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:

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KnallGold said...
This comment has been removed by the author.
Michael dV said...

Max T
we appreciate your condescend-shun and I personally will refresh frequently now that you have appeared. We rejoice....und now ve dance...

KnallGold said...

Tampon, you sound a bit like a split personality of the HMS character here :-)

Thanks for entertainment.

Not nice: If the friction has anything to do with Fukushima? Just trying to read up on it, not nice. Japan Gov. says "everything is under control!". I don't like when governments say this :-(

http://www.youtube.com/watch?v=iCVoEToMe7s

Indenture said...

Max: I think you will better served if you read 'JR's RPG-Freegold Reading List' in it's entirety. I believe with the knowledge you bring to the table that the digestion of the complete meal is your best course of action. Try not to pick apart individual items but instead savor the meal as the full experience it is meant to invoke. At the end, if you would like to discuss the meal over dessert and coffee I'm sure others would be more than willing to help you. I'm not much of a conversationalist, I'm more like a waiter, but I do know that Freegold is a different way of viewing the world, a different lens, and you must be willing to use the Freegold lens in order to disprove it.

'JR's Suggested RPG-Freegold Reading List' is served.

Max Photon said...

MF,

Thanks for the thoughtful and respectful response.

Agreed! Read the source material.

Plus (and you are totally correct here) I should not burden you and others to "re-'splain" The Entire Universe.

Okay, so I won't solicit explanations (unless I really am stuck and need a hand) -- even in fun.

read the source; read the source; ....

That's best practice anyway.

Cheers!

Max Tampon said...

Yay! Reading is fun! :D

Peter said...

Yes, not everything ol' Antal says has a basis in faulty premises and is therefore worthless!

If the marginal productivity of debt is allowed to decline significantly or, worse still, to become negative, an accelerating feedback effect will short-circuit economic processes, and, in due course, will destroy the debt tower growing out of control. The destruction can take either one of two forms. It could take place through the depreciation of the currency in which the debt is denominated (inflation), or it could take the form of defaults and losses due to bankruptcy (deflation).

$IMFS elects mostly for the former, euro-Freegold-RPG to a greater extent the latter.

It is a moot question which form of destruction is less desirable socially.

Is it? OMG those stupid Europeans need to get with the program and print out the debts like everyone else!! (So that our currency won't look so bad against theirs.)

Issas Ekeret said...

Yes, Frank, I can agree with your assessment that, today, "gold" is not "money", m'kay?

A very large part of the reason people have come to dismiss "gold" as money, is that the true value of GOLD is currently obscured by the manner it is in the main today publicly "traded" — on paper. Fractionally reserved spot credits/debits held as bookkeeping entries by the Bullion Banks, not unlike currency banking m'kay, which are then used as the basis for more derivatives even further removed from the real thing itself.

I mean, where is the limitation on supply of these things? How much supply of all this is available to satisfy market demand is entirely up to the discretion of the banks, not the laws of nature as your average "goldbug" presumes (while buying the very same financial papers that are suppressing the $price of their beloved gold).

M'kay?

ANOTHER Date: Sat Oct 18 1997 21:04
The major buying and selling is between CBs, nations, merchant banks, "the super rich" and the hordes of small buyers in forgotten places. That is one of the small many reasons wall street hates gold, they are not part of the real action. Comex is a side show!

michael3c2000 said...

http://koosjansen.blogspot.nl/2013/09/alex-stanczyk-there-is-way-more-gold.html
Monday, September 9, 2013
Alex Stanczyk: There Is Way More Gold Going Into China Than Is Reported
Last week I had the privilege to talk to Alex Stanczyk, Chief Market Strategist for the Anglo Far- East group of companies. Below a few quotes - Alex also has a military background so that's where we started...

Oakay Nobmilka said...

5/3/98 ANOTHER (THOUGHTS!)

Mr. Kosares, Your friend thinks much of this gold owned by the USA. It could be used to back the dollar up to 25%, no? Many come to this thinking and hold a secure thought, that as last resort, this gold will save the day! I think, many persons never gained the understanding that the American gold is kept by the "Treasury", not the maker of your money, "The Federal Reserve". It is there for good reason, as the present world currency system is not a function of American law! If the US were to place gold in the hands of the US/CB as reserves for the dollar, the BIS could claim it! It is, as a point of contention and of no real use. I think not a war would come of this claim, if it should happen! As the world currencies are now, a "new dollar" would be needed if gold were used as reserves! The present dollar would then, truly be as "paper for the wall"!

The urgent drive to create a new "reserve currency" began in the early 80s, after the last small "gold war". The road to making this new Euro did never include gold in large amounts, until the last few years! Even one year ago, the news would say, 5% or less. Today, we speak of a much greater amount! This is interesting, yes? The BIS did "hatch" this deal in a very late fashion! The future of the Euro was found to be "weak", as the Middle East oil imports onto the continent would continue in dollars! This was so from the dollar being made strong in gold. Gold priced in dollars at near production cost, offered a "no switch currency" position, for oil. This position has been unstable for the last year, and the alternative of a switch to gold was in progress! You have read my "Thoughts" before. Now the BIS does offer to "change the rules of engagement", a real reserve currency is offered!

Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"! The holding of large reserves by the ECB and the withholding of sales from the market will not only bring the end of the London paper gold market, it will, thru a high USD gold price, "make the dollar weak in gold"! From this position, the dollar will lose the "oil backing" from the Middle East! At first, all oil for Europe will be in Euro's, then all producers want "strong currency"!

There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!

The politics of the ECB? It is as a "side show"? We watch this new market, yes? Sir, my words take time. I did receive two E-mail's from you.

Thank you

Max Photon said...

testing...

Max Photon said...

testing...

Motley Fool said...

Max

Sure, if you are really stuck, feel free to ask.

Cheers

TF

Motley Fool said...

Art

"Who the hell are you to tell the world what to use as money - especially "worthless tokens"?

You're a bunch of nobodies working for the bankers, that' who you are.

FREEGOLDER=loser. "

Who the hell are you to tell the rest of the world they Must use gold as money?

You are a nobody.

Art = crazy loser.

Motley Fool said...

Art

Get it through your thick skull. We aren't telling anybody what they should use as money. We aren't forbidding anyone from using whatever the hell they want as money. Want to use gold? Go right the fuck ahead.

What we have done is outline why it is bloody unlikely gold will be used as money again, as per the choice of the people, and pointed out why using gold as money is not a good idea.

Why don't you just fuckoff already? I am tired of your constant inane lies, whining and insults.

Motley Fool said...

To the rest of the board. Please excuse my bad language. Sometimes there is need.

Motley Fool said...

Art

Wtf?

You want me to restate something that has been elucidated here countless times?

Fine? But for what, a lame promise?

You forget you have made me these promises before, and have not kept your end of the bargain.

So your word means nothing. But on the off chance it gets you to stfu, here goes.

Using gold as money creates a situation where promises to repay debts are made in gold - gold credits, which leads to more credits than gold existing and a collapse of that system.

Credit is always extended in whatever is used as money.

Furthermore using gold as money increases its velocity, which decreases its value.

Motley Fool said...

1. When gold was money, what were loans made in, apple fucking pies? No. Before you even begin. Loans were not only restricted to gold held on hand. Read some history. And don't even begin to argue what you think should be. Reality is. We are not speaking of your fantasies here. Even in a 100% gold back system gold credit in excess of that is created.

2. Gross ignorance. Money is credit. It always has been. Try David Graebers' 'debt the first 5000 years' book, that shows the anthropological evidence for this fact.

3. Gross ignorance, again. Higher velocity of any good gives the effect of more of that good being available. In terms of trade value is affected by the relative volumes of goods traded. 1000 cows traded ten times a year, appears just as numerous as 10,000 traded once a year in terms of availability. Go study some econ 101.

Again, all of this has been explained here numerous times in excruciating detail. Why you comment here if you don't even bother to read and understand what is written is beyond me.

Motley Fool said...

Ps. Your agreement was that if I was able to state my position simply you would leave. I met your terms.

You didn't insist that you must be able to understand my response. That would be impossible I think, since you absolutely refuse to think for yourself.

Dante_Eu said...

How about this for synopsis?: You (and I) Don't Know Shit

I think it's brilliant. :-)

jojo said...

+100 for MF

Wil (from another account) said...

Having recently convened with the FOU, I emerge with both a proposal, and a condition (yes, the flower insists on both) ...

IF ... we were to accept FOFOA's premise that in fact the USG wants to inflate it's way out of the present system, by (as a representative of said division of USG which has the hubris to say as much reputedly conveyed to KB) "killing the dollar" ... just how in fact would USG go about doing exactly that?

So the proposal or challenge is to explain in some detail how the USG would go about killing the dollar, who would do what, how and when, enlisting who's allegiance, etc... to actually orchestrate such an event, in all the credible detail that this blog deserves.

THE CONDITION ... is that you must (please forgive the expression) "think long and hard on this," especially with regard to what exactly IS the USG. How does it make decisions and how does it implement them? So the condition is to factor this qualification into your explanation.

Some of you may already see where I'm going with this, but I still think it's a worthwhile excercise, even if only to gauge differing opinions.

Any Takers?

It sure beats giving ART the attention it craves IMHO (and Motley, no one knows more than I how irritating a mosquito is that you cannot smack).

Phat Expat said...

Wow, for those of you playing along at home, GLD is on the verge of NASTY. It has been on a sell since Sep 4 with an initial target of 129.05 (though the weekly didn't show a turn until Sep 9 and is still evolving). Stop right now is at 133.26. So, what happens after 129.05 you might ask? Yeah, then 126.50, then 122.10, then we'll see. Let's get this party started.

Nickelsaver said...

