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.
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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
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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.
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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:
«Oldest ‹Older 201 – 256 of 256I just added the following update to the bottom of the post:
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:
GLD Fax
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 connection, merely making a "flow" observation.
Sincerely,
FOFOA
Aaron,
Thank you for your comment. I have expressed my perspective on that crucial issue before.
"I could argue we ARE witnessing straight-up econmics including Political Will"
This is exactly how I feel, which stems from the comprehensive theory of historical materialism articulated by Marx, but it also leads me to the opposite conclusion of the one you draw. Here are a few things I have said before:
[Part IV]: "There is a distinct possibility that the Federal Reserve, for example, holds off on further monetization of federal or agency debt for some time, allowing asset prices (equities, commodities, real estate) to collapse further before once again re-asserting itself directly into the Treasury market to help maintain low rates (it will most likely continuously provide this support indirectly via selling insurance on bonds). By "allow", what I really mean is that the Fed will not make its final "printing" stand against the natural forces of debt deflation for some significant period of time, which could be the result of both voluntary and involuntary forces.
It is starting to become quite clear that foreign investors (private and public institutions) are now very hesitant to hold U.S. Treasuries yielding 3% over 10 years, as public deficits continue to mount, speculative price inflation has raged and the domestic economy (housing/labor market) continues to rapidly weaken. A liquidity crisis, naturally resulting from debt deflation, would conveniently scare that capital back into the Treasury market and the dollar, as the system's elite are forced to sacrifice even the appearance of economic health to hold those markets together a bit longer."
[Part V]:"It conveniently turns out that major financial institutions in the Western world, whether technically classified as "American" or "European", repeatedly stop at the U.S. Treasury and USD markets and collect their "Go" money. The abridged reason is that the world has been flooded with dollar-denominated debt over the last few decades, and that debt, unsurprisingly, gives the institutions of dollar hegemony extreme leverage over the ROW when the liabilities come due and there is very little cash to go around. That has been a central theme of this series from the very beginning, and when you understand that, you start to understand what can happen to the value of physical gold.
The point has always been to maintain power structures of the system by transferring larger and larger amounts of resources and capital to its central hubs. When the PIIGS inevitably default on their sovereign bonds, EU citizens will realize that they were forced to sell their precious assets (including gold) for pennies on the dollar, while the major creditors who initially put them into debt were largely "re-capitalized" by the ECB/Fed and are set to absorb initial losses on any remaining debt-assets with ease. The Euro will experience a major sell-off relative to the U.S. dollar, when investors realize that the ECB is nothing more than a shell subsidiary of the Fed.
I believe these are relevant to the issue you raised because it begins to illustrate how the Fed and USG are not constrained in the one and only one direction of continuous money printing as you suggest. In fact, it has always been the argument of Stoneleigh at TAE that this pervasive faith in stimulus and QE, and willingness to allow it to continue, would be a function of a "risk-on" mentality that would naturally reverse as the risk mentality subsides, which is arguably right now. I have always agreed, and mentioned this dynamic in a recent comment:
Cont...
Cont...
[Recent Comment]:"The fears of evaporating liquidity and debt deflation a la 2008 have once again returned, despite Jantzen's rising consumer prices since 2009. Many people were banking on the Fed to come through with QE3 asset purchases last week, but, even when its willing to go against the wishes of 3 dissenting members, its still not willing to resume asset purchases. Its only willing to tell people short-term rates will remain low for another two years, which really isn't news to anyone paying attention. It is also unwilling to purchase any assets except perhaps Treasuries, and the Fed simply cannot monetize what Congress isn't spending, which itself has been significantly hampered by the debt ceiling discussions and the S&P downgrade within a few short weeks."
CHS also makes a good argument along these lines that I agree with:
[Don't Bet On The Fed]:"The Fed's power rests not in the fabled printing press but in the invisible coin of trust. Now that its fallibility has been exposed, its power, i.e. the magical faith in the guaranteed efficacy of its actions, has been destroyed.
This cloak of invincibility is what generated its power, and now that its grand policy of rescuing the economy via monetary easing and "the wealth effect" have collapsed into smoking ruins, that cloak has been shredded.
The folks running the Fed are not stupid, though they may be profoundly misguided. If they announce a vast QE2-type "easing," they would be taking on a potentially fatal risk, as the entire blame for the coming debacle would fall squarely on the Fed. They know a QE2-type easing will fail, because they have undeniable evidence that QE2 failed.
In other words: since they know QE3 cannot revive the economy or the market, then why on earth would they bet the farm pursuing a policy that's doomed to fail? That would be a form of institutional suicide.
While doing nothing would expose them to political heat from politicos desperate to revive the economy by any means, the Fed is not about to step in front of the train just to satisfy inept congresspeople.
