Friday, April 15, 2011

Forum 201

198 comments:

Tyrone said...

No 'Reply to Tyrone'?!!

I guess I'll settle for FreeGold!

Cheers!

Indenture said...

Greetings All: It is the 15th of the month and time to remind the Fellowship that we must DEFEND THE PRECIOUS. If you are like me you come to this site every day to learn not only from FOFOA but also from the diverse, intelligent commenters who have turned this web site into the most valued and insightful discussion on worldwide economic theory anywhere on the net. FOFOA's recent piece BIG GAP sparked Rick Ackerman to say, "You might try tuning instead to the hyperinflation arguments of Steve Saville, Peter Schiff and a few others who seem less concerned with trouncing, slicing and dicing opponents than with presenting facts that might better prepare you for the financial crisis ahead. The very best of them, in my opinion, is FOFOA blogspot, where the essays are erudite, the discussion elevated and the arguments as knowledgeable as any you will find on the web. ZeroHedge can be pretty informative too, provided the hairy-knuckled provocateurs who hang out there have been fed red meat within the last 24 hours."

That is exactly why we, as a collective, must help FOFOA maintain this forum.
Please donate today.

costata said...

If you were sitting on the amount of US$ exposure China has in its FX reserves why wouldn't you jump into Greek Euro bonds?

"Investors' flight from Greek government debt left 10-year bond yields at a new euro lifetime high of over 13pc and yields on two-year bonds at over 18pc, after Wolfgang Schaeuble said "additional steps" could be necessary if the European Central Bank concludes that the country's burden is unsustainable."

h/t Ed Steer

http://www.telegraph.co.uk/finance/economics/gilts/8452070/Fears-grow-over-Greek-debt-default-despite-bail-out.html

julian said...

Hello All,

a thought has been recurring to me

it relates back to someone's comment about Switzerland minting gold alloy coins for savings, or maybe they called it "investment"

the coins would be as low as 0.1g Au in content

at that time it had struck me firmly, getting a glimpse at the immanent and imminent value of gold going forward

but it struck me even more when i was browsing kitco products, and noticed some specifications

Gold Buffalo is 31.108g
Austrian Philharmonic is 31.103g
Canada Maple is 31.15g

I would never have thought twice, but the idea of Swiss 0.1g Au alloy having high value for saving, made me notice the otherwise insignificant difference in weight between those different 1oz coins.

2 Maples to 2 Philharmonics leaves you with almost an extra .01g if you have the Maple

In future paradigms, would this value the Maple at a noticeably higher level than the Philharmonic, for example?

Am I completely wrong with my memory and it's not 0.1g Au alloy in Switzerland? (I am aware it was just mention of it, not exist yet)

For a while I didn't even think I would mention it, but since this is forum 201, and it's friday, why not?!


Kindly,


Julian

TeddyRoosevelt said...

hahahaha. this is exactly why I come here. love you guys. and thanks fofoa.

SatyaPranava said...

@julian,

how right you are...interesting tidbit. but interestingly, my calculation has that maple leaf as having 0.047g extra gold in it, meaning two would have nearly 0.1g extra, which is 10x nicer than 0.01 :)

either way, it sure seems we're heading down that road.

Blondie said...

Victor said:

”If there is a substantial time lag before gold trades substantially higher, I said I would be concerned that the euro might collapse together with the dollar, just because I do not see how you would stop or divert the run on everything tangible“

I believe FOA also stated that the Euro would be subject to devaluation, and that it was simply the more resilient and thus the more likely to survive.

I restate my claim from this post which I linked to earlier as part of my original response to you, with an addition:

”In practice, any currency is valued by the market only by that which it can be exchanged for. Under a Freegold Standard, currencies are technically, but not officially, backed by gold - a currency that cannot be exchanged anywhere anytime by anybody for gold will be avoided in favour of one that can. It is privately-held gold reserves that make themselves available for this exchange, at the right (floating) price, not Central Bank gold reserves.“

The ECB can protect the Euro by printing Euros, and buying gold with them, at a high (Freegold establishing) bid. This simultaneously revalues their gold reserves upwards, as well as increasing their size. Who cares how high it goes? The higher it goes, the more insignificance all those “toxic assets” you claim currently “back” the Euro pale into. More value is absorbed into the physical reserve assets on the ECB balance sheet.

Soon enough people will see this, and rather than being sellers, will become buyers.

Sure, they may want to hack a few zeroes off the currency once some sort of stasis is established. It’s been done successfully before. The important thing for the Euro is that its holders are confident it can purchase gold.

Gold has historically been sold by Central Banks to maintain an undervaluation of it. When a CB wants to see the market discover gold’s real value, they bid for it. If they aren’t getting the flow they want to restore the confidence we all need, they raise that bid. This is being responsible rather than dishonourable, leading by example like every good leader. This is definitely a new paradigm, quite literally.



cont...

Casper said...

Hi Victor,

I see that you're also very interested in technical aspect of how the transition might be managed by the CBs.

a) regarding interest rate increases

after some extensive reading I've come to believe that interest rates are a distant second to the number one tool - managing reserves (b) in the arsenal of any CB

The Paul Volcker interest rate hike actually didn't work and the most important reason the system didn't blow up right there and then was the deal between the West and the East regarding the gold for oil flow, where reserves of the people (currency zone) were used to fund the flow of oil - as FOFOA and others before him mentioned.

b) managing reserves

You say/imply that euro isn't backed by worthy reserves (government bonds of bankrupt countries). Most probably the PIGS are already bankrupt and most others too, except maybe for Germany.

It's becoming quite obvious that without ECB and China purchasing gov. bonds of these countries, the goverments of these countries would have collapsed already due to lack of funds to fund the daily/monthly expenditure.
The fact the China is buying can be interpreted as diversifying their reserves or as a direct support for the ECB's plan of paving a way to FreeGold. Both arent't really interested in making money through interests on these holdings since China doesn't value paper wealth and ECB can print all the euros they need.

As Blondie said, you can't be seen running the price of Gold since it would send the wrong signal. You have to make the market do it for you and for that you need a functioning currency (which by my belief is the reason CBs aren't going to allow – or at least try – a disorderly breakdown in local governments by cutting the funds).

As these bonds pile up in various vaults of CBs and their value starts dropping due to tha fact that they aren't a reliable store of value the value of gold in these same vaults is going to rise and rise and most importantly the reserves of the whole zone are going to rise as people hold on to their wealth in gold, all the while receiving euros for their everyday expenditure.

I think that the most important thing for the CBs is going to be how to prevent people hoarding food, water,... and for that they need to establish and support the flow of oil. I personally think that the rising prices we're seing in various commodities are mainly due to rising prices of oil viewed as a benchmark for the pricing of other commodities.

So if you control the pricing of oil you control the whole comm. complex and if oil flows so will other comms. How do you make prices top or fall?

Casper

Blondie said...

...cont


Victor said:

”Remember October 2008 and May 2010? What was not possible for several weeks because the inventory was gone on day one?


Also, imagine you are a bank, and assume you still have some inventory. A long line of a thousand people has formed in front of the branch. They want to exchange their deposits for gold.


You can calculate that when this goes on for two more days and you keep losing deposits, your company will lose all their equity. Do you really think they will sell gold even if they had some left? ...the ECB cannot fully use the gold reserve to prop up the currency, for example, because a lot of it is stored elsewhere (London, New York) and not readily accessible.“


The gold price was throughout this process you describe was still riddled with encumbered gold paper. Inventory would not be depleted if the printer of a currency such as the ECB were simultaneously bidding unencumbered gold up as described above.

All that would be sold would be tiny amounts for large sums of currency. To every bidder in the market, by every seller in the market.

The ECB needs nothing more than the claim of ownership to those reserves in the NYFRB basement (which is not US soil, BTW), unless they need to mobilize that stock as flow... which they don’t need to do, because a) they have huge stock in their possession in Europe at the Freegold valuation, and b) because they would be buying, not selling, in defense of the usage demand (utility, aka value) for their currency.

If you (as an issuer) are confident your currency is actually any good, that it is not actually a tool to defraud its users, there should be no hesitation in putting your money where your mouth is, and putting a solid bid under gold, letting the chips fall where they may. The world has a massive correction it needs to get through anyway.


Victor said:

” Once there is a run on the deposits and people start buying tangible goods, the classic defence would be

1) raise interest rates

2) sell gold into the market
“


Here’s the problem. The classic defense is applicable to the classic paradigm, not the new one. This shit ain’t gonna fly anymore.

******

Mortymer,

Thanks for that BRICS declaration. It was long, but there were a lot of notable things covered. Most notable to me was the fact that every single point was in complete accord with the new paradigm I have just been describing. Seems the BRICS are quite au fait with that shit not flying anymore too.

South Africa still have massive in ground gold reserves (the largest?).

Blondie said...

...cont

Victor,

This is what happens when a CB tries to defend its currency by selling gold: A Run On the Central Bank of Belarus as Devaluation Fear Forces Halt to All Gold Sale ...it doesn’t fly anymore.

From the same essay I quoted and linked to above:

”The Freegold market is established by the bidding for unencumbered physical gold...“

Blondie said...

"Destroyers seize gold and leave to its owners a counterfeit pile of paper.

This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.

Gold was an objective value, an equivalent of wealth produced.

Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.

Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.

Watch for the day when it bounces, marked, ‘Account overdrawn.’"


-Ayn Rand (h/t Jesse)

This is an excellent synopsis of the gold trail, IMO.
At the end of the day, the gun turns out to be a pop-gun though.

Paul said...

bravo blondie

julian said...

@SatyaPranava

indeed, that must be a typo

i meant 0.1g also

good thing you pointed it out

Indenture said...

Blondie: Incredible! That is worth another read.

Question for the class because I just don't want to see it happen but: Why is Fed destroying the dollar in what seems like a deliberate move? Will we follow Europe with a slight interest rate hike even though Credit Default Swaps will supposedly blow up? Will we implement QE3? Does it matter? It appears we are hanging on by our toenails and if I throw in the sudden withdraw of Japan's worldwide economic contribution and the 'Just In Time' supply lines dwindling it appears this summer will be interesting.

IMVHO, the world is no longer slowly turning upside down. The Japan Quake/Tsunami/Radiation Situation cracked whatever timeline 'The Guys' had in place to implement Freegold. What do they do now?

Nick said...

I ran across this yesterday on ZH which I'm guessing quite a few others did to, however was wondering about peoples thoughts on this article since the comments on ZH are, well, practically worthless.

http://www.zerohedge.com/article/guest-post-heres-setup-con-decade

The main thing I think that is missing is that CHS confuses high inflation with hyperinflation (loss of confidence) that would need to be avoided in order for such a scam to work.

tina said...

Hi Fofoa,

in regard of zour deflatin-inflation discussion I would love to hear your response to Ilargi-Stoneleigh from The Automatic Earth (both great deflationistas) about their new treat.
They/he bashes Mike Maloney and accused him to talk his book and therefor make the wrong conclusions.

Excerpt:
By then, however, and I've talked about this before, the number of people who could be called "investors" according to the definition of the term we use today, will of course plummet, by at least the same 90% that asset prices will. The revulsion will be widespread. And this is nothing new. There never was a time until quite recently when every mom and pop were investors. So we’ll only get back to normal, not away from it.

Still, that does not bode well for the price of gold and silver, a point Mike Maloney somewhat hesitantly tries to ignore. If, as we both expect, the vast majority of people lose the vast majority of their wealth, there will be a lot of gold for sale in "the market" (whatever it may look like by then). That means a huge amount of sellers, forced to sell by investment losses and other predicaments, and an ever shrinking number of potential buyers. Who might just be wise enough to wait for the price to come down further. It seems obvious where that leads.

http://theautomaticearth.blogspot.com/2011/04/april-15-2011-our-prosperity-is-owed.html

Thanks

Casper said...

Hi Blondie,

Nice work and I can agree with most what you have written about appreciating value of gold in ECB reserves and the »backing« the euro is going to have with gold (privately held) in the whole Eurozone.

I just disagree with the way it's going to go down. You say that the ECB is going to bid for gold in order to print euros to meet the demand and simultaneously revalue their gold holdings. I don't think it would be seen that way by the people. Which is exactly what happened in Belarus, as per your example.

By your explanation the CB of Belarus should have bid for gold in open market and devalue their rouble. I think the reason they stopped selling gold is because they need it to finance their trade deficit. They suffer from the same fate as Argentina, Yugoslavia, ... and others before... they (economy) just can't handle the dollars being printed and rising prices of commodities thereby increasing their trade deficit.

But it's nice to see that people know exactly what to buy with their currency – gold. Only a currency with large reserves can withstand the dollar and bid for gold in open market.

I agree that the ECB is going to print euros and meet the demand, but I think that they will do it by buying government bonds so they don't default. In the mean time they will establish a bid and an ask for physical gold only, both rising very fast and in tandem.

Casper

JR said...

Hi Tina,


Congrats on your intellectual curiosity, here are some quick ideas to ponder:

Why does the number of investors matter (even assuming his assertions about their numbers are valid)?

****

Why does Ilargi-Stoneleigh equate paper to real wealth? Both Maloney and Ilargi-Stoneleigh are fundamentally confused, as seen by:

If, as we both expect, the vast majority of people lose the vast majority of their wealth

Why would you expect that? Why would one equate a loss of paper wealth with a change in real, existing, physical wealth.

The buildings, computers, cars, etc - the real stuff - still exists. Paper is, in a sense, only a distorted means of accounting for real wealth, a way of detailing who owns what. Paper impacts the real world stuff, but paper and real world stuff are not one in the same the same.

A mortgage note is not the same as an actual house, no?

There is this implicit idea that wealth is gonna collapse. No, the paper accounting system (the $IMFS) is gonna collapse.

***

Who are the "paper" wealthy people who are gonna have to disgorge all their gold as their paper wealth falls? The current distribution of paper wealth is not very co-extensive with the ownership of physical gold.

***

If, as we both expect, the vast majority of people lose the vast majority of their wealth, there will be a lot of gold for sale in "the market" (whatever it may look like by then). That means a huge amount of sellers, forced to sell by investment losses and other predicaments, and an ever shrinking number of potential buyers.

For every seller there is a buyer.

****

Don't people need a store of value - isn't that the essence of economic activity - producing, consuming and saving the rest?

Thus if paper "wealth" is collapsing, would that not be boon for alternative stores of wealth?

This is why Ilargi-Stoneleigh's argument is premised on the faulty assumption that paper wealth burning = real wealth burning. When we see that paper and real wealth are not co-extensive, we can see the clear flaw in thought.

As paper burns/paper fails to deliver its promise to store wealth, the real wealth is not obliterated.

And as long as there is real wealth, there is a need to store it.

One the margin real wealth will suffer, no one is suggesting the collapse of the world's reserve currency will be painless. But what happens on the margin doesn't change the fact that their is still real wealth out there, there are still producers, and there is still a need to save.

****

Did you know:

"Mr Nerbrand estimated there was around $200bn invested in gold currently through exchange traded funds, bars and coins (but excluding jewellery) — just 0.14 per cent, of the investable universe of global equity and bond markets. (HSBC excluded real estate markets as insufficiently liquid).
...

RS View: In the the so-called bullish scenario, HSBC’s economic model projected that gold prices could reach $6,424 an ounce by 2020. Frankly, the “bullish” parameters they used struck me as too conservatively anemic — with the proportion of portfolios gold weightings representing only a small shift from the current 0.14 percent to 0.5 percent. It implies that investors either fail to take notice of gold’s attractive price performance or otherwise defy human nature and resist the urge to significantly bulk up on the winning asset."
link

Cheers, J.R.

Googel said...

There's a new lecture by Huerto de Soto on youtube...

part9: Euro as goldstandard (by proxy):
http://youtu.be/6QluOJ41pZk

part10: Changing the monetary system:
http://youtu.be/s3kV3PI72JY

Edwardo said...

The "con" described by CHS may, indeed, be "the plan", but there are a number of ways this plan can, and, in my view, will likely come a cropper should it be implemented.

The first one that comes to mind is the massive social instability that genuine "austerity" is likely to engender. There are other problems I have with the scenario Charles outlines, but the social instability is at the top of the list. I don't know who he thinks will be left to tax should this "con" turn out to be the way, ahem, forward.


Perhaps the primary reason that governments, for example, fear deflation more than any other monetary ill is that deflations seem to go hand in hand with social collapse as well. People may have forgotten, some eighty years on, that the U.S. was in a state of near anarchy the early thirties.

IN CHS's world, Bankers don't appear to be thinking things through since they believe that when assets go to a few pennies on the dollar the bankers imagine they will be able to waltz in and just scoop up those assets from the millions who find they have no wherewithal. They may not have money, but those who have nothing to lose, to quote Gerald Celente, lose it.

DP said...

@Casper, I think the ECB will only need to sell a little of their reserve gold, just enough to influence the private sales to come out of the woodwork. The sales of private gold will then flow to satisfy international trade (read: oil). People only hoard stuff they think is underpriced; if they think it is fairly or even over priced, they will bring it to market.

The importance to the ECB for the euro is that it maintains currency and credibility; the exchange value of it is just a secondary concern, influenced by the cost of consumer items (single mandate, zone-wide HICP inflation 2% target). If the target start to get out of hand, they'll have to act to support the currency, but again this is a secondary concern in my view: if your currency is unaccepted, then it isn't a currency any longer.

If it remains possible to exchange euros from trade, for gold in the Eurozone, then the currency will maintain its... currency, in the eyes of trade partners. A high price of gold in euros will coax out private gold within the Eurozone, and thereby maintain the credibility and acceptability of the euro to trade partners. Oil will still flow to the Eurozone, in exchange for euros, because those euros can be subsequently exchanged for gold. And as we know, oil is the most important thing to keep flowing in from outside, everything else is dependant on its availability.

Nick said...

Thanks for your response Edwardo, I share the same views about the supposed 'plan.' Even if there were people left to tax, I don't see them putting up with it. Also, if they are smart enough to know about the coming concept we call Freegold, one would think they could just bulk up on gold without gunning the price, and make enormous profits that way.

pipe said...

Hi Indenture, you asked,
"Will we follow Europe with a slight interest rate hike even though Credit Default Swaps will supposedly blow up?"

You really need to read the work of John Hussman. Another frequent poster posted some likns recently, but here it is again: http://www.hussmanfunds.com/wmc/wmc110411.htm.

Basically, in order to just raise short term rates just 25 basis points, without igniting massive inflation, they would have to unwind almost all of the current (almost completed, $600 billion QE-2 bond purchase) program.

So, no, they won't raise rates, since they can't. Gold going higher.

SilverDoctors said...

Gold's going higher, silver's going MUCH higher! Wait till the general public actually gets involved in gold and silver. Look for the public to begin entering the gold/silver market after QE3 is announced.
Thank The Bernank for all he's done to destroy our currenecy by playing silverdoctors new game:
Punt The Bernank!

www.silverdoctors.com

mortymer said...

The news about certain university buying gold in 1B usd is nothing new to anyone here I suppose but the announcement made me think that the place has to have some history, so simple search gave me this one nice result:

THE GOLD BATTLES WITHIN THE COLD WAR:
American Monetary Policy and the Defense of Europe, 1960-1963
Accepted for Publication in Diplomatic History
Francis J. Gavin
University of Texas at Austin

http://www.utexas.edu/lbj/faculty/gavin/articles/gold_battles.pdf

"President John F. Kennedy often told his advisers that “the two things which scared him most were nuclear weapons and the payments deficit.”..."

