Thursday, January 1, 2015

Happy New Year!

Year of the Fire

Make no mistake, a currency fire
is now in process and it has much fuel remaining.

As was said before, the real gold market that most people invest in is gone! Any gold trading paper will evaporate in the heat of fire now starting to burn. I tell you now, when the currencies are at nuclear war, GOLD WILL NOT TRADE

An experienced guide is not needed for this trail, look around you and see. The real money is selling ALL FORMS of paper gold and buying physical! Why? Because any form of paper gold is losing value much, much faster than metal. Some paper will disappear altogether in a fire of epic proportions! The massive trading continues at LBMA, but something is now missing? The CBs are no longer lending! They will not anymore!
We have reached production costs.

But I say, spend your time in the company of truly wealthy ones, see how they make gold lie very still! Know this now, the world will again, in your time, feel value in gold as never before.
And that value will be as the "productive use of
holding wealth thru the fire of change".
"Yes, you can also walk in the footsteps of giants".

Such will be today as all forms of "gold commerce" as denominated in dollars is put to fire. It is the very reason nations of resource wealth do not invest in "gold in the ground" … Gold above the ground is the real money for the future.

For some time I have asked persons to consider that all gold paper will burn! The investment in physical gold by dollar holders will collect a lifetime of value. A value hidden in the dollar price of gold! Today, all "gold industry" paper is on fire, for all to see, as the present system for trading gold falls into failure. Indeed, $10,000 gold may prove a "contradiction" that cannot be true, yet does exist in the future. In the past, the thought of such a price of gold did present the "irresistible" urge to buy into the industry this "Dollar based market represents". Only greed can explain the need to gain more than the value "real bullion"
will one day present.

The point that this was a "New Gold Market", "unlike none before", in that the dollar market of gold would totally disappear in a blaze of paper fire! ... It is no wonder that no analysts of the gold industry can afford to see the outcome of Another! Conversely, every free citizen, worldwide, that holds and continues to buy physical gold will welcome this change. Dynamic times, indeed! We speed quickly to the conclusion of one of the greatest changes in currency values ever seen. thank you FOA

If one knows where the fire exits are ahead of time, some will get out without getting burned. But, some still think gold derivatives (gold stocks included) amount to the same exits. When this market matures, they will find those doors locked. Even more so today than in years past, investors are finding this to be true. And the real fire hasn't even started yet!

Just as the Fed is now "managing" an all-consuming dollar fire, so will the last of the gold bankers "Manage" their now ongoing fire. Eventually, it will take them completely out of the gold banking business and leave a wake of scorched earth. Everyone (and I mean everyone) that must utilize gold derivatives to work this modern market will be hurt by this. Even some major players are showing the road ahead as they must unload big positions in gold derivatives (last Friday) because of (you guessed it) this dollar burning crisis. And we are only just getting started! Who is going to bid for future gold (paper gold) when its delivery party is being cleaned out on the cash side from an unrelated play? Indeed, will anyone bid for paper gold when they themselves are being skinned in this? You see, there will be no security in dollar gold derivatives when the whole dollar house is on fire. They will bid for metal that is available "right now" or not bid at all! Only the "straight up" "cash bullion only" dealers will come out clean and strong in this. Is this a correct read of the cards all the players are holding? Let's hold some physical, lean back
and watch the events unfold.

If this currency war gets out of hand, our boys could drive the London price as low as they want it to go! The paper won't be worth much in real gold, but every trader, market maker and mine owner/investor is contractually locked to that price making medium. It could all go down in a huge ball of fire and only the physical holders will be whole.
(notice I said holders not just owners (smile))

We will later see the effects of all this as it is played out in what MK calls "the currency wars". War is truly a much better name for it. While Western investors are preparing for a little $100 or $200 rise in paper gold (and worrying about how their paper gold substitutes will hold up until we get there), the whole damn dollar arena is on fire. Everyone asks the same question you do about dollar arena currencies: "So, why does sterling continue to rise relentlessly?" Yet, in this day and time strength in these major currencies comes during a crisis. It's going to shock a lot of investors at how fast price inflation runs once the wars really get started. After the gold markets implode, physical will rush as never before seen in history. Exciting times my friend!

With nowhere to turn, no new initiatives to tap and arriving at a timeline change in international currency values; both these countries are about to take a path of no return. As this downturn begins to bite, our collective governments will be forced to buy up every asset necessary. All just to keep the fires burning! This is the classic threshold of an intense inflation.

It makes me recall a line from Red October, the movie,,,,,, where the Russian submarine captain (played by our retired 007) disposes of his KGB counterpart just before stealing the ship!
He says:

----- "to where I am going, you cannot follow"-----

Indeed, where the dollar universe is now heading, no nation should follow! Can you spell hyperinflation?

Next time I will discuss; what one should really expect to see when all paper burns; and how close political events are saying we are to that fire!

The media concentrates on treating the dollar more like a stock investment than a major international reserve. Considering the way our Fed is socializing our money policy now; perhaps the dollar has embarked down that road and is becoming "just a quick trade investment"! Perhaps a Hyper Trade investment, at that.

I think the majority of Western money theorists want this perception in place:

--"lower rates build the economy
and therefore the currency, too!"--

Never mind that this flies in the face of everything we and the IMF taught the third world about money policy over decades! A policy that says: your country is going down the drain because your money policy is not free trade structured like ours is! Now, we suddenly cheer any policy that tends to support us and try to explain it in a "dollar supporting" slant.

We do this, because we want the dollar market to deliver our investments out of the current US fire storm; it has nothing to do with the strength or hardness of the dollar. In this respect, media cheerleading has little to do with the dollar being a sanctuary for foreign holders during troubled times, either. It has everything to do with local internal US investments going bad. To hell with the hard currency policy we taught you—a return on money that's above inflation or free market competition to weed out the weak—we want our money back and [to hell with] the world! … This is why Europe and the BIS structured the Euro system so it could completely discard all dollar reserve function if needed.

I do not offer to prove my thoughts. If what is written was easy for all to find, the information would be of no use to you. Many will take no motions to change their ways and protect worth.
Such is life.

Each will choose his way and as always
the future will teach the truth.


New Year's is a time to offer predictions for the coming year, but just like all dangerous products need warning labels, I must warn you that I do not have a crystal ball. What I have is, I think, a rather unique lens. I call my lens "Freegold", and it is quite simply a framework in which to view things in a different light. Events that seem to defy other frameworks of understanding and confound their practitioners, requiring either complex explanations or else fluid notions that must be reversible anytime the wind changes directions, seem to make sense easily with my lens, which is why I take its view so seriously. That said, I think the following quote should become my standard disclaimer, especially on New Year's Day posts:

FOA: "I (we) expect none of you to consider anything said here as credible. Everything is given as I understand it. If you came with a notion that I am someone who sees the future, grab the children and run far away. For these Thoughts, and my ongoing commentary, are meant to impact exactly as the "gentleman" said they would. People hear them, and whether believed or not, the words leave a mark. A mental mark on the trail, if you will. And later, after the world turns, our little "stacks of rocks" will be easier to understand next time you are passing this way. In fact, your ability to find your own way will forever be enhanced for having seen this path in a different light."

The dollar is on fire right now… 90.28 at the close! That should be a good thing for the dollar, right? I mean, look at the ruble. It goes down and the Russian state struggles while the Russian people panic. Meanwhile the dollar is up and everything's great in the US, from the stock market to the GDP. Up good, down bad, is that how it works? And why is the dollar rising when our trade deficit is still above $40B per month?

Currency strength—a propensity to constantly rise—has always been the dollar's curse. It's why we print, to keep it from going up, because if we didn't, it would just go up up and away, all the way up to currency heaven. It is a characteristic of being the reserve currency, and it is a vicious circle that drives the dollar's exchange rate and our trade deficit up.

The vicious circle works like this. Foreigners settle some portion of international trade in dollars, and then they hold onto those dollars as a kind of final settlement, savings or reserves. This drains dollar liquidity from the foreign exchange which causes the dollar's exchange rate to rise. As the dollar's exchange rate rises, this causes foreigners to want to hold more dollars (because dollars are gaining purchasing power for them locally, not as a reward for hard work, but as a gift of timing) which drains even more dollar liquidity from the foreign exchange which causes the dollar to rise even more and so on.

This currency strength—the propensity to constantly rise—plagues the US economy by making our exports appear more expensive which reduces exports and we lose jobs and profits in the export sector. Meanwhile, it makes foreign imports appear cheaper than what we make for ourselves here at home which increases imports and we lose jobs and profits in the domestic economy. (The jobs and profits, BTW, are exported to our trading partners, sort of…)

We combat this currency strength by printing (which actually means printing debt IOUs, i.e. borrowing more dollars into existence) and feeding a portion of that new liquidity into the foreign exchange where it's being drained by foreigners. Yet even if we print enough to keep the dollar from rising, it still causes our trade deficit to rise because of a net outflow of dollars, which causes us to lose jobs and profits in pretty much all sectors except the financial sector, which absolutely THRIVES on this "vicious circle".

So the dollar's exchange rate is actually a function of our pouring new dollar liquidity into the FX versus their draining of dollar liquidity from the FX. If they are draining faster than we are pouring, the dollar will rise, like it's doing right now!

Before 1971, things were a little different. Exchange rates were fixed, and our trade deficit wasn't really an imbalance in the same way it is today, because we paid for it by running down our systemic "savings" (gold). In essence, because the international currency used to pay for our overconsumption in the 60s was a real and exhaustible good (gold), it wasn't purely notional like it is today. As they drained dollars, we poured gold. From about 1957 until 1971, we emptied our gold reserves from more than 20,000 tonnes down to just 9,000. At that point we said "no more," and started running up our debt rather than running down our savings.

Notice that, at this point, both currency exchange rates and the gold price were finally allowed to fluctuate, to adjust, to release some pressure. It certainly wasn't a clean float, but it was a significant change to the international monetary system that occurred in 1971. It's kinda sorta like this (if you're still following my analogy), if "pouring" gold was like fighting fire with water, pouring notional debt denominated in a purely symbolic unit was like fighting fire with gasoline.

Of course they didn't have to accept our debt. They could have bought gold from the open market with those 1972 dollars, or they could have bought anything really for that matter. But when we look at our trade deficit since then, we can see that they continued hoarding dollars as the final settlement. In cumulative nominal terms, it's $9.5T since 1971. In real terms it's quite a bit more.

If we'd kept running down our "savings" in 1971, it would have lasted for another $10 Billion in net imports rather than the $10 Trillion it has so far. Even at today's gold price of around $1,200, it would have only brought another $350 Billion in net imports. Saying "no more" was a darn good deal for "US" in 1971, and apparently for everyone else too, since they (you?) were the ones who made it all possible! :D

As we used this privilege you gave us to build the greatest superpower this planet has ever seen, with a customized Humvee in front of every McMansion, and eleven carrier groups keeping the rest of you safe, look at what else you got for supporting us! The Dow went from 600 to 18,000!!! Can you believe it? Let me just say thank you ROW, and you're welcome (for a 3,000% return on your investment in the pure exceptionalism of the greatest superpower this planet has ever known… not counting all the dividends along the way. ;).

"You've got to realize that it is both economically and politically undesirable for any currency to appreciate against its peer currencies due to its use as a safe haven. Remember the Swiss franc? As soon as it started rising due to safe haven use they started printing it back down. The dollar is no different except that it's got a whole world full of paper obligations denominated in it. So when it blows, the fireworks will be something to behold."

-From my 2012 Interview
(recommended for rereading)

"The US Federal Reserve has pulled the trigger. Emerging markets must now brace for their ordeal by fire.

They have collectively borrowed $5.7 trillion in US dollars, a currency they cannot print and do not control. This hard-currency debt has tripled in a decade, split between $3.1 trillion in bank loans and $2.6 trillion in bonds. It is comparable in scale and ratio-terms to any of the biggest cross-border lending sprees of the past two centuries.

Much of the debt was taken out at real interest rates of 1pc on the implicit assumption that the Fed would continue to flood the world with liquidity for years to come. The borrowers are "short dollars", in trading parlance. They now face the margin call from Hell as the global monetary hegemon pivots.

The Fed dashed all lingering hopes for leniency on Wednesday. The pledge to keep uber-stimulus for a "considerable time" has gone, and so has the market's security blanket, or the Fed Put as it is called. Such tweaks of language have multiplied potency in a world of zero rates.

Officials from the Bank for International Settlements say privately that developing countries may be just as vulnerable to a dollar shock as they were in the Fed tightening cycle of the late 1990s, which culminated in Russia's default and the East Asia Crisis.


Stress is spreading beyond Russia, Nigeria, Venezuela and other petro-states to the rest of the emerging market nexus, as might be expected since this is a story of evaporating dollar liquidity...

Turkey relies on imports for almost all its energy and should be a beneficiary of lower crude prices. Yet the Turkish lira has fallen 12pc since the end of November. The Borsa Istanbul 100 index is down 20pc in dollar terms.

Indonesia had to intervene on Wednesday to defend the rupiah. Brazil's real has fallen to a 10-year low against the dollar, as has the index of emerging market currencies. Sao Paolo's Bovespa index is down 23pc in dollars in three weeks.

The slide can be self-feeding. Funds are forced to sell holdings if investors take fright and ask for their money back, shedding the good with the bad. Pimco’s Emerging Market Corporate Bond Fund bled $237m in November, and the pain is unlikely to stop as clients discover that 24pc of its portfolio is in Russia.


The Fed has already slashed its bond purchases to zero, withdrawing $85bn of net stimulus each month. It is clearly itching to raise rates for the first time in seven years. This is the reason why the dollar index (DXY) has jumped 12pc since May, smashing through its 30-year downtrend line, a "seismic change" in the words of HSBC.


This time the threat does not come from insolvent states. They have learned the lesson of the late 1990s. Few have dollar debts. But their companies and banks most certainly do, some 70pc of GDP in Russia, for example. This amounts to much the same thing in macro-economic terms.

Private debt morphs into state debt since governments cannot allow key pillars of their economies to collapse. Does anybody believe that the Kremlin can walk away from $50bn of external debt owed by its oil giant Rosneft? Or that the $170bn debt owed by Brazil's Petrobas is a purely private matter? Standard & Poor's says the only reason it has not yet slashed Petrobras to junk is because of implicit state support.


World finance is rotating on its axis, says Stephen Jen, from SLJ Macro Partners. The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar.

"Emerging market currencies could melt down. There have been way too many cumulative capital flows into these markets in the past decade. Nothing they can do will stop potential outflows, as long as the US economy recovers. Will this trend lead to a 1997-1998-like crisis? I am starting to think that this is extremely probable for 2015," he said."


"I’ve gotten a 100 percent raise. Not as a reward for hard work or long-term loyalty to my employer, but as a gift of timing. This windfall isn’t a one-off like a bonus, nor is it evenly spaced like paychecks after a promotion. I get richer at random. Almost every time I visit the ATM, what I take out is a smaller slice of what I make than it was the time before. I’m paid in dollars, but I live in Russia, where the currency is currently collapsing; as the ruble loses value, I effectively get a raise. This week alone, at the time of this writing, my salary’s worth has increased by 20%.


There is a giddy gambler’s thrill to watching your money gain value for reasons beyond your control. The world becomes your Costco; “gotta stock up on house slippers, they’re so cheap and you never know when you’ll have ten people over and they all need to wear house slippers!” As the ruble’s decline accelerated, my dollar-denominated friends and I looked up exchange rates as frequently as sports fans who can’t not check the score on their phones under the table at a nice restaurant. We texted each other the latest numbers, strategized about the timing of ATM visits and large purchases. (One friend who has held off on extending her gym membership until it runs out this month gloats daily as the currency collapses.) Taxis no longer felt like an indulgence and on more than one occasion, I ordered an extra two entrees for dinner to meet the delivery minimum.


A couple days later, I met up with a group of mainly-expat friends at a bar called Lumberjack, where the waiters have the kind of facial hair favored by Civil War soldiers and wear tight flannel shirts and wool slacks fastened to suspenders. (Moscow is obsessed with Williamsburg.) When the conversation among the expats inevitably turned to the ruble, the group was split into two camps along the lines of the currencies in which our paychecks were denominated. While those of us paid in dollars, euros or pounds lived in a time of bounty, a woman paid in rubles said she wouldn’t be able to leave the house when she went home to America for the holidays, she was so broke. One half of a very cute couple was paid in dollars, while her boyfriend was paid in rubles. One small step in the fight against the gender pay gap?! No, that was the cheap cocktails’ expensive ingredients talking.

