Monday, January 23, 2012

Yonder ...thur be DRAGONS!!

块大金条出现在江苏南京新街口一家商场内,配备了两个保安持枪现场保护。据现场工作人员介绍,这块“金条王”总重为99.999公斤,目前全国仅有一块,且纯度、重量都创下历史纪录。

Below is a fun little Chinese New Year guest post by Sir Topaz, aka One Bad Adder (although he seems to be pretty good at math to me). Just a little "food for thought" as he says...

9 月 8 evening Yan’an Road, Shanxi Road intersection, north-south and east-west traffic to each other and lack of traffic police to ease, crossing continued congestion. Post intern reporter Wang Ju Liang Yang deep to figure

The Shanghai Transportation System – an analogy
by OBA

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

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

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

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

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

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

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

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

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


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

Shanghai taxi driver ID includes a registration number 111,892 where the lower the number the more earlier the driver was registered. One colleagues opined that he would get out of taxi where the registration was recent – currently around 3xx,xxx, simply because the driver would need help understanding directions. The higher number of stars denote better quality of service, and to some extent whether or not the driver is likely to understand some English.

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

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

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


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

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


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

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

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

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

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

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

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

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


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


(Pictures and music added by FOFOA)

305 comments:

1 – 200 of 305   Newer›   Newest»
Ryan said...

Subscribing comments.

meo fio said...

India to pay Iranian oil with gold?

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

Michael said...

Yep, headline on Drudge:
http://www.forexcrunch.com/gold-for-oil-india-and-iran-ditch-dollar-report/
yes oil for gold??!!?? who would have ever thought

costata said...

Nice analogy OBA. I hope to see more posts and comments from you as time allows.

Cheers

Michael and meo fio,

Jim Sinclair is running a link to that Debka piece as well.

There's also a link to a post on China and petrodollars by M K Bhadrakumar that is well worth a glance as well.

Michael said...

It will be interesting to see the POG used in settling the oil/gold trade if it actually continues to fruition. Will they used the commodity/spot price or will the hidden/monetary value be recognized? It could test Another's observations and give us a view as to whether those with similar views still hold sway...at least as far as India and Iran are concerned.
While I believe that Another was correct I also observe that many, especially politicians seem to view gold solely as a commodity of little value.
The reaction of the US gov will also be worth watching.

Nickelsaver said...

comments

78Rubies said...

Comments…

FOFOA said...

I hate to be the one to rain on the Persian parade, but this Iran/India oil for gold deal is quite the OPPOSITE of what ANOTHER was talking about. Here's what ANOTHER wrote:

Hear me now, "if gold tries to go lower than US$ $280 the BIS will buy it OUTRIGHT in the OPEN for all to see"! They must! They will! I know. For no currency system could stand if "Oil" were to bid for gold!

What he was saying was that oil was getting its gold through the miners (through "the deals" made in London). If this flow of gold was cut off due to a price below the cost of production, they (the big oil producers) would bid for physical gold openly wherever they could get it… with their excess dollars! They like gold, and gold is how they like to settle their trade surplus. Not as a currency for all of the trade, but as settlement for the surplus portion of it.

Iran is not openly bidding for gold. It can't. It is cut off from the gold market. It is not driving up the price. It is not breaking the (bullion) banks. In fact, if this story is true, India is actually assisting the $IMFS status quo by agreeing to give Iran some of its physical at the same price Dennis Gartman pays for his paper gold made in New York City.

Settlement is the key! Iran/India is a bilateral trade arrangement. And in their bilateral relationship, neither one has a stable or widely exchangeable currency. Nor do they have balanced trade between the two of them. They need something for settlement. The dollar was fine because it could be used multilaterally (with other trading partners) in a way that trade would be somewhat settled. But Iran is presently cut off from the stable settlement currency, the dollar.

So now, bilaterally, they don’t have a good way to settle their trade imbalance. Gold can settle the trade, but at the present price it will require a lot more gold (by weight) from India. Luckily India has quite a lot (by weight) in its zone, and Iran has what India needs. Iran doesn’t want to hold a declining rupee for long.

So imagine what will happen when the dollar starts behaving like the rial. Everyone will have problems similar to Iran who is cut off from the settlement currency. They won't be cut off like Iran, but it simply won't be stable anymore. But maybe there will be an alternative currency that’ll work in that same multilateral way and also be exchangeable for free floating gold wherever a surfeit of said currency lands, even if it's outside the zone.

So don't be too disappointed when this story turns out to be dollar-positive after all. Funny, isn't it? If only India would have REFUSED to pay for oil with its gold at today's prices, then all that Iranian oil could maybe have bid for some gold.

Sincerely,
FOFOA

mortymer said...
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AdvocatusDiaboli said...

IMHO that maglev is the greatest waste of money you can think of. Builing costs US$1.33bn! One ticket US$7.27. Only used at 20% capacity. Just image how many regular trains could have been build instead.
Commercially a catastrophy.

Digging something out of the ground to burry it somewhere else? Is that the analogy supposed to be drawn here?

mortymer said...
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DP said...

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Max De Niro said...

RE: The Iran-India gold deal.

I see FOFOA's point of view that this could be dollar positive, as it encourages dishoarding of gold from Indians.

At least, I think I get it.

I see the mechanism as follows:
India does not have enough official gold to pay for any significant amount of oil from Iran, so it's coffers will be depleted rather quickly.

In this case, will it bid for Indian private gold with rupees, or with dollar reserve holdings?

Perhaps the Fed might even provide some swaps to make plenty of dollars available for such purchases.

The other element that I think should be considered is the amount of oil that India gets from Iran. India imports 350,000 to 400,000 barrels per day from Iran.
Source:
http://www.arabtimesonline.com/NewsDetails/tabid/96/smid/414/ArticleID/178686/reftab/36/t/India-weighs-options-to-pay-for-Iran-oil-imports/Default.aspx

That comes out at 24,000 ounces or 0.68 m/t of gold per day. India holds 550 tonnes approx official gold. At current prices that would last 808 days. That doesn't seem like a very sustainable option.

Therefore some of the variables in that calculation are going to have to change - price of oil, price of gold, amount purchased from Iran. Or India is going to have to convince Indians to give over their savings (gold). Surely this is going to take a much higher price, given the average Indian's feelings towards gold.

Something doesn't quite smell right there.

My guess would be that oz/bbl ratio used in this deal would not be the same as is currently available on the shrimp markets.

mortymer said...
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mortymer said...
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Anand Srivastava said...

I think in this deal Iran is supposed to buy stuff from India. Possibly the trade would be balanced out at a small percentage of gold. But still this wouldn't match what freegold rate would be. It would still be a loss. But it might make India a preferred buying country, maybe.

Max De Niro said...

Mrt,

"Who says that they exchange at the official price? If you multiply by 10-20-30, how many days do you get?"

That was precisely my point when I mentioned the oz/bbl ratio.

Max De Niro said...

Mrt,

From your link:
"This would assure the US a continued source of energy in the period 10 to 15 years from now when oil is expected to be in short supply in the world." (Yamani)

Why would he expect oil to be in short supply 10 to 15 years from his statement?

Oil would only be in short supply if the price had been manipulated downwards.

Dr. Peter T said...

Has anyone seen any notice confirming that PHYS Gold will complete the trade at current USD rate? Most unlikely! Even if there were such 'confirmation', I would assume it to be mere spin, designed to -as ever- deceive and misdirect. Not that it needs saying, of course, but India and Iran (and CBs and BIS) know very well that the paper gold market price in no way represents the true value of PHYS. Their bilateral arrangement will PRIVATELY doubtless reflect that.

mortymer said...
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Max De Niro said...

Given "Option 2: Gold could be freely traded between governments under a global limit." from above and coupled with Another's proposition that gold price is known in the thousands by central banks, can we conclude that all/most official gold reserve figures are pure fiction, or would this be too big a deception to hide?

mortymer said...
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mortymer said...
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mortymer said...
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Dr. Peter T said...

Exactly! Iran and India don't have to price PHYS at the artificial public price of paper gold. They can price it at whatever they agree, just as the Saudis -with Gold trading on public markets at $300ish- stated that they valued Gold at $1000, and received (part)payment for their Oil under those terms. The most ipt issue here seems to me to be that the USD is not required to complete the trade! Iran will not be receiving ever more worthless US electronic trading units for Oil; it will instead be receiving true and valued wealth. 'Paper' dying, Gold regaining it's rightful position.

sobione said...

it is good to see Sir Topaz is around.

REgards

Sobek

mortymer said...
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Michael H said...

comments ...

mortymer said...
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mortymer said...
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mortymer said...
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A PIIG said...

Offers some food for thought regarding freegold and legal tender:

http://www.youtube.com/watch?v=W90cvMxfgHA

http://mises.org/journals/jls/18_3/18_3_3.pdf

DP said...

Thanks!

JR said...

Hulsman is an uber-tool. He, like most other post-R=othbardian AE
folks really have no clue what Mises was talking about, because they are Rothbardians, not Miseans.

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

Hi Max,

Sorry, but I pretty much completely disagree with everything you have written in these comments.

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

Oh look,

AD is saying something super silly again.

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

mrt,

: Do you want to me wrap this up or are you able to draw your conclusion? :o)

Please, I have no idea what you are driving at because you don't tell anyone and instead play the hide the ball game. Most of us have read this stuff before, so please just cut to the chase. Otherwise we often end up with disasters like the comments to this post.

mortymer said...
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JR said...
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JR said...

Here's an example Mortymer,

You posted this without comment:

"86. Memorandum From the Chairman of the Federal Reserve System Board of Governors (Burns) to President Ford1

Washington, June 3, 1975."


If you don't know (I'm sure you do), this is like exhibit #1 for the ZH/GATA crowd.

Exclusive Smoking Gun: The Fed On Gold Manipulation

Tracking The Gold "Conspiracy" - GATA's Must Read Presentation To The Cheviot Asset Management Sound Money Conference

Moar on AB

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

I can see why someone erroneously enamored with the SDR would think the bulk of the story was centered on the US, the dollar and the IMF, but that person would be one without a firm grasp of what is going on. Indeed, international law is very tricky and slippery area, and one way to way get real confused real quick is to view it from the perspective of just one of the participants. To do so is to ignore what is really going on, and that is to your detriment.

Perhaps if the nonsense continues someone will start testing how much you think you know. No one wants to see that.

