Thursday, August 18, 2011

Forum 1800 - Part 2


Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years, as the reserve function transition politically begins."
Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700
Thursday, August 18, 2011 - GOLD ABOVE $1800






187 comments:

Ore em' said...

First!

burningfiat said...

Come on, freegold and bitcoin fans out there, help FOFOA defend the precious. Donate to:

1HLALxDKc3nXs4DvLB1zdZtG97zQuL1ghj

BTC/USD still not zero BTW :)

/Burning

Jeff said...

Texan,

Your comment on the last forum was surprising. You have been around a long time but you still think this is deflation? Do your homework, Tex, or you might get burned! A/FOA said something about currencies going to war, a war you can lose betting on the impossible.

Time to hit the tip jar for FOFOA. Without an understanding of RPG I would have sold a long time ago. Cheers FOFOA.

Revelho said...

Off to Greece for a two week holiday. Decided yesterday to take Euros - well, call me impulsive, but who knows WHAT will happen?

Paul I said...

"I seem to recall FOFOA explaining how a currency zone could strengthen their currency by selling gold and weaken their currency by buying gold."

Yes thanks MF, that was what I was getting at. I guess the SNB is in the perverse situation that this won't work outside a true physical/freegold market, perhaps where it is common amongst many CBs.

Right now, the orange concentrate it just too rich. Sends them all spacky.

Paul I said...

Ash

"I will acknowledge that there are potential "game changers" out there, but nothing I have seen so far indicates to me that one has occurred or is likely to occur in the near-term"

You need to get out more.

JR said...

Well said Paul L,

I guess the SNB is in the perverse situation that this won't work outside a true physical/freegold market, perhaps where it is common amongst many CBs.

They need a physical only market, other wise they are playing in a world of
Soft Supply, Hard Demand. Here is FOFOA from
Defending a Virtual Currency

Eventually the ECB plans to use its gold reserves to manage the value of the Euro. Not to exchange euros for gold, but to use the gold to manage the euro, manipulate it if you will. But the big difference is that it will not start doing this until it is competing in a physical-only marketplace for gold. So in a way, even though it will be manipulation from TPTB, it will be fair manipulation! It will be "hard trading" with "hard opinions" available to everyone.

JR said...

cont.

FOFOA on Soft Supply, Hard Demand:

"It is often repeated that our markets are driven by supply and demand. In fact, supply and demand is probably the most closely watched fundamental of the market callers. They look for various signals that demand is rising, or supply is falling. Perhaps they are thinking too hard in a very soft world. Or could it be the other way around?

When we think about supply and demand, it is helpful to think of an ancient barter world, modern paper trading tends to muck it up a bit. So think about a supply of chickens at a Medieval fair. Let's say there are 10 chickens cooped up in a booth, with several buyers bidding for the chickens with their various goods. The first bidder take two chickens for the price of two bushels of apples. He hands over his apples and walks away with the two chickens.

Now, the rest of the bidders are faced with the hard reality that there are only 8 chickens left where once there were 10. This is called "hard trading" and the bidders are able to form "hard opinions" about the real supply and demand in front of them.

Next let's imagine that the first bidder only had to put up 5 apples as margin and then wait until the end of the fair to decide what he wanted to do with his purchase. How would this affect the rest of the bidding? Now the other bidders must make value assessments based on "soft opinions" relying on conjecture like "that first bidder rarely takes delivery of his chickens, he's just in it for the quick apple." This is soft trading.

Soft trading tends to draw in a lot of bidders (traders) who are willing to put down a margin requirement in the hope of making a small profit at the end of the fair. The seller of the chickens may have 30 different buyers for his 10 chickens, each putting down 5 apples (or whatever their good is). At the end of the day, 5 buyers will go home with two chickens each, 10 buyers will receive their 5 apples back plus 3 more apples in profit, 15 buyers will lose their 5 apples, and the seller will end up with 10 bushels plus an extra 45 apples while the "price" of chickens actually falls! This is because the seller, who had only 10 chickens to sell, flooded the market with 60 "paper chickens" driving the price down and at the same time making himself an extra profit."


Cheers, J.R.

JR said...

One more along the lines of Paul L's excellent observation:

I guess the SNB is in the perverse situation that this won't work outside a true physical/freegold market, perhaps where it is common amongst many CBs.

Another via Go Go South Korea

Date: Fri Dec 12 1997 21:33
ANOTHER (THOUGHTS!) ID#60253:

Even Korea will find out that oil is all that counts. Their paper will die! Gold would have helped them in a different world, but for now gold is in the background

costata said...

Interesting piece on a gold junior minting some of its gold and silver output into coins. They also prioritize dividends which is very unusual for a junior.

http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=133623&sn=Detail&pid=110649

Some of their treasury holdings will be held in gold and silver going forward. The CEO has also raised the prospect of paying out some of their dividends in specie at some future unspecified date.

The writer also notes that Newmont has made the following commitment:

.....witness Newmont's pledge to increase its dividend on a fixed basis parallel with rises in the gold price....

Ramon said...

The snap back to equilibrium between shares and gold should be quite a sight to behold. Interesting that Soros bought Freeport-McMoran and Goldcorp shares. Dividends, much?

Actually, that's a point I haven't seen or at least don't recall. How will the precious metals mining shares perform under a Freegold system? The same, better, worse?

Trader Dan Norcini: Mining Share ratio to gold back at pre QE1 levels

Is there any way to subscribe to the comments without having to post?

costata said...

Ramon,

Kudos to you for the link, on the previous thread, to that important article by Alisdair MacLeod. For anyone who did not pick up on it here it is.

http://www.financeandeconomics.org/Articles%20archive/2011.08.17%20Bank%20Credit%20Repo.htm

I think this is an absolute must read. If MacLeod's anticipation is correct then Wall Street will be able to use their $1.76 trillion in non-borrowed reserves to fund around $30 trillion in USG and GSE borrowing.

I'm not sure if his analysis of the constraints imposed by the Basel rules on non-US banks is correct. As I understand it sovereign debt is still classed as "risk-free" for capital adequacy purposes. I think there could be a work around for non-US banks and governments to allow them to join the party.

Take those garden gnomes off your front lawns Team Photocopier. You are going to need the space.

Texan said...

Jwff,

Let me just say that i fully subscribe to the "we're f'd" in currency terms. It's a very bad situation.

I think along a spectrum of 0- 100% probability, HI is pretty high likelihood - someday.

Just not today, or tomorrow. Or the next day. I think we, as fully attenuated as we are to very tick of the gold price and every scarp of news, will see it long before it manifests. Ie - no sudden stop.

So, I kind of look at it as "today we drink, for tomorrow we may die". The "latent" HI is not manifesting yet. Its deflation's turn, short as that political experiment may prove to be.

Aaron said...

@ Texan.

Agreed!

--Aaron

Aaron said...

Juan del Enzina (1468 - 1529), Hoy comamos y bevamos

Today we eat and drink.

Texan said...

Aaron, right on!

FOFOA, you spooking me with the music. If you gonna pick Queen,at this tage I would say it's gotta be "bicycle" or "fat bottom girls". I think with a little imagination the metaphors hold. I would reserve WATC for $5000 or so.

For your next price levels may I humbly recommend Dont Fear the Reaper by BOC. or Manfred Mann's Earth Band, Blinded by the Light....

mamma always told me not to look into the eye of the sun....but momma.....thats where the fun is.........!

Winters said...

Just resurfacing after trawling more comments from ~ July 2011. Thanks for the pointer Costata - that period of comments between you, JR and Jeff and Joel are excellent.

FOFOA has pointed this Another quote out before but I thought I'd mention it again....

"Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

The first sentence. He is basically saying he is a giant. He can't trade at the $300 price. I'm wondering if he is also saying he was a seller. "trade gold for...US". not a buyer.

The second sentence. wow. After that there was FOA/Trailguide for several years. Now FOFOA for 3 or so years.

"You will think much on this in the future."

Absolutely bang on. lol.

costata said...

I'm not a fan of Calculated Risk but this is an interesting snip about the rise in the price of Mid-west farmland. (h/t Dollar Collapse)

http://www.calculatedriskblog.com/2011/08/chicago-fed-midwest-farmland-values.html

Bear in mind that many of us here view gold as the pinnacle of the store of value pyramid (and the largest component) but if you have massive amounts of currency to attempt to protect it is too late for a move into physical gold.

As ANOTHER pointed out years ago, the big holders of gold, the Giants, cornered the "in-size" market. Luckily us shrimps still have a window of opportunity.

FOFOA said...

Texan wrote:

Ash and Chs and Mish got it right, for now. The policy response now is anyone's guess. There are a lot of very powerful folks who stand to gain plenty from "deflation", and very very few who stand to gain from HI.

I hear you Texan! I know you think the deflationists are giving out correct advice for now. But I disagree. I agree more with Bill H. today from LeMet. Someone sent me his post earlier today. The full email is below, but here are the highlights that I agree most with:

"Something IS going on behind the scenes!

…The fact that we do not know what it is leads me to believe that as I have always thought, we will wake up one morning to the markets being closed. I hate to sound like a broken record but it is imperative that you have whatever position on that you want for possibly the next month or even 6 months. I do not believe the powers that be will "allow" the little guy to participate in any revaluation. You MUST front run TPTB and be sitting in your chair before the music stops or you will be locked out.

…The game appears to be over right here and now, all that remains is for TPTB to let us know it's over. I suspect we will finally be allowed to "know" when they can no longer open the markets and announce "game over" with no two minute warning!"


You see, Texan, we are in transition. TPTB know this, and they are not in control of it. But they know what happens in an uncontrolled collapse. What happens is a massive redistribution of wealth. The first "early adopters" (or in the case of the dollar, early abandoners) become tycoons while the last ones out (the deflationists) become paupers. But politically, allowing this kind of "unfair" redistribution of wealth to unfold chaotically is untenable.

So we can look forward, with a fair amount of confidence, to a day when TPTB will give in to reality and organize an "orderly" liquidation. But the problem with such an "administered" liquidation is that it requires a massive discontinuity (wrong way gap) in every single technical chart. So rather than expecting the markets to close during a flash crash, or to be able to see it coming, I expect, like Bill H, to wake up one morning to a nice bank/market holiday. So you've got to front run TPTB now if you want to profit. It is most likely during this "holiday" that physical gold will separate from paper, IMHO.

I'm not on LeMet, so I don't know the context of the discussion, but here's the full email I received:

"Something IS going on behind the scenes!

To all; I wrote last week that it was not necessarily the stock markets to watch as it smelled like "something" was going on behind the scene that we (the public) were not privy to. We still do not know exactly (we can make some good guesses though) "what" it is but we now have evidence that SOMETHING BIG is out there. As reported yesterday, M2 money supply grew more for the latest reported week than any week in history EXCEPT the weeks of 911 in 2001 and the "Lehman week" back in 2008. In other words The Fed is throwing money at "something". Whatever this "something" is it must be bad and it must be very very big!


cont...

FOFOA said...

...

"We can speculate as to what this might be, it could be that the run on European banks has intensified or begun here in the States. It could be 1 or several institutions (a better bet on several), it could be 1 or more giant hedge funds have blown up. It surely could be that a sovereign has it's back up against the wall (Spain or Italy come to mind) It could be that the (a or several) debt markets have backed away from a sovereign and there is a buyers strike. We know that the 30 year U.S. auction was a dismal failure and it is possible that the credit markets have shut off Uncle Sam. It could be something as simple (I am making a joke here) as Chavez calling his paltry 211 tonnes of Gold in and the authorities know it does not exist, they may be "pre cushioning" the markets for the biggest fraud of all time. Who knows?

I surely don't but I do know that The Fed does not act in this manner unless something has gone VERY VERY wrong! Think about it, the only 2 prior weeks where The Fed has acted in this manner were 911 and the Lehman week, enormous events to say the least. The fact that we do not know what it is leads me to to believe that as I have always thought, we will wake up one morning to the markets being closed. I hate to sound like a broken record but it is imperative that you have whatever position on that you want for possibly the next month or even 6 months. I do not believe the powers that be will "allow" the little guy to participate in any revaluation. You MUST front run TPTB and be sitting in your chair before the music stops or you will be locked out. TPTB want as many "slaves" as possible and the only way to insure this is to revalue with as few people on the Gold train as possible!

I do want to comment on Hugo Chavez calling in Venezuela's Gold. There is speculation of all sorts as to why, in my mind he has been "informed" as to just how "tight" the Gold market is and he does not want his metal confiscated. He may also be "testing" the western financial system as to whether his Gold is even vaulted anymore. This may be his "final bow", he could possibly be trying to take the system down should delivery not be made. This is all wild speculation but in recent times "truth has outdone fiction" on a daily basis.

