Tuesday, September 18, 2012

Deutsche Bank explains why we hoard gold

Deutsche Bank: GOLD IS MONEY
Matthew Boesler|Sep. 18, 2012, 5:53 PM
Business Insider (Video & images added by me)

Is gold money?

It's become a tireless debate: goldbugs seem to cling to the shiny yellow metal with a religious fervor not usually displayed by anyone toward other asset classes, and it's been known to frustrate some who don't share their views.

Gold often gets lumped in to investment forecasts with other "commodities" – real, consumable things like oil or food.

But Deutsche Bank analysts Daniel Brebner and Xiao Fu say gold is seriously misunderstood, and in a new report – wherein they update their gold target to $2000/oz sometime in the first half of 2013 – they explain that "gold is not really a commodity at all."

(From Fallacies)

The undisputable evidence for the case that gold is money, according to the Deutsche Bank analysts:

While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publically used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves.

(From Euro Gold)

That's their take. But there's more – the analysts differentiate between "good money" (gold) and "bad money" (fiat paper currency):

We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies. In describing gold as such we refer to Gresham’s Law – when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.

What's interesting is that all of the arguments against gold propogated by the anti-goldbugs – that it's not really a consumption good, that it serves no industrial purpose, etc. – are all the exact reasons why Brebner and Xiao call gold "good money."

The analysts elaborate on this point in the report:

In our view the ideal medium of exchange must balance the paradox of representing value while having little intrinsic value itself. There are very few media which can do this. Fiat currencies physically have no use other than that which is prescribed to them by government and accepted by the public. That fiat currencies cost little to produce is of a secondary concern and we believe, quite irrelevant to the primary purpose.

Gold is neither production good nor consumption good. Jewellery we see as a form of storage or hoarding (the people of Portugal have all but exhausted their personal gold stores – hoarded in the form of jewellery – having converted them to survive the crisis). If gold did have a meaningful commercial use we believe that it would make the metal less attractive as a medium of exchange as the value of the metal in whatever market it was used in could periodically interfere with its medium-of-exchange role...

Other characteristics are important of course in fulfilling the requirements for ‘good’ money: indestructibility, divisibility, transportability and universal acceptability.

Hat tip:


From Kicking the Hornets' Nest:

In Gresham's law there is good money and bad money. There are two moneys, not three. Good and bad, not good, so-so, and bad. The bad money drives the good money out of circulation. In other words, the bad money circulates (and becomes the medium of exchange) and the good money lies very still (becoming the store of value). Look at this latest Eurosystem quarterly report again:

And from The Return to Honest Money:

As I mentioned above, in the same way that a medium of exchange is to one extent or another also a store of value, stores of value are also to one extent or another media of exchange. The question is one of degree, and this is how, through market forces, we end up with "two monies." Being the focal store of value does not make something the best medium of exchange, and vice versa.

This might be a good time to take another look at the ECB quarterly statement. There it is, two monies. One on the left, one on the right. Separate roles.


This is how you have a true competing currency. Not two currencies competing for the medium of exchange crown. But a separate medium of savings competing against the medium of exchange for "pole position" on the 'Time=t' axis:

This is Freegold, and it is unfolding today. It requires no activism or political/legal changes at this point. It is, how do you say, baked into the cake already? And once again, these posts briefly explain how we aren't quite there yet, how Freegold is different from what he have today, even though it is "already in the pipeline."



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Texan said...

"I climbed aboard their starship, and head for the stars" is without a doubt the second best line in rock EVER.

Congrats FOFOA, RPG is indeed viralling quite rapidly.

Biju said...

Great...FOFOA words are getting plagiarized without due attributes.

As someone said - "Imitation is the best form of flattery"

victorthecleaner said...

Rui, MF,

You are falling under the mistake of thinking that gold keeps it's purchasing power absolutely. I also once had that thought.

Even without an end to the reserve status of the dollar, gold never had much to do with inflation, but rather with future real interest rates (that's a big difference!):

Barsky, Summers, Gibson's Paradox and the Gold Standard


Puggle said...

Not on the topic of this post, but here is an interesting real-world article about official price vs. black market price and the market distortions it creates.


Michael dV said...

poor Argentina, I love the place but its main role has become being the ultimate cautionary tale in the history of economic story telling. I do not understand how the people can keep voting in the kind of leaders they do.

Nickelsaver said...

The article is so close. It's too bad that they don't get the fact that, or come out and say it; that when good money is pulled out of circulation, it is no longer acting as a medium of exchange, it is acting as a store of value.

But I love the fact that they picked up on its lack of other uses being a pro and not a con.

Did you get that silverbugs?

Pat said...

OK, two things. FOFOA, you neglected to share the address of "one of my readers actual hoard".
Texan, what is the "first best" rock song lyric ever?

James Galt said...

Hi all,

does anybody know about Ultrasonic Thickness Guage? Read on ZH from the comments section:

"Just as a quick one-minute tutorial on scam avoidance, an Ultrasonic Thickness Guage (UTG) is a cheap hand-held sonar that can be used to spot fakes.

The UTG measures how long it takes a sound pulse to be reflected from the back of an object. You can do two things with that -- if you know the speed of sound in the material you're measuring, you can compute the thickness. If you know the thickness, you can compute the speed of sound in the material.

With a known quantity like a US Eagle, you'll know both. You can put the speed of sound of the gold alloy into the UTG, put the UTG sensor on the coin, and measure the thickness, and it should be the exact same thickness of an eagle. Other materials, like tungsten, while weighing almost the same as gold, have radically different speeds for sound transmission, and will throw the reading way out of what.

UTGs are not at all expensive, and the prices have been plunging. On Amazon.com right now you can get a UTG for about $160, or less than 10% the price of a single 1oz Eagle. If you know the specs on a known-good gold coin, it's almost impossible for a fake to get by you, especially for smaller objects like coins."


poopyjim said...

@James Galt

It is costly to produce counterfeits, so AFAIK there aren't any tungsten-filled one oz. or less fake gold coins. The potential gain doesn't justify the cost/risk to the counterfeiter. You only hear about tungsten with respect to huge bars, where the potential gain is large enough to justify the risk and the expense of making a counterfeit.

This cost/benefit equation might change enough to justify creating such fakes come freegold, but probably not until then, IMHO.

James Galt said...


Yes, I am not worried about the 1 oz bars. But I do own one 250g bar. I would like to test it, and US$160 seems fine, if it really works.

Would like to know what people use to test, if they test, in case of owning bigger bars.


Woland said...

Those of you who have children may recall an illustrated
book, published in 1989, entitled, "Heather has two Mommies".
In 2012, perhaps it would be appropriate if some enterprising
soul followed up the original with a sequel, entitled:
"Heather has two Monies". As I tell my grandchildren when
they get their 1 oz each year, money is for spending, gold is
for saving. My wife's best friend is a talented children's book
illustrator: perhaps I should approach he with the project.

Motley Fool said...

Any metallurgists here?

Indenture said...

Woland: I've been tossing around the idea of a Freegold Sci-Fi Novel (Blondie, I've given what I call your Taoist voice to an AI. JR, I think you would make a good News Broadcaster, to the point facts). As I develop the concept I'll keep the group informed.

Edwardo said...

And right on cue due to gold's recent rise, there is a story making the rounds, no pun intended, about a fraudulent ten ounce bar for sale at a coin ship in mid-town Manhatten. In the meantime, you say it here, FOFOA, and it comes out there. In this case it has come out via DB.


Nickelsaver, as per their faith based attachment to silver-more on what their faith consists of in a moment-the silver bugs are, in the main, impervious to rock solid arguments that elucidate and explain why gold is the "it" metal, not silver.

The silver bug's faith is essentially rooted in the biblical belief that the meek shall inherit the earth. The little guy will, by the silver bugs reckoning, rise up- presumably after bellowing-"I'm mad as hell and I'm not going to take it anymore" and overturn what they deem to be an evil elites established order. With silver at their side they will restore honesty to the monetary realm and decency and goodness to society in general. It is misplaced faith and while missing the cold hard facts about why gold not silver, it also manages to be more than a little bit puerile.

I realize that you are religious, so pardon me if I have given offense as that was not my intention.

Woland said...

My comment above reminded me of one of my old favorites
by Aristotle, from the archives. It is a kind of "bed time story"
approach to the "two monies" subject, and if you are unfamiliar
with it, you might take a look. The title is' A New Year's
Resolution--Allow Yourself to own more Gold", from 1/2/00
13:07:43 MDT MSG ID 22052. As I am a member in good
standing of the Computer Illiterati, if someone else feels like
posting this, all could enjoy it. Cheers.

/SleepingVillage/ said...


The only problem I've encountered with UTG is that they require a fairly large "flat spot" on the test subject. The little probe thingy on the machine I used was too big to use on any small bar or coin. UTG would certainly be the ticket for a bigger bar with a large enough flat surface, though.

There may be a unit out there with a smaller probe, but I'm not sure.

All in all, the idea and technology is sound:)

anand srivastava said...

I found it in google's cache. Look for Aristotle, Ctrl+F is your friend. Incidently that was the only result of the search. But the link lead to nowhere. The cache did contain it.


Ronald Langereis said...

If Deutsche Bank analysts are so convinced of gold being the ultimate store of value, why is DB to terminate its PMs' storage facilities for private clients in the Netherlands as per December 1st, 2012?
DB being the only provider of secured, segregated storage of allocated bars, from December 1st on, Dutch private owners of allocated PMs will be inhibited from storing their physical on Dutch territory - except in their own backyard. The alternative offered by DB: an unallocated PMs account.

M said...

Off topic but I thought readers would be interested.

A group of businessmen are building a city from scratch in Honduras to overcome the country’s corruption and poor infrastructure. Does it make sense to let money hungry investors take over the government’s job? (Yes is does)

Honduras is set to play SimCity for real, albeit without the economist who devised the rules of the game. Last Tuesday, the government signed an agreement with private investors led by Michael Strong--a libertarian entrepreneur and close associate of Whole Foods co-founder and CEO John Mackey--to construct a city-from-scratch in one of at least three special development regions (“las Regiones Especiales de Desarrollo” or “REDs”) scattered around the country.

REDs possess the legal right to establish--or outsource to foreign governments and companies as necessary--their own hospitals, schools, judges, and even police, all independent of Honduran law.

Prior to starting MKG, Strong co-founded a movement named FLOW (“Freedom Lights Our World”) and wrote an entrepreneurial manifesto with Whole Foods’ John Mackey. More recently, he joined the board of the Seasteading Institute (whose founder, Patri Friedman, has started his own for-profit company with the stated aim of building cities in Honduras) and co-founded the Free Cities Institute, a think tank based at the Universidad Francisco Marroquín in Guatemala. (UFM, which I visited last spring, has a library named after Austrian economist Ludwig von Mises and a bas-relief of Atlas shrugging at the entrance to its business school.)


Nickelsaver said...


I don't take any offense at all. And while I will agree that silverbugs, goldbugs, paperbugs, and every other insect-like group (including FOFOAbugs) exhibit faith. I don't necessarily agree that we can say it is out of a biblical motivation. But certainly some think along those lines.

I myself was very much an HMS metelbug. I used to have faith in silver, because I didn't understand the arguments here. That being said, anyone looking from the outside would certainly see us as exhibiting faith. And they would be right.

For there is nothing wrong with having faith. What is right or wrong is that thing which one places faith in.

"Time will prove all things" - Another

As for the meek, this is not the earth that Jesus was talking about. IMHO

Michael dV said...

it's a wonder that you still know how to breathe...Dylan
best (cynical anyway) line in rock history

Michael dV said...

That line is from Idiot Wind circa 1967 (?)

Nickelsaver said...

...and the meek shall inherit the earth

Pat said...

Michael dV,
Have to admit that is a top contender.
Not a song lyric, but a Jim Morrison quote, is pretty good also ( coinkadinkly 1967-ish )
" I just want to get my kicks, before the whole shithouse goes up in flames"

Indenture said...

faith [feyth]
1. confidence or trust in a person or thing: faith in another's ability.
2. belief that is not based on proof: He had faith that the hypothesis would be substantiated by fact.
3. belief in God or in the doctrines or teachings of religion: the firm faith of the Pilgrims.
4. belief in anything, as a code of ethics, standards of merit, etc.: to be of the same faith with someone concerning honesty.
5. a system of religious belief: the Christian faith; the Jewish faith.

DP said...

Put me down for a 2.

Indenture said...

From http://dailyreckoning.com/que-quilombo/

"What seems peculiar about Argentina’s case is the government’s Herculean effort to ignore the immutable laws of economics in their pursuit of grand larceny. The country has seen five currencies in just the past century, averaging a collapse every twenty years or so. In 1970, the peso ley replaced the peso moneda nacional at a rate of 100 to 1. The peso ley was in turn replaced by the peso Argentino in 1983 at a rate of 10,000 to 1. That lasted a couple of years, and was then replaced by the Austral, again at a rate of 1,000 to 1. To nobody’s surprise, the Austral was itself replaced by the peso convertible at a rate of 10,000 to 1 in 1992. During the past four decades, when all was said and done, after the various changes of currency and slicing of zeroes, one peso convertible was equivalent to 10,000,000,000,000 (10 to the 13th) pesos moneda nacional."

Reminds me of the sentence from one of the esteem crew here, 'You'll find it wandering the streets of some city with a few zeros lopped off it's end'.

Michael dV said...

damn...I knew I should have spent those last Australs back in '88...

Michael dV said...

James Galt
any opinion why a guy in the business felt it was necessary to punch a hole in his nice 10 ounce bar? This seems to say he did not trust non-invasive methods. Once you have done this to a bar it seems you would need to have it re-smetled, which I assume is somewhat more costly than owning a $160 device. Maybe he just did not know. The whole story is odd. He gets a bar, in what appears to be factory packaging and then because "he heard a rumor about fakes going around" he decides to take a hammer and punch a few holes in some $16,000 gold bars.
I am undecided as to whether I should do the same, try an ultrasound device or trust my luck that my bars are fine. Most of mine are Perth but I have a bunch of PAMP 1 ounce.
If anyone here has any solid info or experience I'd like to know about it. An error either way would be costly.

poopyjim said...

@Michael DV

I too am extremely suspicious about this story, and I have a bunch of pamp 1 oz. myself. I can't imagine it would be a worthwhile scam to pull off with respect to the 1 oz. pamps, since it would be highly labor intensive for a small amount of profit.

The only way I could see it happening with 1 oz. bars is if PAMP, the refinery itself, was the one committing the fraud. And still, I want to think if they were doing that, they would have been exposed by now. Gold buyers are a very untrustworthy bunch.