What is the least-risky course of action for the Fed? Announce some wimpy half-measures to dodge the accusation of doing nothing, but also avoid any grand QE3 measures which would shift the blame for the coming meltdown on the Fed."
After a period of speculative devaluation, I would argue that our trading partners, bases of manufacturing, and export nations in general, such as China and India (probably the countries most responsible for the S&P decision), are not so much eager to get out from under the debt-dollar system right now, but are instead eager to pressure the US into cutting deficits and maintaining the value of USTs and the USD. I would also argue that this pressure, along with domestic political pressures and natural dynamics of fear associated with financial collapse, are setting the US up for a period of austerity similar to what Europe's going through. In short, the nominal promises made by the government will not be made whole; not even close. SS, Medicare and social spending will be gutted over time, while defense spending will unsurprisingly be the least effected. The Fed will eventually be forced to resume asset purchases, but that program could be delayed for many more months.
Ash,
I think I Am going to agree with you partially. No QE3.
Oil will rocket.
Gold will rise to perhaps $2000, then fall to $1700 and continue higher and beyond.
Stocks going to have a death dive starting last month and Obama held responsible, so that a Rick Perry can take over.
@ Ad
Martin Armstrong is a clueless deflationist. Nothing new there.
Ender,
I hadn't read the comment you referenced at the time it was posted, which is very odd, because I posted around your post. It only makes sense that if gold was on the table for delivery at whatever it was at the time ($1500??) The giants would have vaccumed it up.
Well the CIA have made attempts to "eliminate" Chavez in the past, without success. I wonder if they step up the operations.....
@ Ash and Biju
"I believe these are relevant to the issue you raised because it begins to illustrate how the Fed and USG are not constrained in the one and only one direction of continuous money printing as you suggest."
Just so you are aware (as I just spent the last 3 posts explaining) there does not need to be more money printing to have hyperinflation. None, nada, zilch.
Ash, you say
"It conveniently turns out that major financial institutions in the Western world, whether technically classified as "American" or "European", repeatedly stop at the U.S. Treasury and USD markets and collect their "Go" money. The abridged reason is that the world has been flooded with dollar-denominated debt over the last few decades, and that debt, unsurprisingly, gives the institutions of dollar hegemony extreme leverage over the ROW when the liabilities come due and there is very little cash to go around. That has been a central theme of this series from the very beginning, and when you understand that, you start to understand what can happen to the value of physical gold."
I understand where you are coming from, and also partially agree. However, you must also concede that this is a double edge sword, it cuts both ways.
While those major financial institutions are beholden to the Fed money fountain, The Fed money fountain relies on continued international support in the form of "leaving gold where it is". (See Venezuela for more details)
For example, the SNB must be desperate to print and buy gold. They haven’t for fear of upsetting the global applecart. But if they see the Fed deliberately starving European banks of dollars, well then... (I suspect the talk of a Euro peg was a coded threat of just that, as well as an "encouragement" to divert safe haven money towards gold.)
And when you understand THAT, you start to understand what can happen to the value of physical gold.
Paul I,
I was just reading Bruce Krasting's piece comparing the Swiss CB's recent activities to the BOE when Soros and others broke the Pound.
http://www.zerohedge.com/contributed/snb-once-more
I thought it was interesting that he quoted the following (my emphasis):
"There is no Peg. There is no intervention. So why the hell is the EURCHF at 1.14? Easy. The SNB has flooded the market with CHF. They have increased cash liquidity from 30b to 300b in a week. That is a ten-fold increase. The increase is equal to~50% of GDP."
Krasting focused on the futility of a CB attempting to defend a currency peg. Several commenters on his post pointed out:
1. The BOE was trying to support the exchange rate of the Pound and needed FX to do so. When they ran low on FX it was game over and the Pound was devalued.
2. The SNB is trying to lower the exchange rate of their Franc and they can flood the market with Swiss Franc if they choose to do so.
So buying gold would be counter-productive for the SNB at this stage. Consider the possibility that the Swiss sold reserve gold years ago because they had too much gold rather than being unwise (or betraying Swiss citizens) as some people have suggested here in the past.
Severing the remaining link between the Swiss Franc and gold also should have reduced the risk that the Franc would be sought as as a reserve currency. It will be interesting to watch this play out.
@Costata, indeed, the documents at the SNB proof your words. :o)
There is much more in them.
I don't get it. Why counterproductive?
issuing currency devalues that currency.
Isn't that what SNB wants?
Paul I: I don't get it. Why counterproductive?
issuing currency devalues that currency.
Isn't that what SNB wants?
the problem is in your scenario the SNB bought gold with the issued currency.
Imagine you are a (small! :) ) CB, and you have to date issued 1,000,000 units of your currency (let's call then c's -- so there are c1,000,000 issued). The reserves of your currency are 5% in gold (MTM valuation c5,000).
You issue another c5,000 to dilute your currency a little, but you use this c5,000 to purchase some more gold for your reserves. (For the sake of simplicity, this isn't enough to move the market price at all.)
