!) ID#60253:

Allen,
The US$ is today, backed by oil. As all other currencies are but "digital units" tied directly to the dollar, they are indirectly on the oil standard also. This world currency position is supported thru the BIS. In CB circles, it is well known that the world debt markets as we know them, can only be maintained with cheap and cheaper oil! Without cheap oil the entire system fails and reverts back to pay as you go economies. This is the central reason for "two price gold".

With gold discounted to it's production cost and below, those that have it can trade it for it's monetary value. Make no mistake, the BIS knows gold in the many thousands. The future "reset value" of gold is the key. "support the dollar with oil and the currency system works" "fail the currencies and the dollar will come off the oil standard and the BIS will reset gold to $10,000+ with many conditions"

That is why they continue to accept the dollar as a reserve. If Japan or any other COUNTRY sells US treasury debt it's all over!


Date: Fri Nov 28 1997 23:29
ANOTHER (THOUGHTS!) ID#60253:

As for the old agreement of oil/gold ratio, it went out the window after the gulf war.

Date: Sun Oct 19 1997 09:42
ANOTHER (THOUGHTS!) ID#60253:

The economic game is ending now and has been from the start of 1997! Watch closely as the world currencies and markets fall one by one. Watch in absolute wonder as the demand for oil plunges and it's price goes thru the roof. Yes, oil stocks will crash with the markets. And gold? You will never know it's price. It will stop all trading as it slices thru $10,000+. (My emphasis)

Date: Sat Feb 14 1998 20:18
ANOTHER (THOUGHTS!) ID#60253:

WW3? Wars are fought over oil, not gold!

Blondie said...

...cont

"another question some might ask is why you extinguished your paper-denominated debts, rather than using that paper to buy gold."

You mean why did I not use the leverage to acquire additional physical?
This is an interesting question.

matt said:

"There is no moral high ground issue for borrowing to buy gold.
There is nothing wrong with maximizing your potential."


Anthemius said:

"I must disagree with Blondie though and your comment that such debt is adding to the problem in some way meaning it is morally questionable. My actions can't make 1% of 1% of difference compared to that of the state/banking partnership that is eating my country, I see no reason at all not to join in now. As someone said to me above in a different context, you can't help anyone if you don't help yourself."

They both feel it is okay for them.
I don't feel it is for me.

These things are seen in the context of the personal values we were discussing above, and in that context both views are correct.
I do not expect others to live in accord with my values, I am merely expressing them; the world is not black and white, it can be helpful to be exposed to different views.

FOFOA said:

"Do what brings you the peace."

Seems a good place to leave that particular discussion, although am aware I have not answered your question as to how I arrived at my view. I may try to explain that later, but in response to your request, rather than a manifesto I expect others to follow, just to be clear.

enough said...

Hi John,

I have been very lucky for never having to take on any debt. I just lived within my means and accumulated savings which I now hold in physical gold.

For the 1st time in my life I just took on some debt by buying a badass RV in case things become disorderly at some point. If not I'll just have some fun.....

Now, it seems to me that the 5.15% FIXED RATE 15 year loan is a no brainer. I am paying back a fixed amt. of constantly depreciating fiat !!! The fixed amt of future $'s I am paying back are worth less than the $'s I would have used if I had paid cash now. This idea of long term fixed rate borrowing in a low interest rate environment is good enough but if I was to pay I&P back with small sales of gold over that time frame it gets even better !!

I would only borrow knowing that I could comfortably pay it back in fiat and If I cant they can repossess the RV.....


I would NEVER buy physical gold with borrowed money !!! In my case they can take the RV as the loan is secured by specific collateral in the other they can take your gold as that debt would be secured by any/all of your assets. RV's IMHO are not the store of wealth par excellence. I would risk losing the RV, NOT MY GOLD !!

Who knows what tricks the bankster could come up with to steal your gold...change the rule along the way.....they've done it before and WILL do it again! Purchasing physical gold should come from savings and not speculative leverage.

One more point. clearly other assets like base metals, ag commodities, high yield bonds etc have done very well from the 2008 lows. Even outperforming gold but THE VERY REASON these assets have rallied is the reason gold will leave them all in the dust and soon. These assets have risen due to the sickness of MONITIZATION/LIQUIDITY PUMPING. When our society either OD's on credit or goes cold turkey all these other assets will head south fast while gold will rise like the pheonix !! cheers, E

costata said...

Anthemius,

This analysis of the USD index may interest you.

http://www.financialsense.com/contributors/chris-puplava/time-for-gold-to-shine

We just had a trend line break in the USD that looks uncannily similar to the 1970s break and if history is any guide we could see a pretty explosive move in gold to the upside if the USD bearish break picks up steam.

You might also want to compare this to Martin Armstrongs latest analysis of gold.

http://www.scribd.com/doc/50715133/How-When-03-01-2011

That was an impressive save on the Yen (hedge fund/FX desk) crisis in the last few days. It would appear that the 'masters of the universe' retain their mastery, for now.

You may have a window of opportunity looming provided there isn't another systemic breakdown (which oil could be signalling according to some analysts flagged in an earlier comment by yours truly).

Cheers

matt said...

costata

There is not actually a big increase in oil costs when compared to every other commodity. Oil has been lagging all commodities. Its all inflation.

raptor said...

http://gold.bullionvault.com/How/GoldValue

Based on historical data, in fact – plus his expectations of future inflation – Paul Tustain believes the true value of gold is nearer $3,844 per ounce today.

costata said...

Hi matt,

I'm not sure what you meant by:
Its all inflation.

"Oil has been lagging all commodities."

Agreed, in terms of percentage increase in US dollars. However, oil (energy) is obviously a cost factor in (or on) every commodity, especially agricultural commodities. Floating exchange rates can ameliorate the impact but we are still on a de facto US$ oil standard.

