Costata has been working on a few detailed responses to some of the comments in the last thread. But with the comments going over 600 in four days, and then Blogger swallowing about 140 of them on Thursday, I thought it would be a good idea to start a fresh open forum for Costata's replies and for all of you to continue the discussion.
Sincerely,
FOFOA
807 comments:
«Oldest ‹Older 401 – 600 of 807 Newer› Newest»@ Robert
To continue my rich vein of excessive posts of late...
I would think that the gold would not be drained as they would increase the price relative to demand?
Imagine the US reinstating their USD/Gold backing right now, at $40 per oz (or whatever the official figure is). They'd be empty within a day.
So you'd have to look at the criteria for a gold standard. I'd say firstly they'd need a LOT of gold. Secondly they'd need to regulate their system in such a way that they avoid a) being drained, b) being able to set the backing ratio at varying prices at short notice, and c) being able to restrict/delay sizable claims in order to facilitate a) and b).
So my conclusion is that, apart from a suicidal Government who wants to get rid of it's gold, the natural framework for a gold-backed currency in modern times of arbitrage is actually Freegold. Anything else would be doomed from the start.
Hi gary,
I thought I stated my position on silver fairly clearly in that last comment I posted. I'm not biased against silver. Perhaps an analogy might help you understand where I am coming from.
Imagine that costata's carbon based unit had hired two new staff members named Silver and Gold. After a while he realizes that someone (the silver "experts") had helped Silver to falsify his job application and it had become painfully obvious that he wasn't capable of performing in the job he was hired to do. What would you do? There's no choice IMO. You have to fire Silver. That's not bias, it's termination. Meanwhile Gold was performing well so Gold keeps his job, his role is expanded and some more money gets thrown his way. Capice?
"It always sounds like it is right around the corner but FreeGold may not traspire till we get to FoFoFoFoFoA.
Gary, as I have pointed out several times I'm not a trader. Some of the visitors to this blog are young and nimble and happy to take more risk than I am. Good luck to them. I wish them well.
We use the term shrimp fairly loosely around here. People with complex financial arrangements cannot afford to leave things to the last minute. Estate planning is just one example of a complication that some of us have to deal with when we want to alter existing arrangements. Once the risk reward calculation begins to move against them some folks have to begin to respond straight away, even if that is "too early" in others eyes. If you wait until the liquidity in a market begins to dry up you can find yourself with "stranded" or illiquid assets.
"If you can give me a date/year - I will take that into strong consideration of my position. Can you?"
These challenges you keep throwing out are the sort of things you read in the ZH comments. As I said to Tom, persuading anyone or convincing them of anything is not part of my job description. I intend to build the "No" case but people can take it or leave it. They will have to make up their own minds based on their individual circumstances.
@ Robert
I should be more succinct.
I believe that if any country were to set a fixed gold standard, either of the following would occur through natural arbitrage:
- if the volume of gold was set too high per 'dollar', gold would flow out of the country hastily
- if the volume of gold was set too low*, traders of this currency would see limited value for it and it would seem not too much better than fiat currency. This would value would increase in proportion with any increases of the volume of gold backing the currency, until it reached an equilibrium, (beyond which the volume would be set too low and gold would flow out of the country, as above)
* I struggled with this one a bit. No matter what I try it always comes back to equilibrium and floating reference point gold being the best and most natural solution.
Pete,
I think you have made a good point that some people overlook:
"No matter what I try it always comes back to equilibrium and floating reference point gold being the best and most natural solution."
In some quarters there seems to be an assumption that none of us so-called "Freegolders" have tried to build a "No" case for Freegold-RPG by investigating alternatives. Every attempt I have made to make a case for an alternative has been shot down in flames. Believe me, I have tried - SDRs, currency swaps, geopolitical shifts, various banking system and currency reforms.
As they say in the oil exploration game, nothing but "dry holes" except for the Euro architecture and Freegold-RPG.
International monetary system
RESEARCH CENTERS:
---------------------------
- Adam Smith Institute
- Betam - Bahcesehir University Center for Economic and Social Research
- Brookings Institution
- Bruegel Institut
- CASE - Center for Social and Economic Research
- CATO Institute
- CCER - China Center for Economics Research/National School of Develpment - Peking University
- CEPII - Centre d'Etudes Prospectives et d'Informations Internationales
- CPB - Central Planning Office - Netherlands Bureau for Economic Policy Analysis
- Center for China in the World Economy
- Center for International and Development Economics Research (UC Berkeley)
- Centre for European Reform
- Chatham House
- Chinese Academy of Social Sciences
- DIE - German Development Institue
- Development Research Center of the State Council
- EABER - East Asian Bureau of Economic Research
- ERIA - Economic Research Institute for ASEAN & East Asia
- Economic Research Forum
- FONDAD - Forum on Debt and Development
- Fraser Institute
- Gulf Research Center
- ICRIER - Indian Council for Research on International Economic Relations
- IFB - Institute of Finance and Banking - Chinese Academy of Social Sciences
- IFRI - Institut Français des Relations Internationales
- IWEP - Institute of World Economics and Politics - Chinese Academy of Social Sciences
- Kiel Institute for World Economy
- NBER - The National Bureau of Economic Research
- Notre Europe
- OCGG - The Oxford Council on Good Governance
- Peterson Institute for International Economics
- RAND Corporation
- Reinventing Bretton Woods Committee
- Robert Schuman Centre
- SWP - German Institute fot International and Security Affairs
- TEPAV - Economic Policy Research Foundation of Turkey
- The Heritage Foundation
http://global-currencies.org/smi/gb/links/links.php?institutions=Research+centers
[Mrt: you get this right and you know where gold/silver goes :o) "It is ALL about monetary system." These are just few links, hoping it will help you. Btw: do not trust all my positing 100%, check and verify, Educate yourself!]
@ pipe
There is a widely held misconception that sea water contains an abundance of gold which I would like to clarify. This belief originates from some analysis of seawater done in the early part of the 20th century where it was claimed that there was several parts-per-million of gold in sea water. After WW2, German scientists embarked upon a huge research effort to try and figure out how to extract it. But without success. After the head of the analytical laboratory took extraordinary measures to get a clean lab environment (including having all of the gold fillings removed from the teeth of his staff) what they did achieve was maybe the first ever chemical analysis to less than parts-per-trillion levels. The end result was a realisation that there wasn’t enough gold in seawater for extraction to be viable. The perception that seawater contains lots of gold survives in part because the textbook of chemical data that is most widely owned by chemists (the CRC Handbook) didn’t update its old sea water data for several decades.
Pete: To continue my rich vein of excessive posts of late...
In your sentence above, I am personally reading both "quality" and "succinct" in place of "excessive", Pete. ;-)
Lets say we are still in bi-metalism....(and The game name is "Demonetization in the name of the credit/fiat")....move forward in time through few qualitative steps and watch what happened, lets look strictly from the monetary system point of view, meanwile:
-> Demonetize gold and you get "wealth reserve asset".
-> Demonetize silver and you get semi-industrial metal. Present wealth storage function is from its previous monetization - a leftover and the believe of a possible future part in monetary system - works better than fiat but other assets do as well.
- The gold is still on the path to be demonetized -> fully, as it still works as money now, can be borrowed, played with, etc.
- If you want to use silver as a coin then you do the re-monetization or...
-- If you want to use silver the "freegold way" you have to strip all the taxes on it first, balance in-out-flows worldwide, create many laws about imports/exports similar to that of gold (check any CB which MTM gold).
=> So where are we today?
- Gold is being further demonetized and already during this process becomes part of new system.
- Silver? It stopped being a INTERNATIONAL monetary metal on big scale. Can it be accepted suddenly widely as a reserve wealth asset? What CB is an example? Should we start mining silver to be put to CB vaults? Understand CBs, they need to regulate the economy via monetary policies and they need to have for it some monetary reserves.
The question you need to ask is:
- Is silver The wealth reserve asset?
- How does wealth reserve asset work and what preconditions need to be met for that to work.
- Can the "industrial silver lobby" capitulate in name of new system where silver is a part of it?
Costata,
i'm also an aussie....from what i see there are a few other aussies here.......but i can't believe how few people view this blog.
Hey Costata( and Wendy)
A few posts ago on my blog I laid out my reasoning for why I think US HI will spark worldwide HI.
I am curious why you expect no HI in Australia ( and Canada).
I would love to be wrong. Would you maybe take a look at my post and refute my logic, or show me what I missed.
Thanks
The Fool
Silver seems to attract a mixed bag of extreme pessimists who expect the world to end, and ultra-optimists who expect to be able to "catch a falling knife" and trade into gold at the right time. Gold, however, is for realists. :)
I think one of Costata's most cutting observations is that silver is a game of musical chairs, except there's no-one there to tell you when the music stops. This month the GSR went from 32 to 44. How many jumped ship into gold at the "right time", and how many kept hold of their silver as it pulled them down, even until they were underwater? There's an inherent contradiction in "knowing" that silver is incredibly undervalued and is going to go sky high, and "knowing" that if it doesn't, you'll trade out into gold.
@jgb--Thank you for that analysis. However, if gold's buying power (not dollar price) increases by one or two orders of magnitude (e.g. from an ounce being worth 15 barrels of oil to being worth 150 or 1500 barrels of oil), the economics of the project change..........
Hey MF,
I'm also not 100% sure of HI in other parts of the world..can you post a link to your blog so I can read your argumentation?
Casper
Pete-"Think of it this way: You could be paid in cash and redeem a minimum of 1/20oz (even 1/50oz maybe) if you get enough cash together."
You are basically arguing for a bi-metal std., in so many words. Gold for big purchases/savings, and silver for small purchases.
The requirements for something to be money are well known: it must be fungible, durable, divisible, widely accepted, act as a reliable store of value, etc. It is never mentioned, but understood, I think, that it must also be visible to the naked eye.
To say that microscopic amounts of some metal can serve as money is an untested theory. And it will remain untested, because it won't fly. There are limits to how small you can make the coin of the realm.
As I have said, with modern debit card technology we don't really need currency nor coins (except base metal ones for the tiniest purchases). But in this case, we don't need gold nor silver either. If gold (and/or silver) don't freely circulate it (they) will quickly morph from being tangible money to abstract money.
pipe: Pete-"Think of it this way: You could be paid in cash and redeem a minimum of 1/20oz (even 1/50oz maybe) if you get enough cash together."
You are basically arguing for a bi-metal std., in so many words. Gold for big purchases/savings, and silver for small purchases.
What-what-what?! Now I'm starting to question part of a comment I made recently...
test
jgb-I found this on the web. "To illustrate this point, it can be calculated that the oceans contain 8 x 106 tons of dissolved gold (value: about $1.1 x 1014) even though the gold content of sea water is only 6 x 10-10 % by weight."
Where it says '8 X 106 tons of dissolved gold', it should read 10 to the 6th power, which is a '8' with 6 zeros, which is 8 million tons of gold in the world's oceans. (link below)
So you can see, gold is quite plentiful near the Earth's surface. The problem is that you cannot expend more energy in extracting it from seawater than it is worth. But what if gold increases in energy buying power (not dollar price)? At some energy purchasing power of gold, you could distill out the gold. And at some ridiculously high price for gold, thousands of the Earth's finest scientists will be looking for other methods to extract those 8 million tons of gold from seawater.
The whole idea that gold will be worth significantly more than it is now worth in buying power (not dollar price) is utterly preposterous. If it rises relative to other things, such as cost of labor or energy, then everyone will be out panning for gold and scientists will be designing ways to extract it from seawater and low grade ore.
http://www.dartmouth.edu/~chemlab/chem3-5/ionx2/full_text/appendix.html
@ Pipe
"You are basically arguing for a bi-metal std., in so many words. Gold for big purchases/savings, and silver for small purchases."
Like hell I am!
Firstly, I don't believe the world will adopt a system of hard money. Freegold is not hard money.
Secondly, why would you need silver when we have pointed out that gold is divisible? Almost infinitely if needs be, but that was just to make the point that divisibility is not an issue.
I already said that "gold is for saving". Argh, is there any point talking to you? I already said all of that.
-END-
pipe,
I think you are making great arguments as to why gold and silver won't circulate as currency.
Further, as to your question of 'where the wealth of the world is':
It's all around us! The land, the factories, the expertise, etc. The disconnect that you see is that there are more paper instruments that (allegedly) denominate wealth than there is real wealth in the world, so these paper instruments cannot be converted to real wealth at today's prices.
This will be the spark of HI. The real assets, and the real goods that they produce, will be revalued relative to the paper assets.
The next question is: how will gold fare in this revaluation? How will silver fare?
@ DP
What Pipe ascribes to me is not necessarily me at all.
This idea that credit cards need tiny amounts of gold in them is a hard money standard. Or paying people in silver for wages? A big WTF to that. Some people have been on this website long enough to understand at least the basics of Freegold, and would know that those ideas above are ridiculous.
But thanks for the nice comment anyway.
Ash,
So the question becomes: can a system be designed that does not require 'increasing rates of realized profits', and the pulling forward of demand? Can such a system be designed to be stable, and not to suffer from short-term/expedient/politically popular "fixes" that doom it to failure?
I think that is essentially what we are trying to figure out in freegold.
In the end, however, even if freegold is not long-term stable, it does not prevent it from being the next stage in the monetary evolution. In other words, even if freegold burns itself out in 2050, it doesn't mean that it can't come about in 2015.
@Pete, I didn't mean I was rethinking my comment to you earlier today. Not at all. I was thinking about a small part of a very different comment. ;-)
Motley Fool,
Your posts are one of the reasons I am posting 'longer responses'. Greater insight demands greater attention. At least, in this simpleton's mind.
Cheers
Michael H-"It's all around us! The land, the factories, the expertise, etc. The disconnect that you see is that there are more paper instruments that (allegedly) denominate wealth than there is real wealth in the world, so these paper instruments cannot be converted to real wealth at today's prices."
Your last few words make no sense. 'Paper instruments' (as you call them) are believed by the owners to be stores of wealth. The only way to convert a 'store of wealth' into real wealth is to exchange it for real wealth. Is that not obvious? All these 'paper instruments' cannot be converted to real wealth at ANY price. They were issued fraudulently.
Haven't you been following the story about how Greece used Goldman Sacks currency swaps to hide debt levels?
If you have a gold coin (store of wealth), you can exchange it for 15 barrels of oil (wealth). If you have US Treasury bonds (store of wealth) with a face value of $1500, you can exchange those for 15 barrels of oil (wealth) as well.