Anyway, the whole thing smells rotten with this story coming out just when $PoG starts going up.

James Galt said...


Thanks, seems apropriate for testing bigger bars.

@Michael dV @poopyjim

The story is completely odd. And the serial number from ZH photos #1 are different from #3. I didn't bring that story up, but I admit I got worried. But maybe that is the objetive of the article, to discourage buying physical.

As I said, I don't worry about the 1 oz Pamp Suisse. Too much effort to counterfeit. I worry about a bar that I took from an exchange, that does has a serial number in it and that's it. I do have a paper with the retrival from the exchange, but no certificate linking the serial number. Before anyone says I'm insane, there's countries in which are much harder to buy gold. That was an option at the time. A 250g is 8oz, if I bought that quantity overseas is too much risk.

So a USD160 devide must do.

ampmfix said...
This comment has been removed by the author.
One Bad Adder said...

Gold is Money? - what Poppycock!

...but firstly, KoB etal - just harking back to the MBS issue.
Back in the days when WF etc actually DID receive your monthly repayments (assuming they now don't) ...and thereby bearing the full brunt of any risks associated therewith, the "finance-industry sector" represented 5odd% of GDP - however their "borrow-short - lend long" model has been replaced with many and various (some would say nefarious) "products" a-la MBS etc which nowadays "spread-the-joy ...and pain" across the Market-place.
The Finance Industry sector now represents 40odd% of GDP ...with the emphasis on the "P".

These FI "products" aren't really products at all as they don't contribute one iota to generating wealth IMHO - and so the 60% of GDP that effectively IS product is being cannabalised by this 40%.
I can imagine at 5% the System may well be workable ...but 40% is way beyond sustainable imho ...and this ratio has been the prime reason IR's have tracked down to where they were c 2010-'11.
Currently however, we're in a kind of Zombie existence where an array of these official "twists and turns" are all they can do to prevent a total systemic melt-down.

OK, FWIW I don't consider GOLD to be "money" any more than (say) a work-of-art, a house, a can-of-beans etc. etc. is.
...and in that context GOLD represents the ultimate "store-of-value" bar none.
It can be said $PoG related scrip IS Money however in order to fully appreciate where / how a Freegold scenario will manifest itself, I feel the best place to start is to disassociate GOLD and Money.
GOLD is NOT Money ...IMHO.

Indenture said...

Ronald: Do you have a link to the Deutsche Bank story?

FOFOA said...

Hello OBA,

Yes, of course gold is NOT money! The true and pure concept of money is basically credit. More specifically, it is the recording of current balances of credit. It can be recorded in your head, represented on an institutional ledger, or carried in your pocket as paper with numbers on it.

As I wrote in Moneyness: "The pure concept of money is our shared use of some thing as a reference point for expressing the relative value of all other things. Money is the referencing of the thing, not the thing itself. As FOA said, money is 'a value stored in your head!' Money is not something you save. 'Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities. This is the money concept, my friends.'"

In contrast to money is the pure concept of wealth. To this I wrote: "the fundamental property of wealth is that of 'possession'. It is by this property that wealth is identified, and thereby it becomes 'wealth'. "In the world of wealth, worth is enhanced because the supply is lessened by this 'possession attribute'."

Say I was born into money. What does this saying mean? Obviously it would mean that I had been born into a wealthy family. So we can see here in this simple phrase how 'wealth' and 'money', even in concept, are used interchangeably today. This interchangeability is Western public perception. Yet here lies a fundamental conflict between perception and reality. And I propose that this conflict is the very root of the global financial crisis today.

The modern (mis)understanding of the money concept is threefold in function. Even Wim Duisenberg said it in his euro Charlemagne Prize acceptance speech: "What is money? Economists know that money is defined by the functions it performs, as a means of exchange, a unit of account and a store of value."

Obviously there are no works-of-art, houses or cans-of-beans on the ECB's balance sheet, so gold must occupy some special "focal-point" position of "moneyness" compared to other forms of wealth. And I think that the recognition of this difference, both between money and wealth and between gold and all other forms of wealth, is one of the primary keys to understanding Freegold.

And so I do think that, in addition to FOA's pure concept of money, the idea of primary and secondary media of exchange (two monies, one for short-term holding, one for long-term holding) is also useful in explaining gold's unique place on the balance sheet. It is wealth, but it is also the most liquid and universally recognized and accepted form of wealth. And most importantly, because of its divisibility and fungibility it is the only form of wealth which puts us shrimps on equal footing with the Giants of the world, something that hasn't been possible for a really long time. Freegold, or a floating physical-only market for gold, is perhaps the most democratic, egalitarian opportunity ever!


Aaron said...

I saw this over at Chris Martenson's site and really had to laugh. It's a comment from William Dudley, president of the New York Federal Reserve Bank.

The Federal Reserve will "stay the course" of its easier monetary policy until the economy is clearly rolling, William Dudley, president of the New York Federal Reserve Bank, said Tuesday. "If you're trying to get a car moving that is stuck in the mud, you don't stop pushing the moment the wheels start turning - you keep pushing until the car is rolling and is clearly free," he remarked in a speech to the Morris County Chamber of Commerce in Florham Park, N.J.

Keep pushing until the car is rolling? My dear friends of Morris County, Mr. Dudley and his buddies are going to push that car until flames shoot out of the tailpipe rocketing it into hyperspace!

Hey ampfix, stop deleting your comments. That link to Tom Sawyer was awesome!

Aaron said...

ampmfix ;-)

One Bad Adder said...

Hi FOFOA - I get the feeling our DB friends would have it that "current paradigm" Gold ie: the $PoG related stuff, is the "money" they're essentially referring to without alluding to it ...and - eminating from such a source - this "outlook" may well be a precursor to higher (> $2k+) $PoG ...gelling well with your ST outlook for same.
Both you and I know (I think;-) this is not necessarily the path to Freegold (ie: via the current price discovery mechanism) but what it DOES do is imply the way has been cleared up to and slightly beyond $2K / Oz.
It's my opinion that ultimately FreeGold will be driven by the countless minions in nondescript places the world over, squirrelling away GOLD ...an Oz at a time until a critical mass is reached. Then ...your guess is as good as mine.

Trusting all is well Sire?

RJPadavona said...

Hey Indenture,

The link to the Business Insider story is in my tweet that FOFOA so kindly posted above. But if you're talking about the actual Deutsche Bank press release, I've looked and I can't find a link. Maybe it's something that's only privy to their clients. What a shame the CEO of the Master Race, Advocatus Diaboli has been banned.....I'm sure he's on the board of directors at DB ;)

Business Insider did run a follow up piece today about the DB boys. But unfortunately, in this article Brebner and Xiao sound more like Jim Rickards than FOFOA:

Deutsche Bank: How A Gold Standard Could Work In Today's Economy


One Bad Adder said...

...and FWIW - just on the Euro, back when it was in it's infancy, I was an avowed Euro-sceptic ranting long and loud relative to all its short-comings ...which to a large degree have come to the fore recently.
In the ensuing 12 Yr's my attitude however has changed.
I like to think of the Euro setup as being akin to an off-road vehicle being rolled out to compete with a Nitro-methane Top-fueller(IMFS) ...on a drag-strip.
The "rail" will whup the pants off the 4wd over the 1/4 mile ...but when ashfalt turns firstly to unprepared tarmac ...and then to a barely defined track, the 4wd comes into its own ...and can go the distance unimpeded.

The Dragster however has shot its load and simply can't function in the new "environment".

Lets Watch?

Edwardo said...


I should have communicated my sentence such that it did not read as if I thought that silver bugs were literally taking their cue from Jesus injunction. I don't think they are. I simply think they are, more or less, aligned with it.

Frank Zappa was said to have observed that "the meek shall inherit nothing." And I think it's safe to say that it was this earth that he was referring to.

Texan said...


Great comment! Gold is liquid, tradeable wealth. The "money"of wealth, so to speak. Sure beats barter.

Aaron said...

Aristotle (4/19/2000; 2:57:30MDT - Msg ID:29008)

Gold Ownership--its all about achieving a proper understanding of Wealth Hierarchy

oldgold, I've got to hand it to you--you sure managed to trigger a day's worth of posts on the forum that strike this reader as among its best ever. Thanks for sharing your somewhat abrasive personal assessments of the merits of Gold investments as a challenge to many here to come to terms with their own thoughts on the subject. It looks to me like many liked what they found when they looked inward...and not surprisingly, they were, to a man, ALL physical Gold owners (in addition to whatever other wide and varied facets of social and investment endeavors they may have.)

From your latest post on European CBs and Gold, you said:

"I still finds the idea that the European CBs will ever do anything significant to help gold and hurt the dollar fanciful to say the least. Not only do they continue to trash gold in a major way (albeit now within certain limits) but they continue to accumulate US dollars at a rapid pace."

Isn't more accurate that it is your assessment that might be what is fanciful? If not, what is your supporting evidence to the above claims? If I may, please let me offer two bits of readily obtainable information as a counter to your claims.

Standing against your first claim that European Central Banks won't "ever do anything significant to help gold" and that "they continue to trash gold in a major way," I offer this very public and very significant historical act--the Washington Agreement, now barely half a year old:

Mr. Wim Duisenberg, President of the European Central Bank, announced the joint Statement on Gold: "In the interest of clarifying their intentions with respect to their gold holdings, the [fifteen European] institutions make the following statement:

1. Gold will remain an important element of global monetary reserves." ...etc...

Standing against your second claim that European Central Banks won't ever do anything significant to "hurt the dollar" and that "they continue to accumulate US dollars at a rapid pace," I offer a simple acknowledgement of the successful launch of the euro currency to counter the first half. Against the second half of this claim I offer these two news briefs on the latest release of the ECB's weekly balance sheet:

--ECB total gold assets unchanged at 115.677 bln euros Apr 14
["My, Granny, what large Gold you have," said little Red Riding Hood.]

--ECB: Net FX assets dn 1 bln euros to 264 bln on Apr 14
["My Granny, what a large drop in foreign exchange reserves you have. Where is the accumulation of dollars at a rapid pace?" asked little Red Riding Hood.]

But, oldgold, you reached your thought-stimulating best when you offered these remarks at the end of the day:
"The comment by one poster today that people should be here only to find out how the world works and not to get rich quick again shows a kind of arrogance and disdain for the financial interests of gold investors that has long been a problem at this site. I for one am not here to get rich quick but to help ascertain when the gold bear might turn into a gold bull. If this site cannot help people in this regard it will be on its way out."


Aaron said...

First, I'm sure you can appreciate why those of us with abosolute, pinpoint, foreknowledge could never possibly be permitted to share such information about the bear/bull transformation date and time of day on a public forum. Here's a hint though--you already missed the turn. (It was cleverly hiding behind BoE sales.)

Regarding the issue of either figuring out how the world works or getting rich, I would suggest that the latter naturally follows the former. It can't be any other way short of heavy reliance on blind luck.

We are Gold owners, accumulators, and advocates because we have in fact discovered the ways of the world. It's all about understanding the Wealth Hierarchy.

Simply put, the world works like this: We all have needs to sustain our life, and we therefore all must endeavor from cradle to grave in the satisfaction of life's requirements. Wealth, you see, is anything that can be utilized in meeting our needs to sustain our lives.

Wisdom and experience show that some wealth assets are more reliable and universal. Some are so reliable, and so universal we actually give very little thought to counting them amoung our assets. Take oxygen. Most of us as we walk down the street give this nary a thought. We are oxygen rich! If you don't believe me, just think of what you'd say upon hearing of a scuba diver who ran out of air while exploring some underwater cave. "Poor bastard." At least, that's what I'd surely say.

So, unless we anticipate scuba diving, very few of us take any effort to mindfully or aggressively gather for later use the real wealth of oxygen. And to any primative, or to a resurrected ancient who had no concept of scuba diving, we would surely look like the perfect fool bottling air in preparation for the event.

To keep this short, let me come to the point. We have basic material needs of food, clothing, and shelter. Access to energy could be also be included in the list. To have more than you need for satisfying the immediate demands for survival is to be wealthy. To come up short in the ability to satisfy any one vital need quickly reveals you to be another "poor bastard" in the eyes of the impartial gravediggers.

Fotunately, from the earliest times of our ancestors we have discovered that we don't all need to be meticulous wealth planners like the modern scuba diver, Mt. Everest climbers, or astronauts taking a ride to the moon. We can generally blunder our way through day to day and year to year in the comfortable fact of life that, through the open market--through the ability to trade with others--we can generally obtain what we materially need in one facet in exchange for some of our own wealth in another facet. Food for clothing seems like a pretty reasonable medieval exchange, doesn't it?

We all know the inefficiencies of barter, don't we? As civilization and trade evolved from the dawn of man to the 20th century, Gold revealed itself to be the single most reliable, universal agent that could be traded in various quantities for anything anywhere on Earth. Maybe most remarkable in this is that Gold is not itself something that is needed or consumed in satisfaction of our basic material needs for survival. But due to it being perfectly and uniquely suited for this universal role in trade for any other person's available wealth as necessary to meet our own specific needs, Gold has become such a near proxy for the real wealth we require for life that many of us have permitted ourselves the casual inclusion of Gold into our otherwise strict definition of wealth.


Aaron said...


Those in the financial industry have come to call this universal wealth asset (Gold) by the name "money," but that unnecessarily confuses the issue. In their efforts to facilitate various objectives in modern life, those in the financial industry endeavored to master the alchemist's craft--to methodically create "money" from such substances as worthless base metals or from paper. Even the village idiot can clearly see that "the bankers and others" didn't succeed in creating Gold. But the village idiots were never so sure that these nickel coins and paper notes weren't in fact successfully turned into this other thing that the experts called "money." As for me, I'm comfortable calling these lesser creations by the name "currency," and further, I recognize that they can and do serve a useful purpose in modern society. With this distinction I am not so easily baffled as the village idiots into thinking that these currencies created in the image of "real money" can actually attain the superior wealth function of the asset they sought to imitate--that being Gold. And you shouldn't be fooled either.

Every currency made in imitation of Gold goes hand in hand with the financial architecture that supports it right into the trashbin of failed efforts, and are logged into the collective wisdom of those who vow not to be fooled again. Based on the "conception, care, and feeding" of the various currencies and their supporting architectures, the lifespan--or timeline--of predictable rise and fall milestones may vary in length from one currency to another. They may serve a purpose while they last, but they all suffer the same eventual demise at the hands of inflation. Remember, these currencies are man's artificial attempt, time and time again, to imitate Gold for use in modern commerce. They are built for speed--built to be borrowed specifically, and spent rapidly! They are not suitable for saving. For that you must turn to the master--the near-wealth proxy upon which all currencies must bow down in inferior imitation.

