Friday, March 25, 2011

Reference Point Revolution!

I read a great article from Imprimis, the free publication put out by Hillsdale College in Michigan, titled The Floating Dollar as a Threat to Property Rights. [1] The article started out with the curious case of the incredible shrinking kilo (a problem normally faced only by drug lords that employ users as traffickers). Apparently this one particular metallic cylinder securely housed at the International Bureau of Weights and Measures near Paris, France, is the "reference kilo" for not only the global metric system, but even the U.S. customary system in which 2.2 pounds equals this particular kilo.

The problem is, it's shrinking! So far it has only shrunk by 50 micrograms, about the weight of a fingerprint on Earth. [2] But even so, this is a big problem for scientists that deal in exacting calculations that require global standardization. The problem boils down to the definition of a kilogram. The global standard definition of a kilo is this particular cylinder! It was cast in platinum and iridium by Johnson Matthey in 1879, adopted by the first general conference for weights and measures in 1889, and has been the global reference point for the measurements of mass ever since. But some scientists are now complaining that with the exacting tolerances of today's high-tech world, the 21st century kilo needs a new definition. Modern science needs a better reference point for mass. [3]

This got me thinking about reference points, and how they have all—in every single case; temperature, distance, force, pressure, time, etc.—changed and evolved their definitions throughout history to best fit the cutting-edge needs of the time. [4] This is a trend that always faces the opposing forces of inertia—the resistance to change—and progress—the need for change.

Another obvious trend in the evolution of reference points, when viewed in a long-line historical context, is the expansion from local to national to regional and finally to global standardization. This trend, especially, faces the opposition of inertia as national reference points have become part of the national identity of their people. The remnants can be seen everywhere. For temperature we have Fahrenheit and Celsius. For mass we have avoirdupois ounces, troy ounces and metric grams. The world is littered with national currencies. And even foreign languages are a good example of our innate resistance to global standardization.

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. [5] What ends up happening most times is that nations will keep their old reference point for identity purposes, but they will either adopt the best external reference point as a secondary standard or they will affix (peg) to the definition of the most widely used reference point, also known as the focal point. [6] We see this in almost everything. English has become the global standard among many foreign languages. The Imperial pound is pegged to the metric kilogram, as noted above. And prior to 1971, the world's major national currencies were all pegged to gold through the U.S. dollar, another national currency.

The main point here is that while our symbols of national (or regional) identity will always be with us, the unfolding of future "new and improved" reference points will always be global in scope. Just as time moves in only one direction, it can be no other way. In other words, new global standards will be layered on top of quaint and sentimental artifacts of the past. [7]

But let me be clear about one thing before I move on. It is not sufficient to simply move forward without knowledge of and respect for the path that brought us to the present, which is what "the easy money camp" likes to do. Nor is it advisable to run forward while looking backward, expecting the past to reveal what may be directly in front of us, as we so often see in "the hard money camp." [8] To properly prepare for the future, we must know the past—know the Trail that we are on—while not looking backward to find objects that lie ahead.

And now, onward…

The point of the Imprimis article was that the U.S. dollar, not unlike the kilogram—being an important reference point for value especially in the United States—has gone through a number of definitions punctuated by abrupt, often painful, degradations. In the beginning the U.S. dollar was defined as 371¼ grains of silver, with the U.S. adopting the Spanish dollar's definition because of its widespread use as a reference point for value. Later the dollar was redefined as 1/20th of a troy ounce of gold, and then degraded to 1/35th. Then in 1971 the de facto definition of a dollar was removed and the U.S. dollar began to "float" (or more appropriately, "sink") as a reference point.

Throughout the various definitions above, the dollar was gradually adopted by other nations until it became the de facto global reference point for value. Or so we in America and the West think. In fact, gold was always the global reference point and the U.S. dollar's definition—a definition that was defended at the U.S. Treasury gold window by spewing gold—became a means to the acquisition of the value reference point itself. If the dollar had been that global reference point, the world would have been happy merely accumulating dollars, and Nixon would have never had to close the gold window.

It turns out that the dollar was always a poor reference point for value because its definition could simply be changed or removed altogether for political expedience, over and over, again and again. Yet some in the U.S., some with a patriotic yet myopic perspective, think that all we need to do is redefine the dollar so that it can once again become the global benchmark of value. Something it never was in the first place. And something it never will be. (All the dollar ever did was adopt the reputation of an external reference point and then fail to live up to it. Over and over, again and again.)

Long in the past, before telephones and air travel, before computers and the Internet, local and national reference points were far more important and relevant than what was happening on the other side of the planet. But today, and moving forward, it matters more how the many national currencies will relate to each other, how they will exchange, on what reference point their exchange will be judged, than what any individual locality or nation does to change or manipulate its own currency. 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.

And this got me thinking about the concept of Purchasing Power Parity, or PPP. With the advent of global air travel, I can take $10,000 out of my bank in the morning, get on a plane, and get off in another country in the evening, exchanging my $10,000 at the airport for the local currency. This little exchange should not cost me anything in purchasing power, it should essentially be free, or else I wouldn't do it. Or perhaps if I actually gained purchasing power by flying somewhere, I would do it more often! But the fact of the matter is that while the PPP concept works in principle, it doesn't always work in practice. Especially given a variety of purchasing choices in the marketplace, some of which are more native to one country than another.

The question comes down to the overvaluation or undervaluation of various economic currencies. The way ants—and by ants I mean economists (see footnote #5)—try to deal with this question is by using "baskets" of goods or currencies. But the problem with baskets is that i) they present too many moving parts, and ii) they present the option (temptation) for political manipulation (e.g. CPI "basket" and SDR "basket of currencies"). And for these two (obvious?) reasons, baskets make poor reference points for value.

Just yesterday, Professor Michael Pettis wrote in Is Loan Growth in China Slowing?:

"… a few years ago people suggested that the RMB might be undervalued by 30%. Since then the RMB has appreciated by 20-25%. And yet today people are still arguing that the RMB may be undervalued by 30%. How is it possible that so much appreciation has not seemed to affect the estimates of undervaluation?

"Before answering it is worth pointing out that there is no way that anyone can determine precisely the amount of undervaluation of the RMB, or any other currency, and so any estimate can be nothing more than that – an estimate based on many moving parts. There are plausible reasons for arguing that a currency is undervalued or overvalued, but there is absolutely no way to determine with any precision by how much.

"This difficulty is compounded by the fact that many analysts are simply getting the math wrong. So for example when people say the RMB is undervalued by 30%, they often mean that the dollar is overvalued by 30%. These two claims may sound like the same, but of course they aren’t. If the RMB is undervalued by 30%, it means that the dollar is overvalued by 43%, not 30%. I have seen so much confusion on this issue that I pretty much give up on trying to understand what people mean when they discuss currency changes without seeing their actual numbers."

That's right! We need a single moving part! And by we, I mean not just the ants, but the colony, the Superorganism. The human Superorganism desires to streamline the concept of PPP as much as possible, for its own benefit. And the way that is done is by using a single global reference point. But as I wrote in Life in the Ant Farm, we individuals are not nearly as smart as the Superorganism. Case in point—Reference Point: Big Mac!

At any given point in time every currency has a certain purchasing power inside its own legal tender zone, and then it has a different purchasing power outside the zone. The Economist magazine has been publishing the Big Mac Index every year since 1986. The index is a humorous way of looking at the purchasing power parities of various currencies using the McDonald's Big Mac as the Reference Point.

Other variants of this index have used as the Reference Point, the Apple iPod, a cup of Starbucks coffee, and even Ikea's Billy Bookshelf. The Economist describes its original, ground-breaking index thusly:
The Big Mac index is based upon the theory of purchasing-power parity (PPP), the notion that a dollar should buy the same amount in all countries. Supporters of PPP argue that in the long run, the exchange rate between two currencies should move towards the rate that would equalise the prices of an identical basket of goods and services in each country.

Our “basket” is a McDonald’s Big Mac, produced in 110 countries. The Big Mac PPP is the exchange rate that would leave hamburgers costing the same in America as abroad. Comparing actual rates with PPPs signals whether a currency is under-or overvalued.

Two of the Economist's findings for 2010 were that the most expensive place to buy a Big Mac (with U.S. dollars) was in Norway, where it cost US$7.20 (on 7/21/10 after exchanging your dollars into the local Kroner currency), and the cheapest was in the Ukraine at US$1.84. Interpreting this data is where it gets a little tricky.

Click on images to enlarge

Depending on your cognitive agility, there are any number of mental contortions that you can do with this data while extracting whatever value may be hiding in it. For example, you can imagine that Big Macs are a currency and the local currencies are the object of desire. Or that U.S. dollars purchased with Big Macs transported to foreign countries are the goal. You can pretend that Big Macs have the properties of gold, like durability, divisibility and portability, and imagine the arbitrage opportunity based on these charts, and how that arbitrage would affect the currency exchange.

In fact, there is a bit of real value that can be extracted from this little exercise that I'll get to in a moment. But first, the clearest lesson is that Big Macs make a poor global reference point for value for many obvious reasons.

