Thursday, July 9, 2009

Call Me Contrarian

In the years leading up to mid-2007 keen observers noted dangerous leverage in the US debt markets and some predicted that the bubble would pop. Predictions like this were contrarian while the market was rising, and they were ridiculed. But then when the bubble did pop, those same contrarians became nearly household names as network TV invited them on to explain their predictions.

From mid-2007 though the end of 2008 a great deal of pressure on the system from the dangerous leverage was relieved. Many pundits switched sides to join the pre-2007 contrarians, and the spotlight widened. By late 2008 through March 2009 a few optimistic analysts telling investors to buy back into the markets became the new contrarians.

In 2009 we have witnessed a shift from a pseudo-free market overloaded with debt and leverage to a more controlled market driven by public sector stimulus money. This publicly supported market includes the big Wall Street banks as well as some in Europe. Stimulus money and quantitative easing has shifted much of the pressure from the debt bubble onto the public at large.

Through the process of watching this slow-motion train wreck (still ongoing), the consensus opinion about danger in the system has shifted from an imminent threat to a long-term threat. Before 2007, a few "doomers" were contrary to the consensus, and for the most part they were right. Late in 2008 and early 2009, a few optimists were contrarian and for the medium term, they have been right. There were some excellent bargains during that time that have paid off very well.

The point is that during times of transition, surprises are always the order of the day. Look to the consensus on both sides, optimistic consensus and pessimistic consensus, and expect a surprise different from that consensus, depending on which direction we go.
One of the few things we are confident about is, some very improbable things will happen. Surprises will occur so often they will become routine... I am sure this was only the beginning of a parade of shockers.

-Richard Maybury 06/09

This is true because the market CANNOT reward the majority for long. A zero sum game, the market must reward a minority. If too many people pile into one line of thinking, the market is primed for surprise.

Because of the slow-motion train wreck we are all passengers on, we have reached a unique dichotomy of opinions. This divergence can be boiled down to the inflation-deflation debate, with a few variations. On the inflation side we have both optimists and pessimists, who view the coming inflation as either good or bad. And on the deflation side we have mainly pessimists who see continued downward pressure on the stock market, the housing market and consumer prices as well.

Running parallel to these general impressions, we have a crazy-out-of-control government that has given in to the temptation of printing its way out of this mess. The deflationists view this as an exercise in futility, while the inflationists say that you cannot print these amounts of dollars without it affecting the markets sooner or later.

A few cunning analysts are hedging their bets saying we will see another deflationary collapse first, followed by a bout of high inflation. But nearly all of the pundits who are still predicting "doom" have lengthened their horizon to several years to make way for the slow speed at which this train is tumbling down the tracks.

Frankly, I'm not buying it.

Call me contrarian, but I say that when the rubber band breaks this time it will snap back with a speed and fury that will make your head spin.

In fact, I think that the longer this drags out (and I'm only talking weeks and months now), the more abrupt the correction will be. While at one time it may have happened over a month, it could now happen overnight! The laws of economics can only be violated for a limited time frame. So far that time frame is four months and counting. Or viewed another way, 15 years and counting. Viewed yet another way, 38 years and counting. And viewed one more way, 96 years and counting. These are four waves of economic violation that are converging right in front of us.

What kind of correction are we looking at?

I think we will have a correction of ALL FOUR waves of economic and monetary violation... all at once!

To see this, you must view the imbalance that has developed during each of these time frames. On the medium scale we have the imbalance of debt in the West with surplus in the East. This imbalance is an ongoing flow that has not only gone parabolic, but is projected to continue through at least 2025 (BIS study)! How can a trend that has gone parabolic in only 15 years continue for another 15 years?

In the shortest time frame, the imbalance is between market technical patterns, managed through media spin and "other means", and long term (secular) market fundamentals. This imbalance is most obvious in the divergence of the public sector and the private sector. The public sector has been bailed out by the private sector without its consent. In fact, against its wishes. This has created an imbalance of fairness that is boiling under the surface tension of the green shoots media hype.

Both the 38 year timeline and the 96 year timeline have created an imbalance in the fractional reserve system that has also gone parabolic in the last decade. I am talking about gold. No, the price of gold has not gone parabolic, but the ratio of available gold to outstanding paper currency HAS gone parabolic.

The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?

This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Here at FOFOA, we like to call it FREEGOLD!

Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.

Some of the entities that you think most deserve to be wiped out will turn out to be the BIGGEST beneficiaries of this "overnight" transfer of wealth. And others who thought they were fully hedged will be wiped out. These are the kinds of surprises I expect. I am truly in the mode of "expecting the unexpected" with a timeline shorter than a normal TV season. ;)

Call me contrarian. But please don't call me a "doomer". I do not view this as doom. I realize the difference between the monetary system and the real economy. I recognize the difference between real capital and illusory wealth. The current monetary system is like a virtual grid, an electronic parasite overlaid on the real world. It can completely vanish and leave the real world totally intact. I look forward to a new beginning for the entire system. A healthy start like we have not seen in generations.

This reset is not something I am pushing for. It is not something I even wanted a mere year and a half ago. Instead, it is what I see as inevitable. Yes, many will be hurt and I will mourn their losses as some of my own loved ones are not well prepared. But what can I do more than I am already doing? We cannot fight the inevitable. We can only prepare.

Some have said that I am only viewing the forest and not the trees. That I do not care for the individual trees that will be engulfed by the forest fire. I do care, and this is why I blog.

There is NO SOLUTION that will save everyone's dollars. There are simply too many of them. There is NO SOCIALIST PARADISE. There is only reality and, living in it as we do, we must each walk our own Trail into the future.

Perhaps I am wrong and this fateful day will come later than I expect. I hope I am wrong. More people will make it to the safe harbor in the meantime. But do I venture out into the open sea while I wait? No, I remain moored to my anchor.

So call me contrarian, but follow the consensus voices out into the choppy waters at your own peril.

Supplemental reading:

What did the top central bankers of the world know and when? This is an excellent forensic examination of our monetary leaders. One has to wonder, if this much was known at the top level of central banking, shared, published and ignored by those with the most power, what preparations were made by the central bankers that did not ignore the warnings?
The Man Nobody Wanted to Hear

What do you give the leaders of the free world in a gift bag? What if they are sitting around talking about money? Why... gold coins of course!
G-8 Leaders To Receive Gold Coins

United Future World Currency

The above is presented for entertainment purposes only and in no way constitutes financial advice. Please consult with a REAL financial advisor before making any rash decisions. They will probably direct you to some of the new and improved securitized investment vehicles. Yes, they will pay you interest, until they default and you lose your principle or until the whole darn thing is toilet paper. But then again, I am not a financial advisor so I probably don't know what I am talking about. Remember what they say, "gold is not a financial investment because analysts cannot value it because it does not pay interest". I couldn't agree more!



J said...

I agree FOFOA and this is why I've positioned myself in a location that will see a drastic increase in it's standard of living. While unprepared Westerners weep the Asians will dance


Anonymous said...

Another contrarian's view : States, and their debt driven political economy, have only one goal : Stay in power with the distribution AND re-distribution of PP (purchasing power). This is done by "stealing" (legalized theft _ cfr. dollar-daze article).

The Big (systemic) paradox : With debt creation, one's PP is in fact being stolen,...and yet one has the illusion of adding PP !?

When you see the price of your portfolio papers rise, think that you are gaining PP (making money). Is an illusion. And in the process of realizing this illusion, you see how your virtual PP is being RE-distributed to the privileged.

That is what the Greenspam-brotherhood has been organizing in the US and exported all over the stupid parts of the world.

Today, the actual left-over PP is still way to high !!! The astronomical hidden debts do NOT justify the present general PP. The PP of one's currency-unit is in fact "debt". DEBT IS NOT PP !

When all sorts of deficits rise parabolically everywhere,...your PP is being stolen by stealthly morphing it into debt whilst having the illusion that "more" (debt) is more PP. A perfect functioning paradoxal system.

That is why I fully agree with FOFOA's view that different waves are now converging into one Big one (cfr. Armstrong).

This is not simply another temporary crisis in the long row of crisises,... this is a finale, the Crisis of the Debt System.
The REAL PP must be re-established. A DEBT FREE PP !

Anonymous said...

What evidence is there to state that the finale is "close" !?

Answer : The entire world is (has to) fight the Crisis with the same policies that are the cause of the systemic crisis.

Cfr. The drastic Volcker actions (high IRs) during the previous crisis : Volcker cured short term and made things worse long term by exploding debt-growth versus PP.

"Systemic", means going deeper and deeper into the mud. Volcker...Greenspan...Bernanke !


This is NOT a wealth generating system ! This is a state of the art FRAUD ! A PONZI !

Siege said...

Ponzi is exactly right. The entire fiat dollar system is a ponzi by definition. When demand for newly produced fiat drops too low, collapse is all that can occur. All ponzi's need buyers. As the foreign market demand remains flat (or goes inverse), and demand for local goods and services remains low, there won't be enough consumption of fiat. The system will be unable to remain afloat.

