Saturday, January 28, 2012

Open Forum


A few people have reported problems accessing the second page of comments, so here's a new thread for new comments. This link should get you to the 2nd page of the last thread:

fofoa.blogspot.com/2012/01/yonder-thur-be-dragons.html?commentPage=2

Some of you only read comments in the popup window, but you can also read them right under the post. If you click on the name of the post at the top, here's where that page 2 link appears at the bottom once the number of comments reaches 201:


Sincerely,
FOFOA

PS. Here is the link to the second page of comments on this thread:
http://fofoa.blogspot.com/2012/01/open-forum.html?commentPage=2

I see we're on page 3 now. To get there, just change the two to a three in your browser bar if you still can't see the links at the bottom. Or try a different browser.

http://fofoa.blogspot.com/2012/01/open-forum.html?commentPage=3


457 comments:

1 – 200 of 457   Newer›   Newest»
Nickelsaver said...

Hey, looks like that guy went in after the boating accident :-)

jeb said...

Hello, intellectual retard here ;) . In the new system, does gold flow to pay off government debts and will the gold flow into china and allow them to become consumers. My country relies on china consuming our fresh food and milk, so just trying to think ahead. Cheers.

Wendy said...

JR,

I apologize for typing fuck off to you last night. I would never speak it to you, and I shouldn't have typed it.

I appreciate your remarks in defense of FOFOA, however it's my opinion that FOFOA is a big boy and if he doesn't like what's happening in his blog, he has the power to change it. I would completely understand if you were speaking in defence of our little itty bitty crack buddy, he needs all the help he can muster.

I am genuinely sorry for my bad behaviour, and I apoligize to all that I subjected this to.

Motley Fool said...

(subscribing to) comments...

Aaron said...

@Wendy-

;-)

I'm right there with you girl! Sometimes life presents us with a whirlwind of circumstances. Thank goodness we have FOFOA to pull us out of the tornado! Thank you JR.

Yes Jeb. In the new system gold will most definitely flow into China -- and then again back out of China -- and then again back into China.

My guess is folks will continue to purchase your fresh food and milk. After all people gotta eat -- foreign trade policies aside.

--Aaron

victorthecleaner said...

Here is a fun document on the question of why did the gold for oil deals and who had no clue:

http://www.gata.org/files/FedMemoG-10Gold&FXCommittee-4-29-1997.pdf

This is the US's copy of the minutes of a G-10 meeting at the BIS, April 7, 1997, at which the Central Bankers discuss the private gold market, leasing, and sales.

For the context: In January 1997, the BoE for the first time published the LBMA clearing statistics. According to the early postings of Another, Big Trader had already been buying for a while and the LBMA was under so much pressure that some CBs had started to sell.

Now read the minutes:
* Smeeton (BoE) says the ongoing CB sales were suppressing the price (page 2 of the PDF)
* He says the CBs leased gold in order to earn an income (page 2)
* Gehrig (SNB) says he does not know the private gold market because the SNB has not sold anything for a long time
* Gill (BIS) says the gold price is so low because the CBs keep selling (p. 3)
* Stephenson (Canada) asks who are the buyers when the CBs sell (p. 4)
* Smeeton tells him to look at the next GFMS study to find out who the buyers are
* The Belgian and the Dutch one say that they have sold their gold through an intermetiary (BB) and they spread out the sale over several months

See what is going on? The Canadian guy asks the only relevant question, but what the others give him is 100% bullshit.

Interpretation:

1) GATA obtained this document through a Freedom of Information Act request but only after a law suit

http://www.gata.org/node/9624/

Perhaps they did not show GATA the actual meetings (in which they discussed how to fix the LBMA), but rather made up an entire set of minutes just for GATA to publish.

I don't give this option 100% credibility because the Q&A reflect the actual positions: The Canadian guy is curious and asks the right question, but the Europeans all tell him lies with a straight face and feed him bullshit.

2) Unless (1) is true, this suggests that the Europeans (including the Brit!) are all in on the LBMA paper gold scheme, but even the BIS G-10 which contain the US, Canada, Sweden, are not trusted (or deliberately misled).

Victor

victorthecleaner said...

OBA,

on the sub-zero interest rates, yes, thanks, that's what I thought.

Victor

Nickelsaver said...

comments

costata said...

A snippet from Doug Noland's latest post:

January 25 – Bloomberg (Cheng Herng Shinn): “An exodus of manufacturing jobs from Japan may prolong trade-balance concerns after the nation reported its first annual trade deficit in 31 years.

Panasonic… is moving the headquarters of its $57 billion procurement operation to Singapore… Honda… said this month it will build its new NSX ‘supercar’ in Ohio as the company shifts more output to North America.”


This (emerging trend?) should be watched by those interested in Japan IMO.

Link info:
http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10625

Tekin said...

"A few people have reported problems accessing the second page of comments.."

Well I had the same problem but found out that:

Appending

&page=2

to the link magically brings back the page controls.

For example, at the previous post, my browser reported the following link and displayed no page controls:

www.blogger.com/comment.g?blogID=4490468598422095060&postID=1333559993858084821&isPopup=true

After Appending &page=2

http://www.blogger.com/comment.g?postID=1333559993858084821&blogID=4490468598422095060&isPopup=true&page=2

everything seems to be working.

-----------

The warning sign that a new page have been added is the

200 Comments

info displayed at the top left section of the page.

DP said...

.

costata said...

Hi FOFOA,

Contributors

Aristotle
FOFOA

Bye.

Ryan said...

Just subscribing to the comments.

Gary said...

Responding to AD's quote/question:

'Hell, I am CEO of my own company (100% owned, debt free) and see the sheeple coming to work every day not noticing anything. Am I stupid, paranoid whatsever... or is it the other onces being right?
Sounds funny, still this question is remaining. Comments? How do you feel? Or should I better watch a psychiatrist and sell all PM?
Greets, AD'

Firstly, I think most on this blog would advise holding on to your gold (but you knew that).

Secondly, and more seriously, now that you are in a secure position whatever may happen, and as you watch your employees coming to work every day unaware of events to come, do you not consider the tremendous good you could do by attempting to educate these people? In effect, help them to understand so that they too can take whatever action they can within their means to prepare.

I think they would be forever grateful, and so what if maybe a few of them can give up work and live off their gold holdings.

You will know best how to educate them, but that is the extension of Another/FoA, FoFoA that we should all consider bringing into our lives: spreading the word with some urgency.

Indenture said...

Wendy: Your words today are truly classy.
Manners Police going back to sleep.

AdvocatusDiaboli said...

Gary,
a little bit off topic, but shows the overall situation:
About a year ago, some employee came up to me, telling me that one of his saving accounts is expired and what he should do with the money. I took one hour of my precious time, explaining the concept of value versus the concept of "moneyness". I explained him the secret of a wealth reserve asset (aka Gold), as well as the concepts of commodities (aka Silver, Platinum, Paladium), but also the concept of shares. ONE HOUR, 100% NEUTRAL TO ANY ASSET. REALLY CALM, WITHOUT ANY GOLDBUG BIAS!!!!
Okay time passed by, half a year later I ask him, to what conclusions he came up: He saved the money in a cash account. Why? Because the bank handed out nice gifts.
Sorry to say that: Now I finally gave up. And actually I think gold is too precious to be in the hands of idiots.

JR said...

Some thoughts to keep in mind:

Date: Mon Feb 16 1998 14:40
ANOTHER (THOUGHTS!) ID#60253:

The BIS and other various governments that developed this trade (notice I didn't use conspiracy as it was good business, as the world gained a lot), thought that the paper gold forward market would have allowed the gold industry to expand production some five times over! Don't ask where they got this, as they are the same people that bring us government finance and such.



Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:

Westerners should not be too upset with the CBs actions, they are buying you time!

Damon said...

Gary,
I've tried and they can not comprehend the situation before them. Smart people all, but this is a complicated topic, and requires some study to fully grasp. Just discussion of the dollar not being worth what it is today gets them all glassy- eyed. I too have quit trying to convert people that don't get it.

miked said...

Hi guys. Haven't been at fofoa for almost a year. I see the conversation is still the same :)

Theory is fascinating and great fun, but I've been wondering lately how much I should have deployed in gold. If you are a true freegold believer I guess that you should be 90% deployed. Last year I was convinced freegold was not far off and I put about 60% of my liquid assets into bullion and the other 40% into commodity equities. My illiquid assets include the apartment where I live and my business.

Well, the end did not come and I my wealth has not been "freegolded" :)

This year I had decent earnings so I have more money to deploy. I've decided to buy a house and make a separate leveraged real estate investment with a developer friend of mine. I am not going to buy more gold or commodity equities because I see the game can play on longer than any of us imagine.

After all bullion is mainly insurance against the end of the world as we know it, and putting all your money into an insurance policy might make your rich, but you also might wait for ever for a pay day.

How are other readers deployed?

miked said...

>>>Secondly, and more seriously, now that you are in a secure position whatever may happen, and as you watch your employees coming to work every day unaware of events to come, do you not consider the tremendous good you could do by attempting to educate these people? In effect, help them to understand so that they too can take whatever action they can within their means to prepare.

Gary I have been rewarded for my attempts to educate people with a polite knowing nod and a sideways smile designating me as a kook :)

The trouble is that any fringe theory is considered just that. For example, what would you say if I told you I had just deliberately infected myself with hookworm because of groundbreaking research? I thought so :) In fact I have done just that, but even if I sat here for an hour explaining why I had done so you would still think I was a nut.

Gary said...

miked, I hope the hookworm cure your allergies. From what I have just read (in 10 minutes) about Jasper Lawrence's experiences, I think you will have a good outcome. I would try it myself if I was suffering.

All, is it really that hard to show folk a chart of gold, and a chart of the dollar, and just explain that you feel they should have some insurance in the form of gold (or to get rich)? I know many will think us weird, but as every day passes the light shining on this trail becomes brighter.

My latest line is to ask people to read me the line on any sterling note 'I promise to pay the bearer on demand the sum of twenty pounds'. Then I ask them what exactly twenty pounds is? When they can't answer I tell them it is literally NOTHING. The note is just a method of exchanging what they have earned for something else, it has zero value in its own right. Yet, stupidly people choose to save in this nothingness!! And to make it worse, the Bank of England is deliberately devaluing them constantly.

I sometimes make them see that it is not me, but them who are weird to hold their wealth in NOTHING.

I hope you all perservere anyway, especially with people that you care about, at least you can say eventually that you tried to warn them.

mr pinnion said...

JR.
"Westerners should not be too upset with the CBs actions, they are buying you time!"

That sentence may have been meaningfull in 199friggin7, but come on.It s 2012! More people who bought gold already, are probably dying than there are new people buying.

There will ALWAYS be loads of people who havent bought gold yet.Does this mean we should be happy if CBs delay freegold for ever?
Ooo, Mrs Miggins at number 42 hasnt bought gold yet.Thank god for the CBs.Meanwhile gold holders are loosing their jobs and having their houses repossesed by the dying corrupt fiat system.They will have to start selling their gold at suppressed prices just to survive.

No; that sentence is now a joke in 2012.
For anybody with the ability to think independently, the credit crunch should have woke them up.
Anyone who hasnt took notice by now and hasnt bought gold is a dufus IMHO.

Regards
Ozzy

miked said...

>>miked, I hope the hookworm cure your allergies. From what I have just read (in 10 minutes) about Jasper Lawrence's experiences, I think you will have a good outcome. I would try it myself if I was suffering.

Therein lies the problem Gary. People are not suffering. They are enjoying the rewards of their toil and have no idea their savings could be wiped out in a heartbeat. And who can blame them? Most of us were born after Breton Woods was abandoned and have no idea what it even was. We've grown up in Disney Land.

The wording on a 20 pound note looks as quaint as the historical figures gracing its rear. As far as most people are concerned these words are an anachronism. Most people see there is a crisis and have heard it's something to do with "debt" but they think it's a matter for politicians.

In a socialist world where we never have to do anything for ourselves and never had to is the indifference surprising? Just like I cannot train my dog for the wild in a domestic environment, we can't prepare the general public for a world of personal accountability.

Michael H said...

.

One Bad Adder said...

milked: -
Very astute observations Sire. Nanny-Staters-R-Us will be in for a hellova surprise as the Sands begin shifting beneath their feet.

Good solution Texan ;-)

Zenscreamer said...

@Victorthecleaner:


I'll be interested to hear what others say about the factions at the BIS. One of my true early "OMG!" moments was reading Blondie's post of a Harper's Bazaar profile of the BIS from 1983. Obviously publicly cleared information, and written in a breathless style ("a handful of powerful men", "hoard of gold") but the "OMG" for me was the concept of an inner club that gets things done, a revelation disclosed in a quotation from the then-BIS president Karl Otto Pohl himself (in the 20th paragraph of the document, deep in the weeds!).

The whole thing is worth reading, but the concluding paragraph is the where the money is, imho.

Zenscreamer said...

@Tekin, and other having difficulty seeing comments:

Blogger is a dynamic website with (presumably) a database back end. The server pretends that the pages are static HTML but they are not; I'm not sure of course, but I assume for a variety of reason it is PHP. In a dynamic server environment, changes in coding have immediate, universal effects.

The generated HTML is buggy, and frequently inconsistent; currently, the link for "Newer>" at the bottom of the comments list works, but the one at the top does not. One work-around that should work regardless is to:

1) Make sure you have a full URL chosen (including ".html" at the end -- this can be done by reloading the page content by clicking the link in the Blog Archive list.

2) Hand the dynamic server a request parameter by declaring such a list is expected (that's the "?")and specifying what you want (the "commentPage=2"). For posts with even more comments that parameter can be even higher numbers. Try doing it with this page, before it gets 200 comments -- you will see the blog post content, with 0 comments loaded.

You can, of course, try the same trick with the "comment.g?" server function (the "Post a Comment" popbox) if you prefer, and your browser allows you to change the URL of the popbox. I don't know why you'd want to, though, as that function is the buggiest of them all.

My IMF$0.02. :)

Texan said...

FOFOA, the "next" (where you drew the arrow) just wasn't popping up for me after 200 comments. So i missed all the action. :(

I think the last few comments from AD and miked and even mr. pinnion highlight the dilemma of buying gold. Gold isnt exactly insurance, over a long enough horizon it seems to me to be more like a reserve currency (aka dollar) put option with unlimited time value. The premium could be viewed as lost after-tax risk-free income. So right now it's a very very cheap option, to me.

But it could be an inter-generational wait for it to really pay. I have a book from my father called "The Death of the Dollar" that was written I think in the late 60s early 70s. This stuff isn't new.

And people are hurting badly for cash and worried about their jobs. Making a n argument for TEOTWAWKI, even if they agree, requires that they also agree it will happen SOON. Otherwise, well, they got bills to pay.

OBA, are you referring to me? I liked your post by the way.

Texan said...
This comment has been removed by the author.
Motley Fool said...

I think that perhaps some of you forgot that FOFOA has mentioned that he advocates for having savings in gold. Not spending money, not money you will need soon; savings.

Lucky for me I'm still young so I can wait a while.

That being said, I don't see how the dollar will survive this ongoing crisis. We have, for the first time in history, a multiple sovereign debt crisis.

In the past it was one country having a crisis, with the rest of the world economy strong, so it was easy enough to support that country.

Who will support, europe, the usa, japan, china, etc? Aliens? xD

TF

Gary said...

Texan,

What's the dilemma about buying gold? It is exactly insurance, as you seem to argue yourself.

Is anyone arguing this is going to be TEOTWAWKI? Not here, just the end of the dollar as a reserve currency.

I can't imagine how anyone can think the current system is going to last for 25 more years? But so what if it is does. Anyone who saves will be better saving in gold. Those you mention that have bills to pay, are they better holding their savings in T-bills or a bank account? I don't think so. If they have no savings it's a moot point.

And the figures and demographics determine that it will happen soon, in fact I would argue there have been plenty of posts and comments here and elsewhere that prove it is happening already.

Maybe you do not see it?

Gary said...

Miked, you wrote:

'Therein lies the problem Gary. People are not suffering. They are enjoying the rewards of their toil and have no idea their savings could be wiped out in a heartbeat.'

