Thank you to everyone who donated in support of continuing this blog for a fourth year! Donations were rolling in last Tuesday pretty much on par with my other two fundraisers. But then on Wednesday, with the $100 plunge in the price of paper promises of future gold, the flow of donations pretty much dropped off a cliff. So I'd also like to thank the CME for messing up my fundraiser. Thanks a lot, CME!
As I've mentioned in the past, one of the best parts of fundraising for me is the comments I receive from supporters. In some cases, people take the opportunity to ask me questions after I send them a thank you note. One of the most frequent questions I get has to do with converting individual retirement accounts (IRAs) into physical gold. I also get questions about how best to buy and store physical gold in amounts that are too large for the sock drawer. And people often ask me what I think would be the "second best option" to physical in your immediate possession.
These are all related questions and they are some of the toughest to answer from my hard-nosed "physical in your hands" perspective. Other similar questions I have received are what would be the best way for a managed fund (say a Trust) to invest in physical gold outside of the banking system? I have one reader who is an investment banker for banks. He finds investments for actual banks. He asked:
Do you know anything off hand about the gold rules for banks chartered in the USA? I've had more than a few clients tell me their Boards are proposing gold buys for their banks since they can't get out of their illiquid equity position.I have another supporter who is a registered investment advisor (RIA) who just left a big firm to start his own. His client base includes a lot of friends and family and he wanted to know what I thought was a good way to move people into a gold investment that would fit the FOFOA outlook; and these are people with large 401Ks that have never even considered gold as an investment. Poor guy, an RIA who happened to stumble upon FOFOA and then realized he had his friends and family's money in the wrong stuff. What he really needs (business-wise) is some kind of true physical investment platform he can offer that will also pay him a commission to keep his business going.
I have a doctor with a lot of physical gold who wants to buy something on credit. He asked me, if you've put your savings into physical gold, what do you show the loan officer to prove you have assets? I constantly have people asking me what I think about CEF, GTU, PHYS, GLD, GoldMoney, Bullion Vault and others as an alternative to physical gold in your immediate possession. And I really struggle with all these questions because I don't like to give out financial advice. I'm not a financial advisor. In fact, I don't give financial advice other than telling people to avoid the gold dealers that advertise on TV because they'll try to sell you high premium numismatics that you don't want. That's how they can afford TV commercials.
The point is that the A/FOA/FOFOA view leads to one conclusion. You want to own actual physical pieces of gold, preferably stored outside of the banking system. You don't want to own shares in a pool of gold, or shares in a bar. If you've got enough for 100 ounces, you don't want to buy a quarter share of a 400 ounce bar. You either want your own 100 ounce bar or, preferably, 100 one-ounce bullion coins. It's a pretty simply conclusion, but it makes answering the questions above kinda difficult.
On July 2nd, Joe Y. sent me his second donation. I thanked him by email and he wrote back:
No, thank you.I thought that was pretty neat. Well, Joe sent me another donation for my blog birthday on Tuesday and included this note:
I am in the process of walking away from being a successful cog in the Wall Street Machine to join a new gold company involving some big names as well as partners at some major wall street powerhouses. If it weren’t for the hours I’ve poured over your writings there is no way I would be on the precipice of this awesome opportunity. I must have spent well over 100 hours reading your stuff over the past few years and it’s been quite a ride. Thank you! I am walking away from selling one manufactured wall street product after another to help build something I truly believe in. Something that will help people through what’s coming. It’s an enormous, exciting undertaking and the reading on your site has played a not insignificant part.
Warmest Regards,
Joe Y.
I’m finally starting work at the gold company in two weeks, and I owe a great deal of this decision to your writings. Thank you!So I asked him about the new company (emphasis mine):
Joe
It's Bullioninternational.com, or GBI.Costata and I looked over the website and we were both very impressed with the model. We agreed that this has the potential to be a real game changer! One of the first things I noticed on the website was the curious list of investors/advisors: General Wesley Clark, former House Majority Leader Dick Gephardt, former SEC Chairman Arthur Levitt and John Hathaway, who I quoted at the top of my 2009 post All Paper is STILL a short position on gold. That 1999 quote comes from the Gilded Opinion page at USAGold linked in my right sidebar.
It is essentially an open architecture platform that allows people in the financial community to buy individually allocated gold in the form of their choice, stored at the facility of their choice (NY, London, Zurich or Salt Lake City), deliverable at the time of their choosing. All independent of the financial system. Trades are executed on a best price basis, and can be processed at up to 30,000 trades a minute. In reality, it’s the world's first physical metal electronic exchange.
We've already had one major national firm sign up and we’re currently working on bringing on more. Bullion sales through our platform have been growing every month and August was almost a double from July, it’s really exciting.
I believe this is the next step, allowing retail brokerages to buy gold for their clients, real gold, not paper gold. My hope is to take billions of physical off the market in the coming years.
I’m very excited about this opportunity to grow a firm for a cause I have a deep conviction in, thanks in large part to you.
I could chat about this all day, so if you have any questions, by all means, fire away.
Not only could this be a game changer in the physical gold market, but if it's all it seems to be on the surface, it may well be the closest thing to physical possession outside of the bullion banking system that also provides a "transition-friendly" financial solution to all the questions at the top. The significance of this cannot be overstated. And so I had a few question for Joe.
FOFOA: Thanks, Joe! I do have some questions for you, because I have several HNW readers who are constantly asking me about options.
Joe: I’ll do my best, thank you.
FOFOA: First of all, how is this different than Bullion Vault or Gold Money? I think I know, but I’d like to know your answer.
Joe: We are different from bullion vault and gold money in that we do not sell you a “share” of a bar, we do whole bars/coins only. You have the choice to buy gold in whatever form you want. Krugs, Eagles, Pamp Bars, Kilo Bars, all the way up to 400 oz bars but it’s never a share. GBI created this model because we don’t believe owning four ounces of gold that is a part of a larger bar qualifies as actually owning gold. We want clients to own whole bars with zero counterparty risk. We really want to democratize the ownership process. Until now only the ultra-wealthy could order whole, allocated bars, stored in non-banks, audited and insured by a real firm. Now, literally, anyone can.
FOFOA: Is it true allocated storage? Do I have bar numbers on my statement? In other words, am I technically just a creditor of GBI, or am I hiring you to find, buy and store a specific, discrete product for me? And what happens if GBI goes bankrupt?
Joe: The specific bars are allocated to specific clients. If GBI went bankrupt, or if any firm purchasing gold through our platform went bankrupt you are NOT a creditor of GBI or those firms. The metal is held in your name. We have the ability to show serial numbers on statements for larger bars if requested.
FOFOA: What are the barriers to me taking physical possession of my gold? Can I come in and see my bars or coins, touch them, spend some time with them? Say I buy some gold bars through GBI and ask to have them stored in SLC, and then something happens in the world that makes me want to drive to SLC and walk out with my bars. Can I do that and how much would it cost? One concern I have is how variable conversion fees could potentially be used as a deterrent during the decoupling of the unknown value of physical from the known, official paper price of gold.
Joe: Delivery or take-out! We strongly, and I emphasize strongly prefer to deliver the metal to you at a set modest fee plus actual delivery cost, either through UPS up to $250k or armored transport for more. The reason behind this is we store with commercial, non-bank vaults. The issue is that they are primarily commercial facilities. They aren’t really set up with a customer service agent waiting for people to drop in, and they already request 24-48 hours notice before someone comes by, only because if someone “drops in” they may or may not have someone there authorized to even enter the gold vault that may only be accessible by some people at set hours of the day.
That being said, you are free to go to the vault, see your gold and touch it. If you want to take delivery in person there'll be a nominal fixed fee no matter how much gold you're picking up. That's to dis-incentivize those with say 10 coins in storage, but it would be a very modest take-out fee for someone storing few kilo bars.
However, if you store smaller amounts, if you come to look at your gold, you'll have to take it. What we want to avoid as a business matter is every guy out there wanting to stop by and see his 10 Krugerrands. So what we’ll likely do is if you want to see it, you need to pay the fee and take it, or just let us ship it to you. Obviously for larger amounts we will accommodate a free viewing, but from a business standpoint we’d prefer to discourage that so as not to have a problem with our custodian.
The bottom line is clients will always have the ability to have their gold delivered, always. This point is key to who we are.
FOFOA: Would GBI be an acceptable investment in physical for an IRA? I get this and similar questions a lot. Owning physical gold in a "transition-friendly" account can be problematic depending on the third-party restrictions placed on some funds.
Joe: GBI does accept gold through two different trust companies. The IRS requires a trust company to hold the bullion in your IRA. And yes, we do handle trust accounts. I hope that answers your question.
FOFOA: I have an investment advisor that wants to recommend physical to his clients. But it’s hard to make a commission off that. Will you have such arrangements with small RIA’s?
Joe: Yes, yes a thousand times yes. We envision this platform being utilized by advisors and banks, foreign and domestic, to offer gold accounts alongside traditional checking, saving and brokerage accounts. GBI is in discussions with many of these institutions now, and my job is going to be reaching out to more, large and small in this country and around the world. We fully integrate gold holdings into the client statements, and placing a buy or sell order will be as easy as entering it from the workstation at the branch, or of they prefer, a privately labeled web portal for their clients to do real time transactions.
The whole purpose of this platform is to give financial professionals the ability (wirehouse, RIA’s, etc) to provide their clients physical, allocated gold, with live trading and best price execution with storage independent of banks and financial institutions. When I started interviewing at GBI they were up front that in their mind, they were a technology company first. They are on a mission to create the first, most efficient real time physical exchange that can be fully integrated into clients' financial accounts. My job is to market this platform to financial institutions, and at some times, to the advisors themselves. The technology is fantastic, and the platform is extremely user friendly. I placed an order through my own account just to see the prices. They were very competitive and when placed through an advisor will, to some degree at his discretion, depend on how he prices his business.
I gave up a very comfortable job and a great situation to take this position. I truly believe this has the potential to be a game changer. No one does what we do, and as we add more and more firms, I believe the sky is the limit in terms of potential. The growth is really just starting. We are starting to see unsolicited demand from overseas clients, and chatting with the CEO the close ratio on the meetings he’s going on is very high. I believe that’s because once these institutions see what we offer, it’s something they have never seen before, but they’ve been looking for it.
The beauty of our platform is that it’s completely white labeled, in that to an "Acme Financial" client and advisor, it looks like Acme's own program and we’re content keeping it that way. The same would be the case with any client we bring on. We privately brand our platform for any client we bring on and we have the capability of fully integrating it into their systems. There are many applications to hedge funds as well, specifically that we can set them up with their own web portal and they can make real time transactions to buy and sell physical. It may not be how they do their very active trading, but I don’t see why every hedge fund wouldn’t want to buy and custody their core gold position this way. It’s much more simple and cost effective than trying to broker the transaction, transportation, storage and insurance themselves.
I hope none of you think this is an advertisement or a paid endorsement of GBI, because it's quite the opposite. I asked Joe if I could have his permission to write about it. He even asked me to take some of the best stuff out because, unfortunately, it is proprietary non-public information. But I thought it would be easier to write it up in a post than to email all the readers individually who I thought would like to have this introduction. That's what this post is. A DYODD introduction to Joe and GBI.
