Monday, October 8, 2012

Think like a Giant


Footstep of a Giant - Photo of Fraser Island dunes in Australia.
By Yann Arthus-Bertrand from his book Earth from Above.

In his interview, Aquilus talked about our recent email exchange and how he had encouraged me to turn it into a post. So, with his permission, here it is. There are three sections:

1. Think like a Giant
2. It is gold that denominates currency
3. QE3

Think like a Giant

From: Aquilus
Sent: Friday, June 29, 2012
To: FOFOA
Subject: Marginal Utility Q

As I was plowing through the comments (and getting annoyed at times) I thought : why don't people understand the concept of marginal utility of gold for really, really wealthy entities? Why don't they get that if say, you get 100M in every day, that after you've bought your yachts, airplanes, cars, houses, islands, etc, the only item whose marginal utility does not diminish in time is gold. Why can't they see that, but they think that the only thing with infinite marginal utility is the dollar (or fiat money)? Why don't I turn it around and ask them: what is the marginal utility of a dollar when you're a giant? Would they get it more if that question was asked?

I know you wrote an excellent piece on marginal utility a while back (the one with the BMW example), but do you think there's any more clarity to be gained for people from this angle?

______

From: "FOFOA"
Date: Jun 29, 2012
Subject: Marginal Utility Q
To: "Aquilus"

Hello Aquilus,

Do I think people would understand marginal utility better if it was explained using dollars instead of goods? I don’t know. I think most people cannot put themselves in the thinking-shoes of a Giant no matter what. They carry too much baggage. Perhaps they think the Giants are like evil Rothschild Bilderberg illuminatis or something, so they put on those shoes and start thinking about how to plan the next false flag to keep the masses enslaved in their own filth. Or maybe they think that there’s not really any old money “super producer” Giants per se, but that all old money was earned the old fashioned way, it was stolen. Those types don’t even think of the Saudis as Giants in the sense that they are super-producers because they are too obsessed with their own judgment of the morality of original acquisition.

My point is that I don’t think the problem is the medium in which they are considering the concept of marginal utility, but it is in thinking like a Giant. Thinking like a Giant is a very handy tool in doing what I do in writing this blog. But it is a skill that must be learned and then practiced. I think marginal utility is a good step in learning that skill, but you can see that thinking like a Giant is the real prize, not understanding marginal utility. You can understand marginal utility but not be able to think like a Giant. But you cannot not understand marginal utility if you are able to think like a Giant. See the difference?

I remember reading somewhere that the Rothschild dynasty owns something like 12 castles around Europe. That’s a lot of property to maintain. I imagine at least some of those castles were probably acquired during the last 100 years within (and because of) the $IMFS. If we’d had Freegold (i.e., free floating gold) for the last 100 years, I imagine that the Rothschilds would have fewer castles yet they would still be equally as wealthy.

See? Without Freegold, you gotta put your money somewhere. So first you put it in property with a house, then you stuff that house with fine rugs, curtains, furnishings, art and classic cars, then you build a pool and a garden, and then what? You gotta buy another castle and start over. And that’s a real Giant who knows how to save.

With Freegold, I can imagine the Rothschilds downsizing a bit, maybe to 8 castles or something more reasonable like that. But unless you can think like a Giant, you’d never understand WTF I’m talking about.

Sincerely,
FOFOA

______

From: Aquilus
Sent: Friday, June 29, 2012
To: FOFOA
Subject: RE: Marginal Utility Q

On the Rothschilds under freegold, I assume the point you're making is that under continuous freegold, the same weight of gold would have locked in a lot more of their net surplus, and therefore left less cash for castles, ergo: only 8 instead of 12 castles.

On understanding marginal utility, yes, you make an excellent distinction about it being a necessary effect of thinking like a giant, instead of understanding marginal utility leading to understanding how giants think!

Actually, I was not suggesting explaining marginal utility using dollars, I just did not explain myself properly. What I was after, was explaining to people FROM the point of view of a Giant what the marginal utility of current things are, including the dollar. Unlike your excellent existing marginal utility article, this time however I was thinking of really hammering the point home ONLY from the point of view of a Giant, and using some shock and awe numbers (shocking for ants that is).

So for example, start out with a Giant that has 100mil piling up on his doorstep every day. That should get the ants' attention!

What is the marginal utility of cars, yachts, etc after a reasonable number? How about castles? Ok, once we establish that, say, 50 days worth of income takes care of all that, and additional items have diminishing utility, let's move on.

How about the ultimate liquid IMFS SoV, the dollar? What's the marginal utility of holding 315 x 100mil dollars that depreciate (queue infamous dollar purchasing power over time chart). 315 being 365-50 obviously. Not to mention hoarding the very MoE that commerce needs! What if I used dollar surrogates: treasuries? Same effect, plus I am the market after a while.. No good.

What other options do I have? Commodities? And create industry shortages? I'd get slammed pretty fast. So what's left? Quick! Think, because tomorrow I get another 100mil piling on top of what I currently have... And no, I am not ok with losing purchasing power in the long run. As a matter of fact, it's probably 3-4 generations before this should even be needed.

That's a raw draft of the kind of scenario that I had in mind: force-put the ant in the place of the Giant, no inkling as to where the money comes from (so to not get into rent-seeking), and FORCE them to pick a place for a multi generation investment that keeps its purchasing power. Make them feel the power of the daily dollar avalanche coming in so that they understand the scale at which this game is played. Does it make any sense at all, or has that been done/beaten to death enough in your opinion?

Aquilus

______

On Jun 30, 2012, "FOFOA" wrote:

Hello Aquilus,

You wrote: "On the Rothschilds under freegold, I assume the point you're making is that under continuous freegold, the same weight of gold would have locked in a lot more of their net surplus, and therefore left less cash for castles, ergo: only 8 instead of 12 castles."

They don’t want 12 castles, never did. And they certainly don’t need 12 castles. So why did they buy, furnish and perfect 12 castles? When did the marginal utility of castles drop off for them? After 5 maybe? So why did they keep buying so many castles? Couldn’t they have just bought gold instead? Why do you think they didn’t buy gold instead of more castles after they already had 5 and the marginal utility of more castles dropped?

Answer that question because it leads then to what you want to talk about… "a Giant that has 100mil piling up on its doorstep every day."

Let’s imagine the Rothschilds had this very problem! So why did they buy castles instead of gold or other things they could have bought? I think you brushed past the Rothschild example too fast. Your answer: "I assume the point you're making is that under continuous freegold, the same weight of gold would have locked in a lot more of their net surplus and therefore left less cash for castles, ergo: only 8 instead of 12 castles." … is not exactly what I had in mind, and that’s not how I would explain it.

Sincerely,
FOFOA

______

On Jun 29, 2012, "Aquilus" wrote:

Well, let me see:

1. Why not just buy gold ?

Imo because at this price, dumping 100 mil a day in allocated physical you upset the apple-cart and exhaust the physical supply.

2. Why castles and art and collectible cars, etc?

Because under IMFS they are a decent long-term SoV. as they are completely in the physical plane,are unique, and therefore are meant to be hoarded and keep their value long term. Unlike say, McMansions in the suburb or Camaros :-)

Am I even close?

______

From: Aquilus
Sent: Friday, June 29, 2012
To: FOFOA
Subject: RE: Marginal Utility Q

Well, I think you have me the answer already here :

"Gold’s value really comes from intergenerational Giants who have no need to ever sell it. They really just net-produce and net-produce and they do it willingly for more and more gold, and then just sit on that gold until they die and pass it on to the next generation. And they will keep doing this no matter what the $PoG does. They're not buying it for its weight, but for proven long run currency exchange value! But if there’s no flow for them to get some, then they have to buy things like extra castles and cars and stuff that drives up prices and drives down everyone else’s purchasing power."

______

On Jun 30, 2012, "FOFOA" wrote:

Don’t forget that they bought most of those castles before 1971! Why not gold then?

______

From: Aquilus
Sent: Saturday, June 30, 2012
To: FOFOA
Subject: RE: Marginal Utility Q

:-) Thanks for your patience with me.

1. Physical supply: My instinct tells me that it's because the flow was so much more restricted before 1971. Production was much lower given the price/oz: http://www.goldsheetlinks.com/production2.htm

But that can't be it by itself... Let's see... Politically, hoarding gold would be hoarding "the money of the state" before 1971 and prevent money expansion when needed. The Rothschilds may have to care about that, but why would the Saudis? Hmm...

What's left? What am I missing from my ant perspective?

Let's see, how about I revisit my premises; it's usually where mistakes originate: it's 1970, I'm a Rothschilds Giant, the dollar is massively overvalued compared to the fixed gold price, gold flows are small, sovereigns like France are redeeming their dollars for gold, Rueff is making his arguments..

So do I overly corner the restricted gold flow from mines and make Central Banks pissed because they would have to dis-hoard in order to keep the flow going?

Or do I take the chunk of overvalued dollars that I cannot buy gold with, and hoard other items that are meant to be hoarded, that keep their value: art and unique properties?

They can soak up a lot of value over time very well if I choose unique ones, nothing easily reproduced; basically things another Giant would recognize as desirable in the future when I would like to unlock the purchasing power for whatever reason.

But then again, castles are highly visible and my wealth is on full display. Why, why, would I choose this option and not something more discrete? Unless (a) visibility is not that concerning, (b) nothing more discreet exists, like art for example, in the quantities I require.

And I can't forget that if I own most of "something" in the world, that something is not that valuable any longer as it loses its network effect value...

Ok I'll stop here. I feel like I'm missing something important, yet it should be obvious.
I appreciate you teaching me how to fish, not just giving me the fish to eat.

P.S. sorry for the occasional clump of words that may not make sense. I'm using my tablet's soft keyboard to "Swype" (http://www.swype.com/) the words in and the autocorrect decides it knows better than me at times. Well, on second thought, you know, maybe it's right :-)

______

On Sat, Jun 30, 2012, FOFOA wrote:

Hello Aquilus,

That’s good! I think you’re getting close!

Now, if you’re a giant on the Rothschild scale, and you’ve got $100M per day coming in from your various businesses, what are you going to do with all that money?

Are you going to try to make money with your money? Buy stocks and bonds, play a little in the different sectors?

Sure, you might buy into some more businesses, but you’ve already got plenty of businesses. Your businesses are already bringing in $100M per day and your biggest problem right now is figuring out the smartest thing to do with that money. So if you buy more businesses, that’s only gonna grow your problem bigger.

Your wife does the charity circuit, but that’s only good for a few mil a month, and you’ve got $100M per day coming in.

So what do you do with it? What are you biggest concerns when considering what to do with it?

You probably have more money than anyone else. At least you have more than 99.99999% of everyone else. So would you like to double your money? I think not. At some point you’re like “holy shit, look what I got” and you don’t dare want to buy anything that’s likely to deliver you another windfall and draw more attention to your wealth than you’re already getting. So if you hear about Freegold, are you gonna pile in?

Your biggest worry is keeping what you’ve already got… not getting more. You’re even willing to lose some just to keep your profile as low as possible. The wife’s charity work helps with that, but again, you don’t even want to give too much away because that draws additional attention to your wealth.

If you hoard physical commodities you’ll piss off the people, right? And if you hoard paper commodities you’ll drive up the price and you’ll piss the people off! You’re so big that you move markets by just looking at them.

You’re so big that you’ve got to spend your money coming in as fast as possible or else the money supply will start contracting because you’ve got too much of it! (That may be a little bit of an exaggeration, but not under the gold standard!)

So tell me, did they have ANY choice at all besides what they actually did? And even that, at some point, starts drawing that negative attention. You can only have so many castles before people start wondering if you have too much money.

So what to do? At some point, the only thing to do might be to slow down a bit. Quit working. Is that what our world desperately needs? For the super-producers to quit working so much?

Sincerely,
FOFOA

______

From: Aquilus
Sent: Monday, July 02, 2012
To: FOFOA
Subject: Marginal Utility Q

FOFOA,

1. So the answer to buying castles pre 1971 (and after) was: they had no other choice. That or stop producing.

2. I'm sure I'm not telling you anything new, but parts of this thread would make the kernel for a great post!

Seeing the world from this perspective is diametrically opposed to what most people experience (The Ant: how can I get MORE cash / The Giant: how do I manage all this cash coming in?). It has only been tangentially touched upon in different articles, never as the main focus of a post. Blondie tried to explain in lately, but that was "theory", to say so. Some examples like we have here are key to most people's understanding IMHO.

You know how you had "Life in the Ant Farm?" this could be something like "What choices does a Giant have?" or " Meanwhile, in Giant land" or "The view of a Giant". I'm sure you can come up with better titles than this.

Seriously, it would be a dynamite post!

Aquilus

______


It is gold that denominates currency

From: Aquilus
Sent: Friday, August 03, 2012
To: FOFOA
Subject: Why does oil not price currencies

Hi FOFOA,

If you have time/feel like it, I wanted to run some thoughts by you on

"gold prices currencies, but oil does not".

Here's what I have:

Because:

1. Oil is mostly physical market with some futures. Paper oil market not structured as dangerous to currencies (no fractional reserve)

2. If oil flow stops, Mad Max world ensues and real economy collapses. Politically not acceptable - immediate wars. If gold flow stops, currencies can make themselves desirable again, real world plane not hurt.

3. Oil is not cornered (no expected deliveries as a multiple of existing flow), quite the opposite.

So best oil can do is insist that price in currencies ensure gold acquisition for oil extracted over what Saudis need for budget expenses + lifestyle expenses.

Am I anywhere close to the right track?

Aquilus

______

On Aug 3, 2012, "FOFOA" wrote:

Hello Aquilus,

Oil is a means of production. If you find yourself sitting on top of (and thereby owning) the largest underground oil field in the world, you find yourself on top of a great stockpile of capital (means of production used by the entire world).

Alternatively, there are 170,000 tonnes of gold out there, all in someone’s ownership/possession. All this gold marks the net-production of someone in the past. If you see someone sitting on a large pile of gold you can think “golly, he sure gave away a lot of useful wealth in exchange for all that “useless” metal that just sits there in a vault.”

So there now, you have one guy sitting on top of this oil field, and another guy sitting on top of this gold. What’s the difference? Is the guy sitting on the oil going to sell that to a net-producer in exchange for his excess production? Nope. A net-producer has no need for that oil in exchange for his “underconsumption”. He wants gold.

So we can see that the guy with the oil and the guy with the gold have different customers. The oil guy’s customers are everyone in the economy, and the gold guys customers are net-producers (savers). The net-producer might buy some of the oil guy’s oil for his production purposes, but then with his excess production he buys from the gold guy.

But the oil guy’s overhead is soooo cheap compared to the commercial value of his oil, he too is a net-producer in currency terms without even trying, and without any austerity.

When we hear the word “overhead” we generally think of it in terms of the costs of running a business. But it could also apply to the costs of running a standard of living. Everything useful that you buy and use in maintaining your lifestyle is your overhead. Anything beyond that is your savings. To an oil sheikh a pimped out 747 and 8 Rolls Royces might be part of his overhead. Also, an indoor ski slope and the world’s tallest building in the middle of the desert is part of his overhead. It’s the cost of being a rich oil sheikh. Savings is anything over and above that. And like I said, the sheikh has savings even without any austerity in his lifestyle.

Those of us in the real world have to choose between austerity and less savings. We can reduce our austerity and also reduce our savings, or we can increase austerity and increase our savings. But the sheikh almost literally has savings no matter how well he chooses to live.