If you think back 18 nonths or so when the Bank of India "bought" their 200 tonnes and sent tremors through the Gold market (kudos to Jim Sinclair as he maintained all along that central banks would become buyers!). Think further back for eons and you will remember the numerous times that the IMF would step up to cool down the Gold market by threatening to sell Gold, it worked very well early on and now has no effect at all. The Eurozone is no longer selling their 400-500 tonnes per year and central banks have become buyers to roughly this same amount. THIS represents a reversal of some 800 tonnes in a market where produver supply is estimated at 2,500 tonnes annually. Supply and demand has "turned" 33% or so over the course of 2 years or less and people want to call top here? We will see but it seems to me like the jig is up and the western vaults are having their bluffs called. 99 out of 100 Gold and Silver "investors" are going to find out that they have NOTHING and maybe never did. Can you imagine the anger?

Be ready for anything at any time now because we just cannot see below the surface (or into the vaults), something HUGE is now happening and The Fed can only respond with the last arrows in their quiver, increasing the money supply. The game appears to be over right here and now, all that remains is for TPTB to let us know it it's over. I suspect we will finally be allowed to "know" when they can no longer open the markets and announce "game over" with no two minute warning! I will be travelling tomorrow and thus no commentary until next week, have a nice weekend. Regards, Bill H."

Franek said...

Costata, have mercy and shed some light for an uninitiated shrimp here on that article about expansion of bank credit you just referenced...
How does one reconcile "So we have a workable monetary solution for all the world's ills." with "... that spending is no solution to the underlying causes for the real economic difficulties." Is there any discernible impact on Freegold?

And Y said...

Thanks for nothing, FOFOA. I was tired and now I'm amped! :)

Really appreciate having FOFOABLOG and all you put into it.

Paul I said...

Lets keep the hits coming here at radio F.O.F.O.A

Supertramp - Bloody Well Right
Kanye West - Lift Off
Oasis - Champagne Supernova

Joel said...

Hey Costata,

One thing I don't understand in McLeod's article: how does the Fed turn $1.7 T into $ 30T of buying power? Also, regardless of whether they use bank reserves, or Twist, or QE to the nth, it is still all inflationary, correct?

To the deflationists, check out the real stats at Shadowstats.com. You can see what inflation really is in a graph where he tracks the CPI before Clinton/Greenspan (I think it was) jimmied the basis in the index. Real inflation is 10%, and rising lfaster than an IMF chairman on Viagra. Walmart's reported their avg. rack price was up 11% year on year. I sold my Mastercraft ski boat for 5k more than I paid for it three years ago. Commodities up about 30% on avg. Don't buy the hype, Texan.

Ramon said...

@ costata:

Thanks!

@ Joel:

From my understanding, the fractional reserve banking system by its nature is the reason... it requires a fractional reserve to be held by the bank where the asset is deposited while the remaining funds are then reinvested, multiplying the dollar amount in circulation.

If the Fed counter-parties receive those fractioned dollars, they're multiplied and purchasing the same originating debt issuance as they were spawned from as though they were whole to begin with... highly inflationary.

JR said...

Joel,

One thing I don't understand in McLeod's article: how does the Fed turn $1.7 T into $ 30T of buying power?

By saying thanks for the 1.7T in collateral here's a loan of 30T, now go buy treasuries and wink wink we will buy them back. The banks buy treasuries with the loaned 30T, then sell them to the FED at par (for 30T). The banks repay the 30T back to the FED, get the collateral back and pocket the interest.

In essence the same as QE. It is MMT government money printing - basically what FOA said would happen once the world stopped supporting the dollar by buying Treasuries and storing them in foreign CBs until maturity.

Cheers, J.R.

JR said...

Ramon,

I too look forward to instructive and enlightening discourse, but I am troubled by comments such as this:

Actually, that's a point I haven't seen or at least don't recall. How will the precious metals mining shares perform under a Freegold system? The same, better, worse?

I struggle to see what you *have seen* if you can ask such a question. Nonetheless, Freegold Foundations

Others of you are here looking for "concrete, actionable advice." Fine. Here it is: Buy. Physical. Gold. Now. Simple is as simple does.

*********************************
Freegold in the Proper Perspective

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


Did you see that:

2. The end of parity between paper gold price discovery and physical gold price discovery

cont.

Winters said...

Theme music candidate....

The dream is collapsing
http://www.youtube.com/watch?v=imamcajBEJs

JR said...

FOFOA has commented:

Gold mining shares are for speculating. They are a form of paper gold. You should not consider them the same as physical. The people that expect mining shares to pay off big are expecting a replay of the 70's. This may happen as long as gold trades as a commodity. But we cannot know when this will end. It could end this fall!

FOA (5/8/99; 20:58:58MDT - Msg ID:5778)
Comment!

Yes, many who invest in the gold "industry" [mining shares] are upset with this current state of affairs. However, investors that buy gold as a dollar replacement find this action much to their liking. For them gold is a currency that can not be purchased too cheaply. You see, it all depends how you view gold?
Is it a commodity or is it money? FOA

FOA (5/8/99; 21:29:28MDT - Msg ID:5782)
Comment!

Hello St. George,
Good Idea! What really allowed this "master plan" of gold manipulation to work was investors putting their money into the gold industry, not physical gold. Far too many entities purchased paper gold in one form or another (most mutual funds included). This action became an accelerating trend that the BIS acted upon. They played the gold market for their own purpose. In the process they did give many people an avenue of escape in physical gold. Let's face it, buying gold in the $380 to $280 range was and still is an incredible deal, considering it's history. Now, for reasons I have laid out in the past, any paper gold may have a problem of "perceived value". If the crisis is as bad as the BOE action indicates, the very world currency system will need real gold to survive. Holders of "gold in the ground" [mining shares] will be fighting an accelerating public outcry for the government to do something! [nationalize gold mines or else tax them excessively] Know what I mean? FOA

costata said...

Franek,

I think he was using irony when he said ".. a workable monetary solution for all the world's ills."

It wouldn't fix any underlying problems but it would be a huge benefit to the banks involved and it would allow the USG to continue to borrow.

Joel,

My interpretation of MacLeod's theory is basically the same as JR's description.

It's also good to keep in mind that this is merely a theory at this stage but it is credible IMO.

JR said...

More Freegold Fodder

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

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

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

JR said...

FOFOA comment to Gold is Money - Part 2

The problem with gold mining shares is that people get into them for the same reason they buy lesser commodity metals, to gain "leverage" on the coming move in physical gold. But most of these "leverage seekers" don't understand the true scale of this coming move.

This "leverage concept" they are after entails exiting the position at the peak (if that peak ever comes). The problem is, when the time comes to exit you will only be able to exit into inflating paper. You won't be able to exit to physical gold.

FOA explains that he personally holds a specific gold stock only for its DIVIDENDS... after we get to Freegold! He clearly states that the real leverage this time around is in the physical metal. The leverage argument for the mining stocks comes from the experience of the 1970's, which is a flawed analogy. Remember that stocks, even gold stocks, are only a paper promise of things to come. Gold is wealth paid in full, in your hands! Please do your own due diligence of course...



Trail Guide (06/27/01; 20:19:58MT - msg#: 57019)
Comment

Hello Leigh, Tree in the Forest,

GoldFields (gold) be taken out like HM?

I don't think so. However, to place my view in context; I own some goldfields as a small percentage of total physical gold wealth. I also own it with little consideration of it's trading value now. If the shares went to $100 or $.10 I would not consider selling it. They remain a lifetime holding,,,,, (burned for my duration).

The logic in my allocation is to gain the eventual value it would carry after physical gold has been revalued by market forces. A free market, outside and unattached to the banking, money, credit world. That would take the metal far beyond anything we consider normal,,,,, and keep it there for decades. After South African places considerable new taxes on this gain, Goldfield's operation would still turn out a very good long term dividend over the life of its reserves. But nothing close to the projections many gold Bugs would place on these shares if they thought such prices could materialize.

My reasoning employs a return on this risk that is unacceptable to most,,,,, if they understood the dynamics of the process. You see, those shares may not show any market value in the heat of our paper gold market being torn apart. Indeed, they may not trade for a year or so. Only to trade once again after physical gold trading is fully reestablished at a hugely higher level. You see, there may not be a point to cheaply reenter after the fact. This is the main reason why I picked a company so richly endowed.

On this political ground I base my reasoning. South Africa will not allow GoldField's production to be taken over to support the bankers behind Anglo (or any other). If Anglo (like Barrick) is forced to deliver $10,000++ / oz gold into a $300+ hedge book, they would mostly fail and pay little taxes. Considering that inflation, in general will force production cost above $1,000/oz, the clean gold reserves of GoldField makes it a political keepsake. The only owners that will benefit from the mine share game are the ones that can own the company thru thick and thin,,,,, and even then own it solely for the dividends it will produce. Such is the "New Gold Market Dynamics" we face.

Still, for one with understanding, the most risk free and most profitable wealth to own today is pure bullion or coins. Rare and near rare coins will seldom trade in the future and if they do at all at a tremendous premium.

We shall see (smile)

thanks
TrailGuide

JR said...

FOFOA comment to The Shoeshine Boy

In mining stocks you own shares in a corporation with rights granted by permit from the government. For this reason, the gold in the ground actually belongs to "the people", and when it is revalued globally, it will become an "in ground wealth reserve", not unlike the oil in the ground to the Saudis. At that point the seigniorage value of pulling gold out of the ground will be either taxed or confiscated by the government on behalf of the people. And the mine values will probably not magnify any movement in the gold price. This is just common sense, but it is also what Another and FOA predicted.

FOA did own Gold Fields in 2001, but not for profit. He owned it to never ever sell it. And he owned it to support what he viewed as its gold market supporting actions.

Paul I said...

When the needle drops, the bullshit stops. Here's the mighty REM and It's the end of the world as we know it (and I feel fine)

http://www.youtube.com/watch?v=Z0GFRcFm-aY

78Rubies said...

Whew, the gold's really flying (or, rather, dollar's sinking). :-)

costata said...

Fractional Reserve Banking

Part 1/2

Hi Ramon,

This comment isn’t directed at you alone. Your comment provides me with an opportunity to discuss a few things that appear to confuse a lot of people. If none of the information below is new news don’t think that I am presuming ignorance on your part.

In order to understand how the banking system leverages itself there are many issues which need to be understood but three are of paramount importance. Otherwise you run the risk of becoming confused about causation or open to attack from various quarters. I will try to give an example of how you could be vulnerable to attack when discussing each of these three issues.

Firstly, many jurisdictions have not had formal reserve requirements for years. In a true fractional reserve system the banks can only create a fixed amount of bank credit money based on a multiple of their reserves (comprising base money deposits and/or highly liquid assets and/or capital).

Fractional reserve banking was/is described by some observers as the “money multiplier” of the base money of the currency issuer. Hence the issuing of base money was/is presumed in some quarters to drive the inflation of the currency and the credit boom part of the boom-bust cycle.

Banks in jurisdictions with no formal requirements are not fractionally reserved except from a notional perspective. You can divide their loan book by their "reserves" and derive a leverage ratio but it is not a true ratio if you expect a ratio to imply a relationship between two numbers.

There is another problem with the concept of “fractional reserve banking” to whit it can be demonstrated that causation operates in reverse – loans create deposits and then this leads to the demand for “reserves”. If you use phrases such as “fractional reserve” or “money multiplier” the debt deflationists, like our gold expert SIR, will climb all over you faster than you can say “toner cartridge”.

Continued/

costata said...

/Continued

Part 2/2

The second thing to grasp is that many banks operate under a regime known as “capital adequacy”. They can lend a certain multiple of their capital. This capital is graded (Tiers 1, 2 etc) according to liquidity and the strength of the covenant in the case of bonds. Government bonds have the lowest risk weighting (LOL). Under this regime the soundness of a banks capital position is determined by the risk assigned to certain types of “capital”.

There is another side to this regime of capital adequacy. Various classes of loans are assigned “risk weightings”. These weightings determine how much capital a bank needs to have in order to support their loan book.

The third thing to grasp is the impact of securitization and a somewhat similar strategy, in terms of its effect, issuing bonds. Issuing bonds exposes the banks to “rollover risk” because there is generally a duration mismatch in their books – they borrow over short terms and lend over longer terms. Securitization (absent outright fraud) transfers the risk of a default on a loan to a third party. (Fraud creates the risk of “put backs” by the security holders ie. it’s a contingent liability for the bank rather than a true transfer of risk.)

In closing you may find you have a sounder basis for a discussion of banking if you stick to words such as “leveraged”. No one can argue with the fact that banks are generally highly leveraged. By extension it is difficult to argue that the ability to multiply pools of stuff loosely described as “money”, “debt” and “derivatives” has no ramifications for an economy. The how, what and why of that leverage and its ramifications then becomes the centre of debate rather than the label that someone wants to paste on your forehead.

