Thursday, August 23, 2012

Four!



Four years and three months ago I stumbled upon an extensive archive of ten-year-old posts by anonymous writers with names like ANOTHER, FOA and ARISTOTLE. Prior to that momentous stroke of luck, I'd been poring over anything and everything I could find that was attempting to explain a series of events that I found very troubling.

I had already been exposed to personal losses a year earlier due to the reversal of the real estate market which initially caused me to sit up and pay attention. And so I was hyper-aware during a string of alarming events related to sub-prime and its securities in August and September of 2007.

As time wore on I started to take notice of other odd occurrences in the markets. In late 2007 the Canadian dollar suddenly became more valuable than the US dollar… for the first time in 30 years. Then in February of 2008 an entire market collapsed for a specific kind of security that had been marketed to conservative investors as "safe as cash—kind of like money markets but with higher interest rates," cutting little old ladies off from their savings. And then one month later Bear Stearns collapsed.

I quickly read any book I could find in the small (but growing) financial crisis section at my local book store. I read "America's Bubble Economy", "Crash Proof" and "Financial Armageddon" in early 2008. Online I spent a lot of time reading the likes of Jim Sinclair, Peter Schiff, iTulip and anything that came up on forums like the old Gold Is Money forum. But I had yet to purchase my first gold coin.

With such a rush of new ideas coming in over maybe a six month period, I found myself struggling to make sense of it all. The message I was receiving seemed complicated and disjointed. I knew there was something important in there, but for some reason it felt like an incomplete puzzle. Something was missing.

Then one day someone posted an excerpt of ANOTHER (THOUGHTS!) on the GIM forum with a link to the archives. It was a strange quote, but something in it caught my attention like a beacon as bright as the sun, so I clicked on the link. And for the next two months I stopped reading everything else I'd been reading while I worked my way through maybe a thousand-pages-worth of USAGOLD archives. Then I went back and read it again.

In August of 2008, while still digesting it all, I wanted to talk to someone about the most amazing and mind-blowing ideas I had ever encountered. The markets were teetering on the precipice of an abyss, Hank Paulson had his new "bazooka", and all I wanted was to talk to someone about Freegold. So four years ago today, I started this blog.

Four years, 370 posts, 37,000 comments and millions of hits later and we're still talking. All I can really say is THANK YOU to everyone who showed up to chat! Well, almost everyone. ;D Those of you who have been here any length of time know that I certainly attract my fair share of detractors. And I do realize that the subjects I write about are controversial. It's not easy to encounter a foolproof argument for something you never even considered before.

It's not easy because it runs counter to all the baggage you've picked up elsewhere. I've seen the baggage, so I know what it looks like. There are myriad morality plays based on a poor understanding of money, and wonderful stories of monetary and financial intrigue, depraved intent and consummate, destructive comeuppance all over the internet. But the truth, as it is revealed first logically and then empirically, is so much more remarkable, so utterly amazing, a beacon as bright as the sun.

These are not my foolproof arguments. I take no credit for them. They come from ANOTHER and FOA and I simply distill and extrapolate from their posts because they are no longer doing it themselves. My blog is a tribute to them. If you believe the arguments are not so foolproof, then by all means, bring it! I have never shied away from a worthy debate, but I do tend to ignore tired old arguments which I already dealt with so as not to waste any more precious time.

But if you are one of the many people who incessantly email me requesting that I address Martin Armstrong's failed attempts to bring it, I'll waste a little time for you now. I have read a few of his recent posts and it is clear that he thinks I am using hyperinflation as the reason to buy gold:

The presumption here is you move in a straight line until HYPERINFLATION somehow makes gold $50,000 and ounce, everything else remains the same, and this is better than a Miracle of 34th Street. This is being marketed trying to suck people in like those who are broke sitting in a casino desperately trying the pull that leaver and become a millionaire. This a just pathetic preying upon those who can afford bad advice the least. [sic]

This, like his many other remarks directed this way, is so preposterously off the mark that it is not even worth a comment. He apparently considers predictions of dollar hyperinflation to be a scare tactic meant to frighten you into buying gold:

So Don’t Worry – Be Happy. Gold is not going up because of all the conspiracy claims nor because the real gold will conquer the paper gold. This is all about reality.

But then he delivers his own (less scary?) prediction:

It is not… HYPERINFLATION we need to worry about. How about plain old fashioned extinction of society as we know it today?

That's not scary? Well, fear not, because three paragraphs later he lets you know that you'll soon be able to purchase his famed computer prediction system so you'll know when the plain old fashioned extinction of society will arrive:

Institutional clients seeking the stand-alone systems to monitor the entire global portfolio are nearly ready. We will be providing those systems at $25 million annually.

We will be providing only three global systems fully covering everything worldwide for $100 million. We guarantee that the long-term forecasts will be correct or your money back.

Umm, give me a break? As for his argument that hyperinflation is impossible in a core economy, he is not only way too focused on the monetary plane (bondholders, financial assets, capital flows), like the deflationist that he is, but he is also apparently completely unaware of FOA's slam-dunk rock-solid reasoning for inevitable dollar hyperinflation which I extrapolated in these posts among many others:

Peak Exorbitant Privilege
Inflation or Hyperinflation?

Another one of my more notable (albeit indirect—he simply dismisses me as an anonymous blogger and then says I'm wrong) detractors is Gary North, ever since I caught his attention by extracting a concession from a prominent deflationist with whom Gary had argued for years. You can read more about it (along with references to me) in these two posts:

Rick Ackerman Defects to the Hyperinflationist Camp After 30 Years
by Gary North
Wherein Gary North Rallies My Deflationist Side by Rick Ackerman

Anyway, Gary is an inflationist and he therefore argues against both deflation and hyperinflation. Just this month he wrote separate posts against the arguments for deflation and hyperinflation. I mention this mainly to demonstrate how those arguing against dollar hyperinflation from any side are apparently completely unaware of FOA's slam-dunk reasoning. If this was not the case, I'd expect someone credible to critique it.

My case in point is that Gary's latest (and therefore presumably toughest) argument against hyperinflation is that the Fed cannot solve the USG's problem of unfunded future liabilities of $222T through hyperinflation and it therefore will not adopt a policy of hyperinflation. Furthermore, he believes that the Fed will be able to somehow resist the USG's spending addiction if push comes to shove. He writes:

I am convinced that, unless Congress nationalizes the Federal Reserve, the Federal Reserve will not adopt a policy of hyperinflation. That would be to the detriment of the banking system in general.

Now I realize that his post was not directed at me because I'm just an anonymous blogger who's wrong, but if it had been, just like Martin Armstrong's attempt, it's so far off the mark it's hard to know where to begin. My (which is FOA's) hyperinflation reasoning is not about a Fed (or USG) policy decision to solve the debt problem. It is simply the corner that the dollar is backed into and there's only one way out.

The rationale is so remarkably simple that I'm surprised no one like Gary or Martin who believes dollar hyperinflation is anything less than certain has attempted to tackle it. It's not a difficult argument to understand. It's basically that the only thing preventing high rates of dollar price inflation is foreign support for the dollar. Take that away and you'll have a high rate of dollar price inflation. And then, partly because the USG budget deficit eclipses the trade deficit today, the government will be forced to quickly hyperinflate the dollar simply to maintain its status quo. The alternative would require the government to shut down, but it won't even consider that option. Simple.

I'll add one other post to my above recommendations for anyone who wants to "bring it":

Moneyness
Peak Exorbitant Privilege
Inflation or Hyperinflation?

Like I said, these are not my foolproof arguments. I take no credit for them. To prove it, here are a few quick quotes from FOA in 2000 and 2001:

So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the world's working poor. But this is not about to last!
---
Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation.
---
We are only just now arriving at a time period that will bring about "The Currency Wars". Everything prior to this was only a preparation period to build an alternative currency. The years spent traveling this road were done to prepare the world for an escape medium when the dollar finally began its "price" hyper-inflation stage.

Few investors can "grasp" that in reality, our dollar has already been hyper inflated, but without the higher price effects. Years of deficit spending, over-borrowing, debt expansion have created an illusion that the dollar was immune to price inflation. This illusion is evident in our massive trade deficit as it carries on with no negative effects on dollar exchange rates. Clearly other investors, outside the Central Banks were helping in the dollar support process without knowing they were buying into a dying currency system.

The only thing that kept this process from showing up in the prices of everyday goods was the support other Central Banks showed for our currency through exchange intervention. As I pointed out in my other writings, this support was convoluted at best and done over 15 to 20 years. Still, it's been done with a purpose all this time.
---
A grand hyper inflation of prices is now directly ahead on the trail. It should be ushered in with a large "crackup" in the currency derivatives market. Once this event is "in process" the paper gold markets will quickly rush to discount against physical gold. A discount that will break our gold market pricing and physical allocation system.
---
This country is diving head first into a grand hyper inflation and no amount of Fed maneuvers will stop it. People that learn this early on, before the physical comes into short supply, will be miles ahead. Buying gold between $400 and $200 will be like knowing a member with Masters Tickets.
---
Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place.
---
For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained
---
The game is to let the US economy suffer from its own bloated expansion by moving slowly away from supporting foreign dollar settlement with CB storage. This is more than enough to end the dollars timeline as we are already stretched to the leverage limit. They know that Greenspan has but one policy to use and that will be super printing. He is doing it now, right on que!
---
Again; this all works as long as the world "buys into" using our dollars. As I said; an expanding fiat works to grow the economy thru expanding credit buying power because the fed can support the system with credit creation that has no "inflation premium". That lack of premium only exists as long as Americans can exchange free credit for real physical goods. Once this perception changes it's over. Once the world understands that it's not local US goods that stands behind dollar growth, but less expensive foreign goods,,,,,,,,,, the stage is set for our "supporters" to sell to themselves!
---
The evolution of Political will is now driving the dollar into an end time hyper inflation from where we will not return. That is our call. Bet your wealth on the other theorist's call if you want more of their last 30 years of hard money success.


Of course, as I mentioned earlier, hyperinflation is not the main reason to buy gold. You can get the same "hyperinflationary gain" by buying artwork, antiques, classic cars, baseball cards or any other hard asset. The reason to buy gold over those other choices is Freegold. Freegold is gold revalued in real terms, independent of hyperinflation. Those are my two main topics, Freegold and hyperinflation, because those were ANOTHER and FOA's two main topics. I'm not really going into Freegold in this post but I will give you a quote that a reader named Steve sent me. It comes from Bill H at Lemetropole Café and I think it captures the relevance of Freegold to shrimps like us:

We used to be a nation of "choices". Many many choices, good ones, bad ones, whatever, but there were multiple choices at every turn.

Now, do we as individuals have "multiple choices"? Not many. Many are unemployed, many have negative equity in their homes and cannot move even if they want to, many rely on food stamps to eat, savers are being forced to "eat" their balances or take on the higher risks of the rigged stock and bond markets. The only "choices" that we as individuals have left are those involved with protecting ourselves and families. It is no longer about living the American dream, living within your means and enjoying your "golden years". No, it is now about "keeping what you have" or just plain outright survival. I believe that even today's current circumstances will be looked upon in the future with "too bad it can't be like it was back in 2012".

It is not however ALL bad, we will "reset" and hopefully go back to a rule of law and respect where everyone is not looking to rip everyone else off. Right now it is imperative that you be ready for this coming reset because once it happens there will be no "do overs". You will "have what you have" to start out in the new system and nothing more. Think about it, how many times have you thought back and said "gee, it really would have been nice if my Great Grandfather had invested in oil wells" or "if my parents had invested in coastal real estate or IBM back in the 1950's". What if you had the smarts to invest in Gold back in 1971? As I said, there are no "do overs" but it would be nice. What we have coming in our immediate future is not only "one" of these past opportunity moments in time, this era, right now, is THE moment in time where futures will be altered... permanently. You are either locked and loaded...or you are locked out. This as I see it is the last "choice" that investors can still make that will affect the rest of their lives and probably several generations to follow.

And lastly, you Martin Armstrong fans might be interested in this. FOA critiqued Martin's public/private dichotomy, one of the core foundations of his Economic Confidence Model… back in 1999! And if that doesn't draw some ire, I give up!

So that's basically what I do, and what I've been doing here for four years now. Please click on the gold bar below if you'd like to send me a little blog birthday present and encourage me to keep this thing going for another year. Or, if you'd prefer that I "make like 'N Sync and quit while I'm ahead" (which someone actually suggested by email this month), then don't click on the gold bar. I have only been here this long because of your generous support. I have no other income.




Thank you!

FOFOA Playlist #4

As it has become a personal tradition, I periodically gather my favorite YouTube song selections from the last few months into a playlist with links to the posts. Here is where you can find my #1, #2 and #3 playlists. And here's #4. Enjoy!

Glimpsing the Hereafter

…this is a deep concept, a timeless truth, a little bit of wisdom from the ages. Savers are not investors, traders or speculators. And since this post is about glimpsing the hereafter, give me a few minutes while I consult my crystal ball. Here's some music while you wait…



…my crystal ball does work for the monetary and financial future. It paints a nice, clear picture, yet on timing it's still a little hazy. But one thing it does make perfectly clear is that it's just a question of time.




Superorganism Open Forum

…in a wild colony of ants these individuals end up specializing in what they do best which leads to a collective intelligence far greater than the intelligence of any individual ant.

…an “extraordinary miracle … millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding!”




Savings & Capital Theory Open Forum

…The Superorganism's natural drive is toward economic sustainability while the $IMFS is a pedal-to-the-metal consumption binge thrill ride toward economic collapse. Savers drive the economy, the Superorganism organizes it, and the $IMFS kills it softly.




Ball of Twine Open Forum

FOA: "They will not be pushing on a string; rather picking up the ball of twine and throwing it!"

I may be crazy, but if there was a contingency plan/how-to manual on throwing the world's largest ball of twine, it might just look like this:






Peak Exorbitant Privilege

…That's right, I saved the "crazy super-hyperinflation talk" for the tail end of a really long post. Because A) people who think they have it all figured out already tend to abandon a post once they read the word "hyperinflation", and B) the stuff in this post really happened and is still happening so it's only fair to you, the reader, to give its inevitable denouement the appropriate weight of a bold conclusion. If I didn't do that, I would not have done my job, now would I? ;)




Inflation or Hyperinflation?

…The dollar is so vastly overvalued today because the rest of the world has kept it on life support for 30 years past its expiration date. It is the stability of dollar prices at that small marginal flow that sustains the illusion of wealth in the entire, massive monetary plane. And yet the modern "hard money thinkers" think that we can somehow retain this level in real terms by simply devaluing the dollar against gold and then managing that new "gold value". I wish all the modern hard money thinkers – you know who they are so I don't need to mention any names – would just take a few minutes and listen to FOA and maybe, just maybe, see how wrong they are…




The Debtors and the Savers 2012

…Thinking for yourself pays. Seeking reassurance feels good, but it doesn't pay. Waiting for official confirmation is also rewarding, but the reward isn't money.

"Change isn't easy. More often, it's wrenching and difficult. But maybe that's a good thing. Because it's change that makes us strong, keeps us resilient, and teaches us to evolve."




Fallacies – 1. Paper Gold is just like Paper Anything

…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.



___________

As a bonus track I thought I'd include Freegoldtube's latest creation, even though it didn't make it into a post. Here's No Time to Lose:



Sincerely,
FOFOA

374 comments:

1 – 200 of 374   Newer›   Newest»
ElaisaKasan said...

I hear from various sources that 40,000 tons of gold in allocated accounts has been leased or re-sold without the consent of the owners. There is 100 times more paper gold than physical, and 500 times more paper silver than physical. When this is widely recognized, the prices will explode.

ElaisaKasan said...

The following was clipped from Miles Franklin, sourced from Jim Willie:

"A gem of a note came from my source, the German gold trader. He rarely if ever is wrong about important things. Maybe about tomorrow's weather, or the restaurant menu, but not concerning matters on Gold. His insider dealings and contacts are unmatched worldwide. He has billionaire clients on every continent. What makes his integrity and wisdom so beyond reproach is the hatred that Swiss bankers have for him. They are the principal violators of Allocated Gold accounts. Together with the London bankers and New York bankers, they have illegally taken for their own gold structured deals well over 40,000 metric tons of private account gold. Several important lawsuits are in progress in Switzerland, class action cases with over $1 billion in gold accounts challenged where the Gold bars are gone."


Elsewhere I read (I think also from Jim Willie) that persons that managed to recover physical gold from allocated accounts received bars with serial numbers that did not match the allocated bars purchased. The gold received was not the gold that was stored on behalf of the customer.

Dr. Peter T said...

You are right, ofc, to ascribe ultimate credit to Another and FOA and their genius and wisdom; In my humble estimation, you have done in a remarkable job in elucidating their thoughts/knowledge, in carrying the torch, and I am deeply grateful to you for such.

78Rubies said...

Happy anniversary, FOFOA! ;)

john smith said...

@ FOFOA

Nice sum up.

It's not a difficult argument to understand. It's basically that the only thing preventing high rates of dollar price inflation is foreign support for the dollar. Take that away and you'll have a high rate of dollar price inflation. And then, partly because the USG budget deficit eclipses the trade deficit today, the government will be forced to quickly hyperinflate the dollar simply to maintain its status quo. The alternative would require the government to shut down, but it won't even consider that option. Simple.

Once the world understands that it's not local US goods that stands behind dollar growth, but less expensive foreign goods,,,,,,,,,, the stage is set for our "supporters" to sell to themselves!

And happy anniversary.

matrixsentry said...

FOFOA,

Four years, and what a four years it has been!

I as well was more or less frantically looking for answers back in 2008 as it appeared the end of the world as we know it was imminent. Shortly after you stumbled across Another and FOA's amazing thoughts, I in a similar fashion stumbled across your brand new blog while doing a google search on some hard money issue I have long since forgotten. Just as you immediately realized that Another and FOA were speaking to something unique that nobody else seemed to, I saw that as well in your blog .

I decided to hang around a bit and actually tackle the Another/FOA archives myself. What a whirlwind! What a crazy and feverish time that seems to me now looking in hindsight. To say it lit a fuse is gross understatement. I wish I could say that I fully grasped the concepts at that point. To say so would be disingenuous. However, what I thought I knew was sufficient to keep me interested in learning more and to start taking baby steps with the allocation of my wealth.

My true understanding of Freegold and hyperinflation did not come until later, perhaps in early 2010 if memory serves me correctly. It was quite literally an earthquake this time instead of a fever. With confidence born in self discovery (aided in a huge way by your writing and those participating in your blog) I was galvanized and propelled into action. Doubt, the mind killer, had been vanquished! I quickly completed the process of protecting my wealth, which had previously stalled as I sought confirmation that Freegold was valid.

I am not a trusting person by nature when it comes to knowledge. I wish I could say the same about my interactions with people! Self discovery and self generated awareness are both necessary in order for me to "get it" to a sufficient degree required to enable action. This is of course the "click" our blog regulars speak of.

So on this auspicious occasion of your fourth birthday as a blogger dedicated to the tribute to Another and his friend, I will indeed click on the gold bar and humbly return some of the wealth that is staying home as a consequence of the accidental discovery of this blog and your illuminating writing. (BTW, I like your long posts! The longer the better!)

Things are moving along smartly it seems and I for one feel very lucky to be alive and aware of the momentous changes coming. I look forward to year 5 and watching it unfold on this blog. I suspect this next year will see many changes, one being that this blog is likely going prime time. I realized last night that I had better grow some thicker skin because the traffic through this place is going to really increase, and with it will come people who carry a lot of baggage. Perhaps far more baggage than I initially carried. Patience is the word I need to focus on I think.

Best of luck FOFOA and Happy Blog Birthday!

jojo said...

Well said Matrix!

Motley Fool said...

FOFOA

For my part I want to thank you for the incredible amount of effort put in to translate the cryptic trail into a clear path.

