Saturday, May 7, 2011

Costata's Silver Open Forum


Listen up all you brave silver warriors. Uncle Costata has a story to tell you. In our first-ever guest post written exclusively for this blog, Costata lays it all out in stunning detail. And he invites you all to hit him back with your very best shot. Enjoy! -FOFOA
Smiley

Has the silver market been cornered.... AGAIN?
by Costata

This open forum has one main purpose. To place a narrative before you, a story of a market cornered, to discuss, dissect and critique. If you read on you will see that I’m not without competition in the weaving of stories about silver and the silver market.

All works of fiction require “a willing suspension of disbelief”. As Samuel Taylor Coleridge suggested, if a writer could inject "human interest and a semblance of truth" into a tall tale, the reader would suspend their skepticism concerning the implausibility of the story.

So, in order to make my narrative worthy of your indulgence I have to present a sound case that it is possible. Otherwise why would anyone “willingly suspend disbelief”? At the same time I must cast doubt on the tales of the other storytellers. You see, my story is based on a view of the silver market that is diametrically opposed to theirs. To suspend disbelief in my story requires that you disbelieve theirs entirely.

But before we proceed, I want to make something crystal clear. This is a story about a corner of the flow of silver, not the aboveground stock.

The comments are open and un-moderated. All are welcome to discuss this story and, if you wish to do so, the other storytellers offerings.

What is a corner?

I have made a few changes to the definition offered by Wikipedia in order to make it more directly applicable to physical silver. You can see their original wording here.

To “corner the market” is to control enough of a particular commodity to allow the price to be manipulated…..The corner operator hopes to gain control of enough of the flow of the commodity to be able to set the price for it.

If you are looking to corner the flow in a market one of the risks that needs to be evaluated is the possibility that any existing stockpiles could be mobilized against you. Obviously it would be very helpful if any stock was highly immobile. More on this below.

A quick review of the history of attempted market corners offers two lessons. Most attempts at a corner fail and those that were successful lasted for a short period of time. Let’s take a brief look at a recent, reportedly successful commodity market corner. Again from Wikipedia (with my edit in bold):

On July 17, 2010, Armajaro purchased 240,100 tonnes of cocoa. The buyout caused cocoa prices to rise to their highest level since 1977. The purchase was valued at £658 million and accounted for 7 per cent of annual global cocoa production. The transaction, the largest single cocoa trade in 14 years, was carried out by Armajaro Holdings, a hedge fund co-founded by Mr Anthony Ward…… This example demonstrates that 7 per cent of a perishable good is enough to allow profit taking via cornering a market provided demand is inelastic and the need for the commodity is time sensitive.

Obviously this hedgie with the sweet tooth was targeting industrial cocoa users to deliver his profit either directly or indirectly (from other speculators). Presumably the industrial users could not pull their bids and wait him out. They had to accept higher prices.

This too is a story about a corner of a physical commodity. "Paper silver" plays a part in the price manipulation strategy and in booking profits, but the corner itself is in the physical metal.

The Hunt Brothers

Let’s stroll down memory lane and revisit the Hunt brothers' silver market corner. I won’t recount that fascinating tale just now but you can read about it here.

Instead I want to focus on how it ended for the Hunts. So let’s ask someone who was there, an expert trader, the one and only Jim Sinclair. (My emphasis)

(Posted: Jan 16 2011 at jsmineset.com)
"The Comex board of directors unilaterally declared their written silver contract null and void. That is exactly what occurred when the Comex went to "sellers only" on Silver at a $53 bid, offered at $55 (Yes, that was the floor spread). With no transactions accepted that were buyers and sellers orders only, it left the Comex members to make the bids. Silver simply collapsed and platinum started its $1000 daily limit moves on the downside. It was that which collapsed gold…

Position limits are a joke compared to "sellers only," meaning nothing to any commodity traded worldwide. All position limits will do is reduce the volume on US exchanges. It is so easy to get around that with non-US subsidiaries. The international non-US exchanges will celebrate this development.


Ouch! The rules are already on the CFTC books that empower them to protect the Comex members, and the exchange itself, from any would-be manipulator let alone someone operating a full blown corner. All they would need is the will to use them.

(Incidentally, many people seem to forget that Comex is not a major physical silver exchange. It’s a paper price discovery mechanism that handles less than 5 per cent of the physical silver traded annually.)

In this narrative the Comex paper silver contracts are one of the “legs” in the strategy to manipulate prices and book profits. The LBMA is also an important part of this story in both a paper and physical silver context. More on the LBMA below.

Back to the Hunts. So, the moral of the Hunts’ travails is that if you are going to include the Comex in your plans to corner a market you had better make sure the regulators aren’t going to intervene.

Regulatory capture?

Is it possible that regulators in some markets could be under the thumb of the operators they are supposed to regulate? While you ponder this question, a few links to pass the time.

>> Ex-Advisor To GS’ Charitable Giving Unit To Direct TARP Funds
>> Congress Shares Secret With America, Goldman At Fault In GFC
>> JP Morgan Finances Jefferson County Into A Sewer
>> Wachovia Joins Mile High Club
>> Bank Of America Does Laundry On Mexican Housekeeper’s Day Off
>> Morgan Stanley Stores Silver - In Parallel Universe
>> Goldman Sub-Primate
>> Abacus Adds Up Losses, For Some
>> New Volcker Rule, Don’t Allow Yourself To Be Used As Stage Prop
>> Bear Stearns Wishes It Had Made Bigger Campaign Donations
>> 50 US AGs Prepare To Robo-sign Settlement Agreement
>> MERS Reduces Banks’ Costs, Economizes On Truth Too Judge Finds
>> Bernie Madoff Goes To Jail, Wall Street Doesn’t
>> AIG Begins To Resemble Insurance Company Again
>> ENRON Auditors To Spend More Time With Family
>> Ratings Agencies’ Verdict: “Pirates Of The Caribbean” AAA
>> Lehman Brothers Fulds Despite Repo 105
>> JP Morgan Asks “Bernie Who?”
>> JP Morgan Visits Milan, Milan Wishes It Hadn’t
>> Bush, Clinton, Bush Deny ’Revolving Door’ In Washington Jobs
>> Obama Promises Change – Teleprompter Fired For Lying

The Silver Market – Stock and Flow

When I offered a definition of a corner I mentioned that “it would be very helpful if the stock was highly immobile”. If the silver stock is immobile all the aspiring operator of the corner has to worry about is the flow of physical silver.

There is heated argument about the correct estimate for the total amount of aboveground silver. Bob Moriarty of 321gold.com weighs in here with his estimates which are similar to the conclusions of this analyst. Others argue these estimates are way too high. You will have to do your own investigation in order to decide whom to believe. As a quick 'n dirty tip, if they cannot show you their methodology, look elsewhere for information.

From my research it seems to be a safe bet that the number is in the billions of ounces when you include silverware, old silver coins, jewelry, bullion coins, small bars and ETFs. In other words, more than enough to overwhelm a corner if it flowed freely. However, most of the owners of the silver stock either hold it for its utility (use value) or they are “buy and hold” investors.

Will this silver stock flow? I hope we can agree that the answer is ‘No’ unless the price is high enough to overcome sentimental attachment or the individual owners of that silver experience a sharp decline in their income and/or standard of living. So for the purpose of this story we are assuming the bulk of the aboveground silver stock is not mobile at the present time. No immediate threat to a corner operator.

This wrap up of the World Silver Survey by Mineweb says: “Last year world silver fabrication demand grew 12.8% to 878.8 million ounces…”. According to Eric Sprott, in 2010 the total supply of mined and scrap silver amounted to 951 million ounces. We’ll take Sprott’s figure as the size of the flow that is central to this story of a market cornered.

In passing I would also like to point out that when analysts talk of “consumption” of silver they should mean “total industrial demand minus recycling”. This silver is consumed insofar as it is not financially viable to reclaim it (at present). Other holders of silver variously hoard, wear or utilize it in some way but it is not “consumed” and remains part of the aboveground stock. While the stock remains immobile, this non-consumption demand also competes for the flow with the consumers of silver – the industrial silver users.

Another issue I hope we can agree on is that silver, like a host of other commodities, has been and remains in a commodities bull market. The primary trend since 2002/2003 has been upward. Within that upward trend there has been lots of price volatility and potential profits for a savvy trader on both the up and down price movements. A corner operator could have dramatically increased their profits by accentuating the moves in both directions. The central theme of this narrative is market manipulation, not price suppression.

Silver Price Suppression

The belief in a scheme to suppress the price of silver is pervasive among silver bugs. If suppressing the price of silver was the sole objective of a silver market manipulator then my narrative collapses. (You will see why shortly.) So before we proceed further a few brief remarks to the “suppression” camp.

Analysts such as Ted Butler have been sounding the suppression klaxon since 1989 but I ask: Why look for a complicated explanation when supply and demand offers a simple, perfectly adequate explanation?

Throughout the period, such sell-offs that did occur, as well as announcements of planned sell-offs, caused immediate declines in the price of silver. Indeed, the Wall Street Journal reported in September 1976 that "[w]hen the US government makes noises about selling silver from the federal stockpile, futures traders start unloading futures contracts in speculation that such a sale would depress prices.”

Silver was a natural short play in the 70s, 80s and 90s. There were, collectively, huge amounts of silver overhanging the market in the form of old coins, national reserves, public and private stockpiles. That silver stock was mobile. The low price of silver over many decades had also made primary silver mines uneconomic. The silver that did come from the miners was mainly a by-product of their pursuit of other ores. Hence the silver was extracted and sold with little regard to the price of silver. All in all, a short seller’s dream come true.

I would argue that 2002 was the watershed year for silver, the year when the US Defense National Stockpile was nearing depletion as a result of the Silver Eagle coin program. That opened the way in 2003 for silver to join the long cycle commodity uptrend along with other industrial metals, agricultural commodities and so on. This in turn created the opportunity for a well-resourced trader to safely play either side (long/short) of the silver market without fear of a sudden influx of metal.

In this story, the end of the supply overhang also opened the way for an attempt to corner the flow of physical silver as the remaining stock was becoming increasingly immobile while demand from industrial users was growing strongly.

Ted Butler (and, to be fair, many others) allege massive naked shorting on the silver Comex. Ted lays out his case here. From what I have read it appears that in Ted’s narrative this massive naked short position is held, primarily, by JP Morgan and perhaps HSBC. This is how Ted’s tale ends—the Comex shorts will be chased over the “cliff” by the longs in a massive short covering squeeze - just like these bison:

“Head-Smashed-In Buffalo Jump bears witness to a custom practiced by native people of the North American plains for nearly 6000 years. Thanks to their excellent understanding of topography and of bison behavior, they killed bison by chasing them over a precipice and subsequently carving up the carcasses in the camp below.”

I want to be upfront with you. I think Ted and his cohort may prove to be dead wrong, finding themselves in a role reversal falling head-first with the bison and anyone else beguiled by their story. We will return to Ted’s story a little later when we consider the lack of transparency in the silver market and why the circumstantial evidence suggests that Ted and his cohort are dead wrong.

Let’s deal with another allegation which has been floating around, that JP Morgan inherited a huge naked short position in silver with their Bear Stearns acquisition. I’m not going to dwell on this for long. The fact that JPM was indemnified by the Fed on unknown terms for losses on this acquisition makes this a non-issue in my opinion. If there are losses I think we can safely assume that they will be picked up by Wall Street’s best little buddy, the American taxpayer.

The Central Characters and the “Supporting” Cast

The main characters in this story are the Bullion Banks, Miners, ETFs, Refiners, Mints, Retail Investors and the Industrial Silver Users. As this narrative unfolds it should be quite obvious that the only silver market operators with the capacity to make this story come to life are the international bullion banks. All that would be required of the other market participants is that they behave predictably. Their co-operation would not be needed by a manipulator. Let’s face it, the less people “in the know” the better.

(Incidentally if any reader needs an introduction to the precious metal fabrication and supply chain, Bron Suchecki of the Perth Mint has provided an excellent series of posts you can access here - top left of screen.)

The jewelry makers are peripheral to our story except insofar as the rising gold price has resulted in the increased substitution of silver for gold in the fashion jewelry business. So this segment of the market has added to the demand pressure on the flow of silver as well. In my opinion the gold jewelry market is much smaller than the official figures suggest. As Jim Sinclair has often pointed out gold jewelry in many Eastern countries is sold by weight and purity – it’s wearable ‘bullion’, not simply a fashion statement.

Miners have seen the price of silver rise to over US$40.00 per ounce while the Mineweb report (linked above) indicates that cash costs are currently $5.27 per ounce. Others estimate their average cost, by the time the silver is on its way to the refiner, at up to $15.00 per ounce. (The cost estimates put out by miners are notoriously unreliable. There are plenty of financial incentives for a mining company to understate their costs. Murray Pollitt discusses this issue here.)