The bar was loud, but I felt we ought to be whispering, or not discussing the topic at all. When I first drank at this bar in September, I ordered the Penicillin, a cocktail made with ginger, honey and lemon, blended scotch whisky and Islay single malt scotch. I had first tried it at a bar with not unsimilar decor underneath the BQE. It cost 450 rubles, and my credit card bill reflected this with a charge of $12.60. When I recommended the drink to the expats at the table, it cost $8.54. How can a bar in central Moscow stay in business serving excellent, strong, classic cocktails made with imported liquors? If Lumberjack has yet to raise its prices, yesterday the Penicillin would have cost anywhere from $7.72 to $5.68, depending on the time of day you ordered it.

Gradually companies that import consumer goods to Russia are announcing price increases. The period in which Russia was the cheapest place in the world to buy an iPhone was all too short. Still, prices haven’t kept pace with the ruble’s depreciation. Russians aren’t getting raises and can’t afford to spend more money on the same stuff, and retailers won’t be able to hang onto business if they hike up prices. Yet the experts on the radio promise inflation of 15 or 20% early next year. What will happen when people can’t afford to buy groceries?"


"Belarus blocked online stores and news websites Sunday, in an apparent attempt to stop a run on banks and shops as people rushed to secure their savings…

The blockage started on December 19, when the government announced that purchases of foreign currency will be taxed 30 percent and told all exporters to convert half of their foreign revenues into the local currency.

"Looks like the authorities want to turn light panic over the fall of the Belarussian ruble into a real one," Belarus Partisan website wrote, calling the blockages "December insanity."


As a result, expect to see more of this...


Kommersant, a Russian business daily, said the exporters may have to sell a combined $1bn a day until March. …

The directive forcing state exporters to reduce their dollar holdings amounts to a soft form of the capital controls the government has pledged not to introduce.

Officials insist private companies will not be given orders on how and when to convert their dollar earnings into roubles. But Mr Medvedev appealed to the oligarchs at the meeting last week to manage their forex operations in a “responsible” manner.

“They are being convinced,” said one official last week. “There were no threats of sending anyone to Siberia, just explanations that they would act in a way that is not speculative.”


"I've accepted a position as Chief Economist on the Senate Budget Committee."



"The yuan rose by the most since May after China relaxed rules on banks’ foreign-exchange holdings, allowing them to hold fewer dollars.


“Some banks may be selling some of their dollar positions as they won’t need to keep them under the new rules,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. The changes could lead to “low tens of billions in dollars” being freed up, he estimated.


The central bank is pressing ahead with exchange-rate liberalization and has basically withdrawn from regular intervention in the currency market, Deputy Governor Hu Xiaolian said Nov. 27 in Beijing."

FOA (10/20/00; 14:00:07MD - msg#43)
A fireside Chat

Aristotle, said this today:

Aristotle (10/19/2000; 5:44:45MT - msg#: 39386) Do you heed your own advice? Thoughts on Trade deficits--big and small

"""""As for the U.S., we are in a unique but temporary position in which we haven't yet had to pay the full price for our past trade deficits. Until that day arrives (with severe currency devaluation), we might be inclined to stand the old terms on their heads and describe our current trade deficit as a FAVORABLE trade position because we are receiving real goods and services from other countries with partial payment (required in excess of our own exports) made in typically depreciating paper of our own easy creation.""""""


The dollar deficit is truly the main money destruction tool being forced to function in our modern "killing fields" of today! In the past we saw this trade deficit function operate for only short periods as it constricted growth in our US economy! Now, they have not only the US economy but also its currency caught permanently in this long term trap. For the first time since we left the gold standard while making them play by our rules, they now have us. Once before, in 1985 (look at a dollar chart then) we were well on our way to the same problems, but the difference then was that "noone" had a potential alternative reserve currency system to run to when we induced a recession. Today they do and this "waiting in the wings system" is the hatchet tool in the hands of our world markets that will do us in. As the ECB says; """ it's not the Euro is too low, your dollar is too high ,,,,,,,, so go ahead, make my day and fix it"""! (smile) Indeed, no intervention by the US now is a stab in the heart of the dollar economy.

The US has had the rest of the world in somewhat of a trap also. For a long, long time. Perhaps from when we told them that the world gold exchange standard bearer would no longer ship gold for dollars. From that point on we (USA, my country) could inflate our money without consequences.

In fact, we had to inflate in this "Darwin" fashion over all these years! Truly, if we did not inflate long term and ship liquidity (created dollars) outside the US, our dollar's value would always soar above other strong currencies. This is because of its world settlement function. Notice I said soar over their value instead of they would fall away from our value. There is a difference. As in our recent hikes, we saw that the internal basket of goods prices for both dollars and Euros dictated that these currencies are at opposite extremes in value and should reverse. Further; I use Darwin because everyone came to think that our sending money overseas was part of the "natural order of things" (chimps (smile)). They thought and still do think that the world just craves our money! They will have a different opinion later.

We must reconcile with the truth of this process by looking at the dollar world from 1971; the one time the dollar soared too high for too long it began killing off our economy. Forcing us into the same printing policy other lesser nations must employ to keep their exchange rate level. Yes, even the USA must sell overseas to create jobs and profits at home. A huge trade deficit in a reserve currency nation, induced by an overvalued currency like we are seeing now, raises the currency's value even further above other strong fiats. This is the way such a reserve system naturally reacts when there is no local reduction in liquidity to check it.

A regular (non reserve currency) nation's money would suffer a different fate if they inflated the native currency the way we do. Its non trade settlement function begets a falling exchange rate. That in turn drives then into the same policy of hyper inflation but its effects are felt in higher prices, immediately.

Again, conversely, a reserve currency always rises in exchange function from this forced "liquidity draining" trade settlement. Once on this trend, over time, the higher its value goes the more people finance in other mediums (yen carry, gold carry, Euro carry, oil carry) This further dries up the fractional reserve created dollar reserves as the demand for dollars grows ever stronger from its ever higher cost trade settlements. Settlements dictated because IMF / dollar protocols demand dollar use as settlement.

In the past if the system began driving the dollar too high and forcing US trade deficits, the Fed would raise rates to throw us (USA) into an economic recession that broke the vicious deficit trade cycle. Knowing full well that it would be a short recession policy because "noone" would jump the dollar ship before the medicine could work. Looking around back then and we see there was no other reserve currency ship to jump to. We either lose jobs and profits from an "overvalued currency" or from an induced recession. The first can lead to a financial breakdown, the lasts corrects things after only a short while. Naturally, we embark on the quick fix of a fast recession.

This is why our times are so very different now. What the "chimps" came to know over this 20+ year period as a strong America in a high dollar, was always something our money creators were striving to fight against. We truly have always been inflating our currency for these many years in an attempt to keep the natural effects of the IMF reserve system from spiking the currency too high up. Again, if we had a regular currency, our policies would have been reflected in sky high prices for everything. What most of us "smart chimps" know as price inflation reflecting money supply inflation.

OK, let me sip some starbuck's:

Ever since the Euro was seen in by US policy makers as an eventual success, our treasury has tried to put its best "New York Spin" on the ongoing process. Simply stated; from the early to mid 90s we are in favor of a strong dollar policy. In reality, with the advent of the Euro and the evolving stance of the BIS, this has made our "economy killing" strong dollar unavoidable.

There is no way the Fed can create a new recession now without everyone jumping ship for another currency reserve. There is no possible way the Euro Zone will suffer as big a downfall as the US in another policy induced recession. Just looking at their closed economy and debt structure tells that story by itself. Any US slowdown means a run for the Euro, yet weakness in the Euro means the US must inflate at a torrid rate. We now stand toe to toe and wait to see who will fall first. All the while our world dollar gold markets are caught in the cross fire!

This is where we have been for the last decade. This explains why the DOW and all its paper cousins have enjoyed the effects of a massive, ongoing dollar expansion worldwide without any official policy interference. Right when we were to the point of changing policy to slow things down, the Euro was to be introduced in a year or two and risked taking away or sharing the dollar's standard.

The "lesser chimps", lost in Western thought keep waiting for the fed to induce their deflationary policy. (I was monkey - ing around in this area for a while myself) (grin) It is not coming. To do so now would commit the dollar to non reserve status in a hurry and produce a massive price inflation at home (right now) as all these unneeded dollar reserves come racing home. Remember, the ECB does not need dollar reserves! The Euro is a stand alone currency representing an in house trading block. They may have to buy dollars for oil, but others must also buy Euros for European produced goods. If the Euro went to .10 to the dollar the EuroZone economy would not stop. But all international dollar trade would grind to a halt. The USA could not sell anything internationally, at all! Every other nation would simply abandon the IMF protocols and use their native currencies to trade directly with Europe. Even Arabia would break their SDR basket peg and trade oil for Euro goods, either using their currency or directly if needed.

Our outdoor fireplace is getting hot, let's step away.

The lesser of the two evils today (and this is the one the ECB / BIS enjoys watching) is our current frozen policy. We can no longer cut off the strong dollar / growing deficit circle by raising rates and invoking a recession as in the past. This time we must continue to pump the reserves at all costs in a process that only floods the world with more dollars. It's called a currency hyperinflation and is one we (as US people) have never witnessed in modern times. The pressure has built up full volume now as all escape valves are being closed. We are well on the way to a derivatives exploding event that will break into the open with a cascading dollar and full force US price inflation.

This is the "why" for the gold derivatives policy that Physical Gold Advocates are now enjoying. Also one that leveraged paper gold investors are being tortured with. In effect, we "gold buyers" are trading 1971 style dollar derivatives contracts for the physical gold we never could get then. And doing so before a 1971 style gold event that comes in the form of a denouncement of the contractual viability of all gold contracts. Let's call it "no gold for dollar derivatives"!

All the while, just like in 71 other "chUmps" (smile) are saving these same paper gold substitutes to protect themselves from this same crisis. Further; many of them have sold their physical gold for use by the BBs. I think SteveH calls it OPG (other peoples gold). This is where the real supply that fills a Physical Gold Advocate nation's coffers (and mine) comes from. It's truly a good deal in light of what's coming. Let's not mess it up by talking about who is buying all that gold, rather just point everyone to watch how much is being sold!

The US cannot walk away from hiking our ""gold trail"" now. Because "this process" is one of the few tools available to them for keeping the dollar perception in a good light. In effect by slowing the currency transition process they are doing exactly what world dollar holders need them to do. They will inflate these derivatives until in effect; our modern gold market bankrupts itself as supply is exhausted. I say, good! (smile) But once we get to that stage, I expect that a super US economic downturn will ensue. Then the fed will go wide open and cover everything in sight to keep us going! The ongoing price inflation will be driving everything from physical gold to real estate through the roof.

I submit that many smart hard money thinkers like Traveler and Thai Gold (and many others) are walking forward but looking backward. I (myself) have tried this before but usually run into something I didn't see in front of me (smile). That something today, for modern hard money followers is in the form of an internationally induced transition away from the US dollar as a reserve currency. Such a policy evolution has the effects of driving the lead currency's creator into printing press mode as an only option to maintaining the viability of our economic and financial structures.

Yes, it eventually breaks everything! But this is nothing new for us gold history buffs and it's what has happened in countless modern national fiats around the world today. Nations that don't have a reserve currency to play with. We will do like their citizens do, continue to use dollars but carry in our pockets whatever new reserve is in fashion, as a backup! Be it gold or Euros or both. In addition, our entire financial structure (like in these other nations) will change to operating in an inflation economy. Money will be lost, big time and made big time, but things will still be financed, bought and sold. Houses will double, triple then double again in price, even as financing rates approach 35%, 40% or whatever. We will also follow the (then) prevailing world policy concerning physical gold, solely because it will make economic sense to our officials.

As such; like today, everyone uses dollar reserves because it keeps us within accepted international policy. Across the currency warfare valley our "gold trail" is coming to, we will also use gold as a free reserve medium. Mostly because it's what the leading reserve policy of that time will dictate and that will keep us on good trading terms.

No, we will not confiscate gold again. Perhaps if it is designated as US legal tender and caught up in some kind of currency change, that will pose a risk! But that's just following the same fiat rollovers so many other countries now must employ and will have little impact on most gold owners. Besides, PGA's know how to avoid such a trap through physical gold ownership diversity! US Eagles held along with a diverse group of new and old coins fit my pocket just fine. I don't worry about the premium on any ounces I buy today. In the future, the total price we now pay will probably be the premium anyway (huge smile from ear to ear!)

Again, as international trends follow the use of physical gold into the free trading asset realm, no longer as an official money, then its value and ownership will soar the world over. To date this is the future before us as the dollar fails its function.

Truly, a relationship with an honest international physical gold dealer will no doubt place oneself at the center of this exciting new financial evolution. (I'm trying to think of a dealer that would fit that description? I know I just saw one on this page. Somewhere?) (smile)

Lastly: Don't tell me an inflating dollar economy doesn't work this way! I have lived in many, many lands and have witnessed and used such inflating systems. Look around for yourself at how non reserve moneys are impacted by their native policy today and the effects of those policies on all real assets. There are few examples that do not follow this regular fiat price inflation mode. Our dollar use and function is about to revert to a lesser more common level, suffering its drop away from reserve need. In doing so it will change as never before in our time. In fact, it's only the current gold pricing system that may experience a larger change. Not only in use but in Western gold value perception.

""""We watch this new gold market together, yes?""""""

Thank you one and all for sharing this time
Trail Guide


Not sure what if anything this means for 2015, but my view counter just hit the jackpot this week:

I was a little short on time this holiday season, so don't be alarmed if this post seems somewhat abbreviated by my standards. I have a feeling we'll be talking about this topic for a while, and anyway I wanted to prompt you to think about the possibilities for the Fire of 2015 yourself, rather than tell you what I think you should think. ;D

Happy New Year everyone!!!



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ein anderer said...

First! ;)
Happy New Year, FOFOA. And thanks for this dramatic New Year motto. It shows that you still see a near end ;)

Michael dV said...

exactly! and too bad 2014…you had your chance…I guess the inertial forces were just too great.
Thanks Fofoa.

KnallGold said...

With a revelation of the true value of paper Gold? After all leafs have been washed on the ground by the rain, dried by a bleak wind - will they catch fire finally?

Fire Fire - EZO

More Old School Rock and Another fine riff to learn! (great lyrics as well btw).

Happy New Year! May it rock da pog to deep storage fog ;-)

ein anderer said...

The first catastrophic event of the new year seems to be quite symbolic for what lies ahead: 35 killed, 48 injured because of scrambling for worthless coupons that looked like dollar bills

Knotty Pine said...

"But it's always best to keep it in mind
That every tower ever built tumbles
No matter how strong, no matter how tall
Someday even great walls will crumble
And every idol ever raised falls
And someday even man's best laid plans
Will lie twisted and covered in rust
When we've done all that we can but it slipped through our hands
And it's ashes to ashes and dust to dust"

Ashes to Ashes

Indenture said...

Please remember there is a yellow Donate bar at the top of the page. FOFOA deserves our appreciation and support.

Knotty Pine said...

Does this mean we are not going back to the gold standard?

Indenture said...

Dollar has its best year since 2005

Stu Ungar said...

Question: I ask this because my understanding is lacking. Since QE has ended, why haven't we seen the trade deficit spike? If anything it looks pretty stable and has for quite some time.

Indenture said...

Billionaires Chasing Warhols Fuel $16 Billion Art Sales

"Art sales have more than doubled from $6.3 billion in 2009, as surging financial markets lifted the fortunes of the world’s richest. The top 400 billionaires added $92 billion in wealth this year, for a net worth of $4.1 trillion as of Dec. 29, according to the Bloomberg Billionaires Index."

ein anderer said...

deficit IS spiking, month after month. Only the monthly rate by which it is increasing was a bit smaller in Oct. compared with Sept. Compare the totals, not the increase amounts.

Stu Ungar said...

Perhaps you can show me a source, because this is what I see.,

RJPadavona said...

Year Of The Fire

Dante_Eu said...

Fa-fa-fa-fire! :-)

Indenture said...

What happens when the Dollar burns?

Jorge said...

My understanding is not clear... What is the conclusion with third parties melting down? I'm not yet seeing the full connection yet. Is it trying to say that now that the currency is strengthening, this is the trigger that will lead to the next wave of massive money printing, as we cannot expect another round of tightening and raising rates to induce a recession? What would the connection be with that and the ending of QE?

ein anderer said...


you have to put the monthly data into a table calculation.

This site (Wikipedia) shows you the US trade deficit in 2011. They say that they used data from IMF and WTO.

Or use this article:

Querschüsse (German).

They say that they’ve used data from the U.S. Department of Commerce.

Victory said...

Great post FOFOA,

Thanks for the direction in terms what to focusing on.

My rhetoric question is this: when do we see "THE YEAR OF THE DRAGON" (the rise of China) 2016, 2017, 2018...?


