Thursday, April 7, 2011

Reference Point: Gold - Update #2


With gold near its all-time high, it's time for another Eurosystem MTM party. And just maybe, there is a timely message here for Congress and the U.S. Treasury.

Yesterday President Obama vowed to veto the Republican's short-term spending bill, and today Washington is facing a possible full-on government shutdown in less than 26 hours when the cash funding runs out. [1] Not only that, but while the cash will run out at midnight tomorrow, April 8, it appears the national credit card will be all used up a little more than a month later, on May 16. [2] Calling this a dire situation may be an understatement.

Meanwhile, over in Europe, they have just released the new market-based revaluation of their monetary reserve assets, including gold. They do this once every three months. It sort of lets the world know the true, market-based strength of their monetary foundation. It's not that the currency is redeemable in government gold like the old gold standard. They simply make sure physical gold is available, tax free, at the floating market price. You can even buy it at the bank. This acts as a nice counterbalance for those who worry about saving in a depreciating fiat currency. And by publicly reporting the gold revaluation every quarter, the European Central Bank leads this stabilizing practice by example.

By contrast, the U.S. Treasury gold has never been marked to market. It is still marked on the books at the price set, not by the free market, but by the edict of President Richard Nixon in 1973:

U.S. Treasury website:
"The book value of gold is currently $42.2222 per troy ounce."
Federal Reserve website:
"3. Gold stock is valued at $42.22 per fine troy ounce."
U.S. Mint website:
"The gold is held as an asset of the United States at book value of $42.22 per ounce."

Here's the latest from the U.S. Treasury:

Current Report: March 31, 2011

Click on images to enlarge

And here's the latest from the Eurosystem:

6 April 2011 - Consolidated financial statement of the Eurosystem as at 1 April 2011

Quarter-end revaluation of the Eurosystem’s assets and liabilities

In line with the Eurosystem’s harmonised accounting rules, gold, foreign exchange, securities holdings and financial instruments of the Eurosystem are revalued at market rates and prices as at the end of each quarter. The net impact of the revaluation on each balance sheet item as at 1 April 2011 is shown in the additional column “Difference compared with last week due to quarter-end adjustments”. The gold price and the principal exchange rates used for the revaluation of balances were as follows:

Gold: EUR 1,007.250 per fine oz.

USD: 1.4207 per EUR

JPY: 117.61 per EUR

Special drawing rights: EUR 1.1161 per SDR



Now this may not seem like a very big deal to the casual observer. But I'm about to tell you why it should at least be an option on the minds of everyone in Congress, the White House and the U.S. Treasury, especially today.

But first, you may want to review my last RPG update:

Reference Point: Gold - Update #1

After refreshing your memory of the last update, you may notice that the valuation of the Eurosystem's gold actually dropped by EUR 16.7 billion since last quarter. But that's okay. That's how it is supposed to work, as the reference point for currencies. Because you'll also notice that the U.S. stockpile of gold rose in market value $15 billion during that same timeframe. As I wrote in Update #1:

The Fed doesn't even have actual gold on its balance sheet... It has "gold certificates" issued to it by the U.S. Treasury from the past monetization of U.S. Treasury gold at $42.22/oz. I suppose, technically, if the U.S. Treasury wanted to revalue its gold to the market price today, the proper yet antiquated process would be for the Fed to credit the Treasury's spending account with new dollars representing the difference in price. Today that would be about $355 billion fresh dollars for Congress to spend.

And today, three months later, that amount of untapped U.S. hard asset equity is $370 billion! The reason U.S. gold went up and European gold went down is simply because the dollar went down and the euro went up. That's the point of Reference Point Gold! It's what Robert Zoellick, head of the World Bank, was talking about. It's really no big deal! But today it may be a big deal to Congress.

On Monday, Treasury Secretary Geithner sent a letter to Senate Majority Leader Harry Reid, John Boehner, the Speaker of the House, Nancy Pelosi, House Democratic Leader, and Mitch McConnell, Senate Republican Leader warning that the U.S. Credit Card will be maxed out by May 16. Geithner wrote:

I am writing to update you on the Treasury Department’s projections regarding when the statutory debt limit will be reached and to inform you about the limits of the available measures at our disposal to delay that date temporarily.

In our previous communications to Congress, we provided regular estimates of the likely time period in which the debt limit could be reached. We can now make that projection with more precision. The Treasury Department now projects that the debt limit will be reached no later than May 16, 2011.

[…]

If the debt limit is not increased by May 16, the Treasury Department has authority to take certain extraordinary measures, described in detail in the appendix, to temporarily postpone the date that the United States would otherwise default on its obligations. These actions, which have been employed during previous debt limit impasses, would be exhausted after approximately eight weeks, meaning no headroom to borrow within the limit would be available after about July 8, 2011. At that point the Treasury would have no remaining borrowing authority, and the available cash balances would be inadequate for us to operate with a sufficient margin to meet our commitments securely.

As Secretary of the Treasury, I would prefer to avoid resorting to these extraordinary measures. The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations.

If Congress does not act by May 16, I will take all measures available to me to give Congress additional time to act and to protect the creditworthiness of the country. These measures, however, only provide a limited degree of flexibility—much less flexibility than when our deficits were smaller.

[…]

For these reasons, default by the United States is unthinkable. This is not a new or partisan judgment; it is a conclusion that has been shared by every Secretary of the Treasury, regardless of political party, in the modern era.

Treasury has been asked whether it would be possible for the Treasury to sell financial assets as a way to avoid or delay congressional action to raise the debt limit. This is not a viable option. To attempt a “fire sale” of financial assets in an effort to buy time for Congress to act would be damaging to financial markets and the economy and would undermine confidence in the United States.

Selling the Nation’s gold, for example, would undercut confidence in the United States both here and abroad. A rush to sell other financial assets, such as the remaining financial investments from the Emergency Economic Stabilization Act programs, would impose losses on American taxpayers and risk damaging the value of similar assets held by private investors without generating sufficient revenue to make an appreciable difference in when the debt limit must be raised. Likewise, for both legal and practical reasons, it is not feasible to sell the government’s portfolio of student loans.

