Tuesday, August 7, 2012

A picture worth a thousand words


Jewelry and silver and gold coins dating back to the Roman period that were recently discovered at an excavation site near kiryat Gat, in Jerusalem are displayed on June 4, 2012.
(Sharon Gal/AFP/GettyImages)
Link

112 comments:

Michael dV said...

Has there been a discussion of the relationship of freegold to Islamic financial rules?

Michael dV said...

I'll have the shiny yellow ones please...

Michael dV said...

I just noticed I made a comment 3 minutes after this was published....I am not stalking the site...I swear it...

JR said...

Hi e_r,

Because the saver/investor divide is so important, here is one more idea about how the two are blurred together, and perhaps that is why struggle to see them separated:

Most people are savers, not investors or traders. Yet today we are all forced to be investors chasing a yield because there is no such thing as a perfect inflation hedge. If there were such a thing, a large portion of the "investing public" would not be anywhere near stocks and bonds. Even the most "risk free" bonds, US Treasuries, have the greatest risk of all, currency risk. And in the case of the dollar, this is exposure to a risk that, today, is well out of the hands of the currency manager thanks to seven decades of functioning as the global reserve standard.

How is that different from Freegold?

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

Last thread you asked:

Freegold is all about the big players, right? Someone having an awful lot of gold hoarded, can have a severe impact on this signal.

I am attempting to comprehend whether this currency price of physical gold post-transition could be rigged for someone's advantage.


Do you mean like a central bank?

Blondie said...

Sempiternal.

The Old Prospector said...

I have a hard time believing those are even as much as 90% silver coins. Maybe they are the coins that were almost fully debased with copper or worse.

Blondie said...

"Freegold is all about the big players, right?"

The monetary system is at heart all about the dynamic that exists between net producers and net consumers. The "big players" referred to are the biggest net producers.

How the system operates is always at the discretion of the net producers because they always have the choice of how they save their surplus.

The act of "hoarding" their surplus outside the system is always an option, and if exercised this option removes the facility for the net consumers to consume this surplus at their discretion. So the producer has the discretion to give or deny the consumer discretion.

Therefore it is always about the "big players", Freegold or not.

Freegold is removal of the consumer's discretion to consume the surplus of others, because the producer's surplus is placed outside the system beyond the consumer's reach.

Currently the banking system is merely facilitating the exercise of the consumer's choice to consume, but it is the producers saving within the monetary system that are making such a choice possible.

Blondie said...

And the "biggest player" of all is a conglomerate of many small net producers all taking the same action in (what they perceive to be) their own best interests. If these perceptions and actions align with those of other "big players", then this actor is even bigger, no?

The only real choice is whether to keep one's surplus inside or outside the monetary system, and everything else monetary is subservient to this choice.

Everything.

The complex is always subservient to the simple, because the complex technical is a derivative of the simple fundamental. The simple reiterated creates the complex.

Regular readers of this blog will have lately observed a growing dichotomy between some commenters, with one group recognising the saver's choice to be the crux of all things monetary and the other attempting to demonstrate that other forces such as the banking system are where the real control lies. This is the same argument.

My position is clear.

JR said...

GO Go the biggest player out there, the conglomerate of all those different perceptions of all those subjective folks we call the Superoganism. #TeamHumanityFTW!!

Blondie said...

Saver's perceptions can be likened to geocentrism ($IMFS) vs heliocentrism (Freegold).

Evolution is progressive rather than regressive.

Sure, we could (technically) go backwards, but remember the superorganism uses distributed intelligence. Only an entity which has a distributed intelligence which is =>>lesser<== than that of its individual consitituents (i.e. a coercive entity/"government") would be stupid enough to attempt this. The human superorganism has a distributed/collective intelligence which is greater than that of any individual constituent, thus it can be expected to make smarter choices.

"You see, in this world there's two kinds of people, my friend: Those with loaded guns and those who dig. You dig."

This world is just like the geocentric model: altogether too subjective. No loaded guns in an objective world, 'cause they're just not the smart choice.

In an objective world mutually beneficial action is the smart choice.

Blondie said...

Skepticism is healthy.

Blondie said...

e_r said:

"...the currency price of gold post-transition will be a very important signal to all actors in the economy."

This is the source of the superorganism's internal objectivity, so yeah, it's way important. You are trying to figure out how it can be rigged?

Try looking out the frickin' window; it's been rigged for quite some time now, and it looks to be failing. This is the best the brightest minds can do to rig it, and we have a front row seat (literally). Looks like they need some help, so $IMFS may have a job for you (ask them to pay in phyzz haha).

They could never even get millions of poor asians to get with the program in the first place. I have great respect for the Eastern perspective.

BTW, did you see this? (and this is what it looks like when it is retarded.)

Nickelsaver said...

I think that picture shows very clearly which metal is the precious one. Nice.

costata said...

Blondie,

Fantastic video - thanks.

The only real choice is whether to keep one's surplus inside or outside the monetary system, and everything else monetary is subservient to this choice.

And the Euro Freegold-RPG architecture facilitates this choice for any and all.

costata said...

"Euro to Beat Dollar? Draghi's Genius"

At least one person thinks that Mario Draghi has pulled off a coup - Axel Merk.

http://www.kitco.com/ind/Merk/20120807.html

Blondie said...

costata: "And the Euro Freegold-RPG architecture facilitates this choice for any and all. "

I'd say the choice is facilitated by the purchase of any non-monetary asset, an option which has always been available; the euro architecture simply means the euro will function equally well now as in a future when a larger proportion of savers exercise their non-monetary SoV choice. Thus I would say the euro design will facilitate its function in a future that differs from today.

anand srivastava said...

What is the Answer to the Question of Life Universe and Everything? 42. The US Treasury gold is marked at 42. Did Douglas Adams get the inspiration for the Answer from the price of Gold?

I find the book "Hitchhikers Guide to the Galaxy" really really good.

anand srivastava said...

In Hindi (the main language of India), sleep and gold have the same word. I guess you can sleep soundly only when you have gold.

Motley Fool said...

One of these things is not like the others......

victorthecleaner said...

DP, Mundell,

I think Mundell has been stealing ideas from your bedside diary or something ...

I am not that surprised. If you just imagine you are running the government and/or CB of Greece, and you honestly think about how to proceed, it is pretty obvious that you'd want to stay inside the Euro and that you will eventually default on most of your debt.

Costata has even explained to us when it will make sense to default on the remainder of the debt: as soon as they achieve a primary surplus (i.e. budget deficit is less than interest expenses). One reason they might decide not to default on all of it is perhaps that a substantial amount of their debt is held by their domestic savers and/or banks, and so leaving some debt intact might reduce the immediate pain.

By the way, you can also ask whether Greece is organized well enough in order to introduce a new currency. The answer may already be no: They cannot exit the Euro because they wouldn't be able to manage it at the technical level.

Of course, you can never fully rule out that a country leaves the Euro (some extremist or at least extremely stupid government etc.). In this case, you would see their new currency destroyed rather quickly, creating an example for everyone to study.

e_r,

Victor - does this look like something on the lines of what you were talking about in terms of USG making the move?

Yes, but they still have the problem of the real value of all the US debt held by the Asians.

Victor

Dr. Octagon said...

If anyone else is interested in Islamic views on Money/gold, here's a good 9 minute interview on the subject.

costata said...

Hi Blondie<

You wrote:
I'd say the choice is facilitated by the purchase of any non-monetary asset, an option which has always been available; the euro architecture simply means the euro will function equally well now as in a future when a larger proportion of savers exercise their non-monetary SoV choice. Thus I would say the euro design will facilitate its function in a future that differs from today.

Disagree. You were right the first time IMVHO.

costata said...

Dr. Octagon,

I look forward to viewing the video.

Cheers

Woland said...

Talk about your stock to flow ratio! That gold hasn't flowed
in over 2000 years, and like the Sri Padmanabhaswary Temple
treasure, the Brasher doubloon or the gold in your Patek
Philippe minute repeater, it NEVER WILL. No matter what level
is reached by the currency price of their gold content, they will
always remain even more valuable for what they are.

costata said...

Hi VtC,

Slight change on this:

(i.e. budget deficit is less than interest expenses)

The IMF definition of a primary balance is budget surplus (or balance) net of interest expenses. And Italy this year is projected too have a primary surplus between 3 and 4 per cent according to that piece I linked for Edwardo in the last thread.

And FWIW Italy was always the line in the sand IMVHO. They (the adults in the big pool) will smack bottoms in the kiddies (speculators) pool soon (see last thread). Team Euro is about to kick some ass.

IMO Spain is relatively easy to fix (if you are a very hard nosed bastard).

Edwardo said...