So you see, learning how the world works is all about each man coming to the understanding about the real wealth we all require to best ensure our survival. Knowing that Gold is the master proxy for our life's day-to-day and year-to-year shifting requirements for food, clothing, shelter, and energy, it simply makes more sense to gather in Gold for later use than to gather in clothes (that we may outgrow,) food (that may spoil,) houses which are more than our needs, or energy (that we can't store.) You see, time bears witness to this undeniable fact: Gold can be called wealth because it is an enduring wealth proxy in exchange for our life's needs. Currency, on the other hand, serves a specific modern economic purpose--to be borrowed and inflated in placation of man's immediate desires. It is not wealth, it fails as a proxy for the Gold it tries to immitate. Do not confuse the two.

Understanding how the world works is easy as soon as you understand the Wealth Hierarchy. Like this: Earn money/currency, buy what you need, save Gold, enjoy what life has to offer.

Real wealth. Get you some. ---Aristotle

Texan said...


"Mama always told me not to look into the eyes of the sun.......but Mama......that's where the fun is......". Blinded by the Light, the Boss.

byiamBYoung said...


Saw the same piece and felt a bit deflated that they got so close, then face planted.

As someone who has totally consumed the Koolaid, I can't see why the mainstream can't grasp this.

Or is there a reason they prefer not to?

RJPadavona said...


I'd say it's hard for the vast majority of people to comprehend a paradigm shift. After all, the $IMFS has been the big fish in the pond for as long as most anyone today has been alive.

Old habits are hard to break.

Nickelsaver said...


I took my wife to see Rush in 2010, first wave of the Time Machine tour. She was amused to take pictures of her 40-something husband playing air guitar, bass, and (pathetically) drums. Lol

But the Rush sickness in my household does not end with me. My 7 year old puts me to shame. He got hooked a few years back when he got hold of dads CD's. He can tell you the name of every song on every album, including the song duration's down to the second. And, we frequently catch him doing his best Geddy Lee imitation when he thinks he is alone. Scary thing is, he hits the notes. LOL


Rui said...

@ Edwardo

"The silver bug's faith is essentially rooted in the biblical belief that the meek shall inherit the earth. The little guy will,.. ... It is misplaced faith and while missing the cold hard facts about why gold not silver, it also manages to be more than a little bit puerile."

I don't know much about biblical belief but the belief in the little guys makes economical sense. To have a high standard of living, we need people to provide sufficient, high quality goods for us to consume. Now what to consume w/o these little guys working hard and bringing their products to the market?

A happy worker is the one that produces more & better quality goods, so these LGs have to be rewarded not screwed to keep producing and moving economy forward. There's no way around it b/c the established elites won't produce themselves, and yet that's where the elites get it wrong.

The elites always want to rip the LGs off via either overt tax or inflation (which is a covert tax). When it's no longer rewarding being productive, the LGs cease to do it. Now there is less to consume and the entire economy suffers including the elites themselves.

So at the end we either have a long miserable depression or a revolution after the LGs have had enough. So the fix is therefore being willing to reward the LGs, such as giving them a sound money and allowing them to keep what they earn.

A sound money for the public such as, oops, dare I say SILVER coins?

Tell you the truth I wouldn't even rule copper out as in ancient past China had to mint copper coins to make up for not enough gold and silver for transactions.

One Bad Adder said...

Rui: So, let's for a minute think on this - a new Paradigm where FreeGold represents the Wealth of Men and Nations ...and the medium of exchange / accounting is Fiat however based on a Silver Standard?
That could work!

KindofBlue said...


"...but firstly, KoB etal - just harking back to the MBS issue... The Finance Industry sector now represents 40odd% of GDP ...with the emphasis on the "P".

Right. It's the "ongoing production" of the MBS that I'm trying to get a handle on.

Two Analogies:

1) My car's fallen off its jack into a ditch.
"Hey, friend, can ya give a guy a hand?"
"Sure." Car is put back right.
"No problem."

2) My car's fallen off its jack into a ditch.
"Hey, friend, can ya give a guy a hand?"
"Sure." Car is put back right.
"No problem."

He pushes car off jack and back into a ditch.

"Hey, friend, can ya give a guy a hand?"


Question. Do they keep on creating 'product' for which there is no legitimate market?


MnMark said...

Sometimes it strikes me how very, very strange it is that it should be so hard to understand money, to understand gold, to understand these macroeconomic concepts. Here is an activity that almost every human being has been engaged in for the last ten thousand years at least: producing, buying, selling, saving, investing. And yet we, after thousands of years of experience and thousands of years of written history to study, cannot get wide agreement among some of the smartest people in the world as to the role of gold and fiat currencies and credit, etc, etc. We've got people who are quite brilliant - Warren Buffet, Paul Krugman, the FO/FO/A trio and associates, all the various investment advisors and columnists and experts...whether you agree with them or not you have to agree they are not unintelligent people. Yet we all seem to instinctively find this subject of gold and fiat and international trade and so on so very difficult to grasp and agree on. How can this be so hard??? Very weird.

MnMark said...

While I'm at it, here's another thing that strikes me as weird.

I read the forum over at iTulip.com as well as this forum and one or two more. These seem to me to be the most intelligent gold-related discussions I have found so far on the internet.

In both forums there seems to be a dozen or two people who do most of the commenting. Maybe several dozen more who occasionally comment.

How can there be so few? If you counted only the English-speaking people of the world who have some money to protect or an interest in having some money some day to protect, there have to be hundreds of millions of people, if not a billion or more.

Hundreds of millions of people, and yet at two of the best gold discussion forums on the internet, there seems to be only a couple dozen who have anything to say or to ask? What the hell? Why aren't these forums FLOODED with 20,000 comments and questions a day? How can the number of comments on some days total less than twenty or thirty?

Are so few people in this world looking out for their financial future? Is everyone else completely locked into a conventional worldview?

Seriously - hundreds of millions of people who ought to be interested, and so few (and mostly the same few actual commenters) people on here?

anand srivastava said...

MnMark: If there were people flooding these forums the system would have crashed. It is alive because there is still trust. This trust is eroding surely but very slowly. The latest QE, shows that structural support for USD has vanished completely. This is the final phase of the USD's life. The erosion in trust should become faster now.

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

OBA and Rui:

I am not sure how a Fiat currency based on Silver will work. If there has to be any linking between the Easy money and the Hard money, they can be directly linked why bring in a third medium in between. Euro already does this. Its Fiat currency is based on Gold.

And Gold can still be bought by the poor, even if it is just very thin wafers of less than 0.1gms.

Currently I can buy 0.5gms coins in India. That is a very thin small round strip of gold. It can be made much much thinner as gold is very ductile. I don't think there is any problems going 10 times smaller.

Motley Fool said...


Fwiw, I replied to your last comment in the previous thread. I'll repost here :

"I've lost 0.1 oz which is equivalent to an extra 66 loaves I could have purchased had I not made that loan."

Good criticism.

So a year later 66 loaves would be equal to $1320, which means the amount that would have to be paid back would be $13,320 for breakeven, and more to make it worthwhile.

I admit my example is exaggerated, but at some return percentage it becomes worthwhile to make the loan. And that is exactly what one function of gold should be, to help distinguish bad loans from good ones, so only the most productive uses of capital is allocated loans.


byiamBYoung said...


I have often wondered the same thing. How can so few people have something to say?

I think its just the nature of humans. The overwhelming majority of us don't speak up. Especially on a topic so opaque as the gold market and global economics.

I know I have often written a comment, but then abandoned it because although I truly felt I had something to say, upon reading what I wrote, I realized it was inadequate to contribute to the conversation in a meaningful way.

Funny creatures, humans.

Woland said...

Help! Has anyone tried to access the USA Gold forum archives
recently? For the first time since I became a reader, every search
for any given date, month or year yields the response: Not found.
What up wit dat??

poopyjim said...


"I know I have often written a comment, but then abandoned it because although I truly felt I had something to say, upon reading what I wrote, I realized it was inadequate to contribute to the conversation in a meaningful way."

LOL many of my comments have died this way, and some that should have died have passed through my personal filter. This one nearly died as well.


Indeed, we have copious amounts of people attaining incredibly advanced knowledge in their respective fields (physics, software development, etc.), yet few seem to understand or want to understand anything about the economy, even though it truly is far less complicated than these other things. They simply trust in the consensus.

The truth, I think, is that there are copious delusions that our collective tribes subscribe to, and these delusions are often beneficial to the tribe as a whole. For example, $IMFS hinges upon the delusion that debt=savings. This delusion has served certain tribes quite well for a long time, especially the US which has gorged itself on a disproportionate and unjustified quantity of the world's resources. So this is a delusion that is valued. We propagate these delusions through the same universities that promote scientific truth. I think both are propagated through these channels solely because these delusions and truths benefit the tribe in some way.

One doesn't have to look too hard to find other delusions that have official sanctioning by the tribe. Some are not beneficial in any way of course, or only benefit subsets of the tribe. I won't get into those.

JMan1959 said...

Intelligence: capacity for learning, reasoning, understanding, and similar forms of mental activity; aptitude in grasping truths, relationships, facts, meanings, etc…

IMHO, neither of your examples of intelligence qualifies. Buffet is a buffoon in the field of economics and currency—one’s net worth is clearly no scorecard for intelligence. The world is littered with wealthy idiots and madmen. Krugman intelligent? I beg to differ there too. Education and pedigree don’t make you smart. That guy is a complete moron, yet is supposed to be an expert in economics. I have lost way more money in a private equity fund run by Harvard MBA’s than of my other investments. Many think Obama to be intelligent, too. I see him as the most ignorant fool ever to take the oath of office. I just don’t believe you can ascribe the intelligence label to those that ignore the facts staring them in the face every day (i.e. the repeated failures of high taxes, money pumping, and socialism that these guys hold so dear).

poopyjim said...


"Intelligence: ... aptitude in grasping truths"

It all depends on your definition of intelligence. I think "intelligence" more refers to one's raw cognitive ability. "Wisdom" or "common sense" is what I would refer to regarding one's ability to grasp the truth.

So there are many easy-money people like Yves Smith of naked capitalism, our friend Frances, etc. who I would consider to be highly intelligent, but operate under faulty assumptions and/or delusional worldviews that lead them to incorrect conclusions.

Likewise there are plenty of gold buyers I'm sure who have sub-par IQs but have enough common sense to know that the present system is unsustainable. Yet certain MMT-proponents may outscore them on IQ tests by 50+ points.

And Y said...

"They say the meek shall inherit the earth"

"You really ought to think hard when you're walkin' in your graveyard."

Peter said...

Yes. High Intelligence - "Mirage"

KindofBlue said...

On the issue of why seemingly intelligent people can so fundamentally disagree can be attributable conflicting ideologies and/or honest disagreement on a complex issue. The other factor is...


If there are interests to protect then time and again we see people make fools of themselves defending positions that protect a vested interest. A position may seem 'stupid', but when one investigates who's getting paid on the back end then 'stupid' is not the adjective that applies.

Rui said...

@ One Bad Adder

Gold is traditionally for the wealthy and big-ticket transaction such as international trade b/c it's more durable and portable than silver. Gold is, however, too big a unit for local transaction and that's where silver traditionally was used.

A FIAT system always leads to fractional reserve lending that eventually breaks the metal backing behind it so it's a suspect to me unless FRL is banned.

@ Motley Fool

Sorry I missed your previous reply. I think we can loan gold directly and let market force guide it. I'll explain it below.

@ anand srivastava

The problem I see with easy money (FIAT) is that it's a pooled account where everyone's paychecks come from. If someone pops it outta thin air s/he dilutes everyone's income w/o their approval.

Imagine we use hard money only w/o FRL. Loaners would fear they may lose it if they get it wrong b/c there's no printing press to help. The fear enforces a level of prudence that helps direct loans to where there's real growth. Such mechanism b/t risk taking and fear creates a healthier and more natural system than what CBs and Wall St give us today.

Nickelsaver said...


I need to post that Tom Sawyer one more time - a version with a lil more oomph.

Edwardo said...

Of interest I'd say.


Aaron said...

Nickel -- I like it! I first heard RUSH in 1984 when my brother's friend moved into our basement with his Rickenbacker 4001. He threw 2112 on his turntable and I was just blown away. I still have like 15 of their albums on cassette.

Another oldie but goodie!

...and on the above thread, I think Poopiejim's nailed it.

So there are many easy-money people like Yves Smith of naked capitalism, our friend Frances, etc. who I would consider to be highly intelligent, but operate under faulty assumptions

K said...


I believe there are many people that frequent the site, hints the 3.8M page hits... although JR, and a couple others could be responsible for 3.5M of those :-)

There are some that are fully on board, already saving in gold, but may not feel they need to be fully involved in the conversation... Do you think the giants are reading and commenting on sites (maybe a couple :-). It takes a lot of time to keep with all the comments on the board. Working full time jobs with kids, preparing for other things, maybe some physical activity (talking exercise here people, not physical gold moving!)... there aren't enough hours in the day!

HOWEVER, I'd say there are only a handful of people in the world, relatively speaking, that understand the concept of freegold, let alone undertand it completely... 1 in a 100k based on 7 billion people...? 1 in a million? Hopefully we're further along than that...

Trying to explain freegold, let alone basic things about the deficit, economy, QE, inflation to the average person can be quite difficult... They shake their head and say yeah, uh huh, yep, hmm, yeah... but you really wonder if they really understood anything you've just said. People's perception on these issues have been so skewed AND nonexistent, it's hard for them to comprehend! Let alone the normalcy bias, in which they don't even give a SH!T! "It doesn't affect me, I have a job". "If it gets to that point, people will come and steal it all or kill us anyway"... WHAT! Last one from my wealthy father-in-law... I've given up on him... maybe my fault, but I'm blaming normalcy bias... He actually had a customer offer to pay him in gold but instead he insisted the guy cash it and pay him in freshly printed dollars... I just shook my head and told him you're going to be so mad about that someday...

I think things will start to pick up after the election. Inflation will start to rear its ugly head even more, gold with be climbing, and when it starts hitting the peoples pocketbooks that still have a job, they will start to say something is wrong here... The volume on the stock mkt has collapsed. The retail investor is not interested in that game anymore, and partially tapped out. When they actually realize their dollars sitting in the bank are losing value, they may be more apt to move some to gold... but average people's perceptions of gold, is "it's risky"... and until the trust is broken with the dollar, and moved over to gold, freegold will slowly continue to gain acceptance in the shadows...

ampmfix said...