Oil can feed into cost increases in the production process and supply chain multiple times. I'm suggesting it has a cumulative impact that is absent for, say, wheat or corn. In other words other commodities, as well as goods and services, are 'leveraged' to the price of oil.

I think the point that Bill Bonner was making about the Nomura Securities research was that there is a price 'tipping point' where a world economy, reliant on cheap (enough) oil, seizes up and enters a recession.

http://dailyreckoning.com/when-the-oil-price-portends-recession/

John said...

Even Blondie and FOFOA still have some silver to 'dis-hoard'... And I thought all convinced Freegolders were at virtually 100% gold already :)

Blondie, I *really* appreciate your responses. They may not resonate with others, but they came at just the right time to feed into thought processes I've been brewing for some months now. And don't worry, I make my own decisions - but I'm not going to come to a blog like this and make out that I have all the answers for even my own situation, as I don't! (Yet.)

A couple of points from yours above:
- Am I cheeky to wonder at the approximate size or proportion of your silver stash?!
- I certainly didn't take offense at your replies. They were invited, after all, and I can't see them as being rude?
- the question I asked about the extinguishing of your paper debts was asked to try to understand why you considered that a priority. Some, like Doug Casey, consider the idea of hyperinflation wiping out debts to be a nice bonus. I don't like the idea myself but was interested to know your reasoning.


One more thought - does a person, by borrowing to buy gold, contribute to the onset of Freegold? And if so, would that be a bad thing, given that you (and I) consider that the coming of Freegold will be a good thing? [Incidentally, I will never borrow to buy gold. For one thing, it totally goes against the idea of 'earning' value rather than thinking about 'buying' it, and for another it just wouldn't give me peace - there's a good verse abot vainly gotten profits...]

John said...

enough, I am confused as to why you would take on debt to buy something you see as NOT being a good store of value?

If a person took on debt to buy gold, I assume that person wouldn't mention the shiny yellow stuff at ANY time to the bank!

John said...

FOFOA, I'm intrigued by your last comment about your goals etc, but confused by its vagueness! Could you shed just a little more light on what you were referring to (e.g. the 1% risk concept, and the nature if not the size of the original goal) without saying too much?

Surely people here wouldn't accept an investment 'recipe' rather than coming up with their own, by the way?

Anthemius said...

Costata

Thanks for the links - I actually read the Martin Armstrong one last week when someone else linked to it. Sorry, I don't quite see what you mean exactly?

That top article is fairly clear. MA is suggesting that there will be some sideways movement for a while as gold and maybe a dip to an absolute minimum of $1100ish I recall (where he sees considerable support), but then by summer - say - the bull market and new highs would have resumed.

Are you suggesting there is potentially a buying oppurtunity coming up ie. lower prices? Or are you saying that a large move up is likely soon. I actually have no more money so can't do much other than wait now! I'm just trying to understand the dynamics and learn more...

mortymer said...

Reforming EMU: time for bold decisions
Speech by Jean-Claude Trichet, President of the ECB
at the conference of the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament “What future for the euro?”
Frankfurt, 18 March 2011

http://www.ecb.int/press/key/date/2011/html/sp110318_1.en.html

costata said...

Anthemius,

I read the Armstrong piece differently.

One of the scenarios he presented was a run up to US$1,700 and a correction to around $1,500(ish) middle of June.

As you are dealing with (or not) rollover risk, duration risk, timing (a subset of the above, granted) and price risk, I thought it might be worth considering locking in some profits if Armstrong's $1,400-to-$1,700-to-$1,500 now-to-June scenario played out.

Anthemius said...

Costata

Rereading it, yes I do have a slightly distorted memory of that article.

Yes, that's a good point - I've been thinking the same thing but with silver. I have about the same amount in silver now (@$34) as is due to be rolled over in september, so I was thinking more of a silver play along those lines. If silver were to hit $40-45(or more) at some point over the summer (as Sprott for example is suggesting), I will I think cash out what I need to wipe the september money. That means I get to keep my gold!

mortymer said...

@ Edwardo: For your info - historically it is the seventh Russian Ruble; code RUB. Here you have just a brief overview of what is in pile for dollar :o) By calculating the product of all six redenominations, it is seen that a seventh ruble is equal to 5×10^15 original rubles.

Sixth ruble, 1961 – 31 December 1997. The 1961 redenomination was a repeat of the 1947 reform, with the same terms applying. The Soviet ruble of 1961 was formally equal to 0.987412 gram of gold, but the exchange for gold was never available to the general public. This ruble maintained parity with the Pound Sterling until the breakup of the Soviet Union in 1991 when the ruble became the new currency of the Russian Federation.

http://en.wikipedia.org/wiki/Russian_ruble#Seventh_ruble.2C_1_January_1998_.E2.80.93

Note about spelling: English spelling - Both the spellings "ruble" and "rouble" are used in English. The form "rouble" is preferred by the Oxford English Dictionary, but the earliest use recorded in English is the now completely obsolete "robble".

Paul said...

Armstromg also suggests the break out to 1700 now would be bad for freegold comming soon.
It has to tank up first. for a real phase transition gold should line up with the economic confidence model. the turningpoint in the model on 13/14 june 2011 is a low. when gold lines up with it(therefore will be the hot money comming wave) it should take a low on this turningpoint.

costata said...

John,

Even Blondie and FOFOA still have some silver to 'dis-hoard'... And I thought all convinced Freegolders were at virtually 100% gold already :)

When did either of these people, or any of us mostly ex-silver holders, say what you allege, or do what you allege, you goose?

