Someone suggested a post on arguments against Freegold. I thought it was a great idea, but then I couldn't think of any arguments that hadn't already failed. I've been at this task for four and a half years now, and I've read almost all of the 12 years' worth of archived debates and arguments (now missing) at USAGOLD as well as the random debates that pop up elsewhere and someone inevitably links them here or brings them to my attention via email. And yes, I feel like I've seen it all, but maybe I haven't. So here's your opportunity to present your best argument against Freegold.
A reader and supporter of mine, an American medical doctor and surgeon named Jeff Allen, once commented on his view of what it is that I do here and why this blog is "so striking to so many people." I wanted to mention this in the context of this post not only because I loved the way he explained my logical approach to Freegold and its necessary conclusions, but also because I think this is the only way you're likely to succeed at debunking Freegold if that's even possible—by presenting a competing premise through principles, expressed in precisely defined, non-contradictory concepts that are grounded in reality, which lead to inevitable conclusions that necessarily exclude those of Freegold even when viewed from a variety of perspectives.
So good luck with that!
I'm combining a couple of different comments here, but what Jeff Allen said was that "the defining attribute of an objective manner of thinking is the ability to--more deeply, the recognition of the necessity to--think in principles. To see reality as it is, then to grasp reality in non-contradictory conceptual form.
But thinking in principles will not succeed unless its elements--the conceptual terms in which the principles are expressed--are solidly grounded in reality. This is where the term "objectivity" arises. You best reveal your own appreciation for this fact by the manner in which you validate your unwinding of the concept "money."
This is not the way most people think, and this is why your blog is so striking to so many people. But it is only your fellow thinkers-in-principles who possess the capacity to respond in this way. Those who don't get it, including those commentators to which you refer, lack that capacity. Ayn Rand called these the "anti-conceptual mentalities." The anti-conceptual mentality has been fostered and nourished by Pragmatism, the philosophy which dominated U.S. academia the first half of the 20th century, and dominates our educational and political systems still today. We swim in a sea of Pragmatism.
All new knowledge is inductive. Deduction is secondary, and depends on the validity of one's prior inductions.
From whence comes your syllogism's major premise, "All fiat currencies are eventually worth no more than toilet paper?" Was it deduced from a prior generalization, or was it induced?
The answer, of course, is that it was induced. Your deduction merely applies that general knowledge to the specific case of the dollar. If your inductively generated major premise is not necessarily true, then neither is your deductively generated conclusion.
From what prior principle did Newton deduce universal gravitation? Newton's theory is the product of a grand induction, an integration of prior inductions made by Kepler and Galileo, based on observations of planetary orbits, and of the behavior of physical bodies on earth.
Freegold, too, is a grand induction. Your method of approaching the issue from a variety of perspectives, all leading to the same necessary conclusion, after precisely defining your concepts, is essential to a proper inductive process (which, by the way, the mere enumeration of swans is not)."
It occurs to me that TA-based and GSR-based gold and silver trading is probably an example of Pragmatism. I'm no expert on Pragmatism, but Wikipedia says it "describes a process where theory is extracted from practice, and applied back to practice to form what is called intelligent practice."
The "grand induction" (Jeff's term) that we like to call Freegold was not my grand induction. Nor do I think it was Another's. Another merely shared it with us along with some of its "necessary conclusions". Why did he do that? I don't know, but I have a few ideas.
As for the "grand induction" itself, I think it was a European group effort that teased it out in the 1960s and 70s leading up to and also following—and as a result of—the abrupt and predictable end to the Bretton Woods monetary system in 1971. I won't go into the details here because I want to keep this post under 100 pages, but the main point is that I didn't come up with it.
Freegold is just a name. I didn't come up with the name either. But if you don't understand what we're discussing and extrapolating upon here at a conceptual level, ignoring the convenient name, you're going to have a really hard time debunking it. In fact, I don't think you can, even if you do understand it. That's one of the most remarkable things I've observed about Freegold—that those who make the effort to really understand it on a conceptual level not only fall in love with its elegant simplicity and obvious inevitability, but they also start buying physical gold hand over fist. And again, that's only because of one of the "necessary conclusions" that are (IMO) irrefutably drawn from it.
I will temporarily and conditionally lift the ban on the five commenters that have been banished from this blog over the last four years so that anyone is free to take their best shot. But only for this one thread, and only if they behave. I will not put up with abuse, hate, spam or personal insults. In other words, Art, AD and anyone else are all welcome in this thread only, unless and until they abuse it.
But don't expect me to personally debate each and every argument. I'm not going to waste my time on arguments that miss the mark like poor Skippy, our "'A' for effort" dog at the top, or on those arguments that have already been dealt with. There is one argument, however, that I hope shows up to the party. And if anything worthy comes out of this thread, I'll add it below in the space between the lines for the permanent record.
Just beware that Freegold is much easier to dismiss on superficial grounds than to defeat on deep, logically-consistent conceptual ground. So if you really want to avoid becoming another evil gold hoarder, jerk, time misallocator and brainwashed cult member, you should consider simply dismissing Freegold on the surface-level ridiculousness of its necessary conclusions rather than taking up the challenge in this post. Forewarned is forearmed.
And finally, you can't judge the worthiness of your own argument. That judgment, like credibility, can only be made by others. As for what ends up below in the space between the lines, that judgment is reserved for me, but I will consider the opinions of others who I think understand what I think I understand in making any decision. ;D
Sincerely,
FOFOA
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774 comments:
«Oldest ‹Older 201 – 400 of 774 Newer› Newest»Yikes. Color me stupid. Knight NOT = to Rook.
My apologies Tyran. On further review my interpretation was misguided but it was a fine use of words and I do believe after reading your post that, if needed, you would have very little difficulty in fashioning a well worded slight just touching the boundaries of superfluity. I'm wondering what it is about RPG that doesn't fit into your 'present' understanding because if you can unlearn certain ideas and fill them in with a new architecture you would be a formidable proponent.
If you have the time please consider making a small Holiday Donation to FOFOA Blog.
I'm sure many here can give reasons why this is important but for myself I will once again say, with a zen voice, "Thank You for Peace".
OT to the current discussion ...
Two ZH reports on recent treasury auctions:
Weak 3 Year Aution Sees Lowest Indirect Take Down Since 2007 Despite Record Low Yield
... a bigger surprise was the Indirect Take Down, which as validated by the recent trend, just dipped to 21.9% of the issue, the lowest Indirect Takedown since 2007! It also saw the Direct allocation surpassing the Indirect for the first time in history. Just as surprising is that the Indirect tender into the auction was a meager $9 billion, leading to a very high 77.3% hit rate.
Direct Buying Soars, Indirect Plunges In Today's $21 Billion 10 Year Reopening
Indirects were left holding 24.2%, or the lowest Indirect take down since April 2009. ... Why the collapse in Indirect bidder interest (only $6.6 billion in bids tendered for an allocation of $5.1 billion)?
From Who Buys Treasury Securities at Auction?
The amount purchased by “indirect” bidders is often assumed to be a proxy for purchases by foreign central banks, and is sometimes used to draw inferences about such banks' continued willingness to buy Treasury securities more generally.
...
The analysis reveals that the indirect bid is a fairly good proxy for foreign purchases of Treasury notes (securities with original maturities of more than one, but not more than ten years), but not Treasury bills (securities with original maturities of one year or less). The indirect bid is an imperfect proxy for foreign purchases of Treasury securities because other investors also bid indirectly. For bills, in particular, differences in the indirect bid across auctions are driven more by variation in investment fund purchases than by variation in foreign investor purchases.
Indenture,
It is the singleness of gold.
I cannot reconcile it with either history or human nature, since in both I see compromise, balance, variety, degree, subtlety and evasion. Among the rich (who I know to be prudent) I cannot reconcile such low prices / high ratios (of other assets) with rational asset allocation.
Ratios are there to be arbitraged. They do not just blow out and stay out.
Nevertheless I find a huge amount here very interesting and concordant with how I see reality, not to mention the unusually high level of thought and comment. That is why I am going to slowly and politely plod through all the facets of freegold thought that force silver out of the equation until I am perfectly satisfied.
So far I remain to be convinced that gold and silver cannot share cultural / financial salience even in the medium term, and I am only planning to move onto my next chosen aspect, which is wealth concentration / Veblen behaviour, once I have either been persuaded or disappointed.
I maintain an open mind.
Asking for arguments against Freegold is, I think, asking the wrong question. From what I can tell, this blog is focused almost exclusively on discussing the nature of the market before, during, and after the world transitions to gold as a primary store of value. As a hypothesis, I think the arguments presented are all extremely sound. If Gold is selected to become the future, globally accepted store of value then things will likely proceed very similar to how they are described on this blog.
However, all of this hinges on one very critical assumption: that Gold will be selected as the next store of value. I think value of the message of Another/FOA is that they were the first to even raise this possibility.
If you want to argue against Freegold, I think the only viable argument is to attack that assumption -- something this blog and it's comments has not spent much (if any?) time on prior to this post.
You could argue that Gold is a better choice than say, Euros, but would that be the end of the argument? If you are going to claim to predict the future choice of 7 billion people you have to consider politics, psychology, culture, demographics, etc. These are all things this blog does not focus on.
Another assumption in this discussion is that the dollar is the current global store of value. Is this really true? I'm not so sure. If it isn't that certainly damages the idea that a dollar transition has to be a dramatic event, or that there are even any forces pressing for such a change.
Here are the sizes of some global markets to consider (data is spotty, maybe someone has better numbers)
- World Bond Market: ~$100 Trillion [2012]
Of this, the US bond market makes up 35 Trillion, and ~15 Trillion is Government/State Debt
- World Stock Market: ~$60 Trillion [2008]
Of this, the US market makes up 27 Trillion
- Gold: ~$10 Trillion [2012]
So you have something around $170 Trillion [ignoring land and all other assets], of which US denominated debt makes up 15% at most. So it may be a mistake to think the USD is really that important from a market cap perspective [from a psychological perspective, yes, there could be a lot of short-term disruption].
A better question to consider than arguments against Freegold may be discussing the alternatives to Freegold. That is, what mediums could worldwide sentiment choose as a possible future store of value? Here are some examples:
1. Land
2. Productive assets
3. Foreign currency
4. Gold
5. Commodities
6. Consumption
In a USD [only] hyperinflation/collapse, most real wealth may be largely unaffected because most real wealth is in productive assets / foreign currency.
If you assume a Freegold like transition, where the market cap of Gold rises from $10 Trillion ($1700/oz) to $300 Trillion ($50k/oz) then where is that money flowing from if $USD denominated debt is at maximum $35 Trillion? Is the assumption that all foreign debt [public and private] will now be denominated in Gold, or that everyone will be selling productive assets in favor of Gold? If most [outside the US] are not affected, what is the motivation to change their investments?
So there are still a lot of open arguments (alternatives) that still need to be addressed.
The discussion around this post is very interesting, and very useful for those of us who haven't quite "got it" yet. Thank you all!
However, the premise of the post - disprove Freegold, or else it must be valid - seems a bit unfair. Shouldn't it be the one making the outrageous claim that has to provide the proof, and not the ones who don't immediately believe it?
(And let's admit it: for the average guy, who hasn't put in the 4000 hours or whatever to read up on all this blog has to offer, the claims of the Freegold theory are fairly outrageous. The dollar will fail soon? Gold will be revalued 10 times, or even 30 times? The euro, a.k.a. the basket-case, will come out on top? It's quite a lot for any layman to swallow!)
It would help quite a bit, I think, if someone could lay out a comprehensive list of the basic assumptions of Freegold, point by point. Then the disprovers could just focus on that. Break one link in the chain and Freegold fails.
Now I'm certainly not the right guy to make this list. But I'll do it anyway! :) Just to get the ball rolling, and hopefully encourage the pros to take over. So here's my take! Please correct any errors and add whatever's missing.
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THE BASIC ASSUMPTIONS OF FREEGOLD
(Disprove any single one and the Freegold theory will require revising.)
1. The dollar will fall out of use as the global reserve currency "pretty soon". (It may also hyperinflate, but in this context, that's beside the point.)
2. When that happens, there will be a need to agree on a new global reserve currency (i.e. we can't do without one).
3. Gold (physical) will be chosen (or used by default rather than actively chosen?) as the new global reserve currency (rather than SDRs, Yuan or whatever).
4. Gold's new role will cause a massive increase in the price of gold relative to "all other stuff" (i.e. not just relative to the failing dollar).
5. In its new role, gold will float freely against all currencies.
6. For transactional currencies, especially for buying oil, people will turn to those that can provide a liquid market in physical gold. Immediately after the transaction, this will only be the euro.
PS Indenture,
The best candidate to my mind for a major blowout of the ratio that allows it to leave silver behind is the theory of a sudden, devastating discontinuity in the gold market, driven perhaps by some tremendous central bank/government secret or intentional plan (although how could that be "free", I ask myself). In the short term, the total resulting valuation of gold could not exceed the current value of stocks, cash and bonds, which means an uprating of only tenfold or so.
And yet even then the result would be a huge flood of wealth into the tiny silver and other commodity markets as those finding themselves in possession of such wealth perceived a mismatch and scrambled to secure them. Even 1%, even 0.1% of the resulting additional wealth would collapse the silver market in precisely the same way as is anticipated for gold but would actually lower the ratio (even 0.1% - 1% would collapse it to single figures), as far as I can calculate it from known dynamics.
That is just one scenario. The problem is that the psychology and resulting price is completely path-dependent, but the path is unknown. Other paths simply allow silver to follow and outperform throughout the process. I cannot find a credible scenario in which silver does not at least follow.
Just an early evening thought.
Freegold the odds on favourite out ahead of the field. Now a late runner is coming up fast on the outside rail. Free-energy is gaining and it could be neck and neck into the home straight.
Can you envisage a World where everyone has Free-energy? Where would Freegold fit?
Just a thought.
Börjesson,
Comments on your list:
1. The dollar will fall out of use as the global reserve currency "pretty soon". (It may also hyperinflate, but in this context, that's beside the point.)
See my comment above as to why I think calling the USD the 'world reserve currency' is a bit of a misnomer. Still, I think we can even do without the 'pretty soon' part, and agree to leave it at "the USD will fall out of use as the world trade currency someday", and freegold would still be valid. It would rankle people who want a timed prediction, but better two decades early than a day late.
2. When that happens, there will be a need to agree on a new global reserve currency (i.e. we can't do without one).
True. Evidence of this is the continued support for the USD after 1971. The ROW had the chance to take the US exorbitant privilege away, but did not because of the perceived benefits of a world trade currency, and the risk posed by dismantling the current system without a credible alternative in place.
3. Gold (physical) will be chosen (or used by default rather than actively chosen?) as the new global reserve currency (rather than SDRs, Yuan or whatever).
Again see my comment above as to why 'global reserve currency' is a misnomer in this case. Rather, gold will be the global reserve asset.
4. Gold's new role will cause a massive increase in the price of gold relative to "all other stuff" (i.e. not just relative to the failing dollar).
Due to the changing function of gold.
5. In its new role, gold will float freely against all currencies.
Not sure why this would be controversial. See Victor's post on why the US cannot go back to a fixed gold standard, since they have been checkmated by the Euro MTM gold reserves.
6. For transactional currencies, especially for buying oil, people will turn to those that can provide a liquid market in physical gold. Immediately after the transaction, this will only be the euro.
I can see why people have trouble believing it in light of all the negative press, but is there any other alternative, given #2 above? It's either go with the Euro, or continue supporting US exorbitant privilege forever.
Tyrannyofthepresent,
The best candidate to my mind for a major blowout of the ratio that allows it to leave silver behind is the theory of a sudden, devastating discontinuity in the gold market, driven perhaps by some tremendous central bank/government secret or intentional plan (although how could that be "free", I ask myself)
Exactly!
The Free in Freegold
Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.
This is the free in Freegold.
***
When gold is 'freed' from fractional reserve banking, it will cause a discontinuity in its relative value to all else.
As for "some tremendous central bank/government secret or intentional plan'; I'm not sure if you can call it a secret if its foundations have been laid for several decades.