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. It also becomes clear that today the U.S. dollar is filling this role, somewhat haphazardly, and also under the opposing forces of inertia—the resistance to change—and progress—the need for change. It could be said that we in the West are providing the inertia while the rest of the world is pushing for change. At least that's what I see happening.

Clearly, we in the West still measure the value of anything anywhere against the dollar. Think about it for a second. Can you tell me the value of a condo in Hong Kong? How about the value of a night in a five-star Singapore hotel? And what's the value of a 50' yacht in Dubai? You'd likely quote me all three in dollars, especially if you are a Westerner. As FOA pointed out, we assess the relative values of any two things—like an apple versus a banana—by mentally converting them into dollars.

And while our Western minds have been trained to use the dollar quite efficiently in this way, there are a few technical problems with the dollar being the reference point of value. Not unlike the kilo cylinder at the top which is causing problems for some scientists, the dollar, too, is shrinking.

The main problem, which the Imprimis article points to, is that the dollar is no longer defined as anything other than how the market decides to value it on any given day. This could be called a floating definition. So the article proposes that the needed fix is to redefine the dollar. Perhaps we could redefine the dollar to be equal to one Big Mac! The U.S. Treasury could then buy all McDonald's restaurants everywhere and defend the dollar by globally spewing Big Macs for a buck. Can you think of any problems with this plan?

Okay, let's imagine they redefined the dollar to be 1/5,000th of an ounce of gold. Can you think of any problems with this? I can. What will be the definition of gold? Does this sound like a silly question? Well, today "gold" is trading at around $1,435 per ounce, and this price is discovered through the dynamics of supply and demand in a market that includes claim checks on unallocated pools of gold, shares of funds that are physically non-divisible below 10,000 ounces, and promises of future delivery of gold from a variety of sources including mines (gold that is still underground), hedgefunds (gold that will have to be sourced if demanded) and banks (gold which is fractionally reserved). These markets all trade (fluctuate) in dollars. If the dollar is suddenly defined as a piece of gold, what will happen to these markets?

Maybe they should just define the dollar as 1/500th of a share of GLD! Then the U.S. Treasury could defend the definition by spewing GLD shares! Or they could define the dollar as 1/500,000th of a COMEX contract! Or better yet, they should just define the dollar as 1/5,000th of a Bullion Bank liability for an ounce of gold. The Treasury could partner with JP Morgan and defend the definition by spewing liabilities!

What we have here is not a problem with the definition of the dollar, the quaint and sentimental reference point artifact of the past. What we have is a problem with the definition of gold, the 21st century (and all others too) reference point of value!

I said earlier that there was a bit of real value to be discovered by thinking about the Big Mac index. And that discovery is that a Big Mac hamburger actually has one characteristic or property that makes it a better reference point for value than either the dollar or even the modern definition of "gold." That property is physicality! Big Macs only come in one variety, a discrete, physical hamburger. There are no Big Mac futures or forward sales, no unallocated Big Mac pool accounts, and the only way to deliver a Big Mac is to either make it on the spot or physically transport it to where it is demanded. Can you imagine if they handed you a BB (Big Mac Bank) liability at the drive-thru window?

I wrote above, "pretend that Big Macs have the properties of gold, like durability, divisibility and portability, and imagine the arbitrage opportunity based on these charts, and how that arbitrage would affect the currency exchange." Such an arbitrage would ultimately flatten that first chart, making a Big Mac cost the same number of dollars in any country you traveled to. In fact, gold (under its modern definition) acts just this way.

The definition of "gold" today, at least in financial circles, is completely messed up. Why do you think I have to constantly say physical gold? And not only that, I continuously have to define what I mean by physical whenever I say it! It's ridiculous. Ask any fund's manager how much they have in gold. He'll likely quote you a number around 5-10% that includes mining stocks, paper promises and a host of other precious metal stocks. Ask him about physical gold bullion, specifically, and he'll quote you a much lower percentage that likely includes only PHYS and GLD. Those are the financial definitions of "gold" and "physical gold" today.

The problem is that the arbitrage that makes PPP work with gold today is too easily and asymmetrically achieved, which ends up favoring some currencies over others. What I mean is that hamburgers are actually a "harder currency" today (harder=more difficult) than "gold" under the common Western understanding of "gold investments." [9] Like I said, to be delivered Big Macs must either be produced on the spot or physically delivered from another place. Gold, on the other hand, can be sold into demand with the click of a mouse that creates a new liability on the balance sheet of JP Morgan or one of the other Bullion Banks. This is asymmetric in that most Bullion Bank gold liabilities originate from London and New York, and it is a definitional problem that makes it impossible for the term "gold" to be used to define anything else, like the dollar.

So before we can even consider the definition of the dollar, we must first solve the problem with the definition of "gold." And once solved, we may find the question of redefining the dollar to be a moot point. But whether you believe me or not about it becoming moot, we must still face first things first.

In order for a thing to perform as a reference point for value, when market demand for that thing rises it must be met with the difficulty of the physical, not satiated with the ease of promises. This is the main reason currency makes a poor reference point for value. When demand for currency rises it is hoarded which slows the economy. Value is the output of the economy. It is the opposite of currency. When the demand for currency is collapsing, the demand for value is rising, and vice versa.

This is why Central Banks came into being in the first place; to make sure that rising currency demand does not hurt the economy. This is why the BOJ injected trillions of yen after the earthquake; to protect vital economic activity from the spiking demand for currency.

I know this is a difficult concept to swallow, but value and currency are polar opposites, which is why, if gold is the reference point for value—which it is—it cannot function properly and also be an economic currency—or tied at a fixed parity (price) to currency in any way! To view an economic currency built to function properly alongside the reference point gold, look no further than the architecture of the euro. [10] This is why the first ECB President stated clearly and publicly that the euro "is the first currency that has… severed its link to gold." [11]

I want to mention one more very significant advantage to physical gold being the global reference point for value. In another recent article by Michael Pettis, who I mentioned earlier, titled The dollar, the RMB and the euro?, talking about the struggles ahead for the RMB, he writes:

"Although China will struggle to bring its current account surplus down, there are only two ways it can do so (remember that the current account surplus is equal to savings less investment)."

The two ways he lists are 1) increase internal investment, a non-starter in China right now, or 2) get the people to spend their money (consume) rather than saving it—decrease savings. It's a shame that he can't see that China is already doing this by encouraging its people to buy the physical reference point of value itself. By buying physical gold, Chinese savings don't raise the current account surplus, they LOWER it. It's still very real savings, but it acts like consumption on the balance Pettis describes. More correctly, his "accounting identity" should read, "current account surplus is equal to non-gold monetary savings less investment." Or stated another way, "paper savings = production – consumption (including physical gold purchases)." And surprise-surprise, China is apparently already ahead of the game.

By encouraging savings in gold, this raises demand for gold inside China and uses up some of the dollars that would have otherwise been recycled back to be borrowed and spent by the US Treasury. In other words, every ounce of gold that flows into China today represents $1,430 that Bernanke will have to print via QE rather than borrowing from China.

What it means

What this Reference Point Revolution (RPG/Freegold) means for Western savers like you and me is that at some time this year or next (see footnote #7) perceptions of value will likely be shattered: "like a mirror in pieces on the floor, revealing another mirror standing right behind it, providing another perspective… the perspective will be of necessity, a rude awakening, so to speak… so much value is just perception only, not reality, and that perceived value will go up in flames, to reveal this perspective from which more accurate valuation will spring… the mass of acting humans (aka economy) will better understand money and savings, intuitively, through this perspective… gold will no longer be talked about, treated, and therefore viewed as a commodity, it will cross over to the other side of the fence… most won't care to really understand in any detail, they will just know that it is reality and will approve of its prospects… The value of gold will change as people’s perception of its utility to them changes." [12]

"Can you imagine a gold price of AT LEAST $100,000 per ounce? How about a real purchasing power increase, measured in today's dollar purchasing power, to somewhere between $10,000 and $100,000? In the bell curve below we can see that the most probable PP landing zone is between $25,000 per troy ounce and $85,000 per troy ounce. Can you think of a better reason to invest in physical gold coins right now? How about protection from hyperinflation? $100,000 is the bare minimum in this case. The top is infinite! Imagine $12 trillion per troy ounce... the size of today's US national debt reduced to one single gold coin you could buy tomorrow! Can you imagine it? It doesn't really matter if you can't see it like I do, as long as you buy the coin. As JFK liked to say, 'a rising tide lifts all boats', not just the ones that believe in rising tides." [13]

"So how much of your perceived wealth have you locked into a real, solid, "good as gold" wealth reserve? I shouldn't have to say this because it is so obvious, but it is clearly better to "cash out" of the paper game and "lock in" your profits BEFORE the two biggest bubbles in history pop. That way you beat the rush, so to speak." [14]