What evolution is about is adaptive change. It is, in short, about the optimization, if possible, of an organism so that it can continue to exist. There is almost always some sort of tradeoff involved in the process of evolution such that the organism, in order to survive, changes in some meaningful, perhaps even fundamental way such that it is no longer the same organism.

Victory said...

http://pricedingold.com/

...neat RPG site

-v

burningfiat said...

Another silver treasure salvaged recently:

http://www.huffingtonpost.com/2012/07/18/ss-gairsoppa-shipwreck-38-million-silver_n_1683505.html

No gold though :(

Michael dV said...

Doc Oc
WOW!
Islam has a real problem.
If the speaker is correct and gold may not be held for investment.....well just stop there...how can gold NOT be held for investment? SOMEONE has to hold it!!! Is the gold like a hot potato? As soon as you get some you must quickly pass it on?
I was floored when I came to that part of the video.
Must all gold then be held by those outside the faith? Are only a few people allowed to hold it?
It seems from the statements in the video that cash (currency) is king and that freegold concepts are forbidden.
It makes me wonder about how such injunctions came to be. What was the 'money' of the 7th century? The injunction btw was for gold and silver so that would have only left lesser coins for saving.
It seems that the idea was to stimulate the economy and keep people working.
I will bet that this has been worked out in Islam (as so many things are in most religions) to permit a normal economy but for now I am confused about the concept of saving in the Muslim world.

Michael dV said...

Victory
the problem I had with the 'priced in gold' website is that most of the years used for comparison are years when gold was fixed in price by the government. So for many years the comparisons were to $35 gold when in fact gold was not a vibrant part of the real economy, it was not really even used. Going forward I believe we will get a better idea of how gold compares to other investment strategies.

Dr. Octagon said...

I am not an expert on Islam, but the impression I have is that investment is *heavily* favored over saving, at least above a small amount, for the good of the community. Gold is meant to circulate. This obviously conflicts with the gold-for-oil story frequently discussed here... a mismatch I have yet to understand.

Jeff said...

Dr O,

Watch what they say, not what they do. Islam also prohibits lending at interest, but there is a religiously acceptable way they do that, too.

Jeff said...

Heh, should have said watch what they do, not what they say.

e_r said...

Regular readers of this blog will have lately observed a growing dichotomy between some commenters, with one group recognising the saver's choice to be the crux of all things monetary and the other attempting to demonstrate that other forces such as the banking system are where the real control lies. This is the same argument.

Blondie - I agree with you on the above statement completely and I am a skeptic in this regard.

I don't think it is honest to blame the savers entirely because of the following statement from the Richard Maybury video you quoted:

The economic system is shaped by the legal system and the legal system is unfortunately the result of politics .

Considering the monetary system in isolation, I agree with you that the blame is with the savers.

But considering it in isolation is dishonesty, because the actions of the actors are shaped by the legal system, which is under the hand of the Government.

Take the US taxes on physical gold for example. Even long-term is 28%.

Do you think that is encouraging saving outside the monetary system or not?

The situation becomes even more gray if successful capitalists seek to establish rents and monopolies with the help of the Government.

So yes - I think there are good reasons why it is not as black/white as you make it to be.

JR,

Do you mean like a central bank?

Not just the central bank, any giant that has enough ammunition (in real physical gold) to cause wild price swings.

Let me see if this explanation will make things a bit more clear.

The flow of value between saving and investing causes cycles in the macro economy.

Currently this flow of value is a runaway system, because it is guided by debt (which has no limit).

So in a sense, there is no damping function to correct the economic resonance.

When real physical gold guides this flow of value, then it will act both as a damping and a boosting function (brake and spur).

When gold is widely owned, then this damping/boosting function of gold cannot have that much volatility.

But when it is concentrated in a few hands (as it is today), then these few hands have a lot of say in whether to spur/brake.

Do you see then that it is not the collective intelligence, but it is the intelligence of a select-few?

Jeff said...

Hi e_r,

The current tax structure under the $IMF is hostile to physical gold, of course. That's why Europe does it differently; new system, new laws.

IMO you seem to believe somehow savers are trapped into saving in the currency. As Blondie points out, even the small eastern savers didn't buy into that lie. Do you think the big, smart savers did? Or was perception changed so that it looked like they were saving in the same currency as westerners?

The $IMF exists at the whim of the savers. So if we believe savers are smart and they let it appear they are saving in the currency (but really aren't), don't you think they are getting something out of the deal? Time? Gold? Time to get more gold??

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

jojo said...

"Do you see then that it is not the collective intelligence, but it is the intelligence of a select-few?" TODAY

@Burning No gold cause it has been hoarded :)

e_r said...

Jeff,

IMO you seem to believe somehow savers are trapped into saving in the currency .

I am saying that the best interests of the savers are shaped by the legal system, which is under the control of the Government.

As Blondie points out, even the small eastern savers didn't buy into that lie. Do you think the big, smart savers did?

Blondie is talking about Indian housewives here I presume? Do you know the level of corruption in India? Do you know how many dollars are hoarded in Swiss bank accounts by these politicians?

I think Blondie is extrapolating the actions of a bunch of ants, which does not really matter in the big scheme of things.

The $IMF exists at the whim of the savers.

And the savers' actions exists at the whims of the Governments (not just one).

So if we believe savers are smart and they let it appear they are saving in the currency (but really aren't), don't you think they are getting something out of the deal? Time? Gold? Time to get more gold??

Frankly, I'm an ant so I don't have a smart answer for this. They are definitely accumulating gold as the credibility and confidence in the current system is getting eroded.

jojo - I am questioning the assumption that gold will be widely owned in the freegold paradigm.

Jeff said...

e_r,

That goes against the premise of this blog, and everything ANOTHER said. Debtors don't call the shots; you are thinking with western mind, but you will think long and hard on this.

MK: "As implied by ANOTHER's own words, his motivation for these postings was the discovery by "big traders" in the Far East of this opportune facility to buy gold at ever lower prices."


FOFOA: If you can start to think of the administrators of the $IMFS, the "banksters", politicians and Western Capitalists in charge of the system as being firmly entrenched in the Debtor camp, you are well on your way to a very rewarding enlightenment. I realize this is counterintuitive, and counter also to much of the baggage that accumulates while reading other "hard money" writers on the Internet, which is why I spend so much time on it. But once it clicks, you'll be like, "OMG! WTF was I thinking?"

JR said...

Hi e_r,

Not just the central bank, any giant that has enough ammunition (in real physical gold) to cause wild price swings.

Like the savers saving in currency "for whatever reason," who are these folks? What about the purple unicorns?

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

Yes e_r,

well said!!

The economic system is shaped by the legal system and the legal system is unfortunately the result of politics .

Yes e-r, because the root of political power is:

“We have met the enemy and it is us.” We are at fault, for saving in promises. We give THEM power.

The Return to Honest Money


If you buy government debt you are feeding, enabling the growth of government beyond its most basic mandate, providing the infrastructure and secure environment that enables us to produce capital. And if you think an expanding government is good, just beware that all governments are stupid!

"The institution of government was invented to escape the burden of being smart. Its fundamental purpose is to take money by force to evade the market's guidance to have the privilege of being stupid." Richard Maybury goes on (in the linked video) to say that private organizations that petition government for special protections, subsidies and incentives are asking for the same privilege. They want to be relieved of the burden of being smart.


Savings & Capital Theory Open Forum


Somewhere along the way, probably in the 20s and 30s, governments switched from assisting the Superorganism to central planning, or retarding the Superorganism. I believe the singular factor that enabled this switch—made it even possible—was that the savers began entrusting their surplus production to the government as a fundamental function of changes to the monetary system that occurred in 1922.

Sushi Island Savers Saga - Part 2


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."

Jeff & Blondie's Open Forum

Nickelsaver said...

Looking at that picture, it occurs to me that one would need to apply a great deal of heat to all of that silver in order to get it to shine again. Unlike the gold, which goes nicely right into the pocket.

There's an analogy in that. Think about all the silverbug rhetoric as a heat source.

JR said...

Hi e_r,

I am questioning the assumption that gold will be widely owned in the freegold paradigm.

No you aren't, you assuming

1) gold is concentrated in a few hands and
2) these few hands can control gold.

and continuing to run in that theoretical direction. That's neat theoretical construct and all but it really has nothing to do with reality or Freegold.

JR said...

The gold market is controlled through paper, not physical.

So during the mid to late 70's the U.S. Treasury and the IMF held a series of gold auctions to flood the market and quell the perceived danger. But by 1979 the demand for gold was so overwhelming that the auctions had to be stopped.

Credibility Inflation

JR said...

Paper, not physical sales:

Here's ANOTHER explaining that the BIS (primarily European central banks at the time) not only anticipated that a paper gold market would lower the price of gold, but that in the 1980s they supported the creation and expansion of this market for that very purpose:

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

"The BIS leads the creation of a paper gold market that will lower the world price of gold to the extent that it remains above "production costs".

