There is an elephant in the room. Jim Rickards has been making some bold predictions while on his book tour for Currency Wars. He says that in the case of a collapse of confidence in the dollar, the U.S. could confiscate the gold owned by foreign governments, Germany in particular, that is stored in NYC at the Fed. He says the U.S. could then use this gold to dictate a new international monetary system based on U.S. currency, just like last time.
Here are a couple of Jim's tweets on the subject:
@JamesGRickards Got a bid from #Germany for foreign rights to #CurrencyWars. Germans should read it. Ch. 11 tells why they'll never see their gold again
@JamesGRickards @FrankfurtFinanz Yes. This is described in Ch 5 and Ch 11 of #CurrencyWars. #Germany will never see its #gold again
We don't like to ignore elephants at FOFOA, so please discuss. Should those countries with gold stored at the Fed be worried? I just know this makes different people uncomfortable for different reasons. I posted some of my own thoughts here in response to Wandee who wrote, "I’m hoping Rickards is right per Blondie’s post above and the US/West can muster up 20ktons and figure out some kind of new currency alignment."
Also, Jim was interviewed by Eric King at KWN the other day. Here's the link. And here's a partial transcript (h/t Blondie):
“...I can see it happening, and it might even be a good thing in the sense that if we combined the official US gold of 8000 tonnes and I think 6000 tonnes that we could confiscate from the Europeans, Japanese and the IMF, and there’s another several thousand tonnes out at JFK airport in warehouses controlled by ScotiaBank and HSBC, its amazing how concentrated the gold is, its not in that many places, its really ten, you can count ten places that hold really the vast majority of all the official gold in the world, combine all that gold and the US could easily have 17,000 tonnes or upwards of 20,000 tonnes, which is you know 70% of all the official gold in the world. That’s enough to dictate the outcome of the international monetary system. It would be like, it would be a lot like Bretton Woods... [other nations] they might as well have stayed at home because the US dictated the outcome... We could do it again if we had that much gold, we could say hey, here’s the deal, here’s the new currency, its the new American dollar, backed by gold, all you other people have to peg to it and if you want your gold back, get to work, and, and try earning it and you know we’ll give you an IOU or something.
Again, this is an extreme scenario, but I think it is something that would be likely to happen in extreme distress. I mean, governments are not just going to throw up their hands, if we have some kind of collapse of confidence in the dollar the United States government is not going to curl up in a ball and cry, they’re going to use executive orders and executive power to dictate an outcome.
[comparing the US to Rome as the current world superpower]... if we converted the European gold for our own purposes, think of it as a 100% tax”
2000 Flushes: 20,000 tons you say?...
__________________________________________________________
Update:
Rickards on the euro! Here's Jim from this morning on CNBC Worldwide Exchange. He's great on the euro and gold, as long as he refrains from predicting a confiscation of custodial gold, a 90% tax on old gold and a new U.S.-led gold price fixing scheme.
FOA on currency war: We will see the beginnings of a currency war like no other in our time...
Several years ago, many gold bugs and gold advocates missed the path as the trail turned. Something I pointed out at the beginning of these "message" talks. As most of you will no doubt agree, almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.
Yes, the war now is between the Euro and the dollar! The Washington Agreement placed gold "on the road to high prices" as it signaled a phasing out of Euro support for our American gold values. How fast gold can, now, rise will gauge how much staying power the dollar has in all this. If there is any gold war now, it's to be in just how fast the dollar gold market can disintegrate into worthless IOUs! So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail. This action will scare most harden gold investors to death; especially the ones in leveraged gold stocks and lesser white metals!
The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure. A structure of American based "paper gold".
We have been saying for some time that this will be "the" show to watch unfold; but only if your holdings allow you to stay still in your seat as it happens (smile).
They shifted their war on gold to become a war on the Euro,,,, only too late. Now, knowing that the Euro is a fact, we must have a super gold price if the dollar is to stay in the game! The question becomes one of supporting a cheap paper price for the sole function of keeping the market and all its bullion players alive. With the war on gold over, they need to turn their tanks around to face the real enemy but cannot.
FOA (10/3/01; 10:21:26MT - usagold.com msg#110)
Now that the Euro block is passing a point where the Euro currency is viable; this same past dollar support that built American's illusion wealth will now fall away. In its place we will see the beginnings of a currency war like no other in our time.
387 comments:
1 – 200 of 387 Newer› Newest»I have not read the book but I have never understood Rickards basis for the theft of other nations gold....does he expect the other nations of the world to just roll over?
I suspect that China would have a bunch of new allies if that were to occur.
Apologies that the following is not on the topic of gold confiscation, but it is not entirely off-topic either. Found in the discussions on an article at the Financial Times.
Renatus | November 22 4:15am
The reader discussions below all fail to appreciate the underlying reality of American Treasury obligations. And that is that this is debt unlike any other. So much so, that it shouldn't necessarily be regarded as national debt.
The USA is the only country that not only can borrow in its own currency and print that currency at will, and that enjoys a significant percentage of that debt bought by foreigners. Further, this same Treasuries are the greatest export know to human history: demand is approaching insatiable. And as the talk of downgrading it or replacing it as the world's store of value increases, what happens? Its price skyrockets to historically unheard of levels.
Moreover, American Treasuries are in effect interest free to the government. Over time, the government neither pays back the principle (other than rolling over debt) nor pays interest out of pocket: it merely borrows that as well.
There is no reason to believe that the US government will ever repay principle other than rollovers, or interest in any way other than to borrow it.
Buyers understand all this, yet buy anyway. Why?
Because Treasuries are better perceived as Tribute than debt.
Any player with a stake in the international system simply must buy Treasuries to promote its own welfare, so tightly is that welfare bound up with the Centre. The earth can no more break from the gravity of the Sun than the world's major players can seemingly break from America's financial embrace.
Fundamentally, the reasons for this are two. First, nothing on the horizon can replace the dollar as the world's reserve currency. Europe tried, overreached, and has now made its attempt a laughing stock. Much wiser, the Japanese never tried; the notion that authoritarian China could ever allow its currency the freedom to fully float is sheer silliness. Gold has been tried and it failed.
... continued
...
Second, the American Pax requires buying Treasuries as a cost of membership. Of course Japan, Korea, Taiwan, Singapore, Saudi, and yes even Europe stuff treasuries into their portfolios. To these countries the most fundamental of all requirements is American protection, explicit or implicit.
Even such a lillipution country as Thailand has racked up around $50 Billion (last i looked) in treasuries. Might not a poor country make better use of this money? Of course, but it is significant that the first use of this cash is to demonstrate its fealty to the Centre.
All this comes with a big caveat: someday Rome will fall and all this will be revealed as a huge Ponzi scheme. And it comes with a Big Question: might this Ponzi scheme itself take Rome down?
Commonsense tells us that the reason any nation finances itself thru some combo of taxes and bond issuance rather than thru direct central bank financing is to maintain the credibility of its currency; in other words, to prevent investors from coming to the conclusion that it is running a Ponzi scheme (even if, as often is the case, that is the underlying reality.) Similarly this Tribute paid to the Centre must also remain disguised as indebtedness. Because if it was generally revealed that the Empire is naked, it would become more expensive, at the very least, to secure funding.
Now that America is financing half its budget, that process may well be beginning. Importantly, note that in the official data, Chinese purchases of US government obligations has fallen sharply. That is because the Chinese government does not want to have to explain the forgoing to its people; paying Tribute is not something that goes down well with the Chinese. And yet, due to the forgoing, there has been a simultaneous increase in Treasury buying from the UK, widely reported as disguised Chinese buying. China cannot stop buying; its stake in the Pax is simply too great. What is true for China is true for the other major foreign buyers as well.
So at financing 50% of its budget, America may finally be pushing its luck. Its creation of the current Tribute system has been a brilliant maneuver that has rewarded it for decades with a significantly higher standard of living than its peers, despite the high costs of its defense establishment. That superior relative standard of living, and much more, is now be at some risk.
Which is not to say that the American advantage will end. Wealth and power are relative concepts. All eyes back to teetering Europe.
(found in the comment section at the Financial Times)
Victor
Now on Rickards' book.
First, he promotes the idea of a return to the gold standard - I have read about half of the book, and it seems he favours a central gold depository rather than circulating coins or bullion, i.e. probably some sort of gold exchange standard (whose failure he rightly criticizes in the beginning of his book).
Can this work? If the US want to introduce a gold backing in order to stop a collapse of the dollar, then the scheme must be credible, i.e. holders of dollars must be able to redeem their dollars for gold. The scheme must also be honest, i.e. the other countries can no longer be bullied to not redeem. Otherwise the dollar would just continue to decline, and the entire exercise would be pointless.
So a huge shipment of physical gold would probably go to China. How much? There are about $8000bn of US debt held abroad. As a very conservative estimate, let us assume that the US still have all their 8000 tonnes and that they are willing to give up half of that. I also assume that half of the $8000bn would be initially redeemed. This already gives a price target of about $30000 per ounce.
The problem is that this assumes that the domestically held US debt magically disappears and is neither paid off not bailed out. Secondly, once the dollar has started to collapse, it will be most likely more expensive to convince the foreigners that the US is serious about the gold.
Now he could reduce his price target if the US steal other countries' gold. So if they would steal the European gold plus some inventory from the ETFs, he might get the gold 'reserve' enhanced to 16000 tonnes and his price target down to $15000 per ouce. First, why does he want this? What's so good about a low price of gold? An ex bullion banker cannot let go of his old habits??
Finally, if the US take the German gold and give them paper receipts, of course the Germans would immediately redeem. Either the new gold standard is credible, then the US need to return the German gold to Germany, or they don't, but then they have zero credibility, and the dollar continues to drop.
Still, the US could become the Soviet Union 2.0 and simply not care. Well, they would be largely isolated, perhaps up to traditional allies such as Canada or the UK (Canada makes sense though because of the oil). And they would govern their new monetary system by force rather than my trust. Then, however, there is no point in having a gold standard. The Soviet Union (internally) was doing alright with paper money.
Apart from the possibility that they are stupid and go Soviet Untion 2.0, I think this is yet another political question: Will Congress eventually ship the US gold to foreign creditors just in order to keep the old system going for a few more months, or do they have the balls to cut down on the deficit spending, honour the true value of their gold, and start their new gold standard without trade deficit and without budget deficit.
Victor
What is his motive? I can only speculate. He certainly sees that a revaluation of gold is inevitable in the long run. If the market forces it, we get freegold, and the US ends up being one out of many equal participants in the new trade regime, even one of the weaker countries until they have their twin deficits under control.
How could the US prevent being degraded to just one out of many equals? Clearly, they could try to front-run the process and thereby try to control it. Controlling it means forcing the price of gold to be lower than the freegold equilibrium and controlling who gets physical as a reward for political favours and who doesn't. Been there, seen that, done that.
Tell me why it is unlikely that they take the Canadian oil, get isolated, and become the Soviet Unition 2.0?
Victor
It is wrong to say the gold will be stolen or to call it theft, it will be confiscated. If the U.S. seizes the gold as part of a new monetary system, the Germans will receive currency. No doubt owning the gold would be a better return, but what's the cost for Germany and others if the U.S. economy goes down the tubes? No doubt it will be a politically unpopular decision with the German public, but so were the Pershing II missiles (and the current euro bailouts).
If I were Germany (or whoever) and had gold here in the USA, I would certainly take at least SOME out.
Uh, please note that I do not know if the German gold is "encumbered" in any way re WWII. That is, if the Germans sort-of owe us the gold if they do not comply with... whatever.
---
I have been intrigued with the idea that FOFOA wrote about some time ago: that the Fed or the Treasury just issue a "call to arms" such that they BUY any and all physical gold at some fairly high arbitrary price (say $5000 / oz) and we let things go from there... YES, there would be casualties, but or financial system is in such disarray that NO ONE can get us out of this without pain...
Whatever, I think it is VITAL that each of us secure our own future and our families' futures with physical gold, well hidden.
[Let's see if I used the HTML tags OK...]
No-one ever cared (dared) to explain why governments selling gold under the Washington agreement, would sell the gold in their own vaults, but leave the gold in the vaults of the NY Fed.
If you were a good central banker, are you selling your own stuff, or the stuff trusted to others?
Comments...
Unknown,
I think they indeed sold the gold from the FRBNY vault. You need to take into account that the gold was initially only leased. That happened during the 1993-1999 period. During that time, the inventory of the foreign gold in the FRBNY vault declined from about 9500 tonnes in 1992 to abount 6500 tonnes in 2001. After that, there is hardly any change of inventory. Source: FRBNY statistics via Dimitri Speck.
With the Washington Agreement in 1999, the leasing stopped (at least by the major European CBs). But part of the leased gold was impossible to recover, and so the gold was officially sold later as part of that agreement. But these sales were unallocated transactions - the physical had been moved much earlier.
Speck also has an estimate of the gold leased by the German Bundesbank: zero in 1996, 350 tonnes 1999-2005 and less than 50 tonnes from 2006. The Bundesbank reports the income from gold leasing, and Speck uses an average lease rate in order to estimate the total weight on lease. In addition, there was an official statement that the Bundesbank had never more than 10% of their gold on lease and that now (2011) there are no gold leases (Financial Times Germany according to a colleague).
Let us assume the leased gold was indeed taken out of the NY vault. Apparently, the Bundesbank did recover its leased gold, as opposed to most of the other CBs. As after 2002, no gold has been moved into the NY vault (at least not on a net basis), why don't we assume that the recovered gold was not moved into the FRBNY vault.
It seems plausible to conclude that the Bundesbank thereby managed to transfer about 350 tonnes from NY to some other location (London, Zurich, Frankfurt???).
Just for comparison, towards the end of the 1960s the French transported two shipments of $150mm worth of gold from NY to France. At $35 per ounce, that was 260 tonnes in total.
If the Bundesbank really accomplished this, this is probably one of the largest movements of physical gold past 1971.
Victor
c
Victor,
I haven’t read Rickards’ book. You say that in it he appears to promote the idea of a gold exchange standard. I’d be interested to know if he includes mention of his unique “sliding peg”?
Can this work? As you say, a basic requirement is a very high gold valuation, particularly if you don’t want to lose all your gold to redemptions in the first few minutes. The higher the better if you have lots of debts to extinguish. What's the workable level? There is only one entity qualified to determine that.
罗臻 said: ”It is wrong to say the gold will be stolen or to call it theft, it will be confiscated.“
To call such an action confiscation is to imply that this is the action of a higher moral authority, and I think that I would not be alone in strongly disputing this. However you wish to label such an action, there can be no dispute it is dishonourable.
Rickards said of a post confiscation gold-backed dollar (GEStandard, presumably):
”It would be like, it would be a lot like Bretton Woods... [other nations] they might as well have stayed at home because the US dictated the outcome... We could do it again if we had that much gold, we could say hey, here’s the deal, here’s the new currency, its the new American dollar, backed by gold, all you other people have to peg to it and if you want your gold back, get to work, and, and try earning it and you know we’ll give you an IOU or something.“
(Interesting that Rickards says "we", just as when he speaks about the US dollar later in the interview and switches from floating possibilities to giving "my view" if you are paying attention.)
Where is the credibility in such system?
“...get to work and try earning it...”???
”...we’ll give you an IOU or something.”???
Who would take such a system seriously; the US has already defaulted upon its gold obligations in 1933, in 1971, and then unilaterally “confiscates” the reserves of other sovereign nations to fund a reiteration? I feel it is beyond question that this isn’t a plausible course of action, unless as you say they are prepared to become the USSR 2.0, and that’s just silly. There isn’t enough Canadian oil flow to sustain anything like the current US standard of living.
Rickards’ idea has three possible motives for being floated at this point in time that are immediately apparent to me:
1) Book sales.
2) Undermining the credibility of European official gold reserves in particular, and the idea of gold as a safe haven in general.
3) Book sales.
I don't give it any credence as a serious proposition.