ANOTHER AND FOA may have shown the path, but you have leveled the underbrush making the hike possible without getting stuck in brambles along the way.

The Fool

JR said...

Looking forward to more good stuff from anand srivastava!

JR said...

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.

comment to Defending a Virtual Currency

1. For the giants, the big banks/bankers and the sovereigns, China!, it is not a practical goal to convert 100% (or even 90% or 80%) into gold even if they know freegold is coming without a doubt. For us shrimps on FOFOA "all in" is a clever option. But not for the giants. A 15% "hedge" in physical gold is pretty darn good for them. At 100x reset level, even China's (WGC-reported) 2% doubles its reserves.

SE's never could go for full-stop conversion because there's just too much paper. China's reserves alone would take 40% of all the gold ever mined.

Those few shrimps that went all in will be one in a million.

2. Europe supports the dollar's heroin habit. Always has. Europe has never even suggested the dollar should go into rehab. A/FOA always said Europe sold into the LBMA system to help the dollar (overdose itself). Seemingly incongruous moves could be excused if one assumes the ECB knows something we don't know.

3. 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.


comment to Defending a Virtual Currency

JR said...

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.

[...]

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.

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."


comment to Unambiguous Wealth

matrixsentry said...

JR,

For us shrimps on FOFOA "all in" is a clever option. But not for the giants. A 15% "hedge" in physical gold is pretty darn good for them. At 100x reset level, even China's (WGC-reported) 2% doubles its reserves.

SE's never could go for full-stop conversion because there's just too much paper. China's reserves alone would take 40% of all the gold ever mined.

Those few shrimps that went all in will be one in a million.


Guess I'm one in a million. Actually my wife says I am "a piece of work", complete with eye roll!

Dr. Octagon said...

I came across this blog a couple of years ago. I read some of it, and found it interesting, and went through reading all the old posts, including the FOA and Another archives. But I still did not understand it. I thought I did at the time, but now I know that I did not.

Only because this blog continued, did I continue to come back to it, and sometimes re-read articles I had read before.

My understanding has improved greatly, not because I had read the material, but because over the course of a couple of years, old discussions took on new meaning. I saw them with less baggage.

I know that if I came to this blog for the first time today, and read every article (and comments) fully, I would not fully understand. It takes time to let go of old perceptions. Only by coming back to it, over years, have I been able to really "get it". I'm sure that a couple of years from today I'll look back and realize I don't fully get it even today. There is no quick way to dump old baggage.

If this blog stopped today, many would find it in the future, just as we can find the writings of Another, and FOA today. But only because it's ongoing, have I been able to gradually ease into the ideas presented while simultaneously shedding old misconceptions, and I suspect the same is true for others.

So thank you, FOFOA, for continuing to talk about the decade-old writings of FOA and Another.

Edwardo said...

Dear FOFOA,

It's election time, and though there is no democracy on this blog as such, I am sure most would vote for four more years. Congratulations on all that you have accomplished to date!

Now, here is me "bringing it" sort of. You assert:

"The alternative would require the government to shut down, but it won't even consider that option. Simple."

Just to be clear, are we to understand that it is your view that everything, and I do mean everything, that is operational today with respect to The Federal Government will remain so when all foreign dollar support stops?

JR said...

Umm, no Edwardo. The is something between shutting down and everything continues - its called the USG fighting to maintain what it can, defending its lifestyle:

...it doesn't really matter what percentage of the trade deficit the budget deficit is, just that it's over 100%. As long as it's over 100%, the entire trade deficit is 100% nominally attributable to the USG, which means if we get some "hot inflation" either the USG will have to give up some of its consumption in real terms, or else defend its "lifestyle" with the printing press, right there at the margin where prices are discovered.

[...]

Of course "hot inflation" is coming! But how long will it last? How long can it last without the structural support of foreign CBs mopping up the dollars the USG will be printing in order to defend its own "lifestyle" in real terms? How far can prices rise without hitting that hyper feedback loop at the margin where prices are discovered? The USG is net-emitting $3.6B per day today, and the problem is that the USG is not an economy. It is a consumer and a printer. So the daily net-emission of global dollars is now backed, not by an economy, but by the largest consuming entity ever known to man!

Lee and Paul are correct that the commercial banking system will soon be fully reserved. But I don't think those new reserves will come directly from the Fed in exchange for bank assets. Now that the government deficit has surpassed the trade deficit, all foreign support is Treasury buying, not private sector debt like MBS. The crossing of this Rubicon means that maintaining the Treasury market takes structural precedence over all other assets. It also means that every new dollar the USG decides to spend puts new reserves into the private sector banking system, raising its ratio of reserves to deposits. So the new reserves coming into the banks will be coming from domestic USG deficit spending via QE or whatever they decide to call it next time. And I believe that those bank assets and "unreserved credit" will simply die on the vine of worthless tokens as the USG crushes its own currency defending its lifestyle.


http://fofoa.blogspot.com/2012/05/inflation-or-hyperinflation.html

Jeff said...

Rock steady, FOFOA.

As a long-time layabout at the All Inn, my memory is too foggy to recall how I stumbled through your establishments bat-wing doors. It probably had something to do with my sense of unease at what I found in the blogosphere. Hyperinflation and collapse I could understand, but then just repeat the cycle? Or back to a gold standard? That didn't make sense...surely someone had been working on a better plan. And what was all that CB gold hoarded for? Questions, questions. Here there was a coherent narrative from beginning to end.

Your critics, such as they are, are mostly buried with their own baggage, don't understand the concept they dismiss, and some are even hucksters and swindlers. I would worry more if they agreed with you.

Four more years? Yes please.




Biju said...

FOFOA : Happy 4th Birthday may your blog live long.

I made a small donation.

My history in finding my way here to FOFOA was little late, but I had already started buying Gold before that. FOFOA blog has really helped me in holding Gold strongly and buying using all excess savings. FOFOA - you are a great clear thinker and writer, breaking down complex logic to simple ones to make them easily digestible.

I stumbled upon iTulip from a poster in atimes.com in 2007. iTulip convinced me to buy Gold then and I started to accumulate. Then I saw link to zerohedge in itulip in 2009. occasionally going through comments in zerohedge saw a FOFOA link in early 2009.

I started reading ANOTHER's archives and it had been a great learning experience here in FOFOA blog as well as ANOTHER archives. So many thanks to the anonymous poster, who posted FOFOA link in the zerohedge.

Nickelsaver said...

FOFOA,

Thank you for what you do.

Here's to #4

g. said...

Happy Birthday Fofoa.

I'm a long-time hiker on this trail but as a good shrimp I try to keep quiet and let the others do the talking.
As feverish minds amongst each-other, my moment of awakening from the dream-state also arrived somewere in 2008. I had a similar experience as fofoa. A few trades went wrong, counterintuitively, and for a few weeks I didn't know where my head was, it was, in retrospect, the most important moment in my life. At that time, the only thing I knew about gold, is that some people put it in their mouth, or around their necks. And more importantly, I didn't know much about our world, and how it's being run.

This is the point where I must take some issue with the writings of Another, his friend, and the friend of his friend. Going through the archives, and this blog, we are made to feel that what is happing know, and what has happened since let's say 1600 - 1650 untill now, is pure happenstance. Stupid politicians and stupid central bankers led us to this mess,....

I simply don't believe that anymore.
I firmly believe that we are living in a system of directed history, wich is taking us linea recta to one-world-government. Or trying to take us there, because it ain't working s'good anymore.

Now, personaly, I don't need to "governed." But if I cannot stop being governed, I want it to be by someone I can yell at for making stupid mistakes, like a mayor. Some distant politician doesn't care about me, nor do I care for that politician.

So, my hike on this trail is broader than the one wich is being described here by the three good friends.

I must reiterate that the path I've been sent on by our three good friends is a path that I will continue to follow. But there is more than one tree in a forest, just as there are more trails that lead to thruth.

Texan said...

JR,

The US is not going to maintain ALL of its current lifestyle. It is going to do two things : boil the frog inflation, and boil the frog entitlement roll-backs/cuts. Both are already in process. I expect we will also have some taxes raised and "broadened", to use the current parlance. This could stretch out for quite awhile.

This attempt to close the deficit, or at least reduce its slope, is going to exacerbate the current stagflation we are living under. Food/energy will consume more and more disposable income thanks to money printing, while consumer discretionary below top 5% or so just gets bludgeoned.

FOFOA, congrats on your 4 years!

Nickelsaver said...

G

I feel ya bro. But, I think you got it wrong. The fact that A/FOA/FOFOA lead us on a trail that is divorced from the typical conspiratorial rantings that we see all over the net, I find that entirely peaceful. We all bring our baggage. And though we unify under the flag of Freegold, we all come at it from our own angles.

There is no need to explain why you think you are going down a broader path. The ants don't need to travel single file in order to get their work done, even if some of them do.

As for the notion that we are where we are because of a benign happenstance. That certainly is not true. Is it not clear that the specific actions that the EU took are part and parcel of the A/FOA/FOFOA view? Stupid Politicians, I think I agree with that. Stupid Central Bankers, not so much.

Peace

d2thdr said...

Many thanks FOFOA. This is the only commentary worth listening and reading about global financial affairs. I have no time for others.

Someone(was. It Aristotle ?) who said buy gold then forget about it and then just wait by going back to doing what you love. I have to thank Fofoa for his guidance, hopefully my great grand children may be glad that I spent a quality time among some wonderful Posters on here.

Edwardo said...

JR offers,

"Umm, no Edwardo. The is something between shutting down and everything continues - its called the USG fighting to maintain what it can, defending its lifestyle."

Ah, I see. I was a tad worried, since putting it thusly, "The alternative would require the government to shut down, but it won't even consider that option" sounds rather unequivocal. I happen to agree with Texan, more or less, with respect to what the Federales won't fight particularly hard to maintain.

In any case, I will likely never have the apparent degree of certainty that our esteemed host, and perhaps you, have about the government's behavior vis a vis hyperinflation simply because of what I view as the "social unrest" wildcard. The best laid plans of mice and men don't you know.

Edwardo said...

Perhaps one should file this one under, "You can always count on Americans to do the right thing, after they've tried everything else."

Winston Churchill

http://www.cnbc.com/id/48770752

Texan said...

It actually surprises me that JR is so unequivocal about it, since he is clearly well versed in politics. My own view is that while the statement may be correct about the current adminstration's willingness to spend, I don't think the RR ticket will be so benign for transfer payments. sS disability for example, I xpect would be sharply reined in. And there is plenty mre they can target if they so desire.

Anyways, enough of that. Have you seen the PR blitz tonight on the Republicans considering a return to the gold standard? It's everywhere. Thoughts? Romney also said he wants Bernanke out.

JR said...

Hi Edwardo,

Maybe I'm wrong but just as we now understand that you I and Texan all agree that the USG will end up somewhere between shutting down and running the same, perhaps we agree about social unrest too. I think we do. But i'll let you start:

have about the government's behavior vis a vis hyperinflation simply because of what I view as the "social unrest" wildcard.

Can you elaborate?

JR said...

Hi Texan,

In you last comment you made the same point I did, but know you say:

It actually surprises me that JR is so unequivocal about it

I'm not sure what you are equivocating about, but I responded to Edwardo, you agreed with me and then Edwardo acknowledged he too agreed.

Michael H said...

Hm, I tried subscribing to the comments without posting, but it doesn't seem to have worked.

so ...

comments ...

Texan said...

JR,

I think the USG can close the budget deficit and still protect its "core constituencies" pretty easily, actually. It's already reduced the deficit from 1.3T to an estimated 1.1T. I think the combination of the new medicare taxes and letting SS tax go back to 6% will probably cut it even further. And if the entire fiscal cliff comes to pass, we could be looking at a deficit at or near the trade deficit. Through sheer inertia.

Now through in afew more doses of monetary easing from Fed, ECB, China, Japan, etc - and we have a bit more nominal growth, ie more tax revenue.

Now throw on to of that declining gasoline usage in the US, along with more coal exports as the US gasifies it's entire power grid, and the trade deficit could shrink also.

Or maybe none of the above. Point being that it isn't really a "fight". It's just political choices and how they are implemented.

But I don't think any of that changes what is in fact the central argument for the necessity of freegold, which is that there are simply too many dollars in whatever form out there. I think the USG, or elements of it, gets this. Dollars need to function as a MOE first, but now they are functioning way too much as SOV. Which has caused velocity to drop toward zero, freezing up everything. And because everyone I sitting in ZIRP/NIRP bonds scared to spend, the Fed can't really binge out the way it wants to because everyone would get crushed on PP, further exacerbating the velocity problem. They have tried to asset bubble stocks, and that has kind of worked, but it isn't really working, because of stocks like FB etc. which are getting way over stretched. So they need savings to shift into something they can INFLATE and not kill all that supposed retained/stored PP, aka "capital". So I actually think they (again, "they" being some elements of the USG) are coming around to asset-swapping gold for Ts. Or more likely Gold certificates (all the FDIC and BiS stuff is so the capital will be maintained in the bank system, and why it can be "unallocated" and still be Tier 1 - which is patently absorb given the Credit risk when you think about it, unless the credit risk is, uhm, the Fed).

I think FOFOA had suggested to Ron Paul why don't you revalue, and I think the Fed is going to go one better and eat its cake too- they are going to take the Ts and issue certs. backed by their certs. And then guess what, they can devalue at will AND control the gold price, since the price will be set by 15/20 trillion in Treasury certs "backed" by gold. Fractional reserve gold writ large. And it won't be an amount of gold, it will be a dollar PRE of gold. And it won't be deliverable. Taking a page from our friends at the ECB.


Feel free to poke holes in the above, but it's what's would do if I wanted to kill a bunch of birds with one stone AND stay in control. I am not saying they will do it, just seems like they are "foaming the runway" just in case. Or maybe not. What do I know. I just think the Fed must be acutely aware that they are at this point forcing everyone to stop transacting by making safe asset scarce through their QE efforts. They need a new lever to create velocity without losing control over it.

Jeff said...

That was confusing. The US isn't in control of anything, and they won't be making any decisions. They will be reacting in an inevitable fashion.

FOA: The dollar is toast because most of the world doesn't like the management policy. They didn't like it in 71, but tolerated it because gold was suppose to keep flowing in repatriation payments. And if they didn't like it back then, they god awful hate it now!

We like to think that the dollar is what it is because we are so good. (smile) But, the truth is that for over a two decade period +, none of our economic policy, our trade financing policy, our defense policy or our internal lifestyle policy has pleased anyone outside these borders. We managed the dollar for us (U.S.) and the rest could just follow along.

Our fiat currency has survived all these years because others have supported our dollar flow in a way that kept it from crashing its exchange rate. We talk and think like we are winning the tug-of-war when, in fact, they just aren't pulling very hard.

My friends, a national fiat in our modern world only functions if the whole world uses and supports its flow and most importantly likes its management (political styling is the catch word). This support and use of our dollar can and will change faster than many think possible. Our dollar is not going to become a "banana" or "nada" in the future, as auspec notes. It already is and has carried this trait for some time now as does every fiat today. The only thing that keeps them from cascading away is world support and use.

That dollar value is there now, you just don't see it yet. The price inflation that many don't or can't see happening, will be the result of our currency management changing to confront the nature of all the above. As this happens the US will have to raise rates even as it massively prints more currency to support our internal economy [obligations!]. Our entire economy will slow and fail as this price inflating process moves on. Some will call it stag/flation, but will change that description as it becomes more of a crash/hyperinflation.

We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nations identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Make no mistake, the entire internal US sector can and will function as its currency runs a price inflation just like these third world countries. We will adapt as they have by dropping our living standard accordingly.

I point out that many, many other countries also have the same "enormous resources; physical, financial, and spiritual" that we have. But the degrading of our economic trading unit, the dollar, places the good use of these resources in peril. We buy far more than we sell; a trade deficit. Collectively, net / net, using our own resources and requiring the use of other nation's as well. Not unlike Black Blade's Kalifornians sucking up their neighbors energy supplies (smile). We cannot place our resources up as example of our worth to other nations unless we crash our lifestyle to a level that will allow their export! Something our currency management policy will confront with dollar printing to avert.

Jeff said...

FOA: Q: [Will we see] Brazilian or Weimar style hyperinflation of the USD? The Big Banana, or the 'little banana'?

FOA: Full on, wide open, in your seat, flat out! It's in the pipeline!

Q: What advantage would it be to the Power Elite to destroy the dollar?

FOA: Wrong context. What advantage does the Power Elite gain by expending assets to save an already failed currency. Better to do what major players have done for centuries and are doing now, buy gold and evolve your power base to use the next reserve.

Q: The end of a currency's lifetime always ends in gold debasement?

FOA: In almost every case. Sometimes in the open, sometimes hidden.

FOA: At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: its basket currency function dissolved, gold will have to flow from American based [gold stockpiles]. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.

With the world credit gold markets paralyzed in default and dollar credibility placed in question along with American economic stamina; physical gold will return to official hands in Europe in exchange for Euros. A paradox observed as high gold places more demands upon Euros and sends the dollar ever lower."...

If we try to save the dollar gold markets, they will morph into a pure paper system with no gold supply to back them; paper would eventually be priced way below world physical markets. They will become a pure cash settlement item, in a way like the OEX. This will easily drive oil pricing into Euros. If we adopt a week dollar policy, trash the IMF and it's SDRs (prior to ECB withdrawal) we will have to supply gold bullion outright and allow a true market price based on some currency supporting function; still at thousands per ounce. Our entire anglo - London gold markets will spin off hugh,,,,, nation busting financial loses. By the way,,,, this is why our boy is driving for EMU as soon as possible. (smile)

In all of this; the main story / component is oil supply! We must keep our dollar function, if only in a diminished fashion, in order to buy oil imports. Once the dollar fully fails, everyone (our partners like Mexico and Canada) will bolt for using Euros as reserves and international settlements. OIL value in the US would spike sky high even as local inflation drives alternative energy supplies to become uneconomic to produce. Even at $200 a barrel equivalent.

Edwardo said...

By way of elaboration, JR, It seems a given that a hyperinflation of the sort one might expect, if history is any guide, will feature some very negative social outcomes whose scope and ultimate effects will be well nigh impossible to anticipate, let alone control. Put another way, The Federal government if it doesn't already have a contingency, which is debatable-more on that in a minute- may find that their best laid plans are made a mockery of by events.

It was noted and discussed here in conjunction with another of FOFOA's posts that an executive order was signed that would ensure that government agencies are able to acquire essentials in a state of an unspecified emergency. The thinking around these parts seemed to be that this particular EO, had the patina of something created expressly for, if not necessarily exclusively for, the sort of scarcity that is a typical feature in a hyperinflation.

(Now, if you would be so kind, please pardon me as I don some tinfoil like headgear.)

Equally, it is a matter of fact that the Federal Government has taken certain steps of the sort that could be interpreted as indicating that they are not imbued with an especially high level of confidence in their ability to manage certain unspecified emergencies without resorting to hard and fast military measures.

I am speaking of recent legislation that paves the way for the deployment of tens of thousands of drones over U.S. skies, and the acquisition of massive amounts of ammunition by, for example, that well known martial authority, The Social Security Administration. What does it all mean? I have no idea, but these sorts of developments, some with a sinister cast, others just merely bizarre, looked at in the aggregate, don't, at least for this citizen, lend themselves to a warm and fuzzy feeling about the prospects for things remaining remotely orderly should TSHTF.

Texan said...

What I am discussing how one might operationalize FG. Believe it or not, the biggest risk at the moment is asset deflation IMO. They need to inflate without causing $200 oil, or countries bolting to uhm, err, "euros" (sigh).

But they are running out, really have run out, of asset categories to inflate which don't create massive downstream effects (eg food riots). If you look at sequencing, they went stocks in 98, then housing in 2002-7, and now they are goosing stocks again. But it isn't working - the wealth effect is not translating to real spending because, I think, stocks are so narrowly held.