Cheers

ad said...

Gold continued upward, hitting a new high of $1826 an ounce as investors looked for a safe haven. Analysts at Commerzbank played down recent calls for the gold standard to be reintroduced, saying it was impractical and would require the metal's price to reach $12,000 per ounce to balance its value against that of global credit.

Bank shares dive amid fear of funds crisis

There is never too much currency nor too little gold, just an incorrect rate of exchange. - Blondie

costata said...

Ignore the spin in this Kitco post (it is from Kitco after all). Consider what the numbers mentioned in the extracts below are telling you. I touched on this issue in this comment – Price = Supply. The acronym VIST stands for Vietnam, Indonesia, South Korea and Thailand.

Despite the historical cultural bond in the VIST group, WGC said statistics for 2010 paint a discouraging picture.

“In tonnage terms total gold demand in all but one of the group was lower in 2010 than in years prior, and jewelry demand has fallen in all four countries over the same period,” WGC said. “This steady decline in aggregate jewelry buying from 226 metric tons in 2000 to just below 70 metric tons during the last calendar has been the main contributing factor to aggregate gold demand dropping from 324 metric tons to 253 metric tons over the same timeframe.”

But WGC said a cursory glance does not reveal the changing landscape of gold demand in these countries. “Nor does it show how real spending on gold has remained remarkably steady even as tonnage has fallen and has recently picked up to approach decade highs,” said WGC.
(My emphasis)

My theory is that once the paper gold price rises sufficiently to match demand (a de facto increase in the flow of gold) then a movement beyond that price point could, and I stress the word could indicate that the BBs are ramping the market with a view to a dump. None of this changes the underlying trend or the fundamentals for gold but it could indicate an opportunity is looming.

As I said in an earlier exchange with Motley Fool, let’s talk pump and dump when paper gold is over $2,000 and Christmas is on the horizon. Of course, this doesn’t preclude a correction or temporary pullback in the latest move but a 25 to 30 per cent increase in the de facto supply of gold since the ‘dance’ around $1,500 is probably not much more than a reflection of the latent physical demand built up over the past 6 to 12 months.

Then again the wheels might be falling off this jalopy right now. So if you are still trying to accumulate your target holding of physical gold please see part 1 of that earlier comment, from yours truly, which I linked in the first paragraph.

costata said...

Last one for tonight.

Serendipity

After posting that previous comment I dropped into the Perth Mint blog where Stephen Ward was discussing the WGC report.

http://www.perthmintbullion.com/blog/blog/11-08-19/World_Gold_Council_Gold_Demand_Trends_Second_Quarter_2011.aspx

Despite a higher gold price, Indian and Chinese demand grew 38% and 25% respectively during Q2 2011 compared to the same period of 2010.

This growth is likely to continue, due to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals.
(My emphasis)

So a 25 to 30 per cent lift from $1,500 doesn't look like much of a stretch if the demand for physical gold is as strong as this report indicates.

mortymer said...

http://anotherfreegoldblog.blogspot.com/2011/08/jeff-said.html

Xavi said...

1901 $ this evening???

I propose this song for next FOFOA post or forum!

http://youtu.be/kiQppszlXrg

Kind regards,

Texan said...

FOFOA,

Not too sure about "something big", or "bank holidays", but yes we are transitioning. Have been for awhile. And TPTB are trying to keep the dollar vs gold deval "managed", IMO.

I just think its plain old velocity dropping like a stone. Everyone is hanging on to their cash. So as a result, prices for stuff, everything really, are dropping. Except gold. So the Fed and the ECB have to keep stuffing liquidity into the system because any unencumbered cash does not want to lend, except to Germany, Japan, and the US. And some, but only some, EM countries (which I find very bizarre, but whatever).

So it looks like deflation even though the pump is being primed for HI later, maybe. That's my view. And it's all very good for gold - it's acting as a substitute for safe sovereign debt from those that don't want to park their savings at negative real rates (even if those negative rates make sense since stuff is getting cheaper).

Except gold!

Joel said...

Texan,
What am I missing. What specifically do you see deflating, other than housing (and I'm not sure that hasn't levelled off too)? Now if you are talking about the stock market, I am with you, lol...

Ramon said...

@ JR:

If the semantics are at issue, simply request clarification. After a cursory search, I hadn't found the specifics I was looking for, and being short on time I hoped that the regulars would be able to readily point me in the right direction.

On that note, thanks for posting the information, it's exactly what I was looking for. With my questions, the fact that gold in-the-hand is the best way to protect wealth is not being argued.

Regarding the Mineweb article that costata posted earlier: what of companies paying dividends in-kind, perhaps to be held at private storage outside of financial system purview? Should supply become sufficiently constrained, wouldn't dividends paid in gold be worth the risk of government disrupting the operation? For that matter, what could the USG or other major western governments do to international mining companies outside of their own jurisdictions?

Also, what of royalty companies, especially if any of them start paying dividends in gold?


@ costata:

Thanks, you're right - I should've stayed more general and used 'leverage'. As far as the mechanism, I assume you consider my interpretation accurate?

About the pump & dump, I noticed some news bites late last year about Chinese gold demand waning shortly before the new year dump. That seems a poor metric to measure appropriate valuation, though. Are there any other methods that could act as a better proxy? I've considered looking at declining precious metal movement at the COMEX/HKMEx warehouses or premium trends, but am curious about any other potential indications.

Jeff said...

A few thoughts:

South Korean stock market sold off 6% last night. Do you think they may have seen trouble coming and hedged with gold? I do.

Jackson Hole conference is next week. QE3 anyone?

The euro banking system is a cauldron of instability. Ditto the US.

Add in a soaring gold price when 'as the price rises, supply dries up' and you have the ingredients for...something.

costata said...

DP,

http://www.youtube.com/watch?v=Do-wDPoC6GM

costata said...

DP,

http://www.youtube.com/watch?v=f2eha1ff-aE&NR=1

DP said...

"Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

The European CBs sold a butt-load of "gold" over the years, and everyone else thought they were fools.

They didn't get $thousands per ounce in each transaction. But they had say 60x as many transactions as they had gold.

Who were the fools here? And which region of the world do you think "I a fool" could only have been from?



Silver is really coiling around $42.22 this afternoon. I wonder which way it'll break out this time...


@costata, LMAO - but ama bovvered?

DP said...

rrrubbish 'ere! :)

Biju said...

I don't see a major drop in Gold until the Indian festival season is over. Marriage season has started and parents are already concerned that price of Gold is now more than Rs.22,000/soverign(8gms). Any pull back during this time, people will buy based on fear of price shooting.

I think a dump of Gold by western banks can happen maybe after october.

Motley Fool said...

New forum eh.

Let me repost my last comment from the previous forum.

Hi JR

You truly are a walking encyclopedia.

Thank you very much.

"The ECB has set up gold in its forex reserves. [4] That means that it plans to use gold to DEFEND the value of a euro at some point. That's what forex reserves are for. The Fed uses other means to "defend" the dollar. The Fed actually prints MORE dollars to buy debt outright to force down interest rates to fantasy levels to make the dollar appear strong. So it debases the dollar outright in order to have some dollars to trick the barometer. That's how the Fed defends the dollar.

Eventually the ECB plans to use its gold reserves to manage the value of the Euro. Not to exchange euros for gold, but to use the gold to manage the euro, manipulate it if you will. But the big difference is that it will not start doing this until it is competing in a physical-only marketplace for gold. So in a way, even though it will be manipulation from TPTB, it will be fair manipulation! It will be "hard trading" with "hard opinions" available to everyone. [5]

The ECB will print money and buy more gold into the reserves if it wants to weaken the euro (raise the price of gold and debase the currency at the same time). And it will sell gold into the market if it wants to strengthen the euro (lower the price of gold and lower the money in circulation by taking some in). Of course gold will be at about 50,000 euros per ounce before this even starts."

This is what I was looking for. :D

As regards the CHF, printing some to buy gold would weaken the CHF imo. But politically this is not possible, as they do not want to be the ones who causes "TEOTAWKI".

So their best bet is to buy a proxy for gold, ie. the euro.

My foolish 2 cents.

TF

asdfadsf said...

The Case for $20,000 Gold..

http://www.youtube.com/watch?v=tj2s6vzErqY

Hello FOFOANS, this is a must see video, but tell me this, is the scenario described by Mike Maloney Freegold?

Regards,

Texan said...

Joel, yep stocks, housing, commodities other than food and gold. System is delevering = lower prices

Need more juice!!

Ash said...

Texan,

I would agree with FOFOA that it is imperative to "front-run" TPTB at this stage of the game, HD or HI. Events are unfolding extremely quickly in financial markets (I'm using the term "financial markets" in the broad sense of markets heavily influenced by credit... or, every market), an example of which is captured nicely by this graph created by Bloomberg, posted by TD on ZH:

http://www.zerohedge.com/news/thunderous-flock-black-swans-imminent-or-price-stability-reduxed

I'd re-arrange your quote to say, "Today we die, for tomorrow we may drink...". Whether we will be drinking a hot cup of coffee in Heaven or a cold dose of antifreeze in Hell is up for debate. Deflationary collapse in the near-term, however, will be significantly more unpleasant than the dollar HI event which occurs down the road. The only way dollar HI would be worse is if its part of a plan to implement a hyper-oppressive neo-feudal order that relies on both mass death and militaristic rule to sustain itself. Now that's some scary stuff... but far from inevitable.

Jeff said...

Hyper deflation in a hyper oppressive neo feudal...yeah that's so much more realistic than the crushing weight of evidence that is the Euro architechture and the performance of the ECB balance sheet over the last decade.

Wake me up when a new car is 2k, a house is 40 thousand dollars and a college education is a thousand dollars. I'll go to the dentist for a crown and pay $50. It's 1950 again!

Some people watched the Matrix too many times.

Ash said...

I'm no fan of Larry Kudlow, but...

The Deflationary M2 Explosion

"Amidst the financial flight-wave to safety, with stocks plunging, gold soaring, and Treasury bond rates collapsing — and all the European banking fears which go with that — there’s an important sub-theme developing: An almost-forgotten monetary indicator, M2, which is mostly cash, demand-deposit checking accounts, savings deposits, and retail money-market funds, has been soaring.

According to the St. Louis Fed, M2 is up 24.2 percent at an annual rate over the past two months. Almost out of the blue, that comes to a near $500 billion increase. In rough terms, the M2 explosion breaks down to $165 billion in demand deposits and $335 billion in savings deposits.

What’s going on here? There’s a flight to government-guaranteed accounts. Some people believe Europeans are withdrawing from their own banking system and parking their money in the U.S. banking system, guaranteed by Uncle Sam. Kelly Evans reports in her Wall Street Journal column of a $30 billion outflow from equity mutual funds that has probably gone into cash.

This is a very disconcerting development. Normally, big M2 growth would signal a faster economy, and maybe even higher inflation. But as economist Michael Darda points out, the velocity, or turnover, of money seems to be plunging.

"The recent pickup in broad money in the U.S. looks like a dash for risk-free cash assets," writes Darda. He also notes that widening corporate-credit risk spreads and shrinking government-bond rates signal a recession risk, not a coming boom.

So contrary to monetarist theory, the M2 explosion seems more closely related to a deflation/recession risk. Economist-blogger Scott Grannis writes, "The recent growth of M2 surpasses even the explosive safe-haven demand for money that accompanied 9/11 and the financial crisis of late 2008. Something big is going on, and it can only be the financial panic that is sweeping Europe as money flees a banking system that is loaded to the gills with PIIGS debt."


It's not that people think US banks are any healthier, but they still have faith in the debt-dollar system itself. That's not a good thing. Many deposits in US banks will simply get wiped out before anyone knows what hit them. Whether institutions such as Bank of America eventually get bailed out is actually a less relevant consideration than the fact that it is being forced to sell assets right now. The social and political mood in the developed world has markedly changed in the past few months, along with the underlying economic/financial conditions around the globe.

Jeff said...

Tex, some other costs you left off your list of things that aren't getting cheaper:

education
medical care
fuel (?) - depends on the timeframe

Housing is debatable; if a house that was 300k went to 800k then crashed to 500k, is it really cheaper?

So the only clear area of deleveraging I see is in ponzi finance. I don't call that deflation but then I don't view the world though a warped lens that requires 'both mass death and militaristic rule to sustain itself.'

DP said...

M2 expansion = manifestation of upper inverted finance/derivatives pyramid dropping sand through the dollar chokepoint, en-route to the tangible assets in the lower pyramid. Seems like the egg timer is counting down, to me.

Cartman: Since two months? Hmm, let me see heaw, this month it's August, so that means last month must have been ... July. So before that it must have been ...

...

... Mo-om? (Yes, Pookie?) What month came before July?

