Sunday, November 18, 2012

Debriefed #9 – Michael H

465 comments:

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Tyrone said...

Still waiting for the FreeGold debrief.

Bring it! Cheers!

Bron Suchecki said...

On Basel III I’m not convinced this will do much for gold. I think it will just give a bit of balance sheet relief for bullion banks who already hold gold assets as part of their business, which is alluded to by the point FOFOA makes about the wording talking about gold liabilities.

I can’t see a “normal” bank wanting to take on what is a volatile asset (in dollars) held against liabilities denominated in dollars when they can just hold cash instead.

H. M. Socialist said...

Yesss!!! The evil dastardly shorts vs. the noble longs! Finally one of you freegolders gets it!

Who are these trolls you are referring to? I have not seen any trolls on the pages of this blog! Of course, the very premise of this blog - the continuance of FIAT CURRENCY, is in and of itself trolling the entire Internet, and the entire world for that matter!

We the sheeple shall overcome your NWO elite banker plans by engaging in direct barter with our silver! BWAHAHHAHA!

Greetz,
HMS

Michael dV said...

Evil gold hoarders, jerks and brainwashed cult members


Each interviewee should confess to which of the above he belongs....

costata said...

Michael H and FOFOA,

Good interview. It was interesting to hear MH's perspective on the stuff you discussed.

Cheers

Motley Fool said...

As regards Basel 3 tier 1, I will repeat my prior and almost singular comment : Fucking accountants. :P

I agree with Bron, it is simply a method for making Bullion Bank's specifically show as more liquid, and remove some obligation from them to acquire cash of bonds to meed reserve requirements.

Price of gold impact : Essentially none.

KnallGold said...

Hoenig wants to stop Basel III:

http://www.grupoalma.com/noticias-bankng-finance/154-basel-iii-should-be-scrapped

DP said...

Great to finally 'meet' you, MichaelH. :-)

What if "Basel3 Gold Tier-1" is really about removing future resistance of banks to the notion of holding gold for safety-seeking customers paying for custodial services with them? There is no longer a capital accounting hit to them in offering such a service, while there was pre-Basel3?

Bjorn said...

Regarding Hoenig, It´s easy to agree with: "the rules as proposed are too complex and should be replaced by simpler ones". Sounds almost like "fucking accountants" to me.

DP said...

@MF: Fucking accountants. :P

This pretty much covers all monetary sins, present and past.

$IMFS: nominal accounting fix. Real imbalance persists.

Bretton Woods: nominal accounting fix. Real imbalance persists.

Classical gold standard: nominal accounting fix. Real imbalance persists.

Freegold: Real fix. No nominal accounting issue to fix.

It's the debt, stupid!

Delusional Investing said...

Spotto Aker

Woland said...

Michael H; delighted to get to know you a bit. One
question; Am I the only one who notices that you
appear to have a nimbus directly above your head?
Is it the lighting, or are you indeed a saint? Just askin'

Michael H said...

costata, DP, glad you liked the debrief.

Woland, I'm very disappointed that you're the only one to notice the halo so far. I spent nearly three hours grooming my beard, selecting my wardrobe, applying makeup, and perfecting the lighting to achieve just the right effect.

Indenture said...

"If you want to assign morality and you want to find the root of evil you kind of have to go a little more deeply than banking to find it. You can get rid of banking and still have evil." Michael H (nice)

Fool: Thanks for reintroducing me to 'Furd'. I had forgotten how much energy and emotion is used to shout about fairly worthless mathematical trends and dastardly accusations of manipulation. It reminded me of how many empty nights I spent reading other people's angry yawps until the moment I found FOFOA. Now, emotion over the movement of numbers is practically nonexistent and instead I try to understand why events transpire. Hat's off to you Fool for wading back into the swamp.

Motley Fool said...

Indenture

An astute observation. It's amazing they are not completely burned out emotionally...oh wait. :P

Perhaps some good will come of my travels, perhaps I am simply wasting my energy. Time will tell.

TF

Michael H said...

Off topic,

I just came across victor's Red Alert Update from February 2012, where he references OBA's Last Rubicon of 3-month treasury yields ($IRX) crossing into persisently negative territory, and how that would cause gold backwardation.

When operation twist started, $IRX was at 0.01, and now it is hovering at about 0.10. When the Fed runs out of short-dated paper to sell, would we expect the $IRX to fall back down to zero?

Pat said...

MF, your civility at Furd is so disarming that I do believe you may have gotten through to some percentage of the herd. On so many blogs, excellent content is discarded because the messenger, well you know, true civility and patence is very rare.

Jeff said...

Happy 2 year anniversary of crushing the Morgue. Apparently the Morgue stays trapped forever, but never quite gets crushed. :(

Also, ZH is blocking Jim Rickards on twitter, and when is the last time Rickards was on KWN, where silver is always the new killing it?

The activists seem to feel they are running out of time.

http://www.youtube.com/watch?v=uY_o5r_ETiA

Goldcard said...

Been reading FOFOA for quite some time now. I enjoy seeing real faces in the debriefing, thanks to all those who agreed to be debriefed!

There is always the point being mentioned that the ECB marks to market every quarter its 'gold holdings' and that this makes it different from the Fed (which still uses the fixed value from the past):

There is one thing which I cant remember seeing being discussed here, that's the fact that the ECB puts gold AND gold receivables on the same line (the SNB doesn't do this). From an accountancy point of view this is absurd, what about the free gold point of view?

DP said...

Hi Goldcard,

There is one thing which I cant remember seeing being discussed here, that's the fact that the ECB puts gold AND gold receivables on the same line (the SNB doesn't do this). From an accountancy point of view this is absurd, what about the free gold point of view?

How does this look..?

If it was leased, it's on line 1 of the asset side of the ledger. Let's assume it wasn't just leased on paper, but physically transferred to someone else.

If it comes back, it stays right where it was in the accounts - in line 1 of assets.

If it comes back but in the form of €cash, it comes off asset line 1. And off the liabilities on the right hand side of the ledger. The balance sheet still balances.

If it doesn't come back, it comes off asset line 1. If there is sufficient equity within the system, this may be allowed to cover the problem on the liabilities side and still achieve balance. If the asset loss is larger than the equity in the system, or the managers of the system decide they do not wish to fully absorb the loss of system equity, they can enter the market to devalue their currency against gold (by bidding it up with their currency). This will then enable their remaining assets to recapitalise their balance sheet. Everything else can remain nominally unchanged, and almost nobody felt a thing.

Work for you?

Dante_Eu said...

@Michael dV:

My name is Dante and I am a recovering fofoist. :-)

alfa-or-beta said...

ANother talk about Q42012 - Q12013 timeframe urgency, you guys give me chills, this ant hill is not ready. Michael H, is that a food dehydrator on top of the library behind you?

Michael H said...

alfa-or-beta,

Yes, that is a food dehydrator. Canning tomatoes is too much work. I either dehydrate them or boil them down and freeze them. I don't currently use the dehydrator for anything else.

Michael dV said...

irony ...and completely off topic
I'm sure you all know the troll song "ya ya ya ya, ha ha ha ha ha ect...

http://www.youtube.com/watch?v=cYKvweBG-hY

We call it the troll song at our house. It is of course to be mocked and derided as silly and pompous.
Well... in the past few weeks my 13 yo son decided he likes the tune. I am now bombarded with the clash of war (Black Ops 2) and the troll song at high volume. I barely have time and sanity to worry about fixing the global economy and saving the world. All I ask is for your pity.

byiamBYoung said...

Another great debriefing! Michael H, what do you raise on your hobby farm, and is that a prepping measure, or just a diversion?

Cheers

DP said...

this ant hill is not ready

+1. I don't think I could ever feel 'ready' for what I believe is to come :-{

duggo said...

Just posted on Screwtape Files CHASING CHINESE BARS (Gold that is)

Quote:- " This is supportive of Freegold theory, "

http://screwtapefiles.blogspot.fr/2012/11/chasing-chinese-bars.html

Biju said...

duggo : Good find. "Mystery of the missing Chinese Gold" - future FOFOA article.

RJPadavona said...

Great interview, Michael H

Especially your comments about the evil shorts!

And congratulations on your newborn son. I have an 8 month old daughter. If I still have enough gold left for a dowry in 20 years or so, I'll give you a call. Maybe we could work something out ;)

And people may not know you as "that gold guy" in the real world, but for those of us paying attention, we've known at least since the 1980s that you've been warning us about the danger of currency collapse.

Yeah, we know that's you, Kenny. Don't try to deny it ;)


RJP

byiamBYoung said...

RJP-

Ha! I was going to throw the Kenny Loggins card, but waffled, and then stood down.

Don't worry, Michael. My wife assures me it's quite complimentary.

Cheers

costata said...

duggo,

Thanks for the link to our friends at Screwtape Files.

wombat said...

Have enjoyed the interviews. On a couple of occasions silver has been touched on or referred to in other posts, I would appreciate any leads to which is the post or posts where it has been widely discussed or debated. Interested in others comments and views. I am new to FOFOA and am just starting absorbing the various posts.

Thankyou for any leads on the above posts

Nickelsaver said...

Wombat,

Kicking the Hornet's Nest

Wil Martindale said...

I see that fiat gold has made a liesurely stroll from 1710 to 1735 in dollar terms these last 2 days.
I can't wait for the reports in my inbox screaming "GOLD SURGES".
Gawd. If the run on physical actually happens before the intercontinental ballistic Apocolypse I recommend a strong buy on depend undergarments, as many paper chasers will surely soil their drawers !!

RJPadavona said...

ByB,

Yes, Kenny's the man. King of the Original Motion Picture Soundtrack!

I'm just glad no one's realized yet that I look like Drew Carey.

Did I just say that out loud?

costata said...

RJP,

Now that you mention it .....

costata said...

Further support for the notion that recession may be a self-fulfilling "prophecy" when there is incertainty and/or toxic economic policies in place.

http://online.wsj.com/article/SB10001424127887324595904578123593211825394.html

U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery....

..Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits...


h/t JSMineset.com

duggo said...

As a relative newcomer I'm struggling with a couple of thoughts. Can anyone enlighten me?

1. Gold as a store of value for a Giant over generations but not for the average person over the normal retirement span of someone's life unless lucky.
If I had retired in 1980 at the age of 65 and put my savings into Gold I would only have broken even in 2006 at the age of 91. My spending power would have decreased all of this time due to inflation.

2. Gold such as Eagles, Sovereigns and Krugerrands being taxed by some countries because they are not pure Gold. Why is that? Should I get rid of these coins for Buffalos or new Britannias or will governments do the same to pure Gold coins soon?

Motley Fool said...

Duggo

The short answers are :

1. You are cherry picking data. :P Do not expect such large volatility in gold prices under freegold.

2. We expect all taxes on gold will be removed ( as it will be in government's best interest for the gold to flow).

I'm sure other can provide more detail and links. The Gold Must Flow comes to mind for point no 2.

TF

Barry Michaelmore said...

Awwight duggo?

1. Between 1980 and 2006 we had Freegold?

"My spending power would have decreased all of this time due to" paper gold. #FYP?

2. Move your limey ass back to Blighty and get rid of everything that isn't a sovereign or a Brittania. #Simples!

The French are gonna just love a gold-rich le roast beef lording it over them anyway.

DP said...

Everything, Barry?

duggo said...

Thanks Motley Fool

As for Barry. well. What drugs are you on these days?

Barry Michaelmore said...

Hi on life, dugsster! ;)

DP said...

Are you sure you want to share Barry's medication, duggo! :)

duggo said...

By asking my previous question I realised that although I'd read many of the articles about "Freegold" and thought I had thoroughly understood..... I hadn't. The fog has now lifted.

Had any good parties lately Barry?

Barry Michaelmore said...

Want to come over and help me warm up the pool? ;)

Motley Fool said...

Duggo

You will keep on having aha! moments as you keep reading. It took me reading the whole blog to understand about 80% of it. Many aha! moments in between, and more to come I am sure.

TF

duggo said...

Won't your "girl-friend" object?

http://www.youtube.com/watch?v=2qpQMiWaSRo

an ANT and Dec said...