Nickelsaver said...

http://www.businessweek.com/news/2012-01-24/iran-said-to-seek-yen-oil-payments-from-india-amid-sanctions.html

Max De Niro said...

JR,

Doh!

Nickelsaver said...

It seems that the Eastern world would like to continue using Iranian oil, in spite of Western sanctions.

It makes me think of OBA's statement that China operates as a Laissez-faire Society, in spite of its Socialist Government.

Separating business and pleasure is no problem.

J said...

China continues to expand it's reach

Now taking aim at the GCC

"Chinese Prime Minister Wen Jiabao, who visited Doha last week, disclosed at a press conference on Friday: a) China proposes to invest in the manufacturing of ''downstream oil products, which are most urgently needed by Qatar''; b) China and Qatar signed an agreement to jointly build a refinery in Taizhou, Zheijiang, in China; c) Chinese companies propose to participate in infrastructure projects in Qatar; and d) China and Qatar are discussing a "long-term, stable and comprehensive cooperative partnership" in natural gas.

Then, Wen quietly dropped a bombshell. He revealed "one more important point" as if it were an afterthought. He said:

In order to address investment issues, we [China and Qatar] need financial support. Therefore, we reached another agreement, a cooperation agreement linking finance with investment. Qatar also proposed the use of local currency in trade settlement and even a specific ratio. I think this proposal can be studied.

The short point is, the renminbi, the "people's currency" also known as the yuan, is appearing in Doha. The China-United Arab Emirates (UAE) currency swap deal which was signed during Wen's visit to Abu Dhabi last week already brings the yuan to the Emirates. The deal with the UAE is worth US$5.5 billion and the Chinese central bank statement said that it aims at "strengthening bilateral financial cooperation, promoting trade and investments and jointly safeguarding regional financial stability".


Sheikhs fall in love with renminbi

mortymer said...
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Nickelsaver said...

Mort,

I too am glad that we have JR here to show us what comments have 'merit'.

Otherwise, this meritocracy would devolve into mush.

AdvocatusDiaboli said...

Hi mrt,

I like your posts of history, but still, it is history.
Since the last 40yrs. lots of black swans have landed all over the earth, so knowing those particular facts might be interesting to a goldbug historian, but besides that?
Greets, AD

P.S. @JR yes I know the signs are everywhere, I just got to listen to what the lord says,... just take the maglev.

Nickelsaver said...

http://www.youtube.com/watch?v=0OnpkDWbeJs

Michael H said...

Max,

My view is that the India-Iran trade will be settled in unallocated paper gold at the going paper price. This is about trade settlement, not about saving the excess.

Iran sells $9.5B in crude to India each year. India sells $2.5B in goods to Iran each year. Iran doesn't need $7B worth of savings, they need $7B with which to turn around and buy stuff from other countries!

Since the dollar is not an option, they are looking for anything else. Yen, paper gold, whatever.

Here's a different way to look at it: Iran is in the weak position thanks to the sanctions. There is no way that this situation would lead to Iran's accumulation of physical gold to India's detriment.

A PIIG said...


Hulsman is an uber-tool. He, like most other post-R=othbardian AE
folks really have no clue what Mises was talking about, because they are Rothbardians, not Miseans.


Care to expand JR, Hulsmann a tool because he is a Rothbardian? Because Rothbard had no clue what Mises was talking about? Any examples of this uber toolism and cluelessness?

And the links were in particular to legal tender, so I don't get the point of your rant against Rothbardians not understanding Mises in any case.

Michael H said...

Further, if the India-Iran trade is in unallocated paper gold, I wonder how much physical gold will have to be deposited at the BBs.

This increase in BB physical reserves would be a positive for the $IMFS.

Motley Fool said...

Comments...

Aquilus said...

An interesting article about the monetary crisis from Doug Noland in this article:Thoughts on the Crisis of Capitalism

Some excerpts (my emphasis):

- There is certainly no doubt that Capitalism has vulnerabilities. Much less obvious is that its greatest vulnerability lies with the nature of Credit

- I am convinced that a capitalistic system must have a monetary anchor to be sustainable.

Virtual monetary plane vs Real value plane in different words:
- One can also think in terms of two distinct pricing systems. There is the pricing of goods and services throughout the “economic sphere.” There is, as well, the pricing of finance/Credit/risk in the “financial sphere.” It is the pricing mechanism within the financial sphere that has become so badly out of whack to the point of posing dire risk to global Capitalism.

Front lawn dump:
- Yet the overarching problem today is that the global government finance Bubble has inflated past the point of being too big to fail. And the rules of the game have become dangerously clear: policymakers will do any and everything to sustain a global Credit system some years ago exposed as dysfunctional and a risk to Capitalism. Governments are conspicuously against the bearing of consequences, and market participants are being heavily incentivized to play it that way.

Dr. Peter T said...

More clerks failing to understand the simple and clear significance; mere clerks complicating, thereby obfuscating, the essence. Clerks diluting the 999 Gold poetry of Another and FOA. This is why those who get it don't hang around this comments section.

Motley Fool said...

Dr. Peter T

Ha! Some of us stick around to assist those that get stuck on the trail.

But what do I know. :P

TF

Max De Niro said...

MH,

Why would the BBs facilitating the deal/storing the unallocated have to be Western banks?

I'm sure the Chinese banks would be happy to be involved in such a deal. If the business went East, would an unallocated deal still be so positive for the $IMFS?

Nickelsaver said...

Dr P

This comments section is like a crucible. The 999 gold of Another are purified, not diluted. Although, if you are looking at the top, all you see is dross.

Incidental, not all dross is waste

Edwardo said...

FOFOA:

"If only India would have REFUSED to pay for oil with its gold at today's prices, then all that Iranian oil could maybe have bid for some gold."

Quite disappointing that they didn't. And given the broad ownership of gold within India, it would seem very much in their interest to assist in the emergence of freegold.

One Bad Adder said...

AD: -
Digging something out of the ground to bury it somewhere else? Is that the analogy supposed to be drawn here?
The Mag-Lev and all the mentioned / perceived economical shortcomings (in analogy) represents what FreeGold would cost to set up and run. If you care to revisit and think in these terms I'm sure the experience will be all-the-more rewarding.
It's NOT about the Mag-Lev ..or the Traffic Squire.
It's about how the Chinese interact commensurate with Laissez-faire principles. ...definitely at the Micro level ...Macro? Perhaps a different kettle of fish.

cos: -
Thanks mate - we watch (those pesky T-bills) together.

mr pinnion said...

Ummm.
I like JRs comments.
I also like Mortymers comments.
But which is better?
Theres only one way to find out...
http://www.youtube.com/watch?v=Np6gyUb0E7o

Regards
Ozzy

Michael H said...

Max,

Remember who benefits from a delay to freegold. Hint: it's not the debtor countries, but the surplus countries, since they get to continue accumulating gold at cheap prices.

Whichever BB gets the business it is still $IMFS positive, since the deal would add credibility to paper gold.

victorthecleaner said...

Max,

coupled with Another's proposition that gold price is known in the thousands by central banks, can we conclude that all/most official gold reserve figures are pure fiction, or would this be too big a deception to hide?

Yeah, I have also considered this option. The observation that struck me was this: According to a recent newspaper article that a colleague showed me, the German CB has presently no gold on loan. But someone in Belgium leaked that they had almost 50% of theirs on lease - I could not verify myself that this story was true though.

If it was true, how about this: There is gold settlement going on behind closed doors, at whatever price. They just have not booked the transactions yet. What is sold under the scheme is merely booked as leased.

One day, when the system resets, they will book the transactions.

At least this would be in the tradition of the 1990s. First, they lease it and a good part if it already leaves the vaults. Only later, with the WAG, they acknowledge the transaction and book it officially.

I should stress this is just a vague idea, and we don't have any evidence for it.

Victor

Max De Niro said...

MH,

Got it. I'm sure Chinese BBs would like to have control over the process though, moving them more toward the centre position in the spider's web.

victorthecleaner said...

Well, it is consistent with the fact that Germany is a net exporter and so should not spend any of their gold but perhaps even earn more.

I am not sure about the trade position of Belgium. If they are an importer, perhaps just am importer of energy, it would fit.

Victor

Max De Niro said...

VTC,

I was referring to some sort of scheme like what you mention.

It was a very speculative question, as I don't know about the settlement procedures between CBs.

I was not obliquely implying that the US had no gold, which some people do, just to clarify.

I was merely saying that if there was trade amongst the CBs that was done unbeknownst to us, then the figures could be wildly different - higher or lowers for the various countries.

I think many here believe that Saudi Arabia's figures aren't believable, or at least that the gold 'officially' belongs to the Princes or some other book keeping chicanery.

Who can tell how much China has, given their surprise announcement a few years back.

This phenomenon could be quite widespread.

mr pinnion said...
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victorthecleaner said...

To everyone,

Mortymer is getting closer and closer to establishing from original sources what Another/FOA alluded to in their postings. I think this is a good reason for supporting him rather than bullying him.

If you want to do something useful, why don't you take a day off, read through the documents that mortymer discovered, and then write a beautiful article putting everything in context. I am sure FOFOA would gladly accept this as a guest posting.

Max,

I know you did not say there was no gold in Fort Knox. At least not in the way GATA would.

There is still the question of whether the US have never leased their gold. During the 1990s, the falling price in US$ and the carry trade have probably squeezed a lot of private gold out of the western markets.

Since 2001, the price has been rising. Carry trade would have been a loser's game. So where did the gold part 2001 come from? There were still some 10000+ tonnes of forwards to be filled. Alright, 2000 tonnes 1999-2004 from the Europeans. But that stuff had already left the vault before 1999 - look at the FRBNY vault inventory.

Then perhaps 50% of the global mine production forward-sold or hedged some 5 years into the future. I get to about 6000 tonnes. This is still a couple of thousand tonnes short.

The rest of the flow goes to jewellery in Asia, into the ETF and what not.

Yes, I know the market is totally opaque, and I cannot prove anything.

Still, I often have the impression that a big physical seller is still unaccounted for.

Victor

mortymer said...
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mortymer said...
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victorthecleaner said...

At screwtapefiles, RLP has an article in which he speculates about the identity of Another. The question was raised why the Europeans seem to prepare and even push for freegold, but why the question of what replaces the dollar in the international reserves, is not discussed in academia. For some reason I cannot get past the captcha at screwtape, and so I just dump my comment here hoping someone is interested in reading it:

Why no public discourse about replacing the US$ by something else as the international reserve?