This is at a time when Rickards has a new book to promote; the ECB are by default causing physical gold to increase in appeal as the only viable safe haven for large volumes of liquid capital and the MF Global collapse sets an alarming precedent. See Costata’s comment here.
The kneejerk response to the “confiscation” idea is that the US military provide all the motivation the rest of the world require to accept it, but the fact of the matter is that it is the US that is reliant on the ROW... the US deficit equals the ROW surplus. The US are the dependents in this picture, and as such it is the US that needs to “get to work”.
罗臻 said: ”... what's the cost for Germany and others if the U.S. economy goes down the tubes?”
Hmmm... wealth denominated in $IMFS debt loses value; wealth denominated in physical gold gains value... nets out OK.
This “confiscation” idea seems about as viable to me as Rickards’ previous “sliding peg” idea. Just another attempt to manipulate perceptions that Uncle Sam is holding anything but the losing hand he’s dealt himself.
I’m calling bullshit, but I'm keen to hear differing opinions.
Jim Willie says Germany has ALL its gold at home ALREADY and that Rickards is just a shill. JW has a contact deep in Switzerland that says Germany does not want to be transparent in this respect...and also that Chavez received his gold AGES ago. Here it is from his latest report:
"Much gratitude is directed to a veteran gold trader with strong ties in Central Europe. He shared his views in a general sense after hearing hot air by Jim Rickards. The all too much revered Rickards is brilliant when discussing finance, banking, and economics. But he is a shill deceptive insider artisan when describing the gold bullion situation for central banks. He served as legal advisor for Long-Term Capital Mgmt over a decade ago, when the fiasco resulted in the complete loss of gold bullion for Bank of Italy, the central bank. He has been a total liar about the USGovt gold reserves since then. Everything he discusses on central bank gold is full of deception with an agenda at work. My source countered.
The veteran gold trader said, "It appears, at least from where I am sitting, that many of these discussions on the internet like the Rickards interview are a lot of hot air. These people have partial information as they shovel nonsense into whatever microphone that they can get access to. We all agree that the information on precious metals (Au and Ag) is incorrect. Germany fully recovered their gold held in New York several years ago, I can assure you, all kept quiet. Only a fool would disclose the actual location of the national treasure. The real issue is water and food. Precious metals are just an important cornerstone in a commodity backed monetary system that will have to emerge. The system that will replace the fiat monetary fraud game will be barter. The new barter system will utilize 21st century technology to trade and settle. Basically this is back to basics by utilizing the most advanced technologies. All these people out there on the internet think, talk, and behave according to the old system. They analyze and talk about a dead horse, while standing on a collapsing stage. On a side note, the people with real metal holdings are moving their physical inventories to vaults they have access to and that are managed by people who are totally independent.
The MF Global incident has hastened the removal of metal from many popular vault systems. The destination vaults are in jurisdictions where there is no political risk of having those assets blocked or frozen, available for movement at the beneficial owner's will. The BOYZ have long lost control. They have caused a grand reaction that has vastly reduced the bullion metal in the US and London vaults under their control. That is nature's vengeance. Their phone calls are not being returned any longer. They are being shunned and isolated. They are all Papandreous and Berlusconis. They are tigers without power, speaking with oversized mouths. Notice that the power lies increasingly in Asia, where few if any arrogant loud-mouths can be heard or seen." He should know about details on the new barter system to replace large segments of global trade, since he is integrally involved. He should also know that the US$-based trade settlement system is to be scrapped soon, since he is on a team of several persons in charge of the USDollar Kill Switch. My guess was that it was related to the crude oil payment mechanisms, which he confirmed as correct. Think crude oil sales in more than one currency. He also assured that Venezuela has fully recovered its gold held in London, another false dangling story that serves a purpose. He knows some men who retrieved it, another story full of intrigue told later."
and this:
"GERMAN GOLD BULLION IS SAFELY STORED IN GERMANY. THE FLOATING STORY IS PURE RUBBISH. LISTEN TO RICKARDS ON MONETARY MATTERS AND FINANCIAL ANALYSIS, BUT IGNORE HIS GARBAGE CLAIMS ABOUT GOLD MANAGEMENT. HE WAS A COG IN THE SYSTEM 10 YEARS AGO, AND A PROPAGANDA PUPPET TODAY. $$$
Jim Rickards continues to mouth off about Germany being vulnerable to the whims of the USFed, regarding gold bullion owned by Germany but held at the New York Fed. The story is pure rubbish, reinforced by his new book. Books in print do not prove anything. Rickards continues to drop comments about the vast gold reserves owned by the USGovt in his fumbled potential gold price calculations. It is important to realize something about Rickards. He is brilliant, but his commentary shines with intelligence only when it refers to monetary and banking matters, as well as the finance of economics, but NEVER to gold management. He is a liar. He was a key advisor to Long-Term Capital Mgmt in 1999, when it went bust and lost all the gold bullion for the Bank of Italy. He appears to pay homage to the syndicaee by perpetuating lies about Fort Knox gold assets and lately the German gold held as hostage. Pure rubbish. My solid German gold banker contact assures that all German gold was demanded and returned in 2005 and 2006, in anticipation of the housing & mortgage bust that led to the US banking system rupture into insolvency. The German brain trust saw it coming. What disappoints me further is that GATA adds legitimacy to the distorted story about German gold. They should refute it. No link will be provided to the GATA story that honors Rickards for his attempted deception. The other nonsense floating story is that Venezuela continues to struggle to bring home its gold bullion from London. It is all back in Caracas, assured by a gold trader who knows what happened in Swiss banks to ensure its return, big gold deliveries made to London. Both phony stories reinforce the facade of London virility, long gone.
Lastly, Eric King of King World News presents himself as a bit of a bootlicker in his frequent interviews of Jim Rickards. Mr King lacks the knowledge and wisdom to know when his guest is shoveling feces in his direction, or else lacks the spine to resist the phony flow. King has many excellent guests, and should be complimented for providing excellent information in an age of grand fraud and deceit. But he needs to improve his own BS meter capability. In 2009, the Jackass engaged in at least six or seven long telephone conversations with Eric King in Tampa Florida, each over 30 to 40 minutes, some lasting 90 minutes. It was a pleasure. But my strong impression was that King was an amateur attempting to build a radio business. The phone calls were to educate him, as it turned out. His knowledge was shallow, even naive. The Jackass explained concepts on several subjects related to gold and currencies and central banking and monetary policy that seemed basic. My four part series on "Systemic Failure" in September and October of 2009 with King World News was my first and last, even though a big hit according to Eric. Due to King's arrogance and sneid nature in personal exchanges last year, we have parted ways. My wish is for his continued exposure of the financial world for its corruption, and some more edification of his knowledge. He just cannot detect or resist propaganda at times, which actually undermines his own credibility. Aint my problem after his cocky preppy insincere behavior. He could use an editor for his sloppy transcriptions too."
It would be like, it would be a lot like Bretton Woods... [other nations] they might as well have stayed at home because the US dictated the outcome...
That alone will make the whole thing not work.
And if there is a Gold Exchange Standard, how long until we are back at the same place we are today?
Given the premise that the euro architects built the currency based on their vision of a freegold future, it would be safe to assume that they would have considered the fact that they need possession of this gold.
It would seem a huge waste of time to align oneself with a huge gold revaluation if one was not able to get hold of any gold.
Rickards is lying; he knows his idea is unworkable and I don't know why he pushes it.
There is no credibility to stealing other nations gold. The gold would be essentially radioactive (hello Goldfinger). Only the nations that were robbed could afford to buy it, and they would have nothing to do with the US.
What would happen to the dollar in such a situation? How would the deficit monster feed itself with real world goods when there is no credibility and no confidence? Who does business with a thief that robs him repeatedly? Going rogue when you need the world and it doesn't need you is suicide.
It would seem to this small mind that you can't run a confidence game and introduce the concept of confiscation without forcing people to continue to play your game. No one has managed that trick on worldwide basis.
I think $7 trillion give or take is the estimated real productive output of the US economy (some of that may include military production). Roughly equivalent to all deficits and unfunded liabilities annually. The rest is wallpaper.
My guess is tickets to the Hotel California shell game sans the pea are in short demand from those not blindly following the pretty signs saying, come play.
Many things coming into view on this road. Good song for the moment.
http://www.youtube.com/watch?v=7wxHEBT7aaU&feature=related
Wow. FOFOA you have sent us deep into the heart of gold buggery........and just in time for Thanksgiving!
Time to kick back and enjoy this thread!
FOFOA received an advance copy of Currency Wars from Rickards.
Either, Rickards' publisher got a list of all the gold writers and sent them out to everyone, in order to get discussion going on Currency Wars on all the gold forums, and hence Rickards may know nothing of FOFOA/A/FOA?Freegold; or Rickards knows FOFOA and Freegold and picked him out personally for receipt of the advance copy.
If option 1 is true, then the rest of this comment can be ignored.
If option 2 is true, then Rickards understands that the world is very different to the one that he presents. Even if he doesn't agree with FOFOA's thesis, then would at least have covered many of the themes. He doesn't. Why not?
Does he avoid Freegold talk as it's too controversial? He talks of high gold prices (compared to what most analysts talk about) anyway, so the fear of looking foolish in this respect is not an issue. Which faction is he aligned with (not personally, but operationally)?
Is he attempting to do all he can to scuttle European efforts to align with Freegold and hence give the US a better chance to compete post revaluation?
Or is he aligned with the BIS and trying to get talk of gold into the mainstream, hoping to increase private ownership of gold and bring on the revaluation?
He may of course just be promoting his book with controversial chat, which I'm sure is part of it, but his total avoidance of Freegold topics (at least outright) is interesting. I know a few people who twitter him and get ignored regularly on the topic of Freegold, when he is otherwise fairly chatty.
comments ...
Texan,
Here's a thought on why it would not be so simple for Germany to leave the Euro:
Sure, the German's deposits are denominated in Euros, and if you change them to DMs they may get stronger in the FX market.
But, the assets of German banks are denominated in Euros as well, and they are not necessarily all located within Germany. Some may benefit from a DM revaluation, but most will stay denominated in Euros and will plunge in price should Germany leave the Eurozone.
When in history has such a theft ever formed a basis for a new monetary system?
Also, in light of such a theft, why would the entire world roll over on its back for the United States, which by all measures appears to be an empire in decline? Is it not just inertia that has kept USD as a world reserve currency for so long? After its collapse, any benefit of remaining with the USD would be gone. People say there are no ready substitutes to the USD, but after a loss of the majority of its purchasing power the USD will be equally unsuitable, its credibility at least as bad as these other "unacceptable" currencies.
I don't think the theft will happen. It is one thing to steal your citizens' gold. It is quite another to steal your trade partners'. This can't possibly form a basis for a cooperative relationship, IMHO.
@ Micheal H
", and if you change them to DMs they may get stronger in the FX market."
Yes and contary to popular keynesian nonsense, that would be good for exports.
German exports went up as the Dm/ Euro went up. US exports went down as the dollar went down.(last 10 years 120 to 74)Japan has trade surpluses with China, yet they have higher wages then the US. Germany has a stronger currency then the US yet they have trade surpluses with China. The US had the highest wages in the world when it was the biggest exporter in the world.
@ Gold Invetsment Basics
"LISTEN TO RICKARDS ON MONETARY MATTERS AND FINANCIAL ANALYSIS, BUT IGNORE HIS GARBAGE CLAIMS ABOUT GOLD MANAGEMENT."
Well said...
"There is an elephant in the room. Jim Rickards has been making some bold predictions while on his book tour for Currency Wars. He says that in the case of a collapse of confidence in the dollar, the U.S. could CONFISCATE the gold owned by foreign governments, Germany in particular, that is STORED in NYC at the Fed..."
[Mrt: BIS -> it provides also location swaps to its peer CBs. So Ricards (IMHO) seem not familiar with what BIS does or can. Just yesterday I went through one such report. If I find in future I do link_post_extract.]
M,
Of course demand for your currency rises when you make goods that people want, and of course demand for your currency falls when you don't.
I don't think you grasp the issue we are discussing. It appears you don't understand Keynesian economics either, because Keynesian economics has nothing to do with the issue at hand. No one is discussing a centrally manged devaluation of a currency aimed at making exports more competitive. Such an idea is of the $IMFs that is ending.
When your currency appreciates your exported goods become more expensive. This is the free market at work. Perhaps another look at Once Upon A Time is called for. This is how the world worked before gold began to be sterilized following the 1922 Genoa conference, and its how the world will work again.
"The lesson from the monetary changes made in the post-war 20s is that if you want the debtors to ever be able to repay their debts in real terms, you do not sterilize the vital spur and brake function of gold by locking its purchasing power. It is the price mechanism—price changes in goods and services—that transmits the arbitrage signal that causes gold to physically flow to where it has the greatest purchasing power. For a struggling economy to grow and expand to a point at which it can repay its debts, the gold not only needs to flow, but it must be a fertile member of the economic ecosystem so that it can perform its vital function.
[..]
Now jump back to post-WWI. Europe was the debtor with debts denominated in goods and services owed to America. But Europe's economy was struggling to get back on its feet, making it difficult to pay its debt in actual economic goods and services. So the proxy—gold—flowed from Europe to America in unprecedented amounts. This flow should have acted as an incremental brake on the American economy and a spur on the struggling European economy. But instead, the US sterilized the effects of this gold flow in 1920 and '21 while implementing "intelligent and courageous deflation" (President Harding's words), and then in 1922, the Genoa Conference sterilized gold's natural mechanism globally.
[...]
What the 1922 Genoa Conference did was to institutionalize the "sterilization" of gold for the rest of the world through the reserve structure of the international banking system. And this bit of genius was decided by a "committee of experts" from 34 different countries. They did this by introducing paper gold—or paper promises of gold—into the international banking system as reserves equal to the gold itself. This wasn't the first paper gold, but it was the first time that specific paper gold (that from New York and London) was used as an equal reserve upon which credit can be expanded. What is acceptable as international reserves is critical because trade settlement is a function of the reserves. This conference was the birth of the $IMFS.
In 1922, they officially changed the old gold standard into the new "gold exchange standard", which Rueff said was "a conception so peculiarly Anglo-Saxon that there still is no French expression for it." The stated purpose was "the stabilization of the general price level" which you can feel free to read as code for sterilizing the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and its step-daughter Monetarism (est.~1956)."
holdinmyown,
You were well on the right track last thread. Ignore the noise.
Date: Fri Nov 07 1997 21:59; ANOTHER (THOUGHTS!) ID#60253:
"Nations will defend the system at all cost They will never sell US$ treasury debt as that debt is their currency! The dollar will soar as a final defense! As part of this defense they will allow oil to rise as oil is priced in dollars. How do you get oil to rise? Today, we stop our CBs from selling gold!"
==================================
Money Talk Continued
"15) The USDX is a measure of dollar exchanges with other currencies that happen on the open market. The Fed can counteract a rise in open market dollar demand by providing a supply of dollars directly to banks within its own sub-system, or indirectly to foreign banks through swaps with other CB's. Last year the Fed had a lot of practice doing this fast. I am sure the contractual transaction with the foreign CB's took several hours and included recording video teleconferences in which the agreements were legally bound. But now that they have experience doing this in a crisis, next time it will probably be almost instantaneous.
[...]
The next crisis, if it is mainly in the US financial system, will likely not spike the dollar because the Fed has total control and flexibility within its own system. If it is spread throughout the world it may spike as foreign banks bid up dollars on the exchange, but the Fed is now more experienced than it was a year ago and will likely put a lid on it very quickly.
But this next dollar shock will probably be irreversible, unlike the last. And in such, it will increase the global supply of dollar monetary base by a large percent. Perhaps by 100% or more. This alone will devalue the dollar and be the cause of the next shock which will require a similar response by the Fed, perhaps increasing the base by another 50% as China and others dump the last of their bonds onto the open market in a highly one-sided transaction sending the value of the bonds to zero, US interest rates to something so high they are non-existent, and the purchasing power of the dollar down into the stinky, Zimbabwe dirt.