I would like to follow up on Costata's comment in the previous thread re the Kyle Bass piece http://www.scribd.com/doc/113621307/Kyle-Bass.
Whilst i think the stalwarts here would agree his Japan analysis is good, clearly he holds a differing view about the end game for the Eurozone (EZ). In this, his work is the same as every other 'Bobs ya Uncle' analyst out there.
So why do so many, inlcuding Bass, not see what is seen here?
Following this comments section, it is clear that many are finding it difficult to reconcille the dire debt situation in EZ & the political shannanigans, with a Euro that survives.
Perhaps an Open Forum on this very subject would be a good idea, or maybe @victorcleaner tackles it in more depth on his blog?
Some points for discussion would be:
- Why US/UK/JPN printing is different from EZ printing, i.e. printing government deficits and to facilitate consumption is inflationary, whereas ECB printing to save defualting debt is not?
- ECB balance sheet has and is expanding. How do they manage this if confidence changes/velocity picks up.
- When we have a EZ credit event, before Freegold. How does ECB manage this without crisis of confidence, especially if at the same time US is enjoying "its last" crack up boom before the storm. The pressure globally, and politically on the ECB to break their mandate could be intolerable as the $IMF promotes counter cylical gov spend as standard Keynes approach faced with a tanking aggregate demand? Basically, how does the ECB/EZ manage Lehman 2 that originates in its zone faced with gigantic world pressure to change its approach.
- EZ actions, like Bank supervision, reduction cost per unit labour, current account improvement and why they are important.
- Reconcile the fact the many of the EZ govs are increasing taxes as well as reducing spending - not positive restructuring IMO.
- Clearly gov defaults are needed, e.g. Greece. Does Germany play the game of no default in order to ensure Greece et make their structural changes first? If so, when do we expect the defaults to play out.
Of course theres more than the above.

Best

Barry Michaelmore said...

Have you got a favourite game?

duggo said...

Yes Barry. Keeping my back to the wall.

Robert said...

@an ANT and Dec

What do you mean by "with a Euro that survives"? Is it necessary that the Euro continue in its present form? What would be lost if one or two countries leave,but the Euro otherwise continues? Does that make it a failed experiment? Is it really "irreversible" for all member countries, as Mario Draghi claims?

I am still skeptical whether the Euro will continue in its present form. Debt servitude is literally an explosive social issue that cannot be dismissed as a political sideshow. If all of the money from the next Greek tranche would just be used to pay creditors, and none of that money will go into the Greek economy, what incentive do ordinary Greeks have to support it in the long run? One of the key themes of Another's and FOA's writings was that deflation is not a politically acceptable solution, and the current course is obviously deflationary.

You are right that there need to be sovereign defaults. But that would bring down the entire system. Do you really think they will let that happen? And here there is a difference between the Eurocrats and the man on the street. I agree that the Eurocrats would never accept a breakup of the Euro, or even a single country leaving. But if the situation continues to deteriorate the riots become a lot more violent, anything is possible IMO. At some point the people might reach the point of saying "To hell with political ideals -- anything would be better than this."

an ANT and Dec said...

Hello Robert, well i guess we could look at scenarios, one with say a a couple of sovereign departures (HI route for them) and without. How would a greek departure play out could be added into variables to consider.
You mention another point that should be considered in any analysis "the barriers to any country exiting".
You state
"You are right that there need to be sovereign defaults. But that would bring down the entire system."
Well thats my point, lets work through the scenario of sov defaults or maybe a second banking credit crisis only worse, and show how ECB would/could act to ensure that the system is not brought down, whilst maintaining a sensibility of their mandate.

I suppose i am looking for some all singing/dancing EZ analysis, with multiple scenarios, real figures and data :-)

Seems like a job for @victorcleaner ! Would be glad to help out.

Best

Michael H said...

RJPadavona,

Very, very funny. Little did I know that when I doffed my customary tuxedo, bow tie, and top hat and sent my butler to LL Bean to find me some 'common man' attire, I would end up looking like Kenny Loggins.

My barber must have been playing a joke on me.


To all,

The attribution for the 'noble patient longs / evil paper shorts' meme got edited out of the debrief; it was based on this post from Jeanne d'Arc at Screwtape Files.

Wombat,

Some more silver content for you:

costata's silver open forum

costata's silver open forum part 2

duggo,

One of the keys to understanding 'where we are going' is to understand 'where we have been' in the 1980-2000 time period with respect to the gold market.

Aristotle's classic piece is a must-read.

The miner approaches a bullion bank for a Money (Gold) loan. Let's assume the current dollar price of Money (Gold) is $400 per ounce, and the miner needs $20 million to pay Caterpillar for equipment. The bullion bank (such as can be found operating in the network of the London Bullion Market Association--LBMA) writes the Money (Gold) loan contract specifying the term of repayment of 50,000 ounces of Money (Gold) plus interest at 1% - 2%. The borrowing miner collateralizes this Money (Gold) loan with company stock, the deed to the mine, etc., and is sent down the road with $20 million in currency for Cat. Where did this cash come from? The bullion bank turned to the House of Saud, which is currently out of currency. However, using their oil in the ground as collateral, the bullion bank is able to write them a currency loan out of thin air (just like banks can do) with which the Saudis purchase the repayment rights on the Money (Gold) loan. They will be receiving future Gold for their future oil! As they sell oil, they will use their dollar revenue to repay their currency loans, and in the meanwhile, the miner's Gold loan repayments will be directed to the Saudis' account.

The process of bringing the gold price down was as follows:

1. Get the Saudis to stop buying gold on the open market, and instead give them a venue to exchange 'future gold for future oil'.

2. Once the price downtrend in gold is firmly in place, convince western investors to dishoard, since it is a dead asset that is demonetized and going nowhere.

3. When it was still necessary to bring the gold price down and #1 and #2 failed, the CBs had to step in a lease / sell gold.

anand srivastava said...

Ant and Dec:
Let me try to answer the questions. These are from common sense. I excel at applying logic without data :-).

- Why US/UK/JPN printing is different from EZ printing, i.e. printing government deficits and to facilitate consumption is inflationary, whereas ECB printing to save defualting debt is not?

The printing is same, but you have to note its not printing to allow deficits. Its strictly to save debts. In other countries with CB under govt control, the printing also allow continued deficits.

- ECB balance sheet has and is expanding. How do they manage this if confidence changes/velocity picks up.

Its like running away from a lion. You just have to outrun the slowest person in the party. In our case ECB just have to outrun the US. If USD HyperInflates before, as US is likely to do, EZ is safe as Gold will revalue and then ECB will get more than enough money to cover the present printing, due to enormous amount of gold in their possession.

- When we have a EZ credit event, before Freegold. How does ECB manage this without crisis of confidence, especially if at the same time US is enjoying "its last" crack up boom before the storm. The pressure globally, and politically on the ECB to break their mandate could be intolerable as the $IMF promotes counter cylical gov spend as standard Keynes approach faced with a tanking aggregate demand? Basically, how does the ECB/EZ manage Lehman 2 that originates in its zone faced with gigantic world pressure to change its approach.

Simple, they will print to save the banks, as US has done before. You do have to see that their burden is much smaller, and is going very slowly. Remember its a union, to change the mandate every one will have to get behind the new mandate. We do know that Germany and other northern states will veto such a mandate.

Also there is too much to lose in exiting the zone. Ask Britain, who is going to be the first to go belly up. They stupidly did not join.

- EZ actions, like Bank supervision, reduction cost per unit labour, current account improvement and why they are important.

Not sure what you mean here. I hope this is covered elsewhere :-).

- Reconcile the fact the many of the EZ govs are increasing taxes as well as reducing spending - not positive restructuring IMO.

The govts have to get the deficit down, they will get it down some way or the other. Some countries might get in very bad situations, but they don't have a way out, except fixing their problems. The printer is not under their control.

Would you prefer a HyperInflationary deflation or a normal albeit very strong deflation? That is the dilemma that Greece and other southern countries have.

- Clearly gov defaults are needed, e.g. Greece. Does Germany play the game of no default in order to ensure Greece et make their structural changes first? If so, when do we expect the defaults to play out.

Remember Greece did give a hair cut. Germany can't do much about defaults. There may be further defaults. ECB will print to make sure that the Banks do survive and German Savings are safe :-). Banks profitability be damned.

Michael H said...

byiamBYoung,

Right now we grow mixed vegetables. We are considering adding some animals to the mix.

I consider it more of a lifestyle decision than a 'prep'. As an added benefit, I am learning lots about running a business.

anand srivastava said...

@Michael H:

I know where you are coming from :-). I also wish to get to that lifestyle. Sick of the pesticide ridden veggies and fake milk :-(. Remember I posted about the Paleo diet and you were the only one to respond with WAPF.

Jeff said...

From anand's neighborhood:

http://www.indianexpress.com/news/rbi-bans-bank-loans-to-buy-gold/1033190/

Woland said...

My 5 minute Greek makeover:

1. Greece has 111 Tons of gold, or about 10 tons per million
population (value= +,- 6 Billion)
2. U.S. has about 27 tons / M, France, Italy about 50 tons/M
3. ECB lends "extra" to Greece = to 12 Billion, Greek CB buys
extra 200 tons with proceeds = 12 Billion, new total 18 B
4. pull pin on grenade, gold revalues 10x, 20x, take your pick:
5. Presto, greece has $180B, 360B new reserves, no more debt
problem. Sell back half to ECB, keep the change. Greekz.

anand srivastava said...

I don't know why people think that Greece will exit the EZ. Its a very bad choice. Choosing austerity/deflation over hyperinflation should be a no brainer.

Jeff said...

Woland, whose problem really is the Greek debt? Is it a problem for the ECB?

FOFOA: Believe it or not I view the PIIGS' debt crisis as more of a problem for the dollar than for the euro. And because of this, my gut tells me it is likely that the Fed is supplying liquidity (dollars) in some way behind the scenes to ease the situation. How the ECB will respond to this "foreign bailout" is a question, but not a vital one from my perspective.

Of course the European socialists have huge problems, but you must understand that the entire global financial system is built upon the dollar. Even if Greece's debt is denominated in euros and held by another Eurozone country (France or Germany), the failure of said debt and its complex support structure is a failure of the $IMFS, not of the euro. See: Goldman Sachs...

Greece essentially borrows commercial bank liabilities which it spends. Then the commercial banks borrow CB liabilities which they use to clear all the spending. There are less CB liabilities floating around than there are commercial bank liabilities because you only need X base to clear about 10X M2/M3 etc…

The economy’s “money” is the commercial banks’ “liability” or obligation to provide CB liabilities which make up the base. The commercial banks can borrow these CB liabilities at a low cost. The argument is that the commercial banks’ balance sheets are insolvent because when you MTM their assets (Greek promises to pay back the loan of liabilities), they have more liabilities outstanding than they have assets (at MTM price).

The reasoning is that the commercial banks sell these assets on the secondary market when they need CB liabilities to fulfill their obligation to provide CB liabilities. So they should be MTM. But that’s not the only way they can obtain CB liabilities. They can also obtain them by borrowing them from the CB itself. In doing so, they sign their own “promise to pay back the loan” to the CB, much like Greece did for them. This “promise to pay” is held by the CB as its asset offsetting those CB liabilities it issued. But the CB doesn’t MTM that asset, because A) there is no market for those and B) the CB doesn’t need to sell those commercial bank promises to pay in order to raise euros for clearing. The only issue is a technical one regarding the collateral that would be confiscated by the CB if the commercial bank went bankrupt.

So let’s say a commercial bank does go bankrupt for whatever technical reason. The CB then confiscates that Greek debt that was used as collateral. The argument is that there are too many CB liabilities floating around out there versus the assets the CB holds, which are now Greek obligations rather than the (now-defunct) commercial bank obligations. So the market (superorganism) sez the euro should devalue. This is where the CB reserves come into play.

The CB can “buy back” some of its own liabilities with its reserves. If a commercial bank fails and the market tries to take the euro down, the CB simply defends the euro. And what do you think it would use first? It’s dollar reserves, or its gold reserves? Let’s say Greece defaults, which takes down some commercial banks and now the ECB has all this devalued Greek debt on its balance sheet so the marketplace attacks the euro. What would the ECB do?

It would first sell all its dollars to buy back its own liabilities. But what if… just saying, what if… it used its dollar reserves to openly bid for physical gold in London? What if it did this instead of buying back its own liabilities? Think about the RPG effect on its reserve account! Suddenly you’ve got Freegold and now the ECB can quietly buy back any excess liabilities using a very small amount of gold. Just sayin’

Jeff said...