The difference is that US Treasury bonds have been over issued, so they are really not a store of wealth any more, except for small investors. If a company goes bankrupt, the bonds fetch just pennies on the dollar, because there isn't any significant real wealth backing them.
The USA has a lot of wealth, but most of it is owned by individuals, corporations, non-profits, etc. The amount of the nation's wealth that can be suctioned up to support government debt is finite. If they tried to raise taxes now, for example, they would crash the economy. Therefore, they are buying their own debt (QE-2) which is fraud. They have been stealing money from the social security trust fund for decades, which is theft.
There isn't enough wealth available for the debt they have issued, or they would be tapping it now, rather than buying their own debt. Is that not obvious to you?
Michael,
"Can such a system be designed to be stable, and not to suffer from short-term/expedient/politically popular "fixes" that doom it to failure?"
In today's world, meaning in the reality that has evolved around us, no it can't be done at a global scale. Strictly speaking, the problem is over-complexity, and we have reached the scale at which any top-down orders imposed on global society will not be sustainable and/or work as expected. That includes both a system of financial capitalism and one of communism, and any other combination of the two you can imagine.
Theoretically, you are correct that Freegold could be a temporary monetary phase on our path towards a total decommissioning of the global financial system. Practically, I fail to see how this is a likely possibility, let alone inevitable from our human perspective, and certainly not likely to last 30-50 years. If enough predicaments coalesce at similar time frames (i.e. within the next 20 o so years), then I believe the equilibrium level will be pushed way down below what Freegold is kindly, yet naively offering.
Michael - "You asked, "The next question is: how will gold fare in this revaluation? How will silver fare?"
I predict that they will fare as they have always fared, as a reliable store of value. In other words, if a gold ounce buys 15 barrels of oil, and there are no major wars in oil producing states, then it shouldn't matter what happens to the dollar price, you should still be able to buy 15 barrels of oil with a gold ounce.
But you Freegolders are saying, in effect, that it is different this time. Gold will no longer act as a reliable store of value, but will instead wildly increase in buying power. There is nothing in the historical record to support this. This is just a wild theory.
There are many cases of hyperinflation in the history books. The record is clear. People that protect their wealth with gold, retain their wealth. They don't go from being average Joe's to Warren Buffet types. That is bunch of unsupported hype.
Gold and silver are not immune to the laws of supply and demand. If gold goes up, relative to the cost of labor, more people will go out panning for gold. We just saw this in Zimbabwe. As real wages dropped, with hyperinflation, people went out into the placer gold areas and panned for gold.
Oh well. Back to fully moderated comments again, I guess. While it makes the discussion slower, I suppose on the plus side it forces more thought and consideration to be put into the comments.
The only control the bankers have over silver is the fraudulent selling of silver that they don't have through the paper markets that they own.
Buy physical SILVER and gold and fight the bankers (who are the so-called Freegolders).
Otherwise, you will acquiesced to become the indentured slaves of the Freegolders (the bankers).
pipe,
Your tone suggests that you disagree with what I am writing, but I believe we are closer in opinon than you might think. We shall see.
First, I started with your question,
"BTW, you keep ducking the question as to where is all this wealth that you guys insist needs to be shoe horned into gold or silver. Where exactly is it?"
My answer:
"-"It's all around us! The land, the factories, the expertise, etc. The disconnect that you see is that there are more paper instruments that (allegedly) denominate wealth than there is real wealth in the world, so these paper instruments cannot be converted to real wealth at today's prices."
Which you claim makes no sense.
'Paper instruments' (as you call them) are believed by the owners to be stores of wealth. The only way to convert a 'store of wealth' into real wealth is to exchange it for real wealth. Is that not obvious?
Yup, totally obvious. I agree. Only a moron would argue with this point. Notice that, in my description of the wealth that is around us, I did not include ‘paper instruments’?
All these 'paper instruments' cannot be converted to real wealth at ANY price. They were issued fraudulently.
Mostly agree, but I say that they cannot be converted into real wealth at today’s prices. At the right price, then they can be converted into real wealth. Say, if the purchasing power of dollar-denominated paper contracts drops by nine or so orders of magnitude.
Haven't you been following the story about how Greece used Goldman Sacks currency swaps to hide debt levels?
I guess I must have missed it. Can you tell me what it has to do with the discussion at hand?
cont ...
I predict that they will fare as they have always fared, as a reliable store of value. In other words, if a gold ounce buys 15 barrels of oil, and there are no major wars in oil producing states, then it shouldn't matter what happens to the dollar price, you should still be able to buy 15 barrels of oil with a gold ounce.
Let’s say I’m an oil state. I currently sell my oil for ~$100/bbl. Some of that goes to expenses of producing oil, some goes to support my current lifestyle. The rest gets saved. The savings are split between paper dollar-denominated assets, and gold.
(As an aside, even though I am a savvy oil state that knows true value, I still buy dollar-denominated assets. Why? Because it is in my interest to support the current system.)
Now fast-forward into freegold. The savings no longer get split between dollar-denominated paper and gold, it only goes into gold. What will this do to the price ratio between gold and oil?
There is nothing in the historical record to support this. This is just a wild theory.
Correct. And we are all responsible for our own due diligence.
Gold and silver are not immune to the laws of supply and demand. If gold goes up, relative to the cost of labor, more people will go out panning for gold. We just saw this in Zimbabwe. As real wages dropped, with hyperinflation, people went out into the placer gold areas and panned for gold.
How does this argue against freegold? It is like saying that, in a paper money regime, people will spend all their time counterfeiting $100 bills.
Let me refine my statement.
When I say that "There is nothing in the historical record to support this. This is just a wild theory." is "correct", I mean that freegold is a new monetary system, without historical precedent.
However, there are documents in the recent historical record that support this as the direction we are headed.
FREEGOLD = let the bankers create money out of thin air for which YOU will work at ever-decreasing real wages and pay for gold at ever-increasing prices!
END RESULT?
Work MORE for LESS.
NOW GET IT?
Ash,
"we have reached the scale at which any top-down orders imposed on global society will not be sustainable and/or work as expected."
Do you think freegold is a top-down system? I think the opinion here is that it would emerge as a market-driven force; bottom-up.
I confess I'm not familiar enough with the works of Marx to understand why speculative finance is mandatory.
I thought Art was banned for spamming?
@David, the Art will be removed. There is no anti-graffiti paint on Blogger, more's the pity...
@Casper: Motley Fool lives here.
DP,
I notice Costata doesn't see HI for Australia. What's your prognosis for the UK?
@radix, what do I know? ;->
However, I don't see much in the way of gold on the BoE reports, but there are plenty of $ in the reserves. I see that we had to sell half of what we did have by way of gold, not so long ago. (Thank heavens THAT idiot is gone, eh?) I see M4 has been exponential the last decade or so. I don't see us pulling much gold out from mines under our feet either; perhaps where Canadians/Aussies/Afrikaners/etc might see themselves in better shape(?).
So, for me, it doesn't add up to "sure we'll be fine". And hence my keen interest to try to understand Freegold as best I can -- and to find out ASAP if it's not what is really going to happen after all either, like all the other places I've been before here and realised we're not going! ;-)
What do YOU think?
Well, I think that we have a large financial centre that will probably be bailed out with freshly printed cash.
I really don't know. The mechanism by which HI occurs is still a bit fuzzy in my mind.
PS, That idiot makes my blood boil. He's a sociopath. And what the hell is with that crazy mouth thing that he does?
Regarding Silver Shield's rebuttal to costata:
http://dont-tread-on.me/the-world-is-cornering-the-elite/
He seems to have missed the point that, in a corner, the price is manipulated up as well as down.
"No, if anything that is even more reason to stay away from gold, as that is another asset controlled and owned by the Elite."
I don't get it. Does this mean we should have all been shunning dollars for the past eighty years?
"Costata then sets up a straw man argument saying that we are trying to make silver the premier monetary metal over gold."
He missed the point, that a wealth reserve works best when it is the focal point of wealth preservation, world-wide.
While only 1 in 100 or so "gold" transactions are physical, there is a big enough dribble of physical that can go "where it is needed".
If increasing numbers of people start buying gold, and buying physical rather than paper, then that 1:100 ratio is going to come down and down, until at some point it becomes impossible for TPTB to ensure sufficient of the flow can make its way "where it is needed".
If there is an insufficient flow, how can TPTB ensure the tap is turned up and up and up again? How can they top-down coax those bottom-up buyers, to become sellers again? And how can they make just the gold hose run faster, while keeping the other hoses watering the economy running pretty much (+~2% on average) the same? They only need to maintain a river of gold. Seems to me all the rivers-of-everything-else can take care of themselves, as long as the golden river is still running.
Have a great weekend, everyone.
"Costata then sets up a straw man argument saying that we are trying to make silver the premier monetary metal over gold."
He missed the point, that a wealth reserve works best when it is the focal point of wealth preservation, world-wide.
?? Not in that statement.
That is exactly what Costata did.That Silver Shield comment is very accurate.
"No, if anything that is even more reason to stay away from gold, as that is another asset controlled and owned by the Elite."
True enough - the only rebuttal Costata has against this is to deny control/manipulation of Silver. It is an odd way of arguing your point. He couldn't deny the dual manipulation - so he discards the reality of both. My investigations find the evidence is overwhelming. I'd guess that it gets discovered/prosecuted or the Comex defaults... well before FreeGold.
After seeing Gonzalo Lira's HI DVD - I'd like some FreeGold'er opinions on when to spend? Presumably - when to convert your Gold to R.E. or do you just hold onto your Gold forever? passing it down to your kids? grandkids? Thanx
Art, Please consider one suggestion. If you would be kind to your hosts while you are here they likely will let you stay.
If fofoa was a liar as you say.....he could have edited your comments from the beginning.
I always hate it when moderators/owners ban posters. I like your arguments against freegold and I want to see more of your rational arguments. Your chances of winning are increased when you stick to nonemotional fact driven evidence. Name calling and caps on will help you lose. Freegold is a fascinating discussion and the minds that post here are on a level far beyond mine. The most obvious debate here is "Is gold far superior to silver?" We don't have Dave Ramsey fans arguing that we are crazy owning gold. The fact that 95% of the population poos gold and silver makes me think the freegolders may be right. Since only 5% of the population cares one breath about gold/silver vs paper.......Let the 95% have their paper....and the 5% will likely choose gold. Storing silver vs gold is simply too cumbersome. Part of me wants to stick with silver because I have silver....But taking my wealth on the road will be a royal silver pain. Do we really need two metals? Perhaps. There are many silver coins out there already....and very few very small denominated gold coins.
Does anyone think that we will have gold wars? If our economy collapses and freegold takes over would it not make sense for the US military to "take the gold". Go to South AFrica....and takeover the mines? Go to the gold storage centers?
Art please consider toning down the rhetoric and stick to your guns(good arguments). Also, don't post too often.(notice how fofoa treats his guests to letting them post and not hogging the comments)
gary,
I think costata's point is that there will only be room for one monetary metal. It will either be silver or gold.
Silver Shield called costata's argument a straw man, but he did not describe what he thought the silver end game should be. Costata put up this 'straw man' because, in his words,
"What I can’t seem to find anywhere is a roadmap, a ‘battle’ plan from any of these silver advocates showing how they get to their ultimate goal."
This is where a silver advocate should focus his rebuttal.
Silver Shield says,
"I would hope that we have competition in money, gold, silver, platinum, and debt free currencies of all sorts."
But this does not argue for why silver should be the best metal to hold. Sure, we can have competition in money, but what if gold wins, and by a wide margin?
"the only rebuttal Costata has against this is to deny control/manipulation of Silver"
I must have missed this. Was it in his post, or in a comment?
I vote for moderation. I can hold a thought.
@radix, funny that the BoE should have stopped reporting M0, eh? About as funny as the Fed dropping M3... at least we can still see the offical M4 though. I wonder how a graph of the ratio M0:M4 over the last decade might look? Might say a bit too much about what's really going on eh? ;-)
PS I think it's called The Freaky Monocular Grimace of Jock McDoom? Or something like that... .~} I see that having failed to successfully run our godforsaken country, he thinks he could do a sterling job for the rest of the world. Unsurprising that he has insufficient perspective on his own failure, given his lack of visionary depth. Kirkcaldy can have him - and good luck to them.
@Art
Why stay here and argue with liars then? I'm in the 5% of "smart people".....so are you. Do I try to bring in the other 95%? Yes....but it isn't easy. How safe are you and your money? Some think that when tshtf the government will use the 5% of smart people as the scapegoats who are responsible for all our econcomic ills....."the problem is the hoarders.....it is not fair they they hoard their wealth.....their gold is the public gold and it rightfully belongs to all of us".
I will open my mind to the freegolders....and I will open my mind to the freesilverers. I think a similar debate took place before "thou shall not crucify the silverites upon a cross of gold".
I like your arguments but they lose half their value when you add "how can you take these people seriously?" How many times has Ron Paul been called a Kook? He "turns the other cheek". I like your arguments.....and when a freegolder says "you just don't get it".....maybe freesilverers are "getting your argument". For you to win here on their playing field you must make them respect you with very sound arguments.....otherwise their fans will be throwing water and ice at you and there are simply too many of them.....and yes....they may ban you. Stick around and don't tempt them to ban you. MOst bloggers have a goal of new members. If someone starts to piss off the majority with bad manners or too many posts....the blog owner will be tempted to get rid of them. You can compare it to Ron Paul and his message. Despite having "non mainstream views"....the majority has had a hard time silencing him. His arguments are sound....he is nonemotional for the most part....and he has a fervent group of supporters. It appears that freegolders and Ron Paul have one primary issue they share: Legal tender laws should not exist. He will get emotional however if you call him a racist. Freegolders here will not respect you if you continue to call them liars. Ben Franklin and George Washington had good manners and diplomacy (Ben did not at first)....two people worth copying.
Thanx for the link DP.
I was intrigued about you comment on those hoses. I too have been thinking lately how to keep only one hose (that of gold) open on full and all the others at normal flow.
Casper
gary here
...........I think costata's point is that there will only be room for one monetary metal. It will either be silver or gold.
I'm still grappling with this but like Randy Savage I may not have any more 'holds' as it is pure speculation since I am not buying Costata's thesis.
...silver advocates showing how they get to their ultimate goal.
Goal? I don't see it as a goal or that they have the power to 'get there' - just as FreeGold'er are at the mercy of many, uncontrollable, factors. Call it a hedge, wealth protector, preparation tool for the collapse - whatever.
