Tuesday, January 17, 2012

The Gold Must Flow


In the last thread of comments, Jaqship asked about the possibility of a future Freegold tax, a punitive tax on gold meant to intimidate regular folks and steer them away from gold, and also to capture for the collective any windfall profit coming from a gold revaluation. Jaqship, who gave me permission to use his real name, is a long-time reader and supporter named Jeffrey Schramek. Jeff has an interest in these questions because he deals in rare and valuable historic treasures including a 1935 Nobel Prize made from 23K gold. Here is his website.

Jeff is certainly not a paper bug because his savings are tied up in these rare artifacts, not in a 401(k). And it turns out that moving from hard assets into bullion is a tougher calculation than moving from paper into gold. Really big money loves hard assets with numismatic and rare value because you can transport a lot of value through time and space in a much smaller package than you can with plain bullion. Also, billionaires aren’t as concerned with profiting from revaluation as they are with simply preserving what they already have.


The coin above is a Brasher Doubloon which was recently sold by a dealer in Irvine, California for $7.4 million, the most expensive private coin sale on record. The gold content of the coin is worth around $1,300 today, so that's a numismatic premium of about 570,000%. And while premiums won't enjoy the windfall revaluation of the metal, they will likely hold their present value quite well, preserving and shuttling purchasing power in a very small package. Imagine, you could fly anywhere with that coin mixed in with the spare change in your pocket.

The point is that the questions of taxes and confiscation on plain bullion are important to someone who is already holding hard assets and considering his options. And part of Jeff's reasoning was that gold bullion would be the most likely metal to be taxed "precisely because gold is useless" to the economy. So I thought this was an important enough topic that I'd take a stab at answering his questions in a post, so that everyone can benefit and discuss these issues. Here are a few excerpts from his questions in the previous thread:

Jaqship said…

My fear is that they will at some point mess with what is left of the middle class, e.g. by imposing a punitive tax on gold sales -- to intimidate regular folk from using gold to protect themselves from HI. Maybe likewise on sales of silver and platinum, although to attack those largely- industrial metals may bring unacceptable immediate harm to real production in the economy.

-----
Given that "the Right People" control policy, what's to stop them from the proxy confiscation
of draconian tax rates in the US (enforced upon all but themselves and their friends)?

Precisely because gold is "useless", such taxation of it wouldn't put what's left of the economy at the sort of risk that such taxation of industrial metals like silver (and maybe platinum) could cause.

If so, moving much capital immediately post-Freegold into silver might be the wise course for Americans.
Am I missing something?

-----
"Once the USA sees capital escape..." assumes that such escape will not be blocked for all but "the Right People" (who would be allowed to duck the harsh taxes anyway).
Italy has already introduced draconian capital controls.
The IRS and DHS may enjoy working together to crush any gold etc. Black Market that tries to emerge.

My guess is that much of US policy in recent years is driven by the aim of the Elites to stealthily reduce the masses to peonage, preferably without crashing the whole economy.
If this is right, silver (because it is so used in industry) may be the only safe haven which the Elites may hesitate to harshly tax.

-----
"the large gold holders will run the country. They won't make rules that hinder themselves."

I fear they will indeed make such rules, but they'll arrange that the rules are only enforced against shrimps; just as they have been doing for the last 10+ years, e.g. against small brokerage houses (most of whom have had to fold).
(This collapse of the US system's rep for fair treatment has much to do with gold's recent rise, according to folks like Janszen.)


"... they'll be more than happy to tax silver into oblivion -- exactly *because* it is necessary for industry."

Only if they'll be OK risking the utter collapse of an already dying economy. I must admit that they may be just fine with that, but they may flinch at that extreme; they may be OK with what their handiwork will already have done to enserf the middle class.

----


Hi Jaqship,

This is a common concern, that the higher the nominal gain, the higher the tax that will be levied on that particular asset. It is sometimes called a Windfall Profit's Tax. The last time we had such a tax levied in the US was in 1980 on the oil companies. That tax was repealed in 1988 and we haven't had one since. The tax was on producers of oil since the second oil crisis of the 1970s, the Iranian Revolution, reset the price of oil from $15 in early 1979 to $37 in 1980. President Carter decided to deregulate domestic oil prices allowing the oil companies to increase production and ease the shortage. But in return for the deregulation, the government decided that the majority of the difference between production cost and price should be captured by the hungry collective.

But there are a couple of things to note here. First of all it was actually an excise tax on domestic oil and not really a profits tax. And most importantly, it was a tax on producers. I fully expect such a tax on gold producers once we see the way the Superorganism resets the price of gold far above the cost of production. But to see why this will NOT be the case for private gold—gold which has already been mined and is now held in private ownership—you must try to understand why and for what purpose the human Superorganism is revaluing physical gold.

There is a purpose for highly valued gold in Freegold. It has everything to do with the savers (net-producers) in the economy, and little to do with mining companies. Miners will become tools for the state, much like the printing press is a tool today. Only the gold already in the hands of savers will be revalued to the benefit of private parties. Gold in the ground will be viewed much like oil in the ground in 1980. As it comes out of the ground most of the substantial difference between production cost and price will be captured by the hungry collective. But before we talk about windfall taxes on gold savings, there's something you really need to understand.

The Gold Must Flow

The bottom line is that private gold needs to flow as a fertile member of the balance of trade. There will be no advantage for the USG to confiscate or tax above-ground gold this time. Gold may be utterly "useless" to the present debt-based economy, but it will be absolutely vital in the Freegold economy. (Here's a comment I wrote last April about the importance of privately held gold.) This seems incomprehensible when viewed from within the current paradigm which is why you must try to put yourself in the next one to see what I'm talking about. I can try to help you see what I see. It's not easy to explain, but I'll certainly give it a valiant effort once again.

Here's the way to look at it. Today the US is running a trade deficit of 21%. We import $2.34T worth of goods and services but we only export $1.84T for a deficit of $500B or 21%. What this means is that we pay for only 79% of our imports with goods and services in return. The other 21% we borrow and then consume. Every day, every month, every year, we are borrowing and then consuming 21% of our imports. And even though the private sector has cut back on its consumption since 2008, government sponsored consumption has increased so the total hasn't changed much. And 21% is about the average for the last 30 years.

All those goods and services that we borrowed and consumed for decades on end can never be paid back. And they never will be paid back. This is a certainty. But that doesn't mean it will continue. And that's what this paradigm shift is all about. That's why the Superorganism is revaluing physical gold. So that the gold can flow along with all the other goods and services in payment for imports.

We do export gold even today. US gold exports flow primarily to London, Switzerland and India for reasons that should be apparent. But the way gold is traded on the markets today sterilizes it in terms of globally moderating and regulating the delicate balance of trade. Gold is still traded in terms of debt, or paper promises of future gold. Gold debt. This is what goes out most of the time, and any kind of international debt only increases imbalances while actually reversing the spur and brake forces a physical-only gold market would otherwise exert.

It's kind of like if you built a car where the accelerator and brake pedal functions were reversed. It would be really hard to drive that car without eventually wrecking it if every time you needed to brake you accelerated, and when you needed to accelerate you came to a stop.

Imagine that Germany is shipping more goods to London than it is getting in return. So Germany is supporting London's trade deficit in the same way that China is supporting ours. Germany is letting London "borrow" extra goods and then consume them. In exchange, let's imagine that London pays for its trade deficit with paper gold, just like the US pays China with US Treasury debt. Germany will start stacking the paper gold in the same way that China stacks Treasuries. The debt will grow. The imbalance will grow. Nothing has actually flowed opposite Germany's goods and services except debt.

If, on the other hand, physical gold flowed from London into Germany and the price was high enough that it offset the trade deficit, then there would be no trade imbalance. There would be no accumulation of debt. Everything would essentially be settled on a cash basis with no international debt. But in order for this to work in reality, the price of gold will have to be much higher than it is today because there's simply not enough gold to flow at today's prices in order to fill the trade gaps that already exist.

And here's another interesting note. It won't matter if London is still using the pound or if they switch to the euro. The gold still balances trade as it flows. So no, it's not a flaw of sharing the same currency that the PIIGS can't balance trade with others in the euro's core. It's a flaw of the current system which existed long before the euro was even born. Within the current system, the euro does remove the possibility of local currency collapse as an alternative adjustment mechanism, but honestly, that's part of what they wanted with the euro. The current system is one of irreversible debt-buildup and gold-debt which sterilizes the flow and price of gold.

Spur and Brake

Once gold is flowing at a high enough price to balance international trade, it will start accumulating in countries that run a trade surplus excluding gold (including gold, trade will balance). Likewise, it will start disappearing from those countries running a trade deficit ex-gold (excluding gold). This is how the spur and brake forces work on an economy in Freegold.

As the gold supply within a "deficit ex-gold" nation dwindles (think: USA), each piece remaining will become more and more dear in terms of other goods and services within that zone. In other words, the purchasing power of gold will rise in the "deficit ex-gold" zone vis-à-vis goods and services in that zone. Likewise, the purchasing power of gold will begin to fall in the "surplus ex-gold" zone (think Germany or China) versus goods and services in that zone because of the large and growing accumulation of gold.

At this point the large quantity of gold in the "surplus zone" will have a lower purchasing power against goods in its own zone, but a higher purchasing power abroad in the "deficit zone" and demand for imported goods will grow while exports will start to fall. This growing demand from abroad will be felt in the "deficit zone" and will be met with new supply. Likewise, the falling demand for imports from the zone with a declining volume of gold will be felt in the "surplus zone" and be met with decreasing supply. Incrementally, the "surplus zone" will slow production and increase consumption while the "deficit zone" experiences the opposite effect. Excluding gold, the balance of trade will shift back and gold will start to flow in the other direction.

Notice, please, that I'm not even talking about the flow of currency or price inflation/deflation in currency terms. Inflation or deflation in currency terms can be happening in either zone depending on how the monetary authority is managing the currency. But what matters in terms of the real trade flow will be the purchasing power of Freegold (not in currency terms, but) vis-à-vis the rest of the trade flow of goods and services.

If you have high currency inflation in the "deficit zone" because the government is printing like crazy, the price of gold will be rising even faster than the price of goods and services. On the contrary, if you have high inflation in the "surplus zone", the price of gold will be rising more slowly than the CPI, exerting its brake force on the economy because gold will still be found to have increasing purchasing power abroad and decreasing purchasing power on goods from its own zone. In other words, gold will be exported to other zones where its purchasing power is higher, spurring those other zones to produce more and putting the brakes on the overheated economy in the "surplus zone".

This flow will continue reversing back and forth forever, as it should be, because there is no such thing as a perfect equilibrium. And again, I want to draw your attention to the fact that I'm dealing only in the physical plane, ignoring the monetary plane. This is what Freegold does. And it doesn't matter if the "surplus ex-gold" and "deficit ex-gold" zones each have their own currencies or if they share a single currency. It still works the same way. Savers run the economy. Savers are the marginal surplus-producers and consumers. When the savers start saving more, it means the economy is producing more. When the savers start dishoarding and consuming, the economy is producing less vis-à-vis its balance of trade. This is the spur and brake force of Freegold, the international demand driven by the fluctuating purchasing power of gold as felt by the savers, regardless of any transactional currency effects with which the debtors may be tinkering.

Now that I've given you a brief description of how Freegold will work in the physical plane (it will also exert forces on the monetary plane, but that's a big subject for another post), let's take a quick look at how the present debt-based system, the $IMFS, differs in that it exerts the exact opposite spur and brake forces. In the present system it is debt that flows to fill in the same trade gap that will be filled by physical gold in Freegold.

As I said above, the US pays for 79% of its imports with goods and services exports. But the remaining 21% it pays for with debt that accumulates year after year. The US is the "deficit zone" and its trading partners who are accumulating US debt are the "surplus zone". Our trading partners send us 100% goods and services and we send them back 79% goods and services plus 21% US dollars. They then have to do something with those dollars. But they already have more than $4 Trillion in accumulated US debt. So what to do with those new dollars that keep coming?

If they were to insist on spending those extra dollars on more goods and services in order to balance trade, they'd simply drive up the dollar prices of goods and services relative to their own domestic goods and services. In the physical plane final analysis, they'd still receive less back from us than they sent us, and they'd simultaneously collapse the value of their $4 Trillion accumulated debt. So instead, they loan those extra dollars back to us at a nominal (not real) rate of interest and then we use them (again) to buy more of their goods.

So the more debt that flows as payment into the "surplus zone" economy, the more it is spurred to produce even more goods for the "deficit zone" to borrow. And the more "deficit goods" that flow into the deficit zone, the more dollars that must be recycled and the more the "deficit zone" must consume, which is, in effect, a brake force on the consumption-based economy. The brake force is being applied to the "deficit zone" and the spur force to the "surplus zone". The opposite of Freegold.

When debt flows, deficits accumulate and grow requiring more accumulation and more debt. The net-consumers are incentivized to net-consume more and more and the net-producers to produce ever more. There is no adjustment mechanism, no natural governor. This simply continues until the whole thing collapses. That's the only adjustment mechanism: periodic collapse. That's the $IMFS.

(For more on the Freegold adjustment mechanism, search for the word "Greece" in these two posts and start there.)

Strong Hands

So that's where the Superorganism is taking us. But before I get into the issues of a windfall profits tax and confiscation under Freegold, I want to discuss one more concept, the concept of strong hands going into Freegold.

When anyone talks about "gold" today, that word identifies a whole panoply of gold-related investment options. They include unallocated gold credits, forward contracts for future gold, futures contracts for trading, ETF shares, gram-denominated savings accounts and e-money platforms, mining company shares, exploration company shares, certificates, options, derivatives and more. There are many ways to invest in this thing called "gold" through various counterparties today. And it is the market interplay of all these various options, much more so than transactions in and movement of physical, that determines "the price of gold" as it is widely referenced today.

This is what we mean when we say that today's "price of gold" is not the price of physical. Yes, you can still buy physical at that price, but it is the price of a wide range of products claiming the name "gold" more so than it is the price of a specific metal element.

This conglomeration of many tradable, counterparty options that purports to be part of something called "gold" is struggling to stay together as "the price of gold" rises. Market mavens like Jim Sinclair have long predicted the arrival of violent swings of magnitude as "the price of gold" battles its way higher. And it seems this breathtaking volatility may be just around the corner today.

In just the last 12 months we've seen "the price of gold" run from $1,350 up to $1,900 and then back down to $1,530. Not only that, but "gold" shot up $400 in just 7 weeks during July and August, and then it plunged $300 in three weeks. I wonder what the next run will look like. If it follows the same percentages as last year, we'll hit a very special number this year.

Each time the price swings up and down like this the "gold" traders trade their way in and out of their favorite paper gold positions. But the physical side is slowly working its way into stronger and stronger hands with each swing. Strong hands buy the dips while weak hands are selling in a panic.

I heard a story from a dealer recently about a poor sap who'd bought a bunch of Eagles from a company that advertises on TV, paid too high of a premium to cover all that expensive advertising, and he had also taken physical delivery which is why I heard the story. On the last big plunge into the $1,500s he walked into this dealer with his box of gold coins, head hung low, ready to cut his "losses". That's a weak hand. Someone who doesn't understand what he's doing when he buys gold coins.

As I've noted before, when I started this blog back in 2008, the highest "gold price" predictions I had ever encountered (other than A/FOA) were in the range of $1,650 to $2,000 per ounce. That has obviously changed. Today we read a variety of future price predictions ranging from $5,000 on up to $50,000 per ounce. But the problem I see with my fellow high price prognosticators is that they don't support those prices with an explanation as fundamental as Freegold. This is a problem.

That special number I said we could hit this year, if the trend doesn't accelerate and simply repeats, is $2,333. The low to high in the last 12 months matches a rise from today's price to about $2,333 in the next 7 or 8 months, if we were to have an exact replay. And the problem is that $2,333 is the inflation-adjusted (based on official inflation) peak from 1980.

Fair warning to all gold bugs who don't understand Freegold

I'll make a prediction right now. As we approach and surpass $2,333, other high price predictions notwithstanding, you'll read articles from all of your favorite gold bug writers making the comparison with the 1980 peak. And if the ascent is anywhere as vertical as it was back in July and August, that comparison won't be lost on a single gold bug. No one wants to miss the top like so many did back then.

So when it starts to fall after a vertical rise, and it will fall, no one will be thinking about those other high price predictions. Instead, they'll be thinking "get out now, just in case. I can buy back in later and make a profit." This group will include all paper gold traders as well as a good portion of the "physical" gold bug community. And because of the "specialness" of that number, $2,333, there won't be any paper gold buyers trying to catch the knife, so it will fall hard. Possibly too hard. No one wants to be that guy who bought on the way down in 1980.

This could potentially be the final shakeout of weak physical hands, because there will be plenty of strong hands catching that physical even though physical buying won't stop the price from falling. Unfortunately for a few long-time gold bugs, the lack of a fundamental and foundational understanding of a much higher value could see them liquidating at the worst possible time in all of history. And that would truly be a shame. At least I have given fair warning. I'm not predicting that this is the way it will play out. Only that it could. And being aware of this possibility has value if it gives you strong hands at a key point in time.

Tax That Gold!

Now we can talk about windfall taxes and confiscation (related topics). Hopefully you were able to absorb the above concepts. The human Superorganism is revaluing gold vis-à-vis not currency, but everything else, for a purpose: the gold must flow. Again, the Superorganism is revaluing gold in real, not nominal, terms. (It is also devaluing the US dollar in real terms, but that's a separate subject for a vastly different post.) And going into Freegold, physical will start out in the strongest of hands, meaning people like you and me who know what it's worth in international terms and Giants who don't need to sell during suboptimal conditions.

But before I get into taxation, I'd like to discharge the confiscation meme once and for all. Physical confiscation only makes sense if you are going to confiscate the gold and then, and only then, nominally revalue it yourself hoping that your currency is strong enough that a nominal revaluation actually delivers you a real windfall (see: 1934). But as I said earlier, the human Superorganism is revaluing gold this time, not FDR or the USG. So taxation is the only option. That said, I would not leave my gold where it, or my capital gain, could easily be automatically absorbed during a short-lived government misstep, which is why I recommend personal possession or at least the closest thing to it.

The first thing you need to understand is that the IRS taxes nominal gains only. It does not tax real gains. It is as blind to real gains as it is to real losses. The tax law would have to be completely abandoned and rewritten from scratch in order to tax real gains. This is not going to happen.

So let's make an assumption and see where it leads. Let's assume that the Freegold revaluation has occurred and the USG has decided to impose a 90% windfall profits tax on its citizens who hoarded physical gold through the transition. What will be the consequences of this action and who will be hurt?

Now, because the US is blind to real gains, you'd have to sell your gold at the new Freegold price in order to make a taxable nominal gain. Until you sell, you still have the same thing you had before the revaluation, a single gold coin. For all they know you'll hang onto that gold and the price will once again fall and you'll still just have one gold coin worth much less. Or maybe you'll lose it in a boating accident, or it will be stolen, and you'll have no gain. The only gain the IRS recognizes is nominal gains. (Here's a comment I wrote back in 2010 on future gold taxes.)

