Saturday, December 31, 2011

Happy New Year!

2012
Year of the Surprise


Google defines a surprise as an unexpected or astonishing event, fact, or thing. And I expect a few big ones in 2012.

There are many kinds of surprises. There are pleasant surprises and unpleasant surprises, but often the unpleasantness comes from being on the wrong side of an unexpected event. I'm sure that being a client of Bernie Madoff or MF Global was quite unpleasant.

This year I expect to see more surprises of the Madoff/MF Global variety. There will be market-driven surprises as well as planned surprises. In fact, I may even have a few planned surprises of my own. ;)

But one thing all surprises, by definition, have in common is that you can't see them coming. Or, if they are predictably inevitable, at least you can't know the timing. Someone recently sent me a whole bunch of evidence pointing to a pretty specific date at which, presumably, the wheels would be "allowed" to fall off the bus. My response was, "if you can pick a date, then you invalidate that date as a contender."

We are all looking for "information leakage" as to the criticality of the systemic pressure we just know must be building. We look to the contango, the curve, the spread, stock and flow to leak us a hint about what kind of scramble might be happening on the other side of the curtain. But when I look back on other big Ponzi-like collapses, there never was much if any "leakage" before the event.

I think there are a couple of reasons why this is the case. In the last days before a Ponzi-like collapse, redemptions, conversions and exchanges are usually settled in an outwardly normal fashion. In fact, it is often those closest to the collapsing structure, like clients and counterparties, who are most in denial in the final days because they are directly privy to the superficial normalcy of transactions taking place.

It is at the precise point that the immediacy of collapse becomes unequivocally apparent to the inside operator that the plug is pulled and the music stopped. Operators pull the plug on redemptions all at once in order to either make off with the remaining assets, distribute them to favored associates, or in some cases, to preserve as large a pool of assets as possible. So any true "leakage" would have to be something of which the operator himself wasn't aware.

That first reason why collapses happen by surprise relates to the uncontrolled or unplanned collapse of a Ponzi-like structure. The second reason covers planned and controlled collapses. Planned or controlled collapses also happen by surprise, because that's how you get the maximum "bang for your buck" so to speak. I wrote this back in July '09:

The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?

This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Here at FOFOA, we like to call it FREEGOLD!

Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."


A few days after I wrote that, John Rubino of dollarcollapse.com quoted me in a piece called A Tremendous Secret. In that piece he also included a historical romance novel excerpt about a surprise currency devaluation in 1560. Here's that bit from John's article:

The idea that we'll wake up one day to discover that the international monetary system has been "reset" and that our dollar/euro/yen savings have taken a huge hit (while the local currency value of our gold and silver soar) reminds me of an exchange in The Virgin's Lover, by Philippa Gregory (yes, I like historical romances). The year is 1560 and the young queen Elizabeth rules a country nearly bankrupted by a Spanish alliance that produced only war and debt. The English treasury has been systemically debasing its coins by clipping and shaving them, so that their face value vastly exceeds their gold content.

Elizabeth's advisors have decided that the monetary system needs to be reset, and have been importing borrowed gold. On the appointed day they intend to call in the circulating coins and replace them -- by weight rather than face value -- with newly-minted coins. This devaluation will transfer citizens' wealth to the government, impoverishing the former and enriching the latter. And if all goes as planned it will come as a surprise to most of the country.

But Elizabeth's lover, Sir Robert Dudley, learns of the plan and is not happy:

Elizabeth turned and smiled at him and took his hand and held it to her cheek. "My Robert."

"Tell me, my pretty love," Robert said quietly. "Why are you bringing in boatloads of Spanish gold from Antwerp, and how are you paying for it all?"

She gave a little gasp and the color went from her face, the smile from her eyes. "Oh," she said. "That."

"Yes," he replied evenly. "That. Don't you think you had better tell me what is going on?"

"How did you find out? It is supposed to be a great secret."

"Never mind," he said. "But I am sorry to learn that you still keep secrets from me, after your promises."

"I was going to tell you," she said at once. "It is just that Scotland has driven everything from my mind."

"I am sure," he sad coldly. "For if you had continued with your forgetfulness till the day that you called in the old coin and issued new, I would have been left with a small treasure room filled with dross, would I not? And left at a substantial loss, would I not? Was it your intention that I should suffer?"

Elizabeth flushed. "I didn't know you were storing small coin."

"I have lands; my tenants do not pay their rents in bullion, alas. I have trading debts which are paid in small coin. I have chests and chests of pennies and farthings. Do tell me what I may get for them?"

"A little more than their weight," she said in a very small voice.

"Not their face value?"

She shook her head in silence. "We are calling in the coins and issuing new," she said. "It is Gresham's plan -- you know of it yourself. We have to make the coins anew."

Robert let go of her hand and walked to the center of the room while she sat and watched him wondering what he would do. She realized that the sinking feeling in her belly was apprehension. For the first time in her life she was afraid what a man was thinking of her -- not for policy but for love.

"Robert, don't be angry with me. I didn't mean to disadvantage you," she said and heard the weakness in her own voice.

"I know," he said shortly. "It is partly that which amazes me. Did you not think that this would cost me money?"

She gasped. "I only thought it had to be a secret, a tremendous secret, or everyone will trade among themselves and the coins will be worse and worse regarded," she said quickly. "It is an awful thing, Robert, to know that people think that your very coins are next to worthless."

Reuters: 2012 to be year of "global reset" (03:21)



__________________________________________________________

Let the fun begin!

To kick off the Year of the Surprise, I am proud to announce my first very exciting surprise:

The return of the one and only… "Gold. Get you some." -- Aristotle!

I had to do an extensive Google search to locate Ari's last post. As far as I can tell it was on 1/31/05, almost seven years ago! But keep your eyes peeled. He will be right here very soon!

I know this will be a thrilling surprise to many of you, but for those who are less familiar with Ari, here are a few links to get you started:

Aristotle on Gold, Oil and Money in the Free Market 1999

On Building the perfect system – Banking, Fiat and Freegold 2000

On The Wealth Hierarchy 2000

On The evolution and confessions of an unrepentant Gold advocate 2000

On The Personal Gold Standard 2002

On The (in)significance of COMEX warehouse stocks 2002

On What's actually "good as Gold" (uhhhh... that would be GOLD, sir, and NOTHING else) 2002

On A Hard Look at 'True Money' 2003

__________________________________________________________

Let the party begin!

FOFOA Playlist #3

For the past two years I have included music at the bottom of some of my posts. And then, periodically, I like to gather my favorites into a playlist with links to the posts. Here is where you can find playlists #1 and #2. And now for #3:

Once Upon a Time

From Once Upon a Time in September, here's an amazingly seamless audio/video mash up medley, edited by DJ Victor Cheng, of the two biggest dance/pop hits from Information Society back in 1988: 'What's On Your Mind' and 'Walking Away'. Lead singer Kurt Harland, now 49, has been composing soundtracks for PlayStation and Xbox video games for the last decade and a half. 'What's On Your Mind' includes samples taken from two episodes of Star Trek:

"It's worked so far, but we're not out yet." -Leonard "Bones" McCoy




On Scary Corrections

From On Scary Corrections, also in September, here's 'Wake Me Up When September Ends' by Green Day. Pretty self-explanatory:




RPG Update #4

From RPG Update #4 in October, here's 'Tiny Dancer' from Almost Famous. Perhaps Freegold is almost famous. Perhaps not. You decide:

William Miller: "I have to go home."
Penny Lane: "You are home."




Moneyness

From Moneyness in November, here's 'How It Ends' by the Denver-based band DeVotchKa. DeVotchKa scored the 2006 Oscar-nominated film Little Miss Sunshine which included this song. Try the snowflake button since there are no pictures:

"…For all that you've done
For you and your children
No longer shall you need
You always wanted to believe
Just ask and you'll receive
Beyond your wildest dreams
And you already know
Yeah, you already know how this will end."




Unambiguous Wealth

From Unambiguous Wealth in December, here's 'Pretty Fly (For a White Guy)' by The Offspring from their aptly-named album Americana, followed by 'Little Acorns' from the (formerly) husband and wife team of Jack and Meg White called the White Stripes. The dollar can be a pretty fly store of value wannabe poser whenever Ben Bernanke's in the air, but if you wannabe truly prepared for the winter you need to be like the squirrel, taking little acorns, one at a time, back to your nest:






Unambiguous Wealth 2 – The MF Global Chronicles

From Unambiguous Wealth 2 – The MF Global Chronicles, also in December, here's a cover version of The Turtles' classic, 'Happy Together', by the rock group Filter. The debtors of the $IMFS are very happy together with the savers who enable their low-inflation fiat expansion by saving all excess production in fiat and debt:



Happy New Year to all of you and all the best in 2012... year of many surprises!

Sincerely,
FOFOA
__________________________________________________________

Update!

JR wrote such an awesome "year in review" comment I just had to add it to the post. Enjoy:

JR's Year in Review!

It's kinda hard to express how excited I am to know that Aristotle, a person to whose thoughts and ideas FOFOA has devoted much time, is choosing to share again. Wow.

2012 is gonna be some kinda year.

One of the reasons I expect lots of great stuff in 2012 is because of how amazing the Year of the RPG was. I know some are sorta disillusioned with that message, as they seem to think it meant Freegold was unfolding. But I saw it as the theme of the year, and what a theme it was!!!

The Year of the RPG brought us the 4-part RPG series:

Reference Point: Gold - Update #1
Reference Point: Gold - Update #2
Euro Gold
RPG Update #4

"On New Year's Eve I dubbed 2011 "Year of the RPG" in deference to Robert Zoellick's recent editorial in which he described gold as "a key reference point to allow people to assess the relations between different currencies." This description was so close to Freegold that Zoellick's FT editorial led us to an additional name, "Reference Point Gold" or Freegold-RPG.

Throughout the year I posted "RPG Updates" every time the ECB published its quarterly Consolidated Financial Statement for the Eurosystem in which it revalues the system's reserves to market value denominated in its own currency, the euro. Such "marked to market" (MTM) revaluation is an important first step in allowing gold to be "a key reference point to allow people to assess the relations between different currencies."


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

FOFOA set out some big, foundational ideas about RPG in Freegold Foundations and contrasted RPG with what we have today in How is that different from Freegold?

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

FOFOA discussed some evolving CB/nation attitudes about the role of RPG as an international reserve in Go Go South Korea.

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

FOFOA got into the importance of a stable global reference point for value via the concept of purchasing power parity in Reference Point Revolution!

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

FOFOA detailed some of the history with the reference point under Bretton Woods in The Long Road to Freegold and wonderfully expounded on this theme of international reference points with a wonderful discussion of the historical use of gold as an international reference point and the importance of RPG to establishing systemic stability and balance of payments through the brake and spur forces of price discovery in a flowing international physical gold marketplace in Once Upon a Time. This was a great continuation of the discussion of balance of payments in A Winner Takes the Gold.

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

There was also Indicium:

"In the video Partee said that he wanted the Gold Eagle coin as an "indicium of public attitudes toward financial conditions in the country" and that "you destroy that 'indicia value' when you have a gold standard." What do you think? Does this sound at all like Robert Zoellick's recommendation to use gold as a "reference point?""

In Open Letter to Ron Paul , FOFOA turned the lens on the US, contrasting the ECB's embrace of RPG and exploring the idea of the US revaluing its gold to market value - Ron Paul Gold?

And then in The Return to Honest Money, FOFOA dove deeply into the money concept and explored the commonality of the money concept, RPG and the ideas of those such as Mises, Menger, Hayek and others, explaining:

"Mises: No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which national governments try to isolate their countries from the rest of the world, gold is still used as money. It does not matter that governments confiscate the gold coins and bullion they can seize and punish those holding gold as felons. The language of bilateral clearing agreements by means of which governments are intent upon eliminating gold from international trade, avoids any reference to gold. But the turnovers performed on the ground of those agreements are calculated on gold prices. He who buys or sells on a foreign market calculates the advantages and disadvantages of such transactions in gold. In spite of the fact that a country has severed its local currency from any link with gold, its domestic structure of prices remains closely connected with gold and the gold prices of the world market.

Did you catch that? In his magnum opus, published in 1949, Ludwig von Mises described Reference Point: Gold, which is the underlying nature of a global marketplace that reveals where our monetary evolution is actually heading! "


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

And in the best Post of the Year as far as I am concerned, FOFOA grabbed the "money theme" embraced in Return to Honest Money and fully developed it in Moneyness, tying it all together nicely. IMO this is the post of 2011, and it's the culmination of most of the Year of the RPG posts I referenced above (who knew the MMT stuff was a sideshow to merely illustrate the main point):

Well, there you have it! The pure concept of money is our shared use of some thing as a reference point for expressing the relative value of all other things. Money is the referencing of the thing, not the thing itself. As FOA said, money is "a value stored in your head!" Money is not something you save. "Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities. This is the money concept, my friends."

But what does this have to do with me in 2011? I can almost hear you thinking this question now. Well, I'm going to share a secret with you. The big secret is that the people's money is simply credit. And by "the people's money," I mean our money, the real producing economy's money. The monetary base is only the banks' and governments' money, except for that little bit of cash you keep in your wallet for emergencies. Let me explain...


There's so many good 2011 posts on the RPG theme I didn't even mention them all, like Does Fiat Produce an Endless Sea of Wars?

And then there are ALL the other killer posts, such as the stuff on bullion banks and GLD like: Who is Draining GLD?, The View: A Classic Bank Run, Reply to Bron, and Via Email.

And who can forget Uncle Costata's tale to the brave silver warriors in Costata's Silver Open Forum and Costata's Silver Open Forum - Part 2.

Or the Bitcoin discussion and FOFOA's debut on Twitter!

And perhaps most of all, outside of the RPG/Money concept theme, we had a killer discussion of everybody's favorite debate over hyperinflation/deflation in Big Gap in Understanding Weakens Deflationist Argument and Deflation or Hyperinflation?

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

So what Posts did I miss? And more importantly, what was your favorite Post from RPG and why?

Happy New Year to all!

177 comments:

mr pinnion said...

Happy new year FOFOA!

Regards
Ozzy

jc said...

Happy new year everyone, 2012!

78Rubies said...

Happy & prosperous new year 2012!

Dante_Eu said...

Happy New Year everyone! It will certainly be interesting year! :-)

J said...

Looking forward to having you here Ari!

Happy New Year all

Dr. Peter T said...

Ari back to help us, and Free Gold all in the same year! 2012, I love you!!

Xavi said...

Happy New Year FOFOA and the rest of the crew!

Timing is very tricky! 2011 was going to be "the year of the RPG" and now 2012 looks like the one with the big surprises. I look forward to keep reading such long and interesting essays about Gold!

Thank you all.

Winters said...

We live in interesting times.

May 2012 find us on the right side of the surprise!

Drewski said...

Happy Freegold Year! Our time approaches; for the benefit of humanity. Thanks for all you do and share FOFOA and crew!

