Wednesday, June 22, 2011

From the Treasure Chest

On my computer I have a database file that contains almost 50,000 email files. I probably refer back to and search this file more than I even realize. It's one of those things that you don't quite realize the value of it until you suddenly face the loss of it (perhaps like Satoshi Nakamoto and all his "millions").

Very recently my computer crashed from what appeared to be a really nasty virus that apparently wiped out my hard drive. Thankfully I was able to recover everything, even my Treasure Chest email file. And full, 100% credit for the recovery goes to one of my greatest supporters, Warren, who told me exactly what to buy, what to do with it, and even paid for it! Thank you Warren!

Here is Warren's current project, SLV Database, which Bron mentioned the other day in PMs and the LME Warehouse Scam:

"Which is why I am very interested in this ETF bar list project and am doing what I can to help, as this I believe holds the potential to reveal just how big that dark pool of stock really is."

Check out Warren's project, and if you see him, thank him for saving FOFOA's computer!

Anyway, I thought I would celebrate my full Treasure recovery by sharing with you all a few nuggets from The Chest. The following are just a few recent highlights from my email file:


I am fortunate to have found your blog in more ways than one would believe. :)

I have been reading your posts with much interest ever since. You write very well.

This sounds is a little crazy cause I feel like I hit a Vegas jackpot or something.

I came across bitcoin awhile ago and was intrigued so I ran the generating program for a while but I cannot remember why I had stopped it. Although it really doesn't matter with all the what if's. Anyway, reading your latest post sparked my memory in that I had looked at it. I am amazed at how it's evolved with even a trading market. I reinstalled the program to have a look at it again and to my surprise I had 50 bitcoin credits! I only remember just running it for a couple days so a quick calculation showed USD value of a little over $800 worth of bitcoins (as of last Saturday). I sent the credits right away to market (mt.gox I think) and surprisingly they sold quick. The funds from the trade went again right away to which handles exchanges for cash through a bank transfers. So far so good but I will know in a couple of days of the successful transfer.

I think I will be trading those bitcoin generated USD's for a nice 1/2 oz Canadian Maple or Australian gold coin.

Thank you for posting about bitcoin. I probably would've never had a second thought about it otherwise.




A few questions – maybe you have already answered these. I need to go back and reread all your posts again.

Regarding the stability of the dollar: What is the significance of the Saudi currency being pegged to the dollar? What is the significance of the Yuan being pegged to a currency basket heavily weighted in favor of the dollar? As long as these heavyweights not only accept dollars, but go so far as to bind their own currencies to the dollar, it seems like the petrodollar system may be able to limp along for a long long time. I would expect a de-linking to be a sign of an imminent collapse, but it is diffiult to imagine a collapse as long as the links remain. Other lesser but notable pegs include Hong Kong, UAE and Venezuela.

Hello R, I don’t know how much you know about the different types of currency management, but this is a good paper. It is a debate in 2001 between Robert Mundell (“father of the euro”) and Milton Friedman.

Pegging is arguably a better choice than a “dirty float” in which you surreptitiously intervene. Pegging is one step down from a hard fixed exchange rate like California shares with Texas, or Greece with Germany. And sharing a fixed currency is really no different than sharing any fixed scientific metric, like a meter or a gram. California can still have to pay a higher interest rate than Texas as Greece pays more than Germany (from private debt markets). The fixed currency is not the problem any more than the shared weight of a gram should be a problem. So a pegged currency would be analogous to the meter being pegged to 3.28 feet. Two countries use different standards, but they peg their conversion rate.

The problem is with the perpetual US trade deficit. In order to stay pegged to the dollar, there are only two things these countries can do. And most economists are only aware of one of them. The way everyone thinks it is done is by recycling those dollars into US assets, primarily Treasuries. The Chinese (or Saudi) exporter receives dollars and exchanges them for local currency at the bank. That bank then sells them to the central bank for freshly printed currency, and the CB then buys US assets with the dollars.

And since the US is not in the business of selling off the farm, we sell government debt paper. This has the effect of funding the US government through the trade deficit and exporting the currency inflation to those trading partners that must print their own currency to stay pegged. If they were to buy US-made products with those dollars rather than Treasury paper, then there would be no trade deficit. But then the American economy would have less goods, more cash (inflation) and the government would have to find another stream of funding.

But there is another thing they can do (and are starting to do) with those dollars we are sending them for their goods. They can buy gold on the open market. It really doesn’t matter if the exporter that receives the dollars buys the gold himself, even inside the country, or if the CB buys it from London. If it is purchased in country by citizens, that will raise the internal price of gold and create an arbitrage opportunity that will cause gold to flow into the country until the price differential (inside and out) is equalized.

So this is a way to use your excess dollars on the world market, rather than inside the US, which also helps keep your currency pegged without running into a foreign exchange crisis. I have my own theory that the actual physical flow of gold into China corresponds to money that Ben Bernanke must now print that was previously being funded by the PBOC. This takes a long chain of thoughts to get there which I’m not going to write here, but I think you can get the concept intuitively.

Buy gold (instead of Treasuries) with your excess dollars received from selling to products or oil to the US. As long as you buy on the open market (as opposed to dark pools as the Saudis used to do or from mines inside your own country) this drives up the price of gold and causes a physical inflow into your country. You no longer have to print equal amounts of your own currency so you have stopped your internal monetary inflation and, instead, channeled it into the price of gold (inflation only against gold, not life’s necessities). The Fed, in turn, is forced into “QE” which is essentially printing those dollars you would have given to Treasury since Congress can’t cut the budget. Also, those dollars you used to buy gold in London or Zurich will eventually find their way back into the US through private channels and add inflation on top of the printing the Fed is doing.

So now, you’ve sent all that monetary inflation back into the US, and still kept your currency pegged. And if you follow this train of thought far enough, I think you’ll find that it leads to stresses that will ultimately break both the US dollar and the paper gold market without ever officially “de-linking”.

The physical gold must continue flowing into the physical boundaries of trade surplus zones while the price of gold rises. Weight-based flow and price level offset each other somewhat. But ultimately this will break the paper gold market because we’re talking about physical flows from the debtor zones into the saver zones. And now the US finds itself between a rock and a hard place. The hard place being that dollar interest rates in the US must skyrocket which would destroy the dollar banking system, Wall Street, the US government welfare state and the US economy, or else the Fed must print to oblivion to keep rates down and suffer the ravages of hyperinflation. That’s the rock, because it will win out over the hard place seven days a week.

Question: You frequently refer to financial wealth “going to zero” – but this seems to be an exaggeration. Many financial assets may go to zero, but other forms of intangible property (such as shares in a company with capital assets and no debt) should have some value when all the dust settles, no?

FOFOA: I think it is mainly debt-based assets that will go to zero because their numeraire will be hyperinflated. Even if interest rates were to skyrocket they’d go to pretty near zero. Equity assets will suffer the ravages of economic hardship brought on by the dollar’s collapse, but you’re right, they won’t lose all value. In Argentina, the stock market lagged the currency devaluation. The stock market only doubled in nominal price while the currency it was denominated in devalued 3:1. So if you had 3 pesos in stocks before the devaluation, you now had 6 pesos after the devaluation but they were only worth 2 of the old peso value. So you lost about 33% being in equities during the currency crisis. I imagine it could be much worse than this in US equities during a US dollar devaluation.

Question: You refer to freegold as the natural consequences of the end of fractional reserve bullion banking. I can see how a worldwide run could crash the system, but in the aftermath what would prevent an eventual return to fractional reserve bullion banking? Giants may someday once again have some risk appetite to lend out their bullion holdings, no?

FOFOA: Against what collateral? Gold is (will be) the ultimate collateral. To protect gold’s status as such, and its invaluable contribution to a stable monetary system, courts will not enforce the forfeiture of any lesser collateral in the failure of a loan of the ultimate collateral. This will be enough to prevent the lending of gold, which will be frowned upon by the system.

The only reason to borrow the ultimate collateral is to short it. Can you see why a newly stabilized system would frown on this and therefore not support it if and when it goes bad? If you want to put your gold to work you just sell it and then put those dollars or euros to work. You don’t lend it out because you might not get it back.

Question: Regarding the onset of hyperinflation: Do you expect that the initial loss of confidence will come from a foreign government? Or from the private sector?

FOFOA: I think it will come from a panic in the private sector, because even though foreign governments have already lost confidence, they will never take overt action to destroy the system. That’s the kind of thing that starts wars.




I can imagine you must have a ton of emails so thank you for finding time to reply. At your leisure, is there anything besides storage in my home or backyard (in other words paid storage) that you would recommend?