You now have c1,005,000 in issue, and you have c10,000 worth of gold to back your currency.
You have more volume, but it's more concentrated in terms of its gold content.
Kids love double-concentration orange squash, but if they keep going it'll rot their teeth and make them fat and/or diabetic faster. So a responsible parent supervises the squash-making.
JR, prolly right...
Paul I,
"However, you must also concede that this is a double edge sword, it cuts both ways."
100% agree. In fact, I quite literally believe that almost every part of our current system has acted as a "double edged sword", essentially "sowing the seeds of its own destruction" over varying temporal scales.
"While those major financial institutions are beholden to the Fed money fountain, The Fed money fountain relies on continued international support in the form of "leaving gold where it is"."
I will acknowledge that there are potential "game changers" out there, but nothing I have seen so far indicates to me that one has occurred or is likely to occur in the near-term (including the current speculation about Chavez and his Western gold reserves). The speculation about a SNB peg was even less of a threat to the system, IMO. For one, there was very little chance it would occur in the first place, due to the monetary and political risks associated with the massive amount of intervention that would be needed to maintain the peg (even more than what its doing now). As Krasting on ZH said, it would surely backfire on the SNB. It also seems that Europe is much more concerned with holding the EMU together right now, which is something that can't be done without US/Fed support, and is also the best way for the Swiss to suppress the CHF (convincing investors to get back into Euros).
I don't believe the Fed will "starve" major European banks for dollars, as they are quite important to maintaining the global financial architecture, but I also don't believe the US/Fed is in a more precarious bargaining position right now with Europe than before (if anything, it's the opposite). Basically, none of the veiled "threats" against the debt-dollar system have seemed credible and/or effective so far, to the extent that they are geared towards completely undermining confidence in the USD. To the extent that they are simply moves with a medium to long-term horizon (such as the S&P downgrade, IMO, along with various talking points coming out of China, India and Russia), then I believe they do have some influence on the decisions of US-based authorities, who are now leaning more towards strategic austerity than unrestricted money printing.
HI Ash,
Please start your own blog and argue your points with commentators over there. This is getting too bloody boring.
[cough]new high[/cough]
I think so DP,
Costata is positing that a motivation for the sales was that the Swiss would sell gold so the market would no longer view the Swiss franc as the closest modern currency to gold. The Swiss were the last big modern currency to leave the gold standard and were/are regarded as the closest proxy for a gold backed currency.
"So buying gold would be counter-productive for the SNB at this stage. Consider the possibility that the Swiss sold reserve gold years ago because they had too much gold rather than being unwise (or betraying Swiss citizens) as some people have suggested here in the past.
Severing the remaining link between the Swiss Franc and gold also should have reduced the risk that the Franc would be sought as as a reserve currency."
If the Swiss/SNB want a cheaper currency, it would help to soften/change the market's perception that their currency is the closest big modern currency to be "backed by gold."
So yeah, basically they wanna avoid having a currency that is "more concentrated in terms of its gold content" because flies like that concentrated sugar, and if all the flies demand your currency, its gets pricey, and that's not good for an export economy's *transactional medium*.
**********************************
FOA
The world is heading towards a huge financial/currency crack up, but it won't work out with gold coming back into the money game. This very long term transition is playing on a move away from dollar domination with Europe preparing to suffer less than us by pulling in as many other political trading blocks as they can.
When you look at who they are reaching out to; every one of these blocks wants gold moving higher to shelter their dollar trading losses. None of them expects to unload dollar reserves because our end time trade deficit won't permit it. They can't just send the dollars to each other, buying their own goods... that would never exhaust the external dollar float. Hell they now have their own money to do trade with, the Euro.
It is no surprise the Swiss are trying to stay in step with the trading practices of its Euro using neighbors?
Cheers, J.R.
Here is a funny clip from Peter Schiff a couple days ago.
Superhero Krugman Saves the World From Imaginary Alien Invasion
Nice catch DP. $1818 in the futures market and the DOW just dropped like a rock! Down 474 now.
just a little vacation spot
Thomas Jacob on the New Swiss Gold Franc, Why the EU Is a Bad Idea and Why an IMF Managed Currency Would Be Tragic
"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."
FWIW,
I am not sure political will matters to the current administration here in the US. He is at all time low approval ratings, and I don't think for a minute that he will hesitate to encourage Bernanke to engage in the next round of QE, regardless of whether it worked last time. He has no downside at this point. Also, I think the treasury buyers are starting to dry up, as evidenced by the latest auction stats posted earlier. I would love to see how much of the bid to cover was actually our own bids. The maturing principal on their existing balance sheet from the previous QEs is a fairly big weapon in and of itself, even without further QE. No way in heck are they going to raise interest rates to attract new buyers, as it would blow up Wall St., the banks, and the bond market. So what is their alternative other than printing?