I have no stake in this company, I have not been paid, and I will not be buying gold through GBI myself. I still recommend taking delivery and keeping your physical in your possession (or at least under your immediate control), but I do understand that this is not always the most practical advice for some of my HNW readers, nor is it practical for some types of funds under various restrictions. So I'm happy to announce that I have finally come across an alternative that I believe rises above the rest in terms of being "transition-friendly".
What do I mean by that? Well, if you take the time to really understand Freegold-RPG, what I write about here, you'll know that getting there consists of three phases: a stasis followed by a punctuation followed by a new stasis. And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time. I'm not going to say much more about it here. But as ANOTHER would say, think long and hard on this. [1]
___________________________________________________________
[1] I believe that allocated storage at the Perth Mint would be a comparable solution for restricted money if you physically reside in Australia. But for residents of Europe and the US, I would personally choose the storage facility closest to me. I like knowing that, if conditions suddenly warrant it, I can drive or fly there to pick up my coins or bars for a fixed fee; a fee independent of the size or value of my stash. I would not request delivery, though, during the "transition" while the official price of gold backed by the legal system cannot fetch any actual physical gold. I'd either leave it there with everyone else's (ride it out) or pick it up in person.
___________________________________________________________
But what I found particularly post-worthy about this topic was that we have a true insider at this company! Joe has been reading FOFOA for more than two years now, and that's what gave him the confidence to leave a very nice job in order to pursue a golden dream. And as he said, GBI is primarily a technology company, an electronic trading platform integrated with actual physical off-take, which is why they hired Joe for his physical gold market savvy. To me this is a brilliant opportunity for both him and us. The company is still new enough that Joe's presence there is shaping its structure. My emails with Joe have already influenced company policy. Granted, it was in a very small way (sorry, can't tell you exactly how), but it was beneficial to the durability of this business model from a "transitional" perspective. So yay, it's already more Freegold-friendly.
There are three main points that caught my attention:
1. This business model/trading platform has the potential to be a real game-changer in the physical gold market. It opens a door to a massive pool of potential demand that was previously cut off from the accumulation of physical gold in true, *UNAMBIGUOUS* personal (or institutional) ownership, outside of the opaque and dubious bullion banking system. I could even see this as a good way for all types of corporate entities to hold real gold assets safely through the transition.
As the CEO says in the videos below, it democratizes an important method of physical gold accumulation that was previously a difficult, expensive and sometimes-exclusionary process. It makes including real gold in an investment portfolio by individuals, IRAs, Trust funds and institutions as easy as stocks and bonds. Best of all, for the first time, it gives money managers a financial incentive to recommend unambiguous coins and bars in a portfolio rather than trying to steer clients away from physical gold.
2. It answers almost all of the toughest questions I get from readers and supporters.
3. There's an FOFOA reader inside this company who understands the principles and concepts we explore, and he's in at the ground floor (or close to it anyway).
Here's a video that Joe sent me of Savneet Singh, the CEO, and Peter Custer, the Chief Technology Officer, explaining their new gold trading platform at Finovate last May in San Francisco:
And here's another one of Savneet on Bloomberg last week:
In one of his first posts back in 1997, ANOTHER wrote the following:
"The LBMA problem"
I can now make clear for all to see.
Background; to understand the following you must rethink your basic knowledge of money and investments. Get your aspirin ready.
Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services.
The idea of physical gold sitting somewhere in a centralized vault and only its ownership changing hands is not a new concept. Neither is it an essentially flawed concept. I believe it is perfectly safe today (as long as the wheels stay on this bus) to store your gold with a credible custodian. And I believe it will be perfectly safe, and perhaps even preferable, to do so in the new monetary system of the future. But the time of "peak risk" will be, I believe, that brief period of phase transition between the $IMFS and Freegold-RPG.
It is in preparation for this transition that we want to be holding our gold in the most *unambiguous* way possible. And the most unambiguous way is paid in full, in your hand ownership. But when that's not possible or at least practical, we'd like to own our gold in unambiguous lots (either specific coins or numbered bars) outside of the bullion banks and their opaque networks built upon the flexible concept of ambiguity.
When gold is finally revalued, it will happen in the dark. You won't be able to see it happening on your ticker. And the de facto transfer of wealth that will occur will only flow to specific ounces of physical gold, not to ambiguous claims on some amorphous thing called gold. Ambiguity leads to more people thinking they have exposure to the revaluation than the amount of value there will be to go around. It also leads to the potential for the abuse of claims, since for a brief time the price backed by the legal system may be very different than the value of the actual physical in custody.
During "normal times" this is not an issue. Today, as well as after the transition, if you store $100K in gold you hold $100K worth of unleveraged real money. But it is during this dark, hidden transition that the unleveraged becomes hyper-leverage. ANOTHER wrote:
Our history will read, that persons of simple life, will find they have made the greatest leverage investment ever seen and thought of it as only a small trade. When gold moves from "bottom to top of world currencies", many will find their assets in the "Estate Of Kings"
And here are a few FOA quotes on the hidden leverage in unambiguous physical gold ownership:
Today, physical gold advocates are the real gold bugs as they now possess the real leverage paper players only think they have!
++++++++++++
Well, I can tell you that the further we travel this trail, the higher the eventual cash settlement of all gold paper will be and the less that settlement will be allowed to match any "free physical" price.
++++++++++++
By holding physical gold you are owning a super leveraged
"derivative" that will be exchangeable against the value of real things at a par level lost to the minds of most investors. Today, physical gold purchased in dollar values is discounting its worth by perhaps 100 times. For us PGAs, that is a leverage worth "playing the physical game for"! (smile)
++++++++++++
It is from here that we can understand the awesome leverage contained in holding but one ounce of gold. Here, on this ledge overlooking the entire golden valley, we can see this truth! Yet, it is a revelation to gold buyers as much as a curse on gold industry and leveraged paper investors. They spend their days, consuming their wealth, betting on a price that cannot represent gold until it fails. Destroying all they wait for.
From here, we understand why the current prices for gold do not have any bearing on the buying habits of the major players that walk this trail. As Another has said "The price you know, it be your price, not my price".
It is true, we are buying gold, not to trade for a paper value created today. Rather, to hold it beyond the paper destruction that must come tomorrow. Gamblers, traders and gold substitute players will all witness a colossal shift in world wealth that degrades their holdings. Even as their bet on half the process is proven as a folly very typical in human nature. Only unseeable as it exists.
++++++++++++
The leverage today will be in a physical gold position, not any other form of gold ownership. By accumulating physical gold today, we are truly walking in the footsteps of giants; advancing with them as they work thru this singular, long term political move.
In this game of musical chairs, unambiguous, discrete pieces of physical gold are the chairs. Do you have your chair? Or do you own a claim ticket good for a portion of a chair? How will the newly revealed value be distributed? Will those that could potentially keep it for themselves hand over your fair share? Another wrote:
The BIS will not allow the distribution of all gold to settle claims.
And then FOA:
Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!
Again, what do you have? Do you have your chair, or do you have a claim check that's supposedly good for a chair? And when will the music stop? I don't know and I don't care, because I've already got my chair. The greater "precious metals investment" industry has many different products to sell you. This is a big discussion and one that lends itself to a lot of different viewpoints. In reality, it all boils down to risk assessment and your personal situation. But I don't know anywhere else on the net where you'll get more straight talk than here.
So what do you think of GBI? Am I correct in my three points above? Is there anything they could do to make GBI more Freegold-RPG transition friendly? I know that Joe will be following the comments here with great interest, so please let him know what you think.
And if you are one of those who would have supported this blog last week had the market not puked on Wednesday, it's never too late. It's not just about FOFOA's third anniversary. It is a contribution to keeping this blog and discussion forum alive in the hope that others may experience the benefits you have received.
For some it has strengthened their "weak" hands, it has gotten other people out of paper and into physical, for others it has reset their valuation of gold above levels they would have already sold at long ago and for others it has helped to crystallize their thinking about the importance of gold in preserving their wealth.
And it provides a continuing benefit to all of us as a forum for discussion, intellectual stimulation and a place where we can get a confidence boost when the dreck from the MSM rattles our nerves.
Maybe you had an "A-ha moment" as a result of this blog and realized that your small stack of gold may someday have the same purchasing power as an LGD bar at today's prices. If so, then please click on my small, but most definitely *unambiguous* stack of gold coins and make a contribution. Thank you! :)Sincerely,
FOFOA
356 comments:
«Oldest ‹Older 201 – 356 of 356d2thdr
A wealth reserve has a specific purpose, keeping stable real value. The stock markets have a different purpose, opportunity for income generation.
Gold has no risk, but would also generate (essentially) no income. Stocks have risk, but can generate income.
The key difference under FG is that savers would not be Forced to invest just to keep even.
This means when people do invest they will make sensible decisions and only invest in ventures they believe will be profitable.
This means the end to the current wildly speculative economy with it's booms and busts.
Mis-allocation of capital will be very much less likely in this case, and if you make a mistake the loss will be yours ( or socialized without hurting savers).
Investing is not a gamble when you have sound, non-manipulated metrics to gauge it by, and a environment that rewards instead of punishes ingenuity and enterprise.
TF
There was a time when stock markets existed, among other reasons, for capital formation. That is the purpose of a share market from the perspective of companies listed on a stock exchange.
Great article by Fekete, speaks to the false "perception of value" of bonds and FRNs that Fofoa has referenced. Also addresses the effect that trillions of dollars of derivatives has on the bond and gold markets, and their interdependence. Yes, it's an open, transparent gold market Bron, but to his point, it is an open market that is heavily manipulated by the government's minions (four major institutions have the lions's share of the short gold/long bond exposure) to preserve their fiat system for as long as possible. They may stab each other in the back once the dam breaks, but until then they will continue to use the paper market to short gold and buy treasuries.
Sorry, here are the links:
part 1
http://www.24hgold.com/english/contributor.aspx?contributor=Antal+E%2E+Fekete&article=453326326F8350
part 2
http://www.24hgold.com/english/news-gold-silver-when-atlas-shrugged-part-two--gibson-s-paradox-and-the-gold-price.aspx?article=450526958F8350&redirect=false&contributor=Antal+E.+Fekete
Bron said: "The reality is that the miners sell it to the highest bidder, and this is what is The Spot Price at that time. If there is more physical demand than supply then The Spot Price will rise, if not it will fall. Period."
Sounds so simple.
@ Bron
The physical demand is being fractionated 100 to 1.
I think that Antal Fekete may read FOFOA and possibly the comments as well. I don't know if this link was previously shared in these comments but on August 4 2011 Prof Fekete released a proposed solution to the Greek and peripheral EU crisis that sounds a lot like FG/RPG. The only problem is that he unnecessarily complicated things by also including a bi-metallic float with silver. He never states why he believes that silver must also be included in his proposal and does not address the fact that silver is a necessary and important industrial metal with a lower stock-to-flow ratio and thus not as well suited as gold to be hoarded/dishoarded as a monetary metal (savings medium). At any rate his article is thought provoking and worthy of consideration.
http://professorfekete.com/articles/AEFCutTheGordianKnot.pdf
Hi Bron
Many thanks for your detailed responses. Really appreciated.