And yet even then the result would be a huge flood of wealth into the tiny silver and other commodity markets as those finding themselves in possession of such wealth perceived a mismatch and scrambled to secure them. Even 1%, even 0.1% of the resulting additional wealth would collapse the silver market in precisely the same way as is anticipated for gold but would actually lower the ratio (even 0.1% - 1% would collapse it to single figures), as far as I can calculate it from known dynamics.
Why would anyone want to blow up the silver market?
This Mencius Moldbug piece describes a bit of the dynamics that would be involved, along with the other MM piece I linked above.
Michael H (10:28 AM): Thanks for the response!
I'm not sure which comment you mean when you refer to your "comment above". You've made a fair number (and all of them good!) in this discussion. But if regarding my point (1) you argue that the dollar is not the global reserve currency (or "asset", if you prefer), but only the world trade currency - i.e. if the dollar is not the global store of value but only the means of exchange - then surely we're currently doing without a reserve asset? I don't see any other candidates. And if we can do without one now, then we should be able to do so in the future as well, and then my point (2) falls. And that brings the whole Freegold house down. What am I missing?
Börjesson,
I meant the one at December 11, 2012 9:43 AM, specifically the middle section.
The US dollar is the world trade currency, and the US treasury is the world reserve asset. They are distinct, although intimately connected.
That today USD = global trade currency and also global reserve asset? #ConflictOfInterests
And also domestic currency within the US.
#ConflictOfInterestsSquared?
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction.
http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm
The Federal Reserve ramped up its stimulus to the economy on Wednesday, expressing disappointment with the pace of recovery in employment as contentious U.S. budget talks heighten uncertainty about the outlook.
The central bank replaced a more modest stimulus program due to expire at year-end with a fresh round of Treasury purchases that will increase its balance sheet. It committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September.
[...]
Under the "Operation Twist" program that will expire at the end of the month, the Fed was buying $45 billion in longer-term Treasuries with proceeds from the sale of short-term debt. The new round of government bond-buying it announced on Wednesday will be funded by essentially creating new money, further expanding the Fed's $2.8 trillion balance sheet.
http://www.chicagotribune.com/business/breaking/chi-fed-ramps-up-stimulus-in-new-approach-to-support-growth-20121212,0,5136045.story
The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!
Don't be fooled by the misdirection. QE, twist, whatever; it's not about interest rates or helping the economy recover. It's 100% about disguising and managing this uncontrollable, unstoppable mess. It's more like a broken sewer line than a water main now that I think about it.
Inflation or Hyperinflation?
It is systemic in that our international trading partners like China stacked up our debt rather than settling trade imbalances by purchasing a tangible reserve asset on the open market with the left-over currency. It is the stacking of debt which allowed for the non-inflationary expansion of the US govt. (USG) consumption machine just like the stacking of MBS by savers allowed for the expansion of sub-prime and consumption-based debt. This led to a USG addicted to an artificially high rate of consumption which led to the necessity of QE once the budget deficit exceeded the trade deficit.
Moneyness 2: Money is Credit
The rationale is so remarkably simple that I'm surprised no one like Gary or Martin who believes dollar hyperinflation is anything less than certain has attempted to tackle it. It's not a difficult argument to understand. It's basically that the only thing preventing high rates of dollar price inflation is foreign support for the dollar. Take that away and you'll have a high rate of dollar price inflation. And then, partly because the USG budget deficit eclipses the trade deficit today, the government will be forced to quickly hyperinflate the dollar simply to maintain its status quo. The alternative would require the government to shut down, but it won't even consider that option. Simple.
Four!
VtC,
That argument or retort I've come across is about physical gold only.
They contend that since oil is needed by every economy, that those BRICs would say screw the middle(currency)man, and just go full on gold phyz for oil.
(nice to see JR again)
Tyranny,
I think it's only fair to get this out in the open now.
If you come to see things as many here do, you should make a post in detail about your path to that position on TF's forum :)
Thanks, Michael H!
With those amendments, here's a new version of the basic assumptions list - which might perhaps also be called "the issues on which Freegold is sticking its neck out". :)
----------
THE BASIC ASSUMPTIONS OF FREEGOLD
(Disprove any single one and the Freegold theory will require revising.)
1. The US treasury bond will some day fall out of use as the global reserve asset. (And the dollar may hyperinflate: but in this context, that's beside the point.)
2. When that happens, there will be a need to agree on a new global reserve asset (i.e. we can't do without one).
3. Gold (physical) will be chosen (or used by default rather than actively chosen?) as the new global reserve asset (rather than SDRs, Yuan or whatever).
4. Gold's new role will cause a massive increase in the price of gold relative to "all other stuff" (i.e. not just relative to the failing dollar).
5. In its new role, gold will float freely against all currencies.
6. For transactional currencies, especially for buying oil, people will turn to those that can provide a liquid market in physical gold. Immediately after the transaction, this will only be the euro.
sorry, hit post before finished:
Tyranny you need to stand up for FG if you come around.
You can't Stand down
Börjesson,
Nice list.
Regarding #5, is it that gold will freely float against ALL currencies, or just all MAJOR currencies?
Regarding #6, do you mean "Immediately after the transition..."?
2 and 3 seem to me to be the same or maybe 3 is 2.1???
Michael H,
You said: "the US treasury is the world reserve asset."
What evidence is there that this is true? Keep in mind governments only hold a [minority] portion of world wealth.
Michael H,
I enjoyed the posts that you linked and have reflected on yours (although without the wine). FOFOA says the "Free" post that gold is just a barter item. A tradable wealth asset. Like silver (my little addition).
I can see the game theory situation resulting in a mechanism whereby central bankers bid up gold and only gold, since that approach affords them the immunity from balance sheet losses and being "hanged from a lamp-post" that they clearly need.
Central bankers control a percentage of the world's gold. I can see that creating the slam that everyone here is expecting.
But what then? Once they have done so, the resulting situation may be stable for the central bankers, but is it stable for other holders of gold? They only hold about a quarter of it.
Imagine a Silicon Valley programmer who got a divorce in 1999 and sold up at the peak. Maybe just a million. And just suppose he went out and bought three thousand ounces and put it away somewhere safe, and started a little bar in Europe. Just one ordinary, fairly successful young man. Not really a Giant, certainly not that.
Now imagine that at the very high ratios (someone mentioned 20,000:1 to me today) early in the game, perhaps in 2013, he decides that silver is too cheap. It will run out one day soon, he has heard. Perhaps he read Jason Hommel, I don't know. The high gold price feels like a Mexican standoff. What if it goes down again? When he was small he saw the treasure chamber in an old church, and there was gold and silver. It has a nice ring to it.
So he decides to hedge his bets. Fifty fifty. Just one little guy from California.
Our hero just went into the market for thirty million ounces of physical silver. There were reports from the LBMA earlier this year that they were struggling to fill an order for ten million. He has bought up about a thirtieth of global silver mine production. He has utterly distorted the global silver market. But I do not think that would stop him. Or if not him, then someone else or a thousand other people. And if not in California, then in Calcutta, or in Cambridge. Or all three.
There are seven billion people in the world. The place is full of randomness and chaos. There are lots of people who act in strange or extreme ways. Outliers. Oddballs. And some of them are holding quite a lot of gold. As we have just seen, it does not take all that many.
Keeping that ratio up is going to be like lining up a hundred slices of Swiss cheese and expecting all the holes to be in the same place. I don't see it happening in the real world.
Michael H
Another way of putting the story it would be to say that all the Giants, every single one of those sixty thousand or so rich individuals, must individually and separately decide not to allocate even one percent of their portfolio to silver. They must not do so as a new allocation due to any perceived opportunity afforded by the ratio. If they have maintained a percentage allocation to silver hitherto, they must not maintain it any longer. They must allow it to fall to the 0.5% or 0.2% resulting from the change in the gold price. They must all simultaneously and without exception accept that henceforward their portfolio will adopt the new weighting imposed by the change in the gold price.
Every single one of them.
Michael H and others,
Outstanding US Treasuries total ~$14.4 Trillion. Of that, ~$9 Trillion is held by investors as part of the US Bond market, and ~$5 Trillion is held by foreign governments. Exact figures can be found here:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
The total Gold market is ~$10 Billion while the total foreign holdings of US treasuries are ~$5 Trillion. Taken this way, how can you say that US treasuries are the "world reserve asset" even among governments/central banks (much less private investors)?
Even if you consider what it means to be the world reserve asset, such a thing is presently only $5 Trillion by market cap -- a drop in the bucket of worldwide wealth. How can such a small sum change worldwide markets/perceptions in such a dramatic fashion?
JoJo,
That made me smile. If that happens, I promise that I will do so. It will be my penance.
Tyrannyofthepresent,
So our Californian friend buys 30 million ounces of silver (btw regarding that 10 million ounces, this was Bron's comment.
What then? What does he do with it? Who does he sell it to? Who buys the newly-mined silver? What happens to the silver-dependent industries?
athrone,
While the CB-held USTs may not be a majority portion of world wealth, it is the underpinning of the entire currency system. USTs are used by CBs as 'final settlement of trade'. Thus, to lose the UST is to lose the world currency system ... as it now stands, at least.
How much of the $100 Trillion world bond market do you think depends on the UST as a baseline for pricing with respect to a 'risk free asset'?
byiamBYoung (11:45 AM): I do indeed mean transition! Thanks! If I could edit the post, I would.
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. The US unit is only an exchange medium to acquire assets valued in dollars. US government bonds are the usual holding. No CB holds any currency! They hold the bonds of that currency. The major problem today, is that digital currencies have erased the currency denominations of all government/nation debt holdings! Even thou a debt is marked as DM, USA, YEN, they are in "real time" / "marked to the market" and cross valued in all currencies! No currency asset, held by CBs today are valued in the light of a single issuing country, rather "all currencies are locked together". To lose one large national currency, is to lose the entire structure as we know 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". Gold can be used to revalue any asset, and not be destroyed in the process!
Michael H,
Stating the US "is the underpinning of the entire currency system" and the world bond market "depends on the UST as a baseline for pricing" are additional claims - not evidence that UST are the world's reserve asset.
If you are making a statement, I think you need to provide positive evidence first before there is a counter-example required.
From what I can see there are at least three key assumptions for the version of Freegold as described here:
1. US treasuries are currently the global reserve asset
2. World trade requires a singular, global reserve asset
3. The medium for settlement of trade balances drives the sentiment for the medium used in private stores of wealth
4. The world will choose Gold as the next global reserve asset
I'm not sure #1-3 are even true, and #4 I think is a very complex question which has yet to be discussed at length, if at all.
athrone,
I hear rumors of $2.2 Quadrillion in dollar denominated contracts. If this is anywhere near the truth the current system can indeed not survive a collapsing dollar...
Where are the perceived wealth from all these contracts gonna go?
(It'll go nowhere, it'll turn to ashes, but where will it try to go when it's already too late?)
There is a huge argument against freegold. The argument is islamic terrorism. Christian Europe and Islamic middle east are going to clash in the hinterlands of Europe.
There is NOTHING that Europe has to offer that Middle East wants. The idea that gold will be paid wont be a reason enough for them to go with it. Everything that is needed is made by china and they can supply the needs. Shanghai Cooperation Council has more success likely than Euro. Yes there is no currency there but the post transition that everyone is hoping for wont arrive in our life times.
The threat is real.
There is no incentive for middle east to use euro. Euro may have to bend of Shariah banking. The non shariah banking which is the main stay of Europe-American economies, cannot let this to happen.
Middle east will want to break away from Euro when they have their own pan middle eastern currency perhaps even based in Dubai-Abu Dhabi. The infrastructure is already there. The recent attempts by Standard Chartered to deal with Iran lead to heavy fines. To assume it wont happen again to other states is not crazy. Morsi in Egypt has seen the move of Egypt from a moderate islamic state to a hard line one. Turkey the state hailed for its very moderate leaning islamic culture has spent more per capita this year on building mosques than on education.
The future global economy will be more local than its currently. Though currently the winds of change towards Euro are favourable, the engineered coup-de-etat in Syria, Egypt, Tunisia, Bahrain has made the Wahabbi-Deobandi leaning rulers of Islamic state of Saudi very nervous.
I do not really see Euro being the catalyst for free gold. The idea will still live but it will be sans Euro.
Just my opinion.
Michael H
Assuming he is the first to buy it, he owns it and watches it appreciate versus gold for the next twenty years, utterly ignoring the volatility along the way due to his strength of character. When he is fifty-five he fancies a challenge, sells the silver for US dollars and buys the machinery to fund a landfill silver mining and solar panel manufacturing operation in Philadelphia. In doing so he helps with the US energy crisis, sets a trend for landfill silver recuperation and ultimately increases his net assets to almost ten thousand ounces. When he dies, a street in Philadelphia is named after him.
His grandchildren wryly note that given massively reduced industrial silver usage and the high valuation placed on all stocks of silver (even in the landfills bought for them in the 2030s), the stock to flow ratio of silver is even higher than that of gold. They also invest heavily in Xiaoliu, the Chinese urban roadside dust platinum recovery firm set up by their uncle Fred.
burningfiat,
Contracts can be settled in nominal terms, the result will be losers on one side and winners on the other.
Either way, how does your post back the assumption that the UST is the global reserve asset, or that such a thing even exists?
d2thdr,
Interesting post. I regularly visit major cities in NW Europe (used to live in two) and have noted the demographic changes that may lead in the direction you mention, although I would expect only in a generation or two.
I would be interested in your thoughts on zakat. Would a gold price of $55,000 or equivalent to say 250 barrels of oil affect the nisab? Would it be possible for zakat to be calculated according to the silver nisab (dirham rather than dinar)? Or would the rich simply stop paying zakat because of the high gold price?
Any others knowledgeable on Islam, please comment!
PS d2thdr or any others interested:
On zakat:
http://spa.qibla.com/issue_view.asp?HD=1&ID=1531&CATE=5
I just wonder what practices may evolve under freegold.
It is also a good exemplar of the "gold and silver" meme in an assertive, demographically growing culture.
athrone,
I doubt all holders of these contract will be happy to be paid in negative real terms.
Where will these contract holders go when they recognize their collapsing net. value? The short term treasury bills at first maybe?
What will they then do when the discount turns negative? Current T-bills market will be flooded, no?
After the dollar, where will they go? Where do derivatives go to die?
burning
where do they go?
The moon was one economists suggestion.
athrone, remember this current paper-asset game is one big circle-jerk. One mans (or banks) collateral is another mans asset. Once confidence is lost in one area it quickly spreads to other areas, because everything is cross-derivatized to infinity.
The apparent cure (more bailout and printing) will only make the system-wide dependence on dollar-performance even bigger, and hence the final collapse even worse. This $IMFS cannot cure itself!!! $IMFS == saving in other peoples promises ultimately denominated in dollars.
Michael DV, :D
H. M. Socialist said: "elites will hoard the gold"
Correct:
http://www.scribd.com/Free_Nations/documents?page=1#
@Zach B:
Do you have an email address? I found that video series interesting to say the least, but would like to discuss it with someone intelligent and fairly impartial.
If anyone would like to discuss the Giza pyramid, sacred geometry, Coral Castle, magnetism, or anything in those videos please write to me at joepenn2012 @ yahoo . com
---
Still waiting on an Au dip to buy on sale before Dec 31. They'll smash Au/Ag soon to lower yearly gains... right?!
Michael asked,
"And in this hypothetical scenario, who do you think will be the recipient of American's ire."
Let me put it this way, it won't be foreigners. I have in mind an internecine affair, which, at the risk of being redundant, features insurrection, bloody domestic conflict, and possibly the odd coup. And, I daresay that, while the following development is certainly open to interpretation, it would appear that Uncle Sam is planning for some serious civil unrest
OK
This is a variant on the 'they will never let us shrimps enjoy our wealth' theme:
Since we believe the Saudis have been 'bought off' with physical gold for a stable oil price why could that not occur in some other way? Suppose deals were made with other super producers to ensure that governments only, enjoyed the increased valuation of gold. It would be kept at low values by decree but held at higher values by supers just as the Saudis presumably do now. Super producers are in no hurry or need for that one time revaluation.