Guess what, it worked! Contrary to all expectations of oil shortages, inflation, debt collapse and what have you, It Worked! But, there is one small problem?

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


Fallacies – 1. Paper Gold is just like Paper Anything

e_r said...

Jeff,

What did I say that is against the premise of this blog? Does the Government have the power to shape the legal system or not? If so, then the legal system influences the economic actors.

JR,

Like the savers saving in currency "for whatever reason," who are these folks? What about the purple unicorns?

What are you talking about? The reality is that thousands of tonnes of gold are concentrated in a few hands now.

you assuming

1) gold is concentrated in a few hands and
2) these few hands can control gold.


Where is my assumption? Europe has 10,000 tonnes of gold (combined tonnage of European Union, I think), US has 8000 tonnes of gold on the books.

The distributed intelligence of the freegold monetary system is predicated on gold owned widely and in a distributed fashion. Is it not?

e_r said...

JR,

Yes e-r, because the root of political power is:

“We have met the enemy and it is us.” We are at fault, for saving in promises. We give THEM power.


So the monetary system gives the power to the Government to shape the rule of law?

Jeff said...

e_r,

'And the savers' actions exists at the whims of the Governments (not just one).'

FOFOA: The easy money crowd has had a really, really long run in the sun this time. There's no need to feel bad for them. And all the last-ditch central control efforts we see today are simply the culmination of that run. But their influential position is completely dependent on the power afforded by the easy money debt machine that is now crumbling. Their "power generator" is out of gas. And it's not the kind of gas you can legislate or print...


FOFOA:

Another said:
"Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies"

If this statement appears the least bit cryptic, if it does not make 100% crystal clear sense, then little else written on this blog by either the contributors or the scant few commenters who do understand it will make complete sense to you, despite your best efforts.

You see, my friend, in this world there are two types of people: those who PRODUCE, and those who consume. YOU consume.

Those who PRODUCE, and there is perfectly good reason why it is written in caps, are giants. Everyone else, including YOU, is a shrimp.

Jeff said...

And the USG can't legislate itself into being a producer.

JR said...

e-r,

You are arguing gold is so concentrated in a few hands and that these few hands control the market.

Neither of these is true. Its good to see you openly acknowledging the first part is inaccurate:

Europe has 10,000 tonnes of gold (combined tonnage of European Union, I think), US has 8000 tonnes of gold on the books.


All the gold ever mined is mostly still with us. That's about 160,000 tonnes. Most of that is in private hands now, not with the central banks.

Open Letter to EMU Heads of State

Yup

Ridding the world of the dollar reserve burden is accomplished through decentralizing gold ownership into the widest distribution possible. Not concentrating it in the hands of a few ($IMFS or otherwise) banksters. Freegold's highest and most stable value is with "gold in every hand".

Just look at the BIS' own gold actions. Their owned gold hoard has shrunk from 194 tonnes to 120 tonnes over the last 6 years, as has the entire Eurosystem's hoard over the last decade (from 12,576 tonnes down to 10,833 tonnes). Most gold movements in Europe have either been lateral reshuffling or dishoarding and encouraging citizens and other entities to start hoarding physical gold themselves.


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

I suspect you understand the second part as well that the price is controlled through paper, trying to do so through physical sales = fail.

JR said...

Hi e_r,

I tire of the trolling:

So the monetary system gives the power to the Government to shape the rule of law?

Nope:

“We have met the enemy and it is us.” We are at fault, for saving in promises. We give THEM power.

That is actually quoted by you in that post. Next time you go for the bait-and-switch it would be better not to directly quote the statement you are attempting to misrepresent. You see if you quote it you make it clear to everyone that you have built a strawman.

Better luck next time, J.R.

e_r said...

JR,

So I am trolling now? Let's review:

I said, quoting Richard Maybury:

The economic system is shaped by the legal system and the legal system is unfortunately the result of politics .

And then you used a bunch of FOFOA quotes (selected related to that statement):

“We have met the enemy and it is us.” We are at fault, for saving in promises. We give THEM power.

I asked: So the monetary system gives the power to the Government to shape the rule of law?

It was an honest question posed as a reply to the quote, you mentioned from FOFOA.

Now you are saying: Nope .

So what is it? Does the monetary system give the power for the Government to shape the rule of law or not?

e_r said...

JR,

You are arguing gold is so concentrated in a few hands and that these few hands control the market.

I am not arguing about the present, the gold distribution problem that I am referring to is post-transition. Most of the gold is in private hands, but the quantity of gold in each hand is the distribution, isn't it?

I am actually talking about the swings in the price of gold, after the transition (if enough quantities of gold is concentrated on a few private hands to cause the swings).

e_r said...

Jeff -

Let me put it this way. The savers in any system are acting according to their own best interests, which are conditioned by the legal system (legal system under the control of the Government).

The legal system's effect on the action of the savers cannot be ignored, which is why I find it somewhat (but not totally) dishonest to blame the savers.

If what I just wrote above completely goes against the premise of this blog (according to you), then what can I say?

I can stop posting (since at least the most frequent commenter of this blog thinks I'm trolling).

john smith said...
This comment has been removed by the author.
john smith said...

Hi all, I have been a lurker here for two years, no entering unlurking mode:)

I'd like to revisit "Fallacies – 1. Paper Gold is just like Paper Anything" essay.

This is a quite interesting essay and can be summarised the following way --Gold [paper] markets are different because:

1) Gold is not consumed.
2) Gold is bought in currency terms, not weight terms.
3) Gold has a 60 year "supply overhang".

Unfortunately I can't see the mechanism by which the aforementioned three reasons depress physical gold price.

Did anyone got the mechanism and could a charitable soul explain it to me?

Blondie said...

costata: "Disagree. You were right the first time IMVHO. "

You're right. I took my eye off the court while playing the ball.

The euro facilitates the saver's choice to save (in gold) outside the monetary system by supplying them a MoE that continues to function inside it... because with no other viable MoE gold will be pressed back into service in this role and the SoV and MoE will still be one and the same media and the savers will continue to (unwittingly) be their own worst enemy.

Jeff said...

Hi e_r,

Blame savers? No one is blaming them; those that save in the dollar will be hurt as a consequence of their own actions.

However, many savers are now, and always were, saving outside the dollar system. Many of them aren't even American, so they aren't subject to any legal pressure. In fact, even Americans can save in gold if they wish, so where is this legal coercion of which you speak?

e_r said...

Blame savers? No one is blaming them; those that save in the dollar will be hurt as a consequence of their own actions.

What do you mean? it has been hammered repeatedly here on FOFOA that the giant savers choosing to save their surplus within the debt-based monetary system that has caused much malaise today.

In fact, even Americans can save in gold if they wish, so where is this legal coercion of which you speak?

One form of legal co-ercion is through taxation. Taxing capital gains on gold at long-term 28%, while providing tax-free interest income on long-term bonds would encourage conglomerate of many small net producers all taking the same action in (what they perceive to be) their own best interests to reduce their tax overhead.

Jeff said...

The $IMF is not tax-friendly to gold but you can avoid the cap gains tax by not selling until the tax law changes post-freegold.

I think I see where the confusion is; before 71 the dollar was considered good as gold, and many savers saved in dollars. Post-71 it took time to create a new system so they supported the $ system, but and this is the important part, someone always was getting physical gold. There was always a 'deal', remember? 'Oil' always got gold, right from the 1930s on through. And there's still a little flow, right?

So yes, some savers save in dollars, probably unwittingly, but there were always a group that didn't. That is the most important group, the one with the power to end the game. They can do that at any time, and if they weren't getting some gold at an artificially low price, they would end it tomorrow.

d2thdr said...

Good observation Anand.

Sleep and gold, who would have thunk?

d2thdr said...

Hi E r

The politicians in India are the vestiges of Islamic invaders from the 12th century onwards and British invaders from the 17th century onwards.

The people have an inherent mistrust of these people and hence they save in gold. Even before the first Islamic hoarded reached the Sindhu River(Indus as named by Brits), the Upanishads (texts teaching the way of life), emphasised the importance of zor(people), zan(gold) and zamin (land) for the self reliance of the common man.

A kingdom may change hands but the 3 things to enable you to live a life were not taken away from you. Show humility towards the most uneducated of these 3rd world nobodies, they perhaps know more than your hubris allows you to see.

Nickelsaver said...

Wasn't AD's meme "government trumps FG"? I thought we've been thru this? The government will do whatever is needed to save the system, not the currency. Hence, they will let the gold flow and debase the currency.

e_r said...

