Wednesday, October 31, 2012

An American Horror Story

An American Horror Story for Halloween...

Dear Diary,

Today I awoke to the news that the dollar is no longer acceptable in settlement for the purchase of foreign goods from foreigners. This news was immediately disconcerting because I have hundreds of thousands of these dollars saved up over the past 30+ years, and I'm planning to retire soon.

The President was on all channels assuring us that this is not a big deal, and certainly meaningless unless we're planning to buy a foreign car or travel abroad. My dollars, he said, will still be "as good as gold" here in the United States. The US, he said, has the most important economy in the world, and the dollar is our currency. The government, he said, would not miss a beat. The government, he said, can never run out of money. Our dollars are safe.

The President said that this news today was only because of the international money speculators who, because they thrive on crises, help to create them. He said that these "speculators" have declared war on the American dollar. He said that this is extremely foolish because the American economy has the largest GDP and also because the American government can never run out of money.

So, in response, he has directed his people to halt all international payments except those deemed to be in the vital interest of the United States. And for those deemed vital, he said that any government agency can independently authorize payments of any size needed to keep the vital foreign goods flowing in. America won't be held hostage by either our own internal budgets or foreign currency exchanges, he said.

I'm not generally one to panic at anything, but even as reassuring as the President's words were, I started to panic. So after a little reflection I decided that I needed to call in sick to work and run out to stock up on a few last-minute necessities, just in case. What I found was deeply troubling.

Many stores were simply closed for the day, and the ones that were still open were overrun with people who, I guess, had the same idea as me. Most of the stuff on my list was already gone from the shelves. So I went back home to call my broker.

I've been talking about a dollar collapse and buying gold for weeks now. Ugh. And I've been reading about it for months, but I was so sure that this was just one of many possibilities. And even if it happened, all signs seemed to be pointing to 2014 or later, so I was goddam cocksure that I had plenty of time before making a big move. To my credit, I did at least have my broker sell all of my bonds and put the proceeds into cash and money markets, just so I could move quickly into gold on a good dip.

I called my broker to make sure it was still liquid, what with the news and all. He said it is, as long as I'm not planning an international transfer. Next I called the largest gold dealer in my state, the one that had been recommended to me. But he said that he is only buying today, not selling. He said he couldn't make any sales because his suppliers aren't quoting sell prices today to replace his inventory. He said I should try again tomorrow. I tried a couple more dealers and got the same run-around. WTF?

So here I sit, writing this pathetic entry. I'm not sure what comes next, and I am literally beside myself in confusion, dismay, dread, despair and regret. I cannot decide what to feel. I have this deeply foreboding sense that I really screwed up this time. I guess I'll just have to wait and see what tomorrow will bring. But I think I already know.

The dollar is crashing abroad and my government's response is going to compound the problem taking it to depths never before imagined in a global reserve currency. My retirement money is already as good as gone. It's not gone, but it is now trapped while being sapped of all real value. It is trapped because I waited one day too long, even though I knew what I wanted to do with it. This is the real world, and there is no reward for knowing, only for doing. I didn't do, and now I will have to face whatever reality delivers while knowing what I knew. What an absolute horror.


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costata said...


+1 on Phat Expat's comment. And also bear in mind the shortage of acceptable collateral and "capital" in the financial system.

This banking system is still based (ultimately) on "risk free" government debt. As long as the currency itself doesn't collapse and they aren't forced to mark to market the system can continue indefinitely.

The problem is that the creditors are trying to somehow force this unsound sovereign debt to be made sound. Clash of the titans - reality in one corner and hope in the other. Extending the timeframe helps a lot in that it allows the write-offs to be drip fed through your books.

I would be watching the German banks after reading that paper by John Butler. How far have they cut their exposure to the bad paper? Far enough to allow the Bundesbank to put a stop to this can kicking?

dieuwer said...

Largest holders of US Government Debt, as of January 2012:

1. Social Security Trust Funds, a.k.a "the public"
2. U.S. Federal Reserve
3. China
4. Savings Bonds & Other Investors, a.k.a "the public"

Buy now, China probably dropped to 4th.

dieuwer said...


the currency IS collapsing. Look at the bidding price of gold for dollars over the last decade.

Wendy said...

costata said...


