Sunday, May 19, 2013

Hold On (to those gold coins and bars)!



When the world ain't treatin' you good, you got to hold on…

When everybody's lookin' at you funny, you got to hold on…

You got to hold on…


"Hold On" by Alabama Shakes

Strong Hands

I want to discuss one more concept, the concept of strong hands going into Freegold.

[...]

Each time the price swings up and down like this the "gold" traders trade their way in and out of their favorite paper gold positions. But the physical side is slowly working its way into stronger and stronger hands with each swing. Strong hands buy the dips while weak hands are selling in a panic.

[...]

This could potentially be the final shakeout of weak physical hands, because there will be plenty of strong hands catching that physical even though physical buying won't stop the price from falling. Unfortunately for a few long-time gold bugs, the lack of a fundamental and foundational understanding of a much higher value could see them liquidating at the worst possible time in all of history. And that would truly be a shame. At least I have given fair warning. I'm not predicting that this is the way it will play out. Only that it could. And being aware of this possibility has value if it gives you strong hands at a key point in time.
[1]

That's an excerpt from an old post, about a year and a half ago, after gold had fallen about $250 during the preceding four months. Today it has fallen about $325 in four months. My perspective reveals that the "price" of gold may fall quite low just prior to a very quick revaluation upward. But that is just the temporary price that's falling, not the true value of physical gold.

All of my savings are in physical gold coins and bars, and yet I have been anticipating an eventual price plunge to some really low number at least since my post The Shoeshine Boy back in 2010. And now, ever since this past December, I have been discussing the possibility of a plunge in the price of gold this year, with more frequency than in previous years, and how it fits within my view. I even dubbed 2013 "The Year of the Window" on New Year's Day, referring to the possibility that this is the year it happens. So why would I keep all of my savings in physical gold at the same time as I expected an eventual collapse in the price of gold? Interesting question, isn't it? Here's how I illustrated my view in that 2010 post:



I'm not trying to scare anyone, quite the opposite actually. I want to help people have the same strong hands and peace of mind that I have, even if the price of gold continues downward. And those things come from understanding a well-reasoned scenario that looks a lot like what has been happening so far this year. I don't want anyone to take my advice. I only want you to understand the scenario and make up your own mind.

Another question you might be asking is why wouldn't I wait for the lowest price and buy my gold then? That's a great question, and yes, the answer is here in my blog somewhere. ;D You know, a funny thing has been happening lately. It's quite an unusual phenomenon if I do say so myself. While gold bugs far and wide are either panicking or throwing in the towel right now (some forums have even been closed), the "evil gold hoarders, jerks, time misallocators and brainwashed cult members" [2] here are all cheering as the price goes down. Isn't that weird?

Anyway, I was wondering why I haven't seen more curiosity about why these strange PGAs (physical gold advocates) would be cheering for a gold price decline. Perhaps no one has actually seen this phenomenon in action, so I thought that maybe if I put some of it here, front and center in a post, a few of the panicking gold bugs might take notice and ask WTF?

So here's just a sampling of what some of my followers on Twitter have been saying since the gold price really started tumbling on April 15th:





















There's something else that a few of my Twitter followers have been watching in addition to the declining price of gold. And that's the declining inventory in GLD. They even have a contest each day to guess how many tonnes will be leaving that day! GLD has lost 315 tonnes or 23% of its inventory since mid-December. I think this is symptomatic of the physical reserves of the LBMA leaving the system, either through allocation or delivery. You can read more about why I think that in this post.

Burning Fiat even wrote a "GLDpuker app" for his Twitter account which automatically detects and then tweets the daily decline (or increase) about 10 seconds after the SPDR spreadsheet updates on their website. Strangely, after he launched the app, organizations like Sprott Global and Fitch Rating agency followed him on Twitter. Here's how it looks:


ByiamBYoung sent me a donation last week, and somehow he fit quite a long message into the Paypal message box:

Hi FOFOA, A long time since I promised to contribute, but finally I can throw in a donation. I hope many in the hive are doing the same! Great new post. It seems that the winds of change are blowing more erratically every day lately. The hereafter may not be so far off... Maybe Mrs FOFOA could write a guest post, for all of those hand-wringing spouses out there? I know someone I would forward that link to ;) Cheers, byiamBYoung

I forwarded it to Mrs. FOFOA as I do with all donations, and here's what she came back with:

Ha - me write a guest post? It would be simple...

Dear Freegolders,

The time has finally come. Be at peace with the plummet because the pot is about to explode at the other end of the rainbow!!! Enjoy the ride - I know I am :)

Warmest regards,
Mrs. FOFOA

Now I must tell you that Mrs. FOFOA is just as bad at timing as me, so please take her pronouncement with more than just a grain of salt. You'll never hear me say this is it, it is now. All I can offer are possibilities and probabilities along with reasoned scenarios. You know where I have all of my savings, you know that I'm not worried about the price of gold, and if you follow this blog, you know why.

I don't care what the price of gold does tomorrow. It can go up, or it can go down. I don't know if this is it. I don't know if this year is the year. "Window" means opportunity, possibility and probability, and it is backed up with a well-articulated and well-reasoned theory. If you disagree, that's fine with me.

All I can tell you is what I think "it" will look like. And as I said, I've thought it would look a little like this since at least 2010. So in my mind that raises the probability at present. And that's why I don't like the idea of long-time gold bugs selling off their physical gold right now without at least considering this perspective for balance.

This post isn't meant to give you my full perspective, or even links to the appropriate posts, like The Two-Legged Dog, Legs or Checkmate. I only hope to catch your attention. And then, if you have questions about my view, I'm sure that a few of the regulars, maybe even some of the twits featured above, will be more than happy to either answer them in the comments or direct you to the appropriate posts or comments.

And be sure to check out the song below. It's a recommendation from JR that was meant to inspire a post. Indeed it worked! JR has a good track record with songs like Wake Up, Bankrupt on Selling and How It Ends, so I always pay attention to his music recommendations. I just hope this quick and dirty post lives up to his expectations. JR's email was titled "Alabama Shakes got 'Strong Hands'".

Sincerely,
FOFOA

[1] Excerpt from The Gold Must Flow
[2] "Evil gold hoarders, jerks, time misallocators and brainwashed cult members" is the affectionate title I came up with for my followers. It is based on just a few of the insulting names we have been called over the years. Scroll down to the very bottom of the blog if you'd like to join the cult. ;D

2013 Grammy nominated for Best New Artist & Best Rock Performance
"Hold On" by Alabama Shakes:


302 comments:

1 – 200 of 302   Newer›   Newest»
DP said...

Fust! XD

Look ma - #ImaTurd!

Motley Fool said...

Crash, crash, crash! *cheers* ^^

Polly Metallic said...

Good job!

In defense of the person who has said "this is it and it is now" I think he is generally misunderstood to mean gold is now going to the moon. As I recall, that quote was intended to mean that the implosion of derivatives, the screwed up banking system, and the realization of the consequences of global imbalances was finally manifesting itself. He does believe, however, that gold will have another upward run as gold separates from paper gold, whereas we here do not believe that. He and his readership would be much happier if they held our view.

ein anderer said...

Thanks! Even JR’s video is running (here in Europe, what is not true for all, thx. to YT licence restrictions …)

One short remark:

Since I hold the Freegold theory for the best one covering what is going on out there I would like to warn those who are so happy now because of steadily lowering price. There could be a sawtooth effect before final collaps, couldn’t it? So don’t be dissapointed if the price is recovering again and again for some time!

Wasn’t there a quote from ANOTHER, FOA or FOFOA stating this?
But what I am happy about: Things are trying to break up now.

Question: Could there be any "mighty intervention" from what direction so ever to slow down the process – may be over years? How could this theoretically intenvention look like?

Jeff said...

Goldbugs; you will know them by the trail of their dead.

http://www.youtube.com/watch?v=0YAA7nivQng

Motley Fool said...

ein anderer

Tbh I am apathetic towards gold prices these days. I don't bother watching it every day any more. I do get a bit more smirky when I hear of drops, rather than increases, but it doesn't really affect me emotionally. So if it wants to increase now, that's fine too, I'll cheer the increase then (for other reasoning obv ie. public awareness). :P

TF

burningfiat said...

Low gold price leads to more stress in the system and bigger chance of soonish transition. It also gives the saver more ounces for his surplus. That is great when you are saving for an unknown future.

But otherwise I recommend patience (Hold on :)). At current GLD draining rate (and gold price level) it could take over a year before physical and paper price separates. Things could also suddenly speed up though! Then there is also the possibility that the trend could reverse for some unknown reason!
Don't go out and sell you emergency cash or take a loan to buy gold just yet IMVHO...

MatrixSentry said...

I am truly happy with the current state of affairs. Yes, Freegold would transform my current wealth into a wealth that would be universally recognized by everyone, not just me and some brainwashed time misallocators ;D

The only problem is that many of my friends, neighbors, and family will suffer the destruction of their "wealth" as a consequence of Freegold. So, I am content to watch things roll on for whatever time is required. I can accumulate more gold that I can in turn give away later when it will be needed.

This is an adventure of a lifetime. Well worth the modest donation! Thanks FOFOA and Mrs. FOFOA!

ein anderer said...

And: Very good that you documented again where the early warnings of price decline were to be read first. Shoeshine Boy was one of the many great highlights.
Now following the german Deutschlandfunk: a long "Zwischentöne"-interview with Wolfgang Hetzer (formerly OLAF and Bundeskanzleramt; his Music: Jimmy Hendrix, Otis Redding, Franz Schubert) on the financial markets, derivatives, high frequency trading, shorts …

Jeff said...

Ein anderer,

What's worse for goldbugs, a grind lower that will test their intestinal fortitude or a sharp spike which they will be eager to sell? I honestly don't know.

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

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

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

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

ein anderer said...

Donations
@ all:
Want to tell you how I am handling this:
I read a FOFOA-post. I read FOFOA-comment. I read a mail from him. Then I am asking myself:
What is the value of these informations for me, my family, my friends?
What would I had to pay to get those advices and informations "on the free market"?
What if he would be my personal advisor with a ticking clock?
That’s how I am deciding.
Have a friend in Solothurn, Switzerland. He is publishing a printed magazine, quarterly. How he is paid (besides of ads)? If you subscribe *you* decide how much it is worth for you and how much you can afford. And the magazine is doing quite well …

Naughty Slumdog said...

Guys, I don't get why we should bother the daily price of gold if you are just one small gold saver ? I DO UNDERSTAND THE DAILY TRADE FOR TRADERS/BROKERS/ASSET MANAGERS, but for SMALL SAVERS ? The trend seems irreversible for me, as the economies/physical plane shrinks. Down in EU, sluggish in US and soon will start hitting in Asia ... so what's left ? Antarctica, Antlantis, maybe ? All the investments are backed by some good economic performance which is difficult to get in this time. And the systemic wave is about to hit, so much paper money/contracts floating around with nothing behind ... check out the bank loans backed up with real estate, to get just a small part of the REAL PROBLEM .... so much money and lesser and lesser transactions to come !

Naughty Slumdog said...

I am still puzzled by the interest in gold mining shares. A value of the share is given by the expectation of profits and dividends. I don't disagree at all with the fact that gold mines are a good investment, but they are not the real stuff. Shares in Apple does not mean that you own iPAD's and iPhone's!

As FOFOA have explained, the turnover growth does not surely predicts the profits. If you want an anticipation, just have a look how europeans tax financial transactions and how in more distressed countries large utility companies, with good results have received one time huge taxes (see telecoms in Greece and Hungary). Remember that the current system will collapse as a result of some major crisis, in which many critical systems (health, education, police, social security) will be on a verge of collapsing due to lack of financing issues ... the alternative to tax on natural resources it will be regarded as highly moral, think yourself about this ! Between over taxing gold extraction and closing hospitals and cutting pensions, what will be the choice ?

KindofBlue said...

FOFOA et al

Some transition music that somehow seems quite appropriate. Turn up the volume and enjoy:

http://www.youtube.com/watch?v=xkBnrC8041c

Peace

Michael dV said...

In this advert:
http://pro.stansberryresearch.com/1304PSIGSCAM/EPSIP595/?email=xkguy%40me.com&a=1&o=13061&s=14489&u=792339&l=146873&r=MC&g=0
Porter Stansberry speaks of 2 kinds of gold, one valued at many multiples of the other. He then goes on to a completely predictable spiel about his abilities to tell you what is happening in the most predictable way.
There was a hint that he understood freegold but (and maybe he does) but you won't find it in the video.
I present this as a public service so you don't waste the 30 minutes that I did.
you are welcome

Michael dV said...

further testimony from a follower...I don't tweet so I'll say it here in more than 140 characters.
After Fallacies (a post about how the gold paper market is unlike all other paper markets I began to feel emboldened (confidence will do that). I began to see the possibilities that gold really could go much higher by going much lower first as the gold paper market crashed. I already had some physical but I also had a profit sharing plan that had some gold coins in it and I wondered how it would look if the plans assets went much lower...not good...
I used my massive brain and followed fofoa's thoughts. I hedged the potential drop by buying DGLD (an ETF that goes up x3 as GLD falls). I did this in February before gold prices dropped. The plan is actually ahead. As the coins fell in value the DGLD went up.
This strategy was inspired by an understanding that came after long hours of reading and even longer hours of thinking on the word of this blog. At some point I just said to myself 'if it makes sense and you believe it you should act upon those beliefs'.
These are scary times and I do not advocate following my actions nor even fofoa's. If, however, you come to understand of what is happening and you don't find another better explanation for the events unfolding then you will find a lot of good ideas for action on these pages.
thanks fofoa

Sam said...