"...This story also calls into question the standard historical view that the Bretton Woods monetary system functioned smoothly and efficiently during the late 1950s and early 1960s. Most importantly, the history of the gold battles within the Cold War forces us to reconsider the false divide that persists between the study of economic policy -- and particularly monetary policy -- and foreign policy and military strategy in the historical literature on that period. No history of this critical time in American foreign policy is complete unless the story behind economic and security policy is woven together and presented as a whole..."

"...postwar monetary relations were highly politicized and required constant political intervention to keep the system functioning smoothly..."

"...The most troubling design flaw was the lack of an effective, automatic mechanism to adjust and settle the payments imbalances that inevitably arose between surplus and deficit countries. Payments imbalances emerge because countries pursue different economic and monetary policies. This produces different national inflation and savings rates, changing the relative value or purchasing power of their currency..."

[Mrt: One of the many roots of ECB go to Adenauer & Ch.D.G and its supporter. Here are the names of three pioneers of European unification: Robert Schuman, Paul-Henri Spaak and Konrad Adenauer.]

@Blondie,

Yours: "Thanks for that BRICS declaration. It was long, but there were a lot of notable things covered..."
-> At around 200, I consider it to be OK to post it fully, content important enough.
-> Have you realized the timing compared to the IMF meeting? Accidental? I wander if that powerful declaration was expected outcome by IMF?

Here we have the result of the "IMF-WorldBank Spring meeting":

Communiqué of the Twenty-Third Meeting of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund
Press Release No. 11/138; April 16, 2011

http://www.imf.org/external/np/sec/pr/2011/pr11138.htm

Blondie said...

Casper said:

”You say that the ECB is going to bid for gold...“

No, I said they could. As any large enough entity could.

”I don't think it would be seen that way by the people. Which is exactly what happened in Belarus, as per your example. “

You don’t think that others would also follow the CB lead and buy too? I wasn’t meaning Joe Average, but rather larger net-producers. Big shrimps. The example filters down in accord with how much value they have to preserve in the first place. Joe Average would for the most part be late to the party.

My example of Belarus is to make the point that selling gold will not work, they’ll just run out, whether we are talking about Belarus, ECB, US Treasury or similar. This is Victor’s point about the ECB not having direct possession of all their reserves, but it is however superfluous if they will be buying rather than selling.

I’m not saying the Belarussian CB should do anything, just pointing out that what they did do did not work. I’m sure they have their reasons for acting as they have. More gold is now in strong private hands. This is not a bad thing.

FOFOA said...

Ore Em' (and to everyone),

If the "good comment filter" takes part of your post, just make a note at the bottom for the readers that "Part 1" got "taken". I will release it from captivity when I return. I always release them all, because supposedly that "trains" the filter. But there's nothing I can do to bring back the parts you deleted.

It would also be helpful if you put page numbers on multi-page comments, like I sometimes do: p.1, p.2 etc.. or even "p.1 of 6" or whatever you want.

That way when it gets all messed up by my releasing the caged birds it will still be decipherable. JR knows what I'm talking about. When I release the comments they go right back into the correct part of the line-up. But if you try to correct it on your own it can end up a mess. By the way, see JR's comment released from prison today as well.

I have ceased calling it the spam filter because, once again, it let through a thinly-disguised ad for online medications on one of the older posts while sequestering Ore Em's and JR's comments. If you want to put your comment back up, Ore Em', I will be around for the next 12 hours or so.

When Blondie gets caught in the filter he fires off a blank email to me with "Spam filter alert" in the subject line. If I'm around, that works well.

Sincerely,
FOFOA

Indenture said...

tina: When I read posts like the one you link I constantly remind myself that the price of gold most (if not all except here at FOFOA) people quote is an Encumbered Paper Gold Price. So yes, until the implementation of Freegold any of the low gold prices are possible if enough derivatives/futures/options/Fraction Reserve nonsense is part of the equation.
It is this type of sentence, "If, as we both expect, the vast majority of people lose the vast majority of their wealth, there will be a lot of gold for sale in "the market" (whatever it may look like by then)" that bothers me because they are talking about people selling physical gold into a Non-Freegold market, one where the price of gold is based on Paper. When we listen with Non-Freegold ears then the price of gold could do whatever, but when Freegold is used as a filter the rest of their arguments are interesting but have very little to do with the future 'price of gold'.

JR said...

Hi Tina,

In following up on the idea of "Why does the number of investors matter (even assuming his assertions about their numbers are valid)?," here is a comment from Randy Strauss that helps place our focus where it belongs - on central banks.

Its not the number of interested investors that drive gold, its the big players. The central banks.

Excerpted from FOFOA's Gold: The Ultimate Hedge Fund

"[article] ...Even in light of all of this shifting by central banks into other currencies, the dollar still comprises 2/3 of global reserves and attempts to shift away from the dollar would destroy the value of central banks’ portfolios.

Randy's Comment: Although I should be well used to it by now, it still amazes me every time I see comments like the final remark here regarding any significant shift from dollars will lead to the destruction of central banks’ portfolios. It’s almost as if the commentator is trying to help indoctrinate a paralyzing fear as a means to prevent any such attempt on the part of the CBs, and to also create enough grass-roots doubt against such an attempt ever being made that we the people won’t perceive any benefit in trying to front-run with our own flight out of dollars and into gold...

It is an error in thought or judgement, however, to believe that a “destruction” of the dollar portion of the portfolio would therefore proportionately destroy the portfolio as a whole. That would only be the case if all other things remained unchanged, but life seldom works out so neatly as that. Sometimes an action can set forth an immediate chain reaction that literally changes EVERYTHING you thought you knew about the situation!...

In the world of the “new normal,” it is indeed possible (and someday soon desirable) to let the fuse be lit and allow the CB store of dollars be consumed. And to be sure, it is singularly the latent potential energy of the gold component that allows us to make this analogy with gunpowder. The natural chain reaction in the tiny open market for physical gold would immediately bring to bear massive “heat” and “pressure” upon its price… **POW** thus swelling the “volume” of its value relative to all other things. So even without radical changes to the quantity of physical holdings, a simple expansion in golden value will more than compensate the average portfolio of the central banks against the destruction of the dollar component.

Still can’t wrap your head around it? Bear in mind that the gold price is not a simple one-to-one inverse relationship with the dollar. There is a great leverage lurking in there, but it has been largely masked by the artificial abundance of paper gold which weighs down upon the equilibrium price. And even so, since 2002 the dollar value has decline by just 20% on a trade-weighted basis, whereas the gold price has responded with a 300% gain. And the moreso that the public and private parties of the world rightly gravitate toward physical gold instead of the illusion of paper derivative gold as the solid foundation of their savings and diversifications, the moreso you will see this price leverage grow in favor of larger multiples of gold price gains against modest dollar losses....

Central bankers will increasingly prefer gold reserves over the paper reserves created by other countries...."

Cheers, J.R.

mortymer said...

...cont on the previous post:

@Blondie:
Have you noticed Observers (individuals, institutions)?

http://www.imf.org/external/spring/2011/imfc/attendees/index.htm

...cont on the previous doc:

"...Roosa constructed sophisticated currency swap arrangements and standby borrowing arrangements that allowed deficit countries to stave off attacks on their currencies.31 Roosa’s most important accomplishment was establishing the gold pool, a consortium of industrial nations who intervened in the London gold markets whenever the price of the dollar seemed threatened. Though the cooperative arrangements negotiated by Roosa were quite impressive, they were at best temporary expedients, that did nothing to solve the basic problem: the American balance of payments deficit..."

"...Furthermore, these arrangements depended upon the cooperation of the two largest surplus countries, France and West Germany, to keep the dollar
afloat.

Kennedy insisted that the dollar and gold crisis be seen as a problem for all of NATO, and not just the United States. The West German surplus was the “mirror” image of the American deficit, and it was wrong for NATO countries to exploit dollars acquired through U.S. expenditures defending Europe.

A widely circulated State Department memo summarized an article from The Statist that warned that de Gaulle was "fully prepared to play diplomatic trump card he holds in form of substantial French holdings of dollars. In other words, if America’s policy towards Europe clashed with French interests, de Gaulle would pressure Kennedy by purchasing gold from the United States.” Unless France was accepted as an equal, de Gaulle “would not hesitate to make himself felt by resorting to devices liable to cause grave embarrassment to United States,” even at the cost of weakening free world strength. 48 This deep strain in Franco-American relations was exposed in a remarkable meeting between President Kennedy and the French minister of state for Cultural Affairs, Andre Malraux. The president warned Malraux that if de Gaulle preferred a Europe dominated by Germany, then Kennedy would bring the troops home and save $1.3 billion, an amount that “would just about meet our balance of payments deficit.” If France wanted to lead a Europe independent from the United States, then Kennedy would “like nothing better than to leave Europe.” The United States had no taste for empire building..."


"...George Ball set the terms for this new round of debate in a forceful memo to the president entitled “A Fresh Approach to the Gold Problem.” The under secretary of state believed that neither the Europeans, the Wall Street bankers, nor the administration’s own Treasury Department understood that the problem was at heart about POLITICS, not economics..."

"...Kennedy wanted a secret negotiation with de Gaulle to settle these issues on the highest political level. Alphand asked how he should respond to the American President. De Gaulle’s answer was cryptic. Just wait, he said. There was no point in talking to him now...."

The National Economist said...

"I've been paying storage fees since January of '03, what do you mean I can't take delivery."

loved that

Indenture said...

A Golden Tipping Point: University of Texas Takes Delivery Of $1 Billion In Physical Gold

Oh Yea...

costata said...

Googel,

I cannot thank you enough for posting those links to the Huerta De Soto lecture.

If you are open to the Austrian perspective on economics this man is a teacher whose company you should seek out.

If he could get past that disastrous rejection of velocity (Rothbard's saddest legacy) and embrace the disequilibrium approach to modelling economies that Steve Keen, Michael Pettis et al have taken up we could see the fusion of the Austrian and (later in life) Fisher and Minsky insights.

This is developing into a wish list. So while I'm at it I will also ask that the Austrians fully explore Antal Fekete's concept of wealth transfer over a lifetime as opposed to simple time preference in consumption.

Last but not least, if all of those mentioned (who can do so) would understand the concepts of money presented here we could be witness to the birth of a new economics - a true science (albeit an infant compared to physics and math).

costata said...

Indenture,

FWIW I agree with the author of the ZH piece. Kyle Bass and UofT just bought themselves a place in the history books.

Thanks for the link.

All,

Please read that ZH piece and help out an aging man. I searched and searched but I could not find the phrase "and silver" anywhere in the report about the UofT. It must be there somewhere. Who would commit a billion dollars to gold alone and completely ignore the "moon metal" silver?

Could it be that Kyle Bass and the UofT share the myopic, disdainful view of silver held by every single Central Bank on this planet?

FOFOA asked "Who Is Draining GLD?". IMHO that question has just been answered (at least in part).

It may also help to explain this:

http://www.gotgoldreport.com/2011/03/gold-gold-report-excerpt-gold-cot-bargain-hunt-underway-.html

Perhaps the most interesting category of traders to view this week are the traders the CFTC classes as “Other Reportables” (OR). This is the category of large traders that trades in large enough size to have to report their trades, but these traders do not fall into the Managed Money, PM or the SD category. It includes some Commodity Trading Advisors (CTAs) and every other large reporting trader that does not fit into the other three reporting categories.

Please see the graph just below showing the positioning of the Other Reportable traders. Notice please the very dramatic change in their positioning over the past three months. What in the world are we to make of this graph? Consider that as recently as December 7, 2010 (3 months ago) the Other Reportable traders reported a net long gold position of 52,994 contracts. Now, seemingly suddenly, they have all but exited the net long side of gold futures entirely. The OR traders reported holding 56,057 contracts long and 53,737 contracts short this week, for a net long position of just 2,320 contracts. That is a reduction in their net long positioning of 50,674 contracts or a stunning 96% in three months. Meanwhile gold barely moved on a net basis ($1,401.79 to $1,428.61).

We know of no extraneous reason that the OR traders would have chosen to get out of their long positions, but if any of our more dialed in Vultures knows the score, we’d appreciate a note about it.
(My emphasis)

When investors like Kyle Bass and the Chinese build a position they do not move price upwards from their own buying pressure.

We may have (unknowingly) been present at another historic episode - the rescue of the gold Comex from default.

Touche, Mr Bass. Deftly done.

Casper said...

DP, Blondie

I think we share the same opinion that all the gold in New York means little to the ECB since it may not be needed to facilitate the transition.

I may have been not clear enough about the matter of ECB selling gold:

of course I think they won't be selling much physical when the price is skyrocketing since with the higher price they would be sucking ever larger amount of euros out of market.

I'm just of the opinion that they would have to be ready to sell some at the beginning. I guess they only need a couple of tonnes for that.

Casper

mortymer said...

...cont on previous doc2:

"...Two events, de Gaulle’s press conference on 14 January, rejecting both the U.S. offer of nuclear assistance and Great Britain’s entry into the Common Market, and the announcement, only nine days later, of the Franco-German treaty, combined to provoke a political crisis that shook the foundations of the Western alliance. Both events appeared to signal a Franco-German revolt against U.S. policy towards Europe. Both events appeared to be an attempt to undermine and weaken American influence on the continent. And both appeared to threaten key elements of U.S. foreign economic policy, including trade negotiations, the American gold supply, the position of the dollar, and the German offset arrangement. The long-feared European revolt had finally appeared, and Kennedy wanted to be prepared should France-alone or with West Germany-move to weaken the U.S. monetary position. “The U.S. military position is good but our financial position is vulnerable..." + sources

[IMO this above doc is a MUST read for anyone who wants to know the "Freegold poker game part I. - cards are dealt, first moves"]

victorthecleaner said...

Blondie,

> I believe FOA also stated that the Euro would be subject to devaluation, and that it was simply the more resilient and thus the more likely to survive.
> [...]
> Sure, they may want to hack a few zeroes off the currency once some sort of stasis is established.

Alright. This I can agree with. Although it is impossible to predict how much purchase power the euro will lose. Anything between 50% and 99% is in the cards, I guess.

> The ECB can protect the Euro by printing Euros, and buying gold with them, at a high (Freegold establishing) bid.

If they just want to give the market a kick, yes. But they would not be able to purchase any significant volume this way simply because it would make the euro go down even more quickly. Remember, both in Germany 1922/3 and in Zimbabwe one problem was that the government took hard currency (gold or US$) off the market while printing local paper currency.

> The gold price was throughout this process you describe was still riddled with encumbered gold paper.
> Inventory would not be depleted if the printer of a currency such as the ECB were simultaneously bidding unencumbered gold up as described above.

Right. But this happened in 2008 and in 2010, and when the dollar collapse one day is for real, they will, of course, be late again. And the population will go for food and energy as a result.

> This is what happens when a CB tries to defend its currency by selling gold: A Run On the Central Bank of Belarus as Devaluation Fear Forces Halt to All Gold Sale ...it doesn’t fly anymore.

This is the one that is an artifact of the low paper gold price. As a counter-example I would not accept it.

Indeed, I think, the ECB will have to sell some gold into the market. How else would you vacuum off all the paper euros that are unbacked by any real assets.

> This simultaneously revalues their gold reserves upwards, as well as increasing their size. Who cares how high it goes? The higher it goes,
> the more insignificance all those “toxic assets” you claim currently “back” the Euro pale into. More value is absorbed into the physical reserve assets on the ECB balance sheet.

Here you are giving it away that you agree with me. What use does the gown gold reserve have other than that it becomes easier to pay off all the bad debt. If you are not willing to use the reserve, it is just digits on a sheet of paper. The fed can do this too, by the way.

Finally,

> The ECB needs nothing more than the claim of ownership to those reserves in the NYFRB basement (which is not US soil, BTW)

Do you think the Europeans will send troops when the US seize that gold?

Victor

Paul said...

victor

I will leave the reply to blondie, he will be much better equiped. but I do have a question for you.

With all this supposed military might the USA has, why can't it afford to audit it's own gold ?

let alone seize others ...

victorthecleaner said...

Blondie,

I am not sure I was clear enough, but when I say the ECB will have to sell some gold, this is at a very high price. Selling gold before the revaluation is dead on arrival. We agree.

Victor

victorthecleaner said...

Paul,

> With all this supposed military might the USA has, why can't it afford to audit it's own gold ?

I would love to know some more facts on this. Without facts, I can just guess:

1) The gold is there. They just don't want to draw attention to it. Otherwise the deficit-spending people in DC might be so foolish as to sell it before the revaluation.

2) The gold is not there. It was given away to bail out some of the bullion banks between 1997-2001. Which ones?

3) (2) plus it was replaced with gold plated tungsten.

When I think about it, even if (3) is true, this would probably be sufficient. After the revaluation, they could just have an open day and show all the gold plated tungsten to the press. It would probably work.

Finally, as far as I know, most CBs refuse to have their gold audited. Same holds for the UK, Switzerland and Germany, for example.

Victor

Casper said...

Victor,

I see that we think alike about the steps during the actual transition, of course it doesn't mean we're right.

Regarding the gold in FRBNY:

I few months ago, FOFOA inserted a link to the "The Golden Chalkboard" page. There is an interview with a former president of the Bundesbank, Ernst Welteke. In it he suggests selling part of gold under the ownership of the Bundesbank. He didn't talk about the amount of currency the BuBa would get in return but rather about preserving the German economy and progress.

You ask yourself "is Europe going to send troops to New York?", maybe we should ask ourselves "is China going to send troops there?"

What if Europe traded that gold for something else - like support for their plan hatched a few decades ago and failing EU members.

I don't know how much gold there is in FRBNY but I agree with Blondie that what ever the amount is it's not going to play a major role in the transition and post $IMF system. The true "backing" is in private ownership of gold in the Eurozone itself.

Casper

Paul said...

Victor,

I used “afford” intentionally, because there might be different forces at work, you don’t acknowledge here.

http://fofoa.blogspot.com/2009/08/confiscation-anatomy-different-view.html

“This was cheating, plain and simple. The international financial system and the global market place run on procedure protocols that are not binding. They are not binding, but without them, international trade would stop altogether. Just because a rule is not binding does not mean it is not important. And just because a non binding rule is broken, does not mean it disappears.’

“This is why gold is off the table. This is why we can never go back to a gold backed dollar. It is also why they cannot call in gold AGAIN under the same dollar that they did in 1933. To call in gold at a specific exchange rate now, the US would first have to back the dollar with gold at that rate and then call it in. That would expose the US gold to international legal challenges for redemption. If they simply called in the gold without backing the dollar, the US government would be exposed to thousands of internal law suits. These law suits would rightfully demand a retroactive reversal of 1933 before any new confiscation could take place. They would demand that US official gold be distributed to all citizens at $20 per ounce BEFORE it could be turned back in to the government.

The US government will never take this risk! It will never expose itself to this legal nightmare! The US is already a golden outlaw!

If the coming dollar collapse takes the first waterfall route and hits the riverbed, how would an insane and illogical confiscation play out? Well, if the US dropped out of the BIS to secure sovereignty over its confiscated gold, the BIS would halt all international dollar traffic and probably try to use those dollars to buy gold on the international free market. The dollar would be instantly dead.”

You say FED can follow ECB in gold revaluation Victor ? Me thinks ECB will call that bluff …

FOFOA said...

Just FYI... There are 6,196.7 tonnes of gold held at the FRBNY under earmark for foreigner governments. Link

That's not all from Europe's 10,792 tonnes. No way to know how much is from Europe and how much is from the other 11,636 tonnes of non-European, non-American official CB gold. Most small nations store at least some of their gold securely in either Switzerland, London or NY so that their tinpot leaders cannot run off with it when they finally kick them out. This is quite normal.