Haunting music:

Indeed it is costata. The best vocals I've heard in a long time.

Generally I'm drawn to instrumentals because i've played many instruments (violin, guitar, alto clarinet, french horn, piano, and robably ones I've forgotton) I love the sounds of piano and violin the best.

costata said...


The USDX is roughly where it was a decade ago. Sure gold has gone up significantly over the period. The US$ is clearly nearing the end of its timeline but this can hardly be called a collapse.

I take your point on USG debt but I thought we were talking about sovereign debt around the globe not just US paper. If you're expecting to see this money parked in bonds exiting for gold I suggest you don't hold your breath while you're waiting. It will be trapped when the SHTF.

BTW notice who isn't on that list. All of the major US banks. They went straight to base money.

costata said...

Hi Wendy,

..violin, guitar, alto clarinet, french horn, piano, and robably ones I've forgotton

How did you find the time to buy silver?

dieuwer said...

People still try, even if they're trapped ;)

Phat Expat said...

"The scared shrimp are indeed the ones buying the bonds. The investment data clearly shows this as the majority of treasury bonds are owned by the public in the form of 401K funds."

Your top 4 list doesn't support this assertion; where are you getting this information that the 'majority' is held in 401K funds?

victorthecleaner said...


Not very nice of the FED/BOE to send the Buba bad-delivery gold bars.

Note that the BoE gentlemen write explicitly:

4. The Federal Reserve Bank have informed the Bundesbank that adjustments for differences in weight and refining charges will be reimbursed by the U.S.Treasury.


from the article you quote: Money is pouring into highly rated U.S. corporate bonds at an even faster pace than Treasury debt,

Isn't that a free market functioning? Investors are now desperate to lend their dollars to companies rather than governments, lowering the capital costs for enterprises. That's what we need, isn't it?


victorthecleaner said...


the currency IS collapsing. Look at the bidding price of gold for dollars over the last decade.

No. What you are seeing is the real price of gold going up. The amount by which the real value of the dollar has fallen, is rather small compared to that.


costata said...


Investors are now desperate to lend their dollars to companies rather than governments, lowering the capital costs for enterprises. That's what we need, isn't it?

I absolutely agree that supporting enterprise rather than government borrowing is a good thing. The question is: Why is this money flowing in this direction at this time?

If it is fleeing government debt (and falling interest rates suggest it is) then that looks like a precursor to a bigger collapse in confidence in government debt i.e. this is the smart money front running the herd.

costata said...

These snippets are from this post by Adam Hamilton headed Big Inflation Coming:

He looks at MZM as an indicator of anticipated inflation. He then goes on to mention that:

Some economists argue that the narrow money supply is a superior inflation indicator to the broad money supply.

I'm going to argue that MO is a superior hyper-inflation indicator when there is no way to drain liquidity from the system. Let me give you the figures and Adam Hamilton's explanation of MO before I explain my reasoning. I would also draw your attention to the graph which accompanies the text in his post.

Some economists argue that the narrow money supply is a superior inflation indicator to the broad money supply. And the narrowest measure is known as the monetary base, or M0 (zero). It is simply the physical currency (paper and coins) in circulation, currency in bank vaults, and the reserves commercial banks have on deposit with the Fed. This is the base of all money we use for all our daily transactions.

It is called the monetary base because it is the foundation from which fractional-reserve banking multiplies the money supply. It is the high-octane core that ultimately controls the size of the rest of the money-supply measures. And as this half-century chart shows, the Bernanke Fed’s growth of the monetary base has been staggering beyond belief. This seriously heralds big inflation coming.

For 48 years before the stock panic and the plague of Obama, the average annual growth in M0 was a fairly reasonable 6.0%. This wasn’t too far beyond the baseline growth in the US economy, so inflation was moderate. But during the stock panic, Bernanke truly panicked. This great inflationist literally doubled the monetary base, sowing the seeds for incredible inflation whenever the multiplier kicks in.

Though this unsustainable growth soon abated, it recently surged again. This resulted in post-panic average M0 growth of 34.6% annually! Note that the Fed never unwound either the gargantuan panic spike in the monetary base nor the recent smaller spike. All this incendiary inflation fuel is still in the system. Shortly before Obama took office M0 was near $0.9t, and since then it has nearly tripled to $2.6t!