So in short, I guess I agree with David Bloom. Of course it COULD rally, but I don't think the Fed will let it (unless it happens to have some T-bonds to sell that week!). Letting it rally too high would crush the financial system (by driving asset values into the dirt) which the Fed wants to save at any cost. Even though the cost will be the crushing of the system. The ol' Catch-22.
Sorry if this seemed a bit simplistic or a little elementary. Of course there are more complicated issues involved, like the $ carry trade and cross-currency investments. Derived foreign exchange activities become very complicated very fast! Too complicated for the banks, obviously! But I hope I at least covered the basics of the problem, enough to explain my answer. You all will be sure to let me know if I got something wrong... I am sure of that! ;)"
cont.
Big Gap in Understanding Weakens Deflationist Argument
"The value of money, like everything else in life, derives from supply and demand. There are two distinct entities that each control one side of the equation, kind of like a tug-of-war. The printer controls supply and the marketplace controls demand. A tug-of-war is actually an apt analogy. When demand for a currency spikes its price, the printer just eases his grip on the rope, releases more rope and the whole demand side just falls on its butt.
We saw this with the yen after the earthquake and with the dollar a little over a year ago. With a fiat currency, this is the way it works. No matter how hard demand pulls, if the printer doesn't want the price of the currency to spike all he has to do is release more rope. It's his ace in the hole. He can always send the marketplace to its butt. The printer is firmly in control of the supply side.
[...]
When the economy is struggling, unemployment high, home prices falling, people are afraid to spend their money. This drives up the demand for money, slows the velocity of money, raises the value of money and lowers the prices of things and assets. Likewise, when the financial markets are crashing, the demand for cash skyrockets while plunging assets bid frantically for dollars. Both of these demand-driven events act just like a large deflation in the money supply as they drive up the value of money and lower the prices of other things.
When this happens, the money printer tries to counter demand by increasing supply.
[...]
A spiking demand for currency because of instability in some markets and the economy, as well as earthquakes and unrest in the Middle East, jacks up the price on the currency exchange and drops the price of other assets which is instantly met with quantitative printing (supply increases) to ease the pain, raise the price of assets, and recklessly counter that which is actually in the driver's seat today, demand.
[...]
If the financial system collapsed tonight and wiped out everyone's assets, their 401Ks and IRAs, their pension and trust funds, the US dollar would spike on the currency exchange like never before. I could imagine it rising well above 100 on the USDX, maybe even to 150, as all that financial sludge frantically unwinds. As you say, many will simply be wiped out as much lower valuations are imputed onto their 401Ks. They will never see it coming; never get the chance to withdraw that retirement money and use it to bid up real goods. So what? Do you really believe this will cause the dollar's purchasing power to rise?
What do you think will be the Fed's response? I'll tell you. It will make sure that the supply of dollars matches the demand. It will do another emergency $500 billion swap with foreign CBs to calm the foreign exchange market. It will expand its balance sheet once again to make sure there is plenty of liquidity here at home. And it will start buying whatever crap the primary dealers bring to its window. It will flood the markets with fresh Fed liabilities (obligations to print more cash) in a futile attempt to quell demand as the dollar goes to 100, 110, 120… up, up and away.
But no matter what quantity of financial assets are wiped out, the cash in the system will remain. And the obligations for more cash printing will remain. And that's all the cash it will take to spark the most amazing hyperinflation the world has ever seen, as the fear turns from 'running out of dollars' to 'running out of food' in the wake of a devastating financial collapse."
I have not read the book, but I have listened to some of Rickards interviews. I do not see confiscation of foreign gold held in the US as a threat. Rickards suggests this as an option in the event that the US moves to a gold standard, but since I don't ever see a gold backed dollar, I don't see the option of confiscation even coming up.
The US currently gets a lot of stuff in exchange for currency, which is great for the US government. If the dollar is backed by gold, or backed by anything else, that backing makes it much more difficult for the US government to print dollars in exchange for stuff. Others outside the US should be content accepting US dollars as long as those dollars continue to have purchasing power for real stuff, such as gold, grain, oil, and so on. Better to keep dollars easy to print.
Perhaps Rickards is suggesting that a gold-backed dollar will be required for other countries to accept it, in a future where it has lost credibility, and can no longer can purchase anything of value outside of the US. But even then, I don't see the incentive for a gold standard. At that point in the game, backing the dollar at any value will cause all those dollars held overseas to come back into the US in exchange for gold (because before the gold-backing, those dollars were worthless). It seems much easier, and more lucrative, for the US to simply let those dollars remain valueless. If the US government wants to purchase goods from outside from that point forward, it could sell military services in exchange. The US gold supply could also be used directly for payment in international trade, and this would be much easier if foreign governments continued to trust the US to hold onto their gold for them. Obviously if the dollar has little value outside the US, the gold price measured in dollars would be drastically higher than today, but within the US, the dollars could continue to be used as they are today. Again, it's in the US government's interest to keep the unbacked dollar going, and even if it breaks down internationally, it could continue to be used domestically.
As has been stated by others here before, the US government doesn't need gold. It needs “stuff”, and gold is one commodity that can be used to buy that stuff internationally. Unbacked dollars can continue to buy stuff domestically from the private sector. Whatever path gets the US government the most “stuff” is the path most likely to be taken, and that path doesn't include a gold standard for the US dollar, or confiscation of foreign gold.
It seems the IMF is getting tired of waiting for Europe to print:
Precautionary Credit Line The Precautionary Credit Line (PCL) has been established to provide effective crisis prevention to members with sound fundamentals, policies, and institutional policy frameworks that have no actual balance of payments need at the time of approval of the PCL, but moderate vulnerabilities that would not meet the FCL’s qualification standard.
Flexible Credit Line The Flexible Credit Line (FCL) has been established to allow members with very strong track records to access IMF resources based on pre-set qualification criteria to deal with all types of balance of payments problems.
http://www.zerohedge.com/news/uncle-sam-rescue-imf-creates-new-european-bail-out-facility
Awwww! That IMF, they're just so NICE & CUDDLY aren't they?
And not at all desperate.
Stagger Lee,
ECB.
I made a rhyme!
Jim had this to say in response to a query I put to him about his own stance on his "confiscation" idea, and how his own references to it had appeared to move from promoting it as possibility to probability since the release of his book:
Jim Rickards said: "Gold confiscation not a fait accompli and more possibility than probability. It will not be done lightly. My only point is that it will be done in extremis and governments don't go down without a fight. Since it is a possibility, parties should prepare accordingly including, in the case of Germany, getting physical possession of their gold."
Seems he doesn't take his Twitter feed particularly seriously.
Dr Octagon said:
"The US currently gets a lot of stuff in exchange for currency, which is great for the US government [Blondie: and residents]. If the dollar is backed by gold, or backed by anything else, that backing makes it much more difficult for the US government to print dollars in exchange for stuff... Whatever path gets the US government the most “stuff” is the path most likely to be taken, and that path doesn't include a gold standard for the US dollar, or confiscation of foreign gold. "
Indeed. Problem is, the rest of the world has woken up to the reality:
"To get something for nothing implies that somewhere someone must have received nothing for their something. To consume more value than one has created has a cost which must be felt somewhere by someone."
That reminds me of those bottles of nice Shiraz bought from one of uncle costata's neighbours, in exchange for my worthless pounds. [slurp]
Eh
I have found the idea to be so much wishful thinking that I have not seriously considered it.
Comments..
I spent some time thinking about it.
One thing is clear.
20,000 tonnes is a lot of gold. Even as a outlaw, the USA should be able to sustain itself for at least 5 years on that.
Richards and claim of confiscation 1 - IMF gold
(Lets not just put theoretical concepts where they should not be:
Lets look a bit at legal issues... starting with IMF.)
IMF gold shall be excluded from confiscation based on:
http://www.imf.org/external/pubs/ft/aa/
"Articles of Agreement of the International Monetary Fund"
Adopted at the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 22, 1944. Entered into force December 27, 1945. Amended effective July 28, 1969, by the modifications approved by the Board of Governors in Resolution No. 23–5, adopted May 31, 1968; amended effective April 1, 1978, by the modifications approved by the Board of Governors in Resolution No. 31–4, adopted April 30, 1976; amended effective November 11, 1992, by the modifications approved by the Board of Governors in Resolution No. 45–3, adopted June 28, 1990; amended effective August 10, 2009, by the modifications approved by the Board of Governors in Resolution No. 52–4, adopted September 23, 1997; amended effective February 18, 2011, by the modifications approved by the Board of Governors in Resolution No. 63–3, adopted May 5, 2008; and amended effective March 3, 2011, by the modifications approved by the Board of Governors in Resolution No. 63–2, adopted April 28, 2008.
"Article IX: Status, Immunities, and Privileges
Section 1. Purposes of Article
To enable the Fund to fulfill the functions with which it is entrusted, the status, immunities, and privileges set forth in this Article shall be accorded to the Fund in the territories of each member.
Section 2. Status of the Fund
The Fund shall possess full juridical personality, and in particular, the capacity:
(i) to contract;
(ii) to acquire and dispose of immovable and movable property; and
(iii) to institute legal proceedings.
Section 3. Immunity from judicial process
The Fund, its property and its assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process except to the extent that it expressly waives its immunity for the purpose of any proceedings or by the terms of any contract.
Section 4. Immunity from other action
Property and assets of the Fund, wherever located and by whomsoever held, shall be immune from search, requisition, confiscation, expropriation, or any other form of seizure by executive or legislative action.
Section 5. Immunity of archives
The archives of the Fund shall be inviolable.
Section 6. Freedom of assets from restrictions
To the extent necessary to carry out the activities provided for in this Agreement, all property and assets of the Fund shall be free from restrictions, regulations, controls, and moratoria of any nature
...
Section 10. Application of Article
Each member shall take such action as is necessary in its own territories for the purpose of making effective in terms of its own law the principles set forth in this Article and shall inform the Fund of the detailed action which it has taken..."
...cont...
[Mrt: if expelled then:]
"Article XI: Relations with Non-Member Countries
Section 1. Undertakings regarding relations with non-member countries
Each member undertakes:
(i) not to engage in, nor to permit any of its fiscal agencies referred to in Article V, Section 1 to engage in, any transactions with a non-member or with persons in a non-member’s territories which would be contrary to the provisions of this Agreement or the purposes of the Fund;
(ii) not to cooperate with a non-member or with persons in a non-member’s territories in practices which would be contrary to the provisions of this Agreement or the purposes of the Fund; and
(iii) to cooperate with the Fund with a view to the application in its territories of appropriate measures to prevent transactions with non-members or with persons in their territories which would be contrary to the provisions of this Agreement or the purposes of the Fund.
Section 2. Restrictions on transactions with non-member countries
Nothing in this Agreement shall affect the right of any member to impose restrictions on exchange transactions with non-members or with persons in their territories unless the Fund finds that such restrictions prejudice the interests of members and are contrary to the purposes of the Fund."
...cont...
"Article XIII: Offices and Depositories
Section 1. Location of offices
The principal office of the Fund shall be located in the territory of the member having the largest quota, and agencies or branch offices may be established in the territories of other members.
Section 2. Depositories
(a) Each member shall designate its central bank as a depository for all the Fund’s holdings of its currency, or if it has no central bank it shall designate such other institution as may be acceptable to the Fund.
(b) The Fund may hold other assets, including gold, in the depositories designated by the five members having the largest quotas and in such other designated depositories as the Fund may select. Initially, at least one-half of the holdings of the Fund shall be held in the depository designated by the member in whose territories the Fund has its principal office and at least forty percent shall be held in the depositories designated by the remaining four members referred to above. However, all transfers of gold by the Fund shall be made with due regard to the costs of transport and anticipated requirements of the Fund. In an emergency the Executive Board may transfer all or any part of the Fund’s gold holdings to any place where they can be adequately protected.
Section 3. Guarantee of the Fund’s assets
Each member guarantees all assets of the Fund against loss resulting from failure or default on the part of the depository designated by it..."
There was allot said in the Moneyness comments about the Pax American countries supporting the us bond market at all costs for the security of the US military. This is misleading because even though the US spends more on military then everyone else combined, they still have enough cashflow to pay for it without debt.
@M: Example... I think I read somewhere that expenses/budget for nuclear weapons are hidden in accounting under Energy dep so it does not look so bad. :o)
BTW: while searching for BIS gold depositories I have found a golden French cake :o) Feel free to bite on it.
Evil thugs like Stagger Lee get shot in the balls because their conceit blinds them to what's really going around them. Just like the madman Stagger Lee was blinded by the apparent affections of good old Delia, perhaps so too has the US's greed blinded it to the reality of the paper gold market.
==================================
"A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar/IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold marketplace with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro."
link
http://www.youtube.com/watch?v=RrxePKps87k
I heart the blues - Stagger Lee: A Historical Look at the Urban Legend
@ Mortymer
the support by the Pax American countries backfired because all it has done is guaranteed the demise of the US military. It was actually the Chinese that went full retard in the US bond market after they entered the WTO so who knows....none of it makes sense.
1/2
FWIW, I have read Rickards’ book, and the financial analysis and historical perspective are good. His scenario, and that is all it is, of how a dollar collapse could play out is not really supported by anything and so far as I can tell reflects either a hidden agenda and/or simply his own beliefs and desires about how it could all play out to the greater good of the ole’ US of A.
I have listened to many of Rickards’ interviews and he always trots out the same "USA is a superpower of gold" theme. He never seriously questions (a) whether (or how much of) the gold is still there, or (b) that the US won’t essentially have to send its gold to others in the waning days to keep the grand game going for “the elites” (who are prepared to bale at the last minute like the last guys out of Saigon after extracting every last possible bit of value that they can), as postulated by FOFOA. Frankly I find FOFOA’s scenario of how it will play out way more believable, if only because the “capitalist” model since the beginning has been to go somewhere new, strip it of all its assets, and move on to the next place ripe for ponzi exploitation, leaving an unparalleled ecological and human disaster behind. Am I really supposed to believe that the global corporations and the “elites” have some sort of innate desire to rebuild a strong and vibrant America? No, they’ll continue to strip it bare, obtain title to as much as possible and rule like colonial overlords over a newly created third world nation to continue extracting the little of what resources remain.
Rickards also never addresses how this superpower of gold is supposed to keep its gold when the US definitely does NOT possess sufficient oil, and needs mbpd of that stuff way out of proportion to the amount of things it creates that the rest of the world wants or needs. After all, there is a pretty significant time lag between supposedly stabilizing the dollar with gold in Rickardian hypothesized fashion and rebuilding the manufacturing infrastructure to produce things that other nations want. What happens in the meantime? Rickards seems to think that all the investment capital will just come our way because we have all the gold. He ignores all the difficulties. You could almost view his dollar collapse/chaos resolving itself into a new and stable US-imposed dollar regime backed by gold scenario as a fairy tale to try to keep the awakened or semi-awakened few in check with a postulated happy ending. My own suspicion though is that he believes it. He seems really enamored of US power and power projection and wants to see it continue.
2/2
I can’t quite put my finger on it but I sense another weakness of Rickards' hypothesized scenario and his underlying assumptions about how the world works is revealed by his idea that, once the US government establishes the new gold-backed currency, it will also impose a 90% tax on gains from the sale of privately-held gold. For one thing this shows his pathological love of central command and control; he just seems to relish the idea of the US Gov holding all that gold and telling others, “Here’s Our Terms – Get to work and earn your gold!” (FOFOA’s link to the video at the end is perfect!)