And all sovereign gold is audited internally and regularly, just as the US government's own website states. "The only gold removed has been very small quantities used to test the purity of gold during regularly scheduled audits. Except for these samples, no gold has been transferred to or from the Depository for many years."

It is simply not audited publicly by external auditors. Take your foil hat off for a few minutes and think it through, and you'll find it makes sense. The global gold market was suppressed by paper gold, not physical. It's impossible to suppress it with physical.

Remember, the dollar itself was once paper gold. And they tried to suppress the gold market with physical during the London Gold Pool years and again during the Treasury auctions a decade later. Both failed. The official U.S. physical has been lying very still ever since.

Paul said...

I am nog suggesting the gold is not there, I do question who owns it.

these old claims will have to be settled before USA can even think about revalueing it.

FOFOA said...

Hello Paul,

The legal problems the US faces with regard to past gold history have only to do with controlling gold to avoid real meritocracy moving forward. This is why another confiscation or a new fixed dollar-gold standard are simply not in the cards. Both are attempts to control gold and end-run meritocracy. The world will not tolerate that again. Fool me once, shame on you; fool me twice shame on me.

We can't turn back the clock. But we can move forward. The world would not resist the US revaluing its gold. There is no reason to. FOA said the US would eventually mobilize its gold at a much higher price. That means revalued, at the floating Freegold price. The US will ultimately have to make a market for its own dollars by buying them up with physical Freegold from Fort Knox.

When the trade deficit is no longer possible, the US will have to import all that inflation it has been exporting if it wants to keep oil flowing in. Real goods going out (gold) and less real goods plus some inflation coming back in. That's the reverse of today's trade deficit.

Sincerely,
FOFOA

Paul said...

FOFOA

thank you
I am still a bit struggling with the implications of the 71 default sometimes. It seemed to me the gold could not be audited, because skeletons would come falling out off closets all over the place. I saw that pile shrinking rapidly when those skeletons were having lunch at 71-goldprices. but seems I have to do some rethinking there.

the rest I think I got ;-)

FOFOA said...

By the way, that's post-hyperinflation I'm talking about. They may well lop 12 zeros off the dollar before making a market for it. Exchanging one trillion old dollars for one new dollar. But gold will still be at Freegold prices (e.g. 55,000 new dollars/ounce) and they will have to make a market for that new dollar or it will continue to plunge like the old one.

That's the choice. You can collapse your currency against the non-economic good gold, killing the paper gold market and driving up the price of physical in advance of hyperinflation by buying it up. This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars.

Or you can wait until your currency collapses against economic goods and then you will have to buy back your own currency with your gold, also at Freegold prices. Even if you start a new currency you will still have to make a market for it because your credibility will be shot by that point.

This may explain some of the confusion between Blondie, JR and Casper as well.

FOFOA said...

Paul,

US gold was still mobilized, at market prices no less, into 1979.

See: Gold War II - The IMF/U.S. Treasury Gold Auctions - 1975 to 1979

Sincerely,
FOFOA

Blondie said...

Victor said:

”the population will go for food and energy...“

They may well do that, priorities and all, but those who impart the bulk of the value are those for whom food and energy is all taken care of by virtue of their wealth.

”the ECB will have to sell some gold into the market.“

The ECB will buy or sell gold, possibly both at different times, depending upon what their priorities are at that point in time. As you say:

”I am not sure I was clear enough, but when I say the ECB will have to sell some gold, this is at a very high price. Selling gold before the revaluation is dead on arrival. We agree.“

I didn’t mean to imply they could not or would not sell if it suited their purposes at the time, in fact I wrote in my linked post “A Central Bank buys or sells gold to manipulate the value of its currency...“.

”Do you think the Europeans will send troops when the US seize that gold?“

I don’t think the US will be seizing any gold. They’re going to lose a lot of credibility anyway. They may be in a bind, but that doesn’t make them stupid.

Desperado said...

Fofoa, those tables published by the Fed certainly aren't confidence inspiring, at least not for me. The Fed audits the gold? Would this happen to be the same Fed that is recklessly selling puts on treasuries in order to keep the long term yield curve flat? Could some of those secret Fed puts be backed by Ft. Knox gold? And what proportion of the non-tungsten cored bars are really unencumbered LGDB bars?

As Jim Grant recently said:

"When you listen to Ben Bernanke as he held forth on Sixty Minutes at the end of last year assuring the journalist doing the interview that he, Bernanke, was 100% sure, 100% certain of what he could do, you cringe because nobody is 100% sure of anything in this world."

And even if there is some remaining unencumbered gold the chances that the criminals calling the shots ever allow this to be used as the basis for a new currency to benefit the sheeple they so despise is, IMO, negligible.

Wejn said...

cmts.

Ore em' said...

Well, I apologize to all. I noted FOFOA's comment re: not re-posting if something got caught in the spam filter. I understand though, blogger doesn't like 10 page emails.

Anyways, I posted here awhile back about trying to have a freegold discussion with a central banker, and was going to send him an "intro" email. I've set it up at scribd for anyone to look at. Comments and critiques are welcome, and I promise to not screw up the comments with 15 deleted comments ever again! Although, I probably screwed up the link here, but you can copy and paste it.


Visit Central banker email

http://www.scribd.com/doc/53199489/Central-Banker-Email

DP said...

Ore em: looking forward to your friends reply ;)

Edwardo said...

Here's a nugget from Martin Armstrong's most recent epistle,

"Those who champion a return to the gold standard are ignoring history."

Ore em', said...

Well, I don't know if I'd call him a friend so much as someone who I introduced myself to. Thus far, his response has been non-existent. I stopped by his office twice and he wasn't around. But, don't worry, I'm persistent!

Indenture said...

Same story, completely different Headline:
Shortage Threat Drives Texas Schools Hoarding Bullion at HSBC

FOFOA said...

Desperado wrote:

Fofoa, those tables published by the Fed certainly aren't confidence inspiring, at least not for me.

Of course not, Desperado. That's because you prefer exciting, low-probability theories like this to the more boring, mundane analysis of observable reality.

The Fed audits the gold? Would this happen to be the same Fed that is recklessly selling puts on treasuries in order to keep the long term yield curve flat?

Why, yes it would! At least the minimal gold in Fed custody: 418 tonnes of US gold and 6,197 tonnes of foreign gold. And in the same way it "foolishly" left info about the puts in its minutes, it likewise "foolishly" left the actual gold count on its website. By the way, you can take a guided tour of the gold vault where all that miscounted gold is sitting. You think maybe they are using mirrors too? What do you think, Desperado? Are they over-counting or undercounting it?

Could some of those secret Fed puts be backed by Ft. Knox gold?

No, of course not. The Fed doesn't own any gold. The Treasury does. The Fed has only monetized $11 billion worth of Treasury's $388 billion worth of gold. That doesn't mean the Fed owns it, which I have explained in multiple posts. The Treasury still owns it.

And as for being the custodian of the Treasury's gold, the Fed only has custody of 418 tonnes of US gold. The other 7,715 tonnes of US gold are in the custody of the US Mint, which is part of the Treasury Dept., in Fort Knox, West Point and Denver.

Those Fed puts are quite obviously hyperinflation insurance being sold by the Fed, backed by the Fed's printing press. When the dollar collapses, those who bought this special insurance will get the first of the hyperinflation hot off the press, which is very valuable in an "outrun your neighbor, not the bear" hyperinflation. See, reality is not so boring.

And what proportion of the non-tungsten cored bars are really unencumbered LGDB bars?

Way to be on the forefront of rationality, Desperado! You know, after I wrote that post in which I asked, Is the Dollar "Good as Tungsten"? a year and a half ago, there was a lot of buzz about people checking the authenticity of their gold. I would have thought that after 18 months we'd have at least some evidence of this widespread practice other than that one, ancient video. Where is the evidence?

Rob Kirby inspired my post with a couple articles he wrote. Then he followed those up, after my post, with the intricate conspiracy theory linked at the top, in which he actually referenced the Illuminati Conspiracy Archive among many other conspiracy sites.

The entire tungsten story is hype built upon Rob Kirby's theories. And it has been going for more than a year and a half now without any more videos of tungsten-filled bars surfacing. It is your right to believe fantastic stories about two American Presidents from opposing parties being complicit in the greatest gold heist in all of history, for personal gain, while simultaneously suppressing the value of what they stole, if it makes you feel better about being an American expat. But it is certainly not the cutting edge of rational thought.

Sincerely,
FOFOA

Cathy said...

Yes, rationality and fact would be a pleasant respite from all these wildly speculative conspiracy theories. Can we, by working together and pooling what we know, try to form a clearer picture of the current status of the physical market?

I personally know former traders on the gold desks of GS and JPM. They confirm the immense leverage in the gold banking community...they do not so much as blink at my suggestion that the ratio may be 50 to one. My horror at such leverage is amusing to them. Of course, they say, you will have that kind of leverage in an opaque, highly profitable market where defaults, if any, can be settled quietly, even amicably.

But despite the fact that this information is now more widely known, it is as easy as ever to take delivery of physical in size. There is no problem getting delivery of 30,000 ounces or more in four days at the location of your choice in LGDBs. There is no evidence of tightness for this size order, which I know for a fact.

Are we still in the early innings of the freegold game?

eugenioca said...

Dear mr Fofoa, in your blog you state that the future price of gold will be from ten to one hundred fold the actual price. And you say that phys gold will disappear from the market. But it doesen’t scare me. What really scare me is that the rule of law will disappear faster than physical gold. I don’t want to be stuck in a fascist country with a stack of gold I’m not able to use.
So what could be a solution for this problem? How to have physical and portable gold?
Perhaps could it be wise to build a gold physical reserve of gold in a country with a libertarian tradition? What country (Canada, Australia, Switzerland) and how to perform the task? (perth mint allocated certificates?, a bullion in a safe deposit at an international airport? Or whatelse…)
…and other questions…
What if monopoly in money as a medium of exchange is ended? What do you think about the P2P concept applied to money as a medium of exchange?(especially in local communities). How do you think this idea could work?

Finally, what do you think of this article from Charles Hugh Smith? http://www.oftwominds.com/blogapril11/setup-con-of-decade4-11.html
tnx

eugenio

Robert Leroy Parker said...

Fofoa,

Can you explain why treasury puts would be paid off first? Is that some futile attempt at still protecting the bond? Or will it be that all the primary dealers insurance regardless what it is will be the first to receive the fresh dollars?

Regards,
Butch

FOFOA said...

Hello RLP,

Is that some futile attempt at still protecting the bond?

Hells no! It will be a futile attempt to protect the credibility of the Fed. And, unfortunately, it may work, so check your Fed-hate obsessions at the door. The dollar can go the way of the Zim-dollar and still function on the other end of the tunnel. Luckily you can front run these bastards by reading FOFOA!

FOA: In our time and for the first time in the modern US dollar history, the US will embark into a classic hyperinflation for the sake of retaining its own lessened dollar for trade use. As destructive as that might be to players in this financial house, it is better than immediate total economic failure. It will evolve in a form much like the course of any other third world country, if its currency too was suddenly deprived of world reserve status. We will, like people the world over, learn to live with it and live in it. Truly, our dollar and economy will not go away, but its function, use and value will change dramatically.

Sincerely,
FOFOA

FOFOA said...

Hello Cathy,

Your 30,000 ounces is roughly three baskets of GLD, or one tonne. For comparison, the University of Texas just took possession of 664,300 ounces (20.7 tonnes) without moving the market much. These were COMEX 100 oz. bars, not the London Good Delivery 400 oz. bars. This purchase represented about 5% of the fund, a conservative portion even by conventional standards, but extremely commendable nonetheless. And it appears that they had already invested in paper gold a while back, more than doubling that investment in 2010. This was simply a conversion from their (already owned) paper into physical. So technically, it shouldn't run the price. Whether it actually did affect the price is unclear.

What makes this story so remarkable is that a $20 billion fund was concerned enough about the leverage in paper gold, and, by implication of the fact that they enlisted the assistance of board member and $500millionaire Kyle Bass, the potential problems with conversion into physical, that they did so apparently on the sly.

Are we still in the early innings of the freegold game?

Apparently not, if you understand the implications of this story. $20 billion funds with conservative (Texas) advisory boards don't make moves like this unless other Giants are doing likewise.

This UofT conversion represents 6,643 COMEX contracts. As the article in Bloomberg says, "Few investors take physical delivery of bullion. As of April 14, 2,860 contracts this month, about 0.5 percent of total open interest, had been converted to metal, exchange data show."

If we look at the COMEX warehouse right now, they have enough gold registered for delivery to cover 23,540 contracts. So did UofT take delivery from COMEX as the Bloomberg article implies? Did they stand for delivery of almost a third of the gold in the global price-discovery warehouse and risk a default (explosion) that could have netted them much less physical in the end? Or did the great Kyle Bass show them another way?

Well, if you combine the fact that there was no problem at COMEX, the price only ran up a moderate amount, and Costata's comment here, you will have to come to the conclusion that this was an OTC deal with one of the bullion banks.

You say they (the BBs) have no problem delivering 30,000 ounces in four days. Apparently they also had no problem delivering 664,300 ounces either. Of course if one problem goes public, like a big American university fund worth $20B, it's game over for these bullion banks. So I'm sure this order took a certain degree of precedence.

Cont...

FOFOA said...

...

Now the BBs make money on their ability to sell only their good name as if it was "good as gold". They do this as long as they can come up with the gold when it is demanded. And they do this by staying relatively neutral to price changes in the metal. They are market makers, custodians and Authorized Participants in three distinct markets: the COMEX (mostly all paper, but price discovery for the other two markets), GLD (the ETF and CB-sized stockpile), and OTC (private, non-publicized purchases and sales).

Since COMEX is the price discovery mechanism for GLD and OTC, they can go long or short, whatever's needed, in those other two markets for a very marginal cost that is easily covered by their service fees. When UofT went short paper/long physical, the BB that was servicing them had to do the opposite somewhere; long paper/short physical. And to avoid a price disturbance, it likely went long paper on GLD and short physical OTC. It could do this very easily because it is one of the 16 "Authorized Participants" on GLD. And this also gave it the advantage of converting that GLD paper into physical gold to deliver to UofT.

In the last four months, 200 "baskets" have been withdrawn from GLD by "Authorized Participants". This is net. The UofT conversion represents 66.5 GLD baskets. That leaves room, in the last 4 months alone, for 44 of your 30,000 ounce deliveries in four days. That's one (1 tonne) delivery every 3 days, and you say your contacts tell you it takes four. That's in addition to the normal flow of gold from mines and recycling which is equivalent to another 295 GLD baskets per month, or 1,180 baskets in the last four months.

We know this flow has been insufficient for the past decade because the price has been rising. So any additional demand is of a critical nature to the BBs.

The point is; there is a definite and visible end to this progression, just like there is a visible end to the dollar's timeline, just like there is a definite limit to the amount of gold that can be delivered at today's prices. And if I can see it with nothing to lose, so can the Giants that have a lot to lose. So it's never a linear progression to the end of the tunnel once you round that corner and see the light at the end. It becomes an exponential stampede. Look out! Best to get where you don't have anything to lose before the deadly stampede starts, IMVHO.

Sincerely,
FOFOA

FOFOA said...

Hello eugenioca,

If you email me I will try to answer your questions in time.

As for Charles Hugh Smith's analysis, it is a bunch of garbage. It is not only impossible, it is completely backward in its perspective. If--and it's a big BIG IF--there is a Con of the Decade, it ends in hyperinflation because that's the tsunami that's rolling in.

Sincerely,
FOFOA

panika2008 said...

@julian re coin weights, I've seen silver maples weighting up to 31,5-31,6 grams many times, almost regularly. The variation of their weight is very large (in contrast to eg. Eagles), and I have never ever seen an underweight coin. Definitely good bang for buck :)

Blondie said...

I would like to clarify my comments from earlier on this thread in which Victor and I discussed a bid which could establish Freegold, and how it could come from an entity such as the ECB, should it suit their purposes.

Upon rereading the comments there are a couple of points which I neglected to mention (hit and run commenting isn’t my favoured approach, but I have other priorities too), and their absence gives the erroneous impression that I expect the ECB will do this.

I don’t think it is likely, I was merely pointing out that it is possible, and that openly bidding/buying can have its function for a CB too. The CB is in a position of needing to sacrifice one thing to achieve another, and as events unfold their priorities (values) in this regard may change repeatedly.

There are other players who could make such a bid too.

Far more likely though, is that the bid is forced up, by the withdrawal of offered physical in size from the market. No offers means the bid must rise until offers are coaxed out. In other words the flow dries up. The only reason the flow would do that is if those supplying the flow felt they weren’t receiving enough value in return (presuming an exchange of value is the motivation to supply physical at current valuations- perhaps the value being returned is the continued functioning of the $IMFS. The BB redemptions via GLD, which may be the largest current supply fit this MO or one similar (self interest)).

Casper said:

”...the ECB is going to print euros and meet the demand, but I think that they will do it by buying government bonds so they don't default. In the mean time they will establish a bid and an ask for physical gold only, both rising very fast and in tandem.

The establishment of both the bid and ask is making the market; I did not mean to infer that one would be done without the other. The intent is made clear by the size of the spread, and the visible actions (being seen to be active participant, rather than a passive market maker). Of course if this was say the ECB doing this, for arguments sake, they would only transact in Euros. I wonder what currency the BIS might want if they were to make a market?

******

Googel,

Thanks for the links to Huerto de Soto. I hope to find time to watch the rest too.


******

Victor said:

”...they [ECB] would not be able to purchase any significant volume this way [print Euros for Freegold bid] simply because it would make the euro go down even more quickly.“

This is the case of outrunning your competitor, rather than the bear. If the Euro loses 90% value that sounds bad, but it’s not necessarily if competitor currencies all lose more. The point is not to purchase significant volume, but to revalue their reserves. FOFOA also points out that this may help to withstand HI, if done prior, which may be the more important reason.

”What use does the g[r?]own gold reserve have other than that it becomes easier to pay off all the bad debt.“

It establishes a new system, an equitable one to boot. Ends US exorbitant privilege and hegemony. Alters the sense of financial security and perceptions and thus motivations and behaviour of seven billion people (for the better). Don’t know about you, but I find utility in that (I suspect the majority of them will too).

”...when I say the ECB will have to sell some gold, this is at a very high price. Selling gold before the revaluation is dead on arrival. We agree.“

I don’t think we actually disagree on some points as much as misunderstand each other.

******

Texan said:
”If "Savings" is a company representing all excess work of humans past, present, and future, well there are only so many "shares" (ounces) available. They are only issuing about 2% more each year, and the float is very, very tiny.“

I like the prospects of this company...

victorthecleaner said...

Casper,

> There is an interview with a former president of the Bundesbank, Ernst Welteke.
> In it he suggests selling part of gold under the ownership of the Bundesbank.

I think I understand this one. This was in early 2002. I am quite sure this was just the standard rhetoric to slow down the proce of gold when it broke through 300 US$. Presumably, some of the bullion banks were still under water at that time.

By the way, according to Dimitri Speck, about 66% of the 3400 tonnes of the Germans are in New York, 21% in London, 8% in Paris and only 5% in Germany.

Paul and FOFOA,

> "This was cheating, plain and simple. [...]"
> "This is why gold is off the table. This is why we can never go back to a gold backed dollar. [...]"
> These law suits would rightfully demand a retroactive reversal of 1933 before any new confiscation could take place

I disagree. Cheating and blackmailing is part of the business.