Hi V,

I think a good rule of thumb is that each person should take responsibility for his own wealth. This is kind of what Freegold or a meritocracy is about, personal responsibility. As I have written in the past, if you have too much wealth that you cannot take personal responsibility for it, then this crisis will solve your problem for you one way or another.

I know one guy who has around 2,000 ounces of physical. I don't know where it is, but he has led me to believe it is under his direct control and possession. He sent me a snapshot from his computer holding a single, monster 320 ounce coin. So he has at least that much under his immediate physical control.

I'm sure there are many safe storage options in your town. I've heard of "private" vaults, like a bank safety deposit box, but not at a bank. Or perhaps it is best to diversify. Some here, some there. If diversified, I'd be fine with some in a bank deposit box. I don't know. Seems like a very personal decision to me. I suppose if you had ten million in gold it would be a good idea to keep some in a paid vault in Switzerland. You'd probably have a paid-off house there too, and a gassed-up car in the garage of your Swiss chalet. But even a million in gold today fits in a very small box (or safe). That's the beauty of gold!



Hello FOFOA, hope you are doing well. I just got home from a rafting trip through the Grand Canyon and brought your (at the time) most recent essay. Thank you for yet another thoughtful piece, it provided me some enjoyable reading in a very beautiful setting. It even spurred on a great conversation with my friend when he asked me what I was reading. I thought you would enjoy this pic of the view I enjoyed while reading your essay. Thanks again for consistently great work!


Hey, check out this picture one of my readers sent me!

Har! That's excellent, FOFOA!

And the untold story is that when they unexpectedly ran short of toilet paper mid- journey, they began conscripting their supplies of bread for that duty in a valiant sacrifice to preserve those precious pages, thus sparing the keen insights of FOFOA from an inglorious end.



I just wanted to extend my respect to you and do my part in supporting your efforts. I hope my small donation will help:) Your writings, as well as those of Another and FOA, have really opened my eyes in the last few weeks. I don't post in the comments section of your blog, or many other blogs for that matter, but I read and learn as much as I can from you. You're a fantastic writer and you have a brilliant mind. I'm happy you are sharing your mind with us and stimulating intelligent thought and conversation. Our world can always use more of that! haha.

I live in southern BC, Canada. Just turned 33 and I'm on my new path as a prospector/ Placer gold miner after giving up my profession and cashing out on a few investments in a HOT real estate market a few years back. All is well and I enjoy my new lifestyle immensely:) Spring is approaching once again and we'll be back out on my claims collecting gold very soon. I'm also in the process of selling my small orchard property and stepping down to a smaller acreage so I can invest half of my savings into gold bullion. I'm even selling my beloved hotrod!! 1934 ford Tudor Sedan:) It's kinda hard to part with it but I feel it in my soul that gold will prove to be a much better investment in the future.

I know how you feel about gold mining when Freegold naturally takes effect, but I feel that Placer mining will be a bit of a hidden bonus to those "in the know". There are just way too many creeks and vast open spaces up here to properly police. I have a feeling that there will at least be a grace period where they won't be able to keep track of exactly what people are doing and where. I have friends that pull at least 50 ounces a year and not a single person ever sees them or knows exactly where they get their gold. That is including the government mining inspectors and Department of Fisheries.

To further expand on this; the gov doesn't even have a clue that some of the claims are as rich as they are. For example, I have a claim that's located on a creek that has "official" reports of only 50 ounces in its whole history. The old timers never reported the exact amount of gold they were pullin' out in almost all of the gold bearing areas in this province from the beginning of the first gold rush in the mid 1800's. My claim with the 50 ounces reported is much, much richer than that:) I've located documents and personal journal entries from the last living family member that mined the claim back in the 40's. They pulled just under 3000 ounces from one section of my claim and estimated their reserves at another 3000 ounces from a section that they never touched due to old age/retirement. They kept secrecy at all costs, a family secret that has remained hidden until only a few months ago. Anyway, just a little something extra to think about.

I could see the gov implementing some sort of laws regarding placer gold though, and regulations to try to prevent the sale of it into the (official)market at untaxed levels. However, it is not too difficult to smelt placer gold into bricks:) though they wouldn't be officially minted bars.

Well, I don't want to take up too much of your valuable time so I'll end here:) I hope I've given you a little something extra to think about regarding gold mining of a different sort.

Thanks so much and keep up the great work:)



I have just sent a donation of $100.00.

Like so many others, I find your blog a gripping read, and I take its advice to heart (by buying bullion), though I have yet to post any comment there.

I am particularly intrigued by a statement you made in your post Freegold Foundations:

"It seems—and correct me if I'm wrong here—that physical gold (along with a few other discreet collectible items like real estate, fine art, antique furniture, ancient artifacts, fine gemstones, fine jewelry and rare classic cars) may be the only true wealth holdings in which you are not a jerk. What do you think?"

I have a personal and financial, as well as an intrinsic intellectual stake, in the following questions (which I believe you will find to be of intrinsic interest) regarding these sorts of "discreet collectible items":

Do you expect them to appreciate at near the rate that gold will appreciate when we get Freegold? Or did you mean only that they would hold value while paper collapses?

At first glance, the latter seems likely to me, since, as I understand your argument, the Freegold spike will happen primarily because there are many more (paper) claims on physical gold than there are bars and coins to satisfy those claims; whereas these "discreet collectible items" will not enjoy any such spike, as there is no excess of paper claims upon them.

However, other considerations may pertain. As you presumably know, Goldsubject(
HERE) popularizes Freegold to mean that, because "there simply aren’t enough physical goods in the world to satisfy the demands of all the money and other paper wealth that exists", you could get Freegold (even if paper claims on physical gold could all be met by matching bars and ounces for satisfaction of those claims).

While Goldsubject claims that (his understanding of) Freegold means that all of the money fleeing paper wealth will flow to physical gold, that result seems unlikely to me, particularly since so many "investors" are taught to diversify. Given your confidence in "discreet collectible items", why would you not expect investors to diversify into such items as they flee paper wealth? But, would they do so at anywhere near the pace of their flight into bullion?

Moreover, would not much depend upon the quality/rarity of the "discreet collectible items"? Wouldn't, say, rare classic cars do much better in this environment than, non-distinctive real estate; but again, would this gap increase at anywhere near the pace of that of gold in Freegold?

These issues are of particular importance to me, as I own numerous extremely (in one case, supremely) important historical objects, which I presume to be worthy of inclusion in your list of "discreet collectible items".

Insofar as that such items have little chance of keeping pace with gold bullion when Freegold emerges, I ought to dump these objects ASAP for lower prices than I judge them to deserve, and pour the proceeds into bullion.

Insofar as that such items have a substantial chance to keep pace with gold bullion when Freegold emerges, I ought to keep these objects as diversification, until I obtain for them sums in keeping with what prices I judge them to deserve.

So I anticipate with great interest any thoughts you have about the issues described above.

If you choose to reply to my queries, I will be of a mind to pursue with you other related issues of intrinsic interest, e.g. that the Exeter pyramid puts such "discreet collectible items" as real estate and fine jewelry (this surely having no counter-party risk) quite far above the "power money", and above even the paper assets from which he expected capital to flee when all paper assets became distrusted for their counter-party risk.

I would appreciate any response that you could send. A separate blog post on these issues would also be of interest; feel free to quote me as you wish.


Dear J,

Thank you very much for your support and also for your query.

When I mentioned those items in the Foundations post it was only in the context of being a true physical wealth holding. Not in the context of a transitional revaluation. You’ll notice that these items tend to be the kinds of things that the super-rich have in abundance. The super-rich spend lots of money but lose little value, because they buy fine (and rare/scarce) things. This is the way wealth can and should be enjoyed.

As to these kinds of things revaluing upwards with gold, I don’t really see that happening. Collectibles already conform to the “rules” that gold will conform to under Freegold. Collectibles have unambiguous owners. When they are sold, there is an unambiguous seller and an unambiguous buyer. There are no pool accounts of collectibles with unallocated account holders. There are no circulating (trading) “paper-collectibles.” There are not more “claims” on collectibles than there are physical collectibles. Etc.

This may apply to your question. Someone asked me last week:

"You’ve said hyperinflation and freegold are separate events. I can only imagine them all rolled up in one messy ball. Would love to know how you see the separate events relate to each other as they unfold separately, if you haven’t already covered it."

I replied:

"They will most likely be rolled up in one messy ball. But thinking about it in that way makes people miss that they are distinct, discrete events that will be happening at the same time. For example, if hyperinflation takes the price of everything up 1,000,000%, gold will go up 40,000,000%. But only gold. Everything else, silver, cans of peas, etc... goes up 1,000,000%. So gold's FREEGOLD rise (that extra 40x rise) is in REAL TERMS because it is relative to everything else REAL. While everything else only rises in NOMINAL terms. Can you see the difference?"

