Sunday, September 1, 2013

Glimpsing 3 – Gold Mining in Freegold



The governments will revalue gold and "demand" that the public carry it and use it! It will be the source of all gold, the mines, that will be controlled!
That's Controlled, with a capital "C", not confiscated!
-ANOTHER

When the dust does clear for mining to continue, gold will be recognized worldwide as real money, and the mining of money will, no doubt, carry Extreme taxation.
-FOA

This is the third in my "Glimpsing the Hereafter" series in which I peer into my crystal ball and explore the future on the other side of the Freegold revaluation. Unfortunately I do not have an actual crystal ball. All I have is logic and reason, and a little help from Another and FOA. So to quote FOA, "If you came with a notion that I am someone who sees the future, grab the children and run far away." But if you came bearing your own logic and reason, then perhaps you will find this post useful. :D

Gold mining is an extremely contentious subject around here, partly because a lot of gold bugs are invested in gold mining shares. But that's not what this post is about. If you would like to read about how Another, FOA and I think the shares will fare as an investment, you can find it in Part 2. And, for completeness, here's the link to Part 1.

In this post I'll explore how we can understand and visualize the practice of gold mining in Freegold, and how it will be a most-natural fit. In fact, after finally putting in the effort to think this topic through, I have come to the conclusion that it fits much better in this "hereafter" context than in the present and past contexts with which we are all very familiar. For a visual tour of present and past "for profit" gold mining efforts that channeled talent and manpower away from other more socially desirable pursuits, check out this awesome video from Freegold tube. It includes footage and images from the mid-1800s Gold Rush as well as some amazing footage of modern mining techniques, with a couple of fantastic montages at the very end.

Don't get me wrong. I have nothing against gold mining, or any for-profit activity for that matter, socially desirable or not. It's just that once you open your mind and consider the natural implications of gold valued by the free market at, perhaps, 40 times the cost of pulling it out of the ground, it all comes together and makes perfect sense! Even the old Warren Buffet quote will take on a whole new meaning: "Gold gets dug out of the ground... we melt it down, dig another hole, bury it again and pay people to stand around guarding it." At least I hope it will, for you, after this post. ;D

What I'm going to walk you through in this post may not have made sense before the Gold Rush days. But today, with the low-hanging fruit long since picked and the billions of ounces already obtained through modern mining techniques over the past several decades, I think you'll be amazed by the view. I know I am!

Let's start with this "crazy" idea, first proposed in 1998 by Another and FOA, that gold in the ground will be controlled, taxed or otherwise "confiscated" by the government. Sounds pretty tyrannical, doesn't it? Not to me. Not at all! Let's put on our "logic and reason hats" and think about it in the case that gold in the ground is worth 40 times the cost to pull it out of the ground. This would be a different situation from "the past and present context" of gold mining, wouldn't it?

In a recent and heated (at least on one side) discussion in the comments on the previous thread, this crazy idea of government controlling the mining of gold in Freegold, one way or another, was referred to as "anti-capitalist", "anti-freemarket" and "authoritarian". But to me it's none of these. It's exactly as it should be in the context of 40x-cost-of-mining gold, and it makes perfect sense!

Laws are changed and rewritten all the time, but the law that governs gold mining claims on public lands in the U.S. to this day (and other minerals as well, subject to mining regulations) was written way back in 1872 as a result of the California Gold Rush. Even in 1865, the federal government thought about taking the mines for the good of the tribe:

At the end of the American Civil War, some eastern congressmen regarded western miners as squatters who were robbing the public patrimony, and proposed seizure of the western mines to pay the huge war debt. In June 1865, Representative George Washington Julian of Indiana introduced a bill for the government to take the western mines from their discoverers, and sell them at public auction. Representative Fernando Wood proposed that the government send an army to California, Colorado, and Arizona to expel the miners "by armed force if necessary to protect the rights of the Government in the mineral lands." He advocated that the federal government itself work the mines for the benefit of the treasury.

Western representatives successfully argued that western miners and prospectors were performing valuable services by promoting commerce and settling new territory. In 1865, Congress passed a law that instructed courts deciding questions of contested mining rights to ignore federal ownership, and defer to the miners in actual possession of the ground. The following year, Congressional supporters of western miners tacked legislation legalizing lode (hardrock) mining on public land onto a law regarding ditch and canal rights in California, Oregon, and Nevada. The legislation, known as the "Chaffee laws" after Colorado Territorial representative Jerome B. Chaffee, passed and was signed on July 26, 1866.

Congress extended similar rules to placer mining claims in the "placer law" signed into law on July 9, 1870.

The Chaffee law of 1866 and the placer law of 1870 were combined into the General Mining Act of 1872. The mining law of 1866 had given discoverers rights to stake mining claims to extract gold, silver, cinnabar (the principal ore of mercury) and copper. When Congress passed the General Mining Act of 1872, the wording was changed to "or other valuable deposits," giving greater scope to the law. The 1872 law was codified as 30 U.S.C. §§ 22-42

The 1872 act also granted extralateral rights to lode claims, and fixed the maximum size of lode claims as 1500 feet (457m) long and 600 feet (183m) wide.

The Act of 1872 also set the price for land assumed under the mining act… It set the price of the land claim to range $2.50 to $5.00 per acre. This price set by law has remained the same since 1872. -
Wikipedia

The United States is special in this regard, and that is due to the California Gold Rush beginning in 1848 and the General Mining Act of 1872 which followed. That's public property, but the United States is also special with regard to private property mineral rights, and that goes all the way back to 1776! In Europe, the governing principles date back to the Middle Ages and give the sovereign or the commonwealth the rights, especially to "monetary metals."

Mining law in Europe originated from medieval common law. From at least the 12th century, German kings claimed mining rights to silver and other metals, taking precedence over the local lords. But by the late Middle Ages, mining rights, known as the Bergregal were transferred from the king to territorial rulers.

Unlike German mining law, in Great Britain and the Commonwealth the principle of mining by landowners prevails. The crown only lays claim to gold and silver reserves.

But even in the U.S., the state has reclaimed the right to important minerals:

Even in the United States, mining law is based on English common law. Here the landowner is likewise the owner of all raw materials to unlimited depth. However, the state retains rights over phosphate, nitrate, potassium salts, asphalt, coal, oil shale and sulphur, and a right of appropriation (not ownership) by the state for oil and gas. Sand and gravel come under the Department of the Interior. -Wikipedia

The take-home point here is that property rights are a matter of tribal law. And the right to profit from digging up underground minerals is an issue separate from the ownership of above-ground private property, and even separate from land surface ownership. As you can see, even though you own surface property in the U.S., you don't necessarily own the phosphate, nitrate, potassium salts, asphalt, coal, oil shale, sulphur, oil, gas, sand and gravel under the ground. Gold is notably absent from that list, and that's because of the "American specialness" of the California Gold Rush back in 1848. You think that classic, sentimental American favoritism toward the adventurous gold prospector will stick in the face of suddenly-revalued 40x-cost-of-mining gold? I don't think I'd bet even a wooden nickel on it! ;D

And that's just America, land of the free, where you still technically own the rights to (some of) the minerals under your private property (until your state and/or federal government changes its mind, and as long as you pay for a permit to dig them up and also pay taxes on your profits from the sale of said minerals). Elsewhere, the sovereign or the collective still retains the ultimate right to the gold in the ground and in some cases has laws still on the books that need only be enforced.

The point is, no matter where you are in the world, your local "tribe" owns the gold in the ground in extremis. More precisely, it will have first dibs on the windfall from a gold revaluation. Let's take a quick look at what I'm talking about. The "windfall" I'm talking about will be the equivalent of about $53,000 per ounce of gold in the ground. Each "tribe" can choose to keep that windfall for the good of the tribe, or to give it away to those adventurous gold prospectors of yesteryear. Here's where the gold is:



Let's see. The windfall from South Africa's proven deposits/in-ground public reserves will be about $12 trillion. Give away or keep? Australia, $7.5 trillion (and that's in constant dollars). Give away or keep? Canada, $22.8 trillion. Give away or keep?

So WTF am I talking about? Did you notice that I just called the "proven deposits still in the ground" public reserves? Hmm…

I was having a discussion with Aquilus the other day by email. We were discussing how gold will perpetually rise in consumer purchasing power in Freegold much like the traditional stores of value used for centuries by the super wealthy such that it will satisfy the modest but risk-free "yield" needs of the entire saver class but not attract the risk-taking investor class that is always investing wherever it foresees the most economic potential in search of an even higher - yet risky - yield.

I explained that "consumer purchasing power" was actually a declining standard of value when compared to these "high end" stores of value used by - and due to their extremely high prices, only available to - the Giants. And that the whole point of Freegold was that infinitely-divisible physical gold would finally put the average saver on equal footing with the Giants in this one particular regard. As human progress and innovation makes necessities and other consumer goods "cheaper" in real terms over time, the relative scarcity and preference of savers for traditional stores of value, what I call "durable collectables" (now to include physical gold in Freegold), will cause them as a group (as they always do, but now with gold ounces as the standard of value for "stores of value" as they relate only to the saver class), to perpetually rise relative to consumer purchasing power which represents the standard of value used for economic growth and fiat currency.

At one point in this discussion Aquilus asked:

Now one quick clarification: technically the percent growth in the economy does not have to be necessarily correlated to the stock, but rather the flow of gold, right? Because even if the economy grows at 15%, there will still be many that will not even consider touching their stock of gold this generation or the next. If that's true, it supports the rise in real terms vs a basket of commodities even more.

I said, "Great question! Let's discuss it!"

First of all, the size of the stock doesn't really matter, except insofar as it relates to the "stock" of savers. ;D All that matters is the flow, as you say, because no matter how big the stock is, we know that any amount above and beyond the flow is being hoarded by someone. In fact, the bigger the stock with any given flow, the larger the stock to flow ratio which means more is being hoarded at current prices.

But here's the thing about Freegold. Gold's price will "right" in terms of an equilibrium struck between the stock and the flow. In other words, we can assume that there's not an inordinate amount of gold being hoarded because the price is too low. The "right" amount will flow. By definition it will be the "right" amount simply by the fact that it will be a physical-only market equilibrium, so whatever amount is flowing is right and whatever the price is will be right.

Now imagine a perfectly stable stock (no new gold from mining) in Freegold. New net-producers are buying from old dishoarding ex-net-producers. That equilibrium will be reflected in the flow and the price. It is what I called a "closed loop" or "closed circuit" in that it is only transactions between savers past and present. Present savers are giving their money to someone who has already earned that purchasing power by producing in the physical plane and underconsuming in the past. Those ex-savers will now spend that money on consumption. So the surplus production represented by the gold flow is being consumed solely by ex-savers. This leaves habitual net-consumers to their own devices.

Yet there's still some value that can be "stolen" by the net-consumers as they print their way into net-consumption (either through government printing or consumer credit expansion). And that value comes from anyone and everyone who holds currency for more than a nanosecond. And that includes the savers both past and present as well. They hold some currency too! They don’t just hold gold, so some portion of their holdings is still vulnerable to the debtors. But that's fine, because at least their savings are no longer vulnerable. And it was the savings portion that made the savers pay inordinately in the past. On top of that, the savings will be rising in purchasing power to offset any losses to the debtors in the normal currency portion of their holdings.

Now, we have a pretty good idea of the stock of gold. Around 170,000 tonnes. We also know the production rate. Around 2,600 tonnes per year currently. And we have a pretty good idea that the economy tends to grow at a rate faster than the production rate of gold over the long run, so we can safely assume that in a more meritocratic world that trend will continue. And economic growth means some portion of new savings that would not have existed in a static world with no economic growth (an expansion of the "stock" of savers). So growth equals more new savers in the static equilibrium equation above, which would put demand pressure on the flow and drive the real price of gold higher.

So, in the hypothetical static world above we have an equilibrium price of gold achieved. In an economically expanding world, we have a rising price of gold, which can only be offset by new production from the mines being sold to the public as opposed to it simply being transferred from in-ground reserves to in-vault reserves by the government. We already have a pretty good idea that the current stock to new-flow ratio is tight enough to allow for gold to perpetually but modestly appreciate in Freegold. We can also assume that mine production will not increase, and will likely decrease in Freegold, leading to even higher rates of real appreciation.

But the higher rates of appreciation will likely be offset by governments selling some of their reserves. It makes no difference whether it comes from the vault or from the ground. So, in fact, "official gold" (currently 30,000 tonnes plus all in-ground reserves) acts as that "new" supply in Freegold. In fact, taking this thought further, mining flow or the flow of "new" gold into the global stock actually becomes irrelevant, because there's no difference between a government selling some of its above-ground reserves versus it letting the mines sell to the public while taking in the difference between the cost of mining and the sales price as a tax. Both essentially become monetary operations.

Let's make this even more clear. In Freegold, as long as there's such a thing as "official gold" held by CBs or governments (which should be forever), the addition of new "stock" will be nothing more than a monetary (or currency management) operation. The "stock" as it pertains to the savers becomes 170,000 – 30,000 = 140,000 tonnes, and the growth rate of that "stock" will be determined by governments and CBs as a currency management tool. Nothing more, nothing less.

Now let's look back at what I wrote:

"As long as the economy is expanding faster than the stock of gold, why wouldn't it have a consistent and real positive gain?"

In this new view, we find that the expansion rate of the stock of gold is actually a decision made by all of the CBs and governments in aggregate. Also, we find that, curiously, it becomes possible for the "stock of gold" as it relates to the savers to actually contract if/when the CBs are buying gold in aggregate, removing it from the flow available to present net-producers. Again, this would be a currency management operation intended to weaken the currency, but the net-effect to the savers, regardless of whatever is happening with the currency, would be that the real purchasing power of gold would rise even more than it otherwise would have.

By buying gold, a CB weakens its currency in two ways. It puts more currency into circulation, and it also lowers its currency's exchange rate with gold by raising the price of gold in its currency. And since gold is the benchmark for all freely-traded currencies, this means that a CB buying gold would lower its currency's exchange rate with other currencies. Traditionally this is done to gain economic advantage over other currency zones. By lowering your currency's exchange rate with a foreign currency, you make your zone's prices of goods and services more competitive. This is a currency effect, not a real effect, but it does work in the short run to counter or enhance ongoing real effects. And what it tends to do (in the short run) is to increase exports and decrease imports.

What this means is that mercantilist policies in a floating exchange rate regime in Freegold will tend to increase the purchasing power of gold for the savers by contracting the "stock of gold" as it relates to the savers. So when might we see a majority of zones engaged in this kind of behavior such that the global aggregate "stock of gold" is contracting? We might see this in the case that the global economy is contracting, as might be seen after a natural or manmade disaster.

Now isn't that interesting? If the global economy is contracting, the stock of gold might even "contract" protecting the savers' savings from ever declining in real terms. Is that possible? And then what's the reverse of this situation? If the global economy is expanding so fast that the real price of gold is rising faster than normal? What then?

Well, then we might see governments and CBs selling gold in order to strengthen their currency relative to other zones in an effort to "cool down" their "overheated economy" which they view as expanding too fast. Again, this is just a currency management operation and it only really has a short term effect because it's a currency effect and not a real effect, but it does have a real effect on the purchasing power of the savers' gold by changing the stock of gold relative to the "stock" of savers. It keeps it from rising too fast even if the economy is overheating which might create a bubble of sorts in the price of gold and lead to an eventual decline. But that won't happen, because the CBs will sell gold if the economy is growing too fast.

Viewing gold as a currency management tool at the state level, we find that any irresponsible government like, say, the USG, who tries to sell gold during a recession in order to spend above and beyond what it can take in from taxes and borrowing, will simply strengthen its currency against other currencies and further weaken its taxable economy making it a self-defeating exercise. Or it could just print and spend, but that would cause inflation and also be self-defeating. Either way, the savers are insulated from the currency effects of irresponsible governments because if the government is selling gold, making it cheaper in US dollars, the dollar is also strengthening in its exchange rate with other currencies keeping the purchasing power of gold stable in real terms.

So what we find is that, even though changes in the stock of gold as it relates to the savers is essentially in the hands of CBs and governments worldwide, the natural inclination will be a consistent and real positive gain, even if the economy contracts, and even if the government is irresponsible with its money. This is what I mean by the savers being isolated from whatever's happening in the currency. Of course in a real disaster (Mad Max-type scenario), where necessities become scarce for everyone, the purchasing power of gold will decline no matter how much the CBs buy in order to gain a currency-derived short term advantage for their zone.

Can you see how sales from the mines to the public will be no different than the sale of above-ground official reserves? Can you see how it's simply a monetary operation at the state level? If a mine sells an ounce of gold for $55,000 and gets to keep $2,000 while the government takes in $53,000, that's virtually the same as if the government or the CB sold some of its reserves for $55,000. The "stock of gold" (as I'm viewing it in this exercise) increased the same in both cases, and virtually the same amount of money was taken in at the state level. The only difference is whether the government spends that money or the CB destroys it, but either of those possibilities are the same whether the gold came from the ground or the vault.

I think this is the proper way to view the "stock of gold" in Freegold, as only the gold that's not in the ground nor in the government vaults because both are essentially public monetary reserves. And in a static economy, we will likely see a "currency war" of sorts where the CBs may be competitively buying up the gold. So if we view the Freegold price as an equilibrium of sorts between past and present savers, and then any economic growth rate as adding new savers and new demand to the equilibrium driving up the price, I think the statement still makes sense:

"As long as the economy is expanding faster than the stock of gold, why wouldn't it have a consistent and real positive gain?"