The predictable behaviour a corner operator would expect from the miners is a desire to lock in some of their profits on silver through hedging. If a corner operator also advised the miners, provided finance and banking services to them and facilitated their hedging strategies it would give the operator a huge ‘edge’, a vastly superior information feed compared to other players in the silver market and more opportunity to influence the directional flow of silver.

A savvy corner operator might also see “the writing on the wall” in these high profit margins of the silver miners. A pointer to the “use by” date for their physical silver corner. Over the last few years silver ore bodies and old workings that were not economic for half a century have become financially viable.

Refiners produce a range of products in addition to the standard larger bar sizes. They produce flake, shot etc… to meet the specific needs of their fastest growing, and largest, customers - the industrial silver users. (Make no mistake, the industrial users are the most important customers in this market.) The challenge of matching their output to the demands of customers, with quite different needs, makes the refiners a potential choke point (a supply bottleneck) that a well-connected corner operator could exploit opportunistically.

The retail investor demand for silver has also been growing strongly. It has been reported that last year this segment accounted for around 10 per cent of total fabrication demand. Physical silver investors are price sensitive but many tend to just accumulate over time, dollar cost averaging their original stash. Many of these investors are “buy and hold” folks. From a corner operator’s perspective retail silver investors help to immobilize the stock, compete for the flow and they are somewhat predictable.

Institutional investment in silver generally flows into the ETFs, ETPs and mining shares for a simple reason. Many of these investors are prevented from holding physical metal by their investment mandates. Even if they wanted to they could not hold physical. I concede that mandates, and the laws that give rise to them, can be amended. (In order not to get bogged down in a “will too, will not” argument I hope others will concede that I have described the status quo.) Overwhelmingly pension funds and their ilk tend to the long side of markets they invest in. You know what I am about to say don’t you? They are predictable.

You are probably getting sick of the word ‘predictable’ by now but just try to imagine that you are a character in this story too. Imagine for a moment that it’s real. Behaving predictably might not be such a great idea if you are attempting to trade or do business in a cornered market.

Ed Harbuz CEO of the Perth Mint explains here why running a Mint is such a challenging, customer-driven business. Despite unsubstantiated allegations to the contrary the large Mints, by their actions, can be seen to be honest, conservative, generally prudent and not inclined to speculate.

The Mints' demand for silver is ultimately driven by retail and wholesale customers. Mints tend to have a “feast or famine” sales pattern that makes it difficult to forward plan capital expenditure programs. They certainly cannot expand their overall production capacity quickly. Hence they are also highly predictable and another potential choke point that could be exploited in a corner.

Industrial silver users are the single biggest market for silver, purchasing approximately half of the annual flow of silver. As mentioned earlier, this large market is growing strongly. A corner operator can rely on industrial users for profits when prices are rising. Here’s why:

“An important factor to understand in the case of silver is that demand from the industrial sector tends to be quite inelastic. This means that buyers have few options and have to pay at prevailing prices.”

In this story the industrial users would be the main target (victim?) of a corner operator.

When production bottlenecks occur at the Mints and/or the Refiners a corner operator could take advantage of the ignorance of most retail investors and play on the widespread belief that there is a shortage of silver. (I’ll return to this topic later.) The corner operator could also rely on many (all?) of the dealers to talk up any rumour or urban myth that sells silver. With premiums like these the dealers have every incentive to support the hype, hope and hysteria that often surrounds the retail silver investment market these days.

The Exchange Traded Funds (ETFs) are a segment of the market we should pay close attention to in our unfolding corner narrative. The ETFs that offer redemption in physical silver tend to have a minimum redemption quantity that is much higher than most small investors can easily afford. In most cases the shares trade freely but the metal in many of these ETFs sits still. Consequently these ETFs add to the stock while increasing its tendency toward immobility and they compete for the flow of silver. As Kitco reports here ETFs have become a huge part of the silver market (my emphasis).

The Web site for SLV shows that as of May 1, 2006, the amount of silver in the trust was a modest 653.17 metric tons. Flash forward to Thursday, and the Web site showed total holdings stood at 11,053.2 metric tons, or 355.4 million ounces, with total assets listed at $17.3 billion.

Through April 21, CPM Group put global silver holdings in 13 precious-metals ETFs around 605 million ounces…….For 2010, additions to global ETF holdings were 123 million ounces, Rannestad reported. In 2009, ETF holdings rose by 155 million ounces.

The ETF additions in 2010 represented 12.4% of total global supply of silver of 987 million ounce (including not only mine output but other sources such as recycling), Rannestad reported. Much silver is consumed by industrial uses. Excluding all fabrication demand, the amount of available silver was 142 million, meaning the ETF demand accounted for some six-sevenths of this.


SLV stands out from the other ETFs in three enormously important ways. Firstly, its structure and prospectus allow it to impact on both the physical and paper silver markets in ways that most other ETFs simply cannot. It’s also vastly larger than any other silver ETF or ETP. Lastly the SLV silver is literally both a stock and a flow at the will of the Authorized Participants. To illustrate, you may have heard Saudi Arabia referred to as the “swing producer” in the oil market. The Saudis are said to have the spare capacity to keep supply and demand in balance. SLV can fill that same role in the market for physical silver. In this story it does precisely that, with a slight twist. It is used pro-cyclically by a corner operator to amplify volatility in both directions, up and down.

Okay, I know that some observers confidently claim the SLV is just a paper façade with no actual physical silver. No amount of audits or bar lists will ever convince some of you otherwise. So be it. For those readers with an open mind, I invite you to consider the possibility that they have the physical silver they claim. For the purpose of this story it doesn’t matter if that physical silver is encumbered with multiple claims nor if SLV holds some paper silver for periods of time. In a corner the crucial issue would be who has the strongest claim to that SLV silver stock and the most influence and control over the flow of physical silver into and out of SLV. The industrial silver users obviously had some concerns about SLV’s potential clout. By the end of this narrative they might wish it had been drowned at birth.

Prior to its launch, the industrial silver consumers lobbied hard to try and convince the SEC to deny approval for this new physical-silver ETF. The Silver Users Association, whose members process 80% of all the silver used in the US, wrote a letter to the SEC in February 2006. It warned the SUA ‘opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver in allocated accounts, thus removing large amounts of silver from the market.’

And indeed the industrial silver consumers’ fears have come to pass. In mid-December 2010, SLV’s holdings hit an all-time high of 352.5m ounces of silver bullion! To put this into perspective, global silver production in 2009 ran about 700m ounces. American stock investors, by buying shares in SLV, have already absorbed the equivalent of half a year’s worth of all the silver mined in the world.
(My emphasis)

As I said earlier SLV is different to other ETFs. Below FOFOA replies to a question I posed in February when we were discussing the idea of a silver open forum.

”Very interesting. Considering that ‘demand’ exerts no pressure on an ETF to grow in size, one has to wonder. Physical contributions are the ‘will’ of an owner or purchaser of physical silver to encase it in SLV in exchange for easily tradable shares. The price-tracking function is simply a matter of market arbitrage. But of course this fact is not understood by the public. Very interesting.”

The custodians for SLV are HSBC and JP Morgan. Authorized Participants create and redeem baskets of SLV shares. You can find a list of them here (on page 27).

Before we end this examination of ETFs, and SLV in particular, I would like to leave you with a question to ponder. Has the price of silver become more volatile since SLV and the other ETFs started to gain traction in the silver market?

Martin Armstrong describes the typical behaviour of commodities as they move through an uptrend in the extract about wheat from this essay.

"In other words, we are about to make another thrust upward into a new trading band where the $6-7 level should become the floor. This is how commodities ratchet themselves higher that some call inflation. What is actually taking place, there is a very broad trading range that becomes the normal volatile swing between the peaks and the lows. The commodity will bounce off the floor and ceiling of this range until it starts to finally expand the trading ranges." (My emphasis)

Now let’s examine the Bullion Banks as we look into a would-be corner operator’s three most lethal weapons (aside from unlimited ‘free’ money) – opacity, reach and information.

Opacity, Reach and Market Intelligence

Since the repeal of the Glass Steagall Act some international banks have become monoliths in banking, broking, dealing, commodity trading, derivatives, research, private exchanges and OTC markets. Even a vigilant, well-resourced regulator would struggle to prevent “regulatory arbitrage” by banks, traders and speculators operating in multiple exchanges and markets in a number of legal jurisdictions. And vigilant, well-resourced regulators appear to be a little thin on the ground these days. The global activities of these banks are opaque to regulators.

The bullion banks have the very best ‘intel’ on the silver market. They have connections into every nook and cranny of this market from miners to Mints to margin traders. They also have the opportunity to make use of their own unallocated pooled silver accounts through fractional reserving. You can read about how the bullion banks are able to leverage these pools here.

As we mentioned earlier the Comex is basically a paper silver market. The leverage in this market has been widely discussed since the revelations early in 2010 by the team at GATA and CMP group’s Jeffrey Christian. (It is less widely known that ANOTHER revealed, thirteen years earlier, that the leverage in the LBMA was routinely 100:1.)

Let’s clear up another popular misconception. This one concerns the LBMA. As Bron Suchecki explains here, the LBMA is not an exchange. It is an association. Transactions among LBMA members and their clients are private. Bron also reminds everyone that the LME does not trade physical silver. For anyone interested here is a list of the Market Making members of the LBMA.

Some silver market analysts focus on Comex reports and the BIS bank participation report in order to draw conclusions about the positions of the bullion banks, and others, in the silver market. Ed Steer of Casey Research writes:

"The third graph is the number of US and non-US banks...and you can see the point that the CFTC began to withhold the number of banks so that they could protect JPMorgan. They started withholding this data when Ted Butler discovered the Bank Participation Report back in 2008...and within months, the CFTC pulled the data………… and the last graph is just the two US banks on their own....and their respective long positions [non-existent] and their monstrous short positions. It's easy to see that JPM runs the silver price show." (My emphasis)

Let’s assume that the information Ted Butler pounced on was as valuable as Ed Steer and Ted Butler seem to think. That line in Ed’s report I highlighted in bold prompts me to ask: What does it tell you about the rest of the public data feed if useful data you unearth is “pulled”?

The allegation that JP Morgan, HSBC etc have massive naked short positions in the silver market rests on a range of published data from regulators and bankers but primarily on the Comex reports. As mentioned earlier the silver Comex is a market that accounts for only around 5 per cent of the physical silver traded annually.

One of the tactics recommended by some analysts to break the Comex shorts is for all of the longs to stand for delivery. So readers may be interested in this explanation of trading between longs and shorts on the Comex from Metal Augmentors’ ‘silverax’. Here are a couple of snippets:

“…. the longs cannot force delivery on the shorts, but the shorts can force delivery on the longs. Yes, most everybody has it bass ackwards!”

“…..the delivery timing is almost entirely dependent on the short. It is the short that announces an intention (notice) to deliver and it is the long that is obligated to accept delivery. Not the other way around.”


If any reader, with an intimate understanding of the Comex, has the time to read the ‘silverax’ essay and post a comment here I’m sure we would all appreciate an explanation of how longs standing for delivery could force the shorts to deliver. Assuming, of course, if anyone did try to force the shorts into a physical default that the Comex would not intervene on behalf of their most powerful members - like they did with the Hunts.

The volume of physical silver, and other commodities, traded on the public exchanges is dwarfed by the trade conducted in wholesale transactions, private deals with banks (eg. members of the LBMA), through OTC markets and other parts of the shadow banking system. These alternative markets are both huge and totally opaque to outsiders. As this analyst notes:

"....the big players in banking and finance are using the OTC system and have a turnover 12 times that of the “public” markets..." (My emphasis)

It appears that the volume in the OTC markets and shadow banking “dark pools” comes at the expense of both liquidity and stability in the public exchanges. As a result the price discovery function of the public exchanges may be seriously compromised. At the same time the off-exchange trading must reference, at least to some degree, the prices "discovered" on the public exchanges. What a fricken mess! But an ideal environment for market manipulation.

David Galland of Casey Research had an interesting discussion with Dr. Andrew Bogan (here) on the subject of short selling in ETFs. Apparently some of the stock ETFs have short selling levels up to 1,000% (compared to, say, IBM stock at around 1.4% short). In order to put their discussion in context, Andrew Bogan explains how ETF shares are created:

Shares can be created at the end of any day if someone delivers a basket of underlying stocks to the ETF through an authorized participant. And shares that are not wanted in the marketplace can be redeemed in kind for the underlying stocks – or in some cases cash. That's all been carefully structured and works smoothly. The issue is what happens when short-selling dominates the trading. (My emphasis)

This is the part of the interview I think we should pay close attention to, where they discuss GLD. Keep SLV in mind as you read this. Andrew Bogan again (my emphasis):

The tracking of an ETF's price with the fund's NAV, which historically has been extremely close, is totally dependent on an arbitrage mechanism. The arbitrager can make money by continuously pushing the price of the ETF toward its NAV.