@ Joel:
I posted Alasdair Macleod's take on recent Fed statements which suggest utilizing the repo markets to basically force banks into providing credit. I find that to be the most plausible scenario.
"The logical way to do this is by developing the repo market, where the buyer of government securities conducts a reverse repurchase agreement, or a reverse repo. In a reverse repo an investor buys securities with an agreement to sell them back to the seller at a fixed price at a future date. For the seller of the securities, the deal is defined as a simple repurchase agreement and is the mirror-image of the reverse repo. If the cost of financing a reverse repo is profitable then the transaction can be highly geared to give a substantial return on the underlying capital. By encouraging this market for short-term government debt, the Fed can exercise tight control over short-maturity government bond yields with benefits extending to medium maturities, irrespective of the quantity issued. The key to it is to get the banks to lend to the institutions on the Fed’s Reverse Repo Counterparty List, and the key to that is reducing the interest rate paid on non-borrowed reserves to slightly below the targeted government bond yield rate."
(1/2)
Ash: 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
M: We both agree that a loss of confidence will cause hyperinflation
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
Victor: 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).
An interesting collection of comments, IMO.
Here is a quick'n'dirty shot at seeing if a person or two might agree to step into my car for a quick ride around my view on this ... apologies if a door should fall off when you grab the handle, perhaps you can help me reattach it... %<]:o)8
USD HI is not an increasing quantity of dollars in existence, or even an increasing velocity having a similar effect to increasing quantity. These things will happen, as a result of and after, USD HI.
USD HI is a collapsing value put on dollars in global markets. RoW doesn't have to accept a trade of goods for USD, that is a choice they can make and have consistently done so up until now. If [when] RoW stop[ped] buying USDs, or more accurately continue[d] to accept USD in trade and buy USTs with their surplus to lock up as a long term store of value, demand falls [fell]. Even if supply & velocity remain flat, let alone go up, then: demand falls = value falls. Even if the supply & velocity falls [deflationary credit collapse and fearful hoarding of cash?], but doesn't fall as fast as demand [practically non-existent beyond US borders?], that still = drop in value. This is FOFOA's demand dropping the rope, which the supply-side is powerless over.
HI isn't the increase in the price of stuff, it's the collapse of currency value. Which translates on global markets, into higher $prices.
... cont'd...
(2/2)
If the USD collapses in value, a €cornbushel doesn't necessarily go up in price - only a $cornbushel must go up in price. It's still just a cornbushel, no matter what price tag you stick on it, only the currency changed. The price tag you will put on, depends on which currency zone you have your shop in, and therefore in what terms your customers think.
When USD collapses in value (HI's), people in the US will still need stuff -- stuff that is traded in global markets. They will have to compete with people elsewhere paying £cornbushel, ¥cornbushel, €cornbushel, etc, prices. So $cornbushel will necessarily go way up, unless for some reason RoW no longer wants cornbushels of course, or they stop thinking in terms of their own local currency and decide they should think in USD for a change. There will be an effect in other currency zones as a result of their own currencies becoming more or less valued -- depending on the composition of their own reserves to back their currencies (most places, sadly, primarily USD/UST of course).
This across the board increase in $goods prices, created by relatively stable pricing elsewhere, means there will be a dire shortage of USD -- just because you will need so many more of them than before, to compete with global demand for these goods - even if total global demand is to some extent reduced by the depression; demand for life's essentials isn't going to totally collapse in line with the extent of USD collapse. This is when the palliative printing will kick in, because people in the US desperately need more USD to go around, if they now need many many more of them just to buy what they need to survive, and the USG will be forced to do something ("political will").
Trying to get in front of these increases they see across the board, speculators might push up global demand for traded goods in general, and this means it could start to spill over outside of the $zone if people see general prices also starting to rise in their zone too. People take cues from price action and speculate on anything they think "can only go up" - or, "can obviously only go up even more than everything else will" perhaps? So, to divert this, to keep general prices from getting out of hand, the ECB will channel the demand for speculation somewhere it won't hurt (and in fact due to the nature of the reserves backing their currency, it'll do the opposite of hurt -- to people in the Eurozone at least). It'll target an increasing €gold price, making it stand out as the go-to "focal point" asset, that "can only go up".
"Look! Shiny!" "Ooooooooo... shiiiiiinyyyyy....".
Question: during the Weimar HI, did $cornbushel go up, or was it only Germans paying "higher prices", in Marks?
During the Zim HI, same question?
During any other HI example you want to pick?
Was it the corn becoming more valuable, or the currency less valuable?
Did more of the currency get printed before the prices took off, or as a result of it?
Yay,
USD HI is not an increasing quantity of dollars in existence, or even an increasing velocity having a similar effect to increasing quantity. These things will happen, as a result of and after, USD HI.
USD HI is a collapsing value put on dollars in global markets.
