Wednesday, August 10, 2011

Forum 1800



H/T to REDHILL for the awesome new HD version!!
___________________________________________________________

After gold hit something like $1,775 on Monday and then fell back a bit, Patrick, a Belgian banker, emailed me this:

In times as these it is great to have a vision... that way you just stay put. Otherwise I would have sold already...

I replied with this:

Exactly. You’ve got to understand the Orbital Launch Pattern aka The Inverted Waterfall Effect. ;)



Bubbles don’t occur when the shoeshine boy hasn’t even heard of gold yet. So this parabolic rise has nothing to do with the blow off phase of a bubble. It’s the paper bubble just heading over the event horizon of the waterfall. Long way down, and then very little bounce. Gold is simply the inverse of the bubble that is just beginning to pop.

English is not Patrick's strongest suit, yet he replied with:

The funny thing is.. I understand all the things you are writing in this mail...

And I replied with:

That’s because we share an uncommon understanding! ;)

Patrick's last email to me was this:

These are the days when you are a very happy person who has walked the trail

But... and this is important... it is NOT too late to join the trail! This is a one-time event we expect. It may be starting, but it hasn't happened yet.

Sincerely,
FOFOA

PS. I'll add the updated list once we get a fix or a close over $1,800.

It Just Might Be a One-Shot Deal



Once in a Lifetime



Epic



___________________________________________________________

PPS. Our friend Julian is using his vacation time in Barbados to reread some FOFOA and sends in this picture to go with the other ones from the Grand Canyon and Santorini posted here!

207 comments:

1 – 200 of 207   Newer›   Newest»
Saul said...

Might have to space these out a bit in the future. Like every $500, or $1000??? Hahaha.

JR said...

Yay!

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

The smell of napalm (justice)early in the morning.


"These guys in London woke up with their asses handed to them and I don’t think some of these guys will ever be short again, if they are still in business. So some of these perennial shorts that have always joined in the party got screwed, I mean literally lost everything. For the ones that didn’t lose everything, they certainly lost an awful lot."

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/8/10_London_Trader_-_Many_Gold_Shorts_Wiped_Out%2C_Lost_Everything!.html

Wejn said...

Comments...

Oh, and: yipee... ;)

Boopstir said...

.doubled. To the moon Alice, to the moon.

sirch said...

FOFOA,

Used this one yet?

Higher and Higher by Jackie Wilson

DP said...

.

Indenture said...

This is what it feels like

Aaron said...

Forum 1900! Oh wait, that's tomorrow. Sorry. Getting ahead of myself a bit there.

DP, that looks scarily like a punctuation you have there.

Jeff said...

Ron Paul nails it!

http://realclearpolitics.com/video/2011/08/10/ron_paul_gold_is_not_a_bubble.html

Once in a lifetime indeed, FOFOA. :)

Jason said...

is this Gold's last parabolic move?
or The Time has not come yet??

Texan said...

Oh man what an awesome cover. You nailed it. I have played it 3 times now waiting on blogger's update....

Blondie! You know what you are? You're a son of a b.....!

Ender said...

Do you see Gold Functioning?

My fellow metal-heads, in these volatile times, it may once again be the time to ponder what it means for a currency to function.

http://fofoa.blogspot.com/2008/09/freegold.html?showComment=1222319580000#c5299505380535389869

Or, said differently, where will gold flow in these volatile times?

What you see today is just the tail of the beast – for things function today as they did yesterday. When the dragon stands the world will tilt!

Stand strong. In the paper arena, the rules will change and the game that plays out in paper will buck and kick. In the physical arena, there will be the haves and the have-nots; but in physical strength will be found!

Texan said...

This juicing of the overnight futures, underwhelming selloff in Nikkei (note how yen is held at 76.50 all day), and CME margin hike all look ridiculously contrived and smell of " Tuco-like" desperation.....

They are gonna try to duck weave and roll for 48 hours.

Michael said...

@Indenture
thanks "These go to eleven"
I forgot how hilarious that movie was
and Talking Head...YES "Once in a Lifetime" how absolutely right!!!

NoEscape said...

Awakened from a slumber of distraction only last week and it already appears that I maybe closing the tail of the trail with a few other just in time survivors as fewer and fewer people can afford to get a spot in the balloon taking off...

Wholeheartedly, best of luck to everyone on the trail and but also to the less fortunate.

The future is grim but may bring back true values or the worse. Only then will we see what a nation is made of and if it will stand by the values they claimed to defend. May you , your family and your community be spared pain and suffering.


I'm glad I could catch a few bullions and even though I cannot say I understand everything, gold taking off is as much a hope for me to buy a land as much as it will ring the death toll of the world as we know it.

Gold might be retaking its true place and I just wish for a little more time... So much to happen, so little time...

Aaron said...

Ender-

Simply brilliant.

Ender's exchange with FOFOA in Sep 2008.

I'm going to have to re-read this exchange a few times over the coming days to fully absorb both of your thoughts.


--Aaron

Wendy said...

Aaron,

It's worth re-reading all those early comments: at minimum Sept - Dec 2008.

limits said...

Just glad I discovered this blog about a month ago, so I can revel in the launch with like-minded travelers!

Already had a decent size position in physical prior but doubled down after I spent some time reading and comprehending.

Looks like 1764 was pretty irrelevant, no?

Nick said...

I'm still waiting for "Goldfinger" from the James Bond film by John Barry / Leslie Bricusse

Also,

I know that the 'Orbital Launch Pattern' and the very similar diagram FOFOA has used before (showing the paper 'price' collapse due to physical going into hiding before re-emerging at
its focal point price) both have the same end game, but I was wondering the odds (if at all)
of the paper price just escalating without collapse (perhaps due to a govt. that 'declares'
Freegold someway - I know, extremely slim possibility).

The only reason I ask, is because I find it interesting thinking about how when the
paper price crashes towards $0 the majority of the
population that may own some gold (be it in jewelry, dental fillings, or a few old coins passed down), but have
no knowledge of FO/FO/A or Freegold, and may try to sell it or pawn it as they see the paper
price crashing (perhaps out of just frustration not even necessity).
Seems like some people may get very unlucky or others possibly very lucky as it plays out.

Nick said...

sorry about the weird format... had it in notepad cause blogger was eating it.

NoEscape said...

@Aaron: Thank you for the link back to the past.

Aaron said...

Hi Nick-

The only reason I ask, is because I find it interesting thinking about how when the paper price crashes towards $0 the majority of the population that may own some gold (be it in jewelry, dental fillings, or a few old coins passed down), but have no knowledge of FO/FO/A or Freegold, and may try to sell it or pawn it as they see the paper price crashing

Ok, think this through. Let's suppose this happens. Let's suppose all of the people with weak hands sell their gold, but there is still a huge stockpile (160,000 tons) that does know the true value of gold. What happens next?

@NE

:-)

--Aaron

Nick said...

Aaron,

I don't think it will affect the outcome at all, I just find it interesting how the difference in how freegold emerges may 'make or break' someone. just me being curious :)

Aaron said...

Agreed. The week hands will be broken while the strong hands will become stronger hands. A freight train headed our way that cannot be stopped. Epic!

Wendy said...

M,

The reason I said the 600 point bounce on the dow late yesterday was the work of the PPT was because, as soon as Bernanke finished yapping, the market nose dived for about a 1/2 hour, and then turned on a dime and climbed.

I think very soon a decision will have to be made to either try to save the stock market OR the bond markets. I think it's pretty clear where the efforts will be focussed.

M said...

The gold miners are getting a solid bid. Nobody seen this coming. Too much money sloshing around. They will rally for a while me thinks.

Indenture said...

Function Of A Currency by Ender (I was too slow for Aaron)

and Wendy's suggestion FOFOA September 2008

If you don't like the blogger format of reading posts backwards the list of September posts on the right is useful. The comments are great. Now that I think about it this is about the time I started reading FOFOA.

'limits' and all those new to Freegold / Reference Point Gold: Welcome. Pull up a chair and relax. If you have a question this is the place to ask. We'll be having lemonade in awhile so stay a spell.

Wendy said...

I hope Another and FOA are enjoying this well..... I suspect they aren't enjoying the turmoil, but hopefully have a sense of vindication for all the shit they took. Actually I'm projecting, because I sure I would be relishing ;) at least a little bit.

Actually although I believe FOA might be experiencing this, I'm of the opinion that Another is not with us.

In fact I think Another saw freegold as surely as day follows night, and would be unphased.

Indenture said...

CME Hikes Gold Margins By 22% And Gold Drops by....0.4%, Resumes Climb

limits said...

Much appreciated Indenture...I will take you up on the offer:

what is the significance of the margin hike by CME? Who is behind it? From the article, it sounds like an attempt to move the price of gold down, but how can it be enforced unilaterally without notice?

Likely naive questions for the more experienced here, but I don't have any exposure to the forex markets other than watching the XAU/USD chart.

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

Hi All,

This is not good. Record outflows from equity mutual funds while they are holding record low levels of cash. If this continues it will lead to forced liquidations.

http://www.zerohedge.com/news/weekly-outflows-domestic-equity-mutual-funds-surge-13-billion-nearly-surpasses-post-flash-crash

Motley Fool said...

http://upload.wikimedia.org/wikipedia/commons/8/8f/GermanyHyperChart.jpg

I'm liking that picture. And wondering where in the similar waterfall picture we are.

DP said...

@MF, who knows! Late 1922 perhaps?

Edwardo said...

Costata,

It is game over for stocks on a variety of levels. With a cratering economy, earnings will not be able to support anything but lower prices going forward despite whatever liquidity is manufactured by the monetary authorities.

Having said that, my view is that no liquidity will be forthcoming in until the political class is begging for it. Sometime in early fall I expect they will be on board for the next monetary shock and awe campaign.


Finally, my fearless forecast is that before the year is over the stock market will sell at a discount of somewhere between 35 and 50 percent of its late April high. '08 will have nothing on '11.

Indenture said...
This comment has been removed by the author.
poopyjim said...

I think Firework is the perfect freegold anthem, as the lyrics are analagous to gold revealing its true value. The song may as well be about freegold.

It looks like we are fast approaching the endgame. Three cheers for FOFOA, the #1 gold analyst on the web at this time in my humble opinion. When I found this blog in the summer of 2010, I immediately knew I had stumbled across something special. It was a long journey that led me here, but when I got here I knew I had arrived at my ultimate destination.

Edwardo said...

http://www.zerohedge.com/news/gold-implied-vol-surge-gold-sept15dec15-3300-calendar-spread-trades

JR said...

Hi Nick,

This is I think related to your comment that:

"I know that the 'Orbital Launch Pattern' and the very similar diagram FOFOA has used before (showing the paper 'price' collapse due to physical going into hiding before re-emerging at its focal point price) both have the same end game, but I was wondering the odds (if at all)
of the paper price just escalating without collapse (perhaps due to a govt. that 'declares' Freegold someway - I know, extremely slim possibility).
"

**********************************

Consider that Freegold and hyperinflation are two discrete events, although likely to occur concurrently.

Confiscation Anatomy - A Different View

"As I have explained many times, freegold and hyperinflation are separate events. Freegold is the establishment of a physical gold market after the paper gold market is arrested through default, breaking the dollar's grip on gold, and also breaking the dollar's international settlement function.

The first way this collapse could play out is a quick devaluation of the dollar, say, over a couple weeks, followed by the emergence of freegold. Think of it as the riverbed at the bottom of the waterfall.

The second and more likely way this will play out is with hyperinflation thrown in, perhaps lasting many months or years after the initial plunge/devaluation. The overwhelming evidence that this will be our path is the political control the Executive Branch is exercising over dollar monetary policy."


cont.

JR said...

cont.

From the Treasure Chest

This may apply to your question. Someone asked me last week:

"You’ve said hyperinflation and freegold are separate events. I can only imagine them all rolled up in one messy ball. Would love to know how you see the separate events relate to each other as they unfold separately, if you haven’t already covered it."

I replied:

"They will most likely be rolled up in one messy ball. But thinking about it in that way makes people miss that they are distinct, discrete events that will be happening at the same time. For example, if hyperinflation takes the price of everything up 1,000,000%, gold will go up 40,000,000%. But only gold. Everything else, silver, cans of peas, etc... goes up 1,000,000%. So gold's FREEGOLD rise (that extra 40x rise) is in REAL TERMS because it is relative to everything else REAL. While everything else only rises in NOMINAL terms. Can you see the difference?"


**********************************

FOFOA comment from Forum 201

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

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

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


Cheers, J.R.

M said...

The Swiss govt is pegging the Franc to the Euro.

JR said...

Aaron,

Thanks for inspiring the epic update!

The Dork of Cork said...

Explosive article - the Swiss are not sterilising - they are printing raw currency.

No more US QE means less interest flowing back to the treasury.............

Gold is going to EXPLODE.

http://ftalphaville.ft.com/blog/2011/08/11/650656/when-a-government-bond-becomes-a-giffen-good/

JR said...

Excellent stuff DoC,

While the author foams over the obvious - the fact SNB is not sterilizing, as that is the whole point of their repeated currency interventions, to dump Francs onto the market to keep the price down - the author makes a great point relevant to out topic at hand.

The Fed chairman’s magnum opus on the Great Depression ‘Nonmonetary effects of the financial crisis in the propogation of the Great Depression‘ clearly states that one of the key factors that contributed to turning a financial crash into a depression was nothing other than the market’s newfound obsession with holding the most liquid securities (in that case US Treasuries) and nothing else.

In fact, just like today, the market for unsecured lending died a death because counterparties no longer trusted eachother. Everyone turned towards a collaterised lending regime, one in which only the very best collateral (Treasuries and gold) would do. This had the effect of causing a run towards Treasury securities. [JR edit - and gold - wonder which one they will keep running too?]

What’s more, no matter how much money was printed by the Fed to ease liquidity concerns it only intensified the obsession with capital preservation. Largely by eliminating the number of Treasury securities in the market. Since, there was noone the banks could lend money to in the wider market due to credit concerns, Treasuries became a bit of a Giffen good. The money had to be parked somewhere.