All this becomes relevant only when the dollar is in the process of collapsing which will seriously disrupt international trade. Of course, this is a matter of national security. In that name, innocent people have been tortured, cities bombed. Why not confiscate something?

Take a look at what GATA write about this. I often do not like the spin that comes from GATA, but the reference is just some original documents. Read them.

> Well, if the US dropped out of the BIS to secure sovereignty over its confiscated gold, the BIS would halt all
> international dollar traffic and probably try to use those dollars to buy gold on the international free market.

Sure. But the US will know fully well what is happening when the dollar finally goes down. It will be totally obvious that the dollar cannot be saved. So they will abandon it together with all the US$ denominated public debt. Let the BIS sell some, too. It will go down to zero anyway.

What counts in such a situation is only the question of who controls the gold.

> You say FED can follow ECB in gold revaluation Victor ? Me thinks ECB will call that bluff …

Well, they are not so stupid as to try to defend the old dollar with their gold. No way. But once they have abandoned the old one, they might very well use the gold to back the new dollar. Even a classic gold backing is in the cards.

Victor

victorthecleaner said...

FOFOA,

> There are 6,196.7 tonnes of gold held at the FRBNY under earmark for foreigner governments. [...]
> The only gold removed has been very small quantities used to test the purity of gold during regularly scheduled audits.
> Except for these samples, no gold has been transferred to or from the Depository for many years
> The global gold market was suppressed by paper gold, not physical. It's impossible to suppress it with physical.

I don't think this is accurate. In 1992, the FRBNY stored more than 9500 tonnes of foreign gold. This inventory declined to about 6500 tonnes in 2001 and has since been almost unchanged.

If you compare this with the GFMS statistics on the official gold sales between 1992-2001, the shrinking of the foreign owned inventory at the FRBNY cannot be explained by sales alone. This is strong evidence that some CBs leased gold, and the leasing did involve removing the physical from the vault. In the 1990s, yes, indeed.

As I understand the events in 1997-2001, the problem was that the BBs had also lent gold to speculators who had sold short the gold right away. For this you need the physical to move, of course, as is indicated by the vault inventory data. And they must have sold so much that the CBs started to panic about their counter-party risk.

Victor

Casper said...

Hi Blondie,

thanx for clarifying your understanding and position on steps any CB might take in the transition. As FOFOA suggested a few posts above, it seems we've been looking at the same river (gold)flow from the opposite bank. :-)

Casper

Blondie said...

Casper,

That is exactly what I was thinking when commenting to Victor that we misunderstand rather than disagree.
If we each view the same thing from different angles, our descriptions will not necessarily make sense to the other, while still being accurate.

Never mind, we end up with a thorough examination (fingers crossed we were looking at the right thing).

Indenture said...

$1 Billion of Gold Bars Taken Delivery Of By Pension Fund Due to Risk of COMEX Default and Shortages

The story gets better and better.
5% of a fund in physical. One fund, 5%.
There must be ripples far off shore.

Pete said...

(Google translate tells me that is Czecheslovakian)

Desperado said...

Dear Fofoa,

Attempts to diminish my statements by beating the "conspiracy strawman" weaken your arguments more than my lack of knowledge of all the gold market details weaken mine.

But your biggest weakness is one of being too certain. It is often on display: over the existence of tungsten seeded bars, the possibility of gold seizure, the viability of silver as competition to gold, the possibility of a bi-metal standard, or more relevant here, your faith in the good intentions of central bankers. This faith in central banks reminds me of the warmist's faith in their government sponsored "science".

Perhaps you are right that I seek to make America look bad in order to rationalize my decision to dump my US citizenship. But I would also say that living outside of the country and running a small business there as an IRS tax slave focuses the mind on just how craven the federal government has become. And the Fed and the Treasury are at the very core of this monster. The elite east coast bankers spent more than a hundred years getting control of the monetary system, and over the last century that monetary system has become at least as foul and corrupt as the rest of the Federal government.

This is why I don't bother tracking all the lies coming out of the Fed or the banks and financial institutions that own it and the treasury. I have been lied to one too many times, so until someone finally makes a full and credible audit of the gold then I am about as likely to believe in its existence as I am in the integrity of a senator who talks about caring for the middle class. And to make predictions based on all these banker's lies is about as smart as basing your retirement on all the Senator's lies about the solidity and continued existence of SS and Medicare.

mortymer said...

@Wejn: Our true nationality is mankind. ~H.G.Wells

"85 Years of the Central Bank

“Governor, I place in the hands of the National Bank of Czechoslovakia our most prized jewel, the Czechoslovak koruna, a symbol of our freedom and independence. …We put it in the guardianship of an autonomous bank of issue, fervently wishing that it will be looked after like a child, with care and love, so that no member of the public need be concerned, and so that whoever receives our KORUNA has the assurance that its VALUE will be PRESERVED today, tomorrow and for decades to come.”
Dr. Karel Engliš, Czechoslovak Minister of Finance, speech given at the founding general meeting of the National Bank of Czechoslovakia, 21 March 1926."
...->...
"Under Article 98 of the Constitution of the Czech Republic and Act No. 6/1993 Coll., on the Czech National Bank, as amended, the primary objective of the CNB is to maintain PRICE STABILITY."

JR said...

Hi Desperado,

The view is pretty clear from up here. Enjoy the trees. While they are quite unique and impressive in their own regard, its easy to get lost down there.

There is no need to conflate the comfort that comes from understanding the economic forces at work with "faith in central banks." I don't bother "tracking all the lies" (as you call them) either, because they don't matter. These folks aren't in complete control. Freegold is coming because of economic forces at work. These forces are bigger than any one person or entity or country. That the euro was built in anticipation of this understanding does not mean that the ECB or anyone else has control.

I have no doubt their are nasty folks out there in power who would do whatever they could to maintain their power. If the seizure of gold would allow them to advance their interests they would do it. But these folks aren't omnipotent, so its not their benevolence that is at issue. Indeed, in some respects its the opposite: we know who these folks are, and what they want, and thus we can count on them to continue to act in their own self-interest.

Freegold is coming. The issue is sorta to what extent we see an impotent attempt to forestall the inevitable, and to what extent we see a self-interested embracing of this inevitability.

******

Its not about their benevolence, its about their self-interest:

"Just because we're talking about central banks and sovereign entities here doesn't mean regular market forces don't apply. They do! And as such, consider the BIS' role as the market-maker in this extraordinary market. From Wikipedia:

A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread... the market maker sells to and buys from its clients and is compensated by means of price differentials and for the service of providing liquidity, reducing transaction costs and facilitating trade.

So here's a big point in the logical proof: This market does exist. If it didn't we would have to accept some very unlikely assumptions about large interests like the Saudis, the Chinese and the Russians. For one thing, that they are benevolent to the outside world when it comes to protecting their wealth.
...

Now I might be completely wrong. I suppose it is possible that all the wealthy sovereigns and overflowing central banks of the world are so benevolent as to withhold their bids for actual physical gold from the LBMA and the COMEX and patiently wait in line for a few scraps from the IMF. It is possible, but is it probable?"

Open Letter to EMU Heads of State

******

Similarly, FOFOA's quotation and discussion of John Law/aka Mencius Molbug's excellent exposition on game theory and Nash equilibrium wrt to central banks and freegold, such as in The Shoeshine Boy , makes this all the more clear.

Cheers, J.R.

Redhill said...

Good video share. FreeGold slowly creeping into MSM.

Wejn said...

@mortymer: okay, then. :-)

Btw, I don't exactly see selling most (roughly 80%, I believe) of it's gold for German bonds in 1999 as "maintaining price stability". And to top it off, the sale went thru without CNB telling anything about it to the public; since (and I'm paraphrasing here) "they're too dumb to understand".

Also, they've been slowly disposing of their gold reserves via gold coin emissions ever since that time. Don't know what to make of that, but maybe better to have them sell those (heavily overpriced) coins to the public than to see CNB squander rest of the gold on another brand of govt bonds.

mortymer said...

@ Wejn: [I voted with my feet]

...anyway... Like before in the first years of CNB there were opinion differences:

http://www.cnb.cz/miranda2/export/sites/www.cnb.cz/en/public/publications/download/sbor96.pdf

Unfortunately this is not just CR issue, the whole East Europe was gold stripped (see Fekete comments in one of his essay).

Good reading is here: "Kam zmizel zlaty poklad Ceske Republiky." Stanislav Motl; ISBN: 80-86182-69-X

[Mrt: I have put few comments about this subject here some time ago]

Wejn said...

@mortymer: Sadly, I'm not surprised. :-/

Re link/book: thanks, will look into it.

I'm saddened about the way East Europe (and CZ in particular) was treated post-WWII. Not just the mandatory gold payments to GB (for CZ helping them fight against Hitler)... but also the looting that's ongoing (and only accelerated since 1989). Then again, we probably deserve(d) most of it by being (mostly) ignorant to what's happening.

I think most of it was beautifully summed up by Bata in 1923: "depression is result of moral failure."

Oh well, let's hope the parasites don't kill their host entirely. If we ever get to freegold, there might be some hope [they won't].

Wejn said...

@mortymer: Two more things (hope I'm not boring others to tears):

The article by Fekete you pointed out is interesting:

One of the first things the IMF did as an agent of the US Treasury, after the inglorious collapse of the Soviet Union in 1990, was to force countries formerly under Soviet occupation to dispose of their gold reserve in exchange for IMF membership. Fancy the enormity of this crime. Even under the harshest of Soviet military occupation these unfortunate countries were allowed to keep their gold reserve, and with it some faint promise of a better future. Then come freedom, American style, for which these countries have been yearning for half a century. Lo and behold, the first thing they have to give up is their gold reserve - in the defense of the dollar system that had gone bankrupt twenty years earlier! The IMF will never be able to live down what amounts to the monetary rape of Eastern Europe and its "captive nations". The IMF was the shepherd dog, shepherding these people under American auspices from one slave labor camp into another.

I did not know this was done under IMF's leadership. Hmm.

The other thing is -- even though FOFOA talks all the time about the enormous price gold will sport under freegold, I can safely say it's out of reach of most people (me included) in the country I live in. At least in quantity. One ounce of gold is roughly 1.5 month salary (avg) in a small town like the one I live in.

Dunno about standard of living elsewhere but there's no way regular folks here will be to afford more than a few ounces of gold (even if they wanted).

So with that hundred+ fold increase in gold's price (post-freegold), I'm not sure if most of the regular folks will be able to afford even the smallest bars now available (1g). Maybe that's why the Swiss coins are going to be 0.1g of pure gold?

scarlo said...

Wejn, I think that's the point - 1 oz of gold shouldn't be easily accessible to the populace. In the past it was the money of kings for a reason - peasants didn't touch it. During the last few decades it's been mistakenly dumped by CBs and thus common folk have become accustomed to seeing it and owning it. At the end of the run of gold, you likely won't see all the folks walking around with gold necklaces, gold rings, etc. Gold isn't meant to be so cheap that peasants can flaunt it.

Blondie said...

Wejn said:
"I can safely say it's out of reach of most people (me included) in the country I live in. At least in quantity. One ounce of gold is roughly 1.5 month salary (avg) in a small town like the one I live in. Dunno about standard of living elsewhere but there's no way regular folks here will be to afford more than a few ounces of gold (even if they wanted)."

You're missing the point, IMO.

Would the regular folks near you not like to see access to the standard of living placed upon an equal footing with regular folks the world over?

Capital gain for gold holders through the transition is not the beauty of Freegold, although it is blinding a lot of folks currently with its allure.

costata said...

Desperado,

Attempts to diminish my statements by beating the "conspiracy strawman" weaken your arguments more than my lack of knowledge of all the gold market details weaken mine.

Actually, no they don't. Your "lack of knowledge" comes up trumps everytime.

But your biggest weakness is one of being too certain.

LOL

Wejn,

You wrote:
@mortymer: Two more things (hope I'm not boring others to tears):

Not at all. That's Desperado's role here. He's our very own Forest Gump (without Tom Hanks's charm, sadly).

"Conspiracy theories are like a box of chocolates ....."

Wejn said...

Blondie, that's an interesting take. Yes, equal footing would be something I'd welcome.

I just don't see it happening easily. I mean, for most of the "civilized" countries even the average joe (all his debt load notwithstanding) has, in my opinion, enormous head-start compared to the rest of the world.

Because the more I look at those forums (and the world) the more I see the gross difference between western middle/upper class (for lack of better description) and the "middle class" in my country. And not just in buying power but also in thinking and education.

Lately I've been basically scratching my head and asking myself: how the h*ll did we end up where we are now? (compared to the first republic -- 1918-38)

And I wouldn't say I'm blinded by the (potential, possible, yet elusive and still uncertain, at least in my mind) appreciation of the few ounces I managed to tuck away into safe deposit box (after selling virtually all of my silver :-) )... I was mainly thinking aloud about the situation.

Thus I find it strange that you see the mere gold revaluation (free trade) making all the difference in the world. It will no doubt level the playing field in some aspects (savers no longer abused by debtors and govts), but I fail to see any greater resetting effects you might be alluding to.

One last thing: I chewed thru gold trail and couple other things, but I still think I'm missing the big picture. In the way that I can name some of the parts but I couldn't put them into a workable machine even if you pointed gun to my head.

Wejn said...

@costata: Thank you.

Texan said...

UTIMCO is just another oil producer, and Hotelling's theory is in effect.

JR said...

Hi Wjen,

Here is some context on Blondie's point. It is from FOFOA's "The Value of Gold:"

"So what is gold's utility? Gold's utility is that for thousands of years it has held its value relatively well. And because it is not used for many things other than mere hoarding, the act of hoarding gold is not an infringement on the natural rights of others to enjoy the utility value of "real world" things like BMW's and oil and wheat and pork bellies. If one were to corner, say, the copper market or the chocolate market, there would likely be repercussions as those industries fought back through the power of the collective that likes to consume chocolate and copper. But with gold there is no such worry...

(Keep in mind that the utility of gold is protecting your purchasing power, not increasing it. The fact that the price and value of gold have an extremely wide disparity right now is a separate issue.)
"

Note: I'd post a link but I think it will get me in the spam box with my other stuff until FOFOA releases the caged birds, so search for a post "The Value of Gold".

******

This is why FOFOA talks about "meritocracy" - freegold is a saving system outside of the G controlled currency that allows one to protect wealth from the hungry collective and exploitative class. An asset whose "hoarding" does not hurt the real economy. In Freegold, you basically have to earn your keep, as it becomes harder to siphon the fruits of the hard work of others. Freegold is all about a store of value that actually stores value.

You commented:

Thus I find it strange that you see the mere gold revaluation (free trade) making all the difference in the world.

As Blodie and FOFOA have made clear, its not the revaluation or capital gain through the transition that is the primary benefit, but rather the greater meritocracy that ensues after Freegold emerges. Its not about poor people buying gold and then becoming rich while the evil paper wealth holders become poor, its about what happens after the revaluation (what is on the other side of the waterfall).

Cheers, J.R.

Nick said...

Beautifully put, JR!

mortymer said...

Asian Energy Outlook up to 2030

Speech by OPEC Secretary General, HE Abdalla S. El-Badri, to the Fourth Asian Roundtable: Sustainable Growth and Energy Interdependence - Kuwait, 18 April 2011

"In looking at Asia’s future energy outlook, it is clear that the relationship between this region and the Middle East is an extremely important one and one which will continue to grow. There is much that each can offer the other."

"With this in mind, our goal must be one of stability, with a clear and consistent environment that enables the industry to continue to develop, produce, transport, refine and deliver energy in an efficient and economic manner. This will benefit producers and consumers, as well as present and future generations, and hopefully deliver a better standard of living for all peoples around the world, as well as a greater hope that tomorrow will be better than today."

http://www.opec.org/opec_web/en/press_room/2036.htm

Pete said...

@ Desperado

Please keep posting. Don't mind those who disagree with you.

I for one value your comments and the discussion they generate. Discussion is just one way we can get an even clearer picture of the future.

ad said...

@Mrt

Re the BRICS posting: In the local news; A couple of telling points here..

Even mentioning different models on pricing the currencies. SDR vs gold?

Secondly the recognition that the "middle man dollar" takes a cut.

BRICS nations moot trade in own currencies

BRICS nations could benefit considerably by trading directly in their own countries, cutting out unstable internationally convertible currencies, Trade and Industry Minister Rob Davies said yesterday.

Davies said such a system would take out the money lost to the "middle man" in conversion, and protect BRICS trading partners [Brazil, Russia, India, China ] from the volatility affecting internationally convertible currencies, notably the dollar.

"First of all the middle man always takes a cut and we are also having to take into account the currency fluctuation that happens along the way," he said after returning from the BRICS summit in China.

The proposal is considered one of the most interesting developments at the third BRICS summit and could have serious implications for the dollar, but it raises question about how the members would calculate conversion rates

Davies said the countries were not "remotely close" to picking the model for making their currencies inter-convertible. He stressed that the proposal was part of the emerging market countries' call for greater say in how the world's financial system was run and the debate on which currencies should be in the emergency "basket" of drawing rights managed by the International Monetary Fund.


Coincidence perhaps but curious timing considering the BRICS summit. Not much detail in the article unfortunately.

Gold back on the agenda

A hush-hush meeting of central bankers in Cape Town recently had gold's reserve asset role high on the agenda.

It was another symptom of a sea change in the gold market.

pipe said...

Hi JR, you said, "Its not about poor people buying gold and then becoming rich while the evil paper wealth holders become poor, its about what happens after the revaluation (what is on the other side of the waterfall)."

I believe there are 7 billion ounces on either side of the 'waterfall'. Regardless of the exact amount, what percent would you guess is in India, and in Asia? I read recently that 16.5% are in CB's, so that leaves 83.5% not in CB's.

If it's 2 billion, or 28.5% of the world's gold is in India, then wouldn't India's share of world GDP increase from the prresent 5.4% to somewhere near 28.5% to reflect their share of the world's 'money', upon arrival of FreeGold?

Lot's of folks aren't gonna like giving up their present share to India. Could be a lot of wars between here and FreeGold, don't you think?

julian said...

Hello All,

some outsanding contributions yet again

Blondie said:

Capital gain for gold holders through the transition is not the beauty of Freegold, although it is blinding a lot of folks currently with its allure.

Stopped, to admire the beauty.

This is a timely reminder, for those with many ounces to those with none at all.

(Hopefully the geographic region has plenty hoarded to do the job, but even that is not necessary, as long as that geographic region has value to offer)

Either way, at the deepest of levels, behaviour and thought vector will have morphed.

Philosophically, Economics is about choices and actions in the manipulable world, causes and effects. Human action. Incentives and natural constraints. They are considered as laws. See Gresham, for one.

JR said...

Hi Pipe,

Physical gold holders standards of living will rise. India's economic growth/"GDP" won't necessarily rise immensely right away, the value of their savings will. This increased value of their savings will foster both greater consumption and the important capital investment that will boost economic production and spurn "GDP growth."

Here is a brief recent comment for more color

*******

Why do you think Another wrote:

Q: **Who does BIS really represent?

A: "old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".


From "The Gold Man" (not Goldman) at the BIS

Cheers, J.R.

Desperado said...

@Pete, thanks for the support. The freegolders here remind me of the boys choir, later band of hunters, in Lord of the Flies. The more the GSR drops, the nastier they get until they start looking for someone to sacrifice on their freegold altar.

Sorry Hunters, you are the ones who can't see the forest. For those of use who have maintained a diversified PM portfolio, the recent fall in the GSR has been a joy to behold. If the GSR continues on trend, we will do even better and the proportion of silver, even valued in gold, increases. If gold catches up to and passes the old GSR of 65, then that is fine too. Either way, we win.