Stu Ungar said...

OK, but neither of those data sources show the deficit growing. They both show it relatively stable for the last 3-4 years.

ein anderer said...

@ Stu:

For starting your own table you could use site data like this, with

monthly trade figures since January 2003.

This site is presenting you nicely the growing trade deficit second by second …

ein anderer said...
This comment has been removed by the author.
Stu Ungar said...

OK, but my point stands. the monthly trade deficit has been essentially stable in nominal dollars since 2003. When QE ended, I would have thought we would have seen a spike in these numbers, or at least a trend upwards. Nada. what the static numbers show is that the dollar has a stable utility offshore, at least currently.

MatrixSentry said...

Perhaps it would be useful for Stu to explain why he would expect the trade deficit to spike upon completion of QE?

In Global Stagnation we read the following:

As I said above, we (the US) export $2.2T and we import $2.2T worth of goods and services. But we also import an extra $500B worth of goods and services which meets that extra demand for dollars from the second group, the foreign investors and central banks. Those extra imports are our trade deficit, and the important point here is that our trade deficit is caused solely by that extra demand for dollars from the second group, the foreign investors and foreign CBs.

Should we expect the demand for dollars from foreign investors and foreign CBs to change dramatically upon completion of QE?

During QE, the Fed joined foreign investors and foreign CBs in demand for dollar securities. The Fed wanted to inject newly born base money into the $IMFS. When they did so, did it take the place of foreign demand that had somehow disappeared? Or did it simply augment the supply, leaving foreign demand mostly unchanged. If the latter, could we say that our exports of dollar securities did not materially change?

Stu Ungar said...

Sure, can go deeper into this in a bit but it stems from my understanding of FOFOAS May 2012 post "Inflation or Hyperinflation"

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

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

Who is sopping up this flow now that QE has ended? TIC data doesn't indicate it's foreign CB's.

Blake said...

I'll re-post my question from the prior thread as it is particularly germane to this post:

"I just re-read "Think Like A Giant"


From that post, we assume the USG budget deficit is funded by either savers or the FED.

FOFOA posited in October 2012 that the USG would increase it's spending and that the Fed would monetize the same because savers wouldn't pick up the slack. Effectively, the USG wouldn't crash it's lifestyle and the FED would print like crazy to keep them that way.

Fast forward to today. The budget deficit is down and QE has apparently ended. FOFOA posited that if no new QE was announced, we should look to the dollar exchange rate and/or CPI (where the rubber meets the road). Yet today, the dollar is ripping higher and prices are stable.

What are we to make of an apparently declining budget deficit? To me, it seems this is playing out exactly opposite of what we were expecting back in October 2012."


Stu Ungar said...

Blake- Looks like we have questions on the same issue, thanks for eloquently phrasing it.

jojo said...

Stu and Blake,

Google "willy nilly support"

(this blog)

burningfiat said...

If I read the numbers correctly, both the USgov deficit and the US trade deficit is around 500 billion USD.

So from that we can conclude that foreigners are entirely sopping up that .gov deficit net'd over the last year or so.

So is that contrary to FOFOA's predictions? Not necessarily. FOFOA seems to think that structural support for the perpetual US trade deficit is mostly gone. Which is correct, see for instance
So what will happen when the hot private money no longer fancy the dollar like they do now in this particular leg of the market-action?

IMHO, we're just now in that initial part of Exter's pyramid process, where higher level derivatives and commodities are converted to cash and bonds... It's only natural that the poor souls with savings and investments to protect inside the deflating world economy and financial system grasps for anything solid, including the good 'ol dollar and USG signature on bonds and bills. Oil futures seems to out of vogue, right?

And of course it plays out in a more complex manner than that 2d-drawing can represent.

Easy now lads and have more patience, the full-blown incineration of the dollar itself will come! We're only warming up methinks...

Happy new year!

Stu Ungar said...


If thats the real reason, one wouldn't expect it to last very long. To me it seems like fairly thin gruel. And if it's a correct interpretation, it wouldn't be able to hold up for long. If we don't see some inflation soon "where the rubber meets the road" or some new structural support, I think it would be fair to call that explanation questionable.

ein anderer said...

»… the monthly trade deficit has been essentially stable in nominal dollars since 2003.«

you are driving on a street which limits you to 30 kilometer per hour (kmh).
Nevertheless from minute t minute you are enhancing by 5 kmh.
Would you say your trip is in any way »stable«?
And if you have reached finally 180 kmh—would you say that it really matters if you are adding still »only« 5 kmh per minute or alternatively 10 or 15 kmh?
Therefore: It is absolutely w/o any relevance if a state which has debts in the realm of 7Tn is adding 40Bn a month or 60 or 80 or 100.
Such an entity is already far, far beyond everything which normal people would call sanity. Far beyond.
The question is not how fast this entity (US) is amounting further debts, but that it still does.

The budget deficit is down …

you are able to read? As the official Commerce figures show that the deficit is still GROWING, month after month: on top of a huge, crazy mountain of debt.

ein anderer said...

OK, but neither of those data sources show the deficit growing.

apparently you are trolling here. If the table shows you that month after month 40+Bn are added to the national debt, you are not able to see any growth => of the national trade deficit.
I am NOT talking about any growth or diminution of the deficit RATE. I am talking about the CUMULATED deficit.
Note: The monthly or yearly trade deficit is NOT extuinguished as soon the next month or year begins ;)
Unfortunately not ;)

Stu Ungar said...

@ein anderer The point is that following FOFOA's own interpretation of freegold we should be seeing inflation "where the rubber meets the road" which is imports. And if we were , we would see a spike in our trade deficit as we pay more for those same imports. Your point aside, that simply doesn't reconcile with what we are seeing. I'm seeking the boards cumulative wisdom to speculate why and to see if that explanation is credible. You seem to be having a different conversation.

Blake said...

Ein Anderer --

Check out this graphical depiction of the Federal Budget Deficit from the WSJ:

As the chart reflects, the federal budget deficit has been materially shrinking since 2012.

ein anderer said...

according to your source the *added* trade deficit was lower than the *added* trade deficit in 2013. May be it was. But this means still: Deficit *in total* has grown.

Stu Ungar said...

@einanderer You keep saying that, are you intentionally ignoring the point? As QE ended the MONTHLY deficit should have soon started to grow. No one is arguing that the TOTAL deficit is growing. but where is this inflation "where the rubber meets the road?" Maybe you should go back and read Inflation or Hyperinflation again. If QE was soaking up these excess dollars. You're ignoring Blakes question and answering what you want to answer, but its a point no one is asking or arguing.

Blake said...

@Ein Anderer --

I see now that you are focusing on cumulative debt rather than the marginal rate of accumulating that debt.

Another point of clarification: you keep citing the "trade deficit"; the chart I posted was of the federal budget deficit.

The point I am making (and that I want to discuss) is that USG is decreasing its deficit spending as evidenced by the official figures I posted; we expected the complete opposite of this situation in 2012. Namely, we expected an increase in spending to precipitate money printing by the Fed in the absence of other savers stepping in to pick up the slack.

Stu Ungar said...

@blale Focus on the trade deficit, from a freegold lens is the correct metric, IMO. If I am representing freegold correctly, the trade deficit is "where the rubber meets the road" in terms of the physical goods and labor the rest of the world will sell us for our dollars. As QE ends, I BELIEVE we should have expected the value of those dollars to decrease overseas, unless another "buyer of dollars" has stepped up, I'd also like to explore this point, because your observations regarding what we expected to see and what we are currently seeing are correct. And before I get flamed as a troll, I am not taking a position and and very open minded to hear another explanation. I don't really find "willy nilly support" as an acceptable answer, at least not for long. So unless we see some change in the TIC data, through a freegold lense we should see some inflation and an increase in the nominal monthly trade deficit soon or the point should be revisited.

Or my understanding is lacking, thats also a possibility.

Blake said...

@ Ein Anderer --

Per our host, FOFOA, I believe that your focus on the cumulative stock of debt is misplaced, its much more about the flow:

"Take a look at the US national debt during the last decade's bull run. It was at about $6T when the bull run started. Today it's over $16T. I don't care about the absolute level of the debt (what I call the stock), I'm only interested in the nominal rate of deficit spending (the flow), which, because it is in real terms, must accelerate with inflation. In other words, if the price of oil doubles, so does the rate of USG deficit spending, and these days that will mean the rate of QE."

Blake said...

Stu --

I believe the Federal Budget Deficit is the correct metric to watch.

The budget balance of the US government is the amount of tax revenue that the government gets minus the amount that the government spends. When the spending is higher than the revenue, there's a budget deficit, and that amount gets added to the national debt. This means that the treasury will issue more debt.

The trade balance is imports minus exports. When we have a trade deficit, what that means is that we're sending more dollars out of the country than the value of the yen, yuan, euros, pounds, etc. that we're bringing in. This means that foreign countries are holding reserves of dollars. From here, the value of the dollar can decrease because there are so many of them overseas.

It is also the case that these surplus dollars are frequently invested in USG debt, which means that foreign investors are buying up the debt that comes from budget deficits, and there is the connection.

Maybe FOFOA can chime in here and clarify what metric he is focused on? Again, I believe he focuses on the federal budget deficit because the whole point of QE was because the federal budget deficit had overtaken the trade deficit. In other words, there were was an overhang of USG debt that could not otherwise be absorbed by surplus-producing nations; thus, the Fed stepped in and bought the balance.

jojo said...

Stu and Blake,

Let's just RRTFB and watch. Ok?

Willy Nilly is where it's at right now. When that ends and no inflation ensues or structural support has resumed, then we can resume this discussion. You seem so antagonistic (no doubt in the name of "inteligent discussion") towards freegold after 6 years of saying nothing.

Stu, for someone who has been here since the very beginning, observing and reading all that has gone on,you suddenly decide to post in a trollish fashion (remind you of Carl,Gary?)?

Very weird. You last few posts are example enough. I suppose you wont be settled unless there's a clear cut timeline for willy nilly support to switch to none and hence freegold. I do believe I'm done with you now too.
Good luck buddy.

Stu Ungar said...

I'm sorry if you find pointed questions trollish Thats more a reflection of you than me. I guess I understand why you seem to find them so aggressive, you don't have any good answers. Hopefully someone else can chime in with something more substantive.

Was the part of my post saying that I may lack the right understanding of the issue the aggressive part or the part where I said I am not really taking a position but appealing to the board intellect to clarify the aggressive part?

Good grief.

I think you are better suited being done with me, you seem to have a strange reaction to simple questions.

Stu Ungar said...

And to clarify, asking when willy nilly support will end is the wrong question. The proper question is how long can willy nilly support be sustained given our trade deficit, if such a thing exists.

Sam said...


If you agree that what overvalues the dollar is foreigners either holding dollars as settlement or lending them back to the USG and holding treasuries you should be able to understand what is happening. Both foreign CB's and foreign investors have loved dollars for some time. The question is why. I suspect many have different reasons but the biggest and smartest CBs weren't doing it as an investment. They did it to support the dollars overvaluation. Our trail guides said this support would be withdrawn. I believe it has which is pretty exciting. This doesn't mean that after decades of charts, data, and theories about dollar super powers that your average private foreign investor won't think they see a buying opportunity. What will be interesting is when these foreign investors see a reversal and want to sell who will be there to buy? If CB's don't step up as we suspect they won't the FED will have to just as FOFOA suggested. This answers Blake's question as well. Blake is asking why with QE ended we aren't seeing inflation. My answer is give it a bit. Right now foreign "savers" are buying up dollars like crazy. Once they look to sell to their shock and against 30 years of trends there will be no buyers.

tEON said...

As QE ends, I BELIEVE we should have expected ...

Firstly, these are huge tectonic-like economic forces and do not produce immediate reactions.

Yellen has her doves in-line (so to speak) and she didn't start the taper - Bernanke did. Today (January 1st) the President has filled two important vacancies. You've got Lael Brainerd, another dove and one more vacancy (probably a strong dove - can't recall), and then two more presidents coming on; Charles L. Evans and Narayana Kocherlakota (Minneapolis) who are also considered dovish. So with massive deflation (see oil? commodities? DXY?) and the desire for inflation - it is a gimme that QE4 (or whatever acronym you want to use) will start as early as Feb but not later than July's meeting, IMO. It's another event that does not require timing. It will happen at some point. Chill. They can't raise rates - it could spark a worldwide recession and they have no other option but to print money. So they will... and it may be on a massive scale. May we live in interesting times.

Michael dV said...

Blake or B la ke
( if you get wrong substitute teacher)
thought you might enjoy this..

Michael dV said...

tEON...agree completely, but so does Schiff and...well ...everybody who has half a clue...QE sooner...increased rates..a pure BS bluff.
If it does not unfold in this manner it will mean they think they can survive a recession. It would take a serious rate increase to make a real difference and the USG cannot survive that,
end game maneuvers

Fred H. said...

MdV....I love that substitute teacher riff....that kills me.

Aaron said...

I have the sudden feeling I'm being implicated here.

Michael dV said...

just discovered Key and Peale..2 funny dudes...they play race in an original way. The 'hoodie' is good too but most of their clips on YT are top notch. They do really high production value stuff too with incredible sets and casts and make up.

Michael dV said...

Yes A A too

Stan Eversham said...

I totally agree with Stu: "The point is that following FOFOA's own interpretation of freegold we should be seeing inflation "where the rubber meets the road" which is imports."

I live in realityville, not hypotheticalville. There are obvious and common sense reasons why the Dollar is rising including the fact that the Dollar's franchise value is rising.

Bullion Baron said...

Happy New Year FOFOA & all.

I'm reminded of a similar conversation held last year in the comments and my suggestion was:

"...your theory that the lower uptake by the foreign official sector is based on falling structural support for the dollar you would not expect to see foreign buyers return as Fed tapers (presuming they continue the taper)?

...looking at some 10 year auction results, the volume of bids is very similar over the last 3 years (bids roughly 3x number sold)."

I looked up the results of treasury auctions and there was no distinguishable difference and that's still the case today (at least in some of the November/December auction results I checked in 2014 vs earlier years).

One would assume that if support for US Treasuries was waning we'd see a fall in the bid volume.

Michael dV said...

Rick Ackerman (this week's Greg Hunter) has had a relapse. He is a deflationist (again). He thinks gold could go lower and 'can't argue with harry Dent about 250 gold but still feels people should have some.
" People who jump from church to church
You can tell the conversion don't amount to much"
old Ry Cooder song (Denominations I think)

Robert said...

Regarding the trade deficit and the end of QE: I think it may be necessary to consider how much has changed since Another and FOA were posting. Here is a historical chart showing the US trade deficit from 1970 to present:

A few things jump out.

First, note that the trade deficit of the 1980s looks totally innoculous compared to what happened from and after about 1996/97. For those old enough to remember, there was a lot of handwringing in the US about the "massive" rade deficits in the 1980s. There was a fear that Japan was going to buy up America. Yet then the trade deficit briefly disappeared in the early 1990s.

Second, note how everything started to change from and after the Asian Financial Crisis. Remember Greenspan said that he and others thought that USD reserves in Asian would be sufficient to defend the Asian currencies? If the trade figures are what to look at to judge overseas demand for dollars, demand didn't start at the time of the petrodollar. It started at the time of the Asian Currency Crisis. I don't know if there is a causal link or if it is just correlation, but it really jumps out from the chart.

Third, Another and FOA were actively posting when the chart was just starting to dip into uncharted territory. Something was obviously changing dramatically, and it is natural that they were expecting something to break around that time. However, the downward trajectory went on for more than 10 years!

Fourth, when we hear talk about the trade deficit "improving" I think we need to consider that in light of the long term chart. The recently fluctuations seem quite dramatic compared to the historical norm. And despite talk about "improvement" the yellow line has been hugging the $40B level for a long time.

So how can that continue if foreigners are not financing it and Fed QE purchases are not financing it? Who is financing it?

Canadarob said...

On the discussion on inflation not showing up, I have a couple ideas.
First of all, everything needs to be discreet. No one is just going to come out and say "price inflation is up 5%"
The inflation calculation has been tinkered with to show that prices aren't rising in real terms.
Also, I've personally seen consistent prices with certain products but with 15-20% less quantity. Very clever hidden inflation

anand srivastava said...

Robert/Stu/Stan etc.

Nobody here is denying that Foreigners are not buying the Dollars. They are obviously buying. That's why we call them the Stupid Foreigners. The Foreign CBs are not buying as far as we can see. And as far as the theory is concerned they only buy when the Stupid Foreigners are not buying, to allow the Dollar to live longer.

