Tuesday, August 23, 2011

Three!


Yay for Forum 1900, but now I have a much more significant milestone for y'all to celebrate. As of today this blog is three years old. I can hardly believe it. Here's what a chart of FOFOA might look like:


The only secret to writing this blog (which is obviously not a secret) is that I stand on the shoulders of Giants. To me, the archives linked over there to the right have been a gold mine. They contain more deep truth than all the books I've read since getting interested in gold and money back in 2008. And in my opinion, they have more relevance to our future than any of the contemporary analysts I read today. And that's because they contain the paradigm for what is unfolding. All I do is test and retest it through this blog.

For the last two years, ever since I first put up the donation button, there are a select few of you that have faithfully and consistently supported me in my effort to continue unwinding complex but vital concepts. You guys (and a few gals) are the only reason I'm still here doing this for free. Thank you! For the rest of you, please click on the three tonnes of gold if you'd like to send me a little blog birthday present and help keep this thing going for another year:





My gift to you for now, until my next big post, is the following. These are my favorite song choices from the last nine months of posts. I call it FOFOA playlist #2. Playlist #1 can be found here.
__________________________________________________________

FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios

From FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios last November, here's 'Boulevard of Broken Dreams' by Green Day. The reason I chose this song was partly for the chorus line "I walk alone" as it relates to FOA's parting words. But I also liked this song because I could relate to the lyrics myself as the Freegold foundations explored here are not very popular in the precious metals community for various reasons:

"I walk a lonely road
The only one that I have ever known
Don't know where it goes
But it's home to me and I walk alone…




Freegold in the Proper Perspective

From Freegold in the Proper Perspective in early December, here's 'Firework' by Katy Perry. A Friend heard this song for the first time and quickly sent it to me as a contender for the Freegold theme song. I agreed and put up a poll at the end of the post pitting Perry against Petty. But Firework was a brand new song at the time and it lost the poll. Since then, many others have come to agree with me and my friend that this song really strikes a relevant chord to those that get what I'm writing about: why you should follow in the footsteps of Giants through a monetary transition. Here's Firework with lyrics:




Focal Point: Gold

From Focal Point: Gold later in December, here's 'We are the Champions' by Queen. Focal Point: Gold is about the game theory concept in which there can be only one winner, and I thought the lyrics fit the post:

"…it's been no bed of roses
No pleasure cruise
I consider it a challenge before the whole human race
And I ain't gonna lose…




Kicking the Hornets' Nest

From Kicking the Hornets' Nest also in December, here's 'In the End' by Linkin Park. Hornets' Nest was a post about the "silver warriors" (hornets) that didn't like my Focal Point: Gold post. Perhaps you remember them; those people that were going to crash the TBTF bank JP Morgan by buying used silverware and bidding it all the way up to $36 per ounce which was the magic price that would bankrupt one of the largest global banks. I thought the lyrics were befitting these toy soldiers:

"…even though I tried, it all fell apart
What it meant to me
will eventually
be a memory of a time when

I tried so hard
And got so far
But in the end
It doesn't even matter

I had to fall
To lose it all
But in the end
It doesn't even matter…




Reference Point: Gold - Update #1

From Reference Point: Gold - Update #1 in January, here's probably the greatest gold-related movie soundtrack ever. 'The Ecstasy of Gold' by Ennio Morricone is a classic from the 1966 film 'The Good, the Bad and the Ugly' starring Clint Eastwood. Reference Point Gold (RPG) is another name we use for Freegold. It comes from an FT editorial by Robert Zoellick, president of the World Bank:




Freegold Foundations

From Freegold Foundations here's 'The Way' by Fastball. I had just finished writing this post and was thinking about some song choices. I play music while I shower in the morning and this song came on. I hadn't heard it in years, but the lyrics really struck me:

"But where were they going without ever knowing the way?
Anyone could see the road that they walk on is paved in gold…




Indicium

From Indicium in March, here's 'Crazy' by Gnarls Barkley. I guess you just have to really understand what I write about to see how Crazy is probably one of the great Freegold theme song contenders. I ended the Indicium post with this line from ANOTHER: "And gold? You will never know its price. It will stop all trading as it slices thru $10,000+." And as Cee Lo Green said in the song:

"…it wasn't because I didn't know enough
I just knew too much
Does that make me crazy?




Deflation or Hyperinflation?

From Deflation or Hyperinflation in April, the post that inspired 30-year deflationist Rick Ackerman to write a response titled "Hyperinflation vs. Deflation: I Concede", here's 'Wake Up' by Arcade Fire. This is one of my favs of the bunch. Admittedly Arcade Fire takes a bit of getting used to, but it's well worth the effort. I thought this song was perfect for a hyperinflation post (check out the lyrics at the post), but this particular performance at Coachella was even more perfect. It was shot only 7 days before my post went up, and I loved the glowing balls falling on the fans as a visual analogy to FOA's front lawn dump:




The Return to Honest Money

From The Return to Honest Money in May, here's a great live version of 'It's the End of the World as we Know it' by R.E.M. TEOTWAWKI has many connotations today ranging from Mad Max to Mayan Apocalypse. But the way I meant it is the end of FOFOA's dilemma, which is… the world as we know it. That'll be enough! Trust me. ;)




From the Treasure Chest

From From the Treasure Chest in June, here's 'Not Afraid' by Eminem, a must-listen:




Forum 1600

From Forum 1600 on July 18th, the day gold closed over $1,600, here's 'Under Pressure', a collaboration between David Bowie and Queen. I hope that more explanation is not necessary for this one:




Forum 1800

And finally, from Forum 1800 just a few days ago, here's a fantastic Metal version of Ennio Morricone's 'The Ecstasy of Gold' by Metallica:



Sincerely,
FOFOA
___________________________________________________________

UPDATE:

GLD puked again today.


___________________________________________________________

UPDATE #2:

8/24/11 - Another puke today. Two days in a row. First such cluster since the 2008 lows.

385 comments:

1 – 200 of 385   Newer›   Newest»
Panelproli said...

Congratulations, FOFOA!
Thank you for your efforts by providing is this bog and ideas.

DP said...

Happy Birthday - May the games continue!

costata said...

FOFOA,

Congratulations on reaching this milestone. Thanks for all of your efforts.

Count me in for a donation.

Dig deep people. If you know what a tantrum by a three year old is like then you know it is best avoided. Now try to visualize a three year old Yeti spitting the dummy!

Jokes aside, in addition to any intellectual stimulation we obtain from this blog many of us have made money from what we have learned here. Time once again to share the joy!

intuitivereason said...

Well done. I managed about 3 posts when I started blogging (ok maybe a couple more).

Speaking of three; I had an interesting thought today. We commonly look here at the separation of wealth from currency; and largely leave the 'unit of account' aspect of money to its own.

I came across a while back that Chile keeps a separate unit of account (UF), at least for monetary arrangement that cover an extended period. http://cowles.econ.yale.edu/P/cd/d11b/d1171.pdf provides a solid examination of the setup and outcome.

Is there a reasonable case for the expansion of our 'separation of (monetary) powers' from two specie to three?

d2thdr said...

Happy Birthday.

Defend your precious. Its precious to all of us too.

d2thdr said...

Count me in for a donation too.

J said...

Thanks for all of the effort you've put into this blog over the last 3 years. You've done a great service to many of us and you should be rewarded for your time, effort, and sacrifices.

History will look kindly upon this blog but that does not do you any good today. I've sent a donation to keep you focused on what's most important and not on the job classifieds. I hope others will do the same.

Aquilus said...

Congratulations!

My only regret is that I only discovered it less than a year ago.

To many more FOFOA - great, great content!

78Rubies said...

Congratulations!

Paul said...

BIG UP for FOFOA !

Congratulations !

poopyjim said...

All hail FOFOA!

Aquilus, no need for regrets. I think we are all more fortunate than those who will discover it a day or two too late...

Jeff said...

Congratulations FOFOA. You have provided a viewpoint that many of us needed to see.

Isn't it fascinating how gold is the thing that must not be named, in official circles? Silence speaks volumes.

Mortymer was right in the last thread. None of us have gone through such a transition as this. While it may be a benefit in the long run the near future will be chaotic and difficult. I am not in the camp that sees freegold as the end of war and strife. It is a turning of the page and those of us who enjoyed some benefits of living in a superpower will have to pay a price.

JR said...

Hi intuitivereason,

Well said - here are some thoughts from FOFOA's Gold is Money - Part 1 on the oft-neglected "unit of account"

"Money", as it is understood today, has three main roles. The late Dr. Willem F. Duisenberg, former President of the ECB, in his famous acceptance speech for the International Charlemagne Prize in 2002 stated it well...

"What is money? Economists know that money is defined by the functions it performs, as a means of exchange, a unit of account and a store of value."

Our modern understanding of money is that it has three roles or functions: 1) A medium of exchange, our TRANSACTIONAL currency, 2) a unit of account, a "number" used for comparing relative values, held in each person's memory AND on paper for bookkeeping (and legerdemain), and 3) a store of value, or wealth.

What I would like to do now is to take a broader view of money...


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

To reveal the broader view, FOFOA presents FOA's Thought Experiment about the money concept:

Owning wealth aside from official money units is nothing new. Building up one's storehouse of a wealth of things is the way societies have advanced their kind from the beginning. What is new is that this is the first time we have used a non wealth fiat for so long without destroying it through price inflation. Again, a process of using an unbacked fiat to function as money and building up real assets on the side. Almost as if two forms of wealth were circulating next to each other; one in the concept of money and the other in the concept of real wealth.

This trend is intact today and I doubt mankind will ever pull back from fiat use again. Fiat used solely in the function of a money concept that I will explain in a moment.

Understanding all of this money evolution, in its correct context, is vital to grasping gold's eventual place in the world. A place where it once proudly stood long ago.

All of this transition is killing off our Gold Bug dream of official governments declaring gold to be money again and reinstitution some arbitrary gold price. Most of the death, on that hand, is in the form of leveraged bets on gold's price as the evolution of gold from official money to a wealth holding bleeds away any credible currency pricing of gold's value in the short run.

To understand gold we must understand money in its purest form; apart from its manmade convoluted function of being something you save. Money in its purest form is a mental association of values in trade; a concept in memory, not a real item. In proper vernacular; a 1930's style US gold coin was stamped in the act of applying the money concept to a real piece of tradable wealth. Not the best way to use gold, considering our human nature.

By accepting and using dollars today that have no inherent value, we are reverting to simple barter by value association. Assigning value to dollar units that can only have worth in what we can complete a trade for. In effect, refining modern man's sophisticated money thoughts back into the plain money concept as it first began; a value stored in your head!

So you think we have come a long way from the ancient barter system? Where uneducated peoples simply traded different items of value for what they thought they were worth? Crude, slow and demanding, these forms of commerce would never work today because we are just too busy, right? Think again!...


cont.

JR said...

cont.

Lean back and think of all the items you can remember the dollar price for. Quite a few, yes? Now, run through your mind every item in your house; wall pictures, clothes, pots and pans, furniture, TVs, etc... Mechanics can think about all the things in the garage, tools, oil, mowers. If one thinks hard enough they can remember quite well what they paid for each of these. Even think of things you used at work. Now try harder; think of every item you can remember and try to guess the dollar value of it within, say, 30%. Wow, that is a bunch to remember, but we all do it!

I have seen studies where, on average, a person can associate the value of over 1,000 items between unlike kinds by simply equating the dollar price per unit. Some people can even do two or three thousand items. The very best were some construction cost estimators that could reach 10,000 or more price associations!

Still think we have come a long way from trading a gallon of milk for two loves of bread? In function, yes; in thought no! Aside from the saving/investing aspects of money, our process of buying and selling daily use items hasn't changed all that much. You use the currency as a unit to value associate the worth of everything. Not far from rating everything between a value of one to ten; only our currency numbers are infinite! Now, those numbers between one and ten have no value, do they? That's right, the value is in your association abilities. This is the money concept, my friends.

Unlike the efficient market theory that was jammed down our throats in school, we all still use value associations to grasp what things are worth to us. Yes, the market may dictate a different price, but we use our own associations to judge whether something is trading too high or too low for our terms. We then choose to buy or sell at market anyway, if we want to.

In this, we have moved little from basic barter. In this, we are understanding that an unbacked fiat works because we are returning to mostly bartering with one another. A fiat trading unit works today because we make it take on the associated value of what we trade it for; it becomes the very money concept that always resided in our brains from the beginnings of time.

In this, a controlled fiat unit works as a trading medium; even as it fails miserably as the retainer of wealth the bankers and lenders so want it to be.


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

See that key insight "Money in its purest form is a mental association of values in trade; a concept in memory, not a real item." And thus what we think of as money is really the unit of account functionality. BTW, this idea is key and is a foundation to to understanding FOFOA's most recent magnus opus on the "money concept", The Return to Honest Money.

FOFOA from Gold is Money - 1:

So how did your Thought experiment go? Did you come to the conclusion that the concept of "money" in its most pure and primal form is the mental association of values in trade? That it is the actual thought process inside of our minds that we use to associate the relative value of real things? "Money is just a book keeping accounting of real wealth!" "Why do we need to save this stuff anyway?"

So, to assign this concept to one of the three "functions" of modern money, the pure money concept fits best within the unit of account function.


cont.

JR said...

and FOFOA in the comments:

"The concept of money is something personal we all hold in our minds. Some will end up using their currency, others will use gold. This will be the difference between the pay-as-you-go crowd and the credit card crowd. The official concept of money (the collective's unit of account) on paper will be the currency for the purpose of collecting taxes.

So we aren't really messing with the "unit of account" function as it already exists. Officially that will remain the same, unofficially people will be free to associate the values of all real things (even gold)!

Fiat currency and gold are both stores of value for different durations. Fiats work well on a very short timeline. Gold works brilliantly on any timeline, even multi-generational."


**********************************
From Gold is Money - Part 3 "

"Breaking the Triangle

In part 1 of this series I used a diagram I created called The Modern Money Triangle. The three corners of the triangle represented the three primary functions of our modern understanding of money.

Modern Money Triangle

But as we pass through the coming phase transition in which the parity between paper gold and physical gold will be broken, cracks will start to form in certain parts of the triangle.

fractures

The fractures you see in this diagram are time related. On a short timeline [length of time is the key variable: "t"] fiat currencies will perform our necessary monetary functions, medium of exchange and unit of account. But at some point on the x-axis, 'length of time', we will switch to a different medium, gold.

On a long timeline, gold will perform our necessary monetary functions perfectly, store of value and long term unit of account. By the way, there is no upper limit on the x-axis of 'length of time' when it comes to gold. If plotted out it runs to infinity!

