Monday, August 15, 2011

The Long Road to Freegold


On this, the 40th anniversary of the Nixon Shock, you will probably see the video below of Nixon closing the gold window at some of your favorite sites. Most will call it a crime for the purpose of promoting their expectation of justice defined as turning back the clock to the old gold standard. But it may be more instructive to think about this momentous occasion, 40 years ago today, as one of the many necessary—yet painful—steps on the long road to Freegold. So I thought I'd present this same video in a more appropriate context.

Please take the time to understand FOFOA's dilemma if you'd like to grasp the importance and significance of the long-line Trail exhibited below:

FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma.
__________________________________________________________

The Last Gasp of the Failed Scheme of Government Price-Controlled Bimetallism – 1896



The Last Gasp of the subsequent Gold Standard – 1933



FDR explains the Bank Holiday – 1933



FDR explains the new US gold scheme – 1933



Birth of the new Bretton Woods Gold Price-Fixing Scheme – 1944



Charles de Gaulle foretells a Bretton Woods gold price-fixing scheme crisis – 1965



Nixon closes the US Gold Window – August 15, 1971



The Euro-Freegold project launches after decades of planning – 1999-2002



Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700

Happy Anniversary!

Sincerely,
FOFOA



___________________________________________________________

UPDATE:

Some of you will remember Lance Lewis' "GLD Puke Indicator" and its nearly flawless record at marking lows in gold. Please review my January post Who is Draining GLD? for a more complete explanation. When I wrote that post I emailed Lance for permission to use part of his newsletter.

Anyway, I just received the following email from Lance:

FYI... GLD Puke Indicator triggered another buy signal last Thursday ...

Last Thursday, the GLD gold ETF fell over 2 percent on the day, but the more important piece of information was the fact that its bullion holdings fell a whopping 24 tonnes (1.8 percent) to 1,273 tonnes.

That 2 percent 1-day decline in bullion holdings triggers our “GLD Puke Indicator” once again (see the chart below), in which one-day declines of over 1 percent in the GLD’s bullion holdings (or clusters of such declines as in 2008) tend to occur at or within days of important lows in the price of gold.

You can read my past discussions of this indicator to see “why” I believe it works the way it does, but the point is that it works. The last time we saw this indicator flash a bottom signal for gold was on January 25th. As you can see below in the chart of the “GLD Puke Indicator”, that signal occurred within 2 trading days of gold’s 2011 bottom on January 27th. Coincidence?

In short, there’s a high degree of probability that the pullback that began last Thursday in gold is going to be a short-lived one and has likely already seen its low with Friday’s low print of $1725.80 in the December contract.



___________________________________________________________

UPDATE #2:

Thanks to one of my readers and supporters, Warren James who posts at Screwtape Files, and his GLD bar-tracking investigation, we now know which bullion banks have custody of the 24 tonnes puked up by GLD. Here's the fax Warren stumbled upon accidentally:


Playing along with the title of my January post, Who is Draining GLD?, I'll add one coincidental observation:

24 tonnes of gold were redeemed from GLD (in London) exactly seven business days after South Korea announced it had purchased 25 tonnes (in London). I'm not suggesting a direct connection, merely making a "flow" observation.

Sincerely,
FOFOA

256 comments:

1 – 200 of 256   Newer›   Newest»
Blondie said...

FDR, radio address, 1933: “We shall seek to establish and maintain a dollar which will not change its purchasing and debt paying power during the succeeding generations.”

The Strong Dollar Policy.

“The United States must take firmly in its own hands the control of the gold value of our dollar.”

Gold’s job is to value currency; what arrogance. The value of anything is determined by a willing buyer and a willing seller, not by decree.

What this means is that any further value which flows into gold (the function of gold after all) flows into the hands of the United States... fix the exchange rate, and as the market actually devalues the dollar (because it is being inflated) the spread flows into the hands of the issuer of the dollar, but due to the “fix” the devaluation is not visible publicly. Of course the publicly invisible private strains of this exorbitant privilege require continual readjustments every few years.

To the victor the spoils.

Blondie said...

"You see in this world, my friend, there are two kinds of people: those with loaded guns, and those who dig. You dig."

... and that's how a Strong Dollar Policy is implemented.


Sick of digging yet?

78Rubies said...

Happy 40th anniversary; now, where's the freegold? ;)

DP said...

... (a different kind of punctuation, perhaps for now a more appropriate one than my last, Aaron! :) )

Motley Fool said...

Happy anniversary. :)

Edwardo said...

FDR was a great leader. Would that we had someone of his caliber at the top of the political pyramid today. Having said that, he was far from flawless, and was quite willing and capable of effortlessly dissembling.

He had to know, or at least have had a decent inkling, that the move away from gold was doomed, but, equally, he must also have known that the collapse of the new regime would occur long after he was gone from the scene. When it comes to politics, then as now, it is rare that any considerations other than expediency win out.

Joel said...

No sir, Edwardo. Read some real history ("The Forgotten Man" is a great start.) FDR was a horrible, socialist, anti-business President, with a fondness for Trotsky and Stalin. His policies extended the depression years longer than it would have lasted without his "help".

Aquilus 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.

DP said...

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

Shoulda stopped there.

Pat's pithy page said...

I'm new so please forgive my ignorance. I am trying to wrap my brain around this whole freegold thing. Most of this is WAY over my head but I am starting to understand a few things the more I read.

My husband and I are going round and round about buying any physical gold right now. We are over exposed in our 401Ks and I am anxious to at least pick up a few ounces as we can afford. He thinks gold is a bubble and doesn't want to buy in at the top like a sucker.

Anyway, the big question we have is what good does it do to have gold buried in your backyard with no way to trade it or use it to buy things? We are paying off our house as a top priority but now I thinbk that might be wrong somehow.

Is gold going to be held by individuals as an asset to be borrowed against? Or are people going to eventually trade it for paper money once the dust settles and gold is revalued?

Thanks for all the great information and I will continue to read.
Pat

M said...

@ DP

What is your target on the 30 year ? Negative 20 or 40 ?

M said...

@ Pat

Ask your husband why he thinks an orderly rise in the price of gold for 10 years, as the US dollar fell from 120 to 73, as monetary aggregates around the world skyrocketed and the Feds balance sheet doubled is a bubble.

And why a 30 year bull market in US debt isn't.

DP said...

M, I don't have one. IMO the RoW will stop buying, but won't necessarily decide to dump (at least not until the fat lady has already finished warming up and commenced her own swan song). However, the Fed will of necessity buy any and all that the USG decides it must issue and isn't taken by some other, more legitimate buyer elsewhere. Given this reality, I guess we can say the Tbond yield will be whatever the Fed and USG want it to be — in nominal terms at least.

Motley Fool said...

@M

A Cup of Tea

Nan-in, a Japanese master during the Meiji era, received a university professor who who came to enquire about Zen.

Nan-in served tea. He poured his visitor's cup full,and then kept on pouring.

The professor watched the overflow until he no longer could restrain himself. 'It is overfull. No more will go in!'

'Like this cup,' Nan-in said, 'you are full of your own opinions and speculations. How can I show you Zen unless you first empty your cup?'

M said...

@ DP
Point taken.

The Fed is the biggest single holder but if all the legit holders like Japan and China where to make a run for the exits, it will still dwarf the size of the Feds holdings. The Fed's holdings would have to be equal to the combined holdings of the legit holders if it had any chance of making things appear solvent in the event of a run.

Unknown said...

Brandon Smith has a diatribe on Silver over at Zero Hedge. All I can say is "whew, it takes a lotta work to be a crusader". He issues calls to action, urges the use of 'harder' money and wants everyone to get involved. I'm exhausted from reading it.

holdinmyown said...

@M
Long rates don't have to go negative. If we have a period of deflation in risk asset values (which I believe we are experiencing now) money will flow into treasuries, pushing up the price and dropping the yield. If yields fall 50% then the value of the bonds will approximately double. You can keep halving rates infinitely, never actually reaching zero.

Unknown said...

Pat
The answers to your questions WILL be found in these pages. I have been reading for about 3 months and all I can say is that it is all there.
Several concepts need to be understood before one realizes the validity of the concept.
Read 'Debtors and Savers' and the Hyperinflation series from September of 2010.
The easiest suggestion is buy some physical NOW. As time goes by you will not regret it as you learn why it was a good idea. Most of us here are not traders and do not plan on selling gold any time soon. We therefore do not care if we are up or down 10%. (If you buy today the price could go down, it just had a nice run up. I have been reading about our country's financial mess for 17 months. This is the best place to call home in my opinion.
Michael

M said...

@ holdimyown

"If we have a period of deflation in risk asset values (which I believe we are experiencing now) money will flow into treasuries"

What happens within the micro US economy has nothing to do with it. You cant just apply the Exeters pyramid to the micro economy of the US and pretend that the US dollar only derives its value from within the US. The US treasury rally already happened (2008) and is still happening right now. That considered, paper gold, mining stocks(the HUI and the XAU rallied when the DOW was down 600 points) and even silver don't belong above treasuries on the Eeters pyramid, they belong below them. Paper gold and silver have rallied stronger since 2008 then treasuries.

Motley Fool said...

M

-sigh-

Here is my view. I doubt FOFOA disagrees much, if at all.

While things still have a semblance of working, fear will drive capital into treasuries and gold. This is happening now still.

The moment things go pear shaped, the private capital that can escape will do so. The only market large enough to handle these flows without breaking is the Euro.

The Bernank at this point will take over buying of all treasuries, including compensating for those fleeing and proceed to print in order to keep government in power.

Cue Hyperinflation in the USA.

TF

ad said...

Unknown,

Last week Ender made a comment

Do you see Gold Functioning?

As gold exceeded platinum per oz and silver was left behind too, I understood.

holdinmyown said...

@M
I must be misunderstanding your comment because it doesn't make any sense to me. Maybe I'm just slow?

First off, let's give John Exter his due and at least get his name right.

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

"Exter is known for creating Exter's Pyramid (also known as Exter's Golden Pyramid and Exter's Inverted Pyramid) for visualizing the organization of asset classes in terms of risk and size. In Exter's scheme, gold forms the small base of most reliable value, and asset classes on progressively higher levels are more risky. The larger size of asset classes at higher levels is representative of the higher total worldwide notional value of those assets. While Exter's original pyramid placed Third World debt at the top, today derivatives hold this dubious honor."

I believe (and I think FOFOA once said) that in a deflationary period leading to hyperinflation/devaluation money will flow into progressively less risky assets down the inverted pyramid. This in no way implies that bonds have to perform better than gold on a daily, weekly, monthly or even yearly basis. It means that eventually gold will outperform all risk assets.

The Dork of Cork said...

Unlike back in William Jennings Bryans time - the countryside does not subsidise the city , the city has bypassed its local hinterland and plugged itself directly into foregin oilfields , The “countryside” is now just a more dysfunctional suburban tumour on the conurbations central mass.

DP said...

Deja vu - it's $1764 all over again!

JR said...

Mr. My name is Mud,

You are a satirist of the finest level, Vonnegut got nothing on you. What a riot you are!!

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.

The flight into Treasuries is already happening. Its great satire to posit FOFOA thinks there will be a "huge US debt/treasury rally," as we all know from Gold: The Ultimate Un-Bubble that treasuries are and have been the massive bubble that could pop at any moment"

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

"Two Historic, World-Class Bubbles are About to Pop

Bubble #1: Government Debt (with a nominal value in the tens of TRILLIONS)

Bubble #2: Perceived Wealth, denominated in purely symbolic, un backed, unsustainable-Ponzi-debt-based currency (with a nominal value in the HUNDREDS of trillions)...

It is the 28-year hyperinflation of the US$-denominated debt asset bubble that is about to pop...