As Hyper likes to say... poof and gone! poof poof poofity poof.

Anonymous said...

This is " THE MAYOR OF LONDON" , speaking !?

EU's regulation of City would 'strangle' London, says Mayor Johnson.

Boris Johnson, the Mayor of London, said yesterday that European plans to regulate the financial services sector threatened to drive hedge funds out of London and Europe, even though they were "blameless" for the crisis.

>>> Boris is another vulgar whore !
(sorry for the language)

J said...

pic of the Gold Coin

Anonymous said...

July 10 (Bloomberg) -- China’s foreign-exchange reserves probably topped $2 trillion for the first time, >>>>>>>

......drawing attention to the difficulty the government faces in finding places to invest the world’s largest holdings.

>>> You have $ 2 TRILLION,...and don't find a place(s) to invest it !!!-???

Absolutely CRAZY, no.

This is the clearest evidence that the $ 5 TRILLION $-unit reserves that the world's CBs have been accumulating are nothing but...DEBT ! You cannot productively "invest" debt ! One can only keep piling up this unproductive debt.

>>> The coming DEPRESSION is a TOTAL DEBT COLLAPS where all the Rich Men will PANIC all together at the same moment.

What is the PP of those $ 5 TRILLION global $-reserves ???

A global declining economy is like emptying shops. What are you going to buy in these shops with $ 5 Trillion ? And what will you have to conclude about the PP of these $ 5 Trillion !?

And it is NOT only those $ 5 Trillion reserves that are being sterilzed. Most small capital (fortunes) are eroding-vanishing.
Their real PP never existed, anyway.

" Debt Collapse " = Total loss of confidence in the System/Model.

Governments AND their CBankers are becoming increasingly powerless : The deficit spending has to go (is going) crescendo. The lost and virtual PP cannot return with an akrakadabra magic.

Keeping gold out of sight with frozen goldpricing cannot go on for ever. When "panic" comes,...all eyes will see the hidden shine of the precious. It will not be as romantic as described here...

Anonymous said...

Very good FT article with lots of comments.
For those who need more explanation about the gigantic catch-22 situation.

Shanti said...

Like your writings & your writing style ;-))

Smart move !

I think you nailed it all in these 12 concentrated sentences. Chapeau !

Martijn said...

More Government Sachs

Anonymous said...

Please, read this very carefully !

Hong Kong's diversification will certainly include gold.

G.Brown is an idiot. A US-poodle just like his murderous rival, Tony.

Expect the USDX ($-index) to hoover around 80 for some time...pretending to be "stable".

Martijn said...

Ponzi is exactly right. The entire fiat dollar system is a ponzi by definition. When demand for newly produced fiat drops too low, collapse is all that can occur. All ponzi's need buyers. As the foreign market demand remains flat (or goes inverse), and demand for local goods and services remains low, there won't be enough consumption of fiat. The system will be unable to remain afloat.

It is true, the dollar has been expanding for years. That is what has kept it alive. It expanded both internationally (more countries) as internally (now pricing services that used to be done at home, e.g. eating out).

That is exactly why they're so fond of those environmental regulations (crap & trade): it finds another part of the world to be priced in USD, and it seems the only way to expand the ponzi at the time. This is key to understand!

Martijn said...

In other words: with crap and trade they have finally achieved the ultimate goal: create money out of thin air, to pay for thin air!

Tekin said...

A case for a slow crash can also be made: Since the paper gold is already a bird in the bag, the real worry of the big brother should be the physical gold in the hands of the populace. With the disruption of the cashflow of the people, they have to dip into their savings and thus physical gold. What is the importance of giving paper gold a chance to sell at 2000 or 5000 when you can easily multiply the equilibrium price of gold by ten whenever desired?

Thus a point can be made for a stairway climb in the prices. Disrupt cashflow. Observe the physical dishoarding. When the physical flow dries up, arrange another disruption in the cashflow (stick) and increase the price of gold for one step (carrot) to induce additional sellers.

FOFOA said...

June 24 - Jim announces his trip to China

June 29 - Jim arrives in China

June 29 - Jim starts his countdown: "You have a little more than 130 DAYS before MOPE falls into the abyss..."

Today - Jim says, "The more that media mocks China the more perturbed China becomes. The more perturbed China becomes the closer we get to the neutralization of MOPE."

FOFOA said...

Medvedev (holding the coin): "In all likelihood something similar could appear and it could be held in your hand and used as a means of payment," he told reporters. "This is the international currency."

"THIS IS..." Not, this will be. Or this could be. Or even this should be. THIS IS. He is not talking about the actual coin in his hand which is merely symbolic. So what is he saying? Is this just a poor translation? "This (gold) IS the international currency!"

Medvedev sees single currency dream in G8 coin gift

Anonymous said...

Hi Fofoa!

What do you think why Medvedev came out with this? Just like warning for sheeple to get prepared??? To show that US is giving in? Surely he had a reson for that and I wonder why exactly.

Anonymous said...;2430958

Philip Murphy, ex GS will be next ambassador in Berlin! HELP!!! It's mot just coincidence.


FOFOA said...

Hi Fauvi,

I do not know. If you want to, look for Russian news sites that reported the same statement. See if you can find the original Russian words he used. Then test it in different online translators.

Or perhaps he spoke in English. I do not know. It is interesting though!


Ishkabibble said...

I definately think the purpose of the draft coin is to get people thinking about it. It's akin to draft beer, when you hear it's available, you request draft. :)

I have a hunch developed nations would welcome a global currency, especially the US. I know that sounds absurd, but they know the dollar is failing. A super soveriegn is one way to sweep the big mess under the rug.

The beauty of a super sovereign is there is nothing behind it, not even a nation. Produced from tin or other worthless potmetal, it would be a license to sustain the current currency disaster.

When will people realize that for money to sustain wealth, it must contain wealth? I tire of this insanity.

Anonymous said...

Medvedev, Putin, Lavrov, are a brilliant trio (imho).

1/ Putin has a proven affinity with gold. All Russians still love gold (chevronetz)

2/ Goldbars are often the first prize in sportive competitions. (Trans Siberian rally)

>>> Let us not forget that it all started with Duisenberg announcing the euro's birth in front of a gold vault !

A/FOA & friends are global consultants and gold-advocates ! Another is most probably a BIS insider (?)
And the BIS is the world's gold clearer !

Medvedev took the opportunity to put the spotlight on the symbolic goldcoin.

Russia and China do follow the ECB example of building and reporting the right amounts of CB-goldreserves with gold from within their borders.

We know nothing about the gold digged from American goldmines and the UST remains mute about its goldreserves. A Very significant/fundamental difference with Russia/China.

The pro and contra gold fractions run in parallel with the surplusses and deficits.

Pull your own conclusions, dearest forumers.

Anonymous said...

Medvedev showed reporters an example of a coin of a supranational currency, which he called a "united future world currency."

"This is a symbol of our unity and our desire to settle such issues jointly," Medvedev said, adding that the coin had been made in Belgium.

He also expressed the hope that a day would come when something of the kind would be used for payment."

I expect we will never find out his real reasons, but i suspect he's eager to put it into motion. Why should he be interested in postponing it? Russia has gold mines, can increase their exploration. There could be geostrategic plans too. As for their oil, they would get better paid in shorter time compared to now.Maybe he wants to animate people around the world, to sharpen their appetite for gold - gold's abassador! Anyway this is an open gold promotion and only stupids cannot see it.


Anonymous said...

Sarkozy also ask for a "multi - monetary world". Merkel hasn't heard any discussions about the $! Maybe Murphy will clear out her ears.

Anonymous said...


While I truly appreciate your blogs and to a large degree share much of your train of thought...I have to say, get a grip.

Jim Sinclair (of who there's much to acclaim) made a predication that went down in flames (hey, I can imagine it's not easy being Nostradamus).

So I am trying to comprehend what you are saying.

Are you saying that there will be a sudden shift to a gold backed (if not actually gold) currency?

Any devaluation can't be USD versus another currently. That sort of thing is determined by markets. Now if the US did overnight switch to something like the talked about AMERO... there would be hell to pay from other G8 members at this outrageous beggar thy neighbor move.

So exactly what are you getting at? We all go off one weekend and return Monday morning to find the US and World have switched to gold coins?

FOFOA, I like you, wish to encourage you and others like you, but man... get real and spit out some specifics.

FOFOA said...


I wish I could tell you specifics. I am no Nostradamus. I am just calling it as I see it.

Let me ask you something. Imagine there are only two possibilities/probabilities: 1. We will have an overnight seizure of all banking activity and gold will stop trading. When things resume "to normal", things will NOT be normal. What little food is left at your local store is suddenly much more expensive, and if you can even find someone willing to sell you some gold, they will want some incredible price for it, because there is no "COMEX spot price" being reported anymore. Over the next weeks and months things become more clear. The dollar has been revalued BY THE ENTIRE WORLD... and so has gold.