The outcome will be my new Freegold Quadrangle!

Freegold Quadrangle

The "x-axis" represents the amount of time you are willing to hang onto the fiat currency you either earn or receive in payment. If the monetary authority is printing money, "t" will be shorter and shorter. In a hyperinflationary situation "t" will slide all the way to the left with a value close to zero. [1]

"t" shifting

As the new Freegold system of natural, pristine balance emerges, the fiat monetary authority will find its wisest move is to keep the money supply under control. And with a "wise" CB, gradually the "t" value will shift back to the right, little by little.

The further "t" moves to the right, meaning the longer people are willing to hang on to their fiat, the more investment will flow into new businesses in that currency zone, and the more tax the greedy collective can grab. This is how it will work..."


Cheers, J.R.

JR said...

Yay, The Return to Honest Money is a magnum opus too :)

mr pinnion said...

Happy birthday FOFOA.
Blow them candles out and you get to make a wish.
Wonder what that would be?

Regards
Ozzy

DP said...

Shh! Or it won't come true...

Motley Fool said...

Happy Blogday FOFOA. :)

Michael said...

Congrats...with much gratitude

Joel said...

Congrats Fofoa!

But back to business--here is what I find ironic. All the articles I have read think QE3 is already priced into the market, and if it doesn't happen, the stock markets will tank, with gold enjoying another meteoric rally over $2000. The irony is that if he does go ahead with QE3, gold is going to continue to go up anyway due to portended inflationary pressures. I love it--heads I win, tales you lose, lol...

sean said...

Many thanks FOFOA for your continuing efforts at exploring and explaining this Freegold fractal dimension, and particularly your measured and wise responses to questions and criticisms. This blog is a rock in the gathering storm!

Jeff said...

rickards on chavez:

Hugo Chavez is moving his cash out of the Bank for International Settlements (BIS), which is the central bankers central bank. And he’s moving it to Russian, Chinese and Brazilian banks. So he’s basically getting out of the Western banking system, moving into the communist, Russian and Latin American banking system.”

http://tinyurl.com/3qetswp

Jeff said...

Nice move down today; things were getting parabolic. They will try to shake out the weak hands for option expiration at the end of the week. Paper wars.

Dante_Eu said...

Happy Blog Anniversary, FOFOA!

Your blog is truly a "light at the end of the tunnel".

Thank You, Sir!

Biju said...

Today weak hands in Gold were shaken with option expiration on Aug 26th.

I will buy some Gold, if it touches $1780. But the move in Gold since August is steep, and there will be a shakeout again from weak hands.

Biju said...

GO GO FOFOA. best site and the best knowledgeable comments(without much acrimony)

Börjesson said...

A candidate for the playlist, perhaps?

When you walk through a storm
Hold your head up high
And don't be afraid of the dark.

At the end of the storm
There's a golden sky
And the sweet silver song of the lark.


http://www.youtube.com/watch?v=8smO4VS9134

RogerW said...

Borjesson, that's a brilliant suggestion.

Happy Birthday FOFOA.

FOFOA said...

Hello Biju,

"Today weak hands in Gold were shaken with option expiration on Aug 26th.

I will buy some Gold, if it touches $1780. But the move in Gold since August is steep, and there will be a shakeout again from weak hands."


Lance Lewis just emailed again. The GLD Puke Indicator was triggered again today!

Last time this happened was Aug. 11 with gold at $1,760.

The time before that was Jan. 25 with gold at $1,324. Lance says that when the GLD Puke Indicator is triggered, that's a nearly flawless buy signal.

So who is draining GLD? Where is all that physical going? And did you get your share of physical yet?

Sincerely,
FOFOA

Ramon said...

I'd like to know how many shrimp are piling into DZZ (highest volume ever) like so many lemmings, probably after they've dumped their physical metal and GLD shares (or handed them over to JPM, et al?).

Jeff said...

GLD holdings went from 1290 to 1259 tons overnight.

Edwardo said...

A bit of a dilemna, or so it would seem.

http://blogs.reuters.com/felix-salmon/2011/08/23/how-to-get-12-billion-of-gold-to-venezuela/

victorthecleaner said...

Congratulations from me as well!

Yesterday (Aug 22), LBMA quoted funny GOFO rates. The values are the gold for US$ swap rates over 1,2,3,6,12 months:

19-Aug-11 0.40000 0.41600 0.42600 0.48800 0.51000
22-Aug-11 0.48250 0.43000 0.35000 0.25000 0.08750
23-Aug-11 0.40800 0.41600 0.42250 0.50000 0.52600

I am trying to interpret this: Yesterday (Aug 22), somebody needed a lot of gold rather urgently, for delivery around late September to mid October. The swap had to close yesterday. It could not wait even a single day or be spread out over several days. Today (Aug 23) things look calm again.

Victor

M said...

I still don't understand why there needs to be money printing to have hyperinflation. Even if FOFOA believes that future printing resulting from currency demand is the most likely outcome(could be right) why not explain the road to freegold in all potential outcomes ?

Ramon said...

Merkel Rejects Seeking Collateral in European Bailouts as Splits Emerge

FTA: "... a call by Labor Minister Ursula von der Leyen for countries to put up gold as security for bailouts..."

The pressure is mounting.

Edwardo said...

"The pressure is mounting" to...revalue?

In conjunction with Chavez's latest demand that is what what this call for gold collateral, a call that Merkel is rejecting, presumably because she has some knowledge of the role gold is meant to play going forward, as per the Euro structure, is what this suggests to me. I am sure others out here have different ideas.

Nick said...

In a world fraught with noise, a guiding light leads the way. Thank you FOFOA / Trail Guide!

Tyrone said...

The GLD Puke Indicator was triggered again today!
And did you get your share of physical yet?

And the FOFOA three year anniversary.
And a wonderful little price drop today.

Of course I had to celebrate this striking confluence of events by picking up a Gold Maple and 25 Silver Bears. Yes, yes, I know about silver; but I want a tube from each of the silver coins in the Canadian Wildlife Series.

Cheers!

p.s. That low gold price for today was me, and only $60 over spot!

Indenture said...

FOFOA: My Family Will Always Be Indebted To You.

Borjesson: Brillient Choice for Freegold Song - ‪Gerry & The Pacemakers - You'll Never Walk Alone‬

All: Funny how a measly 12 Billion Dollars worth of Venezuelan Gold can ripple the world. Or so it appears.

Diamond Jack said...

As I reflect on the last year, one event stands out as it informs me all is well, at least as long as H. Reid is in office. Flights into Ely Nevada will continue to be subsidized at 3700 FRN per seat.

This means, Friends, there is no chance in hell that the mining law of 1842 will be messed with. The people, as in we will still have access to claim minerals on Federal Lands.

Hilda Clark wrote an interesting book. The cure for all diseases. Our bodies are infested with parasites, we can kill them with the Clark zapped, but the parasites are also infested with viruses and bacteria and such so they quickly latch on to other hosts.

We are looking at the end of wall st., no? Where do you think these vermin will go? Well, if you give them a chance to control the flow of mined gold, look there first.

Instead we can become invulnerable to these stooges. I promised that the time for activism is nigh, and it is nigh, very nigh. But it is not as you think. And not on FOFOA Blogday.

Indenture said...

Smashing Gold Atoms Produces Densest Matter Ever Created


"Physicists at the Brookhaven National Laboratory have smashed the nuclei of gold atoms together at near the speed of light to produce the highest density of matter ever artificially created, it was announced Tuesday. The density was more than 20 times as great as that within the nuclei of ordinary matter and produced temperatures above 1 trillion degrees.

Researchers believe large amounts of such matter existed in the milliseconds following the Big Bang, the explosion that gave birth to the universe. The team hopes such collisions will break protons and neutrons into their subcomponents--quarks and gluons--and further reveal the internal structure of nuclei."

This tells me our universe was made from gold. Sweet.

Wendy said...

No offence diamond,but it's my opinion that clark was a one woman freak show.

Indenture, I wouldn't be surprised if that technology was worth about 1,000,000.00 /ounce. Have you heard about costs etc??

Robert LeRoy Parker said...

So how do you view an "old world gold economy" through modern eyes? And how do you move there peacefully with the easy money camp? It's quite simple actually. You let nature take its course, you support that natural course however long it takes (rather than pathologically fighting nature like the dollar system does with its obsessive-compulsive drive to control), and you don't deprive the easy money camp of their precious fiat. It's Freegold. It is about allowing meritocracy to rise like a Phoenix from the ashes of the dollar's inevitable collapse.

...

It is the new paradigm we are entering where the natural division of power will be based on merit and credibility.


Here is my song selection:

Luciano Pavarotti - Ave Maria

Craig said...

Happy Birthday FOFOA! Thanks for sharing insight that few possess. While some of the posts may have been long winded they were certainly informative.

mortymer said...

"So who is draining GLD? Where is all that physical going? And did you get your share of physical yet?"

...CBs and small giants? Calling it back perhaps in a worry it could not be returned in a freeze?

Redhill said...

HaPpY BiRtHDaY FoFoA...!

Merci...
Grazie...
谢谢...
Terima Kasih...
ありがとう...
감사합니다...
Thank You... in the limited language doses I know :)

PS: Glad to see some fellow Liverpool fans here!

DP said...

Hi, M.

I still don't understand why there needs to be money printing to have hyperinflation.

Who is saying that this is the case? FOFOA isn't and nor is anyone else here whose opinion I would personally set too much stall by.

Even if FOFOA believes that future printing resulting from currency demand is the most likely outcome(could be right) why not explain the road to freegold in all potential outcomes ?

I don't know about you, but I prefer to concentrate on those outcomes I have come to believe through my enquiries are likely. It's no surprise to me that FOFOA doesn't write about alternative outcomes to the one he has by this point determined in his mind to be all but certain (IMO, ---> could be right! <--- :) ).

Once again and with feeling, the international loss of confidence IS the hyperinflation - that's got nothing to do with the quantity that will be issued today and tomorrow; it's not "inflation on steroids". It's devaluation of the currency in international trade. No longer accepting to hold it after exchange for goods and services. Perhaps not even accept it.

This reduced value of the currency results in goods and services (which are still of the same value internationally) going up in price — in terms of that currency — just because the RoW is still able and willing to pay the market price in their own currencies. This is where the subsequent domestic currency demand comes in, and from there the necessity to print in order to satisfy this increased domestic demand [which further erodes international confidence, further reducing international exchange value, pushing up domestic (but not necessarily international, although panic might affect global demand -- and from there, global valuation) prices still further, creating more domestic currency demand, necessitating still more printing, which further erodes...]

I hope that this goes some way to clearing up this particular issue for you, so you can move along to the next obstacle on the course — probably the mirror showing you all the things that have happened in past hyperinflations, suggesting to you that the same thing will happen again. The dollar is a whole different class of problem, for the world: a class of problem that will require a new solution.

Sincerely,

DP :-)


A couple of see also's, from a list of many: Credibility Inflation, The Old Hyperinflation Question

Motley Fool said...

I would also like to throw in a song for the fun :

Tubthumping

TF

Winters said...

Congratulations on the big number three DJ FOFOA! I listened to your playlist this afternoon. Firework does grow on you :)

Having recently written some lengthy rants at work I appreciate how much time and effort you must put into these posts in order to polish them to such a level as they are presented.

A thought I had today. I wonder if A/FOA read this blog. Its only 14 years later. I wonder which posters they are? :)

@Texan. I've been reading comments from Euro gold in July. I see you are a sceptic that Europe will trigger freegold. I'm just wondering - are you a PGA (but for different reasons) or actually quite sceptical of gold? It isn't clear to me yet (I'm still reading!)

DP said...

Given the "GLD puke indication", basing around $1840 right now?

mortymer said...

"DGCX volumes cross two million mark in 2011
• 2 million mark milestone achieved for the first time in any year since
inception, YTD volume valued at US $98.7 billion
• 76% increase on YTD volume compared to 2010"

http://www.dgcx.ae/Images/FileManager/1802.pdf

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

So much for basing at $1840 ...

Biju said...

Thanks FOFOA for the GLD puke indicator reference.

I acted on Gold $1490.

I always like to catch a falling knife. :-)

Biju said...

I meant acted on $1790.

Edwardo said...

DP, Opex just about guaranteed that gold would be under pressure into today at the very least. FWIW, a few forecasters I follow are calling for tops in gold around this time. One of them is a gold bull into 2020. Could reval along the lines discussed here take that long? Not likely, BWDIK.

DP said...

Edwardo,

BWDYK? AAMAID! ;-)

As long as $1700 isn't broken short term, I'm comfortable with my view of the recent trend. Even if it were to break below there, I'm still happy to hold and wait all the same. :-)

JR said...

Hi JoJo,

At a very simplistic level:

1) is freegold coming?
2) is the euro "built" for a freegold monetary system?

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

An example of where MA's 8/21 piece The Rise and Fall of the Euro falls short. It begins with:

When we look at the structure of the Euro, it becomes clear that the design was flawed from the outset because of a failure to understand what MONEY really is.

One of MA's big themes is the Euro creators don't understand MONEY. This is developed nicely on page 26, where MA argues the euro is not a true single currency because each nation issues their own debt. Ma goes on that this individual nation debt is in essence a derivative synthetic currency instrument that can't be used to depreciate the debt like a true single currency:

The euro was incapable of providing a true Single Currency because it DID NOT CONSOLIDATE THE DEBT and thus constructively transformed the national debts of the member states into simply a synthetic VIRTUAL CURRENCY that will still rise and fall because of the inherent political RISK factor (CONFIDENCE). While a direct currency allowed for the depreciation of the national debt transferring the political risk to the bondholder through the currency, the euro REVERSED the process transferring the risk that use to be currency from the bondholder to the state in the form of interest rate risk.

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

OK, now consider that FOFOA is presenting the opposite view - that the severing of the euro's link to a nation state *is* the a key design that will lead to the euro flourishing - from Euro Gold:

"The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."

There's a lot in that one paragraph, but the two fundamental differences with the dollar are the severed links to gold and the nation-state. Hopefully I have sufficiently addressed the former above. I will now try to explain the significance of the latter...


Please read the rest of Euro Gold, as the whole point of the post is to explain why the severed link is a good thing - which is in direct contrast to MA's argument in his 8/21 piece. Euro gold is "the best article that explains why FOFOA etc believe the Euro will not fail" in light of MA's arguments.