As Bernanke wrote:

[start BB quote] “The perception that the banking crises and the associated scrambles for liquidity exerted a deflationary force on bank credit was shared by writers of the times. A 1932 National Industrial Conference Board survey of credit conditions reported that “During 1930, the shrinkage of commercial loans no more than reflected business recession. During 1931 and the first half of 1932 (the preiod stuided), it unquestionably represented pressure by banks on customers for repayment of loans and refusal by banks to grant new loans.”

A device which makes the cost advantage of the simpler approach even greater is the use of collateral. If the borrower has wealth that can be attached by the bank in the event of nonpayment, the bank’s risk is low. Moreover, the threat of loss of collateral provides the right incentives for borrowers to use loans only for profitable projects.
Thus, the combination of collateral and simple loan contracts helps to create a low effective (costo of credit intervention) CCI. A useful way to think of the 1930-33 debt crisis is as the progressive erosion of borrower’s collateral relative to debt burdens. As the representative borrower became more and more insolvent, banks (and other lenders as well) faced a dilemma. Simple, noncontingent loans faced increaskingly higher risks of default: yet a return to the more complex type of contract involved many other costs. Either way, debtor insolvency necessarily raised the CCI.[end BB quote]

With capital preservation becoming the top priority for banks, institutions were willing to pay more than the face value of Treasury securities, because investing elsewhere would come with too great a risk of default.

And, yes, the downward spiral really did begin with the trend towards a collateralised lending regime.


cont.

Billy C Vinson said...

Is that you,Shoe Shine Boy?

JR said...

cont.

A Giffen good is one that people demand more of as the price rises, like this:

"...With gold, a rising price sends the exact opposite signal to the place where supply comes from. It confirms the belief in those that already hold the "stock" that it is a good investment and it is best to sit tight and not re designate it to "flow".

Commodities and paper investments are limited to the upside by economic forces and future earnings metrics respectively. Yet they are unlimited to the downside for the same reasons. Gold, on the other hand, has none of the upside limitations that everything else has. It will only find its point of equilibrium when enough "stock" is reassigned to "flow" to meet demand. And this dynamic obviously has nothing to do with today's paper gold market where physical stock lies very still and paper stock meets most of the demand.

Lastly, understand that currency flows through assets, not into them. In fact, a limited amount of dollars can flow through the same gold many times, over and over, driving it higher and higher with each pass, as long as new gold stock is not coaxed out of hiding. And the interesting thing in this process is that, as I said above, it actually causes the opposite of the expected supply/demand reaction. With each pass-through of the dollar more "flow gold" is moved into "stock gold", not the other way around like commodities and paper.

This is the feedback loop. It is confirmation to the gold investor that his gold is a good investment. And it also says something very distinct about the alternatives. Namely that they are failing. And with this confirmation, it is from existing gold holders that less supply comes. This is not true of any other investment class because they all have objective metrics for valuation or economically limiting forces. All except gold.


How Can We Possibly Calculate the Future Value of Gold?

Cheers, J.R.

JR said...

Also, consider the above ftalphaville author's discussion of:

"With capital preservation becoming the top priority for banks, institutions were willing to pay more than the face value of Treasury securities, because investing elsewhere would come with too great a risk of default.

And, yes, the downward spiral really did begin with the trend towards a collateralised lending regime."


*********************************

in the context of Ender's discussion of Sir Topaz and "Time" in assessing the import of negative interest rates on treasuries, aka “The $US and $Gold”

"...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.

Buck you see, is the sole representitive of here 'n now in Fiat-currency speak, a role which Gold and Silver play admirably "under NORMAL circumstances" ...for, when all is said and done, they've had 6000Yr's practice!

There will be a (short) period, depending how the PM delivery window is biased at the time, where we'll see Gold and/or Silver marching up the Charts in unison with El Bucko as the world stands agog, transfixed in time (as per the Deer in the Headlights imagery)

Currently, our two Hard-money champions aren't traded in the absolute "here 'n now" are they?

...

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.
"


Cheers, J.R.

M said...

@ JR

From what I can tell, Ender has a Robert Prechter view on things. Prechter also believes hyperinflation will happen but only after a huge dollar demand rally. I don't agree and I never have. How does anyone know when the printer will scare the demand away and create a run in the opposite direction ? The demand is not mathematical in nature, it is just psychological. The whole reason there has been no QE this week yet is because even some FOMC members are worried that the printer will scare the demand away.

OC15 said...

FOFOA,

I'd like to hear you talk about the effect of margin increases by the crimex on gold. They drove silver down over 30% in May. Can they do the same to gold with stiff and consecutive margin hikes? Gold back into the 1,300's? How much of the long position do you think is made up of specs?

Jeff said...

A blind man could have sold that spike at 1800, a correction was evident. But I am no blind man.

JR said...

M,

Ender's point is the same as Another/FOA/FOFOA.

Ender's point is not the same as Pretcher's.

I am pleased to see you striving for a firmer grasp of the issues at hand! Here is a big fundamental point that seems to have eluded you:

Demand does not follow the printer, demand is in control and it is the printer who follows. Perhaps with that idea entrenched, you will see the significance of Ender's commentary about "TIME" in a new light.

**********************************

Deflation or Hyperinflation?

""My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. 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! (smile) Worthless dollars, of course, but no deflation in dollar terms!"<...

Inflation runs crazy when a money system is forced to "print out". We will "print out" our dollar, too. Getting there just takes time and an alternative system to cause it...

There is always a shortage of cash during a full-bore, in-your-face hyperinflation, which is why the printer has to keep adding zeros...

When the hyperinflation hits in a reference point purely-symbolic fiat currency paradigm, the market will try to clear for the rising symbolic cash price while the hard currency price (denominated in gold) continues to drop like a stone...

Rick Ackerman and other deflationists agree with me that the unsustainable, unstable mountain of debt must and will collapse. And they view "the Elite" as the capitalist creditors and the rest of us poor working saps as the proletariat debtors. Therefore they believe that when the debt mountain collapses, their version of "the Elite" will not print Zimbabwe-style because, even though they just took a tremendous haircut on their bonds, they want to be sure that the super-saps among us, the proletariat that are still working, will continue to service the remainder with dollars of today's purchasing power.

This is a bass-ackward view in my opinion. The hungry collective provides ample political backing and sufficient naiveté for "the [Western] Elite" to print the full face value of their bonds and dump that worthless paper on the public's front lawn...

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

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


cont.

OC15 said...

Jeff,

the thing was not going to "correct" if the CME had not raised margins. If they hadn't done that we'd be at 1850 or higher by now.

Gold and silver have been held down for so long that the only "correction" necessary is straight up to God knows where. No correction downward is necessary except for manipulation and paper profit taking.

Edwardo said...

They must be getting really, really desperate when these sorts of rumors start making the rounds.

"she has friends in high places in brokerage houses - FWIW....
I am hearing that the US Treasury has ordered CME to break the price of gold"

Just passing this on"

Jeff said...

OC,

The paper market is 'manipulated' daily, whether margin is increased or not. Both trade at their commodity prices, believe it or not. One is actually a commodity. One tell that gold is manipulated is the very low volatility, even now. Until this week we never saw more than 1% up or down days on gold. That band seems to have expanded to about 2%. Silver? Much wider range, because it isn't gold. Like other commodities it may trade 5% daily.

I don't expect 1300 gold but it would be a nice gift to those who want to load physical. That's why I don't really expect it. The 'manipulators' need to raise the price to stretch physical supply.

JR said...

cont.

"…Velocity can have the same exact effect as printing. Would you agree with this statement? Fear is the spark that ignites it. And then the government will need to fund itself in this hyperinflationary environment. This will entail THE massive printing that always follows immediately after hyperinflation starts.

Fear entails the massive printing.

**********************************

Big Gap in Understanding Weakens Deflationist Argument

Collapsing money demand, aka loss of confidence in store of value function (debt) and demand for cash or cash equivalents (T-bills) forces printing. Sounds a lot like Ender/Sir Topaz's idea of negative short term yields indicating TIME being \ forced into the present as demand for cash spikes, necessitating the printing to keep the credit system working.

"The point is, this is the way collapsing money demand plays out in reality. It plays out as the collapsing of the store of value time continuum scale. And as the time in which a currency stores value becomes shorter and shorter, the currency circulates faster and faster.

So a falling demand = a rising velocity. Likewise, a rising demand = a falling velocity and a longer store of value...

But during unstable times something changes. The demand side of the equations suddenly takes value-control away from the printer. This is where we are today, and where we have been since 2008.

When the economy is struggling, unemployment high, home prices falling, people are afraid to spend their money. This drives up the demand for money, slows the velocity of money, raises the value of money and lowers the prices of things and assets. Likewise, when the financial markets are crashing, the demand for cash skyrockets while plunging assets bid frantically for dollars. Both of these demand-driven events act just like a large deflation in the money supply as they drive up the value of money and lower the prices of other things.

When this happens, the money printer tries to counter demand by increasing supply...

You see, monetary supply and demand can act as exact substitutes for each other. A 50% rise in demand has the same effect as the 50% decline in supply. Or said another way, it takes a 100% increase in supply to counteract a 100% rise in demand. And that's exactly what we see happening today. A spiking demand for currency because of instability in some markets and the economy, as well as earthquakes and unrest in the Middle East, jacks up the price on the currency exchange and drops the price of other assets which is instantly met with quantitative printing (supply increases) to ease the pain, raise the price of assets, and recklessly counter that which is actually in the driver's seat today, demand.

Once again, during stable times, supply gently drives demand. During unstable times, demand drives (forces the hand of the printer who controls only the) supply. Did you figure it out yet? During stable times greed allows the printer of the currency to drive its value through supply controls. During unstable (or uncertain) times fear takes the wheel, leaving the printer at its mercy in the back seat.


cont.

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

cont.

See that:

When the economy is struggling, unemployment high, home prices falling, people are afraid to spend their money. This drives up the demand for money, slows the velocity of money, raises the value of money and lowers the prices of things and assets. Likewise, when the financial markets are crashing, the demand for cash skyrockets while plunging assets bid frantically for dollars. Both of these demand-driven events act just like a large deflation in the money supply as they drive up the value of money and lower the prices of other things.

When this happens, the money printer tries to counter demand by increasing supply. ..

A spiking demand for currency because of instability in some markets and the economy, as well as earthquakes and unrest in the Middle East, jacks up the price on the currency exchange and drops the price of other assets which is instantly met with quantitative printing (supply increases) to ease the pain, raise the price of assets, and recklessly counter that which is actually in the driver's seat today, demand.


Cheers, J.R.

victorthecleaner said...

The Financial Times on the renminbi:

A sharp appreciation in the renminbi against the dollar in recent days – at a time when most other emerging market currencies have been falling – has prompted traders to ask whether Beijing has adopted an aggressive new stance on its currency.
[...]
Xia Bin, a member of the monetary policy committee of the People’s Bank of China, said in a central bank publication on Thursday that Beijing should urgently assess the risks of being the main investor in US debt and accelerate diversification of its reserves.

Writing in the Financial Times last month, Yu Yongding, a former member of PBoC's monetary policy committee, said China must end its dependency on the dollar.

"The People's Bank of China must stop buying US dollars and allow the renminbi exchange rate to be decided by market forces as soon as possible. China should have done so a long time ago. There should be no more hesitating and dithering," Mr Yu wrote.


Victor

Motley Fool said...

So the Chinese are finally giving the USA a bit of a break during this market chaos.

That's nice of them.

Edwardo said...

My own response to Martin Armstrong's latest jeremiad.


One wonders what rating MA would assign US sovereign debt? This may be unfair, but I find the man's thought processes increasingly incoherent. On the one hand he says-for what seem sound reasons- that he doesn't subscribe to conspiracy theories, but, then, asserts that the S&P downgrade was some sort of a conspiracy.

Perhaps, but the only thing conspiratorial about it would be the timing. But to me, MA is incoherent on a deeper level. To wit: He has it be that the rating agency is responsible for the latest collapse, but MA knows as well as anyone how fragile the system is- well, I think he does- and how vulnerable it is as a result. if that is accurate, then he must also know that all manner of catalysts could derail this creaking system that we have. He is, in effect, with his demonization of the rating agency, slaying the messenger.

He further states:

"There is no place for REAL money to invest BUT US Treasurys which is why the markets are clearly showing S&P was WRONG as Treasury yields go even lower."

The markets may be saying that in the one to two weeks or more following the downgrade, but when they aren't saying that some months and years from now will the rating agency be wrong then? Furthermore, there is a place to "invest" one's money but almost everyone, including Martin Armstrong, for some strange reason, don't want to fully acknowledge where that "place" is.

And the General's last name was spelled Patton with an o.

Aquilus said...

@Motley

That's very nice of them indeed...

Which leaves scaring investors through market crashes and the FED as the main sources of buying up the ever-increasing issuance from the Treasury.

Motley Fool said...

Fair enough Aquilus

Giving them a debt writeoff this way does have it's negative consequences. Such is life. :P

TF

Edwardo said...

Jeff wrote:

"The paper market is 'manipulated' daily, whether margin is increased or not."

I think it's accurate and fair to say that margin hikes are just another, non covert form of manipulation.

Aquilus said...

@Motley

Hahaha, yes, but I like the positive consequences for the people in this blog.

Aaron said...

Hi JR-

You made a comment in Forum 1700 that highlights a blindspot in my vision. So here we have CBs sitting on dollars (mostly in the form of Treasuries, yes?) and FOA and miner49 point out those dollars will not be allowed to return home. As miner49 said, "These dollars en masse will not return home. They were born in exile and will die in exile. We will hyperinflate ourselves, and won't need help from overseas...".

So that begs the question, what is the destiny of these Treasuries/dollars? File 13?

--Aaron

Edwardo said...

"The whole reason there has been no QE this week yet is because even some FOMC members are worried that the printer will scare the demand away."

That may be true, JR, but it's not what the dissenting FOMC members are espousing. Rather they are demurring because they believe inflation is the greater threat. I believe that they will opt for more easing-whatever they may call it-because as things deteriorate they will want to be seen as doing something, and, because the political class will clamor for them to do what they do best, namely print.

M said...

@ JR

I read it all again and I still don't agree. Basically you are saying that absent the printing, we will not have hyperinflation. Now I agree that you would need the printing of money to induce banana republic hyperinflation but I do not believe that you need money printing to have a 40 or 60% or even 80% devaluation of the US dollar.(which would still usher in freegold) Iceland recently,Russia and Thailand in the late 90's had collapsing stock markets, collapsing bond markets AND collapsing currencies(40-60%).These currency collapses where not hyperinflation but they still cratered the purchasing power of the money, absent lots of printing. I don't believe that the only thing standing between hyperinflation/currency collapse and a dollar rally is Ben Bernankes decision to print or not.