From Big Gap:
"The point is, this is the way collapsing money demand plays out in reality. It plays out as the collapsing of the store of value time continuum scale. And as the time in which a currency stores value becomes shorter and shorter, the currency circulates faster and faster.
So a falling demand = a rising velocity."
Their is less confidence/people demand it less/value collapses/velocity increases.
The printing is what happens in response to this process to try to ease the pain.
Remember from miner49er, all the ROW has to do is slow the accumulation of dollars aka demand them less (exponential growth is a bitach) and as a result the FED will print itself into HI (but note the trigger is the loss in value of the $ which is caused by the "credibility deflation" of the ROW slowing the accumulation of dollars as reserves aka demanding them less).
Cheers, J.R.
"USD HI is not an increasing quantity of dollars in existence"
Hey, looks like DPrick is learning something.
"USD HI is a collapsing value put on dollars in global markets."
He's on a roll !
Collapsing value put on dollars in global markets juuuuuust like the currencies of the countries in the Asian financial crisis.
"When USD collapses in value (HI's), people in the US will still need stuff -- stuff that is traded in global markets. They will have to compete with people elsewhere paying £cornbushel, ¥cornbushel, €cornbushel, etc, prices."
When the USD collapses we will have freegold. No printing of new money had to occur for freegold to take hold. Nice attempt though at reverting back to the micro US economy to try and save face. The printing within the US will have as much relevance to the world post USD collapse as the printing in Zimbabwe did.
Yes, M - that's right! This is all really a new epiphany to me and I am soooo grateful to you for bringing it to my attention this week. Wow! Eternally in your gratitude. I can't say thankyou enough. I didn't realise before that you weren't after all putting the cart before the horse as JR suggested.
Do you have a blog? Perhaps I can learn faster there than here from FOFOA and Friends... %<]:o)8
Now, perhaps you can move on to explaining to me the mechanics of how "When the USD collapses we will have freegold"? How does it come about, exactly? Is it an automatic process? Something in the Fed plan book ready to go and they will flick a switch perhaps? Why is it exactly that gold will go up 30x+ in terms of all other "commodities" (and much more in HI'd USD, clearly)?
Cheers...
A reply letter to Joel:
I thought that the subject was closed, but since you called me out, I feel compelled to reply. BTW, I’m here, and I’m here every day… reading and trying to learn. I don’t know if you noticed but my post quoted by Ash had nothing to do with validity of Freegold thesis. I wrote that in response to the ongoing animosity between the regulars here at FOFOA blog and Ash. And that just turns me off because instead of good arguments all I see is a lot of name calling and character attacks. Not much listening but plenty of jumping to each other’s throats. If you want an example then look at your letter to me. You apparently didn’t even bother to read my quoted post and you immediately assumed that I’m Ash’s lone supporter whereas in first sentence of the second paragraph I clearly state that I don’t subscribe to his argument… but you know what, I sure can entertain it. I sure don’t want to aggravate anyone here, but for my own sake I’d still like to understand why some commenters are so quick pull the trigger. I will take your advice and go back to the beginning to see how it all started, but if memory serves me, I don’t recall Ash starting this name calling hysteria. But anyways, as to your mentioning of “condescending rhetoric “, please re-read your letter to me and tell me that it is not condescending… BTW, how would I be able to judge your willingness to learn or your willingness to consider alternative viewpoints?
Forza FOFOA!
JR
I would like to request a little help.
Could you point me to where FOFOA discusses the management of the value of the euro post Freegold?
Thanks
TF
@ DP,
I had never thought about how the demand for physical dollars must rise simply due to price increases--needing more physical dollars just to buy the same goods. The digital consumer credit market is definitely not going to expand to make up for it. I better understand the exponential loop of inflation you guys have been talking about--thanks for the insight.
$1822 and rising...We soon may have to go to $200 increments on the new forums, lol...
That HSBC document seems to confirm that the BB's are using GLD as their gold piggy bank. Pretty significant.
If China and Russia are pushing Venezuela to grab their physical the rush to get seats as the music stops may be on. Maybe they are fed up and willing to give freegold a little push forward. Maybe it's just a warning.
At some point the BB's will turn on each other. No one wants to be the player who winds up with no physical. JPM looks pretty aggressive in drawing down physical from GLD. I look forward to watching the spiders eat each other.
MF,
Here are some thoughts on the idea of currency management under Freegold to set up a basis for discussion:
comment to Gold is Money -Part 1
In Freegold, a currency will be backed by gold and exchangeable with gold automatically, but not through the CB like the old gold standard. Instead, through the free market floating goldprice. Right now it is an illusion that the $ is exchangeable with gold at $1065 because of the paper gold market, and because of suppressed demand through the MSM/Fed/WallSt. et al. If everyone tried to cash in their dollars for gold, guess what would happen.