The short position in GLD isn't nearly as large as it is for some equity funds – but we have looked at GLD, and it has the same structural issues, just to a lesser extent, at least for now. The short interest in GLD has fluctuated around 20 million shares. Now, GLD is a pretty big fund. With 20 million shares short, it is roughly 95% fractionally reserved…… But GLD does not have to stay at 95% fractionally reserved.

DG: Could they just say, "From here on, we're not issuing any more shares"? Would that stop the short-selling?

AB: Not necessarily, because, you know, the short-sellers are selling – in fact, it would probably exacerbate the short-selling. So as long as a fund is issuing shares, aggregate buying demand can be satisfied by expanding the fund. If they stop issuing shares, aggregate demand would get satisfied by short-sales of existing shares. So, if anything, closing the issue window should make the problem worse, not better.

…….. The bigger challenge might be if there were an actual redemption wave. If that happened when GLD was already substantially fractionally reserved, then you're back to an 1800s gold bank problem. Fractionally reserved banks can be hit with a run………You know, one of the big risks, by the way, that no one has really discussed much, is if an ETF were to have a big redemption run in panicky market conditions and halted redemptions……. it's quite possible that if redemptions were halted for any length of time, the arbitragers wouldn't be keeping the share price in line with NAV. We already know from the Flash Crash that significant price departures from NAV are quite possible for ETFs.


In his new book Matt Taibbi discusses the spectacular growth of commodity market speculation.

"We know the amount of speculative money in commodities exploded, that between 2003 and 2008 the amount of money in commodities (Ed: derivatives?) overall went from $13 billion to $317 billion, and that because virtually all investment in commodities is long investment, that nearly twenty-five-fold increase necessarily drove oil prices up around the world, putting great gobs of money into the coffers of the SWFs." (My emphasis)

In this recent post Adrian Ash quotes a figure from Barclay's Capital of $412 billion as the level of global investors' holdings of "raw materials" at the end of March this year.

Most of these predictably long funds are up against speculators and the prop trading desks of banks with near-zero cost money and virtually unlimited leverage. Opponents who will play both the long and the short side. To make matters worse, by being in these paper markets in the first place, these long side speculators expand the derivative markets to the point where they can dwarf the actual physical commodities traded. Hence the paper derivatives may be unduly influencing prices in the physical plane. ThyssenKrupp CEO Ekkehard Schulz appeared to think so in this interview with Der Spiegel (my emphasis):

Schulz: (Ed: talking about new entrants into the iron ore market) But we now know of a few major investment banks that are painstakingly preparing to enter the ore market. One of them is JP Morgan. They have been buying up big in this sector.

Later in the interview:

SPIEGEL: Who are they, and how are they preparing?

Schulz: I don't want to mention any names here, but they are banks that were also involved in other big speculative bubbles. They are currently active in our markets, hiring natural resource specialists, buying trading companies and leasing storage facilities at major ports, where they can temporarily warehouse ore for speculative purposes. They see an opportunity to make billions in profits.

SPIEGEL: By driving up prices on the ore market?

Schulz: By disconnecting prices from the real economy and the natural resources from real consumption. This has already happened with nickel. Speculators and banks are already turning over 30 times as much nickel in the markets than is actually consumed in steel processing and other areas. In the process, the price per ton fluctuates between €10,000 and €50,000. Imagine a situation like this in a large-scale natural resource market like that of iron ore. The consequences would be devastating.


Putting all of this together, the presumption that the positions of JP Morgan, HSBC etc can be known from publicly available data is beyond incredible. To suggest that you can know they have a massive naked short position without knowing what other positions they are holding outside of the Comex and how their overall books are structured, is, in a word, absurd.

Before we take a look at how some of the price action in the silver market over the past few years could have been very profitable if a corner was in place it would be remiss of me to sidestep Max Keiser’s “Crash JP Morgan” campaign. Here’s why:

1. From the Max Keiser website (here):

(Note: I changed some of the paragraph breaks to compact this but the words are unchanged. I suggest you read the comments on this post as well. My emphasis in bold.)

Dear Max and Stacy,

My local dealer,, has been running OUT of Silver,, over and over again. Gold is available,,but SILVER is in HOT demand. I cleaned him out this time.. had to go so far as buying up the sterling silver flatware,, but hey,,silver is silver. Had some Kruggerands and Eagles (Au),, sold them and bought Silver. I have NOT liked the way Gold is not climbing up as silver has been doing,, so I finally got OUT of gold.

I didn’t know that I had so much gold,, been sitting on it.. so for me,,it was like buying $9k of silver,, for only $5k out of pocket…and now,, my “metal” will be rising even faster. But I hope I never have to stoop to buying any silver ”tea sets”..as they are just TOO bulky to fit in the under-floor safe. Hahaha… I’d have to SLEDGE HAMMER them into a small ball of ugly junk…but I’m OK with that. Silver is silver. Millionaires already have all the ”tea sets” they want.

Craig.


2. This extract is from an e-mail issued by Bix Weir of The Road To Roota. Sent: 1/3/2011 (My emphasis)

Let me give all you "Newbies" a hint...by the time you finish researching and comparing silver to all the other investments out there you will go ALL IN!

When I say "All In" I mean swapping EVERY other investment alternative for PHYSICAL silver in your pocket. Stocks, bonds, pension plans...everything. This means gold too. This means other silver investments also...ETF's, silver mining stocks, silver certificates... everything.”


3. Museice is a frequent contributor to the comments here at FOFOA blogspot. This is an extract from a comment he posted recently after deciding to roll his physical silver for physical gold.

For any Silverbugs out there (I was one)….. My conclusion: What does the GSR have to do with Freegold? Absolutely nothing! If you understand anything FOFOA has been writing you will bail on silver. Not because it has hit its peak. I don't care how high it goes. You will switch because you are holding the wrong metal. End of story.
(February 18, 2011 8:19 PM)


4. In the video below Michael Maloney of GoldSilver.com responds to that old chestnut “There isn’t enough gold” with “Baloney”. He then goes on to explain why. As I watched this for the first time the question on my mind was: “If gold can do the job on its own why do we need silver?” I had already started to have reservations about the silver we were holding. This video was one of the ‘nudges’ that prompted me to dig a little deeper (well, actually, a lot deeper). It should start playing at the 3:50 mark automatically:



Later I came across a few videos of presentations by Robert Kiyosaki. (I think he wrote a book called “Rich Dad, Thanks To Your Dad” or something like that.) The video quality on this clip is terrible so I am just going to provide you with a link . It is set to start at the 4:20 mark. Kiyosaki is asked if he is adding to his positions. He talks about silver among other things and then goes on to mention who will take his positions off his hands “just before it blows” – the “suckers”. Michael Maloney, one of Kiyosaki’s advisors, is in the background stage left. Who are the suckers? I’m going to suggest a candidate for that role at the end of this post.

And wow, that Bix Weir is certainly confident when he talks to newbies, isn’t he? Quite at odds in his thinking to many of the people who frequent this blog. Some of these folks have been delving into the matters we discuss here since 1997 when ANOTHER was posting his Thoughts. I don’t remember seeing anyone here give such bold advice as Bix about gold, especially not to inexperienced newcomers. So before we look at Max Keiser’s recent exploits, let’s revisit the issue of silver shortages in order to see if Bix Weir and some of the other silver experts may be a tad overconfident about the rarity of silver.

The Silver Shortage

First a few words to explain why I keep linking to Bron Suchecki’s posts and the Perth Mint in this story. Bron has made a huge effort to educate people about the precious metals and their markets over the past few years. The Perth Mint has recently launched its own blog and updated website. They have made a real effort to increase their transparency and to communicate with their customers and the general public. Some other Mints have a mixed record in this area. This report about a recent Congressional Panel makes for interesting reading if you follow the activities of the US Mint.

The Perth Mint is also a unique ‘animal’ in the gold and silver markets. Around 90% of their fabricated product is exported. Roughly half their pooled and allocated customers are outside Australia. They are also an integrated operation having their own refinery. Lastly they refine anywhere from 300 to 400 m/t of gold each year while Australia’s local production is around 250 m/t. They are a big player with excellent ‘intel’ on the silver market both locally and internationally. [Updated per footnote 7]

Back to the shortage issue. All through the recent huge increase in the price of silver the usual suspects were talking about shortages. Well, someone forgot to tell the folks at the Perth Mint. All through the “shortages” they frequently confirmed that there was “no shortage of metal”. You can read their updates on their blog. Production bottlenecks? Sure, but no shortage. In fact they are seeking to expand their market into China.

Who was talking about shortages and tight supplies of silver? Dealers and Bullion banks, apparently. The following quote was attributed to Dave Madge director of sales at the Royal Canadian Mint by Eric King over at the KWN blog:

"We are anticipating it to become even more difficult to secure supplies in the future. This is based on what we are seeing firsthand and what our suppliers are telling us. We work closely with these banks to secure silver and they tell us there is a lot of competition.” (My emphasis)

Alex Stanczyk of the Anglo Far-East Bullion Company mentions these reported comments by Dave Madge here. Here are a couple more links discussing the mythical metal shortages: link, link.

In response to this claimed shortage the Perth Mint is spending millions of dollars expanding its capacity to fabricate silver products. You can read about it here. Recently the Perth Mint did something that should help to convince you that there is no shortage of silver.

For many years the Perth Mint funded their gold and silver inventory through a certificate program backed by unallocated pools. The deal was simple, they got their inventory funded (less capital tied up) and the certificate holders got safe, free storage of their metal. The certificates could be exchanged for fabricated metal or cash. Recently the Perth Mint announced a change to this program which you can read about here and here. If you want to be part of the pooled unallocated silver program in future you will have to pay them storage fees. Let me break this down for the stragglers, they have plenty of silver, perhaps much more than they need and they don’t foresee any shortages in the near future.

Not enough for you? Okay, let’s take a look at recycling. Another frequent claim from the shortage spruikers is that most of the silver which is consumed cannot be reclaimed. It is not economic to recycle most of the products sold that contain minute quantities of silver. This is absolutely true. But never, say never. The viability of recycling is a question of price, proximity and technology PP&T). Let’s take a look at just one product for now - the cell (mobile) phone.

According to this USGS fact sheet (2006) there is a mere 0.35 grams of silver in the cell phone they based their study on. But this cell phone also contains “copper, iron, nickel and zinc” with “even smaller amounts of aluminium, gold, lead, manganese, palladium, platinum and tin”. Cell phones also contain plastics that become increasingly expensive when the price of oil rises.

Lastly, most of the cell phones, and other electronic devices, which make their way into waste streams end up in landfills. In many countries landfill is becoming prohibitively expensive in both financial and environmental terms. These devices are a pollution issue. Schemes proposing to add a deposit or bond to the selling price of new electronic devices, in order to subsidize the cost of recycling them at the end of their life, have been fiercely resisted by industry groups. Thus far the industry groups have prevailed.

Is there likely to be a huge increase in the amount of recycled silver from electronic devices any time soon? I, for one, doubt it but it is an issue of PP&T for several metals and other recyclables in these products, not just silver. So never, say never.

Here’s another potential headwind for the “silver to the moon” guys - the industrial silver users themselves. The manufacturers of the devices which use much of the consumed silver are in cutthroat competitive markets. They have to work hard to remove costs from their products. That includes silver of course. Higher silver prices give them even more incentive to focus on cutting down the silver content or replacing it with a lesser alternative such as copper. FOFOA has an anecdote about one such manufacturer that has already eliminated silver from his process. That said, I will concede that the expanding industrial uses for silver and increasing global demand for products containing silver may fully offset any reductions that the industrial users can make.

Finally don’t forget about the potential for increased supply from the silver miners. As I mentioned earlier “over the last few years silver ore bodies and old workings that were not economic for half a century have become financially viable” at higher silver prices.

Now I know these arguments won't be enough for some of you. Read on, we will touch on this “shortage” issue one more time from an angle that might surprise you.

Max Keiser was one of the earliest, most outspoken critics of the appalling behaviour of the Wall Street banks. I believe Max coined the evocative phrase “financial terrorists” to describe them. He was also one of the first media figures to advocate owning gold bullion to protect your wealth. Kudos to Max for his bravery and willingness to speak out. This aired September 18th, 2008, and the video should automatically start at the 1:44 mark.