Part of our premise in this exercise is that Freegold has arrived, along with everything that comes with it. So even though the USG has misstepped and put on a 90% gold tax, the rest of the world has not and is now enjoying a technically balanced trade flow along with the reappearance of Jacques Rueff's "forceful but unobtrusive master, who governs unseen and yet is never disobeyed."

Let's ignore hyperinflation for now and talk in constant dollars. Gold now has the purchasing power of $55,000 in 2012 constant dollars. Your gain per ounce is roughly $53,500 and the government wants 90% of that money, or $48,150 leaving you with only $6,850 worth of purchasing power for every coin you choose to sell. Meanwhile, those strong hands in other Freegold countries have $55,000 in purchasing power for each coin they choose to sell.

Strong hands in the USA have $6,850 in constant dollar purchasing power. Strong hands in the ROW (rest of the world) have $55,000 in purchasing power. The gold must flow, but will it flow from the USA as much as from other deficit countries under these conditions? If it does flow, it will still flow across international borders at the new Freegold value and vital goods and services will flow back into the US. But only 12.5% of the purchasing power of that gold will go to the person with the choice of "to flow or not to flow" while 87.5% goes to the USG.

Tax laws always change, and this is a fact that will also be factored into the decision "to sell or not to sell" that strong hands in the US will face. Another factor is black market arbitrage. A strong hand in the US won't have to engage in smuggling gold out of the country himself in order to gain more purchasing power than $6,850. With $48,150 per ounce in potential black market profit (that's $1.5 billion per smuggled tonne), it's not hard to imagine a vibrant black market that would gladly pay you twice your $6,850 off the books.

So if the gold in private hands in the US doesn't flow in sufficient amounts, given that US debt has been discredited through the Freegold phase transition, the government will have no choice but to continue printing money in its vain attempt to support the US trade deficit and its own status quo as Uncle Sugar to the people. And in a last-ditch effort to support its own failing currency, it will have to ship Fort Knox gold overseas. FOA mentioned something about this: "…the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates."

In this scenario, the need to continue printing in the face of an ongoing currency collapse will obliterate any miniscule gain that comes from the few shrimps who actually decide to sell their gold in an untimely way and pay the tax. The US has precious little gold in private hands as it is. And it will need that private gold to flow. It needs you to sell your gold to your dealer so your dealer can export it to our trading partners. That's how trade flows will resume under the new paradigm, with savers choosing to let their gold flow because of the amazing purchasing power it delivers.

And with international trade flowing again, the government will have much more economic activity to tax than it did when it tried to tax real capital in its purest form based on the silly notion that the hungry collective deserves a windfall nine times greater than the gold investors who kept gold inside the zone through a turbulent transition. The bottom line here is that I do not know if the USG will try to tax the windfall profit that comes from Freegold. What I do know is that, if they do, it won't last very long.

And once again, being aware of this possibility has value if it gives you strong hands at a key point in time.

Sincerely,
FOFOA

PS. See Mortymer's comments below for info on Euro-area gold taxes.

415 comments:

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Drewski said...

Subscribing...

Robert LeRoy Parker said...

Here is an interesting article about the past structure (still current?) of the BIS.

From Harper's magazine 1983:

Ruling the World of Money - Google docs

An excerpt:

"To deal with the world at large, there is another Chinese box called the Group of Ten, or simply the "G-10." It actually has eleven full-time members, representing the eight European central banks, the U.S. Fed, the Bank of Canada,and the Bank of Japan. it also has one unofficial member: the governor of the Saudi Arabian Monetary Authority. This powerful group, which controls most of the transferable money in the world, meets for long sessions on the Monday afternoon of the "Basel weekend." It is here that broader policy issues, such as interest rates, money-supply growth, economic stimulation (or suppression) , and currency rates are discussed — if not always resolved."

I have a suspicion that Another may have in fact been the recently deceased Lord Gordon Richardson, or Baron Richardson of Duntisbourne, the former governor of the Bank of England.

Any thoughts?

Motley Fool said...

AD

I do not think any of us are gleefully looking forward to the coming transitions. It is going to be a rough ride.

I have ,at my blog, advocates different measures I deem as essential for protecting oneself for the chaos that is coming. And necessary to protect the gold of course. :P

TF

victorthecleaner said...

RLP,

that's interesting. I also thought that Another was either from inside the BoE or from the one family run BB that arranged the gold for oil deals. I find this UK connection plausible although I often have the impression that his choice of words points towards a Frenchman or at least somebody whose first language was French.

Why did you think he came from the BoE? Why Richardson? Richardson was governor of the BoE 1973-1983 and then left for Morgan Stanley. I thought that was too early for the gold for oil arrangements, and that Morgan Stanley also was the wrong place. I think someone with a key position at the BIS during the time in question would be a better candidate.

I have another criticism: If you have a conjecture about Another, it becomes much more plausible if you can also find FOA. Perhaps somebody who got his PhD at the same time and from the same university and who was in a position in which he was free to email and post on the USA Gold website (plus plenty of time to spare) while Another's identity had to remain a secret. So FOA was not a CB insider himself, but nevertheless knew all the details, in particular about the ideas behind the Euro.

Perhaps FOA was an academic and had a PhD student who then played an important role in the creation of the Euro?

Well, that's enough of a riddle. Kudos to whoever manages to figure out my favourite pair of candidates for Another and FOA.

Since I think both are still alive, it is probably better if you don't post their names here once you have solved the riddle. Firstly, my guess may well be wrong - that's the most likely outcome. Secondly, even if I am right, I am not sure it is a good choice to expose them and post their names in a place ready for everyone to google. If you want to pass me a message, feel free to go to my Wordpress page and type it into the contact form.

Victor

J said...

The gold must not flow in or out of Iran

"There is agreement for EU restrictions on Iran petrochemicals to start May 1 and for a ban on movement of gold to and from Iran, he said, asking not to be identified speaking about the negotiations."

U.S. Holds Military Talks With Israel on Iran as EU Readies Bank Freeze

costata said...

Alien,

Thanks for the links. I notice there are no English language versions of these titles.

I don't want to impose on you but could you tell me if the estimates of private gold ownership in these publications support that 5,000 m/t estimate AD mentioned?

costata said...

J,

Gerald Celente drew a parallel between an oil embargo on Iran and the efforts to disrupt Japan's oil supply prior to Pearl Harbour.

If successful it would completely cripple their economy. IMO it appears that Iran is being left with no good choices.

It reminds me of the lead up to the Iraq war. How do you prove that you don't have something you are accused of having? Display an empty box and declare "here is where it isn't".

Robert LeRoy Parker said...

Hi Victor,

While he did leave for Morgan Stanley he also remained at the BIS. As stated at the BIS website Richardson was a Vice Chairmen of the BIS board of Directors from 1985-1988 and again from 1991 to 1993.

Link

Furthermore if you read that Harper's article, and take it at face value, he was the former leader of the G10 and continued to be one of the "inner club" at the BIS after his term ended as Governor of the BoE. Here is a quote:

"The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments.
...
Finally, though the Bank of England is under the thumb of the British government, Lord Richardson was accepted by the inner club because of his personal adherence to this defining principle. But his successor, Robin Leigh-Pemberton, lacking the years of business and personal contact, probably wont be admitted to the inner circle."

If this information is true, I believe it is very reasonable to infer that Richardson maintained his position of access at the BIS, especially given his continued employment as Vice Chairmen. Furthermore, I went through the ECB minutes from sept 1970 through dec 1980 last weekend (They are in German and it was a real pain in the ass). On several occasions Lord Richardson expressed his concern about the gold price, while most others were not vocal on this issue. This indicates to me that he looked at gold as a serious matter. Additionally, there is a paper of a speech he gave in 1979 in the BoE quarterly bulletins titled "The Prospects for an International Monetary System" as well. But unfortunately I have not been able to locate the paper online. I think this paper could potentially illuminate this theory further.

Now, FOA explicitly stated that Another was English, so I take his word on that. I think it is also reasonable that FOA referred to himself as SIR Douglas, perhaps because Another referred to FOA as Sir. I have been searching for an FOA connection, but beyond his obituary, the online information about Lord Richardson is very limited. If someone in England thought this theory plausible, they could perhaps pursue it further at the BoE archives. Of course, the identity of Another is not that important, as his words, theory, and history are all that really count.

My curiosity is like a cat I suppose.

AdvocatusDiaboli said...

Hi costata,

here's the english version:

http://www.steinbeis-research.de/pdf/KLEINE%20Financial%20Study%20-%20Motives%20and%20Origins%20of%20Gold%20Ownership%20among%20Private%20Individuals%20in%20Germany.pdf

Robert LeRoy Parker said...

Sorry my comment about the ecb minutes should have read "from sept 1979 through Dec 1980"

One Bad Adder said...

Ahh the vagaries of the posting box :(

victor etal: -

Rest assured A / FoA (whomever they are (were?) would have been absolutely floored at the goings on "this Century".
Curiously, were it not for 911 (by accident or design?) this would all be well and truly over by now. No Lehmans, sub-Prime, GFC etc. in those faux-inflationary naughties.

In hindsight, it might well be concluded the Washington Agreement was a protest at the $PoG Price Discovery Mechanism - which had been foisted upon the Markets by the one remaining Superpower (and it's ravenous Finance sector) in the early 90's ...moreso than anything else.
The very same PDM is still firmly in place and I would not at all be surprised to see a reversion to the mean (<$250) in the very near future.

victorthecleaner said...

RLP,

Furthermore, I went through the ECB minutes from sept 1970 through dec 1980 last weekend (They are in German and it was a real pain in the ass).

Which minutes do you mean? BIS or Bundesbank? ECB did not exist then. (?)

Victor

Robert LeRoy Parker said...

Sorry Victor,

The EEC minutes found here at the ECB website:

ECB Archive

They are also in french.

AdvocatusDiaboli said...

JR,

"I hope we are clear that the whole rational v. irrational dichotomy is a rhetorical strawman"

Oh really. might that be a strawman you are using for your reasoning:

(Your)Thesis: Gov. leaves its hand from private gold, because? The freegold argument is, that it wouldnt do so, because it is rational and in "their" benefit.

(My)Antithesis: Gov. never performs rational actions, but rather irrational and spontaneous to brown nose the public and their lobbyists, or to kick the can down the road. (just for the understanding, I gave some examples on that).

(Your)Thesis: That antithesis is not valid, because it is a strawman.

Hey buddy, you see, you can not falsify a thesis, just by saying STRAWMAN.


"its clear why those who wish to discredit FOFOA continuously push these false distinction instead of addressing FOFOA's points."

I have not found any post that discredit FOFOA, have you?
It is _YOU_ who discredits yourself by screaming "strawman" and "read the words of the lord" all the time, almost touching the edge of a laughable religion.

FOFOA himself writes the most beautiful essays to help readers look at the flow of things from a never seen perspective, based on FOA&Anothers writings (which might be wise, but in the opposite to FOFOA are horrible to read or at least to get to the bottom). I think on that FOFOA is really perfect in doing that.
On the other hand his personal judgements on the future outlook are a complete different storry, because his social judgements are not always on such a solid ground like his "keybusiness". Just to question these has nothing to do with discrediting his major work.

Okay, if you or FOFOA can not take up with that, I have not problem FOFOA blocking me, or just drop a post to ask me to leave.

mortymer said...

PRESS RELEASE
19 January 2012 - Eurosystem and GCC central banks and monetary agencies hold third high-level seminar

http://www.ecb.int/press/pr/date/2012/html/pr120119.en.html

"...International monetary and financial architecture

The participants noted that, over the past decades, the growing weight of emerging market economies has triggered some important structural shifts in the global economy. In terms of the real economy and global finance, the world has moved towards more multipolarity as emerging market economies gradually attain greater importance in global trade, global finance and global policy dialogue. Seminar participants also noted that this shift towards multipolarity is far less pronounced in international currency usage, given that emerging market currencies so far play only a limited global role. They also exchanged views on policy challenges related to global imbalances, international capital flows and global governance."

victorthecleaner said...

OBA,

why do you think 9/11 made such a difference? Wasn't China with their crazy purchases of US$ debt the main supporter of the US$ after the Europeans had left?

Or are you saying the US used 9/11 to intimidate the middle eastern oil producers and forced them to continue using US$?

But this alone isn't it. I could view the US$ as a transactional currency only. When I wanted to buy oil, I could purchase US$, then turn around and get my oil. I would never hold the US$ for the long run the way the Chinese started doing. The Saudi's never did. Well, the Chinese strategy wasn't very wise anyway - they can buy less and less oil for their accumulated US$.

Victor

Robert LeRoy Parker said...

I'm going to try to develop my theory about Another over at screwtape going forward as it doesn't feel quite right discussing this subject at Fofoa for some reason. I hope to have a post up by tomorrow evening and would love to keep the conversation going over there.

costata said...

AD,

Thanks for the English version.

Motley Fool said...

AD

In my opinion, rationality or irrationality has nothing to do with it.

As you suggest most government actions 'seem' to be irrational. It only seems this way if one takes the stated goals at face value.

However if one looks at government actions in terms of what is actually achieved ( as opposed to what they say they want to achieve publicly), one finds that their actions are always in their own benefit.

This is the argument made.

That taxing gold under FreeGold would not be in the benefit of the parasitic organism known as government.

Arguing rationality or irrationality is a sideshow. All that matters is "does it benefit those in power", yes or no?

FOFOA's example, in this very post, touches upon why it would be in their benefit Not to tax gold.

Perhaps go reread the example carefully? :P

The important point is this. The gold must flow. And for the organism of state is is more to their benefit if it is private gold that flows rather than public. Either way, the gold must flow, if they want to continue enjoying some semblance of their current benefits.

The alternative would be that the beast known as government starves. THAT they will not allow. ;)

Peace

TF

mortymer said...

The Washington Agreement on Gold was signed of 26 September 1999 in Washington DC during the IMF annual meeting. ~wiki

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

"...The so-called “Washington Agreement” has clarified the intentions of the Eurosystem as well as of the Sveriges Riksbank, the Swiss National Bank and the Bank of England with respect to their gold holdings..."

http://anotherfreegoldblog.blogspot.com/2011/11/bis-he-banque-de-frances-view-on-gold.html

And about the Another Riddle:
Btw: There is also a name which sticks out:
In BIS until June 1997
In IMF until June 1997
In EMI until June 1997
:o)

mortymer said...

Now... Lets return a bit in time:

http://anotherfreegoldblog.blogspot.com/2012/01/fd-one-memo-foreign-relations-of-united.html

Original --->

Source: http://history.state.gov/historicaldocuments/frus1969-76v31/d64

AdvocatusDiaboli said...

Hi MF,

You say: All that matters is "does it benefit those in power", yes or no?

Okay, I think everybody can underwrite that one (although I personally think just looking at it this way is too simple). Therefore let me extened that:

"The choices taken by the powers to benefit, have those (always) been wise for themself and the superorganism that appointed them?" yes or no?

I personally like to point out that in analogy to FOFOA's great saying "All ponzi schemes started with good intentions", the most destructive tyrans had been the once democratically elected by the majority.

Quick reality check?
Robespierre
Lenin
Hitler
Mao
Ulbricht/Honecker
...actually almost everybody I can think of.

The problem with common history writing is, that afterwards nobody wants to admit where he was standing and a chorus of "The evil was that bad suppressing minority, the others" is written.

Just to quote yourself from your site:
"Stop asking why. You are the reason. This is your story, your morality, your choice."

mortymer said...

I highlighted those interesting parts and added comments:

FD - One memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 64

Ps: Note the "Zeist Accord".

mortymer said...

Whoah, Kissinger again?

http://history.state.gov/historicaldocuments/frus1969-76v31/d63#fn2

I think this could be a hot stuff... I am just starting to read it...

"Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 63
63. Minutes of Secretary of State Kissinger's Principals and Regionals Staff Meeting1

Washington, April 25, 1974, 3:13–4:16 p.m.

[Omitted here is discussion unrelated to international monetary policy.]

Secretary Kissinger: Now we've got Enders, Lord and Hartman. They'll speak separately or together. (Laughter.)

Mr. Hartman: A trio.

Mr. Lord: I can exhaust my knowledge of gold fairly quickly, I think.

Secretary Kissinger: Now, I had one deal with Shultz—never to discuss gold at this staff meeting—because his estimate of what would appear in the newspapers from staff meetings is about the same as mine.

Are you going to discuss something—is this now in the public discussion, what we're discussing here?

Mr. Enders: It's been very close to it. It's been in the newspapers now—the EC proposal.2

Secretary Kissinger: On what—revaluing their gold?..."

mortymer said...

"...Secretary Kissinger: Why are we so eager to get gold out of the system?

Mr. Enders: We were eager to get it out of the system—get started—because it's a typical balancing of either forward or back. If this proposal goes back, it will go back into the centerpiece system...."

Motley Fool said...

AD

If you do not mind I would like to point out that this is two seperate questions, since these are two seperate entities.

""The choices taken by the powers to benefit, have those (always) been wise for themself and the superorganism that appointed them?" yes or no?"

If you haven't noticed, those in political power can not be said to be on our (the superorganism) side exactly. Haha.

In jest and reply to your last I would say : "Father forgive them, for they know not what they do." :P

TF

Motley Fool said...

Ps. Oh and I forgot to add. 'Always' is perhaps too strong a term; how about 'mostly'. No human is omniscient, and I am sure TPTB have made some choices they have regretted due to unintended consequences, though for the most part I would say they got what they wanted.

Motley Fool said...

Ps. Oh and I forgot to add. 'Always' is perhaps too strong a term; how about 'mostly'. No human is omniscient, and I am sure TPTB have made some choices they have regretted due to unintended consequences, though for the most part I would say they got what they wanted.

mortymer said...

A next one nice juicy dos for you:

GOLD AND THE MONETARY SYSTEM:POTENTIAL U.S.–EC CONFLICT

Summary

The Foreign Policy Context

Within the next few months the long-standing U.S.-European dispute on the role of gold will probably be propelled from the back room to the main stage of our relationship. The stakes in this dispute are high, involving the long-run stability of the international monetary system and prospects for increased dissension within Europe and between Europe and the U.S.



The Problem

U.S. objectives for the world monetary system—a durable, stable system, with the SDR as a strong reserve asset at its center—are incompatible with a continued important role for gold as a reserve asset. These objectives are in apparent conflict with the EC desire to facilitate the use of gold in international transactions. There is a belief among certain Europeans that a higher price of gold for settlement purposes would facilitate financing of oil imports, although the argument depends on assumptions regarding producers' attitude towards gold as an asset which may not be valid. Adamant U.S. insistence on maintaining the present fixed official price is likely to create international conflict with the EC, and may also lead to unilateral EC arrangements which would defeat our aims for the system.

http://anotherfreegoldblog.blogspot.com/2012/01/pv-one-memo-foreign-relations-of-united.html

mortymer said...

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 81

1. Purpose of the discussions

a. No effort was made to tie down an agreement on gold.

b. Any attempt to reach an agreement was left until January.



2. Valuation of gold holdings

a. The French intend to revalue their gold holdings on January 1, 1975, although they have not told their European colleagues yet. The French will neutralize the profits.

b. The United States does not intend to revalue its gold holdings at this time because Congress would want to spend the profits.

c. In Bennett's view, the agreement in Martinique on this aspect of gold is consistent with the understandings reached last summer—with respect to gold collateral loans.