Silver advocates (sounds much nicer than 'bugs') simply feel that precious metals - which have been money for 1000's of years, will escalate in value as paper disintigrates. Costata's piece is like an attack on Silver believers who don't share his tunnel vision view of Gold. I think the majority of Silver owners are like me - they also believe in Gold. Many (most) own both. They just don't believe it Gold's exclusivity to rise above 'everything else'.
But this does not argue for why silver should be the best metal to hold
It's posted ad naseum. Shouldn't the onus be on Costata to prove why Gold will dwarf Silver? from past GSR?
This is where a silver advocate should focus his rebuttal.
But shouldn't the FreeGold'er have the same responsibility? Using Costata's own words - how are they achieving this goal? What is their endgame?
Let's say FreeGold transpires. What happens then? I'm sure someone can point me to a past post. This lofty talk of philiosophies is keen and all - but I'd love some hard predictions. FoFoA lets out tidbits like 60K/oz - todays value, no Mad Max scenarios, HI, - any chance of specifics? is the only advice I am getting from a FreeGolder is 'buy physical Gold' but from Costata it's 'don't buy Silver, buy Gold'. How is FreeGold going to extinguish thousands of years of history?
I also don't see why a blog advocating FreeGold would bother posting an article bashing Silver? For FreeGold to tranbspire does Silver have to go to $0.50/oz. is this a prerequisite? FoFoA's made a few jabs at Silver in the past. Do you guys perceive it as stealing some of Gold's marquee? Is it a kind of jealousy?
and a final, less related, P.S.
Just skimming a recent interview with Chapman he claims that 'they' (meaning - The Securities and Exchange Commission, Commodity Futures Trading, Commission, New York Stock Exchange, National Association of Securities Dealers Automated Quotations etc. - I can't be sure) WERE receiving 1000 letters/email complaints a day about JPM's illegal naked Silver shortage manipulation - but that has now risen to 3000/day.
Gary,
"Shouldn't the onus be on Costata to prove why Gold will dwarf Silver? from past GSR?"
Costata doesn't have to prove anything. Costata just has to sit on his gold.... and wait.
Costata doesn't have to prove anything. Costata just has to sit on his gold.... and wait
I agree - he doesn't even have to write articles attacking Silver.
I suppsoe you can tell that he is being groomed as FoFoFoA - 5 before FreeGold takes root. :)
China Is Now Top Gold Bug
John Williams Exclusive - Hyperinflation & US Dollar Collapse
I'm very new to this blog, and this whole precious metals world that you all occupy, so I'm hoping someone can answer (maybe even politely) a stupid question I have about this gold vs. silver debate. I have been veraciously reading FOFOA for the past few weeks, and I find some of his ideas fascinating. I just can't get enough. Here's my issue. FOFOA is describing a world in the near future where physical gold is vastly more valuable than paper gold, and can't be had at a price anywhere near the paper price. This chart:
http://1.bp.blogspot.com/_cvdgPlEKW9k/TJ1k2Kw5ipI/AAAAAAAABcc/n8pY_udAeQE/s1600/Freegold_future_chart.jpg
would appear to suggest that physical gold will sell for $55000 while paper gold drops into the $500 dollar range and eventually, of course, goes to zero. I realize the 55 thousand number is something of a guess, and dollar values will be quickly losing their meaning anyway, but let’s think about this world for a minute. I don't think FOFOA ever intends us to believe that in the early stages of this crisis, everyone will have dollars to throw around. Dollar prices of assets might be rising even as their values in gold terms plummet, but that doesn't necessarily mean the average person will be able to get his hands on a bunch of dollars. So, if the shoeshine boy suddenly realizes that physical gold is the thing to buy, what is the average person to do? What if he has, say, 500 dollars to exchange? This means he can afford ¼ of a gram of gold. Just to be clear, this is 1/10 the weight of a dime. And that's for someone with 500 dollars. So what can he really buy in physical? Something 1/10 the size of a dime? Or perhaps something the size of a dime that is 10% gold and therefore doesn't even look like gold? The infrastructure is not even set up to produce such denominations, and FOFOA talks about this rise in gold price as though it will happen nearly overnight. Would such tiny physical gold options even be available?
Or, would this average guy with an extra 500 dollars simply buy silver? Even if the silver to gold ratio went to 20, he could buy 5 grams, something twice the size of a dime. I think everyone reading this needs to consider that, to the average person on the street, gold and silver aren't all the different. You guys obsessively study the differences, and to you they are clear. And, frankly, you're right. But you're also a tiny fraction of the population. If you ask an average person, "What are precious metals?" They'll answer, "Gold and silver." Never mind the differences, and never mind that they're not even the most precious… that's what people outside of your community think. They're almost interchangeable. So when even the shoeshine boy knows that the dollar's end is near, people will be looking to exchange them for either gold or silver. And in the scenario depicted by FOFOA, it's clear which will be more available to someone who doesn't have much money and doesn't know anything about either. Surely if you can't get your hands on physical gold, you'll buy silver. Won't this drive up the price of silver, at least in the short term? Could we really see $55,000 gold and $50 silver?
Somewhere in this pile of great ideas, I saw a video about assigning a serial number to every atom of gold as a way of making sure there's always enough gold to support the currency. That simply doesn't work when everyone is desperate for physical. Sure, there's always enough to back all the currency in the world at the right price. You could say that for a single nugget. But in practice, there's not enough for everyone to own physical gold. You can't physically hold one atom of anything. And I think FOFOA envisions a world in which everyone will be desperately trying to acquire physical value all at once. Surely this must include silver.
Please go easy on me. I'm just looking for someone to explain why I'm wrong.
@Gary
"After seeing Gonzalo Lira's HI DVD - I'd like some FreeGold'er opinions on when to spend? Presumably - when to convert your Gold to R.E. or do you just hold onto your Gold forever? passing it down to your kids? grandkids? Thanx"
The answer to your question is yes.
Longway: I might be wrong but what you are describing to post Freegold, after the transition. So when the shoeshine boy, or anyone, wants to buy gold they will pay $55,000 per ounce (notice I used 'dollars' and 'pay'). I also enjoy saying, in a worldwide Reference Point Gold economy you will be able to find someone who will sell you an ounce of their gold for 55,000 dollars (the dollar is still used as the currency of The United States). So, I believe APMEX will sell 1/2 gram and 1/4 gram units of gold. They sell 1 gram Pamp Suisse Gold Bar .9999 Fine (in Assay) for 75 dollars now. Within RPG APMEX could sell 1/10 of a gram, Sealed and Certified just like Pamp Suisse today.
We could always use a famous quote to show why APMEX will sell smaller units of gold: "See a need. Fill a need." Bigweld from 'Robots'
@Gary
My intent was not to be flippant. If you trust that your offspring have "good" values and that they are likely to teach these values to their children then why would you not want to support this? Is this not a form of philanthropy that deserves your support?
info,
It's good to see some effective rebuttals still trickling through the comments. Sigo Plapal posted one recently about the US state laws on payments in silver and gold. I'm trying to locate a paper I read that was written by a Constitutional scholar some time ago that could be supportive of Sigo's argument.
I read that post by Silver Shield. I thought it was quite good. I plan to respond to it at some point but I'm still working through the issues and arguments raised here earlier.
Toward the end of this 'debate' I will try to create a comment with a series of links to some of the better "for" comments and the "against" comments - a summation of both cases. Perhaps if it is done as a V1, V2 etc we might be able to incorporate feedback on any issues or arguments that I have omitted.
In any case I hope that this excercise will culminate in a reasonably comprehensive summary of both sides of the debate.
My intent was not to be flippant.
That's cool Holdinmyown. I have two small boys - they are wecome to all I have.
So is THAT the FreeGolder endgame then? Just want to know.
I was thinking it might be "buy a house in Bora Bora as the US implodes". I have no illusions that my 100oz will make me a King - but if you told me that I might sleep better. :)
Sorry Gary, I can't speak for "Freegolders" and I can't guarantee (nor do I believe) that your 100oz will make you a king but if you really beleive that your 2 boys are welcome to what you have (own and have worked for) you are already a king in my books.
Jim Purnell says:
Wonder why the silver market saw an uncanny sell off and the prices dropped considerably? A lot of people are wondering about that same question and here seems to be an obvious answer.
The most recent big concern was about the ability of the COMEX to deliver on the March expiration contracts for silver, once you look at the month of March you will see why. Remember that the COMEX was paying premiums as high as 80% above the cash settlements in an effort to encourage (or Bribe) the contract holders to take a cash settlement rather than demanding the delivery of the actual metal they had contractually agreed to take. Now the growing concern is in regards to the COMEX’s ability to make good on the June silver contracts and again when you look at the chart above you will once again see why.
Are we seeing the end of the COMEX’s ability to control the price of silver? It is starting to seem that way huh? Another interesting variable that has surfaced is that the Hong Kong Exchange as of May 19th is offering a competing silver futures contract that will rival the monopoly that the COMEX market has on silver futures. It also is going to be a more direct market avenue for Chinese investors who are now able to trade and own gold & silver for the first time in almost 100 years and they are passionate about the precious metals. This will mean a huge influx of investing dollars into an active market that is rising in an effort to re-establish itself as the true world reserve currency.
@ Paul
quote: "I have heard about your immoral bankers. again and again. I argue that your judgement is wrong. you use outdated glasses. you did not address at all."
Criticizing bankers sounded old so I didn't go deep into it. Now that you brought up this idea of "outdated glasses" I do think it's worth going over again. Is it really "outdated"?
Imagine that a guy makes a bad investment and loses money. Instead of keeping it to himself he wants to cover his loss with your money. Are you with me on that such conduct is immoral any way we look at it, Paul? I suspect you have to be.
It's not only immoral but also uneconomic b/c if the guy can get away with it one time then he could repeat the same mistake and dump his future losses onto other people again and again, and that's exactly what bankers and politicians have been doing.
Bankers like to play their risky fractional reserve / credit expansion games while politicians spend like crazy to buy votes. Whenever it becomes unsustainable they just dilute the currency to paper it over.
A loss is a loss. It does not go away. It only gets socialized onto others in the FIAT world.
Now does wearing your "transacting in FIAT / saving in gold" glasses make a difference? No much.
Sure in that system if bankers / politicians decide to paper their mess over, their FIAT dilution does not hit your gold savings but it does your future FIAT paychecks. In other words instead of having both your past income and future income being burnt, it now concentrates on your future income only.
Maybe those who have retired can get off easy here since they don't have much future FIAT income but those who have just started a career get a full blown hit. A loss is still loss. It does not go away. It only gets socialized in the FIAT world at the end of the day.
After all the shuffling around it's another shell game. As Peter Schiff put it, "What's different?"
Here's an effective way to fix it: Make your future income undiluable as well. Make it gold.
Now with both your past and future income in gold it becomes "transacting & saving in gold" - a hard money system, which is what I have been saying how a system should be.
What we need is not a brand new way to socialize losses around but a mechanism to prevent them from happening as easily as today.
Hi All,
Blogger just restored around 100 comments to the earlier thread. We are over 700 now. I'm not sure at this stage but it appears that the lost comments may have been from more than one page and if so there may be comments we haven't seen yet.
If you think you had a great contribution to this discussion that was swallowed by blogger please repost it here with some explanation of the context if you were replying to another comment or a link to that comment if you know how to modify the links for page references beyond page 1.
Cheers
PRESS RELEASE
20 May 2011 - ECB publishes the indicative calendars for the reserve maintenance periods in 2012 and 2013
The European Central Bank (ECB) is today publishing indicative calendars for the Eurosystem’s reserve maintenance periods in 2012 and 2013.
Taking into account the schedule for the meetings of the Governing Council (see the ECB’s press release of 20 April 2011) and the indicative calendars for the Eurosystem’s regular tender operations (see the ECB’s press release published today), the indicative calendars for the reserve maintenance periods in 2012 and 2013 are as follows:
http://www.ecb.int/press/pr/date/2011/html/pr110520.en.html
@ troll
We get it. You like hard money.
But if you're going to be an unrealistic idealist, you'd have to admit that a perfect fiat currency, with perfect trust and honesty, just does away with all that digging up of the yellow stuff wouldn't you?
Your persistent utopian hard money arguments on this blog show everyone that you have no idea what Freegold actually is.
And you need a very big history lesson.
Now go away. Erm, 'please'.
Pete: Please don't feed The Troll.
I have to say that in the past few weeks the focus of commentary here has been almost completely (and to me sadly) shifted from
(1) discovering the most likely form in which the monetary system will evolve
to
(2) complaining that what is seen here as likely does not match what various people consider to be fair and just monetary systems.
To everyone that reads the articles here, I would like to point out that they are not some attempt at a grandiose high-jacking of the monetary system that FOFOA is attempting.
Please realize that he is trying to figure out the most likely evolution of the system given the existing input parameters.
Also, please realize that what FOFOA, I, you, etc. might want to happen is completely irrelevant. Pardon my crassness, but to paraphrase Jon Stewart of the Daily Show from a few weeks back "Just because I'd like to s..t Rainbow Skittles, does not make it happen".
The only relevant thing (and what draws me here) is examining the reality under which, and the rules by which the monetary system is bound, and within which it can evolve.
Short of a French Revolution-like uprising, those are the important parameters to watch and consider, not the investment mania of the crowds.
And even in a revolution, the monetary system is still dictated by a central authority (except short periods of social breakdown, key here being short), because without that a state cannot exist.
From there, human nature takes its course, and many articles in this blog, instead of offending you by pointing out the failings of human nature, should make you consider that some traits of humanity have never been, and will not be ever changed - it's simply our nature.
Everything will evolve in and be bound by that context, whether we like it or not.
gary: The Hong Kong Exchange "will mean a huge influx of investing dollars into an active market that is rising in an effort to re-establish itself as the true world reserve currency.
Since you used the word "Dollars" my interpretation would be: The flow of Fiat Dollars (paper) into the Exchange (paper) will not re-establish gold as the true world reserve currency. Instead it will continue the dilution of physical.
Mario Draghi: The culture of monetary stability from unification to the present day
http://www.bis.org/review/r110520g.pdf?ql=1
"...For the wider public, and particularly for young people, we are inaugurating today the exhibition on The currency of united Italy: from lira to euro. The thread that runs through the 150 years of Italian monetary history since unification draws together two fundamental events: the country’s monetary unification, which the newly formed Italy undertook in order to strengthen the foundations of its political unity; and, closer to our time, Italy’s participation in European monetary unification, achieved despite the lack of political unity.
This story, from the lira to the euro, illustrates a central point for all of us today – the importance of monetary stability and of a political and economic culture that recognizes its value..."