Hey Nickel/Aaron, nice to see people around here with similar musical taste. I loved the studio in the middle of the snow in a cabin, probably in Canada, beautiful place to play and compose.

What about this trio? to me unequaled yet:




I imagine your kid knows them?


ampmfix said...

humm, not a trio... brain slipped, me no pay much attention to keyb.

Sam said...


Years ago you and Ender came to the conclusion in the comments section that governments value fiat over gold. More accurately, the ability to print fiat is worth more than gold. From reading your blog I’ve concluded, as many others have, that Freegold is the obvious inevitable conclusion to the decades of fiat printing and inflated assets backed by unserviceable debt. In tax law the inevitable conclusion to tax deferment is to eventually have to pay a bunch of taxes. Nevertheless, many people seem to manage to defer tax burdens indefinitely. It makes me wonder. Can we “freegolders” be 100% right about the conclusion of the dollar’s life but off by an infinite amount on the timing? You have wisely resisted trying to time markets in the past but I think this question is a little different.

One possibility (that I’ve always suspected) is that the United States is sitting on acres of unofficially discovered cheap oil. Why else would it own 650 million acres of land? Wouldn’t it make for an interesting chapter in this story, if in the near future, gold flowed back to the United States for the cheap oil we have always had?

byiamBYoung said...

K said:

"I believe there are many people that frequent the site, hints the 3.8M page hits..."

I hadn't noticed, but I think that is up quite a bit from the last time I looked at he hit counter. Could visits be accelerating?

Does anyone (I'm looking at you, FOFOA) have the volume stats that could be poured into a chart? That would be quite interesting if it was ramping up... heading toward parabolic even?

Phat Expat said...

Sam brings up an interesting point. I have always felt that we have significant resources but that we wouldn't tap those resources until all others have been exhausted. As the petro dollar nears end of life we just might hear more about 'new' discoveries in/around the US.

Now, whether we would actually sell that off to other countries is another question entirely, but it would be positive for Americans and hopefully keep us out of additional conflicts. Hmmm...

Jeff said...


Here is the last time FOFOA addressed that, 2 years ago. I imagine the numbers are bigger now.

FOFOA: Raptor the math whiz, here is the breakdown by sub-continent based on 557,000 visits (unique visits, not pageloads which are closer to 900,000). Divide each by 3.1 to roughly estimate unique IPs:

1. Northern America 374,728
2. Western Europe 67,288
3. Northern Europe 30,135
4. Australia and New Zealand 24,265
5. South-Eastern Asia 12,869
6. Eastern Europe 12,425
7. Southern Europe 9,615
8. Eastern Asia 6,920
9. Western Asia 4,646
10. Southern Asia 4,470
11. Central America 2,705
12. South America 2,605
13. (not set) 1,974
14. Southern Africa 1,256
15. Caribbean 659
16. Northern Africa 300
17. Eastern Africa 195
18. Melanesia 150
19. Western Africa 74
20. Central Asia 52
21. Micronesian Region 16
22. Middle Africa 11
23. Polynesia 4
24. Outlying Oceania 3

Jeff said...

FOA on natural resources:

FOA: 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.

Indenture said...

"Faulty Assumptions" is exactly where I think I will start. A friend has asked me for an explanation of what I believe will happen with the dollar and, because of FOFOA and the Commentators (which sounds like a fairly good name for a band), think I can answer his question. But, when I ponder about the Dollar and it's decline I invariably think about the Euro and it's future roll as the 'Oil Currency'.
The faulty assumption is the 'end of the Euro' and this misinformation is prevalent all over the web.

So instead of talking about the Dollar I'm going to try talking about the Euro and how it can save the world from going directly to buying oil with gold. We need a Medium of Exchange.

This will be the first real conversation about economics with a peer.

ampmfix said...

BYoung, and K

If you explore the global statistics at the revolver section (click on map at bottom of page), you can see interesting info.

Since jan 9th 2011 there have been 1.6M visits roughly. I assume that the 3.8M figure is since the creation of the blog in 2008, so yes it seems to be accelarating a bit (1.6M since Jan 2011 that's 21 months so 530 days, so about 3000 hits per day, and around 2222 in the 2 years before that, so 35% increase, but wait, 35% increase in 2 years means 17% per year!! same as gold's average price increase in the last 10 years... hummm. Ball park calculation of course.

I will monitor it closely from now on and build some type of data set or curve.

Funny detail, there was a visitor from antarctica.

Other interesting data: from spain there are provinces listed, then cities. Looking at Madrid (it's got to be me) and San Fernando de Henares, it looks like we are 2 habituals (many visits from both places, all the other are way behind).

The Madrid one is around 3.5 per day, which could very well be me.

Another interesting detail, the US is half the world volume.

I will keep on looking at this since I love statistics. Will report if something stands out. But if the people organizing this blog or revolver maps can provide info it will be some time saved, maybe FOFOA can get that?


J said...

Looks like "The Mad Hedge Fund Trader" is calling your prediction absurd

Since Ben Bernanke’s announcement of QE3 last week, new forecasts for gold have been popping up like acne at a high school prom. They range from the conservative to the absurd, from $1,900 to $55,000

The instruments to entertain here are the gold ETF’s (GLD) and (IAU), gold miners like Barrick Gold (ABX), and the gold miners ETF (GDX). If you are hyper aggressive, you might look into 100 ounce gold futures contracts traded on the Comex. They offer leverage of 19:1, with an initial margin requirement of $9,113. If my $3,440 target is achieved, the value of one contract would rocket to $166,800, an increase of 17,300%.

I find his advice absurd

If You Had Any Doubts About Gold

ampmfix said...

Doing the analysis more detailed I find there is no increment in visits, bummer:

3800993 total visits / 1488 days = 2554 visits/day in the total life of the blog.

1671710 visits since jan 9 2011 / 651 days = 2568 visits/day or an increase of only 0.5%, this doesn't make sense, maybe the set of people changed but the number of visits remained constant? any math guy around that can make sense out of this?

or, 38009993 - 1671710 = 2129283 visits since blog start till jan 9 2011, in 1488 - 651 days = 837 days, comes to 2129823 / 837 = 2543, same result...

Maybe the counter data at he top of the blog is not correlated to the revolver data at bottom of the page, hopefully this is the case, otherwise, it looks like, since the first visitors are definitely not the same as the actual ones, the number of people interested in Freegold is a constant of nature! some come and then go, then others replace them, this is probably impossible so, either the counters are uncorrelated or there is only a precise number of posters that change names every so often, which also seems impossible. I must conclude that at least one of the counters is giving false data.

Fascinating problem!

Nickelsaver said...


I often ponder the timing question. I haven't been around these parts for very long. Some who have been here longer might be able to give perspective on the timing issue that I simply cannot.

But one thing I see is pretty clear. The total systemic debt is increasing. And it is increasing exponentially. If you chart a simple exponent, it looks relatively flat at first. Then it hits an upward curve, which leads to a vertical climb.

In my opinion, we are in that curve right now. Which means the vertical climb is on the horizon. In as much as we are dealing with something more than a simple exponent, timing perhaps difficult to gauge. But, if were to think of that exponent as sloping downward (as an indicator of $IMFS systemic life), terminal velocity cannot be far ahead.

Nickelsaver said...
This comment has been removed by the author.
Michael dV said...


'And then there are those one-ounce American gold eagles, now retailing for $2,300.'

let us hope no one on this site is paying anything close to this guys version of 'retail'

Robert said...


A warning about charts that I learned from my chemist friend: You can make any exponential function chart look like a hockey stick chart by manipulating the value of the Y axis. In millions in the national debt "went parabolic" ages ago. In billions it went parabolic more recently. In trillions it has not yet gone parabolic. In quadrillions, not even close. Charts have limitations.

Another thought on timing: The people who figure things out first are way too early. In 2008 Chris Martenson thought the collapse was imminent. FOFOA thought it was imminent. I saw the predictions for hyperinflation and I thought the hyperinflationists were nuts. In hindsight their premises were sound but they underestimated the depth of confidence in the system that existed at that time. In the last few years confidence has taken a beating, but I think the $IMFS may survive one more big onslaught, and then the third time will be the charm. While could still p

ush it all out another 10 years or more. Or maybe not. After the uprising in East Germany in 1989 some cooler heads were saying that the restrictions on movement might ease over a course of months. Hours later the people were tearing apart the wall with their bare hands. So who knows?

One Bad Adder said...

anand and Rui: -
I was implying a "currency" Silver Standard managed by the "usual suspects" (Fed, Euro dudes etc) ...in conjunction with Gold Reserves held by Treasury ...and the man in the street.

There would be NO "price of or for GOLD" (in Silver Standard "currency" terms.

FWIW Gents, GOLD per-se is far too valuable an item to have it intertwined in such banal a subject as economics / finance IMHO.

Nickelsaver said...


Yes. You are correct. It is not a simple exponent. If it were, we should be able to take it to infinity. That is why we have to cpmpare it in scale to other things, such as population growth and energy usage,

Now if you apply the exponent to those things in order to render a ratio, if the poplation and energy usage keep pace with the debt, we should have to find another planet to move to very soon. Or have a very large extermination. But if population growth and energy usage wanes, we see the proper scale of debt begin to take shape.

Also, we could focus in on US debt and consumption relative to GDP, and see scale being defined.

Incidentally, hyperinflation follows an exponent.

One Bad Adder said...

KoB: - It's not so much a case of there not being a Market for the stuff KoB, in this instance (MBS) the Fed is targeting the "spread" between their low (contrived) T-bond rate ...and the (you might say) much higher mortgage rate.
There ARE from different sides of the fence (Credit / Debt) however by their action they've put a floor under mortgage rates complementary to the faux T-bond rate.
Don't for a moment think there's no market for these "products" ...there's ALWAYS a Market ...but at what price??

One Bad Adder said...

MnMark: - I realise nowadays it's a lot easier to "get started" with YOUR commentary on the various forums etc, but I'd imagine it'd still take a good bit of courage to push the "publish" button ...paticularly amongst such esteemed company as hereabouts.
I well remember (some 14 Yr's ago) when I first "posted" ...fear and trepidation ruled.
Nowadays ...simply fire away ...and hope a bit of my sh!t sticks ;-)

mr pinnion said...

"Buffet is a buffoon in the field of economics and currency—one’s net worth is clearly no scorecard for intelligence. The world is littered with wealthy idiots and madmen. Krugman intelligent?"

Maybe Buffet is a genius in the field of human nature, history AND economics? FOFOA keeps telling us that the top people knew where the financial system was going ,as all fiat currencies do. Buffet and Krugman have done very well during the dollars long demise.
Why the hell would they tell you what they really think?
Do you honestly think they havent got gold stashed away?
I think they will both do very well in a FREEGOLD system.


mr pinnion said...
This comment has been removed by the author.
DP said...

Nowadays ...simply fire away ...and hope a bit of my sh!t sticks ;-)

That's what a bit of confidence in your opinions does to ya!

mr pinnion said...


As MR C Darwin kept telling us; it s all about adaptability. ;)

MnMark said...

Could someone explain something to me that I have realized I don't understand?

The European Central Bank keeps gold on its balance sheet, and it revalues the gold (in Euros) on the balance sheet quarterly. As the price of gold increases, the relative proportion of the Euro value of the balance sheet that is in gold increases. Ok, I get that.

But you can't take your Euros down to a window at the European Central Bank and trade them in for any of that central bank gold, right? That gold just sits there in vaults somewhere, listed on the balance sheet. The Euro is not convertible into gold on demand. The gold just sort of sits there on the balance sheet, showing that...what? That the ECB *COULD* theoretically sell some of that gold for Euros? Because if I can't trade my Euros in for gold on demand, then as far as I am concerned the Euro is no different than any other currency managed by a central bank with no gold on reserve at all. It's no different than the dollar, which I can't turn in for some of that Fort Knox gold either.

So what's the significance of the ECB having gold on the balance sheet?

Motley Fool said...


They could theoretically, but it is doubtful that they would. Their reserves are for their use.

The significance lies in method. As things deteriorate this methodology will show a price for gold, a floor on the private market if you will.

At present it does not mean much, as thing progress it will. As will their balance sheets improve as things get worse. ^^


Motley Fool said...

Ps. They may perhaps sell off some little when the shitteth finally meets the fan, just to support a credible market for the big guys that are struggling to run into gold. Any such sale would be met with a counterbalanced bid to buy back the same amount, increasing the price of gold, and making filling such orders more likely in the private market.

Motley Fool said...

Pps. I have remarked before that FreeGold seems a study in nuance, and their implications. ;)

Nickelsaver said...


Freegold is not just a spin on the old gold standard. Convertability is essential, but on the open private market. What the ECB is doing is valuing Gold at whatever the current market price is, and using that value on the balance sheet to offset debt. We see that overtime, they have sold gold as its value has increased. They merely need to have a certain mentary value on hand to achieve a balance.

Contrast that with the USA, they still have their gold on the books at the 1970's price. Why, because they neither want to establish a market for gold, or have gold value the dollar.

Freegold is about free market convertability of gold, without the intrusion of a paper market for gold which distorts price signal.

Indenture said...

The Zeppelin song never released on their original Albums
It's from side B of 'The Immigrant Song' 45

MnMark said...

@MF thanks for the reply.

OK, so if I can't show up and trade in my Euros for gold because they are keeping it for their own purposes, don't they have to be willing to exchange that gold for Euros on demand for someone? Whether that someone is another central bank or a rich oil country or whatever? The gold has no meaning, does it, if no one can get it in exchange for their Euros? Or is that something that will be possible after the transition, but not right now?

I am asking this by means of trying to understand the new paradigm Freegold posits, where central banks will not fix their currency to a specific amount of gold, and will not have a currency completely irredeemable in gold (as the dollar is now) but will instead let their currency float against gold, managing it upward or downward as desired by buying or selling gold. To me this means that in order to defend a certain gold/dollar price, or gold/Euro price, they have to be willing to sell to all comers at that price or buy from all comers at that price. Which to me means you ought to be able to show up at the central bank's window (or some equivalent) with your gold and sell it to them for that price, or else show up and buy more gold from them at that price. If you can't do that, it seems to me there is no real link between the gold and the price in the currency, as to me there seems to be no such link for the Euro at present anyway since you can't show up and get gold for your Euros or buy gold from them at the current Euro value.

This came up because I read this comment from someone I know to be a very intelligent person over at iTulip, and when he wrote that after the coming currency crisis the central banks are going to want to get more gold, I thought to myself "not necessarily - what matters is the price of gold, not how much they have. If the price is high enough, what they have will serve their purposes." But in imagining myself making this argument to him, I realized I did not really understand how the Freegold theory proposes that central banks will operate with regard to their gold buying/selling post-crisis.