So the question comes down to how specific collectibles (since they are not fungible wealth like gold) will perform. I don’t think there is an answer for collectibles in general. I think some will perform WORSE than silver and cans of peas. I think some will perform much better! And I have a hard time imagining any that will perform as well as gold or better, but perhaps a few will.

Some of the most-rare pieces are already being revalued upwards now. Freegold will not necessarily deliver a dramatic revaluation, but the years prior to it may. Others will be overvalued in the run-up and therefore may perform worse than inflation. Real Estate may be one of these since it is generally priced with leverage. However the best of the best pieces of real estate, those that trade with no leverage today, will likely do as well as inflation.

And then the next question is would it be worth trading an extremely rare item for an abundant one like gold for a profit from the transition? I cannot answer that question for you. “It depends!” On many things. I think it would have to be analyzed on a case by case basis for each and every item. And then think about the liquidity of those items. Will the people that would buy them today be in gold through the transition so that they would still be able to buy them tomorrow? Lots of things to think about. Read my old post
Mona Lisa or Ben Franklin. But try to imagine it as “Mona Lisa or gold?”

Of course these are only my guesses based on intuition. I hope they help!



Thank you so very much for your extensive and thoughtful reply; of course intuition has to play a large role in any such analysis.

The sort of items I am talking about can see seen at http://www[redacted] .

Once I've really been able to mull over your thoughts, I may get back to you on them, if that's OK.


Hello J,

Well that looks like quite a collection! What a nice and rare [redacted]!

A couple thoughts come to mind initially. The first is wondering if you are a dealer first and foremost and a collector second. Or are you a collector first and dealer second? This goes to the enjoyment factor of owning such precious artifacts. And also, probably, the discount at which you obtained the items since dealers are more particular about their purchase price.

Also, I would have to look at collectables like this in a similar way to numismatic coins, which I personally stay away from. The reasoning is that I view numismatic prices as having two distinct value components: the melt value of the metal, and the premium on the art, history, age and scarcity of the piece. Freegold is a revaluation of the melt value component only. And in the case of many numismatics, I expect the premium component to actually shrink in real terms. This can already be seen happening in some cases as the price of the metal rises transferring pressure to the premium component. But only in more common numismatics. Not in the most rare.

Another lesser consideration is that ANOTHER was writing more for people holding their wealth in paper, not in real things. For these people gold bullion is a much more urgent consideration than for someone like you.

Consider the scenario of the dollar’s purchasing power falling 90% while gold revalues 40x upwards. For the average saver in an average pension fund or 401K, that is a differential of 400x. Whereas your items may only face a differential of between 7x (for gold-based items) and 40x for other metals. (That's the difference between keeping what you have now versus trading it for gold bullion before the punctuation. Just a very rough guess of course, but in any case much less of a factor for you than for the paper bugs.)

The point being, if people like you were all ANOTHER was going to reach, he probably wouldn’t have bothered to come forward. Of course that is no reason for someone like you not to optimize. But because you are already in a much much better position than 99% of the rest of the people, careful consideration should be given to your decisions.

If it were me, I would probably aim to start reducing inventory in favor of bullion. But I probably wouldn’t sell the stuff at fire sale prices. I would simply make it a “policy decision” of sorts to reduce inventory, and for new items I would want to start acting more as a broker rather than growing my inventory. In fact, I might even expand my business into the “rare bullion” sector. You can often find rare and “antique” gold bars at no premium to the melt value, that could then be presented to the same clients that like your other artifacts! And that’s the kind of inventory you wouldn’t mind sitting on through a Freegold transition!

Anyway, just a few “off the cuff” Thoughts.



Thank you so very much for another outstanding reply. Some comments:

1) Whatever I was before, I am now a dealer first and foremost and a collector second, in light of the gravity of the economic situation. As middle class life melts away, (with the attendant risk to social/political stability) there is no such thing as having too much gold; thus, conversion of more illiquid assets into more gold is my top priority; at issue is the timing, etc. of Freegold.

2) Regarding your last few paragraphs about my situation:
I am indeed already in a much better position than 99% of the rest of the people. But much hinges on the magnitude and speed of the social/political upheaval which will result from the collapse of paper assets, with its likely attendant explosion in the violent–crime rate. Will it be necessary to have enough gold to afford a fortress, or at least some bodyguards? (Presumably the Giants have such defenses all lined-up!) Or at least enough gold to be able to purchase safe havens in other countries, assuming that any will be any safer than the US?

Given society’s current prospects, everyone ought to be thinking about how they stack-up regarding the following sorts of considerations:

I am in my late 50s, hence I’m long past the peak of my ability to “mix it up” with gangsters. At first glance, I might present something of an imposing figure (being 6’2”, now 220 lbs., with a booming voice) but, at some point I will start to look old, I cannot be everywhere all the time with all of my loved ones, and these loved ones clearly do not present imposing figures.

I have already (since '07) started working quite hard to reduce my collectibles inventory in favor of bullion, obtaining very much indeed above fire sale prices. But I still have many fewer “dollar worth” of gold than of the collectibles (particularly if these are measured by what I view as their potential worth, rather than by my cost). And, considering these items' illiquidity (particularly at the higher prices), getting such prices tends to require patience, luck, or a fair amount of (preparation) time and work (which I generally quite enjoy doing).

[In recent months, I have been concentrating on improving the chances of a major haul from [redacted]; but this figures to be a relatively long-term project. Thereby I have neglected other possible pursuits, e.g. rushing to get auctioned items of vastly lesser magnitude and value; this because I feel that I am (regarding financial potential) “top-heavy” into the [redacted]. Were it to sell, I would be then diversified in various genres of historical objects/groups. Were I to expect Freegold within months rather than years, I might reverse course and prioritize auctioning of whichever lesser items I could. Seek Home Run later or bunt singles now?]

3) Regarding your comments about coins (insofar as they are analogous to the items I hold) , esp. your view that "the price of the metal rises transferring pressure to the premium component. But only in more common numismatics. Not in the most rare".

Do you mean only that this is happening now, or do you expect the rare ones' premiums to continue to evade the pressure which is affecting the more common ones? (For esoteric reasons, I doubt that this premium- stability will continue to hold for most rare coins, depending on the definition of “rarity”; more on this later, if you’re interested.) This matters insofar as my key items are all, by significant measures, quite rare indeed, although of course far less liquid than are many rare coins (which have a large established market-infrastructure).

Enough for now. I eagerly await your thoughts.


Hello J,

1. Regarding the timing of Freegold – The way I approach it is that it is already overdue by ten years at least. So I think of it kind of like “the big one” (earthquake analogy) that could come at any time. How you prepare for an overdue earthquake is how you prepare for Freegold. That said, once a certain amount of sufficient preps are done, the rest can be executed a little slower so as to aim for optimization. If Freegold happens before you are done, you will still be fine. If it takes a little longer, you will have optimized your excess.

2. Regarding security – The best security is secrecy, bar none. Beyond that, I have bought a number of firearms, I have a CCW (concealed carry permit) and I bought a concealable bullet-proof vest which I have never worn. Cheap insurance for $250.

If I was in the $10m net worth range or above I might look to a second home outside of the country, probably Canada, Switzerland or New Zealand. Below $10m, I wouldn’t worry about it. I’m staying put. Did you see the Richard Maybury piece I posted in the comments about “leaving the country”? If not, you can read it

Regarding the [redacted] versus “bunts”, I understand your juggling act. Unfortunately I think only you can properly weigh all the pros and cons. I doubt you could ever give me enough information to be helpful in that analysis.

3. Yes, I mean that is happening now. I do not expect any premiums to expand like the bullion itself in its new monetary function. There is no reason why they should! It is gold bullion that is changing in both form (physical only) and function (global monetary store of value). I can’t think of a reason why such a unique change would bestow its increase on anything else.




Thanks much FOFOA, I just donated $200 via PayPal and I added a comment to the blog thread. As much as you detest having to write the latest, some of us do need reminders, and I do appreciate the note that you are not amassing physical - just protecting it. I think as time goes on here (near the end), you will have more and more opportunities to connect the freegold foundations with current events (similar to what you did recently with GLD). I'm looking forward to it!

I was wondering if you might do some paid consulting for us by giving us your opinion and Thoughts regarding some IRA and regular investments in CEF, GTU, etc. My concern lies in the future tradability of these as we move closer to reset. These are by no means the only PM investments we have but they are substantial.

Let me know what you think.

