Monday, May 2, 2011

Open Forum

Recovering Deflationists

If you came here looking for the post Deflation or Hyperinflation?, please click on the link.

Otherwise, here are a few odds 'n ends for those of you that like a little "content" with your Open Forum.
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In the past week, I have had economic discussions outside of the context of this blog (and not online) twice. And there was a striking similarity between the two conversations. One was last night and the other was about a week ago. The one last night was with a gentleman I had just met through a mutual acquaintance, and the other was with a friend I've known for decades, probably the most book-smart person I know. Both men are leaders in their respective fields, and both have significant wealth to protect. Neither one reads my blog nor knows or understands my positions and arguments.

Both of these men agree that the purchasing power of the dollar is headed down, and that their wealth is best protected when not denominated in dollars. In other words, they are not deflationists. Both are also voracious readers and both expressed an interest in economics. They both have their wealth spread out between real estate, paper investments with counterparties that may or may not deliver as promised when you most need them to (which, in an unstable economy, will likely be when it is most difficult to deliver as promised) and "precious metals."

I asked them each what they thought about gold as an investment, and they were both quick to announce that they are not "gold bugs." This was a credibility-establishing announcement in the context of the conversations. As it turns out, one has a tiny amount of gold and the other has none. They both explained to me that their (limited) interest is in precious metals, not gold. And remember, these are two separate conversations at different times, with two men that do not know each other.

They explained to me, each in his own way, that what they don't like about gold is that there are so few industrial applications for the metal compared to the other precious metals. My friend greatly prefers silver over gold, and the guy last night is heavily into palladium, with no gold exposure. My friend even told me a story in support of his silver position.

I will save the full story for later because he agreed to write it down for me so that I wouldn't get the details wrong. But the gist of it was that an industrial silver user, a vendor he buys from and is friendly with, is already substituting another metal where he has always used silver because his clients refuse to pay the higher price for the parts he manufactures. I'll admit that the price-sensitivity of this particular manufacturer may not be the norm, but that's not even the point of telling you this story.

The point is that this price-sensitive substitution of silver was confirmation to my friend that silver is a better store of value. And again, this is one of the smartest guys I know. Seriously smart!

What these conversations tell me, at least, is that this subject needs a little more of my attention.
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I have added a fun little video to an older post. I have never done this before, but this one just fit so well where I put it, I wish I had it when I wrote the post. Hat tip to DP whose Ye Olde Blogge is linked in the sidebar. Here's the beginning of the post, up to the new video:

Focal Point: Gold


In game theory, a focal point (also called Schelling point) is a solution that people will tend to use in the absence of communication, because it seems natural, special or relevant to them. The concept was introduced by the Nobel Prize winning American economist Thomas Schelling in his book The Strategy of Conflict (1960). In this book (at p. 57), Schelling describes "focal point[s] for each person’s expectation of what the other expects him to expect to be expected to do." This type of focal point later was named after Schelling.

Consider a simple example: two people unable to communicate with each other are each shown a panel of four squares and asked to select one; if and only if they both select the same one, they will each receive a prize. Three of the squares are blue and one is red. Assuming they each know nothing about the other player, but that they each do want to win the prize, then they will, reasonably, both choose the red square. Of course, the red square is not in a sense a better square; they could win by both choosing any square. And it is the "right" square to select only if a player can be sure that the other player has selected it; but by hypothesis neither can. It is the most salient, the most notable square, though, and lacking any other one most people will choose it, and this will in fact (often) work.

Schelling himself illustrated this concept with the following problem: Tomorrow you have to meet a stranger in NYC. Where and when do you meet them? This is a Coordination game, where any place in time in the city could be an equilibrium solution. Schelling asked a group of students this question, and found the most common answer was "noon at (the information booth at) Grand Central Station." There is nothing that makes "Grand Central Station" a location with a higher payoff (you could just as easily meet someone at a bar, or the public library reading room), but its tradition as a meeting place raises its salience, and therefore makes it a natural "focal point." [1]

Salience: the state or quality of an item that stands out relative to neighboring items.



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I read a lot of comments posted around the Internet that show up in my stats report. Occasionally I send an email to someone that impresses me. This guy was one such.

His name is Bill Quick and he seems to be (from what little I've seen) a political and survivalist blogger. Apparently he is known as "the guy who named the 'blogosphere.'" What really grabbed me was not only that he said he was a deflationist before reading this post, but that he is a complete outsider to FOFOA's world. He'd probably never even heard of FOFOA before this day. Yet I could tell through his comments that he "got it" in a deep way that very few do. Anyway, here is his short post and a few of his comments that caught my attention:

FOFOA: Deflation or Hyperinflation?

It is long, very long. Perhaps only two or three of my readers will make it through the whole thing - although I hope nemo and kennycan will give it a shot, maybe over a weekend or something.

It may seem obscure in places, boring in others, and impenetrable in even more.

But this is the most important piece of analysis I have yet read on the big question of our financial future: Inflation, or deflation?

-Bill Quick
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Bill Quick April 28th, 2011 | #4

Guys, listen.

He “couldn’t have simply said…”

He is making a dead serious argument about a very complicated question, and that argument cannot be couched in sound bites.

I understand that this is not a very accessible argument. But it does reward if the effort is made.

Golden nugget: “Losses can’t be avoided: but they can be socialized/collectivized.”

Big money, via monetization, is at this very moment in the process of collectivizing its losses - the profits are theirs, and the losses are being moved to the public books - that is, your front lawn.

And that is why hyperinflation is inevitable. All the people who really matter benefit. You, on the other hand, lose.

Do you think the trustees of the accounts of the University of Texas bought a billion bucks worth of gold on a whim? And they are buying that gold with fiat money, now.

Because they are first in line for the money spigots. Later on, the confetti won’t buy gold. Hell, it won’t even buy hamburger.

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Bill Quick April 28th, 2011 | #5

By the way, this changes my own thinking about political strategy.

We are not going to be able to stop the hyperinflation. Even the Tea Partiers are not going to demand that we do, or prevent its onset.

So I think we need to think hard about the sort of politicians we want to be in charge when it does happen. And that is a very interesting, very thorny question.

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Bill Quick April 28th, 2011 | #7

The worst hyperinflation in the past hundred years - Zimbabwe - has mostly burned itself out, and the government that caused it is still in power.

If that gives anybody a clue as to what choices our own ruling classes are likely to make.

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Bill Quick April 28th, 2011 | #9

Razor, in our lifetimes, the dollar has been less and less good. In fact, it is 97% less good than it was in 1913.

We haven’t noticed it so much because of massive productivity gains due to first, industrialization, then technologization, and then putting our wives to work, and then borrowing several trillion dollars from Europe and Asia, and then another hundred trillion from our kids, and now inviting those kids to move back home and keep working to help out the household income.

But there isn’t anybody else we can put to work, and shortly, there won’t be anybody we can borrow from except our own money printing presses.

At that point, hyperinflation.

I’m no longer even convinced it’s even worth wasting any time trying to prevent it. In fact, if the choice is only hyper deflation or hyperinflation, I much prefer the latter. Less bloodshed, for one thing.

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Bill Quick April 28th, 2011 | #11

However, there isn’t enough gold, silver, platinum, etc. in the world to allow the banksters & billionaires to transfer their wealth from the dollar to the next fiat currency
Actually, there is. Read the whole article. I told you it repays careful attention.
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Bill Quick April 28th, 2011 | #14

Well, I certainly didn’t say it was an easy read, and my confirmation bias ran the other way - I’ve always thought we were heading toward a deflationary reckoning.

He changed my mind - and once you grasp the reasoning behind his primary contention - that inflation, rather than deflation, is better for the rich and powerful, then the rest falls into place.

Because that notion is so counterintuitive, once you do get it, it is a genuine Aha! moment.

You also suddenly understand why Paul Krugman, economist to the rich and powerful, is advocating the things he does.

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Bill Quick April 28th, 2011 | #15

BTW, I read parts of that article quite a few more than two or three times before the murk finally cleared.

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The point I hope you'll take home is that by really trying to understand this debate, you can find your own ways to front run the threat we all face. What's most important is doing that which brings you peace of mind in the face of a threat that could wipe you out. And that can only come from understanding the debate. Here's another comment I liked, this one from Zero Hedge:

by Transformer
on Sat, 04/30/2011 - 19:53
#1224627

"i have heard all this before. can someone please explain what the ultimate end game for gold is. no one ever explains what they are going to do with their heap of gold at the end."


Here's a letter I sent to my friends. It is the complete explanation of your question, at least the FOFOA article is.


Without a doubt, understanding the current financial situation that we live in, and the possible effects of it upon our future lives might be the most important intellectual challenge we ever undertake.

If you think that the next 20 years is going to be quite different than the past 20 years, then it might be an extremely good idea to have a good understanding of what is going on. To me, the pinnacle of this intellectual exercise is the ongoing debate about whether our system is headed for a deflationary collapse or a hyperinflationary collapse. Both arguments are very esoteric and seem equally remote to someone living in these United States today. There are several commentators out there in the blogosphere, who go back and forth with their arguments. It has become a theme at Zero Hedge, where they post both sides of the argument.

Whether you care about the ins and outs of this debate or not, understanding the debate will lead to a complete understanding of the current situation we find ourselves in. Frankly, til now, I have not completely understood any of the arguments I have read. One practically needs a degree in economics and another degree in political science to really get it. None the less, I just spent about 4 hours reading and working hard at understanding what I consider the definitive treatise on this subject. I urge you to read it also.

Now, I must say that this is not easy to understand (at least for me). I would suggest you approach it not as an easy read, but something you are going to spend some time studying, as if you had to know it for a college level course. There are links within the article that lead to other articles, and likewise, links within those articles. Go back as deep and as far as you need to. Make your goal understanding, and not just getting through it. Maybe leave the window open on your desktop and go back to it when you feel like more.

http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html


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Finally, some of the readers have asked me to post a list of links to relevant Freegold-related posts, primarily for the noobs that arrived here thanks to the last post. There is such a list at the bottom of the first post linked in the following comment. But as I never know which posts will speak to any given individual on any given day, I prefer to do it this way, in the context of a reader trying to help. This comment comes from our own JR (who knows my archives better than I do) and it was posted on another site to assist someone who seems to hate the idea of Freegold, primarily because he obviously doesn't understand it. Hopefully this explains the context of this comment:

It's not hard to figure it [Freegold] out. Go here to start: Freegold in the Proper Perspective:
Quote:
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
Then try Freegold Foundations.

And if you like the gold standard, stop by How is that different from Freegold? and then think about this:
Quote:
A basic review of economics and market principles reminds us that free price movements are the necessary swing point upon which physical supply and demand can be balanced. A mere discounting of the price/value of commodity derivatives amounts to little more than a cheap parlor trick — a trick which, although creating a nice illusion of cheap prices, completely disregards the physical supply/demand pricing balance and thus sets the stage for shortages and other dire dislocations of the physical supply/demand dynamic.
(link) in light of the recent history of monetized gold.

Then maybe you are primed for:
Quote:
...
I hope that this little analogy helps you visualize the separation of monetary roles, because those talking about a new gold standard are not talking about this. I understand that sometimes you have to speak in terms familiar to your audience in order to not be tuned out, but I also hope that my readers come to understand how and why a new gold standard with a fixed price of gold, no matter how high, will simply not work anymore.

The full explanation of why it will not work is quite involved, and I'm not going to do it here. But the short answer is that the very act of defending a fixed price of gold in your currency ensures the failure of your currency. And it won't take 30 or 40 years this time. It'll happen fast. It wouldn't matter if Ben decided to defend a price of $5,000 per ounce, $50,000 per ounce or $5 million per ounce. It is the act of defending your currency against gold that kills your currency.

You can defend your currency against other currencies… using gold! Yes! This is the very essence of Freegold. But you cannot defend it against gold. You will fail. Your currency will fail. Slowly in the past, quickly today. If you set the price too high you will first hyperinflate your currency buying gold, but you won't get much real gold in exchange for collapsing the global confidence in your currency, and then you will have to empty your gold vaults selling gold (to defend your price) as your currency heads to zero. And do you think the world trusts the US to ever empty its vaults? Nope. Fool me once…

If you set the price too low, like, say, $5,000/ounce, you will first expose your own currency folly with such an act and have little opportunity to buy any of the real stuff as the world quickly understands what has gone wrong and empties your gold vaults with all those easy dollars floating around. You will sell, sell, sell trying to defend your price, but in the end, the price will be higher and you'll be out of gold. Either that, or you'll close the gold window (once again), sigh, and finally admit that Freegold it is.
From Focal Point: Gold

****
Maybe ask yourself who does the "setting" of "gold's currency price" in a traditional gold standard? It's almost as if the government, by *FIAT*, is trying to define the "value" of its paper currency in terms of gold. Maybe like a government price control set by fiat dictate....


Thanks, JR!

One last thing. I have a favor to ask. You deflationists are more than welcome to make your case here! But please give us two things, which I have also given. Give us a cogent description of your deflationary process and PLEASE PLEASE tell us what you recommend as the safe-haven investment to carry our wealth through the crisis you foresee.

And to the regular commenters, please hold the deflationists accountable. Keep asking them for their investment recommendation until they answer. Don't answer their questions until they tell you what they recommend. Our position is very clear here at FOFOA. Everyone knows it. But deflationists don't all agree on the best investment / store of value. I want to know what you recommend? Dollars? Treasuries? Gold? Silver? Physical dollars in a shoebox? Or maybe it's just guns, garden and prayer. Whatever it is, please tell us.

Sincerely,
FOFOA

265 comments:

1 – 200 of 265   Newer›   Newest»
Doug said...

I found you with the Deflation or Hyperinflation post. My brain is still hurting. But, at the same time I feel like Neo watching the mirror unbreak. Great stuff.

Aquilus said...

This is my first time post here, but I would like to say that I have very much enjoyed reading the wealth of information published here.

I would like to share some of my “Aha!” moments (that might amuse some of the old-timers and maybe be of interest to other new readers):

For gold:
- It’s the flow and not the stock
- Price behavior is different (higher prices suppress flow)
- Extent of “fractional” paper gold vs physical
- Infinite appreciation without hindering society
- Gold will be the wealth storage because it’s already the “agreed upon” wealth preserving material
- Impossible to revert to gold standard because it inevitably breaks
- Gold will simply become wealth storage and point of reference for different floating currencies (when physical only)

For hyperinflation:
- Deflation pain on the scale needed currently would be unbearable when easier methods (printing presses) are around. Plus deflationary crises have always led to violent upheavals.
- Politically, hyperinflation is a “blameless” way of socializing the debt. Specifically it is taxing previous savings stored in paper to pay for the unsustainable debt.
- All politically connected and powerful actors will benefit from first availability of printed money to be spent before prices adjust (as that money trickles to the rest of the population/world)
- Guarantees made to print paper (through cheap treasury puts, bank asset guarantees, etc.), already present more than enough paper to fuel hyperinflation, all there is needed is a loss of confidence and increase in velocity to ignite hyperinflation


Thank you again FOFOA for bringing these ideas to light and I hope I’m on the right track.

FOFOA said...

Excellent, Aquilus. You are on the right track!

J said...

Aquilus, I think you're very much on the right track and I envy how quickly you've gotten there!

Aquilus said...

Thank you very much FOFOA and J – that is very encouraging.

After presenting some background, I do have a question that I have not seen addressed (and may I have not dug deep enough in the archives).

Between now and through hyperinflation, there are usually a few steps that inevitably occur.

For example:
- As currency loses value and the population starts noticing, speculators are blamed first and tough measures promised
- When that loses its effect, price controls are usually implemented under the guise of “protecting the average citizen from profiteers”
- When as a result of that, shortages occur (since stores cannot afford to replenish) and the black market starts to flourish, then rationing is implemented
- At that point severe legislation appears to prevent “hoarding” and a few scapegoats are found
- By this point the public sees prices rising and calls this inflation (instead of currency debasing) and the velocity of money reaches new highs, with people realizing that they had better buy something, anything to be re-sold later, before money loses more value.
- And so it accelerates, with more and more money being needed, more and more money being provided by the central bank in an attempt to make up in volume what the velocity of money robs from the purchasing power.
- Eventually this burns itself out when the pain is too great and “new money/store of wealth” is implemented.


Now of course, although there have been many hyperinflations, nothing like this has happened in a reserve currency.

The point between now and when hyper inflation burns itself out would be to prepare oneself so that gold should not be needed to be spent (as it will not have full value during hyperinflation – or the paper one would get in exchange would shortly loose value).

Clearly having food for when food shortages are inevitable is essential planning.


My question is related to what else can be done to ease the pain of that 6-12 month period?


Ideally one would be right next to the “money spout”, in order to get/borrow money at preferred lower interest first, spend it before it further loses value, and pay back the loan later in devalued money. However that is only for privileged few and for big businesses. Any ideas for the rest of us shrimps?

And just to be clear, I’m not looking for Mad Max ideas, just simply prudent approaches so that the gold is not touched except as trade for other valuables that can be cheaply acquired at that time (ex: prime rentable real estate).

Neverfox said...

@FOFOA (or anyone who wants to tackle this)

Talk of Bitcoin is all the rage in my circle of friends and I've been holding back on forming an opinion until I learned enough to have a sound one. What I'd like at this point is a Freegold perspective on Bitcoin.

What's interesting about it is that it's trying to act like a scarce "metal". You "mine" it and, eventually, through limits built into the fully-decentralized system, there will be no more produced. So that got me thinking. While it seems that it's designed to be a medium-of-exchange/store-of-value combo, does the nature of the thing actually make it a threat to gold in the latter role? Does it do everything gold can do plus more (encrypted, digital, much more portable etc.)? That got me thinking more generally. What if anything could give gold a run for its money (!)? What characteristics would something need to have to knock gold out of the bottom of the inverted pyramid? And do you think it's even theoretically possible to design an electronic store-of-value, whether or not Bitcoin is that?

So, what do you think of Bitcoin as it exceeds $3/coin? What are the strengths and weaknesses from a Freegold perspective? Where does it fit?

Sharac said...

But keep in mind there is no way to separate economy from social context. I think we will see attempts to strengthen the state and it's control on people and if that fails (in combination with food shortages or something similar - racial/religious incidents) there will be a war on which will effectively "socialize everything" and a complete reset of the system will be complete. It's not like it never happened before and it's very likely in the stars again.