Aquilus said...

Allright! Aristotle - get you some!

FOFOA, thank you very very much for all your work and guidance.

The same to all the contributors who make the discussion part suchn an intellectually stimulating place to be.

Happy New Year everyone.

ampmfix said...

Thank you FOFOA for another year full of delightful posts!

Happy new year and health to all.

marc said...

A happy and healthy New Year to you, FOFOA, and all the regulars. I have read this blog since its inception, but have never felt capable of a useful contribution or question, other than a gesture to our beloved host. Thanks for the knowledge you so freely share, in such a civil manner, and the influence it has had.
With best regards to you all, from somewhere south of the Murray in Costataland.
Marc

JR said...

Its kinda hard to express how excited I am to know that Aristotle, a person to whose thoughts and ideas FOFOA has devoted much time, is choosing to share again. Wow.

2012 is gonna be some kinda year.

JR said...

One of the reasons I expect lots of great stuff in 2012 is because of how amazing the Year of the RPG was. I know some are sorta disillusioned with that message, as they seem to think it meant Freegold was unfolding. But I saw it as the theme of the year, and what a theme it was!!!

The Year of the RPG brought us the 4-part RPG series:

Reference Point: Gold - Update #1
Reference Point: Gold - Update #2
Euro Gold
RPG Update #4

"On New Year's Eve I dubbed 2011 "Year of the RPG" in deference to Robert Zoellick's recent editorial in which he described gold as "a key reference point to allow people to assess the relations between different currencies." This description was so close to Freegold that Zoellick's FT editorial led us to an additional name, "Reference Point Gold" or Freegold-RPG.

Throughout the year I posted "RPG Updates" every time the ECB published its quarterly Consolidated Financial Statement for the Eurosystem in which it revalues the system's reserves to market value denominated in its own currency, the euro. Such "marked to market" (MTM) revaluation is an important first step in allowing gold to be "a key reference point to allow people to assess the relations between different currencies."


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

FOFOA set out some big, foundational ideas about RPG in Freegold Foundations and contrasted RPG with what we have today in How is that different from Freegold?

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

FOFOA discussed some evolving CB/nation attitudes about the role of RPG as an international reserve Go Go South Korea.

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

FOFOA got into the importance of a stable global reference point for value via the concept of purchasing power parity in Reference Point Revolution!

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

FOFOA detailed some of the history with the reference point under Bretton Woods in The Long Road to Freegold and wonderfully expounded on this theme of international reference points with a wonderful discussion of the historical use of gold as an international reference point and the importance of RPG to establishing systemic stability and balance of payments through the brake and spur forces of price discovery in a flowing international physical gold marketplace in Once Upon a Time. This was a great continuation of the discussion of balance of payments in A Winner Takes the Gold.

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

There was also Indicium:

"In the video Partee said that he wanted the Gold Eagle coin as an "indicium of public attitudes toward financial conditions in the country" and that "you destroy that 'indicia value' when you have a gold standard." What do you think? Does this sound at all like Robert Zoellick's recommendation to use gold as a "reference point?""

cont.

JR said...

cont.

In Open Letter to Ron Paul , FOFOA turned the lens on the US, contrasting the ECB's embrace of RPG and exploring the idea of the US revaluing its gold to market value - Ron Paul Gold?

And then in The Return to Honest Money, FOFOA dove deeply into the money concept and explored the commonality of the money concept, RPG and the ideas of those such as Mises, Menger, Hayek and others, explaining:

"Mises: No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which national governments try to isolate their countries from the rest of the world, gold is still used as money. It does not matter that governments confiscate the gold coins and bullion they can seize and punish those holding gold as felons. The language of bilateral clearing agreements by means of which governments are intent upon eliminating gold from international trade, avoids any reference to gold. But the turnovers performed on the ground of those agreements are calculated on gold prices. He who buys or sells on a foreign market calculates the advantages and disadvantages of such transactions in gold. In spite of the fact that a country has severed its local currency from any link with gold, its domestic structure of prices remains closely connected with gold and the gold prices of the world market.

Did you catch that? In his magnum opus, published in 1949, Ludwig von Mises described Reference Point: Gold, which is the underlying nature of a global marketplace that reveals where our monetary evolution is actually heading! "


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

And in the best Post of the Year as far as I am concerned, FOFOA grabbed the "money theme" embraced in Return to Honest Money and fully developed it Moneyness, tying it all together nicely. IMO this is the post of 2011, and its the culmination of most of the Year of the RPG posts I referenced above (who knew the MMT stuff was a sideshow to merely illustrate the main point):

Well, there you have it! The pure concept of money is our shared use of some thing as a reference point for expressing the relative value of all other things. Money is the referencing of the thing, not the thing itself. As FOA said, money is "a value stored in your head!" Money is not something you save. "Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities. This is the money concept, my friends."

But what does this have to do with me in 2011? I can almost hear you thinking this question now. Well, I'm going to share a secret with you. The big secret is that the people's money is simply credit. And by "the people's money," I mean our money, the real producing economy's money. The monetary base is only the banks' and governments' money, except for that little bit of cash you keep in your wallet for emergencies. Let me explain...

JR said...

There's so many good 2001 posts on the RPG theme I didn't even mention them all, like Does Fiat Produce an Endless Sea of Wars?

And then there are ALL the other killer posts, such as the stuff on bullion banks and GLD like: Who is Draining GLD?, The View: A Classic Bank Run, Reply to Bron, and Via Email.

And who can forget Uncle Costata's tale to the brave silver warriors in Costata's Silver Open Forum and Costata's Silver Open Forum - Part 2.

Or the Bitcoin discussion and FOFOA's debut on Twitter!

And perhaps most of all, outside of the RPG/Money concept theme, we had a killer discussion of everybody's favorite debate over hyperinflation/deflation in Big Gap in Understanding Weakens Deflationist Argument and Deflation or Hyperinflation?

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

So what Posts did I miss? And more importantly, what was your favorite Post from RPG and why?

Happy New Year to all!

Dante_Eu said...

Thanks for that JR!

Amazing, everytime I think that all there is to say about Freegold has been said, FOFOA writes even better article.

I also have hard time believing that FOFOA is only 1 person...it has to be a group..:-)

My favorite two posts from 2011: "Deflation or Hyperinflation" and "The Return to Honest Money".

Nickelsaver said...

FOFOA,

Love the theme for 2012.

Here's to being prepared for all surprises.

Cheers & Happy New Year!!

Biju said...

100 ton Gold smuggled to UAE ?
Anyone believe this ?

http://www.thenational.ae/news/uae-news/plot-to-smuggle-5bn-gold-thwarted

Dave Simone said...

Happy New Year, all. As for surprises, I'm surprised every time I become convinced that the wheels are coming off the USD express...and then nothing happens!

But surely things can't get much wobblier without a major dislocation.

If a squirrel gathers acorns, what does a shrimp gather?

Thanks FOFOA and all the regulars. You are doing great work!

Cheers,
Dave Simone

costata said...

Happy New Year to FOFOA and to all.

The mighty JR provides a timely reminder of the depth and quality of FOFOA's posts throughout 2011. The foundation for 2012.

Welcome to Aristotle, breaking his long silence to share his insights with us once again.

I would like to thank all of the contributors to the comments for making this one of the best forums for discussion in the blogosphere. And a special thank you to those who make the effort to search far and wide for news, information and insightful analysis to inform our discussions.

I would also like to thank everyone for their kind words about my attempts to illuminate the matters we discuss here.

Cheers

Victory said...

RPG runs Bartertown

JR, Texan, …et al,

U guys are great, thanks for allowing me to walk with you all along the G-trail. Just to be clear as to my purpose in posting on this forum – I’m trying to get closer to that AH HA! moment of clarity (satori) – that those of you who have mapped this trail before have helped others to find.

I’ve had ah ha moments in the past and that’s why I keep coming back and why I contribute my measly donations when I can (sorry FOFOA). Maybe that moment will never come but the journey up to now has been well worth the travel.

JR, I read your comments over a few times to let them sink in. Texan, your comments made me think and laugh, double bonus!

So if the ECB enters the LBMA and releases the Freegold Kraken, then it really doesn’t matter how much gold they manage to buy in the process; really they have enough already (the eurozone) to facilitate their purpose - which is to settle today’s credit obligations denominated in euro central or commercial bank credit and to keep said euro currency stable…ah ha!

Texan was being funny but yea that’s pretty much how it could go down. Greece for example will pay down it’s unsustainable euro credit obligations by selling some of its newly revalued gold into the market to those ‘oh sh1t savers’ and that’s the clearing mechanism right there.

Same goes for the US eventually, who will embrace Freegold not because it wants to but because it has to (fortunately for us US citizens we have the means to, thank you Ft Knox thank you West Point).

And perhaps the best part for the USG - because of the way the Fed/Treasury is structured the Treasury technically doesn’t have to sell it’s gold in order to get the equity needed to settle its dollar credit obligations. Wha ya se?

Let met elaborate – they will have to sell some, but only at the margin, enough to make a market (enough to keep it 2 legit 2 quit like the ECB) – they won’t have to sell all or most of their gold because when the revaluation comes (when the revolution comes) The treasury will issue Gold Certificates to the Fed in exchange for the Trillions of new nominal equity that’s been created. So the Fed’s current Gold Certs valued at 42$/ounce jump to say $10-$100,000/ounce and the Treasury receives newly issued federal reserve credits in return - just like they did back in 1933.

Maybe the market starts off at $10,000 and over time according to the currency's management/mismanagement moves higher (or more appropriately our trade (im)balance). Instead of talking about raising the debt ceiling every year like we do now, during the transition period we can be talking about this years gold revaluation so that the treasury can get some additional credits to clear its book. This is probably the closest thing the Treasury will come to debt-free money, no interest, the ultimate ZIRP, nice! Although once the market clearing price is found and RPG runs Bartertown perhaps will see some longer-term price stability.

Actually Texan mentioned the fact that the ECB’s gold is really that of its member states who donated it to fund the euro project at inception - the club dues or anti if you will. So post-revaluation the ECB could do something similar to the Fed/UST and credit each Sov’s CB/Finance Ministry with new euro credits to cover their respective gold contribution to the ECB’s balance sheet. But I’ll leave those nuances up to FOFOA to flush out, which he probably has in a post(s) that I’ve missed, hehe!

Anyway let me end by saying don’t let the paper boyz shake you out or keep you from getting in. For those of you familiar with phase analysis, speaking in a medium term time-frame context it looks to me like we are completing stage 3(mark-down), entering stage 1((re)accumulation), soon to be back in stage 2(mark-up) and let the good times roll. Wash-rinse-repeat, aka the managed gold revaluation/dollar devaluation, just like by design. For everyone’s sake lets hope things can remain orderly.

Happy New Year to all and remember you are the resistance!

-v

Texan said...

Victory,

Your scenario (and JRs) is entirely plausible, but it's unlikely. Too many known unknowns for the status quo, not to mention the unknown unknowns.

Also, who benefits from RPG? Pre RPG gold holders. Some Indians, some Chinese, maybe some Arab families, some "old money" types, some "John Paulson" types.....and that's about it.

Do you think the holders of trillions upon trillions of "paper wealth" have the slightest interest in having their " wealth" disappear? Or in furtively picking up a few bars here and there over tme to try and "switch"? It's impossible. China even said as much not two weeks ago.

No one wants a transition, because no one knows what would happen, and those who would engineer the transition would probably be hurting themselves in doing so. . Of course the transition can still happen ( many here would say " will happen"), but if so I don't think it will be planned.

I don't want a transition. I am perfectly happy with a kind
of "slow leak" of paper into gold. Maybe a sort ofequilibrium can be reached without a drastic geopolitical reordering or outright currency collapse. I have a feeling collapses really suck for everyone. Not the kind of surprise I am hoping for, ever.

Michael said...

Thanks to FOFOA and especially to those commentators who often make the 'fuzzy' smooth and the obtuse a bit more focused....
...when did you say that surprise was coming......?

matrixsentry said...

Thanks FOFOA and Happy New Year! Also, big thanks to JR for your "RPG year in review." I have taken that review and condensed all the posts into a single PDF file, a standard font version that will work great on laptops or iPads and a larger font version that will work better on a Kindle. They can be found here.

I am eagerly looking forward to 2012, the year of surprises. The first one, and it is a big one, the return of Aristotle! Wow! What a way to start the year.

Cheers everyone!

Polly Metallic said...

Best Wishes to FOFOA for a Golden year in 2012.

May everyone here enjoy a new year of health,wealth and happiness.

Wendy said...

Thank you DP, happy new year to you. Happy new year FOFOA, costata, JR, the vics, mortymer, texan, MF, J, Michael, Jeff, edwardo, aquilus, ampm and to all the commenters and contributors I've failed to mention. I even saw satya awhile back here.

It's only 8:30 pm here in PST, so I had better get back to the fondue table before someone notices ;)

All the best to everyone for the surprises of 2012!!

K said...

FOFOA (JR and others) thanks for the great info this year, I've probably read a 100hrs worth of material from Another, FOA, and FOFOA. My eyes have been opened.

I have a couple questions...

1. My inlaws are fairly wealthy and certainly risk averse, as in gold would scare them, "its probably at its height and we want safe cash, T-Bill, and dividend stocks" (I know you're laughing right now). I know those are all part of a diversified portfolio but they are still all fiat paper... My father in law is a "normalcy bias" kind of guy and doesn't want to think about any crisis ahead as it would not be good for his business. Trust me, I know how dumb it sounds to bury your head in the sand and not planning for anything... I haven't had the Freegold chat with him yet and where I think it's headed... I figured I needed to be somewhat competent before I had that discussion... But my question and I'm sure a lot of other people are thinking the same thing... What is the best way to ease these people into this ie, what are the best posts to have them read first... It is probably best to let the reading explain.

JR it would be very much appreciated if you could give me any insight. Others are welcome also, I just know JR is the historian here on FOFOA's site!

Question 2: If the historical ration between gold and silver is 16, why wouldn't silver move with gold? Gold wasn't being manipulated back a thousand years ago, I don't think... Why would it be so much different after the mkt manipulation ends?

Question 3: Where can I find all of Aristotle's writings? I've read the majority of Another and FOFOA but wasn't sure if he had an archive as well.

Thanks ALL. This is a terrific site with terrific information. Have a great New Year!

costata said...

Hi Texan,

You wrote:
I don't want a transition. I am perfectly happy with a kind
of "slow leak" of paper into gold. Maybe a sort of equilibrium can be reached without a drastic geopolitical reordering or outright currency collapse. I have a feeling collapses really suck for everyone. Not the kind of surprise I am hoping for, ever.


A lot of us want this too or something very similar to what you describe. Hence the "can kicking" by the PTB. I hope they can engineer a gradual transition but my reading of history doesn't offer any reason to be confident that they will succeed. I don't think this process can be managed to such a fine degree.


Hi Wendy,

Happy New Year to you and your family. All the best for 2012.