But the thing about THIS bubble's rise that is so different from any rise in gold is that the price of past issued debt has a natural upper limit. And the "lowering of interest rates scheme" has a physical floor, an inevitable and unavoidable dead end... call it ZERO.

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

When interest rates hit ZERO, they only have one way to go. And that means that the value of past issued debt, the very kind of TRASH that China is sitting on a land-fill mountain of, only has one way to go... DOWN. This is the very definition of a bubble that is about to pop. As Peter Schiff calls it, this is The Mother of All Bubbles!"


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

When that happens there will be a massive (but quite brief) spike on the USDX as the flight must pass through dollars to get to other currencies or gold or whatever. During this spike, Ben will print like crazy not only to keep the dollar from rising but also to buy up the dollar bonds being sold down.

cont.

JR said...

cont.

Your farce is wonderful:

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.

LOL @ the Fed/USG adopting a deflationary stance to save the dollar against a flight of capital!! They already know it didn't work. From askakorean linked in Go Go South Korea:

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

"The good news is that it appears the IMF is not oblivious to the harsh feelings and memories in the countries they have helped. Even the IMF would say it would have done things differently in both Asia and Latin America. For example, back in 1997, the IMF criticized Malaysia for pegging its currency to the U.S. dollar to protect it from currency speculators, but now it is generally viewed as a wise decision. With Korea, it has also been admitted that their recommendation to tighten credit and raise interest rates was not the right move either… The majority of knowledgeable analysts would say that the IMF's handling of preventing and responding to the unfolding crisis in Korea (and elsewhere) was not efficient and suboptimal. The IMF has clearly taken some of those lessons and applied them in Russia in 1998 and Spain and Greece in 2010.

… Understanding the increased importance of Korea in the region, in July 2010 the IMF co-hosted a conference in Korea a few months before the G-20 summit that was also to be held in said country. In the conference the IMF admitted that they had made mistakes in Korea, and elsewhere, and looked to mend fences. Although they said that difficult choices had to be made and they had to be made quickly in an unfolding economic crisis, in hindsight it was possible to do so without forcing so much austerity to the general population."


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

The US usually does the exact opposite for itself when it gets in trouble than what the IMF does to lesser countries. Inflationary policy in the US and deflationary (austerity) policy for everyone else. Works pretty well *so far* in the US and didn’t work so well in Asia at all ;). So now they not only think that inflationary is better than deflationary, they have evidence.

And therein lies great satire - only a "sh*t-for-brains" would be so gullible as to think the US will ignore the ease of printing, the current momentum, and the evidence learned from Asia and forego its ability to print and instead self-impose austerity and deflation “to persuade capital back.”

Well played, Weird Al Yankovic is jealous!

Cheers, J.R.

M said...

@ holdinmyown

"I believe (and I think FOFOA once said) that in a deflationary period leading to hyperinflation/devaluation money will flow into progressively less risky assets down the inverted pyramid. "

Money has flown to less "risky" assets since 2008. You think there is more capacity left in the treasury tank before it blows up ? How can you rationalize this when the yield on the 30 year is at 3% now ?

"This in no way implies that bonds have to perform better than gold on a daily, weekly, monthly or even yearly basis"

But it does imply that at some point in the future, bonds will perform better then everything above them on the pyramid. Nothing will force people who are saving in silver to sell it and buy bonds. Same with mining stocks and paper gold. They all belong below bonds on the pyramid because people will sell silver, mining stocks and paper gold to buy physical gold but not bonds.

M said...

@ MF

I agree that freegold will take hold but I don't agree on how we get there. Capital will flow out of treasuries, it has already flowed in. A realistic target for the 30 year is plus 30%, not negative 30%

Motley Fool said...

M

If money flows out now in large amounts, well it wont be pretty.

The Bernank can't allow this, so he will replace every cent that flows out and more with his funny money.

Anything to keep the illusion alive, even if just for five more minutes.

TF

JR said...

Hi pithy page,

Why do you think this:

Anyway, the big question we have is what good does it do to have gold buried in your backyard with no way to trade it or use it to buy things?

If gold is the ultimate wealth asset, why wouldn't people trade for it? From Greece is the Word

...Of course you should also make other preparations to ensure that your bare necessities of food, clothing and shelter are taken care of. Some silver and even some dollar currency makes sense in this regard. This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year. And it is for those that would like to store that excess wealth in the most universally liquid vehicle since they don't know exactly what they will be needing a year from now.

Perhaps they will need a generator. Or maybe a cow. Or maybe a gun. Maybe a new Ford F150. This is where gold comes in handy. You can store your wealth securely now in a universal package that should be convertible into the most needed things later. It can cost a pretty penny to be totally prepared now for every possible eventuality. Instead, it is best to prepare for the most probable events and keep a universal reserve for the unexpected!


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

Also, why do things have to be either/or?

Is gold going to be held by individuals as an asset to be borrowed against? Or are people going to eventually trade it for paper money once the dust settles and gold is revalued?

Most would likely prefer to lend against it first, but when push comes to shove, the gold has got to flow.

Cheers, J.R.

JR said...

excerpt from Greece is the Word:

"All the other monetary aggregates contain credit money and debt assets that are generally very liquid and directly tied to the value of a physical dollar. These assets that we are taught are the same as dollars are the direct debt of certain approved corporate institutions. They are mere credits while the institutions engage in a murky game of financial smoke and mirrors with your real money. These credits may be the most dangerous of all during a systemic collapse as they are cloaked in a morass of legalese small print.

And as I have shown to some degree in this post, and in greater depth in past writings, these wider aggregates have little effect on the consumer price index we all watch so closely. The big secret of the central bankers is that it is the monetary base, the cash, that has the most effect from a quantity theory perspective. And it is systemic confidence (YOUR confidence in the system) that has an equal effect from a velocity perspective.

To demonstrate my point, I have adapted the above diagram to show what it looked like in Zimbabwe last year...

Image

The important thing to remember is that the pile of debt on the right side of the diagram is fixed to the value of each individual physical dollar. So as the physical stuff is diluted to fill the void left by the failing credit/debt system, it directly impacts the real value of the debt market.

This is exactly where we are heading. So you have to ask yourself: With a whole planet-full of paper debt wealth, how long are the savers going to sit there waiting for their value to disappear? But the fact is that it doesn't matter how long they sit there. The only difference that will make is how much value they are going to lose. You see the system can no longer support their value on its own. This is clear from the housing crisis, Iceland and now Greece. But the system must go on so the very unit their value is fixed to must be diluted to infinity just to keep the circle spinning.

And infinity is truly the limit. Don't expect austerity or a deflationary collapse. Don't expect them "to do the right thing" and let the bad debt fail. There is simply too much of it out there. It is our entire global monetary system, not just the bond investors. There is no political will anywhere in the world to let the people's wealth simply vanish in order to maintain the value of a silly little physical dollar. This **THIS** is the big Catch-22!

In order to save the people's "money" it will be destroyed!"


Cheers, J.R.

M said...

@ JR

"When that happens there will be a massive (but quite brief) spike on the USDX as the flight must pass through dollars to get to other currencies or gold or whatever"

There has already been a massive but not so brief rally in US debt since 2008.

Pat's pithy page said...

THank you JR and others for your comments. It does make more sense to me. I will continue studying!

M said...

@ Junior

"So as the physical stuff is diluted to fill the void left by the failing credit/debt system, it directly impacts the real value of the debt market."

The imploding of the economy and the dilution will scare the legit capital away causing capital flight. When the real capital is gone, the joke is up. If Bernie Madoff was handed a printing press on the day his ponzi was up, all the legit capital would have still left. Starting up the printing press would be pointless.

burningfiat said...

Hi all,

I found this illuminating:

http://www.thedailybell.com/2787/Anthony-Wile-Exclusive-Interview-with-Thomas-Jacob-Swiss-Gold-Franc

Especially, I liked this:
Daily Bell: Why is a gold franc needed?

Thomas Jacob: Why not? Freedom of choice is always beneficial. There are many potentially great advantages and the worst that can happen is ignorance, that is – nothing.

Then there is the issue of the future of today’s monetary system. I have my personal thoughts on that but I want to stress that there is no need to agree with me on this to support the creation of a gold franc. There is, for example, the moral issue of the fractional reserve system, which means some people create money “out of thin air,” and the general public pays via inflation. Then there is the “pretense of knowledge” that Hayek talked about: there is simply no way the authorities can know all they need to know to make decisions for the whole economy.

Last but not least, there is another question I haven’t been able to answer: if the monetary authorities want positive inflation, this means that the money supply must grow faster than goods and services – and this monetary growth is, in today’s system, all backed by an equivalent amount of debt. But whom can you impose an ever increasing amount of debt onto? Isn’t that an insane idea? As far as the road to change, I like what Hans Sennholz said in a 1984 speech at the Mises Institute: “Only in freedom, only through a parallel standard, can there ever be a just monetary reform.”


/Burning

holdinmyown said...

@M
"Money has flown to less "risky" assets since 2008. You think there is more capacity left in the treasury tank before it blows up ? How can you rationalize this when the yield on the 30 year is at 3% now ?"

I already answered this in my reply to you above. Yes, I do believe that there is a possibility that bond prices could go much higher from here even without rates reaching zero. In fact it is possible (though I am not predicting) that bond prices could go infinitely higher. I wouldn't be shorting bonds yet.

"But it does imply that at some point in the future, bonds will perform better then everything above them on the pyramid. Nothing will force people who are saving in silver to sell it and buy bonds. Same with mining stocks and paper gold. They all belong below bonds on the pyramid because people will sell silver, mining stocks and paper gold to buy physical gold but not bonds."

Bonds most likely will outperform paper silver, paper gold and stocks (though not bullion). (Just sit and watch together with us.) However, as I stated above, that doesn't mean that it must happen on a daily basis. Eventually gold bullion will outperform them all.

M said...

@ IMF

"With Korea, it has also been admitted that their recommendation to tighten credit and raise interest rates was not the right move either… "

Hahaha.The mentally challenged keynesian IMF,Tim Giethner was head at the time....Lets look at what happened to the countries that let their financial markets crash and burn.

The hardest hit,Thailand. By 2001, Thailand's economy had recovered. The increasing tax revenues allowed the country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the Dollar in October 2010.

South Korea. South Korea has managed to triple its per capita GDP in dollar terms since 1997. Indeed, it resumed its role as the world's fastest-growing economy—since 1960, per capita GDP has grown from $80 in nominal terms to more than $21,000 as of 2007.

Philippines. About 50 pesos by the year's end and traded at around 41 pesos to a dollar by end 2007. The stock market also reached an all time high in 2007 and the economy is growing by at least more than 7 percent, its highest in nearly 2 decades.

Maylasia.. The massive current account deficit became a fairly substantial surplus. Banks were better capitalized and NPLs were realised in an orderly way. Small banks were bought out by strong ones. A large number of PLCs were unable to regulate their financial affairs and were delisted. Compared to the 1997 current account, by 2005, Malaysia was estimated to have a US$14.06 billion surplus.

Singapore.Unlike in Hong Kong, no attempt was made to directly intervene in the capital markets and the Straits Times Index was allowed to drop 60%. In less than a year, the Singaporean economy fully recovered and continued on its growth trajectory.

mortymer said...

Fofoa, woudn´t it make more sense to have the denominations in Euros rather than Dollars? (or both) ... And a picture - graph shows more than many words :o)
Thanks

Unknown said...