3. Other aspects of the gold question

a. The French were reported to be in favor of the elimination from the I.M.F. Articles of the official price for gold.

b. The French were reported to be in favor of the elimination from the I.M.F. Articles of the mandatory provisions concerning gold.

c. The French were reported not to be in favor of the removal from the I.M.F. Articles of all mention of gold.

d. The French continue to oppose the sale on the market of the I.M.F.'s gold, although they might favor a "return of such gold to the shareholders."

e. The French continue to want to remove all restrictions on gold forthwith. On this point, Bennett reported that the U.S. representatives had agreed with the French view for the long run. During a transitional period, the U.S. representatives said, certain safeguards were necessary:

(1) There should be a limit on how much gold a country could buy net from the market; of course, a country could buy back any gold that it had sold to the market. In other words, the limit would apply to how much countries could add to their present stocks of gold.
(2) There should be no cartel agreement to fix the price of gold.

http://anotherfreegoldblog.blogspot.com/2012/01/et-one-memo-foreign-relations-of-united.html

mortymer said...

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document
3. Conversation Among President Nixon, Secretary of the Treasury Shultz, and the Chairman of the Federal Reserve System Board of Governors (Burns)

http://anotherfreegoldblog.blogspot.com/2012/01/ab-one-memo-foreign-relations-of-united_20.html

Nixon: What about the gold thing? Now, I—now, what about the gold thing? Do you—does that bother you [unclear]?

Burns: No, the only thing that would bother—

Nixon: I mean the purchase of gold—the right of the private citizen to purchase gold.

Burns: Oh, I think—I think that's a silly business.

Nixon: You wouldn't put it in?

Burns: No, I wouldn't. But, I don't know that I would—I don't know that I would fight awfully hard against it. It could, you see—it's silly; it could be counterproductive in a minor way, because—

Nixon: That's what I heard—

Burns: —people might want to accumulate gold and would be importing gold, and thereby—

Nixon: Yeah.

Burns: —worsening our balance of payments. But, if you saw some political advantage—I doubt it. I think they've—you know, the number of people who worry about this, I don't think—I doubt if one [unclear]—

Nixon: Well, first, the number of people that understand it is very small.

Burns: One one-hundredth of one percent.

mortymer said...

A kind call to people

You have it all in your archives, wake up:

http://history.state.gov/search?q=gold

Monetary issues, educate yourself!

AdvocatusDiaboli said...

MF,

and I think that is one of the most interesting things to think about:
"those in political power can not be said to be on our (the superorganism) side exactly"

Is it really that easy? Or are "they" just a mirror of "us"? I tend to reject that "they (the illuminati/TPTB)" stuff. If you look at the persons themself closely they appear to be the same: the guts thrown up by the superorganism, still part of it. Just what you wrote in that perfect quote on your side. Dictatorship of the proletarian, can be good, can be bad....

Greets, AD

J said...

Thanks Mrt! Check out this nugget

There are five basic elements in the Federal Reserve's stand on gold:

First, a large measure of freedom for governments to trade in gold at a market-related price may frustrate efforts to control world liquidity. Such freedom would provide an incentive for governments to revalue their official gold holdings at a market-related price. (France has already done so.) This in turn could result in the addition of up to $150 billion in international official reserves. Liquidity creation of such extraordinary magnitude would endanger, perhaps even frustrate, our efforts and those of other nations to get inflation under reasonable control.

Second, governments may be tempted to spend the paper profits from revaluing their gold holdings, thus increasing overall spending in a politically easy way—but also intensifying inflationary pressures.

Third, removal of all restraints on inter-governmental gold transactions may release forces that would increase the importance of gold in the monetary system. In my judgment there is a significant risk that the Treasury's recommended position would inadvertently foster, or at least permit, an increase in the relative importance of gold in the monetary system. Indeed, it could well stimulate the formation of a gold bloc in Europe, thereby certainly weakening our international political position and, perhaps, worsening our economic position as well.

Fourth, until we and other countries have forged a consensus on the desired shape of the future world monetary system, we should not isolate the gold question and deal with it apart from other critical issues of monetary reform. Moving ahead on gold in the absence of such a consensus may inadvertently and dangerously prejudge the shape of the future monetary system.

Fifth, there is no compelling practical problem that requires early action on gold issues. Sizable borrowing facilities exist to help countries tide over emergency needs for balance-of-payments financing. Countries needing to use their gold holdings can either sell some gold in the market or arrange to use their gold as collateral for loans. In short, there is no clear economic reason at present for being concerned about deferring a resolution of outstanding gold issues.

In our discussions with the Treasury, the Federal Reserve has diligently sought agreement on the gold issue. I have gone a considerable distance in an effort to narrow our differences:

http://history.state.gov/historicaldocuments/frus1969-76v31/d97

DP said...

governments may be tempted to spend the paper profits from revaluing their gold holdings, thus increasing overall spending in a politically easy way—but also intensifying inflationary pressures

Freegold in a nutshell..?

Force - devaluation
Fulcrum - consumer goods & services
Load - gold

mortymer said...

One Memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 85
85. Paper Prepared in the Department of the Treasury1
Washington, May 19, 1975.

Proposed Understandings with Respect to Gold

Among the Governments Represented in the G–10

http://anotherfreegoldblog.blogspot.com/2012/01/one-memo-foreign-relations-of-united.html

No participating government will take actions individually, or in concert with others, to attempt to peg the market price of gold at any particular level or to maintain it within any particular range or to use gold as a regular settlement medium.

Each government agrees that its trading in gold will be governed by the general understandings outlined below until such time as an agreement is reached among the governments concerned to modify or eliminate the understandings. An intensive review to consider possible changes in the understandings will be held within two years. The understandings are that:

a. No participating government will purchase gold from any source when the effect would be to increase the total gold holdings of IMF member governments and of the IMF above the level of their combined holdings on May 1, 1975;

b. No government will purchase gold directly from another government, or purchase gold from any source if such purchases would cause the gold held by the purchasing government to exceed its holdings on May 1, 1975, except that a government may, regardless of the level of its gold holdings, purchase gold from another government to facilitate a sale of gold by the latter government because of an emergency need to mobilize a portion of its gold holdings...."

Edwardo said...

"The most destructive tyrans had been the once democratically elected by the majority."

What you've just written doesn't really deserve a corrective, but, for the record, it is absurd and reveals a profound lack of knowledge and understanding.

The Nazi Party never achieved the kind of success in elections that merits putting forward Hitler as supportive of your thesis. Equally, given the style of government practiced in Soviet Russia and Communist China, it is utterly baseless to assert that Stalin or Mao were "elected by the majority."

The aforesaid leaders arrived at their positions via their own utterly unprincipled (sociopathic) actions in concert with the support of a small political elite who controlled the larger population through fear and coercion.

Democracy, even defined in the most impoverished terms, had nothing to do with it.

In the meantime there are a whole host of other vastly destructive tyrants who achieved their position by means other than the popular vote, Pol Pot and a vast selection of rulers (too numerous to bother naming) from antiquity come to mind.

mortymer said...

President's Meeting with Secretary Simon Tomorrow on the Role of Gold

1. Two points remain to be settled on gold: (a) whether or not there will be a limit in the amount of gold countries can hold in the future, and (b) whether countries will be permitted to trade in gold.

2. In our view we can sacrifice the first, but must obtain the second.

3. France will never accept a country limitation on its gold holdings. If we insist on this point, there will be no agreement reached on gold at this time. This is undesirable from several viewpoints.

—Without a package agreement on demonetizing gold, the Europeans will be tempted to set up a new gold-based currency bloc. Their scope for doing so will increase in the future as their oil deficits diminish.
—Our leverage for obtaining something satisfactory on gold is now at a maximum because we can block a quota increase in the IMF which other countries want much more than we do.
—Unless we give in on the country limitation point, we will not get agreement from others to go ahead with the IMF Trust Fund for the least developed countries, which Secretaries Kissinger and Simon proposed last Fall.

4. The role of gold in the system can be reduced even without a country limitation on gold holdings as long as (a) there is a global limitation and (b) central banks cannot use gold for settlements among themselves except in narrowly defined emergencies.

5. Germany has joined France in resisting this second condition, not for doctrinal reasons, but for political solidarity.

http://anotherfreegoldblog.blogspot.com/2012/01/te-one-memo-foreign-relations-of-united.html

M said...

FOFOA

One of the top goldbug sites, 24hourGold.com, emails every new FOFOA article to their mailing list. It has been going on for the last 3 posts i think. Kinda cool... Looks like they are turning to the PGA side.

Michael H said...

victor,

"Well, the Chinese strategy wasn't very wise anyway - they can buy less and less oil for their accumulated US$."

This assumes that the US$'s accumulated were part of the goal of the Chinese strategy. I don't see it this way.

It's like the old saying: if you give a man a fish you feed him for a day, but if you teach a man to fish you feed him for a lifetime.

The chinese have been 'giving the Americans fish' ostensibly in exchange for US$ which, as you say, will be worthless in the long run. But in the meantime, the Americans have been teaching the Chinese to fish, while the american fleet gets mothballed/scrapped and all the best fishermen retire and pass on.

Should the day come when the USD no longer buys oil, all the chinese 'fish' can be sent elsewhere.

AdvocatusDiaboli said...

Hi mortymer,

awesome articles you put out. Makes we wounder if it just me, to read almost kind of hatred towards gold between the lines. But why should that be, if the US would still hold the biggest stake and trade deficits had not been accumulating like the last 30years? Especially when during that time Europe was threathened by the UDSSR?

Is there really gold in FK? ;)
Reason to continue to buy Eagles... ;)

mortymer said...

AD feel free to learn from Archives and you find your answers. When you know you will know. Here at Fofoa, mine, other, there is not clear answer to your q in few words.

AdvocatusDiaboli said...

Edwardo,

Just look at the official numbers 5th March 1933, NSDAP 43,9%, followed by only 18,3% Socialist!!!
See, especially in that case I can tell the difference between common history writings interpretations and actual real witnesses of history met in person in confidence, not in front of an political correct camera.
It was the same with the DDR (former East-Germany), one out of seven people even worked for their "Stasi" (secret service) to spy against their next door neighbor...

Sure, afterwards, like I said, everybody rejects that he was on board. It's just so much easier to blame the rest.
Thats the whole point.

Motley Fool said...

AD

For the record, I also do not put much stock in the illuminati/TPTB stuff, but it is a useful generalization at times. :P

The reasons why it turns into a them versus us thing is a whole other kettle of fish.

I try to refrain from discussing politics here, and this falls in that realm.

In the simplest terms(which won't do it justice, as mortymer observes) it is a matter of considering what the function of government aught to be ( if one does not feel like making the argument that government itself is not needed).

I think we may agree that at present all governments worlwide overstep their mandate.

For those at the top, it is a matter of Power. The power to control and utilize others for your own benefit.

Perhaps you will not mind if I redirect you to my blog, where I am happy to continue a discussion of this nature.

Hmm perhaps...

http://blogs.fin24.com/Motley.Fool/the-nature-of-government

and

http://blogs.fin24.com/Motley.Fool/mans-rights

(which I specifically did not hyperlink)

is a good path towards starting a discussion on that topic.

Peace

TF

mortymer said...

9. Memorandum From Henry Wallich, Member of the Federal Reserve System Board of Governors, to the Chairman of the Federal Reserve System Board of Governors (Burns)

http://anotherfreegoldblog.blogspot.com/2012/01/hw-one-memo-foreign-relations-of-united.html

...

(5) The memorandum to the President does not propose to trade our position on gold for the French position on oil. Apparently there would be no further benefits from making concessions to the French viewpoint on gold.

mortymer said...

@AD: Does this answer your first question?

http://history.state.gov/historicaldocuments/frus1969-76v31/d68#fn4

[Mrt: check the attachment for more]

For most of the postwar period the U.S. Government, and only the U.S. Government, freely exchanged its currency for gold with authorized foreign holders. In 1968 the major governments agreed not to buy from, or sell to, the private market, and a two-tier gold price system arose. In August, 1971, the U.S. discontinued transactions in gold with foreign authorities at the official price. The only operationally significant price of gold since then has been the private market price.

In his outline of U.S. monetary reform plans at the IMF meeting in September, 1972, Secretary Shultz stated: "I do not expect governmental holdings of gold to disappear overnight. I do believe orderly procedures are available to facilitate a diminishing role of gold in international monetary affairs in the future."

Since that speech no practical steps have been taken to implement a diminishing role for gold. Last year the major countries did agree that governments could sell into the private market, but no sales have taken place. Even though the market price of gold has been in the $150 to $180 range in recent months—compared to the pre-August, 1971 official price of $35 per ounce—some governments may have refrained from selling out of fear that government sales into a thin market with no possible governmental buyers would lead to a severe price decline.

About a month ago the European Community finance ministers—in part because of current concern over Italy's financial difficulties—came up with three proposals:5

i. that governments be allowed to trade gold among themselves at market-related prices,
ii. that governments be allowed to buy from the market, and
iii. that some sort of intergovernmental mechanism be set up to limit fluctuations in the market price of gold.

The Europeans have been told that these proposals are unacceptable to the U.S. Government since they would create strong tendencies to move the international monetary system back toward an inflexible—indeed explosive—rigidity.6

U.S. Proposals

The U.S. now needs to put forward a position which would:

—respond constructively to the recent European initiatives and thus reduce the likelihood of a breakdown in international monetary cooperation through decisions by some European governments to go their separate ways in the near future in their monetary treatment of gold;
—assist nations in adjusting to the new patterns of payments resulting from the large increases in the prices of oil and some other materials; and
—facilitate the further evolution of the international monetary system in directions already generally agreed.

The proposed position should represent a desirable exercise of U.S. leadership at a time when there is an unusually good opportunity to seek agreement with the new financially-sophisticated governments in France and Germany...

mortymer said...

...The U.S. position should provide that:

1. Governments should be permitted to sell gold at individually-negotiated, market-related prices to any buyer subject to a limitation—to insure against any inordinate sudden inflationary impact—that no government would sell more than 10% of its present holdings during any twelve-month period during the next three years unless the IMF gave its concurrence to larger sales.

2. The IMF should be permitted to sell from its gold stocks and would be expected gradually to make such sales to obtain additional resources to assist its members.

3. Any IMF member government should be able, as an alternative to direct sales, to employ the IMF to act as its agent in selling gold from its government stocks on an orderly basis over time with an appropriate commission to the IMF and with the IMF being prepared to extend assistance to the selling government at the time the gold was transferred into the custody of the IMF; such IMF assistance should be equivalent to a substantial proportion of the current market value of the gold and should not restrict the selling government's access to other IMF facilities.

4. Governments should be permitted without restriction to pledge gold as collateral for loans received from other governments or from private lenders.

5. Each government should be permitted at any time to buy, from the market and from other governments, as much gold as it has sold net during the previous twelve months.

6. Gold valuation and settlement obligations should be removed from the Articles of the IMF and from other multilateral monetary agreements.

7. At a time when the change can be introduced without severe risk of market disruption, U.S. citizens should be granted permission to invest in gold and it should be anticipated that in the light of conditions at that time the U.S. Government would feel free to sell gold from its stocks if that should appear desirable to insure that the permission for private ownership of gold did not have an undesirable effect on the U.S. international payments position.

Edwardo said...

Some changes from The Fed in how the data is presented


http://www.federalreserve.gov/releases/h6/current/default.htm

Edwardo said...

AD,

I can see that you have difficulty with the English language, but, even taking that into account, you astonish.

Let's keep it simple and accurate.

http://www.fff.org/freedom/fd0403a.asp

"In the presidential election held on March 13, 1932, there were four candidates: the incumbent, Field Marshall Paul von Hindenburg, Hitler, and two minor candidates, Ernst Thaelmann and Theodore Duesterberg. The results were:"

Hindenburg 49.6 percent
Hitler 30.1 percent
Thaelmann 13.2 percent
Duesterberg 6.8 percent

"At the risk of belaboring the obvious, almost 70 percent of the German people voted against Hitler, causing his supporter Joseph Goebbels, who would later become Hitler’s minister of propaganda, to lament in his journal, “We’re beaten; terrible outlook. Party circles badly depressed and dejected."

"Since Hindenberg had not received a majority of the vote, however, a runoff election had to be held among the top three vote-getters. On April 19, 1932, the runoff results were:"

Hindenburg 53.0 percent
Hitler 36.8 percent
Thaelmann 10.2 percent

"Thus, even though Hitler’s vote total had risen, he still had been decisively rejected by the German people."

"On June 1, 1932, Hindenberg appointed Franz von Papen as chancellor of Germany, whom Shirer described as an “unexpected and ludicrous figure.” Papen immediately dissolved the Reichstag (the national congress) and called for new elections, the third legislative election in five months."

"Hitler and his fellow members of the National Socialist (Nazi) Party, who were determined to bring down the republic and establish dictatorial rule in Germany, did everything they could to create chaos in the streets, including initiating political violence and murder. The situation got so bad that martial law was proclaimed in Berlin."

"Even though Hitler had badly lost the presidential election, he was drawing ever-larger crowds during the congressional election. As Shirer points out"

"In one day, July 27, he spoke to 60,000 persons in Brandenburg, to nearly as many in Potsdam, and that evening to 120,000 massed in the giant Grunewald Stadium in Berlin while outside an additional 100,000 heard his voice by loudspeaker."


Hitler’s rise to power

"The July 31, 1932, election produced a major victory for Hitler’s National Socialist Party. The party won 230 seats in the Reichstag, making it Germany’s largest political party, but it STILL FELL SHORT OF A MAJORITY (my caps) in the 608-member body."

AdvocatusDiaboli said...

E
"Let's keep it simple and accurate."

Good idea:
http://de.wikipedia.org/wiki/Reichstagswahl#Reichstagswahlen_1933_bis_1945

There you have I nice table with all election results, should be possible to read, even you probably dont speak german.

DP said...

1. Governments should be permitted to sell gold at individually-negotiated, market-related prices to any buyer subject to a limitation—to insure against any inordinate sudden inflationary impact—that no government would sell more than 10% of its present holdings during any twelve-month period during the next three years unless the IMF gave its concurrence to larger sales.

5. Each government should be permitted at any time to buy, from the market and from other governments, as much gold as it has sold net during the previous twelve months.


The US didn't want more gold stock appearing at any of the governments (because this would show as a giant sucking sound in the market, exposing the sham).

The ECB is not a government, nor is it tied to any government. So it doesn't have to follow any of these IMF rules.

Any government can sell to anyone they like, up to 10% of their gold stock, during a rolling twelve month period.

They can also buy, from wherever they like, up to as much gold as they have sold in the preceding 12 months.

But but but... we're sorry, The Man, but we don't think we've broken any of your rules? [But we sure can suck lots of gold from the market if we ever wanna, eh fat guy?]


ECB - the real 'Men In Black'.

We believe the machine you sit on can tell the world exactly where you stand.We don't care what everyone else believes.

Amen.

DP said...

Napoleon kinda looks like he might be a senior ECB board member, dancing to a little song about his euro. No offence.

DP said...

VOTE FOR EURO!

Get your T-shirt, at the FOFOA store today!

Aquilus said...