I have heard him mention the 90% tax numerous times in interviews, and he never explains it. The most he says is something along the lines like the tax will be imposed to prevent the “unfairness” of people getting windfall profits from their private holdings of gold. However, Rickards has an LLC from the NYU tax program, one of the best in the country, and surely knows that the “gains” are not “profits” at all, except in purely nominal terms. The gains reflect the (already implicit) devaluation of the dollar and not an inherent economic appreciation in value. When I studied tax at NYU law school, we certainly discussed the fact that the so-called “capital gains” tax was not entirely a tax on real economic gains at all, because in calculating the gain the tax code and regulations did not permit you to subtract out the nominal increase due to inflation (i.e.. dollar deflation), which over a long time period could amount to most if not all of the supposed "gain". To the extent that you were paying an “income” tax on what was really inflation, the tax was not really a tax on income at all, but just an excise tax on wealth itself, i.e., just confiscation of a portion of a person’s wealth. Ditto in spades for a gold “revaluation”, which is really a dollar devaluation. Rickards is too bright and too educated not to realize that, and so as far as I can guess his 90% tax meme is either serving some other agenda, or his own idealistic view of how the world should work if governments are to be all powerful or "cared" about the little people and popular support. However, if you take his “fairness” argument seriously, his 90% tax proposal is even more bizarre and unbelievable, because since when have governments made it their mission to tax the rich on their “undeserved” or “windfall” profits?? I thought the idea of tax systems was to tax the rest of us till we bleed, and leave the rich alone, with only token tax liability.
Finally, Rickards recommends that gold be 10 – 20% of a person’s portfolio, but if the government is going to end up taxing gold “gains” at 90%, that is, essentially confiscating it, what is the purpose of owning gold? Seems inconsistent and he has not yet explained how these two ideas of his are supposed to be reconciled.
BTW, at a recent book tour event I heard Rickards describe his investment portfolio strategy. He semi-jokingly refers to it as his “30 Years War” portfolio plan, suitable for getting your wealth through an event like that. Gold, as mentioned above; fine art; undeveloped but arable or developable land (wait till after monetary stabilization to develop, when dev. costs will be far cheaper); and cash. (While he recognizes that cash will eventually go to zero, he says that it will have superior optionality during the crash, letting you quickly acquire some things as the ship is going down.)
Sorry, that's an LLM in Taxation that he has, not an "LLC"
Want to see the Foreign gold in NY and judge on your own & ask if confiscation would be possible?
http://www.newyorkfed.org/aboutthefed/visiting.html
Visiting the New York Fed....
The Federal Reserve Bank of New York is one of the 12 regional Reserve Banks in the Federal Reserve System. Visitors to the Bank will be able to explore the Fed's roles and responsibilities through a guided tour and interactive exhibits in the Bank's museum.
Visitors must enter the building at 44 Maiden Lane and go through security screening.
Be prepared to show officially issued photo ID such as a driver's license or passport. No photography or recording in the building.
Gold Vault – (included in guided tour only)
What does it take for the New York Fed to store roughly 7,000 tons of gold? Travel down 50 feet below sea level to the bedrock of Manhattan Island and find out!
Details: The guided tour includes an overview of the Federal Reserve System, admission to the Bank's museum featuring FedWorks and the History of Money exhibits, and a visit to the gold vault. Space is limited, so make reservations several weeks to months in advance. There is no waiting list or walk-ins for the guided tour.
Available days: Monday to Friday, except Bank holidays
Available times: 11:15 a.m., 12:00 p.m., 1:15 p.m., 2:30 p.m., 3:15 p.m. and 4:00 p.m.
Tour length: 45 minutes
Tour Capacity: 1-25 visitors
Cost: Free
For anyone wishing to expand their understanding of Freegold here is:
JR's Suggested Reading List
The Debtors and the Savers
Credibility Inflation
Big Gap in Understanding Weakens Deflationist Argument
Euro Gold
Moneyness
Once Upon a Time
The Return to Honest Money
Life in the Ant Farm
Costata's Silver Open Forum
Synthesis
Focal Point Gold
Greece is The Word
Its the Flow Stupid
Who is Draining Gld
Kicking the Hornet's Nest
Freegold Foundations
Of Currency Wars
The Shoeshine Boy
Metamorphosis
Relativity: What is Physical Gold REALLY Worth?
Living in a Powder Keg and Giving Off Sparks
Shake the Disease
Bondage or Freegold
Money Talk Continued
Confiscation Anatomy - A Different View
The Waterfall Effect
The Value of Gold
"It's the Debt, Stupid"
"Bitcoin Open Forum - Part 3 "
The View: A Classic Bank Run
a technical question: I remember one could get the inventory of the Federal Reserve Bank of New York gold vault and the amount of gold held on behalf of foreign CBs somewhere from their website, at least for the previous 5 years. Now I cannot find this report anymore. Any ideas? (I was searching for evidence that contradicts Jim Willie's claims).
Victor
FTR when I made the comment about hoping Rickards was right that there are still 20ktons or so of gold actually held by the west I only meant it in the context that the gold hadn’t already been sold and that there would still be gold available to continue buying oil with once the dollar crashes and that this gold might keep the $ from going all the way to zero.
I don’t imagine in my craziest thoughts that the US would outright confiscate German or other allies’ gold unless they defected from Pax Americana. What I do think could happen is all the western economies from SK/Jap to NA and Europe in the face of a $ world financial collapse may try to form a new currency/trading paradigm of some sort and use their accumulated gold for whatever credibility they can get with it. So I only saw Rickards statement in the context of the owners of the gold becoming willing participants in some new western global currency scheme. The euro may be structured to survive the $ collapse but they would still need a strong US (military) to feel secure. If Russia can dictate terms using energy alone imagine what they could dictate with energy and guns – a lot more than with a kind word alone as Al Capone would say. Even Iran might be too powerful for them. I think the western economies will try to hold up the US (continue to warehouse treasuries) in the face of $ collapse in return for more say in the new world order, but not if we take their gold.
None of this precludes freegold I don’t think, and if that gold still exists I would think that makes freegold all the more likely as the US will be able to participate willingly and why not with gold at $50k/oz if the only other choice is total meltdown.
@VTCwhat about this:
http://search.newyorkfed.org/ny_public/search?source=frs_pub&text=foreign+gold+2011&search=Search
Search Keyword "foreign gold 2011"
->
http://www.federalreserve.gov/econresdata/releases/intlsumm/forassets20111031.htm
-> H4.1
http://www.federalreserve.gov/releases/h41/20111020/
@ JR
"When your currency appreciates your exported goods become more expensive."
That doesn't mean an appreciating currency is bad for exports. The more your currency is worth, the more capital advantage you have to invest in more productive assets.
An Australian rice farmer can afford fancy irrigation systems, high tech fertilizers, genetically modified seeds ect because he has Aussy dollars. The Aussy farmer is way more productive and more competitive on the intl. markets because he has a higher value currency then say, a Chinese farmer. The Chinese farmer cant afford to pay for the high tech that the Aussy has because his currency isnt worth enough. Low value currency = bad for exports.
(The more someone knows about keynesain economics, the worse off they are.)
germany has taken possession of gold .. did so before the housing bust .
so many half truths ,, so little knowledge
as has chavez..
secure in the bowls of nationhood
Kudos to those of you who have spent time and energy spilling electronic ink putting the lie to Rickard's highly implausible flights of fancy regarding the fate of gold ownership, gold standards, etc. etc. I couldn't be bothered because his confiscation scenario seemed like rubbish on the face.
And, Jeff Snyder, I think you may be on to something regarding Mr. Rickard's alleged "pathological love of command and control."
willie
◄$$$ GERMAN GOLD BULLION IS SAFELY STORED IN GERMANY. THE FLOATING STORY IS PURE RUBBISH. LISTEN TO RICKARDS ON MONETARY MATTERS AND FINANCIAL ANALYSIS, BUT IGNORE HIS GARBAGE CLAIMS ABOUT GOLD MANAGEMENT. HE WAS A COG IN THE SYSTEM 10 YEARS AGO, AND A PROPAGANDA PUPPET TODAY. $$$
Jim Rickards continues to mouth off about Germany being vulnerable to the whims of the USFed, regarding gold bullion owned by Germany but held at the New York Fed. The story is pure rubbish, reinforced by his new book. Books in print do not prove anything. Rickards continues to drop comments about the vast gold reserves owned by the USGovt in his fumbled potential gold price calculations. It is important to realize something about Rickards. He is brilliant, but his commentary shines with intelligence only when it refers to monetary and banking matters, as well as the finance of economics, but NEVER to gold management. He is a liar. He was a key advisor to Long-Term Capital Mgmt in 1999, when it went bust and lost all the gold bullion for the Bank of Italy. He appears to pay homage to the syndicaee by perpetuating lies about Fort Knox gold assets and lately the German gold held as hostage. Pure rubbish. My solid German gold banker contact assures that all German gold was demanded and returned in 2005 and 2006, in anticipation of the housing & mortgage bust that led to the US banking system rupture into insolvency. The German brain trust saw it coming
Merkel from last night..
"We don't have any bazookas to pull out of the bag. We see no alternative to the policy we are following which calls for budget cuts and keeping the ECB from becoming a lender of last resort"
"We need to tell markets very clearly, and this must be done soon, that there is no other way forward then the one we are pursuing. Policy makers must sit tight through the turbulence. If markets think that the Euro is about to break up, they are wrong. We must tell markets that we are ready to defend the currency, that it has a great future and will become the strongest currency in the world"
M,
I agree you don't get the point in hand or basic capital theory, aka the "roundaboutness" of production. The structure of production is characterized by two closely related elements: multiple stages (distinguished by their “distance” from the consumer) and time. See that- "multiple stages" and "time."
==================================
That's a neat semantic game you play:
Me: "When your currency appreciates your exported goods become more expensive."
You: "That doesn't mean an appreciating currency is bad for exports. The more your currency is worth, the more capital advantage you have to invest in more productive assets."
Do you see the difference? I'm talking about exported goods, your talking about capital reinvestment and future production. See that - "roundaboutness" is neat.
==================================
And yes, Sraffa is an uber donk. Samuelson on the other hand got closer but he didn't really grasp that no one was advancing the theoretical impossibility of reswitching (aka a fictitious world were we posit only 2 methods of production is theoretically interesting, but of little practical import).
mortymer, thank you for the FRBNY link. So Jim Willie goes into the dustbin labelled BS.
What I find cute is that they even list the foreign gold in US$ at $42.22 per ounce.
Victor
@VTC: http://anotherfreegoldblog.blogspot.com/2011/11/key-to-t-h-e-gold-vault.html
"...Today, all gold transactions occur at the market price of gold, but prior to 1971 gold transactions between nations were made at an official fixed price. The official U.S. government price of gold has changed only four times during the past 200 years. Since the passage of the Gold Reserve Act of 1934, which raised the official price of gold to $35 a troy ounce, the price has been raised twice: to $38 in 1972, and in 1973, to its current price of $42.2222 an ounce.
Because of the large disparity between the official price and the market price of gold, the official price has become irrelevant from a transactions perspective.
Today, no nation is willing to sell gold at the official price, which is used by governments only for bookkeeping and reporting purposes..."
...
A PHENOMENAL ASSET
For centuries, gold had a profound impact on history, as a symbol and a storehouse of wealth accepted universally around the world. Gold functions as a medium of exchange, particularly in areas where currencies are distrusted. Yet gold has not been without controversy. The influential economist, John Maynard Keynes, referred to gold as a “barbarous relic.” Later in the 20th century, former Chairman of the Federal Reserve’s Board of Governors, William McChesney Martin, praised gold as “a beautiful and noble metal. What is barbarous,” Martin said, “is man’s enslavement to gold for monetary purposes.”
And now the promised sweet French cake:
BIS - The Banque de France’s view on gold and comments on the euro
http://anotherfreegoldblog.blogspot.com/2011/11/bis-he-banque-de-frances-view-on-gold.html
I. Gold
A. The Banque de France’s view on gold is based on three main pillars:
• We are in favour of gold holding
• We are against gold selling
• We have a very prudent and conservative approach to gold lending
...
Please read the whole file, it is worth!
Enjoy!
@ JR
You where confused, my original comment had nothin to do with the topic. I Just had to say something when some of the comments where towing the mercantilist keynesian line that the biggest "problem" Germany would have if it left the Euro would be the DM being "too strong"
The higher your currency goes, the less you have to export because you get paid more for what you do export. Your cost of production goes down because you have a lower resource cost. Labor costs may rise in real terms but the capital inflow invested makes workers more productive.
Unknown,
You wrote:
"$$$ GERMAN GOLD BULLION IS SAFELY STORED IN GERMANY. THE FLOATING STORY IS PURE RUBBISH. LISTEN TO RICKARDS ON MONETARY MATTERS AND FINANCIAL ANALYSIS, BUT IGNORE HIS GARBAGE CLAIMS ABOUT GOLD MANAGEMENT. HE WAS A COG IN THE SYSTEM 10 YEARS AGO, AND A PROPAGANDA PUPPET TODAY. $$$"
Putting things in capitals and saying "someone told me that someone told him that his mate saw something", does not make it become true all of a sudden.
Does Willie produce any evidence for this, other than heresay? If not, why did you believe him?
JR,
You commented to me in a post on the Moneyness thread that I should not get sidetracked by the conspiritard view that the Fed was somehow not a part of the USG. I was not of this view, I was simply assuming a technical separation in terms of operations in regard to money creation.
I see now that Jim Rickards, in his latest blog piece on KWN has written this:
"Americans might be outraged to know that the Treasury is a public institution while the Fed is privately owned by banks"
Is this more BS from Rickards?
ACHTUNG: There's an update at the bottom of the post including an interview with Jim Rickards on CNBC today.
Why the gold bull market will go now ballistic? by World Toilet Organization :o)
While in Australia they try to make big coins in China there is so much gold that they make toilets from them:
http://shanghaiist.com/2011/11/23/128_million_rmb_toilet.php?utm_source=twitterfeed&utm_medium=twitter
H/T IvoC.
An old file from RichmondFED about confiscation by governments:
"...Times of economic turmoil and political upheaval tend to produce a demand for gold to safeguard wealth. Gold is a concentrated, anonymous asset. Wealth held in the form of gold is less susceptible to confiscation by governments than wealth held in other forms. Small quantities of gold generally exchange for large physical quantities of other real assets. Gold is therefore highly mobile compared to most other forms of wealth, ideal for taking flight across national boundaries. Also, wealth may be converted from gold into other assets without divulging the precious metal’s history of ownership..."
[Mrt: there is of course a difference between individual holders and states.]
http://anotherfreegoldblog.blogspot.com/2011/11/frbr-economics-of-gold-price-movements.html
Richards mentioned operation Twist, yesterday I stumbled to this historic moment on FRBNY pages:
"...In 1961, several developments led the FOMC to abandon its “bills only” restrictions. The new Kennedy administration was concerned about gold outflows and balance of payments deficits and, at the same time, it wanted to encourage a rapid recovery from the recent recession. Higher rates seemed desirable to limit the gold outflows and help the balance of payments, while lower rates were wanted to speed up economic growth. To deal with these problems simultaneously, the Treasury and the FOMC attempted to encourage lower long-term rates without pushing down short-term rates. The policy was referred to in internal Federal Reserve documents as “operation nudge” and elsewhere as “operation twist.” For a few months, the Treasury engaged in maturity exchanges with trust accounts and concentrated its cash offerings in shorter maturities..."
http://www.newyorkfed.org/education/addpub/monpol/chapter2.pdf
Sip
It every time surprises me that somehow it is possible to find even better/more and more straight explained freegold subject touching official documents. You take a breath you dip and bring up one shiny pearl after the other. It is on open, plain, easy to find, to read, it is just the mindset which blinds the most? Pearls are just peaces in landscape so why do we associate to them so much attention? Do we need them in our journey anyway?
How is it that we listen, let, be massaged by voices from microphones, who know a lot about nothing and all, pen or keyboard, without checking on our own eyes? One should make his decision with spirit high and a clear eye. Did we through division of labor outsourced the mind the thinking to be performed on mass ghost cloud thinking? One should not sacrifice his independence. As opposed to Hagakure´s "Way of Dying" or living with certainty and determination.... “What is most thought-provoking in these thought-provoking times, is that we are still not thinking.“ ~Martin Heidegger
What is hard to get is how the MAJORITY of financial world (except the little few who accumulate slowly over time) is living in different paradigm. How did we got here?