Thanks FOFOA,

Hi L,

I’m not sure what you had in mind, but I’m happy to answer questions by email for free. I’m not in any way a financial advisor, just a logical thinker. But if I can help, I am happy to. Then if you feel that I gave you something you would have paid for, you can always donate more at the end. ;)

To be honest, I don’t know that much about CEF and GTU. Are they exchange traded like GLD? Are they closed end funds? Etc. Also, I have another supporter who just switched to a self-directed IRA (SDI). In it he can buy physical and store it at Brinks. His question was whether it would be better to take the hit to close out the IRA now and buy physical discreetly, or to get twice as much physical through his SDI with big, taxable paper trail.



Let me give you some more background so you know better the situation. My brother, Mother, and myself have self-directed IRAs. A portion of my IRA was in Gold AE’s stored in a vault (Delaware). I took the “hit” and had this delivered to me last year because I simply do not trust this method of storage through reset due to the vast corruption “out there”. For the remaining amount, I searched for other G/S vehicles that might be considered next best to the physical. I first heard of CEF from a Rickards interview. Rickards and others consider CEF, GTU, and Sprott’s funds as very good (when compared to GLD/SLV, etc). CEF (Central Fund of Canada) has been around since the ‘60s and they are also managing GTU (gold-only, CEF is 50/50 G/S), and the bullion is independently audited each year, self-allocated, and acts as a store of value to stockholders that cannot be called for delivery. No lending, leasing, trading or funny business – just stored metal.

So, I helped get them into these funds and all are happy with the performance, but my concern is what is likely to happen to these as we progress through reset. So far, I trust these funds far more than an IRA custodial vault, however I have doubts about how a brokerage account will fare through reset. One option is to have the stock certs (available from CEF only) sent directly to us, ride out reset, and see what happens. The more painful option is to liquidate now and buy physical (with all the attendant storage issues and tax hits). I think you have a far better idea than I what the process of reset might look like. So that is the core of my question – and I might even not know enough to put the concerns in the right place.

The CEF website is:
GTU is:

If you feel the need to do a bit more research on these funds, I’ll make the donation commensurate.

BTW, attached is a ppt of pics I put together of the family farm operation we are getting going here in [redacted]. We are doing organic/biodynamic and promoting a diverse environment in which the animals can express themselves naturally and contribute to the diversity. We fear that there will be great need soon for truly nutritious food for folks. And we intend to be able to provide it. Hope you enjoy the pics.

Thanks FOFOA,

Hi L,

Thanks for the pdf. Great pictures! Where did you move from?

I’ll give your question some thought and take a look at the CEF/GTU websites. I don’t like to tell anybody what to do with their money. Instead, I like to enable people to decide for themselves. It is only when you take your own financial advice that you can truly have peace of mind.

What it comes down to for me is liquidity during and after the Freegold transition. I believe that physical gold will be the most liquid form of gold, and your most liquid market will be the millions of people physically within your reach. As paper gold fails, I can imagine people panicking out of even full-reserve funds because they don’t know the difference. You may know, but not everyone does. So I can imagine that even the best funds might track the paper gold price down, and then be taken advantage of by a few big players that have the ability to redeem those for physical at a discount. So I will have to look at the redeemability of those funds. And even if they are redeemable for the individual investor, they are still up in Canada. So that would be a factor to consider as well.

After Freegold, why would someone pay the same amount of money for an irredeemable Canadian share as they could pay for a little wafer bar of physical at the bank? That’s another thought. So even at full reserve, I can imagine funds trading at a discount to physical. Furthermore, we don’t know what the public markets in which these funds trade will look like after a big shock and exodus of investors.

Anyway, those are just a few of my initial thoughts.



We came together from [big cities, leaving our careers] across the nation – [redacted]. Back in ’09 we all decided to come together to do the farm thing recognizing the need for nutritious food and the need for a choice relative to big Ag. We also recognized what is coming and that this (the farm) is probably the best way to help in the long run. If we are going to jumpstart productivity, it better start on the local small farm.

I’m not asking you what to do – just thoughts about the considerations involved in the coming reset. I know that the bottom-line ultimate answer is physical in possession (buried or whatever). And if that is the route we take, then it must be soon. But it’s a matter of making an informed decision with as much realistic likelihood of what to expect down the road. In other words, it would be nice to shine the flashlight down the road as far as possible before heading out. And to some extent this does require an examination of CEF/GTU in the context of reset. There will always be unknowns, but before all is done, I’m expecting the absolute worst from the current “system” (forced annuitization of all IRAs, for example). If there ever was a concentration of psychopathic anti socials it would be in today’s corporate/government/financial structures. This I have researched over many years.

I understand the redemption prob associated with the Sprott funds and I may be incorrect in assuming that the same could not happen with CEF/GTU. And even if they survive, they would certainly trade at a discount. And there are potential political probs since the gold is in Canada. And there could be such decimation to the trading structure/system (as you say) that nothing really trades like today. These are all the things I need to weigh while the fiat can still be converted to physical.

There is one aspect related to that last point. It doesn’t change Freegold – just our collective expectations. If we are headed for a period of worldwide chaos, anarchy, and destruction (a la the psychopaths), then the world asset side of the equation may be far less than that currently represented by debt fiat. In other words the starting point for Freegold may be an environment of much destroyed wealth. Any corporation/system can handle a minority of psychopaths if these individuals are recognized for what they are and prevented from rising to top level positions of “leadership”. We as humans, have collectively failed at this task of reality discernment in our governments/corporations/systems/etc and are likely to pay a very stiff price. If there are any benevolent giants out there, now would be the time to step forward.

Thanks FOFOA,

Hi L,

I’m a little buried in email right now, so just kinda stopping by to say Hi! Thanks for the updated pdf.

As far as gold having a lower value because of destruction of wealth, that is not the case. First of all, the fiat “matrix” disappears and leaves the underlying real world intact, just like the real matrix in the movie being turned off. Yes, there can be a depression and whatnot, but gold has this strange ability to stretch its value out into the time dimension rather than just a snapshot of our 3D world. This is a result of the giants having an intergenerational proclivity for the stuff. Has nothing to do with us shrimps, except to the extent that we get to go along for the ride. This post talks about that time dimension. It’s how gold can have a higher gross value than all paper wealth in existence today. And how gold can keep its value even in times of recession:



Just read your Victor post. The “Cleaner” pic matches so well after reading Victor’s response, LOL … Paper gold must have reached a kind of status of currency (fiat) by now. A currency that varies in value with respect to other currencies via the paper spot price of gold. So there must be some higher level trading strategy between Forex, paper gold, and oil, (and maybe other commodities) that I don’t understand and that is not shrimp-friendly.

Anyway on the question of CEF/GTU, it might be better to ask the question in the form of which bullion institutions are likely to survive reset intact assuming that reset does not entirely decimate the current financial trunks and major branches of the system. From what I can tell, CEF/GTU are well-managed, the people are good, and the audits are good. The prospectii are geared to the current system but other than that, and the uncertainty of what the post-reset system will look like, they look OK wrt commitment to the shareholders. I realize that much bizarre can happen in many arenas and there is no crystal ball. I am a bit reluctant to take on more physical but on the other hand, none of us like the idea of our IRAs turning to vapor. I’m not asking you to analyze CEF/GTU beyond your own curiosity, but to look at it as to how such an institution might fair through reset. Your idea of how that might proceed is far and away better than mine – so any Thoughts are much appreciated by all here.

Thanks FOFOA,

Hello L,

I took a quick look at the websites for CEF and GTU. I couldn’t find anywhere that it said shares could be redeemed for bullion at any level. Assuming this is the case, the best hope I would have for the success of such a Trust is that its model catches on in Freegold and more of this type of Trust emerge. But for many reasons I doubt that will be the case.

I cannot point to a specific reason why either of these Funds shouldn’t trade at close to their NAV, other than that the holder of a share will not have the same freedoms as the holder of a gram of physical. On the other hand, I can think of a whole host of scenarios in which the shareholders end up getting screwed relative to the outcome for physical gold holders. And if you bear these in mind, you might see how they could become self-fulfilling in the end as more and more people become able to think things through in this way.

1. Freegold represents gold undergoing a change in both form and function. Form: Physical only, no paper gold. Function: Main international monetary and financial system’s primary reserve asset and international settlement medium. The divergence of the value of gold away from other things like silver and oil will be a snap! or a gap on the charts as this change takes place hidden from the markets. It will not be a matter of the trading markets shifting to value gold vastly more than other things. It will be a simple monetary reset. And with this may come any number of strange occurrences.

The thing to keep in mind, no matter what happens, is to ride it out! Don’t act rashly. Just relax and let your gold lie very still.