At present, in my neck of the woods, if any holder of physical gold wants some physical silver he/she drops an ounce of gold on the table and gets .... 45-50 ounces of physical silver. But wait the GSR says "not so" well after you calculate the premiums on physical that is the deal.

I am getting to the point of despising you silverbugs. I sent this to FOFOA today.

Me:
Comment posted at ZH. I'm wondering if our species deserves extinction.

by CrockettAlmanac.com
on Sun, 03/20/2011 - 00:22
#1077730

Sunday, March 20, 2011 1650kg of Silver fired at Libya to enable No-Fly Zone From: AlJazeeraEnglish | Mar 19, 2011 US Vice Admiral William Gortney, the director of the Pentagon's Joint Staff, briefed journalists on the first phase of the UN-backed international military operations against forces loyal to Muammar Gaddafi, the Libyan leader. Note each cruise missile contains approx. 15kg of silver in wiring, contacts, solder and batteries. (My emphasis)

http://ausbullion.blogspot.com/2011/03/1650kg-of-silver-fired-at-libya-to.html

Please don't tell me that this is "a rogue element" in that otherwise decent silverbug world. Not one person in that ZH thread called that prick out on this comment.

In ZH style: Pieces of Shit bitchez!

mortymer said...

TARGET2 is the joint gross clearing system of the ESCB that unifies the technical infrastructure of the 26 central (note-issuing) banks of the European Union. It went live on November 19, 2007.

http://en.wikipedia.org/wiki/TARGET#TARGET2

+...and here is one road-map of an important development:

T2S (TARGET2-Securities)

http://www.ecb.europa.eu/paym/t2s/progplan/html/index.en.html

+...some stats:

http://www.ecb.int/stats/payments/payments/html/index.en.html

~Gold, educate yourself

John said...

costata, I am confused by your comment. And I guess I'm supposed to be offended?

Perhaps I misunderstood, but Blondie and FOFOA both mentioned having some remaining silver (at least until recently, don't know if FOFOA meant that he just got rid of his last) a few comments above mine.

I'm not a silverbug. I'm genuinely surprised to hear that either of them still had any silver and am curious about it.

Hope that's OK with you...

John said...

@John

Don't mind costata. He's a BIG Freegold proponent and takes the ALL IN approach. He also doesn't hold back his feelings very well, at least in the cyber-context. Many of us gold hoarders also hoard silver for various reasons. I believe that there are also silverbugs that hoard the yellow stuff when they recognize the weight to space issues. I personally enjoy some of the silver discussions, especially when they relate to possible Freegold transition outcomes. What gets under my skin is when a person simply MENTIONS silver and gets accused of being a silverbug without any regard for their actual position on the subject. Anyway, costata is a decent guy with a fair amount of knowledge on the subject of Freegold. Don't let his abrasive nature color your opinion too much.

PS I read that the same way you did John. It looks like blondie and FOFOA still have minor positions in silver. I believe that it's a prudent position considering that A suggested a year or more transition time when gold goes into hiding. I would want at least a LITTLE in metals that was appreciating or at least holding it's own rather than just depreciating fiat for that transition.

- JohnW

John said...

And by metals I mean small amounts of silver or even nickel and copper. It may be that barter will be the most reasonable system during transition. It's tough to barter with things that don't hold value. The other metals hold value whether they are the store of wealth par excellence or not.

- JohnW

sean said...

John,
don't be offended by Costata... he's just speaking Australian ;-)
(NB: I'm also an Aussie - it's curious to me that there seem to be so many of them about here. Perhaps an affinity to Australia's gold history??)
Anyway, fyi, FOFOA mentioned some time back that he had dishoarded the last of his silver. As Costata said, many here are ex-silverites and/or are happy to gamble a little on the side, while maintaining their real-money gold reserves firm. Nothing wrong with that.
Speaking for myself, FOFOA's comment about "peace of mind" resonates. This is the only reason I ever delved into this whole topic of finance, which otherwise attracts far too many avaricious charlatans for my liking. Having said that, I also have some silver which I am converting gradually to gold. While the gold gives me peace of mind, the silver gives me nothing but stress and anxiety, especially over the last couple of weeks! It's a question of whether I really want to spend my free time reading blogs speculating on the possible motives of shady ex-JPMorgan vigilantes and the effect of shooting cruise missiles of silver at Libya will have on silver prices... or actually get out and have a real life, knowing that my savings are safe and sound all the while.
Perhaps that's the real "freedom" in Freegold!

Greenie said...

In 2001, I came across few people very knowledgeable about the housing and mortgage markets. One of them explained in full detail, how Fannie and Freddie were full of accounting and derivatives problems and were bound to fail. Around 2005, these problems with Fannie and Freddie came to light and started to get full exposure. Fannie stock halved and we were sure their time has come. To our surprise, all accounting problems were 'solved' and Fannie stock recovered and made new highs. During the some of those experts felt that Fannie and Freddie were better off than the conventional banks. (i) they did not have much toxic mortgages, (ii) their accounting discrepancies were somewhat resolved or at least exposed, (iii) if accounting problem could not kill them, nothing could.

And then Fannie/Freddie dies all of a sudden due to tsunami effect of Bear Stearns bailout.

So, my advise to you is to leverage on 'freegold', only when you are convinced that gold price is going to zero, not infinity.

Greenie said...

FOFOA told you how difficult it was to find gold at market price during Oct 2008. I can tell you how easy it was.

In Oct 2008, I happened to be at a large city in India, where my parents live. I flew to India on Oct 9, 2008, and at every airport I stopped at, TVs and newspapers were full of stories about the world 'melting down'. When I got down in India and noticed gold price, I told my mom to buy as much gold as her tiny savings would allow. We went to a jewelery story and it was nearly empty. If you do not know about India, October is the festival session, when you have to fight with crowds to get into a gold store or reach the counter. We picked delivery of our gold within two days.

