Monday, December 10, 2012

Arguments Against Freegold



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:

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Prize Fighter said...

Thanks AD. I'm taking things at face value around here as I don't have much persona history knowledge. I understand your reply and the concept but I don't understand who consumes silver at a retail level. Jaws from 007 films? The blue guy who drank colloidal silver? Street urchins snorting sterling? No, I guess I don't get it. I am trying.

Tyranny, thank you for your posts. I think you raise excellent points and have enjoyed your comments. I've always boiled my personal reasons for silver down to arbitrage, natural law and human nature. Maybe all the same thing but I've enjoyed your comments on the subject as it seems to stem from the same reasoning.

Prize Fighter said...

Thanks MF. That reasoning has merit and I can live with it. I appreciated your candor at Turd's. I like individuals but rarely a crowd. That's when institutions are formed and become self defeating. But whattaya gonna do. I don't think silverbugs dislike gold and many of us have a place for it. Some more than others. What turns most silverbugs off from wanting a discussion with freegolders is the complete disallowance of silver in your theory. "Inconceivable!" rings a bell.

Whatever happens, I do enjoy this discussion and I will continue to read and think on it.

Anonymous said...

interesting interview where the international business editor of The Telegraph, Ambrose Evans-Pritchard advocates Freegold.
It's towards the end of the interview.
http://goldswitzerland.com/europe-usa-will-not-allow-deflation-to-take-root/

Motley Fool said...

PF

Yeah, I understand. I was probably one of the most ardent supporters of silver when I came here.

Still, logic and reason wins out for me over belief and emotion. Even if it takes time. ;)

TF

Ps. Welcome here btw.

Anonymous said...

@ Barry Michaelmore. @ anand srivastava
Thanks for the reply on "free-energy" but you are still thinking with the "strait-jacket" of the present mentality. A bit like anand srivastava who seems to think science is over and finished and that there will never be travel faster than light.

Anyway here is proof that Duggo exists and further proof that "The Sage of Omaha" is not the worst ukulele player in the World.

For your Christmas entertainment I give you ............ Duggo!

http://eyetube.me/videos/405/lullaby-of-birdland

Kieran O B said...

Costata,

Schiff gave one of his best interviews around the time of his original run in with Mish.

http://www.youtube.com/watch?v=eksf2ScG6yU

Motley Fool said...

duggo

It seemed like you really enjoyed doing that. That is, I think, the important thing when making music.

Nice to see you...and a serious personal library you got going there. ^^

TF

AdvocatusDiaboli said...

PF,
"but I don't understand who consumes silver at a retail level."
That's simple. The following logic from the system applies: "Well, if you dont consume it, then why do you buy it?" your answer would probably be "well, I might want to sell it later"

Bingo, if you are buying in order to sell later, you are considered a business, and if you are considered a business in legal terms, you pay VAT at the purchase, but get it back immidiately at the end of the month from the finance office, only the next purchaser would have to pay once he buys from you and so on, until the product is "consumed" at the end of the chain. So none of the traders/producers pays VAT, only the consumer.
At least that's how VAT is handled in Germany (and most other european countries).

But you might ask: What's about all those legal tender coins made out of silver? It should be obvious that nobody will consume those. And your right, therefore in Germany we have a compromise with a reduced VAT of just 7% on legal tender silver.

Okay, now you might argue: Null problemo, I am registering a business. BAD IDEA!!!
Besides huge regulations and state bullying, the problem with a business is, that although you dont pay VAT, but you will pay capital gain taxes, once you sell, on the "nominal profits" (rise in price due to inflation), and those CGT are far north 50% in Germany.
Greets, AD

P.S. And in Germany the finance office tell's you, if you are a business or if you're not (of course always in their favor).

John said...

GOLD > Market Cap

Numerous comments in this current thread make reference to a present gold "market cap" in the vicinity of $10T and proceed to extrapolate that number to relative changes with other assets in a pre and post-freegold world.

My question is to what extent is this $10T a valid present market cap weighting for gold? Does this not measure only physical gold (ie 170,000 metric tonnes times $1700USD) what about all that voluminous "paper gold"?? Where's that in the market weighting? So what is the present market cap of "physical plus paper gold"; isn't that the true number you should be focused now with respect to gauging any future changes/potential values?? We may already be in that $100T zone for "gold" now.

FOFOA said...

I quite liked this one, Duggo! :D

FoNoah said...

My friends, verbal diahorrea is the very essence of trolls. Only as comments are moderated, is regularity restored. This is where all these Free Speech activists get their direction. Not seeing that hyper-commenting is the process of stifling meaningful argument at all costs, even drowning it outright in noise. Debate is impossible on today's blogger terms because policy will allow the printing of unmoderated comments ad infinitum, if necessary, to drown out every last bit of debate and dumping the rubbish “arguments” on the blog’s front lawn! (smile) Worthless arguments, of course, but no debate in meaningful terms! (bigger smile)

I have been away for only a few days, and already there are 410 comments. Impossible to catch up for the working man/woman . . .

Greetz

The Dork of Cork said...

@Costata
Well they put silver between precious stones and aircraft in their monthly trade stats.....
But the UK no longer has much Industry (since the big bang) although maybe some hi tech stuff.(aerospace)

Its worth noting that silver was in the top 30 of imports /exports for the first time in 2011.
(see near bottom of link)
Also works of art & precious stones are up in the top 30

Top 30 imports

No30 : Silver : £2,593m
No27 : works of art : £ 2,953
No20 :precious stones : £5,565

Silver is a proxy for Gold movements in the UK (in my opinion)

Beer Holiday said...

@ Duggo really liked it, it was pretty tight as well.

I'd like to watch freegold roll in (a more few years of cheap gold would be nice). That would blow me away, but I wouldn't be surprised and in fact expecting it.

With true free energy, I'd have to begin all over with everything I know :-)
http://www.youtube.com/watch?v=XTvzzgk_jEY

burningfiat said...

athrone,

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.


This just doesn't make any sense IMHO. How can we infer anything regarding the price of gold based on some entities allocation percentage-wise?

I think the price of gold will be determined by the free market. The price will rise to the exact number that lures enough gold out of hiding to satisfy the current gold demand. And when you think about it, it is not really essential to lure any extra gold out of hiding:

The funny thing about gold demand is that it is mostly in currency terms. A standing offer of a 400 Oz bar per day could satisfy any savings-demand for gold world-wide forever. It's just a matter of a high enough gold price.

/Burning

AdvocatusDiaboli said...

another FAIL argument against Freegold:

Freegold is just a concept or let's say a theory. A theory is basically a statement of a working principle or fact which can not be proven. A theory is put up to covers existing observations, but is bigger, so all existing observations are just a fraction and the theory explains the overall picture. The theory is valid until is disproven.

Concerning Freegold: Where are any real market actions in the last 14yrs that fit in with Freegold?
I dont see any at all:
Price movement? Comparing to other commodities, we might as well call FreeCopper the focal point of savings.
Central banks? The reserves in terms of weight are not even back at the level they had been, when this stuff got online 1997.
Euro-la-la-crap? €/$ is basically where it had been 14years ago.

So far the FG theory is just as good in terms of a "theory", as saying "1billion years ago, green aliens lived on Alpha-Centauri", or "21.12.2012 Plant X will arrive" or "free-energy will be the next big swan event"......

Greets, AD

burningfiat said...

Just to make my point clear from the above:

The price of gold is totally unaffected by the stack size of this or that entity. It is unaffected by their relative stack size compared to their other reserves and it is unaffected by the absolute size of their stack (currency or weight).

The price is ALL about the flow. A certain flow (denominated in currency) is requested each by new savers (and on CB level: Gold reserve growers), this demand will be fulfilled each day by dishoarders (gold sellers). The price is the number that makes this equation equal out every single day (short of lock-ups and market failures).

burningfiat said...

another FAIL argument against Freegold:

AD, I'm so glad that you in advance described your own argument as FAIL. That means the rest of us don't have to consider it, right? Phew, saved me some time there...

THANKS! GREETZ!

Woland said...

Fonoah: A+ for style. BTW, if you won't STOP your mischievous
channeling, some people are going to have to stop thinking!
Greetz.

Jeff said...

AD,

Let's go back to your last argument where you said this:

"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"

This is a non answer, your typical way of avoiding the question, which Jojo asked. So why don't you give a real answer, if you can? Let's keep it simple and say you are a small giant, as discussed in this thread. What would you do? If you don't factor in diminishing marginal utility, points will be deducted.

Joe Yasinski said...

VTC,

Do I have an agenda? I had to think about that for a second. I suppose my agenda was to post an article or two that may be of interest to the group. Beyond that, I'm not sure.

I appreciate your analysis of the articles, not sure I agree with your conclusions, especially viewing every actors actions through the prism of freegold, but that's why I posted it in the first place. Thanks for your analysis.

Jeff said...

The BoE gets another visitor:

http://www.youtube.com/watch?v=dZN00RkKTRA&feature=player_embedded

AdvocatusDiaboli said...

Jeff,
my personal plan as I described before, it mostly will depend how other assets perform at that time and most important the political surrounding. Will I sell all gold? Definitely not. Up to 50% maybe to buy farmland. The only fun thing I am missing personally is an island :) but not in todays political landscape.
Will I buy more on the predicted rise to the moon or on the predicted the upper plateau? Definitely not.
I am much more wondering what to do with todays incoming cash, but as I said, I will not buy further, why should I?
Greets, AD

Jeff said...

AD,

I think you are cheating; you may be a jumbo shrimp but you are no small giant. Imagine having that incoming cash problem on a larger scale, after the revaluation. Why would you sell gold to access value that you don't need to access?

Blondie: Gold functions as the ultimate store of value. Nice words, nice idea, but you are a shrimp. You’ve never had value in a quantity that needed storing. Sure you may have “savings”, but you’ve never personally experienced diminishing marginal utility to the degree that gold’s function becomes apparent, so it remains a theory. There is a monumental difference between mere theory and theory corroborated by experience. The latter has graduated from theory to fact.

If you don’t need to access the value you have stored in gold, then it is really irrelevant to you what the market currently values gold at.

enough said...

Levy on gold could be budget windfall, U.S. lawmakers say- Reuters

(Reuters) - Revising a 19th-century U.S. law that governs the mining of gold and other precious metals could add billions of dollars to federal coffers at a time of tight budgets, according to some Democratic lawmakers and a government study released on Wednesday.

Taxpayers receive no royalties on metals pulled from federal land, and officials drew a blank when they tried to find out how much gold, silver, copper and other valuable metal is sold.

But applying a metals levy of 12.5 percent - the benchmark government share for other resources - could deliver hundreds of millions of dollars a year to taxpayers, according to independent studies and U.S. Representative Raul Grijalva, who sought the report and other data from the mining industry.


Grijalva, of Arizona, and Senator Tom Udall of New Mexico, who jointly called for the GAO report, say taxpayers should also benefit from a gold price surge that has boosted the bottom line for miners.

Applying Grijalva's royalty formula on the 1.1 million ounces of yellow metal pulled last year from Goldstrike mine in Nevada, the largest in North America, could have yielded $150 million to taxpayers, according to a Reuters tally of industry data.

Taxpayers are entitled to a royalty from metal sales nevertheless, lawmakers said.

Under Grijalva's proposed formula, Freeport-McMoRan Copper & Gold Inc's (FCX.N) reserves of copper and molybdenum, which is used to toughen steel, would return about $700 million to taxpayers over the life of the mines, according to a Reuters tabulation of company data.

NO-ROYALTY RULE

The 1872 mining law that drove prospectors into western states such as California still governs much of the industry.

But this no-royalty law is a costly anachronism when mining giants can stake a claim on federal land for a few dollars an acre, Udall said. The coal, oil and gas industries, by comparison, have no such exemption.

"We are giving our gold and silver for free and don't even know how much we are giving," said Udall, whose father, Stewart, was secretary of the Interior during the 1960s and called mining law reform his great unfinished work.

Lawmakers who have occasionally tried to reform the mining rules have never cleared all the hurdles to pass new laws, as the industry has strong political allies.


But on Wednesday, the two top senators on the Energy and Natural Resources Committee said they were open to considering reform.

"There's been agreement for a long time that the 1872 Mining Law should be updated to include a royalty" and reduce paperwork, said Senator Lisa Murkowski, the panel's top Republican.

Ron Wyden, the incoming Democratic chairman of the committee, also believes the matter is due for review.

"This is one of a growing number of issues that Senator Wyden plans to look at in the next Congress," said spokesman Keith Chu.

Whether or not mining reform can become law, some lawmakers are ready to target the hundreds of millions of dollars in tax breaks the mining industry claims each year, which they see as an easier political gambit.

"We need to always be looking back and seeing if there is a good reason to continue with exemptions," said Udall. "That's something we're not very good at in government - ending the exemptions when they're no longer needed."

State and local governments often catch a windfall from mining revenue, and Udall said Republican lawmakers from the West might be persuaded to increase the federal take.

"Everyone agrees we need a balanced package to find new revenue," he said, "and this seems like the right time for reform."

http://www.reuters.com/article/2012/12/12/us-usa-gao-royalty-idUSBRE8BB1SL20121212




AdvocatusDiaboli said...

Jeff,
why cant you just simply answer the question but instead just quote some common sense (lala)?
WHY SHOULD I BUY MORE GOLD, if I have already more gold at 50% exposure than I will ever need already at todays prices and almost everything else I need?
Why increase my exposure further? I simply dont get it, why I should buy more?
Why I might want more farmland later? Because I like land. There is nothing rational about it, I just like it.
e.g. I was just about to buy farmland in France, but maybe you noticed the currently ongoing communist french revolution. I am not buying something to be raped afterwards by some statist jerks, that's just against my personal religion.
And for all you american Eu(ro)-Lovers: Come here and open and run a company, you will be whining to go back to your Obama.
Greets, AD

Motley Fool said...

