Friday, March 16, 2012

Sushi Island Savers Saga - Part 2


Great comments in the last thread! I wrote the following as a comment replying to a few questions that had come up relating to how the act of saving or net production contributes to the Superorganism's drive toward sustainable growth. But I really wanted as many people as possible to watch the video below, so I thought it would be more prominent in a post. So here you go!

The term "Superorganism" refers first and foremost to "distributed intelligence" or "market intelligence" as opposed to "centralized planning". If ever you feel the urge to make life better by changing some rule or adding a new one in order to control, cause or stop someone else's actions, you fall under the category of central planners. If, however, you are driven to personal actions to better your life (rather than the all too common obsession with changing the actions of others you deem to be wrong) you are part of the Superorganism. Central planners are, of course, also part of the Superoganism, but they are a retarding influence on that which would be far more intelligent without them.

Both distributed intelligence and central planning are capable of organizing the means of production. It's just that one does it infinitely better than the other so there's really no comparison. Somewhere along the way, probably in the 20s and 30s, governments switched from assisting the Superorganism to central planning, or retarding the Superorganism. I believe the singular factor that enabled this switch—made it even possible—was that the savers began entrusting their surplus production to the government as a fundamental function of changes to the monetary system that occurred in 1922.

Not everyone is capable of being a world-changing entrepreneur. But everyone is capable of consuming less than they produce and, therefore, saving. And it is the choices made by billions of average people that leads to the Superorganism's superior intelligence. As the video below explains, markets are processes of learning and mutual discovery through individual choices like entrepreneurship (individuals taking a creative stab at the future in the face of uncertainty) and the spread of knowledge (individuals building upon—expanding upon—the past contributions of others).

The chain of settlement amongst savers which I described in this comment is like a battery system for the storage of economic power. It gains its power and its storage ability from its perpetual nature. Economic power can be deployed or discharged at any time by any saver because there are always new net producers working to join the chain. Without this system of reserves, the surplus production of savers simply gets distributed and used up by whatever activity the debtors are up to at that time, or wherever the central planners want to allocate it. With the Freegold system, the allocation of stored purchasing power becomes a matter of the individual decisions of billions of savers with no reason to hurry.

I do realize that most scholarly Austrian economists probably ignore this blog because it seems somehow not up to their standards. Likewise, my readers tend to look down on modern Austrians because they are, for the most part, "Hard Money Socialists" as Ari and FOA dubbed them more than a decade ago. The Socialist part is because, even while they talk about limited government, they want the government to control the production of money "by locking gold into any official currency system to act as a gauge and controlling factor against socialist tendencies in government" (to quote FOA). Socialism is about non-market prices and any official gold standard is a Socialist standard.

But I want to caution you against dismissing the Austrian School simply because most modern practitioners are misguided with respect to their monetary prescriptions. The Austrian School is primarily a school of Economics (focused on subjectivism and a deductive approach to economics called praxeology), not money, and this is where it is truly great. From my limited time spent in the Austrian space, I am probably most impressed with Israel Kirzner among the living Austrians. His focus is more on the period of Austrian Economics before 1974 than it is on the activities of modern practitioners.

And I think you'll find that this video below, a lecture given by Kirzner this past summer, is so spot-on with regard to the discussion in the last thread that I want to say it is a must-watch for anyone following the discussion. Even if you've seen it before, or the older, longer and more complete version, you may want to watch it again:






And just for fun, here's the story of an intelligent super-sized organism named Nellie who finally had enough of the circus telling her what to do:

342 comments:

«Oldest   ‹Older   201 – 342 of 342
Nickelsaver said...

Why People Argue

Motley Fool said...

"In other words, the resource owner may discover an advantage in producing less of a product for consumers than consumers themselves desire."

This, to me, is the interesting sentence here. I would see this assumption proved.

I don't see much difference between a monopoly and a (true) oligopoly in this respect.

Anonymous said...

Vtc,

I shall ignore the noise you are generating around real bills (such as calling it BS without really understanding the fundamentals behind it), and try to address the real issues you are raising.

You say: It seems the Real Bill followers claim that the increase in available goods and services would precisely compensate the temporary increase of the price level. Does anyone know how they justify the 'precisely'?

That is because real bills originate on consumptive goods. These goods are guaranteed to be consumed by the consumer within 91 days or less . That is whole point of origination of real bills. It is a spontaneous act of coordination between production and consumption set in motion from the origin of the producer.

You say: Did you know that Treasury debt is issued as follows: Everything with maturity of one year or less is called T Bills. They do not pay interest and trade at a discount before maturity. Everything with maturity of more than one year is called T Note or T Bond, and they pay an interest coupon. Their market price changes only according to credit and interest rate risk, but do not contain the interest payment as part of a bill like discount.

Of course, the whole world knows about the largest liquid market in the world, which is the T-bills. But you are confusing something that is originating as a co-ordination instrument between the producer and the consumer, versus a government debt instrument that's simply called as a bill. A T-bill is not a real bill , because of the reasons described clearly above.

Anyway, as Costata rightly points out: Now incorporate the issue of settlement and we should be a lot closer to delineating the crucial difference between T Bills and Real Bills.

There exists a gulf of difference in causal factors between interest rate and discount rate. They are not one and the same thing.

Jeff said...

AndY, can the dollar faction punish defectors? They may try.

U.S. May Sanction India Over Level of Iran-Oil Imports

India has failed to reduce its purchases of Iranian oil, and if it doesn’t do so, President Barack Obama may be forced to impose sanctions on one of Asia’s most important nations, Obama administration officials said yesterday.

http://www.bloomberg.com/news/2012-03-15/u-s-may-sanction-india-over-level-of-iran-oil-imports.html

Anonymous said...

JR,

Are you a real libertarian or a ROYAL libertarian?

Costata,

You've highlighted a very interesting observation. Monopoly as a game itself was invented by a student of Henry George. Here's some brief history surrounding the Landlord's game.

Elizabeth Magie created The Landlord's Game. She applied for a patent, which was granted on January 5th, 1904 (No. 748,626). She explained that the game was to be a "practical demonstration of the present system of land-grabbing with all its usual outcomes and consequences."

I think a monopoly is really just a more severe case of oligoopoly and it fosters non-productive rent-seeking.

There is a distinctive difference to be made between profit seeking and rent seeking. Here's a primer on Rent seeking.

rent-extraction apparatus in the developed world is just a more sophisticated version of the open corruption and looting that is common in many developing economies . Full link

DP said...

3. How these imbalances can be corrected? (Solution)

The same way miners have ensured their shares haven't kept pace with the value of their product — shareholder dilution.

Anonymous said...

Who was Henry George?

The means of producing wealth differ at the root: some is thieved from the people and some is honestly earned. George differentiated; Marx did not. The consequences of our failure to discern lie at the heart of our trouble.

AdvocatusDiaboli said...

when I hold an ownership title of my farmland, am I holding a monopoly of that land?
I guess so, so what?

if I hold the copyright of the software I wrote, am I holding a monopoly of that piece of work?
I guess so, so what?

Greets from your landlord AD

DP said...

when I hold an ownership title of my farmland, am I holding a monopoly of that land?
I guess so, so what?


Yes. So anyone wanting to use land will have to use some other piece of land, or accept your rental terms. Perhaps your piece of land is somehow special and unique?

if I hold the copyright of the software I wrote, am I holding a monopoly of that piece of work?
I guess so, so what?


Yes. You are the proud owner of a unique piece of intellectual property, the exact function of which nobody else can legally replicate without your permission. Which, if it is worth anything, is freely available to download on PirateBay.

Anonymous said...

ephemeral_reality,

look, you are still confusing two things. It is completely irrelevant whether you quote the price of a short-term loan as principal plus interest or whether you quote it as face value minus a discount. So it is a waste of energy to get hung up on this.

Same with T-Bonds versus T-Bills. Just convenience. Since bonds pay a coupon once a year, for maturities shorter than that, they issue them as zero-bonds which trade like 'bills'.

The difference between a real bill and a T-bill is that the real bill is a short-term supplier loan that happens to be securitized right away. The T-bill is for other things (consumption) and usually not tradeable.

You can always substitute a real bill for a short-term bank loan to an enterprise that is collateralized by a specific shipment of unfinished goods. Therefore, the discount and the interest are equivalent. In fact, this is how the bills disappeared historically.

By the way, in the country in which I grew up, real bills were in use until the 1980s. When the company in which my dad worked, sold a lot of finished goods, the truck driver who picked up the shipment left the (physical) bill for the required sum. When they received a shipment of unfinished goods, they took one or several of these bills, endorsed them and gave them to the driver who had dropped off the supplies.

They usually preferred to endorse existing bills they had received because they had only a limited credit line with their local bank and could only write new bills for a certain sum. Over the production cycle, they accumulated a certain sum of bills that roughly corresponded to the value-added of their production. Those were then taken to the bank for clearing.

Things got exciting when one of the customers was suspected to be in difficulties because you wouldn't want to put your signature on their bills, but rather rush to the bank and cash them immediately. That created a liquidity issue for everyone in the supply chain. Sometimes, they forced the supplier to pay in cash - which was often the end for that company.

There were two types of bills. Those that cleared through the local banks and those that cleared through the CB (these had a lower interest rate and were guaranteed if I remember correctly).

The CB implemented their monetary policy by setting two different interest rates: the discount rate for bills that cleared through the CB at that time (the non-CB clearable bills then had some higher interest rate), and the interest rate for bank refinancing through a repo agreement involving government debt.

When people tell you that real bills were killed after WWI in order to disrupt the old gold standard, that's nonsense. In the country I am referring to, real bills were alive, doing well and kicking until the 1980s (without the gold standard though).

Can you guess which country this is?

And yes, because they are equivalent to short-term loans, they were eventually substituted by precisely such loans. Why? Availability of cheap bank credit (and so the bills ceased to have an interest rate advantage - this may be because the advantage of the collateral was no longer appreciated accordingly - might be an effect of the $IMFS after all). And perhaps convenience. In the 1980s, the bills were never converted to electronic clearing. At that time, it might have been difficult to implement. Today, that would be no problem, of course. And so the bills were in effect phased out at some time during the 1980s. I think if you insist, you can still use them today though although the CB no longer clears them - they would now be cleared through the local banks.

Lots of fairy tales about real bills - not all of them true.

Victor

Anonymous said...

AD,

It would do you a ton of good if you think before you write .

Land is not a fruit of anyone's labor.

Your second point on copyright is a draconian topic of its own that needs to be dealt separately. Copyright is essentially censorship for profit.

Big corporations get those copyright laws passed, just so they can suppress further creativity which will kill off the profit. All non-commercial speech should not have to worry about copyright. So all file-sharing should be allowed.

It is because of people who think like you, but hold sufficient powers to bend the legal process that laws like Corporations are people get passed.