This fails fofoa's observation that governments will want people to use their gold in the currency zone but as Greenspan noted governments do not like gold and the independence it allows. That won't likely change so why not entertain a method in which they might accomplish this goal of 'gold for the giants only'. Besides the one I just noted is there a 'freegold principle' that would preclude this?
Regarding the bond picture, as elucidated by ZH and featured here by Michael H, take a look at the $IRX (3 month T-bills) which has broken down from a year long consolidation. Is it, perhaps, heading towards the fearsome zero bound? We watch together.
EK
are you joking? That Suhuarto had a gabillion tons of gold thing has been around a while. I don't think it is serious. Kinda Nigerian scammy if you ask me.
The source of my 'moon comment' was from Flow Addendum:
Jelle Zijlstra, who became head of the Bank for International Settlements, said while with the Bank of the Netherlands in regard to the 1971 severing of Gold from the dollar, "When we left the pound, we could go to the dollar. But where could we go from the dollar? To the moon?"
12/12/12
write it while you can...unless you live til' 1/1/2101 you will never again be able to write the date, using 6 digits, by writing the same number 3 times...now back to our regularly scheduled broadcast...
Mike,
You expressed the one concern regarding FG that I've always had, that is what if a two tiered gold system continues to be desired by GIANTS?
Central Bankers have known the value of gold in mutiples of today's street price for along time. What if this just continues? Something like "official' gold and the peoples gold? Kinda like official paper = currency and all other paper = worthless.
I know I expressed this issue a couple of years ago, and it was addressed, but it hasn't left my head. Might someone take another stab at it?
IMO, the most viable argument against freegold is chaos. We are attempting to predict the future.
The future is unknown. Too many random chaotic variables which do not fall into a predictable pattern.
I do feel that logic, history and intellect are on the side of freegold, and the odds may be in favor of it by a wide margin.
And yet something we are not able to perceive today, could be a wild card that changes everything.
In our complex world, many people have polar opposite perceptions of the current reality. We can not even agree on whether we have 8% or 22% unemployment in the US. One camp swears it is this, the other that. Think about this. We live in an age of incredible competing realities, and yet we attempt to define a future from among infinite possibilities.
It is a weak argument perhaps, but time proves all.
Tyrannyofthepresent,
I'll see your 'Californian tech millionaire' and raise you a 'Texas oil billionare'
Further: our friend just bought 30 million ounces of silver (about 1000 tons) -- actually he will end up with less because it is likely the market will 'run away from him'. Annual production is 750 million ounces. So he will have taken a hefty chunk of silver out of the market, but more is always arriving. Will the spike in price he caused proved durable, or will it subside once sufficient additional silver is mined?
What will happen to the silver-users in industry? If the high prices stick long enough, marginal users will either substitute or go bankrupt. This decreases industrial demand, and thus decreases the price.
What will happen to available supply? I would imagine every silver fork, spoon, and teaset would be melted down. There is a lot of silver out there!
watches it appreciate versus gold for the next twenty years, ...
Only if others decide to join in. His single purchase of silver will have goosed the silver market, but without sustained buying power flowing into silver, the gains will be short-lived.
The 'monetary standardization' piece by MM describes why, in the long run, the bet for sustained buying power flowing into silver is not a good bet to make. Mine output is too large relative to above-ground stocks. Industrial use is too important. And the current silver market is too small.
***
Athrone,
Points 1, 2, and 4 are easy to address:
1. US treasuries are currently the global reserve asset
2. World trade requires a singular, global reserve asset
...
4. The world will choose Gold as the next global reserve asset
From the view of the CBs, yes, the UST is the current world reserve asset.
Yes, the world CBs require a singular reserve asset to clear their imbalances. If your country trades with 100 partners you'd rather only settle the net imbalance instead of having to deal with 100 settlements.
And it is clear from CB balance sheets today that gold is already chosen as the next reserve asset for the CBs.
As for:
3. The medium for settlement of trade balances drives the sentiment for the medium used in private stores of wealth
This we can discuss. I think gold will be revalued due to its change in function, but after the transition the personal wealth holdings of the population will include gold, stocks, real estate, and currencies.
I'm not sure #1-3 are even true, and #4 I think is a very complex question which has yet to be discussed at length, if at all.
I'm not sure why #4 is that controversial. What else is on CBs balance sheets?
Perhaps the confusion is what is meant by a 'reserve asset'. It is not simply a 'wealth asset'; it is the asset held by the CBs to allow them to manage the currency.
***
While I realize in my comments in this thread I think the ECB/BIS will 'lead' the transition to freegold, it is more of a lead by 'walking in front of a mob and calling it a parade'; in other words, that the ECB/BIS faction is just trying to position themselves to best react to the changing reality underneath them.
Börjesson
yes the obligation to prove falls on the person making the claim. The claim in this case is : 'freegold is wrong'. Fofoa doesn't really make claims, he makes observations and he comments.
We get many folk who pop in and say 'hey, that can't be right'. This post is to give them the chance to prove that they are correct.
I don't think any of the regular posters here indicate that they are 'true believer'. Most are risk wary and are constantly filtering new info to see if it fits with freegold. I assume that if they have a good portion of wealth in physical gold that they will read these ideas carefully. If they find a serious problem with the freegold concept they will likely adjust their gold holding to 'as much as they understand'.
So far I have found that freegold has given me a way to view events that I would not have considered in the past. Fofoa's writing has done the same.
I can understand that it seems like we have a body of things we believe...we do. But these are in agreement because they have passed the test of time and we have not been able to refute them. I am not tied to any particular belief. I just want to be well positioned for the crash I see coming.
I will welcome any holes that can be poked in the thinking here. I just see the silliness of those who do not have a grasp on the ideas here saying they are not valid ideas when in fact they are just not correctly understood...or more commonly they don't fit that persons closely held but not well considered beliefs.
Congress contemplates taxing gold mines.
http://www.moneynews.com/Markets/Congress-Levy-Gold-Mining/2012/12/12/id/467535
To understand how silver differs from gold in the Freegold revaluation you only have to understand that silver is largely a commodity today, while gold is largely a monetary reserve. The use of silver as a medium of exchange in any Eastern community does not argue for greater use as a global store of value in the future. A medium of exchange works at any relative value. Today's silver price is irrelevant to its future MoE use anywhere in the world. Betting your savings on a future medium of exchange makes no sense if the global store of value is gold." FOFOA 12/8/12
"Gold's lack of utility is, indeed, what makes it so useful, so perfect, as a reference point for valuing all other items that exist in the physical plane. And the fact, and it is a fact, that gold can function better (than any other item) as the reference point for valuing other items is a large part of why it acts as the store of value par excellence." ?
My observations of the post single euro act of 1986 is a negative one.
The quest for the euro has destroyed these economies internal cohesion as I believe internal trade (before oil and to a lesser extent coal) was more important then trying to somehow in a manic fashion export to import oil.
This collapse of rational wage /money domestic demand is a Euro thingy and a internationalist Gold reflex response to these new monetary conditions.
But it does not give these countries more redundancy from external shocks , it increases the force of these events.
Michael H,
Thanks for your replies. When you say items 1,2, and 4 are easy to address, could you provide information as to why this is true?
For the assumptions:
1. US treasuries are currently the global reserve asset
From http://www.imf.org/external/np/sta/cofer/eng/cofer.pdf I see that US treasuries currently hold the minority portion of worldwide foreign reserves (at 34% currently). Also if you look at the top holder of UST as an example (China) they hold only ~1T in UST while they hold ~2T in assorted reserves. What evidence are you looking at that makes you label the UST as the global reserve asset?
2. World trade requires a singular, global reserve asset
Again, from that same link you can see that there are numerous reserve assets with various "market share." While a singular asset may be simpler in some ways, what evidence do you have that it is required or even desired?
I know these assumptions seem obvious because you hear them so much, but where is the evidence they are still valid?
Hmmm, arguments against freegold. Let's start with an easy one: saving in gold. It's advertised that saving in gold could protect your purchasing power from FIAT inflation in freegold. If bank/govt print, your gold would appreciate so your purchasing power is safe from it
Not so fast, Johnny.
We've touched it briefly in the previous thread. Purchasing power is decided by how much your gold can buy from the market when you spend it, not how much it's worth in terms of FIAT. You don't feel great seeing gold going up in FIAT. You want it to afford as much as you deserve.
When B/G print to buy from the market, they leave less stuff in the market. Less stuff for you + same amount of gold chasing them = purchasing power DOWN.
Imagine a village has 10 nice properties for the residents to buy. A banker then comes alone to buy one off the market with freshly printed FIAT so he leaves now 9 behind for the villagers. The result: up goes the property price in gold and down goes the villagers' purchasing power.
To B/G, it matters not what you save in so long as you transact in their FIAT. In the current FIAT system, B/G can print to loot. In freegold, B/G can still print to loot. There's no difference to them. The only thing bothers them is that if gold price goes too high then people may abandon their FIAT so their natural response is fighting it to maintain FIAT's monopoly. Sounds like it'd become even less different from the current system, no?
Someone said, "Well in fear of savers abandoning their FIAT, B/G will not print it wildly." Oh yes they do. Look at Argentina, their citizens are well aware of how crappy the PESO is and decide to save in foreign currencies instead, and yet their B/G still keep doing it. Currency crisis is almost a national tradition over there.
Argentina is essentially a freegold system. You may say, "Wait they don't save in gold. They save in US$, another FIAT." True. But US$ is as much better than their PESO to them as gold than US$ to us. US$ is in fact banana republics' gold. You can call Argentina's system Free Banana Republic Gold.
How well does the FBRG work for Argentina? Is there any sign of fiscal prudence, rational lending standard or meritocracy in this land where currency crashes every 10-20 years? Are you kidding me? :-)
I like the way Sriva put it earlier, "FreeGold will not solve fundamental problem of fiat system".
When certain privileged people have god-like power such as money outta thin air, they are bound to abuse it and cause havoc. It's simply human nature. Freegold is not addressing this issue.
"Again, from that same link you can see that there are numerous reserve assets with various "market share." Yes, but I remember reading somewhere that all these assets, and currently gold, are inexorably linked to each other through the US Dollar and only the demise of the paper gold system will free this link and in the process force all the other assets to be valued against gold free from fractionalization.
Honestly on this blog we have a bevvy of expertise We have lots of lawyers, retired judges, engineers on mass.a few pilots, students ,docs etc and the odd chemical technician.
might there be an opinion regarding my previous post?
JR? Ender?
Wendy,
That's why I posted here, because I assumed as much.
Sir Crispin Tickell, writing in the Financial Times, has said about the book whose content I have recommended that:
“Certainly we need to accept the limitations of much current dogma and keep our minds as open as we reasonably can. Sheldrake may help us do so through this well-written, challenging, and always interesting book.”
A short overview of the book is here: http://www.youtube.com/watch?v=uD2qScZlvYE
A 1 hour overview is here: http://www.youtube.com/watch?v=T1yXeZnQcQo
If huge amounts of (smart) intellectual energy has been wrongly allocated, or poorly allocated towards areas inspired by the idea of scientific inquiry due to flawed dogmas that over the past 100 years have simply been accepted as a matter of course, it is nuts to not realise that a change in such thinking would effect global commerce.
Humanity is undergoing, if you must, a second Enlightenment . It's not difficult to understand why! Never has so much information been so readily available.
The mechanical mode of thinking, not to say it is entirely useless, which obviously is not, is not necessarily the type of thinking that will produce the most astounding revelations.
Motley Fool,
Out of respect to you I read the essay that you linked at December 11, 2012 8:08 AM.
http://tyrannyofthepresent.wordpress.com/
I'm still catching up with the rest of the comments. I just wanted to let you, and the author know, that at least one of the discussants here read it. I'll comment on this essay at a later point but it might be better to wait until he has finished the series he intends to write.
Cheers
It is entirely plausible that huge amounts of intellectual energy has been massively misdirected over the last hundred years, just to pick a number, considering we have constantly these "interest rates" set by random groups of people based on voodoo "economic science"...free rates will emerge, in fact, free rates are already emerging
Michael H,
My Californian trumps your Texan simply because he is a millionaire and not a billionaire. He lacks the vulnerability that is born of salience.In reality there will be ten thousand of him. Even billionaires can allocate, if they see value and act prudently. They have done so even this year. The deep cultural significance of silver is being leveraged into a mass market, notably of well-armed cynics.
The cultural significance and the supply and demand picture do in fact play. Even central banks asset-allocate and rich individuals never fail to do so, even within an asset class. Remember that if gold is valued out of the sortable-commodities class, silver will gain new salience within that class.
There is safety in numbers, in diversification and in scarcity. Human beings want it and will find it.
costata
Thank you. I suspect it might prove an interesting series, and the most serious attempt to date to argue on behalf of silver.
I will appreciate not having to address it alone, and having someone of your capability looking at it and commenting would be tremendously beneficial.
Peace
TF
To me, the following quote from Ambrose Evans-Pritchard says it all:
"This is another reason I’m against the gold standard, I think it is good to have free gold that is not controlled by any government, and instead of trying to use it as a foundation for currency which they will try to manipulate. It is better to have it as free, as a store of value and it holds public currencies to account – people can see gold rising against other currencies and that tells you something. It is the final reproach for the other currencies; it is sort of the umpire if you like. It sits there as a store of value and it goes up and down and by its movement it tells you about the other currencies. It holds governments to account. The last thing you want is gold to be concentrated in the hands of the government, who then say we have a gold standard; worst possible thing. You want gold to be completely free."
Speaking for myself, I see gold as analogous to the referee in the middle of a soccer field. All of the fiat currencies that have already received red cards -- Confederate money, Assignats, Zimbabwe dollars -- have been kicked out of the game. The currencies that are still playing get yellow carded (gold carded?) from time to time and have to be more careful. Eventually (and it can be a distant eventually) they all get red carded in favor of newer players.
I better stop now before I get completely lost in what Cardozo called "the mists of metaphor." But I would say that not only did Ambrose-Pritchard make the case for "freehold," he virtually did it in haec verba.
I meant "freegold" in the last two lines rather than "freehold." That's what I get for spending too many years practicing real estate law.
I just listened to the Eric Janszen interview from June 2012. I was surprised that he does not see hyperinflation coming. Rather he sees 'high inflation'.
Unfortunately he is not consistent. He says HI requires a loss of foreign interest in the currency/country and since the USA is so big that can't happen. Later he goes on to discuss how he sees various aspects of currency failure and systemic near collapse coming that would seem to be just what the HI doctor ordered to bring HI on. I was very disappointed because I found his earlier work enlightening but now his thinking seems muddled and distracted.
But since the observations he and the Widemers made in their books are what got my attention I'll put this out there: One could be cautious about freegold because a lot of smart people don't see it coming. I know that is anti-intellectual but hey....I'm a convert and converts are often the ones who have the hardest time seeing fault with the 'religion'.
http://www.planbeconomics.com/2012/06/12/eric-janszen-on-hyperinflation-vs-high-inflation/
Indenture,
You said that silver is largely a commodity today, while gold is largely a monetary reserve.
The observed reality in the markets is that the two metals trade at an insanely high correlation and with silver amplifying all gold's moves roughly twofold.
Is this the result of both trading as commodities? Is it the result of both trading as a monetary asset? Is it the result of both trading as assets with both characteristics and with cultural salience?
All plausible to me.
Or is it, as you suggest, a set of circumstances that can be reconciled with silver trading mostly as a commodity, while gold trades mostly as a monetary wealth reserve?
I would be particularly interested in your assessment of what drives the current pattern of 2:1 leverage, since it clearly must be interrupted and definitively terminated to sustain the low silver prices (in mg) that I have seen put forward here as the probable future reality.
I understand that the demise of the USD removes the denominator for the above calculations; another substitute observation might be that the gold to silver ratio (currently 50) trades inversely to the yield on USTs. In other words the price of silver in gold is correlated to the yield on USTs.
I imagine you are expecting the yield on USTs to rise, so this correlation must also be broken if silver is to fail.
Tyranny
As regards the 2:1 ratio of performance. It likely has to do with silver being about 50% industrial use, 50 % investment demand driven at present. So when investment demand increases due to historical sentiment in gold and silver, silver amplifies such moves due to being a smaller market and only half of stocks being available for investment, while industrial users are at present still price insensitive.