I think that's a clear case of 'acting' instead of 'talking'. If you drag it into the mainstream media and explain it well enough for people to understand, the dollar would collapse immediately, creating a huge chaos in the global economy. So you better keep you mouth shut.

If you wish to discuss whether the international monetary system should be based on a US$ reserve or a gold reserve, as a purely academic question, yes, that's a beautiful discussion with quite a clear answer.

But if you think about the politics and economics of replacing the US$ with something else, after the US$ has been in place for decades, that would still trigger a catastrophe for large parts of the world economy. For example, I cannot see how the UK or Japan could escape even if the Euro zone might manage to survive (probably nevertheless wounded).

So unless you have an idea of how to at least somewhat contain the damage, and unless you have agreement of more key parties than just from inside the Euro zone, you might wish to remain silent and play for time.

Victor

sean said...

For the benefit of anyone such as myself intrigued by this T-bill yield inversion thingy on the horizon but needing a little "refresher" course, I found this great article on Jesse's Cafe. ;)

mortymer said...
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meo fio said...
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meo fio said...

I'm sure if India is to trade its gold to Iran for oil, they will trade it at gold's true value, like 100 barrels of oil for an ounce of gold.

Edwardo said...

From Doug Noland,

"There is certainly no doubt that Capitalism has vulnerabilities. Much less obvious is that its greatest vulnerability lies with the nature of Credit."

With all due respect to Doug Noland, who is, in my view, an asset in discussions on financial matters, Capitalism's greatest vulnerability, or, perhaps, flaw, is its unerring tendency towards concentration of power, aka monopoly.

Max De Niro said...

Edwardo,

Communism also tends toward(is) a monopoly, the same with monarchy, feudalism and any other human ism.

The flaw, causing the system instability, is in the (understandable) ambitions of humans to control others and gain power, not in capitalism per se. IMO.

Aquilus said...

Edwardo,

Would you still have many monopolies in a capitalist system in which

-the store of value is not under government control

-the government does not therefore have the massive funds from inflation tax to re-distribute from savers to favorites

-the same government is out of the business of "investment" therefore killing innovation many fields that cannot fight that kind of money with private investment.

Maybe, but not so sure...

Max De Niro said...

Aquilus,

If you have an intellectual elite, you will always have monopolies.

If freegold can manage to fix the school system and turn it from a monolithic automaton factory into an institution of education, then perhaps the days of monopolies could be numbered.

I don't rule that possibility out, but it's a tall order. The flow of value will have to be a raging torrent to break up the sludge that has gathered there.

mortymer said...
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mortymer said...
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Aquilus said...

Max,

Just to be clear, I am no starry-eyed, "free gold will fix it all" dreamer.

I am simply pointing out that monopolies are much harder to form and maintain once the the market-distorting "investment" choice is greatly reduced for the government.

We have not had large size savings-based private investment in a looong time...

Max De Niro said...

Aquilus,

I agree that all else equal, a freegold system would have fewer monopolies than are created and maintained in the system that we have now.

AdvocatusDiaboli said...

Hi OBA,

see, some maybe in their view limited people might consider my post silly, because not able seeing the different layers of parabels possible to been laid over your parable.
But isnt thats what its all about? ;)
To grasp different views, to verify to be really sure?
Greets, AD

@mrt: the Bundesbank is not even able or willing to confirm what is allocated, unallocated or gold claims. At that point it makes not sense to speculate about anything. Like in an earlier post: Supposingly german private hands hold 5000m/t. Those have definitely not been coming from the Bundesbank.
And about those commemorative coins, could actually be, pretty bad coins, only view people buy, so volume could be real.

victorthecleaner said...

Mortymer,

I remember the Shah was always happy driving the price of oil up right into the second oil crisis (1979). I wonder whether there are any original documents that reveal the attitude of the USG on the Shah pre Iranian revolution.

Victor

mortymer said...
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enough said...

IMHO

No one but FOFOA should decide what people can post.

A person can only know what information is useful for themselves, not for anyone else.

Don't read it if you don't think it helps you !!!

Edwardo said...

Max DeNiro wrote:

"Communism also tends toward(is) a monopoly, the same with monarchy, feudalism and any other human ism."

This is inapt. Monarchy and feudalism don't tend toward monopoly they are monopolies. There isn't even a pretense towards a condition that could even remotely be described as a level playing field for those participating in feudal or monarchical systems.

High 5 said...

Edwardo,

I notice you left out communism. Do you not think communism is a monopoly due to the fact that one entity owns all means of production?

Competition is what prevents monopolies and capitalism is a system which requires it....other than bastardized systems such as state capitalism or crony capitalism.

Motley Fool said...

Monopolies and Anti-Trust"

Taken many years ago from a book I like.

TF

Aquilus said...

Motley (TF),

That was much better put than I could have phrased it. Thanks for the refresher.

Max De Niro said...

Edwardo,

Did you not see the "is" that I put in brackets?

victorthecleaner said...

I'd be most grateful if someone could help me with some historical details on the introduction of the Euro.

I checked FOFOA's 'The Gold Man', but that did not resolve my questions:

Each national CB of the member countries owns a certain share in the equity of the ECB. The national CBs had to 'buy in', i.e. purchase their share of the ECB. They did this by providing foreign exchange reserves to the ECB.

In a last minute move, they decided that 15% of the equity had to be provided in gold. Originally, this proportion had been thought to be lower. How much?

Why is this a big deal? The national CBs typically own a lot more gold than they paid into the ECB, and so their consolidated balance sheet (the Eurosystem) has much more gold than just the 15% of the subscribed capital of the ECB. So why was it a big deal that that ratio was raised to 15% in a last minute decision?

Did Another say the higher gold subscription was because of the oil countries? Why would it make a difference whether some of the gold belongs to the national CBs or whether it is held by the ECB?

Were the national CBs, at that time, perhaps bound by some old contracts with the IMF or the US that did not allow selling gold to other official entities? Whom? Middle Eastern governments or their CBs? And was the ECB, for some reason, free to settle in gold? If somebody confirms this (JR?), can you explain some legal background to me?

Was there anything else that was changed in a last minute move? For how long had it been known that the ECB would mark the gold to market? I am asking this because this is the move that cuts the US off from their way back into a revival of the gold exchange standard.

Victor

victorthecleaner said...

I'd also appreciate comments on

5/5/98 ANOTHER (THOUGHTS!)

Q: ***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***

A: The BIS is the gold broker for all interbank sales/purchases. Bullion Banks are for sales to other entities. I think, at first, China was leverage against the oil producers. Then Arabia was allowed into BIS for Euro.

Q: **Has Saudi Arabia gone with Europe?

A: Yes.

Victor

One Bad Adder said...

sean: -
Jesse is great value - I was a regular visitor to his site in the past however, a couple of points FYI if I may. His 2008 article you linked needs a bit of tweaking to give it currency ;-)

Back in the good old days < 2000ish, The Fed was (big WAS) in the habit of managing the whole curve via the FFR (by which they used to directly control $IRX)
They'd tweak FFR, the short end would react ...and the rest would fall into line.
Some time around 2004 (as I recall) the Fed tried the old ratcheting of FFR to reverse $IRX ...and nothing happened! Mr Market virtually gave the Fed the Bird.
...and the Fed quickly dropped FFR to compensate.
This was a Mega Game-changing moment that passed virtually unnoticed in the Mainstream (one of several over the last 12 Years I might add)...however it said (screamed) to me they (the Fed) had effectively lost control of their MAIN Systemic Management tool. Essentially, from that point onward we've been Zero-bound ...without a Parachute.

Victory said...

Hi Mortymer,

I recently started reading through the catalog of Another and FOA and I appreciate the document trail you are researching and providing.

I especially appreciate when you include important points as pasted snippets, as opposed to just a link.

tx,

-v

Victory said...

vtc,

what in particular are you interested in getting a comment on?

victorthecleaner said...

Victory,

well, if you look at all the usual information (tv, papers, financial press, even what you know about history) this is not the first impression you get.

All,

I have another comment referring to
FOA (08/22/01; 09:25:51MT - usagold.com msg#99)

[...]

As this reserve currency transition, or perhaps war is a better term, moves on; the ECB must shift it's thrust with a leadership statement. Wim Duisenberg provided an excellent political cover for selling into the American paper gold market; as it exists around the world today. His national pedigree demonstrated a distinct flavor against gold as a monetary reserve. Truly, the ECB could not be seen prompting all their big bullion banks to short American paper gold, if they ECB / BIS were serious gold advocates. In our time of Western thinking, who could understand such a contradiction? But, politically, the game was to serve two goals; temporally support the dollar for trade settlement until the Euro was on its feet (sending gold prices down); and inflating the American lead gold market until it burst from over issuance. A good chuck of this ties into the SDR
issue that I'll get to later.


Now,,,, with the US vs Europe economic war in full bloom today; and Euro money policy in a position of leadership; and Euro circulating currency about to begin; it's time for a shift of thrust. Jean-Claude Trichet, or at least someone of his same pedigree, will usher in a new position;
"physical gold is a great asset for private and official sectors to save"! Bamm!!! Suddenly, our decades old paper gold game will run smack into a new idea; "Euro promotion for private gold ownership" and "high gold prices are good"! And more importantly; this concept will be presented from the controllers of the next reserve currency!


This seems to be the publicity campaign I was dreaming of - the one that never came.

Victor

mortymer said...
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mortymer said...
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FOFOA said...

Hello Victor,

"In a last minute move, they decided that 15% of the equity had to be provided in gold. Originally, this proportion had been thought to be lower. How much?"

How much lower? 5%. ANOTHER: "It was to be only 5%"

"The national CBs typically own a lot more gold than they paid into the ECB, and so their consolidated balance sheet (the Eurosystem) has much more gold than just the 15% of the subscribed capital of the ECB. So why was it a big deal that that ratio was raised to 15% in a last minute decision?

Did Another say the higher gold subscription was because of the oil countries? Why would it make a difference whether some of the gold belongs to the national CBs or whether it is held by the ECB?"


It is late here, and I don't suppose this will provide all the answers you are seeking, but before bed I thought I'd at least aggregate for you and everyone else the relevant comments from the late '90s:

Date: Sat Mar 07 1998 20:01
Neophyte ( @Another - ECB gold holdings? ) ID#390249:
Do you know how much gold the ECB will hold as part of its reserves?