Well, that's a big generalisation, and I reckon it's factuall incorrect. Maybe a visit to Greece, or to Ireland would change your mind? Maybe talk to any of the millions of retired folk on fixed incomes, with losses on investment portfolios, and trying to cope with rapidly rising prices. Or anyone underwater on their housing equity?

I don't get your comment, people have woken up to the problem, that is why consumption is sliding the world over. People are worried. And people need solutions.

We can provide them with the best one, but I guess we need to believe it ourselves first. I do, I suspect you do not, as you are buying real estate (the prime beneficiary of the debt bubble) rather than gold. Good luck with that.

miked said...

Hi motley fool

I consider all my assets savings but as you can see above I have allocated some of them outside the gold universe for the reasons I gave.

Whilst gold has paid nice capital gains recently there is no guarantee it will continue to do so in the short term or even medium term. We could easily have a 2 or 3 year period during which gold declines, even if freegold is on the horizon.

As prudent investors we need to consider the possibility that freegold may be years off and even the chance it never happens at all. It is after all only a theory. Invest accordingly.

Motley Fool said...

miked

I would never presume to tell anyone what they should do with their money. I can only make my own choices and share my reasons for doing so.

Invest as you will. :)

TF

Texan said...
This comment has been removed by the author.
Zenscreamer said...

@Tekin, and others concerned about the invisible comment problem:

Blogger seems to have eaten my response (maybe it didn't like the things I had to say about bugs) but the upshot is this:


The "comment.g" function (Post a Comment box) will take either "commentPage" or "Page" as a parameter, and display the referenced comments if they exist. Because "comment.g" already requires parameters, all that's required is to add "&Page=" with the number wanted ("1" for 0-200, "2" for 201-400, etc.).

As an alternative (as FOFOA points out in this post), the blog posts themselves act in the same way: with a full URL (including the ".html"), one only needs to add a notification of parameters (the "?") and then "commentPage=" and the same number system as explained above. (The function used on the main page does not allow for the parameter "Page" as an equivalent.)

The links displayed on the user interface are supposed to automate this process, but they may or may not function. Currently the "Newer>" link at the top of the comments list in the main post page does not work, but the one at the bottom does. Go figure.

When in doubt, configure your own.

Motley Fool said...

Texan

What if I die today? :P

I am confident in my ability to hold my head above water whatever the future brings.

I do not share your negative bias? We could play the what if game all day.

I work on the assumption I will rise to meet the challenge, whatever it is.

I'm used to surviving on little. If I can work for food and shelter, that is enough for any medium term.

TF

mr pinnion said...

MF
"I think that perhaps some of you forgot that FOFOA has mentioned that he advocates for having savings in gold. Not spending money, not money you will need soon; savings."

I dont think anybody has forgot that.Not me anyway.
When a person who has saved in gold and maybe a healthy bit of cash looses his job,he will ,after a short number of months run out of cash reserves.He will then have to sell his gold, just like FOFOA has been close to doing if donations did nt come in fast enough.

I dont think gold will drop as low or for as long as Texan fears,but who knows.
Miked is a brave man buying real estate IMHO .But if he s already got stacks of gold that will make him rich after freegold then it makes a lot of sense.
I agree with Gary on the nobodys hurting comment.Lots are hurting and its snowballing every day.
If the system doesnt change soon, the banks/government will own everything, bought with free money.
Which brings me back to JR s comment about CBs buying us time.
The way i see it there buying the banks more time to buy up everything the shrimps like us own.

Regards
Ozzy

miked said...

Hi Gary

Funny you should say that. I live 150km from the Greek border so I am well aware of the situation. You would be amazed how blasé The Greeks are about it all. They stand at the demonstrations with their 3 euro Starbucks in hand.

And what are they demonstrating for? Why more benefits of course. I don't think reality has sunk in at all.

Robert LeRoy Parker said...

(1/2)

I am as guilty of straying off topic as anyone at Fofoa, and for that I apologize. Luckily, this open forum gives me a chance to share my recent thoughts, albeit they are simply rehashed understandings of those that have walked the trail longer than I.

Aristotle coming home to roost is an incredibly welcome sight. I have often wondered if Fofoa will simply run out of topics to write about, and if the discussion of RPG will once again fade, leaving physical gold advocates silent and patient behind the Chinese wall of noise that is the IMFS. But seeing as Aristotle is perhaps an equivalent mind to Fofoa, I’ll wager the best of fofoa.blogspot is yet to come.

I was perusing the archives from 1/31/05 and found Aristotle’s reference to Machiavelli reminding me “we are the flies in a bullion bank web.”

Aristotle: “If you've been capable enough to have established an empire, such as the bullion banks have, if you're truly worth your salt you will also see to it that your principal adversary/group in the public eye is really in your own pocket. You make sure they pursue meaningless things and generally looking radical or foolish compared to yourself so as to do no real harm to your empire, but also always to maintain them as just-credible-enough to keep them firmly established as the chief lightning rod for any agitations that might be directed against you.

Machiavelli would surely suggest the empire to create its own high-profile enemy so as to manage complete control of the public dialog.”


More specifically, it compelled me to think about how the King World News team is the Mesozoic horsefly trapped in that golden web. The Sun-tzu saying “keep your friends close and your enemies closer” simply doesn’t do the bullion banks justice in this situation. Gata and the News team may believe whole-heartedly that they are fighting the good fight, but in reality, they’re not the enemies of the bullion banks, they are in fact puppets on a string. They are “enablers” and paper pushers that keep the BBs on life support by distracting, deterring, and delaying the ultimate run on physical gold. PGA’s are the only true enemy of bullion banking, and they are not acknowledged, because the BBs have painted themselves into a corner with no hope of escape. BBs are simply fighting to live another day in a fractional reserve gold banking scheme that is doomed to fail…

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

(2/2)

Until today I’ve been slightly confused how the ‘managed’ increases in the POG have fit in with Another’s paradigm, but I found crystallization from the following simple analogy by Aristotle:

Aristotle: “The only way to play this game is to employ the martial arts principle of using your opponent's own movements and momentum against him.”

In other words, the only way the BBs survive is by keeping the paper away from the fire. And this only happens if the paper players stay in the game. If keeping them in necessitates a rising price of gold, then the price of gold will rise or goodnight moon, it’s over. If the increasing POG strategy experiences blowback in the form of physical gold allocation inside or outside the system, then the allocaters must stumble, trip over their own feet, skid until they stop, and eventually reverse their course of action. If accomplishing this feat means a rapid 20% takedown in the POG then that’s what will happen. Anything that can be done will be done in order to avoid allocation. So far that’s meant 10-20% yoy price increases, but it won’t go on forever. The failure of the IMFS is becoming more apparent to the layman with each passing day and time is running out. Even though so many here cannot get through to those around them with the message of freegold (myself included), the economy is at the forefront of people’s minds and polls reflect this. At the very least, people are aware that the IMFS is not working correctly, and that change is on the horizon.

I find it interesting that OBA’s participation increase is coinciding with Aristotle’s homecoming. Those that have walked the trail the longest have the most acute sense of health in the gold market. Maybe the fourth year of fofoa.blogspot will in fact see the end of the current paradigm and the beginning of the new one.

Texan said...
This comment has been removed by the author.
Motley Fool said...

Texan

Then perhaps I should have simply said, allocate to gold what savings you can afford to lose.

That is an approach I am currently using with some of my friends/peers. I am advocating they 'throw away' $1700, since it's not that much money in the bigger scheme of things (for them).

TF

Jaqship said...

Robert LeRoy Parker,
Where you write "the allocaters must stumble....", are you talking about BBs?
How would this stumble be aided by "a rapid 20% takedown in the POG"?

Are you driving at what mr pinnion fears, i.e. banks aiming to buy up everything the shrimps like us own?

miked said...

Yes I didn't understand the "allocation stumble" reference either.

Are you saying that the banks have cheated on their allocated gold (unlikely) or that they will be forced to allocate unallocated gold and would not be able to?

Zenscreamer said...

On the subject of asset allocation, clearly its a personal choice issue, and as each invests as his/her understanding grows.

I had not meant to post again on my own blog so quickly, but I wrote an essay on the risks of various assent classes a few weeks ago and I think the question is relevant to the discussion of asset diversification that is currently ongoing, so I decided to here for the purpose of discussion.

I take the position that any non-physical asset is "on the table" at the casino that is our current financial arena, and therefore must be considered as at risk of total loss in real terms. I am much less worried about the potential for "opportunity cost" and/or a paper loss in $USD terms should I be pressed to liquidate a physical asset holding at an inopportune time than I am about the potential for systemic contagion and counter-party failure.

To each their own.

mr pinnion said...

Dont want to sound like an echo but i stumbled on your "allocation stumble" as well .Was sort of with u till then.

Miked
Agree ,they are fighting for more benefits in greece but they re still hurting.
http://www.dailymail.co.uk/news/article-2085163/Children-dumped-streets-Greek-parents-afford-them.html

Regards
Ozzy

miked said...

Ok folks, since it has drawn some criticism, just to qualify my statements about people not suffering, let's just change it to "not suffering enough".

Most of the angry mob just want the government to fix the problem. They are still spellbound by the potent directors' fallacy. This can clearly be seen by the balances at Greek banks. Whilst they are falling, the are not doing so precipitously.

The paradox here is most people will only reach the point where they are ready to do something when it's already too late to act. This must be so by definition, as once the majority act it has to be too late.

Robert LeRoy Parker said...

By allocaters I meant the people who are moving from paper to physical, not the BBs. It makes sense to me that after twenty years of POG going nowhere, the people who play the leverage/unallocated game would begin to abandon ship unless some positive results were produced. Increasing the pog might keep them in the game. But if price increases too rapidly, the run on physical is induced from outside the BB system, so the price has to be 'managed' very carefully and steadily upward. The giants have to remain neutral at all costs.

Aristotle's remark made the consistent increases in the POG make sense to me, even though FOA made the paper moonshot sound like a fleeting event.

Robert LeRoy Parker said...

In fact the managed increase would draw more paper players into the game, and like any ponzi, an ever expanding base of new investment is necessary to keep the scheme going.

Aquilus said...

Since there's a question above about how to figure out "investment", here are my personal 2c:

I do not expect to need any part of the little I purchase(d) until 2022 (10yr) at the earliest, and 2027(15yr) on average.

If RPG/FG happens before, great; if not I hope to not ever need them for daily cash.

enough said...

A few good reasons to have ones savings in gold.......

1) IT IS ALWAYS LIQUID !!!

from my personal experiences....

1985- U.S. $ denominated euro perpetual floating rate note mkt. A simultaneous light bulb went off amongst market makers and investors alike. Without a secondary mkt , the securities have no maturity/principal redemption. Spreads became too tight to FRN's with final maturities....too tight. In a flash, there was no market. You could not sell, no bid, nada. A meeting of MM's was arranged and it took 6 months for even a crap bid to materialize. I mean this was a multi tens of billion $ mkt !!

2008- Auction rate Preferred mkt. Another Ponzi scheme where unless there was no new buyer for your short term investment at auction, you could not get out. First a few auctions failed then weeks later they all did. Clients had funds frozen for years in some cases !!! The Bankster "sponsors" of this product had no responsibility to provide liquidity (but they could have) and take this paper from investors. Incredibly, they stood aside and let a very profitable product implode. Ruining many valuable investor relationships to boot !!

I can go on and on .......

2008- Structured Product mkt. Brokers/ Banksters marketed/sold each others S.P.'s to clients but when counterparty risk fears arose they would not bid for these things because they underlying value was purely the credit of the issuing bank/broker. As your broker wanted no counter party risk of other banks/brokers they would not bid your paper. Once again client was frozen in the security. Not able to "raise this cash from savings".

Shrimps mostly have just one broker, maybe two. If that broker is told by mgmt not to pick up the phone, not to bid for bonds or other off exchange products, you are screwed.

Gold can always be relied upon to get you cash quickly unlike many paper investments. This seems to me to be a very good reason for holding savings in gold.

With counterparty fears rising again (understatement), the chances of paper markets becoming illiquid again is high. Will the banks take on big positions if there is mass institutional liquidations in the bond mkts(muni, govt,corp) ? Will shrimps even get a pickup on the other end of the phone?

For Texan.....all markets have the risk of losing value/falling prices. Gold's done really well for me. Even without Freegold. Everything looks good for Gold. Beautiful uptrending price.

But for me the key is the ultimate liquidity that physical gold provides. Such a wide array of market makers, in and outside the banking system.

Just a week ago, I needed a new SUV. I had a 2002 Jeep that died a slow painful death. I liquidated 20 oz. of gold buffalos at spot +40 to apmex and had the funds in a few days. BTW....Buffalos I bought at $1325.

After being stranded in the paper desert, I'll hang in the gold oasis for the forseeable future.

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

Mr. T.

I can only look at past history for guidence. In each example, an entire mkt froze, completely preventing securities holders from raising cash when one could still liquidate gold for cash. If one owned those other products they could not. In the ARPS fiasco, many large US corp.'s held them as "cash alternatives"...can you believe that :-)

I believe Ownens Corning took a huge hit from ARPS holdings and sold them at deep discount to par to get out. Many companies could not even make payroll.

The banks that marketed these as "cash alternatives" to customers were extremely gracious and gave effected institutions slightly below mkt rate loans to tide them over........

Texan said...
This comment has been removed by the author.
Edwardo said...

Texan wrote:

By that measure, I think gold is pretty liquid. But you still need a credit-worthy buyer, I.e. one who is already "liquid". A big sell- off in markets, bank holiday, whatever, I wouldn't want to be trying to exchange gold in that environment.

"Fiat money, in extremis, is accepted by nobody. Gold is always accepted."

Alan Greenspan

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

I certainly think a pawn shop would try it on and often do steal from the ignorant but say no thanks and begin to walk away and 98% of spot will be bid at worst

Texan said...
This comment has been removed by the author.
victorthecleaner said...

Why are so many here of the opinion that owning a high allocation of gold early on would be so risky?

Take a look at the chart since 2002. Draw a nice straight line though the logarithmic chart. A nominal gain of 19% every year (in US$).

Show me one hedge fund that did this after fees.

I'd even be inclined to guess that once that nice channel is seriously violated, it is game over.

Victor

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

VTC,

I assume you mean violated on the downside a la paper collapse/physical freebird? BTW, I've bought equal amts. of gold at $100 intervals beginning from just over $700 (seriously) and I feel no discomfort with even my last (highest) chunk at $1725. Not much has done better than gold and I see no reason for that to change.

Texan...have given it a whirl. I had some sealed 1980's Pandas 1/2 oz. but with lots of copper spots. I took them to a dodgy local place that looked like a steel cage with bullet proof glass surrounding it. They buzzed me in. There were some serious dregs selling stolen cutlery when I walked in. The guy that ran the joint bid 98% and I said no thanks, spot minimum. I started walking and this rather cute chick comes running from behind the desk and says she'll take em at spot. So my statement is based on experience. Full disclosure, I originally paid spot + $15 for the pandas.......

Texan said...
This comment has been removed by the author.
JR said...

Hi RLP,

Here are some ideas in follow up to your your through-provoking posts on " how the ‘managed’ increases in the POG have fit in with Another’s paradigm":

FOA

"The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure. A structure of American based "paper gold"."

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

Red Alert: Gold Backwardation!!!

"Now, if I am a liquidity creator for the dying $IMFS - a bullion bank - how do I create dollar liquidity? I take a piece of unencumbered physical gold (owned or borrowed) and I fractionalize it. I sell it off to the extent that the probability of a delivery demand is lower than my physical reserves. And in the process, I am creating DEMAND FOR DOLLARS because my "golden tickets" are bidding on dollars. Remember what ANOTHER said...

Date: Fri Jan 23 1998 19:01
ANOTHER (THOUGHTS!) ID#60253:

All modern digital currencies do not go into an investment, they move THRU it... There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".


This is the key to EVERYTHING!!! It is not "gold liquidity" that the bullion banks create... it is DOLLAR LIQUIDITY. Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world except gold.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero. This is backwardation!"

[...]


cont.

JR said...

cont.