TF
Ps. There is also the matter of trader mentality, whereby historical correlation is assumed to exist in future and traded upon. So large funds working on these correlations as basis, allocate funds on those ratios and move prices.
As regards trading, not much fundamental analysis is done.
Indenture,
Addendum: or, using all fiat currencies together as a denominator, one could say that the price of silver in gold milligrams is correlated to the fluctuating moneyness of gold. Now there is a thought.
Motley Fool,
Thank you for your analysis, which matches mine. So it seems that the longer this situation is allowed to continue and the more the aggregate valuation of silver stocks increases (and flow is allocated to "investment demand"), the more robust the investment-component of silver's valuation will become.
In your scenario this entire investment status and the associated demand then needs to be obliterated at a stroke and to remain dead in the face of the most attractive silver price (in mg) in human history.
At $50,000 oz and floating Graveyards will be dug up to the shizenhausen!! and so all respect for dead will be lost.
Motley Fool,
I just finished catching up with the comments and I see that the essay has been read and discussed.
Wendy,
Re: Your comment at December 12, 2012 5:03 PM
Mike, You expressed the one concern regarding FG that I've always had, that is what if a two tiered gold system continues to be desired by GIANTS?
....Something like "official' gold and the peoples gold? Kinda like official paper = currency and all other paper = worthless.
I can't participate in the wider discussion at present but I'll put forward a response to your concerns (because I want to stay on your good side).
We currently have a two tiered gold system that is maintained by the IMF. Within the IMF/BIS/CB/Treasuries we have "monetary gold" and outside that system we have a commodity called "non-monetary gold".
I think the key question to ask is: What is the purpose of this two tiered system? The stated answer from the IMF is to minimize the role of gold in the IMFS. The implied goal is to support the US dollar as the global reserve and trade currency. IMHO the unstated goal is to maintain sovereign debt as the primary risk-free asset in the global banking and financial system.
This is Team Status Quo: IMF, Government/Treasuries and BIS/CBs.
Your question is really asking if the status quo can be maintained.
We have examined, at this blog, the reasons why the status quo cannot be maintained indefinitely and the incentives of the various economic actors to end the current system. Some of those incentives are extant, others are emergent and a few are yet to be felt (hyper-inflation as an example of the latter.)
The raison d'etre of this blog is the writings of A/FOA which disclosed that the BIS/ECB/EMU has prepared a life boat (the Euro + Freegold-RPG) with which to abandon ship rather than going down with the $IMFS. We have spent years validating this information and many here are confident A/FOA were telling the truth.
"Things that can't be sustained won't be sustained."
I can only make an argument for one theoretical pathway that could maintain this two tiered system. It requires:
1. The formal re-adoption of the pre-1968/71 gold exchange standard and;
2. A currency peg between the US dollar and the Euro and;
3. A 180 degree turn in USG policy and;
4. Formal default by the US Treasury and restructing of USG debt and contingent liabilities.
So this 'theoretical pathway' is also my argument against Freegold-RPG. And in my modest way I'll also argue this is the only viable alternative to Freegold-RPG ever presented in these pages. If these actions are taken then the Euro Freegold-RPG project is dead in its tracks.
Cheers
Important Health Warning!
None of the readers or discussants should hold their breath while waiting for Uncle costata's Euro Freegold-RPG FAIL scenario to come to pass. It could result in serious injury or death.
Typo:
4. Formal default by the US Treasury and restructing of USG debt and contingent liabilities.
'restructing' should of course be restructuring.
Giants hold Gold so Freegold seems the best bet yet.
As Giants know more and sooner than all of us there might be a sign that Gold is not considered a store of wealth anymore if they suddenly start to get rid of it. We might not perceive their reasoning but I'm sure we will all head for the door as well.
I still think Free-energy will be a big game changer in the psychology and set-up of the World.
Free-energy is just around the corner and if "the people" manage to obtain it then the "powers that be" won't be "powerful" anymore. Oil sheiks sitting on oil reserves that nobody really wants in quantity is just one example.
If the means of acquiring raw materials, production, manufacturing and distribution cost, in energy terms, nothing then the World will be a completely different place. Will we still need Gold then?
There is bound to be ridicule by people who can't think "out of the box" but there are some interesting devices being built that are almost in production.
So you wanted arguments and that's mine. Something coming from the "blind-side" that completely upsets the carefully dissected reasoning.
Motley Fool and others,
Just for courtesy I need to let you know that if you are kind enough to respond to any of my points above in our ongoing discussion I may not see the responses for a day or two due to work commitments, but I will look back to find them probably during the weekend, and will no doubt be grateful for your insights.
I am aware also that the discussion has already migrated to the "stocks to flows" issue which is the most challenging part of the Freegold scenario to analyse dispassionately, partly because the available data is so unreliable. My detailed analysis of it will probably only be done a few months from now.
I am planning to stay with psychology for a little longer and analyse wealth-density and Veblen behaviour next, but even that will probably have to wait until after Christmas.
Rather than offer a rebuttal to freehold I am asking the group this: for one who is nearly 'all in' what is the best hedge with the remainder of ones wealth? Would it be cash? a call on SPY? purchase an index fund?
What if....yes things do not always happen when they should happen....if we should see a deflationary event then cash I guess would be best. If we see some inflation that some how does not translate to increased POG then perhaps the call option or the index fund. I am open to ideas. I doubt I'd go for a put on gold but that would be another obvious play.
If we are prudent, no matter how much we see the wisdom of freegold should we not have some hedge? Am I wrong here?
costata
thanks
I think I am the Mike that Wendy was addressing so you may be saving me from her wrath too. That was a well reasoned and convincing answer. I appreciate it.
This exercise has both upset and reassured me. When dealing with the product of ones life worth expressed in wealth terms, the decisions one makes can be emotional. Fear, greed, fear and worry. It would be nice to just have some where to sock the dough away until you are ready to deploy it but as of 12/13/12 there exists no such safe mechanism...by a long shot.
Freegold will be most appreciated when it comes.
duggo,
I still think Free-energy will be a big game changer in the psychology and set-up of the World.
Free energy = consumer goods price deflationary.
As Motley Fool said previously on the subject in this thread, this just makes Freegold even more valuable.
Nobody (that matters) is pro-deflation. Nobody (that matters) really wants a strong currency. So that implies devaluation against some other currency - whose?
Awwight? Something coming from the "blind-side" that completely upsets the carefully dissected reasoning?
Michael dV,
The best hedge on gold? All paper.
Wendy,
The only reason a two-tier system continues is because the supporters gain more by its' continuation than by its' termination. Eventually the point is reached, beyond which carrying the dead system isn't worth the slight gain, and support is withdrawn. It isn't worth trying to extract 100 percent of what can be gotten from a dead system.
Rui,
When you type FIAT like that, it makes me laugh, and I wake up people who are trying to sleep. Thanks a lot. :(
here's another FAIL argument/self-contradiction of FG:
Who is going to buy at 55K (in terms of purchasing power)?
FG advocates tend to talk there book (nice), by reasoning that "giants" are holding all that gold. Let's just assume that this is true:
Now, why would a giant with let's say 20mt that he bought at 300mio. (let's assume he went in with 50% of his "savings") buy another 100kg at >300mio (which would represent the complete rest of his portfolio, just to increase his weight, he is already holding a very few percent)?
That makes no sense at all! Maybe in best case the giant will not sell his gold in favor for other assets (which I doubt, but let's just assume), but to buy further gold at that price would just simply be stupid.
So who's the buyer at that price? Dear little FG shrimps, please be honest to yourself, would you buy further? Please answer that question here and now in this post.
Or would you cash out to finally get what you and your peer consider luxuries e.g. getting out of your appartment paper box prison, or maybe a Mercedes to pick up some chicks, that's what you waited for all your life? The only problem you'll face is to find a great fool shrimp that hasnt have any gold at all yet. The only problem with shrimps is there overhead costs compared to their income, so therefore those newly coming-in shrimps will not hold the gold for long...
Greets, AD
P.S. I have sworn to myself not to purchase any further, except I might pick up some in case I get physical at the FOFOA predicted drop to $300.
Wendy, the world isn't pulling the old system down, yet.
FOA: You see, the dollar is going to fail now because a good alternative is available now. All this has something to do with the coming new gold valuation, but that new price level is not related so much to gold backing a currency again. (more on that in a min). The dollar is toast because most of the world doesn't like the management policy. They didn't like it in 71, but tolerated it because gold was supposed to keep flowing in repatriation payments. And if they didn't like it back then, they god awful hate it now!
We like to think that the dollar is what it is because we are so good. (smile) But the truth is that for over a two decade period +, none of our economic policy, our trade financing policy, our defense policy or our internal lifestyle policy has pleased anyone outside these borders. We managed the dollar for us (U.S.) and the rest could just follow along.
Our fiat currency has survived all these years because others have supported our dollar flow in a way that kept it from crashing its exchange rate. We talk and think like we are winning the tug-of-war when, in fact, they just aren't pulling to hard. Waiting for their own system to form up.
My friends, a national fiat in our modern world only functions if the whole world uses and supports its flow and most importantly likes its management (political styling is the catch word). This support and use of our dollar can and will change faster than many think possible once the Euro is finished. Our dollar is not going to become a "banana" or "nada" in the future, as auspec notes. It already is and has carried this trait for some time now as does every fiat today. The only thing that keeps them from cascading away is world support and use.
Point:
When most of the major players that styled the Euro decide to swing even 1/2 support toward that new money, the exchange rate for our dollar will plunge to its true worth! That dollar value is there now, you just don't see it yet.
Rui,
Purchasing power is decided by how much your gold can buy from the market
IHH-URHH! Fail.
People, including CBs, primarily care about how much consumer goods you can buy with the currency. Whether one can buy more or less with gold is not of too much concern to anyone but us whackos.
When B/G print to buy from the market, they reduce the purchasing power of currency. (FYP?)
Which will only further encourage people to turn their backs on it as a store of value, many of them choosing instead to move into gold. (= gold holders purchasing power UP)
To B/G, it matters not what you save in so long as you transact in their FIAT
So you don't think they want and need anyone to save in their currency, for it to have elevated exchange value and therefore enable them to chip away at that stored value with ye olde inflation icepick?
In freegold, B/G can still print to loot. There's no difference to them.
Orly? You've been reading and commenting here a surprisingly long time, to still not see any difference.
The only thing bothers them is that if gold price goes too high then people may abandon their FIAT so their natural response is fighting it to maintain FIAT's monopoly.
Actually, the only thing that bothers them is the exchange value of the currency in terms of consumer goods. Which is all 99% of people give a shit about. They could, however, use gold as a tool to influence that real exchange value between currency/goods though. Perhaps this is part of the standard issue Freegold toolkit for all noob Central Banks opening a Freegold franchise?
My view is deleveraging (deflationary force) is today the natural friend of the Freegolder and the enemy of the naive currency-holder. There is "manipulation" of gold, but not in the way goldbugs believe. And certainly not in the way silverbugs believe all but guarantees them "2:1 leverage to the upside of gold". Silver (and everything else but gold) is not directly prevented by the CBs from doing whatever it naturally wishes to do in the market — but gold is. Again, in a global mega-deleveraging deflationary environment, which is what we face today, the Central Banks are the Freegolders best friend. Because they are Freegolders too.
Sounds like it'd become even less different from the current system, no?
Not so much. You finally have a viable option, free from the current paper suppression, to move your savings into as a vote of no confidence in the currency.
Comparing Argentina's printing, within the context of global $IMFS and paper gold trading at par with physical, to Freegold ... isn't really comparing apples with apples. But yes, it is of course true that if people keep voting for whichever socialist government promises to print and pay them, despite the harmful effects that will rain down, then they will still get what they demand. But you won't have to go down with the ship.
It's simply human nature. Freegold is not addressing this issue.
You think Freegold should fix human nature? :D
You think gold-and-silver as "money" would fix human nature? Not for long!
I'm with Ambrose: I think it is good to have free gold that is not controlled by any government.
Gold≠Money. They print money. Their problem has always been and will always be, that they can't print GOLD.
You really don't want gold (or silver) to be "money" - that's how they getcha!
Kinda like those orange one sided $500's, until you take
them to a store "not in your neighborhood"?
I have been behind in my reading.
But I have seen free energy mentioned several times. People who talk about free energy don't understand or have heard of the second law of thermodynamics. It specifically prohibits it. It means that you cannot obtain energy from the reservoir, or the background, doesn't matter how hot it is. There needs to be a temperature gradient to use heat. Heat is basically random energy, and random energy cannot be utilized. To use energy you basically start with a more ordered form of energy and then convert into random energy ie heat. This conversion allows you to do work. You are not creating or destroying energy.
Thermodynamics is one of the laws that cannot be worked around. It is probably THE most fundamental law of the universe. It is as fundamental as Plank's length (smallest distance that can exist) and Speed of Light (maximum velocity at which energy can move). I believe eventually we will find everything rests on these three and mathematics of surface lattices. No its just a gut feel. I am not a mathematician.
So bye bye theories of faster than light travel, or perpetual motion (aka free energy) :P.
A question for the "superarchivists". (You know who you are.)
I have a vague recollection of having read the statement below.
It was either from Another or FOA. It goes something like this:
"When the price of gold is falling, that means someone
important is buying. Conversely, when the price is rising,
it means someone important is selling".
Does that jingle any brain cells?
Two Questions
1) Are there valid arguments against FREEGOLD?
2) Can you force governments to allow FREEGOLD?
Let's assume a) most governments are bankrupt using Bernholz and/or Reinhart & Rogoff criteria and b) a currency reform/reset will take place.
There are many options for this reset being proposed or bandied about. To wit:
http://www.zerohedge.com/news/2012-12-12/gold-its-time
QB Asset Management argues in this 6 page piece that "The redistribution of public/official bullion holdings, from public entities overweight them to those underweight them, to create balance for the launch of a modified (bullion backed) SDR, which would be the new global reserve currency and which would allow banks to continue their fractionally reserved business models after draconian nominal develeraging via coordinated base money inflation".
Or perhaps
"Currency Wars" by Jim Rickards whereby he suggests a new gold standard that starts at say $7,500 an ounce but where the price is not fixed but can float.
The important question in my mind is not NUMBER ONE but NUMBER TWO.
Why?
Although FOFOA, Another and FOA profer FREEGOLD as the logical choice, we have politicians, governments, central bankers, economists and others who must embrace FREEGOLD for it to happen. As these folks got us into this mess what is to say they can't continue on their path of experimentation by trying a) Gold backed SDR's, b) then a gold standard; c) then a modified gold standard, 4) then bimetallism, etc.
We will all likely be dead by the time they are finished these attempts at RESET.
So, my question to FOFOA is what are you doing or can we do to make FREEGOLD the obvious choice of world leaders, politicians and economists so that they adopt FREEGOLD in the first instance rather than attempt 5 or 10 other ideas that will eventually fail?
Let me give you an example. I have spent a great deal of time and effort regarding LFTR's and thorium as an answer to a) climate change and b) solving the energy/power generation conundrum. My review of this book can be found under "John Galt" that I used as a pseudonym.
http://www.amazon.com/SuperFuel-Thorium-Energy-Source-Future/dp/0230116477/ref=sr_1_2?ie=UTF8&qid=1355405426&sr=8-2&keywords=thorium
I just bought an extra copy and sent it to our newly elected Congressman. Will he read it? Will he see the potential of technology that worked 30 years ago, but was abandoned because it was the one nuclear power generation technology that couldn't produce atomic weapons? Well, I don't know but I am trying to get leaders to think outside the box.
To me LFTR's using thorium are the most logical thing in the world, yet it has been ignored for decades.
So my point is: Just because you can see the efficacy of something does not necessarily mean it will be adopted. Maybe that is the more important question.
Anyway, thanks for all you do and have done to enlighten us.