"...The concept of monetary stability changes with time, alongside the technological and institutional conditions that determine it. Between the 19th and 20th centuries, Italy, too, switched from a system in which money was made of, or could be converted into, precious metal to one based on purely fiat money. In the first system, monetary stability is ensured by maintaining the gold convertibility of the currency at a fixed parity. By and large, Italy managed to do this: on the eve of the First World War, despite some periods of inconvertibility, the price index was at the same level as in 1861. This stability was regarded as the natural state of things..."
"...With the ascendancy of paper money, a radical institutional overhaul took place in the monetary field. The modern central bank came into being, and standards, rules and organizations were established to manage a currency whose value was no longer anchored to that of a metal, but instead based entirely on trust..."
"...As early as 1839 Carlo Cattaneo warned, in his review Il Politecnico, that “paper money must
not be issued except on behalf of the State, and that, with all the rigorousness and all the solemnity of laws and fundamental orders, its quantity must be made proportionate to needs,
that is, to the volume of transactions.”..."
"...The suspension of the gold convertibility of banknotes during the First World War drew the attention of economists and economic policy makers directly to inflation, not in the old sense of increase in the stock of banknotes but in the modern sense of rise in the general price level. The value of money lies in its purchasing power and therefore inflation means devaluation of the currency. Keeping prices down – although still instrumental to the lira’s external convertibility – became the objective of economic policy under the new system of the gold exchange standard that prevailed after the War..."
[Mrt: I hope this is enough to dragh your attention :o)]
Kazakh IMF-president to display that gold hiding in oil is wealth
http://bphouse.com/honest_money/
Thanks mortymer,
That Mario Draghi piece fits perfectly with something I am working on. I unbderstand he is one of the front runners to be the next head of the ECB.
Good evening,
If I might add a thought...
Please ignore and refrain from responding to the aforementioned troll. Its comments will be deleted anyway, so responding serves only to remove from the fluidity of conversation. Maybe it will go away one day:)
Like a Highway Star
Keep rockin'
DDT
I'm in Vancouver at the moment and planned to purchased an once of gold and about 50 onces of silver to add to my little stash.
The dealer I use is a big one here, they had almost zero silver, a few onces of old bars, no maples, no eagles, about 20 Kruggs that they wanted spot plus $10+ I was very surprised because I've never had a problem getting metal from them in the past.
Anyways this is not a pro silver anti gold comment but merely a street level observation that I thought I'd pass along.
Interesting to see hard-camp folks are somehow regarded as "idealists". We all read Another's Petro-Gold story and yet we've drawn quite different conclusions.
What did Saudis do in the Petro-Gold story? They didn't want soft FIAT as payment. What are Chinese doing now with Dollars and US Treasuries? They too dislike the soft paper and want out. Think of this: Are Saudis and Chinese being "idealistic" or simply realistic?
You see producers dislike depreciating FIAT as payment. They might be taken for a ride at first but will figure it out and reject it eventually.
And here's the thing: Economy is ultimately driven by producers (rather than consumers). We got problems if they are not happy.
That's not ideals but plain common sense for we cannot have an economy where everyone consumes and borrows while no one produces and saves enough to be willing to lend. The top driving force of an economy is always producers no matter how human beings evolve.
If we keep paying producers depreciating FIAT then at the end they either reject it (like Saudis above) or stop being productive ("Why would I be the sucker to be siphoned all the time?"). Once the system devolves (rather than "evolves") into that stage it's game over and has to reset, again.
That's not "idealistic" hard camp talking but simply how the history of every FIAT system played out.
If people don't care whether the next FIAT system is perfect or not they just wanna get there then I have no problem with it at all. But if it's advertised as a system to achieve "harmony in equity" I just have to point out it cannot.
FREEGOLD = FRAUD
FREEGOLDER = BANKER
Part 1/3
Return Of The King
In several comments it was argued that gold and silver are ‘real money’ whereas fiat currencies are not. Quite a few people asserted that we should, or naturally would, re-adopt both metals as money again. ‘Rui’ was out of the gate on this issue while a lot of the other riders were still saddling up. ‘News Wire’ chimed in with this comment in the same vein as Rui’s remarks. If anyone missed the comments by ‘Art’ on this topic just use Art as the search term to find his comments in the silver open forum. ‘LIAR’ and ‘EVIL’ should work fairly well too, Art gave those two nags a lot of track work as well.
This ‘longer response’ attempts to explore this issue of silver and gold as “real money”. How many times have you heard assertions along these lines? “The average life of a fiat currency is 37 years. Eventually all fiat currencies fail. Then gold and silver become money (currencies?) again.” Or how about this one: ”Throughout history people everywhere have always returned to gold and silver when paper money fails.” Or: ”Gold and silver have been money for 5,000 years and people always return to them when fiat currencies fail, as they always do.”
In order not to overcomplicate this discussion, for now, let’s confine our examination of the validity of these statements to the 5,000 year period prior to the beginning of the 20th century. That way we wont have too much ground to cover, just a few thousand years.
There are endless variations of these claims but they all contain a logical flaw. Can you spot the flaw? Let me repeat those assertions with a few words highlighted.
“The average life of a fiat currency is 37 years. Eventually all fiat currencies fail. Then gold and silver become money (currencies?) again.” Or how about this one: ”Throughout history people everywhere have always returned to gold and silver when paper money fails.” Or: ”Gold and silver have been money for 5,000 years and people always return to them when fiat currencies fail, as they always do.”
For those who haven’t picked it yet, here is the logical flaw. In order for those assertions to be true gold and silver would have had to have ceased to be money at some point in order to make a comeback as money after the failure of a fiat currency. Here’s the challenge: name a single period in all of those 5,000 years when gold and silver were money/currency then they ceased to be money/currency with the introduction of a fiat currency?
Some of you may be tempted to invoke Gresham’s Law and discuss circulation etcetera. In my opinion that wont ‘cut the mustard’. Hoarding those metals doesn’t alter their status as money. Did a black market spring up? Let’s face it, they always do. It also doesn’t go anywhere near addressing a related problem with those statements that arose after nations and states began to trade with each other. To the speaker we should ask this question: Do you mean gold and silver ceased to be money/currency everywhere during the life of a particular fiat currency?
Even if we could find a single example of gold and silver ceasing to be money in a particular nation because of the introduction of a fiat currency a trade relationship with another country that demanded gold or silver in trade settlement would ensure that these metals remained monetized.
To remove the logical flaw in those statements for that 5,000 year period we have to place the fiat currency alongside gold and silver and say that “gold and silver continued to be money after the fiat currency failed”.
Continued/
\Continued
Part 2/3
We have to look to the 20th century to find a process of demonetization of gold and silver – instances where they ceased to be money/currency. So let’s put those assertions up again with the caveat inserted that we are only looking at this modern period.
“The average life of a fiat currency is 37 years. Eventually all fiat currencies in the 20th and 21st centuries failed. Then gold and silver became money (currencies?) again.” Or how about this one: ”Throughout the 20th and 21st centuries people everywhere always returned to gold and silver when paper money failed.” Or: ”Gold and silver have been money for 5,000 years and people always returned to them in the 20th and 21st centuries when fiat currencies failed, as fiat currencies always do.”
Wow. Those assertions are exhibiting some real problems once we update them to cover the most recent period of monetary history. These assertions are now simply false, not just logically flawed.
In my opinion the single biggest failure of these restated assertions is that after hyper-inflations in the 20th and 21st centuries nowhere were gold and silver adopted as the money/currency. In every instance a harder fiat currency was adopted (generally the US dollar) by the citizenry or a new currency was issued or the existing currency was re-denominated at the end of the HI episode. So no points for either gold and silver on that scorecard.
Let’s take a look at the attempt to demonetize gold and silver during the 20th century. It began in early 1900s with the introduction of modern legal tender laws designed to make it easier for governments to severe the link between currency and gold a few years later. That was a necessary step to enable our ancestral sociopaths to wage the “war to end all wars” – WWI (and make a few bucks in the process).
The demonetization of silver continued with countries (eg. China 1935) abandoning the silver standard. Silver certificates were phased out of the monetary system of the USA in the 1950s and by the end of the 1960s silver was removed from the circulating coinage of nations around the world. In the last couple of decades silver held in national reserves and strategic stockpiles was sold off.
Gold followed a similar trajectory to silver in its demonetization but it exhibits a few crucial differences to the ‘experience’ of silver. The introduction of legal tender laws impacted gold in much the same way as silver. The withdrawal of gold coins from circulation and the restrictions on people’s rights to hold gold continued the demonetization of gold which began in earnest in the 1930s. However there are some big differences between gold and silvers’ demonetizations:
1. Gold continued to be exchangeable for US dollars on demand by a foreign government until 1971.
2. Many governments ran down their gold reserves but gold was still held in the reserves of most central banks continuously during the 20th century. In the 21st century the CBs became net buyers of gold again.
3. Gold continued to play a role in the settlement of international debts and trade as well as backing the IMF’s SDR right up until the Nixon era.
4. Since the ECB commenced operating on June 1, 1998 gold has been a primary reserve asset which they marked to market on a quarterly basis. Gold is now over 60 per cent of the ECB’s reserves assets. Fiat currencies are the minor portion of their asset reserves these days.
But here’s the real kicker. The IMF still accepts payment in gold to this very day. Gold is still ‘money’ as far as the IMF is concerned. Thanks to Another and FOA we know that the BIS, “the central bank of central banks”, never dispensed with gold in its dealings with member banks.
Continued/
\Continued
Part 3/3
Let’s also clear up another area of confusion. The IMF is not a development fund. The World Bank is not a bank. In this speech by the economist Robert Mundell he tells an anecdote about J.M. Keynes. Apparently Keynes had asked Henry Morganthau (US Treasury Secretary) at the Bretton Woods meetings in 1944 why the US referred to the IMF as a fund and the World Bank as a bank when the labels should be reversed. (Apparently the American side considered alerting the US public to the fact that the IMF was designed as a supreme world bank was political dynamite for Roosevelt.) This perspective on the IMF makes sense to me. It is the IMF that issues its own “currency” the SDR not the World “Bank”.
The IMF Central Bank and its European rival the BIS may not agree on much of anything but they both agree on at least one thing – gold is now, and has always been, money. By their actions there is another area of implicit agreement – silver isn’t money/currency any more.
Let’s revisit that interview by Jeff Clark of Casey Research.
Jeff: Would you and other Indians ever sell your gold jewelry?
Shanta: Gold is given as collateral, so you would only sell it if you had no other way to raise money. We prefer to keep it and won’t sell it unless there is a crisis.
Jeff: How is gold used as collateral?
Shanta: Gold is seen as a store of value and is only used when you really need money. So we would use it as collateral for a surgery or other emergency, a wedding, or maybe in an extreme case, a house. We would not use it for a TV or car or anything like that. We might sell some for education, so only for very important things.
Jeff: Might you sell some because the price is high?
Shanta: We typically would not sell gold just because the price is high. Gold is not an investment; it is a store of value.
Gold has been rehabilitated as the primary reserve asset by an ever increasing number of central banks, Gold never ceased to be a savings vehicle, a reserve asset, for middle class Indian families. The same is true for Middle Eastern families, families in China and most of Asia. Neither gold nor silver is a money/circulating currency anywhere today except in a few pockets of Islamic nations such as Malaysia. Harder fiat currencies sit alongside gold in the savings of families in these countries where the local currency is week.
Jeff: Is there much interest in buying silver?
Shanta: The key is gold. The rich and middle class normally buy gold, not silver. Silver is very common among the poor class, so if you are not rich, then you will buy silver. The poor people buy silver for the same reason the middle class buy gold.
A number of people criticized the thought experiment in my post for making the re-monetization of silver the goal of the physical silver advocates (represented by the SLA). I hope this post goes some way to further explaining why nothing less than re-monetizing silver and returning it to a central role in the IMFS will suffice to change the present status of silver around the world. Right now, where it is still considered a savings vehicle, silver is the reserve asset of the poor.
Costata, bravo!
Well along my gold-silver demonetization thoughts, thanks for detail and deeper description :o)
I would also add to your 2/3 that a detail about Swiss step which understanding came to me only lately:
The Swiss Franc was made equal to other currencies in 2000. It would be disrupting the equilibrum otherwise. When? So, just after the ECB launched Euro and after the WAG n1.
Then:
BIS replacing Swiss Gold Franc with SDR on 10 of March 2003:
http://www.bis.org/press/p030311d.htm
(Lets not forget that same year, 2003: When U.S. invaded Iraq in 2003, it returned oil sales from the euro to the USD.)
An Interview with Hugo Salinas Price on a Return to a Silver Mexican Peso
"Yes, as I said before, I am NOT for "backing the Peso with silver". I am striving to have a single silver coin, the one-ounce pure silver "Libertad", MONETIZED by means of a monetary quote to be issued by the Central Bank."
Viva La FreeSilver!
And then the following year 2004:
# R* out of LBMA "paper" market
# GLD is launched
# The change in status of US-goldreserves (deep storage)
# Joint Statement on Gold signed, The second version of Washington Agreement on Gold.
Will the US defend the dollar to the death, by any means?
Gee, after all these comments I sure figured out silver is not the thing to have... gold is...
Ah, yes, Ash, Marx was brilliant, definitely worthy of study. Except for the fact that he kept a female slave from the time she was 8 years old, eventually using her not only as a servant but as his mistress, never acknowledging his child with her or paying her at all. She waited on him hand and foot while he explained to the world that profit is the stolen surplus value of the laborer. Great role model, buddy. Knock yourself out with your studies. I now no longer care to make an attempt to decipher your ramblings.
Costata,
Great job on the last post. To go further:
1) Our debt is insurmountable given the political influence of the welfare state recipients huge voting bloc.
2) There are not enough buyers of our debt, therefore we must monetize it, inevitably creating a currency crisis.
3) When people lose enough of their paper wealth to inflation, they will look to an alternative store of wealth. It amazes me that they haven't figured it out yet (seniors have lost 32% of their purchasing power since 2000), but they continue to watch the CPI and think they are okay.
continued....
4) The best mechanism for that store of wealth is gold (see Fofoa archives for all the details). Given that the CB's and treasuries will be fighting to survive, a gold revaluation will be their only saving grace.
5)Nobody has been able to show me how we can avoid 1-3 above, and I believe then that number four becomes inevitable. Nobody, including Ash and all his theories of human behavior, can convince me that that the populace will not try to store their wealth somewhere other than in worthless currency.
6) I have not seen any other monetary theory (sorry Fofoa for calling Freegold a monetary theory, I know you eschewed that earlier) that separates the store of wealth from the medium of exchange and preventing the powers that be from devaluing it. Not saying that Freegold will absolutely happen, there could be many interations in the evolution of a new system, but in my opinion gold, as the only logical store of wealth (that has the CB's on your side)will reign supreme in wealth preservation/creation.