For example, some politicians may attempt a confiscation of some sort. I’m not focusing on the USA because this could happen anywhere. But it will be very short-lived because it will cause massive capital outflow and will net very little for the offending government. Wherever it occurs it will have devastating short-term effects and be quickly repealed. That’s what I foresee. And that’s why it is important to understand in advance, so you can just sit back and watch the show.

However, the victims of such a move will likely be those whose gold is stored by a third party. These will be the easiest targets for stupid politicians. Even the most honest and upright fund manager will quickly hand over your gold rather than face any kind of legal or criminal threat. When I say offending governments will net very little, that very little will come from places like GLD and CEF. And it won’t be returned once the law is repealed because you will have already been compensated in cash at the paper price of gold while the physical price was in hiding.

2. As I have written about it is likely that the new IMFS will not allow the lending of gold in any way, shape or form. This is not a requirement of Freegold, but it is the logical conclusion we can expect from rational lawmakers. This would likely invalidate such funds as CEF or GLD since the shares can be lent and sold short. This will be seen as deleterious to the newborn monetary system.

So the question then becomes how to dispose of unsecured creditors like the shareholders. If you are really lucky they’ll melt down all those 400 oz. bars into little bits that can be divvied up in share-sized baskets. But I wouldn’t count on that outcome.

3. Depending on how long the “gold in hiding” period lasts (which I have guessed could be between a week and 6 months), there may be a concerted effort to cash out all fund shareholders during this time. There will be a significant incentive to do this! Any fund manager that can either close down the fund or force a buy-back of the shares will see a huge windfall on the gold.

This may seem like something only a dirty rotten scoundrel would do. But I can imagine that things play out in a way that even the best of them end up doing this.

4. On the other hand, you may be sitting on essentially worthless shares for up to 6 months, hoping everything turns out in your favor once the BIS Freegold market opens for business. Imagine, if you will, the paper price of gold crashing to $200/ounce for 6 months. No physical is trading anywhere because no one knows the price. The dollar is undergoing hyperinflation.

On paper, your entire IRA is wiped out. The Canadian government offers a premium payment to shareholders of 100%. The offer is $400/oz. for your gold shares while the paper price is sitting at $200/ounce month after month. Do you take the offer? What if it doesn’t work out in the end? What if you don’t get the Freegold price for your paper shares? Then you would have been a huge fool not to take the Canadian offer. So what do you do? What decision will you make at that moment in time, not knowing how the future will play out?

5. I could go on, but I don’t think I need to.

Larry, you have gone to great lengths to move your life [except for your savings] off the grid and onto a place where you are in control. I tip my hat to you, sir!



Thanks much for your response and insights, and I much agree with your points and the picture painted. So the plan here is forming. The subject might make a good future post since I suspect there are many more in a similar position.

I never got to any more pdf pics, but here are some of the latest ones that we put together.

Take Care,

Thanks FOFOA, Here is another donation from us. Thanks for the insights. I know what we are going to do. Take Care, L

Dear L,

Thank you once again for your generous support!

I’m happy that you found my email to be helpful! And once again, great pictures. It must be fun starting a new life of farming, although I imagine it’s also a lot of hard work!

Just out of curiosity, which of the four arguments did you find most persuasive (in my last email)? I personally thought #4 was the most powerful. Because it sets up a situation in which you may be faced with a tough decision in the future in which you would have no way of knowing the final outcome or the best choice. Avoiding those kinds of potential future conundrums is what preparation and peace of mind is all about, wouldn’t you agree?



Yes, I think point #4 was the most powerful along with the last para of point #1. I think this had the most impact because #4 suggests a scenario that strikes an intuitive chord. And the easiest route is always taken by politicians always in favor of their own skin. So, everyone resonated with this. And yes, everyone agrees that peace of mind in that arena allows us to concentrate on much more timely concerns as all this plays out. And preparation it is.

On the farming, much of our motivation has stemmed from an understanding that our food quality (both animal and plant) has been degrading for a very long time and has become the driver in chronic disease today. All of this has much of its source in the loss of soil fertility for producing healthy plants and animals. Human health depends on these two, and thus, the soil. Good men have been sounding this alarm for a long time, but Big Ag and Big Pharma have gained dominance through politics. You will understand this deeply if you read Albrecht’s “Soil Fertility and Animal Health” I have attached. And this was written in 1958! (I know how you appreciate the early warnings) What we hope to achieve is to provide at least a small pocket – truly nutritious food in a time where it will be sorely needed – aimed at helping those that can, in turn, help others. There are many of like mind scattered around the country.

I’ll add you to the list for periodic pic updates so you can see how things progress.

Take Care,


And last, but certainly not least, here is a bonus email exchange from just last night:

So... I've been reading through a few interesting threads on the Bitcoin forum today. I'm starting to think this crash over the weekend may be a much bigger story than the allinvain story that initially drew my attention. And I haven't seen a single person raise what I think is an entirely likely scenario. There are many theories floating around. But I think everyone there may be missing the real story. So I'm wondering what you think of my theory. I'll repeat, I haven't seen this, or anything even close to it, mentioned anywhere. Perhaps it is, but I haven't seen it. It's a theory I just now came up with.

The generally accepted story is that someone hacked MtGox and took control of 500,000 bitcoins and put a sell order in for all of it at 1 cent. Everyone accepts that it must be a hacker that did this, because who in their right mind would do it voluntarily, with their own funds? This is where my theory comes in. I can see EXACTLY why someone would.

The owner of MtGox claims that all 500,000 bitcoins came from a single account that was hacked. That would have been over $8 million worth before the crash. So some of the forumers are questioning whether MtGox is telling the truth. Was it really just one account that was hacked? Who would keep $8 million on an exchange like that, in an account that could be hacked? Seems pretty unlikely, and I agree.

Just before the price hit 1 cent and trading was stopped, one kid scored HALF of those bitcoins by putting in a buy order for $.0101. He happened to have $3,000 cash in his trading account as the crash was happening and he, being a smart kid, bought 259684.77 bitcoins for $2,613. Here is how he describes it on the forum:

I’m Kevin and I'm the guy who bought 259684 BTC for under $3000 yesterday. I really wanted to keep this as quiet as possible, but I don't feel I can anymore. Here's my side of what happened.

On an exchange like MtGox, there are typically hundreds of standing "buy orders" where people are offering to buy bitcoins at various amounts and prices. When a large sell order comes in, an exchange will start with the highest priced buy order, match up the buyer and seller, then move down to the next lowest buy order. This repeats until the entire quantity of bitcoins being sold have found buyers, or there are no more buyers at the minimum price the seller was willing to accept.

I was watching, like many of you, a gigantic sell order burning through the bids. Mt Gox doesn't execute trades very quickly, so we were watching this huge order slowly eat up every buy order on the books. The price started at around $17.50, and within minutes was below $10. At this point, I realized this wasn't merely a large seller willing to accept some losses. This was someone attempting to crash the market by selling a huge percentage of the market's total bitcoins at once.

I had around $3000 USD in my Mt Gox account, from earlier sales I'd made. I looked at the market stats, and realized that there were tons of orders to buy BTC at $0.01 that would likely eat up any remaining bitcoins this seller had on the order. I figured if I put a buy order in for $0.0101, my order would execute first and I could buy a huge amount of bitcoins from this seller before it hit the bottom. The only problem was that Mt Gox was running slower than molasses at the time, and everyone was saying that it wasn't accepting trades. I had to try several times, but eventually I got a buy order in, offering to buy as many bitcoins as I could for $0.0101.

The site stopped responding completely for a while, probably from so many people hitting refresh to see what was going on. When I got back in, I saw in my account:

06/19/11 17:51 Bought BTC 259684.77 for 0.0101

I had just purchased over 250,000 bitcoins for $2613. At the trading price immediately before this large sell order happened, that number would have been worth nearly $5 million. After I regained my breath, I tried to figure out what to do. I wasn't sure what was really going on.


To make a long story short, the owner of MtGox has accused this kid of being the hacker and reportedly reported him to the FBI. The kid says he's not the hacker and MtGox is not telling the whole story. Like, who is the "victim" with 500,000 bitcoins in his account? I happen to believe Kevin, the kid.

The debate now seems to be on whether or not MtGox should reverse the trades. It seems fairly obvious that the "victim" who lost his 500,000 would want the trades reversed. I'm not so sure.

He hasn't been identified, but we can assume MtGox knows who it is. We can also assume this "victim" is asking MtGox to reverse the trades. But here's the thing...