Here's where I part company with Adam Hamilton's analysis (my emphasis):

..sowing the seeds for incredible inflation whenever the multiplier kicks in..

Let's try a mini-thought experiment. (And I realize that this is vastly over-simplified.) Imagine that all currencies traded at par. Let's also assume that the quantity of base money issued for each currency is the same.

Then imagine that some renegade currency issuer tripled the supply of their currency while all of the others remained constant. Wouldn't that imply the renegade's currency was only worth 1/3 as much now?

Now factor in that MZM is around 4 times as large as MO (around $10 trillion). Then factor in those FDIC guarrantees a de facto second circuit between the printing press and deposit holders. Similar in operation to the CB > commercial bank > bank reserve creation circuit. A second circuit that can multiply MO as well.

Lastly put yourself in the shoes of this renegade currency issuer's trading partners. Would you just wear this and still exchange at par for your currency or would you see this as economic (currency) warfare? Competitive devaluation that might (will) spiral out of control.

sean said...

Nice article from GBI on ZH. Hopefully some people will take the time to think about it.

Woland said...


You beat me to the punch! The title is "Gold and the potential
dollar end game" by Joe Yasinski and Dan Flynn. It feels more
and more as if the thoughts of A/FOA as presented by Fofoa
are finding an ever widening set of followers, non just within the
blogosphere, but also among professionals within the financial
sphere. A good read with your morning 1st cup. Nice catch.

Woland said...

I should add a post script. When an author, as in the article
referenced above, uses the term "human superorganism"
within the context of his article on gold, and does so without an acknowledgement of his source (Fofoa), UNLIKE Messrs. Brodsky
and Quaintance, then I would have to say he shows us a certain
lack of honor, or at the very least, a lack of taste. My 2c.

Indenture said...

Woland: I agree. I was trying to read the article in question with a new voice in my head, looking for new ideas, but when I reached 'human superorganism' it was obvious this was inspired by FOFOA. On the bright side this is just another tiny tempting distillation bubble of Freegold floating out in the nether from a different direction but a reference back to the source would have been polite.

Dante_Eu said...


Exactly what I was thinking when I read it. The entire article is a copy of FOFOA’s thoughts. Nothing new really. Good sign though. More and more “anal-ysts” are going down the same trail as ANOTHER\FOA\FOFOA.

Indenture said...

Wendy: Violins and Piano

Lisa said...


Agree that FOFOA should be referenced, but did you realize Joe Yasinski reads and supports FOFOA?

Treasure Chest 2

Joe Yasinski said...
This comment has been removed by the author.
Joe Yasinski said...

Sorry about the poor writing, I'm typing this out feeding a one year old in my lap...

Joe Yasinski said...


I am Joe Yasinski, the co-author of the Triffin Piece as well as the recent STF piece published on zerohedge. I would just like to say for the record that Dan and I developed many of our concepts from reading FOFOA. We are happy and eager to give him credit, and we are proud to do it. We mentioned FOFOA prominently in our first article, and we will again. But, the STF concept is out there, and rather than make our professional newsletter an homage to FOFOA, we decided the best way to honor him was to be very honest up front that we are readers and believers. Thats why we wanted to mention FOFOA in our first issue. We respect and very much relied his concepts in our own intellectual development, and now we will from time to time some develop some of his thesis and interpret them into our own words and try to help the ides of freegold grow.

Please be assured, we have contacted FOFOA before we published this article and made sure he approved. We believe he is the most important thinker in the gold community and we neither deny nor diminish his influence in our writing.

Woland said...

Lisa and Joe;

My apologies. A credit once acknowledged does not need to be
endlessly repeated. My forgetfulness regarding the first article
is to blame. I must say the ideas were distilled pretty much down
to their essence, hence my comment , "a good read with your
first cup of the day". Again, thanks for putting these ideas before
a wider (if snarkier ZH) audience. Cheers.

Lisa said...

Oh gosh Woland

No reason to apologize to me. I was just trying to link to the post where FOFOA discussed his communications with Joe Yasinski, and to point out that Joe does support FOFOA.

I think the article did a good job at presenting the information in an easy to understand format, to readers who have sometimes been hostile to anything which includes a reference to FOFOA.

Glad to know FOFOA read and approved the article.


Motley Fool said...