AD

In that comment aren't you simply justifying jim's comment's on other risk factors to take into account with other assets.

Ok, so what will you do with your surplus income if you don't buy gold?

Or will you start being less productive?

TF

Woland said...

Hello Indenture (and Jeff); re; Another ID#60253

I guess I should have seen it yesterday, but Indenture's
comment took a little time to sink in regarding the 1998
implications. I was always slightly uncertain exactly as
to how Another's, "Perhaps a door needed to be closed
very quickly" regarding "smashing the Asian tigers", and
bankrupting LTCM. It was the use of GOLD as a funding
source for the carry trade by LTCM, and the followers in
the hedge fund community of that well connected group,
which threatened to drive gold BELOW production cost.
To them, gold was just a "commodity", so they had no
understanding of the consequences of a "shut down" of
production. They didn't understand that it was the flow
from the mines which kept going the free flow of oil.
Greenspan and the BIS did. That is why they(LTCM) had
to be smashed. For the BIS, it would have meant the loss
of support from oil for the new Euro. For Greenspan, it
would have meant the loss of the free flow of oil at low
dollar settled prices. To quote the immortal Homer;
DOH.

Anonymous said...

@FOFOA Now you've seen the real Duggo in his lair!

I think you are hinting that I should have morphed Dorothy's "Over the Rainbow" into "Follow the Yellow Brick Road"

Very appropriate for your site.

AdvocatusDiaboli said...

MF,
"Ok, so what will you do with your surplus income if you don't buy gold?

Or will you start being less productive?"


Stacking up cash, waiting for the next stock/commodity crash in order to increase my income stream?
Shit, I dont know, probably that's why I am in such a bad mood :P
Greets, AD

Motley Fool said...

AD

Lmao.

So stacking cash and losing it in real terms in a hyperinflation is not a concern for you?

Good luck with your bad mood. Perhaps give some consideration to marginal utility and risk. :P

TF

AdvocatusDiaboli said...

MF,
if all my cash goes completely under in a millisecond, sure, I will be pissed, but the lost cash will be the smallest detail I see in such scenario.
Can you say the same, in case gold goes to $300 and stays there? :P
Greets, AD

Jeff said...

AD,

They don't have to keep buying gold, if they have better things to do with their income. There will be a whole new group of people saving in gold, too. That's the part that really makes your head explode, a whole new group of savers in gold, at the higher price.

AdvocatusDiaboli said...

"a whole new group of savers in gold, at the higher price."
a whole new group of leveraged shrimp suckers?
Tell me more Mr.Shoesshine boy.
Greets, AD

AdvocatusDiaboli said...

opps, found the new savers group ;)
http://www.bild.de/geld/wirtschaft/queen-elizabeth-2/queen-elizabeth-bestaunt-englands-gold-reserven-27660456.bild.html

Motley Fool said...

AD

Well, I have near proxies that will serve my needs, if gold goes to $300. I will be ok.

Now... How gold will handle even the shoeshine boy. :P

TF

AdvocatusDiaboli said...

MF,
I completely agree that it is hard to get physical gold into a bubble (except due to leverage when buying, which is hard for me to imagine right now).
On the other hand with gold, since the price is determined at the paper promise on gold, it is easy to have an "inverted bubble", that term Dimitri Speck used in his book "Geheime Goldpolitik" (really good read). According to him that inverted bubble popped ~2000 and that makes a lot of sense. Now the questions remain:
1.) what's the real "fair market" value?
2.) how easily can the next inverted gold bubble be blown?
Both questions are IMHO not possible to answer.
Greets, AD

Motley Fool said...

AD

The first is unanswerable, since only the combined decisions, desires and judgment of all market participants can establish a correct price. We can, and have guessed, the ballpark figure. Beyond that, not much can be done.

The second would require the same circumstances that allowed the previous inverted bubble to occur. Essentially the end of a hard money regime. We think that we won't see a hard money regime again, so the circumstances should not develop again.

But idk, perhaps in 20,000 or 30,000 years.

*grins*

TF

DASK said...

I have another try:

Gold is mostly useless, but it is not completely useless. At freegold prices, many critical industrial applications become problematic.

For instance, the most basic car that Volvo now produces has almost five grams of gold in it. You home computer: a bit under half a gram. A cell phone: a tenth gram.

At freegold prices, your car now has 8k worth of gold in it, your home computer ~1k and your cellphone has about $150 dollars worth of gold in it.

One can think 'substitution', but there are not that many non corroding, ductile and conductive options. Platinum -> too brittle, to high temp to melt. Silver-> would need to be sealed and then you have thermal issues.

Would a sudden spike to freegold wreak some havoc on some critical consumer items?

Motley Fool said...

DASK

Fyi, someone posted a link not too long ago of a silver alloy that had been developed that was highly resistant to corrosion and a better conductor than gold.

We will simply see substitution for the most part. On things like spacefaring where substitution is not possible, the cost of gold is a small factor in the billions spent.

There is also a recent breakthrough on reducing the amount of gold plating needed in industry by use of new methods.

Reduction and substitution, I think will solve most such problems.

TF

AdvocatusDiaboli said...

DASK,
also to mention recycling, which is becoming a bigger and bigger thing.
AFAIR, lots of gold from Umicore come from electronic recycling.
Greets, AD

DASK said...

Cheers for the responses: I will have to look into the silver compound.

with regard to recycling, UMICORE's best process can recover something like 50% from a circuit if I remember their slide accurately. Most gold that is lost/dissipated at present comes from electronic applications.

Woland said...

Here's an oddball question that just came to mind. In a post
Freegold world, where an ounce of gold has a present
purchasing power value of 20x to 30x the current ratio, where
will people store it. In my particular case, special circumstances
dictated that 90% of my gold was purchased this year, so I bought
a safe, and had the space wherein it resides alarmed.
What will YOU do with 20, 50, 100, 500 oz priced at the new
post Freegold values. Will you insure it? Can you, if you keep
it at home? In prior centuries, when gold coin was money, the
need for safe storage was provided by a bank. Will that happen
again? I'd be interested to hear what others think, so long as
they don't plan to bury it in their back yards. You don't want
to create a new cottage industry of back yard prospecting at
Freegold prices, do you? (and what happens if you DO store
it at a bank?) Remember ARI's 5 part HOF series on banking?

enough said...

Germans hoarding mountains of gold --

a study showed that the average German owns close to €6,000 worth of the shiny metal.

Commissioned by precious metal trading group Heraeus, the study also found that people with surplus cash are becoming gold-greedier. The number of Germans with a net monthly income over €4,000 who say they intend to invest in gold has doubled in the current year.

http://www.thelocal.de/national/20121212-46729.html#.UMrGfl01hAx

AdvocatusDiaboli said...

enough,
I am not sure to trust that study, but let's just assume it's true, "Eurogold" faces even a bigger problem: Germany would have both, the golden chest AND a beach with lines in the sand up to the horizon.
Can we count that as a "FAIL-argument" about Eurogold?
Greets, AD

burningfiat said...

Can we count that as a "FAIL-argument" about Eurogold?

Yes

Anonymous said...

costata,

"Devaluation priced in gold. LDO that's what this Freegold revaluation of gold is."

When FOFOA says 20-30x increase in Gold, I thought he specifically states that this is a real gain, and does not include inflation. I think my statement stands, that the only way to realize a real gain is if your asset appreciates with respect to all others. Maybe that is just a inverse way of saying the same thing you are, but I am not sure...

Again, what is the mechanism for a real gain which does not involve shifting assets (devaluation / inflow) or real production?

It sounds like Freegold is posing an entirely new mechanism of wealth creation in capital markets.

burningfiat,

"This just doesn't make any sense IMHO. How can we infer anything regarding the price of gold based on some entities allocation percentage-wise?"

If Central Banks are trying to move their $10T of reserves into the $10T Gold market, and attempted to do so overnight, yes the price may very well go to $55k/oz. However, that is not sustainable because after that there is no money left to sustain that price. Because Freegold claims a long-term stable plateau for Gold at $55k/oz, I too, am looking at the "steady state" price of Gold.

Claiming "it's the flow, not stock" as if that is unique to Gold is another assumption made in Freegold. Again it sounds good on face value but what happens when you take it to conclusion?

That statement is is just a way of describing how pricing works... It is true not just for gold, but any market. As an example it is the number of shares of stock that trade that determines the price, not the total number of shares in existence. So for stocks as well, "It's the flow, stupid" as they say on this blog.

In any market, when capital is flowing into an asset the price rises because of 1. demand pressure and 2. speculation on how much future capital is flowing in and for how long. So short term, the price could do anything. This could result in anything from a linear increase in price to a exponential bubble.

However, in our example, if we assume Central Banks act in isolation [for simplicity] and we assume they are flowing $10T into a $10T market, we already have all the variables! The price calculation is simple because we have the hindsight (foresight?) to know exactly what the capital is trying to do! Depending on the rate in which they try to enter the market, it could rise from 0% to 300% a month, but the long term value has to be $20T because that is how much money is flowing into Gold. Selling one asset (foreign reserves) to buy another (Gold) does not create real wealth it is merely a wealth transfer!

So yes, the flow determines the price (short term) but long term what determines the price [of any asset] is the amount of money moving into into it (market cap).

zabba said...

Woland - The carry-cost of gold is a problem for shrimps isn't it? If the standard of living will fall for everyone in US post FG, gold owners (gold sellers, actually) will stand-out like a sore-thumb.
I will let others move first. I am not a Giant now, nor will I be one after FG (yet). I hope to have enough oz to convert into productive assets that then can help me/family become a gold buyer, again, post FG. So, my gold will stay where it is now and most of it will move at once.

Edwardo said...

Has anyone noticed that the $IRX is collapsing towards the zero bound like it has weights on it?

burningfiat said...

athrone,

However, that is not sustainable because after that there is no money left to sustain that price.

If there is no more money, where have all the money gone then? (to the moon?)

In any market, when capital is flowing into an asset the price rises because of 1. demand pressure and 2. speculation on how much future capital is flowing in and for how long.

Capital doesn't flow into asset and gets destroyed in the process. Currency flow through assets, not into.
The currency flows through the asset, and out to the other side, now into the sellers hand. Seems pretty elementary...
(We of course note the exception of gold, which flows through currency)

If some entity decides to pour 10T into the physical gold in some period, you are dead out of luck to guess how much weight that 10T will actually get for that entity. You are also out of luck to guess the resulting market price increase.
If the rest of market sees that their savings are increasing, they might just stop 90% of their normal selling (in weight). Normally you would sell (and produce) more stuff if the stuff increased in price. For gold it seems to be the other way around. If the price increases, you will need to sell less. You might even stop selling as you wait for further price increases.

What determines the price of gold then you ask? The Flow! Gold doesn't have P/E ratios or other fair value metrics. The price of gold in a physical only market is totally arbitrary. You will NEVER be able to tell an objective fair price.
Gold in that regard is the totally subjective wealth asset. Selling and buying only depends on yourself and your own saving-needs.

burningfiat said...

Edwardo,

Yes, I'm following the IRX more than the paper-PoG now, LOL

Interesting stuff, but then again, if you zoom out to 5 years on that chart, it was almost zero since late 2009 anyway...

Jeff Allen said...

For anyone interested in understanding the essentials of Pragmatism and its continuing cultural influence (including why you have had such difficulty explaining Freegold, or any other such long-range abstraction, to others in your circle of friends), I would refer you to lectures and essays by University of Texas Professor of Philosophy Tara Smith titled "The Menace of Pragmatism," downloadable for a small fee in MP3 (from estore.aynrand.org) and in pdf (from theobjectivestandard.com).

Anonymous said...

burningfiat,

Thank you for your considerate replies, it has given me a lot to think about. In response to: "If there is no more money, where have all the money gone then? "

In this example I was considering only the Big Giants as described by Victor. Currently the Central Banks of the world have $10T with which to purchase Gold. If they go [at maximum] 100% into Gold their cash reserves are now zero.

Other people in the world still have money, yes, but for them their cash has run out.

"The currency flows through the asset, and out to the other side, now into the sellers hand."

This is the same with stocks, or any other asset. Currency flows through all assets not just Gold. Gold is also not unique in pricing currencies.

Let's say there is $10T in Currency and $10T in Gold in an isolated market. This implies a price of $1700/oz or 1oz/$1700. Whether you want to call it Currency pricing Gold or Gold pricing Currency -- either way it is the same thing. In this situation you could say Currency flows through Gold, or Gold flows through Currency -- again, either way it is the same thing.

One thing to re-iterate at this point is that all my numbers thus far were assumed as being real values, not nominal values. Here is an example:

If $5T of currency flows into Gold the new market caps (real, not nominal) are $5T and $15T in our market above. This implies a Gold price of $2550/oz (or a currency price of 1oz/$2550).

Here is where it is easy to get tripped up. These are real values not nominal values, so it appears that $5T of currency "vanished." In reality there is still nominally $10T in physical dollars (face value), it's just they are worth 50% less now (each dollar is able to purchase 50% less Gold).

You could call this a devaluation of Currency, a appreciation of Gold, a flow of currency into Gold, or whatever. It is all the same thing. Nothing is being created or destroyed, merely transferred.


burningfiat said...

athrone,

I'm not sure we'll ever be able to agree in this matter:
If $5T of currency flows into Gold the new market caps (real, not nominal) are $5T and $15T in our market above. This implies a Gold price of $2550/oz (or a currency price of 1oz/$2550).