Unsip
Mortymer,
"What is hard to get is how the MAJORITY of financial world (except the little few who accumulate slowly over time) is living in different paradigm. How did we got here?"
I was having exactly the same thought the moment you posted.
How come, if I know about this stuff, then guys like Jim Rogers (who I just saw interviewed), and the talking heads we see presented to us don't get it or even consider it?
I suppose this is just the way the world works - when it comes to the truly huge events - "no one ever saw it coming". This is groupthink and slavish adherence to ideology and dogma in effect.
Hello all of you lovely FOFOAns!
I was wondering if someone might help me (I did have a certain someone in mind, quelle surprise!) - I am looking for an explanation in one of FOFOA's posts of why it is essential that our current monetary system expands nominally, as is talked about here in Gold is Money Part 2
"In order to survive, the system, the financial industry, Wall Street NEEDS a constantly increasing supply of CREDIT!"
I know that it is a result of Crediblity Inflation and expanding paper gold markets etc, but I was looking for an explanation of what the exact dilemma is for the Fed and the banks that requires the system to constantly expand in nominal terms, not the cause of the need to expand, if you catch my drift.
I am trying to put together a little piece explaining the whole problem, the history, the economics, the evolution and the eventual solution as a little happy presentation to make to some family, in the final hope of catching them with their guard down, a last ditch attempt to lift the veil from their eyes....
Does anyone have any advice on how to go about effectively communicating our current predicament, and need for fyz gold, to a reasonably intelligent but economically and politically illiterate person? When I say "illiterate", I mean that they absolutely buy into the story coming out of the mainstream news and don't ever feel the need to question it.
A tall order, I know, but does anyone have any advice from their own experiences?
Advice?
Patience and persistence.
I wouldn't try it all in one sitting. ^^
NEEDS? Because a system based on infinite growth cannot allow deflation. It would implode.
Rickards has always been suspect in my book having worked with/for/around the dark side for far too long. Being chief propagandist for KWN (whether eric knows it or not is subject to debate)gives him cover. It is not possible to work with the dark side and continue to speak truth, there leaves one of two possibilities death or duplicity.....he appears to be alive.., for the moment at least.
MF,
Thanks. It is a decent explanation of why it requires infinite growth that I'm looking for.
I have found, in trying to articulate the issues, my understanding is fuzzy. It seems that I only have an implicit or general understanding and am unable to elucidate and connect all of the various parts of the puzzle.
Is there a post that specifically details this need for infinite growth, in operational terms? I know that all of the posts on this blog build up that picture, but I'm having trouble distilling all of that information down into a simple explanation.
Max,
I have found it is far to late in the game to attempt to change another's foundational thinking that has been DECADES in the making. Think of those who refuse to accept computers and other forms of tech or thought that are necessary for one to succeed in the future. See Alf Field's Moses Principle, all will not get to the promised land,certain ones must be left in the desert as were most chimney sweeps,blacksmiths etc. Some of the first cars had buggy whip holders.....Look how any in the gold community don't really get it, that's just the way it is. Even as the doors were kicked in and wealth stolen most STILL would not believe in '30s Germany.The problem is people BELIEVE rather than think, failing to realize that beliefs have a LIE at their center.
Max
I'm not sure that a post on that topic exists. But JR may prove my intuition wrong.
I can't elucidate the mechanics of it myself off the top of my head. I have this bad habit of forgetting the details of something once I have understood it, and assuming that since I understood why once, it remains valid.
On conversion : I fear you are about to have a bad experience.
FOFOA you will find does not try to convert people. He allows people to convert themselves.
In religious allegory, you are now attempting to convert Christians to atheists. I wish you luck.
TF
BIS - Mr. Reddy discusses gold banking in India
"...- The present gold policy shows anti-rural bias. The real purchaser of gold is typically a peasant. Close to seventy per cent of gold jewellery is sold in rural areas and most of gold sales are by way of jewellery. To quote Professor Jeffrey A. Franks, “holding gold has in fact often in history served, from France to India, as the only way the peasant can protect himself against inflation and the vicissitudes of politics”..."
http://anotherfreegoldblog.blogspot.com/2011/11/bis-mr-reddy-discusses-gold-banking-in.html
Kumanari,
"The problem is people BELIEVE rather than think, failing to realize that beliefs have a LIE at their center."
Very true.
MF,
"I have this bad habit of forgetting the details of something once I have understood it, and assuming that since I understood why once, it remains valid."
I do exactly the same!
"On conversion : I fear you are about to have a bad experience."
I'm not looking for conversion, I'm just looking for a bit of recognition that we have a SERIOUS problem coming. A bit of food storage would be an acceptable result.
Max
Just food storage?
Haha, I do not think you appreciate the mind-shift that requires.
You would be better off tricking people into buying gold. Just saying it's the next big thing, and giving no reasons, but hinting at inside info.
Sadly.
TF
MF,
"Just food storage?
Haha, I do not think you appreciate the mind-shift that requires."
The moment I hit the publish button I realised that I was aiming too high!
Ah well, one of them is living high off the teet of the government hog in an essential position, so at least they'll be reasonably close to the printer and able to afford a bit of bread now and then.
From Twitter:
"JamesGRickards Jim Rickards
Received invitation to brief #Treasury officials privately on #CurrencyWars. One "well known" economst may not like it, but Govt interested
"
Despite all the fantastic logic and wise perspective to be found here, are the Congress availed of the same context and depth of understanding?
It doesn't look like it most days.
Max De Niro said...
the quote was from willie the caps were the heading to the findings
the body of the message was small letters lol
willie said knowledgable person ..
like a news report .. willie gets information .. why destroy a inside informate
sure i believe willie he has shown extrodinary insight for over 5 years with his reports .
like most of the stuff, from many here, is gabbber wakey .. heresay and conjecture .. Another gave little scource material but opinion and built up a whole building of hersay .. and you believe him. or not .
goes to show .. someones opinion is better than others opinion based on what ? Willie was not giving an opinion.
whats so strange to see that germany has got their gold .. and like the theme of the blogs the euro will outlast the dollar ;
maybe because they have more gold .
and willie is more trustworthy to me than the perps that broadcast how the usa holds germany gold to bribe ..and control .
and have all this gold .. deep storage lol
VTC wrote:
"So Jim Willie goes into the dustbin labelled BS."
More to the point, he's a lunatic.
like most of the stuff, from many here, is gabbber wakey .. heresay and conjecture .. Another gave little scource material but opinion and built up a whole building of hersay .. and you believe him. or not .
Willie is as Willie does. He's very much a Willie.
When you understand what you read here, you come to realise it's not just sensationalist hearsay — the evidence is real and everywhere, all around you, all the time.
dp
sure i understand . what the conclusions are
the evidence is in the wind , in the air, in the message ..
but still opinion.
and we will see some time if free gold comes to a chair near you .or not
and if the perps place a 40% gold backed currency.. free gold may need to be pushed off into a distant reality.
and gold may settle in at 6000 what ever an oz
it aint over till its over .
So I will be able to bring $1 to the window and get 40c worth of gold? Neat! Where do I sign?
edwardo
VTC wrote:
"So Jim Willie goes into the dustbin labelled BS."
More to the point, he's a lunatic.
so ed may i call you ed
you take a 2nd party known as one VTC for your reliable voice
how about this VTC is a lunatic
you are a lunatic a crazy
its always the other guy . lol
ten to one the lunatic callers
have never read . have fancied themselves knowers of all people .
willie has been spot on in his calls for 6 years .
knows austrian economics , knows the inside information.. sometimes he gets do close that he has been warned about horse heads in bed from going to close to the real perps /
one trick ponies are the VTCs of the world .
can he post some objective reasonf for the label lunatic .
or does this mud slinging create underwstanding or muck ..
Oooooh! It sounds so exciting!
no back ass ward ,, you take gold to the window and get 100% of the value of the gold ,'
the international trade will have a back stop to get 100n percent of trade value or theyn get 100 percent of gold back
your brain cells are looking to explode from over exposure to long winded ditribes ..
jsut like the present system .
when you go to the window .. with a ten bucks you get ten ones .
not 40 to one .. or they hand you 4 dimes . pudding heads
dP
Oooooh! It sounds so exciting
so excitment is what you want ..
get a cat
minimum number of pigs stolen in Minnesota this sept is 744
Max,
"I see now that Jim Rickards, in his latest blog piece on KWN has written this:
"Americans might be outraged to know that the Treasury is a public institution while the Fed is privately owned by banks"
Is this more BS from Rickards?"
==================================
Article 1, Section 8 of the Constitution lists Congress' enumerated power, one of which is the power "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures"
Congress delegates authority to Federal Agencies via "Organic acts," like for example the Department of Agriculture Organic Act. IN analogous fashion, Congress delegated the money power to the Federal Reserve in the Federal Reserve Act.
==================================
Jim is referring to the fact that private banks are part of the FED system and buy "shares" in their regional FED branches. Jim, like most ignorant libertarian scaremongers, is trying to stir up controversy. As a lawyer, he understands that this is not the same as owing stock issued by a private corporation. But as an author and attention whore, he apparently believes that pandering to the lowest common denominator is a winning formula.
Jim's defense is likely case law recognizing the intermediate legal status of the FED, things like 9th Circuit opinion in Lewis v. U.S. that the regional banks can not be sued under the Federal Tort Claims Act or Scott v. FRB of KC, which held the board of governors is a federal agency but the regional banks, which are federally create instrumentalities. But these legal technicalities don't really change the point that the whole system exists because of Congress' delegation of power via the Federal Reserve Act.
There is no question private banks exert great influence on the FED, such as in electing board members of regional banks and more broadly because private banks largely the FED's job is to support the banking sector and act as a lender of last resort. The "dual mandate" of the FED, which some contend is triple mandate, states:
"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
link
See "long run growth of monetary and credit aggregates" and "moderate long-term interest rates" - that's inherently a goal that benefits the private banking system.
cont.
cont.
Who owns the Federal Reserve?
"The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.
As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.
However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."
The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year."
With all due respect to Mr. Rickards, I think US confiscation of the co-conspirators gold is unnecessary and highly unlikely. The Fed and the ECB are moving in lock step to stall the collapse and buy up cheap gold, to include manipulating their markets and coordinating margin hikes. The ECB is not doing so to get shafted by the Fed. In fact, I disagree that these bankers even look at the problem from a nationalistic point of view. The closest we will come to a confiscation scenario is a voluntary surrender to a common pool, because you see, the bankers view the gold as theirs. If it has to be voluntarily surrendered to a common pool to keep them in power, it will be
Thanks for that JR,
It seems that obfuscation is the MO of so many people in public life today.
Max,
"I am looking for an explanation in one of FOFOA's posts of why it is essential that our current monetary system expands nominally, as is talked about here in Gold is Money Part 2
"In order to survive, the system, the financial industry, Wall Street NEEDS a constantly increasing supply of CREDIT!""
Are you asking why a credit money system can't tolerate deflation? The financial system needs credit expansion because it extends credit (puts money in somebody's account) and holds the flipside of credit (aka debt) as an asset - double entry bookeeping. If debt deflates, guess what still remains - the liability side of the balance sheet. This concept extends far beyond "traditional banking," see for example MF Global.
==================================
Deflation or Hyperinflation?
"Total US mortgage debt is a little over $14 trillion. That number includes you and your neighbors. Of that $14 trillion, about $6 trillion sits on the balance sheets of banks and $9 trillion has been packaged and sold to savers like pension funds. Of that $9 trillion held by savers, about $5 trillion is guaranteed by the US government.
[..]
Now let's go back to those "banksters" that, along with the politically powerful pension funds, are part of the Power Elite that are going to keep the dollar strong enough so that your mortgage isn't hyperinflated away. Remember, this is roughly $6 trillion, or 3.5% of the dollar's debt problem, that is still sitting on the balance sheet of banks, yet gradually being absorbed and/or guaranteed by the Fed and/or the US government.
This is simple logic: Do you think they'd rather offload that debt onto the Fed's book in exchange for full cash value? Or would they prefer to hold onto those notes while you struggle to pay them off in symbolic tokens over the next 25 years? How about this: Is it better for the health of the bank to take possession of the houses (and then have to sell them) that roughly 20% of the troubled homeowners are walking away from? A 2009 jingle mail study showed that close to a fifth of troubled mortgages in the U.S. involved borrowers who were strategically defaulting. That represents roughly a 10% hit to the asset side of the banks' balance sheets. Yet the banks' liabilities (deposits created when the loans were originated) remain, fully insured by the FDIC which has no money.
Through the magic of commercial bank double-entry bookkeeping, the banks' balance sheets are actually not exposed to decreases in the purchasing power, or present value of purely symbolic, completely worthless token dollars. They are, however, exposed to decreases in the value of their assets and to the risk of default that flows from deflation. Deposits are nominal liabilities that remain when assets deflate. So supporting deflation would be, to a bank, like suffering a masochism fetish.
Rick thinks the banks will defend their assets by keeping the dollar strong. But that only keeps their liabilities that much harder to meet while the effects of deflation tend to shrink their assets making it even harder still. Ignoring the dollar for a moment, and the flaw in Myers' dictum, what happens to a bank's balance sheet if all of the loans are defaulted at the same time? Or if the asset value of all of their collateral collapsed at the same time? It would have precisely the same impact. So would a mixture of the two. The banks have and are experiencing precisely this type of squeeze. How has their "guardian angel" the Fed responded so far?"
cont.
cont.
So we get this:
Euro Gold
"There are four players to keep in mind; the debtors, the savers, the banks and the printer. They never print and give the money directly to the debtors to pay off their debt. Instead they print and give the money to either the creditors (banks) or the savers (e.g. pension funds) in exchange for the older bad debt which they then put on the public balance sheet to socialize the lost value.
So they "bail out" the banks and the savers nominally, which in turn (through currency debasement) actually bails out the debtors and screws the savers. The banks come out even because they only require nominal performance. But the retirees and pensioners that require real performance at the supermarket get screwed.
@Unknown: Good luck, buddy! ;-)
JR,
Thanks, as usual!
"Are you asking why a credit money system can't tolerate deflation?"
I wasn't specifically asking that, although, from the text you highlighted, I can see that nominal expansion is only required if debt is not performing.
I had thought that for some reason, due to the specific mechanics of credit system, that it always had to expand in nominal terms. It seems, though, that if the economy is growing, in real terms, then nominal expansion is not necessarily required?
Although, looking at what I just wrote, wouldn't the money supply have to increase, as if there were more goods and services bidding on the same money, you would get deflation?
So, it would seem that the system must expand, regardless of whether debt is performing or not - if it is, then money supply must increase in order to prevent deflation and if it isn't, then CB will print in order to prevent cascading banking collapse.
Have I worked that through correctly?
DP
listen i sold gold for 800 in jan 1980
enterednthe gold market at 300
loaded up it is not luck
the idea that a web site with many expressing Anothers ideas
that all they have to do is grab a few oz of gold wait and them live like kings ..is a baket full of baloney
do you thiunk the people with all the gold .. the insiders have not made plans to still control the gold
when anothers thoughts are made real
than the same gold holders will still control
just who do you think bought Brown gold at 250.
you may need to speak mandrian as china has tons of gold to most here with their 10 oz . hoping to be filthy rich
with out work .. but gabber wacky
#PeakGenius
Unknown said
"most here with their 10 oz . hoping to be filthy rich"
I get the impression most here are just looking to preserve their life savings through a credit collapse and hyperinflation. I don't expect to get "rich", but hope to come out "relatively unscathed"
This is an interesting little mainstream-media article if you read it with a freegold perspective: http://money.cnn.com/2011/11/23/markets/gold_eurozone/index.htm
DP
peak aboo//
so a handfull of long winded gurus shoot down the willies as idiots
answer with one little unintelligable grunt
what is your position now in real golkd
do you have more than ten oz
or is at a lot of mouth and foot
// the folks with all the gold . will do the best
thats the insiders china russia .. india .
not a couple of wangers with ten oz throwing spit balls in the air .
to shine a light on/
for their own consumption.