But the best part is that it's really just a way to explain why gold would naturally rise, because when you really think it through, changes in the stock of gold will naturally lag changes in the economy no matter what's happening (aside from Mad Max) because of the elegance of the Freegold dynamics. And even in the case of a Mad Max-style disaster, natural or manmade, gold will still be the best way to shuttle your wealth through the crisis to the other side.

Can you punch any holes in my logic? ;D

Sincerely,
FOFOA

FOFOA

Hahaha, yes, bravo! You took my flow vs stock little observation and ran about 30 miles up-field with it (in a good way)…

So let me summarize the main ideas so I’m sure I know what you’re saying:

1. The stock we’re talking about is the “stock of the savers” (call it the “saver’s stock”, not the general stock)

2. Yes, the flow is what matters, but the flow to and from the “saver’s stock”

3. Economic growth is an expansion of savings that will be looking to become part of the “saver’s stock”

4. The flow necessary for those savings to become part of the “saver’s stock” can be fulfilled by either flow from a combination of “public stock sales (CBs and mines which I agree behave as the same thing) or from existing savers dis-hoarding from the “saver’s stock”. The size of this combined flow is what drives the price of gold (in your local currency) at any given time.

5. The flow from the “public stock” (CB and mines) is nothing else than a currency management tool as gold is the reserve. As such, when the economy grows “too fast” it is logical that the CBs would increase the flow because it’s in their interest. Conversely, they would buy gold or decrease the flow in a recession, again, in their interest as a currency management tool.

6. Both of these operations still organically benefit the savers in the “saver’s stock”:

a. In the case of a CB intervention to cool down an “overheating” economy, selling gold increases the flow, reduces the speed of price increase of gold in the local currency, but also strengthens the local currency against others, therefore increasing the purchasing power for imported goods, while not decreasing the purchasing power (but not necessarily increasing it) for local goods.

b. In the case of a CB intervention to “prop-up” a slowing economy, reducing the flow by buying gold in the local currency increases the purchasing power of the “saver’s stock” in real terms, but weakens the local currency compared to the rest. But still, in gold terms, that purchasing power is not reduced.

7. The only thing that reduces the purchasing power of the “saver’s stock” of gold is an economic downfall of such a magnitude that economic output shrinks and stays under what needed for society (Mad Max).

Have I captured the essence of the logic I’m supposed to punch holes in? Because if I have, it will be very hard to play devil’s advocate to it.

Aquilus

I believe you have! :D

Ok! great then (did not expect that on the first try)

I tried to think of ways in which to play devil's advocate here and did my best to take Aristotle's (the original) "it is the mark of an educated mind to be able to entertain an idea even when you don't agree with it" to heart.

Everything I came up with in the short time I had to think about it would be a temporary disruption that would fall apart by itself after a while. The only thing that would keep them going would be the "World Police State" and I don't consider that likely in the least. Here are the major paths I had:

1. Suckering back into debt: To break the virtuous cycle, I have to figure out a structure by which I can lure saver's money out of gold (in freegold) and plop them back into debt for a while. Repeated suckering has happened over and over in history (that's why ponzi schemes work, isn't it?) so I was going to play post-Freegold Goldman-Sachs for a while ;) But because of the gold alternative, these schemes would implode way before they became systemic again...

2. Coersion through laws in order to "save the poor and the children": Play politician and come up with variations of controls of prices, forbidding gold purchases/sales/import/export, etc and see if I can disrupt the cycle for a while (years/decades) before the scheme collapses. A variation would be the "needs" of the collective and a wealth tax for a nation.

3. Manufacture your own SoV: Replace gold with a world SoV (IMF's SDR construct for lack of a better term, or BitSoV instead of BitCoin). Fails the network effect test miserably (no wide holding credibility).


So, I give up, because none of the above stands without some major conspiratorial/coercive apparatus omnipresent. The only scenario that might work is a One World Centrally Controlled World Government with only one Central Bank, no international settlement any longer and draconian/coersive laws everywhere? Which would make people escape to the Moon colonies ;D??? As you can see, it's getting ridiculous...

I pass the devil's advocate baton to someone more worth-while

Aquilus

Hello Aquilus,

Here were my initial reactions as I read your three points. I wrote them as I was reading, so they were written before I got to "So, I give up…"

Re. #1, false comparison. You compare "suckering back into debt" with Ponzi schemes that have happened over and over in history. Who ever said Freegold would eliminate Ponzi schemes? Not I! But Ponzi schemes are for investors, traders and speculators. If, in the past, they included the savers too, that was because the savers didn't have a good alternative, and that's what's different in Freegold. The only way you're going to sucker the savers back into debt is to make gold riskier than debt with the same or greater real return. That should be impossible under the framework I outlined.

Re. #2, I think this comes from "old paradigm" thinking. If I put my perspective into the new paradigm, I don't even see the impetus that would lead to such coercion. First of all, to "save the children" they go to where the money is. There's no money in gold. It is an inert metal. Money simply flows through gold. And in Freegold, gold will have a lower appreciation than any successful investments. So on one side of gold, you have the massive pool of the entire money supply, there's a good target. And on the other side of gold, you have all of the successful investments. There's another good target. I think that in Freegold the target will be off of gold for good. There won't be any "windfall profits" from gold post-reval!

Re. #3, you'll have to beat gold on both appreciation and risk. The only way I see that happening is if gold declines abruptly creating risk and erasing appreciation. And that's kind of the definition of "Freefiat". A manufactured SoV, so it needs wildly declining gold at times, and the way it gets there is hot money flows (fickle investment money) shifting from gold into other investments and back again. Gold would be in a constant cycle of bubble, then pop, then bubble then pop in Freefiat, so the savers all run in fear to the magical manufactured SoV. How's that different from today? ;D

That's what I wrote about in the third section of Glimpsing 2 called "Gold's True Function". The function is to segregate and isolate the savers from the hot money flow and its transmission of price signals which keeps the economy efficient. Once we're finally there, I think it will be virtually impossible to go back.

Sincerely,
FOFOA

Hello FOFOA,

Yes, they were obvious strawmen and you gave them a good beating before getting to the "I give up" part ;D

It's kind of funny to see you spelling out all the reasons why they are all logical failures though. Why? Because I actually knew the answers to them almost as soon as I thought about them (and that means all that reading sank in apparently ;D) That's why I gave up.

Just as an example for the "debt Ponzi schemes", yes, you may convince SOME savers to become speculators for a while, but if gold is there with a real appreciation as a risk-free alternative, that scheme will fail to convert enough savers into speculators because there's no need for the saver to take any risk to get a real return. Normal human nature, I'd say... That's why all those schemes never get big in freegold, I understand ;)

Same idea applies to free-fiat #3. At that point, to get wild fluctuation in gold, you would need some serious change in human behavior to make people dishoard their current real returns without risk in gold in mass. As you said once, maybe if Gold is proven to be toxic and reduce our lifespan to only one century....

As for #2, again, yes it's always money, not assets. There are some "asset" taxes: think of house tax, or car tax, but doing that on gold is both impractical (need to find it declared someplace - good luck in freegold) and it would also be idiotic to tax the premier reserve asset that needs to flow. But even if they did, in freegold it is my feeling that it would just increase rate of appreciation in the local currency to make up for the tax percentage...

Here's another (idiotic) challenge that came to mind: Some government will try to re-create the paper market after freegold has been in effect a few years! Alas, you already addressed this a few times... Sigh..

So, in summary, sorry I could not give you good challenges. The original would still make a good post.

Aquilus
_____________________

To conclude on the subject of gold mining in Freegold, what I see in my "crystal ball" is that gold mining will no longer be driven by profit. Yes, the miners will provide that service for a profit which will be determined by the state, but the rate of mining output and where it ends up will be a monetary matter at the state level and not a decision by the miner himself. Can you see the contrast between this view and the free-for-all of the Gold Rush and modern gold mining?

In effect, any country with above-ground gold reserves will have little incentive to remove its in-ground reserves from their secure location, except perhaps a minimal amount just to keep the mining equipment from rusting. And even with that, whether it goes straight into the government vault or is sold into the public market will be merely a currency management decision. Can you see the elegance of this view?

It may seem "anti-capitalist", "anti-freemarket" or "authoritarian" from the perspective of someone invested in gold mining today. But it's really not! It's only gold we're talking about, and in a more meritocratic world I'm sure those poor gold miners will find some other great for-profit activity to do if they choose not to work for the state. Once you realize that the local tribe has always had the ultimate claim to the gold in the ground in extremis, it is no more "anti-freemarket" than anti-counterfeiting laws. You just have to shift your perspective into the new paradigm to see why.

As for wildcat or illegal mining, no one ever said that Freegold would eliminate crime. Even today, some western states have clamped down on placer mining techniques on public land because of environmental concerns. Here's a recent article:

Colorado county considers banning panning for gold after 'uptick' in prospecting

Prospectors during widespread Gold Rushes in the 1800s are credited with settling land and developing commerce in several Western states, including Colorado.

However 200 years later, officials in one Colorado county say amateur prospectors panning for gold on county land have become such a nuisance they are considering banning the practice…

The vote would lead "minerals" to be added to a list of things that already can't be removed from county land...

If that's the tribe's thinking after a 5X increase in the gold price over 10 years, how do you think it will respond after an overnight 40X revaluation? ;D

Let's look at that Warren Buffet quote once more:

"Gold gets dug out of the ground... we melt it down, dig another hole, bury it again and pay people to stand around guarding it."

If the gold in the ground is worth 40 times the cost of digging it up, then it becomes a tribal monetary reserve belonging to the collective or the sovereign. Can you see how this may change the dynamics that have always driven gold mining in the past?

Sincerely,
FOFOA


231 comments:

1 – 200 of 231   Newer›   Newest»
Tyrone said...

FreeGold, reveal thyself!!

Cheers!

Aaron said...

I knew it!! And I just deleted my comment that said, "Tyrone?". Second dammit!

Robert Mix said...

Great article as always, FOFOA. But, I repeat myself, as your pieces are never bad.

It will be interesting to see how the dynamics of future financial power play out with some countries having a lot of gold, others not...

Viva el Perú!

Sam said...

That was pointlessly long and boring....lol. You rock FOFOA! To own physical gold is to own an asset outside the system and protected from the socialist whims of the collective. Do you think the government, under no circumstances, would ever dare take or completely destroy the value of the cash in your bank account? To me, thinking the windfall profits from un-mined gold in the ground won't go to the collective (after a paradigm shift marking gold as the wealth asset par excellence) is foolhardy. it's like trusting that a big cash balance in your checking account is risk free and untouchable. it's not and no law change is needed either. I personally live within the same borders of a country that not only confiscated gold from it from it's own people, but has unfairly changed the laws/rules on gold many times. If you own gold AND mining shares then it's my opinion you are just looking to time a trade for a fiat profit and don't really know the real reason why you should own gold.

Daniel Yu said...

In essence, after the Freegold Revaluation, all the gold that is in the ground will be considered by the Nation/State as part of its reserves. Any private mining operation that pulls the gold out of the ground, will be taxed at a rate that leaves them a profit, but not the 40x street price, maybe 1.5x (e.g. $2,000 instead of $55k). The state would take the $53k tax (or profit) and use it, as it sees fit.

Now many people will complain this is against capitalism (or anti-blah, blah, blah), What I want to share is that in other countries (e.g. Philippines), the minerals in the ground, including gold and silver, are owned by the State, simply because most of the lands are owned by the State. And the state issues mining licenses, and the taxation thereof.

Unless you are lucky to own vast tracts of land, wherein gold resides, it is likely most of the mining operations in the world take place in publicly owned land (i.e. The State).

As for wildcat operations, at the individual level - Good Luck. See if your efforts will yield you enough to survive, much less make profits. All of the low yielding fruit have already been mined. Why do you think it requires multi-million dollar capital to start mining operations?

It only makes Financial Sense that each Nation/State will consider the gold in the ground as part of its reserves. The state would not mind if your 10,000 square feet property/land contains 1/2 ton of gold. You can have it. It's like you winning the lottery.

As for confiscation of gold by the authorities, I tend to agree with the logic that it will not happen .... for several reasons.

1) In order for the True Value of gold to be established and accepted by all people in the world, individual ownership and use of it must be allowed and encouraged.

2) As a result of #1, it also establishes the value of the wealth of TRULY WEALTHY and it allows them to PRESERVE their wealth for the Long Term. It should be noted that the Freegold Concept and Revaluation was conceived as a Method of Wealth Preservation by the Super Mega Wealthy. The trickle down effect, is that small fries like us, also share in its one-time windfall.

3) A nation or state that attempts to confiscate gold from the hands of their populace, will be cut off from all financial transaction with the rest of the world, because The World needs gold to FREE TO FLOW, and allow trade to flourish.

Peak Everything, Fiat To Zero said...

FOFOA,
Your argument seems to assume the amount of gold in the ground (or ocean) is known or static. So, for example, if in a country that has say 10,000,000 oz of gold, they deploy a new technology and discover another 5,000,000 oz of gold, then the purchasing power of that country has increased, on a global scale. This seems not unlike money printing. So the attractiveness of discovering new gold deposits would imply that such activities would be incentivized at the national level. Today, many geologists enjoy economic incentives through stock options, for example. But in your scenario there would be no private mining companies, and miners would have fixed operational economics to the extent that noone could extract a bonus. So by finding a new deposit and showing it to the mining company and selling the knowledge of the deposit (geologists primarily market knowledge), there would be no economic bonus commensurate with the size of the economic value if all values were capped. So if we assume the country would want to discover more gold, whether mining it or not, it would seem such activity would need to be incentivized. And, as the technology to extract large quantities of gold from the ocean are developed, countries with more international waters would also seem to receive outsized benefits. How does your system compensate for this?
Thanks
D.

罗臻 said...

Ah, but what collective? Post-Freegold, the balance of power shifts. Some states (perhaps within the United States & Canada) may decide to declare independence, while other states (looking at you, South Africa) may be incapable of defending their wealth.

mortymer said...

@Tyrone: "Fisher´s Compensated Dollar"
Cheers!

anand srivastava said...

Biju:

I did check with my local jeweler. 9999 Coins are selling below the price quoted by MCX for 995 bullion. The difference is around 1%.

Phil_O_Dendron said...

"The Act of 1872 also set the price for land assumed under the mining act… It set the price of the land claim to range $2.50 to $5.00 per acre. This price set by law has remained the same since 1872."

Just to be clear a person is no longer able to get title to a mining claim via a Land Patent. A moratorium on this has been in effect since 1994. So no you can't acquire land at $2.50 per acre.
So while it is still possible to file an unpatented mining claim (if you can find unclaimed gold bearing property) one can no longer convert it to a patented claim (private property).

Polly Metallic said...

Great post. It all makes so much sense, and essentially everyone benefits. Countries with less gold but who run a trade surplus will, over time, increase their gold holdings. Countries who run a deficit will give up gold. This helps to promote better government policies and begins to put the world back to a natural equilibrium.

Gold mining will likely decline but that productive energy can be utilized elsewhere digging up resources that are actually consumed and are required by industry.

As for those who think wildcat mining will be common, think again! If it's illegal, where are you going to take your new found gold dust/nuggets to be processed into a finished, saleable form? If you find someone I hope you like dealing with criminal elements who would probably as likely kill you as not. Of course it's unlikely you'd even get your illegally mined gold that far. If wildcat mining were common and profitable, how much more profitable would it be for criminals to carry on surveillance of wildcat miners, wait for them to accumulate some gold, then just shoot them in the head and take it. Much less work getting gold that way! Count me out on any wildcat mining expeditions!

Wil (from another account) said...

I have for a while now felt that a short term marine salvage project investment could be the right play for someone who knew what the Hell they were doing.

I suspect security and legal costs should have an ample budget though. Some ex-Navy Seal mercenaries with fresh connections could be useful perhaps.

Motley Fool said...

Hey FOFOA

Some polite disagreement in the form of running commentary. Wherever I quote without attribution, those will be your words. Anything I do not quote you can assume I agree with.

“Now one quick clarification: technically the percent growth in the economy does not have to be necessarily correlated to the stock, but rather the flow of gold, right? Because even if the economy grows at 15%, there will still be many that will not even consider touching their stock of gold this generation or the next. If that's true, it supports the rise in real terms vs a basket of commodities even more. - Aquilus“

Since stocks can come from flows, though they don't necessarily have too, some correlation exists. Specifically ito the marginal gold saver who would allocate future income differently under a 15% average growth rate as opposed to a 2% average. Furthermore there is a compelling argument imo that marginal gold savers will dishoard some gold in such an environment, which definitely affects both stocks and flows.

“First of all, the size of the stock doesn't really matter, except insofar as it relates to the "stock" of savers. ;D All that matters is the flow, as you say, because no matter how big the stock is, we know that any amount above and beyond the flow is being hoarded by someone.“

Stock size matters in terms of flow, as it impacts the available local amounts to meet market demand in any given currency. The smaller the available stock, the higher the currency price required to achieve a stable flow to meet demand.

“By definition it will be the "right" amount simply by the fact that it will be a physical-only market equilibrium, so whatever amount is flowing is right and whatever the price is will be right.“

This. But that does not make stock size irrelevant.

“On top of that, the savings will be rising in purchasing power to offset any losses to the debtors in the normal currency portion of their holdings.”

I do not like the implicit assumption here of equal offsets. Someone who turned net-producer today holds no gold yet, and won't be compensated for losses; one who is very close to retirement and has a disproportionate amount of gold savings relative to income will likely see his losses more than offset by the gains of currency devaluation.