Michael said...

K
rather than Freegold I would suggest Aftershock or another book by the Weidemers or their coauthor (help me here FOFOA I believe he was one of the ones that got you started). First the realization that the bills cannot be paid must come. All else follows easily especially to a businessman. Once that fact is confronted then much else follows. Good luck...many refuse or just can't understand the betrayal.

cyclecooler said...

Thanks FOFOA. Happy New Year to you!

I thought this apt.

Train - Drops of Jupiter.

Now that she’s back in the atmosphere With drops of Jupiter in her hair, hey, hey, hey, hey

She acts like summer and walks like rain Reminds me that there’s time to change, hey, hey, hey, hey

Since the return from her stay on the moon She listens like spring and she talks like June, hey, hey, hey, hey hey, hey, hey, hey

Tell me did you sail across the sun
Did you make it to the milky way to see the lights all faded
And that heaven is overrated

But tell me, did you fall for a shooting star One without a permanent scar And did you miss me while you were looking for yourself out there

Now that she’s back from that soul vacation Tracing her way through the constellation, hey, hey, hey
mmmm.....She checks out Mozart while she does tae-bo Reminds me that there’s room to grow, hey, hey, hey, hey
yea...

www.youtube.com/watch?v=7Xf-Lesrkuc&ob=av3e

Year of the surprise!!

PaulE

J said...

India is looking to free-gold imports

MUMBAI -

In a move that could rein in prevailing high prices for gold jewellery, India's commerce ministry is mulling over a proposal to free the import of gold doré As of now, imports of gold doré are only undertaken by India's central bank, the Reserve Bank of India (RBI) and its nominated agen. ts.

Bullion market specialists say India does not have a well laid out definition of ‘doré', which is an alloy of gold and silver, usually made at the mining site and transported to a refinery for further purification.

India's Finance Bill 2011 had said doré with up to 80% gold content could be imported through nominated agencies, but under strict conditions and a complex tax structure. All of this has ensured that less doré comes into the country, said analysts.

Harmesh Arora of the Mumbai-based National Indian Bullion Refinery, said it was imperative to free up imports completely. ``The government should allow direct import of doré without technical hindrances. It is also important to allow import of doré up to 95% gold content as against the current 80% limit,'' Arora said.

Keeping this in mind and taking a call on the many representations that the commerce ministry has received over the last six months, a proposal to free gold alloy imports has been forwarded to the department of economic affairs in the finance ministry.

The Centre for Monitoring Indian Economy has estimated that India's consumption of gold will surge 50% to 1,200 tonnes a year by 2020. But the country produced and refined only a minuscule 2.46 tonnes in 2008-09, the last period for which data is available, although there are moves afoot to resurrect the old Kolar Goldfields mines and the area around them..

India's gold imports have climbed to the second slot, just after crude, in the overall imports basket. Despite gold prices hovering around $548 per 10 gram for the better part of October and November and a resultant fall in demand for gold jewellery, imports of the yellow metal stood at a record $ 40.339 billion during April to November 2011.

The World Gold Council has noted that the surge was maintained despite the Indian government's decision to raise import duty on gold to $5.62 per 10 grams from $3.75 in 2010-11.

Though India produces just 0.5% of its annual gold consumption, the number of refineries have grown. There are some 25 gold refineries in India and most of them are operating at between 25% and 30% of their installed capacity as against between 35% and 40% around the same time last year, due to a scarcity of scrap.

"Used gold sales have declined steadily in the last one year as consumers are holding on to their gold jewellery in anticipation of higher prices. Total recycled gold supply plunged to 89 tonnes in 2010 as compared to 122 tonnes in 2009. Refineries can rely only on used gold from domestic sources for melting into coins and bars,'' said Prithviraj Kothari, of the Bombay Bullion Association.

Added K N Mistry of the State Trading Corporation,``The availability of raw material is a major issue. To a large extent, gold refiners have to depend mostly on scrap, which is not available readily for use.''

Referring to China which boosted its gold refining business after it gave companies a single window clearance along with fiscal and infrastructure incentives, Mistry said China produces and refines around 320 tonnes of gold annually, which is the highest in the world.

Incidentally, though India's gold imports fell 20% to 200 tonnes during the July to September quarter, imports of the yellow metal were up 11% at 753 tonnes in the first nine months of 2011. Moreover, gold imports in the October to December quarter are set to exceed the 281 metric tonnes recorded last year.

India considering freeing gold doré imports

Michael H said...

comments ...

Nickelsaver said...

What is the significance of typing

comments...

as a comment on the post?

Dante_Eu said...

That picture on the top of the post reminds me of Soundgarden's Black Hole Sun: :-)

Black Hole Sun

78Rubies said...

@nickelsaver: it's just to say "I have nothing to add" while subscribing to the comment stream via email. ;)

Yannick said...

The governor of the French central bank, Noyer:
"In ten years, the euro may be the first global currency"

http://translate.google.fr/translate?sl=fr&tl=en&js=n&prev=_t&hl=fr&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fwww.latribune.fr%2Factualites%2Feconomie%2Funion-europeenne%2F20120101trib000674764%2Fnoyer-dans-dix-ans-l-euro-sera-peut-etre-la-premiere-devise-mondiale.html&act=url

Somebody knows something :)

Nickelsaver said...

Ok. I'm fairly new to the world of Blog.

How do you subscribe to the comment stream? Currently I only get notifications in my email when FOFOA creates new posts.

One Bad Adder said...

Happy New Year FOFOA and all hereabouts.
Ari's return will be a welcome and timely addition.

KindofBlue said...

FOFOA et al,

Economist Michael Hudson speaking at the 2011 ABMC offers some keen insights into the history of money and debt.
(video in 4 parts -- in the 4th segment you get to hear how and why he fired Alan Greenspan!)

http://www.youtube.com/watch?v=2AAwHYoRh64&feature=mfu_in_order&list=UL

Hudson speaks right away to the disaster of the introduction of silver coinage in Japan (and later, gold) and of having grain debts (taxes) denominated in silver, but payable in grain. Easy to understand, silver was scarce and appreciating relative to grain thereby causing an unsustainable rise in their grain debt. He then goes on to discuss various historical examples of regular debt jubilee's for debts that can't be paid. All well and good.

What's interesting is that while acknowledging and understanding the problems of commodity money and un-payable debts, he never suggests what medium one might save in to preserve future purchasing power. Is his point that excess wealth creation should not be saved at all? Seems unlikely. Jubilee is great for the debtor, but what of the saver?

Thoughts?

/SleepingVillage/ said...

Thank you all for everything you do here. The sharing of knowledge and wisdom has been the greatest gift I've received, the education... priceless.

Happy new year:)

FOFOA - Keep turning music into gold

Jaqship said...

Happy new year to FOFOA and all!

78Rubies said...

@Nickelsaver: you gotta have a gmail account. You use it to authenticate yourself.

HowTo: type in the comment, click preview. Login with your google account, option to subscribe by email appears below the textarea. Select the checkbox and then click publish your comment. Done. ;)

Nickelsaver said...

Oh, I see, didn't notice that b4

TYVM

costata said...

Spain

This could get interesting if Spain can remain in surplus on their current (trade) account. One month's figures out of ten don't offer any assurance but this could be a turning point. A few snippets below.

http://www.reuters.com/article/2011/12/30/spain-prices-idUSL6E7NU0A020111230

h/t Dollar Collapse

MADRID, DEC 30 - Spanish EU-harmonised inflation eased much more than expected in December to its lowest level in 13 months, while current account figures offered a rare sign of hope for its struggling economy, moving into surplus for the first time in 13 years.

Spain's current account registered a surplus of 456.2 million euros ($589 million) in October versus a deficit of 2.66 billion euros in the same month a year earlier, the Bank of Spain said.

The current account tipped in to surplus for the first time since August 1998, mainly due to a services surplus prompted by improvement in the tourist industry and a primary income surplus -- the difference between money paid abroad and money received.

The euro zone debt crisis has virtually closed international debt markets to Spanish banks and companies, cutting the level of debt payments they make to non-Spanish lenders.

The services surplus rose to 3.81 billion euros from 2.82 billion euros a year earlier and the primary income balance showed a surplus of 1.23 billion euros from a deficit of 1.01 billion euros last year.


Something else to keep in mind about the Spanish banking system. Most of those RE loans never left their books. The process of dividing the good from the bad has been underway for over two years. There is no MERS and other complications to get in the way. That opens the way for a Swedish-style solution down the track.

http://en.wikipedia.org/wiki/Bad_bank

Carve out a "bad" bank and put its loan book into runoff and recovery mode. Costs are paired back to a minimum because no new loans are being originated by the bad bank. Then drip feed the foreclosed property into the market. Looking at this from the outside a combination of banks' loan books into a bad bank might be portrayed by the press as a losing move.

But this stops the competition among banks to liquidate the foreclosed property. In effect you have one (or only a few) competing vendors. Assume for a moment that the weakest hands have already been shaken out of the market and you could see signs of the RE market stabilizing quite quickly.

Texan said...

Costata, you need to go see the " properties" in question before you make that kind of blanket statement. I think you would be shocked.

I bet the bulk of the defaulted debt is probably developer loans and I doubt much infrastructure is built, much less actual units. It will be worth pennies on the dollar. And it's probably carried on the books near par.

That is the reason there is no bad-bank split for the cajas;
there isn't enough "good bank" to split out. there is also a very real problem with trying to sell this property, and it's the same as why 2011 saw far few foreclosure sales in the US than expected. It depresses prices like crazy for all property and incents big- time considerations of so-called strategic default. Especially developers.

Mish has had a couple of articles recently on just how bad it is in Spain from a tax and social perspective. My guess is that the trade surplus is a result of a cratering in overall economic activity.

Texan said...

Just as one example, pull up articles on CAM. Caja Ahorros de Medittaraneo. It sold for 1 euro last month, and that was AFTER the government agreed to inject 5bn+ euros in fresh capital. I think it was one of the top cajas. Even then, no "name" bank was interested in bidding apparently.

Aaron said...

This is rather a non-sequitur, but Ari, I can't thank you enough in advance for rejoining the conversation -- I think we can all agree you have a unique perspective. ;-)

First, I'm sure you can appreciate why those of us with abosolute, pinpoint, foreknowledge could never possibly be permitted to share such information about the bear/bull transformation date and time of day on a public forum. Here's a hint though--you already missed the turn. (It was cleverly hiding behind BoE sales.

Just tonight I have reread many of your posts from years ago (linked to by FOFOA above) and revisiting some of your gems from 2000 I am continually reminded of how much I have yet to learn.


Simply put, the world works like this: We all have needs to sustain our life, and we therefore all must endeavor from cradle to grave in the satisfaction of life's requirements. Wealth, you see, is anything that can be utilized in meeting our needs to sustain our lives.

Wisdom and experience show that some wealth assets are more reliable and universal. Some are so reliable, and so universal we actually give very little thought to counting them amoung our assets. Take oxygen. Most of us as we walk down the street give this nary a thought. We are oxygen rich! If you don't believe me, just think of what you'd say upon hearing of a scuba diver who ran out of air while exploring some underwater cave. "Poor bastard." At least, that's what I'd surely say.

So, unless we anticipate scuba diving, very few of us take any effort to mindfully or aggressively gather for later use the real wealth of oxygen. And to any primative, or to a resurrected ancient who had no concept of scuba diving, we would surely look like the perfect fool bottling air in preparation for the event.

To keep this short, let me come to the point. We have basic material needs of food, clothing, and shelter. Access to energy could be also be included in the list. To have more than you need for satisfying the immediate demands for survival is to be wealthy. To come up short in the ability to satisfy any one vital need quickly reveals you to be another "poor bastard" in the eyes of the impartial gravediggers.

Fotunately, from the earliest times of our ancestors we have discovered that we don't all need to be meticulous wealth planners like the modern scuba diver, Mt. Everest climbers, or astronauts taking a ride to the moon. We can generally blunder our way through day to day and year to year in the comfortable fact of life that, through the open market--through the ability to trade with others--we can generally obtain what we materially need in one facet in exchange for some of our own wealth in another facet.

Ari, welcome home.

Happy New Year to all!


--Aaron

costata said...

Hi Texan,

What "blanket statement" are you referring to?

Also you wrote:
My guess is that the trade surplus is a result of a cratering in overall economic activity.

As that article states:
The euro zone debt crisis has virtually closed international debt markets to Spanish banks and companies, cutting the level of debt payments they make to non-Spanish lenders.

So there is no conflict with your guess. But that doesn't alter the fact that if Spain can move solidly into trade surplus it's need to import capital ceases.

The Spanish banking regulators have been forcing mergers and writedowns for two years. It doesn't matter if every caja is stuffed into a bad bank. It's a way of insulating the viable parts of the banking system from the non-viable. Like I said it's an option for a work out "down the track" since they know where the paperwork is and who has title.

And yes Spanish taxpayers may be forced to wear the losses. Screw the taxpayer is a very popular game at present.

Texan said...

Sorry, the blanket statement refers to RE loans and RE market stabilization.. They aren't housing units, they are real estate developer loans. The biggest part of the problem is not mortgages in Spain; its bankrupt builders.

And they have almost $200 billion of these that are called "troubled". These are going to be near total losses, not to mention that probably some of the developers who haven't defaulted, will default. And the losses haven't been taken yet.. And this is just for the cajas. Imagine the knock on effects to the rest of the economy. Also take a look at the fiscal deficit, as all this construction tax money disappears (
especially in the autonomous regions - lower property tax and collapse in transfer taxes - against massive public
works projects that were undertaken in anticipation of major growth).

I really recommend you read the first few CAM articles you find on Google. Reuters and Bloomberg provide some good
info on the whole situation. Spain's problems are a classic RE over- expansion, but it's primarily over- expansion in
tourist property and the problem loans are most likely for uncompleted or even never started projects. So it's not a "housing bust". There is that too of course, but it's not the
primary problem.

Given that this debt has to be wriiten down, and that fiscally their deficit keeps expanding, I don't see that a trade surplus is gong to help Spain. They need hundreds and hundreds of billions of new capital, or there will be tremendous defaults.

costata said...

Texan,

If they don't need to import capital the defaults will be internal.

mortymer said...

@Ari: Was one of the main reasons for You to return posting the fact that CB became official net buyers? or else?
@all: greetings and late wishes.
@all: a bit late present
(a bit of editing 4U)
http://revisiting-gordon-brown-bottom.blogspot.com/2011/11/browns-bottom-by-pgas-unofficial-story.html

golden Tube said...

would be good to watch ALL 5 in the series videos...

Presenting The Exchange Stabilization Fund In 5 Parts: Is This The Real "Plunge Protection Team"?

Fed & bankers not so bad after all??
you make up your mind, essential viewing.....

http://www.zerohedge.com/news/presenting-exchange-stabilization-fund-5-parts-real-plunge-protection-team

golden Tube said...

and a rebuttle of the same

http://dont-tread-on.me/?p=4587

Texan said...

