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.
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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:
«Oldest ‹Older 201 – 385 of 385cont.
More FOFOA:
"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.
Cheers, J.R.
Motley Fool said...
Hi paul, oops I meant prete ;)
It is difficult.
I don't understand what you mean. My question is sincere.
xx prete
Perhaps another will try and explain in another way. I don't see that I can make it much simpler.
Why is there so much confusion ?
We are fed up with the dollar and now we must accept the euro as world currency ? Why not the Rupee.
Don't you forget it is Asia where prosperity is coming from.
Why not an independent word currency as unity of account whith local currencies trading against it. And why not free physical gold denominated in that independent unity of account as regulator of local currencies ?
It really is worth reading Greece is the word in its entirety as it illuminates the points being discussed. For example: "The euro architects... designed the euro to be a stable transactional and accounting currency even if the world chose non-euro physical assets as a store of value."
And while it is true that the news coming out of the EU is distressing, (a) does anyone think the news coming from the US is any better? and (b) did anyone think the transition to Freegold was going to be easy?
Luckily we have websites like this one to replace the MSM and political posturing and explain what is really going on behind the scenes.
PS:kudos once again to Costata for another levelheaded and logical analysis of the "benefits" of devaluation, and the important observation that Armstrong is not the Messiah.
"And why not free physical gold denominated in that independent unity of account as regulator of local currencies ?"
That sounds like what we are going to have. :P
prete said: "We are fed up with the dollar and now we must accept the euro as world currency ? Why not the Rupee."
Oil might have something to do with it.
@prete,
Certainly, why not the rupee? Why not the reminbi? Or the Neue Deutchmark? Of course each Nation would like its currency to be the chosen one, because a lot of privileges come with with its use. But what would compel the rest of the world to use the rupee (or the reminbi, or the Euro) as the international unit of account?
@Indenture - or gold! :)
GLD Puke Indicator = WIN
sean said...
@prete,
But what would compel the rest of the world to use the rupee (or the reminbi, or the Euro) as the international unit of account?
August 26, 2011 1:33 PM
==========================
Trust and why should we trust the euro as world trade currency or unity of account ?
We know what america did to the rest of the world with the dollar. Should we now trust the ancient continent again with the euro. Whe now why they are helping the rebels in Lybia, whe are not blind.
You don't have to prete, that's why your RBI try to buy all that lovely gold instead! :-)
BTW I notice you are wearing more gold around your neck than the entire gold reserves of RBNZ and RBA put together. Congratulations!
family gold from my mom and granma
http://www.nakedcapitalism.com/2011/08/what-is-debt-%E2%80%93-an-interview-with-economic-anthropologist-david-graeber.html
This is a very interesting read ... a discussion of money and debt from the point of view of an economic anthropologist (isn't that a mouthful?). It sure got me thinking even though I don't agree with all his conclutions.
"DG: One of my inspirations for ‘Debt: The First 5,000 Years’ was Keith Hart’s essay ‘Two Sides of the Coin’. In that essay Hart points out that not only do different schools of economics have different theories on the nature of money, but there is also reason to believe that both are right. Money has, for most of its history, been a strange hybrid entity that takes on aspects of both commodity (object) and credit (social relation.) What I think I’ve managed to add to that is the historical realization that while money has always been both, it swings back and forth – there are periods where credit is primary, and everyone adopts more or less Chartalist theories of money and others where cash tends to predominate and commodity theories of money instead come to the fore. We tend to forget that in, say, the Middle Ages, from France to China, Chartalism was just common sense: money was just a social convention; in practice, it was whatever the king was willing to accept in taxes."
Or later:
"Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.
Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.
And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves."
I thought it was amusing to play a little with FOA style. to tease a little, but
when people get confused I will stop. This trail is confusing enough as it is.
But it is good fun to write like that, I can imagine FOA having lots of laughs :-D
Until MA latest piece I also thought we could solve this monetary problem by just splitting 2 of the three monetary functions, medium of exchange and store of value.
But now when I look at this closer from trading perspective, my line of thought leads me to this one world currency merely functioning as unit of account, and thereby splitting all three monetary functions ! It is just there to price the commodities and to let the mediums of exchange float against it.
Why ?
The value off a commodity will always differ in time and in place, making it nearly impossible to give it a standard value in gold. Everything floats against everything all the time. How can we measure and maintain these exchange values between different currencies and gold ? Selling or buying gold in the freemarkets ? which currency do we use for that ? A floating one world unit of account could take care of that easily and would benefit all.
MA
"This is nebula of International Value is kind-of like the new Cloud Computing. It is tangible in the mind of each nation, yet lacks a solid mass in the form of a global currency per se. Still, it collectively combines into an International Value of exchange that is purely conceptual in a collective virtual world of finance. Those who grasp this concept then engage in the more complex world of International Arbitrage. In truth, this murky field of International Value was the origin of our global economy. It gave rise to mercantilism where people traveled among nations searching for a product of a value in one country that could be transported and sold in another at a higher value (profit). Banking thus began with merchants as did foreign exchange."
more later
busy this weekend ...
"A floating one world unit of account could take care of that easily and would benefit all."
Right. Because when I write in my book that I have 10 sheep, I want it to mean I have ten sheep today, and nine some time later, and then eight, and perhaps even 12 at some point.
A floating unit of account. Wonderful.
TF
Why is there so much confusion ?
We are fed up with the dollar and now we must accept the euro as world currency ? Why not the Rupee.
Don't you forget it is Asia where prosperity is coming from.
Why not an independent word currency as unity of account whith local currencies trading against it. And why not free physical gold denominated in that independent unity of account as regulator of local currencies ?
well prete
I could not have said it any better
totally my line of thinking as well !
And that’s exactly what I meant Paul.
Fofoa mentioned a currency that severed it’s link to the nation state and that should be the euro.
However I hear from friends that debt is a big problem for many european countries.
I think that a world trade currency should be an account unit only! because not only is price of rise dependant on de strength of the Rupee or the Indonesian Rupiah or whatever currency, it’s also dependant on supply and demand in timeframes.
In my opinion it’s impossible to price Currencies AND Commodities in Gold at the same time. Because then Gold will act as a currency and imho Gold is not ment to be a currency.
If you invent such a unit of account currency, that could be monopoly money. When there is too much of it all the countries suffer and when there is too little of it all the countries suffer too. International traders are lost without a single world trade currency but it must NOT depend on whatever other currency in the world.
In my opinion Gold as all other commodities should be priced in that independent world currency and the price of gold should be settled through bid and ask volumes. And that will make fair Goldprices in my opinion.
So what’s left of my puzzle is the huge European debt burden. If you store the debt in Eurobonds the euro as a world trade account unit is not independent anymore. The only way out than is to settle European debt in gold.
And now we have a strange situation on our hands because Europe has to settle debs in gold and other countries and unions have to settle their currencies against gold. Simply because Europe has no currency in a freegold situation, only a unit of account. And if the euro also will be a currency it would be the euro that has an advantage on all other currencies just like the dollar now. That's again time and again a power shift between western countries and where does that leave Asia.
I’m puzzled there so what am I missing ?
I really try to understand and hope someone please can help me out on this.
Maybe "we're" fed up with the patently outrageous strawmen - perhaps its time for a forest fire to clear out all that dead wood. While "we" ponder, consider that:
"We are fed up with the dollar and now we must accept the euro as world currency ?"
Ask MA, he's the world currency guy.
**********************************
In contrast to MA, FOFOA has commented "we will evolve into many national and a few regional currencies":
"...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."
The good times are killing me! :)
Cheers, J.R.
There is still nothing said about the Euro and the MTM gold system in the mainstream or even the blogsphere.
Even long term Euro bulls out there don't say anything about it. Especially Jim Rickards who claims to know allot about gold. Jim Rogers and Bill Bonner like the Euro yet they say nothing about MTM gold.
test
just checking ;)
good to see all the hooligans are still and still on their stools.
JR,
Thanks for the measured and thoughtful commentary as usual.
Sure, you are always most welcome!
The Euro stuff is a sideshow, the real story is the failure of the $IMFS.
I agree about failure of the dollar system, yes. But in that process, the Euro might die of the same disease as the dollar does rather than being the hailed saviour of the world financial order.
Regarding severing the Euro's link to the nation-state, consider a distinction between the past and the present. [...] 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 [...] 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 problem here is nevertheless the existing debt. If the euro were a young currency with little debt, there would be no hard choices involved. But the euro is already an elderly currency with existing government debt at about 90% GDP, growing at a rate of 6% GDP annually. This will eventually force the ECB to make a choice. The choice between a hard money approach, to let some governments default and accept the blow-up of the commercial banking system with some sort of economic depression as the consequence. Or a soft money approach, to buy the bad debt for cash and thereby inflate the currency.
The famous arguments of FOA, made in 2000-2001 about the US situation, apply here as well. The deficit countries in the euro will not accept the hard money approach, and the savers will not have the power to enforce it or at least not use this power. Do you see Germany invade Greece and extract interest payments in kind? I don't. If the savers pursued a hard money approach, the debtors would eventually decide to default. But in this case the commercial banking system would blow up which would force the ECB to choose between depression or printing. You can watch the actions of the ECB week to week and day to day. They are absolutely desperate not to be forced yet to make that decision.
And the treatment of future deficits is unfortunately not really that much different. The problem is that the deficit countries have grown mainly by credit expansion, at least since the introduction of the euro in 1999, but probably even longer because the convergence of interest rates started even before 1999. Now their economies have become dependent on credit expansion, and they start to contract as soon as the credit expansion slows down. Again, same situation as in the US. Greece reduced their annual budget deficit from 13% GDP to 10% GDP, and as a result their economy is now contracting at a rate of about than 4% annually.
So far, the deficit countries (on average) need their government debt to grow at a rate of about 8% GDP annually, at least. Whenever the free market rejects the additionally emitted debt, the ECB takes it on their own balance sheet. If they didn't, these governments would default on their existing debt, simply because market interest rates would rise in the same manner for all outstanding debt, old or new, with the consequences explained above, forcing the ECB to decide between printing or depression.