Yes, some perfect theoretical middle exists and some producers will lie there, but the reality is a continuum of gains and losses.

“And we have a pretty good idea that the economy tends to grow at a rate faster than the production rate of gold over the long run, so we can safely assume that in a more meritocratic world that trend will continue.”

This will hold true after some point X due to declining returns even if we assume that production initially skyrockets due to the higher price(not that I subscribe to that idea, but that is irrelevant), so the assumption is correct.

“In an economically expanding world, we have a rising price of gold, which can only be offset by new production from the mines being sold to the public as opposed to it simply being transferred from in-ground reserves to in-vault reserves by the government.”

Only? How about increases in gold velocity or changes in income allocation due to prevailing risk-reward ratios.

“But the higher rates of appreciation will likely be offset by governments selling some of their reserves.”

In a longer time-frame they are limited by the amount of stock they have available. When we reach the point of a static gold stock, intervention in this manner is limited to such stocks, and their stock total will likely fall to zero long before this if they insist on countering all such 'excess' appreciation as new flow declines.

(part 1)

Motley Fool said...

“So, in fact, "official gold" (currently 30,000 tonnes plus all in-ground reserves) acts as that "new" supply in Freegold. In fact, taking this thought further, mining flow or the flow of "new" gold into the global stock actually becomes irrelevant, because there's no difference between a government selling some of its above-ground reserves versus it letting the mines sell to the public while taking in the difference between the cost of mining and the sales price as a tax.”

While there is no difference, limitations do exist as pointed out above. I am not so certain about all official gold being qualified as new supply. I sense governments would not want to sell off all their stocks.

“In Freegold, as long as there's such a thing as "official gold" held by CBs or governments (which should be forever), the addition of new "stock" will be nothing more than a monetary (or currency management) operation. The "stock" as it pertains to the savers becomes 170,000 – 30,000 = 140,000 tonnes, and the growth rate of that "stock" will be determined by governments and CBs as a currency management tool. Nothing more, nothing less.”

Here I take issue with the perspective offered due to the above.

Perhaps it would be some use if I shared my perspective.

I view every exchange between gold and fiat, in either direction, as a monetary operation that affects the value of both, when executed by any entity. Now while it is true that CB's can counteract broad monetary operations by everyone else as their policy dictates there are limits to their doing so. In terms of weakening their currency, no limit exists ( though of course doing so has repercussions for the use of said currency), but in terms of strengthening their currency they are limited to their available stock. Countering increased value of gold relates to the latter.

I view every exchange in the economy between gold and currency in a currency zone to affect the values of both. I also think that gold should freely flow across borders, and so in the private realm gold that used to belong to one currency zone could shift to another, if the person so desires, and this also would affect the currency zone, though indirectly by affecting stock to flow ratios in the zone.

“In this new view, we find that the expansion rate of the stock of gold is actually a decision made by all of the CBs and governments in aggregate.”

They can, within limits.

“Also, we find that, curiously, it becomes possible for the "stock of gold" as it relates to the savers to actually contract if/when the CBs are buying gold in aggregate, removing it from the flow available to present net-producers. Again, this would be a currency management operation intended to weaken the currency, but the net-effect to the savers, regardless of whatever is happening with the currency, would be that the real purchasing power of gold would rise even more than it otherwise would have.“

Yes.

“By buying gold, a CB weakens its currency in two ways. It puts more currency into circulation, and it also lowers its currency's exchange rate with gold by raising the price of gold in its currency.”

I see this as a singular effect described two ways, not two separate things. One can argue the passage of time, inasmuch as currency printing to buy other things would not immediately do the latter, but I say on the whole the effect would be equivalent, after the passage of time and monetary velocity has worked its 'magic'.

“So when might we see a majority of zones engaged in this kind of behavior such that the global aggregate "stock of gold" is contracting?”

Is it not more accurate to speak of the global aggregate stock value of gold?

“We might see this in the case that the global economy is contracting, as might be seen after a natural or man-made disaster.”

Since technically a disaster implies destruction of real existing wealth the total world aggregate wealth decreases and so the value of gold decreases.

(part 2)

Motley Fool said...

“Now isn't that interesting? If the global economy is contracting, the stock of gold might even "contract" protecting the savers' savings from ever declining in real terms.”

I am uncertain about this bit. Yes, CB's can buy up gold to simulate a declining stock, which transfers purchasing power to gold holders, but as pointed out above a disaster implies destruction of real wealth for which gold is a 'call option', and so this intervention by CB's is illusory in that doing so does not create new wealth. The question then about whether this is possible...is yes, but another then presents itself. At whose expense?

“Either way, the savers are insulated from the currency effects of irresponsible governments”

Yes.

“So what we find is that, even though changes in the stock of gold as it relates to the savers is essentially in the hands of CBs and governments worldwide, the natural inclination will be a consistent and real positive gain, even if the economy contracts, and even if the government is irresponsible with its money.”

I disagree with “even if the economy contracts” in real terms, with the caveat that I mean for a extended period of time. Over shorter time-frames this is possible as agreed above.

“Can you see how sales from the mines to the public will be no different than the sale of above-ground official reserves?”

Or from the public to the public. :P

I hope you like my punch-es. :P

“1. The stock we’re talking about is the “stock of the savers” (call it the “saver’s stock”, not the general stock) – aquilus“

I disagree with this perspective, though it can theoretically be separated as an exercise.

“2. Yes, the flow is what matters, but the flow to and from the “saver’s stock”- Aquilus”

Disagree. All flows matter.

“3..”

Agreed.

“4. The flow necessary for those savings to become part of the “saver’s stock” can be fulfilled by either flow from a combination of “public stock sales (CBs and mines which I agree behave as the same thing) or from existing savers dis-hoarding from the “saver’s stock”. The size of this combined flow is what drives the price of gold (in your local currency) at any given time. -aquilus”

The last sentence makes this agreeable.

“5. The flow from the “public stock” (CB and mines) is nothing else than a currency management tool as gold is the reserve. As such, when the economy grows “too fast” it is logical that the CBs would increase the flow because it’s in their interest. Conversely, they would buy gold or decrease the flow in a recession, again, in their interest as a currency management tool. -aquilus”

Within reason, sure.

“6..”

Ugh.

...

@Aquilus

As to your devils advocates attempts, the second seems the most possible. Though of course it would be a local effect, such as in N Korea today, and not make a big impact on global scale, or in the long run, as those countries fall behind economically.

...

Re : Re 1

Idk. Ponzi schemes insofar as I know get the bulk of their funds from clueless savers. All that is needed is fostering the delusion of lack of risk while promising greater returns. Facts only don't match up to the reality when the ponzi collapses. Up to that point it looks good. As con-men like to say, a new sucker is born every minute. Logic and reason don't help much here.

Re : Re 2

If we are going the save the children route, then 'justification' of excessive fiat creation and that pool is what I would target. But, I doubt it will work out as well for them as it does in the current paradigm. They will simply collapse the currency and invite everyone's wrath.

“The function is to segregate and isolate the savers from the hot money flow and its transmission of price signals which keeps the economy efficient. Once we're finally there, I think it will be virtually impossible to go back.”

Yup. :D

I do not think we disagree much, but did feel the need to post this.

Peace

TF

Michael dV said...

So our best guess is that we have 5 billion of the estimated 7.2 billion ounces of gold (extractable with current technology) in our collective hands already. That does not leave much room for increases in the supply of gold to occur. At 1.5% new extraction we will see 75 million ounces or 2400 tons per year produced.
It seems to me that is a piddling amount and that even if gold production is allowed to go crazy and there are no restrictions on mining, and energy costs are minimal, even then we will not see much of an effect from new gold production on the price of gold.
I suppose if gold could be extracted from sea water by some new technology that the situation would change. As things are now however, even if all the gold below ground were bought up in two years, aside from a decade long blip in gold prices in the long run it would still maintain and increase in price and value.

Edwardo said...

Given the subject of this post, I thought the following article contained some interesting information.

Phil_O_Dendron said...

Polly Metallic - there is a lot of illegal mining in the world already with the price of gold only at about 1400 per ounce. This will clearly continue and probably increase with the increase in price. But realistically a small scale miner working with hand tools is not going to be able to produce much gold. To the illegal miner that wants to make some money it will be meaningful and produce some income. With small hand tools and a lot of work he may produce a few ounces over a year (if he is lucky).Most will produce less.

Once the illegal miner tries to use larger equipment and starts moving more dirt he will become more visible to the authorities and will probably be shut down.
As far as being able to sell his gold there will be a market for it and he will be able to sell it. It could be sold to jewellers directly. Although I am not an illegal miner I have sold some to jewellers and they are usually happy to get it. It could also be sold to intermediaries that then sell to the refiner. This happens already in many different places throughout the world.

I don't know why many people think that just because it is illegal then all of a sudden this activity will stop. It won't. However, if you add up all of the gold mined by the illegal miners it really will not amount to much in the grand scheme.

H. M. Socialist said...

Wait, does this mean that mining stocks do not in fact provide low cost leverage to gold prices? I am telling King World News about this!

ampmfix said...

The best way to mine gold and not let anyone know is from electronic boards and chips. Once you refine it you can make it into small thin bars, and sell them to a bank, where they will be easily assayed with an x-ray gun (in FG banks will buy gold from you, won't they? that fact was mentioned in this blog sometime ago). You only need space, lots of electronic scrap, chemicals and patience, very profitable at 50k/oz.

byiamBYoung said...

@ampmfix,

So, what you are saying is that we should be stockpiling old electronic scrap now, since it's cheap and will be worth XX% more after revaluation?

Never thought of that! Hmmmmm....

Cheers

M said...

Zerohedge gets it, it seems..

Ten days ago, it was a tongue in cheek suggestion that the Reserve Bank of India should lease their gold in a last ditch effort to procure much needed USD and keep the economic engine going. Then it was an offer so good, the citizens could simply refuse (or maybe not if it was enforced) that the millions of ounces of local wealth preserving gold be converted into Rupees in a wholesale gold purchasing campaign by the domestic banks. Now, the India Times, reports that as the dollar-starved desperation deepens, the local central bank is "discussing with banks on how to convince temple trusts to deposit their hoard of idle jewellery that could be converted into bullion.

" In other words, the government is going for the sacred gold which will be sold to keep the petrodollar economy functioning for another several months. Surely, yet another "transitory" measure.

FOFOA said...

Brand new video just released by Freegoldtube. It's Milamber reading my January 2011 post 'Freegold Foundations'. Check it out!

Freegold Foundations

Sincerely,
FOFOA

ampmfix said...

Yes BY, I am doing that small scale for now, reckon can get around 1 gram per PC or so, which is uneconomical to recover now (at small scale) but will be profitable at 1000$-2000$/gram (FG).

Think of it as the nickel jar, plus it will fun to do for the science/artisanal oriented folks! (taking care about the chemicals of course).

Cheers

Robert said...

What happened to Brad? Nine posts on September 1 and six more the day before that. Then FOFOA comes long and thoroughly answers his question. His response? He goes into hiding. What's wrong? Was FOFOA's post too long for his attention span?

FOFOA said...

ByiamBYoung, here's a picture of ampmfix in his basement man cave! ;D

ampmfix said...

Yesss! FOFOA, that is a dream! I would love to do that, whenever I get fired form actual job...

byiamBYoung said...

Ha! Looks like a solid retirement plan.

Cheers

Wil (from another account) said...

Actually it looks more like true job security to me. Now if we could only find a use for all that non gold stuff in the process.

Pat said...

Viewed through the "constructive lens", the events in the ME take on an entirely different meaning than is or will be reported by the MSM. The Saudi/USG/petrodollar last stand? Interesting that the former coalition partners ( even the UK ) are abstaining, no?

Phil_O_Dendron said...

FOFOA makes a compelling case on why the miners will/should/could be heavily taxed and controlled by the government and I don't disagree with that analysis.

Right now the miners operate under existing law and if existing law were not changed I think that it is pretty clear that they would be a cash cow if gold were $50,000 per ounce.

It appears that gold being revalued will probably be an overnight event as per the argument by FOFOA on why this must be the case. However, an overnight change to the mining rules is not possible. Existing law would have to be changed to allow more control and taxation of the miners and this is going to take much longer than overnight.

This brings me to the following scenario;

1. An overnight reval of gold occurs to $50,000 per ounce.
2. The paper gold market dies.
3. Many fund managers and private investors see this new gold price and lament the fact that they missed out. They missed out because they know nothing of Freegold and it's implications.
4. These investors start looking around for good places to put all of this money to make a profit and since the miners can get gold out of the ground for less than $2000 per ounce and sell for $50000 this is a great investment.
5. Gold mining stock prices sky rocket.
6. People complain about this unfair windfall profit.
7. The congress critters set the mining law change in motion. This is surely going to be a serious big fight but in the end I suspect the rules will be changed.
8. Mining stock prices begin to fall and then plummet.

So it looks to me like there may be a window of at least many months where one could take advantage of the windfall.

Is this a reasonable scenario? Why or why not?

byiamBYoung said...

@Phil_O_Dendron,

Sounds like maybe a situation where a quick executive order might sieze the mines "temporarily"?

Cheers

Phil_O_Dendron said...

BYB - "executive order"

the problem with that is "where is the legal justification for it?

I sure that the big mining companies lawyers would be all over this.

byiamBYoung said...

Phil,

Pardon the politics, but the need for legal justification probably wouldn't restrain our current (USA) president, and regardless, unwinding such an order could take months or years of litigation. During that time, the gold in the ground stays in the ground.

When the gold market locks up, especially if USDHI is also ramping up, it probably will feel like all Hell is breaking loose. There will be a lot of pressure to act.

I have no idea if it will happen, but it sure wouldn't surprise me.

Just my (possibly severely flawed) opinion.

Cheers

Biju said...

anand srivastava said...

I did check with my local jeweler. 9999 Coins are selling below the price quoted by MCX for 995 bullion. The difference is around 1%.



I usually do not use the 24K price because all Jewelers charge 1% VAT for coins. So as per your calculation it is 2% difference, I think.


I checked with my cousin, who bought last week for Rs. 22,600 per Sovereign 22K(8 gms). I then converted MCX price on that day and multiplied by 22/24 to get a 22K price. The price quoted by Jeweler was at least 5% less than MCX price.

Since most(99%) people buy 22K then Jewelers have to be competitive when quoting 22K compared to 24K.

gary said...

Gold mining stock prices sky rocket.

I don't see it happening this way. I believe that most miners will go under before FG. Everything that transpires to FG seems to have a less impact-ful effect on the Marketplace. If this was by design - then it would be more organic that way. I don't really care about the miners (which to choose) or which government action will be taken (Nationalize, tax etc.). It is too much of a gamble. Let a handful of 'traders' get rich (in paper) from the miners - it won't be the same as holding physical.

People complain about this unfair windfall profit.

I don't see this either. Too much will be transpiring and since most won't own phyz - it won't even be discussed by many.

Phil_O_Dendron said...

BYB -

some more thoughts:

"Sieze the mines"
What would this mean?
Send in troops to take the mines? not going to happen.
Tell the mines to stop production. How do you enforce that without a law to back it up.

I suspect that the gov would not care so much about a few months of exhorbitant profits for the mines if the end result meant that they get to raise taxes and have their own windfall.

Jeff said...

Legal justification? How about the Texas Railroad Commission, or even an executive order?

http://fofoa.blogspot.com/2012/03/ball-of-twine-open-forum.html

FOA (2/26/2000)
Foundation

we have talked before about the "Texas Railroad Commission" and how it once declared oil a public utility and later controlled it's production. In the future, international law must declare all large gold reserves to be "public utilities" in the countries they reside. Mines will be very profitable and good investments after they recover from the destruction of our existing paper gold market. Still, their total production will be controlled and somewhat taxed. Small private operations will more likely be heavily taxed.




ChrisF said...

'Executive orders'
My understanding is that only government employees like the military
etc. are obliged to obey 'executive orders'. Law is made by Congress
and not the executives. So, I guess there would be some time lapse while the mines could make huge profits after the transition, before the Law is formerly changed? FWIW.

Phil_O_Dendron said...

All I am saying is that it seems that there is most likely to be a significant (months) window of opportunity between gold revaluation and control/taxation of the mines and their output. I have read about mine expropriation in several different countries (Bolivia, Venezulela, Zimbabwe) and it never happened overnight. Even in those countries with less than stellar rule of law it took some time to actually effect the expropriation.

byiamBYoung said...

@ChrisF,

As an example:

Roosevelt's Executive order prohibiting gold hoarding in 1933 directly impacted the general public, who had to obey.

It may not happen, but I believe it is possible!

Cheers

Edwardo said...

FWIW, it will be a Fibonacci 4181 weeks from that EO sometime this month.

JR said...

Crazy Rob Brezsny says - What Are You Doing to Create a Golden Age?

I suspect that none of us has the capacity to foretell the future of the human race. No one -- not psychics, not doomsayers, not intelligent optimists, indigenous shamans, no one. There is a strong case to be made that this is the worst of times, and an equally strong case that this is the best of times; a strong case that everything will collapse into a miserable dystopia and a strong case that we are on the verge of a golden age.

It's impossible to know in any "objective way" which is "truer." Anyone who asserts they do know is just cherry-picking evidence that rationalizes their emotional bent. The variables are chaotic and abundant and beyond our ken. In the meantime, I'm doing what I can to create a golden age.


The age of miracles, the age of sound
Well, there's a golden age
Comin' round, comin' round, comin' round
!