Anonymous said...

ephemeral_reality,

These goods are guaranteed to be consumed by the consumer within 91 days or less.

Not true. The bill has a maturity of 91 days, and so the credit disappears after that time the latest, but the final product may taken longer until it is on the market. This depends on how long the chain of suppliers of unfinished goods is. Iron ore to finished car is longer than 91 days. This just means that someone along the supply chain operates with additional bank liquidity, not just the seller of the finished product.

You see, he who writes the bill, needs a line of credit with whomever acts as the clearing house. Because I could just take the bill and rather than endorse it and pass it along, I could run straight to the clearing house and cash it. That's equivalent to a short-term loan.

Victor

Motley Fool said...

VtC

Credit extended on cars is definitely not necessarily self-liquidating. As such Real Bills cannot be drawn on such goods, but it would have to be funded with short term credit.

TF

Ps. You have made me curious about the production time on cars now though, from raw materials to standing on a floor. I think it could take less than 91 days in many cases.

AdvocatusDiaboli said...

ER,
different from others here, i try to write as simple as possible, still some dont get it:
ANY KIND OF "OWNERSHIP" IS ONLY WHAT THE SOCIETY AGREES ON.
Nothing more nothing less.
@dumbheads: stopping looking at the world like you think it should be, before you havnt seen how it is and start to confuse these two completely different sides.
Greets, AD

P.S.
IMHO: I personally believe in landownership, I believe in copyrights, I believe in patents.

Anonymous said...

AD,

ANY KIND OF "OWNERSHIP" IS ONLY WHAT THE SOCIETY AGREES ON.

Wrong. Any kind of "ownership" is not what the society agrees on, but what the State grants. And what the State grants can be twisted by special interests for their advantage, which may or may not necessarily be in the advantage of the general public.

AdvocatusDiaboli said...

ER
"Any kind of "ownership" is not what the society agrees on, but what the State grants."
I am definitely not a friend of statism, still the state only reflects, what the people want (even you and I might not like that) and can only for a short time differ from the acceptance of the people.
Greets, AD

Anonymous said...

AD,

I am definitely not a friend of statism, still the state only reflects, what the people want (even you and I might not like that) and can only for a short time differ from the acceptance of the people.

The state does not reflect what the people want, rather it reflects the ignorance of the people. The greater the ignorance of the people, the more the State can do what it wants or what any special interest group wants (which will return the favor to the State in the form of bribes).

Go ask any average person in any decently governed country if they are in favor of corruption. More than likely, your answer will be "No". But if there's significant corruption in the country, does it really reflect what the people want ?

Anonymous said...

Motley Fool,

Credit extended on cars is definitely not necessarily self-liquidating.

You are joking, are you? The bill would not be written by yourself to purchase the car (consumer loan) but by the manufacturer in order to purchase the supplies.

It seems there is still a lot to learn about real bills...

The more I think about the real bill part of my little essay, the more I think that real bills are a rather neat way of financing commerce. Perhaps we will get them back as part of the new financial system once the savers are diligent and the investors again care about the quality of the collateral?

Victor

AdvocatusDiaboli said...

ER

"Go ask any average person in any decently governed country if they are in favor of corruption. More than likely, your answer will be "No". But if there's significant corruption in the country, does it really reflect what the people want ?"

people do not like corruption, because most are just as greedy wanting the same free ride, or what do you think will the answer be if you ask them WHY?. In the overall superorganism, corruption is the same brain toxic, just like social welfare. Ask the people if they like "social justice" and therefore social welfare...
Greets, AD

Motley Fool said...

VtC

Nope, no joke.

Anyhow, I tire of this conversation and am in agreement with a mail I received.

"Real Bills are basically just a binding order for consumer goods, which can be traded ahead of maturity at a discount to face value.

The inflation/deflation sidetrack seems to me to be irrelevant to them also - the inflated currency disappears when the goods hit the market. The goods simultaneously disappear from the market too. Net neutral.

The issue with RBD, for me, isn't that it's inherently wrong. Just that it's not going to happen."

I won't be happening anytime soon, so this conversation is pretty moot.

For J6P you don't even need to mention Real Bills in your post since very very few people are aware of it.

TF

Anonymous said...

Vtc,

Your entire argument surrounding real bills can be summarized into this one statement: real bills are exactly equivalent to short term loans . Is that true?

Fekete has illustrated that it is not.

Because real bills are originated because of the propensity to consume and not the propensity to save.

Even without a clearing house (such as a bank), real bills have existed in the past.

The bill is not a collateral security. It is simply a receipt for goods of a stated quantity and quality that has been delivered. It evidences receivables. The face value of the bill is payable on settlement day. The usual term is "three months net". Tradesmen follow a long-established merchant custom in allowing for the time it takes to sell the underlying merchandise. Producers of semi-finished goods never (make that "hardly ever") quote or charge cash prices. They quote and charge discounted prices, payable at a later date specified on the face of the bill.

Real Bills: Waggon-Way in the Air.

I think you are making the same confusion that most people tend to make when thinking about real bills and discount rate.

The discount is really for the value added to the finished product. It is not the same as interest payable on maturity. Discount rate relates to circulating capital.

Anonymous said...

AD,

I don't see coherence in your thinking because of the below statement:

what do you think will the answer be if you ask them WHY?. In the overall superorganism, corruption is the same brain toxic, just like social welfare. Ask the people if they like "social justice" and therefore social welfare...

I don't really understand what you are asking.

I am saying that people's ignorance will lead to State's abuse of power. Simple, that's it. It is not that people want to be abused with power .

Anonymous said...

ephemeral_reality,

The discount is really for the value added to the finished product.

No, that's wrong. The discount is because you have to wait 91 days until you get cash (or Fekete: gold).

If I have cash available, I can buy up some of the circulating bills at a discount, wait until maturity and then cash in at face value. This way I earn some interest because I make my saved capital available to those who do business.

But I have written this and explained it about five times now, and I am not going to repeat it a sixth time.

Victor

jonny49 said...

Firstly, I'd like to welcome Watches Lover to the board, and thank him for recommending those RayBan's: what excellent value they are. (I assume he is a friend of AD's).

Secondly, on the 'good value' theme, a little bit of BIS/central bank bargain hunting:

http://www.ft.com/cms/s/0/4f9a6076-6f92-11e1-b3f9-00144feab49a.html#axzz1pPd61T7v

Snip...

'The BIS declined to comment.'

Love 'em to bits.

Anonymous said...

Vtc,

I see your point.

Since the whole point of your blogpost was to show that we should never denominate credit in a weight of gold (which would be suppressing the gold price, creating consumer price inflation and what not), please demonstrate how real bills (as described by Fekete) will lead to consumer price inflation. That was the only thorn for me in your blogpost anyway.

Anonymous said...

ephemeral_reality,

yes, this is what I said I need to fix. The example involving real bills is not quite honest whereas the other examples are.

The issue is of course that a short-term loan that allows and existing company to increase their production, leads to an increase in the amount of goods and services. Therefore although the price level (of unfinished goods) increases because of the available credit, the price level (of finished goods) declines some 91+/- days later.

So the tendency is that the two effects tend to compensate each other.

Now tell me a good argument why they would cancel precisely. I don't buy that (yet?).

I would expect that the price level depends on the total face value of all outstanding real bills at any given time. Should there be a bubble (as in just before an over-production crisis), you might have considerable price inflation in the system, and Alice might still be right in hoarding the gold.

Even with real bills, you can get a credit crisis if it turns out that the price you can get for the finishes products is a lot less than you initially thought. (Of course, a credit crisis because of long-term consumer loans is worse than one because of short-term loans to businesses).

Victor

Anonymous said...

Vtc,

You say: Therefore although the price level (of unfinished goods) increases because of the available credit, the price level (of finished goods) declines some 91+/- days later.

Why would the price level of unfinished good actually increase? The unfinished good is a chain linking to the end point which is the finished good. The unfinished good would be bought by the producer at a discount off the price of the finished good, so really the only price that matters is the price of the finished good.

There can be other competitive manufacturers attempting to buy the same unfinished good, which means the seller of the unfinished good would sell it to whoever discounts the least. But these competitive manufacturers cannot really enter into this without knowing that there is enough demand for the good they plan to produce.

The consumption of the finished good dictates the discount rate bid, as I see it.

You say:
Now tell me a good argument why they would cancel precisely. I don't buy that (yet?).


I think of real bills as a coordination instrument between the producer and consumer that facilitates the economic transaction (production -> consumption).

Based on this thinking, we have to ask: can the bills market be in a bubble? Can more bills be originated than the goods that can be settled with the consumer for cash within the term period?

If real bills have to circulate, they should be the next best thing to gold. Meaning they should always mature into gold, no rolling over.

Based on the above statement, I see real bills as a clearing mechanism for cash settlement, and because of the short term period and the fact that the bills should always mature (obviously you'd need a rule of law to enforce this), it is not immediately obvious to me how it can become a bubble.

But I can see that the banks, being extremely smart money managers (!) would be happy to take these bills and then lend long (borrowing short to lend long), causing duration mismatch.

Anonymous said...

Real bills are funny because the are a sort of "restricted use money". I can use them to purchase additional unfinished goods from my supplier, and so they are more liquid than an arbitrary bond. But I cannot use them to pay my workers, buy office furniture and not even in order to buy new machines with them (I could try, but offering bills in that situation would raise eyebrows and they would probably not be accepted as payment outside of my own supply chain). And so they are less useful than cash.

In modern language, a real bill is a securitized (in a very special way) short-term loan. The fact that it is securitized and accepted as payment in a specific environment reduces the typical interest rate it attracts. Part of the interest payable on an ordinary loan is apparently the premium for holding something illiquid.

That's probably what Fekete refers to when he says that the "discount" is not an "interest". Although the way he has tried to explain it, has apparently caused a substantial amount of confusion.

Victor

Anonymous said...

Victor,

But I cannot use them to pay my workers, buy office furniture and not even in order to buy new machines with them (I could try, but offering bills in that situation would raise eyebrows and they would probably not be accepted as payment outside of my own supply chain). And so they are less useful than cash.

Well it depends on how prevalent the usage of real bills are.

In one of his recent articles, he describes a hypothetical example of usage of real bills even across supply chains.

Real bills on the move really just the good moving from raw to unfinished to finished and thus reaching the consumer. The way Fekete writes it, what he means is that real bills are the next safest thing to physical gold, because it represents gold on the move.

Obviously, the monetary plane has become a lot more complex with debt instruments on top of debt instruments stacked into a huge pile of illquid assets.

Honestly, I don't know if Fekete's proposal is a likely future outcome from a practical standpoint.

Anonymous said...

Perhaps, but if you could use real bills to arrange deferred payment for consumption (say use real bills to pay for the company staff outing), you would undermine the trust that makes them so special. Ideally, they are always related to the incremental flow of supplies that underly the real production.