At the risk of glossing over some of your detail, I guess to we can summarize that miners sell to Perth at spot, BB and others buy from Perth mint at spot, and spot is discovered everywhere and nowhere.
I guess as we all know, the real issue is what is being discovered, not how it is. The price discovered is really the price of a claim on gold, not the price of gold. Some claims are invoked, most are not.
Until that is more widely understood by all participants, miners will continue to sell into a fractionalized system, and gold will flow East to a more educated market. Actually I'm OK with that. I think the Chinese deserve it more than we do.
These charts are an excellent visual of how gold values the USD:
http://pricedingold.com/us-dollar/
http://www.zerohedge.com/news/bring-out-your-dead-ubs-quantifies-costs-euro-break-warns-collapse-banking-system-and-civil-war
Yeah Edwardo; just read that on ZH as well. Hmmm... Isn't a premise of Another/FOA/FOFOA that the Euro was destined to be the 'example' currency for Freegold? Did I misunderstand? If the ZH posted article is true, guess that ain't gonna happen. What then?
if the euro doesn't work out then gold will be the world oil currency.
That's interesting Mike; before I start asking silly questions, has FOFOA (et al) covered this possibility in an article? If so, please point. Thanks.
Ironshield, It was Another that said if the Euro fails then oil will bid directly for gold.
Thanks Wendy for the lead. Who sets the price and how? Do you recall the article/post?
I'm sure it's mentioned in FOFOA's work, but I don't know where. You'll find it in Another's writings. If you haven't read them they are definately worth your time, and if you have, they are worth reading a second time. I'm sure a third time as well, but so far I've only read them twice.
In terms of who sets the price? Oil for sure.
China Economic Rebalancing
Part 1/2
IMO this is an excellent essay by Professor Michael Pettis on China's prospects. A balanced, considered perspective that is a good antidote to the hype.
I think his observations about Japan, and the comparison with China, are particularly insightful so I’m going to quote a large slab of them here. You may care to note the passages I have highlighted, in part 2 of this comment, where he discusses the politics of rebalancing.
Pettis writes:
“But since rebalancing in China requires less emphasis on heavy investment and more on consumption, and since rebalancing also means a sharp reduction in free credit provided to SOEs and local governments and cheaper and more available credit for efficient but marginal SMEs, a rebalancing China would presumably see much more rapid growth in the service sector and in the SME sector, both of which are relatively labor intensive.
Much lower growth, in that case, could easily come with minimal changes in overall employment.
That is why Japan is a useful reminder of what can happen. After 1990 GDP growth collapsed from two decades of around 9% on average to two decades of less than 1% on average, but there was no social discontent, and unemployment didn’t surge.
Some analysts credited Japanese lifetime employment or invoked the natural docility of Japanese people (a bizarre argument at best) to explain the lack of social upheaval, but for me it was because Japan genuinely rebalanced in the past two decades.
Before 1990 GDP growth sharply outpaced consumption growth, whereas after 1990 their positions were reversed – consumption growth sharply outpaced GDP growth. In that time the Japanese savings rate declined sharply, the household income share of GDP rose sharply, and Japan became less dominated by the industrial giants that were almost synonymous with Japan of the 1980s.
So as I see it the Japanese didn’t react to Japan’s “collapse” with outrage or horror largely because Japan didn’t really collapse in any meaningful sense. Japanese standards of living on average continued to rise after 1990, and on a real per capita basis probably only a little slower than they had before 1990.
Continued/
/Continued
Part 2/2
(My emphasis)
Michael Pettis:
“It was the state sector that bore most of the brunt of the slower growth, and this shows up as the explosion in government debt. Households were fine because although the GDP pie was growing at a much slower rate after 1990 than before, their share of the pie was growing after 1990, whereas it shrank before 1990.”
I think the same might happen, or at least could happen, in China. It depends in part on how resistant the elites are to the process of rebalancing, which almost by definition means eliminating the distortions that had benefited them for so long.
As Jeffrey Frieden points out in his brilliant Debt, Development and Democracy (1992), the elites that benefit from economic distortions are traditionally the ones most likely to prevent necessary adjustments, and if they actually run the whole show, adjustment can be incredibly painful and disruptive.
If I am right, and China begins to rebalance (and it has no choice but to rebalance unless it has infinite borrowing capacity and the world has infinite appetite for Chinese surpluses), then the debate must shift from economics to politics.
We need to understand how and under what conditions China’s elite will permit an elimination of the distortions that benefited them. For example, under what conditions will the export sector and its defenders allow the RMB to rise, or will SOEs and provincial governments tolerate an increase in interest rates, and so on?
Because of its rapidly rising debt burden, the only way for China to manage a smooth social transition will be through wealth transfers from the state sector to the household sector. In the past, Chinese households received a diminishing share of a rapidly growing pie. In the future they must receive a growing share. This will probably be accomplished through formal or informal privatization.”
My normally very staid local bullion dealer, ABC Bullion in Sydney, appears to have gone all ZeroHedge.
This is a link to their new blog:
ABC Bullion Blog
Note the post footers:
"This post was provided by ABC Bullion to educate and inform the other 99.99% about precious metals and the inherent evil of paper promises."
inherent evil no less!
ho hum ...but never the less:
"absent the CME doing away with margin altogether, we will see $2G spot within hours."
this from:
http://www.zerohedge.com/news/gold-knock-knock-knocking-records-door
jess sayin...
All,
EUR/CHF - fixing update
Seems that the Swiss have finally decided to fix the franc to euro at 1,2000.
In a diff. perspective this could also mean that the franc and euro melted together or that the Swiss have joined the euro-zone. An interesting thought.
Casper
It seems to me that a transfer of wealth from the state sector to the household sector is absolutely what the central planners in China have in mind going forward. I realize that, in one key respect, that may seem, at the very least, counter-intuitive since it also implies a shift in political power away from the state sector, but creating a viable domestic market allows China to deliver the coup de grace to what is left of the reality of the U.S. as the planet's hegemon.
Jim Crammer just said, "Don't buy stocks. I reiterate. Gold is my favorite position."
Didn't think I'd hear that one.
At least the Swiss will be holding huge amounts of a currency with which they know they will always be able to buy gold.
@Indenture
That probably means: get ready for massive correction in gold and upward bias for stocks. But I'm okay with that. Just stacking it higher.
The execrable Cramer is just the sort of person, ditto Gartman, that you don't want on your side, ever.
In the meantime someone needs to inform Mr. Zoellick that he's absolutely right, there will be no double dip. But that's only because we never had a recovery from the first dip.
http://www.iol.co.za/business/international/zoellick-us-not-headed-for-double-dip-1.1132083
More on PAGE:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/9/6_Andrew_Maguire_-_LBMA_Shorts_Will_be_Forced_to_Take_Losses.html
" Loyalists of ousted Libyan leader Muammar Gaddafi crossed into Niger late on Monday in a convoy of vehicles, carrying gold and cash, officials from Libya's interim ruling National Transitional Council (NTC) said on Tuesday."
http://af.reuters.com/article/libyaNews/idAFLDE7850BQ20110906
Introduce the Swiss Gold Franc at the same time as PAGE.
Just so I don't drool alone.
Pretty!
TF
File this one under for &;@!!s sake. Doug Kass' Twitter is reporting that the next move by the bankster class is mark to fantasy accounting for all these underwater Euro banks. Welll, we know what happened in the U.S. market the last time they pulled that vile maneuver.
No, Edwardo, I don't know what happened... Please share.
The suspension of accounting rules aka mark to fantasy scheme-which is tantamount to admitting that one has no way of dealing with being underwater other than to legalize fraud-was instituted in March '09 and coincided with the melt up in shares that terminated this Spring.
Will such a gambit if it is tried, have the same result this time around? Perhaps. There may be enough idiots around to make what should be a massive reason for massive selling instead turn into a frenzy to own the shares of institutions that have, among other things, de facto admitted to their own hopeless insolvency.
In truth the suspension of best practice accounting rules is just an extension of the suspension of the rule
of law which has become something of a ubiquitous theme in our time.
Thanks Edwardo; things that just make you shake your head in disbelief. Kinda like the suspension of GAAP during the tech boom. Oh well, continuing to stack it higher...
Take Note: Team Photocopier
One of the lessons from the SNB, as demonstrated with the Swiss Franc, is that in a pure fiat currency regime deflation is impossible if the issuer wants to devalue their currency. It is a political decision not a mathematical certainty.
By the way Aussie and Kiwi readers, the SNB just provided the political cover for the RBA, RBNZ and our respective Treasuries to pull the same trick if they choose to do so at some point. This is now a "legitimate" policy option thanks to the Swiss.
In my opinion we should be watchful for trial balloons testing the likely response to devaluation.
Friends and family who have grown tired of our physical gold advocacy have a new argument to consider for owning some gold.
http://www.bloomberg.com/news/2011-09-05/romania-central-bank-to-discuss-reserve-structure-mediafax-says.html
My emphasis
Romania’s central bank will analyze the future structure of the country’s international reserves and a possible increase of the gold reserve, Mediafax reported, citing Governor Mugur Isarescu.
The bank’s policy board will discuss a proposal made by President Traian Basescu to double the country’s gold reserves to almost 200 tons in the following period, after developing the Rosia Montana gold mine, together with Gabriel Resources Ltd. (GBU), Isarescu said in a speech in the south-eastern city of Constanta, according to Mediafax.
Take a look at a classic Yen intervention take down chart and the recent flash crash in gold. It is an exact carbon copy.
http://1.bp.blogspot.com/-J1yrBEfNd_Y/TmcDcN2u9MI/AAAAAAAAAnI/8rouIjRglek/s1600/snapshot-880.png
http://t0.gstatic.com/images?q=tbn:ANd9GcRfcJfDupfk9QoyLszsmckV7rJ4Ucw1-PoKVV2pMu98OlN0TFbz
Right, so T-minus how many weeks/months before the SNB realizes its policy is destined for ruin and abandons the peg? And how exactly is the forced devaluation of a key safe haven currency USD negative? Politics has its limits, as Obama is about to find out when it dawns on him that another $300B in stimulus has a snowball's chance in Hell of making it through Congress. Bernanke can twist the Treasury curve into a pretzel... won't make a bit of difference.
Hi Folks,
I'd like to hear your opinion on leveraging up on the physical gold bet at this moment in time.
Do you think the timing is right? Is the transition near?
Have you loaned money to buy physical gold? Why or why not?
The reason I ask is because I have the opportunity to take a low-rate loan without collateral.
PS. I realize there is no universal answer to this question, and it all depends on your personal situation.
/Burning
Was the wikileaks gold cable on China really all that significant?
It was just a quote from "The China Radio International sponsored newspaper World News Journal" that was sent back in the cable.
ie: A reprint from a newspaper.
They may as well have quoted Marc Faber (not dismissing MF, just saying there are lots of people saying gold is underpriced, this is not news and it didn't come from a high level official saying "yes we suppress the prices".
I just don't see the signifcance myself.
Hey Winters
I should dismiss myself. I agree it is insignificant. My post was reactionary.