Nor is it possible to avoid raising the debt limit by cutting spending or raising taxes. Because of the magnitude of past commitments by Congress, immediate cuts in spending or tax increases cannot make the necessary cash available. And, reductions in future spending commitments cannot supply the short-term cash needed. In order to avoid an increase in the debt limit, Congress would need to eliminate annual deficits immediately.

As the Congressional Research Service stated in its February 11, 2011 report:

“If the debt limit is reached and Treasury is no longer able to issue federal debt, federal spending would have to be decreased or federal revenues would have to be increased by a corresponding amount to cover the gap in what cannot be borrowed. To put this into context, the federal government would have to eliminate all spending on discretionary programs, cut nearly 70% of outlays for mandatory programs, increase revenue collection by nearly two-thirds, or take some combination of those actions in the second half of FY2011 (April through September 30, 2011) in order to avoid increasing the debt limit. Additional spending cuts and/or revenue increases would be required, under current policy, in FY2012 and beyond to avoid increasing the debt limit.”

None of those budget policy choices is feasible or responsible. As a consequence, given that Congress has imposed on itself the requirement for periodic increases, there is no alternative to enactment of an increase in the debt limit.

I am encouraged that the leaders of both parties in both houses of Congress have clearly stated in public over the last few weeks and months that we cannot default on our obligations as a nation and therefore have to increase the debt limit. Because the date by which we need to increase the limit is growing nearer, I hope that the leadership in both houses will help us impress upon all Members the gravity of this issue and the imperative of timely action.

President Obama is strongly committed to working with both parties to restore fiscal responsibility, and he looks forward to working with Congress to achieve that critically important objective. In the meantime, it is critical that Congress act to increase the debt limit so that the full faith and credit of the United States is protected.

I hope this information is helpful as you plan the legislative schedule for the coming weeks.

Sincerely,

Timothy F. Geithner


Rock, meet hard place. Indeed!

Now I certainly do not have the solution to America's debt or budget problems. But it does seem to lil' ol' me that Congress has right now run up against a hard wall. And I do know a way they could at least buy themselves a little more time to figure it out.

Okay, here goes. Now pardon my French, but Timothy Geithner is a moron. I realize it is too much to ask that anyone in Treasury understand currency theory, since no school has taught currency theory in generations, but why Tim even mentions "Selling the Nation’s gold" when it has so far only been monetized up to $42.22 per ounce is beyond ignorant. How about this? Rather than selling the gold, why don't you just value it like the rest of the world? Why not just mark it to the market price of gold on the Treasury books? If you, Congress, are going to insist on an honest accounting of America's liabilities, why not properly account for her ASSETS as well?

And then… the U.S. Treasury, under the daft guidance of the G-man, can issue new gold certificates to the Federal Reserve. As anyone with even a rudimentary understanding of double-entry bookkeeping knows, the balance sheet must balance. For every asset there is a liability, and vice versa. This is basic stuff. You don't need to be a banking "expert". And so far the Fed only carries $11 billion of the Treasury's gold on the asset side under the gold heading. Today we have room to add $370 billion more, and that means fresh Fed liabilities—also known as U.S. dollars—accruing as fully paid-up credits to the Treasury account for the government to use however it deems appropriate.

Again, I realize this doesn't solve any of the big problems, but it does buy some time. And furthermore, it is not a bad or reckless thing to do. It is the right thing to do! America has an untapped asset. You can use it without selling it for gosh sake! And just like the old gold certificates, the new ones will NOT be redeemable by the Fed or any other banks in physical gold. They will simply be an accounting entry on the Fed balance sheet. In the future, that gold can be mobilized, if necessary, in defense of the U.S. dollar. But only with the approval of Congress. The physical gold remains the property of the United States. It will simply be monetized by properly revaluing it as the monetary reserve asset that it is, and placing it—at its proper valuation, updated quarterly—on the asset side of the central bank's balance sheet, just like the ECB.

I want to be very clear here. This has absolutely nothing to do with Ron Paul's bill. Nothing against Ron Paul, but he may not like this because he has other plans. And this has nothing to do with a new gold standard, or legal tender laws or ending the Fed. You don't have to be a gold bug to support this. It is simply common sense. What isn't common sense is the U.S. having the only darn gold hoard in the world that's valued at the ridiculous price of $42 an ounce, having a Treasury Secretary then talk about selling that asset, and having a Congress that's about to shut down the government because it can't find some money.

You want honest accounting? Well how about accounting honestly for our… that's right, OUR assets?

You know, I'll bet even Obama would go for it. The timing is quite exquisite. Did you know that this very week is the 78th anniversary of Executive Order 6102? That's right. 72 years ago this week, Obama's role model, Franklin D. Roosevelt "forbade the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates" by U.S. citizens. And in his acceptance speech in 2008, Obama talked about people putting “their hands on the arc of history” and bending it “once more towards the hope of a better day”. How auspicious would it be for him to now harken back to the FDR gold confiscation, on the eve of a government shut-down, and finally set the U.S. gold free?

I've even got a catchy name for the new Executive Order. He could call it "Executive Order: Freegold". And it would buy you, Congress, some much needed time; it would buy a new $370 billion deposit in the Treasury account; and it would usher in the currency-stabilizing effects of Robert Zoellick's and the ECB's Reference Point Gold.

I do realize that some of you will scoff at such a "small" figure as $370 billion in the grand scheme of our debt and deficit. But gold becomes more and more useful and efficient at higher and higher valuations. This is not just a cheap accounting trick for the U.S.—rest of the world be damned. No, this is a paradigm of global and personal reserve asset value, based on unencumbered equity and physicality, rather than debt and paper promises.

And not only might these new gold-revaluation dollars be spent on government obligations, but any given periodic rise in the price of gold could also be used as an "asset swap" (gold certs for Treasuries) right on the Fed books in order to mitigate the swelling of the Fed's balance sheet and the money supply, or just to retire some of the debt. Other Central Banks are already well out in front of the U.S. on this Mark to Market paradigm. And once again the timing for a bold move like this is very well suited to the present undertaking of international monetary reform. The U.S. could once again be the hero!

Now, as you all know, I am not an activist. I am only an observer. But if some of you were to send this post to your representatives in Congress as a sort of "Open Letter to Congress", I could certainly look the other way. It would probably take only one member to actually "get it". But then again, that may be asking too much of Congress.