Isn't it "tweets" above. I doubt any of them are twits =)

ampmfix said...

Look how the price of silver and gold are being bombed now, just when Asia is closed, but of course there is no manipulation, fxxcking shit! (and yes I still need to swap silver into gold but as it goes down I am loosing the ability to get real gold phys ounces!!! boy if I had a gun...).

FOFOA said...

What's a twit, Sam? I thought they called themselves twits! ;D

https://twitter.com/darenpa72/status/333289802487177216

byiamBYoung said...

FOFOA,

Great to see Mrs FOFOA - SOFOFOA (Spouse of FOFOA) - SOOFOFOA (Significant other of FOFOA - make her debut on the big stage!

Her style is a bit more brief, I noticed ;)

Cheers

LD said...

Saver in Singapore anticipating Freegold

https://www.facebook.com/photo.php?fbid=169270736566505&set=a.136766649816914.29933.129709627189283&type=1&relevant_count=1

Wily Coyote said...

Another has been quoted numerous times on this blog as saying westerners won’t stay in a stagnant asset. So why does everyone here seem to think the recent price action has so much more significance? You all understand that the POG is just the paper price. That suggests the last few years of price increases were mostly hedge funds jumping on the momentum train. Once they saw the momentum wane, they wanted off. That means now. No different than any bull market turning bear… and they all do.

Why did the banks create paper gold markets? Paraphrasing Another again – to divert investors away from the physical gold market, which was needed to satisfy the needs of oil. (And of course to profit from the trading). So it is a side show.

I confidently predict 2013 will not be the reset. Why not? The dollar is the worst fiat currency… except for all the others. Every time there is a new crisis, money flows into the dollar as a safe haven. It’s stronger than it’s been in years. The bankers know this, and they won’t pull the plug until there is a safe alternative. The euro will not be that safe alternative until their sovereign debt issues are resolved. Judging by how long Greece has played out – 5 years and counting – this can take a very long time. We still have to go through Spain, Italy, France and the UK. Probably also Japan. Think decades.

Once another currency becomes strong enough to be the safe haven, the plug can be pulled on the dollar... and the transition will be fairly smooth -- at least for the giants. These bankers are very patient. They spent 40 years ruminating about the euro as a replacement. They aren’t going to destroy their own wealth and power by making rash decisions.

Indenture said...

Wily: "The euro will not be that safe alternative until their sovereign debt issues are resolved.

So the currency 'The Euro' is in trouble of not being ready to catch the oil transactions because countries within the 'Euro System' are having debt problems? Can you explain why the debt issues of sovereign nations within the Euro Zone negate the Euro currency as a viable option to the dollar in international trade?

Indenture said...

FOFOA, I have been thinking about the issue of gold storage after the revaluation. What is worth $25,000 today might suddenly be worth a million. It would suddenly be a big target for thieves, so I would think that secure storage will make sense for more people, and yet I have concerns about a bank holding my gold. So I was wondering what you thought about the prospects for starting a new gold vaulting business? I was also thinking about what you said in the last post about gold used as collateral for a loan, and the new business could also include an escrow service, where gold collateral is held by a neutral third party (the vaulting company), while one is repaying the bank who made the loan secured by gold collateral.

Sam said...

The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."

Michael dV said...

Wily
all things are possible, what matters is how and when you place your bets.

M said...

@ Wily Coyote

"The dollar is the worst fiat currency… except for all the others."

That is the stupidest f%cking statement on this subject someone can make. The dollar is the most fundamentally flawed currency in the world. No currency has amassed such a trade deficit ever. No currency has amassed such a debt in history. Yet you say it is better then the creditor currencies of Europe and Japan.

Do you work for a rating agency ?

Phat Expat said...

@Wily
Anything is possible. FreeGold will happen, in time, until then, while people attempt to read the tea leaves, we move forward with life, enjoy our families and friends, and continue to be productive and contributing members to our respective countries. I believe that has always been espoused here as well.

One thing is for certain, look around here now, most will not be here for FreeGold since they watch every wiggle and squiggle of the charts. The only interest I have in that is seeking the advantage to buy more at a lower price. Other than that, I don't care, I will be productive for a long time to come yet (Deity willing).

FOFOA said...

Hello Indenture,

"I was wondering what you thought about the prospects for starting a new gold vaulting business?"

I think the model for gold storage in Freegold is something like Brinks and VIAMAT today. Some companies offer insured storage through these companies for as low as 0.5% or 0.6% of the total value per year. This is different from a bank safe deposit box because the custodian charges for storage and insurance together. Banks don't insure whatever you store in the box because they don't even know what you are keeping there at any given time. If you want it insured against theft or fire in a bank box, you have to get your own insurance, and that will cost much more than 0.5%, plus your agent will probably want to come to the bank with you and see the gold.

Insurance is problematic during the revaluation, though, because no policy will adjust to the new value automatically. So if you are holding your gold with Brinks, you'd better hope it doesn't get stolen during the transition before the new value is well-established enough that new policies have been issued and new premiums collected.

In Freegold, would you think the overall storage and insurance fee of ~0.5% should increase or decrease? The answer is it will decrease! If you have $1,000,000 in gold today, stored at Brinks, that costs you ~$5,000 per year in storage and insurance fees. And that's for the physical storage of 735 ounces, about 50 lbs. of gold.

In Freegold, if you have $1,000,000 in gold stored at Brinks, that'll only be about 18 ounces, or a little over 1 lb. of gold requiring less physical space. So the $1,000,000 insurance portion of the fee will remain the same, but the storage portion will decrease. This is confusing to Freegolders because if you carry gold through the transition you'll see your storage/insurance cost rise. But that's because you're thinking in terms of volume rather than value. The value rises while the volume remains the same.

But Brinks and VIAMAT are not very convenient for most people. One company offers storage at only two locations in the US, Salt Lake City and New York City. So surely there will be a market for what you propose—a gold vaulting business at least in every major city!

Here's why I wouldn't invest any time or energy planning to open such a business. It will be very easy for existing banks to offer this service and make easy money doing so. In fact, I imagine they'll be expected to do so. I'd never be able to compete against the banks, so it would be a poor investment of my money, let alone my time and energy.

I can understand how it is difficult to imagine this future, especially for a Freegolder. And I can also understand why you would say you wouldn't trust the banks to store your gold. But I propose that you will think differently once we are in Freegold.

First of all, this will be a totally new service for banks to set up and offer. It will be segregated storage, but it will not be like safe deposit boxes. The bank will hold your property for you and you will pay a fee for this service. The fee will cover 3rd party insurance. If the bank loses your gold, you will get paid the full cash value, and then you will be able to buy more gold. Meanwhile, the insurance company will require regular audits of the custodial gold in the vault to manage their exposure.

Cont…

FOFOA said...

2/2

Since Freegold will mean the end of bullion banking and gold-denominated credit, there will be no risk that the bank will financialize, hypothecate, lend or onsell your gold, or whatever. And because all gold will be very valuable, it will be a lucrative business for the banks to set aside a small section of their existing vaults for this type of storage. But gold coins and bars at our level are not fungible like LGD bars at the LBMA level. Why do you think they have LGD specifications? It's to make the bars fungible which makes sight accounts (unallocated) and fractional reserving possible. That that would be impossible on a worldwide scale in Freegold.

So the banks would be holding your specific pieces of gold for you. I can imagine a process whereby you and your banker both sign the deposit document agreeing to the weight and description of your pieces of gold. Perhaps there's even a special scale they put your gold on which automatically prints out the weight along with a digital image, and then you both sign the gold in and out.

Of course there will still be fraud and theft, but it will be isolated crimes without systemic risk. And the customer as well as the bank will be insured against it.

But don't worry, no one is going to force you to keep your gold at the bank. I am simply predicting that bank storage similar to Brinks today will be the next evolutionary step, and that you will think differently about it after the revaluation. What other options will you have?

You can keep it at home, hidden or in the safe, insured or not. If you don't insure it, you'll save <0.5% of the total value per year versus storing it at the bank. If you do insure it, it will cost you twice as much as storing it at the bank and your insurance agent will know that you are keeping extremely portable valuables at your home. I don't like the thought of that. Ever hear the one about the safe installer that came back to rob his own customers, or sold his list of customers to a gang?

Then there's a bank safe deposit box, or its private, non-bank equivalent, where the custodian doesn't know what he is holding for you. This can be very cheap. Today I can store $1,000,000 worth of gold in a bank safe deposit box for $50 a year as compared to the $5,000 per year for insured storage. It's cheap, but it's not under your control and it's not insured. Or you could insure it yourself for about 1% per year.

The only other option would be private non-bank storage facilities like Brinks or someone else. But I don't see how anyone could compete with the banks simply because the banks already have the infrastructure in place; a secure vault in every neighborhood across the country. There's just no way anyone else could compete. Even if, say, FedEx-Kinko's or one of those mail box places offered the service, it wouldn't be as secure and, therefore, insurance premiums would be higher. Not to mention the added cost of putting in a vault and hiring security. Banks have it all already. So banks it is.

I can even imagine that banks might start selling and even buying gold, like some of the banks in Europe do today. Why not? It's another revenue stream, since CDOs will be out of fashion. And if you move across the country, why travel with your gold and risk losing it or having it stolen? Just sell it to the bank at your branch and buy some different pieces of gold from the branch in your new location. Rather than an unallocated gold credit transfer, it's a sale, then an unallocated currency credit transfer, then a new purchase. And in Freegold, you won't have to worry about wild fluctuations in the price like you do today! ;D

Sincerely,
FOFOA

Rien said...

I'd like to revisit the idea's about the "why" of the sudden revaluation.
Could somebody nudge me in the right direction?
(Artikel reference)

FOFOA said...

Hello Rien,

Bull Run versus Revaluation

… revaluations are usually quick and surprising while bull runs are gradual which allows more and more people to get onboard at different points in the run. With a revaluation, you're either onboard or not when it happens.


From Checkmate.

Sincerely,
FOFOA

gary said...

Not a good time to work for a mine these days...
http://bigstory.ap.org/article/indonesia-mine-collapse-death-toll-rises-17
Of course, I'm sure LumpsGrandBastard is so smart he would avoiding investing in mines that have any accidents. He's got quite a strategy there...

Pete T said...

The post almost certainly speaks to the wholeheartedly set-rock-solid-hard-in-stone converted (as we've been, since you know when), but it never ever hurts to state the most essential and crucial advice over and over, for if it saves just one newer,more-twitchy converted from failing to reap the full rewards of what lies so tantalisingly close, then it's a job well done. Well done!

Wil Martindale said...

I love to hear FOFOA coming in and basically affirming much of what I have said in prior comments.

As I view this gold market, all things seem to unfolding according to, or at least well within, expectation.

I like Paul Craig Roberts take on it, and do appreciate the trutch coming from a former UST official, basically Reagan's "supply side" man.

For the unwashed, and unread, PCR is doing a great service with his understandable articles. I believe he has it about 90% "right".

Another wild ride is assured again this week. Indeed, HOLD ON!

ravinghenk said...

HongKong settles in cash instead of physical, starting today.

http://hkmerc.com/en/Media-Centre/Press-Releases/HKMEx-Voluntarily-Surrenders-Authorisati.html

One Bad Adder said...

On the currency front (today) very little downside resistance at 84 saw DX wilt on the vine and consequently $PoG/S got a bit uppety.
The 3 mth T-Auction went through this week without anything appearing untoward ...so the System ...and we, all live to die Another day.

Wil Martindale said...

WOW ravinghenk. The "Hong Kongmex" pulls an ABN AMRO, but may return with gold shares backed by a gold governed currency? And a new pricing mechanism perhaps for "after"?

Such begins a wild week indeed. Full of sound and fury.

Just as Kuhn argued that you cannot construct a logical argument that there is progress in science, I would argue that one cannot contruct a logical argument that an objective "reality" truly exists, outside of perception management.

I always thought THE MATRIX was chilling, but just wait until they flush the cocoons on paper gold!

ein anderer said...

Don’t want to be an "enlightend dummie" …

Decisions made, months ago. One question still unresolved:
Could there be any interventions to slow down or stop the FG process?
For example: What about those mighty forces engaged into derivatives?

lola said...

@Wil

"I love to hear FOFOA coming in and basically affirming much of what I have said in prior comments."

And that CS song was about you.

Jeff said...

Ein,

Yep, but the price of more time is more gold, not more derivatives.