Do you make a distinction between a 60% purchasing power collapse and hyperinflation ? If so, then that is where we disagree. The evidence tells me that the US will experience a currency collapse similar to currency collapses around the world in the last 20 years. When the financial world finally wakes up and realizes there is not enough of a real economy left to service the debt that backs the dollar, and that the only interest and principal payments they will receive will be off a printing press, then there will be a run on the dollar(currency collapse) regardless of what Bernanke decides to do.

You said "When the economy is struggling, unemployment high, home prices falling, people are afraid to spend their money. This drives up the demand for money, slows the velocity of money, raises the value of money and lowers the prices of things and assets."

^Yeah, that is all in the closed micro economy. It signals foreign investors to get the hell out. That is what causes currency collapse even if there is low velocity within the micro economy. Again, look at Thailand and Russia in the 90's. Sure, there was a demand for cash within the Russian economy in 1998, but that sure didn't stop the Ruble from crashing 50%, and there sure was no Ruble rally. And it is not different because the USD is the reserve currency, it is actually worse. What is the average joe's de leveraging and slowing money velocity within the US going to add up to when China decides to dump a trillion or more ? or if the producers start jumping ship to the Euro ?

M said...

@ Edwardo

That is my argument, not JRs.

You said"That may be true, but it's not what the dissenting FOMC members are espousing. Rather they are demurring because they believe inflation is the greater threat."

Notice the rhetoric and how much the Chinese decided to revalue the Yuan after the US debt downgrade ?(Scaring the demand away) Notice what Putin has been saying about Bernanke lately ?(scaring the demand away) I am sure these FOMC members heard and seen it all and that is why there is no QE yet.

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

My apologies to JR.

So, M, your thesis is that several FOMC members decided to stand in front of another round of "easing" because of the bluster of Putin and China? I'm glad for you that you're sure, but I'm not.

JR said...

M,

As I have been pointing out since your mad ravings about the Thai baht, you don't have a clue what you are talking about.

Cheers, J.R.

costata said...

MF,

Responding to VTC's link to an FT article where certain important figures in China called for a floating Chinese currency:

So the Chinese are finally giving the USA a bit of a break during this market chaos.

That's nice of them.


Perhaps not so nice. If the main pairings broke down (US$-X, US$-Z etc) then each of the other pairings might begin to trade solely on their own merits. The US$-Yuan might reflect the US-China trade position and the Euro-Yuan might reflect the China-EU trade position and so on.

The diminishing use of the US$ as a reference point for FX trading could result in some chaotic trading in the FX market for a while. At least until someone comes up with a new reference point - a new reserve asset to act as the reference point for currency valuation.

How would the trading with the LBMA clearing members be perceived in a currency market in transition? Perhaps as an extension of the FX market backed up by the clearing members unallocated pool of 700 m/t of physical gold used solely for daily settlement of net balances.

(Perhaps the BBs learned a thing or two from their near-death experience in the late 1990s and repositioned themselves in the paper gold market – front running the transition to a new FX regime.)

And later standing behind that 700 m/t float the BIS-CBs gold asset reserves to ensure liquidity solely for clearing purposes, to provide collateral to ensure that international trade can continue regardless of US dollar turmoil.

costata said...

Serendipity

After posting that comment to Motley Fool I dropped into JSmineset and what do I find:

The yuan is the sole gainer this month among Asia’s 10 most-used currencies excluding the yen, having advanced 0.7 percent versus the dollar as a Standard & Poor’s downgrade of the U.S. credit rating and a rout in global equities prompted investors to pull back from riskier assets. The MSCI Emerging Markets Index of shares dropped 14 percent since July.

http://www.bloomberg.com/news/2011-08-11/china-s-yuan-strengthens-beyond-6-40-per-dollar-for-first-time-since-1993.html

JR said...

Hi Aaron,

It's more about the material demise. A common HI meme is "omg the Eurodollars flooding home" or "the Chinese will dump their dollars and flood the US in a sea of HI." Meh.

FOA:

"The game is to let the US economy suffer from its own bloated expansion by moving slowly away from supporting foreign dollar settlement with CB storage. This is more than enough to end the dollars timeline as we are already stretched to the leverage limit. They know that Greenspan has but one policy to use and that will be super printing. He is doing it now, right on que!

The ensuing domestic price inflation will waste away all buying power of dollars overseas."


Dollars aren't comming home. Rather, other countries slow the accumulation of dollar reserve assets (treasuries) in lieu of other reserve assets (like euro debt and gold) and the US is forced to print away to keep the dollar debt market from collapsing in a massive deflation.

Declining demand for the dollar drives the printer's hand. They don't need to dump the dollar, just slow accumulating it and the FED does the rest.

No material need to worry about where the existing Eurodollars/ reserve 'dollars' end up, because that will be a largely immaterial sum in light of the sea of dollars the US will have pumped.

See?

Cheers, J.R.

Aquilus said...

@JR Very well put, and directly in line with the China quote earlier. Bravo.

Like I said to Motley, scare investors by crahing markets (short term game) or make the FED monetize - only viable option.

M said...

@ JR

Oh, yeah. As if the bloody Asian financial crisis is small time stuff. Funny to see all the goddamn comparisons that are made about Zimbabwe(one country in Africa of all places) on the hyperinflation topic but the Asian financial crisis ?, noooo that was nothing. At the time, it only raised fears of a worldwide economic meltdown due to financial contagion.

I certainly didn't read anything about Zimbabwe causing a world wide economic meltdown, but maybe you did.

Get real.

costata said...

Bullion Banks (The Spiders)

Part 1/2

Some of you may recall that wonderful analogy from Bron Suchecki where he described the BBs as being like spiders at the centre of webs of information which gave them a superior feel for the silver market. The same could be said for the gold market (both physical and paper). I would like to take a look at the current excitement in the paper gold market with the following assumptions in place:

1. The BBs (overall) are not at risk from higher gold prices. Overall they are, or will be in a timely manner, positioned correctly to profit from moves in both directions. And to any price level in the paper gold market.

2. The BBs have not lost control of the paper gold market and this market still dictates the price of physical gold (influencing, but not controlling, the physical supply and demand for that supply).

3. The flow of physical gold is now restricted to scrap and mine production which leaves the BBs with one method of controlling the “supply” of gold – price. (Their private “central bank” GLD helps but only at the margins.)

Starting with point 3 first, Kitco reported yesterday that the YOY increase in the price of gold was around 50 per cent. If you treat the currency demand for gold over this period as a fixed amount then this precisely equates to a 50 per cent increase in the supply of gold (stretching existing ounce-denominated supply by raising the price per ounce).

So if we look at gold not from a simple price perspective but from a supply (flow) perspective the increase from US$258 to $1,750 represents an increase in “supply” of around 700 per cent. I imagine the assistance from the surge in scrap gold supply would have been greatly appreciated by the BBs but they could have done the job on price alone.

This could help to make sense of the statements by people like Marc Faber that gold is “cheaper” today then it was at $258. It hasn’t appreciated in “price” in an absolute sense the “supply” of gold has expanded at a much slower rate relative to the total amount of currency it is priced in. In other words $258 did not “price” more than a fraction of that pool of currency and $1,750 doesn’t come close to pricing that pool in terms of gold today either.

(So to all of my fellow shrimps who are still accumulating the reserves for their personal Central Bank I would say relax about the price and simply focus on the weight as you head to your desired level of reserves.)

Continued/

costata said...

/Continued

Part 2/2

Over the last few months I (and others) have been watching the sideways trend of gold with one eye on the cost of mine production because of a pet theory of mine – to whit - the “put” under gold over the last several years was/is the cost of production plus a profit margin for the miners. In my opinion that is the line in the sand on the downside which the BBs dare not cross in their paper games lest they revisit the crisis period that prompted ANOTHER to speak out in the late 1990s. If the flow of gold dried up (more or less) completely it would have been (and will be) game over for the $IMFS.

In relation to point 2, earlier this year, I was thinking that the gold prices (both physical and paper) needed to be moved into a range of US$1,500 to $1,700 in order to satisfy demand for physical gold and leave room for the volatility from which the BBs derive their greatest profits. FWIW I think they pushed their luck in delaying the move up so long and now they need a range of $1,700 to $1,900 in order to maintain their ability to manage the rising demand for gold.

Ending with point 1, and a dash of point 2, I invite you to consider the possibility that the BBs might ramp the paper price of gold up to a level which gives them the opportunity to profit from a dump like they did with silver recently. I note that JP Morgan has recently issued a $2,500 target by year end according to a post I skimmed over at ZH. Let’s give the spiders their due credit, they may well be equal opportunity market manipulators.

With a big hat tip to Warren and his astute colleagues who are involved in his bar list project I suggest that you keep an eye on the 144 DMA for a clue on the bottom of a dump if the BBs can pull off the pump without losing control. Another indicator that the gold price has been ramped above the level required to meet physical demand would be a leveling off in demand in China and India while the spot price of gold keeps going up. The BBs will have this information first (along with a wide range of other data points not available to the market) so best of luck to the traders out there.

In closing I don’t think any of this means diddly squat to the ultimate end to these games. I remain confident that we will see the transition to the new IMFS we discuss here and the hyper-inflation of the US dollar. I’m simply suggesting that the “bad guys” aren’t out of ‘ammo’ and this is not the end, just yet.

Cheers

Aaron said...

Hi JR-

Excellent. I see your point. But with respect to this sentence:

"No material need to worry about where the existing Eurodollars/ reserve 'dollars' end up, because that will be a largely immaterial sum in light of the sea of dollars the US will have pumped."

Setting worry aside I'm really interested in (ignorant of) mapping out the USD territory at the end of the (time) line. Let's assume Treasury holders are buying other reserve assets in exchange for future nominal payments (in USD) with the intention to make said monthly payments with cash received from US Treasuries that are redeemed on the margin (in small quantities). Do you see what I'm getting at?

I mean, the sellers of assets that agreed for future dollars payments are ultimately the ones to absorb some of the USD hyperinflation and really get screwed to the wall, would you agree?

And if so, who are these sellers of assets, nations and individuals?

For me, to understand this part of the map would allow me to connect a whole sha-bam of dots. Do you have any thoughts on who these entities are, the ones at the end of the line that have chosen to receive nominal monthly payments?

Where can we expect to find the most non-domestic pain?

--Aaron

costata said...

JR,

FWIW I have completely abandoned the notion that those US dollars will come home. Thank you for helping me to clarify my thoughts.

Do you see any role for those dollars outside the USA in fueling HI or are they simply part of the inflationary impulse while commodities are priced in US dollars?

M said...

@ Edwardo

I stand by that, yes. You have every right to believe that those FOMC members where more concerned about gold prices being a burden on the American consumer.

From an op-ed after the downgrade in Xinhua, the official Chinese news agency.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets. "[the US] should also stop its old practice of letting its domestic electoral politics take the global economy hostage and rely on the deep pockets of major surplus countries to make up for its perennial deficits. "International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.

China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

M said...

Here JR goes again with the BS quant deflationist theroy.

"It's more about the material demise. A common HI meme is "omg the Eurodollars flooding home" or "the Chinese will dump their dollars and flood the US in a sea of HI." Meh."

He doesn't seem to realize that no money has to "flood home". It just has to be exchanged for another currency or asset. The Icelandic Krones purchasing power went up in smoke on the international markets, because the economy imploded. But JR thinks it should have risen, because joe Icelander had debts to pay.

M said...

Costata

You said"FWIW I have completely abandoned the notion that those US dollars will come home. Thank you for helping me to clarify my thoughts."

They don't have to come home for their value to go up in smoke.

Edwardo said...

Costata,

If I happen to be long a given asset, I am never comforted by press releases from the likes of JPM or The Vampire Squid that forecast much higher prices. All this by way of saying that I have serious doubts JPM actually thinks $2500 gold by the end of the year is in the cards.

Edwardo said...

M,

You have a troubling tendency to assert positions that your interlocutors have neither stated nor implied.

To wit: I never said nor implied anything about FOMC members being more concerned about rising gold prices. In fact, I would assume that elevated gold prices would be the least of their concerns given that high gold prices have a very unpronounced effect on the day to day life of the U.S. economy and those who exist within it.

costata said...

Edwardo,

I hear you regarding JPM et al. It looks to me like they are feeling out the market to see how high they can take paper gold. That figure of $2,500 would give them plenty of headroom for a ramp. (With the caveat that the BBs could lose control of this thing at any time.)

Perhaps I'm just being a cynical, suspicious old fart but my "spider sense" is prompting me to think that if paper gold goes over $2,000 in the next few months, and physical demand lags behind, we would be in pump and dump territory.

I guess an open gold forum around the time of the dump in paper gold would garner persona non grata status for poor old costata in the gold bug camp too. Perhaps a bit of platinum "bashing" by the EVIL costata (h/t Art) would be in order as well to complete the tri-fecta.

Wadda ya say, FOFOA?

PS. The Perth Mint is reporting a surge in the amount of gold jewellery and scrap being offered to them. Due to the currency effect the average Aussie has no appreciation of the merits of owning gold bullion relative to asset classes that are promoted as investments here.

Jason said...

Hi Costata, hope all is well,,
do you advise to still buying gold at those prices, or its better to wait for a correction..
also, would platinum be a better buy for now? thanx

JR said...

Hey guys,

Did you know Another/FOA/Aristotle/Miner49er/FOFOA/anyone else who comments on freegold is spouting "BS quant deflationist theroy"?

neither did I.

**********************************

Apparently I also think ""Icelandic Krones...should have risen, because joe Icelander had debts to pay."

Who knew? I must be schizophrenic, because it was just last month I directed to a clueless troll to FOFOA's Dollar Repudiation and quoted:

"Let's take a look at what happened in Iceland ten months ago. Practically overnight the Krona lost more than half of its purchasing power...

Mouthbreathers sure are hella stupid!

Cheers, J.R.

Chaiwalla said...