Blondie said...

Hi All,

It is great to see so many new people have found their way to FOFOA. I've been expecting it to go viral for a long time; perhaps it's starting.

I would ask that anyone who has a penny drop (and they keep on dropping, it's not a one time thing) or a question post it here in the comments for at least three reasons:

1. Putting it in writing forces you to consolidate your understanding of a concept in a unique and powerful way, and
2. You may just turn on a light for another reader with your comment, which is not something you can buy, and
3. Questions force other readers to consider other angles (even when the question is misunderstood), and from this further new views are found.

If you're reading it, you're part of it, so don't be shy. Everyone has an angle to add and they're all valuable.

Hang around a while and perhaps you'll decide that the future is actually very bright, and while gold may be the agent of this metamorphosis, you don't actually need to have any to enjoy the biggest benefits.

FOFOA said...

Hi Aquilus,

"what else can be done to ease the pain of that 6-12 month period?"

You made a good point that during a hyperinflation, people that get their hands on the paper currency rush to buy "something, anything to be re-sold later." More to the point, they rush to buy something, anything that can be bartered later! Barter is king during hyperinflation. Look at the picture at the top of my last post. How many of those people in line are pushing wheelbarrows of cash? What are they holding instead of cash?

When hyperinflation hits, everyone's net worth when counted in dollars has literally skyrocketed. Like the picture at the top, you can have starving billionaires! All that stuff you've got is now worth billions! But, of course, the currency prices of physical things don't all rise in commensurate fashion.

I think it is a good idea to stock up on all the non-perishable things you use anyway! Do you like teh liquor? Then stock up! Fill your pantry with all the canned goods you enjoy. I just noticed my Costco is now selling Mountain House freeze-dried meals at 10 for $39.99, a great price! So I bought some. I also have a large supply of toiletries and other common goods that I use every day. I have kept myself stocked up for three years now, and it is a very pleasant, peaceful feeling. John Williams also has some good ideas for other things that will be valuable in a barter economy (which lasts as long as 'they' keep printing).

And there is an added advantage to hoarding now, while it is unpopular, and while you feel a little embarrassed to admit you're doing it. The more you stock up, the more you draw necessary items into your "zone" while the distribution lines are still functioning normally. Think about it. If you clean out the canned peas at your store, it orders more. So hoarding during "normal" times is socially beneficial and meritorious. Once the supply lines stop because payments are judged insufficient, hoarding becomes deleterious and anti-social. So do it now, don't wait.

And then compare this advice to what you get from the deflationists. They don't like to stock up because they believe prices will be lower soon. Same for gold. Don't buy now because the price will be lower soon. It may well be, as those who read this blog know, but will there be any physical gold available at those prices? I think not.

In The Shoeshine Boy I predicted that gold could drop to $200 per ounce, giving Bob Prechter his 15 minutes of fame! I also predicted that you'll only get paper gold at that price. During rationing and price controls, there can be stores selling bread at the low, mandated price, but it seems they are always running out of stock.

This is why I'm curious what our resident deflationists recommend. Whether they believe it or not, I do understand their deflation arguments quite well. I didn't just study one side of the debate. Some deflationists are serious ruinists (as RA would say). They recommend Mad Max preps which are fine, but very expensive. But that doesn't really matter because they don't see any way to preserve your wealth anyway. Other than, perhaps, hoarding dollars. I am much more interested in their specific wealth-preservation recommendations!

If you follow my recommendations you'll at least have the stuff you need and a bunch of gold. If you follow theirs, you'd better knock on wood! Thus, the video I included.

Sincerely,
FOFOA

FOFOA said...

Hi Neverfox,

On bitcoin, I recommend reading this post by Mencius Moldbug. Not that it goes into great detail about bitcoin, but that I agree with his target price for bitcoins, which is "epsilon." Roughly translated, his target price is empty space. And I also agree with his arguments for his target price, which would apply to your theoretical question as well. My one caveat is that I'm not rushing out to buy the 5 to 10 bitcoins that he recommends "just in case." I'd rather buy another case of Mountain House. ;)

Sincerely,
FOFOA

Casper said...

I strongly support Blondie's suggestions to all newcomers and would only like to add that noone should be discouraged if he/she receives a somewhat "rough" treatment from time to time from the "old" crowd.

This has been and still is a true forum of different ideas, arguments and debates/discussions.

Casper

Redhill said...

Thanks again FOFOA.

FreeGold catching on.

Subscribing to follow-up comments via email.

The Dork of Cork said...

And yet the EU is willing to destroy all substantive elements of nation states to peserve the value of the Euro.......
There is something really wrong with a system when it wants to cut off its arm to somehow peserve its core body functions.
Some other pathogen must be inside the body politic.

blog.cornerturned.com/2011/05/02/democratic-deficit-to-get-deficitier/
We must recognize that republics are dying but why ?
I think its got to do with the interaction of public debt with globalisation and the Euro is the most extreme example.
You see Public debt is not really debt - it is money expressed with a time component and is therefore not really a private debt transaction.
The role of public debt is to control expenditure and possible malinvestment as it is consumption and investment defered when held by both citizens and commercial banks - when CBs increase their holdings it has the oppposite effect.
So why are once well run countries not so well run now - its because much of their public debt is held outside the country - this prevents a country from regulating ecomomic demand as it has lost the time component aspect of its monetory governence - leading to both malinvestment and now in the case of the Piigs - underinvestment.

The Euro system regards public debt as a private contract when it is not really - its just goverment money and this has predictably devestating consequences.

The political realties of the euro and the freegold meme are worlds apart.
The reality of the situation is that EU bureaucrats follow orders from the various Vichy banks to extract a yield from the Euro colonies - if they really want they can rewild these monetory islands withen a few decades.

The limited freegold mechanism now gives banks true freedom from executives - they may use Germany as a base of operations today with German blessing but when they have enough of teutonic tales their base of operations will move elsewhere.

I now believe Freegold is a banking monster

jgb said...

This is a first comment from me, but I have been reading this blog for some months now and would like to say thank you FOFOA for providing such clear explanations about money (especially in differentiating the store of value aspect from its other aspects). My educational background is in science rather than economics, but I have always intuitively understood that over the last few decades much of the financial world was (and is) little more than a house of cards. So, as a teenager back in the mid-80s, while my friends were all buying shares, I first bought physical gold. Even though the price of gold declined for more than a decade, I was content for it to sit very still as I knew that it had real value (unlike my friends’ shares which never recovered from ’87).

To me the Freegold concept makes a great deal of sense. But I look forward to some more of your thinking about the relative merits of gold vs other precious metals as a store of wealth. Because this is the part where I would identify with your two friends whom you mentioned at the beginning of this post (although I am definitely in the small ‘shrimp’ category). When I finished paying off my mortgage a few years ago, and began to accumulate some savings, unlike most people I know in a similar position who were buying rental properties, I decided to revisit the precious metals. And at that time the one that stood out for me was platinum.

As a scientist I appreciate that human activity (an economy) is really just a use of energy; and that oil, as the most concentrated practical form of fuel energy, is becoming ever more scarce. But storing drums of oil in my garage wasn’t feasible. On the other hand, it takes a huge amount of energy to mine and refine precious metals, so I reasoned that they might serve as a kind of proxy for energy. When I looked at the various metal:oil ratios over the last few decades, it was the platinum:oil ratio that seemed most constant. And at 1/30th the abundance of gold, but only 1 ½ x the price, it seemed underpriced. There is also the advantage (like gold) of being able to store large amounts of value within a tiny volume of space. And talk about ‘hard money’ to buy! Compared to buying physical platinum, buying physical gold is ‘easy’.

Well, as they say, you should be careful for what you wish for; because when the price of oil plummeted in 2008, so too did the price of platinum. Although they have both been tracking upward since then. But the aspect of Freegold, which seeks to price gold in terms of oil, helps make it convincing to me.

What I have noticed in the comments of this blog is that there can be strong emotional arguments either for, or against, silver. And that can make it hard for a newcomer to see past the vitriol to the reasoning. So I would like to ask that some of the old crowd realise that even though they may have been through this debate with the same bunch of people for a couple of years, for many others the concepts and debates are still fresh. And if it helps, try substituting ‘platinum’ for ‘silver’ into the debates; because with so few physical platinum owners (I’m the only one that I know of) there is less chance of an emotional response and more chance of an understanding of the concepts.

To finish this comment, the argument that really switched me from accumulating more platinum (although what I already have will probably sit very still) was a book called History’s Greatest Heist: The looting of Russia by the Bolsheviks by Sean McKeenan, 2008. This important book does not seem to have been much commented upon by the gold community. During the looting of centuries of stored Russian wealth in the 1920s, it was gold that had the greatest value. Yes, platinum was also understood to be valuable, but only in limited quantities as the market quite swiftly became saturated.

Texan said...

The euro will dissolve. I know it's # 3 on the freegold list, but it needs to reworked to just include the DM zone. The peripherals in the Med zone are getting killed being straightjacketed to an appreciating currency. Just look at today's PMI numbers.

Then wait for next month's with a 1.50 euro ( and still accelerating!).

mortymer said...

http://www.imf.org/external/np/sec/pr/2011/pr11156.htm

"SNB and IMF to host High-Level Conference on the International Monetary System
Press Release No. 11/156
May 2, 2011

The Swiss National Bank (SNB) and the International Monetary Fund (IMF) today announced that they will jointly host a second High-Level Conference on the International Monetary System. The conference will take place in Zurich on May 10, 2011.

This conference will contribute to the ongoing debate about the reform of the international monetary system. The main topics include policy discipline and spillovers in a global economy, global liquidity provision at times of crisis, capital flows, and international reserve currencies.

The conference will bring together a group of high-level participants, including central bank governors, other senior policymakers, leading academics and commentators. It will be co-hosted by SNB Governor Philipp Hildebrand and IMF Managing Director Dominique Strauss-Kahn. The keynote speech at lunch will be given by Christine Lagarde, French Minister for Economy, Finance and Industry.

IMF EXTERNAL RELATIONS DEPARTMENT"

contact said...

Hi FOFOA (and all on this forum),

Thank you for your fantastic blog. I am sold on your thoughts on hyperinflation / freegold starting in the USA but as I have only started reading this a few days ago (its taking time to sink in!!)

I have a couple of newbie questions -

1. I would like to know how this is likely to affect us in the UK?

Will buying gold provide the same protection against the knock on effects of a USA currency HyperInflation?

What will these (massive I assume? or will certain countries be mainly unaffected despite their links to the US reserve currency?) knock on effects consist of and how do you envision these to play out?

2. With regards to the EUROZone, all we hear at this end is how the PIIGS countries are in massive trouble and will eventually default / be forced to leave, how do this turmoil fit into the FREEGOLD system they have put in place?

Thank you again
WickedW

The Dork of Cork said...

Piig Morality tales just don’t cut it with me.
The truth of the matter is that all commercial actors follow the money.
Actions in the physical world come after.

Ireland remained a poor country after independence as its commercial banks remained under the control of the BOE - they continued to hold more Sterling Bonds then Irish bonds - this weakened the purchasing power of the Irish pound forcing the state to continue to export its goods and people to the UK - this continued up to EEC entry and indeed beyond to some extent.


The key reason why the planet is breaking down is the lack of understanding (maybe not) of goverment debt/money and its function.

The Euro is the most extreme example but also the larger scale of the Eurodollar (which are not now necessarily dollars held in Europe) and the holding of US treasuries outside the states.
When a commercial bank in its home country (if it has a home country) holds its goverment debt/money it regulates demand there and prevents malinvestment as that bank cannot engage in loaning to citizens when there is no demand due to the servicing of debt via tax , also if a citizen holds goverment bonds he defers expenditure.

But what if a bank holds goverment debt/money or what we now know is proxy goverment debt via bank bonds outside its home country ?
These 2 forms of debt only become related when bank bonds have a equality with goverment debt in the event of debt restructuring ( I guess the 3 % fiscal rules are a joke now but nobody’s laughing except the holders of this bank debt).
The bank may not hold much domestic goverment debt - the economy explodes into action based on this false signal - credit spews out of the home bank to cater for this almost unexplained demand and then we get huge malinvestment.
That is the story of America when mercantile states were holding treasuries and also that is the story of the euro when various banks held widely disproportional amounts of goverment and bank bond debt on their books while the receiving banks held little goverment debt / money and gave out credit / deposits based on this false signal.

The euro masters demands that we must not increase goverment debt via monetization or otherwise does not make sense unless you see they must extract wealth from us to recapitalise their systems at the Piigs expense.

mortymer said...

@Contact:
1st step -> Today: Based on FT British and Swiss governments agreed that they will impose 50% tax on certain (secret?) accounts Brits have in Swiss banks. This should bring back some 3bn pounds.
/Sorry I do not have the source so this is not confirmed, agreement, nothing official yet [at least nothing here yet: http://www.snb.ch/en],
...but seems it is along the lines that governments are tightening and trying to find sources of their operations, tax evasion, barriers for capital flight, etc. :o) What is outside the system needs to be brought in. I suppose a lot of rich Brits will now opt for gold.
1. Yes, same IMFs sys. GB goes where US goes.
2. default - no, leave - no ... check agreements, what those countries signed, it is not possible to just exit when suddenly some party thinks it is needed. Besides, what do you mean by "default"? Full/partial haircut? For IMF Greek situation announcement - check one of my yesterday´s link to a IMF video and simply listen.

zenscreamer said...


And there is an added advantage to hoarding now, while it is unpopular, and while you feel a little embarrassed to admit you're doing it. The more you stock up, the more you draw necessary items into your "zone" while the distribution lines are still functioning normally. Think about it. If you clean out the canned peas at your store, it orders more. So hoarding during "normal" times is socially beneficial and meritorious. Once the supply lines stop because payments are judged insufficient, hoarding becomes deleterious and anti-social. So do it now, don't wait.


Sometimes I feel like I could just hug you FOFOA! Your crystal-clear prose is absolutely dumbfounding. Once again, I am in awe. Thank you!

More personally, because of where I live, the timing of the "interruption" could have very different outcomes -- June to January has a much higher level of locally-grown food than January to June!

dojufitz said...

In relation to FOFOA's buddy who is keen on Silver and FOFOA regards him as a very smart man.....here is a link to a Silver guy i like on youtube......he goes by the name BrotherJonhF

http://www.youtube.com/user/BrotherJohnF

for those interested in Silver (he does discuss Gold) i recommend.

Wejn said...
This comment has been removed by the author.
d2thdr said...

To all the newsbies and oldies, please contribute a bit of fiat. It keeps him from flipping burgers and keeps this blog vibrant.

@ zenscreamer 'Sometimes I feel like I could just hug you FOFOA! Your crystal-clear prose is absolutely dumbfounding. Once again, I am in awe. Thank you!'

Yes a man hug. :)

Motley Fool said...
This comment has been removed by the author.
Motley Fool said...

heh, forgot to click da box. :P

Blondie said...

Contact said:

"I am sold on your thoughts on hyperinflation / freegold..."

Be careful: your objectivity is a valuable asset.

"It is the mark of an educated mind to be able to entertain a thought without accepting it." -Aristotle

J said...

New J,
If you're going to continue to post can you change your handle?

Thanks,
J

Motley Fool said...

Hi Pipe

(reply to comment on previous post)

You are equating stock and flow. With that basic mistake the rest of yoru comparison falls apart.

TF

Motley Fool said...

Hi Art

"1. Why do you say..." I didnt sa it explicity, I did so implicitly. Just like you did not do it explicitly, but did it implicitly.:P

"...no, the BANKERS want easy money ..." No, bankers profit from the current system. The actual chain of causality is : Governments want easy money because it gets them free votes; people like governments that give them things they did not earn; those that vote for them do not have to pay it. The problem is actually the progressive taxation system. Here is a post I put up long ago about that aspect : http://blogs.fin24.com/Motley.Fool/why-our-current-democracy-does-not-work


"...because the currency we use today has NO VALUE..." The currency we use may nto have any intrinsic value, but it does have functional value. It is also a medium of exchange and unit of account and hence money by your definition.

This is my quick retype, blogger ate my nicer more detailed reply.

Incidentally, I'm done with this conversation. I don't have the time to correct your every mistake. I suggest you rather spend your energy harrasing people who dont advocate buying gold, instead of the 1% who do.

TF

JR said...

Welcome all! Hi Aquilus,

This comment :) :

- All politically connected and powerful actors will benefit from first availability of printed money to be spent before prices adjust (as that money trickles to the rest of the population/world)

reminded me of an older FOFOA comment I like (maybe you will too) (part 1, part 2) in which he discusses the "base money is not the same as credit money argument" ala:

You cannot simply replace credit money with base money and expect the value of a dollar to remain the same. This is one of the big mistakes the deflationists and various easy money camps make...

and in that "why printing base money is different" context goes on to reference that same idea of the disproportionate effect of the new money - the "cantillon effect":

...There is a lot to the relationship between credit and base money and its various subcomponents. And the impact on pricing of various goods is not homogenous across the board. This is sometimes called the cantillon effect because it was first described by Richard Cantillon in the early 18th century, around the same time as John Law. From Wikipedia:

"…he posited that the original recipients of new money enjoy higher standards of living at the expense of later recipients. The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect. Cantillon also considered changes in the velocity of money (quantity of exchanges made within a specific amount of time) influential on prices, although not to the same degree as changes in the quantity of money. While he believed that the money supply consisted only of specie [the modern equivalent being base money], he conceded that increases in money substitutes—or bank notes—could affect prices by effectively increasing the velocity of circulating of deposited specie. Apart from distinguishing money from money substitute, he also distinguished between bank notes offered as receipts for specie deposits and bank notes circulating beyond the quantity of specie—or fiduciary media [broad money]—suggesting that the volume of fiduciary media is strictly limited by people's confidence in its redeemability. He considered fiduciary media a useful tool to abate the downward pressure that hoarding of specie has on the velocity of money."

Yet unlike in Cantillon's time, today we can easily expand the monetary base, "the specie", what he considered "the money supply." And today we are doing just that! Just as FOA predicted. And QE2 is different than last time. Remember all those base money charts from the Fed with vertical lines from 2008 and 2009? Read the Amerman article linked above to see why this time it's different.