The CB's FX (gold) reserves will lend each CB credibility. Each CB can use these reserves to increase its credibility on the global stage if it wishes, by selling or buying gold. Imagine that at SOME price, all of the ECB's liabilities would be covered by its gold reserves. Then if it wishes to print some more, the gold price will simply rise in Euros as demand to exit Euros and enter gold increases.
The currency zone as a whole will be automatically judged on the world stage by the net flow of gold in or out of the zone, as measured by currency flow through the central currency exchange, since there will not be a $ reserve currency. Imbalances will be automatically righted through arbitrage if gold becomes "cheap" in any particular currency zone.
A productive (properly managed currency) zone will have a net inflow of gold, a strong and stable currency, and an inflow of capital for business! (See my currency flow chart in Bondage or Freegold) The key here is that all imports will be purchased in the local currency of the exporting country. This is what will naturally happen as the dollar loses its reserve status.
*********************************
Bondage or Freegold?
Now, back to the Freegold concept. Because gold is a wealth reserve, it will work just as well for a person as it will a nation state. In the marketplace, if gold is plentiful, its 'price' will be low. Likewise, if it is scarce its price will be high. If a nation state marks its gold to market and thins the gold market, it may find a high 'price' for all the nuggets the nation holds on reserve. This implies that if the nation state does NOT SELL gold in the open public market, all us little gold bugs (advocates) will be the ones that offer up our gold (in exchange for currency) that helps settle the imbalances that occur in global/national/local trade. If 60 billion needs to be settled every month and only a few ounces are available, those few ounces may absorb the imbalance.
In a Freegold system, the actual gold metal market determines the exchange rate of a currency. The nation state can liquidate/acquire less/more gold but the balance sheets will show the change allowing the businessman to determine where or not the currency is being managed respectably.
In a Freegold system, the incentive is for the nation state to create an environment where the gold price is continually falling in that local currency. If so, people will want to hold that currency knowing that they will be able to buy MORE gold tomorrow (or in the future). It will setup an environment where the businessman will WANT TO invest in that economy knowing that when the payoff comes - years from now - they will be able to convert it into wealth reserve.
Hi Franek,
Sorry you didn't get my sarcasm, man. I apologize profusely. The letter was meant to be entirely tongue in cheek, addressed to you, yes, but not really. It was simply a last resort plea for Ash to take his rhetoric elsewhere. If my letter came off as condescending to you personally, I apologize, it really was not meant to be. However, if you cannot see the condescension in his postings, I can't help you, as you are blind. To save you some time, here are some examples of late from your paramour of virtue and decency:
“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.”
Wow, does Ash really know what I have read? Is it possible that I have read Marx (which I have), but like Motley Fool, simply think Marx is a complete moron? Yes, not only possible, but true. Ash simply can’t stand that someone doesn’t buy into the BS that his teachers have been feeding him for three years, or seven years, or however long he has been in “school.” He is dead wrong--I actually even spent a decent amount of time trying to digest his stuff at Automatic Earth, but it gave me too much heartburn.
“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.”
Are those “BS”, and “attempt” parts arrogant and condescending enough for you?
“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.”
I will let that one speak for itself, lol…
Just a few examples of his “decency” of late, not gonna waste any more time on him. Again, though, I apologize, it wasn’t aimed at you, Franek.
Lastly, if you want examples of my willingness to learn, look under “Euro Gold” in July. Fofoa, DP, Costata, JR, and many others took me to school, and continue to do so regularly. And man, what an education.
Hi JR
My sincere thanks for your efforts.
I seem to recall FOFOA explaining how a currency zone could strengthen their currency by selling gold and weaken their currency by buying gold.
He also explained why it works this way, quite nicely, at the time.
That is what I was looking for, the explanation.
Or perhaps I'm simply a crazy fool. ;)
Regards
TF
FOFOA,
you can also now update our table for the official close over $1800 :)
"The World Gold Council said overall gold demand fell 17 percent in the second quarter as growing interest in jewellery, coins and bars failed to offset a sharp decline in ETF buying."
What a great twisted sentence.
Regarding the clip on Thugman saving us all from space aliens (who would also be illegal aliens, technically speaking), who will save us from Thugman? After all, he presents a greater clear and present danger.
Fed swap lines are open...to the SNB! Realdollars for francs.
http://www.zerohedge.com/news/cue-panic-fed-resumes-liquidity-swap-lines-lends-200-million-swiss-national-bank-most-october-2
The SNB issue:
Costata I usually agree with you but "having too much gold" pre FreeGold environment? That's a bold statement/suggestion. If you were implying to the "concentration" thing which was later brought up by DP, then I have to disagree with you (and DP). Since it's the flow that matters not stock, then I would say that the "concentration" thing less important.
I would agree that the ECB sold some of the gold in the past years to spread it out in the zone and show their commitment to "guaranteeing" the flow to the outsiders/giants I just can not believe they did it because there was too much of it in the vault. Same goes for the SNB.