I have recently had an interesting experience of interest to this fine group. This week I was "fired" as a client of a wealth management firm, which is a division of a global financial firm which also operates a bullion bank - one of the bullion banks that fixes the gold price in London.

This was done without warning. My crime was leveraging gold certificates (underwritten by the bullion bank). I broke no rules, and was well within the margin allowances. Essentially I converted a few kilos of gold into certificates and borrowed against them - with the proceeds I bought more physical gold, and the idea here is that at some point (soon, I hope) I would pay the margin debt and redeem the mortgaged certificates for physical gold again.

It's no different from what people have been doing in the real estate market for years.

What this showed me is that the bank was not willing to lend against their own certificates. Ergo, the value they place on these certificates is zero. The bank knows that paper gold is worthless, as evidenced by their actions.

JR said...

Hi Aaron,

I have some thoughts, but first, to help me understand your perspective, will you humor me:

Setting worry aside I'm really interested in (ignorant of) mapping out the USD territory at the end of the (time) line. Let's assume Treasury holders are buying other reserve assets in exchange for future nominal payments (in USD) with the intention to make said monthly payments with cash received from US Treasuries that are redeemed on the margin (in small quantities). Do you see what I'm getting at?

Why are we assuming this?

Cheers, J.R.

Aquilus said...

@Costata - Sound like an interesting idea - and I don't think you're the type that avoids a good argument - let's just hope the original Art does not show up again for this one...

@ender wow, after going back and reading some of your thoughts, both here and on the original trail, I am very glad to have you around.

@chaiwalla you got big brass ones converting physical into certificates! Hope you got it back. Good, insightful story, thanks.

@JR LOL Love your quotes and no, you're quite consistent and easy to follow

M said...

JR digs his hole a little deeper and quotes some fofoa that proves what I am saying and not what he is saying. Funny how he picked another tiny country in the middle of nowhere to talk about. I guess Thailand, Singapore,Indonesia, South Korea, the Philippines and Russia are meh.

"Call it a currency collapse, a hyperinflation, a devaluation or a repudiation; call it whatever you want. But the cost of everything people use and need in Iceland doubled or tripled in one month. And at the same time, the things they counted on as a store of value, the banks, real estate and the local financial industry collapsed. Hit from both sides! A brutal double whammy!"

Thats riiight JR, the currency collapsed with no money printing, just like I have been saying. Now you are saying that this time it is different in the US. You are saying that the only thing standing between US dollar currency collapse, a hyperinflation, a devaluation or a repudiation; call it whatever you want, is Mr Ben Bernanke's decision to print or not to print.

Wendy said...

costata, I am very grateful for the time and effort you put into this blog, and enjoy reading your posts.

Forgive my stupid question, but what is 144 DMA?

Wendy said...

OH forgot,

In terms of USD rising with gold my understanding is that the USD will be aquired in order to purchase USD assets ...... hence the mutual assent.

Please feel free to correct me if I'm mistaken

costata said...

Hi Jason,

I don't feel comfortable with giving advice about when to buy or what to buy except to advocate that gold should be purchased by everyone who has some wealth to protect. The silver open forum was prompted by a specific set of circumstances including the recommendation by some silver bugs to buy silver in preference to gold.

I will say this though. I came to the conclusion that metals which relied on industrial uses for some part (or all?) of their value do not provide the service we are seeking from gold. In other words we would not "hire" platinum because it does not meet the "job description" while gold does.

Just to clarify my position once again I don't trade these things either as I have neither the skills, aptitude or the temperament for trading.

We bought gold as and when we could until we hit our target and we "paid too much" every time compared to savvy traders who timed their purchases better. Traders like the ones I listed in the last part of my post in the silver open forum.

The prices we paid for gold look ridiculously cheap now compared to the current gold price BUT viewed as an "investment" (priced in Australian dollars) the gold purchases have performed really badly compared to alternative "asset classes". Do we have any regrets? None. We made a decison and we secured our position ahead of an historic transition which could have occured by now. We consider ourselves lucky.

costata said...

Hi Wendy,

Thank you.

144 DMA = 144 Day Moving Average.

In the past few years when the gold price moves below this average it has been a reliable indicator that the price of gold will reverse and rise.

I think it was 'Polly Metallic' who remarked that it will work (as an indicator) "until it doesn't".

Cheers

Wendy said...

Thank you costata

costata said...

Chaiwalla,

That is a very interesting anecdote you just served. Thank you.

Aquilus,

Of course I was being flippant about the idea of a gold open forum. However, I was not being flippant about a pump and dump in paper gold subject to the caveats and conditions I described. Consider those comments a "peg in the ground" for future reference.

JR,

Ever get the feeling that you and 'M' just aren't on the same page?

Cheers

victorthecleaner said...

costata,

I was also thinking of a pump and dump in gold. Silver in May was perhaps the dress rehearsal.

With gold, they would probably have to take it up by another 30..40%. Ah, that's around 2300..2500 US$/ounce. And then the dump takes it down to the main trend line. I wonder how much physical they might be able to collect by this method.

What will be difficult is to ensure a reasonably calm environment in terms of the economy and the debt crisis(es). They would certainly need quite an amount of QE3 happening at that time.

Victor

victorthecleaner said...

costata,

further on the pump and dump scenario. If you take a look at SIFO

http://www.lbma.org.uk/pages/?page_id=56&title=silver_forwards&show=2011

you see that silver was in backwardation before the 'pump' that started in March. This means there was counterparty risk in US$ for silver swaps, the conjectured shortage of physical relative to outstanding paper.

Once the 'pump' phase started, backwardation disappeared which might indicate that the advance was driven by purchasing unallocated silver. Then, first day of May, the 'dump'ed it, and backwardation resumed.

What signature do you watch for gold? The gold forward

http://www.lbma.org.uk/pages/?page_id=55&title=gold_forwards&show=2011

has been in contango for a long time now. No sign of any shortage of physical relative to paper. Would we see the lease rate drop even further when they pump? I doubt it. The gold market looks to me as if
a) the BBs have a backstop with deep pockets who leases and delivers physical for allocation as needed
b) when they hike the price, there are still enough sellers

So I don't know a good indicator to confirm the 'pump'.

Victor

Casper said...

All,

you may have noticed that the Swiss Central Bank hinted at the possibility of pegging the swiss franc to euro. In the past two years the franc has risen about 30%-40% against euro causing some short term trouble for Swiss economy and their central bankers. In the long run of course, a strong currency is preferable but in this case....

The eurozone population is about 500 mio and "franczone" only has about 8 mio people. In nominal terms the economy is smaller then in the eurozone and when capital/money flows turned to Switzerland the EUR/CHF exchange rate dropped (and still dropping) like a stone.

We've heard of and witnessed hyperinflation events in various states around the world as they were supporting the USDollar by issuing their own currency buying ever increasing amount of them due to dollars being printed. Only an economy of relatively equal size can withstand that and absorb the flood of foreign currency. If they didn't buy all those dollars it's quite possible that the exchange rate between USD/X would also nosedive just like the EUR/CHF did.

If this peg does come true then the Swiss would in effect adopt the policy of states I've just mentioned putting them at risk of large price increases in the future unless of course and here comes the important part, the Swiss central bank and their populace start buying gold. The populace buys gold in the "franczone" which lifts prices of gold in Switzerland and due to arbitrage gold starts flowing from eurozone to "franczone" to meet demand. That again lifts prices of gold in the "eurozone" which leads to gold flowing from international markets into eurozone. What about the all the euros the swiss central bank would have to buy? Well they can always redeem them for gold through the BIS at much much higher prices. This may also prompt eurozone populus to buy gold directly and bother with buying swiss franc since the EUR/CHF rate wouldn't be going anywhere anymore.

In any case, this peg would be extremely bullish for the price of gold and would be interesting to observe the crossborder flow of gold.

Casper

victorthecleaner said...

Here are two other suggestions of how one might spot a pump and dump, both based on a comparison with silver in May.

First, about one week before the top, I think, a good part of the COMEX long position was transferred to the category of 'small speculators'. If somebody likes to do the research, they could email Dan Norcini or listen to his old KWN interviews. If this happens with gold, I would take it seriously.

Second, also about one week before the top, a huge SLV put position appeared. Perhaps silvergoldsilver mentioned that one. I am not sure how often such a thing happens and how reliable it is. It might have been Hinde Capital after all.

Victor

victorthecleaner said...

Further on the possible unwinding of the renminbi peg, Zero Hedge mentions a poor auction of 30year T-bonds:

http://www.zerohedge.com/news/horrible-30-year-bond-auction-prices-11-unprecedented-bps-tail

Victor

Robert LeRoy Parker said...

"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."

Link

costata said...

RLP,

Great link. A must read IMHO. Thank you.

Jason,

I think you need to read the article that RLP linked. If any reader hasn’t reached their target level of gold then supply matters more than the price.

Threats to the supply of gold have hung over this market for years and the threats are still there.

We cannot assume that the “wheels won’t fall off” at any time. I want to show anyone who may be following this discussion how easily this could blow up.

Costata will be posting a comment on a scenario that shows how easily, and quickly, the gold market could become dysfunctional. The title will be Black Swans Make Lousy Pets.

costata said...

VTC,

I was a little shaken by Jason's response to my earlier comments. So for the present I’m going to decline to participate in a discussion about this topic.

Mike said...

RLP,

Interesting article on NYT.

Today i seen a report on a Canadian national news station (2nd topic of the broadcast) about a frenzy to sell gold jewelry for cash.

http://watch.ctv.ca/news/top-picks/cash-for-gold/#clip515504

i guess its different in Canada as always, everyone is still rich in real estate so who needs gold since its all great times.

Not sure why everyone is such in a rush to sell gold here since the wealth affect of their high real estate should keep them safe for now. But then again a report a month ago or so by a Canadian bank said that people in Vancouver for instance are using almost 75% of their disposable income to live in their home. That might explain the need to sell gold here.

MSC said...

Hi Costata,

I'm curious, are you FOFOA?

11.56
Costata said…

Costata will be posting a comment on a scenario that shows how easily, and quickly, the gold market could become dysfunctional. The title will be Black Swans Make Lousy Pets.

costata said...

MSC,

No, I'm not FOFOA. Sometimes I refer to costata as a separate "entity" divorced from the flesh and blood me because writing as "costata" is merely an aspect of my life.

Also if I was contributing to the conversation on, say, a blog that was focused on something completely divorced from the topics we discuss here I would adopt a different name in order not to confuse the two "voices".

I hope that makes sense.

Cheers

Texan said...

JR,

What you described for the USD is exactly what I see as the dlemna for the ECB. Euros are not, by and large, held as international reserves. If the ECB prints to buy up the peripheral debt and does not sterilize, they are going to have a huge inflation problem. And if the EFSF can't get sufficient funding, it isn't going to come into operation (and I am not sure how demanded it's own bond issues will be).

The US last month ran a 53 billion trade deficit. For a month. Obviously this is going to have to change at some point, maybe the yuan revaluation is probably the beginning of that, but it's baby steps.

In any case, there is no effect of hyperinflation as yet. If anything I just see more and more desperate attempts to fend off deflation. The US may have a brief upward spike in GDP but it feels like we are going negative soon as government spending gets strangled.

Redhill said...

Hi,

Just wanna share the HD version of

"Metallica - The Ecstacy Of Gold":

http://youtu.be/3f91BpVb7-4?hd=1


1800 and beyond... ultimate extinguisher of debt.

Cheers :)

Motley Fool said...

Hey Costata

My spidey sense has also been tingling lately. In my last post I mentioned I expect a takedown of gold.

I'm also thinking pump and dump.

TF

Motley Fool said...

JR and M

I had a discussion with FOFOA not too long ago that also brushed on these subjects.

Beforehand I also viewed HI and currency collapse as the same thing. Afterwards I had to admit that technically they are not.

Iceland was a currency collapse, Zimbabwe was a HI.

"I read it all again and I still don't agree. Basically you are saying that absent the printing, we will not have hyperinflation. Now I agree that you would need the printing of money to induce banana republic hyperinflation but I do not believe that you need money printing to have a 40 or 60% or even 80% devaluation of the US dollar.(which would still usher in freegold)"

I agree with you here M, we just need to agree that HI is no currency collapse. They are distinct events.

I will quote some of what FOFOA said in that email. I don't think he would mind. :)

"Ugh. Some people. You and M, I should say. I have made the point several times that I often use currency collapse and hyperinflation interchangeably. But when pointing out the difference between, say, Argentina or Iceland and Zimbabwe, I have to separate these terms. Argentina (2002) and Iceland (2008) experienced a currency collapse (3:1 devaluation) that was not followed by a government printing to retain its power. So it was only a quick devaluation. There were reasons those governments either couldn’t or chose not to print.



So I have made this point many times that the currency collapses from the demand side, but it continues on into full blown Zimbabwe hellfire hyperinflation only if the government prints the supply side to retain control. No, the printing doesn’t cause the hyperinflation (or the currency collapse), but it does send it, as I like to say, “into wheelbarrow territory.”



Now, your point also crosses into one more subtlety. And that is, that when full blown wheelbarrow hyperinflation is underway, with the government printing and all, the price hyperinflation leads the monetary hyperinflation. This is why I say hyperinflation is characterized by a SHORTAGE of money. Most people think the opposite. They think “there’s too much money out there which is why prices are rising.” No, the price rises lead the printing.



I got quite a kick when M said the same thing you just did, that I confused cause and effect. As far as I am aware, I’m the one who articulated this cause and effect, and I have received some praise from various sources for it. But I guess some people just take a new thought and simplify it too much to where it loses some of its nuance. "

Peace

The Fool

Jeff said...

Victor,

You haven't commented on the GOFO kerfuffle I asked about on the last thread. You consider it a non-issue?

As for a gold pump and dump I think the managers have to be very careful about that; they can't spike it too high or dump it too low. I think the move to 1800 was to try to break momentum in a small way. The fact that the dump didn't occur (much, so far) seems to indicate just how much care must be taken. The BBs may be spiders but there are many macro trends occurring in many markets now, and they don't fully understand or control all of them.

JR said...

Hey, Rube!

It must suck to have such a limited reading comprehension. I do admire your courage and dedication in forging ahead despite your significant disability!