FOFOA: Yes, this is possible. It would require a cost/benefit analysis at the highest level of international central banking as to how much physical gold to "spend" in order to buy a little more time. And we are talking about supplying physical during a run, not certificates, so this would be a new and different undertaking. And as I have speculated in previous posts, there comes a time when the cost of "more time" rises exponentially.

FOA 10/3/01 - Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Why "structurally", why now?

For years now, "politically", the dollar system has had no support! Once again, for effect,
"Politically NO", "Structurally Yes"!

For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained… Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.

Phil_O_Dendron said...

@Fofoa and Indenture:
"You can keep it at home, hidden or in the safe,"

If you decide to keep it at home you may want to take appropriate measures so that no one knows that you have it or what you have done. No witnesses and no paper trail. I have some thoughts on what I would do if I ever decided to take that route.

byiamBYoung said...

@Phil_O_Dendron

Hidden in plain sight is virtually invisible, IMO. Unless you are talking about a hell of a lot ore gold than I have, it can be stored in any number of spots.

I sure wouldn't recommend a sock drawer, under the mattress, or closet shelf. How about a box of old toys? Basket of shoes? Cereal box?

Really, it's just too easy...

Cheers

byiamBYoung said...

One other idea I read somewhere (can't remember): Split the gold into different piles and hide in different spots. If one is pilfered, the others will probably be safe.

Phil_O_Dendron said...

@byiamBYoung said...
Hidden in plain sight is virtually invisible


That is not what I would do. However, since this is a public forum I would not discuss the details of what I would do here.

I am sure that there are others besides us time wasters and gold lunatics that read this forum.

Wil Martindale said...

Ein,
Any and every intervention be the WEST is an attempt to stall or prevent FG.

Lola, you are right CTS is ALL about me. I saw them many times live but never like that night at the Sandbar ... Ah, youth ... wasted on the young.

60 dollar intraday swings. Getting closer to the volatility I CRAVE !!!!

GO FREEGOLD !!!!!!!!

M said...

Central banks in Asia are jumping on hand grenades for the US dollar like usual.

From WSJ:

For the past two years, Taiwan's central bank has intervened almost daily to buy U.S. dollars during late afternoon trading in Taiwan. But the day after the Bank of Korea cut rates it began buying dollars early in the day, according to four traders.

Get this...

Traders in Taiwan say the central bank frequently calls to ask them to reduce short positions in the U.S. dollar, or bets against the U.S. currency. In November, the central bank also began asking onshore traders to report their U.S. dollar sell orders before executing the transactions, they said.

Another friend said...

@Phil,

Just between you and me (don't pass this on!), my desktop is not a solid plank of wood.

Jus' Sayin'

Cheers

byiamBYoung said...

...and that dumb bell isn't just for bicep exercises :0

Cheers, indeed.

Phil_O_Dendron said...

@ Another Friend and BYB

The key is creativity and self reliance when trying to keep your valuables safe. Anything that you decide to do you must do it yourself so that there is no paper trail, no witnesses, no contractors, no one else. One person can keep a secret two people cannot.

I am a big fan of Yogi Berra philosophy. Here is one that i like.

You can observe a lot by just watching.
Yogi Berra

Polly Metallic said...

Somewhere fireproof would be a good idea. Unless you want to risk a molten puddle.

Bjorn said...

Time for a GLD graph update?

The slow bleed continues, in blatant disregard of price shenanigans it seems.

Phil S. said...

Fires in buildings reach around 500°C and will hardly ever exceed 1000°C. Gold melting point is above 1060°C. There's a reason it's considered "durable" :)

Robert said...

It is all too easy to find a hiding place for your gold where nobody will every find it. But that's the problem. The gold needs to be hidden in a place (i) where someone else will find it when you die, (ii) where it won't get inadvertently thrown out.

Lisa said...

Robert

And where one can remember where they put it :)

Dante_Eu said...

@Robert:

You know you hide it well when not even you can find it any more! It happened to me. :-)

Another problem is when you lose track of how many hiding places you have.

On top of that, your family members are Big Time Debtors, who would not hesitate 1 second to cash in on some of the useless yellow stones.

It doesn't get any easier than that. :-)

ein anderer said...

@Jeff,
thx. I see. I have to understand this "West to the East" flow of Gold still much better …

Motley Fool said...

Robert

I recall a story about someone buying curtains in a thrift shop, and finding gold sovereigns sewn into the bottom to act as weights for the curtain.

TF

Dr. Boer said...

In his novel "I Claudius" Robert Graves tells about the imperial palace with its doorknobs of pure gold. Knowing this and knowing that gold was money, mutineering legionnaires chopped off doorknobs. Which stopped when Claudius stepped forward to become the next emperor.

Inspiration: Equip your house with fancy doorknobs. Hide your wealth in plain sight.

ampmfix said...

An ancestor of mine hid a coffer full of goodies, maybe around 1890. He had 4 properties and the family knew it was hidden in one of them. The properties were sold and the treasure never found even though 3 successive generations looked for it, even with metal detectors (last gen of course)...

Beware of dementia, alzheimer and the likes; such is the trade-off, you either trust several people or you leave plenty of intelligent markers behind (an Arsene Lupin story maybe?).

That would make a great movie script, the search for the clues of the hideout spanning 4 continents and complex riddles... what fun! what a great joke/test of character for the siblings!

Tom R said...

@ampmfix

Perhaps the treasure was found by one of your ancestors, but they declined to let anyone else in the family know about it. 'Nope, haven't found it yet. Keep lookin'

ampmfix said...

ahaha good one!, but no, unless the person that found it hid it again and it hasn't been found again, we would know just watching the expenditures (or maybe it was passed secretly from father to son and nobody spent a dime, which wouldn't be too amazing knowing us...). In those times (and place, a rural area) you either hid it or spend it (even a bank deposit would be known, people talk, it was a small world, no fiscal havens then), but you might be right...

Biju said...

The US budget deficit is projected to hit $642 Billion this year 2013, down from a record high of $1.4 Trillion in 2009. This first time the deficit is below the trillion dollar mark in 5 years.

Looks like US is repairing itself. The number is projected to hit $340 Billion in year 2015. I also suspect that the budget deficit should be less than trade deficit this year.

Michael dV said...

ampmfix
The 39 Clues is such a story. We started reading and got through about 10 books. 2 sibs battling various family factions on multiple continents. Written by different authors. I got tired of some aspects though as it seemed each new author felt they had to re-establish the characters, as though they had been given a description but had not read the previous authors work. Some kids love it, mine grew tired. At the book store yesterday I noted that there were 18 books in the series now.
Spielberg has optioned the book and a movie version comes out in 2014.
Otherwise I think your idea is a good one.

ampmfix said...

Yes Michael dV, I might think up something, maybe they won't care anymore about shiny rocks... now THAT would be a bummer!

Sam said...

does anyone have any thoughts on mine profitability at these lower prices. Most above ground gold doesn't flow so new production is key for physical to stay attached to paper. Even a small reduction in gold mining would be a large hit to the need for keeping physical gold flowing where it needs to flow. Minors are the weakest hands so to speak in that they must sell to stay in business.

Biju said...

U.S. Deficit Narrows to $642 Billion in New CBO Estimate.

http://www.bloomberg.com/news/2013-05-14/u-s-deficit-to-fall-to-642-billion-says-budget-agency.html



The U.S. budget deficit will shrink by the end of fiscal 2013 to $642 billion, the smallest shortfall in five years, according to the nonpartisan Congressional Budget Office.

The agency yesterday reduced its estimate of the likely shortfall by more than $200 billion compared with its February projections. The agency cited stronger-than-expected tax receipts as well as payments to the Treasury by government-owned Fannie Mae and Freddie Mac as major reasons for the change.

The decline from last year’s $1.1 trillion deficit would mark the first time since 2008 that the gap between taxes and spending slipped to under $1 trillion. It would also postpone the effective deadline for raising the government’s debt ceiling to avoid default until as late as November, the agency said.

The improved budget outlook is sapping the will of Congress to make tough choices to reduce the deficit, said Senator Bob Corker, a Tennessee Republican.

“The intensity doesn’t seem to be there as much -- there’s sort of a fiscal fatigue,” Corker said in an interview. “You just don’t feel the urgency around the issue that we’ve had in the past.”

“I’m becoming very concerned we’re going to miss an opportunity to deal with this issue,” Corker said.
Republicans Strategize

Republicans in the House of Representatives are set to meet today to weigh strategies for an eventual debt-limit fight. Some have begun backing off demands for entitlement cuts, pushing instead for tax-code revisions in exchange for voting to raise the borrowing cap, which goes back into effect after May 18.

As soon as the next day, the Treasury Department will have to resort to “extraordinary measures” to stave off default, and those steps will be exhausted by October or November, according to the budget office report.

Tax receipts for fiscal 2013, which ends Sept. 30, will be 15 percent higher than the previous year, the agency said, partly because Congress allowed a payroll-tax cut to expire on Dec. 31. It also cited a January budget deal that let taxes on the wealthy rise and economic growth.

Revenue this year will climb to 17.5 percent of U.S. gross domestic product, up from 15.8 percent in 2012, according to the agency. The 40-year average is 17.9 percent.

Also driving the improvement is expected payments of $95 billion to the Treasury by Fannie Mae and Freddie Mac, the agency said.
Repaying Treasury



Biju said...

CONT....



The government took over the mortgage financiers in 2008, and they’re required to make quarterly payments to the Treasury based on their net worth, the agency said. Because of rebounding values as the housing market recovers, those remittances are rising. Last week, Fannie Mae said it will deliver $59.4 billion to the Treasury after reporting a record quarterly profit.

The deficit estimate is less than what either the White House budget office or some major banks have projected. The administration has said the 2013 shortfall would be $973 billion. Goldman Sachs Group Inc. (GS) has twice cut its deficit estimates this year, to $775 billion last month. Barclays Plc (BARC) has said it expects a $750 billion gap.

Next year’s deficit will narrow to $560 billion, according to the agency, and will reach $378 billion in 2015 -- a level unseen since the last Bush administration -- before rising again. The budget office predicted it would widen to $895 billion for 2023 as Baby Boomers swell the ranks of entitlement recipients, health-care spending rises and interest rates return to historic levels, pushing up the government’s borrowing costs.
Debt Level

Debt held by the public meanwhile will remain at more than 70 percent of GDP for the foreseeable future, the agency said. It has averaged 39 percent of GDP during the past 40 years.

The short-term improvement in the deficit may only make it harder for lawmakers to tackle those long-term challenges, said Bob Bixby, head of the Concord Coalition, which promotes balanced budgets.

“It could throw cold water on efforts to get some sort of grand bargain going, though I’m not sure any cold water was needed to put out that fire,” said Bixby. “It’s not like it was a raging inferno.”

burningfiat said...

Biju,

Excellent, Congratulations to the USA! Only $642 Billion to go on the deficit before you can begin to repay the national debt!
Let's watch together!

Motley Fool said...

Biju

I recall bruce krasting had a piece on ZH yesterday discussing the CBO assumptions for this estimate.

http://www.zerohedge.com/contributed/2013-05-18/cbo-us-economy-set-soar-obamacare

"The CBO assessment of the deficit profile relies on every trick in the book. The assumption is that all of the variables that weigh on the deficit will be improving over the next few years. Tax collections will remain at historically high levels. Government spending will decline as the economy improves. Fannie Mae and Freddie Mac will be kicking $95Bn into the coffers. Social Security will cost less than previously thought, the same favorable result is assumed for both Medicare and Medicaid. And of course, there will be no wars or military incursions that have to be paid for. But, by far, the biggest driver of the reduced deficits will come from a robust economic recovery that is set to occur. This is the CBO forecast for top line GDP growth:

Wow! 6.5% growth is coming our way! Don't worry at all about the endless recession in Europe. Don't consider the rapid slowdown in China either. And please don't worry about the fact that the Fed is going to be taking its foot off the gas over the next 24 months - all that won't make any difference. The USA is set for a spurt of growth not seen for years."

Biju said...

burningfiat,

US national debt as a % of GDP is lower than many countries. So I would not be concerned about USA before others.

$642 Billion is a lot, but if it can drop from $1.1T to 0.642T in one year, who knows how fast US deficit can drop.


Wil Martindale said...

Congratulations indeed!

The USA has a central bank that monetizes it's debt so that Fannie Mae and Freddie Mac, the two most hopelessly insolvent entities on the planet, can report $95 billion profit on home loans awarded to people who cannot meet the terms.

But who needs an accounting degree anyway??

There is no risk in the FIAT EXH-PRIV regime, as any enterprize deemed systemically important has an implicit profit guarantee, without the cost of risk. The FED is personal guarantor with it's printing press.

Makes you wonder if we should pop the cork or pull the trigger.

This dollar machine is strong from use value, and even as we see signs of erosion, there are layers of interdependency that support it's use that go deeper and wider than the layers we are able to see.

I hope that Another's plausible reality comes to light, but we may remain in the darkness of a fairy tale for a while longer.