Woland, is this it? A snippet:
FOA (8/10/99; 19:56:56MDT - Msg ID:10858)
GT,
The Cheese Cake thing came when others lost the trend of Another's Thoughts. Some time back (perhaps way back) he offered something to the effect that "gold is falling in price because so many investors are buying it". This was a real lost effort on some readers that didn't understand the full dynamic of the lending business. If I remember right, in that time the LBMA and the BIS both wanted gold to continue trending down. Yes, they were working together, but for different purposes and different final results. World investors were buying physical gold in volume, so these government entities pushed even further into lending to free up more physical from private holders. It had the effect of lowering gold's market price even as more buyers emerged. No one could understand it then as the full manipulation story was still mostly hidden. Another was talking to a larger audience then and didn't worry that a few didn't grasp it.
and here is the original:
Date: Sat Jan 10 1998 21:03
ANOTHER (THOUGHTS!) ID#60253:
Someone once said, "noone wants gold, that's why the US$ price keeps falling". Many thinking ones laugh at such foolish chatter. They know that the price of gold is dropping precisely because "too many people are buying it"! Think now, if you are a person of "great worth" is it not better for you to acquire gold over years, at better prices? If you are one of "small worth", can you not follow in the footsteps of giants? I tell you, it is an easy path to follow! An experienced guide is not needed for this trail, look around you and see. The real money is selling ALL FORMS of paper gold and buying physical! Why? Because any form of paper gold is loosing value much, much faster than metal. Some paper will disappear all together in a fire of epic proportions! The massive trading continues at LBMA, but something is now missing? The CBs are no longer lending! They will not anymore! We have reached production costs. Oil will have nothing of "gold paper" if gold must stay in the ground! And a CB values the wishes of oil far above it's return of leased gold! Hear me now, "if gold tries to go lower than US$ $280 the BIS will buy it OUTRIGHT in the OPEN for all to see"! They must! They will! I know. For no currency system could stand if "Oil" were to bid for gold!
I'm going to lump free energy, cold fusion, alchemy and the like in the "I'll believe when I see it" category of my brain, right there with a cure for cancer/AIDS. You constantly hear about these things being "just around the corner" but they never seem to actually materialize.
@Anand
Interestingly, many people continue to apply for patents on perpetual motion machines in the US. I believe many of these people are quite literally insane. One guy's "invention" involved aliens, transforming cadavers into machines, teleportation, etc. He was outraged (as is often the case in these kinds of inventors) when his application was rejected as non-enabling, and sent lengthy vitriolic responses.
My biggest argument against FG is that if it doesn't occur ( and fairly soon ) I have no chance to ever truly retire. And I have never been monetarily lucky ( very lucky in many other ways, so no complaints ).
I guess you could say monetarily I'm like a cooler at a casino. So if someone wants to buy me out, at some much higher premium of course, I'd say the odds on FG go way up.
Anand, I think when people say free energy they actually mean a new technigue that produces a very high ERoEI. Not really totally free but abundant and cheap.
Bravo, Jeff. (as per usual) We catch this falling knife ( or
runaway train) together, yes? Greetz!
athrone,
The second graph in this post shows the evolution of world CB USD (UST) holdings. It really shows that we are ‘on the road’ to the end of the UST as the world reserve asset, since it is being ‘phased out’. Notice the peak of world CB UST holdings as a percentage was in 2000, at about 55%. Ever since it has been declining and is now at ~35%, as you say.
(oddly enough, the Euro has the second largest holdings at 14%)
Would you say having the majority of market share of foreign reserves counts as being ‘the world reserve’?
Again, from that same link you can see that there are numerous reserve assets with various "market share." While a singular asset may be simpler in some ways, what evidence do you have that it is required or even desired?
There are two factors behind a decision as to what to hold for exchange reserves. The first is ‘what do I exchange regularly’ and the second is ‘what does everyone readily accept, that I can use in case of emergency’.
So for the first it makes sense to hold assets denominated in the currency of your chief trading partners, since you regularly purchase and redeem these assets. But there is a limit to how much of these reserves you will want to accumulate, because beyond a certain point your trade partners might not be able to honor a large-scale redemption of assets denominated in their currency, and if you need to do so in an emergency you are SOL. In short, you would be OK having your trading partners as a counterparty for day-to-day operations, but not for an emergency.
That leads to the second class of reserves, for emergencies. This also applies to reserves built up as part of long-term trade imbalances. In this case you do not necessarily care if you have a large trade position with the country whose currency denominates your emergency assets, but rather you only care that the world as a whole trades with that country and thus would value these assets. Because the dollar denominates oil trade, USD-denominated assets are currently the best-in-class for this category.
But holding USD-denominated assets subjects one to the tax of the exorbitant privilege of the US, and the rest of the world is trying to move away from that system. As such, they have begun phasing out USD-denominated assets as their reserves, and I believe gold will end up taking their place, for two reasons.
The first reason is that gold will be universally accepted by other CBs and so it makes a very good ‘emergency reserve’.
The second reason is that, while I expect the Euro to replace the USD as the world trade currency, there will not be enough Euro-denominated bonds to fill the gap of the UST. There are no analogous ‘Euro-area bonds’. There are not enough German bonds to go around.
***
Wendy,
I don’t think I am the ‘Mike’ you addressed but here goes:
Central Bankers have known the value of gold in mutiples of today's street price for along time. What if this just continues? Something like "official' gold and the peoples gold? Kinda like official paper = currency and all other paper = worthless.
I think part of the answer lies in the fact that gold held by the people counts as gold reserves within a currency zone.
Right now, that doesn’t matter that much because gold reserves are not at the center of the world financial system. When gold matters again, then there won’t be a two tier gold market. Gold will matter again when the current USD/UST based system stops functioning.
Before 1971, the two tier gold market was needed because gold had to be kept undervalued. The incentive to undervalue gold will no longer be there, because it will just flow from where it is undervalued to where it is properly valued. That is why the Euro MTM balance sheet checkmates the US from ever having a fixed gold standard.
Here's an interesting patent application, similar to the one I was discussing earlier. Of particular interest are FIGS. 2, 3, and 22, though the whole disclosure is rather "interesting." Enjoy.
The Dork of Cork,
internal trade (before oil and to a lesser extent coal) was more important then trying to somehow in a manic fashion export to import oil.
Is it the fault of the Euro that Europe does not have sufficient internal oil reserves to feed its demand?
Further, the drive to export goods to be able to import oil is a function of the $IMFS. As in: one must buy oil in dollars, so one must sell goods for dollars to be able to afford oil. It is the root of the US exorbitant privilege. Won’t it be nice when Europeans can buy oil directly with Euros?
But it does not give these countries more redundancy from external shocks , it increases the force of these events.
I don’t agree. How much worse would the shocks be in, say, Greece, if in addition to a virtual government shutdown they faced a total currency collapse? How long would it take them to stabilize that situation, and at what cost?
You might find this relevant:
The reality is different: the markets are slowly waking up to the fact that the social-democratic welfare-state that dominated the West since the First World War is going bust. Everywhere. Faster in some places (Greece, the UK), more slowly in others (Germany), but the direction and the endpoint are the same. This is not a specifically European problem, or even one that is particularly linked to the single currency project, it is pretty much a global phenomenon, and it will shape politics for years to come. It is naïve, dangerous and even irresponsible to dress this up as a design-fault of the euro and thus imply that the problem would be smaller or more easily manageable, or even non-existent, if countries could only issue their own currencies, print money, keep running deficits and devalue to their hearts’ content. The false impression that is being conveyed by Bootle and AEP is that Spain, Greece, Portugal and Italy could somehow simply turn back the clock and, in the more open, more competitive world of the 21st century still run the cosy big state, high inflation, frequent debasement policies of the 1970s.
***
costata,
1. The formal re-adoption of the pre-1968/71 gold exchange standard and;
2. A currency peg between the US dollar and the Euro and;
Item #1 is dependent on item #2, and #2 is in control of the Europeans. It would put the Europeans in a ‘fool me twice, shame on me’ position if they agree to it. And why would they ever agree to it if they have the upper hand with their MTM gold?
***
to buy further gold at that price would just simply be stupid.
What else would someone buy if they had oodles of currency flowing their way?
The closest thing we have currently to the voice of the superorganisim is google trends and aggregate sales at the coin shops, and they both say silver and gold in equal query numbers and dollar amounts. Yet flow out of the ground is 9 to 1 while price per ounce is 50 to 1.
Speaking of flow, there are strong hands, weak hands, and evil hands planning a giant pump and dump. Don’t take my word for it, just sit back and watch.
http://www.scribd.com/Free_Nations/documents?page=1#
rickards interview:
http://www.youtube.com/watch?v=JwssgNDIwGI
Peter Schiff is throwing in the towel on the manipulation allegations in the gold market. He now believes that there is manipulation because gold was down 14 dollars on the Fed news.
Hi Wendy,
Thoughts aloud....how about an oil standard? What if the focal point of infinite marginal utility gets it's day in the sun but doesn't manage to rpg high enough in the sky to satisfy the key savers. Why? Maybe freegold fails for a time for there is no supply willing to offer, and never trades on any market any time soon. What fills the gap we are expecting? Who wants to know about a gold currency price when trust is lost, shocked and awed, even into a counterbalanced supranational euro system. Trade favours local in places where it has no choice. There, derivatised milk starts to flow direct from a cow instead!
The gold flow is demanded and results in the medium of exchange for energy payments, but what's the nation to nation price to make the trade? If a market failure can't help decide, energy may bid for gold or does it just name it's price seven sisters like? Maybe they'll just keep the energy till you have something better to trade with. Don't like receiving that answer? You won't have to worry about a Kuwaiti style problem once they've done their worst or would the threat be enough for another or a friend to defend them?
They could go back to what's most important - religion, family, riding camels (no disrespect) and dates. Walking forwards while looking forwards. Rulers and Kings have 5000 years of armour and plenty of patience to realise full worth, no? I wouldn't be in a hurry. At least the palatial cousins will back off a little in the meantime.
With no market, is there a place to demand an oil standard for gold, then natural gas (several grand children later) then...? If a nation can't get energy except with gold, would that nullify the confiscation angle away from just mining? What good would economic taxes be if you can't use it to buy your main ingredient or market bid gold either? Oil becomes MoE, UoA & SoE out in the open and at a closer mark to it's economic worth. A worth that declines if not used much over long periods but is always burned to it's full potential when supplied, like a wheelbarrow and 100s in a flea market ;) Old gold continues to hide and only trickles in private when coaxed. They wait for a better day. For the rest, we now realise that working harder than we ever have doesn't pay anything like before.
What do ant holders do if the majority is generously incentivised (quite easy when there is much sweat on the brow) to report you so the ultimate nation trade can take place? National interest at stake. Better watch out for a falling piano then.
Maybe the events just land too quickly in front of all of us, slowly then all at once, and do too much damage. Mental aspects divert the river flow for a while. The bubble blown to a planetary size. Physcological superorganism cowering in the corner. Hyperinflation? I'm not sure anyone would care.
Brought.
Swiss cheese?
How many past references did I get? (Smile)[In honour]
-Free market or not, CB and gov. are part of the market. We need to think more factual than idealistic.
-Muslims and Christians might find peace together as did others like Catholics and Protestants, Jews and Arabs certainly have an increased will as well.
I noticed happy faces in Israel when they realized not having to go to war before X-mas. It will give a positive feedback to the other side since the Palestinian upgrade by the UN. Travelers to Iran reported that their major issue is as well the unresolved Palestinian question.
-a study of a refiner said the Germans hoard 8000t of Gold privately.
-somehow I think that since this membrane between the power elite and shrimps has bee broken that events won't play out chaotic. Now there's this other membrane...
Go outlaws ;-)
http://www.youtube.com/watch?v=1N5BnNq74KQ
Free Energy
If we're talking about a break through that allows for a much higher energy return versus energy invested, then this hardly affects teh Freegolds. It may delay it for a while depending on where this break through occurs. But again, this is a huge "if".
Beer
Beer is good for you an nutritious. The heartier the better.
Hi Jeff;
As I read the second of the 2 quotes you provided, one
statement stood out for me; "A CB values the wishes of
oil far above its' return of leased gold!" There are two
conclusions I draw from this; First, the value that the
full, free flow of oil imparts to all global financial assets
is far greater, and thus much more important, than the
value of leased gold if it cannot be returned. This is no
news to any Fofoans. The second implication seems to
me to be that, in the event that the paper price of
gold should fall below production costs ($280
per oz in 1998), then either the BIS would openly bid
for gold, (perhaps today the ECB), or conversely, oil
would either bid for gold directly, (as in 1971-1980),
or else price oil with a gold "kicker" to both revalue it
and thereby keep it flowing.
anand: "In this house we obey the laws of thermodynamics!" Homer, April 16, 1995
Alex in Montana: "Although FOFOA, Another and FOA profer FREEGOLD as the logical choice, we have politicians, governments, central bankers, economists and others who must embrace FREEGOLD for it to happen." Does a Redwood Tree need to embrace eventual death for it to happen or will it proceed because the weight of the system can no longer be supported? "Just because you can see the efficacy of something does not necessarily mean it will be adopted." Very few want to adopt a new system, thus causing their own death. In order to adopt they must kill their own system so instead they wait for death. Adopted infers choice.
Another ID#60253 "Oil will have nothing of "gold paper" if gold must stay in the ground!" Ah-ha moment for me. US says 'Give me oil and I give you 'paper gold' or promises for future mine production, but if future production cost is above 'paper price of gold' (because of manipulation of gold price low to keep Dollar relevant) there would be no mining (negative return) so there would be no payment for the oil. Interesting. From Another's point of view the manipulation itself will cause the disconnect because mining will be dollar cost prohibitive, which would cause a contract for future gold for present oil to be worthless. So no present oil for future mining gold when the 'refining price' is greater than the 'non-monetary gold price'. "Hear me now, "if gold tries to go lower than US$ $280 the BIS will buy it OUTRIGHT in the OPEN for all to see"! (my insert - The BIS will buy Gold with Currency to raise the 'paper price' of gold to make mining profitable) They must! They will! I know. For no currency system could stand if "Oil" were to bid for gold!"
What am I missing?
Michael H,
To your question "Would you say having the majority of market share of foreign reserves counts as being ‘the world reserve’?"
Considering what is implied by labeling something a "world reserve" I think it necessitates a market share larger than the combined "other" category. Currently USTs are at 35% and "other" is 65%. Even "Unallocated" has a greater share at ~45%. So to me that assumption doesn't pass the muster.
By your definition it seems that if there are 10 different reserves, of which one has 11% and the others all 9-10%, that would be labeled the "global reserve asset."
The assumption that there is a dominate reserve asset is critical to Freegold is it not? It is this assumption that implies the transition has to be a dramatic event. After all, if we are only talking about the re-organization of 10% market share -- that is unlikely to lead to a massive shift in world-wide psychology/behavior [as required by Freegold].
What seems more probable -- an overnight shift in Gold's market share from less than 5% to greater than 50% -- or the share of UST simply continuing to dwindle until it becomes insignificant (as it already has, in my opinion)?
In 1999 45% of worldwide trade was settled without UST. Today the figure is 65%. Isn't that already demonstrating that the majority of world trade is not dependent on UST for settlement? Would you say Freegold becomes more or less likely as this number rises [while the share of gold remains low]? What if the share of the Euro and UST become swapped?
Some further questions:
1. If the current "global asset" (UST) has 35% market share, and Freegold is to be the next "global asset," will it only replace the UST portion (~35%) or is it expected to take over the entire market (~100%)?
Even if we assume 100%, this only accounts for the relatively small inter-governmental settlement (10T)... there is still the assumption that private wealth would even want to follow what the banks/governments use to settle trade. If the transition is limited to central banks you would only have ~5-10T of market share available to supplant (roughly a 1.5-2x increase in Gold price). So whose share does the 20-30x change come from? From the private sector, where is the pressure coming to have a reliable store of wealth -- when such things already exist in the combination of land, productive assets, and foreign currency, and [non-free] Gold.
2. The Euro share has risen to 15%. If Gold is the next choice of central banks for a reserve asset, then why are Euro holdings rising at a faster rate than Gold? Is Gold expected to supplant the Euro market share as well?
poopyjim
Cancer gets cured all the time and put on hold a lot more. I agree with the other items your list however. It is that danged physics thing that gets in the way of a good story.
If you really want to see a disease that got it's butt kicked in the past 20 years you should see what happened to poor ole rheumatoid arthritis. It has gone from a crippling killer to an annoyance. When science persists it can and does make progress. Even science has to obey laws however....as in "Gravity, it is not just a good idea..its the law."