Wil Martindale said...

Crazy Rob hopefully is buying physical. That's what we ALL can do.

As for the future, I gave up on that long ago, I'm still trying to uncover / understand the present, from the many versions "presented".

We do dare at least to discuss the truth here, and it's many possibilities, but none of us truly has it locked down.

The Truth about Syria, the Truth behind political decisions, the Truth behind monetary decisions, and who holds what weight in making them.

I'd settle just for understanding the present in this crazy world.

Rob fits right in.

Brady said...

We'll see how long the mining union strike lasts in South Africa...2/3 or about 80,000 workers now on strike...union asking for a 60% wage increase, employers about 6.5%...bit of a disparity. And my goodness, a rival mining union, AMCU, is seeking up to 150% increase in wages & considering a strike soon.

byiamBYoung said...

@Wil,

"I'd settle just for understanding the present in this crazy world."

It's easy!

-Get something pierced
-Tattoo a BFF name on your neck
-Lease a Lexus
-Be green
-Buy a scarf
-Drink a sixteen syllable coffee from Starbucks
-Vote for anyone who puts drama ahead of logic
-Don't eat anything with a face

Bada BIng! Nirvana!

Cheers

anand srivastava said...

Biju:

I don't agree that they charge VAT on 9999 coins. If you ask for bill, the VAT will be levied. And these days they cannot even sell legally, so there will be no VAT.

But yes there is a premium on 9999 coins over 995 coins. 995 coins are usually made in India by the jewelers themselves. You need to get hallmark on them though. I prefer the 9999 coins.

I think the MCX quote is for 995, I am not sure though. In that case 5% less than that for a 22K (91.4%) coin is no bargain. I think there is a higher premium on the "Ginnis" as those 22K coins are called.

gary said...

How many incorrect Embry quotes would you like? I'm sure 100's could be supplied. I like the guy but I don't know too many analysts more deluded... he hasn't been correct about much at all in the past 3 years.

Biju said...

Anand : I think you are mis-understanding me or you can correct me.

Let us forget about 999 or 995 coins.


(1) Jeweller :

The Jewellers usually quote the per gram price for 22K jewellery. Take an example of http://www.bhimajewellery.com/

The price they quote for 22K Gold is
Today's Rates: Gold(22 Ct- 916)Per Gram :Rs.2800/-

Please note that the website price may not be accurate, you have to go to the shop to find the actual price or call them.


(2) MCX

Now take today's MCX spot Gold price for 10 gms of 24K Gold = Rs. 32621. ie Rs.3262/gm. I then try to get the 22K equivalent for this by doing this

MCX 22K price = 3262 * 22/24 = 2990/gm.

So now you see the jeweller is quoting a 22K price of Rs. 2800 which is approx 6% less than MCX for equivalent 22K price of Rs. 2990. These comparisons are approx, but you get the idea of how under priced jewellers are compared to MCX exchange.


SIDE NOTE : I did buy 23 pieces of sovereign 8 gm coins (91.6% 22K coin) from different jewellers 6 months ago and everyone charged 1% irrespective of Bill or not. maybe it was the making charge and not VAT, but they called it VAT anyway. only for jewelery, can we avoid VAT by paying in cash, because they get a 6% markup over per gram price due to making/wastage charges.


gary said...

Art - just go away. FoFoA doesn't make time calls - so the absolute worst you can say is that what he has said hasn't happened YET. Embry CONSTANTLY makes time calls and is, nearly, ALWAYS wrong...
ex. Embry from November 8, 2011 "Expect $70 Silver in months"
You quoting him speaks volumes about you.

gary said...

Embry from November 8, 2011 "Expect $70 Silver in months"

gary said...

How about this one; When the HUI (NYSE ARCA GOLD BUGS INDEX) was at 400 (maybe May 2012 - I'm not going to look it up) John Embry said he expected it would double by the end of the year. Well it's 255 now... not 800 and it was never close to 800...

gary said...

More? January 5, 2012 John Embry – Gold Will Not Trade Below $1,500 Ever Again

gary said...

February 4, 2013: Embry - Silver Market Is Nearing A Commercial Signal Failure (so close, it hasn't happned in 7 months since the prediction)

January 22, 2013: Embry: Gold Super-Spike To Be Dwarfed By The Mania In Silver (right before the SGR went from 50:1 to 65:1 in the months after he said this)

October 25, 2010: John Embry - Gold & Silver Commercial Signal Failure (almost 3 years - still waiting)

March 6, 2013: Embry - Massive Silver Short Positions To Force COMEX Default (goodness....sigh)

March 11, 2013: Embry - I Believe Global Silver Stockpiles Are Now Exhausted (yes - existing on fumes the last 1/2 year - sure Johnny!)

January 14, 2013: John Embry - Silver Will Soar Hundreds Of Dollars Higher (after he said this it dropped about 35%)

December 31, 2012: John Embry - The Price Of Silver Will Go Ballistic In 2013 (what do you suppose he means by 'ballistic'? that it will be below 60% it's all time high?)

December 10, 2012: John Embry - This Is Why Silver Will Smash Through $100 (because the company you work for sells it?)

August 6, 2012: Embry: Expect Squeeze In Gold, Price Headed Multiples Higher (I hope not too many sold the house on this call expecting immediate returns - when he said it Gold was $1670/ounce high - and a year later $1280)

anand srivastava said...

Biju:

I don't know where you bought or why you had to pay VAT. The VAT is 1% on coins and bullion. It is 2% on jewelry. Yes these make sense only if you the jeweler is paying the VAT, which happens if they buy gold from the legal market.

If you buy gold from a jeweler who does go into the illegal market he will have no problems getting rid of the VAT.

Another thing to remember premium are different in different metros. In Delhi its always the highest. I think Mumbai is the lowest closely followed by Chennai. Bangalore is somewhere in between. A premium difference of 5% is on the higher side but its possible.

Wil (from another account) said...

Anand,
Something you said before, "The Indian government is destroying the Rupee so you must buy gold" (or to that effect).

It seems is the managed perception is that the Indian people are destroying the Rupee by buying gold, and the Indian government is doing what it can to curtail that.

Once again, two markedly different "realities", yet only one can be true.

Happy Trail (on the other side of the world).

Wil (from another account) said...

Re: Sprott et al.
I too was once an Organist, but find that I am completely rehabilitated, having seen the light.

Franco said...

ampmfix:

Is there a tutorial anywhere on how to recover gold from electronic equipment? I think I might want to try it, as a hobby for now. Thanks.

ampmfix said...

Franco,

For the moment I am just collecting material so I haven't had hands on experience with the chemicals yet. Just need to exercise care with them.

The science behind it is not complex, just a bunch of reactions, the artisanal part of it is tougher though and will need some practice.

So far I have only watched some videos, available to anyone by googling them, there are lots of them, like:

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

http://www.youtube.com/watch?v=tQ_R8Gr26kk

etc...

Won't hurt to ask a chemist friend either.

Good luck.



Brady said...

http://www.ft.com/cms/s/0/3ca01e6e-1551-11e3-b519-00144feabdc0.html#axzz2dvdRV6Wz

"By Wednesday morning, the sector was operating at about 30 per cent capacity, said Charmane Russell, a spokesperson for producers."

The Dow Theorist said...

@Gary

Great and sobering quotes. So much for gurus...Shame on them and shame on those who follow them. Unlike such gurus, Fofoa is humble and intelligent enough not to make such stupid forecasts.

JR said...


Summers or Yellen?
Debate the y chromosome,
neither starts selling!

Michael Martin said...

Some-time lurker, first time poster.
Apologies in advance if this has been brought up before / discussed in other posts in the past.

@JR My guess would be Summers?

I just finished reading this: http://www.sott.net/article/265882-Making-the-World-Safe-for-Banksters-Syria-in-the-Cross-hairs
Also, check the link to Greg Palast's:
http://www.gregpalast.com/larry-summers-and-the-secret-end-game-memo/

If the memo is authentic, it does paint an interesting story for current and not so current events of the USG meddling in the Middle East.

My question would be, does the "End Game" in this "End Game Memo" also result in FreeGold/RPG?
(As in "all roads leads to FreeGold/RPG")
Or is this "End Game Memo" anti-thetical to FreeGold/RPG (in other words, a continuation of the current unbacked by anything fiat situation we are living in?)

My impression so far is the US of A wants the unbacked fiat to continue as long as possible and the rest of the world would want to get on with FreeGold/RPG. But the US of A has the guns and is not afraid/ashamed to use them.

victorthecleaner said...


FOFOA,

I don't think any serious CB will buy or sell gold in order to (a) stimulate/cool down the economy, (b) create/fight consumer price inflation. This is for the same reason the old gold standard failed. The exchange rate between your medium of exchange, i.e. your local fiat money, and the reserve, i.e. gold, needs to fluctuate freely. Any systematic CB interventions are basically a kind of "soft peg" gold exchange standard and doomed to failure as discussed here so often.

The only indication for a serious CB to perform gold open market operations is to counter imbalances in the capital accounts ex gold, called "financial account" by IMF people. Examples would be foreigners purchasing an excessive amount of bonds in your own currency (instead of investing their surplus in gold, the reserve), or your own exporters hoarding instruments in foreign currency instead of buying the reserve. In the first case, your CB would create fiat money in your own currency and purchase gold with it. In the latter case, the other CB would do the analogue - they won't leave you with a free lunch associated with an artificially low trade currency.

To the extent to which CB gold operations equalize imbalances in the cross-border bond/debt investments, yes, the CBs will buy gold. But beyond that, nobody can gain any advantage by artificially lowering their currency (simply because every other CB can immediately counter this).

Competitive devaluation is not a zero sum game. It is worse. Yes, you can artificially lower your currency internationally. But firstly, the other CBs will immediately react and counter this. Secondly, you pay the price of creating consumer price inflation at home which puts you at a competitive disadvantage as it reduces real growth because of misallocation of capital.

This is (one of) the reasons that AG, the major CBs will target zero consumer price inflation.

In order to understand this from a different angle, think about the present dollar centric system. The U.S. are always "winning" in the short run because they receive a free inflow of real goods. On the other hand, they have slower real growth - just think of all the industry migrating to Asia. So in the long run, the exorbitant privilege of the dollar is self defeating.

Once the dollar-oil link is gone, there is no need for the ROW to obtain dollars any longer, and so there is no need for systemic inflation either.

AG, the Nash equilibrium is CBs using gold open market operations in order to balance cross-border capital positions (i.e. force final settlement in reserves=gold of all trade balances), but no further competitive devaluation beyond that. It suffices if a single CB, the ECB, refuses to join the devaluation in order to make competitive devaluation a losing proposition for everyone else. Once the dollar-oil link is severed, every CB is free to act like that. As long as the dollar-oil link is in effect, every CB in the ROW is to some degree a hostage of the dollar system.

This is why we will have "freefiat" AG, as soon as the dollar-oil link is gone.

Victor
Btw: The 2% inflation target of the ECB 1999-2013 seems to be their best estimate of the competitive devaluation necessary to keep their trade account balanced (which is required to purchase their oil). Once oil is sold for Euros or gold (or even a some trade weighted basket of all currencies of the world), this estimate goes down to 0%.

gary said...

December 30, 2011: Stephen Leeb: Expect $5 Gas, $60 Silver & $3,000 Gold in 2012

December 5, 2011: Stephen Leeb - Expect Gold Price to Double in Twelve Months

November 22, 2011: Stephen Leeb - Expect QE3, QE4 and 40% to 50% Inflation

November 7, 2011 Stephen Leeb - This Will Drive Silver to $100 Rapidly

October 25, 2011 Stephen Leeb - China Will Send Gold & Silver to the Moon

October 20, 2011: Stephen Leeb - World Money Supply Tied to $10,000 Gold Bow

October 14, 2011 Stephen Leeb - We Will Add Another Digit to Gold Price Soon

October 12, 2011 Stephen Leeb - $15,000 Gold as Bull Market Pace Accelerates

September 15, 2011 Stephen Leeb - Gold, Minimal Downside, $12,000 Upside

Wil Martindale said...

MM,
I think you could be correct in your final statement, but perhaps substitute "dollar faction" for USG and you get the strange bedfellows and conflicting messages of today's complex world.

I always liked Ellen Brown and was truly an advocate for public banking for many years.

In some ways, we may have to accept that while the model works under Shari'a, those laws come with some "other" consequences.

In the devloped world, where what has truly developed can be found in those two articles (and everywhere else but the mainstream propaganda pulpit) ... I came to understand it would never happen.

Thus Freegold may be the closest we'll ever get to a "moral compromise" among the morally bankrupt. In a sense it has always been an "if you can't beat 'em join 'em" compromise, as in "walk in their footsteps" but it can be said too that some Giants are honorable and moral, just as others are morally reprehensible.

If gold is given back its power, it takes lesser men out of the equation, for power has never corrupted gold, only the men who abuse it.

So here we find ourselves.

So many versions of the truth ... so little time .. . so obsessive the troll.

Even the flower of understanding bristles at the mention of its name (to forever be nameless in all future comments), it's stamens retracting intuitively and its trichomes stiffening with impotence.

It is a sad event that you would make your first post among such obsessive detritus. I apologize in advance for the soon to be evaporated whiff of foul intent.

Happy Trail!

gary said...

Thinking ahead...

November 16, 2010 James Turk - $400 Silver by 2013 to 2015

December 2, 2010 James Turk - Expect Extremely Bullish Action in Mining Shares

July 5, 2011 Turk - Commencement of QE3 to Send the Dollar Into Oblivion

September 12, 2011 James Turk - Expect $2,000 Gold Within 45 Days (I, instead, expected James Turk to STOP MAKING PREDICTIONS!... but I was wrong)

October 31, 2011 James Turk - Silver Formation Projects Spike to $60 - $75 Level

November 28, 2011 James Turk - Bullish Flag Pattern to Quickly Send Silver to $70 (Note to self - don't trust 'flag patterns'... or Turk)

December 7, 2011: James Turk - The Banking System is on the Verge of Collapse (perhaps 'verge' is not the correct word, Mr. Turk)

January 5, 2012: James Turk - Gold is Great, But Silver is the Next Apple
(Well Apple drops by almost half - Silver too - the man is finally right!)

January 16, 2012: Turk - 2012 to See Much Deeper Banking & Currency Collapse (I must have missed it)

June 18, 2012 Turk - Gold Will Shock Investors By Soaring This Summer

July 16, 2012 Turk - Summer Doldrums Over, Gold & Silver To Explode

October 11, 2012: Turk - Expect A Massive Short Squeeze In Gold & Silver

November 28, 2012 Turk - Current Financial System To Implode Within 24 Months (so far?...)

February 25, 2013 James Turk Warns The Federal Reserve Is Already Insolvent

May 10, 2013 Turk - Incredible Chart, Look For $12,000 Gold & $600 Silver (Charts are great...just great)

Wil Martindale said...

The one thing we CAN be sure of though, as we examine the many possible motives for invading (or contemplating invading) Syria, Iraq, Iran Libya, etc .... the one being offered up to the public by our esteemed President is the most preposterous crock of fresh, steaming bull SHIT that ever triggered a methane tax audit.

Sure we could be there to salvage the petrodollar, by means of disrupting a natural gas pipeline, or to sack some non-systemic gold, or to wipe out all those non-central soeveriegn banking "outsiders" but the one thing we know with 100% absolute certainty is that we are NOT there to "punish" Assad for human rights atrocities.

I mean that is simply the most ridiculous, hypocritical, even maudlin NONSENSE that even a 13 year old would reject as part of their weekly civics lesson.

And the fact that the US President is carrying out this farce, with the most ridiculous LIE I've ever heard ... I mean, Robert DeNiro couldn't pull this off, the story is so badly written and just worn to Hell.

Is there anyone left out there so gullible that doesn't live in an assisted care facility that would possibly buy that bag of Elephant shit?

And you wonder why at ZH they have a post up about US citizens being "apathetic" and declining to vote more than any country but Korea. Basically we are all voting (those who do) for the better Liar.

So, 'scuse me, while I kiss the sky ...
(the flower knows)

Wil Martindale said...

It is the obvious intent of that which shall remain nameless, to force moderation upon our host and disrupt the free flow of discourse it so obsessively protests against in its pathetic pathological urge to dominate.

But even Blogger has rules of conduct that would shut down 3 new "blogs" constructed by a spambot with bad programming that has no members and only its own comments to fuel its delusions of grandeur, as it pontificates senselessly to no one of any consequence.

Perhaps the blue fairie will one day grant its wish to become a "real spammer" ... but until then, it's intelligence remains truly artificial.

Phil_O_Dendron said...

Wil

Concerning the one that shall remain nameless; isn't there some way to just eleminate him from the discourse while keeping the threads free flowing?

Phil_O_Dendron said...

eliminate - I guess I should proof read before publishing.

Wil Martindale said...

Of course Phil, I think we're doing it now. And I usually do it as a rule, but the world around us just keeps getting increasingly dissonant, and we come here for refuge, and get troll-hammered. It's sad.

But on a more positive note, I see that paper gold has resumed its downward motion. If only it would drop back to 1100 I could dance like an Egyptian (or more like a Chinaman).

I sometimes wonder if sentiment drives its price, or if price drives its sentiment?

Happy Trail

M said...

@ Phil_O_Dendron

Yeah that could be a possible scenario.I certainly hope so anyway...

For all the beating we are giving King World News, they may have their turn to be right so I wouldn't go too nuts. Embry was right on paper gold for a good number of years. Plus we are all Austrians in the end and I don't think anyone could predict this to go on as long as it has. Marc Faber has never been wrong for this long either. He's been calling for a 20% correction in US stocks for years now.