Costata,

I am not sure what you mean by that. In CAM's case alone, the ECB has lent them about 8 billion euros. I don't know where the caja debt is held,, but yes probably most of it is domestic. But it isn't held by other cajas, so healthy Spanish institutions are over time going to experience these losses.

But as I understand it, Spain uses something called the FROB to absorb these losses. The FROB is funded by the banking system, I think it's sort of like the FDIC.

Now obviously there isn't going to be enough capital available from the healthy banks to pay for all these losses, (and if you think about it, the whole scheme runs contrary to hiving off the bad banks so as not to infect the good banks), so what is Spain going to do? As ZH noted this morning, their deficit target just got revised from 6% to 8% of GDP, and will likely be revised higher still. Are they going to take the losses on- budget?

Austerity is not working. Being part of the euro is not working. Spain has 23% unemployment. It cannot adjust.

zenscreamer said...

Happy New Year to FOFOA and all the happy comment-ers!

I'm enjoying reading the Aristotle links -- the Patio Furniture and Coffee Beans vignettes are particularly delightful. I'm looking forward to what's next!

tripper said...
This comment has been removed by the author.
Nickelsaver said...

Watched the 5 ESF videos and read the rebuttal.

In the end, it really is an argument of semantics; ESF, CIA, FED, UST, USG, IMF.

The series does a great job of tying all the major conspiracies together and focusing the blame on a identifiable entity the ESF, as if it could be distinguished from the circular entities, FED/CIA/UST. A little surprised JE Hoover and FBI were not tied in as well.

It really doesn't matter.

The underlying cause is irrelevant to the status quo. Unless you believe that somehow the elimination of the ESF will free up the FED and UST to act differently. Ha.

Innocence and faithfulness are the virtues held by whom?

Victory said...

Just watched the ESF videos as well, thanks for the link.

Wow that was a lot!

Probably the first time I've heard the case made for foreign use of the dollar via the drug trade as a significant factor in keeping inflation in the US from getting out of hand. (laundering dollars out of Americas and then keeping these oversees dollars from coming home to roost.) Interesting

enough said...

CME Motives Confirmed:

http://barnhardt.biz/


On Cascading Counterparty Risk & Economic Treason:

http://thevictoryreport.org/2012/01/01/on-cascading-counterparty-risk-economic-treason/

costata said...

Texan,

Re: Spain

You wrote:
It cannot adjust.

As that article states:
The euro zone debt crisis has virtually closed international debt markets to Spanish banks and companies, cutting the level of debt payments they make to non-Spanish lenders.

The adjustment doesn't need to be confined to the banking system. Justice might demand that it is but justice is a little thin on the ground at present.

Adjust they will. One way or another.

Texan said...

Costata, we will see. I don't think the peripheral populations will tolerate this for much longer. But you're right, they might.

costata said...

The UK is looking very interesting right about now.

Interesting comparison of the relative indebtedness of the UK compared to the G10.

http://www.debtdeflation.com/blogs/2011/12/31/debt-britannia/

...Morgan Stanley, using rather more research resources than I can bring to bear, published a chart of national indebtedness in which the UK was right at the top—with a staggering 950% private debt to GDP ratio, and a financial sector debt ratio alone of over 600%.

And Mervyn King of BOE fame sees a shortage of money.

Incidentally Merv and Ben Bernanke shared an office when they were academics at one of the ivy league universities in the USA. I wonder what they talked about around the water cooler. Perhaps Ben's favourite topic - the Great Depression - and his grand plan to make sure the Fed never "causes" one again by starving the economy of FRNs.

One Bad Adder said...

Costata:-

...and therein lies the rub - the deflationary impact of a fractional reserve regime past it's use-by-date ie: "ultimately never enough money" ...and the hyper-inflationary ability to "create" same out of thin air.

The "trick" it seems is to do the latter whilst at the same time ensuring Joe "keeps the faith" for as long as possible.

Wendy said...

Thank you mortymer, serendipitous so say the least.

Kinda wondered why the Rothschild's don't really stand out in your timeline. Do you not think they had a signifiant contribution to the events unfolding?

I sense there's a big peice missing, although I'm not sure where to look for it??

c'est la vie :D

Wendy said...

oops forgot to say merry xmas AND happy new year to oldinvestor ..... see what happens when you're 51? You forget stuff ;)

Aiionwatha's Nation said...

That is precisely what I can never wrap my head around. The system is terminal from birth yet adopted world wide. By choice?

In a fractional reserve credit money system the losses are incurred when the credit is granted, but at the same time you have a system that needs to be continually expanding credit meaning the losses will never get realized until the transmission mechanism has completely fizzled out (lent against the collateral so many times that it is impossible to have faith in the value of the debt or its cash equivalent).

Bank loan books are a true joke, Spain, Germany, China, USA, Japan, Britain (watch out) etc, etc. Deficit reduction is a big plus post RPG. But that isn't even the real problem its the order of magnitude of the derivatives market which keeps the music playing by inducing buyers at prices which produce completely negative irr's at the margin. What would be the timeline for something like this to reverse course? Rockets, bursting dams, and nuclear explosion all come to mind.

So the Fed's job is to facilitate a completely false pricing paradigm and send false market signals because they can't effectively transmit credit demand to value enhancing projects without completely collapsing their own house of cards.

So they tighten the release valve shut and increase the pressure simultaneously. This means more crappy investments and eventually leaves everyone but those who are able to cash their tickets in the back room out of sight without a pot to piss in. And I suppose a few others.

Did the European Banks have no choice in letting their banks set nosebleed leverage standards? Shouldn't they have known better?

Should be an interesting year.

FOFOA, I liked every post but I thought the return to honest money was my favorite. My hope for 2012 is that the changes that lie ahead will help the world move forward on a sustainable and "freely" guided path with the USA's full Bill of Rights back in tact. Asking a lot. I look forward to all of your insight ahead and everyone who comments here. Your thoughts are far more appealing than what has historically taken place in times like these. Happy New Year.

Nickelsaver said...

FOFOA,

I just wanted to say. I don't think I have a favorite post as of yet. I have only been following you since late October. I try to go back a little each day, sometimes it takes me a few days just to consume a single post, do to my time constraints.

That being said, the one that I will say is how much I admire your ability to convey the same concepts over and over in newer and fresher ways. This is an art form.

I was just reading Defending the Precious and found myself contemplating the words you said...

"I remember this song from church as a little kid. It went something like, "This little light of mine, I'm gonna let it shine…" This is how I try to live my life. I lead only by example. I may not send my family and friends to my blog, but I am not shy about sharing the peace of mind that gold has brought me after leaving the stress of stock marketing my savings. And I suspect that each of us has a light inside that is worth sharing with others."

I too have a light. I have seen your light, and I am drawn to it. And the funny thing is, the more I look at it the more I see my own light more clearly.

I have much to learn, but I have much to share as well.

mortymer said...

This BoE report is being discussed in CB cycles:

http://anotherfreegoldblog.blogspot.com/2012/01/boe-reform-of-international-monetary.html

orig.:
http://www.bankofengland.co.uk/publications/fsr/fs_paper13.pdf

One Bad Adder said...

Aiionwathas Nation :

http://stockcharts.com/h-sc/ui?s=$TYX:$IRX&p=D&b=5&g=0&id=p58451744768

"should be an interesting year"
...assaou ;-) ...and sooner rather than later I'm guessing.

From the above general info Chart, ie: 578 3mo Yields getting you a 30Yr yield - clearly "faith" in the future is in serious jeopardy.

Once that skittle falls, (happening NOW!) we can then (and ONLY then) look for cracks in "faith-in-Fiat" to manifest itself ...imho.

Motley Fool said...

Happy new year everyone. :)

Hmm, post for 2011 eh?

Moneyness, Deflation and Hyperinflation, and The Return to Honest Money, would be my 3 favourites, in that order.

Greetings to Aristotle. I am looking forward to your further contributions.

Peace

TF

Yannick said...

"The president of the Swiss National Bank (SNB) is under fire after his wife was accused of profiting from the central bank's decision to depress the value of the Swiss franc."

Ha!

victorthecleaner said...

The ECB directorate has two new members commencing in January 2012: Jorg Asmussen (Germany) and Benoit Coeure (France). Both come from the respective ministries of finance, but not from their national CBs.

The politicians seizing power in the ECB ??

Victor

Jeff said...

If you want physical gold, why not buy the LME? Because...

LONDON, Jan 3 (Reuters) - Top bank stakeholders of the London Metal Exchange are likely to amass enough support to block a sale they fear would bring a more heavily regulated owner and hurt their lucrative warehousing businesses, senior industry sources say.

http://af.reuters.com/article/metalsNews/idAFL6E8C31MD20120103?pageNumber=2&virtualBrandChannel=0&sp=true

Flore said...

Well.. happy new year from the guys at goudforum.com
We have a common source of knowledge.... we are walking this trail together..

victorthecleaner said...

Jeff,

If you want physical gold, why not buy the LME? Because...

because the LME trades only industrial metals.

Victor

ephemeral_reality said...

happy new year to FOFOA and all the readers :)

cheers.

Victory said...

...just a little thought experiment


So much of monetary theory presently taught in academia centers around the risk free rate and how Rf is either LIBOR or some longer duration Treasury security depending on the time horizon in question. (it's almost as if the US can't default because is they did finance text books would no longer make sense)

My question is this: post FREEGOLD (aka, RPG runs Bartertown) what is the new risk free rate?


1. (PoG_1 - PoG_0) / PoG_0


or


2. GOFO on a Swap agreement. I lend you cash, you give me Gold as collateral and pay me interest. Rf being the interest you pay me on my cash loan; which for me is risk free because if you don't give me back my cash I don’t give you back your Gold.

Kind of random thought but I was just wondering?

victorthecleaner said...

Victory,

GOFO on a Swap agreement.

I like this thought. You need to make sure though that this is a repurchase agreement, i.e. that the title to the gold is transferred for the loan period (as you rightly say). Otherwise you could create paper gold again.

By the way, those parts of finance that depend on the risk free rate (Modern Portfolio Theory etc) were not to be taken 100% seriously even irrespectively of freegold.

Victor

ephemeral_reality said...

comments...

Aaron said...

I was digging around the archives tonight and stumbled across this gem from Aristotle back in 2000. Questions like, "Can and/or will gold still be lent in RPG/Freegold?" come up at FOFOA from time to time and it seems to me as Victor points out -- something also implicit in Aristotle's response below -- some folks will certainly choose to loan their gold for profit. After all, there is nothing to stop a gold owner from trying to earn a profit by loaning one of his assets for productive use by his neighbor -- and why should there be? Would it not be worthy to loan your tractor to your neighbor for a small return from his crops?

But using Aristotle's anaolgy below, what would you do if the person your loaned your prized asset to -- say the beautiful Donkerford you purchased last year (or perhaps your gold), took it to the drag races and in a wicked stroke of bad luck accidentally fish-tailed out of control flipping your Donkerford a dozen times over before slamming it into a cement wall?

Aristotle (2/12/2000; 16:59:58MDT - Msg ID:25173)
RossL, your question --(Msg ID:25073)

"How do you prevent gold from being lent? What if I, in a private transaction, lend 1 ounce fine gold to my neighbor for improvements to his house. He then pays me back 1.1 ounces fine gold at a later date. This is a voluntary contract to all persons involved. What law have I broken? Where is the victim?"

I had a very nice reply typed up for you, but switching to another application crashed my computer's operating system so I lost the fragile work which had been residing in a notepad window. Dang!

Here's the short and sweet version, because my patience is temporarily in short supply, courtesy of this recently lost effort. I can't emphasize enough that my commentary set out to describe the "perfect" monetary System for an IMPERFECT world. (Please note the use of quote marks and the description of the world in which we live.) I am not about to pinch individual freedoms, so in truth, I would like to say that anything goes, and the "perfection" of the system will have to accomodate a living world. However, with this tiniest adjustment regarding institutional lending, we will arrive at a whole new reality, and new personal perceptions will rule the day. We will finally have a system that is better than any other that has come along--with Gold at the foundation if it comforts you to think of it that way. In that day, everyone will gain a firsthand and intimate appreciation for Gresham's law.

Getting to your question, I would not anticipate any formal restrictions against such personal activity--no different than we have today regarding the lending of $5 from your wallet to a brother or friend, or the lending of your wheelbarrow or car. However, if you put yourself in the context of that future day where institutional lending has been halted such that the Gold market may finally reveal its true value, you would likely say to your friend seeking the loan, "What do you need the loan for? To pay for something? Here, let me lend you the dollars you need instead." That way your Gold stays safe and sound. Do you lend him your car when he wants to chase a hot stock tip? I don't think so! Personal Gold loans won't likely be a big problem, but then again, you be the judge.

Seeing the trouncing that Gold's market value has taken at the hands of lending operations and derivatives, Gold advocates should welcome this termination. It's Gresham's law that assures us that they won't rush to spend their Gold, choosing to save it and spend their dollars instead. To be certain, Gresham's law is not enforceable under penalty of punishment by society. But like the Law of Gravity, it commands a reliable respect and predictability.

ORO--I will get to your comments later.

Gold. Get you some. ---Aristotle

Aaron said...

Further down in the same conversation:

USAGOLD (2/12/2000; 17:56:22MDT - Msg ID:25180)

Aristotle...

Paper money in and of itself is not an evil. As you have tried to point out repeatedly in post after post over the past year or so, it is its misuses that must be brought to account. At the same time, handing over a piece paper (perhaps representing gold) can facilitate day to day transactions without the imposition of moving this heavy metal around (a state of affairs those who own it fully understand.) The problem comes when we trust a government in the management of this asset as part of the national treasury. We have repeatedly run into problems in this regard during the 20th century and that is why so many mistrust any paper representation of gold let alone fiat paper -- not realizing that the two circulated successfully side by side for decades both here and abroad.

On a related issue, there was a well known goldmeister economist years ago (I wish I could recall his name) who made a surprising comment during hearings on a whether or not we should return to a gold standard. His attitude was who cares if the money is backed by gold as long as we can own yellow metal as free citizens. As long as we can do that, we can put ourselves on the gold standard when we feel it necessary and renounce government paper at will-- another point you have made repeatedly. At the time, I was surprised at this economists' maverick viewpoint for a gold advocate, but nevertheless could see the wisdom of it. The real crux of the matter is ownership. As the old saying goes "He who owns the gold makes the rules" -- an admonition that I would suggest be hung in big, bold letters on bullion bank trading room walls all over the world. (They tend to forget as we have seen in recent weeks.) If enough people at any given time convert to gold (and perhaps that is the motivation behind all the machinations against gold we have witnessed just in my lifeteime, let alone the rest of the 20th century), there can be no doubt the message trying to find its way to Washington and Wall Street.

Don't worry, my friend. No one here questions where your heart is. The gold standard is an extraordinarily complex issue, especially for we Americans who are so far immersed in the paper money game that its difficult to see a way out (though I think it can be done.)