In contrast, a couple of months back, when my mom bought small gold jewelery gift for a baby festival, she had to wait for few weeks to get delivery.

matt said...

Costata

Oil was not lagging any commodities in 2008, now oil lagging all commodities (priced in dollars.)

That indicates to me that this is not a demand pull rise in oil prices but just a devaluation of the dollar.

These commodity charts show indications of incipient hyperinflation, where as 2008 was just a bull market top in oil prices.

matt said...

Check out this 10 year cotton chart.

http://www.mongabay.com/images/commodities/charts/cotton.html

John said...

JohnW, sean, thanks for the reassurance ;)
I know costata is knowledgeable, and has a relatively short fuse when it comes to silverbugs - he just hadn't mistaken me for one before now :)

Regarding holding onto some silver for a disorderly transition - wouldn't gold fractionals (e.g. 1g, 2.5g) be a better idea than silver ounces? Or gold jewellery? The length of a stormy transition, if there is one, can't be predicted with any accuracy, but I'd be interested to know how much silver people are holding onto for that purpose. When 40 ounces of silver can be traded for an ounce of gold, holding onto the silver feels even more 'expensive' in gold terms...

Are many other Freegolders holding back *some* cash to take advantage of a big dip in the gold price, if it comes? Don't know if we'll ever see $1300 again, but I've got (a little) paper aside for it if we do.

As a slightly-tongue-in-cheek aside, it's been interesting to see how silverbugs (in person and on the internet) try to 'persuade' by peppering the uninitiated with 'facts' (e.g about the evil JPM, the 'undeniable' price suppression and the certain reversion to a GSR of 17 or lower) while Trail followers take what I call the Mona Lisa approach, murmuring about Thoughts and Other Title-caps Things and being reluctant to give concrete advice beyond 'Get gold now'. And it's funny how much like a silverbug I felt when first trying to explain to someone why gold is the true monetary metal - I found it hard to sound less dogmatic and conspiracist than the typical silverbug. I've got work to do on that front...

It's been assumed several times above here that I'm hoping someone will hold my hand and write out a series of steps to take with my finances. Not so... Some people like to read theories and translate them into practical decisions without reference to the actions of others, but I for one LIKE to hear about what others are doing - in general terms if need be. I can learn from it, and have done, and I would consider myself to be arrogant if I didn't think that I could pick something up from trying to understand why an intelligent person has done a particular thing. For me it's been refreshing and helpful to read this thread / page here.

Blondie said...

John said:

"Am I cheeky to wonder at the approximate size or proportion of your silver stash?!"

Larger than I am comfortable with (I'd be happiest with none); I have been slack in my efforts to dispose of it. I will look to remedy that today. Because I have gold, and as mentioned previously I feel the largest benefits of Freegold will be felt by everyone, gold owner or not, I am not as motivated to spend my time selling silver for gold as I might otherwise be.

I am a seller of silver, but only for gold.
I share sean's views as expressed above (but I'm not an Aussie).
I purchased silver when my understanding of our monetary system was not as thorough as it is now.
Silver is better than paper (but so is almost any tangible good) in the immediate future, but it ain't got a patch on gold. Enough made an excellent point above too:

" THE VERY REASON these assets have rallied is the reason gold will leave them all in the dust "

Obviously my asset allocation is nothing outrageous; the only aspect which I would emphasize is that very little of it is in the form of claims in the system (paper). Paper claims are exchangeable for payment in full only at the margin. There will soon come a time when that margin is gone.

Blondie said...

"Are many other Freegolders holding back *some* cash to take advantage of a big dip in the gold price, if it comes?"

Any cash I hold, and it is cash is only for use in securing necessities during any time of monetary turmoil, not for purchasing gold. That's done.

In the meantime, I continue to take payment in full from any surplus value I accrue, but that's a flow thing, not a stock thing.

enough said...

Hi John,

never said I borrowed to buy something that was intended to be be a store of wealth. We also buy things because they have utility to us. Obviously what those items are are individual choices. The price paid and future mkt conditions determines whether it will hold/increase/decrease in value but it is not purchased for that reason.

It seems obvious that buying things for their utility and buying gold as a store of savings are 2 completely different things. I am much more comfortable borrowing against specific collateral such as car boat etc. vs borrowing against my supreme store of wealth. In fact JP now allows you to use your physical gold as collateral against borrowing from them....hmmm? Wonder if it goes into a form of unallocated acct? Those things that I buy for utility are by definition not part of my savings. They are to be used!! Hey even physical gold holders want to have some fun !! All gold and no play make enough a very dull buy. Best, E

mortymer said...

BANK FOR INTERNATIONAL SETTLEMENTS

REAL-TIME GROSS SETTLEMENT SYSTEMS

Report prepared by the Committee on Payment and Settlement Systems of the central banks of the Group of Ten countries; Basle; March 1997

http://www.bis.org/publ/cpss22.pdf

also:

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

The above report includes quite interesting parts like this:

"...In describing the settlement characteristics of net settlement systems, the concept of certainty of settlement is sometimes used. This concept is not related to the timing of final settlement per se but, as described in the Noël Report, refers to the certainty that the system will be able to effect final settlement when the netting cycle and the associated settlement procedures have been completed. Certainty of settlement relates to a multilateral netting system's ability to meet Lamfalussy Standard IV, namely that such systems should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single net debit position.11 Multilateral net settlement systems that are secured in compliance with all the Lamfalussy standards, including Standard IV, and that can therefore assure settlement in the event of any single participant failure are often called Lamfalussy-compliant systems. Stronger forms of certainty of settlement arise when a net settlement system is capable of ensuring settlement in the event of more than one participant failing. These systems are often called Lamfalussy-plus systems. A particular category of Lamfalussy-plus systems concerns those that can assure settlement in all circumstances, that is, regardless of how many participants fail..."

well... just intro to RTGS systems :o)

zenscreamer said...

