Monday, December 19, 2011

RIP Kim Jong Il


The Dear Leader of North Korea has passed away. In tribute to this great man who stood strong against the Imperialistic West, I'd like to present this AWESOME travelogue for anyone who has always wanted to visit the tasty land they call "the soon to be reunified" north part of Korea.

I just can't tell you how AWESOME this video travelogue is. Pop some popcorn now because it's about an hour long. And trust me that I wouldn't post this if it wasn't worth watching.

The best part about North Korea is that you never run into disgustingly rich people who make you feel self-conscious about the size of your own wallet. That's because they don’t have rich people in North Korea! They have eliminated all of the Western problems of credit money and savings!! The private sector in North Korea has no abusive powers such as issuing credit money from thin air or selling savings to the austere. That power has all been taken back by the government!!! The King is dead! Long live the King! Yay!



























192 comments:

DP said...

Same as it ever was

RT @Reuters: Yonhap news agency says S.Korean govt official confirms missile launch by N. Korea

Robert said...

So how much did they have to bribe their guard and guide to take all that footage when videocameras are forbidden? All of the comments about being afraid of the guards and having received warnings from the guards were probably thrown in there gratuitously to protect the guards from getting sent off to a prison camp after this got out. He didn't really seem very afraid of getting caught. North Korea seems like a fascinating place. I will want to be one of the first to visit when the regime finally falls.

78Rubies said...

C

Michael H said...

comments ...

poopyjim said...

Ohhhh do they have debt-free money there? Then this surely must be a land of plenty, its people free from want. Take me to this distant paradise, this "North Korea".

Gary said...

Draghi comments, seems to be holding the ECB line for now:

http://www.ft.com/cms/s/0/15bcafb0-296c-11e1-8b1a-00144feabdc0.html#axzz1gysGp468

J said...

I guess Oil also likes Twitter

Saudi Prince Invests $300 Million in Twitter

zenscreamer said...

Amazing video. Thanks FOFOA!

Matt said...

HA! I've seen some strenuous links before FOFOA but your writing today has got to take the cake!

"Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another, more fundamental, example would be to divorce the payment system from risky lending activity - that is to prevent fractional reserve banking (for example, as proposed by Fisher, 1936, Friedman, 1960, Tobin, 1987 and more recently by Kay, 2009).
Mervyn King BOE

Anyone else who has a little broader perspective than found here can review 'A program for monetary reform' , co-authored by little known economist Irving Fisher

"..and the London goldsmiths of the Seventeenth century found that handsome profits would accrue from lending out other people’s money, or claims against it – a practice which, when first discovered by the public, was considered to be a breach of trust. But what thus began as a breach of trust has now become the accepted and lawful practice. Nevertheless, the practice is incomparably more harmful today than it was centuries ago, because, with increased banking, and the increased pyramiding now practiced by banks, it results in violent fluctuations in the volume of the circulating medium and in economic activity in general."
http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform

Herman Daly Snr Economist from World Bank "I think we could really to a whole lot for our economy if we could just move away from fractional reserve banking and back towards full reserve banking"
http://vimeo.com/23218832

Its tough for me being ridiculed here for supporting full reserve banking but i just remind myself that i have in my corner: Irving Fisher, Milton Friedman, Ludwig von Mises, Friedrich.A. Hayek, Murray N. Rothbard, Maurice Allais, Jesus Huerta de Soto, Laurence Kotlikoff, James Tobin amongst many many others.

For anyone interested there is a feast of info at mises.org, they are hardline freemarket economists who also tend to believe in full reserve banking (and contrary to the views expoused here, the two can go together - impossible right!?!)

Cool videos regardless.

JR said...

"What is honest money?

And what does it mean "to return to honest money?"

The most common answers to these questions have roots in the Austrian School of Economics, developed and made famous by the Austrian economists Carl Menger (1840-1921), Ludwig von Mises (1881-1973) and Friedrich Hayek (1899-1992). At least the most common answers today come from modern followers of the Austrian School. And modern practitioners will tell you that gold and silver are honest money, and that the way to return to honest money is to make money harder and/or to limit or eliminate fractional reserve banking.

But this meme of honest money has been canonized in such a simplistic way that its proliferation has become a bit of a credibility problem for those that promote it, and a source of confusion among their more credulous followers.
So I have a slightly different take on honest money that I'd like to share with you..."


Link

"...Fractional Reserve Banking

There is another angle to Ron Paul's honest money ideas that deals with fractional reserve banking (FRB). There is a debate within the Austrian/Libertarian movement between those that say FRB should be illegal in a Libertarian society and those that say we should just institute a "gold standard" and let the free market take care of the FRB issue.

[...]


The debate mentioned above within the Austrian/Libertarian community boils down to a free market solution versus a government dictate against FRB. But either way, all Austrian Economists agree that the real issue is credit expansion, which is at the heart of one of Mises' greatest insights – the Austrian business cycle theory (ABCT).

Briefly, ABCT blames the boom-bust economic cycle on fractional-reserve banking, or the expansion of credit without an actual act of saving by someone in the economy. When credit is expanded beyond reserves, the resulting drop in interest rates is an artificial (i.e. not due to actual increase in loanable funds). This sets in motion an unsustainable boom period of malinvestment and erroneous capital consumption that sows the seeds of the inevitable bust. This process is supplemented by government intervention to protect privileged bankers from being “caught” short by the market and allows credit to expand far more than it would without such intervention. This practice of absolving privileged bankers of their legal obligations via intervention was institutionalized in 1913 with the creation of the Federal Reserve.

And an understanding of ABCT provides the context for understanding why Freegold is unfolding. Freegold simply offers a different way of controlling credit expansion that is more effective than the modern Austrian suggestions of making money harder and/or limiting or eliminating fractional reserve banking...
"

Casper said...

Hey Matt,

You've quoted this:

"..and the London goldsmiths of the Seventeenth century found that handsome profits would accrue from lending out other people’s money, or claims against it – a practice which, when first discovered by the public, was considered to be a breach of trust. But what thus began as a breach of trust has now become the accepted and lawful practice. Nevertheless, the practice is incomparably more harmful today than it was centuries ago, because, with increased banking, and the increased pyramiding now practiced by banks, it results in violent fluctuations in the volume of the circulating medium and in economic activity in general."

The problem today, at this very moment for the CBs lays in the fact that most people's savings are cash, deposits, securities or something else residing in the sphere of global banking/financial system. If most savings were in women stockings, cigarettes, etc (just not anything of the above). the CBs would have no problem in buying every piece of paper wealth to make the system solvent again.

But it isn't so. From the paragraph you've quoted, it is clear that borrowing/lending is in human nature for many hundreds of years and yes it leads to a situation we're right now if the medium that is borrowed is also a primary item people park their savings to.

Don't you think that the solution to this is is much more in line with human nature if we didn't forbid fractional reserve banking but rather enabled/recognized what humans had already recognized before and that is that gold can assume the role of an asset "par exelance" outside of the banking/financial system.

One more thing, that has to be pointed out over and over when reading and interpreting articles, essays, thoughts, ... of different authors through-out history and that is, we have to take into account the environment/financial system/social order that they have lived and worked in.

Casper

victorthecleaner said...

Matt,

I agree that for a return to a classic gold standard to work, you would have to drastically restrict fractional reserve lending. Well, banks are already somewhat regulated, and so why don't change that regulation.

The problem is that you can contracts involving some sort of credit with a fractional reserve also in other settings. One is, for example, the brokerages in London that have used the same collateral several times (aka rehypothecation, as in MF Global). Unless you regulate all contracts without exception, you cannot prevent this from happening. It happens just because the lender is not cautious enough, again some sort of credibility inflation.

The charm of a freely floating gold price and the use of physical gold as the major international reserve is that this system imposes very similar restrictions on lenders and borrowers, but without all the interference with the contract law. Whenever they increase the volume of credit or the volume of base money (for whatever reason), you just get more inflation.

The only new paradigm that people have to accept is that the government issued paper money is for transactions only. As soon as they save in real assets (gold), everything else follows largely automatically. Isn't that cool?

If just the central banks of the exporting countries would lead by example.

Victor

Matt said...

Hi Casper, I am not against freegold. I'd like to see freegold and full reserve banking actually.

In regard to the timing - note that my quote from Herman Daly (that world bank guy) is very recent.

I do however like hostoric quotes especially from people who were around closer to the time that the money supply was co-opted by financial interests and still realise that it occured via the institutionalisation of fraud.

Matt said...

Victor - bring it on. If freegold solves our financial issues i'll gladly go back in my hole and drop the whole thing. If not, keep an open mind from there on out.

Casper said...

Matt,

I didn't want to imply that you should support "freegold" or not. I just wanted to point out that "fractional reserve banking" is an expression of human nature to borrow/taking the easy way. Trying to regulate this has failed everytime and I see little reason it won't in the future.

As far as I understood your stance from your posts before (debt free money), you're quote of the " world bank guy" is just an example of " open mind" you were reffering to at the end and don't actually believe in this outcome?

Casper

Robert Mix said...

FOFOA, I watched that set of videos last night myself. Weirdest place on Planet Earth. I did not see much gold there...

Over the weekend I read an interesting piece titled "Plan B" or similar, written by a guy in the UK named GolemXIV. This Plan B is sort of a loose plot (idea really) by stronger banks to rob assets from weak institutions (MF Global) by collecting assets that other creditors cannot (due to freezing assets in a bankruptcy). Yes, that's right, those who are derivative creditors (probably JP Morgan for example) can grab the silver (even "warehouse receipt" silver) while all the other creditors have to line up, while trustee James Giddens dithers as the price of silver goes down... What a rotten system!

Bring on Freegold!

victorthecleaner said...

Matt,

the funny thing is that it is entirely up to the savers. Once they withdraw their savings from the debt based sector of the financial system and invest into real assets, the transition happens. As long as they trust the debtors, the system will keep limping along.

I wonder whether anyone here knows some academic references establishing that

1) in countries with an established secondary medium of exchange that is used as a store of value (someone mentioned Jamaica with the US$; I could also imagine eastern European countries using the deutschmark or now the euro), the velocity of money is higher than in the US (you can measure the velocity as you like as long as it is plausible).

2) in these countries, the correlation between changes in money supply today and consumer price inflation in the near future is higher than in the US (measure money supply as you prefer as long as it can take into account both expansion of monetary base and the creation of credit).

Victor

Matt said...

Hi Casper, please don't take my comments as in any way hostile to yourself, my 'world bank guy' comment represented a certain tiredness to others unsubstantiated blog quoting in defference to discussing actual points. In keeping an open mind I have come from being a supporter of debt free money to also free gold and am very happy to be proven that debt free money is not needed!

My comment on supporting both freegold and fractional reserve banking was aimed at countering what i thought was a general stance that there is a decision to be made between one or the other. I see no reason why the two systems can't co-exist, with freegold protecting full reserve banking from many of the 'irreconcilable' problems put forth here previously.

I take your point on fractional reserve banking (FRB) being a natural outcome of human nature and my position is that power systems go through swings from extremes (as is natural) and once a swing one way occurs we should welcome the change back without looking to excuse the excess. Ie. "..handsome profits would accrue from lending out other people’s money, or claims against it – a practice which, when first discovered by the public, was considered to be a breach of trust" this represents a strong swing to where we are now and I think that all alternative discussions should be 'on the table' to swing the pendulum back.

Im open to freegold fixing the worlds debt imbalances but i really ask, is that view widespread anywhere in economics? it would appear that the most common 'alternative' economic theories all point to re-regulating finance and/or full reserve banking. While i can see the merit, and am definitely open to freegold, I am still to see how it works at the macro level (but will watch carefully!) yet can point out hundreds of years of high level economists calling for full reserve banking and so am waiting for freegold to 'prove itself'.

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

Hi Victor,

Some general thoughts from your comments and i'd appreciate your feedback - freegold implies a high level of currency instability as a stable currency would not drive people to seek alternatives (hassle!) and the lack of ROI on gold would lead people back to debt based assets if stability was assured.

So what do countries who currently use and alternative means of saving and transacting all have in common? they are all in some form of a state of financial crisis.

Now consider that gold is now $50k per ounce, you are barely scrapping buy on your income with minimal left-over savings but you have a 6 month savings plan in place to pay for a holiday. Why would you invest your say $250 spare per week in a gold at $50,000p/oz, offering no income and redemption risk via floating price when you can put it in a debt based savings account for a neutral or slightly negative real rate?

I can see the elegant beauty of freegold when I look at whole countries and the movement of giants but what of elderly pensioners, uni students and people just trying to save some spare cash at the end of the week? Are we really that confident that freegold is the magic bullet we think it is?

Robert Mix said...

Matt, the best time to buy gold is BEFORE Freegold.

Freegold will not be a magic bullet, there will still be plenty of problems everywhere to deal with.

Freegold would not even bring back Kim Jong Ded!

JR said...

"So let me recap the two stages again:

1) The initiating spark of hyperinflation is the loss of confidence in a currency. This drives the fear of loss of purchasing power which drives people to quickly exchange currency for any economic good they can get their hands on. This drives the prices of economic goods up and empties store shelves, which causes more panic and fear in a vicious feedback loop.

2) The printing of wheelbarrows full of physical cash is the government's response to hyperinflation, not its cause. This is like pouring fuel on the burning fire of #1.

In stage #1 people frantically exchange their failing currency for economic goods because there is no alternative (harder) currency with sufficient availability to run to. When a harder currency is finally made available (historically the dollar) hyperinflation is immediately arrested as people prefer to lock their purchasing power into a stable currency rather than perishable (and bulky) economic goods."


FOFOA

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

"Hyperinflation is very hard to stop once it starts. The only way you can stop it is by switching to a harder currency. But unfortunately for the dollar, this will not be a realistic option.

If the dollar tries to peg itself to a new parity with gold (a new "emergency" gold standard) in the middle of the hyperinflation process, it will experience a run on any gold it puts up as backing. Imagine if Zimbabwe had tried to stop hyperinflation by opening a "gold window," selling gold at a fixed price in Zim dollars. (See image at the top!)

In Zimbabwe, they only stopped the hyperinflation by officially switching to a harder currency, the US dollar.
"

Just Another Hyperinflation Post - Part 2

JR said...

"We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nations identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Usually, they function along side whatever major reserve currency is in vogue. Today, the dollar, tomorrow the Euro. Make no mistake, the entire internal US sector can and will function as it's currency runs a price inflation just like these third world countries. We will adapt as they have by dropping our living standard accordingly and adopting the Euro as our second money. Also:

The prestige that we have the largest military force in the world does not help our money problem. We talk as if we will let any country die that does not use our money or support our currency. I point out that the British also made such comments and it didn't stop their downfall. Nor the Russians. Also:

I point out that many, many other countries also have the same "enormous resources; physical, financial, and spiritual" that we have. But the degrading of our economic trading unit, the dollar places the good use of these attributes in peril. Besides, the issue beyond these items is our current lifestyle. We buy far more than we sell, a trade deficit. Collectively, net / net, using our own attributes and requiring the use of other nation's as well. Not unlike Black Blade's Kalifornians sucking up their neighbors energy supplies (smile). We cannot place your issues up as example of our worth to other nations unless we crash our lifestyle to a level that will allow their export! Something our currency management policy will confront with dollar printing to avert. Also:

NO, "this country will not turn over and simply give in" as you state. But, we will give up on our currency! Come now, let's take reason in grasp. Our American society's worth is not it's currency system. Around the world and over decades other fine people states have adopted dollars as their second money, only to see their society and economy improve. Even though we see only their failing first tier money. What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living. In the US this function will be a reverse example from these others. We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an over valued dollar that we spent without the pain of work."


FOA

JR said...

"No, Freegold transition does not require small sizes. They will likely be an after effect. The vast majority of currency is traded for life's necessities and debt service rather than the timeless wealth asset of Kings. Following in the footsteps of giants requires more than pocket change.

The transition to Freegold is all about the big players. "

FOFOA

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

If Freegold imposes a sort of market discipline on currency issuers, requiring them to mange their currency prudently, then does not Freegold benefit those with only mere pocket change who spend nearly all of their income? And further, if currency stability enables economic calculation and promotes real growth while limiting malinvestment and government largesse, then it also enures to the benefit of those who cannot afford to follow in the footsteps of Giants, yes?

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

"It's Freegold. It is about allowing meritocracy to rise like a Phoenix from the ashes of the dollar's inevitable collapse. It's not about a transfer of wealth. It is about a re-born meritocracy. The transfer of wealth that will take place is what blinds most people from seeing its inevitable approach."
FOFOA

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

"I imagine it will be much more of an equity-based system, not debt-based. And I imagine this to be emergent, not legislated. There will still be lending for interest by the banks, but the bank's own ass(ets) will be on the line, so lending will be tight and the borrowers will have to prove merit. A meritocracy.

Investors that are not banks will be more inclined to take equity positions than debt positions. And the rest of us will do whatever we are most comfortable with, which may be physical gold in our own possession."

FOFOA

M said...

@ Robert

"North Korea seems like a fascinating place."

Indeed but its probably quite depressing. I traveled through Bosnia in 2004. Im glad I did it but its sickening. Every single building was shot up.

M said...

@ Matt

"So what do countries who currently use and alternative means of saving and transacting all have in common? they are all in some form of a state of financial crisis."