Right, anand.

FOFOA: The current system of infinite debt accumulation is unsustainable and has been destined for collapse from the very beginning. There is no device in place for a periodic reset, and there is no automatic counterweight to balance ongoing trade deficits, correct imbalances and hold profligacy accountable. If it weren't for the hard fixed currency zone of the euro, Greece would be headed toward currency collapse and hyperinflation right now, just like in 1944, and just like Iceland, Argentina, Brazil, Zimbabwe, Weimar Germany, Bulgaria, Hungary, Peru, Bolivia, Ukraine, Yugoslavia and so many more.

The euro did not cause Greece's troubles. It has actually spared Greece the worst of it. The problem is the dollar system of debt accumulation that simply continues unabated until finally someone can no longer pay.

matrixsentry said...

For people looking for an "aha" moment, Jeff just served up a big one, courtesy of FOFOA.

dieuwer said...

@anand,

I don't know why people think that Greece will exit the EZ. Its a very bad choice. Choosing austerity/deflation over hyperinflation should be a no brainer.

Not so sure about that. Usually, during deflation the unemployment rate is sky-high. No job = no income. However, during hyperinflation the unemployment rate is very low. Have job = have income.
I rather have income during hyperinflation than no income during deflation. Why? Because I can live below my means and keep saving during hyperinflation. I cannot do that during deflation.

dieuwer said...

Of course it is a different case if you are retired. THEN, deflation is a better outcome as your gold savings will pay for increasingly more goods and services. Hyperinflation in contrast would just make life "too frantic" for you.

Woland said...

Hi Jeff;

I think a problem can be looked on from many different
perspectives. The one I was addressing above was a way
to deal with an "optical perspective" problem on the part of
certain populations within the Eurozone partnership. There is
always an interplay between public perceptions and the views
and actions of the leadership, and it is good when these can
be kept within reasonable bounds, so as not to lead to the
removal/replacement of those leaders who are acting to
promote the longer term public good. Sometimes, this must
entail the use of deception, just as in wartime. I think, personally,
that now is a time when it is most important to keep up an
illusion for the benefit of Germans, Dutch etc. that their euros
will not be diluted, even though this is NOT a genuine risk in
the grander scheme. It is less important to keep Greece or
Portugal or Spain onboard, as none have anywhere better to
go than where they are now. So my "proposal" does in some
way resemble Fofoa's final paragraph that you cite above, but
transfers the optical location of the solution somewhat. When
the "nuclear weapon" of Gold is used, either way will work.

It is a bit of an art to keep the pressure up, without letting it
build to the point of rupture or revolution, all in the interests
of the common good. Good that capable people like Merkel
and Draghi are where they are, to support the former while
avoiding the latter. my 2c

byiamBYoung said...

Dieuwer,

"...during deflation the unemployment rate is sky-high. No job = no income. However, during hyperinflation the unemployment rate is very low. Have job = have income."

I'm not saying you are incorrect, but I don't understand the notion that during hyperinflation we can count on a very low unemployment rate. Do you have any sources that illuminate this point?

byiamBYoung said...

RJP,

Drew Carey, golden boy.

http://www.youtube.com/watch?v=KGsYZHP6Hd0

Wil Martindale said...

http://www.reuters.com/article/2012/11/20/us-libor-fixing-origins-idUSBRE8AJ0MH20121120

What a meticulously crafted piece of perception management coming from the official mouthpiece of the IMF$ "debt cartel".

Not even a whisper about the 7 TRILLION dollar IRS position taken by JPM in Q3 to avert the collapse of US Debt... just a forensic analysis of the naughty good old boys club tweaking a little here, a little there, you know, the old chain link cluster of cumulative interdependencies, complete with wrist slaps and name naming "according to people familiar with the matter".

A huge coverup of the ESF/UST involvement, as what "bank" has the "credit-bility" to stand on the other side of 7 trillion USD in forward rate agreements that mysteriously unwinds 3 months into the Paulson Panic?? AS REPORTED IN THE OCC QUARTERLY REPORT TABLES FOR ALL TO SEE !!!

I would love to here the FOFOA / VTC position on interest rate manipulation / Gibson's paradox (solved?) in relation to freegold.

I'm sure it's in here somewhere, but I may have missed it. Nonetheless, this is LIBOR, and the contextual relevance to Europe is not lost in the whole "one fails, we all fail" axiom.

Wil Martindale said...

(that is Q3 2007 when Reuters reports the seeming "gradual" plateau to 2.5 million Libor based CME contracts).

Origin of US involvemewnt MY A$$.

victorthecleaner said...


Nice discussion about the Euro zone ;)

an ANT and Dec,

printing government deficits and to facilitate consumption is inflationary, whereas ECB printing to save defualting debt is not?

In short: Printing in order to save a defaulting bond is not immediately inflationary. Remember, the people who held the bond did not intend to spend that money on consumption, and the only difference is that the CB is taking away their credit risk.

What this approach does is that it makes past inflation permanent rather than reversing it by deflation when the credit volume contracts.

How do you create inflation? By increasing the amount of money available for consumption without increasing output. Apart from having the banking system create consumer loans (which won't happen any time soon again), the easiest way to accomplish this is to give printed money to government. This is largely used for consumption with, at first, unchanged GDP.

ECB balance sheet has and is expanding. How do they manage this if confidence changes/velocity picks up.

The question is what do people intend to do with all these reserves? As long as they want to 'save' this money, nothing happens. If they switch into gold, the gold price will go up, and as a second order effect the gold dealers/producers become richer. If people start buying real estate with their reserves, then real estate prices go up, and as a second order effect the construction industry runs hot and might cause some inflation later. If people buy canned food immediately in order to get rid of their reserves, you get HI.

When we have a EZ credit event, before Freegold.

That will be interesting to see. I guess the ECB will try to buy as many government and other bonds as necessary in order to maintain their 2% inflation target. How much? That's difficult. They will probably eventually miss their 2% target on both sides.

On the other hand, an accident in the paper gold market can happen rather easily, no?

Robert,

You are right that there need to be sovereign defaults. But that would bring down the entire system. Do you really think they will let that happen?

Greece has already defaulted. It has not brought down the system. It wouldn't even bring down the U.S. system domestically if the U.S. did it (and the Fed would print in order to maintain a 2% inflation target, but no more). The problem for the U.S. is the foreign holders of dollars plus the fact that they cannot ignore these people as long as they have to import real stuff.

Victor

Jeff said...

Hi Wil,

You are focusing on derivatives, which are just a symptom of the bloated $IMF arena, not a cause of anything. Are you surprised LIBOR was rigged? The entire system is one big rigging, and it all comes back to the dollar.

FOFOA: When I say the dollar has already hyperinflated in a near-monetary sense, I am talking about the number of dollars people, entities and even foreign nations think they have in reserve. Not in a shoebox, but in contractual promises of dollars to be delivered more or less on demand by somebody else. Claims denominated in dollars. This is how the vast majority of "dollars" are held; as promises to deliver more dollars. And this is why they are held this way. Because of the more in "more dollars." "Let me spend your dollars today and I will give you more dollars tomorrow!"The Credibility Waterfall

I think it is fair to say that we have finished our 30-year run of high credibility inflation and we are now in the early stages of credibility deflation. The real question now is, can the credibility of the financial system deflate without tripping a breaker, without causing a credibility waterfall in the currency in which it is denominated?

The difference between today and a few years ago is that a few years ago credibility inflation was being fed by private credit (debt) expansion. Asset values, like homes, were being sustained and driven higher with the arrival of new marks. But today the Ponzi cycle of credibility inflation has peaked, there are no more new marks, and its decline is being managed centrally with the government expansion of new base money to conceal the failures one at a time...

I suppose this begs the question, is all that dollar debt out there in the world really worth anything anymore? If you answer yes simply because you cashed some of it in today for new underwear, then I say you didn't answer the question. The question is, is all that dollar debt out there in the world really worth anything anymore? The answer is no, it is not. Only at the margin, where you reside, can it still be cashed in for new underwear. But in aggregate, it is worthless, even today.

Jesse McL said...

Good to see the debriefs continue... another good interview.

Just saying a quick thanks to Woland, et al., for the earlier advice on further reading on banking. I've done some, gets a bit hard going at times, but then so do the discussions around here sometimes, so hoping it will all help at some point.

The distinction between super-organism imposed regulation vs. centrally planned regulation is always interesting to me. So, in order to be able to credit a my account with a $Million "out of thin air", society first needs to grant someone a banking license, and subsequently must deem the grantee to meet some capital adequacy requirements. I understand these to be the centrally planned hurdles / regulations to broad money creation, which I assume we'll find useful even AG.

Being 'profit constrained' is then the super-organism's regulations. And BG this has proved a regulatory nightmare (ie. sub-prime).

OK realise I'm talking to myself by now, but sometimes that helps too :)

Thanks!
Jesse.

dieuwer said...

@byiamBYoung

I'm not saying you are incorrect, but I don't understand the notion that during hyperinflation we can count on a very low unemployment rate. Do you have any sources that illuminate this point?

I do have a reference for that: "The Economics of Inflation" by Constantino Bresciano-Turroni.

See also this graph from his book:
http://img2.imageshack.us/img2/4651/germanunemploymentrate.png

Woland said...

Hi Jesse:

See - lots of progress in a short time! I personally have had
a lot of difficulty comprehending banking simply because it
is, on some fundamental level, so counterintuitive. Once that
hurdle is cleared, it's like a light bulb comes on. I'm still way
behind the resident experts here in understanding the fine
grained operational details, but I'm OK with that. If you choose
to go down that road, there are many here who will help you.
I'm sure you already know who they are. Cheers!

byiamBYoung said...

dieuwer,

Thanks for the link, and the graph. It would have been great if the graph had also covered 1923, when the HI really went parabolic.

when the USD hyperinflates, that surely is going to be one hell of a shock to the world economy. A lot of people are going to lose a lot. In my mind, that simply can't be good for commerce!

What jobs could be considered safe in such an upheaval? And who in the world would be hiring?

Wheelbarrow makers, maybe?

Cheers

Nickelsaver said...

Seems to me one would want to be as close to the printer as possible. Which would mean being employed by USG, or by a vital goods/services vendor/contractor.

Small businesses will suffer.

Biju said...

Even Soros is fallible I guess.

Soros sold 95% of his Gold (GLD) during first Quarter 2011( approx ~$1350/oz) and I see news now about Soros buying back now at ~$1700/oz.

Even Rich people are not really smart ?

Jeanne d'Arc said...

Hullo, FOFOA. First comment here. It was nice to see Michael H (possibly my favourite commenter at Screwtape) talk about the evil shorts and noble longs (and thanks for the credit, MH).

I wondered: would you be interested in doing interviews outside of FOFOA's principle commenters?

Biju said...

I had earlier posted an article about a high probability of Israel vs Iran war, but I guess people here are taking it lightly(costata commented). ALl this Hamas Israel peace talks sound BS.

We need to see what are the further warning signs and what is going to happen. I prefer not to be paranoid, but sometime precaution will help in preparing.

if Iran war happens, my thinking is

- with a higher Oil price, I think dollar reserve usage can be prolonged further along.
- Gold will go up
- East could be effected especially India which depends on Middle East Oil(unlike China which can open Russian route)


Wil Martindale said...

Jeff,
A point well taken, it just unnerves me when the lies are so cunning and the sheople so gullible.

I have taken my medication, and am feeling much better now. ;0)

byiamBYoung said...

Michael H = Kenny Loggins
RJP = Drew Carey

Okay, I've figured it out...

FOFOA = http://tinyurl.com/yjjm2vx

:D

Good night, all.

RJPadavona said...

ByB,

Thanks. That was a funny clip! You know, I never watched that show. I was in the hoosegow during most of that show's run. And as you can imagine, since The Drew Carey Show wasn't a rap video, NBA, or The Young and the Restless, it didn't get much play in the big house :(

But I found other forms of entertainment. Like reading about this golden boy.