Sincerely,
FOFOA

[1] Obama vows to veto short-term bill -Washington Times
[2] http://www.treasury.gov/connect/blog/Pages/letter-to-congress.aspx (Timothy Geithner's letter to Congress)

236 comments:

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mortymer said...

cont...


4. The 21st century should be marked by peace, harmony, cooperation and scientific development. Under the theme "Broad Vision, Shared Prosperity", we conducted candid and in-depth discussions and reached broad consensus on strengthening BRICS cooperation as well as on promoting coordination on INTERNATIONAL and REGIONAL issues of common interest.

5. We affirm that the BRICS and other emerging countries have played an important role in contributing to world peace, security and stability, boosting global economic growth, enhancing multilateralism and promoting greater democracy in international relations.

6. In the economic, financial and development fields, BRICS serves as a major platform for dialogue and cooperation. We are determined to continue strengthening the BRICS partnership for common development and advance BRICS cooperation in a gradual and pragmatic manner, reflecting the principles of openness, solidarity and mutual assistance. We reiterate that such cooperation is INCLUSIVE and NON-CONFRONTATIONAL. We are open to increasing engagement and cooperation with non-BRICS countries, in particular EMERGING and DEVELOPING countries, and relevant international and regional organizations.

7. We share the view that the world is undergoing far-reaching, complex and profound changes, marked by the strengthening of multipolarity, economic globalization and increasing interdependence. While facing the evolving global environment and a multitude of global threats and challenges, the international community should join hands to strengthen cooperation for common development. Based on universally recognized norms of international law and in a spirit of mutual respect and collective decision making, global economic governance should be strengthened, democracy in international relations should be promoted, and the voice of emerging and developing countries in international affairs should be enhanced.

8. We express our strong commitment to multilateral diplomacy with the United Nations playing the central role in dealing with global challenges and threats. In this respect, we reaffirm the need for a comprehensive REFORM of the UN, including its SECURITY COUNCIL, with a view to making it more effective, efficient and representative, so that it can deal with today's global challenges more successfully. China and Russia reiterate the importance they attach to the status of India, Brazil and South Africa in international affairs, and understand and support their aspiration to play a greater role in the UN.

9. We underscore that the concurrent presence of all five BRICS countries in the Security Council during the year of 2011 is a valuable opportunity to work closely together on issues of peace and security, to strengthen multilateral approaches and to facilitate future coordination on issues under UN Security Council consideration. We are deeply concerned with the turbulence in the Middle East, the North African and West African regions and sincerely wish that the countries affected achieve peace, stability, prosperity and progress and enjoy their due standing and dignity in the world according to legitimate aspirations of their peoples. We share the principle that the use of FORCE should be AVOIDED. We maintain that the independence, sovereignty, unity and territorial integrity of each nation should be respected.

10. We wish to continue our cooperation in the UN Security Council on Libya. We are of the view that all the parties should resolve their differences through peaceful means and dialogue in which the UN and regional organizations should as appropriate play their role. We also express support for the African Union High-Level Panel Initiative on Libya."

mortymer said...

CONT...

"11. We reiterate our strong condemnation of terrorism in all its forms and manifestations and stress that there can be no justification, whatsoever, for any acts of terrorism. We believe that the United Nations has a central role in coordinating the international action against terrorism WITHIN THE FRAMEWORK of the UN Charter and in accordance with principles and norms of the international law. In this context, we urge early conclusion of negotiations in the UN General Assembly of the Comprehensive Convention on International Terrorism and its adoption by all Member States. We are determined to strengthen our cooperation in countering this global threat. We express our commitment to cooperate for strengthening international information security. We will pay special attention to combat cybercrime.

12. We note that the world economy is gradually recovering from the financial crisis, but still faces uncertainties. Major economies should continue to enhance coordination of macro-economic policies and work together to achieve strong, sustainable and balanced growth.

13. We are committed to assure that the BRICS countries will continue to enjoy strong and sustained economic growth supported by our increased cooperation in economic, finance and trade matters, which will contribute to the long-term steady, sound and balanced growth of the world economy.

14. We support the Group of Twenty (G20) in playing a bigger role in global economic governance as the premier forum for international economic cooperation. We expect new positive outcomes in the fields of economy, finance, trade and development from the G20 Cannes Summit in 2011. We support the ongoing efforts of G20 members to stabilize international financial markets, achieve strong, sustainable and balanced growth and support the growth and development of the global economy. Russia offers to host the G20 Summit in 2013. Brazil, India, China and South Africa welcome and appreciate Russia's offer.

15. We call for a quick achievement of the targets for the reform of the International Monetary Fund agreed to at previous G20 Summits and reiterate that the governing structure of the international financial institutions should reflect the changes in the world economy, increasing the voice and representation of emerging economies and developing countries."

mortymer said...

CONT...

"16. Recognizing that the international financial crisis has exposed the inadequacies and deficiencies of the existing international monetary and financial system, we support the reform and improvement of the international monetary system, with a BROAD-BASED international reserve currency system providing stability and certainty. We welcome the current discussion about the role of the SDR in the existing international monetary system including the composition of SDR's basket of currencies. We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies. We call for further international financial regulatory oversight and reform, strengthening policy coordination and financial regulation and supervision cooperation, and promoting the sound development of global financial markets and banking systems.

17. Excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy. We support the international community in strengthening cooperation to ensure stability and STRONG DEVELOPMENT of PHYSICAL MARKET by reducing distortion and further regulate financial market. The international community should work together to increase production capacity, strengthen PRODUCER-CONSUMER dialogue to balance supply and demand, and increase support to the developing countries in terms of funding and technologies. The REGULATION of the DERIVATIVES market for COMMODITIES should be accordingly strengthened to prevent activities capable of destabilizing markets. We also should address the problem of shortage of reliable and timely information on demand and supply at international, regional and national levels. The BRICS will carry out closer cooperation on food security.

18. We support the development and use of renewable energy resources. We recognize the important role of renewable energy as a means to address climate change. We are convinced of the importance of cooperation and information exchange in the field of development of renewable energy resources.