Nope. Brazil and China have currency swap deal where they use their own local currencies as a medium of exchange while they both still happen to hold US dollars as a store of value. Its early on in this but it is happening. China and Russia are doing it too.

M said...

@ Matt

"Why would you invest your say $250 spare per week in a gold at $50,000p/oz, offering no income"

You don't want nominal income as a store of value. You only want raw capital gains. If the majority of savers are saving in gold then the constantly rising value of gold makes is your capital gain that makes up for your loss of "income".

costata said...

Hi Matt,

Let's leave the FRB issue to one side for now and focus on "debt free money".

I suggest you (and everyone else interested in this debate) read this post by Karl Denninger where he lays out what he and Bill Still mean when they discuss "a debt free (money?) system".

http://market-ticker.org/akcs-www?post=199428

Ignore the spat with Robert Wenzel that kicks off the post. The meat of this is further into the post.

Matt, having read Denninger's post please post a comment letting us know if he has described the system you see operating to deliver "debt free money".

PS. Regardless of whether anyone likes or dislikes Denninger his math is generally sound and he is an advisor to Bill Still's campaign.

SatyaPranava said...

so live in Orwell's 1984, and we live in Huxley's Brave New World...i get it! :)

Nickelsaver said...

A meritocracy is more of an idealistic form of government than a tangible one. We cannot expect that the virtues of intelligence and morality would win out against the natural instincts of power and greed. To do so would be naive.

The American founding fathers and designers of the US constitution understood this. It was the whole reason for separation of powers.

Men cannot live in peace without the rule of law. And all men will invariably find themselves at some point in time, in opposition to those that administer the law.

The purest and noblest form of government, IMO, is a Monarchy.

Such governments have been either very good or very bad, depending on the character of the King.

Inevitably, the masses generally seek this form of government. And that would be a good thing if ever there was a man that displayed superior character.

Costata,

You want to pick up where we left off on that thought experiment?

costata said...

Nickelsaver,

You want to pick up where we left off on that thought experiment?

Sure do, but time poor at the moment. It'll happen but not as soon as I would like, sorry.

Cheers

Matt said...

Hi Costata i just lost my comment to you!!

Very quickly:
- i appreciate karl's positive postion on debt free money and its inherent simplicity (contrary to popular opinion)
- the article you linked to didn't seem to flesh out the whole proposal but referenced it in his blog and i am going to need to review that another time
- i am concerned to the extent that swapping Fed reserve notes for US Gov interest free notes may install the current debt imbalances into a harder system so far as base money is represented in those imbalances (money being >95% credit and <5% base depending on you measures)
- I come at this from a different angle as I am Australian we tend to have a somewhat more responsible central bank so my focus to date has been on the banking credit side of the money equation whereas karl seem to be dealing solely in base money from what i read.
- in do far as dealing with base money goes i still agree with his proposal on the assumption that a system of debt excess is not formalised into a new system in the transfer process.

He also is talking about swapping treasuries for US government notes but a treasury is an interest bearing bond while a note is not (either US Gov or US fed) sooo I'd really have to read his full proposal before commenting more!!

enough said...

so ECB either;

prints euros?
Defauts with PIIGS?
Gets bailed by THE FED?

from ZH

"Bloomberg chart of the day shows, the ECB's balance sheet is not only far greater than the Fed, at $3.2 trillion compared to $2.9 trillion for Ben Bernanke, but at 30x leverage, has the same risk as Lehman did at its peak.

However, one major distinction between the Fed and the ECB is that while the Fed continues to be shrouded in almost impenetrable secrecy on an absolute basis, it is transparent as a wet t-shirt competition during Spring Break at Panama City Beach compared to the ECB.

From Bloomberg: "Without information on the quality of assets on the ECB’s balance sheet or how far it’s willing to allow leverage to increase, investors may doubt the bank’s ability to prop up the financial system, and demand higher yields to buy some countries’ bonds, he said. S

Sovereign spreads could rise again if investors become uncomfortable with ECB leverage without a fully detailed rescue package,” said Tyce. “The ECB is providing liquidity and confidence to the banking system, yet all the while its own leverage and balance sheet size is hitting new highs.

It seems likely that the market will begin to watch the rising leverage with interest and growing concern."

think tank Open Europe indicates, "Through its government bond buying and liquidity provision to banks, we estimate that the ECB’s exposure to weaker eurozone economies has now reached €705bn, up from €444bn in early summer – an increase of over 50% in only six months, raising fresh questions about its credibility, independence and possible losses it may face in the case of future sovereign defaults."

Bottom line: the world's biggest hedge fund - ECB Capital LLC, Onshore Austerity Fund, is also the world's most insolvent. Which by implication means that when the ECB fails, and it will, it will be up to the Fed to bail it out."

JR said...

Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB,
International Risk Management Conference 2011,
Free University of Amsterdam, 15 June 2011
:

"The solvency profile of central banks also differs significantly from that of private financial institutions. The latter need to weight their risks against the financial buffers provided by their explicit capital position. In the case of the Eurosystem, its explicit capital position is determined by consolidated capital and reserves amounting to more than €80 billion, but also by revaluation accounts amounting to more than €300 billion. Although such explicit financial buffers remain a valid and necessary benchmark to assess the leverage and the risk-taking capacity of central banks, their financial strength cannot be fully captured by using capital adequacy metrics such as those applicable to private banks for regulatory purposes, as it has been done in a rather simplistic way by some commentators."

footnote

"From 5 September 2008 to 3 June 2011, Capital and reserves have increased by 13.2% (from €71.7 to €81.2 billion) and revaluation accounts have increased by 100% (from €152.3 to €305.9 billion). Total Eurosystem assets have increased by 31.8% (from €1441 billion to €1899 billion) over the same period"

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

The revaluation account includes assets such as gold, so the weakening of the euro against gold would in fact increase the revaluation account.

JR said...

Here is a thought from an email with FOFOA on what might happen if a nation-state or commercial bank disruptively defaulted and caused problems for the bonds on the ECB's balance sheet. FOFOA:

"Greece essentially borrows commercial bank liabilities which it spends. Then the commercial banks borrow CB liabilities which they use to clear all the spending. There are less CB liabilities floating around than there are commercial bank liabilities because you only need X base to clear about 10X M2/M3 etc…

The economy’s “money” is the commercial banks’ “liability” or obligation to provide CB liabilities which make up the base. The commercial banks can borrow these CB liabilities at a low cost. The argument is that the commercial banks’ balance sheets are insolvent because when you MTM their assets (Greek promises to pay back the loan of liabilities), they have more liabilities outstanding than they have assets (at MTM price).

The reasoning is that the commercial banks sell these assets on the secondary market when they need CB liabilities to fulfill their obligation to provide CB liabilities. So they should be MTM. But that’s not the only way they can obtain CB liabilities. They can also obtain them by borrowing them from the CB itself. In doing so, they sign their own “promise to pay back the loan” to the CB, much like Greece did for them. This “promise to pay” is held by the CB as its asset offsetting those CB liabilities it issued. But the CB doesn’t MTM that asset, because A) there is no market for those and B) the CB doesn’t need to sell those commercial bank promises to pay in order to raise euros for clearing. The only issue is a technical one regarding the collateral that would be confiscated by the CB if the commercial bank went bankrupt.

So let’s say a commercial bank does go bankrupt for whatever technical reason. The CB then confiscates that Greek debt that was used as collateral. The argument is that there are too many CB liabilities floating around out there versus the assets the CB holds, which are now Greek obligations rather than the (now-defunct) commercial bank obligations. So the market (superorganism) sez the euro should devalue. This is where the CB reserves come into play.

The CB can “buy back” some of its own liabilities with its reserves. If a commercial bank fails and the market tries to take the euro down, the CB simply defends the euro. And what do you think it would use first? It’s dollar reserves, or its gold reserves? Let’s say Greece defaults, which takes down some commercial banks and now the ECB has all this devalued Greek debt on its balance sheet so the marketplace attacks the euro. What would the ECB do?

It would first sell all its dollars to buy back its own liabilities. But what if… just saying, what if… it used its dollar reserves to openly bid for physical gold in London? What if it did this instead of buying back its own liabilities? Think about the RPG effect on its reserve account! Suddenly you’ve got Freegold and now the ECB can quietly buy back any excess liabilities using a very small amount of gold. Just sayin’"

mortymer said...

Hard-Soft gold...

http://www.hublot.com/wwwdata/news/pdf/2011/decembre/2011_12_15_gold_magic/2011_12_15_gold_magic_ENG.pdf

JR said...

Ummm, a meritocracy is not a form of government. Congrats, you don't know what you are talking about. Here's strategy tip - if you constantly assume others are idiots, you will very quickly reveal your position at the bottom of that ladder.

Wiki:

The "most common definition of meritocracy conceptualizes merit in terms of tested competency and ability, and most likely as measured by IQ or standardized achievement tests."[2]

Meritocracy itself is not a form of government, but rather an ideology.



Definition of MERITOCRACY

1 : a system in which the talented are chosen and moved ahead on the basis of their achievement

2: leadership selected on the basis of intellectual criteria

enough said...

Thanks JR....

So 4th option is the possibility that ECB breaks the glass, using it's $ reserves to "initiate" operation "FREEGOLD"?

So a PIIGS default (via commercial banks collateral at ECB and direct ECB purchased bonds would/could be the catalyst..........

I mean seriously, isn't it time to break the glass, break out the "extinguisher"

How far does this have to go before the ever so painless revaluation of gold reserves is set in motion? cheers !!

mortymer said...

Uh,oh, since the last time I checked the term "meritocracy" on wiki the page somehow grew. Anyway, keep in mind that:

"...Criticism
"The primary concern with meritocracy is that the unclear definition of "merit" itself. Different people often have their own standards of merit, thus raising the question of which "merit" has the best merits - or in other words, which standard is the "best" standard.

Meritocracy has also been criticized by egalitarians as a mere myth which serves only to justify the status quo, with its proponents only giving lip service to equality. In the words of sociologist Laurie Taylor:

“The hideous thing about meritocracy is it tells you that if you’ve given life your all and haven’t got to the top you’re thick or stupid. Previously, at least, you could always just blame the class system.”

A second concern regards the principle of incompetence, or the "Peter Principle". As people rise in a meritocratic society through the corporate ladder, they reach and are stuck at the first level of what they are unable to do."..."

Motley Fool said...

That set of video's is breathtaking, in a bad way.

Jeff said...

Well something is breaking somewhere. We are only discussing the response. Greece is the word.

Ekathimerini reports that "The government has decided to stop tax returns and other obligation payments to enterprises, salary workers and pensioners."

I wonder how the Greek bank run is going.

dave2004 said...

Hi Costata
I looked at the article from K.D. you mentioned and went also through the comment section.

KD (alias Genesis) seems to, ummh, have something against gold/goldbugs/gold's singularity. If I may cite:
"Note that the banksters -- and the bugs -- want GOLD as a SINGULAR specie [...] In other words they want to pick your pocket."
(whole thing on page 2 of the comments)

PS:I am an avid reader of FOFOA and the comments, I had to change again the login thing here, I can't manage to keep the same id :(

JR said...

"The primary concern with meritocracy is that the unclear definition of "merit" itself. Different people often have their own standards of merit, thus raising the question of which "merit" has the best merits - or in other words, which standard is the "best" standard."

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

"This trend toward global reference points is a practical—not a moral—evolution. It will continue whether we like it or not. It is an artifact of the human Superorganism....

As I wrote above, the trend toward global reference points is a practical—not a moral—evolution. It will continue whether we like it or not. It is an artifact of the human Superorganism...

What makes something a reference point is that everything else in its category is measured against it. Like the cylinder at the top of the page, all mass everywhere is ultimately measured against this one cylinder. For the category of value, the value of anything anywhere would be measured against the value of the reference point. And in the case of value, this reference point should be a thing that can be owned and valued by anyone anywhere, so that it acts properly as a baseline reference point for the value of everything else. It should also, ideally, provide the same utility to anyone anywhere.

The point is that it can't be something that is only found in Asia, or something that is only made in the US. And it can't be a product like a Big Mac that would not be valuable to vegetarians or food snobs. It needs to be something that has the same utility to everyone, that utility being that it is only something valuable to buy and store so that later you can redeem that value in some other way. A reference point can be used in its unit of account function even without the presence of the physical item. But the focal point item for a value reference point needs to be something that CAN actually be gotten and used exactly the same by anyone anywhere.

And as we continue on this train of thought, it becomes clear that the ideal reference point for value is, in fact, the single focal point reserve asset chosen by the human Superorganism."

Reference Point Revolution!

JR said...

He explained it to you years ago:

"Did you see my second FFPPDC? It is priced in bbl of oil. Don't expect this particular revaluation to come in ANYTHING else. Only gold. That is why it is called Freegold, and not Freeoil. This EPIC adjustment in only one thing is what will put the world back in balance. Back to a sustainable meritocracy."

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

MOAR from elsewhere:

"All of these subtle changes/differences will flow from the inevitable loss of the paper gold market that presently denies us the stable benchmark that is gold's ONLY job. As will the end of the seemingly infinite well of power that currently springs from the U.S. dollar printing press. And with the loss of this free-flowing fountain of power what I like to call a global **meritocracy** will emerge. And by global I mean on all scales, from national, regional and international on down to the individual.

Through the unavoidable **meritocracy** that is coming straight at us with the inertia of a runaway locomotive, we will witness the unexpected retreat of the social welfare state as well as the reversal of the destructive force of regulatory capture. You see, without the captive money of the savers to be diluted, the printing press becomes a self-defeating mechanism that will be controlled because it will be in the self-interest of the printer to do so."

FOFOA

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

"I don't think we will see an end to fiat currencies or even to the dollar. We may see the end of the dollar through hyperinflation, but even a severely devalued currency can still survive. Look at the peso! The transition I see lies mainly in the way savers and net producers will store their excess wealth. They will transition from debt-based storage to equity-based storage, primarily gold. This will remove the ability of the hungry collective to surreptitiously steal from the savers and producers. This will also remove the ability of the US to live above its means. It will force the world into a new meritocracy."
FOFOA

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

"The legal problems the US faces with regard to past gold history have only to do with controlling gold to avoid real meritocracy moving forward. This is why another confiscation or a new fixed dollar-gold standard are simply not in the cards. Both are attempts to control gold and end-run meritocracy. The world will not tolerate that again. Fool me once, shame on you; fool me twice shame on me."
FOFOA

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

"Once we start down the waterfall (see my The Waterfall Effect), the governmental analysis of the next best move will not be considering things that you fear right now, like confiscation from us little shrimpy goldbugs. (Also see my Confiscation Anatomy - A Different View post for more on this)

Sure they will fight. But the fight will have to be within the new paradigm the world has entered. And their moves will certainly be to the benefit of producers and savers in the world, because that will be in their own best interest. There comes a point where a country is only as strong as its producing class. I call that point "the meritocracy". It is the new paradigm we are entering where the natural division of power will be based on merit and credibility. (See my post The Judgement of Value)."

FOFOA

enough said...

from KWN (London Trader)....FWIW

The Chinese have continued to take delivery of both physical gold and silver directly from the ETF’s GLD and SLV. They are also going directly to producers.

Entities are bypassing the COMEX altogether and going straight to gold mining companies. Every single month producers have a certain amount of gold and silver they sell.

Normally they sell it to the bullion banks and the bullion banks, of course, leverage this gold and sell up to 100 times that in paper markets to control prices.”

“They (bullion banks) hold that little bit of physical gold and claim they are backed up on their position to the CFTC.

I have all my large buyers now going to producers and saying to them, ‘Look, don’t sell it to the bullion banks, we’ll buy it from you.’ So we are buying directly from the producers and this includes some sovereign entities which are doing the same thing.

We’re struggling to get the physical out of these guys (producers) because they have so many people banging on their door, saying, ‘Sell it to us direct.’ What these buyers are doing is essentially taking gold out of the system, which means the bullion banks can’t leverage that gold anymore.

These buyers are now cutting off future gold supply from the bullion banks....

“This is a huge, tectonic shift in price dynamics going forward because it is taking price discovery away from the bullion banks. These large Chinese buyers and sovereign entities which are doing this are going to have a massive impact on the market.

Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They don’t understand what is happening in the physical market. The bullish fundamentals I just described to you have enormous implications.

We are making a historic bottom right now. The paper gold, or virtual gold market, has diverged so far from the physical market that it’s no longer a credible marketplace.

That’s the key thing that came out of a very important meeting I was in yesterday where we had some serious players. The people I was meeting with are all on the buy side and have been since the lows last week.

There are massive physical orders, sitting, waiting for any more discounts, and yet everyone else seems to be short. So you have huge fuel for a rally here.

You have to keep in mind this recent plunge was orchestrated with borrowed gold and that borrowed gold is now gone.

That’s why gold can’t go much lower. Any dips in price will be aggressively purchased. As I said earlier, right now we are witnessing a historic bottom.”

So this is a huge, dynamic shift that wasn’t there before. Now we are working on one other thing. We’re beginning to offer them forward contracts.

If you are a sovereign entity, what you are saying to these producers, especially on new projects is, ‘Why don’t you sell the gold to me in 12 months. Here’s the cash, just provide it to me 12 months from now.’

JR said...

"Meritocracy has also been criticized by egalitarians as a mere myth which serves only to justify the status quo, with its proponents only giving lip service to equality."