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

Milton didn't get the big picture on certain things, but one of his most memorable ideas was that the Fed should be replaced with a computer. This would probably be kinda hard with the Fed's dual mandate, but with the ECB's (and eventually all CBs) single mandate of price stability (maintaining the 2% target), I can't think of any reason why the Chairman/President of a CB couldn't be replaced by Watson at some point in the AG future.

People will eventually get used to the idea that money is not wealth. So, when money becomes just another utility in the minds of humans, I don't see why its management shouldn't be like many municipal water systems or electric grids of today.... Computer programs direct where, when, and how much of the flow is necessary, depending on the needs of the system.


byiamBYoung said...

RJP,

Love The WHO.

I work in tech. A couple of lines of code can change everything, and not always for the better. A digital Bernanke would IMO necessitate a whopper of an oversight committee.

I prefer a human who fears lynching.

Cheers

Tony said...

Jd'A,

Is that a solicitation to showcase your paper gold trading prowess? If so, I vote an enthusiastic "yes" to get your interview booked! If your Zoboomafoo jargon is half as entertaining as your written word, it should be a riot!

byiamBYoung said...

RJP,

By the way, I'm also a southern boy (well, transplanted in my youth from NYC).

We should get together sometime to down some brown liquor and shoot something.

Cheers

Michael dV said...

If there is is any shooting going on I should definitely be invited. I promise I DO have the most & bestest toys. Only to a guy with access to dynamite will I yield.

byiamBYoung said...

Michael dV,

Props

Cheers

Michael dV said...

I love shooting. A couple of years ago I started 50 BMG competition. I was on the world championship team this year (largely thanks to 2 of the 4 on the team, but at least I didn't hold them back). I have about 15 different calibers and especially like building the AR15 type rifle. They are like Barbie dolls for guys. 'ohhh this one would look pretty with a earth tone butt and a Trijicon scope'. I used to do a lot of rock climbing but shooting agrees more with being just this side of elderly.

byiamBYoung said...

Michael dV,

I used to own a rock climbing gym. Blew out my finger tendons bouldering :(

Sounds like I could seriously learn from you on the weaponry. Kudos on the world championship team placement. I bet they don't just give those away.


Cheers

anand srivastava said...

dieuwer:

I am not able to see the graph, but I have read that the very low unemployment period was just before the collapse. Basically before the point the HI started.

Also if we talk about basics. Both Deflations and HyperInflations are Deflations in real terms. The only difference being that in plain deflations the currency is alive so people who have currency can spend it, while in HyperInflations the Currency is gone, the only people who are doing well are those that are near the printer.

In both cases people involved in basic necessities will survive. I would think that in Deflations there will be more jobs because people do have money and the currency is stable. In HyperInflation the govt jobs are more or less safe, but the Govt is still contracting, albeit slowly. So jobs will be going down in the public sectors, and also the salary will not be very good.

I would think HI will be worse for anybody. Young people will survive in either, they can do some work. Old people who have their savings only in social security may lose out in deflation as well, as social security may get impacted in deficit reduction.

Remember the old people while using their savings will provide some jobs for people. This avenue for jobs is very less in HI.

costata said...

anand et al,

I don't want to butt in on your inflation versus deflation discussion but I think there are a couple of pieces of information that might help your analysis. Obviously deflations are very rare in the kind of currency regimes we have been under for the past several decades.

You have to go back to the first phase of the Great Depression to find a period in which there was obvious and high deflation. According to at least one account I read the deflation reached 42 per cent in the USA. It doesn't really matter if it wasn't that high because deflation is a very potent poison for an economy. Even in relatively small "doses" it's deadly.

Under deflationary hard money conditions the impact on employers is very severe. The key problem is that employees find it difficult to accept falling nominal wages. This is especially so when the need is for them to anticipate increased purchasing power (falling prices) in the future and accept lower wages right now.

The employers are foreward looking (they have to be). Without the ability to adjust wages to reflect the falling prices for their products that is on the horizon they cut back where they can and if they get no assistance then increases in bankruptcies will follow.

There were other factors involved in the Great Depression. It wasn't merely a monetary policy event but I don't want to muddy the waters. This is the key point I want to make: Deflation = Rising Unemployment.

Anyone with a printing press can create make-work jobs as in the Weimar period. If necessary the government can employ everyone or pay other economic actors to create "jobs" for everyone (until the currency collapses).

Michael dV said...

bYB
there was a period of about 35 years when I did little but climb (and work). I've gone on an expedition (Pakistan) climbed in Patagonia and all over the USA. I have probably been in your gym if it is West of the Mississippi. Loved ice, bouldering, even competitions. I maxed out at 5.12 but I managed to stay scared for most of the 3 decades. I still have my tendons but I finally just decided that the time it took to stay in great shape and the time it took away from all kinds of other fun was just too much. Lots of great memories.

Michael dV said...

costata
good points...it seems obvious now that you have said it but I had not considered the effect of deflation on employment.

costata said...

There's an interesting graph in the short post linked below showing the countries who have increased their purchases of USG debt over the past year versus China whose purchases have decreased.

It's very instructive if you also consider that the rest of the countries on this list are trying to suppress the US dollar exchange rate of their currency and the only one who isn't is China.

http://www.npr.org/blogs/money/2012/11/19/165481949/the-u-s-is-borrowing-less-from-china-more-from-everybody-else

It's also instructive to consider the impact on US corporations sourcing their products from China of the 30 per cent plus increase in the Yuan/Dollar exchange rate since 2005. IMO this was a contributing factor to the rising unemployment in the USA after the middle of the past decade.

Given the emphasis analysts put on China's currency manipulation it's rather ironic that keeping its currency artificially low provided structural support for the profitability of US corporations (among others) and for the US economy whereas allowing the Yuan to appreciate does the opposite. It turns the conventional wisdom on its head. The timing (2005) is also a neat fit with later events as well.

Anyway that's my 0.02

costata said...

Michael dV,

Happy to assist.

Cheers

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

I would love to see a 'de-brief' with JdA.

The interviewees so far have all been Freegold 'believers', so it would be interesting to see FOFOA interview someone who doesn't even own gold (which seems quite outlandish round these parts).

anand srivastava said...

Found a nice article from RBI on gold.

http://www.rbi.org.in/scripts/PublicationsView.aspx?id=13843

Two quotes.

Although in contemporary world it is impossible to maintain the gold standard, this system had the advantage of more stable ‘inflation management’ than discretionary paper money regimes.

Interesting that he things that although gold is good against inflation gold standard is impractical now.

Incidentally, China do not permit export of gold ingots, only jewellery are permitted, leaving plentiful supplies for the domestic market (financialpost.com).

I think this is the reason why we don't see any gold bars from China. Because it's export is banned.

Woland said...

Since tomorrow is Thanksgiving, I have a question;
I haven't read Mises/Hayek, but I know a bit about their
thoughts re: malinvestment. Did they ever consider the
possibility of malconsumption? Is it consistent with, or
contrary to, Austrian ideas of the origins of value? Just
curious.

Edwardo said...

costata,

If Japan, better known these days as The Land of The Setting Sun, is the nation that is picking up the slack with respect to U.S. Sovereign Debt, the (very smelly) excrement is going to hit the fan (set on high) in relatively short odor, uh order.

Edwardo said...

I assert that JdA, as per her most recent post on at Screwtape, doesn't understand freegold, advancing, as she does, what is essentially Warren Buffett's OG position. If one wants to interview such a person, fine, but I'm not sure how much sense it makes. It will be interesting to see FOFOA's response to this query.

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

Not trying to speak for FOFOA, but I thought the purpose of Debriefed was primarily to put faces to the names of a lot of the long-time posters here, not to engage in vigorous debate on the merits of freegold.

Also, JdA it's clear based on your gold piece that you haven't given much consideration nor have you bothered to understand the rather unique perspective that is offered here. I enjoyed your pieces on silver and agree w/you for the most part. You also correctly note that many silver/gold analysts out there are full of poo. But that's pretty much all your gold piece consisted of: smearing gold analysts. It was pretty light on actual analysis.

Also, this: Gold is philosophically pre-destined to take the place of defunct fiat currencies based on the ramblings of an obviously increasingly senile hoaxer who has clearly never sat in a diplomatic meeting in his life.

is just insulting, if it is indeed a shot at Another. Or is it Jim Sinclair? And yes, leave it to the diplomats to decide what medium the world saves in. Anyone without diplomatic experience cannot form valid opinions on these matters...

Tony said...

Ok, ok....admittedly, I advocated a Jd'A interview in the hopes of watching an FOFOA-conducted video exposé of Jd'A's views on gold. Kind of reminiscent of the VtC/Blondie tag team a few weeks back on Screwtape that left Jd'A without retort. Make no mistake, I love to see a good contrarian perspective, assuming it's backed up with something more than hunches or Ouija board directives.

Woland said...

Hello Jeanne d'Arc;

I think most commenters here would be happy to set another
place for you here at out Thanksgiving table, but perhaps it's
a little early for you to ask to "spend the night?" I've always
thought that the give and take of the comment section was
the best forum to hash out conflicting ideas. Just my 2c.

byiamBYoung said...

Michael dV,

Yup, staying that strong takes a full time commitment.

Cheers

dieuwer said...

I don't see how Japan can continue buying more and more US sovereign debt if they are running a trade deficit.

Nickelsaver said...

If anybody from screwtape is to be debriefed, it should be Warren.

How 'bout it Warren? You gonna show us your Lemur?

an ANT and Dec said...

Thanks for the EZ responses.
@Anand, although I appreciate that you take the time to respond, what you write is clear to me and is a superficial treatment.
@Victor, more like it :-)

I suppose what I am looking for is the complete EZ will fail DEBUNKED paper. From Buiter to the latest over at Chris Martenson declaring the end of the Euro as we know it. Where is detailed analysis debunking. I haven't seen one. Instinctively I 'think' I understand the elements, but putting into one cohesive master piece is missing :-)
I am going to try and have a go at something, lets see.

On another subject, I have seen somewhere here? the analysis of the QE approximates to the US budget deficit over the trade deficit. With the actual numbers per month. Could someone here point me to this. Most appreciated

Best

costata said...

FOFOA,

A freshly shaven Yeti interviewing a talking, toasty prosimian. Wow! That's not something you see every day.


dieuwer,

An interesting point approaches. Japan has a "printing" press. So Japan can buy USG paper as long as they can swap Yen for US dollars. They don't need a trade surplus to do that. And since the Fed also has a printing press this could continue for quite a while if the Fed is prepared to play along in order to support the US trade deficit.

If that sounds really stupid it's because it is really stupid.

dieuwer said...

@costata,

Japan has a "printing" press. So Japan can buy USG paper as long as they can swap Yen for US dollars. They don't need a trade surplus to do that. And since the Fed also has a printing press this could continue for quite a while if the Fed is prepared to play along in order to support the US trade deficit.

Twin Hyperinflation.

dieuwer said...

It's like Weimar and Zimbabwe agree to buy each others' bonds. While the effect may be that the Weimar/Zimbabwe currency exchange rate stays constant, but BOTH currencies will melt down relative to everything else on the planet.

burningfiat said...

Michael H and FOFOA,

Great debriefing. Thanks!
MH, I imagine those boxes on the back shelf are full of gold coins?

Costata and dieuwer, LOL @ twin HI. A recent DP tweet comes to mind: http://t.co/VYYpcv5C

:D

an ANT and Dec said...

I thought some @Victor brilliance was worth reposting:
with all due respect, I think you are getting the interpretation of the European situation wrong (perhaps too much exposure to UK media?) - but at least you are here to discuss! Good choice and welcome!

Here is the short answer: When the US went off the international gold backing in 1971, they did this in order to raise the price of oil which, they hoped, would help them become independent of cheap OPEC oil. But they made sure that oil is always traded in US$.

Now this imposes a huge tax on their allies in Europe. These had to first export something into the US in order to acquire US$ and could then use these US$ in order to purchase oil. The US, in contrast, could just increase their own credit volume and pay for their oil with newly created US$.

On top of this, they were able to make sure that the oil producers invested the majority of their US$ surplus back into the US (real dollars) and UK (eurodollars) financial institutions, providing additional reserved for further credit expansion.

For a long time, this was a perpetual motion machine that allowed the US to get free oil and free funds to run their government (read: military) whereas the Europeans were automatically conscripted to funding this enterprise whether they liked it or not. (if all oil is sold for US$, what other option did they have?)