This is the reason why the ECB is trapped. Either they treat future debt the same way as existing debt and buy a good part of the running budget deficit, or they immediately face the choice between depression versus buying all debt for cash.
This is qualitatively the same decision as in the US. The difference is one of degree. As a very rough estimate, the US have twice as much debt per gold reserve, and their annual deficit per GDP is twice as high as in the euro area. So, yes, I agree the US will probably win the race to the bottom, but the ECB will follow and come a close second.
Victor
Prete, Paul,
I agree with JR when he says that the thought about euro becoming world reserve currency is totally misguided. I don't know what you've read so far, but you've certainly haven't seen anywhere in this blog that euro should become the currency everyone was going to adopt as a world currency.
But if you discuss the concept standing behind the euro, that's another matter and could/will be emulated in other parts of the world.
I don't see why you're so fixated on the »one world currency« issue. Are you suggesting that there are many local currencis (dollar, euro, rupee,...) floating against the »one world currency« which itself floats against gold? I see little reason having a middleman facilitating trade between currencies and gold. You said it yourself »When there is too much of it all the countries suffer and when there is too little of it all the countries suffer too«.
So, who's going to tell us how much of this currency is the right amount. I'd say the »market« will tell us that and then I realise why bother having to do 2 trades and having to deal with market risk x2, let's just go straight to the rupee/gold transaction.
Casper
JR:
Things are not as simple with the SDFR as you may think...
I would be happy if you check
PALAIS-ROYAL INITIATIVE
There are thinkers like Trichet, Lamfalussy, Schioppa who do see some potential prospects in the construct... the case see not so easy and no closed.
After the argument I made a brief 3 blog entries for opening the discussion on AFB. There is much more but tie is a limit for me now...
this is shit
@ls, yes! :)
What say you say something golden, to offset all this shit about OWC? Prete has been doing a good job of articulating Paul's thoughts, I don't know how she can see quite so clearly inside his confused head, but rather amazingly they show up on the same day and both agree on de solution nobody else here does! Spooky. Maybe she has a little of de dutch blood in her or something.
DP
I did not suddenly show up yesterday, have been wandering around here a little while longer than that. you can find me in the comments if you want.
or ask FOFOA
I am his biggest supporter in nominal terms off all time. no doubt about it !
I don't know prete if that is what you are suggesting, or would you suggest I was also prete ?
be real please, I am just being my own here, hard enough as it is ;-)
also
hpw could you conclude I have a confused head when you don't understand what I am saying.
you are the one asking for gold to be reserve CURRENCY here, did you catch fofoa's dilemma ?
"FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma."
although I draw different conclusion, i got what he was saying. did you ?
Paul,
Yes, of course.
Under $IMFS the currency we spend in the shops and also save (UoA + MoE + SoV) is borrowed into existence, with the supply expanding as liquidity demand dictates. Store of value is diluted along with liquidity expansion.
Under Freegold-RPG, the currency we spend in the shops (UoA + MoE) is borrowed into existence and the supply is expanded/contacted as demand requires, to ensure the economy has sufficient liquidity. But the currency we save (SoV) is fixed and therefore expands in value rather than quantity.
Triffin's dilemma is resolved because no nation, or other man made entity, has to have its SoV sacrificed in order to satisfy external reserve demand for its currency. Nature ensures stability.
As we agreed previously, it should be theoretically possible, in a perfect world, to create a synthetic SoV currency. But we do not live in a perfect world, and everybody knows it. You appear to have now changed to advocating a synthetic UoA currency instead.
Can you now explain to us how you see a different conclusion, one where it is necesary to go further and seperate also UoA from MoE?
"Under Freegold-RPG, the currency we spend in the shops (UoA + MoE) is borrowed into existence and the supply is expanded/contacted as demand requires"
why would you borrow currency into existince under freegold ?
why not just print them ? it is just medium of exchange ...
those walking giants(PAUL_I : huge capital on the move; hedgefunds, investmentbanks) I mentioned, will play the currencies when they are borrowed, they will trade those debts, or the derivatives of that debt.
gold will be in a free market, walking giants will also jump in and put stress on the prices to play the debts. they will end up with the gold. end of freegold there ...
when you just print the currency, it wll get value from the amount of gold you can buy for the currency. but issuing still is just a press on a button. Giants will always want to hedge this. you just can't trust the issuer. ever. they will do this with gold.
you don't want that !
what if you seperated UoA en MoE ? would they then hedge with the UoA ? would be much more convenient no ?
me thinks so
but I am still thinking on this.
be careful with flaming !
lots off paper around ...
;-)
back later
I have a question for the hivemind. :P
There was one very curious sentence in teh Bernank's speech.
"I have confidence that our European colleagues fully appreciate what is at stake in the difficult issues they are now confronting and that, over time, they will take all necessary and appropriate steps to address those issues effectively and comprehensively."
It sounds like a threat aimed at Europe. My question is what are they threatening to do?
I notice that swap lines were established with the ECB at punitive rates last week. From memory a 110 basis point charge on a 7 day loan of 500 million US to the ECB. ( can't find the ZH link atm). Perhaps they are threatening to cut of $-liquidity?
Help?
Thanks
TF
Ned Naylor-Leyland describes FOFOA's orbital launch chart at the end of this video:
http://www.cheviot.co.uk/news/video/2011/08/commodities-corner/
Paul and Prete.
Same person.Obvious.
End of story.And i have ten different pseudonyms who are of the same opinion.But i would nt insult Pauls intelligence by posting them all.
Regards
Ozzy
Paul: why would you borrow currency into existince under freegold ?
why not just print them ? it is just medium of exchange ...
wow.
Why didn't you say this, a clearer way to express what you are suggesting:
Why don't the ECB just open the window and chuck them in the street?
Well, I suppose a global UoA currency will fix the problems this creates though, while gold can't... Thank heavens you're here to set us right next week with your fleshed-out Thoughts! Thank you Pretey Pissypants, that's very nice of you!
Paul: "why would you borrow currency into existince under freegold ?
why not just print them ? it is just medium of exchange ..."
Thank You FOFOA and the Hive because I actually understand the absurdity of these statements. If I had a mind like JR I could pull out the quote that shows all currencies are debt so all currency has to be borrowed into existence. Freegold doesn't matter in this equation. We will print currencies and yes they will be a medium of exchange but the important part is how many currency units it will take to purchase gold. That is the most important 'exchange' to me. All the other transactions flow from this relationship. A currency must be 'exchangeable' for gold in order to be used as a currency. (interesting loop)
@ Casper
"but you've certainly haven't seen anywhere in this blog that euro should become the currency everyone was going to adopt as a world currency."
Oil will be priced in Euros which is as close to a world reserve currrency as it gets.
you have got to be kiddin' me ...
do you guys think the fairholder borrowed the sticks from a really rich tree somewhere so they could then be used ?
be real please ...
and no ozzy
sorry, just me,
again, just ask FOFOA himself
I have a life you know ...
So, if I were 'all-in' on gold; would that be crazy? I do have some silver and am looking to swap that out later this fall as the price I expect will reach into the 70's on this run.
I would imagine this has been discussed so a nice cut and paste of suggested amounts would be great. Thanks!
Oh and yes, I will do my part and donate. FOFOA and company have been nothing but the best for me and the security of my family.
Paul is NO prete ! definitely not !
Paul and I seem to agree on the impossibility of a world without one! unit of account for international trade.
Did you know that partly barter trades between China and Iran are accounted in USD but NOT settled in USD.
Did you know that some trades between China and Russia are accounted in USD and finally settled in EUR.
The USD is used as a unit of account for international trades even though not always settled in USD. But nobody seems to understand that here.
We all seem fed up with the dollar but before the dollar leaves there has to be a replacement.
Because there’s too much confusion I will leave now and rest my case.
xxx prete
I did not know that prete
thank you, makes a lot of sense !
and no, I am not talking to myself here
:-D
consider this song also ;-)
http://www.youtube.com/watch?v=gSq8ZBdSxNU
the lyrics have also a lot to do with "the trial" and "gold"
Gold
Always believe in your soul
You've got the power to know
You're indestructible
Always believe in, because you are
Gold
Glad that you're bound to return
There's something I could have learned
You're indestructible
For those who just can't get enough gold in their info diet, especially during those horrid 48 +/- hours between the close of the market Friday and it's open in Asia Sunday I give you the Israeli gold market:
http://www.goldpricerate.com/english/gold-price-in-israel.php
up about 2.5% for what ever that is worth. I have not been following it for long so I do not know how well it tracks the rest of the world.
@ Prete
"Paul and I seem to agree on the impossibility of a world without one! unit of account for international trade."
First you where saying that world needs a reserve currency. Now you are saying the world needs a unit of account. Are you aware that the USD is not a reserve currency in that it can be spent anywhere ? It can only be spent on things priced in USD if the seller accepts it and on things within the borders of the US.
If the dollar can be used as a unit of account now, even when it can only be spent in the US, then why couldn't the Euro be used as a unit of account in the same way ?
Ironshield,
There was a VERY long silver discussion in May.
Kazakhstan Central Bank To Buy All Domestic Gold Production
This story has some interesting implications. A few snippets that caught my eye (my emphasis):
Kazakhstan's central bank plans to augment its gold reserves by exercising its right to buy the Central Asian state's entire bullion output,
The bank said it had asked the government to withdraw value-added tax incentives that encourage gold exports in order to encourage growth in domestic refining. It also said it would explore ways to arrange advance payment for bullion.
"Domestic gold producers ... will have a guaranteed partner and customer in the next few years in the shape of the National Bank of Kazakhstan," the bank said in a statement issued jointly with the Association of Mining and Metallurgical Enterprises.
As well as increasing its gold reserves, the central bank said greater state control would help to stimulate the growth of a domestic gold market and encourage more refining.
Industry Minister Aset Isekeshev said last month that Kazakhstan was considering building a third gold refinery as the country prepares to ramp up production of the precious metal over the next few years.
