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)



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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

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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
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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."

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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?

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

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

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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.

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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! "

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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?

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

Happy New Year to all!