I think this is a good time to remind everyone about that little leaden part of the inflating monetary balloon:

Base Money Supply

Base Money velocity

DP said...

One of these charts is not like the other.
One of these charts, isn't the same.
Can you tell which chart is not like the other...
Before it switches direction?

One Bad Adder said...

victor: -

"Or are you saying the US used 9/11 to intimidate the middle eastern oil producers and forced them to continue using US$?"

I believe the System was on-the-brink in the early months of 2001 (as per expectations of A etc.) but simply "no-one" could've factored in an "event" of that magnitude. Intimidatory? ...absolutely!
The ensuing Decade - Systemically - has essentially been a case of getting blood from a bloodless stone ...rather than obtaining Oil via anything other than through $US.
...although the lengths they apparently are prepared to go to to protect / defend the franchise are extraordinary.
The upcoming inflection should however see 'ol Bucky being "loved-to-death" ...and bid a good riddance to all the Paper Alchemists.

Let's watch!

Aquilus said...

@DP If I guessed velocity, would I get a prize?

DP said...

DING! DING! DING!

Edwardo said...

AD,

Fascism is a form of government that, at its core functioning, abides not by a rule of law, but by a rule of men and their arbitrary wishes. As such, once the Nazis and their thoroughly unscrupulous leadership took control of the organs of state in the early thirties there were only sham elections.

During the Weimar Republic there was a functioning, albeit very fragile, democratic system in place, but that died in all but name after Hitler became Chancellor.

In the meantime you haven't reckoned with the rest of my points regarding other notable tyrants who were not elected, let alone elected by a majority.

Max De Niro said...

DP, Aquilus,

I would love to see the velocity chart going back to the beginning of the 20th century to get a better idea of trend.

JR said...

Post 1950

The velocity of MZM (money with zero maturity, i.e. cash) is the ratio of nominal GDP to MZM money supply and indicates the number of times one dollar cash is used to purchase final goods and services included in GDP.

JR said...

sic post 1959

MZM is between M1 and M2. MZM basically represents liquid money readily available within the economy for spending and consumption, or M2 less time deposits plus money market funds. This is a broader measure base money.

Edwardo said...

I'm glad to see that someone with some gravitas, namely Jim Sinclair, is offering a different view on Rickard's idea that there will be a theft of foreign nation's (U.S. held) hoards.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/19_Jim_Sinclair_-_There_Will_Be_a_Run_on_Gold_Stored_in_the_US.html

Max De Niro said...

Thanks JR,

I'd really like to see how that 1980 spike fitted in with a longer trend - whether it is cyclical, a countertrend rally or if 1980-to-now is a larger fractal of the 2008-to-now dynamic.

Aquilus said...

First off, thanks JR.

Now let me see if I can paint the monetary picture I see with data from the Fed itself.

First the required definitions:

M1: includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. Seasonally adjusted M1 is calculated by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.

M2: includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

M1 multiplier (MULT): The M1 multiplier is the ratio of M1 to the St. Louis Adjusted Monetary Base.


Let's start with the basics. You've seen the increasing base money above, and its decreasing velocity.
That's just base money though, so that does not give use a good picture of the inflationary/deflationary pressure. For that we must use add credit.

Here are the excess reserves at the Fed

Here are the M1 multiplier on top of the monetary base

So far, the base money went waay up, the excess reserves held by institutions at the Fed went waay up and the money multiplier (credit creation) went waaay down.

So, money creation says inflation, multiplier says deflation, which is it?

Well, let's have a look at credit as a whole (M2):

M2 money stock

M2 money velocity


And now let's multiply the velocity with the stock and figure out the inflationary pressure:

Inflationary pressure

And how did that pressure change year to year?

Inflationary pressure (% change from year to year)

So what does this all mean?

We can see how the Fed is fighting deflation every time the velocity drops. We also see why inflation has not exploded as velocity decreased. We know that the monetary base is here to stay, we know that credit creation is low, we know that credibility has not eroded to the point where velocity takes off.

mortymer said...

Edwardo: Indeed.
Ask Fekete what happened to the East European Gold after the fall of communism...
(Ps: In one of his essays he called it one of the biggest robberies)
Even the Nazi stolen Czechoslovak & other countries gold was returned after long time (what could be accounted for; I bet a lot got stuck behind someone´s nails).
How is it gonna to be this time I wander as well, it was positioned into US soil because of its political stability. If there are gonna to be doubts it will move but all has its time.

DP said...

What we don't know is WHEN velocity rises.

Or if it is a result of the economy improving, or credibility wearing beyond thin. (Although for this one I am quite willing to take a punt...)

Texan said...

Holy cow. Check out the marketwatch article on Gingrich favoring gold....last few paragraphs.

One Bad Adder said...

FOFOA / costata: -

You have certainly attracted a top-notch following hereabouts ...BRAVO!

mortymer said...

About closing gold pool...

Washington, March 14, 1968.

SUBJECT
Gold

"Your senior advisers are agreed:
(1) We can't go on as is, hoping that something will turn up.
(2) We need a meeting of the gold pool countries this weekend in Washington.
(3) We want to negotiate the following package:
—Interim rules on gold.
—Measures to keep order in the financial markets.
—Acceleration of the SDR's.
(4) With the right kind of interim package, we could maintain our gold commitment to official holders.
(5) If we can't get this package, we would have to suspend gold convertibility for official dollar holders, at least temporarily, and call for an immediate emergency conference.
(6) This probably would mean a period of chaos in world financial markets, but it may be the only way to push the others into a sensible long-run arrangement which avoids a rise in the official price of gold. We are unanimously agreed that a rise in the price of gold is the worst outcome.
The decision you must make now is whether the London gold market should be closed at once.2
(a) Arguments for closing:
—Avoid losing perhaps $1 billion in gold tomorrow (we lost $372 million today).
—Such a gold loss would further shake the confidence of central banks and trigger their coming to us for gold.
—Makes it easier to arrange an emergency meeting of the gold pool countries this weekend.
—Evidence of U.S. decisiveness.
(b) Arguments against closing:
—Involves U.S. taking the lead in throwing in the towel.
—Closing the market will strengthen the hand of those who believe the official price of gold will be increased.
—May reduce the U.S. bargaining position with the Europeans.
—Gives us another fling at the Gold Certificate proposal."

http://anotherfreegoldblog.blogspot.com/2012/01/one-memo-foreign-relations-of-united_20.html

Aquilus said...

@OBA/Sir Topaz,

If I may, a quick clarification question on $TYX:$IRX ratio (30yr yield:3month yield):

On the 3 month I can see how the next hiccup would make rates go (actually) negative as money must go someplace that is safe (as far as being retrieved intact nominally, not purchasing power safe).

As the rest of the curve is heavily manipulated by Operation Twist 2, what really does the ratio indicate?

I understand that in a perfect logical world the 30 year should be 12 months x 30 years = 360 times + compound interest multiplier of the 30 day (1 month)
interest, but I can't quite get to what that ratio tells you in today's environment.

DP said...

RE: Texan/MarketWatch

http://blogs.marketwatch.com/election/2012/01/20/gingrich-thinks-his-latest-idea-is-as-good-as-gold

DP said...

Governments don’t want to be limited in the amount of money they print by a source of metal that’s in short supply.

Ho ho ho. Meeeeery weekend.

mortymer said...

84. Memorandum From Henry Wallich, Member of the Federal Reserve System Board of Governors, to the Chairman of the Federal Reserve System Board of Governors (Burns)

"...The French want restitution of the Fund's gold to the original contributors at the official price. While an inferior method, this would nevertheless serve to dispose of the fund's gold and get the problem out of the way. The fund's resources can always be increased, if necessary, by quota increases."

http://anotherfreegoldblog.blogspot.com/2012/01/hw-one-memo-foreign-relations-of-united_20.html

Edwardo said...

I imagine this is an attempt by Gingrich to appeal to some of Ron Paul's supporters if and when RP drops out of the race. In the meantime, I hope someone can put him in touch with this blog, or at the very least acquaint him with some of the key ideas regarding what would constitute a viable plan with respect to employing physical gold in the monetary system. Hint, Newt: Hard money isn't the way forward.

mortymer said...

This document in right hands could be a bit explosive (?):

*************
Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 62
62. Paper Prepared in the Federal Reserve Board1

Washington, March 15, 1974.

Gold: A Possible U.S. Proposal

A. Objectives

1. To meet actual or prospective needs of countries to mobilize their gold reserves for the purpose of financing balance-of-payments deficits.

2. To head off alternative "gold mobilization" actions (e.g., unilateral action by the EEC) that would reverse the evolutionary process by which gold's importance as a monetary reserve asset has gradually been reduced.

3. To clarify the U.S. position on the role of gold as a monetary reserve asset in the long run.

4. To lay the foundation for a longer-run, cooperative solution to the gold question.

B. Basic Features of Proposal

1. Cooperative arrangements among major governments for sales of official gold to the private market. A marketing agent—preferably the IMF—would make the sales out of stocks committed by participating countries to a central pool. (See Annex for description.)2

2. Agreement among participating governments not to purchase gold from the market.

3. Agreement among participating governments not to buy or sell gold with any other government.

4. Establishment by the participating governments of a "gold-swap" facility to provide credits (against gold collateral) to a participating country in balance-of-payments difficulty. Such a facility would obviate any balance-of-payments need for the transactions ruled out by B(3). (see Annex for description.)

5. Alteration of certain obligations and provisions regarding gold in the IMF: e.g., elimination of mandatory gold component in future subscriptions to the IMF; elimination of gold provisions in transactions with the General Account; expression of par values and related obligations only in SDRs (not in gold).

1/2

mortymer said...

2/2

C. Possible Tactics

1. U.S. officials would indicate privately to the "group of Five" countries3 that we were prepared to propose an understanding on gold at the next meeting of the group, for consideration as part of a C–20 package agreement this summer or as an independent step.

2. In the interim, the United States might sell a significant but still modest amount of gold in the private market, probably in London. Preferably, this action would be taken in conjunction with market sales by one or two other countries (e.g., Germany). The proximate objectives of these sales could be to exert some downward pressure on the market price (recently in the high range of $160–180), to have a favorable effect in mitigating speculative and inflationary psychology, or to make more credible (to the market and to other governments) the prospect of periodic official sales in the market.

D. Possible Associated Actions by the United States

1. The market sales in C(2) would intensify the pressure to eliminate the restrictions that prevent U.S. citizens from buying, selling, and holding gold. At some point, but probably not before agreement were reached on the proposal in B, these restrictions could be terminated.

2. If the proposal in B were agreed, and if there were concurrence from the other governments participating, the U.S. Treasury might from time to time sell gold to U.S. residents directly. Such sales would need to be coordinated with the sales policy of the marketing agent.

3. At some point, probably in conjunction with presentation to Congress of the C–20 package agreement, the Administration could recommend that the par value of the dollar be expressed only in terms of SDRs, even if B(5) were not agreed.

1 Source: National Archives, RG 56, Office of the Under Secretary of the Treasury, Files of Under Secretary Volcker, 1969–1974, Accession 56–79–15, Box 2, OECD. Strictly Confidential (FR). Attached is an April 24 note from Bryant to Volcker that reads: "This is the note on gold to which I referred in our conversation in Tokyo. If something has to be done on the subject, then the attached method of "mobilization" may be less unpalatable than most, or all, alternatives."

2 Attached but not printed.

3 The Federal Republic of Germany, France, Japan, the United Kingdom, and the United States.

http://anotherfreegoldblog.blogspot.com/2012/01/fed-one-note-62-paper-prepared-in.html

*************

mortymer said...

// A side comment:

@OBA/Sir Topaz,

top-notch whereabouts... :o)

What I wander is that somebody like me is able to find docs which prove a lot and open hand in this card game for all to see? (I do not consider myself top-notch)
How is it that GATA, etc., where there are so many brave smart people could not see what I seen? How long those archives kept those documents public and nobody cared putting around misinformation or just plain simple bets how things are?

mortymer said...

So, here is my today+ s job in sum:

A2/Prelude II .
US Gov documents and meetings

1968 March 17 - 145. Editorial Note
1969 March 14 - 191. Editorial Note
1969 March 14 - 189. Memorandum From the President's Special Assistant (Rostow) to President Johnson
1973 February 6 - 3. Conversation Among President Nixon, Secretary of the Treasury Shultz, and the Chairman of the Federal Reserve System Board of Governors (Burns)
1973 November 1 - 55. Memorandum From John Reynolds of the Federal Reserve System Board of Governors Staff to the Chairman of the Federal Reserve System Board of Governors (Burns)
1974 March 6 - 61. Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker)
1974 March 15 - 62. Paper Prepared in the Federal Reserve Board
1974 April 25 - 63. Minutes of Secretary of State Kissinger's Principals and Regionals Staff Meeting
1974 May 9 - 64. Memorandum From the Under Secretary of the Treasury (Bennett) to Secretary of the Treasury Simon
1974 June 4 - U.S. Position on Gold
1974 December 13 - 79. Memorandum From Henry Wallich
1974 December 18 - 81. Memorandum From Edwin Truman of the Federal Reserve System Board of Governors Staff to the Chairman of the Federal Reserve System Board of Governors (Burns
1975 May 2 - 84. Memorandum From Henry Wallich, Member of the Federal Reserve System Board of Governors, to the Chairman of the Federal Reserve System Board of Governors (Burns)
1975 May 19 - 85. Paper Prepared in the Department of the Treasury
1975 June 4 - 88. Memorandum From the Assistant Secretary of State for Economic and Business Affairs (Enders) to the President's Assistant for Economic Affairs (Seidman)
1975 August 28 - 97. Memorandum From the Chairman of the Federal Reserve System Board of Governors (Burns) to President Ford
1975 August 28 - 98. Memorandum From Secretary of the Treasury Simon to President Ford

http://revisiting-gordon-brown-bottom.blogspot.com/

Log off.

Aaron said...

Ned Naylor-Leyland on CNBC Europe January 19, 2012

One Bad Adder said...

Aquilus: -

I sometimes wish I was keener and "subscribe" thus perhaps enabling a better perspective on things financial eh A.

Firstly, being a Log-Chart, it doesn't ever get to Zero giving a much more favourable reading ..whereas, in reality, the 3mo has recently been (almost daily) hitting Zero ...and beyond!

Secondly, The "normal" ratio is "4-5" ie: 4 or 5 X 3mo Yields gets you a 30Yr Yield - we said good-bye to "normal" >5 Yr's ago.
So my friend, that all tells me there are issues in the curve relating to market reluctance to hold anything too far removed from $Cash. This is also compounded by the situation with Bank deposits and the FDIC guarantee being a "paultry" 200K.
Of course the long end is being (life) supported by Management.
Even so, I reckon the next skittle to fall will be in that space.
This 3mo Yield IMHO is (through arbitrage) the key to ALL the various contangos in the marketplace ...and once it drives convincingly throught the Zero point ...Game over!

mortymer: - you're a good Digger Squire - top notch ;-)

Edwardo said...

Great stuff, Mort.

Wendy said...

RLP,

I came to the same conclusion regarding Gordon Richardson last spring/summer, and I posted a comment wondering if he might be a person of interest, but didn't get any responses.

I don't actually recall how his name came to my attention, and I had never heard of him before. Perhaps poking through articles about the BIS, not sure.

Some of what caught my attention and curiosity:

-Englishman
-right age
-served in the war
-member of the very most inner circle of the BIS
-would have been offically retired in the late nineties, but likely very active unoffically in the background

and more that I can't remember at the moment.

I find it very interesting that someone other than my self was led to Gordon Richardson.

Aquilus said...

@OBA

Thank you for the lesson and for spelling out all the details.

Yes, you definitely made me think of the 3 month yield in more context than just protection of principal...

P.S.Oh and I just realized that I mixed 30 day and 3 month periods in my question - very sorry for the confusion as I was in a rush when I formulated it.

Wendy said...

mortymer,
There is also a name which sticks out

If I remember correctly that name is not old enough, and not an englishman

Robert LeRoy Parker said...
This comment has been removed by the author.
Robert LeRoy Parker said...

Hi Wendy,

I wish I had seen that comment a year a go! Anyway, I just posted at Screwtape regarding Lord Richardson and I came up with another hypothesis as well.

http://screwtapefiles.blogspot.com/

victorthecleaner said...

Aquilus and OBA,

Operation Twist 2, i.e. purchasing long bonds and selling short bills, not only manipulates the long interest rate downwards, but also the short rates upwards. Without OT2, would the 3-month interest rate already be consistently negative?

Silver (SIFO) has no contango beyond 1 month. Why does gold (GOFO) have contango? Both swaps use the same eurodollars on the paper side of the contract.

Victor

One Bad Adder said...

victor: -

Absolutely - in fact the Fed announcement what 3 months ago?? highlighted the importance of the "situation" - a fact I commented on here at the time (from memory).
Clearly their (Fed) resources are finite ...and whatsmore Treasury sure as hell can't keep funding itself in three monthly increments.
I'd reckon there'd currently be a lineup at the Fed window with entities selling Long Bond for $1-30+ and swapping them out for shorties at parity.
With GOFO / Libor, (the crux of the current "paper alchemy") the contango may well be kept alive as long as possible ie: the old "Gold-in-the-window ...nothing to see here" illusion maybe?
Ultimately, I believe Ag to be irrelevant to all this.

One Bad Adder said...

Lo and Behold!!
3mo T-bill discount rate
This l'il sucker has managed to pick itself up off the floor ...and actually take out the 200DMA - praise the lord, we're all saved ...NOT!

One Bad Adder said...

As it's quiet and nearing the end of the thread, I thought I might practice a bit of HTML ...it's been a while ;-)
Long Bond Yield
and it's current Price
victor: - make that $1.40 ...arrrgh!

Gold Investment Basics said...
This comment has been removed by the author.
mortymer said...

One result/conclusion from the files I have found is that those with political power have quite good overview of what is going on in monetary matters.

costata said...

OBA,

Only a mother could love that child.

Cheers

Gary said...

Dollar usage waning:

http://www.zerohedge.com/news/india-joins-asian-dollar-exclusion-zone-will-transact-iran-rupees

At least it's not the end of the world:

http://www.youtube.com/watch?v=zUoc6Wv72cs&feature=related

Edwardo said...

Yeah, OBA it's quite a pop in short dated stuff, and from a technical/chart standpoint it seems like a turn is at hand.

sean said...

Holy crap, Mortimer! There is interesting stuff to be found in them there archives! Even an almost- mention of Freegold (though probably due to subconscious channeling). See extracts below (my emphasis).