Victory said...

VTC,

'By the way, those parts of finance that depend on the risk free rate (Modern Portfolio Theory etc) were not to be taken 100% seriously even irrespectively of freegold.'

...tru dat, but still not as ridiculous as random walk/efficient market theorem, hehe!

-v

Nickelsaver said...

In a freegold system, why would anyone ever want to lend physical? If gold is pricing the currency at a known reference point, you would simply convert it. Unless I am missing the point that RPG would discourage CB's from mis-managing their currencies to avoid trade imbalance. And even if they did, one could draw up a loan agreement stipulating the gold value plus interest. Isn't that the point, that Freegold makes the fiat honest? Gold is to save; fiat to spend And lend.

costata said...

Nickelsaver,

Correct.

Cheers

costata said...

FWIW I think the claim in this headline is reasonable. Singapore is a bellwether. (Not the only one of course).

Singapore’s Contraction Tests Resilience of Asia to Europe Crisis: Economy

http://www.bloomberg.com/news/2012-01-03/singapore-gdp-shrinks-for-second-time-in-three-quarters-on-manufacturing.html

Nickelsaver said...

“People will still flock to the U.S. dollar as risk remains and uncertainty lingers. There is little to be cheery about for the Singapore economy.”

redefining the "Singapore Sling"

:-)

costata said...

Great post by Gregor Macdonald writing for Chris Martenson's site (so part 2 is subscription only).

As I discuss in Part II, the United States is also becoming swept up in the globalization of food production, as it remains a titan of commodities exports, on an absolute basis.

But the hunger for US food exports has implications for our own population, which struggles with falling (real) wages and depressed purchasing power.

Will Americans be able to afford to pay what the world can afford to pay, for food?


Now there's a good question.

http://www.zerohedge.com/news/guest-post-punch-mouth-food-price-volatility-hits-world

And here's a link to a post on Gregor's own site discussing the impact of changing rainfall patterns and related matters.

http://gregor.us/china/studies-in-causality-precipitation-deficit-in-the-pearl-river-delta/

Land use matters.

J said...

Update on Venezuela:

Venezuela will leave 15 tons of gold reserves in banks outside the country, Central Bank president Nelson Merentes said today.

Venezuela held about 211 tons of its gold in Europe, Canada and Switzerland before it started repatriating the reserves last year, Merentes said on national radio.

“It wasn’t necessary to have that much gold abroad for financial transactions,” Merentes said. “We’re going to keep bringing it back. Soon we will have the majority of our reserves in the Central Bank vault.”

President Hugo Chavez ordered the Central Bank to repatriate $11 billion of gold in August as a safeguard against instability in financial markets. The country received the first shipment of repatriated gold on Nov. 25.

The country has a total of 365 tons of gold reserves, Merentes said.

Venezuela to Leave 15 Tons of its Gold Reserves in Foreign Banks

Nickelsaver said...

Speaking of Singapore...

Citigroup Sues Hedge Fund Manager in Singapore Over Gold Losses http://t.co/BQS3GGQM

J said...

I thought about posting that as well Nickel but figured I post enough random stuff up here so I left it.

This caught my attention

"He incurred a further $1.03 million loss as the bank prematurely liquidated the account instead of waiting for 24 hours after the account reached the force-sell level"

Victory said...

Nickelsaver,

post FREEGOLD, gold is to valuable to lend, we are on the same page.

In that Gold Swap Agreement example I posted it is currency that is being lent, Gold is just posted as collateral for the currency loan.

Gold in this example is so valuable in fact that the owner of the Gold, who needs currency for whatever reason (lets say to finance short-term receivables or something) doesn't even want to sell his Gold for cash and then try to buy it back later.

So instead he posts it as collateral so he can get a really good interest rate on the cash he borrows. He of course has every intention of paying the borrowed cash back and getting back his Gold.

VTC brought up a good technical point I thought about the title to collateral via repo but the overall concept is the same.

This could become a pretty big deal as major players look for better and better collateral in the repo market which is huge.

If Gold is increasingly posted as collateral in the repo market then the next logical step is for those receiving the Gold as collateral to start scrutinizing the kind of title held on said collateral. If I'm big money and I'm taking Gold collateral I want to make sure it is 100% unencumbered/that you have clean unambiguous ownership. This means no unallocated BB accounts.

This could lead to a natural market evolution stressing and ultimately breaking the fractional reserve BB method of Gold allocation that is holding back FREEGOLD.

...just thinking

Nickelsaver said...

I'm confused. What do you mean by the term "post" FREEGOLD?

Do you mean after FREEGOLD or in FREEGOLD?

If we are in a FREEGOLD economy, there would be no stress about acquiring Gold in return. If there were, we would not truly be in a FREEGOLD economy because gold would not be freely interchangeable with currency at the known reference point.

I think you are embedding a Keynesian mindset into what will ultimately be a departure from such thought.

Now the prospect of a post (after) FREEGOLD system, that is an interesting thought. One which I have pondered - seeing as how FREEGOLD will strip power from those hungry for it. Food for all kinds of futuristic conspiracy theories.

Michael H said...

Jeff,

"If you want physical gold, why not buy the LME? Because..."

As VtC said, because the LME does not sell gold. For further commentary, see Bron's blog:
http://goldchat.blogspot.com/2010/06/truth-there-is-zero-gold-in-lmes-vaults.html

Motley Fool said...

Victory

hum. Gold as collateral is a no-no. At least when it matters, and comes to court.

Or at least it will be under that futuristic fantastic freegold. :P

TF

victorthecleaner said...

costata,

a few weeks ago, I posted a few comments about the new long term repo facility of the ECB.

John Hussman's most recent article has a paragraph on this that is worth reading:

http://www.hussman.net/wmc/wmc120103.htm

Victor

Victory said...

Hi MF,

That's not the way I'm seeing it. FREEGOLD is a market based solution, hence the word ‘free.’

I don't want the courts telling us what we can and can't use as collateral and I don't think they will. At least I hope not because that would be contrary to the free market/personal liberty/private property rights foundation of our great nation.

I also don't see gold being used as collateral as mutually exclusive to FREEGOLD. They can co-exist just fine.

What is mutually exclusive is fractional reserve gold banking (aka. paper gold). There is a big difference between the two.

The repo market isn't going anywhere and it could in fact be a friend to FREEGOLD. It could in fact help usher in FREEGOLD.

Because if the repo market starts making a clear distinction between good collateral (gold held in title unambiguously) and bad collateral (unallocated paper gold) it would be one more stress on the back of the paper gold system. It brings us one step closer to a run on the paper gold bank (unleash the FREEGOLD Kraken.)

And it would be the free market doing this, it’s the sharks eating the sharks. It's the giants.

The writing is already on the wall, last year JPM started accepting gold as collateral this WSJ article is from Feb 2011 and here’s snippet:

‘Gold hasn't reinvented itself as a currency yet. But it is getting closer. J.P. Morgan Chase & Co. said it will allow clients to use the metal as collateral in some transactions. For example, a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere, betting on making a better return. Typically, banks accept only Treasury bonds and stocks in such agreements.’

JPM Accepts Gold Collateral

If you can post your home as collateral for a loan then you should certainly be allowed to post your gold. Do you really want the government telling two consenting adults what personal property they can and cannot use as collateral? I don’t

I think what is ok is for one private citizen/business to say to another private citizen/business: listen I’ll lend you cash at this interest rate for this amount of time and if you give me gold as collateral I’ll give you a better rate, but listen I’m not taking any unallocated BB deposit – you gotta have the real deal brother. Agreed?

This was a great article I thought on Gold’s potential to play an increasingly important role in the repo market

Gold in the Repo Market


FREEGOLD/RPG runs Bartertown

-v

Motley Fool said...

Victory

"I also don't see gold being used as collateral as mutually exclusive to FREEGOLD. They can co-exist just fine.

What is mutually exclusive is fractional reserve gold banking (aka. paper gold). There is a big difference between the two."

I am confident that as you learn more and reflect more you will come to realize that the former transforms into the latter given time.

JPM did that as a way to get at physical gold. ;)

The problem is not agreements freely made, the problem is agreements freely broken. :)

TF

Dr. Octagon said...

Once the gold-as-collateral loan is created, who owns the gold? The borrower, or the lender? This is the road to fractional-reserve banking of gold.

This comment from Aristotle, provided in FOFOA's original article seems appropriate: "Gold must also be removed from any element of the monetary system that would seek to make loans using Gold because, as we've seen, these confound Gold's ability to reach its true physical-based fair market value. Gold derivatives must also be done away with for the same reason. Gold must remain a pure monetary asset, bought and sold and owned outright--nothing else would be allowable."

Victory said...

MF,

"JPM did that as a way to get at physical gold. ;)"

Yea you could say that, but you're also missing the point I'm making.

The point is what kind of gold, and you just said it - physical gold. They won't/shouldn't be doing it to get unallocated paper gold.

I'm saying that if/when the repo market starts making a distinction between the two - then then that's when the repo market becomes a friend to FREEGOLD

-v

Motley Fool said...

Dr. Octagon

Yup.

Victory

I did not miss that point. However from them it is simply a strategic maneuver so that when shit meets fan, they are legally allowed to take the phyzz. They have no incentive in the meanwhile to distinguish between paper and physical, since that would impact their eventual grab. Hence I do not ascribe to your implicit postured theory in that regard.


TF

Victory said...

Hi Dr. Octagon,

In the scenario I'm talking about it's not a gold loan in the sense you are thinking of.

The party who is holding the pledged collateral (the gold) cannot then go on to sell/lend/re-pledge this same gold collateral.

When the cash loan is due the collateral is returned unless of course the borrowed cash is not repaid at which point this would be no different than a plain old vanilla cash for gold sale.

-v

Motley Fool said...

Victory

I get your scenario. I get that it is technically feasible. I am simply pointing out that it is a slippery slope.

I will reiterate my initial commentary :

I am confident that as you learn more and reflect more you will come to realize that the former transforms into the latter given time.

Peace

TF

DP said...

[cough]pawnbrokers[/cough]

DP said...

[cough]GELOC[/cough]

Dr. Octagon said...

Victory - you said "When the cash loan is due the collateral is returned unless of course the borrowed cash is not repaid at which point this would be no different than a plain old vanilla cash for gold sale."

So the bank loans out the cash, and takes physical possession of the gold. What do they do with it while the loan is outstanding? Do you think banks will just keep it in a vault somewhere? This is not what banks do.

Here's another take - if someone has savings in the form of gold, and they need money, what's the advantage of getting a loan and putting up the gold as collateral, compared to simply selling the gold? If they go the route of a loan, then they have to pay interest to the bank on top of the value of the gold, in order to get their gold back later. If they simply sell, then they get the same amount of cash as the bank would have provided, but once they no longer need the cash, they can just buy gold again on the open market for the same amount they originally sold at, assuming stable prices. No interest.

This is not the same as an asset-backed loan like a house or a car. In these cases, the person is taking out the loan to purchase something that they will use today, in exchange for a percentage of future earnings. They get to use the asset while paying off the loan. Since we don't have a similar need to use gold like this, a gold-collateral loan is not comparable to other asset-backed loans.

Nickelsaver said...

Thankfully unencumbered by FRB mindset in favor of PPP

Possession
Possession
Possession!!

JR said...

"But debt itself is not the cause of our problems today. Today we have a situation where the vast majority of excess production value (excess capital) is enabling massive amounts of global malinvestment through new debt creation. That has peaked and is now contracting. But the problem is not the debt itself. The problem is the enabling effect of excess capital not having a viable alternative that floats against the currency. The problem is the lack of the adjustment mechanism of Freegold. There is no viable counterbalance against uncontrolled debt growth today. So we are only left with credit collapse and hyperinflation of the monetary base to clear the malinvestment from the system.

It is easy to blame this on debt as a principle, but unless you don't mind being wrong, there are some deeper explanations out there. Debt under Freegold will not reach such destructive levels. "Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.
________________________________________________________
Sidebar:

For more about why FRB and time deposit maturity transformation are not the root of the problem—the root is simply the lending of the monetary reserve, a problem that would still exist even with Rothbard's 100% reserve banking—please see my Reply to Bron. Here's a short excerpt:

** Spending Gold into the marketplace, whether by the owner or by a borrower, would tend to result in prices "that weigh more"--cost more Gold, that is.

** As ever more Gold is borrowed out of other people's savings to be spent into the economy, the Gold's purchasing power is lessened from what it otherwise would be...hurting those who have elected to hold their Gold instead of risking it by lending it out as a source of income.

[notice in the above that we have all the bad devaluation effects without a single bank entering the equation!]

** For Gold to find its truest value, all savers must retain their Gold for their own use. Its properly retained value will more than make up for the foregone interest income. Gold must not be lent! [Gresham's law alone is adequate to achieve this.]

The Return to Honest Money

JR said...

One of the major problems faced by past hard money planners was that any time real wealth, gold, is denominated as credit money, it always placed the relationship between the rule of law and the rule of gold at odds. If our laws defined gold as official money, and lent it, then by association the law had to define a portion of gold that did not exist in circulation. That portion was the contract asset held as bank savings. Yet, a person's claims against it identified said gold as real. This was and is an inherent contradiction because no law can define the value of real wealth held in contract.

This particular fiat form of hard money owed its existence upon a continuous function of the economy. What the above means is that you cannot take something real and lend it over and over, as banks do when lending fiat, and still demand that the law recognize said contract moneys as hard legal tender.

I would state that no form of lent gold be recognizable or enforceable in the court of law as a legal tender contract. One may borrow gold, relend it, or even borrow against it, but that gold would not be valid in the payment of all debts both public or private. It could not, by law be legal tender. This is not to say the trading of gold would not somewhat supplant currency in function. It could and most likely would to a degree, but it would no longer carry a credit quality that fiat would in the form of a time function. Indeed, in our modern economic structure, a credit time function is very valuable and gives digital contract currencies their demand.

To deal in the future,,,,, to borrow,,,,, to capitalize would require the use of a fiat function. Gold could / would be a final trade; I'll give you ten cars (or gold) for your house,,, deal done. If I want more time to pay, I and we must engage a fiat loan."


FOA

Michael H said...

My favorite post of 2011: Deflation or Hyperinflation?

That post lays out the entire case for USD hyperinflation in such a way that I would be surprised if FOFOA returns to the topic except for periodic 'where are we now' updates. In fact, if FOFOA writes a few more posts like that one he may write himself out of a job!

The imminent return of Aristotle is great news.

sean said...

My I also add my voice to those welcoming Aristotle, and to FOFOA on another fine year of blogging.