Pat
Do not get tied up in the discussion that is ongoing on this page. These guys are arguing "inside baseball". The things you need to know to have some sense of certainty will be found in FOFOA's writing.
If you come to understand that there are way too many dollars (and dollar denominated instruments) out there and that this is all ending, well that is step one. Further steps would be understanding that gold is a wealth asset and not just a commodity, that it will eventually be shown to have a value far greater than what is seems to have today and that the physical holding of gold and not just paper gold (ETFs etc). is necessary ...well that moves your understanding along a bit further.
If you just came here to answer the question: "should I buy gold?" the answer is YES. But feeling right about that decision is going to take some effort.
Ultimately understanding what Freegold is and why Freegold and hyperinflation are coming to the USA is a bit complicated. A very smart guy (FOFOA) has spent 3 years and now a couple of hundred articles explaining how he came to his conclusions. He has reviewed the Thoughts of several also very bright folks who wrote about these issues. He then put those ideas into his own words and tried to simplify things so the rest of us could get the good stuff and in doses we can tolerate.
Start with his work, spend time take it in slowly. If you truly have an interest in what is happening in the world's economy you will not find a better unifying hypothesis on the web...promise.
Michael

jojo said...
This comment has been removed by the author.
jojo said...
This comment has been removed by the author.
Unknown said...

jojo
So my college chemistry and Physics were all a waste?
Did you get this as a World of Warcraft quest?
Michael

jojo said...
This comment has been removed by the author.
jojo said...
This comment has been removed by the author.
DP said...

M: Point taken.

Sadly, I think not. 'Nominal' was to be your starter for ten points.

jojo said...
This comment has been removed by the author.
Unknown said...

jojo
those ideas are not the conclusions one would come to after reading and understanding this site. Read the Hyperinflation series of September 2010, all 3 parts. I do not think you will have questions after that...at least not on these issues.
Michael

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

@ holdinmyown

"Bonds most likely will outperform paper silver, paper gold and stocks (though not bullion). (Just sit and watch together with us.) However, as I stated above, that doesn't mean that it must happen on a daily basis. Eventually gold bullion will outperform them all."

The flight to bonds happened in 2008. Gold, silver and stocks did fall. But ever since then, capital has been escaping. The only step now is a 20th century style bank run out of bonds.(out of currency risk)Silver or gold stocks will not go up as much as physical gold but they will not be sold for bonds either. FOFOA's stance on gold stocks has always been that they are susceptible to political risk. I agree but left to market forces, mining stocks are below bonds on the pyramid.

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

@ DP

Stay classy...

jojo said...
This comment has been removed by the author.
Unknown said...

jojo
sorry i may have misread your comment. Yes deflationary depression, hyperinflation when the loss of confidence comes. 'turns on a dime'. Who knows what the mess will look like in detail. The important view is the macro view. Wondering if stuff will be up or down is irrelevant to me at this point. I am pretty much committed to gold and enough cash to get me by. The markets are not meaningful. They will perform as the PPT dictates...until they don't. All I know is that it will not be pleasant.
Michael

Edwardo said...

Joel,

You'll excuse me if I don't bow to your attempt to act as an arbiter of what is and isn't valid history. As for FDR's fondness for Stalin, well, I would've said there was a certain rapport between the two warlords, as per Alex De Jonge's biography of Stalin, but I wouldn't get carried away.

As for The New Deal extending The Great Depression, perhaps, though that is not my view, and your contention is hardly the consensus one.

In fact, what you will find, if you read widely, and not via a cherry picked list of sources, is that FDR, mistakes and missteps aside, did more to save capitalism than destroy it, but, you, sir, are entitled to your views.

holdinmyown said...

@M

I find it very difficult to try to follow your line of thought. You keep flittering around like a butterfly in a field of flowers.

But I get your main point (I think). You believe that bond prices peaked in 2008. I do not believe that. So let's just agree to disagree.

Unknown said...

jojo
I would be quite surprised to see gold too much lower if the market is intact. They have to keep it low but too low and the physical get bought up. Who knows what their limits are for how much gold they will sacrifice in support of the dollar but my guess is that gold at 900 after it has seen 1800 would cause everyone to jump in.
Michael

mortymer said...

http://www.ameinfo.com/273011.html

sean said...

Welcome Pat,
hmmm, please don't take much notice of the comments section, particularly at the moment (!). At times there are pearls of wisdom down in the swamp here, but Freegold is fully explained in FOFOA's posts above. On the other hand do feel free to ask questions!

To understand the value of gold it may help to first ask yourself the following question: "what is the value of a dollar?" ie: How can you measure the value of a dollar (this is how I started down this road, because I wanted to know how best to preserve the value of what I earned)? This might lead you to something called the US dollar Index, and perhaps you will think this particular answer sounds a little crazy (it did to me). Then you might find this blog (well, you did that first), and read some posts like this one and little by little the penny will start to drop...

Here's an interesting graph of the purchasing power of the dollar over the past 130 years, with some significant points indicated. And here's another showing that there's no way the price of gold (in dollars) is going down.
Hope this helps

jojo said...
This comment has been removed by the author.
holdinmyown said...

@Pat's Pithy Page

Jojo said:
"We were doing that a couple years ago as well. What we are doing now though, and for a while now, is paying only what we have to. bare minimum. We are taking ANY extra money and purchasing gold and silver bullion. We are keeping our "credit" cards almost maxed out as well, paying the min on those too. "

To each his/her own on this one but I must say that I have to disagree with Jojo. It is one thing to pay the minimum payments required on your mortgage. This may work out for you if you have a long term mortgage (say 25 - 30 years). However I would not recommend that you pay the minimum required on your credit cards in order to maximize your gold bullion purchases. This is a very risky and expensive form of leverage where you are borrowing short-term in order to invest long-term. This can lead to disaster if you are forced by your creditors to sell your gold at the wrong time (when paper gold prices fail) in order to cover your credit card debts. This strategy will not work if the banks call in all demand credit at precisely the wrong time. My suggestion is to stay away from all forms of leverage and buy only the amount of bullion that you can defend (will never be forced to sell at a time other than your own choosing).

Unknown said...

sean
I did not mean to infer that the discussion is not worthwhile. It very often is. Some of todays items, specifically with regards to the M v DP and others, are not simple and are not where I would start though.
Michael

jojo said...
This comment has been removed by the author.
Jeff said...

FOFOA and his band of merry men discussing a new post. Excellent. May I give my gratitude to this august assembly; Costata the brave, JP the indefatiguable, the wizard Blondie, court jester DP (sorry Motley Fool, you seem more the part of blogmom), Mortymer the swift, and even the plotting Victor. I remain, as always, your humble servant bringing up the rear, and banging two coconuts together:

http://www.youtube.com/watch?v=rzcLQRXW6B0

There has been some loose talk about a post RPG get-together. As you know, there can be only one venue after a long hike on the trail; the All Inn!

holdinmyown said...

@jojo
The way I see it that is the problem with our current fiat transactional money system. Too much debt that the borrower never intends to repay.

FOFOA said...

I just added the following update to the bottom of the post:

Some of you will remember Lance Lewis' "GLD Puke Indicator" and its nearly flawless record at marking lows in gold. Please review my January post Who is Draining GLD? for a more complete explanation. When I wrote that post I emailed Lance for permission to use part of his newsletter.

Anyway, I just received the following email from Lance:

FYI... GLD Puke Indicator triggered another buy signal last Thursday ...

Last Thursday, the GLD gold ETF fell over 2 percent on the day, but the more important piece of information was the fact that its bullion holdings fell a whopping 24 tonnes (1.8 percent) to 1,273 tonnes.

That 2 percent 1-day decline in bullion holdings triggers our “GLD Puke Indicator” once again (see the chart below), in which one-day declines of over 1 percent in the GLD’s bullion holdings (or clusters of such declines as in 2008) tend to occur at or within days of important lows in the price of gold.

You can read my past discussions of this indicator to see “why” I believe it works the way it does, but the point is that it works. The last time we saw this indicator flash a bottom signal for gold was on January 25th. As you can see below in the chart of the “GLD Puke Indicator”, that signal occurred within 2 trading days of gold’s 2011 bottom on January 27th. Coincidence?

In short, there’s a high degree of probability that the pullback that began last Thursday in gold is going to be a short-lived one and has likely already seen its low with Friday’s low print of $1725.80 in the December contract.


GLD PUKE INDICATOR flashes a buy signal again!

Paul said...

We will keep fiat to quantify, but will also use gold to qualify !

my 2 cents ...

Joel said...

@Edwardo,

"You'll excuse me if I don't bow to your attempt to act as an arbiter of what is and isn't valid history." Sorry if I offended you mate. I was not trying to act an "arbiter" of history. I was merely trying to give you a different perspective, a quite common occurrence on this site.

"As for The New Deal extending The Great Depression, perhaps, though that is not my view, and your contention is hardly the consensus one."
I have made a good living going against the consensus, and if you haven't noticed, non-conformists pretty much run this entire website, so don't be so surprised to find someone who disagrees with you here, lol.

"In fact, what you will find, if you read widely, and not via a cherry picked list of sources, is that FDR, mistakes and missteps aside, did more to save capitalism than destroy it, but, you, sir, are entitled to your views."

I do read widely, including those who agree, and many who disagree with your "consensus". Don't take it personally--I just don't look at FDR with the same "reverence" that you and many other mainstreamers do. The Forgotten Man really is a good book, and gives him a fair shake, but not a free pass. Read it and let me know what you think.

Joel said...

Interesting post on Zero Hedge on the latest Treasury auctions. The latest long bonds had one of the lowest bid to cover ratios (2.1)in months, and every major foreign buyer other than China was reducing their holdings:

http://www.zerohedge.com/news/safe-haven-record-dump-us-treasurys-non-central-bank-foreigners-june

Indenture said...

Greetings All:

It is not only the 40th Anniversary of the closing of The Gold Window but it is also the 15th of the month. In case you are new to this blog it is this time every month where we attempt to compensate FOFOA for his life changing writings. He asked us once if we would help him Defend The Precious.

I have joined that Fellowship.

Click on the little donate box to the left and you too can carry sword for our host.

M said...

@ Joel
I seen that too. I think everyone has an eye for the exists and the first one out profits the most.

Jim Rickards was talking flight to gold on this clip, that is where we are, it is flight to gold from here.

http://video.cnbc.com/gallery/?video=3000039237

Wendy said...

This is from jsmineset today:

"Some of the finest minds in gold anticipate a very short but brutal reaction in price. The dollar market seems to not agree with a gold correction here.

Market wise, the Fed has thrown the US dollar into the wind. Under .7400 the dollar denies a reaction in gold at these levels."

i find the comment about the dollar under .74 denying a reaction of gold very interesting.

Anyone care to comment??

Wendy said...

btw mortymer thanks as always for the links :D

Wendy said...

FOFOA a post from the past:

"Make sure to spend the silver tossed your way on items that will enhance your ability to fund your blogging. I would advise finding an editor (simply ask) and creating an ebook. Give away the last 6 months in your archive, but ask for two silver coins for the rest.

If you can speak, opening yourself up to lecture would go hand in hand with a book of some sort.
Might be worthwhile to investigate Wordpress and grabbing a domain (I vaguely remember you having one a long time ago, yet I may be incorrect).

There are many different ways in which you, FOFOA, could make a living selling words – about freegold."

FOFOA did you seize this cash cow opportunity??

If you didn't then, I'm sure the offer is still open, and now would be a really good time.

Ender said...

@Wendy
Today I would advise a heartfelt donation for the gift that FOFOA has already given many (most) of you.

His book stands before you free to those that wish to discover what is unfolding.

His lectures occur on a regular basis, yet they span time and space!
His words are objective and reflect a truth that is discoverable.

Good karma will come his way – Everyone can be part of it!

Silver is for spending...

mortymer said...