2. Things will proceed as they are now, with fits and starts. Gold will pass $1000 this fall and perhaps $1200 by Christmas. Over the next year or two we will watch as gold breaks one resistance level after another. General price inflation will start to set in. And it will become clear to everyone what is happening.

If those are the only two possibilities, which one should you prepare for?

Which one do you tell your loved ones to prepare for?

Let us say option 2 has a 90% probability and option 1 only a 10% probability. Does that change your answer? It shouldn't. You still prepare for option 1! Because it covers BOTH possibilities!

By the way, 90/10 are NOT the probabilities I assign!

The entire globe is in a terrible state of imbalance. It has never been as bad as it is right now! This imbalance WILL be corrected by the markets. I don't know exactly when or how, just that it will.

From a purely intuitive perspective, the world, the markets, and the status quo feel MORE unstable to me right now than they did exactly a year ago, right after INDYMAC went bust.

In addition to this feeling I have, I see clearly why certain prognosticators have changed their stance. At the same time I read a subtext through their words. They feel what I feel, but they are not saying it this year. They were burned last year when we "made it through". But I'll tell you... we made it through by the skin on our teeth. Bernanke and Paulson were VERY LUCKY the way things turned out. It may not seem so, but I think we almost had a RESET last year!

Anonymous, this is as real as I get!! I am not trying to scare anyone. Only to encourage preparation. And as I say, I don't even care if I'm wrong! I hope I am! (Some other well-known names care DEEPLY about being wrong! Think about that.)

My only message is the EXACT SAME MESSAGE this blog has had since day 1. The same message "others" have been "paying forward" for more than 10 years now!!! Read the title of my blog. That should give you a clue about the message. If there is urgency in it now, that is because I believe it is VERY LIKELY URGENT!

Those who followed this advice 10 years ago were early. Perhaps someone who follows it now will be early as well. I hope so. The ones who switched their savings to physical gold 10 years ago have watched it TRIPLE in value. Not a bad consolation prize, even if the world didn't end.

There's your specifics. Do you comprehend me now??


Anonymous said...

J. Sinclair in China !? He's definitely not selling Christmas trees overthere.
Jim talks and trades "gold" with the Chinese as he does with the Agha Khan people in Tan.

Maybe the Chinese suggested (to Jim) they are going to demand higher $-IRs as a condition to buy/hold more $-UST/Bonds !?
Maybe the Chinese want to speed up their gold reserve accumulation !?

Of course, this is a speculation.
As time goes by, there are increasingly more fundamental reasons that justify speculation on gradual and/or sudden dramatic changes (overnight).

Countless people woke up and saw their shares plunge (decimate) !
This is "real" and "specific". Do you agree, Anon,

Anonymous said...


The allocation of the SDR can be shifted from a purely calculation-based system to a system backed by real assets, such as a reserve pool, to further boost market confidence in its value.

>>> Quite some "Another" content in this article !

Anonymous said...

The developping yellow Empire !
Read their "- VISION -" !

Shanti said...

Anon 12:55

Keeping in mind the Freegold plan, the graph 1 fits briliant in there,
and that was only until 2007

Very Informative posts lately ! Thx.

Martijn said...

This I know. Gold is headed for $1224 and thence on to $1650. All of this will play out by my date of January 14th, 2011.

Not exactly tomorrow...

Martijn said...

I'd like to point out another detail: Diplomatic bags.

A government intends to transport documents into a foreign country. The safest way is to place them in a diplomatic bag, most likely a suitcase. Carried by an accredited diplomat, foreign countries or customs officials must not inspect that bag.

If any government wanted to transfer those confiscated bonds/notes why didn't it use safe diplomatic channels to enter Switzerland?

Mark said...

The public sector has been bailed out by the private sector without its consent.
I think you meant to write the inverse.

Siege said...

Jim Sinclair has a wealth of information, but take his predictions with a grain of salt. He isn't necessarily wrong, but he's often premature.

Jim occasionally speaks in riddles and sometimes it appears he makes predictions without stating facts to back them up. I take such predictions as gut instinct. He knows the pattern, but I doubt he knows the timing.

Of course, we all know how stong a gold advocate Jim is. As you said, he's not peddling Christmas trees in China.

Did anyone manage to save a copy of Jim's welcome to China picture? There were two additional names on the banner. I didn't get a chance to look them up, and the picture no longer appears to be posted. The combination of the three might hold additional meaning. (two gold bugs and an Austrian economist, for example)

Martijn said...

Fed under fire

Tekin said...

@ FOFOA July 10, 2009 8:50 PM

I bow with respect. Waiting, is also such a sweet experience, as you say, because my spreadsheet says that I have received "hedge fund class" "double digit" internal rate of return on my waiting policy, which is quite pleasing.

FOFOA said...

During Jim's China trip:

"I had a request by a significant Russian company to visit Moscow, but the business at hand can be completed long distance. Assuming it is, then Moscow is on my next trip itinerary."

Anonymous said...

A snip out of GATA's recent article :

Now all becomes clear. The system is the ultimate alchemy. If ETF shares are NOT backed by gold but are accepted by the COMEX as equivalent to physical gold ... presto! You have turned paper into gold -- and paper is a lot cheaper than lead.

>>> The day that the globe's PRO gold fraction(s) decides it's time to blow up the papergold market,...y're not going to believe your eyes !!!

And it is not only the $-goldmarket that will be destroyed.
The Ponzi Fraud is " everywhere " (Madoff-ism !).

The Mad Scientist said...

For a long time I have felt that the Yen was a trashier currency than the USD.Simply because of their debt to GDP and their zero production of domestic energy going into Peak oil.
While talking bad about the dollar was accepted in select circles, there the YEn was revered like it was the savior. Even Jim Rogers wants to own yen.
Yet today I read this piece from John Mauldin,

The Mad Scientist said...

Here it goes...

But this year, the Japanese will want to issue roughly 33 trillion yen in debt! Also note that the national pension fund has informed the government that this year they will for the first time be net sellers of debt. Look at the chart below. Notice that as debt was increasing through 2006, actual interest-rate expense for government debt was decreasing, because rates were dropping, getting to 0.1% in 2001. Yet with no more room to cut rates, interest-rate expenses have started to rise. Total government debt is now close to 900 trillion yen.

nterest-rate expense is now about 18% of the Japanese government budget. What if rates went to a lofty 2%? That would over time double the interest-rate expense. And the Japanese are borrowing between 30-40% of their annual budget. The total debt is rising rapidly.

Ok, let's go over these points:

Japan's population is shrinking, and the number of workers per retiree is rising. Japan has the highest ratio of debt to GDP in the developed world. And that debt is growing by 7-8% a year, and does not include local debt. Interest rates cannot go lower. Savings are falling rapidly and will not be able to cover the need for new debt issuance, by a long shot. Within a few years, because of the aging of the population, savings will go negative. Social security payments are rising. GDP is shrinking, and export trade is off about 30-40%, depending on the industry. Machine tools are down 80%!

If rates were to go up by 1%, let alone 2%, over time Japan's percentage of tax revenue dedicated to interest payments would double to 18% and then to 40% and then just keep going up. It is conceivable that it will take 100% of tax revenues in less than ten years, at the current trajectory. Why? Because Japan is going to have to start to compete with the rest of the world to sell its bonds.

The Mad Scientist said...

Who but the Japanese would buy a Japanese bond at 1.3%? From a country that is rapidly going to 200% of debt-to-GDP? Doesn't really seem like a smart trade to me. And as the data shows, the ability of the Japanese consumer to buy more debt is rapidly waning.

The Japanese government is coming to a crossroads with no good exits. Cut the budget drastically in the face of a deflationary recession? Monetize the debt and let the yen go the way of all fiat currencies? Can someone say Zimbabwe? Increase already high taxes in a very weak economy?

And yet the yen has been getting stronger over the last month. It is now at 92 to the dollar, up from 120 just two years ago. Why would a country with such bad fundamentals have such a strong currency? Shouldn't the yen be a screaming short?

The Mad Scientist said...


But I think the central bank is going to figure it out. If they do not monetize the debt, rates will have to rise over time (say the next 2-3 years), and that is most definitely a problem. Monetizing the debt would mean the yen would fall in value, which is something they actually want to happen. How much monetization? When? I don't know, and I doubt they do. If I were the head of the central bank or the government, I would not sleep easy.

Japan is the second largest economy in the world. There is a rule in economics: "If something can't continue, then it won't." Japan can't continue down this path. All the trends are going against them. Sadly, Japan is going to hit the wall, maybe some time in the next few years. This will be very bad for the world, as they have financed much of Asian growth. They do in fact buy a lot of world goods, and their buying power is going to fall. This is going to mean fewer US and European jobs. Not to mention fewer jobs in the countries that are Japan's neighbors.

And unless we change things in the US, this will be us in less than ten years. As in hit the wall, serious depression, etc. I am hopeful that we can actually get our act together. But then I am an eternal optimist.

Anonymous said...

@ Mad : Japan is US'appendix and both their faith are tied. Not in the least because of the floating currency system.

You make the right conclusions,...but they don't happen !? BECAUSE, we live in an increasingly "synthetic" world !