Do you think the Europeans liked it or did they not? This is the explanation for why the Euro exists today, why the Europeans want gold back into the international monetary system, why there will be no return to a gold standard in Europe, but why the Europeans will eventually shot the gold price to the moon, and finally for why the Euro will not break up.

It also explains why the Euro is the most serious danger to the US and UK financial systems and why US and UK fear the Euro and bash it whenever possible.

Who cares about the bankruptcy of some smaller countries? Who cares about whether some pension funds or life insurance companies lose part of their assets in the write-downs. What's at stake on the big chess board is access to the world's resources for the next century. The European debt crisis is peanuts on that scale.

Victor

byiamBYoung said...

Regarding Japan,

I don't know anything about Charles Sizemore, but this piece of his has some interesting specifics about Japan's savings rate:

http://investorplace.com/2012/11/japan-is-the-next-shoe-to-drop/

Snippet:"Japan is the oldest country in the world with the highest percentage of its population beyond retirement age (roughly a quarter). And as Japan’s Post-WWII generation drops out of the work force, they are starting to dip into those savings they spent the past three decades accumulating. Japan’s savings rate is now just 2% and falling — a far cry from the 44% savings rate it recorded in 1990. If it has not dipped into negative territory already, rest assured that it will soon."

Michael dV said...

poopylover
the JdA piece you reference just makes me realize how much I have changed in the 2.5 years past. In April of 2010 I would have read that article and my only though would have been: 'well that is an interesting and equally valid viewpoint.' Today I read it and think: 'my but someone has a long way to go, I doubt they will survive economically.'

poopylover said...

@Michael dV

Same here - my worldview changed completely around the same time frame (found FOFOA circa July 2010).

I think JdA was just trying to kick the hornet's nest, and was successful. I haven't read all his (her?) material but (s)he seems to have some socialisty leanings, and these types of people will often just reject everything here out of hand (too much cognitive dissonance), as we know.

Michael H said...

Note to self:

Move my gold, and change the combination to my luggage.

Michael H said...

Jeanne d'Arc,

Thanks for the compliment.

Wil Martindale said...

All that really matters is who really has the real gold, unless ... and this is big ... you believe that gold will flow in large quantities for many years to come ... so as to change who really has the real gold when trading stops.

If you believe the flow matters then you must believe that freegold is far enough away in time for the flow to matter.

If you think freegold is coming in a year or less, then all that matters is who has the real gold today.

If you believe the official reports of who holds real gold then ad this wrinkle. When the time comes, will the gold move to where the paper says it should be ?

Michael dV said...

burningfiat
now say (in your best Austin Powers voice) t-t-twins Basil, twins

victorthecleaner said...

Wil Martindale,

it was stressed here many times that what matters most is not who has the gold now, but rather who is willing to use his fiat currency to buy more if necessary. I repeat:

Bundesbank: "Hey, Timmy, ship us the gold."
Timmy: "Ehm. Not really right now, you see,..., you have to understand...."
Bundesbank: "Timmy, get to the phone and call FedEx right now. Otherwise, we buy twice the amount in the market tomorrow."

Timmy will call FedEx before you can say "puke".

Victor

M said...

Duggo

"1. Gold as a store of value for a Giant over generations but not for the average person over the normal retirement span of someone's life unless lucky.
If I had retired in 1980 at the age of 65 and put my savings into Gold I would only have broken even in 2006 at the age of 91. "

What if you bought gold anytime in the 10 or 15 years before that ? You would be way money ahead.

What if, by pure chance, you were not born in the USA ? There was no gold bear market in the 90's in India or any number of countries

costata said...

Hi Edwardo,

Yes things don't look rosy for Tokyo.

Hi dieuwer,

It was quite late when I typed the comment above that you responded to. The last line reads:

..while if the Fed is prepared to play along in order to support the US trade deficit.

right now I would change that to read 'USG borrowing power' or something along those lines. Introducing the word 'trade' overcomplicates a simple proposition.

I agree with BF. Your analogy was amusing and there's more than a grain of truth in it.

Cheers

M said...

@Dieuwer

"Not so sure about that. Usually, during deflation the unemployment rate is sky-high. No job = no income. However, during hyperinflation the unemployment rate is very low. Have job = have income."

That is entirely incorrect.

costata said...

M,

Please expand on your comment to dieuwer about employment.

Cheers

costata said...

This newsletter is reporting that removing the tax exemption on new issues of Muni bonds is back on the negotiating table as part of the "fiscal cliff" theatre.

Scroll down to 01.55

http://5minforecast.agorafinancial.com/unions-gold-and-a-devastating-event/

duggo said...

@ M

As you confirm. It's a question of luck or waiting for Freegold.
Anyone got a time-line on the introduction of Freegold yet?

alfa-or-beta said...

Question of FG timing?
It must come prior net oil exports fail (oil producers still have oil for their consumption but not for exports), which is at max 20years away (differ by region slightly), there will be likely many crushing economic events occuring even before that. So it's safe to work with say 5-15yrs extra high probability timeframe of severe gold price spike. As to FG it might be part of the resolution or not, it is apparent that FG needs some basic level of intact global economic and social fabric, which is always bit doubtfull outlook, especiallly now. I'm simply agnostic on this issue, FG is an optimistic scenario, hedge accordingly for less peacefull times ahead.

DP said...

@Victor,

Bundesbank: "Timmy, get to the phone and call FedEx right now. Otherwise, we buy twice the amount in the market with all these dollars in our reserves tomorrow."

Wil Martindale said...

I think then that the consensus here is that we are many years away from the destruction of the present gold market (i.e. freegold) as it takes time to move all these tonnes. I doubt that Fedex would be involved.

When the music stops whoever is missing a chair falls on their A$$ET$.

Happy Thanksgiving ...

Jeff said...

I don't think that's the consensus here at all.

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".

FOFOA: 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. This is backwardation!

What the bullion banks do is they take a piece of gold and they inflate it 1,000% and sometimes up to 10,000% so it appears to be a SUPER BID for dollars. And they prefer to do this by LEASING gold (borrowing your gold) rather than buying it outright. It's a lot cheaper that way.

I think it is possible that gold is actually in permanent backwardation at this very moment and may have been for a while now. You can't change the temperature by simply rigging the thermometer. But you can't know the exact temperature either.

The dollar NEEDS voluntary bids from private physical gold to survive. My guess is that pool of REAL bids of size is bone dry and cracking. And "dollar liquidity" is just a cheap façade at this point. This is why the dollar NEEDS a rising gold price. As the price (for selling, not borrowing gold) rises, weak little bits of gold here and there will bid for dollars.

Of course that won't be enough (dollar demand from gold) to float the dollar for long. Gold must EXPLODE to reach equilibrium...

We shrimps should have gold available for purchase until some small or medium-sized Giant is denied allocated bullion. Several people asked after my last post, "What if all the APs won't play ball and redeem your basket?" My answer was, "Well, then it is game over for Bullion Banking!" Gold is going into hiding. When a small Giant runs out of one of the Bullion Bank's front door announcing "the bank is out of gold," as Fekete puts it, all offers to sell gold against irredeemable paper currency will be abruptly and simultaneously withdrawn.

So buyers large and small, get in line to get your gold. Because we have no way of knowing who will be the last in line to get cashed out. What we have here is an explosion in the bullion banks' physical leverage factor, not through an increase in lending this time (the lending is actually declining), but through customer withdrawal of reserves, with no physical backstop. Even a bank with a conservative leverage factor can experience a bank-busting, system-crashing run. Public confidence is the only thing that stands in the way. This is how a classic bank run runs.

zookeeper said...


Bullion Baron on freegold. The final outcome could come one day but the timing . . . . sigh

"There seems to be little critical thinking occurring in the most popular discussion spots for Freegold (such as on FOFOA's blog), it's almost like a religion or cult. Those who don't agree with the consensus are often labelled trolls, silverbugs or even gamblers."

http://www.bullionbaron.com/2012/11/freegold-gold-bubble-or-new-monetary.html

"What they don't seem to understand is that what happens between now the the end game could be as important as the endgame itself."

Edwardo said...

costata, the ramifications of removing the muni-tax exemption could be profound along a number of lines. Here's just one: By making it far more difficult for local communities to raise money through bond issuance the unwitting Feds breath life into the always simmering states versus feds conflict. I imagine some states will respond (perhaps the operative word should be retaliate) in interesting ways. One of those ways
may be for states to rescind or otherwise impair tax exempt status for U.S. Treasuries. In short we could have something like a tariff war between local and federal bond franchises.

Woland said...

I Just read the BullionBaron piece, and on balance, it does a
good job of summarizing. The big problem with his thinking
is a belief in market pricing (supply and demand) as THE
force in determining gold's currency price. Who knew that
those annoying silvery gray beads of metal mixed with gold
in the final pan wash would one day be more valuable (for a
time) than gold? Who would have thought that the metal of
Emperors, such as Napoleon III, more valuable by far than
gold, would one day be used as siding for mobile homes.
(aluminum)
"The modern use redefined the value accordingly". Aragorn II

"Sir,Your wisdom is to die for! You are over 100 years old,
yes?"

ANOTHER, addressing the comment by Aragorn II

H. M. Socialist said...

OMG yes finally Bullion Baron has exposed the lack of critical thinking skills, bias, and cult-like worshipping of you freegolder scum!

There seems to be little critical thinking occurring in the most popular discussion spots for Freegold (such as on FOFOA's blog), it's almost like a religion or cult. Those who don't agree with the consensus are often labelled trolls, silverbugs or even gamblers.

Yes! You freegolders need to stop it with the hurtful name calling! It discredits you lot and calls the whole idea of freegold into question! Just because I purchase silver and advocate that others do so, does not give you the right to call me a "silverbug" or a "silverado"! That's just MEAN! I prefer the labels "Noble Silver Warrior" or "He who has great silver wisdom" or "Silverwang".

Also, Art is not a "troll", he just pops in every day with friendly reminders and cogent arguments which you freegolders prefer to ignore. There have never been any trolls on this blog!

You freegolders are so hurtful, and it hurts my precious little feelings! Therefore your arguments lack merit, since it is clear you are all cyberbully meanie dirtbags!

Also, how will you ever refute these arguments, as presented by "He who has great silver wisdom," Bullion Baron:

Even if we are on the road to Freegold in the not too distant future, there is no reason that a Gold bubble in the conventional sense (of a parabolic rise and crash) couldn't play out before hand.

Yes! As the price of gold rises parabolically, BB's will have no problems increasing their reserves if they need to, b/c they're offering so many more dollars to source those reserves! Something you FREEGOLDERS don't seem to understand is that it is dollars that bid for gold, not the other way around! So silly for anyone to even think that, good grief. What are you going to do with all that physical gold anyway? You sure can't take it to the store and buy porn with it, nor can you buy crack with it in back alleyways (trust me, USD is KING for these transactions, I KNOW from experience).

Or there is the possibility that the IMF gets to play out their role with an SDR in the interim with Freegold coming a decade or two down the track.

OMG WIN! The ELITES control everything, even what we save and our thoughts of value! If big daddy gubmint says "SDRs are the new reserve!" then everyone will start saving SDRs and USG will use SDRs to support its structural trade deficit, while our trading partners lap up those SDRs like little lambs. There is no way USD would hyperinflate in the process of losing its reserve status either, because the ELITES won't allow it! It's all about the elites! We have no freedom, no autonomy, and just need to surrender ourselves to the idea that we are all puppets of the Illuminati and Annunaki.

I think it is clear that silverwang Bullion Baron has slain your freegolder ideology with his silver sword! What do you have to say for yourselves, freegolders? BWAHAHAHAHA!

Greetz,
HMS

alfa-or-beta said...

H.M.S.> about U.S. lapdog trading partners, frankly they are still looking up towards the west as the big daddy, the big honcho, the king of the hill, THE figure to emulate in full spectrum, incl. silly mistakes like car culture, highways, nuclear industry, .. The chinese surely plan to take one day over, but certainly not now, not even in a decade, two or three. Just look at the first major strategic energy publiction by chinese gov. just out, they apparently swallowed hook and sinker all that silly bullshit about supposedly abundant U.S. energy reserves in shalegas and what have you. In similar manner they will just swallow SDRs or anything which will keep their factories humming along for utopic human progress. Simple as that.