Currently we cannot really confirm that when the time comes CBs will not buy dollars. But we the regulars here are pretty much convinced that they will not buy. So the only test will be that we will not see any time when CBs will be buying USTs into the coming Dollar Rout.

On the budget deficit or Trade deficit.
IMO Trade Deficit is the more important one.

Budget Deficits in the present have been improved due to increased remittances. They have found ways to get more money into the coffers. They have been fining a lot of entities, and getting more companies to pay up. Dollar has also improved which helps with deficits, as the import bill reduces, exports make more money (and taxes). Yes they will go up as those remittances dry up.

Trade Deficit is the more important in the sense, that the rubber meets the road on that deficit. This is the deficit that will require US to print like mad. It will fuel the massive increases in the budget deficits. Currently Dollar is increasing, so the Trade deficit should go down, but it hasn't so, it means that given a constant Dollar Index, the Trade deficit would have become higher. As the dollar index goes up, trade deficit should improve, even though the deficit increases in constant dollars.

I am hoping this is the year when the Stupid Foreigners realize their folly. I am not sure how long strength in this penultimate to the bottom of the Exeter's Pyramid is going to last. But there is nothing below it except Currency Notes.

wimms said...

Please take a look at speach of Lord James of Blackheath starting from 5.20 pm

In April-May 2009 $15 trillion have been passed into the hands of HSBC for onward transit to the Royal Bank of Scotland.
It traces to Yohannes Riyadi who allegedly owns $36 trillion in a bank.
A lot of that money has been taken away from him, with his consent, by the American Treasury over the years for the specific purpose of helping to support the dollar.
Mr Riyadi has also put at the disposal of the US Treasury the entire asset backing which he was alleged to have for the $15T
Bank of Indonesia says that was a pack of lies. He did not have 750,000 tonnes of gold which was supposed to be backing it; he had only 700 tonnes.
The gold backing it is ridiculous. Only 157,000 tonnes (2012) of gold has been mined in the history of the world, so you cannot have 750,000 tonnes

$15T / (750k tonnes) = 566.99 US$ / oz (london fix apr-may 2009 was ~ $900/oz) $566 was price in 2006
$15T / (700 tonnes) = 607,489.78 US$ / oz

Consider - UST scrambles in emergency to source physical gold to deliver it to someone, defaulting on whom would be too bad. So they reach out to giants, strike a deal, get the gold and save the day. Accounting numbers move - 15T. Perhaps even off the grid funds to buy up bonds to continue supporting the dollar.

Is it possibly evidence of 2nd tier price transaction? Or are we to believe that 750,000 tons of gold is real?

In any case this seems to be the closest to be evidence of bizarre transactions behind the scenes.

Xavier said...

I would like to posit that one should look at this sector financial balances if in total it is trending to minus territory, then with no structural support we have a problem, because that green line isnt going to rise to fill the gap. I hope some clever mind here can expand on this point....

As an aside, it is interesting to note that two of the three data points have been discontinued!

Xavier said...

To add clarity to my point, when we add the sum of the blue line and pink line in the graph linked above, if it is below zero and the green line (structural support by foreign central banks) does not counter balance that dip, then its time to worry. What are your thoughts on this?

Can find an up to date version of that graph?

Motley Fool said...

Happy new year all.

A few quick thoughts.

One - There was considerable lags between the different qe's ending and starting, with a reduction in time between each. I would advise a bit more patience before calling for the indefinite end of qe.

Two - I will not pretend to be anything other than a shrimp. I fully intend to sell some gold post revaluation in order to leverage such capital to increase my productivity and income.


Brady said...

anyone have an updated chart for the ECB gold snapshots?

tEON said...

FoFoA has discussed so many things, IF you have read the blog including guys like Harry Dent and Robert Prechter and their 15 minutes in the sun - which seem to be surfacing (include, now, the wishy-washy Ackerman - thanks MdV. Perhaps Rick needs to RRTFB). Notable is also how "We are all looking for "information leakage" as to the criticality of the systemic pressure we just know must be building. yet the fact that it isn't visible is EXACTLY how a crash or dollar collapse occurs. Otherwise it would simply be a decline. If there were telltale warning signs - then it wouldn't be a collapse - everyone else would see it as well. The fact that most can't see warnings, masking the avalanche on a sunny day, should be more identifiable than if one could. You aren't going to see this coming only looking a block behind you - you need to use the history section of a library to glean the truths of this, decades long, sequences of events - exactly as this blog has done (DONATE!). Also previously discussed is the $'s rise in relation to other currencies (DXY). Surprise - we are seeing it and it is not the surface signal some are concluding. Although perhaps we should anticipate it eventually being more pronounced to the upside not fading ala Jim Sinclair's 60-handle prediction. Some would say that if you must see inflation - look at 18,000 DOW (which, probably, hasn't even started its rise, by the way, when printing starts in earnest, and Oil could go much lower = deflation/high $). The forces of inflation and deflation are banging heads and with deflation demonstratively gaining the upper hand it only prefaces increased QE!. This is happening folks. One - you don't get a date... and two - you must look at the very big picture not the isolated data that, myopically, buries the eventuality. Price inflation - asset deflation rules the day. FoFoA saw lower and lower paper gold - well, you can't have that and asset inflation as well. Things seem to be going exactly as anticipated by this blog. Magnificent.

Indenture said...

"You aren't going to see this coming only looking a block behind you - you need to use the history section of a library to glean the truths of this, decades long, sequences of events - exactly as this blog has done (DONATE!)"

Michael dV said...

here is the latest I could find in a quick search:

Flat Shoe Lance said...

USD are being used

Canadarob said...

Flat shoe lance,

I love this quote,

"concerns expressed by the US stating that AIIB lacked transparency"

Sam said...

Total treasuries held by foreign CB’s and by the private sector (in billions):

Foreign official – 4124 (+70)
Private – 1934 (+196)

Foreign official – 4054 (+22)
Private – 1738 (+197)

Foreign official – 4032 (+412)
Private – 1541 (+155)

Foreign official – 3620 (+431)
Private – 1386 (+140)

Foreign official – 3189 (+489)
Private – 1246 (+261)

Foreign official – 2700 (+562)
Private – 985 (+46)

Foreign official – 2138 (+497)
Private – 939 (+227)

Foreign official – 1641 (+192)
Private – 712 (+58)

Foreign official – 1449 (+144)
Private – 654 (-74)

Foreign official – 1305 (+72)
Private – 728 (+112)

Foreign official – 1233 (+300)
Private – 616 (+26)

Foreign official – 933 (+173)
Private – 590 (+115)

Foreign official – 760 (+141)
Private – 475 (+54)

Foreign official – 619 (+10)
Private – 421 (+15)

Foreign official – 609
Private – 406

Flat Shoe Lance said...

The USD may have some legs for another decade until the RMB bond market is deep enough.

Sam said...

China had 60 billion in 2000. They consistently added treasuries until they reached just over 1.2 trillion in early 2013. They have stayed flat since then. If you remove Belgium from the 2012 - 2013 numbers (which most agree was an odd occurrence) foreign accumulation of treasuries would have been negative for the past two years.

M said...

Stu Ungar said...

OK, but neither of those data sources show the deficit growing. They both show it relatively stable for the last 3-4 years."

For what its worth, the US merchandise (physical plane) trade deficit made an all time high in November 2014.

Stu Ungar said...

@M Source?

Attitude_Check said...

Stu, thats just what you would expect in the case of falling support. Less foreign demand and thus roughly flat foreign treasury holdings. I suspect one of reasons for QE. Now the Fed is draining liquidity and creating a dollar short squeeze. Which temporarily boosts dollar value. When it gets too tight it will be annother excuse for more QE.

Michael dV said...

FS Lance
Why do you think that a deep bond market will be important? Now savers 'need' all these financial instruments like bonds and bond derivatives and derivatives on those derivatives to soak up excess savings that have nowhere else to go. Equities are off the charts, bonds at zero and all the real stuff sky high.
If gold is the new savings vehicle then most of these crazy ways to store wealth for the future won't be needed.
I think these are the thoughts of an IMF world.
Do you really think a FG world would need them? Or is that a projection of a need if things keep on in the current mode?

Phat Repat said...

Noce. Not sure I follow the following:

'Money will be lost, big time and made big time, but things will still be financed, bought and sold. Houses will double, triple then double again in price, even as financing rates approach 35%, 40% or whatever.'

Is this concurrent with hyperinflation? If so, where's the precedence for that? Credit will be extended? Doesn't seem likely to me.

Edwardo said...

When it gets too tight it will be annother excuse for more QE.

It's already too tight as witnessed by the speed with which things have begun to unravel in the aftermath of the relatively recent termination of the last QE program. As part of the latest great(est) unraveling, the dollar is now rising against all currencies of note which, by definition, is a sign of dysfunction so profound it can hardly be overstated.

It should be obvious to anyone with eyes to see, that there is now effectively no room to maneuver. Any and all attempts by the monetary authorities to achieve normality are non starters. I imagine The Fed are well aware that this is the case, but, if by some strange chance they aren't, it doesn't matter one jot. They exercise minimal control, despite their posture as managers.

This will become evident before the year is out.

Phat Repat said...

'As part of the latest great(est) unraveling, the dollar is now rising against all currencies of note which, by definition, is a sign of dysfunction so profound it can hardly be overstated.'

Let's not kid ourselves here. Though I largely agree that the system is unsound, especially given the constant need for Fed intervention or jawboning; the markets are running, employment possibilities are everywhere, and the dollar is perceived a safe haven. I'm expecting this or 2016 to be THE year, but I have to admit, they have some amazing jugglers. ;-)

M said...

@ StuUnger

" at nearly $606 billion, the U.S. manufacturing trade deficit this year is running more than 12 percent ahead of last year’s pace – which was a record. "

>October’s American manufacturing trade deficit reached $71.22 billion – a new record and 2.98 percent higher than the previous all-time high of $69.16 billion set in September. The unprecedented October shortfall was the third monthly record trade deficit set by U.S. manufacturing since July.

>Total U.S. goods and services imports of $240.97 billion topped the former monthly record of $240.23 billion, set in April, by 0.31 percent.

>Imports of goods and services each set monthly record in October, too. On the goods front, American overseas purchases of $200.72 billion were fractionally higher than the previous record of $200.70 billion, also hit in April. In services, October’s $40.25 billion worth of imports exceeded June’s previous record of $40.15 billion by 0.25 percent.

>U.S. merchandise imports from China now stand at all-time highs, too, with October’s $45.24 billion total 0.78 percent higher than the old record mark of $44.89 billion – set in September.

>October’s reported high tech goods imports of $39.53 billion surpassed September’s previous record total of $38.76 billion by 1.99 percent.

>U.S. manufacturing exports rose by 6.70 percent in October, from $98.76 billion to $105.37 billion. But the much larger amount of imports was up by 5.17 percent, from $167.91 billion to $176.59 billion.

>The recent new record monthly manufacturing trade deficits are also pushing the annual shortfall to new all-time highs. On a year-to-date basis, this year’s $605.61 billion manufacturing trade gap is 12.09 percent greater than its 2013 counterpart of $540.28 billion. Last year’s total manufacturing trade deficit of $646.77 billion still stands as the annual all-time high.

Edwardo said...

employment possibilities are everywhere.

That is entirely counter-factual.

and the dollar is perceived as a safe haven

Indeed it is. And having some unspecified amount of what passes for global capital act on that profoundly errant perception is exactly the catalyst that will cause the $IMFS to finally have its Humpty Dumpty moment.

Lisa said...

Thanks for that data. HUGE increase in foreign official during 2008-2012, with significant drop off in 2013. Would make a nice graph. Private data - not nearly so interesting.

Flat Shoe Lance
It would be helpful (to me at least) if you explained why you think the articles you are linking are significant.

For example, why did you link the article about the Asian Infrastructure Investment Bank? Your only comment was "USD are being used."

I am guessing you are referring to the fact that the initial capital contributions are stated in USDs.

Are you implying that this will provide support for the IMFS? If so, why do you think that?

Here are a few quotes from another article about the AIIB which you might find interesting - in fact the entire article is quite good.

"Why is China helping create all these development banks?

Although these initiatives were all launched in 2014, the decisions reflect the growing discontent which has been developing for many years amongst developing nations that the governance structure of the IMF and World Bank has not evolved to reflect the increasing weight of emerging markets in global GDP. These new institutions, if successfully implemented, could give developing nations greater influence in global development financing."


"Where is the Chinese money to fund these institutions coming from?

China has accumulated foreign exchange reserves of USD 3.9 trillion dollars, so the capital it is prepared to subscribe for the NDB, AIIB and Silk Road Fund would amount to only around five percent of its total foreign exchange reserves."

Do you think that China using its current reserves as a capital contribution to the AIIB is significant?

Zebedee said...

Happy New Year FOFOA. I was thinking along the lines of Year of the Goat but too late, all sold out so I'll settle for Year of the Fire instead.

Testing said...

Regarding USD debt, deficits, etc... debate. This news has to be factored in the equation.

Knotty Pine said...

The RBI is trying to get the Indian people to embrace the joys of saving in debt!

Phat Repat said...

employment possibilities are everywhere.

"That is entirely counter-factual."

Everything I've seen, on the East Coast, is counter to your counter-factual. ;-)

And that is from entry level all the way up to highly skilled. So wonder where you are getting your 'facts'?

Now, if you're looking at the employment possibilities for the millennials, well, I suppose things might be tighter. No, you're not going to find something directly in your field (though most of your degrees are worthless anywho), and you're not going to start off as head brain surgeon or rocket scientist, but jobs are available and anything beats living in your parent's basement.

ironlotus1977 said...

Coming Emerging Market Debt Meltdown

Posted on December 20, 2014 by Martin Armstrong

I see plagiarism in the Pritchett Evans quote section. Who is to be believed or trusted here?

Should this be a concern? Armstrong has been dead on with is forecasts for yrs if not decades.

Please let me hear some responses on this...thanks!

ein anderer said...

good finding. Thanks.

Michael dV said...

I doubt you'll get much of a response about Armstrong from this group. His writing has been discussed in the past but unless you have a fairly specific question such as 'how does statement XXX compare to the FG perspective' I just don't think many will care to dive into Martin's world to see where he is right or wrong.
This site is about a fairly specific outlook. We are interested in news that conflicts with our views but MA has his only robot programed with AI that mere mortals cannot possibly I personally do not try.

Indenture said...

"Armstrong has been dead on with is forecasts for yrs if not decades."
The first word that comes to mind is spurious.

Canadarob said...

Martin fired out 100 dates and some of them lined up with important events. I find his work interesting but that's about it. He can't seem to write a single post with out emphasizing that its not his opinion. IMO he gave up his cards when he said something along the lines of, gold doesn't have a lot of value because it will always be priced in fiat. (I'm not sure of the exact quote) but it was very clear to me that he doesn't understand what gold is. So yeah, go load up your currency into the Dow and see if MA reimburses you if his model is off.

Canadarob said...

Did A/FOA ever discuss countries joining/leaving the Euro?

KnallGold said...

There are indeed some discussions about Greece leaving the euro. German gov. said that it would be bearable now. Could also be tactical going into the elections in Greece...

Jeff said...

The hard money wing in Berlin don't decide who stays or goes, and that's for their own good.

Draghi: Euro area countries depend on one another for growth. And, more fundamentally, if a lack of structural reforms leads to permanent divergence within the monetary union, this raises the specter of exit – from which all members ultimately suffer.

A key part of the solution is to improve private risk-sharing by deepening financial integration. Indeed, the less public risk-sharing we want, the more private risk-sharing we need...

To allow national fiscal stabilizers to work, governments must be able to borrow at an affordable cost in times of economic stress...

This is a further reason why we need economic union: markets would be less likely to react negatively to temporarily higher deficits if they were more confident in future growth prospects...

Hard money no; growth yes. A currency to support the union, not the other way around. Even the Germans wouldn't really like hard money.

ANOTHER: "...If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work"

Sherlock said...

What is the significance of Stephanie Kelton joining the Senate Budget Committee? I know she's a proponent of MMT, but how is that viewed through the freegold lens?

jojo said...

Hi Sherlock,
In my view, if your currency is on it's last legs, you'd want all the magic you could find so why not hire the Magical Money Tree princess to try and get the job done :)

burningfiat said...

Yes jojo, in other words Kelton will be the one handing out laxatives ad libitum once the USG sphincter of palliative money printing has finally burst wide open!

Josh R said...

Good video on Stephanie Kelton start around 2 min

Sherlock said...

From Modern Monetary Theory on Wikipedia:

"In this theory, sovereign government is not financially constrained in its ability to spend; it is argued that the government can afford to buy anything that is for sale in currency that it issues (there may be political constraints, like a debt ceiling law). The only constraint is that excessive spending by any sector of the economy (whether households, firms or public) has the potential to cause inflationary pressures. MMTers argue though that generally inflation is caused by supply-side pressures, rather than demand side."