As far as the stolen US gold "reserves" goes, we will all just have to wait and see. I tend to agree with Pipe:

"a lot of wars between here and FreeGold"

The first victim of war is the truth, and the second is well laid plans. If there is not another war of secession in the US, if there is no Spanish style civil war in the US, if there is no World War that makes its way to US shores, if we don't all get radiation sickness from a nuclear war somewhere else on the planet, if the elite don't pull a Nazi style coup and sieze all gold, then we might get to freegold. In all of the other scenarios I just listed, silver will likely be as useful as gold.

Blondie said...

Julian said:
”...that is not necessary [having plenty of gold within a region], as long as that geographic region has value to offer”

Exactly. The real beauty of Freegold is the equitable nature of the system, which is granted via the objective reference point. This confers, IMO, an element of Rawls’ Veil of ignorance across all participants of the system (everyone).

If we step back a little to find a larger perspective and seek a common denominator, we see that everything that serves to motivate a person, any and every person, boils down to value. Plans are formulated, decisions are made, action is undertaken, split-second responses intuitively found, all based on values of practical, moral, spiritual etc. utility to the individual. Values assessed and assigned subjectively by the individual based upon a multitude of beliefs (both conscious and subconscious) and experiences all themselves subjectively perceived. In this there is no objective basis for comparison or reference between people to allow for the equitable trade of value, unless one is agreed upon. This agreement is the concept of money. It is a social contract.

Problem is, as we are well aware, there is more than a little inequity in the current monetary system, and as such the majority of its users are conducting themselves under a falsehood: that they share the use of an instrument (money) that gives them an objective basis from which to interact fairly.

Victor made the point earlier that the knowledge that others engaged in unavoidable interaction with one are cheating or at unfair advantage (his example was a poker game) changes one’s perception of the rules. In this case the rules are the social contract, and the moral code which stems from them. If others have abandoned the rules, would you continue to follow them?

cont...

Blondie said...

...cont

I posit that as the number of people who intuit that money, the pre-eminent global social contract, is not equitable, as is otherwise taken for granted grows, so the moral fibre of human society declines, as individuals abandon their moral code in response to a situation they can sense but not verbalize, and have been doing so for many years.

This is well documented in the arts, indeed this is very much the role of art, to make the mood of the time tangible, to bring it to attention. Witness the changes in the visual arts, where beauty and reality have transformed into abstractions and eventually ugliness, shock and profanity. The same has occurred in music, film, literature and elsewhere.

All action is motivated by values, all as part of a hierarchy in which peace is the pinnacle. All values are instrumental in the attainment of peace, the only inherent value.

Everything you do is ultimately, at the root of your motivations, for the attainment of peace, whatever that may be to you. Why do you want or act in quest of anything at all unless it is instrumental in the attainment of some small hope of peace?

Freegold establishes an objective reference point for the determination of relative value. Values motivate all action. Such a reference point, available to all, creates an egalitarian society. The moral code which flows from the social contract is reinstated, as there is now more to be gained from co-operative effort, trust and the de facto implementation of the golden rule than in simple self interest. People recognize that they are part of a greater whole, and begin to act with that in mind, intuiting that peace for the parts stems from peace for the whole.

I'm not saying it won't be full of hard work, sacrifice and effort, not to mention the sense of loss that accompanies great change. I am saying it will be rewarded.

To call this a meritocracy is to understand it on the terms of this paradigm rather than the one in which it actually exists.

The real value in Freegold is not in the gold; the value of Freegold is instrumental.


Just my 2 cents.

Take it for what it’s worth to you.

Terry said...

I consider Freegold and a Meritocracy the ideal future, even though the idea is third party information with no discernible proof that it might get implemented. JR and Pipe seem to have the proper perspective with which I agree. and that is that a diversified PM portfolio is the more prudent approach. The thought and knowledge exhibited by FOFOA and others on this blog is truly astounding, and yet there is no evidence that Freegold is imminent. I fervently hope for Freegold's arrival while I am still able to recognize it.

pipe said...

Hi JR, and thanks for your quick response. It is my understanding that gold is currently held in India mainly a family savings, to be handed down, often to brides.

I don't know how much the typical family has, but if a modest family has an ounce of gold, $1,500 in present day buying power, in present day India, is significant, but certainly not extraordinary.

But if gold were to increase just two orders of magnitude, they would have a buying power of $150,000!!! Multiply that by 200 million families, and imagine the inflation that would engulf India, as everyone sought to upgrade their lifestyle.

And if it is three orders (or more) of magnitude in the increase of gold's buying power, just imagine the chaos the transition to FreeGold will cause. And this is in a country that gains.

How about countries that drop, such as the USA, where what little gold that is out there is currently being vacuumed up by dishonest outfits like 'Cash 4 Gold' paying a few hundred dollars an ounce for American's gold.

If the price of gasoline stays the same, which is currently 375 gallons of unleaded regular for an ounce of gold, American highways will be empty. Presumable, gold would go up much faster than gasoline, but I would still expect the auto industry in the USA to collapse, except Jaguar and a few other luxury brands.

Pete said...

@ Pipe

And thus, the savers would become the consumers, and the debtors would become the producers...

Do keep in mind that with a stable 'store of wealth', Indians would surely find it quite foolish to squander it all in one hit.

Also, you keep converting everything back to USD. If India has so much gold per person as you say, then it might buy $150,000 USD per oz, but it would likely not buy that much in indian currency. So prices would not necessarily inflate locally - they'd be competing with super cheap imports. It'd possibly kill their manufacturing a bit.

All the more reason to save your gold if you work in manufacturing and no longer have a job, right? Not everyone can work in the import industry.

Eventually enough gold would leave India through consumption to reach a general trade equilibrium again (depending on how India adjusts to those changes).

That's what I think anyway.

Edwardo said...

Blondie wrote,

"Witness the changes in the visual arts, where beauty and reality have transformed into abstractions and eventually ugliness, shock and profanity. The same has occurred in music, film, literature and elsewhere."

Speaking of the visual arts, in my view, Blondie, you paint with an overly broad brush. Befitting a complex world full of diverse conditions and personalities, there have been, and are, many strains of art-art being broadly defined to include the visual and plastic arts, musical composition, literature, dramatic art, etc. etc.- and while quite a few of these forms of art, and sub genre within, possess tendencies you seem to abhor-there can, of course, be great beauty in abstraction depending on the hands wielding the raw materials-they are, by no means, as devoid of life affirming qualities as you seem to suggest. I say this as a fairly ardent critic of much that has been, and is, labeled as contemporary/ avant garde.

I also think it worth putting forth, and this speaks directly to your assertion, that the reflection of alienation and disaffection that has accompanied modern and post modern art is due to a variety of factors, not the least of which is technology itself. There is some irony in this since all art is only possible via the use of technology of one sort or another.

Paul said...

I have read the last post of desperado several times, for me he might as well write in mandarin chinese, I just can't get what he is trying to say :-)

art = sign of the times
my 2 cents

pipe said...

Hi Pete, you said, "Also, you keep converting everything back to USD. If India has so much gold per person as you say, then it might buy $150,000 USD per oz, but it would likely not buy that much in indian currency."

I just said '$150,000' for convenience. An increase of two orders of magnitude clearly means 100 times as much stuff for your ounce. Three orders of magnitude would mean that you can buy 1000 times as much stuff for your ounce of gold.

There won't be an 'India currency' in a FreeGold environment, nor any dollars, or is your understanding of FreeGold vastly different from mine? Why would there be Rupees if gold is money? They will use Rupees to go to the bathroom, I'm guessing. (Dollars too, for that matter)

If we get world wide FreeGold, an ounce of gold in India might not buy as much gasoline in India as in other countries with more advanced gasoline refining and delivery infrastructure. But for the most part, if gold is the universal money, it should buy about the same amount of stuff everywhere on Earth, except in remote locations.

The problem is that gold is not evenly distributed throughout the world. The way to get it evenly distributed is for gold holders to buy stuff, and for those without much gold to make and sell stuff. But in America, we are used to living beyond our means. So we are going to have to live BELOW our means until we obtain gold (in aggregate). Unfortunately, our military is bigger than the rest of the world combined, so one can easily see the danger of a fascist opportunist telling the people that we should take what we want and let the chips fall where they may. I'm not hoping for that outcome, but one must be realistic.

Michael H said...

pipe,

"There won't be an 'India currency' in a FreeGold environment, nor any dollars, or is your understanding of FreeGold vastly different from mine? "

I would say my understanding of freegold is vastly different from yours.

We will still have rupees after freegold. And USD, in one form or another. Gold will not trade as currency, it will trade as wealth. Would you take Microsoft shares with you to Macy's?

Also, note that, while Jaguar is (was until recently?) owned by Ford, it is a British marque.

DP said...

pipe: There won't be an 'India currency' in a FreeGold environment, nor any dollars, or is your understanding of FreeGold vastly different from mine? Why would there be Rupees if gold is money? They will use Rupees to go to the bathroom, I'm guessing. (Dollars too, for that matter)

Yes, your understanding of Freegold is vastly different from mine.

Gold will be the ultimate wealth asset. But it won't be "money"; not the kind that you spend in shops, or public toilets, anyway.

Blondie: Nice. smiley_71.gif

Paul said...

pipe

yes there will be rupees (or another indian currency). the currency will stay as medium of exchange, gold will be store of value.

in freegold we will (mostly) not pay with gold. goldprice will float in different currencies.

pipe said...

Hi paul-"....gold will be store of value." "in freegold we will (mostly) not pay with gold. goldprice will float in different currencies."

O.K., fair enough. So if I currently can take 1/10 of an ounce of gold, and get a basket of common grocery items for that much 'store of value' to use your words, then how much/many groceries will I get for 1/10 of an ounce of gold in FreeGold?

"goldprice will float in different currencies." The gold price is floating right now. If a currency is backed by gold, it shouldn't float. How can it float? Are you saying dollars will not be backed by gold?

DP said...

Blondie: The moral code which flows from the social contract is reinstated, as there is now more to be gained from co-operative effort, trust and the de facto implementation of the golden rule than in simple self interest. People recognize that they are part of a greater whole, and begin to act with that in mind, intuiting that peace for the parts stems from peace for the whole.

Imagine I am a manufacturer of, say, ballbearings. To make those bearings, I am going to need a bunch of inputs, not least of which will be steel and chromium. Imagine that many, many people around the world decided they would protect their saved purchasing power by going long paper chromium contracts, looking to scalp a profit from the sad fact that I am going to get sheared having to pay their higher price.

All they'll have to do to make their money is to close out a long paper position and count their dollars. I might go bankrupt... at the very least, my profit margin will shrink and might disappear, forcing me to seriously consider leaving the business (reducing supply and increasing upward pressure on the end user price of bearings).

Alternatively, I will have to raise my prices, passing on the cost to my customers, assuming I am able to make that fly.

And so on down the line. Lots of products have bearings as an input cost. Are they still viable, can their market bear the increase in price?

So, those pesky chromium speculators have contributed net nothing to this world, but have sucked out a part of my profits and/or those of my customers, and all the way down the chain of production to the consumer.

Pretty shitty way to live their lives, isn't it? At the expense of people like me and my customers, and way beyond our control. Oh well, we'll just have to suck it up won't we. Not exactly in tune with The Golden Rule that you alluded to though.

How many other producers need this same chromium for other products as well, and are also going to get mercilessly sheared by these same 'speculators'? Maybe forced out of business for no good reason. Perhaps a better word for these speculators would be 'blood-sucking parasites'?

How about any other similar industrial commodities? Like, say, silver..?

Fortunately for me, I don't make bearings or anything else like that. However, at the end of the day since I do consume things from time to time, like everyone else, so I am getting sheared by those parasites too.

Now I see the system like this, I can no longer justify hoarding silver or any other inductrial commodity for that matter. Even if I might think it could still be a reasonably good speculation towards currency profit for a little while to come. I'm not interested in being a parasite thanks.

pipe said...

Hi Paul, one last question, if you don't mind, lol. "in freegold we will (mostly) not pay with gold. goldprice will float in different currencies."

Do you think we will have legal tender laws in FreeGold? If not, then no one will except a floating dollar, except at a huge mark down.

If we WILL have legal tender laws in FreeGold, with a floating dollar, unbacked by gold, that is what we have right now.

The only difference is that right now some people believe there is a conspiracy to suppress the price of gold. If true, and that suppression ends, and the dollar price of gold 'floats' higher, then people will encourage you to pay with gold. They will offer a discount to the 'floating' price, to avoid taking hated dollars.

With modern debit cards, it makes no sense to have dollars. If they are unbacked by gold, they will be periodically overprinted and become worthless. If they ARE backed by gold, then why call them 'dollars'? Why not call them by a descriptive name, such as 'paper promise to pay the bearer in [a fixed weight of] gold'?

julian said...

@ pipe

my thoughts,

first we should remind ourselves how gold "price" is discovered presently - using synthetic supply, many multiples the actual physical supply that exists

secondly, freegold means there is no fixing of gold to a currency, such that x amount of a currency always equals y amount of gold and vice-versa

if currency were "backed by gold" at a fixed rate indefinitely, this would be a fixed gold standard, not freegold

regarding "the gold price is floating right now," perhaps you might read (or reread) FOFOA's "How is that different from Freegold?"

http://fofoa.blogspot.com/2011/02/how-is-that-different-from-freegold.html


Kindly,


Julian

DP said...

pipe: "goldprice will float in different currencies." The gold price is floating right now. If a currency is backed by gold, it shouldn't float. How can it float? Are you saying dollars will not be backed by gold?

Not "backed" in the way that you mean, no. There will be no "Treasury gold window", where your paper can be exchanged for a small piece of the Treasury gold reserves.

However, you will be able to buy 1oz for $X in the private-to-private market. If not, the market price will rise until it reaches $X++ -- the point that you can buy because at that price someone is prepared to take your $X++ in exchange for their 1oz.

if the private market price starts to make the dollar (or any other currency) look like too bad, risking the popping of the credibility bubble for that currency, then the relevant Treasury/CB will need to step in and sell some of their reserves in order to defend their currency's credibility. Selling their gold will influence the gold price down, and simultaneously support their currency's price in the market.

The other thing I wanted to clarify for you is regarding "the gold price is floating right now". It's floating in a sea of paper right now. If more than 1 in 100 people "buying gold" try to take actual physical gold out of this market... well, they just couldn't, I trust you would agree? I don't know about you, but I am seeing lots of evidence lately that the number of people unsatisfied with paper gold is growing. To clear the market at a higher percentage of physical, the price is going to have to rise to bring more physical out of hiding. As the percentage of the market that is physical grows in a linear way, I am pretty sure we will find the price has to rise exponentially to satisfy that demand. The higher the price goes from here, the more sure holders are going to be that they're doing the right thing. They'll take some convincing to part with it.

JR said...

Hi Pipe,

To paraphrase the sage and wise Costata,

*****

Welcome to the FOFOA blog. In case you missed it the heading reads:

FOFOA
A Tribute to the Thoughts of Another and his Friend.

Clearly you haven't found the time to read any of the archived material available in the links on the right hand side of the home page.

As a favour to you I have extracted some pertinent FOFOA posts to get you started on the basics of Freegold.

As an additional favour I will break it down for you.

"...There are four key aspects to Freegold. There are also many more, but these four are key. That's not to say they are all necessary. They are not. But it is to say that in order to understand Freegold you must at least understand the significance of these conditions:

1. The end of the dollar standard (the end of its timeline as the main global reserve currency)
2. The end of parity between paper gold price discovery and physical gold price discovery
3. The Euro-Freegold concept/project, (at least) 31 years in the making
4. The flow of oil

I have compiled a few FOA posts here that at least touch on these four important aspects. They are by no means the complete picture, but more of a tease to get you to read the whole thing. Enjoy!..."
Freegold in the Proper Perspective

If you cannot be bothered to read FOFOA's archive (BTW did I mention that this is his blog) you will bore the s#@t out of most people with your half-baked theories and predictions.


*****

Sorry Pipe, hope that didn't come off as too rude, I meant it more as an honor to an "old hand" who has seen things a few times.

Freegold is elegant in its simplicity, but is a concept that is often so anathema to the perspective of a "Western" mindset or a "gold is money" mindset
that it is essentially intellectually inaccessible to many without some effort. But take comfort in knowing the great Another too was at one time also of such a gold is money mindset, yet was able to free his mind from these shackles and go on to reveal much of what we now still discuss. Best wishes in seeking to first understand a concept before choosing to evaluate its merit!!

For a quick "cheat sheet" on how Freegold differs form a classic gold standard, see FOFOA's description from How is that different from Freegold?:

Stable physical-only supply
Stable, wide, awake and global demand
Much higher price
The end of captive savings
The end of gold traders
Unambiguous ownership
Supply resumes its role in fiat interest rates
The return of prudent lending standards
The return of capital ratio relevance
The retreat of Socialism
The reversal of regulatory capture
Meritocracy


Please read the above two posts on Freegold, but perhaps most of all, please read this one as well:

Freegold Foundations

You are well on your way, enjoy the trail!!

Cheers, J.R.

pipe said...

Hi DP-Thank you for your comments, and to Julian too. I'll read the linked article.

I guess my point is that we all agree that we will very soon experience a hyperinflation for the ages. And yes, I agree with your points on the physical gold market. In the wake of this coming dollar failure (and euro, yen, etc.) no one is going to accept unbacked fiat. So your description of the Dept. of Treasury stepping in 'defending' the currency with buys and sells sounds good in theory, but it isn't going to play in Peoria, to borrow a phrase.

99.7% of the American people are going to lose their life's savings due to the failure of unbacked fiat currency. They are going to have an almost impossible task of reimposing another unbacked fiat currency, for at least a generation.

You didn't respond to my question about 'legal tender' status of any new currency. Obviously, if it were backed by gold, it wouldn't need legal tender status. But you say there will be an unbacked currency. If there is no legal tender obligation to accept it, then no one will accept it. Would you?

So if you are positive there will be a new unbacked fiat currency, and it will be used by most people, then there will have to be a legal tender type of obligation to do so. And since fiat will be universally hated, it would take a fascist dictatorship to impose it. And in that environment, you can pretty much count on confiscation.

So I think you need to start at the 'legal tender' point, yes or no, and work out from there, since that will perforce predetermine most aspects of any future financial/monetary alignment.

Greenie said...

We will not see hyperinflation soon. I am keeping my old gold purchased at much lower price, but with new money, I am buying US 30 year treasuries. Pessimism toward the asset class is so huge, I cannot find even 5 bulls among all public commentators in MSM and blogosphere. In contrast, there are quite a few vocal advocates of gold.

I want to see people lose faith in gold again. I want to see leveraged gold buyers to go broke again. Only then....

If Another could wait 13 years, he can wait another 13 months (or years).

julian said...

@ pipe

Freegold requires currency (fiat or otherwise) for transactional use in trade, and Gold for savings (wealth asset) and for large-scale settlements of trade imbalances (perhaps some countries will take the currency only, or a combination of the currency and gold).


Nevertheless, this "free-floating" currency is necessary as part of the Freegold mechanism.

People will accept "unbacked" currencies because they will have no choice (not in a coercive forceful way, but in a laws of nature kind of way). In addition, they will have a new focal point to aim for with their savings.

To paraphrase Blondie, it will be very difficult to adjust for many, and there will indeed be a tragic sense of loss due to the massive change. But humans are determined, they have a strong will-to-live. They will adapt. The only other option is an epic suicide party.

DP said...