The dollar NEEDS voluntary bids from private physical gold to survive. My guess is that pool of REAL bids of size is bone dry and cracking. And "dollar liquidity" is just a cheap façade at this point. This is why the dollar NEEDS a rising gold price. As the price (for selling, not borrowing gold) rises, weak little bits of gold here and there will bid for dollars.

Of course that won't be enough (dollar demand from gold) to float the dollar for long. Gold must EXPLODE to reach equilibrium. And the knock-on effects of that explosion will kill the ability to run perpetual deficits, which will kill the value of all outstanding dollar debt, and on and on and on. It's all connected.


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

FOFOA comment to Gold: The Ultimate Wealth Consolidator

"New liquidity can only be created through gold as long as real physical gold is willing to bid for dollars somewhere in the world. This is why the dollar must depreciate against gold, to coax fresh gold "stock" into bidding for dollars! (ANOTHER taught us that gold prices dollars, and then dollars price everything else.)

In the past, the CBs supported this process with guarantees of their own gold (to bid for dollars). But today they are less willing to do so. Only unencumbered physical gold can be fractionalized, and only as long as people are willing to buy golden tickets in lieu of the real thing.

If you lease me an ounce of physical gold, I can safely sell 10 golden tickets knowing that only 10% will come for delivery. And most of the time, I can get my hands on more ounces from the private sector so I never have to come ask you for that physical ounce. (You leased it to me, but you held it for safe keeping) At some point you will stop leasing to me, I won't be able to get more ounces from the private sector, and more than 10% of my golden tickets will demand delivery.

At that point I'll come back to you for the physical and you'll just print up some euros to pay off my golden tickets rather than giving out physical ounces. Why? Because golden tickets NEVER WERE worth real ounces. It was all just an illusion of liquidity. Real liquidity is and always has been "that which you cannot print", "that which is tradable outside your zone", "that which is hard, not easy, to get"."

Terry said...

I would suggest the following link,http://www.halexandria.org/dward185.htm
by Doctor Dan Sewell and get a better understanding of the owners and their interaction with humans. Gold may be the most sought after substance in the universe. Dr Sewell will introduce you to the Anunnaki, and the greatest alchemist of all time, David Hudson, who has spent the last 12 years in China, building them a plant to manufacture and sell White Powder Gold. If you spend the time to read Sitchin, Gardener, and several others, you will be rewarded with the true value of gold. The true purpose of central banks, to accumulate gold for nothing but worthless paper in return.

JR said...

A slightly different perspective on the same issue:

Jeff

"The 'manipulators' need to raise the price to stretch physical supply."

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

Uncle Costata

"Some of you may recall that wonderful analogy from Bron Suchecki where he described the BBs as being like spiders at the centre of webs of information which gave them a superior feel for the silver market. The same could be said for the gold market (both physical and paper). I would like to take a look at the current excitement in the paper gold market with the following assumptions in place:

1. The BBs (overall) are not at risk from higher gold prices. Overall they are, or will be in a timely manner, positioned correctly to profit from moves in both directions. And to any price level in the paper gold market.

2. The BBs have not lost control of the paper gold market and this market still dictates the price of physical gold (influencing, but not controlling, the physical supply and demand for that supply).

3. The flow of physical gold is now restricted to scrap and mine production which leaves the BBs with one method of controlling the “supply” of gold – price. (Their private “central bank” GLD helps but only at the margins.)

Starting with point 3 first, Kitco reported yesterday that the YOY increase in the price of gold was around 50 per cent. If you treat the currency demand for gold over this period as a fixed amount then this precisely equates to a 50 per cent increase in the supply of gold (stretching existing ounce-denominated supply by raising the price per ounce).

So if we look at gold not from a simple price perspective but from a supply (flow) perspective the increase from US$258 to $1,750 represents an increase in “supply” of around 700 per cent. I imagine the assistance from the surge in scrap gold supply would have been greatly appreciated by the BBs but they could have done the job on price alone.

[...]"


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

The Shoeshine Boy

"But there's another element in this dynamic situation that must be considered. And that is paper gold. As I said, price discovery occurs in paper only, and delivery comes after the fact. So paper supply creation can easily absorb the pressure of increasing demand while relieving price of its "taking up the slack" burden.

However, unless the ratio of physical stock "registered" to become flow rises along with the creation of new paper gold, well, "Houston, we've got a problem." And I'm talking about registered physical stock measured in weight, not value! Which is QUITE a problem!

[...]

So, to wrap this beleaguered post up, let's just say that we have the distinct makings of a parity break between paper and physical gold in the works. The supply of paper gold must rise while the supply of physical is withdrawing (deregistering). The flow must also rise, at least in nominal terms, so the price will skyrocket to take up the slack."

Michael said...

as for the liquidity of gold: a few months ago one of Porter Stansberry's guys did an analysis of the gold price curve. Since 2000 if you could wait 3 months you'd have the price of purchase exceeded. This did not include this last drop from 1900. He noted that for his observation to stay true gold would have to regain 1900 by February....so it looks as if that 3 month wait may need to be extended. Nevertheless if one saves in gold and does so only with money not needed for a few months it appears one is fairly safe in doing so. Considering the nice upward motion of the POG this makes gold saving look pretty smart.
As for the price you will receive, I know little about coin shops but I do watch what Tulving pays....it is not that bad, similar to the spot plus 40 that Apmex was paying. Tulving has minimums in and out but if you can deal in the 20 to 30 ounce range and hold for 3 month then saving in gold is not only doable it is intellegent.

Michael said...

If one is tired of waiting for Freegold (and it is tedious isn't it) one could play around with the hyperinflation scenario. Perhaps find some other asset like farmland and place an option on it. I'm thinking of looking at some alfalfa acreage in Utah and trying for a lease option to buy in say 18 months or 2 years (if I can find a seller who is not concerned about inflation.)
That way for the price of the lease plus a few thousand dollars up front I can play. It would be like a casino bet but I could play farmer while waiting. If the loan becomes trivial due to hyperinflation I win. If 2 years ends and nothing exciting happens I either exercise the option and buy the farm or just walk away. For the price of the option I've had some gambling fun...and horses love Utah hay I hear.

Bosco said...

Victor,

Fantastic comment and what a fresh perspective that you (and thanks mortymar) brought here, sparing us from the constant copy and paste shits dump by a certain superfan here.

You should really put all your thoughts together and put up in your blog.

What your "theory" appeals to me most is it at least (try to) offers an explanation for the seemingly "delay" of freegold. Fact is this is 2012, a whopping 15 years after Another first started posting.

I have some questions on your theory though:

1) Regarding your comments on Another being an traitor who gave away the plan. Is that purely just your own logical deduction based on your theory or you have more "evidences" to that?

2) "And sure, Another was upset that the Chinese were let in - which contributed to eventually blowing up the scheme. He knew only a part of it which was enough to make him worry" -- I don't quite understand on this. How did the Chinese involvement helped blow up the scheme?

3) "Sure, the US$ as a paper currency is going to drop down a cliff some day. But as long as the US control oil, how do you switch to international clearing in gold?" -- you also said you think if your conjecture that US wanted high oil price is right, then the next few months we will see war/conflict in the gulf. So when you are saying "control oil", are you actually saying US is creating instability in the gulf region such that people are forced to find the biggest military power on earth to make sure they can get oil flowing again and thus sticking to use US$ for oil settlement? I was thinking your suggestion that ECB and US got some kind of deal in 2001 which stalled the freegold thing. Would that not be a negotiated agreement but because of 911 (let's not go into whether that's planned or accident here)? That is when instability in the gulf happened, regardless it's planned or accident, the US control of oil would strengthen, that even euro is there, people will stick to $ for settlement? And ECB saw and acknowledged this, that they put the freegold thing onhold? (I am talking out loud now as your perspective is quite a new one to me that I have to let them sink in a bit).

4) What then to you would be the triggering point/event that might possibly get ECB to do the freegold then? Or it's in your opinion that the project is dead for good. Have the recent sov debt crisis in Europe changed ECB's hold on freegold button?

Bosco said...

Michael,

Maybe I am getting it wrong but I don't think that Porter analysis is right? Say you bought in the high points in Mar 2008, you won't see your price level again till Oct 2009, that's much more than 3 months. I am sure there are other instances of gold correction along the 11 year bull market that lasted more than 3 months...

One Bad Adder said...

Texan: -
OBA, I think you meant Tekin.
Yup ...sorry Tekin.
Anyway - Glad you got something from it (the post) Texan.
Dunno where my ASP went?? (it's a Death-Adder so be warned ;-) ...never a dull moment in BlogLand eh?

Aaron said...

Bosco-

I shall do my utmost in being respectful when I tell you to take a hike. The internet is a big place. Your rhetoric is not welcome here.

Bosco said...

Aaron,

I don't want to get into a flame war.

I am sure I am not the only one annoyed by JR's bullying towards mortymer and his attitude towards victor when all he did was presenting a new perspective.

And unless FOFOA said I am not welcome here (which is fine and I will still thank for all his wonderful posts that he shared with us free), you can either skip my posts (which I did with JR's copy & paste anyway which is way way worse than mortymer's "dumping of meaningless documents") or you can try writing to blogger.com to tell them to block me from posting.

I think this place is starting to get funny when a few superfans here try to dictate what can be said and not.

miked said...

>>>Why are so many here of the opinion that owning a high allocation of gold early on would be so risky?

>>>Take a look at the chart since 2002. Draw a nice straight line though the logarithmic chart. A nominal gain of 19% every year (in US$).

Hello Victor.

I am not sure if you were referring to me? In fact I don't see holding gold as high risk. I don't think there is much chance of losing everything by holding onto gold.

However there is the distinct likelihood of a pause in gold's meteoric ascent at some point. Given the understandable impatience with respect to freegold, this could shake out investors who are fully deployed (or more than fully deployed) in bullion. Knowing myself, I can testify that I am such a person. I get excited by big ideas but the enthusiasm rapidly dwindles if the theory is not quickly confirmed. I would not be able to sit with most of my speculative money in bullion and watch it grind lower for 2 or 3 years without having my resolve tested. I could well acquiesce, kick myself for staking my future on a goofy theory and sell out at the bottom.

For this reason I find it more comfortable to not put 100% faith in a freegold outcome. It's much easier to brave when you can afford to do so :)))

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

Hi Bosco

I have just arrived back at the board after a hiatus so I haven't seen Victor's theory.

Are you referring to the low priced oil for low priced gold deal which was spoiled by the Chinese?

Bosco said...

miked,

I was referring to this comment by Victor on page 2 of the last post (sorry, don't know how to link though):

http://fofoa.blogspot.com/2012/01/yonder-thur-be-dragons.html?showComment=1327640230488#c3934317528989599826

One Bad Adder said...

OK - (I think my Snake has been found ...so relax!!)

We are IMHO mere weeks away from a TOTAL SYSTEMIC MELTDOWN!
...OR (in a similar vein)
"Free Beer" ...Tomorrow!

It's definitely the "soft-option" to "take a stab" at when and what is looming on, or just over the Horizon ...and I do so envy those with the time and inclination to ferret through both the Distant and Recent Past for those little snippets of Truth to help qualify the case for FreeGold.
...and speaking of Snakes, the Hydra that is the $US looks a bit uppity this evening - it will take a Hurculean effort IMHO to ultimately shut this creepy-crawly down!

Michael said...

Bosco
I can't locate the exact letter, it went like this "Don't like the POG? Wait another 90 days."
I could be wrong about it being Porter's too. I subscribe to many....could be Casey's. Anyway the point is POG does not stay down for long....let that be my point....I'll try to find the article but that is the take away.

Bosco said...

Victor,

Further to the above, another question is on silver.

I understand silver doesn't appear in the whole story/documents and it's usually trashed here. But I also understand one of the reasons you believe ECB and Fed had a deal is the absurdly linear (in log sense) rise of gold price year after year (19%) after 2002 is a managed event. And if I stole this chart from screwtapes:
http://4.bp.blogspot.com/-tOGRZGJJrJE/TuzsiX84M2I/AAAAAAAAA1s/cRXTDxjfGBk/s1600/Screen%2Bshot%2B2011-12-17%2Bat%2B11.59.17%2BAM.png

From this chart, it would appear to me though more erratic, silver prices follow similar path as well. If it's an agreement on gold (only), then there's no point in doing this with silver as everyone is so confident that it plays no role in future international monetary system. It should go whenever it wants, say like copper.

Not only it's followed a similar path, if I again so shamelessly stole another graph from screwtapesfiles:
http://3.bp.blogspot.com/-epmLcqZ6J8g/TvekgbigwRI/AAAAAAAAA3Y/sHUmyC6lA8g/s1600/sc-2.png
That it seems to me gold-silver ratio is going in silver's direction ever since this uptrend started.

Jeff said...

On risky bets, vaporized wealth and counterparties:

Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.

As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, said a person close to the investigation.

http://online.wsj.com/article/SB10001424052970203920204577191014034430488.html?mod=rss_markets_main

J said...

Subscribing to comments so I'll add this

Hong Kong -(Dow Jones)- Hang Seng Bank Ltd. (0011.HK) plans to launch Hong Kong's first yuan-denominated gold exchange-traded fund in a few weeks, the bank said Monday.

This will be the first yuan-denominated ETF in Hong Kong, the lender said in a statement.

The ETF, which provides returns in yuan, will closely track the performance of the London Gold Fixing Price in U.S. dollars, said Hang Seng Bank, adding that the ETF will be listed on the Hong Kong Stock Exchange in February.

Boefke said...

Published a post whether the ECB is independent, and why.

http://endotworldasweknowit.blogspot.com/2012/01/ecb-independent.html

Michael H said...

costata,

Going back to your comment on the last thread,

"Oil remains the world’s leading fuel, at 33.6% of global energy consumption, but oil continued to lose market share for the 11th consecutive year."

http://fofoa.blogspot.com/2012/01/yonder-thur-be-dragons.html?showComment=1327645388498#c3129140395433792495

Let me try a different response:

What changed ca. 2000 is the introduction of the Euro. At that time, the oil-for-gold deal became un-necessary and was discontinued -- the WAG.

So oil hasn't been getting their cheam $-gold and so they haven't bothered to pump as much out of the ground as they could have.

Is this closer to the direction your thoughts lie?

Nickelsaver said...

OBA,

Do you think war with war with Iran will hasten or delay the collapse?

JR said...

Bosco,

Append the comment # (#c3934317528989599826) to the page #, which in this case is page 2 (http://fofoa.blogspot.com/2012/01/yonder-thur-be-dragons.html?commentPage=2)

so it looks like this

http://fofoa.blogspot.com/2012/01/yonder-thur-be-dragons.html?commentPage=2#c3934317528989599826

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

Excellent questions btw, I too eagerly look forward to further inquiry into your queries!

Victory said...

Hi FOFOA, Aristotle, VtC

Back in March 2011 VtC asked FOFOA:

"Now that I have bullion in my account and can sell at spot whenever I please, I am long gold, and so my bank would be short. If they really focus on banking, they must have hedged this exposure. How? Because of all the unallocated open-ended accounts (as opposed to term loans or swaps), the bullion banks ought to be net long in the market because they are short with respect to their customers. Is this what we observe?"

I searched the comments for a reply but I did not find one. VtC have you made any progress here? I was wondering the exact same thing and was going to post the question when I discovered it had already been asked.

-v

One Bad Adder said...

Hey Nickel: - (I'll get back to our little project sooner rather than later Sire ...;-)
Been kinda expecting some form of uber-distraction "any old day now"
...however,"This time it's different' is the oft heard expression ...and I'm ALSO thinking (on a TTID basis) ... and given the precarious nature of "things" market-wise, perhaps any extraneous "Systemic Shock" ...will crash the thing anyway.

We watch ...enthralled!

J said...

MF,
Hopefully JR doesn’t shit a brick but I’m going to desecrate FOFOA’s blog with a tidbit I found while digging through the site that Mortymer posted.

I agree with Victor that a rising price of oil helps the U.S and I disagree with your argument about extending it out. Everything in moderation. If the price of oil went to $1 million a barrel it would kill the $ because oil would not flow and the $ would no longer price oil. You're right about that.

The $ is used in the oil trade therefore it is(soon to be was)a requirement that it be held overseas and accumulated. The higher the price of oil(to a certain extent) means more $’s will be needed. If more $’s are needed the USG can AND MUST run a ever increasing deficit. See what I’m getting at?