So in this example, “overhead” is that portion of money that everyone spends on their lifestyle and business operations etc… and savings is that smaller portion over and above “overhead” that (only) some people put into presently useless things like treasuries, accounts or “useless” gold.

Now that I’ve distinguished “overhead” and “savings”, it should be clear to you that all oil purchases fall under “overhead” while all gold purchases fall under “savings”. And like oil, everything else in the world (except gold) also falls under “overhead” while (in the physical plane) only gold falls under “savings”.

So now that we’ve identified the main difference between oil and gold, we can say that “savings price currencies, overhead doesn’t.”

Now along this same line of thinking, we can also say that surpluses are entirely attributable to savers. In any zone that’s running a trade surplus (on any scale), the entirety of that surplus is equal to savings in that zone, so the surplus is attributable to the savers.

Can you see a pattern starting to emerge here? The relevance of savings and savers to everything? (and I’m not making a morality play here, because like I said, those rich oil sheikh’s are automatically savers no matter how big of a harem they maintain as part of their living standard, so they remain relevant to everything)

But for their savings, those oil sheikhs are not interested in hoarding currency. They want gold, as do all the big savers (and surplus zones) in the world.

So in the “overhead department” we have all the real goods and services in the world traded back and forth kind of like barter, with currency as the lubricant. But then we have this little portion on top we call savings.

It is the savers (net-producers) that run the show.

Sorry, but that’s all the time I have for now. Didn’t quite get to my point, but hopefully I gave you some more thoughts to consider.

Sincerely,
FOFOA

______

From: Aquilus
Sent: Monday, August 06, 2012
To: FOFOA
Subject: RE: Why does oil not price currencies

First of all, thank you for those thoughts.

I would like to take this conversation down this path:

“savings price currencies, overhead doesn’t.”

I feel that I am at the edge of really understanding this idea, but have not quite arrived there yet.

Are savings pricing currencies because they are a claim on future production that may or may NOT be deployed though currency? Because most (sizeable) savers can easily exist comfortably from overhead without ever dishoarding any savings unless the currency price of savings is satisfactory?

Is that really what makes savings price currencies?

______

On Mon, Aug 6, 2012, FOFOA wrote:

I don’t think it’s that simple. There are many moving parts. It is a dynamic system.

In terms of “overhead”, it’s really just a goods for goods trade… barter if you will, with currency simply lubricating the trade. Goods price other goods. An apple is worth two bananas. Doesn’t matter what currency you use.

But it’s when you try to be austere (to save, to underconsume) that it’s no longer “goods pricing goods”. Time becomes a factor when you save. Remember that the difference between a medium of exchange and a store of value is only a sliding scale in the time dimension. Any medium of exchange is also a store of value to some extent, and any store of value is a medium of exchange to a degree.

Those who use currencies in the here and now “overhead dimension” exert little effect on that time dimension.

But that doesn’t mean you want savers holding the currency for a long time. When that happens (like it is today), a currency becomes overvalued and unstable, susceptible to a disruptive collapse. What you want, instead, is a healthy balance on that “sliding scale in the time dimension”.

______

From: Aquilus
Sent: Tuesday, August 07, 2012
To: FOFOA
Subject: Re: Why does oil not price currencies

Hmmm,

I realize now that what I keep missing is the ACTUAL definition of "pricing a currency".

It keeps changing and morphing in my head from, and that might be why I don't grasp it.

Here's what I see right now, using a muddled "pricing a currency"

When talking "overhead" in the context of pricing currencies, because in the here and now, the MoE really does not matter, it could be anything from the acceptable plethora all the way to pseudo or full barter. So "pricing" a MoE on a short time scale is simply observing what amount of that MoE is necessary for my product so that the ratio of what I'm selling to what I'm planning to consume shortly, stays in an acceptable range.

On a longer time scale purchasing power comes into play, as I would like that ratio to stay in range for a long time. So the choice of SoV is crucial. I also need to be able to acquire that SoV with my currency. But if I cannot acquire the SoV in my currency (0 flow),that does not mean that the SoV is worthless, but rather that my currency has utterly failed as an MoE, as I cannot exchange it for my SoV. Same SoV that I can acquire and trade in a different currency.

So in this extended time scenario, I think I understand the pricing for the extreme margin (like in calculus when you have a limit problem - in this case $ value goes to 0 as Au flow in $ area goes to 0). What I don't quite get is the idea of gold pricing a currency away from that limit. Can you help me with what that pricing is (certainly is not the number of currency units per weight, right?)

Thanks (and I hope that I'm not bugging you too much - please let me know if you'd me rather post these in comments)

Aquilus

______

On Tue, Aug 7, 2012, FOFOA wrote:

It’s simply this. You said it right here:

“So the choice of SoV is crucial. I also need to be able to acquire that SoV with my currency. But if I cannot acquire the SoV in my currency (0 flow),that does not mean that the SoV is worthless, but rather that my currency has utterly failed as an MoE, as I cannot exchange it for my SoV. Same SoV that I can acquire and trade in a different currency.”

With that in mind, read what I and ANOTHER wrote…

Date: Fri Jan 23 1998 19:01
ANOTHER (THOUGHTS!) ID#60253:

All modern digital currencies do not go into an investment, they move THRU it... There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".


This is the key to EVERYTHING!!! It is not "gold liquidity" that the bullion banks create... it is DOLLAR LIQUIDITY. Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world except gold.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.

______

From: Aquilus
Sent: Tuesday, August 07, 2012
To: FOFOA
Subject: Re: Why does oil not price currencies

Beautiful, the light bulb just stayed on when it came to gold denominating currencies! :-)

Now I have one more thing I need hand-holding on the following (my underlining):

On the one hand (Another):

Gold! It is the only medium that currencies do not "move thru".

and on another (from http://fofoa.blogspot.com/2012/02/todays-quoteunquote-gold.html)

"currency flows through assets, not into them. In fact, a limited amount of dollars can flow through the same gold many times, over and over, driving it higher and higher with each pass"

Both passages, whereas talking about currency through gold and at first glance contradictory, cannot possibly talk about the same thing. Whereas I do understand what you're talking about with the repeated flow in your post, I must be missing something very obvious in Another's statement, or over-thinking it.

So, again, let me back it up to premises (that's how I learn). When A buys gold from B, a certain amount of currency flows from A to B and gold from B to A.

Is Another's idea of currency not moving through gold the fact that A now keeps the gold as long term savings (and thus currency flow for A stopped), and unlike things that are consumed, the gold acts like a storage tank for the purchasing power ? To be stored for long term and released into currency of different purchasing power at a different time?

And if so, all other possible saving mediums would fail the uniqueness test, not because they do not hold value, but because they cannot "bottle up" the pressure needed from the currency side (having industrial uses and not being a "focal point")?

Aq

______

On Tue, Aug 7, 2012, FOFOA wrote:

"I must be … over-thinking it."

Yes.

"currency flows through assets, not into them."

Are we agreed on this part? There’s no “currency” in the stock market. If you bought $100K in stocks your currency flowed through those stocks, not into them, and now you hold assets, not currency. Agreed?

And how do we know the value (price) of those assets? We know it by its currency price, right? China’s Treasuries are not currency. The currency China receives through its trade surplus it gives to the USG to spend. The currency flows through those Treasuries to the debtor. Now China holds those assets, not currency, right?

"currency flows through assets, not into them."

Okay, as long as we’re agreed on this part, let’s look at gold. We could say the same thing about gold. If you bought $100K worth of gold your currency flowed through to the seller of that gold and now you only hold an asset, right? The gold. And how do we know the value (price) of that gold? Do we know it as a currency price? Is that correct?

If the USG goes ballistic defending its inflow of real goods and services with the QE printing press, who is going to dishoard some gold for dollars? No one, you say? So if there’s no dollars and gold being exchanged, how do we know the value (price) of that gold? Is it valueless now that there is no dollar price for it? Or is it priceless?

How about your stocks? How about your Treasuries?

Of course we could run the same exercise with a tanker full of oil that you just purchased for $100M versus $100M in currency assets. It doesn’t become valueless just because the dollar loses value because we know oil's value relative to other goods and services. But gold’s value does not relate to other goods and services because its main use is SoV. Gold value "is arbitrary!"

So with the oil, as long as we could determine the dollar price of something, anything, we could know the going price of oil, right? Just like in Zimbabwe. Currency still priced eggs even when three eggs cost a billion Zdollars. Currency prices oil just like currency prices everything in the “overhead” realm. Because currency is only the middleman between these things’ relative value to each other. Only gold’s value is not relative to everything else in the physical plane. Gold’s value is arbitrary. It has no economic or utility metrics by which to compare it to the rest of the physical plane.

Currency prices everything (but gold) because currency is simply that middleman between their known relative values. Everyone knows that an apple is worth two bananas. So currency between apples and bananas prices those items. But there is no intrinsic, calculable relative value between an ounce of gold and a men's suit. Their relationship is arbitrary… it can be whatever subjective value the superorganism takes it to without affecting anything else. No chain reaction will happen.

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

Get the concept!!! Don’t get too hung up on the words. It’s all about concepts, not necessarily the words. Words are fallible and limited in scope. Concepts (if they are true) have infinite resolution. Test the infinite resolution of this concept:

It is gold that denominates currency.

______

From: Aquilus
Sent: Tuesday, August 07, 2012
To: FOFOA
Subject: Re: Why does oil not price currencies

SMILE! Got it. It's nice to see how simple it is really.

Everything's value is related to everything else, except for the one "useless" SoV focal point.

I have to say, the words "gold moving thru currencies" is definitely not intuitive (to me). The "Gold denominates currencies" expression is much more on target.

If you don't have another post ready, you might want to consider putting up this last explanation as a placeholder. Explaining this concept past where the original words might be confusing is done very well in this last email. It's straight forward, full of real world asset examples, idiot-proof I might say. Just what's needed. Just my 2c.

Thanks again for taking the time to clarify all this for me!

Aquilus

P.S. Since May, I've been trying to get through all the posts from the beginning of the blog (in my spare moments/time). I'm now up to "Credibility Inflation" in 2010. It's quite an experience to understand a lot of the material before reading the posts - so much more enjoyable. But at the same time, I get these unclear things that I've been bugging you about :-) And I still have not made it through the original Trail. I think FreeGold will be upon us before I do at this pace.

______


QE3

In this case someone else emailed me a question first. I answered it and simultaneously Aquilus was tweeting similar thoughts, so I forwarded my correspondence with the other reader to Aquilus:

On Thu, Sep 13, 2012, FOFOA wrote:

Hello Aquilus,

I thought you would appreciate this. Nice tweets today.

From: T
Sent: Thursday, September 13, 2012
To: FOFOA
Subject: Questions

Hi FOFOA,

I know you've got a few great posts up coming, and I imagine that you were right on top of the FED's announcement today. My question relates to MBS purchases and I have had this thought for some time now. The FED is clearly out to gobble up this market, as it really is running out of things to buy without limiting itself to only 70% market share, however, how does the process of MBS purchases help to fund the Gov? The FED is purchasing these securities, but wouldn't this fund the banks as opposed to the Treasury? As funding the Gov't is really the bottom line here, how do these purchases work towards funding the nations yearly deficits? Which, as outlined prior, is really the aim of QE?

Thanks for all that you do.

-T

From: FOFOA
Sent: Thursday, September 13, 2012
To: T
Subject: RE: Questions

Hello T,

All the money the Fed prints for MBS purchases will be cycled through the USG Treasury account (spent into the economy by the USG). At least an amount equal to the issuance of new Treasuries.

Most people think that money from the stock and bond markets can get "scared" and run to Treasuries for safety. But the fact of the matter is that there is no "money" in the stock and bond markets. There are only assets. The USG cannot spend assets, it can only spend base money, and base money is either earned in the physical plane or it is printed by the Fed. So it cannot be the case that a bunch of "money" would ever flee the stock market and go to the USG (to hide in Treasuries) for safety. If/when that ever happens, someone who earned actual base money in the physical plane would be buying those "frightened stocks" at bargain basement prices and then the sellers would give that money to the USG to spend. The money has to come from somewhere, and it doesn't come from inside the stocks or bonds. I repeat, there's no "money" in the stock and bond markets—only assets. There has to be money coming in from the physical plane (or from the Fed's printing press) at all times.

So what the Fed is doing is injecting actual base money flow into this paper asset "arena", since the physical plane earners (both foreign and domestic) are not coming in (in sufficient quantity). Actual base money is the only "fuel" the USG can burn. It needs real base money coming in, either from foreigners via the trade deficit or from new domestic savers who earned that money, earned not through asset appreciation in the stock and bond markets, but through real physical plane production.

You can think of the stock and bond markets (including the Treasury market) as a big "arena". Money (base money) flows through it, but it never resides in it. Some comes in, some goes out. And whenever new paper assets are added as in the case of regular Treasury auctions, that is one of the avenues where money flows out of the arena. This outflow must be matched by inflow, period. If there's not a sufficient inflow, then the Fed must print, which it is doing now.

Of course they are also hoping to goose the housing market, but understand that new mortgage creation does not require a constant flow of base money the way new Treasury creation does. The big banks have plenty of reserves right now so the only thing limiting new mortgage creation is demand from borrowers, not supply of base money reserves. And mortgages are created "out of thin air". Treasuries are not. Treasuries require 100% base money flow. And that's what the Fed is injecting into this "arena".

Sincerely,
FOFOA

______

From: Aquilus
Sent: Monday, September 24, 2012
To: FOFOA
Subject: Re: FW: Questions

FOFOA,

I do have a question on the stuff below, when you get a chance.

For purchasing Treasuries, I am not seeing something important: I can see why Treasury spends base money, just not why the money buying treasuries cannot be credit.

I can imagine any US bank creating credit to buy treasuries, and holding those treasuries on the balance sheet as risk-free assets. I guess I don't see is why is it necessarily base money that flows into Treasuries?

Can you help me out with this please?

Thanks
Aquilus

______

On Sep 24, 2012, "FOFOA" wrote:

Okay, say a commercial bank expands its balance sheet for the purpose of buying Treasuries. It has created new liabilities which it has transferred to the Treasury. The Treasury "bank account" is at the Fed, so those liabilities get cleared with 100% reserves. In theory, the commercial bank which expanded its balance sheet now owes (has liabilities to) the USG's bank, which is the Fed. But the commercial bank also has an account at the Fed, its reserve account, consisting of liabilities of the Fed to the commercial bank, its reserves.

So there's a 1:1 (non-fractional) correlation between the new asset and the number of reserves required to clear that transaction. In other words, if the commercial bank bought $1,000,000 in Treasuries, its reserve account would be debited $1,000,000 in reserves which would be transferred over to the Treasury's account. The commercial bank liabilities would all be cleared. Then when the USG spends those dollars into the economy, the reserves would reenter the commercial banking system and the liability would reappear at whatever bank the USG stooge deposited his check. That bank liability would now be a liability to the Stooge, until he spends it passing it on to someone else.

So, now, looking at the original commercial bank's balance sheet, the one who "bought treasuries from thin air", the Treasuries were added to the asset side of the balance sheet but they were not matched with added liabilities. Instead, they simply displaced existing reserves which were removed and given to the USG to spend. Can you see the difference?

If the bank had instead originated a new home loan "from thin air", that new asset (the mortgage) would be offset with new liabilities. The mortgagor would then spend those liabilities and they'd be transferred to another commercial bank so they'd clear fractionally along with other transactions. It's all a big churn of available funds. For us in the real world, the private sector, we churn bank credit and then the banks in turn churn reserves fractionally among themselves to clear our transactions.