AD
Simply wanted to respond to your query.
Knowing what FG is and implies, and understanding the function of gold under FG...yes, I would buy at $55,000 or whatever it turns out to be.
As and when I am able of course.
TF
AD: At $55,000 per ounce after transition a gram of gold will cost $1774
Why is it a problem for someone who wants to save $1774 outside the fiat system to store their value in gold?
@Micheal H
The demand for oil is a result of bank credit as it seeks to bypass labours share of income.
Global trade and investment is now very much compromised .
In extreme cases the supply chain is mixed up with countries that could become hostile such as Japan & China
Look at this paper.
http://www.ecb.int/pub/pdf/mobu/mb201212en.pdf
I found box 4 more interesting….
“The latest data show that the annual rate
of change in real disposable income, which has
been negative for a protracted period, declined
markedly, by 2.1% in the second quarter of 2012.
In an effort to mitigate the effect of this decline
on consumption, households dipped into their
savings. As a result, their saving ratio fell to the
lowest level recorded since the start of the series”
Box 5 is just the fiscal stuff which would be a bit of a bore but for the amount of damage it is doing
Its merely private banks trying to stop the flow so that they can continue with their wealth transfer thingy……….
The fiscal “structural adjustment” of Italy in the late 90s seems to be the model
But bankers like models who take steroids these days.
Nothing much physical which will last was made back then.
It was merely a transfer of tokens within the system.
Very important for the token holders but pretty much pointless in the end.
Box 3 Labour
“The annual growth in compensation per employee further declined to 1.6% in the second quarter of
2012 from rates of above 2% in the second half of 2011. This moderation by and large absorbed the
upward impact of lower productivity growth on unit labour cost growth. Year-on-year unit labour
cost growth stood at 1.4% in the second quarter of this year, compared with 1.6% in the fi rst quarter.
The low productivity growth – in a context of modest economic growth – is expected to continue
exerting upward pressure on unit labour cost growth in the near term.”
Ask yourself why must they squeeze labour value ?
So as to increase the surplus going into non labour costs of production.
This is then expressed in bank credit for capital stuff.
Houses , cars and other crap stuff.
But its not working because the machines are eating the capital base at a faster and faster rate.
Why is the cost of real capital / oil so high ?
See above.
The banks wish to bypass labour with their credit machines so as to extract the surplus value of production.
Therefore in a financialised world the BANKS MUST DESTROY REAL CAPITAL TO EXTRACT A PROFIT
This is a mirror image of the credit inflation.
The money deflation phase of this extraction operation is the same phenomenon.
Ireland was destroyed by Labour arbitrage in the high energy sectors of the economy that gave a false price signal to these operations…..
To conceal the real capital destruction they reduced wages……..
Think of low cost airlines , ferries , construction etc…..
They even went so far as shipping in cheap labour from Turkey to build a Cork road.
This is how Europe operates folks.
It will not change until it has destroyed all of the capital base.
Its a straight up criminal operation.
As plain to see as rudolph’s nose.
"That makes no sense at all! Maybe in best case the giant will not sell his gold in favor for other assets (which I doubt, but let's just assume), but to buy further gold at that price would just simply be stupid.
So who's the buyer at that price? Dear little FG shrimps, please be honest to yourself, would you buy further? Please answer that question here and now in this post."
This is why AD is such an ass.
AD has been here (even reading along the whole time he was banned) a long time. He tries to discuss FG and dispute it yet he misses (all?) so much. I think he deliberately (at this stage in his game) misses it.
The guy got 20mt with his first 300 million and then in FG AD asks why would he use the remainder, the other half of his cash to purchase only kg's of Gold. This Giant doesn't care that his first 300 milion got him so much weight (presumably before FG happened)and he doesn't care that now, in FG, his 300 million is only getting him kg's.
What else is he to do with all that cash that he has earned above and beyond any daily needs/use.?
Now you answer that AD. What would you advise this guy to do with that extra 300 mil (euro? $?)
(as an aside,AD- how did the other half of his cash portfolio (the second 300 mil) get through the FG transition intact?)
Once Europe builds stuff it must move onward and upward………it will not give you the tokens to use the capital it has built as that would involve a wealth transfer.
This is clear as mud physical proof that we operate within a private money system.
The money system should not be private.
It is or should be a commons thingy.
The oil price will collapse when the supply chains can no longer be sustained.
But the euro market state has also destroyed the previous internal nation state supply chains..........
The Euro has destroyed Europe
All for a internationalist idea ? that has no meaning when you need food in your belly.
Back in April one of my favorite FOFOA commentators queried:
Does the ECB/Eurosystem have enough tools in place now to manage the overall currency supply and the activities of the European banks to ensure that they cannot frustrate the pursuit of the ECB currency stability mandate?
In follow up to some of the disucssions of this issue on the blog from this time period, as expected:
E.U. Leaders Hail Accord on Banking Supervision
BRUSSELS — E.U. leaders gathering here Thursday for their year-end summit meeting hailed an agreement to place euro zone banks under a single supervisor, calling it a concrete measure to maintain the viability of the currency as well as a step in laying the groundwork for a broader economic union.
The pact was hashed out in an all-night session of finance ministers that ended Thursday morning after France and Germany made significant compromises. Under the agreement, between 100 and 200 large banks in the euro zone will fall under the direct supervision of the European Central Bank.[...]
Greece and Ireland face a collapse as they no longer have any internal systems.....
Why
In Irelands case a boom bust as far back as the 70s caused by the Snakes export of capital as a result of their internal wage deflation
The post 1986 bubble was also a euro event to a large extent although $ based multinational operations played a very important part.
PS Currency itself is a metaphysical thingy - the collapse is in the internal physical systems which is a result of the euro as it seeks to replace skilled & unskilled labour with oil capital.
Indenture; Q: "What am I missing?" A: nothing.
If they were going to do something they would have done it already......
The UK is hooking in the Rhine / Rhur industial complex with much increased real goods deficits.......
It no longer wants income from the PIigs....
Irelands physical economy is a mess , so is Spains.....
http://trueeconomics.blogspot.ie/2012/12/13122012-irish-mortgages-arrears-q3-2012.html
But mortgages are not the problem - the problem is that even now they have not produced money tokens to pay off the malinvested debt --- they are happy for countries to have infinite negative money supplies !!!!!!!!!!
This is what really damages a economy , the mirror image of the credit hyperinflation.
In a deflation you cannot use the goods baby.
There is now a titanic deflation building ....
How come they have not stopped it already ?
Image a bus that goes unused.
A pupil just out of collage that begins to atrophy ?
That real wealth gone up in smoke.
Why have they not stopped it already ?
WHY ?
IMHO,
The wall most people hit when it comes to the question of "who will buy or save in gold at $55000" is a matter of perception. It comes down to this consumption-based mentality many of us have of "more is better". More is not better, it is simply more:) A gram of gold will store as much value as it needs to, to satisfy the needs of savers. The less weight/size, the better.
This applies to using silver as a savings medium as well.
jojo, (and others)
What else is he to do with all that cash that he has earned above and beyond any daily needs/use.?
portfolio diversification. Not everybody is a one-asset-bug lunatic. So if during the rise to 55K his gold partition rose from 50% to 99,8%, why need more exposure to gold? Let's call that marginal utility of a single asset allocation?
Well, what would I do? Let me think of something sick....
1.) I would sell half the gold (hoping some religious jerks hold up the price while I am selling) and buy BlackWater, the FED, the SNB and the senat&congress.
2.) Raid and nationalize gold, so my 50% offshore gold will be even more worth
3.) rinse, dry, repeat :D
Greets, AD
SleepingVillage / Motley Fool / Others
Being honest, what percentage of each of the following three would you attribute to your personal reasons for holding Gold:
0-100% Stable store of value
0-100% Potential for real gains (17%/year bull market trend)
0-100% Potential for a upward revaluation (Freegold, etc.)
Also feel free to comment on the discussion Michael H and I have been having, if you have any input.
athrone,
may I add:
[1%]....
[1%]....
[1%]....
[97%] getting out of the way of socialist totalitarian sociopath chimpanzees.
Greets, AD
Regardless of one's view of the messenger, AD makes a salient point. Giants do not hold 100% in Gold. I'd be surprised if any held more than 10-25% honestly. Most are likely to own productive assets (entire companies, shares) or land (luxury real estate, timber, etc.)
If Gold were to go up in value 20-30x, the majority would be selling not buying because their investment allocations would smash through re-balancing bands. At the very least new funds would go into other assets for a long, long time. If everyone is selling [or nobody is buying], what is sustaining the new market cap of $300T [that is now twice the size of the combined world bond and stock markets].
Athrone
Your question lacks the key concept of time.
Now. BG (Before freegold)
1. 0% Because it is not stable at present.
2. 20%
3. 60%
4. Other unspecified 20% but eg. depriving current system if my capital
Later. AG (after freegold)
1. 99%
2. 1%
3. 0%
Not that I am saying my size holding would remain constant. I will add and remove as per rational analysis of my needs over time.
But this gives some answer as to my reasons in each scenario.
TF
Some very interesting British trade data which could mean something very big or very small (silver as a close Gold proxy)
Gold stats are top secret.
Notice the 2009 data - silver in 2010 took off
But 2012 movement are much much bigger.
Silver trade balance UK (£ millions)
Y2002 : -165
Y2003 : -3
Y2004 : -80
Y2005 : +87
Y2006 :-577
Y2007 :+232
Y2008 :+1,169
Y2009 : -1,560
Y2010 : -108
Y2011 : -451
Ok now look at Y2012 so far – a different beast, so far at least.
Q1 : -473
Q2 :-1,372
Q3 : – 1,256
October : -440
http://www.ons.gov.uk/ons/rel/uktrade/monthly-review-of-external-trade-statistics/october-2012/index.html
MF,
I'm close to your percentages!
AD and MF,
I'm with you guys with approx. 30% in the "Fuck you" category (#4).
/Burning
Athrone
To your next comment.
In the present economic system it is difficult to differentiate between savings and investment.
Most giants diversify assets in their savings portfolio simply to ensure return of capital, rather than return on capital.
If they have confidence that gold as focal point suffices for their savings(not investments) then diversification is unnecessary.
TF
Ps. Remember that the reason for diversification is to reduce risk.
If today you are not investing any percent of your assets in something intended as a "Stable store of value" why would you in the future?
If you performed a poll, I think most would prefer real gains to a stable value.
Burning
Yeah, well. They are ballpark figures. My level of "fuck you" category differs as my mood changes on a daily basis. :P
I also included it to cover other reasons that play a small part. Such as not being a jerk. :P
Cheers
TF
athrone,
Most hold paper gold, which won't enjoy the same fate as physical. Most won't see this rebalance (at least in the way you described). Also, what are they going to go into? In the post-FG world the currency credibility (in regards savings) has be decimated.
athrone
I am curious. Please point me to any asset class you are certain will exactly preserve nominal value of savings through the coming financial crisis.
TF
Motley Fool,
I am not saying such a medium exists, only that your [psychological] reason for holding Gold [at present] is not to provide stable value, nor to even achieve moderate returns.
Gold is just a tool. I believe an investor's psychology affects their selection of assets, not the other way around. It seems hard to imagine an investor switching from mostly speculation to mostly zero-return savings just because the function of a single tool changes.
Hi JR; By the way, Jeorg Asmussen had said only a few days ago
that he couldn't envision this agreement on WHERE the banking
supervision authority would be administered (ECB vs a separate
authority) until early in 2013. He ALSO said that the operational
framework and complete functionality would not be ready until
early in 2014. I cannot envision any "trigger pull" until all these
elements are in place. That should leave at least 13 more
months to "keep stackin'". Of course, other events may intrude
between now and then. FWIW
Personally, I don't think anyone [giant or shrimp] is looking for stable value. I think everyone would prefer real returns. The only reason anyone even considers an allocation of stable value is to reduce the risk from investing in volatile [productive] assets.
Giants have less need to reduce such risk, as a result of their immense capital and ability to diversify over so many sectors/regions. It seems [to me] that a medium which promises stable value would not be very useful to someone with a large capital pool.
I don't see this changing with Freegold.
athrone
I can only say that my experience in this regard is that people are way more risk adverse than you imagine, and that only grows as one gets older. In talking to hundreds of people as financial advisor, I was still constantly surprised at how risk averse they were.
I'm younger, so yes, more likely to take risk, and also it does depend on personality.
This means I am more likely to invest than save at this stage of my life.
However most people, I think, honestly, just want to preserve their savings.
Today one has to take risk to even have a chance of doing so.
Investment is not saving.
TF
I'm pretty much with MF and Burning, except my +-20% "Fuck you" is maybe more of " I don't give a shit, now go fuck yourself":)
AD,
Man, you gotta be the most negative/grouchy dude I've ever met! I do respect and admire your level of angst a bit in a way, though. I don't care much for socialists, freeloaders, thieves, liars, etc either. I just feel your hotheadedness clouds your judgement a bit. To each his own.
If you could poll the worldwide "Giants" with that same question, I don't think you would see a desire for Stable Value very high on the list.
There are other reasons a Giant would want to hold Gold though, such as: anonymity, taxes, and political/social danger.
athrone
Will all due respect, I think you are wrong.
I will, for the third time say that investment and savings is not the same thing.
For savings I can absolutely see them wanting that.
Investment is something else.
Now, as to the ratio's of those allocations with their excess capital, that may differ from giant to giant and person to person.
TF
By the way, here is my answer:
30% Stable store of value
60% Potential for real gains
10% Potential for an upward revaluation
Honestly, if Freegold were to occur it is very unlikely I would buy any further Gold.
Motley Fool,
I agree completely savings and investments are not the same thing. But when you consider a portfolio as a whole, what you see from the outside (black box) is something that the holder is hoping will show a real gain, do you agree?
From that perspective all portfolios are [net] investments.
-athrone
That is not necessarily true, no.
Investments bear risk. As more capital is allocated towards investments, returns on risk taken decline. It becomes counterproductive at some point to increase investments which only increase risk, while not showing gain.
When you have ridiculous amounts of money coming in, more than you know what to do with, then more investments are not always sensible in light of the above.
Humans love risk free returns. On that I will not argue. Sadly there is no such thing (unless you happen to be gaming the system and someone else takes on your risk while you reap the rewards :P ).
TF
Motley Fool,
It's not so much about risk-adjusted returns as it is ability to take risk. If you compare a Giant with $300M living a $1M/year lifestyle vs. a Shrimp with $1M living a $50k/year lifestyle who do you think has the ability to take more risk?
The Giant has a 300x safety margin while the Shrimp has a 20x safety margin. Larger capital pool relative to expenses gives you the ability to take more risk. For this reason, I think Giants are less concerned with diversifying for stable value / reduced risk. They can afford to invest 90% of their wealth into productive assets, whereas a [prudent] Shrimp probably cannot.
-athrone
athrone
$300 million is not really a giant in my books. Think bigger.
Think... net income of $1 billion daily. What would you invest it in?
At what point would investment become counterproductive?
TF
Motley Fool,
"When you have ridiculous amounts of money coming in, more than you know what to do with, then more investments are not always sensible in light of the above."
This is another assumption made in the Freegold thesis, but I am not sure it is true either.
Would you agree the system is working as-is? That is, are you aware of any Giants who are failing to successfully store their wealth a present?
Oil is the example of a Giant cited by Another.
Looking at worldwide Oil consumption I see a worlwide total of 82M bbl/oil per day. At $109/bbl that is $3T/year. What evidence is there of an issue storing $3T/year given the market cap of the world stock market is valued at $70T -- not to mention the bond markets ($100T) gold market ($10T) and global real estate ($XXXT?).
What evidence is there for Giants who have so much money they can no longer invest in assets other than Gold?
athrone
I offer some castles for your consideration.
TF
When your wealth is such that it can easily satisfy any worldly desire you may have many times over as well as that of your progeny for many generations to come, why would you wish to put more than a trivial portion of that at risk?
Motley Fool,
The qualitative argument is persuasive. It does seem like at some point you wouldn't "know what to do with it" because it is so much more money than we are used to. But $70T of market cap is also much more money than we are used to.
