Thursday, May 6, 2010

The Dukes of Wetton

As he left town, James could hardly believe he now owned the hotel he had just slept in the night before. He thought back to earlier that morning, when he looked out his hotel room window to see the former investment banker in the funny helmet delivering his transportation to the front entrance...

66 Years Earlier

Once upon a time there was an old western town so isolated that it was, for all practical purposes, like a continent unto itself. It looked something like Gunsmoke, but bigger. Maybe like Little House on the Prairie with let's say about 10,000 residents in the vicinity and a long one-street business district called Main Street.

On a hill at the west end of town, in a humongous white mansion (the largest building in town) lived a big fat man. Let's call him Boss Hogg. Boss Hogg owned about half of all the businesses in town including the saloon, the bank, the livery, the foundry and the jail. He was also well known to have the largest stash of gold by far. He made no secret of the fact that he had 22,000 ounces of gold, twice as much as the rest of the town combined!

No one knew how Boss Hogg came into so much wealth, but it didn't really matter. For all intents and purposes, Hogg was the effective "King of Wetton Broods" (that's the name of the town).

One fine day in July Boss Hogg called a meeting on the grassy knoll in front of his mansion overlooking Main Street and the sprawling Wetton Broods. The whole town was in attendance as Hogg had a big announcement to make. He stood there in front of the masses with one large object on his left and a smaller one on his right, both concealed with draped bed linens.

As he spoke, Hogg first unveiled the object on his left by pulling the sheet. It was a large printing press. Hogg announced that he had just purchased the finest press in the world: the Greenben-5000.

He went on to explain that he would begin printing new money for the entire town of Wetton Broods. Never again would the town have to worry about a shortage of money every time one of its wealthy residents left for foreign lands with his gold. Boss Hogg himself would provide all the liquid money the town would ever need!

The people in the front of the crowd stood up cheering and applauding wildly until their Special Ed chaperones motioned for them to sit down and put their safety helmets back on. From the back of the crowd a businessman hollered, "Why would we use your money, Hogg?"

"Ah" replied the Boss loudly, "I knew someone would ask that question." And as he spoke he jerked the cover off a three-foot pile of gold coins to his right. The crowd in front gasped in amazement at the sight of such shininess and started beating their heads with their fists.

"My money," proclaimed Hogg, "shall be redeemable in my gold!"

18 Years Later

As the years went by, Boss Hogg's paper money became very popular in Wetton Broods. Everyone wanted more and more of it, and just as he had promised, there was never a shortage.

Boss Hogg himself amassed almost unbelievable wealth through the success of his money. And incredibly, he was also able to do less hard work in the process. He tore down his magnificent mansion and built an even bigger one. And he bought up other things as well, like the love and adoration of the people. Boss Hogg was living the good life.

Now you can call it jealousy or simply an alert eye, but a few businessmen from the east side of town were not as impressed by Hogg as most of the people were. They made note of a few curiosities and gathered together occasionally to discuss them.

For one thing, it seemed that everyone in town (including themselves) who was really productive and refused to be lazy, was cashing in their HoggBucks for gold. This trend, to the best of their calculations, had already depleted HALF of Boss Hogg's gold. They figured Boss Hogg may now own more than half of the town's businesses, but his hoard of gold was probably down to only 11,000 ounces remaining. And this was in a town with maybe 33,000 ounces of gold total.

And the other troubling observation was that the entire town, now grown to around 12,000 people, was entirely engrossed in this system of HoggBucks. They had literally forgotten that there was ever anything else. This was most disturbing because they realized that with half of his gold gone after only 18 years, there would probably be less than 18 more years until it was ALL gone!

9 Years Later

27 years after his first meeting, Boss Hogg called another one. This time he announced that his HoggBucks would no longer be redeemable in his gold. Instead, he said, they would be redeemable in fancy paper IOUs from he, himself, the richest man in Wetton Broods, Boss Hogg, himself. And that he would print these IOUs on the same Greenben-5000 that he used to print money! And once again, the helmeted crowd went wild. (This time the chaperones were so confused they neglected to calm down their patients.)

By this time the group of business-owners from the east side of town had given themselves a name. They called themselves "The Dukes" in honor of their noble old-world heritage and values.

And at this point, especially after Hogg's new announcement, the Dukes were seriously concerned about what would happen to commerce in their town when the rest of Wetton Broods finally realized what they already knew: That Boss Hogg's HoggBucks were nothing more than a Ponzi scheme, only valuable as long as the false confidence in their value persisted. And they began to discuss buying a Greenben-5000 themselves with the thought of launching a redundant backup currency for the purpose of maintaining economic continuity when the HoggBuck scheme finally failed.