Earlier, RJP asked about setting up an emergency backup currency for the day X. Perhaps real bills come close to a possible answer. I don't remember all details from "When Money Dies", but didn't several of the larger companies issue a sort of emergency money that was backed by their output products. That's like taking a real bill and paying your own workers with it.

Victor

JR said...

I go left. On the specific issue, Lockean homesteading.

One Bad Adder said...

A short pause in the interesting discourse svp - Vale King George Tupou of Tonga the King of Fofoa is dead - long live the King!

Wendy said...

well I'm confused as hell. You guys are not playing nice today (or yesterday)!

Anonymous said...

Change of topic. Any idea on why is this?

http://af.reuters.com/article/energyOilNews/idAFL2E8EG73P20120316

http://ftalphaville.ft.com/blog/2012/03/19/928521/the-saudi-oil-sales-enigma/

(Saudi Arabia ships 25% more oil to the U.S.)

Victor

FOFOA said...

Almost sounds like how you'd expect "the deal" to end. Future oil for dollars used for future gold suddenly settles with Here&Now physical oil. If you were "oil" you'd probably want to do this at a time when the US was politically inclined to accept your settlement enthusiastically.

Motley Fool said...

FOFOA

Are you postulating that some of their old 'future gold for future oil' deals are maturing and that they are getting physical for this extra oil?

TF

Yannick said...

FOFOA,

Could you expand a bit? I'm interested..

Thanks

FOFOA said...

MF, no. The oil was already paid for with dollars. What does settlement of the oil part say about the future of the dollar part of this rolling deal? To me it says that settlement of the dollar part has been less than easy lately.

DASK said...

VTC and emphemeral:

I think that the trust issue is central to real bills, and this trust comes from guaranteed flows:

Because bills are tied to the credit of a final phase producer, the discount would have a factor for time preference and a factor for how likley it is that the originator would have the cash on the billing day. It goes without saying that only a few actors would have a zero discount for the likelihood, for instance an electric company drawing bills for less than the electricity consumption over the period. Such bills could circulate as money-good. A car sales outpost: probably only money good if drawn for a small fraction of their projected sales. Not every producer would have the same capacity to draw real bills.

The total quantity of such prime bills in society would be very limited: e.g. a well capitalized electric company that could pay input costs out of cash flow need not draw real bills for daily operation. Where real bills would shine in this view would be kickstarting societally critical production: a power company with no cash could pay its suppliers with real bills and they would pay theirs with whatever fraction corresponded to their discounted input costs.

In this example starting with no cash, along the electricity chain most actors would have their input costs covered and each actor would have a fraction left over corresponding to their remaining value added. Because the total is less than the electricity consumption over the period, the remaining real bills would be money good and could circulate to pay employees, the sushi shop, and whoever. The key though is that the face value of bills available to circulate (not tied up with production factors) could at maximum be the unrealized, but guaranteed, value added in the production chain. The net value could at maximum be this minus the time preference. With high enough velocity or enough critical producers drawing bills, they could fulfil the currency role and you've got yourself an economy.

Easy to confuse with loan money: you have a time factor and a creditworthiness factor there too. The difference is that the real bill is theoretically guaranteed to be paid, barring a seize in critical production, whereas the loan system could seize up based on a drop in velocity of the underlying currency regardless of the size of the loan base. The real bill derived circulation is protected from this because the amount available to circulate outside the directly involved production chain is still capped by the guaranteed flows in production.

So in your current (excellent) example VTC, could Dave&co really issue a bill for 12+ discount and would it be accepted? Only if everone knew they would sell product, and then instead of inflation of steel against the gold price would it not simply represent steel moving to a higher, more value-added bidder? Where would the cash come from to guarantee the sales to Dave&Co? I like the idea of including real bills, but suspect that it will be misleading unless you can have a complete stock/flow economy cycle.

Cheers

D

ChrisF said...

Now that the discussion has switched to oil I am very interested in the potential reaction of the oil giants to the impending 'transition' where the POG goes to (say) $50,000 in today's money.

This site has explained well how TPTB have manipulated the $POG because of oil in the past but I am having trouble finding a good analysis of how an oil giant will suddenly accept that his marginal production is worth substantially less gold (in ounces/bbl).
Can someone point me to the relevant posts, please.

DP said...

Think not in terms of oz/bbl, but other-stuff/oz.

AdvocatusDiaboli said...

strange stuff going on in Germany:

If I go to a bank to deposit money fixed for 10yrs, I get 4% interest.
If I take a loan fixed for 10yrs. from a bank with perfect credibility/collateral, I only pay 3,45% of interest.....
Okay to mention, both banks are memembers of "Landesbanken" in one way or the other, assumingly the most serious once in Germany.

How can that work? Or like old OG WarrenB says: If you dont know how's being fooled, it's you.
If I, as an individual, would not have to pay ~28% capital gain tax, I be running to the banks taking arbitrage to infinity.

Something strange also: a couple of weeks ago, I got a flyer from the state mint of the Bundesbank, giving 2Euro coins away for free!!! (only with the obligation to buy a legal 10Euro coin with paying 10Euro), no shipping no postage costs on the order, nothing... I tried it for fun to see where the ripoff is: Nothing.
Greets, AD

Nickelsaver said...

That's very interesting AD. It almost sounds like the ECB is conducting and "ad" campaign for the Euro in Germany.

Matt said...

AD - demand for base money is different to supply of credit money.

AdvocatusDiaboli said...

Matt,
with that base money stuff:
Where can I get it? I know here at FOFOA some hobby economics, really love to spend their time with that.
I look at it like this: The ATMs at your local bank might as well also include a "base money printer" for withdrawing "your" money, would not make any difference, since everybody will be bailed out all the time, it's a big scam anyway. IMHO: Any discussion about that base money vs. credit money is a waste of time.
Greets, AD

DP said...

So now we know you're definitely not a deflationist then. :)

Do you think it won't make any difference to the general price of consumer goods and services, if we were all to run the base money printers in the ATMs of our banks? Or to the reserve ratios, therefore solvency, of those banks?

I'm just interested to establish how you believe converting all credit money to base money, means nothing.

DP said...

BTW, out of interest, when you "bought 10 got 2 free", did you pay with cash you posted in, or with some of your bank credit money?

And when you got your shiny new twelve base money units back in the post, did you pay it into your bank/spend it already so someone else pays it into their bank, or did you put it in your sock drawer savings deposit account for a rainy day?

JR said...

Hi ChrisF,

Here are some ideas to get you started. First, maybe check out US Mints ‘Gold Disks’ for Oil Payments to Saudi Arabia. FOFOA discusses the story of the US minting "gold disks" in the 1940s to pay Saudi Arabia for oil. FOFOA quotes a NYT article geared to coin collectors about the history of this coin:

The coins were struck in Philadelphia by the United States Mint in 1945 and 1947 to satisfy the obligations of the Arabian American Oil Company, or Aramco, which had been set up in Saudi Arabia by four American oil companies. The company was obliged to pay the Saudi Government $3 million a year in oil royalties and its contract specified that the payment be made in gold.

The United States dollar at the time was governed by a gold standard that, at least officially, made the dollar worth one thirty-fifth of an ounce of gold. But the price of gold on the open market had skyrocketed during World War II.

For a time the Saudis accepted payment in United States currency, but by 1945 they were insisting that the payments in gold be resumed. Aramco sought help from the United States Government. Faced with the prospect of either a cutoff of substantial amounts of Middle Eastern oil or a huge increase in the price of Saudi crude, the Government minted 91,120 large gold disks adorned with the American eagle and the words "U.S. Mint -- Philadelphia." (New York Times, 1991)


cont.

JR said...

cont.


Okay, so a few months later, in It's the Flow, Stupid, FOFOA notes "Unpublicized gold for oil deals are nothing new. The first known deal was 65 years ago, right at the beginning of Bretton Woods," quotes to the above article and then presents this key point:

There is an extremely important point hidden in those articles. Can you guess what it is?

It is that the price of gold does not matter to the producer/saver, only the flow of gold matters. I'll say it again. The producer/saver doesn't care about the price of gold, only the flow. To the producer/saver the price doesn't matter because it is a straight currency exchange, like exchanging dollars for euros.

Did you see it in the article? Aramco owed the Saudis $3 million a year, but it had to be paid in gold. They didn't owe 2.67 tonnes of gold per year, but that's what they had to pay because the US fixed the price of gold at $35 per ounce. The US could have raised the price of gold to $100/ounce and then it would have only had to ship .93 tonnes of gold to the Saudis! Would the Saudis have been displeased with such a move? No. The guaranteed price of gold only matters to the printer of paper gold. To the producer/savers, all that matters is the guaranteed flow of physical!


Here are some quick quotes as FOFOA then goes on to detail the history of gold's flow:

Up until 1971 the US administered the flow of physical gold within the official international dollar banking system.

[...]

Then, in 1971, the US stopped the flow of official gold...We all know why the flow of official gold was cut off, right?

Well, maybe not.

[...]

So I think he said that the 1970's spike in oil prices was actually desired by those in charge of the dollar's management. That they had out-printed the gold reserves already and wanted to somewhat temper that development. Did it work out exactly as they hoped? Of course not. But that's not the point. The point is that the producer/savers need gold to flow. And the US cut off that flow.

[...]

Now you might think he was saying "If the current price of oil doesn't RISE soon we will no doubt run out of gold." But he didn't say rise, he said change. And it is not as simple as you would think.

From 1980 through 2001 gold did flow, though not in the efficient way it would in a free market. With the expansion of the gold forward sales and futures markets, the Saudis and the third world bought up all excess physical gold flow....


So the key is gold's gotta flow. Gold can change value (grow more valuable), so its not the fixed dollar amount of gold that matters, but more whatever amount of gold is reflective of the currency price of oil. If the dollar price of gold doubles, gold's dollar purchasing power has doubled, so you don't need as much gold to keep the same purchaisng power (all else equal). See the big concept there?

Okay so there is lots more and maybe I threw too much out there but I would also check out the follow-up to It's the Flow, Stupid called Flow Addendum, which presents Aristotle's GOLD & MONEY: More Than Meets the Eye.

So hopefully that gets you started, and then maybe even Aristotle can help fill in some of the finer details.

JR said...

Another angle to the story: The Gold Must Flow

The Gold Must Flow

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

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

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

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

Michael H said...

e_r and vtc,

Let me add my understanding of real bills, to see if they add to the discussion:

I think historically real bills were used because they're anti-deflationary in a hard-money standard. They allow the money supply to increase without having a tie to gold reserves.

(Alternatively one could view them as increasing the velocity of the existing money stock, since one could see it as the same 'money' that pays for the final goods being used to pay for the intermediate materials).

Anyways, in a fiat money system, real bills could also be used to maintain non-inflationary money supply growth as the economy grows, by matching the increase in money supply to an increase in real output. I believe this is what Fekete is advocating but it hasn't been tried before.