Ignorance is bliss, and it is the job of the corporate state to dispense bliss to the contentment of all.

ein anderer said...

burningfiat, Bijuy:
Plus minimum of $340 Billion 2014 and 2015 (as "projected").
Well, »It’s a Long Way to Tipperary«, until »the streets are paved with gold« again …

dieuwer said...

The DEFAULTS are beginning: HKMEX TO CEASE TRADING, WILL CLOSE OUT & CASH SETTLE OPEN CONTRACTS MONDAY!

http://silverdoctors.com/hkmex-to-cease-trading-will-close-out-cash-settle-open-contracts-monday/

Sam said...

The US trade deficit in necessary for other countries to get the dollars they need for their own economies. In the past A reduced trade deficit in the US has historically lead to global recession years after. This is a predictable side effect of the current global monetary system. One which the Euro was designed to fix.

Franco said...

Biju:

Please read this before you continue talking about the $642B expectation:

http://market-ticker.org/akcs-www?post=220813

During the past 8 months the national debt increased by $763B. That's over a trillion annually, basically the same burn rate that they've been having for a while. Don't pay attention to budget estimates. Just look at the burn rate.

Jeff said...

CBO estimates are funny.

Worse than a random walk (warning, PDF)

http://research.stlouisfed.org/publications/review/12/01/21-40Kliesen.pdf

"...back in 2001 the CBO forecast total 2011 public debt would be negative $2.4 trillion; instead the real number was positive $10.4 trillion"

http://www.zerohedge.com/news/2013-02-05/cbo-releases-latest-budget-forecast-hilarity-ensues

Franco said...

Jeff:

That's interesting that you post that comment from FOA. So where do you think FOA got it wrong? You DO agree that he made a mistake somewhere, right? I mean, he claimed that the world "supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed". OK, that makes sense. So the world supports the US dollar pig until another currency block (the Euro) can be formed. So the Euro launches and the structural support for the US dollar remains. Here we are 12 years later and the Euro hasn't supplanted the dollar for international trade. Petroleum is still priced in dollars. Why didn't the transition happen? Is it that there is a lot more inertia than FOA expected? Is it that the Euro is "tainted", not by its design but by the shady deals between Eurozone member states, ECB, big banks, etc? Why didn't the rest of the world jump ship to the Euro in 2002?

Biju said...

MF,

Treasury statements for April 2013 can be found here. For the past 16 months, US has been able to hold it's outlays nearly constant, while receipts is looking good up. Never thought a Democrat in white house would keep the expenditures in line.



http://www.fms.treas.gov/mts/mts0413.pdf


The numbers (US receipts and outlays) for past 16 months are below. The deficits has dropped by half over the past 4 months - Jan to April 2013(from $398B to $194B) compared to last year Jan to April 2012. So I think I am turning optimistic.

http://www.fms.treas.gov/mts/mts.pdf

Period Receipts Outlays Deficit/Surplus (-)

Jan-12 234,319 261,726 27,407
Feb-12 103,413 335,090 231,677
Mar-12 171,215 369,372 198,157
Apr-12 318,807 259,690 -59,117
May-12 180,713 305,348 124,636
Jun-12 260,177 319,919 59,741
Jul-12 184,585 254,190 69,604
Aug-12 178,860 369,393 190,533
Sep-12 261,566 186,386 -75,180
Oct-12 184,316 304,311 119,995
Nov-12 161,730 333,841 172,112
Dec-12 269,508 269,699 1,191
=========
TOTAL 1,060,756 deficit
==========

Jan-13 272,225 269,342 -2,883
Feb-13 122,815 326,354 203,539
Mar-13 186,018 292,548 106,530
Apr-13 406,723 293,833 -112,889

===========
so far 194,297 deficit
============


MF,

Also when I read Bruce Kastings article, I did not see much substance in the article other than mud slinging and pessimistic view.

Even if CBO projects current rate of 3.5% GDP growth and taking into account sequester effects and freeze in Govt outlays for past 16 months, the projected deficit of $640B is possible in year 2013 due to higher receipts.

jojo said...

Franco,

You have missed SO much writing here at this blog. If you had paid attention, you'd have read (too many times to count) all about China and continued support for the last decade.
Please,
RTFB.

Franco said...

jojo:

Ah, yes, I forgot about China. But look, today the PBOC owns, what, $1.3 trillion dollars? That amounts to the US budget deficit for ONE year. Are you trying to tell me that China postponed the shift from US dollar to Euro that FOA predicted by a full 12 years?

ciaoant1 said...

What about this?

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/10071998/Risk-of-vicious-circle-for-gold-as-hedging-returns.html

Aquilus said...

Franco,

Have a look at the formula in Moneyness then look at these numbers.

The total excess dollars is 1292B from 2002 to 2012

Trade Budget Excess
Year Deficit Deficit Dollars

2002 -417 -158 260
2003 -491 -378 113
2004 -605 -413 193
2005 -709 -318 390
2006 -753 -248 505
2007 -697 -161 536
2008 -698 -459 240
2009 -379 -1,413 -1,034
2010 -495 -1,294 -799
2011 -560 -1,300 -740
2012 -540 1,087 1,627
-----------------------------
Total -6,345 -5,053 1,292



Neat, huh?

Aquilus

Source for trade deficit: http://www.census.gov/foreign-trade/statistics/historical/gands.txt

ciaoant1 said...

Oh, and this one as well by Paul Graig Roberts:
http://www.counterpunch.org/2013/05/21/soros-bets/

Aquilus said...

Sorry for the formatting.
Columns are:

1 Year
2 Trade Deficit
3 Budget Deficit
4 Excess Dollars (to be sterilized)

Biju said...

Aquilius :

I did not understand this Row -
2012 -540 1,087 1,627

shouldn't for 2012 be Budget Deficit = -1,087 and excess=-547.

So total excess dollar= -883B

Franco said...

Aquilus:

OK, let's say that China was able to sterilize those "excess dollars" during the past 11 years. That still doesn't answer the question of why the rest of the world didn't stop supporting the dollar in favor of a better currency like the Euro. It's not like China has been mopping up US debt while the other countries tried to jump ship. Everyone continued supporting the dollar. FOA says that the structural support was only to buy more time. Why didn't the rest of the world say "time's up" in 2001?

Aquilus said...

Yes, good catch. Just put this together on-the-fly
Total: 882B

Corrected table:

2002 -417 -158 260
2003 -491 -378 113
2004 -605 -413 193
2005 -709 -318 390
2006 -753 -248 505
2007 -697 -161 536
2008 -698 -459 240
2009 -379 -1,413 -1,034
2010 -495 -1,294 -799
2011 -560 -1,300 -740
2012 -540 -1,087 -547
Total -6,345 -7,227 -882

Aquilus said...

Franco,

If the excess dollars are mopped up by producer nations the dollar still works.

No one will kill the reserve currency outright (actively). They will withdraw support.

Until 2011, that support was there. Since then mopping up slowed down. Have a look at the mop-up action here: Foreign owners of Treasuries

All I'm telling you here is in Moneyness from 2011.

Aquilus

Franco said...

Aquilus:

So according to the link you posted, in the last 12 months, the rest of the world added $611 billion in US debt to their balance sheets. Is there any data that shows how much per year the rest of the world mopped up during the past decade?

Aquilus said...

Franco,

I don't know of one, but maybe someone else does.

For me, since only producer nations can mop up surplus dollars, seeing China alone do all that the USD needed was enough. But it would be interesting to see the rest of the world, I agree. Anyone?

Aquilus

Franco said...

Aquilus:

Check out the link below. I think that's the data I'm looking for. I will try to create a chart.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfhhis01.txt

Aquilus said...

Franco,

That's a good start. On Twitter we keep track of that every month.

Here's the link to the latest in this tweet

Aquilus

MatrixSentry said...

GLD lost another 8.42 tonnes of gold bullion today.

That would be nearly 8.5 pallets, containing 80 LGD 400 oz. bars each.

This amount of gold is equivalent to 270,703 Gold Eagles or 676 LGD bars.

I have read that gold is leaving because nobody wants gold, the gold bull is over. Hmm, somebody took delivery of 676 LGD 400 oz bars. It would seem somebody wants gold after all. The share price of GLD tells me that the market could live without the shares. In fact, baskets of shares are being returned to the ETF and the price continues to fall. That tells me that demand for shares is weak.

Conclusion: the bull market in paper gold is likely over, and a new bull market in physical gold has arrived. Prior to Dec. 2012, potential holders of physical were happy to deposit or buy their gold (unallocated) through a gold bank, or maybe choose a gold derivative instead. At any rate, there was enough physical gold around to transfer 1353 tonnes of it into GLD. Something has changed that thinking and gold apparently is needed or wanted somewhere other than GLD. Hmm.

The Window remains open.

RTFB.

Time may be short.

RRTFB.

Gold, better get you some while the gettin' is good.

Luke said...

Aquilus, can you briefly explain why you and FOFOA compare government deficit to trade surplus as if government deficit is any different than private sector deficit. Either way debt has to be purchased by someone and on net, foreign countries have been consistently mopping up dollars regardless of who it is coming from.

thanks

Wil Martindale said...

Matrix,
Your compass is true, and it is clear you will stay the course.

And I agree that weak hands will fold early in this gold market, now old from the new millenium, but "new from the year of the window."

Weak hands will NEVER fulfill the demand of the strong. As they told Kyle Bass in his diligence as fiduciary to U of T: "Price will take care of it."

Indeed it will.

This small dog now hides with what is in his belly.

Michael dV said...

Luke
I'm jumping in here but the USG has certain spending 'needs'. When we had a negative balance of payments foreign governments would use their 'profits' to buy Treasuries. Now, the USG unable to reduce it's spending (cuz it is just too painful and the children would suffer) they sell bonds still....but now to the Fed. In the first case it was non-inflationary. In the latter it is highly inflationary. The end of support of the dollar by China signaled the end of the dollar.

M said...

@ Biju

So you are telling us that the US will post a trade surplus for the 1st time since the Ford administration ?

That could very well be right. But it will be in the form of a dollar collapse.

In 1975, U.S. exports had exceeded foreign imports by $12,400 million, but that would be the last trade surplus the United States would see in the 20th century.


Wil Martindale said...

Are we talking about an internal BUDGET deficit/surplus or an external/international TRADE deficit/surplus?

When I scanned the Bloomberg double-speak, I could have sworn they were talking about the internal CBO budget surplus. You know, the traditional DOMESTIC tax revenue vs. outlay model??

As I already explained, THAT's a corporatist parlor trick. Banks abandon all credit risk models, pump out fraudulent debt paper in mortgaged back securities, FREDDIE and FANNIE GSA's guarantee it all, then FED buys it all.

It's a shell game, an accounting trick.

TRADE deficit is a whole different matter.

Sorry if I'm being thick, maybe I don't understand what kind of deficit has been brought up by BIJU ....

But I do believe the intent of what was presented was indeed to conjur up the notion that the "U.S. is repairing itself" in perfect harmony with the notion that the U.S, dollar is self-healing aganst it's "price" of gold.

M said...

@ Wil

They were talking the budget deficit. I thought Biju had some trade deficit stuff in there too but after I re read it, I realized it was all about the budget deficit.

The trade deficit is different but it controls the budget deficit because it gives the US govt bond market magical powers.

Franco said...

Is there any way to post an image?

Aquilus said...

@Elizabeth Tucker/Luke

Sorry, no, I will not give you a "fast food" version. If you want to really understand it, the full regular explanation is in the second part of Moneyness. Enjoy!

If you are still interested, after that, read Peak Exhorbitant Priviledge

Aquilus

Aquilus said...

@Franco

Just post the image at one of the many free image hosting sites, then post the link here.

Franco said...

OK, here it goes:

http://i1318.photobucket.com/albums/t658/igorcarajo/Foreign_zps3f8b9516.gif

JR said...

Total US debt is more than $16 trillion.

About $5 trillion is intragovernmental debt held by federal agencies. Over half that is held by the social security trust held, and a quarter is the Office of Personnel Management (federal pensions). The rest is miscellaneous agencies.

The other $ 11.5 trillion or so is held by the public.

Foreign governments hold like 5.5 trillion.
The Fed owns like $1.9 trillion.
State/local G pension - $.7 trillion
Mutual Funds - $.8 trillion
Private Pension Funds - $.6 trillion
Banks - $.3 trillion
Insurance Companies - $.2 trillion
Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, etc.) - $1.14 trillion.

http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm


The TIC data (http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfhhis01.txt) only shows foreign ownership of treasuries.

We can see foreign ownership is $5.5 trillion as of the end of 2012, up from $2.1 Trillion in December 2006, and up from about 1 trillion in 2001.