I hate the state too, there's no need to conflate such inapposite ideas. On of my favorite childhood stories was Harrison Bergeron, and it still sticks with me. :) Don't doubt for a second I won't keep this up if you persist.

"There comes a point where a country is only as strong as its producing class. I call that point "the meritocracy". It is the new paradigm we are entering where the natural division of power will be based on merit and credibility."

Gary said...

Via ZH.....

'From Peter Tchir of TF Market Advisors

You Want The Truth? You CAN Handle The Truth!

I’m not sure exactly when it happened, but Europe has finally starting dealing in the truth.

Draghi can’t point out the limits of sovereign debt purchases often enough.

The EU, usually happy to let completely false rumor after false rumor to drive the markets, took the time to quash the idea of EFSF and ESM being increased in size. Not just, once, but twice, as Merkel has said it on the 13th, and it came out after yesterday’s conference call.

They even took the time to point out that they hadn’t been able to agree on 85% agreement. That could easily have been buried or ignored, but yet they chose to highlight it after their call yesterday.

Finally, they even went ahead detailing the relatively puny IMF/Central Banks bailout fund. The fund was disappointingly small at €150 billion, rather than the €200 billion that had been expected. The UK is out, but so are Portugal, Ireland, and Greece. Those 3 not being in makes sense, but this is the first time that I can remember that the EU gave us the numbers straight. Usually they would have announced the big number with caveats about various “stepping out countries” and “yet to be ratified” countries. Estonia, which has no debt, is not going to participate. Again, makes sense, but is a step away from the EU making everything sound bigger and grander than in the past.

I’m not really sure what any of this “truthfulness” means.'

My guess: the ECB is playing hardball, and the IMF/US will print again. Hope so!

mortymer said...

JR: :o)
IMO it is a bit more complicated as we enter the wider world of social sciences which are very hard to quantify and describe so I would rather not venture in this area.
I see it more as a set of rules, the niche in which the economy either prospers or not but there are internal and external factor affecting the end result.
Just today I stumbled on this one article which you would find maybe interesting. See my blog... starting with CNB, for more just translate from link.

victorthecleaner said...

enough,

the 'London Trader' is almost certainly fake. He is so fixated on the COMEX, this cannot be a person who knows the gold market. Just the sentence "Entities are bypassing the COMEX altogether ..." gives this away. COMEX is not made for deliveries. If you want to purchase gold, depending on how big you are, you go either to a coin store, to your bank or bullion bank, or to one of the refiners and buy what you like (or you purchase an entore mining company perhaps). Just the idea that someone would buy their gold via the COMEX is weird. The only exception I can think of is someone who used to hold and roll the future and who now decides this is not safe enough.

Gary,

"Draghi can’t point out the limits of sovereign debt purchases often enough."

As far as I remember, he always said so. It is just the financial press who were still dreaming of some magic unlimited money printing.

Victor

enough said...

Hi V.C. ......

not arguing your point on L.T. but this come from Harvey Organ......it does seem there is quite alot of gold standing for and being delivered this month at Comex?

Harvey from yesterday.....


"CME notified us that we had only 15 delivery notices today for a total of 1500 oz.
The total number of delivery notices filed so far this month total 21,187 for 2,118,700 oz of gold served.
To obtain what is left to be served, I take the OI standing (361) and subtract out today's deliveries (15)
which leaves us with 346 or 34600 oz left to be served upon.

Thus the total number of gold oz standing in this delivery month of December is as follows:

2,118,700 oz (served) + 34600 oz (to be served) = 2,153,300 oz or 66.97 tonnes.
If we had November's 1.77 tonnes then we have for the two months: 68.74 which is 73.77% of total registered (dealer) gold."

Robert LeRoy Parker said...

Bron said...

"ANOTHER's tales may not be “the speculations of your typical market analyst” and “at the level of former Oil Ministers and National Security Advisors” but that may be the problem. Were he and FOA too high level and unaware of the practical implications for the physical industry?

My feeling is this part of Freegold as described by ANOTHER and FOA is lacking and needs to be expanded upon."

So how about it. Are you out there ANOTHER and FOFOA? Hellooooooo?

Please participate in this blog. That would be great, mmmkay.

Robert LeRoy Parker said...

woops, I meant ANOTHER and FOA*

Ears don't bite here. JR takes care of that.

So seriously, I think everyone would like you to come back.

victorthecleaner said...

RLP,

I am neither Another nor FOA, but I still have a comment.

If freegold 'happens', then the refiners would be part of the collateral damage. Firstly, are they needed that desperately? No, there is enough above ground gold.

Secondly, alright, the refiners may have so far funded their inventory by taking out fiat loans that are secured by their gold inventory. This might become pointless because the lender, according to some future law, would no longer be able to seize the gold in case of a default (but rather become just one of many creditors of equal standing in case of bankruptcy). What does this tell us? Well, the refiner will have to take out an unsecured loan. Yes, such a loan might carry a higher interest rate. Still, the refiner is a sound company with quite a predictable business, and so it would probably not even be too bad. Who cares?

Finally, many companies will have to operate with a higher proportion of equity and less leverage. Does anyone claim this would be unhealthy?

Victor

Gary said...

Bill Dudley testified recently (last week?) that the bar would be very high for the Fed to start purchasing Eurozone govts' debt.

I'll bet that bar is cleared with room to spare at some point in 2012.

Maybe add in some Japanese bonds, a few Gilts, to avoid upsetting one's allies.

Go Bennie, buy it all.

Nickelsaver said...

JR,

You said:

Ummm, a meritocracy is not a form of government. Congrats, you don't know what you are talking about. Here's strategy tip - if you constantly assume others are idiots, you will very quickly reveal your position at the bottom of that ladder.

Wiki:

The "most common definition of meritocracy conceptualizes merit in terms of tested competency and ability, and most likely as measured by IQ or standardized achievement tests."[2]

Meritocracy itself is not a form of government, but rather an ideology.


Definition of MERITOCRACY

1 : a system in which the talented are chosen and moved ahead on the basis of their achievement

2: leadership selected on the basis of intellectual criteria


I assume this was a response to what I said:

A meritocracy is more of an idealistic form of government than a tangible one. We cannot expect that the virtues of intelligence and morality would win out against the natural instincts of power and greed. To do so would be naive.

I think that if you reread my comment you will see that I am basically saying the same thing as your quote from Wiki. I called it "idealistic" as opposed to "tangible".

And if we are talking about a "system" in which "leaders" are chosen, that is nothing more than a basic definition of government.

Even if you assume that I think of others as idiots (which I do not) that certainly is no cause for an Ad hominem response.

Also found within the wiki you quoted:

In government applications, individuals appointed to a meritocracy are judged based upon certain merits which could range from intelligence to morality to general aptitude to specific knowledge.

My understanding is that, even if you took the position that a meritocracy is not itself a form of government, it would still require a Government that was compatible with its values, therefore defining that government as meritocratic.

Cheers

Free Beer said...

I was blown away by the North Korea documentary, and promptly watches VICE's other travel guides as well. The guide to Liberia was particularly good and/or terrifying.

One nit pick however is that about 25% of the weirdness can be attributed to the fact that he was on a Chinese style tour. Karaoke, strange tea rooms, and empty meal halls with bland food, being woken up at odd times and shuttled between attractions are standard on such tours.

The remaining 75% is, however, weird beyond belief. Perhaps like a parallel universe where Mao had a son who kept Maoism going until the present day? I'm no expert in the flavours of Communism, however.

Victory said...

Victor, fwiw I'm pretty certain the Lonon Trader is Andrew Maguire

-v

Michael said...

nothing like a good JR 'straightening out' of some hapless commentor to make my day. Always with so much love.

poopyjim said...

Nickelsaver said:

My understanding is that, even if you took the position that a meritocracy is not itself a form of government, it would still require a Government that was compatible with its values, therefore defining that government as meritocratic.

Or maybe it would just require a government small enough not to screw with the natural meritocracy of the free market? Perhaps a government that was constrained from engaging in perpetual deficit spending, because savers have an alternative to saving in its debt?

Hmmm... food for thought

MatthAu said...

"You see, the ability to print transactional currency is a privilege that can be legislated. But having people choose to hold your currency for any length of time is an additional privilege that must be merited and earned." -Synthesis

MatthAu said...

FWIW, I think this merit stuff is not political at all. Whatever ocracy is en vogue the politicians will be constrained by freegold, and merit will show in the value of their currency vs other fiats and ultimately vs gold.

sean said...

This debate about meritocracy seems to hinge on WHO is understood to be judging and enforcing the promotion of the meritorious. The point with Freegold is that it there is NO person judging or enforcing it - it's an emergent property of the system. Those who work and save are rewarded, while those who cheat, are punished (by the system). This applies at all levels from individuals to countries. The emergent Freegold "ideology" contrasts with the one which emerges from the defective system we have now, where savings are taxed, and debtors are rewarded.

Nickelsaver said...

PJ,

Thank you very much for putting yuour finger on my original point which was

We cannot expect that the virtues of intelligence and morality would win out against the natural instincts of power and greed. To do so would be naive.

If you could show me a government that could mitigate that. I would like to know it.

poopyjim said...

Nickelsaver says:

We cannot expect that the virtues of intelligence and morality would win out against the natural instincts of power and greed. To do so would be naive.

I guess I don't agree with your point. There probably exist a great deal of welfare recipients who are intelligent and moral, same with federal bureaucrats. Is it meritocratic to reward these folks to the exclusion of those who work hard producing goods & services for which there is actual market demand?

If you could show me a government that could mitigate that. I would like to know it.

My point is that for any meritocracy to emerge requires a "too big" government to fall on its sword and die. When the government picks winners and losers, there is no meritocracy, there is the opposite.

Nickelsaver said...

PJ,

Yes, you make my point well. What government ever fell on its own sword? And what government that ever replaced a former government purposefully mitigated its own power. If there ever was one, it was the American one. The founders knew that absolute power corrupts, and so the division of powers. It had a long run, but power still corrupted.

JR said...

Mortymer,

Cheers:

IMO it is a bit more complicated as we enter the wider world of social sciences which are very hard to quantify and describe so I would rather not venture in this area.

Glad we agree. So you also see the absurdity of conflating those admittedly different ideas with the meaning discussed by FOFOA. Instead, we should discuss FOFOA's idea, and leave the other banter for elsewhere.

LET'S WHIP CONFLATION NOW!!

PS: Harrison Bergeron has a deeper satire, one that mocks 1960ish American cold war attitudes as to the nature of the egalitarian aims of the opposing collectivist/ communist/socialist ideology. Ideology is crap, but so is ignoring the fact that ideology is basically LCD pandering that often flows from a more subtly nuanced and deeply more enlightening set of thoughts.

It's real important to listen, you agree?

JR said...

Ahhh I see Nickelsaver,

And if we are talking about a "system" in which "leaders" are chosen, that is nothing more than a basic definition of government.

It's rare to see someone who gets this fundamental point about anarchy. Anarchy is not the absence of order, it's the absence of a central authority dictating the order. Spontaneous order.

So you think anarchy is government?

To bring it closer to here, you think the Superorganism is a government?

I certainly see truth in the thrust of your sentiment, in that many associate government with structure and order, but government is defined differently that this, no?

JR said...

Go go sean!

Michael H said...

Catching up on some comment responses ...

Aaron, (response to December 1, 2011 7:48 PM comment):

"What do you think FOFOA? Did Gideon miss the boat on the whole idea of the Euro?"

As you quote in the article,
"Gono says Zimbabwe should in fact be looking to the Chinese yuan as its main currency, while urgently seeking to restore its own currency which was abandoned in 2009 after a dramatic loss of its value."


I think what Gono is really after is to restore his own currency. Since he lost the use of the currency to the dollar, anything that pushes the dollar aside in his country will be seen as a plus.

victor,

"I have another scenario that I still consider plausible, namely that the LBMA banks will eventually have to bid up the price of physical gold high enough in order to cover all their unallocated liabilities. And the Fed/BoE would print the money necessary to facilitate this. Just to avoid the consequences of a failure of the 'official' gold market."

Can you flesh this thought out a little for me? I am having trouble following.

Since unallocated liabilities are metal-denominated, wouldn't bidding up the price of gold increase the liabilities of the LBMA banks?

Or is what you are saying the following: the LBMA banks will bid up the price of gold, so that gold will be mobilized from stock to flow, and the banks can buy some physical to deliver to their customers and close out their metal-denomitaed unallocated liabilities. The central banks will print the money necessary for the banks to do this, as otherwise they would not be able to 'afford' the gold at this price.

costata,

"So it is my contention that neither the US dollar nor the Euro’s use in trade, and as a CB asset reserve, is a leading indicator of a “changing of the guard”. Neither is the exchange rate between the Euro and the US dollar. The Euro is in place, ready as the “in case of emergency please break glass” international trade currency. And physical gold is designated as the primary global reserve asset (SoV) under this Euro Freegold-RPG architecture to avoid the poison chalice of the Euro becoming the new global reserve currency."

Things are starting to get a bit clearer now. Europe will not need to run a PR/educational campaign to promote gold as a SoV. If they play their cards right, then they will keep 'supply' in the driver's seat, controlling the currency, as FOFOA put it.

Their situation will be similar to what the Swiss faced recently: the Euro will be spiking up in value as demand for Euros for use in trade rises, and in response the ECB will print Euros with abandon to buy gold. Those that held Euros for SoV/safety trade will be taught the error of their ways by the school of hard knocks.

Michael H said...

Jeff,

"Putting the pieces together, Rickards sees the US 'confiscating' Euro gold stores in the US. At the same time the new SDRs will be issued."

If the US was to confiscate Europe's gold, what would that do to the paper gold market? To the value of physical gold? To confidence in the $IMFS?

This possibility seems more like a red herring to scare gullible shrimps than a real threat.

FOFOA,

Was Bear a Maine Coon? I love Maine Coons!

Michael H said...

When we talk about the repricing of gold, we're usually concerned with 'supply', i.e, that the paper gold market is fractionally reserved, and so a conversion to unanbiguously-owned gold will reduce the available gold 'supply', leading to an increase in price.

But as some here (victor? Bron?) have written, paper gold in itself does not increase supply. Unallocated gold increases supply. But what I haven't really seen discussed is that paper gold increases gold velocity. And as FOFOA has written with regards to $-hyperinflation, a 50% increase in velocity has the same effect as a 50% increase in supply!

JMan1959 said...

JR,Fofoa,

"But what if it used its dollar reserves to openly bid for physical gold in London?"

Just thinking through that nuclear option. Doesn't the ECB use the paper gold markets to mark their gold assets to market on a quarterly basis? What will ensure that their physical purchases will have any affect on the paper gold price that they use to mark those assets? We are told of huge purchases by China, Mexico, etc.... allegedly at much higher prices, and yet they don't even seem to phase the paper market. Can they even purchase enough physical gold to outrun the printing press?

Nickelsaver said...

Sean,

Anarchy...simply defined as the absence of government, would not be sustained at any length. Nature abhors a vacuum, human nature even.

There will always be a "big ruler".

To suggest that a meritocracy finds its room to breathe under the guise of a small or non-existent government, I find that naive.

Although, perhaps the illusion of a meritocracy will abound for some time.

As far as Freegolds ability to emancipate the monetary spectrum, I could see it for a time, but not forever. He who has the most gold will rule.

That being said. I believe in gold. I do not believe in man.

victorthecleaner said...

Michael H,

Or is what you are saying the following: the LBMA banks will bid up the price of gold, so that gold will be mobilized from stock to flow, and the banks can buy some physical to deliver to their customers and close out their metal-denomitaed unallocated liabilities. The central banks will print the money necessary for the banks to do this, as otherwise they would not be able to 'afford' the gold at this price.

Yes, precisely.

But what I haven't really seen discussed is that paper gold increases gold velocity

I am not sure about velocity, but of course uncovered unallocated gold is synthetic supply. This has an effect on the price even if it is turned over only at the same rate as the allocated gold.

Nobody here has the precise data (unless we have a BBanker here who has not yet come forward). The little I know, for example, is that LBMA clears about 500 tonnes of gold per trading day. Question: Is this all allocated?

Just for comparison, with 250 trading days per year, all the gold ever mined would be turned over once a year through LBMA alone. And we know that the bulk of the 30000 tonnes of CB gold are not part of this, nor all the jewellery and all the gold that changes hands at the coin store level. No way this can all be allocated. So, yes, it is pretty obvious that most of the gold traded at the LBMA is unallocated.

Victor

Michael H said...

victor,

"I am not sure about velocity, but of course uncovered unallocated gold is synthetic supply. This has an effect on the price even if it is turned over only at the same rate as the allocated gold."

Yes, of course. I think this is how the issue of paper gold is usually looked at, as 'synthetic supply'.

As you point out, that "all the gold ever mined would be turned over once a year through LBMA alone", this trading volume is made up of a combination of unallocated/synthetic supply and large turnover.

We usually talk about the synthetic supply disappearing in order to bring about freegold, i.e. defaulting of unallocated accounts. But a drastic decline in paper market volume could have the same effect on gold prices.

Said another way, could the paper market charade be maintained in the face of declining unallocated account balances by making the difference up with increaseing velocity and turnover?

I'm not really going anywhere with this at the moment, just thinking out loud.

M said...

@ VC

Gerald Celente of all clowns and Bill Fleckinstien buy physical gold off of the COMEX. Just sayin...

enough said...