I'm not sure how you can imply $2550 based on $5T inflow. $5T also just flowed out, right?
I'd reckon the market price of gold based on this latest flow of $5T will be whatever the number of currency unit at which the latest seller wanted to give up an ounce to the latest buyer.

Good luck with your journey!


Anonymous said...

Even if Freegold is a good idea is it possible let alone inevitable?

Along this journey one of the facts I have become much more aware of is how effective the current debt based fiat monetary system is at stealing net productive capacity. Net producers are in trap formed by the uber wealthy (< 0.01%) that write the laws passed by representatives elected by those on the dole (+50%). In between these two camps (<49.99%) the ‘net’ producers are getting fleeced from both sides thereby perpetuating the wealth confiscation scheme necessary to sustain the existing order.

Now Freegold is an excellent antidote to all the abuses/fraud above but this is precisely why the existing order will likely fight it to the bitter end. Freegold is also not a classic hard money system (i.e. fixed $/oz) either which can still be manipulated by the system. Freegold is actually more effective because it’s a SoV that operates ‘above’ the MoE system the world over ‘never’ within them. As “Another” stated gold moves through currencies; therefore Freegold is the hardest of all monetary systems because it renders the system completely incapable of ‘indirectly’ cheating net producers out of their savings while it is in ascendancy; thus shutting down the Nash Equilibrium that is powering the existing order.

This is why one should ‘also’ have ‘lesser’ SoV that aren’t gold as well. The battle between Freegold and the existing order may take longer than you think, and there is no guarantee of Freegold winning in the end either.

This in my mind sets up the question of what the Freegold Nash Equilibrium needs to look like in order to displace the existing order?

The only force powerful enough to overcome the ‘local’ national self-interest (i.e. stealing from its productive citizens) is the imperative of international trade. At present most nations are not self-sufficient. For example while Saudi Arabia may have tons of oil and gold, but it can’t feed itself. Most other nations are dependent on trade with other nations one way or another as well. Thus it’s very important that existing trade flows be maintained at least in the near term. Given enough time most nations could reduce their inter dependence but at great cost and social disruption. A serious/rapid disruption in trade flows therefore is ‘also’ something the existing order will resist. Thus Freegold comes about because the need for social cohesion is stronger than the systems need to steal from its productive citizens. In short the system may see Freegold as a ‘temporary’ way of living to steal again. Thus, even if Freegold takes hold it may not be a permanent state of affairs (few things are) which is why diversification into perhaps ‘lesser’ SoV is important at all times, both pre and post Freegold.

Thus while the concept of Freegold is sound I think it’s equally important to consider/explore the conditions/path required to bring it about and/or sustain it. In short, one should never underestimate the incompetence or power of governments the world over. They can be stupid in their lust for power and money longer (even if counterproductive to their own ends) than the life span of the average shrimp or giant.

Gold may be the king of SoV but SoV diversification is still better. I think what should be clear to all Freegolders at this point is that any attempt to use various SoV mechanisms within the system are always and everywhere subject to the interests of the system; interest that may not always align with yours under any number of scenarios. After all its house rules, and the first rule of the house is it doesn’t like to lose.

Anonymous said...

@athrone

If $5T of currency flows into Gold the new market caps (real, not nominal) are $5T and $15T in our market above. This implies a Gold price of $2550/oz (or a currency price of 1oz/$2550).

No, this is not how it works. The $5T cannot coax out 1/2 the stock of physical gold. It will try to capture whatever portion of the FLOW it can. Let's say that's 2% of the stock. So that's $5T acquiring 2% of all physical gold, do you see what that does to $PoG? It would not go cleanly from $10T to $15T, but more like $10T to $500T.

Gold is bigger than all currencies! Take all the currency in the entire world and attempt to acquire gold with it and you will still only get a small % of the stock.

Indenture said...

athrone: I also use to think in terms of 'snap your finger mathematics'. Saying $5 Trillion will buy this amount of gold is very easy but including my favorite variable 'Time' changes everything because as poopyjim reminded us, it takes time to move $5 Trillion and the market will move with every dollar injected or removed.

Edwardo said...

Nice catch, enough. Whether they know it or not these Congress critters, and other politicos, are getting in sync with a freegold world.

Burningfiat,

Let's see what happens when it goes negative.

Anonymous said...

*Off topic alert!

Duggo,

Good stuff, thanks for sharing. Your library looks a lot like home, but mine's all records:)

BH,

Excellent tune! I'd never heard Chain - gotta track their album down. Awesome boogie feel to that one you linked. Really blew a fuse inside my head

The Land of Oz is home to a few bands high on my list of LPs to acquire. I really dig...

Billy Thorpe & The Aztecs

Buffalo

more Buffalo

Coloured Balls

I was born too late...

burningfiat said...

Jeff Allen,

Thanks for your contribution.

Was just reading up on pragmatism here:

http://www.theobjectivestandard.com/issues/2008-fall/menace-of-pragmatism.asp

I fell onto this lovely passage (C. S. Peirce was the founder of Pragmatism):

As Peirce memorably put it, “there is absolutely no difference between a hard thing and a soft thing so long as they are not brought to the test.” In the view of a much more recent and influential pragmatist, Richard Rorty, truth is “what your contemporaries let you get away with.” To call a statement true is essentially to give it a rhetorical pat on the back.

Pierce's quote relates in so many ways to contemporary society, the subject of this blog and this discussion specifically.

Cheers for putting things to the test and finding some deeper/harder truth beneath the immediate pay-off!

/Burning

PS. Sometimes the road is more important than the goal. I thought about the reason I hang here at FOFOA's a lot. I like how the subject forces the discussants to touch on existentialist thought. When you think about wealth preservation, you can not avoid factoring in your own mortality, and hence the choices you have to make in this life (presumably one-shot). Even more so when you have to put yourself in Giant shoes. So while this blogs subject at first glance can seem philosophically mundane, in practice it goes really deep. On the other hand I'm glad the mood is in all likelyhood much more cheery than at some Schopenhauer hangout :-D

Indenture said...

duggo: As a musician myself I say very nice, well sung and your obvious personal enjoyment is contagious to this viewer.

costata said...

The Dork of Cork,

Silver imports/exports may well be a proxy for gold as you suggest. Have you looked into Warren James bar list project over at Screwtape Files?

Cheers

AdvocatusDiaboli said...

Burning,
jep, the thing is to grap the concept of value, without falling into nihilism. And more importantly to learn of "use" vs. "value" to make up your own moral of what is actually important for yourself.
I like the way FOFOA describes it: To find your own peace of mind (but the difficult part is without fooling yourself)....
....and in the end, regardless of what those funny useless yellow stones actually are ;)

Although, lot's of the FG stuff I simply put into the selfconfirmation BS from la-la-I-want-to-be-rich-land, I like the perspectives brought up, quite rate today to find.
Greets, AD

costata said...

athrone,

Let's see if we can break this down into compartments before attempting to put Freegold-RPG into some grand unified theory. Leave the central banks out of this until you have a clear understanding of other issues. You are misinterpreting their role. They are not investors engaging in asset rotations.

So compartment 1: Revaluation. At December 14, 2012 8:49 AM you wrote (my emphasis):

When FOFOA says 20-30x increase in Gold, I thought he specifically states that this is a real gain, and does not include inflation. I think my statement stands, that the only way to realize a real gain is if your asset appreciates with respect to all others. Maybe that is just a inverse way of saying the same thing you are, but I am not sure...

The revaluation doesn't include hyper-inflation of the US dollar. In regard to the second passage that I highlighted, it is simply incorrect. It doesn't necessarily have to appreciate against all others. It may do so of course but we can leave that aside for the moment.

We calculate gains in the unit of account - currency. If the unit of account is over-valued (over-priced) then the things it is pricing are ipso facto under-priced in that currency.

Now let's look at gold specifically. If, say, price discovery is being distorted in a specific thing such as gold it can be more under-priced relative to that over-priced unit of account or less so.

Think of gold as a global reserve currency. In order to understand the revaluation anticipated by many here you need to come to grips with two matters. The reasoning that leads us to argue that gold is under-priced and the reasoning that leads us to the conclusion that the US dollar and all debts denominated in US dollars are over-priced.

Until you come to grips with these two issues you are "spinning your wheels" and you won't gain any traction. Some of the other discussants are good at identifying posts which address specific issues. Hopefully they will provide you with some suggested background reading on these two specific issues.

Cheers

costata said...

AD,

In between the rants you come up with some fine insights.

jep, the thing is to grap the concept of value, without falling into nihilism. And more importantly to learn of "use" vs. "value" to make up your own moral of what is actually important for yourself.

Tyrannyofthepresent said...

Motley Fool,

Thank you for your response, which restated your premise that silver is weaker than gold. That is precisely the premise that I am addressing. In the following, please consider gold as the denominator:

1) Silver was considered to be "easier" money than gold in 1900.
2) The price of silver had slipped consistently from 1800 to 1900 for whatever reason, causing silver to be considered easier money, since it enabled debtors to repay their debts more cheaply.
3) Since 1939 the price of silver has troughed and made a higher low in the 1990s.
4) If a falling long-term price trend of silver made it easier money, a rising price of silver makes it harder money.

Please indicate which steps you agree with, and if not, please explain.

Many thanks.

Tyrannyofthepresent said...

PS. Motley Fool,

Another approach that may help you to answer: which money was easier from 1380-1480, silver or gold?

Lord Sidcup said...

DASK

"Gold is mostly useless ... "

Erm ... Ever heard of Willy Wonka? What do you think them golden tickets were made of?

Edwardo said...

Lord Sidcup asked,

"Erm ... Ever heard of Willy Wonka? What do you think them golden tickets were made of?"

Tungsten.

Tyrannyofthepresent said...

Motley Fool, two final analogies before I finally leave you in peace:

1) Borrowing money over the long term

A debtor who borrowed gold in most of the 1930s, the early 1940s, the late 1980s, the 1990s and almost all of the last decade, will find it easier to repay in easy money today.

A debtor who borrowed silver during the same periods of time, will find it harder to repay in hard money today.

During the mid-1940s to 1970s I am sure you can think of the reasons why gold should have been more expensive, but I don't like counterfactuals on the other side of the argument, so I won't push the point.

Or, if trends are more interesting than borrowing precious metals (for who would want to do that anyway), how about my little trick of getting out a pencil and marking the centres of all the major moves in the log silver price as measured in gold mg, the only true denominator.

1925: mid-price was around 33 mg. 1950 to 1985: perfectly flat at 25 mg. We have gone from a falling trend to a flat line. Now we are 15 years into the next move (most of them take 25-35 years), and the price has already flirted with 33 mg. Where will it end up?

0.1 mg, I hear you say, and that would be generous.

costata said...

Tyrannyofthelackofcitations,

Please continue your discourse by citing some sources for the "facts" about silver you refer to in your post and the comments you are making here.

ampmfix said...

Duggo!! that was excellent! congrats!

FOFOA said...

Hello Woland,

You asked, "In a post Freegold world, where an ounce of gold has a present purchasing power value of 20x to 30x the current ratio, where will people store it... What will YOU do with 20, 50, 100, 500 oz priced at the new post Freegold values. Will you insure it? Can you, if you keep it at home?"

You can insure gold kept at home, but it is expensive and it requires someone else knowing that you have it at home. I have given this quite a bit of thought and, in my considered opinion, gold in these amounts will indeed be stored at banks in Freegold and, yes, it will be insured quite inexpensively. I realize this is difficult to envisage for someone who understands Freegold and the failings of the current system. It took me a long time to work it out.

I think that gold will be stored as something like "monetary wealth", a unique item such that nothing else will be stored in this way, in allocated accounts where you are actually paying the bank to store and insure—against theft—your unique pieces of gold. Unallocated only works if all of the gold in the system is standardized, but with all gold being equally valued in Freegold, there will be demand for insured storage in the absence of standardization. And this will be different from safe deposit boxes in that the bank will have to know what it's holding in order to insure it against theft.

The closest thing I can think of today would be the way GBI stores private gold and insures it against theft.

But those amounts you listed—20, 50, 100, 500 oz—will be quite substantial wealth holdings in Freegold. I think this same kind of insured storage will be available at a low cost for even tiny amounts of gold, but for just a few small coins, home storage could also be quite common as it will be totally free and almost perfectly safe if no one knows it's there.

As I have said, I think the revaluation itself is the moment of peak risk for having what we understand stolen from us. The risk of having your gold physically stolen is always present, now and in the future. But at the moment when gold is revalued, there is also the risk of having your rightful windfall profit taken (or simply kept) by someone else. But once this moment of peak risk has passed, it will be gone forever. And in the absence of bank credit denominated in gold ounces, banks will once again be the safest place to store physical gold.

Of course that doesn't mean you'll have to store your gold at a bank. All the options that exist today will also be available to you. But I think that banks will be the norm. And again, I think this will be a slightly different service from anything the banks offer today. If you need to transfer your gold to another bank, branch, or somewhere far away and you don't want to carry it, there won't be an unallocated transfer of gold. Instead you'll simply sell your gold (perhaps even to the bank) and buy it back somewhere else. The unallocated transfer will be a currency-denominated credit transfer.

In a way this is like envisioning some strange future from a science fiction novel. And it's hard to believe that we will be able to trust the banks with our gold after the failure of today's bullion banking. But in fact, that failure will make banks the safest place to store your gold in Freegold.

So before you all reflexively dismiss this idea as ridiculous, give it some thought. I think you'll find that it makes perfect sense!

Sincerely,
FOFOA

Rui said...

@DP

Quote:"When B/G print to buy from the market, they reduce the purchasing power of currency. (FYP?)"