Z
Max,
Let me try:
"...why it is essential that our current monetary system expands nominally..."
I think what you are looking for is that the current system works by convincing people to save their surplus production in paper promises of goods, instead of in goods themselves. This is, to paraphrase FOFOA, the trading of dollars today for the promise of MORE dollars tomorrow, and it only works because of the 'MORE' in 'MORE dollars'.
If the credit system stops expanding, then there is no credible promise of 'MORE' in the future, and so there is no reason to save paper promises. Bank runs and hyperniflation ensue.
Is this about what you were looking for?
"Does anyone have any advice on how to go about effectively communicating our current predicament ..."
My magic eightball shows you being an unpopular guest this Thanksgiving :)
Someone (was it Ore'em?) wrote a letter to a central banker associate, trying to explain freegold. Is it still around? It may be a good place for you to start, though I don't recall the assumed level of prior economic knowledge.
DP,
What happened to us shrimps just following in the footsteps of Giants?
Don't feed that troll. He obviously hasn't read a damn thing here.
clyde frog
thats not my7 impression considering the remarks today
sure to preserve the buying power and protect life savings is a great idea .. that why i bought gold at 300..
but the idea that some how gold will go to infinity while all paper burns is simplistic .
we will see a golod cover clause before that
paper will be baked by gold
lkong before the end of the monetary system ..
you guys think sinclair is also an idiot .
with all his inside contacts and such.. he believes that the gold back internation currencies will occur .
my moeny is on sinclair ..not unknow sources and such as post with long winded .. distractions
the truth is simple // then make it simple not long yabbe wanky inb my opinion
whyat is his opinion
open free chat at mine set
he called the gold movement before most were hatched
fade sinclair for the blabber on the unnknowns
and the small cadre of Another followers nice in the abstract but in reality .. thats a differnet tory
if wishes were fishes
I'll give it a try for Max too.
"...why it is essential that our current monetary system expands nominally..."
Because our money is debt, because it's borrowed into existence, it must be repaid back with interest. The dollars in your savings account only exist because someone, somewhere borrowed those dollars from a bank. Collectively, the dollars needed to pay the interest must come from new borrowing, so the system must always be expanding.
@ClydeFrog, I have no intention of doing that until he's at least partially house trained. And as you say, given an indication he's at least read some of FOFOA. :-\
DP
i followed ANOTHER on his original post on the gold sit e
have follwed this discussion since the befinning
i understand the concept
just think that many here nare more interested in blovation on credit , inflation hyperinflation
DP do nyou own any gold or just a troll
--> +1
follwo my words
i just posted tha wille reported the germany has their gold .
then the daggers came out
ment17
since the start most here joined the dance in myopinion in the latter part now any one that has a different opinion is a troll as is willie as is sinclair
but the posters here are inspired to understand lol
Dr. O/MH,
Thanks for that extra context.
I had thought about the interest before. I thought that maybe defaulted loans, which the banks must factor into their business might account for the interest in the system. This could be balanced out actuarially, so that the interest didn't require extra borrowing, but only compensated for inevitable defaulted loans, stripping out average growth rates and inflation.
Of course, that actuarial calculation goes to sh!t once debt starts defualting en masse, but that's what Uncle Ben is for.
MH,
"My magic eightball shows you being an unpopular guest this Thanksgiving :)"
Gotta be cruel to be kind.
Max - I believe that when a loan defaults, from a whole-economy perspective, the principal of the loan is not wiped out. The principal has already been created and spent by the borrower in the economy. The bank that created the loan takes a hit to profitability, because it has lost the loan as an asset on its books and has to cover the unpaid principal using interest earnings from the remaining good loans. In the big-picture, the only thing that gets wiped out are the future interest payments. So a default on a loan hurts the profitability of the bank, but capital is not destroyed, and the system still expands.
Um, unknown. I have had personal dealings with Jim Willie. My assessment, while admittedly not nuanced, is not based on hearsay or second or third hand accounts. Willie is, indeed, as Willie does.
@Edwardo,
I know - that was rich irony, coming from me, right?
%<];o)8
Max
ME: Are you asking why a credit money system can't tolerate deflation?"
YOU: I wasn't specifically asking that, although, from the text you highlighted, I can see that nominal expansion is only required if debt is not performing.
Wat?
You wrote:
"I am looking for an explanation in one of FOFOA's posts of why it is essential that our current monetary system expands nominally, as is talked about here in Gold is Money Part 2
"In order to survive, the system, the financial industry, Wall Street NEEDS a constantly increasing supply of CREDIT!"
If credit is not expanding, then what is it doing?
Now do you see:
"Are you asking why a credit money system can't tolerate deflation?"
=================================
Two related ideas:
1) Banks expand credit. Its what they do. Banks not expanding credit is like a baker not selling any baked goods.
2) More importantly, hopefully you got the big point from Credibility Inflation , which is that it was brought on by the USG closing the gold window so it could expand credit. Its the USG consumption monster driving this system
"Many facets went into this change in investment attitude, but one concrete change in the U.S. financial system was the most telling. Way back in March 1971, four months before Nixon closed the Gold window, the "permanent" U.S. debt ceiling had been frozen at $400 Billion. By late 1982, U.S. funded debt had tripled to about $1.25 TRILLION. But the "permanent" debt ceiling still stood at $400 Billion. All the debt ceiling rises since 1971 had been officially designated as "temporary!" In late 1982, realizing that this charade could not be continued, The U.S. Treasury eliminated the "difference" between the "temporary" and the "permanent" debt ceiling.
The way was cleared for the subsequent explosion in U.S. debt. With the U.S. being the world's "reserve currency," the way was in fact cleared for a debt explosion right around the world. It was also cleared for five of the biggest bull markets in history.
The global stock market boom of 1982-87
The Japanese stock market/real estate boom of 1988-90
The Dow (and then Nasdaq) led boom - late 1994 to March/April 2000
The great global real estate boom of 2002-06
The global stock market revival of 2006-07 [1] "
Remember, the USG is the biggest debtor of them all, the biggest debtor in the history of the world. Credibility inflation was a way to continue to expand the USG via debt issuance funding, and as we know, the USG's debt funded consumption is a structural or "hard fix" that they have to meet.
See how the USG can't have credit stop nominally expanding?
Unknown
Fwiw I quite like reading Dr. Willie. I don't dismiss his inside info out of hand, as I have seen him proven correct a lot of the time over the years.
I am having trouble however reconciling his inside info with the official figures given for gold holdings at the NY fed.
Now I know governments lie, and they would have reason to lie about this, imagine the panic if others knew Germany had withdrawn their gold from holding.
But 2-3k tonnes of gold is a big lie.
What are your thoughts, how do we reconcile these conflicting sets of information?
TF
DP,
Yes, sir. As rich as pecan pie, and almost as tasty.
As FOFOA explained in Once Upon a Time
The sterilizing of gold flow way back in 1922 was for the purpose of allowing credit to expand without the limitation or the "check" of flow of gold. This perpetuated the "the unbalanced flow of trade" and "acted only as an occasional spur, and never as a brake."
"In 1922, they officially changed the old gold standard into the new "gold exchange standard", which Rueff said was "a conception so peculiarly Anglo-Saxon that there still is no French expression for it." The stated purpose was "the stabilization of the general price level" which you can feel free to read as code for sterilizing the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and its step-daughter Monetarism (est.~1956).
With the gold mostly staying put in London and New York, and paper promises of gold flowing as equal base money elsewhere, the monetary base was effectively duplicated. Credit could now expand without ever having to contract, at least not because of the unwanted flow of gold. But of course that's not how it actually works in practice. The "unwanted" flow of gold is not the cause, but the effect of real imbalances (physical, not monetary ones) between international production and consumption. So, obstructing the adjustment mechanism of real gold settlement set the world up for periodic busts, economically destructive punctuations and regular currency devaluations.
To use a modern buzz word, they expanded the 500 year-old international monetary base into a more flexible "basket" that included US dollars, British pound sterling, and gold. As dollars began to accumulate abroad, they would be deposited back in the New York banks in exchange for a book entry reserve on the foreign country's balance sheet. In this way, the unbalanced flow of trade acted only as an occasional spur, and never as a brake. The only brake would now come in the form of destructive crises and abrupt monetary resets."
The USG continued in this vein when Nixon took us off the gold standard and into credibility inflation we went - further credit expansion to perpetuate the unbalanced from of goods. Using the monetary plane to feed the consumption fix that must be satisfied from the physical plane of real goods.
==================================
Max,
Its not easy nor without costs that I post all this, please try to understand my point. The pattern of me posting lotsa links and then you instantly going off on some other tangent is really disheartening. We have discussed this before.
These are deep thoughts, and its obvious from the time stamps that you haven't fully considered what I offer. I take solace in the fact that its is also offered for other's benefit, but its still nonetheless incredibly frustrating. I don't post links with excerpts so that you ignore the link and just read the excerpt.
There is a reason FOFOA writes long posts, and its not that he may be verbose. These are big ideas that are contrary to the way a lot of us think. Its not about seeing the small pieces or providing neat, concise points. Its about seeing a new perspective. Its a top down, not bottom up thing.
I appreciate your inquisitiveness and presence, please don't take this the wrong way. But if you persist in maintaining you are a small detail guy first, instead of a big picture guy, then you'll constantly struggle.
Cheers, J.R.
oops:
"further credit expansion to perpetuate the unbalanced flow of goods"
Ahaaa! Yes.
"Credibility inflation was a way to continue to expand the USG via debt issuance funding, and as we know, the USG's debt funded consumption is a structural or "hard fix" that they have to meet. "
This ties together my deliberations over the deficit too.
This is why they also had to expand the paper gold markets, in order to enable the gold to flow to where it was needed whilst keeping the price down, so that credibility inflation could continue without a rising phys gold price showing it up and the USG could get its fix.
Sweeeeet. That all makes a lot more sense. Thanks JR.
So basically, this whole evolutionary cycle was kicked off by the inflationary effects of oil discoveries and its subsequent driving of growth, which couldn't be contained within the hard currency structure.
Therefore, they had to continually soften the currency structure, whilst dealing with all the various political and social hiccups along the way, until the structure could evolve to a point where the currency was flexible and the value of the oil could be contained in a stable way - freegold.
Right?
JR,
I very much appreciate your time and efforts. I will indeed think very deeply on these subjects.
Please feel free to ignore me if I am asking repeated questions, I'll take that as a sign that the answers are already there, and go back and think and read more of what has already been presented.
Thanks.
Could we make some new more sensible post please? Very simple logic, an argument nobody yet wrote here. Even Germany who stole in WWII gold of other nations had to return it after the war ended. Anyone believing in different result needs to re-read a bit more history books. Check BIS archives for starters. :o)
JR,
I read all your posts and links provided in support of your thoughts. I appreciate very much the time and effort you put into this blog and I am sure many others do as well. Many thanks and CHEERS !! Enough
Hi Max,
I explain this concept to clients as a kind of mental picture.
I explain that the world has been built on debt for 40/50 years, but debt carries interest. That debt is now so high that economic activity is unable to pay the interest. But the bubble can't just stay static (although that's what policy makers are trying to do), so eventually it will pop. bang (hyperinflate), then collapse.
I also mention the real world, where individual families the world over have recognised the 'debt' game is up. They recognise the bubble has burst. So, they change their ways, spend less, save a bit more, and so the economic activity reduces, more layoffs, and it's then even harder to service the debts. A viscious cycle. With everyone recognising this (gradually), there is nothing policy-makers can do to force folk to spend, and down it all comes (after currency collapse).
I know it's not a scientific explanation, but people get it. And some buy some gold to hedge.
(I am casamurphy Michael)
MAX,
Dr. Octagon has the answer...it has to do with the effect of the interest paid on debt.
For good step by step explanations with graphics see these two YouTube videos:
Money as Debt I
http://youtu.be/Dc3sKwwAaCU
and
Money as Debt II
http://youtu.be/rCu3fpg83TY
I like reading both willie and sinclair. In addition to the entertainment value, over the long run they are more right than wrong.
i really like sinclair's little hobby farm :D
I have to say that these days mostly I just read the title of articles and I kinda infer the content, because its same old with today's twist ........... except Mortymer's links ;)
well and costata's as well....
and a few others
Speaking of German gold, I find this interesting.
In the ZH comments it was observed to be a 'strange time' for Germany to be issuing a commemorative gold coin. Yup. But less confusing when seen through a freegold lens - this would seem to be just a way of evening out the distribution of gold within the currency zone.
I figure the concepts work inside family borders too.. e.g. give gold this Christmas and strengthen your social 'economic block' at the same time.
Hi Warren,
Great suggestion about giving gold as a gift IMVHO. Never underestimate tactility with humans.
As this thing accelerates I suspect at some point gold will be the "new black" the new RE "that never goes down". We have 10 years of price increases to point to with friends and family. How much "track record" can people demand before they admit that a fundamental change has taken place?
Finally, in Australia at least, the housing market is unmistakeably turning down to an extent that the general public are beginning to notice.
So mate, hopefully we'll be "good as gold" on this gift idea of yours now that we aren't "safe as houses" anymore.
Cheers
http://anotherfreegoldblog.blogspot.com/2011/11/piie-imf-responce-to-world-gold-council.html
Pls, visit and let me know your opinion.
Hello Max,
"I would love to see a FOFOA piece, framed as a letter to an intelligent but unaware relative to try to get them to understand the predicament and to convince them to take necessary action or at least raise awareness of the impending smash up.
Fancy taking up the challenge FOFOA? Pretty pleeeeeease?"
You have good timing! As it turns out, here's a bit of an email to a friend:
"My next project is to work on a kind of gold primer, an introduction to "the gold thesis" for people like my own dad. Paperbugs!
Of course I’m not going to tackle this from the standard goldbug/hard money perspective. I’m going to approach it from the perspective I've been exploring on my blog. It’s a real challenge. It’s a tough question I haven’t really figured out yet. How to introduce the gold thesis to someone whose only knowledge about gold is what is put out by the MSM."
I don't think the hard money camp's "return to the gold standard" advocates quite realize the damage that perspective has done to the gold thesis—the real reasons to buy gold right now. Just look at this Twitter "debate" going on between Rickards and Roubini.
Normally, I would be fully behind Jim. But then Roubini comes out and says stuff like this:
"Well, we're never gonna go back to the gold standard, and this idea of a gold standard is pushed every other day by these goldbugs. It's not even a theory, it's just a theology. Every problem in the world they think is because of paper money and they say, 'if we only had gold, if we go back to the gold standard, then we gonna be happy.' That's total nonsense."
Boy, the consternation I feel when I find myself agreeing with Nouriel Roubini's rebuttal to Jim Rickards! It's awful! But, at least with the above quote, I gotta agree with Roubini. And that's part of the problem. It's all in the framing of the gold discussion! The goldbug community has it framed all wrong, and that's not making it very easy to get my dad to buy some gold!
I should note that Roubini is wrong on gold other than what I quoted, so don't go thinking I'm in his camp. I'm still with Jim! But the way the debate is framed (and not just this Twitter debate, I'm talking the whole gold v. paper debate) is simply horrendous, especially to my effort to share the real gold thesis with paperbugs.
The return of the gold standard is not the gold thesis! The return of the gold standard is not why you want to buy gold right now!
So you see, in some ways I'm aligned with the paperbugs as they argue with those dastardly goldbugs! Perhaps this is a foot in the door. The main questions I want to answer are: Why gold? Why only gold? And why now?
Someone has asked me to do this, and I have accepted the challenge for personal reasons. If I can pull it off, it will be distributed for free beyond just this blog, and it will be widely promoted in ways that will surprise all of you. So please help me and Max De Niro and discuss this topic! It's a tough one!