Ever since 1971 we've had the ability to do this, yet we've never actually done it until November 2010. This is a big mistake MMT makes in not recognizing the difference between base money spewing (QE2) and credit money redirecting (normal Treasury sales to private parties).


Cheers, J.R.

bumso said...

First of all, thanks for this blog. I first found FOFOA about a year ago as I lurk the comments of ZeroHedge, but I stopped reading due to the comments about silver. After coming back with the most recent deflation/hyperinflation debate and spending hours reading the posts, I feel like my eyes have been opened. Needless to say, I’ll be swapping some of my physical silver for gold and getting out of my 401k very soon.

I am still uneasy about piling all of my wealth (not that I have a lot) into gold and am looking for another place to preserve it for the future….. wich brings me to the reason of my post.

I would like to discuss productive farmland as an inflation hedge. I have been reading “When Money Dies” about the hyperinflation in the Weimar Republic and the author tells of the distinction between those who lived and had jobs in the city and those farmers in the countryside. With the increase in food prices, the income of the farmers kept up with and maybe even surpassed the printing press. There was one account of a farmer paying off his mortgage with the potato harvest.
There are many variables to the potential of farmland as investment in the coming hyperinflationary collapse of the USD.
• If we put our cash into physical gold now, will we be able to buy significantly more farmland in the future?
• During hyperinflation, will farmland go up for sale at a discount that we expect from residential real-estate?
• Would it be best to get a loan for a piece of land now and pay it off with depreciated dollars later?
• Would I have to move out to the country and set up a farming operation to take advantage of the high food prices? This is not likely even if there was enough time before the hyperinflation.

Does anyone have information about land values during these times in history?

If we think it would be best to save our gold now and go shopping for other assets during or after the collapse, how would we rank buying farmland vs. buying residential and rentable real-estate at fire-sale prices?

Thanks, Bumso

bumso said...

First of all, thanks for this blog. I first found FOFOA about a year ago as I lurk the comments of ZeroHedge, but I stopped reading due to the comments about silver. After coming back with the most recent deflation/hyperinflation debate and spending hours reading the posts, I feel like my eyes have been opened. Needless to say, I’ll be swapping some of my physical silver for gold and getting out of my 401k very soon.

I am still uneasy about piling all of my wealth (not that I have a lot) into gold and am looking for another place to preserve it for the future….. wich brings me to the reason of my post.

I would like to discuss productive farmland as an inflation hedge. I have been reading “When Money Dies” about the hyperinflation in the Weimar Republic and the author tells of the distinction between those who lived and had jobs in the city and those farmers in the countryside. With the increase in food prices, the income of the farmers kept up with and maybe even surpassed the printing press. There was one account of a farmer paying off his mortgage with the potato harvest.
There are many variables to the potential of farmland as investment in the coming hyperinflationary collapse of the USD.
• If we put our cash into physical gold now, will we be able to buy significantly more farmland in the future?
• During hyperinflation, will farmland go up for sale at a discount that we expect from residential real-estate?
• Would it be best to get a loan for a piece of land now and pay it off with depreciated dollars later?
• Would I have to move out to the country and set up a farming operation to take advantage of the high food prices? This is not likely even if there was enough time before the hyperinflation.

Does anyone have information about land values during these times in history?

If we think it would be best to save our gold now and go shopping for other assets during or after the collapse, how would we rank buying farmland vs. buying residential and rentable real-estate at fire-sale prices?

Thanks, Bumso

Michael H said...

jgb,

Try the following FOFOA posts for discussion of 'why gold, and not other precious metals?'

http://fofoa.blogspot.com/2010/12/kicking-hornets-nest.html

http://fofoa.blogspot.com/2010/12/focal-point-gold.html

"Once the supply lines stop because payments are judged insufficient, hoarding becomes deleterious and anti-social." While this is critical for food, it also applies to platinum.

Another aspect of the gold vs. other PM debate is the stock and flow. The Moldbug piece,

http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html

is a good discussion of that point.

You are not alone; I hear there's a bearing around that also likes to collect physical platinum.

DP said...

Just glad to belong. The hat tips are all mine.

Biju said...

Eric Janzen of iTulip sold all his silver bought 10 years ago for 10xcost price.

I did likewise convert silver from my retirement account to Gold.

sean said...

Since there are many new faces, I'd like to post this link to a google document about Freegold I'm working on which I hope may be useful. It's just a work in progress, but I'm trying to compile quotes and links from this blog and others which address some common (and not so common) points about Freegold. I'm afraid it's a bit incomplete and has a bias to recent posts, but since there is so much useful information in this blog, including hidden in comment sections, it can be difficult to know where to start, so I hope this may help.

Ash said...

Michael,

Well, I replied to your comment to me on the last thread, and it went up, but then it was taken off...

Here is basically what I said:

My take on some critical deflationary dynamics that are most likely coming - http://theautomaticearth.blogspot.com/2011/03/march-7-2011-financial-threats-to-power.html

My discussion of peak oil and some of its systemic influence - http://theautomaticearth.blogspot.com/2011/03/march-17-2011-when-lights-go-out.html

Those are parts II and IV of a series, so you may want to start with part I for the full context of my arguments, but it isn't necessary. And here is briefly how I imagine a severe deflationary episode would most likely play out:

Several financial events on the scale of the Lehman bankruptcy or worse will occur in a span of months, across at least several of the largest national economies in the world. Governments will be forced to choose who can be helped out and who must fail, and they won't be able to bail out nearly as many players as they did in 2008.

As both institutional and consumer credit dries up, fragile cross-border supply chains for certain products will break down for some significant period of time. Prices for financial assets (including equities) and most consumer goods will collapse in a combination of sharp drops and gradual declines over at least a year to two years (but it won't be a linear process).

Unemployment will skyrocket to levels last seen during the GD, and then will probably go even higher. Many people in the developed world will simply die from starvation (malnutrition), untreated disease, exposure to extreme weather and violent conflict. There will be a significantly increased likelihood of more national and/or civil wars across the world, and especially involving conflicts between and within the West and the ME.

The governments of developed countries will become more oppressive than most people can imagine right now, implementing harsh austerity measures in attempts to offset crashing tax revenues, which would probably just make deficit situations a lot worse (similar to the self-reinforcing dynamic of HI loss of confidence and money printing). Martial law may even be implemented in some regions, and I would not discount the possibility of "false flag" attacks being launched to further solidify executive control - http://peakcomplexity.blogspot.com/2011/05/scariest-story-ever-told.html

If you believe the latter point makes me some kind of "conspiracy theorist nut job", then so be it. I just ask that you check out the post and think about it for yourself.

victorthecleaner said...

On another topic. You all know that Portugal is getting a bailout from the EU to the tune of some 80bn euro.

Now there is this article in the Times (UK):

http://www.thetimes.co.uk/tto/business/economics/article3005712.ece

online unfortunately only for subscribers.

They say that Portugal has 385 tonnes of gold worth about 9% of their GDP, or 13bn euros. This is the highest gold/GDP ratio in Europe. The times article suggests that Portugal ought to sell their gold in order to pay off some debt because the price of gold is extraordinarily high these days.

Interpretation: Some UK based bullion banks are getting short of physical gold and plant these articles to increase the pressure on potential sellers. Sounds rather similar to 1995-2000.

Victor

Ash said...

To answer FOFOA's question posed today re: deflationists' investment advice:

Personally, I believe everything he mentioned about physical preps (stocking up on supplies) and even purchasing gold is very solid advice, as well as keeping some significant % of your wealth in physical cash or cash equivalents (but preferably just physical cash).

I would recommend keeping that cash outside of the banking system as much as possible, or at least having the ability to liquidate your accounts with a business day or two at the most. Along those lines, I highly recommend staying vigilant and informed every single day, so you can respond quickly to unfolding events if need be.

As is made clear from my last post, I obviously believe that retaining a highly liquid means of exchange is critical (and physical cash will be the most liquid), assuming a deflationary episode is likely to occur. Once again, that is only for the % of your net worth that you need to purchase essentials and pay off debt (as quickly as possible) for some period of time (I would say a few years to be on the safe side). You should also have the means to protect that wealth, as well as your physical supplies that you have managed to stock beforehand.

If we say deflation is likely to for two years 70% of the time, and HI 30% of the time (for sake of simplicity), then I would hedge my investments at least 80-90% towards protection against deflation, because we are not talking about long-term odds here. But once again, that includes investments in some degree of self-sufficiency and physical protection.

I can't speak for anyone else, but I'm confident there are at least a few other "hardcore" deflationists who would agree with my advice (ex. Stoneleigh and Ilargi of The Automatic Earth). Sometimes these people do not come off as clear and specific as they want to be, or perhaps they don't want to be too specific for an investment situation that is clearly dependent on individual circumstances.

Michael H said...

Ash,

Thank you for your response. I'll read the pieces you linked, though it might take some time.

Regarding "If we say deflation is likely to for two years 70% of the time, and HI 30% of the time (for sake of simplicity), then I would hedge my investments at least 80-90% towards protection against deflation":

Would you not also adjust your investment allocation by the percentage change expected in each scenario, and not just the expected probability of each scenario?

Imagine that, in a HI, all your liquid physical cash goes immediately to zero (thought experiment purposes only). Then, even if you were 95% confident in deflation vs HI you might not want to have 95% of your assets in cash, as you have a 5% chance of a 100% loss.

Xavi said...

FOFOA,

The video of sesame street referring to the Focal Point argument is very very good. I found myself singing the song all day long hahahah (people already think I'm crazy, so why bother).

I had a thought:

- In the test of the three blue squares and the red square, substitute the blue squares with the picture of a dollar bill and the red one with picture of a gold piece. The game is as clear as always. Most of them would pick the gold, because it is different and because it is gold.

- Now do it the other way round: three pictures of a gold piece and a picture of a dollar bill and repeat the test.... Ouch, then my brain starts to hurt, it's like trying to read the word 'yellow' written on red ink (search 'Stroop Effect'), somehow the first time I thought about it i got to the conclusion that I would have an extremely hard time picking up the picture of the dollar bill!

... i guess this is how powerful the concept of gold as a focal point is!

Take care.

Larry said...

In addition to the "preps" mentioned by FOFOA, one might want to consider having a bit of silver stored for use as the hyperinflation takes hold. Interim predictions aside, it may be that there will be a window of time in which silver plays a good barter role. In this sense, the silver might be regarded as protection for your gold. FWIW,

Larry

Jeff said...

Hello all! I am a young investor with a low liquid net worth looking to protect myself from this looming hyperinflation. Question: would it be better to invest my little $ in gold/silver eagle coins (1/10 oz?) or barter goods such as canned food/water/toilet paper/firewood/whiskey etc or something else??
Thank you FOFOA!

cbritton said...

I'm new here and this is my first time posting. I've read a few of the articles starting with "Deflation or Hyperinflation?" I'm still absorbing a lot of the information but I have a question about gold. Aquilus has a nice summary (I hope he/she doesn't mind if I reprint it here since it involves something I need clarification on):

For example:
- As currency loses value and the population starts noticing, speculators are blamed first and tough measures promised
- When that loses its effect, price controls are usually implemented under the guise of “protecting the average citizen from profiteers”
- When as a result of that, shortages occur (since stores cannot afford to replenish) and the black market starts to flourish, then rationing is implemented
- At that point severe legislation appears to prevent “hoarding” and a few scapegoats are found
- By this point the public sees prices rising and calls this inflation (instead of currency debasing) and the velocity of money reaches new highs, with people realizing that they had better buy something, anything to be re-sold later, before money loses more value.
...

In addition to these points, would there start to be a disparity in the price of gold from the spot and the physical paper price (on the comex for example)? Perhaps as an increasing premium or creation of a black market? Am I asking the right questions?

Thanks

DP said...

Xavi, for me I saw like you of course gold on the 'W', but silver,platinum & palladium on the 'No. 2' squares. For me, this brought an extra dimension of smile, thinking about how these three alternatives were all shit.

Jeff said...

Hello Jeff (longtime Jeff here),

If you don't have much net worth you might want to store barter goods first, then if you feel you have enough, try to buy some gold. Just a thought.

Silver seems to have broken down badly; perhaps there will be fewer silverbug comments here going forward.

Patrick said...

I hope that all those idiots hooking their wagon onto silver lately like jim willie. Norcini, Turk and a lot more... will learn that only gold is precious metal...

mortymer said...

@vtc: Some time ago I posted a link to somewhere in archives of ECB, there is mentioned that ECB has to agree with particular CB when they handle their assets, I am not sure if it is veto or how it goes. So in other words ECB has links via ESCB to the rest of assets (also gold) which countries do not have straight in ECB system.
I doubt that those countries are able to sell their gold independently without ECB approval. ECB has its say and they will agree only if it is beneficial to them.
I bet it is at the end BIS and its commitee and the FSB who decided which countries will sell/swap their gold.

So it is not possible to compare today with 1995-2000, times maybe changed and it will be harder this time. Maybe other non ESCB countries have to give up on their gold?

mortymer said...

Here is the FSB: http://www.financialstabilityboard.org/

"The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established after the 2009 G-20 London summit in April 2009 as a successor to the Financial Stability Forum. The Board includes all G-20 major economies, FSF members, and the European Commission. It is based in Basel, Switzerland... FSF was founded in 1999 to promote international financial stability, after discussions among Finance Ministers and Central Bank Governors of the G7 countries, and a study which they commissioned. The FSF facilitated discussion and co-operation on supervision and surveillance of financial institutions, transactions and events...The Financial Stability Forum met in Rome on 28–29 March 2008 in connection with the Bank for International Settlements. Members discussed current challenges in financial markets, and various policy options to address them from this point forward...The FSB represents the G-20 leaders' first major international institutional innovation. Secretary of the US Treasury Tim Geithner has described it as "in effect, a fourth pillar" of the architecture of global economic governance. The FSB has been assigned a number of important tasks, working alongside the IMF, World Bank, and WTO. Chairman of the board is the italian Mario Draghi, current Governor of Banca d'Italia, the italian central bank." ~wiki

Desperado said...

"What really grabbed me was not only that he said he was a deflationist before reading this post, but that he is a complete outsider to FOFOA's world. He'd probably never even heard of FOFOA before this day. Yet I could tell through his comments that he "got it" in a deep way that very few do."

Wait a second here. Does this mean that the number of times that someone may or may not have read the Another archives does not reflect on the legitimacy of their comments? Whoa. Does this mean that freegold is also free for heretics? Costata, are you listening?

mortymer said...

@Patrick, do not be worry about others, those people monitor each other daily :o)

http://globaleconomicanalysis.blogspot.com/2011/04/taking-silver-profits-swapping-silver.html

Remorses? It depends what set of information you have at the time you decide. Some people just have different opinion and that is fine as well... those people are professionals they know what to do and when. Look Mr. Sprott also took off some of his share out and reinvested...

Ash said...

Michael,

Well technically you are correct, the expected value of of each scenario is the probability of its occurrence times the amount you stand to lose or gain. That EV reflects the long-term outcomes of investing one way or the other.

But obviously we are not playing a game of craps here, so that's why I think our "bets" should be biased towards the probability side (of occurrence) rather than the "expected change" side. That being said, the latter should certainly be considered.

I believe affordability in a severe deflationary episode could potentially fall just as fast as it would in HI, at least for some initial period of time. For example, someone with $10 in their wallet right now may find it just as hard (or harder) to buy necessities during a deflation as during HI. The former would result from losing your job and/or retirement account and higher debt servicing costs, while the latter would mostly result from losing purchasing power.

Of course, that depends on your personal situation (location, savings, debt levels, source of income, value to your employer, etc.), but it seems that enough people are indebted, malinvested and precariously (un)employed in the US for the generalized affordability trend to be similar or worse than in it would be during HI.

Jeff said...

Cbritton,

I believe COMEX is discussed in FOFOA posts Reply to Bron and Red Alert:Gold Backwardation!! Also in the comments to Defending the Precious. Your questions should be answered there.

Desperado,

Reading the A/FOA archives improves your ability to discuss Freegod, and yes freegold is still free to heretics.

Desperado said...

@Jeff:

"Reading the A/FOA archives improves your ability to discuss Freegod"

My point exactly, several here have already appointed themselves high priests of freegod.

@Dork from Cork,

"I now believe Freegold is a banking monster"

"The political realties of the euro and the freegold meme are worlds apart.
The reality of the situation is that EU bureaucrats follow orders from the various Vichy banks to extract a yield from the Euro colonies - if they really want they can rewild these monetory islands withen a few decades.
"


Bravo. It probably isn't so clear for non-EU readers. The damage from FRB was amplified by allowing sovereign debt to be considered collateral for fractional lending.

Edwardo said...

To whom it may interest:

Monex has almost no silver for sale, and my local dealer is the same; he had 1 100 oz Engelhard. No SEs at all. Silver's going lower in the near term, but I don't think it's done by any means.

Blondie said...

"RS View: While this commentary on the whole is usefully sound, I would hasten to take exception with the remark, “There is no real alternative to the dollar…”

In the context of this commentary and all surrounding discussion, it isn’t the CURRENCY (invoicing&payment) aspect of the dollar’s international function that is under scrutiny (because that is merely incidental,) but rather it is the RESERVE aspect that is on the chopping block. And to be sure, there is — quite literally — a very REAL alternative to the dollar in the international monetary capacity as a reserve asset. Gold. As such, gold uniquely would endure an inexorable rise, floating independently higher against all national currencies such that countries need no longer play ‘hot potato’ with the burden of any given national currency bearing the special forces of international reserve usage. Physical (underivatized) gold alone can take the elevating heat and pressure and with it shine all the more as a reliable public and private good in providing that specialized monetary utility. This path becomes ever more discernible with the march of progress. For the sake of your future wealth and well-being, get yourself intellectually and financially firmly on that road.
"




It is not the flow aspect of the reserve currency which is problematic, but the stock.

Unencembered gold in this stock role solves everyone's problems. Gold is in essence Mother Nature's reserve asset gift to us, being nobody's liability.

The Dork of Cork said...

@Desparado
Most of the reserves withen Irish banks was in fact credit / deposits.
The core banks held a bigger ratio of sov and bank bonds which replaced sov debt eventhough it is very different.
If you consider goverment debt as money and bank deposits as credit the Euro is much more highly leveraged then the dollar


Goverment money is much different as it is based on the ability of a country to pay its way via taxes.