Hello again, pipe. I am glad to see you are taking everyone's comments in the spirit of support they are intended, rather than just taking offence. ;-)

RE: "legal tender", we don't have an issue as far as I am concerned. Here in the UK a gold sovereign (or half sovereign) is already and always has been "legal tender". There is special treatment of these coins, they attract not only no VAT on purchase, but also not CGT on disposal. Other countries almost certainly have coins that are treated similiarly. Perhaps someone should compile (already has?) a list of what gold coins are legal tender in each country: this may be helpful to people wishing to decide which of the many coins are most suitable for them. For example, in the UK a Kruggerand is not the best choice - while in South Africa clearly it is.

So, in the case of a UK sovereign coin, you COULD use it to pay your taxes, if you wanted to give it to the tax man for its £1 face value. But you'd be pretty stupid - because today it's worth about £230 for its bullion content. Pretty handy, not having to worry about CGT on disposal of these coins though -- thanks, UK government...

Pretty wild rate of devalution in Ye Olde Pound since just 1971 eh? £1:£230. Most of that came in the last few years of course.

Best,

DP :-)

Michael H said...

Greenie, I appreciate your contrarian impulse and wish you well. But I don't agree.

Would you reconsider your bond purchases if the Fed was selling treasury puts?
http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig

pipe,

I suggest you read the 'central banker email' by Ore em' , found at

http://www.scribd.com/doc/53199489/Central-Banker-Email

As for your other questions,

Yes, we will have legal tender laws. I believe the US had legal tender laws even while the dollar was still backed by gold domestically. Can someone confirm?

Question for you: How was it that Germany was able to introduce a new currency, following the debacle Weimar hyperinflation, and have it accepted by the public?

Terry said...

Pipe, do you think the average "sheeple" know what fiat is? I went in a coin shop last month and told the clerk that I wanted to buy some fiat. She had no idea what I was talking about!

DP said...

@Terry: Just out of interest... what were you going to buy that fiat with? Silver Eagles perhaps? :->

Terry said...

DP, I bought the fiat with silver, thanks for asking.

Terry said...

Rounds, not Eagles.

pipe said...

Hi Julian--So you are saying there will NOT be legal tender laws. Right?

So if I'm a merchant, and I lost my life savings in bond, money market, and cash accounts, why would I take fiat in a non-legal tender environment?

"But humans are determined, they have a strong will-to-live." That sounds like a strong argument for not accepting fiat in any financial matter. Once burned, twice shy, agreed?

Are you saying, as well, that the government will explicitly FORBID any private bank from issuing gold backed debit cards? Why would they do that? Afraid that no one will take their fiat if there is a convenient substitute?

Who will issue this 'free-floating' currency, of which you speak? The government or a private bank. How will the supply be controlled, or will they be able to create vast quantities by mouse click? It just seems like an impossible sell, except by a fascist dictatorship, and then they would impose legal tender and full gold confiscation.

I don't believe a democratically elected government will be allowed to issue an unbacked currency, and they will not be able to give that right to a private bank either. Maybe in 30 or 40 years. Not in the wake of a currency failure of this magnitude.

Recent currency failures in Mexico, Argentina, and ZImbabwe are not very good guides. Those countries all had functioning black markets in USA dollars, so there wasn't a complete failure of the monetary system. The coming dollar failure is whole 'nother ballgame. You can absolutely forget about an unbacked currency in a democratically elected, post dollar failure USA society.

DP said...

You know it makes sense :-)

Terry said...

Pipe, I think you are forgetting "unit of account" and "medium of exchange.

pipe said...

Hi Terry. With all due respect, you're talking in sound bites.

Who is going to issue this 'free-floating' currency? How will the supply be regulated? Unbacked fiat is just an excuse to steal money from people through inflation. If the government needs money, why not just tax the peoples' income. "You made 10 ounces of gold last year. You owe one ounce of gold in income tax."

I know what 'unit of account' is, and gold will work fine, and so will silver. But since you people hate silver, I'll stick to gold.

If you have apples and I have milk, we don't have to agonize over a fair exchange value. We just call a respected local broker and ask for a fair market gold price of apples and a fair market gold price of milk. Gold working fine as a unit of account.

Medium of exchange. You give me a bushel of apples, and I give you a gram of gold in return. You then take that gram of gold and buy gasoline. Medium of exchange. There is no need for anything else, especially with modern debit card technology. You go to the store and put the box of shoes on the counter. they scan the item, and you swipe your card. It says that 1 gram will debited from your account, plus .01 grams for tax. Then it prints your receipt.

Terry said...

As I stated earlier, I agree with Pipe's scepticism about Freegold. Just because two old guys (Another and FOA) professed to be insiders and implied a knowledge of a plan (conspiracy?) to change the world monetary system with a dream (Freegold), doesn't make it so. Just because FOFOA has interpreted their vision (brilliantly, I might add) and taught a bunch of us simpletons (if there are anymore like me) what a world monetary system could be like, doesn't make it so. I have yet to see any proof that Freegold is happening. Despite the ridicule associated with conspiracy theories, I DO see the ruling elite having their way with the world and its money. I have to think that the ruling elite will prevail. That really sucks! Having spent the last forty years trying to save my overproduction, despite the banking and governmental oversight, I would welcome some proof that the world is headed toward Freegold. I never had a clue what "store of value" was until I started reading FOFOA. And that was after reading Fekete ( who I admire immensely). Where's the beef (proof)?

I don't consider myself competent to argue with you, but I think your argument is an oversimplification. Consider the act of hoarding and how it affects money and the wheels of commerce that need to be greased (so to speak) Through out history, gold has been hoarded and gets taken out of the Flow of money causing severe problems. But scepticism is healthy. I do agree with your scepticism, but I am an optimist.

Joshua Kane said...

Hey all, I am getting ready to write a TSIBR post. Do me a favor and catch up by reading the post that's up there now. Also, always feel free to give my blog a shout-out!

http://thesystemisblinkingred.blogspot.com/

Joshua Kane

Edwardo said...

Well, since, as I type, the silver market is as near as Damnit to the mid forties, I will give a brief report from this corner of the world. My local dealer informs me that silver is not available for sale, well, except in small amounts.

Now, having said that, I was in this dealer's place of business shortly after he told me the aforesaid, and I noticed one person selling out of what looked like the family silver, and another customer trying to sell a small quantity of some not quite mint condition silver eagles.

I wouldn't make much of that. Not very savvy holders of small quantities of PMs have been selling their silver and gold all the way up. This may not be the best analogy, but I liken this phenomenon to the minimal amount of matter that manages to escape the event horizon of a black hole.

Texan said...

Pipe,

You seem to conceptually understand freegold, what is it that isn't quite making sense for you exactly?

On Day 0, the ROW rejects USD as vehicle for storing wealth. Price of gold goes to moon. Or maybe USG bids gold to moon to remonetize USD. Doesn't matter how it happens, point is that savings now get stored on gold.

On Day 1, you need to buy some bread. You happen to have some USD, so you go to the baker and try to buy bread. Baker, to your surprise, takes USD. Because there is no gold, and therefore there is no alternative. Gold is going to be all locked up except at a huge exorbitant and very thought provoking price.

Gold is going to sit there and trade the way (most) people approach a marriage. That is, very very infrequently. Why
would anyone part with something so rare unless they absolutely must sell? And if 1/10th of an ounce costs$10,000, the decision to buy will be a profound one as well.

To me at least the " free" in freegold does not mean a lot hold currency or hold gold on any given day. It just means that the price of physical will be unlocked from paper sales. It will be "freed" of derivatives.

But in any given currency union, fiat ( supposedly " backed"
or otherwise), will still have value for living, paying taxes, etc. Even the Venezuelan Bolivar has some purchasing power left ( albeit not much). You just have to hope that
your given currency have responsible adults managing it
so the baker can have some use for it down the line.

Maybe this takes a few tries before a given currency union' s fiat takes hold, but something will arise. People must trade, and barter is so ineffective that an acceptedunit of account will fill the void, at least until it gets mismanaged and a new unit is created, etc etc.

But gold avoids all of this. It just sits there and holds value against any unit of account. And that is why savings is flowing out of fiat and into gold right now, because the biggest unit of account in the history of the world is being debased with no end in sight. That doesn't mean USD won't have value, it's just that USD is starting to be thought of as a purely transactional currency, like the peso or the bolivar. No one wants to hold it for too long, as in " cash is trash".

You dig?

Texan said...

I am sorry about the typing, by the way. iPad.

Blondie said...

Edwardo said:
”...a few of these forms of art... possess tendencies you seem to abhor”

I’m not passing judgement, Edwardo, merely observing a noticeable trend. Art, as you are aware, is an excellent gauge to ascertain the evolution of the collective. I happen to enjoy and appreciate an extremely wide range in all genre and modes.

”...the reflection of alienation and disaffection that has accompanied modern and post modern art is due to a variety of factors, not the least of which is technology itself.“

Nicely worded, I agree. Is it the technology itself, or how we employ it?

******
Paul said:

”I just can't get what he [Desperado] is trying to say“

Desperado expects very bad things, and finds talk of silver not being a leveraged play on gold upsetting.

******
Pipe said (to Paul):

”Do you think we will have legal tender laws in FreeGold?“

I don’t. Any currency will find usage in accord with whether or not private gold is exchangeable for it. While some find comfort in knowing the usage of the currency they hold is coerced (legislated), the global free market is built upon transactions between willing buyers and willing sellers. Legal tender taints this process. Point being, if the currency has merit, why can it not stand on its own? Do its issuers not have confidence it can compete? Is there a legitimate reason for legal tender?

A currency is “backed” by whatever is available in exchange for it in the market.

”...no one is going to accept unbacked fiat.“

That’s right. It seems your definition of “un/backed” is the thing at odds with others here.

”...why would I take fiat in a non-legal tender environment?“

Because it buys (is exchangeable for) things you want, the same reason you would take anything: you value its utility.

”Who is going to issue this 'free-floating' currency?“

Who cares? Anyone could, potentially. The issue is only “is this currency an instrument with which I can attain what I want?”, nothing more. Supply will be regulated by its gold valuation. Over issue and its exchangeability for gold (the market’s proxy for value, the objective reference point) plummets. This is a self-regulating arrangement.

”...since you people hate silver “

Nobody hates silver, pipe, they simply have a different perspective on it.

I strongly concur with almost everything Texan has just posted in response to you above (exception being the third paragraph, the rest was (very) succinct).

******
Julian said:

”To paraphrase Blondie, it will be very difficult to adjust for many, and there will indeed be a tragic sense of loss due to the massive change. But humans are determined, they have a strong will-to-live. They will adapt. The only other option is an epic suicide party.“

Those anticipating this epic suicide party are in doing so displaying just how difficult they find the prospect of change already.
You don’t own your stuff, your stuff owns you (with particular acknowledgement of beliefs (mental stuff), stuff which is mistakenly clung to as instruments through which to attain peace).

Blondie said...

Legal tender is coercion.

"If he who employs coercion against me could mould me to his purposes by argument, no doubt he would. He pretends to punish me because his argument is strong; but he really punishes me because his argument is weak."

- William Godwin

Texan said...

Pipe, one more point.

Gold would make sense as a transactional currency if every human on the planet agreed simultaneously to start using it, and only it, and promised to never ever switch again.

However if they didn't do this, Gresham's law would be in effect.

Ie, I would never pay the baker in gold if they would take ANYTHING ELSE.

So the economy would simply cease until......easily recognizable tokens could be created, ie fiat.

JR said...

Hi Pipe,

I made a bigger comment earlier that is in the spam filter (In which I think I mistyped Another instead of FOA...), hopefully you can explore that and get into some of the basics. Its not like your brand of hard money socialism is unknown in these parts, so lay of the elementary economics lectures. Hayek, Mundell, Menger, etc... yup, they are here - FOFOA knows economics. Why not ditch the sandbox and come play with the big boys?

After all, you can't explain why Freegold is a wrong economic theory until you know what Freegold is :)

But anyway, here is a quick thought. You agree hyperinflation is coming, yet you assert this:

Medium of exchange. You give me a bushel of apples, and I give you a gram of gold in return. You then take that gram of gold and buy gasoline. Medium of exchange. There is no need for anything else, especially with modern debit card technology. You go to the store and put the box of shoes on the counter. they scan the item, and you swipe your card. It says that 1 gram will debited from your account, plus .01 grams for tax. Then it prints your receipt.

That card is a paper (or if you prefer "plastic") claim on gold. Physical gold held somewhere else that someone promises to store and then deliver/distribute on your behalf. Why would these paper claims survive a hyperinflation? How could this faith in the promise of someone else survive the collapse in confidence, or if you prefer, be so easily established after the confidence falls?

You're in fact well on your way to getting a key piece of Freegold, the separation of monetary fucntions, in recognizing how computing power and technology (e.g. debit cards) have allowed the development of highly liquid media of exchange which are demanded for their transactional value, but fail to see how this development doesn't bode so well for the use of the same as a store of value as well.

Why would all these people so easily scorned by the failure of fiat paper run right back to the government they so despise and again accept their paper?

You see, the gold standard is really a fiat currency too. The government, by fiat, is declaring the worth of their currency in gold. A price "fixed" by the G. So you think government price controls are the answer?

Instead, it is this attempt to make government paper money "appear" good as gold that is failing. But either way, as FOA wrote, "This not only has everything to do with a gold bull market, it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too."

The gold standard is not coming back, we are moving forward.

Cheers, J.R.

Texan said...

I love silver. I just can't buy enough of it to make any dent in my billions of wealth......( sigh, if only).

Blondie, I assume you disagree about my statement of gold being locked up. Unfortunate choice of words! I mean it will lie very still. People aren't going to load up or sell out without a lot of thought behind it

I kind of view India as the model. Everyone holds gold, and buying and selling are strictly on the margin - big amounts for life events only. Meanwhile, their day to day is in transactional currency of rupees.

Btw, my last coin dealer trip the guy told me buyers really only for silver, they can't afford gold. That was about 20% ago on silver....

Desperado said...

@Paul,

You wrote:

"I have read the last post of desperado several times, for me he might as well write in mandarin chinese, I just can't get what he is trying to say :-)"

Here are some definitions:

1) Lord of the Flies: A famous book that was required reading in many secondary schools in the '60's. Plot Overview. The protagonist in the story was hounded by the hunters until the adults finally arrived and saved all the children. The story line reminded me of how I have seen silverites hounded away from this site.

2) GSR: The gold to silver ratio. This is the ratio of value between gold and silver expressed by the relative prices of the two precious metals as determined by the corrupted fiat paper market valuations. In the last several months the freegolders have managed to chase almost all the silverites away from this blog (et tu, Peter?) despite the fact that silver has been rocketing up in relative value. Some silver owners even followed the advice of the freegolders and sold their silver or traded it for gold.

Personally, I have no ideological ties to any particular PM and I try to listen to all sides of any argument. I also happen to dislike bullies like Costada, that is why I brought up Lord of the Flies.

JR said...

Hi Googel,

Thanks for the Jesus Huerta de Soto lectures. As Costata keenly observed, he is one the brightest current minds on Austrian monetary theory in the traditional Mises/Rothbardian "we must ban fractional reserve banking and institute and institute a classic gold standard."

He is at the forefront of the Austrian monetary divide, representing the ban FRB side in opposition to those who think he market should regulate the reserve ratio, like Peter Schiff and folks at GMU like Selgin and White.

*****

In "part9: Euro as goldstandard (by proxy):http://youtu.be/6QluOJ41pZk" de Soto basically argues that the Euro is better than a national fiat because an individual EU member can't print, since they don't control the currency. Like most Austrians, de Soto believes the key is to prevent government from printing “unbacked fiat money.” While he thinks the classic gold standard is best, the euro has similar qualities in that it too impedes member states from printing money. Its basically the same argument he discusses in his review of Phillip Baggus’ “The Tragedy of the Euro”:

In this regard, the single currency showed one of its "advantages." Without the euro, the Spanish government would have most certainly devalued its currency as it did in 1993, printing money to reduce its deficit. This would have implied a revolution in the price structure and an immediate impoverishment of the Spanish population as import prices would have soared. Furthermore, by devaluing, the government could have continued its spending without any structural reforms. With the euro, the Spanish (or any other troubled government) cannot devalue or print its currency directly to pay off its debt....

In contrast to the EMU, the United States follows the Keynesian recipe for recessions. In the Keynesian view, during a crisis the government has to substitute a fall in "aggregate demand" by increasing its spending. Thus, the United States engages in deficit spending and extremely expansive monetary policies to "jump-start" the economy. Maybe one of the beneficial effects of the euro has been to push all of the EMU toward the path of austerity. In fact, I have argued before that the single currency is a step in the right direction as it fixes exchange rates in Europe and thereby ends monetary nationalism and the chaos of flexible fiat exchange rates manipulated by governments, especially, in times of crisis.


For de Soto its all black or white - either its a 100% gold backed currency or its a fiat currency:

...it becomes clear that the euro might in fact be a step in the wrong direction; a step toward a pan-European inflationary fiat currency aimed to push aside limits that competition and the conservative monetary policy of the Bundesbank had imposed before. Bagus's theoretical analysis makes the inflationary purpose and setup of the Eurosystem even clearer. The Eurosystem is unmasked as a self-destroying system that leads to massive redistribution across the EMU, with incentives for governments to use the ECB as a device to finance their deficits.

Its is telling that in the 130 or so pages of Bagus’ book , a self proclaimed exposition into why the Euro will fail as a currency, there is no mention of MTM/floating gold on the balance sheet.

It makes you wonder what world these guys live in.

Cheers, J.R.

mortymer said...

http://en.wikipedia.org/wiki/Petrodollar_warfare

JR said...

Desperado,

Why do you think a currency collapses? Maybe its because its pricing system fails to allow market participants to efficiently allocate resources.

Why would we not expect industrial commodities to become more expensive as they print money to slow the collapse of the $IMFS?

People allocate resources via prices, which in a well working currency do a good job of conveying valuable information about supply and demand. In a dying currency system, the pricing system doesn't work so good.

I totally except industrial commodities to get real expensive as the $IMFS slowly fails and its pricing system breaks down due to the years of mismanagement and the resultant malinvestment, until suddenly Freegold goes ***poof***.

Cheers and enjoy biding your time until the ***poof***,

J.R.

matt said...

JR

Interesting..I tried to take Bogus to task on his youtube page and this was the response...

"You are confused about how current banking and monetary system work and this is not the place to discuss this. There are some excellent books available online for free from mises . org by economists from austrian school of thought. "

Paul said...

desperado

It was your last post I did not quite get, the post where you were talking about art.

I think I know about silver and also a bit about flies.

mortymer said...

@J.R.:
http://en.wikipedia.org/wiki/Petroeuro#Currencies_used_to_trade_oil
http://en.wikipedia.org/wiki/Iranian_oil_bourse

matt said...

Article on Zerohedge related to ANOTHER'S thoughts in the late 90's. Clears up that timing issue a bit.

-Fed and Treasury officials argued at the time that the bailout was necessary because the collapse of LTCM posed systemic implications for the global financial system. Here’s why:

-….in September 1999, TheStreet.com quoted Nesbitt Burns gold analyst Jeff Stanley as saying on a conference call: "We've learned Long Term Capital Management is short 400 tons."74

-Frank Veneroso stated:“I have received many testimonies that LTCM had extensively used gold borrowings to fund its leveraged positions, and believe it likely that the Fed removed these shorts from LTCM's books in the course of the bailout of LTCM.”75

-Reg Howe also spoke of the apparent LTCM gold short position:
“Recent confidential information from a highly reliable source confirms rumors that at the time of its collapse, LTCM was short a substantial amount of gold (300 to 400 tonnes is the range most often mentioned), and that this position was covered in some type of arranged off-market transaction.”76

-The Italians were lending / leasing their sovereign gold and investing the proceeds with LTCM.

