That picture is not really Jeff and Blondie. It is Jeff and Jordan from Big Brother, and yes, I am a BB fan!
Blondie petitioned me for this open forum after one of Jeff's comments quoting me. I agreed, so here you go.
_________
AdvocatusDiaboli wrote: "Blah blah blah the crazy GATA/FG assumption is somehow blah blah blah."
_________
Jeff responded: "Only a fool would lump GATA and the hard money crowd with FOFOA:
FOFOA (from Unambiguous Wealth 2): One of the biggest struggles I observe in newish visitors to my blog is that they instinctively try to reconcile everything they learned from the hard money camp—ZH and GATA being two bright stars there—with what they read here. Their effort inevitably leads to contradictions that cannot be resolved. And because ZH, GATA and the rest of the hard money camp is so much more ubiquitous than my little blog, they win by default in minds that are unable to think for themselves.
Here are a couple of the irreconcilable concepts found on this blog that noobs must either reject or ignore in order to hang on to their ZH/GATA CB thesis.
1. Remember when Aristotle wrote this? "In working on this project, I was personally shocked when I discovered that we absolutely NEEDED paper currency in order to set Gold free. In the perfect world you lapse into in your comments, everything you say is well and good. We don't live in that world, however. My biggest challenge in piecing together my proffered solution was to accept what this real world had to offer and avoid foisting my own preferences onto the world like a square peg in a round hole."
Have you ever seen anyone in the hard money camp write anything like this? Or can you imagine them ever doing so? Yet this is one of the core fundamentals necessary to understanding Freegold.
2. And FOA wrote this: "Several years ago, many gold bugs and gold advocates missed the path as the trail turned." "Yes, the war now is between the Euro and the dollar! The Washington Agreement [a Central Bank agreement] placed gold 'on the road to high prices'." "The war between gold and the dollar has been over for a while now… Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure… This paper gold market will be cashed out at prices far below real bullion trading so as to inflate further the books of the Bullion Banks,,,,,, not destroy them. At least this is how the US side will proceed."
Again, have you ever seen anyone at GATA or ZH write anything like this? Or can you imagine them ever doing so?
First let me state that Zero Hedge and GATA both provide a great service and they both do fantastic work, ZH comments section notwithstanding. It is their underlying thesis about fiat currencies and central banks in general that I have a problem with. And this is not a problem with only ZH and GATA, it is a problem with the entire hard money camp.
Their foundational thesis is that fiat currencies and the CBs that manage them are the most fundamental flaw in today's system from which all other problems flow. This directly conflicts with my thesis that using the same medium in both the primary and secondary monetary roles is the fundamental flaw from which all other problems flow. My thesis applies to both hard and easy money systems. Their thesis points to the CBs as the bad guys. My thesis holds up a mirror and says, "We have met the enemy, and it is us."
_________
Blondie petitioned: "Good one Jeff,
That FOFOA quote should be a stand-alone post on this blog, just so it can be linked to regularly. The difference in thesis really is as simple as that comment states: all our monetary problems (and the problems that those problems then cause) all stem from the single act of using the medium of exchange as a store of value. Period."
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620 comments:
«Oldest ‹Older 201 – 400 of 620 Newer› Newest»A thought-provoking post over on Turd's site:
http://www.tfmetalsreport.com/blog/4050/some-intriguing-charts?page=3
Fixing a misconception about PMs...
Submitted by bbacq on July 27, 2012 - 12:10pm.
I read it fairly frequently, even here at TFMR: "Gold has limited industrial uses". No. False. So false that exactly the opposite is true. It is uber-conductive (both heat and electricity), uber-malleable, uber-non-reactive, and therefore has all sorts of industrial uses. Ditto silver. The "problem" is simply that "it is too expensive" for the market to choose it over alternatives for these functions.
Someone earlier in this thread said "gold does not have a monopoly on being money". True. I think they suggested to go read von Mises. I say go back further, to Menger's theories of value.
For something to be currency, and to well-represent the money-concept, it must have other uses, and the more broad the applications, the more widely are these uses known and valued, the better is the good at representing value, ie to be used as currency. This is why salt and cows made good currency in the past, as there was universal agreement that they had intrinsic value (in addition to currency-value) as food-preservative and food itself.
Goods derive value from *all* their potential applications. Currency is one application. Since gold is so much better than other things at being currency (we know this simply because the market picked it over all other comers), it now derives a great deal of its value from that role. Silver derives some value from its currency-function, but more (in percentage terms) than gold does from its industrial uses. This can change, and quickly.
People should wrap their heads around the idea that PMs were selected-for as currency precisely because they are so useful in so many ways beyond the currency-use. This is an incredibly important point almost no-one seems to understand.
Think: if gold and silver were plentiful and cheap (because something else had assumed the currency-role, because the earth's crust's makeup was different, say, would our electrical-wiring still be made of copper? Duh, not a chance.
Don't believe the lie that "gold is useless - you can't eat it".
If it turns out that gold is "inequitably distributed" (or claims of ownership so muddled that there is too much uncertainty in claims) and therefore loses currency-value, silver, the princely king-in-waiting will very likely step in (ie be selected-for by the market) to assume the currency throne.
It is not impossible that thousands of years of survival-of-the-fittest market-selection is overturned by a single cataclysmic event. It happens in biology, it can happen in economics.
All the myriad new uses that are being found for silver (sewn into clothing?!!) dramatically increase the probability that it will become the next king of currencies.
Just thinkin' out loud for y'all, just sayin'...
If someone says "Yeah, but you can't eat it" then ask them if they prefer their paper with or without ink-spicing.
And if they ask "Why gold?" respond "Why tree? Why bird? Why fish?" as the questions are exactly analogous: because the market (the biosphere) evolved that way. We can only guess at "the real reasons".
So much muddy thinking and deception. So little time left...
bbacq
Turd remains almost entirely clueless. Par for the course.
MF: Turd did not write the post. A guy identifying himself as "bbacq" did.
Whatever it takes to save the Euro
Ahh
My mistake.
MF: no biggee. But as for me, I don't give a FF who writes these things; I have no respect for "authority" or "credentials" anymore. I care about the ideas, especially ideas that challenge my own inner dogmas. That's what I call FUN.
And style is important, too. For my money (i.e. gold & silver bullion, of course) this guy could have canned the "princely king-in-waiting" crap and just made his point, without it.
Alan2012
Yep. I'm with you on that. Who says something is of no importance, what they say is.
This half-assed attempt at rationalization of the value of gold shows a complete lack of understanding as to what productive utility means for a store of value.
TF
One could argue that we've already crossed that bridge, but it seems to me that "cancelling" USG paper makes an absolute mockery of the entire project as it relates to buying and selling said paper. And I can't help but see irony in such a suggestion coming from a Brit since AEP's countrymen Winston Churchill rather cheekily asserted that one could always count on The American's to do the right thing, after they had exhausted all other avenues.
Bruce Krasting seems to think that Mario Draghi's recent tough talk is hollow. After reading Mr. Krasting's thoughts I'm inclined to agree.
http://www.zerohedge.com/contributed/2012-07-28/draghi-%E2%80%93-we-will-continue-fight-until-everyone-dead
MF: what is the proper understanding of what productive utility means for a store of value?
Alan2012
Any irreplaceable utilitarian demand on a store of value stands in competition to its' other utility, being storage of value.
This is fine for most things, as long as it is not the case for all things. Some one thing needs to fill the absolute need of the role of store of value.
This is where most silverbugs lose the plot. They argue that being that silver is so irreplaceably useful, it is a boon to the value of silver in it's function of store of value.
What makes gold so good as a store of wealth is it's high stock to flow ratio, somewhere around 160 years of production. Silver is at about 30 years at present, and each additional industrial and depletion of stock in current demand lowers that ratio as the silver is used up, making silver that much more volatile and less useful as stable store of value.
The higher the stock to flow ratio, the more stable a commodities price is, and less prone to supply shock it is. This ratio is essential to the stability of a store of value. That is why today something like platinum could not dislodge gold, as it's stock to flow ratio, being under one, means it would take hundreds of years of non-use for it to be a competitor.
TF
Miners,
I have been approached by many a broker over the past year, pounding the table on putting the long miners/short gold arb on. Never did it and I often remind the brokers when they phone of their awesome idea.
Some argue that weak mining sector points toward a lower gold price. Some argue that the miners will catch up.
I am of the firm belief that Ms. Mkt. knows what is coming which is that gold miners will end up being utilities as Another/Foa said. We already see nationalization in Argentina, Bolivia and big troubles in Peru and Mali.
That is why I will never buy mature senior gold miners. Since I don't know when freegold will burst forth or even without, more nationalization will occur. I focus on jr. miners that I dont think will even exist in 6 months or less. These I take a shot on. Focusing on countries that are in the pocket of multi national interests.
Jr's that have claims that abutt and are on strike with the big boys glory holes. Obviously the assets have to be there and serious due diligence is required.
I like brazil and Colombia especially. I will generally take a position in all the little guys surrounding a major because we dont know which will be the one to be bought out initially but all will benefit from the first to be taken out.
The valuations on the jr's are so compelling that I believe consolidation in certain geographic areas is imminent.
Any miner that means to go into production over the long haul, I stay well away from.
Alan2102
Additionally we need to consider the matter of a focal point, combined with the natural characteristics of the items in question.
In storage of value, efficiency is key. When considering competition between two stores of value the one who does so best will win in the end. This is why silver lost started losing it's store of value function about 100 years ago. It was not as good as gold in doing so. The market only needs one item to fill this role.
Consider this post by FOFOA : http://fofoa.blogspot.com/2010/12/focal-point-gold.html
Now, let us look at some properties of gold and silver in relation to monetary use.
The following five are the commonly named properties a physical store of value must have : durability, portability, fungibility, divisibility, uniformity, intrinsic value.
In terms of durability, gold is almost non reactive, while silver tarnishes over time (though less so than most other metals). In this gold is clearly superior for long term storage.
In terms of portability we are looking at the transport of value with minimal effort. Looking at the periodic table of elements we find that silver has an atomic weight of 107.8682(2) g/mol, and a density of 10.49 g·cm^3, whilst gold has an atomic weight of 196.966569(4) g/mol, and a density of 19.30 g·cm^3. This means one cubic centimeter of gold weighs 19.3 gram, while a cubic centimeter of silver weighs 10.49 gram. The pricing point for silver to be just as easy to transport as gold would be 1.84 times that of gold. So if gold were $10,000 per ounce then silver would have to be $18,398 per ounce to be just as easily portable. Consider the likelihood of that, given a natural occurrence of roughly 12 times the amount of silver as gold. Gold clearly wins hands down here too.
In terms of divisibility, modern chemistry means we can divide both to the atomic level, so here they are on equal footing for all intents and purposes.
I would argue gold is slightly more fungible at this stage due to wider recognition, but for this purpose we could say they are also on equal footing.
Both also have some intrinsic value ( due to subjective valuations springing from their demand and functionality). So here too we could call them even.
Overall it is clear that gold is a more salient choice and thus would win out as focal point.
TF
Addendum. I see I listed six. Fungibility isn't an actual physical characteristic. Uniformity I skipped over. Both being elemental metals they are uniform, and here also are on equal footing.
MF: thanks for your lucid reply.
MF: "Any irreplaceable utilitarian demand on a store of value stands in competition to its' other utility, being storage of value."
Except that it is not irreplaceable. From my (limited) understanding, gold could replace silver in many key industrial applications. It is only the PRICE that has stopped it from doing so. That could change.
MF: "This is fine for most things, as long as it is not the case for all things. Some one thing needs to fill the absolute need of the role of store of value."
From where comes the idea that there must be ONE such thing only?
A better way to say this, perhaps: FOR WHOM is it necessary that there be ONE such thing only?
For me, personally, many things would serve handily as stores of value. As a saver, I feel no necessity to be vested in one thing only.
MF: "This is where most silverbugs lose the plot. They argue that being that silver is so irreplaceably useful, it is a boon to the value of silver in it's function of store of value."
I don't know about that. But it is certainly a boon to the price of silver, and probably will continue to be, going forward, until such time as the price gets so high that 1) demand is destroyed, 2) the search for replacements becomes critical (and successful). A partial replacement could include gold itself, if silver reached a sufficiently high price.
I like the idea of a stable store of value. I like even more the idea of gaining a bit of purchasing power -- not too much! -- so that I can do some cool things. :-)
@ Aron
He doesn't mean gold standard in the true meaning of the word. He is just calling a free floating gold price ( "u don't have to wait for the govt" ) along with voluntary gold ownership as a store of value a gold standard.
And in the same breath, he is embracing the medium of exchange technology that we have today. That's a big hurdle to get over in understanding freegold and he is walking himself into it.
Hi Alan2102
It seems I was not clear enough, so I will expand on some sentences.
I meant that any irreplaceable industrial demand on gold would be a bad thing for its use as store of value. I'm unaware of any Irreplaceable uses at present. Phew.
Nash equilibrium theory, read that post I linked - In answer to why only one thing. For a off the cuff reason, because if you have two stores of value competing, the most efficient one wins.
The reason to use the best thing only, is that all other things are inferior ito eg. transaction costs. Sure a lump of copper will store some value, but how much will be lost in the transaction, taking into account buy/sell spreads, transport etc, than if you had used something better like silver, or the best being gold.
That's the problem with these conflicting demands. As the price rises due to monetary demand, it impacts industrial demand. If the price falls too low, industrial demand surges and destroys stock, making it less useful for monetary demand.
Consider, even at the bottom of the gold bear in 2000, with gold as lowly priced as it ever was, there still wasn't much industrial demand for it.
TF
Tanzania tells mining companies to pay 30 pct corporate tax
DODOMA, July 27 (Reuters) - Tanzania, Africa's fourth largest gold producer, has told mining companies operating for more than five years to start paying a corporate tax of 30 percent, citing rising prices of precious metals at the world market.
"If they claim they are still making losses and can't contribute to the national economy through taxes, they should shut down their mines and leave because minerals do not rot."
MF: "The pricing point for silver to be just as easy to transport as gold would be 1.84 times that of gold. So if gold were $10,000 per ounce then silver would have to be $18,398 per ounce to be just as easily portable. Consider the likelihood of that, given a natural occurrence of roughly 12 times the amount of silver as gold."
Or if gold were $1000, then silver would have to be $1800 -- very high, but not so astronomical. Such a price may be unlikely, but is certainly not out of the question, if you study the totality of the silver situation; this requires a lot of reading. And btw: long before silver reached $1800 (probably more like $500, which is a distinct possibility), gold would start to be considered as a replacement for silver in some critical industrial applications.
But there is another, more important point: "portability" is achieved, I think, after a certain approximate threshold. I agree that gold is the best, but I would argue that the difference is not terribly significant, except in desperate situations where one is faced with having to physically carry a fortune on one's person, unassisted. Aside from that situation, silver easily achieves effective portability. The extra energy involved in moving it is insignificant, relative to the value. The same would not be true, of course, of lumber, or wheat, or etc.
I also don't consider the fact that silver tarnishes to be a significant drawback. It is a trivial matter to clean it up.
So, based on your list, I don't see much effective difference.
Alam2102
A final thought as regards : "From my (limited) understanding, gold could replace silver in many key industrial applications. It is only the PRICE that has stopped it from doing so. That could change."
Sure. However, remember that monetary demand as store of value depends on nominal pricing, whereas industrial demand depends on weight.
If you are to use gold to say electroplate wires because it is a better conductor then you need to replace every gram of silver with a gram of gold, and gram for gram gold would need to be roughly the same price (depends on how much more efficient it is, and density) for that purpose. Now taking into account the natural occurrence of gold versus silver do you see how unlikely this is?
TF
enough
"I am of the firm belief that Ms. Mkt. knows what is coming which is that gold miners will end up being utilities as Another/Foa said."
So do you believe that Ms. Mkt. (who is a clueless moron) is pricing in freegold ?
Not a chance IMO. Ms. Mkt sure isn't pricing in freegold in the treasury market or anywhere else.
Miners might never get a bounce before freegold but its not because Whitney Tilson and David Tepper are aware that freegold is coming.
"Now taking into account the natural occurrence of gold versus silver do you see how unlikely this is?"
Yes, if "replacement" meant 1-for-1 replacement in every application. But it may not mean that in all applications. As you say, it "depends on how much more efficient it is".
I'm not technically savvy enough to add much to this point. But I have heard of things called alloys, and I know they can have interesting properties, difficult to predict from the properties of the constituents. Gold has probably never even been considered for such uses, because effective alternatives have been so cheap. This could change.
MF: "Consider, even at the bottom of the gold bear in 2000, with gold as lowly priced as it ever was, there still wasn't much industrial demand for it."
Yes, and silver was priced far lower still -- at a GSR of 60:1 or thereabouts; i.e. zero incentive to even LOOK at gold in such a capacity.
Alan2102
Well then let us consider industrial use versus pricing on the points you mentioned, electric conduct and heat conduct.