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

Here's another MA holler form page 32:

The Euro FAILED to create a Single Currency and now the Virtual Currency will tear the system apart. Those who have called for a consolidated EuroBond have been merely looking at the prospect of individual default. The failure to have CONSOLIDATED THE DEBT left the system vulnerable to attack. This stems from the misconception of what MONEY is as a core function – the Medium Of Exchange not a Store of Value.

Hmm, do you the Euro founder failed to grasp that the euro is a transactional currency and not a store of value? Do you think MA understands the Euro system?

Cheers, J.R.

Panelproli said...

Jojo, take a look at the following useful blog entry link

It describes some fundamental differences between the euro and dollar). I think you are looking for it (I found it last days while browsing FOFOA's Greece is the word post).

Edwardo said...

DP writes, AAMAID!

I'm afraid that the panel is stumped with that acronym.

Mike said...

looks like the puke indicator failed :(

i wonder if we will see a 2%+ drop in bullion holdings again today.

DP said...

Edu, About As Much As I Do. Apologies! %<]:o)8

JR said...

Indeed Mike,

Will there be a cluster? As excerpted from Who is Draining GLD?:

"Just in case anyone missed it in last night’s letter, our GLD puke indicator that has nearly a flawless record at marking lows in gold triggered a buy signal yesterday after the ETF spit up 31 tonnes (and some blood) to trigger a 2.48% decline in its bullion holdings.

As we’ve noted before, one-day declines in the holdings of this ETF of over 1% have tended to be capitulatory in nature and have typically occurred near important lows in the gold price during gold’s secular bull market.

Consider that since the GLD ETF’s creation back in 2004, it has seen 1%+ one-day declines in its bullion holdings only 41 other times. When one goes back and looks at where these declines in bullion holdings have occurred, virtually all of them occurred “at” or were “clustered at” important lows in the gold price.

When we update this familiar (see above) chart for today’s 1%+ decline in bullion holdings, we can once again see where I have labeled the past eleven 1%+ declines in the ETF’s bullion holdings (plus today’s decline) with red dots and then placed a corresponding white dot below the price of GLD in order to show where that decline (or clusters of declines, as was the case in 2008) occurred relative to the price of the GLD, which is obviously tied to spot gold.

You will recall that we most recently used this indicator back on July 28th, 2010 in order to identify what was then the summer low in the gold price, and we used it again on October 7th, 2010 to recognize that a sudden 1 percent slide in gold from an all-time high was actually a just a one-day setback that led to new all-time highs being hit once again just a few days later.

The pattern you see emerge after today’s 1%+ puke, just as on those prior occasions, is that these “pukes” of bullion by the GLD ETF have always tended to occur at or very close to important lows in the gold price, and declines of over 2% have only occurred at MAJOR lows, such as the two major lows that were hit in 2008.

Note that one of those lows on September 9, 2008, which is the closest in size to today’s puke, also occurred just one day before a 5-day short squeeze/meltup of 30 percent in the gold price that kicked off on September 12, 2008. Perhaps the remaining shorts in the gold market will now pay a similar price for betting against a bull market?

Perhaps history will repeat and perhaps it won’t with respect to such a short squeeze, but given this indicator’s near flawless record at marking lows in gold, it's not to be ignored.

Edwardo said...

FWIW, I have spot gold sitting right at Jim Sinclair's important technical level. We'll see if it acts as support, and, if so, for how long.

Indenture said...

How to get $12 billion of gold to Venezuela

Edwardo said...

JS technical level has already been breached. I didn't put much stock in it back when it was trotted out.

henq said...

@JoJo:
-----------------------------

===BREAKING
GERMAN MINISTER DEMANDS GOLD COLLETERAL
For Future Bailouts
Posted on August 24, 2011 by maxkeiser|

German Labor Minister and CDU deputy president Ursula von der Leyen said that future bailouts in eurozone countries should be covered by gold reserves or industry stakes, according to a Reuters report.

35 Responses ....

stacyherbert | August 24, 2011 at 4:08 pm |

So, they are effectively creating a gold-backed euro?
--------------------------

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

@ mike:

Patience. From 08/10 to 08/11, the tonnes in trust fell 1.8% which triggered the GPI buy signal. From 08/11 to 08/12, the price continued to fall. It was the second day after the indicator triggered that buying of size came in. Eric De Groot's analysis is always a breath of fresh air.

This week has a confluence of events that are likely seeing everything, including the kitchen sink, being thrown at gold. Media did an awfully quick about-face to saying that gold is due for a huge correction and absurd predictions for sub-$1500 levels are being thrown around as definitive. The price may well stay range-bound until Jackhole, but after that...

@ Edwardo:

Sinclair's technical levels are always scoffed at despite being highly accurate. It's astonishing that price points offered a decade ago and being even remotely close are vilified instead of praised. Isn't it better to have a hand-drawn map than no map?

I've found that the "angels" act almost like pivot points instead of support/resistance. It might be better to think of the nearest JS point offered as $1764 +/-2% instead of exactly $1764.

Edwardo said...

I know I have made some mistakes in this department, but it would help if some would scan other's posts before they put up links to stories that have already been posted.

Aquilus said...

Just a quick comment on today's over $100 drop: remember what FOFOA is trying to convey to you on this blog.

If you understand that, these volatile ripples mean nothing for physical gold owners that don't need to sell their gold to live on (I hope that's the case at least).

For paper traders, this should be Nirvana or Hades, depending on your position and/or time horizon and type of contract.

But in the end, if you are here, it's all about protecting EXCESS wealth through owning physical gold. Just my 2c...

Edwardo said...

Fair enough, Ramon, regarding treating JS's price levels as having a range of +/-2 percent.

S said...

Can anyone weigh in on thoughts regarding the Japan developments?

1. Japan replacement for PM is resurrected after a funding scandal 5 months ago. He is known as the Tony Blair of Japan. He is hawkish on China and in favor of "breaking the back of deflation with a much more active BOJ." Between the quake and the ushering in of Seiji, it will kill two birds with one stone: (1) solidify US basing re China; and (2) ensure the Yen is further impaired. Most critical he is Known to be Ozawa arch rival. Recall it ws Ozawa who was sidelined with a scandal and the one who advocated a more Indy foreign policy from US.

And,

2. Are the US and UK fueling the Euro crisis to impair the other leg of the USD currency system as pure defense? DSK was an obvious setup in the wake of the leaks out of Ireland he was in favor of haircuts. Even looking at Libya and the purported S/F employed in Tripoli (UK, French, Jordanian and Qatar) notably absents are Italy (who came out against force in country) and Germany who opted out from the getgo. Weber walked away from the ECB - obviously knowing that the US needs/demands the ECB monetize if there is any hope of keeping the dollar aloft.

So the question is - putting aside the banking issues - the US has muscled the ECB into a very binary decision: print or not? If the ECB policy is FG then will they print and buy gold vs. Italian bonds. Is that the message of the German commentary over the last few days?

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

"From this filthy sewer pure gold flows."

That was then. 'Now from pure gold this nasty sewer flows.' Gold has been corrupted with toilet paper.

S said...

No sooner ZH out with a related article/question?
http://www.zerohedge.com/news/project-armageddon-tullett-prebon-thinks-unthinkable

mortymer said...

"From Central Banking, Robert Mundell provides a fascinating overview of the euro and the dollar situation." ~from supply side

Link to:
http://www.centralbanking.com/central-banking-journal/interview/2102603/interview-robert-mundell

mortymer said...

Q: What should be the monetary policy objective?

A: The monetary policy target of the Atlantic Monetary Council would be to preserve the value of money.

Joel said...

@Indenture,

Dead on with the toilet paper corrupting the gold. Everyone has to realize that until the dollar or paper gold market breaks, the gold markets will continue to be beat down, over and over, in an attempt to continue their debt- based Ponzi scheme. TPTB (namely the Central bankers, and especially the Federal Reserve) cannot afford for gold to go ballistic, and they will unabashedly use vast portions of the trillions in profit that we have paid them to defend their version of "the precious,", i.e. their fiat system. Technical analysis and wild price swings are irrelevant, until such time as they are triggered by a physical short squeeze or a currency crisis, It doesn't mean the market won't continue to grind higher with the increased demand, but you will continue to see these fools expend vast quantities of their worthless toilet paper to "extend and pretend" everything is okay, pounding the gold market back down. Just grab a Fosters and chill, they will eventually be the instrument of their own demise. As Ayn Rand said, "You can ignore reality, but you cannot ignore the consequences of ignoring reality."

Mike said...

CME raises margins.....

mr pinnion said...

Never thought i de watch gold fall $150 in 3 days and not be the slightest bit phazed.
Don t worry about the swings, just enjoy thye ride.
Song for Forum 1900 revisited?

http://www.youtube.com/watch?v=XwKvwD97cf8&feature=related

Regards
Ozzy

Ramon said...

GLD puked even harder today, over 2.16% drop versus 1.93% yesterday. 1259.56 to 1232.31 tonnes.

The last time there were two consecutive pukes was September 2008.

GD said...

I think both FOFOA and Jeff, who posted in the comments to the "Who's draining GLD" post, may both be right in different instances about the nature of a GLD puke. It seems likely that the back to back pukes of today and yesterday were caused by downside selling pressure that caused the price of GLD to temporarily fall below where it should have been given the corresponding fall in the spot price of gold. If this happeneed, it allowed the ARBs to lock in profit by buying GLD shares while shorting physical gold. FOFOA previously objected to the ARB theory, noting that the ARBs could engage in a pure paper arb and suggesting that a physical ARB made no sense. The problem with a pure paper arb, however, is that the ARB has to wait for for both GLD and the spot price to fully adjust before the ARB unwinds both positions. Whereas, if the ARB simply tenders to GLD shares for gold, the ARB can unwind both positions immediately and lock in the profit on the hedge.

I think the theory of a GLD puke indicating a bottom is more relevant where the spot and GLD prices are relatively stable, such that any drop in bullion holdings at GLD is more likely caused by the tender of shares by a Giant than by ARBs. In the environment of the last two days, where the prices were adjusting rapidly, it seems more likely that ARBs caused the puke than Giants tendering. Thus, Jeff may be right in this instance - the pukes are not necessarily indicative of a bottom in the spot market.

-GD (long GLD calls)

Paul I said...

Wait for GLD to drop 211 tons, then buy like f**k!

Wendy said...

I bet "cash for gold" is doing a booming business this week. That must certainly help with the "venezuala project"

JR said...

Oh no, there's scousers amongst us :)

KD may be cooler than the Fonz, but the Uruguayan is the nuts. Enjoy the rising sun once again and good luck this year!

Paul I said...

Robert Mundell is an idiot

"It is a matter of the highest importance to both the eurozone and the dollar area to keep fluctuations of the dollar-euro exchange rates within narrow bounds."

"How?"

"There are many ways, but the easiest and best between two large countries of comparable size is for each country to support the foreign currency at its low point. For example, suppose the low point of the euro were set at $1.20 and the low point of the dollar at $1.40. Then the Fed/Treasury intervenes to buy euros at the former price and the European Central Bank (ECB) intervenes to buy dollars at the latter price. The advantage of choosing lower limits rather than upper limits is that the market has to believe that neither bank will run out of its own currency!"

Hey! I know! Let's keep the euro-dollar exchange rate stable by inflating BOTH currencies. Brilliant!
And the market will be happy because they know we can't run out of paper.

That is insane. That is the very definition of currency wars, a race to the bottom.

"What response have you had?"

"The US were very keen. The Europeans told me to stick it up my a*se."

Paul I said...

Correction - Robert Mundell is pretending to be an idiot.

"If anyone were today to fix the price of gold it would not be the US, it would have to be Europe."

"Can you conceive Europe taking such a step?"

"I doubt Europe would do it unilaterally. If the dollar-euro rate were fixed with coordinated monetary policy between the US and Europe, it might be conceivable to have a joint fixing with an agreement to sell gold at a high price and buy it back at a much lower price"

Dance around that elephant, Robert, dance!

Paul I said...

"A single currency, managed in such a way as to be reasonably stable, would contribute to making the world economy as stable and efficient as the US economy"

OK Robert. I give up. You win.

FOFOA said...

Puke Update #2 added to the bottom of the post. Thanks for the chart Lance!

8/24/11 - Another puke today. Two days in a row. First such cluster since the 2008 lows.

Oh, and thanks to GD (aka Jeff?) for reminding us of the great comments under Who is Draining GLD? Maybe Jeff Chmielewski will be right this time, as you say. But here are three times he was wrong in the past:

Dec. 10, 2010, when gold was at $1,375: "My theory is this - - there is a decent probability that the GLD trust could become a seller some time in the next twelve months. I don’t know what might cause it – it could be profit taking, it could be lowered inflation expectation, it could be an improving economy, it could be taxes, it could be anything. But it if it happens, and it is sustained, gold prices could move down significantly from these levels. And given that the implied vol is in the low 20s and the cost of puts is so low, you can buy Dec 130 puts for around $10 bucks – or a 7.5% premium. The breakeven even is around $1250 in Gold… If you think there is a chance that it drops below $1250 in the next 12 months, I think the trade is a no brainer."

Jan. 27, 2011, when gold was at $1,334: "Wow. Over 68 tons in outflows from GLD ($3bn) since Gold peaked in December and the Gold bugs still believe it is good for the price."

And lastly, on Jan. 30 in a comment under my post referring to me, when gold was $1,319: "The author of this article has no idea what he is talking about…

…it is not bullish at all. It is very, very bearish. It indicates that one of the largest sources of demand is now a source of supply.

The price WILL collapse."


When Jeff said that I had no idea what I was talking about (while I clearly understood his arguments as well as his misrepresentations of mine) it was a good indication to me that he did not understand my hypothesis in the post. But to be fair, my hypothesis about bullion banks juggling price exposure neutrality against a growing physical demand and shrinking physical reserves while being market makers in three very different gold markets (OTC, Comex and GLD) is a little more complex and harder to grasp than the basic arb mechanics of GLD.

In other words, every time someone new explains the arb mechanics to me, I just have to nod, sigh, and accept that they probably also don't get that there's more to poker than simply playing your cards. Only time will tell. Maybe Jeff will be right this time and "the price WILL collapse."

Sincerely,
FOFOA

Edwardo said...

Bob Hoye on gold.

http://www.321gold.com/editorials/hoye/hoye082511.html

JFrancis said...

Congratulations FOFOA on a blog that attempts to tackle concepts that few can formulate so deeply. I still remember staying up all night reading "Thoughts" archives some months ago and trying to grasp the significance of all of those discussions. It's great to have a contemporary and active source of commentary on these topics, especially one that deals with the issue at the level that you do. Bravo!

victorthecleaner said...