With their talk of the peg they could also have initiated a PR for their new gold coins (or any gold coin/bar for that matter) and encourage the swiss to turn a portion of their savings (get them on the move/increase velocity) in francs to gold and "help" the SNB put more francs in/to the market.
But all in all they're too small for to handle this (the peg) alone, they'll have to get some help from the ECB (swap lines, etc.) to implement the peg and subsequent market operations... if the peg is implemented of course.
Casper
Defending a Virtual Currency
The ECB has set up gold in its forex reserves. [4] That means that it plans to use gold to DEFEND the value of a euro at some point. That's what forex reserves are for. The Fed uses other means to "defend" the dollar. The Fed actually prints MORE dollars to buy debt outright to force down interest rates to fantasy levels to make the dollar appear strong. So it debases the dollar outright in order to have some dollars to trick the barometer. That's how the Fed defends the dollar.
Eventually the ECB plans to use its gold reserves to manage the value of the Euro. Not to exchange euros for gold, but to use the gold to manage the euro, manipulate it if you will. But the big difference is that it will not start doing this until it is competing in a physical-only marketplace for gold. So in a way, even though it will be manipulation from TPTB, it will be fair manipulation! It will be "hard trading" with "hard opinions" available to everyone. [5]
The ECB will print money and buy more gold into the reserves if it wants to weaken the euro (raise the price of gold and debase the currency at the same time). And it will sell gold into the market if it wants to strengthen the euro (lower the price of gold and lower the money in circulation by taking some in). Of course gold will be at about 50,000 euros per ounce before this even starts.
This is how "forex" gold reserves are much more powerful than the gold backing the dollar once had. [6] They require less gold, they never run out, and they don't require the currency to compete in an unfair way with gold. And they can be managed at one central location yet their affect will be felt wherever virtual euros exist. Under the dollar's gold standard the Treasury had to restrict the entities that could come to the gold window.
Under freegold, everyone in the world can come to the gold window! Everyone that uses your "virtual euros" has the confidence that you are DEFENDING their value against the most versatile real world physical trading thing; gold. And also that you are allowing gold to float freely, so that anywhere in the world, they will be able to buy physical gold with your euros. They are perfectly convertible at all times and places, because the ultimate institution backing them makes sure they are credible against gold, and that there will never be a physical shortage of gold priced in euros.
cont.
Also, here is an excerpt from a comment to Reference Point: Gold - Update #2 from an email FOFOA sent to Aaron:
"Regarding [Purchasing Power Parity], if you want to buy some Chinese goods in Freegold, you don't send your dollars to China. You take them to the currency exchange and buy yuan. You hope you get a good PPP rate at the exchange for the yuan, which you then use to buy Chinese goods. And vice versa.
A CB will use gold instead of foreign currency reserves in Freegold. If the CB wants to weaken its currency it will buy gold from the market. If it wants to strengthen its currency, it will sell gold.
So if a CB thinks the PPP of its currency is out of whack, it will correct it in the gold market.
If dollars buy less Chinese goods than they buy US goods, the Treasury would have to sell gold for dollars to raise the US$ PP. The most likely purchaser of that gold will be people in another currency zone that can buy the dollars cheap on the exchange (cheaper than Americans have to work for their dollars) and buy the gold. This currency exchange arbitrage will raise the PP of the dollar relative to that other currency zone.
So by the Treasury selling US gold, US dollars will thereby buy more Chinese goods.
If a currency finds itself too strong, meaning it can buy much more foreign goods than inside its own zone, which makes it hard for export businesses to sell its goods in foreign lands, it will use that strength to buy gold from the market. The ones that will sell gold will mostly be foreigners because they are getting a better price from the US Treasury than they would get in their home currency zone.
The arb will then bring down the value of the dollar to where the CB wants it.
Now think about whether it makes one lick of difference whether the gold seller/buyer is the CB or the aggregate public inside that zone."
Cheers, J.R.
MF,
Also reconsider from my first post to you:
"The CB's FX (gold) reserves will lend each CB credibility. Each CB can use these reserves to increase its credibility on the global stage if it wishes, by selling or buying gold. Imagine that at SOME price, all of the ECB's liabilities would be covered by its gold reserves. Then if it wishes to print some more, the gold price will simply rise in Euros as demand to exit Euros and enter gold increases...
In a Freegold system, the actual gold metal market determines the exchange rate of a currency. The nation state can liquidate/acquire less/more gold but the balance sheets will show the change allowing the businessman to determine where or not the currency is being managed respectably."