The remarks highlighted in bold look to me like they are laying the groundwork for a toll mining (contract mining) regime.
I suggest you take a look at the strategic location of this landlocked country. Kazakhstan has huge gas reserves, mineral resources and agricultural production. The CIA World Factbook gives a good overview of the country (here). They hold the 11th largest proven reserves of oil and the 15th largest proven reserves of natural gas. Their economy appears to be growing at around 6+ per cent at present.
The questions on my mind are: What currency will they use for the purchase of this domestic gold production? Does it have to be local currency or can they use FX reserves generated from export sales?
interesting indeed
but do you also see it is accounted in dollars ! and all the benefits and implications of that !
For your consideration.
From Jeff Snider of Atlantic Capital Management
Bernanke In A Box
His statement spoke volumes without saying anything. Yes, he disappointed the hardcore debasement enthusiasts called stock investors, but only at first. In between the lines of what he did say, it was crystal clear: Chairman Bernanke wants to do more QE. “Want” is not really the right word because it doesn’t really go far enough into Bernanke’s canon. I think it is abundantly clear he believes the Fed needs to do it as soon as operationally possible.
His concern on the economic issues is expected – anyone with rudimentary economic knowledge knows long-term unemployment can have lasting productive and social impacts or “scars”. He still seems confused about those headwinds, but at least has resigned himself and monetary policy to the fact that they are very real.
Rather, his attention to “financial uncertainty” and his view of the damage to “expectations” that comes with it is what really stands out now. Because the Fed is wedded to the rational expectations theory, financial uncertainty can become ingrained into investor psychology, flowing through to consumers and businesses. If consumers believe banks will be in trouble in the near future, they will act on those fears today. It is a mortal threat to the carefully cultivated, though utterly useless, appearance that everything is normal and good. The Fed has created trillions of dollars so that stocks will signal a robust future – and consumers and businesses will act today in the expectation of validity to that rosy, rainbow vision.
The beginning stages of another financial crisis or credit crunch change those expectations radically. This has to be nipped now, long before it permeates too far into the consciousness of the populace (not just in the US, but globally).
“We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September.”
Cont'd
He said QE 3.0, without really saying it. The markets, seeing the enlarged schedule for the September meeting and interpreting the likelihood of heavy discussions, have gotten the message. Stocks threw off the daily mortal struggle that is life as Bank of America and bid for the QE future that is now September (good riddance to August apparently). Gold prices followed on those expectations of a resumption to the willful and wanton dollar destruction that QE purely represents.
If the Chairman can influence a major market rally without ever having to face the growing dissent within the FOMC ranks, then his speech has proven to be a stroke of genius. That is the essence of rational expectations, making others believe you have magical powers so that they do your bidding without any actual work or direct engagement on your part.
But there is a huge downside to waiting, and Bernanke knows it. The financial crisis grows while the economy is sliding further into contraction. Time is not on his side.
So why does he wait?
Simple, Bernanke and QE is in a box – conditions currently in the wholesale money markets, especially the repo market, will not suffer more QE. As the unsecured Fed funds and eurodollar markets have effectively frozen for banks outside the primary dealer network, wholesale funding has been left to repos. However, there is already a shortage of treasury bills, the prime, vital collateral of nearly all post-2008 repo funding arrangements.
QE is nothing more than an extraction of those bills (and notes), creating that shortage in the first place. So while the primary dealers are loaded up with Fed-created bank reserves, they are not forwarding them to the wider marketplace out of well-founded fears of PIIGS exposures and currency mismatches between assets and liabilities. Despite an ocean of liquidity at the center, the wider system is now a desert. The Fed is held hostage by the operational realities of the design of the Federal Reserve system.
Should the Fed embark on a new QE program today, it would simply extract more of that vital collateral, exacerbating the shortage to the point of significant voluntary capital destruction – banks would be forced to take on t-bills at greater and greater negative rates. This kind of situation is purely deflationary, and nothing scares Bernanke more than that dreaded d-word.
As long as the unsecured markets remain in limbo, and they will as long as the global banking system is hiding its problems, the Fed CANNOT launch another round of QE, no matter how much Bernanke might want to. In the calculus of monetary primacy, the banking system will win every time, even at the potential expense of stocks and rational expectations.
So the Chairman is forced to jawbone stock investors into believing QE is not yet appropriate (they are constantly monitoring the economic situation), but is still imminent. Meanwhile, the Fed is actively engaged in expanding the reverse repo program to help alleviate the bill shortage. While no one was looking, it has taken its aggregate of reverse repo transactions to nearly $100 billion, from only $65 billion at the beginning of August.
Reverse repos are an exit strategy, not monetary accommodation. But, in the context of the wider wholesale market freeze, reverse repos expand the amount of treasuries, especially bills, available to be used as collateral by financial institutions outside the primary dealer network. As much as the Fed adheres to flawed ideology and oft-times inconsistent theoretical constructions, it is not likely to engage in monetary programs that are directly contradictory. Reverse repos and QE would cancel each other out.
Cont'd
The cue for more QE, then, is t-bill rates. If the shortage resolves itself at some point in the coming weeks, then the green light is on. There is no doubt that given that green light, Bernanke will take it – he has to if for no other reason than monetizing the debt (which may not be a problem right now, but it will be at some point). The question for September is, among other pressing concerns, whether or not the unsecured markets thaw enough to remove the squeeze in repo collateral. If that does not happen, stocks are certainly not positioned for a second consecutive episode of crushed QE expectations.
It may not matter anyway. The selling we saw in early to mid-August was precipitated by the banking squeeze to begin with. Should that intensify, the expectations of stock investors outside the general banking system will be the least of our problems. For now, Bernanke’s mystique will be tested in the coming weeks. Moral suasion is good for the textbooks, but it usually has little use during a real crisis.
Wendy:
Thanks, will look back. I have followed FOFOA (et al) for a while now and know they ain't fans. :)
That's okay; as mentioned, I am trying to loose some in exchange for gold.
I think you'll find alot of contraband silver owners in this blog IronSheild...... myself included.
It's a bone of contention that comes up now and then.
We bitch, and then get over it.
The number one thing this site has done for me is to get me out of silver. I made out great up to May, 2011 then I took a beating and with what was left of my winnings I bought gold. The key for me was the realization that BECAUSE of its high industrial value silver can NEVER be a monetary metal. The world won't tolerate its monetary metal becoming suddenly scarce just because some new application requires it. I believe it will go up again but being in gold is just safer. Besides after the vents of early May I see why some call it the Devil's metal.
Edwardo,
Thanks for the quotes from Jeff Snider This article may slot in with your reading. The timeframes quoted in this research seem to fit with the events currently unfolding. If this researcher is correct then Bernanke may not have to wait long for the justification he needs.
(Disclaimer: not sure about this Stanford U writer's economics but the data is interesting.)
http://www.voxeu.org/index.php?q=node/6846
The research says: Uncertainly leads to recessions
I have studied 16 previous uncertainty shocks – events like 9/11, the Cuban Missile Crisis, the assassination of JFK – and the only certain thing about these is they lead to large short-run recessions (Bloom 2009).
When people are uncertain about the future, they wait and do nothing.
Firms do not to hire new employees, or invest in new equipment if they are uncertain about future demand. Consumers do not buy a new car, a new TV, or refurnish their house if they are uncertain about their next paycheck. The economy grinds to a halt while everyone waits.
Durables are the hardest-hit sectors.
These uncertainty shocks hit hardest the sectors that make durables products – those like cars, TVs, and furniture. These are goods that we can wait to replace. These industries typically see massive falls in demand, often of well over 50% as people put off purchasing expensive new goods for another six months.
Woo hoo more debt deflation
Part 1/2
h/t JSmineset for the link.
……. The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors -- vulture funds…….
…… In the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates…..
It’s a shame the debt is sitting on the taxpayer’s balance sheet. (Though I’m not sure the writer is seeing this deal in the right light.) Now the question on everyone’s lips may be: Why would anyone want this crappy real estate?
Well, here’s the funny thing about Land (“real property” is a legal term for land hence real estate). It is almost never completely valueless. It always has some use value. It is merely a question of price and determining the highest and best use. How much of suburbia in the USA was built on good farmland and woodland?
One reason for buying one of these portfolios might be to remove housing stock from a market where you have a lot of foreclosed homes on your books. Alternatively it could allow you to reduce the average amount that each of your existing portfolio of foreclosed homes owes you when the two portfolios are combined. In yet another variation on this theme if the rental income overall is high enough the combined portfolio might become self-funding. Then you don’t need to sell any of the houses.
You might also be able to sell off some of the portfolio to adjoining owners for what they perceive to be a cheap price. You pay cents on the dollar while some of those owners may be happy to pay ten cents on the dollar. There are always ways of making a large portfolio of real estate pay if you are well connected, smart, flexible and you buy it cheaply enough.
And there are other ways you could play this too if you were a big picture guy or gal.
Continued/
/Continued
Part 2/2
So allow me to speculate on how you might play a situation like this if you had plenty of ultra low cost funding, time was on your side and you were politically well connected:
1. Rent some of the homes to families who are on government rent assistance programs.
2. If you can obtain a “holding income” (making it self funding) on the portfolio then you can use it as the foundation for a long term land aggregation. If the housing market gets weaker that is just fine as it exerts downward pressure on the other properties that you want to buy in order to complete your aggregation.
3. If you want to position the land for another use (eg. returning it to woodlots) the trick would be to argue for subsidies to remove the infrastructure you don’t need (some water reticulation, sewer, roads, sidewalks and easements for other services). You base your argument on the cost reduction for the municipality in maintenance, waste removal and so on.
Bear in mind too that all of the roads and other encumbered land gets opened up as well in the process of removing the infrastructure. Since it has no “value” to anyone else the aggregator is the only buyer. Assume that the municipality is becoming increasingly strapped as its income base shrinks and debt burden becomes harder to service. You might pick up the land under those roads etc for a song as well.
4. You would also keep an eye on the larger parcels nearby (in municipalities that have restrictive zoning laws). The decline of the area might shake loose some large parcels such as derelict local supermarket complexes and industrial facilities.