But all spending that goes through the government carries a unit of base money (reserves) with it. When the USG spends, some stooge gets a paycheck. When he deposits that paycheck, the bank gets a liability (to the stooge) and a reserve (from the Fed) added to its balance sheet.

So, in reality, our bank at the top did not "expand its balance sheet". It simply swapped a reserve of one kind (base money) for a reserve of another kind (Treasury). It was simply an asset swap. So the money buying the Treasuries was the bank's base money reserves, not pure credit.

"just not why the money buying treasuries cannot be credit."

Imagine a bank with insufficient reserves trying to buy Treasuries with only its credit. It will transfer its liabilities to the Treasury's account at the Fed and now its liabilities to the Fed will exceed the Fed's liabilities to the bank. This bank will now be essentially reserve-less. In fact, it will be in a position of negative reserves. The only way for it to get reserves back would be for the Fed to buy some of its assets. So now, who actually funded the Treasury in this case? The Fed did by creating new reserves for the bank which bought the Treasuries.

The key to pay attention to is that every dollar the USG spends into the economy comes with 1 unit of credit money + 1 unit of base money. In other words, the USG emits a liability along with a reserve into the commercial banking system. Anyone other than the government who spends money only emits (transfers) a commercial bank liability. But the USG emits an attached pair, like a molecule with two attached atoms.

The monetary system is simply the record keeper of what's going on. We think of the government taking in money and then spending it. But in reality, the government is not constrained. It will keep on spending no matter what. The only thing that can stop it from spending is a crash in the value of its unit (hyperinflation).

So we look at "what's going in" and compare it to "what's coming out" of the USG spending machine. "Money going in" comes from three sources: 1. Taxes, 2. Borrowing, 3. Printing. What we're interested in (or what we should be interested in) is whether that "money going in" is a fully formed molecule with two atoms or simply a lone atom which the USG then converts into a molecule.

In the case of taxes it's all molecules going in. In the case of borrowing, it's all molecules as long as the purchaser of the Treasuries is spending a commercial bank liability (credit atom) he earned. As that credit money passes to the USG account at the Fed, it attaches itself to a commercial bank reserve unit which temporarily leaves the commercial banking system until the USG later spends it back into the commercial banking system.

Only the Fed can create new unattached, individual (base money) atoms. Like I said, the USG's spending is technically unconstrained. It can and will simply keep on spending. But if its spending exceeds the money coming in from taxes plus earned credits lent to the USG, then the aggregate balance sheet of the monetary system will fall out of balance. To keep it in balance, the Fed creates new atoms. Which the USG converts into molecules.

Say the Fed does $600B in QE but only buys MBS from the commercial banks. The Fed has created $600B new atoms (reserves) which only become molecules once they pass through the USG spending machine. All the Fed has done with the commercial bank balance sheets is an asset swap, a new reserve for an asset. No new credit money (commercial bank liabilities) has been created. New credit money is created when the USG spends in excess of the credit money coming in, either through taxes or borrowed from real savers. This commercial bank who just swapped MBS with the Fed for new base money could now swap that base money asset with the Treasury for a Treasury asset. And yet still, no new credit money has been created… until the USG spends it.

So, in essence, the commercial banking system created new credit money (commercial bank liabilities) when it originated the home loans which created the MBS. That is now circulating. Then the Fed created new base money which it swapped for the MBS. Now the commercial bank is free to swap that base money with the Treasury who will create more new credit money by spending it.

"I can imagine any US bank creating credit to buy treasuries, and holding those treasuries on the balance sheet as risk-free assets. I guess I don't see is why is it necessarily base money that flows into Treasuries?"

Can you see now how any US bank cannot create credit which the USG can spend? The USG can only spend earned credit (earned through production in the physical plane) or else the USG is actually creating new credit money when it spends, without any offsetting production in the physical plane. The money the USG spends either comes from taxes, net-producers (real savers), or else it is inflationary. A base money unit passes through the USG with every dollar it spends. A credit money unit exits along with that base money unit as well. The only question is whether that credit money unit (commercial bank liability) was surrendered to the Treasury from someone who earned it, or created from thin air by the very act of the government writing a check to a government stooge.

In extremis, try to imagine ALL commercial banks swapping ALL excess reserves held at the Fed with the USG in exchange for Treasuries. Let's look at their balance sheets. Their liabilities would remain exactly the same, but their assets would have changed significantly from a healthy reserve ratio to a nonexistent reserve ratio… no reserves, all assets. Now the USG spends all those reserves back into the economy along with new credit money units (commercial bank liabilities). The reserves reenter the banking system but the liabilities increase 1:1 with the amount of reserves. Rinse and repeat.

While I suppose this is theoretically possible, it's not very practical; just think about how directly inflationary it would be! I'm not looking at monetary aggregates for the inflation. I'm looking at direct spending that's not offset by physical plane production. And I think another problem that's probably preventing something like this is the ongoing deleveraging within the banks. This deleveraging is competing with the Treasury for spendable reserves, which is another reason the Fed has to inject new reserves.

That ZH article linked by Michael dV said that the "shadow banking system" (which is really just "money markets" with no real money in them, only assets) has undergone $300B in deleveraging so far in 2012. You have the USG which needs to extract $3.6B per day from these markets competing against the deleveraging for the scant "new inflow" of money. The trade deficit seems to be supplying $1.5B per day, domestic "savers" (pension funds) must be supplying some amount, and the Fed seems to be picking up the slack. Remember, it's money in, money out. There's no actual money "in" these markets. Only assets with prices. And deleveraging is essentially "money out" competing against Treasury for the new money coming in, either from savers or from the Fed.

My sense is that the current rate of QE is simply not enough. The USG is not going to stop spending, so something has to give. Either interest rates explode upward (not going to happen), the stock market collapses in free fall (might happen, but then they'll print immediately), or the Fed ramps up QE somehow. Even if they manage to do this without a press conference, it will show up in the dollar exchange rate and/or CPI price inflation. That's where the death spiral begins.

Other analysts seems to want to look at quantitative measurements to determine timing. They want to see X hit Y% or whatever. But that's not how it happens. It happens where the rubber meets the road… at the margins where the USG spends. It happens where the monetary plane is exchanged with the physical plane, because that's the only exchange rate that matters. It happens in physical plane prices. And that roadside IED is very unstable, IMHO. It might take a big truck hitting it, or it might just blow if you look at it too closely.

______

From: Aquilus
Sent: Monday, September 24, 2012
To: FOFOA
Subject: RE: FW: Questions

Thank you!!! Very clear. More feedback tomorrow after I re-read.

Aq.

PS: it makes so much sense that I kick myself for not having taken that one extra mental step and asked "who is the Treasury's bank?" More tomorrow, but thanks again!

______

On Wed, Sep 26, 2012, FOFOA wrote:

Thank you, Aquilus.

BTW, I have a bold new concept I'm working on right now, which will include a proposition for you. I'll present you with the details soon. ;D

Sincerely,
FOFOA

PS. Have you ever used Skype?

______

From: Aquilus
Sent: Wednesday, September 26, 2012
To: FOFOA
Subject: Re:

Skype? Of course. Just let me know when.

I figured you'd be up to something. You've been quiet as a mouse for many weeks now :D Look forward to it.

P.S. I am not joking when I say that last email expanded perspective about the flow of base money/credit when it made me follow the transactions. I realized how intellectually lazy I had been - stopping at the initial concept of credit creation, gov spending that you spoon-fed us in the posts and not taking that deduction further myself. Just being honest with myself here. I like the "molecule" vs "atom" description.

______

On Sep 26, 2012, "FOFOA" wrote:

Yes, the molecule/atom analogy is a good one! I came up with that one just for you! ;-)

I think the key is that "the markets" (meaning the stock, bond, treasury and money markets, including what ZH calls the "shadow banking sector") are all just assets with no "money" in them. There's "money in" and "money out". It's very similar to a Ponzi scheme in that no one can take out a single dollar unless a dollar is going in on the other side. Only money coming in supplies the drain of money going out. But unlike a Ponzi scheme where at some point there's not enough new money going in to fund the redemptions, the Fed can actually put brand new money in at any time.

Imagine if Bernie Madoff had a printing press. His Ponzi scheme would never have needed to collapse. It's kind of like the fact that 1930's style bank runs won't ever happen again. Instead, this time, the value of the dollar will collapse.

Money is fungible, so it doesn't matter where the Fed is injecting it, into MBS, or AAPL, doesn't matter. It's all part of the "money in" to the arena and the USG is the main "money out" so unattached new atoms all get combined through the USG. "Money in" from savers (domestic or foreign) is all full molecules. "Money in" from the Fed is unattached atoms and the USG is unique among the various drains on the system in that it can turn atoms into molecules. So that's how USG deficit spending is directly inflationary in the amount put in by the Fed, no matter where it put the new money.

Sincerely,
FOFOA


______


The following are all Rothschild properties, both past and present, from Wikipedia. Some were simply donated to charity:















































Here are my "Giant thinking shoes". Go ahead, try them on...



And, of course, They Might Be Giants. For Jeff, not Pete T:





144 comments:

Wendy said...

first!! ;)

Aaron said...

Silver! ;-)

Nickelsaver said...

Aaron, lol

jeb said...

This series of thoughts answers alot of queries ive had. On the idea of marginal utility value of currency, I only just clicked a couple of weeks ago, previously the marginal utility of goods was as far as i had got. I explained the concept to my friend using fridges, one for the kitchen, one for the man room, one for the garage etc... then told him the saudies have the same problem with currency.
As a side note- Mike Maloney has linked you in his latest blog entry. It must be hard for someone who makes money promoting a gold standard to accept that it will not be the path we're heading down. Lets see how his thoughts pan out.

KnallGold said...

My prayers go out for the one trying to jump from the stratosphere-wondering if that is really technically possible, I mean sonic boom and such hurdles. Mom's side from me is Baumgartner, coincidentally.

http://kurier.at/nachrichten/4514632-baumgartner-der-stratos-sprung-live.php

(now that's really a KNALL...for a 50:50% chance to survive)

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

Gold medal for surviving!

罗臻 said...

This post is a very good explanation for why the U.S. dollar remains the world reserve currency and will continue to remain the world reserve currency for some time. Put yourself in the shoes of Giants and superGiants: sovereign wealth funds and central banks. The U.S. financial market is the only market in the world currently large enough to absorb global capital flows.

This is partially why I remain bearish/deflationist despite agreeing with the freegold premise. Just look at the Swiss and their problems with the euro. Gold is clearly a solution, one that Russia, Saudis, Americans and Europeans can all agree upon (due to gold holdings), but there's no sign yet. As long as the USG and Fed are not increasing debt/monetizing fast enough to overtake the destruction of credit, risk remains outside of the U.S. and crises abroad add to the lifeline of the greenback.

Winters said...

A great exchange although as it progressed into QE3 it started to go over my head :) If you are up for a challenge FOFOA - you could always try a Sal Kahn like presentation with tablet and drawings for the simple shrimps :)

The giant talk was great. Reminded me of Ari's piece where he goes on military shopping spree:

How much IS 100 billion dollars per year? It can't be much, because we all know the Middle East is heavily in debt with struggling economies even now at the end of the 1990's. Right? Well, I invite you to follow along, and judge for yourself. Let's try to spend that $100 billion, and remember...it is 1974. And let's not waste time on small stuff, we'll go right for the big ticket toys...

@MF [prior thread] that was a great ZH comment by Blondie. Brilliant stuff and I've posted it into my Evernote collection of cool/ah ha moment freegold quotes. I really hope Blondie does a FOFOA debrief.

Further up in the comment thread, Blondie alludes to the fact that ZH edited out the credit to FOFOA in the GBI piece. I'm curious about that and the motivations. I'm wondering if it is by ongoing request of FOFOA to avoid a lot of spill over from the silver zealots flooding the comments here. I mean - ZH lives off the content it finds - and FOFOA has been published there in the past but then it stopped. It makes sense for ZH to keep publishing such quality content unless FOFOA requested that it not be so. Thats an area of curiosity I have for a FOFOA self debrief q/a :)

BaronSilverBaron said...

As a newcomer I do feel a bit like a heterosexual at a gay convention asking what's wrong with sex with the opposite sex when asking this question:-

Before I ask my question I have read carefully the above question and answer post so I'm not just asking this for the sake of being awkward.

Question:-

Why isn't Silver a store of wealth like Gold? I know Silver has industrial uses but would Gold loose it's place as a store of wealth if it was suddenly in demand for industrial use? Silver seems to move in lock-step with Gold and to be just as manipulated so why is it not a store of wealth? Wouldn't a Rothschild hedge his bets by holding Silver as well as Gold?

(Note:-please don't point me to previous articles as I have now read most of them)

Pat said...

Baron,

Haven't you asked the same question now multiple times, and politely been given clear directions and clear answers multiple times?

Just because you don't accept the answers and "pointing to previous articles", do you think by asking again you will receive a different answer?

Michael H said...

"Think Like a Giant", or, said another way, WWADD?

...

BaronSilverBaron,

Yes, yes, we get it, you don't have to preface every single comment with some metaphor about how you don't fit in here, don't agree, whatever. Just ask your questions, without calling us homosexuals (not that there's anything wrong with that).

Why isn't Silver a store of wealth like Gold?

Silver is a store of wealth, like fine wine, art, and real estate. Right now, gold fits in that category as well. But, the financial landscape will be changing soon, and gold will have a new role to play as the dollar is unseated as the world's reserve currency.

It is that new role for gold that will necessitate its revaluation. Silver will not share that role, so it will roughly track inlfation.

I know Silver has industrial uses but would Gold loose it's place as a store of wealth if it was suddenly in demand for industrial use?

As per above, silver will roughly track inlfation, depending on the demand and supply. Should the industrial demand suffer as the world economy is thrown into chaos, silver demand will suffer accordingly.

Should investment demand for silver flag because silver investors will decide they would actually like to own gold instead (given the new financial landscape), there will be another hit to demand, and an increase in supply to boot. Strike two.

Should additional silver supply find its way to the scrap silver market due to economic desperation by its owners (tea sets, silverware, etc), then there would be a further increase in supply. Strike three.

As for gold in industrial uses: gold has some industrial uses now. Most of these will be priced out and filled by other metals when gold gets revalued.

Silver seems to move in lock-step with Gold and to be just as manipulated so why is it not a store of wealth?

Today's markets are not tomorrow's markets. "Past results are not a guarantee of future performance", as people like to say.

Silver is a store of wealth, as I wrote above. That does not mean it will be the best store of wealth.

The oil markets are manipulated as well. Is oil a store of wealth? Oil tends to broadly move with gold also (see gold-oil ratio).

And recall that 'manipulated' does not mean 'suppressed'. I.e. it should be pretty clear that silver was 'manipulated' up quite effectively in April 2011.

Wouldn't a Rothschild hedge his bets by holding Silver as well as Gold?

Sure, a Rothschild could, but why? The Rothschilds are already hedging their bets by owning a plethora of productive enterprises, real estate, mansions, private jets, art, wine, etc. And I'm sure they have extensive collections of silver tea sets, silverware, goblets, and what have you.

Why would they feel the need to add another few pallets of silver in the vault? Just to store another measly few million in purchasing power?

Bjorn said...

Thank you Michael H! I was consedering writing something very similar, but luckily updated the page before I started. Well said!

I´m too slow to understand what WWADD means though...

Kid Salami said...
This comment has been removed by the author.
Kid Salami said...