After digging for more info, I realized I had been had by ZH negativity rah-rah band. Some Tylers are better than others. :P
I still hold the USM wants some China action. UN just made another pass at Iran, so it still seems on track.
This is just not a catalyst. Or rather it was another three years back. :)
TF
The one thing I do NOT trust about Bullioninternational.com , or GBI, is that on their board of directors is Arthur Levitt, former head of the SEC, and he also joined the Carlyle Group in May 2001. The SEC has never regulated the securities industry at all, but has turned a blind eye to naked shorting, high frequency trading and Madoff scams that has allowed the common public to get raped by Wall Street bankers. Also, if you ever look at the people in the Carlyle Group, you will never see such a group of ex-politicians, who have acquired wealth at such a fast rate, to know that there is illegal activity going on there. To me, Arthur Levitt is either a mole getting information on how to exploit this company, or using the information somehow to benefit the Carlyle Group. I'd say avoid this company just knowing that Arthur Levitt is on the Advisory Board, and buy gold in your own hand instead.
The fact that entities like The Carlyle Group are behind GBI could just as easily indicate that the fix is in for a gold revaluation.
Interesting idea Edwardo, if my memory servers me correctly the caryle group includes the Bush's and the bin ladens.
I guess BullionVault must be a scam too then, since the Rothschilds have put themselves behind it. Of course, it could just be that these people see a party parade coming and simply want to make sure they're on one of the floats.
@burningfiat: leveraging... I guess it's also an ethical question, are you ready to default on the loan should you suddenly be unable to repay it (loss of job, or whatever) and if by chance Gold would be at that point lower than when you purchased it?
For info, here in Switzerland the BCV (Banque Cantonale de Vaud) is out of silver bars below 1kg (1kg are still available) since Tuesday. For Gold you now have to wait 4 banking days to get it, last week it was still normal: you got it on the next business day.
Is the squeeze so close now?
What's happening in other countries re physical delivery?
DP, banman,
This is an area with which I have struggled during my FOFOA/FOA/A journey.
I am pre-progammed to distrust 'the elites' - massive amounts of fraud and cronyism in the past leave a bad taste in the mouth.
One thing that has changed in my FOFOA journey is how I see tactics and strategy at the very high level. The world is not perfect, fair and 'above board'. Nations and factions within nations have been vying for power and control since time immemorial.
When we shrimps see an event take place that appears to be spawned out of pure greed from 'the elites', we are not seeing all of the factors going into that decision - strategic and tactical factors that may span a long time horizon.
I am resigned to the fact that I will never know everything that is going on behind the scenes. All I can do is look for the big trends and try to stay congruent with them. GBI does not concern me personally. Is it a game changer or just another brick in the wall? I don't know. I don't really care. If I had to use it to buy gold, I might be concerned about the Directors, given the perception of these people and the history of cronyism at high levels and the impossibility of knowing for sure what their intentions are. However, I don't have to use it. I'm quite happy to sit on the sidelines and view this epic unfolding.
Whether GBI changes things or defrauds people is irrelevant, we are going to the same place in the end.
GBI is a significant development in as much as it provides a mechanism by which large investment entities can directly access the physical gold market, where in almost all cases they were previously unable. The entities we're considering here, have the potential to seriously make an impact on this small (physical) part of an, itself relatively small in the context of the global financial system, gold market. There is the potential for a wall of money to enter the physical gold market, that wasn't previously able.
They could already in many cases choose to invest in "gold" paper, say through GLD perhaps, or mining shares/funds, etc. But none of these avenues pull physical gold out of the flow and lock it away while they are holding. By contrast, with GBI being allocated physical, they will necessarily be locking up part of the flow whenever they buy through this avenue. An already limited flow of physical gold will become further constrained, meaning that higher prices will become necessary to coax more locked-up stock back out into the flow again.
The risk, I guess, is that it turns out GBI is operated fraudulently and the gold they say you have allocated to you isn't after all. Even if it transpires that the gold is present but you do not after all have title to it but GBI do, this still means the physical gold has been removed from the flow in the wider system — so in this case GBI is still a significant development to the wider market. It seems to me they have very clearly setup their systems such that it IS the case you have title to allocated gold that actually does exist and is even deliverable on request — the prospectus being littered with a string of outright lies that will be easily exposed in a court of law if it came to it, just doesn't seem to me to be a very large risk. Certainly not to me personally, since like you GBI is not directly relevant to me. However, the ability of all those potential GBI clients to lock away significant portions of the limited physical gold flow within the world markets, in short order, is most certainly of direct relevance to us all here, IMO.
DP,
I agree with what you say. I said 'GBI does not concern me personally' - I meant in a very micro way as you intimated. Of course it is interesting as a development in the market - but we will end up at the same place with or without it. I see it as more entertainment! As we go further down the rabbit hole and the $IMFS continues to crack, more and bigger box office hits will be served up, so go long popcorn.
As you say, it would take outright lies in its prospectus for it to be fraud. This is quite different to GLD, for instance, which is quite clear about the fact that you don't own any metal if you buy GLD shares.
I accept that it is unlikely that such an explicit fraud would take place, but this has happened before - look at the mortgage mess in the US or Enron.
As ponzi schemes or other fraudulent activities near their end, the scale of fraud tends to escalate. We certainly seem to be nearing the end of the clandestine fractional gold market, so it isn't entirely impossible that such a fraud could be underway.
There has been a lot of noise made recently about ETF investigations and the need to hold phyiscal rather than paper. It is not impossible that this could a way of drawing the attention of a perceived avalanche of public money coming into physical. If it is legit (which, on balance, is likely), then combined with PAGE, we have quite a storm approaching the gold market.
I would be interested to know how they do their pricing. How long would they stick to the COMEX price if there was any divergence at all from the PAGE price?
DP,
I broadly agree except for this passage (my ephasis):
An already limited flow of physical gold will become further constrained, meaning that higher prices will become necessary to coax more locked-up stock back out into the flow again.
They, he, she, it do not need to coax the stock to flow. Higher prices allow the existing flow to satisfy an increasing demand.
Costata
Good point.
I think you are both on the money. Higher prices allow a bit of both. :)
TF
As ever, costata can be relied upon to provide the correction for my slightly-incomplete truth. Thanks buddy! ;-)
Higher prices must coax out some stock though. If they don't, then that would assume that everybody that holds physical understands the true dynamics within the markets. That seems a bit of a stretch.
Flow comes from stock though. Surely all gold is stock to someone at any point in time? There is not some pool of unowned physical that floats around in a pot waiting for someone to buy it right?
Max: I would be interested to know how they do their pricing. How long would they stick to the COMEX price if there was any divergence at all from the PAGE price?
Good question!
From GBI FAQs page:
How does GBI get me a better precious metal price?
GBI will work with various dealers to ensure customers receive the best execution price. Partnerships with a number of leading London Bullion Market Association approved dealers helps assure best execution price.
What is the purchase/sale price?
When a Broker transmits a purchase or sale order to GBI, GBI will use commercially reasonable efforts to price the order within one hour of receiving it. For each purchase or sale order, GBI will use commercially reasonable efforts to obtain the most favorable price available to GBI for that order. Orders involving multiple bars of precious metal may be executed with more than one Precious Metal Supplier, each bar may be purchased or sold at a different price and different bars may settle at different times.
So, we establish that the price is not directly based on the spot market price, but on the quotes for delivery/purchase obtained from a few LBMA dealers. The spot and dealer prices may, or may not, deviate from one another.
DP,
That's interesting. I would imagine that the price for each individual transaction wouldn't be posted.
Would they be going to LBMA dealers in order to buy Krugerrands or Maples?
Looks like they are only offering bars, not coins.
Oh yes, I don't know where I got that idea from then.
Is Norway next in the race to the bottom for fiat currencies?
"Norway is the latest contestant in the currency debasement race. According to their central bank head "A too strong Krone (NOK) could result in too low inflation and too low economic growth. " and that "In such a scenario, proper monetary action will be taken, with the interest rate as the relevant tool". "
http://www.economicpolicyjournal.com/2011/09/global-inflation-madness-spreads-to.html?utm
Zero Hedge doing a bang up job of entirely missing the point of the significance of Trichet's little rant about price stability.
@holdinmyown, an interesting development -- thanks for the steer! ;)
DP,
Cheers
Max De Niro,
When you consider that there is around 160,000 m/t in the gold stock there is very little flow from this source.
Some flow must flow regardless of price. Gold miners, for example, "mine" currency in a financial sense - not ore. I realize that this sounds like an oxymoron but consider their situation. They must pay their bills in currency. Holding gold for long periods of time is not a realistic option.
This concept of Price = Supply in the gold market is consistent with the recent price action. Physical demand gradually taking command of the price of gold from the paper markets.
Bron stresses that the paper gold price is the physical (spot) price. Obviously true but that does not necessarily determine causation. The BBs see all sides of the markets - physical and paper. That is their edge as they work over the punters.
DP, HMO,
Dail Pfennig on the Norwegian Krone etc. A few remarks after the quotes. My emphasis.
http://www.kitco.com/ind/Butler/sep072011.html
Shortly after turning on the phones, Chuck told us all to take a look at the Norwegian krone. Currency investors, in search of an alternative to the Swiss franc were flocking to the Norwegian krone.
The Swedish krona also saw some buying from investors who were ditching the Swiss franc. Sweden doesn’t have the stellar economic figures of Norway, but does have a more vibrant manufacturing sector.
The krona had recently become a proxy for global growth, with the Swedish currency moving higher on good global economic news, and lower when the global rebound was called into question. But this pattern could change if investors start looking at the krona as a safe haven currency.
For safe haven we could subsititute the word "reserve". What would making the krona a reserve currency do to Swedens "vibrant manufacturing sector"? Reserve currency status is ultimately a poisoned chalice for the issuer's economy.
on another note:
http://www.baytur.com/projects/gbp_29.asp
...http://www.arabianbusiness.com/gold-class-418297.html?page=1
The Gold Managers
Part 1/2
A few different perspectives on the recent price behaviour of gold. Also some links offered to readers in a comment from ‘Ramon’ on this post by Trader Dan Norcini. Dan discusses the after-hours trading in gold that knocked the price down hard.
I note the final stratagem mentioned below:
>> Retreat - Finally, when there is no way to hold the line, the big sellers retreat to the next defensible point. This usually occurs in combination with one of the above methods, allowing the big interests to maintain a high level of control.
Doesn’t that fit perfectly with the “Swiss stair” (Jim Sinclair) ascent of gold over the past few years? So where is the fallback position this time? I have a few thoughts on this but what do you think?
Sy Nejem writes:
“From the Thirty-Six Stratagems, the following is a brief outline of the primary methods being used by big players to keep the structure of our global financial alive:
>> Remove the ladder when the enemy has ascended to the roof - As gold’s price rises, many new participants will put their money into the game. Those are weak positions, buying near the top. Strong players can then gain from their losses when corrections occur.
>> Stomp the grass to scare the snake - A continuation of the above in which strong players sell, forcing prices down. Since there are plenty of fresh buyers, the strong positions can cause a panic and knock them out by throwing their weight around.”