Here is a 2006 article detailing the big growth in foreign ownership of Treasuries from 2001 through the time of the article in 2006:

Trends in federal debt and foreign borrowing

The federal government finances budget deficits by selling U.S. Treasury securities to the public. Until recently, almost all of those U.S. Treasury bonds, notes, and bills were purchased by individuals and institutions within the United States. Treasury securities are a very reliable investment that carry almost no risk of default because they are highly
liquid (easy to buy and sell) and backed by the “full faith and credit” of the U.S. government. In the stable inflationary environment of the past two decades, Treasury securities have become a low-risk anchor that most investors want in their portfolios.

What has changed dramatically in recent years is the extent to which foreign investors, and increasingly foreign governments, have become purchasers of our government’s debt. In 1965, foreigners owned just 4.7 percent of outstanding
U.S. government debt (Treasury securities), but that figure was 42.1 percent last year [2006], including an increase of 11.8 percentage points just since 2001 (Chart 1).


Foreign ownership of Treasury securities increased from $1.0 trillion in January 2001 to $2.2 trillion in August 2006. Over that period China increased its holdings from $61.5 billion to $339 billion, a staggering 450 percent increase (Chart 3). The OPEC nations, which include Venezuela, Iran, Saudi Arabia, Libya, and the United Arab Emirates increased their holdings from $48.5 billion to $104.8 billion,
with most of that increase coming in the past two years (Chart 4).


http://www.jec.senate.gov/archive/Documents/Reports/foreigndebtkindnessofstrangers.pdf

JR said...

Here is a 2013 CFR article with lots of data about foreign ownership of US assets (remember, there is US agency debt out there too):

Foreign ownership of U.S. assets has increased significantly since 1945, growing especially quickly over the past two decades. This growth is the result of a general increase in cross-border investment, with rising foreign ownership of U.S. assets nearly matched by rising U.S. ownership of assets abroad.

• Since 2002, the increase in foreign ownership of Treasury bonds has been driven almost entirely by government buyers.

• Until the crisis, government buyers were also driving the increase in foreign holdings of bonds issued by government-sponsored enterprises (agencies). However, since the start of the financial crisis, foreign official holdings of bonds issued by government-sponsored enterprises have steadily declined, while private foreign holdings have risen after an initial dip.

If the Federal Reserve's holdings are excluded, foreigners own nearly 60 percent of outstanding marketable treasuries.


http://www.cfr.org/geoeconomics/quarterly-update-foreign-ownership-us-assets/p25685



There is also lotsa of good data from the GAO here - "Ownership of Federal Debt"

http://www.gao.gov/special.pubs/longterm/debt/ownership.html

JoyOfLearning said...

I would like to ask a humble question to the Freegold elders. I keep reading but one thing I don't fully get is what will happen to social entitlements and pensions promissed in the Eu. In particular in Germany I'm curious what you think will happen. I believe the entitlements in Germany are still huge and unpayable, and yet if I understand it right the consensus is that the Euro will go through the transition largely keeping purchasing power (and thus debts too). That leaves a major issue which seems to me politicaly to be unsolvable as from what I hear on german radio they would never touch old people's money, and they're constantly talking about old age poverty with an eye of even redistributing more.

I would also have a second guestion: what is the exact mechanics that will keep socialistic entitlement mentalities in check after FG. Like Another said it's a fight of all against all, and again I can say that here in Germany there's a huge wave of media&poll consensus over the rightness of redistribution. I doubt the human nature of wanting more and wanting to use the state as the power fist to get it will go away in FG, so I would like to ask about the exact mechanics of how this will be somehow kept in check as I got the impression the consensus is that things will work much better in this direction after the transition.

Thank you very much! And thank you for all your discussions and great insights!

tintin said...

The USD bloc seems to be getting anxious regarding the different approach the ECB/Euro is taking:

Europe faces lost decade, says Mark Carney

Mark Carney, the incoming Bank of England Governor, has warned that Europe could face a decade of stagnation unless it takes the kind of bold measures seen in Japan.

In words that will underline his status as a monetary activist and fuel speculation that he will try to relaunch quantitative easing (QE) when he arrives in the UK, Mr Carney applauded Japan’s “bold policy experiment” to boost dramatically its own QE programme.

He said: “Europe can draw lessons from Japan on the dangers of half measures... Europe remains in recession. Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens.”

Mr Carney was making his last speech as Governor of the Bank of Canada before coming to the UK, where the Chancellor and the markets are gambling on him providing more stimulus to boost growth. Of the G7 nations, which includes Britain, he argued that only “Canada does not need to repair”.

more: http://www.telegraph.co.uk/finance/economics/10071951/Europe-faces-lost-decade-says-Mark-Carney.html

So he wants the ECB to follow the FED and BOJ's example to start printing up. He will be head the BOE soon, so watch out below on the GBP.

tintin said...

oh, and this from bloomberg:

Federal Reserve Bank of St. Louis President James Bullard said Europe risks an extended period of low growth and deflation like Japan’s unless the European Central Bank acts with an aggressive quantitative easing program.

http://www.bloomberg.com/news/2013-05-21/fed-s-bullard-says-ecb-needs-aggressive-qe-to-avoid-japan-fate.html

Hi Fofoa, you must be smiling!

Jeff said...

Gold flowing east

http://www.bullionstreet.com/news/south-africa-to-refine-11-billion-worth-gold-for-us/4804

http://www.mineweb.com/mineweb/content/en/mineweb-whats-new?oid=190917&sn=Detail

Woland said...

That 20 ton(+,-) flow compares to the 21 ton ANNUAL sales, for all
of 2012, of the 1 oz eagle (677,000 oz). The fractional coins add
another 3 or 4 tons.

Motley Fool said...

Hi Joy

The first question is a difficult one, and I do not know the specifics for Germany.

I do think (in contrast to say victor) that with the transition the euro will lose value, but that it will not be a runaway effect due to the increased value of the gold on the balance sheets of european central banks. This solves part of the problem, and austerity will minimize the rest of the cost.

The second one is easier. :)

Holding your savings in gold will take it out of reach of politicians. Furthermore, if they enact a severe inflation tax, people will simply divest out of any currency they have as fast as possible, which will increase monetary velocity, which will collapse that currency. This provides a disincentive for them to do so. Normal taxes as high as they can confiscate by stealth is also politically unmanageable, so if they enact those, they will simply be voted out of power. I expect the politics dynamic to shift towards more efficiency of spending and economy of service provided garnering more votes.

I hope that helps.

TF

Biju said...

I did not post the US budget details to sow doubt or confusion among readers here. I prefer to look at data and the US receipts are definitely looking better in past 4 months compared to same period last year. The US receipts are just tax revenue and does not involve any treasury sales or anything. If you look at each mo the data , you can look at each component of tax receipts - individual income tax receipt, corporate tax , social security receipt, excise duty, estate tax etc. and they are simple to read. We can look at the same detail for each month and a all I can see is that a Democrat in White House took the medicine and kept outlays(spending) as same when the receipts are clearly trending higher.

Biju said...

I did not include the Democrat in my comment to bring any political discussion but to just bring out the surprise in their action compared to the words of the politicians.

MatrixSentry said...

I believe the entitlements in Germany are still huge and unpayable, and yet if I understand it right the consensus is that the Euro will go through the transition largely keeping purchasing power (and thus debts too).

I do not think the consensus is for the Euro to maintain purchasing power relative to its its current valuation. The consensus is for the Euro to maintain credibility as money. Users will understand that the Euro will function well as money, but not so well as a wealth reserve.

Unpayable German entitlements will be easier to pay as the Euro inflates through the transition. I also believe this in conjunction with a austerity will balance the equation.

The Freegold mechanism, spur and brake, stick and candy, carrot or no carrot, however you prefer to visualize it, will keep governments and the entitlement mindset in check. There will be real and in your face consequences for monetary mismanagement.

M said...

@ Biju

Quote: The US receipts are just tax revenue and does not involve any treasury sales or anything.

You don't understand that the trade deficit finances the government budget. If the world stopped carrying the US's water like they did in the 70's or 80's then the interest payments on the debt would eat up the budget 5 times over. Even if rates went back to their historical average, it would bankrupt the US government. The US dollar would also lose value accordingly.

So basically, I have no idea what the point is you are trying to make.

Motley Fool said...

Biju

I have no issues with looking at the facts.

Another fact we have simply tried to point out is that CBO estimates are notoriously unreliably.

Here is another for you : it is always calmest before the storm. :)

TF

JR said...

Hi JoyOfLearning,

yet if I understand it right the consensus is that the Euro will go through the transition largely keeping purchasing power (and thus debts too).

Without addressing the specifics of your question about Germany, I think this is a key idea to keep in mind from "Euro Gold":

There are four players to keep in mind; the debtors, the savers, the banks and the printer. They never print and give the money directly to the debtors to pay off their debt. Instead they print and give the money to either the creditors (banks) or the savers (e.g. pension funds) in exchange for the older bad debt which they then put on the public balance sheet to socialize the lost value.

So they "bail out" the banks and the savers nominally, which in turn (through currency debasement) actually bails out the debtors and screws the savers. The banks come out even because they only require nominal performance. But the retirees and pensioners that require real performance at the supermarket get screwed.


http://fofoa.blogspot.com/2011/07/euro-gold.html

JR said...

And then consider the full analogy from "Euro Gold" and the difference between those that saved in scip and those that did not, like the "Germans."

The Modern European Fair

Now imagine if you will a giant fair with dozens of E-Z Up tented booths and tables full of merchandise, kind of like a swap meet at your county fairgrounds. As Fekete says, you show up at the fair with your goods and services for sale, your E-Z Up tent, your table and your shopping list. But when you arrive you must first check in with the fair operator to pick up your scrip money. I imagine the husband then works the booth while the wife goes shopping.

At this particular fair we are imagining, let's call it the Eurosystem, when you register with the fair operator you pay a small fee, deposit your gold for safekeeping during the fair and also for publication of your amount of gold to the other fair participants, and you are issued your scrip money for trade at the fair. But your scrip money is not a receipt for your gold. It is simply the clearing system for trade at the fair, so you are issued an amount consistent with the goods and services you brought to market.

There are a wide variety of booths at this fair. To give you a bit of a mental image, there's a large booth called Germany where you can buy fast cars and good beer! (I know, a strange combination.) There's another one with a fancy custom tent called France. There you can buy funny hats and cheese. And then there are smaller booths, one is called Greece. At Greece you'll find a table loaded with stacks of colorful vacation brochures.

Our fair, however, is a little different than Fekete's fair above. What we've seen over time at our fair is that some of the smaller booth operators like Greece took home more goods and services than they brought to market. And they did so on credit. Large operators like Germany, it turns out, gave Greece some extra goods in return for promises to pay later, and those promises were denominated in units of scrip money from the fair.

After some time, it became apparent that Greece could never pay back the debt at full value. This realization actually threatened the system, I mean the fair. So what the fair operator decided to do was to buy those promises to pay from Germany at face value, with newly printed scrip. This kept Germany in the game although it did devalue the scrip since now there was more of it than there were goods at the fair. But this was fine because the fair operator published a ConFinStat in which he told all the fair participants that the fair's scrip money was now worth less.

Those, like Germany, that had actually saved some income in promises to pay denominated in scrip, and then found those promises severely devalued by the recognition they would never be paid back at full value, received a nominal gift of the same number loaned to Greece, even though it was now devalued. Those that had not saved in scrip, but instead had cleared with gold at the end of each fair, simply carried on trading at the new, lower value of the scrip. You see, the fair operator, we'll call him the ECB, did not participate in the fair itself, primarily because he had severed his link to any specific booth operator. His only job was providing scrip, announcing its value, and maintaining the system, I mean the fair, even if it came at the cost of debasing the scrip money.



So do see why MatrixSentry wrote above:

I do not think the consensus is for the Euro to maintain purchasing power relative to its its current valuation. The consensus is for the Euro to maintain credibility as money. Users will understand that the Euro will function well as money, but not so well as a wealth reserve.

JR said...

Hi Biju,

Here is a litle more on M's point above about interst payments and the elphant in the room your are ignoring - the FED:

President Obama has raised the national debt by nearly $6.2 trillion, the equivalent of $78,385 per family of four. It is true that projected deficits recently have been reduced. April tax filings increased 28% from 2012, but much of this was thanks to a one-time rush at the end of 2012 to report income before rates rose in January. The second largest reduction in the deficit came from Fannie Mae taking a one-time accounting adjustment.

But unless the economy soars, or a significant budget agreement is reached, the most lasting legacy of the Obama presidency will be a $10 trillion increase in the national debt—a burden that bodes ill for the nation's future.

Once the Federal Reserve's easy-money policy comes to an end and interest rates return to their post-World War II norms, the cost of servicing this debt will explode. The cost will increase further as the Fed sells down its $1.85 trillion holding of government bonds, and the Social Security system runs deeper and deeper into the red. [JR here: obviously this tightening won't happen, but the big point is there is an elephant in the room you can't ignore: the FED is buying huge amnounts of debt] The Treasury will then have to pay interest on an ever-growing percentage of the debt.

Since the World War II era, the average maturity of outstanding federal debt has been about five years, and the average interest cost on a five-year Treasury note has been 5.9%. At this interest rate, the expected cost of the Obama debt burden will eventually approach some $590 billion per year in perpetuity, exceeding the current annual cost of any federal program except Social Security.