19. Nuclear energy will continue to be an important element in future energy mix of BRICS countries. International cooperation in the development of safe nuclear energy for peaceful purposes should proceed under conditions of strict observance of relevant safety standards and requirements concerning design, construction and operation of nuclear power plants.

20. Accelerating sustainable growth of developing countries is one of the major challenges for the world. We believe that growth and development are central to addressing poverty and to achieving the Millennium Development Goals (MDGs). Eradication of extreme poverty and hunger is a moral, social, political and economic imperative of humankind and one of the greatest global challenges facing the world today, particularly in Least Developed Countries in Africa and elsewhere."

mortymer said...

CONT...

"21. We call on the international community to actively implement the outcome document adopted by the High-level Plenary Meeting of the United Nations General Assembly on the MDGs held in September 2010 and achieve the objectives of the MDGs by 2015 as scheduled.

22. Climate change is one of the global threats challenging the livelihood of communities and countries. China, Brazil, Russia and India appreciate and support South Africa's hosting of UNFCCC COP17/CMP7. We support the Cancun Agreements and are ready to make concerted efforts with the rest of the international community to bring a successful conclusion to the negotiations at the Durban Conference applying the mandate of the Bali Roadmap and in line with the principle of equity and common but differentiated responsibilities. We commit ourselves to work towards a comprehensive, balanced and binding outcome to strengthen the implementation of the United Nations Framework Convention on Climate Change and its Kyoto Protocol. The BRICS will intensify cooperation on the Durban conference. We will enhance our practical cooperation in adapting our economy and society to climate change.

23. Sustainable development, as illustrated by the Rio Declaration on Environment and Development, Agenda 21, the Johannesburg Plan of Implementation and multilateral environmental treaties, should be an important vehicle to advance economic growth. China, Russia, India and South Africa appreciate Brazil as the host of the 2012 UN Conference on Sustainable Development and look forward to working with Brazil to reach new political commitment and achieve positive and practical results in areas of economic growth, social development and environmental protection under the framework of sustainable development. Brazil, Russia, China and South Africa appreciate and support India's hosting of the eleventh meeting of the Conference of the Parties to the Convention on Biological Diversity. Brazil, China and south Africa also appreciate and support India's hosting of the sixth meeting of the Conference of the Parties serving as the meeting of the Parties to the Cartagena Protocol on Biosafety to be held in October 2012.

24. We underscore our firm commitment to strengthen dialogue and cooperation in the fields of social protection, decent work, gender equality, youth, and public health, including the fight against HIV/AIDS.

25. We support infrastructure development in Africa and its industrialization within framework of the New Partnership for Africa's Development (NEPAD)."

mortymer said...

CONT...

"26. We have agreed to continue further expanding and deepening economic, trade and investment cooperation among our countries. We encourage all countries to refrain from resorting to protectionist measures. We welcome the outcomes of the meeting of BRICS Trade Ministers held in Sanya on 13 April 2011. Brazil, China, India and South Africa remain committed and call upon other members to support a strong, open, rule-based multilateral trading system embodied in the World Trade Organization and a successful, comprehensive and balanced conclusion of the Doha Development Round, built on the progress already made and consistent with its development mandate. Brazil, India, China and South Africa extend full support to an early accession of Russia to the World Trade Organization.

27. We reviewed the progress of the BRICS cooperation in various fields and share the view that such cooperation has been enriching and mutually beneficial and that there is a great scope for closer cooperation among the BRICS. We are focused on the consolidation of BRICS cooperation and the further development of its own agenda. We are determined to translate our political vision into concrete actions and endorse the attached Action Plan, which will serve as the foundation for future cooperation. We will review the implementation of the Action Plan during our next Leaders Meeting.

28. We intend to explore cooperation in the sphere of science, technology and innovation, including the peaceful use of space. We congratulate the Russian people and government upon the 50th anniversary of the flight of Yury Gagarin into the space, which ushered in a new era in development of science and technology.

29. We express our confidence in the success of the 2011 Universiade in Shenzhen, the 2013 Universiade in Kazan, the 2014 Youth Olympic Games in Nanjing, the 2014 Winter Olympic and Paralympics Games in Sochi, the FIFA 2014 World Cup in Brazil, the 2016 Olympic and Paralympics Games in Rio de Janeiro and the FIFA 2018 World Cup in Russia.

30. We extend our deepest condolences to the people of Japan with the great loss of life following the disasters that struck the country. We will continue our practical support to Japan in overcoming consequences of these catastrophes."

mortymer said...

CONT...

"31. The leaders of Brazil, Russia, India and South Africa extend our warm appreciation to China for hosting the BRICS Leaders Meeting and the Hainan Provincial Government and Sanya Municipal Government and their people for their support to the Meeting.

32. Brazil, Russia, China and South Africa thank India for hosting the BRICS Leaders Meeting in 2012 and offer their full support."

Action Plan
...

5. Ministers of Finance and Governors of Central Banks meet under the G20 framework and during the annual meetings of the World Bank and International Monetary Fund.
.
7. Hold the Meeting of the heads of the National Statistical Institutions in September 2011 in China.
.
8. Hold the second BRICS International Competition Conference in September 2011 in China, and explore the possibility of signing an Agreement on Cooperation between Antimonopoly Agencies.

9. Continue to hold the BRICS Think-tank Symposiums, and consider establishing a network of research centers of all BRICS countries.
.
11. Strengthen financial cooperation among the BRICS Development Banks.
..."

Paul said...

* On April 18, 2011, the Chicago Mercantile Exchange launched six Euro-denominated oil contracts - one Brent crude oil and five gasoil.1
* Pricing, margining and treasury for exchange-cleared oil price management can be fully executed in Euros.

mortymer said...

Whoah! Things are on the move...
Watch out... (or somebody in imf started to upload finally the important stuff?)