To date the Dukes themselves had accumulated more of Boss Hogg's "redemption gold" than he had left himself. Hogg was down to maybe 8,000 ounces and the Dukes had about 10,000 ounces between them. The rest of the Wetton Broods' 33,000 ounces of gold was now widely disbursed among the people of the town.

In preparation for the possibility of launching their own currency sometime in the future, the Dukes agreed they would continue to accumulate any gold that anyone in town wanted to sell, even though Boss Hogg was no longer selling what he had left.

25 Years Later

For two and a half decades following the closing of Hogg's gold window the town of Wetton Broods grew more and more acclimated to using his "unbacked" money. Those that still wanted gold traded it for HoggBucks amongst themselves. And for 25 years the roughly 15,000 ounces of gold in general circulation seemed to suffice.

Sometimes the price of this "free gold" would spike upward and other times it would fall. Meanwhile the Dukes found it increasingly difficult to accumulate more gold without causing the price to spike.

With Hogg's gold window open at a fixed price they had accumulated 10,000 ounces in 27 years. Now in 25 years they had only added another 1,000 ounces between them. But they also noticed an interesting secondary effect. With the price of "free gold" rising 1,000% in 25 years, so too did the value of their gold hoard. So while they were only able to add 10% more physical gold, their overall wealth went up more than ten-fold during that same timeframe!

This was a curious development for the Dukes, and because they were not flashy with their wealth the way Boss Hogg was with his, it went largely unnoticed by anyone but the Dukes themselves. The Dukes consisted of Bo the stagecoach builder, Luke the tannery owner, Uncle Jesse who owned the local food diner and Daisy who entertained the visitors that came to Wetton Broods.

And for the first time in decades the Dukes could see clearly what they needed to do for the good of the community. They had already ordered their own Greenben-5000 which was being shipped. And now they had a plan for their new currency. If they wanted it to perform as a failsafe for the Wetton Broods economy they would have to correct the flaws in Hogg's HoggBucks that had become very apparent to the Dukes.

The first flaw which was apparent to the Dukes 34 years earlier was Boss Hogg's original gold exchange strategy. By comparing the first 27 years of "redeemable" HoggBucks to the last 25 years of "unbacked" HoggBucks, the solution became clear. As long as Boss Hogg was redeeming his money with his gold, the flow of gold was one direction only, out, and relatively quick. Hogg had lost 14,000 ounces of gold in 27 years and the Dukes had found it quite easy to accumulate 10,000 ounces themselves during that time.

But ever since Hogg's exchange policy was ended and the price of gold floated, the flow of gold was many-directional making it much more difficult to accumulate a large hoard.

The second flaw, and perhaps the more important one, was clearly visible in Boss Hogg's own flashy ways. For 52 years now Hogg had grown more and more fat and lazy. He had sold off most of his businesses in town and he now seemed to rely solely on his Greenben-5000 for maintaining his flamboyant lifestyle.

The common people in town hardly noticed, but the Dukes being business owners themselves could see that with each increase in his own lifestyle Boss Hogg was diluting the value held by everyone else in town. In fact, the only compensation the Dukes realized, the only relief from Boss Hogg's personal profligacy they found was in the ten-fold rise in the value of the gold they had redeemed from Hogg in the early days.

In addition to these two glaring flaws the Dukes also noticed a couple other subtle changes in Boss Hogg's money management strategy, ever since he had given up real work in order to focus solely on the maintenance of public confidence in his Ponzi scheme.

The first had to do with his fancy paper IOUs. 25 years earlier Hogg had replaced his gold exchange window with an "IOU window". This IOU window had been so successful that Hogg literally gave up all productive work just to keep up with demand for his paper IOUs. Part of the reason for their popularity was that Boss Hogg would date each IOU for some time in the future. And the farther off the date, the more money he would promise as a "kicker" on the IOU at maturity.

So the people of Wetton Broods were literally lining up for these high-paying IOUs. Some of the helmeted ones even laughed at the fact that they had ever wanted gold from the same window without any time-related kicker.

But the best part for Boss Hogg was that he never had to deliver anything real to these people that held his IOUs. The more productive people that were earning plenty of HoggBucks would just exchange their mature IOUs for fresh ones with new dates and new kickers. And in this way, they "watched their savings grow." This was Hogg's most popular slogan: "Watch your savings grow!"