Show humility towards the most uneducated of these 3rd world nobodies, they perhaps know more than your hubris allows you to see.

hmm, who did I degrade when I said the Indian political system is corrupt?

Wasn't AD's meme "government trumps FG"? I thought we've been thru this? The government will do whatever is needed to save the system, not the currency. Hence, they will let the gold flow and debase the currency.

NS - you are talking about the present system. I'm not questioning whether the currency will be saved or the system.

The system will be saved now, even if the currency has to be destroyed (as actions have already shown in 2008).

I'm questioning whether the distribution would be wide post-FG.

Sounds like JR is saying distribution is already wide in physical terms and we just don't see it.

I don't think that's true.

JR said...

Hi John Smith,

The three reasons you list get more at the idea of stock to flow and why gold is a SoV par excellence (it has the highest marginal utility as an SoV).

1) Gold is not consumed.
2) Gold is bought in currency terms, not weight terms.
3) Gold has a 60 year "supply overhang".

=====

As to the mechanism by the physical gold price is suppressed, the mechanism = paper gold. Here is a helpful quote to get you started:

The paper market for commodities is just as likely to have a levitating effect as a suppressing one because it allows for financial participation by those who have no need or ability to hold the actual commodity. Gold is the only one that is unequivocally suppressed by the existence of a paper market.

No conspiracy. The mere existence of a commodity-like paper market for gold suppresses the price naturally, systemically. Long term systemic suppression of gold is something totally separate and different from short term price manipulation or distortion which can occur in any commodity or paper market.

Here's ANOTHER explaining that the BIS (primarily European central banks at the time) not only anticipated that a paper gold market would lower the price of gold, but that in the 1980s they supported the creation and expansion of this market for that very purpose:

[...]

Having a paper market as a shock absorber for the gold market only has the effect of keeping the price too low.


Fallacies – 1. Paper Gold is just like Paper Anything

cont.

JR said...

cont.

Here is a key idea about how paper gold acts as an "elastic shock absorber" that suppresses the price of physical:

Since gold is not consumed by consumers or industry the way corn, oil, copper and grains are, and because it simply accumulates, supply shocks are not economically critical. On the demand side, gold is apparently used as a "safe haven currency". And we apparently had a demand shock of around 7,575 tonnes in Q1 2011. The normal supply for that period would have been around 700-1000 tonnes, so the paper gold market acted as a shock absorber and absorbed that demand shock by expanding. That way the price of gold only rose $30 in a quarter with a demand shock of 10 times the normal physical supply flow.

But that wasn't really demand for 7,575 tonnes of gold. It was demand for $337B worth of gold. Hypothetically, if the price of gold had been $55,000/oz. in Q1 2011, that demand would still have been for $337B worth of gold, the only difference being that the $337B demand could have been supplied by only 190 tonnes (a mild 20% increase in flow rather than an extreme 1,000% increase) and the price of gold would therefore have barely felt a bump in the road, even without a paper market shock absorber.

Therefore, having an elastic paper market shock absorber for gold is only necessary if the price is too low, because there will always be plenty of supply if the price is high enough (60 year supply overhang, remember?). At today's price, having a paper market shock absorber is apparently necessary to keep the gold market from blowing up.

It logically follows that it is the very existence of the paper gold market which is keeping the price too low, because if you took it away, price alone would have to regulate the flow. Take the paper market away from other commodities and you simply remove the investor/speculator money in the middle thereby exposing producers (and consumers) to unpleasant shocks.


Does this make more sense to you John?

Cheers, J.R.

Nickelsaver said...

er,

Do you see a wide distribution of dollars? Or more specifically dollar denominated credit? I do. And I see it because it is out in the open.

Now for that 160,000 tons, of which the lion's share is in private hands, if you don't see a wide distribution now, what is the basis of your view of a narrow distribution?

Think about it. If we say it is the giants that hold most of it, are the giants consolidated in one part of the world? If you say yes, then are they consolidated into one specific currency nation?

In either case, in Freegold, the distribution is going to change. The spur and brake is a force which is seen in the needs of those operating at the margin. Right now, it is dollars operating at the margin, no? So imagine gold flow in that sense.

But the real beauty is that fiat stays alive (no HMS sexual fantasy here). And what do governments get to tax? They get to tax the fiat. If they tax the exchange between gold and fiat, they harm the system. Again, they will harm the currency to save the system, not the other way around.

Where all the gold is now is something that we are going to find out soon enough. One thing is for sure, there will be a transfer of wealth.

Writing this off the cuff...if I am wrong I welcome correction.

Thanks

JR said...

Couple ideas:

1) You control gold through paper, not physical. Like the 1970s failed gold auctions and then BIS/ECB offer support and paper market makes gold go back down referenced here.

2) One of the big ideas is CBs in Freegold will be beholden to the flow of physical gold. CBs can try to manage their currency by selling or buying gold, but they can't resist the brake/spur trade forces of the physical gold flow.

the short answer is that the very act of defending a fixed price of gold in your currency ensures the failure of your currency. And it won't take 30 or 40 years this time. It'll happen fast. It wouldn't matter if Ben decided to defend a price of $5,000 per ounce, $50,000 per ounce or $5 million per ounce. It is the act of defending your currency against gold that kills your currency.

You can defend your currency against other currencies… using gold! Yes! This is the very essence of Freegold. But you cannot defend it against gold. You will fail. Your currency will fail. Slowly in the past, quickly today. If you set the price too high you will first hyperinflate your currency buying gold, but you won't get much real gold in exchange for collapsing the global confidence in your currency, and then you will have to empty your gold vaults selling gold (to defend your price) as your currency heads to zero. And do you think the world trusts the US to ever empty its vaults? Nope. Fool me once…

If you set the price too low, like, say, $5,000/ounce, you will first expose your own currency folly with such an act and have little opportunity to buy any of the real stuff as the world quickly understands what has gone wrong and empties your gold vaults with all those easy dollars floating around. You will sell, sell, sell trying to defend your price, but in the end, the price will be higher and you'll be out of gold. Either that, or you'll close the gold window (once again), sigh, and finally admit that Freegold it is.


Focal Point: Gold

So CBS can't fight freegold.

Freegold is all about the big players, right? Someone having an awful lot of gold hoarded, can have a severe impact on this signal.

[...]

Not just the central bank, any giant that has enough ammunition (in real physical gold) to cause wild price swings.


So we have ruled out the any one CB. And the CBS collectively? Well:

All the gold ever mined is mostly still with us. That's about 160,000 tonnes. Most of that is in private hands now, not with the central banks.

Open Letter to EMU Heads of State

cont.

JR said...

cont.

so what about "any giant that has enough ammunition (in real physical gold) to cause wild price swings."

Who is that? CBs can't control it. And what of the giants:

When Another spoke of "rich third world persons" and "old world giants," what quantities of gold do you think he was talking about? Mr. Gresham asked him once:

Mr. Gresham: "We who read here generally buy the coins, one ounce and less. The "Giants" you speak of are usually buying the large bars (100 ounce?), yes?"

ANOTHER: "I ask you, how many of your bars in tonne? This is the small purchase size."


Good question. How many 100 ounce bars are in a tonne? The answer is 321 and a half. Or 32,150 ounces. And this is a "small" giant! 4 billion ounces in private hands. Let's take just half of that and wonder how many of these "small giants" there might be in the world. 2 billion divided by 32,150 = 62,208. So I'm going to go out on a limb and say, conservatively, that there are probably "tens of thousands" of these so-called "giants" in the world. That 4 billion ounces is out there somewhere, in private hands, and that kind of family wealth doesn't necessarily show up on things like the Forbes list.


Freegold Foundations

so conservatively there are tens of thousands of these "small" giants.

Sounds like JR is saying distribution is already wide in physical terms and we just don't see it.

I don't think that's true.

JR said...

you won't ever see it:

...In Freegold, large centralized gold reserves like you'll find in CB vaults will be somewhat superfluous to the real reserves that are in private hands within any currency zone. The total reserves in any currency zone should be viewed as Centralized Reserves + Private Reserves, of which you'll never, ever know the exact count.

This not-knowing will drive Westerner's like you crazy, because they like to know (and have grown used to knowing) exactly who has all the "wealth" (for various and sometimes nefarious reasons) and to obsessively publish those names on fancy lists like those found in Forbes and the World Gold Council. In Freegold you'll know where the real wealth is in the same way we know where black holes are. We cannot see them directly, but we can see the gravitational pull they exert on everything around them, which is how we know they're there. The existence of invisible, privately-owned gold (which often dwarfs official gold) acts in much the same way; with a sort of "gravitational pull."...


comment to Reference Point: Gold - Update #2

JR said...

Better link comment to Reference Point: Gold - Update #2

This is on of J.R.'s most favorite comments, EVER!

JR said...