The fact they may have hoarded close to 10k tonnes of shiney as of now is still nothing for +billion soals - they don't have global military, nor domestic resources (oil, water, soil) just cheap labour..

Woland said...

HMS: Answer me this;

Cognoscenti, Illuminati, Order of the Cincinatti, Annunaki,
Magister Populi, Magister Ludi, WHY DO ALL ELITES END IN "i"??
THAT is the source of their power!!

alfa-or-beta said...

Baron's critique/understanding of FG is nothing to brag about, but he mentioned between the lines one point I voiced weeks ago. Simply, don't be stupid greedy and gamble on 20-30x-xxx RPG windfalls. Just run away should there be something on the order of 5-7x revaluation in comparison to other hard assets (oil, land,..).

Some, might call it chicken littles strategy or weak hands, but this is very cruel world indeed and especially in the EU area don't expect to be left alone (taxes, safety, ..) playing it all too much to the max.

The most arrogant "successfull" HI gamblers of the 1920/30s in Germany were pretty shortlived species, parished in short order in hands of nazis or lost most of the marbles in too late emmigration. Who runs first wins!

Bjorn said...

Woland, don't forget the elitiest of them all: The mighty knights of "ni!"!

Bjorn said...

Woland, don't forget the elitiest of them all: The mighty knights of "ni!"!

Jeff said...

It seems an awfully exclusive cult; most seem to fail the admittance exam.

Alfa, your restatement of BB's paper trader mindset was addressed by Nickelsaver to BB himself in the comments to my debrief, but maybe you and BB will let us know when to sell to catch the top. Check the stars and charts, and stuff.

FOFOA: Fair warning to all gold bugs who don't understand Freegold

I'll make a prediction right now. As we approach and surpass $2,333, other high price predictions notwithstanding, you'll read articles from all of your favorite gold bug writers making the comparison with the 1980 peak. And if the ascent is anywhere as vertical as it was back in July and August, that comparison won't be lost on a single gold bug. No one wants to miss the top like so many did back then.

So when it starts to fall after a vertical rise, and it will fall, no one will be thinking about those other high price predictions. Instead, they'll be thinking "get out now, just in case. I can buy back in later and make a profit." This group will include all paper gold traders as well as a good portion of the "physical" gold bug community. And because of the "specialness" of that number, $2,333, there won't be any paper gold buyers trying to catch the knife, so it will fall hard. Possibly too hard. No one wants to be that guy who bought on the way down in 1980.

This could potentially be the final shakeout of weak physical hands, because there will be plenty of strong hands catching that physical even though physical buying won't stop the price from falling. Unfortunately for a few long-time gold bugs, the lack of a fundamental and foundational understanding of a much higher value could see them liquidating at the worst possible time in all of history. And that would truly be a shame. At least I have given fair warning. I'm not predicting that this is the way it will play out. Only that it could. And being aware of this possibility has value if it gives you strong hands at a key point in time.

alfa-or-beta said...

Jeff> sadly, it's at least for 2nd or 3rd time your are here for now apparent reason placating this forum with the same copy and paste acusations of catching some stupid top. To the contrary as stated numerous times - I'm "preaching" non greedy, antsy approach, getting out VERY early, before any BB or FOFOAn TOP and possibly staying inn with some portion as long term savings, should the floor in the new reality last.
ps and you adddressed exactly zero of other points raised here..

alfa-or-beta said...

Lol, the best part is that I forgot, I already discounted your argument last time, by saying that even ordinery trader/goldbug of today won't sell bellow 1980s real inflation point of $5-8k or in similar oil/land/ derived ratio, I'm not fixated on the paper valuations, sorry.
So clearly you are the one, now at least TWICE proven absolutely not able to listen to others here, just placating.

Michael dV said...

duggo
a few weeks ago I suggested we poll the fofoa readership for a date for FG. If 'n' is greater than say 1000, then I'd wager the mean or the median would come pretty close to the truth. I'd also wager that the high and low would be wildly disparate. I have not tried to find the reference but in the past this technique has proven fairly reliable. With things like beans in a jar (say 5000) the mean was with 10 beans (again foggy recollection). The fact that most of us are tuned into similar contrarian sources might negate the results but it would be a starting point.

Michael dV said...

"Those who don't agree with the consensus are often labelled trolls, silverbugs or even gamblers."

these comments by bullion baron show that he does not understand us here. These are not the curses we use! A well read critic would know that the damned and excommunicated are labeled Mungerian paperbuggerdom hms fools. Those who truly know the procedures for redemption end their missive with 'greets'.
Many unrepentant souls wander the HFT ether endlessly seeking small returns and occasionally return to this place of light to beg forgiveness, often in strange and ironic ways. We call these ghouls 'Art'.
The problem with being a fofoa critic is that by the time you read enough to be a good critic you have a moment of clarity and realize that the fundamentals are sound. You are then converted or you quit coming here because the truth here is not the truth you want to be true. What many interpret as our 'dogma' is really just a body of information the we have not been able to refute. What rational person would hoard gold if there was a more enjoyable alternative. I would bolt this site in a second if I could be convinced that the best long term store of value was a collection of full auto MP5s or Glock pistols. So far no CB balance sheet admits to such assets however.

Indenture said...

alfa: "Just run away should there be something on the order of 5-7x revaluation in comparison to other hard assets (oil, land,..)."
I guess running away is one strategy.
I'm going to try and listen while I sit very still. (thank you Zen Master Blondie)
When we get to the other side we can discuss.

poopylover said...

@alfa-or-beta

Just look at the first major strategic energy publiction by chinese gov. just out, they apparently swallowed hook and sinker all that silly bullshit about supposedly abundant U.S. energy reserves in shalegas and what have you. In similar manner they will just swallow SDRs or anything which will keep their factories humming along for utopic human progress. Simple as that.

Yep, they are our eager and willing slaves. The west prints and the east hops to it. Simple as that.

To the contrary as stated numerous times - I'm "preaching" non greedy, antsy approach, getting out VERY early, before any BB or FOFOAn TOP and possibly staying inn with some portion as long term savings, should the floor in the new reality last.

Spoken by a man who earnestly believes that dollars bid for gold. I'm glad you're at least considering the possibility of holding on to some physical through the crisis!

Consider another possibility: you cash out of your physical "conservatively" before the top, and put it into land, stocks, and whatever else. All of that stuff is easily confiscated by a desperate collective during a crisis. Property taxes can be raised to confiscatory levels, for example. Further, the price of real estate will crash in real terms when credit disappears during hyperinflation. Companies, desperate to raise capital, may continually issue new shares, eagerly gobbled up by an investing public now desperate to get out of the dollar.

Now I'm not suggesting all of the above will definitely happen, just that your "cautious" approach may not be so cautious after all. You may well face a total loss and start off in the new system with nothing.

victorthecleaner said...

Wil,

I think then that the consensus here is that we are many years away from the destruction of the present gold market (i.e. freegold) as it takes time to move all these tonnes.

No, I don't think anyone here expects this to play any role. For freegold, it is completely irrelevant where the official gold is located. Why would it matter? It could have happened in September 1999.

The time for the old financial system is up when the producers decide to stop accumulating dollar reserves. This might have started in the summer of 2011. Since that time, the amount of treasury debt held in China has been constant or slowly declining. This might mean that the last political support for the dollar is gone. What's left is one desperate (Japan) and a lot of hot money (institutional investors afraid of the Euro because they have it backwards), but these two are not that sustainable and reliable, aren't they?

Btw, did you notice that over the past few weeks, two Eurosystem CBs published the breakdown of their gold reserves by location? First, the Bundesbank, and yesterday, the Austrian CB. Let's see whether any other Eurosystem CBs report this before the end of this year. They might be following some schedule.

Victor

dieuwer said...

Thought I'd share this with you:

Today on my way to Istanbul, my eye fell on the following news item in the Financial Times: "Gold deposits could meet credit demand". Apparently, turkish banks have been encouraged by the central bank to attract bullion from private citizens to create a gold deposit account. There are even "gold days" where anyone holding gold can come in and receive replacement investments in return. It seems a huge success as the collective bullion account balance has grown 10 fold the last 2 years (to about $9B equivalent).

victorthecleaner said...

alfa-or-beta,

It must come prior net oil exports fail (oil producers still have oil for their consumption but not for exports), which is at max 20years away (differ by region slightly),

Don't think so. Both Saudi Arabia and Iraq can produce some 15mm bbl per day at a cost of about $30-$40 for several decades. No issue with oil supply for a loooong time.

The development of shale and oil sand and other expensive sources, and all the talk about Peak Oil being relevant soon, is manufactured.

What will be interesting is the following. Once oil is no longer sold for dollars, OPEC production will increase substantially. How is the world going to look like when North America (U.S. plus Canada at least) have little oil under $60/bbl in today's dollars, but plenty at around $80/bbl, but the Middle East still has spare capacity at Euro 30/bbl?

Victor

dieuwer said...

@victor,

It is well-known that Saudi Arabia needs at least $80 per barrel to keep the lavish social spending programs going to be able to placate the people. If they don't do that, revolution will be close at hand.

M said...

Dieuwer, Costata

RE: Unemployment and hyperinflation.

There is no evidence of more employment in cases of hyperinflation. Hyperinflation and high unemployment go hand in hand. As FOFOA says, deflation and hyperinflation look the same on the ground except for the wheelbarrows.

Germany: By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. Food riots broke out. Parties of workers marched into the countryside to dig up vegetables and to loot the farms. Businesses started to close down and unemployment suddenly soared. The economy was collapsing.

Nickelsaver said...

Alfa,

So what exactly are you planning to let your Gold bid for at 5-7x, dollars?

This is the very thing that most people don't/won't understand. We are anticipating a paradigm shift. Any opportunity to cash out prior to the reset, will be a fools trade for the one surrendering their gold.

That is, unless you allow your gold to bid for some items in the physical plane at the 5-7x ratio your talking about. And I doubt you'll be able to do that on anything other than a small scale.

If you think about it. What other physical item would you be able to trade for that is as fungible, as portable, and as protectable as Gold.

If you try to buy real estate, what are you really buying? Title? A legal document; a paper instrument. Not portable and not hardly defendable.

Or are you thinking that you will bid for dollars? Dollars that will then be hyperinflated away. And when those dollars are hyperinflated, all other nations who hold them as reserves will see their currencies hyperinflate with them. That is unless they have physical gold reserves to offset the loss.

In the end, it is a zero sum gain at best for those currencies. The real value of Gold won't be known until there is price stability within one of them (Euro).

Understand that we aren't looking for Gold at a certain price, but simply currency stability after the reset.

You go ahead and take your profits prior to that. You will find lots of dollars ready and willing to bid for you gold.

dieuwer said...

M,

read "The Economics of Inflation".

JR said...

Happy Thanksgiving,

Thanks to each of you for sharing your thoughts, ideas, and perspectives - this is quite a community going strong here. Gogo FOFOA superorgansim!

Prost! J.R.

tintin said...

Russell Napier via zerohedge.com:
"...the expansion of China's reserves, which has been an engine of global economic growth, is about to come to a shuddering halt. As eFinancial News notes, Chinese reserves have decelerated dramatically over the last five years and are now close to zero. Napier said of the graph: "It is the most important chart in the world. The growth in Chinese reserves has determined all the key developments in financial markets in the last two decades."

Obviously RN is only counting USD paper reserves.

In FOFOA language, the structural support from China for the US debt/dollar expansion has stopped.

http://www.zerohedge.com/news/2012-11-22/russell-napiers-most-important-chart-world

M said...

@ VTC

I thought that somehow the North American cost of production would still be the minimum price after FG. ??

Otherwise the whole NA oil industry from Mexico to texas to Calgary is history. Along with all the expertise.

Edwardo said...

Victor wrote,

"Don't think so. Both Saudi Arabia and Iraq can produce some 15mm bbl per day at a cost of about $30-$40 for several decades. No issue with oil supply for a loooong time."

Do you have some documentation in support of that
assertion?

M said...

@ dieuwer

"Hyperinflation and deflation look the exact same except for the wheelbarrows" - FOFOA

Bullion Baron said...

Woland said... I Just read the BullionBaron piece, and on balance, it does a good job of summarizing. The big problem with his thinking is a belief in market pricing (supply and demand) as THE force in determining gold's currency price.