So when did Freegold end?
I mean, if gold has been a means of storing value for thousands of years, functioning in parallel with various fiat currencies, and gold leasing and gold derivatives are modern contrivances, does this mean Freegold actually existed at one time in the past?
Joel,
And Jefferson owned slaves and slept with them too... who knows he may have been a child molester as well... and you, the physical encapsulation of "morality", subsidize the murder of thousands and thousands of innocent men, women and children in the Middle East (assuming you pay taxes and live in the US or Europe)...
SO, what in the world is your point??
Your lack of logical reasoning is simply astounding, sir. You might want to work on that before you go off making various predictions.
Joel said, "3) When people lose enough of their paper wealth to inflation, they will look to an alternative store of wealth. It amazes me that they haven't figured it out yet (seniors have lost 32% of their purchasing power since 2000), but they continue to watch the CPI and think they are okay."
Ironically, this statement implies one of the most significant reasons why most of your other arguments are way off mark... hint: you can find the reason in the works of a slave-owning molester named Karl Marx.
Joel said, "Nobody, including Ash and all his theories of human behavior, can convince me that that the populace will not try to store their wealth somewhere other than in worthless currency."
OK, then how about yourself:
"It amazes me that they haven't figured it out yet (seniors have lost 32% of their purchasing power since 2000), but they continue to watch the CPI and think they are okay."
Tell me, Joel, when are all these old people going to stop paying high dollar prices for food/energy/clothes/shelter, liquidate their retirement accounts and throw all of their (non)excess currency wealth into physical gold? Perhaps around the same time the young people stop voting on American Idols?
@Ash
Tell me, Joel, when are all these old people going to stop paying high dollar prices for food/energy/clothes/shelter, liquidate their retirement accounts and throw all of their (non)excess currency wealth into physical gold? Perhaps around the same time the young people stop voting on American Idols?
I'm sure Joel will reply for himself, but as an observation, in all inflations (and certainly hyperinflations) these are the people that end up with the short end of the stick.
It is their very savings that will be confiscated through inflation before they figure out what to do.
It is the very essence of how the losses are socialized from past earnings.
In most cases they are the people that believe in the system, that believe that the state is there to protect them, that believe in the human face of the socialist promise. And when they loose everything, they hold a grudge, but history has shown us that the blowout from that is highly erratic.
On a different note Ash, I hope to read the second part of your thesis soon; the part with lots of examples.
@radix46
"Will the US defend the dollar to the death, by any means?"
If by defend you mean ensure that a currency named dollar will continue to exist, probably yes.
If by defend you mean its purchasing power, sadly, no - and ergo the whole amount of material this blog is dedicated to.
@RUI
"Interesting to see hard-camp folks are somehow regarded as "idealists"."
It was certainly not my intention to play the labeling game. I was referring not to hard money-camp folks in general, but to the social justice aspect that some of the hard money posters want to/would like to associate to the evolution of the monetary system.
"What did Saudis do in the Petro-Gold story?"
It is my understanding that the Saudis did not want FIAT when the gold flow stopped. Since the gold flow resumed, they are hapily taking fiat and converting the amount they feel necessary into gold.
"Think of this: Are Saudis and Chinese being "idealistic" or simply realistic? "
They are very realistic. Everyone here also promotes physical gold, just like the realistic folks you mention above. They are however using gold as a store of value, not as a currency. I believe China is working hard to promote the yuan/renminbi as the currency, backed by the gold you describe as a store of value, but with a floating exchange rate as far as can be discerned so far.
"If we keep paying producers depreciating FIAT then at the end they either reject it (like Saudis above) or stop being productive ("Why would I be the sucker to be siphoned all the time?"). Once the system devolves (rather than "evolves") into that stage it's game over and has to reset, again."
You are describing the reason for which the monetary system must evolve. On the other hand, if you truly have a hard money system (as throughout history), lending and even unintended fractional reserve tends to undermine it again and again. Coming back to your statement, what has been always been lacking is a "Point of Reference" that keeps its value.
If that existed, producers could index their fiat to it in order to ensure that they receive enough fiat at delivery time for the value they offer.
It would then be the producer's choice to convert to gold, or spend the fiat before further depreciation/appreciation. Does that make any sense to you - the idea that this reference point has never existed or was so artificial in a hard gold standard that it was always gamed?
@Costata
I have to say, the silver tour-de-force in the past two weeks has been impressive. I have learned a lot about the ebbs and flows of the silver market from your posts.
Personally, I’m ready for the honey badger video on this subject at this time, but may I try to summarize?
- If you’re holding silver in anticipation of it being re-valued as a store of value along with gold in the evolution of the monetary system, chances of that are slim to none.
- If however you’re holding silver as an inflation hedge as in “commodities and energy in general always hold up well”, then it’s an ok play.
Aquilus,
I appreciate your lucid arguments.
What I should have said, is not the dollar, but the $IMFS - $/gold /oil axis.
Will they keep invading oil producing nations in order to keep it going, risking a regional conflict blowing up into something else. Iran has been targeted for some time and the rhetoric seems to be reaching a crescendo.
Just what are they willing to risk in order to keep the current order?
Is it possible for the Euro/Freegold side to not engage militarily but bid for gold in order precipitate Freegold without the fight?
I can't imagine the pretenders to the crown would want to fight if they had a much less bloody option.
At what point do the central bankers call time on the politicians?
Exactly, Aquilus.
"It is their very savings that will be confiscated through inflation before they figure out what to do."
Except, this wouldn't be your garden variety HI (not inflation), would it? Especially if/when currency-based wealth is destroyed by a period of severe deflation first. Does the capitalist system always reset when one camp prevails over the other and creates a new monetary order, or do the past periods of wealth destruction catch up with it?
"On a different note Ash, I hope to read the second part of your thesis soon; the part with lots of examples."
Hopefully it will be up this week... it's pretty much done in terms of substance, but not finalized in terms of structure (trying to make it as clear as possible). And then it's up to Ilargi when to post it on TAE, but he usually gets its up soon after I finish.
Ash,
Could you explain how this severe deflation would occur please?
@radix46
Ah, the trillion/quintillion dollar question…
I personally don’t know the answer. Again, historically, war is a good cover and distraction for currency debasing. But I’m afraid I’m not “connected” enough to have a feel for how things will progress.
@Ash
Except, this wouldn't be your garden variety HI (not inflation), would it? Especially if/when currency-based wealth is destroyed by a period of severe deflation first. Does the capitalist system always reset when one camp prevails over the other and creates a new monetary order, or do the past periods of wealth destruction catch up with it?
Since we are talking about the currency that can be issued ad-nauseam, and all indications are that it will, it is the very reason why I look forward to how deflation in dollars will happen on a large scale.
For example, there is no reason why the Fed/Treasury complex cannot guarantee/own all mortgages to backstop the bank system losses for example. And if that devalues the dollar, even better!
The only fear for this complex is a disorderly loss of value, outside of that, all evidence points to a continuous willingness to do everything to keep solvency to the system and avoid large scale deflation at all cost (in dollars mind you).
Also: glad to hear your second part almost there.
That's it for me for the night, have a fun Sunday evening all.
Radix,
Perhaps you could ask a more specific question about dollar deflation, because that is a very broad issue of contention. Since you adhere to the theory of Freegold, I know that you will question my fundamental assumptions about debt destruction and "money printing". That is why I am focusing on the flaws I perceive in Freegold itself, which make it much more unlikely than claimed here.
Aquilus,
The issue I am referring to is not whether the major banks will be kept solvent (and the very wealthy...wealthy), but how much wealth will be destroyed for most other people. Just because their cash flows and savings are denominated in dollars, doesn't mean they are not very real and useful for them.
Ash,
Perhaps you could start by giving the asset classes that would bare the brunt of the deflation and give a potential trigger for its onset?
Radix,
The "trigger" for debt deflation already happened... subprime meltdown in 2007-08. I think most would agree on that.
Now, in terms of how it could become more severe, that would not require another trigger. As publicly-financed liquidity wears off, the rate of debt destruction naturally begins to accelerate, requiring more and more liquidity to achieve the same stabilization effects in the private economy. That is much more evident in Europe right now, but is also occurring here (US) as QE "winds down", public deficits are somewhat stabilized and the housing market turns.
Credit markets lead equity markets, and both of them lead economic indicators in the "real" economy, such as unemployment and GDP. It's not a linear path down, and it's usually difficult to observe just how bad the situation is when you are in the middle of it (mostly due to the propaganda of those in power). I don't think we are nearly at the worst stages just yet, however, and I would expect RE, stocks and privately-financed bonds to bear the brunt of debt deflation in upcoming years, but many consumer goods and commodities would most likely see a lot of price weakness as well.
Ha Ha, Charade you are!
Either FOFOA is messing with the blog or there's an issue with the blogger website itself.
FOFOFA,
If you'd desist from censoring free speech, it'd make life easier for all concerned.
Okedoke, banker?
Reading comprehension not one of your strong suits Art? I figured as much, which is why I also posted Cliff's Notes.
Is it HITLER or is it MEMOREX?
No, just Freegolders of course!
Do you feel now is a good time to trade a good portion of gold for silver?
Yes, with the gold/silver ratio back up to 43, those who exchange their gold for silver now will at a very minimum see their purchasing power increase by 2.6875 times during the next 2 to 3 years if NIA is right and the gold/silver ratio declines to 16 or lower. Silver has dipped enough where we now feel comfortable to start buying it once again using money that we currently have in gold. We are very happy that silver has dipped, because the more time NIA members have to accumulate cheap silver, the more wealth NIA members will gain when hyperinflation hits the U.S.
From Jim Willie's latest newsletter:
Robin Griffiths of Cazenove Capital is a highly respected global technical and macro strategist. His firm is one of the oldest investment houses in the world, whose origins trace back to the 17th century. It manages money on behalf of elite upper class British clients and is widely believed to manage some of the British Royal family wealth. He has come out with an eye-popping forecast, or at least a credible scenario, but with justification. Griffiths is on record with a $450 potential silver price and a $12,000 potential gold price, as a result of the chronic and profound debasement of paper currencies. During one part of an Eric King interview, he was asked if the $350 silver price forecast is realistic. Griffiths replied, "That is absolutely not unrealistic. If you adjust the old all-time high for inflation, that gives you $450 for silver. Then you add in the fact that they are printing money, you can take it higher than that without any difficulty at all. Bulls [bull markets] are very successful at wobbling people out at the wrong time." He referred to the $50 silver price and the more accurate Shadow Govt Statistics estimate of the CPI. The proper adjustment from the 1980 silver high takes the present day value of that peak to $450 per ounce, incredibly. The price inflation has been astonishing and huge in its compounded effect. His wobble comment directs attention to the naive investors who fall victim to Wall Street propaganda or lose their nerve or have limited comprehension of crucial factors or whatever, as they exit the bull market locomotive prematurely.
Griffiths is colorful. He has previously described investors who do not own gold today as exhibiting a form of insanity, even unhealthy masochistic tendencies, possibly warranting medical attention.
gary: "Do you feel now is a good time to trade a good portion of gold for silver?"
Yes, if you want to be a trader. Let us know how your timing of the transition works out?
@Indenture
That was from an email from the National Inflation Association.
Aren't you a 'trader' - trading dollars for Gold?
@ gary
The amounts ($450 and $12000) don't make much sense to me, as the previous high(s) in 1980 were momentary, and particularly silver's high was related to the Hunt brothers shenannigans.
I don't necessarily think the Hunt brothers can be substituted so easily (except by bullion banks?).
Drawing conclusions from the very peak of the 1980's gold/silver prices doesn't sound particularly useful to me.
No Sir. I am no longer a trader. I am done exchanging fiat for precious metals and now concentrate on more important things like my potato crop.
I guess even french fries are a better investment than silver for Freegolders.
@Indenture
At first I, incorrectly, read 'Potato Chips' LOL. Good for you Indenture! May your crop be free from floods, dry spells and insects...
FREEGOLD = GOLDEN FRIES
@Pete
Drawing conclusions from the very peak of the 1980's gold/silver prices doesn't sound particularly useful to me.
Maybe. Your prerogative, Bud. If you don't want the perspective of a proven analyst - I'm sure there could be an eloquent case for 60K Gold and $0.50 Silver in a hypothetical system that has no historical precedent - expounded by an anonymous source. To each his own!!
The Egg of Doom was a real crowd pleaser a month or so back. Lets see
how the Egg and various trendlines have developed since then.
It looks like the SPX has broken out of the Egg and may get a bounce up from an "internal trendline".
http://oahutrading.blogspot.com/
@ gary
I'm not saying 60K gold or $0.50 silver, those are other people's words.
I guess my point is that the analyst is extrapolating from an extremely volatile point in history, and then simply adding the rate of inflation to find his figures.
I know you didn't say it, it is the analysts words, I just thought I'd voice my mildly dissenting opinion in case it helped others to be critical in their own judgement.
Peace.
Forget precious metals for now. Tech is the place to be. Social media tech, cloud tech and green tech
@Beanie, this is not a place to advertise your trader/investor advices, this is a special forum about monetary systems and its evolution. Good advice anyway but keep in mind that people here are not trying to invest "money" so much but are trying to preserve the value. Thank you.
"Think of this: Are Saudis and Chinese being "idealistic" or simply realistic? "
They are very realistic. Everyone here also promotes physical gold, just like the realistic folks you mention above. They are however using gold as a store of value, not as a currency. I believe China is working hard to promote the yuan/renminbi as the currency, backed by the gold you describe as a store of value, but with a floating exchange rate as far as can be discerned so far.
--------
No fiat will ever be a reserve currency. No one will accept it. The only reserve will be gold.
Boatload O Charts, even some trade ideas
Check it out, easy to digest
http://oahutrading.blogspot.com/
Ash,
So, it is the credit market which leads the way down.
Which are the main creditors that will take big hits as their income from credit is wiped out?
How would these losses lead the equity markets?
FREEGOLDERS = Bankers
mortymer,
Nice dot connecting on the Swiss Franc and the timing of the other events you mentioned. A picture emerges.
Indenture,
Thanks for the Salinas Price link. He's been pushing for this for so long you have to admire his tenacity. Is he finally starting to gain some traction with the Mexican government?
If so, this could mesh with Sigo Plapal's argument about the US states. I'm trying to think of a scenario where this becomes a 'game changer'.
radix46,
I have to agree with gary. The onus is on me to flesh out the 'No' case with a longer response on the GSR issue. There is one in the pipeline.