Electrical resistivity
Gold : 22.14 nΩ·m
Silver : 15.87 nΩ·m
Copper : 16.78 nΩ·m
So silver is only slightly better, and gold is worse than copper.
Thermal conductivity :
Gold : 318 W/mK
Silver : 429 W/mK
Copper : 401 W/mK
Again silver is slightly better and gold is worse than copper. In this though electroplating would not be sufficient, you would need to replace a more significant portion of the copper.
Now for pricing.
Gold : $1623 per ounce
Silver : $27.73 per ounce
Copper : $0.24 per ounce
Yeah. I'm not seeing it.
TF
MF: "silver started losing it's store of value function about 100 years ago. It was not as good as gold in doing so."
The latter may be what we've been told -- but then we've been told a LOT of things that are not so. I'm not convinced.
Another narrative, of which I have insufficient depth of knowledge, holds that silver was **forced out** of the game by powerful entities, not because of intrinsic inferiority. Further, that it was forced out against the efforts of populists, fighting the money power (the elites, the 1%-ers, the "giants", of the day). A good argument against silver as money would, in my view, have to address this whole issue in historical/scholarly depth. I've yet to see such an argument, and would be grateful to be directed to one (if one exists).
Fekete provides a good overview of the history of bimetallism. Though I can't link a specific article. Google the good professor and look through his popular economics section.
The post I linked earlier by fofoa also contains some of the history. Which I will suggest a final time you take the time to read.
TF
MF: "Well then let us consider industrial use versus pricing on the points you mentioned, electric conduct and heat conduct."
Those are some of its virtues, among others. Apparently it is often electroplated onto other metals, and made into alloys. Again, it is likely that its industrial uses have never been investigated in adequate depth because the high relative price renders such investigation moot, in practice.
You may not be aware, but gold has very intriguing medical uses, about which I can post if anyone is interested. Indeed, I am just now about to purchase some gold chloride solution for self-medication. I'll probably take some of it straight, and make some of it into a colloid.
Nanoparticulate gold is also the subject of fascinating research, e.g. in relation to Alzheimer's.
Alan2102
A quick google search revealed these as two articles that contain some silver histories.
feketeresearch.com/upload/The-Validity-of-Bimetallism.pdf
www.professorfekete.com/articles/AEFCutTheGordianKnot.pdf
Remember to keep a pinch of salt handy.
TF
Alan2102
We can only work with what is real, not some future imaginings.
Talking about possible future irreplaceable uses of gold is not fruitful at this stage.
And trust me, billionaire industrialists have not worried about using a little gold in the past for research purposes, nor will they in future, even at freegold prices. So you can let go of that particular strawman.
TF
costata
I can't say that the prospect of them finding more efficient methods for extracting our gold to sell at fire-sale prices in the current $IMFS system fills me with joy.
TF
MF: I did read FOFOA's article that you linked, many moons ago, and I just reviewed the relevant passages (toward the end). With all due respect to our esteemed host, I found rather serious holes in it.
Here's an example:
FOFOA: "How often have we heard about China encouraging its citizens to buy gold and silver lately? (There's that "gold and silver" again.) But did you know that China was practically dumping its silver a decade ago? And to this day it is still a large exporter of silver. Not gold. Just silver."
Yes, China sold off a lot of silver, just as the central banks sold off a lot of their gold 12 years ago. What of it? They are buying with both hands, today, and with good reason. The Day of the Dollar is drawing to a close, and everyone can see it.
As for "not gold. just silver.": this is technically true, but misleading. China is a big exporter and NET IMPORTER of silver:
[begin quote]
http://www.theundergroundinvestor.com/2011/07/the-global-physical-gold-silver-reserves-race-is-the-new-nuclear-arms-race/
The Global Physical Gold & Silver Reserves Race is the New Nuclear Arms Race - July 21st, 2011
[...snip...]
Chinese bankers have been studying the best ways to invest in gold and silver for many years now in preparation for this global monetary war and they realize that one of the best ways to invest in PMs is to own the real thing. Furthermore, there are multiple mechanisms by which China could be secretly increasing their gold reserves out of the scrutiny of the public eye. In 2008, China replaced South Africa as the largest gold producer in the world, but nobody really knows exactly how much gold China produces or how many proven/ probable reserves or how much measured/indicated resources they own. Thus, China could be increasing gold reserves significantly on in-house production alone. Certainly we know that China is increasing its silver reserves through a policy of decreasing its domestic silver exports and increasing its foreign silver imports.
For example, last month, China's General Administration of Customs reported that its net imports of silver nearly quadrupled year-over-year in 2010 to more than 3,500 metric tons. Also of important note is the fact that in 2010, China exported 1,575 metric tons of silver, 58% less than in 2009, and imported 5,159 metric tons of the metal, 15% more than in 2009. This is a huge change if one realizes that from 2005 to 2010 China transitioned from a net exporter of 2,900 metric tonnes of silver to a net importer of 3,500 metric tonnes.
[end quote]
...............
As for the rest of the relevant passages: they seem to be written in opposition to the idea of a silver STANDARD. I am unclear as to how that relates, necessarily, to the popular use of silver as money, or to its (potential) utility as money, including virtues such as the store of value function. FOFOA frequently remarks that he does not advocate a return to the gold STANDARD, and that the virtues of gold do not at all depend on such a standard. I'm unclear on why the same would not be true of silver.
Forgive me if I am too ignorant to see what might be obvious to you.
M.
again you misrepresent my words
"I am of the firm belief that Ms. Mkt. knows what is coming which is that gold miners will end up being utilities as Another/Foa said."
Ms. Mkt knows/anticipated that mines would/are being nationalized and having their taxes hiked. Missy may not have reached this conclusion from the Freegold perspective but what Another/FOA wrote is in fact coming to pass. There is too much uncertainty/issues in investing in the miners for the likes of big capital. Are Another's or Ms mkt's conclusions so different even if they were reached from different perspective? In fact I see little difference.
Both perspectives see that the gold miners will not reap anything close to the full spread between gold's value and cost of production.
I never said Ms. Mkt knows freegold is coming just that the lady can see serious pitfalls in investing in gold miners. It wont take freegold price of gold for poor countries to take back or tax heavily what is rightfully theirs.
Ms. Mkt sees the future of the mining industry and does not like what she sees. She is not necessarily seeing freegold per se. She doesn't need to.
Alan2102
Well, perspectives differ. I thought the paragraphs at the start and the middle were the relevant ones.
The concept of focal point is key here, for understanding why one only needs one store of value. Some more reflection shows why gold is the better of the two, and why silver would lose a competition for that role.
I do not care to convince you of anything, I merely tried to answer your queries from my perspective.
Your position is your own to establish, as well as your considerations on what to store value in.
Neither China being a net exporter for a while, nor their turning net importer again seems like relevant information to me.
The role of store of value needs to be universal. Their support of silver alone means nothing.
If you can find me some (almost all rather) other central banks attaching some significance to silver, then I will start paying attention to it. Until such time silver remains an industrial metal.
TF
did someone mention silver?
MF: "Talking about possible future irreplaceable uses of gold is not fruitful at this stage."
Well, I like to look not at where we've been, but where we are going. Haha.
No, seriously: of course no one knows for sure where we're going; we can only speculate. What I see for gold is greatly increased monetary demand, possibly accompanied by much increased industrial demand, particularly medical, and all that in the face of "peak gold" supply problems. Hence, probably large or even phenomenal increases in price (in terms of the fiat-du-jour). I'm seeing the same for silver.
MF: "Neither China being a net exporter for a while, nor their turning net importer again seems like relevant information to me."
It is relevant to me, in the same way that the central banks' behavior toward gold is relevant: as an indicator (perhaps a late indicator) of a trend, or in this case I would say a sea-change. In China I see a nation highly vulnerable, over-exposed as they are to the (crumbling) dollar; they are diversifying-out as fast as they can, and that means gold, silver, rare earths, everything in sight. I would do the same, if I were they. Indeed I DID the same, years before they did! (at least as far as any of us know what they did, back in the 1990s.) I was too early, relative to China and the central banks, but it worked out OK.
Yes, I know that the CBs do not hold silver. Nor do they hold niobium. But I would be surprised if that were to persist through the dollar collapse. They, like everyone else, will be seeking anything that promises to limit the carnage, anything that is moderately plausible as a store of value. Volatility alone won't be a complete argument against a given thing. Gold has been highly volatile over the last 40 years, and yet the CBs (wisely) continue to hold it. Once again, I would expect their behavior to be a LATE indicator of the trend, or you could say the inevitability (the precursor of the trend).
There's no reason to wait around for their cue.
Thanks for the Fekete links; I'll check them out. I like Fekete, always a good read. I've got a couple of Fekete links on China and silver that you might like; I'll try to find them.
And thanks for the interesting exchange!
ALAN2102.
Two days does not a future make, certainly....
But silver has halved from it's high, sits on important trendline support. It's action when risk was on fire, thurs. and fri. was frightful.
It was actually red for most of the day fri. until the rumor mill pushed S&P into overdrive and silver got a lttle push.
As a trader, if I was long silver, from a purely objective stance, I would be worried.
I sensed complete indifference. With the strong commodity, equity and gold rally, silvers lackluster (at best) action is concerning. BTW I consider silver to be a pure commodity and gold it's own assset class completely.
I own silver. I'd like to see it do well. I own silver for a worst case unlikely scenerio. That it might be used for barter in some kind of short chaotic episode. I'm not a silver vigilante. Just observing the action (lack of it)and at least at present, silver looks dead.
I have some good contacts in the retail bullion world and the feedback I'm getting is with GSR at 59 people are not going from gold to silver but just the opposite !!!
MF: a few more things...
MF: "I thought the paragraphs at the start and the middle were the relevant ones."
The cited FOFOA essay was long, and had two major sections: at the beginning, about why money's roles must be divided (separation of SoV from UoA, etc.), and starting about mid-way through, with the heading "There can only be one", about why ONLY gold can be a store of value. I took the second section to be the one relevant to the main thing that we were discussing, which was: why only one? I did not find, in this section, much to convince me that only gold can be a store of value. It is difficult to tell if the points supposedly against silver are actually against *silver*, or if they are (as seems to be the case) against programs of artificial support for silver. FOFOA writes that "'The people' wanted silver back then (late 1800s) because it was the 'easy money' of the time. 'The people' NEVER want harder money." This is superficially a good point, until you consider that what he is really talking about is not silver, but silver with an artificial government-supported price, in a system of FIXED bimetallism.
The first of the two Fekete links that you provided (article actually by S Jaitly) gives a good account of the failure of fixed bimetallism -- the real subject of FOFOA's critique, as far as I can tell. Here's a snippet, with emphases added:
[begin quote]
http://feketeresearch.com/upload/The-Validity-of-Bimetallism.pdf
THE VALIDITY of BIMETALLISM
7th January 2010
Sandeep Jaitly
Bimetallism is often thought of as an unworkable system of monetary arrangement. In the last form that bimetallism existed prior to the `de-monetisation' of silver across the globe in the 19th century, this is certainly true. But IN ITS ORIGINAL FORM, WITH FLOATING RATIOS, IT IS A PERFECTLY VALID MONETARY SYSTEM.
[...snip...]
THE PROBLEM WAS NOT WITH BIMETALLISM BUT WITH THE MECHANICS OF ITS ESTABLISHMENT. Bimetallism is paradise so long as exchanges between the metal are free, and mints are open to unlimited tender in both metals. It is up to the people to decide which metal they prefer and there should be no hindrance from government in this choice. From a legal perspective, there was nothing lacking in having silver as the basis for money. What was lacking was the prevailing mentality that gold could and should somehow be fixed in relationship to silver. No other pairs of distinct entities have this kind of relationship forced on them. Gold and silver are no different.
[end quote]
enough: "Two days does not a future make, certainly...."
No, certainly not! Not even two YEARS, either.
enough: "silver has halved from it's high"
True enough. Volatile baby, that Ag. Up and down, both. Historically volatile, and more contemporarily, very likely manipulated. Extensive literature is available on this, none of it *perfectly* convincing -- but then what IS perfectly convincing? It's enough. The manipulation in both gold and silver almost certainly exists, and almost certainly will come to an end, possibly soon.
enough: "As a trader, if I was long silver, from a purely objective stance, I would be worried."
Who on earth would be a trader, or even a paper "investor", in this environment? That's just asking for a major haircut. Physical only!
Costata,
Re: Possibility of Fed cancelling USG paper it's holding. Here are my current 2c for this discussion:
1. All dollars printed to buy that are still out there
2. Cancelling would bring USG under borrowing limit, and more base money can be created for a while
3. Promises to Medicare, Social Security and Medicaid are still out there much bigger than anything the Fed holds.
4. Cui Bono? USG only avoids debt ceiling vote but exposes itself to major lack of confidence with professionals that understand that base money still out there. I would think it would reduce confidence in Treasuries from RoW even more.
Alan2102
I'm surprised if you have been reading long you have grasped so little.
At the start FOFOA talks about focal (or Schelling) points. I said that this was a key concept in understanding why only one is needed.
50 pounds of gold or 2100 tonnes of silver, which is more efficient at storing value?
"'The people' wanted silver back then (late 1800s) because it was the 'easy money' of the time. 'The people' NEVER want harder money."
This is in reference to another theme on this blog, the struggle between debtors and savers. The things you mentioned are irrelevant. What is relevant here is that silver was the easy money of the time, and people want easy money to repay debts in.
Today fiat is the easy money, and it is way easier than silver ever was, so silver loses that battle too.
"...WITH FLOATING RATIOS, IT IS A PERFECTLY VALID MONETARY SYSTEM."
This is perfectly true, until one considers what this actually means over time. Once you allow free floating ratios then one (silver) will lose against the other (gold) as time passes, and the more it loses the battle, the faster it does so, until eventually it becomes irrelevant as store of value. And we are back at Freegold.
The only way for silver to stay in this battle is once again artificial government support, just like every other time in history, which is a losing battle. It in inefficient and makes no sense to do, since they already have an easier money, and there won't be any lobbies on behalf of silver this time round.
TF
Alan2102
I will grant you hit upon the key reason I think China is buying silver.
Because anything physical is better than dollar promises, and they are doing their damnedest at getting out of that paper position.
TF
MF,
Neither China being a net exporter for a while, nor their turning net importer again seems like relevant information to me.
I think it could be highly relevant but not in the way Alan2012 thinks. The stockpiling of copper and aluminium for some exotic financing strategies has been discussed by a number of China watchers.
There have also been arguments advanced that this stockpiling may have contributed to the flow of big money out of China (as a way to evade capital controls).
I have posted links to pieces discussing both of these subjects in earlier threads.
Large stockpiles of copper and aluminium are very, very difficult to hide. Stockpiles of silver would not be so hard to hide. Those export/import numbers Alan2012 quoted suggest to me that silver may have joined these other metals as a stockpile target. As in, the stockpiling showing up in the trade numbers as opposed to photographs of car parks outside bonded warehouses filled with pallets of copper and aluminium ingots.
If so, it would also help to explain silver's price weakness (a stock overhang).
Re: SA gold
Apparently it will take a few years to perfect this mining technology. SA may yet secure the added benefit of gold production under the Freegold-RPG regime.
Aquilus,
IMO it depends on how the market reacted to a move like this in the short term. It might treat a cancellation like a stock buy back. An increase in the value of the remaining stock of debt on issue. Long term I wouldn't see this as anything other than another kick of the can.
I think we should be looking for more details if they are forthcoming.
Alan2102,
I did say this.....and meant it:
enough: "As a trader, if I was long silver, from a purely objective stance, I would be worried."
As I would never SAVE in silver but for a few pieces just in case and that's really not "savings" as ammo and long shelf life food I would not be defined as savings either.
I would ONLY trade/flip silver and in paper form.
@ enough
"Ms. Mkt sees the future of the mining industry and does not like what she sees. She is not necessarily seeing freegold per se. She doesn't need to. "
I take exactly nothing that Ms. Mkt (Witney Tilson, David Tepper,Philip Falcon, John Paulson,) into consideration when analyzing a market. Netflix, Facebook, Government Motors, Apple and KB homes are the flavor now regardless of fundamentals so gold miners may be the flavor in the future, regardless of fundamentals.
Oil companies have already sat infront of congress to talk about windfall profits and BS.(2007) Oil companies are also being nationalized around the world.
Ms Mkt has never got anything right before, so I don't think they are getting anything right with gold stocks now.
MF: "I'm surprised if you have been reading long you have grasped so little."
OK, I'll set aside the insult, and carry on as though we're having a conversation in mutual respect.
MF: "At the start FOFOA talks about focal (or Schelling) points. I said that this was a key concept in understanding why only one is needed."
Yes, you said that. And, to me, it did not do much to support the assertion of why only one is needed. It was a clever story, but not of convincing relevance, because there is no absence of communication. (A focal point/schelling point being "a solution that people will tend to use in the absence of communication").
MF: "50 pounds of gold or 2100 tonnes of silver, which is more efficient at storing value?"
Where did those numbers come from, and what are their relevance to our conversation?