GLD PUKE ALERT....

12.1 TONS

FOFOA said...

Thanks enough. I emailed your comment to Lance and he came back with, "nope. wasn’t over a percent. doesnt count."

So not enough for him to add it to the chart. But still noteworthy IMO so thanks for keeping an eye on it.

Anyone watching the COMEX? I see that 3.2 tonnes were moved from Registered to Eligible (step 1) since yesterday (at JPM) and another 6.3 tonnes were withdrawn from Eligible (at HSBC, Scotia and Brinks). So it looks like 9.5 tonnes working its way out and none going in. See my comment here for the link.

GLD minus 12.1 tonnes (today)
COMEX minus 9.5 tonnes (today)

Somebody is getting theirs! Did you get yours yet?

Aaron said...

Japan's Ginza Tanaka puked up a few hundred ounces for nice Christmas tree.

Nickelsaver said...

JR,

My bad...last comment should have been addressed to you.

Continuing from my last statement, that I don't believe in man.

I think that one's perspective of the present, and belief in the future, stems from their understanding of the past.

With this in mind. I think that I can safely say that we view the past differently.

I view the world through pre-Darwinian eyes. I am of the conviction that man is not an evolving good, but rather a fallen creation.

So when I look at the writings of FOFOA/FOA/A, I see a great deal of undeniable truth. I believe in an inevitable paradigm shift. I am more confident than not that gold has, and will, absorb the wealth spilling out of the current system.

But what you see as inevitable, a Freegold enabled meritocracy. I see as the beginning, the last surge of man, an attempt to become within himself, what he was never designed to be apart from his Creator.

mortymer said...

http://goldchat.blogspot.com/2011/12/goldmoney-is-no-longer-gold-money.html

"Digital Gold Currency Magazine is reporting that GoldMoney is suspending the ability to make and receive payments in precious metals to or from other GoldMoney customers due to the "global increase of compliance requirements for payment service providers."
...
Freegold anyone?"

mortymer said...

NOTE:
I hope that nobody missed these comments here:

http://goldchat.blogspot.com/2011/12/my-thoughts-on-freegold.html

***
Then there is interesting info in BIS, IMF pages, search "Kissinger".

e.g. Timothy F. Geithner employed here:
http://en.wikipedia.org/wiki/Kissinger_Associates

or

"The oil-price shocks of the 1970s
U.S. Secretary of State Henry Kissinger called for a new Atlantic charter to coordinate the responses of industrial countries to the oil-price shock of 1973–74. Both the IMF and the Organization for Economic Cooperation and Development (OECD), then comprising mainly wealthier industrial economies, responded by developing proposals for a financial facility to recycle the surpluses of oil-exporting countries. The OECD plan was to create a Financial Support Fund by borrowing from oil exporters and lending to OECD member countries. With strong backing from both the United States and the major European countries, the OECD quickly negotiated a treaty establishing the support fund. But even before the OECD facility was in final draft form, the IMF had established an Oil Facility that was borrowing from oil exporters and rich countries and lending on low-conditionality terms to oil-importing countries, both industrial and developing. Political support for the OECD proposal vanished, and the treaty was never ratified."

http://www.imf.org/external/pubs/ft/fandd/2009/03/pdf/fd0309.pdf

***
I will add it here later:
http://revisiting-gordon-brown-bottom.blogspot.com/

Gary said...

Fascinating stuff re the Yamani interview, thanks for the link Mortymer.

I have been trying to find the full interview transcript that FOFOA refers to in his post on CNN, and the wider web, but with no luck yet.

Any readers (or FOFOA) have a link to that please?

I thought I'd grasped the 'oil for gold deal', but this new angle means more reading and thinking for me!

Right at this moment I am pondering

'was the dollar depegging from gold the reason that Opec pushed up the price?', or conversely

'Did the US depeg from gold deliberately in order to push up the oil price?'

It would seem the latter, or maybe somehow both. My understanding prior to today was they depegged in order to avoid their gold reserves being exhausted (by the French etc).

ElaisaKasan said...

From page 16 of the Keenan PDF at http://tiny.cc/0v9d2

During the course of its existence over the last century, the Dragon Family has accumulated great wealth by having provided the Federal

Reserve Bank and the United States Government with asset assignments of gold and silver via certain accounts held in Switzerland, for
which it has received consideration in the form of a variety of Notes, Bonds and Certificates such as those described in section 2 that are
an Obligation of the Federal Reserve System. ... these Bonds have values ranging in the many Thousands of Trillions of United States Dollars, ... and remains duly registered within the Federal Reserve System and are directly verifiable by the Federal Reserve through its efficient verification system and screening process.

Thousands of Trillions of United States Dollars?
So, how much gold is this?

/SleepingVillage/ said...

EK,

David Wilcock/Ben Fulford storytime BS... These types of people need more reality and less la-la land.

The same "story" states there are millions of tons of "secret" gold, held off the books. The Chinese apparently exploited secret, VASTLY rich, gold mines for thousands of years. They say the Dragon Family used these millions of tons to build America;)

It's good theater! lolz! The millions of tons of gold part is total bullshit. The Dragon family could exist... none of my business.

Gold mining is my business.

I recently had a little discussion on this topic, if you're inclined to look into it further. Read through the comments and form your own opinion.

Maybe I was a little harsh:)

I'd be willing to discuss this further, but not at that particular website. The dude rubs me the wrong way. I would love for someone to bring an actual logical argument as to where exactly these MILLIONS of tons came from.

DDT

enough said...

Peter Tchir of TF Market Advisors

"A Funny Thing Happened On The Way To The LTRO"

"Banks in weak countries have been issuing debt, getting a government guarantee, and then posting them as collateral at the ECB. There are examples of this for Greek banks for sure, but my understanding is it has also been occurring in Portugal and Ireland. It is the only way banks in Greece (and the other countries) can raise money

But it appears about €40 billion of yesterday’s LTRO was done by Italian banks that issued bonds to themselves and got a government guarantee, and then posted it to LTRO.

Unicredit issued these bonds on the 20th. It was by far their largest bond issuance in more than 2 years. Nothing else in that timeframe was bigger than 2 billion.

Intesa Sanpaolo had an even bigger issue. I’m sure there are others.

So these banks didn’t have any other collateral they could post? Unicredit has a balance sheet approaching a €TRILLION but they had nothing they could post as collateral?

That seems strange. Extremely strange.

To the extent people hoped these banks would buy sovereign debt, they have actually created MORE sovereign debt. Italy supposedly guaranteed these bonds. Italy just increased their potential debt burden by providing this guarantee. This is taking the All for One and One for All approach to an extreme.

I’m still somewhat constructive about what the ECB is doing, but this idea of banks issuing bonds to themselves, getting a government guarantee, and posting it as collateral at the ECB to pay for the purchase, is worrisome. The fact that it wasn’t just one bank that did this is even more troublesome. It is so circular, that I may be overreacting, but it certainly doesn’t pass a smell test

Monti kind of rhymes with Ponzi and too many banks did this for it not to have been supported, if not directed by the government."

my comment.......at risk of sounding ignorant

1) LTRO is a joke

2)ECB is encouraging double/triple/quadruple down of banks exposure to their respective sov. debt

3) ECB encouraging banks is issue bank debt to themselves and posting as collateral

4) ECB credibilty and independence is a joke

5)this will end in tears as ECB now has even more junk bank and sov. collateral and ECB leveraged well over 30X

5) this "can" the ECB is kicking is made of lead .....

please someone extoll the virtues of the ECB again......I'll really try hard to understand

I know , I know.....seapartion of the nation state from CB function, got it !

That does not seen to me to be what is going on here....

Gary said...

I found the Yamani transcript here:

http://www.bi-me.com/main.php?c=3&cg=4&t=1&id=48966

enough said...

oh, and this LTRO was such a resounding success that the ECB had to come in within hours and buy PIIGS sov. debt in the open mkt .......what a joke

JR said...

3yr LTRO: Breaking or strengthening the banking/sovereign feedback loop?

"The 3-year LTRO was announced by ECB president Mario Draghi following the December governing council meeting, alongside (among other things) a drop in collateral requirements at the ECB. These measures were designed to short circuit the endless feedback loop between sovereigns and banks by sticking the ECB right in between them. The idea is for banks to offload questionable assets from their balance sheets in exchange for cheap liquidity from the ECB, which banks can use to lend and invest as banks are meant to do. Will attempts to break the circular reference between sovereigns and banks and prevent the interbank markets from freezing succeed with this new 3-year LTRO, or will banks take advantage of the carry-trade and strengthen the feedback loop?

[...]

A question of risk

The 3-year LTRO will undoubtedly be used by some banks to purchase sovereign debt, but mostly it seems the operation will be used mostly to fund bank’s existing asset holdings. According to the last European Banking Authority (EBA) stress tests that were published on December 8th, European banks have sold off €65bn of peripheral sovereign debt over the past nine months. The EZ crisis has only intensified over the past 9 months, with EU leaders failing to devise a way to draw a line under it. Without a turning point in the crisis, why would banks pull a 180 degree turn and start buying peripheral sovereign debt again?

Banks are also likely to shun peripheral debt in case the crisis worsens. Sovereign debt held in trading books must be marked to market. If the crisis worsens, banks will face margin calls on the bonds used to raise cash in ECB repo operations. Banks will also have to post more capital if the sovereign whose debt has been pledged is downgraded by a credit rating agency, which seems very likely. The amount of additional capital banks would have to find would rise even further if the EBA were to hold another stress test that imposes a haircut on sovereign debt and demands additional capital for potential losses.

[...]

Looking forward

Rather than parking sovereign debt at the 3-yr LTRO window, it seems banks may increasingly take advantage of the lower collateral requirements to draw liquidity from the ECB. Banks may begin to issue their own debt, receive a government guarantee for it for a small fee and repo it in the longer-term LTRO window for cheap financing."

JR said...

Hi enough,

the above author, Megan Greene, predicted **ahead of time** that: "Rather than parking sovereign debt at the 3-yr LTRO window, it seems banks may increasingly take advantage of the lower collateral requirements to draw liquidity from the ECB. Banks may begin to issue their own debt, receive a government guarantee for it for a small fee and repo it in the longer-term LTRO window for cheap financing." Why do you think she expected this?

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

Do you think its interesting that **after the fact,** Peter Tchir of TF Market Advisors (re-pubed on ZH) gets all worked up over this, as if he didn't know that's what they would do? Why do you think he didn't expect this to happen when lots of other analysts did? Do you think it has something to do with their respective knowledge of stuff like the Eurozone banking sector and the ECB? Peter wrote:

"But it appears about €40 billion of yesterday’s LTRO was done by Italian banks that issued bonds to themselves and got a government guarantee, and then posted it to LTRO.

Unicredit issued these bonds on the 20th. It was by far their largest bond issuance in more than 2 years. Nothing else in that timeframe was bigger than 2 billion.

Intesa Sanpaolo had an even bigger issue. I’m sure there are others.

So these banks didn’t have any other collateral they could post? Unicredit has a balance sheet approaching a €TRILLION but they had nothing they could post as collateral?'

enough said...

The fact that the EGCB (euro garbage can bank)needed to come in to the open mkt to buy PIIGS debt directly within hours of LTRO completion suggest the "carry trade" was not put on aggressively by the banks as was anticipated.

In the financial world I remember, banks didn't issue large swaths of bonds to themselves and then pawn it off as collateral for liquidity.

I guess this means there are no natural buyers for the banks debt which means the EGCB is the lender/buyer (whatever) of only resort to the euro banks and PIIGS.

A mountain of trash about to tumble down. This all reminds me of the classic B-movie "idiocracy". Gatorade makes everything grow, like the EGCB balance sheet and euro sov. debt......

enough said...

Thanks JR...

I guess I would ask you, what does this LTRO program really solve ? Keeping the banks on life support for a little while longer? To what end?

EGCB seems to be giving out dayquil to ease the symptoms and not addressing the illness itself.

I guess thats the sov.'s job, not the EGCB's job but with the EGCB taking on these programs it mitigates the need for the sov's to take the difficult necessary action and puts the EGCB in a very precarious place.

Unless it aims to break the glass and ultimately use it's $ reserves to buy gold in the open mkt......freegold

But if that's the case, why go through all these other machinations now. I'm sure they have their reasons which are not apparent to me but IMHO so much credibilty has been used up. It's time for the nuclear option.

I'm not sure what I'm saying even makes sense but I'll tell you what.....I'm fed up with this crap !! round and round she goes, where she'll stop, no ones knows....thanks for your input and happy holidays, cheers E.

Edwardo said...

Enough wrote:

"I guess I would ask you, what does this LTRO program really solve?"

I realize, or think I realize, that your question is rhetorical. However, these operations are, in effect, only useful, and then only barely, as exercises in what Jim Sinclair calls MOPE which I believe stands for Management of Perception Economics.

These sorts of initiatives used to have a much longer half life but now that reasonably educated onlookers have A.) seen a lot of this sort of thing before and B.) recognize the increasingly preposterous nature of the most recent programs, the MOPE half life can now be measured in hours not days or weeks.

enough said...

Hi Edwardo,

yes in s a sense rhetorical. this is why I mentioned the "lead can" in relation to the half lifes of these MOPE programs.

Speaking of lead.....paper gold acts like dead weight. All "risk assets (stocks, base metals, energy) up, euro up and paper gold sickly.

75% of registered comex inventory standing for delivery in dec. GLD spitting up gold. China buying record amts. of physical in sept/oct. Almost 10 tonnes of client gold heading out of comex.

Technicals (Stochs., bull/bear readings) are super oversold, GLD puke indicator triggered and paper gold sitting near lows......

Surprised there is so little comment on the action. Isn't this what we are here and waiting for? To try to figure out if this is IT? Sure feels like IT. I was hoping some with keener insight than myself would comment on, well, what's going on with GOLD ! cheers

JR said...

5/3/98 ANOTHER (THOUGHTS!)

The urgent drive to create a new "reserve currency" began in the early 80s, after the last small "gold war". The road to making this new Euro did never include gold in large amounts, until the last few years! Even one year ago, the news would say, 5% or less. Today, we speak of a much greater amount! This is interesting, yes? The BIS did "hatch" this deal in a very late fashion! The future of the Euro was found to be "weak", as the Middle East oil imports onto the continent would continue in dollars! This was so from the dollar being made strong in gold. Gold priced in dollars at near production cost, offered a "no switch currency" position, for oil. This position has been unstable for the last year, and the alternative of a switch to gold was in progress! You have read my "Thoughts" before. Now the BIS does offer to "change the rules of engagement", a real reserve currency is offered!
Few do grasp what is happening and why!...

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

5/21/98 ANOTHER (THOUGHTS!)

...

As in real war defense, of today, some countries hold a much lesser army, and depend on "the alliance" with other stronger nations to defend them. Such it is with the currencies! Many states hold but a few "digital currencies" as reserves for currency wars and see no need for "gold nuclear weapons". They sell off these weapons and do join "the currency alliance" of stronger nations. We see this in Europe, yes?

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

FOA (08/13/01; 07:24:30MT - usagold.com msg#96)
Political Gold 2

...

Several years ago, many gold bugs and gold advocates missed the path as the trail turned. Something I pointed out at the beginning of these "message" talks. As most of you will no doubt agree, almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

Yes, the war now is between the Euro and the dollar!

cont.

JR said...

cont.


Trail Guide (08/21/00; 21:04:03MT - usagold.com msg#: 35283)
Reply

...

This is where the dollar has drifted into dangerous waters these last ten or twenty years. If you have read most of Another's and my posts, it comes apparent that preparation has been underway for some time to engineer a new currency system. A system that will evolve into the dollars slot once it dies.

Out here, in deep water, we can feel what the Euro makers are after. No one is looking for another gold standard, or even something that will match the long life and success of the dollar. We only know that the dollar's timeline is ending and a new young currency must replace it. No great ideals, nor can we save the world! But a reserve currency void is not acceptable.

Now look back to shore and watch the world traders kick ankle deep water in each other's faces over the daily movements of Euros. From here, up to our necks in blue water, you ask "What the hell are they doing?" I'll tell you. They are trying to make $.50 on a million dollar play! Mostly because they are seeing the chess game one move at a time. (smile) Truly, their real wealth is in long term jeopardy.

Our dollar has already entered a massive hyperinflation. Its timeline is ending and there will be no deflation to save it...

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

FOA (12/02/00; 11:40:02MD - usagold.com msg#49)
An analysis for the time ahead.

...

A new reserve currency with gold valued at super high levels will support debt transition into that next currency system far better than a restructure of real US economic production repayment ever will. Such an avenue of escape for investors and world traders completely cuts off any attempt by the US of engineering a deflationary landing. Such a landing can be explained and distilled into many esoteric forms that bear little resemblance to a classic deflation. But all, in the final measure, require deflation and a lesser settlement of debts. It will not happen.

In our time and for the first time in the modern US dollar history, the US will embark into a classic hyperinflation for the sake of retaining it's own lessened dollar for trade use.....

JR said...

The Euro just needs to hang on as the dollar hyperinflates itself to stay afloat. The politics of the Euro are a sideshow, it is far better off than the dollar and has the nuclear option if need be. But the Euro is not in such dire straits yet.