The demand necessary to perpetually sustain a revaluation of gold at, say, $55,000 per ounce is already present in the gold market. One only has to understand why Giants—people with enough money to actually move the price of gold—do not find it in their best interest to use their money to move the price of gold. "Gold is neither expensive nor cheap today. It is theoretically free. It is a monetary conversion, like buying a Treasury or a money market fund. To the Giants, do you think gold is a game of "how big is my slice of the pie?" Or is it "how much is my slice of the pie worth?" Is it better to have a 15% slice of a commodity pie, or a .4% slice of the global wealth pie? Is it more likely that all the gold in the world combined, when used as a wealth reserve, will be worth a large percentage of everything? Or that it is worth only 30% of the known oil reserves?" [15]

"But right now, for perhaps the first time in history, individuals can join central bankers and the true Giants of the world by participating in the ultimate hedge fund. One that, like modern hedge funds, focuses on the hedge itself as the key investment with the most leverage, with the expectation of life-changing returns. And the main differences between this and traditional hedge funds are 1) much less risk, and 2) it is open to ALL individuals, including you!" [16]

"Freegold is our destination with or without the euro. Even on the outside chance that an SDR or a similar super-sovereign currency is accepted as the new global reserve currency, it would have to contain gold at Freegold valuations in order to be viable, accepted and trusted, in the same vein as Randy's comment about an EMF. So any way you cut it, the future comes to us with really high value gold by today's standards." [17]

"Anyway, this is what Freegold is all about. It is about deducing the inevitable implications of an unstoppable avalanche. And it is about fiat currency finally finding its natural equilibrium with a parallel physical gold wealth reserve. And trust me, fractional paper gold promises won't work in this new world, so equilibrium will likely be somewhere north of $50,000 per ounce (and that's from just the functional change, don't even ask me about the inflation-adjusted price)." [18]

"Take it for whatever it's worth, which, of course, only you can decide for yourself. The $IMFS is failing. Please don't let the fears, envy or baseless doubts of others obscure this reality. You can choose to participate in the recapitalization of world finance or you can be a victim of it when the lights go out. The choice is right in front of you. So decide what you'd rather be: a participant in the rebuild, or a victim of the collapse. Amazingly you still have this choice available as I type these words." [19]

"As ANOTHER and FOA taught us, a time of systemic transition is completely wrong for trading on technicals. Instead, it is the PERFECT time to consolidate on fundamentals, then sit back and wait. The reward, as ANOTHER put it, will be enough for one's lifetime. And what is gold? Oh yeah, it's the ultimate wealth consolidator." [20]

And now, for all you FOFOA noobs, I will close, as I so often do, with another mind-blowing excerpt from FOA's Gold Trail. [21]

My friends and I are Physical Gold Advocates. We own physical outright and do so employing the same reasoning mankind used in owning gold throughout most of history. However, there is a major difference between our perceptions of this historic reasoning and the current Western perceptions so many of you are attuned to. Our's is not a mission to unseat the current academic culture concerning money teachings; rather it is to present the historic and present day views of the majority of gold owners around the world. Those of simple thought and not of Western education. Plain people that, in bits and pieces, own and use the majority of above ground gold.

Most contemporary Western thought is centered around gold being money. That is; gold inherently has a money use or money function; built into it as part of the original creation. This thought presents a picture of ancient man grasping a nugget of gold, found on the ground, and understanding immediately that this is a defined "medium of exchange"; money to buy something with. This simple picture and analysis mostly grew in concept during the banking renaissance of the middle ages and is used to bastardize the gold story to this day. Even the term "money", as it is used in modern Bible interpretations, is convoluted to fit our current understandings.

Much in the same way we watch social understandings of music, literature, culture and dress evolve to fit current lifestyles, so too did gold have a money concept applied to it as it underwent its own evolution in the minds of political men. This is indeed the long running, background story of our Gold Trail; an evolution, not of gold itself, but of our own perceptions of this wealth of ages. A evolving message of gold that is destined to change world commerce as it has never changed before.

Onward my friends

In ancient times there was no concept of money as we know it today. Let me emphasize; "as we perceive money today". Back then, anywhere and everywhere, all things known to people were in physical form. All trade and commerce was physical and direct; barter was how all trade was done.

If one brought a cart to market, loaded with 20 bowls and 20 gold nuggets, he used those physical items to trade for other valued goods. The bowls and gold had different tradable value; as did every other thing at the market. Indeed, gold brought more in trade than bowls. Also true; if a barrel of olive oil was in short supply, it might bring even more in trade than all the gold in the market square.

The understanding we reach for here is that nothing at the market place was seen as a defined money value. All goods were seen simply as tradable, barterable items. Gold included. Truly, in time, some items found favor for their unique divisible value, greater worth and ease of transport. Gems, gold, silver and copper among others, all fit this description. These items especially, and more so gold, became the most tradable, barterable goods and began to exclusively fill that function.

But the main question is: was there money in that market place? Sure, but it was not in physical form. Money, back then and today, was a remembered value in the minds of men. Cumbersome it may have been, but even back then primitive man had an awesome brain and could retain the memory values of thousands of trades. In every case, able to recall the approximate per item value of each thing traded. That value, on the brain, was the money concept we use today.

Eventually gold climbed to the top of in the most tradable good category. Was gold a medium of exchange? Yes, but to their own degree, so were the bowls. Was gold a store of value? Yes, but to a degree, so were dinner plates. Was gold divisible into equal lesser parts to define lesser barter units? Yes, but to a degree one could make and trade smaller drinking cups and lesser vessels of oil. Perhaps gold became the most favored tradable good because the shear number of goods for good traded made a better imprint on ones memory; the worth of a chunk of gold in trade became the value money unit stored in the brain.

Seeing all of this in our modern basic applications of "money concept", almost every physical item that naturally existed or was produced then also held, to a lesser degree, gold's value in market barter. But most of us would have a hard time remembering a bowls value and thinking of a bowl as money. The reason this is such a stretch for the modern imagination is because bowls, like physical gold, never contained or were used in our "concept of money". Back then, as also today, all physical items are simple barterable, tradable goods; not of the money concept itself. Their remembered tradable value was the money.

Money, or better said "the money concept", and all physical goods occupy two distinct positions in our universe of commerce and trade. They have an arms length relationship with each other, but reside on different sides of the fence and in different portions of the brain.

For example: say I take a bowl to the mint and place an official government money stamp on the underside. The bowl now is stamped at $1.00. Then I take one tiny piece of gold to the mint; one 290th of an ounce or at today's market a dollar's worth. They stamp that gold as $1.00. Which physical item would be money? Answer; neither.

Using ancient historic reasoning and the logic of a simple life; the bowl could be taken to the market square and bartered for another good. Perhaps a dinner plate. In that barter trade, we would most likely reach an understanding; that the "bowl for plate trade" imprinted our memory with what a digital, numeric dollar concept is worth. Again, the 1.00 unit was only stamped on the bottom for reference. While the dollar concept is only a rateable unit number to compare value to; like saying a painting is rated from one to ten when judging appearance.

We could do the exact same thing without 1/ 290th ounce piece of gold as with the bowl above. In the process we again would walk away with the knowledge of what a $1.00 unit of money value was worth in trade. The physical gold itself was not the money in trade; the value of the barter itself created the actual money value relationship. Again, the most important aspect for us to grasp here is this:

----- The use of physical gold in trade is not the use of money in trade. We do not spend or trade a money unit, like the dollar, to define the value of gold and goods: we barter both goods and gold to define the worth of that trade as a remembered association to the dollar money unit. That remembered worth, that value, is not an actual physical thing. A dollar bill nor an ounce of legal tender gold represent money in physical form. Money is a remembered value relationship we assign to any usable money unit. The worth of a money unit is an endless mental computation of countless barter trades done around the world. Money is a remembered value, a concept, that we use to judge physical trading value. -----


Naturally, for gold to advance as the leading tradable good it had to have a numerical unit for us to associate tradable value with. We needed a unit function to store our mental money value in. In much the same way we use a simple paper dollar today to represent a remembered value only. Dollars have no value at all except for our associating remembered trading value with them. A barrel of oil is worth $22.00, not because the twenty two bills have value equal to that barrel of oil: rather we remember that a barrel of oil will trade for the same amount of natural gas that also relates to those same 22 units. Money is an associated value in our heads. It's not a physical item.

The first numerical money was not paper. Nor was it gold or silver; it was a relation of tradable value to weight. A one ounce unit that we could associate the trading value to. It was in the middle ages that bankers first started thinking that gold itself was a "fixed" money unit. Just because its weight was fixed.

In reality, a one ounce weight of gold was remembered as tradable for thousands of different value items at the market place. The barter value of gold nor the gold itself was our money, it was the tradable value of a weight unit of gold that we could associate with that barter value. We do the very same thing today with our paper money; how many dollar prices can you remember when you think a minute?

This political process of fixing money value with the singular weight of gold locked gold into a never ending money vs gold value battle that has ruined more economies, governments and societies than anything. This is where the very first "Hard Money Socialist" began. Truly, to this day they think their ideas are the saving grace of the money world. It isn't now and never was then.

When investors today speak of using gold coin as their money during a full blown banking breakdown, what are they really speaking of?