Lets see, you showed up with an enormous strawman in a comment to "Euro Gold," where you argued this silly:

"save debt at all costs by printing" insinuates that money must be printed for the currency to go to zero(hyperinflation)

These deflationists are going to jump on this because basically you are saying that without the printing, the deflatinists are 100% right.

But they are not right. Look at the Thai Baht in 1997.


You even sent an urgent email to FOFOA before you finished the Euro gold post titled "Indirectly vindicating the deflationists"? What, did you think you had some great insight and that had to be sent urgently so FOFOA could edit his error?

Such a silly little boy your are Matt - you don't understand what you are talking about. Your post says:

Not fully through yet but i wanted to get in before the comments go out of control.

I'd normally suggest more reading but its clear that cognitive ability is the limiting factor.

Anyway, for the benefit of others, made 2 *huge* errors. First, you totally misrepresented what is meant by "saving debt at all costs. Second, you conflated the Thai Baht's collapse in 1997 with the dollar's demise.

I'm sorry to break this to you, but your binary world view is incompatible with reality - trying to label everything a hyperinflation is a cute way of skirting along with at best a superficial understanding of things.

Yes, the baht collapsed and so to will the dollar. But this will occur in vastly different ways. I realize that grasping such a basic distinction is beyond your powers, but hopefully the many more astute commentators here can gain from this post.

Again, as I explained in the immediately following comment:

The Thai bhat was pegged to the dollar. They were unable to maintain with peg in the face of market pressure (Asian financial crisis), and let it float, causing the devaluation.

See that Troll - the baht was devalued. Oooooohhhhhhhhh!

And see this:

Can you see some fundamental differences between the world's reserve currency and the Thai bhat, which was pegged to the world's reserve currency?

The dollar is different than the Thai baht. They were both overvalued but for different reasons. And they both will end up significantly devalued, but the process by which this happens for each will be way different.

**********************************

Instead of grasping anything I have written, you somehow think I believe:

Basically you are saying that absent the printing, we will not have hyperinflation.

Again, as I have repeatedly pointed out to you, this is not what I am contending at all.

Cheers, J.R.

enough said...

UBS daily gold report exerpt 8/12-

"The gold market remains underpinned by the movement to physical gold, which has persisted all week. European demand for small bars particularly, but also coins, remains very strong. As the week has progressed Asian physical demand, outside India, has been noticeably higher."

"We have also observed among existing and indeed new clients this week a growing preference towards allocated gold instead of metal account/unallocated gold. This is quite obvious among our wealth management and private clients, but even among the fund industry, interest in allocated gold is growing again."

JR said...

Hi MF,

THANK YOU!!!!

Cheers, J.R.

JR said...

Hi Texan,

I'm not completely sure what you are referring to, but I think I sorta agree with this sentiment:

If the ECB prints to buy up the peripheral debt and does not sterilize, they are going to have a huge inflation problem

Sometimes people think Freegold is the ultimate panacea. In way it is, but it is not a painless one. Compared to the collapse of the dollar, the euro Freegold project will appear a panacea.

The transition will not be painless and the eurozone will suffer, but they will "suffer less than" the U.S.

FOA:

"The world is heading towards a huge financial / currency crack up, but it won't work out with gold coming back into the money game. This very long term transition is playing on a move away from dollar domination with Europe preparing to suffer less than us by pulling in as many other political trading blocks as they can.

Cheers, J.R.

Aaron said...

Hi JR-

I said, "Setting worry aside I'm really interested in (ignorant of) mapping out the USD territory at the end of the (time) line. Let's assume Treasury holders are buying other reserve assets in exchange for future nominal payments (in USD) with the intention to make said monthly payments with cash received from US Treasuries that are redeemed on the margin (in small quantities). Do you see what I'm getting at?"

And you asked, "Why are we assuming this?"

Just a guess really, looking at a post from JS: "China has hedged its dollar position 50% through commitments to long term dollar commercial agreements, pay in, mineral, and energy deals internationally. That is an act of pure genius"

Seems to me that if there's any truth to what JS is saying, that's like WOW. China et. al. may have found a way to commit others to receiving our paper junk in the future for real goods today. But then again, JS's comments might be nothing more than an attempt to express an idea ahead of time for Treasury holders to consider.

What do you think?

--Aaron

Motley Fool said...

Hi JR

You seem to have misunderstood.

My comment wasn't exactly in direct support of you. I simply offered you and M a bridge.

See, you two don't really differ much in opinion, you are having a language issue.

I would like to express my personal view that while I appreciate the posts you do, you have this tendency to get nasty lately, and it seems simply because people don't get it.

Sneering at the ignorance of others is not likely to encourage them to listen to you with a clear mind.

Your exchange with M has coloured the flavour of this board in a way I dislike.

I have found that the best way to be heard is to listen.

Perhaps it is just this fool's perception.

Peace

TF

JR said...

MSC,

Ballers are illeists, its how they roll.

Costata's straight baller!

JR said...

Thanks for sharing MF,

The issue is M is an arrogant jerk who showed up in the Euro Gold comments ranting about A/FOA/FOFOA spewing nonsense, and commenced to hurl strawman after strawman. Seriously, Matt sent that comment in an "emergency email" to FOFOA titled "Indirectly vindicating the deflationists." Did Matt think FOFOA was gonna be like, "OMG the light just went off after all these post- A/FOA were clowns, lemme delete this blog?"

I'm well aware of your tendencies in this regard as well (as I have pointed out to you), so don't think for a second I don't understand this:

My comment wasn't exactly in direct support of you.

I'm well aware of what you were trying to do (despite the fact you did something different than what you claim to have intended to do), I can read. A great example of your confusion in this regard is in your next line, which says:

See, you two don't really differ much in opinion, you are having a language issue.

I couldn't disagree more. I can't help the fact that M wants to resort to underhanded tactics and misrepresent what other people write, but I have no language issue. If you think I have a language issue, than you think A/FOA/FOFOA do too, because as you may have noticed, I'm big on quoting. There is no language issue, their is a listening issue. You too have lots of first hand experience with listening issues :), so you know what I am talking about (or do you :-0). Either way, you couldn't be more off base:

Sneering at the ignorance of others is not likely to encourage them to listen to you with a clear mind.

Your exchange with M has coloured the flavour of this board in a way I dislike.

I have found that the best way to be heard is to listen.


Thanks for sharing your insight and findings (although I'll point out the dismissive attitude you have at times exhibited on your blog is not in keeping with your "lofty sentiments" expressed here - xD). My mileage, not surprisingly, varies from yours. Lots of people show up with an open mind and a respectful approach and look to learn. I heart these folks.

If, however, someone wants to come play in the deep end of the pool and throw feces everywhere, guess what - they aren't hear to learn, and I'm not gonna pretend they are either and idly sit by and watch them fling poop and degenerate the discussion into a trollish mess. Jerks like M clearly aren't hear to learn, and my response *clearly* isn't intended to make him listen, as he's obviously incapable of that. Just as with the litany of other trolls I have responded to in similar fashion, my goal is not to change their mind, but to point out their silliness.

Their is a reason FOFOA responded to you by also referencing M, don't ya think? ;) I wonder if he emails with other people too?

Cheers, J.R.

Aaron said...

Oh, one point for clarification. I think JS is talking about Treasury holders using interest payments to settle for real goods, not actually redeeming Treasuries for cash. Not a bad idea. China doesn't move any markets, Treasuries never get sold, China gets real goods now in exchange for China paying the seller in toilet paper Treasury interest in the future.

Motley Fool said...

Hey JR

I never claimed being perfect. :)

I am also well aware of my tendencies in this regard, which is why I try and not do it, and feel I am allowed to point it out in others.

I do have lots of experience with listening issues. From both sides. Once again, I try and improve.

I'm not even going to get into the subtext of your reply with you. I'll just smile blissfully and pretend you did not do exactly what I just mentioned to you in my previous. Barring typing this sentence of course. ;)


JR, I am not trying to target you. My post was for both of you. You listening M? :P

One should not let the arrogance of your point of view get in the way of communication( something I well know from experience).

Peace

TF

JR said...

Aaron,

I am still confused. We were talking about dollar repatriation driving HI, and I pointed out that the dollars will not flood the US to cause hyperinflation, but instead the US will do it to themselves as foreign nations simply slowly shift away from accumulating US debt.

You responded with the China treasury hedging. My query about why are we assuming this was not directed at the factual accuracy of the statement (which is unclear but immaterial), but at the relevance of it to the discussion at hand. For as you point out, this is a "future" payment in "nominal terms." It seems you are interested in finding out who will get stuck with holding the worthless dollars/treasuries at the end. I think it would be helpful to view a distinction between transactional currency (what the treasuries will be) and a store of value.

FOFOA from Gold: The Ultimate Wealth Consolidator

And the central banks are prepared for whatever comes. As their dollar foreign reserves go up in smoke, their gold reserves will more than replace any lost value.

Miner49er on dolalr repatriation from Dilemma 2 – Homeless Dollars

This decline in dollar holdings is desired to take place concurrently with a rise in the price of gold to offset this.

Cont.

JR said...

cont.

Please read the whole post and all of the miner49er quote, but here is an excerpt to get you into the mindset of what he is talking about:

...The really big holders of dollars are the central banks. What they do with their reserves will make or break. Their influence over other banks and financial institutions will also largely dictate the destiny of these dollars. In the gold standard, the currency acted as something of a title deed for a specific good at a specific price. Central Banks could and did take these "receipts" and claim gold from each other. In this day, there is nothing for CBs to "claim," as these dollars are no longer "title deeds." Rather, they are like non-expiring calls for things on demand, at the variable and going price. CBs are likely to neither a) dump them on the forex markets, as this would simply devastate the currency, and risk dreaded instability globally -- something banks are NOT prone to do; or b) race to our markets to try and buy things (like gold), as this would also be fruitless, since a market revaluation for this action would instantly make gold unpriceable, and it would not even be offered. Again, why engender the instability?

Without a certain weapon in the arsenal of the euro's design, the foreign CBs would indeed be over a barrel. Previously they were forced to evermore be on a dollar standard, since they would realistically only opt for this as the lesser of two evils. The alternative of saying no to the dollar at that time, would only have meant a return to a gold standard, and the politically unacceptable bone-crushing depression that would follow (as well as instability). In 1979, the European CBs began marking their gold reserves to market. This one act demonstrated immense foresight, and would provide the escape valve from the rock-and-hard-place no-win choices between eternal dollar support, or global depression.

Quietly, the euro-system banks have been divesting themselves of dollars. Collectively they retain something like 211 bn. currently. (This is not a large amount relatively speaking, but consider fractional reserve lending, and quickly we perceive the immesity of euro-dollar infestation.) This decline in dollar holdings is desired to take place concurrently with a rise in the price of gold to offset this. Spoonfeeding dollars into the system won't crash it, as well a slow commensurate rise in gold. The discipline that they have thus far maintained is indicative of the tectonic movement of the geopolitical strata. Ideally there will be no rash or even discernible activity. The perfect result is to simply keep shifting these plates until we wake up one day and the world has been remapped. Reality of course is that there are points of friction that cause tremors of unpredictable frequency and proportion all along the way. At some point critical mass will be reached, and the dollar contract markets for gold will no longer be able to contain its price as market perception on a large enough scale discounts paper parity with the real metal accordingly. It is at this juncture that the gold reserves of the CBs will provide immense expansionary leeway, as they are for a season revalued constantly upward. This bona fide liabilityless reserve base will make the ECB member banks the premier lending institutions to fuel the economic growth of the euro zone, and those align themselves with it...


Cheers, J.R.

JR said...

Its all about the end of the dollar as the world's reserve currency, so we are talking about really big dollar holdings of the CBs and what they do with them - will they dump them, killing the dollar and throwing the global fx markets into complete disarray (and thereby creating lots of economic turmoil in their countries)? Nope!

Make you you understand this:

In this day, there is nothing for CBs to "claim," as these dollars are no longer "title deeds." Rather, they are like non-expiring calls for things on demand, at the variable and going price. CBs are likely to neither a) dump them on the forex markets, as this would simply devastate the currency, and risk dreaded instability globally -- something banks are NOT prone to do; or b) race to our markets to try and buy things (like gold), as this would also be fruitless, since a market revaluation for this action would instantly make gold unpriceable, and it would not even be offered...

This decline in dollar holdings is desired to take place concurrently with a rise in the price of gold to offset this. Spoonfeeding dollars into the system won't crash it, as well a slow commensurate rise in gold.


Cheers, J.R.

victorthecleaner said...

Jeff,

You haven't commented on the GOFO kerfuffle I asked about on the last thread. You consider it a non-issue?

I thought about it, I wasn't able to say anything useful and so I didn't. It may just indicate that they were all nervous and someone typed in bogus figures.

If there were a problem, you would see that the gold basis turns negative because they have to pay up for physical for immediate delivery, but not because the forward would become cheaper. Well, we couldn't observe this directly, but in this case, the loss of contango would spread to other banks. It didn't.

Let's talk about the pump and dump. If you take a look at GOFO

http://www.lbma.org.uk/pages/?page_id=55&title=gold_forwards&show=2011

you see that for short maturities (1,2,3 months) there has been a considerable increase in contango since about July 28. Not all LIBOR data are there, but the contango increase seems to be more than just the LIBOR increase. So the Lease Rate actually went down.

This may suggest that the recent spike in the gold price was a 'paper effect', i.e. due to buying pressure in unallocated accounts. No shortage of physical.

If this idea is right, then costata and I were already too late, and we already had the 'pump' (July 28 to August 9) and are presently witnessing the 'dump'. All on quite a small scale. Perhaps even just some day traders getting too excited about gold. In this case, the effect would be over when GOFO reaches the values around the end of July, roughly:
1 month < 0.28
2 months < 0.29
3 months < 0.32

Victor

victorthecleaner said...

Finally on hyperinflation inside the US versus a dollar collapse in the FOREX market.

My point of view is that these are two different issues.

When international investors including other CBs reject the dollar, this may well cause a collapse of the US$ versus all other currencies. But the dollars that are still abroad cannot easily flow into the US. Apart from the fact that the US would probably enact capital controls in such a situation, there are simply not enough interesting assets inside the US that the foreigners would be willing to purchase.