JR,

OK, now consider that FOFOA is presenting the opposite view - that the severing of the euro's link to a nation state *is* the a key design that will lead to the euro flourishing - from Euro Gold [...]

But this is precisely the aspect that has turned out not to work as intended. The euro has become a political currency in the same fashion as the French Franc or the Italian Lira used to be. The problem is that the ECB has accepted all government debt as repo collateral without any haircut for way too long. In fact, they still do. So a solvency problem of an arbitrary government automatically takes the ECB hostage because the commercial banks have posted the questionable debt as collateral with the ECB. As soon as the solvency of one of the governments is questioned, the standard blackmailing procedure is set in motion. Eventually it forces the ECB to monetize the bad debt just in order to prevent the commercial banking system from being destroyed in a chain reaction.

This makes the euro not as strong as its strongest component, but rather as weak as its weakest link.

The options are basically the same as the ones the US are facing these days: collapse of the debt and depression or purchasing the bad debt with cash and dump the cash on peoples' front lawn.

The main issue I have with the ECB is that they went into this trap entirely voluntarily. They were watching the credit volume in the debtor and deficit countries grow faster than GDP while the credit volume in the saver and surplus countries was restricted. They had all the tools to adjust this imbalance, for example, reserve requirements and conditions on the eligible repo collateral. But they did not act. I conclude that they either (1) did not understand what was going on or (2) were merely as corrupt as everyone else and wanted the cash dump on the front lawn - this is obviously a probable outcome as soon as the debtor countries reach a majority.

The euro area reaches a government debt of 90% GDP some time this year, with a budget deficit of roughly 6% GDP per year. Historically, this setup has (on average) led to either government default or to inflation rates above 20% per year, see the work by Carmen Reinhart and Kenneth Rogoff. Here it is again, the question of depression versus cash dump.

In fact, the debt load of the euro countries is indeed comparable to that of the US. The difference is merely quantitative, but not qualitative. Europe has a bit more gold than the US while the US have quite a bit more debt. Even if you add all foreign US$ reserves to the US problem, the US have perhaps twice as much debt as the euro area. This does not change the fact that both are nearing the end of their time line.

The only hope for the euro would be that the US$ goes out of service first, triggering a revaluation of gold so that the ECB can just go ahead and monetize the shaky debt and pay it off by selling their gold. In this situation, however, the US can try the same. It is just that their gold would last perhaps half as long as the European gold. This 'way out' for the euro looks rather high risk and prone to failure to me.

Victor

victorthecleaner said...

henq,

So, they are effectively creating a gold-backed euro?

and S,

Weber walked away from the ECB - obviously knowing that the US needs/demands the ECB monetize if there is any hope of keeping the dollar aloft. [...] Is that the message of the German commentary over the last few days?

and jojo,

Why is germany asking ofr gold colateral? isn't it already there in the system?

One of the saver and surplus countries (Germany) no longer wants to hold the debt of the debtor and deficit countries, but rather prefers gold as the store of value. This should not come as a surprise to anyone here. The fact that both Germany and Greece use the same fiat in day-to-day transactions is irrelevant to the fact that the savers start to prefer gold over debt. As long as products flow from Germany to southern Europe, gold ought to flow in the opposite direction. Same old story.

What puzzles me most is that it took the Germans over a year to even propose it. Well, if the voters really press for it, the ECB could at least no longer value the gold at 1250 euros/ounce with a straight face. Perhaps the German backbenchers are of some use after all.

Victor

mortymer said...

Heard already about the new Swiss franc gold web page? :o)

Paul said...

http://fofoa.blogspot.com/2009/05/martin-armstrong-makes-case-for.html

this one always bugged me, and after Martin's mindblowing latest about virtual currencies I know why.
He makes very strong points, euro is gonna fall without the eurobonds repairs the way Martin suggests. no doubts here. he even gives out the timeline.
grande cohones !

to suggest Armstrong doesn't get the euro gold MTM concept is laughable.
freegold will be there eventually, but is only possible with a one world reserve currency. we could all read about it in the archives over here. we just didn't get it.

international trade is about arbitage, competing currencies under freegold will make gold behave like the currency itself. exactly what you don't want.

but hey
what do i know ...

DP said...

Paul: He makes very strong points, euro is gonna fall without the eurobonds repairs the way Martin suggests. no doubts here.

No doubts with me either. Eurobonds are go, just a case of "when?" in my mind.

My issue is with his assertion the euro will fail, not that it would fall. Gold will catch the falling euro, while the [current] dollar lacks any real connection with gold and will be left to fall on through the floor towards oblivion — until a connection of some form or another with gold is reinstated.

But hey, what do I know either! :-)

Still, I don't suppose either of us is buying euro as our store of value play, so let's wait and watch this new gold market together to find out what happens...

DP said...

freegold will be there eventually, but is only possible with a one world reserve currency

I have some thoughts of my own on this, but out of interest, Paul, what do you expect to be that eventual one world reserve currency?

international trade is about arbitage, competing currencies under freegold will make gold behave like the currency itself

Or, perhaps, the currencies behave --->like gold<--- ?

mortymer said...

@DP, Paul: to add to discussion:

http://anotherfreegoldblog.blogspot.com/2011/06/neither-borrower-nor-lender-be-by.html

The Euro system has tremendous liquidity inside - its just bit addictive, see above link - or straight to the file:

http://www.ceps.eu/book/neither-borrower-nor-lender-behttp://www.ceps.eu/book/neither-borrower-nor-lender-be

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

I still don't think the eurobonds are go, not in a good way anyway, the politcians over here are just to stupid to understand.
The former kolonels and dictators in southern europe are knocking at the door. just a matter of time.

I (and Martin for sure)understand the concept of gold catching the currency, but as long as the single european states are allowed to write their own bonds, the intern mismatch will only get bigger.
to think this mismatch can catch the enormous dollarvalue in gold is not very realistic IMHO.

euro is done for
we will see the whole game change ...

Paul said...

@DP

the one world currency will be something like the former ecu.

it will price all commodities including gold. local currencies will be nominated and floating in the world currency. this will take out all the unwanted arbitrage.

we still have a long way to go before we reach final destination ...

DP said...

Mrt, the world has a recurring problem of insufficient liquidity for international reserves, but at the same time desires stable value of currencies.

So, on the one hand everybody wants plenty of currency to go around to prevent stifling of global economic potential, but on the other hand everybody wants restraint in issuance of the reserve currencies.

We can stop using the currencies for reserves, avoiding the concerns over dilution - switch to gold as the reserve currency. However, this will create a liquidity problem since the available gold volume doesn't and can't expand to keep up with the economic potential of the world.

So the only realistic and viable option left that the whole world could agree upon, is to expand the value of gold. To raise its purchasing power in terms of all other goods and services [and currencies! :-) ].

If the managers of all the world's curencies wish to retain a currency of any value in such a gold-centric environment, they had better provide a credible link of some form or another, between their currency and gold.

But this is nothing new to students of FO/FO/A, certainly not yourself. :o)

DP said...

Paul: the one world currency will be something like the former ecu.

it will price all commodities including gold. local currencies will be nominated and floating in the world currency. this will take out all the unwanted arbitrage.

we still have a long way to go before we reach final destination ...


Sounds like a fun little global dictatorshiup you've got planned there buddy! Perhaps I should invest in some Jackboot manufacturers after all... ;-)

I am enjoying some aspects of your plan so far, although clearly it needs more detail and some tweaking here and there. But I do have a question already though: if the currencies will float in the world currency, presumably be tradeable, what mechanism will take out all the unwanted arbitrage? A law made by the world government and enforced by the global police force, perhaps?

Methinks market arbitrage will not be take-out-able if anything floats, and also that it should not be unwanted if we are to stay out from under the heel.

DP said...

the politcians over here are just to stupid to understand.

Perhaps the stupid pols of this world are right now getting a good, hard lesson in basic economics from all the right people. Maybe they don't need to be so smart to conceptualise what they can see now in front of their noses.

Paul said...

Not my idea, but Martins,
FOFOA posted it in 2009 over here, and it has been bugging me ever since I read it.

why a dictatorship ??
take of the illuminati hat. it is just another currency severed from gold and the nation state(smile).

trade IS about arbitrage, we just don't need UNWANTED arbitrage.
you need one global currency to price all commodities. no arbitrage ! and local currencies can float against the global currency and deal with lots of arbitrage.

Martin is much better in explaining ...

mortymer said...

"We can stop using the currencies for reserves, avoiding the concerns over dilution - switch to gold as the reserve currency. However, this will create a liquidity problem since the available gold volume doesn't and can't expand to keep up with the economic potential of the world."

Very true, I had the same thoughts and here is what I think about it:

There will/(already have)/be 2 gold reserves: One for all, other which can fluctuate in volume (SDRs) and is important for CBs.

http://tinyurl.com/3c3r93a

More here:
http://anotherfreegoldblog.blogspot.com/2011/07/system-of-national-accounts-2008.html
&
http://anotherfreegoldblog.blogspot.com/2011/07/oecd-accounting-again.html

DP said...

In theory, I can agree it should be possible to create a truly stable unbacked currency. In practise, I personally doubt it could stay above corruption since it is ultimately controlled only by [some] men.

What I think doesn't really matter of course. But more important is that I don't think everybody in a position of power around the world will believe it is beyond corruption, that the men who control this synthetic currency will not be a form of global dictatorship, looking out for their own self-interests and available to buy at some price. So I feel these cynics are more likely — at least for now — to go for gold instead. To trust the incorruptible hand of mother nature.

mortymer said...

@Poul I
"“The main thing we miss today is universal money. Gold fulfilled this role from the time of Augustus to 1914. The absence of gold as an intrinsic part of our monetary system makes our century, the one that has just past, unique in several thousand years… I firmly believe gold will be a part of the international monetary system sometime in the twenty first century.”
Robert Mundell, Nobel Laureate in Economics, Acceptance Speech—December 1999"

http://anotherfreegoldblog.blogspot.com/2011/08/case-for-gold-as-reserve-asset-in-gcc.html

mortymer said...

Poul -> Paul I (sorry):
Here is anyway his personal web page with a lot of public files worth of reading:

http://robertmundell.net/

DP said...

Since we're talking Armstrong at the moment, let's step back in time to November 2009 and remind ourselves what his gold projections graph on the last page of this report (PDF) looked like.

You might notice that his "primary channel" was broken upside recently, and that there's a very strong possibility it is just being retested to confirm today.

In other news, today is COMEX gold last trading day for this month. Roll up! Roll up! Getyer cheap gold 'ere...

Paul said...

@DP

why take a piece from 2009 when he posted a new one today ;-)

http://www.10sigma.com/files/Gold%2008-24-2011.pdf

DP said...

@Paul, sure did. I see we didn't (yet?? :) ) have a close below $1730, so let's see what gives at the end of today I guess...

Paul said...

thank you mortymer !

nice read

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

Paul: Its my pleasure :o)

For the Freegold phenomena MUST work both ways. From bottom up and the top to down. I try to concentrate a little bit on the first one now after grasping the further. Those views are converging IMO.

Paul said...

@DP

yes will be interesting to see where this is going, luckily we didn't have the break out yet ...

I am also watching his DJ-forecast for this week. He suggested we would see a sharp decline, since we closed below "a line in the sand"
well, we didn't have decline for the week yet, but curiously steve jobs suddenly retires.

let's watch this ! could be interesting :-)

Paul said...

also

you have to ask yourself, when ECB writes eurobonds, is EUR still severed from nationstate ?

I think not

JR said...

Paul,

FOFOA wrote in Martin Armstrong Makes The Case for FreeGold Or something pretty close to it.

In his latest article, Martin argues for a One World Currency. He shows how gold has for centuries been the de facto one world currency. And he points out the problems of a fixed gold price in a gold standard, as well as the benefits of a floating gold price. Everything he describes seems to dance nicely around the Freegold concept.

And further explained in the comments

What is valuable here are some of the thoughts he articulates in the first part. This is why we will have Freegold. Whether it is brought to us by man, or whether man fails at what he tries. It makes no difference. A global currency... no... a global STANDARD is what is needed. And it already exists. No group of politicians can overpower this. It is too big. Like the tide.

MA is nuts and we are not gonna have a one world currency, but MA does "dance" around freegold in getting a gold standard won't work, observing gold's historical role, and getting the importance of a floating gold price. But no world currency...a global STANDARD.

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

He also observed :)

Regarding Armstrong, I would say that cycles are very powerful things. Like the tide.

But technical analysis means absolutely nothing right now. You can all safely skip the last 9 pages of the PDF. It deals with manipulated fiat currencies measured against other manipulated fiat currencies. Look at the Y-axis of the charts. It is other paper currencies. How can you measure something against a changing standard? Martin's technical analysis means nothing. So what if the dollar hits even 250? 250 what? 250 pieces of shit? It means nothing.


Cheers, J.R.

Paul said...

so if you people don't mind

I am packing my bag, EUR will be one of the local currencies at best, with freegold, no doubts there !

I did learn a lot from this height, very nice view, but I think I will climb a little bit further now.

this trail is not finished ...

;-)

DP said...

you have to ask yourself, when ECB writes eurobonds, is EUR still severed from nationstate ?

I am sorry, you appear to have reached the wrong branch of the executive, please try dialing 1-800-EFSF

I am packing my bag, EUR will be one of the local currencies at best, with freegold, no doubts there !

Happy Hiking! See you again on the trail...

Paul said...

JR

who pays a nutcase 2000$ p/h ?
only giants do !

me thinks you do not know what you are talking about here ...

Paul said...

DP

frau Merkel mentioned something like that yes.
Eurobonds will have to be there, one way or the other. markets will tear this apart.

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

JR said...

Hi Victor,

Thanks for the measured and thoughtful commentary as usual. I have a question for you, did you see what RLP posted above? I suspect maybe not, but its GREEEEEAAAAATTTTTTTTT!!!! Here's some context too from Deflation or Hyperinflation?:

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

"Q: **Who does BIS really represent?

A: "old world, gold economy, as viewed thru modern eyes" or "way to move from US$ without war".


Those are the words of ANOTHER from my post "The Gold Man" (not Goldman) at the BIS. The BIS truly represents "the rest of the world" from a monetary perspective. It is the "trade union" of their Central Banks. All is not as it seems on the surface.


So how do you view an "old world gold economy" through modern eyes? And how do you move there peacefully with the easy money camp? It's quite simple actually. You let nature take its course, you support that natural course however long it takes (rather than pathologically fighting nature like the dollar system does with its obsessive-compulsive drive to control), and you don't deprive the easy money camp of their precious fiat. It's Freegold. It is about allowing meritocracy to rise like a Phoenix from the ashes of the dollar's inevitable collapse."