I wrote a long, lyrical comment to tell my "how I got physical" story, but Blogger ate it. :-(

In a nutshell, John: I looked at a printout of an "account" with some numbers on it, and it make me uneasy; I traded some of those numbers on a page (with some difficulty!) for printed $IMF, and I felt very little better; I visited a man in the metals business and traded those $IMF for the wealth of ages, held it in my hand, and finally felt some peace.

I kept making the same change, over and over, until I felt safe. I just feel safer with my fortunes tied to the material realm, rather than the imaginary one.

enough said...

SINGAPORE, March 21 (Reuters) -

The world's largest
gold-backed exchange-traded fund, SPDR Gold Trust , said
its holdings rose to a 5-1/2-week high of 1,226.395 tonnes by
March 18 from 1,217.295 tonnes on March 16. The holdings hit a record at 1,320.436 tonnes on June 29

enough said...

Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar.

Andrew Bailey, head of banking at the Bank of England, told an American official that the central bank had observed “significant moves by Iran to purchase gold”, according to a US diplomatic cable obtained by WikiLeaks.

The gold buying “was an attempt by Iran to protect its reserves from risk of seizure”.

Market observers believe Tehran has been one of the biggest buyers of bullion over the past decade after China, Russia and India, and is among the 20 largest holders of gold reserves.

They estimate it holds more than 300 tonnes of gold, up from 168.4 tonnes in 1996, the date of the most recent International Monetary Fund data

Museice said...

If I missed a conversation on this I apologize.

The Floating Dollar as a Threat to Property Rights


"At that point, a coalition of federal judges went into court. Their aim is limited: to force Congress to reinstate the automatic pay adjustment. To understand the scale of what one is talking about, consider the pay of but one of the plaintiffs, Judge Silberman. I don’t know his exact salary. But at the time he was assigned to the District of Columbia Circuit of the United States Court of Appeals, the salary of a federal appeals judge—$83,200—was worth 258 ounces of gold. Since then, the value of the pay of a judge of one of the Appeals circuits—$184,500—has been diminished to 139 ounces of gold."

John said...

Anybody putting even a small proportion of their gold into BullionVault or GoldMoney? Seems to me a reasonable way to spread one's gold storage around a bit rather than risking it all in a single location / city / country. Obviously the gold isn't in one's hot little hand, but it is at least allocated...

Rui said...

Doug Casey probably understands the role of gold better than you think he does, otherwise he would not have quite a few succinct little articles online making a case for gold from time to time.

What Casey, as a pro-small-government businessman, probably could not understand is why people still want FIAT as it always ends up being abused by the government as a tool to steal from the productive group of people.

julian said...

@ Rui

Casey is not pro-small-government. It appears unimportant detail, but he is more like peaceful voluntary market -pro, perhaps named anarcho-capitalism by some.

All,

For you and the rest that have not seen it, here is a top quality interview of doug casey done by stefan molyneux of freedomain radio.


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



Two other videos that bring out observations of "Freegold" :

Gold going forward: Au wrappers and next gen ceo players, some interesting thougths. :

http://www.youtube.com/watch?v=qJ-6SuioCwI

and "gold thoughts". seems this one speaks of all paper burning, but not in those words

http://www.youtube.com/watch?v=U3zd7M-I4mo



When they talk of "debt" I also tend to thought of Au, Ag, Oil, all those paper markets trading more than exists.

Also, talk of nationalizing mines...that's freegold talk, isn'it ?!! I think that's from the "gold thoughts" video

Best wishes!

- Julian

julian said...

Blondie said

Paper claims are exchangeable for payment in full only at the margin. There will soon come a time when that margin is gone.

Do you mind elaborating on that for me? My misunderstanding probably comes from the use of "margin."

Thanks in advance.


All,

disclosure: sometimes i read the comments bottum up

Also, another thing i was wanting to share, some of you probably saw it, from zerohedge is where i read it:

http://www.zerohedge.com/article/fbi-busts-mastermind-criminal-issuing-silver-currency-demanding-repeal-fed-and-irs-faces-15-


what gets me is the "to create private coin or currency systems to compete with the official coinage and currency of the United States." (or any State)

no competition, or you suffer the consequences!

keep your eyes down, slave!

:(

listen to that doug casey interview!!

my favourite part is when he talks about the dinner parties in aspen! around 21:50

Anyway, it's a crazy one tonight! Lots of exclaiming!!! And questioning?!

Interesting, this whole silver for gold thing.

Gold. It's all about coming to terms. That's what I take from some of the great discussion in all the above comments. Thanks All!!

Thanks FOFOA!

matt said...

Doug Casey is against the gold standard. He said in a recent interview. So I guess that makes him a freegold guy after all. Yet he talks about gold becoming a bubble market similar to Nasdaq stocks.

For the record, I am 60% gold and silver stocks and 40% gold bars. I plan to go 50/50 and stay there for a while. That doesn't include cash.

Wendy said...

Muse, I did read that article earlier today, it was linked at dollarcollapse, I found it quite interesting

mortymer said...

@Matt Yours -> "Oil was not lagging any commodities in 2008, now oil lagging all commodities (priced in dollars.) That indicates to me that this is NOT a DEMAND PULL rise in oil prices but just a DEVALUATION of the dollar. These COMMODITY charts show indications of incipient hyperinflation, where as 2008 was just a bull market TOP in OIL prices."