[...]

The president and many in Washington are complacent because, thanks to the Fed's unprecedented near-zero interest rate policy, the burden of servicing the debt today is just 0.9% of GDP, the lowest level in over five decades.


http://online.wsj.com/article/SB10001424127887324787004578494864042754582.html


JR said...

Biju,

Here's the big point - the FED is buying 85 billion in bonds a month, and BB told Congress todau its gotta continue:

Despite recent improvement in the job market, the Federal Reserve needs to continue its stimulus efforts to avoid endangering the recovery, the Fed chairman, Ben S. Bernanke, told Congress on Wednesday.

http://www.nytimes.com/2013/05/23/business/economy/bernanke-fed-stimulus-still-needed-to-help-recovery.html?_r=0



JR said...



Monthly Trade Figures Since January 2003

Month US Trade Deficit ($ millions)
March 2013 $38,829
February 2013 $43,629
January 2013 $44,460
December 2012 $38,114
November 2012 $48,228
October 2012 $42,046
September 2012 $40,345
August 2012 $42,552
July 2012 $41,944
June 2012 $40,921
May 2012 $47,009
April 2012 $49,726
March 2012 $51,726
February 2012 $44,586
January 2012 $52,288
December 2011 $50,421
November 2011 $47,542
October 2011 $43,121
September 2011 $44,009
August 2011 $45,091
July 2011 $45,613
June 2011 $51,774
May 2011 $50,210
April 2011 $43,231
March 2011 $46,059
February 2011 $45,381
January 2011 $47,521
December 2010 $40,264
November 2010 $38,239
October 2010 $38,227
September 2010 $44,079
August 2010 $46,316
July 2010 $42,226
June 2010 $49,941
May 2010 $41,996
April 2010 $40,571
March 2010 $39,506
February 2010 $39,718
January 2010 $34,647
December 2009 $39,902
November 2009 $36,114
October 2009 $32,933
September 2009 $35,281
August 2009 $29,938
July 2009 $31,165
June 2009 $26,876
May 2009 $25,763
April 2009 $28,440
March 2009 $28,816
February 2009 $26,504
January 2009 $36,901
December 2008 $48,165
November 2008 $54,259
October 2008 $58,030
September 2008 $58,135
August 2008 $60,244
July 2008 $62,505
June 2008 $59,135
May 2008 $59,790
April 2008 $60,498
March 2008 $56,491
February 2008 $60,573
January 2008 $57,856
December 2007 $57,896
November 2007 $62,408
October 2007 $57,586
September 2007 $56,945
August 2007 $56,729
July 2007 $58,895
June 2007 $59,983
May 2007 $60,274
April 2007 $59,213
March 2007 $63,035
February 2007 $58,228
January 2007 $57,356
December 2006 $61,453
November 2006 $58,214
October 2006 $58,926
September 2006 $64,603
August 2006 $68,915
July 2006 $67,882
June 2006 $64,695
May 2006 $65,340
April 2006 $63,598
March 2006 $62,266
February 2006 $62,912
January 2006 $66,470
December 2005 $65,074
November 2005 $64,462
October 2005 $67,836
September 2005 $65,585
August 2005 $58,462
July 2005 $57,355
June 2005 $59,130
May 2005 $55,971
April 2005 $57,681
March 2005 $53,754
February 2005 $60,114
January 2005 $58,267
December 2004 $54,672
November 2004 $58,977
October 2004 $55,574
September 2004 $51,939
August 2004 $54,195
July 2004 $51,331
June 2004 $54,894
May 2004 $48,472
April 2004 $48,406
March 2004 $46,966
Feb 2004 $45,834
Jan 2004 $46,053
Dec 2003 $43,742
Nov 2003 $39,559
Oct 2003 $41,126
Sept 2003 $41,645
Aug 2003 $40,125
Jul 2003 $40,929
Jun 2003 $39,882
May 2003 $40,792
April 2003 $42,176
Mar 2003 $43,543
Feb 2003 $40,073
Jan 2003 $41,218

http://www.americaneconomicalert.org/ticker_home.asp

JR said...

Who's got the mop for all those homeless dollars?

...In 2008, the US in aggregate (private sector and public sector combined) net-emitted $1.9B per day to the outside world. This is like a broken water main that cannot be shut off, and must be mopped up by someone. But that year the USG only gushed $1.2B per day. So the foreign mess we created was only 63% attributable to the USG. The other 37% came from private sector deficit spending. But ever since 2008, that broken water main gushing dollars abroad is 100% attributable to the USG alone. And not only that, but it's now spilling out here at home, on our own front lawn!

The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!

Don't be fooled by the misdirection. QE, twist, whatever; it's not about interest rates or helping the economy recover. It's 100% about disguising and managing this uncontrollable, unstoppable mess. It's more like a broken sewer line than a water main now that I think about it.

Sure, the Fed needs to keep interest rates from rising. Because what happens when interest rates rise? The value of the entire $35T bond market starts to collapse and bond holders panic. The Fed doesn't want that, so don't bet on them letting interest rates rise. But as I said, I'm not worried about the stock of dollars. I'm worried about this broken sewer line we call the federal budget deficit which means no one has to sell a single bond. In fact, someone has to continuously buy $3.6B more each and every day, including weekends and holidays.
...

Strelnikov said...

I choose "Time Misallocator" Might be a good name for a band with the addition of an 's'.

JR said...

Yeah Strelnikov,

There is no better way to misallocate your time than reading old FOFOA posts, like Peak Exorbitant Privilege

If trade between the two currency zones was perfectly equal at all times, there would be an equal amount of euros wanting to buy dollars and vice versa. But we don't live in a perfect world, so there's always more of one or the other which is why the exchange rates float. If, instead, we had fixed exchange rates, the CBs would be involved in equalizing the number of euros and dollars being exchanged, and then the CBs would settle up amongst themselves using their reserves, which was how it was before 1971.

But even today, with floating exchange rates, the CB's still do get involved in what we call the "dirty float" to manage the price of their currency on the international market. This is essentially the same process as during fixed exchange rates except that they don't maintain an exact peg, but instead they let it float within a range that they deem acceptable. And the way they do that is essentially the same way they did it back in the fixed exchange rate system of Bretton Woods and before. They buy up foreign currency from their commercial banks with newly printed cash.

Or, if there's a glut of their own currency in foreign lands trying to get home, then they have to buy back their own currency using up their CB reserves. Which brings us to the makeup of a CB's balance sheet, most pointedly its reserves. And the take-home point that I want to share with you here is the difference between finite and infinite from a CB's perspective.

From the perspective of a CB, its own currency is infinite while its reserves are finite. So if there's a glut of foreign currency in its zone, it has no problem buying up as much as it wants with printed cash. In fact, theoretically, a CB could buy up foreign currency that is accumulating in its zone until the cows come home. On the other hand, if there's a glut of its own currency abroad, its buy-back power is finite and limited to the amount of reserves it stockpiled earlier.

So why do it? Why does a CB spend its precious reserves buying its own currency back from foreign lands? What happens if it doesn't? Currency collapse is what happens. If there's a glut of your currency abroad and you don't buy it back, the market will take care of it for you by devaluing your currency until it becomes impossible for you to run a trade deficit. And this is a painful process when the marketplace handles it for you because it not only collapses your trade deficit to zero, it also tends to bring your domestic economy to a standstill at the same time, a double-whammy.


cont.

JR said...

cont.

The reason I went through this somewhat-lengthy exercise explaining the significance of reserves in our monetary and banking system was to help you understand the words of Jacques Rueff who first warned of the catastrophically dangerous flaw embedded in this new system—a flaw which continues today—way back in 1931. The term "exorbitant privilege" would not be used until 30 years later under a new system, but I hope to help you see, as I do, the common thread that ties all three systems together, the gold-exchange standard, Bretton Woods and the present dollar standard.

[...]

If you print the currency that the rest of the world uses as a reserve behind its currency, that alone enables you to run a trade deficit without ever reducing your ability to run a future trade deficit. Deficit without tears it was called. For the rest of the world, running a trade deficit has the finite limitation of the amount of reserves stored previously and/or the amount of international liquidity (reserves) your trading partner is willing to lend you.

Another thing that happens is that, as the printer of the reserve, the rest of the world actually requires you to run a balance of payments deficit or else its (the rest of the world's) reserves will have to shrink, and its currency, credit and economy consequently contract. So to avoid monetary and economic contraction, the world not only puts up with, but supports your deficit without tears.

[...]

Here's my thesis: that the U.S. privilege which began in Genoa in 1922, and was so complicated that only one in a million could even fathom it in 1931 and 1960, became as clear as day for anyone with eyes to see after 1971. And so, to see it in real (not nominal) terms, we can very simply look at the percentage of our imports that is not paid for with exports. So simple, which might be why the government doesn't publish that number and the media doesn't talk about it. All you have to do is compare the goods and services balance (which is a negative number or a deficit every year since 1975) with the total for all goods and service imports.

[...]

But all of this is kind of beside the point. The point is that the U.S. exorbitant privilege peaked in 2005, for the last time, at its all-time high of a third of all imports, and soon it will go negative, where it hasn't been in a really long time.

Michael dV said...

JR
rampage

Franco said...

During the period 2000 through 2012, the average annual growth rate of foreign holdings of treasury securities was 15%. In other words, if in 12/2000 the holdings were at $1,015B and you compound that number annual by 15%, you get $5,574B by 12/2012. Now, from 2011 to 2012 the rate of change was 11%. Lower than the average over the past 12 years, but not anything to fret about. What I'm trying to get at is that despite the Fed printing record amounts of cash in order to close the gap (which it didn't need to do before), foreign nations, on the aggregate, have NOT really withdrawn structural support, not in a way that actually matters.

So, if monetizing a big chunk of the deficit won't scare anybody, then what will it take for the structural support to be withdrawn? It seems that the status quo could be preserved for years. During 2013 foreign nations will buy $600B in treasuries, and the Fed will buy another $600B with freshly printed cash. Rinse and repeat.

Motley Fool said...

Franco

Perhaps a nice graph would be the amount of debt the Fed has bought over the last ten years....if you can find the data. I expect it increased from nothing to your $600 now. This gives you a better idea of how much they are now Forced to buy to keep up appearances.

TF

Motley Fool said...

Ps. Perhaps we have different understandings of what the word 'withdraw' means. In military terms you seem to be implying it is/should be the same as teleportation. ;)

victorthecleaner said...

Joy,

I believe the entitlements in Germany are still huge and unpayable, and yet if I understand it right the consensus is that the Euro will go through the transition largely keeping purchasing power (and thus debts too).

I am one of the suspects to blame for the claim that the Euro will keep its purchasing power through the transition. I still think this is by far the most likely outcome. But it will work only if there is a considerable writedown of bad debt.

I am expecting the following
1) credit collapse, loss of confidence in debt (but not in the Euro as a currency)
2) ECB buying roughly as much bad debt as is required to prevent deflation of consumer prices - this will still be enough to make the hard money socialists scream betrayal
3) the rest of the bad debt will be defaulted on

Depending on what happens to the dollar at the same time, it may well happen that the Euro zone sees a huge inflow of money which would alleviate (2) and (3).

Another topic. Someone had a link to Mervyn King's last press conference, some time last week. In that press conference, he was asked whether the BoE would consider buying asset backed securities just as the ECB is floating as a proposal. He replied (from memory) that the BoE would never put taxpayers' money at risk and would purchase only government debt because that is totally safe.

Victor

Michael dV said...

" So simple, which might be why the government doesn't publish that number and the media doesn't talk about it."

Thus the government 'of the people' was captured by 'normal' politicians (just doing what politicians all over the world do) and the consolidation of major media into 5 hands...I think we should fix that bug next time around.
The internet will help and governments being limited in what they can spend should help too.

DP said...

"never put taxpayers' money at risk"

Awesome! XD

Europe says they will work to build up the private sector, by ensuring it has access to affordable credit.

Britain says it will not take such a heinous risk, but will instead only support the public sector.

And yet the Eurozone is painted as some kind of Socialist paradise by teh UK Elitez? #Irony! ;)

Sam said...

remember that it only matters if net producing nations sterilize our dollars with the purchase of treasuries.

Sam said...

MF

I was writing something about the withdrawal being deliberately slow but your post about it not being teleportation sums it all up beautifully. haha

Franco said...

Motley Fool:

Yes, I would like to see a chart showing, year by year, how much the Fed printed to buy treasuries.

But you are making my point for me: yes, the Fed used to just sit there and watch foreign nations mop up the debt, and yes, now the Fed is having to print what amounts to at least 50% of the net debt issuance, but in spite all that, foreign nations are still accumulating US debt, and if they are doing that, you know that they are doing it to lend structural support to the dollar, certainly not because US debt is a good investment. So if monetizing at least half of the budget deficit doesn't prompt a red blinking light in the screens of central bankers around the world, then what ever will?