Latest imf.org:

IMFC Statement of Mario Draghi Chairman of the Financial Stability Board; April 15, 2011

IMFC Statement by Helen Clark, United Nations; April 15, 2011

IMFC Statement by Jan Kees de Jager, Minister of Finance, Ministry of Finance, The Netherlands; April 15, 2011

IMFC Statement by Sigbjoern Johnsen, Minister of Finance, Ministry of Finance, Norway; April 15, 2011

IMFC Statement by Guido Mantega, Minister of Finance, Ministerio da Fazenda, Brazil; April 15, 2011

IMFC Statement by Angel Gurria Secretary-General Organisation for Economic Co-operation and Development; April 15, 2011

Update on the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member Countries; April 15, 2011

IMFC Statement of Commissioner Olli Rehn on behalf of the European Commission; April 15, 2011

+

Press Briefing: G20 Chair French Finance Minister Christine Lagarde

http://www.imf.org/external/mmedia/view.aspx?vid=906225448001

(45 min, have not seen yet, certainly worth)

Christine Lagarde, G20 Chair and French Finance Minister
Ramon Fernandez, Director General, French Treasury
Christian Noyer, Governor, Central Bank of France
Jean-Pierre Landau, Deputy Governor, Central Bank of France

mortymer said...

http://www.imf.org/external/spring/2011/index.htm

http://www.imf.org/external/spring/2011/imfc/index.asp

Indenture said...

Greetings All: It is the 15th of the month and time to remind the Fellowship that we must DEFEND THE PRECIOUS. If you are like me you come to this site every day to learn not only from FOFOA but also from the diverse, intelligent commenters who have turned this web site into the most valued and insightful discussion on worldwide economic theory anywhere on the net. FOFOA's recent piece BIG GAP sparked Rick Ackerman to say, "You might try tuning instead to the hyperinflation arguments of Steve Saville, Peter Schiff and a few others who seem less concerned with trouncing, slicing and dicing opponents than with presenting facts that might better prepare you for the financial crisis ahead. The very best of them, in my opinion, is FOFOA blogspot, where the essays are erudite, the discussion elevated and the arguments as knowledgeable as any you will find on the web. ZeroHedge can be pretty informative too, provided the hairy-knuckled provocateurs who hang out there have been fed red meat within the last 24 hours." (emphasis mine)

That is exactly why we, as a collective, must help FOFOA maintain this forum.
Please donate today.

Edwardo said...

Some folks seem to be a tad confused regarding my stance on silver. I've made no call on silver, other than to make the relatively subtle statement that WHEN silver reaches the mid forties I'll make a call to a source to get some information about what is going on from the dealer's perspective.

Unknown said...

Victor

""Remember October 2008 and May 2010? What was not possible for several weeks because the inventory was gone on day one?""

Yes but even if they run out of inventory. That event in itself will have already halted the run and would have stopped the government from printing wheelbarrows of cash.

At least that is how I understand it.

Texan said...

Blondie.

Yes that's exactly it! If "Savings" is a company representing all excess work of humans past, present, and future, well there are only so many "shares" (ounces) available.

They are only issuing about 2% more each year, and the float is very, very tiny.

pipe said...

Hi DP, you said, "I no longer share your doubt that Freegold will come."

What are the odds your home will burn down in the coming year? 1 in 5000? Less if you don't smoke or fry a lot greasy foods? Yet you buy fire insurance to protect yourself from catastrophic loss.

The odds that FreeGold won't happen are difficult to calculate, but they certainly much higher than 10%, probably higher than 20%.

We know for a fact that the USA has absolutely no qualms about using nuclear weapons, even when they aren't needed to insure the outcome. How about when our backs are against the wall as the dollar loses reserve currency status? If only the Southern Hemisphere is livable, I think you will want silver in S. America, and gold in Africa and Australia.

How about if Saudi Arabia's Ras Tanura oil processing facility is taken out by terrorists or other entities. Wouldn't it be nice to have a few 50 gallon drums full of gasoline, just in case.

What if silver is successfully cornered? Wouldn't it be nice to have 10% of precious metal port. in silver, so you could get a bunch more gold super cheap at the top of the corner?

Gold will do well in these situations,but a little insurance costs little.

JONATHAN G. II said...

Is it possible that gold's "monetary" value will drop if the US decides to make this move?

Unknown said...

Woops, I think my correction needs a correction.

The correct math is obviously:

168 / -0.5 = -336

which does round to -340...


But I still don't understand:
how do you get -34 years from -340?

Thanks.

(Instead of dividing 168 by negative a half, I was incorrectly multiplying 68 by negative a half trying to get negative 34!)

Art said...

FOFOA propaganda: "'The hit' [from deflation OR hyperinflation] can be socialized:
"'Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets…'

'"…hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!'

"(The quotes are from FOA on Hyperinflation and FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios respectively.)"

EXPLANATION: No one in his right mind would throw good money after bad. No one would buy worthless bonds or other worthless paper assets by paying real cash (gold and silver) for them. Hyperinflationary events like the ones described by the FOA/FOFOA crowd are only possible IF we are using something other than money (gold and silver) as money so that those who control this fraudulent money can issue and use it without putting REAL wealth or money (gold and silver) at risk. FREEGOLD sanctions the use of fiat or fraudulent currencies as money. Hence FREEGOLD supporters are abettors of hyperinflation.

FOFOA propaganda: “...money inflation...should have started a deflationary fall in our credit markets. It almost happened, several times, but never followed through. It seemed that the market function had evolved to accept fiat inflation as a prerequisite to modern economic function.”

EXPLANATION: No, the real reason the bond market did not crash is because the vast majority of the fraudulent money issued by the bankers and the ruling classes was KEPT by the bankers and their collaborators. The advertised nominal increase in the money supply was a diversionary tactic and a coverup to hide the fact that the bankers and the international ruling classes were not paying for resources and goods and services that they acquired with any REAL money (gold and silver). The ruling classes accomplished this feat by directing your focus on the numeric increase in the money supply INSTEAD of the fraudulent and ultimately WORTHLESS nature of the money that they were illegitimately creating and spending to take possession of YOUR goods and YOUR labor.

Art said...

FOFOA propaganda: “The fact that the world had to walk, lock step, with our money policy meant that their goods production would almost always be cheaper than ours; keeping local US price inflation under control. In other words; local US-based price inflation could not get out of hand as long as the rest of the world was willing to use their economic production to control it by selling [products cheaper than we could produce them] into our expanding fiat system...In this, the dollar [and its securities, and their derivatives] could be inflated without end while our credit markets functioned in a non-inflationary environment.”