It is this absurdism that took me a (relative) long time to realise/understand.

That's WHY I took refuge in the precious tangible.

Your Japan analysis/conclusion is definitely (free)gold related.

During the past century, we had two WWs ! Because, the industrial part of the world had become "- dysfunctional -" . Life/history, rhymes cyclically.

The present deep recession will evolve into a global depression followed by dramatic changes in global balance.

FOFOA said...

Hello Mad,

Very good points in that. Japan is in serious trouble. Did you happen to read this article by Jesse?

There will come a point (very soon) when even HIGH interest rates will not attract any real capital. Monetization will be necessity. Paying interest is simply a way of paying for the risk you present to the lender. The strong dollar policy was a sneaky way of keeping that price below the actual risk. When they are forced to let go of this strategy in an attempt to lure in real capital, the actual risk will be rising faster than the interest rates, no matter what they try. Would you loan money to Mugabe's government even if ZimBonds were paying 1,000% PA? Hell no!

Too many commitments. Too many promises made. No way out.

As risk outruns interest rates, so will gold, proving itself to be BETTER than interest!! "The hidden truth!"

Japan has some similar problems as well as some unique ones. Economics is NOT a settled science. Theories are just that. Theories. There are some big experiments under way right now. I am working on a slightly different way of viewing monetary theory. If I can sort it out, I'll make a post about it. Right now it is still tossing around in my head. My theory may send the USDX soaring just as it is actually collapsing. This may work for the yen as well. I need to give it some more thought. :)

It is basically a tiered view of money, much like the M0, M1, M2 system. But paying attention mostly to money classes that will be made whole by our out-of-control governments. Ie.- certain "assets" and "liabilities" that MUST be protected at ANY cost. In our system there is "real money" (FRN's), and then there is fake money (digital scrip we think of as money). But some of the fake money will be turned into real money no - matter - what - happens ! It wasn't supposed to be this way, but now it clearly is. This is a major change that has occurred in less than one year !!! The market already knows this, but doesn't understand the meaning of it.


The Mad Scientist said...

@Anon 12.35p,
The article and analysis in its entirety are from John Mauldin. I have had similar conclusions for some time but I have shouted myself hoarse and no one wants to hear.
We do live in a synthetic world and if you read John's article you will see he gives a couple of reasons as to why it has not yet happened.

USDX soaring? What happened? Are you having an affair with Mish?

FOFOA said...


As I said, I am still tossing this idea around. If it turns out that it sends the USDX soaring, it will be a death throe and short lived. I am not talking about increased purchasing power for the dollar. I am talking about a run on the dollar. But because our leaders have thrown out the rule book, this run will have confusing short term effects and send out unexpected signals.


Martijn said...


You seem generally right. We should however not forget that besides having a large debt, Japan also owns the worlds second largests dollar reserve (after China).

Their net position hence is a bit better than their debt numbers.

Martijn said...

The Gata article mentioned by anon is heavy stuff indeed...

Where are the regulators? This ETF is not equivalent to gold. Note the description: "Each trust share represents a fractional undivided beneficial interest in the trust's net assets which consist primarily of gold."

It is again the fractional system as was invented by the early goldsmiths back in the days.

A story like this should not be beneficial for trust in paper gold. I wonder when investors will start to finally pick up on this.

Martijn said...


Does this theory of a (temporarily) rising dollar include the pyramid of wealth in any way?

Anonymous said...

The articles about Medvedev and the new coin do not mention the word "gold" even once:

Medvedev sees single currency dream in G8 coin gift

Medvedev Shows Off Sample Coin of New ‘World Currency’ at G-8

Surprised ?

Martijn said...

French President Nicolas Sarkozy at the summit joined the band in favour of dumping the dollar as the international currency of reference, insisting that "we cannot stick with just one single currency."

Stuff like this makes absolutely clear that major move is near. Although it remains political, and politics is often slow, it might be sooner rather than later. The next months will reveal how soon.

Anyone here able to make an educated guess?

Martijn said...

The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

At least he hints at gold a little.

Martijn said...

I told you those dollar defenders have a case for crap & trade.

The American Clean Energy and Security Act, which squeaked through the House of Representatives by a vote of 219-212 last month and is set to be taken up by the Senate in September, proposes to create a huge new market for trading carbon emission permits and offsets. This system would create whole new classes of financial assets, which financial firms could securitize, derivatize, and speculate on.

They really are aiming at creating money out of thin air and using it to pay for thin air.

Funny how it might happen that in year the circle is finally closed, the dollar may fall.

Shanti said...

@Anon 7:39

"Regulations regarding the souvenir coin's circulation were also attached to it, Medvedev said."

Unless there is more behind the screens, nobody would come up with a regulation on a souvenir.....

FOFOA said...

Hi Martijn,

Yes, you have identified the mechanism. But that is not what is significant, and it's not even new. Another made a similar prediction. That USDX thing is just what Mad focused on because I was using it as a tie in to his Mauldin piece. The significance is in something that most people don't understand about fiat money and our system. What is the difference between debt-based US dollars and ZimDollars during the Zimbabwe hyperinflation? Think about how most money is created.


FOFOA said...

Hello Shanti,

Each Medvedev article seems to reveal a little more. There is a fusion of two different ideas I see in this one. The supranational currency unit being discussed by "foreign leaders" has mainly focused on a reserve currency, like an SDR. This is one idea. Freegold is a different idea. Freegold could fulfill the need for an SDR AND it could be held by Joe sixpack as well. Medvedev has fused these two ideas in his statement. J6P would never be able to hold an SDR...

"and it could be held in peoples hands and be used as a unit of payment," he said.

The "regulations" he mentioned are very curious to think about and speculate on. I think this gold coin has a lot of significance, and perhaps the "regulations" were meant to minimize this significance in the media?


Shanti said...


A good understander does only need half a word.

Ever thougt aboud that Belgium showed up here as designer and maker of the coin....
They seem not only be bourgondics but rather smart people !

Martijn said...

Although not necessarily significant: the Europarlement seats in Brussel (Belgium).

Anonymous said...


The idiotic logic in this story illustrates the growing catch-22 situation on a GLOBAL scale. The GS global influence is simply ENORMOUS !

(don't start shorting the stock,...yet :)))

Anonymous said...

Ambrose * Depression * talk !?

Europe digs its economic grave while the ECB answers to no one
The European Central Bank preens as the last guardian of virtue in a sinful world, yet its actions are devastating the public finances of almost every country under its care.

By Ambrose Evans-Pritchard
Published: 7:01PM BST 12 Jul 2009\
Professor Tim Congdon from International Monetary Research said the eurozone money figures are "horrifying" and portend a serious crunch ahead. "My verdict is that the senior people in the ECB [and the Fed] have little organised understanding of the debt-deflationary processes initiated in late 2008," he said.

>>> Of course, Ambrose puts all emphasis on the ECB (as usual) !

But this doesn't change anything on the existing global drama that is unfolding.

Anonymous said...

@ FOFOA/Shanti : Of course, j6p can't hold an SDR !

The Robin Hoods who want to (re)introduce the goldcoin as a popular civilized selfdefence, need to remain "low profile" with a lot of symbolic smoke around.

Cfr. all the spin around the CB gold-actions of the past 15 years !
(Eternal reference to the WAG/CBGA cryptic text everytime goldsales are reported)

THE POWER OF GOLD/FREEGOLD IS ENORMOUS ! Handle this with extremely care.

Anonymous said...

Question : What does it mean when the gigantic manipulation(s) (GS) are made public !?
And this against the background of gigantic CB interventions.

As if "they" want to say : We did ALL we possibly could to avoid the Depression (we wanted).

Am I looking behind the wrong curtain ? Thoughts ?

Martijn said...

It could also be used as an argument to take over: we are already invested massively and don't want that money to be wasted, plus markets turned out to be manipulated. We have to put in more to prevent further unrest, and this time we will do it right (which they won't off course).

It could also be used to set of some sort of full alarm, or a bank holiday...

Martijn said...

Cap & Trade, paying for thin air with money created out of thin air: Goldman to be carbon regulator?

FOFOA said...


I believe that some of these too-big-to-fail companies are actually disposable! Of course they don't want us to know this. They want us to believe they are too big to fail!

But the reality is that no company any more carries the word / the honor / or even the NAME of an individual!

The corporate entity is a mere VESSEL in which the individual can become personally enriched without "risk".

When the paper gold market (which IS the key) finally gives way, these companies like GS will be exposed as the giant shells that they are. With no meat inside.

"Question : What does it mean when the gigantic manipulation(s) (GS) are made public !?"

I think it means the hermit crab is making preparations to abandon his shell.

"And this against the background of gigantic CB interventions."

He is receiving support in his abandonment endeavor.

In most cases, the hermit crab is nameless. It is only the shell that we recognize. Those few names that we DO know have been given EXTRA layers of "protection" ! (See Paulson's fortune)

Martijn said...

Once you get over the emotional component of paying a carbon tax, it looks like this thing is no different than an artificial variety of inflation since nearly everything has carbon in it.