Since gold advocacy started to become increasingly fashionable it seems that Max decided he needed a little “brand differentiation” and followed the political dictum If you want to be a leader, find a parade and get in front of it. In an apparent attempt to capitalize on the growth in silver investment, last November Max launched the “Crash JP Morgan” silver campaign. He too argues that JPM has a massive naked short exposure in silver. He claims that they can be brought down through the purchase of physical silver by retail investors.

Nowadays Max is the self-styled leader of a movement calling itself the Silver Liberation Army (SLA). Apparently the expectation is that untold millions of people will each buy some silver and the ensuing supply squeeze will cause JP Morgan catastrophic losses on their supposedly naked short position as the price of silver goes to figures as high as US$500 per ounce. I hope earlier parts of my story have given you serious doubts as to whether anyone can be sure that JPM is even short at all (naked or otherwise).

Max and his SLA give us an ideal opportunity to conduct an extremely important thought experiment and to revisit the notion of a shortage of silver (one last time). This experiment is extremely important if you are holding silver because the outcome may force you to conclude, like Museice, that you are holding “the wrong metal”.

Now, for reasons best known to themselves, the “pin-up girl” of ‘Colonel’ Keiser’s SLA happens to be Blythe Masters of JP Morgan. As I said from the outset this is a story of manipulation, not suppression. But to please the SLA we’ll make ‘Blythe’ the main character in A Scenario: Profiting From A Silver Market Corner which we will come to shortly.

Position Vacant: Corner Operator – Silver Market

I realize that we have covered a lot of ground already so before we proceed any further I’m going to summarize the key attributes, resources and capabilities that I think we could expect to see in a successful silver corner operator. As a major international bullion bank JP Morgan would certainly tick all the boxes below in terms of their capacity to breathe life into this narrative (or some version of it). But then so would HSBC, I imagine, and some of the other bullion banks, or a combination thereof.

• An information advantage over other silver market participants.

• Control/influence over a vehicle like SLV that can be used to hoard a large quantity of physical silver which can then be used to affect the flow of silver.

• Intimate connections with the silver miners and insights into their finances and hedge books.

• The ability to trade against clients, produce research that encourages investors to take the opposite side of your trades and access to media outlets that are receptive to your “press releases”, research bulletins and expert commentary.

• Sufficient capital to finance the corner.

• Captured regulators.

• The ability to keep other market participants in the dark about your activities, the structure of your book, where and how you are taking profits.

• Intimate knowledge of the choke points (Mints and refiners).

A Scenario: Profiting From A Silver Market Corner

As I promised the SLA, I’m going to make Blythe Masters of JPM the central character in this scenario. (For other readers, where I have used the word ‘Blythe’ please read Blythe Danner or BB trading desk, favoured clients and likeminded BBs.)


After the GFC hit in 2008 the industrial silver users pulled their bids for silver and ran down their inventories. The price of silver collapsed to around $9.00 from its previous high over the $20.00 mark. During this period ‘Blythe’ took profits by shorting the paper silver market into the ground knowing there was no solid floor under silver until the industrial users came back in. ‘Blythe’ began to build a long (that’s l.o.n.g) position in silver as the price bottomed and began to recover.

Some of the savvy traders and speculators came in at the lows because the GSR was way above the median of the last 10 years and they saw a panicky market that they were happy to take a contrarian position in.

Once it became clear that demand from the industrial silver users was reviving, ‘Blythe’ made the final preparations for her next play, a short squeeze in physical silver with the industrial silver users as the target. As we noted above these natural longs had run down their inventories. As sales of their products picked up they had to buy, regardless of price, or their production lines would have ground to a halt.

‘Blythe’ added to the pressure on the flow, and the price, by using SLV [1] and the other levers at her disposal outside the public exchanges to drain physical silver from the market. She sold down her long silver position into the rising demand from the industrial users at increasingly higher prices.

‘Blythe’ knows the refiners are a choke point. When they shifted their production focus to their industrial clients, they cut back on their bar production for the Mints and the wholesale market. This eventually started to cause some delivery delays in London on LBMA good delivery bars. [2]

‘Blythe’ knows that when there’s a surge in demand at the retail level, at some point, the Mints aren’t able to keep up. As silver approached its previous high the retail investors started coming in. Speculators moved in too, cautiously at first, pushing up the paper silver price.

The coin dealers and the silver perma-bulls started beating the drum about impending shortages. Eventually the Mints were struggling to keep up with the surge in demand due to the limitations in their fabrication capacity. As rumours of shortages and delivery delays made the rounds, the demand from the retail silver buyers went into overdrive. [3]

‘Blythe’ squared her books after the long physical play ran its course and she was neutral (neither short nor long). The speculators had started to pile into paper silver. So ‘Blythe’ got ready for her next play – a pump and dump in paper silver.

By this time the refiners had shifted their focus to bars as demand from the industrial users slowed. Wherever possible, the Mints had ramped up production and increased their output. Both of these choke points had begun to open up again.

‘Blythe’ had another ace up her sleeve. She knew the silver miners’ dormant hedging programs were about to come back to life long before the market knew. The miners were making noises to other parts of the JPM empire about hedging at these high prices. [5] Perfect set-up for ‘Blythe’. She piled on the shorts into the run-up to the blow off top in silver while she took the other side of the hedges put on by the miners. (That’s a future long physical position if she decides to hold onto it. It doesn’t bother her either way. She can always offload/offset it with SLV.)

The industrial silver users had begun to pull their bids as well. The traders and speculators, who took advantage of the high GSR, took advantage of the multi-year record lows and rolled some silver for gold. (Not all of it, no way. This game wasn’t over.) The coin dealers started to get nervous as their silver inventories began to build. The small fry were getting nervous about buying at record prices. The Mints ceased to be a choke point. Almost time for the dump.

‘Blythe’ painted the tape at the Comex with ever higher prices on thin volume [5] while she piled on shorts. All ‘Blythe’ needed now was a catalyst to turn the nervousness among the leveraged speculators into fear. ‘Blythe’ didn’t know or care what the catalyst was. Margin hikes, whatever [6]. As soon as sentiment shifts Blythe runs every stop she can. She tries to accentuate every dip until something puts a floor under the price. What, for example? “Who cares,” ‘Blythe’ replies, “I’m a trader."

After the dump ‘Blythe’ is neutral (neither short nor long). She’s just cruising, scalping small profits on the normal trading activity of clients while she looks for her next big opportunity. With this in mind she is watching gold very, very closely right now because she knows something most of us don't ......

What’s next? As a blogger known as London Banker used to say: “Wash, Rinse, Repeat.”

Trading

Some of you have made a lot of money trading gold and silver over the past few years. There are some enormously savvy traders out there. Newcomers who might be tempted by the profits in trading these metals should take a look at the charts and commentary that Nigam Arora provides here. That’s some volatility in those ETFs isn’t it?

So newcomers, for a moment, please pay attention to an old fool who has made every costly mistake you can think of (and some you probably haven’t). Please, do your homework. If you go stumbling around in these markets with your head full of nonsense and misinformation, margined to the eyeballs ‘Blythe’ will, sooner or later, take your head off at the shoulders. These are zero sum games that are being played. In order for ‘Blythe’ to win others must lose. This isn’t just my opinion. It’s a fact, Jack!

As I said earlier there are some savvy traders out there. I’m not one of them. I don’t have the skills or the temperament for it. Yet, I was able to predict the paper silver market’s behaviour and to get the timing just about right by drawing on this insight into rigged markets – “those who can be screwed, will be screwed” (it is a zero sum game after all).

Even if you are not a trader it also helps to read the writing of savvy traders and analysts like (in no particular order) Ben Davies, Tom Szabo, Adam Hamilton, Gene Arensberg, Trader Dan Norcini, Jim Sinclair, Alf Fields, Martin Armstrong and Stewart Thomson. There are others. Some of these fellas have subscription services. If you want to trade or invest under their guidance you can read their archives before you dive in and see the calls they have made. In some cases, over years. (If you want to put forward your own recommendations. the ‘comments’ are wide open.)

Many visitors to this blog have said that at some GSR level they are going to roll their silver into gold. Some of these high ‘rollers’ will be thrilled at the returns they make compared to plodders like me. However, I would like to point out a potential pitfall in attempting to play the GSR that I recently shared with one of my best buddies at the FOFOA blog.

There are serious risk assessment issues that need to be addressed if you are holding physical or paper silver with a view to rolling into physical gold at some desired GSR; in other words, if your aim is to obtain (via a GSR arbitrage) physical gold as your ultimate destination.

Let's walk through the risk assessment together. These days the GSR is generally calculated based on the Comex spot price of paper silver and paper gold.

To the unthinking, the GSR seems to imply some kind of direct exchange. As in 34 ounces of silver for 1 ounce of gold. Obviously this can happen by way of direct barter. But in most cases it is an indirect exchange. You have to transition through currency, selling one metal for an amount of currency and exchanging that currency for the other metal. The fact that you have been able to do this simultaneously and reliably in the past does not guarantee that you will be able to do so in the future.

Many here anticipate the eventual failure of the paper gold market. The paper GSR could be 1:1 if there is a systemic failure in the paper gold markets but that would be a currency ratio not a metal exchange ratio.

In a recent essay Eric Sprott made many interesting observations including this one:

"Now, it’s true that another potential source of supply is the very silver that investors already own......."

I agree, Eric, some of that stock could mobilize. In fact I know that some of it has already joined the flow and more of that stock intends to flow at some point. As Robert Kiyosaki told us in that video I linked earlier, that is his plan.

For those who have physical gold as our ultimate destination, the key risks are obvious. You have to weigh the risk that no dealer will want our physical silver because many other silver holders are trying to exit at the same time. Secondly, you have to weigh the risk that when you want to exchange silver for physical gold there are no sellers of gold at the paper GSR price, or even worse, no sellers at all.

I realize I may have tested your patience and forbearance with this very long post. If you aren’t yet convinced that silver is merely a ‘trade’, or an item for barter in a world gone completely mad, please take a little more time to share a thought experiment with me. You can let me know in the comments if you still feel the same way at the end of it.

A Thought Experiment

As I said earlier Max and his SLA give us an ideal opportunity to conduct a thought experiment. This experiment might lead you to conclude that in holding silver you are holding “the wrong metal” to carry you through a transition into a new monetary and financial system. If anyone wants to argue that the current system isn’t ‘terminal’ please jump right in with your comments and links. There are many ruinists* here of the hyper-inflation school (*h/t Rick Ackerman for that word). As promised we will also revisit, obliquely, the claim that there is a shortage of silver.

I’ve read a lot of the comments by Max Keiser and his SLA supporters about their campaign. Obviously I don’t believe for a moment that they can ‘crash’ JP Morgan by buying silver coins, teapots and small bars (or large bars for that matter). However, I don’t think that invalidates a thought experiment which treats the SLA as a proxy for the silver advocates and JPM as a proxy for the current system.

Many of team SLA, and other vocal advocates for silver, seem to be convinced that it will return to prominence in a new international monetary system. Others simply see it as “real money” returning to its rightful place in the world economy. Some, like Bix Weir, seem to see that rightful place as the pre-eminent “money”, the “people’s money” that will lift the yoke of a corrupt monetary regime from the necks of the citizens. I can see how firmly held beliefs such as theirs lead them to such passionate advocacy for silver.

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. Will silver achieve their aims spontaneously? Is it likely to be unopposed by our proxy for the status quo, JPM? As the saying goes “if you don’t have a plan, plan to lose”. So as a thought experiment I would like to sketch out such a plan in order to test the achievability of the aims of the silver advocates.

Let’s recall that definition of a corner.
To “corner the market” is to control enough of a particular commodity to allow the price to be manipulated…..The corner operator hopes to gain control of enough of the flow of the commodity to be able to set the price for it.

The ‘military’ objective of the SLA is to corner physical silver. They want to control enough silver to set the price a lot higher and break JPM in the process. How are they going to do that if they don’t get a corner? Likewise if silver isn’t monetized how can it be part of any new monetary system they are advocating? They’re not going to get any support from the establishment. This will have to be done solely through people power.

The SLA’s war will have to be fought on three fronts. They will obviously have to corner the flow, but what if the stock begins to flow as well? Obviously I think it will flow. And more on this ‘third’ front at the end of our thought experiment.

Is there any precedent for this type of military adventure? As luck would have it, yes there is - gold. A similar war has already been fought in gold. So we can examine the recent history of gold and glean some lessons for the SLA plan and the topography of the battlefields they will be fighting on. Along the way we’ll identify some similarities and some differences in the circumstances of the two metals.

After WWII gold was effectively cornered by the US government. Over the next several decades that gold became more evenly distributed into the asset reserves of other central banks, governments and private hands. The stock of gold flowed freely during this post-war period despite the general public, in most countries, being prevented or discouraged from owning gold.