Pre 1970s they multiplied their credit on this base.
Post 1970s credit was produced on the back of reserves which were in fact credit deposits.
Bank reserves in the periphery have no relationship with the local physical and taxable economy.
The assets that these reserves shadow are in most cases unproductive consumption sinks.

The explosion in price of these "assets" killed the local productive economy withen a generation.
This is the most catostrophic economic implosion in the history of Europe.
I think it dwarfs 1914.

mortymer said...

Blondie, you know that the US gold reserves need to be played at one time. What is bothering me is how they are gonna to do it?
So is US gonna to:
- use some of its gold to acquire oil with it?
- use some of it in MTM on new/les_valued/non-reserve Dollar?
- use it to support present IMFsys?
- else?

mortymer said...

Here is one important paper for those who want to know more about comex/lbma contracts, etc.:

*** Report on the International Regulation of Derivative Markets, Products and Financial Intermediaries ***

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD65.pdf

- Features of Derivative Instruments with Implications for Regulatory Regimes..pg..4
- Exercise and / or Delivery Allocation Procedures..pg..479
- Cash Settlement..pg..485

[Mrt disclosure: No I have not read all 747pgs, not yet, just found it and paged through, eheh.]

So it would be wise to check some parts about settlements, rights, etc before claiming how things should be.

~Gold, educate yourself.

victorthecleaner said...

mortymer,

> Blondie, you know that the US gold reserves need to be played at one time.
> What is bothering me is how they are gonna to do it?
So is US gonna to:[...]

I am not Blondie, but here are some comments anyway:

They will back the new dollar with it. After they have abandoned the old one. They will do this at roughly 15000 US$/ounce in today's purchasing power.

If you think this is too low, you can try to sell them some goods, acquire new dollars and remit them for gold in their new 'gold open market window'.

The difficulty for you is that the US will only have a negligible trade deficit once the new dollar has been introduced, and so you won't get any significant amount of gold this way.

You think if you are inside the US, you could just empty Fort Knox? Think twice. After your old dollar account balance has been written off, you will get only 100 New$ per head as a starting capital in the new system. So there won't be any windfall for you. You will have to work for it.

Victor

mortymer said...

@ vtc: IMO (not backed, just speculation) it has few holes...
- I do not think that we can get safely to 15000US$/ounce due to deleveraging/settlement problems + change in asset classes statuses. 5000US$/ounce max?
- If USD goes down too fast system implodes all via the end of US$ carry trade. Rates must rise? But they cant.
- IMO US will need energy/oil; and a lot of it -> trade deficit, same as in other countries where there was currency crash. No assets to sell?
Blown in the wind...
I still think some of the reserves will be played to defend the dollar.

costata said...

Desperado,

Costata, are you listening?

Nope

Michael said...

Costata,

Seems like your call for the old pump and dump on silver is becoming a reality although i remember you called it for June, either way i think the GSR is going back to 50 in a hurry before silver gets any stability. its already up around 6 since Monday.

Whats your take on this?

Robert said...

I am really a huge fan of FOFOA and the members here in the comments section!

@ jgb and Michael H, yes there is a Bearing who likes platinum too. The Bearing holds mostly Au, but almost 1/3 of the Bearing's PM hoard is in Pt. It is now VERY HARD to find Pt Eagles.

@ "younger" Jeff, yes, buy either silver or 1/10th oz gold Eagles (I prefer gold). I myself have some 1/10th oz, they have a high premium, but so what.

@ Ash, two great observations (expected value concept from probablity and holding a fair amount of real live CASH in case of disruptions in the banking system).

Yesterday DoChenRollingBearing issued a Press Release at ZeroHedge. It seems that he took FOFOA's advice: turning some silver into gold.

Texan said...

Ash,

I like your blog, I have been reading it for awhile. In addition to supplies, food, etc. I think having some physical fiat is a good idea also. That puts you first in line in case of HI, and first in line in case of deflation. It's also why I own some silver.

Bumso,

Farmland is very, very expensive right now. IMO it would prove a good hedge for Hi, but there are tons of factors to consider. What does it grow? Are you going to farm it? If not, do you have someone trustworthy who will farm it and pay you a decent cut of the harvest? What state is it in? How do they tax farmland? What are your annual and periodic expenses such as lime and tiling? How is the weather? Is the land by a river or MO levee? Texas?

Farming is no certain thing. And besides all of the above, there are two huge problems right now. First, if AsH is right and there is a deflation period, you will get absolutely killed on income, so leverage is a terrible idea. Gold perversely can benefit from extreme defaltion since it causes a loos of confidence in banks. Second, unless you have about half a million to spend minimum, you aren't going to buy squat. And that will only get you about 60 - 80 acres of high quality Midwest farmland. No one is selling except estates at very well attended auctions full of extremely flush farmers who have economies of scale from adding additional land and so can pay up, and who get community bragging rights from adding acreage, which has lots of value as well.

Not trying to discourage, but do your homework. Just like anything else, especially gold.

Ore em' said...

I've seen this discussed on FOFOA before, and I seem to recall certain parts, but could someone re-explain why gold went down for 30 years? No doubt part of Another's gold/oil, CB/BB paper-creation process, but some deeper analysis and thoughts would be appreciated.

bruinjoe93 said...

Things I'm buying for hyperinflation: silver, miners, vegetable plants, and fruit trees. I highly recommend strawberries. They grow like a weed in Southern California and produce a lot of food. They are a perennial plant here and they spread. I am also growing tomatoes, zucchini, and asparagus. I let some plants flower last year. Now I have more plants.

Blondie said...

Mortymer,

In light of the fact that gold is an enduring wealth asset, the US gold reserve is best utilized as an MTM reserve, IMO.

I’d say mark the currency down and keep the gold if possible. Cut some zeros off when stabilized, and issue new dollar. There are new dollars (new colour and design) already printed; whether they are legitimately just a new design and nothing more; to help manage currency demand during HI; a new stable currency ("new" dollar) for post HI, who knows, but they do exist and they are still not in circulation.

No matter which way you cut it, the US must adjust to living within its means. As an offset to the deficit of goodwill, they do have a lot of assets accumulated on the cheap during the past 65 years.

The US in particular is going to experience change, so a lot of things that we take as given now (level of oil consumption for example) are likely to change too. US has plenty of energy reserves of its own, but currently prefers to trade paper and other peoples gold for it. Selfish perhaps, but canny.

Victor said:

”They will back the new dollar with it [US gold reserves]... at roughly 15000 US$/ounce in today's purchasing power.“

The difference between our views appears only that you say it will be fixed, and I say it will float. I believe you ascribe this to threat of force, while I say that won't fly.

I agree that this would be the US preference, to fix.

You think the US, the architect and biggest beneficiary of the very system behind the collapse, can unilaterally mark all foreign and domestic dollar reserves to zero, and willfully undervalue gold with no blowback?

If it is fixed, as you say, this assumes no Freegold bid is made elsewhere, and the ROW continue to accept USD hegemony and inequity with a new dollar and higher but fixed gold valuation? I presume the point of a gun is your reasoning? After this consolidation, everyone is going to have a much clearer understanding of why it happened, it has not escaped ROW attention that US has enjoyed high standards of living at their aggregate expense... is the US gonna declare war on everyone? Who needs who?

US fixing to a new dollar is to go all in. ROW can see that fix and raise one MTM. America may be the incumbent champ, and can bluff as in the past all they like, but ROW are holding all the aces.


"Americans can always be counted on to do the right thing...after they have exhausted all other possibilities."

-- Winston Churchill

Ash said...

Texan,

Glad to hear it.

"That puts you first in line in case of HI, and first in line in case of deflation."

That's a good point. If you spot some significant developments that are almost certain to destroy dollar confidence (not just QE3 or rumors of China selling reserves), then you can start spending that cash as quickly as possible. If not, then you'll be glad you hung onto it.

Texan said...

Ash,

Right. In fact one of the issues with gold and silver are their extreme illiquidity, at least in the US. Literally no one knows what they are worth outside a very tiny minority, and even that minority is unwilling to provide a constant bid. If you are lucky enough to live near a dealer, that's great, but they can only buy so much.

I would NEVER expect gold to be used for any meaningful day to day commerce, no matter what the scenario. At least not within several generations. Of course I might be able to trade a coin for a stack of fiat, then I can go buy stuff. But I gotta first find a taker for the coin, and those people are hard to find. I mean, I am not going to walk into a Sam's Club with a Kruggerand and see what they'll give me in return

Well into a HI event, people's awareness may change and payment mechanisms may develop for PMs. But I think it will still only be for very meaningful amounts of fiat, because PMs will be so valuable.

So I think it's prudent to have some cash.

J said...

FOFOA, I've liked the approach you outline for a while. As per some of the others who've posted, I think some cash makes sense. I do find it tough to decide just how much cash to hold vs ounces vs useful / barterable things.

The book 'Alpha Strategy' is available free online and is useful in thinking about what sorts of things might be worth stocking up on. It's certainly nice to save 10-40% on things you use anyway, just by buying in bulk.

Blondie's commented before about the perils of confirmation bias, and the importance of remembering what's unknowable or can't be known for certain. Advice worth heeding IMHO. To me the 'classical' Freegold thesis makes the most sense, but I won't make a 100% bet on it panning out just that way.

Aquilus said...

First off, FOFOA thank you for answering the question on how best to fare during the transition. To me, that was a very important area that had not gotten enough coverage before.

You were also very correct to call me on the huge difference between selling for paper money and bartering during hyperinflation – barter wins hands down - absolutely!

Changing topics, and since Blondie suggested that thoughts/questions from different perspectives might come in handy, I’d like to tell you what has made me consider, re-consider, and then really respect your work.

I have tried for a while to find a good model for replacing the dollar in its obviously failed capacity as a reserve currency for a few years now. During the 2008 crisis, I was very drawn to the deflationists’s thesis, only to later realize that whereas deflation was indeed the needed outcome, it would never exist in dollars in our current political/governmental system.
So it took me a long time and research until I finally literally stumbled upon your site based on a comment at ZeroHedge.

I have to say that once I started going through the content, I was at first intrigued, but after a while it clicked in, and I realized that here was a theory that is self sustainable, and that also perfectly explains the deflation that I knew in my bones has to come (as I know now, in terms of physical gold though not paper dollars – and that was the key).

What I see here is a structured, coherent, and Occam’s Razor testable theory for the next monetary system. And to tell you the truth, the fact that there are no “rah rah, let’s get those bastards, it’s so unfair” was the key for me. The future system described here has the same potential for paper to be endlessly gamed, tweaked with one major (and essential difference): there finally exists a store of value for savers and a reference point for all currencies.

What I like, is the fact that it keeps intact all the institutions and habits of governments, including deficit spending when they deem necessary, as well as fractional reserve banking in different paper currencies, therefore giving politicians and the elites ways to continue to play their economic/Keynesian games (however not at the expense of gold-savers any longer).

Using the same Occam’s razor, it is the path of least resistance; especially since monetary changes do not come from the population, but from governments and banking elites when trust in a new money system and currency needs to be re-established.

Like others here, it’s also hard for me to imagine what the crisis that finally precipitates the transition would look like because there is no lack of candidates and scenarios. Not to mention timing, but that is probably the hardest of them all.

Hope I have not bored anyone too much – it was written simply to describe my own reason for deciding to be here on this forum.


P.S. I have also made a first contribution today to our host, just show my appreciation for the forum and content he has created and facilitated here. Look forward to doing more as time goes on..

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

Blondie, "the US gold reserve is best utilized as an MTM reserve, IMO." is also IMO a correct statement but only from the point of the US as another currency. We are far from that still & Not from the point of view of *still* a reserve currency issuer. FWIW is there is a try for the "softer" landing and removing dollar from its reserve status, short term future I see where SDR+Gold will be the reserve assets hand in hand. Or at least for some time.

We will know more in few days from the conference in Basel, right?

Look at this e.g.:
Slovak National bank, 2008:
http://www.nbs.sk/_img/Documents/STATIST/SSFU/QFACOM-082Q.PDF

Comments on Quarterly Financial Accounts for 2Q 2008

"...The total of the financial assets and liabilities of the national economy (S.1) and foreign countries (S.2) sectors must equal 0, that is, the national economy’s indebtedness has decreased (or the creditor position has risen), and the indebtedness of the foreign countries has automatically increased (or the creditor position has decreased) visà-vis the national economy. The given relation is only applicable if we disregard the development in the financial instrument “Monetary gold and SDRs – AF.1”, which has been the only instrument reported on the assets side of the national economy only. The distinction between the movement in the indebtedness and the movement in the creditor position depends on the total volume of net equity, i.e. on the development in the stocks of accounts receivables and payables..."

"...Net lending represents the positive difference between the financial assets and the financial liabilities. If the difference is negative, we talk about net borrowings. In the case of data concerning stocks, the difference between the financial assets and liabilities is defined as net financial assets (or net financial equity) which can be either positive or negative."

"...The difference between the net financial debt of the national economy (SKK 1,171.4 bn ) and the net creditor position of the foreign countries (SKK 915.6 bn ) is represented by the MONETARY GOLD and SDRs amounting to SKK 23.2 bn and, in addtion, by the difference resulting from inomplete data on the sector breakdown of the financial instrument F.7 Other accounts receivable and payable..."

Sidenote: Interesting for this area - http://www.cnb.cz/en/news/homepage/br_pred_situ.html
"Attendance of CNB Bank Board members at the monetary policy meeting on 5th May 2011"

Motley Fool said...

Hey FOFOA

"The point is that this price-sensitive substitution of silver was confirmation to my friend that silver is a better store of value. And again, this is one of the smartest guys I know. Seriously smart! "

I actually agree with your friend. Hehe. Deindustrialization of silver(in favour of investment) is a positive thing ( in terms of silver becoming a store of value) . As the price increases(after some point), the available stock to flow ratio increases( due to premiums on recylcing becoming less significant).

As we know a higher stock to flow ratio makes for more price stability, one of the essentials of a good store of value. So yea, that is confirmation that silver is becoming a better store of value. Bearing in mind it would still compare poorly against gold at current prices. ;)

If your friend followed that logic through to its conclusion he would realize gold is a much better store of value than silver, being almost completely deindustrialized and having a much more massive stock to flow ratio. :P

On the matter of the four squares experiment. I would suggest a funny derived psycholical experiment. Four squares, two players, both win if they both pick the same thing. One has silver, one gold, one platinum and one paladium. Here is the rub, each piece must have equal value.. thus the weight of each that can be chosen must differ in relation to their market value. Now THAT would be a fun experiment. Even given my slyness I suspect most pairs would choose gold. The interesting question is, if a large number of were teted, what percentage of winners would choose the other metals.

Regards

The Fool

Ps. I am wondering what responses will be coming my way for saying this. xD

Pps. Before you get the pitchforks, remember what I said to Desperado : Even if we start with many Freesomethings, in the end there can be only one.

Ppps. That sounded very Hinglander-ish. :D

mortymer said...

Since this is my first time on this cb, we have pleasant surprises here :o)
There is another interesting relevant note in this document:

http://www.nbs.sk/_img/Documents/_PUBLIK_NBS_FSR/Biatec/Rok2010/biatec1010_EN.pdf

pg.9 "The Kingston monetary system entered into force in January 1976 when representatives of the International Monetary Fund signed the agreement on terminating the demonetization process, i.e. a gradual elimination of basic functions of monetary gold as a general equivalent. The result of the agreement was that monetary gold stopped to fulfill its basic function, i.e. to be a measure of values and prices, and continued fulfilling its function of a reserve of all reserves...."

MF: Yep, if there are more then 1 there is arbitrage and "The basic function" of a reserve asset does not work as it should. Just lets look how many assets are there in CB balance sheets...

mortymer said...

//Correction to my previous statement:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/3_Eric_Sprott_-_Sprott_Has_More_Physical_Silver_Now_Than_Ever!.html

FOFOA said...

Hello MF!

Ha! Ding ding ding. You win the prize! I was waiting for your comment, although I didn't know who it would come from. You are correct that this is a move in the right direction for anything bidding for gold's role. But as you rightly pointed to, as the Highlander's tagline says, "There can be only one." So in this case, what would be good is actually very bad for investment purposes.

As for my friend, his argument was not nearly as sophisticated as yours, book-smarts notwithstanding.

Also, remember that unlike Schelling's thought experiment, we are not all choosing blindly. The majority has already chosen. And we late-comers are not choosing "in the absence of communication." Some pseudonymous blogger named FOFOA has posted the ECB Consolidated Statement many times. ;)

Sincerely,
FOFOA

mortymer said...

@vtc: Concerning Your note... it made me thinking...."the gold sales". If you have a feeling that somebody is in a real trouble there could be something about it. So where to take the gold from? ESCB system locked more or less... IMF? Hmmm, how is with the WGA sales? IMF sales? Any new planned...? Then I went there and...
So I would look to IMF sourcing but not as you may think... look here:

Factsheet
Gold in the IMF

April 8, 2011

http://www.imf.org/external/np/exr/facts/gold.htm

mortymer said...

"Consistent with the new income model for the Fund agreed in April 2008, on September 18, 2009, the IMF Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one eighth of the Fund's total holdings of gold at that time. Resources linked to these gold sales will also help boost the Fund's concessional lending capacity. The approved sales program was completed in late December 2010."

[Mrt: So this last ended 12/2010]

mortymer said...

"The IMF held 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories at end March 2011. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.2 billion (about $5 billion) on the basis of historical cost. As of March 31, 2011, the IMF's holdings amounted to $130.2 billion at current market prices.

The IMF acquired its current gold holdings prior to the Second Amendment through four main types of transactions.

* First, when the IMF was founded in 1944 it was decided that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represents the largest source of the IMF's gold.
* Second, all payments of charges (interest on member countries' use of IMF credit) were normally made in gold.
* Third, a member wishing to acquire the currency of another member could do so by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970–71.
* And finally, member countries could use gold to repay the IMF for credit previously extended."

mortymer said...

"Role of gold. The Second Amendment to the Articles of Agreement in April 1978 fundamentally changed the role of gold in the international monetary system by eliminating the use of gold as the common DENOMINATOR of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and ended the OBLIGATORY use of gold in transactions between the IMF and its member countries. It furthermore required that the IMF, when dealing in gold, avoid MANAGING its price or establishing a fixed price."