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

As we are still operating under the $IMFS, FOFOA's dilemma is in effect - "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." So the Euro states have to play the political game appear to/try to ease the inherent tension and appease the the two camps while we are still under the $IMFS. What you see as a EURO crisis is really the crisis of the $IMFS.

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

"This Global Financial Crisis is not so much about the dollar as it is about the dollar system, the $IMFS. The dollar system is a system of selling debt as a wealth reserve..." "The Gold Man" (not Goldman) at the BIS

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

So how do you view an "old world gold economy" through modern eyes? And how do you move there (FREEGOLD) peacefully with the easy money camp (from the current $IMFS)? It's quite simple actually. You let nature take its course, you support that natural course however long it takes (rather than pathologically fighting nature like the dollar system does with its obsessive-compulsive drive to control), and you don't deprive the easy money camp of their precious fiat.

You certainly don't deprive the easy money camp of their precious fiat! So of course the Euro politicians play the political game with two camps. The Euro stuff is a sideshow, the real story is the failure of the $IMFS.

cont.

JR said...

cont.

Greece is the Word

"In order to understand the greater systemic problem that is presenting today as a boiling pustule in Greece, we must first understand the flow of capital and the growth of debt. With debt growth as the deadly tumor in the cycle, it is easiest to visualize the flow of money as a circular feedback loop, where the debt cycle feeds back on itself in a sustained growth pattern.

Image: circular feedback loop of debt feeding on itself

The denouement or final shakeout of this systemic crisis will include two separate events, no matter what decisions are made along the way. In this statement I have full confidence. For semantic simplicity I call these two events freegold and hyperinflation. But these terms seem to cause consternation and confusion in many readers, so you can think of them simply as the dramatic devaluation of paper gold and the catastrophic devaluation of the dollar. Two inevitable devaluations. Two unavoidable outcomes."


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

If Freegold is inevitable, its all about being positioned for it when it occurs, no?

"I read where some of you say I am wrong about Freegold. That it won't or can't happen because country A isn't ready for it, or country B doesn't want it. Or that "the elite" will never allow it. Etc... etc... Blah blah blah...

Well, Freegold, or whatever you want to call it, is kind of like a runaway freight train coming right at us. It is not stoppable and it is not controllable. It has a mind of its own and too much momentum to do anything but prepare for its arrival. It is not for any elite or any country to decide when and if it happens. It is only for them and us to be as prepared as possible when it does."


From Freegold .

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

FOFOA in comments to Greece is the Word

"Believe it or not I view the PIIGS' debt crisis as more of a problem for the dollar than for the euro. And because of this, my gut tells me it is likely that the Fed is supplying liquidity (dollars) in some way behind the scenes to ease the situation. How the ECB will respond to this "foreign bailout" is a question, but not a vital one from my perspective.

Of course the European socialists have huge problems, but you must understand that the entire global financial system is built upon the dollar. Even if Greece's debt is denominated in euros and held by another Eurozone country (France or Germany), the failure of said debt and its complex support structure is a failure of the $IMFS, not of the euro. See: Goldman Sachs"


cont.

JR said...

cont.

one more FOFOA comment from Greece is the Word

"The end of the dollar's timeline has always been a collapse of the currency. A collapse in the value of an individual dollar unit because the Fed must print to infinity to support the inevitably failing debt that structurally defines the entire $IMFS and therefore the dollar.

So playing the game as you say is just continuing its long term strategy for the euro. It never wanted to destroy the dollar. It always knew this would end but it didn't want to ever be seen as the culprit. And as I say, each effort to prolong the system kneecaps the supports holding it up on the other side. The ECB probably understands this better than anyone else in the world.

This is why I said that the ECB's response is not a big deal either way. They probably see better than anyone else that the system is near its natural end. And they must be weighing the cost/benefit of each choice they face. For them it comes down to politics and appearances at this point. A cosmetic decision to either support a suicidal activity or to proactively and publicly administer euthanasia.

Just a random snippet from FOA about the thoughts behind the creation of the euro..."


"Many political problems confronted any drive towards an EMU. In order to build a consensus for a Pan European currency, the architects had to have time, years of it. The last thing they needed was a world-wide economic downturn brought on by a failing dollar system. Working between 1976 and 1982, the software for such a system was only just beginning to really take shape. It was a slow, hard process because during this period and many years prior, the dollar was already experiencing convulsions. They needed at least another ten years, but without something to make the dollar more acceptable even five years was too long.

Working within a large group of nations required painstaking discussion of all ideas out in the open, so their agenda had to offer something for everyone. In addition, this new currency could not be seen as a competition for dollar use, otherwise the US would most certainly try to split the group.

It's important to understand that most of the world wanted to at least see another currency that could share some of the dollar's function. It didn't have to replace it. To this end, most every country gave some philosophical and political support in its creation."


Cheers, J.R.

Edwardo said...

Stocks are going to get clobbered. This rally is rubbish and it won't survive much into September if that.

JR said...

mortymer,

I love you but ???:

"We can stop using the currencies for reserves, avoiding the concerns over dilution - switch to gold as the reserve currency. However, this will create a liquidity problem since the available gold volume doesn't and can't expand to keep up with the economic potential of the world."

Very true, I had the same thoughts and here is what I think about it:

There will/(already have)/be 2 gold reserves: One for all, other which can fluctuate in volume (SDRs) and is important for CBs.


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

No silly :), DP was right with the much more elegant and simple solution of *Freegold*, aka:

So the only realistic and viable option left that the whole world could agree upon, is to expand the value of gold. To raise its purchasing power in terms of all other goods and services [and currencies! :-) ].

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

Remember Value and Volume from Euro gold

"Now, the ECB puts out a ConFinStat every single week, 52 weeks out of the year. And every week it makes quantitative volume adjustments, like net increases or decreases in both gold and foreign currency reserves. But it only makes qualitative or value adjustments on four of those 52 statements. This is when the ECB marks its reserves to what the market says they're worth. The MTM party! And for the last 12 ½ years the trend has been that, proportionally, the Eurosystem's gold reserves have been rising while their foreign currency reserves (mostly dollars) have been falling. ...

Yet if we look at those reserves only quantitatively by volume, the opposite is true. Foreign currency reserves (again, mostly dollars) have grown over 12 ½ years in volume, from roughly $260 billion to $310 billion from a dollar-denominated perspective. Meanwhile the Eurosystem's gold reserves have fallen, again, only quantitatively, from 402 million ounces to 347 million ounces in volume.

This view, the volume-only view, is the fundamental modus operandi of the $IMFS that praises quantitative (voluminous) expansion and "growth" while ignoring qualitative (value) degradation. The reason is that governments and central banks can only print volume, not value. Think about this for a moment...

So, from this volume-only view loved by the $IMFS, here's what a chart of the Eurosystem's gold would look like:

image down

But from the volume times value view (which ldo makes tonnes more sense and also assists the little guy deciphering the monetary mess), here's the true picture:

image up

A different view, wouldn't you say? Do you remember this quote from ANOTHER?

"Know this, "the printers of paper do never tell the owner that the money has less value…"

The funny thing is that writing this post made me want to go look up that quote. It was written on 5/26/98, six months before the euro launched as a unit of account and 42 months before the ECB launched its euro medium of exchange. Now yes, of course, at that time (1998) no printers of paper currency told you their product was losing value. The dollar was still showing gold on its books at $42.22. But here's what I started to think about: Today, the printer of the euro, the ECB, tells all the owners that the money it prints has less value in gold… once every quarter! And not only that, but it encourages people to save in gold through system-wide mandates. Dang, now that's quite a 'something different' when you really stop to think about it!


Cheers, J.R.

DP said...

Gotta love these paper games of today. :-\

mortymer said...

JR, lets put our views for a moment aside and look at Your view of the purpose of SDR now and then.
Please keep in mind that at the moment both are F1s. The reserve asset is in accounting under code F1.1 and the "complementary" coded as F1.2. both are IMO important.

I could be wrong of course ...what I tried to say is that world economy GDP can fluctuate but that is not the case of gold production, once its mined its mined, they are not synchro. Yes volume does not need to increase anymore but violent short term fluctuations on local-global level could bring dislocations. Sorry hard to put this into words.

I would be very interested into how You see it. Lets be please factual as each time you are :o)

Indenture said...

The 'Markets' are fun to watch. It's like a "nice boat ride."
Glad I'm standing on the dock. (I'll leave the analogy of 'deep water' for someone else:)

JR said...

Yes volume does not need to increase anymore but violent short term fluctuations on local-global level could bring dislocations.

Especially in a world of Soft Supply, Hard Demand

"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."

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

Reference Point: Gold - Update #1

"In order for the limited and stable quantity of above-ground physical gold to perform this important international function effectively, it will ultimately trade independent from the current network of bookkeeping derivatives that assume gold ownership through a counterparty's gold liability (receivables, futures, options, forwards, ETF shares, etc.). Such contractual obligations do not represent a stable and credible quantity like the physical gold itself does, and therefore they make a poor and distorted pricing benchmark."

cont.

JR said...

cont.

Gold is the reserve, and there will be national fiats too. Maybe even a sdr. But the "sdr/one world" *reserve currency* is what we have now, its called the dollar system, and its ending.

From Of Currency Wars

ANOTHER: Today every digital money is a product of the US DOLLAR by nature of "it being the book keeping reserve". To this extent, the US DOLLAR is the only world currency!

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

FOFOA comment

BTW, the bancor or even a new SDR "basket" would not be antithetical to Freegold, but perhaps a little superfluous. It would be primarily an international unit of account and national fiats would be transactional. Gold would still be the monetary reserve asset.

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

From Freegold Foundations


"So, the point about currency is, and mainly for those of you that fret over a NWO currency, or "whatever currency," an Amero or SDR or euro-whatzit... chill TF out! Currency is no big deal. Currency is not the issue that matters here. What matters is what we, as a planet, choose to save."

RS Comment: So often in commentaries of this sort that propose a “solution”, the author is strangely obsessed with the notion of replacing the dollar (as a reserve currency unit) with simply another institutional emission of similar ilk (such as currencies of other nations, SDRs, bancors and whatnot). Their avoidance of any meaningful discussion of the most obvious remedy is almost pathological in the extreme. To be sure, we don’t need to invent any manner of universal reserve currency to fill the role of a unit of account because that role is already served in a fully functional capacity for any given country by its own monetary unit.

What IS desperately needed, however, is a universally respected reserve asset capable of filling our current void with a reliable presence that serves as a store of value. And far from needing to be conjured or created by complex international committees, that asset is already in existence and held in goodly store by central bankers and prudent individuals around the world — it’s known as gold.
From amid the ruins of a chaotic financial crisis that was brought about by its own complexity, a degree of sanity will prevail, and gold as a freely floating asset will arise in stature as THE important element of global monetary reserves. The floating aspect is the vital evolutionary improvement over all previous structural monetary failures which tried to use a gold standard at a fixed price (i.e., unit of account) perversely joined to the very elastic money supply of any given country’s banking system.

R.


Cheers, J.R.

JR said...

Victor,

Regarding severing the Euro's link to the nation-state, consider a distinction between the past and the present.

Past debt is a problem - in the $IMFS its what the savers hold as a store of wealth, and its what the banking system holds as reserves/assets against deposits/liabilities.

As I like to think, the euro was in a sense built to print. Past euro debt will be dealt with with an eye to protecting the banking system (writedowns, ZIRP, swaps, repos, emergency lending, assets purchases, restructuring). The euro might quickly devalue against the physical plane during the transition when the $IMFS goes to releive some of the past debt burden, with gold going up as an asset on the balance sheet to provide an offset for the saver class. not a running hyperinflation, but a devaluation.

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

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.

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

Suffer less, but still suffer.

But future obligations are different than past obligations. The euro members cannot force the printing of their future obligations the way the US Congress can. HUGE DIFFERENCE!

The euro area can devalue national debts in escaping the $IMFS collapse (they have monetizing debt with no sterilization).

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

Euro and US devalue, but Euro can't keep printing to fund liabilities, but the dollar can. See?

Cheers, J.R.

Paul said...

JR

instead of searching for confirming quotes in the trail, you might find something new if you took of your anti-$ glasses and started looking outside for a little while.

we certainly don't have a one world reserve currency now. to claim such is ridiculous.

there is a lot more hiking to do.

this SDR thing is funny no ?
I always considered it good fuel for campfires, when it is cold outside on the trail, but from up here, there shines a whole different light upon it. really worth looking at you know ...

Motley Fool said...

I would back that ridiculous claim in broad terms. :)

Edwardo said...

Rumors of another gold margin hike are making the rounds.

DP said...

@Edwardo: Good! Fewer tyre-kicking weak-handed specs. Good riddence!

JR said...

Paul says:

instead of searching for confirming quotes in the trail, you might find something new if you took of your anti-$ glasses and started looking outside for a little while.

we certainly don't have a one world reserve currency now. to claim such is ridiculous.


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

Another says

Today every digital money is a product of the US DOLLAR by nature of "it being the book keeping reserve". To this extent, the US DOLLAR is the only world currency!

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

RS says,

So often in commentaries of this sort that propose a “solution”, the author is strangely obsessed with the notion of replacing the dollar (as a reserve currency unit) with simply another institutional emission of similar ilk (such as currencies of other nations, SDRs, bancors and whatnot).

JR said...

FOFOA says, from Dilemma :

"As the global reserve currency, the dollar finds itself in the position of being a global "network good."

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

Lots of people think the dollar is the world's reserve currency, ever hear of the Triffen dilema?

Anyway, "Everyone knows where we have been. Let's see where we are going!" FOFOA in comments to Synthesis:

"...I am with you loathing the idea of super-sovereign currencies. They are quite creepy to consider, like an Amero or a NWO One World Currency. But they are much less creepy once they sever the link to gold and the state like the euro did. And the euro is here now. I certainly don't support any One World Currency or Amero. But I don't think that is even an issue. International trust and confidence is too damaged at this point to ever make it work even if it is tried. You can force a currency on a nation through legal tender laws, but a super-sovereign currency must be joined voluntarily. I have said many times on this blog that I believe we will evolve into many national and a few regional currencies all competing for strength, not weakness.

Cheers, J.R.

mortymer said...

JR, nice, look I know the drill, I remember tose sentences as well as you do, but let me ask you once again, what is SDR now and what role it will play in future?
Discl: I am not actively supporting it, by no means.
So the issue is I suppose how do we get "there"...
I do not think it is possible to have a violent 1/2 transition and suddenly freegold somehow...