For the people that couldn't roll over their IOUs, Hogg would just print them up some fresh HoggBucks, further diluting the wealth of the town. And no one except the Dukes seemed to notice.

And finally, for the people in town that were so poor they couldn't even afford Hogg's IOUs, he started a very special program. He called this program "Change You Can Believe In" and he taught these people how to issue their own IOUs directly to him in exchange for fresh HoggBucks. This was a troubling development.

The second change in Hogg's Ponzi management strategy was even more interesting to the Dukes. Hogg had apparently noticed the rise in the overall value of his remaining gold hoard, the same development the Dukes had noticed. But unlike the Dukes who saw this as a positive result, Boss Hogg apparently saw it as a threat to his IOU business.

What he had found with a simple calculator was that the rising value of his gold actually kept up pretty well with his "Watch your savings grow" program, and actually surpassed it at times. It seemed to the Dukes that Boss Hogg was afraid other people in town would notice this simple math. And that they would then start to question what real things they would ever be able to buy with their IOUs down the road. Perhaps they would find it smarter to take something real now that would rise in value, rather than an IOU with a Ponzi kicker.

Anyway, Hogg decided to do something about it. He wanted to flood the Wetton Broods gold market with his significant gold supply in order to sink the price and conceal the math. But he didn't want to part with the ownership of any more of his gold. So he came up with a brilliant scheme to loan his gold to the town bank which would then sell it into the Wetton Broods marketplace, flooding supply and lowering the price, and the best part was that the bank would still owe the gold back to Boss Hogg at some point in the future! (Years earlier Hogg had sold the bank to "The Chaperones" who now staffed it with "helmet-heads", because "banking is so easy even a caveman can do it.")

So the Dukes now realized what they needed to do. They had identified the two principle flaws in the HoggBucks design as well as two Achilles' heels in Boss Hogg's Ponzi management strategy. In creating their 'Dukes' currency they simply had to design the flaws right out of it and then pretend to engage in and encourage the most unsustainable elements of Hogg's strategy: IOU proliferation and buying up his lent gold from the helmet kids.

5 Years Later

'Dukes' now circulated alongside the HoggBuck. Of course Boss Hogg had not been happy when he found out another Greenben-5000 was in town. But there wasn't much he could really say out loud about it since his own scheme was quite precarious in its maturity. Almost everyone in town now held their savings and their debt in IOUs denominated in HoggBucks, but no one yet held IOUs denominated in the new 'Dukes'. So Boss Hogg rightfully feared that any exposition of his Ponzi scheme might panic the people of Wetton Broods to attempt redemption in 'Dukes' because they didn't carry the baggage of all that debt.

Meanwhile the Dukes themselves had begun issuing IOUs denominated in HoggBucks and even using some of those borrowed HoggBucks to buy some of Hogg's lent gold from the bankers in helmets. Quite a game really. Even Boss Hogg himself didn't catch all the nuance in it.

Also around this time some other curious developments emerged which posed an even greater threat to expose Hogg's Ponzi scheme. The Boss had long ago convinced the people of Wetton Broods that he would no longer print HoggBucks specifically for his own indiscriminate spending habits. Instead, he explained to the masses, his income now relied solely on his booming IOU business which brought in a healthy flow of old HoggBucks for his spending pleasure.

But over the last few years it seemed that everyone in town was issuing their own IOUs, ever since Boss Hogg taught them all how to do it. And now those "townsfolk IOUs" were circulating like hot potatoes among the people squashing the demand for Hogg's own IOUs. More and more frequently he found himself late at night printing up new HoggBucks under the cover of darkness and "buying" his own IOUs -- from himself -- just to have some spending cash.

Another frightening development for Hogg was that he had lent nearly all of his gold to the bank, and now the price was once again rising. So feeling the heat of these two new threats Boss Hogg arranged a meeting with his buddies at the bank and together they hatched a new scheme to bring in a fresh stream of income.

Their scheme entailed opening a new "side business" at the bank. They literally opened a new window on the side of the building (with their heads) and called it a "ride through window". But this new "side business" was more like a casino than a bank.

What Hogg and his challenged friends were selling were bets on whose IOUs in town would fail the confidence test first. Of course he had to take bets against his own IOUs, but because he would be printing the winnings himself this didn't concern him much. Also, he gave three of the slowest bankers the job of rating everyone's IOUs in town to assist in setting the odds for the casino. They were instructed to rate everyone against Boss Hogg's own IOUs which would always carry the highest rating.