Wendy, its my pleasure.
If you checked the AFB, there is no writing/posts about silver but plenty about gold in those official and other docs/links, silver really seems to be considered to be just another comodity like iron, lead,etc or very marginal.
You have been here long enough to read what is happenning, see any convergence, synergy in actions?
Not trying to convince you just that the "investment gold" has depth in law. Just trying to point out obvious.

DP said...

$1764, done.

$1782.53 ...

DP said...

M said...
@ JR

"When that happens there will be a massive (but quite brief) spike on the USDX as the flight must pass through dollars to get to other currencies or gold or whatever"

There has already been a massive but not so brief rally in US debt since 2008.

M said...
@ Junior

"So as the physical stuff is diluted to fill the void left by the failing credit/debt system, it directly impacts the real value of the debt market."

The imploding of the economy and the dilution will scare the legit capital away causing capital flight. When the real capital is gone, the joke is up. If Bernie Madoff was handed a printing press on the day his ponzi was up, all the legit capital would have still left. Starting up the printing press would be pointless.



Seems I might've been replaced as Court Jester, Jeff? Guess I'm gonna have to up my game now the school holiday's almost over and I can finally have my life back for a few more weeks... %<|:o)8

Jeff said...

rickards on gold:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/15_Jim_Rickards.html

DP,

You always drop knowledge. Respect! :)

Jeff said...

And GLD currently has 1260 tons, down another 13.

d2thdr said...

@ M

http://neuralnetwriter.cylo42.com/node/1523?page=1#comment-8352

jojo said...
This comment has been removed by the author.
DP said...

Do I hear $1782.53 ...?

Anyone?

Going, going...

M said...

@ d2thdr

Thank you sir. Paper gold under bonds and treasuries, where it belongs.

radix46 said...

SELL SELL SELL!!!!

The chick on Bloomberg just told me that gold is in a bubble and set to burst.

Man the lifeboats! Save yourselves!

DP said...

@radix, YOU need to WORK on your CAPSLOCK!!!

4/10, must try harder :)

radix46 said...

I FeeL LIkE SuCh A FaILuRE, DP

DP said...

Better -- that's a 6 right there, Art! :>

Biju said...

@Ender - one of the best eulogy for FOFOA's effort to educate us all.

made a small donation for this site.

DP said...

So anyway radix, what was your Bloomie Bunny's target price for today — lower than $1765, before $1795 and beyond, or back to $1700 one more time?

radix46 said...

DP,

I don't have a price. I have Bloomberg. They tell me what to think. She was so pretty and sounded so sure, everyone's doing it!

Also, they had Warren Buffet on there! He said stocks are cheap. BUY BUY BUY!!

radix46 said...

DP,

How come I can't comment on your olde blog?

DP said...

I should get away from my desk more often and watch some pretty ladies that know what I need to think. It seems I was way off with the notion of revisiting $1765 next today, because at the moment all I can see is $1780 flashing a stocking top at me and smiling coyly... Will she? Won't she?

[sigh] The thrill of the chase.

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

High road? Must be confusing me with someone else...

Radix, I don't know -- perhaps a Disqus issue

M said...

@ DPrick

Way to take the highroad...well done. Can you explain to me why the deleveraging and bankruptcies in Thailand, Indonesia and South Korea(300 million people) didn't cause a temporary rise in the value of their currencies on the international markets in 1997 ?

DP said...

I don't really know why you would think I might want to do such a thing, but why not since you asked so nicely. :-)

Supply and demand. RoW sold the shit out of their currencies and nobody had much of a good reason to step up and buy. They weren't global reserve currencies. Commodities weren't traded in those currencies. Who elsewhere in the world needed them? I don't really know why you have your fixation with these currencies in the context of FOFOA's blog - it seems a bit like comparing my left shoe with a Boeing 747.

radix46 said...

M,

"Can you explain to me why the deleveraging and bankruptcies in Thailand, Indonesia and South Korea(300 million people) didn't cause a temporary rise in the value of their currencies on the international markets in 1997 ? "

Yes, I think DP probably can. However, I don't think that he should be wasting his time on that though, as he has some Bloomie Bunnies to be studying, which is far more worthwhile.

radix46 said...

DP,

You're too quick on the draw. Get back to the pretty ladies.

Apparently GM is a buy. BUY BUY BUY!!

DP said...

So right radix, while I was hastily scribbling for my new friend M, I did catch a brief flash of nipple above the bra top in the corner of my left hand screen. But then just as quickly it was gone again. Phooey - lesson learned, snooze you lose.

GM IS A BUY?!!! Oh man, guess I'm gonna to have to pack in here for the night now and warm up the toob...

radix46 said...

DP,

And for those times of strife when you run to safety, in your happy place, I recommend Bank of America

radix46 said...

Of course, gold sees it differently

M said...

Whatever....

I am going to wait a while longer for a decent response from anyone and if I don't get one, I will post something that will prove you to be a closet deflationist. Because that is what you really are.

radix46 said...

Oooooo, I'm looking forward to this, M prepares her attack

DP said...

Closet? I didn't think I could be much more "out" than this already, but I'll try I guess. 4/10 to me too then -- a tough crowd today in FOFOAland...

Massive deflation in [almost! :) ] all things, for sure. Just with a different denominator than your average deflationist is all. Get real!

mortymer said...

About the man who wrote poetic expression for an unstable dollar “the dance of the dollar”.
You know where you can find it :o)

BTW, anyone looked into SA CB pages lately about the new gold coins?

d2thdr said...

The comments here are getting quite rubbish. Whats going on?

mr pinnion said...

Probably because were all bored.Nothing much happening with the gold price.It s been stuck in the 1700 s for what seems like an eternity.

Regards
Ozzy

mortymer said...

"In all mathematical sciences the first essential is a unit for measurement. The lack of
such a unit for measuring the value of money in the sense of its purchasing power...
Fisher (1946)

We now have a gold dollar of constant weight and varying purchasing power; we need a
dollar of constant purchasing power and, there fore, of varying weight.
Fisher (1920, xxvii)

@d2thdr - People getting "rich"? There is a lot to research and things to know if you value that. :o)

M said...

From Gonzalo Lira. Who has a better grip on how hyperinflation will happen in the US.

The economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.

This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.

It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud.

M said...

continued......


The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line.

However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”.

The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.

But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets.

So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave.

Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt. They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.

DP said...

Mrt, "We now have a gold dollar of constant weight and varying purchasing power; we need a
dollar of constant purchasing power and, there fore, of varying weight.
Fisher (1920, xxvii)" -- that's pretty forward thinking right there!

I go and put the kids to bed, and I miss the end of the battle for $1782.53 -- damn you, parenthood! Oh well, bygones...

M said...

continued.....

Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.

So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”

Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound.

Notice, too, that Treasuries will maintain their yields in the face of this sell-off, at least initially. Why? Because the Fed, so determined to maintain “price stability”, will at first prevent yields from widening—which is precisely why so many will decide to sell into the panic: The Bernanke Backstop won’t soothe the markets—rather, it will make it too tempting not to sell.

The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?

Commodities.

By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?

Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008.

It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)

M said...

continued.....

Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps.

If oil spikes from $74 to $150 in a day, and then to $300 in a matter of a week—perfectly possible, in the midst of a panic—the gallon of gasoline will go to, what: $10? $15? $20?

So what happens then? People—regular Main Street people—will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon.

If everyone decides at roughly the same time to exchange one good—currency—for another good—commodities—what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.

When people freak out and begin panic-buying basic commodities, their ordinary financial assets—equities, bonds, etc.—will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities.

So immediately after the Treasury markets tank, equities will fall catastrophically, probably within the next few days following the Treasury panic. This collapse in equity prices will bring an equivalent burst in commodity prices—the second leg up, if you will.

This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.

This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.

Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America).

M said...

continued......

Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How?

Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it.

Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right?

In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . .

(BTW, I actually think that this last option is something the Federal government might be foolish enough to try. Some moron like Palin or Biden might well advocate this idea of helter-skelter money-printing so as to “help all hard-working Americans”. And if they carried it out, this would bring us American-made images of people using bundles of dollars to feed their chimneys. I actually don’t think that politicians are so stupid as to actually start printing money to “fight rising prices”—but hey, when it comes to stupidity, you never know how far they can go.)

In fact, the only way the Federal government might be able to ameliorate the situation is if it decided to seize control of major supermarkets and gas stations, and hand out cupon cards of some sort, for basic staples—in other words, food rationing. This might prevent riots and protect the poor, the infirm and the old—it certainly won’t change the underlying problem, which will be hyperinflation.

“This is all bloody ridiculous,” I can practically hear the hyperinflation skeptics fume. “We’re just going through what the Japanese experienced: Just like the U.S., they went into massive government stimulus—hell, they invented quantitative easing—and look what’s happened to them: Stagnation, yes—hyperinflation, no.”

That’s right: The parallels with Japan are remarkably similar—except for one key difference. Japanese sovereign debt is infinitely more stable than America’s, because in Japan, the people are savers—they own the Japanese debt. In America, the people are broke, and the Nervous Nelly banks own the debt. That’s why Japanese sovereign debt is solid, whereas American Treasuries are soap-bubble-fragile.

That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop. I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011.

Indenture said...

NOTHING GOLD CAN STAY — by Robert Frost

Nature's first green is gold,
Her hardest hue to hold.
Her early leaf's a flower;
But only so an hour.
Then leaf subsides to leaf.
So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.

Indenture said...

Gold/Debt Quote of the Year

"Gold supply simply doesn’t grow as fast as China’s foreign reserves. Only the increase in U.S. debt can match that."

Jeff said...

Hi M,

Maybe next time just a link? Some of us have read Lira, and don't agree with him completely.

DP said...

GL's model is Argentina. This is like my right shoe and a Boeing 747. The go-to secondary medium of exchange for Argentines was US$, if they could be got, otherwise anything tangible. This was not the breakdown of the centrepiece to the entire global monetary system.

In the case of failure in the US$ there is no US$ to run to. It'll simply have to be euros that step into the secondary medium of exchange role, or it's a new Dark Age of commodity barter. This is what the ECB has been preparing the world for, they plan to head off commodity barter at the pass, by sinking demand for tangible assets into gold where it'll hurt nobody, leaving other everyday commodities, relatively, untouched (at least in € terms, if not in $ terms).

You can have your silver, buddy - and good luck.

Gold will be revalued upwards, massively, by the ECB/BIS, in their bid to rescue the entire global financial system from total collapse. It is the only tool for the job.

Blondie said...

M,

A couple of points regarding the diagrams that d2thdr linked to earlier:

Far and away the most important takeaway is that gold belongs in a pyramid separate to Exter’s, as the pinnacle of the pyramid of tangible assets. Exter’s inverted pyramid which balances above it is composed entirely of claims on other claims and ultimately on assets in the tangibles pyramid.

Cash is actually paper gold. It is the original paper gold. This is where it originally derived its value, as a direct claim on physical gold.

I am a deflationist too in that I believe the claims pyramid must deflate against the assets pyramid. The dollar is just a claim. Other claims will deflate against the dollar at varying rates during this process, as they are predominantly denominated (say that ten times quickly) in dollars, but to only see this is to miss the bigger picture.

Dollars are denominated in gold. Always have been, always will be. Gold is the proxy for value. Value is all a monetary system exists for, to facilitate value’s exchange between those utilizing the system. Period.

In considering this picture, it is most helpful to consider the entire evolution of our monetary system(s), not necessarily in terms of all the details (though some events are of particular significance with 1933, 1971 and 2008 being recent examples), but in relation to those two pyramids and their development.

The Strong Dollar Policy is a logical step in this development when one considers this evolution... FDR’s statement I highlighted at the top of this thread is the first actual statement of the intent of the issuer I have heard in this regard. It wasn’t Rubin’s idea. This is a step in the artificial monetary system however, not the natural one, and thus only a step on an unpleasant detour .