So do you think that with the IMF the SDR go to history books?

Michael said...

Speaking of Giants and foot steps:
http://www.kdvr.com/news/kdvr-real-photos-2-pg,0,5324381.photogallery

JR said...

Mortymer,

Go play your silly goal post shifting games elsewhere, I'm not game to play your rube mark. You keep pretending to claim to understand freegold and dismiss others because you have been posting here so long (just like lots of other folks who don't know what they are talking about) but you keep saying lots of stuff that undermines your credibility.

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

You posited this crap:

There will/(already have)/be 2 gold reserves: One for all, other which can fluctuate in volume (SDRs) and is important for CBs.

as an "realistic alternative" to this:

So the only realistic and viable option left that the whole world could agree upon, is to expand the value of gold. To raise its purchasing power in terms of all other goods and services [and currencies! :-) ].

Maybe next you can defend Eastern European Communism and wanker on about the wonders of the September Group's analytical marxism ;). Gag me - DP was spot on:

But this is nothing new to students of FO/FO/A, certainly not yourself. :o)

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

"Fare thee well now. Let your life proceed by its own design. Nothing to tell now. Let the words be yours, I'm done with mine."

Cheers, J.R.

Paul said...

another another quote which only proves you aren't even trying to grasp a new perspective JR.

is the $ severed from nation state ?
i'll help you, no it isn't !

and you know what, that makes all the difference ...

mortymer said...

JR: I asked you politely to explain Your view on something and instead I got a flame and attack, and undermining someones credibility, & if I bring some topic to the table? Where is the "to exercise a thought without accepting it" I ask?

I beg you a pardon? From one sentence you derived that next time I will: "Maybe next you can defend Eastern European Communism and wanker on about the wonders of the September Group's analytical marxism". What is Your problem?
[Btw: "Great deduction! That was from your head, finally not a re-post!" ...would I answer if I would play your game.]

And I asked you just for a factual open discussion... :o)

Sorry to tell you but you did not added much value here.
Thank you no thank you

Biju said...

Everyone expecting a a Gold crash like Silver in June 2011, but I am leaning towards - not yet.

holdinmyown said...

@Paul, Mortymer

I don't like JR's tone and defensiveness any more that the 2 of you but let me come to his defense a bit. Paul, you state that the US$ is not severed from the nation state which is certainly true. But why do you think that the SDR is/will be? Is the US not the control behind the IMF? And if the US loses this control then who will take up the baton? Even if it is not a nation state it will most certainly be a cabal of individuals who will try to control the currency for their own purposes. As DP alluded to above, (elemental) gold is controlled by nature not man. Under FG/RPG CBs will be able to manipulate the POG for short periods by expanding/contracting their gold stores but ultimately the market will decide the true "value" of gold.

mortymer said...

For your information I posted the link to "September Group" for Ash as he was so interested in this subject and I wanted to hear his opinion about it andf explain to US. That day I read about that for a first time and it sounded interesting so I wanted to hear more from somebody who knew perhaps (?) more... Does THAT make You think that I am signed to that group?
Does That in Your view undermine my credibility? Do I have to post 100% freegold proof links all the time?
Next time please if you do not understand someones view or if you disagree post it politely, I may be wrong, I do not claim to be right all the time, I never did.

"...play your silly goal post shifting games elsewhere..."
I thought this is a open forum, only FOFOA can ask me to leave, not you, if he does, I will.

It will be great if we could return to normal appropriate style now and not bother others with this nonsense.

Thank you

Paul said...

holdinmyown

It is a nice summer evening, let us entertain this thought for a little, while we walk a bit further. it is not that far to the first stop, you will enjoy the view over there. I know I do.

When we arrive on the spot, we will agree on more climbing to do from there, we can see even where we want to go, but we have to find a way to get there.
we maybe even have to help eachother climb from there, it looks like it is a very dangerous route this time of the year, maybe some will fall and the canyon is deep; we will have to trust eachother or we won't stand a chance.

things will change, they have to,
evolution works this way, IMF structure could be different, SDR will not be the same, but it is something there to start with and it could price commodities very well where currencies could float against it. currencies would work with gold MTM the way we have learned earlier on this trail.

A/FOA "But more importantly, the whole international house of trade would have slowed tremendously without some form of world currency reserve. It's possible, that once we left the reserve system, the return to an increasing momentum of world trade flows would not have been seen again for several generations."

trade needs a world currency !

you like what you see ?

holdinmyown said...

@Paul
Trade may need a world reserve currency but store of value needs gold.

Paul said...

holdinmyown

gold will be store of value, as local currencies will keep using the gold MTM to price itself in the market.

you just don't want local currencies competing to be priced best in gold.
trade needs a nationfreeworlcurrency for that.

mortymer said...

@JR: rereading what you wrote, I admire how you connected "East European Communism" + "rube" and the "September Group" from bellow... I would say that there is a little bit of prejudice about East Europe here perhaps? Why not a Chinese or whichever one?

When you are reposting other´s stuff it is better, please spare me of your conclusions about my person. I asked you specifically to be factual. I come here to learn and discuss not to listen some personal issues you may have.

***

Here you have how it went back then to remind you:

mortymer said...
"@Ash: interesting...
http://en.wikipedia.org/wiki/September_Group"

(at: http://tinyurl.com/3u8opkl)
***
Edwardo said...

Mortymer,

Calling oneself a proponent of "non bullshit Marxism" may be the biggest steaming pile of arrogant, self promoting, bullshit of all.

So, yes, from that standpoint, and perhaps several others, I think a certain resident troll sounds like a perfect fit.

***
mortymer said...

Edwardo: I found some parts interesting, e.g.:

"...Roemer was led to the conclusion that exploitation and class were thus generated not in the sphere of production but of market exchange..."

***

Edwardo said...

Hi Mortymer,

"...Roemer was led to the conclusion that exploitation and class were thus generated not in the sphere of production but of market exchange..."

Perhaps I misconstrue what is meant by "market exchange" but I think "exploitation" has likely occurred in both the production and market exchange spheres. However, as western economies evolved, - and I use the term evolved advisedly - of late into primarily financial service operations, plundering hoi polloi was best done via market exchange.

One has to fit the crime to the time don't you know.

***
And that was all from my side in that topic :o)

mortymer said...

Returning to the subject of SDRs:

SDR to replace gold franc at the BIS
10 March 2003

http://www.bis.org/press/p030311d.htm

"The Bank for International Settlements (BIS) today announced that the Special Drawing Right (SDR) would replace the gold franc as the Bank's unit of account as from 1 April 2003. This decision was made today at an Extraordinary General Meeting of member central banks of the BIS. The Bank also decided to take steps towards modernising its financial accounting and reporting practices.

Used by a number of international organisations, the SDR is an international unit of account defined by the IMF and based on a basket of major currencies. The gold franc has served as the unit of account for the BIS since its establishment in 1930.

Commenting on the change, Andrew Crockett, General Manager of the BIS, said: "I welcome the introduction of the SDR. Along with a strengthened accounting framework, it will assist in managing the Bank's operations and economic capital more efficiently and enhance the transparency of its accounts."

Mr Crockett added that the changes would not affect the fundamental nature of the BIS's banking activities and would not have any implication for its policy towards its holdings of gold."

holdinmyown said...

@Paul
OK I think that I may be seeing your point and I will have to think on it some more. Essentially you are saying that nations will continue to use their own as well as other nations debt for reserve purposes in addition to gold. Fiat currencies will be used for trade purposes. Individuals will also seek to store their wealth in both gold and fiat currencies. But if too much debt is created then gold becomes the ultimate fallback as real returns fall. Is this where you are going or am I reading too much into your comments?

Paul said...

holinmyown

something like that yes,
although I am not sure about the debt. this debt crisis will leave it's marks. debt may be something people will try to avoid like the plague.

I know I am not at the top of the mountain yet, but am sure Armstrong is.

way way way ahead of us.

(who was first on the moon ?, who won the tour de france 7 times ? who was the best jazzsinger ? ) :-)

http://www.youtube.com/watch?v=SzJY96m3lkg

holdinmyown said...

@Paul
Debt will be hated ... possibly for decades but eventually that too will pass. Interest rates will have to rise (prices of bonds fall) to high levels in order to intice people back into the pool. However, as my previous exchanges with M will attest, I believe that bond prices still have to climb before they start their massive fall. I don't believe that TPTB are finished with their prestidigitation.

Edwardo said...

Paul writes,

"Trade needs a nationfreeworlcurrency for that."

Says who, besides you? The problems we are suffering from at present aren't the result of the absence of a nation free world currency.

We don't NEED a Bancor an SDR or any of these other as yet to be realized one world currency instruments, what we require is that the co-mingling of the medium of exchange and store of value function be terminated.

Paul said...

Edwardo

you did catch that quote from Another(or FOA, i am not sure) I put up there yes ?

Aaron said...

Hopefully Bron won't mind a repost from his blog which he published on August 9, 2011. Consider it a non-sequitur.

Nigel Moffatt, Treasurer of the Perth Mint, "If you're in the US or Europe, what on earth are you going to put your money into?" he said. "You wouldn't touch the equity market at this stage. Interest rates are low, and frankly precious metals are a hell of a good way to go. I can't see anything around to stop it. Bit [But] it won't go northwards in a straight line because people will always be taking profits."

Thank You Bron.

--Aaron

Edwardo said...

I did, and allow me to commit heresy by suggesting again that the word NEED needs to be removed from that sentence. That world trade would operate more smoothly with a one wiorld currency is a matter of theoretical conjecture, but it is not necessary, and that is not a matter of speculation. World trade has functioned, can function, and does function without a single world currency.

Now, as to Jazz singers and who is the best, here are a few thoughts A) there is no "best" and, B) in any case
I believe the Armstrong you have in mind is the late trumpeter named Louis Arnstrong who was, undoubtedly,magnificent and one of the greatest the world of Jazz has ever known. They say his contemporary Bix Beiderbeck sp? was fantastic, but he died very young.

Indenture said...

Paul: You said, "you just don't want local currencies competing to be priced best in gold."
I don't understand.

Ryan said...

Paul -

I think you are focusing on the wrong word in:

"world currency [b]reserve[/b]"

Its not the currency that acts as final settlement, but the reserve. Think in terms of FOFOA's multiple uses of the fair analogy. Everyone is bringing a different currency (chickens, blankets, etc.), and final settlement happens with the reserve, not currency.

costata said...

Martin Armstrong And The Euro Doomers

Part 1/4

Introduction

I have been reading Martin Armstrong’s work for a few years now. FWIW I am deeply impressed with his work on cycle theory and his track record in predicting economic turning points. However some of his writing about the Euro, gold and related topics have not been as clear headed and insightful as I hoped they would be. His essay “The Rise And Fall Of The Euro” (21st August, 2011) is a prime example.

Many people find Armstrong’s essays somewhat complex and confusing. I suspect that one of the reasons for this is that he melds into his essays some very big themes (each of which would merit an essay of their own). This recent essay is no exception. It could easily have been three separate essays (and in some ways it is precisely that). I look forward to the publication of his book for a more comprehensive, orderly presentation of his ideas and theories.

I’m going to try to clear up some of the confusion Martin has fed with this essay about the role of the Euro, the EMU, ECB Eurosystem Central Banks and so forth. It provides fodder for our sometime trolls to sow their disinformation and air their personal animosity to the currency union. I think some of these folks are both mischievous and malicious in confusing people who are trying to understand the perspectives presented at this blog by FOFOA and others based on the legacy of A/FOA.

In order to simplify this presentation I’m going to address some of the key points Martin presents individually. Hopefully this will clear up some of the confusion. In parallel I’m going to address the tired arguments and disinformation that I see being paraded time and again by the trolls about the Euro, the EMU, the EU and the ECB because they touch on Armstrong’s writings on these topics.

Continued/

costata said...

/Continued

Part 2/4

1. “Virtual Currency”

In my opinion this is a really unfortunate choice of words by Armstrong. His styling of the EMU members debt as a kind of currency derivative, a virtual currency, that can be used to punish the individual countries obscures what would otherwise be some fairly straight forward issues. I think it would have been much better if he had discussed the issue of risk differentiation among the EMU member states debts without conflating it with a discussion of currency per se.

Differentiating the risk of the EMU member states debt is not a threat to the Euro itself. It is an intentional part of the architecture of the Euro in line with the ECB and Eurosystem CBs mandate – currency stability. Under the present structure of the single currency the risk is confined to default on debt not a political decision by an individual nation-state to debase the currency in order to engineer a de facto default on its debts. This differentiation is a threat to some of the governments of these countries, the debt holders and the citizens of the EMU countries.

His claim that a debt consolidation should have been done at the time that the Euro was launched is also open to debate though it is not entirely without merit in my opinion. However it would have been politically impossible then, resulted in a debt restructuring anyway and is today ultimately unnecessary for the Euro to endure if you understand what is written in the archives here. I’ll respond to Martin’s claim about debt consolidation in due course but first I want to discuss some of the effects of currency devaluation.

Obviously the EMU countries cannot “solve” their individual debt problems by devaluing the single currency unilaterally. This has been presented by him as a weakness of the Euro in several essays. This begs a question: Why is the ability of the currency issuer to devalue a currency a benefit of being able to issue a currency?

(A devaluation imposed by a market in which all currencies float freely is an entirely different matter. This would be a positive function of the FX market provided there is a reference point for currency value that cannot be manipulated - unlike the US dollar.)

There are many perspectives you can consider this question from. For now let’s have a stab at a few basics of the effects of currency devaluation from the perspective of winners and losers. To begin, “cui bono”, who benefits from a currency devaluation? (We also need to consider the flipside of this as well. Who suffers?) The easy question first: who suffers? The parties who bear the loss, and the nature of the loss, from a currency devaluation include the following:

Continued/

costata said...

/Continued

Part 3/4

>> Residents of the country that devalues who are exposed via trade to price risk in other currencies eg. if a Greek is holding drachma and buying fuel priced in US dollars. Simply, their purchasing power is reduced and unless they can raise their income or substitute other cheaper products for imports then their standard of living falls.

>> Any resident of the devaluing country holding debt denominated in a foreign currency. Clearly their debt increases as does their debt servicing cost.

>> Any foreign holder of debt denominated in the currency that is devalued or the currency itself. The nominal value of the principal and interest payments suffer a reduction in their purchasing power. They are paid with, or they are holding, a currency which can buy less “stuff”.