EXPLANATION: No Chinese worker would have sold his labor, and no third-world citizen would have acquiesced to the sale of his valuable resources, against worthless and fraudulent fiat money. That this was accomplished by the bankers and the international ruling classes [BIRCs] cannot be due to any financial feat or prowess – afterall, who’d give something in return for NOTHING if they had a say in the matter? The only logical explanation I can think of is the COLLABORATION of the corrupt local dictators or oligarchies that the BIRCs installed by force or by cunning and bribes, as heads of state in the rest of the world. Who cares if evil governments stole a few billions from their own people and committed atrocities and outrages of all sorts as long as the BIRCs did not have to pay the REAL price (in gold and silver or other valuables) for the resources and the labor of the people which they ultimately stole by “paying” for them with worthless paper currency?

Art said...

FOFOA propaganda: “A money system like this has a definite timeline and that point is reached when the world can move away from keeping price inflation low in the US. That point is reached when Another money system comes along to challenge the dollar and, in the process, offer these other goods-producing countries a chance to buy some "lifestyle" for themselves...The dollar faction saw its match early in the 90s as the Euro was taking shape. To counter this threat, as I have outlined here in several ways, they promoted derivative hedges as a way of insuring dollar dominance.”

EXPLANATION: The only nominal difference between the Dollar System and the Euro System is that the Europeans value their so-called gold reserves at market prices. Otherwise, who exactly CONTROLS the European Central Bank is an even murkier affair than the situation concerning the US Federal Reserve. Why hide exactly who you are and what you’re doing IF you’re not doing anything that is in conflict with the common interest of the people whom you claim that you are serving? The Euro and the Dollar are only playing good cop, bad cop. In my opinion, both sides are controlled by the SAME BIRCs who share a common interest: the continued propagation and abuse of the fiat (fraudulent) paper money system. The Euro is only as good as the Dollar. FOFOA would like to fool you into thinking that one fiat currency is better than another by giving you a meaningless choice between two fiat currencies. ‘Choice’ does not in of itself entail that there is something better to choose.

FOFOA propaganda: “Average home prices will rise all across this country no matter what the future economy holds. A super inflationary stance by the Fed means that even unemployed workers can buy a house and pay for it!”

EXPLANATION: Try going to the bank and say, I don’t have a job but I want a loan so that I can buy a house. You will have your answer as to how truthful what FOFOA says is.

Art said...

FOFOA propaganda: “One item alone, physical gold, because it is the main wealth asset behind the next currency system...”

EXPLANATION: FOFOA and the BIRCs that he represents DO NOT support a gold-backed currency of the use of gold and silver as money. This is a false and misleading statement on his part.

FOFOA propaganda: “You see, living with real serious price inflation goes something like this:

---- "Honey, I talked to Fred again, he can't sell his house! Poor guy, he has had it up for two years now and has to raise his asking price again. No takers, yet. The last couple was just about to close but took a month too long; they almost got the cash together, too. He backed out to raise the asking price, again. Oh well, that's not so bad, we had to jump ours up three times before selling." ----“

EXPLANATION: It’s crazy to claim that an item will sell only if its price is raised substantially. This person want to brainwash you into thinking that up is down so that when he says something implausible about something that matters, you are more inclined to accept it since you’ve been properly “conditioned” beforehand.

FOFOA says: “Around 60 years into its 100-year life, not unlike the human retirement age, the dollar retired to become a purely symbolic, completely worthless token.”

EXPLANATION: As is the Euro today.

Art said...

FOFOA says: “...those worthless tokens are actually a good thing... what is better as a medium of exchange? Should it be something of value? Or is it more beneficial to the anti-entropic process for it to be something purely symbolic and worthless?...with a worthless medium, why not just exchange it for that same valuable thing if, in fact, you do produce more than you consume? Seems simple enough to me.”

EXPLANATION: Do YOU want to exchange your valuable goods and services for something that has no value? The answer seems simple enough to me.

Art said...

FOFOA says: “You see, this is where we are today. We are using, as a medium of exchange, a purely symbolic, completely worthless token. The logical action, then, is to exchange surplus worthless tokens for something of value. Yet still today, most everyone hoards up purely symbolic, completely worthless tokens in the form of the debt of more tokens to be worked off and paid by someone else.”

COMMENT: So why do you want to rock the boat, Mr. FOFOA since we are exactly where you want us to be? Buy your gold and preserve your wealth (just like under the so-called Freegold system you promote) and spend your worthless tokens to buy all that you want, including gold. Gold trades as freely as it will trade under your Freegold system – governments are not openly nor legally manipulating the price of gold TODAY. Covertly, yes. But they can and WILL do that under your so-called Freegold system as well. You don’t make logical sense.

FOFOA’s “Answer: if [debt] cannot be worked off by future labor, it will be worked off by past labor, the net surplus of which was erroneously stored in debt and dollars. The icing on the cake is that it is also the past labor of "someone else," if the profits can be capitalized and the losses socialized. Precisely the process we have witnessed over the past three years, for those with eyes to see.”

MY ANSWER: If you try that, Mr. BIRC, you will see to your astonishment that the sheeple are neither smarter nor stupider than you guys are. And they have a limit which you are about to breach in your hapless arrogance.

[Hint: both deflation and inflation presuppose the existence of money which is gold and silver and NOT pieces of paper or electronic digits whose value or legal purchasing power is UNDEFINED. No money = no inflation nor deflation.]

Art said...

Conclusion

The problem with FOFOA and his ilk is, even though they acknowledge that spending money that we don't have is wrong, they are dead set against the only thing that could prevent this aberration: the use of gold as money. Freegold says Use any worthless thing as money but NOT gold - even though only the use of gold (and silver) as money could prevent the issuers of fiat money from spending money that they do not have and stealing from us through inflation. (Because gold cannot be printed like fiat money.)

As for the inflation vs. deflation debate. Both presuppose MONEY which fiat paper is not. Without money (gold and silver) there cannot be either inflation or deflation. What will happen instead is, people will realize that the wealth they thought they had transformed into and preserved in fiat money is GONE, that it no longer exists. The REALIZATION of the nakedness of the emperor without clothes is not the same thing as the clothes that the emperor does not have. What will ensue after the death of the dollar is grief and loss of wealth for the modest of means, and of POWER, for the ruling classes of today. (NOT some monetary event in the ABSENCE of money.)