All,
I hope the donations are rolling in to FOFOA. Even the multi-part comments take many hours to produce. I always appreciated his efforts but this open forum has been a real 'eye-opener' for me on his workload.
Aquilus,
Thank you. I have a couple of 'longer responses' underway that may provoke some thinking and further discussion about silver in a HI.
As to the performance of silver in the transition, I cannot see any role for silver (period, full stop).
It may prove to be the final step in the demonetization process that began in earnest in the mid 20th century. I view the "cross of gold" period and later USG intervention in the 1930s as attempts to halt "evolution" - attempts to forestall a natural process.
I imagine I will get some howls of protest from the silver bugs but the working title of one of the pieces I have underway is "1,600:1". That should give you a hint as to how well I expect silver to 'perform' in the transition.
(1/3)
Good morning to all - I hope everyone had a great weekend?
Rui: A loss is a loss. It does not go away. It only gets socialized onto others in the FIAT world.
Now does wearing your "transacting in FIAT / saving in gold" glasses make a difference? I'd say not much.
Sure in that system if bankers / politicians decide to paper the mess over, their FIAT dilution does not hit your gold savings but it does your future FIAT paychecks. In other words instead of having both your past income and future income being burnt, it now concentrates on your future income only.
Hi, Rui. I think you're overlooking the buying power of fiat (Freegold-currency) is not intended to be diluted. Only its buying power in terms of gold; in terms of all other goods (what people really care about in their day to day lives, that is) its buying power is intended to remain stable (~2% inflation target). If the currency issuer does not deliver on this promise, then people will vote with their feet into another currency or gold; it's just not in the self-interest of the issuer to do anything but keep its word on this. So, yes, it seems to me that if you are a producer with an excess income, you would be crazy not to store it in gold, if gold is the one thing that is by-design intended to go up in value. If you are a consumer without significant excess income, the paper currency you're being paid in will not go down in buying power, short of a total disaster (which would have been much worse under a gold standard, by the way, since gold cannot be magiced-up from nowhere when it's desperately needed). Gold will be used as the tool to soak up those socialised losses. The super-producers, who you rightly point out are the bedrock of the economy, will be properly rewarded in the future for their actions... assuming they do what would be in their own self interest.
...cont'd...
(2/3)
Casper: I was intrigued about you comment on those hoses. I too have been thinking lately how to keep only one hose (that of gold) open on full and all the others at normal flow.
If I issued a currency and I printed up a little more of it to buy some more gold, I would be doing two things: (1) by printing more, I would be diluting the value of my currency in comparison to some other currency that wasn't also diluted, (2) the supply/demand balance would be affected for the good I was buying: gold. So it seems to me that all goods other than my selected purchase item, would see a muted increase in "price" (in terms of my currency, but not in others). But the target item that I was buying would see an amplified increase in "price" (in terms of not just my currency, but others as well). So it would be like opening the gold tap, but leaving all the others alone.
Be pretty handy if the thing I was buying, also happened to be the thing that was backing my currency - my primary reserve asset. I would be buying say 1oz of the good for an inflated price and using printed paper money to buy it, but this very act would also revalue (due to my use of MTM accounting... did I forget to mention that I do this?) all the tons and tons of this asset that I already hold in reserve. In fact, I would be up on the deal - because while I had to temporarily dilute my assets:liabilities ratio in order to buy a little more of the asset I hold in my reserves, the increased value of my pre-existing reserves would be massively higher at the end of the process. I would have "diluted" my currency by issuing more liabilities, but in the process would have net-strengthened it because the reserves went up in value far more. In fact, the more that I pay for that extra 1oz whenever I do this, the stronger my currency will become as a result (as long as I commit to buy any and all that comes onto the market, to maintain this price -- but then again, why would I not? It's in my self interest to do it, and since I print the currency that I buy with there is no limit on how much of this currency I can use for buying.) So, I print more currency and this, perversely, results in a stronger exchange value of my currency - giving me a lot of latitude to print even more currency that I will not use to buy gold, but perhaps for some form of social advancement programme, or just papering over some bad loans somewhere. I will, in fact, be forced to print more currency like this - otherwise those consumer goods I promised would inflate in price by ~2% a year, will actually go down due to the growing strength of my currency. And that would be both a broken promise, and more importantly an economic disaster that it would be near-impossible to extricate ourselves from.
...cont'd...
(3/3)
So anyway, the reason I thought I would lump together responses to these comments of Rui and Casper, is that I thought it could be a good way to illustrate how the interests of super-producers and currency-issuers are firmly aligned, in a Freegold-RPG paradigm. As it happens, we can also I think see how the interests of shrimp Freegold-currency receivers and holders are, actually, also aligned after all. More of the currency is issued, however its value is not diluted but, counter-intuitively at first glance, maintained. The ECB will need to print and print and print, just to keep the value of the euro from rising in terms of consumer goods.
The Dollar system is dead. Vive la Freegold-RPG!
Costata, here we have an addition to the previous "dot connecting":
Saudi Arabia’s Exchange Rate Arrangement
http://www.sama.gov.sa/sites/samaen/OtherReportsLib/3.pdf
"Saudi Arabia has maintained a stable relationship with the US dollar at Saudi Riyals 3.75 per dollar since 1986; although until the end of 2002 the Riyal was formally pegged to the IMF’s composite currency unit SDR at Rls 4.28255 per SDR 1. As from January 1, 2003, the Riyal has been formally pegged to the US dollar at the existing official rate of Rls 3.75 to a dollar, thus formalizing the exchange rate arrangement that has been in place since 1986.
The formal pegging of the Riyal to the U.S. dollar is in accordance with the decision of the GCC member countries* in their summit meeting in December 2001 in Oman to adopt the US dollar as the common anchor for their currencies by 1st January 2003 in preparation for adopting a unified currency by 2010.
The choice of the US dollar to serve as a common anchor was based on the fact that the overwhelming majority of Saudi Arabia’s trade receipts and payments are in US Dollar. Consequently, it is the intervention currency for all the GCC countries, and their foreign reserves for currency cover and balance of payments purposes are largely held in dollar. Moreover, a stable relationship of their currencies with the US dollar is of crucial importance not only for fiscal management but also for the GCC traders in their business planning.
The adoption of a common peg has stabilized the GCC currencies vis-Ã -vis the US dollar, made them move in unison against other international currencies and generated a grid of bilateral parities between GCC currencies which will contribute to raising intra-regional trade.
Saudi Riyal is fully backed by gold and convertible foreign currencies. It has itself remained fully convertible since 1961 when Saudi Arabia undertook the obligation of convertibility under Article VIII of the Articles of Agreement of the IMF. These features, together with the prolonged stability in its parity with the US dollar, pursuance of sound economic and financial policies and adoption of wide-ranging structural reforms, particularly the enactment of the new Foreign Investment Law in 2000, have greatly enhanced the confidence of both the domestic and foreign investors and the business community in the Saudi Arabian Riyal.
The Saudi Arabian Monetary Agency (SAMA), the central bank of the country, is ordained by its Charter to maintain exchange rate stability. For this purpose, it keeps a careful watch on the Riyal market to ensure its smooth functioning and takes necessary measures to this end whenever considered necessary. That is why the spot market rate of the Saudi Riyal vis-Ã -vis the US dollar has remained stable within a narrow range around the official parity without meaningful speculative pressures."
____________________
* The Gulf Cooperation Council members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the U.A.E.
[[Completely unrelated, not my style but anyway:
Puff Daddy - Mo Money Mo Problems
http://www.youtube.com/watch?v=twkh0YiInPM
"What's goin' on? What's goin' on?
I don't know what, they want from me
It's like the more money we come across
The more problems we see "]]
@Mortymer, a great pick! Perhaps you should do this more often? :-)
This is, after all, the best damn music blog on the web!
@Costata... And if you want we can dip our feet a bit deeper into history to get depth, color and even better view for your emerging picture;
plus a silver cherry especially for you on the top of the cake:
Saudi Arabian Monetary Agency
Forty Sixth Annual Report
The Latest Economic Developments
1431H (July 2010G); Research and Statistics Department
http://www.sama.gov.sa/sites/samaen/ReportsStatistics/ReportsStatisticsLib/5600_R_Annual_EN_2010_11_14.pdf
"...The Most Prominent Developments of Saudi Currency
SAMA, the second oldest central bank in the Arab world, commenced its work on 14/1/1372H (4/10/1952). One of the foremost tasks of SAMA was the completion of the establishment of the Saudi monetary system. The Saudi gold pound was issued in Safar 1372 H, and its exchange rate was set at 40 Saudi sliver Riyals which equaled $ 10.90. This exchange rate was consistent with the targeted exchange rate of the riyal against US Dollar, (3.70) riyals per US dollar. SAMA focused at that time on maintaining that exchange rate, and exercised all its powers, in cooperation with the banking system, to achieve this goal. SAMA completed the process of minting silver riyal coins. In 1373H (1953), the silver riyal coin was minted with the name of King Abdulaziz imprinted on them. This marked the issuance of the national currency by a Saudi national agency. SAMA has been maintaining the value of the Saudi riyal vis-a-vis othercountries' currencies since its establishment.
For the convenience of pilgrims, who suffered a great pain in carrying heavy silver riyals, the Saudi Arabian Monetary Agency took the most courageous step in the Saudi monetary system which was represented in the issuance of what was known then as the pilgrims’ receipts of ten riyal denomination. The pilgrims’ receipts, of which five million were printed as the first issue, were put in circulation on 14/11/1372H (25/7/1953). Those pilgrims’ receipts bore various phrases written in the Arabic, Persian, English, Urdu, Turkish and Malawian languages. The value of these receipts was pledged to be paid in silver riyal coins to their bearers. Apparently, that step was welcomed at that time by pilgrims’ approval and acceptance, and it gained the confidence of people, traders and citizens of the domestic market. Consequently, SAMA reissued the ten riyal denomination and issued two new denominations along with it, the five riyals in 1373H (1954) and one riyal in 1375H (1956). Citizens and Pilgrims did not exchange the receipts for coins but instead they continued dealing with them. The government, represented by SAMA, concluded that citizens and pilgrims were willing to replace coins by banknotes. That was an important development signifying confidence in paper currency. As a result, the first issue, the firstborn issue of the Saudi paper currency, was released..."
Note:
* "Gold data have been modified from February 2008 as a result of the adjustment of SAMA's gold accounts."
* "...e. Gold held as currency cover:
In accordance with Royal Decree No. 38 dated 13 Rajab 1393 H (corresponding to 12 August 1973G), gold held as currency cover is valued at a rate of one Saudi Riyal 0.20751 grams per. Gold shown in the Issue Department's balance sheet includes SR 67,390,878 paid by SAMA as part of the Kingdom’s subscription to the International Monetary Fund ("IMF"), which is denominated in Special Drawing Rights with the IMF..."
@DP: You mean a good reading pick? Yeah! I think so. I thought I keep doing this again and again... :o)
Music? No chance, we would venture into something like this:
http://www.youtube.com/watch?v=fS6rSBljATc
or
http://www.youtube.com/watch?v=Cz73NNK_sdE&feature=related
Btw, nice summary, that of yours 1,2,3, one detail to fix, in general:
voting with feet - move to another country
voting with wallet - changing the savings medium
I did both.
@Mrt: Your reading picks are always interesting and relevant, and very much appreciated by me (even if that is not regularly expressed). Regarding the music, I would, personally, be entirely happy for you to take us down routes like either of those from time to time. It's all about context. And variety is the spice of life. :-)
You're right to pick up my earlier inattention to detail. I did, of course, mean voting with their wallets. But I also at times consider voting with my feet too. Perhaps one day I will have sufficient conviction in my views, as you clearly do. Congratulations!
Hi gary
We have never had Freegold during the last 5000 years.
In broad strokes the evolution of our monetary system was as follows.
Barter; gold and silver as ultimate barter items ( which follows naturally from marginal utility theory); gold and silver as money; fiat money backed by gold and silver at a fixed rate; fiat money backed only by gold at a fixed rate; fiat money backed by nothing and gold demonetized.
None of these describe Freegold.
The Fool
Hi again Ash
Hmm good or bad first. Let's start with good.
I am glad to see I was able to nudge you into using human language. Though you have been slipping a bit again lately. Speaking like a human makes conversation so much easier. :)
Now for the bad.
You have mentioned that Karl Marx is one of your primary inspirations.
I do not have the time nor inclination to show you the flaws in Marx's ideology.
I will however make a broad observation.
It is good to have a measure of the success or failure of any economic/social/ideological system. One good metric is to look at the standard of living of the population as a whole. To the upside there is not really a limit to this metric. To the downside the lowest standard of living, is that just before death. In looking at the downside, the marginal person of the population is he that reaches zero standard of living ie. Death.
The implementation of the ideology of Marx led to the death of between 80 and 150 million people ( depending on how you count). Bear in mind most of this took place when the population of the earth was much lower than today. As a percentage of the populations of the countries in which this happened, it is even more significant.
I do not care how intellectually appealing the ideas of Marx are ( ignoring the fact that it is mostly intellectual masturbation, since it has so many flaws).If the practical implementation leads to such a reduced standard of living that broad swathes of the population die from starvation then the system is deeply flawed. I do not care if he was a evil idiot or a evil genius, the result speaks for itself.
So please do excuse this fool for not respecting the work of Marx very much.
This fool prefers living to dying.
The Motley Fool
Hi DP,
I think we didn't quite understand each other... I was reffering to the time before "Freegold".
I can't really agree that you stregthen your currency with printing it and buying gold. You only transfer that gold from private hands to the CB.. what measly amount (in tonne) you get anyway. You then face an environment where people seeing everincreasing price of gold start "livng" on those increase of their wealth rather then production. This is of course just an illusion and you end up with a broken currency and without gold as people really do start paying with gold for their imports.
This is a good argument for a limited printing and only a gradual increase of price of gold (measured in currency) since overptinting leads to abandoning economic activity.
Casper
@Motley Fool
We have never had Freegold during the last 5000 years.
I realize, hence my comment:
"I'm sure there could be an eloquent case for 60K Gold and $0.50 Silver in a hypothetical system that has no historical precedent - expounded by an anonymous source. "
@Pete
I'm not saying 60K gold or $0.50 silver, those are other people's words.
Where did I ever say that you did?
I said it was your prerogative to believe it...
