I thought Blondie's excellent comment was just about good enough to be a post. And when RJ called it Sermon on the Mount material, that tipped the scale. But be careful not to miss the forest for the trees, or the fractal for the chaos, because Blondie pretty much nails it. It's all in the view—the perspective. And even though you may not be a giant, you can still learn to view the world as a giant with a little practice. It's easier than you might think. All you have to do is gently set your shrimp baggage on the ground and walk away.
Blondie on the Mount
Another said:
"Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies"
If this statement appears the least bit cryptic, if it does not make 100% crystal clear sense, then little else written on this blog by either the contributors or the scant few commenters who do understand it will make complete sense to you, despite your best efforts.
You see, my friend, in this world there are two types of people: those who PRODUCE, and those who consume. YOU consume.
Those who PRODUCE, and there is perfectly good reason why it is written in caps, are giants. Everyone else, including YOU, is a shrimp.
Another’s statement above is the perspective of the giants, not the shrimps. So don’t feel bad if its inherent truth is not self-evident, you have simply never directly experienced life as a giant. No shame in that! That in itself means nothing at all.
Except that you don’t have the perspective from which to understand gold. So you'll have to build it from scratch.
In this case actually understanding gold means firstly having to discard an awful lot of fundamental beliefs about the way things work. This is also the single biggest barrier to discussing gold with anyone else… they will never understand without ditching some of what they hold as fundamental beliefs, so you may as well not bother. If you win anyone over it is ultimately only because of their faith in you and your perceptions, not their own understanding. But I digress.
You may appreciate that we need gold to fix our monetary system, but that does not mean you actually understand how gold really functions.
Gold functions as the ultimate store of value. Nice words, nice idea, but you are a shrimp. You’ve never had value in a quantity that needed storing. Sure you may have “savings”, but you’ve never personally experienced diminishing marginal utility to the degree that gold’s function becomes apparent, so it remains a theory. There is a monumental difference between mere theory and theory corroborated by experience. The latter has graduated from theory to fact.
This is the basis of my previous comment about ‘new money’ and the fact that it does not necessarily understand gold. New money for the most part believes it has its surplus value securely stored in various financial instruments. Old money (real giants) knows better. This perspective is also why the idea that Oil would not require physical gold for their surplus is preposterous.
Another told you that you could follow in the footsteps of giants, and you can, but if you want to see their perspective there’s a bit more involved.
Newsflash: $US HI already happened. That’s what the ‘structural support’ since the early ‘80s has been in aid of, to avoid the conclusion of this process. As FOFOA has pointed out so clearly, as long as the marginal flow of excess dollars emitted by the US is absorbed into the market the dollar can continue to function. The devaluation of the currency is a market driven event, the final stage of every HI, but it does not occur as long as the excess currency is absorbed. Some entities have not wanted it to occur until they were better prepared, so they have, at no small cost, supplied the structural support to delay the denouement. Obviously they felt the costs were outweighed by the benefits.
The revaluation of gold is a distinctly separate though concurrent event.
If you understand how gold works you will appreciate that the giants have no incentive to directly trigger either of these separate but simultaneous events… they already have their gold, and they already know its value (and who wants to be blamed for something that was completely unavoidable?). If you don’t need to access the value you have stored in gold, then it is really irrelevant to you what the market currently values gold at. They don’t need the shrimps to tell them anything; rather it is the shrimps who need to wise up. Shrimps are the same ones objecting to “austerity” aka living within one’s means. Doesn’t occur to them that the fantasy may have been the time when they lived over and above their means, does it?
I got a good laugh from this article, particularly the opening paragraphs:
"So what is it about money that the leaders of the eurozone don't get?
Money has been around for a while, and it's not terribly complicated.
The key element is trust. That was true when money was a piece of metal that you could bite or bounce. Now that money is just a piece of paper, it's even truer. Today's money is nothing but trust.
That's why the euro crisis is so bizarre. The euro is, in theory, one of the world's great currencies. And yet, as this crisis has demonstrated, nobody actually stands behind it. There is no lender of last resort. There is no "full faith and credit." There's nobody on the other end of the promise.
And it's as if the leaders of the eurozone wanted to go out of their way to prove it. They've taken us up to the velvet curtain and then themselves, with a self-satisfied smile, pulled it aside to show us that there is no Great Oz.
And in the process they've done major, and perhaps irretrievable, damage to their own currency and to the very idea of money in our time. If you can't trust the euro, what paper can you trust?"
Looks to me like the “leaders of the eurozone” get it fine… the author is simply under the presumption he understands money. Doesn’t seem to have occurred to him that he may not.
He’s definitely not alone.
FOFOA:
"It's just a shift in the perception of savers. Can't change that."
“Savers”: those producers who currently do not understand gold.
Consumers (shrimps) are just along for the ride.
As I said at the top, if Another’s statement is not crystal clear you don’t understand gold, so don’t delude yourself that you do, and bear this in mind when you compose a comment.
I've no doubt my comments will upset some people. That doesn't mean they're not correct, just that some people don't like them. A bit like "austerity" perhaps.
__________
milamber said:
"... to this western shrimp’s mind, there is a whole lot of unlearning that I have had/am having to do!"
I appreciate that, having been there too. To be honest, it's not as difficult as it appears. Like many others, it became clear to me a few years ago that big things were going down. I felt compelled to find out what. It wasn't a big step to see that this was entirely a monetary issue. When I thought about it, I couldn't produce a really good definition of money, so ... I had some work to do. Build yourself a good definition and Another's perspective, not to mention the world at large, start making a lot more sense.
__________
637 comments:
«Oldest ‹Older 401 – 600 of 637 Newer› Newest»Further,
FOFOA said: At what point do we stop analyzing the theoretical seaworthiness of a ship that has already sailed? If you are struggling with this blog at such a base level that you question whether the A/FOA perspective is just an illusion
I don't doubt that A/FOAs view was very real from the position he was in - i assume highly connected to the BIS. But one understanding of the past doesn't beget a complete understanding of the future, no matter how sure your footing seems at the time.
Matt,
Look at what this current system has engendered. This colossal mountain of paper - derivatives and such like. It's a total catastrophe that was predetermined by the exponential function embedded in currency debasement (through inflation) and compounding interest on debt that is never repaid (being endlessly rolled over instead).
I think that it would be much more unlikely that no one was working on a Plan B. Cripes, even the IMF has been pushing for decades for the development of a fallback position (admittedly in the form of their dopey SDRs).
I'm going to post something I have been sitting on for three years. A former Prime Minister of Australia predicting many of the outcomes A/FOA and many others here anticipate.
When I first brought it to FOFOA's attention he felt it wouldn't appeal to his main audience (USA). I think it might be different today. In any case let's see what kind of reaction it gets.
Cheers
”They” Know What’s Coming
Part 1/3
I think that some readers lose sight of the fact that much of what we discuss here would come as no surprise at all to many government officials around the world. The fact that they can’t or won’t openly acknowledge the truth should come as no surprise. If their careers depend on “going along to get along” then that is what they will do.
So, for those of you who won’t accept anything less than a current head of state announcing Bye, bye US dollar, Euro Freegold-RPG here we come! this offering will not satisfy you. For others who have a more realistic standard of evidence I would like to present excerpts from this transcript of an interview on a program called “Lateline” with a gent by the name of Paul Keating that went to air on February 2nd, 2009 in Australia.
Paul Keating was the Federal Treasurer of Australia (1983 to 1991) and Prime Minister from 1991 to 1996. As you will see below (regardless of the precise language) he makes several interesting predictions that echo claims you could have read at this blog:
1. The Bretton Woods system is on borrowed time and we need a new “architecture”.
2. The price of gold is the predictor of US sovereign default.
3. The USA will default on its debts if it keeps racking up deficits.
4. This debt-fuelled crisis has been in the making for decades and there’s no way out of it.
5. A default by the USA will be via currency devaluation – “they will inflate their way out”.
Some Australians find Paul Keating a deeply divisive figure. He has an acid wit and sharp tongue but I would ask readers to try to get past this block. He is a high ranking insider of recent vintage. He has lived through the same events described by A/FOA and as a former Prime Minister of a large developed Western country he is saying many things in this interview that are in precise alignment with the predictions presented at this blog.
Here are links to a bio on Paul Keating, the interview and the full transcript is here with some extracts from the transcript below.
Tony Jones, Presenter: Joining us now in the studio is the former Prime Minister Paul Keating. Thanks for being here.
Paul Keating former Prime Minister: Tony.
Continued/
/Continued
Part 2/3 (Extract 1)
Tony Jones, Presenter: Now let's start with a very big picture, if we can, does this global financial crisis look to you like a two year crisis, a five year crisis, or something much worse, and much more prolonged?
Paul Keating former Prime Minister: Well, it's a catastrophe, its way worse than it appears. We have had an expansion of credit running for 60 years from 1947 to 2007. This is
the first time, 2008, and now 09, where we have had a contraction of credit.
The top 200 financial institutions in the world have suffered an average loss of value of 74 per cent. The top 200, average loss of 74 per cent. We have gone through a bull market which began in 1982, went for 25 years, a bull market in the stock market to 2007.
What we need is a completely new global political and economic settlement. We need to get rid of the old G7. We have to be rid of the old IMF (International Monetary Fund), we've got to bring the surplus countries into the, into the political framework.
You see, the G7 is made of debtor countries, countries like the United States, Britain, France, Italy, these are all borrowers, there's no surplus countries in that. And if you look at the structure of the IMF, the Chinese get 3.7 per cent of the vote, the Indians get 1.9, the Europeans and Americans get 51 per cent.
And there's just no way the Chinese Communist Party is going to hand over control of their currency and their political fortunes to a Washington based US Treasury run institution. So unless there's going to be a complete resettlement.
Tony Jones, Presenter: You talk about a new Bretton Woods agreement?
Paul Keating former Prime Minister: A totally new Bretton Woods agreement. We're not going to get out of this. I mean this is the United States Budget cannot reflate the world. We've always lived in a position where the United States Budget could reflate the world this is not going to happen now. The Budget this year was going to be $850-billion, now look President Obama is talking about another trillion, so $1.8-trillion, their GDP is 13-trillion, so they'll be running a Budget deficit this year of 15 per cent of GDP, they'll have to do this for three or four years.
Sixty per cent of American GDP, who is going to buy the bonds? Now every serious American policy maker knows that they are not going to be returning value, in the end they'll inflate their way out. So in other words, you'll buy American Treasury bond, but what you get back in return will be an inflated dollar, so you'll get back 50 per cent of real value, or something, in other words the debt will be so overwhelming that it cannot be repaid.
And you'll start to see in the price of gold, if this goes on for a couple more years, the real serious question of an American default, a default by the United States Treasury. So this is what we are dealing with now.
Continued/
/Continued
Part 3/3 (Extract 2 & 3)
Tony Jones, Presenter: It (China) is one of the only countries in the world with a large economy that actually is likely to continue to grow, possibly at much reduced rates, but over six per cent in the coming year, it's predicted. It also has a stimulus package which worth 16 per cent of its GDP.
You've just seen what the Prime Minister said about the hit the Australian economy has taken because of the China trade collapsing, because of slowing growth, but is China, do you think, our best hope?
Paul Keating former Prime Minister: Well I don't think Tony, it's not going to really be about our best hope. We are all going to be in this until there's a restructuring of world power and world financial aggregates.
I mean what has happened is this, you had a complete mispricing of credit. It went on for years, you had the Chinese with this massive surplus. I mean picture this, you have a massive dam of savings, you have a huge pipeline via a loose monetary policy in the United States, feeding funds to the core of the international financial system in New York.
So it's like a dam with a huge pipeline and a massive sprinkler, and you had the investment banks throwing the money around to every nook and cranny of the economy, in the end the investment banks were servicing the least worthy credit customers in America, the people who couldn't even afford a normal mortgage.
And that meant that the Chinese were then buying American Treasury bonds in competition with the American Government. This lifted the price of bonds and pushed down the yields, when the yields of long term bonds came down, long term interest rates came down, so you just imagine, you are a big investment bank, you're Merrill Lynch, or you're Goldman Sachs, or you're Bear Stearns, you've got a tonne of money coming in the door at low interest rates in a high growth economy.
So they just kept on piling it on, so we had a super boom, and the super boom has blown out, and it's blown out in the biggest way imaginable, it's wiped them out.
Paul Keating former Prime Minister: But the Australian deficit Tony, will be a sideshow to the world scene, a sideshow.
Tony Jones, Presenter: And how necessary will it be to have that deficit go on and on and on until there is some glimmer of light? And you don't see any glimmer of light?
Paul Keating former Prime Minister: Well, no, I see a glimmer of light, but it won't come with the Americans playing tricky poo at the expense of all the surplus countries any longer. They're all going to have to fess up, you know, they made a welter out of it. They were happy for these countries to pump the United States full of dollars, but it's blown up.
This has happened every time we've seen countries subject to a supply of long term funding and investment, when we saw the petro dollars of the 70s recycled into Mexico and Brazil, those countries blew up.
This time we've seen the Chinese, the Russians, the Middle East, the Japanese and the Germans recycle a tonne of money into America and it's blown up.
Matt, to clarify, we are in agreement when you say this: ” I question the assumption on the motivation of giants. My assumption is that giants actually benefit from the current system by the very nature of being a giant, so what would they gain my ushering in a new one?“ That’s a large part of the post at the top.
Matt said: "I would assume that you could take the current know distribution and absorb the unknown amount via the same distribution percentages."
Most gold is in private hands, meaning they aren't particularly keen on being part of "known distribution". Almost all “known distribution” is held by central banks as the only entities publicly holding gold in size.
My point to you above was why do any holders, public or private, hold gold at all? You said: ”how do we know… that Giants do 'know gold'?“, to which my response is “because they have cornered it”.
The "'rapid revaluation that happens over a weekend' thesis" doesn't require giants in particular do anything, just that demand for physical overwhelm flow.
”The true store of value is the position they hold in the current system... the vehicle that enabled the value generation as the singular jewel in the crown.“
Sure, that’s their means of generating value, and it is a store of value just like every other asset, but that does not address what to do with the surplus value generated. It is possible to over-capitalise your jewel in the crown, or for it to become obsolete. I don’t dispute its value to its owner, but it too is subject to diminishing marginal utility, is it not?
"The true store of value" is the only asset that is not subject to diminishing marginal utility.
In this, “there can be only one”. Sounds cheesy I know, but it is true nonetheless. And by mere fact that these giants already have physical gold cornered it is clear to me that it is their choice. So we can follow in their footsteps, or not.
Costata - thanks for the posts!! That was a great read.
Its my belief that if this ship really is sailing, there should be a lot of similar discussions getting out, with direct references to gold alongside talk of geo-political imbalances.
Costata,
Thank you for posting this interview.
This interview (again) nails the theory that "freegold" is some sort of unlikely result of the problems we're facing today. It's just like putting one and one together...
The way this man (Paul Keating) is talking and describing the current situation shows clearly to me that it hasn't surprised him at all. He's simply displaying and evaluating everything as his second nature. The surprise is on the other ignorant side though.
Blondie, thanks for the posts in response.
You said: ”how do we know… that Giants do 'know gold'?“, to which my response is “because they have cornered it”.
I ask - how do we know that, and further, how do we know they cornered it with a view revaluation(that they are looking to that horizon)?
"The true store of value" is the only asset that is not subject to diminishing marginal utility.