Fast forward to the present. Somewhere around 30,000-33,000 m/t of gold is in CB and government coffers while the balance, over 130,000 m/t is ‘out there’ in private hands - right now. (Whose hands? That’s one of the issues we discuss at this blog.) In this thought experiment it doesn’t matter whose ‘private hands’. Only two things matter. Firstly, this stock has not flowed despite a fivefold increase in the price of gold since the first Washington Agreement signaled the end of central bank leasing of gold to the bullion banks. This gold stock is not giving any indication that it will join the flow, quite the reverse in fact. The gold stock has become highly immobile. It is in the strongest of strong hands.

The investment demand for gold has had to compete solely for the flow of gold in recent years. This flow has been supplemented by a huge increase in the supply of scrap gold which was readily absorbed by investors. (Gold scrap topped out about a year ago.) The gold fashion jewelry market is a shadow of what it was. The demand for gold displaced in this market, by silver and other materials, had to be absorbed by gold investors as well. They did, comfortably.

According to some estimates there was a single digit increase in mine supply last year. The only countries with substantial increases in their (already large) mine production (mainly China and Russia) have also been adding to their own reserves. Gold investors have demonstrated their ability and willingness to fully absorb all of this flow by continuing to bid the price of gold up.

The gold investors also now have some extremely powerful de facto “allies” that the SLA does not. The Central Banks and Treasuries are net gold buyers again. These are fantastic allies to have. They issue their own fiat currencies so there is no objective limit to how high they can bid the price of gold. They can never “run out” of that currency either. They just need sound reasons for bidding for gold and those reasons are the raison d’etre of this blog. Now why would gold investors want this competition for the flow? For the stragglers, “over 130,000 m/t is ‘out there’ in private hands - right now.” This de facto alliance is between the private and public owners of the stock, not with those investors who are now competing for the flow.

Now let’s try to apply some of the lessons from gold’s experience to the silver advocates game plan. The SLA has a de facto ally (but a very unwilling one) in the industrial silver users. Because their demand is inelastic they have to pay the going price. They will, whether they like it or not, help the SLA with one of their key objectives—to increase the price of silver—by competing for the flow.

The SLA will need to expand its share of the annual flow of silver into the market to a level where they can take control of the price of silver. The existing SLA silver holders must hold and continue to buy in ever increasing amounts or the SLA will need a constant stream of new recruits. Rising silver prices and altruism (or anger and resentment toward JPM) are the only recruitment strategies they have, as far as I can see.

Based on gold’s ‘battlefield’ experience, in order to achieve their ultimate goals the SLA (and retail silver buyers in general) will have to continue buying as each of the following events unfolds (but not necessarily in this order).

At some price level, some of the stock of silverware and all the old coins will begin to flow into bullion. The SLA will have to absorb this flow and bid the price up. At some price the silver fashion jewelry market will collapse. There are other white metals and alloys and there is no silver bullion jewelry market to speak of. The SLA will have to absorb this flow and continue to bid the price up. At some price the scrap silver market will turn into a flood (just like it did for gold). The SLA will have to absorb this flow and continue to bid the price up. Then the going will start to get a little rough for them.

If I am right about SLV being used as the “swing producer” in the physical silver market it is already part of both the stock and flow. At some point the silver in the other physical silver ETFs will also start to flow. The sponsors of these ETFs cannot prevent this. If enough shares are presented they must tender the physical silver. If the SLA absorbs all of the flow described above, while bidding the price up consistently, they will demonstrate to speculators that there is a rock solid arbitrage opportunity. Speculators will pull this silver out of the ETFs and coin it to sell to the SLA. The silver ETFs are not ‘strong hands’. They are the weakest hands of all.

Then another problem will emerge. There are silver “traitors” outside the SLA and troops in the SLA ranks planning to “desert” at the first whiff of grapeshot. People who have no intention of holding silver indefinitely. Some, like Robert Kiyosaki, are waiting for the right time to offload to the “suckers” as he calls them. Others have a target for the GSR. When reached they intend to roll their silver for gold. Perhaps the SLA can keep up the pace of recruitment so that it adds new recruits to replace the deserters and continue expanding its forces. Another problem may emerge (later rather than sooner) for the SLA: increased mine supply.

The silver advocates take comfort in the fact that silver is used in such small quantities in each product that the industrial silver users sell, that high prices, even incredibly high prices, will not deter them from buying. That is most probably true. Score that one for the SLA. However, the SLA may have completely misunderstood the threat. The price may be irrelevant. Earlier in this thought experiment they cornered the flow and the stock. The political heat from the industrial users, including the military-industrial complex, will be ferocious if the SLA threaten the supply lines of these users. (Recall the recent controversy over China’s corner in rare earth metals.) Perhaps the politicians will stay firm. Perhaps they will only sequester the silver mine supply on national security grounds. If so, the SLA is still in the game.

If the SLA can overcome all of the challenges that have been listed so far and “bullionize” all of this silver into retail product, it will then be confronted with the most terrifying enemy it has faced in this war. Their third front – 160,000 m/t of gold. Michael Maloney explained why (indirectly) gold and silver are enemies. There is enough silver too. If necessary it could be the sole monetary metal, even if that meant dividing it into atoms. Do you understand the implications?

You see this phrasing all the time “gold and silver”. There is no “and silver”. In this thought experiment the correct perspective is “gold or silver”. If the SLA and the other silver advocates are successful in making silver the premier monetary metal then gold won't just be less valuable, it will be worthless to everyone, everywhere. Superfluous. Redundant. Just like silver is now in the monetary system. Gold now has no other purpose than being the crème de la crème of monies. If silver wins this contest gold will have no value at all except for a small range of industrial applications and as cheap jewelry. Hooray for the SLA.

Hold it right there SLA. This thought experiment isn't over yet.

The SLA needs to ask itself a few questions as we conclude this thought experiment: Who is holding this gold? Why are they holding this gold? How much power and influence do they have? What are their options and capacity to respond to the threat you pose?

If the SLA gets carried away with delusions of grandeur and the silver advocates start to achieve their aims, then the governments and Giants who hold this gold will respond. You can understand that, can’t you? The moment that silver presents a ‘clear and present danger’ to their interests, they will understand this threat. The threat that their gold is soon to become worthless. They will squash the silver bugs – like a bug. Silver would then be a losing bet for political reasons. If the SLA is clearly going to fail then the silver holders will be perfectly safe. The gold holders will simply ignore them. Silver will be a safe losing bet until game theory kicks in.

Let’s wrap this up with a final question: Are you holding the right metal?

…………………………………………………………………

PS. This is a short note about donations to the host of this blog (if Max, Ted and Bix have made it this far, they can probably skip the next few lines). Our host relies solely on donations to continue the work here. He accepts no advertising or commissions. If you have profited from the realization that silver is a trade rather than an investment you might care to share some of your profits with FOFOA by clicking on the Donate button on the right of your screen. Rest assured none of your ‘hard-earned’ will be coming my way. I’m a donor and I hope you will become one too.

Footnotes:
[1] January 14, 2011 (Link) “Provocatively about 1/6th of SLV’s total silver hoard was acquired in less than 5 months between late-July and mid-December 2010. SLV’s holdings shot up 18.9% during silver’s massive 76.0% autumn rally we saw last year. This is no mean feat! The 55.8m ounces of silver this ETF had to buy over this short span is staggering.”

[2] Delivery delays (Link) “The industrials, when they see that there is tightness or delays in shipping, will then go out and stockpile silver so their assembly lines are not shut down. We would then be talking about potentially tens of millions of ounces required for delivery to these industrial users in a short period of time. The banks have told these industrial users for years that there is no problem with silver supplies. When these industrial users lose faith in the banks, they will move right away to secure stockpiles.”

[3] Record sales of silver eagles (Link) “The US Mint sold 6,422,000 Silver Eagles in January 2011 – half as many (again) as were sold in the previous record-setting month of November 2010.”

[4] Miners hedging again (Link) ”Raymond Key, head of metals trading at Deutsche Bank, estimates that about 100m ounces of silver has been hedged in the past two months. That compares with total outstanding hedges, called the global "hedgebook", of 20m ounces in late 2010 and annual mine production of about 700m ounces, says precious metals consultancy GFMS.

Michael Jansen, metals strategist at JPMorgan, said 2011 was "probably the year of the producer hedge". He added: "This bull market in commodities is maturing to a point where, as much as supply is under pressure, you can say with a bit more certainty that in two to three years it's going to be different."


[5] Paper silver graph (Link) h/t Market Ticker

[6] Margin hikes (Link) “The maintenance margin to trade silver with leverage is now $15,000. If you bought at $4 an ounce, the cost to buy 5000 ounces, fully paid for, would have been $20,000. The value of 5000 fully paid ounces of silver is now almost $250,000.

I believe leveraged trading of silver will end before the silver bull market ends. Silver fell $7 an ounce on Sunday night. That’s a $35,000 move per contract, and more than double the margin put up by the average leveraged player.”


[7] Updated with a correction from Bron Suchecki of the Perth Mint that pointed out a factual error in the post. Refining statistics provided by Bron Suchecki in the comments on page 2.

695 comments:

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Wendy said...

This is such a pain in the ass .... I'll try having responses emailed to me.

Sometimes I'm in after 200, today I am not

GEESH!!!

Art said...

ENDER,

The Freegold system is not unfolding because FREEGOLD is already what we have NOW. Fiat bids for gold freely NOW. No currency is backed by gold NOW so no government is setting the price of gold NOW. If they are, it's not legal nor honest and they are doing it COVERTLY and ILLEGALLY.

NOTHING, absolutely NOTHING, advocated by Freegolders proposes nor advocates a way to establish honesty and transparency in how the price of gold is set.

You're just saying that fiat currencies are inevitable and the only way we can hope to protect ourselves from their ill effects is by buying gold. When paper currency can be issued at will by bankers, the price of gold will inflate continuously. Then you cannot protect yourself from inflation because what you earn will buy LESS and LESS gold and everything will go up in price. Even if your savings keep their purchasing power, you will be able to save LESS over time. You will get POORER over time.

Get it?

Art said...

J,

The issue is not what nominal value you put on an item or in what terms you remember it.

The issue is that SOME people get to have the RIGHT to print money out of thin air and YOU do NOT!

Do you think it's fair for the bankers to be able to write themselves a check? Do you think it's fair that if you do the same thing you go to jail or at the very least are not able to spend it like the bankers are?

Why can the banker buy things for nothing and YOU cannot?

J said...

ART said:


J,

WHO sets the purchasing value of any fiat currency on any given day under Freegold?

You and I? (If yes, how?}

Or the very same bankers who are printing money now?

Who is behind Kitco, INO, Thebulliondesk, etc.? Who inputs those quoted gold and silver prices?

Not you nor I...

AS LONG AS gold and silver are NOT money, their price will be set by the man who can bid higher than you in paper money - and those are by definition the bankers who can create paper money out of thin air.

I'm sorry. You're either one of them or you're not right in the head.


You mean I'm a banker or I'm not right in the head? It's certainly conceivable that I am wrong in my conclusions about Freegold, but I am certainly not a banker and I am certainly not 'wrong' in the head.

Let's imagine you hold 100 ounces of gold prior to Freegold 'occurring'. If a purchaser of gold offers so many dollars per ounce that gold-owners are eager to trade some of their gold for the paper and then for other assets e.g. land, or for gold from another source, the gold purchaser will quickly have to adjust their pricing to offer fewer dollars. Conversely, if a seller of gold sets their asking price too low, they will quickly be cleaned out of gold by people who think it's a bargain. The number of dollars per ounce of gold will be 'discovered' by the market in this way, free of the murkiness created by fractional reserve lending. YOU, the holder of gold, will have the power to accept or reject bids for your gold.

Nobody will SET the number of dollars per ounce of gold, it will be established by the need to find willing sellers and buyers. If too high, no buyers will be found. If too low, no sellers will be found. Gold as the reference point.

If you decided to buy a piece of land and the seller has denominated the purchase price in dollars, you wouldn't just look at the number of dollars asked for in order to figure out whether or not it's a bargain. You'd look at the number of ounces of gold that dollar figure equates to, and compare that to your other possible uses for gold (or, from another angle, how much value you consider those ounces of gold represent).

Incidentally, when people here talk about *fiat* currency they mean the status quo, in which paper currencies aren't, and can't easily be, related back to how much gold it can purchase. Also incidentally, in this sense we can all have our own, personal, Freegold right now by making the shift in our thinking e.g. right now I can look at dollar-denominated prices and convert them back to ounces of gold and make my buy/sell decisions about non-gold assets on that basis. Would I rather own asset X or the corresponding number of ounces of gold? It's hard to do with precision right now, though, because of the murkiness I mentioned above. FOFOA's previously published estimation was that the purchasing power of gold post-Freegold will be equivalent to US$50K+ of today's dollars per ounce. I have no idea how accurate that estimate might be, but I can accept that the true value of gold is likely far in excess of the present price of roughly US$1500 per ounce, and so I would be happy to buy at that price if I ever have spare paper currency.