If you are speaking of portability (referring as you are to weight, and efficiency):
I dealt with the issue of portability up thread. I said that it was, to my mind, a matter of threshold, and that the difference between silver and gold was trivial. I stand by that. If you have a comment about that, please make it.
FOFOA: "'The people' wanted silver back then (late 1800s) because it was the 'easy money' of the time. 'The people' NEVER want harder money."
MF: "This is in reference to another theme on this blog, the struggle between debtors and savers. The things you mentioned are irrelevant."
I said, in reference to FOFOA's remark just quoted: "This is superficially a good point, until you consider that what he is really talking about is not silver, but silver with an artificial government-supported price, in a system of FIXED bimetallism." What is irrelevant in that sentence?
MF: "What is relevant here is that silver was the easy money of the time, and people want easy money to repay debts in."
Yes, "easy" given the artificial government support.
MF: "Today fiat is the easy money, and it is way easier than silver ever was, so silver loses that battle too."
So, fiat wins the easy money popularity contest, over both silver and gold. And your point is...?
Fekete: "...WITH FLOATING RATIOS, IT IS A PERFECTLY VALID MONETARY SYSTEM."
MF: "This is perfectly true, until one considers what this actually means over time. Once you allow free floating ratios then one (silver) will lose against the other (gold) as time passes, and the more it loses the battle, the faster it does so, until eventually it becomes irrelevant as store of value. And we are back at Freegold."
There's nothing wrong with one metal "losing against the other". The whole idea is to allow the market to set the prices. It is very unlikely that the market will decide that both are of precisely equal value. It is also very unlikely that the market will decide that one has no value whatsoever, as you seem to suggest.
MF: "The only way for silver to stay in this battle is once again artificial government support"
Why? Or, what do you mean by "stay in this battle"? Why is it a "battle"? It seems to me that the reason this is framed as a "battle" is your conviction that there MUST BE ONLY ONE, that coexistence is impossible, and that one must annihilate the other. But to me, those are not settled matters, and hence the "battle" metaphor doesn't work.
Alan-
I see the point you are getting at. For sure, one can store value in many things. Although I think Motley Fool is absolutely correct in there being only one premier store of value (Gresham's Law), you are also correct in that silver (as with fine art, land, etc) will and does serve a role in the store of value realm to a varying degree in relationship to reference point gold. What Motley is trying to describe (correct me if I'm wrong MF) is the best store of value given human preference and that perspective of human preference is a very important distinction. All of these things such as silver and fine art have their position on the store of value continuum -- but that best store of value changes with the holders' identity (human, plant, etc).
Does this make sense? Perhaps I've added unnecessary confusion to MF's explanation.
Neither of you are going to be having a meaningful exchange in your arguments of the technicals of gold vs silver when you have not established the fundamentals. Some examination of the hows and the whys which propelled both gold and silver into becoming monetary metals in the first undercuts both your arguments.
I should add the thrust of my comment is not to distinguish between the preference of plants and humans, but rather the preferential nature of utility.
Some see gold as the best store of value.
Some see silver as the best store of value.
The difference is in perception.
We watch which metal the world's super-producers value most as it is their perception which determines our reality. Those with the most wealth to store -- they alone hold the power to determine the premier store of value.
Better said:
We watch which metal the super-organism values most as it is the super-organisms' perception which determines our reality.
And the fact the gold has a 60 year supply overhang.
...certainly helps
costata
Of course. I meant relevant as pertains to the concept of future store of value par excellence.
And, yes, that was simply my gut reaction, though of course this would take some time to perfect, which makes it a good thing...paradigm is of importance.
TF
Hey Alan2102
It wasn't intended as an insult, just an observation. In reading what is written on this blog, personal interpretation is a factor. From my point of you just seemed to be interpreting everything differently, and ignoring all the important stuff.
Those numbers were a misquote from that article. The second should also have been pounds ( and 2300 ); I should have checked.
Today the numbers are 50 pounds of gold and 3000 pounds of silver, roughly.
One mistake many make is to think like an ant. Sure, for your or my personal wealth storage there is not much more inconvenience in using silver than gold, but the moment the scale is increased it becomes a problem. Think of sovereign wealth funds, or central banks having to choose which to use, and think of the logistics involved.
Do you see why they would prefer gold over silver? Forget us shrimps. We don't matter much.
What is irrelevant about that sentence is that it doesn't address the core idea being discussed. That silver was the easy money of the time. Government support is not what made it easier money than gold, it was that already, government support in that example just made it a bit easier.
My point is, that silver doesn't win as easy money today or hard money today, hence it is irrelevant.
"It is also very unlikely that the market will decide that one has no value whatsoever, as you seem to suggest."
This is not what I am suggesting. However." Money is always an overvalued something. Usually a commodity of some sort." - FOFOA from Focal point gold
The point is that a physical store of value is overvalued relative to its functional value. The question is how this premium will accrue over the spectrum of physical store-able assets. At present silver has some of this levitation effect due to historical sentiment. I contend that this premium will be lost to gold, and that silver will have only functional use value. This is the battle I'm talking about. The battle for levitation.
Of course value can be stored in anything, paper money, silver, land, art, gold, etc.
I'm simply saying that almost all of the levitation premium on the uniform sphere will accrue to gold, because for every individual investor gold will be a better, more stable, store of value over the longer term. Silver will simply be a speculative play on possible future industrial use.
TF
Alan2102
I still think that whole article is good to read again. I reread it yesterday myself. It is long, but not so long as to make reading it an impossibility.
For some irony you may want to read the comments I posted on that article. I was vehemently arguing in favour of silver at the time. :D
TF
Blondie
Please do undercut then. How far are we going back? 2000 years? 5000?
TF
Aaron: "What Motley is trying to describe...is the best store of value given human preference"
Right. And what is "human preference"? How do we know, how WILL we know, what it is? We will know by watching.
Aaron:
"Some see gold as the best store of value.
Some see silver as the best store of value.
The difference is in perception."
YES.
Aaron:
"We watch which metal the super-organism values most as it is the super-organisms' perception which determines our reality."
YES.
Why try to second-guess it? Let it express itself. It will, it will! And I'm pleased to have a front-row seat. :-)
Costata,
Re: Possibility of Fed cancelling USG paper it is holding. A few more of my perceptions:
1. It's really not about the entire stock of existing (already sold) Treasuries. It's about their flow. And when I say flow, I mean flow OUT from the USG, that enables spending.
2. If anything like this happened I can only see it as happening because USG needs a way to INCREASE that flow. And markedly increasing the flow for all that have eyes to see, leads to...
Just my opinion, but that would not be a long enough kick-the-can strategy - it projects (for ALL to see) desperation instead of confidence.
3. Separate from the items above. Psychology. Look around. It's been 4 years of kick-the-can. Are we conditioned that more will automatically work? Have we accepted that powers-that-be CAN kick the can successfully years down the road again? Does that permeate/skew our analysis? Just saying...
Aquilus
P.S. Since tone is hard to distinguish in a post, the above are just my thoughts, not meant to be snarky.
The decision is already made; it was made a long time ago. It's expressed in the stock:flow ratio, cornering of gold, everything that is discussed here. It seems that even after the punctuation event PM bugs will be waiting for something to happen.
I recently had this discussion with survivalists who couldn't decide whether to store their value in fire bricks or bronze nails, of all things; needless to say, they didn't believe me either. . You can store your value in anything you like, but it doesn't affect the real store of value because that decision is already made.
Jeff,
IMO you nailed it. Decision made for SoV. Everyone is free to see it or create own desired reality.
MF, you need to go back to when the SoV became the MoE as well. This is the point at which the fundamental dilemma arose.
Silver found utility then in very similar fashion to what it does in Olympic medals today, because then as always there was the need for the MoE to increase in quantity as the economy it serviced grew. What better way to make a limited supply of gold go further than to make smaller denominations in another (more abundant) metal? Seigniorage was greatly enhanced when the silver was refined out of the electrum and minted into separate coins, so much so that Croesus called all previously minted electrum staters back in to the mint to do just this.
When gold is the MoE its supply is extended with silver, exactly as first done by Croesus. When gold is just an SoV, on the other hand, where is the need for silver? Note that even all the way through to the British Imperial currency system the same ratios first established in Lydia were maintained with regard to the denomination of coinage in silver and gold.
MoE needs to be flexible quantitatively, whereas SoV needs to be flexible qualitatively. Silver assists gold in the former, but not in the latter. Bimetallism is the result of gold being used as both MoE and SoV simultaneously; without the MoE function as gold's extender, silver is just another commodity subject to the same stock:flow and functional demand as all the others.
Alan said: "And what is "human preference"? How do we know, how WILL we know, what it is? We will know by watching."
How long do you figure you need to watch? Several thousand years now, and the choice has been clear to everyone else. Silver is for second place, Alan, not first, and any child can confirm that for you.
SoV doesn't give a prize for second. I understand why speculators may choose to overlook such arcane detail however, even in the unlikely event they exposed themselves to it. Don't let the truth get in the way of a good story.
Blondie
No argument from me. I was hoping for some more direct undercutting of my points though. :P
TF
MF: "Today the numbers are 50 pounds of gold and 3000 pounds of silver, roughly.
One mistake many make is to think like an ant. Sure, for your or my personal wealth storage there is not much more inconvenience in using silver than gold, but the moment the scale is increased it becomes a problem. Think of sovereign wealth funds, or central banks having to choose which to use, and think of the logistics involved."
I'm thinking about the logistics involved, and they are not impressive, even at large scale. 1000-ounce bars measure about 13x5x3 inches, or about 8 per cubic foot. A million ounces fits into 125 cubic feet, i.e. a small closet. A BILLION ounces fits into 125,000 cubic feet, or (say) a small commercial building, 80' x 80' x 20'. Not that big a deal. And since the dollar value per unit of weight/volume is lower, security is not as big an issue; can you imagine someone trying to steal that warehouse full of silver? Also, remember we're dealing with a very high GSR. At lower GSRs (which is very likely, as this whole thing unfolds) the relative problem is lessened.
MF: "What is irrelevant about that sentence is that it doesn't address the core idea being discussed. That silver was the easy money of the time. Government support is not what made it easier money than gold, it was that already, government support in that example just made it a bit easier."
That is not clear at all from what FOFOA wrote. My take on that passage is that we can conclude almost nothing from the experiences described. They all represent unnatural, artificial circumstances; nothing to do with the free market or the superorganism, left to its own devices. Why point to a manipulated situation and pretend it is natural?
MF: "My point is, that silver doesn't win as easy money today or hard money today, hence it is irrelevant."
What would "winning" as hard money mean? That gold becomes worthless as everyone flocks to silver? How preposterous. That's not going to happen. Nor will the opposite of that happen.
Alan: "It is also very unlikely that the market will decide that one has no value whatsoever, as you seem to suggest."
MF: "This is not what I am suggesting. However." Money is always an overvalued something. Usually a commodity of some sort." - FOFOA from Focal point gold"
OK, so it will have value. It will not be decimated by gold. The only question is: how much value? And the market, rather than manipulators, will I hope decide. Indeed, inevitably WILL decide, though it may take a while yet.
[...continued on next....]
[... continued from previous...]
MF: "The point is that a physical store of value is overvalued relative to its functional value. The question is how this premium will accrue over the spectrum of physical store-able assets. At present silver has some of this levitation effect due to historical sentiment. I contend that this premium will be lost to gold, and that silver will have only functional use value. This is the battle I'm talking about. The battle for levitation."
OK. We shall see. Maybe you're right. I am prepared to be proved wrong. Are you?
MF: "Of course value can be stored in anything, paper money, silver, land, art, gold, etc."
Right. And I cannot conceive of a dollar collapse situation in which all those things and more are not spontaneously "re-monetized" to a remarkable extent, some more than others. Gold and silver will run much faster than the rest of that pack, because of historical momentum, the advantages of concentration, the self-propelling greed factor as everyone piles-on (in the face of FEAR, as all the conventional "assets" collapse), etc., etc.
MF: "I'm simply saying that almost all of the levitation premium on the uniform sphere will accrue to gold, because for every individual investor gold will be a better, more stable, store of value over the longer term. Silver will simply be a speculative play on possible future industrial use."
We'll see, won't we? I agree that silver is more volatile, and is likely to have some truly wild mania episodes that (obviously) cannot be sustained. That's part of the fun! Provided you are in early, at these dirt-cheap prices. Single-digit GSR (i.e. under 10:1) is not unlikely, before this is over; and I mean at much higher gold prices. Of course I am talking only about prices for delivered physical, NOT paper.
You're right that gold is more stable for the long term. It probably will not give the same percentage gains, but it is more stable.
Everyone should have a fully-diversified portfolio, consisting of BOTH physical gold and physical silver. More the latter, if you have a taste and stomach for adventure (and capital gains); more the former, if you're looking for rock-solid security.
Or, perhaps FOFOA is right, and gold will produce spectacular capital gains, overnight. All kinds of "crazy" things are possible, in this climactic era. Be prepared for any of these scenarios.
For the record: I earnestly hope that FOFOA is right. That would be great! I've been waiting now for nearly 15 years for A/FOA/FOFOA to be right, and a couple more years is no big deal. (Though it is true that my reserve of couple-more-yearses is not as big as it used to be.)
GO FREEGOLD!!!
{...breaking out pom-poms...}
Alan2102
Speculation is not saving. You seem to be coming at it from the position of speculator. I wish you luck. I am simply looking at it as saver.
TF
M
you wrote.........
"Ms Mkt has never got anything right before, so I don't think they are getting anything right with gold stocks now."
then why are you in them? you think Ms. Mkt will have a revelation?
I have a few specific plays, not based on the future of the industry but based on near term consolidation of the industry. Very near term.
You seem to be condraticting yourself. You have investments in the gold miners yet you have no faith that the mkt understands or appreciates their worth. I ask again, then why do you own them?
best, E.
Alan2102,
Of course your opinion is as valid as any other but with these long posts, are you trying to convince others that your view is correct or trying to convince yourself?
Your points have been raised here time and again for years now.
I dont need to buy into a philosophy to choose physical gold as my savings. All I need do is observe.
Why does gold with such a limited industrial function carry such a big premium over that commodity value?
The surplus Central Banks of the world, the rule makers are choosing gold as their monetary asset.
I don't need to know anymore, believe in any philosophy. Just to observe what is happening.
Just to point out that when paper silver hit $50ish, paper gold was at $1450ish if memory serves. Question is.....will GSR snap back or just keep rising? Time will tell as you say.....cheers, E.
Blondie wrote:
disclosure: I would be in gold at this time based upon my own understanding even with no prospect of profiting from the transition, but rather as the best means to withdraw my personal capital from enabling the continuation of an inequitable system. This is how I can cast a vote that actually counts. By keeping a quantity of gold from flowing in support of a system I don't endorse. Hell, I'd be in gold now if it meant taking a loss. We need to change the way we operate.
I do concede that it was protection of my capital that initially motivated my personal quest to develop a more thorough understanding of 'money', but it has been this understanding that has both shown me how to protect it and then further to understand that it really doesn't matter anyway.
Buy and hold real gold to cripple a system that prevents people from seeing and feeling what they really are, from being able to see and feel their own value. To grasp your own value is to grasp your freedom. Gold is just the catalyst to this.
If it was not gold it would just be something else.
Wow, someone didn't take the blue pill. I really like this disclosure. It rings true with me, as I had a similar experience. My personal timeline:
1) 2007-2008. Began net-producing, but luckily resisted the pressure to save in the usual pension schemes. Wealth protection concerns. Hard to get good interest rates in the bank. High inflation (gas-prices?) at the same time.
2) 2008 crash happened. Financial shenanigans disclosed all around. Needed a way to take my chips away from an obviously crooked system.
3) Late 2008. Began reading FOFOA and friends, and started saving in gold.
Usual gold bug sites hadn't convinced me to save in gold, as they seemed to argue for a socialistic gold standard fix to the problem of paper money. Well, why should I personally do anything then? Government will correct things eventually, right?
I think Blondie's comment opens up a parallel agenda to FOFOA's normally more passive attitude to convincing others.
Once you have been convinced by the excellent writing in these pages, is it morally right to stay in paper saving, endorsing this financial system, delaying transition to something more sustainable?
And, is it morally wrong to try and convince as many savers before the transition as possible?
Well, I don't know how to convince as many people as possible. Didn't even succeed with my own family (yet), haha. Actually, this site is the best attempt at convincing people I have seen, in spite of more focus on observing and describing than persuasion and convincing!
But think about it, how can we get as many savers as possible to "cast their vote against this inequitable system"?
We have to acknowledge that Freegold is as much about removing the yoke of the $IMFS for all (genuine world improvement, h/t DP for that expression), as it is about the more immediate concern of wealth preservation! Guess some people will be more persuaded by world improvement args than by wealth preservation args.
Blondie: Buy and hold real gold to cripple a system that prevents people from seeing and feeling what they really are, from being able to see and feel their own value. To grasp your own value is to grasp your freedom. Gold is just the catalyst to this.