Re post:

Hello Joel,

You mention my statement:

"In reality, gold reserves are any physical gold inside your currency zone, no matter who owns it. It's not just CB gold that counts, but all gold inside a zone."

Then you ask:

"I am having a hard time understanding how gold in private hands lends credence to a currency if it is not backed by/redeemable for that gold in some form or fashion."

Then later you surmise:

"Maybe FOFOA's comments about private gold being counted as reserves were related to a post Freegold environment; prior to a gold-backed currency environment though, I still don't see how gold held in private hands would ever lend additional credence to a currency."

The fact of the matter is that my statement at the top is true whether anyone understands it or not. Kind of like gravity exists whether or not you understand why. That's why I prefixed it with "in reality." It is true in Freegold, it is true today, and it was true back in the 80s and 90s when the dishoarding of private Western physical gold (in favor of paper gold) lent credence to the "oil-backed dollar" of the time. In Freegold, large centralized gold reserves like you'll find in CB vaults will be somewhat superfluous to the real reserves that are in private hands within any currency zone. The total reserves in any currency zone should be viewed as Centralized Reserves + Private Reserves, of which you'll never, ever know the exact count.

This not-knowing will drive Westerner's like you crazy, because they like to know (and have grown used to knowing) exactly who has all the "wealth" (for various and sometimes nefarious reasons) and to obsessively publish those names on fancy lists like those found in Forbes and the World Gold Council. In Freegold you'll know where the real wealth is in the same way we know where black holes are. We cannot see them directly, but we can see the gravitational pull they exert on everything around them, which is how we know they're there. The existence of invisible, privately-owned gold (which often dwarfs official gold) acts in much the same way; with a sort of "gravitational pull."

While one may be forgiven for thinking it was the paper gold market in the 90s that made the dollar strong, it was actually the out-flow of private physical that lent it the credence it needed amongst those who really counted; those that held the power to cast the judgment of value upon the dollar. And you'll also notice that the official physical reserves lay very still during this period, imagined conspiritard theories notwithstanding.

To use your words, currencies are mostly "backed by/redeemable" [for] goods and services… in the private sector. And in the process, they (the private-sector currency transactions) generate savings for those who produce more real goods and services than they consume. So what is most important for a currency's credibility among "super-producers" (those with the greatest power to pass judgment) is that those accumulated extra currency units are also "backed by/redeemable" [in] something other than goods and services, for the purpose of storing value.

Cont...

JR said...

p.2

Now I ask, and this will take some thought on your part: Do you think those "super-producers" would rather redeem those extra currency units from the private sector, or at an official government "window" from the centralized reserves? Now this gets a little complicated as we consider all the possible variables. We have the possible variable of a "fixed gold backing" like we had during the Bretton Woods system. This not only limits the redeemability to central banks only, but it also keeps those "savings" fixed in value to a currency that is all-the-while depreciating against goods and services, rather than allowing savings to properly float against currency, goods and services. And it also creates a one-way, asymmetric flow of gold, which, while it serves certain special interests, is ultimately unsustainable.

Or we could have a "dirty float gold backing" where redeemability is available to anyone anywhere through the private sector. But the float is made "dirty" by the public sector enabling and assisting a confidence trick to keep physical flowing in one direction (similar to the fixed system), this asymmetric flow being key to certain unpublicized agendas, but likewise ultimately unsustainable and untrue to the value of savings.

Lastly, we could have a completely free floating gold backing. In this case there is no need for a government-run "gold window" because the price will be such that gold is available anywhere in the private sector. And gold being gold, there is no difference between official gold or private gold. If you accept my currency units in the trade of goods and services and you are the one (of the two of us) that ends up with extra units (because you produce more goods and services than you consume), then you can trade those extra units for gold on any major corner, in any city.

Now let's think about how the flow of gold will be different in this last, free floating gold backing scenario, than in the asymmetric one-way flows (West to East) of the first two options. We'll start small and local and then we'll expand our view to see a larger portion of the fractal pattern that emerges. And hopefully you'll start to see that the REAL currency reserves are in private ownership inside each currency zone.

Let's first think about the gold trade inside any currency zone. We'll think in broad-enough concepts that they would apply whether the zone is the US, China, the Eurozone or the Middle East. Doesn't matter which one. At the most basic level you have some people in a currency zone that are buying (physical) gold, and some that are selling. There are many reasons for them doing these two acts, but it will be helpful to us right now to simplify it down to "savers" (or economic net-producers) that are buying, and dishoarders or dis-savers (perhaps the elderly, retirees or ex-net producers) that are selling.

These basic transactions are net-neutral to the local economy, the value of its currency and the price of gold. As the young net-producer takes the gold and leaves some of his widgets on the table for the old-guy to consume, he hands the old-guy his excess currency with which to buy those widgets left on the table. Equal supply and demand—no net effect on the price of gold or the currency. But what if a zone has more savers than dishoarders, perhaps a zone with a growing, younger economy? Or vice versa, what if we have more dishoarders than savers as with an aging population, an older contracting economy?

If we have more savers than dishoarders the price of gold will rise until new dishoarders are created. These new dishoarders are people that are willing to dishoard as they see the price of gold (in that currency zone) rise, but they will also have competition from two other sources: 1. the local Central Bank currency manager, and 2. potential dishoarders from other, external currency zones.

Cont...

JR said...

p.3

So in a growing, young, vibrant economy with more young savers than retiring dishoarders, the price of gold will tend to rise—which means the price of the currency is falling. But this will be met internally by new dishoarders especially if the (privately-owned) gold reserves are plentiful in that zone, which will keep the price of gold from rising too far or the currency from falling too far, which makes perfect sense in a vibrant economy.

If (the private) gold (reserve) is not so plentiful in that zone, the currency will continue to fall until gold is either supplied by the local CB (because it wants to strengthen the currency and keep it from falling further) or by the arb that develops to import some more gold to meet the rising demand (inflow of gold into this vibrant zone), which again makes perfect sense, and keeps the currency from falling too far.

So if you have a vibrant, growing economy, gold already within the zone will tend to accumulate in private hands rather than public reserves, and the net flow of gold across the border will be INTO the zone, rather than an exodus of gold out of the zone. A CB, in this case, that wants a strong currency to go with its vibrant economy, will sell public gold to its own people (perhaps through an official mint program). Or one that wants to keep its currency value suppressed will join its citizens in buying gold, increasing the physical inflow until it ultimately stops because the CB issued too much currency.

But what if we have more sellers of (physical) gold than buyers inside this currency zone? We will now have pressure from the supply side that will drive down the price of gold while driving up the strength of the currency, which as we all know from our $IMFS overlords, is bad for exports. In this case, the price of gold will fall until new savers are created. That is, until it reaches a price low enough that someone decides it is going to be profitable to become a net-producer by simply consuming less and buying gold instead.

But what if the economy is so dead that the price of gold would have to fall very far to create new savers from within that contracting economy? So far, in fact, that it would destroy the economy further by completely disabling any remaining economic competitiveness through the exploding value of the currency (remember, currency exchange value rises as gold price falls).

This scenario will be met, once again, by one of two (or both) forces. Either 1. the local CB will print currency to buy up some of that extra gold supply (already within the zone) and take it into the "official reserves" weakening that currency that is rising too fast by bidding up the price of gold with currency from thin air, or 2. foreign buyers will show up for the arb that develops to export that low-priced gold from the dishoarders inside the zone to savers outside the zone. Either (or both) of these forces will keep the currency from rising too far. And a net-outflow of gold from a currency zone with a contracting local economy, once again, makes perfect sense. Likewise, inside the zone, any gold that stays within the zone tending to flow from private into collective ownership also makes sense within a shrinking economy.

In an economy that consumes more than it produces, gold will tend to exit the currency zone in aggregate. And any gold that remains within the zone will, in the end, be mostly in public (collective) ownership. As the ability for the collective in this zone to tax its own contracting economy dwindles, and the dishoarding of the citizens finally subsides (because they simply ran out of gold to sell), the currency will start to collapse and any remaining collectively-owned gold will ultimately have to be deployed (mobilized) in defense of the fatally free-falling currency.

Cont...

JR said...

p.4

Now if the people within this fatally-contracting currency zone are truly of the elderly, retiring and dying variety, this final collective dishoarding may be enough to carry them and their dwindling needs gently into that good night. But if they are not all 65 and over, if there is something more sinister at play in this zone, like youthful laziness/poor education, or decades of malinvestment funded through debt-financed consumption, or a compulsively expansionary collectivist government parasitically attached to its contracting host, then we will most-definitely observe a different outcome when this dire gold scenario is finally reached.