This is what I was trying to say too: they want this new layer on top of the wealth pyramid, they have to prevent additional money printing from flowing into gold, and hence have to distract it.

FOFOA said...


Do you really think carbon credits will draw in private capital for investment? The only capital that will be drawn in will be FORCED capital. This may be a new level on the pyramid, but not a very good one if you ask me. And not one that will be very attractive.

If I produce too much carbon I have to either buy credits from this market to offset my emissions, or else I pay a tax, or else I cut my carbon emissions. If the price of credits exceeds the tax, then I will just pay the tax. If the tax exceeds my profit margin, I will cut my emissions. Ultimately I will become less productive.

This "market" cannot "bubble" at all without destroying productivity!

The effect of this scheme fits in my new theory. UNPRODUCTIVE MONEY CREATION.

The "monetary base" (M0) is unproductive. It is NOT tied to someone's debt. No one has agreed to work it off.

The actions of our government have DE FACTO morphed MOUNTAINS of productive money into non-productive money, just to save the banks. "Productive money" is supposed to disappear if the productive entity defaults (stops producing). [This is the banks booking the loss] Zimbabwe switched to 100% non-productive money. 100% (M0) monetary base. 0% (M1) debt based (credit based). It's like Anon's row of shops! If they all close for business, what are you going to buy with your $2T?? With the de facto guarantee of the FDIC and other guarantees, our entire M1 has taken on the properties of an M0. In other words, we are becoming Zimbabwe and we don't even know it yet. This is less than a year old, and the market hasn't figured it out yet.

This scheme is destined to accelerate the trend. But I will be very surprised if we ever get far enough to see the implementation of cap and trade. I think we are too close to the end!


FOFOA said...


See if you can identify something in this video that has FUNDAMENTALLY changed in the last year.

FOFOA said...

Party like a Rockstar...

Martijn said...


Many things to see:
-No more blatant lies. A year ago Geitner (Paulson) would have probably just lied, now he openly ducks the question (and admits more bailouts underway).
-Smart questions, the guys posing the question is beginning to understand where it's going and actually tries to do what people thought they elected him for.
-Open discussion about how the market is totally rigged.

Wonder what it was that you saw, fofoa...

Did you guys read FDIC funds do not exist?

Martijn said...

This is a big power game around the Ron Paul bill.

The dollar will fall, we all know it. However, they are trying to blame it on congress if they continue. This is a big threat, and not necessarily a bluff.

Martijn said...

Good rockstar clip btw.

FOFOA said...


The FDIC funds do not exist. This is true. But what has changed in the last year is that an implicit guarantee now exists that any funds needed WILL be created if needed. This implicit guarantee extends well beyond the tiny M1 and your local bank account. The FDIC is now guaranteeing "other things". And what we can see from Geithner's answers is that "implicit guarantees" exist up the pyramid at higher levels too, M2, M3.... M16?

These guarantees may not be explicit, but their implicit nature was proven to be as good as gold last year when Paulson's "bazooka" was actually used.

What has changed is the entire system of risk management. This extends to the very nature of the dollar, which only beats an asset like gold during normal times because the system compensates risk with interest. But the risk that is compensated (say .5% in your savings account) has been eliminated by implicit guarantees that were never meant to exist at this level.

This changes the very nature of money that we have known for 96 years.

The risk of default has been replaced with the risk of Zimbabwe. However compensation for this new risk is not yet acknowledged in interest rates. This is the current flaw of the dollar.

On the surface these guarantees seem to solidify the safety status of your .5% savings account. But that is not where logic leads if you spend any amount of time thinking it through.


Martijn said...

Correct. In de video Geitner basically admitted to be one printer-finger-happy bro. And that indeed is the game: by guaranteeing risks with a printer, interest rates go down, while behind your back the money you've worked hard for to obtain is replicated with a finger click.

This whole story has a slight hint of being unsustainable, now doesn't it?

FOFOA said...

My theory (and I'm still working on it) is that the main difference between Zimbabwe and the $-system is that dollar creation is attached to someone's debt. Someone has agreed to work off the new dollars created with sweat and elbow grease. This difference can be boiled down to the two kinds of money that exist. Debt-based and the monetary base, which is NOT debt-based.

Imagine you are starting a new system - the dollar. You must begin with a relatively small monetary base and from there you can grow a fractional reserve system, creating new dollars every time someone agrees "to work them off". This system can only thrive as long as productive default creates a monetary loss. Once you eliminate the risk of that loss, you have switched systems to one that simply grows the monetary base.

This is what Zimbabwe did which created massive hyperinflation of prices. It began when the Zimbabwe government seized the productive farms and redistributed them to new, less-productive owners.

We are on a different path that leads to the same end.

My theory is that you do not have to actually EXERCISE the guarantees in order to experience the result. The mere EXISTENCE of the guarantee changes fundamental nature of the underlying units from debt-based to monetary base.


christian said...

FOFOA earlier you made some kind of comparison between US debt money and ZIMbabwe dollars

nearly 95% of U.S "money" supply is in Credit .....not tangible bills

i would wager to guess zimbabwe with their 100,000,000,000 notes is "a tad" different ...yes

FOFOA said...

Hello Christian,

Don't let the large denomination bills in Zimbabwe confuse you. They were only the end stage of a terminal disease. It was not many years ago that Zimbabwe was using twenties and hundreds just like us. But the disease was killing the patient even then.

It is not as simple as digital credit money versus physical cash. Think through the qualitative difference between "credit money" and the "monetary base" in our fractional reserve banking system for 95 years, from 1913 until August of 2008. The simplest way to think about this is the money created when somebody bought a home. That money was balanced by a negative book entry somewhere. That book entry was a hole that needed to be filled by the debtor making payments. If the debtor defaulted, the bank had to sell an asset to fill that hole. But something changed.

By guaranteeing that NO money will disappear, we QUALITATIVELY changed the credit money system.

So far we have doubled the monetary base... ON THE BOOKS. My Thought is that we have actually grown it by one or two orders of magnitude through "what lies behind" Timothy Geithner's pompous attitude in that video. The implicit guarantee of a whole lot of stuff!


FOFOA said...

Open letter to Paul Volcker

Fekete proposes Freegold to Paul Volcker. Concisely I might add, in only two pages!

FOFOA said...

Geithner says strong dollar is U.S. policy
Jul 11, 2009, 4:29 p.m. EST

"WASHINGTON (MarketWatch) -- Treasury Secretary Timothy Geithner said that a strong dollar remained U.S. policy. "I deeply believe that," Geithner said. "Our commitment is to the world and, of course, the American people that we are going to make sure we put in place the policies that can sustain confidence in this economy and this financial system," Geithner said. The Treasury Secretary said he was not worried about talk of a new global reserve currency. He noted that global demand remains strong for Treasurys. Geithner made the comments in an interview with CNN that is scheduled to be aired on Sunday. A copy of the transcript was obtained from CNN."

Anonymous said...

Good news from South Africa :

Martijn said...

Obamania cooling down

Anonymous said...

Geithner (strong $) : Continues *talking* substance into the empty $-shell(s). (Trip to Middle East - petro-$$$)

Debts and deficits are NO substance. There is nothing else left but UN-CREDITWORTHINESS.

Martijn said...

the money programs are an integral part in funding the US war effort. CNBC is owned by GE - a major war profiteer and to help finance the war they need lots of people to lose lots of money. It’s the same business model of a casino that is funded by the losers, not the winners. Cramer is there to keep the war money coming in. It’s a lot cheaper to fund war from money people are willing to gamble and throw away than to go through the expense and hassle of congressional appropriations, etc.

Anonymous said...

Facts and figures !


Anonymous said...

* EMPTY SHELLS * all over !

(Telegraph snip)

While postal workers are up in arms about job cuts and working conditions, their anger could soon pale into insignificance under the cloud of a far greater threat. At stake for many of them is their future financial security. The postal giant is considering whether to close the company's retirement scheme to existing members, forcing them to join a new pension pot with less lucrative benefits.

Martijn said...

More on GM

Unknown said...

I still have a question related to the previous posted article "gold , oil and money in the FM" , I'll post it here as it might not be read anymore on the article itself (forgive if I'am wrong)

If I understood the article correct, the Saudi's want real money (Gold) for their OIL.

Imagine they succeed to do so and within 20? 30? 40? years they ran out of oil but instead they now sit on tons of Gold bars.

Then what ? What did they achieve now ? What will they do with that ?

Probably they need to import food and various other things as they only have sand and gold bars.

Probably they need to buy some German solar technology to keep their air conditioning running.

They might even need to import oil from recently detected oil fields (like the one in Brasil)

For all of that they probably need to exchange their gold for foreign currencies (dollars, euros,...)

So in the end they could have kept their petrodollars and invested them in other currencies, actions , etc... it would be the same outcome as doing all the hassle to get the gold.

Martijn said...


That is correct. However, as we are seeing now in e.g. Iceland, England or Latvia, a paper currency can quickly devalue until it isn't worth much more than the paper and ink used to print it. Basically holding paper wealth bears with it great risk, much more than holding oil.