Date: Sat Mar 07 1998 23:16
ANOTHER (THOUGHTS!) ID#60253:
Mr. Neophyte,
I do not know. I have knowledge of some discussion for 15% with a individual country holding that is very high. If this is as a final outcome, many CBs will be forced to call in lent gold and buy. I have reason to find this to be as fact!

Date: Sat Mar 07 1998 20:17
Psilver Psyched ( @Another ) ID#216217:
The USA has been openly courting Venezuelan oil?

Date: Sat Mar 07 1998 23:16
ANOTHER (THOUGHTS!) ID#60253:
Mr. Psyched,
Please reread the most recent posts from Another. Your question should be: Why would the USA buy most of it's oil from Venezuelan when it would be far cheaper to buy it from the ME using gold? It is possible that the new oil bid will come about with the introduction of the EURO and give that currency the oil backing!

All:
If the EURO is backed with gold in a large way, oil may be purchased with EUROs and even a smaller amount of gold!

Date: Tue Mar 24 1998 20:58
Logical ( @ANOTHER ) ID#320219:
Your proposing an upheaval in international currency- is that why the EMU will be backed by so much gold or do we look else where for the future international currency? Your earlier posts had a much more urgent tone has oils plans been pushed to the right or is the increased gold backing of the EMU a workable solution for the interim?

Cont…

FOFOA said...

2/3

Date: Wed Mar 25 1998 22:35
ANOTHER (THOUGHTS!) ID#60253:
Sir,
The large gold backing for the Euro and the "much greater" gold reserves for the individual countries of the Euro, is a direct result from observations of gold buying by oil! If it is well known by the BIS that a move by oil to bring crude to $10.00 US, is a precursor to an "new world oil currency", then it is well known to the Euro makers! Gold will be managed back to a range of $320/$360 with much hope for participation of Euro as "the" "currency/gold" payment for oil. My knowledge is that the new range will bring a breakup to the London operation, with the ensuing run by gold to infinity. We will watch this, together, yes?

Date: Sat Apr 18 1998 21:04
Carl ( @Another ) ID#341189:
Questions: Do you have a belief about whether the euro will be attractive to oil producers as an oil currency? If the price of gold in dollars begins to rise and the dollar also strengthens against other currencies, as you suggest, will not this accurate the purchase of gold by holders of other currencies?

Date: Sat Apr 18 1998 22:01
ANOTHER (THOUGHTS!) ID#60253:
Mr. Carl,
The partial backing of the Euro with gold is a resent thing. It was to be only 5% with the understanding that most "European" oil buys would be settled in Euro. The oil alone would give the Euro "reserve status". Now the BIS has worked to bring a possible "80%" of all world buys settled in Euro if 15% to 30% gold is held. This will bring the end of US$ holdings to act as reserves! In this way, the dollar price of gold would go to "no end"! This would further allow the Euro to become "top gun" as the US would even be forced to buy Euros to buy oil!

Many other currencies would come off the dollar standard as gold rises in their terms.

Make no mistake, all this will bring much pressure to gold mine operators. Mr. Carl, if you hold mine stock, you will stand behind many others when time to sell!

In a dual, it is best to move two steps to right, before one does turn and fire, yes?

thank you

6/29/98 ANOTHER (THOUGHTS!)
Many do speak of supply and demand for reason of gold decline because of "extra leftover gold" held in ECB, however, they do not consider the "extra leftover currency reserves"? The Euro will hold forty to fifty billion in total exchange reserves, of that perhaps 15% in gold. This does leave perhaps forty billion in currency reserves to be held. The eleven Euro group countries now hold much more than forty billion in exchange currency. Do they sell these dollars at same time they sell leftover gold for dollars? I think all should talk to these new analysis about the "supply and demand" for dollars, not gold.

Cont…

FOFOA said...

3/3

To close I offer the thought of a banker : "I would not sell gold for dollars when, as a district Central Banker, I could soon use it to purchase more Euros from the ECB. As all new local continent debt will now be issued in Euros, it is better to allow the new future Dollar / Euro exchange rate to pay old dollar debt. Yes, the coming American dollar inflation will make "good work" of this European debt problem, perceived by many to be "insurmountable! Even now as I ponder this thought, we may not even sell gold for Euros, as it is a true "exchange reserve" of our ECB! As oil will be priced in Euros, and a low dollar price of gold no longer necessary, perhaps, with it's future dollar value" increasing, I will purchase more gold with dollars for future payment of debt?"

We watch this new gold market together, yes?

Thank You

Another

7/19/98 ANOTHER (THOUGHTS!)
One use for dollars may be to purchase ESCB gold, then sell this gold to the ECB for Euros. Another would be to purchase gold on the open market and hold this as matching the 15% gold reserves of the Euro basket. The end result will find to many deficit dollars outside of the US with no way to return home. These dollars will find gold and in doing so will drive up in value one of the ECBs main "exchange reserve assets" without exporting the coming American inflation into the Euro trading block. It is "the master plan" and comes to conclusion.

From David Powell: "If China were to devalue the yuan, what effect would it likely have on the US$$ gold price and why? PS: Great website! Keep up the good work! (and THANK YOU!)"

ANOTHER: Mr. Powell, In the time before us, China will trade in Europe with "great intensity"! As this trade develops, little use will be found for use of dollars in trade and little purpose for to devalue the yuan, except for the revenge against neighbor nations. A good purpose will be found to trade dollars for gold! The gold could be sold to ECB or gold could be held for reserve of 15% or higher to match Euro group reserve requirements! Much will be the future for this position! As such the Yuan may become part of Euro Group basket, yes?

I think, in the future, for one to make their currency lower against the dollar will be as:" trying to hold the hand one meter below a falling stone"?

+++++

Also, from my post Your Own, Personal, Freegold in 2009:

ECB Press conference: Introductory statement

The Governing Council furthermore agreed that this initial transfer should be in gold in an amount equivalent to 15% of the sum I have just mentioned, with the remaining 85% being transferred in foreign currency assets. I should stress that the decision on the percentage of gold to be transferred to the ECB will have no implications for the consolidated gold holdings of the ESCB.

The precise modalities of the initial transfer will be finalised before the end of the year.

Before the end of the current year the Governing Council will also have to adopt an ECB Guideline pursuant to Article 31.3 of the Statute of the ESCB, which will subject all operations in foreign reserve assets remaining with the national central banks -including gold - to approval by the ECB.

Sincerely,
FOFOA

Victory said...

vtc,

On your second post about why Europe hasn't publicly come out in support of freegold yet. I'm asking myself the same question (I mean they could sure use the equity right about now).

I have to think the US hasn't been sitting around over the years just waiting for this to happen though. Who knows what kind of covert moves we've made since 8/22/01 to buy more time and counter the EU's plan to replace the dollar as the worlds reserve currency.

Maybe a few weeks later we stole the gold from the depository underneath WTC 7 then invaded Iraq and proceeded to appropriate some of their gold. I would assume they have multiples of their officially reported reserves in undergrounds vaults off the books - so to steel it is like it never even happened.(maybe that's what the weapons inspectors were really looking for, hehe!)

Then we portion out this gold to JPM so they can put out some fires at the LBMA. While in Iraq we put in a new regime to supply us Oil contracts settled in dollars and no gold to boot. (we were over there long enough, got to make sure the job gets done right)

Then maybe Goldman, MS, and JPM stick Europe with some bad MBS paper then a few years later attack their bond markets.

...the battle continues, I suspect the EU will strike when they are strong enough or better sill let China/Russia or any number of unknown catalysts do it for them?

Just a little conjecture (smile)

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Matt said...

Mort - I can't thank you enough for doing the hard yards digging out these documents. A/FOA outline a particular chain of events which, while an appealing story in itself, remains largely unsubstantiated. FOFOA's conceptual opinions and melodic imagery aside, your research may well provide the external verification this 'story' really needs.

Keep up the good work.

JR said...

Hmm, the US used cheap oil prices against the Soviets.

We know the oil-for-gold deals were largely about ensuring cheap oil by funneling cheap gold through the LBMA via an expanded paper gold market. I wonder how the ECB/BIS fits in? FOA:

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

Was it all about the ECB/BIS's war with the dollar?

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

Some speculation in this regard via "Mr. Johnston's letter" as excerpted from Hair of the Dog?

The third thing I learned was that the BIS had two ironclad objectives. Both were so bold that they would take your breath away:

1) To destroy the Soviet Union, as a threat to world peace.
2) To destroy the dollar as the worlds reserve currency.

We all know that the Soviet Union collapsed in 1989. This was done by the BIS without firing a shot. They simply loaned large sums of money to the Soviets, and then called the loans. Just a routine castration! A simple foreclosure."

Edwardo said...

Good catch, High 5. Max, it seems to me that you fudge the issue with your qualifier of the other isms as "tending" toward a condition that they feature at the outset.

In any case we are comparing apples and oranges when throwing Capitalism in with the other isms since Capitalism is not totalistic in the way that, for example, Feudalism and Monarchism were. Capitalism, as I'm sure you know, can, and has existed within a fairly wide variety of political schemes.

The same can not be said for a monarchies and fuedalistic societies where economic and political power are inextricable and both reside in an entity (a king) or entities (nobility) that are, by definition, highly concentrated.

And, for the sake of clarity, when I say that Capitalism tends towards monopoly I do not mean that Capitalism tends toward a condition where it entirely subsumes the entire socio-political sphere-which it certainly can-but, rather, that the condition of honest and fair competition in the corporate sphere is always under threat when it is not completely undermined.

mortymer said...
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Nickelsaver said...

IMO

If working from the axiom "absolute power corrupts absolutely" we see very clearly that in ANY system, those with power do monopolize.

In Capitalism, there is competition, which creates a delay in power gathering by entities - though it is not prevented.

In a Monarchy or Dictatorship, you could potentially have a very fair form of Capitalism, if the Monarch or Dictator was of very high character and wisdom (very unlikely) and used his/her authority to circumvent power inequities.

Capitalism within a democracy becomes exactly what we see in America.

Socialism is antithetical to Capitalism.

Anarchism is a vacuum of centralized power, and nature abhors a vacuum.