" Volume XXXI, Foreign Economic Policy, Document 61
Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker) Washington, March 6, 1974.
This is a paper which we prepared for Secretary Kissinger giving some of our views on the gold question.
GOLD AND THE MONETARY SYSTEM:POTENTIAL U.S.–EC CONFLICT
The Problem
U.S. objectives for the world monetary system—a durable, stable system, with the SDR as a strong reserve asset at its center—are incompatible with a continued important role for gold as a reserve asset. These objectives are in apparent conflict with the EC desire to facilitate the use of gold in international transactions.
There is a belief among certain Europeans that a higher price of gold for settlement purposes would facilitate financing of oil imports…Adamant U.S. insistence on maintaining the present fixed official price is likely to create international conflict with the EC, and may also lead to unilateral EC arrangements which would defeat our aims for the system.

there is still substantial disagreement on what the exact future role of gold should be—whether it eventually ought to be phased out of the system (the U.S. view) or retain an important function as a reserve asset and means of international settlement (the position of some European countries).
In our view a system which included gold as a major reserve asset alongside SDRs would be inherently unstable, just as bimetallism was in the U.S.
This inherent instability stems from the fact that gold is traded as a commodity on a private market at a variable price…If, however, the price at which official transactions in gold are made were to be periodically adjusted to the market price, then an unstable situation would rise as between gold and SDRs.
It is the U.S. concern that any substantial increase now in the price at which official gold transactions are made would strengthen the position of gold in the system, and cripple the SDR.
To encourage and facilitate the eventual demonetization of gold, our position is to keep the present gold price, maintain the present Bretton Woods agreement ban against official gold purchases at above the official price6 and encourage the gradual disposition of monetary gold through sales in the private market.
The British and Germans, on one hand, generally agree in principle to the desirability of phasing gold out of the system. On the other end of the spectrum, the French have been the main proponents of a continued important role for gold in the system….based in large part on the belief that "paper gold"—the SDR—does not command sufficient confidence and acceptability to replace gold completely in the system. There is, in fact, still a considerable emotional attachment to gold as a monetary asset, and a basic distrust of bank or paper money not having intrinsic value. [LOL!]
the EC position has begun to coalesce around their desire to free gold for use in settling intra-EC debts —a problem raised by the present "immobilization" of gold which has resulted from the wide disparity between the official and free market gold prices.
The basic French proposal in the C–20 was simply to increase the official price of gold although this may have been made with tongue in cheek [!]
The recent oil price increases have added a new dimension to the gold issue…it would be useful if the oil producers would invest some of their excess revenues in gold purchases from deficit EC countries at close to a market price.
it is important that we reconsider what our own negotiating posture should be.

sean said...

it is important that we reconsider what our own negotiating posture should be.

Option 1: Continue adamant opposition to any proposal involving an increase in price at which monetary authorities carry out transactions in gold. Advantages: If successful, we will keep gold from regaining strength as an international reserve asset, maintain the strength of the SDR, and probably eventually obtain the demonetization of gold and a more rational, stable international monetary system.

Option 2: Acquiesce in a European-type plan involving abolition of the official price, permitting settlement of official balances at a negotiated price, with a "sales only" rule for transactions in the private market. Advantages: This would be somewhat preferable to a plan involving an outright increase in the official price, and would maintain an avenue for demonetization through one-way sales to the private market. The SDR would become the sole numeraire of the system…gold sales to the Arabs might help finance western balance of payments deficits.

Option 3: Complete short-term demonetization of gold through an IMF substitution facility. Countries could give up their gold holdings to the IMF in exchange for SDRs. The gold could then be sold gradually, over time, by the IMF to the private market.

mortymer said...

@Sean: Thank you.
I have now put them in a separate timeline on my main blog:

http://anotherfreegoldblog.blogspot.com/2012/01/us-gov-documents-and-meetings.html

The one you mentioned i also noticed...

@Wendy, yes, that name is too young but how do we know that Another was not consulting what to disclose and what not. That his action was 1man show and not a decision of a close group he executed?
The more I think it seems that Another posts are a game of the gold fraction or someone who does not agree that his country is falling to the other side and partly a political move for an alignment but in that case that somebody had to be very VIP. (of course the other option is that it is completely different and one can read it otherwise, for now I do not have a clear person myself, that will come later for sure..). Smile.
In FOA´s case that would make sense of course fully. VTC has many valid points and his puzzle can bring you closer to the fabric of interaction between those people but that enough is not too strong proof IMO either.
The younger one... If one looks closely at the CV and timing then it is VERY interesting coincidence.

Gary said...

Must be a winter Saturday afternoon, as I find myself digging around the Fofoa archives.

Way back in 2009 Fofoa posted some links to Martin Armstrong articles and his writings. His story is fascinating.

Of particular interest was that his 'key date' in 2011 was June 13th/14th, and is it just a coincidence that within 2 weeks of that date gold had started its $400 rocket ride to $1,900?

His call for currency crises and maybe the reset we are all expecting is the end of 2015.

My best guess has been around 5 years hence, based on 2 more 'deflation/inflation' cycles, each one getting shorter and shorter (the first to come during 2012, the second during 2014/15.

Well, that's only 3.9 years to wait, and some more time to stock up on essentials, golden and otherwise.

mortymer said...

@Wendy...

http://anotherfreegoldblog.blogspot.com/2012/01/w-f-duisenberg-in-short-connection.html

@OBA: Thank you. I am happy you are all right and back. You were missed.

One Bad Adder said...

Edwardo: -
Watch that space my friend - at the first hint of a hiccup in the marketplace it'll be back down plumbing the depths again IMHO.

mortymer said...
This comment has been removed by the author.
One Bad Adder said...

A few thoughts on FreeGold. 1 of 3
“No-one “really” knows where we have been – Let’s then try and see where we are going!” - OBA
As I alluded to in a recent exchange with Victor, I’m sure Another would have been totally floored by the events of the decade following his brief …but highly enlightening foray into the world of Freegold …the gist of which has currently been picked up and run with by our good host FOFOA and a refreshingly talented and informed group of “followers”. With that in mind, it seems appropriate at this particular juncture to add my take after 15 odd years of watching it all unfold.
Although being a “freegold” advocate absolutely, my view of things past, present …and future tend to be at variance with the train of thought hereabouts …and mainstream gold commentary generally …so here goes -
Let’s look firstly at “Joe Average”
It is an intrinsic part of the human condition to think “in the future” ie: we all have hopes, ambitions, expectations etc. The Beatles said it so well “life is what you do while you’re busy making other plans” – Yes?
To this end, in the developed world, the vast majority get schooled / skilled as their circumstances and abilities allow – gaining experience, getting promoted, growing in confidence …legally (and occasionally quazi-legally) spending our lives all in the general pursuit of happiness and satisfaction.
Contentment however is both elusive and fleeting and we no sooner attain the object of our current desires, and we’re off seeking others – a promotion, more assets, a mistress etc. etc.
Ahh …the human condition …don’t you love it?
There is however, buried deep within our subconscious, a trip mechanism – a fatal flaw (if you will) that once triggered, sends an individual off into a frenzy. His wants and desires overtake any constraints. He ultimately becomes totally irrational in thoughts words and deeds whilst pursuing essentially less and less attainable goals …eg: a gambling addiction springs to mind.
We can also consider an example of (let’s say) Joe Smith …caught embezzling a total of $24 million from his employer (a Government Department …of course ;-) …over several years.
When details are revealed, the first thought that crosses most observers minds is – how did he manage to do it for so long? …and (usually) if only he’d bilked $10,000 a month, it would’ve been virtually un-traceable!
Meanwhile, remorseful Joe is mentally rehashing his spree – “what was I thinking” says he.
When later asked “when did you decide to overstep the mark and let uber-greed take over, virtually condemning yourself unequivocally to being caught out?”
Unfortunately, Joe couldn’t answer!
-cont-

One Bad Adder said...

-cont- 2 of 3.
So, the point being, it’s very easy to lose perspective when “in-the-moment”, even despite a normally rational and healthy disposition.
For the past 40 odd years, we (in western society) have been financing our endeavours, being paid salaries, recording profits and losses etc. through a Fiat, Fractional-reserve Monetary System.
For 60 odd years prior to that we experienced a variety of iterations of a Gold backed Fractional-reserve System.
The current system is the closest example we’ve recently had to synchronising with the aspirations of Joe (above) …and in fact, in the right hands, it can be managed to be nigh on a perfect image of the human condition.
Whatsmore, the introduction and operation of the current Fiat Monetary System can arguably take a lot of the credit for a remarkable period in human development over the last 40 odd years. Well …25 odd of the last 40 anyway!
(All hail the Beast!! )
It’s predecessors however (the aforementioned Gold-as-money flirtations) were hamstrung to varying degrees particularly in Democratic regimes with most system-participants needing to continually bend the rules governing same ...until ultimately, in 1971 the USG abandoned the then current system altogether.
The Rest of the World (albeit reluctantly) followed suit …and essentially that got us to where we are today.
The Fiat experiment has been great in the most part - enabling and financing all manner of ventures, improving productivity thus enabling Governments to better fund welfare etc. ie: looking after those who have become generally disenfranchised in modern society …and attending to an ever-growing list of Governmental responsibilities. (Ok, Ok, …tongue-in-cheek)
Joe also has been emboldened - as the strict regime of the previous Gold Standards has given way to a far more lax arrangement thus allowing him full scope to indulge his inner fancies, bigger house, going into business, investing in the Stock-markets …and whatnot.
Should Joes plans and aspirations ever turn pear-shaped (as they so often do), it’s not the life sentence it once was ( in the “old days”) …No-way! – Joe can declare bankruptcy …and be back at it – free and clear – in a few years …no hard feelings.
All in all, I consider theoretically, the Fiat experiment has been a real boon - for the Individual, corporation …and Society in general …however:
…as with the Human condition, the Fiat system is also highly susceptible to an out-of-control condition. Without strict prudential constraint, it can morph into an unwieldy monster and ultimately succumb to an inherent timeline Fatal-flaw …which effectively cannot be disentangled.
-cont-

One Bad Adder said...

-cont- 3 of 3.
Unfortunately, given all the previous government, corporate and management shenanigans …we’re at that point in time …RIGHT NOW! …where the envelope has not only been pushed, it’s been shoved, punched and ripped to shreds!
…and, as we travel forward, down and through Zero Yielding Treasury bills (which incidentally dictates ALL systemic contangos) into a world with “no (economic) future”, unfortunately the Fiat experiment which holds so much promise, abruptly ceases to meet Joes expectations, needs or aspirations …and begins methodically to retreat firstly into the present …then into backwardation …and beyond. Joes “systemic” companion, suddenly becomes …Joes worst nightmare!
Incidentally, the upcoming Zero Yield inflection point provides a perfect time to better appreciate what 1 OzT Gold (24kt Bullion) really is.
…what it is - is the same as it was 200 – 10000 Years ago – 1 OzT Gold (24Kt Bullion) – Get my drift? Ponder that long and hard my fellow Gold-Hearts.

So …on the one hand we have a Gold-standard System that has essentially proven to be far too constraining to meet world-wide needs, hopes, dreams and aspirations,
…and on the other, a perfectly suitable Fiat System, albeit managed by the aforementioned Joe (slightly above) Averages (with their own personal hopes, aspirations …and attendant shortcomings) …and therefore doubly prone to gross mismanagement, potentially releasing an unholy deflationary nightmare …a-la the current Fiat debacle.
Surely, somewhere in the middle there is some form of Goldilocks hybrid arrangement??
Hmmm! …Right about HERE …and NOW enters Free-Gold! …aspects of which have received a wide covering within these very halls.
…and in the current monetary / fiscal climate, an UN-heralded, UN-authorised, UN-constrained, UN-sanctioned and UN-taxed …Free-Gold will most probably simply just …HAPPEN …and in most unpredictable circumstances!
NB: For those who pursue a Fiat-minded attitude to 24Kt Gold “evaluation” however – I strongly and humbly suggest you would do well to consider the implications thereof prior to the current Fiat System Pricing Mechanism melt-down.
Now …succumbing to my own personal hopes and aspirations, I’m off to buy a ticket in tonight’s Lottery!
-END-

One Bad Adder said...

mortymer: -

You've got mail Sire.

Motley Fool said...

OBA

"The current system is the closest example we’ve recently had to synchronising with the aspirations of Joe (above) …and in fact, in the right hands, it can be managed to be nigh on a perfect image of the human condition.
Whatsmore, the introduction and operation of the current Fiat Monetary System can arguably take a lot of the credit for a remarkable period in human development over the last 40 odd years. Well …25 odd of the last 40 anyway!"

I respectfully disagree.

Foremost I do not see a pure fiat regime as manageable, given the human condition.

I believe we have made progress despite this system, due to the advancement primarily of information sharing via the internet.

I found it instructive to examine how our monetary system worked prior to 1913. Professor Fekete's work was very helpful in this regard.

Looking at only the last 100 years of our monetary system is too narrow a view in my opinion.

Much can be gained also at looking at ancient history as demonstrated by FOA and reposted(in short) by FOFOA in his post Moneyness.

Peace

TF

Edwardo said...

OAB wrote:

"Zero Yielding Treasury bills (which incidentally dictates ALL systemic contangos) into a world with “no (economic) future”

You are reminding me of Fekete's "The last Contango in Washington"

And

"what it is - is the same as it was 200 – 10000 Years ago – 1 OzT Gold (24Kt Bullion) – Get my drift? Ponder that long and hard my fellow Gold-Hearts."

Okay, I've pondered it. And while I think I get your drift, what's the takeaway?

costata said...

Edwardo,

In OBA's absence I'll take a stab at the "takeaway". If interest rates/discounts for (big) capital parked in Treasuries becomes sufficiently negative then it could bolt for cash. Cash that has a paltry FDIC guarrantee.

BNY Mellon gave depositors a taste of what may become the norm last year when it announced that it would charge to store their cash. De facto creating a new kind of currency system. An explicit discount rate cash, a formal negative "interest rate" for cash.

So rather than an informal (inflation) discount rate for cash the holding cost is then in plain view. The only thing restraining velocity returning to that parked cash is a belief in deflation.

As the short end of the Ts become more and more congested it is like a crowd milling around a single fire exit. So we could be just a rollover or two away from the fire alarm sounding. Followed by not just the exit to cash but rather the exit from Ts through cash to hard currency (and perhaps anything else big capital can lay its mitts on).

I think OBA is articulating an interesting perspective on HI. Accelerating and increasingly negative discount/interest rates, not just on Treasuries, but on cash itself.

I trust that Sir OBA will correct any errors in my understanding.

mortymer said...

Mr.Zoellig - His statement about Freegold.
Was that Another Lite?
Back in time ...Another, FOA, yes... The chess game has moved forward, was it an open game from there or do we see just a finishing moves?
Mr. Zoellig - whose side is he on?
What else was the purpose of the announcement? An official message to a certain participant(s) - a well straight forward message which had to be heard? Decision made? Or to markets in general? What questions we should ask here which we have not?
If he was against the IMFs he would be out of his job in a sec, woudn´t he? You know national interests and such, or not? Or just a last warning after he talked?
That what he told given the timing ...from 2001 - was it 6DEc 2010 (?)... was a 9 years of hard negotiations and progress (?).
Is the queen sacrificed?
The king seems still alive.
Do we observe a change in the system so we could (in a black box) proclaim that there is some panic developing?
This or that a coin for this moment is not a bad idea. Oh bother we lemmings have to do all the job.

One Bad Adder said...

MF: -
Simply calling it as I see it Motley. Of course the current Fiat arrangement has degenerated into virtual chaos ...and Yes it will probably not survive as an option going forward (mores the pity) but essentially it serves the purpose admirably IMHO.
The earliest examples of such often had a Debt Moratorium in-built ...which was (apparently) quite successful.
You may recall the WSJ recently suggested a similar approach to help resolve the current EU dilemma where the "net" debt is a mere fraction of the total. Bond-holders screamed blue murder ...and (unfortunately) the proposal lost traction.
Easy for me to say as I don't have a Dog in that particular Hunt.

Ed: -
In a negative Yield situation, an asset that possesses "eternal" properties becomes all the more appealing. Not to be confused with the "current"-cy evaluation thereof.

Edwardo said...

Thanks, Costata. That made perfect sense and pending OBA issuing some sort of corrective that is what I took to be the substance of his point.

What can one say except that the U.S. monetary authorities are clearly well down the road to being checkmated since a spike in rates will make for crushing borrowing costs- I am making what I view as a very safe assumption that a rate spike would not be the result of a genuine, let alone lasting, economic revival, but the result of something far less healthy, while a move to the "zero point" means all that stands between no contangos anywhere to be found is, as you put it, the belief in deflation.

One Bad Adder said...

cos - Ed: -
A Rolling T-bills strategy essentially IS Cash! Cash that is acquired directly from Treasury and comes fully guaranteed. Bank deposits are effectively sidelined in this case IMHO.

costata said...

Cheers Edwardo.


OBA,

Would I be correct in saying that no spike (upwards) in rates is required to collapse this house of cards?

It seems to me that the Fed can buy as much of this short end paper as necessary.

Further, all it requires is increasingly negative returns, and a loss of faith in deflation, to inspire the dash for the fire exit.

costata said...

OBA,

Extending this perspective of rolling T-bills being a "cash" strategy what is the mechanism that converts this paper into actual spending power in the physical plane?

BTW in my conceptual model of FOFOA's monetary plane pyramid and his physical (tangible) plane pyramid gold exists solely in the physical pyramid. Meaning - completely outside the monetary pyramid.

In this perspective a panic out of the monetary plane is hyper-inflation. Conversely while big money remains inside the monetary pyramid we cannot have HI.

One Bad Adder said...

costata: -
It's my conclusion that (when the market moves en-masse into the short end of the curve) the next skittle to fall will be the Longer-dated maturities. Admittedly it's difficult to grasp (say where a Bill is in negative Yield ...and a 10Yr Bond is Yielding 15%) ...but well worth the effort ...especially from a Gold perspective.
What I'm alluding to (in acceptable vernacular) is an inflection point (at Zero Yield) which turns DIS-inflation into DEflation.
Oddly enough - DEflation and Hyper-Inflation are a cause-effect phenomenon ie: you can't have one without the other (and you probably won't hear that anywhere else cos so do due diligence;-)

One Bad Adder said...

cos: -
The Fed is effectively sidelined here too IMHO. They would have a basis for acquiring and selling Bills ...and purchasing Bonds ...but how long can they keep that up? ...and it may well not be in their interests to do so.

Nickelsaver said...

In the spirit of "finding new ways to introduce gold-resistant paperbugs to the powerful arguments for buying and holding physical gold right now"

I wrote this short analogy.

Go cash those checks

I realize that it is an over simplification and would be do technical criticism.

costata said...

OBA,

I realize that this is probably a silly question but I have to ask it just for the record.

Do you see any way the effects of this reshaping of the curve could be contained within the bond market?

costata said...

Now here is a truly fascinating chart from Nick Laird at Sharelynx via Ed Steer's daily missive.

As the box in the chart says..."This chart shows what the price of gold would be [blue line] if it never traded between the London a.m. and London p.m. gold fixes. Both these traces start on the actual London a.m. gold fix at 10:30 GMT on 01/01/970."

Around $13,000 per ounce today according to this chart.

Take a bow A/FOA (if you still can). My emphasis.

One thing of note on this chart is the discontinuity point that began at the beginning of the fourth quarter of 1999...which was the beginning of the bull market in gold. I'll have more to say about this in my Casey Research presentation in Vancouver on Sunday afternoon.

You can find the chart toward the bottom here:

http://www.caseyresearch.com/gsd/edition/chinese-really-love-gold-banks-pushing-citizens-buy

Texan said...

Adder, costata, edwardo - what you are missing is that the cash in bills and bonds is largely institutional or corporate. Think state pension fund, insurance company, or fortune 500. That is "managed money" and it is not going to go into gold, ever. It cannot. Employees manage the money according to institutional guidelines, and I guarantee that gold (much less physical gold) is not an investment option except in a few very rare situations.