FOFOA about UoA:
"The fundamental difference between these two units of account (the dollar and the euro) is their relationship with gold.
If you have followed my blog at all, you know that the euro has Freegold, the wealth consolidator and "real money" with no country, no links and no political union to back it. So which unit of account (€ or $) is closest to gold? Which currency, of these two, is most likely to be preferred as the global reserve currency next to Freegold in the wealth reserve role?
The point is, once "Freegold" (nature's wrath) inflicts itself upon us all, it won't really matter what is chosen/used as the super-sovereign or supra-national currency to lubricate international trade. It could be the euro, the yuan, the SDR, Facebook Credits or even the dollar! Triffin's dilemma will be gone. And you shouldn't worry so much over the transactional currency question, because that will be chosen through the market forces of regression, the network effect and game theory's focal point discovery at the international level."
What I am trying to say; it DOES matter "what is chosen/used as the super-sovereign or supra-national currency to lubricate international trade"
This should be free from nationstate/zone !
or we have a strong-(fill in the currency here)-policy all over again.
think real hard on this !!
What I am trying to say; it DOES matter "what is chosen/used as the super-sovereign or supra-national currency to lubricate international trade"
You don't have to keep repeating yourself, its mind numbingly obvious 1) what you think and 2) what you don't understand.
This should be free from nationstate/zone !
or we have a strong-(fill in the currency here)-policy all over again.
No, you miss the whole point. Its all about the store of value. With a stable store of value, it doesn't really matter what the transactional medium is.
You, like MA, view the world through the modern monetary lens, where FOFOA's dilemma is still firmly in place. Sovereign currencies trying to be a MoE and a SoV are the issue, and until your confront your enormous blind spot towards this issue you will be stuck wallowing in the muck with MA.
Excellent Victor,
You have done a great job of trying to understand. You basically there in terms of agreeing with us, and you get the big point that, as I like to say, the "euro was built to print:
"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.
**********************************
But you still don't get the import of this, because you write of stuff like:
This is the reason why the ECB is trapped. Either they treat future debt the same way as existing debt and buy a good part of the running budget deficit, or they immediately face the choice between depression versus buying all debt for cash.
This is qualitatively the same decision as in the US. The difference is one of degree. As a very rough estimate, the US have twice as much debt per gold reserve, and their annual deficit per GDP is twice as high as in the euro area. So, yes, I agree the US will probably win the race to the bottom, but the ECB will follow and come a close second.
Of course, that's the whole point of the post you are responding too. You are still a step behind, there is no dispute about this, of course they will print:
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.
cont.
cont.
In terms of trying to understand the future debt obligations, think on this:
The euro might quickly devalue against the physical plane during the transition when the $IMFS goes to relieve 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.
**********************************
A quick devaluation (against the physical plane) in both the euro and the dollar would have very different outcomes for the two currencies.
Remember, its not about printing per se, its about market demand for the currency, the printing is a response to the loss of value. So what happens when both the dollar and the euro devalue? **Very different outcomes for the two currencies.**
**********************************
FOFOA on HI and the importance of demand:
it is the demand side—the marketplace—that devalues any currency. Sometimes it just comes as a quick collapse to a lower value, devaluing all the built-up debt (denominated in that currency) to a more realistic and manageable level. Other times TPTB fight to retain their power by printing up payments (to vital vendors) that can still be exchanged in the real terms implied by previous nominal agreements.
In Mugabe's case, he had to keep upping the denomination of bills on the printing press to keep paying his security forces in real terms. If an apple costs a million, then you've got to pay your goons at least ten million an hour. This creates a conundrum in the real physical world of paper printing. The only way to increase your output faster than the market is devaluing your damn currency is to start upping the denominations faster. Otherwise it is physically impossible to do...
As the length of time in which a currency holds its value grows shorter, bank credit gets discounted by the market versus cash. Cash holdings can be flipped quicker than bank credit which must be cleared. This discount raises demand for physical cash...
Remember, it is value, not volume, that disappears when credit collapses. The printer tries to replace that value with volume, the only thing he can print. It is the supply side easy money camper trying to outrun the demand side bear that is killing value faster and faster. More and more volume replaces less and less value until finally the bear catches up."
Cheers, J.R.
you simply don't understand hedging and trade JR ...
It is you who is missing the point,
because you stubornly refuse to grasp another perspective !
you (or FOFOA) simply stating "it doesn't mattter what the transcational medium is because there is stabilty in store of value" does not make is so.
sorry.
I am not viewing through modern monatary lens, I am viewing from international trade and hedging perspective.
something you fail to see ...
Hi Paul,
here are some of FOFOA's comments on Strong Dollar Policy.
Are you suggesting that under Freegold, certain supra-national currencies will still be open to abuse via such "Strong Currency Policy"? How will this abusive policy be effective when the currency's true value can be seen by measuring its value in gold, the ultimate UoA?
By the way, I'm undecided on this point of discussion of whether there needs to be, or will be, a supra-national currency for convenience of UoA, but it seems on the surface to be an unnecessary complication. What is it from the trader's perspective that makes it seem necessary?
MF, good catch. My take was that he was telling Geramny to pony up. Not so sure they care what he thinks at this point. It looks increasingly like the whole EFSF thingy is going to be marginalized, and they will just turn the ECB into the Fed, except with a back-door escape hatch if the PIIGS can't rein in their budgets.
Ie, I thought the core was going to kick out the peripherals, now I think Germany and the northern states may just leave the euro if it proves insolvable. It seems to be a more elegant solution for them.
One thing I have watched with amusement is how none of the national CBs seem to be willing to part with their gold for collateralized loans. I thought this was "eurozone
gold"?
Some interesting stuff in this Mises video.
http://www.youtube.com/user/misesmedia#p/u/0/TxcjT8T3EGU
Before the Federal Reserve the US actually had an independent treasury for 15 years starting in 1846.
"It may have been the best most stable monetary system the US ever had. The Mexican war which began in 1846 is the only war in US history that was not at least partially funded by paper money inflation. There was no pre war boom or bust before or after the Mexican war. (45 minutes in.)
@ Texan
"I thought this was "eurozone
gold"?"
It's all on the ECB balance sheet.
@ Paul
You just don't understand freegold yet. Freegold changes international trade.
M,
Lol.
I didn't see the Germans ask for the "gold on the ECB balance sheet" to collateralize the loans. I saw them ask for Greece and Portugal and Italy and Spain's gold.
To the best of my knowledge, the countries in question have yet to respond. Why didn't they just say "hey Germany, don't you know all our gold is already on the ECB balance sheet?"
I don't know why people put stock in what Martin Armstrong says; his personal history eliminates any credibility he might have IMO, but whatever.
You guys need some hair of the dog:
FOFOA: As for the BIS utilizing the SDR, this doesn't surprise or alarm me at all. What other choices did it have at the time? The more virtual the unit of account, the more totally demonetized gold is. Gold is extremely buoyant against virtual currencies. It certainly floats better in a sea of virtual numbers than against a gold coin, wouldn't you say? And floating is what makes gold a pure wealth reserve!
As I have written before, the SDR is a completely virtual currency. It is so virtual, it is not even a currency, but a potential claim on one of four major currencies. If you need one, you just pick the one from the basket that you need and that country will then, and only then, print them up for you in exchange for your SDRs. So it is a virtual derivative of purely symbolic currencies. It is designed to behave as gold will ultimately behave after the transition to Freegold, to float against all currencies in a way that exposes over-printing in individual currencies. Only the SDR uses other currencies to do this, rather than gold, making it difficult when its entire basket is printing like crazy.
As you all know, I don't expect the euro to fail. The euro is designed for transition. It is designed for Freegold. And the specific value of a currency doesn't matter in its primary role as a medium of exchange. Only stability matters, and the euro could handle a big one-time devaluation to a more stable level. It will have to devalue at one point or another. Devaluation is inevitable for all fiat currencies today. The European politicians apparently understand less about this than the central bankers do.
Even still, exiting the euro would be a Herculean task for any country. They'd have to reissue currency and re-denominate all long term private contracts, and then face the old risks of war and hyperinflation once again. For this and other reasons I am highly skeptical about reports of politicians making boisterous threats to leave the euro. They seem pretty empty to me.
ANOTHER: "...If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work"
@ Texan
"I didn't see the Germans ask for the "gold on the ECB balance sheet"
That is the gold they where referring to.
Sean,
I will try to explain.
We will never have a one world government. People are too different for that.
On world scale you can never agree on anything.(unless we face attack by aliens, but highly implausible) Agreed ?
We do have a global economy. Even if we did have a one world government, they could never control this. A politician who claims he could, doesn’t know shit from shinola. Agreed ?
Because we will not have this one world thing, we will be faced with a couple of economic zones, I imagine in the end the differences between them are merely cultural. Some people just don’t mix. We probably agree here also.
When we reach freegold, every zone will have to be included. It is all or nothing. A currency that does not have gold MTM will not buy a lot off oil. Those currencies will, without an independent world currency, all compete to be priced best in gold and oil.(same) to ultimately become that word currency, because there is a lot to gain with that.
You really really really want the house of international trade to use your currency to settle all international contracts. Even when you can’t use a loaded gun, it is still better to let other people dig. You ask mister dollar about that.
To think the house of international trade can use gold for this instead of a worldcurrency is underestimating the magnitude of the market. Trade is not about value, but about the differences in value. Physical gold market is not very big. World trade is a little bit bigger.(smile) Countries could use BIS, but how will multinationals cope with this ?
Or webshops ? or anything long term that has to deal with currencyrisk, which will always be there. How could you hedge ? in “pure” freegold there is no alternative for gold.
But you don’t really want hedging in gold because that puts extra pressure on the price. How can we see in goldprice which bit is true value and which bit is actually insurance ? This was supposed to be stable …
Not to mention how highly impractible high(er) gold prices will be for companies who have to store it to simply do their business.. All the extra security costs. you want to make profit you know …
An idenpendent UoA would not have these disadvantages, but instead would benefit all. It is just there to be practical and give noone disproper advantage.
can we agree somewhere here ?