Continued/
/Continued
Part 2/2
Sy Nejem writes:
>> ”Create something from nothing - Making lots of noise about gold being a bubble convinces many that the good times are over. They will either sit out and miss the continuing rise, or sell into strong buyers at the bottom.
>> Make a sound in the east, then strike in the west - During the brief period of calm between wild rides up and down in price, headlines will pop up that make it seem like the bubble-talk is correct: such as George Soros selling his GLD ETF shares, while buried in the story lies the truth that he moved into gold mining stocks.
>> Disturb the water and catch a fish - Gradual, quiet buying accumulation from strong participants creates minor volatility that looks like it could break to the upside or downside. Less confident players tend to become paralyzed with uncertainty.
>> Replace the beams with rotten timbers - In addition to the above, strong players can then use sufficient clout to make the price action appear to run counter to what would be expected in reaction to news and events. This further confuses and disorients less experienced investors.
>> The empty fort strategy - As buying pressure in gold during this bull market overwhelms the big players’ selling, they reduce the selling pressure. This allows price to rise slowly, giving no easily-discernible entry points for buyers wary of another sharp drop in price.
>> Retreat - Finally, when there is no way to hold the line, the big sellers retreat to the next defensible point. This usually occurs in combination with one of the above methods, allowing the big interests to maintain a high level of control.”
Any one else been reading Krugman's recent commentary on gold?
Here are the links: One and two
I guess he just realized negative real rates are gold positive, but he doesn't see a link to inflation or expected inflation. Anyway, here are some interesting snipbits:
What effect should a lower real interest rate have on the Hotelling path? The answer is that it should get flatter: investors need less price appreciation to have an incentive to hold gold.
But if the price path is going to be flatter while still leading to consumption of the existing stock — and no more — by the time it hits the choke price, it’s going to have to start from a higher initial level...
And this says that the price of gold should jump in the short run.
and
Also, if other things — such as new oil discoveries and improving drilling technology — are keeping the real price from rising much, there won’t be any Hotelling-type hoarding at all. This has been true of oil for most of the industry’s history, although it may be ending now.
So there aren’t a lot of things like gold here; maybe some other precious metals, but I’m not sure any fit the bill.
Quoting from Respected blogger, Charles Hughs Smith's recent article http://www.oftwominds.com/blogsept11/dollar-gold9-11.html "Why the U.S. Dollar "Works" and Why a Gold-Backed Currency Doesn't" :
Now imagine how this would work if a global gold-backed currency (GGBC) replaced the dollar overnight. In this scenario, nobody would accept dollars for oil, manufactured goods, etc., and so the U.S. would convert its 8,100 tons of gold into the new GGBC. This would be worth around $500 billion at today's price of gold ($1,900/ounce)--$60 million/ton X 8,100 tons. (Global gold reserves held by central banks.)
Since the U.S. runs a trade deficit of around $600 billion a year, then all the gold held by the U.S. government would be transferred as payment for our imports in less than a year. (Trade deficit $53.1 billion in June U.S. Census Bureau)
The point is that if the U.S. had to pay for its gargantuan imports with gold, it would run out of gold in less than two years. Surplus imports would cease, and the deficit would fall to near-zero: imports would have to equal exports.
The consequence of this reduction of U.S. imports to zero would be catastrophic for the rest of the world, which would collapse into depression. In effect, the final fatal crisis of capitalism--the inevitable results of overproduction, exploitation and the capture of governance by financial capital--would be triggered by the absence of the "importer of last resort," the U.S., soaking up the global surplus.
It sure would be interesting to read an FOFOA response to this CHS article.
Double Michael Alert!!
I am Las Vegas Michael and not the author of the above contribution. I guess we are just fiat, doomed to creation at will.
Want to see how silver rounds or coins are minted? Watch this short video.
http://maxkeiser.com/2011/09/08/video-how-are-silver-coins-minted/
Well, at least The Krug, one of the worst economists around, (and that's saying something) admits that he's clueless about gold.
And I think, at this point, there needs to be a special (ed) class created for a particular type of blogger-I have in mind Rick Ackerman and Charles Hugh Smith, but there are others- who though they have come into close contact with FOFOA's blog, repeatedly demonstrate an impressive imperviousness to freegold.
"...Stephen Leeb continues:
“Evans said a couple of days ago, ‘We are going to pay attention to our dual mandate, which is unemployment and inflation, and for the time being, unemployment is a much more important factor. We’re going to let inflation go for a while.’ That to me is huge, here we have the Fed picking up the mantel and saying, ‘We’re going to do whatever it takes to get unemployment down and if that involves higher inflation, so be it, we’re going to accept it.
...We did a calculation and we valued all of the gold shares that are available to buy today, from Barrick to GoldCorp, even including GLD (the gold ETF) and we came up with a number that is maybe a little bit higher than the valuation of Apple. One stock basically matches the value of all of the gold that you can buy on the public market in the United States. "
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/9/9_Stephen_Leeb_-_Expect_Enormous_Gains_in_Gold_%26_Silver.html
Krugman's problem is his definition of rationality. He can't understand that there are folks (including giants) that are not willing to sell their gold to dentistry. His "rational" view does not extend beyond gold's industrial choke point. The idea that gold should be hoarded for wealth consolidation does not fit with his supposed conscience of a liberal.
Rick Ackerman, apparently, was abducted by Aliens who transplanted his deflationary brain with a HI brain before placing him back on Earth. Then, they got him for a second time, and simply extracted 99% of the brain, putting him back as an empty shell. Now he just rambles incoherently.
CHS, on the other hand, has the most amazing knack at taking extremely complex theories/concepts and presenting them in a short, coherent and easily digestible manner.
Why the Dollar Remains the One Essential Currency
CHS: "At some point the trade imbalance of $600 billion a year between the mercantilist nations and the U.S. will go away, as will the notion that printing paper money is creating wealth, and debts that are unpayable will magically be paid instead of being liquidated or repudiated. The point here is that the Status Quo of all the major trading nations is committed to conserving the present system of fraying imbalances, as their own wealth and power flow from this shaky, unsustainable structure."
In two short concluding sentences, he renders the two most important issues out of the entire USD deflation/HI debate - 1) timing and 2) theoretical foundations of global economic dynamics. With regards to #2, CHS obviously follows the Marxian economic analysis, as well as the lessons of complex systems theory. The anticipated reply, besides character attacks (or perhaps not, since it's not me making the argument), is that major exporting countries are not so worried about a collapse in the USD as reserve currency, as long as another wealth reserve with adequate properties (non-currency wealth reserve that expands in value, not volume) is ready to fill that role among their major trading partners.
So the question always boils down to, not what or how many specific data points you can scrounge up, but what underlying theory and foundational dialectic framework you are employing in your analysis. Reading and understanding FOFOA's premise and analysis does not have to be equated to agreeing with it. They are not mutually exclusive. We simply hold fundamentally different perspectives. You can disagree with that perspective, but you cannot deny that it is well-established in legitimate (non-fraudulent) academia, while at the same time not endearing itself to many people in media, mainstream or otherwise. Marxian analysis is not a great way to make yourself popular, even now and despite what TD would have you believe.
Or... the other alternative is that I have contacted CHS and convinced him to commit in blood to joining the evil, deceitful Socialist underground network of near-term dollar deflationists.
Thanks for sharing the Pfennig link, costata. Interesting addition of SEK to the discussion — perhaps this currency strength has just a little something to do with, for example, Saab's woes...
I'm interested to hear your assessment for the non-natural-resources side of Australia's economy over coming years? Clearly the rising tide for commodity prices is excellent for the economy of the western side of your beautiful land, but what about the south eastern corner around say Sydney, Melbourne, Canberra? Is the strength of AUD starting to cause any problems? Are you seeing any signs of a two-speed economy?
reflection,... See latest Bron's :o)
AN ARTICLE, TALKING ABOUT THE SAME THING "ANOTHER" STARTED THINGS GOING 15 YEARS AGO...
Excellent article from the FT on London Bullion Market Association's (LBMA) study on the gold trading market in London.
their conclusions are that the OTC Trades represented a mere 10% of the overall daily trading volume, as reported by the LBMA members.
"...the volume of gold traded in London is ten times what is implied by the clearing statistics: 10.9bn ounces of gold, worth $15,200bn, changed hands in the first quarter of this year, according to the LBMA’s estimate.
"...That is 125 times the annual output of the world’s gold mines – and twice the quantity of gold that has ever been mined.
"...The 10.9bn figure compares to 1.2bn ounces of gold trades that were cleared – in other words, only a tenth of gold traded on the London market is cleared. About 1.2bn ounces were traded in the form of Comex futures in the same period.
"...The vast majority of the trading – roughly 90 per cent – was in the spot market, rather than forwards, options or swaps.
"...the $240bn average daily turnover in the London bullion market is higher than the global daily turnover of any currency pair except for the dollar/euro, dollar/yen, dollar/sterling and dollar/Aussie dollar, according to the most recent Bank for International Settlements survey
The dollar/Swiss franc, that other great safe haven trade, is worth a mere $168bn a day."
See the report from the London Bullion Market Association has just carried out a study
:from http://mastermetalsblog.blogspot.com/
Do you think that maybe the credit markets are starting to get a bit nervous again? Take a look at this chart. Shades of 2007/2008?
http://3.bp.blogspot.com/-BzKTSBxWq3w/TmorYDc_bwI/AAAAAAAAAAs/sa8anWUJunc/s1600/graph.png
The linked chart is not titled. It is the EURIBOR-OIS chart going back to 2007.
http://www.usmint.gov/kids/coinNews/mintFacilities/
See Wikipedia for an explanation:
http://en.wikipedia.org/wiki/Overnight_indexed_swap
Much chatter about an imminent greek default, more european easing, Jurgen Stark is out of the ECB. Connect the dots to imminent freegold bid, or just more of the same?
@Jeff
I think that we are just strolling down the trail at a leisurly pace. Stark was/is a hawk so he does not fit in with the ECB plans to print. Gold price positive but not FG/RPG ignition material ... yet.
I wonder if the SNB will follow the ECB down this path for very long. Will they lose control to the market before year end? Do they have the political will to create high inflation leading possibly to hyperinflation? Interesting times.
10 year US Treasury record low yield today of 1.91%. Official inflation is 3.6%
Real yield on the 10 year is -1.69%
SGS alternate yield on the 10 year is -9.09%
@ Max Deniero
"Zero Hedge doing a bang up job of entirely missing the point of the significance of Trichet's little rant about price stability."
I agree. That is what makes FOFOA a step above the rest. The dribble you hear from unsophisticated gold bugs is annoying. I don't mean ZH even though they posted the article but most of the comments and most of the guest posts.
I am reading the archives on FOFOA, starting back in January 2010. I read a comment suggesting the US might attempt to destabilise the Eurozone when it suited its own ends.
I recalled this from last month, as I was suspiscious at the time (why would the Fed destabilise things)?
http://www.fxstreet.com/news/forex-news/article.aspx?storyid=f5a32e90-65bb-415b-8b09-a5889a67a50c
So, perhaps it is another sign of the ongoing 'final battle' for reserve status.