(Why it was June, Schnookums. You remember, when the nice man at the Federal Reserve stopped paying all the people at City Hall.)




In other news, <$42.22 silver is history? Seems a bit of an embarrassment for the Fed.

Texan said...

Jeff,

Different scales entirely, and services are extremely lagged. Asset values in the trillions were wiped out over the past few months.

Motley Fool said...

Blondie

I forgot, I wanted to reply to your comment on the previous, about err marx and capitalism.

Just wanted to say it's nice to see your deep thoughts here. It happens too rarely. :)

TF

SS said...

What difference will the Rossi/Focardi LENR reactor make to the oil/gold relationship if its public operation proves successful in a few months time?

Motley Fool said...

Hi SS

It would simply change the 'price' target.

I suspect, but haven't thought through completely, that energy of this type would increase the value of gold even more.

TF

M said...

@ JR

"Gold mining shares are for speculating. They are a form of paper gold. You should not consider them the same as physical. The people that expect mining shares to pay off big are expecting a replay of the 70's. This may happen as long as gold trades as a commodity. But we cannot know when this will end. It could end this fall!"

The markets will dictate what will happen to mining shares. They represent a shared interest in a real mine that has real assets that employ real people. Calling mining shares paper gold is like calling real estate paper wealth just because the title of ownership is on paper. Mining shares have political risk but left to market forces, they belong above gold and below treasuries on the exeters pyramid. Just today, all stock markets across the whole planet where down and in bear markets but ALL of the big mining shares where up.

I know FOFOA doesn't subscribe to the mad max theroy where the whole world ends but if not, then why will mining stocks crash to nothing ? I know physical bullion is a million times better then mining stocks but we don't actually know what will happen to them. What if all mining companies start selling their gold in Euro's ?

M said...
This comment has been removed by the author.
Aaron said...

Hi asdfasdf-

I'm only at 30 minutes deep into your link to M2, (not the monetary aggregate kind of M2) but so far -- absolutely correct. Amazing, eh? How could we have gotten so lost?

--Aaron

M said...

@ JR

"For this reason, the gold in the ground actually belongs to "the people", and when it is revalued globally, it will become an "in ground wealth reserve", not unlike the oil in the ground to the Saudis. At that point the seigniorage value of pulling gold out of the ground will be either taxed or confiscated by the government on behalf of the people. "
As soon as that happens, all the expert geologists, all the expert mine builders and operators will bail along with the drill hole results that show what gold was even there. I am not trying to make a case for gold stocks but there must be financial incentives for the experts to even find or extract the gold. If not, the gold in the ground will not even be found, let alone mined. All gold production would stop.

Aaron said...

Sill watching M2, but he's already made a couple of statements about silver and the gold standard I don't agree with.

It seems to me at 44:50 he got his conclusions backwards on the slide of Percent of Currency Supply Covered by Gold. When there is more physical dollars than physical gold, gold gets more exspensive? And when there is less physical gold than base money, gold becomes very cheap?

Can someone set me straight here? Did I get it backwards? Or did M2?

--Aaron

Aaron said...

I'm on my own rant here, but perhaps M2 means when there is extra base money -- it funnels into gold. That would make more sense.

JR said...

"The markets will dictate what will happen to mining shares. They represent a shared interest in a real mine that has real assets that employ real people.

You don't know FOA’s shoemaker analogy. Should you buy some shoes for your bare feet, or buy shares in the shoemaker factory whence you foresee a great demand for shoes approaching?:

"When gold is discussed on public forums and at investment conferences, many true physical gold advocated don't perceive the motivation behind the oratory from today's paper gold bugs. Their interest in physical gold is real, but their actual intent is to gain "a" security by profiting from a gold dynamic created by other's buying actions. Never to gain "the" actual security by entering into the gold dynamic themselves. Many of them don't have a clue of what all that means. Yet, such an understanding would delinenate the huge difference within this concept. Especially today,,,,, and in the future as said difference may make or break the financial worth of many. Here is an example of such thinking:

----- Two guys are talking about shoes:
"Hey, did you notice how few people have shoes today? I know we have them and their use is obvious. It balances our overall physical appearance and gives a long-lasting foundation for our feet and for our human structure. In turn, shoes support all the other investment clothes we own and use during our life."

While these fellas are talking several other "Americans" overhear the conversation and join in:
"Shoes,,,,, shoes,,,, what's this about shoes? You say there is a demand for them,,,, a deficit in supply? Oh yes, we completely understand the concept and fully embrace it. Without shoes, none of us could economically stand up straight. The whole world is woefully shy of them and will someday be forced,,,,, if not by foresight, by need, to own them. There is no way any of us could transverse a hard rocky economic road without gold,,,, weeeee mean shoes! Man alive,,,,, I'm going to buy a shoe factory and make some money from all this new demand."

But, the first two guys observed and asked:
"But, wait a minute,,,,,, aren't you going to follow your own keen concept and buy some shoes for yourself and your family first? You know, that public shoe company does not and will not,,,, by government tax laws and regulations,,,,,, sell it's product directly to it's owners. They can only give paper profits to their owners. During all the big rush, you will be in with all the other "shoeless buyers"

Oh yeah,,,,,, we will later buy them,,, said the traders,,,,, besides, I got a 1/4 shoe now,,,, that's a start. And, by holding these tiny shoe laces, we can stand here and fit in with all you well heeled players (grinning like Texas Westerner on an oil well ). Look, I'm in this to make money,,,,, it's just a concept like all the others I follow. I do the same thing when I'm with other "conceptors" of the same ilk,,,,,, I talk their talk to understand their concept. But, I really don't need your gold as long as I got my paper profits.

OK, said the two guys with shoes. We don't mind your talking with us, so long as your perceptions don't distort our end purpose of having good shoes,,,,,,, and just don't complain when your company's value can't equal the worth of good shoes on the hard road before us."


cont.

JR said...

"In our society, dominated by Western Thoughts about savings wealth and the use of leverage to gain it, Paper Gold Advocates have advanced the logic of their position by using overlapping reasoning. Promoting an idea that share ownership in an industry, that sells gold to make a cash profit, is the same as ownership of the gold product they produce. This is the same thinking progression where history records a shoemaker's children without shoes. Following this you, as a paper gold investor, also risk a situation where your family goes barefoot, without real wealth, while political maneuverings wipes out your stock and trade business investment; not to mention your wealth. In the same social dynamic where friends point out the shoemaker's bare feet, physical gold advocates will one day be asking; "but I thought he owned a gold mine?"" FOA

JR said...

Context for the shoe analogy:

The modern gold industry could be compared to a hypothetical "shoe" industry,,,,,

like this:

------Every family was taught that there was much more leverage (and profit) from putting the families finances into buying the shares of companies that make shoes. It seemed that almost everyone would have to buy shoes at one time or another and this demand would certainly drive shoe prices sky high. In time, thought has indeed evolved. Today our logic dictated as a must that it was even far better for one to buy shoe mining companies than owning the shoes themselves. Slowly, over many years,,,, families held less and less pairs of shoes and more and more company stocks. Logic moved further until,,,,, they lowered their shoe buying until each family shared only one pair, but owned a bunch of shoe co. stocks. In addition,,,, "indirectly, through third parties" ,,, they owned contracts for the delivery of real shoes. Indeed, this was smarter because their money was invested for a higher return in other areas,,,, and they could always exercise their contracts for more shoes if needed. Especially if "changing times" required the ownership of more than one pair per family.

The future as my evidence for today:

(A). As time and events later proved,,,, things were not as everyone thought. Later in this cycle, it turned out that many of the shoes everyone had contracts for,,,,,, were mostly the product of other families selling their excess shoe holdings. Not the governments selling so much themselves. Worse yet, those shoes had multiple contracts written on them so as to make the delivery impossible. To cover all those contracts, shoe brokers and companies had gone into OTC and futures exchanges to buy "financial" hedges for shoe delivery. In a twist of logic, even though those hedges could only be settled in cash, these contract buyers figured that at least their "financial book" would be covered if a shoe default occurred. But this did nothing for all the families that didn't read the small print that said shoe delivery contracts would "through national emergency" or perhaps "security exchange rules",,,,,, also be settled in cash under adverse conditions. Well,,,, most of these very sharp investors accepted even these conditions. They figured that with even a cash settlement, and well before national rule changes,,,, they could pay their taxes on the profits and still buy the shoes in an open market. And using the same logic that placed them in this position,,,,, figured they would buy even more shoes because their cashed in paper leverage gave them more money! Now, after the fact it didn't work out that way. Shoe prices ran ten times faster in the middle of the default settlements,,, so even with some players making 1,000% in cash,,,, shoes were nowhere to be found. If they were found, these cash profits brought even less pairs than if they had put the origional money in them in the first place...


cont.

JR said...

Cont.

...(B). Further,,,,, time later revealed that in the late 90s demand for shoes had indeed "skyrocketed", world-wide. Fortunately, many of the people in the Western nations of the world had "brought into" this logic of having only a few pairs of shoes per family and holding their other "shoe wealth" in other paper forms. Some in Dow stocks,,,, some in shoe stocks,,,,, some in shoe contracts,,,, some in shoe derivatives and other options. This effect diverted much of the real shoe demand by spreading out the buying into paper form. It allowed many existing shoes to be diverted overseas where people wanted to get rid of extra dollars and indeed, hold real shoes as their families wealth. Now, after the fact,, we know that the real demand figures from Shoefield services were completely skewered because they only counted real shoes shipped,,,, not the paper shoes purchased!

(C). Further,,,,,, events later proved that the Central Banks really knew the value of shoes to the world after all. Even during this period, records later proved that the CB mostly sold shoes to each other,,,, with only a small amount (relative to demand) flowing into the real markets. It seemed that they really only rented a very small amount of shoes (relative to demand) to keep the rates down. Perhaps it was the power of suggestion?

All this was in an effort to keep world demand from destroying the "Whole Marketplace" for shoes. This policy was helped enormously as most of the Dollar / IMF banks were more than willing to supply "this paper shoe marketplace they had created earlier",,,,,,,, with paper shoe commitments because of the profits this created. The CBs saw that "Western investors" would satisfy most of the real demand through their willingness to hold paper shoes,,,,,, and indeed, if shoe prices stayed low,,,, these same investors did indeed,,,, gladly sell their "old shoe bar holdings" into the huge world demand. Further helping to keep the shoe prices low. All in a effort to give some foreign dollars an illusion of shoe buying power. The rest of the other dollar world,,,, that understood the message being sent by the CBs,,,,, traded their fiat for shoes,,,, over time,,, as able. Now, after the fact,,, they were right. The gold ,,, err err shoes, that is,,,,, they purchased and held in physical shoe friendly government hands more than offset the value lost as the world gold market fell apart,,,,, taking the dollar with it.

FOA

JR said...

"As soon as that happens, all the expert geologists, all the expert mine builders and operators will bail along with the drill hole results that show what gold was even there. I am not trying to make a case for gold stocks but there must be financial incentives for the experts to even find or extract the gold. If not, the gold in the ground will not even be found, let alone mined. All gold production would stop."

Those industries will explode in growth relative to today. The profit margin in gold mining will likely be higher than today! It will be a BOOM business.

But we are talking about mining stock compared to physical. Mining shares will never track physical gold, and will face the political will of the hungry collective in the meantime. Maybe mining profits rise 100% relative to today, who knows?

But that pales in comparison to this physical gold.

@ 3,000% > 100%, no?

Cheers, J.R.

Aaron said...

1:14:20

"The next great bubble is destined to be precious metals."

Bullshit.

Chico_hawk said...

I post very infrequently here, but do read FOFOA regularly and appreciate the unique if not convincing perspective he brings.

That said, I'm getting a sense that there is some premature giddiness developing here among some, (understandable given the unabated climb of gold over the past month) about "this is it", i.e., the time when paper & physical gold separate where paper goes bust & the price of physical to the moon.

I'm not smart enough to know when that will happen, and I agree that when it does happen, it will likely be sudden & unexpected (by most), but I think we have a ways yet to go before it does.

Jesse linked to a couple of interesting articles today - one from Sprott highlighting the growing problem the US (& other countries) have with what the author referred to as "faith-based" assets, namely sovereign debt (i.e., promises to repay), which are ALL being devalued, leaving real assets (i.e. gold) increasingly as the only viable alternative.

The other excellent piece was on how Bernanke will replace QE3, (i.e. obvious money printing) with a more subtle approach, by expanding bank credit using the excess reserves US banks currently have with the Fed (estimated to be about $1.7T)

From that financeandeconomics blog article,
"All currencies are on a de facto dollar standard, so they will benefit from the dollar’s extended low interest rates. Furthermore the expansion of bank credit as a means of government funding in the US will reduce demands on the global savings pool, easing the imbalance between government deficits and funding availability.