In essence, they would be bartering and trading real goods for real goods. The mention of spending gold money is a complete misconception in Western minds. Many would bring their memories of past buying with them and that is where the trading values would begin. Still, it would take millions of trades before the "market place" could associate a real trading value to the various weight units of gold. It took mankind hundreds of years to balance the circulation of gold against its barterable value. Only then could a unit weight value become a known money concept. In that process, in ancient times, gold had a far higher "lifestyle" value than it has seen in a thousand years. This value, in the hands of private owners, is where gold is going next.

If you are following closely, now, we can begin to see how easy it is for the concepts of modern money to convolute our value and understanding of gold. It is here that the thought of a free market in physical was formed. Using the relationship of a free physical market in gold, we will be able to relate gold values to millions to goods and services that are currency traded the world over. Instead of having governments control gold's value to gauge currency creation; world opinion will be free to associate the values of barter gold against barter currency. In this will be born a free money concept in the minds of men and governments. A better knowledge and understanding of the value of all things.
-FOA (2001)


[1] Hillsdale College is a small liberal arts college with a student body of about 1,300. It does not accept federal or state taxpayer subsidies for any of its operations. Imprimis is dedicated to promoting civil and religious liberty by covering cultural, economic, political and educational issues of enduring significance. The content is drawn from speeches delivered at Hillsdale College events. Imprimis is one of the most widely circulated opinion publications in the nation with over 1.9 million subscribers. That's a lot of readers for this type of monetary article. And this article was the only content in the Feb. edition.
[2] A kilogram is a scientific measure of mass, not weight, because weight is not universal while mass is. An ounce of gold on the moon, for example, would only weigh as much as 5 grams on Earth.
[3] One of the leading alternatives for a 21st-century kilogram is a sphere made out of a Silicon-28 isotope crystal, which would involve a single type of atom and have a fixed mass. Another is to link the kilogram to a fundamental unit of measurement in quantum physics, the Planck constant. This redefinition would bring the kilogram into line with the six other base units that make up the International System of Units (SI) – the metre, the second, the ampere, the kelvin, the mole and the candela. None of these are now based on a physical reference object – the metre is defined in terms of the speed of light, for example, while the second is based on atomic clocks.
[4] An appropriate example is that before the metallic cylinder, a gram was defined as "the absolute weight of a volume of pure water equal to the cube of the hundredth part of a metre, and at the temperature of melting ice."
[5] For an explanation of the term Superorganism, please see my post Life in the Ant Farm.
[6] For an explanation of the term Focal Point, please see my post Focal Point: Gold.
[7] Punctuated Equilibrium is a good description of how monetary evolution proceeds. Here's an example of what I mean. Notice the regularity of the cycle. Your homework assignment is to uncover what the dates represent in the monetary evolutionary cycle:

1893-1897 **Punctuation**
1930-1934 **Punctuation**
1968-1971 **Punctuation**
2008-____ **Punctuation**

From the cyclical pattern above, it seems to me like ____ should be either 2011 or 2012. What do you think? Should we ask Marty?

For an explanation of the term Punctuated Equilibrium, please see my post Evolution.
[8] For an explanation of the terms "hard and easy money camps," please see my post The Debtors and the Savers.
[9] "When we talk about gold money we often use the term "hard money." And one misconception that pops into most people's mind is that "hard" money means hard like a rock, or hard like a piece of metal versus "soft" like a piece of paper that folds nicely into my wallet. Or the ultimate soft, a digital electron that moves at the speed of light.

"This may not seem like a big deal, but I think it is. What is actually meant by "hard" money is that it is difficult, or hard to get. The opposite of hard being easy, not soft. Hard money cannot be expanded easily (without risk) because it has an anchor in the physical world."
From Just Another Hyperinflation Post - Part 2
[10] For more on the euro's architecture, please see my post Reference Point: Gold - Update #1
[11] The full line was, "It is the first currency that has not only severed its link to gold, but also its link to the nation-state." See Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002
[12] Quoted from Julian's excellent comment.
[13] From Gold is Wealth
[14] From Gold: The Ultimate Un-Bubble
[15] From Gold: The Ultimate Wealth Reserve
[16] From Gold: The Ultimate Hedge Fund
[17] From Synthesis
[18] From Equilibrium
[19] From How Can We Possibly Calculate the Future Value of Gold?
[20] From Gold: The Ultimate Wealth Consolidator
[21] Please see the top of this blog for to whom it is a tribute.

From 44:50 to 47:00 Robert Zoellick discusses his RPG comment. The video will automatically start at 44:50.

Monday, March 21, 2011

Wendy's Open Forum - Part 3

Just got this email notification...
Wendy has left a new comment on your post "More Freegold Fodder":

although you may be able to see me, I can't see anything after the 200th post this morning.

Please FOFOA can you fix this??
So sorry Wendy. Here's your new open forum. I think I hate Blogger's forced spam filter as much as you hate its forced pagination. A little choice in the settings would be nice. Blogger is certainly testing my inertia (resistance to change). So I have included a song dedicated to Blogger's comment and spam-detection system. But Wendy, I hate to think about you missing the 30 excellent comments on page 2. So try clicking on the link to your own comment and see if it takes you to that ever-evasive second page. And now, this song goes out to the spam filter! (If I had my druthers I'd allow an unlimited number of comments on page 1 and disengage the spam filter altogether!)

**** Warning: This song utilizes the F-word! ****

Saturday, March 12, 2011

More Freegold Fodder

This is a continuation of the last post. Freegold fodder for a lively and relevant discussion! Part of what makes the following comments so interesting (aside from their mind-bending, perspective-altering content) is that they were all posted in the 48 hours leading up to the Washington Agreement on Gold, the first CBGA which took place at the IMF annual meeting in Washington DC on Sunday, Sept. 26, 1999. In fact, the last few comments in this post were probably right around the time of the actual WAG signing!

FOA (9/25/99; 12:15:48MDT - Msg ID:14354)
I see where I.V. Holtzman has reworked his "Street Gold" post so as to make it more on point and in context. It is a remarkably clear description of how the dynamics of a market can distort "real price reality". I think it will be a major reference item as our gold markets evolve. Therefore, (I don't often do this) I, FOA nominate it for HOF. Also consider that Another seconds that nomination (I'll ask him to make that official when here). Can someone else also second this, please? Thanks FOA

Note: for the Holtzman article see: USAGOLD (09/24/99; 13:03:31MDT - Msg ID:14297)

USAGOLD (09/24/99; 13:03:31MDT - Msg ID:14297)
Latest from Holtzman...
Holtzman here,

More than one POG

There are many different prices for gold. Or, more accurately, there are many different ways in which gold is formed and stored, and those differences cause prices to differ between the resulting products.

A one-ounce gold JM bar, a Krugerrand, a 1999 U.S. gold Eagle, a slabbed 1908 MS-65 St. Gaudens (ignoring for the moment that it's not precisely one ounce of fine gold), a one-ounce portion of a London Good Delivery bar, a one-ounce portion of a vault claim ticket for same, a one-ounce portion of a futures contract, a one-ounce portion of a derivative contract for same, and one ounce of fine gold formed into a piece of jewellery, all have prices which are somewhat independent of one another.

True, at their core, they all centre around what the market currently feels an ounce of gold is worth, but each has its own additional factors (premiums, risks and quantities) which cause its price to differ, often substantially, from the others.

The U.S. gold Eagle differs in price from both the JM bar and the Krugerrand because of a Patriotism premium. The St. Gaudens differs in price from similarly sized bullion coins because of a Numismatic Rarity premium.

The officially quoted Spot POG differs from the price of one JM bar bought at a coin shop because Spot POG is the price per-ounce at which very large quantities of physical gold trade. By large quantities I mean hundreds-to-thousands of ounces and upwards. Some of these sales are between mining companies and refiners or mints or jewellery manufacturers, where the buyer intends to reshape the metal into some new form, be it ingots, coins, or next month's necklace special at Marks & Spencer.

But in many cases, the purchaser has no plans to remanufacture the gold. Rather, he simply wants to own it. In such cases, the gold itself typically remains in a third-party repository in forms such as London Good Delivery bars (400 ounces), with only the Right to Claim those bars being transferred from buyer to seller.

Since these rights can be transferred electronically, this allows Spot market participants to make brief forays into the market, then retreat, with minimal overhead expense. Money centre banks are better known for their similar operations between paper currencies (buy Swiss Franc sell Yen this morning, then reverse that this afternoon, etc.), but no doubt a great deal of daily Spot POG setting is the result of trading rather than buying to own. Regrettably, I do not have detailed information on the various global Spot markets, so I have no way to discern the proportion of speculators to commercial traders.

In any event, this speculative access to Spot POG makes it susceptible to the same sorts of "professional" day trading which is usually associated with paper markets.

In addition, most of the gold sold at Spot POG has yet another factor influencing it, one which can easily place it more in alignment with the various paper forms of gold when market conditions become abnormal: the risk that the gold is not entirely under the supposed owner's control.