Sincerely,
FOFOA
There has been an excellent detailed well done post by GoldSubject just about this but his pages are gone.
Fofoa: poerhaps this file can help you?
IMF - IMF Releases the Operational Guidelines for the Data Template on International Reserves and Foreign Currency Liquidity
http://www.imf.org/external/pubs/ft/bop/news/pdf/1299.pdf
extract here:
http://anotherfreegoldblog.blogspot.com/2011/11/imf.html
- description of what is a reserve asset and what is not
- description of valuation
- etc.
Kind of a must read for anyone who wants to dip a finger in this CB area. :o)
FOFOA
Phew, that's a tough challenge. My best advice is you need to keep it short, 3,4,5 pages. Anything beyond that and what you say doesn't matter anymore.
TF
Is there a process by which commodity gold can become monetary gold?
"Is there a process by which commodity gold can become monetary gold?"
Yeah, that's called the gold standard. See FOFOA's comment above.
Commodity gold is not going to become monetary gold.
Not where we're going. The fact that is was monetized was the problem, in the traditional sense at least.
Haha! MF, I'm surprised your first advice would be regarding length! Especially you! I hear you like my long posts!
I didn't say I'm writing for the illiterate paperbugs! I'll tell you this. My longest posts have BY FAR had the most readers. Also, the people that want to promote and distribute this are expecting something like a white paper. Length is not an issue. There's a lot to cover. And good writers know it's all about grabbing the reader as soon as possible. So don't worry about length. I got your length! ;)
Intuitivereason,
"Is there a process by which commodity gold can become monetary gold?"
Yeah, it becomes monetary gold when a CB buys it! Commodity gold and monetary gold are simply CB designations. Likewise, monetary gold becomes commodity gold when they sell into the LBMA. LBMA gold (and any non-CB gold) is considered commodity gold in the CB vernacular.
Sincerely,
FOFOA
Wow, I think that Christmas has come early for me!
FOFOA,
Excellent, because I was on the verge of saying que sera sera due to the magnitude of the problem.
One thing that I think needs to be overcome is the fact that nobody is talking about it (gold). Here in our little blogosphere bubble, we are very in tune with all of the various factions and are exposed to talk about all these subjects every day.
Outside of the bubble, investment in general isn't much talked about, especially buying physical gold. The times I have mentioned it, people laugh and mention something about pirates and buried treasure in a dismissive tone and then give me a condescending smile.
This, I think is the largest hurdle. Buying physical gold is considered to be something so absurd, that people wouldn't do it simply for fear of feeling foolish, let alone losing money or through a lack of awareness of the issues.
I think that this factor really needs to be overcome. You really need to get inside this psychological effect to be able to speak to it and counter its powerful, illogical, emotive and anti-conceptual effect.
That's my take on the biggest hurdle.
On the christmas coming early, also, I would like to thank JR again for his time.
On reflection, I have come to rely on your knowledge and ability to pick out the important information and have become lazy about doing my own thinking.
I very much appreciate your depth of knowledge and ability to pick out thought provoking passages which shine a light on the trail and point the way to go.
I will put in more work from now.
Thanks again.
@Blondie:
"Not where we're going. The fact that is was monetized was the problem, in the traditional sense at least."
A PHENOMENAL ASSET
For centuries, gold had a profound impact on history, as a symbol and a storehouse of wealth accepted universally around the world. Gold functions as a medium of exchange, particularly in areas where currencies are distrusted. Yet gold has not been without controversy. The influential economist, John Maynard Keynes, referred to gold as a “barbarous relic.” Later in the 20th century, former Chairman of the Federal Reserve’s Board of Governors, William McChesney Martin, praised gold as “a beautiful and noble metal. What is barbarous,” Martin said, “is man’s enslavement to gold for monetary purposes.”
http://anotherfreegoldblog.blogspot.com/2011/11/key-to-t-h-e-gold-vault.html
Generally, people are social, herd-like creatures. We don't like to stray from the norm, and hence suffer from normalcy bias. This tends to ensure that most people get crushed by the big events that "no-one saw coming", even though plenty did.
There is a kind of buyers remorse feeling when taking the path less traveled, and it is a hollow, scary and lonely feeling. People don't like that. This tends to shut down any logical approach, regardless of the integrity of the argument. This emotional barrier must be overcome.
Hi Max,
"The times I have mentioned it, people laugh and mention something about pirates and buried treasure in a dismissive tone and then give me a condescending smile."
I am fully aware of the hurdles, as some of my long-time readers know. Mostly I write esoteric pieces, best understood by those who have read the A/FOA/FOFOA archives. So this challenge is mostly about giving up the crutch that is my established audience and writing to a new one.
By the way, I love pirates and buried treasure stories. I can highly recommend Pirate Latitudes by Michael Crichton.
Sincerely,
FOFOA
My approach to framing the issues correctly goes something like this (a snippet from an unfinished comment to Max which I started writing a couple of hours ago, before I stopped to watch a movie):
"It is my opinion that in order to formulate a solid understanding of any system we must first identify the system's lowest common denominator, so as to build an accurate conceptual model.
Monetary systems are ultimately concerned with and denominated in one thing only: value.
As such, they are best understood when examined in terms of value.
Everything else in a monetary system (currency, debt, credit, interest, wealth) is a derivative of value.
These “inflationary effects” and “growth” you (Max) refer to are surplus newly created value, expanding the system.
This is growth of real, useful things (both goods and services), as distinct from nominal.
When we use a derivative of value as our unit of account, we view only the nominal rather than the real.
Viewing the monetary system in terms of value keeps it simple and in terms anyone can follow, as well as being both the most accurate and the most real point of view."
The comment goes on a lot further, but this excerpt establishes my parameters, and it is through this lens that I think anybody could be shown the perspective from which to understand gold's function without technical knowledge or detail.
When we attempt to answer your questions, without first establishing such parameters so as to include as many readers the ability to follow as possible, we simply produce answers that tell the uninitiated either that this is beyond them or that the writer is mad.
I suggest such an article would not mention gold until the end, if at all, but instead the system and its paradoxes be outlined using the lowest common denominator, leading all the way to the reader intuiting gold for themselves as the obvious and most suitable solution.
ie. by the reader mentally eliminating everything else as a result of the paradox, only gold is left. The reader solving a compelling conundrum for themselves generates far more impact than spoonfeeding the answers (Socratic method).
Blondie: I suggest such an article would not mention gold until the end, if at all, but instead the system and its paradoxes be outlined using the lowest common denominator, leading all the way to the reader intuiting gold for themselves as the obvious and most suitable solution.
That would probably be as tough as a cow's back to achieve, but very effective if one could pull it off. Excellent food for thought — CHEERS! ;-)
FOFOA: Keep it simple and to the point, like "so you want to have free education, free healthcare and ready to pay taxes to support this system. But you are angry about some people hoarding land, productive commodities, food... Look, we can target both problems at once if we give the hoarders something else to die for, and they in exchange free the resources we need to make this system work"
Or "so you dont want to pay taxes to corrupt and delusional politicians, you want everybody responsible of their own actions, you think FRB is a ponzi scheme or a crime that is diluting your hard earned money... Look, with a simple change, we can keep the politicians actions in the open, and you are free to choose if you want to have your money multiplied by FRB credit or completely secured in your hands."
"For both, just prohibit or ban gold leasing, taxing, restrictions"
"Gold and oil can never flow in the same direction". This single comment caused me to spend countless hours on the usagold archives and here at fofoa.
Perhaps a shot to the heart of the matter is a way to encourage consideration of Another line of thinking.
blondie wrote:
I suggest such an article would not mention gold until the end, if at all, but instead the system and its paradoxes be outlined using the lowest common denominator, leading all the way to the reader intuiting gold for themselves as the obvious and most suitable solution."
I wonder if the article mightn't benefit by including, as much as possible, evidence to show that a key contingent of the globe's most powerful institutional actors have, so to speak, seen the light.
To that end one might also make plain that the aforesaid have achieved their recognition, via a reasonably involved learning curve that is, in essence, no different than that which individuals must go through to fully grasp (not to say embrace) the emergent system.
FOFOA,
"If I can pull it off, it will be distributed for free beyond just this blog, and it will be widely promoted in ways that will surprise all of you."
Bloomberg? Mad Money with Jim Cramer?
Now that would be an interview I would like to see!
Your Michael Crichton recommendations work out well, so I think I'll give that one a go.
BIS Paper: Vítor Constâncio: The future of the international monetary system
"Towards an unavoidable, but desirable, multi-polar IMS?"
"There are many predictions about the gradual addition of other currencies to the dollar as
truly international currencies. What seems to make this unavoidable it is not only the
emergence of the euro, the increasing strength of China or the growing vulnerabilities of the
US. The growth in importance of emerging countries, that have seen their share in the world
GDP augmented by 15 percentage points in the last 20 years, creates a structural increase
for the demand of reserves that the developed countries, including the USA, will not be in a
position to supply.
This question is linked with the problem of the provision of official international liquidity."
"As Maurice Obstfeld (2011) has recently recalled, there is a fiscal dimension to the supply of
official reserves. No single country in the world could indefinitely offer its currency as the
reserve asset that could satisfy all the needs of a growing rest of the world. In the present
circumstances where deficit and debt ratios need to be decreased, the US could not offer its
bonds and T-bills as the almost exclusive reserve asset of the world. In this context, Euro
assets are necessary. Even if they are clearly seen as an unrealistic prospect, Eurobonds,
from the pure perspective of the International Monetary System, would be useful as a
reserve asset for the world economy. In the future, the system will also need assets in the
Chinese currency, when China will have a convertible currency, a flexible exchange rate and
a developed bond market."
"The euro has established itself as the second most important international currency after the
US dollar. At the same time, this role is predominantly regional in nature, since the euro is
mainly used by economic agents resident in euro area neighbouring countries with special
political and economic ties to the European Union and the euro area. More recently, it is
known that Asian investors and foreign central banks accounted for a sizable share of the
demand for bonds issued by the European Financial Stability Facility (EFSF)."
"Looking ahead, the share of the euro in international markets has the potential to rise further
once financial stability and market integration is restored in the euro area. The ongoing
efforts to improve the governance of the euro area and provide it with a credible crisis
resolution mechanism will also indirectly affect the international use of the euro, even if the
ECB and the Eurosystem do not take any initiatives to directly promote its use (Angeloni,
Sapir 2011). This neutral stance – neither foster nor hinder – is based on our conviction that
the international use of currencies should be a by-product of autonomous market decisions"
"I share Kregel’s (2010) view that “the basic problem [with the current IMS] is not the
particular national liability that serves as the international currency, but the failure of an
efficient adjustment mechanism for global imbalances”."
"Such imbalances were coupled with “twin gluts” in global liquidity and
planned savings which led to historically low risk premia – the main symptom that systemic
risk was escalating in the presence of easy finance accommodating complacent borrowers."
"The fact that these imbalances have
persisted for so long exposes a key weakness of the system, namely the inadequacy of the
adjustment mechanisms."
Max,
I just skimmed your comment, and those last three paragraphs just slapped me in the face.
Sounds real familiar.
Front lawn dump takes many forms, here is one:
The United States Covered Bond Act of 2011 is designed to allow bundling of any kind of debt including derivatives, into marketable securities guaranteed at full face value by the FDIC.
Asset classes eligible to be rolled into Covered Bonds are shown below.
(A) a residential mortgage asset class;
(B) a commercial mortgage asset class;
(C) a public sector asset class;
(D) an auto asset class;
(E) a student loan asset class;
(F) a credit or charge card asset class;
(G) a small business asset class; and
(H) any other eligible asset class designated by the Secretary, by ruleand in consultation with the covered bond regulators
http://www.hagan.senate.gov/files/111109_CoveredBond_BillText.pdf
Blondie,
mmHmmmmmm!
From
Once Upon A Time:
"The price mechanism is the Superorganism's governor in the delicate balance between production and consumption. It is what keeps the economy in a sustainable balance somewhere between starving shortages and ruinous waste. And the flow of unambiguous real gold has always been a key international transmitter of the price mechanism because gold is the physical-monetary proxy for economic goods and services, subject to the same physical limitations as goods and services. Modern currency, on the other hand, even though it flows and trades like a commodity, is subject only to political limitations, not physical ones, and is therefore qualitatively different (an inferior, infertile transmission medium) from the perspective of the Superorganism. "
@Max/FOFOA: Perhaps an infomercial format?
http://www.youtube.com/watch?v=NLjWJy5IXQU
Max,
on how to advertise physical gold to outsiders. I found that it works well if you basically give them a brief outline of the trail.
I tell them how the gold standard pre-Bretton Woods worked, that international trade used to be settled in physical gold, stressing that it has no counterparty risk (given the current news they can understand this better than the adjustment mechanism of the trade flows), how Bretton Woods worked, and what happened in 1971. Then I show them online that the US govt has the gold at $42.22 in their books, but that after 1971 nobody can get it for that price --> they are hiding it, and so it must be very valuable and indeed relevant.
You can also show them a few figures, such as the US trade deficit in terms of gold at $42.22 or the Chinese surplus. Even at $1700, the US trade deficit is still almost 1000 tonnes per month. Many people with a finance/economics background I talked to had never thought about this, but got interested at this point.
Then I tell them about oil and that after 1971 the US was still interested in low gold prices (because of oil and because a high real price of gold correlates with low future real interest rates), and that the Arabs got a special deal --> this usually convinces them that gold is still very relevant indeed, but here they usually want a confirmation of that claim.
I tell them that I cannot prove all of this, but we can see online in the charts when the London market blew up for the first time. Then I show them the gold price chart and a GOFO chart 1997-2001, and you can see when someone took a lot of physical off the market in 1997 (Hong Kong?), when LTCM blew up, and when the Washington Agreement was announced.
At that point, I usually get very specific technical questions about how the CB sales after 1999 make sense in that context, etc, and we talk about recent CB purchases and so on. But then you have already won and they are already interested in the details.
In other words, I like to spin this as a political story! Once they have realized that the big boys fight for it, then you can talk about the end of the dollar.
Victor
That's interesting Victor, spin it out as a story of intrigue so that they stay interested and invested in the story and can relate to it more.
Your angle also seems to play more on the greed side than the fear side of the gold trade.
Do you think that going for greed is more effective than fear, or perhaps a bit of both?
I think some people would be put off by either one or the other and it would depend on their psychological make up.
Perhaps an open letter needs to contain a bit of both.
Do you feel you do not control your future? Do you feel your life is in the control of the whims and fancies of the politicians? Do you feel violated that your pension is not what it was made to be? Do you feel you wont be able to afford the standard of life you were sold by your financial advisor? Do you feel you have become a slave of an anonymous master and you have no way out of it?
If you feel there may be some truth in the above questions, you should read on....
How does that sound for an introduction to a story you want to tell?
Wow, that IS a challenge FOFOA. FWIW, I frequently return to Ender's thoughts where you and he discuss what gives currency its value -- function! -- but most importantly that as one nation accumulates claims against the economy of another nation, eventually the economy with massive claims against it defaults on those claims -- thus the need for a different mechanism to balance trade -- rubber duckies!
FOFOA,
Have you read Sinclair's little book?
http://apocketbookofgold.com/
Seems at least related to your quest.
W
James Turk has an interesting take on the myths and reality of gold confiscation , which includes a quote taken from Alan Greenspan’s 1966 essay entitled “Gold and Economic Freedom” that I'll repeat here:
“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit…The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”
FOFOA, with all due respect, me thinking you are wasting your time.
Trying to explain (physichal) gold to people in West (Western Europe) is like explaining to 5-year old not to touch the stove. 5-year olds will touch it and burn themselves. Only after burning feeling will they, perhaps, understand what you were talking about.
If you talk to people from Eastern Europe, who lived through hyperinflation and Deutsche Mark supremacy, they may get it. In fact I know some will get it, I turned several friends and relatives into Physical Gold Advocates.