T-bill money is dead man walking. It is the " loser" in the zero-sum game of worldwide purchasing power, but thats ok to "management", because its purpose is to be purely nominal. It will never, ever "bolt" from paper, because it is the paper. It is the "gravity well" of excess printing, much like the reserves held by banks at the Fed.. It's where it all ends up.

Do you see? The savings of the US cannot mobilize
because it is held by constructs. The dollar only breaks if ROW decides there is a reason to go to gold.

victorthecleaner said...

OBA,

concerning short term market interest rates, I wonder whether you know John Hussman's comments

http://www.hussmanfunds.com/wmc/wmc110124.htm
http://www.hussmanfunds.com/wmc/wmc110411.htm

on the link between liquidity preference (i.e. bank reserves and velocity) and short term interest rates.

Victor

victorthecleaner said...

OBA,

may I also disagree with your view of the present system?

Here is a very brief sketch of my point of view. The present system
* deceives the savers by suggesting to them that they have a meaningful reserve where, in real terms, they don't
* misprices business risk because said savers are seduced to investing their savings into other people's debt
* tilts business funding away from equity to debt financing
* misallocates capital from investment in businesses to comsumption
* misprices the future value of natural resources, making them appear too cheap to get
* has seriously weakened the economic position of most of the developed world (perhaps ex Germany, Switzerland, Japan and very very few others)

When the old system is revealed to be unsustainable and when capital allocation switches 'back to normal', the new system will have
* fewer consutants
* a substantially smaller financial sector
* fewer lawyers
* fewer restaurants, cafes, amuesemnt parks
* less global trade
* more manual labour
* more people agriculture and resource extraction
* higher wages for workers
* lower wages for consultants

Victor

costata said...

Hi Texan,

That is "managed money" and it is not going to go into gold, ever.

I don't think anyone is missing the fact that most (all?) of the insitutional money isn't going into gold.

T-bill money is dead man walking. It is the " loser" in the zero-sum game of worldwide purchasing power, but thats ok to "management", because its purpose is to be purely nominal.

I also don't think anyone is missing the fact that most (all?) of the insitutional money is trapped.

The dollar only breaks if ROW decides there is a reason to go to gold.

(I would add in the currency swaps to this picture as well ie. abandon the US dollar for as much of the bi-lateral trade as possible.)

OBA's scenario for the US bond market would be a pretty good reason for the ROW, who can do so, to go into gold don't you think?

I'd also like to leave you with some food for thought. Under the Basel III rules sovereign debt is still classed as risk free for capital adequacy purposes. If the US bond market literally explodes but the PTB want to keep this banking system model what is the only risk free collateral/capital left standing?

One Bad Adder said...

victor: -
I agree the "present system" IS all those things you identified Sire ...and your depth of knowledge of same outweighs mine a thousand-fold. My point was that the "theoretical" Fiat System has the attributes to best accomodate "modern" Human Action.

I hope you're not suggesting no "Starbucks" on every corner?...humph!

Texan: - please ...for a second, put yourself "in the moment" and try and anticipate your actions.

One Bad Adder said...

cos: -
As I alluded to earlier, if the thing goes the way I anticipate, the "curve" will hardly matter ...and the Bond "market" will virtually cease to exist.
As yields in the long end ratchet higher and the "price" of same dives down through parity, Treasury will, in all probability monetize it - do you see where this is ultimately going?

Can they save it? ...don't think so!

One Bad Adder said...

All: -
As I said at the top of the three posts I recently put up defining my observations, mine is essentially a unique perspective, presented here as an alternative scenario going forward.
If the Systemic issues outlined in same transpire, hopefully the contents of the posts will be beneficial to those who frequent these pages.
As I said to FOFOA recently, we hope for the best, but prepare for the worst!
The thing was presented in as clear and concise terms as I can and as such, I really don't care to specifically comment further.

Thank-you for your understanding.

Motley Fool said...

OBA

Understood. I always appreciate other perspectives.

Incidentally I also liked your commentary on the inflection point of ZPY, and the comments that followed.

TF

Motley Fool said...

OBA

Oh and just for curiosity the seven year rolling debt forgiveness (jubilee) concept dates back to biblical times, way before paper currencies even existed.

TF

costata said...

Thanks OBA,

You have provided enough for us to understand your perspective.

OBA:
...do you see where this is ultimately going?

Yes (regrettably).

I'm sure we can all appreciate your reluctance to go over the same ground endlessly. It takes a special kind of masochistic personality to do so. Fortunately some of us here fit that profile.

Heads up folks - the effort to understand this perspective rests with the reader now. And I think we watch developments in the US bond market with a fresh perspective.

Cheers mate!

costata said...

This could get interesting (my emphasis):

Plans to launch a European ratings agency to compete with S&P, Moody's and Fitch are at an advanced stage and a new private institution could start business as soon as the first half of this year, German businessman Roland Berger told an Italian newspaper.

"The proposed model is of an agency where the service is paid by the clients, who have an interest in having reliable and objective results," Berger said.


http://www.reuters.com/article/2012/01/21/us-berger-ratingagency-idUSTRE80K0GL20120121?feedType=RSS&feedName=businessNews&utm_source=dlvr.it&utm_medium=twitter&dlvrit=56943

Motley Fool said...

Costata

That Is interesting. :)

-----------

I have also thrown out another post on my blog in the theme of convincing paperbugs to git sum gooold. :P

TF

Texan said...

Cos,

I am not expecting the bond market to break (in dollar terms) in order to usher in FG. The Fed will just roll out QE^. Its already the single largest holder of Treasuries. The effect of these QEs will just continue to show up in unreported inflation.

I think what we will see instead is an accelerating revulsion of the dollar as a store of wealth (and therefore trade currency given current deficit) by all but the closest US allies. The vacuum created by the USD losing reserve status on the margin lwould then lead to gold creeping higher before the Nash equilibrium discussed by Moldbug sets in and there is a ROW rush for gold. Maybe this last process is gvt initiated, maybe not.

So the break is going to be in dollar acceptance, not bond sales. The Fed will buy all of that debt, all they have to do is target rates, which was advocated by some of the investment banks last year. The US is basically in the same situation as Japan now, whose long rates haven't moved off the floor in 20 years.

Edwardo said...

This idea of institutional money being trapped absolutely intrigues me from the standpoint that rules and practices change across the board in all realms. In the meantime, I think we've established that even if institutional money acts as dumb as a rock it doesn't matter because dollar usage world wide is headed in one direction. In short, the rest of the world will be saving in something other than FRN denominated instruments.

mortymer said...

HI all, I have a problem in understanding this:

http://history.state.gov/historicaldocuments/frus1969-76v31/d85

"a. No participating government will purchase gold from any source when the effect would be to increase the total gold holdings of IMF member governments and of the IMF above the level of their combined holdings on May 1, 1975;"

...The Q is: How is this related Gold for Oil deal with Arabs?

Motley Fool said...

mort

That agreement was made with the explicit goal to hobble gold in the international realm.

Curiously though you will find that arabian official gold has not increased much (or at all) in the meantime.

What else is the use of sovereign wealth funds if not to escape such limitations? ;)

TF

mortymer said...

Yes, I have noticed, that was a proposal.

The Another´s Teheran meeting where the deal was stuck was most probably:

1971 January 12: Negotiations begin in Teheran between 6 Persian Gulf oil producing countries and 22 oil companies. (Or some else? - the "old deal") Could somebody find the quote?

http://anotherfreegoldblog.blogspot.com/2011/04/time-line-what-we-need-to-learn-is.html

So if they were getting gold via backdoor then (if the above doc was the final version with no attachments) would mean that something does not...

Well, I have not finished studying it yet... Hmmm... More questions.

mortymer said...

@MF: Good point... forgot for a moment that one... I remember that there was also the quote about the gold being well hidden from official datas. :o) Whoah.

mortymer said...

part1
http://history.state.gov/historicaldocuments/frus1969-76v03/d153

oreign Relations of the United States, 1969–1976
Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972, Document 153
153. Paper Prepared in the Department of the Treasury1

Washington, May 9, 1971.

U.S. NEGOTIATING POSITION ON GOLD

The official dollar gold price would not change

The United States would make clear at the outset of negotiations that it does not regard any change in the official price of gold as part of the negotiations. This posture will be necessary because the French, with varying degrees of support from countries such as Belgium, Switzerland and certain elements in the United Kingdom, may seek a devaluation of the United States dollar in terms of gold. French private citizens hold large amounts of gold on which they would like to make a profit, and Swiss bankers have substantial holdings for their clients and have been managing South African gold sales and on occasion, trying to stimulate gold speculation by their actions and speeches. Both French and British financial interests hold large blocks of South African gold mining stocks. A rise in the official gold price would help the private holders by raising the private market price and enlarging the scope of that market, in the judgment of the French and Swiss.

Fortunately the Germans and Italians do not favor an increase in the gold price, so that the French are unlikely to achieve a unified position in the European Community. The Germans and Italians hold very large reserves in dollars, on which they would gain no profit if the official gold price rose. Their officials might even incur criticism because other countries had profited by holding a larger share of their reserves in gold. The Japanese and even the Canadians could also be embarrassed.

mortymer said...

part 2

The French argument

The main argument that the French may make is that the United States as the deficit country should devalue, because we have sinned and should expiate. Other countries (France) have devalued and the United States should behave like other countries and do so. Surplus countries should not have to revalue because the United States does not wish to change the price of gold, particularly since these surplus countries have followed virtuous anti-inflation policies and kept their balances of payments in order.

The French suggest a moderate increase in the official dollar price, while other countries maintain their existing gold prices or raise them to a lesser degree than the United States thus effecting a change in IMF parities (which are stated in gold) that would depreciate the dollar exchange rate in terms of their currencies.

In effect, the French attitude boils down to the suggestion that if the United States does penance and helps the private gold holders to make a bigger capital gain, this would ease the discomfort of appreciating their exchange rate and becoming less competitive with the U.S. in the U.S. market and world markets.

U.S. counter arguments

Against this point of view, the United States would make the following counter arguments:

1) The deficit is only partly due to U.S. economic policies. While the United States at some periods has augmented its balance of payments deficits by inflationary policies, our record of price stability was much better than all major countries except Belgium and Germany in 1950-65, and slightly better than these two. U.S. deficits have also been forcefully affected by (a) our heavy external costs for military expenditures to protect Europe and Japan, (b) by trade practices abroad that have cut back the growth trend in our agricultural and other exports, and (c) especially by the undervalued exchange rates which were fixed in the forties and fifties, at a time when foreign productive capacity was abnormally low relative to foreign demand, and which have been jealously preserved for trading advantage. Moreover, the recent large short-term flows have been due to divergent monetary policies in the U.S. and Germany—both needed for their domestic situations.

2) Other countries decided to peg to the dollar long ago. Other countries decided long ago to use the dollar as a reserve currency and to peg their currencies to the dollar. By doing so, they took to themselves the responsibility for fixing exchange rates, leaving the U.S. in a passive position, and have prevented their currencies from rising in response to natural market pressures that would have caused these currencies to appreciate. Some have devalued whenever their competitive position was weakened, and this fact raises questions as to whether they could be counted on to maintain their initial appreciation vis-a-vis the dollar under the French scheme.

mortymer said...

part 3

3) A moderate gold price increase would be unstable. A moderate increase in the official gold price would be analogous to the “Munich settlement”; it could quite likely last only a short time—perhaps less than a year. It would establish a strong presumption that the prescription would be repeated if speculative pressures again became strong, and dollar reserves built up abroad again. Because central banks holding gold would have gained a gold profit, while holders of dollars would not, many central bankers would face public criticism for holding dollars. This would be likely to induce substantial requests for conversion of dollars into gold, especially by smaller central banks. U.S. gold reserves could shrink fairly quickly, offsetting or more than offsetting the devaluation gold profit (which itself would be about matched by a write-up in our gold guaranteed liabilities to the IMF and other international agencies). This factor of additional drain on U.S. reserves for conversion arises from the re-emphasis on gold inherent in the change in the U.S. official gold price. It would not be present if exchange rates are adjusted without a change in the dollar price of gold.

4) SDRs are better reserves for the future than gold. It is highly desirable to continue the trend toward greater reliance on SDRs than gold for international reserves. The fact that there has been a private commodity market for gold, in competition with monetary use of gold, subjected the monetary system before the two-tier system to speculative drains of gold to private hands, which weakened all currencies. The SDR and the two-tier gold system recognized that gold was no longer satisfactory as a source of reserve growth, and, if so, there is no logic to increasing the official gold price. It would be turning back the clock.

5) A gold price increase would be hard on those who have held dollars. An increase in the gold price is discriminatory and inequitable. It enlarges the reserves of those countries that hold gold, while leaving unchanged reserves held in the form of dollars. This is unfair to some of our closest cooperators, and benefits a few large gold holders who do not need reserve writeups.

mortymer said...

part 4

6) It could weaken the two-tier gold system and benefit gold producers and speculators. The psychological reaction of raising the commodity price of gold would benefit Russia, South Africa and other producers as well as private hoarders and speculators. The spread between the official and private price might well widen, and this could make it harder to maintain the two-tier system. The system was regarded as favoring the United States rather than the French gold philosophy, and a gold price rise would sow new doubts.

7) Differential rather than a uniform exchange rate adjustment is needed. The Japanese adjustment, for example, might need to be steeper than the European, and all the Europeans might not be the same. To cover this spread the U.S. change in gold price could be undesirably large.

8) The U.S. would convert dollars into SDRs instead of gold. With major modifications in exchange rates and other improvements that should make the future drain on U.S. reserves manageable, the U.S. is prepared to resume responsibility for conversion of dollars into international reserve assets, which it alone has carried since 1945. But it would convert official dollars into SDRs or other claims on the Fund, rather than gold. We would use gold as needed to acquire these assets from the IMF. This procedure would continue the gradual evolution of the monetary system toward SDRs as the basic reserve asset, with gold gradually declining as a portion of world reserves. This process has already gone a long way, since gold reserves represented only 40 percent of global reserves at the end of 1970, as compared with 70 percent in 1948. Turning back the clock would be a very serious decision, and would be resisted in many quarters of the academic, banking and Congressional world.

9) Congressional opposition could be strong. A number of influential members of Congress (Patman, Widnall, Senator Long, Reuss, Senator Bennett) seem likely to be doubtful or critical. Some don't like to pay out gold to foreigners. Some want to de-emphasize gold. Many are likely to feel that the Executive should have specific Congressional authority, and a Congressional debate could lead to very serious market uncertainty and speculation. The attached correspondence with Congressman Reuss has been accepted by Congressman Reuss as indicating that action would not be taken without Congressional approval. If this were not the Treasury view, he had indicated that he would submit legislation making this quite specific. (See attached correspondence.) /2

mortymer said...

part 5

10) A massive gold price increase would be generally rejected in a worldwide inflationary period. A doubling of the price of gold at one swoop, as recommended by Rueff of France for many years, is probably not likely to be put forward now. We understand Rueff himself no longer puts it forward, as it is too unrealistic. It would be resisted very widely as it would enlarge world reserves by about $40 billion all at once. The 1970 addition to world reserves was $14 billion. Such a large increment to world reserves, even though initially immobilized in central bank reserves, would have a marked inflationary potential. It would probably be resisted by most members of the Fund, and by U.S. public opinion. One danger of a moderate change in the gold price is that by a series of crises, the same result might be approached.

1 Source: Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning 1971. Confidential. A typed note at the top of the page reads: “2nd Draft 5:00 p.m.”

2 Not printed. Attached were a February 6, 1969, letter from Secretary Kennedy to Congressman Reuss reaffirming the position taken in a January 23, 1968, letter from Under Secretary Barr to Reuss, and a copy of Barr's letter. It was Barr's view that the $35 per ounce price of gold notified to the IMF could only be changed by Congressional action.

abe said...

I have a couple of questions on whether I am understanding as much as i think i am.

Fofoa above:
If they were to insist on spending those extra dollars on more goods and services in order to balance trade, they'd simply drive up the dollar prices of goods and services relative to their own domestic goods and services. In the physical plane final analysis, they'd still receive less back from us than they sent us, and they'd simultaneously collapse the value of their $4 Trillion accumulated debt. So instead, they loan those extra dollars back to us at a nominal (not real) rate of interest and then we use them (again) to buy more of their goods.

Me:
So if the ecb were to use its dollar reserves to bid for gold, would that start the run on the dollar? That would be an open attack on the US more than likely starting a huge war, is that correct? Or if the dollars are spent in a foreign zone would it not affect domestic currency value?


Won't all of the current trade agreements that are being made withdrawing from US$ usage start a feedback loop, lowering our service exports and force more USG spending/consumption (without even considering who is buying those UST) ?

Edwardo said...

I thought this post was fascinating.

http://www.zerohedge.com/news/subordination-101-walkthru-sovereign-bond-markets-post-greek-default-world

mortymer said...

http://history.state.gov/historicaldocuments/frus1969-76v31/d69

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 69
69. Editorial Note

On June 4, 1974, President's Special Assistant Jerry Jones wrote President's Counselor for Economic Policy Kenneth Rush that his June 4 memorandum on gold "has been reviewed and approval has been given on Secretary [of the Treasury William] Simon's negotiation proposals." (National Archives, Nixon Presidential Materials, White House Special Files, Staff Member & Office Files, President's Office Files, President's Handwriting, Box 27, June 1974) On June 7, Rush sent Economic Decision Memorandum #2 to President Richard Nixon for his signature. The memorandum was intended to give effect to the President's decision on gold and it substantially replicates the position contained in the Treasury Department memorandum printed as an attachment to Document 68. The sole difference occurs in the first point of the position, which omits the phrase, "to insure against any inordinate sudden inflationary impact." The final sentence of the decision memorandum reads: "Secretary Simon is authorized to utilize the elements of this position at the June meeting of the C–20 and in other negotiations." There is no indication whether President Nixon signed the memorandum. (Ford Library, President's Handwriting File, Subject File, Box 19, Finance—Gold)

On June 7, West German Chancellor Helmut Schmidt sent a message to Secretary of State Henry Kissinger in which he shared his conclusion, based on a recent trip to Paris, "that President Giscard d'Estaing wants to see further progress made towards European unification." This development, the Chancellor continued, "improves the prospects of gradually reaching decisions on European policy which lie within the ambit of the basic attitude the Federal Government has always taken. It goes without saying, of course, that this will first require all members to put their economies back on a stable basis. In this connection the balance-of-payment situation continues to be extremely critical for France, as it is for other members. Italy, as we all know, is close to catastrophe. It would be of decisive help to some members if conditions could be established which would permit them to mobilize their gold reserves—primarily as proof of their credit worthiness. A solution of this problem along the lines considered by the Finance Ministers of the Nine is today, therefore, no longer an economic but rather an eminently political question. Boiled down to its basic element, the alternative is: Either the 'Gold solution' or developments which will have consequences of unforeseeable magnitude for some West European Nations." Schmidt recalled that former Secretary of the Treasury George Shultz had told him that the United States "would not refuse to entertain such a solution"; Schmidt then asked Kissinger to help persuade William Simon, the current Secretary of the Treasury, "of the political necessity of such a remedy. The objective should be to have this question settled at the forthcoming meeting of Finance Ministers in Washington. Without your help this will not be possible." (Library of Congress, Manuscript Division, Kissinger Papers, Box CL 143, Geopolitical File, Germany (Federal Republic of Germany), Chronological File, May–July 1974)

...will continue...

mortymer said...