Jeff, Martin Armstrong's personal history is beside the point. His ideas must stand or fall on their own merits. To make judgements on his pronouncements based on anything other than their substance is, in essence, an ad hominem. I am saying this as someone who A.) wouldn't trust the man as far as I could throw him and B.) as one who finds his writing in desperate need of a strong editorial hand.
M
That is a nice defensive soundbite
could you also be brave enough to share your thoughts how you come to such a bold conclusion
you may think it sounds intelligent, but it actually does not
I respect FOFOA more than enough to not come with gibberish. could you do the same please ?
thank you
To think the house of international trade can use gold for this instead of a worldcurrency is underestimating the magnitude of the market.
Paul,
I think you are underestimating the utility of gold.
@ Paul
Currencies will derive value by how inherently productive their economy is. The more productive it is, the cheaper gold will be in the said currency.
Edwardo,
MA's ideas are based on the thoughts of MA and nothing else. His cycles and turns are future predictions based on the thoughts of a man who bungled his own future badly enough to spend extra unnecessary years in prison. I think it is not ad hominem to consider the source of his predictions, which is his own beliefs, and how he applied them to directing his own future.
Paul said: A currency that does not have gold MTM will not buy a lot off oil.
Not necessarily true. If the currency is backed by a well managed economy it may be strong. Gold is not a pre requisite.
Paul said: Those currencies will, without an independent world currency, all compete to be priced best in gold and oil.(same) to ultimately become that word currency, because there is a lot to gain with that.
Wait, now you say the currencies without MTM gold will compete to be the reserve currency? Even though the thrust of this blog (and world history) is that unbacked reserve currencies always fail? And in your quote above you said they would be weak to begin with? Yet somehow you think they will succeed where the floating gold euro does not.
Interesting.
M
and this somehow changes world trade in such a way all problem I mentioned disappear.
this took you a minute off thinking at least wright ?
headache ?
Paul said:
"We will never have a one world government"
I think you are overlooking the fact that the banking cartel already controls those countries with Central Banks, and the ones that don't, are at war with the US and will have soon.
Jeff
"Not necessarily true. If the currency is backed by a well managed economy it may be strong. Gold is not a pre requisite."
I agree. at the end it is about confidence that money can buy you what you want. preferably more.
second part i have to read a few times more before I really understand what you are saying. no offense.
will react to it when I have something to say about it.
Did you know China uses Renminbi as well as Yuan ? Renminbi is the MoE, where Yuan is the UoA ... interesting no ?
Jeff wrote,
"His cycles and turns are future predictions based on the thoughts of a man who bungled his own future badly enough to spend extra unnecessary years in prison. I think it is not ad hominem to consider the source of his predictions, which is his own beliefs, and how he applied them to directing his own future."
Jeff, while it may be tempting to conflate the decisions Mr. Armstrong made regarding his legal troubles with the thought processes that inform his views on economic and market cycles, that is, in my view, of questionable validity.
Paul
Trying to follow you is like trying to follow a backfiring old van. Very difficult to see where you are when you keep belching out clouds of black of smoke. Occasionally I get a glimpse of you, and then BANG, Splutter, Splutter, more oily smoke.
The trade imbalances you talk about are currently stuffed with paper, paper increasingly anchored to nothing. This allows volatility, which is exploited by currency "traders", which increases the volatility, which is exploited by traders...
Freegold settles the trade imbalances with something other than paper. Everything gets anchored, less volatility, less explotation.
"You really really really want the house of international trade to use your currency to settle all international contracts."
When you see what is going to happen to the dollar, then no, you really really really don't.
Paul_I
am not talking about trade imballances, i am talking about currency risks and hedging problems.
the answer for the problem can not be found in the saver debtor conflict, because the problem is not with store of value.
dollarproblem now has nothing to do with being UoA, but evertyhing to do with mismanagement of MoE.
bit different you know ...
off for know
more later
Paul
I don't agree with you that currency risks and hedging problems are unrelated to store of value.
Currency risk can be managed quite effectively in "normal" fiat times. It's only when the sheer volume of accumulated currency that cannot be cleared starts to topple, that fx markets struggle to cope and blow up a la 2008.
Clear the overhang, and the fx markets will do their job effectively. No more carry trade.
You are right, with a single global trading currency, there would be no need for currency hedging. Great. Not going to happen. What is happening is increasing bi-lateral agreements. That alone will reduce currency overhang. Any remaining will be cleared with gold.
Why do you say the gold market is not big enough?
I am not saying that they are unrelated. offcause they are !
I am saying the solution can not be found there, because it is not where the problem is ...
money has three functions, and somehow, everything should be solved bij splitting just two of them ? no go !
Yes the goldmarket is much too small to catch world trade.
to say it is not, is to say all animals are cows ...
also
there will ALWAYS be a need for currency hedging, that is exactly my point.
but you want to do this in the independent UoA instead of gold.
you did not get that part ...
"All great men can change minds"
Paul 2011 (c)
;-)
http://en.wikipedia.org/wiki/Catallactics
Ludwig von Mises about catallactics;
"It aims to analyse all actions based on monetary calculation and trace the formation of prices back to the point where an agent makes his or her choices. It explains prices as they are and not as they should be. THE LAWS OF CATALLACTCS ARE NOT VALUE JUDGEMENT, BUT AIM TO BE EXACT, OBJECTIVE AND OF UNIVERSAL VALIDITY."
interesting no ?
Hey Texan
Sure he is telling the ECB to play ball, i.e. print or do bonds. My question was what is he threatening to do if they don't play ball?
I liked imagining Robert de Niro in his role in The Godfather reciting that line by teh Bernank. :D
As regards the gold. I'm unsure. I know there was a minimum requirement of 15% initially of assets that had to be gold. Are you assuming they all had only exactly 15% ? Might there not be extra gold; non ECB gold?
TF
Paul
The combination of your arrogance and ignorance is truly a sight to behold.
TF
Paul says,
Did you know China uses Renminbi as well as Yuan ? Renminbi is the MoE, where Yuan is the UoA ... interesting no ?
Whoa brah, that's kinda lame.
That's like saying the FRNs and US coins used in America are the medium of exchange while the dollar is the unit of account. Obviously a dime is not a dollar, and neither is $100 bill. Wiki says:
"The Renminbi (RMB, sign: ¥; code: CNY; also CN¥, 元 and CN元) is the official currency of the People's Republic of China (PRC). Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC.[4] Its name (simplified Chinese: 人民币; traditional Chinese: 人民幣; pinyin: rénmínbì) means "people's currency".
The primary unit of renminbi is the yuán (元). One yuan is subdivided into 10 jiǎo (角), which in turn is subdivided into 10 fēn (分). Renminbi banknotes are available in denominations from 1 jiao to 100 yuan. Coins have denominations from 1 fen to 1 yuan."
We could use different names too. Like hundies, fins, singles, dimes, nickels. Dollar = unit of account, the "how we mentally price stuff." We think in terms of dollars. The dollar is the money. People exchange the dollar in various denominational units (fixes, quarters, etc).
In China they do not say "I've got a million Reminibi" just like an American wouldn't say "I've got a million currencies."
This isn't a deep concept. Its almost like someone is using semantics to make the simple seem deep.
Cheers, J.R.
Paul said..
am not talking about trade imballances, i am talking about currency risks and hedging problems.
the answer for the problem can not be found in the saver debtor conflict, because the problem is not with store of value.
dollarproblem now has nothing to do with being UoA, but evertyhing to do with mismanagement of MoE.
bit different you know ...
off for know
Paul, you really dont understand currency problems and hedging risks.
I think youll find the missmanagement of the dollarproblem combined with the duallity of the UoA is causing your problems of understanding as regards to the need for a stable SoV.
Think long and hard on this,(at least six months would be good)
You ll find it makes a lot more sense than anything you ve wrote.
True, know?
Regards
Ozzy
nice one ozzy
another soundbite without touching any content. you go join the rest off the band ok ?
when I make bold comment i try to explain my line of thinking. I do realise that a lot of you probably can only read it, but will not understand it.
I don't care, I know for sure there will be others who i know CAN think for themselves.
Like I said before, i am no guide, I am thinking out loud here.
But the more I am thinking, the more I know I am wright.
there is few things that seperate the men from the boys, one thing is be brave enough to face public when there is problems on the horizon and things need to be adressed.
you could at least show respect
thank you
and another thing
this band off brothers scared prete away, really a shame, she seemed pretty smart.
you don't like women or what ?
;-P
Paul,
Why do you repeat such statements as this?
'Yes the goldmarket is much too small to catch world trade'.
Did you see RLP's reply the last time you said such a thing?
Paul,
I think you are underestimating the utility of gold.
FOFOA, Thanks for your Thoughts. Regarding GLD Puke, from the chart it appears total physical holdings of gold in GLD has been increasing in the last 5 years. This begs the obvious questions, who is supplying physical gold to GLD ? And should increasing physical holdings by GLD be bearish ? Thanks for your thoughts!
Mike
Jeff
I saw that particular soundbite yes, but for me RLP has joined the band off brothers long time ago
I decided to ignore it, because off the stupidity off it.
You guys don't realize there is just so much more to this. you are getting lazy, waiting for FOFOA to do thinking for you.
gold will never save you from laziness or stupidity
nuff said
Funny enough, Paul, I was just thinking how much of a shame it was that you couldn't keep up the Prete thing. It would have been hard work, but I'm sure worth it for entertainment value at least. Would you like some more tea, Clyde Frog?
Why don't you get on and spit out the summary of where you want to take us with your unified global UoA initiative? Are you edging towards the SDR door, by any chance? Perhaps you can distill down some of your wisdom for us, to explain exactly why a UoA is not only desirable, but necessary and inevitable? We are pretty clear here why a global SoV is required; that's what this blog is all about. If you have something that says this blog ought to also be about a global UoA too, get on with it.
Well Paul. There are a lot of braniacs on this blog who understand far more about the monetary system than me or you and none of them understand what your talking about.Those that have grasped a piece of your argument have dissagreed with it.