M said...

@ VTC

"Btw: The 2% inflation target of the ECB 1999-2013 seems to be their best estimate of the competitive devaluation necessary to keep their trade account balanced (which is required to purchase their oil). Once oil is sold for Euros or gold (or even a some trade weighted basket of all currencies of the world), this estimate goes down to 0%."

I never understood or liked the 2% inflation target post FG either. Whatever you are saying as far as BOP goes, makes more sense.

Ender said...

Greetings, my less then conspiracy minded metal-heads.

If you haven’t already seen it, there’s an interesting article on ZeroHedge today that might be worth your time.

http://www.zerohedge.com/news/2013-09-04/guest-post-us-going-war-syria-over-natural-gas-pipeline

This brings back memories of a “mission accomplished” speech from the previous administration.

Dollars are falling out of favor.

We watch.
Ender

Michael Martin said...

@Wil
Thank you for the meaty response. I will take some time to digest.
I think I was inclined to post because I was jones-ing for a new FOFOA post after the 10-day feast just recently.

From one of Catherine Austin Fitts' recent posts:
http://solari.com/blog/september-crunch-time-cometh/?doing_wp_cron=1378358425.9338219165802001953125

the coming days and weeks will give us much to look forward to. Or look out for.

As Ender put it succinctly, "We watch" is probably all we can do.

Oh, and ignore the nameless one.

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

While some of us are expelling our own gas about gas pipelines being the actual casus belli of this looming conflict, it might be worth knowing that there is also a very large gas field just off the coast of Israel and Lebanon that is under dispute. Light a match indeed.

KnallGold said...

Putin surely asks the right questions regarding the qui bono. What moral disaster it would be if the other side had used the Sarin and gets honored...

The GB rejection has indeed something historic to it, certainly historic is that it it's the first time since 1788 when the government did not get support from the parliament for a war intention.

Najarian (the "I'd be worried at 1500"..) already sold out half of his position bought at 1200, rest to be sold when missiles fly. Although he's an admitted optionMONSTER, it gives insight into a traders mind. Syria, much ado about nothing? So lets focus on the developing currency crisis, none predicted it could start in India.

http://finance.yahoo.com/blogs/breakout/why-sell-gold-soon-missiles-fly-syria-najarian-163648976.html;_ylt=A2KJ3CdIOChSfzMAIwWTmYlQ

And never forget that the Goldmarket is living a life on its own, its just doing what it wants to do, and whenever. Learned this from richard640 on GE.

For the musically interested, Adam Taubitz made a world record on the violin, playing the flight of the humble bee in 53sec.! Hats off! Basle must be a good ground ;-)

http://www.youtube.com/watch?v=UpklSYum3Xk

anand srivastava said...
This comment has been removed by the author.
Wil (from another account) said...

Another had called gold the political metal saying that its "price was managed" but to what extent. I recently viewed a Bix Weir (try not to cringe) interview where he seemed to think it is nearly managed to the penny, with very little movement out of control.

That could be a departure from the consensus ... that the price of gold is managed to, say, within a 10 dollar range, give or take a 12 hour window of say a 1% variance from that.

As most of us realize, the coat check system of "moving claim tickets" does allow for more control behind the scenes than what appears at the surface, and is probably the most misunderstood, or least understood, concept among the gold bug community.

And finally, though the credibility has followed the propaganda campaign, we might all come to see that ALL talk of QE taper is a massive head fake, stress test experiment, which, once again, buys time.

Mix these 3 elements in the test tube, shake vigorously and wait for the reaction this fall.

It was a rainy North Florida summer season, almost every day in July and August so far saw some afternoon rain.

Perhaps we'll have an Indian Summer for gold, I do hope so ...

anand srivastava said...

VTC:

I understand your arguments against Gold operations by CB.

I don't think CBs will do gold operations to devalue their currency, but to smooth out volatility. And it would still be done by countries not managing their economy well enough. I hope you are not saying that all countries will start to behave rationally AG.

You still haven't given any reason why the CBs will not target 2% inflation. I don't think CBs can predict the value of currency with a high accuracy. So they must target a higher inflation rate, than zero, to prevent deflation at certain points in time. 2% is a pretty good value to aim for. Zero not so much.

The third point you have not clarified is why should Gold vary wildly.

Gold is a Reserve (using your term). People will put money in reserve based on their excess income. People will liquidate their reserve based on their requirement for money. Lets see what factors affect the excess movement into and out of gold.

When the economy is growing there will be more money going into Gold as people will be making more money.

There is a counter balancing factor as well when the economy is growing, as it becomes profitable to put the money in economy. This would reduce the money moving into gold, but it is not likely to make it negative.

When the economy is going down, people get lower incomes and people have to dip into their reserves. The counter balancing factor is that people will also wind down their investments and move it into gold. It is not likely that the movement becomes negative here either. As the rich people will be moving their money into more easily available gold.

Basically during growing economy gold will move from the rich to the poor, and when the economy is stagnating, gold will move from the poor to the rich.

Overall the total value of gold will increase in either case. In the growing economy case the overall value of the economy is increasing driving the value of gold up. In the stagnating economy case, the proportional share of gold in the economy increases.

Another factor is that with technological advances people become more efficient workers. So they can produce more with lesser work. This allows them to make more money. The technological advances also make basic necessities cheaper.

The two factors together make sure that surplus incomes constantly increase over time.

If we put the above together, there is every reason to believe that the value of gold will increase over time. Slowly but surely.

We cannot take the action in Gold in the past as guidance because Gold was not free. It was a part of Gold standard, and hence locked down, for the most part, and since 1970, it has been manipulated with Paper gold. I don't see why gold will vary wildly in the future. Gold may go up faster when there is a crisis, and then drop when the crisis is averted. If the economy is steady state in properly managed zones, gold should also be pretty steadily rising over time.

Edwardo said...

Wil wrote:

And finally, though the credibility has followed the propaganda campaign, we might all come to see that ALL talk of QE taper is a massive head fake, stress test experiment, which, once again, buys time.

I think that in days past talk of scaling back on QE had some utility in taking the froth out of so called risk markets, but the most recent taper talk, temporally dovetailing as it did with stress in the EMs, has amounted to a sizable, perhaps, even, an epic blunder. The borrowing costs for Uncle Sugar have gone way up over the last four months, a condition as glaring as a foul smear of fowl excrement on one's freshly cleaned windshield. Would that the effects of the taper were as inconsequential as bird poop on the windshield.

jojo said...

Would that it were inconsequential!


Edwardo said...

Nice vid, jojo. My last comment should have read
Would that the taper talk...And on that note, a more
effective long term deterrent to U.S. designs on Syria and the rest of the MENA are spiking rates.

Sam said...

Is gravity finally starting another cycle of swallowing the paper bulls? So much money to be made if I only knew how to trade. You get all that momentum to push the price up to the low 1400's, then all those suckers ready to buy the dip all the way down.

If you own physical gold you are an untouchable yet actual burden to the $ faction. If you own papergold you are a misguided but quiet touchable enemy to the system and your losses will make them smile. Think about that for a moment. You should come to realize there will never be a short squeeze in papergold. Just a falling price followed by a closed down cash settled market at no where near physical's unknown but soon to be discovered price.

TontoD said...

Reuters: India might buy gold from citizens to ease rupee crisis

spaul67 said...

anand srivastava said...
“When the economy is going down, people get lower incomes and people have to dip into their reserves.”

………..and the best way to force that is to starve the common man of net purchasing power, via hyper-inflation or deflation or unemployment or wages that don’t keep pace with the those that run the printing press, take your pick. Hence the importance of ‘who’ controls the money power, the free market or few men. It works in either direction as well. Increase credit, inflate asset prices, load up these inflated real assets with debt, and pull the rug out from everyone, rinse and repeat.

The other key power is capital gains taxes. Between the two forces of those that control the money supply and those that control the tax code, sits net producers getting fleeced at each stroke of this wealth confiscation pump as their net production is filtered away via capital gains (inflation) or defaults (deflation).

The only way I see a freegold system coming into being is if the present system somehow collapses. TPTB will then be forced to, at least for a time, reboot the world’s current fiat debt based monetary system via an asset based monetary system in order to enable critical trade flows with gold being the obvious focal point.

India will be interesting to watch because their gold is so widely held and yet a good old fashion fiat hyper-inflation or deflation will still be able to frack that gold right out of many of their hands.

This is exactly why we need to go back to sovereign debt free currency issued ‘directly’ by the Treasury department in concert with a capital gains tax free SoV like Gold. As long as the Kleptocracy has the money power all net producers will be fleeced on regular basis. All the Kleptocrates need is 51% of the voters dumbed down and dependant on just a small portion of the loot they steal from net producers in order to keep this corrupt system in place.

DP said...

CGT?

Legal Tender?

DYODD

Dr. Octagon said...

VtC: A nice feature of the 2% inflation target is that it makes wage-cuts easier. Getting a 2% raise every year under 2% inflation probably makes people happier than a 0% raise under 0% inflation. It's certainly more acceptable to the masses to get a 0% raise under 2% inflation than a 2% pay cut does under 0% inflation. It all comes out the same in real-terms, but human nature seems more amenable to life under a bit of inflation.

Now, I recognize that the ECB does not necessarily care about this. Severed link to the nation state, and all that. But what I don't understand is why the benefits of a 0% inflation target is strong enough that it's not even considered. Can you explain in more detail this misallocation of capital that you suggest is caused by 2% inflation?

Dr. Octagon said...

anand srivastava - While reading your message above, I couldn't help thinking to myself about how gold flows through currencies, but your message is written as if currencies flow into or out of gold. As I tried to re-phrase your arguments with the gold-flows-through-currencies view, I did not always reach the same conclusions.

I prefer to separate the value of gold from currency completely. Gold's value can rise or fall based on the world's desire to store surplus purchasing power in gold. This ties gold's value to the overall gap between the production and consumption of those where production is higher than consumption, along with their choice between saving or investing that surplus. Those with the most surplus, have the most sway. Currencies have value based on their usefulness in purchasing day-to-day needs and desires for goods or labor.

A more productive society does not necessarily lead to greater or lower values for currencies or gold. That society, as a whole, may use the higher productivity to enjoy a higher quality of life. In other words, increased productivity can lead to higher consumption, and not higher savings needs.

DP said...

Yes! Nobody can tell you what the price of gold will do, because it is going to be influenced by the aggregate of human emotions and actions in the market.

Which is why FOFOA alawys says gold will initially be revalued to approximately $55,000/oz in today's dollars (meaning it will be revalued against all things rather than toilet tissue shooting with it to like $100s/roll) as the current $demand for just the fractional spot gold market morphs instead into demand for the same $volume of allocated/delivered physical gold.

i.e.: estimating that the perhaps 2.5% reserves underpinning the spot market will have to cover the 100% of current currency demand for gold once the spot paper is exposed to the world as fiction.

Beyond that revaluation, anything might happen.

But it just doesn't seem too likely that the current players in gold will be like "OMG get me out of physical gold right now!!", or that nobody else will be like "Hmmm, maybe I ought to get me some of that gold too, when I get paid?"

Personally, I think he's low-balling where it's going TBH. But each to their own.

burningfiat said...

Some ancient quotes for the road:


Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it.

My doctrine is not a doctrine but just a vision. I have not given you any set rules, I have not given you a system.

There are two mistakes one can make along the road to truth...not going all the way, and not starting.

No one saves us but ourselves. No one can and no one may. We ourselves must walk the path.

Endurance is one of the most difficult disciplines, but it is to the one who endures that the final victory comes.

All that we are is the result of what we have thought. If a man speaks or acts with an evil thought, pain follows him. If a man speaks or acts with a pure thought, happiness follows him, like a shadow that never leaves him.


Happy trail!

/BF

victorthecleaner said...

Anand,

You still haven't given any reason why the CBs will not target 2% inflation.

Wrong question. The right question is, AG, where do you get 2% inflation from? The answer is, you don't. (Unless you either keep creating base money and hand it to the government for spending, or, alternatively, you create periodic bubbles in consumer lending by your commercial banks and later, when they fail, you always fully bail them out.

Now you would probably call both programmes outright stupid. So do I. This is the reason we will have about 0% consumer price inflation AG in all reasonably well managed currency areas.

This also answers the question of why did the ECB let the Euro zone government debt crisis happen, given that they not only knew the bubble was growing, but also set the environment in such a way that it was easier to blow the bubble. (Remember what Richard Werner asked Trichet in Davos in 2003?) They simply need the bubble and the subsequent bailouts in order to maintain their 2% inflation target in the long run, i.e. in order to join the competitive devaluation with the dollar, and do all this is order to keep their trade account balanced.

The third point you have not clarified is why should Gold vary wildly.

This is simply the spur and brake function described, for example, by Jacques Rueff. It#s all somewhere in the "snippets".

Victor

Max Photon said...

http://www.maxphoton.com/can-anything-other-than-gold-coin-settle-real-bills-of-exchange/

Max Photon said...

Oops... sorry FOFOA, that posted without my attaching a note to you.

I couldn't find a contact email, so I posted my letter to you and Antal here.

I am genuinely interested in your response.

Please feel free to delete these "comments."

Cheers!

Max

Sam said...

@Max Photon

"can anything other than gold coin settle real bills of exchange?"

"a carefully selected question that I believe pierces the hearts of the FreeGold school."

Depends on where you are coming from with the definitions of the words in your question. I'd say the answer to your question is quiet simply "yes"....i'd stop there but I feel you may want a little more of an answer. On it's deepest level settlement is not complete until both sides of a trade get some type of useful good or service of equal value. Beyond a perfectly balanced barter there is always going to be debt involved for one of the parties. What we use to track this debt is what we call money (though the term has been confused in people's mind overtime).

For a short term debt I think it would be best to track the debt electronically or digitally until the creditor can use the debt instrument to purchase some good or service and settle the trade. The base for this digital money can be written on paper. (kind of like what we have now).

For long term debts (think centuries) physical gold bullion unburdened by paper derivatives will work best to represent a debt or unsettled trade because of it's ability to hold value. To some having the gold may feel like settlement. But really gold is just meant to be held and then one day dishoarded. Other than being pretty it is pretty much useless. So technically speaking you could say that settlement is not complete until the gold is sold in exchange for a useful good or service. It holds this position because it is rare, divisible, interchangeable, difficult to counterfeit, recognizable, countable by weight, dense, verifiable, does not decay, rot, or rust, and isn't needed by industry. This makes it globally desirable and in turn the historical focal point for all people.

anand srivastava said...

VTC:
Wrong question. The right question is, AG, where do you get 2% inflation from? The answer is, you don't. (Unless you either keep creating base money and hand it to the government for spending, or, alternatively, you create periodic bubbles in consumer lending by your commercial banks and later, when they fail, you always fully bail them out.

If there is no increase the Money Supply, and the economy is growing you get deflation. The same evils of Gold Standard economy. The money supply must grow, when economy increases.

You might think it is evil to print and give money to the govt, but that is required to keep the economy stable. The whole point of having fiat currency to supply money when the growth requires it and destroy it when the economy is slumping. Yeah we do it opposite in the present world. But a well managed currency zone should do this.

So when the economy is growing the money supply must be increased, and the best way would be to give some money to the govt to do infrastructure work, and increase some through Reserve Ratio. And maybe there are more methods that I don't know of.

The Central Bank must only have a single mandate and should not be in anyway related to the govt, just like ECB is. It will create money and give money in zones that need it to keep the inflation within tolerance limits. That is why banking union is also required right.

This is simply the spur and brake function described, for example, by Jacques Rueff. It#s all somewhere in the "snippets".

I agree about variations in specific currency zones. But these variations should be small, unless the govt in that zone tries to fight the spur/brake mechanism. There should not be wild fluctuations in properly managed zones. I think we disagree only about the magnitude of the variations in properly managed zones.

anand srivastava said...

Dr. Octagon:

VtC: A nice feature of the 2% inflation target is that it makes wage-cuts easier. Getting a 2% raise every year under 2% inflation probably makes people happier than a 0% raise under 0% inflation. It's certainly more acceptable to the masses to get a 0% raise under 2% inflation than a 2% pay cut does under 0% inflation. It all comes out the same in real-terms, but human nature seems more amenable to life under a bit of inflation.

Actually it is worse. There will be a deflation when the economy is growing :-). Because there will be less money to support the growth. Just like a very hard currency like Gold Standard, of the type where people only use gold coins. So you will actually be getting paid less and less every year.

A more productive society does not necessarily lead to greater or lower values for currencies or gold. That society, as a whole, may use the higher productivity to enjoy a higher quality of life. In other words, increased productivity can lead to higher consumption, and not higher savings needs.

I think we need to think from the context of basic necessities. There are two types of people the savers and the debtors. The savers will save their excess production, and are not that much interested in wasting their money on non-essential items (the concept of essentials may vary though). The debtors spend all their money and some.

I would think AG, there will be more savers than today, but overall the numbers should not change wildly. Assuming that the amount of money going into saving will increase as the gap between earning and basic necessities increases. When savings increase, more than gold, the value of gold would also increase.

I think the problem in your thinking is that you think the world production stays constant. Which is wrong. Just look at the living standards just a couple of decades ago.

anand srivastava said...

spaul67:

India will be interesting to watch because their gold is so widely held and yet a good old fashion fiat hyper-inflation or deflation will still be able to frack that gold right out of many of their hands.