How do you reconcile that assumption with the quantitative numbers for market cap? Even the largest Giant (Oil) is only a fraction of a % of the growth in worldwide wealth.
poopyjim,
What risk is there really in owning 100 companies on 6 continents worth $100B total. Or 10M acres of timber land in a dozen countries? $500M in 20 different currencies? At some level of diversification and capitalization, the traditional notion of risk just doesn't apply.
Motley Fool,
From "Think like a Giant" you linked:
"Now, if you’re a giant on the Rothschild scale, and you’ve got $100M per day coming in from your various businesses, what are you going to do with all that money?"
What would you do with $100M/day coming in from your business? That sounds like a lot of money, but lets look at the numbers. $100M/day is $36B a year. If we assume a 20% return on assets that is a total market cap of $180B for all the businesses they own. Certainly a Giant right?
Well AAPL has a market cap of $498B. If they are earning the same 20%/year they have to spend $100B a year, or $273M a day. What do they do with all this money, buy Gold? Buy bonds? Buy stocks?
No, they do the same thing most businesses do -- reinvest in their own business. Why would the business the Rothschild's own be any different?
These are the types of assumptions that sound great, even persuasive when taken only at face value. But when you compare it to the market cap of other assets it's not that hard to explain where the money goes.
What risk is there really in owning 100 companies on 6 continents worth $100B total.
A whole lot. You're facing counterparty risk, political risk, risk of being overtaken by competitors, economic downturn, etc. etc. etc.
Or 10M acres of timber land in a dozen countries?
The risks are obvious: confiscation/taxation/depletion/fire etc.
$500M in 20 different currencies?
Guaranteed loss.
At some level of diversification and capitalization, the traditional notion of risk just doesn't apply.
Not so when paper burns.
I would suggest to you that the situation is the opposite of what you're setting forth. When you reach a certain level of wealth, it becomes more about preserving your existing wealth and perhaps augmenting it without putting your existing wealth at risk. Shrimps are more prone to making gambles as they have nothing to lose and everything to gain.
Giants don't become (or stay) Giants by putting their money someplace that achieves Stable Value, they become Giants by re-investing their money in their own businesses -- or looking for other, better businesses to invest in.
If you own a businesses which earns 10-20% a year, why would you save in Gold when you can re-invest in your business, where you have full control?
That's how you become a Giant in the first place. That, or your great grandfather won a war or had slaves 500 years ago.
poopyjim,
You are putting forth an unrealistic notion of risk. If we have WW3 or a asteroid hits the planet, yes those assets may be unsafe. By and large, this is not the case which is why I suspect most Giants only hold a small portion of their assets in Gold. That is my qualitative (gut feel) argument.
Here is the Quantitative argument: The market Cap of Gold is $10T and Stocks/Bonds are $170T. So tell me please, how can you argue that the net allocation of Gold is > 5%.
So far, the only arguments on the other side are "gut feel" type statements. Where are the real numbers?
-athrone
Athrone, you really are stuck in your ant paradigm. There's only so much reinvesting in a business that one can do; you continue to ignore the time dimension. Instead of posting the same thing over and over I suggest you read Blondies View, Glimpsing the Hereafter, and some more posts.
This is completely wrong: "Personally, I don't think anyone [giant or shrimp] is looking for stable value. I think everyone would prefer real returns. "
Giants don't become (or stay) Giants by putting their money someplace that achieves Stable Value, they become Giants by re-investing their money in their own businesses -- or looking for other, better businesses to invest in.
When you're a giant, you've already done all that and then some. So what do you do with the massive surplus that you still have even after that?
And yes many giants simply inherited that status.
The market Cap of Gold is $10T and Stocks/Bonds are $170T.
Is that what gold is really worth? Is that what stocks/bonds are really worth? Do you think a giant can go out and buy a few hundred tons of physical gold at today's price, no sweat?
Jeff,
This post requested for arguments against Freegold to be brought forth. I have raised several. Saying I am stuck in an ant paradigm, I think, does not address my arguments.
Your reply "there's only so much reinvesting in a business that one can do" is another assumption, but where is the proof to substantiate it? From what I can tell, that statement is not self-evident so it must require some sort of proof or backing.
It seems that assumptions here are only being defended with more assumptions. If that is not the case, please, provide some kind of evidence to support them so we can advance the discussion.
-athrone
As an aside my uncle is a mini-giant, and he's constantly loading up on collectibles as a form of wealth preservation. I don't know if he has much invested in simple gold bullion, but he has several million dollars worth of historic coins, antique firearms, artwork, etc.
Whether or not they understand gold, it does seem that the very rich intuitively seek items in the physical plane as a means of preserving wealth.
poopyjim,
Those prices could be over or undervalued, but what other data are we to go on?
I have no idea what the global real estate market is worth, but I assume it is in the hundreds of trillions. For the sake of argument lets assume $100T. That gives the average allocation for a world portfolio at:
Bonds/Currency: 35% (100T/280T)
Equities: 25% (70T/280T)
Real Estate: 35% (100T/280T)
Gold: 4% (10T/280T)
Interesting that it is pretty close to the ancient rule of thumb of 1/3 land 1/3 real estate 1/3 reserves.
Given the UST market is only $15T out of the $280T+ available (5.3%), the USG could default and 95% of the world's wealth would be unaffected -- without the need for any dramatic Freegold-like events.
If there is something wrong with these numbers please tell me.
Typo: 1/3 land 1/3 business 1/3 reserves
athrone
I tire of repeating myself. Savings are not investments.
Do you seriously ascribe to us the position that under FG all land and all business would have no value, all value accruing to gold; that no investment would take place, and that all net income would go towards saving (in gold)?
TF
Athrone,
It seems that questions answered are ignored. When your question is answered you simply ignore it and say the answer is assumption. AD does the same thing, it's a way to ignore things you don't like.
FOFOA: In the mid 1970's, the finance ministers of both Kuwait and Saudi Arabia stressed that their needs were only to provide for the welfare of their citizens, and that oil in the ground is better than paper money...
Straight from two ministers of finance, "We would rather keep the oil than have the paper money." We thank you for that insight.
See, Athrone? Not everyone is interested in just making MOAR money. I look forward to your well-thought response.
Ps. Statement - Apple reinvests all their income in their business. Reply - http://www.zerohedge.com/news/2012-09-30/presenting-worlds-biggest-hedge-fund-you-have-never-heard
Motley Fool,
I'm sorry for the language, I do not know how else to label a mixed portfolio of savings and investments other than "investments."
If the claim is that in Freegold, the market cap of Gold will rise from $10T to $300T, and the present market cap of all these assets is only $280, then that seems to be an incongruity unless somehow real wealth will be instantly created with the transition to Freegold.
I personally read it to mean that people would stop primarily saving in paper (currency / debt) and save in Gold. So some percent of the $100T Bond market would shift to Gold. That could cap the gain at 10x with a 100% switch and 5x with a 50% switch, though. Is this incorrect?
-athrone
Motley Fool,
Thank you for your replies. Here is a link to consider:
http://www.forbes.com/sites/timworstall/2012/10/02/spouting-nonsense-about-apples-secret-hedge-fund/
Part of a business is maintaining cash on hand to deal with recessions/downturns as well as to provide money for acquisitions. This is all part of re-investing in your business.
-athrone
Athrone, you should add Freegold in the proper perspective and How Can we Possibly Calculate to your reading list. We aren't talking about savings flowing out of one thing into another.
FOFOA: This transfer of wealth that is coming is not a direct and equal transfer. It is not like pouring one pitcher into another. It is more like flipping a switch on the virtual matrix. Turning off the monetary plane that hovers over the physical plane and claims to tell you how much "stored purchasing power" everyone has. When you turn it off, all that purchasing power disappears in a flash. And then what lies beneath is exposed in daylight, the real physical world. No real capital is destroyed, only the myth is destroyed. But true capital is exposed and revalued.
And as I said earlier, true capital as a storage for purchasing power has no limit whatsoever to its total size relative to normal prices. This is because it uses the time dimension with unequalled confidence. Absolute confidence allows it to stretch as far out into time as it wants. And this confidence is a self-reinforcing, self-sustaining feedback loop in the same way that a faulty store of purchasing power is self-limiting by its intrinsic lack of infinite durability.
So when the plug is pulled on the matrix and the pitcher of water disappears, how much water will be revealed in the physical plane beneath? I guess this is the $50,000 question, yes?
athrone
Thanks for the response and link.
I will simply 2nd Jeff's suggestion.
As I noted to tyranny on his blog, the bulk of holdings is not meant to be spent in the present, but only in the future. So only current flow of gold relates to current assets at any one point.
TF
Michael dV,
If you really want to see a disease that got it's butt kicked in the past 20 years you should see what happened to poor ole rheumatoid arthritis.
Does this also apply to arthritis with severe neurological effects?
Michael H,
In regard to my FAIL scenario, as you rightly discern, aint gonna happen without co-operation from the Europeans.
Fascinating reads, all tying into the oil backed dollar and the efforts to kill it. Not exclusively freegold-ish, but likely of interest to the forum.
http://www.canadafreepress.com/index.php/article/51346
http://www.canadafreepress.com/index.php/article/51400
http://www.canadafreepress.com/index.php/article/51679
I enjoyed the back and forth on savings investment - made me think.
I like to split this way: the value of gold to giants won't change nearly as much if at all as to most ants. I'm talking the SA and the sovereigns. FOFOA has shown this, and there is plenty of evidence.
So if this ant made the percentage table, it would look back to front if I use Price, or value before RPG, but not after.
BG
85% Stable store of value
10% Potential for real gains (17%/year bull market trend)
5% Potential for a upward revaluation (Freegold, etc.)
5% Stable price
10% Potential for real paper price gains (17%/year bull market trend)
85% Potential for a upward repricing (Freegold, etc.)
AG
85% Stable store of value
10% Potential for real gains (17%/year bull market trend)
5% Potential for a upward revaluation (Freegold, etc.)
This percentages don't change with the weight of gold in a portfolio
In a freegold world, I'd be much more inclined to risk capital for return.
as for "catagory 4"
0% - If we go down that path, forget free ownership of anything, survival comes first.
athrone,
Regarding your comment at December 13, 2012 1:00 PM.
If Gold were to go up in value 20-30x, the majority would be selling not buying because their investment allocations would smash through re-balancing bands. At the very least new funds would go into other assets for a long, long time.
+100
IMHO capital would move to rebalance portfolios. Real capital not debt masquerading as capital.
If somehow the "socialist totalitarian sociopath chimpanzees" can be prevented from meddling it could be a much-needed reallocation of capital to productive uses and migration of the humans needed to apply it.
costata
arthritis by definition involves joints. The neck and lumbar spine can pinch nerves but that is an entirely different process than RA .
athrone,
Businesses, all businesses, have saturation points beyond which plowing more money into said business is utterly counterproductive. The number of examples of business concerns that reached the limits of their ability to expand, and yet did so to their detriment, is too long to list.
And to proffer that, short of an asteroid strike, there are not "realistic" risks of the sort that poopyjim listed is, quite frankly, silly. The annals are full of evidence attesting to large and small concerns suffering mightily at the hands of nationalization, confiscatory tax policies, terrorism, war, and currency collapse.
You do yourself no service by eliding genuine risks as being of no consequence.
BTW, poopyjim I congratulate you on coining an oxymoron, mini-giant, reminiscent of, oh, say, jumbo shrimp.
tyrannyofthepresent
on your Cultural Salience of Gold and Silver post,
specifically The Dualism Dimension...
i would like to know why Genesis 2:10-12,
would not be precedent..
specifically as to foundational law or that which has been laid/presented first... which omits silver
10 Now a river went out of Eden to water the garden, and from there it parted and became four riverheads. 11 The name of the first is Pishon; it is the one which skirts the whole land of Havilah, where there is gold. 12 And the gold of that land is good. Bdellium and the onyx stone are there.
Jeff (and others)
In response to the quote "This transfer of wealth that is coming is not a direct and equal transfer. It is not like pouring one pitcher into another. It is more like flipping a switch on the virtual matrix."
If I am following you, the idea is not that money will flow from other assets, but rather the paper and physical price will diverge (unplugging the matrix) and the resulting physical price will shoot up 20-30x.
How does this occur?
I am calculating the market cap of Gold by assuming 165k mt and $1700/oz. This assumes a physical only market (there are 165k mt and every ounce is real).
If the Gold market is actually much larger, I am not sure how much larger, but I have seen it said on this blog perhaps 10:1 paper to physical that implies there are not 165k mt but effetively 1650k mt of "Gold" in existence. That is to say, the real market cap of Gold is actually $100T not $10T. That is a $90T discrepancy!
First, that is a very large sum of money to be unaccounted for.
Second, if the "paper burns in a fire" as indicated by Another, that is essentially an MF Global event is it not? So the $90T of paper gold vanishes overnight. Everyone who was holding it loses, everyone who wasn't is unaffected.
So once that "fake Gold" vanishes (matrix is unplugged) what is the mechanism to raise the market cap of the Gold market back from $10T to $300T necessary for the 20-30x gains as predicted by the Freegold thesis? It seems the magic is somewhere in the "demand" which suddenly increases as a result of everyone thinking they had physical but not actually having it.
Well capital that "burns in a fire" cannot purchase physical Gold, so from what source will the massive inflow stem from if not other assets [real capital that actually exists]?
@athrone
Well capital that "burns in a fire" cannot purchase physical Gold, so from what source will the massive inflow stem from if not other assets [real capital that actually exists]?
No "inflow" is necessary because gold is already super-charged. Gold bids for dollars. Gold prices all those other assets.
As Another said:
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"
@Edwardo
Thx but I did not coin it! According to google costata used it here and I think others may have used it prior to that. I thought I had stolen it from FOFOA but maybe not.
thank you to those that spent considerable time addressing my query. I will read them again when I have more time and consider my next question.
I meant my last post as "tongue-in-cheek" although reading it today, it could sound 'cranky'. That was not my intentiotan :)
costa and MikedV, arthritis sucks, my 22 year old son was diagnosed with Juvenile psoriatic arthritis when he was 4 years old, it was mega-multi articular and aweful Thankfully he was in remission by the time he was 6. Although recently he's been referred to a rheumatologist again because of unexplained inflammation. He's a student AND an MMA fighter (very hard on ones joints). I shake my head and wonder!!
Joe Yasinski,
just another cloak and dagger story? Or are you perhaps trying to say that you find this stuff plausible.
I don't. In particular, I don't agree with the role ascribed to Saudi Arabia. If you would leave the Gulf alone, it would take a few years, and Saudi Arabia and Iran would peacefully coexist and eventually do good business with each other. There are enough oil profits for all of them. No need for any infighting. What would be Saudi Arabia's interest in messing things up? They are one of the most vulnerable if the region is destabilized. The quieter and the more stable the better. I cannot see any advantage for Saudi Arabia to destabilize Syria. That claim is plain nonsense.
But when your linked article gets to this:
One of the biggest threats to the United States right now is an attack on the U.S. Dollar. At this moment, the fate of the U.S. dollar hangs in the balance. What is the U.S. dollar backed by? Gold? Silver? Neither. Some say the dollar is not backed by anything, and although they might be technically accurate, it’s not entirely true. At this moment, the dollar is backed by one important thing, which is oil. The stability of the dollar rests on the free and unimpeded flow of oil. Once that is interrupted or even threatened, there is a high degree of risk that the dollar will collapse.
it becomes outright weird. Yes, what's at risk is the U.S. dollar. But not because the flow of oil might get interrupted because of a regional war, but rather because Saudi Arabia might decide to sell their oil for Euros (or gold) rather than dollars.
Remember. Saudi Arabia is still the swing producer who can control the dollar price of oil to quite some degree. Once they decide to switch currencies, this would be the beginning of an avalanche that nobody would be able to stop. So if the U.S. government is afraid of one thing, then it is Saudi Arabia switching currencies.
What would help the U.S. right now? It is a constant gold/oil ratio, and for this the dollar price of oil needs to be kept stable at an artificially high level. So if the U.S. decided to mess around in that region, then they would try to make sure that additional supply of oil does not reach the market. I can think of a few countries and recent conflicts that could be attributed to this goal.