It is currently (market price determines Gold's currency price), but I do understand the change that would occur under freegold. I think the best way of describing freegold pricing would be to consider a body of water which represents all fiat currencies, Gold is the boat sitting on top which would rise or fall depending on the level of the water underneath.

-----

alfa-or-beta said... Simply, don't be stupid greedy and gamble on 20-30x-xxx RPG windfalls. Just run away should there be something on the order of 5-7x revaluation in comparison to other hard assets (oil, land,..).

This is what I am watching for (in order to sell out of most positions in precious metals), a peak in ratio compared to other assets rather than a specific fiat price.

-----

Jeff said... And because of the "specialness" of that number, $2,333

As alfa-or-beta pointed out, the $2,333 is of little importance to most. Many I speak with in the Gold investing community have targets much higher. My expectation (based on ratios I am measuring against wages, oil, houses, stocks, etc) put a price of $3500-4500 a likely top, but that is based on prices of those other commodities today, could be much higher.

-----

Michael dV said... these comments by bullion baron show that he does not understand us here.

Just to clarify that those terms I have seen used (by freegolders against those critical of the theory) are not exclusively from FOFOA.

Indenture said...

I take this as a start. Any help on the Central Bank Comment?

Jeff said...

" most Central Bank holdings make up less than 20% of their foreign reserves, so they "save" in fiat currencies as well:"

FOA: Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation.

victorthecleaner said...

dieuwer,

It is well-known that Saudi Arabia needs at least $80 per barrel to keep the lavish social spending programs going to be able to placate the people.

I'd like to see this argument and all the figures in detail. It is also "well-known" that the Euro will break up, that the dollar will be around forever, that you ought to buy government bonds because they are the only investment that is risk-free and so on.

When you look at the Saudi budget, first, you need to add all the dollars that they pile up as reserves, then you need to add all the wasteful spending on gadgets (including arms) which they just do because they cannot otherwise get rid of their dollars. Then you need to take into account that they can easily increase production by 50% or more without increasing their fixed costs.

Then, show me your figures, and explain to me why the result isn't sufficient.

Same in Iraq, by the way.

M,

I thought that somehow the North American cost of production would still be the minimum price after FG. ??

That depends on the U.S. imports and exports, doesn't it? E30/bbl Brent and $80/bbl WTI, both in today's purchasing power. Oil and gold never flow in the dame direct, or do they? Can you hear the sucking sound?

Edwardo,

Do you have some documentation in support of that
assertion?


Friend of Another (10/10/1998; 22:25:40MDT - Msg ID:516)
turbohawg (10/10/98; 21:06:04MDT - Msg ID:509)

[...] Much of the oil produced today is high cost in dollar terms. Even now many producers make little profit. This fact is not lost to the middle eastern suppliers as they are able to pump today with large profits. True, they posture their loss of market share and show how they are going broke, but they have reserves that can supply twice the current daily
amount if needed!

To understand what is about to happen, one must see that in hard currency Euro terms, oil is going to drop in price (economic depression or not)! Yes, far below what the marginal producers can supply for. They will indeed have a choice, sell oil in plunging US dollars, or not sell at all in Euro terms as it will be below their high dollar production cost! Much of the worlds inefficient goods production is a result of maintaining the high dollar production cost oil supply. This is retained for the purpose of creating a strategic oil supply for the benefit of American Dollar stature.
You see, the eastern producers always could supply the world, if only the world would pay in an honest currency! Falling oil prices in Euros will create a tremendous need for the world to sell goods to Europe to receive Euros. Oil purchased with Euros as a result of commerce and trade will drive the world economy in a way few envision.

America will find that they must trade with Europe as only oil purchased in Euros will allow for competitive pricing of goods and services. You will see a hyperinflation of the dollar standing next to a full deflation of production costs in Euro/Gold terms. A new world indeed!


Victor

costata said...

If people took nothing else away from the writings of FOFOA other than this they would be well served:

Unfortunately for a few long-time gold bugs, the lack of a fundamental and foundational understanding of a much higher value could see them liquidating at the worst possible time in all of history.

h/t Jeff for the extract

The strength or weakness of your "hands" is in your head.

alfa-or-beta said...

Poopy & Nickle & BB & other> thanks for very good discussion. I guess we just hit the nail there. Poopy and Nickle seem to suggest a plan of hibernation after free gold to avoid collectivization, taxation and just calming of the markets to proper price discovery etc. Yes, that's a very good point in theory, but it may take even decades to settle the dust down in such gigantic crises. One of the utmost luxuries given to humans is spending there precious time wisely. Maybe I'm foolish but I'm not going to sit and starve 20yrs in a hole and hope one day my stash is worth 50x - that's crazy and wrong on all fronts as mentioned numerous time here. Moreover, it's all about people and baring ww3 aftermath or similar, I simply refuse to believe there should come real estate confiscation for small-midsize farmes say in the alpine euro regions or some rural parts of the US, this is bordering on impossible.

VTC> I simply can't grasp the dichotomy of yours - making 99-100% sense on everything FG related but oil. The easy oil is long gone (especially inside SA - have you ever been there? seen these techno-monstrosities just to keep the dying giant fields in operation?), and the expensive/alt. oil will likely remain laying still in the ground after global economic crash and never been brought to light.
I'm expecting some sort of aborted FG regime till the current global civilization's light are still on. Then who knows, perhaps humanity reinvents itself on sound grounds, incl. full FG..

costata said...

M,

Let's try to find some common ground here:

Businesses started to close down and unemployment suddenly soared.

The key word is 'suddenly'. In the lead up to the catastrophic loss of confidence in the currency unemployment can be very low.

“How did you go bankrupt?"
Two ways. Gradually, then suddenly.”

― Ernest Hemingway, The Sun Also Rises

When HI is peaking I think we can agree that it disrupts the economy. And that must effect employment. Getting paid in worthless currency is in a practical sense like not getting paid at all.

costata said...

Bullion Baron,

I like your work. I'm a frequent visitor to MacroBusiness blog. I think your description above is quite close to a perfect description of the Freegold-RPG regime:

I think the best way of describing freegold pricing would be to consider a body of water which represents all fiat currencies, Gold is the boat sitting on top which would rise or fall depending on the level of the water underneath.

It think these changes would improve it considerably:

I think the best way of describing freegold pricing would be to consider a body of water which represents gold, all fiat currencies are the boats sitting on top which would rise or fall depending on the level of the water underneath each boat.





Jeff said...

soros update:

http://bullmarketthinking.com/the-soros-position-nobody-is-talking-about/

Lord Sidcup said...

Reading through FOFOA archive, I get the sense that the the comment section might increasingly be a barrier to entry for reasonable people who are interested in Freegold, but could be skeptical of it's inevitability.

I was struck by the following;

poopyjim said… (of JdA)
"I haven't read all his (her?) material but (s)he seems to have some socialisty leanings, and these types of people will often just reject everything here out of hand (too much cognitive dissonance), as we know."

I believe poopyjim also posts as H. M. Socialist, and in both the quote above, and the response to BullionBaron's piece, the same tactic is used. The underlying function of these messages seems to be an attempt to frame JdA/BB as members of nutty 'out-groups' that may not discuss/question Freegold (because of stupidity/wrong ideology or whatever).
It's a pretty cheap trick.

I can see that many here have worked to understand and eventually embrace FreeGold, but I don't think the idea is served by (or requires) thought-police.
I don't say that poopyj has this watchdog role, it's just an example of the way many commenters over-react to humdrum criticism.

Michael H said...

On gold as a Tier 1 asset:

I now think that, for banks to have gold as a tier 1 asset is positive for the function of the paper gold market. This doesn't mean gold-price-positive or gold-price negative, and it doesn't mean FG-postive or FG-negative.

Why do commercial banks hold assets? To make nominal profits and to offset their liabilities. So it makes sense for a bank to hold government bonds denominated in its home currency where the government has a printing press, because these bonds will always be nominally paid in full. In a currency zone where the government cannot print, the question is muddied a bit because the government bonds no longer have the guarantee of the printing press behind them.

So where does gold fit in? In currency banking, it should have no place. In bullion banking, gold held in reserve on the banks' own balance sheets (as opposed to held on behalf of its customers in allocated accounts) serves only to back gold-denominated liabilities.

So making gold a tier 1 asset will help the banks perpetuate gold-denominated liabilities. Either this will keep the paper gold market limping along for a little longer, or it will allow the paper gold market to expand faster and collapse sooner. Only time will tell.

Under freegold, I don't think banks will hold gold on their own balance sheets.

Woland, you neglected to include AdvocatusDiaboli

Michael dV said...

Bullion baron
my comments were an attempt at humor. We get a lot of folks who pop in and see that we have a large body of agreement..we do..they assume it is some kind of fofoa mind control and do not read enough to understand every idea has been challenged and those that remain become canon. Kind of like Al Gore's 'settled science', only without the ridiculous assumption that they never be challenged in the future.
As for the criticisms aimed at our critics I'd say the usual is 'you would not say that if you had read______".

costata said...

Lord Sidcup,

Your criticism above has some basis in fact. On balance I think you should also take into account the multi-year experience of some of the discussants here with vexatious visitors.

I recall one memorable debate where a commenter calling himself Carl ran the thread to 800 comments and it was only in the final 30-50 comments that he revealed his true position.

If he had declared himself from the outset the debate would have been over quickly. He was simply trying to present some old goldbug arguments which had been frequently debunked in these pages before.

Also in the early days when there were only a few here with a firm grasp of the key concepts there was often a feeling of being a small group under siege by aggressive, combative critics who greatly outnumbered that group. Some traces of that culture persist in my opinion.

There is in fact a diversity of opinion here on many issues and broad consensus on others. Good luck with your investigation of the matters we discuss here.

Happy Thanksgiving to all of our American readers and discussants.

costata said...

Edwardo,

It's surreal watching the Feds turn on the States and Munis like a pack of hyenas trying to steal a carcass. You'd think that socialists would be more, err, social.

Nickelsaver said...

alfa,

Poopy and Nickle seem to suggest a plan of hibernation after free gold to avoid collectivization, taxation and just calming of the markets to proper price discovery etc. Yes, that's a very good point in theory, but it may take even decades to settle the dust down in such gigantic crises. One of the utmost luxuries given to humans is spending there precious time wisely. Maybe I'm foolish but I'm not going to sit and starve 20yrs in a hole and hope one day my stash is worth 50x - that's crazy and wrong on all fronts as mentioned numerous time here. Moreover, it's all about people and baring ww3 aftermath or similar, I simply refuse to believe there should come real estate confiscation for small-midsize farmes say in the alpine euro regions or some rural parts of the US, this is bordering on impossible.

No.

What I am saying is that you won't have freegold until gold comes out of hiding. And gold will not come out of hiding as long as there is instability on the balance sheets of the CB's (dollar reserves)

So to be clear, 2 things in general need to happen. 1) the paper gold market needs to go bust. 2) the dollar needs to play out its hyperinflationary collapse a/o (since I live in the USA) a stable alternative (euro) becomes available. And by stable, I mean that Gold has found its repriced equilibrium on the asset side of the balance sheet. Which would mean that in the absence of a paper gold market, a physical only market is made to discover that one time repricing.

I do not see this happening over a long drawn out period of time. I think most here believe 6 months to a year.

The wrong time to sell will be when you see the $PoG rise quickly in dollars.

The right time to sell is when you see Gold establishing the new price of currency, or shortly thereafter. How will you know? It will be when you have no trouble exchanging your gold directly for currency that has shown price stability at that new level.

Long story short, it will be a mistake to take profits before that price reset. To think that you could, is to not understand the nature of the reset.

Nickelsaver said...

Fofoa, JR, Costata, DP, RJP, PJ, MH, Motley, Victor, Aquilas, Matrix, Jeff, Aaron, etc, etc.

Happy Thanksgiving.

And thank you for the past year of enlightenment.

Here's to having strong hands when the going gets tough.

#FGFTW

Winters said...

i know its poor form to look at the paper gold price daily but whats with the $20 flash crash today? I noticed one the other day too - maybe yesterday or the day before? Seems unusual to me.

byiamBYoung said...