/Burning
Alan2102.....one more thing
I dont see the BIS and FED proposing to make silver a "tier 1" zero risk weighted banking asset.
Again, this isn't rocket science nor religion.
Blondie:
Alan said: "And what is "human preference"? How do we know, how WILL we know, what it is? We will know by watching."
Blondie: "How long do you figure you need to watch? Several thousand years now, and the choice has been clear to everyone else. Silver is for second place, Alan, not first, and any child can confirm that for you. SoV doesn't give a prize for second."
We have two planes of discussion: related, and to some extent overlapping, but distinguishable. One has to do with the abstract concept of "store of value", and the other has to do with where one should position oneself in the face of the great financial/economic conflagration that appears to be dead-ahead and inevitable.
At the end of the day, I don't care whether or not silver meets your strict criteria for being a "store of value". It would be nice if it did but, bottom line, it is not important to me.
Looking backward, all of the arguments to the effect that silver is a piss-poor store of value fade into insignificance in the face of a stark reality:
1999 silver: circa $5.00/ounce
2012 silver: circa $27.00/ounce
or even:
1960 silver: circa $.90/ounce
2012 silver: circa $27.00/ounce
Looking forward, I see silver doing that well, and much better. (INFINITELY better, in the case of a Weimar-like dollar collapse.) Like gold, it will be the great investment of this decade, and quite possibly of this century.
To put it in the most blunt, anti-intellectual terms: I don't give a murine's hindermost-parts whether or not silver and gold are thought by monetary authorities, or expert bloggers, or anyone else, to be a "store of value", and I don't care about theoretical (impressionistic, interpretative) arguments favoring one metal over the other. I do care about what is to my eyes an overwhelming fundamental case for BOTH metals, as holdings for the coming storm. I care about the bottom line result: purchasing power preservation, and gain. Gold and silver have both been great for those purposes, for over a decade, and will remain so for some years to come, whether or not they are favored by abstract/transcendental concepts of ultimate or eternal "store of value". If it pleases you to think of gold as superior to silver as a SoV, or in any other way, fine. Go for it. With my blessings.
Holding gold only is an EXCELLENT course of action. Without doubt you will be better off than 99.99% of the rest of the poor schlubs out there.* DO IT!
................
* And maybe you'll even end up insanely rich. Which would be a pity, but probably better than homelessness.
Enough: "with these long posts, are you trying to convince others that your view is correct or trying to convince yourself? Your points have been raised here time and again for years now."
OK. Hey, I keep my mouth shut for YEARS at a stretch, and probably won't be saying anything further for a year or more. But every now and then, it is fun to jot down my current thoughts and "take". If others find some value in them, great; if not, c'est la vie.
You don't ask FOFOA about why he writes such long posts, or whether he is trying to "convince himself", do you? Hopefully, his attitude is the same as mine: jot down current thoughts and "take", and if others find some value in them, great, and if not......
Alan2102
Fwiw I expect silver to roughly keep it's current purchasing power. Oh it may lose 50%, but hey, compared to most other things it should do well enough.
TF
Enough: "I don't need to know anymore, believe in any philosophy. Just to observe what is happening."
Yes, I feel the same way, mostly.
My man, stick to your guns. HOLD PHYSICAL GOLD. You cannot lose.
Enough: "I dont see the BIS and FED proposing to make silver a "tier 1" zero risk weighted banking asset."
True. And I would not expect them to, as long as the system is still more or less intact. That could change, as things deteriorate. But regardless: the BIS' words and policies, at this moment, represent good, but incomplete, guidance as to what is best for you personally. The BIS is not likely to endorse reserves of .223 ammo, either, and yet it might be a good idea for you to lay-in a supply. Your needs, and Central Banks' needs, may (and do) vary quite a bit.
This...
"...is it morally right to stay in paper saving, endorsing this financial system, delaying transition to something more sustainable?"
conjures up Charlie Munger stood on his head. Quite pleasing imagery.
ZH is pointing out that there are more than the usual deadly land mines littering the landscape (say that three times fast) come September. The key quote for our purposes is...
"And how long until the EUR is currency only by decree, when even the blindest of the blind realize that the ECB's balance sheet has a massive capital shortfall, that can only be held together by more printing."
Au contraire, Tyler, while September does indeed sound like a particularly challenging month, the capital shortfall can be remedied by other means.
Alan2102,
My assumption is that we will not have a global "fall of Rome" and the torch wielding little guy will not determine the future of the global monetary system. That the Giants if you will, surplus Nations/CB's of the the world will adapt, keep control and in fact already have a plan for this. It is clear to me that that plan incorporates gold and not silver.
Do I see the possibility of things unfolding slightly differently than Another/ FOA/ FOFOA.....yes
I could see the possibility that Gold reserves of the PIIGS could be used as collateral to lower their borrowing costs idf all else fails. Of course the higher the value of the collateral, the more and cheaply they can borrow.
I see the possibility that the gold button is pushed before $HI. Not saying it will, just that it might.
Certainly TPTB moving gold to a top tier asset within the current system is puzzling if the powers did not want gold back in the current system.
But this is still all about gold, not silver. Your arguement sems to be that the BIS and FED will be over run by torch wielding mobs and silver will rise as the peoples choice.
Even if the FED and BIS were burned to the ground, the Surplus Nations of the East are hording gold. They'll call the shots in that case and it's still gold as the winner.
I would really like to hear your view on platinum? It's now $400 cheaper vs gold. Is this an anamoly too? Or is gold just running away from all other "PM's" which is what I observe. Best, E
Enough: "Even if the FED and BIS were burned to the ground, the Surplus Nations of the East are hording gold."
Gold, and silver. Bigtime. Which makes perfect sense.
I'll post some snippets from Fekete on that, if you'll forgive me one more long post.
Enough: "I would really like to hear your view on platinum? It's now $400 cheaper vs gold."
I have not studied platinum, but I'm sure it is a fair buy right now. ANY physical thing of enduring and liquid nature is a good buy right now. It probably won't give the big purchasing power increases that we will get with gold and silver, but it will at least prevent disastrous losses. Same with base metals, rare earths, etc. Its all good.
But only gold and silver have achieved coveted and internationally-recognized status as official Alan2102 Tier 1 Zero Risk Weighted Personal Survival Assets. :-)
Fool: I just have to say thanks for stepping in and answering the Silver questions. I passed that road long ago with help from this blog (and costata) and it's easy for me to think, 'Follow in the footsteps of Giants but beware because they are stepping over Silver'. However your points once again remind me why I switched metals.
That and you have currently saved JR from doing his magical searches.
Blondie:
From a purely personal perspective, I hope this change in avatar
is a "one time only event". Perhaps I have become too dependent
on the Clint Eastwood image. My bad. But, if you are to remain
consistent, then the avatar at The Flow of Value must change as
well. Have you really considered all the ramifications that would
ensue?
Indenture
Glad if you took something from it.
TF
enough, wrote:
"I see the possibility that the gold button is pushed before $HI. Not saying it will, just that it might.If the U.S. acts as the catalyst for a physical only market"
If the U.S. acts in that role, as costata and VTC seem to be leaning towards presently, then it seems to me that it would be, at least in part, if not entirely, for the purpose of avoiding the horrors of HI.
Edwardo
From what I know costata holds that us HI will happen regardless. I tend to agree.
Them not hyperinflating means they will need to repay their debts and obligations. I'm not sure that is possible, even if they use all their gold at freegold prices.
Hyperinflation gets rid of their debts without losing their gold, or default. I think we can accept it as inevitable in any scenario.
TF
I wrote:
"I'll post some snippets from Fekete on that [China and silver], if you'll forgive me one more long post."
Would this be considered spam? If yes, I'll refrain. [will stop back in 3-4 hours for reply]
Well, Fool, if it comes down to the U.S. repaying its debts and obligations- which no one ever has (except, at best, via soft defaults) when the debts reach a certain level of GDP- in order to avoid HI, then HI is, indeed, baked into the cake.
Anyone....
Why are the FED and BIS aknowledging gold as a core bank reserve asset? Why are they pushing gold up the monetary ladder?
One day Bernanke is saying to Congress that the Treasury owns gold purely out of "tradition" and then a few months later the FED is proposing it as a core tier 1 zero weighted bank asset. If I understand correctly it would only be for certain banks with lower capital thresholds, but still.....
Something's up.......
Could there be some kind of official "tender offer" for physical gold coming in order to avoid $HI?
Please in as simple terms as possible if the question is worthy of response.....thanks
Can the U.S. avoid HI? Let's play with some scenarios...
In any case, they need to get rid of their international debt. Rather than devaluing the dollar relative to goods and services both internally and externally (or wait until the market does it or even actively trigger such a market event), they could somehow repudiate their external debt, for example, enact capital controls right away and make eurodollars different from real dollars. The Chinese, Japanese, Koreans and many others would be upset, but would obviously not be able to invade and collect.
In such a situation, the old (euro)dollar would be almost worthless, and they would immediately force oil in particular to sell for gold, for euros or for some currency/gold/other commodity basket.
In this situation, the U.S. need a new currency (New Dollar) asap in which they can conduct international business. And this New Dollar must be trusted. I don't think this would work without actually shipping a reasonable amount of physical gold abroad if they want to buy something internationally. So they could try to find an equilibrium for the gold value of their New Dollar and, say, the USG/Fed might sell gold for new dollars at >$30000/oz in today's purchasing power. Fine. Would probably work internationally, at least for a while.
Then the U.S. would be faced with the problem discussed here so often that once this loss of confidence in the (old) dollar has happened (irrespective of who has triggered it) they would have to fund their trade deficit more or less with gold as long as necessary, and otherwise get rid of their trade deficit asap.
Externally and in real terms this isn't very different from what they would face in an HI scenario.
Internally, how could they transit from the old dollar to the New Dollar? They could, for example, decree that every citizen can exchange $1000 at the rate of 1:1, that salaries and prices are initially converted 1:1, but that all savings balances, bonds, debt, etc. are exchanged only 5:1. Something along these lines which would take care of the excessive domestic private debt as well.
Internally, this would be sort of a bureaucracy run controlled HI. Externally, it would be FG.
The main technical problem is that you would probably get the parameters wrong and would get all sorts of funny side effects (just as the IFMS has).
But the major obstacle is a political one. In this scenario the USG are quite obviously the bad guys, both internationally and domestically. It would be much more elegant and much more politically acceptable if there was some unavoidable, unforeseen disaster that would have the same effect.
This is why I have asked who or which event would be the scapegoat for the loss of confidence in the dollar. Are they starting to set up a scapegoat for later use? At this point, this is not at all obvious, isn't it?
The only scapegoat around is what's know in the financial press "the Euro crisis" (which is of course rather a government debt crisis). But that one doesn't work for a collapse of confidence in the dollar. So?
Victor
Can the U.S. avoid HI? Let's play with some scenarios...
In any case, they need to get rid of their international debt. Rather than devaluing the dollar relative to goods and services both internally and externally (or wait until the market does it or even actively trigger such a market event), they could somehow repudiate their external debt, for example, enact capital controls right away and make eurodollars different from real dollars. The Chinese, Japanese, Koreans and many others would be upset, but would obviously not be able to invade and collect.
In such a situation, the old (euro)dollar would be almost worthless, and they would immediately force oil in particular to sell for gold, for euros or for some currency/gold/other commodity basket.
In this situation, the U.S. need a new currency (New Dollar) asap in which they can conduct international business. And this New Dollar must be trusted. I don't think this would work without actually shipping a reasonable amount of physical gold abroad if they want to buy something internationally. So they could try to find an equilibrium for the gold value of their New Dollar and, say, the USG/Fed might sell gold for new dollars at >$30000/oz in today's purchasing power. Fine. Would probably work internationally, at least for a while.
Then the U.S. would be faced with the problem discussed here so often that once this loss of confidence in the (old) dollar has happened (irrespective of who has triggered it) they would have to fund their trade deficit more or less with gold as long as necessary, and otherwise get rid of their trade deficit asap.
Externally and in real terms this isn't very different from what they would face in an HI scenario.
Internally, how could they transit from the old dollar to the New Dollar? They could, for example, decree that every citizen can exchange $1000 at the rate of 1:1, that salaries and prices are initially converted 1:1, but that all savings balances, bonds, debt, etc. are exchanged only 5:1. Something along these lines which would take care of the excessive domestic private debt as well.
Internally, this would be sort of a bureaucracy run controlled HI. Externally, it would be FG.
The main technical problem is that you would probably get the parameters wrong and would get all sorts of funny side effects (just as the IFMS has).
But the major obstacle is a political one. In this scenario the USG are quite obviously the bad guys, both internationally and domestically. It would be much more elegant and much more politically acceptable if there was some unavoidable, unforeseen disaster that would have the same effect.
This is why I have asked who or which event would be the scapegoat for the loss of confidence in the dollar. Are they starting to set up a scapegoat for later use? At this point, this is not at all obvious, isn't it?
The only scapegoat around is what's know in the financial press "the Euro crisis" (which is of course rather a government debt crisis). But that one doesn't work for a collapse of confidence in the dollar. So?
Victor
This may be quite interesting for the China watchers:
http://www.macrobusiness.com.au/2012/07/will-chinas-regions-repeat-the-big-bang-stimulus/
Regional governments are apparently doing investment roadshows with the major banks as their target audience.
The writer of this piece is interpreting this as an alternative way of delivering a massive stimulous to China's economy without the central government drawing criticism for the effect on bubbles such as RE and/or malinvestment.
I think there is another way to interpret these roadshows i.e. a response to credit rationing. Note that China has been moving to relax controls on banks and allowing them more latitude in setting their interest rates.
Competition among regions for funding might reduce the malinvestment by introducing some competitive rigour into the project selection and funding process.
IMHO this is a perfect example of government shooting itself in the foot - FATCA.
https://nestmann.com/blowback-from-u-s-role-as-global-tax-cop/
In my opinion this reflects a backward looking perspective to the days when nobody could do business on a global scale and ignore the US market. Here's a snippet from the post (my emphasis):
Foreign direct investment in the United States has declined nearly one-third since 2008. How many wealthy investors will want to invest in the United States when they learn that 30% of the gross proceeds of their U.S. investments might be confiscated upon repatriation?
Vote 1. Alfred E Neuman for President!
A Bit Of Oil For The Discussion
Interesting analysis from a prominent member of the PO/PCO camp.
http://www.financialsense.com/contributors/gail-tverberg/an-optimistic-energy-gdp-forecast-to-2050-based-on-data-since-1820
This snipppet caught my eye:
It is interesting to note that this regression line seems to indicate that with flat (0.0% growth) in total energy, energy per capita would decrease by -0.59% per year. This seems to occur because population growth more than offsets efficiency growth, as women continue to give birth to more babies than required to survive to adulthood.
Bucky Fuller did some interesting analysis which showed a strong, long term correlation between rising electricity supply and declining birth rates. His research showed that once the per capita supply of electricity reached a certain point then population increase began to flatline.
I suppose one inference we could draw from Bucky's research is that once people can tune into BB they become less fanatical about horizontal folk dancing.
A rant from David Galland that contains a few interesting snippets:
http://www.zerohedge.com/news/guest-post-bypassing-government-roadblocks-your-personal-prosperity
On Obamacare -
"If you think health care is expensive today, wait until it's free."
And this gem from President Obama -
"If you've got a business, you didn't build that. Somebody else made that happen."
ORLY!!!
And this for our favourite Yeti -
.... the US government's activities as a share of GDP have gone from well under 10% at the beginning of the last century to over 40% today – and will go over 50% by the time Obamacare is fully implemented...
The Little Consumption Engine Who Could (deliver a face peeling HI).
BTW that last snippet is my main reason for posting this comment. Another trend converging on my 2013 to 2015 "window of opportunity" for a system reset through gold revaluation AND hyper-inflation. IMO one without the other doesn't capture the long term benefits for Team America.
$10 Trillion M2 Is Now In The Rearview Mirror says Tyler D.
http://www.zerohedge.com/news/10-trillion-m2-now-rearview-mirror
So is HI replies the Yeti from his lair deep in the forest.
Where is all this bugs bunny coming from? asks Uncle costata.
Enough wrote:
"One day Bernanke is saying to Congress that the Treasury owns gold purely out of "tradition" and then a few months later the FED is proposing it as a core tier 1 zero weighted bank asset. If I understand correctly it would only be for certain banks with lower capital thresholds, but still....."
I wasn't aware that The Fed had proposed that gold should be designated a Tier 1 asset. To my knowledge the World Gold Council put forward gold to function as Tier 1. Would you please provide a link showing The Fed's advocacy of that position.
Costata,
The most charitable view regarding President Obama's comment is that Obama was trying to say something reasonable, but botched it quite badly. The other side in the race will use it against him every chance they get.
http://seattletimes.nwsource.com/html/politics/2018759646_apusobamaromneybuildingthat.html
Get those garden gnomes off the front lawn pronto. Incidentally this might be an ideal business opportunity for out of work debt deflationists:
Government Grants for Starting a Trucking Business
http://www.ehow.com/about_5817562_government-grants-starting-trucking-business.html
Everyone's getting in on this ground floor business opportunity:
Nassau to buy 40 new clean dump trucks
http://libn.com/2009/09/10/nassau-to-buy-40-new-clean-dump-trucks/
Nassau County has received a $4.3 million grant from the federal government that it plans to use to buy 40 new clean-energy dump trucks....