Saudi Currency
Historical Background:
http://www.sama.gov.sa/sites/samaen/Currency/Pages/HistoricalInfo.aspx
"...The Gold Sovereign was not put into circulation in the same year it was minted (1370H) compliant to an advice by Mr. Arthur N. Young, an Economic & Financial Advisor Heading an American delegation tasked with assisting in the development of the Kingdom’s financial system. This American delegation was asked to focus mainly on monetary matters beside economic matters in general. Mr. Young advised that the two and a half million pieces of Gold Sovereigns were to be kept in custody until the establishment of a competent institution capable to manage the financial affairs of the country. So, these Gold Sovereigns were held until the foundation of the Saudi Arabian Monetary Agency (SAMA) in 1372H (1952G).
The main concern for Saudi Arabia, after putting the Silver Saudi Riyal into circulation, was to maintain its value against the British Sovereign; the most important Gold currency at that time. Nevertheless, global economic stability was deeply shaken by the sharp international political shifts witnessed at that time. Silver prices collapsed due to the Great Depression. Moreover, between 1349H- 1352 H (1931-1933G) Britain and the USA abandoned the Gold Standard causing Gold prices to go up affecting exchange rate of the Silver Saudi Riyal against the English Gold Sovereign as applied by the Najdi-Hijazi monetary system.
As no local central monetary authority existed to control and regulate issuance of currency, coins were minted abroad and brought to the country in separate batches often in irregular periods of time. The situation aggravated when the drop in the exchange rate of the Silver Saudi Riyal created a big difference in its value as currency compared to the value of the mineral of silver in international market. This encouraged a bunch of money exchangers to smuggle huge amounts of the Silver Saudi Riyal across the borders, particularly to markets of India, which constituted a centre of attraction for smugglers.
King Abdulaziz realized the importance of a banking system to mange the gradually growing income of the State resulting from increases in oil exports. The envisaged institution could also curb and control any economic confusion caused by sharp fluctuations in prices of gold and silver, the backbone of the national currency.
From the very beginning, King Abdulaziz was very anxious to establish a national bank responsible for issuing Saudi currency, organizing its circulation into markets and maintaining its value. There were many offers presented to realize this project, but none of them was up to his expectations..."
"...Early in 1371H., (1952G) following a great confusion in exchange and payment systems, King Abdulaziz approved an American Financial Mission to Saudi Arabia, headed by Mr. Arthur N. Young, an Economic & Financial Advisor. The Mission was to provide necessary advice on financial and economic matters and assist in the development of the Kingdom’s monetary system. Based on the reports of Mr. Young and after consultations with HR Prince Saud, who later became King Saud Bin Abdulaziz, to define the suggested institution, a name was selected for the desired financial institution in addition to specifying its functions and objectives. Consequently, the two Royal Decrees No (30/4/1/1046) and (30/4/1/1047) dated 25/7/1371H (20/4/1952G) were issued ordering the creation of the Saudi Arabian Monetary Agency (SAMA), and establishing its Statute to confirm its important role in the stabilization of the value of the Saudi currency, strengthening this currency domestically and abroad, supporting the Ministry of Finance by centralizing the reservation of Government revenues, providing necessary consultation to the Government on matters related to coinage and circulation of currency, supervising commercial banking system and money exchangers dealing in foreign exchange. Under the Statute, SAMA was not allowed to give advances to Government or private parties nor to issue paper currency. The Statute included other further items as stated by the two Royal Decrees..."
Press Release
Contest Announcement for the Logo of the Gulf Monetary Council (GMCO)
March 1, 2011 - Riyadh
"The Gulf Monetary Council (GMCO) announces a competition to design a logo for the Council..."
http://www.sama.gov.sa/sites/samaen/News/Pages/Design_GMCO.aspx
mortymer: Speaking for everyone (yea, I can do that because I'm sure I will be corrected if I'm wrong:), Your links are incredible and when I see you have posted I know I am about to receive information I have most likely never heard before and it will be relevant to the discussion. You present a layer of thought deeper than most so I say Thank You, and if you want to add a little music I'm with DP. Not only do we get to learn from polite intellectuals but a sprinkling of video flavor adds personality to otherwise flat words .
Hi Casper,
"Opening the gold tap and only the gold tap", is perhaps the shortest way to express how Freegold comes into being, no? I don't think we could talk about starting to open just that one tap little by little, before a time that Freegold came into being.
I agree, the gold transfers from private hands into CB hands. The CB knows where it needs to subsequently go, when, and arranges that for the benefit of the Eurozone population as a whole. The private hands that the ECB will buy the gold from might be people within the Eurozone, or it might come in from elsewhere. As long as the price paid for the gold will buy what the holder believes is a good trade for currency (and therefore other non-gold goods), gold will flow towards the ECB and they can then ensure that what the people within the Eurozone really really need above all else, will continue to reach them. I think there is plenty of gold in the world to go around, as long as it is valued suitably then it will flow where it needs to. As long as a currency can deliver on its promises, it will remain current. Perhaps, if gold were valued higher, it might at times even flow in the same direction as oil? I guess, it would depend on how much oil was flowing, and how many goods and services were flowing in the opposite direction. It does however seem pretty unlikely that oil would often want more from the rest of us, than we will request of oil.
Rui,
"You see producers dislike depreciating FIAT as payment"
Maybe, maybe not. (Oil) Producers have been receiving fiat as payment since 1971. I think the key is not the form of payment, but that they be able to convert their savings into a non-fiat form -- gold.
If the Saudis were not OK with receiving fiat as payment (to be later converted into gold), then the dollar would have died in the 70's.
Further, I would argue that gold savers prefer to not have a circulating gold currency, since circulating currency would have higher velocity and thus lower value.
sean,
"So when did Freegold end?"
There was never freegold in the past. The closest was prior to the development of gold coinage, when gold traded as a barter asset. However, the lack of a circulating currency alongside gold at that time made it *not* freegold.
Freegold is something new; the next step in the evolution of monetary systems. Modern technology makes it both necessary and possible.
Motley Fool,
Independent of Marx's 'ideology', his analysis can still be of value.
DP,
Do you think a freegold system works better when the gold is concentrated (into ECB hands, for example), or widely distributed among the population?
"So, I print more currency and this, perversely, results in a stronger exchange value of my currency"
This part I disagree with. I think printing money to buy gold is a good way to devalue the exchange rate of your currency.
There is a difference between the "exchange rate strength" of a currency and the "asset-liability matchup strength" of a currency.
The steps I see are as follows:
1. Print domestic currency to buy gold
2. Gold price in domestic currency increases
3. Profitable arbitrage becomes selling domestic currency for foreign currency, buying gold in foreign currency, selling gold in domestic currency
4. Arbitrage results in altering the exchange rate, downwards, of domestic currency, while pushing up the price of gold in foreign currency
Am I missing something?
@Michael H
I think that is a fair assesement of consequnces of (unrestircted)printing currency / buying gold.
@DP
I think it's not that easy/likely for gold to flow into a zone just because a particular CB buys a lot of it. There must be an underlying cause in the real economy.
Anyway, with my question about "hoses" I wanted to provoke/get some thoughts on how a group of CB's could get us to revaluation of gold without HI.
Casper
Hi MH,
Given that I am by no means the font of all knowledge, I am very open indeed to the idea it is ME that is missing something. And I will sincerely thank you if you point me at it; that is half of the reason I comment after all... ;-)
If the gold in my hands can make its way to where it is suitably valued, without first having to pass through the BIS, then I would love to know where I take it to process this transaction? My understanding is the BIS will only deal with CBs though. So I will have to sell it to a CB, and I will only choose (I might be forced, but that would be something different!) to offer to a CB that is making a realistic bid. At the moment, the ECB seems to be the only CB that is making moves towards providing this realistic bid. I'm fairly confident that will change in time since the arbitrage you point out would surely come to pass and clean anyone else out in short order, but initially at least, it looks likely to me that the only party that is going to eventually make me an offer I can't refuse, is the ECB and its agents. No? And they're only going to offer me their currency in exchange, although I will be free to choose what I do with it after that.
RE: your 2. Gold price in domestic currency increases, is it not the case that the gold price also increased in other currencies too? Other goods, yes no influence on their prices outside of the local currency zone. But this one good (gold) seems like it is in increased overall demand, and this will impact its price and availability everywhere? In your 3. arbitrage opportunity, the demand is raised everywhere, no? It seems to me like all the currencies involved along the arb chain will be suppressed through lack of demand, compared to the growing demand for gold in all currencies. Ultimately, since the ECB is providing the bid for gold, in exchange for its euros, and since there would likely be a tidal wave of demand for this trade, the ultimate destination of the arb is... Euros? So the demand is ultimately for euros, no?
Again, I will truly welcome your correction of my view.
Sincerely,
DP :-)
DP,
"If the gold in my hands can make its way to where it is suitably valued, without first having to pass through the BIS, then I would love to know where I take it to process this transaction?"
Are we talking pre-freegold, or post-freegold? I am thinking of post-freegold scenarios, since, as Blondie points out, freegold is everywhere or no-where.
Post-freegold, there would be bids and offers for gold world-wide, denominated in every currency, through private markets. Sure, you may not be able to sell you 1 oz Krugg for Japanese Yen, but the large, well-funded arbitrageurs should be able to engage in such transactions.
"RE: your 2. Gold price in domestic currency increases, is it not the case that the gold price also increased in other currencies too?"
Right, the gold price in other currencies increases, also, but not until step 3, when the arbitrageurs exchange currency to buy gold in those other currencies. In doing so, they depress the exchange rate of your home currency, which will affect the price of imports and exports denominated in your home currency.
"It seems to me like all the currencies involved along the arb chain will be suppressed through lack of demand, compared to the growing demand for gold in all currencies."
The growing gold demand is in your home currency only, since you are printing money to buy it. You are increasing the supply of your currency. Other currencies see an increase in demand, since arbitrageurs are buying other currencies to bid up the price of foreign gold.
Note that I am assuming a stable gold market, and the only change is that the central bank of DP is printing his home currency to buy home-currency-denominated gold.
Rui,
In an earlier comment, you mentioned that ancient China used a hard money system, and that since gold and silver were in short supply, they also circulated brass coins.
If gold and silver were not abundant enough to circulate back then, how do you see the mechanics of a hard money system functioning now? Do you foresee coins with trace amount of gold and silver? Or perhaps currency that is 100% backed by gold and silver held in a vault?
(1/2)
@MH: Thank you for your response. :-)
Are we talking pre-freegold, or post-freegold? I am thinking of post-freegold scenarios, since, as Blondie points out, freegold is everywhere or no-where.
I am interested to consider only the coming-into-bloom of Freegold ("Act 2") right now. Pre-bloom ("Act 1"), we can look out the window (and won't get full value for the gold). Post-bloom ("Act 3"), it will be obvious to everyone, as you describe (we can then also look out the window, and at least then we should get full value for the gold).
To my mind, the part of the timeline it is critical to attempt to understand and plan for in advance, because you won't get a second chance to be right and sit tight, is this coming-into-bloom part. Unfortunately, it's also the most difficult part, because it relies heavily on one's imagination, reserves of patience, and of course not to forget that we will only get one shot so I'm constantly looking for what I have missed! That's why you and I are here I think; to try to help each other get as good a view on this part of the timeline as possible, so we can try to be not only prepared but have a reasonable idea of what might happen (if not when :-( ) and how best to react. Apologies if I have made an erroneous assumption and your objective for this conversation is different!
...cont'd...
(2/2)
Right, the gold price in other currencies increases, also, but not until step 3, when the arbitrageurs exchange currency to buy gold in those other currencies. In doing so, they depress the exchange rate of your home currency, which will affect the price of imports and exports denominated in your home currency.
OK, yes, if they just step out into Eurozone Street and bid to buy whatever the people walking up and down have on their person, you're right -- step 2 would indeed come before step 3, and in between there might be a lower exchange value. But this isn't how I currently anticipate the ECB operating, during the pre-bloom and coming-into-bloom stages.
Out of interest, let's consider what if the bid were placed in a foreign market, rather than domestic? Let's say the ECB had a trade surplus they had accepted in Dollars, so they had some at their disposal in their forex reserves, and they used this to buy the gold in the $market rather than needing to make the offer of directly buying from people on Eurozone Street yet? Would this result in the $:€ exchange value moving in their favour, in addition to raising the demand ($price, and through forex triangulation, MTM €price too) for gold? In this scenario, is it not the case that the $ is what suffers from increased availability/reduced demand and doesn't get any benefit at all from a higher gold price, while the € supply/demand is unaffected but the gold in the ECB's MTM reserve has been revalued upwards? Implying a higher objective valuation for the ECB's €, while there is no objective valuation possible for the Fed's $. If the $gold market no longer delivers physical gold at some point, someone holding a personal relative valuation of gold can determine what the value is, to them, of a € that is itself measured in terms of deliverable gold. What might be their objective personal valuation of a $ at this time, if a $ is known to be unable to deliver gold in some way?
So, in my view of things, it looks like the ECB will recycle the US's trade deficit to them into the $gold market. This will sterlise out the $ from their reserves, freeing them from the tyranny of US monetary policy that had to be tolerated in the past, while at the same time increasing the gold reserves backing their own currency. As the $price of gold ratchets up and up, and the strength of the $ clicks down and down, the strength of the € only increases. At some point, the $gold market will cry uncle and it will no longer agree to deliver any more physical gold. We cannot know when TPTB behind the $gold market will decide they cannot sustain this any longer, but whenever it is, that seems to me to be the day the Freegold bird finally takes flight. That is the day we need to be prepared for in advance.
Dollar up against other fiat, down against gold. Stocks down in fiat and real terms. Oil down. Follow the money.
@ Ash,
"And Jefferson owned slaves and slept with them too... who knows he may have been a child molester as well... and you, the physical encapsulation of "morality", subsidize the murder of thousands and thousands of innocent men, women and children in the Middle East (assuming you pay taxes and live in the US or Europe)...
SO, what in the world is your point??
Your lack of logical reasoning is simply astounding, sir. You might want to work on that before you go off making various predictions."
Ash, requesting logical reasoning while advocating Marxism is an oxymoron. My point is that Marx was an idiot, both morally and in his economic theories. I won’t defend Jeffersonian morals, but the fact that you are comparing Jefferson to Marx, combined with your anti-American “murder of the innocents” remarks speaks volumes about your misguided mindset. Hey Ash, newsflash: Socialism has never worked. Read your history books, and then look at the current example here in the US. As the voting base of the “proletariat” grows, they vote themselves a bigger and bigger share of the public treasury, eventually collapsing the system. We now have Marxist president who has spent two trillion dollars on Marxist programs, and we are the next domino to fall. Socialist welfare state tendencies have been the downfall of every democracy going back to ancient Greece, and it will eventually collapse our (US) system as well. As Margaret Thatcher said so succinctly, “Eventually you run out of everyone else’s money.”