IMO sum:
*************

=> Dollar was gold backed, later it is "partially" oil backed.

=> Gold is precious, oil is consumable.

=> Both now are not just simple commodities but have monetary features. Gold hidden; oil not so known.

=> Oil-dollar complex gets inevitably broken. Credit derived from dollar peaks.

=> Watch how commodities, gold, dollar moves.
[A: "Watch in absolute wonder as the demand for oil plunges and it's price goes thru the roof."]

=> Problems of dollar noticed on its periphery and in derivative markets. Dollar interest rates tanking. QEX&bail-outs&other programs&printing to slow derivatives complex imploding. Dollar rises and then goes down, slowly loosing its store of value function.

=> Euro-gold-productivity complex becoming stronger.
1) Euro changes in the reserves ratio dollar reserve currency->gold
2) Gold becoming denominated reclassified wealth asset.
3) Currency backed by productivity of economy (See ECB status reports on their work to create new improved competitive economy framework).

=> An attempt to keep the status-quo by "stable" oil prices on some level (see OPEC statements) and gold on some level (linear rise) leads to spikes in commodities as dollar tries to keep the store of value function denying it to gold.

=> Commodities spiking atm. (Note: silver seems to be moving with other commodities)

=>A lot of "wealth" activated, especially that part which is allocated in dollar tied assets is in threat, much of wealth in search of a place where it can keep its value, much of activated wealth speculating (willingly or unwillingly).

=> Consequences?
[A: "Watch closely as the world currencies and markets fall one by one."]

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

Julian,

Margin: the edge or border of something.

The claims in the system (the paper) continue to enjoy the confidence of the users of the system because they can be exchanged for payment in full (assets), but this can only be done at the edge of the system, ie. in limited quantity.

The users are extrapolating this functioning exchange at the margin to apply to all their claims (saved paper), but it cannot. The quantity of paper far exceeds the quantity of assets.

mortymer said...

Def. Margin, Margin call by BIS:

http://www.bis.org/publ/cpss00b.pdf

MARGIN = generally, the term for collateral used to secure an obligation, either realised or potential. In securities markets, the collateral deposited by a customer to secure a loan from a broker to purchase shares. In organisations with a central counterparty, the deposit of collateral to guarantee performance on an obligation or cover potential market movements on unsettled transactions is sometimes referred to as margin.

MARGIN CALL = a demand for additional funds or collateral, following the marking to market of a securities lending transaction, if the market value of underlying collateral falls below a certain level relative to the loaned asset. Similarly, if the value of the underlying collateral assets, following their revaluation, were to exceed the agreed margin, the return of collateral might be required.

mortymer said...

...cont (Mrt: the above link, with proper headline)...

Committee on Payment and Settlement Systems

A glossary of terms used in payments and settlement systems; 2003

http://www.bis.org/publ/cpss00b.pdf

"The Committee on Payment and Settlement Systems (CPSS) is publishing this comprehensive
glossary of payment system terminology as a reference document for the standard terms used in
connection with payment and settlement systems. It combines various glossaries appended to earlier
reports by the CPSS and the European Central Bank (ECB)..."

Museice said...

Committee on Payment and Settlement Systems
A glossary of terms used in payments and settlement systems; 2003

SilverDoctors said...

FOFOA: you are one of the few goldbugs with the understanding that the paper $ gold and silver prices listed on the exchange may well collapse even as the physical bullion market values go supernova.
We at silverdoctors.blogspot see this happening in the silver market first, and rapidly spilling over into the physical gold market, but we shall see. The events of the past 10 days have greatly sped up the time table for the coming fiat collapse and a return to fair value for sound money.

tina said...

Dont think the BIS your friend.


Secretive Plan For a Global Currency
Excerpt from "The Global Economic Crisis: The Great Depression of the XXI Century"
by Ellen Brown
Towards a New Global Currency?
 
Is the Group of Twenty Countries (G20) envisaging the creation of a Global Central bank?
Who or what would serve as this global central bank, cloaked with the power to issue the
global currency and police monetary policy for all humanity? When the world’s central bankers
met in Washington in September 2008 at the height of the financial meltdown, they discussed
what body might be in a position to serve in that awesome and fearful role. A former governor
of the Bank of England stated:
 
The answer might already be staring us in the face, in the form of the Bank for
International Settlements (BIS)... The IMF tends to couch its warnings about
economic problems in very diplomatic language, but the BIS is more independent
and much better placed to deal with this if it is given the power to do so.[1]
 
And if the vision of a global currency outside government control was not enough to set off
conspiracy theorists, putting the BIS in charge of it surely would be. The BIS has been
scandal-ridden ever since it was branded with pro-Nazi leanings in the 1930s. Founded in
Basel, Switzerland, in 1930, the BIS has been called “the most exclusive, secretive, and
powerful supranational club in the world.” Charles Higham wrote in his book Trading with the
Enemy that by the late 1930s, the BIS had assumed an openly pro-Nazi bias, a theme that was
expanded on in a BBC Timewatch film titled “Banking with Hitler” broadcast in 1998.[2] In
1944, the American government backed a resolution at the Bretton Woods Conference calling
for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen
by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out
the American resolution.[3]
 
In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley
revealed the key role played in global finance by the BIS behind the scenes. Dr. Quigley was
Professor of History at Georgetown University, where he was President Bill Clinton’s mentor.
He was also an insider, groomed by the powerful clique he called “the international bankers.”
His credibility is heightened by the fact that he actually espoused their goals. Quigley wrote:
 
I know of the operations of this network because I have studied it for twenty years
and was permitted for two years, in the early 1960’s, to examine its papers and secret
records. I have no aversion to it or to most of its aims and have, for much of my life,
been close to it and to many of its instruments... In general my chief difference of
opinion is that it wishes to remain unknown, and I believe its role in history is
significant enough to be known...
 