"Of course we could run the same exercise with a tanker full of oil that you just purchased for $100M versus $100M in currency assets. It doesn’t become valueless just because the dollar loses value because we know oil's value relative to other goods and services. But gold’s value does not relate to other goods and services because its main use is SoV"

What if I were to suggest a view that says that: all goods are valued in part by their value right now (their value as consumables or factors of production) and in part by their suitability as consumables or factors in the future; but that what is unique about gold is that its value as a consumable or (direct) factor is 0, now or in the future, and that, because it is the SoV and used by savers/producers to decide what and how much roundabout production there should be, then its value is derived entirely from time.

That is, the price of gold is a measurement of the suitability of the current structure of production - all the current "stuff" - to what is actually going to transpire in the future. And "the future" is not homogeneous but it is weighted towards the near future. Gold was low in the 80s and 90s because although the capital structure was absurdly out of whack with the long term (20-30 yrs +) in the nearer term, there was a few years of bubble blowing to come yet and enough people were happy to make fiat from the ponzi and postpone their gold purchases, which kept the price down.

As we get to nearer to a crunch point, the unsuitability of the structure of production to the relevant future becomes greater and the price rises to tell everyone this.

JR said...

Hi 罗臻,

Put yourself in the shoes of Giants and superGiants: sovereign wealth funds and central banks. The U.S. financial market is the only market in the world currently large enough to absorb global capital flows.

Absorb. That's a neat idea. Here is an idea: currency flows through assets, not into them..

Here is another idea about absorption - why is the paper gold market so big? There was apparently demand for 7,575 tonnes in Q1 2011, while The normal supply for that period would have been around 700-1000 tonnes. Yet in the paper gold market, the price of gold only rose $30 in a quarter with a demand shock of 10 times the normal physical supply flow. An elastic paper market shock absorber for gold is only necessary if the price is too low, because there will always be plenty of supply if the price is high enough (60 year supply overhang, remember?). At today's price, having a paper market shock absorber is apparently necessary to keep the gold market from blowing up.
Fallacies – 1. Paper Gold is just like Paper Anything

You see, a dramatically fast and public rise in the price of gold...would absorb a lot of the monetary pressure and keep it away from essentials like food and gas. That's the best and highest function of gold. To absorb. To consolidate. To sequester monetary pressure. To bottle it up and put it on display for all to see. For all to not only marvel at, but to partake in as well. And to do so in a way that doesn't affect vital economic commerce. This is the elegance of the ECB/MTM party concept. This is the elegance of Freegold!



JR said...

Key idea to rehash from above:

"currency flows through assets, not into them."

Are we agreed on this part? There’s no “currency” in the stock market. If you bought $100K in stocks your currency flowed through those stocks, not into them, and now you hold assets, not currency. Agreed?

And how do we know the value (price) of those assets? We know it by its currency price, right? China’s Treasuries are not currency. The currency China receives through its trade surplus it gives to the USG to spend. The currency flows through those Treasuries to the debtor. Now China holds those assets, not currency, right?

"currency flows through assets, not into them."

Okay, as long as we’re agreed on this part, let’s look at gold. We could say the same thing about gold. If you bought $100K worth of gold your currency flowed through to the seller of that gold and now you only hold an asset, right? The gold. And how do we know the value (price) of that gold? Do we know it as a currency price? Is that correct?

If the USG goes ballistic defending its inflow of real goods and services with the QE printing press, who is going to dishoard some gold for dollars? No one, you say? So if there’s no dollars and gold being exchanged, how do we know the value (price) of that gold? Is it valueless now that there is no dollar price for it? Or is it priceless?

How about your stocks? How about your Treasuries?

Of course we could run the same exercise with a tanker full of oil that you just purchased for $100M versus $100M in currency assets. It doesn’t become valueless just because the dollar loses value because we know oil's value relative to other goods and services. But gold’s value does not relate to other goods and services because its main use is SoV. Gold value "is arbitrary!"

So with the oil, as long as we could determine the dollar price of something, anything, we could know the going price of oil, right? Just like in Zimbabwe. Currency still priced eggs even when three eggs cost a billion Zdollars. Currency prices oil just like currency prices everything in the “overhead” realm. Because currency is only the middleman between these things’ relative value to each other. Only gold’s value is not relative to everything else in the physical plane. Gold’s value is arbitrary. It has no economic or utility metrics by which to compare it to the rest of the physical plane.

Currency prices everything (but gold) because currency is simply that middleman between their known relative values. Everyone knows that an apple is worth two bananas. So currency between apples and bananas prices those items. But there is no intrinsic, calculable relative value between an ounce of gold and a men's suit. Their relationship is arbitrary… it can be whatever subjective value the superorganism takes it to without affecting anything else. No chain reaction will happen.

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

Get the concept!!! Don’t get too hung up on the words. It’s all about concepts, not necessarily the words. Words are fallible and limited in scope. Concepts (if they are true) have infinite resolution. Test the infinite resolution of this concept:

It is gold that denominates currency.

Motley Fool said...

@burningfiat

Thanks for fixing my link. :)

@FOFOA/Aquilus

It is really hard for a shrimp to imagine more money coming in that I'd know what to do with. I can manage the concept just barely. ;)

@BaronSilverBaron

"but would Gold loose it's place as a store of wealth if it was suddenly in demand for industrial use?"

Yes, but it would have to be an extremely important use for the human superorganism to abandon gold as store of value and use it up instead. Like time travel or wormholes or unlimited energy some crazy use.

We need Something to fill this role of useless thing to store value in. To replace it with another metal now would mean we would need to increase the stock-to-flow for that thing by a staggering amount.

I just don't imagine it happening, but who can know the future.

I suppose platinum could work...if we built up stocks for the next 100 or so years.

Silver is not like gold for precisely this reason. It is very useful. Our stocks of it are being depleted. That means a low stock-to-flow ratio which makes it terrible as store of value, as it can fluctuate wildly.

TF

JR said...

Hi Kid Salami,

Are you from Genoa? I heart charcuterie/salumi.

What if I were to suggest a view that says that: all goods are valued in part by their value right now (their value as consumables or factors of production) and in part by their suitability as consumables or factors in the future; but that what is unique about gold is that its value as a consumable or (direct) factor is 0, now or in the future, and that, because it is the SoV and used by savers/producers to decide what and how much roundabout production there should be, then its value is derived entirely from time.

Close - from above:

Time becomes a factor when you save. Remember that the difference between a medium of exchange and a store of value is only a sliding scale in the time dimension. Any medium of exchange is also a store of value to some extent, and any store of value is a medium of exchange to a degree.

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

The Return to Honest Money

The economy needs the lubrication provided by transactional currency for it to run smoothly. Obviously not all of it is saved and stored as wealth. Only a small portion of the flow of transactional currency is saved. And those that would hope to print in order to buy are only stealing from that small portion that is saved. If you "do the math" you'll find that, in the long run, this is true. And if you separate that saved portion by using a secondary medium that floats in value, then inflationary policy becomes self-defeating to the currency manager. 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:
...

The Money Concept

FOFOA: The measure of any money's store of value is a continuum of time. It is directly linked to demand and velocity. Even the worst money (say, Zimbabwe dollars during the hyperinflation) works as a very temporary store of value. Perhaps you read stories about workers in Zimbabwe getting paid twice a day and then running out to spend it before coming back to finish the shift. This is an example of the briefest time period in which currency stores value.

FOA: Was gold a medium of exchange? Yes, but to their own degree, so were the bowls. Was gold a store of value? Yes, but to a degree, so were dinner plates. Was gold divisible into equal lesser parts to define lesser barter units? Yes, but to a degree one could make and trade smaller drinking cups and lesser vessels of oil.


Here's the thing, 'store of value' and 'medium of exchange' are relative terms. Anything real stores value (a painting, a computer, a jewel), and lots of things are media of exchange in various settings (dollars, other currency, cigarettes in jail, etc). And for stores of value, there is a continuum as to how long things store value. What we are talking about is degree. And this gets to the heart of a semantic issue about money being media of exchange and a store of value.

Candy Sange said...

Date: Sat Mar 07 1998 13:25
ANOTHER (THOUGHTS!) ID#60253:

Change

I would like to start with a post from a gentleman from the Kitco forum as it sets the tone for this article:

Date: Fri Jan 23 1998 22:57
Junior ( @ ANOTHER & Change ) ID#248180:
I am reminded by ANOTHER'S comments regarding "Change" of a profound statement by a spokesman from the Middle East Oil Producers during the mid seventy's ( approx.1975 ) He said: "My Grandfather rode a camel, my Father rode in a Mercedes, I have numerous Jet Aircraft, my Son will ride a Camel." It provokes thoughts that the countries of the Middle East and China are not as nervous about change as the consuming and material minded nations of the West.


Mr., Junior, thank you for that deep thought!

During the span of ones life we must consider weather we really do experience changes or are we just experiencing a rebirth of old values from the past, repackaged for this modern world. In times past, real money did not earn interest unless it was lent out. Yet, it retained value relative to all things. Today, paper currency, also does not earn interest unless it is lent out. However, it does lose value against real things, over time. In this light one must also grasp that a currency unit, in hand, is "lent out already"! It is a credit, to be paid in the future. Truly, cash, outside the banking system is a receipt for "lent out money" that just doesn't earn interest!

Much of the discussion of today, evolves around; How does one recognize real money? My answer is, find the largest store of financial units, held by banks, that is not lent out and does not earn interest. It is by far, gold! There is no other unit, in the world today,that meets this criteria. Even with the current mobilization of bank gold, it is still the number one holding of "non paper credits" that is not lent for return! Some would point to it's price in US$ and say, it does not hold value relative to real things. That would be true, but gold, while allowed to be "freely convertible" into any currency, is not allowed to trade "freely". It's price is managed. It is "The" "political metal"!

We can find one entity in this modern world that firmly holds that gold is "the real money amoungst moneys". That entity is the BIS. They are the only bank in the world that can buy physical gold and become financially "stronger" with this act. They are "The Bank" and their central holding is "The Money" of today. Other CBs buy gold and show it's value as a liability as it is not marked to the market. Yet, they can hold capital of the BIS and it is as a 100% asset!

In this modern financial world, a person of little business knowledge, can make an investment of "world class" proportions! He may, if you will, "walk in Anothers footsteps" and in doing so receive a value for a lifetime of work. The coming change in perception of money will reward courageous buyers with a return unseen in these times!

To use a sophisticated paraphrase from the Kitco Forum, "go gold"!

thank you



Wot.. no silver?

BaronSilverBaron said...

@ Michael H

Thank you Michael H for taking the time to have a stab at my recurring problem. You seem to be a like a breath of fresh air in a stale room full of self-congratulation and intolerance, ooops, sorry, another metaphor.

Although my understanding has improved I shall keep asking questions until I too suffer from "Gold Blindness" (to those of you who are so intolerant that was a joke).

I have found in life that if something is simple to explain it usually has truth whereas if something needs a thousand words then you can bet that it's a false premise.

Before I fully join your club i shall wait for that blindingly simple explanation although I suspect by some of the intolerant comments the club has a closed membership.


Crack said...

Most of the 1000's of words are there to help one spot the items of bullshit one carries around with oneself, which are obstructing ones view of the blindingly obvious.

BaronSilverBaron said...

Another question is my quest for "enlightenment".

I presume most of the people here wish to get a ride on the Giant's coat-tails when Gold takes-off. I also presume that the Gold held is small bars and coins.

If the Giants, Powers That Be, Governments and Central Banks decide that the only Gold that has value has to be a Good Delivery London Bar (400 oz) what then for the little man?

Motley Fool said...

BSB

Now you are just fucking with us right, right?

Gold - Au - Melting point : 1064C

TF

BaronSilverBaron said...

@ Crack

See what I mean about intolerance. Just a smart-arse response.

Motley Fool said...

BSB

Silver is not like gold for precisely this reason : It is very useful.

There is your blindingly simple answer.

TF

Clyde Frog said...

Yes, because all balance sheets with any gold on them today are denominated in the number of 400oz LGD bars.

BaronSilverBaron said...

@ Motley Fool

No. It's a genuine question. I hold my Silver in Good London Delivery Bars (1000 oz).

Crack said...

Intolerance? All I did was tell you what you're reading is much simpler than your preconceptions lead you to believe.

If you want to experience some intolerance today, just keep going in the direction you're moving so far.

BaronSilverBaron said...

@ Motley Fool
Gold can be melted down correct! But if "Freegold" occurs and Governments and their masters the private Central Banks have total control won't they force the "little-man" to part with his Gold by having something like a 99% tax on sale?

Motley Fool said...

BSB

It might be worth your while to read Blondie's rant. Slowly. (linked in the previous post)

TF

Motley Fool said...

BSB

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

http://fofoa.blogspot.com/2010/08/confiscation-anatomy-part-2.html

TF

anand srivastava said...

BSB

You need to do a lot of unlearning to understand that gold is a better store of value precisely because it is useless.

Fiat is money, because it is useless. Gold is money because it is useless.

Silver used to be money because it was useless. It used to be the softer counter part of gold money. But once we got the paper currency, we no longer needed silver. Like all things it took a long time for the human superorganism to realize that.

All store of value objects are useless, castles, paintings, antiques, gold.

After this transition most people will realize that silver is no longer a store of value. As it will get a lot cheaper due to the three reasons that Michael H gave.

Hope you will have the epiphany some time.

BaronSilverBaron said...

@ Motley Fool
I have read "confiscation-anatomy part 2 (I can speed-read)


This caught my eye:-

"If the USG (poorly/suicidally) decides it wants to steal some gold in the future, it will ONLY go after soft targets"

I've still got some digging to do do but I've an awful feeling that I don't like to idea of Freegold. I quiet like the idea of my Gold and Silver gradually increasing it's value and being out of the line of fire from the big government guns.

I just have a strange feeling that if Gold was so important in the future you and I wouldn't be allowed to benefit.

As they say "If voting made a difference we wouldn't be allowed to vote".

JR said...
This comment has been removed by the author.
Woland said...

Hey Motley:

I say this somewhat "tongue in cheek" , as comment policy
here is none of my affair, but whenever I go to Sothebys
or Christies to view their online auction catalogs, I have
to check a box which says: "I have read the terms and
conditions...blah blah blah, and agree to abide by the
same".

Perhaps Blondie's "rant" , so Hemmingwayesque in its
clarity and simplicity, could act as a proxy for those
"terms and conditions", followed by a few simple
questions - kinda like proving that you're not a 'bot.
None of my business, of course, but it might save on
the ever growing server space needed to store all this.
Cheers.

Michael H said...

WWADD = What Would AdvocatusDiaboli Do?

...

BaronSilverBaron,

One must posess a thick skin if one wants to mix it up on "teh internets".

Some months back victorthecleaner made several comments on Turd Ferguson's blog. They were received as well as a ... well, you can fill in the blank, since you've shown yourself to be much better at coming up with apt metaphors than I am.

That is to say: don't take it personally.

... I've an awful feeling that I don't like to idea of Freegold ...

What you do or don't like makes no difference whatsoever to what the eventual outcomes will be.

Michael H said...

Just look at the Swiss and their problems with the euro.

Now that you mention it, the fact that the Swiss went with a Euro peg of the currency and not a USD peg of the currency, should tell you that the USD is on its way out. Yes, it could take a decade or two still (or it could end tomorrow), but on its way out it is.

JR said...

BSB,

But if "Freegold" occurs and Governments and their masters the private Central Banks have total control won't they force the "little-man" to part with his Gold by having something like a 99% tax on sale?

Freegold occurs does not equal "Governments and their masters the private Central Banks have total control."

That would be more akin to now under the $IMFS, where gold, while allowed to be "freely convertible" into any currency, is not allowed to trade "freely". It's price is managed. It is "The" "political metal"!.