[Mrt: but nobody said anything about managing flow]

mortymer said...

"Transactions. Following the Second Amendment, the Articles of Agreement limit the use of gold in the IMF’s operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member country's obligations (loan repayment) at an agreed price, based on market prices at the time of acceptance. Such transactions require Executive Board approval by an 85 percent majority of the total voting power. The IMF DOES NOT have the authority under its Articles to engage in ANY other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold."

[Mrt: so syntetic gold, derivatives games is NOK]

mortymer said...

"Restitution. The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment (April 1978) to those countries that were members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of member countries at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold acquired by the IMF after the date of the Second Amendment."

[Mrt: Interesting, no idea about this one yet]

mortymer said...

""Key gold transactions included:

* Sales for replenishment (1957–70). The IMF sold gold on several occasions to replenish its holdings of currencies.
* South African gold (1970–71). The IMF sold gold to member countries in amounts roughly corresponding to those purchased from South Africa during this period.
* Investment in U.S. government securities (1956–72). In order to generate income to offset operational deficits, some IMF gold was sold to the United States and the proceeds invested in U.S. government securities. Subsequently, a significant buildup of IMF reserves prompted the IMF to reacquire this gold from the U.S. government.
* Auctions and "restitution" sales (1976–80). The IMF sold approximately one-third (50 million ounces) of its then-existing gold holdings following an agreement by its member countries to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to member countries at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries.
* Off-market transactions in gold (1999–2000). In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance the IMF’s participation in the Heavily Indebted Poor Countries (HIPC) Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member’s financial obligations. In the end, these transactions left the balance of the IMF’s holdings of physical gold unchanged."

mortymer said...

Sorry for so many posts, I think it is important for establishing a view where we are now:

The IMF’s STRICTLY LIMITED gold sales (2009-2010)

"In December 2010 the IMF concluded the gold sales program with total sales of 403.3 metric tons of gold (12.97 million ounces), as authorized by the Executive Board. Total proceeds amounted to SDR 9.5 billion (about $15 billion)."

[Conclusion: IMF needs the rest of member´s gold for its credibility, SDRs. Last Gold Sales ended. So with no sourcing from IMF either, those your entities had enough time to get out from their positions]

As ESCB walked out from gold market, then R* walked out from LBMA, now IMF just walked out.

Blondie said...

Mortymer,

IMF gold fact sheet is very specific about all transactions, except those between Sep 7 - end Dec 2010, when they appear to have sold 181.3mt of gold on the market, but not specified to whom, or even if these sales did occur, although they are definitely implied:

"... in August 2009, the European Central Bank and other central banks announced the renewal of their agreement (Central Bank Gold Agreement) on gold sales, which are not to exceed 400 metric tons annually and 2,000 metric tons over the five years starting on September 27, 2009. The announcement noted that sales of 403 tons of gold by the IMF could be accommodated within these ceilings. This ensured that gold sales by the Fund would not add to the announced volume of sales from official sources.

The first phase in the Fund’s gold sales was set aside exclusively for off-market sales to interested central banks and other official holders, which were conducted at market prices at the time of the transactions. In October and November 2009, the Fund sold 212 metric tons of gold in separate off-market transactions to three central banks: 200 metric tons were sold to the Reserve Bank of India during October 19-30; 2 metric tons to the Bank of Mauritius on November 11; and 10 metric tons to the Central Bank of Sri Lanka on November 23.

The IMF announced in February 2010 the beginning of sales of gold on the market. At that time, a total of 191.3 tons of gold remained to be sold. In accordance with the priority of avoiding disruption of the gold market, the on‑market sales were to be conducted in a phased manner over time. This followed the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. The initiation of on‑market sales did not preclude further off-market gold sales directly to interested central banks or other official holders. On September 7, 2010, the Fund sold 10 metric tons to the Bangladesh Bank. Such sales reduced the amount of gold to be placed on the market.

In December 2010 the IMF concluded the gold sales program with total sales of 403.3 metric tons of gold (12.97 million ounces)"


403.3mt sold during this period, but the 181.3mt sold after the Bangladeshi transaction is not detailed.

That’s a lot of gold, and the more opaque nature of these sales is at odds with their transparency prior.


And as you say, there will be no more flow from the IMF.

mortymer said...

Yes Blondie, I have noticed the same, just have not mentioned it since there could be some info somewhere. It seems that in April some pages in IMF were updated/added since I do not remember those.

mortymer said...

This quest about finding what is going on is really like a peeling of onion...

Questions and Answers
IMF Gold Sales

Last Updated: April 08, 2011

http://www.imf.org/external/np/exr/faq/goldfaqs.htm

"... • The volume of gold sales approved by the Executive Board was unchanged from the proposed sales in the new income model endorsed by the Executive Board in April 2008, which was also the same volume as recommended by the CROCKETT COMMITEE in its January 2007 report on the sustainable long-term financing of the IMF. ..."


This lead me to here =>

Eminent Persons Group Outlines Long-Term Revenue Plan to Finance IMF Activities
Press Release No. 07/18
January 31, 2007

http://www.imf.org/external/np/sec/pr/2007/pr0718.htm

"Managing Director Rodrigo de Rato of the International Monetary Fund (IMF) today submitted to the IMF Executive Board a report by a Committee of Eminent Persons which recommends an income model for the IMF "that would be more appropriate for the various activities undertaken by the Fund, and would be more responsive to evolving conditions in the world economy and in the role of the Fund itself."

"The Committee was chaired by Andrew Crockett, former Director General of the Bank for International Settlements (BIS) and currently President of JPMorgan Chase International, and included Mohamed A. El-Erian, President and CEO of Harvard Management Company; Alan Greenspan, former Chairman of the U.S. Federal Reserve Board of Governors; Tito Mboweni, Governor of the South African Reserve Bank; Guillermo Ortiz, Governor of the Bank of Mexico; Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency; Jean-Claude Trichet, President of the European Central Bank; and Zhou Xiaochuan, Governor of the People's Bank of China. Mr. de Rato stated that Fund members, management, and staff were grateful that such an eminent group was willing to devote their time and energy to this issue. Their involvement underlines their regard for the Fund and its mandate..."

"...Creating an endowment from limited IMF gold sales. The limited sale of Fund gold should be ring-fenced to exclude further sales and subject to strong safeguards to limit their market impact. Of its total stock of 3,217 metric tons of gold, the IMF could sell the gold sold and repurchased in the 1999-2000 off-market operations. This gold, which amounts to about 400 metric tons, has an approximate current market value of SDR 4.4 billion (US$6.6 billion). Investment of profits from its sale could yield a real return of some SDR 130 million (US$195 million) a year. The Committee emphasizes that these limited gold sales should be handled in a way to avoid causing disturbances to the functioning of the gold market and, accordingly, should be coordinated with current and future central bank gold agreements so as not to add to the volume of sales from official sources..."

mortymer said...

Here there is some more info:
[so again R*s?]

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

"The Volcker Commission, also known as the Independent Committee of Eminent Persons (ICEP), was established in 1996 to investigate the accounts lying dormant since the Second World War in various banks in Switzerland. The committee was headed by former United States Chairman of the Federal Reserve Paul Volcker and was composed of three representatives from the Swiss Bankers Association and three appointed by Jewish organizations..."

Blondie said...

Mortymer,

This page: IMF Gold Sales, also posted April 8 2011, says:

"the gold sales were conducted on-market in a phased manner over time... As one of the elements of transparency in the sales, the Fund informed markets that on‑market gold sales were about to commence on February 17, 2010 (See Press Release No. 10/44). The IMF provided regular updates on progress with the gold sales through its normal reporting channels."

The IMF in this document state that the entire 181.3mt was sold into the market in a phased manner between Feb-Dec 2010.

FOFOA said...

J (and J, you should really register a new name. We have a J who has been commenting here for more than two years now. He's a friend of mine. It could get confusing for you both. Thanks!): "I do find it tough to decide just how much cash to hold vs ounces vs useful / barterable things."

Texan: "Ash, I like your blog, I have been reading it for awhile. In addition to supplies, food, etc. I think having some physical fiat is a good idea also."

Ash: "If you spot some significant developments that are almost certain to destroy dollar confidence (not just QE3 or rumors of China selling reserves), then you can start spending that cash as quickly as possible. If not, then you'll be glad you hung onto it."

Sheesh! You know, I've been writing this blog for more than two and a half years now, and survival prep is a subject that comes up very infrequently. But when it does, my position has always been that you should probably have three to six month's cash on hand, with half at home in a shoebox and half in whatever bank you use to pay your bills. That probably means at least $20,000 in cash for most people, and it has nothing to do with deflation. I repeat, cash has nothing to do with an investment decision! Survival advice is kind of ldo as far as this blog is concerned. It's sort of 101 and you can get that education at many other sites.

"The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost."

That's from my last post. And here's what FOA said, also from that same post:

"-- Note: The reader has to understand that these discussions were directed towards people and investors that had plenty of net worth. And I do mean Plenty! The argument wasn't about how to survive; rather how to balance a truly conservative estate portfolio. --"

Some of my readers support the continuation of my efforts here with donations, so I often end up emailing with them. And you'd be surprised how "prepared" some of them are. At least three I know of are now new beekeepers. One guy left his job and his city-life to buy (and build) an entire farm in the middle of Amish country, and he's not Amish! But these people also have PLENTY of net worth. And that's what this blog is about.

Ash, when I asked for your investment recommendation, what I was really after is what should someone like my friend who already has a farm, bees, guns and a year's-worth of cash do with the $5 million still in his retirement account? It appears to me that you project your own personal situation and perspective onto the wider view. And I mean this in many ways.

For one thing, you claimed that I misrepresented the wider view of the debate because it didn't fit into your personal perception developed over, what, the last year? While I offered reasoning and a quote to back up my statement, you simply declared it to be wrong because it is not the way you (and presumably your new deflationist friends) view the debate:

"The legitimate deflation/HI debate is all about timing, and has never been about anything else. That's why FOFOA framed the debate incorrectly at the very beginning of this article."

Cont...

FOFOA said...

Legitimate, huh? Perhaps for those with no wealth to preserve that actually is the debate. But it's certainly not how the debate started.

"Well, what is the main difference between rich men and poor men? Is it that the rich have an excess of wealth beyond their daily expenses? In fact, the really rich have "inter-generational wealth," that is, wealth that lies very still through generations. The poor do not have this."

That's from this post.

"The few deflationists that think they understand what will happen will tell you to hoard a boatload of cash. This advice will help you for maybe a week to a month. If you stored your emergency supplies like you should have, it won't help you much at all. And if you hoard only cash in lieu of real stockpiles of necessities and gold, then you will have f-ked yourself in the end.

"I tend to think that the ideal amount of cash you want to be hoarding when the fire starts is about a month's worth of expenses. Maybe a little more. But much more and you may have to juggle your cash back into your bank account as you "wait" for the inevitable, and you will probably end up holding a large stockpile of cash after it becomes worthless. Any less and you may miss out on some bargains during the week to a month that cash values exceed digital money. In any case, it's good to have a little cash under the mattress."


That's from this one.

Ash, you wrote:

"Would I tell everyone I know to keep less than 10% of their wealth in dollars right now, or use most of their dollars to load up on gold? No, not a chance in hell."

So what percentage should be kept in dollars, Ash? I have never recommended a percentage, actually. And does your percentage apply no matter how many dollars I have? I am aware of what your mentor and blog re-publisher thinks of gold. I am also aware of what other deflationists like Bob Prechter think. Here is what Stoneleigh wrote when gold was at $1,199…

"Those who buy gold now will be paying a premium price for it compared to what they might pay once deflation has exerted its effects.

Gold ownership is very much a double-edged sword. Personally, I think it far more important for those who have surplus resources to put those resources into obtaining as much control as possible over the essentials of their own existence."


Do you agree, Ash? Should people with PLENTY of wealth to preserve invest it in Mad Max Forts instead of gold? Should they hoard multi-millions in super-sized shoeboxes of cash? Should they buy all the US Treasuries Bill Gross is dishoarding? What should they do to carry their wealth through this coming catastrophe? Try to think outside of your own small perspective and let us know what wealth should do to make it through this mess. Thanks!

Sincerely,
FOFOA

J said...

Thanks FOFOA, and 'the older J'...
I will try my very hardest to end my comments as below.

FOFOA, it's actually quite easy to get the impression from reading this blog (I think I've read every post, but over the last year or more so it's not all fresh) that 'survival' stuff as you've mentioned above isn't a huge priority. When I see the quotes you've highlighted, I think that's maybe because it's not mentioned often, as you say.

I'm pretty sorted on that stuff, but I do have a good deal more cash than six months' worth of living expenses and haven't yet been able to get comfortable with bedding down at the 'All Inn'. Never mind! At the moment I value more highly the feeling of having several bases covered than I do the possibility of maximizing my wealth if/when Freegold comes to pass.

Has anybody else found themselves 'dollar-cost averaging' on gold purchases by buying a little bit more every time FOFOA posts something particularly persuasive? :)

The newer J

DP said...

@The newer J: The most straightforward approach seems to me to be just buy a little every month with whatever is left over after you lived your life and bought everything else you needed.

J said...

DP, that's my approach for new earnings, but my soon-to-be-patented FOFOA-DCA approach is what nibbles away at the deflation-protection cash pile. Which is not so very big, incidentally - I'm very much a shrimp :)

mortymer said...

@vtc: about 15 000 USD for ounce...

Date: Sat Nov 22 1997 23:13
ANOTHER (THOUGHTS!) ID#60253:

This was written: "To find the answer to the LBMA , "Follow the connection from London, to South Africa, to the Middle East, and on to Asia"

Mr. Markus Angelicus,
I read the gold-eagle write. You have made the link between London ( LBMA ) and South Africa .

Also:
Many look to the middle east and say "they control the oil market no more". I say "you see not what is in front of your eyes"! They do not have to keep oil up in price to control it. One can gain more wealth by keeping oil down than by driving it up, much more! And what is the value of this type of manipulation?

it is measured in gold! Tell me now, what gain is there to destroy the world economy with high cost oil when they will provide you gold instead?

But what value gold? All say "it is only a commodity subject to supply and demand"! Understand me, Demand and supply is written by BIS and $15 oil can cost $250 gold or $10,000 gold, whatever is required! $250 gold and LBMA will live! $10,000 gold and LBMA is sacrificed!

But, it will never come to this. The oil "understanding" was broken by the Asians. More gold has been sold than can ever be covered! This market is not the same as the past. One day gold will start up and BIS will deal with it the only way possible!

mortymer said...

Addendum: Mr. Markus Angelicus,

http://www.gold-eagle.com/research/marcusndx.html

(keep in mind this was written in 1997)

mortymer said...

*Date: Sun Nov 23 1997 09:18
ANOTHER (THOUGHTS!) ID#60253:

Many wait for the next great bull market in gold to begin before they buy. Why buy now and lose interest or stock market gains? They will miss the greatest investment ever to come in ones lifetime! The powers of this world have already begun this motion. People of simple thought have but to buy physical gold and make low as the financial wars begin! You see, gold was cornered this year. It is done. No Central Bank will sell it's 50, 100, 200 million ozs gold when 600 million is needed! I ask you, how can currency price gold? Indeed, no price will work! You think any form of "paper gold" will stand this fire? Can we do battle with lions? When oil will not take currency without gold the havenots will not sit still!

"When a thousand hungry lions fight over one scrap of food, small dogs should hide with whats in their belly".

A world waits for something to happen that is done.

Read my

Date: Sat Nov 22 1997 23:13
ANOTHER ( THOUGHTS! ) ID#60253:

and

Date: Sat Nov 22 1997 23:32
ANOTHER ( THOUGHTS! ) ID#60253:

then be very sure to read Mr. Mr. Markus Angelicus, on Gold Eagle! Then you will know!*

mortymer said...

*Date: Sat Nov 22 1997 23:32
ANOTHER (THOUGHTS!) ID#60253:

One new day gold will begin a rise that will end it's use as a trading medium. This reevaluation will end a tradition in London. No gold house will make a market that has no sellers, official world gold trade will end for many years! And with it will go the last true value to trade for oil. Oil will skyrocket in all currencies. Those who have metal will learn it's value in oil. All things in life change, the world will not be the same.*

(keep in mind this was written in 1997).

Texan said...

FOFOA,

My view on cash is more than just paying for a month's worth of supplies.

It is that I think Ash could be right - we could have a period of sustained deflation before the money printing begins in earnest.

Now during that period, lots of things can happen to one's income. And the last thing one would want to be doing is selling gold during this deflationary period at lower and lower prices in order to pay basic costs?

I don't have any idea what the right percentage mix is for other people, of significant means or otherwise.

Michael H said...

Ore em',

Has anyone answered your question yet? I believe what you are looking for is Aristotle's 5-part series, in particular parts 4 and 5, found at

http://www.usagold.com/halloffame.html#anchor318280

The Dork of Cork said...

Basel I & II is the reason for the financial crisis.
Deposits are not reserves in banks - the are the artifacts of credit creation.
Banks divorced themselves from the sovergin and multiplied credit without any relationship to the taxable base of countries.

I believe the entire journey finishing in CBs selling their Gold to help cool sov debt yields and thus giving the signal to commercial banks to increase credit was the result of a decision by the monetory priests to wage outright war on their hosts.
It looks like they have won - but will freegold give them enough capital to free them from their parasitical life ?

DP said...

TDoC, I see you're still enjoying your religious theme after all this time.

Is it possible that your congregation are as much, if not more, to blame than the priests for the expansion of credit? Perhaps the priests should protect the flock from themselves, sure, but... birds gotta swim, fish gotta fly, no?

It is, however, good to see you now appear to accept that Freegold already "looks like it has won".

Ash said...

FOFOA,

"my position has always been that you should probably have three to six month's cash on hand...cash has nothing to do with an investment decision!"

You are, in fact, implying an investment decision based on your estimated probabilities of the cash retaining its value for a certain period of time once TSHTF. You cannot change that fact by labeling it "survival advice". It is fundamentally different from advising someone to learn how to grow his/her own food.

"Ash, when I asked for your investment recommendation, what I was really after is what should someone like my friend who already has a farm, bees, guns and a year's-worth of cash do with the $5 million still in his retirement account?"