On June 11, the G–10 Finance Ministers and central bankers met in Washington and agreed that a country could borrow against its gold reserves at a price determined by itself and the lending country; in other words, the value of national gold reserves offered as collateral for an international loan could be assessed at a price above the official price of gold, which remained at $42.22 per ounce.

On June 12 and 13, the C–20 met at the Ministerial level in Washington and approved the Outline of Reform of the international monetary system. For the text of the outline, as well as the accompanying final report of the Committee of 20, see de Vries, The International Monetary Fund, 1972–1978, Volume III, pages 165–196. The communiqué issued on June 13 at the conclusion of the C–20 meeting was sent to all diplomatic posts in telegram 127634, June 14. (National Archives, RG 59, Central Foreign Policy Files) At a June 21 Cabinet meeting, Simon reported: "We had a good meeting of the C–20. We took some meaningful steps toward the outline of a new monetary system—with gold replaced by SDR's." (Ford Library, National Security Adviser, Memoranda of Conversation, Box 4)

mortymer said...

[Mrt Note: Thew June 11 ... This confirms that CBs as Another says "know gold in thousands"...!]

mortymer said...

history.state.gov/historicaldocuments/frus1969-76v31/d78

en.m.wikipedia.org/wiki/Giscard

mortymer said...

above link:
"A resolution of the gold issue between the United States and France would settle the matter worldwide."
Giscard:
" However, his popularity suffered from the economic downturn that followed the 1973 energy crisis, marking the end of the "thirty glorious years" after World War II, combined with the official discourse that the "end of the tunnel was near"..."
wild bet but... are those connected?
Btw when was the Martinique meeting?

mortymer said...

It is time to post this:

Endaka Fukyo

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

mortymer said...

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 89
89. Letter From President Ford to West German Chancellor Schmidt1

Washington, June 6, 1975.

Dear Mr. Chancellor:

The Ministerial Meeting of the IMF Interim Committee next week presents an important opportunity to move the international monetary system forward. At the same time it is an opportunity for a responsible reaction to the current needs of a number of seriously affected less developed countries. It is my understanding that our Ministers of Finance may be close to agreement on a comprehensive package achieving these ends, but I am informed that disagreement on one aspect of future rules concerning gold could stand in the way of such an agreement.

For our part we have tried very hard to modify our position so as to facilitate an agreement. In recognition of possible political concerns of the French government we have this week reluctantly indicated that we will withdraw our previous insistence that no individual government in the future should increase its holdings of gold if that concession will suffice to reach an over-all agreement. On the other hand, we—and I believe a number of other countries—do feel strongly that some safeguards are necessary to ensure that a tendency does not develop to place gold back in the center of the system. We must ensure that there is no opportunity for governments to begin active trading in gold among themselves with the purpose of creating a gold bloc or reinstating reliance on gold as the principal international monetary medium. In view of the world-wide inflation problem, we must also guard against any further large increase of international liquidity. If governments were entirely free to trade with one another at market-related prices, we would add to our own common inflation problem.

Of course, we must ensure at the same time that gold is not immobilized. Any government faced with an extreme financial need must be able to sell its gold to another government. We propose, therefore, that the 10 major countries agree that no one of them will purchase gold from another government unless the selling government is faced with needs arising from an extreme financial position. In my judgment that rule would give ample flexibility for all legitimate future trading of gold, while giving a reasonable protection against abuse of the newly established freedom for governments to buy gold.

I would urge you to give this important matter your personal attention in the hope that your representative at these meetings could be in a position to agree to arrangements along this line. If you are available to meet with Secretary Simon on Monday morning, June 9, I would be glad to have him visit you and Minister Apel at that time for further discussion of the matter. If you would like to have President Klasen present, Chairman Burns would also be prepared to fly up from Basle to join the meeting. They would, however, have to leave Bonn in time to reach the scheduled meeting of the G 5 Ministers in Paris at 1:00 p.m. Secretary Simon would, of course, be delighted to have Minister Apel, President Klasen and other members of the German Delegation join him for the flight to Paris.2

Sincerely,

Gerald R. Ford

mortymer said...

...cont

1 Source: Ford Library, National Security Adviser, Kissinger–Scowcroft West Wing Office Files, Box 36, West Germany—Egon Bahr Correspondence, Unindexed (5) (4/28/75–7/3/75). No classification marking. Attached to a June 5 memorandum from Seidman to the President that reads: "The attached letter represents the agreed upon position of the Federal Reserve Board, the Treasury Department and the State Department with respect to the gold position presented to you yesterday. It is their recommendation along with that of Alan Greenspan that it be signed and sent out today." A meeting on gold took place in the Cabinet Room on June 5 from 12:42 to 1:30 p.m. In attendance were President Ford, Simon, Kissinger, Seidman, Burns, Scowcroft, Hormats, Porter, Lynn, Director of the Presidential Personnel Office Douglas Bennett, and Counselor John O. Marsh, Jr. (Ibid., President's Daily Diary) No other record of this meeting has been found.

2 On June 6 at 5:51 p.m., Kissinger spoke to Enders on the telephone and criticized him for having "cooked up a letter to Schmidt without telling me." Enders took responsibility for sending the message without Kissinger's approval, saying that he had "assumed it was alright after that memo I sent you last week." Kissinger told Enders that while he approved of the letter's content, he did not approve of its tactics: in particular, Kissinger said that he "would never send Simon for serious negotiations with Schmidt." "You do not understand what I want Schmidt to do with Simon," Kissinger told Enders, "It is not to conduct serious negotiations." When Enders told Kissinger that Schmidt had not yet replied, Kissinger noted, "The fact that it is a Presidential letter makes it high power." Enders responded, "Well, we have a fair size interest in preventing a gold bloc. It is a question of which Europeans could coalesce three or four years from now." Kissinger retorted, "Three or four years from now is a long time. Well it is done now." (http://foia.state.gov/documents/kissinger/0000CF5A.pdf)

http://history.state.gov/historicaldocuments/frus1969-76v31/d89

Nick said...

Off topic thought -

In the coming age of Freegold, will discrepancies in purity have an impact? Older Canadian Maples are .999, the majority are .9999, and special 'Mountie' coins are .99999.

Thoughts?

John said...

Let's all hope that the coming reset price will be sufficiently large such that the fifth decimal point will count :)

Nick said...

Ha, that's what I was thinking. Based on the premiums, a 'Mountie' wouldn't be worth it, but it certainly would be to ensure a newer maple that is .9999.

Not that the older ones are a poor choice either...

JR said...

Hi Mrt,

Lotsa good info there!! But I must admit it seems a bit daunting and unwieldy. What do you think are some of the key points to take from this document dump?

victorthecleaner said...

mortymer,

Proposed Understandings with Respect to Gold
Among the Governments Represented in the G–10


No participating government will purchase gold from any source when the effect would be to increase the total gold holdings of IMF member governments and of the IMF above the level of their combined holdings on May 1, 1975

I think the solution is that Saudi Arabia is not among the G10. From

http://www.bis.org/list/g10publications/index.htm

The Group of Ten is made up of eleven industrial countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States)

Saudi Arabia is free to purchase as much as they like.

Victor

Aaron said...

Mort-

You're on a roll my friend since finding your latest unjuiced piece of fruit over at history.state.gov. A big thank you for presenting a few choice gems for the rest of us to enjoy.

What I take home from mortymer's most recent collection is that Ford, Kissinger, the Treasury and many others in Washington were well aware of and talking about (how/why to defend against) an emergent Freegold system long before the Nixon Shock. They realized the world’s propensity to hold gold as a wealth reserve and as such desperately needed the SDR to usurp gold’s allure. All of this communication was kept secret at the time, but to read it today and consider this information within the context of what we see unfolding before us is in my view absolutely fascinating.

Freegold The Movie -- Coming to a Theater Near You! Get your tickets before they sell out! Seriously. I mean it. I heard some Asian guy talking to an Arab dude further back in the line bragging about how he was going to buy the rest of the tickets before the show started. ;-)

Motley Fool said...

VtC

Then there is that. Haha.

TF

Aaron said...

Nick/John

Re: 0.999, 0.9999, 0.99999

At $100,000/oz gold:

1 oz Au = $US

000.999 = $99,900
00.9999 = $99,990
0.99999 = $99,999

Not a very big difference is it?

If the purity of your one ounce of gold is 0.999, you receive $99,900 from the market.
Increase that the purity by another .9 and you gain 90 bucks.
Add another .9 to that purity and you get another measly 9 dollars against a $100,000 coin. .999, .9999, .99999, I wouldn't worry about it.

Besides, the more pure your good luck charm is the more susceptible to scratching from the car keys in your pocket.

mortymer said...

JR: No doubt that this is a strong strong gold vein I have stroken. You want me to even refine it? You have amazing ability when working with archives I am good in sleuthing. Some parts have less content but some are pure 99,999...
Ok, but lets try the latest one at lest:
"...Enders responded, "Well, we have a fair size interest in preventing a gold bloc. It is a question of which Europeans could coalesce three or four years from now."..."

mortymer said...

http://en.wikipedia.org/wiki/Arthur_F._Burns

"...Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed. Burns' relationship with Nixon was often rocky. Reflecting in his diary about a 1971 meeting attended by himself, Nixon, Treasury Secretary John Connally, the Chairman of the Council of Economic Advisors, and the Director of the Bureau of the Budget, Burns wrote:"

"The President looked wild; talked like a desperate man; fulminated with hatred against the press; took some of us to task — apparently meaning me or [chairman of the Council of Economic Advisors, Paul] McCraken or both — for not putting a gay and optimistic face on every piece of economic news, however discouraging; propounded the theory that confidence can be best generated by appearing confident and coloring, if need be, the news.[1]"

Michael H said...

Nick,

I believe that, regardless of the purity, a "1 oz fine gold" coin cointains 1 oz of actual gold. So, for example, a 90% gold krugerrand weighs more than a gold maple.

Texan,

"It is the " loser" in the zero-sum game of worldwide purchasing power, but thats ok to "management", because its purpose is to be purely nominal. It will never, ever "bolt" from paper, because it is the paper."

How would nominally-negative yields affect this situation?

For example, high cash holdings and low inventories are currently considered 'good' for company financials. If large cash holdings were to nominally depreciate, would this value judgement change?

Would companies adjust their behavior? Perhaps not by increasing inventory, but maybe through stock buy-backs, buyouts, capital investment, or what have you.

Motley Fool said...

Michael H

Companies to not have the luxury of 'social backing' ( which is why governments can get away with so many mistakes, not having to pay for them themselves), to not change when circumstances demand.

Your suggested actions are (not exclusively) those that will happen once their perspective widens.

TF

JR said...

mrt,

I appreciate your information, here is a perspective. I spend much of my time here **RE-POSTING** what FOFOA has already written.

FOFOA is like the annotations to A/FOA (sorta like FOA offered an "annotated" version of Another), who themselves were guides to much of the type of original source information you post. My point is FOFOA's writing, which can generally be seen as three steps removed form the original source material and which is intended to **explain** and provide context to the information gleaned from these original source materials, is still really hard to grasp.

I often constantly find myself amazed at what I get out of re-reading old FOFOA stuff, and am routinely blown away at the new tidbits he shares. YMMV, but dumping original source material without context, explanation, or even highlighting is a disaster. There is huge grounds for interpretation as to the import, significance, meaning, and implications in a lot of this material, and a lot of red herrings and simply clear dead ends. And what anyone gets out of it is limited and/or colored by the baggage they bring in to it.

Given the difficulty in even understanding FOFOA, IMO original source documents dumps without context/intro/explanation/etc are IMO unhelpful and counterproductive. That's the key - what do you see that is interesting? It may not be what I see, and that's the beauty of this forum. Different perspectives and knowledge and insight come together and the distributed intelligence of this blog and its commentators, our little superorganism here, really gets us much further than any of us could on our won.

So yeah, that's my perspective. Give a little context, tell us what you see, or maybe offer it as a hypothesis (ala "look at this, do you think it portends...") and see what others think.

Cheers, J.R.

JR said...

Good stuff Aaron,

What I take home from mortymer's most recent collection is that Ford, Kissinger, the Treasury and many others in Washington were well aware of and talking about (how/why to defend against) an emergent Freegold system long before the Nixon Shock. They realized the world’s propensity to hold gold as a wealth reserve and as such desperately needed the SDR to usurp gold’s allure. All of this communication was kept secret at the time, but to read it today and consider this information within the context of what we see unfolding before us is in my view absolutely fascinating.

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

Reminds me FOFOA and FOA on touching on the idea that our part monetary schemes have involved an attempt to control gold:

FOFOA

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


FOA

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.

cont.

JR said...

cont.

But, another sorta neat idea I am mulling in my head is the recognition of the tension between continuing dollar reserve status and a free priced gold alternative as discussed above, juuxtaposed with the recognition that the Nixon shock was not the outside world forcing the US to ship gold, but the US's acknowledgement, despite its admitted fears of gold replacing the dollar as a wealth reserve, that they needed to re-price gold for economic reasons.

FOFOA comment:

"Like I said, I'm not going to go into detail, just give you a tease. But you've got to admit that what ANOTHER wrote above is pretty different than everything else we know about the end of the gold standard. He's saying that Nixon had the choice of either revaluing the US gold to continue backing the dollar with higher priced gold, or else removing the backing altogether and managing the price rise as the market took it higher. And it was decided that, because oil liked gold, the latter option would effectively raise the price of oil which they wanted so that more non-ME oil would become economically viable.

So who was this gentleman (or gentlemen) that ANOTHER would not name who "brought this thinking to the surface in that era"? You'd think that after 40 years there would be at least some corroborating evidence, wouldn't you? Well, as a matter of fact there is. And it first surfaced just last year!

We now know that the mystery gentleman was none other than Nixon's National Security Advisor, Heinz Alfred "Henry" Kissinger! And we now have independent and corroborating evidence that Nixon and Kissinger pulled the plug on the Bretton Woods gold standard for the specific purpose of raising the price of oil! We know this now because the Saudi Oil Minister from 1971 gave an interview to CNN just last year! "

JR said...

This quote "that they needed to re-price gold for economic reasons" is better said as "that they needed to re-price oil for economic reasons."

They could have stayed on the fixed gold standard and re-priced just gold, but they needed oil re-priced higher, not gold re-priced higher. Here is some dicussion of the difference between re-pricing the gold/dollar exchange rate or taking dollar off gold standard altogether.

Max De Niro said...

A non-Freegold related take-away for me is the demonstration that these events should be viewed as "good business" and self-interest rather than conspiracy.

A more detailed inspection and proper perspective shows the fallacy in the arguments of the ideologically-challenged.

High 5 said...

India to pay for oil with gold. Sorry if previously posted but don't have time to sift through all comments.

http://www.debka.com/article/21673/

High 5 said...

Per above. Other countries expected to follow suit. This may be the reason dollar down...gold up even with Greek problems.

One Bad Adder said...

The game IS over, we're running down the clock through an interminable injury period before the full-time hooter sounds!
Ni-Hao fellow Goldmisters - Happy Chinese New Year!
Today marks the start of the Year of the Dragon - the symbol of the Emperor ...and by the good graces of our host FOFOA, a bit later today, I will cobble together a piece relating to "the Dragon" and what might evolve in China (pronounced Chi-e-na ...said quickly) post the upcoming systemic collapse.

One Bad Adder said...

Good find H5 - Debka can be a bit "dramatic" at times tho - we'll see eh?
For those who may like to keep track of the T-bills this Yahoo Chart is a better version that the previous one...and you can play with the timescale for a better understanding.
OMG ...there IS a pulse

Aquilus said...

OBA,

A guest post would be a nice treat. Looking forward to it.

As an aside, I re-read Moneyness this weekend - that has got to be my favorite post. I cannot believe all the nuances I missed the first time around... To many more articles like that this year FOFOA!

Motley Fool said...

Fwiw, some interesting chat taking place on my blog imo. I address some questions that are asked frequently(if perhaps in silence :P ).

I second Aquilus's recommendation on that EPIC post (it was a recommendation to read/reread it wasn't it? ;) ).

TF

mike said...

Off topic, but has anyone read "Paper Promises" by Philip Coggan ?

Mike

Edwardo said...

How are the Indians/Iranians pricing the gold? Is a currency being used to price the gold, and, if so, which one. Also, if it's not currency pricing gold then what sort of exchange scheme are they using? Funny how the article leaves any mention of such important details out.

mortymer said...

JR:
1. For this yours "But, another sorta neat idea I am mulling in my head is the recognition of the tension between continuing dollar reserve status and a free priced gold alternative as discussed above, juuxtaposed with the recognition that the Nixon shock was not the outside world forcing the US to ship gold, but the US's acknowledgement, despite its admitted fears of gold replacing the dollar as a wealth reserve, that they needed to re-price gold for economic reasons."

a) Have a look here: hard to post extract since it is a typewriter copy. You will find also another view where gold is considered to be phased out for a purpose due to historical reasons - evolution of the monetary system...

The role of Monetary Gold over the next ten years
1969 - by Alexandre Lamfalussy

So you can taste the mood about the monetary affairs at that time.

b) Here lets move forward to 2000 when the understanding went higher from A.Fazio:

http://anotherfreegoldblog.blogspot.com/2012/01/bis-af-relationships-between-currencies.html

c) This syncs with the top visited article on my tiny blog from the same year:

http://anotherfreegoldblog.blogspot.com/2011/11/bis-he-banque-de-frances-view-on-gold.html

2/ About the latest findings from the US gov docs: This source contains HUGE amount of the relevant information and posting just fragments breaks the story. Those latest full gov article teasers are for all, I am collecting them into a tiny timeline so we see the development of the policies, negotiations and speeches. I am not in a position I could spend more time on commenting my findings, my job accommodates searching but not creating sentences that is a fact you have to live with, sorry.

I think we should be careful to prematurely comment on them as they should be read in full. I myself have not had the time to re-read those 20+ docs in peace carefully how they were written. But first first... they need to be collected and sorted.

http://anotherfreegoldblog.blogspot.com/2012/01/us-gov-documents-and-meetings.html

3/ About my style... I feel your pain, your point is valid but lets try to see more... I usually pick a teaser relevant to the freegold topic based on my in-field digging. Copy-paste. And I tell you, the prospecting on open in the wilderness of the archives is a tough job and you never know what content you find so sorry if my findings are not to the topic 100% and it seems I jump. The shovel turns many times blank before some nugget surfaces.
My present assignments are just perfect for that style while there is not much time for description. I post on my blog so I can access it later myself - strange isnt it? That I read my blog, smile. Its due to different systems I use. As I said, my style, most are not published, some valuable are.
If it is a good find I post it here, if it is something to return to later, then here and at my blog. Most of the times people are not commenting due to time constrains but we return to those findings sooner or later as our understanding grows.

sean said...