Then perhaps a small correction is in order.

The stock to flow ratio refers to above ground stocks versus mining supply, not stocks versus gold currently for sale.

Otherwise nicely distilled piece of writing.


Joe Yasinski said...

Motley Fool,

Then we will agree to disagree. Flow is flow, no matter where it comes from, IMO.


DP said...

It's not news to us that Joe ♥ FOFOA's ideas

Motley Fool said...


I did not invent the terminology, and have often thought that the words is misleading as it lends itself more naturally to your interpretation.

It is what it is though. Perhaps there is some other term for the useful description you are looking for relating stocks to gold for sale, though I am not aware of such.

From your article you quoted a 65 year supply overhang for gold; did you check how this number was derived? 170,000/65 = 2165 tonnes; much less than changes hands each year but a close approximation for mining supply. Therein is at least one quick confirmation.


Motley Fool said...

Ps. I prefer your interpretation. Perhaps one could call the other the Stock to Supply ratio. Changing the meaning of terms is looking for trouble though. ;)

anand srivastava said...


I would think that Supply is different from Flow.

So Supply is only the gold being mined, while Flow is all the gold changing hands.

dieuwer said...

I read the article by GBI on ZH. Very well written. And speaking about stock vs. flow: I went to the coin shop this morning to buy some gold coins. What was interesting is that the dealer was stuffed with silver, but only has two gold eagles for sale. Nothing else. So I bought one gold eagle for $1825 and left the other for the next customer.

Motley Fool said...


Yes that would make sense.

Fwiw, this piece written by Fekete in 1996 is the first I know of the gold stocks-to-flow ratio being mentioned.

Whither Gold

Perhaps someone knows who originated it, if not him?


Motley Fool said...

A quick search revealed this :

Stock and Flow

"A stock (or "level variable") in this broader sense is some entity that is accumulated over time by inflows and/or depleted by outflows. Stocks can only be changed via flows. Mathematically a stock can be seen as an accumulation or integration of flows over time - with outflows subtracting from the stock. Stocks typically have a certain value at each moment of time - e.g. the number of population at a certain moment.

A flow (or "rate") changes a stock over time. Usually we can clearly distinguish inflows (adding to the stock) and outflows (subtracting from the stock). Flows typically are measured over a certain interval of time - e.g., the number of births over a day or month.


The distinction between a stock and a flow is elementary, and dates back centuries in accounting practice (distinction between an asset and income, for instance). In economics, the distinction was formalized and terms were set in (Fisher 1896), in which Irving Fisher formalized capital (as a stock)."

So, the terminology is longstanding, if not intuitive from the wording.


anand srivastava said...


So the Flow is the difference of Outflow and Inflow. Makes sense in a mathematical way :-), and would equate to the supply from the mines.

Motley Fool said...


Sure. Of course with gold there is no (or very little rather) outflow from stock, as it is not used, like say copper which has a very low stocks-to-flows ratio.


Motley Fool said...

unlike copper ( that should be)

Victory said...


Interesting conversation you are having. As gold is not consumed in any meaningful manner and mining supply, after peaking, will eventually diminish towards zero, the stock to flow ratio of gold approaches infinity on a long enough time-line.


dieuwer said...

Interesting article about Japan:

"Has Tokyo Finally Neutered The BOJ?"

Motley Fool said...


Yes. At which point no other commodity can replace it(a point well made in the Fekete piece I linked); barring of course transmutation and free energy. ;)


Victory said...


Also to your earlier point regarding flow vs. supply. In real-estate appraisal supply and demand of housing is often discussed and analyzed in a counter-intuitive manner.

For example, if a major employer in Detroit transfers half of its' employees to a new plant in Kentucky, one might rightfully conclude there will be a lot of houses coming on the market for sale. One might be inclined to say there will be an over-supply of housing. However 'supply' as the the industry semantics define it, refers to 'housing stock.'

So obviously employees moving out of state and selling their homes is not going to affect the overall housing stock. The only thing affecting the housing stock will be new homes being constructed or existing homes being bull-dozed.

...just a corollary that reminded me of what you were saying.


Biju said...