Freegold is the end of this. The fractional reserve banking practice, which is a carryover from the gold standard. This is the free in Freegold. A free market in gold.

See this comment about the importance of *PRIVATE GOLD* and this followup post.

Jeff said...

Speed reading is nice; speed comprehending is more useful.

On another point, the Rothschilds had excellent timing, getting into the paper gold business just before Genoa, and getting out just after the advent of the euro. And they sold quite a bit of gold forward in the old days, through Anglogold Ashanti. The 'noble house' doesn't do that any more.

http://www.ft.com/intl/cms/s/0/c83034d6-c0f0-11df-99c4-00144feab49a.html#axzz28oNSLb9h

Date: Thu Jun 05 1997 17:23
BIG TRADER (THOUGHTS!):

Hong Kong is as a great flowing river that has reached the ocean of her birth. They fear her no more. But a great “Noble House” has come out of these waters and it will not fail. Bring London’s problems to us, one by one and they shall be dealt with. If they have no fear then let them look behind as South Africa has drawn her sword. Many will soon loose their heads in a mad rush to find “real gold”!




M said...

I explained this another way here:

http://freegoldobserver.blogspot.ca/2012/07/warren-buffet-and-his-gold-delusions.html

poopyjim said...

Argumentum ad hominem: An ad hominem (Latin for "to the man"), short for argumentum ad hominem, is an attempt to negate the truth of a claim by pointing out a negative characteristic or unrelated belief of the person supporting it. Ad hominem reasoning is normally described as a logical fallacy, more precisely an informal fallacy and an irrelevance.

Here is an example of ad hominem reasoning, often employed by silverados, such as BSB:

The FOFOA readership and tweeters are big, bad, arrogant, meanies! Therefore freegold has no validity. *I* was not accepted by them, and therefore I shall reject the truth value of any premise they set forth! So there! How do you like that you freegolder bizotches!?

Michael H said...

FOFOA and Aquilus,

This was a great post! Love the 'socratic method' format.

Woland said...

Hi Jeff:

What do you make, (if anything) about the coincidence of
the June 1997 British hand over of Hong Kong, and the start
of Big Trader's writings, and those of Another? You were at
the old USA Gold forum from pretty much the beginning,
right?

Aquilus said...
This comment has been removed by the author.
Aquilus said...

@Michael H

This is why I suggested that they become posts (I had envisioned individual posts initially).

But I also like the email format because it shows how FOFOA is basically "teaching me how to fish" and not just "giving me a fish" when I am questioning the premises of the things that were not clear.

I mean, if there's one thing I have learned is that if something does not make sense, question my assumptions (many here call it dropping your pre-existing baggage) and remind myself that things are the way they are, not the way I'd like them to be. And that's not an easy thing to do ego-wise, let me assure you.

@SoManyRoads

I will respond to your question in a day or two - not enough time today. I also put a link in the comments in previous post for how to contact me and leave me your email if you'd rather correspond in a different language when time permits.

somanyroadsinvesting said...

http://www.oftwominds.com/blogoct12/Triffin-dollar10-12.html

Curious of thoughts if you have not read this already. Makes the case that the USD will strengthen over time.

Thanks

罗臻 said...

Absorb. That's a neat idea. Here is an idea: currency flows through assets, not into them..

I agree with the concept. It is better to say, America is the only water main large enough to handle the global flow of capital. Capital flows through assets, but the bigger the assets, the bigger the flow.

Freegold is a new plumbing system, but few people use it today. Other water mains (Swiss francs, Chinese yuan, commodities) will burst and explode if the American water main diverts into their systems. If that happens, people will reflexively look to have the American system take the flows again.

Jeff said...
This comment has been removed by the author.
Nickelsaver said...

Baron,

I see a lot of myself in you. Like you, I came to this forum with the idea that somehow, when it is all said and done, silver is a metal that exists (both in the physical and monetary realm) at a particular ratio to gold. I struggled with the concept that there could be any force that would cause that to change by very much. In my mind, it seemed reasonable that simple supply and demand was all that one needed to look to.

So I would like to share what change my mind.

There are many very intelligent persons in this forum. I consider myself to be one of the "laymen", as I do not possess the brain power to carry on deep conversations about the inner workings of the "economic clock" currently tracking global financial reality. So bare with me as I attempt to put things in simple terms (subject to scrutiny by virtue of that simplicity).

At the top of this blog we see this phrase:

"Everyone knows where we have been. Let's see where we are going!" -Another

Think about that for a minute. I have have pondered that statement, and have come to the conclusion that it is both they key to understanding, and the also a blatant falsehood.

Why? It is precisely because everyone DOES NOT know where we have been, that there is so much angst about where we are going.

When I say that, I put myself at the front of the line as one who needed and needs to re-learn history. For in looking at the current landscape, I impose my own perception of history on the present. In doing so, I am apt to see the future, not as it will be, but as my limited perspective allows.

With this in mind, to really appreciate this blog, one has to make a decision to "forget what they know", and try to take it all in as objectively as possible.

----

So let's start with history.

Once Upon A Time the world was changing from a collection of relatively isolated economies, into a global network of nations - interconnected through commerce.

Where we are right now, is a direct result of actions taken (not simply by individuals) but by nations. And where we are right now is not simply a matter of examining the actions of individuals with the idea of what money is. It is more a matter of what nations have done collectively as in a long playing game of chess.

So why is gold different that silver, or platinum, or copper, etc? Because it has been, and because it is. Look at the actions of the nations (over the course of centuries). And then allow yourself to think like a giant.

WWGD - What would Giants do?





Woland said...

Jeff; Fofoa has my email address, and hereby my permission
to release it to you, at your request. Thanks

Aquilus said...

Woland, Jeff

If you want to exchange emails another way would be with a temporary email address that forwards your email and expires after a set number of hours. Something like: http://www.mailexpire.com/ (one of many)

You would set up a temporary email (straight forward) and this email stops forwarding after the set time.

P.S. FOFOA, if you want to delete this comment as it's not relevant to the post, feel free to.

BaronSilverBaron said...

@ Nickelsaver

You do yourself an injustice. Putting things in "simple terms" IS the mark of intelligence.

"What would Giants do?"

I have a feeling they wouldn't let the "Little-People" participate.

Centralisation is the control mechanism of the "Elite". Individualism is the protection for the man in the street.

If there is a collapse of the present financial system I hope the "new" idea of money springs from Individualism rather than the "Elite"s" Centralisation.

Peter said...

Yes. The "Elite" won't prevent "the main in the street" possessing & using "their money" (gold).

Network effect

Jeff said...
This comment has been removed by the author.
Nickelsaver said...

I have a feeling they wouldn't let the "Little-People" participate.

Feelings are subjective. If the Giants are positioned to simply preserve the wealth that they have accumulated, why would they care what the ants do at all? And if some ants should look at their actions and follow in their footsteps, do you think that they would go out of their way to prevent that. Where is the payoff?

The fact is, the ants are already in deep water and some cling to what they think is a life preserver (silver). The giants pay them no mind. And the ants that have found the lifeboat (gold), they are just as insignificant to the giants as those that drown.

Moreover, if you believe that the giants have an agenda to exclude the ants (I do not), what better way than to let them believe in anything other than gold? :-)

"If there is a collapse of the present financial system I hope the "new" idea of money springs from Individualism rather than the "Elite"s" Centralisation"

So much baggage! Try, just try to put the morality issue to the side and look at the long view. You will NEVER be able to see clearly until you stop trying to look for what you think is there in favor of what actually is.

Jeff said...
This comment has been removed by the author.
Indenture said...

Baron: We know you feel like an outsider, you have made that clear, so we can move past the metaphors please. Now here we are. If you are interested in learning about Reference Point Gold there are highly intelligent men and women who have journeyed from ignorance to understanding and they are willing to help most anyone who politely asks. Help sometimes might come in the form of a link to a previous post by FOFOA and when it does there is a reason these bright people point to one particular source for the information requested.

If you own 1000 oz silver bars then you have already made a conscious decision to store your excess wealth/value in something other than fiat and since you didn't mention having any gold it sounds like you have chosen to store your excess value in Silver instead of Gold. I think you have chosen the wrong metal. The Giants think so also.

You have, at this moment, some of the best ants open to answering your questions.

BaronSilverBaron said...

@ Nickelsaver

What baggage? Morality....where did that come from? The "long-view" is we are all dead. I'm just trying to get a handle on where the people on FOFOA are coming from (and possibly where they are going).

As I've become long in the tooth my "long-view" has become pretty short-view.

Ever since I began buying Gold and Silver (10 years ago) I have been constantly told that "tomorrow" I'm going to be a "Millionaire". Bix Weir, Sprott, Turk, Turd all the people interviewed on King World News and Uncle Tom Cobbly and all. Usually they all have something to sell.

FOFOA didn't sell anything so it got me intrigued. I wanted to know why the FOFOA "diehards" were so convinced.

So far I have been "educated" into the idea that if I was a Giant I would certainly hold Gold and not Silver. This makes sense because it's more valuable weight wise and I wouldn't be interested in making a killing if Silver was to explode.

I have a feeling the "Powers That Be" won't want to give up lying, stealing and cheating just to introduce a nice fair monetary system based on Freegold.

Still I'll keep trying to "see where we are going".

JR said...

Hi BSB,

Well said, its folly to suspect the "Powers That Be" wouuld give up lying, stealing and cheating - that's quite an "exorbitant privilege" to relinquish. But luckily for us, that is not what A/FOA/FOFOA contend:

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

BaronSilverBaron said...

@ Indenture.

Why does everyone insist on telling me that the site is inhabited by "highly intelligent men and women"? Does it need to be said because it's difficult to discern? Only joking.

I have Gold AND Silver. I like both. I also use BullionVault and GoldMoney. I like both. Belts and braces.

JR said...

So what emerges as wealth reserve asset par excellence as the $ collapses:

"I cannot see a dollar collapse without a simultaneous revaluation of something else. It's a seesaw. The dollar isn't collapsing against gold. It is collapsing against the physical plane of goods and services. That's the fulcrum, not gold. Dollar collapse is the force, goods and services the fulcrum, and gold the load. So gold is revaluing against goods and services. The gold revaluation is against the physical plane so as to fill the reserve void left by the dollar's collapse."
FOFOA comment to Moneyness

===

Something has to fill the void. Will it be a commodity like silver? Here are two reasons *gold is different*:

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

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

Peter said...

Yes JR.

We can see who will push up gold, to offset their own $losses - the BIS & CBs. Because, LDO, they have access to as much money to buy gold as they will ever need in order to make it whatever price they like in terms of their own currencies.

Who will be elevating silver's value? Shrimp silver stackers?

Is this getting into the ballpark of "simple" yet?

Michael H said...

Michael dV, JoyOfLearning

Thanks for the link to http://www.zerohedge.com/news/guest-post-how-draghi-opened-door-hyperinflation-and-denied-fed-exit-strategy. Let me share my understanding:

First, the author’s conclusion:

… as these so-called Outright Monetary Transactions (OMT) develop, we may eventually see net interest losses run by the European Central Bank. It is clear that a net interest loss would be expansionary of the monetary base, because in order to pay for that interest loss, the central bank would have to print more euros, which would need to be sterilized, increasing its debt and interest losses exponentially. …

Having said this, we think that the time frame for such a result would be considerable. It would take years for this to unfold and it is very unlikely that it ends in hyperinflation because Germany and the rest of core Europe would leave the Euro zone before it gets there.


MH: So he sees the hyperinflation loop being started by a net interest loss run by the ECB, but HI averted because the Euro would break apart first.

I am of the opinion that everything will be done to prevent the latter outcome, since a breakup of the Euro would mean either international-barter-town or another half century of laboring under the exorbitant privilege of the USD.

Where does the potential net interest loss to the ECB come from? In short, the euro banks will buy sovereign debt (1-3 years), which they will sell to the ECB in exchange for ECB debt (7 days). Right now, the sovereign debt in question is trading below par, so the exchange is profitable for the banks. But, as the situation develops,

If the interest payable on the ECB debt was higher than that received from the sov bonds, the European Central Bank would have a net interest loss, which could only cover by printing more Euros. This would be a spiraling circularity where the net interest loss forces the ECB to print euros that need to be sterilized, issuing more debt and exponentially increasing the net interest loss.

MH: Why would the interest rate on the ECB debt need to be higher than that on the sov bonds?

The assumptions that lead to this conclusion are:

The key assumption here is that primary fiscal deficits persist across the Euro zone. Secondly, within that maturity range selected by the ECB for its secondary market purchases (up to three years), the market will arbitrage between the rates of core Europe and its periphery, converging into a single Euro zone yield target.

MH: I think the first assumption is valid; I don’t think any country in Europe will be allowed to default because the risk of contagion is too great. And the economy in Europe is bad enough that, even with austerity programs in place, it doesn’t look like budget surpluses are anywhere on the horizon.

What about the second assumption? I think if one is to disagree with this article, this is where the discussion should center. In essence, he’s saying that the ECB backstop will have the effect that debt issued by all countries in the Eurozone in the 1-3 year range will have the same yield.

Continued …

Michael H said...

Here, in the author’s words (because my interpretation may or may not be correct), is what follows from that second assumption:

Now, for simplicity, let’s say that the discovered yield cap, which going forward will be a floor, is 4%. This 4% will be a risk-free rate, which in a world of ultra-low interest rates, will look very tempting. The problem is that the risk-free condition holds as long as the bond is bought by the European Central Bank. In the zombie banking system of the Euro zone, where the profitability of banks has been destroyed, banks will not be able to survive if they pass this risk-free yield on to the central bank, unless….unless the central bank compensates them for that lost yield with a “reasonable” rate on the debt it issues during the sterilization. And no, we are not thinking of 75bps!

What is then a reasonable rate? Well, a rate that leaves a profit after paying for deposits. Yes, we know that that is not a problem today, in the context of zero interest rates. But if the floor sovereign rate for the whole Euro zone converged to a relatively significant positive number, banks would only be able to attract the billions in deposits they lost –which are needed in the first place to buy the sovereign bonds in the primary market- at rates higher than the sovereign floor rate received by the ECB. Why higher? Firstly, because unlike the holders of sovereign bonds, depositors do not have the explicit backstop of the European Central Bank on their deposits, which are leveraged multiple times. The liquidity lines provided by the European Central Bank may disappear at a moment’s notice, which is why money left the periphery to the core of the EU zone. An alternative to the European Central Bank, if the deposits from the private sector did not stop falling, would be to keep lending to the EU banks. But this is not feasible in the long run, given the shortage of available collateral. Secondly, as the yield cap becomes the convergence floor, the market’s inflation expectations crystallize into a meaningful expected inflation rate.


MH: Let me try to break it down into bullet points:

- Sovereign yield in Europe converges to a significant positive number, say 4%

- The 4% rate on sov debt will only hold if ECB purchases the debt, but the banks cannot afford to forego this 4% income unless the ECB pays well on their 7-day debt (MH: catch-22?)

- The rate the ECB pays must allow banks a profit after paying for deposits.

- Banks need to pay positive rates to attract deposits; they need deposits to buy the sovereign bonds they will tender to the ECB.

- In fact, banks will have to pay higher rates on deposits than the yield on sovereign bonds because a) deposits do not have an explicit ECB backstop and b) as rates converge (to 4% in this example), inflation expectations would follow

MH: So there are three points. First, the banks have to continue purchasing the sovereign debt. Second, the banks have to continue to earn interest. Third, the banks have to pay out interest to attract deposits.