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

Don't believe all the noise, and there's a tonne of it right now. They don't know what they are talking about. The euro survives and thrives regardless of how the European debt crisis is ultimately resolved, and no countries will leave the euro. In fact, there are countries trying to get in, and none that will leave short of a coup, revolution or state failure, which isn't even a consideration right now. And even if that happens, the euro will still survive and thrive while the country that leaves will suffer greatly, the local hyperinflation that will ensue being the least of their problems.

Spend some quality time with the Eurosystem's balance of payments and marvel at how remarkably balanced Europe is with the rest of the world. Then compare that with the US balance of payments. As just a quick example, in April (one month) the Eurozone imported only €4.1 billion more goods than it exported. The US, on the other hand, imported $58 billion more goods than it exported, and April was the lowest month yet this year for the US. Of course that's just goods. For services, the US exported $14.5 billion more services than it imported. How much of that do you think was "Wall Street financial services"? Europe also exported more services than it imported, but only €2.8 billion.

So for goods and services combined, the Eurosystem ran a trade deficit of €1.3 billion in April, while the US ran only a $43.5 billion deficit (down from its previous normal $50 billion, but back up in May). Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year. The Eurosystem (even with those lazy PIIGS) actually ran a trade surplus for the year, exporting more goods and services than it took in! So how can that be? As a currency representing a community of more than 300 million people, the euro is quite healthy compared to the dollar!

Of course there is a huge imbalance inside Europe between the states running a large surplus and those running a large deficit. But with a shared currency the adjustment pressure for such an imbalance is foisted elsewhere, not on the currency. It lands squarely on the politicians, who, like Costata said, couldn't be a more deserving bunch of Aholes. For the dollar, the structural deficit and debt of the US places a massive devaluation pressure directly on the dollar. But for Europe the currency is balanced with no (or very little) adjustment pressure.

The economic flow of goods and services within Europe will of course have to contract as the imbalance retreats. If the euro weakens on the global currency stage Europe will start running an overall trade surplus again, like China, which will soften the blow of a contracting internal economy. If the euro strengthens, things like cheaper oil will help soften the contraction. Internally the politicians have their hands full. No doubt! Externally, the euro is just fine. To the euro, just like FOA said, the politics of the PIIGS and Germany are little more than a sideshow.

And notice I didn't even mention gold yet. Anything that would appear to seriously threatens the euro, like an outright sov. debt default, would explode the price of gold which would simultaneously rescue the euro balance sheet and kill the dollar.

FOFOA

JR said...

enough,

Surprised there is so little comment on the action. Isn't this what we are here and waiting for? To try to figure out if this is IT? Sure feels like IT. I was hoping some with keener insight than myself would comment on, well, what's going on with GOLD ! cheers

Apparently unambiguously owned wealth is soooooo not in vogue. FOFOA:

GLD minus 12.1 tonnes (today)
COMEX minus 9.5 tonnes (today)

Somebody is getting theirs! Did you get yours yet?


As Jim Sinclair said:

"Take care of yourselves, because nobody else is gonna do it for you. Have what you own, otherwise you don't own it."

enough said...

Hi JR,

you said...

"The Euro just needs to hang on as the dollar hyperinflates itself to stay afloat. The politics of the Euro are a sideshow, it is far better off than the dollar and has the nuclear option if need be. But the Euro is not in such dire straits yet."

and I totally agree but does the ECB have to heap all this trash upon itself and come up with one hairbrain scheme after another in order for it to "hang in there"? It seems to me that the ECB and euro would be better off playing hardball and making the sov.'s/ politicians take their medicine instead of giving hope that they will not have to.

Would not the Euro be even more credible without this semi pandering to sov's by buying their bonds and slowing the implementation of reform?

IMHO the Euro survives and garnishes even more suport as a new global reserve currency without resorting to this SMP, LTRO monkey business

but what do I know....seriously :-)

enough said...

JR,

You can ask FOFOA, I have taken FULL possession of my savings.

I have keen interest as to what others are thinking about the paper mkt here.......it's a one time event....like a visible supernova

I'm probably wrong but I feel like it's just about to implode?

Edwardo said...

"I was hoping some with keener insight than myself would comment on, well, what's going on with GOLD ! cheers."

Enough, the Comex is a something of a red herring given that they seem to be able to settle in cash. Then again, maybe I've got it wrong, and all the focus on what some like to call the Crimex isn't a waste of time. In any case it does appear that events have conspired to push the world closer to the advent of Freegold. MF Global is huge in that regard.

My own view is that time is running out and freegold dramatics should manifest within two years but that's just a guess.

enough said...

Edwardo...

I tell ya bro....I dont think the comex paper mkt makes it through feb. delivery opex.....last week of Jan 2012

Edwardo said...

I hope you're right, Enough. In the meantime, approximately two years ago a rather esoteric predictive outfit I follow had 75,000 an oz gold (and $600 oz silver) come up in their work. Suffice it to say that they are by no means always right, but, equally, they have a couple of spectacular bullseye predictions to their credit. The biggest hits tend to have been predicted years in advance.

victorthecleaner said...

GLD puked again today (Dec 22) with a loss of 1.05% of its inventory. Since Wednesday last week, they lost just over 40 tonnes or 3.1% of inventory.

For it to be 'it', this would have to increase quite a bit though, I guess.

Victor

mortymer said...

Fekete article alert:

"MAINSTREAM ECONOMISTS’
MONETARY INSANITY"

http://www.professorfekete.com/articles%5CAEFKrugmansMonetaryMadness.pdf

ElaisaKasan said...

In response to SleepingVillage: "I would love for someone to bring an actual logical argument as to where exactly these MILLIONS of tons came from."

There is evidence of Gold collection as far back as 6000 B.C. beginning with the lowest hanging fruit (richest visible deposits). Since gold is found unoxidized in nature, early goldsmiths could simply collect nuggets and then combine them by hammering. No mining, extraction, refining or melting was needed. Some of the earliest deposits were extremely rich. Around 1400 BC, the King of Mitanni wrote to his father-in-law, the Pharoah of Egypt:"Send gold quickly, in very great quantities, so that I may finish a project I am undertaking, because gold is as dust in [your] land." Gold was traded in equal weight for Salt which was used to preserve food and for Spices and Silk over a period of many thousands of years. Before ships found an ocean route to the Spice Islands, overland caravans as large as 4,000 camels twice a year moved gold in trade for Spices and Silk. 100 kilos per camel x 4,000 camels is 400 tons per trip twice a year for 8,000 years.

ElaisaKasan said...

The Keenan Complaint alleges that Goldman Saks formally authenticated the Gold backed Federal Reserve Notes. Why would the Defendants offer Keenan a $100,000 bribe if the Notes were fakes?

ElaisaKasan said...

Correction, $100,000,000 bribe.

mortymer said...

@Elaisa Kasan, do You really believe that here is something on the paper? And why? What other proofs/hard data do you present so it will click in the landscape of events that the hypothetical sci-fi draft you presented should be considered?
PLease try to check other sources also and crosscheck, I would reccoment FOA and WGC for starters.

ElaisaKasan said...

I agree about crosschecking. I have been reading FOFOA for years. Also researching gold and trade history. I have sold all my currency and hold physical, so it is important to me to know how much gold is really out there.

/SleepingVillage/ said...

EK,

When I said mining was my business, I meant it literally:)

When I asked where the millions of tons came from.... I was very serious. I don't care about 4000 camels, I care about where this many tons of gold supposedly came from. It is well known how placer deposits form and how they're mined. You see, geologically, it is not accepted that there were ever placer deposits which were THAT rich. There is NO proof.

Show me, either geologically and/or by evidence of(obviously massive) exhausted mine sites. Where are they? Have a look at the known ancient mine sites in Spain, mainly Las Medulas. There is always evidence left after large-scale placer mining.

Research modern placer deposits of which we have good records of production. You will start to see what I mean. The gold does not magically appear, it's there until it's mined, and then it's not;)

Did you read the comments at the link I posted? These things have been covered.

Jeff said...

GLD down another 13 tons? That's two days in a row. That qualify as a puke?

www.gregor.us said...

If GLD holdings decreased from 1267.87 to 1254.57 tons, then yes, we now have a cluster of +1.00% pukes. Two of them.

Jeff said...

Ah, Victor beat me to it. Well, riddle me this Victor; you said once that we should see GLD pukes at rising prices also? Why is that? I see no reason why the pukes cannot continue at falling (paper) prices.

gracias

Nickelsaver said...

EK,

I heard about that supposed massive amount of hidden gold. I heard it on a show called "coast to coast am", which I listen to just for yucks. Other discussions on this show include Alien abductions and Alien ancestors.

An interesting note on salt for gold, if we ever figure out how to strip mine the ocean for its dissolved gold content, I'm guessing salt would be a plentiful byproduct. Gold and salt flowing in the same direction, go figure.

ElaisaKasan said...

SleepingVillage "Did you read the comments at the link I posted? These things have been covered."

Thank you for the link. I read it and the comments and found them educational. I do not have, but continue to seek hard evidence of the author's estimate of between 1,200,000 and 2,500,000 tons.

/SleepingVillage/ said...

EK,

You and me both, my friend. Please post comments to the original article if you find anything. It would be nice to keep them in an easily accessible place for anyone else looking for answers.

Over the past weeks I've been learning an awful lot about gold mining in ancient times. It wasn't something I was overly interested in until recently. Like you, I had to know if there was shit-tons of gold that I wasn't aware of.

Honestly, it kinda makes me giggle now when I think about the possibility of 2.5 million tons of gold mined in antiquity. Once you go through and understand the big picture of what woulda had to go down for this to happen, you will too:)

Unless of course the Annunaki forgot to take all the gold they mined 250'000 years ago. Reptiles aren't the smartest critters...

Oh yeah! Happy xmas and new year to everyone.

Edwardo said...

I tried to make the Freegold case to Jim Willie many moons ago. Now it seems he is stumbling, towards it, more or less.

http://www.financialsense.com/contributors/jim-willie/2011/12/21/comex-the-march-to-irrelevance

Free Beer said...

I have to admit that I haven't read the arguments for or against 2 million odd tonnes of gold, but I think I back of the envelope calculation might cast doubt on it.

In the new world and Australia, people where not collecting and mining alluvial gold and placer deposits in ancient times. The gold rushes of the 1850's came about because of the discovery of massive gold fields in Victoria and California.

By the end of the gold rushes, estiamtes have it that California produced 370 tonnes, I'm guessing Victoria was the same but slightly better. So that gives us less than 1000 tonnes, from two huge shallow gold regions, previously unmined.

Generous estimates extrapolate from these numbers that mining in earlier times produced 10,000 tonnes. However I was taught that these gold rush regions produced more gold than any other places on Earth up until that time (could be wrong, I blame the teacher). When you look at the geological setting for placer deposits, it makes sense. Both regions sat on the continental side of large active plate boundaries, for long geological times.

All of this is insignificant to modern mining output. Just looking at the Google image results for the Kalgoolie superpit really shows why modern practices produce so much more gold (I concede the point that it's an apples and oranges comparison)

If any of my numbers are way out, I apologize, mine is a hand waving argument :-)

Free Beer said...

Here's the link to the superpit images:

superpit

costata said...

Hi All,

I think this analysis by John Hussman is a must read.

http://www.financialsense.com/contributors/john-hussman/2011/12/22/the-unfolding-of-a-global-economic-downturn

My suspicion is that analysts whose understanding of the investment markets is based solely on experience since the 1990's have absolutely no idea how far outside of that sample most of history lives.

Amen.

Merry Christmas and a Happy New Year to everyone.

Free Beer said...

OOPS! I meant the USA - NOT the new world. I'm pretty sure the e.g. Aztecs did a great job of hoovering up the available gold.

victorthecleaner said...

Jeff,

you said once that we should see GLD pukes at rising prices also?

Yes. When the BBs are under pressure, they have to raise the price in order to make people sell physical, and at the same time also bid for GLD to get the physical.

As long as GLD pukes when prices fall, it may just be GLD investors selling without any particular buying pressure in the OTC market. Still, GLD might just be a contrary indicator if GLD are the weak hands and the OTC market is the strong hands.

I know that FOA said the paper price would go to zero and the market for physical gold become illiquid. Keep in mind that this was in 1999-2001. At that time, any problem in the gold market would have come as a total surprise to everyone except a few insiders.

Victor

costata said...

Anyone hankering for some discussion about gold may find this post worth reading.

http://www.zerohedge.com/news/fed-vs-ecb-presenting-correlation-2012-and-what-it-means-gold

Of course, you have to make your own judgements about Tyler's conclusions but it is an interesting read nonetheless IMO.

J said...

Turkey is getting theirs

"Turkey lifted its gold reserves by a hefty 1.328 million troy ounces, or 30%, last month as central banks around the world continued as net buyers of the precious metal.
According to data from the International Monetary Fund, the Turkish central bank increased its gold reserves to 5.758 million ounces in November, from 4.429 million ounces the month prior.
Russia also continued its program of gold accumulation, lifting its holdings a further 81,000 ounces to 28.086 million ounces. Russia's reserves, having been added to every month so far in 2011, are now up 11% on the start of the year.
Emerging market central banks have been buying gold in reaction to the sovereign debt crises affecting the U.S. dollar and the euro, analysts say. Demand has also risen strongly in recent quarters as some seek to diversify foreign exchange reserves that have grown along with emerging market export industries."

IMF: Turkey, Tajikistan, Russia lift gold reserves in november

J said...

LONDON—Turkey lifted its gold reserves by a hefty 1.328 million troy ounces, or 30%, last month as central banks around the world maintained their positions as net buyers of the precious metal.

According to data from the International Monetary Fund, the Turkish central bank increased its gold reserves to 5.758 million ounces in November, from 4.429 million ounces the month prior. This followed a rise of 697,000 ounces in October, the latest IMF figures show.

While the Turkish central bank wasn't available for immediate comment Friday regarding its recent reserve increases, it announced in November that it had begun to accept gold in its reserve requirements from commercial banks. Under the policy change, banks are allowed to hold a maximum 10% of their Turkish lira reserve requirements in gold, which it said would free up around 5.5 billion lira ($2.91 billion) in liquidity to the market.

Prior to the purchases, Turkey had the 30th-largest official holding of gold in the world, at around 7% of its foreign reserves, according to the World Gold Council, an industry body. It is now likely to have the 22nd-largest official holdings following the additions.

Meanwhile, Russia also continued its program of gold accumulation in November, lifting its holdings a further 81,000 ounces to 28.086 million ounces. Russia's reserves, having been added to every month so far in 2011, are now up 11% on the start of the year.

In January the Central Bank of Russia's press service said the bank planned to buy 100 metric tons, or around 3.2 million ounces, of gold per year from domestic banks in order to bolster reserves. Russia is the world's eighth-largest official holder of the precious metal, which accounts for around 9% of its foreign reserves.

Emerging market central banks have been buying gold in reaction to the sovereign-debt crises affecting the U.S. dollar and the euro, analysts say. Demand has also risen strongly in recent quarters as some seek to diversify foreign-exchange reserves that have grown along with emerging market export industries.

Tajikistan last month added 10,000 ounces of gold to its reserves, counterbalancing a reduction of 12,000 ounces reported the prior month. Its reserves now stand at 150,000 ounces, according to IMF data.

Macedonia, Belarus, Mauritius and Greece also reported small additions to their reserves for November, while Mexico and Slovenia recorded minor reductions.

Metals consultancy GFMS recently forecast that central banks could buy nearly 500 metric tons, or around 16 million ounces, of gold this year.

Total central bank gold purchases in the third quarter were more than double the level in the second quarter and almost seven times higher than the same period of last year, at 148.4 metric tons, or 4.8 million ounces, according to a report last month from the WGC. The body said it expects central banks to continue to be net buyers of gold in the fourth quarter, as well as next year.

Purchases by the official sector have helped to drive the price of gold higher this year, not only by absorbing supply but through the positive boost they have given to market sentiment.

Turkey Boosts Gold Reserves

enough said...

...Love that EGCB ;-)

(euro garbage can bank)

Bini Smaghi Says ECB Should Use QE If Deflation Risk Arises....

Dec. 23 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.

“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times.

The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”

http://www.businessweek.com/news/2011-12-23/bini-smaghi-says-ecb-should-use-qe-if-deflation-risk-arises.html

DP said...

[cough]Single mandate[/cough]

enough said...

Why is it so hard to believe that Goldman termites spreading out across Euroland could/would corrupt/co-opt the foundations of the Euro?

No structure can stand against these termites until they are eradicated !!

Goldman termites (from here on refered to as goldmanites) are PM's of how many euro countries currently?

How many EGCB member are goldmanites?

TECHNOCRATS INDEED !!!

J said...

Looks like Turkey is old news

from Nov 5th

The other strong action central banks have been taking is loading up on gold. In "Perfect Storm Creates Tidal Wave of Gold Demand," we discussed how the trend of gold buying by central banks in the East has been increasing while the Western central banks have ceased selling their gold. Now Turkey's central bank is trying to manage liquidity in the banking system by allowing banks to keep up to 10 percent of their required reserves against lira liabilities in gold.

Bloomberg News reported that if Turkish banks fully allocate that 10 percent, it will free up $3.1 billion in liquidity.

This has followed a similar move by Turkey's central bank to allow private banks to hold an increased percentage of their reserves against foreign-currency liabilities. Since that change, 21.6 tons of gold were added. According to Bloomberg News, another 55 tons of gold could be added after the new adjustment goes into effect on November 11. This would bring the total gold reserves in the Turkish central bank to a value of $10 billion.