Why would the Saudis want to exchange their relatively risk free oil for the risky paper business of the Americans?

Martijn said...


My theory (and I'm still working on it) is that the main difference between Zimbabwe and the $-system is that dollar creation is attached to someone's debt. Someone has agreed to work off the new dollars created with sweat and elbow grease. This difference can be boiled down to the two kinds of money that exist. Debt-based and the monetary base, which is NOT debt-based.

Interesting theory. It seems however that even the TARP and other recent measures have some sort of debt against it: the national debt.

This crisis is one of debts that are becoming increasingly less likely to be paid back. Note that your money in the bank is not really your money in the back too, it is nothing more than a debt the bank has to you. All debts are becoming less likely to be repaid, and at the same time new debt that is even less likely to be repaid keeps being issued.

It has many similarities to a Ponzi scheme indeed. However, the government can always print it's way out of a Ponzi scheme. So it is not a paper Ponzi, it's a wealth Ponzi!

Martijn said...

And "debts" issued recently indeed are very unlikely to be repaid...

Unknown said...


Ok you're right. But they should diversify of course, they could hold dollars, euros, yens,...

They could buy portions of BMW, Porsche, Banks etc...

In fact, if the Saudi's were really smart in my eyes, they should massively invest in alternative energy solutions. I would not buy Gold, I would massively invest in solar technology (either photovoltaic or with mirrors) and put them in my backyard. As such, I'm sure that even in the post-oil era, I'll be the major energy supplier...

Martijn said...


What's really smart is to invest in the one thing that will hold its value: gold.

All paper stuff is easily replicated, easily manipulated, has counter-party risks etc. etc.

Martijn said...

When demand for newly produced fiat drops too low, collapse is all that can occur. All ponzi's need buyers. As the foreign market demand remains flat (or goes inverse), and demand for local goods and services remains low, there won't be enough consumption of fiat.

Fiat can be consumed forcibly. Just pour it over the market and it will be used. Until the psychological hyperinflation event occurs that is.

Anonymous said...

Japan's reserves diversification !?

July 13 (Bloomberg) -- Japan’s opposition party, leading in polls ahead of next month’s election, said the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds.

>>> But that same $ is the major component of the SDR-basket !?

Maybe add some freegold into the basket...

Unknown said...


yes you are right, gold is a store of wealth in itself , I agree.

But my question was related to the Saudis and then ? What's next ?

Just storing your wealth in gold reminds me of the parable of the talents. Storing the wealth in gold seems like digging your talent into the soil to make sure you don't loose it instead of exploiting it.

For countries like Saudi Ar it would be so more interesting to invest the dollars in solar energy, attract scientists and do investigations on cancer, AIDS, malaria, invest in new generation of cars,invest in fusion technology etc. there are millions of interesting things to invest in and to get return from and to be prepared for the post-OIL era. I cannot believe the Saudis just want to change their oil for gold and then sit on gold instead of oil. If the goal is just to preserve your wealth they can leave the bloody oil in the sand, that's also a store of wealth without counterparty.

Martijn said...

If the goal is just to preserve your wealth they can leave the bloody oil in the sand, that's also a store of wealth without counterparty.

Correctly so, but then we would have the solar companies at some time eroding the value of your oil.

And with their wealth stored in gold, they can at least determine for themselves when to invest that wealth again, instead of the paper bosses determining what the dollar is worth.

Martijn said...

We know nothing about the gold digged from American goldmines and the UST remains mute about its goldreserves. A Very significant/fundamental difference with Russia/China.

What do we know about China, with certainty?

Martijn said...


Sinclair is seing it too:

Insurance is only as good as the entity insuring it.

Good means a strong balance sheet. This is MBIA with one difference. The FDIC via the US Treasury and Fed can simply print the paper to repay your deposit.

The rub is by doing so the paper you get will buy ever less amounts of goods and services.

MOPE says if you say it is guaranteed, the guarantee will not be called upon.

This is the road to California, financial highway 666

FDIC expands bank deposit protection

Interesting material indeed. Off course these guarantees are partly mend to have a psychological effect. As long as they're not called upon, the road to Zimbabwe stays relatively long. However, as we continue in time, calls on (implicitly) promised new money will be made, and Zimbabwe will come closer every step.

Anonymous said...

@ Martijn : From China we now with certainty that this plan-economy ***liberalized*** gold for its citizens and that the PBoC has been ADDING to its goldreserves !
China shall soon become world golddigger N°1.

More than enough gold-certainties for me :)))

Anonymous said...

Saudi Arabia : Gold - Oil

The ***VALUE*** of the remaining Saudi 100 yrs oil-reserves will dramatically increase during the next 100 yrs !
So will the universal exchange VALUE of the goldmetal.

The only problem that SA faces is oil-theft by the $-regime (cfr. Irak) !

I'm convinced that the old 100 yrs compromis between the West and SA will not remain the same during the next 100 yrs.

Others will come up in defence of this oil-wealth. This is the root of the problem with Iran.

Peak oil = Peak CHEAP/EASY oil !!!

S said...


Check out this post on FT/Alphavill re Gold backwardization.

Also MAudlin out with comments saying the amrket will suddenly realize the US simply can not raise the $2 Trillion it needs. Where is the money going to come from? Also please consider the Japanese calling snap elections and the oppositiojn saying it wants to diversity the reserves. I must say Leap 20/20 is looking very prophetic in their timimg of a late summer sept inflection.

Martijn said...

I agree that China is stepping on the gold trail.

Martijn said...

The fekete letter was posted by fofoa already I believe...

Interesting piece. So far the EUR gold price seems relatively stable. As soon as it breaks 680 an increase is likely. Summer months however are usually not the time for moves like that. Low volumes and little activity make the markets relatively easy to control for the big boys.

FOFOA said...


"As long as [the guarantees are] not called upon, the road to Zimbabwe stays relatively long."

This is the part I am not sure about. The guarantees alone CHANGE the fundamental nature of the underlying unit. As such, they change the risk associated with it. Markets tend to price in risks once they figure them out. So far, the new 11-month-old risk is not priced in.

Remember Paulson's "Bazooka"? It was said that he would never have to use it. That its mere existence would do the trick. That was a little less than a year ago. Today we have Geithner reminding congress that TARP is a perpetual blanket! PERPETUAL! GUARANTEE!


"the market will suddenly realize the US simply can not raise the $2 Trillion it needs. Where is the money going to come from?"

This is what I am saying. And it is not just $2T. Markets also use a time function. They look FORWARD in time! Looking forward 10 years what is the number? Baby boomers, social security, bailouts, Obamacare, Obama-this, Obama-that....


S said...


FT quotes 161K tons of gold (which I think implies ~5T in "value" at current prices. This is vastly inferior to global monetary needs no? Have you done any calcs to quantify what the price would have to be to return to a gold like standard?

Martijn said...

Markets tend to price in risks once they figure them out.

That is correct. Perhaps they did price in something before it became explicit knowledge to the world.

FOFOA said...


"It seems however that even the TARP and other recent measures have some sort of debt against it: the national debt."

Yes, not all the money being created right now is "monetary base". In fact, Treasury debt is one of the few credit moneys still being issued. The negative hole to be filled is held by the buyer of the bill or bond. The interest paid is supposed to price in the risk. So far it is not.

The funny thing is that in the case of Tbonds the guarantee of performance is SO DAMN blatant that the bonds themselves become a sort of money, when they are really just a hole.

This is one part of the theory I am still struggling with.


"Have you done any calcs to quantify what the price would have to be to return to a gold like standard?"

No I have not. It is not as simple as that, but the complexities only make it more extreme. Will it balance out with the gold held by the debtors versus the debt? That is a different formula. The forward debts of the US are approaching $100T. All property/wealth in the world is somewhere on the order of $200T. Then there is the collapsing "swap" markets that may exist at around $2Q.

Of all the gold in the world only a small amount is available on the markets. The price must reach a point where any weight demanded is readily offered. Supply must meet demand. This is the key.

SteveH has done some calcs. Have you read any of his?


FOFOA said...


"Perhaps they did price in something before it became explicit knowledge to the world."

The markets ceased being forward looking about a year ago. Did you notice? I suspect they detected the presence of a new "invisible hand".


FOFOA said...

@ ANON : Facts and figures !


This is all out in the open now!

The market desperately WANTS to balance itself out. As an organism, its very LIFE depends on its self-correcting nature. But something is preventing this life-saving immune system response. The "T-cells" are being suppressed. The only option left is a quick death.

Anonymous said...

Permanent gold
backwardation (negative gold basis) is staring us in the face. The gold basis is trying to tell
you something. said Fekete. But nobody says that except F. Is it actually true???

FOFOA said...

"Permanent gold backwardation (negative gold basis) is staring us in the face. The gold basis is trying to tell you something. said Fekete. But nobody says that except F. Is it actually true???"

I believe it is true. Nobody really understands it. I have many posts about it.

Just search "backwardation" at the top of this blog. I count 10 posts I have made.