There is a trick in that assessment, each unit of gold may be physically the same as the unit before it but the value contained therein is a reflection of the market prices in and out. If one doesn't have a view to the revaluation horizon, then one cannot be assured that the market price 'out' will reflect the value 'in' and hence the marginal utility may effectively diminish.
So do giant's have a view to revaluation, because otherwise they would buy gold as just another asset and dependent upon their investment preferences.
What external verification do with have of their view to this horizon?
Let me rephrase that last part - What external verification can we gather of their view to this horizon?
Some seem to be assured of it. I haven't been to this blog to much recently but I still keep a careful eye out for references to the changing role of gold and despite all the EZ turmoil i see little there in regard to referencing gold. In fact I am more convinced than ever that the ECB has no interest in gold for trade settlement, is not the board of the ECB chosen by the political class with the southen states having just as equal a say in this as the northern (more so by weight of membehsip)?
A movement to Tier 1 would be a sure sign, but what is our time horizon on that - 5 years? 10?
"Replacing reserves via mine supply" implies not purchasing from the open market, making it little more than a euphemism for nationalisation.
Thank you Costata, that was very interesting.
I wonder what Ian Macfarlane would say about Paul Keating's interview. I recall reading that Macfarlane said Australia could replace the gold reserves he sold in the 90's quickly from mine supply, unfortunately I can't find a link to his quote.
"Quickly" even more so.
Sorry Blondie, I was correcting some typos when you posted that.
Just saw this, what do you think, a game changer?
http://www.ft.com/intl/cms/s/0/a5f8007e-b86f-11e1-a2d6-00144feabdc0.html
The prospective buyer of the London Metal Exchange has warned that it will clamp down on the lucrative metal warehousing business that has attracted investments from Goldman Sachs and Glencore.
Hong Kong Exchanges & Clearing, which on Friday announced an agreement to buy the 135-year-old group for L1.4 billion, said it was planning to change the rules governing the LME's network of warehouses in an attempt to shorten the wait to take delivery of metal.
@Matt
If Gold is not flowing except from the mines, it must mean that the current above ground stock is in strong hands. Otherwise it would flow. This would be called a cornered market.
Since giants are the only ones with significant amount of gold only they can affect the flow significantly. If they are not doing so, they must have cornered the market.
Actually the gold price really does not matter to the people who have huge amounts of gold. They must have huge amounts of land and other physical investments. Lets say they have a worth of 100B$. If they have a 100T of gold they have only about 1.5B$ or 1.5% invested. I am pretty sure there will be others invested a lot more than this.
The giant would also be invested pretty heavily in equities. So in the event of a market crash he/she will lose a lot of worth, which may or maynot be covered by the gold revaluation.
Why should the giant want the revaluation? With a 100T how much would he add to make any difference, and also not simultaneously cause a crash.
Yes there could be (present) giants that do not know gold, but they do not matter now and will certainly not matter later. And they will not be giants later.
IMO the movement to Tier1 will not happen before the crash. Because it would cause the crash. The reports IMO are just bankers preparing for the eventuality.
Blondie, I thought Macfarlane's quote echoed Freegold because of the idea that gold mine supply might be nationalized in an emergency leading to freegold.
FOA: "Holders of "gold in the ground" [mining shares] will be fighting an accelerating public outcry for the government to do something! [nationalize gold mines or else tax them excessively] Know what I mean? "
I wonder what the dynamic was between Macfarlane and Keating (first as Treasurer and then Prime Minister).
I found the Keating interview very interesting. When we keep in mind that many people in positions of power around the world have a keener understanding of the US's untenable financial course, it isn't difficult to believe they conclude that gold must play a prominent role in healing our global financial ills. Too many people here in the US figure that things will all work themselves out somehow, because we have survived decades of fiscal mismanagement. Others look at history and the fate of every other fiat currency and have a more realistic view. The stumbling block to hold has always been a fixed price gold standard. A system where gold floats alongside fiat currencies seems such a logical and natural solution. It would probably seem natural to more people if we hadn't heard every possible specious argument against holding gold all our lives. It's true that the amount of baggage most people carry regarding gold takes years to abandon.
Matt,
I don’t think giants cornered gold with a view to its revaluation; I contend that that is your assumption. So when you ask ” What external verification can we gather of their view to this horizon?“ I can only answer with questions of my own: What horizon? The one your ship has already sailed over?
Who is actually going to be doing the ‘revaluing’? I think any entity that holds gold in size has their own ideas about its value, and they likely differ from yours. If they have held their gold a long time then any revaluation isn’t necessarily going to deliver a capital gain anyway.
Why do you hold gold yourself, Matt (presuming that you indeed do)? You seem a little hung up on time horizons. Gold is for surplus value. When people around here say “All Inn” they mean all their surplus (savings) in, not everything per se. Gold is for long time horizons.
There is more than one kind of Giant. Stupid ones hold their wealth in electronic digits, dot com stock or whatever. Here is someone who was worth about $1 billion in fiat at one time. What is he worth today?
https://en.wikipedia.org/wiki/James_Cayne
'In 2005, Forbes magazine ranked him as the 384th among the 400 richest Americans, with an estimated net worth of $900 million'.
Others didn't come by their wealth by massaging the illusory system. They hold their wealth in something tangible and eternal.
Giants have the same choice as shrimps; they can play bridge while their paper burns and become ex-Giants or they carry it through the transition to a more satisfying conclusion. Only an idiot troll or someone stuck in their own paradigm would see Giants as a monolithic group. Smart giants didn't create the future, they just want to survive it so
stop worrying about Giants; they are just like you, making choices about what they think best for themselves.
Blondie, I hold gold for a very long time horizon, much longer than many commentators are looking at here. I was previously in a rush to increase my shrimpish hord, but have been worried less and less about that lately,, simply because I think that RPG is going to be a lot longer away than many imagine.
I believe it will be a reactionary market event to currency supernova and a long way off yet. I am very interested in news to the contrary though, such as the LME purchase, move to Tier 1 capital or statements by key people such as the ex Aust. PM that indicate otherwise. Anything that verifies the postulating here is of interest to me.
I question the assuredness that many people have in how the future will unfold.
" gold will go to $300 but you won't be able to take delivery and then teh market will dissappear altogehter"
"this bill shows that the US is preparing for HI right now"
"the event is imminant, my tea leaves say it will occur within the next 3 months"
- oh really!! We can all rest assured in our well reasoned, unverified, anonymous prediction of the future where we are all super-rich can we? We are so smart afterall aren't we! Here, here I say!
Well sorry but I am chasing external verification. The above sets out why.
The idea that the rest of the world would willingly support the $IMF forever, sending real goods for diluted paper promises, is absurd. They have a word for working to provide the fruits of your labor to someone else in exchange for nothing; slavery.
FOA 2/26/00 - So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the worlds working poor. But this is not about to last!
FOA 3/10/00 - My point was that their actions can only be justified from a position of "buying time"… Their Central Banks support polices were a decision to waste their citizen's productive efforts in a process that held together a failing currency system.
FOA 4/19/01 - What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living… We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an overvalued dollar that we spent without the pain of work.
FOA 7/16/01 - The American dollar has bought its makers a lifestyle that is at odds with this new thrust in money use. A reserve currency today must allow its value to be set solely upon its money function [MoE arena], not its function of retaining wealth [SoV arena]. Use trends today are forcing money creation policy and money values to be determined by wealth outside the official money realm. All the while the dollar holders are fighting to stop this from happening.
FOA 7/20/01 - For years American lifestyles encouraged its political system to protect their banking /debt credibility at all costs; so we could buy others' real goods without sending real wealth to pay for it. We did this in the only way we knew how; in body, mind and spirit, our political economic purpose promoted the dollar and its debt to be as good as gold and a substitute for real wealth holdings. Even a substitute for real wealth to be held in reserve behind other currencies!
FOA 10/5/01 - Even the third world didn't want to hear it. They figured that any return to a hard money system would hark back to a time they remembered well. These guys suffered during the early century and no one was going to tell them that the gold standard wasn't at fault. The US is today, and was then, robbing them blind but the situation seemed, to them, that this new dollar standard was building them up. Looking at it all,,,,, we robbed the Japan life style standards the most. All to buy us an almost free standard and they loved it.
FOA 10/8/01 - We managed this threat with help from our Euro friends; somehow thinking they enjoyed and wanted our fleecing their lifestyle to the same degree we did it to the rest of the world. Their cooperation, we will find out, was but a structural policy that bought time; time for a dollar replacement to be made.
FOA 10/26/01 - Again; this all works as long as the world "buys into" using our dollars. As I said; an expanding fiat works to grow the economy thru expanding credit buying power because the fed can support the system with credit creation that has no "inflation premium". That lack of premium only exists as long as Americans can exchange free credit for real physical goods. Once this perception changes it's over. Once the world understands that it's not local US goods that stands behind dollar growth, but less expensive foreign goods,,,,,,,,,, the stage is set for our "supporters" to sell to themselves! Making themselves
"lifestyle rich". All they need is Another currency unit.
Tintin:
Your post explains the purpose of the LME acquisition: It has
nothing to do with gold, and everything to do with the use of the
warehouse system by big international commodities derivative
players as a means of manipulating supply, to create both squeezes
and floods of supply, by which their derivative positions are made
extraordinarily profitable. These positions are in the base metals,
of which copper and nickel are the most important, as well as zinc
tin and aluminum. Frank Veneroso is the leading expert on these
manipulations, and China is probably tired of being on the other
side of these manipulations. My .02
OMG FOFOA, WHEREZ TEH FREEGOLD.
For someone with a very long time horizon, you certainly require a lot of external validation (handholding). No one here is concerned with hammering knowlege into your unwilling skull; you are responsible for your own edification.
While no one can predict exactly the timing I do thing having some sense of a reasonable range of timing is important. If the revaluation in gold is going to take another 30 yrs of course i would put in less now and more into dividend and cash flow producing assets now to live off of and grow my assets. I don't think anyone is asking for a specific date, however, I do think knowing whether we are talking about 5,10, 50 yrs is important. Even rich people want cashflow to plow into other investments, give to people etc. I am curious what you guys think on timing, not specific dates but a reasonable range of date in yrs, thx.
BTW saw this article was interesting:
http://www.bloomberg.com/news/2012-06-18/dollar-shortage-seen-in-2-trillion-gap-says-morgan-stanley-1-.html
from article:
Morgan Stanley says the potential scarcity of dollars among foreign private borrowers represents the U.S.’s net position with lenders abroad of minus $2.4 trillion, adding $4.8 trillion of U.S. financial assets held by central banks, and subtracting $500 billion of foreign official assets held by the U.S.
That equals about $2 trillion of demand from foreign private banks and companies. The gap has expanded from $400 billion in 2008, according to the New York-based firm. In 2002, there was a dollar surplus of $900 billion, the data show.
“We expect the dollar to continue to strengthen in the coming months on risk aversion stemming from the euro crisis,” strategists at the investment banking unit of Charlotte, North Carolina-based Bank of America Corp., wrote in a research report dated June 15.
@Matt
" gold will go to $300 but you won't be able to take delivery and then teh market will dissappear altogehter"
I think this happened during the bottom of 2008, when gold went to 700, and it was not available at this price. Although you could buy some at 1100$.
I think the same will happen. But this time, it will not be available at anything close.
For me the understanding came when I realized that currently the price of gold is not of gold but a perception that the paper is as good as gold, and as such is the price of paper gold.
When this perception breaks paper gold will trend towards zero. Since there is no independent spot price for gold this is the price that will be visible to everybody, and for sale. But if you try to buy from a dealer, it will not be available.
There are so many things that can cause the crash, but nobody really wants the crash, except very few of us freegolders, definitely not even the majority of the people here. The life will be tough during and possibly for some time after the crash. Worse in the US.
I hope it is soon, because if it goes for too long, I fear HI in India as well. If it happens soon, we will probably be ok.
But don't know, if the system will really cause all paper to burn, then it will take a long time and kill other currencies as well. I hope it doesn't happen that way.
FOA: Timing?
We, and I, as physical gold advocates, don't need timing for this position! Timing is for poor, paper traders. We are neither and our solid, long term, one call over several years to hold physical gold will confirm our reasoning. There is no stress for me to own this ancient asset as it is in a good proportion to all my other wealth.
There is no trading an economic system whose currency is ending its timeline. Smart, quick talking players will joke at our expense until fast markets and locked down paper gold positions block their "trading even" move into physical at any relative cheap price. Mine owners will see any near term profits evaporate into a government induced pricing contango that constrains stock equity with forced selling at paper gold prices.
My personal view
They will, one day in the future, helplessly watch their investments fall far behind a world free market price for physical gold. Further into the future, one day, mines will make money on the last thousand per ounce price for gold; only the first $XX,000.00 of price will not be available to them.
Matt, if you are worried about timing, but haven't been keeping up with this blog lately, I strongly suggest you read peak exorbitant privilegeand inflation or hyperinflation. They'll make your hair curl!
FOFOA: "It is about a currency that has reached the end of its timeline when the removal of structural support (an FOA term) meets the largest spending/dollar-emitting machine the world has ever known."
"The USG today is spending $3.6B more than it is taking in, each and every day. ...And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars.
Oh, and when you get to the end of the post, don't forget to click the yellow button ! ;-)
tintin,
...said it was planning to change the rules governing the LME's network of warehouses in an attempt to shorten the wait to take delivery of metal.
You bet it's a game changer. Here's why "shorten the wait" i.e. remove the speculators control over timing.
Anand:
"I think this happened during the bottom of 2008, when gold went to 700, and it was not available at this price. Although you could buy some at 1100$."
Where do you live? I don't think this was an issue in the US. Maybe certain coins may have been out of stock at dealers but if you were flexible i have no doubt you could have walked away w as much gold as you wanted.
Guys, i am not worried about timing.
What I am saying is that there is a lot of people here congratulating themselves on their perfect map of the future and very few looking for external validation of their direction.
Costata came straight up with some goodies, does anyone have anything else or should we just get back to building our interpersonal faith in our own ability to agree with each other?
Perhaps there really isn't anything out there - who would have thunked it!
There's something I'm not clear on. As I understand it, a (the?) major advantage/purpose of Freegold is to separate the unit of account and medium of exchange functions of currency from the saving function. Gold provides savers with a wonderful way to preserve the value of their excess savings.
But why would a government want savers to be able to protect their savings from being inflated away as they are when the currency is used both for savings and as the medium of exchange? Right now the U.S. government, for example, gets to quietly raid the savings accounts of pensioners and others who have saved, and steal away the value of their savings to help pay for the government spending that The People demand. Why would they go along with a new Freegold system where there would be no possibility of "invisibly taxing" savers because the savers have their savings safely squirreled away in gold?
Matt,
..our interpersonal faith in our own ability to agree with each other..
DP, now's the time to post a link to a video scathing a pure prat from your land.
Well I will let you all get back to your self-congratulating circle.
Sorry to have bothered you all!
MnMark,
See Jeff's FOA quotes in his June 18, 2012 6:03 AM comment.
The US government is not only 'stealing' from US savers, but also from the rest of the world.
As FOFOA described in the 'Peak Exorbitant Privilege' post, this privilage of being able to steal from the savers is given, not taken.
So sure the US government would like to continue this process, but it won't be able to unless the (global) savers grant the gov this privilege.
FOFOA,
"I certainly wouldn't allow a FakeMish to parade around here pretending to be the real McCoy, and I don't think Mish would like that much either."
http://fofoa.blogspot.com/2009/11/gold-is-wealth.html?showComment=1259159173153#c8502863497621358364
From November 25, 2009 6:26 AM
Now now costata. :)
Because we're the ones on the defensive, we have to be the ones that are self-deprecating while others may defecate. :-\
http://www.youtube.com/watch?v=TQQ6SfPZggw
Wassat? Fuck that? Alrighty then!