"...the most significant element of the Washington Agreement is seen to be NOT the amount of pre-announced gold sales, but rather, the self-imposed curb on gold lending operations by these European central banks."
Randy (@ The Tower) (04/17/01; 13:37:02MT - usagold.com msg#: 52046)
See quote collected on http://fofoa.blogspot.com/2010/11/foa-on-currency-styling-currency.html

"Keeping gold out of the fiat arena would be more simple than many hard school advocates envision. The key to that is found in the implementation of international law. The leading economic countries (EuroZone in the future) would have but to establish a protocol that forbid the enforcement of collateral attachment anytime physical gold is traded, lent or involved in a trade. In this context, no banker would lend you gold to buy a house if, in a default, he could not claim your house in a court of law. Even private parties would never lend gold if the asset behind the loan could not be claimed for nonpayment. It's that simple. With a stroke of written law, the trading of gold as wealth would become a final payment with no possible credit implications. Our official fiats and wealth without a country would never again function as one." FOA

sean said...

Also, someone was asking about the gold-silver ratio - my favourite bête noire, and here is my favourite comment on it: "Speculators should remember that the GSR is merely a ratio of two prices often driven by different forces. It has limited, if any, predictive power".

enough said...

Ann Barnhardt:

living on borrowed time


http://www.financialsense.com/financial-sense-newshour/guest-expert/2012/01/04/ann-barnhardt/financial-house-of-cards

costata said...

VTC,

Thanks for the Hussman link. His thoughts are always worth reading.

Cheers

enough said...

Swiss central banker dumped francs on eve of devaluation

http://www.google.com/hostednews/ap/article/ALeqM5jq0lw-tfNgrfg1ICuikmx99Iwhuw?docId=37ef26d8307244e8ade0993096b1a01d

JR said...

de·mon·e·tize/dēˈmäniˌtīz/
Verb: Deprive (a coin or precious metal) of its status as money.


FOA from above:

"One of the major problems faced by past hard money planners was that any time real wealth, gold, is denominated as credit money, it always placed the relationship between the rule of law and the rule of gold at odds. If our laws defined gold as official money, and lent it, then by association the law had to define a portion of gold that did not exist in circulation. That portion was the contract asset held as bank savings. Yet, a person's claims against it identified said gold as real. This was and is an inherent contradiction because no law can define the value of real wealth held in contract....I would state that no form of lent gold be recognizable or enforceable in the court of law as a legal tender contract... It could not, by law be legal tender"

Those worried about law v. market ushering Freegold, share this perspective to cure the semantic confusion in mind. To monetize gold is for the state to tell the value of gold, to say their paper is as good as gold. Gold is being demonetized, which means the absence of the state telling us what gold is worth. Its the absence of state action - the state "not making" gold legal tender.

From sean's FOA link above, its the EuroZone not doing something by not sanctioning the monetization of gold: "The leading economic countries (EuroZone in the future) would have but to establish a protocol that forbid the enforcement of collateral attachment anytime physical gold is traded, lent or involved in a trade."

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

"...we are not headed backward in time, we are moving forward. And what is ahead of us is the continued use of fiat money as our global medium of exchange and debt, but a separate, "demonetized" wealth reserve.

People have trouble with the idea of DEmonetized gold. But I think that understanding WHY I use this term is the key to understanding the separation of the monetary roles, and how it is literally something so new that it has not been seen since before gold was first coined by governments and bankers.
This is why the "men's suit" valuation will not hold in the future. Nor will any valuation that does not refer all the way back to certainly before the Renaissance, and maybe even before Rome."

http://fofoa.blogspot.com/2010/02/greece-is-word.html?showComment=1266967116575#c3887748903186445522

"Gold can still be held as a wealth reserve by the money-diluting collective, but it will automatically offset any profligacy by rising in price as money is weighed down through printing. Gold will be truly demonetized. We are almost there. All that is left is for gold to break the chains of the dollar, the Fed, and its proxies like Goldman Sachs and JP Morgan."

http://fofoa.blogspot.com/2009/10/your-own-personal-freegold.html

Interesting he refers to centuries (plural), because the demonetization of gold into a wealth reserve role is a change on that time scale

http://fofoa.blogspot.com/2010/03/gold-man-not-goldman-at-bis.html

The marked to market concept for gold held as a central bank reserve asset essentially demonetizes that gold. It moves it from the money side of the equation to the value judge side. It is a statement that the gold is now a true wealth reserve. That gold is what prices money! This is the essence of Freegold and the ECB is the leader in this regard.

By keeping its book value locked in the 1970's, the US is clinging to an artifact of the past. It is denying the present reality that gold has been demonetized.

http://fofoa.blogspot.com/2009/09/end-of-currency.html?showComment=1252355774728#c6058105625499229297

JR said...

"Interesting paper. Papers (discussions) of that type were not uncommon at the end of the 1960s and early 70s. And they almost got it right! The thought was, if we just demonetize gold and let all the currencies float, the adjustment mechanism for imbalances will become gradual and automatic.

But something was missing. What was missing was a true independent benchmark against which the free market could judge the floatation of the currencies.
As it turned out, the U.S. dollar became that benchmark for the next 40 years. But why did that happen? What did they do wrong?

At the time it was thought that the demonetization of gold simply meant casting it out of the monetary system into the world of everyday commodity trading. But there were a few problems with that view. The first was that more than half the world, including the giants and central banks, refused to accept this new perspective on gold. They still wanted it, kept it and demanded it.

The second was that gold, if it was going to be a commodity like any other, had to have its price controlled to keep the fiat currencies functioning. Currencies function because they can buy necessary commodities. And if a commodity starts rising in price too quickly, it will be hoarded as a store of value rather than sold to producers in the market. This is as bad for the function (and value) of a currency that needs to be able to buy commodities as it is bad for the economy that needs the flow of commodities in order to thrive.

This is why CBs and governments resist the hoarding of commodities as a store of value in any way they can.
And it is why, in 1980, the Hunt brothers were crushed by the system operators.

Theoretically, your paper had it almost right. It said, "With fixed [currency exchange] rates [which you had in the gold standard], [gold] reserves move from one country to another [flowing and accumulating in one direction, out from the US Treasury and into the rest of the world], and the needed adjustments in resource allocation at home and abroad are long delayed [and result in economically painful crises, like 1933 and 1971]."

But over the last 40 years we have witnessed the same thing. (Physical) gold has flowed and accumulated in one direction, from West to East, and now we are facing another crisis in a string of economically painful adjustments. So what went wrong? Was the floating exchange rate theory fundamentally flawed? Or was it simply missing an essential element? Can a global monetary theory function properly in an asymmetric world where less than half the world accepts the main premise?"

http://fofoa.blogspot.com/2011/03/via-email.html?showComment=1299451909239#c4446384764398673014

JR said...

The complete "demonetization" of gold is actually the key to the Freegold wealth reserve concept that Another taught.

The dollar-regime keeps gold "monetized", locked in price with the perceived value of the dollar. It does this in two ways. The dollar's own gold reserves are locked in at $42 per ounce. They are "monetized" at this price, recorded on the books at this price. It also tries to control the commodity price of gold through the paper gold market. An attempt to keep the (two-tiered) pricing of gold "monetized".

The Euro, on the other hand, has chosen to "demonetize" gold by quarterly marking its gold reserves to the market price of bullion. This may not seem like much, but it is an important clue to the plans of the rest of the world!

You too can demonetize your WEALTH by buying gold (or any real thing for that matter). As long as you hold your wealth in dollars or dollar derivatives, it is monetized. It will follow the fate of the dollar. When you trade it in for gold it becomes demonetized. When you sell your gold it becomes monetized again.

Think hard on this one. The dollar regime keeps gold monetized for a reason. This system is failing! The rest of the world is in the process of demonetizing its gold to be uses as a wealth reserve, just like the Mona Lisa!

http://fofoa.blogspot.com/2009/08/call-of-century.html?showComment=1249767344116#c8876827831041653759

What all these people don't understand is that gold is truly only a wealth asset. It is a tangible, tradable wealth asset that is valued by central banks, by the elite, by the wealth giants of this world, and even by the little guy. Especially in regions outside of the US dollar currency zone. But what is so special about gold's price movement this time around is that this is the very beginning of a functional transformation for gold. Gold is right now in the process of complete demonetization. It is being set free from the dollar which has held it captive in a monetized (controlled parity) state for a long, long time. Gold is transforming into a completely demonetized wealth asset. And along with this move will come a whole new level of value, completely detached from any linear analysis of gold's dollar-based price history over the past century or two, or three.

http://fofoa.blogspot.com/2009/11/freegold.html

JR said...

Some would call Freegold a kind of a gold standard, just like some would say that gold is being REmonetized when I say it is being DEmonetized. I think the difference is that the value of the wealth reserve will float against the value of the transactional currency (remember my money triangle?). This was not the case during the gold standards of the past and it is not the case now. This is the change that is happening. Call it whatever you want. I call it the separation of monetary functions due to the failure of fiat to perform as a stable and sustainable wealth reserve. Yes, gold is returning to a monetary function as the wealth reserve, but not the common concept of money, the transactional currency.

http://fofoa.blogspot.com/2010/01/gold-ultimate-hedge-fund.html?showComment=1264361263180#c4654240391540860606

As a truly demonetized wealth asset, gold has a much higher value to mankind than it does as a transactional money. To get an idea of the gap, compare the money supply with the supply of Ponzi paper wealth, thanks to the $-financial industry post 1980.

1971 set free not only the creation of transactional dollars, but more importantly, the unrestrained creation of dollar-denominated "wealth". With this innovation came huge fortunes, like Hank Paulson's $700,000,000 nest egg. At one point one single American, Bill Gates, was "worth" nearly the entire US gold treasury! And that's assuming the US still holds title to all of it. It is possible that Mr. Gates was (is?) actually worth more!

In the 1920's gold was being used as a transactional currency, not a tradable wealth asset. Van Eeden's analysis is still stuck in this paradigm. This is understandable because the $-system has been resisting the paradigm shift for 38 years. Yet now it is happening! This is why van Eeden now registers a PREMIUM! But it is not a premium. It is gold finally starting to break free from its transactional currency chains!! What a shame for gold investors like van Eeden who think gold is overvalued at the exact time it is breaking out... of its PARADIGM!

Anonymous, please take note of one of my more popular posts, All Paper is STILL a short position on gold. Notice that it says "All Paper", not "Transactional Currency" is a STILL a short position on gold.

http://fofoa.blogspot.com/2009/10/fair-value-gold.html?showComment=1255671871586#c831366998063813975

JR said...

Remember this:

http://3.bp.blogspot.com/_cvdgPlEKW9k/TFZfoe4p1zI/AAAAAAAABVw/U6laMMVg6g8/s1600/Gold_Investments.jpg

from this: http://fofoa.blogspot.com/2010/08/relativity-what-is-physical-gold-really.html?

"In other words, it would be quite incorrect to say Johnny has 25 ounces in gold, Davey has 75 ounces, Phil has 100 ounces and James has 200 ounces if only 20 ounces exist in the whole world. Instead it would be a little more correct to say, “Johnny, Davey, Phil and James combined have $480,000 total invested in gold.”

And if the four of them had all invested in perfectly equal “gold investment options”, with only 20 ounces existing in the world, we could deduce that gold was worth $24,000 per ounce!
They each bought the same investment over and over that claimed gold was worth $1,200 per ounce until, combined, they owned 400 ounces. But since all the investments were equal, the 20 ounces of real physical gold would each be worth $24,000… to the banker.

But now let’s say that out of Johnny’s "25 ounces", 20 are in the same “investment option” as everyone else, and the other 5 are coins in his sock drawer. Let’s do a little math.

20 ounces exist in the whole world. 5 are in Johnny’s sock drawer and 15 are in the banker’s vault. Johnny paid $1,200 each for the 5 coins in his drawer and also for his other “20 coin receipts”. So we have $6,000 invested in gold in Johnny’s sock drawer and $474,000 total invested in gold through the banker, who has 15 ounces in the vault.

$474,000 divided by 15 equals $31,600 per ounce.

In this frame of reference, Johnny’s sock drawer is really worth $158,000 alone (5 x $31,600)! Johnny’s total investment is actually worth $182,000 even though his initial investment was only $30,000. And Phil, who initially invested four times as much as Johnny has, in reality, 35% LESS than Johnny. How? Why? Simply because of the total number of claims against gold in the banker’s vault! And so far, only the banker knows this true value!

Each coin in the banker’s vault is worth $31,600 to the banker because he is able to sell many extra claims at $1,200. (Remember the video above?) The key to this statement is these words: "is able to". How is the banker "able to?" Not because he tricked the people, but because the people chose the amount of value they wanted to store in stable and efficient gold.

The banker is simply managing his fractional reserves in an attempt to keep the price steady and show the efficiency and stability of his business model. But that doesn't mean the actual gold is only worth $1,200. And again, only the banker knows this true value.

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

5/3/98 Friend of ANOTHER

Merrill Lynch, et al, don't grasp the gold valuations by the BIS. Gold is valued by the number of outstanding claims against it. Kind of like a house for sale with ten bidders. Each bidder thinks the house is in the bag because they have a valid bid ticket. Each one thinks he can have the house at any time, even though nine others want it too, because all I have to do is bid a little higher and take it! Insane, but that's what is going on! Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!

JR said...

See why FOFOA wrote:

"The complete "demonetization" of gold is actually the key to the Freegold wealth reserve concept that Another taught."?

As FOA wrote:

"If our laws defined gold as official money, and lent it, then by association the law had to define a portion of gold that did not exist in circulation. That portion was the contract asset held as bank savings. Yet, a person's claims against it identified said gold as real. This was and is an inherent contradiction because no law can define the value of real wealth held in contract."

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

FOFOA:

The marked to market concept for gold held as a central bank reserve asset essentially demonetizes that gold. It moves it from the money side of the equation to the value judge side.

By keeping its book value locked in the 1970's, the US is clinging to an artifact of the past. It is denying the present reality that gold has been demonetized.

The thought was, if we just demonetize gold and let all the currencies float, the adjustment mechanism for imbalances will become gradual and automatic.

But something was missing. What was missing was a true independent benchmark against which the free market could judge the floatation of the currencies.

Gold will be truly demonetized. We are almost there. All that is left is for gold to break the chains of the dollar, the Fed, and its proxies like Goldman Sachs and JP Morgan.

Think hard on this one. The dollar regime keeps gold monetized for a reason. This system is failing! The rest of the world is in the process of demonetizing its gold to be uses as a wealth reserve, just like the Mona Lisa!

JR said...

Date: Sat Apr 18 1998 19:18
ANOTHER (THOUGHTS!) ID#60253:

"What Is The Real Price Of Gold IN The Central Bank World?"

The one that posts using SDRer, has shown many times how "Gold Value" is used in international trade. What cannot be seen is the value of gold in the "INTERBANK" world. Here is the realm of "true valuations" in paper currency terms. It is a real shocker for lesser eyes.

In this modern world, the current value of every asset is formed by a relationship of gold/currencies/oil. This cross relationship is the "very basis of our modern world banking system"!