... “We are committed to making Nassau County a model for green energy and environmentally-friendly practices,” Suozzi said in a statement. “This funding is so important because it gives us the resources we need to use alternative sources of energy and cleaner fuels in all of our County vehicles.
It will go a long way in helping us to capture Federal contracts for the dumping of cash on front lawns in Nassau County*.”
*Actually he didn't say that bit in bold. That was just Uncle costata being a bit of a scamp. This is what he actually said:
..."It will go a long way in reducing harmful emissions and foster healthy living in Nassau County.”
But I would still get those garden gnomes to higher ground anyway ;).
And for those who are interested in where the money is coming from for these grants:
http://www.recovery.gov/Pages/default.aspx
RECOVERY.gov
TRACK THE MONEY (says their masthead LOL).
Hi Edwardo,
I assumed that it was either quoted out of context or a slip of the tongue but I couldn't resist quoting it. I think governments really do believe that businesses simply start themselves somehow. Hence the "birth death" element of the USG employment statistical approach - like a phoenix rising from the ashes.
http://en.wikipedia.org/wiki/Phoenix_%28mythology%29
The Roman poet Ovid wrote...Most beings spring from other individuals; but there is a certain kind which reproduces itself. The Assyrians call it the Phoenix....
The US government (and others) call it the Small Business. No matter how many of them they kill other small businesses rise up to replace them.
I wrote: ”...I would be in gold at this time based upon my own understanding even with no prospect of profiting from the transition, but rather as the best means to withdraw my personal capital from enabling the continuation of an inequitable system...“
in reply to which burning fiat said: ”I think Blondie's comment opens up a parallel agenda to FOFOA's normally more passive attitude to convincing others. Once you have been convinced by the excellent writing in these pages, is it morally right to stay in paper saving, endorsing this financial system, delaying transition to something more sustainable? And, is it morally wrong to try and convince as many savers before the transition as possible?”
I’m not trying to convince others, nor advocating such. I’m merely pointing out that as my understanding evolves so to do I strive to act accordingly. Simple respect dictates I allow others the same freedom. I don’t see how any attempt at convincing another does either party a service. Should another ask as to the understanding that informs one’s actions, one can impart the requested information to the best of one’s ability, but the actual understanding is a voluntary act on the other's part. You can lead a horse to water etc.
IMO, an unwanted attempt at persuasion is an expression of force; to coerce an involuntary act. This is where the state sprang from.
Victor said: "It would be much more elegant and much more politically acceptable if there was some unavoidable, unforeseen disaster that would have the same effect [revaluation]."
From my point of view the most elegant and politically acceptable avenue would be a growing individual understanding and acknowledgement that today's imbalances are the direct result of a couple of unwitting mistakes made during the evolution of money; the result of a systemic flaw for which no one individual or nation can be held responsible and indeed could not even be seen until very late in the game. This does not look at all likely at present, however it is the most elegant.
Of course such understanding and acknowledgement, when seen in the proper perspective, completely undermines the state and its central planning. Catch-22 for the state.
Costata
"The writer of this piece is interpreting this as an alternative way of delivering a massive stimulous to China's economy without the central government drawing criticism for the effect on bubbles such as RE and/or malinvestment."
For all the heat that govts and central banks take for bubbles, some of the blame has to lye in the population that is too dumb to buy gold. A good heavy dose of hyperinflation is what the world actually needs.
burningfiat: "how can we get as many savers as possible to "cast their vote against this inequitable system"?"
Such a course of action is a continuation of the system. Equity comes from understanding, and understanding is voluntary. Coercion creates inequity.
Let them arrive at their own understanding, and the freedom to act accordingly.
One could attempt to make the perspective clear and concise so that it is there for those who look, which is done by continuing to evolve one's own perspective. The attempt to put it into your own words does both.
Lol
Check out some of Stratfor's attempt at economics..
"Greece, Italy, Spain... There is a reason it's Europe's southern nations that are facing the worst of the financial crisis.
The dense river network in northwestern Europe (not to mention other infrastructure) affords that region much lower transportation costs. Thus, Northern nations have a significant competitive advantage in exporting. The one trick Southern nations had up their sleeves—devaluing their currencies to make their exports cheaper—ended with the adoption of the euro.
The result? An Italy with a national debt at 120% of GDP, and a Germany with a trade surplus -- negative outlook credit rating or not."
^Stratfor , What about Germany never having a savings rate in the single digits ?
Blondie,
Thanks for the reply. Great thoughts.
Just to clarify my point: I'm not talking about coercing people to understand. I know that's not possible. I'm not even talking about leading horses to the water. Maybe I am talking about putting up a better neon-sign announcing that nice water is to be had here! The sign could even announce that the water is both world-improving and wealth-preserving.
ECB and BIS are going about this pretty silently. Not much Freegold PR for the general population there. You have to be a persistent bugger (just like this lot) to find a place such as this, where an understanding can (but not necessarily will) grow.
The way I hope to see this develop is that more and more savers are saved from paperbuggerdom (like Blondie and me), by having easy access to this information. Preferably before HI or Freegold transition.
Like I said, FOFOA has already done a great deal toward this. Where would you be if FOFOA had decided to stay silent after he had read and understood the material in the archives?
/Burning
If we get the POG 2333$/oz. FOFOA mentioned, then I'm fine dear uncle costata. (btw funny # FOFOA throwed up with that prediction, 23 33 ;-)
"Costata said: Wouldn't this be an interesting kick of the can:
We can also argue about another sneaky idea. If the central banks are able to buy fistfuls of bonds right now without a ripple effect on inflation – and investors are still rushing into the safe havens, Bunds, Gilts, Treasuries, JGBs, etc – why not just quietly write off those central bank holdings and seize the moment to slash public debt by non-inflationary fiat?
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100019130/the-collapse-in-us-manufacturing-and-services-shows-that-things-could-be-about-to-get-a-lot-worse/
Food for thought. "
Big thanks to Jeff, victorthecleaner, Texan, holdinmyown, M & all who answered my question. You guys really opened my eyes as to how it could work. I hadn't considered the possibility of using the debt&contract collapses to counterbalance the leaks of channeling the inflation into gold.
@Michael dV : i just have to give a shout out to your response about how people regularly drop by and say people here are a cult or listening to a prophet. Though obviously i have a lot of respect and gratitude for Fofoa the many other wise people, I felt your words totally described how I feel about this, and from the comments of many over long timeframes I am reassured that overall people here are of a critical thinking persuasion and tend to think in probabilities, and constant analysis and fitting new data with old assumptions, willing to discard the broken inconsistencies. I'm referring in particular to your brilliantly written passage here, which I feel just MUST be repeated as it's so brilliantly written and so well thought out:
"Most on the sire however have followed fofoa's writing as the development of a thesis using historic information but combined with other components like logic and probability theory and math. When they go to sleep they may worry that they do not understand a Nash equilibrium as well as they should or that they wish they had more information about actual central bank gold holdings or the components of the derivative markets. They do not loose sleep worrying about whether they are believing the right guy."
Edwardo......here
sorry, FDIC proposal
217.131 Mechanics for Calculating Total Wholesale and Retail Risk-Weighted Assets.
(i) A bank holding company or savings and loan holding company may assign a riskweighted asset amount of zero to cash owned and held in all offices of subsidiary depository institutions or in transit; and for gold bullion held in a subsidiary depository institution’s own vaults, or held in another depository institution’s vaults on an allocated basis, to the extent the gold bullion assets are offset by gold bullion liabilities.
page 57 in below
http://www.fdic.gov/news/board/2012/2012-06-12_notice_dis-d.pdf
Speech by Mario Draghi, President of the European Central Bank
I asked myself what sort of message I want to give to you; I wouldn’t use the word “sell”, but actually I think the best thing I could do, is to give you a candid assessment of how we view the euro situation from Frankfurt.
And the first thing that came to mind was something that people said many years ago and then stopped saying it: The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now – and I think people ask “how come?” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.
http://www.ecb.int/press/key/date/2012/html/sp120726.en.html
Edwardo....here's a better link....bold type on page two
http://www.fdic.gov/news/news/financial/2012/fil12027.pdf
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 agen
Willem Buiter says that it is now 90% likley that Greece will exit the Euro. Yet Mario Draghi says the ECB will do "whatever it takes" to hold it all together. Including, presumably, a front lawn dump.
FOFOA has been quiet on this issue lately, which I assume means that he has not changed his position. I guess we'll probably know in the next six months whether this bumble bee is going to keep flying.
Robert sez...
Yet Mario Draghi says the ECB will do "whatever it takes" to hold it all together. Including, presumably, a front lawn dump.
Why would you presume this, and how would this "hold it all together"?
Maybe instead "whatever it takes" includes the often-discussed nuclear option.
Yes M,
For all the heat that govts and central banks take for bubbles, some of the blame has to lye in the population that is too dumb to buy gold.
Their [HMS] foundational thesis is that fiat currencies and the CBs that manage them are the most fundamental flaw in today's system from which all other problems flow. This directly conflicts with my thesis that using the same medium in both the primary and secondary monetary roles is the fundamental flaw from which all other problems flow. My thesis applies to both hard and easy money systems. Their thesis points to the CBs as the bad guys. My thesis holds up a mirror and says, "We have met the enemy, and it is us."
Draghi said he will 'do whatever it takes to save the euro' not Greece or the debt. So we can't presume a front lawn dump yet, he may still separate the MoE from the SoV to save the euro and still be true to his words.
Okay, enough. I'm familiar with the FDIC proposal.
Jeff, not that I want to stand in the village idiot's stead, but were he a bit more adept in his use of the English language, and were he still allowed to post- thankfully he isn't- said idiot might have observed that it is debatable whether or not The Euro is less a bumblebee than just a bumbling bee.
And speaking of bumbling, it's neck and neck between Mittstake Romney and Barack Dohbama. I think Obama is one of the most defective Presidents we've had in modern times, and that is really saying something. His psychology, no surprise, is at the root of his problems as a President, and his psychology is that of someone who has an identity crisis with respect to every input that matters where identity is concerned.
The speech about business is a case in point. He's so deeply conflicted on the matter that his message managed to be both pro and anti-business simultaneously. It's why BO's Presidency has been so easily co-opted by the banking sphere, he doesn't really know what or who he is supposed to be and so he is easily moved about by those with the most access and influence. He's the biggest somebody in the world, but as hollow as a steel drum in my view. Clinton was a bit like that as well, as was Bush jr. No much there, there. And all, of them are essentially fatherless children. I think it's all U.S. politics can bear these days. Pardon the OT rant.
Edwardo,
Eloquent OT rants should be readily pardoned in these page IMVHO.
Cheers
these page(s)
plural
poopyjim,
Because the trend seems to be headed towards the front law dump, and because I do not see any evidence at all that anyone is moving towards the nuclear option as a proactive policy choice.
Did you see this from ZH today:
Goldman's ex-employee Mario Draghi is in a box: he knows he has to do something, but he also knows his options are very limited politically and financially. Yet he has no choice but to escalate and must surprise markets with a forceful intervention as per his words last week or else. What does that leave him? Well, according to Goldman's Huw Pill, nothing short of pulling a BOJ and announcing on Thursday that he will proceed with monetization of private assets, an event which so far only the Bank of Japan has publicly engaged in, and one which will confirm the world's relentless Japanization. From Pill: "Given the (to us) surprisingly bold tone of Mr. Draghi’s comments last week, we nevertheless think a new initiative may well be in the offing. We have argued in the past that the next step in the escalation of the ECB response would be outright purchases of private assets. Acting in this direction on Thursday would represent a significant event. We forecast the announcement of measures to permit NCBs to purchase private-sector assets under their own risk to implement ‘credit easing’, within a general framework approved by the Governing Council. This would allow purchases of unsecured bank debt and corporate debt, enabling NCBs to ease private-sector financial conditions where such support is most needed."
http://www.zerohedge.com/news/europe-japan-goldman-expects-ecb-become-boj-purchase-private-assets
Isn't this the most likely next step?
Regarding the Draghi comparison between the Euro and
the bumblebee, I believe his statement may be more subtle
than his listeners appreciate. He says that, technically, the
bumblebee should not be able to fly, and yet it does. This
is technically false, because the analysis which gave rise to
the theory that the bumblebee could not fly ignores the
phenomenon of "dynamic stall" which creates a powerful
vacuum above the rapidly oscillating airfoil of the wings.
The "extra lift" which this partial vacuum exerts is what
keeps the bee afloat in a sea of air.
So what would be the analog between the bee and the Euro
which could keep that "doomed experiment" afloat in a sea
of sovereign currencies with the wonderful capacity to
devalue competitively against one another? More precisely,
what is the analog to "dynamic stall"? Gold? Anyway, that's
my interpretation of a perhaps subtle shot across the world's
bow that the nuclear option is now potentially in play.
On another note, I think that if China had purchased 300 tons
of gold on the open market, (about $15 billion) there would
have been a lot of comment here at FOFOA. Well, they didn't,
but while I was away (about a week ago) they did spend $15 B
on Cenex, a large Canadian oil producer with interests from
Yemen to the North Sea to Canada and the northern USA. I
have as yet seen no comment on this here. Thoughts?
@Robert
The ZH article is pure speculation.
Of course the ECB will print to the extent needed to preserve the system. However, this does not necessitate the monetization of all debt instruments. Leave that one to the US.
Exactly, Woland. Reading too much anglonews/ZH spin makes people think the ECB is going to act like the Fed. That ECB link sounds to me exactly the opposite, though.
Good to see you posts Woland,
Thoughts?
The US saber rattles over Nexen as the SEC goes after a HK based firm for alleged front-running and Schumer is already sounding off.
It would, however, appear the Treasury will support this deal (and lean on Canada to do the same):
Geithner and the Treasury Department chair the Committee on Foreign Investment in the U.S., or CFIUS, an interagency board that reviews deals for national security implications. Cnooc, or the China National Offshore Oil Corp., is a government-owned company.
The deal is subject to CFIUS review because Calgary, Canada-based Nexen has substantial drilling operations in the U.S. portion of the Gulf of Mexico.
TEXT
If I understand correctly, after the Freegold transition we in the USA will have two separate "currencies" - the dollar (MoE) and gold (SoV). People will save in gold and use the dollar for daily transactions.
Also, from what I understand reading here, there will be no sales tax and no capital gains tax on gold sales. People will freely exchange their gold for dollars and vice versa on the free market without taxes discouraging gold transactions. My understanding is that the government will not tax these transactions because they won't want to chase gold out of the country to more gold-friendly nations. They will want to encourage citizens to hold gold because all of the gold in a country is useful in balancing the international trade accounts.
If that is so, doesn't that eliminate the ability of the government to tax estates and gifts? If my children inherit my stash of gold coins, how is the government to know of that and to levy an estate tax on them?
If after the transition, my relatives who didn't listen to my arguments for Freegold are completely wiped out financially, and I give them some gold coins to make them whole, how is the government to know I gave them those coins and tax them on their value as a gift?
Wouldn't Freegold be the dream of every drug smuggler and money launderer who could simply agree to pay their partners with gold coins - which do not need to pass through audited bank accounts, but contain massive value in very small volumes - and which have no tax on them and are freely exchangeable for currency?
In short it seems to me that the Freegold scenario denies the government a power that it guards very jealously: the ability to track large amounts of money/value and to tax it when it is gifted or passed in an estate. I think it's a little hard to believe the government will give up that power. Yet how would they hold on to it if gold is not taxed?
Thanks in advance for your thoughts on this.
Robert -
The big picture is that ECB has a single mandate of price stability (2% inflation target). They would do "whatever it takes" to avoid deflation and they would do enough to ensure inflation doesn't run out of control.
IMO, a central bank is trying to indirectly control a non-linear moving target (money velocity) and therefore they'd never meet this target, they'd simply use the tools to make sure they are close to it as much as possible.
A central bank with a dual mandate on the other hand is trying to control this non-linear moving target which has opposing directions of pull (price stability vs. employment), so there's more uncertainty in policy decisions.
Woland, JR
I found Jeff Rubin's thoughts on the CNOOC-Nexen deal worth a read.
MnMark,
How is that different from now?
How can the state know if I give my payed-for-in-cash gold coin (which BTW was lost in a boating accident long time ago) to a family member?
MnMark wrote,
"In short it seems to me that the Freegold scenario denies the government a power that it guards very jealously: the ability to track large amounts of money/value and to tax it when it is gifted or passed in an estate."
That comes very close to being the best argument I've heard for freegold and as burningfiat points out, has always seemed like it might be a good reason to stack.
Midnight Gardener,
Always had a bit of trouble with the inheritance/estate tax. It's like the state's way of saying a final fuck you.