You don't understand what is happening. The Indian people are buying gold. Do you sincerely think that they will lose all of the gold they purchased at this time during the crisis. You don't know how much gold is owned by people in India. Yeah there are some segments of society which will suffer, but India as a whole will come out better. Assuming we can get rid of the current kleptocracy, during the Hyperinflation and not replace it with an Autocracy.

You also don't understand the ills of a Gold Standard. And its impracticality in the modern times. Lets not talk about it ok.

Motley Fool said...

Max

Since one can't comment on your blog, I am forced to post here. Consider fixing that. :P

As a cultist you can consider this a response, because tbh I doubt FOFOA will bother with such silliness. :)

"Prof. Fekete appears to advocate that the fundamental non-physical feature of gold is its constant marginal utility (CMU).**"

Since you are new here, I doubt you have had the time to read everything, however, FOFOA does not disagree that this is an important feature of gold, perhaps the most important.

"That which has CMU is destine to be money."

No. It is destined to be the best secondary medium of exchange, as outlined by Mises.

"Under a gold standard with gold bill circulation, there is no tension between SOV and MOE."

Au contraire, this tension has always existed, and is the reason why we have switched from hard to easy, to hard money regimes so many times. This tension arises out of fundamental human nature, and the RBD ignores it, and the consequences thereof.

"It logically follows that under FOFOA’s scenario, gold bills of exchange would never exist; bills of exchange would be settled in scrip, as a routine, without short term or long term problems."

Sure, but the logic as to why real bills will not emerge is far from trivial.

"In contrast, from Fekete’s perspective, settling bills of exchange with scrip is pure and unadultered fraud, and the beginning of the end for discounting and commercial banking, and in it’s wake, the wage fund, employment, and the very fabric of society."

Different systems. Under the RBD it is fraud, as RB's is the check in the system, and paying in fiat negates this.

"To the Austrians, gold bills are 100% fraudulent because they are “inflationary.” (How a clearing mechanism can be inflationary is beyond me, but nevertheless, that is their line in the sand.)"

Real Bills under the RBD system is non inflationary, however still in such a system the problem of gold credits remains, which exists under even a 100% gold backed gold standard system, and is inflationary.

To answer your main question, to have real bills assumes one operates under the RBD, and so by definition the answer is no. In practice it is technically feasible to do so without breaking that system; but at the end of the day we will never see Rb's again, and so the question is moot.

Cheers

TF

Ps. Here is an old old post by me explaining why gold must be used to settle RB's.

http://blogs.fin24.com/motleyfool/2009/09/16/the-real-bills-doctrine-of-adam-smith-as-explained-by-a-fool-part-2/

^^

DP said...

Max Phopah: Under a gold standard with gold bill circulation, there is no tension between SOV and MOE.

Motley Fool: Au contraire, this tension has always existed, and is the reason why we have switched from hard to easy, to hard money regimes so many times. This tension arises out of fundamental human nature, and the RBD ignores it, and the consequences thereof.

This is exactly the fundamental flaw that FOFOA points to over and over, both in the current $IMFS system and also the gold standard system.

With all, due, respect… anyone who does not understand this fundamental point has not sufficiently understood Freegold to critique it and demand a response.

Good day to you, sir! ;-)

Dante_Eu said...

This is what I take from this post:

* We should all move to Canada (even though it's cold as hell, dark and people are annoyingly friendly).

* In Freegold environment, if you hold physical gold:
-- Heads: You Win
-- Tails: You Win

* If you want to make buckets of money, start a Ponzi scheme. If ever in doubt, just look how far US Government has come.

* Resistance to FOFOA's logic is futile. If ever in doubt, check second remark from above and swap "You" to FOFOA.

:-)

Wil Martindale said...

Dante,
Market maker longs, everybody follows market maker. Market maker wins.
Market maker shorts, everybody follows market maker. Market maker wins.
Lather, rinse, repeat.

Sound like the familiar jingle of that same yellow coin?

Wil Martindale said...

Sir Noyer,
In the derivative world we live in, where reality is "action" and its derivative is "expectation" the taper talk is a stress test, and an excellent measure - frankly the best they have - of maintaining the status quo.

First China screams about QE, then they scream about taper.

So as everyone whines about QE, the talk of taper shuts all that up, then we have the response, and then Bernanke, soon to be Summers (forget about Yellen, she's not evil enough) says, "Well you see the reaction to just the EXPECTATION of taper, sure you want to really do it??" (although frankly, this never needs to be said).

I'm sure they're whipping up derivative bets in the Casino Grande as we speak, though I have no idea what the basis point spread is.

Still, I'd put 5 trillion on QE4, it's only ink on IOU. Who ya gonna trust, 'Nanke or the FLOW-ER?

Wil Martindale said...

And just an aside. It was Shiller who really championed this whole behavioural psychology paradigm with regard to financialization, joined at the hip with the likes of Rubin and Summers.

He will be seen as the Keynes of modern financialization.

spaul67 said...

@ anand srivastava

I think you misunderstood my basic point.
Smart net producers (i.e. those with excess cash at the end of the day) place that net production in gold, amen. The point is that during a hyper-inflation more and more people are no longer net producers and yet still need to survive. So those that have ‘reserves’ unload those ‘reserves’; which in India is primarily physical gold.

Now you are correct that those that survive to the predicted/hoped for asset based monetary system that places gold as the SoV/Trade reconciliation focal point, will do well; it’s getting there with most of your gold intact that is the trick. Obviously the best way to do that is to somehow remain a net producer even in a desperate economic environment, but that is easier said than done. Even the most productive among us still need someone to sell to and it’s also very rare in this highly divided specialize labor world to 100% self-sufficient.

Anyway, when I look at all the gold above ground and how it is distributed; it’s interesting to note just how little the Central banks hold. Thus one way the Central Banks can get access to a lot of gold is by creating a desperate need for purchasing power on the part of the shrimps that hold gold (i.e. Cash for Gold). Shrimps don’t have direct access to a printing press like the Kleptocracy. Thus they are at a bit of disadvantage when it comes to both inflationary and deflationary means of fracking their gold away.

This is why going back to a debt free currency is also important in fixing the monetary system. All debt based monetary systems must expand at greater rate than aggregate interest rate or defaults will happen ‘by’ definition. Place a capital gains tax on top of this system and there are no ‘legal’ ways for net producers to store but a fraction of that net production for themselves. Ironically they are statistically better off buying lottery tickets with their net production. At least then you have some chance in breaking free of this trap.

Now there is no questions that if you want to break the law there are many ways to cheat the system. But Freegold is not about clever ways to break the law, rather it’s based on a prediction that the law will ‘in the future’ align towards the objectives of net producers (i.e. Debtors vs. Savers). The swing arm that oscillates between quality and quantity money throughout human history.

When one of my Indian friends described to me how ‘ticket insurance’ works in India I had a deeper understanding of how things operate in nation of billion people. It reminds me of the Chinese saying; Heaven is high and the emperor is far way.

Here in the US though we have the NSA and the IRS breathing down our necks. So using physical gold as a means to go around tax laws presents a bit of problem, at least at present. Hope springs eternal, which is why I buy gold.

Gold has the best shot at playing a central role in fixing the serious monetary issue ahead for us all. It’s hard to imagine another fiat system rising out of the ashes of the current one. History has shown that all monetary reboots must pass through an asset based monetary system first.

Dr. Octagon said...

VtC said.... The right question is, AG, where do you get 2% inflation from? The answer is, you don't. (Unless you either keep creating base money and hand it to the government for spending, or, alternatively, you create periodic bubbles in consumer lending by your commercial banks and later, when they fail, you always fully bail them out.

I have a better answer. Banks create loans, which creates currency. These loans are created for the purpose of creating or improving a likely-to-succeed business opportunity. The currency is spent on the infrastructure and people that lead to the success of the business. Since this is the main purpose of banks, most of these loans do work out, are repaid, and the banks remain healthy. Over time, this constant creation of new loans for new opportunities grows the money supply, and also grows the output of the economy along with it. If the two grew perfectly in tandem, then there would be no inflation. But not all businesses succeed. Some fail. So the money supply grows faster than output, and we get mild inflation.

I only see two ways to force this into 0% inflation. The first is to ensure that loans are only created for successful business opportunities, eliminating loans that have any chance of failure. I'll get back to this. The other way, which you seem to be proposing, is that the central bank refuses to grow the monetary base in proportion to the increasing bank loans. This creates a widening gap between bank reserves and liabilities, which results in bank failures eventually.

You see these bank failures as a consequence of imprudent lending. Are all failed business loans imprudent lending? I expect that we should expect some small percentage of them to fail, otherwise we're setting too high of a bar for loan creation, and many many viable business loans will not be made because we're not 100% sure about their success. So some loans will fail, and that's a good thing.

If we want to hold 0% inflation in this environment, by not creating base money in proportion with loans, then we have to expect bank failures, and savers in those banks to get wiped out. This seems like a harsh approach, and is certainly an economic drag, all for the supposed benefit of 0% inflation. I still do not see what the benefits of 0% inflation are, and highly doubt that if the benefits to 0% inflation do exist, that they outweigh the downsides of regular bank failures, or the flexibility that 2% inflation gives us in real wage flexibility I mentioned in an earlier comment.

Dr. Octagon said...

anand srivastava said... I think we need to think from the context of basic necessities. There are two types of people the savers and the debtors. The savers will save their excess production, and are not that much interested in wasting their money on non-essential items (the concept of essentials may vary though). The debtors spend all their money and some.

I would think AG, there will be more savers than today, but overall the numbers should not change wildly. Assuming that the amount of money going into saving will increase as the gap between earning and basic necessities increases. When savings increase, more than gold, the value of gold would also increase.



Do you see that you can only have savers if you have debtors, and vice-versa? A debtor needs to consume the extra output of a saver in order to be a debtor. And a saver, who produces more real-world output than they consume, needs to sell that output to someone in order to have something to save (unless that producer happens to hold their savings in the exact thing that they produce). You can shift the numbers within each group by having fewer large entities vs more smaller ones, but overall, in real terms, they have to balance. You can increase the size of both camps, and this will increase the need for savings, but you can't increase the size of the savings camp in isolation, in real terms. An increase in the demand for savings is not connected to the gap between earnings and the cost of basic necessities.

Michael dV said...

Doc O
After a quick read I wonder if you have considered the effect of dishoarders of gold. Th e saver could get gold from them and dishoarders are not debtors. Also savers will no doubt save some currency for a while.
Today some savings go into collectibles etc..
So I'm not sure your statement that you can only have savers if you have debtors is correct.
Sorry gotta run but I'll consider it later.

DP said...

Net-producers require net-consumers.

anand srivastava said...

Dr. Octagon: I like your answer to the 2%/0% question.

I don't think that Debtor can consume the extra output of a saver. Only a dishoarding saver consumes the extra output of a hoarding saver.

A Debtor consumes the extra output of a Creditor.

So in effect Debtors and Creditors need to be balanced but Savers exist on their own. Of course any person can be a debtor, a creditor and a saver all at once.

burningfiat said...

Doc O,

I liked your comment to Vic...

On your next comment I agree with MdV. You could theoretically have a world where every adult were either dishoarding or enhoarding (is that a word?) savers...
There is a positive amount of equity in this world. Theoretically it could be spread out at a certain point in time such that everybody had a certain amount.
It would probably be a world where much of the MoE would be base money...

Given de facto human nature I don't ever think we'll see that though :D
Someone will always go into net. debt for a while (entrepenours etc.) and that's a good thing...

DP, you're absolutely correct! So Dr. O just remember that Net. consumers doesn't have to be debtors (they could be dishoarders)...

anand srivastava said...

DP:

A net-producer need not be a saver, he can be a creditor. A net-consumer need not be a debtor, he can be a former saver dishoarding his stack.

anand srivastava said...

Dr. Octagon:

Your answer provides a practical basis of why the Central Bank needs to do both, give some free money to the govt, and use Reserve Ratio to allow banks to increase money supply. I was just thinking intuitively.

burningfiat said...

Interestingly we now have the following pairs in play in this discussion:

- Debtors vs. Creditors
- Gold Hoarders vs. Dishoarders
- Net. producers vs. Net. consumers

Of course the relationship between these pairs are all covered extensively on this blog, but who can find the most succinct explanation/FOFOA quote/mathematical formula?

anand srivastava said...

spaul67:
Thus one way the Central Banks can get access to a lot of gold is by creating a desperate need for purchasing power on the part of the shrimps that hold gold (i.e. Cash for Gold).

Your basic premise is wrong. The Central Bank is not in control here. It is the political class. It is they that need money. It is they that tell the Central Bank to print money.

Actually Gold Confiscation is a feature of Gold Standard. When the Govt is cash strapped in a gold standard, they create legislation for confiscating gold. In a fiat system, there is no need for them to do so, so there will be no gold confiscation.

That is why I won't want a gold standard. It is too outdated a system.

Indenture said...

" You can increase the size of both camps, and this will increase the need for savings, but you can't increase the size of the savings camp in isolation, in real terms. " What about the single moment of revaluation?

DP said...

Yes, a net-producer can choose to be a Saver or a Capitalist.

Or they might go both ways … but that's none of my business.

But what I am prepared to concern myself with is that for them to earn more than they consumed, someone, somewhere at the end of the transaction chain had to spend more than they earned. So maybe they didn't build their fortune entirely without external enablement.

DP said...

BF,

NetProduction = ( NetConsumption = NetDebtIncrease + NetDissaving ) + NetCreditIncrease + NetSaving

?

burningfiat said...

DP, I like it!
Except, I'm not sure about this:

NetConsumption = NetDebtIncrease + NetDissaving

is this true?

Can't extra consumption also stem from increased velocity of already existing money? From the old bugger:

M * V = P * Y

?

DP said...

Isn't low velocity just the choice to (net) consume later rather than sooner?

Saving for a longer period before Dissaving in order to net-consume.

burningfiat said...

DP,

OK I think I got it! I was maybe a bit confused by your use of the Net prefix... In the following I take NetSaving for instance to mean Savings-Dissavings over the given period. Same with NetDebtIncrease which is DebtIncrease-CreditIncrease. So rearranged (such that my slow brain is also following):

Consumption + NetSaving_phys = Production + NetDebtIncrease

Interestingly if we look at the price and amount of the savings medium (SoV):

NetSaving_phys=P_sov*M_sov

We can rearrange to get:

P_sov = Production + NetDebtIncrease - Consumption
-------------------------------------
M_sov

Does that make any sense? Hmm....

DP said...

Go go gadget Mathwiz!! I'm not much of a mathematician so I'll leave you to run with it if you like to make it complicated. :-)

I wasn't making any distinction about "saving in what?" - just that amount of income that was set aside in some way for deferred consumption.

Good weekend all!

burningfiat said...

That should be:

P_sov = (Production + NetDebtIncrease - Consumption)
/ M_sov

But I don't really see it working out...

Maybe:
NetSaving_phys=P_sov*M_sov
should also be:
NetSaving_phys=Pricechange_sov*M_sov

Hmm, better think more before I post more. LOL

burningfiat said...

DP,

All right, I just saw it as:

If you save in paper, you're just decreasing you netDebt, because you're now owed more... So paper savings belong to the netDebt term, but whatever :)

Have a nice weekend :D

Motley Fool said...

If we are going to get into the whole debtors and savers thing, I would like to remind you gentlemen of the element of time.

Consider two persons, one who produces food, and the other who produces art, and straight imagine a transaction between them. Let's say this art is considered pleasing and will have value in future.

How would you classify their roles? ;)

DP said...

If you save in paper, you're just decreasing you netDebt, because you're now owed more... So paper savings belong to the netDebt term, but whatever :)

Yes! Saving in paper is extending credit. (Whether that paper be "spot gold", "currency deposits at the bank", or <other>.)

So, if one chose to, they might well interpret "Savings" and "Dissavings" in my earlier comment… as gold (or any other form of real wealth asset) purchase/sale transactions ("payment in full"). ;-)

But now it really is good weekend from him!

Dr. Octagon said...

I consider net-producer/consumer to be better when discussing ongoing production (the flow), and saver/debtor to describe a net-position at some point in time (the stock). In my response to anand srivastava above, I used the terms debtor and saver to follow his lead, but as DP pointed out right away, net-consumer and net-producer are a better match for my comment, and I should have used those terms.

@Indenture
"You can increase the size of both camps, and this will increase the need for savings, but you can't increase the size of the savings camp in isolation, in real terms." What about the single moment of revaluation?

A revaluation would shift perceived value between the different forms of "savings". In other words, it's mostly a shift within the savers camp, and it wouldn't necessarily influence the overall flow between the two camps.

Wil Martindale said...

You'd wonder what more blatant a message the sheople NEED from their shepherds to be discouraged from "saving in paper" .. beyond this.

Wil Martindale said...

Edwardo,
So Summers comes in, and to everyone's dismay he increases QE to 120 billion per month in a mix of THIS unrepayable debt and THAT.

And China breathes a sigh of relief, though not publicly ...

But interest rates just keep rising? That is, we've crossed the rubicon and they must now inexorably rise?

I'm not sure about that one. Market maker longs, everybody follows market maker, market maker wins. Market maker shorts ...

It's kinda like that weird ten minute spike and level pattern in paper gold today. I had to go over to my little stack and examine it closely to determine what had changed.

It still (and ALWAYS) looks and feels and seems the same, and yet it's dollar term value has varied so wildly over so short a time. Just amazing. Nothing else on earth quite like it ;D

Maybe ... only it's "perception" of value has changed. Maybe we live in a world where "players" game that change in perception.