Potential lawn dump?

Could the US gov't issue treasuries to the Fed in exchange for mortgage backed securities issued by quasi-gov'tal agencies?

Sherlock said...
This comment has been removed by the author.
jojo said...

Just RR this and had to laugh out loud once more and then post it here for those who may have missed it :)

"FOFOA said...
Hello Robert,

You wrote: "if I were FOFOA I would be looking over my shoulder… the ideas on this blog threaten the world as we know it."

Wow!! That's quite a statement! I had no idea I was such a revolutionary. I thought I was merely explaining what is actually happening around us. Not trying to change a thing or threaten anybody. So who could have known what a threat my ideas are? Who?? Yes, that's a question for you! They aren't even my ideas. I'd better go into witness protection or something, eh?

Thanks for alerting us all to how scary [your] reality really is!

I almost deleted this entire blog two years ago and went back to what I'd been doing for the previous several decades of my life, but for some reason I decided not to. I guess if I had, people like you would have thought I'd been rubbed out by TPTB or something, huh? And not just two years ago. I struggle constantly for a reason to keep doing this. The easy thing would be to stop, since the retarded conspiratorial nonsense that permeates every inbred cell of those who hang out too much on the internet is so completely inextricable. And yet I carry on. Who knew it was even possible?

I understand FOA's exit on a deeply personal level. In so many ways I envy him.


Stu Ungar said...

@jojo Just curious, what's the point in posting that? I'm not sure if it's some silly attempt to discredit robert or draw attention away from his very relevant and pointed questions, but your repeated attempts to personalize any pointed questions about freegold are, quite charitably speaking...odd.

tEON said...

@Stu Ungar

You've been told this before, you aren't the sole determination of content here. We all know that you want to be discussed what YOU feel is important. If you don't like what is posted - ignore it - don't launch into a lecture of its relevance.

Stu Ungar said...

@tEon I don;t recall asking you anything, I asked jojo why he felt it necessary to post that. What did he/she hope to accomplish and how did it further the conversation. Maybe I'm missing some relevance.

You are in no position to tell me what to post, and it's a waste of your bandwith, because your opinion is wholly meaningless to me and will have zero impact on what I choose to ask or post.

Jojo can choose to answer or not. But it looks like pointless flaming to me.

tEON said...

@Stu Ungar

You are in no position to tell me what to post,

But YOU are in a self-appointed position to tell jojo: what's the point in posting that?

You don't even recognize how bloated your own lion-living, ranch-shopping ego is. jojo wasn't addressing you - your attempts at censoring this forum are not appreciated. You must have really been biting your tongue those long years of lurking here... or were you just as caustic and controlling under the forgotten pseudonyms?

Indenture said...

Be careful Stu. It has been many moons since someone was banned from FOFOA Blogspot but your tone and conversational style are reminiscent of past detractors.

byiamBYoung said...


You are becoming unproductive, and that is a charitable description. If you want to move the conversation forward, add valid discussion points. Or, alternatively, just read for a while. That may be your best move.

Thanks in advance for your ongoing, polite measured input.

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

Who is the Kiwi lighting up the map down below? I know we've got an Aussie infestation but haven't heard anyone claim they were representin' NZ.

Stu Ungar said...

@tEON I suggest you familiarize yourself with the difference between a statement and a question.

I asked a question.

I asked a question of why jojo would go out of her way to find an old comment to discredit someone asking pointed questions. my suspecision is because it's easier to discredit him than addressing the substantive questions he asked.

I couldn't care less if you appreciate my questions.

you have yet to answer a question substantively on any topic related to freegold. Yet you seem VERY eager to attack the messenger of questions you seem unable to answer. There are two possible reasons for that. You either lack the understanding of freegold to answer anything substantively, or you are threatened by people that might find holes in the theory.

I suspect it's a little of both.

Jojo...would still love to hear the reasoning for posting that. What did you hope to accomplish? That shouldn't be too hard, is it?

Funny how I am the combative one yet jojo posted an unsolicited attack on someone who has been nothing but polite in asking questions. Very interesting reactions indeed....

tEON said...

Stu said:

Correct, but it's been slow burning at least 15 years now. Could it slow burn 15 more? Not if the thesis of freegold is correct, IMHO

Okay, can you please clarify this statement, Stu. Why is there a timeframe on the FG thesis? in your opinion, of course. I mean if 15 years is acceptable, why is 15 more not? Thank you.

Indenture said...

"would go out of her way to find an old comment to discredit someone asking pointed questions."

Stu: I asked you about your old user name so I could find your old comments. Why? Because the words we use, whether yesterday or a thousand yesterdays ago, determine our credibility, understanding, and personality. If Robert's credibility was smashed by FOFOA a thousand yesterdays past why would we want to listen to Robert today?

I applaud jojo for reminding the audience of Robert's words and our hosts reply.

Stu Ungar said...

@indenture that sounds like a convenient reason to ignore the substance. If a question is substative and deserves consideration, I couldn't care less if it comes from satan himself. Attacking the messenger is an old, tired act.

robert could be sitting alone in his room jacking off to German dungeon porn for all I care, if his question is substantive, thats all that matters to me. Who he is is wholly irrelevant is your focus is on the acutal issue at hand as opposed to who is asking the question.

thats the difference between having substantive conversation or engaging the politics. I see you prefer politics.

Was Roberts credibility "smashed?"

You sound like a high schooler (+1)

Phat Repat said...

"I mean if 15 years is acceptable, why is 15 more not?"

Because at some point, theory has to be put into practice. And while we might recognize the inherent complications due to prior history and the embedded nature of the $IMFS, the longer this drags on, the more important it is to go back and re-assess and determine if changes are necessary to align the theory with current realities.

I don't see anything wrong with Stu (et al) making such challenges.

tEON said...

I don't see anything wrong with Stu (et al) making such challenges

Sure, I didn't say anything was wrong, Phat.

at some point...

This is what I was getting at. Why that point? I was simply curious about the 15 and 30 (15 more) numbers. Why? Where did they come from? Are there stats behind that? It sounded dismissive to me - so I wanted some evidence or explanation.

I'm certain some saw the end-game in 1980. Would 15 years have been a time limit? or 'if this goes another 25 years - it will never change' - attitude. I think not. John Williams had a 2014 call for HI for as long as I can recall... even as late as Dec he was still saying it was imminent. He made a massive amount of disparaging statements about the US economy - but why 2014? We know it didn't happen. Does that mean it won't ever transpire? Because that is how I inferred Stu's comment (you referred to as a 'challenge'). If it doesn't happen by X - it never will. Let's consider that there are plenty of similar statements about all sorts of topics. "If the bomb hasn't detonated by now - it must be safe to enter the building". But in this case it only means the explosion will be bigger... and has an even greater chance of happening. No? If there are enough tomorrows like today - it would seem realistic to have some individuals consider that change (whatever you consider 'change' to be) will never transpire. But this is not that type of circumstance...

Phat Repat said...

Though there are many moving parts to this FG theory, it seems there should be a way to quantify or identify certain indicators/events that would herald the onset of FG. And while there have been quite a few sprinkled throughout this blog, there is nothing that I am aware of that ties them together in a logical fashion.

Order out of perceived chaos (especially for the newbies/interested observers) rather than howls of RTFB or RRTFB. Isn't that part of any theory? And lately, I've seen the "FG lens" term bandied about; well, as with any lens, there are certain properties I can calculate. Shouldn't that be the case with the "FG lens?" ;-)

tEON said...


Perhaps you should read (or re-read) Year of the Surprise where FOFOA discussed the inability of attempting to specify the timing of, a paradigm shift like, FG.

But one thing all surprises, by definition, have in common is that you can't see them coming. Or, if they are predictably inevitable, at least you can't know the timing. Someone recently sent me a whole bunch of evidence pointing to a pretty specific date at which, presumably, the wheels would be "allowed" to fall off the bus. My response was, "if you can pick a date, then you invalidate that date as a contender."

... We look to the contango, the curve, the spread, stock and flow to leak us a hint about what kind of scramble might be happening on the other side of the curtain. But when I look back on other big Ponzi-like collapses, there never was much if any "leakage" before the event.

Robert said...

jojo, thank you for digging that old comment out of the archives. Did you really laugh out loud? For context, I posted that after I listened to Michael Burry's UCLA commencement address. Do you remember that one? It was making the rounds on the internet a couple (or a few) years ago. Do you remember the part where he surprised everyone by saying that the FBI showed up knocking on his door and wanted to ask him some questions? Here was an intelligent guy who made money off subprime, frankly said "I bet against America and won", and the FBI decided to treat him like a criminal suspect. Now if that really happened (and I believe him when he said it did), can you imagine how the FBI might react following a freegold event, with the USD hyperinflating, and with all of the global geopolitical implications that follow from that? I figure at least a few politicians will be looking for someone to blame and will call for an investigation. And if they find an online blog that basically predicted the whole scenario, is it really so far-fetched to say that the FBI will investigate?

I am not suggesting that FOFOA has done anything wrong. On the contrary! All I am saying is that in the wake of the chaos of the freegold transition, there are some politically powerful people who are going to be very upset and who will make the accusation that someone caused this intentionally.

If you cannot see that coming, I wonder if you have really thought through all the implications of what might happen during that six months of chaos.

Phat Repat said...

And yet we consider the GLD, and the draining thereof, as a potential indicator for the onset of FG.

"But when I look back on other big Ponzi-like collapses, there never was much if any "leakage" before the event."

Someone always knows. How about the Madoff ponzi? Wasn't there a certain Whistle-blower in that case that was effectively ignored?

FG has merit for me or I wouldn't waste my time reading the blog and certain comments. But, as a theory, I feel there is a gap. With the BOK (body of knowledge) that has been put forth by Another, FOA, FOFOA, et al; it should be possible to utilize this BOK to identify key indicators that would bring forth FG. I don't believe this currently exists in an easily accessible format that can be used to validate, and potentially adjust, the theory. Point me to THAT article; not to ones with just a sprinkling of comments in an attempt to support your assertions. ;-)

anand srivastava said...

Phat Repat:

If somebody knows its by definition a fraud, where the perpetrator knows when to get out. But there can be fraud, when the perpetrator is too greedy to know when to get out. In this case nobody will know when the fraud it breaks.

We here don't believe in Conspiracy Theories. So if we are right in thinking that the Dollar Demise is not being planned by someone, so obviously nobody knows when it will crash. Yes many people will think that it will crash at some point in time, but they wouldn't know when. And the system is still working because an overwhelming majority have confidence in the dollar. How can you predict when the overwhelming majority (aka the stupid foreigners) will lose confidence in the Dollar.

They will lose it at some point in the future, that much is sure, but how can somebody predict that they will all of them suddenly on one fine day (as predicted by somebody) will just lose their confidence. Don't think it is an impossibility that you are demanding.

The important thing is that do you understand Freegold theory. Do you think what it really means? It is not a conspiracy theory. It is actually predicting where the whole world is going. We know where we are now, and the theory predicts where we will be when the imbalances are corrected. But how long the imbalances will take to be corrected or even in which order those imbalances will be corrected, cannot be known. The second may still be possible, but what we are seeing is that even that is elusive. But when an event happens we can trace that ok, this moves the story forward, and it was the most practical movement.

None of us is clairvoyant here. Neither were Another or FOA. But they did have a lot of understanding of where this is all going. Its like predicting a chemical reaction. You can say what reaction will be taking place, but you cannot say which actual molecules will be reacting at a given moment. The only reason we can say how long the reaction will take to complete is because we have seen it happen before. In this case there is no precedent. Everything is happening for the first time. How do you predict anything? Lets be practical here. This blog is about trying to see ahead based on current situation. If you can add to this understanding great. Just don't say that nothing has happened so long so nothing will happen ever. That is not what happens in an unstable system. And its very easily provable that it is an unstable system, which is not in an equilibrium.

Aquilus said...

Happy New Year everyone.

Today I found a little time to read the comments for the first time in a long time. I always read the new posts but very, very rarely do I look at any of the comments.

I saw some questions regarding QE, the deficit, and the dollar exchange rate that I'd like to comment on. Specifically here are the questions I'll address:

From Stu:
Q1: Question: I ask this because my understanding is lacking. Since QE has ended, why haven't we seen the trade deficit spike? If anything it looks pretty stable and has for quite some time.

Q2: Who is sopping up this flow now that QE has ended? TIC data doesn't indicate it's foreign CB's.

Q3: The point is that following FOFOA's own interpretation of freegold we should be seeing inflation "where the rubber meets the road" which is imports. And if we were , we would see a spike in our trade deficit as we pay more for those same imports. Your point aside, that simply doesn't reconcile with what we are seeing. I'm seeking the boards cumulative wisdom to speculate why and to see if that explanation is credible.

Q4: And to clarify, asking when willy nilly support will end is the wrong question. The proper question is how long can willy nilly support be sustained given our trade deficit, if such a thing exists.

From Blake:
Q5: The budget deficit is down and QE has apparently ended. FOFOA posited that if no new QE was announced, we should look to the dollar exchange rate and/or CPI (where the rubber meets the road). Yet today, the dollar is ripping higher and prices are stable.

What are we to make of an apparently declining budget deficit? To me, it seems this is playing out exactly opposite of what we were expecting back in October 2012.

The answer will be a multi-part comment as I have to explain the topics it's built upon first. Looks to me like the basic fundamentals are not clear, and that's why I'll bore you with those for a while (LOL).

Here we go:

Aquilus said...

(Part 1 of 7)

Topic 1: The role of QE in the US

The US trade deficit means that instead of paying for all our imports with the money we get from our exports, we pay for part of our imports with "something else".

This paying for part of our imports with "something else" has been going on for at least 4 decades. That's a long, long time...

Other nations have tried this method and saw their currency lose purchasing power soon after. Apparently in their case, paying with "something else" did not work for long.

In "The Cure" paragraph of Global Stagnation FOFOA shows that this "something else" in the case of the US has been US financial assets.

"... we (the US) export $2.2T and we import $2.2T worth of goods and services. But we also import an extra $500B worth of goods and services which meets that extra demand for dollars from the second group, the foreign investors and central banks. Those extra imports are our trade deficit, and the important point here is that our trade deficit is caused solely by that extra demand for dollars from the second group, the foreign investors and foreign CBs."

This demand for US financial assets (I'm not going into why and from who here) from the RoW (Rest of the World) for many decades has created a situation that enabled the US government to finance a permanent budget deficit because the demand is always there for its debt without the penalty of inflation.

In the end, if you understand how the banking system works, the money that the RoW recycles back to US financial assets will eventually be used to cover new Treasury issuance, even if the RoW did not directly buy Treasuries with their money.

If you need a refresher in the working of the banking system please see that "QE3" section of Think like a Giant along with the banking system workings described in Peak Exorbitant Privilege. (There is no shortcut to knowing the concepts in these two posts - without them you will be completely lost). Here's a short paragraph from Think like a Giant :

"So what the Fed is doing is injecting actual base money flow into this paper asset "arena", since the physical plane earners (both foreign and domestic) are not coming in (in sufficient quantity). Actual base money is the only "fuel" the USG can burn. It needs real base money coming in, either from foreigners via the trade deficit or from new domestic savers who earned that money, earned not through asset appreciation in the stock and bond markets, but through real physical plane production.

You can think of the stock and bond markets (including the Treasury market) as a big "arena". Money (base money) flows through it, but it never resides in it. Some comes in, some goes out. And whenever new paper assets are added as in the case of regular Treasury auctions, that is one of the avenues where money flows out of the arena. This outflow must be matched by inflow, period. If there's not a sufficient inflow, then the Fed must print, which it is doing now.

Of course they are also hoping to goose the housing market, but understand that new mortgage creation does not require a constant flow of base money the way new Treasury creation does. The big banks have plenty of reserves right now so the only thing limiting new mortgage creation is demand from borrowers, not supply of base money reserves. And mortgages are created "out of thin air". Treasuries are not. Treasuries require 100% base money flow. And that's what the Fed is injecting into this "arena". "

Aquilus said...

(Part 2 of 7)

Now, as long as the budget deficit is less than the trade deficit, then the "leftover" RoW money going into other US financial assets ( meaning [Trade deficit] - [Budget deficit]) simply adds to the base money pool and contributes to nominal asset price support in general.

But what happens once the US budget deficit exceeds the trade deficit?

All of a sudden we are faced with a situation in which we have more Treasuries being issued than the world is looking for at the moment. There is temporarily no money left over from the RoW so QE comes into the picture until that reverses (instead of new taxes for example).