7 Years Later

Now there's something I forgot to tell you about the Dukes. Years earlier when they first introduced their new currency, they too held a meeting for everyone on the east end of town. And at that meeting Bo gave a speech in which he laid out for the townsfolk just how the Dukes' currency would be different than the HoggBuck. Here is a bit of that speech:

"What is money? Economists know that money is defined by the functions it performs, as a means of exchange, a unit of account and a store of value. But, just as importantly, money is also defined by the community for whom it performs these functions. Because it is an economic instrument for each of its users, it is also a political and cultural bond between them. Consider this simple fact: we engage in an exchange of goods and services everyday by using money as the means of exchange; and we offer our labor in exchange for money, which, in itself, has no value. We only do this because we believe that we will, in turn, be able to exchange that money for more goods or services. This fact tells us much about the confidence that we place in money itself. And it tells us much more about the confidence that we place in each other. Hence, money is, in essence, a social contract.

"'The Duke', much more than the 'HoggBuck', represents the mutual confidence at the heart of our community. It is different from the HoggBuck in that it will never be linked to gold thereby suppressing the value of your gold savings on the free market, but it also will never be linked to the benefit or enrichment of any single member of our community above another. It is not backed by the durability (or weakness) of any other thing, nor by the authority of a single fat man. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to 'The Duke'."

Back to my story: It was about this time that Boss Hogg's Ponzi scheme reached the pinnacle of its complexity and instability. His casino bet receipts now circulated along with IOUs, HoggBucks and 'Dukes'. But the bet receipts numbered more than ten times the amount of IOUs! And there were also more than ten times as many IOUs as HoggBucks! Doing the simple math, that's 100 times as many bets as HoggBucks. So what began decades earlier as a simple Ponzi scheme had morphed into a very large upside-down pyramid scheme, balancing ever so precariously on its point.

It wouldn't take much to trigger a collapse, and in fact it didn't. The way it actually played out is still being analyzed to this day, and probably will be for many years to come. But basically what happened was an interconnected collapse of confidence as Hogg's own IOU rating crew inadvertently exposed his own system's weakness in no uncertain terms.

What followed was months of social and economic pandemonium and chaos. But somehow Hogg seemed to get it back under control by running his Greenben-5000 24/7 and quantitatively easing the debt-woes of Wetton Broods by air-dropping HoggBucks from his hot air balloon.

Curiously though, he wasn't so kind to the Dukes on the east side of town.

2 Years Later

Poor Daisy ran into a rough patch. What with the pandemonium and all, her tourism business had a tough couple of years. As it turned out she had engaged in Boss Hogg's IOU and casino system the most of any of the Dukes by issuing too many IOUs of her own. She had issued them denominated in both HoggBucks and 'Dukes'. And now she didn't have enough HoggBucks or 'Dukes' to pay off her debt.

Ol' Hogg jumped on this opportunity to not only discredit the Dukes as a group, but their paper 'Dukes' as well. But unlike Hogg and his helmet-heads, the Dukes had vowed not to print their 'Dukes' for the benefit of individuals. This seemed to amplify Daisy's problems, especially when Boss Hogg publicly mocked the Dukes for their "short-sighted policy" of no bailout printing.

Of course Daisy still had all of her gold. She wasn't so foolish as to sell it at a low price or worse, to loan it to the banker-brigade. So the Dukes held a meeting in private to discuss their options. It was clear that Boss Hogg's ridiculous system was coming to an end, but how should the Dukes deal with Daisy's debt crisis?

When they emerged from their meeting the Dukes announced that Daisy's debt problems would be quantitatively eased. Boss Hogg laughed out loud shouting to the whole town that the Dukes had sold out, that they were no better than him. But after the announcement the Dukes just went back inside quietly, confident in the knowledge that it would all soon be over.

Some Time Later

James, the first tourist to visit Wetton Broods in two years, on a tip from his lovely hostess Daisy whom he had paid with gold for a night of excellent hospitality, also paid for his hotel room with gold, receiving the kicker of the deed for the entire hotel itself. Included in this kicker was the hotel's seemingly insurmountable debt owed to Boss Hogg, which was the reason James got it. And as such, the gold paid at the front desk flowed directly back to Boss Hogg himself, extinguishing the debt. And for the first time in weeks, Hogg and his band of merry but hungry ex-bankers ate very well at Uncle Jesse's diner.

Oh, and after paying for the feast with gold, Boss Hogg happily took his change in 'Dukes'. The End.



Indenture said...

Well done FOFOA!
Simple and to the point.