DP,
That Lily Allen clip was brilliant. Such clever imagery and enormously witty. Thanks.
De rien, avec plaisir!
Capital (cap·i·tal)
Capital is wealth available for deployment in either exchange or production.
?
Well, it's succinct. But is it sufficiently meaningful?
..is it sufficiently meaningful..
Sadly, I think not but the search continues
[sigh] One can take a good thing (distillation) too far.
Jeff wrote,
"Giants; they are just like you, making choices about what they think best for themselves. "
Perhaps, but it does put me in mind of the following.
http://www.quotecounterquote.com/2009/11/rich-are-different-famous-quote.html
Also from Jeff,
"They have a word for working to provide the fruits of your labor to someone else in exchange for nothing; slavery."
Again, perhaps, but fraud comes to mind as well.
What also comes to mind is that China is only too happy to enslave their own people. And speaking of China's relationship with the U.S.,
there appears to have been a whopping amount of collusion going on in a relationship that features very uneven exchange.
Anand wrote:
"I think this happened during the bottom of 2008, when gold went to 700, and it was not available at this price.
Perhaps not in size, which is what matters most, but kilo bars and such were readily available at my local coin shop, which, sad to say, has closed its doors. I asked the proprietor why, and as I didn't get much of an answer it has made me wonder.
I have been a (mostly) silent observer of this life-changing blog for a couple of years, but after reading about the persistent fears regarding a looming crash in the price of gold to $200-300/oz, I am impelled to post the following comment: the paper price of gold will NEVER go back down below $1,000!!! The paper price may not even fall below $1,400 for the rest of our lives (at least in our current dollars)! With all due respect, I suspect that FOFOA also believes this to be true in his "heart of hearts."
The price of gold is heading UP, NOT DOWN.
Some of us keep forgetting that the U.S. can NEVER stop printing dollars due to our unpayable debts + interest. We are in a permanent QE and ZIRP environment which will continue to squeeze the price of gold UP.
When gold is sitting at $3,000 due to money printing, will we be worried about becoming the "sucker" who watches the price of gold fall to $300, or will we be wishing we would have bought when it was "cheap" at $1,600?
In the early 60's, my parents bought a home in sunny, Southern California for around $10,000. Fifty years (and hundreds of thousands of $$$ appreciation)later, I keep wondering when house prices will fall back down to $10k. Maybe I'll hold my breath a little longer?
DP is quite vocal on Twitter too:
'DP @darenpa72
@Aquilus_sum You concur then?
Expand
Reply
Retweet
Favorite
12 Jun Aquilus Aquilus @Aquilus_sum
@darenpa72 I concur but it's an uninformed opinion. My planning is for 6+ months but hoping for 3.
Hide conversation
Reply
Retweet
Favorite
6:52 PM - 12 Jun 12 via web · Details
12 Jun DP DP @darenpa72
@Aquilus_sum Way I see it, "a quarter" (max) could be as long as it takes to resolve the 'big question'. #M2Something! Then #HomeAndDry(?)
Expand
Reply
Retweet
Favorite
12 Jun Aquilus Aquilus @Aquilus_sum
@darenpa72 I'll toast to that! May we come through it unscathed.'
So, DP calling for 6 months max eh? Quite a little cabal in the Tweet world these guys have, such nice people, not superior, or know-it-alls, or up one another's arses at all.
Just friendly guys.
Have a look see:
https://twitter.com/#!/Aquilus_sum
https://twitter.com/#!/darenpa72
Load of old defacation IMVHO.
90days/Matt,
What's got your knickers in a twist? That people have opinions or that everyone doesn't try their very best to convince you of something you don't want to believe? There are years worths of posts on this blog, and thousands of comments; have you read them? No, but you want a one paragraph proof. Or what, exactly?
DP = dread pirate, so deal with it.
Matt,
You are not worried about timing yet every other word from you is about external validation.
WTF dude.
Validation occurs daily. Open your eyes.
Would an interview of a former prime minister of a western country be enough validation? If only some such person would give an interview. I bet that would get you to pull your head from that dark spot, no?
Free Gold....Yes Please!,
Keep in mind the fact that paper gold can be expanded in volume infinitely.
Thank you Matt,
You have done a wonderful job of illustrating one of Another's more insightful perspectives: here is more to the world than what appears through the paper lens.
From the first post on page one of USAGold's
ANOTHER (THOUGHTS!)
Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:
Everyone knows where we have been. Let's see where we are going!
It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.
This line of thinking is very real in the world today but it is never discussed openly. You see oil flow is the key to gold flow. It is the movement of gold in the hidden background that has kept oil at these low prices.
[...]
So why has this played out this way? In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper.
The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all )
Yes. A weighty foundational thought on which view further along the trail is built:
if one can only see value in paper currency terms then one cannot see value at all
Costata/DP,
Sadly, I think not but the search continues
Could you explain why? At least what is the disagreement or missing element in that definition of capital, from your point of view?
FOFOA: What I offer here on this blog is a view, backed up by premises and interpretations, sculpted into a framework of understanding, challenged and tested through repetitive application...
RT @darenpa72 What my new friend 90days has neglected to point out, is "what is the 'big question'?"
OMG FOFOA YOUR READERS ARE HIDING OUT IN PLAIN SIGHT ON TWITTER!
The bastards!
Hi e_r,
For starters, it probably has something to do with this:
Nothing properly included as either land or labor can be called capital.
=================
Mises briefly explaining why 1) land is included and 2) more importantly, as you might expect given the book is called *HUMAN ACTION,* it is real important to distinguish capital goods from capital in understanding the human role:
In order to deal adequately with this fundamental problem of economic policy they considered it necessary to construct a notion of real capital and to oppose it to the notion of capital as applied by the businessman whose calculation refers to the whole complex of his acquisitive activities. At the time the economists embarked upon these endeavors the place of the money equivalent of land in the concept of capital was still questioned. Thus the economists thought it reasonable to disregard land in constructing their notion or real capital. They defined real capital as the totality of the produced factors of production available. Hairsplitting discussions were started as to whether inventories of consumers' goods held by business units are or are not real capital. But there was almost unanimity that cash is not real capital.
Now this concept of totality of the produced factors of production is an empty concept. The money equivalent of the various factors of production owned by a business unit can be determined and summed up. But if we abstract from such an evaluation in money terms, the totality of the produced factors of production is merely an enumeration of physical quantities of thousands and thousands of various goods. Such an inventory is of no use to acting. It is a description of a part of the universe in terms of technology and topography and has no reference whatever to the problems raised by the endeavors to improve human well-being. We may acquiesce in the terminological usage of calling the produced factors of production capital goods. But this does not render the concept of real capital any more meaningful.
[...]
No less detrimental was a second confusion derived from the real capital concept. People began to mediate upon a concept of social capital as different from private capital. Starting from the imaginary construction of a socialist economy, they were intent upon defining a capital concept suitable to the economic activities of the general manager of such a system. They were right in assuming that this manager would be eager to know whether his conduct of affairs was successful (viz., from the point of view of his own valuations and the ends aimed at in accordance with these valuations) and how much he could expend for his wards' consumption without diminishing the available stock of factors of production and thus impairing the yield of further production. A socialist government would badly need the concepts of capital and income as a guide for its operations. However, in an economic system in which there is no private ownership of the means of production, no market, and no prices for such goods the concepts of capital and income are mere academic postulates devoid of any practical application. In a socialist economy there are capital goods, but no capital.
The notion of capital makes sense only in the market economy. It serves the deliberations and calculations of individuals or groups of individuals operating on their own account in such an economy. It is a device of capitalists, entrepreneurs and farmers eager to make profits and to avoid losses. It is not a category of all acting. It is a category of acting within a market economy.
A key:
The concept of capital cannot be separated from the context of monetary calculation and from the social structure of a market economy in which alone monetary calculation is possible. It is a concept which makes no sense outside the conditions of a market economy.
http://mises.org/humanaction/chap15sec2.asp
@90Days, thank you.
This is priceless! We'll get more people to visit the Twitter freegold feed!
DP and I were on Twitter this AM (Eastern Time) talking about the dangers of "Confirmation bias".
You are a perfect example of this.
A nice "drive-by" looking for conspiracies in every nook and cranny (seems to be a theme with some posters, eh?). And you stumbled on the "mother-load" on the public freegold Twitter conversation. Jackpot!
The only small problem is that in your desire to prove your conspiracy you did not see that we were talking about the length of the hyper-inflationary period and NOT freegold timing. Bummer!
You may want to check out some other entries from this AM discussing Matt's comments and talking about gold for GENERATIONAL wealth not for investment.
Oh, and why Twitter and not comments here? Personally, I reserve comments here for when I have something more meaningful to say on the subject of freegold and/or HI, or questions to ask that are relevant.
Twitter is a mix of serious and fun, off the cuff random thoughts. Anyone curious, we have 23 people in the conversation right now: Freegold feed
Okydoky folks, so when you read this:
'@Aquilus_sum Way I see it, "a quarter" (max) could be as long as it takes to resolve the 'big question'. #M2Something! Then #HomeAndDry(?)'
The 'big question' is claimed now to be how long Hi lasts for. ;)
Has the holy trinity of Anothers written endlessly about this matter...I seem to recall a post 'Hyperinflation : 90 days or 6 months'. And wasn't there one 'How many tins of tuna'?
Yes, that is THE big issue isn't it! Can I get the 45 days ticket in that lottery please?
You can't fool anyone with that one. There is only one 'big question' that has had years of writing about it, and we all know what that is.
I just hope your predictive abilities are somewhat better than Another/Foa (missed it by what, 15 years and counting), and Fofoa, who has recently stopped predicting timing after loads of good attempts back in 2009/10.
Yeah, we know why you stick to twitter old chum, because you can belittle anyone that is just slightly less convinced they know the future, with your fellow believers.
I just realised, thousands of dollars have been thrown at Fofoa, it's the gold version of the Moonies!
Matt,
In fact I am more convinced than ever that the ECB has no interest in gold for trade settlement, is not the board of the ECB chosen by the political class with the southen states having just as equal a say in this as the northern (more so by weight of membehsip)?
This is an interesting question. Who is running the show at the ECB, and whose interests do they represent?
Let me offer two ideas. Firstly, take a look at what the central bankers are doing (as opposed to what the politicians are saying).
1) During Draghi's first week in office, one of the ECB governing board members (I think it was Mersh) put an interview into the Saturday edition of a major Italian newspaper that the government (Berlusconi at that time) should not expect further support unless they get their budget in order. On Monday, interest rates on Italian government bonds shot up. On Friday the same week, Berlusconi announced that he would step down.
Draghi is Italian. Draghi was at Goldman Sachs. Are these the relevant questions? Perhaps he is just trying to do a good job at the ECB...
2) We all know that the UK is keeping interest rates on government bonds (gilts) artificially low by instructing the BoE to buy government bonds. Is the ECB doing this, too? No, they aren't. The interest rates keep creeping up and force the various governments to get their budgets in order.
Secondly, here is an idea on how a member of the ECB directorate from a southern country might feel. Remember the time before the Euro. Many southern countries had week currencies (including France - since the Banque de France was told by the government what to do, they were not even part of the BIS G5 [Germany, Switzerland, Netherlands, Italy, Belgium - hope I am getting this right]). But all their CBs' staff were professional macro-economists, rather clever academics, who must have been frustrated by all the government meddling in their monetary policy.
Perhaps they all love the ECB because now they can focus on monetary policy and are largely free from government interference in their day-to-day business. For them, the ECB must be a big step forward! On the other hand, keep in mind, that it is always good if the public underestimates you. How did 'W' call it? To misunderestimate someone.
Finally, concerning the argument that the goldbug point of view of returning to a fixed exchange rate gold standard, blocks peoples' understanding. I get the impression that this is an American issue and that others, even people from Europe, find it more natural to view gold as an insurance or as a reserve at floating price.
Victor
MnMark,
Why would they go along with a new Freegold system where there would be no possibility of "invisibly taxing" savers because the savers have their savings safely squirreled away in gold?
Firstly, back to Europe. Apparently, before the introduction of the Euro, although Germany had a non-backed pure paper currency, they had implemented quite a hard money policy. Why did they do this? Of course, they could have diluted their money and this way given more real resources to the government without calling it taxation. So were they just too stupid to raid their savers?
No, apparently, there is still an incentive to implement a good policy. Their economy post WW2 is a nice demonstration that growth originates in the private sector and that prudent monetary policy can increase the wealth of everyone.
Even with the Euro, the ECB is still on track to achieve their inflation target in the medium term. Why don't they print like mad and create more inflation? This would certainly help all the indebted governments. Instead they let the interest rates on government debt rise. Stupid ECB? How about just good policy. Just feeding the governments printed money (although possible) is not a good strategy. Are there still responsible people in office? Perhaps, yes !
Eventually you see that "big government" is a privilege some aspects of which are also given rather than taken. Even if you think that much of this was taken by U.S. aggression, you have to concede that once international investors withdraw their support of the dollar entirely, even that strategy reaches its end.
Victor
@90 days,
You guessed it. All day long, I dance around in my living room in my red robe, patting my tambourine, and chanting "Freegold! Freegold!"
Unwad your panties for a second, and take an objective look at the wealth of information that is presented in the FOFOA posts, and in the prolific comment sections.
I've been reading here for a few years now, and have often looked for viable alternatives to the freegold theories... only to find that the ideas laid out here ring true again and again, while detractors rarely bring compelling arguments to the table.
If you have anything to offer besides bile, then please offer away. Many who read here will no doubt consider your carefully advanced concept(s), whether they support freegold ideas or not. The overwhelming majority of us are here to learn, and to follow the truth in whatever direction it leads.
Cheers
JR,
Land deteriorates so it must be accounted as a part of capital accounting, therefore it is treated as capital. Is this the brief argument put forth by Mises to include land as capital?
It doesn't strike as a strong argument to me.
The second distinction between capital and capital goods has nothing to do with land per se. Land is a distinctive component in that it does not arise out of human endeavor, it is naturally present. Private ownership of land has well-documented ill consequences, the most obvious of which is speculation by simply sitting on a piece of land, without doing anything.
Rent is a distinctively separate component from interest and wages.
Wages = return on human labor
Interest = return on capital
Rent = return on ownership of land (and/or natural resources)
Wages and interest are derived from production, after rent is extracted.
Even under a monetary system where medium of exchange is completely severed from store of value, rent extraction will continue and wages will remain stagnant.
Hi Woland, Costata, thanks for the replies.
Woland, i know, no direct relationship to the gold market, but part of the larger landscape I guess.
Costata,
can I come back to Barsky-Summers? Their observation was that a high real gold price today correlates with low future real interest rates. Barsky-Summers tell the story as if the causation was the following: the gold investors correctly anticipate future real interest rates. Well, if you hear "correctly anticipate" in a finance context, that raises eyebrows, and you said who tells us that the causation is not the opposite one: A high real gold price today causes low future real interest rates.
I said fine, but then can you propose a mechanism, i.e. why would the gold price today influence the future real interest rates? I think you wanted to write up something. Did you find the time to explain your idea?