The Treasuries have been issued, the budgeted money has been spent, but the issuance of these extra Treasuries are draining the base money pool on which the entire banking system is built on. Now, a little draining of the base money pool is ok once in a while, but it's definitely not ok when we're trying to keep up the nominal price of all those financial assets out there.

You see, all those financial assets out there have a price, but are not money. A lot of them are near money, but you still need to go through actual money when selling and buying them. And the higher the nominal price of those assets, the more credit and base money is needed to make sure that those prices don't decline because of a lack of liquidity.

So, QE, is very simply the FED ensuring that there is enough base money to cover the difference between our budget deficit and the trade deficit (which as we've seed is the amount of financial assets sought by the rest of the world). It does not need to be exact, just an approximation, but that's really the role of QE. A number of Treasuries roughly equal to the amount above and beyond the amount that the trade deficit covers is purchased by the Fed, and therefore the base money that was "lost" when a primary dealer bought that Treasury is restored when the Fed buys the equivalent amount from the banking system and restores that amount of base money.

Now that you have that picture in your head hopefully, in mathematical terms QE at a minimum is represented by

QE = [Budget deficit] - [Trade deficit].

Said another way:
QE + [Trade deficit] = [Budget deficit].

Not exactly, of course, (since there's always need for more base money for deleveraging, etc. like we mentioned above), and that's not a cause/effect relationship, but it's the way I think you need to view it and I think that not having this perspective on QE causes a lot of confusion.

Notice that QE is actually not a way for the US to manipulate the FX value of the dollar as it would be if it were to buy foreign assets. Nor is it meant to create inflation by printing with abandon. QE so far is an action that ensures enough base money supply/liquidity to support the nominal price of US financial assets.

Aquilus said...

(Part 3 of 7)

Topic 2: Dollar overvaluation and low inflation

Here I will start with another quote that explains the basics (found in the "My View" section of Global Stagnation again):

Friend of Another (9/22/98; 18:01:45 Msg ID:96)

"Using an overvalued dollar makes one feel as there is no inflation, even though there has been massive dollar currency inflation over the last twenty years (the real cause of price increases is when the exchange rate is allowed to balance a negative trade deficit)."

FOFOA does the heavy lifting for me by explaining both what the overvaluation of the dollar is and how that keeps inflation low in dollars. From the same section:

"The perpetual US trade deficit is what reveals that the dollar is overvalued. This is caused by the foreign sector buying dollars as investments, savings and reserves. The foreign sector is divided into two subsectors, the foreign public sector and the foreign private sector. The foreign public sector is the foreign CBs, like the ECB and the PBOC. The foreign private sector is everyone else.

The foreign private sector loves all kinds of US investments, and it buys lots of dollars because of this love affair with Wall Street and the various US markets. This overvalues the dollar and causes the US trade deficit. But the foreign private sector isn't a constant source of dollar support because it acts only from the profit motive. Every once in a while, US markets come down and the foreign private sector flees out of the dollar. That's when the dollar exchange rate declines.

For the past 40+ years, certain foreign CBs have kept their currencies more or less pegged to the dollar. This meant buying dollars whenever the dollar's exchange rate declined. In effect, this acted as a "stop gap measure" for the dollar, and prevented its overvaluation from ever correcting. In effect, this exchange rate pegging with the dollar was the structural support that I write about. The foreign public sector bought dollars not with a profit motive, but for quite opposite reasons which translated into buying dollars whenever the rest of the foreign sector was fleeing from the dollar and its markets. This was structural support."

"In essence, the "dirty float" or unofficial pegs to the US dollar were structural support. Not that they were primarily responsible for the overvaluation of the dollar (the foreign private sector was), but they kept it from collapsing and correcting each time the private sector retreated, including in the 2008 financial crisis."

Aquilus said...

(Part 4 of 7)

So from the quotes above, the essential thing to understand that the private sector is the one mainly responsible for the dollar's overvaluation over the decades with the public sector ensuring that it picked up the slack when the private sector withdrew to take profits or avoid losses. (Before anyone wonders, China obviously played both roles by purchasing in good times and supporting in bad times as the state decides purchases through BoC.)

Private inflows and outflows are easy to see on the FX as we can see the dollar going higher on inflows and lower on outflows. The part that we only see in retrospect (again, please read "The Cure" portion of Global Stagnation) is the foreign public sector stepping in to support the FX value of the dollar when it declines too much or too fast.

Now as far as public and private inflows, why we all look at the public sector support should be clear from the above. But we can see a partial view of the private sector inflows into US financial assets from the same source: U.S. Long-Term Securities Held by Foreign Residents

This last table does not by any means give a complete picture, but by itself shows a private sector increase in US holdings of $1.3T (from $9T to $10.3T) from September 2013 to September 2014. And I can think of further inflows through Row purchases of US real estate, US foreign money coming back as the markets in rest of the world are becoming risky, etc, etc.

Is there any wonder that the dollar is soaring compared to the other currencies? This is the typical conditioned crisis response: when risk appears, go back into US assets.

So let me now give you FOA's quote again, so that it really sticks with you this time:

"Using an overvalued dollar makes one feel as there is no inflation, even though there has been massive dollar currency inflation over the last twenty years (the real cause of price increases is when the exchange rate is allowed to balance a negative trade deficit)."

Hopefully it starts to make more sense now.

Aquilus said...

(Part 5 of 7)

So assuming the above is clear, it's time to answer the questions in a straight forward manner:

Q1: Question: I ask this because my understanding is lacking. Since QE has ended, why haven't we seen the trade deficit spike? If anything it looks pretty stable and has for quite some time.

The trade deficit does not depend on QE so there is no reason for it to spike as QE ends. The end of QE marks the Fed seeing that there is enough capital inflow from foreign sources at this time to cover both the US budget deficit lending and the base money requirements of the private asset markets. Simple as that.

Q2: Who is sopping up this flow now that QE has ended? TIC data doesn't indicate it's foreign CB's.

You see that the foreign CBs have stopped the support. You also see the dollar going up in value in the FX market. It points to the only other possibility: private capital inflow from the RoW. This foreign capital can be foreign owned or US capital returning. Either way, a quick look at the risks around the world explains the defensive inflow into the dollar that's conditioned at times like this.

Q3: The point is that following FOFOA's own interpretation of freegold we should be seeing inflation "where the rubber meets the road" which is imports. And if we were , we would see a spike in our trade deficit as we pay more for those same imports. Your point aside, that simply doesn't reconcile with what we are seeing. I'm seeking the boards cumulative wisdom to speculate why and to see if that explanation is credible.

Remember that FOA quote I made you read twice above? As capital is flowing in and overvaluing the dollar vs the real world, the inflation is minimal. Inflation comes mostly from the little extra flow coming from money exiting financial assets into real assets by people that decided to take profits and diversify in the real world. But that's small.

As long as the dollar has capital inflow as support (from the private sector right now), there is no major increase in inflation or in the trade deficit.

The increase in the trade deficit comes only when the inflow becomes an outflow and there is no CB countering that outflow. At that point the US private sector will suffer, but the USG can always issue more debt and the Fed can increase QE to cover the purchases of everything budgeted for. Without a corresponding inflow countering that (done by foreign CBs in the past) this will quickly lead to dollar purchasing power decline at that time and therefore a spiral of more debt needing to be issued to cover the same amount of goods/services to be imported by the USG.

But that's not what's going on right now. Right now there is a strong capital inflow that overvalues the dollar as much as it ever has.

Aquilus said...

(Part 6 of 7)

Q4: And to clarify, asking when willy nilly support will end is the wrong question. The proper question is how long can willy nilly support be sustained given our trade deficit, if such a thing exists.

At the risk of repeating myself too many times: it will last as long as there's an inflow of capital into US financial assets from ANY source, private or public. It will stop when no one steps into the breach to buy US financial assets and support the USD's FX valuation next time the private sector capital flows out of the US "en masse".

Q5:The budget deficit is down and QE has apparently ended. FOFOA posited that if no new QE was announced, we should look to the dollar exchange rate and/or CPI (where the rubber meets the road). Yet today, the dollar is ripping higher and prices are stable.

What are we to make of an apparently declining budget deficit? To me, it seems this is playing out exactly opposite of what we were expecting back in October 2012.

The piece ignored as a premise in this question is that as long as the foreign capital inflow continues (and as you can see above, it's coming in strong from private sources now) there is no reason for anything to change. I hope that the QE explanation above (plus your own reading and understanding of the links before any further comments) shows that QE does not cause either a change in the dollar's exchange rate or in the import prices. As seen above, QE simply makes up for missing foreign capital inflow. Therefore, there is a correlation between the existence of QE and the weakening of the dollar, but as FOFOA is fond of saying "Correlation Does Not Imply Causation", rather QE is another effect of the capital flows.

Aquilus said...

(Part 7 of 7)

This is all the time I have to dedicate to commenting for a while now so please don't take my future silence in the comments as anything else. But you don't need to argue with me about the right or wrong of the concepts.If you are really serious about understanding the concepts above for yourself without needing anyone else's "wisdom" please read and understand the following:

1. Moneyness

2. Peak Exorbitant Privilege

3. Moneyness 2: Money is Credit

4. The QE3 section of Think like a Giant

5.Global Stagnation really contains the answer to all the questions I addressed here. I know it's a long post, but IMHO it is his very best as it ties together all the concepts into a unified whole.

Have fun and a great new year,


Lisa said...

Thank you Aquilus, for stopping by and taking the time to comment. Many are (or will be) grateful for your explanations, which are always easy to understand and helpful.

Happy New Year to you also

MatrixSentry said...

Now that ladies and gentlemen is what credibility looks like.

Excellent display of patience. Good work Aquilus.

Pat said...

This is why the blog is so great. FOFOA describes in exhaustive detail the whys and wherefores, and a few key posters come in at crucial times to highlight in bullet form key concepts, key takeaways if you will. RRTFB for sure, but I do love these cliff notes on occasion because try as I might I can RRTFB but still far short of true comprehension.
Aquilus, Matrix, Ender, et al thank you as well for your contributions.

Indenture said...

Thanks Aquilus, from this Junior High School student.
Smashing good job.

Roacheforque said...

I am not so certain that QE has ended as completely and abruptly as many seem to think.

As the data analyzed so expertly by Bill Moreland at makes clear, there has been no taper [...]
During the third quarter, Wells Fargo and Bank of America matched Fed purchases of US Treasuries, keeping the total amount of US Treasuries in QE land neutral.

However the perception that QE has ended has been successfully achieved, and the self-fulfilling result of that achievement (less needed) speaks for itself.

Just more of the same US dollar denominated financial asset "magic" that keeps private sector flows coming in.

Good interpretations from Aquilus!

Sam said...


great comment.

I will second his warning in the 1st of his 7 part quote that you must take the time to understand the banking system by reading the explanations within the links. Don't assume you understand it (like I did at one point). Its hard to remember exactly but I think I skimmed it the first time because it was over my head and never went back until later I was pointed back to it because my questions demonstrated a lack of understanding in that area. Like a lot of content on this blog its stuff you really won't get anywhere else.

Blake said...


Thanks for those posts as they help to confirm my understanding.

Assuming foreign public support has been removed, it's left to the private foreign support to keep the wheels on the dollar bus. That said, it's hard to see USG debt and the dollar go no-bid from the same once the next crisis hits but who knows. I think it's much more likely that physical gold flow seizure ushers in free gold.

Testing said...

Something doesn´t add up from Aquilus post:
“The foreign private sector loves all kinds of US investments, and it buys lots of dollars because of this love affair with Wall Street and the various US markets. This overvalues the dollar and causes the US trade deficit. But the foreign private sector isn't a constant source of dollar support because it acts only from the profit motive. Every once in a while, US markets come down and the foreign private sector flees out of the dollar. That's when the dollar exchange rate declines. “

“QE does not cause either a change in the dollar's exchange rate or in the import prices. As seen above, QE simply makes up for missing foreign capital inflow. “

Apparently, QE is the backup plan when there is lack of Foreign Central Banks support when the private sector flees the dollar. It´s the backup plan of the backup plan, so to speak. So, according to this logic, it is ABSOLUTELY supporting the USD exchange rate…
What am I missing?

Michael dV said...

Robert, I watched that speech and in the end Burry was giving it and not locked away. Remember he had locked investors out of their investments and had no doubt angered several big shots. He was doing what he was allowed to do, but he was burning through a lot of cash waiting for the payoff. In 2 years he might have lost it all. I'm sure that call from the FBI was more to protect investor than to stop him from 'being right' about betting against America.

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

Michael dV, you may be right, and I hope you are. But I still worry that the rule of law has strongly eroded in the US, and the government will not hesitate to trample the rights of the citizens in the name of national security, against any perceived threats -- real or imagined. The Snowden revelations and the revelations in the Senate torture report proved to me that one should never underestimate the lenngths to which the deep state will go to preserve the status quo.

I hope I am wrong, I really do, but I don't think its wise to simply dismiss these concerns with a laugh.

Ilargi has a thought provoking post up today basically predicting that the collapse of global oil prices will eventually lead to war. An overreaction? Perhaps. I hope so. But I have learned not to dismiss such suggestions out of hand.

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

@ Aquilus or someone

" next time the private sector capital flows out of the US "en masse".

When would you consider the last time this happened was ? 1979-80 ? Because I've never seen it in my lifetime and Im 30. Any of the bubbles of the last 30 years just results in the same money sloshing over to US debt. Which is not capital flows out of the US as your statement posits.

Michael dV said...

I share your concern and agree about the unreliability of the government in protecting rights. We all have to find our comfort zone for complacency vs action.

anand srivastava said...

I think its getting interesting.
The oil is moving out of cartel pricing structure into a production cost based pricing structure. It will move to a lower than production cost price, till the loss making producers stop producing. The price will go as low as required, like somebody from Saudi Arabia said, it could go to 20$/barrel. Think Shale.

Remember Shale is strategically important to US. Expect Shale producers to be bailed out, as part of the coming QE.

USD is getting too strong these days as can be seen in the DXY (above 90). This will force the hand of the Fed to do QE, to try and bring the value of Dollar down. The QE would probably be in the form of bailing out Shale producers.

Fed will overshoot again as it did in 2008 and 2010 and China bailed them out. This time China or anybody else will not be bailing out the Fed this time.

I think the stage is set for the final ride down.

The "Year of the Rains" created the Rain of Oil, in which the Dollar will burn in the "Year of the Fire".

You are a genius FOFOA.

Motley Fool said...


There is a saying that comes to cannot cheat a honest man since he knows you cannot get something for nothing.


M said...

does a 50% fall in oil prices=50% fall in nominal petrodollar demand ? Which = more QE to make up for the fall in ME oil petrodollars ?

Canadarob said...

I don't buy that this oil price drop is merely just supply and demand. The worlds supply didn't double in 6 months or demand drop off by half. If the gold price chart didn't tell a true story about golds supply and demand couldn't it be the same for other things. I've been waiting for a big "move" that everyone can blame the revaluation on. In situations like this the government usually likes to have something that happened that they had "no control" over. "The magical economy forced us to take these measures". After all, the people wouldn't be to thrilled that a revaluation was on the way the whole time but weren't given the heads up. That's why it needs to appear that they didn't really have a choice. IMO

Canadarob said...

Motley Fool,
Apparently Fofoa keeps a pretty close eye on spam on his blog. Which is much appreciated

Victory said...


If as Aquilus said: QE = [Budget deficit] - [Trade deficit] and the US is a net importer of Oil, would not a 50% fall in the price of oil lower the trade deficit. Petroleum imports make up roughly 50% of the Trade deficit.

Dated but here are a couple sources: (Chart on page 8)


M said...

@ Vic

Yeah I suppose so. All I am thinking is that all of this old debt has to be rolled over to keep the fantasy going. I don't think it all ha perfect checks and balances. All the old debt still has to find a buyer. Regardless how much new debt is piling on.

Flat Shoe Lance said...

Which central bank is now the largest?

Franco said...

Aquilus hypothesis is: QE, at a minimum, = [budget deficit] - [trade deficit]

The data doesn't seem to match the hypothesis very well:

Year, QE [$B], Budget Deficit [$B], Trade Deficit [$B]
2008, -245, 1417, 709
2009, 1349, 1662, 384
2010, 311, 1708, 495
2011, 449, 1228, 549
2012, 64, 1207, 538
2013, 1087, 883, 476

For those six years as a whole, the total budget deficit was about $8T, and the total trade deficit was about $3T, so according to the thesis, the amount of QE should have been at least $5T, but it was "only" $3T.

Stu Ungar said...

@Franco good point, though I very much appreciate Aquilus' contribution. Perhaps the missing 2T is "Willy Nilly Support?"