I don't want to belabour the obvious in this analogy to "taper talk", only to maybe shine a slightly different light on it.

Happy Weekend Trail ...

burningfiat said...

MF,

Thanks for the brain-tease :) They're both net-producers in a tight circle-jerk!

Wil et alii, happy weekend trail!

Attitude_Check said...

Not true. If I produce something that I choose not to consume I can save it for later. No offsetting debtor is required. Meanwhile someone else could have previous savings in gold, and use it to buy my stored surplus. Now I have gold savings and no offsetting debtor is required.

anand srivastava said...

Attitude_Check:

Actually a debtor cannot consume the excess that a saver is saving. It can only be consumed by a former saver spending his saving. The former saver then can give the capital he gained to the debtor as a creditor for consumption. Still debtor will be consuming the excess savings of a creditor, not a saver.

Like I said a person can be playing all three roles at once.

JC said...

Extracting gold from electronics is really only profitable on an industrial scale. If however you want to do it as a hobby there is a cheap, easy non-dangerous method to extract gold that has been plated onto copper using PCB etching solution aka Ferric Chloride. Old computer expansion cards usually have gold plated copper connectors and the older the card the thicker the gold. While not economically viable at current prices it can still be a fun hobby to pass the time until a revaluation.

"Hi, to remove gold from copper backed fingers simply remove the copper backed gold and dissolve the copper in Ferric Chloride, let solution work for approx. and 1 hr, discard and repeat for an extra 1/2 hr, there will be some fibreglass left as well as gold, do not worry it will help when melting with Borax, as it will form a glass layer around gold button and will help remove some impurities,if you wish to brighten it add gold to HCl for approx. 15 min, neutralise with baking soda, wash and collect gold, you can then melt by using a crucible and Borax, add approx. 1" of Borax to bottom of crucible, make a depression, add gold foil, add another 1" layer of Borax to top and melt, Borax will help remove impurities, Note not all gold foil is the same quality, this method will only recover gold in it current state; e.g., - 8K, 12K etc..,"
http://www.finishing.com/188/89.shtml

Other electronic scrap such as old CPU's can have a fair amount of gold in them. While it can be hard to extract the gold they can be stored without taking up much space until after a freegold revaluation.

"Pentium Pro (the holy grail of yields) 1.0g"
http://www.ozcopper.com/computer-cpu-gold-yields/

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

Wait a second, there is not even the need to extract the gold from the CPUs, just accumulate high-gold content CPUs and let others recover it after reval!

So, at an average of 0.5grs per CPU, 62 CPUs to an ounce, around 2000 CPUs to a kilo. 2M CPUs to a tonne. How many CPUs can you store in a garage?
Easier to store than real gold and easier to recover than in-the-ground wealth. And stealthy (who would rob a box full of electronic junk).

Garage gold, get you some!

Max Photon said...

Thanks to those who responded; I will print out and read your comments carefully, along with the links you kindly offered.

To be clear, I have read ALL of Fekete's work thoroughly -- that is, I believe I gave the fellow a fair chance.

I have NOT read much of FOFOA's work, and that has only been an issue of lack of time, not lack of interest.

Please take my word that I am wed to no message or messenger; I have an open mind (and much spilled out, so be kind).

If anyone would like to offer a short list of FOFOA's most potent posts that would help me get up to full speed (c), I'd really appreciate that!

Also, my question to Fekete and FOFOA is one that I posed out of genuine interest, and I really would appreciate a response from FOFOA. (The guy is prolific, so I suspect my request could be met between two sips of coffee ;-)

Cheers to everyone!

P.S.: I had to laugh at going from zero to cultist in one tiny post. For a moment there I thought I had beamed into LRC :-)

(forgive the non-sequitur nature of this post)

Max Photon said...
This comment has been removed by the author.
Gustav said...
This comment has been removed by the author.
Indenture said...

Max: Click on Ron M's Air-Friendly PDFs in the 'FOFOA Links'.
There will you find 'JR's Suggested RPG-Freegold Reading List' and 'Indenture's Reading List'.

My list is a short appetizer.
JR's is the full meal.
FOFOA's entire blog is a 'bring me a bucket' moment for your brain.

Bon Appetite!

Wil (from another account) said...

Who is going to BUY US debt if US goes LIVE on Syria?

Wrong question.

Who is going to SELL.

This we grasp ...

Dante_Eu said...

Oh man, I should have never sold my Pentium Pro 200 MHz. :-)

ampmfix said...

A gram is a gram Dante! ;0)

Dante_Eu said...

Yes but with "buy it now" prices on ebay it's cheaper to by 1g gold bar outright. No need to melt anything. ;-)

ampmfix said...

Well, my idea is to first try to get them for free, then just forget about them in a garage corner, maybe one day it will be worth recovering or just selling it. Just the idea of turning garbage into "gold" delights me + no need of a safe box.

Dante_Eu said...

Well, that might work, and besides, The Best Things In Life Are Free. :-)

michael3c2000 said...

http://www.zerohedge.com/news/2013-09-08/jpmorgan-closes-precious-metals-sell-recommendation-goes-tactically-overweight-commo
JPM ends underweight gold reco, goes "neutral", overweight copper and etc...

michael3c2000 said...

Two new posts (from the lady known as Mountain Goat in Europe) by Sir Ratatap. Please note the first one on the 4th of September and the second, from the 7th, both are wordy but have short conclusions you can refer to. Mtn Goat provides some interesting background about herself, her contacts and the global monetary system.
http://sirratatap.com/

michael3c2000 said...

Excerpts from the September 4 post above by MTN GOAT- Careful What You Ask For A, B and C:
"Syria-
The threat of war with Syria is not over. I was hoping that the USA would not go with
this insane plan. As I have said in my previous post they are concerned about a blockage
in the Strait of Hormuz...
I pray this does not happen.

In Sumamry
I know this has been a very long post having 3 parts. I am glad you made it to part C. But I wanted to get all this news out to you now. Time is very important right now. You can see I have had many post recently. I am not of course an expert but I believe that this global reset, when it happens, is not the end all solution and may in fact even make things worst in the long run since the global reset is much more than just currency resets and banking reforms. Just look at the signs and pay attention. I do believe in my whole heart and soul that from what I am hearing from many sources, one of which is connected to some extremely wealthy individuals, that this global reset is actually a reset of society. One last final control on the American people and of the world. Take this for what it is worth. This is not a conspiracy theory, a lecture or trying to scare anyone and create fear.

I wish everyone happiness, abundance and to live a loving and fulfilled life. A life where all our dreams can truly be manifested in our lives post RV and we can raise generations of free, healthy and intelligent children.

So I have eluded to the fact that we better think twice about what we wish for. There are wolves in sheep’s clothing amongst us telling us things and making us promises about this global reset and what it will bring us. Be careful in how you invest your funds and try to take the precautions I have outlined seriously. The years to come may be a bumpy road.

There are also some other issues that greatly concern me now but I have to confirm some of what I am hearing before I bring any of this news to you. Stay tuned.

I know….thank God this post is over…..lol….

Peace and Luv to ya,

mnt goat"

Archer said...

michael3c2000,

Congratulations, you've managed to post something that makes the semi-coherent, repetitive, and poorly edited effluvia of Jim Willie seem positively eloquent by comparison.

Max Photon said...

Thank Indenture! I'm sure your leads will save me much time and effort. I appreciate the help.

Here, just for fun :-)

http://www.maxphoton.com/waiting-for-godot/

byiamBYoung said...

Michael3c2K,

Thanks for the links to Mnt Goat's post. I think Archer's delivery was unnecessarily rude, although I agree the material you linked on the whole does seem a tiny bit "fringy."

However, I think the mint goat is voicing a lot of the angst many of us are feeling these days. How much of it is logic-based versus emotion-based, i don't know.

I think the mint flavored goat's general advise to "brace for turbulence" is wise, and I follow that same line of reasoning.

I thought goats only came in "rawhide flavor?"

Hmph. Who knew?

Cheers

michael3c2000 said...

BYM- You are MOST welcome, the pleasure is all mine to post what I can, with or without 'mint'. Aren't mtn's refreshing and mints (bad)breathtaking?
Mr. A- Jim Willie is prolific and if U R offended NOW by Mr. Willie's output, then you'd best have some time and money invested in ClassA Hazmat protective gear and preps before he cuts loose with the suppressed stuff I know he's holding back...

michael3c2000 said...

Uh, oh Jimmie's crashin da partee like it's nine teen nine tee NINE http://usawatchdog.com/u-s-ship-of-state-is-sinking-its-a-derelict-vessel-jim-willie/

Max Photon said...

To all who kindly gave me FreeGold leads to help me get up to speed: it's 4am and my FreeGold journey begins! I'm excited.

In return, for the small subset of good folks here who want to read anything they can get their hands on regarding gold mining and how it gears with gold in society -- regardless of the source -- may I offer a list of Fekete titles ordered newest to oldest. (At a minimum, you can use them for plinking ;-)

- Has Barrick Been Barricked by the U.S.?
- Has Hedging Killed The Goose That Was To Lay The Golden Egg?
- Have Gold Bugs Been Barricked by the US?
- Peak Gold! A primer on true heding (1-5)
- The Golden Thorn In The Flesh (1-2)
- When Atlas Shrugged (1-2)
- To Barrick Or To Be Barricked That Is The Question
- Gold Fever Trumps Gold-Hedge Fever
- The Texas Hedges Of Barrick

Also, and this is not directly related to this mining thread, I just posted a copy -- the only one on the internet -- of DEFLATION: RETROSPECT AND PROSPECT (1986). I include a graph of the 10YR US Treasury Bond yields to highlight the incredible prediction made. I find it fascinating. Your results may vary.

It's at www.maxphoton.com

Okay, Max's FreeGold journey begins now! (sshhhh)

KnallGold said...

How to explain it to your kids? Nice animation here, not all things might fit but then, maybe they do!? The Gold thing is explained at 8:55.

"The Collapse of The American Dream"

http://www.youtube.com/watch?v=mII9NZ8MMVM

Motley Fool said...

Knallgold

Not all things may fit?

Hell, there are more inaccuracies in this than accuracies, but it is very nicely made, I'll give it that.

TF

Wil (from another account) said...

It's a bit formulaic to have the mysterious insider with wealth and power connections coming down from the mountain to inform the little people of the NWO plan.

It worked (for me) with Another for one reason and one reason only. Another had an INCENTIVE to do so, i.e. what is good for the shrimp is good for the giant.

Though it was never presented quite that way, it was in the best interests of Another, and his inner circle, to enlist the help of shrimp, to buy gold, and help crash the dollar, to usher in FREEGOLD.

But ... that was then, and this is now.

Make no mistake, Another represented (and was aligned with) to take his words literally, the "old world, gold economy" or the BIS, in the context of "modern eyes" (i.e. 1997).

If you were to view current affairs through the lens of a current day Shari'a Finance insider, you will no doubt hear undertones of a revaluation of the DINAR and perhaps even a system which challenges the BIS and its global majority of developed economy central banks.

Such a system could partially (if not completely) close off it's economies to the BIS system if it found that system was not "credible".

The lesson? There are many lenses through which to view our modern world, some are more objective than others.

As I have several times remarked, the FREEGOLD lens is the one which rings most true to MY personal experiences, research, rationale, and shall we say say "sleuthing"? (attempts to sort truth from propaganda and misdirection).

HOWEVER ... that said ... I do not discount that the future will hold unpredictable surprises that I could never have foretold.

The future is funny like that, and NEVER disappoints in that regard. there is always something UNEXPECTED in store.

And it is THIS my friends, that we truly learn from the flower of understanding.

Happy Trail!

ampmfix said...

To those interested in mining stock (M and ?): good piece of news from Arian Silver (AGQ.V) that shot up almost 10 times a few days ago, fortunately not all is bad news, yet...

Polly Metallic said...

Ampmfix,

That wasn't good news for Arian silver and the price didn't shoot up. They just did a ten for one reverse split for the shares.

ampmfix said...

Shit! I knew it was too good... oh well at least we do have FG coming don't we?

Grumps LaBastard said...

Check out Max Photon's copy of Fekete's "Deflation: Retrospect and Prospect" and see why gold cannot have a real positive gain exceeding comparable risk free investments.

I think when Max gets done with this blog's posts he will be disappointed to find no treatment for Interest.

michael3c2000 said...

http://www.china.org.cn/business/2013-09/09/content_29977586.htm. Freegold foundations laid brick by briic as Another one bites the bust... Hungary and China establish Yuan swap agreement

michael3c2000 said...

http://sirratatap.com/category/mountain-goat/8-22-13-dinar-101/ Excerpt:
I know that in the past Iraq has had several revaluations in the month of September so this seems to be an excellent month for them for this purpose. But I also have to tell you I know for a fact that the USA has been trying desperately to get this revaluation done and out to the public for exchange as quickly as they can. There are many reasons for this and its called Global Reset. But why is this so important and why now? Remember no global reset without this revaluation of the Iraq dinar. This currency is the base currency for the rest. It is all linked together.

Any other currencies such as VND, IDR, WON etc,, will be rebalanced in relation to the rest of the currencies too but are just nornal revaluations (even though some might go a bit higher than normal). You can take these into any bank any time and exchange as you would any currency left over from you european vacation or foreign trips. Did you hear me…no rush, no 30 day time period. Do not put these funds from exchange in the same accounts used for Iraq dinar exchange funds. Keep them all separate. It is important.

So why is this revaluation so important?
What does being a base currency mean exactly?'

Max Photon said...

Today was going great, then, people.

"I think when Max gets done with this blog's posts he will be disappointed to find no treatment for Interest."

Interesting.

I also see the word "equilibrium" peppered about a bit beyond my tastes, but I'll reserve judgment.

Back to the liberry.

Michael dV said...

michael3
From all the reading I could stand I think mntgoat is a wackjob.
Selling Dinar is a common internet ad. I get one every few days.
A revaluation of the dinar could happen, almost always 'revaluations' are 'devaluations'. What would make the dinar a store of value?...nothing...
After she gets going on about the Jesuits and calling Francis a 'Roman cardinal I lost interest. By her definition the are ALL Roman cardinals. Pope Frank may be Roman (according to goatlady) but he was born in Argentina.
The only entity these conspiracy folks leave out of their considerations is Colonel Sanders..... http://www.youtube.com/watch?v=YKRFlNryaWw

Aaron said...

Grumps LaBastard said...

Check out Max Photon's copy of Fekete's "Deflation: Retrospect and Prospect" and see why gold cannot have a real positive gain exceeding comparable risk free investments.


Grumps LaBastard also said...

Then there is an alternative site the FOFOA blog. I don't recommend it anymore. The thesis there is that gold will stay external to the system at a price of 55,000/oz. There will be no mining of gold, no gold lending, easy credit creation in a currency will be punished by a higher gold price in that currency. It is bizarre. I post there under GrumpsLabastard telling the cultists there they're full of crap. My name is mud over there.

Wil (from another account) said...

MdV,
Here's something for you, since you seem to be interested in that mountain goat view:

http://www.augustforecast.com/2007/12/12/global_banks_embrace_islam/

Try to remember (aside from the writer's obvious bias) back in 2007, we were at the tail end of the Bush melodrama, the 911 psyche, and the hatred of those "Middle Eastern Terrorists" whose faces symbolized TERROR as they murdered our innocent countrymen, with their Jumbo jet Kamikaze show.

And then, with Obama, we were told to stop being Islamaphobic ... we even got our own personal Hussein for president.

I'm sorry, but "our" present reality?
As they say ... you can't make this shit up.

But in essence, aside from the fact that Patrick Wood is the consummate Trilateralist, and makes the textbook case for systemic globalism (which in essence is factual, not conspiratorial) has anyone really looked at the laws which govern Shari'a finance and whether or not a key principle of it is shared with FREEGOLD, namely that gold should govern a sovereign's currency FREELY, and as valued by a free and open marketplace?

I'm no expert there, but their arcane, yet (in some ways) moral governance is not just something for the West to exploit, but perhaps to find a common ground with ... or absorb ... or destroy.

Or whatever else works to keep the systemic flow of wealth in its current pattern.

One never can know the minds of mind, especially of minds such worlds apart, when the paper burns.

They may first use the wrong paper to help smother the smoldering, but it only feeds the coming inferno.

Wil (from another account) said...

Sorry, got my Michael's crossed, meant M3c2K ...

S P said...

These are troubled times. Even after 9/11, the war on terror, the financial crash, it seems as though only now things are getting real. I have a feeling we are approaching the point of no return.

Remember that Another and FOA wrote what they did before all of these events. Does that make what they said more, or less, credible? I'm not sure if I have the answer but I salute the efforts of FOFOA to keep it alive.

I recall that quote of Another...many will find the gold heavy, as others find it will place a solid foot on the ground.

I must admit I find the gold heavy...this burden is heavy for me indeed.

Best of luck to everyone.

Phat Expat said...

S P I hear ya.

I believe it won't be much longer now; the gig is truly up. The farce that is the current political hierarchy is self-destructing and it can't come soon enough. I would be surprised if we make it to the end of the year with the current structure intact. As an American, I am embarrassed by our 'leaders' and hope the ROW realizes they do NOT represent our ideals or the principles on which the country was founded.

The few times I actually listen to them speak invokes a nauseous response. That we have such a dumbed-down and corrupt representation leaves me at a complete loss. Some have posited that our representatives in Government, and especially towards the top, are quite aware of what they are doing and in fact are exceptional. But I have come to the conclusion that what we have currently are among the least intellectually capable crop to have ever held office. An MTV, Reality TV crowd that is vulgar, base, inept. Shameful.