The evolution of the monetary system ceased to be natural when gold was intentionally undervalued and this “fix” was enforced. It ceased at this point to be “free”. The loaded gun entered the equation, and we began to “dig”. Everything after such a point is no longer “capitalism”, and anyone who tells you it is does not understand the meaning of the term. I can even sympathize with Marx at this point: it was not “capitalism” he was offended by, it was the artificial monetary system that had replaced it, and he did not differentiate between them, but he was correct when pointing out that it was neither fair nor sustainable over time.

The artificial monetary system is breathing its last, and then we return to the natural system. Soon we will globally rejoin the main trail and resume our ascent.

M said...

@ DPrick

And FOFA's model is Zimbabwe. GL's model is similar to the capital flight that hit Asia in 1997(440 million people) You must have a big left foot.

M said...

Video version of Gonzalo Lira's take.

http://www.youtube.com/watch?v=-BuNeL5aj3I&feature=channel_video_title

DP said...

Ah! Just a comment and a link this time; much more civilised -- thanks much, Mr Susan. ;-)

And FOFA's model is Zimbabwe.

Ya think? That's interesting - I wonder what FOFOA might make of that assertion. Look at them shine! Oooh! Look at them shine!

GL's model is similar to the capital flight that hit Asia in 1997(440 million people)

Right! And what was their go-to secondary medium of exchange, when it was available? Ah yes, I think I recall... yes, I'm pretty sure it was US$ then too wasn't it. Gonna need some slight changes to the rules of the game this time around I think.

Bob English said...

"FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma."

That first sentence should be qualified, as it is not applicable to a truly free market (one that is based upon the principles of anarchocapitalism). Any monetary system, including the gold standard, indeed suffers from problems when run by the coercive, monopolistic state.

In a free market, given a fixed or even slowly increasing stock of gold as money, the secular trend of almost all prices is downward because of productivity gains (that are not offset through monetary inflation). This increases the purchasing power of gold long term and is akin to a compensatory "income" stream.

I don't see such a free market emerging, so this is purely an intellectual argument.

Crack said...

How wuz tha 30's for you'n'yourn Bobby?

Blondie said...

Bruce Krasting (always thought provoking) has some interesting observations on the SNB and gold relating to their proposed peg of the CHF to the Euro.

It seems that few have noticed that the Eurosystem publicly values its own currency in gold via its ConFinStat, or the significance of this.

Any strong currency (or weak for that matter) can print currency to buy gold, thereby devaluing their own currency whilst capturing that value in their gold reserves.

Where did all the gold from CB sales (before they ceased selling) end up? In whose hands? Why?

Blondie said...

Just for emphasis:

Printing more of an overvalued (from the issuer's perspective, good current example being the SNB) currency to purchase physical gold allows both the currency to be weakened and the value removed from the currency to be captured in the gold.

Running a surplus? Take some profits/savings/reserves in gold.

Value goes into the gold.

DP said...

Blondie, interesting share - thanks.

What if they put a CHF-EUR peg in place alongside a GoldCHF store of value? That'd really be something to write about, I suspect.

M said...

2 DP

GL's model is similar to the capital flight that hit Asia in 1997(440 million people)

"Right! And what was their go-to secondary medium of exchange, when it was available? Ah yes, I think I recall... yes, I'm pretty sure it was US$ then too wasn't it. Gonna need some slight changes to the rules of the game this time around I think."

So when there is a run on the dollar, it will run to the dollar ? Hmmm... The dollar is backed by debt which is the essence of fiat. Treasuries are not assets, they are debt. You better hope Ben Bernanke's computer doesn't crash that day because otherwise in your mind, there will be massive deflation, priced in dollars.

DP said...

I can just about see now in my minds eye the stuffed-to-the-gills Swiss bank vaults deep underground, looking for any empty corners that could be put to better use, and the above-ground economy busily humming along in the sweet-spot.

DP said...

M: So when there is a run on the dollar, it will run to the dollar ?

WTF?

in your mind, there will be massive deflation, priced in dollars

Huh?

Who let this kid in? He can't even read yet!

DP said...

Think I'd better logout and have a drink before bed, before I might hurt somebody.

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

Double digit negative?

Seriously?

Yeah, it's definitely drinkin time...

M said...

@ Blondie

"I am a deflationist too in that I believe the claims pyramid must deflate against the assets pyramid. The dollar is just a claim. Other claims will deflate against the dollar at varying rates during this process, as they are predominantly denominated (say that ten times quickly) in dollars, but to only see this is to miss the bigger picture."

I don't think it is possible for treasury yields to go double digit negative. Debtor nation currencies don't rise when their economy is imploding. It just doesn't happen.

Crack said...

DPrick

Did ya ever takea Tbond to CircleK an buy some Crackerjack? Well didya, punk?

DP said...

[sigh] No, Crack - I didn't.

Treasuries are one of those many derivative dollar-denominated assets in the top pyramid, not dollars at the intersection between the upper and lower pyramid, so clearly Circle K won't take them at the till. I'll need to sell my Treasury for dollars, before I can gets me the goods.

Also, I don't like Crackerjack.

DP said...

OK, that's really IT this time - I'm so done for today!

Edwardo said...

"The chick on Bloomberg just told me that gold is in a bubble and set to burst."

These are the same people who are working very hard to make sure as many people as possible don't know that Ron Paul came in second-but not by much- to benighted (and that's being kind, I assure you) Iowa native, Michelle Bachmann.

http://jessescrossroadscafe.blogspot.com/2011/08/in-case-you-were-wondering-who.html

And here, FWIW:

http://truthingold.blogspot.com/2011/08/jp-morgans-fractional-gold-scheme-is.html

Joel said...

@Edwardo,
I totally agree on the Ron Paul coverage, and so does Jon Stewart. Watch this clip for a hilarious skewering of the mainstream media for ignoring him. Warning: do not drink beer while watching, you will blow it out your nose.


http://www.zerohedge.com/news/jon-stewart-ron-paul-media-blackout

Indenture said...

Thanks Joel. Hilarious.
Jon Stewart On The Ron "13th Floor In A Hotel" Paul Media Blackout

Indenture said...

"The prototype of the so-called "Khalifa Coin" will be presented to the public next Monday. The gold coin is to be established in the Arab world as its official currency.

The United Arab Emirates will issue its own gold coin. Gold that investors should buy for investment. The coin will bear the name coin and Khalifa will be officially unveiled next Monday.

The coin motif is the President of the United Arab Emirates dedicated to Sheikh Khalifa bin Zayed Al-Nahyan. On the back the famous Burj Khalifa is seen.

The first prototype will have a weight of 5 ounces, made of 24-karat gold and are produced at Argor-Heraeus SA in Switzerland.

According to the chairman of the Dubai Multi Commodities Centre Authority (DMCC), Ahmed Bin Sulayem, is currently negotiating with the Central Bank of the United Arab Emirates (UAE). The goal: The Coin Khalifa should be accepted as legal tender in the UAE and throughout the Middle East.

The DMCC is a government organization that organizes the commodity trade in Dubai.

"Our last two souvenir gold coins were a huge success and we expect that an investment gold coin was met with huge interest, especially because gold is regarded as the world continues to be the safest investment product," said Bin Sulayem, according to Arab News." link

Ash said...

M,

GL: "That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop. I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011."

Your boy Lira must be getting a bit anxious right now, as there are only a few months left for the US bonds to crash and the USD to hyperinflate. "No no, wait, what I meant to say was... next Spring, or... actually, the end of 2012... at the latest!!"

You may want to check out this article by Stoneleigh re-capping some main points in her live debate with GL earlier this year:

Inflation for the Innocent, Hyperinflation for the Clueless

Don't let the title scare you away. The article itself takes a very calm and objective tone, as she usually does. There are also links to the actual debate in the article, but I think you gotta pay $30 to hear it, which is pretty expensive.

Lurking Rock said...

Just perhaps a better YouTube version for
Ennio Morricone - Ecstasy of Gold
(the link FOFOA used seems to break once in the middle--at least on my computer.)


http://www.youtube.com/watch?v=IE8YOvuhIcQ



Great song. Great site. Great message. Great folks.


FOFOA is the tallest tree in the forest since Another & FOA "rode away."

M said...

@ Ash

"You may want to check out this article by Stoneleigh re-capping some main points in her live debate with GL earlier this year:"

I did and is she ever wrong. The Austrian definition of inflation is the expansion of the money supply. If the Fed wrote a check to me and you for 800 billion dollars today, that would be an expansion of the money supply(inflation). The moment we spend or invest the money is when the inflation is noticed. If we slowly bought treasuries over the next 5 years(assuming there is no run), consumer prices and commodities would not go up. There would be minimal realized price increases(realized inflation). If we spent or invested it all on commodities the day we got the money, there would be realized price increases right away. If we wait 2 years and then spend or invest in commodities, there would be realized price increases in 2 years. The fact is, the inflation happened when the check was written.

The inflation in the US already happened. There doesn't need to be any more money printing for hyperinflation to occur. There only needs to be a reallocation of the inflation that already happened.

holdinmyown said...

@jojo
"I was not implying a purposeful run up of the card and then default."

Glad to hear it and I am sorry if I misinterpreted your previous comment. The point that I was trying to make earlier is that I believe that the banks will pull ALL credit at some point. Credit cards of all but the most creditworthy (and possibly even those) will be cancelled. Why? because otherwise in the end days everyone would be borrowing in order to buy "stuff" (including gold). Not only that but as FOFOA pointed out, in a hyperinflation there is a shortage of money, even for the banks. They will be calling in any loans that they can ... good or not-so-good credit risks. Credit cards will be cancelled and no merchant would accept them anyway. So what happens to you if you have a large outstanding balance? Perhaps your chequing and savings accounts are drained or frozen to cover any outstanding balances? I don't know. But I can imagine that it won't be pretty. I was suggesting to Patty that I would not personally recommend this course of action but as I also said "to each his/her own". That is why I suggested that one should not buy more bullion than one is both willing and able to defend.

Wendy said...

Ender,

Everything you said rings true and right.

FOFOA I apoligize if I sounded like you should rise up like a christian fundalmentalist and "DEFEND" freegold.

There are times I wish I would think more before I speak (or type) ;)

mortymer said...

http://anotherfreegoldblog.blogspot.com/2011/08/milliarium-aureum-ii-sequel.html

costata said...

Hi Motley Fool,

I read your posts to SIR. As I pointed out some time ago his stock in trade is sophistry.

FYI the reason he seldom grasps anything addressed to him is because he doesn't read in order to comprehend. He immediately begins to formulate one of his dreary, turgid essays in reply. He is not interested in what anyone else is saying (unless they are praising him) he is only interested in what he intends to say in reply.

I note that, in a comment on this thread, he provided a link to a post by the captain/coach of Team Photocopier. At least with Nicole Foss you get some straight talking about her perspective and unequivocal advice about what actions to take to safeguard yourself from “deflation”. Here’s a sample of the latter from an earlier thread where there were a number of pleasant exchanges with SIR about deflation, hypocrisy, dishonesty and such like.

DP said...

Three surprises awaited me this morning:

1) Ash said something that I can absolutely agree with and had thought myself last night: Your boy Lira must be getting a bit anxious right now, as there are only a few months left for the US bonds to crash and the USD to hyperinflate. "No no, wait, what I meant to say was... next Spring, or... actually, the end of 2012... at the latest!!"

2) There wasn't more to chow down over breakfast in the comments

3) M makes a comment to Ash that illustrates he isn't so very far from getting it. Perhaps its worth us persevering a while longer to help him over the top - I was having my doubts those rough edges would ever sand away.