When you are "really after" something, you should just say it... as you probably know, most people with excess dollars are not like your friend, not even close. And as you also know, I have not followed your blog for a long time or communicated with you much, so I cannot read your mind to the extent that some others may be able to (your question was posed to the new deflationists on the blog, so you should have assumed that).

I don't really know what your friend should do with his requirement account. Liquidate and spend it all on drugs and hookers? Give it to charity? Depends what he values in life...

Just kidding, I know what you mean. If he wants to preserve the purchasing power of that $5M, I would definitely not tell him to spend it all on gold right now. I made clear what I feel is most likely for the dollar in the next few years... and yes, it's just your run of the mill deflationist propaganda.

Indenture said...

The EUR Is Dead, Long Live Its Replacement - The Asian RMU

Ash said...

FOFOA,

"Legitimate, huh? Perhaps for those with no wealth to preserve that actually is the debate. But it's certainly not how the debate started."

Yes, the "legitimate" deflation/HI debate (IMO...of course) is not about the final outcome, but the timing, regardless of how much wealth you have to preserve. I never said anything about how the debate started, and I don't really care, just like I don't care about how the creationism/evolution debate started.

"So what percentage should be kept in dollars, Ash? I have never recommended a percentage, actually. And does your percentage apply no matter how many dollars I have?"

I have implied that you recommended a percentage... and yes, my recommendation would apply regardless of how many dollars you have, assuming you asked me about the best way to preserve PP and stay liquid. I would not give you an exact %, but I would not say anything less than 10% for dollars.

Stoneleigh: "Gold ownership is very much a double-edged sword. Personally, I think it far more important for those who have surplus resources to put those resources into obtaining as much control as possible over the essentials of their own existence."

FOFOA: "Do you agree, Ash? Should people with PLENTY of wealth to preserve invest it in Mad Max Forts instead of gold? Should they hoard multi-millions in super-sized shoeboxes of cash? Should they buy all the US Treasuries Bill Gross is dishoarding?"

Don't you think it is a bit obvious when you quote someone, and then immediately imply she said something that she did not? As should be painfully clear by now, I am not the one with a limited perspective. And I don't feel the need to answer those questions, since my position has already been known multiple times.

HINT: Don't use all of your surplus wealth to buy gold, regardless of the nominal amount.

Also, I am in the process of writing an article or two (or more if necessary) about gold and "limited perspectives". I will be sending you an email with the parts referencing my take on your views soon, to confirm they are accurate. I would appreciate a response at your convenience, thanks.

Ash said...

Corrections:

"I have never implied that you recommended a percentage... and yes, my recommendation would apply regardless of how many dollars you have, assuming you asked me about the best way to preserve PP and stay liquid. I would not give you an exact %, but I would not say anything less than 10% for dollars."

Motley Fool said...

Hey FOFOA

I do at times wonder if silver will do a semi Freesomething in the short-to-medium term. There are slight odds for it, but this is just idle academic speculation, it's not like I'm gonna buy any extra silver.

FUN

Interesting graph. :)

Just so you know. Your logic forced me to concede on RB's and bow to Freegold. Expect me to watch you like a hawk and call any BS. It's just fair. :P

Sincerely

The Fool

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

The central bank of Mexico bought nearly 100 tonnes of gold in February and March, the latest emerging market country to turn to bullion as a means of diversifying away from the faltering dollar.

Mexico follows other booming emerging-market economies, including China, India, and Russia, which have all made large additions to their gold reserves in recent years.
Matthew Turner, precious metals strategist at Mitsubishi, the Japanese trading house, said the purchase "seems to confirm there's an appetite now among emerging economies with large forex reserves to add to their gold reserves. Gold is seen as one way in which to diversify away from the dollar- or euro-denominated assets."
The dollar has plunged 10 per cent since January against the world's major currencies and is trading near an all-time low. Robert Zoellick, president of the World Bank, has suggested that gold should form part of a new international monetary system.


http://www.ft.com/home/us

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

It's been an interesting day so far in PMs, the dollar, and the share market as they are all falling.

In the meantime, FWIW, the controversial Marty Armstrong has a cycle turn date in early/mid June. My personal opinion of Mr. Armstrong varies, but there is little doubt in my mind that he is a formidable technical analyst, and I would rather, regardless of my long term view of gold, see it fall into that date than rise. Presently, it seems quite clear that we have made a meaningful "technical" top in PMs.

The Root Of Good said...

FWIW, today i called the two coin dealers i have bought gold from since 2005. second time they turned me down... only other time was fall 2008. they both said they have large standing buy orders from their big clients (not me). curious to hear what others are experiencing on the ground.

The Dork of Cork said...

@DP
Religion is just the mechanism - for example there was a consumption belief for a period as it was to the benefit of the priesthood who at the time (80s,90s,00s)were engaging in a global wage deflation crusade to free more capital for their God mammom.

The general historical theme of the west has been the fall of the Roman Empire - the reinvention of that empire into the first multinational corporation - the various crusades both external and internal ( I find the domestic clashes with the non-believers most interesting such as the Cathar crusade).
The rise of the banking republics to the north - and the subsequent incorporation of spirtuality withen central banks archectiture in the BOE and its sisters.
The acceptance of usuary withen the first corporation by the 19th century through its penetration by the Rothschild clan.
The efforts of the priesthood to deconstruct the idea of republics as they themselves became the royalists.
The destruction of the concept of the nation and national money that they also created as general war became close to obsolete......

Its fascinating to see such power over the minds of men in action and quite funny to see executives who think themselves as powerful and wise to somehow hear voices in the wind and then subsequently act on these ideas.
There is no real winning against such a malevolent force then perhaps warn certain people and as FOFOA says follow the flow.

The Dork of Cork said...

correction "GOD MAMMON"

There can only be one...........

DP said...

@TDoC: Good luck with the book

Aquilus said...

And for a little bit more paper fodder, the Treasury needs $2T to keep things rolling until the end of 2012.

Although a quick back of the envelope calculation tells me that the number is closer to $2.5T-$3T; $2T should last until mid 2012.

And all this (12% of GDP at a minimum) is in today's dollar purchasing power, not 3, 6, 12 months from now. Fodder...

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

Reuters link for above http://www.reuters.com/article/2011/05/04/usa-budget-limit-idUSN0423009220110504?type=bondsNews

kayling1 said...
This comment has been removed by the author.
Polly Metallic said...

I am glad a fellow precious metals advocate directed me to your site. My husband and I began reading Another and FOA in 1999. Their Freegold scenarios did not play out in the time span we expected, but the truths presented are still valid.

I found your hyperinflation article very helpful. It cemented many concepts for me. I already grasped your basic premise that profits are privitized and losses are socialized. I was a real estate review appraiser for many years and watched the housing crisis unfold. It was obvious to most real estate appraisers who I spoke to that real estate was in a bubble in most parts of the US and that the policies of no money down mortgages, and 125% loan to value ratio home equity loans was sheer insanity. We all said it would end badly and it did. Years before the crash it was apparent to me that the loans being bundled in tranches and sold to investors and pension funds was a means for banks and mortgage companies to ring the cash registers for themselves and then dump the loans onto the public before they went bad. Your view that virtually all debt will be monetized and dumped on the taxpayers is just an extension of the same game. Sadly, the end game that you describe is not at all hard for me to understand or believe.

Blondie said...

Mortymer,

Greyfox said:

”The central bank of Mexico bought nearly 100 tonnes of gold in February and March...“

Wonder why did they not buy from IMF, along with India, Bangladesh et al.?
Where did they find 100mt, for that matter?
Where is the flow coming from?

As Another said, you cannot make a market when there are no sellers.

Desperado said...

Very interesting posts Dork.

The picture you paint of religion and greed meshes with what little I know of Ireland.

After more than 20 years as an American expat living in Switzerland I still don't completely understand Swiss attitudes and etiquette. I do know that old world prejudices and narrow-mindedness often dwarfs that of small town America.

In Switzerland the petty jealousies and greed of villagers who have lived closely together have been tabulated over generations and is often stifling when one is used to affluent and easy going California. I think this large gap in optimism and generosity between the old and new world is also evident in the politics. In the US the teaparty and Ron Paul represent a grassroots movement against bloated bureaucracies and back to individualism, self reliance and charity. I detect nothing similar in Europe.

You wrote: "There is no real winning against such a malevolent force then perhaps warn certain people and as FOFOA says follow the flow."

This is one problem I have with freegold and all this talk of "footsteps of giants". I am not willing to submit to the will of the giants. Switzerland has a long history cantonal rights and resistance to being dominated by her neighbors, but even here the socialists and their bloated bureaucracies appear to be winning as they seek to force us into the EU. This is one big reason why I cannot completely throw my hat into the freegold ring. I think silver represents freedom and liberty far more than gold and its ties to old world cynicism, religious division and class envy.

The Dork of Cork said...

@Desparado

Well my travels take me to the French and Spannish Pyrennes and I find the old Knights Templar and Hospitaller buildings fascinating.

Particulary hybrid church / fortress constructions which in many cases were trading forums semi - isolated from the local mountain clans of the time.
This corporate design is still with us today.
www.flickr.com/photos/30121316@N07/3318189539

Klaverius said...

Desperado,

Don't get caught up in symbolism over substance. Silver has it's place ( thought it is under appreciated here).

It is the giants who will dictate the new system. You do yourself good to follow where they lead. The decision has been made.

The concept of freegold creates the liberty you desire. Or do you think that if the people demanded free silver, that the giants could never acquire any?

Robert Leroy Parker said...

Any posts regarding how a drastic advance of human innovation could throw a kink into freegold?

Indenture said...

"The Treasury has told lawmakers a roughly $2 trillion rise in the legal limit on federal debt would be needed to ensure the government can keep borrowing through the 2012 presidential election" Reuters

The sound of the Waterfall increases.

Indenture said...

Robert: Like Free Cold Fusion?

matt said...

@ Ash

You said-" If he wants to preserve the purchasing power of that $5M, I would definitely not tell him to spend it all on gold right now. I made clear what I feel is most likely for the dollar in the next few years... and yes, it's just your run of the mill deflationist propaganda."

You are not making the connection that the dollar has with the paper gold markets. The gold market will not stay intact through this 2 year "dollar rally" that you speak of. You will not be able to buy physical gold for the paper price the way you can now.

What is your prediction for the gold market in this dollar rally scenario ? Do you really think that as the GLD crashes and the COMEX/LBMA defaults, that physical gold will be available at COMEX/LBMA prices ?

matt said...

@ Robert

"Any posts regarding how a drastic advance of human innovation could throw a kink into freegold?"

Yeah, it already happened. The 1971-20?? floating fiat clusterf*ck.

Robert Leroy Parker said...

If I knew what the innovation might be then I'd probably not be posting here. But say some sort of revolutionary innovation occured which induced massive worldwide growth, increased tax revenues, prosperity, etc.

Then the status quo remains for the forseeable future, no? Isn't this sort of what the Keyensians rely on? Or maybe they just count on wars to annihilate large chunks of the population.

Either way, is there a flaw in this scenario preventing freegold? Imo I don't like to bet against people, which you could view counting on HI is. Although its clearly more a bet against governments, the people are the ultimate backers.

I would be more comfortable if freegold were to come about through revolution, rather than HI.

Desperado said...

@DoC, nice pictures, did you take them?

A castle in the Pyrenees with some green pastures and fresh water would a great asset about now.

@Klaverius,

"Gold is the money of kings, silver is the money of gentlemen".

Obviously I cannot decide what others would accept as money, but I can have my preferences, and I have been following Hugo Salinas-Price. If I was Mexican I would certainly support his moves for making silver legal tender there.

I don't agree with all the freegold purists here who insist the Gresham's law and Nash equilibrium prove that bimetalism is guaranteed to fail, especially when viewed from the limited horizon of my lifetime.

julian said...

Hello All,

entralling comments


Ash,

my thoughts,

I think gold is the ultimate wealth reserve, in service of the function spanning time.

Do you think so too?

I read from your comments that short term, now thinking, current global monetary system withstanding, gold isn't a good place to be, considering alternatives. Perhaps some quantity of gold? (I haven't read all comments from previous blogpost so perhaps you address gold already)

I don't disagree that wealth preservation is not everyone's luxury these days. Yet it still is an option, so it is considered.

Longer term, we are learning the hard way that it is the store of value function over time that is the poor foundation on which we've rested our vast planetary economy. We will address this as a civilization, through necessity. It has often been said around here that the steps have long been taken down this road by those mystical giants who move the earth (its resources).

So, longer term, what do you think humans will choose to serve that function? Is it something yet to be created, therefore we can't front run it and acquire any now, so keep cash and wait for market/economy signals? Or, is it something already existing and established, and might we shrimps scrounge a few crumbs?

Perhaps you don't think the flow of gold has the chance of drying up? Do you consider the flow of gold to be important anyway?

I still don't understand the flow of gold yet. But i do know it's not something that moves easily. It needs to be enticed mightily. Oil is best at that, yes?

Nevertheless, regarding the point of "timing," I could do with a better understanding of what is being timed. Kindly expand on this thought?

My view of the timing issue is the timing for "getting out of the now and getting into the next." What is flowing from the now to the next? One's wealth, to use the term loosely?

So my pinching thought is what will be next?

Matt,

This leads to the "drastic human innovation" point.

Innovation starts in the mind. I think that's why mathematics leads our biggest innovations.

Theoretically, we could imagine things that lead to the end of the need for a store of value function amongst a vast civilization striving for interplanetary mobility. Perhaps we could imagine things leading to the end, not of the need for store of value function itself, but to the end of gold being the ultimate highlander, the one to serve the highest function of a considerable economy.

I can't really think of them practically though. We might give it some thought?

It seems to me more and more and more, and more, that the great innovation that's coming is going to be monetary freedom for the vital monetary function, which will be a small but important step toward political freedom, peaceful free anarcho capitalistic model of thought, where statelessness reigns, oxymoronically.

We are awash in material innovation. People are and have been innovating in the most imporant thing to humans economically ---> energy. I'm far from educated in the matter, but I know of people trying perpetual motion motors usuing magnets, there's our Italian fusion friends, and this is just contemporary. Tesla remains unmatched in the things he innovated, many of which conspiratorially remain suppressed.

I still don't think any innovation will remove us from the need for store of value function. I bet gold works well interplanetarily as a token of money. Ultimate store of value universally? Even galactically? Now that is much less probable than only for our earth economy.


Take Care,


Julian

julian said...

*enthralling comments

Ash said...

julian,

"I think gold is the ultimate wealth reserve, in service of the function spanning time.

Do you think so too?"

If by that you mean gold is the best means of preserving monetary wealth over the long-term (5-10 years), then I would agree, but I would be much more concerned with my degree of self-sufficiency by that time, rather than how much gold I had managed to accumulate (ability to produce/store food, catch/store/clean water, produce necessary energy, access any necessary meds, defend myself, etc.)

On that same note, I think the idea that the complex global economy will remain intact and operating at a level of economic activity close to what we have today is quite misguided. Despite what we would like to think, human society will not simply continue to grow, consume more resources, invent new technologies and establish new global economic paradigms. The quicker we start accepting those realities, the better off we will be.

So, I cannot predict what will be used as currency or a monetary store of value that far down the line, and I don't think anyone else can either. It will be highly dependent on where you live and how dependent that location is on cheap energy and resources, and how prone it may be to violent conflict. Some communities may end up in a MAD MAX scenario while some others may end up relatively stable with consistent alt energy sources and a solid currency system. Who really knows? It would just be easier to assume that none of that stuff could ever happen here in America... wouldn't it?

"I could do with a better understanding of what is being timed. Kindly expand on this thought?"

Ideally we want to time the length of a severe deflationary contraction in the US economy before there is systemic loss of confidence and the currency starts to hyperinflate. (assuming I am correct about deflation most likely coming first)

We really cannot calculate how long it would last or even how bad it would be, so we must face that uncertainty the best way we know how. One of the best things you could do right now is tell anyone in your family, or your friends or some random stranger on the street who will listen, to get OUT of equity and bond investments, as well as OUT of debt. That's a big start...

mortymer said...

@Blondie: IMO: Mex - Internal sources?
@Desperado: Hugo Salinas Price belongs to "Silverites". I find it important that Mexico´s CB got 100t of gold.
For your concerns... Who knows how EU will change after freegold transition.
If there is a tension between 2 bigger states, like Fr and Ge or It then it is guaranteed. I watch closely Finland atm, there is certainly a potential and a will.
DoC: Who knows if R* will be able to keep their unfair gains. :o)
One of my thoughts was that the transition was postponed because of the greed not because of the technical issues or opposition. Is Vietnam ruining the "accumulation" phase?
There is certainly a reverse scenario: and it is called "Nationalization" of key industries like energy, mining, etc where private companies can not guarantee cleanup, damage to nature, bigger infrastructure, banking, etc. There is a new breed of François Mitterrands :o)
...so many scenarios to play with :o)

/SleepingVillage/ said...

RLP,

Good question:) The "old money" has 2 years (or so?) to initiate the transformation to FG. Oil will indeed be obsolete in the near future. How will this impact FG?

Interesting and new days on the horizon;)

This potential scenario of cheap, abundant energy deserves more thought if we're to anticipate our future. Not to take the comments off topic, but it really should be considered.

We can debate silver, the commodity, all day long and we're not really gettin' anywhere. The same arguments over and over. The simplest fact to consider is... Why do we need two metals to serve the same purpose? Redundant? Yes! Gold has been chosen long ago, it's most suited for the job in modern times. End of story. Silver is best suited as an industrial commodity. It is what it is. The gold silver debate has some merit, but it's been covered many times and nobody on the silver side has ever presented an argument to convince me. Same old shit, time to move on.

Martin Millnert said...

Since at least the blog owner enjoys to make connections from music and clips to present and future day, I'd like to share this piece.

The set I applied was during the onset of Freegold:
http://www.youtube.com/watch?v=QNJL6nfu__Q

Use some imagination, and bend it at will. :)

DP said...

Ash: Ideally we want to time the length of a severe deflationary contraction in the US economy before there is systemic loss of confidence and the currency starts to hyperinflate. (assuming I am correct about deflation most likely coming first)

It seems to me that we differ in two ways in our views.