Sincerely,

Shanghai Guy

Wil Martindale said...

Phat,
I might add "confused" and "totally lacking in leadership" although they do follow directions, in whatever changing direction they are given ...

Fred said...

I used to follow this site but then found out how wrong it is. Gold will never be a currency or backing a US currency, as long as the US govt is standing and the Constitution not abrogated.
The govt will instead use the NSA to hunt down every last nickel in taxes. We are facing depression not hyperinflation ,as a result.
Read Martin Armstrong if you want to be educated on global economics.

db said...

Fred, thanks for your insightful comments

See you in MA's place

DP said...

http://1.bp.blogspot.com/_c2RgIZLfWHs/TA_HpDNbf8I/AAAAAAAAAjY/HQQzgmP1cO8/S1600-R/yeah%2Bok%2Bbye%2Blogogrey2.jpg

michael3c2000 said...

@Shanghai Guy, Wil
Agreed. A difficult task describing the unthinkably, indescribably unreal.
Mainstream media makes easy work of it in these
select headlines (for 9-10-13):

"Gold Solidly Down, at 3-Week Low, amid Better Risk Appetite - Kitco News" [Translation- Risk appetite mmm... eat up, my little pretties... don't forget to ask for seconds...]

Gold Market's Focus On Fed Overshadows Other Central Bank Actions – State Street Global Advisors - Kitco News [The "gold market" obediently heeds the Great Wizard... Hear ye, hear ye...]

Geopolitical Risks Take Back-Burner, Gold Shows Strong Trend Line at $1350 – iiTrader [WTF is happening?]

South Africa's Gold Fields Under US SEC Investigation - Kitco News [Another family feud escalates to open public warfare, aren't you impressed though?]

Gold Could Rise If Fed Tapering Is Less Than Expected- BofA Merrill Lynch [Be titillated as our bobble-head talking-head girls tease you into a stupor, no boring treatises dismissing taper tall talk here...]

Tuesday's Analytical Charts for Gold, Silver and Platinum and Palladium - [The doctor is here with your charts, are you paying by credit or check today?]

Gold drops more than $20 as Syria fears recede - MarketWatch [Efficient markets are best served by credible, efficient military deterents]

Chart This!: Fibonacci The Real Star In Gold Forecasting - Kitco News [The stars and planets are aligning for the great pumpkin, er CONJUNCTION!]

Boost for Abenomics as Japan's GDP rises - Guardian (UK) [What did you expect from the land of the rising yen?]

China Shadow Banking Returns as Growth Rebound Adds Risks - Bloomberg [Nothing shadowy to see in western banking, move along...]

Treasurys hold losses after solid 3-year auction - MarketWatch [Treasury's are fickle and unfathomable, but not to your brokers and specialists- they're safe and formidably popular in your accounts...]

burningfiat said...

Fred,

For you:

http://www.youtube.com/watch?v=HYXASbjErx0

(h/t VtC from twitter)

Phat Expat said...

@db
Uh, did you forget a /sarc tag or something?

@Fred
"We are facing depression..."
Facing it!? Wow, the 20+% unemployed, and I'm being conservative, would likely disagree with that. Did MA just come up with that?

Nope, back to watching the freak show from abroad. As I observed the complete disconnect of my 'fellow' citizens, I couldn't stand being in close proximity at this time or the thought of contributing any money to further this charade. Better to enjoy my Beer from abroad, sitting high above the Yangtze River, surrounded by some of the most beautiful 'scenery' in the world. ;-)

Max Photon said...

Hi Indenture,

I'm reading through "Indenture's Reading List." (Nicely laid out btw.)

Question about FreeGold's underlying assumptions:

Is FreeGold yet another Supply-and-Demand (aka Quantity Theory of Money )based model?

Please say no.

* * * * *

In this post, midway down, I make a few comments about QTM vs nonlinear models.

http://www.maxphoton.com/gold-backwardation-vs-hyperinflation-vs-hyperdeflation-what-are-the-differences/

Btw, how does FreeGold explain the 30+ year bond bull if supply/demand is in effect?

Fekete's DEFLATION: RETROSPECT AND PROSPECT (1986)

http://www.maxphoton.com/deflation-retrospect-and-prospect-antal-fekete-1986/

provides a clean, simple explanation that is playing out right in front of our eyes.

How does FreeGold explain the quadrillion dollar derivatives tower in terms of QTM?

As for supply/demand, consider upgrading to a disequilibrium model: The Disequilibrium Analysis of Price Formation:

http://www.professorfekete.com/articles/AEFDisequilibrium.pdf

* * * * *

As for marking gold to market, that is a violation of the Law of Assets.

So if one is going to do that, at least violate GAAP symmetrically, and violate the Law of Liabilities! (discussed about 1/2 through the article)

http://www.professorfekete.com/articles/AEFIsOurAccountingSystemFlawed.pdf

Anyway, my mind is still wide open!

Cheers

Max

Max Photon said...

Hi Indenture,

I'm reading through "Indenture's Reading List." (Nicely laid out btw.)

Question about FreeGold's underlying assumptions:

Is FreeGold yet another Supply-and-Demand (aka Quantity Theory of Money )based model?

Please say no.

* * * * *

In this post, midway down, I make a few comments about QTM vs nonlinear models.

http://www.maxphoton.com/gold-backwardation-vs-hyperinflation-vs-hyperdeflation-what-are-the-differences/

Btw, how does FreeGold explain the 30+ year bond bull if supply/demand is in effect?

Fekete's DEFLATION: RETROSPECT AND PROSPECT (1986)

http://www.maxphoton.com/deflation-retrospect-and-prospect-antal-fekete-1986/

provides a clean, simple explanation that is playing out right in front of our eyes.

How does FreeGold explain the quadrillion dollar derivatives tower in terms of QTM?

As for supply/demand, consider upgrading to a disequilibrium model: The Disequilibrium Analysis of Price Formation:

http://www.professorfekete.com/articles/AEFDisequilibrium.pdf

* * * * *

As for marking gold to market, that is a violation of the Law of Assets.

So if one is going to do that, at least violate GAAP symmetrically, and violate the Law of Liabilities! (discussed about 1/2 through the article)

http://www.professorfekete.com/articles/AEFIsOurAccountingSystemFlawed.pdf

Anyway, my mind is still wide open!

Cheers

Max

Edwardo said...

This, and prospective developments like it, are a warning that bail ins are coming to bank near you.

Wil (from another account) said...

Perhaps Eduardo, just perhaps ... it will be the great systemic bail-in that finally kills the dollar.

I can clearly imagine a systemic chain-reaction collapse in which global banks are caught up in a dollar denominated derivative unwind that sucks in all manner of electronic dollars in accounts worldwide to satisfy the counterparties.

At first, the credibility will not be challenged by "My dollars are becoming worthless", but rather by, "My dollars are not safe".

A quadrillion dollar global bail-in would definitely cause all confidence in dollars to be lost, then the devaluation would begin, as entities "get out of" "unsafe" dollars as quickly as they can.

Isn't that the equivalent of "getting out of the system."

Thus a new system must be born.

Frankly, nearly everything else has already been done to "kill the dollar" but it just won't die. It is too "systemic". It keeps being accepted.

And it is in the best interests of the USG to let it die, or kill it, they just can't seem to.

So let the banks kill it through confiscation.

Yes, that's the ticket ... the flower likes that plan.

Phat Expat said...

@Edwardo
Yeah, exited that system long ago; pensions and everything. Bail-in this, Mo-Fos.

@Wil
Usually agree with you but must take exception with this: "And it is in the best interests of the USG to let it die, or kill it, they just can't seem to."

No, it's not in THEIR best interests; that is the only power they can really wield (ain't no govie I know going to work for nothing, though I can't say they really work now, if you know what I mean; the contractors do that, just ask pj ;-). Once that is gone, THEN we get back to re-building our country. IMHO

michael3c2000 said...

http://www.halfpasthuman.com/essays/singers.html
Excerpts:
""to those who sing...."
by clif high, Sunday ,Sept 8, 2013 8:29am

with respect....

it may have escaped your notice, during these trying and soul tying times, but it is your voices that describe our world as we create it, so sing us a new song, and a new life for humanity. We need it now, during this terran transition period...

The Assyrian situation is the first test of the awakened population at a planetary level. Have we crossed the chasm of demographics to where there are now enough awake and aware people on this planet to change humanity's future by altering these events at this pivotal moment in time?

...Let me repeat that for clarity: that this 'test' of our potential as awake and aware humans exists, tells me we have already won....only a matter of the doing of it now.

The long battle of control of humanity by the powers is over...

As the taoists have observed, all floods start with but a single drop of rain. It was from this understanding that the idea of the 'aggregation of the small that can move the great' was understood.

It is my contention that something new is about to be seen on this planet. This will be the first time on terra where each rain drop is not only awake, but is aware and actively participating in the collective goal of the flood..."

michael3c2000 said...

http://www.ecb.europa.eu/press/key/date/2013/html/sp130910.en.html
EXCERPT:
"The global monetary policy stance: what are the risks?
Speech by Jörg Asmussen, Member of the Executive Board of the ECB
Bruegel Annual Meeting
Brussels, 10 September 2013

Dear Chairman, dear Ladies and Gentlemen,

The recent years have been challenging for monetary policy makers around the world, including in Europe. The economic and financial crisis that broke out in late 2008 turned central banks into “unconventional” market players and forced them to be creative.

Since 2007, central banks have adopted a wide range of unconventional policies to repair the transmission mechanism and provide additional accommodation at the zero lower bound. These policies have been different across economic areas and depended on central banks’ operational frameworks, mandates and country specific challenges.

Within our mandate, we at the ECB, at the be-ginning under the leadership of Jean-Claude Trichet, acted strongly to prevent a credit crunch and reduce financial fragmentation in the euro area:

We provided unlimited liquidity to banks, extending the maturity of our operations to 3 years, and allowed our collateral rules to adjust to the new environment. These measures prevented a more severe contraction in credit and reduced divergences across countries caused by bank funding risk.

We introduced the Outright Monetary Transactions (OMT) to remove financial fragmentation caused by currency redenomination risks that had surfaced due to unfounded fears of a euro break up. The OMT has calmed markets leading to significantly improved financing conditions. As a result, Target 2 imbalances have declined by 1/3 since their peak. Let me also say that the OMT is a policy for the euro area as whole. By reducing financial fragmentation, the OMT contributed to the normalisation of those yields that were excessively compressed by market fears.

While unconventional monetary policy actions were necessary, we also need to pay attention to the related risks. Let me briefly discuss them together with broader challenges for monetary policy..." End snippit

Mikal: Is the ECB preparing to defend it's primary objective"- "price stability" - at the expense of the monetary system?
Have they said "systemic risk" is less manageable because "monetary policy is in uncharted territory", unless they begin "designing appropriate institutional frameworks", employ new "policy instruments" and "governance structure", adhere to "forward guidance" and "more transparency"- all impossible without freegold?

anand srivastava said...

Wil:

I don't think Bail-ins will be universal. That is where safe currencies will distinguish themselves from unsafe ones. In unsafe currencies banks will be bailed out. These are definitely USD, Pound and Yen. I am expecting there will not be bail outs in India, except for Govt banks. So INR will still be a plenty weak currency and will probably hyperinflate. Those in Private banks will suffer faster than those in govt banks. Euro etc will all have Bail ins.

Wil Martindale said...

Yes, DOLLARS are what most debt is denominated in, and a systemic bail-in will be (an attempt at) a bail-in of the world's irredeemable debt.

PHAT,
Not sure which it was but maybe the 9th or 10th post of the 10 day series where FOFOA really convinced me (though I was already leaning in that direction) that the USG does indeed ultimately benefit from a dollar HI. They have to inflate away the debt, or devalue it, one way or the other.

I always look at 9/11 as a day of "making a point".

Let us see what point is made today. We are ripe for it.

Tom R said...

I liked the phrase someone in the posts above used/coined ... Brick by BRIC, the Freegold foundations are being laid.
And it is starting to be more widely recognized. In this article the ETF coat check room is discuessed, without lableing it as such, but describing the function.

http://www.24hgold.com/english/news-gold-silver-a-giant-sucking-sound-from-the-east--gold-miners-weekly.aspx?article=4508494726G10020&redirect=false&contributor=RJ+Wilcox

Max Photon said...

Oh I get it, yet

ANOTHER QUANTITY-THEORY-OF-MONEY THEORY

Then we get { <...(FO(FO(A(QTM))))...> }

* * * * *

VISCOUS THINKING

Big fools have little fools
Who feed on their “lucidity,”
And little fools have lesser fools
And so on to stupidity.

~ Max Photon

* * * * *

... just trying to be playful enroute to "FreeGold enlightenment" ;-)

Cheers!

Max

Motley Fool said...

Max

I would qualify it as something else.

I do like Fekete's disequilibrium theory of money, but it does not paint the whole picture.

Nor does the standard MSM QTM.

TF

Boner Parte said...

If you find Freegolders believe Fisher's V and T are constants, your imagination may have been playing tricks on you.

These are not the Monetarists you're looking for.

Max Photon said...

MF, I assume you mean that you would describe Another's _____ Theory of Money as distinct from the various QTMs in the cavalcade before us: Keynsianism; Monetarism; Rothbarian/Austrian; etc..

Feel free to characterize FreeGold's uniqueness. I'm all...screen.

But please remember, generally speaking, equilibrium or static or linear models, while applicable in fair weather, are as seaworthy as a ship leaving port with 1cm of freeboard.

Equilibrium models are "special" cases (special, as in, crippled ;-)

Note that Fekete's disequilibrium model is far out (from equilibrium).

The world is nonlinear. Analog and nonlinear.

Issas Ekeret said...

Another: "Gold is the only money the world has ever known" Sounds like a simple thought but it isn't .

" Money is whatever people say it is" - Not true!

"Currency is whatever a government says it is" - True!


If one chose to consider in retrospect the prospects for deflation, in the context of "deflation in terms of money" ("money" in this instance per the definition intended by Another, above, m'kay?), then all will be in agreement here m'kay?

FOA: Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)

Not only is the "printing of cash" allowed, but Modern Monetary Theory, and the mandates everywhere for price stability, tell us it must be so.

M'kay?

Motley Fool said...

Max

Seeing as we come from similar backgrounds economically, I will advise you to do what I did.

I also read all Fekete's work prior to running into FOFOA.

What I did was keep an open mind, read the blog from the start, and try to find fault. I even kept a document on which I noted my disagreements, which I edited as time passed, and I read more, and I found them resolved.

My list is now essentially non-existent fwiw.

Your having read Fekete's dense work and finding value in them tells me something about your character. As such this is an easy suggestion for me.

I also think it a waste of my time to explain things to you, when our gracious host has laid it all out much more eloquently over the years.

Hope that makes sense.

Peace

TF

Frank Pansy said...

I have to say, Issas, I tend to disagree with Another's assertion that "gold is the only money the world has ever known".

If people barter then they can rarely get what they want in one or two transactions. If they have Hershey bars and want iPads, for example, they will not necessarily be able to trade Hershey bars for iPads but may instead have to make a few intermediate trades. This is a hassle. But people notice that the hassle is much less when they trade what they have for some good that is widely accepted, and then use this good to buy what they want. The good that is widely accepted eventually becomes money.

The widely accepted good today is quite clearly dollars (and other currencies), which is why today they are money and gold is not. Which is not to say that tomorrow may not be different of course. Certainly, today is different to 'yesterday'... when gold was money and the insightful mind of the Austrian School father, Menger, was operating with that premise.

Fekete does appear to have transported his mind in time to be at one with the context of his hero?

Phat Expat said...

@Wil
Ah, okay, got it. My bad.

Well, 9/11 is likely to be business as usual (other than remembrances, of course).

No more drama, the time is approaching for this spiel to end. And though it could go longer, I am steadfast in my commitment to FG as I believe it is the best option for what's next.

Max Tampon said...

http://maxtampon.blogspot.com/2013/09/the-godlike-perfection-of-weal-biwlz.html

Max Tampon said...

Heh...

Oops, I forgot to explain why the hell I posted that URL. Not like it matters though, you all should feel privileged just to be able bask in my intellectual aura.

Heh... I'm really slumming it by hanging around on this blog. "Freegold" LOL! Haven't you heard of REAL BILLS!?

Of course I haven't read much of the blog, but don't worry - that won't stop me from making snide, condescending comments about it... Heh.

BTW since I am so narcissistic the burden is on you guys to educate me about the subject matter of this blog and convince me of its merits, because I am far too important to take the time to do anything myself, not without others giving me lots of attention anyway. And every time I think I partially understand something, I am going to make an announcement about how stupid it is, and how ignorant you all are.

But don't worry, my superior mind is completely open!

KnallGold said...

There must be extreme pressure in the system, this from someone who hears the grass growing. Something is brewing in the collective mind, growing impatience, I hear of an eruption of psychiatric emergencies, strange accidents, illnesses, irritable edgy aggressive behavior of people etc. Hope no amuks happen somewhere :-(
Syria thing just Another symptom.

Of course every incident is unrelated to each other, yet it paints a picture of the whole. It's like the frictio-luminescense/ earthquakelights before an earthquake. We'll keep on observing.

I prefer to relax to music, like "A Perfect Lie" from Engine Room

http://www.youtube.com/watch?v=_DFQxttrF2E

Health, Wealth and Love,
KnallGold

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