Why is it that the gold-dollar system needs further modification?

There are two main reasons:

(1) First, it is doubtful that the world supply of reserves in the form of gold and dollars can match the world's need for reserves. To provide a desirable margin of safety in assessing probable reserve needs, we should anticipate that imbalances in international payments will grow at least as fast as the world economy and world trade. But the stock of gold and dollar reserves cannot in the long run be counted on to grow so fast. At the same time, year-to-year increases in the supply are likely to be erratic and unreliable, and may bear little relation to the needs of the world economy.

The long run growth in dollar reserves will cease altogether as soon as U.S. payments are, on the average over a period of years, in balance. It is indeed the reluctance of foreign countries to accept increases in reserves in this form which makes it necessary to end chronic U.S. deficits. Their reluctance stems in part from fears that the U.S. will not be able to maintain covertibility of dollars into gold. But it also stems in part from a feeling that no one country should have the privilege of “printing money” to run unlimited deficits—a privilege the U.S. would possess if its currency were automatically accepted by other governments without limit. In the financial field, as elsewhere, we are confronted by demands from our allies that international arrangement should be more symmetrical and multilateral than in the past.

http://history.state.gov/historicaldocuments/frus1964-68v08/d18

Well..the U.S wanted that privilege and found a way to obtain it via the petrodollar. Kill gold convertibility, price oil in $’s, and then fill the worlds reserves up because we print your oil coupons. The higher the price the more coupons that you’ll need.

JR said...

J,

You are doing what Mortymer refused to do (after much begging and pleading), which is discuss the issues. I applaud you.

I'm optimistic that unlike Mortymer, VtC will be willing to co front the issues.

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

Some quick ideas:

Just because the dollar wanted **higher** priced oil to make US based oil reserves economically viable doesn't mean they wanted continually higher priced oil, does it?

Aren't there consequences to high priced oil on the American economy?


Well..the U.S wanted that privilege and found a way to obtain it via the petrodollar.

The US already had the privilege via Bretton woods, the "oil backing" allowed this to continue.

JR said...

Hi J,

So while lotsa folks oddly hate reading FOFOA, I don't think you do, so here is some FOFOA to help add some context to your point.

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

Dead End

"There is much talk about the future availability of oil. Or shall we say "cheap oil"? Almost everything we enjoy today is a result of the constant flow of oil over the last century. And it follows that all of the PRICES we pay for everything we enjoy today is a result of the CHEAP flow of oil. But is this "CHEAP flow" a natural phenomenon, or a manmade one?

Oil has been the key to the fantastic success of the West over this period of time. Therefore it follows that the true VALUE of oil is immeasurable!

[...]

What is a responsible government to do? It must look to the future and SECURE the inflow of oil. Why has the US stopped looking for new oil in the ground? Because long ago it SECURED the "CHEAP flow" of oil! A manmade phenomenon! The future "CHEAP flow" of oil can only be secured three ways. 1.) Own the oil in the ground, 2.) amass wealth reserves desired by those who own the oil in the ground, or 3.) fool (trick) OTHERS into paying the VERY HIGH PRICE (in gold) for the "CHEAP flow" of oil to your shores.

Arabia has oil in the ground. It does not have gold in the ground. But it does VALUE the precious metal very highly. It always has. Even BEFORE oil became WEALTH.

The exploding world dependence on the "CHEAP flow" of oil has brought GREAT WEALTH to Arabia. Up until 1971 the ease of trading oil for dollars was accepted because these "casino chips" could be exchanged at the CASHIER WINDOW (the gold window). Then, in 1971 the "CASHIER" was closed for good.

[...]

So, in 1983 Barrick Gold was formed...

And once again physical gold was flowing INTO Arabia and "CHEAP" oil was flowing OUT. But SOMEONE was paying the TRUE PRICE for this oil.

Then, probably sometime in the early 1990's, a group of Europeans that had been planning for a single currency in the "Eurozone" with the ECU that began in 1979 (at the height of the dollar crisis) and later became the EMU and the Euro, came to the realization that the path the dollar (and the entire international monetary and financial system) was on was essentially a DEAD END. It was not sustainable! At some point in the future this system, and its MONETARY FOUNDATION, would (MUST) collapse. This was not a plot to collapse the dollar. It was, instead, a RECOGNITION of the inevitable!

So what is a responsible government to do? "It must look to the future and SECURE the inflow of oil." And given the three choices listed above, ONLY ONE COULD WORK! [2.) amass wealth reserves desired by those who own the oil in the ground.]

So the Euro was founded with the requirement that gold reserves MUST be (PHYSICALLY) held and MUST be marked to the (RISING) market price of gold. What the Euro architects recognized was that this new dollar PAPER gold market would (MUST) at some point transition into a purely PHYSICAL gold market. This was a MATHEMATICAL CERTAINTY.

[...]

The LOW price of gold (1981-2001) was meant to trick YOU into giving up your PHYSICAL gold, so that the CB's didn't have to. But some non-Westerners knew better! They got on the RECEIVING end! Once YOU gave up all your gold, the CB's had to contribute some of their's to this PHYSICAL FLOW.


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

Cheap flow of oil, huh?

So you disagree with FOFOA, or do you think your theory fits with this? If you think it fits, can you help explain how? Thanks in advance for not being like mortymer and being willing to discuss these issues critically, in lieu of running away under the false pretext of being some kind of persecuted martyr.

DP said...

The LOW price of gold (1981-2001) was meant to trick YOU into giving up your PHYSICAL gold, so that the CB's didn't have to. But some non-Westerners knew better! They got on the RECEIVING end! Once YOU gave up all your gold, the CB's had to contribute some of their's to this PHYSICAL FLOW.

Matt said...

J - so that was in 1968, just 3 years before the USD went off the gold standard. Its an interesting view point, that they knew they'd have to go off the gold standard so the world's need for a reserve could be met.

Once again, these historical documents just keep on giving! It's great to read ACTUAL SUPPORTING EVIDENCE of Another's story (as much as i'm fond of reposting unsupported opinion its still good to see a few supported documents thrown in here and there), and every new piece adds another dimension to the story!

One Bad Adder said...

With Gold, I think it is important to keep track of the power-timeline in the context of what is being discussed.
From the late 80's and into the 90's, the World changed into a Unilateral Power situation ...and it's not inconceivable to think that those "close to the Kernel" put processes in place to leverage what was essentially the all-conquering $US Bloc.

The WAG was (IMHO) essentially a protest designed to aid the reversal of the $US-centric trend ...and put Gold back on a firm (er) footing.

Whether or not this had the full and complete support of the USG is debatable ...but I'm thinking it did.

Motley Fool said...

J

"If more $’s are needed the USG can AND MUST run a ever increasing deficit. See what I’m getting at?"

I'm sorry I do not. There is not simply one exponential function. There is a whole class of them.

I do agree that the debt must continue to grow, but logically, the slower the growth of the graph, the longer it takes to go into the stratosphere.

So 'what you are getting at' seems to me to be a conclusion that does not follow.

TF

victorthecleaner said...

Bosco,

the project is certainly not dead. One day the dollar will fail, and then this setup will be needed. Btw, I just read somewhere that about 50% of world trade involve Europe.

The observation of the steady 19% nominal increase and the observation that many aspects are on hold, are a priori separate observations. They might be related and be the consequence of some agreement we don't know, but how could you ever confirm this without any inside information?

Another/FOA were convinced that the LBMA would not survive the 1999 period and that the dollar would be in serious trouble. FOA wrote that he was expecting some sort of statement by the ECB about the role of gold.

Fact is that LBMA was saved, the paper gold market has been perfectly intact as of today, and not even 2008/9 posed any danger. Fact is that the role of gold in the architecture of the Euro is completely off the record. Not a single word from the officials.

Fact is that the absence of gold in international settlement has contributed to the present debt crisis in Europe which is totally silly because if you have invented the solution to the problem then why don't you use it yourself.

Did you know this one on silver:

http://screwtapefiles.blogspot.com/2011/05/value-of-value-of-bond.html

Concerning the "Value of the Value of a Bond" (in silver), I don't think that would be part of an ECB-Fed agreement. But it might be a consequence of the way the prices of bonds and the price of silver are managed at the technical level.

miked,

the only thing you need to make sure is that you are unlikely to run out of cash before the change. For example, if you have a reasonably reliable job plus some cash buffer, you should be alright. Depending on how you think about it, it is perhaps even better to store 6 months worth of freeze dried food than having some 30k in cash lying around in your bank account.

Victory,

VtC have you made any progress here?

This has always bothered me. If you assume the BB system in aggregate has no price exposure, and if you take a look at the LBMA clearing statistics from which you see that they must still have at least 10:1 leverage, you can conclude that either
a) there is a huge amount of gold loans outstanding
b) someone is naked short (either short unallocated or short the forward)

I think (a) is ruled out because the hedge books have been wound down and although mining companies might take out loans in the form of unallocated, you cannot explain the volume this way.

Option (b) was done by the carry traders until 1999-2001, but with a steadily rising price no hedge fund would try this. So it is also ruled out that it is private parties that account for (b).

But this leaves the option that some official entity is engaging in (b), doesn't it?

Victor

victorthecleaner said...

OBA,

still trying to push you to tell us more: Some people thought in 1987 it was game over. Another/FOA thought this around 2000. Then many thought the system would not survive 2008.

Today it's 2012. Now you are saying there are only a couple of weeks left. What makes you so sure?

Victor

miked said...

Quite a late response Gary, but I read something today which was a nice retort to your retort to me :)

>>I don't get your comment, people have woken up to the problem, that is why consumption is sliding the world over. People are worried. And people need solutions.

An excellent guest post on the Turd's blog here from the weekend about the total obliviousness of the great unwashed: http://www.tfmetalsreport.com/blog/3313/coming-paradigm-shift-silver

enough said...

FWIW.....

reliable source ????

ECB wanted Papademos to implement euro exit strategy for Greece....likely date 3/1/12

http://www.examiner.com/international-trade-in-national/ecb-wanted-papademos-to-implement-euro-exit-strategy-for-greece

Matt said...

Why hasn't the system collapsed already? all actors in this system are working tirelessly to support it - from the politician to the garbage collector, all have an express interest in maintaining the current paradigm. That is why the system can(and will) continue far beyond what makes 'sense' when looking at the numbers.

Why hasn't the trigger been pulled on freegold? a) its a nonsense concept that it is planned and there is nothing special about the ECB marking their gold to market, (they do do the same with all their other assets anyway) or b) the current actors can gain more from extending the system further. If you know the system is unsustainable, why not milk it for everything you can? the Chinese have a lot more internal development still to go and their relationship with the US is key to that. In effect it is the Chinese who are getting the free ride off the US if you think in terms of avenues to industrialisation.

victorthecleaner said...

Matt,

hey do do the same with all their other assets anyway

They do this with all their foreign currency reserves, but not with the bonds they hold.

Victor

Matt said...

Thanks VtC, i had seem that with their currency but wasn't aware of the bonds situation (Perhaps they are holding to maturity or the bonds represent the EZ bond commitments they will make good anyway [j/k!!]).

miked said...

Hi Matt. Not only are they not marking their bonds to market, they are marking them to par value, even though they bought them at half that value in the market. Instant book profits :)

Nickelsaver said...

The difference between 2008 and now is what type of debt crisis we are seeing.

In 2008, it was primarily a private debt crisis. Today it is a public or sovereign debt crisis.

The ECB is now at a crossroad as to if they will a) bail out the PIGS, which would extend the life of the current system and devalue the Euro, b) kick the pigs out, which would cause default and ensure the demise of the current system and also kill credibility for the Euro should they be looking for more members, or c) wait for the USG to act at the last hour, vorcing the dollar to further expand to absorb the debt and leave the Euro both fiscally and politically entact.

-
MY bet is on option c

As far as MTM goes,
what it does is show the Euro's hand as to what the basis of valuation will be upon reset. Price is irrelevant.

Alien said...

NS,
or a combination of the three.
Unfortunately

One Bad Adder said...

The LAST Rubicon!

With a little time available this morning (here) …and if it’s all the same to our good Host, (on this here Open Forum) I thought it MAY be an opportunity to expand upon where I think we’re “headed” …in the big scheme of things.

First though, a bit of personal History might be apt.

In the mid to late 90’s and based upon the prevailing “market conditions”, I moved 100% of my liquid assets into Physical Gold.

Shortly thereafter, and seeking validation for what was then generally considered a rash move, I stumbled upon the USAGold Forum.
…and there, a plethora of “Heavies”, ably assisted by the CPM Team of Michael Kosares, Randy Strauss, Gandalf et-al, saw this lay-mans eyes on Gold widely and (I feel) completely opened.

It was reassuring to know I was “following in the footsteps of Giants” (albeit initially unconsciously) and over the next 5 or 6 Years drew succour from …and occasionally contributed to the gentlemanly discourse there.

Well I remember the offerings of Ari, A-III, Randy …of course not forgetting to mention the “others” ..and a host of contributors (late-comers including Ender and Belgian who occasionally bob up here) – which often found me punching WAY above my weight division.

Ultimately …after all had been said and done, MK chose to “turn off the lights” as (I believe) the “business” of marketing Gold ceased to benefit from the ongoing diatribe.

Then, feeling a little bit “lonely” and lacking a “security-blanket” it was great in ’08 to stumble upon FOFOA who had recently began his tribute to the “Thoughts of Another / FoA” and he in turn being gracious enough to include my “Time-Currency” Blog in his “links”.

At that time, having said all I could in relation to TIME assessment relative to Markets and, as it became apparent to me that TS probably wouldn’t HTF until we plumbed the depths of the curve ie: right about NOW! …I decided to pull the Blog …and waited.

-to be continued-

Matt said...

Hey miked, maybe my second scenario that I joked about isn't that far off after all!

What is the normal CB policy on gold valuation? (Genuine question - we all know about US and EU, but what of some of the other key players?)

Matt said...

"Gold is valued at the Australian dollar equivalent of the 3 pm price fix in the London gold market on the last business day of the month."

http://www.rba.gov.au/statistics/frequency/reserve-assets.html

Victory said...

1/2

VtC,

I can only think of a few scenarios in which the unallocated BB system is hedging exchange rate risk

A) they take 10% +/- of the currency transferred into an unallocated account and buy a futures contract which they perennially role forward. The other 90% of the currency they would presumably be investing in some other income-yielding asset. However since gold is generally in contango they would suffer perennial rollover decay so that doesn’t make much sense.
B) Carry-trade or miner hedges - but as you pointed out, been there done that and now the hedges have been wound down and hedge funds are out of the gold carry-trade.
C) They are hedging with some variation of Aristotle’s arbitrage StanBank, however that would mean they are buying physical from somewhere and it would also sort of undue the whole notion of an unreserved(naked) unallocated exposure.
D) They are rolling over forward contracts or call options but the question then becomes with whom? 10 of 11 market making members on the LBMA are Fed Primary Dealers, 6 of 6 clearing members are Fed Primary Dealers. I just don’t see how the Primary Dealers would be left out to dry in the event of a run on physical.
E) They aren’t and it’s all just a confidence game with an escape clause in place for when TSHTF

We’ll come back to D. and E. first take a look at ‘The 1994 International Bullion Master Agreement' (IBMA) drafted by the ISDA and used by the LBMA. Let us assume this is the legal framework that will govern a physical default and observe some key language:

“Section 8.1 sets out the steps which a Non-Defaulting Party must take in closing out and liquidating Bullion Obligations (including Bullion Obligations arising from the exercise or deemed exercise of Bullion Options) on the one hand (under paragraph (a)) and Bullion Options which have neither been exercised nor deemed exercised on the other (under paragraph (b)). In each case, the Non-Defaulting Party is required to close-out and liquidate all outstanding Bullion Obligations or all unexercised Bullion Options, as the case may be.