They reduce the purchasing power of your gold as well b/c they are printing to buy goods and services off the market. That way they leave you a market with less goods and services for the same amount of savers' gold. The end result: savers' gold buys less, and therefore down goes its purchasing power.

Gold does fare better than FIAT but its purchasing power still goes down, which is why it makes no difference to B/G what people save in. B/G can print to loot them as long as they transact in FIAT.

Quote:"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."

Such option has been there in each and every paper system throughout the history. People could always abandon paper for harder alternatives should they lose confidence in it. Freegold is not offering sth new the past FIAT systems did not have.

Quote:"... 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."

What do socialist losers do? They want to spend the money they don't have. And what does FIAT provide? It allows politicians to gain the money they don't have. So what do you think will happen when you give politicians the control of FIAT, prudence and meritocracy? HOHO.

Quote:" But you won't have to go down with the ship."

Except you do b/c you have to live with the same market they have been rigging.

Quote:"You really don't want gold (or silver) to be "money" - that's how they getcha!"

They getcha by forcing you to transact in the paper they issue as I have shown above. You can beat it by transacting in alternatives other than their paper such as gold, silver or a mixture of commodities.

FOFOA said...

Hello DASK,

I wrote about the industrial use of gold, sophisticated techniques for applying gold in applications where substitution is unlikely, and included a link to the article about a new alloy that could replace gold in contact applications (which is now missing from the site) at the bottom of this post. For your convenience, here it is again:

[1] A relatively tiny amount of gold will flow as a "usable" good along with the rest of the "usable wealth". There are a few electronic uses for which gold is irreplaceable. At the current price there are about 300 tonnes consumed every year in electronics. But, even at today's price, substitutes are being created for the less important ones. My brother is a materials engineer working for a major medical equipment manufacturer. He personally administers the physical application of gold to these vital electronics.

They coat vital electronics with gold not because gold is a good conductor (silver and copper are much better) but because a very thin layer of gold prevents the lesser metals from corroding. Corrosion inhibits conductivity. In one product he makes there is 10-cents-worth of gold at today's price. That product costs $2,500 to manufacture and sells to medical professionals for $10,000… and it contains 10 cents of gold. Even with a 40X revaluation the gold component will only be $4.

On these high-end medical applications they use sophisticated techniques for applying the gold. Much more sophisticated than the gold plating used on cell phones and thumb drives. My brother uses evaporation and sputtering which deposits a layer only a few atoms thick. Gold electroplating from a liquid onto cheap electronics deposits a much thicker layer, and those lesser electronic uses will likely be substituted with something like this.

It's kind of funny that a $50 cell phone today contains 50-cents-worth of gold while the gold-plated piezoelectric capacitor in a $10,000 piece of medical equipment only contains 10 cents. That's right, an ounce of gold is required for every 16,000 of these devices. And that particular capacitor requires a lot of gold, about 10 sq cm of surface area to be coated. For comparison, an integrated circuit chip requires anywhere from 0.1 to 2 sq cm of surface area to be coated in gold. An ounce of gold covers about 160,000 sq cm using these high-end techniques at a thickness of 1000 angstroms (0.1 micron, 0.00001 cm).

My point is that I foresee the amount of gold being used in electronic applications dropping significantly to maybe 100 tonnes per year in Freegold. That's out of the 170,000 tonnes of gold in storage. A 1,700 year supply overhang perhaps? Somehow I don't think Freegold will interfere with any vital industrial uses for gold.

Sincerely,
FOFOA

Edgar said...

Two arguments against freegold:

1) "FOA/FOFOA was wrong once, he can be wrong twice".
2) P(freegold, t) = e^1/LIM t→∞

Indenture said...

Rui: Have you ever thought aboutt trying a different approach to understanding? You are here to try and learn correct?

"DP says:"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."

You say, "Such option has been there in each and every paper system throughout the history. People could always abandon paper for harder alternatives should they lose confidence in it. Freegold is not offering sth new the past FIAT systems did not have."

Somewhere between the computer screen and your interpretation of the words there is a glitch that appears to absorb the fact that in a Freegold environment the price of physical gold is not fractionalized. RPG is offering something new that the $IMFS does not offer. RPG offers unfractionalized purely allocated gold.

I don't see how you can argue against this since it is part of the definition of Freegold!

Wendy said...

Holy Crap, don't you guys know it's the season of FUNCTIONS??? I attend one and come back to 100 comments!!

Wendy said...

<<<<<<<<<<<i think I'm in love with duggo :D

Wendy said...

AD its very nice to see a more polite you

Wendy said...

a gentleman in disguise?

Tyrannyofthepresent said...

Costata,

Many thanks for your response to my questions to Motley Fool. I invited him to state which of the four steps in my logic he disagrees with, and I invite you to do the same.

I would also invite you to refrain from using ad hominems such as altering the poster's name to make a more general point about his credibility, since this tends to have the opposite effect. Indeed, it can even suggest an inability or unwillingness to address the question squarely. No doubt this is an impression you would wish to avoid.

Beer Holiday said...

I have a question about freegold, not so much a criticism.

Freegold is usually presented as and overnight RPG event. This strikes me as a bit odd.

In the east, I think they'll manage it easily, some live freegold-like lives already, and freegold probably will be a standard of living improvement for most, who's going to knock that back.

But in the West (really $IMFS faction)? Overnight, people are informed, sorry, your savings were mostly imaginary, you really needed physical gold. Too bad that very few have any. By the way, you all get a standard of living downgrade, tomorrow.

I can't see people going along with, they'd riot and over-through Gov. Then it would be worse ?

For this reason I think you need HI in the US at least, of to $IMFS faction, for people to see that over the HI time frame, bank note after crazy 100 trillion $ bank note our money really is worthless, and our standard of living has slipped away - I was those crazy bank notes fault. Also, people seem to learn about gold in HI. Only when HI has brought our standard of living below that attainable in freegold (the best we can get post $IMFS IMHO) will the West see the "solution".

I see HI as being the scapegoat as well, "it got away from us", "it was like a natural disaster", oh well, lets start again...with freegold? . We have all followed the trail to learn freegold, with important teachers. IMHO HI may end up the teacher for millions of Westerners.

Only then will freegold look like the only good solution that has been all this time. So I can only see freegold RPG going post HI, when the majority understand it better, having lived through the inevitable conclusion of the $IMFS.

I suspect the counter argument will be " It's the producers of our lifestyle who call the shots" . But those producers don't want chaos in large parts of the world either, not when the US has the biggest military. I still think that HI will be the only "teacher" that will lead the $IMFS faction to peacefully accept the reality of our position.

@SV great links, lots of great Aussie bands

Counry radio is another good one.



costata said...

Okay Tyrannyofthepresent,

I have completed a draft of the critique of your post and I'll present it in due course. In the meantime can we have links to the sources of the data (or references to the writings) on which you base your claims about silver in the comments here?

We can start with this comment at December 14, 2012 2:45 PM if you like. Instead of merely presenting those four assertions back them up with some evidence to show that they have substance.

Then we could move onto this at December 14, 2012 2:50 PM:

Another approach that may help you to answer: which money was easier from 1380-1480, silver or gold?

What exactly are you driving at?

In relation to the post I'd like to see some references to sources which provide evidence, for example, of "cultural salience" as a driver in the choice of monetary media. And incidentally your use of "dualism" as a justification for bi-metallism was a bridge too far for me.

In other words support your claims and arguments with some evidence please.

costata said...

Beer Holiday,

There's been some discussion from time to time about the order of events. Also FOFOA posited at one time that the timeline could be compressed due to the time delay in the transition and HI and the revaluation could occur very close together.

I have played with the notion that HI comes first and gold revaluation is presented as the resolution to that crisis and it stabilizes the US currency. The archivists may extract a few quotes from A/FOA to remind us of their view of the sequencing.

Anonymous said...

@ FOFOA
"But at the moment when gold is revalued, there is also the risk of having your rightful windfall profit taken (or simply kept) by someone else. "

Could you please elaborate. I'm having trouble with this and you've obviously thought it through.

Dear All
Thank you for your comments.
People on this site are very kind.

FOFOA said...

Hello Duggo,

How you "unambiguously own" or "possess" your gold is up to you. There are many options available today, ranging from "in your sweaty palms" on one end of the spectrum to "fractional financial shares of fully reserved bars held by someone else" on the other end. I don't like discussing this publicly because some of my friends take offense. And besides, it doesn't really matter what I write anyway because you've got to think it through and figure it out for yourself before it will take effect. In another post I wrote:

"If you take the time to really understand Freegold-RPG, what I write about here, you'll know that getting there consists of three phases: a stasis followed by a punctuation followed by a new stasis. And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time. I'm not going to say much more about it here. But as ANOTHER would say, think long and hard on this."

Also try this Google search:

site:fofoa.blogspot.com "my own sister"

Sincerely,
FOFOA

FOFOA said...

Duggo,

I went back to enjoy your music again but it looks like the Silver Illuminati has suspended your "eyetube" account for linking it on an "anti-silver" blog. Maybe try Youtube or something else that's more free speech/free market-friendly (or just outright free)? ;D

Sincerely,
FOFOA

Beer Holiday said...

Here's another freegold question, further to the above:

It's been demonstrated very well by FOFOA that confiscation isn't going to happen in freegold.

But what about under the current $IMFS systems? What if Governments, faced with the reality of the freegold solution (the only real solution), but a population who do not get it, just confiscate gold, take from miners also, and redistribute gold to the public roughly matching citizens existing wealth.

That way people don't have to get freegold (think) so much, it's the lazy way out for people and Government.

Beer Holiday said...

Edit above: "just confiscate and redistribute gold before freegold and not after"

Motley Fool said...

Tyranny

If you wish to define hardness ito relative price movements, then yes silver is harder money than gold at the moment.

Bear in mind that prices are manipulated, with specific purpose.

Even if both are manipulated, it may not be for the same purpose.

The above is meant to direct you towards keeping your eye on the ball, instead of the shiny coin being flashed. Misdirection is an interesting tool.

TF

Anonymous said...

With a slight sense of inevitably, I accept quite passively that FOFOA should in all likelihood really find me an unpleasant commentator to have here, consider by brash comments, but I couldn't help but comment on this:

"And it's hard to believe that we will be able to trust the banks with our gold after the failure of today's bullion banking. But in fact, that failure will make banks the safest place to store your gold in Freegold"

After all, I've been quick to criticise so I take this chance to indulge in my praise, because it's so nice to read such clear thinking, which to my mind is what really marks your excellence, FOFOA; an ability to convey highly complex things in a relatively clear way...anyway...but to my point.

I, too, think the future is bright, all things considered. I've written elsewhere that:

See, China is not debating the role of central bank employees, whereas the US is. The conclusion, if indeed there ever could be some conclusion to such a debate, is less important in this regard, insofar as the US discourse is already more advanced than what occurs amongst any other elite, and suggests that it is not silly to believe that a loosely defined ‘Western’ aristocracy, realising its own objectives align with those held by most people, might well avoid the type of dominance at the hands of the so called Eastern bloc which so many seem to consider inevitable.

http://www.eurasiareview.com/12122012-krugman-attacks-us-oped/

I've said, also, that:

What soon becomes apparent is that the richest 1000 families on Earth share strong, common interest to promote the natural bond that exists not just between themselves and the poorest, but also between all humans on Earth, if we are to accept what John Locke said – that a (private) property exists in each person; the only difference being that with the 1000 those properties include property external to their immediate persons, whereas the poorest simply have only their own selves. [Them comment is @ http://economics.org.au/2011/08/government-is-in-a-state-of-anarchy/ - I would be very thankful to (humbly) receive your thoughts about the first PDF linked to Footnote 1 - Do We Ever Really Get Out Of Anarchy? http://mises.org/journals/jls/3_2/3_2_3.pdf]

Niccolò Machiavelli wrote: “With a people equally controlled by Law, as those Kings were, we shall find in that multitude the same good qualities as in those Kings, and we shall see that such people neither obey with servility, nor command with insolence”

Violence is the most costly, unproductive factor of any economy on Earth http://tinypic.com/r/ayvtxv/6

sean said...

I found this article interesting on the "secret meetings of an international banking cabal" otherwise known as the central banks. Chris Martenson discusses it in his latest post, but omits to mention they are opposed by the BIS.

Beer Holiday said...

@ SV Check out this winter song

sean said...

Nice find duggo for the AEP interview.
Choice quote:
"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."

I knew he was a smart guy!

Matt said...

1. The world enters a new age of productivity and the system we currently know continues.
2. A global resource or multinational currency system is introduced.
The above enabled by central banks who do the work of the governments they represent.
3 . The money system collapses and people grab other assets other than gold.

Free gold is a low probability high impact event.

Anonymous said...

A Global Pandemic that kills the taxpayers will make a lot of paper currency go poof, and be unavailable to drive up the price of gold.

Think it is unlikely? I don't.
A virus that is as hard to fight as Aids, and speads as fast as the Flu, and has the mortality rate of Ebola is probably just an eventuality.

For example: All the Ducks are Dying, us later?
http://pandemicinformationnews.blogspot.com/2012/12/bogor-has-very-virulent-h5n1all-ducks.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FOlYAt+%28H5N1+Pandemic+Information+News%29&utm_content=Yahoo%21+Mail

Woland said...