If you have a few gold coins buried in your back yard, and if you bought those coins anonymously with cash, you control that gold. If you have a claim ticket for a few hundred kilograms of gold held at the Federal Reserve Bank of New York, or a few hundred tonnes of proven reserves in a mine whose location is known to tax assessors, or even a few dozen U.S. gold Eagles in a unit trust, don't be so sure you're the one in control of that gold.

If or when a breakdown in the paper gold market occurs, it's quite possible we may see the officially quoted Spot POG remain in lockstep with paper prices, very possibly plummeting even in the face of blatant shortages of physical metal. But all this would mean is that a make-believe price is being impressed on market participants who are large enough to be easily identified and coerced.

If a private citizen holds the claim ticket to a London Good Delivery bar stored at the Fed, guess who has the power to insist on knowing details of any sale of said bar. Even if a private citizen takes possession of the bar and buries it in his back yard, Uncle Sam will be very keen to periodically bother him about its whereabouts. Although Spot POG is a measure of physical gold, it adheres to the paper world more so than to the physical world because of this one point: the risk of governmental intervention.

This ties in with points about gold mining shares made by Another and FOA: mining companies theoretically are at liberty to sell to the highest bidder, but governments have a way of convincing their subjects to accept less and be happy with it. If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.

By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.

The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's far too likely to start a revolution (or in your case, re-start one :-).

And yet, despite the very convincing scenario of complete meltdown painted by FOA and Another, I still find myself clinging to the hope that the supply/demand cycle will re-assert itself as has happened in other industries (the recent history of the airline industry being my beacon in the darkness).

I would never touch futures or their derivatives even under normal market conditions, but a small stock investment in the most efficient, best established global mining companies seems to me still to be worth the risk (note again my use of the word "small"). Whether those shares are ultimately sold for Euros instead of dollars, I still am optimistic enough to wager that they will indeed trade on some market for some price in some currency. In any event, though, I plan to keep an eye on potential warning signs that such optimism may be about to be dashed.

So where will we find a "real" price of gold amidst the make-believe? Clearly neither Spot POG nor futures POG will be realistic during a full-blown emergency, nor will the share prices of gold mining stocks. Of course, if I find myself still in possession of such papers during an emergency, their official resale value will be all too real to me.

Even under normal market conditions, the paper price of gold is not the perfect guide because it is determined by constant repetitions of FOA's analogy of the two neighbours betting over the fence. Perhaps one in a thousand participants in the daily setting of the official prices of gold plans to acquire or deliver physical gold. The other 999 participants are merely there to bet on it and claim their winnings in some other currency.

Put another way, how many people at a racetrack are attempting to buy a horse? If you want to know the going price of a physical horse, don't look to a racetrack for answers. And don't assume that being a partial owner in a horse farm (thanks FOA) in any way assures you of being able to own a physical horse at some future date.

Likewise, if you want to know the going price of physical gold, don't look to the paper chase, most especially during any sort of financial emergency when paper-related numbers will become very distorted. Frankly, even though the emergency has yet to be publicly declared, things in that arena are already becoming increasingly distorted.

Most of us here at the USAGOLD Forum do not buy and sell thousands of ounces at once, and most of us take immediate possession of our purchases. From that, it's clear where we should look to find the price of physical gold which is most appropriate for our activities: in fact, our very conversations here are being hosted by someone who spends most of his waking hours discovering that price.

Street POG

The Cash or Street price of gold is the number of dollars (or pounds, or euros) you take out of your wallet and hand to your friendly, neighbourhood coin dealer in return for a one-ounce Krugerrand.

Why a Krugerrand? Because it's the least numismatic, most commonly encountered, least lovely form of gold. It has no numismatic premium and no jewellery premium and no patriotic premium. It's even less attractive than a one-ounce JM bar.

That makes the Krugerrand the perfect unit of measure for Street POG. Its only special quality is that it contains exactly one ounce of gold (mixed with much too much copper).

The only circumstance which would disqualify the Krugerrand would be if suddenly coin dealers were willing to sell Maple Leaves or Eagles for less than Krugerrands. But to deal with that case, let us define Street POG as the price of the cheapest one-ounce coin or wafer available for sale at that moment.

You will know that the governmentally influenced markets are becoming highly distorted when you see a Krugerrand selling on the street for significantly more dollars than the Spot POG quoted by the paper markets that day.

A Krugerrand will always have a little premium built into its price (hi, I just bought these coins and I'd like to sell them to you without making any profit at all on the sale... my, that would be daft).

At some point in August 1999 when Spot POG was quoted at $260, I bought a single Krugerrand for $268. That's within the range of normality. We're not in uncharted waters yet.

But let's say that Spot POG drops to $200 (sadly still not out of the question even with the September 1999 rise in POG towards $270). What will a Krugerrand cost on the street then? If Spot POG drops no more abruptly than has been its wont in recent months, there's a decent chance Michael and his fellow coin dealers might then be able to profitably sell Krugerrands for $205 each. In that case, the shorts and the financial ministers are still in control.

But if you see Spot POG drop below $200 while a Krugerrand selling on the street never falls below $230-$240 ... or if you see Spot POG remain at $256 yet Krugerrands leap to $300 and Eagles to $310 ... hello new gold market. That would be a clarion call that things are starting to become seriously distorted. [FOFOA: Note that things did get spooky just four days after this post. You can see it graphically in the large spike
here, here and here. The price of gold jumped more than 25% in nine days, from $257 on Sept. 22 to $325 on Oct. 5. That would be like gold rocketing from $1,420 today up to $1,795 by March 24. Imagine what that was like!]

The American Civil War

I think maybe the hardest mental hurdle for people to clear in understanding Another and FOA is this notion of two gold markets occurring simultaneously. There's an historical example (and it's Western :-) in which very much the same thing transpired...

In 1864, the USA and the CSA were reaching something of a stalemate in their war. Contrary to what most Americans learn today in (the winner's) school system, had but a very few decisions been made differently, the Confederacy would have won.

This, by the way, is why we see so many Americans (descended from both sides) re-enact Civil War battles over and over. How often (except on Monty Python) have you seen re-enactments of Pearl Harbour? The only battles worth replaying are the ones that could have gone either way.

In any event, to the average person living in Either the USA or CSA in 1864, the near term future was incredibly unclear and terrifying.

In the pre-war USA, national government funding was handled by the levying of import/export duties. The IRS was not yet a glimmer in politicians' eyes. For a nation at peace, duties provided sufficient income to run a minimalist national government.

In time of war, however, expenses magnify dramatically. Both the remnant USA and the new CSA needed to acquire vast funding very rapidly to raise an effective military. The both of them did so in the time honoured way: they borrowed the money. Have a peek at Lincoln greenbacks and Confederate paper money sometime. They are promises to pay the bearer with gold and/or silver at some significant time following the cessation of hostilities.

These documents were by no means the equivalent of today's Federal Reserve Notes (try redeeming a $20 FRN for a St. Gaudens sometime). No, Civil War paper banknotes were the equivalent of today's Gold Futures Contracts.

Oh, Lincoln greenbacks and Confederate dollars passed from wallet to wallet during the Civil War years as if they were currency, and in the first year or so they were regarded as 1-for-1 equivalents of coin. But as 1864 drew nearer, something odd began to happen.

"Howdy, I'd like to hand you this crisp $1 greenback in return for ten silver dimes change."

"I'll give you 8 silver dimes for a paper dollar, not a penny more."

Realise that this happened in the North, in the remnant USA. It happened too in the Confederacy, but modern people remember it there only in association with the final default on paper which happened when the CSA government was extinguished.

But the sole difference between a Confederate dollar and a Lincoln greenback was that one paper issuer was still in existence in 1866 and one was not. In 1864, no one could confidently say that either government would still be there a mere two years hence.

Notice that, in this regard, not much has changed since then. In 1933 for US citizens, then in 1971 for the rest of us, the USA government voided its obligation to pay gold for paper dollars.

If you hand me silver or gold, I won't care whether the symbols impressed on it are from a reliable government, an unreliable one, or a defunct one. But if you hand me paper, I'd better be firmly assured the issuer will live long enough (and be inclined) to pay off this debt to me. Even if you hand me a paper claim ticket to silver or gold stored in a vault somewhere, I'd better be firmly assured the vault keeper is of a mind to let me take possession of that metal without the slightest hesitation.

Another and FOA, by saying wise people should avoid paper and only hold physical, are indicating that they expect the LBMA and Comex Gold Contract documents will go the way of the Confederate Dollar (or maybe more appropriately, the way of the pre-1933 paper dollar: "Yes, a dollar is still a dollar, we just won't live up to it in quite the way we used to.").

At the very least, they're saying the risk of such a systemic change is so substantial that one should not be standing too near the fault line should the quake come sooner than predicted.

What the both of them are describing is an official Spot POG (and its kindred future months' POGs) which may well plummet to $200 or even, as Another allowed some time ago, perhaps $10. Realise, though, that Another is by no means predicting that Michael will be able to profitably sell Krugerrands at $10 each. Far from it.