In a true hard money system such as the one victor describes in his post, the economy would face persistent deflation, as the supply of real goods increases while the money stock stays roughly stable. So if you open a bakery, the price of bread would drop. Any baker who has taken out loans will now find them more difficult to service.

So the real bills would prevent this deflation, which means that victor is correct in that they cause an undervaluation of the underlying gold (for a hard money system). Gold *should* be getting dearer, but instead the general price level is staying the same, priced in gold.

It all circles back to the conflict of having one thing share the unit of exchange / store of value functions.

So victor is correct that the real bills cause an undervaluation of gold in a hard money currency system, and e_r is correct that, properly used, real bills cause no price inflation.

AdvocatusDiaboli said...

DP,
the circulating "base money" is just shiny glas pearls for the sheeple. The Bundesbank especially made a study on the ATM habbits of the people. AFAIR people hold typically 15-100€. The people are broke anyway, and their "savings" are in PIIGS bonds. And the 1%, that are not broke: I went to the bank wanted more than 20K€ they said, sorry, dont have it, come tomorrow. And if I would withdraw even more, what should I do with it? Deposit it in the neighbour bank => LOL? AFAIK the storry about Northern Rock...
Besides that, we have plenty of propaganda and laws in the EU against that bad bad cash, only for the mafia, tax evaders, money laundry and terrorist supporters....e.g. you are even not allowed to pay your TAX!!! with cash.
Or last time I was at the bank that dumb sucker even insisted to know what I wanted to do with the money.

More important to get to your thesis about base money leaving and effecting the banks: Do you really believe that in Greece anybody of the regular euro savers is so dumb to hold any money in the banks? Definitely not, but still the show goes on like there would not be a problem.
Greets, AD

P.S.
I paid it wired bank transfer, after I received that scrap metal in the post. My idea was: any scrap metal even disfigured with a Euro mark in the socket drawer for memorial issues, is at least better than virtual digits in some computer ;)

DP said...

So your credit money left the bank at the back, through the special door marked "ECB".

The ECB took that bank credit and swapped it in their accounts to base money instead of credit money. And duly put it in the post to you.

You happened to be one of the very few people who received this base money in the post and actually kept it outside of the system, in your socket drawer. But I would imagine the other 99% sheeple receiving this offer in the post, would spend it/pay it right back into their bank.

So the banks have at the end had the ECB converted these €10's of their credit liabilities, into (mostly) the €12 of liabability-free base money from the ECB. Which in aggregate, feels like it would somewhat help towards their recapitalisation.

JR said...

Hey arrogant prick and self-serving jerk,

Nothing is more rude and arrogant than showing up here, ignoring the whole point of the post (which is a Kirzner video), and then mouthing off about your ignorance of economics.

I can't imagine anything more self serving and arrogant than to think you are smarter than everyone else. You are not. Not surprisingly, when you act with the height of hubris and decide to dismiss stuff out of hand with the first thought that comes to mind, you embarrass yourselves, because you reveal the height of your narcissism. I am sorry that you are unable to conceive that there are other smart people out there who have thought about these issues more than you have, and LDO the first thought that popped into your mind isn't something these other people haven't thought. So yeah, it must suck being you. C'est la vie.

But what blows is when you ignore the whole point of FOFOA's post, and in fact frustrate it by running your mouths. Its hard enough to explain this sh!t without you guys trolling it up with absurd, nonsensical strawmen because you can't turn off your ego just a bit to try to understand somebody else's point.

So sorry if you think I'm whatever, but no skin on me. I'm not the one crapping on FOFOA's blog - I'm the one jamming on the jerks who are crapping all over FOFOA's blog.

I'm not here to be all cutsie and I don't care what big Costata multi-part windbag put down you are working, because I'm not in for the ego, I'm here to help people understand Freegold.

So yeah, I'm everything horrible you say and worse. Let me have it (I'm sure that will work out well for you). I win when you stop the nonsense. So if you wanna focus your energy on blasting me, mission accomplished. Just stop frustrating FOFOA's effort. Try to open your minds a little bit.

P.S. - OMG please bring that Herman Daly idiocy, please. OMG I salivate at you standing up for that moron, because I win when I (to paraphrase Julian Simon to the equally primate-like Paul Erhlich) "Shut up Herman, the Superorganism is smarter than you are." See how easy that is - the Ultimate Resource - human minds working in concert.

P.P.S. - the fishies are a non-economic good, but if you didn't understand elementary economics and instead wanted to follow an intellectual cretin, you probably wouldn't get the import of that. But don't worry, the Superorganism does!

AdvocatusDiaboli said...

DP,
with two flaws in your observation:
The ECB does not have a real paper printer, only the EuroCB have (therefore I only "stack" Bundesbank paper notes).
The minted 10€ coins are of "memorial nature", you do not find them in regular circulation, although legal tender.
Amazingly different from the regular 0.1-2€ coins, these 10€ coins are no legal tender in other euro countries. Germany has their own, France have their own and I dont know, maybe other countries also.
Greets, AD

DP said...

Well that's an interesting detail! (Apologies if you stated before they were commemorative coins and I simply missed it.)

As you imply, almost none of the collectors taking up this offer would put these coins into circulation or deposit them back at their bank. They're payment in full - a collectable wealth asset, yours to keep forever.

With a discount. (Which, I now agree with you, makes little sense.) Shall we dub this the Real Coins Doctrine…? :-P

AdvocatusDiaboli said...

DP,
the whole setup of the coins and paper notes is really strange anyway:
The paper is legal tender world wide, but some coins are not. But the paper tells you who the issuer is, but the ECB has no printing press, does all this matter?

anyway,
this is one of my favorite little babies :)
http://www.ma-shops.com/pollandt/pic/artid19082_combined.jpg
exchanged credit money for face value 500€.

Greets, AD

DP said...

Now that IS nice!

"€500 or 99,9 12g".

Interestingly, I just came across another site listing these who reckon they're only .375 (9ct) fine.

Thank you, I'd not seen one of these before. Very interesting.

DP said...

Now you've enjoyed a little tiny sweat that you have a fake for just a second there, these guys agree with your packaging that the coin is over .999 fine.

Cheers! ;)

Nickelsaver said...

The fact that the purity is not stamped on the coin tells you a lot.

Notice in the specifications it says Diameter = 12, but the package says it is 31mm

Compare that to this, where they are the same

http://www.lamaisonnumismatique.com/2010_100_euro_GOLD_FRANCE_La_Semeuse-74855.html

AdvocatusDiaboli said...

NS,

READ the face.
I also have the other once: 100€, 250€ and the 500€.
(I wonder why anybody from the mint staff, would have let it leave the mint in the first place, buying it up before packaged).
Greets, AD

Nickelsaver said...

Here is another 12g coin.

http://www.coininvestdirect.com/en/gold_coins/1-goldmark.html

Notice it also claims 999 purity. But then notice the fine print (1The weight displayed here is the fine gold or fine silver content of the item. It does not reflect the actual weight of the product which may be higher.)

Nickelsaver said...

AD,

12grams is 12grams.

At 40.2 euros per gram that comes to 482.4 Euros melt value

Peter said...

Go go gadget PDP-11

Yannick said...

OPEC Recycles Dollars Into Debt 50% Faster Than Foreigner (link)

OPEC nations are plowing cash into U.S. Treasuries at a more than 50 percent faster rate than all other foreign investors, an unintended benefit of oil prices above $100 a barrel.

They held $258.8 billion of the $10.428 trillion of Treasuries outstanding as of Jan. 31, up from $215.5 billion a year earlier and $211.9 billion in January 2010, Treasury Department data show.

Would it be that oil is "managed" upward, and for this reason? Well, seems dangerous, and that is "only" 40 billions.

AdvocatusDiaboli said...

"12grams is 12grams.

At 40.2 euros per gram that comes to 482.4 Euros melt value"

too bad if once too stupid: It's value is €500, LEGAL TENDER, ANYTIME, EVEN IF FREEGOLD NEVER HAPPENS. (THEY WERE ISSUED AT FACE VALUE!!!)

How about those GoldEagles, purchased last year, if gold drops tomorrow to $1200? And how much is their legal tender? Or their numismatic value?

DP said...

A pretty good each-way bet, for sure.

Much better odds than a £1 sovereign, or a $20 Eagle.

Matt said...

Hi AD,

I didn't really explain the idea through but the banks need to keep their capital ratios in check so can pay more on a term deposit if they really need to (because it's leveraged 20:1). Was it a term deposit that had to be made? I don't know the specifics but imagine that would form a pretty solid capitalisation asset and would allow for a reasonable leverage ratio.

At least that is what I was informed by a senior bank manager when I asked about it in the past although who knows from each bank to bank.

Anonymous said...

AD,

that's a nice way of gradually introducing gold coins into the currency. You issue some gold coins with a fiat value printed on. If the gold price goes down, they are fiat tokens. If gold goes up, people hoard them and they have their barter/wealth value due to their fine weight. (Note that nobody claims that the € 500 paper notes could be redeemed for similar coins). Gresham's law is allowed to work. It's like fiat money with fire insurance.

Victor

S said...

Listen to the Bernanke "class" on CSPAN. The gold standard sodomized. He borrows from the pages of Lords of Finance, an academy favorite.

Biju said...

AD,

are these 500 Euro coins still available for sale ? I am in USA so just wondering.

I could diversify some of my saving to Euro denominated Gold(other than the philharmonics I own)

Nickelsaver said...

Victor, AD,

Yes, issuing a coin who's fiat value and gold value are the same seem to have the advantage you state.

But here is my take. A coin like that has more obscurity than its worth.

From a fiat perspective, if the price of gold went down it would still have its fiat value. But, because it is a commemorative, it is not readily recognized as a circulating instrument. So even though it has €500 stamped on it, not everyone will recognize it as €500. Like a $3 bill.

From a gold perspective, if the price of gold goes up, Gresham's law would apply, but since it isn't a recognized "gold" coin like the American Eagle, it would have less appeal.

Now if the ECB starts minting regular circulated coins in gold, much like the pre65 silver american coinage, I'm all in!!

AdvocatusDiaboli said...

NS (&all)
the ECB does not issue any coins nor any paper notes.
And the coins (regardless if metal, silver or gold) are nationally minted on command of each national euro CBs.
And about those 500€-coins: they are limited volume, but LEGAL TENDER!!! (AFAIR 25000pcs) and you have seriuous problems getting them. I only got a few, otherwise if I had a chance I would have taken 1000s of them, you just cant do anything wrong with those :)
Here the same for silberbugs:
http://www.anlagegold24.de/10_Euro_Silber_Frankreich_Hercules_2012_Tauschaktion.html
Germany does not mint any 10€ silver coins any longer, since two years.
Greets, AD

Edwardo said...

Ben Heller on CDS.

http://blogs.reuters.com/felix-salmon/2012/03/19/a-top-cds-trader-quits-the-cds-market/

Anonymous said...