So Joel, it doesn't matter what you or anybody else says, writes, purports, knows, believes or understands. The reality is, and always has been, that the real reserves behind any currency are primarily the physical gold held in private ownership within that currency zone's physical boundaries, and secondarily the collective reserves held on public display. Those collectively-owned (official) reserves are only for the management (or mismanagement) of the currency until and unless they are finally used in defense of a full-blown collapse of the currency, the ultimate end of a mismanagement timeline, or in times of all-out war when gold becomes the ultimate (and only) transactional currency among distrusting neighbors.

Viewed this way, we can now see clearly how the US confiscation of gold by FDR in 1933 was the ultimate "Hard Money Socialist" act. Attempting to bring the entirety of a great nation's REAL reserves into collective ownership and then spewing them off in the most reckless currency mismanagement possible. Then came Bretton Woods, more Hard Money Socialism. The US then spewed off nearly 65% of its total reserves over 20 years while disallowing its own citizens to accumulate new real reserves.

We are truly arriving at the very end of the dollar's long and storied timeline.

You wrote:

"I am having a hard time understanding how gold in private hands lends credence to a currency if it is not backed by/redeemable for that gold in some form or fashion."

Then later you surmised:

"Maybe FOFOA's comments about private gold being counted as reserves were related to a post Freegold environment; prior to a gold-backed currency environment though, I still don't see how gold held in private hands would ever lend additional credence to a currency."

If I have done my job; if I have painted the picture that I set out to paint, then these statements should seem a little silly to you now. The first one is the complaint of someone trained by that great Hard Money Socialist FDR. "How on Earth could gold in private hands be more important to our trading partners than gold available at the great American gold window?"

And the second one, that perhaps I was only referring to that small window of time between the collapse of today's paper gold market and the next great Hard Money Socialism experiment by the great US government to which the world always bows in monetary allegiance… should seem likewise silly. I hope that I have illustrated through my clumsy paintbrush of words that I was speaking universally when I wrote what you questioned:

"In reality, gold reserves are any physical gold inside your currency zone, no matter who owns it. It's not just CB gold that counts, but all gold inside a zone."

If not, well then I have failed. But still I'll push onward. And luckily, as I wrote, "it doesn't matter what you or anybody else says, writes, purports, knows, believes or understands. The reality [simply] is."

Sincerely,
FOFOA

/SleepingVillage/ said...

er,

The way I see it is like this...

Once the dust settles, can we assume there will still be a similar number of people producing more than they consume? and therefore requiring a "vessel" in which to store their savings?

If gold is the option to save in, then I can't see there not being people everywhere using it, and when I see say people I mean everyone that produces more than they consume.

The gold of savers will always lie still. That is until the savings are required for large purchases or investments or whatever... then the gold will be sold for transactional paper(of your choice) and spent on coke and hookers and stuff;)

Further, there's a lot of people that have gold in their possession that will unload at a higher price. Further yet, there's a lot of high-dollar individuals that have no gold... yet, but they will when/if? gold becomes the ultimate way to save their excess. The gold will simply change hands over time, in the end it will settle with the savers. I don't honestly think you're saying the gold will all be in a few select "giants" hands only... or are you? That would imply that literally nobody is able to produce more than they consume, 'cause there are very few "giants" in this world, but there's plenty of small dudes like us that are able to save.


Back to my wine!

Can you feel it coming, baby

Blondie said...

Evidence of "gravitational pull", exhibit A: "Ants or giants?" Plenty of gold, in any case.

e_r:”...Indian housewives… the actions of a bunch of ants, which does not really matter in the big scheme of things.“

Remember the video in the Superorganism Open Forum? All most people would see upon casual observation would be "a bunch of ants", right?

Victory said...

FOFOA,

Either of these graphs mean anything to you? Whenever I see correlation nearing 1 it makes me go hmmm...

US Gold Exports vs London Fix

Net US Gold Exports vs London Fix

M said...

clip from Drudge

Otmar Issing, a former European Central Bank chief economist, warned that the eurozone could be heading towards fracture in a book called How we save the euro and strengthen Europe published this week .

"Even in its short existence, the euro has been more stable than the mark", he said.

The German economist also played down the role that the central bank, his former employer, could have in solving the debt crisis, suggesting that countries needed to fix their own problems.

"There is no quick fix and anything in the direction of euro bonds or something similar would mean for me the end of the stability-oriented currency union.

"The less politicians address the root of the problems, the more they look with their expectations and demands to the ECB, which is not made for this. It is a central bank and not an institution to rescue governments threatened by bankruptcy. A central bank always also acts as a lender of last resort for the banking system - but it does not rescue governments," he said. "Exaggerated expectations alone can harm the prestige of the institution."

Victory said...

Oops I just realized that the index on the left scale is probably in dollars not weight, still if that's the case it looks like increases or decreases in the price of gold have little to no effect on export demand which in itself is rather intriguing...

e_r said...

Blondie -

Excellent point. But you've evaded my question: which is that the actions of a large number of savers are shaped by the Government.

e_r said...

SV,

/* I don't honestly think you're saying the gold will all be in a few select "giants" hands only... or are you? That would imply that literally nobody is able to produce more than they consume, 'cause there are very few "giants" in this world, but there's plenty of small dudes like us that are able to save. */

No I'm with you. There are a lot of people of small material net worth who will save. My point is that they may not be able to exert that much of a force on the price of gold post-FG as opposed to a giant.

e_r said...

JR,

Thanks! I really appreciate pulling this gem out of the treasure chest. I enjoyed the 4-part post. I can get a reasonable glimpse of how the distributed intelligence of the actors will shape the economy.

e_r said...

My point is that they may not be able to exert that much of a force on the price of gold post-FG as opposed to a giant.

In a way, may be that is correct. One should be able to exert the force proportional to their contribution (net production to the economy).

costata said...

Blondie,

Just caught up. Sometimes the first pass is the best.

Cheers

anand srivastava said...

I have written an article for my own freegold group. Not everybody has the time to read FOFOA :-(.

http://www.facebook.com/groups/330948000326570/doc/335250203229683/

I hope it is right on all the basic points.

costata said...

e_r,

Let's take a look at this actor called government in a post-transition environment. In fact we need to look at three actors - Currency Issuer Government (CIG), Currency Bloc Government (CBG) and Gold Manipulator (GoldMan). (Odd coincidence in that last one, eh?)

CIG has no objective limit on the amount of currency they can issue.

If GoldMan wants to manipulate the price of gold on CIG's turf he's screwed. CIG can buy an unlimited quantity of gold even if the retail buying public in his zone doesn't want it at a given price.

On CIG's turf GoldMan can only "flood" the market to the limit of the weight of gold he is holding if he wants to drive the price down. He cannot drive the price up to an artificially high price with his stash alone. It's a stock he's holding not a flow. To drive the price up he would need to control the flow.

Goldman can't manipulate the local price of gold no matter how much of it he possesses if there is a possibility of a flow of gold from any other source that will undercut his price. So, to be clear, GoldMan can't move the price of gold up or down in CIG's domain.

The same deal applies if CIG wanted to try playing the GoldMan role in opposition to the general public. CIG cannot use coercion. If he tries that his pristine "white" local gold market will turn black faster than you can say "war on drugs". Even faster than you can say "prohibition" actually. He has to fashion incentives that will actually gain the co-operation of the citizenry.

I'm going to stop at this point and wait for a response (if you would be so kind) before discussing CBG, incentives and this related issue of post-transition distribution. Please let me know if what I wrote above makes sense to you.

Cheers

costata said...

e_r,

While I was typing that comment above I see (after posting it) that JR appears to have resolved the matter with a reprint of a missive from our favourite Yeti. No need to respond to my comment.

Cheers

Blondie said...

e_r: "...you've evaded my question: which is that the actions of a large number of savers are shaped by the Government."

I wasn't evading it; I was ignoring it, as other commenters had addressed it in the meantime. However I did begin to type up a reply earlier whilst making my way through the comments, and since I haven't yet deleted it here it is:

e_r: ”I am saying that the best interests of the savers are shaped by the legal system, which is under the control of the Government.“

And government is enabled by…?

This is a vicious circle, but one actor, the saver, can exit at any time, thus collapsing the circle: please demonstrate how the saver can be prevented from choosing their SoV media?

If the saver opts out the source of govt power is gone aka there is literally nothing for govt to borrow.

victorthecleaner said...

Most commentators seem not to understand the position of the ECB. In case you are interested, here is something I wrote at screwtape:

http://screwtapefiles.blogspot.de/2012/08/niceto-know-that-euro-is-in-such-good.html?showComment=1344500558488#c9136192503865140084

Victor

costata said...

Sorry for quoting from my own comment above but there's something I'd like to add to the discussion about the way paper gold affects the price of gold.

On CIG's turf GoldMan can only "flood" the market to the limit of the weight of gold he is holding if he wants to drive the price down.