You've paid income tax/VAT/property taxes and all that your whole productive life, and in spite of that managed to scrape a little bit together for your heirs. Maybe it will feel like a little compensation to these heirs, for all the time you didn't spend with them busting your ass off working your job or business.
But no, the state has to jam it in with the Johnson one last time.
Buy physical gold and give it to your children before you die!
Damn, when I think about it I feel so sorry for those poor paper savers...
burningfiat said:
How is that different from now?
How can the state know if I give my payed-for-in-cash gold coin (which BTW was lost in a boating accident long time ago) to a family member?
It's different because after Free Gold the flow would be in the trillions rather than the current billions. Same as how you can give your family member $1000 and nobody cares, but the IRS takes notice if you try to give them $100,000.
A better answer to MnMark would be that the $/oz would be stable after Free Gold so there is no need for capital gains taxes. As far as estates, I do not see why they couldn't be taxed the same as Cash is today. For drug smuggling, dropping the weight required from ~39lbs per 1M to ~2lbs per 1M doesn't seem that game-changing. Then again I'm not smuggling coins over the border...
None of this addresses the (very good) point that trillions in wealth will be "off the books" and out of the system. No government is going to be happy about that.
GLD keep losing their gold, today another outflow of 3.92 tons. From 1286.17 tons in April 2012 to 1248.61 tons today. GLD has lost 37.56 tons of gold. That's a drop of 2.92%.
Still only a trickle.
Hi athrone,
None of this addresses the (very good) point that trillions in wealth will be "off the books" and out of the system. No government is going to be happy about that.
Anyhow, that is the whole point of Freegold, right? An independent wealth reserve outside the control (debasement or confiscation) of government. ECB seems to acknowledge this already. But yeah, Governments likely won't be happy.
@athrone
None of this addresses the (very good) point that trillions in wealth will be "off the books" and out of the system. No government is going to be happy about that.
I think it would be reasonable to predict that under Freegold, the government might institute more gold-transaction-reporting laws designed to keep the government informed about where the gold is, just as they did with cash transactions over $10k. If you remove the current tax implications of making transactions in gold (sales tax, capital gains tax) then I think you make gold a more attractive way to pay someone for something (especially large transactions) in a completely private manner since there is no need to move cash through banks to do it. The government is not going to like that, so I can imagine them requiring that a form be filled out any time a transaction is completed with gold as payment or any time gold is given as a gift, on penalty of fine or imprisonment.
@burningfiat,
If there is something governments won't be happy about, I think you can bet they will do their best to stop it one way or another.
If someone makes a case that Freegold will happen because it is in the best interest of the powers that be, I find that convincing. But if the argument is that Freegold has to happen because it will be a new era of human freedom and independence, then I think that is almost an argument against it happening. I do not see a trend in human affairs towards more freedom. I see a trend towards greater and greater control of the individual for the benefit of the government. See North Korea, domestic spy drones, secret NSA facilities that record every bit that passes on the internet, cameras on every corner in London, etc etc etc.
I would say: do not get enthusiastic about Freegold being some kind of liberator of the human race. Things like that almost never happen, IMHO. If it happens, it will happen because it is in the interest of the powers that be that it happen.
FOFOA: Taking Freegold to its logical conclusions one can deduce a few things about future gold taxes:
1. Capital Gains tax will almost certainly NOT be applied to physical gold carried through the fire. Government today makes no distinction between ETF shares and physical, and does not track small cash transactions. There will be no possible cost basis on which to widely attempt to collect such a tax. And in "gold" (most Western "gold investments") it will be capital loss write-offs that will be "taxing" the tax man.
2. The filp side to the "cost basis" conundrum for CGT is the change in "liquidation mentality" that Freegold will usher in. Michael Kosares put it well in his recent newsletter: "I have been asked on many occasions if there might be a set of circumstances when selling one’s gold holdings in toto might make sense. Since I view gold more as a form of savings than as an investment for gain, selling it simply to make a gain doesn't make a great deal of sense to me. If your intent was to purchase gold as a hedge starting out, why would you sell it simply because the price reached some arbitrary plateau? Like dollar-based savings, you should tap your gold reserves based on need."
3. The only tax that will be logistically plausible will be a sales tax (6% to 10%).
4. The burden of this sales tax will be carried by the unstoppable stream of gold BUYERS, not those who carried it through the fires of change. What I mean is that, like any sales tax, it will simply "raise the price of the product" in that particular tax zone, relative to everywhere else.
5. But because physical gold is fungible, divisible and private real capital on all sides of all borders, any nation with a high sales tax on gold will see ZERO capital inflow, and will likely see black market capital OUTFLOW of the most CRUCIAL capital in the new world. This is the primary rationale for saying there will likely be NO tax on physical gold in Freegold, period, only on the mining operations that will be viewed as "digging up the public's reserves."
6. Governments already know this. They don't need to learn it. For example; see the 0% tax on gold in Europe while silver and everything else still carries a VAT. And see the recent news that Russia will drop capital gains tax to attract new investment. Governments already know winning is all about taxing economic activity.
7. Gold will not deliver capital gains, it will denominate them through the fires of change. And you don't tax the denominator!
8. Zones with NO tax on gold will experience massive capital inflow and new, taxable economic activity. This will be the goal of governments after transition. Encourage self-sufficiency and then tax it. The ROI on taxing real, private, physical capital (physical gold) will be quite negative, gold bug paranoia notwithstanding.
MnMark,
You are correct that the system doesn't like anything that it can't track. It's why the system's operators have it in for such items as cold, hard, cash and physical gold. This mentality is, I suspect, one reason why my local coin dealer, which had been in business for decades, shut down.
To wit:
A few years back I went in to my erstwhile coin and bullion dealer with a wad of cash only to be promptly told that I couldn't transact in the amount I desired because it would entail too much paperwork as per Homeland Security. Irony of ironies is that the cash was acquired via the sale of physical silver.
And, if I am not mistaken, by law, one is not allowed to hold gold bullion in safe deposit boxes
thanks to laws established to fight TWOT.
Fortunately, such a law, as in the case of what one can legally hold in one's safe deposit box, is about as effective as some of the antiquated laws still on some state's books that proscribe against particular sexual acts. In short, such laws are fiendishly difficult to enforce. This is one reason that objet d'art, collectibles of a wide variety, precious metals, and gemstones have, for so long, acted as stores of value since these items, with a bit of craft, ably defy the rapacious taxing authorities of the state. Now please excuse me as I need to collate my baseball card collection.
MnMark, is the G going to go around kicking in doors and squeezing shrimps for taxes, or will they have bigger problems? And more productive targets for tax? Quick, what's my ROI?
FOFOA: In this scenario, the need to continue printing in the face of an ongoing currency collapse will obliterate any miniscule gain that comes from the few shrimps who actually decide to sell their gold in an untimely way and pay the tax. The US has precious little gold in private hands as it is. And it will need that private gold to flow. It needs you to sell your gold to your dealer so your dealer can export it to our trading partners. That's how trade flows will resume under the new paradigm, with savers choosing to let their gold flow because of the amazing purchasing power it delivers.
And with international trade flowing again, the government will have much more economic activity to tax than it did when it tried to tax real capital in its purest form based on the silly notion that the hungry collective deserves a windfall nine times greater than the gold investors who kept gold inside the zone through a turbulent transition. The bottom line here is that I do not know if the USG will try to tax the windfall profit that comes from Freegold. What I do know is that, if they do, it won't last very long.
MnMark
Interesting idea.
I think one has to consider all sides of it. One needs to weigh the benefits of this concept against their losses in that regard.
I think the benefits outweigh that particular loss....which incidentally has been pointed out in colourful terms is not really something governments should be doing anyhow, but let's not get into idealism, as you say.
TF
@Jeff: thanks, your posting confirms my understanding that Freegold ushers in an era of no taxes on gold.
@Edwardo: yes, and I would think that when you can store $55,000 of value in one gold coin, tracking gold will become an even higher priority of governments trying to prevent tax evasion and money laundering. Hence my argument that we might logically see more gold-tracking legislation. Perhaps even something like the requirement that gold coins have a unique government ID embedded in them that can be used to keep track of who owns it? So that an non-ID'd coin would be subject to immediate confiscation, and any transaction using an ID'd coin would be reported to the government so that it could ensure that proper taxes applicable to the circumstances of transfer were paid?
In that way the government could allow gold to be untaxed, yet still keep track of where it was so that estate and gift taxes could be enforced.
I suppose the counter-argument is that if the government tried to require that IDs be embedded in all gold coins, the gold would move out of the country to a jurisdiction that didn't require that...but it would only be people who were trying to avoid taxes or launder money that would be motivated to move the gold elsewhere, and there would be a black-market price penalty for doing that, which might outweigh what would be lost by simply reporting the coin and paying the associated estate tax, etc.
So I do think that we will see governments move towards more and more intrusive gold reporting requirements.
@Jeff, I'm not arguing that the government will implement capital gains taxes or sales taxes. I agree with the logic that they would not do that. I am arguing that they are not going to be willing to give up estate taxes and gift taxes by letting people privately pass $55,000 gold coins to one another without the government knowing about it. So the government is going to get more serious about finding out where the gold is - not to tax the trading of it in and out of dollars, but to prevent it being used to avoid other kinds of taxes. If gold has no sales taxes, estate taxes, etc - if you can readily transfer it in and out of the MoE currency - the tax implications for moving into and out of dollars disappear and the gold becomes a very useful currency for transmitting huge amounts of value in very small and discreet packages. For things such as wealthy people passing the portion of their fortunes stored as gold on to a heir without paying inheritance taxes on it. It doesn't seem to me that government is going to let that happen without a fight, even if it needs to let gold be freely exchanged for dollars without inhibition.
I had a typo in my last post. The sentence should have read:
If gold has no sales taxes, no capital gains taxes, etc - if you can readily transfer it in and out of the MoE currency - the tax implications for moving into and out of dollars disappear and the gold becomes a very useful currency for transmitting huge amounts of value in very small and discreet packages.
People see what people want to see; whatever remains after what they assume to be so has filtered out the incompatible, and they do this because of how it makes them feel.
A phase transition sounds ridiculous when all one's experience has been confined to within a particular state, yet we observe them occurring naturally all the time.
“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”
-Mark Twain
@MnMark,
I think this is a contradiction or at least an absurdity. If gold and currency can be freely exchanged as you put it in your last sentence (no VAT), it is absurd to think that the state will build a great control apparatus to track the whereabouts of gold, just for enforcing 10-30% inheritance tax? We need a hyper surveillance society for that to be feasible. People and trade will be bailing countries that go all in fascist like that.
Much easier to just go after the mines as FOFOA says.
e_r:
Thanks for that Jeff Rubin link. I think there are lots of moving
parts to this deal, and what it means to Canada, the US and China.
But most of all, I think it is about "unstacking" the Benjamins, as
FOFOA likes to say. They pay a big premium over market, the
shares are largely held by Canadian investors and superannuation
funds, who get a nice pop after a string of disappointing setbacks
for the company, and the USA will just have to BUTT OUT. This
is Unocal without the US veto, IMHO. It's only 1% +,- of their
US$ reserves, but like the joke about the plane that crashed with
100 lawyers onboard, it's a start.
@ burningfiat,
"Buy physical gold and give it to your children before you die!"
That is exactly what I did maybe 7 years ago. Not exactly sure of the time frame, but it was when Jim Sinclare had a put under the purchase and Franklin Sanders could not meet my requirement of under $400 per oz., but he got the business because I learned that the spot proce was a fiction.
One of my children sold it within a few months despite my request that I have first rights on a buyback. The other two still hold their prize.
Ironically, the one who dumped it was actually the catalyst for my decision to make the gift. Such is life.
@MG, wow, cool story from real life! You can never know, can you?
Nice reminder that savings (at least for us non-giants) must be a middle road like a lot of other things in life, no? Remember to use some of the fruits of your labour on yourself while alive. It's no use to live ascetically your whole life just to see your life savings squandered in the end...
Looks like Jim Rickards's QE3 prediction could turn out to be spot-on, as many economists seem to agree.
He does see action at the September meeting as more likely. Mr. Hebner says he expects that when the Fed does ease, it will announce $500 billion in new asset purchases, likely focused on agency mortgage-backed securities.
Our Market Monetarist friends have thoughts on the wealth (!!!) effect of NGDP targeting, which Rickards has also hinted could be a future course of action. Whatever it takes, without any fixed amount or any expiration date.
CB asset purchases going to the moon ;)
MnMark sez...
I do not see a trend in human affairs towards more freedom. I see a trend towards greater and greater control of the individual for the benefit of the government. See North Korea, domestic spy drones, secret NSA facilities that record every bit that passes on the internet, cameras on every corner in London, etc etc etc.
This is the trend now (as is historically the case during sovereign debt crises) but how much of that is enabled by people voluntarily giving the government loans by saving in government debt? Do you really think when government debt is worthless as an SoV this will result in bigger, more oppressive government?!
Perhaps even something like the requirement that gold coins have a unique government ID embedded in them that can be used to keep track of who owns it? So that an non-ID'd coin would be subject to immediate confiscation...
Nice coin there comrade, but does it have an ID? Hm... my scanner's not working, I'll have to take it to the lab for testing. ::smiles menacingly::
Do you know how much worse this idea would be than a simple tax? Immediate confiscation?! If gold would not flow, or would flee because of taxation, your idea would have 10x this effect.
burningfiat wrote:
"We need a hyper surveillance society for that to be feasible. People and trade will be bailing countries that go all in fascist like that."
Not to sound all tin foil hat, but we've got just that here in the U.S. as per the electronic data tracking and collection capability of the NOAA. Thrown into the bargain there is the recent legislation that provides for Drone coverage domestically of approximately 30,000 (or is it 50,000?) unmanned aircraft. Despite the manifest lunacy of such a hyper surveillance undertaking it looks more and more like "they" are going to give it the good old college try.
poopyjim sez:
Do you really think when government debt is worthless as an SoV this will result in bigger, more oppressive government?!
I think it very well could, yes. I think desperate governments do all sorts of things to remain in power, and to hunt out all possible sources of revenue...perhaps including "selfish hoardings" of gold, by "unpatriotic" individuals who are "aiding the speculators" or something else of the sort.
Let me turn the question around: do you really think that when Freegold comes about, that governments are going to stop using the latest technological advances that allow them to ensure with greater and greater degrees of certainty that citizens are obeying the latest dictates from the government?
I don't think the next economic cataclysm is going to bring more freedom and free markets. I think it's going to bring even more draconian government invasion of privacy and commerce, demanded by an impoverished population that has been raised on socialist nostrums about "fairness" and "equality" and "greed".
I want to say, on a related note, that it is worthwhile giving a lot of thought to North Korea and the fact that that horrible regime has continued to this day, despite horrible privations.
North Korea is essentially Orwell's "1984" made real. The Kim Jong Sung/Il/Uns are 'Big Brother'. Everyone professes their love for them, and I have no doubt many of them really mean it because they have never heard anything else. There is widespread surveillance, spies reporting their neighbors, etc.
There was a sudden devaluation of the currency their a couple years ago that virtually wiped out everyone's savings. I read a heartbreaking story about one family's life savings being wiped out by that. There was so much unrest that...one government official was made scapegoat and executed. But the regime continues on.
Do you think Freegold would be possible in a place like that? Or even relevant? It is a place beyond any economic sense. It is a place run by pure brutality, for the benefit of the rulers. It is frightening that such a place can go on and on....and imagine if the whole world was like that, so that there was no place at all where news of an alternative might leak in from. And the whole world seems to be moving gradually in that direction! More socialism, populations getting stupider on average a la "Idiocracy", better surveillance technologies so that the sphere of privacy where a Continental Congress might meet and deliberate and plan revolution shrinks and shrinks.
It frightens me to see the way things are trending. I think in the very long term that humanity progresses, but I fear the possibility that we could degenerate into an Orwellian nightmare than lasts hundreds of years.
Meh, no inheritance tax in Canada. There's a %1 probate fee, I believe, but no tax. I fortunately haven't inherited anything so I'm not speaking from experience. There's no sales tax on gold either, but there is on the PGEs, which makes sense as they're commodities.
So.... I don't really see a problem. Just because it's currently done one way in the US, doesn't mean it's the way.
Besides, how the hell would the gov know where exactly the gold came from? Tracking device in the coin? haha! Melt that fucker. Done deal. Hit it with a hammer, whatever. Not gonna happen, Mark, I wouldn't worry too much about it.
The logistics would be nonsense when it comes to enforcing such a backward idea, not to mention the big-picture "purpose" of gold within the new system that others have pointed out above.
Orwellian nightmare? = Epic Revolution if anyone has any balls left. I'm in. My ancestors didn't die for our freedom, to have me sit here and let things devolve to that. Pretty sure I'm not alone on that...
Crazy Things
Damn, I love that song.
MnMark sez...
do you really think that when Freegold comes about, that governments are going to stop using the latest technological advances that allow them to ensure with greater and greater degrees of certainty that citizens are obeying the latest dictates from the government?