So here is another way in which the ECB may be able to head off this outcome: by implementing continent-wide deposit guarantees. I think this has been brought up in the comments recently. This should help the banks attract deposits and reduce the required interest rate they must pay.

Continued …

Michael H said...

Back to the second assumption: I don’t see why rates would converge; either I don’t understand the argument or I don’t agree with it.

First, I don’t really understand what the author means by ”The problem is that the risk-free condition (MH: converged 4% rate) holds as long as the bond is bought by the European Central Bank. In the zombie banking system of the Euro zone, where the profitability of banks has been destroyed, banks will not be able to survive if they pass this risk-free yield on to the central bank.”

It seems contradictory. Rates converge to 4% because the ECB is buying the bonds, but the banks cannot afford to sell the bonds because they can’t give up that 4%.

Second, I don’t see as a given that rates would converge; i.e. that core country debt yields would rise to match the ceiling that the ECB sets for periphery country debt.

I mean, if you are a bank and you cannot afford to forego the interest income of sovereign bonds, why not just keep the bonds. If you don’t want to keep Greek bonds, why not buy some German bonds instead. Then there would be increased demand for German bonds, and they would yield lower than Greek bonds. No convergence in rates, adequate income for the banks, and no net interest loss for the ECB.

Why wouldn’t the ECB purchase program work like this:

- ECB will buy sov bonds at set yields (say 4%).

- The banks buy sov bonds from shaky governments, at the ECB rate plus small premium (4+%), sell them to the ECB, pocket the profit, receive ECB 7-day bonds in return (0.75%).

- The banks also buy sov bonds from stronger governments, with the intent of keeping them (at yields of, say, 1-3%). This provides the banks with interest income to cover their depost interest expenses.

- The Eurozone implements continent-wide deposit insurance to try to head off deposit flight due to perceived currency-zone risk.

(End)

Issas Ekeret said...

But Peter, "the CBs don't own any silver - so you're safer owning that than gold!" … m'kay?

victorthecleaner said...


BSB,

Centralisation is the control mechanism of the "Elite". Individualism is the protection for the man in the street.

I have called this fallacy "getting the teams wrong". The elite is not who you think they are. The elite is really old wealthy families, old money business people, mainly those who own companies that are privately held and who are not in the daily spotlight, but who pull the strings in the background.

Neither politicians (think political parties), public administrators (think Treasury Dept officials, Federal Reserve staff), nor execs of public listed commercial banks (think Goldman Sachs) are part of this elite. They don't own their companies, but merely get a high salary. But only them, not their parents nor their kids. That's not enough to qualify for "elite". These people are rather freeloaders on the dollar system, some who have found a nice corner from which they scoop off some of the inflated dollars from the existing system.

The elite will be more than happy if freegold cuts these parasites off the flow of inflated money. The elite will be more than happy if freegold shrinks government down to its essential functions.

Neither of them (elite and party/government/banking officials) care too much about your personal financial position. It is just that they will proceed with their business, and if you don't get out of the way, they may step on you. Not because they hate you, but because they simply don't care. You may need to read about Giants and Ants.

Victor

Michael H said...

Speaking of monetary policy becoming fiscal policy:

from
http://hussman.net/wmc/wmc121008.htm

Meanwhile, the balance sheet of the Federal Reserve presently comes to about $2.8 trillion, with an average duration of 7.3 years, meaning that a 100 basis point change in interest rates would be expected to impact the Fed’s position by about 7.3% on the basis of bond price changes. Now, keep in mind that the Fed presently has just $54.7 billion in capital, which means that the balance sheet is leveraged by over 50-to-1, or put differently, the balance sheet has just 1.95% capital coverage. The unpleasant arithmetic here is that a 27 basis point change in bond yields (1.95%/7.30%) would effectively wipe out the Fed’s capital. While the Fed doesn’t mark its balance sheet to market, and can therefore run an insolvent balance sheet without immediate consequence, it should at least be a subject of public understanding that monetary policy becomes fiscal policy 27 basis points from here. Over time, of course, the Fed earns interest on its bond holdings, and that interest is normally handed over to the Treasury for public benefit. Presently, a 30 basis point increase in yields over a one-year period would wipe out even this interest, at which point the government would be paying interest on its debt simply to cover the Fed’s losses, with no net benefit to the public. That is, unless one believes that the Federal Reserve’s manipulation of financial markets is of equivalent benefit in and of itself. We don’t, and it is likely that investors will discover that in an uncomfortable way over the coming quarters.

Dante_Eu said...

@silverbugs:

No need to worry that the Government or other entities will confiscate your gold in your possession. People are already hand it over to the Government and various entities. Voluntarily. It is called:

"Cash for gold."

Indenture said...

"Why does everyone insist on telling me that the site is inhabited by "highly intelligent men and women"? Altruism

sean said...

Thanks for the wonderful exposition FOFOA and Aquilus. I've always had some trouble wrapping my head around that "currencies moving through gold" thing. :)

jojo said...

"Why does everyone insist on telling me that the site is inhabited by "highly intelligent men and women"?
Because idiot savants need to know it's not a room full of monkeys typing away.

BaronSilverBaron said...

@ jojo
Why does an "idiot savant" need to know the room is not full of monkeys typing?

Is because you are trying to hide the fact that it is?

BaronSilverBaron said...

@ Indenture

Altruism:-

There are two moral questions which altruism lumps together into one “package-deal”: (1) What are values? (2) Who should be the beneficiary of values? Altruism substitutes the second for the first; it evades the task of defining a code of moral values, thus leaving man, in fact, without moral guidance.

Ayn Rand.

Motley Fool said...

@Woland

I find that a very amusing idea. :D

@BSB

Oh. So you do not even own silver?

You own a promise from one company to deliver silver if TSHTF and another promise from a another company to deliver gold in the same scenario.

Yeah. Good luck with that.

TF

BaronSilverBaron said...

As an Englishman sitting in the South of France after imbibing a few glasses of rouge I can't help reflecting on the art of the "Blog".

Why do people write blogs? I suspect they would say it was to educate or inform and I for one cannot begin to know the real motive. But I can at least guess.

It is the need…. yes the need to crystallise thoughts and ideas that have not really the authority of true belief. True belief needs no response from others. We all love to argue our corner and in doing so shore-up our convictions. I'm as guilty as the next. These beliefs could be indeed true but….. we still need a band of followers that will echo our beliefs. It's comforting.

What do the followers of blogs get out of the exchange. They are not life's leaders. They look for the smack of authority. Once they find their safe haven of like souls they will defend their territory with vigour. Repel all boarders that do not conform is the cry. Their weapons are annoyance, distain, condescension, and feigned help.

So who am I? One without allegiance who wanders the Web seeking the truth about Gold and Silver. May be a lost soul.

What is really intriguing is the "need" to interview each other. Is this the sign of an inward looking society?

I await your disapproval and the FOFOA disenfranchise. ( I have had a few glasses of wine)

I'll get my coat.

Nickelsaver said...

Baron,

Perhaps you cherish the role of an outsider as much as some of us like the idea of being active participants and identifiers with this blog. In either case, both are irrelevant to the actual points being discussed.

I think that there are perhaps many folks who, reading this blog, find themselves agreeing or disagreeing with it, and yet don't feel the need to interact.

I myself read material from other sites, and am never tempted to comment. And with regard to this domain, I doubt that I would have continued here, except that what is dicussed I find meaningful.

Why do you continue here?

poopyjim said...

@BSB

Let's concede for the sake of argument that the FOFOA readership consists of malicious, brainwashed primates with sub-par intelligence who sit around in their basements sniffing and flinging poo, and who gather here solely to boost their egos and laugh at non-believers.

Even if that's true, it's completely irrelevant to the truth value of the content presented here. Substantive arguments have been set forth in this blog, and evidence has been offered in their support.

Instead of attempting to understand and/or rebut the arguments/propositions made here, you have simply resorted to ad hominem fallacies and invocation of your feeeeeeeeeeelings, see:

I've still got some digging to do do but I've an awful feeling that I don't like to idea of Freegold.

I just have a strange feeling that if Gold was so important in the future you and I wouldn't be allowed to benefit.

I would invite you to make some kind of substantive contribution here, because the ad hominem stuff and feeeelings are really ::yawn:: boring and irrelevant.

Dante_Eu said...

@BSB:

No need really. We all make choices and in the end the choices make us. You happen to believe in both gold and silver. That’s perfectly fine.

You see, I am eternally grateful for this blog. Without it, I would probably never have discovered Gold Trail. I bought most of my physical gold before discovering this blog and the Gold Trail. Why I bought it was because of my gut feeling and prior personal experiences.

This blog resonated with me. If it doesn’t resonate with you or someone else, that’s fine to. It would be strange otherwise.

After all, this is the path less traveled by:

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

[...]

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference.

--Robert Frost (1874-1963)

Take care\Dante

K said...
This comment has been removed by the author.
Indenture said...

Baron: Do you own allocated or unallocated gold & silver?

K said...

Hello FOFOA,

I was thinking about, but hadn't yet pulled the trigger on starting to reread all your posts... quite a task, I may add... but then I see Aquilus is pulling double duty... and what is more world (life) changing than the transition to freegold?

So as I started to read post #1... you write:

"When will we get “there”? In my view it could be as soon as a year from now or as long as four years from now. How will we know we are “there”? For one thing, many of the great questions about this crisis will have been answered. Though things may be very different and, in many cases, bad, things will have settled down for the most part. Stability will begin to reemerge. It will once again feel somewhat safe to invest in stocks and real estate because the bottom of each will have been clearly reached. What will “there” look like? The purpose of this blog is to make some predictions about this. How can we get from here to “there” in one piece? The answer as I see it will be very clear in this blog."

Well we are at year four... I know you're not a prophet, nor were our first trail leaders, but as you stated "I am simply assigning higher probabilities to certain outcomes."

That said, as things have unfolded over the past four years, where do you see things now? How have your perceptions changed and what timeline (probabilities) are you leaning towards now? 1 year? 2-3 years?

You also say:

"I believe the future value of gold will be north of $30,000 per ounce based on the current amount of paper currency in existence. I believe a value north of $50,000 is likely. And I believe that between here and “there” we will see massive creation of new paper money so the future value of gold will likely be much, much higher. If “there” is one year from now, add 30% to 100% to that value. If it is four years from now, who knows."

So does this mean you're thinking $100k plus in order for gold to come out of hiding in today's dollars?

You go on to state:

"On the value of real estate. This is a tough one, because real estate is caught right in the middle of the fray. I have to keep reminding myself about some key aspects of real estate in my analysis. First is that houses are basically commodities. So as inflation skyrockets, so too should the price of houses. Currently the prices are falling because they just came off a bubble. But ultimately they should bottom out and then rise in the face of inflation...Another thing about houses is that we have likely borrowed a lot of the money for all this building of the last few years from foreigners. And through high inflation of the money supply and financial collapses we will likely have a de facto default on those loans in the near future. In other words, China and others have financed all this building of new homes and will never be paid back for their efforts."

And this has been discussed that it's better to put your money in gold now than into a house... I get that and have abided. But if hyperinflation is inevitable, and one has been waiting to acquire a home (with maybe some farmland conveniently attached :-) for next to nothing down... wouldn't that be a smart play as well? Keep all your gold and add on some debt, which these days is cheaper than renting!

I fully realize this is not how Giants think, as they do not care about the "when" nor the "how much"... BUT, we aren't giants and in this aspect I believe thinking of probablilities won't be detrimental to our freegold health and understanding.

Thanks for all the info you've pumped out over the last four years!

Cheers,
K (aka whosthisgaltguy)


K said...

An updated "probability" list is what I'm getting at! :-)

Indenture said...

Unraveling Why A Fed President Just Suggested Doubling QE3

Indenture said...

Do Western Central Banks Have Any Gold Left??? h/t RemusReport

Winters said...

IMHO Baron is a troll. He claims to have (speed!) read most of the posts on the site yet his open ended questions show no evidence of it.

Happy to see some countervailing views debated however he presents no argument. The open ended questions and feigned offence seem more designed to occupy a lot of commenters time replying in detail rather than any interest in serious discourse.

JR said...



"The snow never melts
in the ears of trolls
that have turned to stone
at dawn on the moors."

Michael dV said...

Every site worth reading will get trolls. I'm afraid BSB is kinda garden variety as summarized above. Given enough time it seems he could work himself up to banishment but I'm not sensing that kind of staying power. I fear he may even be plagiarizing some of our better ones...perhaps he is just trite?

Ore em' said...

FOFOA - thanks again for the great material. It makes my head hurt in the best way possible.

Have you read Niall Ferguson's tome on the Rothschild's? It certainly gives one an appreciation of what a Giant really is.

Naughty Slumdog said...

My respects for the depth of thoughts and for the videos posted. It’s refreshing to see people really stand behind their beliefs.

I try to grasp the idea of Store of Value, therefore here my thoughts:
If we classify human society by means of savings, we find the traditional, that held it’s savings (excess of wealth deducing current needs and own investments) in gold or similar. The capitalistic, that pools the “savings” and offer TO ANOTHER to invest. And the authoritarian (fascist/communist/wartime/serious damaged nations) that extracts most or all of “savings” from savers for “public needs”.

Here is my question: if a significant part of savings is stored in gold, this would basically consume the “earned wealth” available for other entrepreneurs to invest, don’t it ? Wouldn’t this on a long run mean drastic decline of investments and a long term alienation of global economy ?

Agreed, under current conditions most of currencies (not to mention other paper titles) are somehow questionable, one should turn it’s eyes to assets. Stock seem a good option, but are vulnerable to financial stampede/crush, regulation and taxation. Tangible assets are typically not liquid enough and cannot be easily fractioned (divided into smaller pieces at owner’s convenience).

I think that under current circumstances investing in gold is definitively the wisest decision, but it’s long term use as prime Store of Value is somehow concerning.

Naughty Slumdog said...

And about Giants: I really wonder how much of the global finance is owned by the "much hated" traditional Giants, such as Rotschilds and how much is “owned” by new Giants, such as pension funds, sheiks, sovereign funds, ex comunist tycoons, etc. No doubt in my mind that the game is dominated by the ones that know how to play the game, but still, who really OWNS the capital ?

dojufitz said...

I'd like to hear Victor the Cleaner interviewed....looking forward to the next...

Bjorn said...

@Naughty Slumdog

Did you just stuble in here? Welcome in that case. Your question ": if a significant part of savings is stored in gold, this would basically consume the “earned wealth” available for other entrepreneurs to invest, don’t it ? Wouldn’t this on a long run mean drastic decline of investments and a long term alienation of global economy ? " has been discussed at length quite recently, in fact it seems to be a recurring theme, so you should have no problem finding the answer if you do some searching on the blog. Use the searchword "Jerk". That should cover it. And I have to recommend Blondies (nuinuts) recent rant on ZH as well.

Ore em' said...

@NaughtySlumdog

Here is the essay on whether "withholding" your capital/wealth/"money" from the "real world economy" is a bad thing for us all. (Hint - NO!!! It's actually FANTASTIC for us - it allows the Superorganism to develop an IQ beyond the mid-50's!

http://fofoa.blogspot.ca/2011/04/winner-takes-gold.html

Ore em' said...

I was just reading how one of the Rothschilds is an investor in Bullion Vault, through a holding company called Galmarley, named after:

"Galmarley" is a tribute to three writers

J. Galbraith - a well known 20th century economics professor.

A. Del Mar - a mostly forgotten scholar from the 19th Century who wrote extensively on the history of monetary systems.

R. Smitley - an equally forgotten writer from the 1930s who ran a business bookshop on Wall Street and wrote very entertainingly on investor behaviour and - as he called them - popular financial delusions.