So we have a workable monetary solution for all the world’s ills. There are market benefits, too. Extended low interest rates should help place a floor under asset prices, and the resolution of the immediate uncertainties over US sovereign debt and less pressure for government spending cuts will be seen as a confidence restorative. But expanding bank credit to finance increasing government spending is no solution to the underlying causes of the real economic difficulties.

Importantly, it guarantees yet more price inflation down the road: bank credit expansion always has in the past, and it always will in the future. Above all, it guarantees the next leg upwards in the precious metals bull market."

I think this monetary policy approach will buy the US (& the Fed) more time, allow recent market volatility to settle down for a while, and further delay any meltdown in the paper gold market.

That said, I expect gold will continue to march higher, (perhaps after a brief correction due in part to market disappointment of no QE3 from the Fed). I don't see an inverted waterfall meltup at least until gold takes out the inflation adjusted paper high of 1980 which would be around $2,500 in current dollars, fwiw.

Part of my reasoning for that view is that I believe more investors, from hedge funds to shrimps like us will get on board the (paper) gold bandwagon, (including miners, ETFs, in addition to bullion) given the metal's performance and the increased perception of the protection it provides as wealth preserve (though many of these participants won't distinguish between paper & physical). This will contribute to a parabolic rise in the paper gold price, causing ever more to jump on board...before the climactic blowoff "top", where the paper fractional reserve gold fraud is exposed, resulting in the final separation between physical & paper
price, just like the shuttle's solid rocket boosters falling to earth & the orbiter circling above the earth's gravitational pull (representing those paper gold holders desperately trying to get their hands on physical...)

And when that final separation occurs, I'm not sure we'll want to be all that giddy & celebratory, since I suspect a lot of well-meaning people will have been defrauded and essentially ruined financially by the bullion banks & their governments.

Joel said...

@DP,

I agree with you on M2 increases. All that cash sitting there, afraid of every investment, poised and ready to be spent on something of real value (gold, commodities, etc..) at the first sign of trouble (bank defaults, rising inflation, FDIC failure, money market liquidity traps like the ARPs did a few years ago, the list of possibilities is endless). It actually could make the end game happen quicker due to the quick access to the cash.

Wendy said...

mortymer,

I haven't been successful posting to your blog.

btw it's douglas not duncan ;)

Joel said...

@ Chico
With the recent $30/day gap ups we have been seeing, your high water mark may fall before we go trick or treating again. Not that far off, if you ask me. Bernanke can dress up the pig all he wants, with all kinds of new program names, but he will print, because he will be forced to. In the end, however, it's still a pig--an inflationary pig. In Europe's case, it is still a PIIG.

Texan said...

Chico,

Jesse is the best, but he got the "expand bank credit" thing all wrong.

There is no loan demand, at least not from qualified borrowers. 30 year conforming mortgages are at 4% and yet purchase demand keeps dropping. In fact the only growing debt category is government subsidized student loans, and I think we are having a blip up in credit cards (maxed out consumers). All otter categories are flat to decreasing.

The bank stocks are cratering. Why? Because their business is making loans, and they aren't making them.

The excess reserves are being used to funnel equity to the banks in the form of risk free interest. It's a stealth TARP, and very small in any case (the amount of interest). If the Fed drops the rate, the banks will return the reserves to the Fed.

I think the Fed actually has a huge problem right now in the other direction - negative nominal rates. Can you imagine being paid to borrow money?

So the banks dont lend because there is no borrowing demand(this has been going on for awhile), but suddenly there is the huge decrease in velocity as all unencumbered
cash (ie, not bank funds) looks for a bolt hole. It is not available to lend except to the ultra safe.

And there goes all the liquidity in the system, so now everything has to reprice to a level that can account for reduced liquidity.

This is going to be like the aftermath of Lehman, but without the actual deer in the headlights event. Now if you read ZH,, those guys think this is, to some extent, staged by TPTB to justify QE3. Maybe. Buy maybe not.
And if it's "not", then this last selloff is just an appetizer for the main course.

"Deflation, its what's for dinner!"

Texan said...

Joel,

All the cash in not going to buy commodities. A lot of that cash has investment rules and cant buy commodities.

Moreover, the MacDaddy of commodities, oil, has been absolutely hammered. Down almost 40% from its spring peak. $115 to $80. The long positions are smoking craters at this point. And it's fundamental too. Today i read that July gasoline demand in the US was at it's lowest level in 10 years!! And that's not an population adjusted demand! You can also see it in the WTI/ Brent spread - highest ever. The oil is overflowing storage at Cushing. No one wants it.

But, i agree that some of the cash will find it's way into
gold.

That's why I am very skeptical at this point about QE3. I think they know it isn't going to do anything good, and they have a very difficult and openly hostile political climate.

Chico_hawk said...

Hi Tex,

My understanding of the Fed using the bank credit scheme (instead of QE3) is that it isn't about increasing bank lending to consumers or businesses (who as you point out are retrenching or represent bad credit risks), but using the banks' current excess non-borrowed reserves they have deposited with the Fed (author estimates to be about $1.7T, mainly because the is reduced lending demand & creditworthy borrowers) to lend to the government via reverse repos.

The author suggests the banks could leverage this amount (via fractional reserve lending?) 9 times to fund an additional $15T in government short term debt, (which is why Bernanke recently announced they are going to keep interest rates low for the next 2 years)...

seems like a very plausible scenario to me - banks will earn interest on excess reserves they can't/won't use to lend to consumer/businesses, Fed avoids negative perceptions associated with QE3, they keep short term rates low (thereby supporting real estate & stock markets from cratering further), and reduce dependence on foreign capital.

This however, would still be inflationary, via low interest rates and supporting increased government spending/deficits via fiscal stimulus presumably to make up for the lack of private sector spending (see pr about Obama's September speech re: new plan for jobs & economic growth, etc)

I expect this will temporarily stabilize markets, to allow them to digest whether the measures taken actually work or not - what we'll get, I expect, is more of the same stagflation.

what surprises me is that these apparently troubled banks have apparently built up so much non-borrowed reserves so quickly with the fed, since 2008, but if the number of credit-worthy borrowers have declined and those that are credit-worthy aren't borrowing, I suppose that seems plausible (especially where they haven't had to mark to market on the encumbered assets on their books).

costata said...

Hi Texan,

Interesting snippet about the storage at Cushing.

At the time I speculated that the reason for the release of oil from strategic reserves was about creating storage space rather than attempting to influence the price of crude.

In regard to that piece from MacLeod quoted by Chico, my understanding of his reasoning is that the funds would be used to buy USG debt. In turn allowing the USG to continue deficit spending and transferring crap "assets" off the big banks' balance sheets.

Thanks to FASB allowing the banks to mark to myth it's all good from a nominal, balance sheet perspective but there is another issue that is looming for the banks ie. the growing pressure on their P&L statements.

Chris Whalen has been vocal about the impact of foreclosures, for example, on their overheads. All of those jobs spun out to servicers have to come back into their headcount to manage the foreclosure process.

The announcements about large job cuts are an indicator. This leads me to think that MacLeod may be on the money with his assessment. The scheme he describes would give the banks involved a guarranteed income stream for as long as the USG fills the borrower-of-last-resort role.

Bottom line: I don't think it matters whether the general public can or can't borrow provided the USG borrows enough to keep the TBTF banks on life support.

As for the rest of the banks I agree that they will continue to fail as their assets default and their income is choked off. But all of those thousands of banks still only account for around 30 per cent of the banking sector of the USA according to an article I read some time ago.

Double bottom line: When you talk about deflation I think you have to differentiate the borrow-to-buy sectors from the bought-for-cash sectors of the economy. When you do so it becomes fairly obvious there are two trends at work reflected in prices - the former falling and the latter rising.

I'm not surprised this inflation/deflation debate goes nowhere.

costata said...

Whether it's the approach that Alisdair Macleod has described or something else it appears that the Fed has something in the pipeline.

http://www.zerohedge.com/contributed/fed-bombed-market-i-ask-why

Blondie said...

Some highlights from a Casey Research report discussing the recently developed spread between WTI and Brent crude:

“WTI crude has historically commanded a price premium over Brent crude, and for years WTI was the world's benchmark oil price, with its price movements mimicked almost instantaneously by other crudes on other exchanges.... Brent prices are now roughly 25% higher than WTI prices...

There are several issues behind the reversal, but the main one is a glut of crude supplies at Cushing....new, major oil sources are located in the northern United States and in Canada, and almost all of the oil from shale plays and from the oil sands is sent to Cushing...

All of this crude from the shales and the oil sands needs to be refined. Only one pipeline connects the oil sands to the west coast, which means the rest of the bitumen has to go to Cushing; within the last year two new pipelines increased the flow of bitumen into Cushing by one million barrels of oil a day. Shale oil from the Bakken only adds to the supply problem.

It is a problem because Cushing is landlocked - it is in the middle of Oklahoma. And there is now simply more oil flowing into the PADD 2 region than its refinery system can handle...That forces producers to sell into the cheaper spot market, pushing the average price down...

Two things would relieve the supply glut at Cushing: much stronger demand for petroleum products in the United States; and increased transport capacity out of Cushing... it will be some time before the supply glut at Cushing is relieved. In the meantime, WTI prices will continue to suffer.

The WTI price depression prompted a few changes that will help Brent's supremacy persist. The big one is that Saudi Arabia, Kuwait, and Iraq all ditched WTI as their official pricing benchmark in favor of a new benchmark known as the Argus Crude Oil Index. The Argus Index is a volume-weighted average price index of deals done for three types of crude - Mars, Poseidon, and Southern Green Canyon - all of which are U.S. Gulf Coast medium sour crudes. And here's where things get a bit confusing: Even though Gulf Coast crudes are American, they have always been priced according to Brent, not WTI. Brent is more applicable for the Gulf Coast oils, both in terms of quality and because Gulf crudes are seaborne.

So, by switching to Argus, the big Middle Eastern producers essentially switched to Brent, adding to its supremacy.

This year, while supplies climbed at Cushing, supplies of Brent tightened. Production from the North Sea is on the decline. At the same time unrest in the Middle East - civil war in Libya, nigh on civil war in Syria, a revolution in Egypt, and the threat of contagion to other important oil producers - has pushed Brent prices up, while slowing economic recovery (and now the possibility of a return to recession) is reducing oil demand in the United States. Essentially the forces on Brent are exactly the opposite of those acting on WTI...

Until capacity develops to move crude from Cushing to the Gulf Coast, Brent will remain the crude price that best reflects supply, demand, and sentiment in the global oil market.”


I imagine most/all euro settled oil would be Brent rather than WTI, so this widening spread is creating further usage demand for euros in comparison to dollars from the aggregate crude market.

Texan said...

I have read the Macleod article again for the third time and I still don't know what is he talking about.

Who buys the TBills? Who do they repo them to? What is the rate of the repo? TBills pay 0%, so if the repo rate is anything above 0%, the initial buyer will lose money..

Is he talking about intermediate maturites? Yes, banks bought, or at least repriced,Treasuries when the Fed said they would hold rates steady at 0% for 2 years. That's why the 2 year now pays only about 25bps.

I really don't know what he is talking about.

Look, if the Treasury market starts having problems finding buyers, the Fed will just step in and monetize via QE. They will have plenty of political consensus for that.

But finding buyers isn't the problem...it's finding sellers. Treasuries are pretty much " bid only". Perverse as it sounds, there aren't enough of them.....!

Jeff said...

ben davies on gold:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/20_Ben_Davies.html

Joel said...

Texan, how can you say there are no sellers? if there were no sellers, there wouldn't be an auction. We have a mountain of crap to sell, and a large portion of the bidding is us (as I said earlier, I would love to see the bid to cover ratio net of our own bids).In the last auction, every single foreign country except China reduced (sold) holdings of our debt, not increased (bought) them. I look for QE 3, in some form or fashion, coming from Jackson Hole, due to their concerns about the lack of BUYERS, but under the auspices of stimulating the economy.

Joel said...

Or other "stability" reasons, see the Zero hedge article in Costata's post.

JR said...

Well said Texan!

Treasuries are pretty much " bid only". Perverse as it sounds, there aren't enough of them.....!

Exactly! A shortage of cash/cash equivalents (aka short term dollar debt) as credibility deflates. As was discussed in the context of the BB paper on the importance of quality collateral during the GD, such as here:

http://fofoa.blogspot.com/2011/08/forum-1800.html?showComment=1313088851702#c1601871055284880472

Cheers, J.R.

Joel said...

So McLeod says the banks "lend" the excess money to a bunch of bankrupt Fed agencies like Fannie and Freddy for some nominal return. They already got burned once in the form of preferred stock, why the heck would they do it for even less yield? I agree Texan, I dont get the cash flows either. Who are the reverse repo parties? Or does the bank buy the bonds, lend (repo deal) it to Fannie at a higher interest rate, and buy it back later. And how does the cash get into the market to become inflatioary? C'mon, one of the geniuses here step up and educate us.