Joel said, "3) When people lose enough of their paper wealth to inflation, they will look to an alternative store of wealth. It amazes me that they haven't figured it out yet (seniors have lost 32% of their purchasing power since 2000), but they continue to watch the CPI and think they are okay."
Ash said, "Ironically, this statement implies one of the most significant reasons why most of your other arguments are way off mark... hint: you can find the reason in the works of a slave-owning molester named Karl Marx."
Okay Ash, which other of my arguments are off the mark? 1) That the US debt is insurmountable? It’s $14 trillion! Get a grip! 2) That there are other buyers of our debt? Who would that be, Ash, please enlighten me? 3) That people won’t lose their wealth to inflation? It’s already happening! I provided the example statistics to you in my post.
@ Ash, continued....
"Tell me, Joel, when are all these old people going to stop paying high dollar prices for food/energy/clothes/shelter, liquidate their retirement accounts and throw all of their (non)excess currency wealth into physical gold? Perhaps around the same time the young people stop voting on American Idols?"
Ash, another news flash: old people here in the US are already doing that to the tune of 10-20% of their retirement accounts. Almost every investment advisor in the US recommends gold in those percentages as inflation protection. As for when they will bail on the dollar,it will happen on a grander scale when the confiscation of people's wealth becomes quicker and more apparent (hyperinflation). Many won’t be able to buy gold though, and will lose what little they have. If you want to argue the validity of Greshams’ law, many would love to take on that argument with you here. Please expand on how you think deflation will be allowed to occur when they have the ability to simply socialize the losses and print money to stop it, as the public demands. As a Marxist, I assume you would be pushing this policy yourself.
Ash, although I don’t agree with you on most points, I do appreciate your more recent posts; you are getting more specific and starting to argue specific issues and policies. Please keep it up, we need dissenting voices around here (American freedom of speech policy). One side note: if you read some of Fofoa’s archives, you will see that he believes in deflation as well, but against a different reference point: gold. In hyperinflation, things inflate against the currency, but deflate vs. gold. It’s very hard for me to envision deflation when something (dollar) is in unlimited supply, so if you believe they won’t socialize the losses and limit that supply, please specifically explain your position as to why that is, and what the political force driving that alternative policy will be. Please, meat and potatoes, man, no cryptic prose.
DP,
"To my mind, the part of the timeline it is critical to attempt to understand and plan for in advance, because you won't get a second chance to be right and sit tight, is this coming-into-bloom part."
You don't think the most important part to get right is the 'endgame'? There are myriad different ways of getting there, but knowing (or at least being fairly certain of) the destination will make the trials and tribulations of the transition easier to bear.
Further, the experience of 'act II' will be different depending on where you live. The US experience may be very different from the European experience and the Chinese experience.
"OK, yes, if they just step out into Eurozone Street and bid to buy whatever the people walking up and down have on their person, you're right -- step 2 would indeed come before step 3, and in between there might be a lower exchange value. But this isn't how I currently anticipate the ECB operating, during the pre-bloom and coming-into-bloom stages.
Out of interest, let's consider what if the bid were placed in a foreign market, rather than domestic? "
You are changing your scenario -- now you are not describing a situation where the CB is printing domestic currency, but rather disposing of foreign currency reserves.
In that case, yes, using the surplus dollars to buy gold would put downward pressure on the dollar-euro exchange rate.
If we are talking about the transition to freegold, this brings us back to the question: will non-US CBs sell their dollars, percipitating a US hyperinflation? Or will foreign-held dollars die as orphans abroad?
" In this scenario, is it not the case that the $ is what suffers from increased availability/reduced demand and doesn't get any benefit at all from a higher gold price, while the € supply/demand is unaffected but the gold in the ECB's MTM reserve has been revalued upwards?"
In this scenario, the euro price of gold might not rise, since, as you state, the supply/demand dynamics of the euro gold market have not changed. So the ECB's reserves have increased, because they have bought gold, but the gold price has not changed (in euros).
"If the $gold market no longer delivers physical gold at some point, ..."
I think you're getting ahead of yourself. This part comes later.
"So, in my view of things, it looks like the ECB will recycle the US's trade deficit to them into the $gold market. "
Doing this will cause a US hyperinflation, and will end the US's function as a market for european goods. Further, doing this will be seen by Washington as essentially an act of war.I don't think europe will risk this path, at least not yet.
So, what comes next?
I think the key to how 'Act II' will play out is not necessarily Europe, but the interaction between China, Europe, and Oil.
Until oil breaks away from the dollar, there won't be freegold. I think that is where the current system will break, then the paper gold market will follow.
Joel,
"old people here in the US are already doing that to the tune of 10-20% of their retirement accounts. Almost every investment advisor in the US recommends gold in those percentages as inflation protection."
This is news to me. Do you have a source you can cite?
(1/1)
MH, thanks once again for your response.
You don't think the most important part to get right is the 'endgame'? There are myriad different ways of getting there, but knowing (or at least being fairly certain of) the destination will make the trials and tribulations of the transition easier to bear.
Yes, a fair point. The light at the end of the tunnel is certainly a reassuring incentive and interesting to consider. However, for me it's sufficient to sum it up for now with something along the lines of "gold will have been significantly revalued by then, globally, and you will be glad you had it beforehand". For the moment, that is "end game enough for me"! :-)
Further, the experience of 'act II' will be different depending on where you live. The US experience may be very different from the European experience and the Chinese experience.
Another good point. One has to attempt to tailor your view to how it will impact on you personally. For instance I am in Europe, but not in the Eurozone. So things are going to be different for me than someone in either the US or the Eurozone. It's difficult to decide how, unfortunately.
You are changing your scenario -- now you are not describing a situation where the CB is printing domestic currency, but rather disposing of foreign currency reserves.
Yet another fair point. But in my defence, I started out suggesting to Rui that I didn't feel, "post-Freegold", he should be as concerned about the buying power of his income as he appears to be. (In this pre-Freegold, and even moreso in the coming-into-bloom transition period, all bets are I think off, however.) I was also combined with that a discussion of "the gold tap and only the gold tap" with Casper, which was clearly (to me at least) a discussion of the coming-into-bloom transition; how gold is revalued to soak up the problems. So what I was saying earlier, really I think spanned both the transition (with Casper) and post-transition (with Rui). Subsequent to this you and I have entered into discussion, and last go around I felt you were inviting me to pick a phase that I would prefer focus our discussion on, since we were clearly going to be talking at crossed purposes otherwise. My preferred subject area for study is the transition phase. If I don't have a clear idea in my mind how I think this might proceed, there is no base for me to build a clear idea of the following period upon. The dynamics in the two phases will, clearly and as you've indicated, be different.
In that case, yes, using the surplus dollars to buy gold would put downward pressure on the dollar-euro exchange rate.
If we are talking about the transition to freegold, this brings us back to the question: will non-US CBs sell their dollars, percipitating a US hyperinflation? Or will foreign-held dollars die as orphans abroad?
My understanding is this is already taking place as we speak, and has for some time. While the $gold market is still performing adequately, there is no hyperinflation ($ losing its currency). When it no longer performs as advertised, things change. No? So, that being the case "yes, and yes". (The CBs are selling and will continue to do so, until they cannot buy anything useful, and then the remaining dollars die as orphans abroad.)
...cont'd...
(2/2)
In this scenario, the euro price of gold might not rise, since, as you state, the supply/demand dynamics of the euro gold market have not changed. So the ECB's reserves have increased, because they have bought gold, but the gold price has not changed (in euros).
Except that the market the gold is marked to, is [currently] the $gold market price. So the $gold price goes up, and the $:€ exchange rate in the forex market perhaps goes up but to a lesser extent. No? In which case, the triangulated €gold price has gone up. And with that, the valuation of the ECB's gold reserves.
"If the $gold market no longer delivers physical gold at some point, ..."
I think you're getting ahead of yourself. This part comes later.
Perhaps you can expand on this, please? I am intrigued to know your alternative scenario -- as I said earlier, if I have it wrong, I would absolutely prefer to know! :-)
"So, in my view of things, it looks like the ECB will recycle the US's trade deficit to them into the $gold market. "
Doing this will cause a US hyperinflation, and will end the US's function as a market for european goods. Further, doing this will be seen by Washington as essentially an act of war.I don't think europe will risk this path, at least not yet.
Do Europe really need the US market to sell into? If the US economy collapses in a Depression, is there sufficient demand for European (or other) imports into that market anyway?
You don't think Europe have been doing this $-gold shuffle for years already? As long as the $gold market can provide gold where it's needed, there is no problem. Only when it no longer can... problem. Europe aren't really "doing anything wrong" are they? They're just buying gold from the market, at market prices, and with $ as required by the market. It's not the ECB's fault if the $gold market model isn't sustainable.
If the $ collapses in exchange value and will no longer purchase oil for cheap, while other currencies still will, what kind of war would the US want to wage with everyone else in the world anyway? Could they win without cheap oil?
But, this is all a long way from the machinations of "Act 2". This is clearly out into "Act 3" by now.
So, what comes next?
I think the key to how 'Act II' will play out is not necessarily Europe, but the interaction between China, Europe, and Oil.
Until oil breaks away from the dollar, there won't be freegold. I think that is where the current system will break, then the paper gold market will follow.
OK, so it would appear you foresee some other reason oil breaks away from the dollar, that isn't due to a failure of $gold to deliver as promised? Again, I would welcome you sharing more detail of this view please?
Cheers!
DP :-)
@Costata
Oh, that's good! An article titled "1,600:1" should definitely bring on the deluge of howls.
And here I thought I was tiring of all this silver talk. The entertainment will be epic. Bring it on, by all means.
@Michael H and DP
Great conversation guys, I love to see this topic explored in more detail. Please continue.
DP,
Let's see if we can flesh out a scenario for a transition.
"My understanding is this (non-US CBs sell their dollars) is already taking place as we speak, and has for some time."
Do you think so? I don't see it, but I might be wrong. I see reduced purchases of US treasuries from China. I also see, for example, Brazil printing money to buy USD.
"Do Europe really need the US market to sell into? If the US economy collapses in a Depression, is there sufficient demand for European (or other) imports into that market anyway?
Maybe, maybe not. If I was in charge of european policy, and had some control over these things (two big ifs, admittedly), I would opt for a gradual transition away from the US market. What if german exports to the US were halted because of lack of demand, without another outlet for those goods waiting? What would the interruption of German industry do to the economies of the rest of Europe?
"Except that the market the gold is marked to, is [currently] the $gold market price. So the $gold price goes up, and the $:€ exchange rate in the forex market perhaps goes up but to a lesser extent. No? In which case, the triangulated €gold price has gone up. And with that, the valuation of the ECB's gold reserves."
Unoftunately, we're getting more crossed up here; I think I was referring to a post-freegold situation in this case. When the ECB sells dollars to buy gold, the USD-price of gold would rise, but the euro-denominated supply and demand of gold would not change, so the EUR-price of gold would remain the same. The USD:EUR exchange rate would adust accordingly.
"If the $ collapses in exchange value and will no longer purchase oil for cheap, while other currencies still will, what kind of war would the US want to wage with everyone else in the world anyway? Could they win without cheap oil?"
The US could not win any wars without oil. However, 'cheap' is a relative term, especially when you can print the currency in which oil is denominated!
"If the $gold market no longer delivers physical gold at some point, ..."
I think this is the end of the dollar, the last step in act II. Every avenue of resistance will be tried before we reach this step.
continued ...
1/2
2/2
"Europe aren't really "doing anything wrong" are they? They're just buying gold from the market, at market prices, and with $ as required by the market. It's not the ECB's fault if the $gold market model isn't sustainable."
Just like Iraq wasn't doing anything wrong, selling oil at the Euro market price. It wasn't Iraq's fault that the $-oil market isn't sustainable.
Ok, I'm not really suggesting that the US would invade Europe, but, as long as the US gov has some power and influence, going against them will have some reprecussions.
I'm also not saying that the US gov is all-powerful and will always win; they will lose when the time is right. I just think that intelligent oponents will play along with the USD until it collapses of its own accord.
"OK, so it would appear you foresee some other reason oil breaks away from the dollar, that isn't due to a failure of $gold to deliver as promised?"
Tricky issue, isn't it? Saudi Arabia is likely to stay with the USD until the ruling family can no longer get American protection to stay in power. Would a revolution in Saudi Arabia topple the USD?
What does it mean, to fail to deliver $-gold? How would that look? How would oil react?
In order to answer those questions, we'd have to know how oil buys gold. Do they go through COMEX? Doubtful, so COMEX could go cash settlement, and the dollar would continue. LBMA? OTC? Probably more likely. I admit I don't really know anything about these markets. Would the CBs backstop some gold-deals-gone-bad, with oil only, in order to keep oil flowing? Would they let all other bad gold deals go bust?
I'm not very good at predicting. But I do foresee unprecedented actions being taken at the end of the USD-timeline.
Ok...I'm here to start the biting/howling party :)
Costata, I would ask again that you please address this single point.
If gold goes to 1:1600 vs. silver, that means I can, with 500K ounces of gold, control the entire year's worldwide production of silver (800M troy oz). That means that I can shut down WORLD production of antibacterial agents, nanotechnology, Tomahawk missiles, optics/mirrors,every single electronic component in the computer you are using to view this webpage, etc if I feel like it. I can blackmail every single electronics maker and say "Give me whatever I want or you go out of business because you have no silver."
The Bank of Mexico bought 3.2M troy oz of gold over the past 2 months - 6.4x what I need to take over the world. I could make the Mexican government (yes the same poor government that can't beat drug cartels) the richest in the entire world almost instantaneously in your world. Do you really think this could ever happen? Really?
If 500K ounces can do that, and there is 5 BN oz (10,000X more), what will the other 4.9995 BN ozs buy? My point is that other holders of gold (the people owning the other 4.99995 billion ounces) will bid gold for silver until they get it - meaning a much lower GSR than this 1:1600.
Please address this point soon, because I've been dying to hear the answer ever since my first comment on this.
Radix,
I can't say exactly which creditors will be allowed to take losses on debt-assets, but I'm assuming most of the smaller to mid-sized institutions. Of course, the govt/taxpayer via Fannie/Freddie are already set to take much of the losses from mortgage defaults, as well as other investment funds who are gambling with the money of taxpayers and pensioners.
When I said credit markets lead equity markets, I meant that price weakness is traditionally more evident in credit-based assets before it is in equity-based assets, but with the amount of leverage in equity markets now, who knows how much time difference there will actually be...
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