The posters sex has nothing to do with anything.
Whether or not their a product of your imagination does.
As for knowing your wright...
Dude, you ca'nt even spell right.
Regards
Ozzy
Paul,
Stupid is as stupid does.
You seem to like the SDR; have you read the Palais Royale initiative, link provided by Mortymer? You really should, to see what central bankers think of the SDR.
Another angle
To only see big dollar problem in SoV, but to not see dollars great performance as a UoA, is only seeing half off the picture. there are always two sides off a medal, you just can not ignore the other side.
to give up the one, is to give up the other. When you see the advantages there are in this one UoA, you also realise the big problems caused by giving this up. you are talking meltdown here !
you just don't want trade volume falling back half a century.
(wild guess)
Jeff
I probably dislike the SDR as much as you do, but with other perspective I look with different angle to this. I gave not decided yet, but It could be a start to something usefull.
I would rather see something like former ECU. just a UoA. nothing more.
My guess is the brainiacs are probably busy thinking at the moment Ozzy, they will understand Mises, I certainly do ...
Still waiting for you to clearly present your point, Paul. Don't keep driving around it, just point your finger now please. What you are trying to say is straightforward, so there is no need to come at it tangentially.
It is even me on the picture DP,
I only need one identity, so please cut the crap.
I just looked at your profile, I see you are an IT consultant.
well, let's look at this from software perspective. lets look at performance. you with me ?
How would you write the code to do this ?
;-)
You see something like former ECU whenever you open your wallet, they renamed it the euro when they made it a MoE as well as UoA.
If I had to write the code for a new UoA, I would save wasting a lot of money and time for my clients, by telling they should simply reuse the opensource code from the ECB, rather than wasting resources reinventing the same wheel.
Now, back to you getting to your point?
I would never hire you as a consultant ...
I was hoping I might trigger some braincell left up there by referring to something you might understand. But hey, you are in IT for the money instead or so it seems, where me was always in it for the beauty off the programming itself.
have been doing that for a while too, and from that perspective you would see the middleman is needed,
or this succer perfoms like hell.
It is all in the architecture, I should not have to tell you this.
but was maybe a little optimistic,
you just send your clients big bills where you could also really look into their business. no, you just refer, and hide behind the big boys.
shame
Paul,
I regard myself as intelligent and knowledgeable, I understand the concepts spoken about in this blog but I don't understand what you are talking about.
Could you please use simple language and talk to me like I'm not educated at all and explain your overall point?
I follow FOFOA and as he says in this post about freegold "All I do is test and retest it through this blog."
If you have a test to offer here, please do so extremely clearly with simple precise words. I believe many of us here will relish the challenge you offer, if only we could understand you.
OMG the irony. What you mean is you would look to waste a lot of their time and money on your ego trip, like so many others before you that tarred the whole industry with their brush. Looking at your picture (please don't put that finger in your dog's ass BTW, it doesn't look happy about the arrangement), I have been a practising IT Consultant longer than you've been eating solid foods. However, we're not here to talk about how wonderful your codemonkey skills are, we are here to talk about a global UoA. So talk about it.
Paul, if I understand correctly, your arguments against the use of gold in settling international trade are:
1) The physical gold market is not big enough. By this, do you mean there is not enough gold? What if the value of gold is 30 times what it is today? 300 times? You dismissed this suggestion when made by RLP but I can’t see why. Gold can take whatever value is necessary for it to work.
2) There is no way to hedge. I’m not sure I fully understand this point. Hedge against what? Is your concern that there would be a premium of exchanges using gold because of the security risk? I think this risk would be judged worth paying since it is less than the risk of worldcurrency inflation.
3) The storage security costs and presumably transport costs etc of gold are prohibitive. The same problems would apply for companies that store wordcurrency of the same value on their premises. The solution is to keep digital records of unique worldcurrency/gold ownership and store it somewhere else (banks/ clearing houses/BIS).
I agree it is a great shame that the insulting language towards Prete appears to have driven a new member away. One of the many inspirational aspects of the writings of FO/FO/A is the complete absence of arrogance and it would be nice if everyone tried to emulate this aspect as well as the superior-understanding part! ;-)
Sean,
I like your answer to Paul: Gold can attain any price necessary for it to function. And also worth pointing out: When we talk about gold being used to settle international trade, it doesn't have to be used in every fscking trade. It is just used to settle surpluses/deficits at the end of [day/week/month/quarter/year].
/Burning
Gold Coins: The Mystery of the Double Eagle
How did a Philadelphia family get hold of $40 million in gold coins, and why has the Secret Service been chasing them for 70 years?
BusinessWeek, August 25, 2011
"The most valuable coin in the world sits in the lobby of the Federal Reserve Bank of New York in lower Manhattan. It’s Exhibit 18E, secured in a bulletproof glass case with an alarm system and an armed guard nearby. The 1933 Double Eagle, considered one of the rarest and most beautiful coins in America, has a face value of $20—and a market value of $7.6 million. It was among the last batch of gold coins ever minted by the U.S. government. The coins were never issued; most of the nearly 500,000 cast were melted down to bullion in 1937 ..."
Rick Ackerman falls off the hyperinflation bandwagon (again?).
http://www.zerohedge.com/contributed/prepare-be-forgiven-ye-mortgage-sinners
I thought this guy was a convert...did I miss his relapse?
sean
thank you for your response,
but I do not agree with you and you did not really get what I was trying to say, but I don't blame you for it, I blame myself for not getting this into the wright words and get this explained.
I know about gold and value,
gold is the ultimnate champion of it. it can deal with all the wealth you can imagine. infinite. I realise that.
Most of you do not realise this is NOT about value. this is about the differences in value and the pricing mechanisms in the market between competing economic zones.
this is really complicated stuff, you will not find anything in the goldtrail about, and gold will not function there. you dont't want that. It is store of value. nothing else.
This little theory of mine is growing. just reached totally differnt level. you guys are gonna hate me for it ;-P
In rennaissance we learned to seperate church and state, this big bang will teach us also to seperate market and state.
and you know what ?
this will effectively have seperated power and money and it is not before then that we will reach freegold.
church - store of value
state - unit of account
market - medium of exchange
I am gonna call this thing Harmony.
nice uh ...
;-)
Paul
I decided not to reply to you anymore because A) you have ignored every reply by me thus far and B) I can't be bothered with the utter nonsense you are talking.
However. You are starting to really annoy me.
I do understand what you think you mean. You do not see yet why it wont be relevant under Freegold.
For example, you talk of currency hedging.
As I remarked earlier your ignorance and arrogance combined is astounding.
Please do yourself the favour and research A) when countries and businesses started hedging for currency risk and B) why this was needed.
It will take you some time, but do get back to me once you have done so and we can try having a sensible discussion.
TF
Paul said: "Did you know China uses Renminbi as well as Yuan ? Renminbi is the MoE, where Yuan is the UoA ... interesting no ?"
Dude, you have to explain this for me. Please. Please? Please explain how the Renminbi and Yuan are different.
paul said..
I am gonna call this thing Harmony.
Dont know about anyone else but i m going to call it bullshit.
Regards
Ozzy
On a completely different note now, here is some more actual detail about PAGE (Pan Asia Gold Exchange) opening Q1 if 2012 for all investors with delivery in China, London, Middle East, etc.
As in previous info: 10oz bars, fully backed contracts 1 to 1.
Richard Poulden talks with James Turk
Paul,
u know what ?
this will effectively have seperated power and money and it is not before then that we will reach freegold.
church - store of value
state - unit of account
market - medium of exchange
I am gonna call this thing Harmony.
I want whatever shrooms you're having. Looks really fun.
Most of you do not realise this is NOT about value. this is about the differences in value and the pricing mechanisms in the market between competing economic zones.
Probably. Please enlighten us then. I'm now of the opinion that physical gold is enough to clear the deficits between different MoE zones. FOFOA's writings convinced me of that.
You need a really good argument to convince me that some supra-national virtual currency is needed as UoA in this equation, once physical is trading freely in all currency zones.
Occams razor?
/Burning
Hi Aquilus
As far as I understood they have already opened? At the end of June If I recall.
Clicky!
I have been trying without success to find information on the volume traded. Haha.
Perhaps this is why.
TF
Towards the end of the video, you'll find the dates. International trading has not opened yet.
Even Chinese trading only starts at the end of 2011 I believe.
Thanks. :)
Aquilus,
'Fully backed' is a bit misleading. PAGE will allow trading on margin.
Regarding Unit of Account...
I see the UoA as a subjective thing that we don't need to share on a global basis.
When I visit other countries I normally do recalculate prices to my local currency, but when staying in that country for a while I begin to think in that currency for the things I trade the most.
When convenient I sometimes convert prices of stuff (in my own country or other places) into cases of beer or sometimes the amount of the gold-coin I most often purchase.
Other people don't need to know about my internal unit of account being beer or hookers. The trade works for them anyway!
When completing a trade in a foreign country I notice that both the seller and I are usually satisfied by the trade, even though I know that we have used completely different UoA...
The only exception maybe being when buying something in Switzerland. Then things are just too damn expensive ;-)
In conclusion: Unit of Account are in my experience mostly of use subjectively. If that personal experience can be expanded to larger units (pension funds, giants and such), which I think it can, then it is completely superflouus to have some global UoA forced on the world.
Occams razor?
/Burning
Hi Jeff,
I would really like to get clarification on their margins and clearing process. Would you happen to have a link to any place that describes the margin requirements?
Thanks
Bloomberg's chart of the day:
Gold’s ‘Absurd’ Price
Just a quick quote from this gem:
Investors can get a 130 percent return by investing in Dow stocks over the next two decades even if earnings rise by 2 percent under a deflationary scenario, Wadle said. To match this performance, gold prices would need to rise to $4,400 an ounce and the total value of bullion must surge to $27.6 trillion based on current and future supply, he said.
“This is absurd because it would represent two times the U.S.’s current gross domestic product and more than twice the current value of all U.S. equities,” he said. “The gold price is an absurdity waiting to correct.”