I prefer to think of Gold STF as

Stock of above ground Gold : Gold bidding for currencies


Gold bidding for currencies = mine supply + scrap Gold + Investment Gold sold for currencies + paper gold

So including paper gold the Gold STF ratio is not high during BG. Once buying of paper gold is removed and taking account of the Giffen good nature of Gold, the STF ratio can shoot up during freegold.

Motley Fool said...


What we would prefer the term to mean has no relevance.

We could agree for example in our small little group here that the word blue means something else, and that would be okay for our discussion here, I suppose; however once we talk to anyone outside this group then our shared meaning would not be theirs, and communication would break down.

I've agreed the term could be interpreted differently, and even better in my opinion also, however it has been defined as it is for more than 100 years.

Some things, such as terminology, must simply be respected, regardless of if they make sense or not.

One thing I have learned from FOFOA is that misunderstanding/disagreements of basic terms and concepts lead to most of the mistaken thoughts people have and conclusions they reach.

Clarity in communication is more important than personal preference.


Holly said...

I am sure this has been asked before, but where have Another and FOA gone? Surely they must know of FOFOA's blog.

Motley Fool said...


ANOTHER has likely passed on. He was an old man by the time he spoke of these things 15 years ago.

Both decided to stop speaking in public view due to the degeneration of discussion due to the trolls of the time, and assault of their honour, and attribute both valued highly.

It is doubtful we will see them speak again, until at least after the events they predicted has come to pass, and perhaps not even then.


costata said...

These guys are using corporate dividends as an indicator. Their analysis suggests the US economy dipped into recession territory in May 2012, had a little bounce in July and that it is firmly trending into recession in now.

costata said...


I agree with your comment at November 10, 2012 1:49 PM above.

We could agree for example in our small little group here that the word blue means something else, and that would be okay for our discussion here, I suppose; however once we talk to anyone outside this group then our shared meaning would not be theirs, and communication would break down.

It's a big challenge trying to translate some of the things we discuss here into conventional language and terminology. I think our shortcomings in this regard restricts the audience. Perhaps this is unavoidable but it is still regrettable IMO.

Motley Fool said...


I am not sure the shortcomings are ours.

It is inevitable when new ideas are discussed that new concepts must be created and old ones clearly defined, or even refined at need. The latter should be avoided where possible, and the foremost used if possible, as that is the best path towards maintaining congruency with discussants not familiar with our terminology.

Consistency and clarity are things we should pay heed to constantly, in order to make our field of reach as wide as possible.

In this regard perhaps we should consider our use of terminology here and leave words that have a different communal meaning alone, while creating new ones for the purpose of avoiding confusion and helping others to leave their baggage at the door.


costata said...

On reflection those guys who are using corporate dividends as an indicator may be looking at the data in the wrong way. This may be a chicken and egg type of situation. Cutting dividends signals a recession and corporates who cut because their confidence is shaky may run their businesses in a way that causes economic contraction.

This analysis from Barry Knapp of Barclays linked at ZH may be dead right (ZH emphasis):

Within the equity market in the near-term we believe there will be nowhere to hide. Stocks with high dividend yields are likely to come under pressure as President Obama and Harry Reid renew their push to raise taxes on upper income filers taking the 15% dividend tax rate up as well. While some of the recent domestic consumer related data has improved, the market is not discounting the risk of a tax hike and economically sensitive sectors seem likely to take a hit as well.

The second major down leg of the stock market crash that ushered in the Great Depression occurred right after it became known in the market that the sponsors of the Smoot-Hawley Act had the numbers in Congress to pass it.

Tariffs and all trade barriers of this kind function exactly like a tax. Tax hikes have a strong correlation with economic downturns. And governments have a rich tradition of raising taxes and quasi-taxes at the worst possible time.

Let's see if history rhymes yet again.

dieuwer said...

The US was on a gold standard during the Great Depression. Now not. Besides, Bernanke will print like mad to thwart a stock market crash.

Michael H said...


You can read FOA's final posts in the Current Gold Trail Commentary link through USAGOLD.

Unlike the other gold trail pages, this one is in reverse chronological order, final post at the top.

Somewhere in either the USAGOLD or the Kitco archives, there is a brief discussion surrounding ANOTHER's departure as well.

costata said...


I'm trying a different approach in this collaboration with Aaron. We are attempting to express the Euro Freegold-RPG architecture in a Marx/Keynes formulation that his economist colleagues can relate to without getting into value judgements about the behaviour of economic actors.