@Indenture/all,

This thread:

http://www.bullionbaron.com/2012/11/freegold-gold-bubble-or-new-monetary.html?showComment=1353615473601#c1965044444422589258

Is missing the point from the start:

"Freegold, not FREE Gold (sorry to disappoint!). Freegold (or Reference Point Gold, RPG) is an environment where Gold is set free from the bounds of a fiat price, where it is used solely as a store of value and reference point for all other currencies."

Not quite. Freegold is about the dislocating of physical gold from the paper' gold market. Right? However, the "store of value" and "reference point for currencies" verbiage is more correct. Right?

Cheers and pumpkin pie
byiamByoung

costata said...

Nickelsaver,

Back at you. Cheers!

All,

Check out the graph in this post showing the evolution of China's FX reserves. Note the sequence of events (my emphasis):

The growth rate turned down decisively in 2007, just before the onset of the financial crisis.

http://www.zerohedge.com/news/2012-11-22/russell-napiers-most-important-chart-world

I don't agree with the usual explanation but the facts speak for themselves. As to the end-of-growth I say maybe for some.

China's diaspora is huge relative to other countries. I picture it as a huge drip irrigation system for re-exporting private capital.

If the wheels can be kept on this bus for a while longer we may derive some benefit from the much vaunted "decoupling" gaining real substance.

Aquilus said...

Thank you Nickelsaver, and Happy Thanksgiving everyone.

Michael H, nice putting a face with the name. Like I said one time before, you're on my short list of commenters I definitely look forwar to reading.

costata said...

byiamBYoung,

Since many of the discussants are (hopefully) celebrating with friends and family I'll respond to your request for confirmation.

Yes and yes.

byiamBYoung said...

@Costata,

Thank you. I appreciate you helping a learner along. I was pretty sure about it all, but am still at the stage where I prefer to validate my reactions. This is a heady business, as I'm sure you know.

My family is currently turkey-stuffed and full of wine, and therefore chilling in a triptophane induced stupor. That gave me a chance to dash off a quick comment or two. Now for more pie...

Happy Thanksgiving, American friends.


Cheers,

byiamBYoung

Indenture said...

byiamByoung: Yes. I didn't want to correct the very first sentence in the entire piece as a new commenter over at Bullion Barron so I didn't touch the "set free from the bounds of a fiat price" inconsistency. I thought that approach would look rude on my part.

Gobble

Edwardo said...

VTC,

Thanks for responding. In the meantime, am I the only one out here (or just the only one choosing to comment) that thinks that even if that passage from FOA was actually supportive of the following assertion,

"Both Saudi Arabia and Iraq can produce some 15mm bbl per day at a cost of about $30-$40 for several decades."

that some fourteen years on things may have changed just a wee bit with respect to those metrics?

poopylover said...

Happy Turkey Day Everybody!

@Lord Sidcup

The underlying function of these messages seems to be an attempt to frame JdA/BB as members of nutty 'out-groups' that may not discuss/question Freegold (because of stupidity/wrong ideology or whatever).
It's a pretty cheap trick.


Not my intention friend! Personally, I welcome discussion from silverados, deflationists, Mungerian paperbugs, MMTs, and socialists one and all! If not for them I'd have no one to ridicule!

In fact I'll even try to resist ridiculing them if they don't bring out that tired ol' "bunch of cultists" line or some other insult and actually familiarize themselves with the material and make a legitimate point.

byiamBYoung said...

@Indenture

You just made 16 people laugh uncontrollably. Thanks.

/SleepingVillage/ said...

MH,

Great to see ya.

Winters,

Seems that little "flash crash" was maybe just a Twitch in the matrix. Looks like it only showed up on certain charts. No twitching on netdania.com. It has happened on other sites the last 3 days at the same time, though.

Does it mean anything? Don't know. It certainly means something;)

Happy Turkey Day to everyone:)



Bullion Baron said...

poopylover said... make a legitimate point.

The only certainty is that no single monetary outcome is certain.

My main criticism of freegolders (at least those I have observed and conversed with) is that many consider it's a foregone conclusion that freegold is coming, but no one knows the day or the hour, yes I used a religious quote on purpose ;) ... Trying to discuss something sensibly with someone who has this mindset (specific outcome is guaranteed) is somewhat pointless.

Bullion Baron said...

@byiamBYoung/Indenture:

Can you specify where I went wrong in more detail? I don't see how the first couple of sentences are incorrect, they are simply missing detail that you think is relevant.

If I said Gold was:
A dense metal
A soft metal

But forget to mention that it has good electrical conductivity, that doesn't make the first two points wrong.

costata said...

Bullion Baron,

The only certainty is that no single monetary outcome is certain.

Glib soundbyte. Of course no one can know the future. It is inherently uncertain. This is a truism.

truism [ˈtruːɪzəm]
n
an obvious truth; platitude
[from true + -ism]

One of the objectives of the discussants here is to investigate the balance of probabilities in order to determine if there is a more likely outcome than Freegold-RPG. Thus far no one has advanced a more likely outcome than this. And we have looked deeply into several prposed alternatives including SDRs, baskets and so on.

We also study and discuss economic history. If a monetary or fiscal authority does those things that have led to bankruptcy for an economy every time it was attempted then bankruptcy is as certain as it is possible to be certain about anything.

My main criticism of freegolders (at least those I have observed and conversed with) is that many consider it's a foregone conclusion that freegold is coming,

We argue that this is the path we are on. The unsustainable can't be sustained indefinitely so there must be a resolution. If you can point to a credible alternative scenario for resolving this GFC then by all means do so.

but no one knows the day or the hour,

Once again we see this spurious "critique". This isn't a traders forum but with monotonous regularity traders whine that this blog doesn't provide tradeable information.

yes I used a religious quote on purpose ;)

The calculated insult to everyone here (as well as the fella you are crossing swords with) is duly noted.

... Trying to discuss something sensibly with someone who has this mindset (specific outcome is guaranteed) is somewhat pointless.

Trying to discuss something usefully with someone who retreats into the "all things are possible" non-argument is pointless. Another platitude.

Many here have delved into the pros and cons of this scheme the Europeans and their allies have hatched and come to the conclusion that this "game" ends in checkmate due to the limited range of moves available to their Anglo-American opponents. So tell us how they escape from the trap they are in. Let's see if you can come up with anything new.

victorthecleaner said...


Happy Thanksgiving (I understand it's still before midnight over there...)!

The "flash crash" isn't visible on the Kitco chart.

Edwardo,

I am not an oil expert. I am neither a geologist nor have I drilled a hole or financed the drilling of holes. The only thing I am saying is that I think I can tell bullshit if people present it to me.

I picked the E30/bbl simply because ten years ago, they had no problem producing profitably at E20/bbl, and that would still allow for a 50% cost increase. Depletion of resources is obviously not the issue since neither Iraq nor Iran are producing at anything close to capacity. Nor is SA as they have demonstrated to us this spring. Nor is there any shortage of oil, even after Iran, Iraq and Libya have been taken out. Demand is still estimated at 1.5 million barrel per day less than supply. Someone big is filling up their tank farms right now, I suppose, and once they overflow, another producer has to be shut down or the price crashes.

Victor

Wendy said...

WHEW!! I just caught up. Sorta ;) Has JR abdicated???

costata I have not played an instrument in decades which has afforded me much tiime to buy my silver :)

Michael H, it is a pleasure to meet you, I very much enjoyed your debrief and if you are ever seeking to expand your little farm to include acquaponics, "i'm your guy :D

Mike, I'm thinking of visiting your neck of the woods in January, how about lunch?

BTW I would love to see JDA interviewed here(obviously not debriefed),

costata said...

VtC,

There's a lot of talk in some quarters about some looming problems in the LNG market. Potentially massive over-capacity and over-capitalization by some players in this space. I suggest you factor that into your thinking. Also the "Saudi Arabia" of coal (the USA) is starting to make an impact on the international market as well.

The paper linked below gives some good statistics on coal, oil and LNG as well as other commodities. It's an upbeat view of Australia's prospects which may be overly rosy in some of its conclusions but it's well researched nonetheless.

http://av.r.ftdata.co.uk/files/2012/07/Rise-of-the-ferrodollar.docx.pdf

Bullion Baron said...

@costata, some fair points. To be honest I think it's a shame that all the conversation that has taken place here isn't in a forum format, where one can easily search by user to read historical information, categorise topics of discussion by thread, etc. The prospect of spending weeks (or more likely months) reading back through all the discussion that has already taken place in the comments section of hundreds of blog posts is not very appealing, but that seems to be what is required to fit in with the community here. That doesn't really matter if all you guys are happy chatting amongst yourselves, but it does reduce the likelihood of new members and valid ideas from permeating the site.

costata said...

Bullion Baron,

At one time the standard response was "read the posts and comments". We are well-north of 300 posts and approaching 35,000(?) comments. I don't think that response is realistic now. I agree the blogger format has some limitations that we could live without.

But I think you are underestimating the generosity of the discussants here. JR, Jeff and a few others are great at finding extracts from the archives that are apposite to discussions underway.

If you pose a question many here will be pleased to attempt to answer. Others are very good at picking out posts by FOFOA that address specific topics in depth and offering reading lists. The knowledge base among some of the participants here in economic history and economics is also quite deep.

What would you like to know about the Euro Freegold-RPG architecture or the alternatives that have been discussed here in the past?

I'll volunteer one insight that might assist you to understand the thinking here. This new/old regime isn't a response to the present or the future it's a pragmatic solution to problems that have been developing since 1922 (if not earlier). Over to you.

Cheers

PS. Your water and boat analogy is great once the roles are reversed.

Bullion Baron said...

"Your water and boat analogy is great once the roles are reversed."

costata, I don't understand how your change to the boat analogy makes sense.

My understanding of freegold pricing is that it would be priced naturally in that all fiat / available Gold would = spot price (rather than the current demand vs supply pricing which is obfuscated by paper markets), so if all fiat is the ocean and rises and falls then Gold is the surface or something sitting on the surface and it's height/price represented by the amount of water underneath...?

Edwardo said...

Victor, there is, no doubt, a great deal of obfuscation (which, in some instances may equate to "bullshit"), however, I think if one is able to get past the ample supply of smoke and mirrors, which they seem to do reasonably well over at TOD, the picture becomes clearer with respect to the question of depletion broadly defined.

http://www.theoildrum.com/node/9360

P.S. I think the comments section is worth reading as the key issue gets hashed out quite well, pun not intended. Suffice it to say that I think the poster with the handle Darwinian parses the data pretty convincingly.

costata said...

RJP-Drew,

http://www.youtube.com/watch?v=QHL1QOpFsrM&NR=1&feature=endscreen

Jeff said...

BB, it sounds like you are trying to price gold using the stock. When we talk about gold flow, we are talking about the flow of value (h/t Blondie) because in freegold that's what gold is doing, storing value. It doesn't matter how much weight flows, and gold functions better at a very high price, so the flow could actually be infintesamal and work just fine.

FOFOA: Gold is not like other commodities where supply is economically driven to ramp up and meet demand as prices rise. Nor is it like paper investments that have objective metrics like price-to-earnings ratios and interest rates. With gold, a rising price sends the exact opposite signal to the place where supply comes from. It confirms the belief in those that already hold the "stock" that it is a good investment and it is best to sit tight and not re designate it to "flow".

Lastly, understand that 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, as long as new gold stock is not coaxed out of hiding. And the interesting thing in this process is that, as I said above, it actually causes the opposite of the expected supply/demand reaction. With each pass-through of the dollar more "flow gold" is moved into "stock gold", not the other way around like commodities and paper.

This is the feedback loop. It is confirmation to the gold investor that his gold is a good investment. And it also says something very distinct about the alternatives. Namely that they are failing. And with this confirmation, it is from existing gold holders that less supply comes. This is not true of any other investment class because they all have objective metrics for valuation or economically limiting forces. All except gold.

The true Giants of this world that hold large amounts of gold have a good idea what their gold is worth. And yet, when it finally gets there they will still not liquidate their "stocks". This is because gold as a store of purchasing power has an infinite time horizon. These Giants are not interested in "catching the top" like Western traders. They are interested in storing purchasing power well into the future.

So, cutting to the chase once again, the biggest fallacy in your model is using "Total above ground gold" as your point of comparison. It's not the stock that matters, it's the flow.

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