Section 8.1 provides for the calculation and aggregation of market damages for each Party for each Bullion Obligation or Bullion Option closed-out and liquidated. The Non- Defaulting Party should endeavour to close-out and liquidate all outstanding Bullion Obligations and all Bullion Options on a single day. However, if this is impracticable, the close-out and liquidation should be completed as soon as possible. The determination of market damages for each Party in each instance must be made in good faith, including the use of market rates. In the case of Bullion Obligations (including Bullion Obligations arising from the exercise or deemed exercise of Bullion Options), close-out and liquidation is to be effected by calculating the Closing Gain and Closing Loss on each transaction and converting the resulting amounts to the Non-Defaulting Party's Base Currency (where different). Thereafter, all Closing Gains and Closing Losses payable to the Defaulting Party and vice versa are summed by Value Date and adjusted to present value by discounting, or in the case of overdue obligations, adding interest. All the Value Date amounts (with interest or discount as applicable) are then aggregated to produce a single figure. The net figure becomes the amount (in respect of Bullion Obligations) to be paid (if negative) by the Non-Defaulting Party to the Defaulting Party. This is an agreement which gives a common set of terms reflecting best market practice for spot and forward bullion transactions and options, providing for the closing out and netting of outstanding bullion transactions between the parties in the event of default by one of them.”

continued....

Victory said...

2/2

So the non-defaulting party is required to close out all positions and do so based on the closing price on the day that the defaulting party concedes to default and settlement is paid in currency. It sure looks to me like they have already covered their ass, kind of like the comex covered their ass as their rulebook allowed position limits, trading for liquidation only, and cash settlement to crush the Hunt Brother no?

So back to option D. who would be playing the role of AIG and writing trillions in CDS. The only entity with the motive and might to cover the Primary Dealers is the FED, least we forget the FED is owned by the primary dealers. Maybe that’s why the courts gave them a pass on certain documents GATA requested under the FOIA. It’s not inconceivable that the FED is writing call options on these bullion accounts, they have written put options on treasuries. And as you pointed out gold has been a methodical clockwork-like uptrend for the last ten years so BB could be long annual calls with the Fed and be making money each year as they roll forward, or perhaps they have super cheap/super long LEAPS, or maybe they are perennially rolling ‘forward contracts’ with no out of pocket expense.

Maybe it unfolds like so:

1. There is a run on physical (unallocated to allocated) and price spikes from $1700 to $3000 over the course of two days.
2. Counterparties admit to physical shortfall on day two and liquidate physical obligations as of the market close - $3,000/oz. Unallocated holders are somewhat appeased as they make 100% a paper gain in 48 hours.
3. Fed prints out on their short call position or forward contract
4. Over the next two weeks FREEGOLD unfolds and the true physical only price discovery ensues – initially clearing somewhere between $10,000 - $50,000
5. Fed more than makes up for its loss from short calls by a factor of 6 to 60.
6. Btw, the comex dose a HuntBrothers part Deux on day two as well.

Finally option E. – no hedge and no FED bailout. Instead the ISDA/LBMA use a similar tactic to the comex/Hunt brothers shakedown and they crash the price on the close of the day LMBA members declare default on their physical obligations. Under this outcome unallocated holders take capital loss. These ISDA guys are just banks protecting banks, look how they got out of paying CDS on Greece’s default.

-v

costata said...

Michael H,

Re: Declining energy market share of oil.

I'm still trying to sort out my thinking abut this information:

"Oil remains the world’s leading fuel, at 33.6% of global energy consumption, but oil continued to lose market share for the 11th consecutive year."

Many here hold the opinion that WAG marked the end of European support for cheap gold/cheap oil. From an oil producers perspective the rise in the price of oil from the lows has kept their revenues up. If, as many here think, the owners of the ME oil have large stashes of gold then any losses in one area are more or less offset by gains alsewhere.

In currency terms the high price of oil has made other forms of energy cheaper alternatives. As Gregor Macdonald points out gas is astoundingly cheap compared to oil.

Let's test a few assumptions here.

1. The USA wanted the POG to be higher in order to encourage a shift away from the ME oil producers as the primary suppliers of energy - through development of alternatives. (The US has a track record in this regard.)

2. The ME producers are worried that they will not be able to sell enough of their sole export commodity to finance their domestic subsidies and compete with alternative sources of energy.

In support of assumption 2; Saudi exports to the US have declined, they have been moving into downstream processing and the direction of their exports has shifted to Asia and (to some extent) the EU.

We can see several initiatives in progress to migrate trade away from the US dollar platform. Let's make a third assumption. That none of this is accidental or unforeseen by planners in the countries who are the major economic actors in energy and currency.

Lastly we have witnessed highly destabilizing events in the ME and Central Asia over the past decade with Anglo-American sponsorship, or at minimum involvement, in these events plainly evident.

(I should disclose that I left the Peak Oil camp quite a while ago. Perhaps the Peak Cheap Oil argument has some merit but the price of Natgas and Petgas undermines this notion as well IMO)

All in all my thinking is that policy is not as it is portrayed in the media. The claim that the PTB want energy to be cheap doesn't stack up in my mind. It looks like these efforts are designed to make energy artificially expensive.

One Bad Adder said...

The LAST Rubicon – Part 2.

The gist of my Time-Currency Theory was (is) predicated upon the contention that all Systemic market activity (in this Global Fiat environment) stems from the $IRX ie: - the $US and it’s associated Bond Market forming the basis for ALL other Market activity …including the “current” Gold Market.

What I determined was: - “firstly” there needed to occur a pronounced Loss of Faith in the “FUTURE”
…followed ultimately by a Loss of Faith in the “Reserve Currency” …to wit ALL Fiat Currencies.

Previously identified Rubicons that have (by fair means or foul) ultimately morphed into Maginots, include the Fed losing control of $IRX (as mentioned in a previous Post) …and witnessing the Long-Bond take out $1.24 (Price) …which effectively neutered “acceptable” Insurance measures via Options cover.

This Yield Ratio Chart gives a fair indication of just such a Loss of Faith in the Future which I feel is currently being “managed” (or perhaps obfuscated by) activity in the Long end of the Curve.

The LAST Rubicon then (now) becomes $IRX going sub-Zero …as it currently does on a regular basis …not only in $IRX but short T’s the world over!

Management “MAY” be able to contain $IRX and have it flail about at or around Zero Yield …for some time, but ultimately the untenable repercussions thereof combined with market pressure will see it track and establish itself below Parity (Yield) IMHO!

In the next Part, we’ll look at Gold per-se - try to identify WHY Free-Gold didn’t happen on cue in the early part of this Century, and how and why it might well eventuate going forward.

In the meantime however, readers might like to peruse my Systems observations which the good Sir Nickelsaver so graciously knocked into shape and included in his Blog offerings.

-to be continued-

One Bad Adder said...

OK - the "Systems" Link revealed my incompetence at HTM ellen.
Lets try that AGAIN.

http://thecomingparadigmshift.blogspot.com/#!/2012/01/one-bad-adder.html

There you go ;-)

Nickelsaver said...

OBA,

Ironically, the link brings you to a place where you could learn HTML.

:-)

One Bad Adder said...

Nickel: -

I use that site to copy - paste ...rather than "manually" input the details ...it came back to bite me!
Feel free to migrate the above offertory as you see fit Squire.

Edwardo said...

OBA,

Correct me if I've somehow got it wrong, but wouldn't the recognition that the $IRX is, as it were, frolicing in a field riddled with landmines-and therefore destined to step on one eventually- cause a lot of folks to pack up their bags and move on well in advance of the actual event?

Bosco said...

WTF is Jim onto:

http://www.jsmineset.com/2012/01/30/the-most-powerful-body-in-finance-and-what-they-mean-to-you/

J said...

JR,
It’s early in the morning here but I’ll throw up a response so you don’t think I’m ignoring the questions
“Cheap flow of oil, huh?

So you disagree with FOFOA, or do you think your theory fits with this? If you think it fits, can you help explain how?”

No, I don’t disagree with FOFOA. He said “CHEAP” oil must flow and I said a rising price of oil helps the old Buck. As ANOTHER said – Currencies compete for USAGE. What I’m saying is a rising price of oil gives the $ an unfair advantage when competing for usage. Does it not make sense that more $’s get used, sought out, and bought when the price of oil rises? This would also help make up for the demand they are losing in Asian trade.

“Oil has been the key to the fantastic success of the West over this period of time. Therefore it follows that the true VALUE of oil is immeasurable!”
I agree! It’s immeasurable. The use of oil has brought the world a tremendous amount of productivity and a higher standard of living. It also made the $ and the U.S what it is today. It flowed from SA cheaply but when priced in gold it’s not very cheap is it? Oil goes up in smoke, gold lasts forever. Do you want to hold onto an un-tapped source of power or is it better to sell some of it, build up your country and your standard of living, and grab your share of some “Eternal” wealth..GOLD.

Cheap, expensive, it’s all relative. Who’s eyes are you looking at the price through? Oil is cheap in the U.S because labor is expensive. Oil is expensive in Thailand because labor is cheap. In Thailand I can take a taxi about 150km for $30, in the U.S I might be able to go 15km’s for the same cost. In Thailand the taxis use LPG because there is no profit in driving that distance using gas. Oil is expensive.

How much productivity can you squeeze out of a gallon of gas? What’s the average wage of someone in the U.S equivalent to - 5- 6 gallons of gas an hour? Looking at it this way gas is cheap. If you put it to good use and you can be a lot more productive than a human at that cost could ever hope for. Now we’ll look back at Thailand where gas is “expensive”. In Thailand you can hire a farmer to work your field for 12 hours for less than the price of a gallon of gas. Does it still make sense to burn large quantities of gasoline when you have “cheap” manual labor on hand? Your profit margin isn’t the same as in the U.S so it doesn’t make sense to shell out for that new tractor.
Ok..where were we. Back to my point which was only meant to be a simple statement. I don’t disagree with A/FOA/FOFOA nor at least do I think I disagree with them. If I did I wouldn’t have hung around here so long nor would I be a contributor. My 1 and only point is that a rising price of oil sucks up more $’s and allows the U.S to run a larger deficit. Yes, we were able to get oil out of SA and others “cheaply” but that does not mean that the $ and USG do not benefit from a rising price.

I’ll think this over some and give myself some time to wake up. Maybe I am missing your point?

One Bad Adder said...

The LAST Rubicon – Part 3.

Prior to looking at Gold, please allow me to elaborate a little on “The Monetary System” in the here-and-now.

The implications of a Negative Yielding $IRX cannot be underestimated.

Once firmly established …and given cross-pollination into ALL the other aspects of the current System, total market Chaos will ensue …guaranteed!

As we previously mentioned, this phenomenon is driven by a loss of Faith in the Future …and in all probability, the next skittle to fall in this process will be the various longer maturities as the “flight to the present” picks up steam - thusly further exacerbating the problem. It could be said that without overt and covert management input, we’d currently be well down that path ALREADY!

Let’s now then take a quick look at Credit and Debt to see how this might play out in coming months …OR even perhaps Minutes!

It has been said it’s VERY hard to amass a Fortune …and MUCH harder to keep it.
Our Credit(or’s) are a long suffering and largely quiet group who, over the last millennium have seen their “nest-eggs” decimated and in many cases destroyed by “the System”.
Currently, those “fortunate” ones constantly have to surround themselves with Lawyers, Accountants, Fund-Managers et-al …simply to mark time. Even those less-fortunate ie: Pensioners and Superannuants etc. are seeing their quality-of-life …and future expectations reduced to rubble by this down-trending yield-curve in the current environment where with one false move they can be wiped out COMPLETELY!
You can well imagine then – as a collective, Creditors are not happy campers.

On the other side of the ledger, Debtors have been making hay as the System (firstly prudently …and lately far more imprudently) facilitates their every need and aspiration.

Those who took a look at my “Systems” post (yes, BOTH of you …;-) will appreciate our current global monetary system is well down the path back to Chaos, as “timeline” issues with Fiat per-se compound the DEvolutionary process. When did we roll-over from E to DE? …don’t really know …but at a guess I’d say right about when I began thinking it prudent to go to Gold (or roughly speaking mid-90’s)

Another point worth a quick comment here is the generic “THEY”.

We often find angst being directed at “they” (them etc.) almost as if there is a concerted effort by a (usually clandestine) group, hell-bent on finagling us out of our Money, Gold or whatnot. I don’t think that to be the case and cited (in the Systems piece) the example of the two Footballers, mortal enemies “on-the-field”, but brothers-in-arms …off it.
You might like to consider the various factions within the Fiat Management Structure in a similar vein. The will “as one” defend the System to the bitter end even though, within it they can be and are perceived as “enemies”.

Which (finally) brings us to why we’re all here …GOLD!

-to be continued-

One Bad Adder said...

Edwardo: -

It's a case of "who blinks first" I think.
As I'm keen to get this "off-my-chest" in order to concentrate on my "day-job" (some will say don't give it up;-)
...I'll get it completed ...and give a you more in-dpth reply later svp?

victorthecleaner said...

Victory,

I see we are converging on "The Fed has sold calls" or something like this. They have at least seriously considered selling puts on T-bonds or selling interest rate swaps that protect against a rate increase (see the famous June 2003 FOMC).

This would mean that they are probably able to kick the can down the road for much longer than you naively expect, but when it is over one day, then this happens extremely rapidly.

costata,

I agree. Mainstream media say it is about WMDs or about the bomb. Alternative media say the US want cheap oil. Both are getting it wrong. You should look at their actions: They have done a their bit in order to make ME oil expensive, unreliable or simply unavailable.

I also wonder where is JR. Costata just claimed the US want non-US oil expensive which contradicts JR's claim that they want it cheap. JR? JR, where are you?

Victor

Wendy said...

For those that said they are scrolling past JR's "copy and paste" you are making a mistake. I did the same thing when JR "showed up" ..... big oooops.

His posts are relevent within the context of the current discussion and lead to a far deeper understanding to the thoughts of A/FOA/FOFOA. Don't forgo the education because at first glance it looks like "copy and paste"

Becoming p**sed off from time to time should not lead one to stray from the trail of persuing knowledge that is offered freely.

victorthecleaner said...

I am pleased to see that a couple of people have followed up on my idea that the story might be about 'expensive oil' rather than 'cheap oil'. After all, there is nothing better than using your own brain.

Victor

costata said...

VTC,

I think 'J' made some good points in his reply to JR. If you look at oil from a ROEI perspective oil was super cheap under a cheap oil/cheap gold regime.

Oil has remained relatively inexpensive in terms of gold over the past decade while both gold and oil have become far more expensive relative to currency in the same timeframe.

A few minutes ago I was reading a discussion about Peak Oil and Peak Cheap Oil at the Macrobusiness blog. One of the commenters made the point that the easily extracted oil (and other resources) have been largely extracted already.

The oil that remains requires more energy per unit to extract. And it certainly takes a lot more currency to extract a barrel than it required in the past.

The energy constraint should be a real limitation. If a unit of oil requires the energy of a unit of oil to extract then, obviously, there is no energy gain from extracting that oil. But if there are financial or geopolitical implications then uneconomic oil could be extracted/produced anyway (corn ethanol anyone?).

Anyways, as I said earlier I'm in neither the Peak oil or Peak Cheap Oil camp today. I don't think most of the folks in those camps are even discussing the right problems.

victorthecleaner said...

Just took a look at Jim Sinclair's interview. It is about the question of whether the haircut on Greek bonds will be a credit event or not. Here is the story as I know it (not from Jim's piece):

When they negotiated it the last time (November?), they wanted a 50% voluntary haircut from the major banks and insurance companies that hold the debt. The consequence was that the ISDA committee that determines credit events said 'no credit event' because it was a voluntary agreement. If this is the final word, then you can just buy Greek debt and hold it to maturity (next tranche March 20?). Greece would have to pay back your bond because otherwise it would trigger a credit event because it is not voluntary. When they agreed this in November, they said the deadline for voluntary changing the structure of the Greek bonds is January 31.

In the meantime, many of these bonds changed hands, and a lot is now held by speculators who do not join the voluntary agreement. The result is that the haircut is not big enough to be viable. Either the 'voluntary' creditors need to take a bigger cut, say down to 30%, or Greece would officially default and not pay to anyone. The question is how the ISDA will rule. In a credit event, there would be some payments from the US to Europe due. Without a credit event, CDSs would be dead due to lack of confidence.

Victor

costata said...

VTC,

I'd also like to add another point or two to my last comment about oil.

Even at todays prices the productive capacity of most, if not all, of the "energy slaves" we employ is orders of magnitude greater than anything that human energy can produce on its own.