The economists critique of the proof we are developing will hopefully assist us to strengthen it to the point where it is difficult to refute. Then we might have a potential bridge into other schools of economics.


dieuwer said...

I found another country with a huge debt/GDP ratio, a budget deficit, AND a current account deficit: Saint Kitts n Nevis.
You think they will experience hyperinflation?

costata said...


The US was on a gold standard during the Great Depression. Now not.

I can't help you with this I'm tired of going over this ground. Perhaps one of the archivists can suggest a few posts you can read.

Besides, Bernanke will print like mad to thwart a stock market crash.

He's "printed" more than enough already. I suspect the ESF would be active if there's a major correction. The problem is that these fools in government are/have created a regime that is toxic for enterprise. I posted a link in an earlier thread to a study showing the crash last decade in small business formation in the USA.

Governments in the USA (and elsewhere) have been gradually strangling the source of growth and job creation in the USA. If you constantly poison the soil it shouldn't surprise anyone that nothing will grow but these bozos don't get it. I looked in the mirror and the problem is .... the jerk-off politician on the television screen behind me.

dieuwer said...

Pack your bags and emigrate if you don't like it, costata.

Sam said...

freegolder on zero hedge pretending these ideas are his own?

Sam said...

nevermind, just scrolled up in the comment section and saw they are giving tribute to FOFOA.

byiamBYoung said...


"Pack your bags and emigrate if you don't like it, costata."

Um, I believe our friend Costata is residing in Australia?


Michael dV said...

St. Kiitts n.. is a small pretend country...good for second passports only

dieuwer said...
This comment has been removed by the author.
byiamBYoung said...

@Micheal dV,

"St. Kiitts n.. is a small pretend country...good for second passports only"

Interesting. For a stick-in-the-mud like me, this sort of information is new.

Do you see a strategic value in a second passport to St Kiits, or is it just a collectible item good for laughs?


dieuwer said...


Australia, that not the country where they tax to death the "greedy" mining companies and give "free" healthcare to the public?

MnMark said...

There is an analyst named Porter Stansberry who argues that there is a massive amount of oil that has been discovered in the U.S. using the new fracking techniques (something like 20 times as much as the huge discovery in east Texas in the 1930s - I think I have that right) that within the next decade is going to turn the U.S. into the Saudi Arabia of oil. He argues that this is going to result in a massive economic boom that Obama is going to get credit for. He has put together a presentation laying out these facts that is a pitch for his investment newsletter. Even though it is a pitch it does seem to contain some rather compelling figures about the amount of oil that has been discovered in the last couple years.

If he is right, this would seem to have significant implications for when a freegold transition could occur. If the price of oil drops below $40 by next summer (as Stansberry has bet with another analyst that it will) then that is going to be a great big boon for the economy and will raise tax revenues and may push any economic reckoning off for quite a while.

The presentation is at least 20 minutes long. If anyone else cares to watch it and share their opinion of its accuracy I would interested to hear it.

MnMark said...

Here's a few notes I took from the Porter Stansberry video I linked in the previous post, just to give you an idea of what he is talking about:

1901 - Spindletop oil field in Texas - 100,000 bbl per day, more than all the other existing US wells combined. Price of oil fell to 3 cents per barrel.

1930 - H.L. Hunt's east Texas oil fields: 4 billion bbls since 1930 - thought to hold total reserves of 10-20 billion barrels - largest oil field ever developed in the continental U.S.

"Today, in the U.S., oil companies have recently found more than 20 different shale fields that contain more than 20 billion barrels of recoverable oil each." "They're like finding 20 new Persian Gulf fields...right here in America."

Dr. Leonardo Maugeri: "The natural endowment of the initial American shale play, Bakken/Three Forks in North Dakota and Montana could become a big Persion Gulf producing country within the U.S. But the country has more than 20 big shale formations..."

"That's why Goldman now predicting that the America will outpace Saudi Arabia in oil production before the end of this decade."

Edwardo said...

As per costata's recent post,

I think Obamacare has a lot to do with the stock market's collapse of late. It's plainly a major disaster for small business, and it's just a plain old disaster for the rest of the citizenry.