-The declining gold price was effectively “screwing Italy’s chances” of QUALIFYING FOR THE EURO by negatively impacting the value of their reserves

http://www.zerohedge.com/article/guest-post-amaranth-kill-shot-collateral-damage-78-trillion-dollar-derivatives-book-complime

mortymer said...

@VTC: Interesting finding about how much power US has over other countries gold => NONE! Not even gold as "frozen assets" were held for long time.
[Mrt: maybe "weak hands" like East European nations had to be "convinced"]

http://www.parstimes.com/history/algiers_accords.pdf

1. At such time as the Algerian Central Bank notifies the Governments of Algeria, Iran, and the United States that it has been notified by the Central Bank that the Central Bank has received for deposit in dollar, gold bullion, and securities accounts in the name of the Algerian Central Bank, as escrow agent, cash and other funds, 1,632,917.779 ounces of gold (valued by the parties for this purpose at $0.9397 billion), and securities (at face value) in the aggregate amount of $7.955 billion, Iran shall immediately bring about the safe departure of the 52 U.S. nationals detained in Iran.

Assets in the Federal Reserve Bank
4 Commencing upon completion of the requisite escrow arrangements with the Central Bank, the United States will bring about the transfer to the Central Bank of all gold bullion which is owned by Iran and which is in the custody of the Federal Reserve Bank of New York, together with all other Iranian assets (or the cash equivalent thereof) in the custody of the Federal Reserve Bank of New York, to be held by the Central Bank in escrow until such time as their transfer or return is required by Paragraph 3 above.

In accordance with the obligations set forth in paragraph 4 of the Declaration, and commencing upon the entry into force of this Agreement, the Government of the United States will cause the FED to:
(A) Sell, at a price which is the average for the middle of the market, bid and ask prices for the three business days prior to the sale, all U.S. Government securities in its custody or control as of the date of sale, which are owned by the Government of Iran, or its agencies, instrumentalities or controlled entities; and
(B) Transfer to the Bank of England as depositary for credit to accounts on its books in the name of the Banque Centrale d'Algerie, as Escrow Agent under this Agreement, all securities (other than the aforementioned U.S. Government securities), funds (including the proceeds from the sale of the aforementioned U.S. Government securities), and GOLD BULLION of not less than the same fineness and quality as that originally deposited by the Government of Iran, or its agencies, instrumentalities or controlled entities, which are in the custody or control of the FED and owned by the Government of Iran, or its agencies, instrumentalities or controlled entities as of the date of such transfer.
When the FED transfers the above Iranian property to the BANK OF ENGLAND, the FED will promptly send to the Banque Centrale d'Algerie a document containing all information necessary to identify that Iranian property (type, source, character as principal or interest).
Specific details relating to securities, funds and GOLD BULLION to be transferred by the FED under this paragraph 1 are attached as Appendix A.

Ps: need to first check:
http://en.wikipedia.org/wiki/Iran_hostage_crisis

mortymer said...

@vtc: about how much NY FED has power on other people´s gold :o)
[Mrt: Not even "freezing assets" helps, maybe perhaps works when harassing some smaller "weaker hand" states? ...so they take shelter in Euro system.]

ALGIERS ACCORDS
January 19, 1981
DECLARATION OF THE GOVERNMENT OF THE DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

http://www.parstimes.com/history/algiers_accords.pdf

Assets in the Federal Reserve Bank
"...4 Commencing upon completion of the requisite escrow arrangements with the Central Bank, the United States will bring about the transfer to the Central Bank of all gold bullion which is owned by Iran and which is in the custody of the Federal Reserve Bank of New York, together with all other Iranian assets (or the cash equivalent thereof) in the custody of the Federal Reserve Bank of New York, to be held by the Central Bank in escrow until such time as their transfer or return is required by Paragraph 3 above..."

"...1. At such time as the Algerian Central Bank notifies the Governments of Algeria, Iran, and the United States that it has been notified by the Central Bank that the Central Bank has received for deposit in dollar, gold bullion, and securities accounts in the name of the Algerian Central Bank, as escrow agent, cash and other funds, 1,632,917.779 ounces of gold (valued by the parties for this purpose at $0.9397 billion), and securities (at face value) in the aggregate amount of $7.955 billion, Iran shall immediately bring about the safe departure of the 52 U.S. nationals detained in Iran. Upon the making by the Government of Algeria of the certification described in Paragraph 3 of the Declaration, the Algerian Central Bank will issue the instructions required by the following paragraph..."

"...(B) Transfer to the Bank of England as depositary for credit to accounts on its books in the name of the Banque Centrale d'Algerie, as Escrow Agent under this Agreement, all securities (other than the aforementioned U.S. Government securities), funds (including the proceeds from the sale of the aforementioned U.S. Government securities), and gold bullion of not less than the same fineness and quality as that originally deposited by the Government of Iran, or its agencies, instrumentalities or controlled entities, which are in the custody or control of the FED and owned by the Government of Iran, or its agencies, instrumentalities or controlled entities as of the date of such transfer...."

"---- The gold bullion will be held in a gold bullion custody account at the Bank of England, in the name of the Banque Centrale d'Algerie as Escrow Agent under this Agreement."

[Mrt: and if I remember correctly this gold has been removed from London to Iranian soil; 46,3t]

JR said...

Hi mortymer,

Thanks for offering a clear thought to respond to!?! :)

Yes, there is lots of kicking and screaming. When you can print the reserve currency of the $IMFS, you can almost spend more on your military than the rest of the world combined.

But, as you allude, you still need oil. :)

**********

Why do you think Another wrote:

Q: **Who does BIS really represent?

A: "old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".


Did you know Bretton Woods was a product of the experience of WWII? I'm certain you did. So I'm sure you understand the context from which Another wrote.

Cheers, J.R.

JR said...

Oooops mortymer,

Bad link above, not that you need it as I am sure you know:

The USA's military spending accounted for 43 per cent of the world total in 2010, followed by China with 7.3 per cent, the UK with 3.7 per cent, and France and Russia with 3.6 per cent.

http://www.sipri.org/research/armaments/milex/resultoutput/trends

Cheers, J.R.

JR said...

@ Matt,

Classic LOL.

"Its cold and raining on 4 down with 17 yards to go. Hmm, maybe I'll punt"

Thanks, J.R.

mortymer said...

A precedent for LBMA-Comex closure?
http://en.wikipedia.org/wiki/London_Gold_Pool
"As a reaction to the temporary closure of the London gold market in March 1968 and the resulting instability of the gold markets and the financial systems in general, Swiss banks acted immediately to minimize effects on the Swiss banking system and its currency by establishing a gold trading organization, the Zürich Gold Pool, which helped in establishing Zürich as a major trading location for gold."

mortymer said...

Next very interesting:

"Iraqi Swiss dinar"

http://en.wikipedia.org/wiki/Iraqi_Swiss_dinar

"The reason for the adjective "Swiss" is unknown, but there are two possible explanations."

"Following the Gulf War the president of Iraq, Saddam Hussein, repealed the existing Iraqi fiat currency and replaced it with a new currency. Despite having no backing by a commodity and with no central authority mandating its use or defending its VALUE, the old currency continued to circulate within the politically isolated Kurdish regions of Iraq. It became known as the "Swiss dinar". This currency remained relatively strong and stable for over a decade. It was formally replaced following the Iraq War."

"After the Gulf War, the Iraqi government disendorsed the old currency, favoring newly printed Saddam dinars, and the Swiss dinar ceased to be legal tender. However, the old currency still circulated in the politically isolated Kurdish regions of Iraq. The government of the Kurdish region did not have the printing plates of the Swiss Dinar, but it also refused to accept lower-quality Saddam notes (which were issued in huge amounts). Since the supply of Saddam notes increased while the supply of Swiss dinar notes remained stagnant (even decreased because of torn notes), the Swiss dinar appreciated against the Saddam note. By having its own stable currency, the northern part of Iraq effectively evaded inflation, which ran rampant throughout the rest of the nation.

Biju said...

@Micheal H

you said "Also, note that, while Jaguar is (was until recently?) owned by Ford, it is a British marque.".

Recently TATA mototrs bought both Jaguar Cars and LandRover another British enterprise from Ford in 2008.

@FOFOA:

Based on what you say - if local private Gold will be important to bid for local currency in freegold environment,

Would it not be prudent for any Govt to restrict the movement of Gold from one's boundaries except via Trade settlement...
Only for Trade to be settled, Gold will have to move. And perhaps this Gold moving offshore gives a currency it's value.

I like the idea of Gold moving through assetts,

- Private Gold-->local Currency--->Big Assets---->Private Gold

- local currency---> small consumables -----> local currency(excess saving get converted to Gold)

- Private Gold-->local Currency--->Govt/Importers------>Producers--->producer currency--->private Gold.

If this freegold really happens(not still a 100% believer), Foreign Importers to India will do great.

Also a lot of distributed Gold can be pooled to buy foreign assetts.


@ALL

(1)
There is an Indian Company(Muthoot Finance) which gives cash Loan for Gold. With the recent craze in buying Real Estate/Mordernization, a lot of people lost their religious undertone in owning Gold. Gold traditionally is
used in India not only during marriage, but during other occassions as well - grind bits of Gold to eat for a new born child, ear peircing ceremony, Baptism for christians, Marriages, and other numerous life miltestone events. all religions in India have fetish with Gold including Muslim.

Muthoot Finance gives cash loans for Interest with Gold as Collataral, but the interesting thing is that they give loan for the full amount of the current market price for 22k Gold(not 70% like a Bank Gold loan). And I have second hand knowledge that if
we miss one payment of Interest, they will take your Gold. They are really after your Gold, not your cash.

This Muthoot Finance has declared that they have 97 tons of Gold with them in Nov 2010. They are going public in a few days in Indian stock market for Rs 175/share to mobalize around Rs.9 Billion. If this company will be truthfull, it will be a good price to pay, I think.

I can attest that they have grown like a virus and they are now present even in small villages, trying to take their Gold, but it is difficult to take from Indians, because they have a religious/Cultural significance attachment to Gold unlike any other race I have seen. Gold moves from Indian hands either during life's milestone events or during economic hardship.


(2)
Also why do buying Gold in USA, not attract sales tax ? Why is that Govt do not want
a piece of tax on the transaction ? It is surprising.

pipe said...

Hi Texan-Where do see the gold:silver ratio going? (now just below 34:1)

The ratio is dropping about 6 ratio units per month. So if there isn't a major correction in three months, we could easily be at 16:1!!!!

I doubt that the giants cornering silver will stop there, however. With gold now firmly breaking out to new high ground, this is just throwing gasoline on the silver fire, as if it needed any help.

julian said...

Free Market VS Coerced Market

To not use, or to use force. That is the question.

This is the ultimate debate, The Grand Conversation humans at large are not yet emotionally nor intellectually prepared to engage in.


In relation to Freegold,

Freegold (ReferencePoint StoreOfValueParExcellence) is obviously the telos of any free market system. Coerced Market is also a candidate for Freegold mechanics. Although on a certain level, in a coerced market condition, the transition to freegold is a function of the degree of freedom of that market, in combination with what we might call the natural market forces, or economic laws that might be driving move to freegold.

julian said...

a thought occurred to me:

freegold would change the culture of the politician, of politics

if so, how so?

costata said...

julian,

Freegold-RPG would "change the culture" by constraining the politicians and central bankers management of the local currency, taxation policy and debt issuance.

It will most likely force a radical restructuring of the banking system. "Ponzi lending" (Minsky) will not be possible for an extended period of time.

Sounder economic policies will emerge over time in many countries. Among educated and aware humans debt will be a dirty word for two generations IMHO. This will also apply to the notion of "paper wealth".

.... or Desperado gets his hands on the conch shell in which case Fatty gets his buns fried in a nuclear conflagration while we all form a conga line for one last kiss of the Illuminati's butts while bartering our last few possessions for silver.

As the last bomb falls and the very last human is slowly dying he or she use their last ounces of strength to scrawl the obituary for the human species: "No one was in charge."

Alternatively costata manages to wrest the conch shell from Desperado. Aided by a whip, an unlimited supply of handcuffs, an attractive assistant named Sharon (wearing Manolo Blaniks and a smile) costata teaches humanity the true meaning of the word 'discipline' (and a rudimentary grasp of economic and monetary theory).

Take your pick.

Cheers

DP said...

I'm with Sharon

Desperado said...

@Terry: "Just because two old guys (Another and FOA) professed to be insiders and implied a knowledge of a plan (conspiracy?) to change the world monetary system with a dream (Freegold), doesn't make it so."

ROFL!!! You might as well have painted a target on your back for writing that in this blog!


@JR: "Why would we not expect industrial commodities to become more expensive as they print money to slow the collapse of the $IMFS? "

I could just as easily reply "Why would we not expect an overly soft and useless metal like gold, useful almost only as jewelry, to collapse in value as the $IMFS comes down?".

Gold is certainly not the only metal that could be used as money, or as a store of wealth, and yes, I have read Fofoa's strong arguments for why gold is the most suitable. Gold also has a long and sordid history as being one of the tools used by the elites to enslave and control the masses. After the "Wende" it is entirely plausible that the globalized economy, if not outright collapsing, could fragment into any number of smaller markets. So despite every argument about gold being the best suited for a "freePM", to simply dismiss every other metal, or physical object for that matter, on the planet as being unusable anywhere on the planet is, frankly, breathtakingly arrogant. But one often finds that kind arrogance here on this blog.

@Blondie "Desperado expects very bad things, and finds talk of silver not being a leveraged play on gold upsetting."

If silver is a "leveraged play on gold", then why is it that for the last 6 months that when gold goes down, silver goes down less and when gold goes up, silver goes up far more? During this period Silver has doubled in value when priced in gold while gold has moved up a few percent in fiat terms and collapsed when priced in silver. Perhaps the statement "leveraged play on gold" had some applicability a year ago, but something has changed. If you follow the King World News Weekly Metals Wrap-up, you will know that small silver buyers are swamping gold buyers.

Wakeup Goldbugs, the masses are voting with their feet. Sure, the giants may be betting far more on gold, but the masses are betting on silver. To dismiss silver a "leveraged gold bet" or an "industrial commodity" is, as I said above, arrogant.

Blondie said...

Wejn said:
”I chewed thru gold trail and couple other things, but I still think I'm missing the big picture. In the way that I can name some of the parts but I couldn't put them into a workable machine even if you pointed gun to my head.”

If you were to expand on that, there are a number of commenters (and one host) who may be able to assist, and no doubt many lurkers with a similar perspective who may appreciate the exchange.

Blondie said...

I wonder if Brown's sale of UK reserves had anything to do with the LTCM short of similar size?

Desperado said...

Blondie, I wonder whether these LTCM revelations had anything to do with the Rothschilds and UBS leaving the LBMA and Switzerland selling half of her gold. UBS almost went under due to LBMA, and it was only saved by being merged with the smaller SBV (Swiss Bankverein). If there is some link, this would be the second time in a decade that UBS almost collapsed the Swiss economy and severely damaged the countries reputation.

Wejn said...

@JR: Thank you for your valuable reply. Made me realize this will (most likely) be slow process of equalization, whether we like it or not. The fast "punctuation" will be actually just the beginning. Or, rather, mid-game.

@Blondie: Thank you for the offer. I will take you up on that; it'll take me a day or two, though.

Right now I don't have enough time to formulate meaningful questions. Not to mention the comments that came after my last entry already broadened my view, so I have quite a lot thinking to do [before I come up with questions that were NOT already answered].

It's quite interesting that it's taking me a lot more mental energy to think everything through. Originally I thought freegold's quite simple concept, but the more I think about it (and read the insightful posts and comments here [thank you, all]) the further away from internally consistent understanding I seem to be.

pipe said...

Hi Texan, you said, "On Day 1, you need to buy some bread. You happen to have some USD, so you go to the baker and try to buy bread. Baker, to your surprise, takes USD. Because there is no gold, and therefore there is no alternative. Gold is going to be all locked up except at a huge exorbitant and very thought provoking price."

Sorry, but he won't take dollars. The economy is going to be in shambles, and unbacked fiat is going to be hated. Remember, you are talking about millions of merchants, consumers, and employers, and employees making decisions. If there is no legal tender obligation, no one will accept fiat accept in desperation. And in your example, it [desperate person]will be the person BUYING the bread, not selling it. They will find some gold, or something else of value to feed their family.

Gold, silver, copper tubing, etc. will compete for use as money. Do you think they will flip a switch and the economy will just keep humming as before? Please, think a bit. Look what happened in 2008 when the economy contracted by 5% or so. What do you think it will look like when it contracts 30% or 40%?

Ever read Antal Fekete's 'real bills' analysis of gold backed trade. That will emerge very quickly for the big players. Briefly, a major oil company will order a million barrels of oil from Saudi Arabia. They will promise to pay X weight of gold for the oil, a 'gold bill of trade'. When they sell the refined products to the paying retail customer for gold grams, they will deliver the gold into the 'gold bill of trade'.

Major corporations will pay their employees in gold. For safety, it will be direct deposited, with access by debit card, mainly.

Will the transition be painful and chaotic and painful? Yes, but no one will accept unbacked fiat in the wake of the biggest fiat collapse in human history.

Indenture said...

Nice explanation of how Ireland's debt is structured and by extension the other floundering EU countries.
‪Hotspots with Max Keiser - Ireland (1/2)‬
‪Hotspots with Max Keiser - Ireland (2/2)‬

DP said...

Aaahh, Real Bills again. What joy to be once again holding the hand of a RBD disciple... Why do I keep picking this straw?? There are none so blind as those who think they already see. Aaaanyhoo...

FOFOA:Money Talk Continued

[snip]Imagine if every saver in 1909 started holding only gold coins in his possession as soon as they passed the legal tender laws. The parity between paper and physical gold would have snapped long before even the roaring 20's. Roosevelt would have confiscated gold valued in the many hundreds. But people trusted their governments back then. So it was easy to CONvince people that it was better to hold paper with a "yield"!

Fekete notes that no one hoarded gold until AFTER war started in 1914, at which time gold "went into hiding". But imagine if gold went into hiding in 1909 right after the legal tender laws were introduced. Perhaps then, there would not have been war at all. Or at least it would not have been so well funded!

It would sure be nice if Fekete would apply his brilliant mind to this Freegold concept! But alas, he is advocating for a new gold standard. A non-inflationary system, so we can all hold the same money we use in trade as a store of value.

Perhaps the next step in monetary evolution after a period of Freegold will be the elimination of legal tender laws in certain zones in order to gain economic advantage. This would likely be followed by the re-emergence of Fekete's "real bills". Of course I am only speculating way out into the future.

My point is that I like Fekete's analysis. It has great value! Hopefully he can help steer the direction that economic study turns as we pass through this crisis. But what are the odds that the governments of the world will suddenly listen to Antal Fekete and reverse the course of the Titanic in time? Zero perhaps? And even if they did, what would be the immediate consequences? The unintended ones?

My only point is that any superficial differences between Fekete and this blog boil down to the perspective with which we attack the problem. As you say, Shanti, "another angle"!