>> Residents with currency based savings and any resident on a fixed income denominated in the local currency which is being devalued. Their purchasing power is obviously falling along with the currency. It is also no accident that devaluations are often preceded and accompanied by artificially lower interest rates than economic fundamentals would suggest. Of course this punishes retirees as well.

>> Recipients of welfare payments from the government and anyone counting on promises of payments in the future to maintain their standard of living.

>> Firms who import goods priced in a stronger currency will almost always find their margins under pressure and their sales pressured by higher prices. This can lead to increased business failures and unemployment. (For exporters the likely impact is less clear cut.)

In practice today everyone is to some degree “exposed via trade to price risk in other currencies” if their currency is devalued. If the devaluation is sudden it changes the local economic incentives and conditions. It is inevitably massively disruptive even if the effects are relatively short lived.

Continued/

costata said...

/Continued

Part 4/4

Who benefits from a devaluation?

Obviously those who are on the opposite side of any of the debtor-creditor relationships described above and the insiders who know that the devaluation is in the pipeline. Clearly if you can sell the local currency/securities and buy back in after the devaluation it is an opportunity for profit.

The other major beneficiary is the government issuing the currency. If you can imagine each currency unit as a claim on a fixed national output of goods and services then it should be obvious that more (currency) claims can be settled with a given amount of economic output of goods and services after a devaluation. Hence the mechanism of devaluation is generally inflation of one flavour or another.

Martin Armstrong lauded the benefits of devaluation from a capital flow perspective in an earlier essay. He described foreign capital “rushing in” to acquire cheap assets and correct imbalances. In that essay (or another one on the same topic) Martin bragged about buying a sports car in London after a devaluation of the pound and selling it years later for the same price he paid for it originally. So this brings me to my final points in this first installment of this series of comments.

Why does Martin Armstrong think currency devaluation is a good solution to an unsustainable debt burden?

This one is dead easy. He doesn’t expect to foot the bill and likewise the clients advised by him. Given his background as an international trader and mover and shaker he does not expect to be left unhedged when a currency devaluation hits. He expects to be part of the capital rushing in to secure those cheap assets. Your cheap assets if you are on the list above.

Granted, in theory, this foreign capital may clear out malinvestment and make better use of those “cheap” assets but when you delve into past episodes of devaluations the benefits for the ordinary citizens are few and far between. (I can offer a few reasons for that and I will try to do so during this series.)

However there is more to this than capital flows. As I said earlier there are deeper levels which we can delve into. The floating exchange rate system, capital flows and debt instruments that Martin Armstrong has dealt in have other benefits for the privileged minority who are positioned correctly. I will try to explore this later but there is enough to digest in this first installment already. More to follow.

Paul I said...

I’m intrigued by this talk of "collateral" that has started emanating from Europe.

"Germany has also being dragged into the collateral dispute after a senior member of Chancellor Angela Merkel's CDU party said Berlin should seek guarantees.

"Several states are making big efforts to service their debt. This must be honored. But to keep up those efforts in the long term, collateral is needed," labour minister and CDU deputy chairman Ursula von der Leyen said on German TV.

Eurozone capitals are currently in talks on collateral at "expert level" amid speculation that leaders will need to call another summit to reach agreement."

http://euobserver.com/9/113397

Hmmm. "Expert Level". Sounds serious.

So who is Ursula von der Leyen?

From Wikipedia:
"Ursula von der Leyen is the daughter of Ernst (Carl Julius) Albrecht, a prominent CDU politician and European Commission official, as well as a long-time Prime Minister of Lower Saxony.

She was born in Ixelles in Brussels, where her father worked for the European Commission (as a Director-General from 1969).

Ernst Carl Julius Albrecht (born June 29, 1930 in Leuchtenburg) is a German politician of the Christian Democratic Union and a former high-ranking civil servant of the European Commission. He served as Premier of the state of Lower Saxony from 1976 to 1990.

The son of a doctor, Albrecht studied law and economics, and worked for several years for the predecessor organizations of the European Union, living in Brussels with his family. He became a cabinet chief at the Commission of the European Economic Community in 1958 and a Director-General of the European Commission in 1969.”

So Ursula’s father, (lawyer, economist, Cabinet Chief and Director-General of the European Commission) would presumably have been instrumental in the founding and design of the EEC. I bet they didn’t just talk about football at their family dinners!

Incidentally, "Ursula von der Leyen, is a descendant of Baron Ludwig Knoop, a cotton merchant of the city-state of Bremen and one of the most successful entrepreneurs of the 19th century."

"In 1857 he built the largest cotton spinning mill in Europe on the island of Krenholm at Narva, Estonia, which employed 4500 people. The Narva factory had nearly half a million spindles driven by water-power. It paid low wages, but took its responsibilities to its workforce seriously, introducing a health insurance scheme and supplying workers with dwellings, kindergartens and schools."

Sounds like the Baron was a giant of his day, no?

So how do you view an "old world gold economy" through modern eyes?

Maybe we should ask Ernst Albrecht and his daughter that question...

Motley Fool said...

Paul

“you just don't want local currencies competing to be priced best in gold.”

I do want that. I want it as a means to keep government power and spending in check.

TF

costata said...

Aussie Readers,

You should take a look at the graph in this essay by Axel Merk. Figures are included for the RBA.

It's called "Cumulative Change in Central Bank Balance Sheets (Since August 2008). The RBA is the only one in negative territory since August 09.

....the chart above depicts the growth of balance sheets (a proxy for the money that has been printed by the respective central bank) relative to August 2008.

http://www.merkfunds.com/merk-perspective/insights/2011-08-24.html

It appears that the RBA has been reducing the amount of "money" in the system or not pushing back against a trend in this direction.

Why RBA you clever thing you! Building up some firepower for deployment down the track by idling your printer, perhaps.

Paul I said...

Thanks Costata,

I was wondering why chasing a buck was getter harder not easier.

Paul I said...

Latest news on European collateral:

"So far the purchases of mainly Greek debt have left about €74bn of bonds on the ECB balance sheet. But there’s about €650bn of Spanish debt on the market and €1,600bn of Italian debt, so any intervention will have to be much greater to have an effect. There’s no precise figure – and the ECB doesn’t want to let markets know how big a gun it has – but analysts reckon purchases of at least €50bn a week and several hundred billions in total might be required to make a sufficiently large impact to convince markets that these countries can service their debt."

So the ECB needs to buy "several hundred billion" Euros worth of Greek, Spanish and Italian debt. Let’s say conservatively 250 billion. No problemo.

Except collateral may soon be asked for? Hang on. Isn’t the bond the collateral? Isn’t the promise of a sovereign nation that it’ll repay the money not good enough?

Computer says no.

So, we need collateral for 250 big ones. OK Southern Europe, empty your pockets.

Hmmmm, nice bit of real estate (difficult to shift these days), a few dodgy factories (got plenty already thanks) some Marbles (Didn’t that bully in the 5th grade steal those?)

Wait a minute, what’s this! GOLD BULLION! GOLD BULLION! Jackpot!

Greece 111 tonnes
Spain 281 tonnes
Italy! Italy! 2451 tonnes! You've been holding out on us Italy.

2843 tonnes in total.

At today’s spot price, that comes to 113 billion. Not too shaby, but you're still 137 billion short guys.

Not to worry, we'll do you a favour this time and accept it.

What’s that Italy? You don’t think it fair to hand over the entire net gain of 3000 years of European blood, sweat, tears, Holy Roman Empiring, Egyptian warring, Conquestadoring, English pirate avoiding treasure hunting, to pay the bill for 10 years of Bunga Bunga partying national excesses?

Yes it does seem a little disproportionate, I have to agree.

Tell you what, hand over 10%, and we’ll let the market decide what that values gold at, wink, wink, nudge, nudge, don’t tell the yanks.

Paul said...

Costata

thanks for the response

I obviously agree on the book part, I will read it the first day it becomes available, but I do not agree with your conclusions.

currency devaluation is just as easy under the "freegold" we know from here. just a press on a button. we are talking about politicians here (smile)
it is exactly the reason why you don't want those currencies competing to be priced best in gold.

Trade is about arbitrage.
It is not about value, it is about the differences in value. differences in time and in place.
Those capital flows you briefly mention, the bulk of the trade, feed on that. These are the giants walking the world !

Arbitrage is what these giants are using to tear euro apart as we speak. arbitrage on virtual currencies !! he couldn't have picked better words. It is an open wound, with value gutting out all over the place. No risk differentiation there, just politicians who don't understand trade.

to let currencies compete for goldpricing, will make gold behave like currency, will ultimately be uesd as they currency, and will create lots of abrtitrage. walking giants are jumping for joy. they can't wait !

a freegold on those terms will not last very long ! walking giants will end up with all the gold. just as with euro, when architecture is flawed, the system breaks apart eventually.

trade is the key !
trade NEEDS a world currency !

me thinks you didn't get the whole picture here, or are just not a very good trader ;-)

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

should have been
"will ultimately be used as the currency,"

my bad

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

when you let walking giants play,
who is gonna win ?

http://www.youtube.com/watch?v=V5mm2IgDWOw

DP said...

when you let walking giants play, who is gonna win ?

What better way to argue against the likelihood of another man made one world reserve currency being accepted by all when the present one is unceremoniously abandoned? Particularly when one created and administered by the benevolent hand of mother nature, proven over and over across thousands of years and already trusted by all as the ultimate private refuge, is ready and waiting to take on its starring role once again. I'm with Armstrong (and FOFOA) — gold is the go-to replacement world reserve currency for this part of the cycle, where faith in public institutions is on the wane.

"Fool me once, shame on you. Fool me twice, shame on me."

Paul said...

DP

you did get the part where Armstrong is suggesting the one world currency wright ?

It is about NOT letting them play

Casper said...

Paul,

I think the discussion should revolve about the other thing Armstrong mentioned and is using debt as a reserve in the system.

If you only look at the euro-zone it's members already have "one world currency" and that is the euro.

Since Armstrong suggests federalising euro debt in order to save the single currency (euro), should we also federalise world debt in order to give birth to the "one world currency"? I just don't buy the "OneWorldGovernment" notion.

Casper

Motley Fool said...

"currency devaluation is just as easy under the "freegold" we know from here. just a press on a button. we are talking about politicians here (smile)
it is exactly the reason why you don't want those currencies competing to be priced best in gold."

Firstly currency devaluation may be just as easy under freegold, but that is only half the story, or half of the truth. The other half is that such devaluation would have more immediate effects and thus be easier to see, and also that savers won't care much, since the bulk of their value will not be expropriated by this method anymore. Wanna destroy the currency politicians? Go right ahead. -smile-

To continue. This is exactly the reason why you do want currencies priced in gold, in contrast to your claim. Since then politicians will be judged by their ability to do their jobs efficiently.

Lastly, yours is bass-ackward logic. To go from your premise " devaluation is just as easy under freegold" to your conclusion "we don't want currencies priced in gold" makes no sense whatsoever.

Because politicians can print we don't want to measure how much they debase the currency? Huh?


TF

Motley Fool said...

"Trade is about arbitrage.
It is not about value, it is about the differences in value. differences in time and in place.
Those capital flows you briefly mention, the bulk of the trade, feed on that. These are the giants walking the world !"

Right. Is it just me or is trade not just about arbitrage? I mean some of us trade what we produce for the products of others.

Now if you are a trader, i.e. it is not your intent to use the goods, but only profit from their movement. Then yes, for you, trade is only about arbitrage.

The bulk of the trade actually rests on mutual consumption, in any sane system.

TF

DP said...

Paul

you did get the part where I suggested gold is the one world currency wright ?

It is about NOT letting them play

Paul I said...

Paul

Could you clarify what your understanding of "giants" is please?

Thankyou in advance

Paul I

JR said...

mortymer,

What a quote! OMG YAY YAY YAY! :)

"...The Bank for International Settlements (BIS) today announced that the Special Drawing Right (SDR) would replace the gold franc as the Bank's unit of account as from 1 April 2003. This decision was made today at an Extraordinary General Meeting of member central banks of the BIS. The Bank also decided to take steps towards modernising its financial accounting and reporting practices.

Used by a number of international organisations, the SDR is an international unit of account defined by the IMF and based on a basket of major currencies..."


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

It warms my heart to see you see you now understand A/FOA/FOFOA's point and are back on board - I heart it! Its a scary world of confusion out there in the wilderness of economic tomfoolery!

Indeed this is not so: "There will/(already have)/be 2 gold reserves: One for all, other which can fluctuate in volume (SDRs) and is important for CBs."

Instead gold will step into the role of the monetary reserve, aka store of value, ala:

"So the only realistic and viable option left that the whole world could agree upon, is to expand the value of gold. To raise its purchasing power in terms of all other goods and services [and currencies! :-) ]."

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

So what of this SDR? Indeed, perhaps a unit of account, not a *reserve*?

Remember this?

FOFOA:

"BTW, the bancor or even a new SDR "basket" would not be antithetical to Freegold, but perhaps a little superfluous. It would be primarily an international unit of account and national fiats would be transactional. Gold would still be the monetary reserve asset."

RS:

"To be sure, we don’t need to invent any manner of universal reserve currency to fill the role of a unit of account because that role is already served in a fully functional capacity for any given country by its own monetary unit.

What IS desperately needed, however, is a universally respected reserve asset capable of filling our current void with a reliable presence that serves as a store of value. And far from needing to be conjured or created by complex international committees, that asset is already in existence and held in goodly store by central bankers and prudent individuals around the world — it’s known as gold."


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

I'm a simple man who loves to listen.

Well, I ride on a mailtrain, baby, can't buy a thrill.

Listening, what a joy!

Cheers, J.R.

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

P.S. - as we close in on September, did you know Marx's class dichotomy is wrong? And even better, did you know class analysis originated with French free-market economists predating Marx? Hopefully you did ;)

See that, isn't it SUPER! You can understand economics and feel bad for poor people too, OMG HOW FUN!

jojo said...

Interesting conversation.
Can someone comment on my earlier questions regarding germany, collateral,MA, and the argument going on?

Motley Fool said...

jojo

That's not exactly a simple question.

It was in fact a opposition party in Germany that suggested that they ask for gold as collateral. The ruling party has had to try and kill the press bushfires from that one. They said that it is a difficult request.

If we assume that Merkel and the high placed politicians of the other countries know about Freegold then it is indeed a very difficult issue.

It would be using the current public ignorance to hijack very valuable gold from the PIGGS, gold which after the revaluation will be able to settle their debts.

It might also upset the cookie cart and usher in gold's final rise. Europe and Germany specifically does not want to be seen as the catalyst for the 'end of the world'.