So how are they going to cause inflation? They can buy every T in sight and every MBS and the cash they swap for it will flow into banks and money market funds as dead reserves. And commodities like food and oil. That cannot be allowed to happen - this is the "lifestyle" part that must be protected.

Maybe it's time for them to inflate gold. But how? They can't start bidding for physical, that might lead to immediate currency collapse. Well, how about swapping Treasury holders with unallocated gold certificates? Instantly, gold would fully monetize. And then some, because now the Fed can simply issue more gold certs at will, or periodically devalue the good certs against gold in terms of exchange value. Think of it as bitcoin with periodic (and initially very large) expansions.

Now we have all these T holders holding gold certs. And all of a sudden they are being told "your treasuries have appreciated in dollar terms". So a bunch of them will peel out and sell them for cash and spend. It's sort of like a helicopter drop but for T holders ONLY. Politically way more expedient, and It avoids the unpleasantness of actually bidding for physical. And best of all, the Fed continues to control the money supply.


Hey, I haven't worked it all out, but I do know that gold can be monetized without it "backing" the currency. Maybe it's as simple as letting the price float on the Fed's balance sheet, and putting "backed by an equivalent dollar amount of gold" on the currency. Without it being redeemable of course. And then they start raising the price of gold on their balance sheet, full stop. But isn't think that works, because it doesn't give the Fed a lever to create velocity, except for a few physical gold holders.

They need to go for the big kahuna - Ts. They need a big one-time revaluation in the "value" of Ts as an asset.

RJPadavona said...

Hard to believe there's only four years worth of knowledge that reside in the contents of this blog. When compared to a four year college degree (or a PhD for that matter), it's no contest on what's more valuable. So, please keep that in mind when donating to our benevolent host who's turned the lights on for so many of us.

I remember the first time I donated to FOFOA. Well, he actually wasn't even "FOFOA" at the time. It was right after that significant financial loss he experienced and times were hard for him. But he was working hard and I admired that in him, so I did what I could to help him out. And as you can see in that video, I was an HMS at the time and thought I was cool by giving him a gold coin. It wasn't until later that he taught me those things are for saving, not spending!

So here's to many more years of learning about the evolving, inevitable, bifurcated money system that the readers of this blog are frontrunning. All thanks to our favorite Yeti!

PS: Don't forget to click on the gold bar, you cheap bastards.


RJP





JR said...

Hi Edwardo,

I have no idea, but these sorts of developments, some with a sinister cast, others just merely bizarre, looked at in the aggregate, don't, at least for this citizen, lend themselves to a warm and fuzzy feeling about the prospects for things remaining remotely orderly should TSHTF.

Yay: 2for2!

Of course you should also make other preparations to ensure that your bare necessities of food, clothing and shelter are taken care of. Some silver and even some dollar currency makes sense in this regard. This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year. And it is for those that would like to store that excess wealth in the most universally liquid vehicle since they don't know exactly what they will be needing a year from now.

Perhaps they will need a generator. Or maybe a cow. Or maybe a gun. Maybe a new Ford F150. This is where gold comes in handy. You can store your wealth securely now in a universal package that should be convertible into the most needed things later. It can cost a pretty penny to be totally prepared now for every possible eventuality. Instead, it is best to prepare for the most probable events and keep a universal reserve for the unexpected!


http://fofoa.blogspot.com/2010/02/greece-is-word.html



Nickelsaver said...

" This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year."

Boy have I come full circle. I actually disagree with this. I'm not saying that one ought to have no silver. But my thinking is one year is way too long. Frankly, I would much rather be holding what everyone will want, than what many will already have.

My play - 3 months of cash and silver, the rest in gold. (along with the generous pantry)

limits said...

FOFOA, thanks for information not available anywhere else. Happy 4th birthday!

costata said...

Hi FOFOA,

Thanks for all of the effort and high quality work you have done over the past four years. I hope people appreciate the financial and lifestyle sacrifices that you have made to give you the time you need to support this blog. I wish you well as you walk this trail.

To all of the other discussants here I'm grateful for the contributions you have made in helping to illuminate the difficult (and often contentious) subjects we've tackled in these pages over the years. Long may it continue.

Cheers,

costata

anand srivastava said...

Happy Birthday FOFOA.

I only found FOFOA in Oct 11. Luckily I did not have any baggage regarding money matters. I am afraid of the stock market and had put all my money in FDs. What a stupid decision was that, instead of buying my wife jewelry.

I had been researching health for quite some time and then came across an article on organic foods at Gonzalo Lira's blog. I looked around and saw a post on USD Hyperinflation. I had at that point known about the USD printing issues, but hadn't paid attention to it.

I found about Gold Standard after reading a little, but it didn't make sense to me. Gold Standard didn't look conducive to growth. Even then I realized that currency needs to inflate to make sure that people don't hold it.

Later I found an article by Fekete praising FOFOA, and had to see who he was. I read a few of the articles and started to read comments.

Reading all the articles would have been a tough job, so I thought comments would be a good way to learn things. Although it was clear that All inn was the place to be, and it was also clear why Freegold is the ideal, the thing that was elusive to me was why would it come about. That only got cleared a month ago. I think it was matrixsentry's comment about currency swap agreements being the crucial development, that finally cleared that aspect.

I love this whole theory which doesn't need stupid people, conspiracies, just simple self interest of the actors to propel us into freegold.

Thanks FOFOA for the insights.

anand srivastava said...

Thanks JR for the compliment and making my day.

There were no comments on my comments so I was wondering, maybe they didn't make much sense.

I am not very lucid even in my mother tongue, so I have to think a lot when writing, and even then I will make some stupid mistakes, which I realize later. Another convoluted sentence :-).

fonoah said...

I propose sort of a Tribute. Maybe like . . . Tributeness.

So - just for fun:

FOFOA has explained where we are going. Now everyone needs to know who he is and where he has come from.

Thank you FOFOA, and long may you run.

Cheers - FoNoah

Jeff said...

Texan,

Thanks for clarifying. Of course the US can't re-re-redefault on gold. And treasuries have appreciated in dollar terms, hence the collapsed interest rates, and gold is being carefully inflated for years. Playing for time. But your idea doesn't really affect the main threat, which is the physical plane and the deficit.

DP said...

Just in case you're still feeling like you don't get enough love, Anand, I wanted to say:

Just keep doing what you're doing!

If nobody hits it, it can't be too bad. ;)

JR said...

My play - 3 months of cash and silver, the rest in gold. (along with the generous pantry)

and this:

" This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year."

are closer than you think. You use money to buy stuff, but if you have lots of stuff, than you don't need as much money.

anand srivastava said...

Thanks a lot DP. Those are very flattering.

JR said...



The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

Inflation or Hyperinflation?

Aquilus said...

Definitely happy fourth!

To fewer years explaining freegold from the outside and to many more explaining it from the inside!

Just like Dr. Octagon, when I first read the material I thought I understood it. And I did understand a lot, but in the mean time I realize I only got the surface, essential layers at the time.

Have a look at my first post at FOFOA's blog.

Sounds like I understood a lot, right? I can tell you that was understanding the surface layers - I had no idea of the future "Aha!" moments to come when re-reading the material.

And the funny thing is that I know that there are so many more deeper levels I still only blindly grope at without understanding fully. But it's definitely worth it.

Understanding the self-interest of different groups and logically following the consequences of their self-interest to the logical denouement is, to me, the greatest intellectual gift.

Aquilus

sean said...

I came across Another's posts some years ago and was intrigued by what seemed to be a deep insider revealing the inner workings of the world. Unfortunately I really couldn't make much headway in understanding it, so when FOFOA popped up to explain things in a straightforward manner I was hooked! Even though it still took me a while to comprehend those funny b/w figures with the black blob engulfing everyone :)

Thanks once again for your untiring work FOFOA :)

DASK said...

Happy Fourth, FOFOA.

I had forgotten the timing of the beginning of the blog and am amazed by your dedication and mind.

My personal WTF is going on here? moment was timed similarly to yours, and I also started researching and landed upon gold (for poor reasons it seems now) .. but going from wanting answers to where you are now in this time is inspiring.

Thank you for your ceaseless dedication and happy fourth

g. said...

Nickelsaver,
We are all here on this trail for a reason. Some would like to get "rich" whatever that means, some would just like to make sense of it all. I'm one of the latter category.

In my personal "making-sense-of-it-all-trail" I've not only found this blog, but I've encountered dozens and dozens of other "fofoa's" trying to explain this trange world we live in.

The great equaliser in all of this is the medium of communication we are using right now. It's Gutenberg all over my friend. Just think of it, 20 years ago, we wouldn't be having this conversation; but now we ARE having it.

No stone of directed history is being left unturned. Everything that has happened the last 150 to 250 years is being questioned and investigated like never before. All because of this thing we call the internet. It should be called "the interconnection" (of mankind).

Maybe central bankers aren't stupid. That however doens't mean they are independant. The more they stress the ARE the less I believe them. They are bankers for Ben's sake!

To come to my point; The plan that was put in place is to benefit the few to the detriment of the many. The euro is a part of that plan. Now explain to me why that is a good thing.

Nickelsaver said...

G,

Sorry, I had you confused with someone else. Never mind.

myself said...

Martin Armstrong's attitude on gold seems unrealistic for someone who spent years being accurate at economic predictions. His program runs real-time and is reportedly artificial intelligence. The big-brains at Harvard lost tremendous amounts of money from the endowment fund. It is my hope that all the economists in the world can be fired. An AI program will replace them. An effigy of JMK with a stake through his heart will be built at the U.N. building.
All political decisions on the economy will be run past the AI program and yield instant results.
Socialism will die stillborn. Ray K. and friends will bring a rational world.
http://www.kurzweilai.net/

The Engineer said...

Congratulations, FOFOA! 4 years of hard work, opening people`s mind to the future.

To all, I know there`s have already been a great discussion about Silver x Gold and my personal opinion is that silver will have an important role in the future financial system, as gold. My personal ratio is 70% gold / 30% silver and I will keep it that way.

I`m viewing this videos at youtube: http://www.youtube.com/watch?v=qfC9VQGkqDQ&feature=BFa&list=PLAC607AF992A840A8

And they present some really rock-solid arguments. A excellent work of art. Spend some time on them, I would suggest.

Cheers to all!

Dante_Eu said...

Thank you FOFOA for all the outstanding work you have done these past 4 years! I found your blog in october 2010 and since than my understanding of Gold and economics has gone exponential. For that, I'm eternally grateful!

I planned for bigger donation this time but because of "Let's build GODDAMN Tesla Museum" campaign, it was small one. So count on me in september.

You are for economics what Tesla was for electro engineering. So this Tesla quote fits you both:

"Let the future tell the truth, and evaluate each one according to his work and accomplishments. The present is theirs; the future, for which I have really worked, is mine."

Thank you once again!\Dante

poopyjim said...

@The Engineer

::sigh::

...my personal opinion is that silver will have an important role in the future financial system

And what role might that be? Why do we need silver when there is fiat currency? Silver is trash. It is utterly inferior to fiat as a medium of exchange, and utterly inferior to gold as a store of value.

I`m viewing this videos at youtube...

And they present some really rock-solid arguments. A excellent work of art. Spend some time on them, I would suggest.


A work of "art", maybe? Rock solid arguments for buying silver, NO. Much of what is presented in those videos can be attributed to emotion and imagination. Super-heavy on emotion, super-light on analysis. The constant references to "the elites" should make your bullshit detector start going off like crazy. This guy's youtube handle "TruthNeverTold" is quite apt.

He's correct in noting the myriad industrial uses for silver, and this supports silver's role as a commodity, NOT a store of value. Also, his forecast of mass death, war, and economic collapse seems to contradict the idea that silver is good to buy because of its industrial use, because if anything industrial demand would decrease in that scenario.

Your intuition no doubt led you to the conclusion that there's something seriously wrong with our present monetary system. And your intuition led you here, that's good.

Now take the next step and abandon this emotion-driven NWO nonsense about the "the elites", etc. and exercise your reason. The solution to our monetary problems is already in place and it will be apparent to all once the present system fails. And silver has no monetary role at all in this new system. Crashing the system, fighting the elites, depriving industry of a critical commodity, and feeeeelings, are all poor rationales for making an investment, and the first two don't even apply to silver.

anand srivastava said...

I have been thinking about the fate of US. It definitely is hampered by my low understanding of the culture of US. I know only what I hear and read. I haven't been there for long. But encouraged by JR and DP, I am putting my ideas.

The reason why US doesn't revalue its gold is because it doesn't need to. It can create as much deficit it needs. And as long as USD is accepted by the ROW, it is all the reserve US needs. Actually revaluing Gold will make gold important, and that will be very bad for USD. So we cannot expect gold to be revalued till USD remains acceptable to the ROW.

Now the trigger has to be ROW rejecting USD. At that time USD will lose all its value. It will hyperinflate. Also this would probably not be a single event but it will lose its acceptance slowly over time. There is the case of Paper gold crash which could make all of this happen very fast.

Once USD hyperinflates, the historical deficit will become negligible. It will not be able to import stuff, due to the worthless currency. There are few different possibilities at this time.

1) USG introduces a new currency modeled after Euro, and uses its gold as the reserve. This would be the best outcome. IMO it is improbable. The issue is the deficit. The govt will reduce, but so will private enterprise, kind of the situation in Greece. It would probably take several years to reverse the deficit. And a lot of gold will need to quench the deficit during the crisis. This requires a lot of maturity from politicians, which is why its an improbable possibility.

2) USG turns into dictatorship. This IMO is the most probable situation. The govt holds a lot of firepower and technology which will not disappear in the crisis. And I am not sure if the people are as militant as would be required to overthrow the govt.

3) People overthrow the govt and re-form a new form of govt. This new govt will probably be fascist. This is also somewhat possible, but not too much.

What do you guys think about my scenarios? What is more probable in your opinion?

The Engineer said...

@poopyjim

::sigh:: (God help me please!)

1- Silver role in the future: I really don`t know, as it is the future. What is gold`s role in the future? All is a complete guess. Do you know for certain? If you do, please start your own blog, I`ll visit everyday.

We can work some facts and arguments, trying to preview what is going to happen. Owning PM is rational with the facts that we have today. Maybe tomorrow won`t be. I think that, even everyone here, will be surprised when the financial collapse comes.

"Silver is trash. It is utterly inferior to fiat as a medium of exchange, and utterly inferior to gold as a store of value."

No, it isn`t. History proves itself. Silver was used through history as an hard asset just like gold. It is an inferior store of value than gold, but that doesn`t mean that won`t have an important role in the future.

Oil has industrial use as silver, and is a commodity. Will it have an important role in the future?

Have you seen all the videos? I wasn`t all talking about buying silver, and yes, arguments to be in hard assets instead of paper in this moment of our society.

When you talk emotion, you are the one being emotional. Read your comment again, my friend. It`s all emotion, no rational arguments.

"Elites", "crashing the system", ... WTF?

Cheers!

Escrava Isaura said...

Fofoa (-and anyone-) care to comment about this comment by Mannfm11:

Gold is for regulating international trade. Gold exchange currencies have produced problems repeatedly, because other countries lend back the currency, treating the debt as gold. Much of the problems of the 1970's and the Great depression were largely caused by this feature. It has been paper currencies treated as money involved.

Read Rothbard. For one thing, the last thing a country club republican wants to see is gold. These bastards invented paper. They split the Democratic Party by changing their platform when Bryan started bitching about gold and then did the exact thing the communists wanted.

There is only one way gold works. They have to get rid of price stability and let prices fall as well as rise for everything, including labor. This is what actually causes depression anyhow, the prevention of the price mechanism from working. What the hell is Bernanke doing right now? Now we make $100,000 instead of $5000 and live on about the same scale.

poopyjim said...

LOL where is JR when you need him?

The Engineer sez...

Have you seen all the videos?
...
"Elites", "crashing the system", ... WTF?


Have YOU seen the videos?! From the first minute of the first one:

Buying physical silver is the greatest act of wisdom and rebellion that any American could, and should be doing right now [LOL!!!!]. It is both a silver bullet to rebel against the elite's corrupt system, and a silver shield to protect your family and wealth in a post-dollar world... As long as you play by the elite's rules, the elite will rule.

Admittedly, I didn't watch all of them; one has to be mindful of one's own mental health and sanity. But I watched enough of them to induce ample facepalms on my part, I assure you.

1- Silver role in the future: I really don`t know, as it is the future.

I'm not surprised that you're unable to formulate an answer. This is what I tried to get you to think about in my earlier comment - what monetary role could silver possibly fulfill? In a monetary system we need a medium of exchange (MoE), unit of account (UoA), and store of value (SoV). What of these roles cannot be completely fulfilled by fiat and gold? Why do we need silver in there anywhere? Why would the world acquiesce to an overvaluation of silver by (artificially) endowing it with a monetary function, needlessly hampering the function to which it is far better suited, namely that of a commodity?

That's why I said silver is trash. Not that it has no industrial use; it has ample industrial use. So do iron, copper, and palladium. But if we're hoarding silver for its industrial use, then we might as well hoard any commodity. Hey - why don't we hoard uranium? I hear the fundamentals are fantastic!

There's a problem with this of course. If you hoard a commodity, you are a jerk for depriving it from others who would use it for its commodity purpose. This is not true for gold, as it has minimal industrial uses. The free market has already selected gold as the highest store of value in the physical world. It is the only monetary metal. The battle's already over, and silver ain't making a comeback.

(cont.)

poopyjim said...

History proves itself. Silver was used through history as an hard asset just like gold. It is an inferior store of value than gold, but that doesn`t mean that won`t have an important role in the future.

Here's a nice piece of history for you:

The Sherman Silver Purchase Act of 1890, while falling short of free silver's goals, required the U.S. government to buy millions of ounces of silver (driving up the price of the metal and pleasing silver miners) for money (pleasing farmers and many others). However, the U.S. government paid for that silver bullion in gold notes—and actually reduced their coinage of silver. The result was a "run" on the Treasury's gold reserves which was one of the many reasons for the Panic of 1893 and the onset of the 1890s Depression. Once he regained power, and after the Panic of 1893 had begun, Grover Cleveland engineered the repeal of the Act, setting the stage for the key issue of the next presidential election.

So there's the result of the last attempt to artificially monetize silver. I think the burden is on you to explain to me why & how silver would make a comeback in any kind of monetary role. The people already have fiat, the easiest of easy monies, what on earth do they need silver for?

What is gold`s role in the future? All is a complete guess. Do you know for certain? If you do, please start your own blog, I`ll visit everyday.

We can work some facts and arguments, trying to preview what is going to happen.


It's screamingly apparent that you are completely unfamiliar with the subject matter of this blog. But yes, let's examine some facts and arguments, and see if we can predict what's going to happen. You can start here:

Focal Point: Gold
Freegold Foundations

Owning PM is rational with the facts that we have today.

There is only one precious metal.

The Engineer said...

@poopyjim

Thanks for your comments.

The future holds us something very special - and I believe those in PMs will do better than most.

The same/opposite argument that makes gold priceless in the future may be the same for silver.

I leave a link: http://en.wikipedia.org/wiki/Silver

"The stability of the Roman currency relied to a high degree on the supply of silver bullion, which Roman miners produced on a scale unparalleled before the discovery of the New World. Reaching a peak production of 200 t per year, an estimated silver stock of 10,000 t circulated in the Roman economy in the middle of the second century AD, five to ten times larger than the combined amount of silver available to medieval Europe and the Caliphate around 800 AD.[45][46]Financial officials of the Roman Empire worried about the loss of silver to pay for the greatly in demand silk from Sinica (China)."

I am used to know that I could be right on anything - or wrong. That is the difference between us. Nothing in life is sure or guaranteed.