JR said...

Thank you sir.

costata said...


Nice change of delivery, as they say in the game of cricket.

Hopefully some will find this an accessible way to understand the Euro Freegold architecture vs the $IMFS.

Thank you for all of your hard work.

miked said...

Love it.

Desperado said...

A very provocative read Fofoa, but you missed the part about each of the Dukes having their own bank that had been creating IOU's in an even more irresponsible fashion than Hogg's banks. Even worse, the Duke's had been cheating each other and none of them really trusted each other, since they had a long history of extremely violent feuds.

When the Duke banks realized that they were all hopelessly over extended, they stopped buying each others IOU's since they had never really trusted each other anyway, and there was a run on the weaker Duke banks because the Dukes could not agree to print notes on the greenben in volumes required to stop the panic.

As the panic proceeded the townspeople frantically sold their Dukes for Hoggbucks where the banks were perceived to be more liquid and less leveraged.

Hogg realized that this was his chance to buy back the weaker Duke gold at the nominal rate in Hoggbucks. He watched and waited as the exchange rates between currencies increased to his advantage, and then at the brink of disaster for the weakest Duke bank, he came in and exchanged the duke denominated IOU's of that bank that he had picked up for Hoggpennies for that bank's gold at a price nearly equal to the going freegold price in Duke dollars.

Shortly afterwards, more weak Duke banks were also forced to perform the same transaction, and then some of the Dukes started up one of their old feuds and the duke money was dust.

The point here is the one that Pretcher and many others have been making, that a currency union over a dozen countries cannot work if there isn't a strong enough political and cultural union to back it up.

I would also add that we haven't even started discussing how Hogg had a credible sheriff who had broken up several gangs and how the Duke's sheriff had been known to be weak and corrupt (think Sebrenica, oil for food, Rawanda, Eurofighter,...).

FOFOA said...

Hello Desperado!

I hate to recommend long-ish reading to people (except of course my own writing and A/FOA's) because I know that the longer it is, the less likely it will be read. :/

But you seem to be a man that can grasp complex concepts with little effort. So I'd like to introduce you to someone:
Alexandre Lamfalussy

Please first read his short bio on Wikipedia to get a feeling for who he is:

Next, here is a very short Reuters report featuring him (reproduced in full here). I note that I haven't seen his name in the news at all until today...

Lamfalussy says euro zone stable despite Greece

BUDAPEST, March 7 (Reuters) - The euro zone is stable despite the financial woes of Greece, which are far more serious than economic challenges faced by any other member states, economist Alexandre Lamfalussy said on Sunday.

Lamfalussy was founding president of the European Monetary Institute, which became the European Central Bank.

"I'm not pleased what has happened (in Greece) but I don't worry," he told the Hungarian state television M1 in an interview. "The euro zone is so hardy that an explosion or meltdown is out of question."

He reacted to concerns voiced by investors including billionaire Gyorgy Soros who has said the euro currency's future was in question even if Greece is rescued as Spain, Italy, Portugal and Ireland also had economic problems.

"No other (euro zone member) state is in a situation comparable to Greece," said Lamfalussy, who was born in Hungary like Soros.

He said Greece needed continuing efforts including austerity measures to consolidate its finances, but concerns in markets over the euro zone were exaggerated.

"Markets always overshoot in one or the other direction."

>>> But the real kicker is this paper he delivered at the IMF in 1969. This is the long part, but it's not as long as it seems. It appears intimidating (it's a 64 page pdf), but in reality it is only 23 pages and also a 6 page introduction. Start with the intro and read the main paper.

The Role of Monetary Gold over the Next Ten Years


FOFOA said...


I propose to you that Lamfalussy's "wishes" reflect those of the BIS and the euro architects. Here are two very short extracts:

#1: On the one hand, I would like to see gold lose its monetary function; on the other, however, I would not like a national currency to assume the role of a reserve and international currency, that is to say, that the unsteady gold-exchange standard be replaced by the dollar standard. Consequently, I would like that the demonetization of gold takes place alongside with the creation of an international reserve currency. At the risk of repeating myself, I would emphasize that these are my wishes and not my forecasts.

#2: It is this same mistrust, which made it impossible for the gold-exchange standard to function properly and which therefore led to the “negotiated” creation of reserves. Seen from this point of view, the establishment of the two-tier system is an act of despair, the survival of which is more than doubtful. Instead of a decline of the monetary function of gold, we are on the road to more frequent monetary crises, to exchange restrictions of all kinds and finally to a collapse of the economy--which could be avoided only by the reestablishment of the gold standard.