Anonymous said...


Tekin said...

Cash-strapped Spain has ordered its navy to look for huge gold reserves that were lost at sea in the 16th century.

Gold bullion and silver treasure worth an estimated £85billion - the size of the nation's current budget shortfall - lies on the sea bed off the coast of southern Spain.

The Inca and Aztec loot is believed to be in heavilyladen vessels which hit the bottom of the sea in bad weather as they returned to Cadiz from South America.

Naval mine sweepers are to begin radar and sonar surveys to try to locate the wrecks.

Martijn said...

It is always difficult to tell what the market has priced in and what not. Perhaps those subprime loans already priced in some of the free dollars that came available over the past year.

The market is pricing in green shoots. Those green shoots are nothing more than freshly printed greenbacks whirling around.

Martijn said...


And yet another yellow signal. They seem to be all over the place. Maybe that only indicates me looking in other places, but I hardly think so.

Martijn said...

The market desperately WANTS to balance itself out. As an organism, its very LIFE depends on its self-correcting nature. But something is preventing this life-saving immune system response. The "T-cells" are being suppressed. The only option left is a quick death.

The rock star clip indicates that some market entities are making a shift into brutal self enrichment without caring too much about the future, they really seem to just grab what they can. Perhaps they have adapted to a new reality.

Anonymous said...

My opinion about "market" and "pricing" :

I see the hard core of the $-FI / the $-system/regime as a closed circuit where a strong fraternity can set prices and fluctuating market sentiments through "inside" circulation. As if a closed group of gold advocates let gold and gold contracts circulate from A to B to C and back to A.

This fraternity market/pricing becomes the reference for all the satelites around them (their system).

This fraternity creates the market/price standards at the $-system/regime's sole convenience.

Result is, that we cannot applicate normal (evident) logic on what is happening.

This extremely strong $-cartel has been established for decades with the conscent of a global majority that was quite happy with this regulating "system".

But things have changed and still are changing more rapidly. This good old $-system and its modus operandi is being challenged because it is defaulting. There are big cracks in the programming of it. But for the time being the absurd logic still goes.

Anonymous said...

continue :

Fifteen years ago, I already concluded that there was no free-market left and that we played the FI under a severe $-cartel regime.

I saw an alarming number of good market-timers having it crescendo wrong ! The free market had evaporated and we were all doomed to become wagers/punters instead of investors.

Today, I remain totally convinced that there is NO (!!!) way back to something that even resembles a free market !

I simply wait for the entire system to CRASH into a DEPRESSION.

FOFOA said...


"Perhaps they have adapted to a new reality."

The market organism is made up of millions of people. What you described is the scorched earth retreat of individuals in self-preservation mode. This is the clearest sign of the disintegration of the market organism as a body. It is falling apart. It is like sloughing skin or a finger falling off a leper. Would you say the fallen finger has adapted to a new reality? I suppose you could say that.

Perhaps it is more like a parasite abandoning a corpse. But usually death kills the parasite as well.

Anonymous said...

Yes Martijn. We call this graai-subkultuur (Dutch). Maybe you can translate this word. (my Englisch is poor)

FOFOA said...

ANON: "Fifteen years ago, I already concluded that there was no free-market"

This is an important observation. Armstrong also corroborates your observation.

We are not living in something new. We are living the end stage of the crescendo (as you say).

Anonymous said...

A very recent example of UN-FREE Market/Pricing :

Look at the unbelieveable priceswings for $-oil in the last 20 trading days ! This is totally absurd and has absolutely nothing to do with a "market" ! And NOBODY says a word about this obscene/pervers fenomenon (system).

And this is already happening for the past 15 years !

Be the first to discover (realize) w're living in a global madhouse and that one better sleeps outside on a golden pillow.

Anonymous said...

Yes FOFOA, we are indeed living the end stage !
Because today, I see the same crescendo madness/idiocies happening in the political industry (yes, industry !)

All citizens (top to bottom) are fast losing their capacity to "think" (and act) as an individual. And I don't say this lightly.

Anonymous said...

You are such optimists! It's lovely to see how people still keep hoping even if they have to wait years and years.

Anonymous said...

How does one swallow such a pill !?

July 13 (Bloomberg) -- The U.S. budget deficit topped $1 trillion for the first nine months of the fiscal year and broke a monthly record for June as the recession subtracted from revenue and the government spent to rejuvenate the economy.


FOFOA said...

OPTIMISTS? Is that what we are doing here?

I would like to repost some anonymous words from a few days ago. How true...

The real gold advocates (infinitesimal/homeopathic small group) need to evidence that the system is "crashing" ! A very unthankfull occupation.

"Evidence" of this will manifest itself, step by step by step...

Martijn said...


A totalitarian system disguised as a free market revealing itself does not necessarily mean the end of that system.

In the past the system already ate most of the wealth people thought they had saved (pensions, savings, homes, etc).

Now it reveals itself for the monster it is.

The beast coming out does not mean it is dead already. You said yourself you were expecting a surprise.

I do not disagree with the logic predicting the monster to die eventually. But I do wonder what powers the adrenaline it gets from struggling for its life will give it.

FOFOA said...

But this is not a pure totalitarian system. This monster NEEDS to feed on fresh prey. And the prey is disappearing just as the monster's appetite has gone parabolic. This is a situation that cannot continue without a surprise of some kind!

Martijn said...

On markets pricing in risk:

Perhaps the big guys already figured out a couple of years ago that they were entangled too much to let one of them fail without dragging on the system. Once you realize that situation, you will simply not insure it.

This does add up to theory of a major change in the game.

Martijn said...

But this is not a pure totalitarian system. This monster NEEDS to feed on fresh prey. And the prey is disappearing just as the monster's appetite has gone parabolic. This is a situation that cannot continue without a surprise of some kind!

Agreed. Once the food is gone the real trouble will start. So far I do not think desert is served yet.

And yes: surprises will be all over the place.

Martijn said...

What I mend is: the day I get a highly credible life threat or get diagnosed with a terminal desease I will most likely not accept any offers for insuring my car, or whatever else. I might even stop paying my bills, what's the use?

This is how the big guys have been pricing in risk, haven't they? They already new their diagnose.

FOFOA said...

"I might even stop paying my bills, what's the use?"

This is true for other people's money! OPM! Sure, they will buy shitty bonds with shitty interest rates using other people's money. They will prop the markets with OPM. But with their own money, they are only sellers! And the only buyers in this market are the Fed and OPM being managed by a few insiders (plus a few really retarded sheep).

Pricing in risk is the only way the market can lure in fresh blood. This ain't happening. Nothing is priced right. It is now cannibalism central. The body eats itself as the insiders sneak out the back door. ALIVE! (the movie)

Yes, I think they do know the diagnosis. Yes, I think they are milking the system with OPM (including PPT OPM) as much as they can. Like a spider sucking the last drop of blood out of a dead carcass.

This is why I think the end is very near! Add on to it California, pensions, US deficit, reserve currency discussions, etc.. etc... The aggregate of evidence is much larger than even last year. Surprises are coming!

Martijn said...

The aggregate of evidence is much larger than even last year. Surprises are coming!

Much larger indeed. As Sinclair said: Japan is a state of the US.

They are openly calling for abandoning the dollar. When sufficient steam has been built up we shall see a stampede. In that you are right; we can only try to sense how much steam has been built up so far, but we can only see a it once the cylinder cracks. Than it will be too late.

Anonymous said...

Of course "optimists". Otherwise you would't believe the mightful USSA could break down! It might take another two decades economists say.
So everybody wait patiently sitting on his gold pack to see it happen.
Hope u're not too old!

Siege said...

The beast will not hunger for some time. When taxes faulter, and printing has failed, forced nationalization can provide much nourishment. The beast will thrash about for many a month when the cracks bust open.

There is one possibility that I would like feedback on. If a global currency were to be created, is it inconcievable that the US would bury many of it's issues within? Solvency of banks wouldn't be a concern if they were nationalized. Every nation holding US debt paper would be in favor of a system that permits it's exchange, at least in the short run.

S said...


don;t know steve h? link?

I think the cit bail is emblamatic of the incumbant strategy which is to transfer all the debt onto the public balance sheet and then blow it up in some form or fashion. The secret is to keep the game going so it can be accomplished. This is what the artificial rallies are all about. The equity market is unhinged. It has ceased being a price discovery mechanism, if i ever was.

FOFOA said...


Here are a few fun links:
Link 1 (follow GATA's link to for Steve's article)
Link 2
Link 3

Is he "tongue in cheek" or is he serious? I'll let you decide for yourself.

I also have some of his older writings from 1999 and 2000 on the subject of Freegold linked here. They are all worth reading.

He was one of a very few posters on USAGold 10 years ago that was still there up until the end, last month!


FOFOA said...


I'm afraid I don't understand your question.

Siege said...

Well, it seems one of the concerns about a US dollar demise is that so many nations hold them as assets. While this is the case, it's improbable debtor nations will short the dollar, so the demise is drawn out. Many parties speak of their faith, while all try to exchange for something tangible without being seen or correctly interpreted. Fear keeps dumping in check.