Texan said...

Joel, maybe. We'll see soon enough.

JR, yep. The question is what TPTB decide to do about it. All I am saying is I don't see it as given that they decide to print. I don't think the "politicians" are making the decisions, so depending on how those variousnxompeting agendas are positioned, they may prefer to try a "managed" deflation for awhile

Either way I thimk it's gold positive. But with the non-gold part of my portfolio, I sit in cash. You probably have no cash but loads of surplus but useful stuff. I just can't see myself rushing out to buy extra generators for example anticipating HI. If I thought it was imminent I would do that, but I don't see it yet.

Joel said...

Bullets are the best currency. Nobody ever follows you home when you trade them for food...

32layers said...

@Joel,

Well said re: bullets. You are officially the first anonymous poster I have clipped and pasted into my collection of memorable quotes.

If, of course, I find that someone else said that first, you will be unceremoniously bounced.

Wendy said...

mortymer,

I wonder if you have considered the work and possible influence of this individual?

http://www.timesonline.co.uk/tol/comment/obituaries/article7002085.ece?token=null&offset=0&page=1

M said...

@ Texan

Official inflation in the US is 3.6%. Yield on the 10 year is 2%. That is negative 1.6% real yield. Plus you pay income taxes on the non inflation adjusted yield.

That is like paying a renter 1.6% of the value of your house to live in it. And declaring rent income of 2% that doesn't actually exist.

Treasury bubble ? I believe so...

M said...

@ JR and Texan

"Treasuries are pretty much " bid only". Perverse as it sounds, there aren't enough of them.....!

Exactly! A shortage of cash/cash equivalents (aka short term dollar debt) as credibility deflates. As was discussed in the context of the BB paper on the importance of quality collateral during the GD, such as here:"

There was a shortage of tulip bulbs before too, there was a shortage of internet stocks in 1998, there was a shortage of housing in 2007.

FOFOA does not use the term credibility in the context of actual bank credit. He uses the term credibility in the context that people still have confidence.
Credibility inflation=confidence inflation. Credibility deflation=loss of confidence.

Edwardo said...

Texan wrote:

"If I thought it (HI) was imminent I would do that, but I don't see it yet."

Which begs the following question:

1.) What exactly do you expect to see that will warn you that HI is imminent?

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

@ Edwardo

I think hyperinflation is imminent right now. Look at treasury yields. Treasuries/US bonds are the biggest inflation(expansion of the money supply) that has ever happened. A loss of confidence and a flight out of the biggest inflation that already happened will lead to hyperinflation.

Allot of quantitative money theorists assumed that gold would fall when QE 2 ended in June. Micheal Pento, who loves to watch all the M2 M3 MZ M this M that, sold half of his gold before QE ended. How did that work out ?

Gold also rose the most last decade when nominal interest rates where RISING, not falling. (2003-2006)

Texan said...

M, Tsy bubble maybe. I got my cash in bills, and yes its negative. But I prefer wealth erosion to wealth loss. And it's not that much cash anyway.

Eduardo, I don't know what the signs will be, but I suspect they won't be the "50% off" ones I have been seeing around a lot recently. I think I will see it coming. Maybe not.

Jeff said...

Texan, signs of imminent HI are things like the massive ongoing treasury bubble, rising POG, etc. You are just ignoring them. Bad luck for you.

From Gold the Ultimate Unbubble:

And the "lowering of interest rates scheme" has a physical floor, an inevitable and unavoidable dead end... call it ZERO.

Yes, we have seen a couple ventures into negative interest rate territory lately. But this is simply anathema to the very concept of money, period. It is the ultimate froth, the last breath of air you can blow in before a bubble pops. It is the sure signal that the end is nigh.

When interest rates hit ZERO, they only have one way to go. And that means that the value of past issued debt, the very kind of TRASH that China is sitting on a land-fill mountain of, only has one way to go... DOWN."

Jeff said...

Here is a comment that should strike fear in your heart, Tex.

...Sir Topaz has been around for years and has thoughly studied the words of Another and his friend, yet, he has a background that gives him a unique point of view from which to build upon.

From his first post: “If we concede there isn't any "value" in money then, let's take a look at "things" from a rather unique perspective ...TIME!”

Time plays a key role in the pricing of everything. Everyone gathers things and, with their suplus, puts off the gathering of more things for some TIME – typically holding a currency. Ultimately, they will find a time in the future to cash in that ‘holding’. All the while, there must be trust that what is being held will have the same – or more – value in the future.

In his third post “The $US and $Gold” we see:


"As the "players" quietly exit the "game" , the role of assuager will be taken up by 'ol Buck I feel ...which is in keeping with US T-bill market action of late ie: less "yield" the market demands over the short-term implies an ever-growing desire to hold ONLY $Cash.
...

Now fast forward to the last couple November posts “Say what?? … 3mo gone negative??” and read on. It may be that some investors are thinking there is no TIME left – thus only $US.

Will be worth watching, for if yields say non-existent (or negative) TIME will be forced into the present and the dollar will find support, big time. While, at the same time, to satisfy demand, someone may have to print like there’s not tomorrow to keep up with demand."

d2thdr said...

costata wrote, 'Despite a higher gold price, Indian and Chinese demand grew 38% and 25% respectively during Q2 2011 compared to the same period of 2010.

This growth is likely to continue, due to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals. (My emphasis)'

True. My mother says the precious is being sold very quickly. Its still available, but its selling easily.

My in-laws who are jewellers also said the demand is unbelievable.

Robert LeRoy Parker said...

Interesting article on cash4gold Japan style.

FT link

Here is a snipbit for those who aren't registered:


The stampede to sell gold is so intense that shops buying the precious metal are struggling to cope and are even having to turn some disappointed customers away.

In the past week, Goldplaza, which buys and melts down gold for resale, has been handling close to a total of Y100m ($1.32m) of gold every day at its seven stores. That is about 15 times the amount it was purchasing on an average day in July.


Perhaps this is what 20+ years of deflation does to your mindset.

M said...

@ RLP

Sad.

Bill Boner on the Euro
http://www.youtube.com/watch?v=6Ou8Qva6z-g

15 minutes in.

"What you see in Europe is a great confidence in the Euro. The Euro is a great thing because it makes trading way easier among these countries. I don't think the Euro is going to disappear, its a good currency as long as the Germans and the French hold together it will probably be a good currency for a long time. There will be allot of people in Europe that go broke and to me, that's a good thing."

Texan said...

Jeff,

He is right. The market is telling me that "stuff" is going to get cheaper, so cash even with slight negative rates is a good deal.

The market is also telling me it doesn't see a lot of "extraordinary" money printing (much to it's dismay) in the near future. The I. Banks are all but demanding it, but I truly believe Bernanke and Obama and Merkel's hands are tied until we see another very lrge leg down in the markets and fundamental economic data confirm contraction.

At which point oil will be collapsing back below $50, and inflation will go negative. And then stuff is going to really be on sale.

costata said...

RLP,

The increase in scrap gold sales in Japan could be a collision between demographics (an aging population) and conditions in their economy.

Cheers

d2thdr,

Thanks for the feedback from India.

I caught this piece about the jewellery district in LA at Kitco. As a bonus Jon Nadler shares his golden wisdom.

http://www.ladowntownnews.com/news/article_0c64cffc-ca89-11e0-86a2-001cc4c002e0.html

I have seen similar stories about the fashion jewellery business in other countries. Meanwhile the bullion jewellery business in the Eastern markets appears to be robust.

Texan said...

Jeff, M, etc

Just finished reading a decent summary of the current stte of play by John Mauldin. I don't always agree with him, and he is by definition CW, but this time I think he nailed it, on multiple fronts.

I suggest you read it. The Philly Fed number was an aboslutely horrible economic number, right up there with the drop in consumer confidence. These were seriously recessionary numbers. Maybe a blip due to the "debt ceiling showdown", or maybe not.

Joel said...

Texan,
Those are some pretty ugly charts, I agree, and I definitely think we are already in a recession. But Ben Bernanke and the other knucklehead Keynesian powers that be are just waiting for a good excuse to crank up the presses. It allows them to continue funding our mountain of debt without hiccups, makes them look like they are doing something (even though doing nothing would be better), and allows Obama one last bite at the apple of economic success ( I'm not saying it will work, just looking at it from his perspective) to try and get reelected. Remember their motto: "Never let a good crisis go to waste."

costata said...

Texan, Joel, et al,

A really top notch piece of analysis from Chris Puplava to reinforce the material you cited above. Well worth your time IMO.

http://www.financialsense.com/contributors/chris-puplava/2011/08/19/bernankes-worst-nightmare-pushing-on-a-string

Cheers

costata said...

Debtors versus Savers

Michael Hudson interviewed by Max Keiser.

http://maxkeiser.com/2011/08/20/on-the-edge-with-dr-michael-hudson/

From around the 6 minute mark. Max demonstrates the same misconception, about which camp Wall Street is in, as many other analysts. He categorizes them as the creditors (savers) rather than debtors.

M said...

@ Texan

"The market is also telling me it doesn't see a lot of "extraordinary" money printing (much to it's dismay) in the near future."

Previous money printing is not static. Why do you think there needs to be new money printing to see a rise in prices ?

victorthecleaner said...

On possible indicators of HI, please take a look at the articles by John Hussman in this message. I think you would need an increase in short term interest rates. Since the Fed keeps them artificially low, you would need to look in places in which the Fed has less influence, say, commercial paper, eurodollars base rate, etc.

On Alisdair Macleod's article. I think that both ways of monetizing government debt, i.e. either by expanding the monetary base or by somehow forcing the banks to lend directly to the government, using their excess reserves, would lead to the same consumer price inflation (more money spent by the government chasing the same goods and services). This assumes constant velocity.

With the extended monetary base, however, the immediate risk of an increase in velocity is bigger (see Hussman again). With bank lending, they would introduce another intermediate step and somehow inflate the system even more. This might delay the inevitable, but would finally threaten to wipe out the banks all at once as soon as market interest rates eventually go up.

On the WTI/Brent spread. I agree with the story as presented by Casey Research. Plus basically all oil for delivery at some major port trades with Brent not with WTI. Even oil for delivery at the Gulf of Mexico coast has almost the Brent price.

There is a pipeline from Cushing to the Gulf of Mexico coast (operated by ConocoPhilips??). Even though there is a price difference of more than 10 US$ per barrel, they have not reversed the pipeline and are still pumping from the coast to Cushing.

The US have trapped the Canadian oil.

Victor

Texan said...

M,

The helicopter drop has no effect if people take the cash and stick it in a shoebox under their bed. It's even worse if it isn't really a helicopter drop, but rather just a mechanism for inflicting an "inflation transfer tax" from consumers to commodity owners ( who to add insult to injury take the cash and put it under the bed).

There is no velocity. There hasnt been for awile now because they pushed oil beyond the real income carrying capacity of the US. And they don't want to bid up oil again with another QE. It doesn't work. It's also what I am saying that market is starting to discount for as it sells off.

Now if they embark on massive fiscal stimulus, then I might
start getting concerned about HI. But that is not in the cards until 2013 at the earliest, Obama doesn't even have votes to extend the payroll tax holiday. Meanwhile cash is going to sit tight knowing that it will get more valuable with declining asset values.

But guys, it's a working thesis. It could be totally wrong.

Robert LeRoy Parker said...

Texan says


The helicopter drop has no effect if people take the cash and stick it in a shoebox under their bed.



Not going to happen.

Casper said...

Hey Victor,

I've read the "message" you had linked and agree to a certain degree.

I notice that when analyzing HI events people tend to make same assumptions for different type/size of economies. The process that would result in US HI (if it comes to this) can't be the same as in case of Germany (20') or Zimbabwe.

Don't get me wrong, the loss of confidence is of course THE thing that causes HI and the result would be the same as in the case of above mentioned countries, but I think that the current world monetary order (dollar as a monetary reserve) leads me to believe that we would witness a rise in value of dollars in the FOREX market and a drop in prices of various assets first.

Any thougts?

Casper

costata said...

Venezuela

Part 1/2

Let’s take a look at the decision to nationalize the gold industry in Venezuela and bring the 211 m/t of gold reserves held in banks in the “North” back to Caracas from a different perspective to the one presented in the MSM. (My emphasis)

Venezuelan President Hugo Chavez confirmed reports that his government is “bringing home” 211 tons of gold currently stored in international banks and that plans are underway to nationalize the entire gold mining industry in the Caribbean nation.

……. the Venezuelan government also plans to transfer the country’s US$ 6 billion in international cash reserves, currently held in U.S. dollars, European euros, and British pounds sterling, to banks in Brazil, China, and Russia.