I note that he wrote and spoke this while the world was still on the gold standard. I repeat, he wrote this before Nixon closed the gold window!

I think this illustrates the foresight and planning of Central Bankers outside the dollar system. Some things are only clear from on high, and only clear when looking in from the outside.

Bear in mind also that the road to the euro started in 1962, and this paper was 1969:

1962 - The European Commission makes its first proposal (Marjolin-Memorandum) for economic and monetary

May 1964 - A Committee of Governors of central banks of the Member States of the European Economic Community (EEC) is formed to institutionalise cooperation among EEC central banks.

Link - See pg. 52


FOFOA said...


There seems to be a problem with that link to Lamfalussy's paper. Try this one:

The Role of Monetary Gold over the Next Ten Years

Unknown said...

Hello FOFOA,

This story is really a "hold-up"

Like it...


Martijn said...

"First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to initiate recovery packages. Because of these packages, we have become indebted and now, they are speculating against these debts -- that is really very treacherous," she said.

Merkel is beginning to pick up steam.

Martijn said...

And exaclty what was that odd decline in markets yesterday?

Where some powers trying to renew the panic surrounding Greece?

Foul play?

I wouldn't be surprised one bit.

Martijn said...

Merkel’s Coalition Calls for EU ‘Orderly’ Defaults

Interesting, not?

EG said...

Nice post FOFOA. I think it will be "over" this year. And we just got an inkling of how sudden it will be yesterday. You think you can keep playing the paper casino/musical chairs and get out in time before everyone else? THINK AGAIN.

EG said...

My biggest fear is that perhaps even the Euro might not be able to shield us from/survive the coming financial Armageddon. IMHO, things might be a lot more horrible than most can even imagine at this point - even those who know what's happening.

S said...


How would you repsond if the ECB came out with this rumored liquidity facility? Not to understate it but it would be an adverse development to say the least, at least as far as the euro goes.

JR said...

Hi S,

Hopefully FOFOA will respond but consider the last two paragraphs again:

Of course Daisy still had all of her gold. She wasn't so foolish as to sell it at a low price or worse, to loan it to the banker-brigade. So the Dukes held a meeting in private to discuss their options. It was clear that Boss Hogg's ridiculous system was coming to an end, but how should the Dukes deal with Daisy's debt crisis?

When they emerged from their meeting the Dukes announced that Daisy's debt problems would be quantitatively eased. Boss Hogg laughed out loud shouting to the whole town that the Dukes had sold out, that they were no better than him. But after the announcement the Dukes just went back inside quietly, confident in the knowledge that it would all soon be over.

Martijn said...

Of course Daisy still had all of her gold. She wasn't so foolish as to sell it at a low price or worse, to loan it to the banker-brigade.

Perhaps Daisy still has it, but rumor has it that Uncle Jesse has stored his gold at Boss Hogg's.

capt goodvibes said...

Cheers FOFOA,
Nice summation of the key question currently regarding the possible implementation of Freegold.
Yesterdays market 'event' has had immediate repercusions, it seems, such as the following comment from a ZH thread today,

"by FEDbuster
on Sat, 05/08/2010 - 08:53

This is a little off topic, but I think this news should get out. Last night my former business partner gets a call at 7:30 PM from Well Fargo informing him that his three year old and never used HELOC has been cancelled. It was a $50K HELOC, and he had never tapped it. The WF guy said he was called in to work on his day off along with everyone else that works in his department. They were all on the phones cancelling and capping as many HELOC and credit card lines as they could via telephone. Letters of notification will follow."

Another brick in the wall...

Flore said...

I'll give you an another snippet

Buy physical gold and hold it close. Real wealth can not know time, it is good for all seasons. It will buy you honor during a time without truth!

raptor said...

Unrelated, just for fun.. do you guys see some resemblance :

and this :^%28x*.1%29+%2B++%282*sin%28x%29+%2B+4*sin%28x%2F2%29+%29+from+0+to+40

this is my approx.. not very exact.. but the gist is it seems like two cycles woven into exponential growth ;))

costata said...

FOFOA, Desperado and others,

I want to put forward an alternative scenario for the sovereign debt issues in the EU and the Euro. Looking forward to your reactions.

FWIW I think Jim Rickards is already in the Freegold camp but cannot, for some reason, show the colours. Consider this: how could Rickards be blind to the revaluation effect on the gold holdings of the EU member States, even at the lower price levels he himself cites, when he has already presented this gold revaluation scenario for US gold reserves?