J said...

ART, perhaps part of why you and 'Freegolders' are talking past each other is because you think we're trying to say how things 'ought' to be. FOFOA tries to make his best guess about how things WILL be. If someone says there will still be poverty in 20 years' time, does that mean they will have caused it, or desired it, or will be happy about it?

That said, it seems that FOFOA considers the presence of paper currency, with only the 'exchange' function, will be a good thing to make commerce easy. I am comfortable with that, as if things pan out the Freegold way there will be clarity about just how valuable a dollar is, because it will be measured against gold.

Rui said...

"Silver is for spending, gold is for saving."

Not exactly. What does Another's Petro-Gold story tell us? Can you afford not spending gold when buying crude from Saudis? Gold is spent at macro-economics level while silver at micro-economics. Always like throughout history.


"After Freegold, paper currency will still exist but everyone will use GOLD as the reference point to determine the value of a given quantity of paper currency from a given country. "

Why do FGers, among many other questionable assumptions, believe government and bankers will give you an accurate gold price to reflect how much they have inflated? We are talking about the same folks that always rig the data when it gets inconvenient for them here.

They are supposed to give you the accurate CPI and yet they rig it with hedonics (spell?).

They are supposed to report the accurate job stats and yet they change the accounting methods to hide the truth.

They are supposed to mark banks' balance sheet to market and yet throw it away to use "mark to myth" instead.

... ...

I can go on and on here if you wanna hear all their shenanigans but you already can see the pattern here: When in doubt, rig!

Bottomline is govt and bankers rely on this FIAT pumping for their agendas. Whenever there's a conflict of interests you can forget about them acting fair while playing both players and referees at the same time. That my friend is being realistic.

You've read it from this very silver post a scenario that "giants" would react if SLA were to threaten their gold, right? If you accept that possibility then what do you think govt and bankers would do when gold price gets in the way of them printing FIAT? Would they sit there, still giving you an accurate gold price to thwart their ability to inflate, or do sth else about it?

Deep in your guts you know the answer, don't you?

This concept alone already does NOT fly, and I have other doubts about FG.

J said...

ART said:

The issue is that SOME people get to have the RIGHT to print money out of thin air and YOU do NOT!

Do you think it's fair for the bankers to be able to write themselves a check? Do you think it's fair that if you do the same thing you go to jail or at the very least are not able to spend it like the bankers are?

Why can the banker buy things for nothing and YOU cannot?


No, I don't think it's right that they can do that - obviously. My response, if I had spare paper currency, would be to buy gold because I don't like how things work now AND because I think Freegold will come about, possibly largely because more and more people will become disillusioned with the state of affairs you describe, and so will demand a constant reference point.

The newer J (as with all of the comments above - sorry, it's hard to remember but I will try harder)

Adrian said...

Hi Costa,

A very good post and well researched. I will continue to hold both gold and silver, and I don't think we can know what the politicians/CB's/IMF etc. will do, and that being the case I can't see how we can bet 100% on gold or silver.

The case for gold is that CB's hold it, and global production is dropping, and geologists say it's harder to find and extract, but if the Au price rises to say $5000/oz there are lots on mines that become economical again. CB's are buying gold. However, if the global debt was re-structured (read - written off) what then? I think anything is possible, and with increasingly desperate governments and mounting debts as inflation kicks in what is the outcome. There is inflation everywhere except the CB's as they say.

BTW did you live in Melbourne and work for Lee?

Aquilus said...

Quote from Art above:

The Freegold system is not unfolding because FREEGOLD is already what we have NOW.

Art, you cannot seriously come to this forum, throw grenades like this around and be taken seriously.

I mean, saying we have freegold and mixing up the paper and physical concepts of gold, with paper gold at about 100 to 1 to physical (fractional reserve) currently, shows a total lack of understanding of the basic concept of free gold.


On the other hand, if under freegold the banker bids so much higher for that gold, then the banker will cause loss of confidence in the one and only product that the banker has to offer: currency. Therefore no crazy bidding will occur, quite the contrary, all devaluation of currency (not gold mind you) you should happen gradually. And since under freegold you are not going to use currency as a store of wealth (unless you are an idiot since; that is what physical gold is for), a gradual devaluation of currency presents no major problem.


Now I understand that you have issues with the current system, however:

1. This blog is not about social justice through monetary system reform, nor is it about the perfect kind of monetary system - it is about the most likely

2. I have not seen our host advocate that the paper currencies are somehow the best money, again only that they are the likeliest.

Sounds to me like you are (perhaps rightfully) upset with the current monetary establishment. This blog is not however a place for you to find your "enemy".

As far as I can tell, this is a place where one (very likely) form of a future monetary system is floated, and our host is certainly not the one that's going to implement it.

Art said...

MORTYMER,

YOU SAID: "Art: I actually do not know where to start with your statements...I will opt to not comment on those..."

MY REPLY: In your response to ME you're stating that you're not responding to what I said, Mr. Genius. No, it's not funny.

YOU SAID: "You seem to be a Hard money advocate not fully understanding problems of past gold or bi-metal standards and you seem not offering any new ideas about world trade and monetary system which could work locally & globally and will not lead to what we already went through in past."

MY REPLY: I am an advocate of HONEST money and I am offering a new idea about a NEW feasible monetary system:

1Gold and silver as two independent forms of money WITHOUT fixed ratios to each other, plus;

2)Currency redeemable in gold and silver at non-fixed fluctuating rates circulating alongside and competing with precious metals.

3)A nonprofit national bank that issues gold-backed currency only but not debt- or credit-generated money.

4)A private for-profit banking sector that can issue loans for productive enterprise or sensible purchases, FRACTIONAL or otherwise. HOWEVER, NO FDIC, i.e., no socialization of losses.

There, in less than a page a brand-new monetary system that can work.

YOU SAID: "I think if you get/find this statement you will see a little further in your view:

"Blondie said...

My timeline starts a bit earlier than yours... I think 1694 is a key date, but not the only one. Everything Freegold is tied up with the current system and its misappropriation of value, and this began (again) with the creation of the Bank and debt as money. Seed is sown."

MY REPLY: are Freegolders MORONS? You're disparaging exactly what you are promoting, namely paper or debt as money. If gold is not money; if gold is not a medium of exchange IN ADDITION to being a store of value; than all you're left with is various form of FRAUD as money.

THINK instead of condescending.

Aaron said...

Art said...
J,

AS LONG AS gold and silver are NOT money, their price will be set by the man who can bid higher than you in paper money - and those are by definition the bankers who can create paper money out of thin air.

I'm sorry. You're either one of them or you're not right in the head.

It seems you’ve missed the history of repeated failed attempts of gold and silver standards and as such would choose in err to promote them as our future. As I write this post and scroll up a bit I notice Ender made some very important comments. He mentioned the significance of the observer. Perhaps you might read his comments again.

You say:

AS LONG AS gold and silver are NOT money, their price will be set by the man who can bid higher than you in paper money

Of course I would first ask what the word money means to you? Both J and Blondie have pointed you towards an idea I believe to be very significant and that idea is:

“Money is a remembered value relationship we assign to any usable money unit.”

I assume that by your statement “AS LONG AS gold and silver are NOT money” you mean as long as they are not legal tender. Have you not learned from the past of gold and silver standards and the need for a flexible supply of currency? We are talking about a new paradigm here -- one that has never occurred before and as Blondie correctly points out will never occur again.

Evolution before your very eyes.

Do you not see it?

--Aaron

JR said...

Hi Art,

A fiat currency system only has expandable value if producers hold it (aka save in it) while it expands. Without that, currency expansion just dilutes the value of the currency.

WHO sets the purchasing value of any fiat currency on any given day under Freegold?

The holders of the viable counterbalance (a savings vehicle outside of the fiat currency system), aka the physical gold holders bidding for that currency.

*********

"...this view of savings is the very flaw that is collapsing the system. That savings are held WITHIN the monetary system as the flipside of someone's currency debt, be it the debt of an underwater homeowner or the debt of the nation's printing press.

This is a SYSTEMIC flaw...

A saver produces more economic goods than he consumes. The present system allows for all excess production to be consumed in the present. Therefore the savings of foregone consumption by the producer/savers needs to be in a vehicle separate from the monetary system. A physical asset, that floats in value. And as you said, "yes they could have bought more real goods but where to store them?

This is where physical gold performs exceptionally well!...
" comment 1

**********

"... Today we have a situation where the vast majority of excess production value (excess capital) is enabling massive amounts of global malinvestment through new debt creation. That has peaked and is now contracting. But the problem is not the debt itself. The problem is the enabling effect of excess capital not having a viable alternative that floats against the currency. The problem is the lack of the adjustment mechanism of Freegold. There is no viable counterbalance against uncontrolled debt growth today. So we are only left with credit collapse and hyperinflation of the monetary base to clear the malinvestment from the system.

It is easy to blame this on debt as a principle, but unless you don't mind being wrong, there are some deeper explanations out there. Debt under Freegold will not reach such destructive levels. "Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.
" comment 2

Cheers, J.R.

JR said...

Hi Art

You say:

“AS LONG AS gold and silver are NOT money, their price will be set by the man who can bid higher than you in paper money”

You have that backwards Art - paper does not set the price of gold, gold bids for paper.

All modern digital currencies do not go into an investment, they move THRU it... There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".

This is the key to EVERYTHING!!! It is not "gold liquidity" that the bullion banks create... it is DOLLAR LIQUIDITY. Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world except gold.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.


Cheers, J.R.

costata said...

Babstar,

Thank you. I would not dismiss any accusation of market manipulation out of hand these days. That interview with Ekkehard Schulz (quoted in the post) really shocked me. I had to read the numbers, on the trading range of zinc, two or three times for them to sink in. Mind blowing, but it forced me to "think differently".

costata said...

Hi derek,

I didn't set out to 'persuade' I used the belief/disbelief intro as a rhetorical device to set up the post. I hope that if anyone is influenced by this post they will think deeply about any decision that they make.

http://en.wikipedia.org/wiki/Rhetorical_device

This extract sums up my intentions very well (my emphasis).

"In rhetoric, a rhetorical device or resource of language is a technique that an author or speaker uses to convey to the listener or reader a meaning with the goal of persuading him or her towards considering a topic from a different perspective.

J said...

"Everyone knows where we have been. Let's see where we are going!" -Another

Art - look to the future and not to the past. A gold standard is not progress

-Old J

Wendy said...

Costata,

Perhaps you missed my second comment, or I wasn't clear in my communications ..............

I read your post, I thought it was very well presented, and an enormous amount of work done on our behalf. Thank you for that.

Bron Suchecki said...

"Incidentally, many people seem to forget that Comex is not a major physical silver exchange. It’s a paper price discovery mechanism that handles less than 5 per cent of the physical silver traded annually. The Perth Mint on its own accounts for around 10 per cent. That’s right, double."

Checking the stats at www.sharelynx.com for silver ounces delivered on COMEX:

2006 - 169,135,000
2007 - 137,080,000
2008 - 142,455,000
2009 - 95,955,000
2010 - 90,575,000

By comparison Perth Mint's refining is only 7,000,000oz a year plus you can add on extra as we source additional silver as we sell more than we refine, but it is still fractions of COMEX's numbers.

Gold is a different story. COMEX deliveries:

2006 - 8,963,000
2007 - 9,657,800
2008 - 9,035,200
2009 - 6,091,300
2010 - 7,448,300

Perth Mint refines around 10,000,000oz a year.

Aaron said...

Wendy! Did you notice we're at comment 225 and you are still here? The cosmos has aligned! Perhaps Freegold is coming sooner than we thought. ;-)

--Aaron

Art said...

JR,

What you refuse to get is that the price of both gold AND the dollar is set by bankers who create money out of thin air. (Gold doesn't set the dollar's price nor vice versa.) That power MUST be taken away from them. The only way to do that is to use gold and silver as money.

Louis Cypher said...

Interesting discussion and post.
I haven't chased down all the links nor have I read it more than once but felt the need to comment as the conversation is a little one sided.

As pointed out the bullion bankers are the spider in the center of the web and they can feel the tug from every corner. Unfortunately we cannot. We can take a peek but never get the real picture and so we will always trade at a disadvantage.