JR you do have a point that it is difficult to know exactly what to make of the "raw data" as it were, but on the other hand I find it quite interesting to get an occasional glimpse behind the curtain at the actual men pulling the levers. I concur with Aaron - it's pretty much what we've learned from FO/A but it makes it seem even more real! There are some interesting throw-away lines as well. One I forgot to highlight from the paper I quoted from Mortymer's link, was "In our view a system which included gold as a major reserve asset alongside SDRs would be inherently unstable, just as bimetallism was in the U.S." Which leaves their position on silver quite evident!

Currency wars really heating up, with EU sanctions of oil and gold trade with Iran, and now that Debka report.

Looking forward to your guest post OBA.

mortymer said...

sean, maybe you will be happy to hear that there is a new view at the bi-metalism:

http://anotherfreegoldblog.blogspot.com/2012/01/ehes-was-emergence-of-international.html

Conclusions
The emergence of the gold standard has long been viewed as inevitable. Fluctuations of the gold silver exchange rate in world markets were accused to lead to brutal and unsustainable switches of bimetallic countries’ money supplies. However, more recent work has shown that the option character of bimetallism provided a stabilizing feedback loop. As a result, as long as France did enforce the bimetallic option, the gold-silver exchange rate remained remarkably stable. It has been found that France had the resources and institutional capacity to buffer bullion supply shocks. It had successfully weathered the California Gold Rush and after 1865, it could withstand rising silver production from Nevada and even Germany’s decision to adopt the gold standard. It was only when France forfeited the bimetallic option, in late 1873, and for political reasons, that bimetallism came under stress. The emergence of the Gold Standard, as Flandreau (2004, p. 212) has argued, was an accident of history...."

Motley Fool said...

mortymer

Proffesor Fekete makes some strong ( and valid imo) arguments against bi-metalism. Btw that term reflects a fixed ratio between the two metals as decreed by government.

TF

JR said...

Hi sean,

I agree! No one is suggesting it is not valuable and should not be posted. I am all for the "occasional glimpse behind the curtain at the actual men pulling the levers," even more when its less than occasional! But at the same time, we want it to be productive.

Its easy to be led astray with all the misinformation that abounds, especially regarding gold. For example, my point here was to make clear that despite the appearance that the US was fighting gold as an alternative reserve, this is not the ZH/Gataesqu traditional story that the US went off gold because they were squeezed and had no choice. Instead, the US went of gold becuase they chose to, for an important economic reason- the price of oil. This is a very important but also very subtle and nuanced point, and it IMO serves as an example of how difficult it can be to interpret original source documents.

This is but one simple example of how, despite their obvious worth and merit, unaccompanied original source information can be slightly misleading if you don't have the complete picture to interpret it. And that that error can compound on itself if not corrected.

But I'm just expressing my opinion. People can and will do whatever they want.

JR said...

Hi mrt,

I think your blogs and the manner in which you present information in each of them is excellent. My point is more that this blog has a different audience and different purpose than your blogs, so what is best for one may not be best for another.

But the issue is not whether you should share - that is an emphatic yes. The issue is only the most effective way to do so. But either way, thankfully, we are all not the same and each have different perspectives, experiences and insights, so what works for one may not always work for another. Go go free markets and decentralized intelligence.

JR said...

Think of my post as not a criticism, but as motivated by this ultimate goal - "how can we get more people to realize how awesome mortymer is!?!"

mortymer said...

JR, great we agree: It is the best joy to watch child to make his/hers discoveries - Go out and learn I tell them, make your mistakes when time...
“Good Judgment Comes from Experience, but Experience Comes from Bad Judgment.” ~Jim Horning

MF: the file contains quite interesting stuff See bellow:

mortymer said...

I think the best take from the document is that it shows you how monetary systems are changed, how politics and market effect each other but also how our understanding of the past changes. The Case of Ottomar Haupt is very educatinal as there are similarities to present.

snip:
"One policy option– that would eventually be chosen was to keep silver in circulation while implementing a scheme to peg the value of Indian silver in a gold exchange standard fashion. But this would require large reserves and the British Parliament was always reluctant to provide resources for the Empire. The chosen policy was to fund colonies with their own resources. In the end, bankers could help manage the floating silver exchange rate by selling foreign exchange insurance to merchants. India thus remained on silver. As has been noted by many previous authors (Soetbeer 1889, Fisher 1907, Keynes 1913), with silver coinage remaining free in India, the rupee depreciated alongside with silver.11 The persistent, “melodramatic” as Oscar Wilde had it, depreciation of the rupee was observed but not addressed for an extensive period of time, and authorities seemed perfectly happy with the situation. It was not until 1893, when a commission started pushing the matter towards a resolution that serious considerations were given to the change of standard in India."

But also the part about Irving Fisher’s Discovery of the Uncovered Interest Parity...

snip
"One thing Fisher did not do with his annual series database was providing a careful discussion of the credibility of bimetallism around the fall.35 This is natural because he was interested in the impact of floating exchange rates on interest spreads when the gold-silver exchange rate was essentially a pegged price until France forfeited the bimetallic option. In what follows we work out a detailed database and take a careful look at the timing of possible silver confidence crisis. A key issue is whether this confidence crisis occurred before or after France forfeited the bimetallic option. Crucial too is the question of bimetallism’s collapse. Was it a violent scramble for gold
with agents brutally factoring once and for all that bimetallism was passé, or a more gradual
process? Was the collapse of international monetary cooperation, that would characterize the
repeated international conferences on bimetallism (in 1874, 1875, 1876, 1878, 1881, 1892: see
Russell 1898, Einaudi 2001), priced immediately or did markets only gradually realize that the
political support for bimetallism was crumbling? We’ll bring answers..."

Snmip fro conclusions...
"Using original data, this paper provides a new perspective on this new view. We focus on an heretofore neglected aspect of the process. Namely we seek to infer markets’ expectations from financial series. Using market prices for Indian Government bonds, we analyze agents’ expectations between 1860 and 1890. The intuition is that the spread between gold and silver bonds issued by the same entity (India) and backed by a credible agent (Britain) is a “pure” measure of the silver risk. Therefore, India holds the key to an important issue in monetary history. The analysis shows that up until the end of 1874, markets expected bimetallism to last. It is only after this date that they started requiring a premium to hold silver bonds indicating their belief that gold would eventually become the only metallic standard..."

mortymer said...

& for those who patiently wait for the new post about China:

http://anotherfreegoldblog.blogspot.com/2012/01/china-reluctant-monetary-power.html

Original:
http://www.uclouvain.be/cps/ucl/doc/triffin/documents/Pierre_Defraigne.pdf

Note: it is from Louvain - a place a lot of those "thinkers" came, a major intelectual nod if you want, it has also a connection to Yale :o) where are tracks of Schioppa and Lamfalusy. :o)

Lomcvok said...

Interesting article...sorry if it was posted already...

India to pay gold instead of dollars for Iranian oil. Oil and gold markets stunned

mortymer said...

OK, JR: Here is a snip if you wish :o):

"The decisive contribution1 prepared for the Cannes G20 Summit by the prominent “Palais Royal” Group led by Michel Camdessus, Alexandre Lamfalussy and the sorely missed Tommaso Padoa-Schioppa, will provide world leaders with a robust and clear framework for guiding International Monetary System (IMS) reform when the time is ripe..."

JR said...

Iran's currency is collapsing:

From Jan 18

Iran currency hits new low in blackmarket trading

By Mohammad Davari (AFP) – 5 days ago

TEHRAN — Iran's currency, the rial, hit a record low against the dollar on Wednesday, the ISNA news agency reported, based on rates in blackmarket trading that the government has tried to ban.

The rial's plunge, to 18,000 to the dollar, comes ahead of an EU foreign ministers' meeting next Monday that is expected to add further sanctions against Iran's economy.

The Tehran government has tried to shore up the value of the rial in recent weeks by imposing a lower rate in banks and currency exchange bureaux, and banning transactions outside of those outlets.

But many exchange bureaux have refused to buy or sell dollars at the imposed rate, and blackmarket dealers have managed to continue to do business despite the presence of police deployed to enforce the ban, according to witnesses in the centre of Tehran.

[...]

A rush to gold and other non-currency assets has been seen. The price of gold coins in Iran has risen 16 percent in the past week, according to ISNA.


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

From Jan 23

Iran currency tumbles to new record low

By Mohammad Davari (AFP) – 11 hours ago

TEHRAN — The Iranian currency, the rial, tumbled Monday in blackmarket trading to a new record low against the dollar, news agencies said, as the EU moved to impose an oil embargo and fresh sanctions on Tehran.

The unofficial rate in central Tehran was around 20,500 rials for the greenback, the official IRNA news agency reported.

The rate showed a 12-percent rise for the US currency since last Wednesday when it was changing hands at 18,000 rials on the blackmarket.

The Tehran government has tried to shore up the rial by imposing a lower rate in banks and currency exchange bureaux, while also banning transactions outside of such outlets, leading to the blackmarket operations.

Last week, Iran's central bank banned the possession of and transactions in foreign currencies, including the dollar, without an official invoice, warning that offenders would be prosecuted.

The bank has introduced a dual rate of 11,300 rials for state business and imports, and 14,000 for Iranian travellers.

But many exchange bureaux have refused to buy or sell dollars at the imposed rates, prompting the operation of a blackmarket despite police efforts to enforce the ban.

In late October, it cost about 12,500 rials to buy a dollar in Tehran.

A rush for gold and other non-currency assets has since taken hold, with the price of gold coins in Iran rising by 25 percent since January 18.

JR said...

Iran Said to Seek Yen Oil Payment From India Amid Tighter Global Sanctions

Iran has asked India to pay for oil partly in yen as the two nations seek an agreement on how to maintain trade amid tightening global sanctions, according to three people with knowledge of the matter.

At talks in Tehran last week, India proposed to pay its second-biggest oil supplier in rupees through a bank account in the South Asian nation, said the people, declining to be identified because the information is confidential. Iranian officials sought partial payment in yen because they’re concerned that they may not get sufficient value from the rupee, which isn’t fully convertible, according to the people.

The nations have struggled to preserve $9.5 billion in annual crude trade after the Reserve Bank of India dismantled a mechanism used to settle payments in euros and dollars in December 2010. Transactions are currently routed through Turkiye Halk Bankasi AS (HALKB), based in Ankara, which has told Indian refiners it may no longer be able to act as an intermediary, four people with knowledge of the matter said Jan. 10.

[...]

The Indian rupee has fallen 8.9 percent in the past 12 months, the most among major Asian currencies, while Japan’s yen has strengthened 7.4 percent in the period, making it the best- performing currency in the region, according to data compiled by Bloomberg

[...]

The Persian Gulf nation is studying the option of opening an account in an Indian bank, which can be used by refiners to deposit payments in rupees and fund its own imports from the South Asian country, they said.

India’s central bank needs to give its approval for Iran to open a local account, the people said. The Reserve Bank of India is considering options to solve the payments issue over Iranian oil, Deputy Governor K.C. Chakrabarty said on Jan. 20.

The Gulf nation is concerned that India’s entire crude oil bill can’t be paid through exports to Iran, the people said. Iran’s imports from India are worth about $2.5 billion a year, while its annual oil sales to the South Asian nation are valued at about $9.5 billion, the people said.

[...]

India, which got 11 percent of its crude imports from Iran last year, is exploring the option of making payments for Iranian crude through Russia’s Gazprombank OJSC (GZPR), though no deal has been reached, three people with knowledge of the talks said Jan. 9.

JR said...

India drawn to Iran's favourable oil terms: Reddy

New Delhi: India wants to take as much Iranian oil as it can because terms are "favourable", Oil Minister S Jaipal Reddy said on Monday, after talks between the two sides last week on payment options for $12 billion of crude a year following fresh US sanctions.

[...]

India, the world's fourth-largest oil consumer, buys around 12 percent of its oil from the Islamic Republic. It pays through a Turkish bank after a previous clearing mechanism was shut down in December 2010.

But tougher U.S. sanctions signed into law on December 31 in a further bid to pressure Iran to rein in its nuclear ambitions make the route through Halkbank vulnerable.

An Indian delegation went to Tehran last week to discuss options and the two sides have agreed India could use its restricted rupee currency for some of the payments, a government source said on Friday.

An industry source confirmed on Monday that India was considering rupee payments while ruling out the possibility of paying in yen.

A rupee account for Iran could be used to settle Tehran's imports from third countries, the industry source said. "It will be an extension of the rupee arrangement wherever possible," the source said on condition of anonymity.

"Iran was very accommodative," Reddy said, adding that India respected United Nations sanctions but "we don't go by sanctions imposed by regional blocks, by certain nations."

One Bad Adder said...

Can I just say, the stuff I bring to the Table is meant as Food-for-Thought and applicable to a future when the current economic arrangement arrives at the point of economic "future" evaporation.
Unfortunately, I'm a dreadful Multi-tasker and my time here in cyberville detracts from my real-world activities - which I take very seriously. As such please respect that I'm not able to go into detail beyond an occasional comment / reply.
So...without further ado: -

Yonder ...thur be DRAGONS!!

JR said...

Iran can't get dollars, and the rupee is not well used internationally (not fully convertible) so settlement in that currency is not ideal because Iran sells a lot more oil to India than it imports from India. Hence the yen chatter. But lotsa issues with US sanctions and the fact the rupee is not convertible and it would need to be more liquid in yen for this to work.

But if the rupee can be used in third party settlement with other nations who export to Iran, than its more attractive to Iran. Lotsa speculation a deal around the rupee has been reached, although the real deal is Iran faces heavy duty sanctions so India has a huge export market in dire needs of goods if it is willing to ramp up trade with Iran and risk US and others' ire.

One Bad Adder said...

The Shanghai Transportation System – an analogy.

In China there generally exists a feeling of the presence of “authority”. In almost all cases this is reassuring for the visitor …not so however on the streets of the cities.
There, chaos seems to rule …and it would be a brave, nay foolish “westerner” who would even contemplate getting behind the wheel without spending a lot of time to first study and absorb the “local” way.

After the initial shock, the traffic chaos begins to take on a semblance of order as one realises there are very few accidents evident and largely the only obstruction to the (albeit slow) traffic flow, is the occasional breakdown.

Seemingly, the “secret” to navigating your way in Shanghai traffic is to quickly develop an understanding of (a) the user, (b) the signalling …and lastly (c) the law.

The Chinese motorist, bike-rider and pedestrian all appear to have what I regard as a highly developed “respect” for one-another. This, above all else is the key to maintaining a smooth flow of traffic and getting to where you need to be.

Wherever they’re installed, the ubiquitous Traffic Lights are essentially used to complement this level of individual respect where: - GREEN means GO (cautiously) …and RED means STOP …and GO (slightly more cautiously)
There are few (if ANY) Walk – Don’t Walks …and I’m yet to figure out what AMBER means ;-)

The ever-present “authority”, when applied to traffic management, appears to be treated with a certain level of disrespect …not necessarily contempt, apparently something more akin to “I’m alright Jack! – we’ll manage it amongst ourselves”.

“Management” approach to the Shanghai Traffic System du-jour and I might add to life in general in China …to all intents, appears to be a case of “let-it-be”.

My apprehension in Chinese traffic is also compounded by the fact that I’m used driving on the Right-(correct ;-) hand side of a vehicle!

It is worth also mentioning here that trying to grasp the exponential increase of motor vehicle uptake in Shanghai …and China in general, now and into the future, completely boggles this layman’s mind.


So …on arrival at Shanghai airport you get a Cab and experience all this with trepidation from the passenger seat as you meander into town 1 or 2 hours away (on a good day)

One Bad Adder said...

-cont-
At the other end of the Shanghai Transportation spectrum …albeit separate to it, is the Mag-Lev Train.

Going from the outskirts of the City to the Airport, this state-of-the-art service delivers you in comfort and on-time at speeds never before attained for mass-transit travel “on” Earth.

A truly unique experience - as you hurtle at 431kph to or from the Airport. The thing actually backs off to 380k’s to pass the one coming the other way …wwwoosh …they pass each other in 0.7secs …exhilarating stuff!

It was so enthralling at the time we experienced it, we ended up having several “goes”.

What a contrast …City – Airport …2 odd hours in traffic …or several minutes via Mag-Lev.
They built it …and the people came – well not quite in numbers to guarantee the sustainability of the thing economically, but come they did.
It goes nowhere, it’s too costly to build, tickets are too expensive, were common complaints but, believe you me, it serves it’s purpose admirably. Accordingly, they plan to extend this service to the city-centre …and I understand they’re installing a similar longer one from Shanghai to a neighbouring City as I type. (Probably be finished and have it operational by the time I get this posted ;-)


We can look at the STS as described above as an analogy for what might end up developing as a Global Financial System courtesy of our Oriental cousins-in-trade.

In Shanghai / China, if they were to adopt and enforce similar draconian rules and regulations that govern western traffic flow, the System would grind to a halt in a heartbeat, so to maintain the integrity of our analogy, we can assume China en-masse follows “let-it-be” principles in all facets of their activities …and essentially I believe they DO.

In this Laissez-faire Society / System, “respect” both for the individual …and transactions between parties, is sacrosanct.

Management essentially is kept to a minimum …a-la the STS.

We can also consider the Mag-Lev as representative of a functioning Free-gold option - included in the System but not necessarily part of it - where participants can opt out of the System if they so desire …be none the worst for it …and in fact gain by the experience.

Free-Gold then acts as an arbiter of the System whereby IF participants begin to stray too far from courteous interaction and behaviour, those potentially disenfranchised simply move to Gold.

Of course the Cab drivers are represented in this analogy by the various Financial Advisers, Accountants etc. who would not necessarily benefit financially by pointing you to the Mag-Lev …and ultimately perhaps would do so quite reluctantly.

Opting out (of the traffic) and onto the Mag-Lev does also have its limitations and suitable only for the few – as per Free-Gold ….but there is (and will be) absolutely NO RISK in doing so as the Human condition ultimately guarantees an upward new-currency evaluation of REAL Gold.


Can a similar “Laissez-faire” Financial System exist WITHOUT an escape option a-la Free-Gold? I really don’t think so.

High 5 said...

OBA

"In this Laissez-faire Society / System, “respect” both for the individual …and transactions between parties, is sacrosanct."

You don't really believe that China is a Laissez-Faire System do you?

JR said...

Hi High 5,

I think he believes that despite the fact its an "authoritarian state," like most everywhere else it "run" by the interactions of billions of people that this "authoritarian state" isn't directly involved in. Yes, the authority extends into all walks of life, but they can't possibly control all those people. See traffic - sure they have traffic lights and traffic rules, but like most other things we oft wanna attribute to the government, its really just result of private interactions leading to social norms, the "invisible hand" that makes society go:

In China there generally exists a feeling of the presence of “authority”. In almost all cases this is reassuring for the visitor …not so however on the streets of the cities.
There, chaos seems to rule …and it would be a brave, nay foolish “westerner” who would even contemplate getting behind the wheel without spending a lot of time to first study and absorb the “local” way.


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

OT food for thought:

"Order is one of the cues whereby we recognise the presence of intention, and so we are easily led to the assumption that conscious purpose is required wherever we find order. (This is the same dynamic that drives creationism.) The problem with invisible hands is that they are, well, invisible."

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