1) You appear to believe that for some reason that I cannot pin down for the life of me, the political will won't be there to ensure that reinflation will take place just about immediately, that somehow TPTB will [be able to!] defer for... six months or more. I can't understand how it would be in their interests to do this, even in the face of the wider public demanding that they step in and do something. My view is that they won't even wait for the wider public to see it has happened and demand it: they will see it first and will act before anyone else can see it has happened. If you said it was because the currency was constrained by something like the unavailability of the material it's fabricated from, then yes I could see it. If you said it was because they could not physically print up the notes and get them out to people in time, then I could see that but would argue that they don't need physical notes today. The currency in question is a phantom; there is no limit on its availability, when push comes to shove. I seem to recall that already there is a precedent set that demonstrates, for me, that there is very clearly the will and means to immediately offset a serious monetary contraction, when that $500,000,000,000 was withdrawn from the US banking system in an hour during 2008. Perhaps you can explain that for me how it is that this time it's different, please? I do get the idea that people are watching and understand this is inflation and it's a disaster -- that is us of course. But, according to a statical source I know and trust, 99.7% of the population are not in this audience.

2) You appear to be focused entirely on the deflationary period, whether it be measured in moments and quickly followed by HI and that soon followed by widespread and in your face understanding of Freegold as I believe, or dragged out for months and then finally followed by HI as you do. What do you see rising from the ashes, by way of an IMFS I mean? Here at this blog there are two themes and two themes only: HI, and Freegold. You have your counter to HI in your HD view, which is all fine and dandy. But what is your counter to Freegold? What is beyond your HD and later HI? Where does it all lead?

I do, however, agree with you when you say One of the best things you could do right now is tell anyone in your family, or your friends or some random stranger on the street who will listen, to get OUT of equity and bond investments, as well as OUT of debt. Of course, by the time you've tried this for a few years, you come to realise they don't want to hear it and won't listen. They just think you're a crackpot and try to avoid you. You have to be pretty subtle if you don't want it to fall on deaf ears.

Blondie said...

RLP,

Hyperinflation is a revolution.

A revolt against a value misappropriation mechanism.


Julian said:

”It seems to me more and more and more, and more, that the great innovation that's coming is going to be monetary freedom for the vital monetary function, which will be a small but important step toward political freedom, peaceful free anarcho capitalistic model of thought, where statelessness reigns, oxymoronically.“

Indeed.
When we are all sovereign individuals, there is no longer any utility found in sovereign statehood. Freegold is the innovation, but it is only in reality realigning human action with natural law. From this realignment many others flow, like night into day.

”I still don't think any innovation will remove us from the need for store of value function.“

I do.
But it is counterintuitive. A paradox, waiting in the new paradigm. The important step is the objective reference point; the rest, including eventually no further need for the store of value flow from it. Something that ultimately makes its own function redundant.

Blondie said...

When we are all sovereign individuals, there is no longer any utility found in sovereign statehood... and it is as sovereign individuals that we have the means to come together.

DP said...

Blondie, you go girl!

Michael H said...

/SleepingVillage/,

"This potential scenario of cheap, abundant energy deserves more thought if we're to anticipate our future. Not to take the comments off topic, but it really should be considered."

'Cheap, abundant energy' already exists, and is called oil. So if one was of the opinion that 'cheaper, more abundant energy' would solve humanity's problems, one would have to look at recent history and point out why this time would be different.

Further, if energy does not become a constraint to civilization in the future, some other resource surely will: fresh water, arable land, minerals, the ability of the biosphere to absorb pollutants, etc.

Michael H said...

On Mish today:

http://globaleconomicanalysis.blogspot.com/2011/05/ponzi-financing-involving-copper-trade.html

Sort of relevant in a 'current credit system gone wild' sort of way.

"China had been importing for many months far more copper than was needed for real use ...  Imports continued even when London prices exceeded Shanghai prices by more than the equivalent of China’s value-added tax.

Instead of being shipped to end users, it seems that copper was being stockpiled in warehouses.  Why?  One possibility of course was pure speculation.  ... But ...with London prices often above the tax-adjusted Shanghai prices, why would anyone want to speculate on foreign copper when it could be bought more cheaply domestically?

It turns out, that the copper purchases were not entirely, or even mainly, speculative.  They were part of a financing scheme for companies that, in spite of the avalanche of new lending occurring both within and outside normal RMB lending, were having trouble accessing bank credit. 

credit-starved companies were importing copper because they could obtain trade finance or some other sort of foreign financing, and then used the physical copper (or warehouse receipts, I guess) as collateral for domestic borrowing.  The financing was continually rolled over.  Buying copper was just a way to borrow for companies that needed loans and were otherwise unable to get them.

... when I discussed this in February with a senior executive in a major commodities company, he ... thought the same thing might also be happening in soya.  Borrowers are resorting to some fairly convoluted and expensive ways of obtaining short-term credit largely because they cannot obtain financing from the local banks."

Aaron said...

Hello Blondie-

...”I still don't think any innovation will remove us from the need for store of value function.“

"I do. But it is counterintuitive."

I would love to see you elaborate on this thought.

--Aaron

DP said...

@Aaron: me too. I just love it when a plan gets counterintuitive around here. Those are usually the best plans of all.

Ash said...

DP,

"Perhaps you can explain that for me how it is that this time it's different, please?"

I don't necessarily think that it's different this time, in terms of launching another QE program and perhaps even some token "stimulus" programs. The thing is, despite all of the QE and stimulus done since 2008, money supply (M3) is still contracting and money velocity is still dismal, because the higher food/energy prices just mean people are being squeezed in their incomes, which are staying flat or decreasing. At a certain point, demand destruction takes over because it has to, and that point is coming soon IMO if it's not already here.

Re: Freegold

I am in the process of writing a series of articles about my take on gold, and naturally also FOFOA's perspective on Freegold. I will post a link to them here and I hope some people here will take the time to check them out. But, in all honesty, it's probably not what you will be looking for, in terms of what I think will "rise from the ashes" of hyperdeflation in the global financial/monetary system.

The answer to that is simple for me - I doubt anything will rise from the ashes in that fashion, and if it does, I have no idea what it will be. Personally, I find it odd that some here think it is a "cop out" or "unfair" to attack the premise of Freegold without providing a clear and precise alternative...

Also, more on that line of thought and my application of "perturbation theory" to global society can be found here - http://theautomaticearth.blogspot.com/2011/05/may-5-2011-perturbational-path-of-human.html

JR said...

HI Ash,

How do you distinguish your comment:

I don't necessarily think that it's different this time, in terms of launching another QE program and perhaps even some token "stimulus" programs. The thing is, despite all of the QE and stimulus done since 2008, money supply (M3) is still contracting and money velocity is still dismal, because the higher food/energy prices just mean people are being squeezed in their incomes, which are staying flat or decreasing. At a certain point, demand destruction takes over because it has to, and that point is coming soon IMO if it's not already here.

from what you believe is FOFOA's position?

Thanks, J.R.

Ash said...

JR,

I would distinguish it by saying the demand destruction may be a lot worse and last a lot longer than FOFOA seems to imply in his arguments. Instead of people losing faith in the currency, they will be scrounging to get their hands on it for some significant period of time.

DP said...

Ash, that's a pretty bleak view of the future you like to paint. You think we are going into a sort of Dark Age II (The Revenge) and there is no way out. I guess once you've constructed yourself a persona and laid out your view, found a big enough audience that for some reason like to revel in it, it's always going to be pretty hard not to see only those things that confirm your bias and keep your audience happy.

If we were using gold or something else of limited availability as our currencies, then yes I would agree it's virtually impossible to find an expedient way to thaw out the pipes when they freeze up. But we don't, and there will be no problem rustling up a little fire when it's needed. There is nothing to stop them, and 99.7% of the population pressing the yes button.

JR said...

Hi Dork of Cork,

Did you know CrackWhoreGold is like Valhalla to savers? You comment:

The political realties of the euro and the freegold meme are worlds apart.

The reality of the situation is that EU bureaucrats follow orders from the various Vichy banks to extract a yield from the Euro colonies - if they really want they can rewild these monetory islands withen a few decades.

The limited freegold mechanism now gives banks true freedom from executives - they may use Germany as a base of operations today with German blessing but when they have enough of teutonic tales their base of operations will move elsewhere.

I now believe Freegold is a banking monster


===========

This seems a variant of the idea that "the elites won't let us experience Freegold" - its sorta "Freegold will give the elites what they want - greater power," where you see elites and banks as two groups with a lot of overlap. Anyway, here is an old FOFOA comment offered in response to former idea. While you raise a different issue, this is a comment that for me, offers some context on some related issues, perhaps including 1) banking and debt in Freegold and 2) some concepts to think about how Freegold would work in practice and why it would be a boon to the productive members of society (and thus not the controlling elite or exploiting bankers or ...), aka why FOFOA keeps talking about meritocracy. Maybe it helps, maybe to confirms your worldview, maybe its just meh. Most of all, hopefully it makes you chuckle:

CrackWhoreGold is like Valhalla to savers.

...the impression that lent money must come from the savers' savings. This is not how it works in a purely symbolic fiat currency system like we have now... and like we'll have in Freegold. Credit money is borrowed into existence from the banks. This is what banks do. They expand their balance sheets to satisfy the debtors and for that risk they earn interest. They take the debtor's promise onto their ass(ets) and create liabilities that can be spent like base money created by the government.

This system will continue in Freegold with the exception of the securitization process. The securitization process allows the banks to offload their assets (risks) to savers relieving them of the need for future prudence. ...


p.1

JR said...

p.2 - cont.
CrackWhoreGold is like Valhalla to savers.

"The term FREEgold seems to be hopelessly confusing a great many of you, especially the ones suffering a myopic obsession with the "elite." So I would like to suggest a new name for this system, which is not really a system at all. It is more like the lack of a system: the dollar reserve system and the paper gold system. Without them, Freegold is what we have, along with whatever "system" develops. It is not something the debtors or the elite can fight. It's just a shift in the perception of savers. Can't change that.

So here's the new name I propose: CrackWhoreGold. Maybe this way all you NWO-types will stop associating it with whatever utopian concept you think TPTB will never let you experience. CrackWhoreGold works very well actually:

1. Always available at the right price.
2. Will go with any guy (or gal) regardless of nationality (subject to 1 above).
3. Gets high whenever possible and tries to stay high.
4. Has a pimp called Uncle Sam who wants her down on "the Street".
5. Milks big spenders for everything she can get but ultimately prefers the company of rich patrons.

So from now on, when you "elite-ophobics" come at me with something like ShamefulPath did here: "Freegold is like Valhalla to savers...", I'm going to insist that you call it CrackWhoreGold instead: "CrackWhoreGold is like Valhalla to savers." Maybe it'll make you think things through a little.

Sincerely,
FOFOA
"

JR said...

Hi Ash,

You distinguish FOFOA by:

"I would distinguish it by saying the demand destruction may be a lot worse and last a lot longer than FOFOA seems to imply in his arguments. Instead of people losing faith in the currency, they will be scrounging to get their hands on it for some significant period of time."

but in "Deflation or Hyperinflation?", FOFOA made the point:

This is very important: Once hyperinflation commences it is characterized by a running shortage of cash, even though it appears like the opposite to the outside observer. The currency collapses in value against economic goods because the debt and the credit collapsed. There is no credit, only cash, and there is a shortage of cash for everyone, including the Elite and the government. So they, the Elite/government, print and print for their own survival while saying it is for yours.

Can you help me see the difference?

Thanks, J.R.

DP said...

On a different note, I just looked at Kitco. Oh my stars! My right hand is starting to itch again. Better scrape together some cash in readiness...

Mike said...

The hysterics at sites like zerohedge and others today reminded me of a great quote from the Gold Trail:

Today they chant; "we want our leaders to recognize gold again"! OH, it will all right and the impact such a recognition will have on these various paper gold plays will leave these gold tribes dancing around a midnight fire! (smile) If nothing else, the entertainment of watching them spew brime on each other will be quite an act to follow. If nothing else it will educate future investors as to where to look for reason.

Ash said...

JR,

The difference is real vs. nominal "shortages". In HI, there is a real shortage because PP falls faster than money supply increases. In deflation, its a nominal shortage because money supply falls faster then PP increases.

In both cases, the affordability of real things drops, but that is at the systemic level. At the individual level, the real vs. nominal difference can be huge for two people with the same amount of cash. But I'm guessing you already know this...

Ash said...

DP,

It's only "bleak" if you look it at the way you do... that's not my bias, its yours.

When have I ever said that total destruction of the global financial system is a "bad" or "bleak" thing? I haven't.

/SleepingVillage/ said...

Michael H,

Can't see how anyone with a logical mind would expect any one "thing" to solve all of humanity's problems, that wasn't my point. Oil certainly is not "cheap". How many wars have been fought for oil? How many oil spills have polluted the oceans and land? Air pollution? The cost is rather high in the long-term and short-term as well. How 'bout the price? The price was low in dollars, and for consumers, when the producers were able to do the back door oil for gold deals. It's not so much these days. Truly inexpensive energy would have to impact the dynamic; which was my main question. When oil was made inexpensive to us, it allowed incredible economic growth and prosperity. Unfortunately, that's no longer the case.

The things I'm talking about will make oil obsolete because they will be much cheaper alternatives. I'm not gonna go into detail about them as the information is readily available to anyone that looks for it. Even if you don't believe oil will be phased out anytime soon, it certainly will be one day. Can't stop the evolution of technology.

Further, the issue here is energy, not fresh water, arable land, etc. That's a whole other animal. Remember, free energy or inexpensive energy makes everything else much easier to achieve. Plenty of sea water to desalinate... EROI in regard to mining, farming, etc.

The comments here are among the most intelligent I've encountered. I just wanted to throw a different view out there to contemplate:)

DP said...

Ash, perhaps you can finally flesh out a summary picture of how good it is, post-destruction? You might win us over yet, who knows...

radix46 said...

SleepingVillage,

What kind of process of research have you gone through in determining the validity of these alternative energies?

There is a lot of bullsh!t put about in that area. How have you distinguished between fact and fantasy?

You write: "The things I'm talking about will make oil obsolete because they will be much cheaper alternatives"

You sound very sure. How do you know?

Ash said...

DP,

Have you ever watched a hardcore drug addict go through withdrawal, either in real life or on TV? Some people can stomach watching, and other people...well, they can't.

I'm not going to tell you whether it's "better" for the addict to keep using until he/she dies or to stick with the "recovery" process... that's not what I'm about. I'm just going to tell you that we're running out of drugs, whether you like it or not.

Jeff said...

Nice selloff today, but in line with commodities generally. Still waiting for the Prechter-scale selloff. And then, well you know...

PA said...

Question: There is no replacement reserve currency on the horizon, certainly not the Euro in its present make-up. Gadaffhi brings out the gold dinar and western forces make up a story about him persecuting his people as an excuse to bomb his country - who is going to be the next to try a new currency? So where is the replacement reserve currency going to come from? In the meantime there is only the dollar.

DP said...

OK, so you've set the scene for the opening act of your story. It's probably quite similar really, a little longer than mine, but that's good in a story because I hate it when I've finished a good book and I was still looking for more. I've got the rest of my life to enjoy this one.

So far, so good, and I'm looking forward to watching the rest of the story unfold now. (Since it's still just a story; not actually watching the 10 O'Clock News in real time, with their film crew in the street right outside my own house. I'm sure I would enjoy it a little less then.)

What happens in the middle?

And the end?

John said...

In less than one week.....

The GSR went from 32 to nearly 43.
(something to take note of)

Desperado said...

The Crime of 1873 by Milton Friedman


...It seems only reasonable to conclude that the failure to include provision for the standard silver dollar in the Coinage Act of 1873 was based not upon recognition of the existing economic facts but rather upon calculated hostility to silver as a part of the monetary standard. The Act anticipated the future.

...By joining the movement to gold, the US added to the upwards pressure on the GSR, both in absorbing gold that would otherwise would have been available for monetary use by the rest of the world and by failing to absorb silver. The effects were far from trivial.

...As it happens... resumption under a bimetallic standard would have been to silver not gold, and would have happened in 1876, a year after the passage of the resumption act.

...My conclusion is that adoption of silver would in practice have produced ratios throughout the period that would have fluctuated around 16 to 1 and would have varied even less than the estimates for the period before 1891 and after 1904.

...If I am right, the fears of the opponents of bimetallism that a bumetallic standard would involve continual shifting between silver and gold would have proved false. With the US effectively on silver and the UK and other major countries on gold, changes in the GSR would have been directly reflected in exchange rate between the dollar and other currencies. A rise in the ration would have produced a dollar depreciation


I think goldmoney.com leads the way. With low transaction costs and instant transfer of funds from one PM to another it offers protection against cartels, companies, countries or attempts by other "giants" to corner any PM market. Like a multidimensional balloon, when a giant steps on any part of the balloon then the wealth would simply flow to another PM.

Ash said...

I prefer this version of the story

Fear & Loathing in the Divided States of America

A lot people are existing in the "middle" of the story right now, but perhaps not Americans. It's hard to tell... and ever harder to tell how the story ends. Most generally, I expect the global population to be significantly less than its current level in 20 years, and we might as well take the "standards" out of "standards of living"... at least from a materialistic point of view.

Blondie said...

PA said:

"There is no replacement reserve currency on the horizon... who is going to be the next to try a new currency?"

A reserve is for saving. Gold is the replacement reserve, resulting in no one dominant reserve "currency", because the need is gone. Perhaps one currency will dominate as medium of exchange, but there is no need. Which one might it be? Who cares? Keep savings in gold and find other things to do with your life than worry about your savings.

The function of a reserve currency is only to soak up value and make it available to the issuer of said reserve currency. This is the "spoils" of WWII.

As long as a currency is exchangeable for gold it has currency, it has function, and it will find usage demand. The concept of "reserve currency" will be gone as soon as the store of value and medium of exchange are split from the one vehicle.

"Reserve currency" will be revealed for the contradiction in terms it always was.

Martijn said...

It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic, and sub-atomic and galactic structure of things today.

http://www.youtube.com/watch?v=zI5hrcwU7Dk

Robert said...

EPIC day in the financial markets today. What will tomorrow bring?

FOFOA has noted that a GSR below 40 looked very stretched (ie, silver overvalued). Gold sure has gotten short-shrift over there at zerohedge, no? The Tylers That Be (TTTB) ought to include a FOFOA article a little more often (DF/HI would have been a great piece, throwing off hundreds of replies), to balance out the silver bulls over there.