I could spent hours trying to prove a point to you - and I could or not suceed.

Anyway, I wouldn`t win.

Cheers!

Motley Fool said...

Engineer

In understanding why silver was used as money in the past, I learned why it would not be used in future.

Of course one also needs a grasp of the why of money, for it to be clear.

As you say, anything is possible; but not all things are equally probable.

TF

The Engineer said...

@ Motley Fool

Perfect line of thinking.

But, in simple terms, if 1 oz of gold reaches US$50k in today`s value, would silver still be priced at US$30/oz after the gold revaluation?

What are the odds?

When the demand for physical gold reaches the sky and people simply aren`t able to buy - will they go to silver?

Fair questions, will glad hear some answers.

JR said...

From above: silver will see its price rise in $ terms as the dollar goes HI. But silver won't increase because folks are demanding silver as the focal point SoV. From above:

hyperinflation is not the main reason to buy gold. You can get the same "hyperinflationary gain" by buying artwork, antiques, classic cars, baseball cards or any other hard asset. The reason to buy gold over those other choices is Freegold. Freegold is gold revalued in real terms, independent of hyperinflation.

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

The human Superorganism is revaluing gold vis-à-vis not currency, but everything else, for a purpose: the gold must flow. Again, the Superorganism is revaluing gold in real, not nominal, terms. (It is also devaluing the US dollar in real terms, but that's a separate subject for a vastly different post.)

http://fofoa.blogspot.com/2012/01/gold-must-flow.html

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

"As I have explained many times, freegold and hyperinflation are separate events. Freegold is the establishment of a physical gold market after the paper gold market is arrested through default, breaking the dollar's grip on gold, and also breaking the dollar's international settlement function.

http://fofoa.blogspot.com/2009/08/confiscation-anatomy-different-view.html

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

This may apply to your question. Someone asked me last week:

"You’ve said hyperinflation and freegold are separate events. I can only imagine them all rolled up in one messy ball. Would love to know how you see the separate events relate to each other as they unfold separately, if you haven’t already covered it."

I replied:

"They will most likely be rolled up in one messy ball. But thinking about it in that way makes people miss that they are distinct, discrete events that will be happening at the same time. For example, if hyperinflation takes the price of everything up 1,000,000%, gold will go up 40,000,000%. But only gold. Everything else, silver, cans of peas, etc... goes up 1,000,000%. So gold's FREEGOLD rise (that extra 40x rise) is in REAL TERMS because it is relative to everything else REAL. While everything else only rises in NOMINAL terms. Can you see the difference?"


http://fofoa.blogspot.com/2011/06/from-treasure-chest.html

JR said...

What does this mean:

When the demand for physical gold reaches the sky and people simply aren`t able to buy - will they go to silver?

Gold will flow as its price rises, so it will be available. And you buy gold by currency amount, not weight, so its never too expensive. You just buy less, but it does the same trick - store value. You aren't going to eat or otherwise use it, so the weight you buy doesn't matter.

The second difference is that the vast majority of demand for gold is in currency terms, not weight terms. This is not true for commodities. If you need a ton of copper for a construction site, you need a ton of copper. That's weight-denominated demand. But gold demand is overwhelmingly in currency terms. If you need a tonne of gold, what you really need is $50,000,000 worth of gold. It doesn't matter how much it weighs because you're just going to stick it in a vault.

http://fofoa.blogspot.com/2012/07/fallacies-1-paper-gold-is-just-like.html

The Engineer said...

@JR

Thanks much. Some points have cleared up to me.

Point taken in that gold will never be too expensive - weight doesn`t matter.

But I do admit I have some problems seeing only gold revaluated. As the silver market is much smaller in size than gold and with the paper gold and paper silver market imploding, I just feel silver will have some sort of revaluation too. That is an opinion.

The fact that silver is a important commodity to be used as "money" is a great argument, no doubt about it. But the small physical silver available with the great industrial demand may be the trigger for some companies, hedge-funds to "front-run the demand" and make the price go up.

Gold and silver markets at the COMEX are similar. Couldn`t the transition be similar too?

I do completely agree that HI is not the primary reason to buy gold. And that HI and Freegold are total different events (but may run together).

Thanks!

byiamBYoung said...

@The Engineer,

I understand your position, and you are not decidedly wrong. I held similar beliefs when I first wandered into this place. And, like you are doing now, I tortured the patient posters here about silver's value as money, and as a store of value.

I have modified my beliefs based upon the deeply knowledgeable comments I received here.

You are correct, silver has been money in the past, and has a special something that copper, tin, etc. don't possess.

When TSHTF, gold is going to experience a moonshot in recognized value. Silver, I believe, will go along for the ride...to a point.

The fact that CBs and myriad giants have settled this question long ago, and hold gold, rather than silver, is not a debatable point.

When gold goes to (W.A.G.) 100x its present value, silver will likely pop to a high revaluation, too. But because gold is a superior store of value, the smart money will move out of silver into gold. As a result, any tag along revaluation silver enjoys will fade. And it could be one hell of a fade.

For my money, I choose the clear focal point store of value. Runner ups are for someone else with a greater risk tolerance.

Cheers (and buy some gold),
Bradley

The Engineer said...

@JR

About investors demanding physical silver:

http://www.financialsense.com/financial-sense-newshour/guest-expert/2011/07/27/02/eric-sprott/silver-take-down-and-why-silver-is-set-to-explode

Jim Puplava: You know at times in the metals markets, Eric, I’ve seen it especially when it comes to silver where we see huge premium prices along with delays in delivery occasionally surface. I can remember in the fall of 2008 in the Lehman crisis I bought a lot of silver but it took me three or four months to get delivery. Last fall and winter there were certain problems getting delivery whether it was coins or it was one hundred ounce bars; in your estimate, is that a production problem or is it a supply problem?

Eric Sprott: Well, it’s an inventory problem. I mean if the inventory – and we experienced the same thing Jim when we did our silver trust. We raised – we had to buy in the open market something like fifteen million ounces of silver and it took us three months to get delivery and some of that silver was produced after we made the commitment to buy it. So obviously, there’s no supply of silver hanging around in some warehouse which is waiting for us to come along and buy it. It’s not there otherwise we would have got immediate delivery but we didn’t. So I don’t think the silver inventory that people imagine is there is there. It’s in short supply. Most big purchases are delayed settlement and that’s just symptomatic of scarcity.

The Engineer said...

@byiamBYoung,

you made a great point, I completely rest my case. What you say is complete rational.

Most of my physical is gold. The silver is just - the gamble - I do believe it will make my personal transition from the HI shock to FreeGold easier.

Cheers!

byiamBYoung said...

One point that escapes many who are HNW (high net worth) is that while buying gold by the gram requires a significant premium over the price break at @1 oz, silver can be bought for the same money, without suffering that premium. So accumulating silver until the accrued stack can be converted into gold above the price break weight is a prudent strategy, if you think like me (a shrimp).

2008 scared the hell out of me, and I realized how vulnerable I, and my family, were. I think we have a ways to go before TSHTF, but I wouldn't be stunned if I woke up tomorrow and found that the game was on. So, I live in full scramble mode currently.

Given the choice of gold, silver, or FRNs, I choose gold. But if I have $50.00 spare, my choices are silver and FRNs. I feel far safer with silver. When I get enough silver, I convert.

Shrimps gotta do what shrimps gotta do.

Cheers,
Bradley

One Bad Adder said...

Yes FOFOA my friend, congratulations are well and truly in order - the toddler has found his legs and is now outsprinting the field.

I'm currently mulling over the "things come in threes" adage - to wit: your reference above to one MARTIN Armstrong, the recent curfuffle surrounding LANCE Armstrong ...and this mornings (here) news of the passing of NEIL Armstrong (RIP)
Rather than clutter up this Blog I'll gather some thoughts and post the resultant observations over yonder.
Once again, Congrats on turning 4.

The Engineer said...

Great point.

My personal history is rather different. Always used paying high premiums since I don`t live in the US + the shipping cost.

For us, savers above all, the HI shock (or how it will manifest) will be smaller than for most people.

But how the collapse will evolve, as global trade can stop rather suddently, remains a mystery to me.

In this stage, silver can act to the point that I don`t need to sell any gold.

The start of the Physical Gold Market could take time.

It wouldn`t be wise or safe to sell gold before the PGM. Would it?

Cheers!

byiamBYoung said...

@ The Engineer,

My opinion is only mine, and many here can offer far more educated answers.

But from what I have gathered, it is wise to hold onto your gold as long as possible, and definitely through the storm. Those who unhoard gold in the midst of the transition stand to lose a lot. We should strive to not be those poor saps.

Put your gold away, and then live like you don't have it.

Cheers,
Bradley



JR said...

Well said the Engineer,

Eric Sprott: Well, it’s an inventory problem. I mean if the inventory – and we experienced the same thing Jim when we did our silver trust. We raised – we had to buy in the open market something like fifteen million ounces of silver and it took us three months to get delivery and some of that silver was produced after we made the commitment to buy it. So obviously, there’s no supply of silver hanging around in some warehouse which is waiting for us to come along and buy it. It’s not there otherwise we would have got immediate delivery but we didn’t. So I don’t think the silver inventory that people imagine is there is there. It’s in short supply. Most big purchases are delayed settlement and that’s just symptomatic of scarcity.

In commodities the paper market regulates the flow between the producers and consumers, acting as a kind of a shock absorber against unexpected supply and demand shocks. But gold is different because it just accumulates. There are two main differences between gold and everything else. The first is that gold just accumulates rather than getting consumed, so there is no reason for there to ever be a supply side shock, even if all the mines suddenly stopped producing. In fact, today we have a 60 year "supply overhang" in gold. Nothing else comes close.


http://fofoa.blogspot.com/2012/07/fallacies-1-paper-gold-is-just-like.html

Jeff said...

Hi anand,

1. Yes.

FOFOA: "So if the gold in private hands in the US doesn't flow in sufficient amounts, given that US debt has been discredited through the Freegold phase transition, the government will have no choice but to continue printing money in its vain attempt to support the US trade deficit and its own status quo as Uncle Sugar to the people. And in a last-ditch effort to support its own failing currency, it will have to ship Fort Knox gold overseas. FOA mentioned something about this: "…the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates."

Anand: And a lot of gold will need to quench the deficit during the crisis.

FOFOA: Imagine a small poker table, six guys playing poker. They empty their pockets of gold and put it in the kitty, then divide up the plastic poker chips to match the gold 1:1.

Next they play poker until a couple of the players have all the chips. At that point the winners return the chips to the losers so they can play again. But they make little marks on a piece of paper like this: III... to signify the return of the chips. These marks are IOUs. They play again until those same two players have all the chips, and once again they return those chips to the losers and make a few new marks.

They continue this game with the winners returning the plastic chips to the losers each time. And the winners are the same, each time. And this game continues for 88 years. How many pads of paper did they go through keeping track of those IOUs? And if they were to settle up in gold now, where gold's value was once equal to the plastic chips 1:1, but now they must incorporate the IOUs, what would be gold's new value relative to the chips?

You could say that the two winners should probably just get all the gold, right? Like France should have emptied Fort Knox in 1971. But that's not the way the real world or the free market organism really works. The way it works is it revalues that gold so that upon uncontrolled collapse, the winners are somewhat fairly paid and the losers still have enough gold to keep on playing.

So you can factor in population, gold stock, current wealth metrics, whatever you like to justify the old men's suit comparison all you want. But just don't forget the debt, the largest factor of all!

Jeff said...

Anand,

2. No.

FOFOA: One of the big points in the post above is that exorbitant privilege is something that is given, not something that is taken. This is wholly consistent with A/FOA's story and message, but if you start with your premise that the USG was the mastermind playing its high stakes poker hand, then you will see what you expect to see.

FOA: My friends, a national fiat in our modern world only functions if the whole world uses and supports its flow and most importantly likes its management (political styling is the catch word). This support and use of our dollar can and will change faster than many think possible. Our dollar is not going to become a "banana" or "nada" in the future, as auspec notes. It already is and has carried this trait for some time now as does every fiat today. The only thing that keeps them from cascading away is world support and use...

The prestige that we have the largest military force in the world does not help our money problem. We talk as if we will let any country die that does not use our money or support our currency. I point out that the British also made such comments and it didn't stop their downfall. Nor the Russians.

Jeff said...

Anand, you might like to know FOA's view of possible outcomes.

FOA: Your "various scenarios" with mine notes added :

1} Ongoing MODERATE debasement of US Dollar. {Brisker} Business as {than} usual.

----Near term, yes.-----

2} Gold and/or Oil breaks away from the dollar.

---- Oil is already doing so for a year now. The gold market is in the process of self-inflating its paper side of the function. The first minor lease rate signals are already behind us. [March 9, 2001] The ECB and BIS are coming more in control as the dollar faction must either sell its gold also or begin to fold. If they want the game to continue a little longer, the US must not put its gold on the market or the BIS and ECB would bid it with their dollar reserves. Ending it all then and there.------

3} Dual and competing reserve currencies. "Co-Currencies" in Reserves. The currency war that is in clear sight {thanks to ANOTHER and FOA}.

----- I would add that the vision of co-currencies is just a passing function as we get from here, dollar reserve, to there, Euro reserve.-----

4} Status quo.

----- We have not been here in our life times (smile).--

5} All-out war that distracts/rescues the dollar and extends its life. Wag the dollar.

------ As we enter the down side of our economic function (like we are doing now) the massive money printing by the Fed will risk the dollar's slow slide to becoming a super slide if a war breaks out. People run to the best managed world money in a war, not just the one with the current best exchange rate value. In the past the dollar was the one, today the Euro would receive the flow. The US would be risking killing its last bit of dollar timeline with any war today. [unless, perhaps, A) it wasn't an "all-out war" and B) it has the backing of Europe and the Saudis in pursuing the war?]---------

6} Dollar merged with euro/backed by euro.

------ I know a few people that made a lot of sudden money wealth and gave almost all of it to the church (or charity). Others are much more smarter and support the church (or charity) for the rest of their life. Retaining some control over how the charity is used. This is how the EuroZone would handle us. Actually, it's the same way we handled them after the war. We didn't just merge our checkbook into theirs, did we? Net / Net, they will have the wealth to be offered, not us.-----

7} Brazillian or Weimar style hyperinflation of the USD, the Big Banana, or the 'little banana'?

------- Full on, wide open, in your seat, flat out! It's in the pipeline!------

You write and I comment:

Debt is designed for default as fiats are for debasement.

--- My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)

What advantage would it be to the Power Elite to destroy the dollar.

-------- Wrong context. What advantage does the Power Elite gain by expending assets to save an already failed currency. Better to do what major players have done for centuries and are doing now, buy gold and evolve your power base to use the next reserve.-----------

The end of a currency's lifetime always ends in gold debasement?

---- In almost every case. Sometimes in the open, sometimes hidden.------

Ok, this is going overtime (smile). I will try to cover more (and others) in a day or so. Also, the question of Another at his keyboard? I reword things from him quite a bit for bare readability. But, his delivery is pure. I don't always pretend to understand it. Then, that's a whole other story (smile)

Thanks
Trailguide

JR said...

Good stuff from The Engineer and byiamBYoung,

You want to make sure you hold your treasure close as we go over the waterfall and find our way to the other side.

In this stage, silver can act to the point that I don`t need to sell any gold.

Lots of us own silver. An idea is there may be a transition time between the $IMFS and Freegold, when gold goes into hiding in areas and doesn't really trade as the paper markets collapse, when paper currency goes HI and a barter economy grows in significance. Many see utility in having barter goods such as silver or even airplane bottles of alcohol in such a time. And holding physical cash as well to bid time until then and be able to grab goods one might need before supplies run low as HI takes hold. Cash and barter goods as a defense to your treasure - your gold. You don't want to spend your gold during the transition, you want to hold your gold till we come thru the other side and the true worth of gold is revealed.

Windmills, Paper Tigers, Straw Men and Fallacious Fallacies

"In fact, my position is that silver will rise just fine against a falling dollar. In fact, it may gain a little additional levitation over other commodities due to the lingering monetary sentimentality put forth by Trace and others. But it will also be limited by the economy. Where it will not follow gold is through the change in both market and function that will deliver a real, non-inflation-adjusted massive one-time return. The Freegold reset as the gold market turns physical and the gold function becomes the monetary store of value par excellence. A free market Giant event being front run by the Central Banks and a few small physical gold advocates."

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

Kicking the Hornets' Nest

"You see, the international monetary and financial system (the IMFS) is in transition today. It is transitioning from the old $IMFS into the new IMFS. And through this transition gold is going to replace dollar assets as the monetary reserve asset, and in so doing, will recapitalize the failing system of today. This is the esoteric part, where you need to put in a little effort to understand why I say this with such confidence. Without that effort you will most likely dismiss my words when I say that gold's value will soar during this transition and deliver a one-time gain to physical gold holders in a sort of "punctuated equilibrium."

This means that one day gold is cruising along with its known relationship/ratio to things like silver, oil and bread, and then the next day (or over a brief, one-time period) it gaps up ~40x and then reestablishes a new equilibrium with the aforementioned commodities. And the gain of this transition is only afforded to the physical quantities of gold in the world, which is why the chain of paper promises (of gold) floating throughout the financial system is so dangerous.

Yes, silver will run with inflation just like all physical assets. But it will not have the additional boost of being the new system's official reserve asset. This probably doesn't seem so significant to the silverbugs, but then again, most of you who have taken the time to understand Freegold now call yourselves ex-silverbugs.

[...]

Yes I still have some physical silver. But I am a seller today and have been for a year now. And I was only a buyer before I discovered the wonderful archives linked above. And for the record, I am not playing the GSR. And I won't sell ALL of my silver. I plan to keep a little bit of it. And if I didn't have any silver, I would probably buy an amount equal in weight to my gold position, as Desperado said in his comment. That means, if I had 100 ounces of gold, I'd also buy 100 ounces of silver. But that's just me (and Desperado)."

JR said...

Silver is for Bartertown.

Gold is for lying still.

Woland said...

Hello JR:

This comment is directed to your attention in the hope that you
will respond do the content. FWIW.

In the past several days, 2 well known commentators on the
financial scene, Ambrose Evans-Pritchard (known to be a believer
in EU break-up) and Bill Fleckenstein (a believer in a deflationary
outcome to the present crisis) have both completely changed their
tune.

In both cases, as the result of both the Draghi comments, and
the statements (with which you are familiar) from Jorg Asmussen,
regarding bond buying and rate caps, as well as the apparent
conflict between Asmussen and the head of the Bundesbank, in
which the former has the backing of Merkel, who appointed him,
both Evans Pritchard and Fleckenstein now expect action within
a relatively short (3 month) time frame, for the ECB to begin
buying sovereign bonds, to remove the "fear of break-up"
premium from bond pricing, in spite of BUBA worries. Bill F
cites a long term "deep source" as additional backing.

Switching gears for a moment, a FOA quote from this very post:

"A grand hyperinflation is now directly ahead on the trail. It
should BEGIN with a large "crack up" in the currency derivatives
market". Well, what is the currency derivatives market but a
huge set of bets on interest rates and currency ratios, made by
the largest international banks? And on what scenario are most
of these bets currently predicated? Weak Euro, high EU
periphery rates, low US rates? And what happens to gold as the
ECB starts to "monetize" peripheral debt? It goes up, right?
Making the ECB balance sheet STRONGER, not weaker. What
happens to the sellers of "currency derivative insurance policies"
if they are wrong footed by the ECB? Like JPM? Thoughts?

Alan2102 said...

poopyjim:
"if we're hoarding silver for its industrial use, then we might as well hoard any commodity. Hey - why don't we hoard uranium?

ElaisaKasan:
"40,000 tons of gold in allocated accounts has been leased or re-sold without the consent of the owners. There is 100 times more paper gold than physical, and 500 times more paper silver than physical."