As people, such as Amory Lovins of the Rocky Mountain Institute, have pointed out we could live within a reduced energy/resource budget if we simply cut out the obvious areas of waste. To me this begs the question: Why do we persist with the waste? Cui bono from that waste?

And generally I'm given to wondering if Malthusian theory has led us astray. Perhaps the problem lies in human nature rather than any external factors. To whit, as a species we are, on average, very average if not as dumb as a bag of hammers.

Cheers

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

VtC,

"This would mean that they are probably able to kick the can down the road for much longer than you naively expect, but when it is over one day, then this happens extremely rapidly."

I have no idea how long they can kick the can down the road, could be months, could be years - who knows?

I trade paper as if it's going to be years but hold physical as a LEAP with no time decay.

-v

JR said...

Hi J,

you first commented:

"Well..the U.S wanted that privilege and found a way to obtain it via the petrodollar. Kill gold convertibility, price oil in $’s, and then fill the worlds reserves up because we print your oil coupons. The higher the price the more coupons that you’ll need."

and then followed it up with

No, I don’t disagree with FOFOA. He said “CHEAP” oil must flow and I said a rising price of oil helps the old Buck

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

FOFOA said the US stopped looking for new oil in the ground? Because long ago it SECURED the "CHEAP flow" of oil!. It did this by fooling OTHERS into paying the VERY HIGH PRICE (in gold) for the "CHEAP flow" of oil to your shores.

Which one is it? Did the US want cheap $ oil, or expensive $ oil?

I see FOFOA's point being the USG secured cheap dollar oil by getting OTHERS to overpay in gold.

The LOW price of gold (1981-2001) was meant to trick YOU into giving up your PHYSICAL gold, so that the CB's didn't have to.

You seem to contend the US did the opposite and sought to create an ever higher $ price of oil?

Do you see the inconsistency?

One Bad Adder said...

The LAST Rubicon – Part 4.

GOLD.

To understand Gold and to try and determine the hows, whys and wherefores of it takes a bit of preamble –

We’re all familiar with Golds past history - the in-Specie systems, the Gold Standard, the closing of the Window etc. What this attempts to cover is the recent past, that period from when, to all intents, Gold was “deemed to be” an unnecessary and barbarous relic of times long past …roughly the mid- 80’s onward.

All the $US / Oil deals were in place, the IMF gave credence to their SDR as a Paper-gold substitute and the US found itself being the ONLY Superpower ie: marketeers therein had unfettered access to the “front-of-the-queue” in all things relative to Systemic structure.

Futures Markets were ratcheted up to aid and abet “systemic management” …and in there somewhere, some bright spark figured there was “money” to be made in the Fractional-reserve Gold space.

So it came to pass, on the back of the NEW $US / IMF-centric paradigm, the “$-price” of Gold began to fall until it arrived at or about the cost of production.

In the mid 90’s, it became apparent that IF the current trend continued, Gold was indeed headed to the trash-can of History.
Fractional-reserve aspects relative to gold at the time by some estimates had it at 1000-1 ie: 1000 Oz of Paper-Gold to 1 Oz REAL Gold …this Market being carefully managed via Futures, Options and whatnot.

In ’98 …or thereabouts, …talk of Free-gold began to circulate with luminaries Another and FoA to the forefront.

The Washington Agreement came to pass which (apart from the “for consumption” fanfare) pointed out that Gold is and will be an integral part of the System …and the $-pricing mechanism needed to better reflect this fact.

Circa 2000, the Euro …long in the planning stage, was launched, and it’s structure gave nominal authority back to Gold …should the “need” arise.

By ’01, within the “gold fraternity” Free-Gold was on many lips and the consensus was - implementation of same was imminent.

Unfortunately 911 came out of nowhere …and IMHO this event put paid to any notion of introducing such a radical reform …then and there.

The ensuing decade has been witness to some weird and wonderful goings-on …and as a bonus $PoG is now flirting with $2000 / Oz. …still however determined by a Price Discovery Mechanism essentially at the beck and call of the systemic gurus via Futures, Options, Certificate Programs …and whatnot.

So …that brings us to the present: -

Gold – eg: the 24K 999 400 Oz +or- Good Bar, is unique in that it represents something that is (to all intents) ETERNAL. It can also be said one can see GOD in GOLD (I’m not going religious here …just waxing lyrical ;-). The point being an Oz of Gold is an Oz of Gold …today, tomorrow, 1000Yr’s ago and 1000Yr’s into the Future.

Now, assuming we accept the current System is about to implode into virtual Chaos, whereby all the aforementioned management tools are rendered useless and the $US (and it’s “close” relative $IRX) goes into the stratosphere, what might be the fate of (firstly) $PoG - the many-times leveraged proxy …and (secondly) GOLD - the Here and Now Asset par-excellence, the unencumbered, unfettered unequivocal Wealth Asset du-jour.

FreeGold-by-accident, FreeGold by necessity - To replace FreeGold by design.

It seems to me (as described in “Systems”) the ability to introduce a FreeGold-by-design would have been akin to introducing a rigid Traffic-control regime to the streets of Shanghai (ref: Dragons post) and anyway the Devolutionary state of the System at that time simply couldn’t have coped.
On abandonment of THAT plan, it seems to me factions “within” the current system are content to let it be …and ultimately Mr Market will “love the Dollar to Death”.

As Another was wont to say – Time will prove all things.

Time, though I fear ..is quickly running out.

-END-

Michael said...

I just finished Rickard's Currency Wars and I must recommend it. My opinion of him beofre reading the book was that he was getting by with insinuation that he 'knew things' and that he 'knew people'. Either he or his ghost write however have convinced me otherwise.
The comments that were made on this blog at the time it was published seemed to center around a brief hypothetical scenario in which the US seizes foreign gold. Apparently comments made by him in interviews also made this 2 paragraph segment seem more important than it was in the context of the whole book.
Many of his assumptions about the future of gold in the future are fairly traditional and do not fit the themes of this blog but the whole book is more that just those assumptions.
He gives a good history of currencies in crisis and examines the role of complexity in systems in ways that were new to me.
I plan to re read it again soon. If your opinion of Rickards was close to mine you will be surprised. He may know 'things' and 'people' but he has much more depth that I expected.

JR said...

J,

The time periods seem to confuse people, so lets try to clean up the timeline. FOFOA suggests the US took the dollar off gold convertibility so they could raise the price of oil to make exploration and development of the US's own reserves economically viable. But this didn't perhaps work out as planned (OIL crisis), so a different course of action was adopted. From DEAD END:

"Then, in 1971 the "CASHIER" was closed for good.

What followed was "the oil crisis of 1973".

[...]

Then, in the early 1980's, the situation was brought back under control. A leveraged system of paper gold forward sales was set up to keep the price of gold (DOWN) under control, so that OTHER people's PHYSICAL gold could be shipped to Arabia at a low DOLLAR price. This would satisfy "the owners of the oil in the ground" and SECURE the "CHEAP flow" of oil to the US who had the SOLE privilege of creating those dollars out of thin air.


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

The US wanted the dollar oil to rise in 1971, so they cut gold convertibility and oops - the $ price of oil blew up and way overshot the target price - this was not what they wanted. Do you see this? Just because someone wants “expensive oil” doesn’t mean they want infinitely-priced oil. So enter plan "B," the development paper gold market and the formation of Barrick Gold to secure cheap dollar oil. No more trying to jack the price to make their reserves affordable, because as FOFOA wrote:

"Why has the US stopped looking for new oil in the ground? Because long ago it SECURED the "CHEAP flow" of oil! A manmade phenomenon!"

Again, the US stopped looking for new oil (aka it didn't want to push the price of gold higher anymore), instead it "secured the cheap flow of oil by ticking others into paying a high gold price for oil

"The future "CHEAP flow" of oil can only be secured three ways. 1.) Own the oil in the ground, 2.) amass wealth reserves desired by those who own the oil in the ground, or 3.) fool (trick) OTHERS into paying the VERY HIGH PRICE (in gold) for the "CHEAP flow" of oil to your shores."

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

So plan A to jack the $ price of oil fails, and they go to plan B:

Then, in the early 1980's, the situation was brought back under control. A leveraged system of paper gold forward sales was set up to keep the price of gold (DOWN) under control, so that OTHER people's PHYSICAL gold could be shipped to Arabia at a low DOLLAR price. This would satisfy "the owners of the oil in the ground" and SECURE the "CHEAP flow" of oil to the US who had the SOLE privilege of creating those dollars out of thin air.

[...]

So, in 1983 Barrick Gold was formed...

And once again physical gold was flowing INTO Arabia and "CHEAP" oil was flowing OUT. But SOMEONE was paying the TRUE PRICE for this oil.

JR said...

Hi Victor,

Do you think I am the only one who notices that you keep posting on FOFOA's blog, yet you refuse to relate your ideas to his? Do you think that seems odd to some people? I often wonder if maybe it is just that you haven't read much FOFOA, so you are oblivious to how far afield your views are from his? But then I realize how many times I've responded to one of your posts by presenting FOFOA posts that support the opposite view, so its not like you don't know and are completely ignorant?

So realizing you must be somewhat aware of this discrepancy, do you simply not relate your posts to FOFOA's ideas simply because you don't want people to realize you are disagreeing with FOFOA and advancing an entirely different story? Or do you just not want to address FOFOA's arguments?

Motley Fool said...

Let me concede something. In the Very recent past there has been a reason for the USA to try to push up the price of gold. This has to do with the slacking off of usage demand of US$ in the international realm. As we know a continually increasing usage of US$ is required to keep the current $IMFS system functional.

However I would argue that this has only been the case after the current systemic crisis took hold, and while this has been ongoing the US has tried everything in it's power to try to preserve local oil reserves( which they seem to see as everything on the North American continent).

I would argue that the military adventurism in the middle east, having started in 2001, was simply an attempt at gaining access to oil reserves, and during this time up until the systemic crisis they were still controlling the paper gold markets and thus pushing for low $ oil.

On a conspiracy theorist note...if 9-11 was a false flag attack in makes perfect sense in the gold and oil paradigm. The relevant points are

1.Building 7 went down at it would seem a lot of gold was stored under it which went missing and was reclaimed with insurance ( 1-1 gold for paper anyone)?

2.The war in Afghanistan gave gave the USM a excellent starting base of operations to expand their war in the middle east to procure reserves.

3.War in Iraq, etc is a continuation of this military plan.

On a side note one must wonder if the BP deep oil refinery was sabotaged to give momentum for placing restrictions on deep water drilling off the US coast ( conservation of local oil anyone?)

Peace

TF

costata said...

JR,

I think that breaking this oil/gold/dollar discussion up into clearly defined time periods will help to avoid misunderstanding. I'm interpreting some of these comments a little differently than you appear to be.

I think this is a key point:
Just because someone wants “expensive oil” doesn’t mean they want infinitely-priced oil.

This suggests "managed" markets and that is precisely what I see. (In my language "rigged" markets but this is mere semantics and perhaps a little sensationalism on my part.)

Cheers

Texan said...
This comment has been removed by the author.
JR said...

various FOFOA excepts:

"So I think he said that the 1970's spike in oil prices was actually desired by those in charge of the dollar's management. That they had out-printed the gold reserves already and wanted to somewhat temper that development. Did it work out exactly as they hoped? Of course not."

------

"The dollar system should have collapsed between 1971 and 1980, but it didn't. It received an assist from Europe, the Middle East, and later from the Far East. The purpose of this assist was to buy the time necessary to build another currency large enough to lubricate international trade in the event of the disappearance of the dollar. That ended in 1999 with the launch of the euro."

----------

"Please think back to what the rise in gold during the 1970's did to the dollar and the international monetary system. It panicked European central bankers to the extent that they confronted Paul Volcker in October 1979 at an IMF meeting in Belgrade, Yugoslavia with "stern recommendations" that something drastic had to be done immediately to stop the dollar's fall. The fear among the European central bankers at the meeting was that the global financial system was on the verge of collapse.

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

FOA:

"The IMF / dollar faction, many years ago, went along with Europe in lowering the gold price in dollar terms.

[...]

When Central Banks (mostly the European, at first) began to lease / lend gold, they were beginning what was to become "the master plan". The creation of a broad, liquid paper gold market that would ultimately undermine the dollar, in time. As I said above, initially it was offered as an "appeasement" for continued dollar use. However, even the IMF / dollar faction never expected the successful creation of another competing reserve currency, the Euro! Right up to its offering, the political money was on the side of a complete failure, 100% with ten to one odds."

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

5/22/98 ANOTHER (THOUGHTS!)

If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does come, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You

6/4/98 ANOTHER ( THOUGHTS! )

The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.

But by 1980, Europe was working with the BIS to implement a new "reserve currency".

The European plan was to support the $IMFS at least until a new fiat "reserve" currency could be established, one large enough to absorb the shock of a failing reserve currency, to avoid being forced back 100 years into a physical gold-based economy which would have been very traumatic. This effort took 20 years from 1980.

J said...

JR,
Yes, more expensive but not overly so. A market still exists and you don't want alternatives to become much more efficient.

I'd just like to add that OIL has been secured twice in Iraq and let go. Why? It's not all about the cheap flow. It's about the flow in $'s.

Q.What's better than cheap oil, gold, and ensures world domination?
A. Being able to print the world's reserve currency.

JR said...

Date: Mon Feb 16 1998 14:40
ANOTHER (THOUGHTS!) ID#60253:

The BIS and other various governments that developed this trade (notice I didn't use conspiracy as it was good business, as the world gained a lot), thought that the paper gold forward market would have allowed the gold industry to expand production some five times over! Don't ask where they got this, as they are the same people that bring us government finance and such.

Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:

Westerners should not be too upset with the CBs actions, they are buying you time!

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

FOA (10/3/01; 10:21:26MT - usagold.com msg#110)
The makings of a dust storm

For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained; with its IMF agenda intact, gold polices followed and foreign central bank support all being part of that structure. Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.

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

So the Euro gets rolled out and we sorta move to a third phase:

FOA (8/22/01; 05:18:54MT - usagold.com msg#98)

The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure. A structure of American based "paper gold".

JR said...

more FOA from the same:

Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

Yes, the war now is between the Euro and the dollar! The Washington Agreement placed gold "on the road to high prices" as it signaled a phasing out of Euro support for our American gold values.

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

So with Euro rolled out as competition to the dollar and the WAG "signaled a phasing out of Euro support for our American gold values," we see a different story in this third phase - the dollar needs a rising gold price to keep gold bidding for it:

Red Alert: Gold Backwardation!!!

The dollar NEEDS voluntary bids from private physical gold to survive. My guess is that pool of REAL bids of size is bone dry and cracking. And "dollar liquidity" is just a cheap façade at this point. This is why the dollar NEEDS a rising gold price. As the price (for selling, not borrowing gold) rises, weak little bits of gold here and there will bid for dollars.

[...]

The dollar NEEDS voluntary bids from private physical gold to survive. My guess is that pool of REAL bids of size is bone dry and cracking. And "dollar liquidity" is just a cheap façade at this point. This is why the dollar NEEDS a rising gold price. As the price (for selling, not borrowing gold) rises, weak little bits of gold here and there will bid for dollars.

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

FOFOA comment

New liquidity can only be created through gold as long as real physical gold is willing to bid for dollars somewhere in the world. This is why the dollar must depreciate against gold, to coax fresh gold "stock" into bidding for dollars! (ANOTHER taught us that gold prices dollars, and then dollars price everything else.)

In the past, the CBs supported this process with guarantees of their own gold (to bid for dollars). But today they are less willing to do so.

Texan said...
This comment has been removed by the author.
JR said...

J,

Chicken or egg? What ensures you have the world's reserve currency?

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

You think the US wanted expensive oil despite the oil crisis? So you think Europe/the BIS thwarted this goal despite the US?

JR said...

The US initially wanted higher priced oil, realizing the far superior backing provided by oil than their depleting gold. But then the rising gold price got out of hand, so enter the treasury gold auctions and then ultimately Volker raising rates to lower the price of gold and defend the dollar against gold:

Credibility Inflation

Rather than closing the gold window, the U.S. could have, for example, raised the price of gold to $200 and kept the system going for another 30 or 40 years. A move like this would have been the mathematical equivalent of increasing the Treasury's physical stockpile 5X to double what it was at the height of the Bretton Woods experiment.