MnMark said...

@Nickelsaver Thanks for the reply. I think I need to do someone homework on understand the function of central banks and their balance sheets before I fully understand what you're saying.

Motley Fool said...


Yes post transition they would be willing to send it for oil or international settlement, if needed. Right now it would be colossally stupid to do, I'm sure you will agree. :)

"To me this means that in order to defend a certain gold/dollar price, or gold/Euro price, they have to be willing to sell to all comers at that price or buy from all comers at that price."

Yes, but not at these prices, ie. not in the current paradigm.


Motley Fool said...

Ps. Technically it would likely be better for them to be slightly more expensive than the private market. So not all comers are likely to use the option.

Motley Fool said...

Pps. My "if needed" clause should be bolded really. ^^

ampmfix said...

Thanks indenture, for the LZ song.

victorthecleaner said...


since you can't show up and get gold for your Euros or buy gold from them at the current Euro value.

Strike out the "from them", and it reads

you *can* (!) show up and get gold for your Euros or buy gold at the current Euro value.

I can !!! I just walk into the next coin store or into my local bank, and I can trade Euros for gold at the current market price (plus/minus some spread).

You see, the way the Eurosystem accounts for their gold reserve, just indicates that they encourage a private market for gold in Euros. Let the market decide how much gold is worth (or, conversely, how much a Euro is worth).

Everyone who doesn't trust the Euro as a store of value, can get gold instead. Everyone who likes to trade his gold for medium of exchange in order to go shopping, can get Euros. Everyone is happy!

The difference with a "gold standard" is this:

Assume people lose confidence in the currency.

In the Euro zone, the price of gold in Euros increases. But the ECB does not trade any gold, and so their reserve in ounces remains unchanged (as does the amount of circulating Euros), but the reserve grows in Euros. This counteracts the loss of confidence. The system is stable.

Under a gold standard, the government (or CB) would be committed to selling gold at fixed official gold price, and so they would lose reserves (and the amount of base money would shrink at the same time). Now you can write down the balance sheets and see that the number of ounces per circulating dollar would nevertheless shrink. The system is unstable.


MnMark said...


Thank you for the helpful comments. I will have to think about this.

Michael H said...

",,,where central banks will not fix their currency to a specific amount of gold, and will not have a currency completely irredeemable in gold (as the dollar is now) but will instead let their currency float against gold, managing it upward or downward as desired by buying or selling gold. To me this means that in order to defend a certain gold/dollar price, or gold/Euro price, they have to be willing to sell to all comers at that price or buy from all comers at that price.

See how this is contradictory? If the currency floats against gold, then why is there a need to defend any price?

Further, the European CBs have shown that they are willing to sell gold. From FOFOA:

"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.


Nickelsaver said...

Michael H/MnMark

Great post to quote from, here's more:

You see, after 1980, "oil" started trusting paper gold again, just like it did in the 1950's, as long as some of it could be exchanged for physical. But having been burned once, in 1971, they weren't about to be burned again. And what the euro CB's figured out was all that mattered to the producer/savers of the world was the guaranteed FLOW of physical gold, NOT the guaranteed price or weight/mass. (And this is why we pull it out of the ground: so it can FLOW!)

This is what the euro architecture guarantees in the case of a dollar (paper gold market) failure: that physical gold will flow… uninhibited! It does this through its "severed link" association with its own official monetary gold reserves, allowing them to float against the currency and publicly proclaiming this policy every three months in its quarterly "marked to market" consolidated statement. This is something the Fed simply cannot do because the Fed's "gold stocks" are irredeemable paper gold Treasury certificates marked at $42.22 per ounce. The US Treasury owns all the gold. The Fed owns paper (and electronic book entry, post 1935) certificates that are irredeemable to the Fed, so how can it possibly mark them to market?

Notice the Fed still quotes its "(paper) gold stock" (or "gold certificate account" as it is listed on the consolidated statement) on its own balance sheet as 11,041. That is in millions of dollars, so 11,041 is really $11,041,000,000 divided by $42.22 per ounce which comes out to 261,511,132 ounces which, surprise surprise, comes out to 8133.5 tonnes, the same amount voluntarily reported to the WGC and relayed to Wikipedia.

FOFOA said...

Hello ampmfix,

You wrote: "But if the people organizing this blog or revolver maps can provide info it will be some time saved, maybe FOFOA can get that?"

I have four stats programs running, and they all disagree with each other. The four are Google Analytics which has been running since day 1, Blogger's automatic stats which has also been running since day 1, Statcounter which I installed in early Sept. 2009, about a year after I started the blog, and that Revolver Map which I started on Jan. 9, 2011.

The counter in the side bar comes from Blogger which seems to be the most conservative (lowest) method of counting. For example, Blogger says 3,802,204 pageviews and Google says 4,068,221. Meanwhile, Statcounter says 4,063,120 "page loads" and that doesn't even count the first year. If we add the first year's "pageviews" from Google (238,000) to the Statcounter "page loads" we get 4,301,120.

On the Revolver Map you can see everything I can see. For the others, here are fresh screencaps:

Google Analytics
Blogger Stats

Here's a close-up of that spike on the Google graph where daily page loads peaked at 23,589 right after Deflation or Hyperinflation.


Edwardo said...

It has been said here and elsewhere that KWN is little more than a PM pumping operation, but, even so, there are a handful of commentators who show up from time to time that have genuine substance. Ben Davies is one of them. He, unlike quite a few other regulars on there, James Turk, Michael Pento and Stephen Leeb come to mind, does not have a track record of constantly calling imminent big up moves in PMs.

Mr. Davies definitely nailed the latest move as he came out in mid-summer and said he was expecting the PMs to catch fire on the upside.

In what is most certainly an understatement, here is the key quote from his latest interview.

"I think September 12th might well have marked the day the world embarked on serial debasement of the reserve currency, and set the train in motion for a really gigantic move in gold over the next five years. [There is no limit to the price.]"



I know someone mentioned Brodsky and Quaintance earlier and I just read their paper wherein they postulated 15-20k gold by 2014. Suffice it to say that there seems to be something of a sea change in perception about gold that I have not heard so boldly stated outside this forum.

And Y said...


OK, so if I can't show up and trade in my Euros for gold because they are keeping it for their own purposes, don't they have to be willing to exchange that gold for Euros on demand for someone?

No. There's no promise of convertibility. Consider the ECB a buyer or seller just like you and countless entities. They will buy or sell gold in order to defend the Euro or lubricate its use. They won't make the market, they'll participate.

Rui said...

@ victorthecleaner

Quote:"Assume people lose confidence in the currency.

In the Euro zone, the price of gold in Euros increases. But the ECB does not trade any gold, and so their reserve in ounces remains unchanged (as does the amount of circulating Euros), but the reserve grows in Euros. This counteracts the loss of confidence. The system is stable."

If people fully understand the importance of gold and see gold price in Euro going up, they will lose confidence in Euro and will not transact in Euro any more. They will not want their income in Euro form. The system is no longer stable.

If the way to keep faith in Euro is to therefore make it almost as good as gold then why not just move a step further to use gold directly. It's no longer "almost as good as gold", it will be "gold gold".

That way you no longer have a king class (politicians and bankers) that can get their FIAT by simply inflating the system and a peasant class (the rest of us) that have to work our butt off to earn the FIAT.

victorthecleaner said...

If people fully understand the importance of gold and see gold price in Euro going up, they will lose confidence in Euro and will not transact in Euro any more.

I suppose this is one of the primary fallacies that are spread by the "hard money" school. Let's figure out whether it's true:

When you earn $5000/month worth of salary (regardless in which form it is paid), how do you use it? I suppose for most people, the answer is something link this: you spend $4500, and you save $500. Depending on whom you ask, this ratio may even be worse. You see, most of the salary is used in transactions within less than one month, and only a small part is put away for a rainy day.

So why would you accept payment in paper dollars? As long as you can buy gold for those $500 that you intend to save, you are happy. For the remainder, it is no problem if you receive and keep paper money because you use it to transact (MoE) rather than save (SoV).

When you go shopping, why does the store owner accept the paper money you are offering? Same argument. The store owner also spends some 90% of his income and saves only the (much smaller) rest. So as long as he, too, can buy gold for the 10% that he intends to save, he will be happy to take fiat money for the products you buy.

You see, fiat money is perfectly fine because most of your salary is used in transactions provided there exists a liquid market for gold in terms of that fiat money.

What gives the paper money confidence is the option to exchange it for gold.

Why am I not worried that in this scenario, the fiat money loses all its real value relative to goods and services? Well, this depends on whether you talk about the US$ or the Euro.

If the ECB continues their present policy (2% inflation target), it will be gold that rises relative to goods and services rather than the Euro going down.


anand srivastava said...


Yes everybody's income gets diluted when the central bank prints money. So? That is what the government does. It only gets diluted as long as you keep it in currency terms. Get out of it asap.

How do you plan to prevent the govt from diluting the currency? Why do you have faith in the benevolence of a govt? Why do you think they will not steal from you in a silver standard? Did Romans avoid HI by having a gold Standard?

How will you want to implement the Silver Standard?

For me there is no fool proof way of doing it.

In this age it would be stupid to not use digital currency. If you use it, there is the credit inflation issue, even under a Silver Standard. The only sort of fool proof way would be to force everybody to use silver coins for all transactions. Incredibly inconvenient isn't it. I don't see how you can have a hard currency in the digital age.

I would personally vote against a govt that tried to implement a hard currency. It is too inconvenient. It is not healthy for the economy. It doesn't safeguard against the black guards. And in a FreeGold system I don't need to depend on the benevolence of the govt. I would much rather they steal from the stupid people that save in banks. I would not save in banks again in my life.

It is actually better this way that stupid people lose money. That way over time they will evolve into more intelligent people :-).

anand srivastava said...

Finally, I have realized what Aquilus had been saying about the UoA in an HI situation.

I believe the gold shot to the moon will not be a smooth curve. I think it will be an abrupt fall (signifying the crash in Paper gold) and then a discontinuity after which it will be found to be on the path to the moon :-) (ie revaluation).

Given that there will be a time during which Physical gold price will be falling and then it will become unknown. I had been grappling for the last couple of months on what would be the best vehicle to be used during this phase.

I had thought that Silver would be a good bet, and hopefully it will not drop too much. But I have realized now, that that particular hope is hopeless.

Now I realize that the solution was hiding in plain sight. What else but Euro. Euro's rate of inflation will be managed with an iron fist, as politicians have no say in it. There may be a fall at that time, but it will probably not lose much value, and would recover most of it soon enough.

I am still not sure how long that period would be. I now understand that it will be the ECB which will revalue the gold after the crash in paper market, as it needs to create its balance sheet every quarter. So they must have a real value of gold at the time of creation. So I would think if the crash happens very near to the preparation, they will have to skip the projection. And will have to get into revaluing gold. I am not sure how they will do it, but we can be sure that the period of this discontinuity will not be bigger than 4 months. Most likely smaller than 2 months.

So a small store of Euro will tide us over the fall and discontinuity. Time to get rid of my Silver :-).

FOFOA said...

Hello MnMark,

You asked: "OK, so if I can't show up and trade in my Euros for gold because they are keeping it for their own purposes, don't they have to be willing to exchange that gold for Euros on demand for someone? Whether that someone is another central bank or a rich oil country or whatever? The gold has no meaning, does it, if no one can get it in exchange for their Euros? Or is that something that will be possible after the transition, but not right now?"

Gold is gold. If you've got euro that you'd like to exchange for gold, what does it matter who trades their gold for your euro? With a floating physical-only market there will always be plenty of gold available, so why would you go all the way downtown to the CB gold window even if it was open 24/7? Just to take some gold away from the CB? Even if the CB did have a 24/7 gold window in Freegold, if it didn't have a currency-management reason to retire (destroy) the euro you exchanged, it would just turn around and replenish its gold in the market and end up with the same amount of gold. So where's the reason to even have a gold window at the CB? There is none!

The CB, rather than operating a gold window, will go into the open gold market as either a buyer or a seller whenever it has a currency-management reason to buy or sell gold. Simple as that. ANOTHER explained that this is much better than a gold window: "It is important to understand that "exchange reserves" of gold are a much more powerful tool for currency defense than gold backing!"

But this particular use of gold reserves as a powerful currency management tool is not possible in the presence of the paper gold market. Therefore it is not possible today. As ANOTHER said, "just ask the Koreans." Instead, this is what they will do in Freegold! "But for now gold is in the background."

Date: Fri Dec 12 1997 21:33

Gold would have helped them in a different world, but for now gold is in the background as the IMF tries to add more paper to this inferno. If one owns real gold , it will be with ease to view the world currency developments. They will be truly of biblical proportions!


Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro [yet]. My friend, the BIS has played the, as you say, "big poker hand"!


Why does the Euro start life with such small "exchange reserves" of other currencies? It is because they will have little need of them. For most nations, exchange reserves are used to defend the local currency, that is, buy on the open market your money with other countries money (dollars?). In the typical "operation" this would be done to raise value of the domestic currency.


FOFOA said...



I think, the currency of a country does no longer hold "backing". This term, it is used often, but is not correct. Today, all modern money does have "reserves", and such is used only for "the dirty float" in currency warfare. As in war, the larger and better equipped army in "reserve" does rule over the lesser force. Perhaps we should think in this way: in "cold war" of modern exchange rates, "digital currencies from reserves are used", however, when "hot war" of major default does begin, "nuclear weapons of GOLD" are deployed!


The Euro will not be backed or fixed in gold. It will, as Michael Kosares (USAGOLD) notes, be the first "modern currency" to hold true "exchange reserves" in gold. **It is important to understand that "exchange reserves" of gold are a much more powerful tool for currency defense than gold backing! In this system, gold must be traded in a "public physical market", in that currency, Euros! As such, the Euro can "devalue gold" (Euro price of gold falls) thereby making it strong in gold!**

I also wrote about Freegold currency management in Macrofreegold'nomics:

Freegold Currency Management

In Freegold, a currency manager will influence exchange rates by buying or selling gold. If a currency is trading higher than he wants, he'll purchase gold on the open market (doesn't matter where thanks to arbitrage) with freshly printed currency to weaken his currency. This will exert pressure for gold to flow into his zone and usable wealth to flow out. Normally he'll do this in a countercyclical way to what's happening with the "organic" savers…

If a currency is showing unwelcome weakness, he can sell his gold reserves on the open market. This will exert pressure for gold to flow out of his zone (or at least counteract the ongoing inflow driven by organic saving) and for usable wealth to flow in (or at least slow down the ongoing outflow (trade surplus))…

So obviously a currency manager has nearly unlimited ability to weaken his currency (to counteract Leg B of the savers' hoard/dishoard cycle) but he is constrained by his accumulated reserves as to how much he can strengthen (defend) it (during Leg A). This actually makes sense because Leg B is when savers in the zone have stopped buying gold in aggregate (so that gold is no longer flowing in) and the printer can get them to start again by debasing their currency while simultaneously driving up the price of gold. In extremis the printer can stop the outflow of gold from dishoarding savers (and stop the net-inflow of goods and services) by buying every ounce sold by domestic (organic) savers with freshly printed currency.