The engineer:
"I know that I could be right on anything - or wrong. That is the difference between us. Nothing in life is sure or guaranteed."

Yo!

byiamBYoung:
"When TSHTF, gold is going to experience a moonshot .... to 100x its present value"

100X!?! BOY do I ever hope you're right! That would be truly fabulous, and wonderful. Nothing would please me more. Well, not much, anyway. I eagerly await the day -- knowing that nothing in life is guaranteed.

Alan2102 said...
This comment has been removed by the author.
Edwardo said...

http://screen.yahoo.com/outrageously-priced-foods-30296772.html

Check out the sundae.

byiamBYoung said...

@Alan2012

One small step for a shrimp, one giant leap for shrimpdom.

Cheers,
Bradley

anand srivastava said...

Hi Jeff.

I do understand FOA and FOFOA's position.

There is no question of the hyperinflation. And their is no question that USD will not be sidelined, and will no longer be the reserve currency.

What I am talking about is the post USD world. Obviously when the currency has hyperinflated, it needs to be replaced, or price controls are applied to hold the value stable for as long as possible.

Ultimately USD will be replaced and a new currency will come in its place.

My comment was regarding the intervening years. From the point when USD falls out of favor and to the point when a new currency is established.

The question is how will the govt behave. Will it be benevolent and reduce its spending or will it fight tooth and nail. Going as far as to use price controls ala Germany during Nazi rule.

The problem with US is that it has a big military. It will reduce quite a lot, but the weapons and a large part of the personnel will stay on, and will be used by the govt to establish dictatorship rule. It could also be that the Military takes over.

Yes this govt cannot stay for long, because the means of production will be negligible. I would think around 5 years. That is plenty bad time for people with or without gold. The laws aka executive orders that are passing these days point to that direction.

During these years US can lose all its gold.

I may be too paranoid and fearful of politicians :-).

anand srivastava said...

The difference between gold and silver is the amount it needs to hold the same amount of money. Gold is a much better store of value, at least 50 times better :-).

Most of the requirement for this function is by the giants. They cannot hold silver, it would require too much storage. So all CBs and Giants would use gold. I would think after revaluation even funds will prefer gold. Silver will only be used by the very poor people who cannot afford any amount of silver.

Its non destructive uses are for jewelry and silverware. These will not be for storing value and will be used only by rich people who are not concerned about the money spent in these stuff.

After the Paper silver crash, I would expect Silver to rise in value by maybe 5-6X. But this raise will not move people to store in silver, because gold will be rising much faster.

The current 50X ratio will increase to 250-300x. Not a good idea for Silver as an investment. Yes it is better than stocks or currency and possibly even land. But for people who can buy gold, its a waste of money.

Silver still has some uses. Particularly for currencies that might experience HI. US, UK, and possibly India. There may be a dozen more currencies. And in this case you want silver coins, to use as barter during those bad days, not as a vehicle for transferring wealth across the crisis.

Silver is a crucial part of HI preparation along with food and fuel.

anand srivastava said...

I should have spent more time on the last comment. There were some mistake and more could have been written.

"Silver will only be used by the very poor people who cannot afford any amount of silver."

I meant those who cannot afford any amount of gold.

Also I am assuming the 30x gold increase given by FOFOA is quite good. So that 5-6x of Silver will result in 50x * 30x / 5-6x = 250-300x ratio between gold and silver post revaluation.

I am planning to have 6 months worth of Silver coins with me. I am hoping our possible sinking into HI if it happens will not be for too long. In that we have to anyway find other means of making money. I am more concerned for the safety of the lockers during HI periods :-(.

Nickelsaver said...

Recovering Silverado here.
(as @Freegolds would say ;-)

I think about my neighbors, my town, and what it would look like trying to function as a barter economy. I've always thought that silver seems the most likely item to lubricate a barter economy. And if it is, it's good to have some.

But my thinking is changing. I can just image myself 3 weeks into such a situation. First I think we would see the unprepared folks trying and succeeding in selling most of their finer stuff just to get their hands on some silver. I wonder how long it would take for that same silver to get some decent distribution throughout the community.

But then I think about the fact that gold will go into hiding, at the same time that silver is being spread around.

I can imagine pulling a stack of silver dollars out of my pocket...and lets say that I just happened to have a 1 gram bar of gold in there too. Can you see everyone looking past that stack of silver and seeing that gold? I can.

So then I think, if one is to barter, doesn't it make sense to have the thing that other people will want? And at today's prices, can I not buy more gold (instead of silver) to protect my gold? Think about it.

The only other argument I see is the "paint a target on your back" angle. But, I think that isn't very strong, since to make a value trade of any kind will be risking. So maybe actual silver bullets are the item to protect my gold, lol.

Strike that, I'll stick with the jacketed hollow points.

anand srivastava said...

Nickelsaver:

The problem with trying to barter with gold is that you will be giving it too cheaply.

A silver coin of say 10gms would be able to buy you a lot of food. But a 1 gm gold should buy you 5 times that. During the crisis, the 10gm silver would be buying 5 times what you can buy now. With 1gm gold it should be at least 25 times just to stay even with silver.

So in my opinion it would be good to do almost all your small stuff buying in silver and keep the gold for big ticket items.

During the crisis, property would be very very cheap, that may be the best time to invest in property, with your stack of gold. Ofcourse spend only a small part of it. Not all of it.

I think it would be good if I am getting the property at 1/15th of the present value in gold. This should be possible at the very beginning of the crisis, just after the initial revaluation. After the crisis the land will rise up maybe not to the current value but still rising at least a couple of times, giving a very handy profit.

Does anybody see anything wrong with this plan?

sean said...

"Silver will only be used by the very poor people who cannot afford any amount of gold" seems to be another popular fallacy. As JR succinctly states "you buy gold by currency amount, not weight, so its never too expensive".
Also, someone who is so poor they can't afford any amount of gold, is probably spending every penny they have on food. Remember, there is no rule that everyone has to save - not in gold or anything else. Some shrimps with a little amount of savings may even choose to hold it in fiat currency. Why not? It's their choice, and if the currency is well managed they wont lose much to depreciation. Of course they will still have the freedom to convert it into gold whenever they want (though they run the risk of the price changing). More sensible shrimps will keep their savings in gold.

Vive les sensible shrimps!

sean said...

btw, astute observation by OBA! Where is this yonder site at which you post?

Phat Expat said...

Wow, stepped away for a bit (ropeless Mountain climbing) and come back to find prepping as the topic du jour. Though I don't believe a painless transition was assumed; I am surprised at the apparent change in tone. What did I miss? Popcorn and beer at the ready...

anand srivastava said...

Agreed Sean. That becomes pretty obvious. The outcome is that nobody will be buying Silver for store of value function. In my calculation I didn't consider it at all. Silver can only be hoarded to create an artificial scarcity.

Motley Fool said...

Prepping always comes up when silver is mentioned. It does have a place there, perhaps for procurement of gasoline or oils, things most of us cannot store for long enough.

JR said...

FOA (4/19/01; 17:50:29MT - usagold.com msg#65)
Reply

We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nation's identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Usually, they function alongside whatever major reserve currency is in vogue. Today the dollar, tomorrow the Euro. Make no mistake, the entire internal US sector can and will function as its currency runs a price inflation just like these third world countries. We will adapt as they have by dropping our living standard accordingly and adopting the Euro as our second money. [...]

NO, "this country will not turn over and simply give in" as you state. But, we will give up on our currency! Come now, let's take reason in grasp. Our American society's worth is not its currency system. Around the world and over decades other fine people states have adopted dollars as their second money, only to see their society and economy improve. Even though we see only their failing first tier money. What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living. In the US this function will be a reverse example from these others. We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an overvalued dollar that we spent without the pain of work.


http://www.usagold.com/goldtrail/archives/goldtrailthree.html

Phat Expat said...

@MF
Ah, okay. Thought there was some news I had missed of something more sinister afoot. Whew...

Here's an interesting take on Gold, Hui, and Silver (can't say I'm a fan of EW but this person is 'interesting'): http://www.gold-eagle.com/editorials_12/petch081512.html

Let's see how it plays out. Caveat Emptor; of course.

JR said...

I can imagine pulling a stack of silver dollars out of my pocket...and lets say that I just happened to have a 1 gram bar of gold in there too. Can you see everyone looking past that stack of silver and seeing that gold? I can.

So then I think, if one is to barter, doesn't it make sense to have the thing that other people will want?


Will people want it in the same sense as they will when the physical only market re-emerges? The paper gold price is crashed an no market exists - me thinks you wanna hold your gold tightest during this time.

Edwardo said...

Anand, I think you would do well to consider that the U.S. military is just as likely to stage a coup d'etat as they are to become a domestic enforcer acting on behalf of some dictatorial political entity.

Also consider that a nation of this size will, if enough stresses are applied, fracture into its component parts. There is some precedent for that here. Empires, of which the U.S. is one, generally, in time, contract back to their core. Having said that, I don't have a strong sense of what such a core is where the U.S. is concerned.

In any case, this sort of semi-lurid speculation is just a tad OT.


anand srivastava said...

Thanks Edwardo. I only see a very optimistic view of the future of US, with Gold being used to back the currency after the crisis. I wrote this to say that I don't think the picture is that rosy.

It could get very ugly, much more than just a plain hyperinflation. And the reason for that is the large military and I think there is quite a bit racism as well. Both of these conditions existed in Germany, before the growth of the Nazi.

It certainly is a bit OT.

Robert said...

It makes zero sense to hoard precious metals for bartering purposes. ZERO sense. The vast majority of people are totally unprepared for a monetary collapse. There is a strong risk of food shortages during the initial shock. Except for pre-1964 U.S. coins, the vast majority are going to have no way of telling whether something purporting to be gold or silver is real or fake. Companies are not going to trust retail employees to make those decisions. There will be no orderly transition to a barter economy. Instead, there will only be looting and bloodshed. If you want to be prepared for a crisis, you want to be the one with the food, not the starving sucker with a pocket full of silver quarters hoping to buy a loaf of bread.

anand srivastava said...

Robert: HI doesn't happen in a day. It is also a process. Silver/gold can be first converted into currency before using it for buying stuff. You do want to finish all currency immediately. Companies will definitely not agree with taking silver, but individuals will. The value of the silver will have to be negotiated, but it can be done based on the price of the day. There could be counterfiets though.

Ofcourse Silver is just an additional measure. Food that can survive for more than a year is the most important measure. Without that the silver stack will not last long. You would want to have dried grains and legumes and cans of food for a year or however long you can hoard safely.

athrone said...

So the same people here who are at the "All Inn" (freegold millionaires) are going to be buying bread at the local shop with silver coins?

Dimitri said...

A few words in favor of silver.

FOFOA's down on silver from an abstract, big-picture, freegold theoretical stance. But we silverbugs are humble people meeting very simple needs with our miniscule PM purchases. We're also shorter-term than Another, FOA, and FOFOA.

The key here is dollarization of the economy which would follow even moderate inflation. You all know what that means: when some country's local fiat loses enough desirability, the locals transact in foreign currency.

But what would happen if the dollar lost desirability here in the US? There is not enough foreign currency in the US to make all the transactions needed. The American economy would likely dollarize using silver itself or in concert with some other media of exchange.

What I hope for from my silver is that it keep some of its value and allow me to transact business in the interval between busted dollars and whatever comes next.

While I am doing business with silver, some of my gold collecting friends will be tabulating their paper profits. Others, in the true spirit of Another will be letting their gold lie still, not thinking about it, not measuring it against broken currency regimes. Both types of gold-only collectors are going to have to solve the problem of how to conduct daily life in between currency regimes.

There is a kind of reader/poster on this blog that is all about revaluation of pm. Sometimes this will be a silver bug, sometimes a gold bug. Some of these posters will actually refer to how much "money" they would make at X times dollar pricing.

Let me say, this is entirely appropriate for silver bugs, since we are trying to preserve wealth in a medium that will be used for practical transactions. It is way inappropriate for gold bugs, especially in this forum inspired by Another.

Gold is to lie still. If gold makes you rich in fiat, if you cash it in for fiat (especially rapidly depreciating fiat during a crisis) you have missed the point of gold. If gold represents an eventual "trade," you belong in silver, with me, rather than in gold. Or maybe you belong in paper.

Congrats to FOFOA for the best continuing blog on the Internet and for maintaining high standards in every post.

Nickelsaver said...

If I am any kind of bug, it's a God-bug. But when it comes to preserving monetary wealth, I am a Freegold minded prepper.

For me, I simply break it down to present cost to future purchasing power. And in my thinking, it does not matter if you are in the transision, or on the other side. You want the best bang for your buck right now.

Which means I would rather hold this than this.

That doesn't mean I won't hold onto a few of these for use during that short window in which they might have utility.

Dr. Octagon said...

I personally don't see silver being very useful as a barter item during any transition period. I *do* see a premium on physical cash, which I expect to be printed in the quantities necessary to (at least attempt to) keep up with hyperinflation. Everyone will have the ability to get access to physical cash, and retail stores will continue to accept cash.

Silver is difficult for at least two reasons. The first is due to what I mentioned above. We already have all of our systems configured to transact in dollars, and I expect plenty of dollars to be around and available for everyone to use. Long-term contracts simply won't be signed, and all transactions will be short-term because of the unstable pricing. Second, very few people have any silver. Maybe a bit of jewelry or heirlooms, but not much. The market is too small. So it will not be commonly "offered" in exchange for other goods, and therefore you won't see much, if any, pricing in terms of silver. There's not enough incentive for a business to price things both in terms of Silver and Dollars. Dollars will still work fine as a medium of exchange. More dollars obviously, but still dollars.

Any situation where Dollars are not accepted is a situation where you should have stored food, not silver.

That said, I'm sure that there will be plenty of pawn shops happy to accept your silver, along with most other items of value, just as they do today. Pawnshops will be more common than "we buy gold" signs.

JR said...

I know people whose goal is to keep their gold close until we get through the transition, and to help achieve this try to ensure they can provide for their necessities.

So they purchase needed goods and hoard cash and barter items.

FOFOA has made clear USA folks have lotsof stuff, and in HI there is paradoxically a shortage of money. Barter town aka lots of pawning for cash/credit may be a likely outcome in the USA. Will find the comment later when off the phone.

Aquilus said...

On the silver as currency discussion:

Maybe it's just me, and reading too much FO/FO/A, but one thing I have not seen proposed as an alternative currency during the worst part of hyperinflation is (drum-roll): the euro.

Would it not make sense that as dollars still circulate and lose value faster and faster we, the US population, would not want a more stable fiat/paper currency, that already exists in sufficient quantity as an alternate more stable MoE?

I mean, before stores start accepting and testing different silver coins and bars, it's easier to recognize another paper currency - we are already conditioned to that. And what currency can fill that role while $ keeps adding zeroes? The euro. It's already printed in great quantities, can be shipped over here easily, and will slowly have reduced usage when the new dollar is in place after HI.

This is not to say that silver as an ASSET is not ok to have and exchange for the currency "du jour", but during HI, I would rather exchange silver for the currency that's recognized and accepted in stores and that loses purchasing power the slowest. So I'll take Euro over $ if the grocer takes them too.

Again, in the spirit of FO/FO/A, I think of silver as an asset in the physical world; not as a medium of exchange. To be exchanged for currency that can be spent, but not to be spent in itself.

Just my 2c

Aquilus

K said...

Dr. O...

If there are plenty of dollars flooding around and people are trying to get out of those dollars, think Weimar when people were paid twice a day... wouldn't they be jumping through hoops to get in some silver during that time. I sure as hell would if I wasn't planning on spending it in the next 4hours...

I'm strictly talking about the initial hyper phase... I'm a freegolder but do own 1/5 silver, as I'm now an ex silverbug... still switching some over.

K said...

I ran into this quote just under Aquilus's first quote here on FOFOA back in May 2011.



FOFOA said...
Hi Aquilus,

"what else can be done to ease the pain of that 6-12 month period?"

You made a good point that during a hyperinflation, people that get their hands on the paper currency rush to buy "something, anything to be re-sold later." More to the point, they rush to buy something, anything that can be bartered later! Barter is king during hyperinflation. Look at the picture at the top of my last post. How many of those people in line are pushing wheelbarrows of cash? What are they holding instead of cash?

When hyperinflation hits, everyone's net worth when counted in dollars has literally skyrocketed. Like the picture at the top, you can have starving billionaires! All that stuff you've got is now worth billions! But, of course, the currency prices of physical things don't all rise in commensurate fashion.

I think it is a good idea to stock up on all the non-perishable things you use anyway! Do you like teh liquor? Then stock up! Fill your pantry with all the canned goods you enjoy. I just noticed my Costco is now selling Mountain House freeze-dried meals at 10 for $39.99, a great price! So I bought some. I also have a large supply of toiletries and other common goods that I use every day. I have kept myself stocked up for three years now, and it is a very pleasant, peaceful feeling. John Williams also has some good ideas for other things that will be valuable in a barter economy (which lasts as long as 'they' keep printing).

And there is an added advantage to hoarding now, while it is unpopular, and while you feel a little embarrassed to admit you're doing it. The more you stock up, the more you draw necessary items into your "zone" while the distribution lines are still functioning normally. Think about it. If you clean out the canned peas at your store, it orders more. So hoarding during "normal" times is socially beneficial and meritorious. Once the supply lines stop because payments are judged insufficient, hoarding becomes deleterious and anti-social. So do it now, don't wait.

And then compare this advice to what you get from the deflationists. They don't like to stock up because they believe prices will be lower soon. Same for gold. Don't buy now because the price will be lower soon. It may well be, as those who read this blog know, but will there be any physical gold available at those prices? I think not.

In The Shoeshine Boy I predicted that gold could drop to $200 per ounce, giving Bob Prechter his 15 minutes of fame! I also predicted that you'll only get paper gold at that price. During rationing and price controls, there can be stores selling bread at the low, mandated price, but it seems they are always running out of stock.

This is why I'm curious what our resident deflationists recommend. Whether they believe it or not, I do understand their deflation arguments quite well. I didn't just study one side of the debate. Some deflationists are serious ruinists (as RA would say). They recommend Mad Max preps which are fine, but very expensive. But that doesn't really matter because they don't see any way to preserve your wealth anyway. Other than, perhaps, hoarding dollars. I am much more interested in their specific wealth-preservation recommendations!

If you follow my recommendations you'll at least have the stuff you need and a bunch of gold. If you follow theirs, you'd better knock on wood! Thus, the video I included.

Sincerely,
FOFOA

K said...

And also on the "prepping" topic... Just about to finish One Second After... Pretty intense and if it happened, would be very similar to the book... devastating. I only saw "coins" mentioned one time in the book, for bartering. Not saying it won't happen more but I think when it comes to getting through the initial hyper phase that not needing/using any metals would be ideal and the best plan to have... which FOFOA is advocating. If you're trying to trade silver (or heaven forbid gold) for your family dinner that night then you're most certainly going to get a terrible deal. You have zero leverage...

Franco said...

Question: FOA claims that the US dollar will be supplanted as the world reserve currency by...what, the Euro?

Aquilus said...

By nothing: separation of roles. Gold is reserve and store of value and the Euro, the dollar, etc remain as transactional currencies and landing media.

Aquilus said...

Er, lending not landing.

MnMark said...

Whereas I can imagine people bartering with local storeowners for things during hyperinflation, I can't see how this would work with big chains like Walmart or even regional chains like grocery stores. How is Walmart going to instruct its clerks to barter? How would it resupply itself in a bartering environment? Same with McDonalds or Olive Garden or any other chain managed from headquarters in some distant location. Are they going to tell their franchisees to send them a cut of the bartering swag in return for the next shipment of hamburger patties and secret sauce? I don't think so.

So it seems to me that during hyperinflation, the big chains - which is how we Americans buy 90% of what we buy - are going to temporarily cease doing business. All we're going to see on their front doors are hand-lettered "OUT OF STOCK - COME AGAIN SOON" signs.