The guy or gal that stares back at you in the mirror is a bit of both. When YOU are the problem, there is no solution: only CONSEQUENCES.

DP said...

Art: Freegold says Use any worthless thing as money but NOT gold

Hello, Art. Freegold says to SAVE in an ASSET, not currency. Specifically, it picks out gold as the best asset to choose if you don't have some purpose that means you should pick something else; if it is for pure saving.

Using gold as the currency results every time in economic constriction, deflation, and widespread misery. That is why the world will never again return to using gold in this way. Accept this and move beyond it, and the rest will begin to make a lot more sense to you.

You are not coming to this with a unique perspective - most of the people you will meet here at this blog came originally with a view very like your own, which they have since shed.

I look forward to seeing you around.

Best,

DP :-)

Art said...

Hi DP,

Our concern is not only to save (in gold) but to PREVENT fraud, financial calamities and economic DISASTER which can result in great wars and death and misery for untold millions. Why did Hitler come to power? At least in part because of economic problems caused by fiat money and its misuse.

Fiat money is an abomination which destroys lives. It's a crime. Crime must be stopped. Saving in gold is good but prevention of crime is NECESSARY for civilized life.

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

@MUSEICE

YOU SAID: "Art: You said, "FREEGOLD sanctions the use of fiat or fraudulent currencies as money." What is fraudulent about a currency after Freegold?"

MY ANSWER: 'Worthless tokens' are WORTHLESS before OR after Freegold. Money, by definition, is a store of value (in addition to being a medium of exchange and a unit of account). In addition, the US Constitution and the Coinage Act - which are still the law of the land - forbid the use of anything that's not gold or silver as money.

Freegold is exactly what we have NOW. (That the Treasury accounts for its gold reserves at $42.22 is a moot point since the government doesn't openly or legislatively regulate gold's price in the private market). Don't you see the duplicity in FOFOA's position? He's trying to sell you what you already bought in order to avert "buyer's remorse." He is attempting to persuade you to keep on using worthless fiat money in order to protect yourself from the very effects that such a monetary system causes. To keep on doing the same thing whilst expecting different results is one of the alternative definitions of MADNESS. (Albert Einstein once said "The definition of insanity is doing the same thing over and over again and expecting different results".)

Saving in gold will not save you from the deleterious effects of NOT using gold as money.

Art said...

@MICHAEL H

YOU SAID:

"Art,

"'Hyperinflationary events like the ones described by the FOA/FOFOA crowd are only possible IF we are using something other than money (gold and silver) as money so that those who control this fraudulent money can issue and use it without putting REAL wealth or money (gold and silver) at risk. '

"Your writing would be more clear if you used different terminology for fiat currency and for gold/silver."

MY ANSWER: OK, the use of gold as money would FORCE the Bankers & the International Ruling Classes (BIRCs) to literally put their money where their mouth is. This would perforce oblige them to think TWICE before they fool around with the financial markets because they'd be putting REAL money at risk when buying toxic assets at par, for example.

YOU SAID:

"'Hence FREEGOLD supporters are abettors of hyperinflation.'

"You mistake the purpose of this blog. It is not an advocacy group. FOFOA is an observer, and is describing the likeliest outcome of our current path."

MY ANSWER: No, he's not just an observer. He did say that use of 'worthless tokens' as money is preferable to using gold as money. FOFOA made a NORMATIVE statement. He's no mere "observer."

YOU SAID: "Question for you: what is money?"

MY ANSWER: A store of value, a medium of exchange and a unit of account.

finite said...

"Absolute confidence allows it to stretch out in time as far as it wants." I have no idea what that or the rest of that paragraph means.

I certainly agree about the corrosive effects of easy money emanating from the gov and Fed. The range of activities it incentivizes goes from fraud and corruption to no value added activities to low value added.

Wouldn't it make much more sense to educate people as to how the cost of easy money has been realized in lost potential and is now starting to be realized in lower living standards? That a new constitution and reset is in order.

You know instead of wishin and fishin for hyperinflation to save you from the bad men. That some magical measurement will spontaneously restore order and virtue.

An admittedly cursory examination of this site doesn't reveal any particular insight into perspective, the normative, imagination, simultaneity, individuality, intentionality, emergence or any other special properties or problems associated with highly evolved information systems. Homeostasis as time travel? Interesting. 186,000 mph gold? I don't think so.

There's a lot of real food for thought out there. Laughlin, Penrose, Seife, Tipler, Smolin.

Biting Silverbug said...

Hi all, just dropping a post on hyperinflation that, while it should be clear to everyone here, might help a few people fully visualize how we get into crisis - hope it is helpful to some folks and generates debate!

http://seekingalpha.com/article/265701-the-economic-collapse-cycle-where-we-are-now-and-how-to-invest-accordingly

For FOFOA - I remember being on your blog and asking about why scarcity in silver doesn't translate to value. To clarify, I meant Relative scarcity - if there are a few billion people who need silver in their lives, why shouldn't the price of silver soar along with gold? After all, the demand is just as high, so shouldn't they trade in the post-hyperinflation world at least on the same order? Thanks!

DP said...

Hi again, Art: Our concern is not only to save (in gold) but to PREVENT fraud, financial calamities and economic DISASTER which can result in great wars and death and misery for untold millions. Why did Hitler come to power? At least in part because of economic problems caused by fiat money and its misuse.

I agree. Unconstrained borrowing of fiat money causes massive problems.

Would you also agree that there are times when the gold standard, the ultimate guardian of contrained borrowing, has created other disasterous economic and social calamities? Why is it that people have over and over again resorted to unconstrained fiat money systems, if the gold standard was the perfect solution?

The modern world needs credit to function. What we need is something that can allow for the expansion of credit, but in a constrained way. Either this constraint might be externally enforced, say by the unwielding discipline of the amount of available gold in your reserves, or perhaps instead it is just as good — perhaps at times better? — if we can design some way that the guiding hand of our own self-interest will provide that restraint we so need to find within yourself, but in times of true and dire need, we can forgive ourselves for temporarily resorting to what at other times might be considered an indiscretion. If it will prevent a calamity, but should not create any longer term negative consequences.