Unless he can create paper gold, or create a system that will manufacture it, and merge that paper gold with the flow of physical gold. Then this manipulator has unlimited stock and he can deliver unlimited flow.

By controlling the rate of creation of the now unlimited stock and regulating the flow of the paper gold stock he can influence the reported price of, say, Comex spot gold in both directions. That said, he has an absolute floor in how little paper gold stock and paper gold flow he can create i.e. zero. At that level he has no influence on the price of physical gold at all if it is still flowing.

And what is that tinkling sound in the FOFOA cutlery drawer? Of course it's the sharp knives trying to draw our attention to an important fact. There is no objective limit to how much paper gold stock and flow this system can produce. A floor but no ceiling.

Therefore the power of this paper gold "Death Star" is infinitely greater in its ability to push the reported price of gold down. Unfortunately there is a little problem lurking here for the owner of this paper gold Death Star. To whit, the cost of producing gold from gold mines. This being the major part of the flow if you push the price too low gold miners, at some point, will stop producing.

Then the risk emerges that the paper flow and the physical supply flow could demerge because physical demand might not drop to the extent that supply has decreased. These flows could separate and then something might happen - two prices might arise. One price for physical gold and a different price for paper gold.

(Enter Another and FOA Stage Left with a tale to tell of just such an episode.)

And one final thought I'd like to share with you. Richard Milhous Nixon did not close the gold window in 1971 as is widely reported. Physical demand slammed that window shut because the USG was unwilling to allow the price of gold in US dollars to float.

Demand for physical gold drove the 1971 episode. Demand for physical gold drove the 1997-1998 episode. And many here confidently anticipate that it will drive events again and result in the collapse of the paper gold market.

Woland said...

Hello JR:
Can you indicate the source for the Q1 2011 $338 Billion "demand
shock" figure (for gold) which you cite in an earlier comment? You
say it amounted (at prices prevalent then) to 7575 tons. Thanks.

d2thdr said...

Hi Victor,

I would like your permissions to borrow this comment you made. I will credit it to you whenever I use it.

http://screwtapefiles.blogspot.de/2012/08/niceto-know-that-euro-is-in-such-good.html?showComment=1344500558488#c9136192503865140084

JR said...

Hi Woland,

The 7,575 figure referenced in Fallacies – 1. Paper Gold is just like Paper Anything comes form the LBMA survey also linked in that article.

Good discussion of the import of this LBMA survey and the 7,575 tons of paper gold created in Q1 2011 in GLD Talk Continued and in the comments to Interview.

Cheers, J.R.

victorthecleaner said...

d2thdr,

sure, you are welcome.

Victor

john smith said...
This comment has been removed by the author.
john smith said...

Hi JR, thanks for the answer.

As to the mechanism by the physical gold price is suppressed, the mechanism = paper gold.

Are you saying that the mechanism is of demand being supplied by paper [because it is much more convenient for buyers, who are there just for the quick dollar]?

If that's the case, I agree with you. For instance, pork bellies contracts can only by fulfilled by delivering... yes, pork bellies. And yes, there is a market that is not like all the others, because in gold markets, I'd dare to say: Even gold can fulfill contracts!

When an exchange allows contracts to be fulfilled with anything but the underlying commodity, sellers would try to deliver anything but the underlying commodity, including paper. It is up to the buyers to call the bluff, by always demanding the underlying commodity [yes, dream on with the last one:)].

When you take this snippet:

Since gold is not consumed by consumers or industry the way corn, oil, copper and grains are, and because it simply accumulates, supply shocks are not economically critical. On the demand side, gold is apparently used as a "safe haven currency". And we apparently had a demand shock of around 7,575 tonnes in Q1 2011. The normal supply for that period would have been around 700-1000 tonnes, so the paper gold market acted as a shock absorber and absorbed that demand shock by expanding. That way the price of gold only rose $30 in a quarter with a demand shock of 10 times the normal physical supply flow.

The only mechanism I see is one of increased supply of [paper] gold and that bluff no being called by buyers on settlement, because paper is so much more convenient. But this mechanism is universal, it would also depress pork bellies [or every other commodity] markets, if exchanges allowed contracts to be met with paper.

Now, we have two problems:

* Hello Houston, we have a Problem. There are four spare parts:

0) Gold [paper] markets are different.
1) Gold is not consumed.
2) Gold is bought in currency terms, not weight terms.
3) Gold has a 60 year "supply overhang".

* I think I remember reading somewhere that paper instead gold delivery in gold markets was allowed in the 1990s. If that's the case, how could gold markets not be like all the others and instead systemically suppress gold?

Woland said...

Ah. Now I see. All electrons, but no protons. Much lighter
that way, eh?

e_r said...

Costata,

From your write-up, I think I am understanding that it would actually be in the best interests of all the players to play their required role and no more. If they decided to play more than their required role, then either:

a) It won't last very long (or)
b) It cannot have the desired effect because they do not have complete control (decentralization effect).

I think JR's repost combined with what you say puts more light on the statement below:

Perhaps gold's functional change will cause its widest distribution, not the other way around. .

e_r said...

Blondie -

Agree. There is a self-similar expression of individual sovereignty when we look at it from the big picture (owning physical gold outright and valuing it as the savings of ages ).

e_r said...

Interesting brief from Peterson Institute on why a Euro breakup must be avoided at all costs:

Full paper.

The author makes a compelling analyzing costs vs. benefits and looking at history.

Woland said...

To All:

I think it is time for me to say good bye to this great forum. I
think it is safe to say that in conjunction with what I have read
in both the archives, and some of the classic posts by FOFOA,
no blog, or for that matter any other printed work, whether on
the internet or conventionally published, has contributed more
to an understanding of the roots of the present global crisis, as
well as its' possible future solution, than this site.

In recent weeks, I have returned again and again to a post
which some of you may not have read, as well as the
incredible comment section which followed, between FOFOA
and a person who called himself "Ender". It was dated Sept.
21, 2008, and the comments ran from the 21st to the 25th.
I cannot describe how the clarity of those comments has
simplified my understanding of Freegold except by suggesting
that, if you have not yet done so, you give them a visit. You
are sure to be rewarded.

Finally, I ask this rhetorical (in the sense that I do not expect
or wish to receive an answer) question of FOFOA himself: Did
it ever occur to you back then that you may have been visited
by the White Buffalo?

Best regards, and a long overdue contribution to follow.

e_r said...

Woland,

Thanks for the pointer.

The post Woland refers to is here.

The depth & breadth of the discussion between FOFOA and Ender, as well as the respect they show for each other through the course of it is a great sight to behold.

Ender: It is only to the saver that takes a little time to understand the difference between being rich and being wealthy that they find their way into gold. Gold is an asset based currency, thus it represents payment in full where as fiat currency is a debt based currency that represents a claim in the system. In this light, the ‘preservation of wealth’ simply means - he who holds gold has already been paid.

e_r said...

Woland,

I have always enjoyed your comments and observations (especially pointing out the relevant old snippets in usagold forum discussions that are pertinent to the topic under scrutiny).

I wish you well.

RJPadavona said...

The picture above reminds me of my first a-ha moment after visiting this blog. It was such an eye-opening revelation, i believe i even said it out loud: "Those geeks over at FOFOA's place are right. CENTRAL BANKS DON'T OWN SILVER."

I had to rethink everything I'd learned up until that point. This was a hard pill for me to swallow. You see, I have a cousin who is a high priest in the cult of silver. He's been very influential with me my whole life. But after a lot more reading and plenty of soul searching, Praise the Lord, I saw the light. It was at that moment when I told my cousin he could keep his silver because I had chosen to walk down the gold paved road of the Devil.

Here's to many more days walking that gold paved Trail with my Friends.

"Our road was paved a long time ago and there ain't nothing we can do about it"...... except walk in the footsteps of Giants.

RJP

e_r said...

FOFOA,

You said (in your discussions with Ender): If you hold your wealth in fiat, then you must invest it and be constantly aware of the return and how it relates to inflation. In the long run this will always be a losing battle for the common man. In the short run he will see wild fluctuations in either direction, but in the long run all wealth will be absorbed by the system and be gone forever. Gold on the other hand will perform differently for the common man. If he stores his extra wealth (wealth not needed for day to day affairs) in gold, over the long run he will have preserved his wealth.

I don't know if the first part is true for the common man. Here's a link to a short excerpt from the book, Stocks for the Long run by Jeremy Siegel.

On page 11, there's a graph of real returns of stocks, bonds, gold, bills and the dollar from 1802 -- 2006.

Quoted from the book:

The growth of purchasing power in equities not only dominates all other assets but also shows remarkable long-term stability. Despite extraordinary changes in the economic, social, and political environments over the past two centuries, stocks have yielded between 6.6 and 7.0 percent per year after inflation in all major subperiods.