Victor
Regarding VTC's comments, If my recent experience over at Naked Capitalism is anything to go by then the amount of baggage being carried around by American's
related to gold is difficult to overestimate. It doesn't matter if one talks about physical gold floating freely against currency. It doesn't matter if one explicitly offers that the program in mind does not involve government in the business of fixing gold's price and administering legal tender gold coins. The American audience, in the main, can not hear it. The mere mention of the word gold meets with instant and relentless derision. More on this later.
I feel ya Edwardo. At the university where I work most of the economists are Keynesians so it's interesting we can connect on any level. I've had many discussions over lunch with the previous Chair of econ about Freegold - FOFOA even incorporated one such discussion I shared with him into one of his posts. Yet no matter how many times I mentioned floating-price my econ buddy simply could not pull his head out of the gold standard. As I recall in one such discussion when I mentioned HI was velocity driven his eyes almost shot out of his head. That one simple concept blew him away. He’s since had a few Freegold “a-ha” moments, but in his case his biggest hurdle is the fact he has a Ph.D. and all the baggage that goes with it. You’d think when I mentioned floating price to an economist he would understand right off the bat that’s not a gold standard. Nope. Went right over his head.
well we have a floating price right now so not sure why it would be so hard for him to "get it".
Hi e_r,
I agree this is rubbish:
Land deteriorates so it must be accounted as a part of capital accounting, therefore it is treated as capital.
Is this the brief argument put forth by Mises to include land as capital?
Actually, he argues the conflation of capital goods with real capital is at the crux of the issue. Nothing occurs in a vacuum.
As Mises explained in Human Action:
Capital goods have been defined also as produced factors of production and as such have been opposed to the nature given or original factors of production, i. e., natural resources (land) and human labor. This terminology must be used with great caution as it can be easily misinterpreted and lead to the erroneous concept of real capital criticized below.
Here is Kirzner
Economists, Mises maintained, fall into the error of defining capital as real capital—an aggregate of physical things. This is not only an "empty" concept but also one that has been responsible for serious errors in the various uses to which the concept of capital has been applied.
Mises' refusal to accept the notion of capital as an aggregate of produced means of production expressed his consistent Austrian emphasis on forward-looking decision making. Menger had already argued that "the historical origin of a commodity is irrelevant from an economic point of view." (Later Knight and Hayek were to claim that emphasis on the historical origins of produced means of production is a residual of the older cost-of-production perspectives and inconsistent with the valuable insight that bygones are bygones. Thus, Mises' rejection of Böhm-Bawerk's definition reflects a throughgoing subjective point of view.
In addition, Mises' unhappiness with the Böhm-Bawerkian notion of capital is due to his characteristically Austrian skepticism toward economic aggregates. As Mises wrote, "[The] totality of the produced factors of production is merely an enumeration of physical quantities of thousands and thousands of various goods. Such an inventory is of no use to acting. It is a description of a part of the universe in terms of technology and topography and has no reference whatever to the problems raised by the endeavors to improve human well-being.
The crux of the issue is the derivation of interest. It is time preference not return on capital:
Mises was explicit in concluding that this erroneous view of interest results from defining capital as an aggregate of produced factors of production. "The worst outgrowth of the use of the mythical notion of real capital was that economists began to speculate about a spurious problem called the productivity of (real) capital." It was such speculation, Mises made clear, that is responsible for the "blunder" of explaining "interest as an income derived from the productivity of capital."
I hope you enjoy exploring this issue.
Interesting, Aaron. My limited experience squares with yours in that the ones with the most credentials- I won't say education, because they are, by no means, equivalent, though they do, at times, correlate- are the most impervious to hearing any sort of nuanced scenario that involves gold playing a pivotal role in the planet's monetary system.
The great irony is that while one is treated to a barrage of childish epithets- "you evil gold bug zealot"- it is those hurling the mud that are blind to their own role as guardians of what amounts to a haggard religious dogma. These same folks will piously intone that "what we need requires principles, ethics and liberty, not State sanctioned shiny metals"- even after you've stated over and over that state sanctioned shiny metals aren't part of the program - but, to a man, they don't have a workable plan of their own to slot in.
"Well we have a floating price right now so not sure why it would be so hard for him to "get it".
I don't know why you would be surprised that someone else doesn't "get it" when you don't seem to get it SMRI.
i guess your cooler than me. i guess i'll back to the uncool table at the lunch room. The greatest desire of mankind is to feel important. When people insult or try to put down other people its because they want to feel more important than the other person.
When you get a chance please enlighten me what I don't get.
Somehow I feel if this were not an anonymous site you would be acting differently.
Okay, 3rd time's a charm. I'm going to defeat Blogger and get my darn question asked!
My question is a tiny little one: what happens to the coins (small change) during a hyper inflationary period? I know it's illegal to melt down coins, but we already have nickels worth 6 cents. What happens to the perceived value of (actual metal) coins when paper is hyper inflating?
When I use an ATM, I trade a private bank liability for a printed $FRN (a promise of future value from the central bank), and then I "buy" a widget (and make good on the central bank's promise) and in addition I get some miscellaneous pieces of metal stamped by the U.S. Treasury that carry the implicit guarantee of a fixed correlation with the $FRN. Under "normal" inflationary conditions we already have politicians promoting dropping the use of the penny. What happens if the Federal Reserve ends our current $FRN and creates a new one?
Any ideas?
@SMRI
You can sit next to me.
I think he means that today we have a paper price of gold. The physical gold market has been cornered, and a paper market created to allow allow mine supply to flow where it needs to, and to manage the flow to some extent.
That is very different to a true floating price of gold, where fiat currencies have an exchange rate with physical gold.
There is a discussion of it here
Hi somanyroads,
I don't think you understand 'floating price' in the freegold context, and when you talk about earning a return on paper investments while waiting for the transition you are obviously thinking with the mindset of a western paper trader. If you want to ask the same questions that keep coming up instead of reading the material, expect some people to be brief. Curt, even. So here is some thinking material.
FOFOA: Sure, gold is floating against all currencies today, just as it has been since Nixon ended the fixed gold standard. But it is a pretty volatile float, wouldn't you say? From $40 up to $850 back down to $250 and up again to $1,400. All in 40 years. During the prior four decades, gold was locked at $35 per ounce. That's some long term stability! Granted it was a synthetic stability, prone to explosively painful crises like the 1970s...
Today gold is traded like a volatile commodity by gamblers who like to call themselves traders. Or else it is held as a small percentage of one's wealth for the expressed purpose of "insurance." Gold is actually a pretty poor inflation hedge as long as it is under external influences such as the inflatable supply of paper gold BB liabilities. So the only way it can even hope to perform as prescribed is as insurance in physical form only. Yet so many investors still hold "paper gold" as the insurance portion of their portfolio. This alone really highlights the confusion in Western "professional" investment Thought.
There are four key aspects to Freegold. There are also many more, but these four are key. That's not to say they are all necessary. They are not. But it is to say that in order to understand Freegold you must at least understand the significance of these conditions:
1. The end of the dollar standard (the end of its timeline as the main global reserve currency)
2. The end of parity between paper gold price discovery and physical gold price discovery
3. The Euro-Freegold concept/project, (at least) 31 years in the making
4. The flow of oil...
SMRI, I'm pretty sure I would've said exactly the same thing were I sitting across from you, because, while I know hypocrisy is universal, when I see it right in front of me in vivid colors I tend to respond.
So consider yourself called out on on playing pot kettle black when you say "we have a floating gold price right now." Until the paper gold markets are rendered officially null and void the idea that gold is floating, as in floating freely-which is the only kind of floating that's worth anything- misses the mark.
Victor, if I may interject, your thoughts?
FOFOA: With people's savings no longer captive in a financial system that lends them out at will, interest rates will once again be a direct function of the supply of (as well as demand for) capital inside the system. Yes, banks will still be able to conjure "thin air money" on their balance sheets to make loans, but the aggregate of loans within the banking system will once again be constrained by the capital ratios in the banking system as no secondary market for this debt will exist. And as a result, we will witness the return of prudent lending standards.
Hi Zenscreamer-
You said, “what happens to the coins (small change) during a hyper inflationary period?”?
Great question. I’m by no means an authority and given I’ve never lived through a hyperinflation I can only guess, but my initial thought is – do you own a smelter? Yeah, me neither. In HI we all have one primary concern and that concern is, “How do I buy life’s necessities today?” In other words, shrimps like us are going to be getting through this day by day although those who’ve stockpiled appropriately will feel just a little less pain. I’m sure there’ll be some preppers that have stocked their pantry and ammo box to the max and those folks might try to save a few nickels for the metal value after the worst has passed, but in the end the currency will have been devalued so much that pennies and nickels still left in the market will revert back to a commodity and I’m sure someone somewhere will pay their commodity price. Considering a nickel (as a commodity) has the purchasing power of 6 cents today, I don’t expect it to change enough to create a new booming market. So what happens to the coins? Someone somewhere is probably willing to buy them for melt value – but that won’t be very much in terms of purchasing power. In HI if you present me with a nickel or a billion dollar note for my goods or services, I’m probably going to take the billion dollars because the masses will have no idea how to value a nickel against the paper and as such I’m going to have a hard time spending it on something I need. Small change will probably go to the guy in the corner with his pile of loot saying to himself, “Look at this pile of nickel and zinc I own. I’m going to be a millionaire!” Well, that’s true of course…
Put more succinctly, it's my belief that coins will disappear from the market. They will no longer be used as a medium of exchange. They will be sold for scrap.
Hello Zenscreamer and Aaron,
As you rightfully intuit, coins don't hyperinflate along with the paper currency. That doesn't mean they have constant purchasing power during the crisis. It only means that at the end, when they finally lop off 12 zeros and introduce a new dollar, the nickel will still be 1/20th of that new dollar. As far as coins whose metal value exceeds their face value, Gresham's law tends to remove them from circulation. So, depending on the exchange rate of that new dollar after the zeros are lopped off, those same coins may or may not come back into circulation. I think it is likely that the exchange rate of the new dollar will be specifically targeted to bring those coins back into circulation.
Here's Wikipedia on Zimbabwe's coins (my emphasis):
"In 1980, coins were introduced in denominations of 1, 5, 10, 20, 50 cents and 1 dollar. The 1 cent coin was struck in bronze, with the others struck in cupro-nickel. In 1989, bronze-plated steel replaced bronze. A 2 dollar coin was introduced in 1997. In 2001, nickel-plated steel replaced cupro-nickel in the 10, 20 and 50 cents and 1 dollar, and a bimetallic 5 dollar coin was introduced.
Plans by the Reserve Bank of Zimbabwe, for new Z$5,000 and Z$10,000 coins were announced in June 2005. However, the coins never appeared.
All old coins dating from the first dollar were reintroduced **at face value** to the third dollar in Aug 2008, **effectively increasing their value 10 trillion-fold**, and new $10 and $25 coins were introduced. These coins were minted in 2003 but only issued with the redenomination."
Sincerely,
FOFOA
Jeff,
Victor, if I may interject, your thoughts?
Well, there is still a large can of worms there.
Firstly, if nobody holds the medium of exchange for the long run, any increase in the credit volume (i.e. base money plus all credit created by the banking system) will immediately affect asset or consumer prices, depending on how the credit money is spent. So in this way, the system would be very transparent. There is no hidden inflation that is going to hit your grand children unexpectedly.
Money printing or credit creation would not allow anyone to scoop off real values because the savers would not absorb the dilution, but the dilution would be rather immediately show up in the price level.
People have mentioned some small countries in Middle America, in the Caribbean, and in Eastern Europe as examples of such a system in which there is a "secondary medium of exchange" (usually dollars, Deutschmarks or now Euros) which is established as a store of value while the official local currency is mainly used for transactions.
Now how would the banking system be organized?
Firstly, if an increase in credit volume just leads to price increases, there might arise some competition for the "soundest fiat money", i.e. the most stable one. Firstly, inflation would be somewhat embarrassing once the savers have made it clear that they see through it, but secondly there would also be less friction if the currency is more stable. Less friction means less hedging expenses.
So the governments and CBs have an incentive to make their official currency stable.
How would they do it? FOFOA's excerpt you quoted somehow suggests that it would be because nobody other than the depositors would lend the banks money, and so they would be limited by their capital ratios. Plausible. I thought that in addition the banking regulation would probably be changed, and the government would directly control the credit volume. If you read Richard Werner (he is German and studied the Japanese crisis), both Japan and Germany had strong regulations on their credit volume immediately after WW2 (which apparently nevertheless allowed them some very healthy growth). George Soros repeatedly said that in order to overcome the financial crisis, governments would have to control credit volume directly. In any case, they will probably figure this out rather quickly. Much better, they probably already understand this and have the relevant ideas ready in the drawer. This is not such an esoteric question for a central banker. They probably all know this and they also know that first the dollar has to die its natural death.
...
Thanks FOFOA. It’s always nice to see you in the comments.
When I think of what works best as fiat currency, I think of the most useless, intrinsically worthless thing I can think of and at this point in time it seems that paper with fancy ink printed upon it does the trick just fine. Coins such as pennies and nickels take a lot of energy to mine and mint – not a very good medium of exchange if you ask me.
Now here is the can of worms.
Even if nobody holds the majority of his savings in the medium of exchange, people will still hold some amount of the medium of exchange for transactions. How much? That probably depends on how stable it is (relative to goods and services) and on how lazy people are. The more medium of exchange people have in stock, the less the beneficial effects of the new financial system.
Immediately after HI in the dollar world, the savers will probably remember only one lesson: don't save in paper. For how many generations will this lesson be imprinted in society's brain? Two to three? (For how long have Germans been inflation hawks even in the IMFS, just because HI happened to them?)
Eventually, however, credibility inflation will be the enemy of freegold. The better the paper money that forms the MoE is managed, the more tempting it will be to hold the MoE for the longer run, first knowing the risks, then for convenience, then because of negligence, then because of ignorance ... So I am not convinced the new system will be fool proof forever (say beyond the 2-3 generations that remember the shock).
What's less likely to be repeated though is the role of one of the MoEs as the "world reserve currency" in the fashion played by the dollar today. Even if individual savers become negligent, I think it is extremely unlikely that global CBs as a group will become that negligent.
The role of the dollar today is probably unthinkable without the political balance of power immediately after WW2, without the broken promise of the gold standard and without the ability of the U.S. to bully everyone into sticking with the dollar after 1971.
So a huge part of the potential for hidden inflation contained in today's dollar, will be rather unlikely to reoccur in history, simply because it was possible only due to a very special preconditions.
Victor
"Coins such as pennies and nickels take a lot of energy to mine and mint"
And that, Aaron, is exactly why it pays for a newly-austere government to aim for a new dollar exchange rate which will bring the old coins it already mined and minted at great expense years earlier back into circulation.
On the surface, it might seem good for silver holders that coins would be reintroduced at par with their present value. But it actually would be a kiss of death for Ag.
The typical HMS mindset figures silver to shine during a reset, but countries would have more to gain by elevating the zinc/copper/nickel to status, leaving silver just out of reach for use as MoE, but not quite shiny enough for SoV.
So my guess is that silver will have a very small window during the transition in which it will, at best, keep its current purchasing power.
@Nickelsaver:
I am thinking Silver will be of use during the crash before gold revaluation. At the point of revaluation it will be better to replace my silver stash for gold or something else, maybe equities. As they would be dirt cheap at that time.