Wil,

"IF ... we were to accept FOFOA's premise that in fact the USG wants to inflate it's way out of the present system, by (as a representative of said division of USG which has the hubris to say as much reputedly conveyed to KB) "killing the dollar" ... just how in fact would USG go about doing exactly that?"


Is that his premise? I didn't take it quite that way.

It took it as....

When then status quo changes such that the USG is forced to trash the dollar, it will see the benefit of it from every angle.

Not...the USG sees the benefit of it right now and will look for an opportunity to induce it.

Fact is, as long as the Ex Priv is working, there is no need to do anything. But I think we are waiting for 2 things happen...and it appears to be a race.

1) the collapse of paper gold
2) the rejection of dollar reserve currency

Either one would hasten the other. And dollar HI would quickly follow.

Just my opinion.

Motley Fool said...

Art

I must have masochistic tendencies since I am still replying. Still, I will do so for your edification.

"ART says: DEBT aka CREDIT did not always exist. In fact, until a few centuries ago, DEBT or CREDIT was thought of as an EVIL enterprise only fit for people who were not Christian. Hence the rise of the Jewish bankers who were granted de facto monopoly of the banking system from the start. For the most part of our history, debt or credit was regarded as usury."

I'm sorry, you are wrong. Ursary was considered evil. But credit is not ursury. Again, check the source book I linked by David Graeber. Or try this video : http://www.youtube.com/watch?v=CZIINXhGDcs#

"CONCLUSION: DEBT or CREDIT is not a GIVEN and it's not necessary to life on this planet, as you Freegolders presume. In fact, at least one major religion FORBIDS credit or debt! Moslems are required by Islam to INVEST in enterprise and share the risk instead of giving out loans to entrepreneurs."

Wrong, wrong and correct.

"Money is payment in full. Money is not a promise; it's the FULFILLMENT of a promise (where credit was created)."

No it is not, even if such payment is in gold. Yes gold has value, but that value is not inherent. Gold is oft ridiculed in that one cannot eat it. This ridicule has some truth; gold is essentially useless. Full payment in the context of human life is necessary goods for sustaining human life. Gold does not do this. Again, you are simply mistaken.

"You're saying that more money creates more wealth."

No. But again this shows your lack of comprehension. I said that velocity of goods affects trade value. This has nothing to do with the creation or destruction of real goods, but has bearing on the price such goods trade at.

"Do I really have to prove that the sole creation of additional claims to goods and services (aka credit or debt) DOES NOT in of itself create more goods and services by virtue of its mere existence?"

Oh my, that poor strawman. Beaten to a pulp by inference. How sad.

TF

Phat Expat said...

@NS
"1) the collapse of paper gold"

Do you have a threshold in mind, or to use an Obamanism, a red line (sorry), that once crossed could trigger the collapse?

Nickelsaver said...

Phat,

I don't know anything except what I read and hear. i prefer dorito's to popcorn...

Phat Expat said...

@NS

Profound; so much to ponder.

Indenture said...

Will: Please read Peak Exorbitant Privilege

The key word is privilege not 'force'.
The answer to your specific question is 'The US will continue printing until the moment the Dollar is no longer accepted'. So who kills the Dollar in my answer?

Dr. Boer said...

Sympathy for the underdog. Dear John Embry, director James Turk, and others with their optimistic predictions that failed, and failed, and failed. They are "taken to court" in this blog.
I know, they are not the experts who know the future but still, I like these brave men. Co-warriors at least?
On another note (and some defense for these brave men). Theories can be strong or weak. A "strong theory" is a theory that can be tested. More strictly speaking: a theory that can be refuted. The strong theory sticks out his neck. It says "silver > $ 50 within the next six months". Hence, the theory can be refuted demonstrably and openly. These are the theories of Embry, Sprott, Turk a.o.
The "weak theory" is a theory that cannot be refuted. It is a theory that shuns specific predictions. For example, "after an unspecified amount of years or months, the price of gold will rise above $ 10 000/ounce". This is a weak theory because it can never be refuted. Suppose the year is 2043 (30 years from now), and the price of gold is still as disappointing as it is now ($ 1316/ounce). That does not refute the statement "after an unspecified amount of years or months, the price of gold will rise above $ 10 000/ounce".
FOFOA's theory is mostly a weak theory. [Please bear with me; this is an observation--not a condemnation.] The theory has limited quantification, both with regard to timing (the when question) as well as with regard to the value (the revaluation question).
In http://wallstreetpit.com/100623-your-personal-gold-standard/
James "currency wars" Rickards presents a theory of gold going to $ 8000 "in three to six months". A strong theory! Alas, Rickards (who is a clever man) precedes the theory by the clause "if certain scenario's play out". Oops. This makes for a weak theory. IF is not even WHEN; and "some scenario's"--what's that? It is not specified.
And I forgot to tell: I also like the brave J.S. Kim and his incessant admonitions to stick to the precious, and not to let yourself be fooled.

With love.

Robert LeRoy Parker said...

I guess relativity and countless other theories are weak as well... or you like to publish lengthy comments for personal reasons.

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