I value very much some the preparation comments above. Diversification has ALWAYS made a lot of sense to me.

Jeff said...

Welcome back Martijn! I agree.

Interesting markets today. Carry trades got crushed, commodities down. Das Kapital is on the move, no?

Indenture said...

We rarely talk about preparation but because it is on my calendar I will share my thought. Inventory. I don't care what level you are at it is the time of the year to take Inventory of exactly what you have, where it is, how old it is, what it can do for you, and then, with a firm grasp of where you are, you can add where necessary.

The big 'what is necessary and in what quantity' is based on the individual circumstances but shelter, food, water, bullets, band-aids, cash, gold is a solid 15% allocation for each until certain positions are filled to your desire.

And no, if I was starting out again I would not buy any silver in my early percentage breakdown.

Edwardo said...

Well, what's interesting about today's "epic" action, especially in a few select commodities, is that it was the result, the culmination really, of the absolute arbitrariness of our financial system's functioning. I'm amazed anyone wants to play in the CME sandbox given that the rules can, and will, be changed at some (powerful) group's whim.

Let me put it more baldly and succinctly, there are no rules. If we've learned anything from the last few years, as pertains to matters financial, that should be apparent.

This little epistle of mine could develop into a gen-u-ine rant-not that all rants, especially mine, (that was a joke) are bad-so I'll just leave off by saying what we have here in the U.S. is (no, not a failure to communicate) a kind of grotesque simulacrum of a civilized republic functioning by the rule of law. What's a trader to do except say, "Thank you, sir, can I have another (margin hike)."

Nick said...

According to Harvey Organ, GLD lost 11.52 tonnes of gold today. Is the chalice the giants drink from really draining that fast?

I know FOFOA has mentioned something about this before...

matt said...

@ ash

You said- "The thing is, despite all of the QE and stimulus done since 2008, money supply (M3) is still contracting and money velocity is still dismal,"

That is the same thing that happened in Argentina and Germany. Consumer and producer prices fell below 0% months before HI. http://www.itulip.com/images/argcpiNOTES.gif

You said="At a certain point, demand destruction takes over because it has to, and that point is coming soon IMO if it's not already here."

So keynesian.... The currency of a debtor nation, who's economy is imploding does not rise, it never has. Look at the Thai Baht in 1997. It crashed, it did not rise.

Deflationist logic would say the Thai Baht should have risen.

Tyrone said...

Is it time for a Shoeshine?
.
Cheers!

Robert Leroy Parker said...

Desperado,

I read that paper a while back. Doesn't he also conclude that the damage done to bimetallism by the demonetization of silver could not be undone after the turn of the century? I'm not so keen on reading that one again and could be recalling incorrectly.

Robert Leroy Parker said...

Desperado,

The abstract says as much, so I do not need to reread the paper!

Desperado said...

@Robert Leroy Parker,

I think what Friedman was saying was that after the rest of the world outside of China and India had dropped bimetalism and gone onto the gold standard it was impossible to go back.

The world is not only no longer on the gold standard, but is about to enter a financial crisis the likes of which haven't been seen since at least John Law, so this statement no longer holds. We are at the threshold of a new monetary era, and IMO it would be a big mistake to allow the giants to frame this era in such a fashion that they retain a monopoly on money on the other side.

How could we prevent that? By not allowing them to write laws like the one in 1873 that stopped allowing the minting of the silver dollar-

What would that mean today? By not allowing them to write tax laws that prefer gold or giving gold a monopoly on being the metallic form legal legal. More specifically, this means gold should not be given tax exemptions not allowed to other metals.

Blondie said...

Desperado said:

" We are at the threshold of a new monetary era, and IMO it would be a big mistake to allow the giants to frame this era in such a fashion that they retain a monopoly on money on the other side."

Freegold does not allow them to, Desperado.

Do they get a head start? Sure, if they have gold and other assets of productive or enduring value.

The thing about his "head start" that is causing you concern is now irrelevant, because it's no longer a race.

Are they guaranteed monopoly? Absolutely not.
Without some forced to experience artificial scarcity, and likewise no artificial abundance for others, the playing field has been leveled.

That ain't a monopoly. The rules are simple: live within your means. If you want to live well within those means you will run a larger surplus and accrue more means. Live outside those means and they will diminish, as they should in an equitable system.

With the means and the acquisition thereof no longer an unfair and opaque field, the users of such a system can begin to focus, at last, less on the means and more on the ends.

Desperado said...

@Blondie,

"Freegold does not allow them to, Desperado.

Do they get a head start? Sure"


They get a lot more than a "head start". Gold is power. The giants have at a minimum rigged the game and cheated, at worse they have caused war, genocide and famine.

If we go into this new era with the giants able to use their connections, real property and massive gold hoards to guide the trip to the final destination, it certainly won't be the freegold valhalla that you are so convinced awaits us. In point of fact, I find this belief incredibly naive, and if I were uncharitable I would point out that writers talking about being satisfied with the "crumbs" left behind by the giants. IMO, accepting crumbs from giants reminds me of stories of Soros fingering other Jews during WWII.

Martijn said...

Interesting markets today. Carry trades got crushed, commodities down. Das Kapital is on the move, no?

As we're nearing the end of QE2 we're (suddenly) seeing bad economic data and a flash crash in commodities (no inflation danger). Bernanke to the rescue, QE3 is coming.

DP said...

Good morning, Ash.

Mmm, OK I am liking your storyboard for act 1. Couple of good, funny scenes in there to keep the audience smiling. And we know how much they just love to smile eh? They'll just find some way, any way and no matter what the consequences, to smile and smile and smile until their liver and kidneys pack up. But at the same time, given the subtext of the plot below the superficial humourous veneer, I thought you suggested your view wasn't bleak?

I am keen for you to show us the layouts for acts 2 and 3. You seem to be very cagey about what you have in store for us, and I am impatient. It's almost like you don't have any ideas for the rest of the film, which would be a real shame after all this time invested. Because I can't give you the budget to make only 1/3rd of a film buddy. This is America -- we need a moral, and most important of all to see the happy ending.

Where's the beef?

Blondie said...

Desperado said:

”Gold is power”

Gold is not power.

Gold is the negation of power. To hold gold is to deny others power over you, not to wield it over others.

Sure the game has been rigged, and it’s about to come undone. There are those who are guilty of many things... but you would strip all who hold wealth, however they have come by it, to punish any ‘banksters’ and other bogeymen hiding in their midst? Are you willing to relinquish your own? Your conscience is squeaky clean is it?

Do people have no right to wealth protection because it does not suit you? Without this protection, where is the security to allow us to advance into the future? Why bother being productive at all?

Rather than have an equitable playing field for the first time, you want revenge?

”The man that seeks revenge digs two graves.”

You would rather seek retribution than see everyone enjoy that which they have been denied? That’s shortsighted in the extreme.

A Freegold marketplace is the arbiter of justice, Desperado, where one’s actions will be judged by an invisible hand, giants and ants alike. Subject to the exact same criteria. It’s nothing to be scared of; you are of more value than you realize.

If we don’t ”...go into this new era with the giants able to use their connections, real property and massive gold hoards to guide the trip to the final destination...“ how can you discover your own value?

The naiveté, my friend, and the desperation, are all yours. You cannot see the bigger picture because you refuse to get out of your own way. The grass isn’t any greener in Switzerland, because you took your perspective with you.

DP said...

Martijn, it's like you're right here inside my head.

Hands up who also thinks, just maybe, QE3 or its simile might be announced on or around the 13th June..?

mortymer said...

Panic of 1837

http://en.wikipedia.org/wiki/Panic_of_1837

Causes

"Some causes include the economic policies of President Andrew Jackson who created the Specie Circular by executive order and also refused to renew the charter of Second Bank of the United States, resulting in the withdrawal of government funds from that bank. Martin Van Buren, who became president in March 1837, five weeks before the Panic engulfed the young republic's economy, was blamed for the Panic. His refusal to involve the government in the economy was said by some to have contributed to the damages and duration of the Panic. Jacksonian Democrats blamed the banks' irresponsibility, both in funding rampant speculation and in introducing paper money inflation. This was caused by banks' issuing excessive paper money (unbacked by bullion reserves), leading to inflation..."

"...Others take a different view, blaming a combination of the Second Bank of the United States, Mexican bimetallism (which drove Mexican silver out of Mexican circulation according to Gresham's Law, and into America where it was legal tender), legal tender law, fractional reserve banking, and state government deficit spending, which dramatically increased the money and credit supply, decreased interest rates, and led to erroneous investment decisions before and up to 1837, according to the Austrian Theory of the Business Cycle..."

mortymer said...

Effects and aftermath

Within two months the losses from bank failures in New York alone aggregated nearly $100 million. "Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered." The publishing industry was particularly hurt by the ensuing depression.

In 1842, the American economy was able to rebound somewhat and overcome the five year depression, in part due to the Tariff of 1842, but according to most accounts, the economy did not recover until 1843.

mortymer said...

Bank war

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

Lasting effects

"...After removing federal funds from the bank, Jackson placed the money in so called "pet banks" which were privately owned banks. This policy arguably led to the Panic of 1837. In an effort to take control of the unstable economy, Jackson issued the Specie Circular in 1836. This document required all purchases of federal lands to be paid in metal coin rather than paper money. Jackson's war on the bank set the stage for the emergence of modern populism. His egalitarian rhetoric allowed him to cast himself as the people's tribune against the moneyed elite and their tools in government, he introduced an enduring theme in American politics.

Biddle continued to believe the bank was an honorable institution needlessly killed by Jackson. In the second of two letters addressed to John Quincy Adams dated November 10, 1836, Biddle derided the loss of the bank and claimed that it had allowed the American financial system to remain stable."

radix46 said...

What you want for FreeSomething to work, is a good stable store of value.

I vote for Silver.

Motley Fool said...

Hey Desperado

Well If you are gonna quote me on the crumbs comment you should at least read my last response to ya. :P

TF

mortymer said...

Here is more for previous 3 posts:
http://www.let.rug.nl/usa/E/bankwar/bankwar10.htm
http://www.let.rug.nl/usa/E/bankwar/bankwar11.htm

Desperado said...

Blondie said:

"Gold is not power... Gold is the negation of power. To hold gold is to deny others power over you, not to wield it over others."

Are you really serious about this statement? Are centuries of Rothshild's meddling in world politics and financing of empires "the negation of power"?

"but you would strip all who hold wealth, however they have come by it, to punish any ‘banksters’ and other bogeymen hiding in their midst? Are you willing to relinquish your own? Your conscience is squeaky clean is it?"

Blondie, you are beating a strawman here. I have never said anything about stealing gold from "all who hold wealth". I have said that no "giant" should be allowed to use the power, especially that which is derived from gold, to continue looting the rest of us through actions like the crime of '73. And this is exactly what they will try to do.

Going back to the WWII analogy, when the power elite, most of whom are probably "giants", emerge from the HI, they WILL try to rig the game again, and they WON'T care how many people suffer and die because of it. History bears this out. Leaving these guys in power after the HI would be tantamount to putting Nazi's back in power after WWII.

"You would rather seek retribution than see everyone enjoy that which they have been denied? That’s shortsighted in the extreme."

Again, another strawman. When did I ever talk about seeking retribution on "everyone who has been denied"? What I have been repeatedly said is that we cannot allow the giants to rig the market so that their gold has any kind of tax or other legal advantage over other PM's. This way we will allow for a free market of "money".


"A Freegold marketplace is the arbiter of justice, Desperado, where one’s actions will be judged by an invisible hand, giants and ants alike. Subject to the exact same criteria. It’s nothing to be scared of; you are of more value than you realize."

Valhalla calling.

"If we don’t ”...go into this new era with the giants able to use their connections, real property and massive gold hoards to guide the trip to the final destination...“ how can you discover your own value?"

WTF???? Are saying that if we don't let them continue to rape us after the HI then we will be unable to "discover your own value?"

"The grass isn’t any greener in Switzerland, because you took your perspective with you."

You beat several strawmen then call me "desperate" and make an ad-hominem attack against me about my country of residence all because I refuse to accept your "perspective" that freegold should be granted special monopoly privileges?

Indenture said...

Desperado: Your voice is clear but please don't use references to Nazi Germany in your arguments. Perhaps you don't know but in 'debate class' unless the topic is specifically related to Nazi Germany the use of this reference shows a desperation and lack of original thought. I enjoy reading your words but when you use a Nazi reference your credibility is diminished. Just Sayin'

Jeff said...

Indenture,

You are referring to Godwin's law. Godwin's law applies especially to inappropriate, inordinate, or hyperbolic comparisons of other situations (or one's opponent) with Hitler or Nazis or their actions. It is generally perceived that falling foul of Godwin's law tends to end up causing the individual making the comparison to lose their argument and/or credibility...

Moving on, a number of central banks have made news for gold purchases lately. FOFOA asks a good question; where are they finding this gold? They don't seem to be driving the price and GLD does not reflect an outflow equal to the amount purchased. Buying from mines?

julian said...

Desperado said,

What I have been repeatedly said is that we cannot allow the giants to rig the market so that their gold has any kind of tax or other legal advantage over other PM's. This way we will allow for a free market of "money".


As long as there exists an institution with the monopoly on force (aka government) there will never be a free market. This is because the government must by its nature control using decree backed by force, not a free market invisible hand that guides. Even a reduction to the most limited libertarian government is analogous to cutting out almost all of the malignant tumour, but leaving just a bit. Eventually, in due time, it will grow back into monstrosity that threatens well-being.

So what I think Desperado is really against is not the giants themselves, nor RPG itself. He is against the wealthy using government force to rig things in their favour at the expense of the rest of population.

Ash said...

matt,

All I can say is that you still don't get the timing vs. "final outcome" distinction... and you also make the major mistake of projecting isolated trends from a very distinct past into the future.

DP,

"I thought you suggested your view wasn't bleak?"

Nope, I suggested that I have never presented an opinion on whether the future outcomes will be "good" or "bad" as a part of my argument, one way or the other. That's not to say I don't have an opinion, or that it is never implied in my writing, just that it is never necessary or relevant to my underlying argument.

"I am keen for you to show us the layouts for acts 2 and 3."

Look around you... you are living in acts 2, 3, 4 and so on (who knows how many there will be)... but perhaps you don't realize it yet.

You see those revolutions in the ME? Japan and the EU teetering on the brink of implosion? The US housing market deteriorating and "unemployment" only being held down by outright data manipulation? Those things are all part of the story, as well as many other things, and it is a very progressed story indeed.

Unfortunately for both me and you, I'm not the one writing it.

PA said...

Blondie, thanks for your reply. I was under the impression that the key point of Another was that the US dollar would be replaced as reserve currency and that this shift was pivotal to the repricing of gold. Not so? We know the reserve status gives the US carte blanche to produce credits with no backing; I would also say the rest of the world is very tired of paying the US this kind of "tribute". If there is a link that explains how the group thinks we will make the transition to freegold, can you pls. provide it? A lot of what I see here seems to be in code, I wish those of the group who have been exploring this topic for a long time would be less cryptic and more plain speaking.

zenscreamer said...

Blondie, you are a rock. You get a hug from me, too. :-) Your comment

you took your perspective with you

says it all. :-)

Someone else (whether Confucius or Buckaroo Banzai I have no idea) said "No matter where you go, there you are." Or, as Robert Anton Wilson put it "What the Thinker thinks, the Prover proves." That's not meant as an ad hominem but is merely true, of all of us whether we know it or not. True fact: my sister in law has moved a dozen times in as many years, without (apparently) realizing she the one thing is that never changes no matter where she goes!

FOFOA has described the financial system as a sort of electronic overlay of the real world, and discussed the consequences turning that overlay off. He has also described it as similar to "The Matrix" -- that Westerners are hypnotized by the financial system, and that its illusions distort our view of the real. He has showed us how the real looks fractal, and holographic, tracing patterns again and again at different levels of resolution.

Breaking the trance and swimming to the surface is a pisser and it's work doing it every damn day. How much easier to rest in the soothing dreams of my own preconceptions! But real rings like a crystal bell with many overtones, and once heard it draws the soul like a magnet.

Many here are newly-woken and still playing the Security game: to everyone who feels insecure, keep working through the problem until you sleep better. :-)

Desperado seems to think that Blondie plays the social architect game, putting together the rules of a utopian culture, and Desperado wants the rules changed to fit with his territorial agenda. The thing is, Blondie doesn't actually plays the game: too bad, Desperado.

Desperado plays the victim game: there is no cure other than to stop playing. Stop watching the shadows on the wall, and walk out of the cave.

Ash plays the ivory tower game: as long as you keep trying to prove how smart you are, you'll keep ignoring the sound of the bell. My monkey mind is very strong too, you have my sympathies.

Why do children have bad dreams? To WAKE UP.

PA (and others, I’m sure) – I’m not trying to be cryptic, and I’m quite sure no one else is, either. Just “hum along with the music” for a while and see if you can catch the beat. I’ve been at it a while and I’m still stumbling. ☺

DP said...

Aaaahh, crap!! I just never learn a lesson with Blogger it seems. When you have the least time to waste, that's when you cut corners -- and that's exactly when you get bitten on the ass again! :-\

Ash, I wrote you a real nice long letter. And then dog ate it again on the way to put it in the post. Unfortunately, I don't have the time to knock it up again. But to summarise:

We are living through scenes 1,2,3,4, etc, of Act 1.

Act 2 will be an event that punctuates the same-old-same of Act 1, where people confront what they were doing wrong in Act 1 and the lead up to the whole story.

Act 3 is how it shakes down after the event of Act 2, how the world continues to turn.

We all know Act 1, it's in the bag.

Act 2, well we have something of a disagreement on this but it's fairly subtle. Let's just say we all agree on "H", and we'll each select our own letter to put behind it. More accurately, in our term of reference we all have a D but you have a Double H, while in your term of reference you have a D and we have an I. I think (hope) that we all are clear on this already.

So, and here's the question: your model of the way it all shakes down... what happens in Act 3 'how the world keeps turning'. Does the storyboard for this Act just contain a link to a box set collection of all available Mad Max movies, including special edition director's cut missing footage, and a bunch of special DVD game features to keep the kids amused for hours? Or do you have something else in mind?

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