Investor Alert - 3 Drivers, 2 Months, 1 Gold Rally?

Edwardo said...

Costata,

It seems to me that Tyler, in saying the following,

"We fully expect the correlation arbs, which usually need someone to point out the glaringly obvious to them...will very soon comprehend why the one most underpriced asset at this point, by orders of magnitude, is gold."

is predicting precisely what our dear FOFOA is forecasting, namely that gold will be repriced by tend of thousands of dollars. The details regarding how the prospective repricing/revaluing will occur may vary between ZH and FOFOA, but, however the two add up the figures, they both seem to be arriving at the same conclusion.

JR said...

enough,

Of course ECB is gonna print money and devalue their currency. I like to think of the ECB as a currency that was built to print! FOFOA:

"As you all know, I don't expect the euro to fail. The euro is designed for transition. It is designed for Freegold. And the specific value of a currency doesn't matter in its primary role as a medium of exchange. Only stability matters, and the euro could handle a big one-time devaluation to a more stable level. It will have to devalue at one point or another. Devaluation is inevitable for all fiat currencies today. "

I think it may have something to do with gold as a secondary media of exchange. FOFOA from Euro Gold:

"... Today, the printer of the euro, the ECB, tells all the owners that the money it prints has less value in gold… once every quarter! And not only that, but it encourages people to save in gold through system-wide mandates."

The Euro is clear it will debase currency to keep the system going, it publishes, quarterly, the debased value compared to its reference point (the secondary media of exchange, aka gold), and encourages people to save in that secondary media of exchange. More FOFOA from Euro Gold:

"After some time, it became apparent that Greece could never pay back the debt at full value. This realization actually threatened the system, I mean the fair. So what the fair operator decided to do was to buy those promises to pay from Germany at face value, with newly printed scrip. This kept Germany in the game although it did devalue the scrip since now there was more of it than there were goods at the fair. But this was fine because the fair operator published a ConFinStat in which he told all the fair participants that the fair's scrip money was now worth less.

Those, like Germany, that had actually saved some income in promises to pay denominated in scrip, and then found those promises severely devalued by the recognition they would never be paid back at full value, received a nominal gift of the same number loaned to Greece, even though it was now devalued. Those that had not saved in scrip, but instead had cleared with gold at the end of each fair, simply carried on trading at the new, lower value of the scrip. You see, the fair operator, we'll call him the ECB, did not participate in the fair itself, primarily because he had severed his link to any specific booth operator. His only job was providing scrip, announcing its value, and maintaining the system, I mean the fair, even if it came at the cost of debasing the scrip money."


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

As DP said - single mandate. From Euro Gold
The euro is behaving perfectly predictably in maintaining the nominal performance of its system through expansion, but it cannot be forced to fund the future government profligacy of the PIIGS through volume-only expansion. That link is severed.

Printing to keep the currency in use, not printing to fund nation-states.

JR said...

Debt is what the $IMFs system is all about - everybody has debt issues. As FOFOA explained in Synthesis, the Euro was built to attempt to deal with this issue of debt through its architecture. The Euro was built to hopefully be able to devalue *WITHOUT* a concurrent hyperinflation by devaluing against gold (instead of devaluing against the real plane of physical goods):

"Here is an important question: Is it theoretically possible for a fiat currency to devalue, or more precisely, to hyper-depreciate against only one single asset without affecting the price of a can of peas?

Of course it is! Just look at any number of investments that have appreciated quickly by an order of magnitude or two. Look at GOOG! Or how about AAPL? When an asset appreciates against a currency can we not also view it as the currency depreciating against that one asset? Or more precisely, can we not say that the asset was awaiting massive revaluation based on market recognition of its value?

Now, what if the revalued asset is gold, a monetary asset held by Central Banks? What could such a revaluation do to today's dynamics of national debt?

[...]

Unsustainable Deficits

The pressure on the $IMFS is building EVERYWHERE! From Greece to California, from the ECB to DC. And what exactly is all this pressure? It is unsustainable deficit spending... DEBT!

And what is the ONLY solution to this? What is the pressure release valve? It is different depending on whether you are a sovereign net creditor/saver or if you are a sovereign debtor. For the creditor/savers the ONLY solution is CUT OFF THE CREDIT and thereby FORCE AUSTERITY. If you are a debtor, the ONLY solution is DEVALUE THE CURRENCY, or more precisely, ALLOW the currency to hyper-depreciate. Yes, default is an option, but not for a sovereign that prints its own money, and not for any too-big-to-fail entities under the umbrella of such a sovereign.

[...]

Devaluations always happen by necessity. They can be triggered either intentionally internally, intentionally externally or unintentionally naturally. They happen because they are ultimately necessary to both parties and to nature itself. But the party that feels the pressure most, enough to trigger the devaluation first tends to profit the most from it.

[...]

The hyperinflation of the dollar is already a done deal. It has been since the 90's at least. Massive quantities of perceived dollars already exist stored in debt held globally and inside the US. Europe knows this. They have known this was inevitable since at least the mid-90's when they changed plans and went with higher gold reserves for the new ECB. They have always been willing to wait for it to happen naturally, unless the EU itself faces an existential threat from debt brought on by the $IMFS. And in this case, I believe their only option is a targeted hyper-depreciation of the euro.

By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.

Of course this would cause the hyper-depreciation of the dollar as well. Only the dollar's collapse would be against all of creation, not just one asset."


Key thought:

The US dollar MUST devalue (one way or another) against the entire physical world. Think about this. The euro, on the other hand, might just hyper-depreciate against only one specific asset. An asset that happens to also be a MONETARY asset held by its member debtors.

JR said...

On Timing!

For the curious/impatient/etc. folks who sweat timing of things, here is a fun FOA quote via Synthesis that FOFOA placed under the heading "Defensive Action":

Defensive Action

FOA (9/23/2000; 9:26:10MD - usagold.com msg#39)
ONWARD!

"Go back and read the most recent speeches and comments by the ECB president, Mr. Duisenberg. Truly, the ECB is not interested in "crashing" the system, rather let's "transition" the system into a more fair order. If intervention is needed, it's needed to keep the American economy from failing too fast from the coming hyperinflation of its currency. If the ECB is worried about the "exchange rate" being too far out of whack, it is a worry about its effect in generating a dollar-system meltdown from deficit trade. Not a total failure of the Euro as so many report. When the time comes, and it will, the dollar will begin its fall away from its own past policy failure. Until that time, for the benefit of oil producers and many others, let's move as far down this Euro / gold trail as possible. Without a breakdown.

enough said...

Thanks JR,

Will take some advil now then read again a few times ;-)

I though the euro was superior for lack of a better term because it would NOT hyperinflate as the $ would?

uggg..... now very confused

I should just stay on the bench with other sub 130 IQ readers ;-0

Clyde Frog said...

DP comment on "stable currencies"

Joel: how does that translate into a stable currency if they are printing like mad trying to bail out the PIIGS?

radix: What is a stable currency? It is a currency that functions for the purpose that you want - buying stuff.

Now, you need to determine who "you" is.

A stable currency for J6P is one that buys the same amount of bread, beer and broccoli. OK, forget the broccoli then...

A stable currency to an oil Sheikh is one that can buy him the same amount of gold for the same amount of oil he's meant to supply.

The ECB mandate is all about keeping J6P happy with his cheap broccoli. The managed rise in price of gold is for Sheikh Yabatti, and any other superproducers that happen to position themselves appropriately alongside him.


radix: The move away from this system, however it happens and to what, is never going to have a symmetrical effect on everyone. At least Freegold will be equitable once it is up an running.


Summary:
Inflation is bad, m'kay?
Deflation is bad, m'kay?

DP said...

Clyde,

I would just like to turn back time and make a slight change to that comment, if it were possible.

A stable currency to an oil Sheikh is one that can buy him the same VALUE of gold for the same amount of oil he's meant to supply.

At the end of the day, he wants to be able to buy the same bread, beer and BMWs that J6P does, in the fullness of time. Using the gold he will buy shortly with his oil trade surplus. Hence, the value of the currency is only important to the sheik over a relatively short timeframe - long enough for him to convert his surplus into gold.

With the value of gold significantly elevated to a new order of magnitude, the West's gold can be stretched out much thinner and buy very cheap oil. That smaller volume of incoming gold will still buy the sheik and his people all the same goods and services they will want later.

They'll also get a golden hello to a Freegold paradigm, with all the gold they already received. As FOFOA has said: We've OVER-paid for Saudi oil for 30 years now, with low priced Western gold. Way to get people on-board!

enough said...

JR,

I realize I will not "get" everything you, FOFOA and others write here.....

But I do know:

1) I dont want my savings to have any counterparty risk (been there in 08 and brokers didnt pick up the phone/spreads on "liquid" bonds went apesh_t and "illiquid" had no bid/auction rate pref mkt. imploded/bank pref and closed end funds collapsed etc.) basically zero liquidity, you were stuck

2) The CB's, the institutions that make the rules own one true asset, gold

3)Revaluing the asset side of the balance sheet is much less painful than cutting the liabilities side to the bone

4) revaulation of said asset is coming and I am along for the ride....large :-)

merry christmas all !!

MatthAu said...

Enough, to your second point. The ecb owns not only gold but dollars. It can buy gold directly with dollars or print euro to buy gold. The usd reserves are important too methinks.

JR said...

Well said enough,

Randy Strauss:

"...Various policy signs over the past several years had indeed pointed toward 2010 to be the watershed point in the international monetary transition, but the depth of the current commercial banking crisis likely argued strongly for a delay under the thought that calmer waters would facilitate a better transition. As such, the existing infrastructure and policy is largely in place at the present time, so a timeline for this store of value transition can be every bit as short as that for invoicing — essentially, no time needed for flipping the switch.

But in light of the current crisis and some of the policy efforts underway to restore calm to the commercial markets, it looks to me that the new timeline for significant transitions is mid-2013 consistent with the current policy talks driving the permanent European Stability Mechanism to that timeframe, but with that said, it could be set into motion at any given moment between now and then, and between your breakfast one day and breakfast the next. Hence, it is best that you work to actively establish your desired gold position without undue delay, and then with peace of mind you can turn your full attention to the business of living your life as it was meant to be. Spending significantly further time obsessing over currencies and investments is a fool’s errand."

Dante_Eu said...

@DP:
You said:
"They'll also get a golden hello to a Freegold paradigm, with all the gold they already received. As FOFOA has said: We've OVER-paid for Saudi oil for 30 years now, with low priced Western gold. Way to get people on-board!"

I disagree. Westerners got cheap OIL in return, no?

How many Iraqi civilians...children...women...have paid with their lives...so that USA and UK get their fair share of the black gold?

Not all the gold in Fort Knox and Bank of England vaults can get these kids back ... never man never.

costata said...

enough,

As I'm sure you know ninety five per cent of the "money" supply is bank credit money. [For others, deposits created by banks through lending.] Around five per cent of the money supply is base money created by the currency issuers.

The under-capitalized European banks can solve their capital problem in two ways. They can raise more capital or shrink their loan books. Shrinking their loan books shrinks the bank credit money component of the money supply - AKA money supply deflation. They made this specific threat recently. I intuit that a deal been done amigo.

I'm not trying to be a smart arse here but [strike that - I am ] as I asked Team Photocopier many threads ago: Do they (the debt deflationists) seriously think that 95 per cent of the money supply will be allowed to die and go to money heaven?

Compare and contrast the Euro and the US dollar. How do the policy options vary? (Given that the Euro is not the world reserve currency ie. much less Euro is floating around the world like plastic in the Pacific Ocean gyre.)

I conceded to JR a while back that those US dollars outside the USA aren't coming home (not all of them anyways). But if 65 per cent of world trade says "No mas" on accepting any more US dollars whatcha think that does to the US dollar?

As JR sayze: "The Euro is designed to print." JR is on the money with this issue. And print they will BUT not for the wrong reason - to monetize European sovereign debt directly.

"Monetizing" European bank "assets" is not at all the same thaing y'all [even if those assets are sovereign debt]. Provided the ECB sterilizes the currency issuance there's no net increase in currency circulating coz those bank assets are already money.

As long as demand keeps the "rope" taught the Eurosystem can "print" as much Euro as they need to. Go on, someone ask: What rope? I spect JR will get Santa on yo ass with some presents from the archives.

costata said...

Woo Hoo Gold Confiscation - Not

According to data from the International Monetary Fund, the Turkish central bank increased its gold reserves to 5.758 million ounces in November, from 4.429 million ounces the month prior. This followed a rise of 697,000 ounces in October, the latest IMF figures show.

h/t to J for that snippet. Some more here:

http://www.bloomberg.com/news/2011-03-30/turkey-gold-beats-banks-as-erdogan-fights-saver-inflation-fears.html

For every Turk who saved in a deposit account last year, three opted for gold or cash, a December MasterIndex survey showed. Those who deposit their lira at banks refuse to do so for more than a few months, according to the survey commissioned by MasterCard Worldwide.

The median age here is 29, and even people that young have already survived military rule, a succession of failed coalitions, an overnight currency devaluation, a banking crisis, a 1999 earthquake that killed 17,000 people and inflation that peaked at 130 percent in January 1995.

In 1987, 51 percent of deposits were less than a year in maturity, according to the Banks Association of Turkey. It was 90 percent by the end of 2010. A 2001 financial crisis drove 20 lenders into receivership and forced a bailout whose cost to the country ended up being $160 billion, Deputy Prime Minister Ali Babacan, who leads economic policy, said on Feb. 21.


Perhaps Turkey's CB and government finally got the Freegold-RPG memo. Confiscation is not only pointless it's self defeating.

enough said...

Hey MC Costata....

"And print they will BUT not for the wrong reason - to monetize European sovereign debt directly."


"Monetizing" European bank "assets" is not at all the same thaing y'all [even if those assets are sovereign debt]."

Much of the monitization by the FED was U.S. bank assets(CMBS) and I believe much of the future FED monitization directly ahead will be as well.

If you say the EGCB has sterilized all their sov. purchases, I'll take your word for it but I have my doubts ( from what I've read but you cant believe everything you read:-)

I dont diagree that the FED is the biggest, baddest hooker on the street corner. They dont give a hoot whose purchasing power they rob and who pays the piper.

But it seems to me the Fed is doing the F__king while the EGCB is getting F__ked by sleazy Euro and sov. politicians with agendas completely at odds with the Euro currency's structure and spirit.

They are USING the EGCB......pushing them to the limit. Showing very little restraint or remorse and no intension of changing course.....thats a rap

JR said...

"Much of the monitization by the FED was U.S. bank assets(CMBS) and I believe much of the future FED monitization directly ahead will be as well."

You mean the MBS that Fannie/Freddie/Ginnie pooled, packaged and guaranteed (and which the USG explicitly and/or implicitly backed and put into conservatorship in 2008)?

St. Louis Fed
The first round of QE began in March 2009 and concluded in March 2010. One of the primary goals was to increase the availability of credit in private markets to help revitalize mortgage lending and support the housing market. To accomplish this goal, the Fed purchased $1.25 trillion in mortgage-backed securities and $200 billion in federal agency debt (i.e., debt issued by Fannie Mae, Freddie Mac, and Ginnie Mae to
fund the purchase of mortgage loans).


neat footnote:

A mortgage-backed security is an investment vehicle composed of pools of mortgages. Banks create mortgage loans that comply with standards set by Fannie Mae and Freddie Mac. These institutions then pool the mortgages for sale to investors. This allows banks to free up capital for other loans.

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

Wiki on the Federal takeover of Fannie Mae and Freddie Mac:

The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury in September 2008. It was one financial event among many in the ongoing subprime mortgage crisis.

[...]

National debt accounting

The on- or off-balance sheet obligations of the two GSEs, which are "independent" corporations rather than federal agencies, are just over $5 trillion, a significant amount when compared to the $9.5 trillion of officially reported United States public debt at the time of the takeover.[34] The September 6, 2008 conservatorship and the subsequent planned Treasury infusion of capital support the senior liabilities, subordinated indebtedness, and mortgage guarantees of the two firms. Some observers see this as an effective nationalization of the companies that ultimately places taxpayers at risk for all their liabilities.

costata said...

enough,

I don't think there is any doubt that the ECB Eurosystem has to perform a delicate balancing act here.

I'm not suggesting that 100 per cent of the sovereign debt purchases by the ECB are sterilized. As long as the MoE function of the Euro is not at risk they can print.

Absent monetization at huge scale the only parties who can make the sovereign debt money good are the respective government issuers of that debt.

How they do this is of little concern to the ECB from a currency perspective. Those governments can cut spending, try to tax their populations into poverty, sell off public assets or restructure (default).

The banks are on the hook as long as they tender the collateral (of any kind) for Euro to the ECB Eurosystem CBs. So ultimately this is about commercial bankers + politicians vs the rest.

FWIW I don't think the EU debt issues will be resolved until there is a schism in that alliance. There are losses and they will ultimately have to be recognized. Who bears those losses is still the central issue.

Aaron said...
This comment has been removed by the author.
Aaron said...
This comment has been removed by the author.
enough said...

Hi JR

Isn't the point that MC Costata was making, the ECB is only monitizing assets on european banks balance sheets and not what the assets were? Maybe I misunderstood.