I think he's probably hoping that they DON'T reverse the trades, because he just cleaned out every single US dollar cash buy order on the largest Bitcoin exchange, all in one fell swoop. He could have NEVER cashed out 500,000 for $8 million USDs and he knew it. And the allinvain story showed him that Bitcoin is not long for this world. So how much $$ did he get? Well, let's assume Kevin cleaned out the last half at $.0101 since he didn't use up his whole $3K. Our "victim" got $2613 for that half of his chips. The other half would look like a sloping graph from $17.50 down to .0101. That means it is likely he got an average of $8.50 per bitcoin for the other 240,000 bitcoins, or about $2 million dollars.

Is that a "loss" of $6.5 million? Or a GAIN of $2 million? Definitely the latter!!!

Granted, this is a bold move. Which is why he is now presumably playing the victim, asking for a roll-back, but hoping it is not done. If it's not rolled back, he walks away with the $2 million after cleaning out most of the USD cash on MtGox and everyone, including the owner of MtGox, thinking he is a victim.

So who could this be? Who has 500,000 bitcoins? Well, Satoshi Nakamoto, who reportedly has 25% of the bitcoins, only has about three times that many. So it's got to be a pretty short list. Either it is Nakamoto or one of two or three others. And if it is one of the others, then it was likely his whole wad. If it was Nakamoto, it was a $2 million payday for only 30% of his stash. He's still well hedged to the upside if Bitcoin recovers. But at least he got paid for all his work over the last two years, before BTC hit FOFOA's target price.

So what do you think of my theory? Any holes in it?


PS. I should also mention that there is a real chance the trades will not be reversed. There are good arguments for them not being reversed, not the least of which is MtGox's own policy as well as the fundamentals behind bitcoin. It's supposed to be irreversible. If you start reversing trades, liquidity will dry up as people will pull their profits from the exchanges ASAP. And this is now a debate, even though some think reversal is imminent. I'm not so sure it is. And even if it is, Nakamoto would still be in the clear with all his Bitcoins restored.

Just like the Giants and gold, he who panics out of the dollar first gets the most gold.


Why dump the whole wad at once, which you know will overwhelm the market? This would be a poor way of cashing out, no? Could "he" not dump like 20K a day (or whatever based on knowledge of the volume he could move through the market) to max his return?

He threw away so much money if he did this intentionally, no? It seems clear it wasn't:

"I realized this wasn't merely a large seller willing to accept some losses."

It had to be something else:

"This was someone attempting to crash the market by selling a huge percentage of the market's total bitcoins at once."

Exactly, it had to be a hack, no one would sell a huge percentage of their orange tickets..ohhh wait


1) it seems mtgox volume (and bitcoin in general also in context of other exchanges as well) is light, so maybe even 20K or whatever smaller dumps a day become suspicious, and he can't slow dump. In your scenario he has the cover of "OMG" it was a hack, it was not a dump by a ponzi insider, and by dumping half or whatever at like 1 cent, the hack ruse looks even more credible, because, from above "he threw away so much money of course it was not intentional?" so the story is as you say, what he "lost" not the 2 million or whatever he pockets

2) who has that many bitcoins??? - only weak hand/ponzi insiders - how could the sell order be from multiple accounts, right?? - clearly they didn't hack 500 accounts and sell from them all in one order, right? this is one guy!

3) why they keep all that in the account there??? - the amount sounds way outta line to keep all that on a site where it's obviously an amount quite disproportionate to the volume trading there

4) whoever had that much coin on there had to see the *slow motion train wreck,* he would have to be a computer guy way way way into bitcoin to have all those bitcoins, so why is it that "Just before the price hit 1 cent and trading was stopped" - doesn't he step up earlier- he has like all these coins and the whole community is going nuts watching this crash - he had to have known and it appears he didn't act - why would he want to watch it fall that far??

because you indulged me, -

"Over the last few weeks the currency's value rose 30-fold
[a ***HUGE*** reason to get out now, 30 FOLD] to more than $30 before falling back to $10 and rising again to $20 late last week. But Bitcoin
prices fell to pennies this weekend following a security breach that allowed as much as $8.75M worth of Bitcoins (at pre-crash prices) to be (temporarily?) stolen.[the story's an easy mainstream media sell, as it passes the common sense sell test - no one would dump all that money right...8.75m...but...]

This follows last week's news that 25,000 Bitcoins were
illegally transferred from accounts on the currency's largest exchange "allinvain's" computer, a heist then valued at nearly $500,000.[hmm, that wouldn't be the mysterious guy and mysterious event of mysterious timing that *just recently* sparked the public debate that ultimately raised the profile of and reaffirmed the whole "we need to take a hard stand and recognize that bitcoin's decentralized ideology means no reversals when you get robbed on an exchange", there is no Mr nice guy fed to take your shoebox of burned money too, we have to say tough shit. Well timed precedent to lend credence to the "real chance the trades will not be reversed," in keeping with speculation that "he" doens't want the sale reversed]

Following Sunday's mess, trading has been suspended and Mt.Gox is
currently down as is competitor TradeHill (where prices closed at $13). Both sites allowed users to trade Bitcoins to and from U.S. dollars and Mt. Gox accounted for nearly 90 percent of Bitcoin's average daily trading volume…

Yup, there it is, no other way out, he could not sell a little a day or whatever, 90% of the market at mt gox - that's the whole game there, it makes no sense to keep that much on there given the volume, and that info crushes the common sense reaction argument I first posted:

"Why dump the whole wad at once, which you know will overwhelm the market? this would be a poor way of cashing out, no? could "he" not dump like 20K a day (or whatever based on knowledge of the volume he could move through the market) to max his return?

he threw away so much money if he did this intentionally, no? It seems clear it wasn't:

"I realized this wasn't merely a large seller willing to accept some losses.""

Actually, maybe it was, except to call them losses is maybe not the best way of looking at it - they were gains above FOFOA's target price - huge gains in fact! he got a bunch out, more than he could any other way, and he also has a cover to hide his tracks and help to keep the ponzi going/keep the balloon from deflating!

Pimps and slingers don't take bitcoins. Who would *not* want the opportunity to indulge oneself in the finer comforts of the moment while also keeping a few "orange tickets" in the "raffle"? After all you can get a yacht if you have enough money.


If it was Nakamoto, it was a $2 million payday for only 30% of his stash. He's still well hedged to the upside if Bitcoin recovers. But at least he got paid for all his work over the last two years, before BTC hit FOFOA's target price.


"Yeah, It's been a ride...
I guess I had to go to that place to get to this one
Now some of you might still be in that place
If you're trying to get out, just follow me
I'll get you there…"


Just in, from Santorini, Greece:

Saturday, June 18, 2011

Bitcoin Open Forum - Part 3

By request, here is my latest comment in post form:

Hello Neverfox and Ramon,

So it sounds like supporting (investing in or working for) Bitcoin is more about taking an activist role in an anarchist revolution against the government and the fat cat bankers than it is about finding the best way to protect your savings, amirite?

Ramon, you wrote: "Even if 1/10th of 1% of USD-denominated wealth were to go into either of two DCC options, that could be hundreds of millions of dollars."

The total market cap for all Bitcoins in existence right now is about $103 million. (Link) If it is true that Satoshi Nakamoto has a quarter of the 6.5 million bitcoins in existence, then he alone holds $26 million. What about those other six project developers along with Satoshi? What is their combined share? 40%? 50%? Do you think that the potential you cite for an inflow of hundreds of millions to a present market cap of $103 million makes it more or less likely to be adopted as a currency? Answer = Less.

Moldbug does a good job explaining this principle here:

"One metaphor for monetization is that of a storage vessel, like a battery for electricity or a tank for compressed gas. When people buy into the currency, they are charging the battery and compressing the tank. When they sell out, they are discharging the battery. When new currency is created (perhaps by alchemists) without a buy-in, the tank has sprung a leak. Etc. The charge, or the pressure, is simply the market capitalization of the entire present (and discounted future) monetary good. […]

Thus a correct, second-order strategy to pick a winner has to consider the monetary pressures across the whole path to complete monetization. If the leak will reverse direction halfway through the process, the process cannot complete and should never start. If large price increases in a commodity would cause a stockpile blowout, the walls of the tank are too thin. The whole premise of monetary restandardization is that the new currency will be stable and permanent. […]

However, because silver was fully demonetized in the 20th century and gold was not, the market capitalization of the gold stockpile is 60 times the capitalization of the silver stockpile [FOFOA: and 73,000 times the capitalization of Bitcoin]. Thus, comparable volumes of gas are pressing in to the gold tank and the silver tank, but the silver tank is 60 times smaller [FOFOA: and the Bitcoin tank is 73,000 times smaller].. It is actually surprising that silver has not risen faster and harder.