When this happens, there will be a side effect. Imports into the US will become more expensive and contribute to consumer price inflation. But this effect will be much smaller than, for example, in Iceland who had to import basically everything except for energy, way more than 5% GDP annually. Without properly researching it, I guess that the US import mainly energy and consumer goods, but they still export food for a total of around 5% GDP.

The other question is whether the velocity of money increases inside the US, causing hyperinflation. The growing monetary base which is a consequence of the various bailouts, creates the potential for this to happen because base money is so much more mobile than debt. What is needed in addition is a trigger that causes the velocity to increase sharply. I think it is basically impossible to predict what the trigger might be. Strong consumer price inflation and people who are getting frustrated with it, might be a big factor.

Victor

M said...

JR gets out the backhoe...

"you conflated the Thai Baht's collapse in 1997 with the dollar's demise."

Yep, A country that had acquired a burden of foreign debt, that was real estate driven is comparable.

- "The Thai bhat was pegged to the dollar. They were unable to maintain with peg in the face of market pressure (Asian financial crisis), and let it float, causing the devaluation."

So a creditor fiat currency was pegged to a debtor fiat currency eh ?????
Where have we heard this before ? Maybe the Creditor Yuan pegged to the debtor dollar ?

-"The Thai bhat was pegged to the dollar. They were unable to maintain with peg in the face of market pressure (Asian financial crisis), and let it float, causing the devaluation."

Oh, so the creditors started putting pressure on the debtor.Must have been some debt downgrades in there too. AAA to AA+ maybe. China’s Dagong Global Credit Rating agency downgraded the US economy from A+ to A following the passage of the debt deal. And they also REVALUED the Yuan again...(because they have the upper hand)

"Can you see some fundamental differences between the world's reserve currency and the Thai bhat, which was pegged to the world's reserve currency?"

No, you see, it is still a DEBTOR pegged to a CREDITOR but the roles are reversed which makes it even worse for the debtor. The Yuan is pegged to the dollar but the Yuan is the creditor. The Yuan holds the upper hand. The Yuan can make a run out of the dollar which would cause a 40 60 or 80% fall in the dollar and an equivalent rise in the Yuan.

And going with consensus with the rest of the financial world, he plays the "its the reserve currency"card.(even though its not actually a reserve currency that can be spent anywhere. It has to be spent on things priced in US dollars or things within the US, hence all the CB treasury holdings).
-"The dollar is different than the Thai baht. They were both overvalued but for different reasons. And they both will end up significantly devalued, but the process by which this happens for each will be way different."

The process will be way different...Hmmm. i don't even want to hear the answer to this.

JR said...

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)"


Whoa, look at that - one of the keys to understanding Freegold is understanding the *significance of* the end of the dollar as the world's reserve currency.

I wonder if the reserve currency failing is different than the collapse of other currencies before it that weren't the reserve currency, like the collapse of the smallish local currencies during the 1997 Asian financial crisis?

Dollar Repudiation

"But who is going to come to the rescue of the biggest fish of all? Who is going to bail out the dollar and put in a bottom? The aliens? I have a sneaking suspicion that the dollar's collapse will be a little different (read: worse) than past recorded events. It will certainly be a sight to behold. Just think about it; Where will you be, what will you be doing, how will you react, and how will you be feeling when it starts? Gold delivers a LOT of peace of mind in this regard!"

Hmmm, a "sight to behold" "a little different (read: worse) than past recorded events."

cont.

JR said...

cont.

FOA from Freegold in the Proper Perspective

"...SO,,,, For us to see the whole board we must wade away from shore. Away from all the shallow water traders and into the deep blue. There we can feel the real current.

Our dollar has had a usage period that corresponds with the society that interacts with it. Yes, just like people, currencies travel through seasons of life. Even gold currencies, in both metal and paper form have their "time of use". Search the history books and we find that all "OFFICIAL" moneys have at one time come and gone with the human society that created them. Fortunately, raw gold has the ability to be melted so it may flow into the next nation's accounts as "their new money".

This ebb and flow of all currencies can be described as their "timeline". We could argue and debate the finer points, but it seems that all currencies age mostly from their debt build up. In a very simple way of seeing it, once a currency must be forcefully manipulated to maintain its value, it is entering the winter of its years. At this stage the quality of manipulation and debt service become the foremost determinant of how markets value said money. Suddenly, the entire society values their currency wealth on the strength and power of the state's ability to control, not on the actual value of the money itself. Even today our dollar moves more on Mr. Greenspan's directions than from the horrendous value dilution it is receiving in the hands of the US treasury.

This is where the dollar has drifted into dangerous waters these last ten or twenty years. If you have read most of Another's and my posts, it comes apparent that preparation has been underway for some time to engineer a new currency system. A system that will evolve into the dollars slot once it dies.

Out here, in deep water, we can feel what the Euro makers are after. No one is looking for another gold standard, or even something that will match the long life and success of the dollar. We only know that the dollar's timeline is ending and a new young currency must replace it. No great ideals, nor can we save the world! But a reserve currency void is not acceptable.

Now look back to shore and watch the world traders kick ankle deep water in each other's faces over the daily movements of Euros. From here, up to our necks in blue water, you ask "What the hell are they doing?" I'll tell you. They are trying to make $.50 on a million dollar play! Mostly because they are seeing the chess game one move at a time. (smile) Truly, their real wealth is in long term jeopardy.

Our dollar has already entered a massive hyperinflation. Its timeline is ending and there will be no deflation to save it..."

Steve said...

As much as I would like to see the Orbital Launch pattern come true, let's not cheer too early, it ain't a done deal, it ain't over till the fat lady sings!

M said...

Just some perspective on the Asian financial crisis. Notice how they don't call in the "Thailand " financial crisis ? It started in Thailand but almost all of the countries in the region experienced the same thing, stock, bond , real estate and currency collapses and devaluations.

The total population of all of the countries directly involved in the Asian financial crisis, excluding China and Japan, was around 440 million people. That is about 100 million more people then the population of the United States.

Jeff said...

M,

Didn't the crisis have something to do with asian central banks not having enough dollar reserves? And they got in a jam because they couldn't just print more? Does Bernanke have the problem?

Jeff said...

Here is an example of what happens when you can't print dollars:

LONDON (Reuters) – Dollar funding costs for euro zone banks have trebled in three weeks and are expected to rise further, possibly forcing lenders to ask for greenbacks from the European Central Bank for the first time in a year.

http://www.euronews.net/newswires/1054133-euro-zone-banks-close-to-asking-ecb-for-dollars

Just like 2008. And here is what FOFOA said about that situation:

A Eurodollar is "bank credit" denominated in dollars, but existing outside of the Federal Reserve System, primarily in Europe. And when I use the term "bank credit" that really means it is a commercial bank liability for a dollar. In banking circles, a liability is when someone has a claim on you, and an asset is when you have a claim on someone else.

In Central Banking, a foreign currency reserve is an asset, a claim you hold, denominated in that foreign currency, on some entity outside of your zone (presumably in the zone of that currency). In Europe, these CB reserves are Realdollars, not Eurodollars. So the question isn't how many Eurodollars the BIS has, but how many Realdollars it has.

Remember back in 2009 the Fed swapped $500 billion with foreign CBs? That was for this same purpose. Those Eurodollars need to be serviced with Realdollars from time to time. But that $500 billion swap line has now been withdrawn. Today it is $0 which you can see on the Fed's balance sheet. Without that access to Realdollars from the Fed, Eurodollar players must bid up Realdollars on the exchanges, which the Fed doesn't like.

Eurodollars are just like the "bank credit money" we use inside the US. It is nothing but bank credit, backed by an asset that is a claim on someone else to provide Realdollars to the bank. But slowly and surely, we are replacing that backing, those "claims on someone else" with actual Realdollars. This can be seen in the expanding Fed balance sheet…

Jeff said...

The Fed has not created more money, it has simply changed the nature of existing money. Remember, FOA said 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! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

During hyperinflation the entire money supply becomes "Realdollars" rather than bank credit backed by debt assets. So that is how I view all these "excess reserves held at the Fed", QEx and Swap lines etc.., as a step toward dollar hyperinflation.

end quote.

ciaoant1 said...

Hi FOFOA,

I only discovered your blog a year (i've been predicting the crisis since 2006), but i haven't posted many comments. After all, i am fron Greece, and my english isn't perfect, but i recently came across a video that i think would interest you and your viewers.

It is a video of De Gaul attacking the dollar back in 1965:
http://www.youtube.com/watch?v=i-g2iGskFPE&feature=player_embedded

I have written many posts in my blog about gold, but it is in greek, so it they are not of much use to you.

Maybe i will try to write more comments in english from now on.

Anyway, it is always interesting to read your posts.

Cheers,
John

Aquilus said...

Regarding Jeff's last comment:

During hyperinflation the entire money supply becomes "Realdollars" rather than bank credit backed by debt assets. So that is how I view all these "excess reserves held at the Fed", QEx and Swap lines etc.., as a step toward dollar hyperinflation.

If I might add a mental picture that clicked with me when I started trying to understand A/FOA/FOFOA: bank credit, that is money that is REASONABLY expected to be paid back by someone, is more benign because as the loan is repaid, the new money created is the simply the interest paid on the loan. The total quantity of money in circulation at the end of the loan is therefore greater than before, but NOT the full amount of principal plus interest.

Realdollars, the dollars that the FED would use to buy all debt at par (but this would be debt that WILL NOT EVER be repaid at even close to par and as such impossible to be resold for anything but pennies on the dollar) is money that once it enters the system, is simply stays there like a lead weight and increases the quantity of money in circulation, because the FED cannot hope to ever sell the assets back into the market to reverse the money creation.

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

Blogger M said...

@ Jeff

The causes of the Asian financial crisis are many and disputed. At the time of the mid-1990s, Thailand, Indonesia and South Korea(300 million people) had large current account deficits.cough..cough..US.. anyway, Many economists believe that the Asian crisis was created by market psychology and policies that distorted incentives within the lender–borrower relationship.(ala China US) The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money, the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and to intervene in the exchange market, buying up any excess domestic currency at the fixed exchange rate with foreign reserves. (Indonesia had foreign exchange reserves of more than $20 billion)
Neither of these policy responses could be sustained for long. Very high interest rates, which can be extremely damaging to an economy that is healthy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts.(the US has a wopping 50 billion) When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float. The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis.

In summery, psychology(loss of confidence) caused capital flight which caused the crisis. Central bankers did the opposite of printing and reigned in money with higher rates but that didn't matter, the currencies still fell by 40-60%. Indonesia's strong fundamentals didn't matter either,they got caught in the capital flight.

JR said...

Yay Aquilus!

Realdollars aka base money "is money that once it enters the system, is simply stays there like a lead weight..."

The base money that is papering over the collapsing debt/credit is different, for unlike debt/credit it does not contract when the economy contacts. FOFOA from Just Another Hyperinflation Post - Part 1:

"Here is the way the deflationist views the world. Think of all the debt as a large balloon. As it is expanding the balloon is being inflated. Today that balloon is deflating and no matter what the Fed does, it can't seem to reflate that balloon. And the deflationist concludes that as long as that balloon is deflating, not inflating, we MUST have deflation, and the value of a dollar MUST rise. Debt balloon

But here is the correct way to picture it. There are actually TWO balloons side by side. These two balloons are the two sides of the global balance sheet. One belongs to the debtor and the other to the saver. Dual balloons

If we think about "global debt" as "global liabilities," then there must be the equal and opposite "global assets." Simple balance sheet math. The liabilities are failing because collateral values are falling and debtors are defaulting. As FOA said, "As debt defaults, fiat is destroyed." Or another way to say is, "As debt defaults, fiat savings are destroyed."

But what is actually happening is the assets are being papered over with fresh base money. FOA: "hyperinflation is the process of saving debt at all costs, even buying it outright for cash." Or said another way, "hyperinflation is the process of saving debt-backed assets (MBS's etc..) at all costs, even buying them outright for cash.
"...

*********

...There is another important angle to this story that the deflationists all miss. You may have caught it if you thought to yourself, "Well, even if the Fed keeps the savers balloon 100% full while the debtors balloon deflates, that's only half the money supply as before." This is exactly how the deflationists think. They see no difference between the two.

But there is a fundamental difference between the kind of money that fills the debtors balloon (credit money or balance sheet money) and the kind the Fed is using to prop up the savers balloon (monetary base). This is a critical difference that deflationists can't seem to wrap their heads around (and I'm not sure why).

You see credit money is tied to the functioning of the economy and base money is not. As the debtors balloon deflates, so does the functioning economy, and so does the real world of goods that backs the money supply. Base money does not contract along with the economy like credit money does. And base money is the fuel in all hyperinflations while credit money vanishes!
"

Cheers, J.R.

Some silly music about a silly balloon

Extend, or End? said...

Sinclair says we'll see exponentiality beyond 1765.
Randall Strauss estimates 2013 for Freegold.
A/FOA says 30,000 bare minimum starting point.
JPMorgan projects 2500 by December 2011.

How do these get puzzle-pieced together?
Try an exponent calculator using 1.05 as the exponent.
Start with 1764 and generate a series of numbers.
1764 - 2563 - 3794 - 5728 - 8828 - 13904 - 22402 - 36965
Crude approximation but quick and accessible.

Suppose the time between these numbers is 3 months.
The second in the series hits in December 2011.
The last in the series hits in June 2013.
One rings the JPMorgan bell.
The other rings the Randall Strauss - A/FOA bell.

Pump-and-dump is rear-view mirror stuff imvho.
Is the system going to evolve Freegold or not?
Would any have us believe the US is not aware?
Or that JPMorgan is not at the heart of the system?

Back to Freegold ;-
Will it have the appearance of being market-driven?
Or will it be a political-will lightning-strike in the night?
If market driven, exponentiality may be the tool to use.
It sure condenses the complexity.

Aquilus said...

Thanks for the supporting quotes JR!

For the newer folks trying to make sense of the ideas on this blog, I can tell you that for myself, understanding THIS concept was one of the crucial "Aha" moments!