[...]

It was reasoned at that time that more than just the ridiculous price of gold being broken, the system itself was broken, and needed a global finance structural change. So the international consensus was to let the U.S. default outright on its gold obligations rather than lobbying for a revaluation of its gold at a new fixed rate. But then continue using the dollar anyway, as long as relatively cheap oil could be gotten for dollars.

And with this decision, the stage was set for a renewed global (Western?) economic growth spurt, much like after the end of WWII. Only this time, the value lost through the non-delivery of U.S. Treasury gold would be more than replaced by the value oil brought to the new world economy, especially with first-of-a-kind products like Pong, released for the Christmas season in 1975.

Even at the higher oil prices of the 1970's, the economic demand for oil proved to be a far superior "backing" to the dollar than the depleting Treasury gold had been. And in a certain (limited) sense, the world got its first small taste of Freegold in the 1970's.

But as gold's price began freely rising in the global marketplace, the old alarm bells went off in the dollar's management office. The dollar, which had always been viewed at par with gold, was now seen to be falling as gold soared. So during the mid to late 70's the U.S. Treasury and the IMF held a series of gold auctions to flood the market and quell the perceived danger. But by 1979 the demand for gold was so overwhelming that the auctions had to be stopped.

Through '78 and '79 the dollar plunged against foreign currencies, and in July of 1979 a desperate Jimmy Carter appointed the tough New York Fed President Paul Volker to head the "deeply divided, inexperienced, soft and indecisive" Federal Reserve Board. Then in early October of that year, while attending an IMF meeting in Belgrade, Yugoslavia, Volcker received "stern recommendations" from his European counterparts that something big had to be done immediately to stop the dollar's fall. The general fear at that meeting was that the global financial system was on the verge of collapse.

Returning to the U.S. on October 6, Volcker called a secret emergency meeting in which he announced a major change in Fed monetary policy. The Fed would switch from controlling interest rates through the Fed Funds rate to directly controlling the money supply through bank reserves. One of the side effects of this sharp policy change was that interest rates would now be governed by the marketplace rather than the Fed. The Fed did still raise its discount rate from 11% to 12%, but then the market took the Prime Rate up to 20% within 6 months where it mostly stayed for the next year and a half.

[...]

In early 1980, Volcker's new Fed policy began to bite. As interest rates rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold were lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar.

J said...

Date: Sun Nov 02 1997 21:52
ANOTHER (THOUGHTS!) ID#60253:

For us to understand what is about to happen we must pull our minds out of the paper trading world. Instead enter the world of real things! Here we will see concepts more clearly.

All currencies and most treasury debt are little more than digital units of perceived value. You don't own them, your account is "credited" with this value. Foreign governments, such as Japan are no better off than American citizens, they don't own anything either! What is really owned is "the right to offer what is credited to you, to a bidder in exchange for real things or other credits". It is a strange way to hold wealth. One might say "my net worth is the intention of others to pay me a credit from someone else". This thinking has worked well until the late 80s. It was at this time that a few wealthy and very smart people started to see the end of this. They understood that the US$ was not going to crash, it already had. It, along with all major currencies would lose all sense of value and become only trading digits of account. The treasury debts were little more than the same thing.

You see, all currencies now compete with each other, not for value of wealth but for "USAGE". The game has now become "whose currency gets used the most for trading" not for value against goods! It was easy to know the currency that got used for oil would win this game. Today, all currencies are traded against the dollar for it's usage as a medium of oil exchange! Take away that link and the entire currency/ debt exchange system, as we know it will collapse! The US$ must be maintained as the "most used" if the other currencies are to have a chance to survive.

Will Japan sell US treasury debt and risk taking dollars out of "usage"? Not in your life! Nor will any other CB! They will talk about it. They will sell a little. But sell a lot? It will not happen. You see oil is the key and that connection to the dollar is changing. Foreign CBs will even sell some gold to try and keep the US$ in play ( see my other posts ) . Ever wonder why the US treasury has not sold gold, it would have the opposite effect! The oil that sense the early 70s, held together the world monetary system is now causing it to slide apart! We are not going to see inflation or deflation again. What we are now seeing is the "destruction" of our paper monetary system.

Someone once asked "if the currency/ banking system breaks down, how will we know what gold is worth?". My answer, gold above ground will be worth a lot more than gold below ground, a lot MORE!

....
Date: Fri Nov 07 1997 21:59
ANOTHER (THOUGHTS!) ID#60253:

Turn slowly now and view all directions. The wealth that was had was not real. The Pacific Rim started, now South America. Next will be Europe closely followed by the US. Remember, all currencies are the same now as they are "digital paper"! Nations will defend the system at all cost They will never sell US$ treasury debt as that debt is their currency! The dollar will soar as a final defense! As part of this defense they will allow oil to rise as oil is priced in dollars. How do you get oil to rise? Today, we stop our CBs from selling gold!

JR said...

Do you see what FOA meant by:

The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold.

Volker fought the dollar v. gold battle, he raised rates to lure those who had stampeded to gold back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar.

But with the rollout of the euro:

Several years ago, many gold bugs and gold advocates missed the path as the trail turned. Something I pointed out at the beginning of these "message" talks. As most of you will no doubt agree, almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began!

[...]

Yes, the war now is between the Euro and the dollar! The Washington Agreement placed gold "on the road to high prices" as it signaled a phasing out of Euro support for our American gold values.

[..]

The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to!


So with this new battle upon the rollout of the euro, the dollar "had to" strive for a higher gold price, unlike what Volker faced when it was just the dollar v. gold .

AdvocatusDiaboli said...

"THEY"
can we agree that this is the favorite shrimp word? Yes?
No matter to whom you listen, shall it be Alex Jones or Lindey Williams or maybe Silverfuturist, one have all in common this particular word. Reminds me of "he", that word was also very popular the last 2000 years by some people wating for salvation from their more or less shitty lifes.
I dont want to get lost in beating this word, so nobody in the end would argue that I would be beaten a strawman, so I would rather prefer to ask a "THEY" question:

If they ("the founders"?) of the Euro where supposingly kind of smart people, why could they not see what now happens in the euro zone? (Although almost all non-MMT independing economists in the eurozone exactly told them that this would happen).

Thanks for help in understanding why "they" are sometimes dumber than any average person.
Greets, AD

Motley Fool said...

AD

It is a useful generalization.

TF

Motley Fool said...

Rereading my comment, I find that being pressed for time is a terrible thing. Let me fix it.

Let me concede something. In the Very recent past there has been a reason for the USA to try to push up the price of oil. This has to do with the slacking off of usage demand of US$ in the international realm. As we know a continually increasing usage of US$ is required to keep the current $IMFS system functional.

However I would argue that this has only been the case after the current systemic crisis took hold, and while this has been ongoing the US has tried everything in it's power to try to preserve local oil reserves( which they seem to see as everything on the North American continent).

I would argue that the military adventurism in the middle east, having started in 2001, was simply an attempt at gaining access to oil reserves, and during this time up until the systemic crisis they were still controlling the paper gold markets and thus pushing for low $ oil.

On a conspiracy theorist note...if 9-11 was a false flag attack in makes perfect sense in the gold and oil paradigm. The relevant points are :

1.Building 7 went down and it would seem a lot of gold was stored under it, which went missing and was reclaimed with insurance ( 1-1 gold for paper anyone)?

2.The war in Afghanistan gave the USM a excellent starting base of operations to expand their war in the middle east to procure reserves.

3.War in Iraq, etc (which is a continuation of this military plan).

On a side note one must wonder if the BP deep oil refinery was sabotaged to give momentum for placing restrictions on deep water drilling off the US coast (conservation of local oil anyone?)

Peace

TF

Motley Fool said...

Bugger. xD

....if 9-11 was a false flag attack IT makes perfect sense...

AdvocatusDiaboli said...

MF

"a useful generalization"

OF WHAT? Once own incompetence?
Greets, AD

P.S. My question regarding the (giants?, LOL) Euro is still standing.

Motley Fool said...

Ad

For an ant in Life in the ant farm.

The group of people in official positions aware of the Freegold plan is very small.

Do you play poker, AD?

TF

costata said...

DP,

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

AdvocatusDiaboli said...

MF

my question about the euro is still standing, but about your question:
No I dont play poker, stupid game.
But I can tell you that I much more enjoy chess.

What amazes me, is that shrimps are so convinced that just by reading FO(A) these shrimps can conclude to the existens of such a "group of people".
And again I run into the question: If the euro orginated from this group of people, they must have been the dumbest braindead enocomists planet earth has ever seen. And if their theory was that the euro would work, I can only conclude to the quality of the rest of their BS.
And about their influence or should I say power? Nothing, "they" did not prevend to have Greece in the Euro.
Greets, AD

AdvocatusDiaboli said...

Oh, wait. I have I good question:

If the Euro breaks up, can we agree that all that FO(A), Freegold stuff was nothing like a nice fairy tale (but I admit, a really nice one)?

Because I think than we can finally bury this "Waiting for Godot" show much earlier and take a shortcut on the trail.

Greets, AD

Texan said...
This comment has been removed by the author.
AdvocatusDiaboli said...

Hi Texan,
100% ACK. I get more and more the impression that the Euro prevents "freegold" to happen.
The design of the euro causes more the opposite to freegold: It completely disables a balancing by gold inside the euro zone, driving the PIGS more and more into depression/stagflation mode.

So why do FO(FO(A)) always hail the Euro? Just because it made them understand how a wealth reserve asset could work on a CB balance sheet?

AdvocatusDiaboli said...

Somebody plays the CUI BONO game?
Try that one on the euro board.
Did Greece win? A comfortable ride for ten years, now probably for a generation not any longer.
http://www.financialsense.com/contributors/john-mauldin/2012/01/23/staring-into-the-abyss
Did Germany win? No, not really, at least they got huge piles of paper with the signature of the ECB president and the admission to ship goods (real wealth).

Let me check, hmmm: Anybody with access to the ECB took money and lended it out exchange rate risk free to junkies, having the working people guarantee for it.....let me check, were have I seen that before...no havent seen it, just heard the words "...otherwise there will be martial law,..I am doing gods work...".

So please: Never bullshit people saying that the Euro was a great step towards whatsoever. It was just the regular rip off we always have these days, not caring about any kind of social collateral damage. It is actually the same as the housing bubble, just on a bigger scale.
So dont be diluted by this debtors vs. savers living in peace.
The game has not changed: Rich people living from the dumb people who are living from their work.

Victory said...

Hi OBA,

Just finished reading your Rubicon posts and I wanted to make sure I understood the basis of your theory.

Are you saying that when the 3-month T-bill goes negative that the holders of these securities will sell in mass and move into cash (or some other asset) thus causing an avalanche in all U.S. treasuries across the board?

You wrote: "The LAST Rubicon then (now) becomes $IRX going sub-Zero …as it currently does on a regular basis …not only in $IRX but short T’s the world over!"

I looked at the chart you posted then also observed a much longer time-frame (10 year chart) and I have never seen the $IRX go sub-zero, I'm confused?

Also the chart show the $IRX reaching its current lows in 08', 09', and 2011.

Could you explain your comment about the $IRX going sub-zero on a regular basis today? If it has gone sub-zero then why hasn't the sell-off occurred? If it hasn't then what makes you think Sub-zero is imminent?

tx,

-v

Motley Fool said...

AD

I was under the impression I did answer you, but perhaps I can do so in a different way.

Have you read Sun Tzu's Art of War?

That being said it seems you have already made up your mind.

TF

JR said...

Yes yes J,

I missed you in passing last night. I'm glad you now seem to see!

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

Date: Sun Nov 02 1997 21:52
ANOTHER (THOUGHTS!) ID#60253:

For us to understand what is about to happen we must pull our minds out of the paper trading world

[...]

This thinking has worked well until the late 80s. It was at this time that a few wealthy and very smart people started to see the end of this. They understood that the US$ was not going to crash, it already had.

[..]

You see, all currencies now compete with each other, not for value of wealth but for "USAGE". The game has now become "whose currency gets used the most for trading" not for value against goods!

[...]

Will Japan sell US treasury debt and risk taking dollars out of "usage"? Not in your life! Nor will any other CB! They will talk about it. They will sell a little. But sell a lot? It will not happen. You see oil is the key and that connection to the dollar is changing. Foreign CBs will even sell some gold to try and keep the US$ in play ( see my other posts ) .

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

So you agree with me J on higher priced $ oil being key to this "third phase," yes?

Backing up, the dollar was toast, it had already crashed in the late 70s as it stopped really functioning as a mechanism for cheap oil (which in effect means its wasn't very good for usage). The Euro/BIS knew this and supported the dollar both in the treasury market and in the paper gold market, even eventually selling physical. The deal was to support the crashed dollar - this required cheap oil and cheap gold flowing - until the Euro currency got going, for the alternative was gold will become the "world oil currency," which is not a good thought, no?

The Euro currency could not compete for usage until Euro currency was operational, yes? The battle was between the dollar and gold until they could get ANOTHER currency going to compete with the dollar for usage, yes?

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

Date: Fri Nov 07 1997 21:59
ANOTHER (THOUGHTS!) ID#60253:

Nations will defend the system at all cost They will never sell US$ treasury debt as that debt is their currency! The dollar will soar as a final defense! As part of this defense they will allow oil to rise as oil is priced in dollars. How do you get oil to rise? Today, we stop our CBs from selling gold!

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

How do you get dollar priced oil to rise - we stop our CBs from selling gold!

See that - when the CBs were selling gold and supporting the paper market they were trying to keep dollar oil cheaper, but this changed with the Euro's rollout. Then the CBs changed course and embraced higher priced oil by stopping gold sales and support for the paper market, yes?

burningfiat said...

Why always hail the Euro?

Here in fiat lala-land full of stupid politicians, there is not much to hail. I agree...

But I also believe our good host when he makes the point that the Euro has enormously larger credibility in gold-land than the dollar historically.

And when gold is first established as the new way to settle deficits, I don't see the any hindrances for gold to also be used to settle trade-diffs internally amongst the Euro-contries.

But before that, I'm sure the banks will be disappointed that the paper they recklessly lended out to the PIIGS will _all_ go up in smoke.
Paper will soon burn, and after this pyro-party only gold will be good enough the settle the scores.

/Burningfiat

Texan said...
This comment has been removed by the author.
Texan said...
This comment has been removed by the author.
AdvocatusDiaboli said...

Burning fiat
"But I also believe our good host when he makes the point that the Euro has enormously larger credibility in gold-land than the dollar historically."

Oh really? Even a soccer player contract made it onto the ECB balance sheet (that's right, through a certificate by a spanish bank).

If I would not been stuck in Europe with the Euro, I'd rather would like to have the Dollar. At least to would be backed by soldiers rather than being back by soccer players.

enough said...

AD....

that was funny but really sad as well :-)

M said...

@ Micheal

Farm land is not a hedge on inflation or deflation. Farmers have not been living with their head in the sand for the last 10 years. They have low interest credit too and they have been pushing up farm land prices beyhond real value.

Its funny, all the city people that think farmers didnt have access to credit...

burningfiat said...

AD,

Yeah great, but what significance does that have once we reach true valuation of gold (gold-portion of ECB balance-sheet will outweigh soccer-player-portion vastly)?
Only question then will be whether gold will flow or not.

Do you doubt that European gold will flow to settle internal or external debts (if necessary), once US$,CDO,CDS,T's etc. (whatever paper-vehicle is popular now) is toast because of non-performance?

I think it is obvious that the now popular store of wealth called unsecuritized sovereign debt is really close to not performing.
What happens then?

/Burning

M said...

@ AdvocosDiaboli

"If I would not been stuck in Europe with the Euro, I'd rather would like to have the Dollar. At least to would be backed by soldiers rather than being back by soccer players."

The Eurozone as a whole is a net creditor with no trade deficit. The dollar is in the hole 50 billion a month. The dollar is more fundamentally damaged then the Euro. Sentiment wise.. no. As of now, everyone on TV, even the gold bugs think the dollar is the best of the worst of the transactional currencies. I couldn't think of a more lop sided position in the world right now. Everyone loves the dollar to the grave, fundamentals be dammed. BTW the Ruble under Soviet Union was backed by soldiers too.