Here you go Aquilus. Margin is in chapter 2.
http://www.pagold.net/List.asp?C-2-78.html
Analysis: Record prices spawn new wave of China gold bugs
Thanks Jeff, that's very helpful.
Just quickly perusing the contents, does this make sense to anyone?
At The Rules on Physical Gold Transaction of the Pan Asia Gold Exchange
Article 10 Transaction modes
10.1 Gold transaction adopts a form of margins. The current types of margin suggested by the Exchange are 100%, 10% and 5%. Traders may choose different margin types in accordance with their needs to conduct trading activities. The Exchange may adjust or introduce margin types based upon market situations.
I mean, which is it? 100%, 10%, 5%? Sound like the classic scene from Raising Arizona:
Gale: All right, ya hayseeds, it's a stick-up. Everybody freeze. Everybody down on the ground.
Feisty Hayseed: Well, which is it, young feller? You want I should freeze or get down on the ground? Mean to say, if'n I freeze, I can't rightly drop. And if'n I drop, I'm a-gonna be in motion. You see...
burning fiat
"if that personal experience can be expanded to larger units (pension funds, giants and such), which I think it can, then it is completely superflouus to have some global UoA forced on the world"
no you can't !
this is comparing an oiltanker with a speedboat. they behave totally different.
Fool
sorry !
no arrogance here, just holding ground, and thinking out loud ...
you being annoyed is off little importance to me, it is not my purpose, but sometimes it can not be helped. Does a "sorry" from me help ?
Instead of letting me do the work, why don't you enlighten us all ?
I would love to have a lesson in hedging from you ...
I'm not quite sure why I'm wasting my time on this but perhaps others will also find it of value.
Hedging only became necessary with the severing of the currency link to gold in 1971.
Before then there were no exchange rate fluctuations and no need to hedge for those, and implicitly hedge for debasement policies of governments.
In a free market one of the utilities of gold is that it 'fixes' interest rates. This creates stability.
TF
As far as I understand freegold, wouldn't any surplus foreign currency just be converted to gold at the foreign CB (which created this foreign currency).
If so, where does the need to hedge this surplus currency come from?
Off topic, but could someone please help me get on board with the concept of gold price suppression?
I've done lots of googling for news, but all of the links seem pretty old. GATA website seems to have very little fresh material. Makes me suspicious...
Here's my main question: If gold transactions are actually occurring at significantly higher prices, then why couldn't I sell my gold on Ebay for a significantly higher price? It just seems like there are enough discrete ways to buy that gold would be a total seller's market, where one could sell at a super high price, then buy more from the bullion sites and repeat?
Dave
I suggest the classic : http://fofoa.blogspot.com/2010/04/gold-money-more-than-meets-eye.html
If you can wrap your head around that it will make more sense.
TF
Thanks for the refresher Fool
GOLD & MONEY: More Than Meets the Eye
Fool
thank you for response
for American companies, I agree,
but this world is not only about american perspective.
there were lots of companies in other countries that were NOT on this gold standard. they had to hedge, and you know what.
they could use this wonderfull dollar. much more convenient than gold.
still with me ?
;-)
Pardon the following OT incursion but can anyone comment on whether or not the CDS spreads are still blowing out on the institutional debt mentioned in the article?
http://www.telegraph.co.uk/finance/financialcrisis/8721151/Market-crash-could-hit-within-weeks-warn-bankers.html
Fool,
Read that post... O M G
Thanks for responding.
DS
@MF Thank you for a fine response and also Indenture for the emphasis.
It reminds me of #60253 from Another:
--
ALL, I could not finish from last post. Have time and will continue now for a short time.
REPLY:
Date: Sun Apr 19 1998 01:42
chas ( Another, rephrase of question ) ID#342282:
In reference to large volume oil producers' sales for currency ( paper ) , do they have to use this currency to buy the gold they prefer, or is there another method or methods to acquire the gold? The main question is, if there is another method"?
Mr Chas,
Yes. Many say, ME producers have no extra money for gold. They are in debt and "just making it". I say, they have much money, just not "your perception of money"! Many producers do not pump at "all out rate", and worlds largest proven reserves are in ground. In "gold market world", oil is wealth, and oil is money! It is the "good trade" to use "oil in ground" as backing to buy much paper "commitment for gold"! Future "currency" price of oil in ground is much unsure, but gold has world CB backing to be of great value, always! CB say, "your oil at $15 to $25, this is good as long as flowing", and say also " your oil pumps shut off, what price gold to turn back on?"
You see, in real world, gold is money, oil is money. But paper currency, it is only a receipt for commerce.
Thank you
Cloud Five,
The need comes from the fact that currently that can't be done. A hedge is required as insurance against reckless monetary policy (today). Under RPG/Freegold you would not even hold the currency of a foreign central bank that didn't exchange for gold. But maybe that was the point you were making.
All, does Freegold refer (to you) to a phase transition or an era?
Andy
Indenture, Dave, Aaron
You're welcome.
Edwardo
Afaik yes.
Paul
It is obvious no have no clue about the history of money. Instead of being a smart-ass, your time would be better served doing some reading.
How about starting with how world trade worked prior to 1913. Ideally you should actually research trade since the middle ages, but the former will give you at least some clue.
TF
Hi Andy,
Correct, that is my point. Although I could see CB's holding some forex to satisfy customers (business) on a day to day basis. Thanks for the confirmation!
Fool
nice one
but just a soundbite here
please show me and the people were I am wrong. I am not affraid to learn anything from you ...
when i am wrong, I am,
but it is only argument that can convince me.
I will be quiet for a while now
I have a response from FOFOA I have to think about. At least he does touch the content.
would not have expected anything else.
respect
also for you Fool,
you are brave enough to touch content. thank you.
back in a couple off days ...
Hi Paul
Yes, my comment was simply a sound bite. What it said was These are the things you need to know in order to gain perspective.
How did you put it? Stop being lazy, or do you want me to do all your thinking for you.
Beyond a minute here and there to reply to comments, I simply do not have the time to rewrite the whole history of money and trade for your benefit.
Coming here it is assumed you already have a good grounding in the history of money and at least basic economic principles and all the major existing schools of thought on the topic. Freegold is not a beginner crash-course.
TF
Cloud Five + And Y
Paul isn't talking about sovereign currency holdings lack of value risk like we have in the present system.
He is talking about trade exchange rate risk, also present in the current system.
For example, let us say I trade with you. Our currency currently exchanges 1 for 1. We sign a contract whereby I deliver goods to you for a nominal price in say your currency.
A couple of risks exist here. For example, the exchange rate could go to 2-1, which means your currency is now worth less or my currency is now stronger. This means you will now need more of your currency units to buy mine, in order to keep your contract. In real terms you will need to pay more.
The rate could also go to 0.5-1. With that whole bugger up it implies.
At present companies hedge for this risk by taking out 'insurance policies', if you will, in the forex markets.
What is needed to facilitate trade is exchange rate certainty, otherwise a profitable agreement may turn into a loss, for either party.
FOFOA only mentions the unit of account function on his blog once or twice. He simply says that the UoA will be either the SoV or MoE depending on what is convenient. This is all that actually needs to be said, despite Paul's blathering.
Under Freegold one can eliminate exchange rate risk by using gold as point of reference in your contract ( the method mentioned by DP where gold is the universal UoA).
In reality the one of the benefits of having a currency link to gold is that this stabilizes interest rates ( a whole other topic ;) ). Currencies will also be managed for stability ( the ECB's only mandate) so there should be no wild fluctuation in exchange rates. One would be able to simply sign a contract in whatever currency you want and factor in the rates of inflation.
If you or your business partner are uncertain about existent risk you may simply use the former option. Bear in mind though that gold would just be used as reference point, the contract would not be able to be forced by law to be settled in gold.
I hope this clarifies it for everyone and we can now stop wasting time with this.
Peace
TF
@MF, I didn't personally so much have a problem with where Paul was attempting to take the conversation, as the way he was going about it and not even actually getting us there. I really thought he might open up the UoA discussion into the realm of SDRs, but that proved not to be the case. After that, I was pretty much giving up hope I would ever understand his point TBH.
It's a shame not to have been flies on the wall of the exchange with FOFOA, perhaps he could see where it was leading, but such is life.
DP
His point? He is a trader. Traders need to hedge at present. It's convenient to have one currency to do so in the present system. And lastly, he is of the opinion such hedging will still be needed under FG.
So he foresees that gold will be the SoV, 'the dollar' I presume the UoA and any currency a MoE.
As explained above, I disagree.
:)
TF
Fool
we still disagree.
you never got what I was trying to say, you did not really try. it is ok.
I am no trader, you could read I am a programmer, but I look at this from international trade perspective, as Armstrong does, and now (think to) see why this is flawed.
I never said the dollar should be UoA, it has been and did very well.
it will not stay. I agree there.
question remains what the new one will be. and all the complications that has. I am thinking on this.
I think it can not be EUR, not because it could crash,(it could, but other discussion), but because of not being neutral. rest of the world learned from this dollarmistake me thinks.
I disagree with FOFOA here...
Indenture
interesting no, I think it is curious, those smart chinese have learned money. they seperated the three functions.
they save in gold now, they have renminbi as a medium of exchange, and they use yuan as a unit of account.
this is hard to grasp from euro or dollar perspective because we did not seperate.
in the past, europe did for a while, we had different mediums of exchange, Dmark, Gulden, Franc, all floating nicely. and we had ECU for accounting. not all trade, some, because there was also dollar, but it was a good start as a neutral unit of account. we just had to start saving in gold and would have had good start with freegold there.
(it was in this time another wrote, maybe he stopped and missed the politicians messing this up close for finish...)
Unfortunately we took the wrong way, political compromise, and went for single currency instead.
the way I look now, bad choice.
the chinese are much smarter ...
Ok Paul
Please enlighten me. What are you trying to say? Why do you think there will be a new UoA?
You vaguely hint that you think it should be something similar to the ECU. What would be the function you envision for the UoA in international trade under FG?