The powers of financial capitalism had another far-reaching aim, nothing less than to
create a world system of financial control in private hands able to dominate the
political system of each country and the economy of the world as a whole. This
system was to be controlled in a feudalist fashion by the central banks of the world
acting in concert, by secret agreements arrived at in frequent private meetings and
conferences. The apex of the system was to be the Bank for International Settlements
in Basel, Switzerland, a private bank owned and controlled by the world’s central
banks which were themselves private corporations.[4]
 
The key to their success, said Quigley, was that the international bankers would control and
manipulate the money system of a nation while letting it appear to be controlled by the
government.

tina said...

cont..

The statement echoed one made in the 18th century by the patriarch of what became the most
powerful banking dynasty in the world. Mayer Amschel Bauer Rothschild is quoted as saying
in 1791: “Allow me to issue and control a nation’s currency, and I care not who makes its
laws.” Mayer’s five sons were sent to the major capitals of Europe – London, Paris, Vienna,
Berlin and Naples – with the mission of establishing a banking system that would be outside
government control. The economic and political systems of nations would be controlled not by
citizens but by bankers, for the benefit of bankers.
 
Eventually, a privately-owned “central bank” was established in nearly every country. This
central banking system has now gained control over the economies of the world. Central banks
have the authority to print money in their respective countries, and it is from these banks that
governments must borrow money to pay their debts and fund their operations. The result is a
global economy in which not only industry but government itself runs on “credit” (or debt)
created by a banking monopoly headed by a network of private central banks. At the top of this
network is the BIS, the “central bank of central banks” in Basel.
 
Behind the Curtain
 
For many years the BIS kept a very low profile, operating behind the scenes in an abandoned
hotel. It was here that decisions were reached to devalue or defend currencies, fix the price of
gold, regulate offshore banking, and raise or lower short-term interest rates. In 1977, however,
the BIS gave up its anonymity in exchange for more efficient headquarters. The new building
has been described as “an eighteen story-high circular skyscraper that rises above the medieval
city like some misplaced nuclear reactor.” It quickly became known as the “Tower of Basel.”
Today the BIS has governmental immunity, pays no taxes, and has its own private police force.
[5] It is, as Mayer Rothschild envisioned, above the law.
 
The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a
much smaller group; and even within it, there is a hierarchy. In a 1983 article in Harper’s
Magazine called “Ruling the World of Money,” Edward Jay Epstein wrote that where the real
business gets done is in “a sort of inner club made up of the half dozen or so powerful central
bankers who find themselves more or less in the same monetary boat” – those from Germany,
the United States, Switzerland, Italy, Japan and England. Epstein said:
 
The prime value, which also seems to demarcate the inner club from the rest of the
BIS members, is the firm belief that central banks should act independently of their
home governments... A second and closely related belief of the inner club is that
politicians should not be trusted to decide the fate of the international monetary
system.[6]
 
In 1974, the Basel Committee on Banking Supervision was created by the central bank
Governors of the Group of 10 nations (now expanded to twenty). The BIS provides the
twelve-member Secretariat for the Committee. The Committee, in turn, sets the rules for
banking globally, including capital requirements and reserve controls. In a 2003 article titled
“The Bank for International Settlements Calls for Global Currency,” Joan Veon wrote:
 
The BIS is where all of the world’s central banks meet to analyze the global economy
and determine what course of action they will take next to put more money in their
pockets, since they control the amount of money in circulation and how much interest
they are going to charge governments and banks for borrowing from them...
 
When you understand that the BIS pulls the strings of the world’s monetary system,
you then understand that they have the ability to create a financial boom or bust in a
country. If that country is not doing what the money lenders want, then all they have
to do is sell its currency.[7]

tina said...

cont...

The Controversial Basel Accords
 
The power of the BIS to make or break economies was demonstrated in 1988, when it issued a
Basel Accord raising bank capital requirements from six percent to eight percent. By then,
Japan had emerged as the world’s largest creditor; but Japan’s banks were less well capitalized
than other major international banks. Raising the capital requirement forced them to cut back on
lending, creating a recession in Japan like that suffered in the U.S. today. Property prices fell
and loans went into default as the security for them shriveled up. A downward spiral followed,
ending with the total bankruptcy of the banks. The banks had to be nationalized, although that
word was not used in order to avoid criticism.[8]
 
Among other “collateral damage” produced by the Basel Accords was a spate of suicides
among Indian farmers unable to get loans. The BIS capital adequacy standards required loans
to private borrowers to be “risk-weighted,” with the degree of risk determined by private rating
agencies; farmers and small business owners could not afford the agencies’ fees. Banks
therefore assigned one hundred percent risk to the loans, and then resisted extending credit to
these “high-risk” borrowers because more capital was required to cover the loans. When the
conscience of the nation was aroused by the Indian suicides, the government, lamenting the
neglect of farmers by commercial banks, established a policy of ending the “financial
exclusion” of the weak; but this step had little real effect on lending practices, due largely to the
strictures imposed by the BIS from abroad.[9]
 
Economist Henry C K Liu has analyzed how the Basel Accords have forced national banking
systems “to march to the same tune, designed to serve the needs of highly sophisticated global
financial markets, regardless of the developmental needs of their national economies.” He
wrote:
 
National banking systems are suddenly thrown into the rigid arms of the Basel
Capital Accord sponsored by the Bank of International Settlement (BIS), or to face
the penalty of usurious risk premium in securing international interbank loans...
National policies suddenly are subjected to profit incentives of private financial
institutions, all members of a hierarchical system controlled and directed from the
money center banks in New York. The result is to force national banking systems
to privatize...
 