What Another and FOA are anticipating is a situation much like the paper money situation in both the USA and the CSA in 1864: how likely is it that the paper contract you're handing me today will be redeemable for any amount of gold by this time next year?

Tell you what, I've got a spare ten bob I feel no desperate attachment to. I'll buy your one-ounce IOU just for kicks. If LBMA completely expires, I'm out only a small amount. If LBMA unaccountably fails to expire, I've struck it rich. Of course, I may still not receive a physical ounce of gold on settlement day. I may find I've become the proud owner of a 1/400th part of a London Good Delivery bar, which I'm then told may not be removed from the vault. If I'm lucky, I might be able to sell my claim ticket for some amount of whatever paper currency is still worth accepting.

Meanwhile, those of us with less of a gambling inclination will sleep more soundly holding physical. After all, a silver or gold coin firmly in your possession remains silver or gold even after its issuer expires.

I.V. Holtzman

FOA (9/25/99; 12:28:42MDT - Msg ID:14356)
Goldspoon (9/25/99; 12:08:04MDT - Msg ID:14353)
One reason $ilver may do better than gold in the late stages is because $ilver is also known a Poor Man's Gold... There is alot more poor people than ritch ones...Poor people generally come late to the party and buy what they can afford ($ilver) so $ilver will be a late bloomer but Oh what a flower....

Hello Goldspoon,
Could you please elaborate. Your above comment that "silver is more affordable than gold", brings my question.
Which is more affordable $100 of gold or $100 of silver? Even if gold was $1,000 an ounce, why then, at that time would $1,000 in silver be more desirable as a "poor man's gold"?

I'll be back with more. thanks FOA

FOA (9/25/99; 14:29:40MDT - Msg ID:14367)
When a person tries to protect their assets against the effects of fiat money, what are they really fighting against? The first inclination is to say "rising prices". Yet, it's much more than that! Most everyone agrees that interest in the bank never covers the loss of buying power brought on by price inflation. Especially the "after tax" return. It's the same old story, played out decade after decade. We must "invest our savings" (or become a day trader?) because the money will erode in value! Even at 3%, price inflation can eat away at any cash equivalents.

But, price inflation isn't the only story that impacts us. Rising prices come and go, but money inflation continues to affect us without fail. So why do people feel better when price increases slow or stop, even as money inflation runs ever upward? The good feelings usually evolve from the effects that money inflation (increases in the money supply) has on financial instruments. These assets take on the very same characteristic that the rising prices of goods once exhibited. They run up in currency price.

During these periods of "less goods inflation" another sinister form of mind set lurks in the shadows. Credibility inflation! Yes, it has been here many times before as every fiat currency alternates it's effects upon the feelings of the populous.

Fiat currencies must, by definition always expand in quantity. Their continued usage and acceptance is always obtained with the bribe of "more wealth to come"! Without that bribe, humans would never fall for holding a debt to receive the same goods in the future if they could get the real thing today. Human nature has always dictated that we buy what we need now instead of holding someone's IOU to receive it later. That nature is only changed through the "greed to obtain more". Like this: "I'll hold my wealth in dollars currency if my assets are going up. Later those increased assets will buy me a better lifestyle as I purchase more goods and services than I could buy before".

This is the hidden dynamic we see today and the exact antithesis of the past price inflation's. Just as destructive as "goods price increases", "credibility inflation" impacts our emotions to "hold on for the future", more is coming! In every way, "credibility inflation" is just as much a product of an increase in the money stock as "regular price inflation is. As cash money streams out to cover any and all financial failures, we begin to attach an ever high credibility to the continued function of the fiat system. In effect, the more money that is printed, the higher we price the credibility factor.


ORO, the GDP is one of the great deceivers in the Fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavours. Yet, throughout this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.

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

The GDP has been the relative gauge to mark all other measurements against. Even so it's numbers reflect little more that the result of an "expanding fiat money supply". Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.

Someone I know said; "your wealth is not what your money say it is"!

What should we be looking at to see the real picture? Be back a few hours from now.

Thanks FOA

FOA (9/25/99; 19:11:59MDT - Msg ID:14375)
When it comes to silver, I agree with all of you. But then "along comes reality"! Many of the current analysts persist with their analogy that "silver is used to make change and small transactions". A concept I completely agree with, only if we sink to that point? The valuations placed on silver will mostly be established by the kind of "currency turmoil" we experience.

Look at today's US paper currency. It's all dollars and yet $100 bills are used readily right alongside $1.00 bills. It seems that we found a way to create ever smaller denominations of dollars to satisfy the demand for making change. I don't see anyone carrying around Canadian currency for the small purchases a US $100 would not work for.

My point is that gold has in the past and will again in the future be broken down, "if needed", into alloyed coins for the very smallest of transactions. One can easily carry a one gram gold coin that is made the size of a quarter. Even a 1/10 gram will do the trick. As Mr. Gresham points out, someone will always be around to create money change. Be it in silver or gold, the most efficient money will rule the day. In the worst of war like conditions, paper money is traded. German marks were spent as the booms fell!

My question of which is more affordable $100 in gold or $100 in silver? A poor man will accept and use either that is offered, no contest.

Again, the future demand for "Metal money" will be established by "how the currency markets evolve". I believe (and have written on this before) that throughout all that is to come, US dollars will continue to circulate as will most all the established currencies today. "Come what may", we will use them for whatever value and efficiency they will offer. Just as the much lesser moneys of the world presently circulate, while their citizens hold dollars, gold and silver, so too will we act in a similar fashion.

The question for our immediate future is in what form will you hold metal money to represent the "bulk" of your tradable wealth? As all the currency and economic turmoil swirl around us, the pressure will be to not only hold reserves that will not be at risk, but hold them in the largest "tradable form". Gold and it's high future price will certainly fit that bill. Again, contrary to what many think, when the dollar falls off the reserve currency tower, most everyone will still be getting paid in dollars. Yes, they will be greatly devalued from price inflation, but buying your gas with dollars will still be a weekly chore.

The future will see the Euro currency as the value reserve all other currencies will trade off of. Beside it will trade a "free gold" market denominated in Euros. The implications of this will be for US nationals to continue using dollars while holding gold (or Euros?) for a bulk, risk free tradable reserve. One can see that in this picture, the purpose for silver is greatly diminished, no?

Got silver? Don't need it, cause I got gold!

We shall see, back in an hour or so. FOA

FOA (9/25/99; 20:31:48MDT - Msg ID:14388)
Gold Dancer (9/25/99; 18:36:32MDT - Msg ID:14373)

Hello Gold Dancer,
I think I paralleled some parts of your thinking. Thanks for offering your reasoning.

Goldspoon (9/25/99; 15:37:33MDT - Msg ID:14370)
Some have suggested confiscation....possibly. --

I think the confiscation item has always been blown completely out of proportion. Some even go as far as saying that there is no use in holding gold if it gains a lot because it will be taken away from you. Then in the same context, it's offered to buy gold stocks to gain from a more reasonable increase in the gold price! In addition, for the same reasons they see silver as an item that will not be touched. One has but to review "Holtzman's "More Than One POG" #14297" to get what is his beautiful rational and reasonable retake on what confiscation would really mean:

--------If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.

By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.

The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's far too likely to start a revolution (or in your case, re-start one :-).-------------------

Thanks Holtzman, incredible job!

Again, if you think silver is going up because of currency turmoil, is it reasonable to believe it will increase as it did during the 70s style Hunt fiasco? I'm not sure that event wasn't but a one of a kind move. Everyone considers that performance (the only one we have had ) as an example of how silver moves when gold goes up. However, it's entirely possible that that gold move was but a minor side show and in the future gold will dwarf any percentage rise in silver. We didn't know silver could move like that until it happened and we may find that few will understand how gold can outperform everything in the future. As I offered earlier, the coming currency transition may render the "many present reasons" for holding more silver than gold useless. Especially if currency stays in circulation as the demand for industrial silver falls from a economic contraction. If such is the case, the percentage move will fail to match gold.

I know many own silver. I offer this as a balance observation. Good luck to all of us, may we all win! FOA

FOA (9/25/99; 21:11:01MDT - Msg ID:14392)
Leigh (9/25/99; 19:36:56MDT - Msg ID:14378)
Do you think silver is worth holding as a commodity, the way you would hold platinum? Don't you think the prices will go very high as silver reserves as depleted? Or do you think gold will rise the highest?

Hello Leigh,
All of the investment attributes for these metals are conflicting. On a commodity basis, silver would be the best. Warren B. bought it in his company name expressly for its industrial prospects. He views it in the same light as a stock investment. I doubt he took it for any of its monetary reasons.

Again, invest to make a return. Take your best shot. But for today buy gold to preserve what you have during a global dislocation of currency systems. Because the future may play out as I have outlined, gold will out-perform (on a real basis) most any past investment made during the last 30 years. Not because it's a good investment with great prospect demand, but because it will again perform its ages old function as the world's money. Something it hasn't done in stand-alone fashion for perhaps 60 years?????? That return to money use in this modern world is the attraction that drew in the Giants, in whose footsteps physical gold owners now walk. The rise will make most people feel very foolish not to have purchased at $1,000 while it was cheap (smile)! We shall see.