In the short run yes there are wild fluctuations, but over reasonably long term equities have returned growth in purchasing power.

I don't think it is true to say "all wealth will be absorbed by the system and be gone forever". The common man (many that I know of) has faith in equities based on this historical evidence.

Gold sure will preserve the wealth through turbulent times (escaping ravages of inflation / deflation).

Another note of interest from the comments, you said:

I think the key to FreeGold is that gold valued in the 10's of thousands or higher does not require hyperinflation as many people think. It simply requires a default, or freeze-up in the physical flow of gold .

In a way, strong dollar policy is about ensuring the functional use of the dollar to facilitate physical flow of gold.

jojo said...

e_r-
Did you miss this discussion in Interview?
Go to Interview (7/12) and ctrl -f for Siegel.

costata said...

e_r,

If my comments helped to flesh out the key points I'm glad,

Cheers

e_r said...

jojo,

Thanks for the pointer.

JR said: Seigel's ideas are not economics, nor are they "constants" in the worlds of economics.

Its very important point to understand, as the premise of this blog is that the $IMFs is ending.

If $IMFs ($ as the world reserve currency) is ending, does that mean that general equities market will die?

costata said...

National Accounting and Capital

I have been attempting to refine and articulate my criticism of the current system of national accounting. I would like to put a few of my current thoughts on the table for discussion in response to a challenge from an earlier thread.

I think the current system doesn't accurately describe the flow of purchasing power between nations. In a sense there are two flows that merge and intermingle like paper gold and physical gold. A kind of paper purchasing power and real purchased power.

An economy such as the USA can be in deficit and receive countless billions of items of physical plane real stuff that represents the productivity of others. Looked at from a conventional bookkeeping perspective USA Inc runs at a loss. If those national accounts were constructed from a savers perspective then USA Inc would be a fantastically profitable enterprise thus far.

When AD was still here and annoying many of us I actually sat down and wrote a series of satirical pieces that were designed to lampoon some of his dogma. But there was also a deeper purpose, an attempt to discuss some of the key issues in terms a child might grasp. One of them was called "Wolfie And The Beanstalk" and it is about paper gold.

In that story the giant at the top of the beanstalk was an Easterner and I discovered an amusing fact as I was looking for information about geese. There is a species of goose that is sometimes referred to by the common name of Western Goose.

In regard to capital I'm thinking about this topic from two perspectives right now. A point-in-time perspective and a period-of-time perspective. If I have a definition that I'm remotely happy with at present it is a functional definition.

I see the paid up capital of a company as the best illustration of capital at work - a functional definition of capital. Under the current system gold can't function in this role. Under a Freegold-RPG system I think that both cash and gold can be capital at a point in time.

Over a period of time (in an inflationary environnment) gold emerges as the only form of capital that can reliably store value that could capitalize a company. I'm thinking of gold right now as both a store of value and a store of work. Work having several meanings one of which could be expressed this way:

"The unit for measuring work is the same as that for energy in any system of units, since work is simply a transfer of energy."

http://science.yourdictionary.com/work

I have some "work" that needs doing so if I am slow in responding to comments it's not because I'm ignoring people. I'll catch up with the comments (and reply) as time permits.

Aaron said...

Uncle! Uncle! *raises hand* I have a question!

But first, I'd like to repost part of your comment and add a few ideas noted in [bold].


"I have been attempting to refine and articulate my criticism of the current system of national accounting. I would like to put a few of my current thoughts on the table for discussion in response to a challenge from an earlier thread."

"I think the current system doesn't accurately describe the flow of purchasing power between nations [because the world saves in dollar denominated debt]. In a sense there are two flows that merge and intermingle like paper gold and physical gold. A kind of paper purchasing power [USD] and real purchased power [goods imported into dollar markets -- primarily the USA]."

"An economy such as the USA can be in deficit and receive countless billions of items of physical plane real stuff that represents the productivity of others [because the savers of the world are storing credit denominated in USD as their savings]. Looked at from a conventional bookkeeping perspective USA Inc runs at a loss [because the savers of the world are storing credit denominated in USD as their savings]. If those national accounts were constructed from a [gold] savers perspective then USA Inc would be a fantastically profitable enterprise thus far."


Q:

How is a company that has paid for its capital using debt on equal footing with a company that has cleared that debt with gold? I admit if the currency is well managed for time X that currency can be a short-term store of value for the receiver, but none the less that currency remains a store of value susceptible to some wicked delta (see various economies across the planet) against goods and services while gold never goes to zero?

costata said...

Aaron,

IMO some good "thought food" in those ideas you inserted. Thank you. Though I'm not sure that you need to insert the word 'gold' in front of the word savers.

As our favourite big-picture Yeti has pointed out it's the choice of savings vehicle that makes a world of difference not the saver. The action as opposed to the actor because the intent of the actor may not have changed due to a bad choice in how to accomplish what they set out to do.

I'm also questioning whether a company/enterprise that uses debt as a substitute for capital can be adequately "capitalized". And kindly note readers I said debt as a substitute not "alongside capital" or "in addition to" capital.

I'm not suggesting there is no role for debt in a company (or in other hands). I'm wondering if a company/enterprise is even viable if it operates with 100 per cent debt and no capital at all or perhaps merely too little capital versus debt. Is a capital-free enterprise just an accident waiting to happen?

Also: Is there some analogy here with the $IMFS falling apart as its currency ages? One of the signs of decay in the US economy which ZH, and others, have talked about is the aging of the "capital stock" of the USA.

I realize that this may be quite a different type of capital to the one I described above but it does have at least one common feature. It is all in the physical plane.

Cheers

JR said...

Hi e_r,

I have not idea what "general equities market will die" means?

I can let you know people don't like having words put in the mouth. Maybe a more open minded approach to matters you claim to not know about is warranted, or if its ruse, just be more direct. Its clear you are advocating for a hidden aganda, so just be honest about it. Don't try to suggest others support this agenda by twisting their words and trying to play games with leading questions built on absurd predicates.

We've been talking about the distinction between savings and investing. About how investing will occur. About how debt levels in Freegold will not grow as destructively large. There will be equity investing.

Check out "It's the Debt, Stupid" and Metamorphosis for ideas on debt and equity in freegold.

For why equities will be different post $IMFS, we need to think about how the $IMFS effects them - consider FOFOA's discussion of FOA's idea of "passive inflation" from Unambiguous Wealth.

FOA (11/3/01; 14:39:16MT - usagold.com msg#129)
An "inflationary depression" is in the cards -- a "price deflation" doesn't have a chance!

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

Back in the mid to late 70s Sir John Templeton always drove his point home for investors watching Luis Rukiser's show. (how does one spell his name,,,,, we always called him Lou Baby (smile))

Sir John, living here on Layford Cay, kept saying that the Dow of the 70s was very underpriced and would soar. He was the most absolutely correct person stating that then! But more into the mechanics of his perception: he knew that anyone buying the Dow and waiting a decade or more, would gain way beyond mere price inflation. Monetary inflation would eventually drive the perceived virtual wealth of US stocks ever higher. So high, in fact, that their percentage gains over price inflationary gains would be incredible. They were!

Truly, what John was referring to was the effects that simple "passive inflation" has on paper assets; especially in a "reserve currency's" domestic market. In this; real price inflation is mostly exported by importing "real goods" competition. This happens as we export excess credit dollars to buy things. It also has another effect; some of that same exported printed money flows in a circle and joins native investors' buying of local paper assets. When this process first starts, "passive inflation", in the form of massive money creation that's far beyond real price inflation, allows one to gain "virtual paper wealth" even before the markets price out the gains. That is; the Dow stays cheap at first then eventually rises to absorb the money inflation! As long as prices don't rise too much.

People that followed his advice, accumulated the Dow over a decade or more; buying "virtual wealth" before the fact! Stock investors made a killing by positioning their assets where this created "passive monetary inflation" would eventually end up. Even though hard money players laughed at them all thru out the 70s, 80s and early 90s! Look who is laughing now? Stocks tromped hard money plays hands down for over 20+ years! Even considering the latest fall on Wall Street.

Luminous Views Photography Artist said...

Like folks here understand Faith. Your question makes me laugh.

Jesus and Mohammad had more in common than FOFOA, ZH & GATA ever could have. Those two guys understood honor and what liberty meant to the individual.

You guys here are the same as ZH & GATA in that you wanna decide which DIS-honest system is best (no different than arguing between Mit the Twit and Obushma).

Get a life and go make sumthin for someone. Then talk about understanding what wealth is.

NO USURY ON CURRENCY CREATION
NO GOVERNMENT SHALL EVER BORROW

IAMSLATTERY

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