Which would leave 90% of the population up a creek, even if they have things to barter with.

Which makes me think that the government will be mightly pressed to adopt some sort of gold-related policy to restore confidence in the currency quite early in the hyperinflation. The switchover to FreeGold might not take very long at all once those chain stores close.

Franco said...

Aquilus:

So you are saying that according to FOA, there will come a day when central banks will stop supporting the dollar, and they won't adopt another "reserve currency of the world"? Why then does he write "For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained"? What is this "another currency block" that he is referring to?

Aquilus said...

MnMark,

Unfortunately, that's not how it works for the big guys. Have you seen that everything is in the computer for them.

What they will do (if free of price controls of course) is drop the dollar as a unit of account between themselves and their supplier, and choose anything that's stable for the medium term: say euro.

Then, they program their computer system to re-price in dollar at the current rate that very hour (if needed) at the cashier's. Of course, you can pay in euros if they decide to accept that (their systems are multi-currency ready, they just don't use that now).

I did not mention gold here because in a destroyed gold paper market it might take a while to discover the price of physical gold. Therefore, hard to use as unit of account.

Aquilus said...

Franco,

You needed an alternate medium of exchange that can handle sales of oil. No currency was ready then, none could have handled the volume needed for oil (DMark was too small, so was the yen).

Now Euro can accommodate oil as MoE. No need for a reserve currency. Then, new $ can handle oil also, after HI.

Franco said...

So, what causes the central banks of the world to say "no more"?

Aquilus said...

Well, the Europeans have said no since 2001. The Chinese started saying no in 2011. The Japanese just said yes again this year, but cannot continue when they have a deficit themselves.

The central banks just withdraw support for more purchases, they are not in the business of fire selling. They hold to maturity (and switch to shorter maturities - China - Fed's Twist) or sell slowly and acquire to recapitalize their balance sheets. That's it, no magic.

Aquilus said...

acquire gold that is.

RJPadavona said...

Hey Anand,

You wrote:

"The question is how will the govt behave. Will it be benevolent and reduce its spending or will it fight tooth and nail. Going as far as to use price controls ala Germany during Nazi rule.

The problem with US is that it has a big military. It will reduce quite a lot, but the weapons and a large part of the personnel will stay on, and will be used by the govt to establish dictatorship rule. It could also be that the Military takes over."


I don't discount this scenario at all. Desperate governments sometimes take desperate actions. But I believe this will be an absolute last resort policy.

I think world leaders have learned something over the last century. They've figured out they can attract more flies with honey than with vinegar. In other words, they've realized that people will vote themselves into submission by way of dependency on the State.

IMO, this is why the West have been such vocal advocates of promoting "democracy" to the rest of the world. Close to the same result as dictatorship can be achieved because as history has proven, people always end up voting for a more powerful central government over time.

Plus, the economy functions better under a democratic than a totalitarian system, so all the political cronies can still make out like bandits. This is a much better situation for the power structure than totalitarianism where there is a greater likelihood of revolution.

So, let's hope America doesn't go as far as electing the next Hitler. Instead, maybe we'll heed the advice of another prominent Nazi. Here's a quote from Hermann Goering when he was speaking to Henry Taylor, the American Ambassador to Switzerland:

"Your America is doing many things in the economic field which we found out caused us so much trouble. You are trying to control peoples' wages and prices – peoples' work. If you do that you must control peoples' lives. And no country can do that part way. I tried and it failed. Nor can any country do it all the way either. I tried that too and it failed. You are no better planners than we. I should think your economists would read what happened here."

So maybe things remain relatively tame in the US post-HI. Or maybe we turn into a military dictatorship. Or God forbid, maybe people listen to me and we have peaceful secession and go our separate ways ;)

Regardless, one thing is for certain: The music must change before we'll find out.


RJP

Dimitri said...

Let me add a few touches to the silver argument since I disagree with much of what I am seeing here.

(1) In the dollarization of an economy the local currency survives only in citizen-to-govt transactions which are mandated for the local currency. This is because the populace has reached a point where they will not accept the local currency for their own transactions. It doesn't matter if you can reprogram cash registers for momre zeroes - under dollarization, people don't want the local scrip. If they still want local currency, you are not in a dollarization scenario.

(2) If dollarization hit the USA, there would be no dollar to act as the dollar. You might have Euro-ization or Sterlingization except that there are not enough pounds or euro notes in circulation here to make that possible. You might think you could hold these digitally in a local account but have you tried doing a forex deal with your local bank lately? Hah. U.S. dollarization would be silverization. There are tens of millions of silver coins held in this country that were minted and are legal tender. This would circulate in the interim.

(3) The idea of going to WalMart, etc. with your inflated dollars flies in the face of the world revolution in logistics that outlawed stockpiles in favor of just-in-time fulfillment. No one in any megachain would have a functioning supply system, since just-in-time requires stability in pricing, long-term supplier contracts, unimpeded imports, and all sorts of daisy chains. These outfits also have to make a profit and the profit has to last more than a few days.

Finally, if we read Another we understand that there is no "alternate medium of exchange for oil" once we reach an inflationary level that breaks the oil-gold-dollar nexus. The next medium for the oil trade will be gold as sellers reprice out of dollars.

Since the world currency system is dollar backed (don't give the euro too much credit...). all paper will burn. Again, that is a certified Thought.

If paper burns, you want silver to manage your daily business.

Simple.

Aquilus said...

Dimitri

Thank you for your points. Can I point out though (in as friendly fashion as possible) that you are aggregating the unit of account and medium of exchange roles?

1.Not really. In hyperinflation, the currency that is legal tender always circulates. Sure, people look for an alternate stable currency, but still have to use the local currency as they get paid in it, not foreign currency, and let's not forget the coercive power of the state.

What cannot be imposed is the unit of account and store of value, but that's very different than the medium of exchange


2. Initially you don't need the euro paper - you need euros as unit of account - to denominate your transaction in and then transform into dollars at the current rate. Whether euros become medium of exchange or not that's a crapshoot, but the important part is having a somewhat stable, reference unit of account for commerce. From there, medium of exchange can be dollars or seashells.

3. Just in time requires stability in the unit of account and front-running the rate of inflation between the time money is collected at the register and given to the vendor. As long as the unit of account of the contract is stable, again, the medium of exchange does not matter - it gets figured out at transaction time.

You will want silver to transform into the most efficient medium of exchange for the transaction you are performing. And maybe sometimes you might even barter direcly - silver for items. But only with private individuals or shop owners, not an impersonal big store.

Aquilus

P.S. A lot of what I tell you above is from first hand experience of how things work in a hyperinflation. I experienced it first hand in the 90s in Eastern Europe with the dollar at the time being the unit of account. There were not enough dollars, but all transactions were done in dollar terms, translated into local currency at the hourly rate.

Franco said...

"In the dollarization of an economy the local currency survives only in citizen-to-govt transactions which are mandated for the local currency. This is because the populace has reached a point where they will not accept the local currency for their own transactions. It doesn't matter if you can reprogram cash registers for momre zeroes - under dollarization, people don't want the local scrip. If they still want local currency, you are not in a dollarization scenario."

I'm not exactly sure what "dollarization" is supposed to mean, but I can tell you that I lived through hyperinflation in Argentina in 1989, and the local currency was used throughout the hyperinflationary ordeal. Shopkeepers marked prices twice a day, in the local currency. People tried hard to convert their money to either goods/services or US dollars (which has been the secondary currency there for decades), but there was no dollarization of everyday transactions. Nor was there much barter, if any at all.

JR said...

Here's the thing. Hyperinflation is a currency event only. The price of three eggs may well rise to $100 billion as seen in this photo:

[...]

But those same eggs will still only cost one apple. This is an important enough concept that you should spend some time thinking about it. There will be shortages. Supply lines will be disrupted. And the relative value of stuff will change. But it won't change anywhere near the extent to which currency values will change. And if there's one thing the US has after 30 years of deficit spending, it's lots of real stuff! Tonnes of it!

I remember when my neighbor had his house foreclosed. He still had four cars, lots of very nice furniture and a quad-runner in the garage. Two of the cars were subsequently repossessed and when I saw him a few months later he was driving a much older car. But the point is, he was not only broke, he was in a negative net-worth hole of several hundred thousand dollars yet he still had all this stuff!

I have another friend who is equally broke yet he has all of the latest gadgets. He has the best digital camera, a nice iPhone, three computers, at least two iPads (he has to get the new one whenever it comes out) and much much more. There is lots of "stuff" here in the States. Lots and lots of it! And much of that stuff will become a secondary currency of sorts when the hunger sets in. That's how an impoverished, unemployed American will get his hand on the new US$1 billion note. He'll sell his iPad to a government stooge for a billion so he can buy a loaf of bread!

Think about it. That's all I ask.


http://fofoa.blogspot.com/2011/04/big-gap-in-understanding-weakens.html

JR said...

http://fofoa.blogspot.com/2012/03/sushi-island-savers-saga-part-2.html?showComment=1332126001060#c4000140470313886478

Hello RJP,

You wrote: "I'm actually not looking to start a local currency system right now. I'm just looking to help establish an "In Case of Fire, Break Glass" plan. Just something that will help to lubricate the local wheels of trade in a USD collapse scenario. I don't care if it's a system like the Tems or just good old fashioned Monopoly coupons. Just something to get us through the transition to the new monetary system and maybe help to prevent violence and rioting."

So you're looking for a good backup currency system? Here's something I wrote in the Savings and Capital Theory Open Forum:

"The monetary plane only exists to assist the Superorganism by transmitting information through prices and lubricating the flow."

These are two separate functions: 1. lubrication and 2. economic communication.

In terms of lubrication, when a currency collapses there's not enough of it no matter how much they print. The engine has seized. A little brute force through outright barter can help our economic machine eke out some motion to provide for basic productivity, but it is the loss of money's role in effective economic communication that causes the greatest disruptions.

The reason there's not enough currency when it collapses is because the credit system seizes while everyone's net worth denominated in the currency base is rising faster than the base printers can print. For example, if all you have in the whole world is two loaves of bread, your net worth may be $2T and rising while they are still busy printing the old $1B notes. So money becomes a poor lubricant, especially without wheelbarrows.

But you still have all your stuff. What do you have? Each thing you have will have a dollar value higher than the supply of dollars out there, so don't count on selling your stuff for dollars. Say your neighbor wants to buy your $14 Quadrillion dollar piano off of you. By the time he gets those 140 $100T notes together, your piano price will be up in the Quintillions. See how it works?

So you want to print up your own local currency, let's call them Dios, where 1 Dio might be worth a loaf of bread no matter what the dollar is doing. And this price stability you're presuming will be solely based on your control of the quantity of the base:

"So I guess I'm just looking for some answers on how much currency would be needed based on the local population. How to know when to increase or decrease the money supply"

But who is going to set the value of your Dio? Are you? If so, you'll need to make it redeemable and back it with something in order to project that value to the people. People haven't been using Dios for generations so there's no regressive link with the physical plane. Do you think they'll just have spontaneous value?

Cont…

JR said...

2/2

A few days ago, Motley Fool asked me a similar question by email. Here was his question:

"I was wondering what one could use as a measure of value before and then during the transition, assuming it to be of the hyper-inflationary type.

As you know hyperinflation are known for shortages of essential goods, which make using those as a measure somewhat difficult. So what can be used?

Now, before and after should be okay. At present goods are readily available and after the dust settles the same should apply, which means a comparison could be made against other things.

Ideally it should be something the use of which would not change much, despite circumstances.

Obviously one cannot use gold...or oil for that matter; or food, or perhaps even water.

Thoughts?"


Here was my reply:

"What is needed is not an item benchmark, but simply the communication of the relative values of all the real stuff that still exists so that existing value can be mobilized. Historically another functioning currency has worked well in this situation. So you can thank the euro architects when the time comes."

In a currency collapse, the credit system seizes up and the entire money supply becomes base money. What you are looking for is something of a stable, known value in order to jump-start your local credit and get things moving again without facing the intractable double coincidence of wants. But whatever base you use, you'll want a few of them for clearing purposes. So perhaps you could suggest to your County Commissioner Chairman, the next time you're feathering his mullet, that the county would do well to build up a reserve of euros as a kind of rainy day "In Case of Fire, Break Glass" credit clearing fund. Just a thought. ;)

Sincerely,
FOFOA

Chico_hawk said...

I cannot see how an utter breakdown & chaos can be avoided in the immediate aftermath of a currency collapse, particularly in larger cities where acute shortages of necessities will quickly develop as people panic to stock up (i.e., hoard) food, water, & fuel...think self preservation.

To restore some semblance of order, the military will be quickly deployed to protect critical food & fuel distribution, but I wonder if they won't be overwhelmed by the populace taking matters in their own hands...

Yes, the government has emergency preparedness plans at the ready, but those seemed rather lame when up against Katrina a few short years ago...

I recall the Detroit riots in 67 as a kid (fortunately living across the river at the time) & being able to see large billows of smoke rising above the city with my own eyes from the random fires set seemingly all over downtown, watching TV footage of looting, burned out homes & vehicles seemingly everywhere, and eventually tanks driving up & down main city streets (& even expressways)...

Unfortunately, I expect something similar, but much more widespread across the entire US, and I can't see how this won't further stress an overstretched military, that may be unprepared to handle what they will face.

On the bright side, I think things will be much more civil in the rural areas, tho I would expect farmers to do what is necessary to protect their most valuable barter item (i.e., surplus food & perhaps even fuel) from theft...and if you want to get your hands on some of that surplus you better have something useful to offer a practical & prepared farmer in return...like something he needs & it won't be a gas guzzling SUV or Apple iPhone/iPad or most other materialistic crap out there (that may have been looted from a left for barren Walmart).

On the other hand, if you have silver (or gold) to offer the farmer in return for his basic life necessities, which he can then use to acquire his necessities such as more fuel, fertilizer, machinery, etc., you jump to the front of his line...

Fuel may be another story - the rural gas station will be quickly pumped dry & with all the desperate need/demand in major cities, I doubt that corner gas station in the sticks will be at the top of the food chain when it comes to distribution & replenishing their fuel supplies...

With transportation (& distribution) systems grinding to a halt (at least compared to how they operate now), I expect you will quickly see food & fuel rationing in large population centers in the hope that the small, meager portions will be enough to allow people to survive without inciting further chaos.

It is also hard for me to imagine a scenario where there aren't massive, widespread business failures where tens & hundreds of thousands are suddenly thrown out of work & wondering where their next meal will come from, adding to the chaos & social unrest. In some ways, I think the mom & pop shop might actually have a better chance to survive than many larger domestic corps that simply can't improvise quickly enough to a barter system & thus will fail.

I'm not sure how long it will take before enough order is restored so that some confidence in the "system" can be regained, but
I fear that the authorities will be overwhelmed & powerless to do much initially or respond sufficiently & will ultimately have to wait until the fire (economy) burns itself out, so to speak, with great loss in property & human terms.

Hope someone can "prove" me wrong...

Alan2102 said...

Dimitri: "If gold makes you rich in fiat, if you cash it in for fiat (especially rapidly depreciating fiat during a crisis) you have missed the point of gold. If gold represents an eventual "trade," you belong in silver, with me, rather than in gold. Or maybe you belong in paper."

Everything is an eventual trade, except perhaps things intended to be passed on to heirs, but even that is a trade -- just passed forward in time, to a related party.

To realize a purchasing power increase is not to "miss the point". It IS the point, unless your metal has other (sentimental? religious?) significance for you.

anand srivastava said...

Dimitri: I wouldn't want to get myself straitjacketed into being a gold bug or a silver bug :-).

I am more of trying to understand the current crisis and use it for personal gain and saving my personal worth.

I wouldn't want to do something just because its good in theory, or even if it looks beautiful.

I want something that works in the real world.

I would go for silver for all the money that I would need during the crisis. I would go for gold for any money that I would not need in the crisis. Ofcourse I am hoping that I will have silver survive across crisis, because that would be preferable to losing good gold in the crisis.

Say you need to buy stuff for a week. This amount requires some money. You could sell gold or you could sell silver to get Inflating currency. With gold you will get too much money, and you will have to convert that money into something else, otherwise the currency will lose value. With silver you can liquidate as much as you need.

During the crisis there will be several good bargains, particularly in real estate. If you keep holding on to gold just because its the best store of value, you will miss the opportunities for increasing your worth.

At this moment, it is much more beneficial to be at the All Inn. But somewhere in the midst of the crisis when gold revalues would be the time you want to diversify. Being at the All Inn at that time may not be the best use of your worth.

So trade when it is desirable. Ofcourse trading gold for paper would be stupid. But real estate is great. Even stocks would be great after the crisis, when winners and losers have been decided.

anand srivastava said...

Agreed RJP, your comment is perfect.

KnallGold said...

Mario Draghi skips the Jackson Hole (maybe he has better things to do, or is this a silent statement?).

http://www.businessinsider.com/mario-draghi-cancels-jackson-hole-appearance-2012-8

JR said...

12:07 BST: Ian Traynor: High stakes over eurozone banking reform

"The instant reaction to Mario Draghi's decision to ditch his Jackson Hole speech (see 10.27am) is that he is planning a big new announcement next Thursday, probably a bond-buying spree to take the market pressure off Spain and Italy, despite the Bundesbank's opposition.

But, as Ian Traynor writes from Brussels, the ECB president has other issues to deal with:

A few days after next week's meeting, the European Commission is also to unveil proposals for a new eurozone banking supervision regime, expected to confer or recommend vast new powers for the ECB as the main supervisory agency.

In his speech in Hamburg on Monday evening, Jörg Asmussen, a member of the ECB's six-strong executive, revealed several things that can be expected over the next fortnight.

Firstly, the bond-buying intervention now looks a given, albeit hedged with conditions. The ECB will intervene in the secondary markets to buy bonds with short maturities, he said, but only if the eurozone's bailout funds first became active in the primary markets, in other words directly buying up distressed government bonds. That introduces a strong element of politics since eurozone governments and finance ministers will need to decide to use the bailout funds before ECB action is triggered.

Lessons have been learned, Asmussen pointed out bluntly.

"The mistake with Italy in summer last year when the ECB bought Italian bonds while the time was unfortunately not used for the necessary adjustment measures must not be repeated."

The issue of seniority in relation to private creditors also had to be sorted to offset the risk of investor flight from troubled countries. And any country benefitting from the bond-buying would need to succumb, as Draghi insisted at the beginning of the month, to troika-style terms set by Brussels and national capitals, predicaments that Mariano Rajoy in Madrid and Mario Monti in Rome are keen to avoid.

On the new banking supervisory regime, Asmussen made plain that the ECB is up for it, despite increasing reservations about a concentration of power in Frankfurt and a possible conflict of interest with its monetary policy remit.

"The Commission will present its proposals on September 11 foreseeing a transfer of supervisory tasks to the ECB," said Asmussen. "The ECB is ready to accept this responsibility, but under certain conditions."

He insisted twice that the new supervisor must be empowered to close down bad banks.

"The ECB has to be given all the instruments needed to carry out the tasks of bank supervision effectively. In particular that means access to all the necessary information, intervention rights and the right to close down non-viable banks. Without these minimum tools, the ECB will not take on the responsibility. The risk to the reputation of the institution would be too great."


Ian comments:

A warning there. Strong language. And a glimpse into the fierce politicking going on behind the scenes in eurozone capitals. Small wonder that Draghi can't make his transatlantic trip."

=========

Also German at European Central Bank at Odds With Country’s Policy Makers

FRANKFURT — A top German official at the European Central Bank on Monday defended the bank’s plans to intervene in bond markets to push down borrowing costs for businesses and encourage economic growth. The position puts him at odds with the president of Germany’s central bank and highlights a growing split in the country’s policy-making elite.