Hello CyrilBe;

Just a couple of items; 1. You're not the only one who found
Bernard Litaer to be at least "interesting". Most here don't care,
and that's fine by me. People whose ideas have some things in
common with Freegold, but also some differences, are always
worth looking at, if only to help tease out the consequences of
those differences. His "terra" unit has a lot in common with
Keynes' Bancor, and includes both oil and gold. The problems
with a "commodity basket" as a unit of settlement are many,
and have been set out on this blog elsewhere. Moving on:

Your comment above about the "1000 riches families" touched
a chord. Envision a sort of "global aristocracy" much like the
old feudal hereditary aristocracies of Europe. Is this the direction
in which we are moving, only with the addition of entities like
sovereign wealth funds and "oil giants" added to the mix, with
a few smaller? giants like the Rothchilds or Kochs thrown in for
good measure. The reason I wonder about this is because of a
somewhat cryptic little passage from one of my FOA "talisman"
pages, my "favorite Texas story". Here it is;

"Any person of clear vision could stand upon the highest
mountain, look 360, and see that this country is not the same
body it started from. Our codes of conduct, perceptions of
right and wrong and even our attitudes of wealth have all
been diluted from other sources. This is not to say it's good
or bad, as (my caps) THIS DILUTION OFTEN COMES FROM
FOREIGN POLITICAL PERCEPTIONS THAT PRECEDED OUR
NATION'S HISTORY. IN SOME WAYS, IT PREDATES MANY
GENERATIONS. Right or wrong, good or bad, some of these
accepted political directions have been used a long time."

Hmm. What does that mean? Is he referring, when he
speaks about how we "started out" to something like
Ben Franklin's response to the the query, "Well, Dr., do we
have a Monarchy or a Republic?" to which he replied, "A
republic, madam, if you can keep it."
Well, we know that we haven't "kept it". So what, then, are
the "political perceptions" that PRECEDED our nation's history.
It certainly wasn't "democracy" with universal suffrage, which
is what we "formally" if not actually, we have at present.
Could he be referring to an older form of rule, but operating
in a modern setting, a sort of cooperative global aristocracy?
I don't know what FOA meant, but it makes for an interesting
conundrum, no?

Yesterday was my 68th. 2 more years to 70. Whoopee, and of
course, GREETZ!

ampmfix said...

HB Woland, may your mind be in the same shape for many years to come! thanks for all your comments I particularly like them.

Andy said...

I like Beer Holiday's and F's thoughts about after gold is set free.

I've tried mostly unsuccessfully to get people I care about to buy physical. When those efforts fail, I try to get them to at least read this blog so that they might eventually gain an understanding and possibly change their mind about physical. When that fails, I try to get them to read other sites (that require less thinking) and I try to trick them into buying physical for the wrong reasons (but for reasons they can get behind). When those efforts fail, I try to get them to just simply understand what hyperinflation is with the idea that even though they won't be financially prepared, they'll be less likely to go into shock and think that chuds are taking over and become mentally ill. When those efforts fail, I come back here to read new comments.

But always wonder what the masses will think, once the dust settles. Will high school students learn about math and language and gold? Will economics students study supply and demand and Keynes and Austrian and Freegold? Will everyone come to learn that this massive change that affected everyone's lives was in the pipeline for many years and many some people saw it coming and prepared for it and some smart ones even helped engineer it way back? Or, will the masses think that people who coincidentally happened to own gold got really lucky? Will they think that the onset of Freegold was just one of those things that happen, like tsunamis happen and earthquakes happen and flash plugins crash? Will this blog just fade away, kind of like Another and FOA almost did? Or will FOFOA become a guru and go on speaking tours? How will "experts" explain the newly uncovered discrepancy in official gold holdings by some? Will they still publish the Forbes list and how different will it be? Will I have to go into hiding because I linked too many people to here? etc. etc.

Motley Fool said...

Andy

Good questions. :)

Also, share your frustration in getting others to listen/understand. I'm sure we all do.

TF

Woland said...

Hi Andy; Welcome to the forum.

Fortunately for you (and us) your question has been answered,
(though not the Fofoa part: no one can know if he will get his
own talk show) Via the great Max Planck:

"A new (scientific) truth does not triumph by convincing
opponents and making them see the light, but rather
because its opponents eventually die, and a new generation
grows up who are familiar with it."

It's just part of our human nature that most of us, after a
certain period, acquire opinions which, backed by our own
experience, and thus the emotions we invest in those opinions,
become very hard to change. You can see it in every field of
endeavor. Cheers.

Anonymous said...

Hi Woland,

I have only seen 1 40 minute talk by Bernard Litaer on Youtube; sounds like you're more familiar wit his work in detail compared to me. I just liked him because he dared to criticise Paul Krugman from the perspective of a (albeit former) central bank employee.

As for your "Any person...long time" quote...honestly it confused me. I don't understand what you were saying, but I note you said..."envision a sort of global aristocracy"...as if one doesn't already exist? My question would be when has there not existed a 'global' aristocracy. Someone has always had more wealth than anyone else at anyone point in human history. My point was just that, people with an unusual amount of property have an interest in promoting structured legal systems in a polycentric universe of Law safeguarding private property rights (Guggenheim Fellow -> http://www.youtube.com/watch?v=JA7keww37j0), like poor people do.

Anonymous said...

PS I think FOFOA will probably wind up being more known to future generations than Noam Chomsky, for example.

Lord Sidcup said...

Woland

Lietaer seems a good guy.
But if, as he claims, he was one of the architects of the Euro, is it feasible that he would nothing about Freegold/the 'real' function of the Euro?
Various remarks in this video suggests that he is totally ignorant of the idea.
http://www.youtube.com/watch?v=6pVXBts2PXg

Is that argument against Freegold?

Woland said...

Hi CyrilBe; regarding aristocracy,

What I meant was, we've always had a globe, and there have
always been various "economies" ON it, but it is only relatively
recently that they have become fully integrated ACROSS it. Via
both the multi-national corporation as well as multi-national
state owned enterprise. This constitutes a difference of scale
relative to past history, and perhaps a difference in kind. It also
produces an "aristocracy" whose hegemony encompasses more
PEOPLE than ever before ( and is thus more remote from them),
in part because energy / technology have enabled populations
to explode.

Re: Litaer, he has a website. That's where the "terra" comes from.
As far as the FOA quote, I'm also confused. I was just hoping
to get a better perspective from some of our 300 watt bulbs.
cheers.

Lord Sidcup; Maybe he wasn't an architect, but a draftsman.
Frank Lloyd Wright had a lot of very talented draftsmen who
worked for him, but who didn't design the buildings. Also, I
think the greater role of gold within the structure of the euro
evolved over time. The pure concept of Freegold comes rather
late, if I am not mistaken? anyway, my 2c.

Woland said...

BTW, Litaer worked principally on the convergence mechanism
of the pre-euro national currencies. That was a specialty unto
itself, and was independent of the euro's deeper purposes.

Tyrannyofthepresent said...

Costata,

Delighted to hear that you have written a critique of my posts. I will look forward to reading it either here or on my blog.

You are most welcome to do further background research into any of the comments that I have made, but I will not be trying to satisfy your clearly very stringent standards of evidence. Those to whom the posts were addressed have answered my points courteously and to my complete satisfaction.

You have raised my expectations as to the standard of argument and evidence in your own response, so I do very much look forward to reading it.

Michael dV said...

One aspect of support for the dollar that I had not considered much is the forced purchase of AAA securities by pension funds and other producers. These funds are usually not allowed to buy gold. As long as this policy is in place it does not matter that it makes no sense to buy treasuries. There may simply be no alternative. As long as some of the world remains productive and the excess is forced into the service of the dollar we could see longevity of the $IMF way past the point of support that active thinking investors would give it.
How big is this component? I do not know. Probably not as big as what China provided but it could be enough to keep the dollar going for a long time. The Fed would not be the sole purchaser and could point to this support as an argument that the dollar is still precious.

jeb said...

Michael dV, Would Gold still bid for USD in your scenario?

costata said...

Tyrannyofthepresent,

You wrote:
You are most welcome to do further background research into any of the comments that I have made...

You are most welcome to continue spreading silver mythology without any basis in fact but you should do it in forums where people are disinterested in facts.

.., but I will not be trying to satisfy your clearly very stringent standards of evidence.

Something above nil evidence is hardly stringent you bloviating twerp.

Motley Fool said...

costata

Simply because I am curious. Are there any statements made that you find contradicting fact?

I work on the assumption that we all have a general working knowledge of silver's history, and historic price moves, and for that reason do not feel the need for links showing proof every time a discussion is had on the subject.

I did not see anything stated that contradicts what I know about silver, so I will take this as an opportunity too learn if you can show me what is wrong in my knowledge.

Sincerely

TF

costata said...

Michael dV,

The institutions who are required to buy highly rated bonds do provide structural support to the existing system. And since their performance is based on nominal returns they can be expected to support the status quo to the bitter end.

However, they are also subject to redemptions at some point. Mutual funds are but one example. If investors want their money back then these funds must liquidate. Demographics should also be factored into this. As the baby boomers retire their pension funds will be drawn down. This cycle has already begun in Japan.

Then there is this:

What I found startled me: Nearly 50% of the total outstanding debt of the world's top 10 debtor nations needs to be rolled over by the end of 2015.

http://www.financialsense.com/contributors/chris-puplava/global-qe-coming-let-gold-mania-begin

There is nowhere else to turn other than to the printing press.

costata said...

MF,

I'm not going through his material and deconstructing it. Let him do his own work on this and either back up his assertions or invalidate them by his own research.

If, on the other hand, you have some specific questions I'll be happy to respond.

Motley Fool said...

costata

Of course.

At present tyranny has only written one in a series of intended posts, and thus far I am unconvinced, but still willing to listen to the arguments presented.

My query was simply about the four point question directed at me which I assume you were addressing, as lacking validation.

TF

costata said...

Okay MF,

It wasn't just the two comments I highlighted that I was reacting to but point taken let's see if his subsequent posts display any substance.

Cheers

Edwardo said...

Costata, with regard to your reference to Chris Puplava's research, I have to wonder if, as per the following interview ,the particular data point Puplava mentioned isn't one that Jim Grant hasn't come across in what must be fairly extensive research for his esteemed newsletter. This, among other observations, may be informing his apparent call for a secular change in rates to occur, if it hasn't already, relatively soon.

Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...
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byiamBYoung said...

@Woland,

Happee BIrthday! You are one of my favorite posters. I have my list of characters that I scroll straight past, but I always read (and usually re-read) your comments.

I hope you were able to spend your special day with the important people in your life, and I hope you had some fun.

Cheers

Beer Holiday said...

@ Woland

Great comments as always.

A smallish number of great rich families is where we have been for most of human history IMHO, not necessarily where we've going but history would suggest so.

As for the FOA quote have an opinion but as a skippy, please take this as an outsiders view looking across the pond.

I see it applying to all of current day US society Vs the original intent of the founding fathers. The US was once the free-est people in human history. 200 years later we find that people generally don't want to be free, they want some flavour of socialism.

Back home, Australia began 200 years ago as the worlds first and hopefully last prison country. The unfree-est people ever! What did we do? evolve into a freeish socialism just like the US :-)

Iets stick with the money. My guess is FOA was in part referring to the creation of the FED central bank, a European idea, spread by the great banking families of Europe. Not a good or bad thing, just a great match to our human needs but it basically flies in the face of your constitution. It lead to "tax on income" which was the final nail in the coffin of the original vision (for better or worse).

Edward Griffen has a great thesis on it the creature from Jekyll island (about 48 minute mark). I recommend filtering out the HMS and conspiracy theory view he has, and your left with a very interesting history of the Fed* and how the great banking families of Europe came back (never left?) to the free-est people, because they are a perfect match for human behaviour.

PS I'm younger, poorer, and less smart than you so please forgive my past discretions.

Edit: deleted above posts get the link time correct :-)

* I guess skip past all of the "what is money/fractional reserve banking" stuff. Actually, maybe the above link isn't worth time? Except for the actual creation of the Fed bit. I wish he would just stick to his book, which is a great, and not try to drag it out....

costata said...

Edwardo,

It wouldn't surprise me if Jim Grant is watching the same numbers. In Doug Noland's latest newsletter I note corporate bond issues are also back up around record levels.

Depending on the flavour of M you like to follow cash and equivalents are at record levels as are foreign holdings at the Fed.

All,

Some interesting stats out of India (my emphasis):

http://www.bloomberg.com/news/2012-12-11/india-must-tap-household-temple-gold-to-reduce-imports.html

...India’s current-account deficit widened to a record $21.8 billion in the quarter through March and was $16.6 billion in the three months through June, official data show. That’s weakened the rupee 2.3 percent this year to 54.3200 per dollar after an almost 16 percent plunge in 2011....

....Gold imports account for 80 percent of the current-account deficit, the central bank’s Gokarn said Nov. 25....

From a report in October (my emphasis):

..."The CAD has improved for all the wrong reasons as the decline is due to imports being squeezed, including capital imports, reflecting the slowdown in the economy," said Jahangir Aziz, chief Asia economist at JPMorgan. "So, the fact that the CAD has declined should not be taken at face value as implying that things have turned around...."

...If the top policy makers are averse to debt-creating inflows, they should worry more. The ratio of short-term debt, maturing over one year, rose to 52% of the total foreign exchange reserves at $150 billion, from 43% at $137 billion a year earlier. This debt, coupled with any stalling of reforms and a global slowdown, could reverse the currency trend quickly and damage the economy...


http://articles.economictimes.indiatimes.com/2012-10-03/news/34238825_1_oil-imports-raghuram-rajan-short-term-external-debt

The Indian government appears to be between a rock and a hard place.

costata said...

Woland,

Belated Happy Birthday.

Cheers

Woland said...

Hi Beer H;

You know, it's interesting that, coming from USA or Australia,
we probably don't think of being from "virgin territory". But
we are, relative to Europe, Mesopotamia, India, China. Those
places are the homes of "ancient civilizations" whereas we are
living in the spaces formerly populated by now obliterated
civilizations. BTW, sorry to learn we'll probably miss you this
year in LV. Perhaps another time? And stop beating up on
yourself, when you have so many good thoughts to contribute!
Greetz!