That coupled with the already mentioned likely change in taxes on cap gains is unquestionably very bad news for stock market "investors." Frankly, between HFT, Obamacare, and changes in taxation, I'd say that the idea that the massive H&S pattern that has formed over the last decade and change, may play out, can't be dismissed.

At the very least, from a TA standpoint, the breakdown out of the rising wedge that formed from the October '11 lows augurs for, at a minimum, a nasty cyclical bear market.

When one considers where stocks are in real terms the best one can do is smile ruefully.

And, not to flog the U.S.A. breakup meme to a fare the well, but, just for fun, I'll note that in 2020 it will be a Fibonacci 233 years since the U.S. Constitution was adopted.

In 2021 it will be a Fibonacci 89 years since the bottom of the Great Depression in 1932. And depending on when you think our own present day economic woes really shifted into high gear, be it 1999, or 2000, or '07, or 08, all those years form Fibonacci relationships around 2020 or '21.

Last, but possibly not least, 2016 represents a Fibonacci 55 years since Tricky Dick Nixon closed the international gold window.

Harpua said...

It's not just declining output here, it's a trend throughout the universe.

I became a regular reader in 2009 when I recognized the intrinsic truth of the words here, even as I was learning the depth of them. In the intervening time I've come to see not only the universal human truth, but the wider implications.

I'm not the first on this site to postulate that Freegold may extend to, and perhaps enable, space-faring species. FOFOA's discussion of the time nature has caused me to arrive to this conclusion, given that time becomes very fluid when considering the investment and distance (and by extension time) associated with space travel.

Any species subject to the laws of evolutionary pressure as we understand them and capable of traveling the stars would likely have come to the same conclusions. Whether it is simply a marker along a grander path, or an Awakening, we can only guess.

Regardless, the dynamics of demand from a non-declining species and fundamentally limited supply due to cosmology result in the same derivative of flow to stock.

Holly said...

In Victor the Cleaner's "How Credit Suppresses the Gold Price..." he states this(which I knoe is the point to Freegold):

"The solution is therefore to embrace Gresham’s law and to separate the store of value from the currency: Freegold. See, for exmaple, FOFOA’s The Return to Honest Money."

Now, I followed his post and understand that extending credit of X reduces the purchasing power of X, simply because it puts more of X into circulation bidding on items. But the quote above confuses me in that I do not see how a currency would have any value if it was not, at least originally, linked to a store of value(Mises Regression Theorem). How do Freegolders see a currency being established?

I also do not see how this could unleash the value of gold. In a hard money system, I could see physical gold being suppressed in value since the currency and gold are linked, but not in our current system where the currency is not linked to gold.

Thanks for the help.

victorthecleaner said...


Besides, Bernanke will print like mad to thwart a stock market crash.

I ask you to consider the following possibility: Bernanke will print roughly the amount of government debt that foreigners are no longer accumulating as reserves. That much, but not any more. The stock market may very well crash while this proceeds. Bernanke does not have any S&P 500 target. (I know that some financial journalists do claim this, but how would they know?)


re Porter Stansberry. I am not an oil expert, and so I cannot comment on the details of his claims, but it is true that domestic US production has been increasing for a couple of years now. If you combine US+Canada, it is even somewhat impressive. I am not sure though whether the US will eventually manage to be independent of non-American imports, but they will certainly reduce their dependence considerably over the coming years.

Right now, I think, it is obvious that it is the US/UK team that is keeping the Brent oil price high. Should Brent drop substantially (but not gold), the oil states would be in a double bind and would have to reconsider using dollars.


This wasn't posted by Kissinger. I wonder who posted it?


victorthecleaner said...


I do not see how a currency would have any value if it was not, at least originally, linked to a store of value(Mises Regression Theorem)

This is now more complicated than it was two weeks ago (before Blondie pushed me). You can read the story in the comments of the previous 2 weeks.

Let's first go back to two weeks ago. Here is an example of how freegold might work. A number of smaller countries in eastern Europe and in central America have their own currencies, but their people hold Euros or dollars in cash as their savings (because they don't trust their official currency - among other reasons).

The prices in the stores, the salaries and the taxes are of course denominated in local currency, but when someone has a surplus to save, they go into the (black) market and buy Euro/dollar cash and hide it at home. For large purchases, say a car or a house, some people pay with Euros/dollars and receive a discount because it saves the seller a lot of effort converting his surplus into 'hard' currency.