Actually SMRI I think you hit the nail on the head, although from the side so you bent it. I think it´s precisely because they (the miseducated economists) think that the price of gold is free floating right now that they don´t get it. They dont see what the difference is. So naturally when you talk to them about gold in the monetary system they think about a gold standard. If YOU, (as people here seem to think, I will not assume one way or the other) don´t understand the difference, please see here
Read this on jsminset.com: gold is zero% risk weighting capital asset for banks:
A proposal from Federal Deposit Insurance Corp (FDIC):
Summary: The federal bank regulatory agencies (the agencies) have jointly issued the attached Notice of Proposed Rulemaking (proposed rule) that would revise the measurement of risk-weighted assets by implementing changes made by the Basel Committee on Banking Supervision (BCBS) to international regulatory capital standards and by implementing aspects of the Dodd-Frank Act.
A. Zero Percent Risk-Weighted Items
The following exposures would receive a zero percent risk weight under the proposal:
•Cash;
•Gold bullion;
•Direct and unconditional claims on the U.S. government, its central bank, or a U.S. government agency;
•Exposures unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency;
•Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations
•Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria (as discussed below).
http://www.fdic.gov/news/news/financial/2012/fil12027.html
Claire,
Only a politically sanctioned overseer of the banking system could produce a list containing gold bullion, derivatives of gold bullion and derivatives of derivatives of gold bullion and declare them all as having zero% risk!
They don't appear to be ignoring, laughing, or fighting gold in this, merely attempting to borrow its credibility.
Victor said: ”The more medium of exchange people have in stock, the less the beneficial effects of the new financial system...
Eventually, however, credibility inflation will be the enemy of freegold. The better the paper money that forms the MoE is managed, the more tempting it will be to hold the MoE for the longer run, first knowing the risks, then for convenience, then because of negligence, then because of ignorance …”
So you don’t think that the Freegold realtime valuation of that (or any) currency in unleveraged physical gold, just like today’s FX pairs, will be an objective measure of that credibility? Convenience, negligence, ignorance, these are all ultimately based upon subjective evaluation of the currency’s credibility aren’t they?
I think we can be certain of only one event, that is the burning of all USD denominated paper. That would cause a Gold revaluation, because of the burning of most paper gold.
Whether we get Freegold as a consequence is not 100% probable. I would think that the only thing that can bring freegold is if Reference Point Gold is used for international trade. This is the only reason where governments will not allow paper gold.
I don't have much faith in the intelligence of normal people. So people will again invest in paper gold, even after the paper has burnt. I think it wouldn't take more than 1 generation, for people to forget the learning from this crisis.
Without RPG, Freegold will be short lived.
The FDIC proposal initially mentions gold bullion however the rest of the proposal only mentions gold which is an ambiguous term today.
For example in this section of the document, what do they mean by gold? This proposal appears to subtly indicate there is a major difference between paper and physical.
"To apply the simple approach, the collateral must be subject to a collateral agreement for at least the life of the exposure; the collateral must be revalued at least every 6 months; and the collateral (other than gold) must be in the same currency."
Hi 90days,
How many tins of tuna will I need to eat until the HI? And how many more should I have left to eat through the HI? It sounds like you don't think mercury will be an issue, so maybe you are on the closer/shorter side of things? What contends your chummy cabal of belittled believers?
Or maybe major Moonies are in your future for fully flocking to the folly of fiat? Got debt? Oky Doky?
Cheers, J.R.
Hi 60253,
The game of the tournament today?
England with the returning Rooney (Tymoshchuk gonna get run ragged by that new #10) plays host nation Ukraine. We've had a few crackers so far but both teams should have a go at it as they need results to challenge France. Sheva appeared reborn before the harsh reality of France appeared after the storm cleared, can there be one more magical moment before the boisterous crowd in Donetsk?
Sweden's already eliminated, their spirit broken and with Yann M'Vila returning for France, les Blues strengthen their only weakness. Franck, Jeremy Samir and Karim should have a field day.
What say you Mr. 60253? We all know that the euro is only following in the footsteps of what of football already has achieved - uniting Europe. So what we all want to know is, which tribe do you root for, France or England?
Heyt JR, liked the Spanish goal against Croatia? I loved it. It was effortless because of the optimal positioning, something I wish we all achieve when the disaster strikes.
Well said ampmfix,
Cesc -> Ghostface -> Navas!!!
It was effortless because of the optimal positioning, something I wish we all achieve when the disaster strikes.
============
FOA (08/09/01; 10:27:19MT - usagold.com msg#93)
"everything to do with a gold bull market"
This not only has "everything to do with a gold bull market", it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too. However, everyone that is positioned in physical gold will carry this storm in fantastic shape. This is because the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve. None of the other metals will play a part in this.
On capital from Savings & Capital Theory Open Forum:
The physical plane is all that matters. The monetary plane exists only to assist the Superorganism in its drive toward sustainability by transmitting information through prices and lubricating the flow of the physical. Savers drive everything. If they are saving, the economy will expand (sustainably or unsustainably). If they are not saving, the economy will contract. The Superorganism's natural drive is toward economic sustainability while the $IMFS is a pedal-to-the-metal consumption binge thrill ride toward economic collapse. Savers drive the economy, the Superorganism organizes it, and the $IMFS quietly kills it.
Freegold Foundations
Capital
I'm not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term "capital" can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man's intellect were the capital of the time.
Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That's the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.
In modern economics, the word "capital" accounts for many specific things. But I think it is helpful to consider this word in a more basic, fundamental way. Think of it in terms of capital creation, capital employment and capital consumption or destruction. Modern economics would not call consumables capital, which is why I am suggesting a different approach to the word. When we are productive, imagine we are creating this thing called capital. We may figure out a way to turn someone else's capital, combined with our own prowess, into more capital. This would be the employment of capital. And sometimes we simply consume it, or use it up.
If I build a house I have created capital. By owning and living in a home, I am consuming that capital slowly. If I were to buy a specialized tool and use it to make something new, then I have employed capital to create more capital. Is this view of "capital" clear, or woolly?
Savings
Savings are the result of one's production being greater than his consumption. Saving is the convention for deferring the fruits of capital creation—earned consumption—until later. Savings is also the way we hand off capital to the next person who will use it to create more capital. And when it is done right, saving results in the accumulation of capital throughout society at large. When it is done poorly, saving results in the aggregate destruction of capital through frivolous consumption and mal(bad)investment (the misguided employment of capital) resulting in unsustainable infrastructures built on unstable levered foundations.
Here's where it may get a bit counterintuitive....
HI Victor,
"Eventually, however, credibility inflation will be the enemy of freegold."
I dunno. I think credibility inflation is sorta a human failing, and Freegold helps us keep that in check.
Debt/fiat MoE is sorta a given, so the issue is, do we have an escape?
We are all like ants in an ant farm when we patronize Wall Street. Our contributions to society, should they exceed our day-to-day needs, are deployed by a system that does not care how they are deployed, just that they are deployed ASAP. If you would like to make a real contribution to the future of civilization then please buy physical gold and find a way to keep it close. Hoard your efforts outside of the system and watch as they receive a tremendous power boost just in time for deployment. You will be rewarded with the freedom to choose when and how your saved effort will be deployed and in so doing, you will help shape the future.
I know Blondie excels in this regard, but I'll just say I see Freegold as a counterbalance, a means of forcing honesty on the system that otherwise would exploit a human failing. So I see it as sorta of symbiotic - i think the Superorgansim is just like that:
The Superorganism's natural drive is toward economic sustainability while the $IMFS is a pedal-to-the-metal consumption binge thrill ride toward economic collapse.
Savings & Capital Theory Open Forum
JR, can I ask something please?
When you said:
'I know Blondie excels in this regard, but I'll just say I see Freegold as a counterbalance, a means of forcing honesty on the system that otherwise would exploit a human failing. So I see it as sorta of symbiotic - i think the Superorgansim is just like that:
The Superorganism's natural drive is toward economic sustainability while the $IMFS is a pedal-to-the-metal consumption binge thrill ride toward economic collapse.'
...don't you mean ' Fofoa thinks that, and I just regurgitate his words and thoughts, lacking the ability to think for myself?
Just wondered, cos, you know, that is all you do?
Enjoy the tuna.
lol...nice one 90days!
If there was still doubt of your douchbaginess, it's gone now.
Ah jojo, one day, maybe, with continued efforts, you too will make the inner circle. But they need hangers-on like you too, so hang in there.
I have a theory, it's called the Infinite Douchbag theory. (see ad,desperado,carl,matt,90days etc.)
I posit that all the douchbags in the world could copy and paste forever and never render something on point and meaningful.
In fact, I bet they all whine and complain and act like a bunch of monkeys.
See, there's 90days in the corner masturbating again. Bring it douchebag:P
jojo, you should explain that theory to the 'smart guys' maybe?
JoJo @JoJo1111969
@RJPadavona thanks rjp. I'm new to this twitter...just saw your tweet to me. I only joined to read more of what the smart guys are saying.
Tricky to explain whilst your tongue is otherwise engaged though. ;)
@90days,
I think you are in the wrong place. Try zerohedge.com
Matt
I think we try to be as careful of confirmation bias as we can be.
For me, these concepts have the smell of truth. This means to me they are internally consistent, not contradicted by what I see in reality, and there is none of that nagging insistence at the back of the mind that something is not quite right. You know that feeling?
TF
The 90days show is in danger of making me pee Lois' little panties. So hilariously Amateur Week.
ohh lordy, you found me out 90days.
Geez, the depravity! Someone new to twitter!
Or is it that I called some people smart and you weren't included in that description?
seriously, you mine twitter as though you are discovering big secrets. You are an idiot.
Hey, for the record, I also tweeted that today's world seems eerily similar to the world written about in my current book- Atlas Shrugged.
I believe those are my only two tweets ever, but surely 90days will let us know what else i may have tweeted.
Douchebag.
Blondie,
So you don’t think that the Freegold realtime valuation of that (or any) currency in unleveraged physical gold, just like today’s FX pairs, will be an objective measure of that credibility?
I think you are basically asking the following: Why is it that we are in the present mess?
1) Because central banks used to control the price of gold in dollars and because they artificially supported the dollar and the dollar denominated debt over all these years
2) Because credibility inflation has blinded most of today's savers who have been tempted to hold mainly (extremely high-risk) debt instruments
If you believe it was exclusively (1) then you would assume that the gold market might have a chance of correctly pricing any hidden inflation in the MoE, i.e. any inflation that is still hidden because some people are holding the MoE for the long run.
If you think it was mainly (2), then wouldn't you expect that it might reoccur?
The key question is probably whether you believe that the gold market can correctly price the hidden inflation of the MoE. I don't think there is a historical precedent. Well, in some sense, the original interpretation of Barsky-Summers is one, i.e. the real gold price today anticorrelates with future real interest rates (over some period of 5-10 years that is). But I still find any theory that needs a market to be efficient, a bit unsatisfactory.
So imagine one day it is again fashionable to hold more Euros for the long run. The ECB can now expand the credit volume without immediately creating price inflation because these (stupid?) savers absorb most of it (and are going to regret it much much later). What is the mechanism that guarantees you that the gold price in Euros today would indicate this?
Victor
VtC
Tradition.
I expect the shock of this transition will keep people away from fiat as store of value for at least 2 generations. That is enough to establish the tradition that savings should be in gold and spendings in paper.
Habit is a tough thing to break, especially if it is a inter-cultural habit.
TF
Seems to me this transformation will be so unique and large scale, that it will last a lot more than 2 generations. Maybe that's just being hopeful?
VTC, are you saying you doubt mankind and that some way, somehow, we will drift away from Fg back to some centralized, controllable thing as now?
Steady VtC, you got your ass kicked a time back for the oil heresy, you're taking your virtual life in your hands again with this line of thought. Remember, adhere to the party line at all times, its the rules in freegoldland!
Greets!
90Days:
"It is better to be thought a fool than to open ones mouth and remove all doubt." Benjamin Franklin
Indenture, are you the Presidential version of JR? Maybe consider the issues, which are:
1. Dissent of the freegold line tends to be frowned upon (putting it mildly).
2. The freegold thinking that it will solve the inflation/fiat/savings issue.
Let us watch together! (I suspect the issue will be glossed over as if by magic it doesn't exist, confirmation bias as the smartpeople call it).
90Days
Mind if I rephrase that?
1) Dissent unbacked by sound arguments tends to be frowned upon. At least here. You are welcome to rage about how you don't like reality elsewhere.
2) .....
You imply it doesn't? What are your (sound) arguments for this position?
TF
@90 days,
Could expand upon item #2, the "inflation/fiat/savings issue?"
Why is it that we are in the present mess?
1) Because central banks used to control the price of gold in dollars and because they artificially supported the dollar and the dollar denominated debt over all these years
2) Because credibility inflation has blinded most of today's savers who have been tempted to hold mainly (extremely high-risk) debt instruments
Another offered this answer in the first post at the USAGold archives:
Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:
Everyone knows where we have been. Let's see where we are going!
It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.
This line of thinking is very real in the world today but it is never discussed openly. You see oil flow is the key to gold flow. It is the movement of gold in the hidden background that has kept oil at these low prices.
[...]
So why has this played out this way? In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper.
The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all )
And thus, in 1980, began the modern era of Credibility Inflation.
Credibility Inflation
=======
6/4/98 ANOTHER ( THOUGHTS! )
The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.
But by 1980, Europe was working with the BIS to implement a new "reserve currency".
===========
The European plan was to support the $IMFS at least until a new fiat "reserve" currency could be established, one large enough to absorb the shock of a failing reserve currency, to avoid being forced back 100 years into a physical gold-based economy which would have been very traumatic. This effort took 20 years from 1980.
Synthesis
TEXT
Dissent isn't frowned upon. I think it is actually a duality that exists here at FOFOA. You see, there are people, contributors, who have been reading, following and adding to the conversation for years. Every now and then someone new shows up questioning the 'inevitable future'. (yes, I personally call Freegold inevitable). But when a different view arrives there are many intelligent, well versed contributors who will answer a question and point people towards an answer. JR happens to be one of the best at providing links to prior answers. So everything so far is polite and cordial.
And then, sometimes, it happens. The person who asked the question doesn't take the time to read the information provided by the links and continues on with the same train of thought that was already discussed. Some of the best contributors to FOFOA don't enjoy repeating the same stuff over and over again but there are others who repeatedly answer the same thing over and over with a smile.
My impression of your desire to be here is not one of learning something new but instead it appears you are either confused and have yet to have your 'ah ha moment' or you are just having fun poking a stick at the tiger.
Have fun.
90Days: "Indenture, are you the Presidential version of JR?"
Thanks for the compliment but JR is so far above my pay grade I look up at the bottom of his shoes. I know who my intellectual superiors are.
Tomorrow - what happens if Bernanke does not declare QE3 ? stocks dive ? maybe he will declare QE3 in August - since they have to anyway finance USG.
Re point 2, I didn't make that argument, Vtc did. I just watch how it will get ignored, or Vtc will be FOFOA'd again....how does it go....
Victor, I like you, but......
This time I think it gets ignored, as it is tricky to be refuted.
We'll see.
Re the having fun, many do come here for that reason. Sorry JR, did you say something...oh no it was Fofoa again.
Credibility inflation never fooled the most important Giants. Those super-producers of real stuff kept getting their gold; only the western consumer nations truly got fleeced. The US benefitted and the other western nations made a strategic decision to be fleeced while a new system was developed.
IMO no one would fall for fiat credibility inflation again.
Exorbitant Privilege revocation?
Hmmm, try again...
linky link
My take on 90days is that he/she is a frequent antagonist who has erected a new pseudonym by which to spew venom with the sole purpose of testing how long it would take to get banned (within 90days?).