Flat Shoe Lance said...

Aquilus said...

I'm glad so many enjoyed my mini-post rant and it sounds like it got more people to re-read and understand the concepts for themselves. That's great.

@Stu Glad it helped and you're on the right path with your last comment . I'll explain a little more next.

@Frank Nice table

@Testing To be blunt, you're missing having read the links I gave you and your comment shows it. See the end of my next comment.

Aquilus said...

On the amount of QE I have one big, big, big request (not trying to be a wise guy): please read the links to the posts I gave you.

As Sam said, there is no substitute for understanding the banking system, base money, money in circulation and all those mechanisms. Without that base, I repeat - you are lost and your comments show that.

That being said, I repeat that the Fed's job with QE is to ensure that there's enough base money available to support asset prices. The formula I gave you is for you to understand at a minimum what the Fed is looking at.

But any capital flow in/out of the US for pure financial reasons counts (as you saw from the continuation of my mini-post when I talked capital flow - but only if you understood the banking concepts).

So why did I give you that formula? To confuse you with? No. I did it because FOFOA explained in detail that those are the things that matter most as the weak link in the $IMFS.

FOFOA focuses on the trade deficit because that's the "real world" and that's the "junkie fix" that we cannot get away from. As we're dependent on that flow of goods, he focuses on showing that at least that much capital inflow is due to the trade deficit. But that doesn't mean that that's all there is!!! And if there is more then obviously less intervention is required, and vice versa.

As for the budget deficit, its importance is in the relative size to the trade deficit in order to show that the public sector/USGov is the one causing driving the trade deficit demand exclusively.

And why does that matter? Because the public sector/USGov is the only one that can and politically has to keep its promises and spend until it cannot do it no more and trashes the currency. The private sector cannot do that, it does not have a $ printer, it can only produce more or raise prices - no hyper-inflation spark from here! Ever. So the connection to the hyper-inflation spiral is what this difference points to. That's why it's important.

So looking at the difference between the two just looks at the weak link in the $IMFS but does not mean that it's the one number that you can use as an exclusive indicator. It's one of many but you need to understand the rules of a game before you understand what you're looking at, right? That's the reason why I want you to re-read the posts I linked: understand the concepts! Without that, you're just looking at formulas and looking for wisdom and shortcuts to understanding in the comment section. The comment section is not the right place, the posts are. Use the comments to ask for direction of where this and that concept is explained, but don't expect detailed explanations and shortcuts to self-study.

Aquilus said...


"When would you consider the last time this happened was ? 1979-80 ? Because I've never seen it in my lifetime and Im 30. Any of the bubbles of the last 30 years just results in the same money sloshing over to US debt. Which is not capital flows out of the US as your statement posits."

Please read Dirty Float. Sorry, but there is no reason for me to repeat what's already in there. Enjoy the read, it answers everything.

Beer Holiday said...

Happy new year everyone


Thanks for posting those comments - they're really good. I'm sure there are others out there are silently following them (sometimes you just don't have anything to say) .

@FSL A fellow China watcher appears :-) Thanks for the link - I'd missed that one.

Michael dV said...

There does not have to be a 50% change in either production or supply to cause a big swing in the price of oil. Like most commodities oil is priced at the margins. If there is a consistent oversupply relative to demand the price will fall.
In fact we have seen this happen. There may only be an extra million bpd on the market but seller are willing to accept that so the next bid goes lower.
Eventually high cost producers are forced from the market and the supply/demand forces equalize.
With very small changes we could see a big swing upwards if enough US wells are taken off line and demand stays the same.
Gold is different since supply and demand are met and satisfied with a promise to deliver in the future. As long as SOME gold is delivered when demanded that market can continue.

Aquilus said...

Curiosity made me look in depth at the data Franco provided above.

I'll post the analysis in a little bit, with words around the numbers.

Michael dV said...

here is an article wiyj details:

Aquilus said...

I was curious to see how big the "gap" was each year and see if I can find out more about where it came from but in the end it turns out I didn't need to.

Franco's data is:

Year, QE [$B], Budget Deficit [$B], Trade Deficit [$B]
2008, -245, 1417, 709
2009, 1349, 1662, 384
2010, 311, 1708, 495
2011, 449, 1228, 549
2012, 64, 1207, 538
2013, 1087, 883, 476

Looking at the data columns, the 2009-2013 QE numbers above are in line with what I find publicly (about $3.2T)

The trade deficit numbers are also close to what the Goods and Services spreadsheet from the Census Bureau has (about $2.45T).

The Budget deficit numbers that the table above has do not however match what Wikipedia shows (Source: - 1.413 trillion actual deficit).

Here's the side by side of the two.

Year / Franco / Wikipedia
2008 / $1.417T / $0.455T
2009 / $1.662T / $1.413T
2010 / $1.708T / $1.293T
2011 / $1.228T / $1.300T
2012 / $1.207T / $1.089T
2013 / $0.883T / $0.680T

(Paranthesis: I would be curious about the source of your data on that budget deficit Franco).

So I'm going to use the Wikipedia numbers since they are the actual budget deficit.

Ok, so back to the point that (fiscal) 2009 is when two things happened: 1) QE started, and 2) the budget deficit exceed the trade deficit.

Now let's try his test of the hypothesis with the official data.

First of all, I don't count 2008, just like I don't count 2007 or 2006, because the budget deficit was smaller than the trade deficit and there was no QE. Again last year (2014), the budget deficit was ever so slightly below the trade deficit, and that's why I brought this up in the first place.

(Paranthesis: By this view, you'd expect to see less QE now that the budget deficit is even with or under the trade deficit. So the idea that lower or no QE should coincide with a larger trade deficit was wrong, because it could also coincide with a smaller budget deficit by the formula (QE = [Budget deficit] - [Trade deficit]). Do you see that? )

Anyway, back to the calculation. So, forget 2008 and 2014, we've just looking at 2009-2013. And we're looking at more than one year because like I said we have fiscal vs calendar which should smooth out over a number of years.

Total QE 2009-2013: $3260B
Total Budget Deficit (using Wikipedia actual numbers): $5,775B
Total trade deficit data (using Census Bureau - very close to Franco's numbers): $2,449B

Here are the actual Census Bureau numbers for trade deficit data (in millions):
2009 -383,657
2010 -499,379
2011 -556,838
2012 -534,656
2013 -474,864

Now we can plug those three numbers into the formula QE = [Budget deficit] - [Trade deficit].

Projected QE = $5,775B - $2,449B = $3,326B

The difference between the actual QE and the Projected QE is only $66B over 5 years as opposed to $2T...

Even if we use Franco's Trade Deficit data(very close to Census Bureau) we get a difference of $73B only.

So, perhaps there was no missing $2T, only weird data, and estimated vs actual QE shows only a difference of $66B which could easily be accounted for in the difference between fiscal and calendar years or something else equally as trivial.

Even if these numbers surprised even me with how close they came, I still want to point out that what I described in the previous comment still stands.

This formula is simply a framework to help your understanding, a way in which to view the past QE program in the right light that helps in seeing and interpreting things. It is not an exact formula and it's not meant to be. And in the end it will fail because unlike the current QE, on the next major outflow without support from RoW this time, QE will morph into an outright "front-lawn dump" of asset purchases - a very different beast for from what we've seen so far.

Hope this helps shed some more light and context when reading the posts.


Franco said...


First of all, thanks for the multi-part writeup. You should post more often. Regarding the budget deficit, what I did was, for each year, to subtract the national debt at the end of the year minus at the beginning of the year. For example, the national debt ( on 1/2/2008 was $9211B, and on 1/2/2009 it was $10628B. So for 2008 it increased by $1417B. And the budget deficit HAS to be the same as the increase in the debt. Somebody please correct me if I'm wrong in that assumption. My simplistic guess is that the budget deficit numbers that Wikipedia shows are "planned" (i.e. an actual budget) while my calculated numbers are "actual".

Flat Shoe Lance said...

There's a clue to gold revaluation in this article.

If Canada and NZ is on board then Korea, Japan, and Oz will be too.

Soft Power

While the West is talking bailins...

“We are looking at improving our manufacturing in the gems and jewellery sector and how to improve our exports. We discussed about sourcing of gold, financing of raw material, mining of gold, concept of fashion jewellery. We mainly discussed the policy environment required for entire gold thing,” Mr. Kher said.

Canadarob said...

Thanks Michael dV for the response.
I have another question I hope someone can help me with/direct me to an appropriate post.
I can't seem to really grasp the gold shortage idea.
Is it,
1. More physical being bought than mined?
2. The drain in the etfs that will cause a shock when its run out?
3. As Another said "don't look to what is being bought, look to what has been sold"?

I understand its not the shrimp buying which I get. Is it a combination of what I've listed or is it something I've completely missed.
Please don't respond with rrtfb because I am. Its just a lot of info and its hard to catch it all.

Testing said...

I did read them. I still fail to see where the logic I presented was wrong. FOFOA´s posts are pretty long and I don´t know what to search for in order to clear up this issue.

“So from the quotes above, the essential thing to understand that the private sector is the one mainly responsible for the dollar's overvaluation over the decades with the public sector ensuring that it picked up the slack when the private sector withdrew to take profits or avoid losses.”
1) The USD is overvalued mainly by private sector.
2) If the private sector flees the dollar, foreign CB picks up the slack
3) If foreign CBs don´t pick up the slack? What happens then? Besides the budget deficit / trade deficit function explained above, why doesn´t QE support the overvaluation by purchasing treasuries the same way foreign CB´s do?
4) In an inverse scenario, if QE was never executed, what would have happened to the exchange rate? It would have remained overvalued? They are not related AT ALL?

Robert LeRoy Parker said...

QE brings more dollars in to existence, it doesn't soak up the ones already out there.

FOFOA said...

Hello Testing and M,

Testing wrote, "2) If the private sector flees the dollar, foreign CB picks up the slack"

And M wrote, "the same money sloshing over to US debt. Which is not capital flows out of the US"

With regard to both of your comments, the US dollar requires a constant inflow of capital to maintain its status quo. An outflow is unnecessary. Right now we can know it is getting more than enough inflow because the dollar's exchange rate is steadily rising, and we know it is coming from the foreign private sector right now (not the foreign public sector).

An outflow is not necessary, just a reduction in the inflow will do the trick. If the dollar's exchange rate starts declining, then we can know that the inflow is lower than the trade deficit which means foreigners stopped hoarding our dollar outflow.

M, from Global Stagnation: "Now, imagine that the $40B per month capital inflow suddenly stopped... It doesn't even need to reverse and become a capital outflow, so you can imagine the money that's "already inside the US" running to the "safety" of Treasuries." There's your "money sloshing over to US debt."

Right now, the rising dollar is encouraging foreigners to buy more dollars, a positive feedback loop. When the dollar starts declining due to a capital inflow lower than the trade deficit, that will encourage foreigners to buy fewer dollars, which will turn the vicious cycle downward, unless the foreign public sector steps in to stop it like in the past.

Now, imagine the dollar's exchange rate plunging just like the ruble. Many would say that can't happen, or that if it did the US is in a better position to weather it than Russia. But I would argue that the US is in a much worse position simply because we run a perpetual trade deficit that has become structural to our national status quo, and Russia runs a trade surplus.

Russia runs a trade surplus, so if, hypothetically, its trade flow stayed the same in real terms while the ruble's exchange rate was plunging, then we should see its trade surplus decline nominally as its imports became more expensive relative to its exports. In reality, however, relative prices do have an effect on the trade flow in real terms, so we should see its trade surplus increase in real terms as it reduces real imports, counteracting the nominal reduction.

The US, on the other hand, runs a trade deficit, so if, hypothetically, our trade flow stayed the same in real terms while the dollar's exchange rate was plunging, then we should see our trade deficit increase nominally as our imports become more expensive relative to our exports. Normally, however, relative prices should have an effect on the trade flow in real terms, so we should see our trade deficit decrease in real terms as we crash our lifestyle by reducing our imports in real terms, counterbalancing the nominal increase.


FOFOA said...


The problem, however, is that when we take the two US sectors as a whole (public + private), our total deficit is roughly the same size as our public sector deficit, which means that if we could (hypothetically) eliminate the US public sector (the USG), we'd actually have balanced trade with the ROW since 2009. In other words, the entire imbalance right now is attributable to the US public sector, and that's the one sector that will not voluntarily crash its lifestyle simply because the dollar's exchange rate is declining and US imports are becoming relatively more expensive.

Instead, the USG will print to maintain its status quo in real terms. I know, everyone's more worried about deflation than inflation right now, but bear in mind that exchange rate movements easily overpower deflationary forces on imports (just ask a Russian), and that's how we can have global stagnation/deflation and USD hyperinflation at the same time.


You wrote, "the budget deficit HAS to be the same as the increase in the debt. Somebody please correct me if I'm wrong in that assumption."

You are wrong. They are not the same. One of the reasons is Social Security. Social Security operates its own surplus (it takes in more money through payroll taxes than it pays out in benefits, creating a Social Security surplus) which the government then "borrows" from Social Security and spends. To do this, the USG issues "intragovernmental debt" which is really just Treasuries issued by Treasury and "purchased"/held by Social Security. But these do show up as increases in the national debt, even though they were not sold to the public.

This is counterintuitive because the Social Security payroll tax is a tax, but any amount taken in over what is needed for Social Security actually increases the national debt. It seems like it should decrease the national debt since it is extra money coming in through taxes, but it actually increases it because it is spent and recorded as a debt from the USG to Social Security as if they were separate entities.

In fact, your TreasuryDirect link breaks the national debt down into debt held by the public and intragovernmental holdings. Notice that 28% of the national debt is intragovernmental. 28% more than covers the difference between your numbers and Aquilus's.


PeaknikMicki said...

Isn't it important to include unfunded liabilities in the national debt discussion? According to Prof Kotlikoff it was already 2012 > $200T.
Having that said, there is a good chance future welfare commitments will be reneged on. I just thought looking at official intragovernmental lending didn't really give the full magnitude of liabilities.

anand srivastava said...


why doesn´t QE support the overvaluation by purchasing treasuries the same way foreign CB´s do?

Think it in terms of input and output. I am a software engineer, so can't think in banking terms :-).

Lets first see the case of Foreign CBs buying treasuries.

Their local producers sell some items and the Dollars. They give the dollars to their CB and get local currency. The CB sends these dollars to the Fed and get Treasuries. So the end effect is that the Foreign CB created local currency and bought Treasuries. So you can see that there is more local currency in the country of Foreign CB and the currency is undervalued against US Dollars. Since some US Dollars were absorbed by the Foreign CB in the form of treasuries so the US Dollar was over valued by the same margin.

So the Foreign CBs take in Treasuries and create their local currencies. So it overvalues the Dollar and undervalues their currencies.

Next lets see what happens with Fed. Please understand that Treasuries and dollars are both created by Fed. So interchanging between the two has no effect on the total number of dollars in existence. The Treasuries are basically sleeping dollars. They cannot get into the economy and cannot undervalue the dollar. But the interchange is by definition not QE.

To do QE Fed must buy assets (aka debt) created by other entities, like Mortgage bonds, Govt Bonds, corporate bonds.

So if Fed bought such assets and produced Treasuries. It would not undervalue dollars but it would not overvalue it either, as these cannot enter the economy. It is QE but it is neutral at the present.

If on the other hand Fed bought such assets and produced Dollars. It would undervalue dollars as these dollars will enter the economy. But practically they don't enter the economy either, as they get stored in some Banks, and the Banks store them back at Fed, earning interest as part of Bank Reserves, or get used in some financial asset, overvaluing those assets. This is the reason why financial assets are so overvalued at the present. And why the velocity is reducing as more Dollars are being brought into existence. Once the velocity starts to increase it will be a vicious cycle.

Let me add a little bit about Private investors. If private investors buy Dollars and sell other currencies or assets, they are overvaluing the dollar and undervaluing other assets. For the last 40 years they have learnt that Dollar never crashes, because there is always a Foreign CB to help out.

I hope this clarifies why its all due to the Private Investors. And why they will lose massively when there is no Foreign CB to help out. And this time it will happen. In the past there was a benefit to some CB to keep dollar alive, now none have this benefit. China and ECB will not help. The others are not big enough to help.

Robert LeRoy Parker said...

The treasury and fed are different. The fed can sell treasuries and extinguish base money. They can't create base money without posting collateral such as treasuries.

KnallGold said...

Taper- what taper? I'm with Roach, if one would add the US banks "private QE", nothing has changed (and this are only Q3 increases). The gap between reality and illusion is widening, wondering when it's gonna snap...a hidden, hot but choking fire, remember backdraft...