Fekete takes an activist approach while I take a passive one. Fekete would like to fully remonetize gold, locking it into all three monetary functions. I, on the other hand, can see that we are already in the process of fully DEmonetizing gold, which will unlock a tremendous hidden value that is desperately trying to bust out of its shell. In the end, Fekete says that he wants people to have "the right to park their savings in gold coins, as they did before 1909." But they DO have that right already! They just haven't realized how good it will be... yet![/snip]


You can go back to Fekete if you want to know what might be if this were the perfect world that it isn't. Or you can stick around and find out where we're actually going. It's up to you.

DP said...

costata also had this to say, which I think was both valuable and succinct, back in the day (last December) when the previous RBD advocate was being given the grand tour, and eventual conversion

pipe said...

Hi DP-you quoted FOFOA as saying, "Perhaps the next step in monetary evolution after a period of Freegold will be the elimination of legal tender laws in certain zones in order to gain economic advantage."
[it was in italics in your post]

I read your whole post, but I'm not exactly sure of the context of the quote. Is FOFOA saying that early FreeGold WILL feature coersive legal tender laws? Yesterday, you posters said the opposite.

Following the collapse of unbacked fiat (also known as US dollar), no one will take unbacked fiat, except under a very coercive leagal tender law, and it will have to be much more 'tight' than than the current one. That is a virtual certainty.

The only question is whether a democratically elected government could pass such a law. Odds of that are very low. Less than 10%. You will need a fascist dictatorship to impose a legal tender law. However, given the devastation a hyperinflation will cause, a fascist dictatorship is very probably anyway, so there, you may very well get your legal tender law. But the fascists will confiscate your gold too.

Your 'FreeGold' solution is internally inconsistent. If, on the other hand, you quoted FOFOA out of context, and there will be NO legal tender law in early FreeGold, then there won't be any unbacked fiat either, because no one will take it. Or anyone that does, out of desperation, will as in Wiemar Germany or Zimbabwe, run immediately to the store to spend it. Your 'analysis' yesterday about the govt. propping it up won't fly. They will have to explicitly back it with gold if they want it to circulate.

They might get away with a partial backing, but even that would require some time. I just don't see it.

DP said...

after a period of Freegold

DP said...

JR also had a comment on that same post that I think is germane to discussion of Fekete's idea of gold as medium of exchange.

DP said...

Rediscovering my own previous comment on why I don't see RBD taking hold any time soon, I find that I wouldn't rewrite it at all today. Which is nice.

pipe said...

Hi DP--Right, you FOFOA quote says that coercive legal tender laws would come off AFTER a period of Freegold. In other words it [Freegold] is dependent on COERCIVE LEGAL TENDER laws for its implementation.

That means that it is a virtual certainty that a fascist regime will be doing the implementing, and fascist will confiscate your gold. And your freedom.

You are kind of funny. You are 100% certain FreeGold will happen, and as of yesterday you didn't even realize that the implementation was dependent of coersive legal tender laws.

If you were aware, yesterday, that Freegold DOES require coersive legal tender laws for implementation, that was pretty disingenuous of you not to back me up yesterday. You didn't back me up at all.

DP said...

pipe, Freegold isn't dependent on coercive legal tender laws for its implementation. Freegold is an evolution of the present system (an evolution that is already under way). It doesn't need anything to be instated for it to come into being. Market forces are gradually bringing it into being already, not the dead hand of some government department writing some more laws and making it happen as of next Monday at 09:00 EST (or whenever they dictate).

WRT Freegold, legal tender laws are a red herring, to my mind. That's why I don't either back you up or argue with you. I couldn't give a shit! (As costata would perhaps put it... :) ) I am, however, glad of the tax bone thrown to us by governments, where they give special treatment to their own special brands of "legal tender" gold coins that they have issued.

If 99.7% of the population* do not know or care about gold/fiat, because they now just accept as a matter of faith that 'money' to them is $/€/£/¥/etc and not gold any more, removing the requirement to pay taxes in a certain currency is not really going to have much of an effect on society any longer, I suspect. Will they really suddenly demand to be paid in something else because of this law change? I think everyone will continue to do what they are used to doing, until they are dragged, kicking and screaming, to do something different. If there is going to be a change, its more likely to happen if nobody has to agree to it in advance and a law is passed making it so.

'Implementing' Freegold doesn't require any dragging and kicking, it will unfold (is unfolding) naturally. It's not the dead hand of government that is making it come about, it's the invisible hand of Adam Smith.


* It was you that used that made up statistic recently wasn't it? Perhaps I'm confusing you with someone else... what-ev-er, it doesn't really matter...

DP said...

BTW, Fekete's gold standard + Real Bills Doctrine... will this evolve from the current system, or will it require a radical change of procedure by actors throughout the global economy, an abrupt upheaval, some laws to make it come about at 09:00 EST on Monday?

Will the majority of that 99.7% of the population really think it's a good thing and put their X in a box somewhere to vote for it?

After they have been taken through a life-changing experience that demonstrates to them the real value of gold and why their forefathers valued it so much in the dim and distant past... perhaps. Until then, there won't be the political will to bring it on.

Terry said...

I don't see why we couldn't combine the RBD and Freegold for an acceptable monetary system.

pipe said...

dp-"After they have been taken through a life-changing experience that demonstrates to them the real value of gold and why their forefathers valued it so much in the dim and distant past... perhaps. Until then, there won't be the political will to bring it on."

The 'life-changing experience' is happening now, and it looks like it will be over within a year, in terms of the value of the current dollar. So, yes, there is no political will to do anything, until this process is farther along. The dollar in 6 months has gone from buying 1/2.5 gal. of gasoline, and now only 1/4. There is a tipping point. Maybe it is 1/10 of gal. of gas, maybe 1/20? Probably depends on prices of other stuff as well.

Then there will be not only the political will, but the people will demand that something be done.

At that point, Ron Paul will stand up and say something like, "I want a gold std. No more unbacked funny money." FOFOA says, "no,wait a minute, we need unbacked funny money, otherwise gold can't function. And a Hitler type says, "we need slave labor to maintain our standard of living". Which of these three arguments will win out?

Beats me.

DP said...

Hi Terry,

Perhaps you would like to flesh-out how that could operate then?

I'll be especially interested in the aspect of how it might evolve from the status quo, rather than require a change of practise for people?

DP said...

pipe: Beats me.

Sure does. (Apologies -- I just couldn't not shoot at this wide open goal buddy! I'm sure you'll understand that... ;-) )

However, with this simple pair of words you have just gone up in my estimation, and I'm sure others too. Congratulations my friend.

Perhaps at this point you would like to run us through how you see a new currency being "backed" exactly? This might assist us to most effectively understand what you have and perhaps we can help you unpick what you think you already know, and then you might be able to see something different. Wouldn't that be something?

Sincerely,

DP :-)

Terry said...

DP,
I don't see a conflict between the two. The RBD is designed to expedite commerce, making a system of settlement. Gold will have to have receipts so as to not restrict the flow. We already know that gold is an inferior medium of exchange, which is why we are divorcing the store of value from the medium of exchange. The RBD would seem to be that fiat part of freegold left standing after the transition. I'm sure that is dumb, that is just my opinion of a monetary system based on my experience in business.

DP said...

BTW Terry I, just for one, will also be keenly interested in your thoughts on why Freegold (sans Real Bills) won't be an acceptable monetary system? Perhaps you have a valid downside angle that I haven't considered yet? Perhaps not.

Terry said...

DP,
Freegold doesn't address the nuts and bolts enought to satisfy me. Nor does the RBD not address the store of value enough to suit me.

DP said...

@Terry

Which of your nuts and bolts are left unsatisfied by your current understanding of Freegold? From my view, the very best thing about Freegold is that nobody has to change very much about what they do already. Some people will choose to change nothing at all and that's just dandy by me. Perhaps I am missing something.

The way I see it, RBD is a bolt-on to the gold standard, an after-thought to address a design flaw. Addressing the problems created by using gold as both the primary store of value, and also the circulating medium of exchange.

RBD is creating temporary paper credit on top of gold store of wealth. At least this form of paper is constrained and self-liquidating though, which is definitely up on the current all-paper-credit deal. It imposes discipline on the issuance of credit, which has been wholly absent in the current system.

The world of today without doubt does need credit of some form or another, but it needs to be responsibly managed in some way. The management needs to be imposed on the issuer by some outside force, or at least a guiding hand of self-interest (which Freegold does provide, by the way and in case anybody hasn't noticed).

My only real issue with RBD is the fact that everyone would have to change what they do if it was instated. My experience is people need convincing just to make even the most minor of changes in the way they do anything, let alone a fundamental change like this. Hence I see an evolution as much more likely than something requiring a revolution. Perhaps Freegold+RBD can provide a superior later evolution... but since each of these evolutionary steps are long and drawn out affairs, perhaps it is best to get the first one out of the way before we get ahead of ourselves worrying about the next. People have a hard enough time seeing the next system from the paradigm of the current one -- how much more difficult is it to see and fully understand the next next one, from still this current viewpoint?

DP said...

And with that, it was Home Time.

I'm sure someone else will be happy to step in and pick up this baton later, if it is called for.

So it's good night from him.

Indenture said...

"The world of today without doubt does need credit of some form or another, but it needs to be responsibly managed in some way. The management needs to be imposed on the issuer by some outside force, or at least a guiding hand of self-interest (which Freegold does provide, by the way and in case anybody hasn't noticed)." DP

"What stands in the way, besides the destined to be extinct practice of fractional reserve gold bullion banking, of physical gold, a substance which is infinitely divisible, acting to encompass and envelop every last dram of debt that is acting as a dead weight on the global economy?" Edwardo 4/11

pipe: Do you think the number of dollars the 'community' agrees to exchange for an ounce of gold can reach an equilibrium (even for a moment as the printing presses whirl?)

Texan said...

Pipe,

You didn't understand me. There isn't really any gold now for day to day economic transactions, and there won't be any gold in the future at higher prices.

Because the baker has bills to pay in USD, or euros, or venezuean bolivars, the baker will accept the same currency.

Look, gold has already increased about 500% since the lows. And yet no one, and I do mean no one, transacts in gold. Less than 1% of 1% probably owns more than an ounce, and that is in the US. If it goes up another 10000%, I doubt most people will know or care. It just doesn't impact their lives

Desperado said...

@Texan: "Less than 1% of 1% probably owns more than an ounce, and that is in the US."

That is the key. Just compare to silver possession:

Eric Sprott: "Expect The Gold To Silver Ratio To Hit Single Digits"

"...Furthermore, bullion dealers like Sprott Money and GoldMoney have confirmed with us that they are now selling more silver than gold in dollar terms. For additional confirmation of this investment trend, just look at the flows for the two largest gold and silver ETFs. Investors have withdrawn approximately $3 billion from the GLD so far this year while the SLV has seen net inflows of $370 million over the same period. Dollar for dollar, investors are allocating as much if not more money to silver than to gold. And why shouldn’t they? Silver is much more of a "precious" metal than the current ratio of 35-to-one would suggest. "

Add in all the 90% old coins, silverware and other silver and silver could easily become the "workingmans store of wealth". Add in continuing moves to the upside eclipsing the bankers gold hoard, a repressed history of exploitation by large British and Jewish banks raping American pioneers during the crime of '73, and America could just as easily end up with freesilver as freegold.

Put that it your pipe and smoke it, Fofoa.

Nick said...

This is from an interview with Jim Sinclair which seems somewhat close to Freegold. correct me if I'm wrong as I'm still learning :)

Jim Sinclair: The end game is a virtual reserve currency linked to gold. It will be based on an average of major currencies, which will slow down the movement in the index. The International Monetary Fund (IMF) is moving in that direction with Special Drawing Rights (SDRs). The dollar will be just another currency. The dollar’s not going to zero. It could loose a significant part of its buying power, which it already has and could again.



HRN: How would a virtual currency work?



Jim Sinclair: There would have to be a broad measure of the money supply, such as M3 used to be for the U.S. dollar, but on an international basis. The price of gold would be related to that measure. Central banks would have to value their gold according to their contribution to or extraction of international liquidity, so the price of gold would rise or fall on its own.



HRN: Wouldn’t that be a gold standard?



Jim Sinclair: There’ll never be a return to a gold standard in my opinion. The end of all hyperinflations has been a commodity currency. That’s exactly what happened in Germany, for example. Gold has the capacity to give confidence to people if there’s some relationship between the currency and gold. The virtual currency will be linked to gold but not convertible into gold.



HRN: So, a gold component will restore confidence?



Jim Sinclair: The answer is a commodity currency. That’s what happened every time there was this type of situation in monetary history. The rentenmark, which ended the German hyperinflation in 1923, was supposedly backed by all the real estate in Germany, but the government didn’t own that real estate. The point is that it wasn’t true. There was no great commodity backing for the rentenmark, but it was enough. It was a period when people were searching for anything to restore confidence in the currency.

Nick said...

Specifically his 2nd paragraph. I would have posted a link, but isn't blogger usually unkind to that?

Indenture said...

Desperado: Since you know both the 'price of gold' and the 'price of silver' as quoted by Kitco are just representations of the Fractional Lending Practices of The Bullion Banks (paper precious metals in all their forms) do you really believe that from this snap shot moment in time if all precious metal paper burned and only 'use' was remaining the final price of Silver would rise in a factor greater than the final price of Gold?

mortymer said...

Monetary Transmission in Dollarized
and Non-Dollarized Economies:
The Cases of Chile, New Zealand,
Peru and Uruguay

http://www.imf.org/external/pubs/ft/wp/2011/wp1187.pdf

"Summary: The paper conducts a COMPARATIVE STUDY of the monetary policy transmission in two economies that run a well-established IT regime, Chile and New Zealand, vis-à-vis two economies operating under relatively newer IT regimes, and which are exposed to a significant degree of dollarization, Peru and Uruguay. It is shown that the traditional interest rate channel is effective in Chile and New Zealand. For Peru and Uruguay, the exchange rate channel is instead more relevant in the transmission of monetary policy. This latter result follows from the limited impact of the policy rate in curbing inflationary pressures in these two countries, in combination with the fact that they have a relatively large and persistent exchange rate pass through. Finally, it is shown that the on-going DE-DOLLARIZATION process of Peru and Uruguay has somewhat strengthened their monetary transmission through the interest rate channel...."

julian said...

DP said:

From my view, the very best thing about Freegold is that nobody has to change very much about what they do already.

I see that too!

and as a reminder,

...these evolutionary steps are long and drawn out affairs...


I will also add that, with the opposing viewpoints and arguments floating around freely, the comments are provoking many great thoughts.

Thanks to All,

Julian

Desperado said...

@Indenture

"do you really believe that from this snap shot moment in time if all precious metal paper burned and only 'use' was remaining the final price of Silver would rise in a factor greater than the final price of Gold?"

To quote Pipe: "Beats me."

As an owner of both gold and silver I would say this: "beware of false profits". I do know that in the worst case scenario of TEOTWAKI I do want to have some kind of bet on whichever horse wins.

DP said...

Desperado, in the case of TEOTWAWKI that you appear to expect... where exactly will the silverbugs get their cash that they will continue to use in propping up the price of silver through their sustained buying? Or, will they instead be forced sellers?

Can you foresee a different dynamic at work in the gold market?

http://www.youtube.com/watch?v=Ect-kgxBb4M

Desperado said...

@DP, how clever you are! I guess you must have paid more attention to Sesame Street than I did. But you can't seem to keep your attention focused thought a single paragraph that I wrote. In TEOTWAWKI I would want to have both PM's and then I would be able to choose between the two depending on which was better suited for the task at hand.

DP said...

Well, I won't need to choose. Because I will only have, in any meaningful way, the one that will always be best suited to my requirements. The one that I already know somebody else will want to buy from me. Always and forever.

DP said...

I don't suppose anyone out there has by any chance come across a YouTube video clip of desperate Zimbabweans panning for silver, so that they can buy some bread?

/SleepingVillage/ said...

Hah! DP. I know you were being facetious, but silver nuggets are rarely found in alluvial deposits. I have some sexy electrum nuggets, just under 3 ounces. Very rare as specimens. I should almost upload a pic to show you guys. Might please both the silver guys and us gold lovers, due to its nature and composition. They're quite beautiful, but gold nuggets are much sexier:)

Desperado; I just have to say, I suppose it's entirely possible that silver may indeed prove useful in the sense that you(and others) propose. The problem I see is that it is such an incredibly useful metal due to its physical properties to be used as both a wealth preserver and commodity. The anti-microbial properties alone will prove it to be of utmost value to us in the future, think antibiotic resistance, etc. Not to mention it's such a great conductor and whatnot and essential for our electronics... We can't have people hoarding it to store their wealth when gold serves the same purpose! It is simply redundant. Hoarding silver will only drive the price of it to levels that then make it less accessible to all of us, therefore limiting its ability to function in its most suited way. Think about this, it's kind of silly but anyway... We don't currently use dollar bills as the paper source to light a fire, we would use maybe an old newspaper after it has outlived its expiry date. Why would we use silver as a way to preserve wealth, when we already have gold for that?

Anyway, I see where you're coming from, but I just wanted to give you something else to think about.

PS... Thanks to everyone that posts here, you've taught me a lot and I greatly appreciate it. I always try to send people here to learn, if they're looking to expand their understanding of gold and its purpose. I don't post 'cause I don't feel I have much to add, but I sure do read here often.

FOFOA, I'm still gonna send you some of these sexy gold nuggets at the end of summer if all goes as planned. I also would like to share my placer mining stories and experience with your community at some point in the future if anyone's interested.

DDT

mustang said...

FOFOA;

I wonder what your thoughts are on the following. Interesting piece on the GSR during Weimar. Tracked close to 15 until October 15, 1923, when it soared to 160. The data set ended a couple of days later. The author apparently checked with Rob Kirby (first rate IMHO) who confirmed its accuracy.

October 23rd, 1923, saw the communist uprising in Hamburg which was quickly supressed.

The author surmises that when events turn very bad, people dump AG in favor of AU presumably due to portability/concealability. I would welcome other perspectives on this. Other historical examples of this GSR reversion?

http://www.24hgold.com/english/contributor.aspx?contributor=Panics,%20Manias%20and%20Crashes&article=624386308G10020

M

victorthecleaner said...

DP and Jeff,

you asked why you cannot create synthetic supply using COMEX futures. Please see here for my reply.

Also, I think that COMEX is overrated in gold and silver-bug circles. The amount of gold and silver that go through COMEX is less than 2% of the annual production (mining plus recycling). I think only with the recent silver events, this has exceeded the 2%.

Concerning U Texas.

Towards the end of the interview, he says that they did not want to roll the future all the time and therefore took delivery. It was about $ 1bn or more than 6700 contracts (assuming $1400/oz) or more than 21 tonnes.

I wonder whether anyone has checked this against published COMEX data. As far as I remember, there has always been a position limit for people who go into the delivery period (1500 contracts??). So they would have needed four delivery months to get it. Is this credible?

The other thing that irritated me in that interview is that they said they initially paid $ 750 million for the gold. But if they initially had the future, why did they put down more than the margin to hold their contracts?

Could it be that the interview was disinformation, and that in reality they had GLD and took the physical out of GLD?

By the way, what did Greenlight Capital do two years ago? Did they also go via GLD?

Victor

DP said...

Hello Victor (et al!) -- I hope you have enjoyed the long weekend?

Thank you very much for the love letter you sent Jeff and I. I feel you are absolutely right that COMEX is only the tail that wags the price of the whole dog. I am obviously still being a little dim, because I didn't see where you cleared up the original question; how COMEX, when setting the price for the wider market for gold, only deal in physical gold so the dynamics setting the price there are not a hybrid of paper/physical. I don't recall seeing where you provided an explanation to Jeff's claim that while there is a contract for every bar, there is not a bar for every contract?

Sincerely,

DP :-)

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