The other key concepts in my oppinion are:

- it is politically imposible for deflation in dollars to work (austerity), when the much simpler path of money creation is available (and DEMANDED by the population, and welcomed by politicians and Fed officials alike to show that they are relevant)

- hyperinflation might wipe out people's savings, but saves the banking system and allows all promises to be fulfilled in nominal terms. It also provides political cover - think of politicians arguing "no one could have foreseen this!', whereas austerity has a face, and the person that attempts to go too far with it usually faces a premature ending at the hands of the population that feels cheated on broken promises from previous administrations

- when the dollar loses its status, there is only one other time-tested (and Central Bank owned and approved) focal point for a store of value - gold. The idea is that different cultures (in the major economies and energy nations) must agree on this organically, it cannot be manufactured. And since additionally, increases in the price of gold do not directly affect industrial production, it is a perfect store of value at that.

- it's the flow (qty of physical transacted) not the stock (qty in existence) that sets the price of gold. Aditionally, as price increases, most people tend to hoard their gold, not sell it - the ultimate confirmation bias.

These to me are the major key elements to understand, and unfortunately I do not have the links handy to the appropriate articles right now.

But for the newbies, please try to wrap your mind around these concepts when reading A/Foa/Fofoa

Michael said...

@ciaoant1
In the video at 6 second mark, far left of the frame...is that Henry Kissinger? If it is it was probably the worst seat he ever had. Back of the room , like a mere mortal...

M said...

Some more notes on that little thing known as the Asian financial crisis.

I mentioned that Indonesia had forex reserves of 20 billion dollars in 1997. At the 1997 gold price of $300 an oz, that is equal to 1890 tonnes of gold. Just for fun, at today's price of $1750, it would be 3,308,378 tonnes of gold or $116,635,680,000

The USA has around 50 billion in forex reserves in 2011. At today's price that's 810 tons of gold.

Edwardo said...

Regarding the exponential growth of gold, and pump and dump of same being the stuff of rear view mirrors, I like the way you think Extend or End?

NoEscape said...

For me, the key concept was the following:
If a country has smart leaders and only oil to trade, what would be the only thing a smart leader would be willing to exchange it for ?

The conviction that gold was the only answer was like seeing light after months in darkness.

And the saving grace was realizing that real gold could be bought in a shop.

Now, how to survive when SHTF, I'm still looking for tips... Silver bullets ? :P

costata said...

Price = Supply

Part 1/2

As I said before I’m not going to participate in a discussion, at present, about a pump and dump in paper gold because of the potential misunderstanding it can create among some of the readers. If the notion that paper gold was “overpriced” caused someone to refrain from acquiring gold and then they were blindsided by an event that caused a sudden transition they could face a market with no supply. That is what I am concerned about. I am working on that comment about a black swan to illustrate how the wheels could fall off suddenly. It will describe a credible risk.

We began acquiring gold before we found FOFOA’s blog and the work of A/FOA. The price of paper gold was volatile then – as it is now. We had the added challenge of a local currency that is highly volatile – the Australian dollar. A lot to try and analyze in order to time those purchases to perfection. We decided that we couldn’t do that.

Instead I put together my own valuation of gold and silver. That valuation came to AUS$1,500 for gold and $33 for silver per ounce. Let me emphasize that I would not use the same methodology for gold today. Gold and silver were less than half those prices when we started. Then we set about building our holdings to our target levels. Obviously, later we formed an opinion that silver had no place in our deepest savings (cash being the shallow end of the “money” pool).

Here’s my key point. If we made a purchase of gold at, say, $750 (US dollars) and then the price dropped to $600 we took the attitude that we had received a 50 per cent discount on gold while that lucky sod who bought at $600 received a bigger discount. (At any given time those numbers translated into Australian dollars might have been AUS$100 or more higher but still below my valuation.)

This mindset strengthened our hands and allowed us to accumulate gold without fretting about whether we were paying too much in either US dollars or Australian dollars. We didn’t have to be savvy metal traders or FX experts to stay the course.

If I was doing a valuation today I would use a range of values. This range would be roughly $12,000 to $25,000 Australian dollars. In my mind the key variable isn’t the gold price it is the exchange value of our dollar relative to the US dollar. In my opinion Australia could experience the debt deflation that Steve Keen is expecting in the USA (but that is a topic for another day).

So for the Aussie readers who did not accumulate at $1,500 when the AUS$ was $1.10 to the US dollar and are now confronted with, say, $1,750 you have certainly left some currency on the table. And there is no denying the arithmetic – you will get less physical gold for your currency today than you would have and be further away from your target than you could have been.

Continued/

costata said...

/Continued

Part 2/2
If you accept my rough Freegold-RPG valuations then $1,750 is an 80 – 90 per cent discount on the future price of gold. In my opinion that is still a nice discount for a shrimp. However, I would strongly urge you not to accept my valuation but rather to do your homework and come up with your own valuation ceiling if you feel that this would strengthen your resolve and calm your nerves.

Now let’s talk about the notion that Price = Supply. For the past couple of years I have been operating on the theory that the cost of mine production + profit margin (COMP+Profit) was the “floor” under the paper gold price rather than China as Jim Sinclair posited. I think that this floor is rapidly becoming irrelevant.

The flow of gold is now reliant on scrap and mine supply. Robert LeRoy Parker posted a link to this article about scrap supplies earlier in this thread.

The supply of scrap gold is drying up in some countries while it is growing (shaking head in weary frustration) here in Australia according to the Perth Mint. The point is that the scrap supply appears to be contracting overall. Mine supply is more or less static. This leaves one tool at the disposal of the gold managers to use to adjust the supply of physical gold to meet demand – price.

As per earlier comments and several FOFOA posts, increasing the price of gold has the same effect as increasing the supply. It allows more currency bids for gold to be satisfied with a finite flow of gold. Now if that flow is not finite but shrinking, due to declining scrap supplies, in the face of solid demand then it follows that there would need to be a rapid, upward adjustment in the price of gold to balance supply and demand for physical gold.

What happened to the price of paper gold (hence spot gold) in the last few weeks?

In closing, if you want to discuss pumps and dumps with me I suggest you wait until gold is over US$2,000 and Christmas is on the horizon. If you have reached your target gold holding already and there is a compelling reason to play the market then there may be potential opportunities ahead. IMVHO until you have accumulated your target level of physical gold then the thing to worry about is supply and black swans.

Cheers

Aquilus said...

Look at what Europe is cooking:

A Six-Point Plan for Ending the Debt Crisis

Basically ECB should get out of the national bailout business and leave that toxic mess to the EFSF.

Texan said...

Costata, that is a very good post. My question is how do you determine your target quantity? Do you try and set aside amounts that you think you will never need, or do you also invest some portion of amounts you might need? Do you rebalance as your cash savings increase? Or sell a bit of gold as price increases?

Tuco said...

Those pasty musos would've joined Arch Stanton in no time back in the day, HD or not... mark 'em "unknown"... costata may've proven a little more tenacious though... (big smile) ...here's The Ecstasy of Gold in its original context.

Its still all about the gold (the more things change, the more they stay the same, eh?).

The cinematic masterpiece for which Ennio Morricone composed this piece remains remarkably prescient, 'specially for readers of this blog. Time well spent, but I guess I'm biased...

costata said...

Hi Texan,

Thank you. The answers to those questions has changed over time. When we set our first target (later revised upward) we were treating gold as an emergency backstop with no counterparty risk. Coincidentally that worked out to a single digit percentage of our net worth.

Having swallowed the fairytales about silver I viewed that as something we would sell for a high profit at some point when its “unsuppressed, scarcity value” was realized (LOL). So silver was always intended as a play for a cash profit. We made these purchases comfortably from part of our cash reserves.

We later revised upward the target for gold and postponed some things we wanted to do in order to free up the cash with which to buy it. This target was based on a different reference point, partially funding a retirement income in the event of a loss in purchasing power of some currency based annuities that were set in stone before we even looked at gold.

After reaching that target we turned our attention to the things we had postponed. Meanwhile our attitude to the gold changed. Today we view that as the core holding which we intend to pass onto the kids when we kick the bucket.

We are now at another crossroads in so far as we are accumulating more cash (shrimp size) than we want and we have more coming our way which we also don’t want (LOL). I know that sounds absurd but our attitude to fiat currency is light years away from where we began this journey. Aside from our short term reserve of cash we perceive cash as a liability these days. So I would definitely say that we feel a need to rebalance away from cash at present.

At this stage I think the most likely outcome of our deliberations will be to label the existing small pile of gold Core (as in, only use it to buy your way off a cattle truck and across a border). With another small pile of cash, gold and some other stuff labeled Trade (for want of a better word) which we would try to use in order to buy and sell for profit. With any profits we wanted to take off the table going into more Core gold.

I realize these aren’t a set of “benchmarks” but I think this is the essence of the decisions we are all confronted with. They are personal decisions, based on our own specific circumstances, time of life and our individual goals. Perhaps the issues we need to address could be clarified by answering these questions: What can gold do for me/us? What do I/we want from gold?

Pete said...

@ Costata

"Today we view that as the core holding which we intend to pass onto the kids when we kick the bucket."

I don't have kids yet, but this is also my intention.

That way I don't factor 'riches' into my future and start wasting my resources or getting into debt.

It also helps me to stay calm over gold price volatility and the fact that Freegold could be quite a few years away yet.

Jeff said...

I still can't see a dump. Consider the way silver was smashed with multiple margin increases and the other steps described by Victor above. Gold? One small margin increase to keep things orderly (so far).

A trip down to 1300 would create enormous physical demand, and we know supply is drying up. The cost would outweigh benefit for the managers, IMO.

In a previous thread I questioned the huge call options rolled into contracts in the 1500s. I consider my question answered now, and don't feel there is any way we would breach 1500 going forward.

Jeff said...

Some shrimps were expecting a dump, and paid the price.

Many gold shorts wiped out, lost everything:

http://tinyurl.com/3d3omeu

Motley Fool said...

Jeff

Like costata, and for the same reasons, I don't really think we should get into this here.

That said. Think months not days.

TF

M said...

@ Jeff

I agree, we already experienced the dump, the same dump that happened in the 70's run. Gold went in 1970 from $55 to $200 in 77. Then it fell all the way back to $100 in around 76. From that point it never looked back.

When Bear Sterns collapsed in the summer of 2008, gold hit $1030. But then it fell all the way back to $630 in October. It aint looking back.

Disclaimer: Consult a qualified financial adviser because JR says, I don't know what I am talking about.

radix46 said...

M,

I think JR might be correct, the 1970s is absolutely nothing like now.

Just like Thailand is nothing like the US.

mrbeyond said...

Robert Z has a word on recent ´progress´.

http://au.news.yahoo.com/thewest/a/-/world/10034281/more-dangerous-times-ahead-world-bank-chief/

mortymer said...

@MrBeyond, Great Find! Congrats.
I like this part: "...Zoellick said the eurozone's structure "could turn out to be the most important"... "

mortymer said...

From another pot:
http://nokiaoro.com
(a little bit unrelated marketing here, heh, but then, well, if the oro has its comeback, isn´t it a sign of slow migration, good reading of markets?)

mortymer said...

For those who want to follow Mr. ROBERT B. ZOELLICK:

Office of the President

http://tinyurl.com/5qocqu

mrbeyond said...

@Mortymer: "...Zoellick said the eurozone's structure "could turn out to be the most important"... " is exactly the part I liked also, but its layed out with wording..."challenge currently facing the world economy" by a journalist which in combination can be read many ways. Do not know how much there is usually "written between the lines" of mr.Z but exact wording is very interesting indeed.

Gotta check up Zoellicks site - thx. Just stumbled upon this: http://youtu.be/p1_lTS2kg7Y

Motley Fool said...

Joule Unlimited

Now this is interesting.

TF

raptor said...

http://movies.netflix.com/WiMovie/How_the_Earth_Was_Made/70153378?trkid=2361637

13. America's Gold

BTW, all the episodes are good.

costata said...

MF,

Agreed. Very interesting. Thanks for the link.

costata said...

Woo hoo more deflation!

Of ego and the last few shreds of Mish Shedlock’s credibility courtesy of Eric (not the swimsuit model) Janszen here.

First of all, please try to spell my name correctly…..

…… You can look at data for every country on earth and see the same thing: no sustained and deep deflation anywhere on planet earth since the US in 1933.


The post also contains some nice graphs that Team Photocopier might like to explain by drawing on their deep knowledge of monetary history and toner cartridges.

Michael said...

@costata
I wonder if Mish realizes he should say "ouch" now.
If Mish earns his living from making forecasts that is is devastating professional blow.

Michael said...

I've been reading archives and links and I discovered a couple of insights:
I had not considered that gold is the only metal found as an element. Except for the occasional bit of 'pure' silver only gold is found not bonded to other substances. No gold sulfate or gold carbonate, it is just gold. It usually has to be physically separated from the junk around it but when you get to it it is Au. This gave it a significant head start on all other metals. No smelting or chemistry was needed. Early man just found it, molded it and kept it.

With regards to taxation: In the US we have to pay tax when our 'commodity' increases in value. In the eurozone there is no Value Added Tax (VAT) on the sale or purchase of gold. Should gold become a 'very' important quantity in the monetary world then the USA will have to stop this taxation or risk seeing all of its gold slowly (smuggled) to places that treat it better.

Pretty slow day in my world but that is what came up.

Texan said...
This comment has been removed by the author.
Wendy said...

Texan to gold you might also add:

gas, food, services, education. cloths are cheaper, but the fabric is thinner.

All the stuff one needs is more expensive

houses, cars, computers, tvs, cell phones etc cost less
:D

Andy said...

I'm going to miss all you smart people once gold is set free. How will I spend my Saturday nights? Will the trail end? Will there be annual reunions?

Wendy said...

Andy I've been pushing for a freegold conference in Vegas for the last year. Anything is possible ;)

Michael said...

@Wendy
local Vegan me...what better place for a FG conf

Jeff said...

Mish keeps responding in that itulip thread, and getting annihilated. His massive ego won't let him quit; talk about being invested in deflation.

Motley Fool said...

Hey Costata

Thanks for your link too. I laughed a lot. :D

TF

mrbeyond said...

Should Fortune know better?

The Great Gold Argument (Fortune, 1931) - Fortune Features
http://features.blogs.fortune.cnn.com/2011/08/14/the-great-gold-argument-fortune-1931/

Ash said...

Man, CRA, in keeping with your name, you just had to draw the "troll" out from his cave, didn't you? I imagine some people won't be happy with that snarky reference you made, but, to be fair, I was just itching to comment on your link to Erik Swimsuit Jantzen's (sp?) reply to Mish. It's funny that you first quoted the part where he points out that Mish got the spelling of his last name wrong. Funny, but not surprising, because the misspelled name is perhaps the most damning criticism of Mish and Mish's argument in that entire post.