--------------------------

Freegold as the great equalizer:

While I do see the sheer brilliance of the Freegold system which, like the American experiment, would prevent power gathering. I also contend that, like the American experiment, its equalizing nature will too be circumvented by opportunity.

For if Freegold could create world harmony, not merely in trade but in every other social aspect, we would never see it come to fruition. But because it simply solves the singular aspect of trade inequity, and not the latter, it very well suits the next stage of monetary evolution.

And, because it cannot be the panacea of human nature, human nature itself will ultimately circumvent the inherent equities Freegold.

Which leads us right back to where we are now - a superorganism that sees inequity and is powerless to do anything about it.

One Bad Adder said...

VtC: -
Things changed "dramatically" shortly after your referenced FOA post (check the date) Which may well have sapped the concerted will of those seemingly about to usher in Another radical "change".

Edwardo said...

In a Monarchy or Dictatorship, you could potentially have a very fair form of Capitalism, if the Monarch or Dictator was of very high character and wisdom (very unlikely) and used his/her authority to circumvent power inequities.

Hmm. Were a monarch to do what you describe would be adverse to his own interests and position, since the monarch, by definition, has an enormous competitive advantage that he would be relinquishing in order to foster a genuinely capitalist system. In short, it would be unwise unless the monarch decided he didn't want the monarchy to persist. Monarch's are quite keen on business, but, without exception, only when the throne is a key part of the proprietorship, and, therefore, a chief beneficiary of the business activity.

AdvocatusDiaboli said...

sorry, to bother (again), but is it just me, who is almost not finding any post here in the comments section that have any kind of relation to the original(ly) post from ODA and are completely offtopic?

Maybe I give it a try (again):

Have you noticed that the Maglev is only used at 20% capacity?
How is that? Do none or only such few of the "Laissez-faire chinese" have saved money to step in the pricy maglev?

Greets, AD

Nickelsaver said...

ED, did you notice my use of terms potentially and very unlikely?

AD, do you not get that the OBA post is an analogy?

One Bad Adder said...

AD: -
That is a very good point! IF you're referring to the ANALOGY of the Mag-Lev ...a functioning FreeGold "alternative" to participating IN the System.

Nickelsaver said...

OBA,

How does one part of the superorganism not participate in the Freegold system. Or in other words, how could we have Freegold, if it is not the foundation of everything?

Would Freegold not obliterate the alternative, simply by its nature.

For even if one where to operate in fiat only, it would be within a Freegold basis, if Freegold were to come to fruition.

Edwardo said...

Yes, I saw your qualifications, just as I saw Max's.
My point is that however much one may want these qualifications to apply they amount to tautologies.

Motley Fool said...

OBA

Indeed a excellent comment on the analogy. Though, I suspect it may not have been that, sadly.

Still... :)

TF

AdvocatusDiaboli said...

OBA,

let's look at the sold tickets of the maglev and the queue outside in front of the station, shall we?

Only sold 0,8% of the seats yet :(
And actually I heard that they installing even an additional extra 2% more of new seats in the train? :(

That way, the train will never be full to leave :(

Greets, AD

Nickelsaver said...

Ed,

I used the terms potentially and very unlikely as rhetorical bait.

For I view the world through both the real and ideal lens, as well as the natural and supernatural.

Motley Fool said...

AD

The train appears empty due to rich patrons buying whole coaches for their privacy. :P

TF

One Bad Adder said...

Nickel: -
As a FreeGold arrangement is anathema to the current System, can I pick up on your current thread and present an example for you to ponder ...and see if we can clarify.
Being an avowed Monarchist, I'm looking forward to participating in the festivities to celebrate HRH QE-2's Diamond Jubilee in June '12.
The UK and several of it's former colonies have what is termed a Constitutional Monarchy as their System.
We might consider same as an example of how FreeGold would be structured.
"Theoretically" - not so in reality sadly - the Termites have riddled the "powers" of the Queen to a point where all that,s left is a basically empty shell...but I digress -
So ...theoretically, life goes on as normal, the affairs of state are conducted at the Government level and The Queen operates over and above all this.
Her role - apart from opening things ...and looking Regal, is to act as the Last Resort Authority for Man and / or Beast in the realm.
Where an issue or dispute arises (say) between an Individual and the Government that defies resolution, The Crown is the arbitrator of last resort.
The Crown then is "in the System" but not part of it ...Yes?
Individuals have access to the Crown ...but ultimately have to exhaust all their Systemic options before gaining access.
Can you see a parallel with FreeGold here?
I appreciate it's a difficult grasp "in the current climate" ...and I don't REALLY understand how it may ultimately eventuate myself ...however it will come to pass - One way ...or ANOTHER Nickel ...;-)

Edwardo said...

Well, Nickelsaver, I just (try to) see the supranational so, between the two of us, perhaps we've got it covered.

Nickelsaver said...

Thanks OBA and Ed...I'm off to make the donuts, but love where this is going.

Will follow up later.

Nickelsaver said...

btw...big move in paper gold...should provide food for discourse here...

Edwardo said...

Well, today, as per this report on asset class performance in a world of dollar ZIRP, should make the OBA smile.

Edwardo said...

Sorry, here's the link.

http://www.zerohedge.com/news/gold-extending-gains-realization-feds-only-option-ctrlp?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

One Bad Adder said...

ED: -
Au-contraire Sire - I NEVER thought I'd EVER see $1700 PoG again.

Back to the drawing board as they say ;-)

Aiionwatha's Nation said...

OBA,

I like the angle. The mere act of building the train establishes a new equilibrium.

The folks don't use it much yet because the roads still function and are chaeaper, but they are oh so close to the tipping point of becoming parking lots.

Think of the price of tickets once that happens and better yet, the folks can still get to work and the roads become useable again as the two modes of transportation fall into balance. What foresight in a city with exponential growth.

Sometimes I like to miss the forest for the trees but I think I caught some of your idea.

What do we know?

Debt created on an exponetial function will fail as it meets linear restrictions of real future settlement.

The big guys really, really, really want to transfer that wealth when the current debt system fails.

They build a Maglev, they buy the tickets, knowing full well what will happen if not when.

The incremental value their tickets will fetch makes it cost effective to pay a little extra now, ride in spacious style and let the smart money dodge the potholes and wrecks as long as they feel like it makes sense to do so.

Maybe a little guidance will be needed if they seem hell bent on continuously smashing into one another without end.

victorthecleaner said...

FOFOA,

thanks for staying up and for your quick response.

Firstly, FOA writes somewhere that Another had met Big Trader in person once. But that's all he says - I forgot the exact reference.

Concerning the 15% subscribed capital in gold. From the old postings you cite, this makes sense to me only in one case:

* the ECB capital subscription is in true physical gold, not in any sort of paper gold that is still on loan
* but some Euro zone CBs still had a lot of gold on loan
* when the ECB increased the subscription quota from 5% to 15%, these had to recall some of the leased gold
* this was done in order to increase the pressure on the London market
* but it makes sense only if either some Euro CBs were not in the loop (and had to be forced) or it was to provide an excuse for calling back the leased gold (sorry, but they just changed the policy). In either case, it can affect only the smaller CBs because Germany, France, Italy had so much more than 15% of the subscribed capital that this did not make any difference.

Finally a question for everyone:

Do you know any draft, working paper, or official article from the BIS or prepared by BIS people that states that the dollar price of gold needs to appreciate 15% annually just in order to contain (or resolve?) the global imbalances? Was there any such article? When? Around 2004? I think somebody claimed this, but I was never able to track it down.

Victor

Edwardo said...

OBA, You mean you thought that Freegold was imminent, imminent, imminent and (paper) gold was going to plummet?

Edwardo said...

VTC,

This may seem absurd, but have you considered contacting the BIS and speaking to a staffer there who might be able to unearth such a document?

I had a back and forth with The Fed some years ago regarding the release of some documents.

Gary said...

Just echoing the comments of others and expressing thanks to Mortymer for his time in finding, reading and posting some fascinating snippets from the past.

I look forward to his linking to the relevant documents from 2007-2012 in due course ;).

Typing this as Bernanke is droning on, trying to sound in control, and blaming everything but his own dumb policies.

I have read some comments elsewhere online that should banks in Europe get further into hot water, then the ECB could be caught with the pledged LTRO assets on its books, no willing buyers, and effective values (of crappy paper) of zero.
The comments compared the ECB with the Fed, in that the Fed will simply transfer the balance sheet losses to the US Treasury. The ECB however would not be able to do this, and could technically (and in reality) become insolvent.

My thoughts on this: would that be the time for the ECB to openly bid for gold and bring in freegold to save its own bacon?

Interested in other's views.

Also, I feel the ECB under new management (and following German resignations) is following a more gung-ho policy already compared to under Mr Trichet. That is sad to see, and perhaps reflects the ex-Goldman Sachs men in key positions in the Eurozone. Inside men for the $IMFS.

One Bad Adder said...

AN: -
Well ...kinda ;-)
The act of establishing ..and maintaining an essentially "White-Elephant" economically speaking ...PARTICULARLY one "outside-the-system" can be uber-beneficial to many other aspects of the System.
The earlier post directed to Nickel gave a similar example of the British Monarchy ...where criticism similar to that directed at the Mag-Lev, is very similar to that directed at the British Monarchy.
Termites (there are ALWAYS Termites) pick up on the more eloquent critics ...and sponsor them to denegrate these essentially valuable assets to Society ...ultimately for their own benefit.

ED: -
Given that the spike in $PoG happened in NY time, I'm prepared to think of it as yet Another faux-inflationary gimic. My interim (pre-systemic reset) $PoG target is $250 ...sick puppy that I am ;-) We'll see eh?

M said...

Good writeup Badadder

Thailand is the same way. I love to drive there. People actually know where the gas pedal is and there is no road rage. I cant stand western drivers, they are pathetic. There is no flow of traffic, there is lots of accidents uggh..

One Bad Adder said...

It being the Australia Day holiday here ...and, as inclement weather precludes the Annual "Riding-of-the-Kangaroo", it might be a worthwhile exercise to cobble together a look at "Systems" generally.
Caviat: Once again - from this Goldhearts perspective ...and purely as Food-for-Thought.

Edwardo said...

OBA,

My view is that your scenario (and FOFOA's scenario) is more likely to occur during a downdraft when, as we have seen, GLD is apt to experience the puke syndrome. One day such a puke, or pukes, will leave GLD vastly understocked and at risk of setting off a panic. Of course the whole thing will probably commence in some other fashion, but, after all, we are dealing in probabilities.