Suppose for an instant the "corner" could also sit at the center of the web and feel the tug because just like the bankers he is part of the miners and explorers. Just like the Bankers he invests in their ventures and he also acts like a bullion banker by pulling huge amounts of physical off the market. He acts as their hedge by getting in early enough through direct investment in the mining ventures. In this way he could control flow and bottleneck it before it even gets to the mints.

Yes, ultimately everyone wants to trade up to Gold and it’s a matter of getting the timing right. There are many reasons. It’s a lot easier to carry gold than silver. We want to run with the big dogs when it all comes down etc etc. Gold is always been the big sister for the most part. But there have been rare occasions that Silver was the big sister.
It’s all psychological and the ASSUMPTION and faith that Gold is more valuable than Silver and paper. It’s faith and us humans are good at faith. Ultimately if enough of the world agrees we could be trading with rat tails as the medium of exchange. The difference in Gold and Silver over everything else is their history.

We have had bi metallic currency systems in the past. Nothing unusual about that but the only problem with that is sometimes the supply of Silver gets a little out of hand if there is a big discovery. Sprott is floating the idea of a possible 9:1 based on above ground supplies and SLV’s etc. withholding the Silver from the people who want or need it.

Even Aluminum was prized higher than Gold at one time. Think about that Aluminum was a precious metal once. Platinum and Palladium are being trotted out as precious metals. I don’t think they are simply because they lack thousands of years of history. Gold and Silver have a history that spans the globe and is accepted in places where VISA, Mastercard and the Dollar are not.
Gold AND Silver.

Louis Cypher said...

“If Gold can do the job by itself then why do we need silver?” Good question:
In the freegold scenario/ hyperinflation argument the big dogs come through the chaos intact. That’s all well and good if they live in bubbles and walled gardens and never have to interact with us peons. But you cannot strip peons down to nothing, make their family go hungry, destroy their livelihood and not expect to find yourself looking at basket waiting to receive your head. You have to give the people some hope. That hope is Silver. Maybe the rich won’t trade their Gold for Silver and use Gold as the ultimate exchange. Maybe they will leave us scurrying around with Silver and the central banks hold the precious.

As far as I know the Rich Dad Poor Dad guy is a fraud who made his money selling books about his imaginary Rich Dad. In short the guy is a Snake oil salesman as far as I am concerned but he is reflecting the common strategy most of us have.

I will whole heartedly agree with you that there has been a pretty intense campaign by various parties that we have a supply shortage. However, whether it’s a bottleneck or lack of holes in the ground it’s still a supply shortage to the end user if they cannot buy it at their coin dealer.

The question is can the “corner” keep up the pressure? Can the Perth mint supply the worlds demands. The US mint sure as hell can’t.

With so little actual transparent information we may be buying into a Ponzi scheme in Silver that will tarnish all precious metals.

If Silver is smashed and dumped down to the teens you may as well write off the Public buying into Precious metals for a long time. If the PTB have a planned escape route via freegold they cannot take a shit on the route on the way out the door. Right now we are docile but if things get bad enough even the sheep will stir.

As for recycling silver from cell phones, old motherboards etc. it is not doable except to recover silver as a by product from trying to capture the Gold etc. even then the chemical and processing expense kills the trade. If one is willing to work for 10 Dollars a week and set fire to circuit boards then silver recovery is profitable.
You do not want to anywhere near that process. The only worthwhile recovery of silver is to trade your spoons in or go get some free silver with urban prospecting.
(It’s on my blog somewhere)

Sure you can replace Silver with a lesser material to conduct electricity the same as when they removed Lead from Solder many moons ago. However, the consequences are crappy soldering which is why a TV from the 50’s will still work but your LCD won’t be functional in 10 years. If your TV is more than 5 years old chances are some of the inputs at the back are not working or the thing is just junk. The industrial uses for Silver and Palladium are growing. Some things you cannot replace.

I’ll come back to this post at a later date and finish up. While I agree with many things you are saying the conversation is a little one sided and I like to be the devils advocate ☺

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

@ Aaron

You seemed to have skipped lots of hard money systems that lasted far longer than a typical FIAT system which has an average life-span of 40 years.

Byzantine empire had a history of around 1,000 years, and they were on hard money (gold standard). China had several dynasties that lasted more than 200 years and they too were on hard money (silver standard + minted bronze coins), just to name a few.

The recent gold standard failures were caused by them not being on a real hard money standard in fact. Once a rampant fractional reserve component is allowed it's not a true hard standard anymore as FR system softens it to the point it collapses.

"I would first ask what the word money means "

Let's try a simple version: Money is the certificate to our labor. When we work hard to produce sth useful we are compensated with money so from the get-go money has to be backed up by labor and/or goods. Money has to be serious and credible to be viewed as the certificate of one's labor.

If we allow bankers or politicians to just print FIAT while backing it up with nothing but thin air then it's neither serious nor credible any more. They don't put anything behind it and yet want it to have the same value as what we sweat for. Once that happens it a fraud and counterfeit, which is why we cannot use FIAT as money.

costata said...

Hi Beefy,

You have raised some very interesting issues in your comment. I think they deserve a detailed response. This is just a short note to thank you for your praise for the post. I'm still working through the comments. I look forward to talking with you later on.

VTC,

Ditto the above on your remarks about Desperado's comment as well.

Wendy said...

Aaron,

Really I'm not here, I ranted through comment 208, and set the stupid blogger to email me replys. I am getting all of the replys but it's not the same as scrolling through the blog.....sigh

Art said...

AARON,

1. You cannot define a meaning into existence. Money is not what you want it to be. Money is a store of value in addition to being a medium of exchange and a unit of account. Freegolders cannot change this reality. Freegolders are delusional in their insistence that they can create a reality that does not exist simply by subverting the meaning of the word 'money'. NO SIR, MONEY IS NOT AN ABSTRACTION THAT CAN BE USED TO BACKSTOP THE BANKERS' FRAUDULENT MONETARY SYSTEM.

2. Freegold is not going to be the future just because you claim that it's inevitable. Freegold is HERE NOW so how can it be something to come in the future? 'Freegold' is a misnomer for our current monetary system.

Aaron said...

@Bron-

Are you kidding me? Annual COMEX deliveries are 10%-40% less than your annual refinement capacity?

Right. Comex (paper) folds and I want to get physical at any price (minus nationalization taxes?) and who do I turn to?

Did I mention I'm one hell of a systems engineer? Do you need a VPN solution? Security audit? Firewall integrity analysis?

Did I mention I work for gold?

--Aaron

Wendy said...

Art,

Would you walk into someone's house as an invited guest, drop your drawers and shit on the carpet?

Throw the cat in the microwave oven and turn it on high for ten minutes?

Perhaps spin your tires on the front lawn on the way out?

I have no comments with regards to the words you type other than to say your manners are atrocious.

Ender said...

@Art

Thank you for the laugh.

Reading your comments is like watching a weatherman that predicts the weather based upon what he wants rather than what is actually happening outside. We can all look outside and see that the sun is shining, but you seem to want rain so you’re predicting it?

You make some really good points, but they are marginalized because you insult your audience. That is a shame for there is good energy that, that if channeled correctly, could make a positive impact on the world.

Have you thought about starting your own blog? May I suggest calling it The Anti-Freegold site? That might give you a chance to really compose your thoughts.

Please, have a good day!

Wendy said...

As long as I'm sitting on my "high horse" it would do us and this blog a curtesy to remember "common curtesy".

This is what has always been so attractive about this blog(in addition to the content) ... respect in thought and in type.

Anonymous said...

Jeff,

> I hope you get it.

My apologies for the tone - I was just adapting to the environment.

> You seem to think gold holders will rush to dump their gold (which is greatly increased in value) for currency which they then must trade for another real asset.

Not every holder of gold does so for sentimental attachment only. You have to expect that a significant number of them simply try to maximize their profit in real terms. Of course, they will sell their gold mainly for other real assets - who wants to hold a hyper-inflating paper currency?

> Why will they dump the best wealth reserve?

But sell they will. The world is full of other real assets that can be held for the long run: equity in companies, public listed or privately held, farm land, real estate, and so on. And they understand that gold will not always be that much overvalued with respect to other real assets. Why not? At some point, the dust will have settled. The world will have returned to a somewhat more stable monetary system - be it classically gold backed or freegold plus fiat. Fractional reserve banking will have been outlawed or at least seriously restricted, perhaps the government will directly control credit volume (in line with Richard Werner and as already proposed by George Soros).

In any case, it will again be possible to enter reliable contracts and to lend to companies, at least to lend honest savings to productive entities. Since CBs no longer undercut the market clearing interest rate, the real interest rates will generally be a lot higher than in the present system. Once these adjustments have taken place, interest bearing loans will start to compete again with gold for the store of value function. And as a consequence, the price of gold in real terms will fall. The old Barsky-Summers. I am not saying gold will go down to a purchasing power equivalent of 280 US$/ounce again. I am not saying everyone will sell all their gold. But it will make a lot of sense to sell a good bit ot it.

> I don't think your latin countries will be happy with their deal.
> I think they will wind up with a lot of silver and no gold.

Right. But what would they do with their gold? Mexico's CB has just bought some gold. Why? As a hedge. It might be that Germany, for example, (after the eurozone has split up) might ask for gold when the Mexicans wish to purchase German machinery. You better be prepared and don't put all eggs into one basket. Since Mexico is full of silver, it makes sense to diversify and get some more gold. Just as Desperado is keeping some of his silver. Very wise indeed.

Victor

costata said...

Gabriel,

I'm glad you enjoyed my tale. Your comment has added to my list of issues that IMHO require a detailed reponse.

To all who are owed a detailed reply,

I am determined to honour the open invitation that was issued. I am also committed to responding to everyone who has raised pertinant issues. This may take some time and go beyond the life of this thread. If so, I will still respond here and leave a note in a later thread to alert you that there is a reply here waiting for you.

costata said...

jkjkjkjkjkjkjkjj,

I hope I wont sound repetitive but you too have added an issue I want to address in more detail. Thank you for your kind remarks about the post.

Anonymous said...

Edwardo said...

> Yes, that's right VTC, I'm an expert on oil.

Very nice.

> However, neither Mexico nor Venezuela have ever been swing producers like SA.

During the 1970s, yes, Saudi Arabia was the big swing producer, I agree. Since then, 30 years have passed. Already when the price of oil spiked in 2008, some experts questioned that SA sill had the excess capacity required to manage the price. In any case, they continue to lose their once unique position, only to be replaced by countries such as Canada (would these have the balls to drop the dollar and bid for gold?)

In any case, I know, the gospel here says that SA can drop the dollar and bid up gold instead. Sure, if it were only finance and trade flows that mattered, I would agree. But the other half of the question is one of politics.

Who protects the ruling family of SA? From the moment the US drop them, it will take only months until they are deposed. The new rulers will not ask whether they prefer Geneva or Lugano and whether they wish to fly Swiss Air or Emirates. No, it would rather be a matter of life or death.

I am sure both parties of the present arrangement are aware of this. If SA raises the price of oil too much, they can crash the western economies. If the US drop the ruling family, these will be history in no time. Perhaps the recent riots in Syria, Yemen, Qatar were just a timely reminder of this old arrangement. Wouldn't SA even have to make some coercive payments to the US? Will they ever be able to enjoy the pleasures of all their gold?

No, an open bid for gold by SA is a non-starter as well.

Victor

Bron Suchecki said...

@Louis Cypher: "However, whether it’s a bottleneck or lack of holes in the ground it’s still a supply shortage to the end user if they cannot buy it at their coin dealer. The question is can the “corner” keep up the pressure? Can the Perth mint supply the worlds demands. The US mint sure as hell can’t. With so little actual transparent information we may be buying into a Ponzi scheme in Silver that will tarnish all precious metals."

Everyone has to stop focusing on retail product supply or shortage, there is a much bigger wholesale market (1000oz bars) where I'm not seeing any shortage. Commentators play up the retail shortages (which are transparent) but either ignore or aren't aware of the opaque wholesale market supply situation. Poor information means poor decisions.

@Aaron: "Are you kidding me? Annual COMEX deliveries are 10%-40% less than your annual refinement capacity? Right. Comex (paper) folds and I want to get physical at any price (minus nationalization taxes?) and who do I turn to?"

And we are only 10% of annual mine output. He who has the gold makes the rules.

Desperado said...

@Mortymer,

RE: Your 15 items plus 2*s:

I am getting ready to take the dogs for a walk before work, this morning I have to drop my wife off at the Hbf in Zurich and now I have to worry about traffic.

I simply don't have time to respond to your questions/points.

Hildebrand unloaded the Swiss gold for some unknown reason, but likely because the giants' giant (the US) extorted them into it. Now the Swiss, like the Mexicans are stuck with billions in evaporating dollars.