BIS regulations serve only the single purpose of strengthening the international
private banking system, even at the peril of national economies... The IMF and the
international banks regulated by the BIS are a team: the international banks lend
recklessly to borrowers in emerging economies to create a foreign currency debt
crisis, the IMF arrives as a carrier of monetary virus in the name of sound
monetary policy, then the international banks come as vulture investors in the
name of financial rescue to acquire national banks deemed capital inadequate and
insolvent by the BIS.
 
Ironically, noted Liu, developing countries with their own natural resources did not actually
need the foreign investment that trapped them in debt to outsiders: "Applying the State Theory
of Money [which assumes that a sovereign nation has the power to issue its own money], any
government can fund with its own currency all its domestic developmental needs to maintain
full employment without inflation."[10]

tina said...

cont...

When governments fall into the trap of accepting loans in foreign currencies, however, they
become “debtor nations” subject to IMF and BIS regulation. They are forced to divert their
production to exports, just to earn the foreign currency necessary to pay the interest on their
loans. National banks deemed “capital inadequate” have to deal with strictures comparable to
the “conditionalities” imposed by the IMF on debtor nations: “escalating capital requirement,
loan write-offs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-
cutting and freeze on capital spending.” Liu wrote:
 
Reversing the logic that a sound banking system should lead to full employment and
developmental growth, BIS regulations demand high unemployment and
developmental degradation in national economies as the fair price for a sound global
private banking system.[11]
 
The Last Domino to Fall
 
While banks in developing nations were being penalized for falling short of the BIS capital
requirements, large international banks managed to skirt the rules, although they actually carried
enormous risk because of their derivative exposure. The mega-banks took advantage of a
loophole that allowed for lower charges against capital for “off-balance sheet activities.” The
banks got loans off their balance sheets by bundling them into securities and selling them off to
investors, after separating the risk of default out from the loans and selling it off to yet other
investors, using a form of derivative known as “credit default swaps.”
 
It was evidently not in the game plan, however, that U.S. banks should escape the regulatory
net indefinitely. Complaints about the loopholes in Basel I prompted a new set of rules called
Basel II, which based capital requirements for market risk on a “Value-at-Risk” accounting
standard. The new rules were established in 2004, but they were not levied on U.S. banks until
November 2007, the month after the Dow passed 14 000 to reach its all-time high. On
November 1, 2007, the Office of the Controller of the Currency “approved a final rule
implementing advanced approaches of the Basel II Capital Accord.”[12] On November 15,
2007, the Financial Accounting Standards Board or FASB, a private organization that sets U.S.
accounting rules for the private sector, adopted FAS 157, the rule called “mark-to-market
accounting.”[13] The effect on U.S. banks was similar to that of Basel I on Japanese banks:
they have been struggling to survive ever since.[14]
 
The mark-to-market rule requires banks to adjust the value of their marketable securities to the
“market price” of the security.[15] The rule has theoretical merit, but the problem is timing: it
was imposed ex post facto, after the banks already had the hard-to-market assets on their
books. Lenders that had been considered sufficiently well capitalized to make new loans
suddenly found they were insolvent; at least, they would have been if they had tried to sell their
assets, an assumption required by the new rule. Financial analyst John Berlau complained in
October 2008:

tina said...

cont...

Despite the credit crunch being described as the spread of the ‘American flu,’ the
mark-to-market rules that are spreading it were hatched [as] part of the Basel II
international rules for financial institutions. It’s just that the U.S. jumped into the
really icy water last November when our Securities and Exchange Commission and
bank regulators implemented FASB’s Financial Accounting Standard 157, which
makes healthy banks and financial firms take a ‘loss’ in the capital they can lend even
if a loan on their books is still performing, even when the ‘market price’ [of] an
illiquid asset is that of the last fire sale by a highly leveraged bank. Late last month,
similar rules went into effect in the European Union, playing a similar role in
accelerating financial failures...
 
The crisis is often called a ‘market failure,’ and the term ‘mark-to-market’ seems to
reinforce that. But the mark-to-market rules are profoundly anti-market and hinder
the free-market function of price discovery... In this case, the accounting rules fail to
allow the market players to hold on to an asset if they don’t like what the market is
currently fetching, an important market action that affects price discovery in areas
from agriculture to antiques.[16]
 
Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which
proceeded to take down the economies not only of the U.S. but of countries worldwide. In
early April 2009, the mark-to-market rule was finally softened by the FASB; but critics said the
modification did not go far enough, and it was done in response to pressure from politicians
and bankers, not out of any fundamental change of heart or policies by the BIS or the FASB.
Indeed, the BIS was warned as early as 2001 that its Basel II proposal was “procyclical,”
meaning that in a downturn it would only serve to make matters worse. In a formal response to
a Request for Comments by the Basel Committee for Banking Supervision, a group of
economists stated:
 
Value-at-Risk can destabilize an economy and induce crashes when they would not
otherwise occur... Perhaps our most serious concern is that these proposals, taken
altogether, will enhance both the procyclicality of regulation and the susceptibility of
the financial system to systemic crises, thus negating the central purpose of the whole
exercise. Reconsider before it is too late.[17]
 
The BIS did not reconsider, however, even after seeing the devastation its regulations had
caused; and that is where the conspiracy theorists came in. Why did the BIS sit idly by, they
asked, as the global economy came crashing down? Was the goal to create so much economic
havoc that the world would rush with relief into the waiting arms of a global economic
policeman with its privately-created global currency?
 

matt said...

Tina

There is already a privately created global currency, its called the US dollar.

How much of the fofoa material have you read ?

Currencies cannot be created over night, especially reserve currencies. We already have a good idea what the new will look like and it does involve the BIS, gold and the ECB.

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