"..Last quarter, US Treasuries were the fastest growing form of security bought by banks, increasing by 26.3% or $72 billion over the prior quarter. As the Fed tapered, banks stepped in to do their part in the coordinated Fed-private bank QE game. In the past year, banks have added $185.8 billion of US Treasuries to their books, more than doubling their share of government debt.

Just seven banks comprised nearly all ($70.5 billion) of this quarterly increase: State Street Bank, Capital One, JPM Chase, Wells Fargo, Bank of America, Bank of NY Mellon and Citigroup. By the end of the third quarter of 2014, Citigroup, with $95 billion, was the largest holder of US Treasuries, followed by Bank of America at $54.8 billion and Wells Fargo at $37.8 billion from nearly zero at the start of 2014. Bank of NY Mellon holds $25.3 billion and JPM Chase holds $15 billion US Treasuries. .."

Franco said...


Thanks for the comment about intra-government debt vs. debt held by the public.


OK, so what you are saying is that the Fed acted like it was slowing down the purchases of debt, but in reality it merely shifted it to private banks. So, where do the private banks get the money to purchase it? Do they sit on piles of cash? Can the Fed actually lend money to a private bank? I thought the Fed only lends money to the government, no?

Edwardo said...

Can the Fed actually lend money to a private bank?"

Indenture said...

Wow, They Really Are Tapering

KnallGold said...

You might also remember the author who did numbers last year (when tapering began allegedly) and found that the projected 80billions QE were in fact already 96billions or so, can't remember the numbers.

Who knows where else to look for hidden QE shrapnel...if there is, there certainly must be much more stress inside the system.

Jeff said...

The sheiks aren't coming to save the oil muppets.

ANOTHER: It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.

anand srivastava said...

Robert LeRoy Parker

The treasury and fed are different. The fed can sell treasuries and extinguish base money. They can't create base money without posting collateral such as treasuries.

I am sorry I don't really understand banking in a deep way. I just go by common sense. And I don't understand the Fed/Treasury relationship. I am Indian and a software engineer.

I was just looking at how Treasuries/Dollars and Foreign Currencies interact. I would think that Dollar creation and Treasuries creation should happen at one place, otherwise it would just complicate my explanation a lot more. Then you have to have something else to balance the input/output.

It would be nice if you could explain the details and pick all the errors in what I said.

PeaknikMicki said...

Anand. Treasury is government. Fed is a "independent" central bank. Treasury makes up a bond of x$ and Fed can print up money to buy the bond. Fed is paid a yield (interest) on the bond. The arrangement though is that Fed is supposed to pay back profits less 6% to the treasury.
Anyway that is the method how money is borrowed into existence. This is also a reason why the current system needs some inflation. i.e. more money needs to be paid back (principle + interest) than exists.
I suggest checking Chris Martensons Crash course videos, Bill Stills money masters and/or Secrets of Oz or one of Mike Maloney's longer videos for good 101's. Similar system would most likely be in place in India or wherever you live as this is how most nations operate. (banking cartel controlled central bank that has been given authority to issue currency/legal tender)

anand srivastava said...


Treasury is government

You are saying US Treasuries are Government Bonds. I thought Fed created them.

The govt creates those treasuries and Fed gives them X$ then sells them to the Local and Foreign entities. Gets the Dollars back. The govt later pays them back with interest.

So the only way to create Treasuries would be to give money to Govt. So the Fed will have Treasuries for all the Debt that has been issued to the Govt.

So then Fed will buy them back and create Dollars.

Ok then the complexity I was introducing is not required. Anytime Fed buys back Treasuries they will be creating dollars and so it will actually reduce the value of dollar, as long as it gets into the economy.

Brady said...

Jeff, the last line was my fav line from the article in reference to when the price may rebound/stabilize:

“I’ll tell you two weeks after it happens,” said one New York-based trader.

Indenture said...

From : 'Think Like A Giant'

"Imagine a bank with insufficient reserves trying to buy Treasuries with only its credit. It will transfer its liabilities to the Treasury's account at the Fed and now its liabilities to the Fed will exceed the Fed's liabilities to the bank. This bank will now be essentially reserve-less. In fact, it will be in a position of negative reserves. The only way for it to get reserves back would be for the Fed to buy some of its assets. So now, who actually funded the Treasury in this case? The Fed did by creating new reserves for the bank which bought the Treasuries.

The key to pay attention to is that every dollar the USG spends into the economy comes with 1 unit of credit money + 1 unit of base money. In other words, the USG emits a liability along with a reserve into the commercial banking system. Anyone other than the government who spends money only emits (transfers) a commercial bank liability. But the USG emits an attached pair, like a molecule with two attached atoms."

Wil Martindale said...

Interesting comment from FOFOA re: Social Security (didn't really consider that). But all in all, I think the comment bears out a really valuable introspection. So much rests on sentiment, vs. "fundementals" (whatever they are anymore) and since H.I. is a psychological event, the event is primed by sentiment. It can all turn on a dime. Very precarious I'd say. Need I say more??

Flat Shoe Lance said...

There's going to be a lot disinformation about how China disperses this money. The West is going to poopoo it and China doesn't want to look like the 800 lb gorilla instead feigning multilateralism. Could this be how dollars are dumped? Building out Asian infrastructure with overvalued dollars then the reset?

For something totally unrelated guess who Jim Morrison's dad was?

Son' o bitch right? And "The Doors" comes from Aldous Huxley's The Doors of Perception".

Michael dV said...

The Fed is never allowed to buy bonds from the government. That would invite outright monetization of the debt. The PRIMARY DEALERS (a group of 21 financial institutions...MF Global was one) buy them and THEN sell them to the Fed. Much better this way you see.
Sadly I'm not joking, this is the way it is done.

Lisa said...


The purchase of treasuries by commercial banks is explained really well in the QE3 section from Think Like a Giant that Aquilus linked and Indenture quoted from above.

Commercial banks can only purchase treasuries with their reserves. One way that QE3 worked, was when a commerical bank grouped together many mortgage loans it had made to shrimps like us, into mortgage backed securities (MBS). The Fed swapped reserves with the commercial bank in exchange for their MBS. This gave the commercial banks a bigger pile of reserves which they would then use to buy treasuries.

It gets more complicated from there, but FOFOA does a really great job of explaining base and credit money in that QE3 section. He uses the analogy of an atom and a molecule.

I find it much easier to understand things when the simple analogies are used. Reading that QE3 section by itself (instead of as a part of a long post) was helpful to me, since I could concentrate on understanding one small part of the bigger picture.

I think you might find the QE3 section much easier to understand if you read it again now, in light of your recent Q's and the A's generated.

By the way, I really liked your characterization of treasuries as "sleeping dollars". That is a really great way to help explain why all those dollars have not caused price inflation

Michael dV said...

Just went to my local coin store. There on the counter was a 16x10x12 " box. It was the Niton DXL by Precious Metal Analysis. Cost about $22k new.
It analyzes any coin, bar or piece of jewelry. It prints out the gold content and other elements present.
The guy said it eliminates the problems of 10 ounce tungsten filled bars as well as the high end Chinese gold plated fakes.
It sounds like the industry has fakery under control at least at the bigger coin stores and certainly at companies like APMEX. I hope Tulving at least got that part right. I still have stuff I bought from him though is was largely old and foreign coins so I'm hoping the urge to fake those was low.

byiamBYoung said...

From "Think like a giant":

Currency prices everything (but gold) because currency is simply that middleman between their known relative values. Everyone knows that an apple is worth two bananas. So currency between apples and bananas prices those items. But there is no intrinsic, calculable relative value between an ounce of gold and a men's suit. Their relationship is arbitrary… it can be whatever subjective value the superorganism takes it to without affecting anything else. No chain reaction will happen.

Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".

...Ha! Finally understand it!

Unknown said...

Has anyone seen this at the LBMA GOFO/LIBOR page?

Gold Forward Offered Rate (GOFO) dataset is set daily at 11:00am. This dataset will be discontinued with effect from 30 January, 2015.

Why would they do that?

queckshep said...

This was announced back in december. No reason was given. What's more interesting and also happened in december was the announcement from the CME group whereby 5min. trading collars would be applied starting 21 dec. 2014 on silver, gold, palladium and platinum futures. Trading collars aren't that unusual on futures, but to my knowledge this was never done for monetary metals except during the 80's period for silver (Hunt brothers) and certainly never for gold.

Michael dV said...

belangp has a YouTube video in which he shows how to calculate the GOFO from data that will continue to be published.

Jeff said...

Another sheik reading from Naimi's 'oil will never be 100 again' script:

"But I'm sure we're never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It's not correct."

Michael dV said...

Ali Al Naimi...from Wiki...SA PETRO MINISTER
Naimi was born in 1935 in ar-Rakah in the Eastern Province.[3] He joined Saudi Aramco in 1947.
I thought I had an impressive work history but while I was taking tickets for rides at Kiddie Land he already had a job at Aramco and going to college. Guess they start 'em young in Saudi Arabia. He was 12!

Jeff said...

The cover story is too transparent. Which oil producer has cut back due to price drop? Which one will cut back if oil goes to 20? Venezuela, Iran, Iraq, Russia...? Sorry, no. And does anyone really believe that shale oil has dramatically changed the supply dynamic in the last 6 months so the price must be collapsed? They aren't even bothering to tell good lies any more. Game on.

unknown said...

Anyone remember this interview from 2010 with former Saudi Arabian oil minister HE Sheikh Ahmed Zaki Yamani?

listen in at 06:30 and especially at 7:50 min

Michael dV said...

I think shale has added supply and I'm not seeing where your skepticism is coming from (other than the steady diet of lies we receive on...everything...we get from the media.)
I think a drop to 20 would result in a dollar collapse. If producers see that they are to essentially be enslaved to the dollar, it will be rejected. I can understand them putting up with a brief period of mis-pricing but if it became apparent that they were expected to give up oil for almost nothing it would be better to go on a producers strike. They should have all done this years ago of course...but that is really what this blog is about.

anand srivastava said...

Thanks Lisa, and others. I will go through that post again. I am pretty bad at details. I am good with patterns and basics. So I can see where it is going in general terms, but it gets difficult to remember what are the details based on which I came to the conclusions.

anand srivastava said...


I don't think Oil is anything special. It has been special till now, as it was conducive to US power. Now that the power is waning Oil need not be special. It is just like other minerals now.

US was responsible for high oil as it needed that. It allowed SA the extra-ordinary buying power, in addition to the required gold. There was US supported Cartel pricing. Now the power of US is waning, Also US and Russia have come up as large competitors to SA and the cartel. They are not playing fair, with the cartel. They are not throttling their production to work as a Cartel. So there is a large production excess. Now to maintain the Cartel pricing, SA and others must reduce their production a lot, as the other two will not. The only obvious solution for them is to let the price go down, and maintain their lead as Oil producers.

The Oil price will now settle down to where it will match the production cost. This will force the expensive producers out of the market. ie The whole oil market is undergoing a sea change. I don't know what the price should be. It cannot be determined based on the current budget requirements, as with lower oil, their expenses will also go down, and hence the expected cost of oil. I would think 60$ is the highest it could be after the crisis, at current dollar value. It could be as low as 40$.

But meanwhile there are three producers that do not care about the price of oil, and they are the biggest. US, will bail out their Shale producers. Russia will be the lowest cost producer, as labor is cheap (and going cheaper with dropping ruble), and they can manufacture all the machinery they need. SA has a lot of Treasuries with them, that they will spend to maintain their lead in production. Expect prices to go down to below 30$ or even 20$, during the oil price war.

Since Russia cannot reduce production, it depends on it, and SA will not reduce production, the only thing that can go down is shale. And it will only go down, when USD starts to lose value. So expect the current oil glut to continue till USD hyperinflation.

Due to the oil price drop, we will have deflation in every zone where the currency is not losing value against the dollar. So the investors will lose money anywhere the value of currency is going down, and also everywhere deflation is setting in, ie everywhere. In an attempt to make some money or at least keep their money safe they will go into the Dollar bomb shelter.

Eventually everybody who doesn't understand what is happening will be safely under the Bomb shelter. At that point it will blow up :-).

The good thing for the rest of the world is that the oil will be cheap so as their currencies start losing value, their deficits will not rise as they will get cheap oil. They should raise their interest rates, exactly as Russia has done. The deficits should reduce as the imports will become expensive while production will become cheaper.

The countries with losing currencies will be able to trade among themselves, but the import trade with US will go down.

I don't know what Japan will do. I would think they will go the HI way. Their currency is also very overvalued.

I don't think the crisis is too far away. I think the script is ready. Its only a matter of time.

Jeff said...

The mispricing was $100 oil, as the sheiks keep saying. Saudi Arabia and Russia will spend down their dollar reserves, waiting for HI. Venezuela receives Chinese financing (dollar spending again). Others without big dollar cushions will have to suffer, and pump faster. A vicious cycle, until the currency switch.

Where is the dollar support now?

Phat Repat said...

How does this misunderstanding of oil import to FG come about between long term members of this esteemed blog? Is there contradiction between Another, FOA, and FOFOA?

Phat Repat said...

And I ask this because things that should be crystal clear by now, unless having been recently adjusted in FG theory, are still (mis)interpreted differently by various long-term members.

Testing said...

Hello FOFOA,
Part 1 of 2
Thank you for your reply. First I would like to clarify a technical detail, since my wording was not very accurate in the sentence “2) If the private sector flees the dollar, foreign CB picks up the slack". What I actually meant to say was what you corrected. I wanted to say “If the private sector does not support the dollar enough, the foreign CBs pick up the slack”
Now, to the core of my post… It´s directed specifically at FOFOA, so everyone, please comment.
From a strictly financial / mathematical / technical point of view, QE is not directed at supporting the USD exchange rate. In fact, it´s the other way around, as QE requires freshly “printed” currency and that undervalues the USD ex-rate. So that would be an incorrect statement from my part from this point of view.
First of all, let´s analyze the magnitude of the USD devaluation of QE. Let´s make a few round numbers, for the sake of making my case only. USD 85 billon a month x 12 = USD 1 T per QE. That´s an additional USD 3 T worldwide because of 3 QEs (it´s actually less I think). Now, how many trillions have you got sloshing around (liked that word) WORLDWIDE?. I actually don´t know, but would suspect a few hundred trillions. And since a devaluation is only as effective as its New flow to existing stock ratio, the devaluation QE generates is negligible. Since QE technically does not support the USD ex-rate and in reality does not undervalue it either, we can assume that until now, QE has not affected the USD ex-rate significantly, either up or down.
But there are side effects to everything, and I think the positive psychological side effect of QE + ZIRP on USD overvaluation vastly overruns the “USD devaluation” it requires.
QE does support the USD ex-rate, only not directly. QE + ZIRP have greatly helped (if not outright induced) a humongous increase in stock prices and financial products, specifically in the USD markets traded stocks. US investors have had lots of free money to place in the only game in town that practically guarantees a respectable ROI. The rest of the financial world has been on a non-yielding rollercoaster while the DOW and S&P500 have been steadily climbing practically non-stop. This attracts foreign investors WORLDWIDE, seeing that US markets are a sure bet, which forces them to SELL their local assets priced in LOCAL CURRENCY and BUY USD because USD are required to invest in this sure bet in US markets. This has of course overvalued the dollar in real terms vs other currencies in the FOREX markets, and I think has been the main starter of the latest USD rout vs other currencies.
This also creates a positive feedback loop worldwide, involving not only “big” financial investors, but also the general population. Small shrimps do not directly invest in foreign stock markets (it´s far too complicated and not worth the risk), but we DO invest in strong currencies when we see ours go down in price (ask any Russian worker). We also invest in stock portfolios denominated in foreign currency, which has the same effect. It´s the only tool small shrimps have to protect small savings for the “right now” time frame. Not 2 years, not post-freegold (which few people worldwide actually now about), certainly not for “future generations”. It´s for today, tomorrow, and the day after. Which of course reinforces the worldwide view of “USD is King”, and overvalues it… again.

Testing said...

Part 2 of 2
Now, I don´t have the actual figures, but I suspect that foreign investment in US stock markets + FOREX shrimp buying exceeds 3 trillion worldwide by several orders of magnitude.
Your see, my “inverse scenario” question (#4) had a point and until now it wasn´t properly answered. “What would have happened without QE?”
I don´t know all the consequences, but I know this:
1) The DOW and S&P bubble of the last 5 years would not have happened. US stock markets would have been no different from the rest of the world.
2) Foreign investors would not have been forced to sell local assets for dollars to bring them to NY
3) USD would not have been grossly overvalued vs other currencies.
4) Shrimp buying would not have reinforced the positive feedback loop
5) Rinse and repeat steps 2 to 4…

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