Just a quick not to say that I have fixed the discussion of real bills - thanks for pushing me ;D

If you have followed the discussion here, there is probably not much that would be new to you.

Victor

Anonymous said...

Concerning government debt and CDSs.

Somehow the conventional wisdom says that government debt has less risk than corporate bonds, but the reality is quite the opposite: When a company defaults, there are some standard bankruptcy proceedings, and the creditors can seize the remaining assets of the bankrupt company. When a government defaults, the creditors are just told "we are sorry." and have to walk away empty handed.

Victor

AdvocatusDiaboli said...

VtC,
yes, I like to add: when politicians&CB cook the books nobody to punished. When companies do that:
US -> prison (okay in earlier times...)
China -> headshot
So I guess the chinese economy superorganism will be supirior in the long run.
Greets, AD

RJPadavona said...

Hello Friends,

I ran across this Reuters article this morning:

World Focus Shifting From Value Of China Yuan: OECD:

http://www.reuters.com/article/2012/03/20/us-china-currency-oecd-idUSBRE82J0EZ20120320?

The quote that caught my attention from this article was this one from OECD Secretary General Angel Gurria, where he was speaking on the Chinese yuan:

"The emphasis is no longer on the question of the value of the currency. The question is not about fixing a particular level and saying 'now it is ok', but about the system through which the value of the currency is fixed every day."

I may be reading too much into this, and I know he's only talking about the yuan, but it seems like the language is evolving in the way the world is viewing currencies. I just don't recall hearing these global do-gooder organizations referring to the value of currencies in this way before.

I'm not much on the more technical details of how some of these markets and exchanges function. I'm more focused on the human interest aspect of Freegold and how it will change the course of history. I wouldn't know a forward contract if it jumped into the physical plane in the form of a certificate, came to life, and slayed me by way of a thousand paper cuts.

So maybe someone with a little more technical expertise on these matters will interpret this report from the OECD a little different than me.



JR,

I know people may say things about you sometimes, but one thing they can't say about you is that you don't have passion. This particular characteristic of yours gives me cause for concern:

In a post-Freegold world, where will you channel this passion? I fear you may develop a condition similar to Empty Nest Syndrome once the RPG bomb has detonated. You've devoted as much time to this as a parent does with their child.

So, if you don't mind, I'd like to make a suggestion: After all this is over with, I think you should channel this passion of yours into running for the office of high sheriff in your local area. You remind me a lot of a former sheriff from Tennessee named Buford T Pusser. They made a movie about him in 1973. You may remember it:

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

If that ain't you, then gold ain't wealth ;)

RJP

Michael H said...

I thought some US-based readers with funds in an IRA might find this interesting:

How to Take Control of Your IRA, by Gordo

The writer says that, if you have an IRA, you can form a single-member LLC to manage your IRA. As long as you stay within the IRS guidelines for IRA-acceptable investments, you can invest as you choose. If you invest in bullion, you can store it wherever you like: bank safe deposit box, Swiss deposit box, or your own home. Bullion should be 0.999 purity or better to qualify.

This applies to IRAs and not 401(k)s, but I believe if you change jobs or leave your job you have the option to transfer funds from a 401(k) to an IRA without penalty.

Of course the usual caveats apply, this is not legal advice, I’m not a lawyer, DYOD, etc. etc.

Edwardo said...

Speak of the devil. It seems Prof F has a new piece out as of yesterday. Apparently it is something of a reproach to The Bernank who, in a recent lecture to some impressionable University students, intoned in a negative fashion (Quelle Surprise!)
about the gold standard.

Anonymous said...

Mortymer suggested that Iran was cut off from SWIFT in order to prevent them from selling oil for other currencies which was originally scheduled to start yesterday.

Victor

Anonymous said...

According to the Financial Times, there is usually one supertanker from Saudi Arabia to the US every 60 days. Now they have 11 lined up to go asap.

Apart from FOFOA's idea that SA is closing the US$ settled forwards, there is a second possible interpretation: someone already knows there will be war, and they are trying to get as much through the Strait of Hormus as possible.

Victor

AdvocatusDiaboli said...

what I dont get: why prevent Iran from "selling" (or better call it delivering) oil? Iran has no benefit, if selling oil, as long as they havnt been paid with e.g. with weapons, rare commodities, industrial stuff...
BTW: when iranian companies paid to german companies, in the last years they never paid "directly", always through banks in Dubai, by letter of credit clearing (at least concerning in the businesses I personally know of).
Greets, AD

mr pinnion said...

Interesting

http://www.theepochtimes.com/n2/china-news/coup-in-beijing-says-chinese-internet-rumor-mill-207993.html

Regards
Ozzy

Nickelsaver said...

http://youtu.be/0jqn9SKYAgY

Wendy said...

one of my favorite songs Nick. I agree it's very quiet here today. I understand that we disagree with each other at times and somtimes forcefully, but there is nothing righteous in "righteous indignation".

Hopefully the dagger-throwers and wound-lickers return soon to play nicely again ;)

Wendy said...

victor,
I went through mortymer's blog and couldn't find him mentioning Iran's payment scheme, although I do remember March 20th as the new date for payment.

Would you please provide a link to mortymer's opinion?

Anonymous said...

1/2

Turkey Targets Gold Stashes - WSJ

By YELIZ CANDEMIR and JOE PARKINSON

ISTANBUL—The Turkish government, facing a bloated current-account deficit that threatens to derail the country's rapid expansion, is trying to persuade Turks to transfer their vast personal holdings of gold into the country's banking system.
The push to tap into the individual gold reserves—the traditional form of savings here—is part of Ankara's efforts to reduce a finance gap that is currently about 10% of gross domestic product.
Government officials say the banking regulator will soon publish a plan to boost incentives for consumers to park their household wealth inside the financial system. Banking executives said they are considering new interest-yielding gold-deposit accounts that would allow savers to withdraw gold bars from specially designed automated teller machines.
The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey's gold hoarders to deposit their jewelry, coins or bullion at banks.
Economists say the policy shift is designed to change Turks' historic preference for storing a high percentage of personal wealth outside the banking system as a way to protect themselves against the economic volatility that has periodically hit Turkey in recent decades.
The effort is one front in a broader battle to encourage more savings while curbing the ballooning current-account deficit—a pressure point many investors fear could upend a fast-growing economy, estimated to have expanded more than 8% last year. Turkey's current-account gap has expanded faster than expected in recent weeks amid a surge in oil prices and data showing unexpectedly high consumer demand.
"Turkey has historically been hit by crises and inflation, so the tradition of holding gold outside the system could be hard to shift," said Murat Ucer, an economist at Global Source Partners, an Istanbul-based research consultancy.

Anonymous said...

2/2

The size of the gold haul stored outside Turkey's banking system is hard to quantify; no data reliably capture the scale of the informal economy. The Istanbul Gold Refinery estimates the figure at 5,000 metric tons, valued at $270 billion. Recent numbers show many consumers have boosted home-held deposits even as the country's tightly regulated banking system won plaudits for comfortably weathering the financial crisis.
Last year, as the Turkish lira tumbled almost 20% against the dollar—the fastest fall of any currency in the world—Turkish demand for gold bars and coins surged 99% from the previous year, according to data from the World Gold Council.
That suggests that despite a tripling of incomes and a sharp reduction of unemployment in the past decade, Turks remain nervous that holding too much of their assets in banks could leave them exposed to losses.
Data also show savings held inside the financial system have declined sharply as the once-volatile economy entered a period of relative stability after a banking crisis in 2001. According to the International Monetary Fund, Turkey's savings rate last year plunged to the lowest level in the world for any economy larger than $100 billion—except Greece, Portugal and Ireland—as Turks ramped up personal spending and borrowing.
Some economists warn the government's initiative is a sideshow, saying policy makers should instead focus on overhauling Turkey's arcane tax regulation, and on boosting public coffers by effectively collecting taxes.
"The government should be focused on the Turkish tax code, but that would mean alienating people, and there seems little appetite to do that," said Mert Yildiz, an economist covering emerging Europe at Renaissance Capital, a Moscow-based investment bank.
For some Turks, the government will have to unveil a lot more sweeteners before they part with the family gold. "I'm keen to save, so keeping gold at home is easy for me; there is no complicated procedure," said Ayten Altin, a 70-year-old housewife in Istanbul. "In an emergency, I can convert it to cash and I don't have to wait for the bank to say the asset has matured."

AdvocatusDiaboli said...

about Euro (base money) printing:
Here some thoughts and background information
http://hat4uk.wordpress.com/2012/03/21/revealed-how-berlin-has-been-planning-a-euro-exit-since-2009/
It also underlines my thoughts&feelings, that every single Euro-ATM has its own included printer, especially the ones in Greece.
Greets, AD

ampmfix said...

.

ampmfix said...

Please excuse if the answers are in the archives, can somebody help me clarify: I see 2 problems for the Freegold (I envision) to happen (gold store of value, yes, but never trusted to others):
1) If gold is saved outside of banks, there won't be surplus wealth to loan out so progress stops (according to Schiff...).
2) Governments will not allow citizens (as in Turkey above) to save outside of banks, in part because of 1) and also because of losing control over people.
So unless those two issues are circumvented, Freegold would not be much different than what we have now, except for golds role.

Thanks for your opinions.

Bjorn said...

@Ampfix

I will try to frontrun JR a bit here...;-)

The answer is a usual indeed in the archives.:-)

1. When you buy gold, what happens to the currency you used? It doesn´t dissappear. I think Julian said it best, with my small addition:

"Is it the forwarding of the excess production to another, whom had over time saved their own excess “capital” represented in the form of gold? The forwarding and retrieving are one act from two parties' perspectives. The cycle of savers passing savings on to savers-turned-spenders (or investors!), the flow of the store of value medium." So a stable medium for savings (gold in a Freegold environment) encourages saving compared to todays situation where spending is encouraged. The result is that MORE surplus wealth will be available for constructive purposes, and it will be (more than today) directed to those (former savers) who has shown themselves capable to create value in the past.

2. Perhaps a bit more complex, but

http://fofoa.blogspot.se/2010/08/confiscation-anatomy-part-2.html

is a good place to start.

Bjorn said...

That didnt come out quite as I intended it, my addition to the quote from Julian was the (or investors!) in case that wasn´t obvious.

http://fofoa.blogspot.se/2012/03/savings-capital-theory-open-forum.html?showComment=1331781422332

Motley Fool said...

JR

I watched the full video. I don't know that there is much to discuss as regards a history lesson.

In my experience, the only times you post (that are not quotes), is to belittle or insult others. So my judgment remains that you are a arrogant prick. Not that it really matters to me how you choose to behave.

I am curious though, what exactly is it that you want with your latest rant? What exactly did you hope to achieve? Would you prefer me to just keep quiet and say amen reverently every time you quote scripture? I don't get it.