Gary,
I read a comment suggesting the US might attempt to destabilise the Eurozone when it suited its own ends.
I don't think the ECB would need any help from the US - they are much better at destabilizing their own currency by themselves.
I have no doubt that gold will eventually be revalued quite substantially, but it is becoming more and more obvious that way the ECB will support the gold revaluation is not by more or less actively derailing the bullion banks (as Another and FOA thought) and by breaking the paper gold market, but rather by diluting the euro relative to real assets. At some point it will hurt the savers in the euro area so much that they, too, will flee into gold, sending the euro down together with the US$.
Why not? This is another way of getting freegold. Will be sort of guaranteed success. With an implosion of the PIIGS debt markets and the European commercial banking system, they have a good excuse for printing a few trillion euros. That will sure work.
Victor
Victor
it will be interesting to see IF the ECB will resist the numerous calls to print. They were designed to be able to resist but the political pressure will surely mount to print. If they do print then the EURO will probably look something the dollar as it collapses. If they do not print then a lot of Europe will suffer in a depression but the EURO may suvive.
Michael,
it will be interesting to see IF the ECB will resist the numerous calls to print
This decision has already been made. They will. Just take a look at their balance sheet:
http://www.ecb.int/press/pr/wfs/2011/html/fs110906.en.html
Assets, Item 7.1: 188bn (128bn PIIGS government bonds purchased outright; 60bn mortgage backed securities purchased outright)
Assets, Item 7.2: 250bn larger than in January 2007, and
Assets, Item 9: 100bn larger than January 2007 - both are some assets bought directly by the member CBs rather than the ECB. Same story, member CBs propping up their commercial banks by buying bad debt outright for cash.
Assets, Item 5: These are the usual repos with commercial banks. Of these, for example, 90bn are Greek government debt posted by Greek banks as collateral at face value. Nice, isn't it?
So, already as of today, the cash dump on your European friends' front lawn has been at least 650bn euros (although the Fed is still further down that road with over 2000bn US$).
But it won't stop there since a large part of the European commercial banking system is under water and would have substantially negative equity if they had to mark their 'assets' to market.
Victor
DP,
The general public in Australia was unaffected by the GFC. Even the natural disasters had limited impact on the economy.
Two factors helped enormously. Firstly the Australian dollar is a "clean float". It does the job Mundell predicted. It acts as an automatic stabilizer.
Secondly we have over AU$1.2 trillion in superannuation funds that are unleveraged. This pool of capital saved a number of companies during the credit crunch in 2008-09.
IMO Australians are just beginning to realize that there is "something" wrong here in the economy.
It is becoming increasingly obvious that the housing market is now in a downtrend. Interest rates and costs for energy and other essential services have risen to the point where low to middle income households are under presssure.
The economic benefits of the mining boom are more widely spread than you might imagine. For example most of the coal mines are on the east coast and in Queensland.
Most of the farming areas have had several great seasons. The Aus dollar is hurting our tourist, education and other domestic "export" sectors. It is also completing the process of hollowing out the economy in terms of manufacturing.
Overall our problems are relatively light compared to other economies at present. If you had to pick a country to ride out this transition Australia would be near the top of the list.
In one of my comments to Team Photocopier I noted that it was a shame that the debt deflationists focus on the USA. IMO hyper-inflation is a safe bet for the USA.
Debt deflation is a real possibility here for a number of reasons. Partly because of the pool of capital provided by the super funds and partly due to the relative strength of the Aus dollar. At the risk of over-simplifying the situation we can afford some write offs and we have some latitude to print.
Thirdly we have an "ace in the hole". Our politicians are deeply incompetant and inept so a debt deflation could be all over before they had time to "fix" it. That said IMO debt deflation will not play out here the way Steve Keen thinks it will. As Dame Edna Everage says "don't judge Australia by Australians".
ECB has released a 'don't panic' communique tonight. Very unusual; it seems something is about to happen. Feel free to panic.
@MF Some Tylers are better than others. :P
hehe. Agreed. Maybe they need some personality notes.
Tyler 1: Gold bug
Tyler 2: Silver bug
Tyler 3: Euro skeptic
...
Doesn't seem to be any freegolder Tylers? :)
FOFOA articles don't seem to have been posted there since Dec 2010...although maybe that was FOFOA self limiting the influx of silverbug and survivalist posters here :)
Jeff,
ECB has released a 'don't panic' communique tonight. Very unusual; it seems something is about to happen. Feel free to panic.
I have not found it, can you post a reference or copy/paste it?
Victor
VtC - I'm assuming Jeff means this?
G7 Says "Central Banks Ready To Provide Liquidity As Required"
It sure looks like something is happening. Big announcement was first the hard money guy on the ECB Boaed resigned, then that Germany announced it had a plan to recapitalize it's banks if Greece defaulted. Less noted were subsequent comments by Merkel that France and Germany had a common vision on next steps and that if Greece didn't meet targets they would not get the money. Meanwhile Greek officials in full on scramble mode that "all is well". No echo of that sentiment from the troika.....
My speculation? Greece defaults and EcB intervenes massively to support bonds and banks of the rest of the euro system. Perhaps Stark disagreed with that response.
Someone has been knocking gold down hard over and over and over to prevent a full scale
rout because they know it's going to attempt a breakout when this happens and they want it weak. I expect this will be spun as hugely euro positive and they will try to lift banks to get equities to follow. Basically a full-scale control of the financier system.
But they don't know what happens after that....or knock on effects. I am becoming increasingly concerned that the euro will in fact be the first currency to go hyper as citizens of northern countries dump it en masse in favor of usd and gold fate they watch the printing orgy about to be unleashed. There is nowhere for those euros to go.
Seriously Texan,
"nowhere for those euros to go", "first to go hyper" get a grip.
How about gold?
@Costata-
Very interesting comment on the "clean float". For others I wonder if you might expand on what you mean when you say the Australian Dollar is a "clean float".
Do you mean to say most CBs foreign to Australia do not hold significant Australian Dollar (AUD) reserves -- and as such these same foreign CBs lack the capability to quickly effect FX rates between Australian dollars (AUD) and the rest of the world (ROW) currencies?
If so, this would certainly be a double++ boost for the case of why CBs shouldn't hoard another zone's medium of exchange as a wealth reserve. Not only does it stifle domestic growth within that currency zone, the excess hoard may likely come back to haunt the issuing zone.
--Aaron
Sorry, should have said G7; too tired tonight. And did anyone notice the move in eur/jpy today? The japanese will be intervening to weaken the jpy again soon at this rate. Round and round the currency war goes.
Hi Aaron,
The Australian dollar is not generally held as a reserve currency by CBs. Where it is held it represents a minute portion of reserves.
The term clean float refers to the fact that the RBA doesn't target a particular exchange rate. It conducts "smoothing" operations when the currency moves too fast in either direction. The RBA basically sells into strength and buys into weakness. It also co-ordinates its activities with other CBs.
Australia has a deficit on its trading account and it has run a surplus in the capital account for decades. Exporters, traders and foreign investment create the demand for the Aus dollar not CBs seeking reserves.
The interest rate differential between Australia and other countries makes it a popular choice in the carry trade. That's one of the reasons why this currency tends to move up and down with the risk-on and risk-off shifts in mood in the markets.
Over short periods of time the Aus dollar has been volatile but looked at over longer timeframes it has been fairly stable until recently.
Some analysts argue that it is currently being re-rated. IMHO that is correct. If you hold Aus dollars you can obtain real stuff for them - coal, wheat, iron ore etc. I realise that most transactions are conducted in US dollars but the basic principal still applies.
Those Aus dollar credits are de facto legal tender in Australia and you can spend them here on stuff that the world wants and needs.
Cheers
Costata,
I said they would sell euro and buy usd and gold, so i am not sure what you mean.
The eurozone construct is extremely binary at this point, it basically boils down to the likelihood (or not) of the enshrining of some form of permanent transfer union.
Ie, will Germany will pay Italy's bills forever? If they will, the euro survives. If they won't, no one knows what happens next, but I am willing to bet it isn't "euro positive".
costata,
Seriously Texan, "nowhere for those euros to go", "first to go hyper" get a grip. How about gold?
Two weeks as in fall 2008, and all coin dealers and banks are out of stock, and then people will buy food and fuel (and silver!). If they wanted to steer the savers into gold, they would have prepared for it. But the infrastructure is simply not there. Perhaps the last person in the ECB who still remembered what the gold was intended for, has left some time ago?
Victor
Victor, is Costata suggesting that CBs would sell their gold if people were worried about holding euros? That would be mighty decent of them. I hadn't realized that was the fallback plan - to actually back the euro with gold!
I must have missed the press conference where Trichet said, "y'all chill out, if you'd rather have gold we've got tons and tons of the stuff just let us know".
Anyway, if that is the plan, or rather wiould be the plan if it came to that (since i was just joking about the Trichet pres confernce), presumably the backing is at a much, much higher price than currently, right? Say 50,000 euro per ounce?
Is that not hyperinflation?
My head hurts, I am going to sleep.
Is that not hyperinflation?
Wouldn't it just be a super deflation against a single asset - gold.
Everything else stays relative. ie: all things super deflate against gold.
It wouldn't be a hyperinflation in the normal sense of a 'collapse in demand' since the idea is sellers continue to accept Euro for trade.
@Texan
I got what you meant about euros having no place to go but to USD or gold - tho given at least Germany's Weimar history with HI, I suspect many of their euros go to gold - how much unsuspectingly goes into paper gold is a different issue & will be interesting to see (I'm sure the central banks will want to sell them the paper gold so as to control the price).
I expect German politicians will bail out the PIGS in the short term despite current protestations - all this bluster and posturing is for domestic political consumption & to make it appear they drove a hard bargain with the Greeks.
Ongoing bailouts (such as we've seen with Greece) are not sustainable longer term without dragging down Germany (and whoever else is expected to fund them) so I expect that they will eventually come to realize that they need collateral that will protect their interests in future loans, while also providing the PIGS with incentives to get their financial house in order, enforce domestic discipline & ensuring repayment - namely gold.
I know the ECB believes the gold belongs to the individual CBs & therefore isn't available to national governments for use as collateral, but imo, that is merely a semantic hurdle.
Hi Texan,
Rising US dollar for the time being and a declining Euro etc. Gold makes a strong weekly close. All to be expected under the circumstances. It's the language you are using and the assumptions you seem to be making about the impact of these events on the Euro that drew that comment from me.
In my opinion there is not a snowball's chance in hell that Germany will pick up the tab for the other EU states over-indebtedness and bloated government budgets.
Debts that cannot be repaid will be defaulted. I'm bemused by the reaction from some quarters. This is part of the Euro architecture. Instead of devaluation risk the adjustment mechanism is default in this type of situation. Will the ECB tolerate higher inflation during the transition? A/FOA made it clear they would.
I was reading this post about the US dollar by Chris Puplava and I dropped in to post a link to it. It's a timely reality check. I urge everyone to read it.
http://www.financialsense.com/contributors/chris-puplava/2011/09/09/usd-long-term-and-short-term-picture-collide
This is a political battle over the apportioning of the losses. If the EFSF could be expanded to the point where it covers all of the bondholders then the European taxpayers would be expected to take the hit from socializing the losses. Will the EU citizens allow their politicians to do this like the Irish did? Wait and see I guess.