If I am correct then the FED did the very same thing with the MBS, no? I may be wrong. I'm pretty sure these were secondary mkt issues purchased from U.S. banks banks balance sheets?

If this is the case then I stand by my point. Who the gty/issuer was on those pools of mortgages is not important? Just who owned those assets. Who the FED bought them from....

It seems to me except for "sterilization" both the FED garbage can and the EGCB are doing the same thing, buying both sov. debt both directly in the secondary mkt and off banks balance sheets?

Now of course sterlization is the Key difference but if I remember correctly the ECB could not sterilize it's lastest rounds of bond buying? No? Will it be able to in future? What will the ECB do if it cant......BTP's jumped to over 7% again today.......Best, E.

enough said...

we come back to this from 1st thing this morning....I assume he does not mean "sterilized" QE?

Bini Smaghi Says ECB Should Use QE If Deflation Risk Arises....

Dec. 23 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.

“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times.

The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”

http://www.businessweek.com/news/2011-12-23/bini-smaghi-says-ecb-should-use-qe-if-deflation-risk-arises.html

JR said...

The USG explicitly/implicitly backed the MBS issued by the GSEs.

So the FED bought MBS that the USG had essentially guaranteed that were held as bank assets. Just like the FED buys US treasuries that were held as bank assets.

Do you see that the FED monetizing MBS was the FED effectively monetizing obligations of the USG?

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

"Who the gty/issuer was on those pools of mortgages is not important? Just who owned those assets."

US treasuries that get monetized are held as bank assets too (the FEE buys them from the PDs), do we not care that this monetized debt was an obligation of the USG?

JR said...

Enough,

The Euro's SMP has so far been largely sterilized.

Smaghi is saying if things get bad, the ECB will outright buy bonds (not sterilize).

JR said...

Enough,

"It seems to me except for "sterilization" both the FED garbage can and the EGCB are doing the same thing, buying both sov. debt both directly in the secondary mkt and off banks balance sheets?"

No, becuase if you appreciated what sterilization was, you would realize the huge difference.

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

"The liquidity provided through the SMP is currently absorbed by weekly collections of fixed-term deposits."
http://www.ecb.int/mopo/implement/omo/html/index.en.html

"With a view to leaving liquidity conditions unaffected by the programme, the Eurosystem re-absorbs the liquidity provided through the SMP by means of weekly liquidity-absorbing operations. The intended amount for absorption equals the cumulative size of settled SMP transactions at the end of the preceding week, rounded to the nearest half billion. For more details on SMP settled volumes see Weekly Financial Statement and for the announcements of the SMP-sterilising operations see the tab “Ad-hoc communications” in "Open Market Operations""
http://www.ecb.int/mopo/liq/html/index.en.html

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

The FED does not suck up the liquidity, the ECB does. Mmmmkay?

JR said...

The Fed has pumped nearly 2 trillion into the system since the 2009. Not Sterilized. This has basically tripled the monetary base.

The Euro's SMP has purchased about 200 billion euro in bonds. Sterilized.

enough said...

"The Fed has pumped nearly 2 trillion into the system since the 2009. Not Sterilized. This has basically tripled the monetary base. The Euro's SMP has purchased about 200 billion euro in bonds. Sterilized".............no doubt, the FED is the big bad wolf

"The liquidity provided through the SMP is currently absorbed by weekly collections of fixed-term deposits..........yes and lately they have had trouble collecting those deposits......do you think its going to get easier or harder to collect them with more bond purchases?


No, becuase if you appreciated what sterilization was, you would realize the huge difference..........I said this was the key difference but it seems to be getting more difficult to sterilize. So lets see what happens in time. Smaghi's statement may very well mean that the ECB is prepapring us for just such an event where the ECB comes up well short. There's a lotta euro debt out there that gonna need some sterliz'n'

So the FED bought MBS that the USG had essentially guaranteed that were held as bank assets............we could argue about the status of FNMA and FMAC at the TIME these MBS were ISSUED, but I wont......fnma pref got wiped out...no gty there

As I mentioned BTP's yield jumped back over 7% today. Saghi has said QE is on the table. Recently sterilization has become more difficult? There's no end in sight. It's 200 billion now, how much will it end up being? Smaghi's statement to me sounds like the ECB is feeling a little left out of the party......best, E.

enough said...

Stephen Friedman went from Goldman to Preside over the NY FED....he was given a waiver to buy Goldman shares at 60 at the time he was personally responsible for bailng out AIG and shipping $30B via AIG to Goldman.

Ex Goldman Dudley is now head of the NY FED

PM's of Italy and Greece are ex Goldman

How many ECB members are ex Goldman?

Where are these "Gentlemen's" loyalties?

Do they have the capability and desire to corrupt the structure and virtue of the ECB? Isn't the new italian head of the ECB ex Goldman? I personally would not be surprised to see the ECB announce a 2 trillion unsterilized monitization. If it's what Goldman wants, it will happen, to hell with the rules and laws, they're made to be stretched if not totally broken.......

JR said...

I'm sorry the information presetned does not conform with your worldview and understanding of things. I hope desperately clinging to that worldview works out for you.

Cognitive dissonance is certainly no fun. Ignoring contrary information is certainly not an uncommon response, so take solace from "strength in numbers" and know you're not alone in choosing to bury your head into the sand.

enough said...

JR,

I dont pretend to "know" anything. How can you cling to a view when you realize you dont know enough to have an one. I pose thoughts as questions. None of us know what's really going on in the corridors. My cynisism is as right as your view for all we know. We will see in the fullness of time.

Logic brings me to gold. Because it is right for me given my experience. Not whether the FED hyperinflates and the Euro does not. What do I care. If the Euro hyperinflates too, gold still gets revalued.

The virtue or lack of by the ECB means nothing to me. It does not effect my view of where my saving are kept one iota. One, two, five fiat currencies hyperinflate...the more the merrier !! :-)

Let's just see if institutions are stronger than the men that inhabit them. You seem to think they are. I said let's see.....see !! Not this or that will happen. I dont have the foggiest.....

I hope my cynicism is proven to be incorrect....we'll see

You know better than me....seriously !!! wish you best and thanks for your time and effort...best, E.

costata said...

enough,

The laws that were put in place to constrain the actions of the ECB Eurosystem CBs are quite explicit and, in some cases, could be described as onerous.

This system is modelled on the Bundesbank with similar structures that were put in place to ensure the Bundesbank's independence from the politicians. This system isn't experimental. It's proven itself over decades.

These guys aren't relying on virtue. They're relying on black letter law. And there are 17 EMU members monitoring the Eurosystem's activities including the Germans.

Jeff said...

what if you made a market and no one came?

In the six weeks since the bankruptcy of the most active broker in U.S. commodity markets, traditional hedgers - including physical producers, consumers and traders - have closed out positions in corn, crude, gold and other markets, causing the number of open trades to shrink dramatically. By contrast, big hedge funds and speculators remain as deeply invested as before the collapse, albeit with positions that indicate they are much less bullish on prices.

http://www.reuters.com/article/2011/12/21/uk-mfglobal-futures-idUSTRE7BK1E220111221

enough said...

Again I am no expert and do not pretend to be able to predict the future ....

Isn't Finland protesting some changes to EU laws that would turn unanimous votes into majority?

Why is it so impossible to comprehend changes born out of expediency, percieved necessity?

Look the U.S. constitution....it is being modified all the time.

Were the all the FED's actions since 2008 within it's mandate? Do we even know what they have done?

Is this completely not applicable to EU treaties and ECB policy?

The FED is certainly experimenting with monitary policy. Costata, you can tell me that LTRO, SMP are not experimental monetary policy? OK, if you are an expert and you say no, then fine. I will defer to that expert opinion.

To deny that these black letter laws can not be changed due to a real or contrived crisis would define cogintive dissonance.

I own physical gold. All my savings are in physical gold. I did this of my own internal reasoning long before I discovered FOFOA. My instincts and thought process have served me well.

One thing I do know is to not rule out change. It is inevitable. It can happen fast and be completely unexpected. The ECB COULD announce something tomorrow amidst a moment of financial chaos that we would all say they cant,its against the rules.

Mass euro country downgrades. Btp's yield 12% with Belgium not far behind. SMP having no effect. Can you tell me you know exactly what the ECB will do? I cant....

Who is so sure of themselves and in the know that they could say with confidence....

Even if they knew all the "laws"...best E.

Texan said...

Enough, you are correct.

Costata, I told you months ago the ECB was printing via repo and that they would expand that facility into the trillions. Now here we are with the LTRO. This is the European version of TARP, except it's the ECB instead "buyiing preferreds". It's just their version of QE.

Good luck draining that liquidity. It ain't happening anymore than the Fed is about to reverse repo back it's MBS or Treasury books.

victorthecleaner said...

costata,

Anyone hankering for some discussion about gold may find this post worth reading.

On the comparison of the ECB with the Fed.

First, there are two main ways in which the ECB balance sheet grows and new base money is created.

Firstly, in the SMP, they buy government bonds outright to be held open ended. The ECB assumes the risk in this case. These purchases are 'sterilized'.

Secondly, there is the usual refinancing of the commercial banks. For this, the banks post some government bonds as collateral and borrow new base money for a fixed term. In this case, the commercial banks assume the risk (although the ECB will be left with the collateral in case the bank defaults).

As far as I know, before 2008 the ECB set the volume for the refinancing operations, and the interest rate was
determined in an auction. The operations were short-term, one or two weeks. Since 2008, the ECB sets the interest rate (extremely low) and hands out unlimited volume. Since 2008, they have accepted lower quality collateral, the term was up to 3 months and now even 3 years. Bank refinancing was never sterilized. In the case of the ECB, this is the main reason for the growth of their balance sheet, and it is unsterilized.

Speaking of sterilization, how does this work? The ECB offers the commercial banks a term deposit for the corresponding sum in order to make sure that sum stays in the reserve that the banks hold at the ECB and does not start circulating.

What is the difference with the Fed who do not sterilize? Not much. In the US, the bank reserves held at the Fed are similarly high. So far, the money has not started circulating. In the case of the Fed, however, this is possible within a day. The ECB, however, has captured the reserves for a fixed term - I don't rememeber the details, but it is not more than a month. So the ECB would get some early warning if the money starts moving, but they would not be able to prevent this from happening either.

So far, both the ECB and the Fed look rather similar, even the sizes of their balance sheets. In particular, I think that the inflationary effect will be similar, and I guess inflation in the euro zone can easily increase to 5% annually or beyond.

There is one difference compared with the Fed though. The ECB did not prevent interest rates on government bonds from increasing, causing serious funding issues for Greece, Portugal, Ireland, and firing warning shots to Italy, Spain, France and Belgium. Both the Fed and the BoE seem to try to keep interest rates on government bonds artificially low (although you can never be sure what would have happened without their QE).

So far, that's the main difference. The ECB 'encourages' the governments to get their budgets in line. I wonder whether this will work and prevent the worst??

What I still don't understand is the following: The ECB had all the data to see the current crisis coming, and they had the tools to prevent it from getting out of hand. Yet, they didn't.

Why? Without the euro zone government debt crisis, what do you think where the US$ would be compared to the euro?

Victor

Texan said...

Of course, the icing on the cake is that the so-called ""sterilization" has, absent these fresh funds, pretty much drained all the excess liquidity from the few banks that had any. Thus necessitating the LTRO.

I will say I feel considerable sympathy for and highly praise the ECB. It certainly appears that they are trying to avoid gigantic and obvious monetization and keep their mandate and reputation intact. What they are doing is not at all their job.

But no one else can do it, and I think it's a bit silly to
maintain that the ECB is not increasing the money supply, because they certainly are. It's just not as direct as the Fed's method, and it's being counterbalanced by system-wide deleveraging at the bank level. Which also happened in the US, but I don't think the Fed fine-tuned their response quite the way the ECB is doing.

Texan said...

Victor, good post, and good question. The only answer I have thought of is that Germany has well and truly had it with a couple of the peripherals and perhaps Italy, and they are trying to create the conditions for "controlled exits".

costata said...

enough,

You're driving me nuts. For example, how did you get from this:

"This system isn't experimental." (As in Bundesbank model)

To this:

Costata, you can tell me that LTRO, SMP are not experimental monetary policy?

Then this:

To deny that these black letter laws can not be changed due to a real or contrived crisis would define cognitive dissonance.

I don't recall denying that lawmakers can change laws. But it requires agreement from 27 EU members where treaties etc are concerned. This is no easy task regardless of the perceived need.

And in my experience anytime politicians want to pass a law quickly and without publicity the Aholes are up to something nefarious.

So I'm all for transparency, long consultation and lengthy review periods before laws are even tabled let alone passed.

victorthecleaner said...

Texan,

I don't think this is the reason. You are probably nevertheless right that Germany may be the key. How is Germany's trade position? They import energy and resources and export all sorts of industrial goods, resulting in a huge trade surplus (more than 5% of their GDP if I remember correctly).

If Greece, Portugal, Italy would leave the euro, the euro zone would become a net exporter! So it would be more vulnerable to problems with the US$. As long as the euro zone has a balanced trade account, the dollar can decline quite seriously, but the ECB is still free to choose whether they devalue and by how much.

If they don't devalue, some part of the German exports would suffer, but the overall imports might even get cheaper (commodities may go up in dollars, but can still crash compared to labour). So if the dollar declines, Germany is worse off, but the net importing countries of the euro zone are better off. Conversely, as long as the US$ is strong, Germany benefits, but the southern countries suffer. But most importantly, overall the ECB would still be free to follow their policy without being forced to devalue.

When net importers such as Greece, Portugal, etc. leave the euro, however, the euro zone becomes a net exporter and as such will be more vulnerable to any decline of the US$.

In some sense, the southern countries are Germany's buffer against exchange rate fluctuations. I think it would be foolish to let that buffer escape from the common currency.

On the other hand, with the current crisis the southern countries may already end up in a serious recession which reduces the effectivity of that buffer. Somehow Germany has wasted their first shot. Where is the trade off?

Victor

Texan said...

Victor, all good points. Pick your poison I suppose. I don't know enough about the various power groupings within Germany to know what they will ultimately decide ( or have decided and are now implementing), but I have no doubt they are not leaving it to chance, to the extent that's possible.

enough said...

hi again Costata,

I just think your carefully crafted checks and balances MIGHT just go flying straight out the window in a serious, chaotic debt deflation flareup...just sayin ;-)

So all 27 are going to set up meetings a ministerial level and then a week later heads of state sign a unanimous agreement while the titanic is sinking fast?

I just dont think it's going to go down like that.........but what do I know ;-) g-night friends

FOFOA said...

It's kinda funny to watch all this ECB criticism. Implicit in it is that central banking is somehow bad and corrupt, perhaps even stupid, and that the ECB/Eurosystem is no different than the Fed/$IMFS. I view this all a little bit differently.

Why is the centralized printing of currency a bad thing? To me the answer is fairly obvious. It is because it directs purchasing power somewhere it otherwise wouldn't go. And that purchasing power has to have been taken from someone else, because the physical world is somewhat finite.

I think central banking is a good and necessary thing, because private sector credit needs a flexible currency base that responds to the lubrication needs of a real economy that runs on the ability to clear credit transactions. A rigid currency base is only good if you're a saver who's saving your excess in currency or debt. But for the real economy rigidity is periodically deadly, especially when the savers start hoarding that rigid base during normal economic contractions, a procyclical feedback loop that leads to depressions and rule changes that usually end in tears for those same savers!

As a saver who saves in gold, I also like that the real economy (and the debtors) have their flexible fiat currency and central banks to manage it. That way they have no reason to mess with my savings medium in the currency arena, which always ends in suppression of the savings medium through some kind of paper counterfeit needed for the debtors and also to lubricate the real economy. Freegold NEEDS fiat currency in order to be free.

So back to this idea that printing currency is bad. I suppose it is bad in that it steals purchasing power from someone. But who is it really stealing that purchasing power from? Is it really stealing it from everyone? Or from "the taxpayers"? No, neither. It is stealing it from the savers holding their savings in currency or debt.

If it was truly stealing purchasing power from everyone equally then the question would be which is the greater good? To socialize the cost of lubricating the real economy equally to everyone, or to leave the real economy to the ravages of a rigid currency and procyclical forces that magnify instability. Remember, the ECB's mandate is stability, not economic growth or full employment. Stability is very much a fair and free market aspiration while economic growth and full employment are not.

Stability also means that the system continues to function for the real economy, and "system" means the banks. Banks work with balance sheets and therefore only require nominal performance of the two sides, not real performance. In other words, when a bank holds an asset against a liability, it only needs the two to balance, it does not care about the real purchasing power of the two.

The real economy, on the other hand, does care about the purchasing power of assets and liabilities insofar as it needs it to remains stable. And it can only remain stable as long as the system (meaning the banks) is functioning. So you see, the stability-only mandate reveals the symbiotic counter-forces of nominal and real. The ECB must keep an eye on both the nominal function of its banking system and the real value of the euro through its Harmonized Index of Consumer Prices (HICP—Europe's version of CPI).

Now I'm not so dense as to not realize that this is all about "big bankster bonuses" (BBB) to most of you that hate banksters and CBs and think fiat is the root of all evil. But I'm telling you right now, it is the stupid silly savers (SSS) that saved in currency and debt that delivered the banksters those big bonuses.