Edwardo said...

So, a question to the gallery, how many of you question the idea that The Fed can keep rates stationary for the next two years? Is it not astonishing and something of a caution that no one so much as breathes the possibility that there could be any other outcome than rates
remaining where they are for the next
two years, let alone vastly higher.

Franco said...

One Bad Adder:

You said "I don't REALLY understand how it may ultimately eventuate myself ...however it will come to pass - One way ...or ANOTHER"

Why do you think that freegold is unavoidable?

Edwardo said...

This interview with Jim Sinclair is interesting since General Jim seems to take a different view then, for example, our very own Jeff regarding prospective candidates for gold ownership.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/25_Jim_Sinclair_-_Mainstream_Entities_Will_Now_Enter_Gold_Market.html

AdvocatusDiaboli said...

Hi Edwardo,

I never heard that running to the ticket window of a train station, ever changed the price of the ticket.
(just to stay on the topic of OBA post) ;)
The only thing that might happen is that you dont get a ticket (as happened in these last two hours at my favorite online ticket dealer).
Greets, AD

Aiionwatha's Nation said...

OBA,

It seems I have missed the mark by a notch or two, but at least the queen has to be the leading face for freegold.

Edwardo,

Based on long bond yields over the last 25 years or so it would seem there is a way to keep long rates within a range (generally lower)over a wide variety investment environments. If the yields on these things went anywhere near a real inflation rate the values would be cut by more than half. Makes you wonder who in their right mind is buying on that end of the curve with such base money expansion going on.

Edwardo said...

AD,

You've lost me with the ticket window comment.

AdvocatusDiaboli said...

just read less KWN and more FOFOA,FOA,A.

Oh, BTW, did I mention: Reading is useless, understanding is the key.

Upps, I start to sound like JR :)

Jeff said...

Edwardo, if Sinclair knows about freegold, he is ignoring it. Jim is loaded up on mining shares, and we know what A/FOA said about that. He should be careful what he wishes for as the paper/physical decoupling might be quite a shock to him.

I don't think you will ever see GE buy physical gold. Today's price action looks like churning a profit for the paper traders. Nothing more IMO.

Edwardo said...

Well, that's the key issue, Jeff. Because if you are incorrect and these entities do try to acquire physical things will get very interesting. Jim may well be loading up on mining shares, but as the proprietor of TRE he's heavily into physical ultimately.

And even though I named you, Jeff, I actually had Texan in mind. So my apologies, because I've never heard you actually speak out against the possibility of heretofore disinterested parties such as pensions, for example, investing in gold.

costata said...

Edwardo and Jeff,

You should read Murray Pollitt's latest blast on the miners.

http://www.gata.org/files/MurrayPollitt-01-18-2012.pdf

Personally I don't think the gold miners in the traditional centres have a prayer of being able to replace their reserves.

Along with depletion and declining grades (see Dr Gavin Mudd below) you also have to factor in that a lot of mine promoters are world class liars when it comes to resource potential, capital requirements and production costs.

And how many times do you see estimates of cash costs for gold that net out all of the other metal credits?

http://users.monash.edu.au/~gmudd/sustymining.html

This graph says it all:
http://users.monash.edu.au/~gmudd/files/DecliningOreGrades.jpg

1884 - 3,506 g/t
2005 - 2 g/t or less

What could possibly go wrong?

J said...

M,
Mai pen rai

The Skytrain doesn't come close to the Mag-Lev though.

I was also comparing the 2 while I read this.

Victory said...

I just reread FOFOA's 'Hair of the Dog,' in which FOFOA included an excerpt from a retired financial adviser who posted on USAgold the following:

'By 1990, the BIS were by far the largest holder of gold, with more than one billion ounces. This amounts to an outright corner on gold.'

I had to do a double take, that's 31,000 tonnes?

Something doesn't seem right there.

JR said...

Yay Mortymer,

"Gata got links to those gov papers"

I'm glad you are starting to appreciate my point about the importance of context and explanation!

You are already doing so well!! I am very hopeful you will continue to make it less than occasional and eventually just relent and stop holding back in lieu of sharing MOAR!

May continued success be yours!!

JR said...

Upps, I start to sound like JR :)

Not too much, push more links and encourage people to read more, not less!

Aaron said...

I feel ya JR. Upon first journey it's easy to wander off of The Trail. We witness the sign posts along the way but the terrain seems formidable. Distractions don't help.

I live near the most frequently climbed mountain in the world (per wiki) -- and each climb and return I notice something new.

A fine thank you for keeping the lot of us on the Trail.

--Aaron

victorthecleaner said...

Dear FOFOFOAs,

I have already mentioned that I had the impression that the gold price chart in US$ since 2002 looks somewhat fudged. Here is the chart:

http://victorthecleaner.files.wordpress.com/2012/01/plot-spot.gif

The chart covers the entire decade 2002-2011 (including). The black line is an annual increase of 19% nominally, the blue channel has a width of 15% on either side.

FOFOA wrote in December,

I wonder what was discussed at this meeting one week earlier…

Sunday May 6 5:55 PM ET [VtC: 2001]

BASEL, Switzerland (Reuters) - U.S. Federal Reserve Board Chairman Alan Greenspan and European Central Bank President Wim Duisenberg will both take part in a meeting of central bankers on Monday at the Bank for International Settlements in Switzerland.

I discussed a couple of things with mortymer [mortymer, I hope it is fine if I just explain it here] and we both had the idea that there might exist
an agreement between the ECB or BIS and the Fed about revaluing gold in US$. During 1999-2001, the euro CBs could have destroyed the dollar by breaking the BBs. They didn't. They rather sold 2000 tonnes over 5 years, gold which had been leased to the BBs and which they could have recalled rather than rolling the lease.

Which concession did they extract from the Fed for not pressing the red button right away? Did the Fed make a concession such as to phase gold back into the IMFS by (1) gradually revaluing it with respect to the US$ - which you can see from the chart - and (2) hoping for yet another business cycle in the US in order to buy time - which has worked and kept the system semi-alive until this day.

Victor

One Bad Adder said...

Ed: -
I don't believe the Fed has any say in "Rates" per-se currently. They DO have the capacity to buy the Long end as an interim measure but it must be a lonely place "out there". At the short end it's a deal struck with the buyer and Tim ...Ben is sidelined. You're already aware of my take on the upcoming complete abandonment of an "economic" future so no need to rehash.
Franco: -
There may well have been a "FreeGold-by-decree in the works circa 2001 ...but it didn't come to pass.
The FreeGold-by-necessity version is IMHO ...but weeks away.

victorthecleaner said...

OBA,

why do you think this time is 'it'. If the Fed officially does some QE3, why wouldn't everyone play the risk-on plus inflation trade, just as in March 2009 and in September 2010?

Why do you think this time it is over? Why cannot the Fed continue as usual (until one day the consumer price inflation inside the US picks up so much that they lose control - that might be some years still).

Victor

JR said...

Hi Victor,

You comment: "Why cannot the Fed continue as usual (until one day the consumer price inflation inside the US picks up so much that they lose control - that might be some years still)."

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

Why does "consumer price inflation inside the US have to pick up so much" for them to lose control?

What about the Big Danger in "A Little Inflation"?

"So what's the danger in a little inflation?

If the dollar sinks, like they (the USG/Fed) want, sure, our exportable goods will become relatively cheaper abroad (even though their price here won't drop) and their (our trading partners’) exportable goods will become more expensive here. This will appear as good old-fashioned price inflation, since we’ll now have to outbid our own trading partners just to keep our own production, and pay more for theirs. And while the domestic private sector has already crashed its lifestyle somewhat, the currency issuer has increased its "lifestyle" to compensate.

The bottom line is that the USG cannot crash its own lifestyle. And when the dollar starts to "sink", that pile of pennies in the video above will be insufficient (not enough money). Luckily, that pile of pennies represents the budget of the currency issuer himself. So he’ll just increase it, to defend his lifestyle, while scratching his head at why the trade deficit has nominally widened rather than narrowing as he thought it would when he trashed the dollar.

One of the strongest arguments that the USD will not hyperinflate like Weimar or Zimbabwe is that the USG's debt is not denominated in a foreign currency. If it were, this would be a different kind of hyperinflationary feedback loop we were facing. If all the USG debt was in a foreign currency and the dollar started falling on the foreign exchange market, that debt service would lead to hyperinflation. But that is not the case. So it’s not the FX market (monetary plane) that is the big danger to the dollar.

The dollar is the global reserve currency, so it is the physical plane that is the biggest threat to the dollar in the same way the FX market was a threat to the Weimar Mark. And it is not the nominal debt service that is the threat like it was in the Weimar Republic, but it is the structural (physical plane) trade deficit. To the USG, that is the same threat as nominal debt service denominated in a foreign (hard) currency was to Weimar Germany.

As the German Mark fell, there was "not enough money" to pay the debt. And with a little inflation, there is "not enough money" to buy our necessities from abroad..."

JR said...

Hi Victory,

You take note of:

'By 1990, the BIS were by far the largest holder of gold, with more than one billion ounces. This amounts to an outright corner on gold.'

And you comment:

"I had to do a double take, that's 31,000 tonnes?"

Something doesn't seem right there.


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

Go Go South Korea:

Physical gold is different than modern currency. At the CB level, it rarely gets moved. This was a big reason for the creation of the BIS in the first place. If you think about the purpose of the BIS as a clearing system or gold broker for interbank sales, it makes perfect sense that most of the gold deposited with the BIS would be sight or unallocated.

The purpose is so that CBs can transfer gold around the world without having to physically ship it. Avoiding the cost and risk of physically shipping a heavy metal is an important service provided by the BIS. And it does this mostly in unallocated form. When the BIS physically moves gold, the risk is shared, i.e. the risk is on the BIS.

The BIS is owned by its customers, the CBs. They set it up and subscribed to it (bought in) so it could provide services like this. The BIS's own gold is still owned by the CBs because they own a proportional share of the BIS.

Say you want to give me a hundred dollars. You go into your bank and deposit a hundred dollar bill. Then you fund your Paypal account and send me $100. Then I send that $100 from my Paypal to my bank and I can walk in and take out that $100 bill. You’ve just sent me a $100 bill but no one actually physically shipped it across the ocean. It was an unallocated deposit in one location and an unallocated withdrawal in another. This is what the BIS does with gold.