Through this basis, all currencies are given value as the local government treasuries hold US$ as reserves. The US$ is given backing as its government is guaranteed that all crude oil, worldwide, will be settled in dollars. An oil reserve backing, if you will. And the "value" that the "future supply of" currency traded "oil" imparts to the world economy, is guaranteed by an "INTERBANK paper gold MARKET" that values "physical bullion" in the Thousands!...

But, how can this be, you ask? It is done, "right before your eyes" and we see it not! I ask you, if you have one ounce of gold, and sell it on the market for $300, it is worth $300, yes? Now, what if a CB holds one ounce of gold, and sells it twenty times, that one ounce is now worth $6,000, no? The difference between you and CB? The persons that hold "interbank" IOUs for gold, value them at the multiple of leases/sales made against reserves. This leverage, it is held for performance on bank part. The BIS, it forces performance, on any economy! You ask Korea about gold, yes?

This is why oil can take a small amount of physical gold out of world supply, at current "freely traded", "managed prices", and hold it at a many times valuation. That is what gives this "new world gold market" much value in trade at high levels. Look even at your "Comex", and divide the daily volume by the "eligible stocks for delivery". That number (perhaps three million ounces divided by 150,000 stocks), deliverable, times the spot close gives close, real world price of physical, $6,000. It follows close to paper trade on LBMA.

You see, "physical gold is of much greater value than public traders can move it for"! In your world, this cannot be, but it is, and will show for all to see in your time.

JR said...

So hopefully now you start to see this from Freegold Foundations:

The Free in Freegold

Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.

This is the free in Freegold.


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

de·mon·e·tize/dēˈmäniˌtīz/
Verb: Deprive (a coin or precious metal) of its status as money.

"This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard."

Victory said...

...listen grasshoppers I betcha Aristotle knows:0

JR said...

he does:

** For Gold to find its truest value, all savers must retain their Gold for their own use. Its properly retained value will more than make up for the foregone interest income. Gold must not be lent! [Gresham's law alone is adequate to achieve this.]

JR said...

Lending collateral causes credit inflation and an economic boom at first, then credit deflation and economic collapse.

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

"Returning to the U.S. on October 6, Volcker called a secret emergency meeting in which he announced a major change in Fed monetary policy. The Fed would switch from controlling interest rates through the Fed Funds rate to directly controlling the money supply through bank reserves. One of the side effects of this sharp policy change was that interest rates would now be governed by the marketplace rather than the Fed. The Fed did still raise its discount rate from 11% to 12%, but then the market took the Prime Rate up to 20% within 6 months where it mostly stayed for the next year and a half.

It was later observed that Volcker's 1979 policy change was the most significant change in Fed policy since 1932, when in the middle of the Great Depression the Fed abandoned its "real bills doctrine" and started massive open market purchases of government bonds.

In early 1980, Volcker's new Fed policy began to bite. As interest rates rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold were lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar.

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]

And thus, in 1980, began the modern era of Credibility Inflation.

Salting the Mine

Most simply stated, credibility inflation is the expanding confidence in the fiat financial system to always deliver a higher payoff tomorrow than today. And through credibility inflation we ultimately destroy the currency structure by believing it can somehow deliver more than reality will allow.

Credibility inflation is the exact antithesis of price inflations like the 1970's. It is why we saw low consumer price inflation for the last 30 years relative to the massive monetary and financial product inflation. It is partly why we saw gold stagnant or falling for 20 years. Yet it is just as much a product of monetary inflation as regular price inflation is (more on this in a moment). And it is much more catastrophic in the end.

cont.

JR said...

cont.

Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money" in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.

The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality." The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!

Credibility Inflation

Robert LeRoy Parker said...

Nice article from Bill Gross:

ftalphaville link

Timing must be a gnawing, teething, filthy rodent, chewing on his brain.

mortymer said...

I would like to turn your eyes to this speech, June_2011:

http://anotherfreegoldblog.blogspot.com/2012/01/notreeurope-jd-euro-in-historical-and.html

J.Delors speaks about history of Euro and flaws which need to be fixed... etc, quite interesting.

Orig.: http://www.notre-europe.eu/uploads/tx_publication/Speech_J.Delors_CEPII-June2011.pdf

mortymer said...

The euro: a design flaw from the start
I come now to the euro. Financial and institutional innovations are not everything. The 1985 measures were taken against a gloomy economic backdrop. But within two or three years growth had passed 2%, job creation was picking up, and this was the sunny context in which it was decided to study the euro idea. As a reminder, the important parts of the Single European Act package were QMV, relaunch of workplace social dialogue and the central principle of economic and social cohesion. The European Monetary System, meanwhile, overcame many obstacles. The largest was the 1992 speculation against the pound sterling and the Italian lira. An excellent idea of Jacques de la Rosière led us in that particular case to widen the band of fluctuation for the ECU. The EMS surmounted the crisis. So there was renewed growth, the Single Market was in place, and workplace social dialogue was producing results. All this inspired Mr Balladur and Mr Genscher to talk about a single currency. They were the first to mention it, even though the Single European Act contained a reference to the ECU (which I had introduced and not without difficulty, given the reticence of certain Finance ministers).

mortymer said...

cont... II.
In 1988 the European Council decided, despite an unfavourable letter from the president of the Bundesbank to Chancellor Kohl, to create a committee to examine how economic and monetary union might work, taking inspiration from the Werner report. The committee, which I chaired, presented its report, the Maastricht Treaty approved it and in 1997 there was one last compromise which I must mention.
In the design of the euro, an important clause was introduced at the request of the Germans and others: the "no bail‐out" provision. In other words, we would create a currency area, but no country would commit itself to systematic help for another country in difficulty. What happened next can be interpreted using the triptych that I chose for the Single European Act: "Competition that stimulates, cooperation that strengthens, and solidarity that unites."
...
Regarding the European Central Bank (ECB), should its unique objective be inflation control? In a globalised world, should it not be monitoring the development of public and private debt? How is it that in recent years the governors of the banks of Spain, Ireland and others, members of the ECB Governing Council, had nothing to report to the ECB's Executive Board?
...

mortymer said...

cont...III.
But fortunately it seems today that Europe's leaders want to save the euro.
My conclusion is that the "no bail‐out" clause should go, as a consequence of the Council's responsibility. Some kind of mutualisation will therefore be necessary. One other remark on this subject: in a union, a community of nations, it is to be expected that decision‐making should take longer than in a state. But this should not mean cacophony. Leaders need to use clear language and avoid alarming or contradictory declarations, which have an impact on markets. Words need to be understandable. If the markets are determined to kill the euro then we will find out, but I think that today the markets are waiting for a single, clear voice – rather than a clamour of accusations, which does nothing but exacerbate the confusion.
...
The constructive solution lies in a division of roles, between more growth delivered by the Union and more austerity within member states. And I insist that this route is both realistic and possible in the actual state of the treaty. If it had been possible, at the time of Maastricht or later even, to make a greater leap of institutional reform, then this would have been done. But history shows that Europe's leaders did not want it. Cooperation does have an advantage, however: if the EU makes a success of its triptych, it will become an example to follow for organising the wider world. For the EU is the only example of states accepting to transfer a part of their sovereignty by cooperating among themselves. Cooperation remains thus a crucial issue. But if these realistic, common‐sense propositions are not heard and implemented, there will is always the nasty strategy of brinkmanship and improvisation. Those who bet on a leap of institutional reform as the ineluctable solution to the crisis are deluding themselves. Because firefighters are not enough, even if their water pumps are good (which remains unproven). We urgently need architects and visionaries ready to make use of the community method which has always pushed the European construction forward. But, to repeat, the current climate is not conducive to such transcendence. Unless, that is, we can invent and disseminate a new project capable of mobilising people. As experts and citizens, that is our responsibility.

mortymer said...

...and one news report to cup it all:

http://www.telegraph.co.uk/finance/financialcrisis/8932640/Jacques-Delors-interview-Euro-would-still-be-strong-if-it-had-been-built-to-my-plan.html

"...“You hear it every day. You hear it in the markets. This is reinforced by populism in certain countries. Whether we like it or not, we are part of the West, and the West could possibly lose its leadership, and it is important that we preserve the values that matter not only to Europe, but to Britain and the United States — the values that are Judeo-Christian in origin — Greek philosophy and Greek democracy and Roman law, and the Age of Enlightenment and the French Revolution.”

Yet obviously, at the same time, we cannot “tell the President of China what to do. Other peoples want to preserve their values, and we want to preserve ours. This is the great challenge.”

So the crisis of the euro is all part of a crisis of the Western way of doing things? “Oui, c’est ça.” "

J said...

Jan 05, 2012 (LBO) - Sri Lankans have spent a record 600 million dollars of gold in 2011 up more than seven times from the 82 million US dollars a year, the central bank said, as demand and prices for the precious metal rose.
"Gold in the past was very marginal, but we have seen a rapid demand for gold in our country," Central Bank Governor Nivard Cabraal said.

"That phenomenon has been share in many Asian countries like India. So there has been a rapid increase in the gold holdings of the people of our country."

Sri Lanka gold imports surge to U$600mn in 2011

costata said...

Thank you mortymer,

.. for that quote. The biggest load of crap seen at this blog in a year. Total, utter SFB.

Please note: 2010 New Year's resolution kept.

Motley Fool said...

lol costata

last I recall your being less polite, I was the target. xD

Well done on keeping to your old new years resolution.

costata said...

Sorry for that TMF,

But not sorry for what comes.

Incensed by crap like this:

http://www.financialsense.com/contributors/steve-angelo/2012/01/04/silver-sales-surpass-domestic-production

Motley Fool said...

Heh costata

I don't mind, I'm thick-skinned. Fwiw I still stand by my comment you berated me for. Haha.

Re your link : I can no longer be angry at other people for making mistakes; I simply have to allow them to do so. I do not have the energy to waste.

TF

Edwardo said...

The quote below stands as evidence against Texan's recent assertion that freegold would benefit but a select few. I suspect there is a lot more where this came from.


Jan 05, 2012 (LBO) - Sri Lankans have spent a record 600 million dollars of gold in 2011 up more than seven times from the 82 million US dollars a year, the central bank said, as demand and prices for the precious metal rose.
"Gold in the past was very marginal, but we have seen a rapid demand for gold in our country," Central Bank Governor Nivard Cabraal said.

mortymer said...

@costata: I would not be so harsh considering this is from J.Delors who is considered to be the father of Euro and tightly cooperating with those like Schioppa, Trichet, etc. In case you would read it is not so much about the mechanics of the Euro per se but rather about "other" measures/enablers.

J said...

Edwardo - Texan must not get out much. Maybe he should leave Texas and take a trip to Asia. Take a look around and see how Freegold will benefit Billions.

This reminds me of a scene from the movie "Margin Call"

"If you really want to do this with your life you have to believe that you’re necessary. And you are. People want to live like this in their cars and their big fucking houses that they can’t even pay for? Then you’re necessary. The only reason they all get to continue living like kings is because we’ve got our fingers on the scales in their favor. I take my hand off and the whole world gets really fucking fair really fucking quickly and nobody actually wants that. They say they do but they don’t. They want what we have to give them, but they also want to play innocent and pretend they have no idea where it came from. That’s more hypocrisy than I’m willing to swallow. Fuck them. Fuck normal people."

Nickelsaver said...

Seems to me that there is a difference between what the architects of the Euro would say publicly about its health and direction and what they think privately. All is resolved in the collapse of the dollar - as this was the real purpose was it not?

So publicly we should see their position to be very patronizing, while privately their position should be to stay the course and wait for the dollars demise.

The fact that the Chinese enabling of US credit expansion over the last decade may not have been in the cards at the Euro's onset, would be seen merely as a delay.

So we should not believe what they say, but rather what they do.

--------------------------------

On austerity. It would be nice to explore discussions on how to position oneself for the immediate chaos ahead. If I stack gold to preserve my wealth, that doesn't help me in the immediate future to deal with the fallout of economic collapse. I need to feed my family, and heat my home. I need to survive to see my gold be of any use.

mortymer said...

@costata: Q so what do you think, is J:Delors "in know"?

Nickelsaver said...

JR,

Thank for the A/FOA/FOFOA re-visitations within the comment stream. I enjoy being able to read on the move, and my phone is impractical for web browsing.

Victory said...

he does:

** For Gold to find its truest value, all savers must retain their Gold for their own use. Its properly retained value will more than make up for the foregone interest income. Gold must not be lent! [Gresham's law alone is adequate to achieve this.]

agreed, but I'm not talking about gold being lent. I'm talking about the SWAP and Repo Markets. It's cash that is being loaned here. Gold is not being lent in order to collect interest. It is cash that is being lent and collecting interest. Gold is being held as collateral in order to get a lower interest rate on the borrowed cash.

If the gold held as collateral was then to be sold or lent while still under the terms of the SWAP or Repo then I agree this creates paper gold. But I'm talking about Gold that is held as collateral only against a currency loan.

And back to my original point. The SWAP and Repo markets are huge and it is mostly AAA securities (a lot sovereigns) that are posted as collateral but as counter-party risk on credit of all kinds (even and especially Sovereigns) increases then the trend may shift increasing towards gold as posted collateral which has no counter-party risk (physical anyway).

So IF gold is increasing used in these markets and IF these markets are partial to physical (allocated) over paper (unallocated) then increasing pressure will build in the fractional reserve bullion banking system between the allocated and unallocated price parity (paper will be discounted).

Since the collateral posted is to be of the highest quality/lowest counter-party risk I find it logical that the free market will favor allocated over unallocated. Once a run on the bullion begins all paper gold burns.


-v

Dante_Eu said...

I can no longer be angry at other people for making mistakes; I simply have to allow them to do so. I do not have the energy to waste.

That was very wise said, Motley Fool.

Boopstir said...

I'm thrilled at your surprise! My heart speed up a bit and I thought:
""If I have seen further, it is only by standing on the shoulders of Giants."
-Sir Isaac Newton

Nickelsaver said...

Victory,

Can I borrow some of your gold?

Edwardo said...

J, I was going to make the case against what I consider Texan's counter factual claim, but I'm glad I didn't since this little Sri Lankan nugget, pun unintended, has arrived just in time.

Michael said...

A few days ago ZeroHedge published a list of the most widely read articles in 2011. These often originated from other sources but I was still surprised by how low the "page read" tallies were. the most widely read articles had counts of about 150,000.
Considering that Drudge gets 10 Billion hits a year that means that relative to what the people are reading about in overall news coverage, VERY FEW people are following the global financial crisis as it unfolds.
This amazes me as I view current events in this arena as important and exciting as the first moon walk, the Super Bowl and the fall of the Berlin Wall all put together.
It explains why our friends and family give us the blank stare when we try to tell them something is wrong. Most people simply do not have the currency crisis anywhere on their radar.
When these changes come there will a lot more surprised and unprepared people than I ever would have guessed.

Aquilus said...

Michael,

I have seen the exact same thing in the past 2 years and I echo Motley's sentiment: I just don't have the energy to waste.

victorthecleaner said...