Let's do FOFOA a favor and simply ignore this individual going forward.
@90days,
Okay then, that's gibberish. That's enough for me. I'm out.
Cheers
Victor,
i.e. the real gold price today anticorrelates with future real interest rates (over some period of 5-10 years that is). But I still find any theory that needs a market to be efficient, a bit unsatisfactory.
What if the future real gold price anticorrelates with current real interest rates? (is this what costata was alluding to?)
If interest rates are low at the moment, then one can reasonably anticipate that more people will flock to gold because holding gold for future is better.
I see it as a monetary oscillation between long-term bonds and gold.
So imagine one day it is again fashionable to hold more Euros for the long run. The ECB can now expand the credit volume without immediately creating price inflation because these (stupid?) savers absorb most of it (and are going to regret it much much later). What is the mechanism that guarantees you that the gold price in Euros today would indicate this?
Like MF alluded to, I think the psychological aspect will be at play here.
If physical gold is at a freely floating price and ECB has a mandate of 2% annual inflation, there is always *some* inflation.
Which means that the savers would always have some % in gold.
If credit volume increases without causing real price inflation, wouldn't gold look comparatively cheaper (oversold..), if physical gold can only be bought/sold outright?
Nickelsaver, I have seen your cabal spew their venom with gusto on this site over the years. None of them get banned...hmm, Vtc did, but he is back (for a while at least). Mortymer didn't get banned did he, but good as, just cos poor uncle Costata didn't like using his scroll wheel too much. Others I forget, but there have been many, for various reasons. Even poor Milamber is mocked in the tweetosphere by cabal members: he is not worthy. Such nasty individuals they can be. And they could all be here in 15 years time too, proclaiming the truth!
The comment above by Indenture shows the jojo-esque desire to worship the cabal:
'I know who my intellectual superiors are.'
More importantly, they know who they are (except JR, I suspect he really isn't sure, but mostly hides his lack of thought). All the confidence they are right based on a prediction supposed to happen imminently, made 15 years ago.
@NS,
+1 for no ride the G Train
e_r,
What if the future real gold price anticorrelates with current real interest rates? (is this what costata was alluding to?)
I don't think this is backed by the data.
JR,
I understand the argument. You are saying that only the fact that international CBs kept supporting the dollar, made credibility inflation possible to the extent we have observed.
My technical question is still open though: If people hold a large portion of their savings in the form of the MoE (for whatever reason) and credit volume can expand without immediately affecting prices, how would the gold price flag this 'hidden infaltion'?
Victor
VtC
I would like to pose a counter-question. Does gold have to flag that rise with immediate effect to be of any use? If not what time frame would be acceptable.
I would also like to note that the size of the store of value component in the medium of exchange is set to decrease on orders of magnitude with a dual natured system.
How does this change in size affect the marginal addition of extra currency units in terms of the effect this has on the value of the currency? :P
TF
MF,
I am asking about a situation some 30-50 years into the new financial system. The immediate shock will have long been worked off. It is basically the question of how stable is the new system.
Victor
Nice bit of truth from Barroso,telling it the the Americans:
http://www.youtube.com/watch?feature=player_embedded&v=_TGeVoosirg
VtC
I know. My commentary is also in that context.
Would you prefer me to answer my own questions posed?
TF
VtC
Great what if! Here's my 2c:
"My technical question is still open though: If people hold a large portion of their savings in the form of the MoE (for whatever reason) and credit volume can expand without immediately affecting prices, how would the gold price flag this 'hidden inflation'? "
Personally, I don't think there would be any immediate price adjustment for an increase in MoE savings as a "seed" for credit creation and future inflation.
But I don't see a problem with it either.
The reporting on credit creation should tell people that follow it closely that future inflation is very likely. So yes, more than likely there would be an opportunity to purchase "cheaper" gold (as valued by MoE) for informed individuals.
When eventually excessive credit creation is revealed by aggregate credit/M2/M3 reporting, the only affected people would be:
1. Those selling gold today, and holding on to MoE for as long as it takes for inflation to eat away at their MoE purchasing power. If they sell today and use MoE within short timeframe, they get current prices, so inflation not a problem.
2. People saving in MoE for a long time. Which they should know not to do, and they can't blame anyone if inflation taxes them. They will learn (again).
So in my mind, freegold is not an idiot-proof system. You'll still need to understand to not save in MoE to not lose your purchasing power. Some intelligence will be required, not much, but some - at least enough to develop the Pavlovian response of not holding MoE for long ;)
Hi Victor,
"My technical question is still open though: If people hold a large portion of their savings in the form of the MoE (for whatever reason) and credit volume can expand without immediately affecting prices, how would the gold price flag this 'hidden infaltion'?"
two ideas:
1) the who revaluation will put physical gold and debt on a different perspective.
2) sure, over time, fiat and debt will grow in confidence. But this will be marginal. FOFOA discussed this in Glimpsing the Hereafter
Of course, what I have described above is a simple model. The reality will be a bit more complex. For instance, gold will have some competition although it will be tiny in comparison to today. Some government debt will likely compete for your savings. But the US government, for example, will have to compete just like the Greeks do today. And we will still have a much more limited menu of investments and trading opportunities to lure you into putting your hard-earned savings at risk.
But the key to your query is really the assumption that credit will be able to expand without this begin reflected in the gold price, at least over the short term.
So: a) is this true [I think not but it depends on what we mean by "short term"], and more fundamentally b) why does this matter [see point 1 above]?
=========
Its not that gold price moves quickly enough to say to peoples "get out of fiat they are devaluing it/debasing it," its that the collapse of the $IMFS and Freegold revaluation will already reveal that the safest place for savers is in gold. The gold price change is relevant only to the small portion of "antsy" savers looking to move the opposite direction into an investment. For these folks, greater gold price stability in a currency will more likely lure these "antsy" savers into the investing sphere the competition FOFOA discussed in the above excerpt). But savers are already in gold post transition, and gold's stable pricing is not going to dissuade them as to its propriety as the best vehicle for saving, its only going to reinforce it.
oops:
"1) the revaluation will put physical gold and debt on a different perspective."
....
"into the investing sphere (the "competition" FOFOA discussed in the above excerpt)."
Biju asks,
"Tomorrow - what happens if Bernanke does not declare QE3 ? stocks dive ? maybe he will declare QE3 in August - since they have to anyway finance USG."
Should The Bernank and his merry group of central banksters want to appear above the fray of politics, they will act now, not closer to the election of Mitt RObama. This, of course, assumes that they have read the bird entrails and believe that the relevant parties require yet another shot of The Fed's special brand of help.
Having said that, the mere whiff of more monetary tricks, as opposed to the real thing, generates a considerable adrenaline flow amongst the knuckle dragging equity players-see the last two week's action- most of whom, it must be said, are machines having at it. In other words, intoning properly is worth quite a bit of fizz for certain markets, though, bonds are, by no means, acting as if the ebullient action in shares is of the lasting variety.
So, all that said, here's my fearless forecast, come tomorrow, at the conclusion of their meeting in the hallowed halls of The Marriner Eccles building, The Fed will employ "easing rhetoric" as their chief policy tool. Always leave 'em wanting more and feeling like they'll get it.
Poor thing JR, it's a struggle to be coherent isn't it?
http://www.youtube.com/watch?v=h3h--K5928M
Perfect vid for ya!
No more moping up the surplus dollars, no more dollars to support US debt.
From Forbes:
China Facing First Deficit Since 1992
China will likely post in the second quarter its first balance of payments deficit since 1992.
China is sending more money out than it is bringing in. The gobbling up of dollars by the main banks in the country has waned. Total net foreign exchange purchases by China’s financial institutions (including the People‟s Bank of China) rose by 23.4 billion renmimbi in May, but fell in dollar terms by $53.5 billion due to a depreciating currency. In April and May combined, net dollar purchases fell by $51.2 billion. The second quarter looks to be only the second quarter since 2000 – when these data were first compiled – that net forex purchases fell in dollar terms. The first time was Q4 2000.
Nomura Securities analyst Rob Subbaraman said on Tuesday that, “Assuming no change in net forex purchases by China‟s financial institutions in June…China will record a Balance of Payment’s deficit of $13 billion in the second quarter, its first once since 1992.”
Given that China’s trade surplus widened from $0.9 billion in the first quarter to $37.1 billion in April and May combined, it seems fair to surmise that, if China does record a BoP deficit in the second, it will be caused by net capital outflows as China’s major banks slow their acquisitions of dollars in the market,
http://www.forbes.com/sites/kenrapoza/2012/06/19/china-facing-first-deficit-since-1992/?feed=rss_home
Aquilus, I agree.
MF, I am not sure I understand you. Are you saying the question will be a lot less relevant than it is now? Agreed.
Concerning the FOMC decisions tomorrow and the question about additional QE, the U.S. seem to have a healthy inflow of capital with all the fear related to the European debt crisis. So in the light of "Peak Exorbitant Privilege", there is no need for additional QE right now.
Perhaps a continuation of Operation Twist? Not sure either. Very short term rates are quite a bit off zero now, and so perhaps not needed either. Rhetoric definitely.
By the way, Jim Rickards has tweeted a couple of times that he thinks the FOMC people are preparing the market for more QE in their public appearances, interviews etc. This would contradict what I wrote above, but Rickards had a good track record in forecasting FOMC decisions.
Victor
Hi Victor,
I am asking about a situation some 30-50 years into the new financial system. The immediate shock will have long been worked off. It is basically the question of how stable is the new system.
Its not that gold price moves quickly enough to say to peoples "get out of fiat they are devaluing it/debasing it," its that the collapse of the $IMFS and Freegold revaluation will already reveal that the safest place for savers is in gold. The gold price change is relevant only to the small portion of "antsy" savers looking to move the opposite direction into an investment. For these folks, greater gold price stability in a currency will more likely lure these "antsy" savers into the investing sphere the competition FOFOA discussed in the above excerpt). But savers are already in gold post transition, and gold's stable pricing is not going to dissuade them as to its propriety as the best vehicle for saving, its only going to reinforce it.
In other words, in the immediate aftermath of freegold, we agree savers prefer gold and shun debt. Over time, credibility is some paper currencies will be re-established vis-a-vie gold.
So it seems your query builds on this and goes, what prevents credibility from fully re-inflating?
"My technical question is still open though: If people hold a large portion of their savings in the form of the MoE (for whatever reason) and credit volume can expand without immediately affecting prices, how would the gold price flag this 'hidden infaltion'?"
So yeah I agree, the reemergence of credibility inflation in another debt/fiat currency like we saw in the $IMFS is, as FOFOA perhaps best explored in Once Upon a Time, dependent upon the ability to sterilize the price of gold in the currency.
Today's debt (the bond market) is imaginary capital in that it cannot perform in real terms; with "real terms" defined as economic goods and services (under current economic conditions) plus gold—and this part is important—at today's prices. It is all nominal debt, but the price of goods and services—as well as the price of gold—is what connects it to reality. And at today's prices of each, bonds are imaginary capital. It is our obsessive compulsion to centrally control the price mechanism that sterilizes the vital signals that would otherwise be transmitted to billions of individual market participants keeping the monetary and physical planes connected.
cont.
cont.
...the price of gold today still does not reflect the physical flow of gold that would normally be a function of arbitrage, with speculators transporting gold to where its purchasing power is highest. The flow of gold today is still sterilized by the paper gold trade within the LBMA bullion banking system that, by a recent LBMA survey, was around 250 times larger than the flow of new gold from the mines. That's a total turnover in the LBMA (sales plus purchases) of 5,400 tonnes every single day. That's the equivalent of every ounce of gold that has ever been mined in all of history changing hands in just the first three months of 2011. That's what the LBMA members, themselves, voluntarily reported. And that's a lot of paper gold that is still sterilizing the economically beneficial price mechanism that physical gold would otherwise be transmitting.
Yet things are changing, even today. That's what the rising price of gold since 2002 tells me. This is about much more than just a rising price. It's not just about a gold or even a commodity bull market. As FOA said, "it has everything to do with a changing world financial architecture." Gold's function in the monetary system is changing. And as FOA also said, "None of the other metals will play a part in this."
Gold will return to its pre-1922 function, but that does not mean we will return to a pre-1922 gold standard. This post is not about the merits of the gold standard. It is not about praising the hard money camp’s decision in 1445 over the easy money camp’s decision in 1922. It is about the choice of the Superorganism over the management of men. The pre-22 gold standard, although it allowed gold to function, still carried the same flaw I point to so often; that using the same medium for exchange and savings leads to regular recurring conflicts between the two camps.
This is an important distinction to understand. Gold's true function is relative to the real, physical balance of trade, not man's flawed, political-overvaluation of debt and other monetary schemes. In 1971, the entire planet switched to using a pure token money as its medium of exchange. These symbolic tokens do fail miserably and regularly as a store of value, but they work remarkably well as a medium of exchange. They are not going away.
The whole ECB/Euro architecture was built to turn Genoa 1922 on its head, to reverse the damage done and to restore the function of gold which Jacques Rueff knew all too well.
So everybody is in gold, and the concern is for short term periods, gold may not instantly relfect the expansion of credit:
"My technical question is still open though: If people hold a large portion of their savings in the form of the MoE (for whatever reason) and credit volume can expand without immediately affecting prices, how would the gold price flag this 'hidden infaltion'?"
Gold's role is not to * immediately* flag inflation, its to store wealth, so why does the immediate time frame matter (ignoring the plausibility of the premise that one could sterilize the gold price over some "immediate" frame of time in Freegold)?
Unless the immediate becomes longer and we have the whole question of are we in freegold (freely floating physical gold price) or not?
VtC
My first point was that of timing, as JR also mentioned.
This is best understood when one considers what inflation is, and that in contrast to austrian theory, it is not a purely monetary phenomena, but rather a process with many components and a definite timeline.
With this perspective it is easy to see that gold will not immediately flag inflation, though of course as per your question on efficient markets, there will be some speculation by those first in line for new money as to the level of effect of any new issuance; whose correctness in anticipation may or may not be correct but will be shown out by marginal gold holders.
As to your question if credibility inflation in the medium of exchange will ever reach current absurd levels again, my reply was no, I don't think so.
My reasons were twofold. One that there would be no levitation in value in the medium of exchange due to it being kept as a store of value, and that it would have to derive it's value from it's transactional function, which of course means that the total volume of fiat would have a much lower volume of value than it has today. This means that any additional fiat would have a greater effect than the same would have today.
My other observation was that habits are hard to break, and that by that time gold would be a proven store of value.
Perhaps it is best if I note that money has a possible savings use, spendings use, or investment use. As FOFOA has pointed out investment is not saving, and we need a medium for saving.
Part of the reason out current system is failing is that the prior 'nash equilibriums', stocks and housing, (not truly but they approximated it for a number of years) are no longer working and we need to replace it with something that will keep real value over time. Children can no longer follow their parents example and preserve real value that way. Gold has no reason to fail this function of savings in a freegold paradigm, so it will be used until it no longer works (indefinitely in theory).
Now, a habit that works for generations and is used internationally has a lot of momentum.
Of course there will still be investment, but this serves a different function than savings.
TF
A little snippet from an interview with EJ.
EJ: The Middle East is entering an ugly new phase. The second revolution in Egypt won’t be as benign as the first. When it’s all over there will be two countries where now there is one.