BTW. I enjoyed the Griffen piece some time ago, just for the
historical view. If that were its ONLY value, it would still be
well worth the time spent. How many people understand the
circumstances which led to the Fed's creation??



Woland said...

Thanks, Costata.

A birthday wish: "May Bernanke, Kissinger, and the ghost of
Tom Enders stick us with a ton or two of gold where the sun
don't shine." Greetz!

Beer Holiday said...

@ Woland,

LV is still on the cards, viva Los vegas !

Have a good birthday :-)

Cheers
BH

ampmfix said...

You are welcome Woland!

Beer Holiday said...

@ woland,

In Australia, we didn't obliterate a civilisation, but a very unfortunate and beautiful nomadic people. The Guns germs and steel thesis has never been more correct than describing us.

I go on too much about my home land on this blog, but I think Aus is an important place to study because it is so very different to the rest of the world , if a solution like freegold makes sense here (it fits perfectly BTW) then it is a very strong contender.

costata said...

I've been thinking about a curious aspect of the citizenry's response to all of the hyper-inflation events over the past 100 years. The issue that I found puzzling is that in every case another fiat currency was adopted as the secondary hard money.

I think I may have stumbled across the explanation in that recent comment I made in which I tried to summarize some of the key aspects of the gold versus silver debate. Over a long period of time a numerical monetary system won out over weight based systems.

So it may be that people have become "hardwired" to adopt a numerical, fiat alternative when they have low or no confidence in their local currency. If so, another nail in the coffin for commodity money.

I suppose availability could be another factor. I have seen reports that on the periphery of large economies, such as China, the stronger currency tends to develop an informal secondary, hard currency status in the adjoining parts of neighbouring countries. Of course this could also be trade related.

I think this may also provide another good argument for Greece remaining in the Euro. The citizens might simply use a new drachma as their soft money and continue to use the Euro as their hard currency. In other words it may not even be possible for the Greek government to successfully reintroduce the drachma.

costata said...

Extending those thoughts about HI events at December 15, 2012 6:19 PM I'm also thinking that pundits who talk about fiat currency failing may be barking up the wrong tree.

Rather than a loss of confidence in "fiat currency" it should perhaps be looked upon as simply a loss of confidence in a currency. This in turn suggests another question. What is the citizenry's focus? What do they lose confidence in? The currency itself, the issuer or the government as the proxy for the former?

Incidentally while I'm on the subject Nathan Lewis argues in his book on gold that both the Russian and Mexican currency collapses could have been avoided. He also presents evidence from the public record that both governments were advised by credible experts on the measures required and these experts were ignored. Large fortunes were amassed in a few hands as a result of these decisions.

And it just occurred to me that the US government could employ the same strategies recommended to Mexico and Russia if they chose to do so. I'll do a transcript from the book at some point. It will be lengthy but it may be of interest to the discussants.


Rui said...

@Indenture

Quote:"RPG is offering something new that the $IMFS does not offer. RPG offers unfractionalized purely allocated gold."

IMHO neither RPG nor $IMFS is new if we look at the struggle b/t paper money and gold throughout the monetary history. An honest gold price is pain in the neck to the paper issuers so they always throw some shenanigans (such as $IMFS) at it.

Even with RPG and the option of saving in gold, savers are still looted by the paper printing as I've shown already so FG does not do as good a job as it's been advertised. Then you have B/G not willing to play the RPG ball, so it could get worse from there and probably will.

Not trying to sound arrogant but I'm not here to "learn". I have already noticed a few holes in FG theory so I merely come to the thread to point them out.

Anonymous said...

Beer Holiday,

What if Governments, faced with the reality of the freegold solution (the only real solution), but a population who do not get it, just confiscate gold, take from miners also, and redistribute gold to the public roughly matching citizens existing wealth.

I think you are quite close to what will happen in the Euro zone - except for the confiscation part - that's not needed because the Euro zone already has so much official gold.

When the confidence in debt disappears, the ECB will print enough in order to maintain their 2% inflation target. This may be a lot. Eventually, the ECB will end up with a bloated balance sheet with a lot of government and perhaps other bonds on it and too much base money on the other side. Also, the Eurosystem CBs will have a huge imbalance of payments recorded in their TARGET2 accounts.

In this situation, it would be very easy for the indebted governments to pay off a part of their debt with revalued gold. That will be a price at which everyone agrees that it is time to sell some gold! The ECB can then use that gold in order to reduce the monetary base to a quantity that will be sustainable in the next upturn of the economy, and the old savers of debt who initially had bonds and then got bailed out with base money, can acquire some gold - post revaluation, of course, that's what happens when you are too late...

We should keep in mind that the huge amount of official gold that still exists today, is a rather perverse historical anomaly. It started after WW1 when the U.S. had a huge inflow of gold as they delivered goods to Europe. Then, in 1933, they confiscated all the gold in their financial system and acquired a sudden 20000 tonnes (forgot the exact number) of official gold. Before 1933, there was no 'official' gold, but rather a reserve in the commercial banking system, managed by the Fed. After 1933, the Federal Reserve system no longer had any hard banking reserve, but suddenly the government had some 20000 tonnes in their own account.

Later, under Bretton Woods, the U.S. had a trade deficit with their European allies, and Europe acquired some 12000 tonnes. In some sense, much the central bank gold we keep talking about, exists only because of the U.S. gold confiscation in 1933.

Victor

costata said...

I loved this line:

I'm not here to "learn"

Noted. And this priceless piece of factual error:

..if we look at the struggle b/t paper money and gold throughout the monetary history.

Struggle? Paper clearing system emerged right alongside gold to complement a gold/specie based monetary system. It usually took the form of bank notes, letters of credit, bank drafts or some combination of the aforementioned.

In every instance it was welcomed by the users due in part to the security it offered in not requiring the physical transfer of gold.

Two of the most famous examples are Genoa in 1445 and in the 150 year period of the Scottish Free Banking period prior to 1845. Keen students of monetary history might investigate other examples from the period when Amsterdam was the financial capital of the world and also Sweden's Sveriges Riksbank which is around the same age as the Bank of England.

Anyone interested in learning about the Genoa era could read this:

http://fofoa.blogspot.com.au/2011/09/once-upon-time.html

Here's an extract (my emphasis):

But in 1445, as Rueff tells it, Benedetto "was quite aware of the fact that for half a century a large number of trading countries had adopted the gold standard. One after the other, Egypt, Syria, Yemen, Hedjaz, and some parts of the Greek world had adopted… gold." (Reminds me of a more recent Trail Guide who noted a certain Eastern taste for gold.)

In his majority report, Centurione wrote, "The banks will be obliged to pay in [gold] florins, exchange will take place in [gold] florins; in this way gold will not leave the country and, in time, by driving out bad money, it will constitute the wealth of the people." This was the opinion that prevailed in 1447.

Soon the banks were required to settle credit imbalances in gold, the new banking system reserve, and to deposit one hundred gold pieces as security for fines in case they broke the rules. And all bank drafts drawn on Genoa abroad had to also be denominated in gold, thus making it the new international bank reserve, in the modern sense of the term.


As FOFOA put it (my emphasis):

The first committee declared gold the new, sole monetary reserve, unleashing its 500-year reign as the governor of supply and demand that would act as the natural counter-balance to international trade for the next half a millennium.

Bank drafts were central to this gold standard from virtually DAY 1.

costata said...

I was responding to Rui's comment at December 15, 2012 7:18 PM containing his "not here to learn" line.

Kieran O B said...

Aristotle:

In addition to the money-changing manuals that served to document the metal(money) content of the coins from the various known mints, the merchants had scales to verify the sum of coins offered as payment. However, the good quality and reputation of these scales was seen as suspect in the eyes of the shopper even as the coins were seen in the eyes of the merchants.

Smith wrote: "In order to remedy inconveniences, a bank was established in 1609
under the guarantee of the City. This bank received both foreign coin, and the light worn [and other debased]coin of the country at its real intrinsic value in the good standard money of the country, deducting only so much as was necessary for defraying the expense of coinage, and other necessary expense of management. For the value which remained, after this small deduction was made, it gave a credit on its books." Here you see the coins naturally coming out of circulation in favor of "mathematically certain" bank accounting.

Kieran O B said...

Aristotle:

***A growing economy (complete with rising prices from a "softer" currency) raises the customers' demands upon the banker's art of money creation, widening the gulf between here and reality...between the vast amount of banking credit and the small original amount of real wealth-deposits upon which it was all built.

***Because Coin and bank-credit circulate as equivalent, interchangeable currency and means of payment, the value the currency-unit, regardless of form (Gold coin or paper,) falls in accord with the growing supply of bank-credit.

***Thus, when the value of the coin comes in time to be viewed as merely a representation of the abundant supply of credit-money and thereby fails to reflect the value of its metal, from a practical standpoint it might as well be made out of anything at that stage.

Anonymous said...

@Woland (Happy birthday, by the way!)

You said, it's "only relatively recently that they have become fully integrated ACROSS" Earth through "multi-national corporation[s] and multi-national state owned enterprise[s]" so that this ('aristocracy') now "constitutes a difference of scale relative to past history" and "perhaps a difference in kind".

I agree with you on the "kind" but not necessarily the "scale". "Kind" because now it is becoming more profitable, I would say far more profitable than it ever has been for well to do people to co-operate with less fortunate individuals, for the above mentioned reasons vis a vis the safe guarding of private property rights, amongst various other reasons I won't bore you with. However, on your "scale" point I am not so sure. By no means am I claiming to have a definitive answer in this regard, but forced to speculate I'd say that the scale of well to do people is in relative terms not necessarily large than in times past, if one accounts for technological changes along with population growth. It leads to me think that, though undoubtedly powerful, well to do people might even have less of their "hegemony" encompassing people, particularly when you consider the degree of competition that now exists. I would argue it is next to impossible to maintain any type of monopoly over the medium to long term nowadays, be it State sponsored or not. Remember, we're living in the first few stages of what people are calling an "information revolution" at the moment, to the extent that Yale scholars are now writing op-ed pieces like:

"The Constraining, Liberating, and Informational Effects of Non-Binding Law" http://www.law.yale.edu/documents/pdf/LEO/LEO_Stephenson.pdf

Beer Holiday said...

@VtC

OK, but what about the former $IMFS faction countries with who aren't allowed to keep gold reserves, or even buy gold when it is the most obvious thing their central banks should do?

Will their citizens buy gold from their own miners, Europe, the Fed when? Or are we looking at confiscation.

I do realise that citizens gold in these regions is also tiny, confiscation probably won't be worth it, and half the gold hoarders (evil little gold gremlins they'll call us) have seen the potential for confiscation a mile away and planned accordingly :-)

But it still leaves the question, what will the US and the $IMFS countries do to get the initial conditions for freegold to take off ? I'm arguing the initial condition is all citizens have a bit of gold to start with, for peace of mind and to avoid a chaotic frenzy.

Thanks
BH

costata said...

BH,

I don't want to butt into your conversation with VtC but some local colour might help here. One thing the Australian government could do is pitch the mine supply takeover as being somewhat akin to the existing "Future Fund" or a sovereign wealth fund.

That could fly as a marketing approach "Holding the gold in trust for all true blue Awstraylyuns". Total BS of course but perhaps the punters would swallow it.

I think the retail demand would be satisfied with some portion of the gold mined in Australia fabricated by the Perth Mint and banks providing the distribution and custodial services. This would also help with currency management.

Beer Holiday said...

Thanks Costata,

Also I don't mean to direct conversation @ a person, but reply to them? Maybe I'm not the best at internet communication or communication in general :-) .

Beer Holiday said...

And Costata, you are right again, that would work for Canada and Australia, maybe South Africa too. So that fixes those $IMFS members already (is south africa a "member")

PS lets hope they keep their hands of Perth mint allocated/unallocated :-) .

Thanks
BH

tjp said...

Hi All

Thanks FOFOA for your incredible work.

First post but a long time (very long time) lurker.

Great blog site, full of very switched on people. One of my goto sites.


This is my story and argument against FreeGold. But I hope I'm wrong.

In 2005 I had what I call a life re-education. This started by very thoroughly researching major news and media stories, particularly 2001 events - (please I will not enter into any discussion about this).
After approx 9 months I come to realize that a vast majority of news and / or events were being manipulated for social conditioning.

The next question was - why is this happening?
After more research, which went down many paths, I decided that the main thrust for the propaganda was economic. But why?

I read and researched, being an Electrical Automation Technician, I had I lot to learn.
Long story to short story - In 2006, the answer I thought was the USA is in very big economic trouble.
This also made a lot of other world events fall into place:)

I started emailing other people very detailed information and web links on what I found. During this time I received 2 emails that made it appear that I was a potential Terrorist. It became very apparent that I was being monitored.
Now when I tell people this, they don't believe me. They find it hard to understand why a normal law abiding citizen would be monitored.

Now to my main point.
I totally agree that Freegold should and must happen. All past history shows and suggests that Freegold should happen.

The BIG BUT - BUT this is the first time in all history that the elites have incredible technology for surveillance and the means to wage war at all levels. War against individuals, war against nation states and war against everything in between.

From what I see, the elites will not let go of the power they have. They must have an economic form that is manipulable.
Hence Global Climate Change leads to a Carbon based global economy. Do your own research, it's not that hard to find.

I am all for Freegold and purchased physical gold some years ago. Also I believe that there will be severe upheavel as the changes take place. This probably will allow gold to poke it's head up to be noticed, and selling at the right time could return big profits.
But this time in history, technology is a game changer.