So… When savers are hoarding gold, the CB is dishoarding. When savers are dishoarding, the CB is buying their gold with fresh currency. Over time this will minimize the flow of gold between currency zones and because the flow of gold is a reflection of an imbalance in the flow of "usable wealth" we can deduce that trade will be balanced and disruptive cycles and corrections will be minimized…


Rui said...

@ victorthecleaner

Quote: So why would you accept payment in paper dollars? ... ... When you go shopping, why does the store owner accept the paper money you are offering?

I accept it involuntarily. The owner doesn't know he's screwed by the depreciating FIAT.

Quote: So as long as he, too, can buy gold for the 10% that he intends to save, he will be happy to take fiat money for the products you buy.

The shop owner would be even happier if I pay him gold directly. That way he's not exposed to any depreciation risk.

Quote: What gives the paper money confidence is the option to exchange it for gold.

It's an option to exchange at an ever higher price tho b/c of the inflation, which erodes the confidence in the paper money.

Quote: If the ECB continues their present policy (2% inflation target), it will be gold that rises relative to goods and services rather than the Euro going down.

It's already debatable why we need a 2% inflation and ECB's ability to stay on the target but let's skip them for now.

For years gold industry already mines about 2% of global existing gold stockpile annually so if we use gold we have got the 2%. Why do we want ECB to layer another 2% on top of it?

Isn't it obvious it's not about we need that 2%. Isn't it obvious it's about bankers and politicians wanting the monopoly of money supply instead?

Rui said...

@ anand srivastava

Quote: It only gets diluted as long as you keep it in currency terms. Get out of it asap.

Your future income is still from that paper pool. So you cannot get completely out.

Quote: Why do you have faith in the benevolence of a govt? Why do you think they will not steal from you in a silver standard? Did Romans avoid HI by having a gold Standard?

Hard money cannot prevent the stealing but at least makes it difficult. West-Rome had a silver standard that got debased so they collapsed. East-Rome stayed on a strict gold-standard that lasted 1000 years.

Quote: In this age it would be stupid to not use digital currency.

We can still use digital currencies. We just need to prevent un-checked issueing with hard comoditty backing.

Quote: And in a FreeGold system I don't need to depend on the benevolence of the govt. I would much rather they steal from the stupid people that save in banks.

We can debate if it's good to steal from "stupid people" but as long as your paychecks still arrive in paper form you are not outta woods either.

Also FG is adverised as a system once for all getting it right and able to achieve meritocracy. Now with bankers and govt still stealing, how long do you think such system can last and what shot does it have for meritocracy?

jeb said...

I see mike maloney is quoting aristotles posts from usagold over at wealth cycles blog.

anand srivastava said...

Rui: I get my money in cash, true. I would keep the amount for a couple of months survival, and move the rest to gold. How much wealth would I lose from the that small amount of money? I don't think there is any point worrying about that. I would consider that as part of my income tax.

I would only worry about social security payments. And I believe they would not be there in FreeGold.

FOFOA said...

Thanks Jeb! Mike Maloney must be following Woland's comments as closely as JR is following them. ;-)

It's a shame that Mike had to link to the Google webcache due to the unfortunate disappearance of 3,157 pages of archives from the USAGOLD website. Thank goodness for Googlebot webcrawlers, huh? MK, Pete, what happened to the archives?

Here's the link to Maloney's blog, but I'll also repost Ari's piece right here (since priceless internet artifacts seem to be vanishing):

Aristotle (1/2/00; 13:07:43MDT - Msg ID:22052)
A New Year's Resolution -- Allow yourself to own more Gold
Happy New Year to everyone, as we leave the 1900's to the historians!

Most Americans are justifiably proud of their country due to its history and prominent role in the world scene. However, this tends to lend itself to an Americentric perception that the world revolves around America, that America's problems are necessarily the world's problems, while the world's problems are deemed to be nothing of consequence--reported on the evening news inconveniently between sports and weather. Being an American is an end unto itself. But if we do pause to give a thought to the greater world, it is only that they should strive to accomodate our preferred easy existence. At the very least, they should conduct their foreign affaris so as to be no burden to our consciences--limiting their visible levels of suffering at the hands of want...want for adequate nourishment, for quality shelter, for safety from violence at the hands of others.

Living in a land where these common necessities are found in abundance, it is too convenient to suspend the disbelief that the entire world shares and rejoices in our own good fortune. Thus deluded by our own fantasy, we are like the person sitting at the kitchen table as they play Monopoly with their family. Although this game and its rules are distinctly limited in both time and space, playing this game dictates our decisions, actions, and emotions--the real world is forgotten while we remain at the table. The dishes in the sink need to be washed. The car needs to be filled with fuel. The snow on the driveway needs to be shovelled away. The bills need to be paid and envelopes mailed. All of these real-world concerns are dismissed as we 'Pass "Go" and Collect $200,' as we 'Take a Ride on the Reading Railroad,' as we build houses on Baltic Avenue, or clutch our hair as we land on a Boardwalk replete with commercial development.

It does not matter however long we may play at Monopoly, nor does it matter how well we fare in the game; the real world still exists, and in the real world the car still needs to receive fuel, the snow must be cleared away, and bills must be paid.


FOFOA said...


Now imagine, if you can, the clever player who is not so absorbed by this game that he may yet still see the truth of the wider world, and in doing so properly recognize the limited value of his Monopoly money beyond the scope of this game. Imagine this player to be playing the game well enough that he is in a position of wealth--having acquired one-sided money, 2x3" squares of property, little green plastic houses, and little red plastic hotels.

Now imagine that there were an extra space on the gameboard (called USAGOLD next to 'Free Parking'?) where players with awareness of the real world could exchange some of their game-wealth for wealth that endures in function beyond the scope of the game. It wouldn't surprise you to see this special space on the gameboard being being rigorously used by the wisest of the participants (the parents) while the kids remain content to see their piles of one-sided money grow and grow, and their lines of green plastic houses get ever longer. We would see the wise parent maintain only enough Monopoly money and Monopoly 'investments' to remain viable in the game so that they might continue to utilize that special space to accumulate enduring wealth for use in the real world.

The fact of the matter is, regardless of how competitive the game of Monopoly becomes, the necessities of real life will remain, and they won't be satisfied by Monopoly money...even though you might (at this time) manage to bribe your son or daughter to shovel the snow for a crisp, one-sided, orange $500 Monopoly note.

So it is with playing the good game called American Life. Regardless of how blinded we become in the American competition to keep up with the Smiths and Joneses, the problems and necessities of the real world remain and will be resolved whether we choose to take notice or not. Just as our son or daughter will one day acquire the wisdom to refuse the one-sided $500 enticement to shovel the snow, so too will the lines become more distinct between what is fine within the American game, but increasingly unacceptible for international settlement.

Make a New Year's resolution to have a greater world view. Be intelligent, light on your feet (adaptive), and aware of the distinction and growing separation between popular perception and universal reality. Prepare (through wise choice of assets) to live as well in the greater world as you have lived within this thriving but distinctly American game. Eventually the kitchen table must be cleared away for the next meal, Monopoly money doesn't play very well at the Main St. Bank, and it doesn't play very well at the Bank for International Settlements, either.

Gold. Get you some. Dress yourself for a good seat at any table in the world. ---Aristotle

ampmfix said...

Thanks FOFOA, I will look at those carefully and come back if I find something.

M said...


Is there a capital gains tax on gold sales in the Euro zone ?

Motley Fool said...


I'm reasonably confident the answer is no. (As in 99%)


Bjorn said...

I, on the other hand am reasonably confident the answer is yes. Tax laws are decided by the national governments, so there may be differences. What I know is that there is no exception from CGT for gold in Sweden (outside of the Eurozone, yes, but I imagine if gold was CGT free in the Eurozone it would be so here too). "Investment gold" is however VAT free in the entire EU. In principle there is no exeption from capital gains tax on other stuff that you might buy and then sell with a profit, like collectors items and such. In practice I imagine very few people report these things.

Börjesson said...

To add to Bjorn's comment, which I agree with, I believe that some countries have special CGT rules for certain "domestic" gold coins. For instance, I think Britannia gold coins are exempt from CGT in the UK.

DP said...

Council Directive 98/80/EC of 12 October 1998 supplementing the common system of value added tax and amending Directive 77/388/EEC - Special scheme for investment gold

Bjorn said...

A quick search in EUR-LEX yielded no finds on the topic. That might imply that there is no EU directive concerning exemptions from CGT. Or maybe I just didn´t find it. If it´s the former, I´m right and so is probably Börjesson. And MF is wrong for a change. ;-)

Bjorn said...

From DP:s link above
E. Special obligations for traders in investment gold

Member States shall, as a minimum, ensure that traders in investment gold keep account of all substantial transactions in investment gold and keep the documentation to allow identification of the customer in such transactions.

Traders shall keep this information for a period of at least five years.

Seems there may be some type of risk associated with not reporting gains on gold sales, in case your tax statement is audited for some other reason....

DP said...

I haven't come across any kind of EU directive relating to CGT on 'investment gold' either.

Here in the UK our local laws relating to legal tender are applicable, though.

DP said...

TCGA92/S21 (1)(b)
Currency in sterling is not an asset for capital gains purposes. It is the unit by reference to which capital gains are measured.

Börjesson said...

I don't know how the EU defines a "substantial transaction". But if that council directive means anything like "not all transactions, just the slightly bigger than average ones", then I dare say my puny purchases won't qualify. Still, my local gold shop says explicitly that they don't report anything about the customers to Skatteverket (the Swedish tax authority). It's the responsibility of each customer to declare any transactions that are liable to tax. And they don't qualify that statement with any size limit to the purchase. The same principle seems to apply in all cases.

Motley Fool said...

Don't know if this is still valid, but it does seem I am wrong. It happens Bjorn. ;)



Jeff said...

Not a replacement for the USAGold archives, but here is the A/FOA part, thanks to Freegolds.


Woland said...

Hello Jeff: Thank you so much for that! Back when I began
following good advice by reading the"archives", Wikipedia
had a link to that same material as a footnote #14 to their
article on Freegold. It was the "condensed version" without
all the intervening comments, and while highly useful, it was
a bit like reading the reader's digest version of The Magic
Mountain. Nonetheless, all the big ideas were present, and
my #1 all time favorite, REALITY? 3/4/99, 11:17:14MDT
Msg ID 3351, was one of about 100 pages I printed out.
Lets hope Aquilus' inquiry gets a response, and this problem
is just a bug, and not a feature, of things to come.

Lisa said...

Speaking of Costata - where is he? I have not seen a comment from him here in quite a while. Self imposed exile like Mortymer?

Michael H said...

"For years gold industry already mines about 2% of global existing gold stockpile annually so if we use gold we have got the 2%. Why do we want ECB to layer another 2% on top of it?

Two problems with this statement:

1. The 2% annual increase in the gold stock is an exponential, and assumes ever-increasing annual gold mine production. Clearly this is not possible in a finite world.

2. The 2% that victor is talking about is not in the quantity of money in circulation, but rather in its purchasing power. So if the money stock increases by 2% but the amount of goods and services in the economy increases by 5% then we'll still have 3% deflation (to make a gross oversimplification).

"We can still use digital currencies. We just need to prevent un-checked issueing with hard comoditty backing."

Contradictory. Either we transact in metal or we transact in digital. I think we already learned that a 'hard commodity backing' does not work.

Woland said...

Hmm. Remember the bears who gave us "Quantitative Easing
Explained"? Well, they're back, over at ZH, with- "Where does
Money come from"? The only thing missing is their MMT T shirts.
They do a great job with the PRO's. Too bad they leave out the
one big CON. Like in the song, The day the Money Died, they may
one day drive their Chevy to the levee only to discover that is
is, shall we say, OUT of ORDER. Enjoy!

highway said...

Hi, under Freegold, what assets all the pension funds will hold? Currently they hold trillions of $ paper assets (bonds/stocks). I think they would all hold physical gold only because paper currency always grow in terms of quantity and reduce purchasing power in the future. Pension fund represents savers, and savers want maintain purchaising power by saving in gold. On the other hand, I think under FG, pension fund can still hold paper assets, "grow" the paper assets and then they can always exchange paper with gold if needed.

Still learning the FG theory, not sure if this was discussed before; if someone can point me to the previous links, I greatly appreciate it.

Woland said...

oops. The link is at Naked Capitalism , not ZH. Sorry.

Edwardo said...

When did The Federal Reserve's Flow of Funds report
stop referencing gold? Anyone? It doesn't seem to be
there in the latest issue.

Aquilus said...


Just a quick comment on your euro "epiphany" related to my previous comments of euro use as UoA (Unit of Account) during hyper-inflation.

Reading your comment, I am under the impression that you're looking at holding some euro as an asset to exchange for the local MoE (Medium of Exchange) at that time.

I just want to clarify my comments so there's no confusion.

Because the structure of the Euro will allow it to avoid hyper-inflation, implies that meaningful prices for most items will continue to exist in euros during the dollar's hyper-inflation. In other words, because it keeps its value better from day to day in that period, it makes sense to reference the prices in euro during that period.

However (and it's a big however), the beginning of the outright hyper-inflation period for the dollar (the visible part, since $ hyper-inflation already started decades ago) the euro will lose purchasing power against real world items.

It's probably going to be a one time bigger slide in most currencies and then some like the euro reach an equilibrium, whereas others like the $, UK pound, maybe yen keep going. This is the point where using it as a UoA will become obvious compared to the $ or any commodity, since prices will resume stability in euro and every item already has a price in euro - no new pricing scheme needs to be invented.

So if you buy euros now, you will experience that loss of purchasing power. Best approach would probably me a mix of liquid assets(silver included) to exchange into the local MoE when needed.

Hope the above makes sense,

Woland said...