In regards to the definition of "withdraw", my definition in this context is to stop accumulating, so the rate of change would be 0%. What is your definition?

Motley Fool said...

Franco

Not teleportation. ;)

Reduced rate of accumulation is a functional definition of withdrawal in the context.

You seem to think that reduced = reduced by 100%.

TF

burningfiat said...

DP, here's the latest EU initiative to support the private sector [producers of certain olive oil bottles]:

http://www.telegraph.co.uk/news/worldnews/europe/eu/10064787/EU-to-ban-olive-oil-jugs-from-restaurants.html

Let's not turn this into a competition between UK and EU of who's the bigger socialist. We are all socialists nowadays, CB policy notwithstanding... Comrade! :-)

Biju said...

@JR, MF & M :

(1) I can see that the improvement in Tax revenues can be a one time event due to tax increase this year onwards (2013) and people rushing in to pay taxes before the onset of tax increase this year.

Let us wait and watch how it pans out the next 3 months. If budget and trade deficit keeps on improving(decreasing), then we are seeing some major force of change occurring.


(2) @M : I was only trying to show the improving Tax receipts, with the trade deficit trending lower. if there is marked improvement in trade numbers and considering that US external debt is not high compared to other nations, US will be on a good path.

ampmfix said...

A small line to thank JR and Jeff on posting and re-posting stuff. Used to annoy me but saves me from RRTFB. Light-bulb moment today on:

"But all of this is kind of beside the point. The point is that the U.S. exorbitant privilege peaked in 2005, for the last time, at its all-time high of a third of all imports, and soon it will go negative, where it hasn't been in a really long time".

Thanks!

Franco said...

Motley Fool:

I'm sorry, I don't follow your "teleportation" reference. English is not my native language. OK, what about the following statement:

"Foreign nations have slowed down their rate of accumulation of US debt (i.e. withdrawn structural support to the IMFS) from an average annual of rate increase of 15% (for the past 12 years) down to 11% (for the past year)"

Do you consider the statement above correct? Yes or no, please; no more teleportation references needed. Thanks.

Motley Fool said...

Franco

You looked up and quoted those figures. I have no problem with them.

How about military terms? If your troops retreat, can one magically get them all at home in an instant, or do they need to traverse the ground between the battlefield and your home first.

How about causal reasoning. What would happen if the rest of the world all simultaneously withdrew all support?

I also don't like the 'rest of the world' thing. The world is a pretty big place.

As explained in some posts here, at some point the EZ mopped up a lot of the dollars emanating from the US, then they slowed and stopped. At about the same time china started. Recently they slowed and stopped. At present there is no one big entity left and willing capable of support the emanations. What we are seeing is incidental support. A little bit here, a little bit there...and whatever that doesn't cover the Fed buys.

If you would just clarify...what is your point exactly? That foreigners are still buying more nominal amounts of US debt each year and that this implies everything is peachy and can continue indefinitely?

TF

Nickelsaver said...

The monetization of gold is the empowerment of currency issuers to dictate or systemically suppress gold's price a/o operative value.

For gold to realize it's true potential it can never be used as money, but rather as the thing to hold in order to preserve purchasing power and also not be subject to the double coincidence of wants. Universally interchange with money, at a floating rate. But not money itself.

Motley Fool said...

Franco

I like the chart you made btw.

Ok. Let us assume for a moment that on this front things can continue indefinitely. Are there other implied fronts where this is not the case.

Let's take for example China. They have stopped accumulating US debts. Has their trade with the US shrinked? Has if become more balanced? If not what are they now doing with that excess?

TF

JR said...

Franco,

But you are making my point for me: yes, the Fed used to just sit there and watch foreign nations mop up the debt, and yes, now the Fed is having to print what amounts to at least 50% of the net debt issuance, but in spite all that, foreign nations are still accumulating US debt, and if they are doing that, you know that they are doing it to lend structural support to the dollar, certainly not because US debt is a good investment.

So the "foreigners" provided support in the past by buying the new debt, then all of the sudden the FED has to start QE in November 2008 after a huge market collapse and the FED hasn't stopped the QE for 4.5 years, but the foreigners are still providing the necessary support?

Then what is the FED doing?


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


A key idea is foreigners only have to slow their support, not stop it. They provided structural support in the past - to keep doing that they have to keep buying more tresuries. To withdraw they slow accumulation:

FOA 10/5/01 - The game is to let the US economy suffer from its own bloated expansion by moving slowly away from supporting foreign dollar settlement with CB storage. This is more than enough to end the dollars timeline as we are already stretched to the leverage limit.


The threat is the slowing of foreing accumulation, which is currently happening as we see the FED stepping up to the plate for the past 4.5 years:

Now I've got to make an important point about stock and flow here. We need not be concerned about the stock of dollars held by these foreign CBs, which today stands at more than $5T. The real danger is the unstoppable flow of dollars. No one needs to dump their dollar holdings to collapse the dollar. In fact, they won't dump and I don't expect them to dump, at least not until collapse is well underway.

All they need to do is to slow down mopping up the gushing, unending flow. Here's how fragile the dollar actually is. It is supremely overvalued because its SoV arena, its "trading asset arena" as FOA termed it, simply dwarfs the MoE arena where all currencies get their value. But what threatens the dollar's massive overvaluation most clearly and presently today is only that tiny, marginal portion of the flow: the deficit portion or the unstoppable net-emission of dollars.

Trillions of dollars circulate (change hands) every day, and orders of magnitude more sit idle in investments. But the real threat to all of it is the net-emission of dollars which must be mopped up (stored) by someone. This is the structural support that holds the whole system together: foreign CBs perpetually gorging themselves on Treasuries. It's not that they might sell their stock of Treasuries. The real threat is that they might slow or stop their rate of accumulation relative to our rate of emission.


http://fofoa.blogspot.com/2012/05/inflation-or-hyperinflation.html

Franco said...

Motley Fool:

You said: "If you would just clarify...what is your point exactly? That foreigners are still buying more nominal amounts of US debt each year and that this implies everything is peachy and can continue indefinitely?

Look, my thoughts lately have been more somber than usual, but more or less, yes, that's my point. The Fed is openly monetizing a huge chunk of the budget deficit and yet...here we are. Just how slowly will the foreign nations withdraw the support? What do we need, another ten years of inch-by-inch withdrawal? I want action, damn it, ACTION! See, the thing is, I'm from Argentina, where there isn't a dull moment. I'm used to stuff boiling over explosively. This slow, protracted death is bullshit.

tintin said...

Bernanke said "no tapering".

money velocity is dying, money multiplier is collapsing, dollar index is going up.

Instead of inflation, we seem to be seeing deflation first (at least as reflected thru USD index), so debt servicing becomes harder.

debt is increasing faster than the Fed can print and it’s costing them more!

Funny, the more they print, the bigger the debt load.

Motley Fool said...

Franco

Action requires loss of confidence in the USD. Think back to how quickly it happened in Argentina. One day everything was fine, the next chaos. This is how it will happen for the USD too.

You are just somewhat used to the chaos by now since it hasnt stopped for a while.

As Groucho Marx (I think) remarked to the question : How did you go bankrupt? Two ways, gradually then suddenly.

That suddenly can be any day now, or in a while still. It is not predictable.

TF

Motley Fool said...

Ps. We here share your frustration at this glacial pace.

Motley Fool said...

Pps. It was Hemmingway. Where is my mind today. :o

Edwardo said...

Of course it doesn't have to, but will the emergence of a physical only market, aka freegold, wait until after the worst effects of dollar HI appear in the U.S.?

I don't know about you, but I've been operating with the bias that, prior to the emergence of a physical only gold market, the U.S. would experience, at least for a spell, the fearsome effects of HI. After all, Uncle Sugar gets a damn sight more bang for his depleted buck if gold is revalued after a dollar HI then before. And, yet, as we know, or at least some of us do, THE GOLD MUST FLOW. And there's the rub, since, as near as I can determine, we are not far, at least in percentage terms, from "gold" trading at a price where mining gold becomes unprofitable. In the meantime, we have physical leaving the world's largest paper gold vehicle at an average daily rate of 3 tons and change. So, picture, if you will 1100-1200 gold and the present bleed rate of physical persisting for some number of months more and where, oh where is that marginal flow of gold going to come from (sans mining production and GLD inventory) that keeps the porcelain plates spinning above the slate kitchen floor in defiance of gravity?

In the meantime, another 2.99 tons left GLD today.

Edwardo said...

Make that 3.01 tons

Michael dV said...

Eduardo
When I was younger (say in February) I used to think we'd see HI first. Now I don't. I think the gold market goes pop first. After that depending upon how the gold derivatives shake out (http://fofoa.blogspot.com/2013/04/euro-conversion.html)
we might see a brief period of HI or more likely some kind of drastic capitulation the likes of which the world has never seen (dogs and cats sleeping together). I am absolutely riveted to my screen looking for signs. I do not want to miss a minute of this show.

victorthecleaner said...

DP,

freegold is the triumph of the elites over big government. The ECB sees it and acts predictably.

Some people still get confused by actions out of Brussels (big government), but they are neither in the loop nor in charge and will rather get washed away by the tide. Same with entitlements. You don't believe how responsibly governments can behave once the free money stops flowing.

Victor

DP said...

It's almost like they know that the ever-growing State just doesn't work & are calling time.

Wil Martindale said...

Isn't funny how the paper trolls came here on que in April to scold us for being so "stupid" as to think "gold" could keep rising?

What happened? Did they miss their bounce?

Frankly, what is going on in the world today is SO OBVIOUS that the tirade of GATA and ZH still trying to "prove" that the metals are manipulated is beginning to sound like a gaggle of fools screaming that the earth is round.

It's a shame you have to come to such an exclusive club of evil gold hoarders just to get a daily dose of reality.

Fighting debt by printing more debt and calling it a recovery is (yawn) oh so tiresome ....

One Bad Adder said...

@tintin: - The seeds of $US Hyperinflation are already planted ...and it will be the inevitable Deflation that ultimately waters those seeds.

Rather than Debt being the primary problem, "too-much-Credit" ...has firstly driven Yields into the dust c 2006 ...and since then has been collapsing the "future" into the here 'n now.
The Fed, QE, BoJ, G-7 thru 20 etc. notwithstanding. FWIW.

Wil Martindale said...

We must get an understanding of what is going to happen in the Eurozone. We should agree to and understand that we will have some greater influence in the IMF and other financial institutions. If we place our gold and currency reserves in euros and European countries' state bonds, and if we have around half or more of our reserves in dollars and U.S. treasury bonds, we wish to know what is going to happen to the dollar ... and how the United States plans to tackle the problems before them, the 15-trillion public debt, for example. We need to know what will happen to the world's main reserve currency and what we should prepare for.

Any guesses as to who said this, and when ...

Edwardo said...

Michael dV wrote:

I am absolutely riveted to my screen looking for signs. I do not want to miss a minute of this show

Which signs are you looking for? I think we've had quite a few over the last year or so, but when one particular sign comes along that has the unmistakable patina of "This is it" (and it is now), well, I imagine the good ship Lollipop will already have had its hull ripped open, be taking on massive amounts of water, while members of the crew bellow, "All hands on deck."

jojo said...

The impaler:)

JR said...

Yes MF and Franco,

It can appear slow going at times. I offer two hope-inspiring thoughts.

First, as Franco notes "The Fed is openly monetizing a huge chunk of the budget deficit and yet...here we are. Just how slowly will the foreign nations withdraw the support? What do we need, another ten years of inch-by-inch withdrawal?"

Don't forget there is two-way action here, its not just on the debt side, which is why everybody loves following BF's "GLDpuker app" too:

So the paper gold of the bullion banks is now TBTF. Of course that doesn’t mean it can’t fail. It either fails, or the USG hyperinflates the dollar as prices rise. They are related, and each will likely cause the other almost immediately, but either one could end up being the initial cause IMO. If price inflation forces the USG to hyperinflate then the paper gold insurance stickers will have to fail to perform. And if these price rises in the gold market fail to manage the flow (demand) of physical as they have so far, we’ll likely see a 10% or larger GLD puke at some point. That would signify more than a 120 tonne allocation demand, a system-busting size. They might think they can rocket the price at that point and get it back, but more likely we’ll see more allocation requests coincident with a falling (paper) "gold" price as the longs dump their worthless “insurance” while wishing they had the real thing.

http://fofoa.blogspot.com/2012/06/gld-talk-continued.html

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

Second, smart man say:

it is best that you work to actively establish your desired gold position without undue delay, and then with peace of mind you can turn your full attention to the business of living your life as it was meant to be. Spending significantly further time obsessing over currencies and investments is a fool’s errand.

R.

fnord88 said...

Meanwhile Europe continues to implode, youth unemployment is reaching 70% in some places, riots are becoming more common

The July MTM had better usher in freegold, or by then end of the year their may not be much left of Europe. Still have not seen FOFOA or anybody else give a convincing explanation for the delay. Exactly how much longer do you really think the staus quo is sustainable? Entire generations of Europeans are being destroyed, if Europe had a solution i cannot think of a single rational reason it has not been implemented yet. 9/11, 2007 etc, these are seeming more and more like excuses of a failed theory to me.....16 years and counting since another and foa......

fnord88 said...