Cont...

FOFOA said...

2/2

JR is not only good at recalling quotes from my posts, he also does the same magic with my emails (and you can't Google email content). Here's an email he just sent me today, quoting me from several past emails just like he does with my posts. See how quickly you can spot what he's leading up to, and how, just maybe, the Eurosystem differs from the $IMFS:

JR: From one of your earlier emails:

It is not the euro that is a poor store of value, it is the promises of governments like Greece and Italy. Anyone who held those bonds as savings was holding imaginary wealth, an illusion. That is not a flaw in the unit of account, but a flaw in the reasoning of the saver who lent his savings to a profligate government. Can you see the difference?

and from another email:

**Here** are the savers that not only enabled, but incentivized the banksters to go hog wild. They should have just been buying gold at $250. IMO, they get what they deserve for buying that crap, but like Jim Sinclair says, “what derivatives don’t destroy, litigation will finish off.”

and from another email:

The real culprit was the $IMFS that encouraged it to get out of hand for both the debtors and the stupid savers. The debtors will now have to default and the savers will have to lose some of their savings. And the banking system will be maintained nominally so that the credit system, and thereby the real economy, can continue.

and from another email:

One way or another, no matter how they paint it or spin it, that excess European sovereign debt will be defaulted. They may call it restructuring with haircuts, or whatever. And they will likely do some printing to save the banking system which operates on nominal (not real) returns. The euro may even suffer a lesser devaluation when the dollar starts to collapse, but that’s why they incorporated free floating gold into the euro.

+++++++++++++++

here it comes:

(Bloomberg) Greece may complete a debt-swap agreement with creditors soon, paving the way for more international financing needed to prevent economic collapse.

“We are close to an agreement on PSI” -- or private- sector involvement, Finance Minister Evangelos Venizelos said in a speech in Athens today. “I believe this. And it is feasible if our partners respect the accord of Oct. 26 and Oct. 27.”

Greece’s debt is forecast to balloon to almost double the size of its shrinking economy next year without a write-off accord with investors, the International Monetary Fund said Dec. 13. The swap, part of a 130 billion-euro ($170 billion) second bailout agreement for Greece, is supposed to help reduce its debt to 120 percent of gross domestic product by 2020.

The country’s 206 billion euros of privately held debt would be reduced by 50 percent under an agreement announced at an Oct. 26 summit of European leaders in Brussels.

costata said...

Hi VTC,

Firstly in relation to the similarities. I realize that many people have been claiming that all of the actions by the Fed are simply money printing and therefore automatically inflationary. The Fed has also sterilized a large portion of their issuance. It's not circulating. If the currency issued isn't in circulation it's sterilized.

(Incidentally I don't subscribe to the theory that quantity of money is the only determinant or driver of inflation.)

I also think we have to draw a distinction between liquidity (as in a freeze in the inter-bank market) and insufficient capital (solvency) issues. Some of the initiatives of the CBs (on both sides of the Atlantic) have addressed real liquidity problems. If you operate a CB system addressing liquidity issues is a proper role for a CB. (Whether it is a good idea to even have a CB is a separate debate.)

In regard to your descriptions of these ECB transactions and programs, did you see JR's earlier comments and links? (In reply to enough.)

You wrote (my emphasis):
The ECB did not prevent interest rates on government bonds from increasing...

They have no way to prevent them rising without resorting to monetization of sovereign debt. The SMP program is pushing the limits of the law as it is. And no I don't consider the size of this program to constitute any threat to the Eurosystem or the Euro.

....The ECB had all the data to see the current crisis coming, and they had the tools to prevent it from getting out of hand.

You have made this claim many times. They did not have the "tools". This statement is simply incorrect. They did not have the regulatory oversight or legal powers to control these banks who generate bank credit "money" (95% of the notional money supply).

The regulatory powers vested in the countries where the banks were domiciled and/or where their subsidiaries were operating.

Secondly, the shadow banking system was/is largely unregulated and where attempts were made to regulate it the rules were/are easily circumvented by regulatory regime "arbitrage".

IMO the parties at fault for this mess are governments, TBTF banks, regulators, economists and the people who elect the governments (in that order).

costata said...

Texan,

I told you months ago the ECB was printing via repo and that they would expand that facility into the trillions.

I also remember your remarks when the SMP started. Basically the same wild claims. The ECB subsequently sterilized all of the currency issued.

BTW I had you in mind in my reply to VTC discussing liquidity among other things. I think there is some overlap with your comment.

Cheers

costata said...

Texan,

Do you see any symmetry here?

You wrote:
...drained all the excess liquidity from the few banks that had any..

...it's being counterbalanced by system-wide deleveraging at the bank level..

And you wrote:

It certainly appears that they are trying to avoid gigantic and obvious monetization and keep their mandate and reputation intact.

That's what I see too. They're also buying time and keeping the pressure on the politicians to put their fiscal houses in order and to discipline the banks.

What they are doing is not at all their job.

We'll just have to agree to disagree on this point.

victorthecleaner said...

costata,

You have made this claim many times. They did not have the "tools". This statement is simply incorrect. They did not have the regulatory oversight or legal powers to control these banks who generate bank credit "money" (95% of the notional money supply).

No, you are wrong. They can indeed set the reserve requirements. In particular, they allowed credit to expand hugely in the southern countries while they kept credit tight in the centre. I quote from Richard Werner

http://www.yomiuri.co.jp/dy/columns/commentary/20100507dy03.htm

The article is from May 2010 when the Greek situation got into the news.

So when Greece joined the eurozone, it delegated monetary policy to the ECB. This has left Greece without monetary policy. But it does not mean that there was no monetary policy. Quite the contrary, the ECB has for most years since its creation pursued a policy to encourage governments in the southwestern periphery, especially Greece, Ireland, Spain and Portugal, to make unrealistically high revenue growth (and hence spending) projections. It did this by its perennial--though little- known--policy to boost commercial bank credit growth in these countries at an unsustainably fast pace in the double-digits (at times even exceeding 20 percent annual growth in these countries).

Bank credit is primarily determined by central bank policy. Stoking this massive credit bubble in Europe's periphery--like a "ring of fire"--has been the ECB's clandestine regional policy. Bank credit growth means money supply growth.

While in public the ECB would emphasize its interest rate policy--which is identical across the eurozone--unknown to the public, the ECB implemented regionally diverse credit growth policies: boom in the periphery, with banks encouraged to print money as if there was no tomorrow, and bust in Germany, where bank credit was almost entirely shut down, causing weak growth and rising unemployment. It is this ECB policy that is now coming back to haunt us.

Thus Greece is not solely to be blamed for its crisis. The institution it had entrusted monetary policy to, the ECB, also must share responsibility, for it was the ECB that created the unsustainable economic boom that encouraged an overoptimistic fiscal stance. It was also this ECB policy that rendered the Greek banking system fragile to the effects of the financial crisis, and this also added to the fiscal burden on Greece.

Why did the ECB adopt such irresponsible and regionally diverse credit policies? We have to ask them--though ECB staff tend to remain silent on this issue.

When I asked ECB President Jean-Claude Trichet at Davos in 2003 about this regionally diverse credit creation policy, he merely replied: "I don't know what you mean with 'credit creation.' We use interest rates as our policy tool." Perhaps he has read up on the role of bank credit in the meantime--but so far he has been keeping his insights from us.

Perhaps the ECB had originally calculated--with flawless central bankers' logic--that creating a crisis in this way would eventually force European leaders to rush into otherwise unthinkable political unification and the creation of a United States of Europe. But there are far better options available.


I fully agree with these technical points I have quoted although I do not agree with the rest of the article - Werner ignores the advantage of the balanced trade account of the euro zone and only focuses on the internal imbalances.

Victor

victorthecleaner said...

PS: Richard Werner concludes that the ECB may have lent a helping hand to the credit bubble in their periphery, and he considers it possible that this was done intentionally. Yes, I think, he may well be right.

Victor

victorthecleaner said...

costata said ...

Texan,

I told you months ago the ECB was printing via repo and that they would expand that facility into the trillions.

I also remember your remarks when the SMP started.


The issue with the huge repo is that it remains quite intransparent what happens with that money. If the commercial banks would go out and immediately buy the various governments' budget deficits worth of bonds (Sarkozy's dream), then yes, this would be basically an unsterilized clandestine QE.

If the ECB is up to their job, they will have to make sure this liquidity is used better, i.e. for lending to the real economy. This may well work out, for example, if the Greek haircut turns out to be tougher than people expect, if someone else, say Portugal, suddenly talks of a voluntary haircut, or if occasionally some bond yield go through the roof. They just have to discourage their banks from buying government bonds. Yes, this should be possible.

Victor

costata said...

VTC,

I seriously don't know whether to laugh or cry over those last three comments from you.

I'm thinking Basel II. You might want to dip into it. Then let's talk about the difference between "reserves" and "capital adequacy".

Christmas Day over here tomorrow. But I will respond in the next few days.

Merry Christmas

Gary said...

@VCT

'If the ECB is up to their job, they will have to make sure this liquidity is used better, i.e. for lending to the real economy.'

The perennial problem with banks is that they'll lend to every man and his dog when times are good, but they won't lend much to anyone when the world is headed for a massive depression (thus making things worse).

Plus, businesses and households start to pay down debt, and delay spending, save more, and so there is not much demand for debt.

I don't see much the ECB or anyone can do about this issue, and of course the world needs the reset.

Texan said...

Costata, the ECB balance sheet is now in the trillions. It didn't grow to that size from SMP, but from repo. The repo facility is unsterilized (in Europe) because it replaces non- Euro lenders such as US money market funds, who pulled their funding.

I don't think this expanded LTRO activity is part of their mandate ( in the US it was Treasury that provided 3y money)?

FOFOA, I don't think it's criticism of the ECB but sort of a "distinction without a difference" when comparing their actions with the Fed. Obviously, both CBs need to do what they have been doing, on that I agree with you.

arthur legg said...

Merry christmas everyone!
http://www.youtube.com/watch?v=5qqdovHOgvU
Regards
A Legg

J said...

I'm not sure what accounting practices they want to change but it's interesting nonetheless

"Central bank officials yesterday held talks with disciples of Luang Ta Mahabua about changing accounting practices for gold raised by the revered monk and donated to the Bank of Thailand in the wake of the 1997 economic crisis.

The discussions are part of a broader move by the central bank and the Finance Ministry to resolve the over-1.1 trillion baht in outstanding liabilities carried by the state as a result of the Asian economic crisis.

After the 1997 crisis, followers of Luang Ta Mahabua led a patriotic campaign to donate 13 tonnes of gold to the Bank of Thailand to help bolster the country's foreign reserves, which were all but wiped out during a failed defence of the baht by the central bank.
.
.
The central bank and the Finance Ministry want to change how currency reserves are accounted for to help payment of debt incurred by the Financial Institutions Development Fund (FIDF) from its bailout of ailing banks and finance companies during the 1997 financial crisis.

In 2002, the government agreed to accept responsibility for the FIDF liabilities on condition that if the central bank showed a profit from the management of the country's reserve assets, the funds would be used to settle the outstanding debt.

But the reserve account has been mired with losses due to the appreciation of the baht over the past decade, as foreign-denominated assets have lost value in local terms.

Consolidating the accounts would help reduce this burden and ultimately allow the Finance Ministry to pay down some of the liabilities, which stand at 1.14 trillion baht."

Monks warn BoT not to tinker with donated gold

sean said...

The Bank of England’s Financial Stability Paper No. 13, Reform of the International Monetary and Financial System" (20th Dec 2011) is fascinating as it describes how much worse the IMFS has actually performed since the end of the Bretton Woods system, compared to the system under a gold standard. They then discuss lots of ways the IMFS should be reformed, but curiously completely ignore the role of gold! There's an analysis in Forbes.

enough said...

exerepts from Harvey Organ 12/24/11

"All eyes are on the front delivery month of December and we were quite surprised to see the open interest rise from 199 to 737 for a gain of 540 contracts. We had 31 delivery notices filed on Thursday so we gained a massive 571 contracts of gold standing. When you witness this near the end of the delivery process you could bet the farm that some entity needed physical gold in a hurry and raided the comex for that metal. Sure enough, the deliveries for Friday gold came in at 577 contracts"

Thus the total number of gold oz standing in this delivery month is as follows:

2,200,500 oz (served) + 16,000 (oz to be served upon) = 2,216,500 oz or 68.94 tonnes of gold.
If we add the 1.77 tonnes of deliveries in the "non delivery" month of November we get 70.71 tonnes of gold deliveries.
The total registered or dealer gold at all comex sites sits at 90.04 tonnes of gold
Thus the total deliveries are 78.53% of the dealer gold.


The commercials who have been long in gold surprisingly added a huge 7426 contracts to their long side.
And our commercials who have been short in gold from the beginning, covered a huge 14,237 contracts.


Conclusion; extremely bullish as the commercials are covering and it is the large specs that are supplying the paper."

Dr. Octagon said...

FOFOA – I don't fully agree with a few of the things you posted a few posts above. If particular:
“So back to this idea that printing currency is bad. I suppose it is bad in that it steals purchasing power from someone. But who is it really stealing that purchasing power from? Is it really stealing it from everyone? Or from "the taxpayers"? No, neither. It is stealing it from the savers holding their savings in currency or debt. “

Printing currency isn't necessarily stealing purchasing power from someone. There are two possibilities here... either people are hoarding cash (a liquidity trap), in which case the extra currency just gets held, and prices do not go up, or, people are not hoarding cash, and prices do go up as a result of the extra cash floating around. In this second case, it's true that those holding savings as cash or bonds loose purchasing power along with the currency. But more importantly, those of use who are paid in some nominal dollar amount, as salaried or hourly employees, effectively get a paycut in real terms. So it's not just the savers who are affected, it's also a cut in future income for the vast majority. For an economy, this can be a good thing overall because the lower real wages make the group as a whole more competitive, but this is because the majority, not just the savers, has had purchasing power “stolen” from them. I believe that the ECB and the Fed are both seeing this as the first case, of a liquidity trap, not the second case, of inflation. If they are correct, then printing is hurting no one (yet).

I also take issue with the suggestion that “They should have just been buying gold at $250. IMO, they get what they deserve for buying that crap”. It takes a lot of deep understanding to accept that this is a true statement. More than I think can be expected of even sophisticated investors. Anyone can look at the volatility of the gold markets and say with some justification, that gold is a risky place to store savings. Cash is nominally safer, and AAA-rated debts that offer a decent return look even safer than cash. And for a lot of savers, safe nominal returns are what they're after. As long as gold continues to have unpredictable price moves, I don't see many choosing it over anything officially labeled as having a “risk-free return”. This blog is evidence of the amount of effort the argument for physical gold takes. I don't expect bankers to put in that kind of effort.

Nickelsaver said...

Merry Christmas FOFOA! Merry Christmas Everyone!

mr pinnion said...

I agree with Dr. O s comments.

But more importantly, those of use who are paid in some nominal dollar amount, as salaried or hourly employees, effectively get a paycut in real terms. So it's not just the savers who are affected.

And
It takes a lot of deep understanding to accept that this is a true statement. More than I think can be expected of even sophisticated investors.

Was going to say pretty much the same thing.

Regards
Ozzy

FOFOA said...

Hello Dr. O and Ozzy,

There is no doubt that the proliferation of the $IMFS has eroded the real wages of Americans and many others as well (and not just through price inflation). But wages are a daily, weekly or monthly ongoing exchange of labor for value, always subject to change. If you ever feel you are not being paid fairly for your time, you are free to demand change or else cut your losses quickly.

But looking at rapid price inflation—for example, if the general price level were to rise 50%—a saver with $10M (again, for example) would lose $3.3M in real purchasing power while the debtor (paycheck to paycheck laborer) would either demand a raise or cut his minimal losses.

As for my comments about the stupidity of savers, they are generalized toward the $IMFS's systemic embrace of "FOFOA's dilemma". I don't think you can forgive the savers any more than you can blame the banksters. That's my point. We have met the enemy and it is us. And it didn't take a genius to buy gold at $250 in 2001. I have proof.

Sincerely,
FOFOA

J said...

"And it didn't take a genius to buy gold at $250 in 2001. I have proof."

Is this who I think it is? lol

Pictures or it didn't happen =)

Max De Niro said...

J,

Perhaps he's talking about Max Keiser?

That clown is far from a genius.

Matt said...

It's one thing to argue workers can demand higher salaries so 'all fair' it is another thing to consider whether that is what happens empirically. Have real wages kept pace with inflation? No, so what good is your theory?

Once inflation has run so long that the economy is distorted towards speculation over production - how can a worker demand higher wages than his employer can provide? Indeed, all american workers should demand salary increases to counter the inflation rate right now - their struggling employers surely would pay - wouldn't they?

Put that theory in the bin next to ones like 'Private debt doesn't matter because one persons debt is another's asset' 2008 proved that to be both technically arguable & empirically stupid.

Totara said...

Public service announcement.

The YouTube video links to the documentary no longer seem to be available. But the documentary can still be seen at:

http://www.vice.com/the-vice-guide-to-travel/vice-guide-to-north-korea-1-of-3

http://www.vice.com/the-vice-guide-to-travel/vice-guide-to-north-korea-2-of-3

http://www.vice.com/the-vice-guide-to-travel/vice-guide-to-north-korea-3-of-3

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