TF

ampmfix said...

Thanks Bjorn, I will read it.

Anonymous said...

Thanks,Motley Fool.

AdvocatusDiaboli said...

Back to the topic SAVINGS:

What is funny is that freegolders love the Euro so much (due to lalala "link to nation/link to gold", MTM-party lalala), but completely ignore what is really going on in the Euro-zone.
1.) Freegold is exactly the opposite to the Euro(system/zone), since FG rejects the idea of debt as a store of value: Inside the euro-zone BY LAW the people heavily motivated to "save" in debt only. Probably more than 95% of "savings" of the people are instituted by government into €-bonds. Right now there is a new discussion in Germany to even force people into bonds savings if they have not yet an "acknowledged retirement plan" (=>gov.bonds). GUESS, HOW HAPPY I FEEL NOW!!!
2.) You can look at FOFOAs bashing old OGWarrenB however you want: In the US you have the free choice to also have your 401K into stocks. In the euro zone you do not even have a chance. YOU ARE 99% EXCLUSIVELY TIED TO DEBT SAVINGS.
Greets, AD

Nickelsaver said...

AD,

You have to peer through the looking glass to see how the Euro is designed to operate in a Freegold economy. The lens is here if you are willing, but you have to take off the rose-colored glasses first.

Pointing out how the Euro behaves now as refutation of the Freegold theorem is your problem. You must see it from a $IMFS influence perspective.

Please stop wasting our time by continually raising the same tired objections and READ!!

YOU ARE 99% EXCLUSIVELY TIED TO DEBT SAVINGS

NO! You can save in physical gold.

AdvocatusDiaboli said...

NS,
you are the perfect example of an ignorant american, caught up in some lala-illusion.
You have no idea what you are talking about.
Have you lived in Europe?
Do you read any non-english news (besides how many languages do you speak)?
Do you have any idea of the euro(pean) social retirement laws?
How many european politicians do you know first hand, without press propaganda?
Do you have any idea on how laws are engaged in Brussel & Berlin?
No you dont, so why dont you STFU.

Dr. Octagon said...

I'd just like to say how much I appreciate the recent comments from Bjorn, Julian, and now ampmfix on the question ampmfix phrased as If gold is saved outside of banks, there won't be surplus wealth to loan out so progress stops. This came up in the previous thread, and I have been pondering it ever since. A good topic.

Nickelsaver said...

AD or should I say Alien,

Your are correct. I only speak English. But I speak it very well. Enough to see that you can drop the faux-accent when you choose to.

Pick a pseudonym and go with it. And save us the "Greets"

#outed

Nickelsaver said...

Maybe not so well when I am in a rush....lol

Anonymous said...

Wendy,

I remember hearing it, too, but I don't have a reference to any article saying that the new trading venue would open on March 20. Anyway, it didn't - no mention anywhere.

AD,

I don't think "The Slog" is credible. Just look at the part articles and how they compare to reality.

Second, I don't think Germany will exit the euro. If they did, they (1) would lose their buffer zone for the time when the US$ dies - they need a huge domestic market for this, even if some part of that market is bankrupt and needs to be put on life support and (2) they would have a huge capital inflow, killing their export business - a lot worse than what happened to Switzerland. So if they exited from the Euro, they would immediately have to use the nuclear option and sterilize the capital inflow by outright buying gold.

I am not saying this is impossible, but it is 100 times more likely to happen within the Euro zone. Why give up what it in fact a huge political advantage just to placate some semi-informed splinter group of hard money radicals.

ampfix,

If gold is saved outside of banks, there won't be surplus wealth to loan out so progress stops (according to Schiff...).

Definition "Hard money socialist" (HMS): Wants to first introduce hard money and then be able to borrow it, making it particular painful to pay back. Wants to provoke a conflict between savers and debtors, just to make a point. Does not care if the system eventually collapses as long as he was "morally right".

Okay, enough jokes. I think, he is wrong because if you have achieved a surplus, first in the form of medium-of-exchange currency, and purchase gold for this sum, the very same currency passes on to the person who sells you the gold.

No that person gets to decide about the allocation, i.e. whether he prefers to consume it or whether he invests it.

With freegold, there will still be currency loans to companies, and there will still be companies listed on the stock market in which you can invest. I guess the interest rates will (automatically) be a lot higher which limits funding to productive enterprises. If you read R. Werner's work, this fact really jumps at you. If the interest rates are too low, money is borrowed for all sorts of silly purposes (consumption, gambling, leveraged financial activities). If the interest rates are high, only truly competitive companies will be able to borrow. Most in the financial media get cause and effect wrong. It is not that low interest rates stimulate the economy, but rather low interest rates are a consequence of a poor economy. !!!!

Governments will not allow citizens (as in Turkey above) to save outside of banks

I believe that the saver is in control. Not every country will go the path of the Soviet Union. Those that don't, will win economically.

Victor

Anonymous said...

AD,

I can imagine that the governments want you to save in government bonds. If you have to put some retirement funds into this, view it as basically another tax. But beyond that tax, if you have a surplus, you can do what you like (apparently you already did).

Now there will be a point at which the final debt bubble bursts, and from what I have seen so far, I think I know which side the ECB will take. They will not side with the governments. Even some in the present German government (Merkel, Schauble) are in the know if I read their interviews correctly. But they are not saying openly what will happen, and so for now the official politics looks a bit schizophrenic. Even Sarkozy has been in the know since around September/October 2011. But not everyone else in his government is, I suppose. You just have to live with this situation and be patient, I suppose.

Victor

DP said...

If I may interject my £0.00 worth...

If gold is saved outside of banks, there won't be surplus wealth to loan out so progress stops

Restating the obvious one more time: When someone buys gold, they have to buy it from someone else. There isn't less currency to go around when people buy this gold, it's only moved about to someone else who had the gold previously — someone who presumably has some intention of investing and/or consuming the stored value released by selling their gold... via the medium of this spendable currency the buyer hands over.

The only effect buying/selling this essentially stable (by weight) stock of physical gold can have on the available amount of surplus wealth in the world, and by extension whether "progress stops" through people buying gold, is via the valuation that is placed on each and every one of the ounces at any given point in time. The more highly priced each ounce of physical gold becomes in the market — a function of supply and demand* — the more potential wealth is available that could be unlocked by sellers. Conversely, a falling price of gold reduces the available amount of surplus, unencumbered, liability-less wealth in the world that could be mobilised.

So, far from an increase in demand for gold, and therefore a rise in its price, making "progress stop" as less money remains available to the wider economy... on the contrary a rising price means more and more unencumbered, liability-free money could potentially be unlocked from the world's primary wealth reserve asset. The above-ground stock of physical gold.

FOFOA has dubbed this a "GELOC". (Gold Equity Line Of Credit)

In summary: if you work to suppress the market price of physical gold, perhaps by burying the real supply and demand dynamics for gold under an unlimited sea of paper contracts for "gold" … you're a jerk.

Gold expanding in value is a natural consequence of human action.

Sincerely,

DP

* and a dash of political will

AdvocatusDiaboli said...

VtC,
"...(Merkel, Schauble) are in the know if I read their interviews correctly. But they are not saying openly what will happen, and so for now the official politics looks a bit schizophrenic...."
Oh, really? Or could it be they are? See, you dont see the nature of these people (and havnt followed them the last 20yrs.), only the english "FT" interpretation. Read the CV's carefully: Mrs.Merkel knows sh!t about finance, she only understand how to stay on top on political powers (she was FDJ "secretary of propaganda and agitation" in former DDR, studied in Moscow). And Schäuble is a hater, nothing else.

"...Even Sarkozy..."
jep, what's about him? Mr.BlingBling? I spend a lot of time in France (having family there), I dont have the feeling that he will be reelected. And Mr.Holland will take the printing press and introduce 75% "EatTheRich" tax (back to the future of the late 70s when the franc almost collapsed), good night europe.

And about "The Slog". I'm not saying that he "is right". He is just as right as FO(FO(A)): Just interesting to reconsider things. Just one fact: Whenever I get money from the ATM, almost >50% are not Bundesbank notes (I already take greshams law on those...;).
Greets, AD

ampmfix said...

Thanks a lot Victor and DP, it seems I am never going to fully understand this stuff... A real challenge, I tell you, general relativity seems simpler, at least to me. Cheers!

DP said...

Nobody fully understands this stuff.

Just when you think you understand, you notice something more that you hadn't considered before.

burningfiat said...

AD,

That got me wondering how you can tell whether a Euro banknote is from Bundesbank or some other European National bank?
Found this informative link:
http://www.ecb.int/euro/banknotes/html/index.en.html

Seems notes in my very small €-stash come from Netherlands, Austria and Germany. Could be worse I guess.
But then again, will the issuing country of the banknotes even matter in the case of a Eurozone split up? I really dunno! Any qualified opinions?

/Burning

Anonymous said...

VtC

I very much like the rational idea of RPG/FG and I believe it should be the logical follow up of our monetary system.
It is only something I don't get.
If you (FO/FO/A/advocates)are right about it all why are European politicians so keen to destroy us here, in Europe, following exactly the dying American supremacy?
How long will they kick the can down the road?
Does it have to be bloody first? We already have the gendfor,a kind of EU army, we will soon have INDECT - total surveillance, cashless society is in its wings and so on.
My question is: how long and why?
Up to now I can't remember anybody having an answer to these questions.
Desperado, the Dork, AD, Alien and my humble person - we all live in the Euro system and we feel these dissonances.
I, for one, would be very sad to put this topic aside and to consider it in 10, 20 years as a beatiful theory but sadly not more than wishful thinking of some creative minds on the web. Even then I would stick to my real savings irespective what happens - better dead than sustaining this dirty system we now have.
Rant off

Anonymous said...

burningfiat,

But then again, will the issuing country of the banknotes even matter in the case of a Eurozone split up?

No. First because the Euro zone will not split up. Second, if it really did, you need canned food and silver and then some physical gold for the additional savings.

I thought the ECB bond buying (called SMP) under Trichet was rather stupid and made them look unnecessarily weak, but Draghi demonstrated that yields on government bonds do rise until the government makes a serious attempt at getting the budget under control. For now, I am happy to judge the ECB by Draghi's actions.

Should they eventually turn out to be the governments' loyal printers, they will have the same fate as the US$, only worse, because the euro zone has substantially less natural resources.

Victor

Motley Fool said...

thedeadfauvi

My understanding is this. Europe will muddle along as long as it has too, until the USD implodes.

Naturally as we approach the end of the $IMFS system, those in power will cling harder and harder and squeeze more to remain in power...so it will only get worse in the meantime.

Lastly I view the FreeGold architecture as fundamental, and all else as noise. I understand that living through the noise makes it difficult to ignore.

A simple, ignorant African opinion.

TF

Anonymous said...