Conclusion: Your linked article has it bass ackwards.
I'd like to challenge you directly: Why are you posting these links? Do you believe in this story or do you have an agenda?
Victor
PS: The linked story could come right from J. Rickards who has tweeted similar accusations against Susan Rice.
Joe Yasinski,
Thanks for the links.
Edwardo,
http://shrimpscape.com.au/
The Dork of Cork,
Regarding your comment at December 13, 2012 1:04 PM.
Gold stats are top secret.
The UK doesn't record LBMA gold bullion flows in its trade statistics. Neither does Japan (TOCOM) or Switzerland if memory serves me. They treat these flows of gold as transitory not imports/exports like other commodities, manufactured goods and so forth.
I wrongly assumed that they must treat silver in the same way. It appears that they are treating silver the same way as any other commodity in their trade stats. Thanks for the heads-up.
AD, athrone et al,
India provides a good illustration of the reaction of gold savers to price rises in gold and saving patterns in general. In the short term purchases are deferred if lower prices are anticipated. If the price of gold is expected to rise then purchases are brought forward.
However, over longer timeframes the pattern that has emerged is that gold demand in India is fairly constant in rupee terms even though the quantity of gold acquired in volume terms declines as the price rises. The pattern is long term accumulation.
Compare and contrast the demographics of India and Japan. Japan's pattern has been going in the opposite direction over the past few years. At the risk of over-simplifying the situation - the young accumulate savings and the old dishoard their savings to fund their retirement.
Both countries have a long saving-culture history as does most of Asia and AD's native Germany. At much higher gold prices I don't expect this to change. Provided gold is seen to be a good savings medium I don't see why any of these savers would cease to save.
None of this precludes the possibility that a saver may decide to accept higher risk, cash out some gold and invest their money in something that offers more excitement. I'm arguing that this would not be determined by the price of gold. It would a judgement on the relative merits of savings versus investment.
If we need a further example of savings-culture at work note the rising level of bank deposits in the USA. Despite record low interest rates delivering negative real interest rates. Likewise the safehaven flows of money from jumbo shrimps, micro-giants and mini-giants into Ts and bonds.
Many here would argue that the confidence of these savers in US dollars and bonds is, err, misplaced but the pattern of behaviour is consistent. And it fully supports the arguments above to 'athrone' about the human tendency to risk aversion and the experiments in nominal loss aversion I linked in a recent thread.
And, by the way, the 'teaser' that it is the U.S. funded Syrian rebels who might use chemical weapons and then blame it all on Assad, that may still turn out to be true (we will see - well, better let's hope this turns out to be false, too). But even this doesn't make the second half of the story any more plausible.
Some time ago, I wrote that I was waiting for a scapegoat to be set up. Something or somebody on which you can blame the decline of the dollar. The first of such stories are now popping up, but still rather inconsistent.
A few days ago, Mervin King warned of interventions in the forex market to pursue domestic monetary goals. Jim Rickards always claims the Fed wanted to lower the exchange value of the dollar. Hell, no, if they managed to actually accomplish this, it would all be over rather quickly. They have to keep a poker face and pray that foreigners still buy dollars for as long as possible. Then this somewhat dubious Canadian website. Not very consistent all this ...
Victor
Michael dV and Wendy,
Thanks for the replies about arthritis. I get lost in the terminology. The young lady's condition that prompted my question is still not fully diagnosed. Axonal neuropathy and vasculitis appear to be certain and possibly lupus arthritis. Still awaiting final test results. A Doctor friend of the family described her as "complicated".
But let's get back to freegold.
AD,
Not everybody is a one-asset-bug lunatic. So if during the rise to 55K his gold partition rose from 50% to 99,8%, why need more exposure to gold? Let's call that marginal utility of a single asset allocation?
and athrone,
AD makes a salient point. Giants do not hold 100% in Gold. I'd be surprised if any held more than 10-25% honestly. [...] If Gold were to go up in value 20-30x, the majority would be selling not buying because their investment allocations would smash through re-balancing bands.
Let's distinguish small giants and big giants here. A small giant would be anyone up to the size of Bill Gates. A big giant would be a small oil country or the CB of some other major exporting country.
I basically agree with your view as far as it concerns small giants, but even there, I'd add one caveat. They will be selling some gold only if they can find good value elsewhere, for example, cheap stocks after a serious crash, cheap real estate after mortgage funding has been squeezed out of the housing market, or even corporate loans when companies cannot get funding elsewhere and are prepared to pay serious interest rates.
For a big giant, these markets can be too small, and some of the surplus still needs to go into gold. In addition, if the giant is a state agency or a sovereign wealth fund, there will be political limitation on how much they can invest, say, in the U.S. stock market. No country will want strategic companies controlled by foreign governments.
MF,
Please point me to any asset class you are certain will exactly preserve nominal value of savings through the coming financial crisis.
1) Stocks. Ownership of businesses. Provided that you can buy/have bought them at a reasonable price and that you can afford to be patient. U.S. stocks are presently about 50% overvalued - that you would have to be prepared to lose on average and in the long run. But if you are a giant, then you bought a long time ago. And perhaps, if you wait, there may be a very nice opportunity coming up. (Makes sense only to those who know what they are doing, but many small giants are certainly among them).
2) Euro cash and Euro bank reserves. (Up to the 2% inflation target) Anyone can do this.
...
athorne,
It seems [to me] that a medium which promises stable value would not be very useful to someone with a large capital pool.
Again, for small giants, I agree with the general direction. The more wealthy you are, the more you can diversify and the less you care about the volatility of any single component of your wealth. Fine art was mentioned. Do you realize how volatile the auction prices of masterpieces are?
But why cannot stand any volatility at all? It's the shrimps and those pension funds that invest money for the shrimps. It is also AAPL with their $100bn cash position that they haven't invested in their own business (which is already fully funded).
So who is going to buy all the gold (that the small giants will be selling)?
1) Central banks. Firstly, the ECB because they will have to sterilize a fantastic inflow of capital. Secondly, all central banks that don't have enough gold when the panic starts.
2) Institutional investors, from pension funds to the cash position of Buffett's BRK or even AAPL. They might opt for Euro base money as well (provided that's possible and there are no capital controls in place), but even in that case, the ECB would do the gold buying for them.
Victor
MF, you wanted to say "preserve real value" rather than "preserve nominal value" I suppose.
Victor
poopyjim,
You said "No 'inflow' is necessary because gold is already super-charged. Gold bids for dollars. Gold prices all those other assets."
I understand the words, and again it is easy to sort of fall into them, but how does that work with numbers?
Real wealth is only created through production. If Gold is bidding for dollars, where are those dollars coming from? Yes, you could price Gold at $55,000/oz tomorrow and watch as it goes no bid (because nobody is willing/able to buy at that price).
Maybe if you walk me through an example with numbers it will make more sense. If you are talking about the market cap going from $10T to $300T (or vaporizing from $100T to $10T and then jumping back up to $300T) without any inflow from other markets you aren't talking about real wealth creation, you are simply talking about the devaluation of other assets -- how else can you look at it?
victorthecleaner,
You make an important distinction between Small Giants (private wealth) and Big Giants (central banks, governments). The former I think is easier to understand as we are talking about individual psychology and many famous figures (Gates, Buffet) openly discuss their perspectives.
The latter (governments and central banks) are much more complex, so I think a psychological argument will be difficult to apply. Maybe the best you can do is look at the numbers.
From the IMF website there are currently $10T in foreign reserves worldwide. If the central banks/governments all switch their reserve allocation to 100% Gold this would double the Gold share from $10T to $20T, correct?
So there we have the complete liquidation of all foreign reserves, and it only results in a 2x increase in Gold price. This is presently the maximum impact Big Giants can make. So that would put gold at $3400/oz.
From there, what happens? Well if they continue to store their foreign reserves in 100% Gold, the market cap would rise by the annual growth in foreign reserves, right? Looking at the 2001-2012 data from the IMF (same link) this growth appears to be around $0.5-1T a year.
So what you are left with is a 2x one-time revaluation and a ~1T/year (5%) increase in Gold price. This is the contribution from the Big Giants only.
However, we already mentioned that Small giants and individual investors are primarily interested (and able) to invest in productive assets or land. It is very hard to determine their impact as they don't publish public data, but if we use the present as any indication, it would be roughly 5% of global assets.
-athrone
Off topic but this should interest the China watchers (my emphasis):
Beijing has announced a ‘visa-on-arrival’ scheme for the nationals of select foreign countries. 45 countries have been listed, including the entire Europe and North America and Japan and Australia and New Zealand. Yes, the group we’d call the ‘West’.
Yes, it includes the United States as well, which is to the best of our knowledge “rebalancing” to Asia.
... Then, there are four Latinos, two from West Asia, Russia, ROK, Singapore and Brunei, etc. I pondered over the list for a while. Truly, it isn’t a very ‘friendly’ list. No South Asians in the list!
.... It [China] wants to attract the affluent nations, people with the deep pockets. And it doesn’t want troublesome folks who can’t comprehend the essence of good life.
Why else Brunei and Qatar — and not Saudi Arabia? Indeed, part of the reason could be that the principle of reciprocity is at work.
Not Saudi Arabia VtC. Perhaps Wahabbism doesn't appeal to China.
http://blogs.rediff.com/mkbhadrakumar/2012/12/10/india-china-ties-in-the-era-of-globalization/
Free gold.Where have i heard that before?
http://blog.milesfranklin.com/gold-standardor-free-gold
Havent read comments , so not sure if this has already been posted here.
Regards
Ozzy
For kicks decided to compare the change in Global Reserves vs. the change in Gold price by year. Data from the IMF and FRED Graph.
1998 1.67% -0.69%
1999 8.40% 1.05%
2000 8.65% -6.21%
2001 5.89% 1.47%
2002 17.47% 23.91%
2003 25.63% 21.93%
2004 23.91% 5.04%
2005 15.27% 17.12%
2006 21.63% 23.78%
2007 27.62% 31.65%
2008 9.56% 3.47%
2009 11.15% 27.63%
2010 13.46% 27.72%
2011 10.14% 11.63%
Fighting Gael,
Genesis. Subject: geographical location. Point: there is gold in the ground there.
Proverbs. Subject: wisdom. Point: it is valuable like gold and silver.
No law, no precedence, nothing religious or metaphorical at all. Just a writer 3000 years ago demonstrating the salience of gold and silver *in his mind* as valuables. It is one of dozens I could have chosen from the Hebrew OT and more in the Greek OT (a thousand years later). Or from mediaeval writers (a thousand years after that) or from modern pop songs or computer games (another thousand years).
But in 2100, we are expected to believe: no more and never more.
Forgot the columns:
Year | Change in Global Reserves | Change in Gold Price
Fighting Gael,
Typo: Greek NT (obviously).
And 20th century pop culture: apologies to Spandau Ballet.
VtC,
"A big giant would be a small oil country or the CB of some other major exporting country."
oh, really? Thanks for the clarification, now I see much clearer.
Which makes the SNB a giant, yes?
LOL, so far as regards to Freegold.
Greets, AD
poopyjim,
I could understand you and some of the other discussants becoming a little frustrated when 'athrone' comes out with statements like this:
..without any inflow from other markets you aren't talking about real wealth creation, you are simply talking about the devaluation of other assets....
Devaluation priced in gold. LDO that's what this Freegold revaluation of gold is. A devaluation of paper assets and debt that have become grossly over-valued in recent decades.
-- how else can you look at it?
If you wanted to look at it wrongly you could look at it as an asset rotation in a portfolio.
WOW, anyone who was around this blog during the "Hornet's Nest" period may remember how Mish Shedlock conducted himself. Acknowledging his inaccuracies and slurs on FOFOA in the comments section here but refusing to make the same acknowledgements on his blog.
Peter Schiff poleaxes Shedlock in this piece (my emphasis):
http://www.marketoracle.co.uk/Article38005.html
Mish Mike Shedlock Exposed, the Deflation Great Pumpkin
Apparently Shedlock has succeeded in developing an investment strategy that underperforms under both inflation and deflation! So, when it comes to the inflation/deflation debate, no matter which camp wins, Shedlock's clients still lose.
Neat trick Mish.
Why, pray tell, is Peter Schiff going after Shedlock? (My emphasis)
Shedlock then circulated another blog post that was picked up by numerous web sites, in which he accused me of backing out of the debate, presumably out of fear. Even though I informed Shedlock that I never agreed to debate him, he refused to revise his post.
Deja vu all over again!
It's the end of the world as we know it and I feel fine. I have gold but I love silver. I'm usually unlucky in money and love and because you sexy freegolders are starting to make sense, I'd be worried. Though it's fair to say my faith is hedged.
I'm curious if anyone had thoughts as to why there is a 20% VAT on silver and not on gold in Europe. Is it political, social, some powerful jewelers guild, is it to save people from themselves by steering savings towards gold and not silver? It is a curious distinction to an American and I can't begin to reason it with any confidence. I've never known governments or people to be altruistic when it comes to making a deal. So on the face of it, it appears someone wants to dissuade Europeans from silver. And if someone doesn't want you to have it, that's usually a good reason to want it, no? Open to all comments on this minor point.
Thank you for this thread. I don't have any gotchas for freegold as I understand it as best as I believe I ever will and it makes sense on the face of it. "Sure, why not." is my reply. I'm a basic natural law kinda guy. That which mirrors nature, works best. All else exists only through sheer will. I'm hearing a lot of will in this theory though. It's really a big game of timing because nothing lasts. This too shall pass. I do know the little guy has no chance in paper while usurpers continue to prowl. I'm not sure I like their chances in any of this and for that reason I'm still a champion of silver.
PF,
"why there is a 20% VAT on silver and not on gold in Europe"
Because that is the last remaining sensible reasonable tax regulation:
Research the deeper sense on VAT. It is to stear consumables into efficencies.
Silver is mainly a consumed commodity, gold is not consumed and a useless commodity. Got the difference therefore regarding silver vs. gold?
Greets, AD
Hypothesis:
The characterisation of silver as "easier money" stems from the period around 1900. At this time it was appropriate. The idea emerged due to a century of rises in the gold:silver ratio. This in turn was due to reducing and then reversing silver flows into China and accelerating new industrial silver production from the world's largest reserves in the Americas. The root cause for its characterisation as "easy" was this progressive rise in the ratio.
The China flows have gone into reverse. The mine production has reached a plateau. The gold:silver ratio chart over the last three to four centuries shows a clear inverted parabola with the highest peak around 1939 and a lower peak in the 1990s. The trend is now firmly downwards. This commodity based trend overwhelms the relatively short-term rising and falling moneyness in various places.
It is wrong to characterise silver as easier now, since despite huge volatility, demonetisation and remonetisation, the ratio has been tending in the opposite direction for over 50 years. The perception of silver as "easy money" based on the momentum a hundred years ago is wrong. Until the two metals reach a new balance, silver is even harder money than gold.
VtC
Yup.
And I didn't ask to be difficult, but rather so some of those answers could be contrasted with available options.
I'm not quite convinced there won't be a one off devaluation in the euro, cometh the fan.
But there are other things you did not list, which might suffice to store real value.
TF
PS to hypothesis,
Undeclared assumption: both are at least in some meaningful sense commodities. Any official or unofficial monetisation is a secondary characteristic overlaid on this more fundamental characteristic. I am aware that this is a controversial and for some even unacceptable assumption, but at least I have declared it. I expect the characterisation of both as fundamentally commodities would have at least some "big wide world" currency.
PF
I would not call it altruistic. Any gold in a currency zone will help protect the value of that currency. The more gold the people have, the less likely the CB will be forced to sell it's own gold in management of the currency.
Besides which, a lot of people having lost everything makes for a angry constituency, so the nudging makes sense on those two counts.
TF
Tyranny
Yes, silver was the easy money of the past (1900's) and is not the easy money today, fiat is.
As to silver being harder money than gold...I think that argument hinges on the current relative scarcity argument; something silver pumpers are quick to encourage as fact, but that we here see as perhaps not quite so true.
Anyhow yes, today silver is harder money than fiat; and I would argue easier than gold. So it serves neither of the two required roles.
TF
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