JR said...

Hi Woland,

Interesting indeed!

FOA (04/01/00; 16:59:05MT - usagold.com msg#14)
Walking The Trail
[...]


A grand hyper inflation of prices is now directly ahead on the trail. It should be ushered in with a large "crackup" in the currency derivatives market. Once this event is "in process" the paper gold markets will quickly rush to discount against physical gold. A discount that will break our gold market pricing and physical allocation system.

Understand that the largest gold rush will be from the paper gold arena into real gold. Any form of asset allocation that took the form of:

" "hey buddy, this security belongs in your portfolio as the gold portion" "

will be dumped and the remaining value placed in hot pursuit of the real thing. Just watch how it all unfolds, you will fell the pressure.

Dr. Octagon said...

K said... "If there are plenty of dollars flooding around and people are trying to get out of those dollars, think Weimar when people were paid twice a day... wouldn't they be jumping through hoops to get in some silver during that time. I sure as hell would if I wasn't planning on spending it in the next 4hours...

I'm strictly talking about the initial hyper phase... I'm a freegolder but do own 1/5 silver, as I'm now an ex silverbug... still switching some over."


Sure - anyone getting paid, who doesn't have a need to spend it will still want to spend it as quickly as possible, before the currency becomes worthless. This might increase demand to trade currency for silver in hyperinflation, and silver will likely hold or increase in real value as a result. At least, until the hyperinflation subsides.

However, this argument assumes that people will actually have excess currency available, during hyperinflation. That they will be getting paid more than they need for their chosen standard of living. That they will be "saving" during a hyperinflation. I haven't yet decided how likely that is, but I'm certain that the savings rate will be lower than it is today, and it's only a few percent even now.

The scenario I'm against is the one that suggests silver, such as old dimes, will be useful as a barter item to purchase food, fuel, etc.

Dimitri said...

Anand:
We are on the same page with respect to selling gold or silver during a crisis.

Alan 2102:
You say, "To realize a purchasing power increase is not to 'miss the point'. It IS the point."

(1) You are describing a scenario like today's in which gold will be priced in dollars which, as Another showed us, is absurd for a number of reasons he explained.

(2) To paraphrase Another once more, gold lies still in strong hands and strong hands are intergenerational. As long as currency units price things, gold is unpriceable wealth. Wealth is for transmission, not for trading in fiat markets. If we are reading this blog, ours are likely weak hands.

(3) If you are looking for a purchasing power increase, your stance is that of a trader and gold happens to be your trading medium.

Again, these are all Another's points.

Chico_hawk said "I cannot see how an utter breakdown & chaos can be avoided in the immediate aftermath of a currency collapse." This is an important statement. Many here are positing inflation or hyperinflation, kind of mundane events. What Another stressed was the immediate, overnight destruction of all currencies with completely unknowable outcomes. "Who knows the mind" etc.

There is a mistake in treating the breakdown as a manageable scenario and in thinking the army or the police will do such and such. They will be in the same crisis as everyone else. They will need gas, pay, electricity, supplies (from a just-in-time system), etc. Think Katrina.

Franco:
The scenario you describe will be our fate under high inflation if not enough silver is circulating privately.

Aquilus:
Yes, the unit of account lies outside of state control and local specie continues to circulate.
One stable reference unit, if not the stable reference unit, will be silver since so much of it is owned by the US public.

All these considerations are relevant to relatively predictable historical states of inflation or hyperinflation. What Another warned us against is that inflation or hyperinflation would break the dollar-gold-oil nexus which would trigger an overnight destruction of all currency as oil is marked to gold.

The outcome of the destruction of world currencies is not foreseeable and unlike "a little inflation" cannot be gamed. Paper burns. Weak hands lose their gold.

And as Koreans say, "In the battle of the whales, the shrimp get crushed."

Candy Sange said...

Another: Noone can know how this world change will come about, in specifics. The gold market may lock at $400? Or $4,000! When the public perception does come to understand, many entities I know of will not be buying "at the market" as your broker will. These ones, they will be "above the market", "well above the market"! Will you bid $1,000 when your broker screen shows $475? I myself, as a country will be "there"! You sir, will stand well behind most in line.

I tell my children, as you may tell yours:
"when a thousand hungry lions fight for one scrap of food, small dogs should hide with what's in their belly"

Thank You

Dimitri said...

Thanks Candy. Highly recommended for those banking on a slow burn:

"Financial System Supply Chain Cross-Contagion: a study in global systemic collapse" by Korowicz

http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/

When it goes, it's really going to go fast.

Aquilus said...

Dimitri,

I just want to comment on this statement, which I think is the focus of your post: "One stable reference unit, if not the stable reference unit, will be silver since so much of it is owned by the US public."

Let us think about this for a moment:

The US is in hyperinflation. Commerce needs a stable unit of account to price goods in. Which is more likely to price goods as a unit of account?

1. Silver: the paper market for silver will be halted if not destroyed, therefore no reliable quotations in any currency. So what are the prices of items in silver, that a Walmart manager can assign to items? Even a small shop owner would not know to price things in silver except for a one-off. Sure you can sell your silver to a specialized dealer, and he/she will have a price in currency for you as of that hour.

2. The Euro: It is a viable currency outside the border of the United States. It is designed and built to be relatively stable even in the event the dollar implodes, and will already price all goods for Europe. Those prices are easy to obtain, and an easy conversion can be made by anyone to the local currency at the time of purchase.

Which is more likely as a unit of account for trade (even if euros will not be used as MoE)?

Again, silver is an ASSET. A more liquid asset than real estate, or paintings, or what have you, but it is not MoE/currency. Even in hyperinflation.

Ownership by the US public or willingness to own it just makes it a liquid asset. It does not confer it the price stability. The price of silver will be whatever the dealer or counter-party gives you for that asset. You cannot impose your will on the market to choose the unit of account; the most efficient and self-evident one is chosen, and it's usually one with some history of it.

DP said...

@Candy,

These ones, they will be "above the market", "well above the market"!

Reckon they're above the market for silver?

Candy Sange said...

DP: Ummm, no. In a HI situation, the only thing likely hovering above the market for silver, is the Sword of Damocles. All those shrimp silverbugs looking for something to eat and some gas for their mowers.

burningfiat said...

Candy,

Yeah that's the first thing I'll be thinking about when the collapse comes. Mowing my fucking lawn, LOL!

/Burning

Candy Sange said...

http://www.youtube.com/watch?v=krJz3-FECDo

http://www.youtube.com/watch?v=m5N9IHqqGcA

Woland said...

Re; Draghi, Asmussen, and BUBA's Wedemann:

"German, French finance ministries to co:ordinate euro zone
proposals":
The finance ministries of Germany and France will launch a
working group with a view to making joint proposals on euro
zone issues like fiscal and banking union, German Finance
Minister Wolfgang Schaeuble said on monday. (me; one of
Germany's most widely respected figures)
"We will start in the next days and weeks a working group
between our ministries to prepare forthcoming decisions in
bilateral co:operation," Schaeuble told reporters after meeting
his counterpart Pierre Moscovici.
He said the group would look at preparing joint proposals for
the Eurogroup meetings of finance ministers, strengthening
the fiscal and currency union and boosting the currency bloc's
growth. (hmm. like adding members??)
It would also coordinate on decisions taken by Chancellor
Angela Merkel and French Prime Minister Francois Hollande".

I made a comment a few months ago here, that when the elder
statesmen of the core, Helmut Kohl (Merkel's mentor) and
Jacques Delors, Kohl's counterpart during the Euro's formation,
were drawn out of quiet retirement to make their presence
felt, (as they were) something big was underway. These past
few weeks confirms that IMHO. I would venture that within the
next 3 to 4 months, "la comedia e finita" regarding the question
of th Euro's survival. Wrong footed bets in the forex and interest
rate swap space may need to be "adjusted". They may dwarf the
paper gold bets in both size and disruptive effect. That's just
my opinion. What's yours?

Dante_Eu said...

A glimpse of a human Superorganism with some nice quotes:

By World Traveling Artist

Makes you feel like an ant. :-)

oldinvestor said...

As to the question as to what will be the universal "backup currency system" and "measure of value" I believe that it will be gallons of gasoline. Gold, of course, will be the reference point. Food, although a more primary form of wealth, is able to be produced in many ways, from peoples' back yards, to the greatest mid-western bread basket in the world.

Fuel, however, is the second most required commodity necessary for a functioning economy and is susceptible to a great many constraints. Oil , as FOFOA has said, is the primary wealth, but delivered fuel in a local area may be a more realistic form of currency.

Therefore, it will have a great value as a backup currency.

As a commercial farmer and contractor, I am very familiar with handling commercial quantities of fuel. Think of most contractor one-ton vehicles you have seen. You may or may not have noticed, but almost all of them contain fuel tanks on the back from 100 to 150 gallons, with a hose and pump. This is to daily refuel their construction or farm vehicles. There are hundreds of thousands of these vehicles.

Now that I have sufficiently stacked, my next order of business is to optimize my fuel handling and distribution (small scale), so as to have a viable product during the troubles. I think this is my best contribution to help during this time, and also to maximize my ability to profit from it.

I think anyone who understands what I am saying can do the same. Anyone who has a small piece of land can erect a few thousand-gallon storage tanks, and establish relationships with their local gas wholesaler. This is not hard to do. They in turn will establish relationships with their local refiner, oil field, and so on. I am quit sure that a system will rapidly be developed that will intermediate value between us. I am sure it will involve PM's, and perhaps euros, but could possibly include other things.

You will be establishing, during these good times, a resource that will be life saving for many. While emergency preparedness plans are quite good things, I think that each of us should individually consider what we can do in our own personal capacity to to contribute to societal stability.

The main focus is to set up personal relationships so that the inevitable supply chain disruptions will be able to be negotiated through personal relationships.

Motley Fool said...

oldinvester

I expect it to involve theft and fire. Call me a pessimist. :P

TF

Pat said...

Old Investor- hmm, I seem to visualize a very young Mel Gibson.

Aquilus said...

OldInvestor,

May I suggest some changes to the terms?

Why not call the fuel what it is: a (pardon the pun) liquid asset. But not a currency, not a medium of exchange.

Like silver, fuel can be easily converted into a medium of exchange, but you would not go into a department store to buy underwear for 0.0425 gallons of fuel payable using an eyedropper full of fuel to pay, would you?

It’s more convenient to use whatever the medium of exchange is,and exchange the fuel to that just prior to your purchase.

And up the supply chain, the entire chain would preffer that it deal with a known MoE (even if the unit of account for the goods could be something like a Euro that’s more stable) than become experts in types of fuel, types of metal, and other barter items.

At the supply-chain level, it’s just more efficient to front run the inflation rate in the price to allow for 24-48 delivery of the MoE than to resort to barter.

Aquilus

Edwardo said...

Woland, I wouldn't presume to speak for dear old Uncle C, but along similar lines, he seemed to have a similar timeline if memory serves.

JR said...

My opinion is post more = Woland, please.

Boopstir said...

when you have gold you're in fear, when you dont you're in danger. ~old english proverb

Franco said...

How much structural support of the dollar by foreign central banks has already been withdrawn? It seems that for a long time none of the debt issuance by the treasury had to be bought by the Fed with freshly printed money, but I seem to recall reading somewhere that recently the Fed took something like 60% or up to 80% of new debt (maybe in 2010 or 2011). Does that mean that the fuse has already been lit and it's just a matter of time until the flame reaches the dynamite?

mr pinnion said...

Franco
It s always a matter of time.
Freegold is always so close.

@ g
The feeling i get from the comments here is that , no matter what governments look like they are doing, or heading towards, it s just preparation for HI and Freegold.
Does nt matter what the politicians say because ,why would they tell the public the truth?
Just trust in Freegold because we KNOW its going to happen , right?

http://www.youtube.com/watch?v=wUK2QmdUXas

P.S.
Can anyone direct me to some audio on freegold theory? A podcast or youtube descussion between two knowlegable freegold chaps or similar such thing. I m feeling rather lazy and would like to just sit back and listen to some Freegold for a change.

Regards
Ozzy

Issas Ekeret said...

Like this?

Issas Ekeret said...

Only got time for a cuppa?

Jeff said...

absolute must read:

The future of the euro: stability through change
Contribution from Mario Draghi, President of the ECB,
Published in "Die Zeit", 29 August 2012

https://www.ecb.europa.eu/press/key/date/2012/html/sp120829.en.html

mr pinnion said...

Issas Ekeret
Many thanks.
Regards
Ozzy

Woland said...

Jeff: Thanks. You are so right. (as a teaser, the last paragraph)

"Those who want to go back to the past misunderstand the
significance of the Euro. Those who claim only a full federation
can be sustainable set the bar too high. What we need is a
gradual and structured effort to complete the EMU. This would
finally give the euro the stable foundations it deserves. It would
fully achieve the ultimate goals for which the union and the
euro were founded: stability, prosperity and peace. We know
this is what the people in Europe, and in Germany, aspire to."

I don't think it was an accident that an Italian was picked to
succeed Trichet, because it couldn't be seen that a German was
calling the terms for Europe, and a new ECB head from the
periphery, coupled with the dumping of Berlusconi for Monti,
probably helped to keep Italy on board. Plus, this guy is VERY
smart.

JR said...

Hi mr pinion,

Does nt matter what the politicians say because ,why would they tell the public the truth?

What have you been reading? Obviously not FOFOA:

As ANOTHER said, Europe's politics are "a side show," easily subservient to the monetary structure which evolves on long-line cycles.

http://fofoa.blogspot.com/2010/11/dilemma.html

http://fofoa.blogspot.com/2011/10/rpg-update-4.html

oldinvestor said...


No, of course we would not be paying for things with fuel. I am only thinking of using fuel as (one of) the units of account that could be mentally used as a common pricing mechanism when rapidly hyperinflating dollars can no longer perform this function. So for example one pound of meat equaling two loaves of bread both equal one gallon of gas

And of course barter will not work very well simply because as a merchant I do not want to be in the business of taking in and dealing with a lot of pianos, TV's and cars. Neither does my supplier or his wholesaler. The supply chain must have a common media of exchange. But what if my potential customer only has stuff with which to buy? That is why I suggested that there will quickly appear entropeniers that will specialize in taking my customer's stuff and turning it into the local media of exchange, whatever that happens to be. I would envision a partnership between a local coin shop and a pawn shop.

You then quickly run into the problem of what to do with all this stuff. II has been said that during a hyperinflation, the price of everything you need goes up, and the price of everything you have goes down. So what to do with all this stuff we have, when the demand will be for consumables? One wild thought, perhaps we can fill up the empty shipping containers with all our stuff and send it off to places like China. A lot of it probably came from there in the first place. Quit ironic.

mr pinnion said...

JR
Depends what the side show is. If it s a troupe of war mongering politicians, juggleing nuclear weapons, then that could easily knock the monetary structure off its cycle.
The world s bigger than Europe you know.
Regards
Ozzy

Dimitri said...

If I had one takeaway from Another it would be that breaking the oil-gold-dollar nexus will trigger *destruction* of all currencies almost overnight. This is not an inflation scenario.

My sense is that FOFOA and the readers of this blog have invested heavily in the development of the EURO as mitigating this outcome.

At this stage of its development, I don't think the EURO can prevent the outcome Another predicted.

The interesting scenarios developed here regarding the EURO and Freegold would have to solidify before fiat burns, IMHO.

Börjesson said...

Ambrose Evans-Pritchard in The Telegraph has a very interesting piece today:

The monetary Maginot of the Gold Standard

"Some gold bugs – though not ones with historical memory – seem to have greeted Republican talk of a renewed Gold Standard with near ecstatic delight.
They need their heads examined. Gold must be free if it is to police the political class.
The beauty of gold is that it is a store of value beyond political or state control, or largely so.
It is a coldly disassociated asset based on atavistic attachment dating back thousands of years. It is common to mankind, and therefore nigh impossible to suppress. It is, to boot, a safe haven from tyranny, the portable wealth of persecuted peoples over the ages.
Once governments link their policies and fortunes to gold through a fixed system, the metal – or its owner – becomes prisoner of abuse."

sean said...

A wonderful start to the AEP piece - I thought he'd seen the light, but it's all downhill from there! I'm not clear though - does he actually think that gold is free now?? I guess by "free" he mean floating in price rather than unencumbered, but even if so, I fail to see how it is "policing the political class".

sean said...

I should clarify, his arguments against the gold standard are generally quite valid. See here (long, but worth it! ;-)
By the way, here is FOFOA explaining why gold is not free now.
But I agree AEP is intelligent and always interesting.

JR said...

Hi Mr. P,

What cycle do you think we are on and how could what you describe knock us off that? In other words, why would war mongering politicians change the fact the dollar's timeline has run its course? You think the key to dollar continuation is war mongering politicians with nuclear weapons?

Alan2102 said...

Dimitri wrote:
"Alan 2102:
You say, "To realize a purchasing power increase is not to 'miss the point'. It IS the point."
(1) You are describing a scenario like today's in which gold will be priced in dollars"

No, I'm not. I said nothing about dollars. I said I am looking for a purchasing power increase, particularly in terms of the things that I need to live a becoming life. The dollar is the current and convenient measuring stick, but that could change. Probably WILL change, sooner or later. And I will still be looking for a purchasing power increase. So far, it has worked pretty well. I have realized a substantial increase in purchasing power. Gold used to buy quite a bit less of everything than it does now. I would like a much larger increase, but I cannot complain about the one I've gotten, over the last 10 years. 15-20% per year is a very solid, even excellent, investment result.

Dimitri:
"To paraphrase Another once more, gold lies still in strong hands and strong hands are intergenerational."

Well, I guess my hands are weak, then, by A's lights. Though I've been holding tight for going on 15 years -- partly (though not predominantly) at his recommendation. I would think that that would count as "strong hands". Whatever.

Dimitri:
"Wealth is for transmission, not for trading in fiat markets."

You mean intergenerational transmission? Not for me. I have no descendents. My wealth is for ME, selfish bastard that I am. And as for trading in fiat markets: Wealth is useful insofar as it obtains something that we could not otherwise have. If the mechanism happens to include a fiat currency somewhere along the line (as it probably will), well, so be it. If this is the evil "trading in fiat markets", then I'm guilty. But, strangely enough, I'm not ashamed.

Dimitri:
"If you are looking for a purchasing power increase, your stance is that of a trader and gold happens to be your trading medium."

I guess that is the case. I am an evil trader. Though I make damn few trades. I haven't sold an ounce, and won't until prices are much higher. I did most buying well over a decade ago in a very few transactions. DONE. Strange behavior for a "trader".

Maybe I should say, in general reply, Dimitri: speak for yourself! You're welcome to do whatever you like: consider your gold NEVER to be spent, but only passed on to heirs; NEVER to be traded for fiat, even as temporary vehicle en route to purchase of something else; etc., etc. Whatever you please. But you do not represent me, and I wonder how many other visitors here feel the same way.

JR said...

My sense is that FOFOA and the readers of this blog have invested heavily in the development of the EURO as mitigating this outcome.

Or they understand the purpose of the euro and thus see it in a different light than most. the euro can fail, but I don't expect it to.

At this stage of its development, I don't think the EURO can prevent the outcome Another predicted.

5/22/98 ANOTHER (THOUGHTS!)

If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does come, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You


The interesting scenarios developed here regarding the EURO and Freegold would have to solidify before fiat burns, IMHO.

Do tell what this means?

Michael dV said...

AEP: True Tea Party men and women are not taken in by such flummery. Gold needs no party endorsement. It shines alone.

seems to me he pretty close to 'getting it'

Motley Fool said...

@dmitri

6/4/98 ANOTHER (THOUGHTS!)

Today, a new currency is formed. It offers a way to break the dollar valuation of gold without the total destruction of world-wide currency markets and economies.

Your reading of ANOTHER seems inconsistent with his won words.