Should they eventually turn out to be the governments' loyal printers, they will have the same fate as the US$, only worse, because the euro zone has substantially less natural resources.

Victor,

Draghi gets more and more involved in eurozone fiscal policy, he is concerned about the unemployment in the EU!
How does that bear any compatibility to the former mandate of the ECB? I thought their only mandate was money stability... which I also find quite unfulfilled for my taste.

Anonymous said...

thedeadfauvi,

the other thing I think I understand reasonably well is some of what happened in 1997-2000.

The Europeans kept inflating the London gold market, i.e. kept leasing gold and allowed the banks to increase their leverage. Through the back door, first the oil states and then China were let in in order to purchase all the unallocated and the forwards.

The short position went to the miners (think Canada, USA, Australia - all US$ block; note that some South African companies did not go short; which ones? Anyone related to a major but secretive private bank with many fingers in the London gold market???). And some of the short position went to the hedge funds.

Then, once the euro was running, the Bundesbank said no more leases. And all the European CBs said no further sales. You can indeed see from the FRBNY vault inventory data that the physical left the vault before 1999. What was sold later was gold that had been leased and was simply not requested back.

With this action, the European CBs threatened to blow up both London as a financial centre and the US$ as a currency. Then they agreed to sell some 2000+ tonnes of their own gold in order to save the world financial system for now. They must have been able to extract some considerable concessions for this.

On the other hand, I don't think anyone in Europe will just bluntly pull the trigger and crash the US$ system. They can, but they will not actively do this. I think they will wait until the US$ collapses on its own and rescue the euro zone should it become necessary. But they will not deliberately throw the world into chaos and pull the trigger.

There will rather be some external circumstances that make it absolutely necessary. Then, it will be obvious that it was inevitable rather than malicious. This is how it has to be.

I have no idea to which degree China is in the know and how they will play.

Victor

AdvocatusDiaboli said...

VtC,
"but Draghi demonstrated that yields on government bonds do rise until the government makes a serious attempt at getting the budget under control."

Sorry, but WHAT A BS. "makes a serious attempt" LOL, that just sounds like the Obama "oh yes, we are making serious cuts"!
If the ECB is credible, why are they hoarding bonds like crazy (even SoccerClubToilettPaper from Spanish banks)? Why rejecting to open the books, which ones they hold? Oh, and that 1trillion he just "printed", where did it go? Hmmmm? WHERE DID THAT F*CKING TRILLION GO? (LETS NOT FORGET TARGET2, but I know, that is a 100% tabu, completely blinded out here at EuroFreegold).
MTM is getting closer, you bet, Gold will do on the balance sheet NOTHING. Why should it? Draghi is holding that valuable spanish SoccerClubToilettPaper.
I mean, it is really fascinating with what illusions Freegolders operate, just to keep their EURO confirmation bias dream alive.
Greets, AD

Anonymous said...

Motley Fool,

I really appreciate your answer and I do not consider you at all ignorant, au contraire, I remember very well as you once wrote about discharging the euro after the transition. I also expect you understand the dramatic situation we have now. Suicide rates higher, people abandoning their children in SOS villages, old hungry people everywhere, a repressive police force, lies all around from MSM, angst for the future, imposibility to plan one's life and even DE is bankrupt, completely bankrupt.These countries cannot restructure their economies, it simply won't ever work! They only get deeper and deeper in misery.
Even if you know where to look for the woods you don't see but trees without leaves!

AdvocatusDiaboli said...

BF
"But then again, will the issuing country of the banknotes even matter in the case of a Eurozone split up?"

When you consider the dollar an IOUnothing, the euro is an "HowOwesYouNothing". By stacking the german "X" bills at least I know that the Bundesbank owes me nothing, dumb, but makes me feel better somehow.
It is just that I am collecting those. A stash of 10K€ per person in the family cant be wrong. That is the magical maximum number you are allowed own anonymusly and to take over the borders of EUROgulag.
Greets, AD

Motley Fool said...

thedeadfauvi

I understand. It will get worse before it gets better, sadly.

I also notice terrible things in my country...and it was much worse than the EU to start with.

I understand those that ask for the collapse to just happen already...this painstaking grind is terrible.

I don't think we have long still, I cannot imagine it can get much worse with no reaction, then again things have been worse than my imaginations in the past.

Things to seem to be coming to a head though.

I am just hunkering down and waiting it out. I don't see that there is more I can do.

TF

Anonymous said...

Victor,

I've got your message and I perfectly understand you.
Quite possible that it plays this way and as FOFOA once said the USA will first follow their scorched earth policy to which our elected elite won't oppose, including (how many ?) wars and national distructure.
Only one I can tell you:
the pressure is getting higher and I don't believe people in Europe will take it for very long.

Anonymous said...

Motley Fool,

I am very struck and UNsurprised how sensible and gentle you are re the harms decent,innocent people have to endure. Thanks.

burningfiat said...

thedeadfauvi,

I just want to back up your sentiment.
Living in Europe and believing in the Euro-related parts of the Freegold hypothesis can be a really schizo experience at times.
We are living under a more and more fascist-like society each day, while waiting for the liberating collapse and afterwards Freegold, that will set things straight and hopefully remove the worst government excesses.
I requires great conviction to keep to long-term positive outlook when the day to day changes are mostly negative.

VtC,

I agree about the canned food in the case of Euro-zone breakup. That is of course the practical side. My question was also related to the judiciary side of the case. Those small letters on the banknotes, will they really matter in a state default and breakup? Will all notes with a Y (=Greece) be converted to Drachmas? Even if held by German citizens for instance? I guess there is no user manual on www.ecb.int about that scenario...

/Burning

Anonymous said...

Burning,

thank you too for your understanding.
About the banknotes.
There has been a Prof. in economics, Otte, and he put that rumour in the blogosphere years ago. He is not a great thinker however, more of a panic type making some profits from the crisis.
I do not consider this y-mark as dangerous because that would be a confiscation in case they would abolish the euro in Greece. That would not work with the people. BUT I am not sure what happens to these banknotes as they step up the process of criminalising the cash.... What if they say some day well, your problem, you should have kept your money in a bank! But in that case that could happen with all cash from all South! And if Germany were to get out - which I don't believe feasible for multiple reasons not only economy, that could happen for us here, with ALL our cash! That has already happened before.

jonny49 said...

(Sigh)..I did say a few weeks ago, no food.....

Anyway, a hot hot post from ZH, re 'President Obama signed a “National Defense Resources Preparedness” Executive Order on Friday'

Here is said order:

http://www.whitehouse.gov/the-press-office/2012/03/16/executive-order-national-defense-resources-preparedness

I have read some of it, including the bits pasted below (this is scary scary):

PART III - EXPANSION OF PRODUCTIVE CAPACITY AND SUPPLY

Sec. 301. Loan Guarantees. (a) To reduce current or projected shortfalls of resources, critical technology items, or materials essential for the national defense, the head of each agency engaged in procurement for the national defense, as defined in section 801(h) of this order, is authorized pursuant to section 301 of the Act, 50 U.S.C. App. 2091, to guarantee loans by private institutions.

(b) Each guaranteeing agency is designated and authorized to: (1) act as fiscal agent in the making of its own guarantee contracts and in otherwise carrying out the purposes of section 301 of the Act; and (2) contract with any Federal Reserve Bank to assist the agency in serving as fiscal agent.

(c) Terms and conditions of guarantees under this authority shall be determined in consultation with the Secretary of the Treasury and the Director of the Office of Management and Budget (OMB). The guaranteeing agency is authorized, following such consultation, to prescribe: (1) either specifically or by maximum limits or otherwise, rates of interest, guarantee and commitment fees, and other charges which may be made in connection with such guarantee contracts; and (2) regulations governing the forms and procedures (which shall be uniform to the extent practicable) to be utilized in connection therewith.

Sec. 302. Loans. To reduce current or projected shortfalls of resources, critical technology items, or materials essential for the national defense, the head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 302 of the Act, 50 U.S.C. App. 2092, to make loans thereunder. Terms and conditions of loans under this authority shall be determined in consultation with the Secretary of the Treasury and the Director of OMB.

Sec. 303. Additional Authorities. (a) To create, maintain, protect, expand, or restore domestic industrial base capabilities essential for the national defense, the head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 303 of the Act, 50 U.S.C. App. 2093, to make provision for purchases of, or commitments to purchase, an industrial resource or a critical technology item for Government use or resale, and to make provision for the development of production capabilities, and for the increased use of emerging technologies in security program applications, and to enable rapid transition of emerging technologies.

(b) Materials acquired under section 303 of the Act, 50 U.S.C. App. 2093, that exceed the needs of the programs under the Act may be transferred to the National Defense Stockpile, if, in the judgment of the Secretary of Defense as the National Defense Stockpile Manager, such transfers are in the public interest.

jonny49 said...

And more of the same:

ec. 304. Subsidy Payments. To ensure the supply of raw or nonprocessed materials from high cost sources, or to ensure maximum production or supply in any area at stable prices of any materials in light of a temporary increase in transportation cost, the head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 303(c) of the Act, 50 U.S.C. App. 2093(c), to make subsidy payments, after consultation with the Secretary of the Treasury and the Director of OMB.

Sec. 305. Determinations and Findings. (a) Pursuant to budget authority provided by an appropriations act in advance for credit assistance under section 301 or 302 of the Act, 50 U.S.C. App. 2091, 2092, and consistent with the Federal Credit Reform Act of 1990, as amended (FCRA), 2 U.S.C. 661 et seq., the head of each agency engaged in procurement for the national defense is delegated the authority to make the determinations set forth in sections 301(a)(2) and 302(b)(2) of the Act, in consultation with the Secretary making the required determination under section 202 of this order; provided, that such determinations shall be made after due consideration of the provisions of OMB Circular A 129 and the credit subsidy score for the relevant loan or loan guarantee as approved by OMB pursuant to FCRA.

(b) Other than any determination by the President under section 303(a)(7)(b) of the Act, the head of each agency engaged in procurement for the national defense is delegated the authority to make the required determinations, judgments, certifications, findings, and notifications defined under section 303 of the Act, 50 U.S.C. App. 2093, in consultation with the Secretary making the required determination under section 202 of this order.

Sec. 306. Strategic and Critical Materials. The Secretary of Defense, and the Secretary of the Interior in consultation with the Secretary of Defense as the National Defense Stockpile Manager, are each delegated the authority of the President under section 303(a)(1)(B) of the Act, 50 U.S.C. App. 2093(a)(1)(B), to encourage the exploration, development, and mining of strategic and critical materials and other materials.

Sec. 307. Substitutes. The head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 303(g) of the Act, 50 U.S.C. App. 2093(g), to make provision for the development of substitutes for strategic and critical materials, critical components, critical technology items, and other resources to aid the national defense.

