Saturday, October 4, 2008

FreeGold is not "a" Solution, it is the ONLY Solution

What I try to do on this blog is to put concepts, or thoughts, into words. I don't want to simply draw your attention to interesting articles I come across. But instead, I want to draw your attention to thoughts and concepts that develop after interpreting those articles in the light of FreeGold theory. The subtext in most of my posts is a concept that I have not seen hashed out anywhere else, at least not in the same way as I am trying to explain it. For the most part, that is the criteria by which I make new posts here.

This one is a doosy. So it will likely be as difficult to explain as it is to understand.

The basis of this post is --> this article.<-- Read it slowly and read it twice, especially the section titled "Capital Destruction". This is important yet difficult to understand. I had to read it three times myself. Here is my simplified explanation:

First, watch this two minute video from "Rich Dad", Robert Kiyosaki on assets and liabilities.

This is an income statement and balance sheet in it's most basic form. The bottom is the balance sheet, with assets and liabilities. This is the same whether you are an individual, a multi-national bank, the Federal Reserve, or even an entire country:

The situation the banks are in right now is that, thanks to fractional reserve banking, they have almost no real capital, but their balance sheets are loaded up with assets on one side that are liabilities on another bank's balance sheet. And vice versa. So as we see these behemoths merge, or consolidate as the Fed, the FDIC and the Treasury are orchestrating, these assets and liabilities CANCEL EACH OTHER OUT.

All that will be left in the final analysis is the liability to the depositors who provided the capital which was washed away by these games they played.

The banks MUST be recapitalized!

PROBLEM: What is being done to "rescue" our banks like Wamu and Wachovia, consolidation, is exactly what will destroy the whole worldwide banking system. We are watching an implosion, a self-destruction, happen right before our eyes. Just like what happens when matter and antimatter come in contact with each other.

SOLUTION: What is needed is a recapitalization of these banks, not an asset-destroying consolidation. And ONLY FreeGold has the available capital to make that happen. NOTHING ELSE. In fact I would challenge anyone to propose even a theory of some other way to recapitalize our system. It is impossible.

Antal Fekete is talking about FreeGold, and I'm not sure he even realizes it. He has formulated a solution, but the one missing ingredient is for gold to find it's true value which not only draws it out of hiding, but makes the world bulk of gold more than enough to start acting like a sponge.

Quotes from the above article:
What is needed is the mobilization of gold hoarded by the Treasury, as well as of gold hoarded by the private sector.

Mobilization of gold is the only way.

Save the pension funds!

This crisis is a warning, possibly the last one, that the recapitalization of banks with gold cannot be further postponed without risking the total collapse of the financial system.

Here is the dead canary in the coal mine: WaMu Employees' Pension Fate Unclear. Yes, they will lose their pensions. And so will many others. This is just the beginning.

Summary: The banks are broke. They have no capital, only debt related assets and the associated liabilities. What our leaders are doing will make the assets they DO have just disappear along with the related liabilities. But the liabilities to the depositors will remain. A vicious cycle has begun which will leave all banks insolvent and savers broke.

Printing new money for those savers will not recapitalize the banks. Only gold can do that. Only gold can go in an asset column and not be in the liability column of another bank.

The only way to mobilize the gold so it can serve this function is for it's price to float freely on the world stage.

This is the ONLY solution, and it will come to the world one way or another. Please try to convince me that I am wrong.


Ender said...

Very well said.

So, If I’m reading this correctly, you’re implying (along with A. E. Fekete) that the banks of the world will bid for gold in order to “beef up” the asset side of their balance sheet. That is the only way that they can side step the destruction that’s currently taking place.

That would be fine and dandy if the systems would allow them to do so. You see, gold has been demonetized and has no politically dictated place in banks (with in the current system). Banks are not allowed to hold gold as an asset. If you go to a bank today, in the US, they will NOT give you a loan against the shiny metal.

So, it seems, that it comes down to a political decision. Allow gold into the monetary system or… die.

Now that the path seems much clearer, the question still stands, does the US hold its stated gold? It is being called into play, will it? Can it? We shall see…

FOFOA said...

Good point. Gold needs legal standing. As assets vanish, what else can take their place that currently has legal standing? Only assets that rely on someone else's liability have legal standing, correct? Well, when faith in someone else's ability to perform is crushed, all such assets lose value, correct? The world will NEED something that holds value in the face of lost confidence. I am truly trying to imagine something other than gold that could provide this. Perhaps oil? But it is too messy to store oil in bank vaults. So then we are back to storing paper promises which rely on the Middle Eastern oil producing countries to perform. Gold seems much more reliable. It doesn't have to do much at all to perform. We are headed down a road that doesn't go much further.

Ender said...

Yep, legal standing or death to the system.

Then we watch gold function.

FOFOA said...


This is what I think is hard for people to understand. Let's think about a stock market crash of 3000 on the Dow. That would be a massive bloodbath. But do any stocks disappear? No. All stocks that have been issued by companies still remain. If there were 100 Trillion shares before the crash, there are 100 Trillion shares after the crash.

So do dollars disappear? Nope. There are still the same amount of dollars in the world as there were before the crash. If there were $60 Trillion dollars before the crash (counting all currencies), then there are still $60 Trillion dollars after the crash!

So what just happened? There was such a bloodbath. So many people went broke. Suicides, chaos... But what actually happened? There are still the exact same number of dollars and the exact same number of stocks in existence.

What actually happened is difficult to understand. Money wasn't lost. If you lost something, it wasn't money. This is the key to everything IMO.


ps. This imaginary scenario is a real possibility right now.

Ender said...

Perceived value is an interesting thing. It depends on another.

Functional value does not.

I wonder how many people will really understand what A. E. Fekete said. I’m pretty sure your readers will understand. And, if there are readers other than spiders, you might hear some noise.

And, it is not an imaginary scenario. The foundation for this was laid many years ago. It will eventually play out. There will be no other choice. Power will be lost, power will be gained – it’s a zero sum game (as you’ve pointed out). The alternative is too horrendous to imagine.

FOFOA said...

I just saw the President of UBS on Bloomberg TV from a taped interview on Thursday saying that UBS showed a profit in the 3rd quarter, although he wouldn't say how much of a profit.

It reminded me of the CEO of Wachovia coming on Jim Cramer a few weeks ago saying how strong their balance sheet was.

Another interesting thing the UBS guy said was that they had "re-capitalized" the bank twice this year! Huh? With what?

As for profits, you think the markets will believe it? Or will they think it is an accounting trick? Remember, it is what the markets believe that matters.

Ender said...

FOFOA said...

No Supply of Gold
"I am just going to be straight to the point. If you do not own any gold right now, then you never will."

Perhaps it would be more accurate to add, "at these prices" to the end of that sentence.

Chrysotheras said...

...if gold is not monetised soon, then we could be facing a total financial meltdown.
A China Syndrome. Akin to "when matter met anti-matter".
A monetary black hole?...

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