Out of practical necessity, privacy and security, most BIS gold activities are with unallocated gold. The main difference between the BIS and private bullion banks being that BIS sight accounts are fully reserved. Being "reserves" is the very definition of CB gold."


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

Uncle Costata says:

" Somewhere around 30,000-33,000 m/t of gold is in CB and government coffers while the balance, over 130,000 m/t is ‘out there’ in private hands - right now."

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

Do you now see? "I had to do a double take, that's 31,000 tonnes?"

JR said...

So from the above "Big Danger in "A Little Inflation"?" excerpt from from "Moneyness":

"So he’ll just increase it, to defend his lifestyle, while scratching his head at why the trade deficit has nominally widened rather than narrowing as he thought it would when he trashed the dollar."

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

Bernanke Makes Case for Further Asset Purchases as Fed Sets Inflation Goal

Jan 25, 2012

"Ben S. Bernanke laid the groundwork for a third round of large-scale asset purchases should unemployment remain higher than the Federal Reserve would like while inflation falls below a newly-established target.

The Federal Open Market Committee “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation,” Bernanke said yesterday at a press conference in Washington.

[...]

The U.S. central bank’s “two main tools” to boost growth are asset purchases and communications, and bond buying is “an option that is certainly on the table,” Bernanke said. “The unemployment level is elevated and the inflation outlook is subdued.”

Policy makers yesterday set a long-term goal of 2 percent inflation, and forecast that price increases would fall short of that target this year and next."


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

I dunno if this is "it" or not, but I do see the BIG Danger in a Little Inflation as Ben B wonders why after QE1 and QElite and QEII, the jobs situation and the related trade deficit, aka "the hardships imposed by high and persistent unemployment in an underperforming economy," hasn't improved much and thus Ben B goes out of his way to communicate about the FED's efforts to set and thus meet an inflation target.

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

On that trade deficit (despite QE1 and QElite and QEII, aka "trashing the dollar"): U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES - November 2011

"FOR IMMEDIATE RELEASE AT 8:30 A.M. EST, FRIDAY, JANUARY 13, 2012

[...]

The goods and services deficit increased $8.9 billion from November 2010 to November 2011.

victorthecleaner said...

JR,

I follow you and FOFOA that it will be the trade deficit that eventually destroys the US$.

The goal of 2% inflation is a smoke screen. 'Headline' inflation (with food an energy) was already around 3.8%. It is obvious that the price pressure is in scarce goods (food) and imported goods (energy), but not in value-added or labour. So, yes, this is basically the scenario you are describing.

Btw, I don't think Ben will be surprised. They must have made their plan already in 1999 or earlier about how exactly to abandon ship. I don't think they are clueless.

Victor

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

OBA,

In reply to your last comment to me.

I'm struggling with understanding if you are talking in context of pre or post transition. I do not understand how Freegold (once we have arrived) is merely a part of the system. Gold is either store of value function for fiat currencies or it is not.

If you are saying that the option your refer to is for one to hold gold or not to hold it, that I understand. If you are saying something else, I will need you to enlighten me.

I read the Analogy as present tense, pre-transition.

Nickelsaver said...

I follow you and FOFOA that it will be the trade deficit that eventually destroys the US$.

A man lives his life eating, drinking, and partying to excess.

In his 40's he develops adult onset diabetes, and has to go on insulin and watch his diet. He neglects to do so with any regularity.

In his 50's he suffers a heart attack, but survives.

In his 60's, he looses his legs to neuropathy, and is relegated to a wheel chair.

In his 70's, he develops Alzheimer's. While suffering from dementia, he tries to cross a busy intersection and gets hit by a bus.

What killed him?

IMO - And I'm sure I will get no argument here, the Dollar is like that man, only on life support.

costata said...

JR,

Round and round we go!

http://www.debtdeflation.com/blogs/2012/01/25/the-future-of-economics/#comment-35676

Steve Keen
January 26, 2012 at 7:45 am | #

Reserves circulate LCT, and borrowing is a two-way street. Banks can want to lend all they want;unless customers concur and borrow, the banks’s lending capacity will go unutilised.

The best argument against the “print money will cause hyperinflation” case is the data. US Bank reserves are through the roof, and lending hasn’t taken off, and neither has inflation.

sean said...

Nickelsaver,
my take on OBA's comments is that one is free to engage with freegold (take the mag-lev) or not. ie: even after the transition to FG, you are perfectly free to store your savings in FIAT if you so desire. In a well-run country (good balance of payments) it is quite safe and convenient to "drive the roads" in such a way. In countries where government lets the roads go to ruin, however, it will be preferable to save in gold (take the mag-lev).
In fact, you are also free to use gold as medium of exchange, but it's hardly convenient, trying to drive the mag-lev through the street markets!

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

VtC: -
You're already aware of my take on the upcoming complete abandonment of an "economic future" (as the T-Bills establish themselves at and above Parity (Price)...so no need to rehash.
...and may I add, JR's stuff gels well IMHO.
Nickel: -
I'm referring to the Systemic equivalent of the Monarch, the Mag-Lev ...the President - ANY and EVERY "System" benefits exponentially from the presence of a "Supra-Systemic" extension as an arbiter OF the system - Provided you can keep the Termites at bay.
Currently, the Financial System is totally devoid of anything that resembles this AND whatsmore owned and managed by an unelected elite ...so I believe any NEW System would need to be structured so as to incorporate a suitable version of the Supra-Systemic equivalent ...amd I'm thinking - FreeGold!

Is THAT better?

cos: - Keen does some good stuff.
sean: - real close my friend!

victorthecleaner said...

OBA,

let me summarize what you are saying: Whether people trust the Fed to create price inflation does not matter. Nobody trusts them to get the economy going. Therefore, all the savings get parked at the short end. Then they notice they even get a negative nominal yield, and this is when they abandon the dollar. Is it that?

Victor

One Bad Adder said...

Termite attack -
foiled by Businessman Kerrie Packer RIP.
20 Yr's ago - I suppose those pesky Termites have found a chink in the proverbial armor by now.

VtC: -
Nothing "nominal" about it Squire ...ACTUAL Negative return I'm seeing, Game over!

Cloud Five said...

Hello mr. Adder,

Would a stonger US$ be of any help? Although you get a negative actual/nominal return, you still might get a positive real return?

One Bad Adder said...

Absolutely C5 ...and this will exacerbate the condition no end as a self-reinforcing loop impacts the Market. (or what's left of it).

For perspective sake, let's give a few "out-there" estimates of what might transpire in the space.
The thing is, it MAY take Months to get there ...and then again, it may take Minutes.
DX ...100+, 3mo Yield ...-1%, 30Yr Bond Yield ...6%+

Motley Fool said...

OBA

You have some strange ideas. :D

TF

Gary said...

Repost, in the hope that it might spark some discussion, as to my mind, Freegold is buggered (or possibly triggered?) if the ECB gets itself in a hole.

'I have read some comments elsewhere online that should banks in Europe get further into hot water, then the ECB could be caught with the pledged LTRO assets on its books, no willing buyers, and effective values (of crappy paper) of zero.
The comments compared the ECB with the Fed, in that the Fed will simply transfer the balance sheet losses to the US Treasury. The ECB however would not be able to do this, and could technically (and in reality) become insolvent.

My thoughts on this: would that be the time for the ECB to openly bid for gold and bring in freegold to save its own bacon?

Interested in other's views.

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

Gary, I think the nature of the resolution to the Greek debt fiasco- having a profound effect on the rest of the troubled nations and their impaired sovereign debt-will undoubtedly have something to say about how soon the EU will find it necessary to take the ultimate step towards self preservation.

AdvocatusDiaboli said...

Gary&Edwardo,

Kick out Greece and in return a 100% debt jubilee would be the cheapest, easiest solution. Socialize the losses on whomever.

Why is it not done? Because is politically not desired. It's against the EUdSSR doctrine, simple as that.

Michael H said...

AN,

"Makes you wonder who in their right mind is buying on that end of the curve with such base money expansion going on."

Price moves inversely to yield. So, as FOFOA has written, if you take the bond yield chart for the last 30 years and turn it upside down, you see Bill Gross's profits.

So even though yields are ridiculously low right now, if you had bought long bonds in the first half of 2011 you could be up 20% in capital gains.

This is an ustable situation. If yields on long bonds do break higher, then they'll break big.

Michael H said...

victor,

Interesting thought regarding a back-room deal between Europe and the US.

"Which concession did they extract from the Fed for not pressing the red button right away?"

Maybe to let part of the oil market settle in Euros. Once immediate danger to the gold market passed, the US (or perhaps a different faction within the US) reneged on this part of the deal.

This is an interesting thought, as it brings up a "fool me once ..." situation. If Europe got burned on this one then I doubt they'll be helpful in the future.

...

Maybe the Fed was supposed to sell gold to cover the losses, but then turned around and leaned on the BOE to sell instead.

It was around that time that China started buying USTs. Were they involved in any of these meetings?

Aquilus said...

AD

Why kick Greece out?

Just use them and Portugal as an example to get the rest of the countries to sign up to no future deficits (enforced upfront), then once that's done monetise existing debt by devaluing the euro hard once, provide availability of gold for euros for support, and voila, free sailing for Europe ahead.

Dollar, pound, yen, here's the baton after that.

Victory said...

Gary,

If events transpire in this fashion and the ECB finds itself insolvent with nowhere to pass to the buck (excuse me euro), I think a gold revaluation would get them out of trouble.

I had the exact same thought.

-v

Michael H said...

http://brucekrasting.blogspot.com/2012/01/bernanke-goes-all-in.html

Bruce Krasting has a nice post on the Fed's choice of PCE as inflation metric:

"There’s just one teeny problem with Alan’s work. He did all of that comparing and studying using data from pre-2010. Using that information, CPCE lines up very well as a consistent barometer of inflation. But the analysis falls to shit when you look beyond 2009. CPCE took a nose-dive after 2009 (versus CPI and Core CPI)"

"Information on CPCE and the other measures of inflation is available monthly. There’s no reason (that I can think of) why the Fed chose to deliberately omit two years of data that would conflict with the “desired’ conclusion. To me, it looks like the authors manipulated the report."

AdvocatusDiaboli said...