Jantzen's entire argument could probably be dispelled by a layperson who doesn't understand any economic or monetary theory by the simple quip, "what goes up must come down". Or, alternatively, by pointing out that projecting past price trends of markets indefinitely into the future, especially financial and consumer markets, is the quickest way to prove that you have no idea what you're talking about. Statements like the following only further prove how utterly detached from reality your boy Jantzen is:

"By August 2009, my forecast was proved 100% accurate and yours wrong."

Yes, his forecast in 2007 of brief "deflation" followed by sustained "inflation" was proved 100% correct just two years later... good job, Jantzen, your extreme lack of economic/financial understanding, arrogance and various CPI charts have combined into an unfathomable level of flawed analysis. My advice: don't quit your day job selling bathing suits, because your "iTulip" website just took an irredeemable turn for the worse. Then, he manages to completely discredit himself in a single, short sentence.

"Both [money supply and prices] are equally relevant in economics in the way that the force of gravity and weight are equally relevant in physics."

If Jantzen had the slightest understanding of either economics or Einstein's theory of relativity and gravity, he would also understand why neither money (credit) supply (and velocity) and prices nor the force of gravity and weight are "equally relevant". One is a fundamental force driving the behavior of components within a system, and the other is an extremely superficial, and many times transitory, effect that provides very little insight into the dynamics of the underlying force. It is no coincidence that he likes to focus on past consumer price trends, M0 and sometimes M1, because focusing on broader money supply, financial asset prices (which are highly inter-connceted to the "productive economy"), wages or anything else would decimate his "100% proven" argument.

For example, considering economic, social and political dynamics in conjunction would be devastating for him. The fears of evaporating liquidity and debt deflation a la 2008 have once again returned, despite Jantzen's rising consumer prices since 2009. Many people were banking on the Fed to come through with QE3 asset purchases last week, but, even when its willing to go against the wishes of 3 dissenting members, its still not willing to resume asset purchases. Its only willing to tell people short-term rates will remain low for another two years, which really isn't news to anyone paying attention. It is also unwilling to purchase any assets except perhaps Treasuries, and the Fed simply cannot monetize what Congress isn't spending, which itself has been significantly hamepered by the debt ceiling discussions and the S&P downgrade within a few short weeks. There are many other comprehensive examples like this one that people like Jantzen would never dare to think about, let alone mention.

Cont...

Ash said...

Cont...

Also, its interesting that Jantzen's argument was even brought up here, since he is essentially saying that we have returned to a period of sustained consumer price inflation, or what he likes to call stagflation (notice that people hawking various "investment theses", who don't like to face reality, always predict "stagflation" into the indefinite future). It is my understanding that this blog (FOFOA) advocates that we naturally face a period of massive credit deflation which will, by necessity, morph into monetary hyperinflation (not sustained "high inflation") before severe deflation gets a chance to take hold. That is a completely distinct argument from that of Jantzen, so why even bring him and his useless CPI/PPI charts up in the first place? Just to be an antagonizing nuisance, I imagine.

Michael said...

Happy 40th Anniversary
(yeah I know I'm 12 hours early)

Indenture said...

Thanks for the link costata. Mish is an interesting bird and during my web site climb up the ladder to FOFOA I stopped by his abode and thankfully kept moving.

"(Mish) said, I have had many feuds with Eric Jantzen (sic) at iTulip regarding deflation. He makes a distinction between deflation and debt-deflation. From a practical standpoint, in a fiat credit-based economy, debt-deflation is deflation."

No. The word "deflate" simply means "to diminish." The term "debt deflation' refers to the condition of a shrinking level of credit outstanding because old debts are being repaid faster than new debts are being taken on. This is related to the money supply and indirectly, through changes in the money supply, to consumer price inflation. But deflation and debt deflation are not equivalent."

Jeff said...

Mish started the fight, and continued it by repeatedly emailing itulip. He is arrogant and ignorant, IMO, often calling hyperinflationists 'idiots'. Mish also admits that he makes a nice living selling deflation on his blog. Don't look for him to ever admit a mistake, which Jantzen has done.

Loved the way Jantzen busted him on his housing top call in 2002. Ash, are you as upset with Mish's call being 'early' as Jantzen's call being late? And why are you defending Mish here? Or just trying to start the same fight with Costata? You might get pwned, as did your mentor.

Motley Fool said...

I recall that someone asked not too long ago what is the smallest amount of gold you can buy at present.

Well, here it is : http://cgi.ebay.com/1-GRAIN-24K-PURE-GOLD-BULLION-MINI-BAR-999-FINE-GIFT-/200639861481?pt=LH_DefaultDomain_0&hash=item2eb71152e9

One grain of gold, in bar form. There are 480 grains in a troy ounce. So it's roughly 0.065grams of gold.

By weight, if gold is priced at $1800 and ignoring manufacturing premiums, this is worth $3.75 dollars at present.

Small enough for you? :)

TF

Ash said...

Jeff,

Why are you making erroneous assumptions without any rhyme or reason? I did not once "defend Mish" in my comment. There are many things that I disagree with Mish about, including his broad theoretical perspective and his rants about how we need massive austerity in the public sector and privatization of everything under the Sun. I even posted a comment on TAE awhile back in response to Mish's latest attack on HI advocates, in which I stated that he is not doing the deflationists any favors with some of his inaccurate and/or illogical assertions.

I have expressed no opinions whatsoever about the timing of either Mish or Janszen's (fine, I'll use the correct spelling) market calls. A pissing contest about who was "early" or who was "late" does not interest me at all. What interests me is Janszen's almost unbelievably superficial understanding of economics and finance. His supreme arrogance doesn't help either, which is quite clearly demonstrated in those e-mails you reference along with the "100% proved" comment, but that's just how some of these people are, I guess.

BTW, Mish actually paid EJ a compliment in his article, along with the natural criticism of EJ's inflation argument, after which EJ went off on a belligerent and nonsensical tirade in his replies.

ad said...

It’s the Economy, Dummkopf!

Until now the European Central Bank, in Frankfurt, has been the main source of this cash. The E.C.B. was designed to behave with the same discipline as the German Bundesbank, but it has morphed into something very different. Since the start of the financial crisis it has bought, outright, something like $80 billion of Greek and Irish and Portuguese government bonds, and lent another $450 billion or so to various European governments and European banks, accepting virtually any collateral, including Greek government bonds. But the E.C.B. has a rule—and the Germans think the rule very important—that they cannot accept as collateral bonds classified by the U.S. ratings agencies as in default. Given that they once had a rule against buying bonds outright in the open market, and another rule against government bailouts, it’s a little odd that they have gotten so hung up on this technicality. But they have. If Greece defaults on its debt, the E.C.B. will not only lose a pile on its holdings of Greek bonds but must return the bonds to the European banks, and the European banks must fork over $450 billion in cash. The E.C.B. itself might face insolvency, which would mean turning for funds to its solvent member governments, led by Germany. (The senior official at the Bundesbank told me they already have thought about how to deal with the request. “We have 3,400 tons of gold,” he said. “We are the only country that has not sold its original allotment from the [late 1940s]. So we are covered to some extent.”) The bigger problem with a Greek default is that it might well force other European countries and their banks into default. At the very least it would create panic and confusion in the market for both sovereign and bank debt, at a time when a lot of banks and at least two big European debt-ridden countries, Italy and Spain, cannot afford panic and confusion.

At the bottom of this unholy mess, from the point of view of the German Finance Ministry, is the unwillingness, or inability, of the Greeks to change their behavior.

That was what the currency union always implied: entire peoples had to change their ways of life. Conceived as a tool for integrating Germany into Europe, and preventing Germans from dominating others, it has become the opposite. For better or for worse, the Germans now own Europe. If the rest of Europe is to continue to enjoy the benefits of what is essentially a German currency, they need to become more German. And so, once again, all sorts of people who would rather not think about what it means to be “German” are compelled to do so.

bob said...

Looks like FOFOA is in good company, none other than Steve Forbes seems to think USD will be 'backed' by gold within 2/3 years because of the distrust in the currency.

Steve Forbes interviewed by UK Channel 4 News Journalist (only 2 mins+ long)

See end of video.

Michael said...

Came across this on Kitco Gold forum:
http://www.bizportal.co.il/shukhahon/bizcompquote.shtml?p_id=1116375&maavar=1
It is apparently the Israeli gold market and it opens before the Asians...in fact it is closed already so I guess it is a Sunday market.
I was not aware there was gold trading before 3PM Sunday when the far East opens.
Gold closed at 1730 there.

Indenture said...

One Grain Gold Bar

Thanks M.F. (I think a certain blog writer would enjoy one of these:)

holdinmyown said...

@NoEscape

"For me, the key concept was the following:
If a country has smart leaders and only oil to trade, what would be the only thing a smart leader would be willing to exchange it for ?

The conviction that gold was the only answer was like seeing light after months in darkness."

I don't completely agree with your statement above. An oil producer does not have to sell his oil for gold. This would make gold a transactional currency and its true value is as a store of wealth. No, instead the oil producer would be happy to receive as payment the fiat currency of one of his major trading partners that would enable him to purchase the exporation and purchasing equipment and services that his trading partner might possess. In addition he would accept his own currency since he would have to pay the salaries and wages of his exploration and production staff. In fact he would accept any currency that served the "means of exchange" function (i.e. allows him to buy the "stuff" that he needs to explore and produce his essential commodity) AS LONG AS that same currency also allows him to buy gold with his "excess" profits (profits in excess of financial costs including interest and dividends as well as taxes).

holdinmyown said...

@Costata

"In my opinion Australia could experience the debt deflation that Steve Keen is expecting in the USA (but that is a topic for another day)."

I have had similar thoughts regarding the Canadian dollar. If (rather when) the USD defaults and is devalued relative to gold and the fiat currencies of surplus nations (China) what happens to the currencies of nations that have a relatively balanced trade and functioning economy? Obviously Canada's production would decline as the US is our major trading partner and the devaluation of the USD would bring forced austerity there, reducing demand for Canadian goods and services. So what would be the options for the Bank of Canada and the federal government? The way I see it there are only 2. We could either follow the US into hyperinflationary hell or we would suffer a severe depression. I do not think that hyperinflation is the only acceptable political choice as it is for the US. Canada's problems would be caused by uncontrollable international monetary and financial events, not by the hand of the BoC (or at least this would be the political spin). So I do believe that Canadians will have a choice of their hells. What do you think?

PaidInGold said...

A year ago when I first got into PM, I have found your site after the bloggers that I did frequent would revere you and ANOTHER.

I didn't get you then.

But I get you now.

I am a Korean American and I found out about the IMF Crisis and the gold sell off from my neighborhood bullion dealer here in Seoul.

Thank you for posting additional info about it.

Cheers. See you at the collapse.

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

I cant see how FOFOA is right on how the transition to freegold will take place.

His first assumption is that there will be a huge US debt/treasury rally because he believes that capital will flow exactly how the Exeters pyramid is written. I have seen it said here that he believes freegold is months away. Right now, the yield on the 30 year treasury is 3%. So if this is possible then what will this flow of capital bring the yield on the 30 year ? Negative 30 percent? How negative will the 10 year yield be ? Its impossible.It cant happen.

What will happen is just the opposite. There will be massive capital flight OUT of US debt and treasuries(loss of confidence), similar to the capital flight in the Asian financial crisis. This will have the opposite effect on the printing presses in the United States. As this capital takes flight, Ben Bernanke will probably resign or get fired along with the whole FOMC(Keynes will be put to rest). A new Fed chairman will be appointed(probably by a republican president) and the new Fed chair will be of the Austrian persuasion. He will do the opposite of printing money in attempt to stop the capital flight(persuade capital back). This is exactly what the central bankers in the Asian financial crisis did, to no avail. It will not work in the US either. At this point the Yuan will be in the process of floating and the US dollar and debt markets will be left to natural market forces. Some sort of equilibrium will be made and freegold will kick in. The Austrian Fed can then preside over the US gold.

Back to the Exeters pyramid.The essence of confidence loss in the US is a flight out of US treasuries and dollar debt. This presents a huge flaw in using the pyramid as it is written to draw any conclusions on how freegold will transpire.

mortymer said...

@to above discussion...

I found this in one doc about VAT treatement in EU...

"...Special scheme for investment gold..."

...2. Member States may exclude from this special scheme small bars or wafers of a weight of
1 g or less...

(taken out of the context, just to show that there are laws being created even about this)

Source to put up later its rather HUGE in its size and importance :o)

For now you can check my blog :o)

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

Done, here we go, enjoy!:

COUNCIL OF THE EUROPEAN UNION
Brussels, 3 October 2005
12913/05
LIMITE
FISC 115
NOTE
from: Presidency
to: Working Party on Tax Questions – Indirect Taxation (VAT)
Subject: Proposal for a Council Directive on the common system of value added tax = Presidency compromise

http://anotherfreegoldblog.blogspot.com/2011/08/proposal-for-council-directive-on.html

costata said...

HMO,

I don't claim to have any special insights into the Canadian situation. But there are certainly similarities in the Australian and Canadian economies. As I indicated with that comment you quoted, I think Australia could experience a different set of outcomes to America (same goes for other countries as well).

For example it is not certain that banks in this country would be bailed out if they suffered catastrophic losses like the Wall Street banks.

The Reserve Bank of New Zealand (RBNZ) may have given an indication of what the banks here could expect. (Our major banks are also the NZ major banks. The RBA and the RBNZ have a close working relationship.)

The RBNZ circulated a discussion paper a few months ago which laid out an emergency plan for dealing with the failure of a bank. It was predicated on closing the bank for 24 hours and sorting out the mess in that time frame. I want to underline that point. Take it over, sort out the mess and have it re-opened 24 hours later.

One of the solutions the paper emphasised was "haircuts" for bank creditors as part of the regulatory response.

So returning to your thought about Canada not treading the HI pathway which the USA is on, it appears to me that both Canada and Australia might avoid the policy settings and actions that would precipitate HI.

This is a big discussion and a topic for another day. I have a couple of other things to address at the moment but I would like to return to this topic later on.

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