Thank you and good day FOA

[FOFOA: Next is a short excerpt from Twice D that is relevant to FOA's reply below. It is similar to complaints I hear all the time. "You don't know the future. No one but God can know the future." I like FOA's reply.]

Twice Discipled (9/25/99; 20:40:54MDT - Msg ID:14390)
FOA - Dollars/Gold/Silver

I try not to understand your perspective to hold all knowledge of the future (only One in the universe can make that claim), but to gain an understanding of how we may be required to manage and use that which we have put away for future use.

FOA (9/25/99; 21:12:34MDT - Msg ID:14393)
Twice Discipled (9/25/99; 20:40:54MDT - Msg ID:14390)

Point 1)
If my above interpretation of your suggestions is correct and the events play out as you see them then with further thought I may come to agree with your remarks regarding silver.

Hello Twice D,
There is actually quite a large group of people that see things this way. Nothing is written because they are very private. [FOFOA: "quite a large group of people (Giants) that see things the A/FOA way!"]

--Point 2) If we move to an environment where bartering becomes the standard, then I would still think silver would be appropriate in some degree because of the smaller value associated with it. I would also ask who I would trust to take my .1867 oz Napolean III and melt it down into a 1 gram gold coin – definitely not the government, I would never see it again. I would also be skeptical of any other organization given that history shows us examples of "shaving" whereby the gold content of coins was reduced.------

-------Of course, when the time arrives we will no longer speculate, but participate in what transpires.--------

I agree! Indeed, if history is any guide, we are walking a well-worn trail. After this weekend, Another may have to update his view of current events. Things are moving now! [FOFOA: "Moving now!" –the WAG was signed the very next day! What did FOA know when he wrote this?]

Sorry for the short reply as I must go now...........thanks FOA

Aristotle (9/25/99; 21:28:58MDT - Msg ID:14394)
I just finished reading the posts of today and your latest. On this debate about Gold and silver you might want to consider one thing that you might be seeing past in your discussion.

First of all, I am in nearly total agreement with you in regard to Gold and its use for currency, with no need for silver. Your Canadian dollar as change for US $100 was brilliant in its clear simplicity.

But here's where you might not be seeing eye-to-eye with some of the others and their silver comments (though not all, because some are interested in silver for yet other reasons too varied for my limited imagination). When they are talking about using silver to make change for small purchases, it seems to me their primary focus must be on some kind of infrastructure collapse as would be a worst-case post-Y2K situation. Only if there were no means to use modern conventional transactional tools such as checks and plastic would anyone be floating the idea of paying with coins. In such an environment (which makes me shudder) silver would certainly be handy as they describe for short term trading. But all roads lead to Gold, and as things got back on their wheels, we will all discover that the same small amount of Gold will be able to buy ever-increasing amounts of silver as time goes on.

Barring any Y2K problems as described above, you've got it nailed down. Gold will outperform silver many times over, and it's easy to see why it would even be in the governments' best interest to support higher values for Gold--they all hold Gold, but no silver. Their Gold stockpiles (savings) could last forever with a high enough valuation. The key, as you well know, is Gold's new VALUE. Its currency price doesn't mean a damn thing. Instead of talking about the future dollar **price** of Gold versus a future price of silver (to see where one's dollar "profits" would be greater), we should be talking about their future **value**. This could be expressed in terms of something like loaves of bread. Here's the example:

Let's say we had four equal stacks of dollars and we today took one stack to buy a year's supply of bread, and then spent two of the remaining three stacks to acquire a pile each of Gold (small pile) and silver (large pile). Right now they are all equivalent values...the dollars, the bread, the Gold, and the silver. Roll the clock forward, well beyond any Y2K mess, or lacking that, simply past the day of reckoning when the dollar folds, and let's re-examine our pile of equivalents.

Ok, our year supply of bread is gone, because we ate it. The remaining stack of dollars will now only buy us a two-week supply of bread, the large silver pile will buy us a year supply of bread, and the small Gold pile will buy us enough bread to last for twenty years.

Certainly, these numbers (two weeks and twenty weeks) could be something else, but I hope I've at least expressed my point clearly for any future discussion on the matter. If we quoted prices in terms of loaves, we would actually be talking about value. A dollar price is somewhat meaningless, wouldn't you agree?

Gotta meet a friend for a brew. Hey you guys out a Peter's place--I'll be thinking about you!

Gold. Get you some. ---Aristotle

Aragorn III (9/26/99; 2:53:37MDT - Msg ID:14408)
Mr. koan, perhaps you might elaborate, or else reconsider?
I shall speak only with the universal language of mathematics...

You said in your post "Silver only has to go to $10 to double. Gold has to go to $500 to double."

Good Sir, my scale is broken this day, and therefore my currency knows nothing of weights and measures. I am told that the silver held in my left hand was purchased for 10 dollars, while the gold in my right hand was purchased for 10 dollars. To "double" (to equate with your example) they must each "go" to $20. How is it that this silver knows the shorter path and may travel the faster, easier road? Consider when you answer that at my feet is also $10 scrap iron. Per ounce, the price of scrap iron is quite this then the "gold" for the most wretchedly poorest of poor men, as you say silver is "gold" for the wealthier version of poor men? Does scrap iron therefore know the shortest path to double and beyond?

To be sure, Black Blade makes a point of psychology that must fit into an equation to be considered. Is this also your unstated rule of mathematics, or do you contend simply that the dollar will lose one-half purchasing power against silver more quickly than against gold because the purchased silver load is heavier to bear? Surely then scrap iron is the best investment of all? Or must we ignore the weight, as often it does not apply as we see here: does the low salary of a blacksmith double more quickly than the high salary of an engineer? I look around, but I see little demand for blacksmithing these days. When did you last read of silver in the national or international news?

You will likely agree that all things are subject to changes with changing times. Perhaps we will need blacksmithing again, and the few that do work for museums will then command a high price on such a day, indeed.

It holds true today, and perhaps always will, the modern use will define the value. Consider that the IMF and BIS, the ECB, and yes...the BOE (even as a seller-in-distress), and frequently our good Federal Reserve Chairman; they all speak only of gold, but never silver. Please be aware they can move the gold price further with a small finger than you or I could ever move silver with a crane. The path has become increasingly clear with the IMF moving to mark to market a portion of gold easy addiction with more to follow??? I would say we might hold our breath on this one and yet not risk turning too blue.

Pursue silver if you must do so for your own appeasement. It will certainly serve you better than dollars in a dollar currency crisis. I believe the picture painted by Aristotle on this issue in his recent post was quite reasonable, and worthy of consideration for the two sides. I say only two sides because if you extend the prevailing rationale of our many posters, platinum is right out of a role.

got choices?
got gold?

FOA (9/26/99; 9:54:32MDT - Msg ID:14425)
Aragorn III (9/26/99; 2:53:37MDT - Msg ID:14408)

Hello Aragorn,
Nice application of clear logic! Let me see it I have this right for a future context:

"Get your scrap iron now because gold and silver have already run up in price. Iron is the only affordable metal for late buyers. You get many more ounces per purchase because the gold / silver / iron ratio is so far in the favour of iron. When the teaming masses can no longer afford "real money" they will most certainly buy iron in 1/10 ounce form to use for small purchases"

I expanded your post with my slanted view to drive home a point to others. From the time that silver ran in the 70s, on one ever had any historical precedent that it could move so much. Yet, from 1980 on, every silver promoter has used the Hunt squeeze as the basis that it will rise again in just such a fashion. It has been the ideal "leveraged sell" for every boiler room to sucker in paper traders. I bet there are many who have lost the most money by taking on silver as a leveraged play.

I say all of this as the proud owner of some silver! Just as Aristotle (and yourself at other times) pointed out, in a complete "currency: breakdown, silver will be needed and used. Yet, in this modern day and age, ironically, inflated fiat currencies will most likely continue to be used for most purchases. I bet CMAX could add some light on this as he is in an "inflating country"!

Further: During the run-up in gold during the late 70s, the governments were selling gold all the way up. In the same light as we look at the YEN today, gold buyers were always afraid of the "next" intervention. Yet, even with the official gold sales, gold soared. During that time silver was never the application of any widespread major sales. Today, we must consider the effects on gold that a major 'Official" policy change would do. While everyone is waiting for the next big sale, others are anticipating the total withdrawal of government selling/ leasing from the markets. Indeed, if the ECB or oil or china start buying official stocks through the BIS, the results will be the reverse of the 70s markets. "Street gold" will be the percentage out performer!

We must bear in mind that there will be a big difference between Official BIS buying through the CBs as opposed to them buying paper gold on the LBMA. I think Mr. Holtsmans "More Than One POG" #14297 will be a hated factor for many current gold mine owners for years to come. With BIS buying from all CBs, the supply of gold will collapse, forcing the "street price" through the roof. Falling demand (buying) for paper gold will drive those securities to the floor because of their inability to secure and deliver enough physical gold. This dynamic will absolutely force the IMF/ dollar governments to lock the trading price of paper gold at below most production costs until new mine supplies can work off some of the paper commitments. Even though cash settlement (at the locked price) will be used, it will cover but a fraction of the outstanding paper. Counter party default will rule the day. No doubt, the majority of the mines in operation today will close, thereby forcing an extended workout period.