So some foreign 'hard' currency serves as the store of value (deutschmarks, Euros, dollars) while the local currency is the medium of exchange. For an idea about how freegold would work, replace the 'hard' currency by physical gold.

Why does the local currency not collapse immediately? What matters is only whether there is a liquid market for Euros/dollars in these countries which allows people to exchange their savings. Nobody needs to officially 'back' the local currency with Euros/dollars.

Also note that if the government/banking system creates too much base money/credit in these currencies, this has an immediate effect on the price level. No exorbitant privilege for the local currency because nobody holds it as long term savings.

Since Blondie, the issue has become a bit richer IMO. Once gold functions internationally, the local CB can easily keep their local currency purchasing power stable and turn it into a store of value as well. (While gold's real price has to fluctuate in order to allow is to function internationally).


Holly said...

Thanks Victor

In regards to unlocking golds value, I still don't see what this transition would look like. Using your example, the only thing that would change is the amount of "bad" money that is needed for "good" money. How/why would the value of the good money explode in real terms(not just exchange value).

anand srivastava said...


I think its easier to understand this if you think about it in some concrete terms
There is about 170,000tonnes of gold.
2500tonnes comes out of ground annually
4500tonnes is traded annually
100,000tonnes of total trade (including paper gold).

You see that the price of gold is determined by paper, as there is 22X more paper gold than real gold.

Once confidence collapses in paper gold, as a chain reaction to the collapse of confidence in USD, the paper gold will lose value very fast.

The price of gold (since it is determined by paper) will drop, and will eventually drop below the mining cost, which will cause the mining operation to stop. This reduces the flow of physical gold to half, when people are actually looking towards gold.

Also when the price of gold drops people will STOP selling, because simultaneously USD is collapsing and along with it all paper instruments. Physical gold will be very attractive. Yes there will be some gold sold because poor people don't have anything to eat.

The gold will not be available at the market, as people with great money power will buy whatever small amount of gold hits the market. Due to this problem Stock to Flow ratio will become infinite. Consequently the price of gold will settle at a very high level.

ECB which uses gold as its premier reserve will need to revalue gold, because otherwise its finances will look bad. As would they look for most other economies. These Central Banks will do something to revalue gold. I don't think it will take very long after gold drops below manufacturing cost.

Since the paper gold is gone, the revaluation will place the gold at many times the current value. Possibly 10X and then it will go up from there. Possibly ending around 30X.

The key take away is that the current price of gold is not the real price, because of the paper gold market, so once it goes away, it will revalue to very high prices.

byiamBYoung said...


Wow! Great summary. Thank you!


Lord Sidcup said...

If Porter Stansberry really does possess secrets of untold wealth, why is he selling subscriptions to shrimps for small-change?

dieuwer said...


I ask you to consider the following possibility: Bernanke will print roughly the amount of government debt that foreigners are no longer accumulating as reserves. That much, but not any more. The stock market may very well crash while this proceeds.

I think Bernanke publicly stated he is targeting the stock market to induce the "wealth effect".

That said, let's take your example: Bernanke prints new dollars to buy the debt that foreigners no longer are willing to buy, thereby expanding the FED balance sheet.
What will be the result? The treasury or the foreigners get the dollars, the FED get the bonds. Basically a swap.
What's next? You think the treasury or foreigners are gonna sit on that cash and do nothing? I don't think so. They're gonna spend it! Spend on what?
Well, the government probably will spend it on goodies and pork projects. Meaning, the cash is now flowing to businesses. Good for their bottom line and cash flow. Eventually good for their quotations on the stock market.
What will the foreigners do with the cash? Perhaps they buy goodies as well, or perhaps bullion. The latter would be interesting as it would mean that bullion would be flowing out of the US and bonds into the US.

dieuwer said...


The price of gold (since it is determined by paper) will drop, and will eventually drop below the mining cost, which will cause the mining operation to stop.

Would you not expect "premiums" of gold (bullion) to rise tremendously during this period?
Also, I wonder if there will be a "price" at all during the collapse of paper gold. I for sure will not sell my gold coins for whatever bogus paper price the market is quoting. And if there is no market for selling and buying, there is no settlement-price as there is not settlement in the first place.

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