J said...

1794..gold chasing down 1800 before the Bernank wakes up

Aquilus said...

Venezuela taking physical possession of 211 tons of gold and moving paper reserves away from Western banks at the insistance of (who else) Russia and China:

Wall Street Journal

Reuters

Bloomberg

Mercopress

Financial Times Blog

Casper said...

Swiss franc:

to continue the story from a few days ago...

a) It has been known for a few weeks now, that Switzerland is considering issuing a new gold franc coin which would contain 0,1g of gold.

b) Lately the SNB (Swiss CB) has also been considering somekind of peg to the Euro and is right now in talks with the government of how to implement the monetary strategy for the peg and what it would mean. Since the SNB borught up the matter a few days ago, gold has risen about 10% in swiss franc terms. Putting the two together, the SNB may be on a verge of a large expansion of the balance sheet.

We're about to see what people in eurozone choose as a store of value now because the gate to a »safe haven« currency is about to shut on Europeans. If the peg takes place of course.

Casper

mortymer said...

http://www.sectsco.org/EN/show.asp?id=295

On 17 June 2011 the SCO Secretariat organised an official reception on the occasion of the 10th anniversary of the founding of the Shanghai Cooperation Organisation held at the Westin Beijing Chaoyang Hotel.
The SCO Secretary-General M. Imanaliev and the Deputy Foreign Minister of the People's Republic of China Zhang Zhijun were in attendance and delivered statements.
During the reception the Chinese side staged an SCO photo exhibition and screened a documentary prepared by the Kazakh side on the Organisation's evolution in the past decade.

Edwardo said...

TAE (A Haiku)

Quite loud and noisome
Turgid Ash Emissions
Sully the landscape

or, perhaps

What is that odor?
Terrible Ash Emissions
Pray they go away.

Crack said...

Edwardo

Terrible > Turdlike?

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

In truth, the second Haiku offering is the best from the standpoint that with the use of terrible the middle line is seven syllables. So turd like presents something of a problem, apt though it is.

Crack said...

Turd-like Ash Effervescence

Joel said...

Ash (noun): The residue of an incineration. Ex.: The incineration of his mind by the leftist academicians that control the US public universities has left nothing but Ash. The sad thing is, he probably paid good money for it.

Read your attempts to get Ash to open his eyes Motley, great job, but to no avail. He remains "a blind guide who strains out a gnat and swallows a camel."

It is a typical leftist methodology to ignore facts that don't support their position. I had to laugh out loud when he said it was irrelevant that so many people died under communism. I believe any system is only as good as it's moral underpinnings, and when a system has theft (wealth redistribution) at it's core, it is doomed to failure. Oh, wow, now that I think about it, it has failed every time. Shazaam Gomer, go figure. Oh, snap, that's right, the socialist welfare state (with the help moral hazard) has also killed every great democracy, going all the way back to ancient Greece. But that's all irrelevant too, just like Jeremiah Wright and Bill Ayers, and citizenship, and a resume with an actual job listed on it. Move along, nothing to see here...

Ash said...

Despite CRA's pathetic attempts to get inside of my head, the fact is that he is just wrong. He has deluded himself and/or is intentionally trying to mislead others here, but, either way, its quite clear that this "sophistry" storyline helps put his mind at ease, since he no longer has to address any of the substantive arguments made in my series. All I have received so far from the "regulars" here as so-called "critiques" are character attacks and morality tales (and illogical jibber jabber from Joel).

For a clear example of CRA talking out of his ass and avoiding substantive arguments, just follow the link he provided:

CRA:This is the standard deflationist prescription regardless of what SIR claims. Gold isn’t part of their recommendations. (I realize that Mish pays lip service to gold.)

All of this talk of gold by SIR is a hook, designed to make it appear that there is some common ground between his position and the perspective of many of the people at this blog. Yet another one of his dishonest tricks.


Really, CRA? Then explain this comment made by Stoneleigh:

Stoneleigh:"You miss my point. After 20 years gold is a better bet, but only if you can hold it that long, and it still wouldn't be risk-free even if you could.

If you can have no debt, have sufficient cash on hand and buy gold without having to rely on the value it represents for those 20 years, then by all means buy gold, even at today's high spot prices.

In contrast, if you have debt and no cash, holding gold will not help you. You'll be forced to sell it into the ultimate buyers' market in order to get hold of cash to live on. For people with less resources, harder choices are necessary. They can't invest in a not-to-be-touched store of value, however good a store of value it may be. For them it's about trying to maintain their purchasing power for essentials over the much shorter term. For that you need cash.

Paying way over the odds for gold now only to have to sell at a major loss within a couple of years is not a viable strategy. Better to hold the cash up front. It's not a long term store of value at all, but a means of staying alive in order that you have a long term to worry about."


That sounds eerily familar to what I said in Part IV of my series:

Me: "Until then, we should remember that upcoming years will be characterized by debt-dollar deflation, and therefore the dollar price of gold will most likely face significant downward pressure for some time. That does not mean physical gold, however, should not be purchased as either inflation insurance or a long-term monetary store of value right now. Both of those functions are best served by physical gold (and silver to a somewhat lesser extent), and the percentage of excess currency wealth that one should devote to physical gold is entirely dependent on the individual's circumstances (amount of excess wealth, levels of debt, recurring expenses, extent of physical preparations, etc.).

Some people will find that they cannot reasonably afford to purchase any gold, while others will find that they are well-prepared for deflation, both financially and physically (control over the "essentials of your own existence"), and now is a great time to allocate some excess wealth towards precious metals."


So, maybe it's time for CRA to stop making inaccurate allegations borne out of his delusion and/or dishonesty, and start thinking critically about substantive arguments for a change. Or, better yet, stick to his arguments against silver and stay out of the deep end all together.

JR said...

I dunno DP,

I think he is still way far off depsite the HI sounding rhetoric. He’s still confusing cause and effect in contending that the present dollar holders must bid up goods to cause the dollar collapse/HI.

FOFOA is arguing it is the credibility deflation/lack of demand that is the hyperinflation. That goods holders repudiate the dollar (stop saving it it) and that the printing is effect or palliative response. FOFOA:

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

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

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

Deflationists like to view the economy as a machine. They think "this money here must reach this quantity and then flow there and only then that will happen." But the economy isn't a machine. Machines don't have emotions like greed and fear, but the economy does."


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

Unlike FOFOA, he advances the classic deflationist argument by assuming that there is a constant bid by goods holders for the dollar. In his world people always accept dollars, and the issue is dollars printed by the federal reserve finally trickling down into the economy so that there are so many of those dollars that the prices of goods are bid up by all those dollars. But people are always accepting the dollar and the demand/confidence is still there. He views the economy as machine where "this money here must reach this quantity and then flow there and only then that will happen."

Do you see the Big Gap in Understanding about the importance of monetary demand?

cont.

JR said...

cont.

"First, the question. "Where will the money come from?" is a question of supply. Yet the answer to hyperinflation lies on the demand side of the equation. This is Rick Ackerman's big gap in understanding. Let me explain.

The value of money, like everything else in life, derives from supply and demand. There are two distinct entities that each control one side of the equation, kind of like a tug-of-war. The printer controls supply and the marketplace controls demand. A tug-of-war is actually an apt analogy. When demand for a currency spikes its price, the printer just eases his grip on the rope, releases more rope and the whole demand side just falls on its butt.

We saw this with the yen after the earthquake and with the dollar a little over a year ago. With a fiat currency, this is the way it works. No matter how hard demand pulls, if the printer doesn't want the price of the currency to spike all he has to do is release more rope. It's his ace in the hole. He can always send the marketplace to its butt. The printer is firmly in control of the supply side.

But in the same way that the marketplace has no control over the supply side, the printer is powerless on the demand side. ANOTHER alluded to this years ago when he wrote:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!...


Cheers, J.R.

Ash said...

M,

A large portion of the debt overhang (hunderds of trillions worth when including shadow derivatives) has to be written off before dollar HI can take place. That could happen through systemic defaults/pay downs or monetization, and most likely a combination of both. Right now, the economic/financial, social and political mood has shifted towards a "risk-off" mentality and austerity, which is why USTs have risen in value recently despite the debt ceiling debacle and the S&P downgrade. I do not agree with you or GL that further money printing is not a necessary condition of dollar HI. It will most likely be a reaction to a loss of confidence that is already occurring, but it must occur at some point.

Joel said...

@Ash,

You are absolutely right. It was completely illogical and unfair of me to use thousands of years of history to point out the failure(s) of Marxism. You have, in fact, proven my point with your response. If you don't like the answer that history has given you, you ignore it, or call it illogical, or call it jibber- jabber, or a straw man, or whatever your favorite Marxist professor's phrase of the day is. Let's face it, your "logical" mentors have led you down the same Marxist "hate America/hate Capitalism" path as they did our President. Guys like just boil my ass. You sit here and rail on our system, all the while taking our Pell grants and federally subsidized student loans, enjoying our standard of living while never working or being productive at all. Give up your brainwashed mindset and get a flippin'job.

Ash said...

Illogical jibber jabber from Joel on MF's forum,

Joel: :"I was done with Ash when he equated pedophilia with chain smoking."

My reply, in case you missed it:

"Joel, here's a free lesson in both language and logic for you:

Analogizing two statements is not the same as equating their subjects. Therefore, analogizing the statement that "Marx is wrong about oppression because he was a pedophile" to "Chain smokers are wrong about the hazards of smoking because they smoke", is NOT the same as equating pedophiles to chain smokers. The analogy is used to point out a logical flaw in your thinking, as was this explanation of the analogy. So that's two free lessons... use them wisely."


More illogical jabber on FOFOA's forum:

Joel: "It was completely illogical and unfair of me to use thousands of years of history to point out the failure(s) of Marxism."

Fine, let's make it three free lessons, because I don't equate making and/or stealing money with being "productive". Marx was born in the 19th century, less than 200 years ago. His theory of capitalism was obviously only developed after he was born. Therefore, any of those theories that I cited in my series or in my comments here could not have possibly led to the "failures" you reference thousands of years ago.

Also, Joel keeps telling me to get a job, which comes off as just a little bit ironic when he says it on FOFOA's forum, seeing as how one of my sources of income is from doing exactly the same thing that FOFOA does, i.e. writing articles on a blog. Keep up the impeccable logic, Joel.

Indenture said...

Casper: Swiss Franc Slides Ahead Of Decision By Switzerland


Should be interesting.

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

@ Ash

"A large portion of the debt overhang (hunderds of trillions worth when including shadow derivatives) has to be written off before dollar HI can take place. "

Just a market crash where investors flee these debt instruments has to take place.(reallocation of inflation that already happened) It is you that is thinking the market is like a machine, not me. Nobody is forced to hold these derivatives or bonds or treasuries.

"That could happen through systemic defaults/pay downs or monetization, and most likely a combination of both."

Or the capital can run before any defaults/paydowns or monetization. And there is no evidence that what you are saying, will cause a rise in the value of the said instruments.

"Right now, the economic/financial, social and political mood has shifted towards a "risk-off" mentality and austerity, which is why USTs have risen in value recently despite the debt ceiling debacle and the S&P downgrade."

Are you aware that in say 1995, mortgaged backed securities where also considered "risk off" and they also rallied when the stock market fell ? How did that turn out ? They didn't rally before they tanked either. There was capital flight out of them.

"I do not agree with you or GL that further money printing is not a necessary condition of dollar HI. It will most likely be a reaction to a loss of confidence that is already occurring, but it must occur at some point."

We both agree that a loss of confidence will cause hyperinflation. But me and GL believe it will be a loss of confidence in the biggest inflation that already happened. A loss of confidence in treasuries.

costata said...