I also would like you to explain the difference between yuan and renminbi as requested by Indenture?
TF
And no just copying and pasting JR's earlier comment on dollars and sense with a couple of adjustments to make it your own, you little scamp you. :)
I don't quite understand why the dollar failing in the SoV function, necessarily and inevitably, means that it could not continue to be used as the primary global UoA in public markets. It would make it more difficult to use for MoE, if almost nobody is holding it in SoV any longer, but for UoA that doesn't matter.
This is not to say that it can't or won't be changed to some other yardstick, just that I don't see the reason yet why you are stating it must.
Wow.
I left electricity for a few days directly after posting my last questions again.
I want to thank those that answered, it did indeed help to clear up my confusion.
I think I actually have a clearer understanding. My confusions were separating the stage show you read about in the news from realty.
As I read all the posts from the 26th when i last posted to today, many of you reinforced my thinking and understanding of things.
I will say though, that as they went on, the posts by you Paul grew increasingly irritating.
I hesitated to mention your copy cat Another writing style as I wasn't wanting to start an attack, i truly found it distracting and detremental to understanding and furthering the discussion at hand.
To my newbishness, i still find that I almost completely disagree with most things you post. I also feel you write contradictory things at times.
You brag that you are FOFOA's biggest donator or supporter or whatever, yet truly, you seem like you are an internet forum troll.
That is to say it seems you are posting contradictory things to incite, confuse, or just be a pain in the ass.
Is it really just that you aren't seeing the forest for the trees??
Fool
there has to be a univeral UoA.
trade needs one. I am not going to say that again. you don't believe that. fine with me. FOFOA thinks this will be EUR. I don't.
this UoA thing would price the commodities incl gold, and the local currencies float against it.
I don't know the answeer to Indentures question exactly or I would have already answered. I just think It is really curious. I am trying to grasp the chinese way there and why they already do this. still busy with that.
but remarkable from where I stand, you must understand that I feel that way about it.
Dp, no copy paste, you must be the most paranoid fellow on the internet ! no offense ;-)
w lose trust in dollar, how could it price commodities then ?
and jojo
I stopped doing FOA because you asked for that. I am not here to throll, I will not have this discussion in other posts. not until there is a very good reason in the news anyway. but I feel free to continue over here !
I am not here to be wright, I am here to learn, just like you !
Hi Paul
You keep stating this : "there has to be a univeral UoA.trade needs one. I am not going to say that again."
I don't want you to repeat yourself, I heard you the first time. I would like you to answer my question.
Why does there have to be a universal UoA?
Thanks
TF
or world trade falls back to the dark ages ...
OK Paul
Let's try again. Why?
What is the function?
Why would a lack of universal UoA make trade fall back into the dark ages?
TF
Paul: Why not use Ounces as the Unit of Account?
Or better yet, why not use a barrel of Oil?
Paul
I will also try and clarify.
I understand we need a unit of account to do trade.
I don't understand why we need a Artificial Universal unit of account when we already have gold as a point of reference for all currencies under FG.
Please clarify.
Thank you.
TF
Alright Paul
May I present you with a alternative.
Give me a single example where gold cannot fulfill the function of unit of account whereas your Artificial Universal unit of account can.
Just one valid example would prove me wrong. Is that too much to ask?
Thank you.
TF
ok Fool
good question
I will try to clarify what I mean, and where I think the problem is.
When you do not have this universal neutral UoA, but instead use one off the local currecies to be this trade UoA than this will give competitive edge to this particular zone. I don't think this is best solution. this can be avoided by taking a common middleman and nooone has the edge.
also
we probably disagree, but i think there are hedging problems that can't be adressed without the neutral UoA, because than you would have to hedge in gold upfront. this extra pressure on goldprice is unwanted. it will cost stability, and you can not see what part is inflation and what part is hedge.
Paul
At present I am inclined to simply invoke Occam's razor.
However. I will play along a bit longer.
" but instead use one off the local currecies to be this trade UoA than this will give competitive edge to this particular zone. "
Really? If I trade with you and we pick either my currency, yours or gold as reference this gives advantage worldwide? If all pairs of all countries do this then one country has clear advantage? What is this advantage?
"this extra pressure on goldprice is unwanted."
Why would using gold as point of reference ( explicitly not final MoE) put upwards pressure on the gold price?
Thank you.
TF
ok
we disagree some more
trade needs a universal UoA or we fall back decades in volume. I thought we were clear there.
but you did not agree with the universal part. strange, because so obvious. how would you compare prices without a common one ?
it will be a mess without one.
I will not discuss this any further.
question remains if this has to be neutral yes or no.
using gold as a hedge puts extra pressure on the price because you have to buy gold upfront. currencydevaluation has to be avoided. only way is buy store off value because there is no neutral UoA where you can go to
-sighs-
"trade needs a universal UoA or we fall back decades in volume. I thought we were clear there.
but you did not agree with the universal part. strange, because so obvious. how would you compare prices without a common one ?"
We would have one. Gold.
"using gold as a hedge puts extra pressure on the price because you have to buy gold upfront."
No. There is no sale or buying of gold involved in using gold as Reference Point in hedges.
TF
-sigh-
indeed
so now you are walking in cirkels,
first you state we need UoA for trade and now you want to use store off value gold for that.
now we will be off to the dark ages again.
you want to hedge with gold by looking at it or what ?
:-D
away for now
Paul
Sure. That's a good way of looking at it (pun intended).
I write up a contract with you to deliver 1ton worth of copper per month which we both currently value at $1830.
We agree that the price paid will be relative to the price of gold per ounce.
So today you pay me $1830. Let us say the price goes to $2000 next month, then next month you pay me $2000 for my on of copper.
Is any gold bought or sold in this transaction?
In a FG environment what are the exchange rate risks?
TF
If there is any Newbie out there who are 370 comments deep into FOFOA and have a question now is the time to speak up. I'm pretty sure the regulars will be nice after spending time trying to come to terms with Paul's 'semantics loops'.
I'm a newbie with a Question. Regarding GLD Puke, from the chart it appears total physical holdings of gold in GLD has been increasing for the last 5 years. This begs the obvious questions, who is supplying physical gold to GLD ? And why wouldn't that be bearish ? Thanks for your thoughts!
Hi mike
My understanding is this.
GLD is the piggy bank for the usual suspect banks, their backstop of last resort. ( foe example when Chavez allofthesudden announces he wants his gold back).
I think the big banks know the score.
So. When the paper price falls, and weak hands let go, they buy LGD bars as and when they can to add to GLD.
Is this bearish? I think no.
As I said, i think the usual suspects know the score, and I think this is their emergency backstop to keep the game going.
I am also certain that when TSHTF their contracts will allow them to pay out their remaining GLD clients in paper.
Nice warchest. :)
TF
fool
why in the world would I agree with that ?
Motley Fool, thanks for the response. I understood that GLD redemptions are bullish because it reflects that gi-ants may be having trouble finding physical gold from other buyers. If so, who is supplying GLD with its physical (because, clearly, GLD's physical has been increasing). Am I misunderstanding this argument ? I must be missing something. Thanks,
Mike
Hi Paul
Lmao. Yes that is a terrible deal for you.
I like and expected your objection because that means I have now created the principle in your mind.
Let us refine it some more.
Imagine FG is already here and this year gold is $60,000 per ounce. Next year it could be reasonably $63,000 per ounce, discounting factors like inflation.
Now let's say I modify the agreement to giving you a 90% discount on all gains over the year.
So this year you pay me $60k and next year you will pay me $60,300.
In this case I am sure you will jump at the opportunity since it is a terrible deal for me. :)
Right. So, can we agree that there is some percentage that we will both be happy with?
You see having gold as our SoV in a FG environment brings stability to the economy. That means long range prediction of say inflation and growth becomes possible and long term deals can be concluded by businessmen.
Is that more clear now on this method?
TF
Mike
Two things come to mind. One being that GLD is not 100% backed by physical despite misleading propaganda to the contrary.
The other that I do not thing these usual suspects are net short.
By this I mean, they would take some delivery off COMEX and offset this by shorting paper to remain net neutral.
I agree with you that they are likely having a hard time finding physical.
I would also appreciate it if others share their thoughts in this regard.
It's a interesting question. :)
TF
Mike: Have you read Who is Draining GLD?
Indenture - yes I read it. This is strangley title 'Who is Draining GLD', since GLD holdings have gone from ~75 to ~1275 tons over 6 years according to the chart supplied. Wouldn't a better title, and better question, be: Who is supplying GLD ?
Mike
So who is supplying GLD? Here’s what Randy Strauss wrote (from the post I linked):
"Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories (i.e., meaning, their unallocated stock which they hold loosely on behalf of their depositors). And whereas the claim tickets (ETF shares) may freely circulate on the open market, any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market — for example, to meet the demands emerging from Asia."
So “who is supplying” is not the question. Who is demanding allocated or delivered physical from the BBs is the big question.
http://vimeo.com/channels/coveringthecrisis#7592586
lietaer knows what I am talking about. you wanna learn something NEW ? listen to this fellow. this is all abaout YOUR blindspot !!
"never argue with a fool, he will drag you down to his level and beat you on experience"
good luck trading copper Fool !
FOFOA
wish you well with the band !
I rest my case,
busy writing own theory ...
Indenture, thanks for your patience in explaining this to me. Sorry, I don't think I understood this paragraph the first time I read it, and am having trouble now. Is Strauss suggesting that GLD purchases fractionally reserved gold ?
Mike
Hi Paul
I'm sorry you did not like my example.
I'm also sorry you were unable to provide one of your own, or give me a single benefit. ( I don't understand your comments as regards neutrality)
Either of those would have been sufficient to prove me wrong.
Thanks for the link, I'll see if there is anything I can learn.
@Mike
Some more thoughts. A 1200 ton difference over six years means 200 tons per year. A not impossible amount.
I confess I do not know enough about GLD to confidently answer. I can only speculate like you. Perhaps Bron would be kind enough to illuminate this for us. He should know.
TF
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