Aquilus,

that signatur of a no future deficits is worth NOTHING. From a year from now on, it will be exactly the same, no not the same, worse. We are already having this running joke for two years.
e.g. Even Germany has the "no future deficits clause" already since a couple of years in their constituion: WORTH NOTHING, STILL KICKING THE CAN DOWN THE ROAD.
2011 Germany government had the biggest tax revenue ever, but still needed to expand deficits.

AdvocatusDiaboli said...

about (german) deficit brakes, just found something really amusing:
http://bilbo.economicoutlook.net/blog/?p=3038

So you see: You get wealthy by spending.
And actually it is true: You get the wealth, and the other dumbass gets the empty promises.

Ask yourself: Have you been paid today?

Aquilus said...

AD,

I can also see what was. I can see it is not sustainable also. They can too. You contend the future is a linear continuity. I contend the linearity must break.

That's what makes for intersting debates .

We will all be shown up by reality doom enough anyway...

Aquilus said...

soon not doom.

I'm not that down on everything yet, lol.

M said...

@ VDC

"Do you know any draft, working paper, or official article from the BIS or prepared by BIS people that states that the dollar price of gold needs to appreciate 15% annually just in order to contain (or resolve?) the global imbalances? Was there any such article? When? Around 2004?"

I do remember hearing something like that.(15% year) I cant remember where though... I think it was a LEAP 2020 article that was quoting some old stuff from Greenspan/Rubin/Summers.

Max De Niro said...

RE: Mag Lev

"Socialism is a system built on belief in human goodness; so it never works. Capitalism is a system built on belief in human selfishness; given checks and balances, it is nearly always a smashing, scandalous success."

-Michael Novak, "A Closet Capitalist Confesses" due to Mag Lev.

Freegold to be a "smashing, scandalous success".

Nickelsaver said...

OBA,

An analogy is a great vehicle for conveying a point, but also very easy to misunderstand and does break down at some point.

Perhaps it is being knit picky of me, but it is not Freegold as an option to fiat, but gold as an option to fiat with in a Freegold monetary system.

As to the arbitration function of Freegold, I see it as monetary plane only. So to use your Monarchy comparison is to muddle the point that I made before, which is that Freegold will not resolve all inequities.

Optimistically, it resolves economic trade disparity, via the resolution of Triffin's dilemma. If it does anything, it shifts power from the debtors (easy money) to the savers (hard money).

But as a governor in the social/political realm, I do not see this. I see Freegold as a change in the rules of the game, not as a player in the game.

Human nature is to compete and to win. Where there are winners, there shall be losers. Where there are players that play by the rules of the game, there shall be cheaters as well.

So there shall always to be a need for government, a necessary evil, a force which mitigates fair game play.

One Bad Adder said...

MF: -
It's a funny thing, although I'm firmly convinced we are but weeks (days) away from a Systemic Meltdown, I still go about my business etc. under the assumption the Status-quo will be maintained well into the future ...Go Figure!

What I'm "trying" to do is envision the future as a linear extension of the past - Graphically.

Time will prove all things Motley.

Nickel: -
No problem with ANY of that Sire.
Are you then espousing a FreeGold ...by decree? (Fiat FreeGold you might say)

JR said...

Hi Costata,

Round and round we go!

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

"Steve Keen
January 26, 2012 at 7:45 am | #

Reserves circulate LCT, and borrowing is a two-way street. Banks can want to lend all they want;unless customers concur and borrow, the banks’s lending capacity will go unutilised.

The best argument against the “print money will cause hyperinflation” case is the data. US Bank reserves are through the roof, and lending hasn’t taken off, and neither has inflation.
January 26, 2"

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

Does everybody see Steve Keen's Big Gap in Understanding? Is someone ignoring the importance of demand in lieu of visions "inflation-on-steroids," failing to grasp that "inflation-on-steroids" is not how hyperinflation occurs?

"First, the question. "Where will the money come from?" is a question of supply. Yet the answer to hyperinflation lies on the demand side of the equation.

[...]

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!

So it is the receiver of currency—not the giver—that determines its value. That's the power of demand. And what do you think happens to the printer when the demand side drops the rope? If he was pulling he falls on his butt. If he was releasing, he's now pushing on a limp string. And this is part of what confounds deflationists. They can only imagine hyperinflation happening while demand is pulling and the printer is releasing. They imagine "inflation-on-steroids," but that's not how hyper works.

[...]

Fear is the main emotional motivator in any currency collapse, just like it is in financial market meltdowns. And as we saw even just last night, the herd can stop on a dime and reverse course 180 degrees overnight, from greed to fear, based on a single news item.

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

The printing of wheelbarrows full of cash is the government's response to price hyperinflation (currency collapse), not its cause. This uncontrollable (knee-jerk) government response happens in some cases, but not all. Let me repeat: The massive printing that first comes to mind when anyone mentions hyperinflation is not the cause, it is an effect, in the common understanding of hyperinflation which is the collapse of a currency."


cont.

JR said...

cont.

Credit, aka money, 'dies' in a hyperinflation. Credit does not explode in an orgy of lending. Instead, credit collapse and gets replaced by base.

Here is FOFOA from the comment linked above:

"Now, in my humble opinion, you need to look at these operations in the proper perspective. And in my view, they are not creating new money or new dollars. What they are doing is changing the very nature of our money

[...]

The Fed has not created more money, it has simply changed the nature of existing money. Remember, FOA said that "...hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

[...]

This is why the Fed is expanding its balance sheet. To keep dollars cheap. And you do that by slowly changing the very nature of the money supply, from credit money to base money. This is happening. It is not more money being created, it is money being fundamentally altered to keep it cheap."

JR said...

Note Steve Keen is right in that printing money doesn't cause hyperinflation. A BIG GAP is that does not preclude hyperinflation.

Rather, printing money is the response to the hyperinflation, which is a loss in confidence. Its this part, the idea that a loss of confidence and thus declining demand for the currency causes the hyperinflation, that Keen has struggled to grasp.

It is a BIG GAP in understanding!

Victory said...

Hi JR,

I understand that in aggregate CB's hold approx 30,000 tonnes of gold, commonly referred to as, 'official gold.' I am also aware that the US is a member of the BIS which has 58 CB members in aggregate and also that the US is one of six permanent board members.

I suppose I had a disconnect when reading the article because the author talks about the BIS in the context of being against the US so I was thinking the author was referring to the BIS' (the entity) balance sheet as opposed to its aggregate CB member gold position.

the Bank owned 116 tonnes of fine gold at 30 September 2011

"A definite coolness exists between the BIS and the United States. This goes back to the Bretton Woods Conference in 1944, held to set up the machinery for resuming world business after World War II. Even though this conference established the gold-backed U.S. dollar as the only reserve currency, the U.S. did everything it could to torpedo the BIS and give sole power to the American sponsored International Monetary Fund. The war was not over in 1944, but the combatants still got together and defeated this U.S. grab. In the final showdown, the Europeans and Japan never completely trusted the U.S.

As the years went by, the BIS suspicions were justified. The U.S. began to abuse its reserve currency role by simply printing dollars. American companies began to buy control of businesses all over the world. In 1971, President Nixon took the dollar off the gold standard, and introduced the novel idea of floating currencies. Meanwhile, the U.S. national debt began to increase each year, until it now stands at about $5.5 Trillion, an astronomic amount that can ever, ever be repaid. It was clear that the U.S. was out of control.

Along about 1972, I began to spend a great deal of time and effort in studying the BIS and its agenda. The first thing I found was that although the U.S. had turned its back on gold, the BIS were aggressively buying it. By 1990, the BIS were by far the largest holder of gold, with more than one billion ounces. This amounts to an outright corner on gold.

The next thing I learned is that the BIS are extremely closemouthed. It keeps a low profile. Its favorite M/O is the sneak attack. They have their own word for this – "coup". Their ideal coup is one where the victim is taken by surprise, and does not even know what hit him. The BIS tries to leave no fingerprints. Thus their coups often become perfect crimes.

The third thing I learned was that the BIS had two ironclad objectives. Both were so bold that they would take your breath away:

1) To destroy the Soviet Union, as a threat to world peace.
2) To destroy the dollar as the worlds reserve currency."


Do you (or anyone) have any knowledge of how the current 116 tonne holding was acquired. Perhaps it was contributed capital but I'm really not sure? I know originally the bank funded through share issuance and that the bank's statues authorize it to purchase gold.

'Article 21
The Board shall determine the nature of the operations to be
undertaken by the Bank.
The Bank may in particular:
(a) buy and sell gold coin or bullion for its own account or
for the account of central banks;...'

tx,

-v

Nickelsaver said...

OBA,


I view Freegold as the result of the collapse of the current system, not as a planned escape clause. But my angle is more "hope for the best, prepare for the worst".

I store some material wealth in gold, because I see it as holding its value in ANY scenario.

I do think that there are some here that believe that Freegold will do more than I think it can.

And like MF said about you having some strange ideas, I have some as well, which I make clear on my blog.

danickelsaver.blogspot.com

JR said...

Hi Victory,

Just want to touch on a quick aside. You comment:

"I suppose I had a disconnect when reading the article because the author talks about the BIS in the context of being against the US so I was thinking the author was referring to the BIS' (the entity) balance sheet as opposed to its aggregate CB member gold position."

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

Think about it more big picture, like the BIS is just a group of CBs coming together and setting up a joint mechanism for monetary matters.

Go Go South Korea

"Physical gold is different than modern currency. At the CB level, it rarely gets moved. This was a big reason for the creation of the BIS in the first place. If you think about the purpose of the BIS as a clearing system or gold broker for interbank sales, it makes perfect sense that most of the gold deposited with the BIS would be sight or unallocated.

The purpose is so that CBs can transfer gold around the world without having to physically ship it. Avoiding the cost and risk of physically shipping a heavy metal is an important service provided by the BIS. And it does this mostly in unallocated form. When the BIS physically moves gold, the risk is shared, i.e. the risk is on the BIS.

The BIS is owned by its customers, the CBs. They set it up and subscribed to it (bought in) so it could provide services like this. The BIS's own gold is still owned by the CBs because they own a proportional share of the BIS.


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

OK, now lets step back and not get too formal. Do you understand what Mortymer meant above when he wrote:

"The term "ECB/BIS" IMO is more rhetorical, even in BIS there are fractions. It more describes people who are/were involved in both, the "gold fraction", even those same people worked for IMF."

cont.

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