Yes, government will be forced to make cuts. The private sector is like the nucleus from which the government derives the energy to sustain itself. So come collapse, government must engage in action to revive its dead nucleus. This means more freedom & free markets.
I'm no geopolitical expert but in my view North Korea is not a self-sustaining entity. It requires foreign aid, much of which is derived from periodic threats against other nations. If left on its own, it would die. Who will bail out the US in this manner?
VtC/Blondie,
Isn't (cyber) terrorism the favorite scapegoat?
FDIC insures over $7T in deposits. US has about 8,000 tonnes. That's close to $30,000 per oz.
From Doug Noland's latest newsletter:
Italian 2-year yields jumped from 3.80% on Monday morning to 5.18% by Wednesday morning. By Friday afternoon they had sunk back down to 3.6%. Spanish stocks dropped 5.8% last Friday, declined 1.1% Monday and another 3.6% on Tuesday. They gained 0.8% Wednesday, before jumping 6.1% Thursday and 3.9% Friday.
Italian stocks dropped about 10% in three sessions, before rallying 10% in the next three sessions. U.S. stocks dropped 3% in three sessions and then gained 3.5% in two. German 10-year yields ended the week up 23 bps. Throughout already volatile global debt, equities, currencies and commodities markets, things have turned only more unstable.
This type of volatility is crazy. This isn't price discovery it's more akin to trying to stabilize a manic depressive who won't take their medication.
http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10689
Another snippet from Doug Noland. I see this as further evidence of a trend toward rejection of counterparty risk. (My emphasis)
July 25 – Bloomberg (Alastair Marsh): “Sales of securities that package debt with derivatives and provide banks with fees that average 2 1/2 times what they receive underwriting corporate bonds are tumbling as credit downgrades of the world’s largest financial companies curb investors’ appetite.
Issuance of the structured notes, which offer customized bets tied to stocks, currencies, commodities and interest rates, have fallen 34% to $65.8 billion this year from the same period of 2011… Buyers of structured notes, which include institutional investors as well as high net-worth individuals, bear the risk both of the bank selling the securities and of the underlying assets.
Eight of the 10 largest issuers have been downgraded this year, making the notes less attractive to investors seeking safe assets as the economy slows and Europe’s crisis deepens… U.S. issuance fell 23% this year to $21.7 billion, the lowest level since 2010, when Bloomberg started tracking the market… In Europe and Asia, where numbers go back to 1999, sales fell 38% to $44.1 billion. That’s the least since 2002…”
This could be good news for the silver bugs:
Among the measures, the Singapore government will exempt investment-grade gold, silver and platinum from the local goods and services taxes (similar to VAT or sales tax), beginning October 1, 2012.
http://www.zerohedge.com/news/guest-post-world%E2%80%99s-gold-moving-west-east
Others will have to follow Singapore if they start making headway in attracting a bigger share of trading activity.
Continuing in this same vein, if we consider that today the 1st world is largely financed on the backs of the 1st world by running a perpetual trade deficit; then how will this landscape change after Free Gold?
After the re-evalation nations will be forced to settle the balance of their trade in Gold, correct? Thus all current debtor nations must sell of their current gold reserves. Once they run out, they will be forced into extreme austerity until they reduce their consumption and become net-producers.
Meanwhile, current net-producers will amass large quantities of Gold. But what happens after that? Do we enter some cyclical period where nations net-produce and then "slack off" and run a deficit while they burn off their excess gold reserves?
Long term it would seem that all countries would be co-ercered into an approximate neutrality in trade balance. In such a situation, how does Gold flow?
Perhaps more importantly, how do we see these 1st world superpowers undergoing forced austerity at effectively, the hands of the 3rd world? With the largest military in the world, and the socioeconomic realities of US consumerist culture, how could this happen?
As irony and myopia (and a slow news day?) would have it, Zero Hedge recycled an old 2009 post today as a headliner while I still had this post at the top of my blog, which (my post) was initially spurred by a reference to ZH's original 2009 post last December. A few people emailed me the ZH post this evening with comments like, "You'll love this. Enjoy!" and "Have you read this? Pretty interesting stuff!" and "What say you, FOFOA?"
Back in December Victor brought up the Burns memo from the 2009 ZH post which sparked a long reply from me regarding that memo and both GATA's and Zero Hedge's "goldbug" or #HMS take on it. I decided to reproduce my comment below rather than merely linking to it because if I'm getting this much email then there are probably others who are also curious about my take on it.
Anyway, my comment (below) led to more references to Zero Hedge's anti-fiat/anti-CB fixation which led to my next post a few days later from which this post (Jeff & Blondie's Open Forum) was excerpted by Jeff. And that, my friends, is the ironic connection between Zero Hedge's current headline and mine. ;)
My 5 page comment about Fed Chairman Arthur Burns' 1975 memo to President Ford will follow…
(Oh, and the reference to acorns comes from one of the songs I used in the post called Little Acorns!)
December 6, 2011 12:34 AM
Hello Victor,
Don't you love it when a comment spurs a post-length response from me? Ha! Well, in any case, here you go… (1/5)
"Second, a letter by Arthur Burns has surfaced in which he hints that he has an agreement with Germany that Germany will not purchase any gold for dollars over the official price (now $42.22). What is the opinion here? Does the Fed perhaps have some promise from the Europeans not to bid for gold?"
Thanks Victor. That was 1975, and I think there are a few things to consider in forming an opinion on this. It might be helpful to break it down into little acorns.
First of all, let's note that the Fed had two concerns with regard to CB gold in that 1975 letter. 1. That CBs not buy from the market which would affect the market price, and 2. That CBs refrain from revaluing their gold to market price which, according to Arthur Burns, would create liquidity that would be out of the Fed's control. #1 could be considered the price suppression that we hear GATA and ZH talk so much about. #2 could be considered the ECB MTM concept that we have yet to hear anyone else talk about. (The links are to the GATA and ZH posts about the Burns letter.)
So for our first acorn, let's look at #2 with regard to the Bundesbank. Now, if we consider the conceptual evolution of "the Freegold school of thought" holistically, I think it is fair to say that Freegold, as well as the road to monetary union and the single currency, has French fingerprints all over it. The Austrians were certainly thinking along similar lines at the same time and, perhaps intentionally, developed their ideas into an actual school of thought. The French, on the other hand, with names like Marjolin, Rueff and de Gaulle, simply took action.
It is interesting in the Burns memo that he noted the French had already *GASP* started MTM gold in 1975:
"Fourth, a large measure of freedom for governments to trade in gold at a market-related price may easily frustrate efforts to control world liquidity. For example, such freedom would provide an incentive for governments to revalue their official gold holdings at a market-related price. (France has already done so.)"
So see? The French were the first to pull out of the London Gold Pool in 1968, they were the first to demand their gold from the US Treasury, and then, after 1971, they were the first to MTM their reserves.
The Germans, on the other hand, used a valuation principle they called Niederstwertprinzip which was, as I noted in this post, "even more conservative than the US... The principle of Niederstwertprinzip means you value your assets at the lower of two possible prices, the purchase price or the market price, whichever is lower at revaluation time. In other words, you record unrealized losses but never the gains. This is a highly prudent and conservative method of valuing one's assets. They would value their liabilities the opposite way, at the highest possible value. But in practice, this was an overly conservative method of valuing an asset whose price had appreciated over many decades."
Cont…
2/5
While this doesn't directly address the deal as Burns described it to President Ford, it does show that the Germans had more in common with the Fed's $42.22 book valuation than anyone else, and they also had a lot of gold. Of course the Bundesbank did in fact MTM its gold later, in 1997, in preparation for the euro launch as I wrote about in that same post. And on that alone, it's quite a stretch for me to think they might still have a deal prohibiting them from paying more than $42/ounce for gold.
Another acorn we can carry easily is this idea that seemed so important to the Fed, of a separation between official and unofficial gold. Basically, Arthur Burns stated the issue most clearly as the Fed's fear of CBs transacting in gold "at market-related prices." This is what we call a two-tier market, and I have written about the "membrane" that exists between official and unofficial gold. From an old comment:
"Since 1933 there has been a thin membrane that separates sovereign entities (SE) from private entities (PE) when it comes to gold transfers.
Gold moves from PE > PE as a commodity. And it moves from deficit running sovereign entities (SE-D) to surplus running sovereign entities (SE-S) as a monetary asset; a balancing function in the monetary system. SE are different than PE because they can print money, and they collect foreign currency surpluses.
Whenever gold starts to pass through that membrane, no matter in which direction, a phase transition starts to occur. If a SE-S tries to buy gold from the PEs, gold starts to phase-shift from a commodity into a monetary asset. If a SE-D tries to sell gold to the PEs for the foolhardy scam of lowering its commodity value, gold starts to phase-shift to a monetary asset because it is clear what SE-D is doing (especially to SE-S).
Freegold will be the elimination of the membrane. All players will be on a level playing field. This is not a gold standard. But it is a shared function for gold between SE and PE.
By the way, think about $6,000 gold trading amongst the giants with this membrane in mind."
And:
"The paper gold market (mine hedging, forward sales, gold leasing, futures, ETF's etc...) became (serendipitously?) a way for the SEs to "virtually" permeate the membrane without breaking it and causing a phase shift. This was a way to trick the PEs into settling the trade deficit with certain SE-Ss. It worked as long as the SE-Ss (large physical accumulators) were limited in number. And it always had a finite timeline when the expanding virtual gold would finally lose credibility."
This membrane was a façade that existed even before 1971, and it was this membrane that Arthur Burns wanted to retain, at least superficially. US Treasury and IMF auctions beginning that same year certainly violated the membrane, as did the London Gold Pool of the 60s and the BOE auctions of 1999-2002. So it was fine for deficit-running CBs to sell gold at market prices but not okay for surplus-running CBs to buy gold at market prices. This was the secret Fed strategy to continue sterilizing the natural adjustment mechanism that began in 1922.
Cont…
3/5
Now, with the apparent disagreement between the Fed and the US Treasury in Burns' memo, as well as the fact that France was already MTMing its gold, does this sound like all CBs wanted to control the price of gold? Or perhaps it was just the Fed. From the GATA link above, "Burns memo is consistent with the long-established interest of central banks in controlling the gold price..." This is the standard goldbug thesis, that all CBs conspire to control the price of gold. But it was not ANOTHER's message.
As I wrote above, "Freegold will be the elimination of the membrane." Euro architect Alexandre Lamfalussy wrote something similar all the way back in 1969, which I put in this post:
"Even in the absence of effective purchases or sales on this market by the central banks, this price would only become the "true" price if all the buyers and sellers of the metal acquired the conviction that no central bank will ever connect the two markets in any way. As long as this conviction does not exist—and it does not appear to exist today—the price on the ordinary market will take into account potential purchases and sales by the official institutions. Quite clearly, the market is at the moment discounting possible purchases (rather than sales) by the central banks."
He basically said that the price of gold would only be the "true" price if the membrane separating official and unofficial gold was 100% impenetrable. It logically follows that the price would also be "true" if the membrane was eliminated. So the Fed wanted to keep official and unofficial gold separate, except when it suited them to sell official gold into the market. The Fed also didn't like that France revalued its gold to the market price, because this act alone was a violation of the membrane.
You see, there is no membrane if all official CB gold is marked to the same price made by the free market. And there is no membrane if CB gold is allowed to be mobilized, which ironically makes it even more valuable. In this post I wrote:
"You see, the European gold reserves are far better, far more credible than the US gold reserve, simply because they engage in a two-way gold market, and have for decades. The US gold has been hoarded and locked away for more than 30 years, never deployed in case of emergency. The European CB's took a lot of flak for selling gold over the past two decades, but that action is precisely what makes them so much more credible (and valuable!) than the US gold hoard. Any trading partner knows full well that if all else fails, gold will be paid."
And finally our last little acorn; the launch of the euro. Did anything change with the launch of the euro? GATA and ZH don't seem to think so. Yet in preparation for the euro, Europe's official gold was revalued to market and mobilized. Then came the CBGA, and finally the price lifted off from its 20 year gravity-bound trading range and never looked back. So why, when we read the ZH article about this Burns document do we get this:
"Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished."
And from GATA we get this:
"the Burns memo is consistent with the long-established interest of central banks in controlling the gold price"
Cont…
5/5
Liquidity, huh? In this post I wrote:
"There is one type of liquidity that is of absolute importance. And that is "international liquidity". It is the kind of liquidity that lubricates the cross-border flow of real, essential goods like heating oil, food and medicine. It is the very existence of this imperative for sufficient international liquidity that puts the greatest strain on a fiat currency system at the very end of its timeline while it desperately tries to push out "unlimited liquidity", but fails to do more than push on a string."
And then some more from Lamfalussy in 1968 from that same post about how raising the gold price creates this most vital type of liquidity:
"The striking fact apparent from this Table is that over the last ten years, gold has practically no longer contributed to the growth of international liquidity. In ten years, total foreign reserves rose by nearly 19 billion dollars; the greater part of this increase – some 14 billion – was due to increased holdings in foreign currencies, whereas the increase in the reserve positions with the International Monetary Fund was about 4 billion. The increase in gold stocks was less than one billion; in fact, there was a decline between 1963 and 1968 [thanks to the London Gold Pool]. Consequently, the share of gold holdings in total reserves, which was 66 per cent at the end of 1958, fell, to 51 per cent at the end of 1968.
It is therefore right to say that over the last ten years and in particular since 1963-64, we have witnessed a gradual decline in the role of gold as a means of reserve and its complete disappearance as a source of new international liquidity. At the same time, the mechanics of the gold-exchange standard have ceased to function: the creation of reserves by the spontaneous holding of dollars or Sterling has come to a halt and has been replaced by the creation of negotiated reserves."
And then I wrote:
"I would like to draw your attention to the almost interchangeable way Lamfalussy used the terms international liquidity and reserves. It seems that gold's share (percentage) of total reserves has something to do with that most important type of liquidity, "international liquidity". That's because, when properly defined, they are ONE AND THE SAME!"
Take that ^^ along with Arthur Burns… "..addition to the nominal value of the countries' reserves. Liquidity creation of such extraordinary magnitude…" and you get…
Texan: "I just don't think raising the gold price helps, and I think it would probably hurt actually."
Haha! Not really. I'm sorry Texan, but I'm only using your marvelous words to demonstrate how ass-backwards one's thinking can be. I think, Texan, I'd give you the same prescription I gave Matt: a little less ZH and AEP/FT Alphaville in your appetite. ;)
Incidentally, JR and I have had a nice conversation via email about how gold creates liquidity (the best kind), but since this comment is already way too long, I'll let him fill you in on that if he wants to. ;)
Sincerely,
FOFOA
"MnM said ... And the whole world seems to be moving gradually in that direction! More socialism, populations getting stupider on average a la "Idiocracy" ..."
pardon, but here I see the exact opposite developing, since maybe 2-3years but at an accelerating speed the last couple of weeks. Yes, the super organism starting to organize towards more meritocracy.
And this is not so much about hope from me (I'm usually rather pessimist and cynical) but based on many observations, mostly on the microlevel.
It might have to do with the fact that I live in Switzerland and in a small village but I do see a trend developing even on the macrolevel. And I'm good at detecting early trend changes (fact, not arrogance on my side). And I'm not going to point out again that I went into physical since 1998.
Of course I'm also comparing to what FOFOA wrote so eloquently about true meritocracy arising like a phoenix from the ashes. The pessimist in me would rather see the opposite but he certainly is onto something as they say!
And don't forget about the feedbacks just from the fact of this site, hey we live in one fast changing informational society!
On Another note, careful with use of the term super Mario (Draghi), we had one here called similarly, Mario Corti, trying to save Swissair (you know the rest of the sad story). Altough it wasn't his fault, he was just too late and UBS had a dirty role in it too.
To leave I'd compare recent market volatility rather with the aura of a seizure. Ask an epileptic. Just to save grace of manic depressives (well then the correct term would be rapid cycling).
I'm leaving now to celebrate 1. of August which is our patriot day. Who woulda have thought we are still alive and prospering in 2012, having started in 1291. Now that beats North Korea by a wide margin, don't you think? (Sorry kim yong schmucks)
Best Regards,
KnallGold
PS: Mario Draghi's words, the big bluff or not, we'll see. At least I liked Coogans Bluff
http://www.clinteastwood.net/welcome/alt/
Burns' summation:"All in all, I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price."
Blondie: Burns' summation (6/3/75):
"All in all, I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price."
Mr Gresham (04/17/01; 10:33:51MT - usagold.com msg#: 52041)
"ANOTHER: Was the Washington Agreement the most significant event in gold since you were last posting in 1998?"
Randy (@ The Tower) (04/17/01; 13:37:02MT - usagold.com msg#: 52046)
"If I may be so bold, let me anticipate ANOTHER's answer with an answer of my own.
The most significant event in gold since the dollar's gold default in 1971 has been the successful launch in 1999 of a long-awaited new currency system built upon neutral (meaning, multi-national) management and, more importantly, a floating gold reserve structure that finally abandoned the now obsolete "fixed" gold legacy of the failed Bretton Woods structure.