Thanks
tjp

Beer Holiday said...

Hi tjp,

Nice to meet you.

IMHO the century of wars is ending. The cold war was the point at which states like China called the bluff with "you can't really wage a modern (nuclear) war because you'll destroy the planet in the process"

Now we see some lame currency wars which won't change the big picture.

It has been a century of great wars, I see freegold as the only solution for everyone.

I might go reread FOFOA's " Does Fiat Produce an Endless Sea of Wars?. " and the comments.

I'd better stop hogging the comment section, so good night all :-)

costata said...

tjp,

Thanks for contributing your scenario. If its any consolation we don't know who holds all of the 140,000 +/- m/t of gold outside the CB reserves. If the 'elites' have most of it then a system reset through Freegold-RPG may be desirable rather than something to resist.

Cheers

Beer Holiday said...

Here is Niall Ferguson's take on the century of war (four parts) for those interested.

Anonymous said...

@FOFOA Yes you are right. My EyeTube account has been "disappeared" probably by a music lover.

Dear FOFOA, I have read your suggested articles but confess that I must be as thick as two short planks because I still cannot see what the mechanism is that will be different during the "transition" that is not in operation here and now to steal my "Gold"

You say:-
And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time."

I say:-
I think I can understand why you don't want to discuss the matter at this time.
As a person who has just gone through the process of opening an Depository account with Perth Mint I am more than curious as to how they might default on their guarantees during the "transition".
Maybe Bron or one of the FOFOA intelligent regulars can help me see the light. Living in a Socialist country, as I do, is not the best place to have any wealth, no matter how little or how well buried.

Further to this comment FOFOA I posted it onto Bron's site as I was having extreme difficulties posting it here. I hope I have not blotted my copy-book with you. I'm really trying not to be my usual un-diplomatic self. I'm trying to avoid any "financial regrets".

Beer Holiday said...

@duggo

She'll be right, mate.

Here's Bron's post on confiscation probabilities link, hope it helps.

FOFOA said...

Hello Duggo,

All I can say is I am certain that I cannot alleviate any concerns you might have regarding your Depository account with the Perth Mint better than Bron.

Sincerely,
FOFOA

Anonymous said...

@ Beer Holiday

Thanks for the link. It makes for sobering reading and reflection. It would seem that having an account with Perth Mint wether unallocated or even allocated is only really good for a hedge against currencies. If TSHF then all you get is cash at the rate the government deems necessary. Good-bye to any Gold you might think you are holding. As the "guarantee" is only as good as the government allows it to be I wonder why people would hold "allocated" and pay fees. Doesn't make sense.

The "get-out" is always in the small-print and my eyes are not as good as they once were!

That's the way I see it unless someone tells me otherwise.

Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...

I second FOFOA, ask Bron I'm no expert - i call myself a hobbyest FWIW.

H. M. Socialist said...

Not trying to sound arrogant but I'm not here to "learn". I have already noticed a few holes in FG theory so I merely come to the thread to point them out.

+a large number

See you guys? Me and my hard money homey Rui, we GET IT, ok? I know it may sound shocking, but I too was once a piece of freegolder cultist scum ::sobs:: and I too subscribed to to this ridiculous idea that gold bids for dollars (LOL), that the medium of exchange can be separated from the store of value, the pure money concept, etc. Then I learned from highly credible sources that all central bank gold is really gold-plated tungsten and that the primary weapon the ELITE use against the people is FIAT CURRENCY. This was corroborated by many other fine analysts who also told me that silver is the people's money, and that it is being suppressed by that evil witch Blythe to keep the people in FIAT. The people really want SILVER as their money!

There are so many things freegold does not address! What about the Annunaki? The Bilderberg group? NWO? The Illuminati? You'll notice that FOFOA is curiously silent about all these things. This silence speaks volumes to me, and it should to you as well. I wept once I finally realized the truth. How could I have been so deluded as to subscribe to this idea of freegold? But this is how we grow. I also once believed that the moon landings were not a hoax and that 9/11 was not an inside job! I know, it's shocking! Consider this this my confessional.

So you see we're just trying to HELP you freegolders! Please: help me help you. Take my hand, let me be your guide to a hard money wonderland!

Tyrannyofthepresent said...

Costata,

Many thanks for extending my vocabulary and for furnishing me with valuable insights into your own psychological approach to this debate.

Edwardo said...

Attention, H.M. Socialist,

Let me guide you to a Boogie Wonderland

Costata, I look forward to your transcript.

Edwardo said...

craptastic.

Tyrannyofthepresent said...

Costata,

I have just read your "open silver forum" posts 1 and 2, and all the comments, including your early responses to people like Desperado, BitingSilverBug and VTC. In fact I have read the post itself several times, but today for the first time all the comments and responses. That was clearly quite a marathon last May.

That thread also addresses the perceived harsh style of responses to "silverbugs" and the atmosphere of "groupthink" on this blog. Although I am not keen on polemic in general, the facts are clearly more important than the tone, and the atmosphere on the blog doesn't matter much to me either. Just who is getting it right.

Specifically you referred in that thread to a GSR "longer post" that you were planning, but I was unable to find it. If you have incorporated it into something else or if it is elsewhere, I would be grateful for a pointer.

At this point I am keen to do more careful thinking, not so much number crunching or citation-flinging because - because like it or loathe it I am a vague, inductive thinker and like to pull in strands and try out ideas. What interests me is possible market drivers of future GSR and G?R that people have identified, under different conditions that I can find plausible, including but not exclusively Freegold. This exercise requires not only a multiaxial understanding of the conditions hitherto, but also a lot of imagination.

I was particularly interested in the distinction between "possibilities" and "probabilities" which you conceded in that thread, and these "possibilities" are what I want to try to weight in my own mind. And not only for silver.

There is no point in my continuing to present a polemical insistence on the survival / weighting of silver as a meaningful asset allocation under Freegold until I am satisfied of future market drivers that I can believe in for both a monomaniac Freegold environment and a multi-asset "free commodities/assets/monies" environment, other (intermediate?) scenarios. The pace of upward revaluation is also important, since I would expect silver to follow better in a gradual revaluation but to fail more signally in a step-change. You may disagree.

The supposed collapse of traditional asset allocation psychology among the rich is something else I want to think about - in fact this seems unlikely to me a priori, and drives my continuing search for alternatives to gold. I am aware of the "gold is no longer risky so asset allocation to reduce risk is no longer necessary" argument, but not convinced.

I don't expect to arrive at a clear picture of the future, but I am attempting to weight risk for my own portfolio so I do have skin in the game. It currently targets physical 50:50 by value and no other assets because I perceive roughly equal risks to the overall holding from intermediate-term collapses in the GSR or continuing erosion of the GSR due to the 2:1 leverage behaviour of silver, and from a Freegold scenario as set out on this blog in which silver and the commodity complex become demonetised and effectively "fail" as savings vehicles.

I am asking you specifically despite the fact that you seem to find my posts annoying, because you have clearly poured a uniquely large amount of work into this specific aspect of the Freegold story and from a very different (i.e. detailed and focused) approach.

Anyway, I will be grateful for any pointers towards more material on the drivers of peri- and post Freegold silver. And I am not into making any more assertions until I have clarified the weightings of the different scenarios in my own mind.

Indenture said...

Rui: We like to learn.

I'm guessing you have a problem with paying an evil banker a fee to keep inflation at 2%.

Tyrannyofthepresent said...

PS Costata,

When specifying the risk to my holding under a given portfolio GSR, it is expressed as a percentage of the potential value in real terms (i.e. as measured in non-investment assets such as food, healthcare, transportation) at various future points if I had held only the best-performing asset in the class. I have specified the method of calculation because I realise it is an unusual way of quantifying risk.

Anonymous said...

@Tyrannyofthepersent in regards to Costata “open silver forum”

I’ve read Costata’s silver vs. gold posts as well plus followed up on all the external links. In the end I came away even more bullish on the ‘long’ term prospects of silver. Important safety tip, its really important to covert all the numbers from all the various external links into a common weight system; I used metric tons. After this it was much easier to sort out the sweeping trends between gold and silver over human history. In short at no point in human history is a 15/1 ratio justified let alone given the past and ongoing rapid depletion rates of silver. My rough guess is that a steady state point of between 1/1 and 5/1 will be reached about 2-4 decades from now.

Using the Costata’s links, the silver cube and the gold cube will be about the same size less than 20 years from now even at 20/1 price. The big difference is that ‘most’ of the silver cube will still be below ground only with a higher price for energy attempting to extract ever diminishing ore grades; a triple whammy of low above ground supply, diminishing ore grades and rising energy prices.

Now I understand gold’s clear role as the king of SoV focal point ‘right now’ (i.e. stock to flow, creature of the central banks, etc.) but I think silver will become more and more like platinum even under a silver is still just a commodity scenario with more than an even shot at being gold’s ‘not’ so little brother for us younger SoV seekers. Now I fully realize I may be missing out on the full measure of the moon shot price increase for gold, but the value of SoV diversification should never be underestimated.

For the record when it comes to the precious metals portion of my outside the system SoV portfolio I’m running at a 50/50 ratio gold/silver. Because silver continues to out pace gold it keeps ‘forcing’ me to buy gold :) in order to hold that line; at least at the rate of ‘net’ production this shrimp is capable of anyway after the system has taken its cut. I plan on holding that line post Freegold as well for what its worth should that occur. What’s really great about diversification is that you can always use the gains in one SoV area to rebalance and/or protect other SoV within portfolio.

Diversification is the key, because to quote Yogi Berra “It's tough to make predictions, especially about the future.”

About the only thing I’m fairly confident in predicting at this point is that at present there are many more paper claims/promises on existing wealth and net production out past even a hundred years than can be justified ‘at existing prices, $/stuff’. At some point these paper claims will need to be reconciled with the realities of physical world.

So by all means everyone should be holding what is the the king of SoV right now but don’t forget about all the other types of perhaps lesser SoV as well, especially those that aren’t even precious metals. Under some circumstances, scenarios and time frames all types of SoV may yet have their day in the sun.


Michael dV said...

HMS
I finally found the unifying hypothesis that explains...well everything! and more! I spent a slightly sloshed hour watching this and I think I am saved. If I can get on the right node that overlies our planet and line my own personal whatchamacallit with the spiritual centers of the Atlantians and avoid Martians. They don't really discuss silver but I'll bet if you meditate you'll find the link.
You will have to enter this into the YouTube search because the new 'even more wonderful' Mac OS has eliminated that pesky URL from the web page so now you don't worry about where you are...or doing that 'sharing' thing.
Hidden Human History Movie - Hypothesis for Consideration Purpose Only! [Extraordinary Theory]

Michael dV said...

With mental superpowers I forced Youtube to yield a URL to the silliness mentioned above:
http://www.youtube.com/watch?v=uAm-kbzT7xw

Tyrannyofthepresent said...

spaul67,

Thank you for sharing your very interesting thoughts. SoV asset allocation is what it is all about for me, too. I am lucky enough to have insight into the priorities and behaviour of quite a population of 7 and 8 digit asset allocators, and I think you are on their wavelength too in terms of the overall approach, although of course most are not interested in silver (or gold). Conservative is the word, and the other word is conservative.

Caveat: there is a problem with rebalancing, to which they are exposed (and so are you, if you carry on as you have stated). Assume zero inflation. Start with two or three assets, equally balanced. Then rebalance annually over 20 years while the successful assets put on 10% per year and the third drops linearly to zero. Model it in Excel. See what I mean? You lose everything.

To avoid this problem, you have to commit yourself in terms of metal weight or take a principled stand. This means that if one fails completely, you have to avoid the temptation to buy more of it AND you still have to carry on buying the other one.

Since I started 100% Au in 2007 and went against FOFOA's advice to give Ag a full weighting in late 2008 - can't remember whether I actually read it or not back then - 80:1 was my initial reference point. This looks very bad if Freegold comes out exactly as this blog suggests, with Ag negligible.

Tax issues make big rebalancing moves inefficient. Hence my decision to calculate the plausible extremes that we could see and then use a log average of the two as a weight ratio. This blog, however, has some very, very extreme extremes which are still quite plausible. As for your (Pt!) extremes, I have always taken those seriously, although the time frame is insanely difficult to guess at.

If I can weight the probability of a Freegold-like scenario and model its real-world impact on silver in the medium term, I would be happier with my high-GSR bound. To be certain of preserving anything, you actually have to put 50% of your starting value at risk and keep it there, but the question is which starting point to choose.

KnallGold said...

I like the KISS method, "keep it simple, stupid!".

FOFOA presented the savers and spenders dichotomy, I think it's the same with Silver and Gold. Silver is for spending, Gold for saving.

FreeGold, taxfree: everything else makes no sense, no?

Best Regards,
KG

Woland said...

Hello Fofoa;

Have you ever considered consulting for a major bank? Say
JPM? You could just show them your dated blog posts. Why
not give them a jingle? From JPM, via Zero Hedge;

"Since the end of 2008, QE has accounted for about 35% of the
government deficit. Coupled with a lower government deficit
next year, to around 6% of GDP, this means that QE will offset
almost all of next year's government deficit." So I guess if they
buy it all, then nobody else will have to?

Unfortunately, at present, the Fed's other options are limited,
in that, UNLIKE the BOJ, they are currently limited to buying
only Federal debt and mortgage backed securities, but cannot
purchase corporate bonds or common stock. (They did, in
the wake of the Bear Stearns collapse, wind up with $1.1
billion of Red Roof Inns debt, thus temporarily owning the
chain, but sadly were not allowed to keep it) Then again,
there's always a next time. If so, I vote we have our next
meeting at The Red Roof. Cheers.