My two cents.

TF

Paul said...

Casper, TF, DP

There is a storm in the air, it is getting dark outside, so our sight will not always be clear but we did see the storm clouds gather against higher part of the mountain, so we have good idea what is coming. The howling winds are deafening and lots of rain will make this trail very slippy, better be careful where we walk or we might hurt ourselves.

This trail has been hard sometimes, but was always good hiking with some beautiful views because we had some pretty amazing guides who often told us where to look and could exactly show us how to get there. For this next bit we will be without guide, we have to find the way ourselves, and probably help each other get there.
I would love to be guide, but one must know ones limitations, I know mine, all I can do is share my thoughts and hope we can help each other reach top of the mountain. We are not there yet, that much is very clear to me and I can’t wait to see the view. Has to be good, the sight will be amazing from up there. It has been so far anyway, now I want to finish this thing.

There are lots of questions, all can do is think with you and play with those thoughts for a little while. Maybe we will then see something we did not see at first glance. We are walking part of the trail few people have hiked before. We have to really search for our clues here, we have to find the way ourselves.

We could make nice fires with paper, because we were smart enough to save in gold. We did good so far. But question remains, do we want that fire ? Is it really inevitable ? And are we protected with gold when this fire spreads ? not only paper burns. Cities do too !

To reach top of the mountain we will have to stop the fire. Simple as that.

So, Fool, Let us use my back ass logic for a while to entertain us.
This $ is bad no ? Ok, let us imagine it is good. Let us imagine without nationstate, just the currency. No political influence. Just economical arguments. It could function well yes ?
It can price commodities very well ! currencies float against it, commodities float. All is well.
It has no intern arbitrage, no virtual currencies, it is a whole, as where euro with intern arbitrage and with virtual currencies is a hole. Euro can be played by traders, dollar can’t.

To keep all good things, we will have too use a thing like (whole)dollar, but we have to get rid off the political mismanagement. We could trust ECB but we could not trust a new management of a new currency ? free from nationstate and floating against all commodities ? Free markets will still be the disciplinator of local currencies, and will keep governments and printing presses under control. Bad governments will still lose their gold. As they should.

Trade brings lots of prosperity, we are not really suggesting to stop that wright ?
I don’t think a lot off people will agree on that ;-)

DP, you just made a 360 and are where you started on this trail. 

mr pinnion said...

Wow. It was like reading the words of ANOTHER.
Another very confused person, that is.

Regards
Ozzy

Motley Fool said...

Alright Paul

Let us consider your idea.

To start with, the $ is neither good nor bad. It merely is.

But yes. Let us imagine a currency, with no nationstate. No political influence.

Now since you insist on being vague, we will have to consider all options.

Option one, this new currency is 'backed' by nothing, no gold, no productive economy and with that implied taxation. To use the language style you have appropriated : it is like smoke, blowing in the wind, without substance, this paper, yes?

Since we have no nationstate, the implied taxation on a productive economy won't be a option. The type of currency like the dollar.

Which leaves us with the assumption that this currency will have gold on a MTM basis as 'backing'. This is the only sensible one to consider.

It could be issued by anyone, say a bank, or a credit union. In fact it would be a close parallel to how paper money came into existence.

It could be a local, national or supranational currency. There could be multiples of them, all vying for use.

In the very very far future this may well happen.

However.

In the meanwhile, time passes.

You see, for a union or bank or whatever to create the trust it would need for such a currency to be used would take people experiencing it as trustworthy. For a long long time.

That is, after it has passed the hurdle of political power.

As you should well know, at present there is a lot of political will to control the issuance of paper currency due to the benefits one can derive. That political will won't melt away overnight. It will however erode over time, once currencies have competed under Freegold and have achieved a level of balance. At that stage the benefits to be had as issuer would be negligible, and the formation of such currencies may be allowed under law.

Let's talk about this again in say ten years? ;)

TF

Casper said...

@Paul


May I ask you what exactly do you mean when you're talking about "Euro can be played by traders"?

I also don't see how the situation in Europe is different than in the USA when the banking system holds euros/dollars as a reserve for their business. I don't mean their fundamental diff. in regard to the Freegold/RFG, I'm just interested in how the fact that they're both used as the reserves of the banking system makes dollar immune to your notion of "traders playing with the euro"?

How is it that a euro deposit (based on a mortgage) created in the some Italian bank is "weaker" than a dollar deposit (based in a mortgage) created in some Wyoming bank?

Casper

DP said...

Paul, if you think the view from Base Camp Alpha is good, you should stop wasting your time adjusting your writing style to mimic FOA and instead ask him which boot goes on which of your feet. Those sneakers won't get you much further. There is indeed an increasingly clear view the higher you go, but it is very, very cold and the elements around are frequently hostile ... I'm afraid with the way you're wearing your jacket right now, you aren't going to make much progress and in fact you'll hold up the whole team. Clip yourself on the guide rope and watch your footing. Zip up buddy! Put on your goggles.

To keep all good things, we will have too use a thing like (whole)dollar, but we have to get rid off the political mismanagement

Good luck with that. Just so you know where I am, I'm out.

We could trust ECB but we could not trust a new management of a new currency ?

No, we can trust the ECB because they manage their own currency, but the world reserve currency it is a derivative of, is beyond their manipulation and their activities are within our capabilities of measurement - mess up, game over. That is exactly why gold IS the ultimate world reserve currency, and why there won't be a superior and durable synthetic alternative for the role of store of value ("reserve") any time soon. If it's 100% man made, it can and will be gamed. As JR stated earlier, the SDR might be a viable unit of account, but you and I won't be able to use it as a medium of exchange - only international settlements can work with it. IMO the euro should be an excellent medium of exchange and also unit of account*. But units of account and mediums of exchange don't need to be stable, they just have to be mutally acceptable between trade partners. Only the store of wealth needs to be stable for it to be indefinitely acceptable to all, everything else follows from that.

DP, you just made a 360 and are where you started on this trail.

Funny thing, when you turn to talk with someone far behind in the hope you can help them get on track, as you turn back to continue you find yourself facing the same way as before! Spooky.

Have a great evening!



* In fact, my view is the SDR will ultimately be proven a derivative of the euro, since all other currencies in the basket are destined to burn, leaving SDR = euro component's value only. I believe the SDR is a sticking plaster over Triffin's Dilemma, hoping to delay Freegold a while longer by spreading the problem across more currencies. But it doesn't really resolve the problem.

prete said...

costata said...
/Continued

Part 2/4

1. “Virtual Currency”

In my opinion this is a really unfortunate choice of words by Armstrong. His styling of the EMU members debt as a kind of currency derivative, a virtual currency, that can be used to punish the individual countries obscures what would otherwise be some fairly straight forward issues. I think it would have been much better if he had discussed the issue of risk differentiation among the EMU member states debts without conflating it with a discussion of currency per se.

Differentiating the risk of the EMU member states debt is not a threat to the Euro itself. It is an intentional part of the architecture of the Euro in line with the ECB and Eurosystem CBs mandate – currency stability. Under the present structure of the single currency the risk is confined to default on debt not a political decision by an individual nation-state to debase the currency in order to engineer a de facto default on its debts. This differentiation is a threat to some of the governments of these countries, the debt holders and the citizens of the EMU countries.

His claim that a debt consolidation should have been done at the time that the Euro was launched is also open to debate though it is not entirely without merit in my opinion. However it would have been politically impossible then, resulted in a debt restructuring anyway and is today ultimately unnecessary for the Euro to endure if you understand what is written in the archives here. I’ll respond to Martin’s claim about debt consolidation in due course but first I want to discuss some of the effects of currency devaluation.

Obviously the EMU countries cannot “solve” their individual debt problems by devaluing the single currency unilaterally. This has been presented by him as a weakness of the Euro in several essays. This begs a question: Why is the ability of the currency issuer to devalue a currency a benefit of being able to issue a currency?

(A devaluation imposed by a market in which all currencies float freely is an entirely different matter. This would be a positive function of the FX market provided there is a reference point for currency value that cannot be manipulated - unlike the US dollar.)

There are many perspectives you can consider this question from. For now let’s have a stab at a few basics of the effects of currency devaluation from the perspective of winners and losers. To begin, “cui bono”, who benefits from a currency devaluation? (We also need to consider the flipside of this as well. Who suffers?) The easy question first: who suffers? The parties who bear the loss, and the nature of the loss, from a currency devaluation include the following:

Continued/

August 25, 2011 8:43 PM

==================================

I new here and want to make some humble remarks:

I respect Martin Armstrong and I also respect Another & friends but respecting both is leaving me with a conflict here.

-The Euro severed its link to gold, but also its link to the nation-state, said mr. Duisenberg. That's clear to me.
-So the Greek debt problem should not effect the Euro but it does panic the whole Eurozone because somebody has to pay.

Finally there will be little countries left in the Eurozone when Greece, Portugal, Italy, Spain and not to forget Cyprus are defaulting on their debt. German Dutch and Finnish people refuse to pay the Debts, Maybe politician will pay but they will be punished for in the next elections.

Question:
I hope you can help me out on this.
When you don't think Eurobonds will be the solution .... what do you suggest ?

Paul said...

DP

you can't get out
you were never in

;-)

prete said...

costata said...
/Continued

Part 3/4
For now let’s have a stab at a few basics of the effects of currency devaluation from the perspective of winners and losers. To begin, “cui bono”, who benefits from a currency devaluation? (We also need to consider the flipside of this as well. Who suffers?) The easy question first: who suffers? The parties who bear the loss, and the nature of the loss, from a currency devaluation include the following:
>> Recipients of welfare payments from the government and anyone counting on promises of payments in the future to maintain their standard of living.
Continued/
August 25, 2011 8:44 PM

Question:
As you know Iceland also suffered the credit crisis and had to devalue the Icelandic crown. I can assure you Icelandic people disagree on this.

So please explain what you mean by this.

DP said...

Correct ;-)

Motley Fool said...

Hi paul, oops I meant prete ;)

It is difficult.

I think that most traders do not understand what the severing of the link between currency and nation state means.

I would like to speculate.

I speculate that Greece, etc should be able to default without it affecting the Euro. That is, if those traders understood.

Instead, traders are used to currencies like the dollar, and will react by selling the Euro.

Unfortunately the ECB let the fox into the henhouse already, so I don't think their balance sheet would survive the liquidity attack.

But I only speculate.

These are difficult matters.

TF

jojo said...

Here's another stab at trying to flesh this out.

On one hand, you've got FOFOA et al, saying they think the euro will end up taking the role of international unit of account and medium of exchange as gold assumes the store of value role after being re-asessed worlwide.

On the other, it seems MA, and all the headlines in the news say the euro is on it's last legs.

I don't get that. I'm trying to decide which view I favor yet it is seeming difficult as there seems to be many smaller issues. The example FOFOA writes about (the fairs/tents) sure seems to support what he is saying. If it does support that, then I'm left wondering what all the hullaballoo is about on the "news".

It seemed to me Prete was kinda asking the same thing....
I obviously haven't the handle on this as many of you and haven't been following comments enough to know who the players are here and the sides you are on but I will say, the guy who keeps trying to write like Another is annoying and if he could just cut the crap and to the chase, it might be better, but then again, I'm obviously at the start of the trail and so probably shouldn't be talking.
I just want to figure this out without the drama.

burningfiat said...

Hi Jojo,

May I take my little stab at this also.

MA seems to be of the opinion that the euro-zone is a project that tries to _emulate_ the dollar, such that Europe can regain former glory and world leadership from the US.
FOFOA has clearly shown that the Euro-project is not an emulation, but a new creation in its own right.

MA sees the euro and euro-debt going down as a store of value. But hey, isn't that what FOFOA is telling us also? The coming phase transition will be such that sovereign debt is no longer considered a good store of value. FOFOA even tells us that there is this physical gold stuff that can be used as a much better store of value. And the funny thing he also tells us: The Euro-zone managers know that too.

So maybe MA and FOFOA actually agree that Euro and other fiat currencies and their sov. debts is on their last legs as store of value.

What separates the Euro from the Dollar though, is that the Euro-structure acknowledges the fact that it is not a super store of value. Because the Euro architecture actually recognizes the next big store of value, it seems to be having a good chance of becoming the next big _medium of exchange_ (but of course at vastly different rate compared to the coming "store of value par excellence" than today)

As for the $IMFS, well... Let's just say that the dollar must think of itself as a mighty fine store of value, since it managers still keep gold on their books at a rate of around 42 $/toz. Kind of delusional, don't you think?

/Burning

JR said...

Jojo,

You comment

I'm left wondering what all the hullaballoo is about on the "news".

I know, I felt the way for quite some while. I still remember first reading Greece is the Word and feeling even more confused than ever. Good luck practicing your patience and consider the multiple contexts in which the comment "time reveals all things" offers insight. You will climb the trail if you persist!

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

I think RLP was spot earlier - here is RLP's quote with a little more context:

""Q: **Who does BIS really represent?

A: "old world, gold economy, as viewed thru modern eyes" or "way to move from US$ without war".


Those are the words of ANOTHER from my post "The Gold Man" (not Goldman) at the BIS. The BIS truly represents "the rest of the world" from a monetary perspective. It is the "trade union" of their Central Banks. All is not as it seems on the surface.

So how do you view an "old world gold economy" through modern eyes? And how do you move there peacefully with the easy money camp? It's quite simple actually. You let nature take its course, you support that natural course however long it takes (rather than pathologically fighting nature like the dollar system does with its obsessive-compulsive drive to control), and you don't deprive the easy money camp of their precious fiat."


MA is viewing the euro threw "modern eyes," (the lens of the dollar system where dollar debt is the reserve) but the euro envisioned by an "old world, gold economy, as viewed thru modern eyes."

The euro looks bad in the dollar system, but the dollar system is failing. The Euro is not about thriving in the dollar's world, but instead about what comes next. If Freegold is inevitable, its all about being positioned for it when it occurs, no?

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

Please read my comments to Victor earlier in the thread. Make sure you understand these ideas:

"This Global Financial Crisis is not so much about the dollar as it is about the dollar system, the $IMFS. The dollar system is a system of selling debt as a wealth reserve..."

and

"Believe it or not I view the PIIGS' debt crisis as more of a problem for the dollar than for the euro...

Of course the European socialists have huge problems, but you must understand that the entire global financial system is built upon the dollar. Even if Greece's debt is denominated in euros and held by another Eurozone country (France or Germany), the failure of said debt and its complex support structure is a failure of the $IMFS, not of the euro."


cont.

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