From Del Mar's wiki: "1879 he published his History of the Precious Metals, the labor of twenty-two years of research during his own free time...In 1881, he published A History of Money in Ancient States, in 1885 Money and Civilization, in 1889 The Science of Money, in 1895, A History of Monetary Systems in Modern States, in 1899 A History of Monetary Crimes, in 1900 A History of Money in America, in 1903 A History of Monetary Systems of France.

Hmmmmm....I wonder if Rueff and Zijlstra had perused Mr. Del Mar's writings? As for Mr. Smitley, does anyone else see the hilarity of including that description of his writings? Maybe it's just me, but it seems like a bit of a laugh at the ants and our collective foolishness, particularly as it relates to understanding monetary systems and the role of gold!

Don't get me wrong, this is not to say there is any conspiracy or that BullionVault is somehow malicious (I'd guess the name has more to do with a few drinks after a game of golf than it does with any grand cospiracy). I can, thankfully, avoid having to waste the mental energy thinking about such things. If I ever actually have money to buy gold, I'll sleep easy with the physical, thank you very much!

Finally, while these writers may be "forgotten" to the masses, it sure seems like someone hasn't forgotten about them, doesn't it?

Ore em' said...

I should have also asked: has there been prior discussion of BullionVault?

ampmfix said...

db,

Please send me an e-mail to:

dreekicsath@dunflimblag.mailexpire.com

matrixsentry said...

Gold prices currency.

As buyers of gold we tend to think of it the other way around because we want gold and we have currency to give. We view it from the buy side in terms of acquisition of gold. But there is another buy side, the one who has the gold but wants to buy our currency. This entity needs to activate his stored wealth and will seek anyone anywhere who will make the trade. And boy oh boy, there are a lot of potential traders out there looking to sell currency in order to protect wealth, more everyday as it turns out!

If the buyer of currency finds our currency distasteful or of lesser utility relative to other currencies he will demand a discount. He decides how many units of currency warrant the transfer of one unit of his gold. In the extreme he may even boycott the undesirable currency because it either offers no utility whatsoever, or perhaps because he wants to send a message to managers of the currency that managerial changes are needed ASAP. In that case as a potential buyer of currency, the gold seller requires an infinite discount (free currency.) He wants an infinite number of currency units for his gold unit. His gold is now priceless in the scorned currency.

The seller of gold holds the cards. However, the seller of currency has been playing a sweet game for a long time with a crappy handful of cards. The bluff has really made the gambler some coin, literally. A bluff is a bluff because someone has asked to see the hand of a seemingly lucky card player at some point, revealing the hoax. This bluff will be called.

I am so glad the game is still being played and enjoyed by all. I am a serial bluffer and haven't been called yet. I have raked in quite a few coin.

FOFOA in Bondage or Freegold?:

Jumping back to the Chinese merchant who needs yuan to pay his operating expenses, we must remember that he is also a Super-Producer, producing more than he consumes. So he has an inflow of EXTRA yuan to store for future retirement. His three choices are keep the paper yuan (not a good idea with inflation), buy a specific entity's future bondage, or buy a share of the entire future global workforce (gold). This third option has only recently been made available to Chinese citizens.

If our merchant chooses gold, he settles the world's debt to him for the time being, a debt which he can reactivate later by selling his gold in exchange for whatever paper medium is best at that future time for obtaining the goods and services he needs at that time.

It is helpful also to follow the path of the renminbi he exchanges for gold. His gold dealer will redeploy the majority of that renminbi in search of replacement gold, because that is his business. That is his operating cost. This path leads ultimately to either the public's gold, the CB gold, or new gold from the mines. This path of yuan seeking gold bids for the best value from each of these three sources. This yuan is now a heat-seeking missile aimed directly at Freegold. Multiply this effect over the entire globe and imagine the force of trillions of heat-seeking missiles all seeking the same thing! What do you think would be the result?


Ah, heat seeking missiles. Plenty of potential currency sellers for the gold seller (currency buyer) to choose from.

Physical gold, better get some more.

Woland said...

Hello Matrix;

I have hesitated to reply to your thoughts directly above,
because I too agree that gold prices currency. Nonetheless,
while I think you correctly "illustrate" why this may be so, I
don't think you "prove" why it must be so. Perhaps this
subject is not one for which a rigorous proof is even possible.
I am not equipped to make that judgement.

The late mathematician John von Neumann once said the
following: "The quantum of economics is an exchange of
value", a statement I find compelling in its simplicity. At the
moment of voluntary exchange, the two quantities being
exchanged are equal in value, but the question arises as to
which one, if either, should be considered the "denominator
of value". When a currency is used as an intermediary, its'
function as a yardstick for the measurement of value can
settle this question satisfactorily.

In general, apart from the words "needs to activate", I agree
with everything you say in paragraph 1. With regard to
paragraph 2, you illustrate the importance of relative
refusal, or reluctance, to accept the intermediary, although
I don't think that refusal's primary purpose is to ever send a
message to anyone. It is your statement that "the seller of
gold holds the cards" which (for me) I feel is neither
demonstrated or proved. let me explain why I think this.

At the moment of exchange, the gold and the currency are
of equivalent value, just as in a barter exchange. As Ari says,
the currency is "something of value", and gold is a "thing of
value". Is there a difference between the two, given that
BOTH derive their value from the thoughts in another mind?
I think the answer is yes, but for the following reason:

In the social world of which we are all a part, everything we
possess has a counter party, even gold. It the case of gold
the counter party is the person with whom we wish to trade.
Historically its' greater utility was best used "on the road"
with persons one might never see again. Currency, on the
other hand, has TWO counter parties - those with whom
we wish to trade, AND the issuer. With the first we can
negotiate, with the second, never. This introduces the time
element of uncertainty into the equation of our exchange,
which is one reason why I think gold holds the stronger
hand. I have much more to say on this, but will not burden
the comments section further. I am working on an essay.
Maybe I'l like it, maybe not. Cheers

matrixsentry said...

Hey BSB,

Why don't you speed read Confiscation Anatomy - A Different View?

While you are there, here is another relevant tidbit pertaining to the current FOFOA post regarding gold pricing the dollar as well as addressing the fears of well meaning Trail Hikers and Trolls alike:

FOFOA:Confiscation Anatomy - A Different View

In its role as the global reserve currency, the dollar must have two vital things: value and function. It is indisputable to
rational minds that gold is true money. The universal way fiat currencies are measured for value is by how much gold they
can be exchanged for. So the dollar has value on the global stage because of its ability at any given moment to buy gold. For
function, the dollar is needed to repay all dollar-denominated loans and contracts around the world. But a dollar will always
be able to pay one unit of any dollar-denominated loan, no matter what the value of that dollar is. So a failure of the dollar
would be defined as a failure of value, not function. A dollar collapse would be defined by its inability to be exchanged for true money, gold, at any reasonable price.

What does it mean for a bullion bank to fail? Just as a regular bank would fail from a massive withdrawal of deposits
beyond its ability to pay, we could say that a bullion bank has failed if it can't supply the gold necessary to honor its
obligations. You can be sure it will first exhaust itself by trying to obtain whatever gold can be obtained on the spot market to fill its obligations prior to failure as an institution. But this is where the price would race away on the spot market paving the way for a complete run on all physical gold, permanent backwardation in the forward gold market, the withdrawal of all offers to sell physical gold, and a complete failure of the spot market to exchange gold for dollars at any reasonable price. And so, we would have the official failure of the dollar as well.

This is how a failure of the paper gold market, a DEFAULT on paper gold, will mean the collapse of the dollar. You will have the dollar on one side, gold on the other, and COMEX contracts in between the two of them. This will essentially pit gold and the dollar against each other, forcing them to arrive at a settlement in a dollar-rich/gold-starved arena. Could the dollar ever deliver on its physical gold contract obligations? No way. Which do you think will be left standing?

matrixsentry said...

Woland,

Some thoughts. If the two parties to a trade decide that a trade is warranted and serves mutual purposes, and an intermediary (currency) is used, by definition and demonstration the currency has acknowledged value. When talking about trade of physical gold for currency, only one side of the trade can represent something real or some productivity in the physical plane if an accounting is demanded.

The seller of physical gold knows that seller of currency is selling something that is an illusion. He knows the currency seller is bluffing. However, as long as the interests of the phys. gold seller are being served by folding, he will go along, pretending, and will play. He knows he holds the cards when the entire pot is in play and illusion of currency as a SoV is revealed for what it is.

I am speaking of Freegold, when illusion and the Ben Franklin in my pocket wont buy you a stick of chewing gum.

Sure, we currently live in a world of illusion and thank God. I have plenty of Ben Franklins left over each month that I have no need for nor desire to hold. I am tickled that someone else (my gold dealer) perceives short term value in taking them off my hands. He knows they have no real long term value, but he cares not because he is going to use them to buy some more physical gold for his business.

Those BFs are headed somewhere else. Eventually they end up in the hands of someone who is not so sure as myself, and my gold dealer, that they are merely an illusion. They end up in the hands of someone who thinks they are holding a strong hand but is seriously ignorant of the nature of game.

The day will come when those BFs will be offered for sale in return for something real, specifically gold, and the currency seller's hand will be called. It's the end of the game when the gold seller reveals a Royal Flush.

We both agree that gold prices currency. Therefore the holder of gold decides the nature of the game and how long we play. Currency does not tell gold what its value is. How can a seller of currency/buyer of gold possibly control the game other than when the gold seller decides to let him? The holder of gold decides when to call and when to reveal the Royal Flush.

Woland said...

Well, I don't know if what we are disagreeing over is rooted
in semantics, a time difference, or something deeper. Lets
see.
"The seller of physical gold knows that the seller of currency
is selling something that is an illusion". I'm not sure what you
mean my this. I am sure we both agree that at the instant of
the exchange, a million other things priced in that currency
can in turn be exchanged for it. No illusion there, at least not
for me. Is the rate of exchange between currency and gold an
illusion at that moment? A small no, followed by a big YES!

From the functional point of view, the small seller of gold can
only exchange it for the "market price" if he wishes in turn to
activate the exchanged currency for something else. Is the
"market price" an illusion? Absolutely, because it is not itself
derived from an exchange of value, but from an exchange of
bets on what future value might be, settle is currency. And one
bettor has an unlimited supply of free chips, so, not a game to
enter into casually. Do the vast majority of physical gold sellers
understand this? No.

Maybe more to say later. The entire ground floor of my house is
a demolition zone. Cheers.


Michael H said...

matrixsentry,

Hope you don't mind if I reword some of your statements ...

If the two parties to a trade decide that a trade is warranted and serves mutual purposes, and an intermediary (currency) is used, by definition and demonstration the currency has acknowledged function.

You are describing a barter arrangement lubricated with currency held for zero time, so the currency is strictly using its MoE 'function' and not its role as a SoV.

When talking about trade of physical gold for currency, only one side of the trade can represent something real or some productivity in the physical plane if an accounting is demanded.

As per Blondie's 'rant', both physical gold and currency are useful only insomuch as they can be later exchanged for useful stuff. So gold is something real, but I don't see a distinction between them (at short enough time frames) in their accounting for "some productivity in the physical plane".

The seller of physical gold knows that seller of currency is selling something that is an illusion. He knows the currency seller is bluffing. However, as long as the interests of the phys. gold seller are being served by folding, he will go along, pretending, and will play.

Recall that the 'buyer' of currency, whether with gold or with goods and services, is the party that gives that currency value. The value thus given is as real as any value held "as thoughts in one's head".

I am speaking of Freegold, when illusion and the Ben Franklin in my pocket wont buy you a stick of chewing gum.

No, you are talking about USD hyperinflation, which is not the same thing as freegold.

And, after the USD stops hyperinflating, maybe the new Ben Franklin will buy you several sticks of chewing gum, freegold and all.

Those BFs are headed somewhere else. Eventually they end up in the hands of someone who is not so sure as myself, and my gold dealer, that they are merely an illusion. They end up in the hands of someone who thinks they are holding a strong hand but is seriously ignorant of the nature of game.

Possibly, but equally likely they could go to someone who is either 1) pulling more gold out of the ground and must cover expenses or 2) needs to exchange gold for real goods and services in the present.

Therefore the holder of gold decides the nature of the game and how long we play.

What if it is the purveyor of goods and services (oil chief among them) who give value to both gold and currencies? Then wouldn't they be the ones to decide how long the game lasts?

matrixsentry said...

Woland,

I think it is a matter of semantics and time scale. I am speaking from the perspective of a gold seller high atop the valley looking down. He can see the original gold standard, the various workarounds, the pure fiat standard, and Freegold all laid out before him. He knows what is real and what is illusion. He knows how it ends and what the dollar is "worth" in our particular part of the valley.

Dare I say this is the perspective of a giant? Seems presumptuous coming from the ant that I am. Regardless, this is what my ant mind finds reasonable. No argument with you when I come down from that lofty perspective and perceive the valley from the weeds. I can pretend down here on the ground that distant ridge over yonder does not exist. I can find other pretenders as well and far more that cannot or refuse to even conceive of the ridge, let alone accept that it might be there.

So really I guess I should add one more qualifier, perspective. Semantics, perspective, and the 4th dimension, time. What works now will not work as we move farther along the path of the 4th dimension. To be perfectly clear I suppose we must nail down all three.

BTW, I know a thing or two about demolition zones. I am packing up in preparation for my move to my new home. I feel your pain!

Regards.

jojo said...

Baron Shit Bricks,
You are not thinking logically to any argument given to you.Logic doesn't seem to be part of anything that you write. You seem to think "logic" is anything you want it to be rather like Humpty Dumpty's famous saying in Alice Through the Looking Glass.

It is the duty of every balanced, logical person to "call-out" and expose unproven nonsense whether it be on the Internet or in the main-stream media. This is why you have been called out.
The only reason that so much tripe appears on the Internet is because the people writing it are given free reign without any come-back. We are giving you no such free reign.
As I have said before if people like you were to admit when you are wrong we might take a little of what you are saying seriously.

My only conclusion is that BaronSHitBricks is probably about 14 years old so does not yet really know the meaning of a shared responsibility.
People like BaronShitBricks are just sad cases in lonely darkened bedrooms trying to find meaning in the lives in front of a computer screen. They risk nothing.

:)


:)

Dr. Octagon said...

This is a great post, especially the part discussing money "molecules". This sort of stuff makes my head hurt, in a good way.

matrixsentry said...

Michael H,

Again, I am writing from a certain perspective. I am not disputing that at this time there is function in exchanging gold for currency. This is of course the case for reasons you cite as well as others. After all I am counting on that to continue so I can get rid of Benjamins in favor of the shiny stuff. I see past this time to an eventuality I see as certain.

Yes, count me among those that see a hyperinflation as well as Freegold. While not one in the same or dependent upon each other, I believe they will both occur.

ampmfix said...

Hello all,

My head also hurts. So, allow me to insert:

I received my TM-8811 ultrasound device, 129 euros, from Hongkong, took about 11 days to get to me after internet order (eBay).

I tested a Johnson Matthey 100 gram silver bar and a ICC 50 gram gold bar and an american gold eagle. Both were above the minimum thickness measured value of 1.2mm.

They all worked ok, taking into account that the accuracy of this device is +-5%.

So, if you look into the sound velocity tables, silver would overlap with tin and platinum.

So, this measuring method is not 100% good, first you need to know the dimensions of your test sample, then weight it, and hence calculate density. After that is done, you can rule out tungsten (for gold) or molibdenum (for silver) by checking the speed of sound in the material.