It's a simple choose of what is more important to the majority of people? Save the major portion of the banking system whose menders are the who's who of the LBMA, OR save the worlds gold mines? No contest!!

This is where we will see competitive revaluation's upward of IMF and existing CB gold stocks. These source of new equity will be needed to cover aid to failing countries (some from shut down gold mines) and back the massive loses a collapse of the dollar reserve currency will bring.

For years everyone looked for the nations to block any large rise in gold, so they invested in assets that would benefit from what would be perceived as a reasonable gold increase. One that the governments would begrudgingly allow. Of course we think of Gold stocks. Yet few considered the true ramifications if countries suddenly revalue gold not as money, but as a world reserve asset! We approach this dynamic today as world dollar debt has reached its limit. Exciting times for those that "walk in the footsteps of giants", awful times for those that have invested in the gold industry. It's not too late to change course and sail with the wind. With the direction of someone that understands, I have done just that!

With the wind...........we are on the road now!!! FOA

FOA (9/26/99; 11:22:32MDT - Msg ID:14430)
Leigh (9/26/99; 9:50:43MDT - Msg ID:14424)
Questions for FOA

------------When you and Mr. Holtzman talk about a black market for gold, do you mean an illegal black market? ----

Hello Leigh,
If I answer for both Mr. H and myself, it may get him riled up enough for him to post more of those great works. So I'm going to do it this one time! (smile) Also, it will be best to stay in close contact with Michael Kosares, as he will know the very first changes in the markets (if they occur).

However, in my view: I bet we end up with a very strong "dealer market" with companies like Centennial Precious Metals in the forefront. The difference will be in that they will price their product based on the real investor supply and demand as these dealers trade among themselves. Yes, an official gold market will be in effect, but "street gold" will carry a huge premium over the official "trading price". A premium that will not be profit for the dealers, rather a reflection of the true price of gold.

(TownCrier, you had a great explanation of this somewhere, no?)

Over time most dealers will slowly disregard all paper trading. The present major banking houses that trade bullion and paper will most likely drift far away from the gold business if their loses in that arena build. So; It won't be a black market like in the movies. That will only come about if things "really get out of hand". Something I doubt will happen, even during a Y2K breakdown.

----Do you think it is possible transactions in gold will be outlawed? That wouldn't do our government any good, would it? -----

Outlawed? No possible way! The thing everyone forgets is that during the 1930 gold call in, the governments were trying to place gold in a tight price range. They still had a good dollar system and wanted to keep it for the world's sake. Today, the problem is different in that they have created so much dollar based debt that it can't be serviced any more without a blowing up the world reserve money supply and hence the system. The US knows it's over and must accept a partial defeat. To accomplish this, in opposite fashion from the 30s they must raise the price of gold, not keep it down.

It works like this: To keep the gold price stable you have to get your hands on more of it. Then use that physical to balance existing dollar claims (as in the thirties) or sell it into the marketplace (as in the last 20+ years). For today; To make the price rise, you don't need more physical to use as supply, you simply withdraw supply from the marketplace and revalue what you have. [FOFOA: Note that the WAG was being signed right as FOA was writing this. Curious coincidence.]

The US treasury has some 8,000 tonnes ++/--. They can't back the same dollar with gold that they removed from the gold standard in 71. Major legal problems there (BIS???). Nor can they create a new dollar with the Euro on their backs. They can follow the ECB and the IMF lead and begin to revalue the existing US gold stock to use as equity against the massive reserve loses that are coming. No it won't cover even half the liability (even if it's over $10,000), but it's the only fallback asset any nation has. It will prevent a total World and US contraction.

The trading and owning of "street gold" by the US public will be encouraged, not outlawed. Any demand that raises the gold price further will be welcomed as a "new concept" to save a contracting economy. This was the real reason the Gold Eagle program was started in the first place! Political bases covered when the time comes.

---Wouldn't they want us to spend our gold so that eventually they could get their paws on it?---

No Leigh, in the future they will ask you to spend "your" gold, but not for their accumulation. They have plenty of gold and will just devalue the dollar further by raising the gold price in stair step fashion. Your spending will be to build the economy again. In reality, you will be selling some gold to a dealer for depreciated dollars. Then spend those dollars internally, within the country.

Gold coin sales will be a hard act to follow as we cross this valley of money transition. Mine owners will be screaming for controls of the street price so they can sell into the defunct LBMA at a higher price. It won't happen. Later, everyone will be glad they bought physical while the going seemed rough. Needless it's going to be interesting as this all unfolds. Eventually, paper gold will be out of the way (covered) and a real "mining boom will ensue". That's when we sell some of our gold to buy gold mine stocks! (big smile)

Get ready for that gold now!

Thank You FOA

FOA (9/26/99; 16:16:08MDT - Msg ID:14449)
Leigh (9/26/99; 11:58:37MDT - Msg ID:14432)

---- One more question: Will the government tax us gold owners to death, since we'll be among the few who have any money?---

Ha, Ha,,,,,,, Leigh, what do you think?

FOA (9/26/99; 16:18:59MDT - Msg ID:14450)
koan (9/26/99; 12:32:58MDT - Msg ID:14433)
Silver and gold - relative appreciation - a theory

-----If silver goes to $10 per oz you just doubled your money i.e. now you have $10,000 (1,000 oz times $10). That other $5,000 you put into gold for 20 oz will need to go $500 per oz i.e. 20 times $500 = $10,000.) Elementary my dear Watson.-----------

Mr. Koan,
Watson wants to know why gold can't double at the same time that silver doubles?

He still wants to know why a poor man will buy $100 worth of silver before he'll buy $100 worth of gold?

Does that also mean he will buy ten pounds of dirt for a $1.00 first, if one pound of sand is also selling for a $1.00? Hmmmmm!

I have a few dumb friends but they are not stupid. Seems the most "dumb" among them always understand the relative worth theory better than most any PHD scientist. I also know I'm smarter than they are, even if they have more money than me? (smile)

It's going to take a whole world of "special people" buying silver to make this work out. I'll watch here with everyone to see how this works out. Thanks FOA

FOA (9/26/99; 16:59:38MDT - Msg ID:14456)
Chicken man (9/26/99; 15:30:12MDT - Msg ID:14446)
FOA @ The Tale of the Golden Egg..

C Man,
That was a good one!
One of the reasons I advocated buying Goldfield stock was to support their actions. I Know most didn't understand, but burning a property deed (or stock certificate) in some cultures is synonymous with stating "you will never sell the investment".

Here, this company does an industry supporting move and no one (even GATA) advocates investing in that company for their strong anti-gold selling stance. Instead people see what happened and went out and bought ABX (or as much)? This Goldfield action was the major catalyst that sparked new interest in the gold arena. It called into attention the delicate nature of the paper gold position if physical is taken out. If everyone starts charging the auctions, this paper gold market will close in a hurry!

Goldfield buys and everyone comes out of the woodwork to proclaim a new bull market for reasons other than what happened. Then they direct new buyers into more paper gold investments, regardless of whether they are controlled "shorters" for the BBs. The Goldfield action clearly stated that they alone (along with Anglo) are independent from the paper control. I support management that take "right minded stands" whether my investment will pay off or not!

Chicken Man, watch this market run for another ten or twenty and see what happens to it! With the G7 fiasco concluded, we may get a blow-out this week! [FOFOA: Oh, boy, did they ever!]

Thanks for your reasoning....... FOA

FOA (9/26/99; 17:11:30MDT - Msg ID:14458)
Golden Truth (9/26/99; 16:56:35MDT - Msg ID:14455)
Hello F.O.A tomorrow i will be taking all my SILVER Maple Leaf coins and exchanging them for GOLD.

Golden truth,
Don't forget the iron bullion! (SMILE)

-----One question i do have is, could you please explain the comment you made about the "massive reserve loses that are coming" what will cause this? and possibly when? I,am sorry, i know this is a basic question but i have some trouble with figuring this one through Thanks as always G.T -----------

One of many examples. You are a foreign CB that is holding 100 billion in US treasury debt. The dollar loses half of its value. Treasuries now worth 50% less! The US declared "foreign exchange controls". Good thing you held gold that has now more than ?????? gone up! Throw the treasuries in the trash and forget about them. Now the ECB is offering to buy gold with Euro treasuries, if anyone wants a "special relationship" with europe. You know the rest!!!

I have to go now..........This week will be something..... FOA


PS. I only posted the comments by FOA and a few others here, but there are many more on those pages. Bear in mind that there is a lot of chaff mixed in with the wheat, but I suspect that a few of you will agree more with the chaff than FOA and Aristotle. Here are the links: Sept. 25; Sept. 26.

It's also fun to read the comments from the following three days after the markets opened post-WAG and gold went into extreme backwardation while the price rocketed.