This is the elephant in the room during every discussion of the Euro and EU debt. None of the better analysts, like Rickards, seem to be willing to connect the dots between Euro, EU debt and gold when they appear on the US/UK MSM - any discussion of gold has to be US$ and status quo oriented. The word is "reform" of the system, almost never do we hear the word "replacement".

The key might also lie in the profits that the sovereign debt raids are producing for the clients of these analysts. Perhaps no-one wants to spoil THAT feeding frenzy until the sharks are ready to move onto USA State and Municipal debt.

Perhaps the next phase is for the EU commercial banks to start buying the member States discounted sovereign paper for repo to the ECB. Their shares would take a hit in the current climate of opinion about EU member debt. That could produce some stunning profits in the EU bank shares after the Freegold revaluation.

In other words (a) make a killing raiding the sovereign debt and then (b) make a second killing after the discounted debt is revalued in new hands. Along the way the EU Giants could be picking up some juicy profits in the forex market armed with their insider knowledge of the Euro:US$ dynamics.

Win for EU commercial banks. Win for ECB. Win for EU member States. Win for Euro (after the sterilisation of the "excess" Euro issued prior to the repo). BIG wins for the European Giants and their Anglo-American Giant allies

As far as I can tell the major benefit from delay for the ECB and EU is that it gives them more time to force the profligate EMU States to "reform" their economies. As FOA pointed out the Euro Freegold system is designed to withstand the failure of a currency or an economy within the EU.

The only danger I can see from their (EU/ECB) delay is the possibility of a systemic crisis. However, the Euro Freegold sponsors' nuclear option (described by FOFOA) takes care of that.

Martijn said...


Europeans Move to Head Off Spread of Debt Crisis

but President Nicolas Sarkozy of France insisted that the bloc could defend the euro by directly attacking speculators.

Speaking at a news conference, Mr. Sarkozy vowed to “confront speculators mercilessly” and warned them that they would soon “know once and for all what lies in store for them.”

Flore said...

Costata.. haven't you been posting on the rick ackerman forum ? Just curious to know if ackerman (who i do not know) has found the way to fofoa. I know i have been the first to refer ackerman to this site

Flore said...

another :

Some see metals from a view of only "supply and demand". Supply must be put for use and real demand must consume to produce a product. It is not this way with all things! If a person holds gold, must that holding is viewed with the one purpose, to sell some day for profit or loss. It is for some minds that gold in both hands can have no use? Such a mind can only see value in paper terms. For such thought finds gold as wealth, only if it is someday turned back to paper! Paper, indeed! A dangerous position to hold for the future in our lives!

Brokers and traders will show you, "turn your gold into wealth", "put it to productive use, Trade It"! "Sell your gold and buy it again, many times". "Do this and find the value lost from your youth"!

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

Think now in light of the real world around us. Hold your assets in the sun of day, what do we see? A government bond denominated in a currency? Now, remove the currency from the bond, show what is in your hand? Hear me now, we see nothing of "productive use"! Yes, there is supply of the currency, and we have demand for the currency, but the end product is as the space between stars! Even in this "light of day" a trader/ government will tell you, "hold not that commodity, gold, for it is as a dead, unproductive asset". I say, run from these lies, for they see not deep in the future!

Is this not true? I an slow, but many think for me. Read please:

"Noone can see the value of a real asset when knowing how many currency units it is denominated in. Value is only known when holding one real asset next to another real asset and comparing the currency unit valuations of both. Use as an example, a $75,000 $US Mercedes and a small apartment, also $75,000. They can be traded using the currency as a temporary holding until the transaction is complete. The car and apartment are viewed as having productive use of equal value. However, it is the items that have the value, not the currency unit! The currency is of but momentary value expressed as "the intention of a trade completion". Complete the trade and "poof" the units hold no future value. At this point in time, everything in the world is "denominated" in currencies that have no use, except to complete the trade! Trillions upon trillions of digitized currency are currently being held for the "completion of commerce", extending out into other lifetimes! Of course we are speaking of any form of currency denominated debt, be it government or private.

The major threat to this collection of wealth holdings would be the introduction of any real asset currency. Any country that could "resource a currency" of use the world over does pose a threat to the wealth of nations greater then war! It is in the realm of possibilities, that a gold or oil based system would bring a resolution to the present structure as equal to " a nuclear war of currencies". Our concept of value, would indeed have to start over. "

Flore said...