Hi All,

I cannot remember the last time I reposted one of my own comments from an earlier thread. Generally I post links. But, gee wow, when SIR is posting his hypocritical statements about gold and quoting Team Photocopier’s captain/coach on the subject I think we need to see him exposed in his hypocrisy in his own words. From his 5 part series on his incorrect view of Freegold-RPG allow me to present:

Ash On Gold – In His Own Words

Part 1/2

(From Part 4 of the series by Ash)
"If this process of short-term (within the next 10 years) debt-dollar deflation is likely to occur within developed economies, then one should not be surprised to see both paper and physical gold holdings liquidated .......... A gold price collapse in dollars could occur just as it did in 2008, since nothing has fundamentally changed in financial markets since then, except there is more debt and less ability of governments and central banks to intervene."

If there is a likelihood of the price of gold collapsing why should anyone buy it now?

"..... a smaller excess portion of savings should be held in dollars for more favorable entry points into various hard assets over the next few years, including physical gold."

So we should wait and buy it later.

"Until then, we should remember that upcoming years will be characterized by debt-dollar deflation, and therefore the dollar price of gold will most likely face significant downward pressure for some time. That does not mean physical gold, however, should not be purchased as either inflation insurance or a long-term monetary store of value right now."

"..... now is a great time to allocate some excess wealth towards precious metals."

No, apparently we should buy it “right now”.

(From Part 5 of the series by Ash)
"The first four articles in this series (Dialectic Foundations, The Evolution of Value, The Final Realization and Deflationary Canyons and Caves) used theories, facts, data and general observations to explain why the dollar price of physical gold would most likely take a significant hit over the next decade."

"Gold may benefit a bit from capital flight out of Euro-based holdings over the next few months or year, but it will be difficult for it to maintain any marginal increases in value as financial contagion spreads and massive debt obligations come due.

Apparently we should not buy gold now after all.

Continued/

costata said...

/Continued

Part 2/2

"The latter are typically not payable in physical gold due to the system's evolutionary design, and so it will merely serve as a temporary and relatively illiquid repository of wealth for many investors."

This seems to contradict the recent legislation in the EU that made gold acceptable collateral alongside currency on EU exchanges and in their financial markets. The moves by several US states to accept gold and silver in payment also seems to undermine this assertion. As to the suggestion that it is an “illiquid repository of wealth” I’m wondering which planet he’s talking about.

"The debt-dollar system of "cash" and liquid bonds, on the other hand, will greatly benefit from capital flight, and that will also serve to suppress the value of gold on international exchanges."

So we should be in cash and liquid bonds.

"In stark contrast, physical gold will become valuable mainly because it serves as a convenient and accepted medium of exchange in certain locations after the global financial architecture has crumbled into tiny bits and pieces. Ironically, the central hubs that were most dependent on that architecture will witness the most dramatic reversal, during which physical gold becomes a very important constituent of survival."

But we will need physical gold for “survival”?

"All of these physical, political and social deficiencies make it more likely that people will need to engage in extensive and reliable (trusted) trade to procure the things they need to survive, protect existing wealth and maintain bearable standards of living after HI occurs. Once again, this fact speaks volumes for the value of both physical gold and physical silver in the future."

So I guess we should own physical gold after all. (Of course, “and silver” too.)

Everyone clear on SIR’s position on gold?

Indenture said...

I'm pretty sure going from a AAA to a AA+ rating constitutes a "loss in confidence in treasuries ".

Ash said...

M,

"Just a market crash where investors flee these debt instruments has to take place.(reallocation of inflation that already happened)"

That is why I don't like the definition of inflation that fails to consider credit supply/velocity as a part of the "money supply". That debt still owed must either be written off or there must be a systemic perception that it will be written off before a true "reallocation" of capital occurs towards hard assets such as commodities. Everyone agrees it has not been sufficiently written off, but the disagreement is over the systemic perception of whether it will be and/or how fast that perception is going in either direction.

"It is you that is thinking the market is like a machine, not me. Nobody is forced to hold these derivatives or bonds or treasuries."

Perhaps you are right that they have a choice in the matter, but they have chosen quite irrationally to hold on to US bonds anyway (at least its irrational from a long-term perspective). In the short-term, US Treasuries provide an important systemic function that no other bonds do, in generating liquidity and maintaining value for major institutional investors, including foreign governments.

"Or the capital can run before any defaults/paydowns or monetization."

Run to where? The debt overhang has to reach a tipping point after which it becomes entirely impractical and/or a net cost to roll it over/pay it off, which is not going to happen until the level comes down significantly and people are fully expecting a sustained policy of monetization. It's an issue of timing, and the odds are that we simply are not even close to that time yet, IMO. Right now, people and institutions still fear that they won't be able to stay solvent and hold on to their assets, which means they are looking for "safe havens" that invariably include currencies such as the USD and CHF, as well as T-bonds/bills.

There is a fundamental transformation that occurs when going from small-scale economies that have a larger reserve currency waiting as a backstop to a large-scale reserve economy with no such thing. I agree that Treasuries are fundamentally a bubble, and the bubble's implosion will coincide with an epic fall in the value and reserve status of USD as well, but the issue is always timing. Without the temporal perspective, there is little use in having any monetary debate or discussion.

Ash said...

CRA,

Just because your simplistic mentality still fails to understand how all of my advice about gold has been perfectly consistent, doesn't mean it has not been. Re-posting your stunning lack of comprehension from an earlier thread doesn't make the situation any more favorable for you, either. If you still don't understand the meaning of the words "insurance" or "long-term", then I cannot help further your understanding. The more you harp on that same point (with verbatim quotations of your previous comments, no less), the more I am forced to consider that you are intentionally doing so to mislead others and/or save yourself from the embarrassment of admitting you were utterly wrong about my intentions.

Good luck with that. Time to go back to ignoring your comments until they become substantive... I'm still waiting on that "robust" discussion of Marxism, Capitalism and my premise in Part I that you promised well over a month ago. Maybe you can enlist your man Janszen to help you out; I hear he makes a mean (and perfectly logical) analogy between money and the force of gravity. I imagine your robust discussion is still "coming soonish", right? Yeah, right.

Indenture said...

""Or the capital can run before any defaults/paydowns or monetization."

Ash says: Run to where? The debt overhang has to reach a tipping point after which it becomes entirely impractical and/or a net cost to roll it over/pay it off, which is not going to happen until the level comes down significantly and people are fully expecting a sustained policy of monetization. It's an issue of timing, and the odds are that we simply are not even close to that time yet, IMO."

Yes. It is an issue of Timing. Investors try to time the market.

Indenture said...

Gold Market Is a ‘Bubble Poised to Burst,’ Wells Fargo Says

Blondie said...

Chavez Nationalizes Venezuela's entire gold industry

Michael said...

FROM Zero hedge Tyler Durden, explaining once again the difference between the way the world 'should' work and the way it actually does:

"So... the Fed will sit back and watch as the world blows up in a deflationary supernova. Kinda like back in 2008 right? Oh wait, it printed, backstopped and guaranteed $24 trillion in order to prevent that from happening.

This time it will surely be different, or not... only this time the world's central banks will have to add 1 or 2 zeroes to the number in trillions above.

As for credibility, we go with what gold anticipates, which is nothing more than you black swan hedge trade - there's your investment insight, which we presented back on March 18, 2009. Since then gold has outperformed stocks, bonds, and all other assets. Yes, you are welcome. Oh wait, that decision was based on faulty comprehension of economics right?

So thanks for the advice: we will certainly stick to what we are good at.

You are, however, absolutely correct, that in ten years, after the UST has printed about $30-40 trillion in those same bonds whose interest rate can only go to zero as the outstanding notional hits infinity (wink wink), nobody will care about the deflation vs hyperinflation debate for one simple reason...

Lastly, you are more than welcome to read about the edibility of spam at RGE. Your contribution to the readership there will surely be noticed. Actually, perhaps the reason why nobody reads this "brilliant" economist is that anyone who took his 2009 advice to short gold is broke?
Michael

Motley Fool said...

Costata

One thing I find interesting is the use of qualifiers.

Rewriting you post of quotes just using those we get :

If, is likely, should not (but might - tf), could, ...

most likely, some time, does not..should not ( in contrast to previous sentence)

...
most likely, may benefit, but... difficult to maintain

...

are typically ( but sometimes – tf), merely, temporary, relatively, ...

"The debt-dollar system of "cash" and liquid bonds, on the other hand, will greatly benefit from capital flight, and that will also serve to suppress the value of gold on international exchanges."

Wow. No qualifications. He really means it.

In stark contrast, mainly, ...

more likely,

Yep. Clear as smog costata, or would that be ash. Thanks. ;)

I added some implied qualifiers in brackets, just so we don't miss those. :P

TF

Mike said...

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/eric-sprott-retreats-from-gold/article2132411/

whats sprott doing?

Mike said...
This comment has been removed by the author.
Joel said...

Ash,
You are correct, I should have repeated the phrase "thousands of years of history of the socialist welfare state," (the backbone of Marxism), as I did in my initial post, instead of "thousands of years of Marxism." But as you well know, socialism wasn't invented by Marx, just taken to another level. However, instead of responding to my original statement, and trying to rebut my point (the failed history of socialism over thousands of years,you cannot. You would rather play word games to try and make a petty point. What a lost soul you are. Now that I know you rely on your writing to pay the bills, it's not a wonder you are a socialist. When the top tiers of Maslow's heirarchy of needs kick in, and you can't produce, you revert to socialism, just like Marx, who also never worked a day in his life. Lastly, please refrain from the inaccuracy and sheer arrogance of ever again comparing yourself to Fofoa. Fofoa has owned two businesses. You have neither owned a business nor ever really had to compete for a living (unless you count competing for tips waiting tables). To borrow a quote from Lloyd Bentsen, "I know Fofoa, and you are no Fofoa."

Mike said...

The Chavez story continues. Guess they are worrying how JPM will come up with it. what is GLD for then lol.

http://www.zerohedge.com/news/chavez-pulls-venezuelas-gold-jp-morgan-great-scramble-physical-starting

Ore em' said...
This comment has been removed by the author.
Joel said...

Fool, that qualifier post is hilarious. As I read it, it sounded like I was listening to Captain Kirk
...highly possible.... is likely...must call Star ship...

Ore em' said...

Ash,

You really are the most annoying poster on this otherwise delightful page. I just hope JR, Costata et. al. continue to give you the intellectual smackdown you so deserve, regardless of your abject refusal to eat the skillfully and lovingly prepared crow they continually serve up. Rather than eat it like a grown-up, you push it away from the table like the petulant child you are! I seem to recall you mentioned you went to law school, which makes soooo much sense to me. You were that guy in class who just wouldn't shut up, no matter how much the professor ignored his stupid comments.

Everyone else: sorry for the harsh tone, but this fella's trolling of FOFOA has gone on long enough.

Ash said...

@Ore em' (and others who feel the same way),

What I've gotten from posters here so far are accusations of being a dishonest hypocrite, arguments about how Communism has killed a lot of people (despite none of my arguments being about Communism) and whining about how the words I use are too big and my statements have too many qualifiers (what honest analyst wouldn't frequently use qualifiers?). To be fair to JR, he has mostly kept it substantive, but not really addressing my arguments, and one time he erroneously accused me of agreeing with everything MMT followers believe and had an emotional break down just because I posted a link to an article by Cullen Roche.

Also to be fair to MF, he made an attempt to understand Marxian economics after reading my articles, which is a very positive development, regardless of how well he understands that perspective or how (in)valid he thinks it is. Only after someone who followed FOFOA and Freegold for two years spoke up did CRA drop the BS and make an attempt (key word: "attempt") at addressing the substantive arguments for near-term deflation, which I responded to.