Sec. 308. Government-Owned Equipment. The head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 303(e) of the Act, 50 U.S.C. App. 2093(e), to:

(a) procure and install additional equipment, facilities, processes, or improvements to plants, factories, and other industrial facilities owned by the Federal Government and to procure and install Government owned equipment in plants, factories, or other industrial facilities owned by private persons;

(b) provide for the modification or expansion of privately owned facilities, including the modification or improvement of production processes, when taking actions under sections 301, 302, or 303 of the Act, 50 U.S.C. App. 2091, 2092, 2093; and

(c) sell or otherwise transfer equipment owned by the Federal Government and installed under section 303(e) of the Act, 50 U.S.C. App. 2093(e), to the owners of such plants, factories, or other industrial facilities.

Motley Fool said...

Gary

I read it on Saturday, and agree with your assessment...it is scary scary.

TF

Anonymous said...

thedeadfauvi,

Suicide rates higher, people abandoning their children in SOS villages ...

I completely agree, things are far from nice. But, be honest with yourself, if Germany exited the Euro tomorrow (without a global change in the financial system), do you think it would get better, or would it get worse?

I think I asked this question quite a while ago. What would be better for (a) you; (b) your country; (c) Europe; (d) the world:
(1) if someone pulled the trigger and punctured the debt bubble now
(2) if they kept kicking the can and kept the system limping along for another decade

I thought that the damage to the real economy is becoming quite significant and less and less tolerable. But who is going to step up and push the red button. You see that the major non-US powers, Russia, China, are sending the usual poor idiots as their advance guard towards sabotaging the US$, i.e. Chavez, Iran, etc. As of today, they don't have much of their own skin in the game. Europe are U.S. allies and I don't think they would actively sabotage the U.S. (I think that what happened in 1997-2001 was remarkably hostile on that scale).

burningfiat,

Those small letters on the banknotes, will they really matter in a state default and breakup?

I think this is just one of these silly distractions from the real issue. If the Euro zone splits up, this will be close to a full scale breakdown of the financial system, i.e. banks remain closed for a couple of weeks, etc.

Then they will void all existing notes and issue completely new ones from scratch. Consider historical examples: 1923 Rentenmark, Germany; 1949 introduction of the Deutschmark, Germany; 2002(?) Argentina default. A break-up of the Euro zone would be on that scale. The small-print on the old (worthless) notes will be your least important worry in that case.

Victor

jonny49 said...

My thoughts....

The US Govt know exactly what is coming, Fofoa and others are right, it is going to involve currency collapse.
To read this though, it's chilling to see the totalitarian powers that they have just awarded themselves.

It does make me think, there is no way the US govt is going to just go down with a whimper, based on these preparations. The US could end up worse than Russia! (with more nukes).

If this is how they are prepared to behave within their own borders, we should have no illusions that any transition away from the $IMFS is going to be smooth, voluntary, or a fait accompli.

Note to self...get more canned food.

jonny49 said...

This is especially relevant to prior discussion here:

Sec. 306. Strategic and Critical Materials. The Secretary of Defense, and the Secretary of the Interior in consultation with the Secretary of Defense as the National Defense Stockpile Manager, are each delegated the authority of the President under section 303(a)(1)(B) of the Act, 50 U.S.C. App. 2093(a)(1)(B), to encourage the exploration, development, and mining of strategic and critical materials and other materials.

Anonymous said...

Victor

as much as I hate communism/socialism (both different just in name) I still hope the EU will
change alliances. Russsia seems to me more of a natural partner than these USA.
Yes, I would like to see the puncturing NOW.
We could survive it better now than later when some totalitarian jurisdiction would be in place.

Whom helps this delay?
Would the collapse in the USA be less painful later than now? How that?
Would The USA send us some nukes? Kill those resposible? Is it fear of our "Friends"?

We have almost no weapons in Europe, a devaluation of our currency vs. Au would not affect us much,
the ROW would follow. Greece could pay the debts orparts of it.
Why not?

AdvocatusDiaboli said...

Hi Gary,
I wonder why Obama had this bill so late. In Germany something equivalent (a bunch of those called "Sicherstellungsgesetze" had been passed in 2006 (we had those before already). Coverage from the public and media? NONE.
Looks like TPTB, noticed longer time ago that the pysical plane SHTF will happen.
Something really funny in Germany: VAG§89, a law which enables the government to tell retirement account customers (those, they forced before into that €-bond-crap) "F*CK YOU", you dont get anything, in case of danger the insurance company would be bankrupt. Not you have to survive, the company has to (continue to buy our AAA-€-crap), but you are forced to continue to pay into it anyway.
Greets, AD

Anonymous said...

Gary

this preparations started moths ago. That Linsday made some vids on this subject. It was about fema, food,bodybags, he even show the documents online from some departmen of xx. First were the bids, contractors, etc. now the legislation.
They are preparing for something: cataclysm, wars who knows?

Anonymous said...

AD,

VtC,
"but Draghi demonstrated that yields on government bonds do rise until the government makes a serious attempt at getting the budget under control."

Sorry, but WHAT A BS. "makes a serious attempt" LOL, that just sounds like the Obama "oh yes, we are making serious cuts"!


Here is how I understand the situation. This is basically what I took away from what is called the 'Credit Theory of Money' or the 'Quantity Theory Of Disaggregated Credit'. It is not an exact science, but has plenty of empirical backing (in contrast to other parts of economics).

If you shift an asset (a high-risk, but not yet defaulted loan) from the balance sheet of a commercial bank to the balance sheet of the central bank, this does not cause inflation. This asset caused inflation in the past when it first moved from "purchased with equity" (i.e. with actual savings) to "purchased with created credit" (i.e. held on a bank balance sheet). When you later move this to the central bank balance sheet, this is inflation-neutral. U.S. Quantitative Easing I was of this sort.

You create one new risk because credit money is replaced by base money this way. The risk is that the system becomes a bit less stable should the liquidity preference change and (effectively) velocity increase. In this sense, it is playing with fire, but when you look at it, there are balance sheets other than the ECB's that will catch fire much earlier.

So, then how do you create inflation? You create inflation when a loan first appears on the balance sheet either of a commercial bank or of the central bank. You can do this in a stealth way by expanding the balance sheets of the commercial banks using credit money rather than by using the central bank where it is visible for all. This is how the European PIIGS debt arrived in the banking system (and pretty certainly caused considerable inflation between 2000-2008 - we know that this inflation happened and that the PIIGS countries lost competitiveness during this time).

In short: You create inflation when you monetize (i.e. put on bank balance sheets) the running deficit (i.e. the incremental additional debt as opposed to some old existing debt).

The ECB basically needs to find a balance: Right now, due to the decrease in confidence, there is a considerable credit contraction happening in the commercial banks. This is deflationary. On the other hand, the ECB is taking shaky assets onto their own balance sheet. This is partly inflationary (PIIGS running deficits) and partly neutral (old PIGGS debt).

If the ECB wants to succeed and keep the Euro roughly stable (say between -10% and +12% inflation) they need to find a balance and make sure they are not forced to monetize the running deficits. (I am not writing between +0% and +2% inflation simply because it will get very rough, and I don't think anyone can target this with more precision).

Summary: If the ECB can make sure they don't (have to) monetize the running deficits, the Euro should survive. On the other hand, if they stick to their mandate of price stability (between 0% and 2% inflation) as the target **on average across the Euro zone** it will be ugly in the south for quite a while (and nicer in the north).

Victor

AdvocatusDiaboli said...

VtC,
thanks I appreciate that explanation and in some parts you might be right. And you have reasoned it perfectly by monetary theory, much better than I can ever do (but that's not my job;). But overall we agree that in the end it is debt monetization in its nature, the only difference is the time horizon under which the inflation will and should (intentionally "gently") occure.
On the other hand: The Bernank has also quite good reasonings for basically similair actions: I WANT MY INFLATION, BECAUSE I THINK, THINGS WOULD GET EASIER AND TIME CAN BE BOUGHT.
They wouldnt, that's for sure. In my opinion you can not defy gravity. Sure, the PIIGS had a spending problem. With that austerity measures you only adress one of the spending problems of the PIGS. In the same moment you reduce the income. You still have exactly the same setup of the three planes, monetary, physical and human driver plane have not changed at all: same debtors, same lenders, same consumers, same producers in one currency zone. True, austerity does reduce the consumption of some of the consumers, but the overall setup still remains the same.
You will never change that with money mechanics, no matter what you do, as long as countries run deficits. And the PIGS have simply no business modell, that is their problem and that will not change. With floating currencies (e.g. EMU or RPG) you have a much better natural balancing advantage because debtors AND lenders AND producers AND consumers will be adjust at the same time with the same magnitude, than now with the ECB central planning just bombarding money (no matter if neutral as you say) in single places trying to be smarter than the natural market balancing would be.
I personally think, that will only be solved by either Greece leaves, Germany leaves or really strict brutal defaults, telling the market this is it, live with it. All three options are politically not accepted, therefore nothing changes, only enlarging the problem, wondering why the money bombs vaporize like water in the desert.
And to get back to your expression "makes a serious attempt". No it doesn't, it does not solve anything, its kicking the can down the road.
Greets, AD

AdvocatusDiaboli said...

just something to share and to think about:
http://www.caseyresearch.com/articles/ascendence-sociopaths-us-governance
Greets, AD

AdvocatusDiaboli said...

about SAVINGS in the Schiffs/FOFOA interpretations, I like to point out that also other more smarter economic scientists took a view at the "human plane":
http://en.wikipedia.org/wiki/Public_choice_theory
How does that fit into the freegold picture?
Greets, AD

jonny49 said...

And it's a hat-trick....

Anonymous said...

Have you ever thought about oil backwardation?

Victor

Jaqship said...

Nickelsaver, AD, DP, Biju, Victor

Re: bullion/ face-value coins, very interesting indeed. Back c. 2+ yrs. ago, when silver was well under $20/ oz., I stocked up (at a premium) on Canadian $20 one-oz. 1988 Olympics commemoratives. I saw coins like that as non-expiring in-the money puts.

Inquiries with banks indicated that then they would pay, say, 20% less than face-value, since $20 coins take up much more space in a vault than do $20 (or $100) bills.

I suspect that they would pay more nowadays (if silver were to go back below $20), because since 2010 silver showed upside which probably shocked most folks mired in the $IMF system.

Even folks mired in that system must now have something of an idea of that system's greater vulnerability, esp. versus metals known by all to have a history as PMs.

Nickelsaver said...

Victor,

I've been pondering that question ever since I saw this. Backwardation

Nickelsaver said...

Jaqship,

I was just re-reading this fofoa post. A nice review if one desires to keep from getting stung.

Jaqship said...

Nickelsaver

Thanx for good link; I take its outlook quite seriously. Right now c. 50% of my liquid assets are PYS (incl. fractionals), the rest being silver and platinum coins, and (mostly physical) currencies (USD, Euros etc.).

When I manage to convert major illiquid assets into liquidity, that 50% will rise.

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