*********************************
FOFOA quoting RS in the comments to Dilema
Freegold IMPROVES the options for any currency zone, in either direction, weak currency or strong currency. The current system subordinates a zone's choice of monetary policy to the monetary policies of its trading partners.
http://www.usagold.com/cpmforum/?p=174046
Randy’s Comment: Central bankers will increasingly prefer gold reserves over the paper reserves created by other countries. Not only for the reasons of reliability/trust as cited in this article, but moreso because in choosing predominantly gold over foreign paper for central banking reserves will give those various national monetary officials an improved degree of latitude in their pursuit of an independent monetary policy.
WITH gold reserves, a central banker in a vibrant national economy can choose to enjoy a strong currency relative to gold, but, importantly, it can still alternatively choose to exercise loose monetary policy (for economic or political reasons) in which its currency is made weak as measured relative to gold. But regardless of choice for the relative strength or weakness of the national currency, the abiding benefit of choosing gold reserves is the superior stability — the systemic strength against procyclicality — that gold offers to the asset side central banking balance sheet.
WITHOUT gold reserves, pursuit of a national currency policy that is (according to their preference) generally strong OR generally weak is made less expedient either way because the health of the central bank’s balance sheet is subordinated to the quality of its foreign paper reserves which are themselves subordinated to the particular monetary policies being pursued by those foreign governments. Generally this structure of foreign paper reserves offers only the option for national monetary weakness built upon other international weaknesses, and worst of all it exposes the national monetary balance sheet to procyclical systemic failure — a domino whose fate is written largely in the hand of its neighbors.
-RS
Cheers, J.R.
Look, I appreciate all the effort to gin up the approaching TEOTWAKI, but no one is switching away from the dollar anytime soon.
To the contrary mon freegold freres, the dollar is in very high demand. Such high demand that no one wants to spend the ones they got. Which is of course, perfectly rational (ask anyone long anything, other than gold of course, what I mean if you don't understand).
Ash and Chs and Mish got it right, for now. The policy response now is anyone's guess. There are a lot of very powerful folks who stand to gain plenty from "deflation", and very very few who stand to gain from HI.
Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years, as the reserve function transition politically begins."
Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700
Thursday, August 18, 2011 - GOLD ABOVE $1800
I am still not sure if dp is being sarcastic or not, didn't see any sesame street links.
Either way, I want the smart-assing and the BS to stop as much as anyone. That's what Zerohedge is for.
Can anyone here be bothered to respond to this benighted view?
http://suddendebt.blogspot.com/2011/08/gold-vs-debt.html
M: I am still not sure if dp is being sarcastic or not, didn't see any sesame street links.
Either way, I want the smart-assing and the BS to stop as much as anyone. That's what Zerohedge is for.
Is this a hand which I see outstretched before me,
The palm planed smooth?
Come, let me touch thee.
I reach for thee, and yet I cannot feel thee still.
Art thou not, fatal comment, sensible
To a feeling as to sight?
Or art though but a planed palm of the mind,
A false creation?
I'll take my chances.
My new friend, ZH is an on-going bar brawl.
I find this place more like Cheers.
Your round.
Sincerely,
DP :-)
Popcorn times live!
http://www.telegraph.co.uk/finance/financialcrisis/8680820/Debt-crisis-live.html
Can venezuelas move trigger a run on bullion banks?
http://youtu.be/8IFCBuIleBk
Poor little CHF just can't catch a break, no matter what they do. +.61%
Print out the wazzoo in public, still they come for more! What's wrong with these people??
Fiddy bucks before lunch. What happens when NY open later? Forum 1900?
Will silver break $42.22 this time around..?
So many questions.
Hi JR
You truly are a walking encyclopedia.
Thank you very much.
"The ECB has set up gold in its forex reserves. [4] That means that it plans to use gold to DEFEND the value of a euro at some point. That's what forex reserves are for. The Fed uses other means to "defend" the dollar. The Fed actually prints MORE dollars to buy debt outright to force down interest rates to fantasy levels to make the dollar appear strong. So it debases the dollar outright in order to have some dollars to trick the barometer. That's how the Fed defends the dollar.
Eventually the ECB plans to use its gold reserves to manage the value of the Euro. Not to exchange euros for gold, but to use the gold to manage the euro, manipulate it if you will. But the big difference is that it will not start doing this until it is competing in a physical-only marketplace for gold. So in a way, even though it will be manipulation from TPTB, it will be fair manipulation! It will be "hard trading" with "hard opinions" available to everyone. [5]
The ECB will print money and buy more gold into the reserves if it wants to weaken the euro (raise the price of gold and debase the currency at the same time). And it will sell gold into the market if it wants to strengthen the euro (lower the price of gold and lower the money in circulation by taking some in). Of course gold will be at about 50,000 euros per ounce before this even starts."
This is what I was looking for. :D
As regards the CHF, printing some to buy gold would weaken the CHF imo. But politically this is not possible, as they do not want to be the ones who causes "TEOTAWKI".
So their best bet is to buy a proxy for gold, ie. the euro.
My foolish 2 cents.
TF
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