But this present advantage is also silver's long-term Achilles heel. The silver tank, being so much smaller, cannot take this kind of pressure. It will almost certainly explode. I have personal advice for those playing the silver market: bring your steel balls. If you buy into a bubble when it's small, and get out before it pops, you can do quite well. […]

Here is the problem with Bitcoin: the tank, I think, will pop…"

Gold is the only super-tank. It can absorb any flow the world throws at it without popping. It is stronger than all the pressure that is possible because of its uniquely large stock to flow ratio. And also the fact that the large stock is held in extremely strong hands that I like to call Giants and CBs. These Giants are the real-world producers and titans of today and yesterday, including a lot of real old-money Giants. Here are the bitcoin giants:

Satoshi Nakamoto
Gavin Andresen
Martti Malmi
Amir Taaki
Pieter Wuille
Nils Schneider
Jeff Garzik

Do you think these seven hands are strong enough to hold? $26 million can buy a lot of socks, that's for sure, but if you cash out into that competing currency called dollars it can also buy yachts and other fun things like coke and hookers. How about when Nakamoto's share is at $50 million? Will he still hold firm to his Anarchist convictions? How about $100 million? At what point do you think he will sell out for that other competing currency that buys jets and cars and cool stuff? Please read these two lines until they finally sink in:

"Thus a correct, second-order strategy to pick a winner has to consider the monetary pressures across the whole path to complete monetization. If the leak will reverse direction halfway through the process, the process cannot complete and should never start."

What you want in a medium of exchange (and yes, in a store of value too) is stability and potential permanence. I think this guy at least gets that concept. But since perfect stability in both (MoE & SoV) is impossible in the real world, the perfect solution for the world we actually live in today is a non-hard currency that declines slowly in value with a counterbalancing wealth reserve that slowly rises in value. This is Freegold. It is not Bitcoin nor Bitcoin plus Freegold.

In comparing Bitcoins to gold, I think there is one characteristic in which Bitcoins outshine even gold, and I'll bet that we can all agree on this one (except maybe Terry). Bitcoins truly have no value outside of being either a medium of exchange or a store of value. Hoarding them will never directly and physically infringe upon the natural rights of others nor impede the flow of physical inputs to industry.

One of the reasons gold is money is that, of all the physical elements that meet other monetary requirements, gold is the one that comes closest to achieving the perfection of this monetary property that Bitcoin achieves, being completely worthless aside from its monetary uses. Bitcoin is truly an artificial, purely symbolic currency, which makes it, you guessed it, just like all the fiat currencies in the world today. Except there is one big difference: Bitcoin has a limited supply!

What this means in practical terms is that Bitcoin is a hard currency. And remember, hard means difficult and inelastic. Today Bitcoin is trading as an asset backed only by the speculation that eventually it will be sufficiently accepted and adopted as a medium of exchange. Let's be clear about this. Today Bitcoin is not widely (or sufficiently) accepted and adopted as a medium of exchange. Today it is a speculative asset backed by nothing more than being a neat idea mixed with a little misguided hope and speculation. As strictly a medium of exchange, today, Bitcoin is redundant and superfluous.


I'm sorry I have offended your sensibilities in some way. I believe you said you have no stake in Bitcoin, so I'm curious what it is then. I think I get Bitcoin enough to see some big flaws, and I think Rawdog does too. And I also think that some of the things you call inherent benefits are actually major flaws. I understand roughly how the coins come into existence, how they cannot be faked or counterfeited, how transactions are verified and secured in a decentralized way. I can even imagine how this may be a model for some untethered digital currency far in the future. But I doubt Bitcoin will be it, because it is a hard currency, and that's not what we want as a society.

Perhaps someday there will be a crypto-currency that is decentralized but not hard. That could work well with Freegold, but it is unlikely to ever be adopted unless we called it a dollar or a euro. Bitcoin will not be adopted because it is hard. If you could make it into an easy money (unrestricted in volume), get the dollar to coopt it as its new base, then you might be on your way to the likely adoption of a digital, untethered, decentralized crypto-currency.

But then it's still lacking that physicality that we, as a society, demand. When things start to go bad, we like our physical cash. We want that physical fallback, in case things go bad. I don't need to be a computer scientist to understand these things. And I don't need to embrace a concept or be an activist to understand it is simply a part of the reality in which we live.

We, as a society, like the physicality of our base money, whether we realize it or not. We also like having a central authority in charge of it. For example, if your house burned down and you had a shoebox with $500,000 cash in it, you can take the ashes to your local Fed and if they can verify your claim in the ashes, they'll reimburse you with brand new cash. They do this all the time. I used to know someone that worked in that particular capacity. There are many other benefits as well, to both the physicality of base money and the centralization of an authority that can print and manage that base money, and in some cases reverse the effects of loss through theft or other causes.

It is my contention that all the problems that emerge in this type of centralized system that we have today, are rooted in the fact that we save in the same units we transact in. In other words, it's our own fault, all the problems. By saving in financial products denominated in that same unit, we lend precious support to those that would abuse their control over it to gain advantage. It is my contention that all those problems are actually only mere symptoms of the disease, and not the disease itself. And yes, those problems are cut off at the root with Freegold. Freegold doesn't so much stop the bad printing as it simply renders it useless, or at least self-defeating.

I know we (in our precious metals online community) complain a lot about central planning. But I think, as a society, we do demand it. I don't personally, but I can recognize that "we" do (can you see the difference?). Of course central planning is often wrong, it is stupid by design (see here) and it always blows up, and in the end, as savers, we hate it when it blows up. We think it would be much better if we just had a totally free market system whereby no powerful entity could meddle in our business. I agree. But as a society, as a tribe, that's not what we want. We want a powerful central figure we can run to and complain, and to point the finger at when things go bad. We don't want to be all on our own like allinvain.

So what we (savers) actually need is a monetary refuge from the bad effects of that which the tribe demands. And this refuge, physical gold, is actually decentralized, private and anonymous just like Bitcoin. And it is enacted in a decentralized manner, by the choice of the saver. And I believe that in choosing to save in gold, we'll remove the exorbitant privilege that we've always in the past given to that central figure.

In the same way that Real Bills are non-inflationary, so is good credit. Bad credit is inflationary and frivolous government spending leads to systemic malinvestment. But Freegold will expose both of those for what they are. The price of gold will rise if the banks engage in bad credit or the government gets out of control. And when things go bad, the savers will be automatically protected from the political effort to socialize the losses (which always begins as soon as big losses happen). There will be a healthy competition between the paper realm and the physical realm (gold) to attract our savings. Our savings will only go into the paper realm if it is being respected by the central figure.

But for the transactional currency, we actually want exactly what we have right now. A physical monetary base that can be produced by only one entity (preferably in a transparent way, more like the ECB than the Fed) and a credit system that is capable of both healthy expansion and contraction.

In other words, I think Bitcoin tackles the wrong problems. It's like a doctor that sees only the symptoms and doesn't understand the disease. And even though it treats a few of the symptoms quite elegantly, I don't think that this is what we as a society want in our transactional currency. So I don't think it will ever be sufficiently adopted in that role, or the other. You don't have to like a particular outcome in order to see it. And if you are an activist promoting some change that's not very likely in the absence of your activism, you may be hanging out at the wrong blog.

Why is Bitcoin like a Ponzi or a pyramid? For the same reason gold is not. See Moldbug's tank analogy above. Most Ponzi schemes do not begin with the intention of being a Ponzi scheme. Some do. But most are just misguided strategies that get out of control and end in a stampede to cash out. I believe this may have even been the case with Bernie Madoff.

Wejn, I'm not engaging the merits of a crypto-currency here. I get it. It's a pretty cool idea if you could make one that was "easy money" rather than hard money like Bitcoin did, and just let it be the medium of exchange (SoV on short timelines). But I still think it fails to monetize in our lifetimes for a number of reasons.

This gets a bit deep, but the concept of money is just that, a concept. It is almost literally just a word that we know and relate to money. Dollars. When I write a check for $28 at the grocery store and take $28 worth of food home, no actual dollars will ever change hands between me and the store. This is the way it has ALWAYS been. I didn't get that until I had read the Gold Trail at least three times.

We think in terms of dollars, therefore dollars are our money. This is the Misean Regression I discussed in The Return to Honest Money. The most likely path for Bitcoin to monetize would be for a major global meltdown to wipe out the present concept of money. In other words, to wipe out the shared knowledge of price ratios between all real things. Then a barter good like gold would begin to rebuild this knowledge base from the ground up, and if Bitcoin became the symbolic currency valued by gold holders for its qualities, it could then establish a reliable and stable Bitcoin-gold market.