Because so many nations hold USD and don't want to lose what they have, it seems to me that the new system will be hastily accepted if it offers an out. Is it possible for all nations to pool their treasuries into the system, US and otherwise, and come out holding denominations of the new world currency instead of their USD? This would disolve the collapse into the system, and because the system would now owe the debt (instead of the US) it could stave off the collapse.

I've been trying to figure out how the US could or would game the entrance of this proposed world currency. So far, the best I've come up with is for them to disolve their debt within. Is this concievable? My mind keeps playing the idea, but I can't pin down whether it could actually occur. And if not this concept, what alternate? I don't anticipate the entrance of a world currency that isn't gamed in some way.

J said...

After thinking this over again..don't you think the guys up top would benefit the most if they could pull off a 2 or 3 stage re-evaluation?

Let the POG rise to 3k and then knock it down to 2200 or so to grab Gold from the weaker hands. Let it rise to 10k and knock it back down to 7k or less to again grab as much Gold as possible before the complete and final rise takes place.


I believe they know what needs to happen but are currently delaying the inevitable, if they're able to hold it together now I don't see why they can't initially control it's rise to gather all they can..unless of course the line in the sand is around $1100 or so and then the rubber band does in fact completely snap.

Anonymous said...

Nice, sane article FOFOA. It could happen that way. But it could also happen that the $ will be abandoned for a new currency altogether. We ordinary mortals won't know until it happens.
Anyway, if the devaluation thing happens, how much do you think it would have to be at a minimum in order to have impact?
And, importantly, what impact would a devaluation have on the elephant in the room, the gazillions of derivatives still floating around? A solution that doesn't take care of these is no solution.

Anonymous said...

Your right! And check out this DOOMSDAY CLOCK! We're on day 48 and counting!

OhBaldOne said...

So, folks, where does all this leave the gold stocks? As we look at our portfolios in gold stock grow, will the "Great Resetting" trash these dollar denominated equities, or will they shoot the moon like the physical gold price? Also, what about silver? Where does this stand in the Great Game? Any thoughts out there in the ether would be most appreciated by everyone who is reading this and holds both physical and paper gold and silver. Oh, and what does one do with cash in the bank…withdraw it asap and buy more physical, or keep some in reserve for emergencies? Best of luck to us all!

Anonymous said...


I really enjoyed reading this blog, my first time here. Your theory is in line with my thinking although from a different dicipline. As such, from a confused state of mind, I would sincerely appreciate a straight forward response to the question, what would you do with 40k sitting in a bank account? Thanks in advance and I will now peruse your past writings.

Anonymous said...

Unity In Diversity has been plagiarized from The Baha'i Faith. despite "the powers that be" still fomenting wars and intolerance toward our fellow human beings... humanity will emerge from some "birthing process" kind of crisis to act as one family, one people, one planet.

Anonymous said...

its funny, that you only look at part of the puzzle; the economy. what happens to oil, the environment, people. you think everyone is going to sit idly by, hell no. violence will overtake everyone, everywhere. it will take years just to reign in the masses and by that time the environment will be doomed. this may be the end of human existence. wipe the smile from your face.

Anonymous said...

It was palladium, not Gold. Palladium is part of the Platinum family - GET IT RIGHT!!!!It was NOT GOLD.

American Gold Coin Prices said...

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Anonymous said...


Again if we think about the money-pyramid every layer is shorting the layer below it, right ? So in this case defaults (extinguishing of amounts) in one layer will cause increase of the "value" of the layer below, my point is at the moment imploding of derivates causes increases of the "value" of the layer below it... but some of the derivates are converted directly to large-bank-deposits,cash..etc. (i.e. M0, M1 and M2).
The problem is that the base of the pyramid M0 is probably the strongest because it is protected very well by the bank interests and that will cause the effects the deflationists expect.

I think up to this layer the reasons for collapse are mostly technical. For the currency layer to collapse we need psychological reason.

So now up to my question again ;")
I agree with your conclusion... but all of the evidence is circumstantial. That is what worries me.. I also think it is out of their control already, but still they succeed to stop this process in 1934,1971 and from what I read 1987-99 ..and also except that we are now in more dire circumstances what make you think that BIS/ECB didn't change their mind.. a year ago they were saved by the FED with those 500B $ swap lines. ?!
Worse conditions don't mean they wont try to prolong it even more.
I get into account that China now is pushing too, but they can postpone the danger if they give her the 400 tonnes IMF gold.
Causing drop in the price of gold, shaking the weak hands...and save themselves another 4-5 years.

Anonymous said...


I missed to say something. Let me be clear that I agree with your explanation and conclusions close to 99% ;)
The reason I'm playing devils advocate is that you seems to have the gift to articulate your thoughts, ideas and patterns you find in a simple easy to understand way.
The way can't explain it to myself ;)
I have read quick explanations of what money is many times, but when I read your articles it was my AHA!! moment ;).

I just wanted to be clear from what standpoint I'm asking the questions.

Probably the biggest conceptual problem is that ppl don't see the money the way they are and that is why we are living in inflated currency system.

Why you think we did not learned for so many centuries experiments with paper money ?

FOFOA said...

Hi Raptor,

Have you read my latest post yet? Gold is money part 2? It talks about our human instinct to NOT hold the transactional currency for the long run. So if the upper levels have collapsed driving scared value into currency, at what point does it seek a new "long term" asset in which to rest for a while?

Perhaps that point is when it sees the entire world shorting the dollar as the new carry trade currency of choice?

Can you see that those $500B swap lines are a huge short on the dollar? They essentially borrowed $500B and then lent it out (or sold it out) into the euro banking system, which needed dollars. So the ECB has a large short position on the dollar right now.

Also, paper gold sales by the euro-system were also a short on the dollar... by assisting it on its way to the breaking point!

Here's a good one from Jesse.

Also, the continuation of the Washington Agreement tells me that the plan is still active. I have more info on that, but not at my fingertips.

Also check out this rant by Bill H on Midas. Not that I totally agree with it, but from the perspective of "the elites are running the world", it makes a good point...

Bill H:

Holy Cow, CNBC talks of a Gold standard?!

To all; CNBC just did a 5+ minute back and forth piece on none other than "The American return to the Gold standard"! Say it isn't so! I am shocked beyond shocked that CNBC would even entertain a debate of this sort! Even more shocking is that neither guest was a "bullion bank shill" lying (pun intended} in the weeds to trash Gold. I didn't even see any tin foil hats! This tells me that "the powers that be" know just how close the "rig" is to collapsing. My thoughts are that these nefarious "dark forces" have over time accumulated physical metal and reversed their shorts from the algorithmic implosion of mining shares from last year. In other words, THEY ARE LONG GOLD AND THE MINERS.

Think about it, CNBC would never air anything this "controversial" without prior permission from their "bosses". It looks like "permission granted" to me! THIS is big stuff! Don't get me wrong, we have uncovered Central Bank sales, bullion bank hanky panky, COMEX and ETF shenanigans, naked shorting of the shares, etc., but THIS is the first "zephyr" of a tail wind! If I am correct that the cabal has quietly reversed it's position from short to long, the markup phase in the metals sector will be like nothing ever seen before.

This comes at the same time that Gold has broken out and above $1,000 and 4 figure Gold is becoming "comfortable" and "normal". The $700-$1,000 base took 3 years or so of "grinding". It was during this grinding period that I believe the shorts were reversed. What would stop the bullion banks from selling "paper Gold" under one corporation while accumulating physical in another? So once you are "fully loaded" on the long side, oops the short side just defaults and the corporate shell that was short just defaults and closes up shop. Pretty good game huh?


FOFOA said...


It will be interesting to see whether talk of a new "Gold standard" starts to spread and gain traction. I suspect it will at the behest of "the owners". The "owners" as they like to call themselves have been behind every and all important events for 300 years or more. Short squeezes, bubbles, market crashes, wars, etc., big and in the know money have been behind all of these for hundreds of years. If the media begins to "get behind" the metals, you will know that they do so with consent from the "owners".

As I have written about numerous times, THIS is for all the marbles. THIS is for ALL the global wealth and power! THIS will be the greatest transfer of wealth and become the greatest concentration of wealth in all of recorded history. I say "concentration" of wealth because compared to total "global liquidity", physical bullion is not even a pimple on an elephants ass. The mining sector is even far smaller. Once the short squeeze begins, good luck getting in on the long side! The old saying "bull markets try to buck off as many participants as possible" is very true. Can you figure out why? I believe the "markup phase" will occur while markets are closed. How better to allow "financial survival" to as few "paper refugees" as possible?

I know this piece sounds somewhat "conspiratorialist" or a bit "science fiction", but so was talk about the Dollar losing it's reserve status before it was fashionable. Heck I can even remember being laughed at for talking about $600 Gold. In retrospect, $600 Gold was laughable! Regards, Bill H.end

Anonymous said...

oops sorry, can u delete the last 2 comments I mean to post them in gold-is-money-2

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