OK. I promise to shut up after this last item. It just seems
to me like there's too much Dom Perignon flooding my
basement at the moment.

via Zero Hedge (video clip) "Dalio on gold: Buffet is making a
big Mistake."

As I think about the trillions of dollars, and other currencies
sitting in offshore tax havens, (thank you, Great Britain, and
the Caribbean) as documented in the book: "Treasure Islands",
and Dalio's observation that "gold should be a part (albeit a
relatively small part) of every portfolio", I am reminded of a
remark by Another: "When a thousand hungry lions fight for
a scrap of food, small dogs should hide with what's in their
Beware of the day when "big offshore money" cashes in their
one sided orange five hundreds for those "yellow stones".


Rui said...

@ anand srivastava

Quote: I don't think there is any point worrying about that. I would consider that as part of my income tax.

You have quite a bit tolerance of govt stealing. I'll just say if such kinda shenanigans could sustain a system then Rome empire would still be around. Then again to each their own.

victorthecleaner said...


The shop owner would be even happier if I pay him gold directly.

Sorry, but I don't see the store owner assay lots of sub-one-gramme coins, fiddle around with a precision scale, and then put everything into a cash box and courier it to his suppliers.

With paper/electronic money, he simply pays the supplier by electronic bank-to-bank transfer (or even gets credit for a few days). Since the store owner will have some 5000 transactions per month only one of which is necessarily the purchase of physical gold as a store of value for his personal savings, the outcome of a cost/benefit calculation is pretty obvious, isn't it?

The store owner will transact in electronic/paper fiat for the 4999 business related transactions and buy physical gold for his personal savings in one single transaction at the end of the month.

You cannot do any of the convenient and efficient transactions with physical gold. Yes, you *could* do it with paper/electronic gold, but then that's what eventually breaks any gold standard including the present BB system and what we need to avoid.

It's an option to exchange at an ever higher price tho b/c of the inflation, which erodes the confidence in the paper money.

When you hold the bulk of your savings in physical gold, why would you even care? The MoE paper/electronic fiat needs to be stable only on a time scale of under a month perhaps, and so 2% annually should be fine. In the U.S. you have some 70+ years of empirical evidence that the people do indeed accept fiat paper/electronic money for transactions (and this is although the US$ had more than 2% annual inflation for substantial periods of time). Fiat rules!!! (in transactions) And it deserves this position because of its merits !!! (as a MoE)

For years gold industry already mines about 2% of global existing gold stockpile annually so if we use gold we have got the 2%. Why do we want ECB to layer another 2% on top of it?

Why do you think that mining 2% of the existing above-ground stock of gold per year would lead to 2% inflation? I don't.


victorthecleaner said...

This is an opportunity to summarize some major fallacies of the "hard money school":

1. Gold is stable relative to goods and services (empirically refuted by Barsky-Summers using 200+ years of data from the pre-1922 gold standard).

2. You must be able to borrow and lend the same thing that serves as your store of value (I don't know where this crazy idea originates from - how many van Gogh paintings have been leased out to investment banks who then sold them into the art market? My guess is the answer is exactly zero, and this is no surprise at all. Some such paintings might serve as a collateral for a dollar loan though, but that's different because the loan is denominated in dollars and not in paintings!).

3. If you indeed lend out your store of value, the government guarantees you that the IOUs (=paper gold, call it money under a gold standard if you wish) that you now hold instead of the SoV you lent out, retain their purchasing power forever. ('government guarantees you...' - that sounds funny, eh?)

In fact, a "gold standard" is always a scam. This is because the gold backed notes you receive are still IOUs, and your counterparty may or may not deliver on this promise. The physical gold coins, however, are payment in full and have no counterparty risk.

So although the physical coin is worth more than the paper note of the same denomination (less risk), the government forces you to trade them at the same price. You need a few million suckers in order to make this work. In fact, what you need is "credibility inflation". (note that draconian anti-hoarding laws won't work forever either)

What will happen is that the smart money knows this difference between physical gold and paper gold and starts hoarding the physical and spending the paper (Gresham's law in action). So the smart money takes the physical out of circulation and drains reserves from the suckers' pyramid scheme.

Government wants to help you. Government can solve this problem, too. Government is your friend. You need a big government. In fact, the gold standard is just one of the many socialist pipe dreams.


victorthecleaner said...


Is there a capital gains tax on gold sales in the Euro zone ?

I remember the following from own experience and from colleagues here (not all Euro zone though):

* no sales tax on 999 fine gold, silver
* usual sales tax on less fine gold, silver
* (might be a relic from a promotion of their Maple Leaf coins that were the first 999 fine investment coins - the traditional ones, Krugers, Sovereigns etc. are less fine)
* same capital gains tax as on stocks and other investments

* sales tax? (zero on gold by EU directive?, how about silver?)
* no capital gains tax on specific UK issued gold coins (this is the reason you cannot get any Britannias and Sovereigns anywhere these days - they are all sucked up by the UK), but the usual capital gains tax on other coins and bars
* usual capital gains tax on paper gold, ETFs etc. (the contrast with the Sovereigns is a small statement at least!)

* no sales tax on physical gold
* some sales tax on physical silver (that's a statement!)
* usual capital gains tax if you hold physical gold, silver for less than 12 months
* free of capital gains tax if you hold physical metal for at least 12 months
* paper gold, funds, ETFs, always subject to capital gains tax (again sort of a statement)


victorthecleaner said...

In Switzerland, you can buy physical gold or silver and export it from Switzerland, but have it stored it in the international areas at one of the Swiss airports. In this case, Swiss sales tax does not apply until you re-import it to Switzerland (or some other country).


Rui said...

Michael H said...

Two problems with this statement:

Quote: 1. The 2% annual increase in the gold stock is an exponential ... ... this is not possible in a finite world.

It sure won't be possible forever but then it's not like we need 2% (or whatever amount) inflation for economy to grow. It's bankers in their defense for fractional reserve lending claiming econ-growth needs their money supply, which is not true.

Quote: The 2% that victor is talking about is not in the quantity of money in circulation, but rather in its purchasing power.

Where was ECB during the booming time when housing price went way up in several Euro nations? They never came out wondering if the price went up too high that they should curb it to 2% or whatever. Now after it busted out they stepped in trying to stabilize this irrational high price. They have been no more competent than FED so why do we believe they will manage Euro well?

Quote: Contradictory. Either we transact in metal or we transact in digital. I think we already learned that a 'hard commodity backing' does not work.

Hard-backing was rigged when fractional reserve lending and CBs were introduced.
Let's say we will have techniques to digitally sign every unit of metals and embed the signature in some kinda e-certificate. We then ban fractional reserve lending and drop CBs. Now we can transact in metals digitally.

strowger said...

UK: No VAT on gold. Standard 20% VAT on sales of silver.

Same everywhere in the EU I *think* - 0% VAT on gold, standard VAT (which varies between country but is usually in the region of 20%) on silver.

victorthecleaner said...


Where was ECB during the booming time when housing price went way up in several Euro nations?

The ECB targets an annual inflation in the medium term of below but close to 2% according to their HICP index. So far, they have always delivered on this promise. Intervening and controlling any other specific price (real estate, jelly beans, ...) is not their job. Why would it?

Hard-backing was rigged when fractional reserve lending and CBs were introduced.

Hard backing fails as soon as gold is lent, be it fractionally reserved or not, with or without CB.
Since the MoE will always be borrowed and lent, gold should not be the MoE.


anand srivastava said...

Aquilus: My problem is the 2-4 month period between the crash of paper market to revaluation of gold.

I don't know what to hold to avoid losing more than necessary gold during that time. Before that gold is ok, yes I am losing the potential increase but its better than anything else. Later gold is the best anyway.

During this period both Gold and Silver will be down a lot. I mean selling them would not give me much against real world. Or maybe I could negotiate. I was thinking maybe Euro will maintain some semblance of normalcy. It might give me the more value than the two. I agree it would be best to buy the Euro just before the crisis. But I don't know how easy it will be to time it. I don't really want to depend on timing.

As a hedge I anyway have gold. Silver is not likely to behave better than gold. So there doesn't seem much benefit to hedging with it.

Aquilus said...


Just leave gold out of the equation in that period; it's too valuable to be used as MoE.

You already have emergency provisions; do ensure you have enough secondary assets (silver, euros, etc) to exchange into MoE in case your income at the time does not even cover daily necessities. They are all there to defend against putting gold in play. Diversify secondary assets and ensure enough non-perishable necessities ahead of time. Then only worry about perishable + energy costs.

Taking a bath in value of secondary assets will be more than offset by gain in gold value. You just need enough secondaries to prevent gold from being touched.

Plus India will likely not follow the US path.


anand srivastava said...

Thanks Aquilus. It makes sense. I guess this is a very fudgy period, and nothing could be predicted. Actually for me its not a big problem. I have enough surplus. I was more concerned about my brother, he doesn't have that much leeway to try several things.

ampmfix said...

4 months is a very short time span, if you have food and water stored away, you almost need no money to survive that period (utility bills can be not paid and with a little BS from you part they won't even cut them, with the turmoil that will be around you won't need to go to work or move so no gasoline either, etc...).
4 months of hardship doesn't scare me at all, IF after that we have the new (transitioned) world.

ampmfix said...

Rui said: "Let's say we will have techniques to digitally sign every unit of metals and embed the signature in some kinda e-certificate".

This is a reality, check out these coins:


enough said...


flashback to 1978

Is Vic There?

GLD added another 9+ tonnes today

Nearly 70 tonnes since 7/30

Is this just fools depositing physical and accepting creation baskets of shares or something more sinister?

have a good weekend all............

Indenture said...

Rui: I just want to say Thank You for participating in the class and asking important questions. I, like many, have been sitting in FOFOA's Lecture Hall for years and we have heard the same questions asked in the past. However, I always remind myself that there are many, many silent students standing along the back wall with questions also but they quietly keep there hands in their pockets. You are asking questions that many need answers to and the very polite, highly intelligent senior students are here to help. Stick with it and the 'ah-ha moment' will strike and when it does you will see the Monopoly Board for what it is.

and Senior Students... Thank you for continuing to be the "Evil gold hoarders, jerks and brainwashed cult members" that you are.

Rui said...

@ victorthecleaner

"Yes, you *could* do it with paper/electronic gold, but then that's what eventually breaks any gold standard including the present BB system and what we need to avoid."

Modern gold standards broke b/c bankers were allowed to issue credits w/o backing. It's not b/c of the backing. It's b/c of the lacking.

"When you hold the bulk of your savings in physical gold, why would you even care? "

The same reason that Saudi still demands gold as crude payment despite having lots of gold. Why allow someone to dilute your earning?

"The MoE paper/electronic fiat needs to be stable only on a time scale of under a month perhaps, and so 2% annually should be fine."

Healthy economy growth should lead to a mild deflation so I'd like get enjoy that surge in purchasing power. I don't want a king bankers to take the purchasing power away and then leave me with 2% inflation.

2% is still stealing but since it's a small amount I give you this one. Now how do you guarantee it's only 2%? Never before a FIAT system could stay within 2%. In FG the same politicians and banker crooks are in charge. They still have the tools and motives to manipulate, And you expect this time will be different?

"In the U.S. you have some 70+ years of empirical evidence that the people do indeed accept fiat paper/electronic money for transactions."

It merely shows too many Americans are short-term minded, instant-gratification seeking, bubble chasing fools. If I'm a debtor then I of course like ever depreciating FIAT to easy my burden. That burden is not gone, it just spreads to other FIAT holders via the inflation.

ampmfix said...

Rui said: "Let's say we will have techniques to digitally sign every unit of metals and embed the signature in some kinda e-certificate".

This is a reality, check out these coins:


Rui said...

@ victorthecleaner

1. Gold is stable relative to goods and services.

Not necessarily stable. A healthy hard money economy should lead to a mild deflation, which the hard camp understands.

If you indeed lend out your store of value, the government guarantees you that the IOUs ... ...

A gold standard does not ask for a government guarantee. Stuff like FDIC kinda guarantee was enabled during Roosevelt years, a socialist intervention golden era.

In a hard money system you have three choices basically for your money: 1. You can pay a warehouse to guard it for you. You get a warehouse note, and the warehouse cannot lend it out. If the warehouse has good reputation then your note may be accepted in the market. 2. You lend it to an investment firm. This time you cannot touch it until certain arranged time. Investment firms have risks so you may not get your money back. They thus pay you an interest rate to make it attractive. 3. Put it in your mattress.

All three have pros and cons. No FRL. No CBs. Govt offers neither warehouse note endorsement nor invetment firm bailout. Govt only comes in when someone commits fraud or there's a dispute. You decide which way to go.

Your FG system on the other hand gives bankers the monopoly to money supply and makes everyone else on the receiving end of banker inflation. That physical market needs suckers willing exchange their good gold for the bad, ever depreciating, hot-potato FIAT. You wanna a real working system you have to come up with sth better than that.

2. You must be able to borrow and lend the same thing that serves as your store of value.

I guess you are trying to advocate the separation of SOV and MOE. I don't see a need?

Let's say a farmer harvest a lot crop after a season of hard labor. Now he's going to figure out what to do with it. He himself needs it as food. He also wants to supply it as food for others. He also has to hoard some as seeds for the next season. Lots of conflicting requests here.

So what does the farmer do? Does he need a "FreeCrop" to separate these different demands? A "Gold Crop" for this, a "Fiat Crop" for that, or sth? I think not.

What does a farmer usually do? Well he prioritizes and then rations: He himself needs food so that's top tier demand. He needs seeds so that's top tier too. After that he allocates for other demands. Farming business has been like this for thousands years, and it works fine.

When it comes to MOE and SOV it's same thing. We can prioritize and ration too. We don't need an artificial FIAT to separate it while leaving a backdoor for crooks to steal.

You are trying to solve a non-problem. In doing so you create a real problem that bankers would love to exploit.

Michael H said...

"Healthy economy growth should lead to a mild deflation so I'd like get enjoy that surge in purchasing power. I don't want a king bankers to take the purchasing power away and then leave me with 2% inflation."

Deflation = holders of cash get increased purchasing power.

Inflation = issuers of credit get increased purchasing power.

So let me get this straight: you think that theft through inflation is the scourge of humanity, but you would be perfectly OK with theft through deflation?

Oh, that's right. Deflation would benefit you, so you think it is universally good, while you feel screwed by inflation so it must be a universal evil.

ampmfix said...

China = 6355 T Au, 26%
US = 8133 T Au, 33%
EU = 10000 T Au, 41%

Indenture said...

"That physical market needs suckers willing exchange their good gold for the bad, ever depreciating, hot-potato FIAT. You wanna a real working system you have to come up with sth better than that."