This seems to be driven by the experience of Libya. I also imagine that the US military occupation of Haiti also heightened some tensions in Cuba and Venezuela.

Earlier this year, after Libya’s $US 200 billion in international assets were “frozen” by U.S. and European powers as part of the NATO attacks, Venezuela’s Chavez called the move “a robbery” by the U.S. and its European allies.

These events also appear to have prompted Venezuela to fast track military support from Russia and development co-operation with China as reported here.

The Bolivarian Government is also negotiating a 4,000 million dollar credit agreement with Russia, the funds will go towards the equipment and training of the FANB. In reference to the negotiations……

President Chávez also stated that a new international credit agreement of 4,000 million dollars is currently being negotiated with China, who will provide the credit in exchange for oil. High-ranking representatives of the Venezuelan administration are now in China to negotiate this financial agreement.

Continued/

costata said...

/Continued

Part 2/2

Apparently the IMF is not on their Christmas card list either.

Chávez also highlighted that Venezuela’s strong international relationships meant that it could bypass international monetary organisations such as the International Monetary Fund (IMF) and pointed out that a 4,000 million dollar credit agreement had already been reached with neighbouring Brazil.

Venezuela currently produces around 4.3 m/t of gold per year but according to numerous reports there is significant illegal mining as well. There have been clashes between mining companies attempting to develop projects and both the Venezuelan government and local indigenous peoples. (A few years back BHP-Billiton had to shut down a gold mine in Papua-New Guinea because of the environmental impact. Gold mining tends produce bad environmental outcomes.)

Rodriguez, the future head of Latin America’s UNASUR, also affirmed that he would encourage other Latin American nations to “move their reserves to a good safe house” and out of the economically troubled Global North.

A regional currency (SUCRE) has been developed by the South American trade bloc ALBA. It is apparently making some modest gains in use as an electronic trading currency among members. Progress is reported toward producing coins and notes in this currency.

When you look at the incentives and interests of various parties in South and Latin America (such as Brazil) the concept of a regional currency union begins to look interesting. I’m not suggesting that a Euro style currency union is in the offing but it could solve a lot of problems for the region (and create a few new ones, but that’s life).

Indenture said...

Any concerns about the inter bank lending in Europe freezing?

burningfiat said...

Indenture,

No concern what so ever, I have my target gold and cash amount.

Let the bank runs begin :-P

/Burning

M said...

@ Texan

"The helicopter drop has no effect if people take the cash and stick it in a shoebox under their bed. It's even worse if it isn't really a helicopter drop, but rather just a mechanism for inflicting an "inflation transfer tax" from consumers to commodity owners ( who to add insult to injury take the cash and put it under the bed)."

Evidently it has an effect on the treasury and gold market. If there where not reallocation of inflation happening now then world stock markets could not have fallen again while pushing bond prices and gold prices even higher then 2008 or 2009 like they have. Most commodities have fallen slightly but nowhere near as much as 2008. Oil hit $38 a barrel in 2008, Brent is over $100 today. We can conclude then, that nobody has put the money under their bed.

M said...

@ Casper

"but I think that the current world monetary order (dollar as a monetary reserve) leads me to believe that we would witness a rise in value of dollars in the FOREX market and a drop in prices of various assets first."

That happened in 2008 and its not going to happen again. Don't underestimate the dump world stock markets had these last 2 weeks. It was worse then the first few days of the 2008 crash. The DOW crashed 600 points, all world markets crashed, oil dropped over 6% and the US dollar barely got a bid, the Euro stayed above $1.40 and gold was up 10% from an all time high. There has been a paradigm shift.

Texan said...

M, pointing me to Treasury demand as an example of "inflation" is farcical.

All the data is screaming "recession", and everyone wants cash equivalents because they are worried that asset prices are going to get further killed.

Demand for cash is very high. There is no disputing this.

The only thing worth discussing is the anticipated policy response. Is bad debt going to default on the taxpayer dime, or not?

That's it. You answer that correctly and you have a good shot at getting the next iteration of this correctly.

So wdyt?

Jeff said...

sprott on gold:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/20_Eric_Sprott.html

Casper said...

Hi M,

I've noticed that the last drop in stock markets didn't turn out to be positive for the dollar, but there was also a big increase in prices of US Treasuries of various maturities, so we're not at the end of the time line yet (bottom of the Exter's Pyramid).

I still think that the Euro/Franc story is partly responsible for the latest rise in prices of gold and that it will continue to bounce the flight to safety coming from the eurozone to gold instead of franc.

Casper

Casper

Motley Fool said...

I would like to make a observation.

There is a simple reason why the USA cannot allow deflation.

If deflation happens then the dollar becomes worth more in real terms.

Since the USA is a net debtors that means their (already insurmountable) debt becomes more in real terms.

Deflation is not a option.

TF

Biju said...

One reason the Indians were never afraid of Gold because Gold priced in Rupees never had the 1980's bubble. Rupee devaluation probably smoothened the rise.

http://www.keralagold.com/yearly-gold-prices.htm

Motley Fool said...

The similarity of that image posted by Biju is remarkable to this :
Bubbles

lol

Wendy said...

completly off topic but interesting none-the-less regarding who owns the fed?

http://www.bibliotecapleyades.net/sociopolitica/esp_sociopol_fed01.htm

and worth dropping into the blog for future reference.

Wendy said...

also for those that have an interest: crazy long, and I havn't read the whole thing, but very interesting .....named the secrets of the federal researve:

http://www.barefootsworld.net/fs_m_app.html

Ramon said...

@ costata:

Max demonstrates the same misconception, about which camp Wall Street is in, as many other analysts. He categorizes them as the creditors (savers) rather than debtors.

That's not a surprising misconception in my view, considering the treatment of debt as an asset for collateral. Is there a definable threshold at which they went from general creditors to mutual debtors?

@ victor:

With bank lending, they would introduce another intermediate step and somehow inflate the system even more. This might delay the inevitable, but would finally threaten to wipe out the banks all at once as soon as market interest rates eventually go up.

Exactly why I agree with Texan there might be a number of months, or possibly more than a year left before the interest rates blow up (what I view as the signal of final confidence loss). Even if the financial/political world mostly realizes what a sham the repo game is, beyond that segment of society I think it won't be understood for some time yet; confidence will remain in flux instead of collapsing.

@ JR:

If there isn't already a FAQ (I'm not aware of one - just a glossary), perhaps you would be best suited to creating one? Maybe a short guide on forum etiquette as well. I know it would've (and still would) helped me quite a bit.

Terry said...

Things that make you go Hmmm.

http://www.scribd.com/doc/62765636/Hmmm-August-20-2011

Good info about Chavez's demand to repatriate Venezuela's gold. This could really be the SHTF moment!

Aaron said...

Ramon said...

@ JR:

If there isn't already a FAQ (I'm not aware of one - just a glossary), perhaps you would be best suited to creating one?

Is this what you're looking for? FOFOA referenced it a while back. No idea on who's maintaining it, but apparently you can mail the author
over here.

--Aaron

Joel said...

Looks like the Greek banks may be the first to blow up:

http://www.ft.com/intl/cms/s/0/ad8d17a2-cc07-11e0-9176-00144feabdc0.html#axzz1Vhyyuhk7

Tyrone said...

Up around $400M, right?
Haven't heard much about this as a follow-up. Thought I would just refresh memories...

Link: 2009-06-01 Northwestern Mutual Makes First Gold Buy in 152 Years
Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York

M said...

@ Texan

"M, pointing me to Treasury demand as an example of "inflation" is farcical."

What I am saying is most of the inflation is hiding in the treasury market. As Lew Rockwell said on his radio show with James Turk.

Lew Rockwell-" The dollar has serious problems obviously internationally and domestically. They certainly have printed enough money to bring on hyperinflation and I guess, since of course, what happens with prices is determined by peoples subjective views of what's is happening. So in Wiemar Germany, prices did not go up anywhere near as much as the money supply one might have thought would have dictated, then went up much faster then the money supply was going up because people realized what the heck was happening"

James Turk-" You are raising a good point about what happened in Wiemar Germany. My view is just that we are on this path to what I call the fiat currency graveyard."

http://www.lewrockwell.com/lewrockwell-show/2011/08/07/214-the-fiat-currency-graveyard/

M said...

@ MF

"Deflation is not a option."

Deflation will not happen, even if there is no more money printing. US treasuries will lose quality as the economy deteriorates.

Marc faber-"In the deflationist scenario, you don’t want to be in US govt. bonds & cash. In that scenario, the fiscal deficit would deteriorate greatly. If the Dow went below 1000, we would be in a total economic collapse where tax revenues would fall off a cliff. So even in the deflationist scenario you don’t want to be in the long end of the government bond market."

Aquilus said...

In case anyone needed any more proof that the gnomes need to be removed from the front lawn (thanks for that visual Costata) here’s Bloomberg today describing the FED’s actions (not empty words mind you!!!):

Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans

Does that remind you of the famous quote:
Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!


Specifically this paragraph in the article:

Acceptable Collateral
In most cases, the Fed demanded collateral for its loans -- Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn’t repaid. That meant the central bank’s main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.
As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.

Paul I said...

@M

Could you explain something for me please?
You say we can have hyperinflation without printing.

There is $14 trillion in outstanding US debt.
There is $2.7 trillion base money issued.

Yes, inflation is hiding in treasuries.
But how can a run from treasuries occur, when there is 5 times more treasuries than cash?
Do you mean the price at the margin drops to zero as they go bidless?
Why would the Fed let them go bidless?

I'm trying to work out the mechanism for bonds to devalue, while the Fed keeps jamming them higher and higher.
Don't they gradually get shorter and shorter until they are all completely base money?
I know it can't continue forever, but I can't see how it ends without that hyper print.

Cheers

Paul

Aaron said...

Kaile Goh - Gold

Kaile Goh - Gold (v2)

Indenture said...

burningfiat: I like your answer.

On EU banks, Solvency or Liquidity? - Or BOTH?

Indenture said...

I was looking through FOFOA gif's on Google for a chart and found the association of images amusing during these serious times.

I also found FOFOA's Other Website

M said...

@ Paul I

"Could you explain something for me please?
You say we can have hyperinflation without printing."

First of all, I am not saying they will not print but saying they need to print to have hyperinflation is is giving deflationists too much credit.

"There is $14 trillion in outstanding US debt.
There is $2.7 trillion base money issued."

That 14 trillion in debt also represents 14 trillion in credit. I might add, that is 14 trillion in publicly traded credit. If/when confidence is lost in this publicly traded credit then it will be sold off for cash and reinvested in other things like gold. A run on treasuries is an instant flood of 14 trillion dollars.

Aquilus said...

Interesting views on euro project, gold, gov't coersion - James Turk interviews Rickards at GATA

http://www.goldmoney.com/video/rickards-turk-interview.html

Aaron said...

Kaile Goh: Gold (acoustic)

Wendy said...

I have never in the past suggested a "must read", my last link is infact the only "must read" I'll probably suggest.

It was written during the Reagan administration, and chronicles the history of central banking, and the spider web of influence and connections.

I've spent my day alternating between making salsa and studying the history of central banking. At the end of the day, neither are finished, although I know the salsa tastes better than central banking.

Anyways I really want to stress the importance of this document, although I'm not finished reading, and it's a repeat of alot of stuff i've read over the years, it's a concise representation of the incestuous relationship between governments and bankers.

More importantly for me it illustrates the efforts and importance (to central banking) of the side-shows and puppets.

Do the PIIGS make it? >>>>>sideshow
Inflation vs deflation>>>>>sideshow
revolution in the ME>>>>>>>sideshow
but at the same time
criminal insurection in the UK
>>>>>>>sideshow
markets wacked >>>>>>>sideshow
debt ceiling debate >>>>sideshow

etc etc etc

I think we're being played BIG TIME!!

The banking interest spent alot of time and money removing gold from the little guys and business. Starting with forbidding the goldsmiths of england to issue "script" against their gold deposits, and further requiring them to deposit the gold metal in the BOE.....followed by the US making gold ownership illegal...

And now we have cetral banks scrambling for gold????

Something is going on as always under the radar, because what we are being fed is lacking true authenticity.

I'll be stepping off my soapbox and stepping into my kitchen to finish the salsa now.

All comments are appreciate.

costata said...

Paul I,

You wrote:
Don't they gradually get shorter and shorter until they are all completely base money?

Go to the head of the class. This is what Topaz was talking about.

The longer dated paper issued in prior years also matures at some point. The holders can refuse to roll it over and simply demand cash.

Aquilus,

Thanks for the link (and the quote that will one day appear in a book about this transition IMHO).

All,

Re: Venezuela

A quick straw poll. How many of you got a phone call from the Bank Of England to let you know that Venezuela was calling in its gold?

intuitivereason said...