But you can't just shoehorn a new symbolic currency into a failed paradigm and expect it to be adopted and fix the paradigm. It simply doesn't work that way, hope, speculation and neat ideas notwithstanding. You can't just look at Bitcoin through the dollar lens and describe how it's better than the dollar. It's not about that. It's not about Bitcoin versus the dollar. It's about Bitcoin versus the next in line after the dollar. And in this case there are two new competitors, each specializing in separated parts of the money function.

Bitcoin obviously capitalizes on the crisis that the dollar now faces. And as I just pointed out, if the collapse was bad enough that the knowledge base of price ratios was wiped out, Bitcoin could then compete with other currencies to establish a new regressive link to gold or even silver. But oh my, what if some other people already saw this coming four decades ago and sought to create a currency to prevent a major meltdown from occurring that would have set us back to having to reestablish a fresh barter link? Hmm, maybe that's why the second most widely used medium of exchange in the world today was created based on its fundamental regressive link with the barter money par excellence?

The way I see it, Wejn, this young kid named Bitcoin that is trying to be a hard money doesn't stand a chance at monetization. And I don't need to fully understand the algorithms or encryption to judge the concept. I can stipulate that the encryption is really cool and bleeding edge stuff like you say, and still reject the concept on common sense grounds.

As for the douche in the videos, I actually like him in those videos. I think he is hilarious, and so do some of the other FOFOA regulars (ones that have emailed me rather than posting comments like Texan). I even got a couple donations for this post. So rather than gasping that old online insult: "wow, just wow," maybe contemplate why you don't like him if you truly don't have a stake in Bitcoin. There's a line at the beginning of the fifth video that pretty much encapsulates why I put up this post:

"First of all, a lot of people have been saying that I've been too harsh, and mean and hateful to people that are just trying to come up with a new idea. Maybe so. But if my harshness and my meanness and my hatefulness will stop one person from getting scammed into this, then it's all worthwhile."

I just put up a very simple poll. It's at the bottom of the sidebar. It reads:

Target price for Bitcoin = $0

You can all click on agree or disagree.

People have been emailing me for almost a year now asking what I think of Bitcoin. Well, thanks to this hacker story I finally took a good look at it, and now you all know what I think! ;)



Friday, June 17, 2011

Bitcoin Open Forum - Part 2

I have to apologize in advance to any of you that have money riding on Bitcoin right now. I'm really not trying to slam it. And in all fairness, I only discovered this YouTube guy a couple hours ago on none other than the Bitcoin forum itself. Thank goodness for open source, because it enables us all to evaluate what we're being sold and told, with everything and all arguments on the table, right? I found this guy to be very watchable and entertaining. No, he is not a Bitcoin advocate. Neither am I. I'm not even a gold advocate, FWIW. I am an observer, and I try to share my observations with you. And I thought these YouTube vids were well worth observation and discussion.

Coming to this Bitcoin discussion as a skeptic, I thought this guy was absolutely hilarious! I have watched all of these videos all the way through, and as I watch more, I may add them to the bottom of the post. Mixed in with the humor he makes some really great points. So get yourself comfortable. Some are only a minute long while a couple are 11 or 12 minutes. I think you will be quite entertained all the way through the 40 minutes it takes to watch them all. And if not, if this post makes you uncomfortable because you have money riding on Bitcoin, please consider this a great opportunity to debunk the #&@% out of this guy in the comments. I'm sure my regular readers will keep you honest. ;)


Wednesday, June 15, 2011

Bitcoin Open Forum

I don't know much about Bitcoin, but I found this thread absolutely riveting. Thanks to RLP for posting the original story here! This is the first comment in the linked thread, a plea from the victim:

I just got hacked - any help is welcome!
June 13, 2011, 08:47:05 pm #1


Hi everyone. I am totally devastated today. I just woke up to see a very large chunk of my bitcoin balance gone to the following address:


Transaction date: 6/13/2011 12:52 (EST)

I feel like killing myself now. This get me so f'ing pissed off. If only the wallet file was encrypted on the HD. I do feel like this is my fault somehow for not moving that money to a separate non windows computer. I backed up my wallet.dat file religiously and encrypted it but that does not do me much good when someone or some trojan or something has direct access to my computer somehow.

The transaction sent belongs rightfully to this address: 1J18yk7D353z3gRVcdbS7PV5Q8h5w6oWWG

Block explorer is down so I cannot even see where the funds went.

I tried restoring an earler backup of my wallet but naturally that does not work because the transaction has already been validated.

Needles to say I feel like I have lost faith in bitcoin.

Anyone have any ideas what I can do besides just jump off a bridge?!


To summarize, this guy had 25,000 Bitcoins stolen from him around noon on Monday. At that time, Bitcoins were trading for around $20 each, so he lost almost $500,000 worth of Bitcoins!

I'm just learning some of the technicalities of Bitcoins now, so please correct me in the comments if I get anything wrong. I imagine this will make for a lively discussion!

It seems Bitcoins have been quite a trade recently, running from less than half a penny up to $30, back down to $10, and up again to $20. Here's the chart:

Click to enlarge

This guy that was hacked did not buy his Bitcoins. He earned or "mined" them by working on the system from his home computer. They used to be something like 260 Bitcoins = $1. On Feb. 9, 2011 they reached parity with the dollar. Today 260 Bitcoins = $5,000. So someone who earned $100 worth of Bitcoins "mining" last year could have $500,000 this year, with a peak just a week ago at $800,000. These guys, like our victim above, call themselves "early adopters." I suppose that is in contrast to someone who would pay $20 for a Bitcoin today being a "late adopter?" If this sounds a bit like a pyramid to you, you are not alone.

Bitcoin appears to have achieved something remarkable, a digital unbacked currency that is truly untethered to any institution. These Bitcoins exist only as digits on your computer, yet they can be taken (stolen) as if they were a physical item, with no recourse. If I would have money stolen from an online account with my credit card company, bank or even PayPal, I could have that transaction reversed within a reasonable amount of time. But with Bitcoin, transactions are final and irreversible unless the receiver voluntarily chooses to give them back.

But it gets even weirder. We can all take a look at these stolen Bitcoins online, right now! They are sitting right here! Just scroll down to the 25,023.93 transaction. There's your thief, and there's the loot! And there's nothing you can do about it!

In a sense, it seems, Bitcoins have something in common with physical gold coins. Once they're stolen, they're as good as gone.

One of the debates on the Bitcoin thread linked at the top is whether it is more likely this theft went down in cyberspace or, as they call the real world, in "meatspace." In other words, there are two ways this heist could have been carried out. This kid apparently had all his Bitcoins sitting in one "wallet.dat" file on his computer. It might have been taken by a hacker who could be anywhere in the world, China, Russia, wherever. Or it could have been taken by someone he knows IRL (in real life), who knew that he had a $500,000 windfall hoarded on his hard drive, and somehow gained physical access to his computer.

The attractive qualities of Bitcoins are that they are private, anonymous, discreet, they are outside of the banking and fiat system, they exist in a limited and verifiable quantity and they cannot be counterfeited or printed by a central bank or government. In other words, they have many of the same qualities as physical gold except the physicality. And just like Bitcoins, your physical gold coins can be stolen. And once they're stolen, they're gone. No central authority to get them back for you. But at the same time, with physical gold you only have to worry about "meatspace." What do you think? Is this a +1 for gold?

In all fairness, another analogy I should point out is that one of the criticisms of Bitcoin is that the "early adopters" come out way ahead. Just like our victim above (up until Monday at noon). And this is not too far off from what some say about Freegold. So I ask you, is it the same? Here's what one article says about it:
One of the hot button issues around Bitcoin is in the way it disperses early-stage currency. The system of mining, because it decreases rewards over time until it stops altogether, means early adopters come out ahead — way ahead, in a situation where large percentages of the total number of Bitcoins ever to be made end up in the hands of the first miners.

Some take it a step further and claim that the ideological rationale given for Bitcoin is just a smokescreen for its true purpose as a get-rich-quick scheme for those founders and early adopters. These people claim that those driving Bitcoin right now are working to build a currency to a point where it has a reasonably strong economy so that they can cash out and leave it hanging.

So what do you think of Bitcoin? Is it a good idea? Is it the next big thing? Are you going to rush out and buy some? Would it be a good transactional currency alongside Freegold?

Do you think Bitcoin is competing for the role of primary medium of exchange against currencies like the dollar and the euro? Or is it actually competing with the secondary media of exchange for the focal point prize? Or is it trying to be both, at the same time? Or is it really just Bernie Madoff dressed up as an Anarcho-Capitalist?

And what about the great Bitcoin heist of 2011? If you were still hoarding half a million in Bitcoins after reading that thread, would you continue to sit on them? Please tell me your thoughts. I know Bron is interested in this subject as well. Maybe he'll show up with a comment or two.