Bottom line: you need both methods of assaying (density and speed of sound), then it is fool proof. In my case, I think both methods are necessary if you buy bars (1 oz and above). For smaller coins the accuracy of the tester is not enough, IMO.

ampmfix said...

From now on you can see my comments here: http://ampmfix.blogspot.com.es/

Indenture said...

Can the Fed take the MBS they are purchasing, break them apart and reassemble them back into their original intact mortgages? This would allow them to exchange paper for physical plane assets.

Franco said...

ampmfix:

This ultrasonic depth gauge you have, could it be used on one-ounce coins such as American Eagles or Krugerrands? I thought the object being measured needed a fairly large flat surface, no?

victorthecleaner said...


Even if this were possible, a mortgage is still not part of the physical plane. It is a promise by some home owner to pay you interest and principal on a US$ loan.

Victor

ampmfix said...

Franco,

The test head is exactly 10mm in diameter, and this is the important factor (you cannot measure a coin less than that in diameter and 1mm in thickness), together with the depth of the coin or sample, it is specified as 1.0-1.2mm minimum depth, so it will barely measure an american eagle, but not a swiss Helvetia or Sovereign.

As I mentioned before, the way I would go about this is:

1) If I know the coin, I check the diameter and weight.

2) Then I ultrasound it.

For smaller coins, you might just do well with the visual inspection and weight. But, for 1kg (500g and 250g) bars, for example, I would weight them, have some sort of dimension template, and then ultrasound it for sure.

Another key factor is that this device is only +-5% accurate, better accuracy ones are much moire expensive. You should have a table of sound velocity thru basic elements and decide your threshold of uncertainty tolerance. For me, thsi machine is good enoufgh together with the dimensional analysis.

A last factor is a dependable dealer!

Indenture said...

Victor: But what if the home owner can't pay on the note? Who owns the property then?

burningfiat said...

But the fact of the matter is that there is no "money" in the stock and bond markets. There are only assets.

I of course agree on this. Where it gets interesting is when these assets are held up as collateral for loans. MTM of these assets on balance sheets could in theory become a problem when the price drops...

Good thing we have the FED to buy these depreciating assets at mark to fantasy prices (MBS or Treasuries for instance) before any systemic problem arises!!!

/Burning

matrixsentry said...

Friends,

Hannes Tulving of the Tulving Company has lied to me regarding a sizable gold purchase I executed with his company last week.

After wiring proceeds to his company bank, I did not receive any confirmation or receipt via email as advertised. I called his rep and was told that my email was incorrectly transcribed and that indeed my payment had been received and shipment had been initiated. I was told Friday to expect it this week via next day UPS shipment. I called today after nothing arrived to request the tracking number. I was then told that the coins had not shipped and they could not tell me when they would ship.

Tulving advertises shipment 3-4 days following wire payment. I asked why I could not get a delivery date and was told "we are behind." They also advertise first paid, first serve. I was told by the rep Tulving decides each day as to who gets delivery.

When I confronted the rep with the apparent inconsistency between what I was being told and what is advertised via their website, the rep got very defensive and circumspect. Then I was hung up on. I called back and was again hung up on.

I initiated email contact with Tulving himself and he basically told me to go to Hell.

I am contacting the Attorneys General of California and Georgia tomorrow to file a formal complaint.
DO NOT USE THIS COMPANY TO BUY GOLD.

They have the best prices around and seemed to have a decent reputation in the gold community. However, I have been finding out some rather disturbing things via Google search regarding this company and their business practices. Google "problems with Tulving" to get a taste for yourself.

I hope to save anyone thinking about using this company a lot of aggravation by putting this warning here. I also have posted on Twitter. This Tulving character is really bad news.

Lisa said...

Indenture

How exciting - a question I am capable of answering!

You said:
But what if the home owner can't pay on the note? Who owns the property then?

(L) The mortgage holder would file a foreclosure proceeding after the owner defaults on mortgage payments. Foreclosure law is different in each state. The state I live in requires a court proceeding to foreclose a mortgage. (Some states have a non-judicial foreclosure procedure.)

In my state, the foreclosure process takes about a year (if everything is done promptly), and the house is sold at a foreclosure sale towards the end of the process.

The mortgage holder always hopes that a third party will buy the property at the foreclosure sale. These days, however, it is generally the mortgage holder that ends up with the house, since there are often no third party bidders at the sale.

Lisa



JR said...

Hi Indenture,

But what if the home owner can't pay on the note? Who owns the property then?

Good question - there are lawsuits across the nation in every jurisdiction you can imagine asking the same question. It depends on state property (aka foreclosure) law and the technicalities of what they did with the mortgage, who owns it, what is on the promissory note, etc.

For the quick taste of this legal mess, google something like "MERS foreclose."

JR said...

For clarity, I was really responding to the initial idea about foreclosure rights of MBS holders, ala:

Can the Fed take the MBS they are purchasing, break them apart and reassemble them back into their original intact mortgages? This would allow them to exchange paper for physical plane assets.

ampmfix said...

Matrixsentry,

Thanks for the heads up. I bought in the past from:

- Mike Maloney (silver eagles): no problem.
- German dealers (gold buffalos and gold maples): no problem.
- My dear friend Joaquin Van der Brule (at Ciode in Spain): fantastic relationship (db, here's your contact).

http://www.ciode.net/

I guess nothing beats a personal relationship...

Good luck...

Ashley Tate said...
This comment has been removed by the author.
Ashley Tate said...

I've been buying from DBSCoins (http://www.dbscoins.com/) with great success. The price is good (will go down to spot plus $22 on gold orders over 20 ounces, which is not published on their site). The service and responsiveness have been impeccable after more than half a dozen buys by several members of my family.

fnord88 said...

Question re Giants money spending: Why would you not, as a giant who knows he cannot spend any of his money after death, put massive amounts of money into rejuvenation technologies? Replacement organs grown with your own stem cells are already a reality, soon hearts kidney etc will be too ( within 10 years). Total rejuventation of the human body is not impossible, at some point we will be able to live for 100's of years. If I was a giant, after i had a huge gold cube, i would be spending my 100 mil a day on grants to research institutions. Health is of far more value than wealth, and i bet any giant would be happy to swap their wealth for my youth any day of the week.

Biju said...

Thanks matrixsentry for your info about Tulving.

I have used Tulving before and they were prompt. I don't know what happened to them now. But from your experience, neither will I use them or recommend them.

I have dome many small purchases from APMEX and they have been good. My local coin dealer also good, has the same premium over spot as APMEX - But sometimes I am lazy to drive to local dealer.

ampmfix said...

fnor, that and a huge intergenerational spaceship, THAT should be the goal for powerful people, they will find out soon.

Woland said...

Hello Matrixsentry:

It happens that I has a similar experience to yours with
Tulving several months ago, but it resolved itself in the
end without a problem. It was my first order, and it took
almost 3.5 weeks from the time the wire arrived until my
coins were received. I dealt throughout with the daughter,
and the explanation was as follows: When they receive
a large influx of orders, they only carry a fixed amount of
insurance for product in transit, and that volume envelope,
in conjunction with their maximum order size shipped, can
create a backlog. While I was both nervous and not pleased
at the time, I never had a problem of that magnitude ever
again. I have bought a significant amount from them, and
would do so again. Arrivals were within an acceptable
time frame.
That said, I would not tell you how YOU should proceed, and
I have heard elsewhere that the father is not someone you
necessarily want to talk to. They can be rude, but in the end
I believe your order will be filled.

I hope this gives you a little comfort, because it's never fun
having $40 thousand or more hanging out there wondering
what's going on. Good luck, I think it will work out in the end.

moneymaverick said...

Matrix,
Hannes Tulving is a unique individual. No coin dealer is going to trade physical without having our fiat in hand first. Hannes has no store front so even doing in person trades can be precarious. I bet you will get your side of the trade soon. In the context of this blog your action and problem and result are the essence of why we are here. Many fiat holders feel much safer looking at numbers on their computer bank account than risking what you are risking. Woland suffered for 3.5 weeks....but Hannes Tulving came through. I'm guessing 95% of his trades go thru without complications....otherwise he couldn't stay in business. And the other 4.99% get done but get done late.

Woland said...

To whom it may concern: In Jean Paul Sartre's "No Exit"
a line is spoken, "L'enfer, c'est leas autres." Hell is other
people. If you think the "other people" you have to deal
with today are bad, just wait til you get to deal with the
200 and 300 year old variety. GREETS!!

ampmfix said...

Sartre was a monster (and a disgusting communist bastard), but he was right about hell and the world. Sadly.

ampmfix said...

it was called Huis Clos.

Michael H said...

Indenture,

(and Lisa and JR and vtc),

The problem is that there are really two parts to each "mortgage": the mortgage and the note. In the good old days when banks originated mortgages and held them on their own balance sheets, both of these stayed together and it was clear who would get title to the house in a foreclosure.

Nowadays, the banks originate the mortgages but then pass them on to investors (usually via fanny and freddie) as part of MBSs.

The problem is that a note is supposed to be endorsed through each entity that holds it, by name, and is supposed to be placed in a trust within a set timeframe. At first (80's), that was happening, but by the 2000's, the banks were playing loose with the rules.

In most states, it is the holder of the note who is entitled to foreclose. The issue that JR alluded to is that the notes in most cases lack the proper endorsements, so it is not clear who is entitled to foreclose.

So most homeowners with mortgages packaged through Fannie and Freddie have what can be considered unsecured debt. We shall see how much this issue gets tested in the courts, and how much it is simply circumvented and swept under the rug.

...

I really doubt the Fed would use their MBS to acquire real property even if they could. They are bankers, not landlords.

matrixsentry said...

I have gathered much on Mr. Tulving as it turns out. He is definitely not someone anyone on this blog should be dealing with. I cannot say more because I am initiating legal action.

I will keep everyone up to date as I progress. Thank God it was only 37 Canadian Maples!

I usually use Colorado Gold, APMEX, or Gainesville Coins. I should have known better to use someone I do not have a history with. Damn stupid really.

somanyroadsinvesting said...

Matrix,

I would be patient and not start a yelling match w/ him. I ordered in size w him never had a problem, some came quick some took another week but all eventually came.

I also to didnt receive an email confirmation for some orders. I just took it as the difference between shopping at costo and whole foods. I would wait a few days, call and ask for the woman who handles the orders and ask for an update. Except for the old guy most are pretty normal there.

If he was stealing money from people via bank wires all these yrs he would have been shut down a long time ago.

Delusional Investing said...

My bullion dealer is a Perth Mint distributor. When an order is placed, they are quite upfront about the currently delivery queue, (They also suffer from an insurance bottle neck for stock in-transit), and the ETA. Good luck matrixsentry.

matrixsentry said...

I filed a complaint with the California Attorney General, the BBB, and the FTC is next. This guy picked the wrong guy to mess with. Here is a nice little nugget that I unearthed and it seems the FTC already knows this guy quite well:

CALIFORNIA COIN DEALER AGREES TO SETTLE - 06/92

Hannes Tulving, Jr., president of Hannes Tulving Rare Coin Investments, Inc., a California retail marketer of numismatic coins, has agreed to settle Federal Trade Commission charges that he created and maintained an artificial coin market to induce the purchase of coins at inflated prices.

Under the proposed settlement filed in federal court, Tulving would be prohibited from misrepresenting, among other things, the degree of risk or any other fact material to a consumer's decision to purchase any investment offering. The order also imposes a monetary judgment, which will be partially satisfied by the payment of $260,000 over a five-year period.

Again, somebody that people on this blog should know about.

victorthecleaner said...

Indenture,

Victor: But what if the home owner can't pay on the note? Who owns the property then?

Then they can take the house if their papers are in good order, yes, as Lisa says. This raises the question of what the hell would the central bank do with all these houses. A good idea might be to simply knock them down and remove the supply overhang. But this isn't exactly the job description of the CB, is it?

If they wanted real assets, they could definitely print dollars and buy homes outright (without going for the mortgage paper first). Why would they do this?

Victor

poopyjim said...

@matrixsentry

I will keep everyone up to date as I progress. Thank God it was only 37 Canadian Maples!

Only 37? o_0

LOL that is larger than my whole stash.

I used to order my gold online but now I only go to the coin store and pay w/cash. Too much anxiety waiting for it to ship.

Your experience is worse than I ever had, but not too much worse. Another online retailer gave me the run-around (lying to me the same way) for 2 and a half weeks once before they shipped me my oz. I think it's standard practice for these places to fly by the seat of their pants and keep taking orders whether or not they have the product.

somanyroadsinvesting said...

Matrix I know its stressful waiting but you may be overreacting. How long have u been waiting for? I recall that if you place the order after tuesday or wednesday it usually didnt go out til the following week. So i know it took basically 2 weeks to get my stuff once.

I ordered from gainsville and it took 3 weeks so I didnt seen any great benefit there. I have little doubt you will get your product.

Before i ordered the first time i fully investigated them on the internet. despite some complaints on late orders, poor customer service I was unable to find a case of someone not receiving their order.

Wendy said...

Matrix, the first gold order I ever placed took 3 months. I was freaking out ... it reminded me of a ponzi scheme, and I think it was, and most are playing musical chairs. I did get the gold, but I have never bought gold in that manner again.

I don't have a local shop where I live, but I am frequently in Vancouver and can walk in the door of a gold dealer with cash and walk out with gold. It's the only way I'll transact a gold trade. I don't need the stress of waiting.

Jeff said...

Hannes Tulving went bankrupt once, and customes lost their money. Hope things work out better for you.

jojo said...

I buy face to face also with a nice coin shop owner I have become friendly with. He was the third place I tried.

Indenture said...

Victor: "If they wanted real assets, they could definitely print dollars and buy homes outright (without going for the mortgage paper first). Why would they do this?" We'll at first I thought it was just to remove the toxic assets from the banks balance sheets so the banks could spur the economy by lending but if the banks are just turning around and buying Treasuries then the Fed is tossing atoms at the banks to change them into molecules for the Treasury. Correct? Because no one can say the Fed is directly buying Treasuries. That would be bad, but buying mortgage backed securities to help the system is acceptable. Why not look like the good guy while at the same time freely acquiring assets over the entire country. Instead of a few castles on the map they get a visible carpet of asset ownership across the country.

I was just curious what was going to happen to the mark to fantasy securities the Fed was buying with atoms.

Naughty Slumdog said...

@Bjorn, @ Ore em’
Thanks for answers and links. Yes I am new here. I see the following topics discussed:
a) Pitfalls of current system;
b) To do’s for individuals;
c) Outlines of a future system;
We similar views over point b) : buy gold. I am learning about point a). And I don’t fully understand point c), here comes my previous question. It is academic/systemic and addresses the future, when the trade account imbalances are closed, not the current point in time. Very concerning and immoral the anti-gold propaganda, indeed !

julian said...

yes fofoa thank you and nice hiking aquilus!!

concept (truth) has infinite resolution

fractal nature of freegold?!

One Bad Adder said...

Hi FoFoA-ites,

Been a while but must say I love the interview concept - well done FoFoA ;-)

BSB: - I find myself agreeing with the notion of Silver "in-the-currency-mix" somehow ...but NOT Gold?
...and it goes to your idea of "True-Belief"
...which to my way of thinking is an Oxymoron.

In the scheme of things, Gold needs no belief. as it IS, WAS, and will forever BE!
The Currency of the future WILL however need a "tangible association" with a metal ...and Ag should fit the Bill in this regard IMHO.

Post a Comment