Michael H said...

costata,

"The energy constraint should be a real limitation. If a unit of oil requires the energy of a unit of oil to extract then, obviously, there is no energy gain from extracting that oil. But if there are financial or geopolitical implications then uneconomic oil could be extracted/produced anyway (corn ethanol anyone?)."

To a point, of course. Corn ethanol may give a negative energy-return, but it is being (energy-)subsidized by other positive energy-return sources. If all energy sources were to have negative returns then continuing to extract them would just deplete whatever energy we have stored.

"We can see several initiatives in progress to migrate trade away from the US dollar platform. Let's make a third assumption. That none of this is accidental or unforeseen by planners in the countries who are the major economic actors in energy and currency."

In light of this quote via JR:

Date: Mon Feb 16 1998 14:40
ANOTHER (THOUGHTS!) ID#60253:

The BIS and other various governments that developed this trade (notice I didn't use conspiracy as it was good business, as the world gained a lot), thought that the paper gold forward market would have allowed the gold industry to expand production some five times over! Don't ask where they got this, as they are the same people that bring us government finance and such.


The expectations of these planners may not necessarily be based on reality, whether in the gold extraction or oil extraction spheres. I think it would be useful to look at the actions of the planners both through ‘peak cheap oil’ and ‘non-peak-cheap-oil’ lenses. The former would expect the supply of oil to contract, while the latter would expect that ‘if you pay for it, it will come’.

MF,

"I would argue that the military adventurism in the middle east, having started in 2001, was simply an attempt at gaining access to oil reserves,..."

There are two different possibilities: the US want access to the ME oil, or the US wants control of the ME oil. I am guessing that it is the latter that they are after: control over the ME oil via ensuring the $-pricing mechanism. The oil can then flow to China all it wants, as long as China turns around and sends stuff to the US to get USDs.

J put it pretty well: "I'd just like to add that OIL has been secured twice in Iraq and let go. Why? It's not all about the cheap flow. It's about the flow in $'s."

Michael H said...

J,

I agree with you that, if you are the US, you want the price of oil to be steadily rising.

A low $ oil price means that your ability to run a trade deficit suffers. Other (non-oil) countries don't need to sell you as much stuff to get dollars to get their oil.

A high $ oil price will choke out your own economy as oil expenditures crowd out other consumption.

But, with a steadily-rising $-price of oil:

- Your own economy has to maintain a commensurate steady price inflation, but as long as that happens then the dollars to buy oil should be available.

- The rising oil price effectively devalues foreign accumulated dollars, so that other countries must continue to sell stuff to the US to replenish their dollar reserves.

So what happened to the $-price of oil in 2008? Perhaps the oil market is not very easy to manage. Maybe ‘they’ are managing the gold price in its nice upward channel in the hopes of creating an echo upward price channel in oil.

Alternatively, maybe ‘they’ don’t care about the oil price and only care about the gold price. I would have to think about what observations would be consistent with each case.

Texan,

"So I briefly tried a thought experiment. What if oil was effectively free? Say, like as far back as 2000 when it was $15/bbl?"

"So what was going on from 1986 through 1999? Other than the first war with Iraq, oil never really broke $20. The Washington Agreemnt wasn't signed until 1999."

As costata pointed out, the WAG marked some changes to the gold market, which we'd expect to lead to changes in the oil markets. The WAG wasn't the beginning of oil sales, it was the end. Gold stopped being 'sold' and oil 'popped'. The theory is that the official sales of Brown’s bottom was orchestrated to cover leases that had no hope of being recovered. So even though the gold was ‘sold’ in the early 2000’s, it had left the vault years earlier.

Michael H said...

JR,

I think you and J are in agreement? Here is my rough timeline, based on your post:

- 70’s: US wants higher $ oil price to encourage domestic exploration. They close the gold window. $ oil price gets out of control. USD in existential crisis. Europe steps in with ‘stern recommendations’ for Volcker on interest rates, but also by arranging the forward-gold sales to support a falling $-price of gold, thus leading to a falling $ oil price.

- 80’s: Europe continues supporting the gold forward sales to keep the $ price of oil down. Physical gold supplied by the market as it is an investment that is ‘going nowwhere’.

- 90’s: the market has supplied as much physical gold as it can, and now European CBs have to step in to lease gold to maintain low $ gold prices and thus low $ oil prices, for a few more years until the Euro is up and running.

- 00’s: WAG marks the end of Euro CB gold sales. Browns bottom is arranged to cover the outstanding leases gone bad. The Euro can compete with the USD on the open market and no longer needs the support of CB gold leases. $ price of gold begins to rise, $ price of oil rises as well.

How does this look? Rough, but do you essentially agree? J?

Jeff said...

Hi AD,

You don't seem to understand the euro design. It's not supposed to be the strongest fiat; it's made to depreciate against one thing, instead of everything. Big difference. And for those who tire of JR pasting FOFOA quotes, he probably does it because the same questions keep coming up. Like now.

FOFOA: The point is that the Eurosystem's response (volume expansion) to its current systemic threat (the debt crisis) is not surprising. Does this mean the euro will collapse (experience hyperinflation)? No. Because, for one reason, it has severed the link to the nation-state. The euro is behaving perfectly predictably in maintaining the nominal performance of its system through expansion, but it cannot be forced to fund the future government profligacy of the PIIGS through volume-only expansion. That link is severed.

But the dollar, on the other hand, is nominally on the hook not only for the debt mistakes of the past, but for all future dollar-denominated liabilities, obligations, entitlements and promises of the biggest debtor in all of history, on top of a debt mountain that is probably another $100T in size depending on your measurement criteria. That's a big difference. The dollar is an old currency in the winter of its life, linked to the greatest profligate debtor the world has ever known. The euro is a young currency that has severed its link to the nation-state. The ECB can save its own system, but the member states cannot force it to fund perpetual profligacy.

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

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

The euro might quickly devalue against the physical plane during the transition when the $IMFS goes to relieve some of the past debt burden, with gold going up as an asset on the balance sheet to provide an offset for the saver class. not a running hyperinflation, but a devaluation.

A quick devaluation (against the physical plane) in both the euro and the dollar would have very different outcomes for the two currencies.

Jaqship said...

Costata,

Please explain "petgas", and how its low price undermines the salience of Peak Oil.
My understanding of the Peak Oil case is that the Alternatives can only (maybe) replace oil's role in heating, transport etc., not its role as by far the best lubricant etc.
See http://thearchdruidreport.blogspot.com.

Jeff said...

AD said: 'If the Euro breaks up, can we agree that all that FO(A), Freegold stuff was nothing like a nice fairy tale (but I admit, a really nice one)?'

Here is a quote from the last thread:


FOFOA: The euro architects knew the difference between the monetary functions. They knew that the infinite growth, store of value function was the dollar's Achilles' heel. So they designed the euro to be a stable transactional and accounting currency even if the world chose non-euro physical assets as a store of value. The dollar does not have this design.

This is not to say that the euro will not devalue against gold right along with the dollar. All infinite, symbolic, transactional currencies will, which is to say all currencies will. And to a lesser extent, all currencies will have to devalue against the rest of the finite real world as well. But they will not all hyperinflate to infinity in the aftermath as the dollar will be forced to. Some will. Others will not. The euro probably will not.

This is freegold. It is coming whether or not the euro uses its secret weapon. Like I said, they would prefer not to be seen destroying the paper gold market proactively. They would rather just wait until it destroy itself (which, by the way, it is doing pretty well)."

One more:

Conclusion

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

Motley Fool said...

Michael H

It seems the art of euphemism is under-appreciated. :P

Yes, the latter seems most likely.

TF

One Bad Adder said...

Hi V: -
Let's see ...

Are you saying that when the 3-month T-bill goes negative that the holders of these securities will sell in mass and move into cash (or some other asset) thus causing an avalanche in all U.S. treasuries across the board?

No V, T-bills ARE a Cash proxy ...guaranteed 100% by the USG ...and NOT subject to Bank risk. They effectively will become THE Asset.


I looked at the chart you posted then also observed a much longer time-frame (10 year chart) and I have never seen the $IRX go sub-zero, I'm confused?

It hasn't happened yet because it hasn't happened YET!
T-bills have actually flirted with Zero and beyond ...on a much more regular basis recently ...and IMO will drive down and throught the Zero inflection point "any old day now".
Charting tools (as of today) generally don't factor in anything lower than 0.005, so it's a bit hard to get a handle on it. details CAN be found though V.

Also the chart show the $IRX reaching its current lows in 08', 09', and 2011.

...and if you look, EACH time we "we went there" it was with an increased level of "purpose"

Could you explain your comment about the $IRX going sub-zero on a regular basis today?

If you can access the Data, rather than simply referring to Charts you'll find both in the US ...and in other countries, it has become a much more regular phenomenon lately. (not definitive ...YET!)

If it has gone sub-zero then why hasn't the sell-off occurred? If it hasn't then what makes you think Sub-zero is imminent?

All of the above Sir V.

Regards.

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

hiya OBA,

In your opinion does the paper price of gold implode and sepaprate from the physical asset during this imminent revulsion of the future/ neg. $IRX party? If you're tired of typing, a simple yes or no will do :-) thanks in advance for all your thoughts, E.

Matt said...

Euro marking its gold to market is hardly a 'secret weapon'. I posted a link above that Australia's RBA already does that and I'd wager that most CBs that came off fixed exchange rates with the USD do too.

Hardly earth-shattering stuff here guys.

DP said...

@costata,

http://www.youtube.com/watch?v=UTBsm0LzSP0

Ladies and gentlemen, I'd like to present to you… Physical Gold!

[crowd gasps]

One Bad Adder said...

Edwardo: -

Getting back to your Query Sire,

Correct me if I've somehow got it wrong, but wouldn't the recognition that the $IRX is, as it were, frolicing in a field riddled with landmines-and therefore destined to step on one eventually- cause a lot of folks to pack up their bags and move on well in advance of the actual event?

They already HAVE ...or in the process of "packing their bags" and moved on Ed ...to the Government guaranteed, Risk free, Cash proxies ...Three-month (and shorter) Treasury bills.
If they aquired them (say) today, they paid c-$999.65 to get back $1000.00 in three months. WHEN ...and during TS H'ing TF, they might be paying (say) $1100 for the $1000 Bill.
...and be happy to do so as $US ratchets higher, 'n Higher, 'n HIGHER!

Victory said...

Sir Adder,

Thank you for the prompt reply.

"No V, T-bills ARE a Cash proxy ...guaranteed 100% by the USG ...and NOT subject to Bank risk. They effectively will become THE Asset."

What I am attempting to have you flush out for me is the 'game over' description of your reasoning.

Yes T-bills are 100% guaranteed and the holder can wait 3 months to receive his cash but then what. Break it down for the laymen, what's the domino effect? Is it debt ceasing to roll-over and instead bidding for gold?

Perhaps you have described this elsewhere and I have missed it, if so I apologize for rehashing. If that is the case would you (someone) be kind enough to direct me to that post.

Also I still don't understand why you feel this imminent? In other words what will cause this to happen?

much obliged,

-v

One Bad Adder said...

enough: -

Absolutely Squire - $PoG is IMHO a contrivance based on the Paper-gold Proxy.
NOTHING to do with Gold Per-se ...and as such, I feel, under the pressure of an imploding market-place, with "management" being deprived of the usual price adjustment "tools", $PoG will collapse.
IMHO - There is NO "current" pricing mechanism for GOLD Sir.

Victory said...

Texan,

Don't forget about the ROW, they use $ to buy oil too. I think that is where the gist of the $ support through higher oil price argument stems from.

-v

One Bad Adder said...

V : -

The Key here is to get your head around "a complete loss of faith in the economic FUTURE" ...then Sir, put yourself "in the moment" ...and see what YOU see.

DP said...

http://www.youtube.com/watch?v=1miw-dObVC4

http://3.bp.blogspot.com/-_E4DkqjA9bM/Tu-bsBIl7JI/AAAAAAAAD3I/f1cgv6TR6dY/s1600/Exeter.png

DP said...

Let's Twist again
Like we did last Summer

Victory said...

Sir Adder,

"a complete loss of faith in the economic FUTURE" ...then Sir, put yourself "in the moment"

wouldn't that be a failed auction? and in terms of a negative yield why would anyone pay above par for a discount security whether at auction or on the secondary market? I'm sorry Sir Adder I just don't know what you are trying to say here.

FOFOA/anyone?

-v

DP said...

why would anyone pay above par for a discount security whether at auction or on the secondary market?

You're a dollar-based investor, amirite?

KJ said...

oba,

if i understand correctly, what is happening/will happen is dollars flowing down the pyramid toward physical gold...

question - if one has a complete loss of faith in the economic future, and one piles into t-bills, is it implied then these holders of t-bills expect to be revived with faith ie. the system will continue on like it 'always' has?

at some point then, a 'rational' t-bill holder (or their equivalent holders worldwide), while rates are sub-zero, will lose all faith and move on down, if they can, one level on the pyramid to physical gold?

enough said...

I am very surprised after the MF Global fiasco and CME's/Regulator's/ Trustee's criminal response that the paper $POG is so strong. Really feels like a trap. Seems to me the BB's are bidding it up to make the contract market look like it's still legit and running smoothly. Suck some gamblers in before they pull the rug for good and stampede them all out again.

Edwardo said...

Costata,

"Anyways, as I said earlier I'm in neither the Peak oil or Peak Cheap Oil camp today."

Given what you wrote as the lead up to that comment, I can't fathom how you can't at least be in the Peak Cheap Oil camp. The case for peak cheap extractability is about as solid as a case can be. There is a finite amount of oil available to extract and a substantially smaller supply of high grade crude. As it does not replenish-see Abiotic oil proponents- ceteris paribus-one must reach a condition, which I believe we already have, of Peak Cheap Oil specifically, and, eventually, with some exceptions, peak cheap resources.

Victory said...

Sir Adder,

Just stepped out for a minute and cleared my head I think I get it, that's an interesting theory, this negative $iRX

So when this happens Gold stops bidding on dollars right?

Wow you think it's any day now, that's heavy. I don't think it's that imminent I think you would see a lot of other cracks first but I hear ya.

-v

victorthecleaner said...

Never attribute to malice that which can be adequately explained by stupidity, but don't rule out malice.
(often attributed to Robert Heinlein)

That's basically our issue, isn't it? Both with the US politics in the ME and with the European debt crisis.

To come back to the 'but don't rule out malice' part, I remember someone quoted from a German study about how much private gold they own. I think the study claimed they had some 8000 tonnes and a good part of it acquired since the European debt crisis started?

I don't know how credible these figures are - they might plainly contradict the figures in the studies by CPM Group and GFMS, but that may just be the latter's fault. Let us assume the ECB has a good estimate of the flow of private gold into Europe. If this flow is rather large (because the average European panics earlier than the average American), isn't a European debt crisis that drags on for a couple of years quite healthy?

Victor

DP said...

So, ready to go?

Victory said...

VtC, I like the way your mind works, hehe...

victorthecleaner said...

OBA and Victory,

thanks to OBA for the idea and to Victory for translating it - now I see what you are trying to say. I'd put it this way:

The dollar depends on 'private gold bidding for US$'. At the technical level, this means that private entities lend gold and borrow US$ (a swap). In big chunks.

But as soon as you cannot hold these US$ safely during the term of the swap (because short term nominal interest rates go negative), you basically stop doing this.

So the gold contango is positive (most of the contango sits between spot and 1 month, by the way) only as long as there is a tiny positive nominal yield on T-bills left. Once that disappears, GOFO will drop well into negative land, and that will be it.

Hope I get it now, OBA.

Victor

Edwardo said...

MF wrote:

"The war in Afghanistan gave gave the USM a excellent starting base of operations to expand their war in the middle east to procure reserves."

It may have also given certain entities an opportunity to fund themselves from the enormously lucrative heroin trade which is estimated to have an export value of approximately 2.4 billion dollars.

http://www.pbs.org/wgbh/pages/frontline/afghanistan-pakistan/opium-brides/afghanistans-opium-profits-soared-in-2011/

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