CI: Syria?
http://www.itulip.com/forums/showthread.php/showthread.php?p=231428#poststop
EJ: The west will not be able to resist the temptation to get into it with Syria, with Russia and China on the other side, setting the stage for sectarian proxy wars across the Middle East that drags the Saudis in. The WTI versus Brent crude spread that opened in 2011 will get even wider as the Middle East security premium hits Europe harder than the US. It's as reliable an indicator of Middle East crisis escalation as the spread between Germany's and Italy's government bond yields is an indicator of euro escalation.
Hi MF,
Good stuff. One quick note.
"and that in contrast to austrian theory, it is not a purely monetary phenomena,"
Even though Fekete has drilled that into your head, ala:
The Quantity Theory of Money
It is a great pity that as a young man Ludwig von Mises embraced the Quantity Theory of Money, and has never during his long life been able to extricate himself from its clutches. For this reason he was alienated from Adam Smith’s Real Bills Doctrine, the latter being an implicit refutation of the former. In spite of this flaw I still consider him the greatest economist of the 20th century. But the mortmain of Mises cannot be allowed to guide us in the 21st century when the Quantity Theory of Money is so spectacularly self-destructing, as witnessed by the Second Great Depression that started 80 years after the first, in 2009.
http://oikonomikablog.wordpress.com/category/antal-fekete/
Unlike his teacher, Mises embraced the Quantity Theory of Money without carefully delineating the extremely narrow limits of its validity.
http://www.professorfekete.com/articles/AEFATaleOfTwoSchools.pdf
Mises himself believed in the linear quantity theory of money
https://www.facebook.com/AEFekete/info
Guess what? It isn't true :). In fact, its the opposite:
Clarify the View
This concept that the traditional monetary functions are now separating into non-fixed (i.e. floating) media has been both an epiphany for some and a stumbling block for others. My goal here is to clarify the view for those who cannot seem to get it. When comparing any two monies, circulation velocity (or the demand for money to the Austrians) correlates to, and is a measurement of, their respective store of value properties. In other words, the currency that circulates with greater velocity is in low demand, it's the "bad money" with a short store of value timeframe, while the slower currency is in high demand, it's the "good money" with a greater ability to store value through time.
The Return to Honest Money
Here's a decent article explaining why Mises' whole approach is contrary to the quantity theory of money, aka why the regression theory is dope.
You can't claim to know anything about Mises and not know about the regression theorem or more broadly his focus on individual and his subjective valuations and rejection of the quantity theory of money, which is why so few people take Fekete seriously. He just babbles on about outrageous falsehoods.
FWIW, another article rebuffing Martin Armstrong for his ignorance:
http://silverstockreport.com/2012/armstrong.html
http://www.youtube.com/watch?feature=player_embedded&v=pSOGwthC_JQ
Video on inflation/deflation debate between Rickards and Dent.
Rickards is on the inflation side. He seems to make the argument that the IMF through SDR's will do the massive printing when the political will in the US has hit his limit. Guess could happen sounds odd though.
Been a long day, with lots of crap to wade through in the comments, but I can't let this one pass before I read the rest...
90days said...
…“Even poor Milamber is mocked in the tweetosphere by cabal members: he is not worthy.”
90D,
Thanks for the concern, but I am a big boy. I am recovering from the mocking, but it was a close thing.
To the issue at hand, can you debunk the Freegold thesis? I have tried & I can’t. I guess that makes me "not worthy" in your eyes.
I have seen lots of others try & so far no one has done a convincing job in my opinion.
Does that mean I believe Freegold is inevitable? I am not knowledgeable enough in these matters to make a statement like that. But I certainly can’t prove that it isn’t. I do think that Another/FOA/Aristotle/FOFOA have laid out a very convincing case *WHY* this is where we are going. And until I can disprove it, I am going to read VERY carefully what they have written. But more importantly, I am going to think about it and try and further my understanding.And when necessary, I will ask questions.
Since you are interested in my wellbeing (Thanks!), I would be interested in getting a competent well-argued rebuttal of the Freegold thesis. Can you provide such?
And please note, I am not interested in discussing timing calls. I am interested in a dispassionate analysis of the theoretical constructs that are presented here.
I sincerely hope to read such from you.
Thanks again!
Milamber
p.s. If you choose not to try & debunk Freegold, can you at least tell me who dared mock the mighty Milamber on Twitter? I wasn’t aware that I was worthy of being mocked.
And all this time, I thought Twitter was a SERIOUS communications platform, kind of like a blog, where sarcastic mocking behavior was forbidden.
And you say it was from members of a cabal? I can hardly believe Twitter lets cabal members roam free!
JR
Thanks for the correction. In general I am not really bothered by he said she said stuff, and rather focus on what Is.
My comment was not a criticism against Mises, or support for Fekete. I really don't care what their opinions are, unless they are right, though then it is a function of their being right not their being that interests me.
It was just a observation that most schools of Austrian economics assume that inflation is a purely monetary phenomena.
TF
Milamber
Thanks for that. Started my day with a smile that did. :)
TF
An Italian grocer tried smuggling CHF 2.4 million worth of gold through the Chiasso border crossing in the canton of Ticino.
Italian Financial Police said the grocer and his adult daughter were stopped just past the crossing by a mobile checkpoint, and at first seemed normal.
But the grocer’s behavior was curious, police say, leading to a detailed search.
A compartment under a seat held 50 kilos of 18-karat gold bars.
Neither the man, nor his daughter, wanted to explain from where the gold came.
http://worldradio.ch/wrs/news/wrsnews/italian-grocer-busted-with-gold-bars.shtml?31171
Desperado,
have a look at Vatican, Opus dei. There is something happening there. Can't tell you exactly what but something dirty is about THTF. Calvi 2012???
Desparado,
interesting news: Not that it is strange that a grocer tried to bring gold (or cash) over the border, that is normal for Italy, mafia-like capital lawndry transfers from Italy to Swiss, happen all the time.
What is so interesting is that it had been supposingly 18-karat (750/1000). In legal EU terms, that type of gold is not tax exempted bullion and also not traded as bullion. 750er gold in Europe, you normally only find in the jewelery business. So maybe this is part of a VAT circle fraud (very popular in Europe).
Greets, AD
Hi MF,
That's Murray Rothbard, not Mises. Long story short, most of what you hear today under the label of AE is Rothbardian political advocacy. Rothbard did a lot of good stuff, like exploring libertarian/anarchist philosophy/theory (not his advocacy, which is reprehensible), exploring praxeology on more firm Aristotelean grounds, and getting people involved.
But he did a lot of horrible stuff, and while the political advocacy is the most facially appalling, his economic theoretical work is unquestionably more damming. He wrote a book called Man, Economy, and State (MES) that tried to offer a textbook version of "Mises' Theroretical framework." Lotsa math, graphs, conclusory premises. "We must have a gold standard to stop the government" is a theme he touches on from time to time.
The first 8 chapters were withheld because they were too politically controversial and released later as part of "Power, Market", but the "OMG G is stupid and you must be an anarchist to be cool so hate the state" is loud and clear, even if only slightly more subtle in the other chapters.
========================
Briefly, the outgrowth of Rothbard and his advocacy organization, LvMI (which does some good stuff despite the awfulness), in some peoples minds pushed things too far. Like for example the Hayekian and more Misean guys at "Coordination Problem" wrote this - New Thinking for a New Decade
"As of January 1, 2010, we are changing our name to "Coordination Problem". This name change is symbolic as well as substantive. The term "Austrian economics" has become as much a hindrance to the advancement of thought as a convenient shorthand to signal certain methodological and analytical presumptions. We started this blog with a clear purpose to emphasize ongoing research in the scientific literature, and developments in higher education as related to economics and political economy. As a group we are committed to methodological individualism, market process theory, institutional analysis, and spontaneous order theorizing. And while we do not shy away from policy discussions, we do not identify with any political party or specific political movement.
As an experiment, over the past six months we have been tracking the use of the term Austrian economics in the news and in the blogosphere. Less systematically, we have also been listening carefully to the use of the term among fellow professional economists and what they think the label means. The results do not fit our intention. Google alert, for example, inevitably points to financial advice or libertarian politics, rarely to the research paradigm of F. A. Hayek, never to the scholarship of Israel Kirzner. Mises is often mentioned, but Mises the ideological symbol, not Mises the analytical economist. The "Austrian" theory of the business cycle is mentioned, but only in relationship to anti-fed politics and hard money advocacy, and never as an ongoing research program among professional economists.
These trends are not recent, but have been constant throughout our respective careers. We have always been among those who attempted to offer resistance to this use of the term. It has become evident to us that our efforts have been futile. Rather than resist the pure ideological identification, we are choosing to devote our efforts elsewhere. The name Austrian economics has been lost as a focal point for a tradition of economic scholarship, and is now a focal point for something else. We have to let it go.
Why "Coordination Problem"? ...
cont.
Did you know Mises was a minarchist? Not an anarchist.
Here's a neat quote highlighting the importance of demand from Theory of Money and Credit
In theoretical investigation there is only one meaning that can rationally be attached to the expression inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange value of money must occur Again, deflation (or restriction, or contraction) signifies a diminution of the quantity of money (in the broader sense) which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange value of money must occur If we so define these concepts, it follows that either inflation or deflation is constantly going on, for a situation in which the objective exchange value of money did not alter could hardly ever exist for very long.
And here's Mises mocking the QTM type thought from the same:
We could quite easily imagine a monetary system in which the value of money was constantly falling at the same proportionate rate. Let us assume that the purchasing power of this money, through variations in the determinants that lie on the side of money, sinks in the course of a year by one-hundredth of its amount at the beginning of the year The levels of the value of the money at each new year then constitute a diminishing geometrical series. If we put the value of the money at the beginning of the first year as equivalent to 100, then the ratio of diminution is equivalent to 0.99, and the value of money at the end of the nth year is equivalent to 100 × 0.99n-1. Such a convergent geometrical progression gives an infinite series, any member of which is always to the next following member in the ratio of 100 : 99. We could quite easily imagine a monetary system based on such a principle; perhaps even more easily still if we increased the ratio, say, to 0.995 or even 0.9975.
But however clearly we may be able to imagine such a monetary system, it certainly does not lie in our power actually to create one like it. We know the determinants of the value of money, or think we know them. But we are not in a position to bend them to our will. For we lack the most important prerequisite for this; we do not so much as know the quantitative significance of variations in the quantity of money. We cannot calculate the intensity with which definite quantitative variations in the ratio of the supply of money and the demand for it operate upon the subjective valuations of individuals and through these indirectly upon the market. This remains a matter of very great uncertainty. In employing any means to influence the value of money we run the risk of giving the wrong dose. This is all the more important since in fact it is not possible even to measure variations in the purchasing power of money. Thus even though we can roughly tell the direction in which we should work in order to obtain the desired variation, we still have nothing to tell us how far we should go, and we can never find out where we are already, what effects our intervention has had, or how these are proportioned to the effects we desire.
cont.
cont.
and one more on the significance of demand from the same link to The Theory of Money and Credit:
But it must be observed that as the depreciation of money proceeds, the demand for money (that is, for the kind of money in question) gradually begins to fall. When loss of wealth is suffered in proportion to the length of time money is kept on hand, endeavors are made to reduce cash holdings as much as possible. Now if every individual, even if his circumstances are otherwise unchanged, no longer wishes to maintain his cash holding at the same level as before the beginning of the inflation, the demand for money in the whole community, which can only be the sum of the individuals' demands, decreases too. There is also the additional fact that as commerce gradually begins to use foreign money and actual gold in place of notes, individuals begin to hold part of their reserves in foreign money and in gold and no longer in notes.
An expected fall in the value of money is anticipated by speculation so that the money has a lower value in the present than would correspond to the relationship between the immediate supply of it and demand for it. Prices are asked and given that are not related to the present amount of money in circulation nor to present demands for money, but to future circumstances. The panic prices paid when the shops are crowded with buyers anxious to pick up something or other while they can, and the panic rates reached on the exchange when foreign currencies and securities that do not represent a claim to fixed sums of money rise precipitously, anticipate the march of events. But there is not enough money available to pay the prices that correspond to the presumable future supply of money and demand for it. And so it comes about that commerce suffers from a shortage of notes, that there are not enough notes on hand for fulfilling commitments that have been entered into. The mechanism of the market that adjusts the total demand and the total supply to each other by altering the exchange ratio no longer functions as far as the exchange ratio between money and other economic goods is concerned.
JR
Thanks again.
Yep, it seems the old man had his head screwed on straight.
TF
Milamber,
This newest troll is full of shit. I recall no milamber bashing, yet do recall some milamber compliments last week when you were giving voice to your freegold thinking/understanding. Good job btw.
We interrupt your scheduled programming for a public service announcement.
Since we have a tradition here of helping our fellow man, no matter which country he's from and which device he wishes to come via, I thought I would share how we might all choose to make the comment linking experience on blogger as good for all as it is for one. If and when we remember to be good neighbours, that is... :)
An example:
http://fofoa.blogspot.com/ncr/2012/06/blondies-view.html?commentPage=3&m=0#c5925087340981722819
The /ncr/ part will avoid visitors outside the US being redirected to their local blogger site (e.g.: fofoa.blogspot.co.uk) and the comment information being discarded so they're taken to the top of the page rather than your lovingly-selected comment. This must appear right after .com and before the year of the post you are linking, as indicated in the example above.
The &m=0 part (which must come after any existing ? and &'s, and also before the #) will prevent the visitor being redirected to the mobile version of the site (and again the comment locating part of the address being discarded) if they're using a mobile device. If there is no ? in your link address, then use ?m=0 rather than &m=0.
We've already gone over working out the #[number] part and the commentPage=x part before, so I won't bore you with that here.
This has been a public service announcement. Your normally scheduled viewing will now resume.
Jojo,
Thanks. But I have to give 90D props. Because of him/her I can now tell my wife that DP loves smelling my aroma in the morning. ;)
So I got that going for me. :)
Milamber
Your coffee-scented letters are certainly a lot more pleasant than a lot of the opium-tinged stenches I've woken up to around here. ;)
Who blocked the drains up?
Who? Who? Who? Who?
Wind up the window will you, dear?
Yay MF,
I glad you enjoyed these excerpts explaining why "inflation is not a purely monetary phenomena," or why the Quantity Theory of Money is a flawed perspective, most notably because it fails to approach the a matter from the subjective viewpoint of individual actors, and thus misses that which is key to the matter - demand.
Demand holds the cards © Jeff, 2012
Or should I say, demand holds the cards. :)
SMRI,
On your comment at Thu, Jun 14, 2012 at 1:38 PM
I agree EJ didn't address how the US would 'manage' its massive deficits. However, I dont think that takes away from his historical references. I think there is a sort of MAD(mutually assured destruction) dynamic here. The US is such a massive economy, the IMF or rest of the world cannot just treat it like Argentina etc.
The problem with using past historical references for the current predicament that we are in, is that there is no precedent for the debasement of a world reserve currency.
FOFOA: Think about a debtor who owes a hard debt to a loan shark versus a junkie who owes a regular, ongoing, hard fix to himself. Which one is worse off? Which more desperate? As I wrote above, this intractable problem cannot be solved in the monetary plane, except through dollar hyperinflation!
More FOFOA: The USG had endured 30 years of foreign-supported trade deficit and developed an addiction to free stuff. To make matters worse, much of its productive capacity had been shipped overseas during this time period. The US private sector could not possibly support the USG’s addiction to real goods.