But average Western European or J6P...forget it. Hope you prove me wrong. :-)
Max,
yes, you may call it greed. But it is maybe also the case that most people find geopolitics more exciting than the theory of trade flows.
On the fear side, my impression is that basically everyone with a cultural background from continental Europe agrees that 10% of one's net worth in physical gold is very sensible (if the reasoning here at FOFOA proves right, this should be perfectly fine from an insurance point of view, provided that you have enough to eat in the meantime).
If you have an investment adviser in front of you, you can also show him the permanent portfolio by Harry Browne and Terry Coxon:
http://crawlingroad.com/blog/2008/12/18/the-permanent-portfolio-allocation/
http://crawlingroad.com/blog/2008/12/22/permanent-portfolio-historical-returns/
It is a very simple asset allocation strategy: 25% stocks, 25% long bonds, 25% cash, 25% physical gold. Although probably none of us would recommend bonds, the long term return and volatility show how nicely gold compensates for downturns in the other assets. It has basically the same average return as stocks, but a fantastically low volatility. And it is an easy 'sell' that gets you right to a 25% allocation.
Finally, what may be missing (but perhaps it is just that I was not able to find it) is some basic macroeconomic models that show how multiple floating currencies with a free price of gold regulates trade flows, in other words, to speak to mainstream economists in their own language. I have no doubt this is possible and reasonably easy to do.
Something that gets close to it is the Foley-Sidrauski model. The last chapter in their book is on a model with two countries with teo currencies ('USA', 'Europe'). One of them ('USA') has an expansionary fiscal and inflationary monetary policy, and you can see that in the long run, the 'USA' have a persistent trade deficit, they lose production of capital goods in favour of consumption, and it is the converse in 'Europe'.
Duncan K Foley is probably even more significant to the trail than just this. He was the PhD adviser of Tommaso Padoa-Schioppa, one of the brains behind the euro.
Victor
Dante,
I consider myself a Western European J6P. I know many other readers are also average-sized Western European shrimps, so it is not impossible. I sense that people here are mainly of inquisitive nature regarding the (economic) world around them.
People with less curiosity will also be able to understand freegold, but I think the important thing to convey is that everyone can improve their situation a lot by a little effort, by converting a bit of their wealth from debt to gold.
The important thing is not that every aspect of Freegold must be understood 100%. The important thing is the knowledge that 10-15% of your wealth in gold will protect you a lot. That percentage can then increase proportionally to understanding after that.
I have recently talked a friend into buying physical gold using above strategy, and I feel really good about myself because I finally succeeded. In my argumentation I often focused on the subject of wealth ownership. How can a thing be real wealth to you if it is not 100% in your command, but is instead a mere promise to you by a counterparty? It was quite easy to point out that all the things my friend thought of as wealth was really not 100% in his control (bank account, pension fund etc.). After that discussion, 10-15% of your perceived wealth being hold in your outright possession doesn't seem that wacky.
/Burning
FOFOA!
If somebody can pull this off it is you! If you do it in a reasonable number of pages would you like us to collaborate in doing translations to other languages? Maybe it will be very hard to get 100% of meaning and intention translated but we can try. English, Chinese and Spanish could be a good combo to spread the word even more!
Kind regards.
Interesting idea Xavi. I'd be willing to translate to my home language.
mortymer,
concerning the IMF gold around 1999, my interpretation of the events is the following.
The gold market had been in a short squeeze since fall 1997, and the dollar faction desperately needed some physical gold to put into the market or some way of writing off some gold that had been leased and physically sold short into the market. So the Blair-Brown government came up with a pretext in order to dump a part of the IMF gold. They said they wanted debt relief for poor countries, and the CBs would not need their gold anymore, that barbaric relic, and so the CBs could sell that gold and give the money to the developing countries. Then, it turned out that Congress blocked the IMF gold sales (I don't know who was behind this, sometimes I think it came from Greenspan, he was definitely not 100% aligned with the $IMFS). And so Brown had to take part of the British gold instead.
Another pretext that was made up was the story about the gold sales by Switzerland. It was something about gold that the Nazis had stolen from the European Jews. Ferdinand Lips describes this in his book 'Gold Wars' - I don't find that book very remarkable, by the way.
Victor
I forgot to say the following: Some of the poor countries that would get debt relief, however, used to get much of their revenue from the gold mining industry and so had been suffering from low gold prices for several years. They pointed this out when Gordon Brown proposed gold sales to fund the debt relief. This shows that the idea of the debt relief was just a pretext for getting their hands on the gold.
Victor
@Airedale
Been there, done that.I give the book to my mother.She said she give up a 1/4 of the way through.
Too boring apparently.
My advice to FOFOA is, get some sporting or reality TV star(someone joe public can really look up to) and get them to read the post/letter on TV.
Also would agree with MF.Keep it short.Or the the response will be
http://www.youtube.com/watch?v=-pKv8SCoobE.
We will all love reading it, but the target audience is a different animal.
Regards
Ozzy
Victor, here is a comment about that time:
FOFOA: But according to Another's perspective at the time, it went something like this...
From 1983ish to 1993ish the gold market was maintained in a certain range ($300 to $500) using other people gold (not CB gold), and gold in the ground through the forward sales game. Remember, Barrick was created in 1983.
In 1993, (right after the Gulf War as Another says), we have the Larry Summers Gibson plan kick in on Aug. 5, 1993.
So we have a relatively wide trading range of $300 to $500 in the 1980's, which settles down to its median around $400 after Summers comes in.
Then in 1996 something happens. According to Another this is when additional pressure is put on "the deal" as some non-oil-producers get in on the action, but only on the dips. This causes renewed volatility and the gold managers take the price down just like they did last night, to show these "bulls" that they are buying a losing asset.
Big trader (one of the non-oil-producing giants) warns that if they take it below a certain level that they are going to have to greatly increase the paper volume just to maintain the facade of the paper market.
This happens.
Another then warns that this paper volume explosion is going to have to be followed by a commensurate physical volume. In other words, either the CB's will have to become primary suppliers or the whole charade will blow up.
18 months later Gordon Brown announces the BOE sale. But the actual movement of gold is spread out.
4 months later the POG is rising again and the GOFO is approaching backwardation. There is an incident about which Edward A. J. George, Governor of the Bank of England and a director of the BIS later wrote:
"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K."
This "event" was the only known case of backwardation in the gold market in a generation. It can be seen in this graph, about which Lance Lewis wrote:
"Some entity with physical gold bullion was willingly taking losses to induce bullion borrowing, even as prices rose."
This massive intervention (by the BOE?) in Sept. 1999 somehow managed to keep the trend under wraps for two more years, at which point gold resumed its rise to its current level.
Frank Veneroso's independent research of the CB gold actions during the mid-90's corroborates Another's story.
A 90% tax on gold is ridiculous for so many reasons.
First of all it will generate no revenue. Secondly, gold will simply move to the black market then exit the country for a nice profit for whoever is willing to subvert the law. They can't stop marijuana and other illicit drugs from entering the country, so how do they expect to shut down a black market for gold transactions? They will also have far more pressing matters to attend to, like riots and civil unrest across the entire country which will make Hurricane Katrina look like a trip to Disney World.
Furthermore, a 90% tax does nothing to re-establish confidence in a badly wounded or recently destroyed monetary system and currency. Presumably they will actually WANT to encourage confidence in the new fiat system.
This 90% tax nonsense was thought up by Karl Denninger over at the Market Ticker forum. I have argued with him at length on this subject, and he has no rational arguments except that Gov't won't allow the competition of gold vs. new fiat.
Well, if the MARKET and the PEOPLE embrace gold as a store of value, I don't think there's jack shit the broken and bankrupt Gov't can do about it even if they wanted to following a collapse.
And lastly, a lot of the politicians and power elites forming the new system will eventually have some of their wealth in gold before the collapse (if they don't already to a large degree). These people are not going to take kindly to a 90% tax after a bond/currency collapse.
Jeff,
There is an incident about which Edward A. J. George, Governor of the Bank of England and a director of the BIS later wrote:
Yes, this incident was the announcement of the Washington Agreement on Gold.
Victor
If I wanted to demonstrate the value of gold to someone, I would talk about something they understand. Most of us drive and have to buy gasoline. Quicky back of the envelope calculation (all numbers are close approximations):
"GOLD FOR DUMMIES"
March 2008
Oil $100
Gold $1000
Gas $1/litre
100L Gas $100 or 3 grams of gold
Today
Oil $100
Gold $1700
Gas $1.30/litre
100L Gas $130 or 2.4 grams gold
This demonstrates inflation and the errosion of purchasing power, AND that gold is doing much better than just presearving purchasing power
:D
keep it simple!
If I wanted to demonstrate the value of gold to someone, I would talk about something they understand. Most of us drive and have to buy gasoline. Quicky back of the envelope calculation (all numbers are close approximations):
"GOLD FOR DUMMIES"
March 2008
Oil $100
Gold $1000
Gas $1/litre
100L Gas $100 or 3 grams of gold
Today
Oil $100
Gold $1700
Gas $1.30/litre
100L Gas $130 or 2.4 grams gold
This demonstrates inflation and the errosion of purchasing power, AND that gold is doing much better than just presearving purchasing power
:D
keep it simple!
Gold and Silver Investing (For Dummies)
;-)
excuse me for repeating myself!!
yes and silver also Arron ;)
BTW Unknown I don't have only 10 measley ounces of gold, i have 14now :P
Perhaps a future ga-zillionaire?
=8o)
|> yes and silver also Arron ;)
Yes Wendy, silver too. But as we all know gold is for saving and silver is for?
And Wendy, it's Aaron -- with two As and one R. ;-)
--Aaron
This new laptop is a pain in the ass..... the keyboard sucks. My typing sucks at times but the keyboard sucks all the time "Aaron"
AND silver is for spending when gold doesn't trade...... at leasst that's my guess for now!
This is old news. Anyone has more info about this, was there a progress, decision, etc.?
"In the USA, due to section 9006 of the Patient Protection and Affordable Care Act, starting on 1 January 2012, IRS tax form 1099 will be required for all purchases of goods and services that exceed $600 per calendar year. This new reporting requirement will cover precious metals. As of July 2010, the bullion industry is fighting the regulation."
Good stuff on the severance from the nation/state. Also neat how he speaks on the idea that the Euro was built for an era where the market provided governance/regulation of fiscal imbalances amongst Euro countries. Like maybe Freegold, where the flow of gold is a natural regulator against market imbalances, a brake and spur on credit and fiscal excesses.
Speech by José Manuel González-Páramo, Member of the Executive Board of the ECB,
at the Oxford University European Affairs Society,
24 November 2011
"...in a monetary union fiscal and supervisory authorities have to adopt policies that counteract the emergence of private financial imbalances at the national level. This is a consequence of the ECB’s legal obligation to maintain price stability in the euro area – defined as an inflation rate of below, but close to, 2% over the medium term. Private debts denominated in euros cannot be ‘inflated away’.
Second, fiscal and other national macroeconomic policies have to ensure competitiveness by resisting increases in nominal trends. This is the implication of sharing an exchange rate; devaluation cannot be used as a tool for any one country to regain competitiveness. Benchmarking against other euro area countries is unavoidable.
Third, fiscal authorities have to build up sufficient buffers in good times to withstand adverse conditions. This follows from the prohibition on monetary financing which prevents the central bank from directly financing governments as well as the so-called ‘no bail out clause’ of the Treaty which prohibits a Member State to assume the liabilities of another Member State. The failure to build adequate fiscal buffers during times of economic growth means that during recessions governments are forced to implement fiscal policies that are more pro-cyclical than would otherwise be the case.
Some in this audience may respond that these policy requirements were evident to sharp-eyed observers. Indeed, the ECB had been making these points for many years.
[...]
The lack of an adequate regulatory and macro-prudential framework meant that in many economies the banking sector supported an unbalanced and unsustainable expansion of credit during the period of low interest rates. The financial sector also became over-leveraged and engaged in excessive risk taking. Although at the time many in the financial industry justified this with arguments about how financial engineering created possibilities for sophisticated risk diversification, a posteriori it has become evident that risk was seriously mispriced in the period before the crisis.
[..]
The institutional design of EMU gave market discipline a central role in economic governance. The absence of a transfer mechanism between Member States was supposed to encourage markets to actively discriminate between euro area issuers. This was based on the assumption that financial markets would always have perfect incentives to enforce the “rules of the game”.
[..]"
cont.
cont.
"The positive effects of the ECB’s policies are fairly obvious in the case of the banking sector. Our standard and non-standard measures ensure price stability in the euro area. While our standard measures signal the monetary policy stance, our non-standard measures ensure the transmission of the desired policy stance to the real economy in those market segments in which the transmission is impaired. Our non-standard measures ensure that despite increased liquidity demand, financial institutions are able to continue lending to clients.
However, misconceptions persist related to the Securities Markets Programme, our programme for intervening in government bond markets. The SMP deliberately addresses the appropriate transmission of our monetary policy to the real economy in market segments which are impaired. Government bonds are crucial for the transmission of monetary policy, via their status as a benchmark for borrowing by banks. Put simply, left unaddressed, the malfunctioning of sovereign bond markets’ could block the bank lending channel. An important difference with Quantitative Easing programmes is that the liquidity injected into the banking system via the SMP is sterilised by the ECB through regular liquidity absorbing operations.
The ECB has been widely recognised as an institution capable of timely, decisive and convincing action during tumultuous times. We see this as a mark of distinction. However, it would be erroneous to derive from this that it should be a political institution in charge of running the euro area economy. It cannot be and should not be. The ECB is a central bank, committed to its mandate to preserve price stability over the medium term. It is not the fiscal lender of last resort to sovereigns. Markets participants that call for the ECB to play this role may care only about the nominal value of their assets and the need to avoid losses. Whether or not the underlying asset – our currency as store of value – has been depreciated seems unimportant to them. But survey after survey shows that the people, the citizens of the euro area, want price stability. They care deeply about their purchasing power and the value of their savings. The ECB has been established with a clear mandate to meet these expectations.
Moreover, what these calls for more activism overlook is the positive effects of the ECB’s stance over the medium term. There are some in the academic world that argue that one way out of the sovereign crisis would be for the central bank to act as a lender of last resort to the sovereign. These voices suggest that euro area countries are more vulnerable to liquidity stresses relative to the situation in economies where the central bank is supposedly prepared to backstop the government bond market.
Certainly the ECB, as the central bank of all EMU countries jointly, cannot act as the central bank of specific countries. But is this in fact a disadvantage for Europe? In a sense, euro area countries have given up sovereignty over their national currency. This implies that maintaining their public debts at reasonable levels requires commensurately more convincing fiscal and economic policies. It also requires that they “tie their hands” in a credible manner through stronger and more automatic economic governance. The monetary financing prohibition, in this way, is a spur towards better policies and better governance – in other words, a closer economic union.
Obama Signs Law Repealing Business Tax Reporting Mandate
"President Barack Obama signed a bill repealing a tax-compliance mandate in last year’s health- care law, giving a victory to business groups that led a campaign against the requirement.
The repealed provision, under which companies would have had to report more transactions to the Internal Revenue Service, was included in the law as a revenue-raising measure. It was to have taken effect in 2012.
[...]
The tax reporting requirement, dubbed 1099 for the tax form it would have required, drew widespread criticism after Congress passed it last year.
Under the provision, businesses would have had to report transactions totaling at least $600 in a year paid to all businesses for goods and services. The repeal law returns such information reporting to its previous state, in which businesses must report only payments to unincorporated businesses for services.
Congress wrote the 1099 provision to combat tax evasion by businesses that underreport income. Business groups argued that the law created a paperwork burden for minimal benefit, and they lobbied for repeal.
Lawmakers in both parties agreed, and Obama endorsed changes to the 1099 provision in his State of the Union speech. "
My bad; further reading shows the link in my previous comment is probably bogus.
Post a Comment
Comments are set on moderate, so they may or may not get through.