Nickelsaver,

I know I don't have the required 'y', but I do have an opinion on this.

I would say, no, thanks, right now I don't need to borrow any US$. I am still earning a surplus. And if I even need to borrow US$ and would be tempted to use my gold as a collateral, I would pick a more reliable counterparty than a Nickelsaver.

You see, eventually the burden of forcing and keeping up freegold is on the savers. If at some point in the future, the bankers can again convince the savers to hold debt rather than gold (or other real assets), a new round of credibility inflation would take hold and gold might become captive again.

Victor

victorthecleaner said...

even -> ever

Texan said...

Edwardo, you are of course right. To my list of "cui bono", which included "some Indians, and some Chinese", I probably should have added "some Sri Lankans", and for good measure "some Ron Paul voters", and some "gold blog readers" to have a more complete list.

Did you not get the point? You have I am sure seen all the screeches about how "only 1% of institutional money is invested in gold!". What does that mean to you? To me, it means, "the other 99% is not invested in gold". I don't think the other 99% is going to wake up one day and say, "hmmm, we have no gold, we have a lot of dollar paper securities, but it would be a great idea if the world's
monetary reserve was switch from dollars to gold". Do you think they will all herd-like advocate such a shift? I do not. Impossible. They will go down with the ship. It's how organizations function by and large.

As for individuals, even less ownership. I think the US MInt sells something like 40-60,000 1 oz eagles a month. $15 billion a year at today's prices if I recall correctly, but do your own math. Edwardo, the Facebook IPO alone will probably raise $50bn plus. Gold is tiny, tiny, tiny. Even in Europe.

So i don't expect any mass demonstrations anytime soon from all the individual "gold holders" because, well, there aren't any. At least not in the West (and we know how demonstrations go over in places like China).

So there are no agitators for "RPG". IMO the transition, if it comes, will just be a repudiation of dollar/ euro as store of wealth. Echoing months of discusssion here on this wonderful blog, Bill Gross kind of alluded to it in his excellent piece this month, but he didn't take it far enough (though I would imagine he is well aware of it). Increasingly, cash either has ultimate value (deflation), or negative value (inflation), and no one knows which way it will go. And no one knows because ultimately its a political choice being made based by a bunch of different types of "giants" in different locations.

So far no one has defected, but so far it's in no ones interest to do so. The Chinese gvt can't possibly want RPG NOW. They need amuch more developed economy, and more critically they need the GOLD. The US we know doesn't want RPG. Sothat leaves the Europeans. Who are, excuse me for pointing out the obvious, in existential survival mode. So if they thought RPG, I am pretty sure we would have heard something already because the whole south looks like its about to just slide into the Medittaranean. So they aren't agitating for it either.

WB? Nope. Zoellick hasn't said a word about it since about a year ago. IMF? Nope.

That is my point, and it's why I don't want a transition. I think it could be ugly.

Texan said...

J,

Freegold wold benefit everyone except most of the existing status quo. Which is why it is not happening via an engineered, top-down political process.

As for leaving Texas since I apparently "don't get out much", uhm, why? Texas is great. You should visit. I am sure you would love at least some of it. Just don't come in August. Great quote from MC btw.

Nickelsaver said...

Victor,

My feelings are hurt - you saying my dollars are no good. :P

For you I make special deal. You clean my house and I will pay you in nickels. Now worth 103% melt value.

costata said...

Axel Merk writes:

The inherent design of bank regulation carries much of the blame. National regulators typically consider their own government debt risk-free. In the U.S., Treasuries are risk-free by regulation. Similarly, European banks are incentivized to carry much of their capital in their respective sovereign debt, as those securities comply with capitalization rules. This has caused significant stress in the inter-bank lending market, where those banks perceived to have large exposures to risky sovereigns (e.g. Greece, Italy) are shunned.

In Europe, where each Eurozone government regulates its own banking system, it’s urgently necessarily to centralize bank regulation, so that each member country’s bank is not ex-ante over-exposed to their own government paper. Naturally, the respective governments are opposed to such moves, as it may increase the cost of government funding, should banks have to evaluate the creditworthiness of their own governments.


http://www.merkfunds.com/merk-perspective/insights/2012-01-05.html?utm_source=cc_newsletter&utm_medium=email&utm_campaign=2012-01-05-insight

In the U.S., Treasuries are risk-free by regulation.

Thank you Karl (Marx). Dick Cheney was right after all when he said they make their own reality.

enough said...

I know I'm risking someone's wrath but......

I agree with Texan....

What could Europe possibly be waiting for?

They have a sh_tload of gold to revalue and repair the asset side of the balance sheet.......

Instead they the juggle balls in the air and use pretzel logic

I know , I know...the euro just needs to hold on til the dollar hyperinflates....better be soon

enough said...

ECB's Orphanides urges end to Greek debt haircuts

Jan 5 (Reuters) - Euro zone leaders should abandon plans to include private investors in paring Greece's huge debts in order to restore trust in the currency bloc, a senior member of the ECB's governing council wrote in the Financial Times on Thursday.

Athanasios Orphanides said dropping plans to force losses on private sector holders of Greek debt would "help restore trust" in the euro zone and lower the borrowing costs of other governments in the currency union.

"Reversing the Greek private sector involvement decision would also raise the financing costs on the Greek government, but by restoring trust in the euro zone it would reduce the financing costs of other euro zone governments," Orphanides said in an opinion piece published on the FT's website.

Orphanides, who is also the central bank governor of Cyprus, said a 30-year low interest rate loan to Greece from other countries could accompany the reversal of private sector involvement, helping to keep its financing costs in line with present fiscal plans.

Dumping private sector involvement in reducing Greece's massive debts may be the only way to convince markets that investing in the euro zone was again safe, Orphanides said.

A deal struck at a Franco-German summit in Deauville, France, last October, which would have ensured the private sector was involved more generally in future euro zone bailouts, was reversed in December.

However, euro zone leaders have agreed that the Greek deal would be unique and would not be repeated, he said.

"The Greek private sector involvement reinforced the idea that holders of eurozone sovereigns should be prepared to incur losses even under circumstances that would not necessarily trigger
comparable losses for sovereigns outside the eurozone," Orphanides wrote.

enough said...

ECB and the Bankers...the two musketeers....one for all and all for one !!! No bad decision go unrewarded.......

Devo....it's a beautiful world !!!

http://www.youtube.com/watch?v=56u6g0POvo0

Nickelsaver said...

Enough,

What could Europe possibly be waiting for?

They have a sh_tload of gold to revalue and repair the asset side of the balance sheet.......


Really? Are you forgetting that a good portion of that gold is sitting in US vaults? If the ECB aggressively took down the dollar, that would be all the justification USG would need to say "it's ours"

Besides that, China wouldn't be very happy that all their dollars are worthless as well.

The trick is for the system to go down in such a way as the blame is squarely on the FED (perception) and that the US needs Europe to recover. Also, Germany looking for a way to say "We'd like to hold our own gold now" before the system cracks.

I think Rickards is right. That Gold will never be returned.

enough said...

You may be right Big Nick but that's one messed up world when your "friend and ally" says we're gonna keep your stuff unless you play by our rules...

So as the FED/Treasury know they have Germany over a barrel, how will they ever break free of $IMFS?

If the FED/Treasury return the gold they have lost their leverage....so they never will

So Germany/ Europe should just say bollocks you Yankee Scumbags and revalue what they have.

Nickelsaver said...

No, right now its a game of passive chicken, or hot potato. If the Euro collapses, the whole system is taken down. The game of chicken is if Germany will bail out Greece(they won't) or the Fed. It will be the FED and more QE.

Germany could use its gold to bail out Greece, but they aren't doing that are they?

enough said...

Well the Fed is going to need some domestic political cover for that. So it seems a U.S. stock mkt collapse needs to be engineered so that congress and public hold a candle light vigil out side Ben's home and chant save us Obe Won Bernanke....you're our only hope. Without that domestic US mkt implosion he'll never get it through.

Nickelsaver said...

What about the ESF?

Don't tell me the Kennedy's and the 911 victims died for nothing.

Aaron said...

Hi Nicklesaver/Enough-

Enough, it seems to me you are saying something similar to, What are they (Europe/ECB) waiting for? They (Europe/ECB) could fix everything with Freegold right now!

And Nicklesaver, it sounds like your response is, But America might steal Europe's gold. And China doesn't have enough gold yet!

Personally I can't see us stealing European gold nor can I see a China SO pissed off when the switch is flipped. Remember that China has 1.3 billion people ready to build whatever the world market place needs and more importantly, what the world desires. As a sovereign nation/Union you don't need much gold in a Freegold market place if in-stead you have many able bodies willing to work for a better day.

But as you (Nickle) rightly point out, "The trick is for the system to go down in such a way as the blame is squarely on the FED..."

Correct!

No one is going to force the issue. We simply have to sit back and wait. And for those of you in a position to buy gold, please, by all means, add pressure to the system. You will only bring us that much closer to the day of reckoning for -- wait for it -- the Euro!

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

Texan wrote:

"Edwardo, you are of course right. To my list of "cui bono", which included "some Indians, and some Chinese"

-Some Indians and Chinese? The combined population of India and China is over three times that of the U.S. and Europe combined. If a mere twenty percent of the Indian and Chinese population have stored their wealth in gold then we are talking about half a billion people.

Did you not get the point? You have I am sure seen all the screeches about how "only 1% of institutional money is invested in gold!". What does that mean to you? To me, it means, "the other 99% is not invested in gold". I don't think the other 99% is going to wake up one day and say, "hmmm, we have no gold, we have a lot of dollar paper securities, but it would be a great idea if the world's monetary reserve was switch from dollars to gold". Do you think they will all herd-like advocate such a shift? I do not. Impossible. They will go down with the ship. It's how organizations function by and large.

-It's not a referendum issue, Texan, and their advocacy is irrelevant.

So i don't expect any mass demonstrations anytime soon from all the individual "gold holders" because, well, there aren't any. At least not in the West (and we know how demonstrations go over in places like China).

-I'm glad you mentioned China again since gold ownership for the citizenry has become something of a state sponsored endeavor.

So there are no agitators for "RPG".

-You are barking up the wrong tree with this idea of RPG agitation. Leave agitation to the clothes washer.

IMO the transition, if it comes, will just be a repudiation of dollar/ euro as store of wealth.

-The euro doesn't style itself as a store of wealth but rather a medium of exchange.

Echoing months of discusssion here on this wonderful blog, Bill Gross kind of alluded to it in his excellent piece this month, but he didn't take it far enough (though I would imagine he is well aware of it). Increasingly, cash either has ultimate value (deflation), or negative value (inflation), and no one knows which way it will go. And no one knows because ultimately its a political choice being made based by a bunch of different types of "giants" in different locations.

-Well, with all due respect to the sage of Long Beach
I'll defer to the wisdom of Another regarding the deflation/inflation question.

So far no one has defected, but so far it's in no ones interest to do so. The Chinese gvt can't possibly want RPG NOW. They need amuch more developed economy, and more critically they need the GOLD.

-Perhaps not, but there are other considerations then
the timely development of China's domestic economy.
Consider the ability to render your chief rival substantially less formidable by pulling the RPG ripcord a bit sooner than is optimum.

The US we know doesn't want RPG. Sothat leaves the Europeans. Who are, excuse me for pointing out the obvious, in existential survival mode.

-Well, that's certainly what some organs of (mis) information would have us believe, but I do think that such a characterization is just a tad hyperbolic.

So if they thought RPG, I am pretty sure we would have heard something already because the whole south looks like its about to just slide into the Medittaranean. So they aren't agitating for it either.

WB? Nope. Zoellick hasn't said a word about it since about a year ago. IMF? Nope.

-Well, I guess if Mr. Zoellick hasn't said anything about it (publicly, that is) then it's just finished. As for the IMF, well, that's a bit of a howler. I wouldn't anymore expect the IMF to mention RPG in a supportive way then I would expect Jesse Helms to come back from the dead advocating for same sex marriage.

Aaron said...

I'd also like to say to Texan that for sometime now I've gone back and forth with your position which is, I believe, primarily based on the belief that prolonged deflation will stave off Freegold for however long TPTB can maintain it. As for your comments in this post, I agree with you. I can't see anyone rushing into Freegold that doesn't already own gold (or maintain a highly productive population). Having said that, I still believe Freegold is inevitable. The idea of saving one's wealth in another's debt is coming to an end.

Wendy said...

Hate to burst your bubble Nickel. The price of nickel has tanked. An old US nickel is worth about 5 cents. An old canadian nickel about 8 cents. A few years ago nickel was trading at $25/lb. canadian nickels had 25 cents worth of metal in them.

BTW I have lots of nickels that I only paid a nickel for ;)

check out coinflation.com

Nickelsaver said...

Probably isn't the governments or CB's that bring the collapse. It's the private sector, right? How many Lehman Bros and MF Global's will it take?

Aaron said...

Wendy, I know you have enough savings to pay your bills. Will you please trade those nickels for gold? DP and I worry about you. ;-)

Nickelsaver said...

Wendy,

I got the 103% figure from coinflation.com. And have never paid over spot for a nickel either.

;)

Nickelsaver said...

btw, the new us nickel are still made out of nickel making them the ONLY currently minted coin worth its weight.

got to stack em in case were head for a FreeNickel economy. lol

costata said...

Aaron and Texan,

Don't forget all of the countries who don't own a lot of gold (privately or in official reserves) but mine a lot of gold. Australia sold down to about 80 m/t but around 250 m/t is mined here each year.

A substantial reserve position could be established quite quickly by Canada and South Africa as well. And the 'big dog' in all of this is the USA. It may be the USA that pushes the button on Freegold-RPG when they are ready.

As FOFOA pointed out gold is also a big export earner for the USA. Think of the income, at Freegold-RPG prices, of that 250+/- m/t which the USA mines and exports each year.

Having completed a de facto default through HI a debt free USA, with massive gold reserves, would be a formidable economic force. And if their imperial ambitions are curtailed and overseas bases are closed then America should recover even faster.

The big winner out of this transition (on a nominal basis) will be the USA. The "people who matter" will be fine. It's the middle class in America who are going to be decimated.

costata said...

Aaron and Texan,

One more point I would like to add.

Would the Euro Freegold-RPG architects have designed a system that worked against the interests of the Giants in America?

Would anyone hope to succeed in the transition to a new IMFS that offered nothing to the USA except oblivion?

To me, the notion that anyone would do this is absurd. The $IMFS worked to the sole advantage of the USA (if you ignore Triffins dilemma) but the new IMFS offers the USA the next best option - first among equals.

Wendy said...

My dearest Aaron and DP .... and crack, of course. Do not worry about me with my 460 ounces of silver and hundreds and hundreds of nickels.

I believe I understand the end game and what wins... GOLD!!!

between here and there... well ... my ass is covered.

Gold, silver, nickel, food, gun(don't know how to usee one)

i like to be diversified.............

:D

Post a Comment