The nation’s productive capacity was not even sufficient to satisfy domestic demand, much less to support USG demand. Government knew that it was not only economically impossible but also politically impossible to impose taxes at a sufficient level to move resources to the public sector to satisfy the USG’s insatiable addiction. So instead, it relied on deficit spending through raw base money creation. This meant government competed with global demand for a limited supply of importable goods—driving prices up. At the same time, the US private sector had to pay the same higher prices without the benefit of issuing its own currency to buy needed imports. Rising import prices forced the US economy to consume more of its own domestic goods, which increased USG’s reliance on imports, and since foreign imports cost more in terms of the domestic currency, this increased the cost of the USG’s addiction in terms of domestic currency."
Think hard about the last part, USG's addiction in terms of domestic currency.
SMRI,
Rickards is on the inflation side. He seems to make the argument that the IMF through SDR's will do the massive printing when the political will in the US has hit his limit. Guess could happen sounds odd though.
FOFOA: "Virtual reserve currency" means something—like the SDR—that's primarily a unit of account for the purpose of providing monetary stability. But with the primary and secondary media of exchange becoming separate but symbiotic counterparts, stability will be automatically achieved, and a "commodity-based" super-sovereign unit of account comparing fiat M3 with a centrally managed gold price will be completely superfluous and unnecessary (i.e., as unused as the SDR).
This is two people (Eric King and Jim Sinclair) discussing a possible solution to a serious problem at the 11th hour. What they don't understand is that this very scenario—$IMFS collapse—was faced 32 years ago and a solution was crafted at the highest levels. That solution took 20 years to launch (at great cost, mind you) and today it stands at the ready. If you read too much ZH and thereby think the European debt crisis changes things in some way, guess again. The European debt crisis is a symptom of the dying $IMFS, not the Eurosystem. In every way this is true.
Rickards spot-on about Fed not understanding statistical properties of risk.
But not so much in terms of gold's role in the monetary system.
I would recommend reading Victor's outstanding piece on Why the US cannot return to a gold standard .
Victor: Rickards says he wants to revalue gold upwards. This is useful. But he also says he wants to fix the US dollar to a certain weight of gold. This is foolish in the long run because over time, the free market price of gold will diverge from this new official gold price. The ECB know that the US have abused their role in controlling the price of gold, and they have set up the Euro in such a way that the US cannot repeat this.
JR
Well I appreciate you pointing out to be that Rothbardian Austrian economics hold that view, I was under the mistaken impression it was the main school. :)
I still don't care about these personal squabbles tbh, but I understand it is important to some.
TF
Thanks for the new word JR: What the Hell is Praxeology?
I agree MF,
Its a shame Fekete makes such incredibly absurd public pronouncements about Mises.
The Quantity Theory of Money
It is a great pity that as a young man Ludwig von Mises embraced the Quantity Theory of Money, and has never during his long life been able to extricate himself from its clutches. For this reason he was alienated from Adam Smith’s Real Bills Doctrine, the latter being an implicit refutation of the former. In spite of this flaw I still consider him the greatest economist of the 20th century. But the mortmain of Mises cannot be allowed to guide us in the 21st century when the Quantity Theory of Money is so spectacularly self-destructing, as witnessed by the Second Great Depression that started 80 years after the first, in 2009.
http://oikonomikablog.wordpress.com/category/antal-fekete/
Unlike his teacher, Mises embraced the Quantity Theory of Money without carefully delineating the extremely narrow limits of its validity.
http://www.professorfekete.com/articles/AEFATaleOfTwoSchools.pdf
Mises himself believed in the linear quantity theory of money
https://www.facebook.com/AEFekete/info
===================
I'm also glad that you have been able to understand the distinction between Rothbardian ideology and what people like Menger, Mises and Hayek actually thought, and why the Rothbardian ideology with which you are familiar is not Austrian economics. Its good to know you realize ideology is not a school of economic thought and its silly to conflate the too.
For more, FOFOA has explored Austrian economic thought and its distinction from the ideology in such places as The Return to Honest Money. and in linking Kirzner's lecture exploring the history of Austrian economic thought in "Sushi Island Savers Saga - Part 2".
FRBNY's Statement Regarding Continuation of the Maturity Extension Program
"On June 20, 2012, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue through the end of the year its program to extend the average maturity of the Federal Reserve’s holdings of Treasury securities. Specifically, the Desk was directed to purchase Treasury securities with remaining maturities of 6 years to 30 years and to sell or redeem an equal par value of Treasury securities with remaining maturities of approximately 3 years or less. The continuation of the maturity extension program will proceed at the current pace and result in the purchase, as well as the sale and redemption, of about $267 billion in Treasury securities by the end of 2012.
=====================
Inflation or Hyperinflation?
The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!
Don't be fooled by the misdirection. QE, twist, whatever; it's not about interest rates or helping the economy recover. It's 100% about disguising and managing this uncontrollable, unstoppable mess. It's more like a broken sewer line than a water main now that I think about it.
[...]
It is a myth that QE is a result of the Fed's concern for the economic outlook or even about keeping interest rates down. That's just what they want you to be focused on, rather than the real reason for QE. Notice that QE began at the same time as the federal budget deficit overtook and surpassed the trade deficit. Not only that, but the amount of QE matches close enough for government work the difference between the budget deficit and the trade deficit.
It is also a myth that QE is sterile money creation because (as they like to say) it is all just sitting on the banks' balance sheets as excess reserves held at the Fed rather than circulating in the economy. In fact, it is ALL circulating in the economy because the USG spends that money into the economy. Government dollar emissions simply come with bank reserves. If you don't understand this, please go back and review my banking system model in Peak Exorbitant Privilege.
So if you're watching "economic indicators" and Treasury market figures and interest rate curves trying to guess if there will be more printing, aka QE3, you should instead ask yourself if the USG will cut a quarter of all its spending habits this year, or ever. That would be roughly equivalent to cutting all of Medicare, or all of Social Security, or all of defense spending, or a third of each, just to give you an idea of how much they are printing.
@AD: "VAT circle"...
I am not sure how that would work. CH has only 8% VAT and I believe Italy is 23%, so 15% would be a nice slice in any case. Many Smuggling routes north from Africa would tend to lead to Sicily and then north. It could be scrap gold from anywhere, including the Vatican. And who would me more natural to be the world's black-gold couriers than the Cosa Nostra.
@Alien: Have you seen the series the Borgias? In it the soon to be Spanish pope robs all his churches to raise gold in order to bribe his way into the Papacy. And what better market to sell it in for discretion than Switzerland.
FATCA requires than all expat Americans list all their worldwide assets to the IRS, including gold. All these AML laws and tax treaties are closing in will struggle to make capital transfers in the form of gold transparent to all the welfare state parasites. The elites are desperate to reign in this beast in order to retain control of money. I can imagine gold price discovery fragmenting into multiple markets as capital controls also affect gold markets. The London banks fought for decades to get control of the gold market in the 1800's, I doubt that they will retain that power much longer.
May I offer up simple question thrown out to the crowd?
I've read a lot about paper gold, and how there is a ginormous ratio of paper ounces to actual shiny yellow rock ounces.
I ask because it is all too murky for my shrimp brain to figure out: Is there any evidence that the ratio of paper gold to physical gold is still widening, staying constant, or shrinking?
Hi byiamBYoung,
you ask:
"Is there any evidence that the ratio of paper gold to physical gold is still widening, staying constant, or shrinking?"
The evidence is the ratio is widening at a a rapid pace.
According to the LBMA, their members sold 7,775 tonnes of paper gold in Q! 2011 - LBMA survey. Check out GLD Talk Continued:
From that LBMA survey, we can see that the LBMA had net sales in one quarter of 7,575 tonnes of paper gold. That’s a gross increase in the amount of paper gold in existence over only three months. 100:1 actually seems conservative in this light. That’s most likely FOREX use of gold as a hedge or a currency play. But even still, the BBs have to hedge their price exposure when selling that much paper gold. Without a hedge, that would be a 7,575 tonne naked short position for the BBs.
While someone is preparing to answer the question directly
prior to this comment, I have another similar question:
What name should be given to a marketplace where sellers who
neither own, nor can they obtain, in aggregate, the thing they are
selling, trade with buyers with neither the willingness nor the
capacity to pay for the thing that they are purchasing?
What credence should be given to the prices which result from
this process? Could they be accurately be called propaganda?
DP said…
“Your coffee-scented letters are certainly a lot more pleasant than a lot of the opium-tinged stenches I've woken up to around here. ;) “
Thanks. One of the reasons I spent two years lurking here before becoming involved in the comments section is it seemed that every time I had a question, it would be answered by me simply reading previous threads.
All,
I do believe that I asked for criticisms (the flamier the better) of my understanding of Freegold (cause that’s how I learn).
So I was surprised that someone would be offended on my behalf (In Ron White voice, “ON HIIIIIIIIIIIIIS BEHALF!”).
http://www.youtube.com/watch?v=TgQRgT15f9U
As it relates to this blog, I was/am looking for someone to point out holes in the Freegold Thesis as well as holes in *my* understanding of Freegold. And I don’t care how they point them out; if it is “wrong” I want to know why. If I am not understanding some aspect of it, I want to correct my mistake.
That’s why I posted my response to Robert’s points & my response to his rebuttal. I know that he has a brain & has posted some intelligent things on this blog. I’ve read them. So when I saw his points and some of them didn’t make sense to me, I asked him questions.
That is one thing that I amazed at with the Freegold criticisms. MA is just the latest example, but it seems to me that the “critics” that say they don’t agree with Freegold, don’t properly define what it is. They go & define something that is not Freegold, but they call it Freegold and then proceed to blast their version of the Freegold thesis and pat themselves on the back for being intellectually superior.
And the entire time, all they did was slay a construct in their mind that was only tangentially related to the Freegold thesis.
Milamber
Better link to LBMA survey - http://www.lbma.org.uk/assets/Loco_London_Liquidity_Surveyrv.pdf
Yes.
I'm wid ewe, DP - I love this guy.
Thank you, JR. That was very helpful.
I find it unbelievable that the LBMA gang monolithicly doesn't get what is going on. What explains their continued doubling down on this inflating of the paper gold bubble?
Is it that the profits from the ongoing paper trade are too good to pass up?
Or is it that they are trapped in the dynamic, and the only play they have is to continue the illusion?
Cheers
FOFOA, I'm jonzing tell me you got something for us this weekend - sup I got a $dub on it!
...been reading archived posts to tide me over hehe
-v
Hi byiamBYoung,
Why not, the Bullion Banks are TBTF.
So it seems that as the war switched from dollar v. gold to dollar v. euro, the euro side helped make the dollar gold market TBTF. But with a rising physical gold price/demand, the dollar paper gold market has to keep up because it’s TBTF now. Too many of those “gold” FDIC stickers out there! If those stickers fail, the dollar loses. So the “gold” market is TBTF.
[...]
So the paper gold of the bullion banks is now TBTF. Of course that doesn’t mean it can’t fail. It either fails, or the USG hyperinflates the dollar as prices rise. They are related, and each will likely cause the other almost immediately, but either one could end up being the initial cause IMO.
GLD Talk Continued
"I don't think Italy for example will ever let go of their gold."
Didn't they already 'let go' of some of their gold when they entered the EU? Doesn't the ECB now control that gold and can't the ECB sell it, post Freegold, to establish a market for Euros?
http://www.youtube.com/watch?v=FgngIN7CO1Q&list=UU8eFERtcxPZ-M3Cxkh7zhtQ&index=1&feature=plcp
rickards take on today's news.
I couldn't resist:
Are Bitcoins Becoming Europe's New Safe Haven Currency?
Victor,
Apologies for the tardiness of this reply. Despite appearances I do not usually spend a large or regular quantity of time in front of a computer. I suspect I am not alone in this.
To recap, I asked:
”So you don’t think that the Freegold realtime valuation of that (or any) currency in unleveraged physical gold, just like today’s FX pairs, will be an objective measure of that credibility?“
You replied:
”I think you are basically asking the following: Why is it that we are in the present mess?
1) Because central banks used to control the price of gold in dollars and because they artificially supported the dollar and the dollar denominated debt over all these years
2) Because credibility inflation has blinded most of today's savers who have been tempted to hold mainly (extremely high-risk) debt instruments
If you believe it was exclusively (1) then you would assume that the gold market might have a chance of correctly pricing any hidden inflation in the MoE, i.e. any inflation that is still hidden because some people are holding the MoE for the long run.
If you think it was mainly (2), then wouldn't you expect that it might reoccur?
The key question is probably whether you believe that the gold market can correctly price the hidden inflation of the MoE. I don't think there is a historical precedent. Well, in some sense, the original interpretation of Barsky-Summers is one, i.e. the real gold price today anticorrelates with future real interest rates (over some period of 5-10 years that is). But I still find any theory that needs a market to be efficient, a bit unsatisfactory.“
Firstly, in response to your first question, I agree we need to establish context for the development of the present mess. Without such a reference point we cannot distinguish assumption from fact with regards to speculations upon the future.
Why is it that we are in the present mess?
Artificial support of the dollar and by extension control of the dollar/gold exchange rate and the resultant credibility inflation of the dollar (your points 1 & 2) have caused the market to increasingly use the MoE simultaneously as SoV. But as you yourself have so clearly defined (The Many Values of Gold) the problem is really rooted here: ”The solution is now also quite obvious: Never denominate credit in a weight of gold.“ (the underlying assumption being of course that gold is the SoV, so we could restate that as 'never denominate credit in the SoV').
So... credit denominated in SoV eventually created the situation that required artificial support of the dollar which in turn created dollar credibility inflation.
How does this basic description sit with you?
Blondie,
I think I like the other order better.
I don't think it is the key that the dollar used to be paper gold. As of 1971, the dollar could have been like the Euro, i.e. they could have raised the official gold price and then let it float.
It was a political decision not to, and all the foreign dollar support was a consequence of the calamity that this created (dollar oil price going through the roof, but they couldn't let the dollar die because the U.S. were too big to fail during that period of the Cold War).
The present shape of the London gold market then was a method of supporting the dollar.
So even if nobody lends his gold and if nobody borrows any gold, it still matters how much MoE people hold for the long run.
(I agree this is *not* the most relevant question because foreign CB support for a single ever-inflating paper currency in this form is rather unlikely to reoccur)
Victor
VtC, e_r et al,
I'm not ignoring the comments you have directed my way. The financial year in Australia ends on June 30 and I have been tied up with a few urgent matters. I will respond. If not on this thread then on a later thread.
Cheers
Aaron,
Thank you for your kind words. These exchanges don't bother me.
Desperado,
I was not thinking so much about the issue of smuggling. There is a huge VAT fraud going on in Germany about scrap gold business. Just a rough description of the working principle:
http://goldblogger.de/deutschland/gesetze/altgoldbetrug-in-milliardenhoehe.html
So I dont know, if there are additional international variants possible with a combination of http://en.wikipedia.org/wiki/Missing_trader_fraud
All in all that leaves me worried a little, if those frauds will give a bad name to gold and will be something to blame gold as an instrument of fraud in the public, therefore justifying measures against gold purchases/sales.
Greets, AD
"FOFOA, I'm jonzing tell me you got something for us this weekend"
I've got a little something in the pipeline for your weekend, V. It's a bit of a mess at the moment, but I'm trying to clean it up for public consumption. ;)
Title is "The Debtors and the Savers 2012"
If you just can't wait and you wanna get a jump on it with some background reading homework, you could study this and this.
Debtors and savers update? The original was one of the articles that made everything start to click for me in 2010
I always hoped to see the ideas flushed out in more detail.
That is great news!
Oh, and don't forget to reread the original if you're going for an A!
Post a Comment
Comments are set on moderate, so they may or may not get through.