I saw those figures that VTC posted from the Eurosystem CBs. Ho hum. I was surprised the numbers weren't signficantly higher by now. This is small potatoes compared to the US dollar system's legacy issuance and debt loads.
We seem to be on the cusp of another Lehmann style meltdown but with one key difference. The currency swap lines are in place and the CBs have already had "emergency drills" on dealing with any liquidity issues.
The capital issues of the European banks are a separate problem. IMO it is unavoidable that at some point the shareholders, bankers, politicians and bondholders will have to face the music and recapitalize them.
Is now that time? Personally I doubt it but the Euro architecture is designed to cope with this type of situation without destroying the Euro's function as a medium of exchange.
Texan and VTC,
Nice tag team performance.
The ECB doesn't need to sell gold in volume. All they need to do is act as the market maker, offering a buy and sell quote. At some price the private stock will flow.
If there is fear among the citizens in Europe then the response of the Irish and the Greeks would suggest hoarding of gold and Euro currency. No velocity = no significant demand pressure on prices (let alone HI).
I have no problem believing that US dollars are deserting the European banks as the article below suggests. Those banks are in big trouble, no doubt about it.
http://www.telegraph.co.uk/finance/financialcrisis/8736204/Central-bank-flight-to-Federal-Reserve-safety-tops-Lehman-crisis.html
h/t JSmineset
When most people think of gold, they tend to envision a shiny, yellow metal. While this depiction is certainly accurate, what most people do not realize is that there are many different types of gold, especially in terms of ownership alternatives for individuals.
us mint gold coins
Costata, default is consistent with deflation, not inflation. And Another said debt would be saved at all costs, not defaulted upon.
So how exactly is the euro architecture designed to cope with this type of situation? I would say the opposite- it is not designed to cope with this. It is the ultimate free-rider game theory problem, or tragedy of the commons if you like, because there is no penalty for cheating. The North is trying belatedly to put a mechanism in to deal with that, but if they fail, I am not sure what the "euro" will become.
CRA: "In one of my comments to Team Photocopier I noted that it was a shame that the debt deflationists focus on the USA."
That would be true...
If the person who created the "Debt Deflation Blog", Dr. Steve Keen, was not an Australian economist, and didn't write about or reference the Australian economy in almost every single one of his posts.
Thanks for your local assessment, costata - interesting and VERY much appreciated ;)
A question:
If a euro nation defaults, let's say, ummmm Greece, and is not bailed out, is this deflationary or inflationary?
Well, I would have thought that at that moment, of sovereign default, we don't yet know.
Greece can default and reset its debt level, leaving those that hold the debt in deep doo doo.
So, what happens next? Germans ain't gonna pay to bail out French, or whatever, banks. So the ECB prints prints prints in order to recapitalise.
This is not deflationary. This is inflationary. Also, at this point the Greek economy is free of its debt overhang and can grow again - not deflationary, inflationary.
So in this scenario we have what would have been doubleplussuperduper deflation turned into doubleplussuperduper inflation.
EFSF is a hard sell - no one likes transfer payments. However, recapitalisation of banks is an easier sell if the public thinks all of their cash is in danger.
Hence, default, in euroland, is inflationary.
Yes in (the new) local currency, there will be massive inflation in Greece if they default. In old euro terms however, there will be huge contraction of GDP. Their economy will shrink.
Same with europe overall. Banks may be recapitalized by some govenment entity, however in such a case they will not be freely lending, nor will consumers be freely spending.
So I think a greek default is deflationary.
Texan,
You wrote: "Banks may be recapitalized by some govenment entity, however in such a case they will not be freely lending, nor will consumers be freely spending."
I don't think the resulting inflation would be normal inflation, ie from economic expansion - it would be inflation due to collapse in confidence in fiat/bonds as a store of value. You are applying rules that work in a pre-crisis economy that is functioning within normal standard deviations from average.
This will not be a normal world. New rules will apply. It will be quite obvious at this point exactly what CBs' plan will be whenever there is a problem.
This will cause a shift away from a bond-centric-store-of-value world to a gold-centric-store-of-value world.
Damn right, no one will be lending, but damn wrong, consumers will be spending freely - on gold, or on stuff. Hyperdeflation in gold, hyperinflation in (many) fiat currencies.
2xAF:
http://www.professorfekete.com/articles%5CAEFCutTheGordianKnot.pdf
http://www.professorfekete.com/articles%5CAEF140YearsOfSilverVolatility.pdf
Max, nice to have you here.
There are serious problems with any action taken out of a belief in an ideology. Ideologies are borne out of a philosophy.
A certain view of metaphysics, epistemology, ethics and politics leads to a certain economics.
Unfortunately, none of these ideologies are totally correct. However, they cling to their precious and comforting academic mental masturbation, their logical 'proofs' and their myopic prognostications.
Unfortunately, they are all wrong. All of them. Austrians, Marxists, Keynesians, NeoLesboFascists, whatever, wrong wrong wrong.
None of them truly take into account the subtleties of the human psyche. A bunch of academics spouting crap to make themselves sound intelligent and defend their precious worldviews.
I laugh in their faces... then ignore them.
Max, Do you beleive there is a "correct" view of economics, and is it definable?
V of C wrote:
"Two weeks as in fall 2008, and all coin dealers and banks are out of stock."
I remember that time well, and that was not the case where I reside. I had no problem finding ready supply.
Wendy,
Economics is (in the macro) the aggregate sum of human action. The 'correct' view is that held by the person who finger on the pulse is the most sensitive.
The correct view shifts depending on the almost infinite number of variables. Anyone who claims to follow an ideology which has the definitive view is de facto wrong wrong wrong.
Thank you Max. Your repsonse leads me to wonder if the person/entity who has the most sensitive finger on the pulse can be that close, but at the same time view the macro and micro events that lead the economy, with a wide enough lens to properly access it in the present.
I am likely one of the least economically knowledgeable commentors on this blog ... but I can see, and I can hear what's happening in the world.
What I've seen and heard for years is a bunch of so-called experts touting economic analysis that is mostly so far away from each other, it leaves me wondering if correct economic analysis is even do-able in the present.
Do they listen to themselves or each other? Or does each sub-sect of economist/analysists truly work in a vacuum?
I realize this might sounnd silly to some, but if you live outside of that world of economic analysis, technical analysis banking etc and pay even a bit of attention to it .... well "insane" is the best word that comes to mind to describe it.
@ Texan
"So I think a greek default is deflationary."
It would be inflationary because there would be capital flight out of the Euro for a period of time. Just like the summer of 2010 when the Euro fell to 1.19. Greece was on the cusp of default and the Euro fell, it did not rise.
@ Max
Spot on. I said the exact same thing about the currencies of the Asian financial crisis. Those currencies fell by for 40 to 60% while they defaulted. Using deflationist logic, they should have risen.
Austrians are 98% right. They just need to take a more Fisharian view of the flow of capital.
An interesting interview at the link in that here we have another analyst for whom gold doesn't register.
http://www.thetrader.se/2011/09/09/long-view-revisited/
Texan,
Some food for thought (hope you are hungry!):
1. The Euro is going to become a transactional currency. Like every other currency.
2. The $IMFs is flawed - see FOFOA's dilemma. The $IMFs failing -> separation of monetary functions.
3. The euro architects understood this inevitability, and "attempted" to plan for this inevitable occurrence. They understood they "money concept" discussed in FOFOA's "Return to Honest Money." And the horror to humanity if this were destroyed altogether and back to a "barter like state" we went- hence the Euro.
4. The separation of monetary functions means currencies now held as stores of value (largely held as "derivative" debt instruments in the $IMFs) must devalue.
5. As explained in FOFOA's "Synthesis," the "hope" is that the architectural design of the euro will allow the euro's devaluation to be largely directed into gold and thus avert a "massive hyperinflation", in contrast to the dollar's devaluation and hyperinflation against real goods.
6. From Greece is the Word - "Freegold, then hyperinflation." The dollar will hyperinflate. The Euro will, as FOFOA wrote, **probably** not hyperinflate. If you have some humanity and understand what is coming, you , HOPE the Euro will not hyperinflate against the real world as the dollar will. But the Euro will devalue.
7. As FOA wrote, the Eurozone is trying to pull in as many trading partners as possible to **SUFFER LESS.** The Euro is no example of ephemeral perfection, but in relation to the dollar's end game, it's a ray of hope for humanity as compared to the destruction of the money concept.
8. As Another wrote, if the Euro fails, gold becomes the oil currency. No one with an appreciation for the import of that idea is rooting against the Euro.
9. Having humanity = "hoping," (perhaps praying) the Euro survives. Don't get lost in idiotic political ideology, it's not about socialism or liking Europeans - it's about understanding what money really is - a concept, (to poorly paraphrase, its a set of socially remembered barter transactions) - and thus appreciating the horror that comes with it's collapse and a "return" to "more barter-like" state.
There's a start (iPhones suck for posting, even more when you have dysgraphia). Enjoy!!
Cheers, J.R.
Max,
Welcome!!
I understand your frustration and sympathize with it to a great degree. (you probably can't imagine)
But be careful of projecting your well-founded distaste for ideologues and their ideology, there's no no need to throw the baby out with the bathwater.
Economics is not what you think it is, despite what they may have told you!
Cheers, J.R.
FOA quote excerpted from FOFOA's "FOA on Hyperinflation":
"My above explained why a deflation cannot be in the cards. But if so, foreigners holding even government guaranteed paper debt in a deflating currency is little more than bookkeeping wealth if the actual goods buying power of the currency is compromised.
Yes, our US would continue to print dollars to service its debt, making the accounts look good. But, in such a deflation situation, foreign exchange controls are a 100% guarantee. Foreign held dollar assets would not come home, at least not at the same exchange rate one needs to become financially whole!
When the world begins to abandon a currency at the end of its reserve timeline, deflationary gains on debt instruments are an illusion of bookkeeping. There would be no 175% real purchasing power gains allowed."
Don't get lost in the word games, those semantics are for the Sophists. It's all about real purchasing power - see, e.g., Iceland's "deflation" or "default," as discussed for example by FOFOA in "Deflation or Hyperinflation."
-------------------------------------
Also keep in mind the Euro is the issue, not specific Euro members. Keep in mind the "modern European fair" from FOFOA's "Euro Gold":
After some time, it became apparent that Greece could never pay back the debt at full value. This realization actually threatened the system, I mean the fair. So what the fair operator decided to do was to buy those promises to pay from Germany at face value, with newly printed scrip. This kept Germany in the game although it did devalue the scrip since now there was more of it than there were goods at the fair. But this was fine because the fair operator published a ConFinStat in which he told all the fair participants that the fair's scrip money was now worth less.
Those, like Germany, that had actually saved some income in promises to pay denominated in scrip, and then found those promises severely devalued by the recognition they would never be paid back at full value, received a nominal gift of the same number loaned to Greece, even though it was now devalued. Those that had not saved in scrip, but instead had cleared with gold at the end of each fair, simply carried on trading at the new, lower value of the scrip. You see, the fair operator, we'll call him the ECB, did not participate in the fair itself, primarily because he had severed his link to any specific booth operator. His only job was providing scrip, announcing its value, and maintaining the system, I mean the fair, even if it came at the cost of debasing the scrip money.