Significant paper over at Martin's place. The Rise and Fall of the Euro is interesting from the Freegold perspective - providing insight from a slightly different viewpoint.

Does his suggested of consolidated debt 'break' or reposition the Freegold concept of the Euro? My first reaction is that it doesn't; infact it brings it one step closer to fruition.

Anyway - worth a read.

DP said...

@intuitivereason, thanks for sharing.

I personally like a lot of Armstrong's ideas [in spite of him alledgedly being "just another deflationist", which I don't quite get but OK if you say so, M...] however I do take issue this this:

"This is why the euro is collapsing because of a faulty assumption that MONEY is some fixed VALUE and STORE OF WEALTH."

My view is, contrary to the above assertion, the euro is an adjustable money because the creators understood money is NOT some fixed value and store of wealth. Money needs to roll with the times, it needs to be weakened and strengthened as surrounding circumstances evolve, to take into account fluctuating economic conditions.

This disagreement aside, yes I agree it seems like Armstrong uses a lot of language that is in common with FOFOA.

Robert said...

Off Topic: Radio FOFOA

New Order: True Faith!

DP said...

More Armstrong from that article:

The Euro FAILED to create a Single Currency and now the Virtual Currency will tear the system apart.

I am not disagreeing with this assertion. The $IMFS will be torn apart by the collapse in forex value of the euro, as it is intentionally weakened to follow down the values of general goods and services as the economy crumbles.

The US will have to choose between crushing economic death by deflation, if it does not also weaken the dollar, or HI if it does print to follow the euro down in exchange value.

The difference between them is that reserve gold will support the value of the euro, while there is nothing to support the dollar in its present form. So the euro could be caught as it fell, at whatever level was desirable, while the dollar would freefall because there are no brakes apart from the Fed taking its feet off the pedals and dragging them on the passing dirt road.

Edwardo said...

Costata,

I have a recent message on voicemail that starts out with, "Hello, This is "Great Britain calling." I haven't
bothered to listen to the entire message yet, but I'll let you know if it was the BOE as opposed to, say Virgin Atlantic.

DP said...

Mrt, two cherries in one.

mortymer said...

DP, thank you. lovely,...
Here is Opus Aete
http://www.youtube.com/watch?v=6QO21JCa7NA

Btw: There are now few interesting updates on AFB. The spring is flowing valuable info out... :o)

mortymer said...

"Cominciamo dall’euro. Con lo sguardo lungo dove lo vede?
Se la crisi portasse a un massiccio spostamento di composizione delle riserve e a un forte indebolimento del dollaro, l’euro si apprezzerebbe in misura eccessiva; per l’Europa sarebbe allora un problema, un grande problema." ~TPS

mortymer said...

" Oggi ne sappiamo abbastanza per dire che abbiamo bisogno di un oggetto che vola, di una misura comune che imponga disciplina al sistema monetario mondiale." ~TPS

intuitivereason said...

@DP.

I don't know that I'd consider Martin 'just another' anything. His thoughts are deep and his perspective is both (world)wide and (historically)long.

See the upside down waterfall early in the piece?

Martin understands the separation of store of wealth and medium of exchange. His terminology is slightly different that what had developed here, but the understanding is there.

Also take:
"This is why the euro is collapsing because of a faulty assumption that MONEY is some fixed VALUE and STORE OF WEALTH. There is a failure to realize that
creating the euro did NOT replace the inherent function of MONEY as a simple derivative of CONFIDENCE!"


and compare with FOFOA's concept of
credibility inflation.

DP said...

intuitivereason: I don't know that I'd consider Martin 'just another' anything. His thoughts are deep and his perspective is both (world)wide and (historically)long.

I couldn't agree more!

There is a failure to realize that
creating the euro did NOT replace the inherent function of MONEY as a simple derivative of CONFIDENCE!


Again, I agree -- as long as you read this to mean there is a failure to realize on the part of the market, not the creators/managers of the euro.

The market is looking at the euro (or any other currency) and general goods+services, hoping to see that this currency might buy "more later" so they can scalp more speculative profits. The managers of the currency don't want that — they want it to buy "almost as much later" (and I reiterate I'm not talking about gold here, but "general goods+services") and as a result they will preside over a relatively 'Goldilocks' economy.

mortymer said...

Intuitive reason:
http://anotherfreegoldblog.blogspot.com/2011/08/short-update-on-tommaso-padoa-schioppa_1371.html

Ramon said...

@ Aaron:

Thanks, that's pretty much what I had in mind. It would be nice to see it expanded in scope.

@ DP:

I think the political control he expounds on (your manager) is likely to ultimately be detrimental, despite the mechanism as explained by FOFOA being sound. If those in charge don't bend instead of remaining rigid, the system will break; the Euro struggling to maintain relevance.

DP said...

Ramon: I think the political control he expounds on (your manager) is likely to ultimately be detrimental, despite the mechanism as explained by FOFOA being sound. If those in charge don't bend instead of remaining rigid, the system will break; the Euro struggling to maintain relevance.

Hi Ramon, perhaps you can help me better understand by expanding on a couple of things?

- Who do you mean by "those in charge"? Is it: the currency managers; the central political administrators; perhaps the national politicians; other? There are a few branches of TPTB and I'm not sure which you're referring to?

- What kind of "bending" do you think is required and not (yet?) forthcoming? Do you mean they should print perhaps?

Cheers!

ps: Everybody knows where Europe has been, let's see where we're going!

Jeff said...

Robert, True Faith is a good song. But then so is Money Changes Everything by the Smiths, and Gallows Pole from Led Zep seems appropriate. Or Do you feel like we do? Frampton comes alive, ya know. Radio FOFOA, spinning at 1900 on your radio dial?

Biju said...

Motley Fool,

comment regarding Gold in Indian Rupees in a Bubble.

(1) In 1972 it was Rs. 180 per soveriegn(1 pavan or 8 gms)) and the average wage of a coolie was Rs. 2/day. ie it takes 90 days for a coolie to buy a sovereign Gold.

(2) Now the average wage of a coolie is Rs.500 and price of Gold of a sovereign is Rs.21,000 .ie it takes 42 days for a coolie to buy a sovereign Gold.

In wage terms Gold is cheaper now in India. So looking back to the graph - was Gold a bigger bubble in 1972 than 2011 ?

http://www.keralagold.com/yearly-gold-prices.htm

Aquilus said...

@Jeff

How about "Let's get physical"?

Jeff said...

Gold reached a new milestone in its role as an investment and haven, with the leading exchange- traded fund that tracks bullion surpassing its equities counterpart as the biggest ETF by market value.

http://www.bloomberg.com/news/2011-08-22/spdr-gold-may-wrest-etf-crown-from-s-p-500-fund-amid-turmoil.html

Aquilus, I like it.

DP said...

@Jeff Prodigy:Out Of Space.

mr pinnion said...

FOFOA looks well appy with his pot o precious.
To coin a phrase from ZH...

Gold Bitchezzz!

Bring on $2000

http://www.youtube.com/watch?v=pl6vZ0POzZY

Regards
Ozzy

sean said...

Hi Aaron, Ramon,
glad you found my "FOFOA quick answer guide" useful. I finally worked out how to publish the updated version on the same link so I humbly present v0.2
I'm trying to keep it concise, which given freegold's fractal nature is impossible.
Feel free to offer suggestions/corrections.

Aquilus said...

For anyone interested, another Turk/Ben Davies interview

Ben Davies talks with James Turk

Jeff said...

I'm getting worried about local supply. Price is getting so high that people can't just walk in and buy an ounce anymore (almost 2k dollars). Premiums on fractional ounces are outrageous, about 2200 per oz. My local dealers have less inventory, which turns over less, making it harder for them to generate income. Yes, you can still buy online but we need local dealers.

Yannick said...

Time to make the forum 1900, futures just breached this treshold!

And reporting from the field in Paris, the most popular (by far) coin, the Napoléon, is selling at an implied price of $2260 per ounce.
But you don't buy at this price: If you include the shop fee for large quantities (100+), it goes to $2280, and for small quantities, it goes to $2430.
As a reminder, it used to be almost the same as spot one month ago.

Joel said...

I agree Jeff, dealers will need to rethink their strategies to keep all of their past demographics in the buying mix, i.e. restocking with the smaller weight coins, etc... The bigger stuff (kilos,etc...) are taking much longer to get also, up to a week, but still in supply so far. Inflation is keeping local inventory tight due to capital constraints.

Yannick said...

Or, if you prefer, the price of small quantity physical gold coins jumped by more than 50% in one month here in France.

DP said...

Since we're mentioning anecdotal supply constraints, bullionbypost.co.uk are reporting "next stock 2 weeks" for bullion sovereigns and halves (various vintages of premium numismatics in stock though)

Stel said...

We broke 1900$ :-D

DP said...

Don't stop me now

DP said...

We Broke Free

32layers said...

$1912.00 wow...

Diamond Jack said...

All Hail the GLD Puke Indicator!

Brad said...

If smaller coins become more popular due to the higher price premiums should go down.

Paul I said...

Nothings gonna touch you in these golden years (whop whop whop)

Ramon said...

@ DP:

Hi - those in charge can be all of the above - the beaurocrats and politicians in general keep behaving dangerously with one destructive policy enacted after another while the head financiers struggle to walk a tightrope. I just don't have confidence in the human element of control anymore, especially as society continues to accelerate its progress.

Monetary management simply doesn't seem possible over the long-term (decades) with the methods and mechanisms in place today; if the money supply is adjusted and creates distortions throughout the system, how will it be recognized and compensated for? Will that be done without overcompensating, leading to magnified disruptions? How much invasive monitoring needs to be done in order to accomplish that feat? The sheer size of economies now seems to be too much for anyone or organization to correctly handle.

By bending, I mean finding the balance (whatever the tools used) that will keep the banking system from spiraling out of control toward hyperinflation while also
avoiding a primarily deflationary scenario. It doesn't seem possible from a central management style, again given the magnitude.

I realize Freegold will offer a solid base with the Euro as a pricing metric of sorts against gold, but the current system of management seems like it could introduce just as much instability as we see now, regardless of how effective the free-floating exchange should be.

@ sean:

Great resource, thanks! I'm still reading through.

As long as the principles are made clear, the details can be inferred. I think it might help to have more perspective on how the existing financial system works as well.

DP said...

Hi Ramon,

Monetary management simply doesn't seem possible over the long-term (decades) with the methods and mechanisms in place today; if the money supply is adjusted and creates distortions throughout the system, how will it be recognized and compensated for? Will that be done without overcompensating, leading to magnified disruptions? How much invasive monitoring needs to be done in order to accomplish that feat? The sheer size of economies now seems to be too much for anyone or organization to correctly handle.

Today, the euro is not a truly RPG currency -- but it is built ready to become that, once gold 's value is free of the paper system's suppression. At that time, you will be able to objectively measure their euro currency. You will look at their balance sheet and see €X liabilities have been issued, and Y reserve assets are held. The major part of the Y will be ounces of gold. So you will be able to work out the "fair value" of gold (or, more accurately, the currency!) by getting Y ounces and dividing it by €X, giving €gold price. They can then fine-tune the value of their currency by adjusting the ratio of assets:liabilities, either by issuing/retiring euro liabilities, or by buying/selling ounces of gold — depending on the demand for more or less euro liquidity in the system, and/or to correct any irrational discrepency that could develop in the gold market.

They will fine-tune the value of their currency to track the market valuation of general goods and services (as measured by the HICP), with the stated aim that general goods and services will inflate in price against euros at a rate of as close as posssible to 2% per year. Not the gold price, but the price of general goods and services - although eventually all goods and services (including gold) will very likely establish natural relative valuations that are fairly stable, so it can be foreseen that gold will also stabilise rather than continue rising and rising indefinitely.

Under RPG, other non-euro currencies will either choose to emulate the way the euro works, or base off the euro - much the same as they today base off the dollar. If they base off the euro, you can still triangulate their reserves and liabilities, back to the objective measurement of gold via the euro. So you will be able to objectively value those currencies as well as any RPG currency.

Today, in the dollar world, this objectivity is wholly absent - which is what leads to today's impossibility in correctly valuing anything and everything, and consequently the massive opportunity for gaming the system by TPTB. Almost nobody knows how they are being gamed, and those of us that do, can't demonstrably measure it anyway.

In the future, if the pols/bureaucrats want to spend more cash than they take in, they'll need to display their profligacy to the watching world and their voting population, or take in more gold reserves to offset the increase in currency liabilities they create.

RPG = objective measurability = restraint on TPTB = meritocracy

We're talking about returning to the opposite of a centrally planned economy. Power to the people!

DP said...

This time baby,
This time baby,
This time baby,
Bulletproof

?

DP said...

Cry me a river

DP said...

Come Into My World (Remixed! :) )

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