I did hold my assets into the sun... some fell on my head... it is still hurting...LOL

Jeff said...

This week the mainstream buzz about gold standard/backing/revaluation/whatever hit a new high. I have seen several mainstream economists come out and say that gold is coming back, in some form, to the monetary system.

I listen to Don Coxe weekly conference call. Coxe is a hardnosed commodity analyst, lawyer, and has run money in funds for decades. This week he came out and said gold was going to be part of the banking/monetary system. I damn near fell off my chair, because he has chastised gold bugs for years.

When guys like Coxe say what gold bugs have always said, I consider it a done deal. Whether it is freegold, or gold standard, or some other permutation, gold is coming back soon.

I'm going all in.

Flore said...

my quote of the day.. you can make a t shirt out of it

fysical gold is like silver to the financial vampires

SatyaPranava said...

costata, i think you make some very interesting points about rickards and elephants...who are so tightly packed in this room that people cannot even see them.

i do also see the profit scheme you suggest and think it's part of the general masquerade.

@martijn, i'm not holding my breath for sarkozy to get tough w/any of the biggest speculators any more than I expect Obama to do so. These guys will go after junior competitor speculators while pumping their fists for public consumption, IMO.

SatyaPranava said...

@FOFOA (others) [repost],

I have been reading Thomas Greco Jr.'s book "Money" recently. He's more of a community activist, monetarist and economist, among many other things. But he's been very active in creating (or attempting to create) sustainable local economies, and especially currencies.

I'm curious if you view such an approach (which I see increasing in its magnitude and amplitude) as simply hastening freegold and at the very least obviating the need for a global currency (not that there is a need, IMO). But at the same time, attempts to centralize economies and currencies are also increasing in a concurrent and opposite magnitude, though its amplitude seems to be waning.

In other words, would local communities shunning the fiat currencies and creating and keeping more wealth in their communities strengthen freegold to a greater degree than the simple devaluations or collapse of (specific) fiat currencies?

Do you (or anyone else) see such a scenario happening,
i.e. do you see a greater dependence upon local economies throughout the world with a huge reduction in the volume of trade? Or do you still see this as a nation-state/corporate game after freegold?

Indenture said...

If I were to play the 'everything happens for a reason' game I would still not understand why the 'Powers' would allow this...

Feds Probe JP Morgan’s Silver Trades
Are we being prepped for something?

costata said...


No, I haven't been posting on Rick Ackerman's forum. I do try to read everything of his that is posted on aggregator sites. I respect his work.

costata said...


The All Inn is my favourite pub. I'll shout you a drink when you get there.


Mike said...

so the EU nuclear option is printing another 600 billion.......that's their master plan.

Unknown said...

Some Time Later

James, the first tourist to visit Wetton Broods in two years, on a tip from his lovely hostess Daisy whom he had paid with gold for a night of excellent hospitality, also paid for his hotel room with gold, receiving the kicker of the deed for the entire hotel itself. Included in this kicker was the hotel's seemingly insurmountable debt owed to Boss Hogg, which was the reason James got it. And as such, the gold paid at the front desk flowed directly back to Boss Hogg himself, extinguishing the debt. And for the first time in weeks, Hogg and his band of merry but hungry ex-bankers ate very well at Uncle Jesse's diner.

Oh, and after paying for the feast with gold, Boss Hogg happily took his change in 'Dukes'. The End.

This part confuses me. Can anyone elaborate please? Is this suggesting James or whoever will resuscitate Boss Hogg once the Dukes currency is the new reserve currency?

FOFOA said...

Hello Luke,

"Is this suggesting James or whoever will resuscitate Boss Hogg once the Dukes currency is the new reserve currency?"

No, nothing as deep as that. It was just a play on the old story of a bellhop that bought the very hotel he worked for with a single tip. Here is David Morgan's retelling of that tale...

"Prior to the hyperinflation of Weimar Germany a bellhop was given a gold coin as a tip. He saved this coin (Gersham's law) and continued about his business. During the worst of the hyperinflation this same bellhop bought the entire hotel at which he was once employed, for that same gold coin he had saved earlier."


Unknown said...

Ah thankyou FOFOA. I have been following this site for a few months now - please let me commend you on a fantastic blog. This post in particular is very well written.

I must say I racked my brain to a considerable degree in order to understand that paragraph - though that is my fault for not being familiar with the story of the bellhop. Thank you for the link.

raptor said...

burningfiat said...

Timmy the helmeted one LOL.
Never bet against him.

FOFOA, outstanding writing. I'm all in.

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