Gary Morgan said...

On behalf of all of us at GBI, a big thank you to Fofoa for promoting our services once again.

You're doing a great job for us man, we ex-Goldman Sachs boys need all the help we can get, and it's cool we can work so closely with someone so clear in his views of the way gold is headed, and the best way to store it (GBI of course!).

Happy Holidays everyone.

Tyrannyofthepresent said...

Knallgold,

That is a very attractive thought.
Unfortunately, precisely the opposite attitude is equally simple.
The resulting complexity is inescapable.

Tyrannyofthepresent said...

spaul67

Sorry, forgot to comment on this, although it smacked me between the eyes:

"I plan on holding that line post Freegold as well".

You and who else?

Every time I hear something from one person, I always try to imagine a million people saying the same thing. Take your holdings of Au, revalue suddenly at a Freegold-ish ratio, then try to rebalance together with all the rest of them. It will be chaos.

burningfiat said...

On behalf of all here at Burningfiat a big thank you to FOFOA for promoting our services once again.

You're doing a great job for us man, we ex-paper-bugs/HMS's need all the help we can get, and it's cool we can work so closely with someone so clear in his views of the way gold is headed, and the best way to store it (physical possession of course!).



:P

Indenture said...

While we ponder

jeb said...

http://www.nytimes.com/2012/12/16/world/asia/as-gold-is-spirited-out-of-afghanistan-officials-wonder-why.html?nl=todaysheadlines&emc=edit_ee_20121216&_r=1&

Gold is flowing from Afghanistan to Dubai.

Michael dV said...

Tyranny
why do you believe it will be chaos? If gold truly is a wealth asset above all others then why would there be a rush to 'rebalance?'. I would anticipate most here holding the gold, unafraid of a 'crash' as most 'gold bull market' viewers would be. They believe gold will peak and that you must time the peak and diversify close to the peak. The freegold view is that gold undergoes a one time revaluation, rises to some greater value and stays there as it becomes the new, best store of value.

costata said...

alfa-or-beta,

(Responding to a comment earlier in the thread which I can't locate right now.) In that list of 10 I was trying to keep them brief and fairly general. There have been arguments put forward that could be categorized under #6.

FWIW I agree that there could be a time of uncertainty and possibly even chaos in which it would be unwise to expect to trade any of your pile. Thanks for the feedback.

Anonymous said...

Morons,

I mean Freegolders of course.

We had "FREEGOLD" since Nixon closed the gold window in 1971.

You're waiting for something to happen that's been with us for over four decades, like the second coming of Jesus Christ.

That's the proof that you're all morons.

Have a great week!

costata said...

Tyrannyofthepresent,

Okay, let's restart a cordial dialogue on the basis you describe and explore the matters that you have raised. The terrifying Wendy will keep me in line.

I did post comments about GSR on threads here after the silver forums were wrapped up but it will take me some time to track them down. By the time I posted my last comment at those forums I was too drained to complete the series of 'longer responses' I planned.

I recently raised the possibility of a guest post on silver over at Screwtape Files. I haven't submitted the outline to them yet but what I have in mind is GSR-related.

Interesting to read spaul67's comment at December 16, 2012 11:57 AM above. The theory I intend to revisit (and update) directly contradicts many of his/her assumptions about silver after a transition to a Freegold-RPG regime.

Marathon effort on your part to read the open forum posts and all of the comments. I can update and augment those posts with other material I have collected since then. I'll review the priorities that you outlined above and try to begin responding as soon as I can.

Long time readers know that I'm interested in a range of topics. It's not in my nature to focus on one topic exclusively for a long period of time. The open forums were a specific commitment which I fulfilled as best I could.

So our conversation may be somewhat disjointed as I continue to post comments about the topics I want to pursue, participate in the current discussions here and the topics that FOFOA raises in his posts.

You should also know that some (many?) of the discussants here are sick of the topic of silver. That was one of the reasons for doing the open forum in the first place - to create a central collection point for the endlessly repeated arguments of silver advocates that appeared in these threads prior to the forums.

So I'll title my silver-specific comments to you 'Silver' so others can scroll past them.

Cheers

Tyrannyofthepresent said...

Michael dV,

Another poster clearly stated that he is invested in both metals, rebalances his portfolio in a disciplined, automatic way and would also do so after a Freegold revaluation. He is a real person; my only assumption was that rather than being the only one in the world, he is a member of a set.

I am aware of the Freegold theory of a one-time sustained revaluation. I am reflecting on the idea that there will be a resulting change in asset allocation psychology within precious metals portfolios and considering issues such as how long that might take, and what the impact might silver. Based on my real-world experience of asset allocators I am struggling to see how such a change in asset allocations would be universal and immediate, since the changes I have observed have always been conservative, tentative and gradual. If this were to continue after a rapid Freegold move, however, I am imagining silver going chaotically no offer just like gold, due to the large amounts of value bidding for silver.

I see it as a process with an undefined path, but also with path-dependent outcomes, particularly for silver.

Tyrannyofthepresent said...

Costata,

Many thanks for being willing to give some more time to this. I will be looking out for your posts. I think to be fair it is not just silver, but "asset allocation under Freegold" that interests me. My original interest in silver was simply because it is a second liquid, physical asset with partly different drivers from gold that can be stored physically, legally and safely in large value to offer some diversification.

costata said...

Edwardo,

I'm going to start on the transcript tonight but it probably won't be posted for a day or two.

costata said...

Tyrannyofthepresent,

I try to avoid the appearance of giving any form of investment advice. The most I can do to address this issue of "asset allocation under Freegold" is to describe a few things that I think won't change under the new regime.

As I said earlier I'll review the matters you raised in your comments above and respond where I think I have something useful to contribute.

Beer Holiday said...

Costata,

I'd read you comments if you labelled them "paint drying and grass growing timing results"

Given that you'll label them "silver" something I'm very interested in, I can't wait

@silver bugs

Sorry if I haven't ever addressed you, I just don't have anything to bring to the table, other hard leant experience, sell silver - buy gold, YMMV. Also Kid Dynamites blog offers a great perspective of the ETF's.

Just because someone doesn't talk to you doesn't mean you're not interesting to them :-)

Maybe I'm not the only freegolder who sees it this way.

Beer Holiday said...

Ok that was lazy above, sorry.

Here's my attempt at bringing something to the silver table.

I happened to be buying some silver and gold in China in or just after the last big run up a couple of years ago.

At the same time, the gold and silver forums, even everyday stock forums were abuzz with the true rumour that Perth mint couldn't meet demand for silver. Was the world running out of silver? Maybe.

We all know the answer now in hindsight, Bron has done a fantastic job of explaining why the the mints can't keep up with demand for small silver products in a big run, and it certainly isn't because we're running out of silver.

Back in China, I walked in to the big gold shop. China is like Texas, everything is bigger than you can imagine, this shop had three floors of gold and silver and platinum bullion, rings and art from every part of the world.

Just like the Aussie rumours, no silver below 1 kg was for sale. Gold was for sale at just above spot. News reports said that if arrived early, like 5 am, and queued up, 1 ounce silver was for sale at ~15% above spot.

Guess what, Beer Holiday wasn't getting up at 5 am to queue.

What is the point of this? We'll my personal experience is that the well documented and explained small bar shortage in boring old Australia scaled all the way up to a great economic engine China.

BTW, the is bad news for silver IMHO.

Here's a link to one of Bron's Perth mint silver posts, but anyone invested in silver should have read them all, and all of FOFOA IMVHO.

http://goldchat.blogspot.com.au/2012/07/shortage-followup-questions.html

The interlock on my computer indicates 0.5 more beers, so seeya for now probably.

Cheers
BH

J said...
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Beer Holiday said...
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Beer Holiday said...

Further to the above - gold and silver are opposites today.

Silver can become "unavailable" in small amouts, but plentiful in large bars.

Gold will be available to the ants in small amounts, but large amounts to giants? No.

Does anyone else think China would swap their 1 trillion in US treasuries (to be be payed out in inflated $, 50% of today's purchasing power) for gold in the blink of an eye if they could? But large quantities of gold are not for sale a todays PoG .

Tyrannyofthepresent said...

Costata,

Of course. No investment advice is requested or even welcomed!

What interests me is extrapolating or predicting and then weighting multiaxial conditions, understanding the psychosocial/economic behaviour of other actors, and visualising paths. The best hope is to incorrectly quantify the risk of the actual future condition rather than ignoring it entirely. The upheaval then causes only an adjustment rather than a complete review, since that would be a uniquely bad time for a review.

Hence the insistence on identifying, understanding and modelling all scenarios with meaningful probability, and the door-jammed-open mindset.

Tyrannyofthepresent said...

Costata PS,

Two important concessions/clarifications.

1) The new "Hobbit" film is a current and striking example of cultural salience of gold monomania. Stems from the high GSR early to mid-C20, but will doubtless have influence. I will be looking for other similar examples.

2) I understand that balance is not always a good thing. The best advice to a wealthy Ashkenazi family with a large, balanced asset portfolio in 1932 Berlin and a long horizon? Liquidate to gold or even diamonds, taking unlimited losses as necessary, and relocate to any non-European location regardless of the socioeconomic cost. This would have appeared extreme and it required something close to paranoia to execute it. Few did so early enough to preserve a meaningful portion.

Tyrannyofthepresent said...

Beer Holiday,

You commented re China:

"large quantities of gold are not for sale at today's PoG"

I wonder whether this may underlie the Chinese govt's rather unusual promotion of physical gold purchases by the general public. Perhaps they have perceived that using small sizes in this way will optimise the net inward gold flow, in view of the problems they are encountering with procurement in size. They don't have perfect control over the public's gold, but that may be a secondary concern.

As an aside, silver has been included in this process, with the emphasis on "paper" silver, which of course results in an influx of bars into the country for backing. On the industrial side, it seems that exports have been stopped (not only silver, but also other commodities).

So their strategy seems to result in maximising the influx of all forms of physical wealth into China while minimising the market-distorting effects of those flows.

Beer Holiday said...

@Tyranny, welcome to the trail? Have you really read FOA's gold trial? If not, grab a cold one or not (a hot chocolate perhaps), and look in the links to the right....

http://www.usagold.com/goldtrail/

Good times :-)

DASK said...

FOFOA et al

Thanks for taking the time to respond. I feel a bit bad when the response comes from an post that I have read. Time to go over them all again I suppose :)

I broadly agree that substitution can do much; it is heartening if efforts are already well underway because it can take a great deal of time to perfect for finicky processes.

Tyrannyofthepresent said...

Beer Holiday,

Bit early for a cold one here, but I do find myself with a little welcome time, so am following your advice.

I have read most of it before, but that was a long time ago and I have learned a lot since then.

Beer Holiday said...

@Tyranny

A more friendly answer - try to find the link to the Chinese Gov sponsored China gold group corp (use your browser to translate...) I can't ATM

You're guess above is correct - China sees citizens gold as reserves, and they see India as a huge holder because of it!

This thinking is freegold BTW. In my homeland, gold in the ground is a form of reserves?

Over and out.


Beer Holiday said...

Link to the gold trail is incorrect above

http://www.usagold.com/goldtrail/archives/goldtrailone.html

My final post for a while - Really

Beer Holiday said...
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Motley Fool said...

Tyranny

I agree with that speculation on China. I think for them, anything physical is better than the paper promises they are getting, even if it's silver. :P

TF

Woland said...

Among the residents of the island of FOFOA, many already
know as much about money, both ancient and modern, as
they care to. Yet, others are always interested in learning
even more. For that latter group, you will perhaps enjoy
a piece over at FT Alphaville, "What have the Romans ever
done for us", which contains excerpts from, "A revisionist
view of Roman Money". I would highly recommend taking
a look, as we rarely get a detailed view on the institution in
Rome of the extensive credit system. Enjoy or ignore, as
fits your interests. Cheers.

DP said...

Woland (belated birthday wishes BTW),

Now there's a thought — perhaps the Romans didn't so much hyperinflate as a consequence of debasing the coins as so many presume, but rather had no choice but to debase their coins (base money) in order to enable reserves to keep pace with the expansion of broad money (credit).

How often have you realised the truth is the opposite of what you had been led to believe? (Only all the fackin time mate, innit?)

Woland said...

Wink, wink, nudge, nudge, say n'more, know whatay mean??

DP said...

Yes, wink wink indeed.

"Fortunately" we're all much better today than those lame Romans were. 200 years? PAH!

Woland said...

You know, DP, as a result of your link to "credibility
inflation", I saw an interesting remark by Fofoa about
the choice between revaluing gold, to say $200 per oz,
back in 1971, versus the path taken, to allow the wonders
of "still cheap" oil to work its economic magic. The
remark was to the effect that, back in the 1971-80 period,
we got our "first glimpse" of what Freegold might look
like, as gold's price reacted as a counterbalance to credit
expansion. The reason I bring this up is that a person I will
not name, who has been granted a 1 time ticket to this
thread, actually said something that was 25% right! 25%
ain't much, but it beats the hell out of zero. What he misses
is that a mechanism was put in place to disable the price
signal which gold would have provided from the period of
1980 onward. Thus, the notion that freegold has existed
since 1971 is false.

I would be curious to know whether, back when Fofoa wrote
Credibility Inflation, he knew of the Enders/Kissinger meeting,
and the political dimension to the decision not to enable the
European states to have a liquidity mechanism which their
gold would have provided them. A revaluation to $200, a
figure that could later be increased, would have given them
that power.

Cheers, and Greetz from Moronville,(---)

DP said...

Yes, it took him a while.

I wonder if he'll come back with the other 75% of that thought sometime?

Woland said...

"One day Alice, one day......... to da MOON!!!!!

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