With this new reserve structure, the prevailing institutional incentive -- from '71 to the end of the millennium -- need no longer be one of "price suppression" for the perceived market value of gold.
…The "tools" of the prior suppression are on the outs. Believe it. The WA simply announced the foregone conclusion in a package suitable for newspaper headlines.
Just as the value of the post-'71 paper dollar has long been propped by the international yet artificial "mandate" to hold these dollars as reserves, through this new currency structure gold has now been "officially" set free to replace these dollar reserves (savings).
The reason this full transition has not already occurred is that institutional interest still exists to foster the smoothest practicable transition until that unknowable moment where the final remaining *SNAP* in the adjustment occurs.
Speaking for The Tower and personally, I continue to buy gold with excess funds because I prefer the real wealth of gold over managed paper (and digital) contract currency. As a bonus, the real wealth value of gold will provide a pleasant benefit upon full completion of the transition in world currencies' reserve structures. (An understatement, to be sure.)"
Date: Tue Mar 31 1998 08:32
ANOTHER (THOUGHTS!) ID#60253:
"Now, with the world awash in "US dollars" and "gold paper", a new asset is being formed… The offer is the "exact opposite" of the "US dollar agreement", this new offer will drive gold to a value that will allow it to…"
Date: Sat Apr 25 1998 23:35
ANOTHER (THOUGHTS!) ID#60253:
"There will come a time when gold and Euro are as "the same". Not in price or value, but as used for "real money".
Money is not what you afford, you earn it! In the near future, gold money will buy more than dollar money, much more! It is as to compare a one dollar bill to a hundred dollar bill, both money, just one buys more!"
8/10/98 Friend of ANOTHER
"The Euro will not replace gold, it will evolve into a gold transactional currency. It will also price Euro gold very high.
Cont…
2/2
8/6/01 Friend of ANOTHER
"The result will be a massive dollar price rise in gold that performs over several years."
Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
From the post above:
2. And FOA wrote this: "Several years ago, many gold bugs and gold advocates missed the path as the trail turned." "Yes, the war now is between the Euro and the dollar! The Washington Agreement [a Central Bank agreement] placed gold 'on the road to high prices'." "The war between gold and the dollar has been over for a while now… Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to!
Elsewhere you get: "All CB's hate gold, suppressing it to protect their fiat currency which is the root of all problems." And, "Euro is going to die, just like the dollar only worse."
Can you see the difference? I'm just curious, because sometime it seems like, I dunno...
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Concerning the discussion about the Burns letter above, I'd like to mention some Nixon/Kissinger phone transcripts that give away quite a bit about the European position. I posted them here (hope the link works):
fofoa.blogspot.com/ncr/2012/06/debtors-and-savers-2012.html?commentPage=2&m=0#c26049204843860346
Finally, more on Draghi's "whatever it takes". Firstly, please read the original speech rather than what the US/UK financial press writes about it. That's quite a difference.
Secondly, I remember a speech by someone from the ECB directorate - probably Benoit Coeure just after he joined and probably at a university or at a conference - along these lines: "The period during which sovereign debt was held as an international reserve is ending now" and "In the future, this role will be played by the currency itself".
If you take this literally (that he says "the currency itself" rather than "gold"), he expects that the ECB will maintain their just-below-2% inflation target. Otherwise it wouldn't make sense to hold the "currency itself" as a reserve which I take to mean "Euro base money in an account with the ECB".
So if the ECB is committed to their inflation target, they will avoid a deflationary depression by printing money, but they won't avoid deleveraging, and there will be no large scale front lawn dump in Europe.
Victor
This has probably been posted before, but how do Freegold theorists respond to Jim Rickard's assertion that the European sovereign gold held beneath the New York FED can and will be confiscated to prop up the US Dollar when the time comes.
As we all know, if you don't have the physical in your possession, it's not really yours. The US is custodian of this gold, probably as the quid-pro-quo for the protection of Europe by the US military after WWII.
Thoughts?
Hi MnMark,
The sooner you (in general not you specifically) realise that USA is not the centre of the universe as it has always been taught in the US schools, the FASTER you will realise that the world will run with freegold even if a small section of American and British population is against it, the STRONGER the argument for Freegold becomes where gold has risen a lot HIGHER than what the world can imagine. See FASTER, STRONGER AND HIGHER. There are 210 countries participating in the olympics. USA and UK are just 2 among the 210.
Hi Reven,
Look here:
There is an elephant in the room. Jim Rickards has been making some bold predictions while on his book tour for Currency Wars. He says that in the case of a collapse of confidence in the dollar, the U.S. could confiscate the gold owned by foreign governments, Germany in particular, that is stored in NYC at the Fed. He says the U.S. could then use this gold to dictate a new international monetary system based on U.S. currency, just like last time.
Here are a couple of Jim's tweets on the subject:
@JamesGRickards Got a bid from #Germany for foreign rights to #CurrencyWars. Germans should read it. Ch. 11 tells why they'll never see their gold again
@JamesGRickards @FrankfurtFinanz Yes. This is described in Ch 5 and Ch 11 of #CurrencyWars. #Germany will never see its #gold again
We don't like to ignore elephants at FOFOA, so please discuss. Should those countries with gold stored at the Fed be worried?...
@d2thdr:
What did I say that gave you the impression I thought the USA was the center of the universe?
Double facepalm :D
FOFOA,
Love the face-palm.
Thank you for keeping us on the trail.
athrone,
Have you seen the Balance of Payments statistics for the Euro area? If not, check them out here. The Euro area is roughly balanced in terms of exports/imports, which means that they are not living on a credit card ;).
In a world where exorbitant privilege is removed, the trade flow will look like this.
Gold will be used as a strategic monetary asset to absorb surplus wealth. This post talks in detail about the spur and brake effect on the economy as the gold flows in either direction.
Your question: Perhaps more importantly, how do we see these 1st world superpowers undergoing forced austerity at effectively, the hands of the 3rd world?
Do you mean now or after the transition? If you mean now, of course there won't be a forced austerity. Because of the junkie fix.
FOFOA: The USG may be a dealer in the monetary plane, but it is most definitely a sketchy junkie in the physical plane. The USG thinks (and truly believes) that the key to rejuvenating the US economy is trashing the dollar as a short cut to increasing exports (reducing the trade deficit). But what it can't see (nor anyone that focuses solely on the monetary plane for adjustment) is that the huge trade deficit the USG wants to quit is actually its own heroin fix. This is a deadly combo for the US dollar.
After the transition, it will be a level-playing field. Austerity will be the natural consequence of excessive spending and extremely low savings.
As far as US military is concerned: there are other countries that had a massive military and ended up collapsing anyway. Military is not always an asset as many make out to be.
And the consumerist culture will have to change, as a consequence of the failure of the current system.
e_r,
Thanks for your links/reply.
You are correct that I am only considering what happens after the transition. I am trying to picture the world post-Free Gold because I think that is an important part of evaluating how/when/whether it will come to pass.
If this 2011 data is to be trusted, the European Union is ranked 183/192 in terms of trade balance by country. China and Saudi Arabia are 1/192 and 2/192, and the US 192/192 of course. So I do not think you can say the "EU is roughly break even."
If I calculate the net flow of gold at $50,000/oz using these trade balances, I arrive at something around 700 tonnes inflow for the top 10 producers, and 700 tonnes of outflow for the top 10 debtors (per year!). So after a decade, net 7,000 tonnes will trade hands from the 1st world to the 3rd world.
Then, once the gold runs out (which it will quite quickly at these rates) the standard of living will drastically fall for those in the 1st world and rapidly rise for those in the 3rd world.
Somehow I have a hard time wrapping my head around that happening out in the open for everyone to see, and over a time span less than a couple decades.
So if we are to accept Free Gold, we have to accept that world as we know it will flip on it's head in very short order.
Given the choice between:
1. Trade in the SUV and 3000 square foot house to live in a 600 square foot apartment and ride a bike to work (aka forced austerity at the hands of 3rd world laborers)
2. Or a bloody/one-sided war "off in some distant land."
Which do you think the American public would prefer? This doesn't even take into account the more subtle/nefarious tools available to the USG.
@MnMark,
If you are worried about capital gains and inheritance taxes, why not use government legal tender coins? That Maple or Buffalo in your sock drawer is 'only' worth $50 by government reckoning. You could stack 200 of those before reaching a $10,000 limit.
http://www.bullionbullscanada.com/gold-commentary/22979-save-taxes-with-gold-and-silver-money
Woo hoo debt deflation!
Which brings us to a paradox. Although it’s widely thought that the world has too much debt, in one sense our problems are the result of too little of it. As MIT’s Ricardo Cabellero has said, the global economy has in recent years suffered from a shortage of safe assets. This year, for example, the world will generate over $17 trillion of new savings, but issues of top-quality government bonds such as those of Germany, the UK and (yes) US will amount to less than $2 trillion.
The very fact that prices of northern European government bonds are sky-high is a sign that such assets are scarce. With safe assets offering so little return, there's a danger of excessive buying of speculative assets.
Doh. $17 trillion of new cash looking for a home.
http://www.investorschronicle.co.uk/2012/07/27/comment/chris-dillow/the-negative-yield-danger-a3fj3af4RRvc2u0x1uDLVJ/article.html
Hi athrone,
If I calculate the net flow of gold at $50,000/oz using these trade balances, I arrive at something around 700 tonnes inflow for the top 10 producers, and 700 tonnes of outflow for the top 10 debtors (per year!). So after a decade, net 7,000 tonnes will trade hands from the 1st world to the 3rd world.
Do you presume that the gold price will stay at $50,000/oz in all countries these ten years, while at the same time the trade flow doesn't correct to become more balanced?
Why?
/Burning
burningfiat,
I agree the outflow of gold will put pressure on "austerity over time" vs. "austerity all at once" after the gold runs out. There is really no way to know how it would play out, nor to know how the price level will fluctuate over a decade though, so I am just talking in simple terms to flesh out the concept at a high level.
athrone,
FOFOA has an idea on how this will play out:
Once gold is flowing at a high enough price to balance international trade, it will start accumulating in countries that run a trade surplus excluding gold (including gold, trade will balance). Likewise, it will start disappearing from those countries running a trade deficit ex-gold (excluding gold). This is how the spur and brake forces work on an economy in Freegold.
As the gold supply within a "deficit ex-gold" nation dwindles (think: USA), each piece remaining will become more and more dear in terms of other goods and services within that zone. In other words, the purchasing power of gold will rise in the "deficit ex-gold" zone vis-Ã -vis goods and services in that zone. Likewise, the purchasing power of gold will begin to fall in the "surplus ex-gold" zone (think Germany or China) versus goods and services in that zone because of the large and growing accumulation of gold.
At this point the large quantity of gold in the "surplus zone" will have a lower purchasing power against goods in its own zone, but a higher purchasing power abroad in the "deficit zone" and demand for imported goods will grow while exports will start to fall. This growing demand from abroad will be felt in the "deficit zone" and will be met with new supply. Likewise, the falling demand for imports from the zone with a declining volume of gold will be felt in the "surplus zone" and be met with decreasing supply. Incrementally, the "surplus zone" will slow production and increase consumption while the "deficit zone" experiences the opposite effect. Excluding gold, the balance of trade will shift back and gold will start to flow in the other direction.
Please think about it. For me it seems logical.
/Burning
athrone,
So I do not think you can say the "EU is roughly break even."
Why is that? Based on the data you just showed, negative 32 billion is EU's deficit, which fluctuates between surplus and deficit as opposed to 599 billion of US and still trending downward .
There is a mountain of a difference between all 191 countries and the US, LOL.
So if we are to accept Free Gold, we have to accept that world as we know it will flip on it's head in very short order.
What do you mean by very short order? FOFOA has stayed away from timing predictions, for a good reason. But the evolution of the monetary system is clear for anybody who has reason to apply.
Regarding the choices, I'm not sure if it is as black and white as you potray it to be. Are you saying a war will ensure prosperity without austerity? Do you think a war does not have associated costs (political, economic, physical etc.)?
You do realize that an exorbitant privilege is given, not taken right? The way you frame these questions seem to think that US exorbitant privilege is taken, which does not bode with reality. Without the structural support from foreign central banks, the dollar cannot exist as the world reserve.
Athrone and e_r
It may be more pertinent to consider deficits versus GDP for the respective zones. Absolute numbers mean little here.
TF
Ps. List of countries by current account balance as a percentage of GDP , -0.19% being the CIA estimate for the eurozone.
burningfiat,
That post separates the world into two zones (surplus and debtor) which is really the same stratification as we have within a zone (rich and poor). When you are poor, and down to your last few dollars, does the price of your goods drop (increased purchasing power) to help make up for it?
I would say no.
As a net-producer, rather than exporting goods abroad for a lower weight of gold, why not over-consume at home? Part of Free Gold means the whole world will "wise up" to the imbalances of trade -- both positive and negative. Everyone will be motivated to adopt a more neutral balance of trade, not just the debtors. This means lowering the standard of living for debtor nations and rising the standard of living for creditor nations.
This still doesn't addresses the dramatic shift in power/wealth from the 1st world to the 3rd world. How do you rationalize that occurrence?
Athrone
If you don't mind, how do you rationalize the massive exploitation of third world resources by first world countries for the better part of a century?
TF
MF,
Great link. Just want to express a small concern about the usability of anything denominated in the manipulated number called GDP.
To descend just one level into the pandoras box called GDP: Public consumption (including debt-financed) is included in the number.
But hey, with great likelihood all the countries are in fierce competition to be the best to fudge the GDP number, so maybe the comparison turns out to be fair anyway...
e_r said,
There is a mountain of a difference between all 191 countries and the US, LOL.
Agreed :)
What do you mean by very short order? FOFOA has stayed away from timing predictions, for a good reason. But the evolution of the monetary system is clear for anybody who has reason to apply.
I did not mean that Free Gold will happen in very short order. I was referring to the rapid outflow post Free Gold (700 tonnes based on that back of the napkin calculation) which would cause the US reserves to run out "in short order" if it maintained it's current trade balances. After the gold runs out, the US would have forced austerity.
You do realize that an exorbitant privilege is given, not taken right?
I'm not suggesting the US would ultimately be successful in openly forcing the rest of the world to finance it's exorbitant lifestyle -- only that perhaps they wouldn't "go down without a fight."
e_r
Valid criticism..perhaps we should consider deficit per capita, ie. deficit divided by population size, a much more reliable metric.
TF
Ps. here is a link for 2009 data, for that : Current account balance per capita
MF said,
If you don't mind, how do you rationalize the massive exploitation of third world resources by first world countries for the better part of a century?
I absolutely do not agree with it. It is clearly immoral to enslave the 3rd world in order to finance US over-consumption. Free Gold would certainly bring "justice" and "equality" to the world, at least in terms of trade balance.
That sounds like a utopia, though, which is why I am skeptical that those in power would relinquish their privileged so willingly; or that the millions who are so used to it would ever be able to truly understand and thus go along with it.
Do you think the US will say, "Well, I guess we had a pretty good run but it looks like the jig is up, oh well. I guess it's time to give up all our fancy cars and houses and let someone else have a turn."
athrone
Nope. But if the point has not been belabored enough, luckily it is not up to the US.
Exorbitant privilege of this kind is given not taken.
TF
athrone,
This still doesn't addresses the dramatic shift in power/wealth from the 1st world to the 3rd world. How do you rationalize that occurrence?
I rationalize this as a thing that has already happened, you just don't see it as a Westerner.
In reality the physical wealth is already in the 3rd. The debt is already mainly in the Western world. Ask Indians and other Asians. They know what I'm talking about.
The revaluation of physical gold will benefit the gold-holding 3rd world in the monetary plane.
The devaluation of paper will benefit the loan-holding 1st world in the physical plane.
Let's meet together in the middle! Let the whole world get a healthy relationship to both paper and gold. A new world where there is balance between the monetary and physical planes will emerge.
athrone,
I was referring to the rapid outflow post Free Gold (700 tonnes based on that back of the napkin calculation) which would cause the US reserves to run out "in short order" if it maintained it's current trade balances. After the gold runs out, the US would have forced austerity.
That's a big IF isn't it? Why do you think the current trade balances will be maintained if it will lead to US draining out its gold reserves? These trade balances can be wiped out you know :)
I'm not suggesting the US would ultimately be successful in openly forcing the rest of the world to finance it's exorbitant lifestyle -- only that perhaps they wouldn't "go down without a fight."
Once again, you are making the mistake of assuming that US has "forced" its exorbitant lifestyle so far by taking it away. It is the other way round, the foreign central banks have "supported" this lifestyle to buy time and plan the transition.
The transition occurred in 1999 and since then China has supported the exorbitant privilege. China has also acknowledged the issue in 2009 and the support is "willy nily". QE is inevitable, why do you think that is?
MF said:
e_r
Valid criticism..perhaps we should consider deficit per capita, ie. deficit divided by population size, a much more reliable metric.
I agree!
BTW, Thanks for calling me e_r, what an honour! ;-)
Burningfiat
Oops. :)
TF
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