@Alan2102

Agreed, I must also be a weak handed selfish bastard. :)

@oldinvester

I like your new word "entropeniers", it reminds me of the 2nd Law of thermodynamics, and the chaotic trading that will take place. :)

TF

Woland said...

A thought brought about by JR's response to Mr Pinion, regarding
the connection between the world's only military superpower (US)
and the world's (dying) reserve currency (US):

There is no doubt that there is a connection between the two facts
referenced above, but it is easy to get the causality backwards. We
may think that, with nukes and 11 carrier battle groups, we can
dominate the world. What is not realized by most is who pays for
all this. If we were the same nation of 315 million people, but
had an "ordinary" fiat currency, instead of the "global reserve", we
would be swamped by the cost of procuring and maintaining this behemoth. It would be paid for either by VERY high taxation of
our citizens, or a rapid "local" inflation of our fiat.
When you have the "global fiat as reserve" for your currency, you
can pay for this monstrosity by inflating the currency of 7 BILLION
people, not your own 315 million. THAT is the "exorbitant privilege".
You get to have the slaves carefully craft their own shackles, and
they don't even resent it. What a world! And it is that privilege
which is in the process of being terminated, as it starts to dawn
on them that there might be a way out.


JC said...

More movement away from the current reserve currency.

"Germany and China plan to conduct an increasing amount of their trade in euros and yuan, the two nations said in a joint statement after talks between Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing on Thursday."

http://in.reuters.com/article/2012/08/30/germany-china-yuan-idINB4E7JG00D20120830

Woland said...

Hmm. More neat stuff?
Where is Angela Merkel during the Jackson Hole Bernankefest?

Why, meeting Wen Jibao in China. From Chinadaily: China to
invest in EU bonds if risks controlled: Wen

BEIJING - China is willing to continue investing in European Union
government bonds on condition of fully evaluating the risks,
Premier Wen Jibao said Thursday.
China will enhance communication and consultations with EU, the
ECB, relevant monetary funds and major countries to support the
debt ridden EU members to ride out the hardships. (me: how nice
of them)*
Wen made the remarks when meeting the press after co: chairing
the second round of German intergovernmental consultations
with the visiting German chancellor Angela Merkel.

*So what will they use to buy these bonds? Well, maybe they
still have trade surpluses with the EU, but they have fallen
precipitously during the recession, with Italian exports down
over 30%. Or maybe they have some $$ they might like to
roll into Euro?? If that were to be the case, would they not have
hedged themselves in advance? Of course, large purchases
could not avoid moving the $ Euro pair to strengthen the Euro,
but someone (US banks or the Fed) would have to mop up the
treasury securities or see rates move higher.

Maybe I am making more of this than it merits. Time will tell.
It certainly coincides with a recent flurry of Euro related
developments.

JR said...

Berlin's Cozy New Relationship with Beijing

The quality of the relationship between two world leaders isn't revealed in official appearances, military parades and festive dinners that have been planned down the very last detail. Instead, it is reflected in the small gestures and conversations that take place on the sidelines of the main events, especially when unexpected problems arise.

That was the case in February, when German Chancellor Angela Merkel was last in China. The Chinese authorities had prevented human rights attorney Mo Shaoping from attending Merkel's reception at the German Embassy in Beijing. Merkel could have scored points with voters back home by issuing in sharp protest. But it would have also complicated her foreign-policy mission.

Instead, the chancellor took Chinese Prime Minister Wen Jiabao aside during the dinner and suggested that he consider how much damage China was doing -- especially to its reputation -- by barring Mo from the event. In fact, she said, the incident was already dominating coverage of her trip in the German press.

Wen could have bridled at Merkel's attempt to intervene in China's internal affairs, as Chinese politicians tend to do in response to reproaches from the West. Instead, he listened quietly to what Merkel had to say, and she got the impression that he at least understood her argument.

Such quiet crisis diplomacy shows how far the German-Chinese relationship has come in recent years. Almost unnoticed by the general public, German foreign policy has undergone a remarkable transformation. China is no longer seen as merely a market for German goods and supplier of cheap products. For the German government, Beijing is now one of its most important political partners outside the Western alliance. Conversely, the Chinese leadership sees Merkel as its central point of contact in Europe.[...]

She met with the Dalai Lama, the spiritual leader of the Tibetans, at the Chancellery in September 2007. Opinion polls showed that it was a very popular decision. Beijing, however, perceived the chancellor's behavior as a provocation, especially as Merkel had met with the Chinese prime minister a short time earlier, without telling him about her plans. The mood did not improve when she declined to attend the Beijing Olympics in 2008.

But that was yesterday. These days, Merkel addresses human rights issues much more quietly. Last spring, the Chancellery denied reports that Merkel had urged the Chinese leadership to release jailed artist Ai Wei Wei -- even though the reports were true.

"Merkel is far more reserved on human rights issues than she used to be," says Eberhard Sandschneider, director of the German Council on Foreign Relations. "She has a new, more pragmatic approach to Beijing. Now she is more likely to be motivated by classic power politics. The days of reprimands are over."
Merkel's view of China has also changed. She is fascinated by the Chinese leadership's attempt to economically transform their enormous country while avoiding social unrest. Despite all criticism of political conditions, she is impressed by how quickly the Chinese have catapulted their country to global preeminence, both economically and politically.

The international political situation has also changed in a fundamental way. When Barack Obama was elected US president, it initially seemed like Chinese-American relations were on the mend. But that is no longer the case. The US's traditional allies in the Pacific, most notably Japan, view China's growing power with concern. The Americans now leave no doubt that they want to curb China's regional ambitions.

Phat Expat said...

@JR
It is funny how the appearance of things can be misinterpreted.

However, in your words, what is the point of your post? The German-Chinese lovefest is ??? Supportive of the Euro? Good for Freegold?

Phat Expat said...

JR
Not sure if my post was eaten or ? Can you elucidate your thoughts on the German-China lovefest and what it means to Freegold/Euro? Odd to reference this relationship without additional comment. Painting China as a great savior? Please...
I recall the Germans were 'friends' with Italy and Japan at one time too. ;-)

JR said...

I'm not sure what you are referring to Phat Expat, but here is some background.

Yes, the name Freegold refers to an emergent system. But its ultra-high valuation of gold is also an anticipated prize. A prize that has been paid for through the support necessary to keep the dollar system alive for decades beyond its natural timeline, and to keep the price of gold metal low while it found its way to where it was wanted. With the tight supply of physical today we can assume that most of the metal has now found its home. And that those entities that have been waiting patiently for the prize and faithfully supporting a system at end of its life can now be expected to withdraw their support. "To pull the plug" so to speak.

This is what we are seeing today. From the central banks' gradual shift from sellers into buyers, through the Central Bank Gold Agreement, five years at a time, to India, China and Russia now showing an open interest in physical gold, the signs are everywhere. In the past, large entities like central banks would never openly express a desire for physical gold because it would move the markets. The last time we saw such a move Charles de Gaulle demanded official gold at its fixed price of $35/ounce, and such was all it took to end the entire global gold standard. Talk about moving markets! So it is no small thing for central banks to openly want gold.


http://fofoa.blogspot.com/2010/03/of-currency-wars.html

Implication in 2008 meltdown

In the wake of the Financial crisis of 2007-2008, the governor of the People's Bank of China explicitly named the Triffin Dilemma as the root cause of the economic disorder, in a speech titled Reform the International Monetary System.


http://fofoa.blogspot.com/2010/11/dilemma.html

JR said...

Back in 1998 Another wrote about China accumulating a lot of gold through back channels that would not affect the price or show up on official records. According to Another, the special ongoing deal between the dollar faction (US and UK) and a few Middle East oil producers was noticed by China. And China wanted a piece of this deal. Here are a few references from Another...

http://fofoa.blogspot.com/2009/03/all-gold-in-china.html


In a recent comment on this blog, Belgian asked Ender, "Is there already enough goldmetal within Chinese borders to let freegold break free ?"

This got me thinking. Back in 2001 there was some discussion of "who is Big Trader?" I believe that Belgian took the position that it was probably Saudi Arabia. But then it was pointed out that Another had said "Big Trader" was "HK people", meaning Hong Kong.

One interpretation could be that the exposition of the daily trading volume of the LBMA on January 30, 1997 was driven by massive Hong Kong buys, in essence, busting open the gold for oil charade of the paper markets. What followed were posts by "Big Trader" (HK?) and Another (BIS?) explaining what had happened, in their cryptic way, the only way they safely could.

The logical question that follows is "did these HK purchases require the physical transfer of gold to HK in 1997, or just the 'paper cornering' of it?"

Another clearly said that the CB's would have to step in as primary suppliers or the whole thing would fall apart.

The Day Backwardation Came

Well, two years later on May 7, 1999 we had the BOE announcement and "Browns Bottom" where the Bank of England became a primary supplier of 400 tonnes.

This action was followed four months later on September 26, 1999 by the 'Washington Agreement on Gold' during the IMF meeting in Washington, DC. Under this agreement, 15 European CB's agreed that no more than 400 tonnes of gold (between the lot of them) would be sold in any given year. This agreement was in direct response to "Brown's Bottom" (and I'm guessing to prevent rogue politicians from doing what Gordon Brown had done with "the people's gold").

Three days later, on Sept. 29th, the paper gold market almost imploded. On this one day, gold went into "backwardation"!


http://fofoa.blogspot.com/2009/09/question-on-china.html

JR said...

earlier today we were wondering (rhetorically, of course) what China is doing with all that excess trade surplus if it is not recycling it back into Treasurys, now we once again find out that instead of purchasing US paper, Beijing continues to buy non-US gold, in the form of 68 tons in imports from Hong Kong in the month of June. The year to date total (6 months)? 383 tons. In other words, in half a year China, whose official total tally is still a massively underrepresented 1054 tons, has imported more gold than the official gold reserves of Portugal, Venezuela, Saudi Arabia, the UK, and so on, and whose YTD imports alone make it the 14th largest holder of gold in the world.

http://www.zerohedge.com/news/hoarding-continues-china-has-imported-more-gold-six-months-portugals-entire-gold-reserves

And finally, on "Snapshot's Eve", June 29th, we learned that China's SAFE (State Administration of Foreign Exchange) is actively doing all it can to transfer billions of its dollar-denominated holdings into euros.

http://fofoa.blogspot.com/2011/07/euro-gold.html

JR said...

You can nitpick that data all you want, but one thing is as clear as an azure sky of deepest summer. This is a very different picture from the China of 2002 embarking on a "parabolic rise" in US dollar "structural support". In fact, even though it is true that some combination of Japan, oil exporters, Caribbean banking center, Taiwan, Switzerland, Russia, Luxembourg, Belgium and Ireland (to name a few) managed to cobble together the necessary support last year, the dollar is now living off of a willy-nilly support system rather than the "structural support" it enjoyed for the last 30 or so years. If FOA was here, he'd probably say something like this:

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Of course "hot inflation" is coming! But how long will it last? How long can it last without the structural support of foreign CBs mopping up the dollars the USG will be printing in order to defend its own "lifestyle" in real terms? How far can prices rise without hitting that hyper feedback loop at the margin where prices are discovered? The USG is net-emitting $3.6B per day today, and the problem is that the USG is not an economy. It is a consumer and a printer. So the daily net-emission of global dollars is now backed, not by an economy, but by the largest consuming entity ever known to man!


http://fofoa.blogspot.com/2012/05/inflation-or-hyperinflation.html

The DowTheorist said...

Draghi is not disappointing freegolders.

From Reuters:

Juergen Stark, a former ECB chief economist, piled on the German resistance in another newspaper interview on Tuesday, saying the ECB's policy course meant it was being politicised and would ultimately no longer be able to deliver stable prices.
Draghi sought to dispel those concerns.
"The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within the limits of its mandate," the Italian wrote. "The ECB is not a political institution."
The independence of the ECB and the Bundesbank is highly prized in Germany, where the politicisation of monetary policy led to hyperinflation in the 1920s - an experience that still scars the national psyche today.
"Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools," Draghi, adding that the ECB's monetary policy is not transmitted evenly when financial markets "are fragmented or influenced by irrational fears".
"We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures," Draghi wrote in the article, released in English by the ECB under the title: "The future of the euro: stability through change".

http://uk.reuters.com/article/2012/08/29/uk-ecb-draghi-idUKBRE87S0AJ20120829

Edwardo said...

Rickards debates the gold standard with some Keynesian named O'Brien. Warning: The sound quality is poor.

https://www.evernote.com/shard/s182/sh/23cd4363-3985-4112-a9c8-93934a832af1/8acfd0982db7f9759c14665f2b026a77

The final words in this debate, uttered by Rickards, are, to my mind, The takeaway. "Don't blame gold, blame the price." In other words, fixing the price was (and is) what must be avoided the next time around.

Börjesson said...

Rickards vs O'Brien can also be heard and seen on Bloomberg TV, in good quality:

Should the U.S. return to the Gold Standard?

Phat Expat said...

JR
These 'relationships' that you describe, be they China-Germany, Russia-Germany, whatever, aren't exactly key or necessarily beneficial to Freegold. In fact, in the grand scheme, I see them as unnecessarily destabilizing the system at large. Further, you give the appearance of cheerleading and being a tout for these countries. Maybe not your intent, but perception...

Yes, the US had some missteps and the people are suffering as a result; partly their own fault. The return to a system of accountability (including Freegold) will be the cure. However, having lived in many of the countries that are suddenly being touted for these new found 'relationships' has helped me realize the significant contributions made by the US to many classes of people; many who would be shunned and potentially/are persecuted by the very countries you appear to be promoting. Have you even been to China? How about Russia? The level of corruption, the payoffs, the wanton stealing (at all levels), the lack of public assistance, is beyond comprehension. I will not be cheerleading these relationships, not for Freegold, not for my personal benefit, never...

The best part of all this is the US will finally shake the ROW off its back and be able to right the ship. Pain will be involved but I am hopeful for the first time, since the 80's, that we will do what's right, for ourselves, for a change.

Phat Expat said...

And I am looking to repat by the end of this year; and yes, my handle will change to Phat Repat. :)

anand srivastava said...

Phat Expat:

Moving transactions among countries away from USD is what will side line US, and will usher us in Freegold. So yes this step is important and necessary.

You are putting your emotions before your reasoning. Its not about China's Human Rights Violations. It is about FreeGold.

And since this website is about Freegold, so we will cheer this move.

Phat Expat said...

anand srivastava
Nice equivocation...

Sorry, I can't cheer a country (or countries) that have a history replete with the violation of human rights; no matter how much I/we stand to gain from it.

It's time to seek 'honest' relations and 'real' friendships as opposed to the 'friends of convenience' relationships typically promoted by corporations for the benefit of the few (and yes, that means the US too).

No emotions; when I get emotional I tend to carpet F-Bombs all over the place. So far so good.

Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...
This comment has been removed by the author.
anand srivastava said...

Phat Expat:
What is your timeframe for forgiving a country's errors? How about people who committed Genocide? I am looking at both Germany and the US. How about the countries that committed atrocities to the Chinese in the Opium wars. What about the Banana Republics that US created, and the assassination it has committed around the world. What about the killing of Saddam Hussain, by purposefully falsely claiming of WMDs. How much do you believe those politicians. They are never good. It is only the people who can prevent those atrocities. Some countries are not that open. China is not open now, but it is rapidly opening up.

Why get into all that? This is not the forum for all that. Lets talk about what is important for Savers :-). Ultimately it is their money that gets utilized for these atrocities.

Woland said...

Hello Phat Expat:

The fact that you are a follower of this blog and a Freegold
advocate probably means that you accept, for better or for
worse, some of the bedrock foundations put forth by
Another, which is the relationship between the dollar, gold
and oil. Not oil, as in our oil, Norway's oil or just any old
oil, but Saudi Oil, and its' role in the political and economic
life of the world.
So who are these Saudis? They are the hereditary descendants
of King Ibn Saud, and the absolute rulers of the country, and
they act under the belief that they own every grain of sand in
the desert as their personal property. Not a very human rights
friendly set up, no? However, in spite of this, they do see
themselves as the stewards of the welfare of their people,
stretched out far into the future, despite our differences
with them as to what a "proper" definition of welfare might be.
We may not like it, but we cannot change it, any more than
we can change the Koran or the Bible. I know JR might dispute
this, but those 2 books are right up there with the LTV in the
unnecessary deaths contest. The very best that we can do
in the US is to try influence other nations by setting a good
EXAMPLE, not by preaching, and certainly not by the steady
drift into a fascist police state, which you rightly abhor.

Jeff said...

Is it better for a nation to suffer under the corruption of its own politicians, or foreign ones? Working to provide real goods to foreigners while being paid in a currency constantly devalued by the printer is close to slavery.

FOA: Many of the lesser third world countries experienced a combination of sporadic hyper inflation and deflation as we forced the dollar reserve system down the throats of their citizens. Their people's living standard constantly fell as they worked ever harder to produce more goods in return for more of our printed dollars. But, instead of using the extra inflow of dollars (positive trade balance) to buy their own currencies in the local system,,,,, thereby keeping their currency strong,,,,, they used that dollar flow as collateral to borrow (from IMF and international banks) more dollars from the world dollar float (mostly called Eurodollars). The lure (or the hard sell) was that they could build up their infrastructure,,, increasing their production efficiencies (human productivity's),,,, thereby raising the national standard of living. Further, they were sold the unneeded idea that even if they didn't completely use the dollar surplus to borrow more, they should hold those dollars in reserve (buy and hold US treasuries) and print more of their own money!

So why did these other CBs do it? The standard explanation was that this created a market for their goods here in the US. Yes that's true, but it begs the question; did no one in their land want to buy goods manufactured locally,,,,,, and pay for them with the same printed money supply? Why is it the US could inflate its money supply to buy cheaper goods externally for no more than the price of printed paper? But, in the same country our paper was sent to, they couldn't print their own currency to buy their own goods? Why couldn't they raise their real standard of living somewhat using the same process like the US,,,,,, and doing so without the burden of inflation or importing foreign currencies?


So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the world's working poor. But this is not about to last!

JR said...

Hi Woland,

Me no like Pascal's bluff either.

And when the line is breaking
And when I'm near the end
When all the time spent leading
I've been following instead
When all my thoughts and memories are
Left hanging by a thread

God never listens...
Stranded on this slender string
The minutes seem to last a lifetime
Dangling here between the light above
And blue below that drags me down

But God never listens to what I say
God never listens to what I say
And you don't get a refund
If you overpray


JR said...

No refunds, so perhaps you owe it to yourself to embark on an honest journey and take it where it leads you. You are otherwise bluffing yourself.

PS - I really like CS Lewis, and I'm an recovering catholic agnostic. Just put some thought into it and be honest to yourself. Its a personal journey.

Jeff said...

http://libertystreeteconomics.newyorkfed.org/2012/08/if-interest-rates-go-negative-or-be-careful-what-you-wish-for.html

DP said...

Jeff,

Is it not the case that the Fed are attempting to push the banks into further lending - to originate loans which will then result in their 'excess balances' morphing into 'required reserves'. Which, presumably, the banks will continue to NOT be charged for holding at the Fed.

Roll out some more of your balls of twine, or prepare to suffer the wrath of the Fed! Grrrrrr!

DP said...

The interest rate paid on required reserve balances is determined by the Board and is intended to eliminate effectively the implicit tax that reserve requirements used to impose on depository institutions. The interest rate paid on excess balances is also determined by the Board and gives the Federal Reserve an additional tool for the conduct of monetary policy.

Jeff said...

No argument here, DP. Any way to expand the dollar realm a bit further.

Back to the gold standard?

http://www.bbc.co.uk/news/magazine-19422104

DP said...

RT @darenpa72 @nand2 "the last time a gold commission was convened, in 1981" … "1981 commission recommended against restoring a gold standard" #Surprise!

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