Franek: "I can’t help but sense that some resident FGA’s are getting unnecessarily, I hate to say, fanatical about the subject of Freegold. This is obviously most visible in the exchange with Ash. At times it feels that Freegold to some most vocal resident posters has become more of a religion than anything else. I get that feeling just by judging the quality of arguments.

Btw, I don’t subscribe to Ash’s theory, but that’s a different story. What strikes me, though, is how civil, composed and balanced his responses are in comparison to what’s coming from the other side. I know, many of you (rightly or wrongly) have named it sophistry, dishonesty, etc., but that’s just name calling to me, no substance.
With all due respect, most responses to Ash so far were more or less of a questionable quality."


Franek chose his words carefully, but he was still dead on. Needless to say, it didn't take too long before CRA was back to his same old tired playbook, along with his shadows Joel (aka the shining beacon of logical consistency), Crack and Edwardo (Edwardo is in such delusional denial that he accused Franek of being me under another identity). I welcome any of them to attack my substantive arguments as fiercely as they want, because, unlike them, I don't get mad or feel insecure when someone criticizes my views. That's why I replied to CRA's link to the susbtantive Janzsen piece and his reference to me, but, of course, he didn't stick on that point of discussion for too long.

Anyway, Ore em', I regret to reform you that you have now made "The List" (no replies to your non-substantive comments to or about me). Don't worry, Indenture, you're still not on that part of the list, so don't freak out! ;-)

Ore em' said...

Anyway, Ash, I am happy to inform you that this is no loss, since I had no intention of getting into a pissing match with a quasi-professional pseudo-economic expletive deleted.

Ooops, there I go, breaking the first rule of the interwebs, namely: don't feed the trolls. I promise not to do it again!

victorthecleaner said...

JR,

He’s still confusing cause and effect in contending that the present dollar holders must bid up goods to cause the dollar collapse/HI.

I think with that claim, he is actually right. As long as the present owners of dollars keep holding their dollars for the long run, hyperinflation will not happen. It is only when they decide that the dollar is not a good store of value, that hyperinflation becomes possible, i.e. an increase in the velocity of money that in turn causes price increases across the spectrum from consumer goods to whatever people choose to purchase with said dollars (gold, silver, foreign currency, perhaps even stocks and real estate).

The question is how likely this outcome will be and whether one can anticipate when exactly it would happen. One factor is that the increase in base money as a result of all the bailouts, increases the risk for HI to happen. Empirical data on short term interest rates, bank reserves, cash preference, and the resulting change in velocity can be found here:

http://www.hussmanfunds.com/wmc/wmc110124.htm
http://www.hussmanfunds.com/wmc/wmc110411.htm

The trigger might be some specific political or financial market event, but historically, there are cases of HI in which the increase in velocity 'just happened', like a collapse due to an already present instability, without any specific event being the trigger. Think of Germany in 1923.

Historically, however, I think that two conditions were always present:
1. Consumer price inflation had been frustratingly high for some time, and ordinary people had a good reason to doubt the store of value function of their currency
2. The currency first dropped in the FOREX market and only with a delay of several months, consumer prices went up. This can have two almost opposite causes: First, the domestic smart money may have panicked first and moved into foreign currency whereas the masses figured it out only later and then went for consumer goods. Alternatively, foreign investors may have panicked first and let the currency collapse in the FOREX market. This, in turn, would have led to an increase of consumer prices though rising import prices which finally triggered the domestic loss of confidence.

I am not sure whether you can rule out any one of the two mechanisms.

It is also true that the bloated credit volume (still in the form of bank loans and treasury bonds) constitutes some extra potential for HI. But that money is presently still credit. Before it can pose any HI risk, it needs to be converted into base money by future bailouts.

Finally, M has copy-pasted an article by Gonzalo Lira which some people here have tried to ridicule. I do not think that was very helpful. None of you has so far given any plausible reason why people who panic would not go for commodities in general, driving up retail prices, in particular food and energy. What counts is not what they would ideally do if they had fully understood the situation, but it counts what they will do in reality. I know that you have bought gold and would perhaps buy even more. But nevertheless wouldn't people be seriously screwed if the majority of institutional money went for wheat, rice and corn instead?

Victor

Joel said...

A letter to Franek:

As Ash's lone supporter (where have you been by the way, lol...?)
You should know that the reason we are so forceful with Ash is simply this: He won't stop littering this website. He has his forum at Automatic Earth, but it's audience is clearly not enough for him (five). It is not that we are fanatical about Freegold, it is that we are fanatical about having to listen to him spew his BS and word games. It is also extremely maddening to constantly have to do the "Troll Scroll" to get through his extremely long winded sophistry before getting back to the subjects we care about. If you were to go back to the beginnings, you would see that he was treated well by all when he first started posting, but with subsequent posts, he quickly lost the respect of many here. So is it the fault of the many, or is it the more likely case that it is him--that he simply pisses people off with his immature, condescending rhetoric, his unwillingness to learn or even consider alternative viewpoints, and his undying belief in Marxism. I believe it's the latter. So be a good (only) friend and head over there. I'm sure at least one of the five bloggers there will love him.


Sincerely,

Joel (The illogical, America loving capitalist who works for a living, as opposed to being a parasitic leech that eventually kills it's host)

Joel said...

@ Ore em,

I will stop feeding him as well, for now. But don't get your hopes up on him not responding to you any more. I was put on his "list" too, but just like his opinion on gold, he'll flip flop like a fish in frying pan, and eventually reply. It's standard OP in petulant children.

Ash said...

You're right, Joel, I am going to "flip flop" (let me guess, you started using that phrase after the 2004 Presidential election?), and respond one last time. What can I say, neither me nor The List is perfect.

Joel:He won't stop littering this website...

It is also extremely maddening to constantly have to do the "Troll Scroll" to get through his extremely long winded sophistry before getting back to the subjects we care about...


Joel, just one comment later: But don't get your hopes up on him not responding to you any more. I was put on his "list" too, but just like his opinion on gold, he'll flip flop like a fish in frying pan, and eventually reply.

I don't have to explain this to you any further, do I? Maybe, just maybe, if you stopped jumping in with your emotional and irrelevant personal attacks against me, there would nothing for me to "respond" or "reply" to. The ratio between your comments to/about me and my replies is probably at least 3-5:1 (I don't feel like counting), but go ahead and keep telling yourself that I'm the one "littering this website".

It's quite amazing that a human being could make the comments that you have made about me in this thread alone, and then proceed to accuse me of being "immature", "condescending" and "unwilling to learn or even consider alternative viewpoints". CRA and JR have read Marx before, I'm sure, and I know MF has read some lately, but I'm confident you haven't read a word of Marx in your life, despite your fanatical opinions about him and anyone who mentions him. In fact, I'm confident you haven't even looked at my articles. That's exactly what Franek was talking about. It's absurd, Joel, and no one with two functioning neurons is buying that weak shit you're selling.

Ash said...

I am kind of torn by this article:

http://www.zerohedge.com/news/chavez-pulls-venezuelas-gold-jp-morgan-great-scramble-physical-starting

On one hand, an imminent separation of paper and physical that eventually leads to the dollar's demise and the emergence of Freegold would quite definitely prove my contrary arguments wrong.

On the other hand, it would be great to see the debt-dollar system go up in flames right now, and perhaps even better to see that demise triggered by a... , evil Socialist!

M said...

@ Ash

"That is why I don't like the definition of inflation that fails to consider credit supply/velocity as a part of the "money supply". That debt still owed must either be written off or there must be a systemic perception that it will be written off before a true "reallocation" of capital occurs towards hard assets such as commodities."

The word inflation is properly defined, price increases are not inflation, they are the result of the expansion of the money supply. Money velocity is capital flight
Debt does not have to be written off no different then a stock does not need to be officially declared bankrupt before it sells off and goes to zero. Capital flight hit Lehman Bros and then it went bankrupt, not the other way around.

"In the short-term, US Treasuries provide an important systemic function that no other bonds do,"

The transition to freegold is the elimination of this function. And treasuries/US debt have not historically been considered a short term vehicle. Just because everyone is piling into the short end because they know the game is up, doesn't mean they are some short term vehicle. If there was any strong fundamentals for them then everyone wouldn't be piling into the short end.

"Run to where ?"

Gold. Hence the 50 to $100,000 price target.

"I agree that Treasuries are fundamentally a bubble, and the bubble's implosion will coincide with an epic fall in the value and reserve status of USD as well,"

Yes, and since this bubble is bigger then the housing and tech bubble X 2, then when it explodes, there will be 30 years worth of inflation(expansion of the money supply) hitting anything of perceived value. When this happens, the buzzword will be hyperinflation.

Ender said...

FOFOA,

Reference http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html and http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html?showComment=1296328283637#c6301849866181833924

Its taken six months, but we may be one step closer to discovering the truth about GLD.

I believe there is more to this story than what’s hit the press. I would expect that the reason why the mines have been/are being nationalized is because the gold is probably not available for delivery. Yet, if there is gold backing GLD, one would expect that to be mobilized to serve this call. Yet, might there already be other claims on this metal? We shall see…

We have known for a long time that in order to build your reserve, you need to acquire the output from your own territory. This is what china, Russia and others are doing.

As we have seen before, no giant can upset the apple cart. I will watch this drama with sympathy.

The Concept of Freegold will be brought on by the shrimps of the world. It will be a value shift of consciousness that will happen one person at a time.

Indenture said...

I've never seen anyone use the word "substantive" that many times in a written thought.

And please no cuss words no matter how small and insignificant you might feel they are. After such a long diatribe I'm actually shocked you couldn't find anything else in your vocabulary.

Ramon said...

The rules of the game must be changed to keep those in power, in power.

Alasdair Macleod offers the path to QE3.

I look forward to instructive and enlightening discourse, i.e. no mud slinging.

Indenture said...

Who is Draining GLD?
Ender's Comment on GLD

ad said...

Martin Armstrong wades in...

There appears to be a gross misunderstanding about how money moves and whether we face DEFLATION or HYPERINFLATION

Big Money and the Economic Depression

Aaron said...

Hello Ash-

Allow me to be so bold -- but it seems to me like MISH and many other deflationists you are still missing the one extremely important force that changes the game this go-around -- and that force is the force of Political Will. We're not talking about straight-up economics anymore once Political Will enters the picture. Well, sadly, I could argue we ARE witnessing straight-up econmics including Political Will, but that's a whole different story. And in the case of the US, we're talking about demand driven events, not supply driven events. I'm not saying you are a supply-side kind of guy -- I'm simply trying to qualify my thoughts.

I should be clear that when I use the word Socialist I have a very narrow definition in mind within the context of Freegold. That definition is this, the act of socializing capital losses across the local currency zone. I could of course be more specific and denote whose capital loses within which borders across which markets. But to establish context for this comment, that definition at least gives us common understanding from which to proceed.

It seems to me your main thrust is, "Credit! Doesn't anyone want to include deflating credit in the equation? If we talk about credit -- then you will see it is deflation! Maybe even for 10 years."

When credit recipients threat/exercise default en mass, don't you see where the USG will (has already been willing to) buy up the debt for cash? QE? Taken on their book bad assets while infusing the asset seller with fresh base money (much of which is in reserve)? From where I'm standing the USofA WILL socialize her losses across all of her network users -- as A/FOA pointed out -- to save the system.

Can you see where this halts deflation, maintains nominal performance, and eventually causes a loss of confidence in the purchasing power of the dollar? Perhaps I've missed your perspective and you agree with these ideas. Maybe not.

--Aaron

«Oldest ‹Older   1 – 200 of 256   Newer› Newest»

Post a Comment