Art said...

GOLD AS MONEY AND HOW IT CAN WORK: First of all, we accept and use gold and silver as money. We can then issue gold- and silver-backed currency to circulate alongside precious metal coins (currency to be issued by a national, non-private and non-profit banking institution so as to eliminate the potential for abuse and fraud). Let the market decide the ratio of gold to silver based on the available supply of each metal and people's preference for them. Let the gold and silver backing of currency FLOAT but mark valuation of currency to MARKET continuously by announcing each day what your gold and silver reserves are and dividing it by the ENTIRE currency amount outstanding to determine the value of each unit of currency. Thereby render what you're doing with your currency TRANSPARENT. People will then choose and make the necessary compromise between the CONVENIENCE of carrying and transacting in currency and the SAFETY of holding gold and silver. They will punish you by selling your currency and buying precious metal coins if you're inflating your currency relative to the productive output of your economy.

WHAT BANKERS AND THE INTERNATIONAL RULING CLASSES DO WHEN THEY LOSE THEIR FIAT POWER: Bankers and the international ruling classes [BIRCs] will FIGHT and oppress the people AS LONG AS their interests and the interests of the people they control differ - with or without fiat; before fiat and after fiat. Observation: the only difference between a banker and the average person is their bank account. Solution: become a better human being YOURSELF and restrain your greed and mitigate your stupidity and ignorance. Since a member of the BIRC class is the same as you EXCEPT for the space-time coordinates that you occupy respectively, the ensuing elimination of the conflict of interest between the two of you will compel both of you to STOP fighting each other and instead start COOPERATING towards the common goal of making life better for the both of you.

ABOUT FREEGOLD: Freegold is what we have NOW. We have an ostensibly free market in gold and central bank-issued currency circulating alongside gold and silver and de facto competing with the precious metals in all monetary aspects including that of being a store of value.

78Rubies said...

Art:

First off, please learn to use html tags instead of SHOUTING VIA ALL-CAPS.

Second off, all you said here has been said over and over again by people FOA called "hard money socialists".

Gold standard did not work. It would be lovely (and best for all of us) if it did. But time and time again it was slowly but surely killed... by the will of the very people you are trying to protect from evil bankers. We live in imperfect world and your perfect money system is, unfortunately, bound to fail.

Having said all that, how about you went to learn FOA's and FOFOA's arguments before you start plaguing the comment section with half-baked theories that have been proven wrong by both history and our host?

Because by posting before you study what was already written you just waste everybody's time (and pollute the forum) with things that have been already addressed. Often more than once.

So the only thing I'm asking of you is to show a bit of humility by checking your theories against posts made 10+ years ago before you come here and force the "same old, same old" down our throats...

Could you please do that for us?

Art said...

@Wejn

I know Another/FOA/FOFOA from their USAGold days when they used contrived English mistakes to give themselves an aura of foreign exoticism. this was long before you arrived on the scene.

What I'm suggesting has never been done before. It's not any kind of a Gold Standard that's been tried before. The FLOATING gold-backing of currency has never been done before. If instituted, such a monetary system will allow for all the "elasticity" in the money supply you may wish for WHILST ensuring that MONETARY inflation is advertised loud and clear when it is perpetrated to give YOU the chance and the ability to vote Yes or No by putting your money on gold or on paper.

I promise, when YOU learn to make a cogent argument instead of resorting to the fallacy of mere assertion, I will learn to use html tags.

Tom Christoffel said...

Gold, Gresham's Law and the Dong
By: Ben Traynor | Thu, Apr 28, 2011

What happens when people actively shun their official currency...?

Governments are often tempted to live beyond their means. Today, that means national debts and quantitative easing. But a few hundred years ago, it meant debasing coinage.

Silver and gold coins would be 'clipped' - with a tiny quantity of their metal shaved off the edge every time they passed through government hands - or they would be minted with a lower precious metal content than their face value stated. This would enable the monetary authorities to produce more coins for the same amount of bullion, increasing the government's spending power in the marketplace.

The net result was that coins with identical face values did not necessarily hold the same commodity value. And this often led to a rather interesting phenomenon. When people knew there were both 'good' and 'bad' coins floating around, they tended to spend the bad and hang onto the good. Before long, all the good money disappeared into hoards. The only money in circulation was bad money.

This is known as Gresham's Law, named after the sixteenth century financier Sir Thomas Gresham. In its most simple form, Gresham's Law is often stated as "bad money drives out good money", and it's no mere historical curiosity. Gresham's Law is alive and kicking today, nowhere more than in Vietnam.

...

http://www.safehaven.com/article/20794/gold-greshams-law-and-the-dong?

What does the behavior of the Vietnamese people, given in the rest of this column, tell us about our probable future?

78Rubies said...

@Art:

It is very interesting (to me, that is) you have to resort to plain old bashing of A/FOA's style. I thought you were all about substance (cogent arguments). Btw, I don't think FOFOA was around USAGOLD at that good old days of A/FOA (he said he discovered FOA's writing around 2k8); which means your statement is false..

Why we don't have freegold now: because gold price is discovered via paper derivatives, the difference between gold price and gold value is far and wide. Another way to put it is to say gold price is depressed from all that synthetic supply (created by paper gold derivatives and fractional gold banking).

As for your "gold as money can work": if you allow lending of the metal backed currency, you inevitably (when borrower defaults) socialize losses: borrowed currency is spent prior default thus inflates amount of currency in circulation after default occurs (relative to backing). Bonus if the borrower first redeems the currency he borrowed for metal and subsequently defaults.

If you don't allow lending of the currency, then I don't see any elasticity of your currency (short of outright inflation or issuance when you mine new reserves).

Also, any shift in gold:silver ratio immediately affects the "unit value" of your currency, thus making it unsuitable for any longer term store of value.

Might as well be worthless token, because it will (highly likely) end as one.

When you go about disproving what I said, could you please demonstrate that using spreadsheet in which you'll paint evolution of a balance sheet of the proposed non-profit banking institution during defaults, GSR changes, etc. With respect to unit value of the currency.

To write this poste I did just that... and either I did some stupid mistake or your proposed scheme is inherently unstable.

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