Cheers, J.R.
Thanks JR is was really great to hear from "you".
I very much appreciated your post.
meanwhile if the quarter ended today which is coming soon in few weeks then the gold mtm of the eurozone would be at 68.8%. last quarter it was at 62.6%.
huge loss for the holders of currency.
NeoLesboFascists? Now thats something i could believe in!
Where do i sign up?
Regards
Ozzy
JR,
"Threw the baby out with the bathwater" could be the epitaph on my headstone.
Well, Costata, on your recommendation I read
Chris Puplava's piece on the dollar and the best I can say about it is that it seemed to me to be a missed opportunity.
For example: since he is fond of technical analysis, rather than drawing a triangle- which has broken down thus demonstrating that the triangle was, in fact, a continuation pattern- which is a perfectly valid thing to do, he might have noticed with the assistance a some key TA indicator or two that the present rise in the Dollar Index is most likely painting the right shoulder of a H&S shoulder pattern that projects the dollar to lose another large percentage if and when it completes.
More disappointing than that missed opportunity was the fact that Chris Puplava seems to think that more QE is needed to send the dollar down. Only time is required to do that, though there will undoubtedly be further money printing initiatives from The Fed because that is one of the ultimate effects of what they exist to do. But I digress a bit.
The U.S. Economy's further deterioration, present spike in the dollar notwithstanding, guarantees that the secular decline in the purchasing power of the dollar will remain intact. I did not hear that point from CP, which I think does his readers a disservice.
Anyone else hear about recent Austrian restrictions on Gold purchases? See article here:
http://www.shtfplan.com/precious-metals/banks-governments-move-to-restrict-personal-gold-bullion-purchases_09092011
Kinda scary, but I can see governments doing it as a last resort to protect their fiat system. Thoughts?
@JR,
Can you educate me in regards to how the foreign exchange controls that FOA alluded to might be implented to prevent foreign reserves from coming home?
Sorry, meant to write "implemented".
From Zero hedge this AM:
http://www.zerohedge.com/news/goldman-calls-qe-europe-how-far-can-ecb-go-using-its-balance-sheet-short-answer-lot-further
'Gold holdings...are a legacy of the times of the gold standard and there is no direct use of these holdings in the conduct of monetary policy."
This is from comments by Goldman Sachs to apparently encourage the ECB to use its balance sheet in the current crisis.
I am wondering if this is just a dis to gold as a 'relic' or if there is some other meaning in what appears to be an untrue statement...clearly there are uses of gold even today.
Good article about EURO and consequence of any country exiting.
http://www.businessinsider.com/prepare-now-there-is-so-much-that-could-push-us-into-another-2008-crisis-2011-9
@Joel, RE: Austria
I am not very familiar with Austria, I buy bullion in Germany and Switzerland.
In Germany there is a 15'000 euro per day limit for ANONYMOUS cash purchase, if you buy more on a single day a given dealer, you must identify yourself. I flew over the article you linked, it is vague in this regard, were they talking about anonymous purchases, or even purchases where you paid from your own account?
Hey everyone. I've spent hours this weeekend reading the Fofoa archives, fascinating stuff indeed.
I just had a quick look at my own country's reserve handling of gold (the UK).
Here is the link:
http://www.bankofengland.co.uk/statistics/reserves/Tempoutput.pdf
Two things surprised me. One was the Bank of England has gradually transferred ALL of its gold holdings over to the UK Govt, a process which ended in June 2008.
I will write to the Bank of England tomorrow to see if I can find out why this has happened? Any ideas?
Secondly, and very interestingly from a freegold perspective, the UK govt revalues its gold every month in the same way that the ECB does. As a result our gold reserves have nearly doubled in the past few years!
Is this a significant discovery, or is this old news to everyone here...I am a relative newcomer, and am playing catch-up.
Regards.
Gary.
Hi Gary,
It maybe old news to some, but i ve never read it on this blog before now. Thanks for that.A very interesting piece of info.I was under the impresion the pound would hyperinflate almost as bad as the dollar.
Maybe the Uk is nt so doomed after all?
Regards
Ozzy
@white ele,
yes both i believe.
Found an interesting argument that TPTB will never allow windfall profits in gold, and as opposed to Fofoa's views, will eventually heavily taxgold, making it a zero sum game. I remember Fofoa saying he believed that they would only tax mines.keep in mind he comes from a NWO mindset. Would love to hear counter arguments. Link here:
http://www.marketoracle.co.uk/Article20327.html
I think fofoa would benefit himself and his readers greatly if he incorporated conventional technical analysis and Elliott wave. Just telling people to always buy gold is not a very intelligent way to go about it, unless one is buying small amounts at fixed time intervals throughout the bull market, allowing a cost averaging. O/w the intelligent thing to do would be to wait for the dips, especially the wave 2s and accumulate large sums then. Also, it is clear from TA and EW that if there will be a freegold, now is not the time, as we are in wave 3, and most likely it would occur at the end of wave 5, years from now. The market as a whole is intelligent enough to predict when this should occur, it will not occur at a random time IMO.
Joel,
Here is costatas' take on your question, which has been discussed before:
Welcome to the FOFOA blog. In case you missed it the heading reads:
FOFOA
A Tribute to the Thoughts of Another and his Friend.
Clearly you haven't found the time to read any of the archived material available in the links on the right hand side of the home page.
As a favour to you I have extracted Another and FOA's predictions from 1997 and 1998 about taxes on gold under Freegold.
As an additional favour I will break it down for you.
1. The gold miners will be the targets for high taxes. For political and practical reasons they are the soft option.
2. Anyone holding paper gold when the transition to Freegold comes will be burned.
3. Personal holdings of physical gold will be encouraged by EU Governments and their allies.
4. No-one knows what the specific tax regimes will be on the sale of gold in other jurisdictions. At present it ranges from Zero to the equivalent of the taxpayers' marginal income tax rate.
If you cannot be bothered to read FOFOA's archive (BTW did I mention that this is his blog) you will bore the s#@t out of most people with your half-baked theories and predictions.
Nothing personal, Joel!
Gideon,
Thankfully this is not FOFOA's E-wave market timing newsletter, as I would have as much confidence in that as I do in Bob Prechter. For those with a 'western trader mindset' there are lots of sure-fire websites. This ain't one. :)
Jeff,
I do not have a trader's mindset. I have been accumulating physical for years, and I do not sell it, but I also do not buy it at random, I allow the technicals to guide me as to when and at what price to step in, and I have done very well. i think the best approach to investing is a holistic one, and I find it a bit moronic to get all excited about every 100 dollar move up in gold as if this is IT, and to buy it when it is grossly overextended and due for a 20% plus correction. BTW, not everyone has as poor a record as Precther by any means. Not that you probably care, but the best EW person for gold is Alf Fields, and he a long term excellent record. Maybe open your mind a bit, you might learn something and grow wealthier.
JR, fair enough. I know I am definitely harsh on the euro, but I really really really hope it survives, and in fact, thrives.
M, my comment on a Greek default being deflationary is more directed at velocity. I think everyone hunkers down. Yes the euro will devalue, so you could have some stagflation for a time, as we have had in the US.
Who thinks Europe is in...the final countdown?
http://www.youtube.com/watch?v=9jK-NcRmVcw
Warning: Jeff has put a link up to a hair metal band!
Yechhhh.
with really 'good' hair and pink lipsticks that just screams...."these lips belong on a woman" (and no not on as in kissing her, as belonging to....sorry my mind has been etched
Jeff,
My apologies to Joel for any offence.
Jeff, I'd appreciate it if you wouldn't reproduce that reply to Shelby as a response to others.
Shelby had been abusing FOFOA offline and online as well as peddling his conspiracy theories for some time when I dished that up to him.
I'll create a new comment, with less heat, that lays out the same information. I can also expand on it with some confirming evidence on official policy toward inground gold (in 1997) when Another was posting.
Joel, it would be worth a trip to Bron's Goldchat.blogspot and a search for his well reasoned analysis of the notion that gold will be confiscated. Taxation by another name IMHO.
Cheers
Edwardo,
Point taken. I linked that CP article because it was a reminder about the long term trend in the US dollar.
As you point out the analysis was less good than it could have been.
Cheers
Hi Gary,
From the reserves statement you linked earlier: "4 Gold (including swapped or on loan)".
For me, this is a more interesting detail than the fact the number of ounces have reduced while the valuation of this "gold" has increased.
So many questions raised by this small nugget of [almost] shared information! Who really has the legitimate claim to own this swapped and/or loaned gold? How much of the gold in this line of the statement is swapped? How much loaned? What was it swapped/loaned in exchange for? Is that also reported on the statement somewhere? Who were the counterparties that believe they own it but might find out they don't after all? What will they do if they find this out? [Mummy!]
I also draw attention to the entire statement being denominated in USD, which is markedly divergent from ECB statements. Why is it not denominated in GBP? Why is it subordinated to some other monetary authority?
The movement of gold off the BoE balance sheet is indeed interesting. Are international claims on the UK's gold claims against the BoE, or the UK Treasury? (Not forgetting that until not so many years ago a sovereign coin, approx 0.25oz, was an internationally recognised £1 coin. So that's £4/oz gold when some of those claims were racked up. Wowsers!) Reminiscent of the US situation where international claims are against the Fed, while the gold is an asset of the US Treasury. Do you think it's possible that the US and UK governments have intentionally sought to put the gold beyond the reach of international creditors? It seems possible that somebody some years ago may have seen the writing on the wall and decided to do something to protect the national treasure? If you agree with my assessment on that, you will probably also agree that this is not particularly conducive to engaging in a two way market for gold in the US or UK! Unless/until the monetary arrangements are at some point in time significantly modified in some way, perhaps through necessity of circumstance rather than choice. [Bummer!]
Thanks Costata,
Will check out Bron's reasoning, that's whatl I was looking for was some more specific arguments on taxation. Interesting that you have tied up with Shelby before. No need to apologize for someone else's plagaristic rudeness.
@Jeff,
I suggest you switch to decaf and start paying attention. If you don't have the brainpower to discuss why or why not you believe we will be taxed, then simply pass. Don't stoop to plagarizing someone else's words to form a dismissive reply.
"No offense, Jeff." (see how hollow and insincere that sounds, lol?)
I am very familiar with Fofoa's thoughts on taxation, and even mentioned them in my post, but there are a lot of other smart people here (in case you haven't noticed through your ego-colored glasses) whose opinions I highly respect.
Taxation will remain a major issue facing holders of gold, whether you have the knowledge to weigh in on it or not. If gold gets the huge revaluation that Fofoa and others think it will, we will be glad to pay the taxes. If it simply negatively correlates to inflation, then the combination of a) the loss of purchasing power at conversion back to the prevailing currency and b) taxes render it a losing proposition (but a lower net worth is still better than zero net worth).
Post a Comment
Comments are set on moderate, so they may or may not get through.