Exchanging good gold for bad fiat is only a problem if you forget about the TIME factor. If I have to hold onto fiat for a length of time, and I know fiat depreciates, then I won't hold onto fiat for a length of time.

Time is a very important part of this equation.

Woland said...

Rui: Methinks you've been around these parts before, Messire.
Sie sind nicht fremde von hier, nicht so? Greets.

Aaron said...

Alsjeblieft lieve God nee!

Indenture said...


Edwardo said...

David Stockman on the (de)merits of 2% inflation a year.


victorthecleaner said...


yes, GLD added more than 9 tonnes today which is another 'sell' signal.

And, more remarkably, total GLD inventory surpassed the summer 2010 peak for the first time today and is now at a new high with 1317 tonnes (summer 2010 was 1310 tonnes).


If I'm a debtor then I of course like ever depreciating FIAT to easy my burden.

I fact, most people are, and so the majority is very happy.

A healthy hard money economy should lead to a mild deflation, which the hard camp understands.

Which has been refuted empirically using 200+ years of pre-1922 gold standard data (Barsky-Summers). Under the gold standard, the general price level fluctuated wildly. Even in the long term average, there was no mild deflation.

It's a fairy tale. Take a look at the data and see for yourself.

If you think that lending gold is no problem as long as the banks are fully reserved, this was discussed here and lead to this and this article.


Michael dV said...

Sovs are available at Tulving. Just got some this week

FOFOA said...


Rui has certainly been around these parts before! But I assure you, he is not AD. ;-)


Michael dV said...

I am slightly amused: in fofooa's quote above you are frustrated with a reader, yet I recall a few months ago you were defending a reader I had had it with....sorry I can remember which it was maybe AD,,,I guess our troll tolerance varies day to day...

Michael dV said...

and by ''reader' I mean a troll who drives many to the brink

Michael dV said...

and a happy autumn to all...this will be a very special Fall

One Bad Adder said...

anand: -
Yes, as you said the Euro is already structured as a Fiat currency with Gold "in reserve" however I think the same structure could be replicated with Silver ...yes?
The Gold they hold (which is ultimately the peoples Gold, pledged) could (should) be returned to their respective Treasuries.

Let those who deem it their god-given right to orchestrate the monetary / financial aspects of society do so with Silver as their soul-case IMHO.

anand srivastava said...


You are trying to solve a non-problem. In doing so you create a real problem that bankers would love to exploit.

Let me get this straight. You are saying we are trying to solve a problem. I guess you don't really understand the problem.

We are not trying to solve anything. We are just trying to understand what is happening around us. We are not trying to gather a following and then get the politicians to change their views. And then get the freegold we want.

No. We are just observing that the current system is shifting towards a freegold system.

What you are proposing instead, has already been rejected by the world. We had a Gold standard system. It was killed by the bankers and politicians of the world, and the people liked moving to a non gold standard system. I say liked because they did not throw those politicians that caused the closing of the gold window first in 1935 then in 1968 and again in 1971.

Why would you want to regress into a system that has been proven to not work?

No FRL. No CBs. Govt offers neither warehouse note endorsement nor invetment firm bailout. Govt only comes in when someone commits fraud or there's a dispute. You decide which way to go.

I have already written before what I think about 100% reserve banking. Most people who think Fractional banking is bad, do not realize that 100% banking is not even practical. It has never been implemented in the history of commerce. If you have an example I would love to see.

I understand why you don't want Central Banks. You think that somebody which can print as much money as it wants is evil. You just don't understand that its not the Central Bank that benefits from the printing. It is the politicians. It is the people with leverage with the govt. Yes the private banks do benefit, when the Central bank saves them, because the people will not like if the money they saved into the bank will be gone.

Your problem is that you are living in a Paradise, and you need to come down to earth, and understand that what you are advocating is not really practical. There are maybe less than 1% people who want a gold standard. And there will be even less who will be happy under a gold standard.

To even matter you have to explain how your preferred system will become the accepted by the world. Don't give us utopian answers, that it will be the best system. Tell us how we will move from current system to your preferred system, without some benevolent dictator. I don't really believe in fairy tales.

Woland said...

An amusing anecdote from Friday:

To illustrate the crazy hidden linkages in the supposed
"market system" under which prices are determined by
the rapid adjustment to new "facts" as they emerge -
(read: algorithmic trading), on Friday, around 11 AM, gold
plunged by about $12 in a matter of a few minutes. The
reason given was talk about a strike settlement in South
Africa, with miners returning to work. OK. Fine.
Simultaneously with the plunge of gold, silver declined by
an even greater percentage. Perhaps the South African
silver miners would return to work as well?? Except for
one tiny fact: South Africa is not even counted among the
top 30 silver producers in the world. Sooo, it appears that
there are trading programs which automatically generate
orders across various paper assets without any fundamental
basis. And that brings back to mind the famous room
filled with mouse traps, set with ping pong balls resting
on the kill bar. Or LTCM, when the correlation between
about 100 separate "uncorrelated trades" suddenly went
to 1.

Oh, Fofoa: I knew it was a great Burgundy, but ONLY YOU
can tell a Le Chambertin from a Chambertin Clos de Beze.

enough said...

So Victor,

GLD is adding physical like crazy and at the same time the net short position of the "commercials" i.e. bullion banks on comex have reach a high not seen since 8/11.

Any connection there?

Any deeper thoughts as to what is going on or is this just run of the mill normal course of business stuff?

best, E

Nickelsaver said...

Speaking of great lyrics. These have got to be amongst my favorite.

Turn The Page, Bob Seger

The last verse is so cool:

Out there in the spotlight
you're a million miles away

Every ounce of energy, you try to give away

As the sweat pours out your body like the music that you play

Later in the evening as you lie awake in bed

With the echoes from the
amplifiers ringin' in your head

You smoke the days last
cigarette, remembering what she said

Here I am, on the road again
There I am, up on the stage
Here I go, playing the star again
There I go, turn the page

Edwardo said...

For Woland, a Haiku,

The "market"

For Woland, a Haiku.

The "market"

Algos have at it
Illiquidity ensues
Catastrophe looms

Bjorn said...


I love it!

Edwardo said...

Thanks, Bjorn

KnallGold said...

Monti meets Marchionne in Rom because of troubles at Fiat. Hmm, why can't they produce a new Fiat Dino Coupe with a small, loud Ferrari engine, in Italy??? I mean the new 500 sells great, add a similar Fiat Dino Spider for summer time etc.

I wish Fiat a Golden future (but remember wer's erfunden hat ;-)

and apropos sins, dear Sergio, never ever dilute the soul like you did with Lancia/Alfa (Cuore Sportivo, with an Opel engine, there goes the heart of the soul *PAIN*) in that globalism-mania Chrysler-mix-masch...




Kinda erotic, no? After the female, cute 500, the clear male Dino statement! Ladies here, what do you think?

Back to topic, lets see if we can win the Germans for the Free Golden idea!?


Woland said...

Hello Fofoa:

I am not a baseball fan, but I never objected to a little "inside
baseball". While rummaging around some HOF and old posts
of yours, I came across "A Reply to Bron" and your citations
of FOA regarding the dilemma of linking fiat to gold. A certain
quote perked up my ears:

"Uncle Joe can use his Swiss 20 Franc Helvetia all he wants as
collateral for a currency loan......for whatever purpose...... be
it a car, a house , furniture or a Petroleum Cracking Unit in
a Texas City Texas refinery. As the teacher on sesame street
says, "One of these things is not like the others". Oh, and
Texas City is.... yup..... right on Galveston Bay.

To my way of thinking, the only type of guy for whom this
comparison seems natural is either someone who owns one,
lends money to a refinery operation (a local bank) or maybe
works for a contractor which builds those huge contraptions.
I'm partial to 2 or 3. 2 for reasons previously enumerated,
and 3, because it could well involve a lot of world travel,
perhaps even to the Netherlands. Anyhow, this is how I
spend my Saturday afternoon. Not a pretty picture!

Indenture said...

What to do on a slow FOFOA Saturday?

victorthecleaner said...


yes, indeed:

FOA (10/14/1999 09:20:06MDT - Msg ID:16318)

[...] Back in the early oil days I was very close to some of the largest oil men in the country. When in Texas we would visit at the country club and shared a lot of our perceptions. Usually over a poker table. Looking back, I find their (and mine) viewpoints had much in common with the gold outlook today. [...]


Aaron said...



FOFOA said...

A little more from FOA:

How many instances can we document where banks lent into real demand ,,,,,,, backed with the very best demographic patterns ,,,,, only to find the loan blow up from changing demand. Oil in the late seventies would be a convenient example for us (smile). People were breaking down the doors of the old "Texas Commerce Bank" in Houston ,,,,,,, all in an effort to finance hugely profitable petroleum projects. This was no flash in the pan, as the oil industry had a progressive expansion history of 15++ years before this. Truly, a lender of last resort was the very last thing on their minds.


Sir, I know oil from it's "down hole operations" into and "far past" the influence of the old Texas Commerce Bank! If those" Cherry Wood" wall on the 40th(??) floor (if they are still there) could talk, some tail they would tell. Indeed!

But those days are long gone and far removed from today's reality. I don't think we could have ever had a very private conversation at the petroleum club, if you did know me you would know exactly why. (smile) :)


As a side item: I see where George Mitchell sold out his Mitchell energy and development. Funny, I know a guy that used to play with him as barefoot boys on Galveston streets. He said that young George once wondered (as boys do) if a small growth in his nose would finish him off. I think he had internal radium treatment for it or something?? Oh my,,,, who would have known that this barefoot brilliant friend would one day sell out as a billionaire?? What a wonderful, free country!


And from Wikipedia on George Mitchell:

George Phydias Mitchell (born May 21, 1919) is an American businessman, real estate developer and philanthropist from Texas credited with pioneering the economic extraction of shale gas.

Mitchell was born to Greek immigrant parents in the port city of Galveston, Texas. Mitchell earned a degree from Texas A&M University, graduating first in his class in petroleum engineering. He started an independent oil and gas company, Mitchell Energy & Development Corp. and built it into a Fortune 500 company. He participated in the development of about 10,000 wells, including more than 1000 wildcat wells.

Mitchell was the developer of The Woodlands, an unincorporated yet governmentally structured township in Montgomery and Harris counties, Texas, which he developed from timberland located 32 miles north of downtown Houston.

In 2004 Forbes magazine estimated his net worth as $1.6 billion, placing him among the 500 richest people worldwide.

victorthecleaner said...

Some more about why FOA and oil:

FOA (1999-10-20 19:25:56 ID:17025)

[...] I addressed the $30,000 concept a while back. It's more a projection taken during a study (I was not part of) that indicated just how much the dollar would lose "reserve use"! Truly, the price is unimportant as value assignment can take many forms at that stage of failure. [...]


FOA (9/13/1999 09:09:03MDT - Msg ID:13518)

[...] This work started back in 1988, not long after the 87 crash. Important people were asking some very serious questions about the timeline of the world monetary system. They expected a longterm evolving report that would expand ongoing events into a format of true life context. A context to be understood at all levels of economic exposure. In other words, it had to do a better job of explaining the (then) recent illogical swings of world economic affairs and the effects of those swings on various national economic groups. Were we progressing into a new, better age, or was our system responding in a death like downtrend?

Because the questions grew from a fear that the world economy would indeed contract in the future, leaders wanted to know how one could retain the most wealth during such an event. It was thought that if the basic extended family blocks of a nation could survive such a collapse, savings intact, those nations and their children would be a benefit to economic affairs of the future. In effect, negate a possible return to the Dark Ages of European history. Our time frame was outward some 20+ years. I cannot offer the full report or it's complete ongoing analysis. But, the effort you have seen to date is one of sharing somewhat for the common good of all.


FOA (9/13/1999 18:52:08MDT - Msg ID:13574)

[...] To the best of my knowledge, the ones that initiated this were major oil producers. Strange as it may seem, the very first questions came from a US natural gas producer in 1985+/-. Later the initiative came from outside the US. Again, all of this was some time ago. [...]


Woland said...

Oh what fun! Thanks for laying all that out, Fofoa and Victor.

Thinking back to "Volker returns from Belgrade" , his ears still
ringing from criticism..... to 21.5% short term T bills and the
double dip recession of 1981-3, to the Plaza Accord (1985)
to weaken the $, (bye bye Japan) to the Louvre Accord of 1987,
(oops, now it's too weak again, gotta support it) to James
Baker III opens his yap and says the $ is too strong, ( bye bye
512 Dow points, 1987 ), to the BIS causes a 15% move in the
yen in just 2 weeks, helping take down LTCM in 1998, that's
some serious turbulence in just 8 years, innit?

Oh, and bye the bye, there were truly some illustrious figures
on the board of the old Texas Commerce Bank, before it was
swallowed by Chase Manhattan after congress approved
interstate banking. And the former Chairman, before he
became U.S. Secretary of State was...... James Baker III.
The same Jim Baker who gave April Glaspie the (mistaken??)
impression that if Sadam Hussein (our old ally in the Iran
Iraq war) were to invade Kuwait, we would jut stand bye. If
that was a "trap" you set Jim, it was a good one!

I could go on, but I have to go out to the store for some
aluminum foil. You just cant get tin anymore, it seems.
And for EMP's, there's always the Faraday box.

Cheers, and thanks again.

Woland said...

Fofoa: I just have to say how much I admire someone who
can give up everything, and devote 4 years of his life to
something he deeply hates. Not only that, but he has to live
with it close by every day. I don't know how you do it. I know
I couldn't.


I guess I'll need to re learn the three R's of gold. (except ORO
was magically transmuted to ARI. good for him)

Indenture said...

"the truth (which is the same thing as reality itself) is not based on the collective delusion of the masses.

FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma.

So where is the delusion and where is the truth?

Motley Fool said...


been a while ^^

"If you think gold is the best store of value, why can't regular people use it as a store of value as well, as you the elite Freegolders claim that you do?"

They can and will.

"Why can't we use gold as a competing currency alongside your fraudulent fiat, Freegolders?"

Because using it as medium of exchange destroys the store of value function which is so critical to put regular people on equal footing with the elites, in time.


Indenture said...

Art: Why You Be Hatin?

Motley Fool said...


"Everyone living at everybody else's expense is not a sustainable economic model."

Quite right. That is why we Need gold as store of value outside the monetary system.


Indenture said...

Art: "If you think gold is the best store of value, why can't regular people use it as a store of value as well, as you the elite Freegolders claim that you do?"

What is stopping 'regular people' from using gold as their store of value right now? Seriously Art, Please answer this specific question.

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