JR : "It can appear slow going at times. I offer two hope-inspiring thoughts."

I am sure those inspiring thoughts are much comfort to my friends in Greece and Spain whose families are starting to starve, but hey it makes sense that European politicians would sit idly by while their population starves and the social fabric of their countries is destroyed. It might take another 10 years for the USD to hyper inflate, who cares if unemployment hits 80% in the mean time. If freegold is viable ( and as a large gold holder i hope it is ), it must be implemented this year, Europe will disintegrate otherwise.

fnord88 said...

Sorry if my comments come across as combative, i do not mean them to be, just in a bit of a funk at the moment as people i have been friends with for years are starting to lose it. Those that are stuck are losing everything, those that are not a fleeing. Freegold or not, if many of the smart educated people in Europe are fleeing like my friends are, then Europe is doomed. Having a large gold stash will not help a country or a currency is everyone under the age of 35 has left.

Wil Martindale said...

Jojo:
I thought it would be an easy one :) He said it a year ago next month.

When Jim Willie started ranting about the recent G20 meeting (establishing Turkey as a Gold intermediary for a new system to replace the US dollar) and the "secret" G7 meeting called to help forstall that development until September (BRICs development fund to recycle T-bonds into gold for trade settlement) I decided to search the G20 website for references to gold.

That statement by Vlad was the only mildly interesting of a very few, so I guess Jim's "insiders" have the "real scoop". It's just one of the many half-plausible interpretations of reality out there floating around to choose from.

Since we have no reliable source of "truth" or any sort of "true reality" at the level of a shrimp, you are welcomne to pick from a maddening throng of interpretations in our amazing disinformation age. Or like most in the US, pick the one that's been crafted for the masses ... you know, they one they think "you can handle".

fnord88,
I feel for you. What you are describing is an undeniable REALITY. Here in the U.S., what we have is state-sponsored DENIAL. You can't even talk about reality over here, or you are marked an alarmist, or a conspiracy theorist, or simply a wing-nut.

But consider this: That handful of gold at the top of this page looks like a good bit more than I own, and the little bit I own is more than what everyone I know owns together.

Things may change slowly, but change they do. I hedge many plausible realities, within my meager means, and try not to let it get to me as best I can. Hang in there.

Wil Martindale said...

Oh, and BTW ...
http://www.zerohedge.com/news/2013-05-22/they-better-pray-there-no-short-squeeze

tintin said...

GLD gold holding is getting down close to 1000 tons.
Like the sharemarket, big round numbers could have some phychological impact. Might be a trigger for bigger run downs?

One Bad Adder said...

$US just stood atop a multi-year high mountain (DX 84.37 as I recall)...and didn't like the view, shying away somewhat.
Man up Bucky! ...you know you want to.

Nickelsaver said...

From: @costata001
Sent: May 22, 2013 10:15p

This is not good methinks: http://t.co/98DzLRguKQ Old FOFOA blog pals: has OBA had anything to say about this development in JGB rates?

sent via web
On Twitter: http://twitter.com/costata001/status/337406517575827456

db said...

Hi fnord88,

Living in Spain I completely understand what you mean, the 25-35 yr people are leaving the country looking for a future somewhere else, and if it only was the uneducated it'd still have something positive, but it's the engineers, doctors, architects, chemists, etc, which puts us as a country in a poor growth prospect in the years to come; our main export has always been tourism, and the way things are going (and the workforce that's staying here) in 20 yrs we'll only be able to export waiters.

db

M said...

@ Biju

What you were showing was filled full of holes.

One day the US will have a trade surplus alright...

ein anderer said...

JR,
your comment came in right time. Used it here (without any visible success yet) …
Will take R.’s advice now …

Wil Martindale said...

ALL traditional data patterns are broken. Stock prices soar as bond spreads decline, Gold "price" plunges as demand soars. Equities soar as PE plunges, employment plunges as stocks levitate, SP500 soars as US macro declines, employment irrelevant, earnings irrelevant, divergences widen.

If everything is a lie, this is the new truth.
If all wealth is debt, debt is the new wealth.

Welcome to planet Krugman.

If you think this is sustainable, I need the contact info for your pharmacologist.

MS said...

Hey everyone new poster who has been slowly trying to catch up by reading old posts and comments. Appreciate all of the posts that have been published over the past few years.

I was wondering if someone could point me in the right direction regarding a post to read about silver? I have read a few different opinions about what silver will do. Some saying GSR will drop to 10:1ow lower and others saying it will skyrocket to something like 10,000:1 or higher. I'm just trying to get a better understanding of this. Thanks.

Motley Fool said...

MS

From your post you do not seem to be adverse to reading, a common affliction. In that case, I will suggest : Shoeshine boy, focal point gold and then hmm costata's open forum.

TF

Motley Fool said...

Ps. Oh and kicking the hornet's nest after focal point gold and before costata's post.

MS said...

Thank you Motley, I will take a look at those and read up.

Ashley said...

After being completely sold out of inventory for 2-3 weeks my online gold dealer announced today that they are closing up shop for 2.5 weeks and going on vacation...or something:
=========================
Dear DBS Coins Customers:

DBS Coins will be closing our office from May 23rd to June 7th. Our phone & online ordering will be closed during those 2 1/2 weeks.

We are a small business that is 100% owned by family. Over the past 5 Years DBS has sold millions of dollars worth of precious metals and accommodated thousands of customers. On behalf of our family and company we would like to thank all of our customers for the loyal support over the years. During the next 2 and half weeks that we are closed we will be doing some exciting new things for our family and also our customers:

http://www.dbscoins.com/closed

GrumpsLabastard said...

12/27/12....2,950,688 million

05/23/13....3,440,615 million
__________________

490 billion

on pace for 1.176 T

dieuwer said...

GLD lost another so many tons. Now at 1,018.

byiamBYoung said...

At the rate that GLD is flatulating, we could see the tonnes in 3 digits by next Friday.

Interesting times, indeed.

Cheers

M said...

Japan anyone ?

It looks like Japan finally did it. They QE'd to the point that rates rise rather then fall. Who would have thought ;) The 10 year JGB was at .45% before they went full retard. Post full retard, it is now yielding 1% and climbing.

At this point they are so completely and totally screwed that they have one option left.(that I can see) The BOJ could blatantly lie and disclose that they are slowing down QE and that they will only target 1%. And rather then slow it down, they could speed it up with the hope of turning sellers back into buyers.

With that in mind, why don't the central banks just blatantly lie anyway ?

Why do they have to tell us what they are doing ?

byiamBYoung said...

M,

I have pondered that (and concluded nothing) myself.

Cheers

freegoldtube said...

Freegold being explained on a traders site:

http://youtu.be/iiI48F-U4eY

Sam said...

@M

"why don't central banks blatantly lie"

The idea that propaganda consists of lies (which makes it harmless and even a little ridiculous in the eyes of the public) is still maintained by some specialists; for example, Frederick C. Irion gives it as the basic trait in his definition of propaganda. But it is certainly not so. For a long time propagandists have recognized that lying must be avoided. "In propaganda, truth pays off" -- this formula has been increasingly accepted. Lenin proclaimed it. And alongside Hitler's statement on lying one must place Goebbels' insistence that facts to be disseminated must be accurate.(*)

How can we explain this contradiction? It seems that in propaganda we must make a radical distinction between a fact on the one hand and intentions or interpretations on the other; in brief, between the material and moral elements. The truth that pays off is in the realm of facts. The necessary falsehoods, which also pay off, are in the realm of intentions and interpretations.

This is Propaganda 101.

-courtesy of some French dude that Mencius Moldbug did a book review about in March

gull_mann said...

The past days events just show how fragile and fake the world's economy is. At the scare of Bernanke shutting down the printing presses, the markets flash crash. Just wait until something actually does happen (i.e. one of the many bubbles burst). That will be a lot of fun.

I think it is time to strap in and enjoy the ride. I have a feelings things are going to get interesting in the very near future.

byiamBYoung said...

Sam,

The statements of those who disseminate the lies, proclaiming the importance of truth, are not surprising.

They are also disingenuous.

Liars lie. Especially about telling the truth.

Cheers

Wil Martindale said...

The power to alter reality is impressive indeed: the power to create irrational markets, the power to render fundamentals meaningless.

If reality is altered Sam, are lies thus redefined?

But central bankers should be careful with this "absolute power". After all, we all know that mere mortals cannot alter reality, but rather only our perception of it (and therein lies the propaganda as well).

Victor calls freegold the triumph of the elites over government. But I say that debt has always been the sleeping triumph over government, posing as an ally.

Freegold is simply the trigger to turn that ally into their master. When CBs finally own all sovereign debt, who will the sovereigns then utimately be paying interest to?

The BIS.

Wil Martindale said...

Or as Another called it, "the big poker hand".

Wil Martindale said...

And all this power comes from FIAT, a trap created by Giants for governments.

They have the power to create it, and to destroy it (Ender, you can chime in any time now :) and they know that governments will BEG them to destroy it.

Why defeat a sovereign in a messy conventional war, when you can lay so elegant a a trap which assures they will hang themselves?

And once you have allowed them to hang themselves and their fiat is worthless, you will lay claim to all rehypothecated gold in payment for these sins.

Sovereign gold!

We watch.

byiamBYoung said...

Brother Wil,

I am concerned. You are going to pop a blood vessel if you keep this up.

You should have a nice pimento cheese sandwich and a glass of milk.

When the powers that be want us to understand, they will let us know.

Now be a sport and hand me the remote. The Voice is on in a few minutes.

Cheers

byiamBYoung said...

OH, and don't forget to water the flower of, well, you know...

JoyOfLearning said...

@Motley Fool,JR, victorthecleaner

Thank you so much for responding to my question! If I understand right other than possibly Victor the opinion is that the governmental (1) obligations/ pensions/ entitlements of Europe will be made manageable by (2) the devaluation of the Euro in the transition, but either way the Euro will maintain confidence as a means of trade. I see a contradiction there. Let's say the devaluation happens in November and it's 40%. This does solve the entitlements problem, but doesn't it create a bigger one with 2? Suddenly all the anti-euro groups, in all countries but even in Germany with the newly formed rising party against the common currency. Suddenly all those groups will be able to point back to 2013 and say that the ECB has broken it's one very very clear promise of <2% inflation and for 2013 there was a 40% inflation. Doesn't this deal a mortal blow to the credibility of the ECB, of it's one and only stable prices mandate and it's promissed independence from political pressures ?

I keep thinking about this for many months, going back in archives, and I still don't get it. I get sometimes a hint of a clue of a solution with the revaluation of only gold... but then I think if only Gold is revaluated how does that help with the huge future debts these societies have created for themselves by borrowing from the future and promissing benefits into the future. Does that mean that you would expect governments to sell gold to pay off benefits and the old promises would be kept, even as the newer generation has less?

Just trying to figure things out. Humbly asking for the opinions of those who know more than me. Thank you!

FOFOA said...

Hello JoyOfLearning,

Devaluation is not the same thing as inflation. A sudden devaluation due to a crisis would not compromise the euro or the ECB's single mandate. It also wouldn't hurt the debtors or those saving in gold. It would only hurt those saving in currency units which, it appears (at least in Cyprus), they are trying to dissuade.

Sincerely,
FOFOA

One Bad Adder said...

Hi MS: - Good luck on your quest.
PaperSilver is far more attuned with PaperFiat than is PaperGold
How each will react (price-wise) when TSHTF is basically a crap-shoot.
I41 think Ag will outperform Au for a sufficient time thus allowing me to migrate my Ag into Physical Au ....which is ultimately where you will need to be. FWIW.

Wil Martindale said...

Fear not my brother, for though the outer shell displays angst, the inner hull is serene in a tragically comic, yet stoic way, through the flower of understanding (FOU) ...

Some might even call it the Flower Of Acceptance (FOA).

Happy Friday, and for those in the US a long memorial weekend \0/

One Bad Adder said...

This 3 Yr Long-Short Yield Ratio Chart is getting an "early 2011" look about it, so it might be worth the effort identifying how TPTB "managed" to get 2012 looking "new-normal" ...sorta!
Firstly, in mid-'11, Long Yields were dropped below ANY previous rational return level (1.24 Index price)
...and secondly, just after the New-year, $IRX was driven to 0.9%
Have they "NOW" run out of options??

Let's watch!

One Bad Adder said...

D-uh! ...my bad THIS is the $IRX Chart referenced above.

One Bad Adder said...

Yes - Two Bottles of Oyster Bay (NZ) Brut Cuvee'll do that to ya.

KnallGold said...

There appears to be an increase in Gold lease rates lately, not sure if one can still believe in the numbers. But we know how real stress in the paperGold market would affect lease rates. Together with news that there are first delivery problems arising in London makes this worth watching closely.

Physical Gold can't be printed...

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