@Victor, I really like idea behind Arroyo's negotiations, do you have any more reading on this? It reminds me of the LMU and I think this would have been been a great system if not for WWI and the greed of the Anglo-American (and German) bankers trying to get a monopoly on PM's through the demonetization of silver. I think silver is necessary as a monetary asset in order to keep gold honest.

costata said...

Hi Wendy,

Thank you. I'm not going to attempt to argue with your personal reasons for wanting to own some silver.

However, I don't think that people should go unchallenged who are
recommending that you should own some silver, that silver is "better" than gold or that you should sell some of your gold to buy silver. My research and investigations informs me that the foundations on which they construct their arguments are unsound and their justifications are often flimsy.

I wanted to hear some solid counter-arguments from the silver bugs. That's one of the reasons the invitation was issued.

costata said...

/SleepingVillage/,

Thanks. BTW I agree with your comment and J's reply to ART that Blondie nominated for the HOF.

Cheers

Anonymous said...

costata,

> I wanted to hear some solid counter-arguments from the silver bugs. That's one of the reasons the invitation was issued.

I do not count myself as a silver bug. But why do I recommend to own some silver? (besides the very good reasons given by Desperado)

If you buy into Another and FOA, you know the bullion market is manipulated (if not shorted outright as in the 1990s, then at least by supply of fractionally reserved paper bullion).

Both silver and gold are traded by the same market participants and on the same venues. Both are traded in unallocated accounts.

But silver is the smaller market (stock not flow), and industrial demand takes a lot of material off the market at any time. So if the bullion banks blow up, the blow up in silver may be a lot more spectacular than that it gold.

I agree that sources such as Max Kaiser are not to be taken seriously. I agree that the 'backwardation=scarcity' argument is nonsense. In some sense, I think, you chose the wrong adversary in your article.

Victor

Anonymous said...

Desperado,

> @Victor, I really like idea behind Arroyo's negotiations, do you have any more reading on this?

No, sorry, I just made it up on the fly.

Victor

J said...
This comment has been removed by the author.
J said...
This comment has been removed by the author.
miked said...

Apologies if this was already posted but I haven't been to the site for a while. However this story is almost confirmation Another was right about the gold for oil deal.

http://www.youtube.com/watch?v=GuqZfaj34nc

costata said...

Hi Javier,

I'm glad you appreciated the post. I will respond to both of your questions in more detail as soon as I can. Some of the issues raised in the comments that I have been collecting overlap. I am going to try to combine some of the replies.

Pete said...

Interesting Miked

Art said...

FOR THE TRUTH SEEKERS,

The fundamental issue is not WHAT we use for money but WHO controls it. Only gold and silver as money gives control to the people.

FREEGOLD = "Give me control of a nation's money and I care not who makes the laws."
--Mayer Amschel Rothschild

FREEGOLD = Rothschild

Only gold and silver as money can take that control away from the banking dynasties.

But WHO CARES?

We just want to have our cake and eat it too.

Unknown said...

I wonder what will happen when, according to FOFOA, gold will (temporarily) not be available at any price. Where do all the people go that are not hedged at that time?

Anonymous said...

Just testing the new profile.
J The Newer

Anonymous said...

victorthecleaner, what proportion (by ounces) do you feel is sensible for gold vs silver? It would also be interesting to hear why you recommend whatever number you give :)

J The Newer

costata said...

Wandee,

Thank you. I hope the post prompts more reflection by newcomers but I doubt they will find it on their own. Wait and see I guess.

I think you have raised something very interesting with your reference to Indian housewives. I'll respond to that in a little more detail soonish.

costata said...

Hi Adrian,

Thank you for the compliment. I made a comment to Wendy earlier that I think applies to you as well. Your decision is your own. I think there are benefits from having a debate that isn't one-sided. Before the usual suspects climb all over that statement I don't mean the debate here necessarily. I mean the debate in the blogosphere overall.

costata 'lives' in cyberspace and no, I don't live in Melbourne or work for Lee.

Cheers

costata said...

Bron,

My apologies for that error. I got that completely wrong. I'll see if there is something we can do about that. Thanks for pointing it out.

Cheers

mortymer said...

Opening Remarks
Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank
High-Level Conference on The International Monetary System, Zurich , 10.05.2011

http://www.snb.ch/en/mmr/speeches/id/ref_20110510_pmh/source/ref_20110510_pmh.en.pdf

"Good morning, Ladies and Gentlemen. I am pleased to welcome you to the second joint SNB-IMF conference on the international monetary system..."

radix46 said...

Thanks for the reminder, Mortymer. It looks like a very interesting conference.

Anonymous said...

costata, you and others have referred to trading in and out of silver as a way to 'make' money. Though I don't personally want to follow that path, I'm intrigued as to how people would make that work? I'm pretty ignorant about things of that sort.
J The Newer

mortymer said...

@radix46: yes, indeed.
These 2 important CB I have not researched yet much: France and Swiss ones. They certainly are in the lead so here is just a starting point of the further one:
http://www.global-currencies.org/smi/gb/reference/references.php?name=A

mortymer said...

http://www.banque-france.fr/home.htm

"The Banque de France has decided to launch a website that aims to be a portal for information and sharing on the International Monetary System. You will find reference articles, news and contributions by high-level academics and policy-makers"

=>

http://www.global-currencies.org/

:/Its pity that one has to do other job to have/make time for this research.

Jonathan said...

Some great work here. I am glad to hear VTC's view and others regarding how other countries in the world could react.

Freegold seems very european/US centric being the ultimate financial weapon of empire building through fiat economic warfare. They may very well impose their way a la some kind of strong-arm opium war model on everyone else.

But things tend to work both ways amongst those who can't be bullied. If the GSR goes to 1000:1, $50,000 gold vs $50 silver, watch China turn ag into rare earth status with every ounce of gold they have got in exchange for silver. They then produce the value-added goods, or high-tech weapons to get the gold back. This to me is the great flaw in the Freegold only argument - other nation's have the capacity to react outside of the imperialist's colonial suppression as Chairman Mao would say.

Seriously, if China gets caught out not holding enough gold before gold goes nuclear, they will fight gold with every ounce of gold they have and haven't got.

At a nation level, 1,000,000 ounces of silver for every 1,000 ounces of gold - watch China clean up the very last ounce of global silver.

Reread the above sentence, does this not put things into perspective? No

Yes we live in a ponzi world where counterparty risk will burn, but I still can't see a break from the historical forms of real money and value.

Costata, some great work, however expand the horizons of your analysis.
How does Freegold theory coexist with global politics in the real world? Freegold cannot exist except by imposed decree, Decreegold. (Oh save those poor lemmings with laws!)

Pete said...

@ jthenewer

Firstly, good on you for changing your name, that shows respect to the other J.

Trading in and out of silver, I assume is meant to mean trading the GSR (gold silver ratio).

So, as the ratio changes, you take a position in either and trade back again when the timing is right. It's all about timing.

For instance, lets say you bought in to silver at a GSR of 1:60. Then the GSR reduces to 1:40, and you trade back into gold. Then the GSR gets to 1:60 again and you trade back into silver. Rinse, repeat, etc.

The trading relies on volatility in the GSR, among many other factors. It is good for those in the know, or the clever trader types. Not so good for the longterm buy-and-hold Freegold types though. You wouldn't want to put all your dollars into silver and find out that you can't swap back into gold at any price. Ooops!

That said, GSR traders can do quite well and could potentially amass a significantly larger amount of gold (or silver or both) than the buy-and-hold'er.

Pete said...

@ Jonathan

You need to read the other articles on this blog. Your questions will be answered and your arguments will be proven false.

costata said...

miked,

Thanks for the link. It's a strange world when Russia Today seems to be more open in its coverage of geopolitical events than a lot of the Western media.

jthenewer,

Basically they arbitrage the gold silver ratio. If you google the names I put up in the post under the Trader section you should be able to find some interesting information. As I said I'm not a trader.

Jonathan,

Thanks for taking the time to read the post. I'm going to stop making comments to individuals now and concentrate on the comments I have saved for detailed responses.

This will be a slow process, inevitably - like Freegold-RPG. (Sorry couldn't resist.)

Anonymous said...

Pete, thanks for the response. I'm bound to make a mistake and post with the old moniker at some stage, but I'll do my best to keep it to a minimum!

I guess BullionVault or GoldMoney could be an OK 'platform' for that sort of thing. As I said, not for me, but interesting to know something about how it's done.

J The Newer

Casper said...

Hi Victor,

I believe that the ECB may resort to that bid in an extreme case where all other options of orderly revaluation fail. Currently I believe that it's more likely that it will be the market that forces the rise in price of physical gold.

That said, I think that gold for oil deal is still valid but things have evolved so far that other players have come to the same conclusion as to which metal is most likely to be the "store of value" and I can imagine they (will) demand gold to represent their savings.

Now, what happens in the proccess is of course anybody's guess. I count on large volatility and market dislocations that may most probably lead to political instability (already happening).

Regarding that paper (B-S) you mention. While examining that chart it reminded me of my trading. I concur that charts paint a picture of how real interest rates may accurately predict which way the price of gold (in dollars) moves but what they don't seem to be is, how far.

Casper

Pete said...

@ jthenewer

I think most people would do the trading through paper (ETF's, futures, etc) as it is more liquid.

Paper is yet another risk, because when Freegold arrives you need to be holding physical.

Trading in bullion is more painful as you can't do quick electronic trades and typically lose a small portion of your gains in the trade.

If making (fiat) money is the goal, there are no doubt better trades than the GSR.

mortymer said...

@Art, for you...

Intro for Gold standard:

http://www.banque-france.fr/gb/publications/telechar/focus/gold-standard.pdf

"...International payments lead to gold transfers between countries. When a country runs a balance of payments deficit (surplus), it has to make (receive) a payment in gold. Domestic gold holdings decrease (increase) and domestic money supply contracts (expands). Domestic money supply is thus determined by the balance of payments. This provides an adjustment mechanism to external imbalances. Suppose for instance that a country runs a trade deficit. This leads to a decrease in gold holdings and a monetary contraction. This contraction generates a decrease in domestic prices. With lower relative prices, the country becomes more competitive and its current account is brought back to balance. This adjustment mechanism was described by David Hume in his famous 1752 essay.
In theory, this adjustment should be symmetrical. Prices should increase in surplus countries, making them less competitive, while the opposite should take place in deficit countries. In practice, however, adjustment was not always symmetrical. Countries with balance of payments surpluses could not be forced to issue more money: they could simply hoard gold without monetising it, thus avoiding the price increases that would erode their competitiveness. The United States and France, which both ran current account surpluses in the interwar period, were thus able to stockpile large amounts of gold, while deficit countries losing gold had no choice but to deflate their economies when their creditors required to be repaid in gold..."

[mrt: So, what do you think, do see it now?]

J said...

FOFOA, Blondie, costata and others:

One of ART's comments above has got me thinking about the issue of wages and savings (among other things) around the period of Freegold occurring. ART believes that we'll forever be consigned to saving a smaller and smaller amount because currency inflation will continue to be a scourge. I see this differently, but I'm not clear on how wages and salaries might be adjusted over a transition period.

I guess there WILL be a time when hyperinflation in dollar terms (hyperdeflation in gold terms) will destroy employees' ability to save anything, as they'll be on pre-Freegold wages and therefore struggling to scrape together the $1,000,000,000 they need for an egg or two. Any thoughts on how this will be 'righted' and over what timeframe? I know we've recently had estimates of 6 months of pain, and some think there will be years of it, but I'm interested to know what steps might be gone through e.g. hyperinflation hits and the purchasing power of the dollar disappears over time period X, Y minutes/days/months later wages might be rendered 'useful' in manner ABC.

Any thoughts on how it might look in some detail, or has this been covered somewhere else that I haven't seen?

Thanks :)

J The Newer
(Some problem with Blogger preventing me from using my new login at present, sorry)

DP said...

@VtC, I would first like to share an observation that I think you're making a big mistake in starting up a coalition with Desperado. You already see what he does not; there is a totally different The Money Shot for different classes of visitor here. There are lots of different doors into the Freegold room and everyone needs to find the right one for them when it's time. Once you are inside, you can see who is looking for each door and who is on the inside looking out. If you tie yourself to someone being guided towards the wrong door for you, it's just going to make life more difficult. It's like putting a large concrete slab in the hopper of your lawnmower before you take it for a spin, before giving up and parking it in front of the camera so nobody in the audience can see either. You're going to waste a lot of gas, and you're never going to be able to outrun that honey you're fixing to catch and take off into the long grass...

I think Desperado's door has a sign on it "how does gold get revalued while silver doesn't?".

I think your door has a sign on it "once in a lifetime global arbitrage opportunity, limited seats -- book now".

I am spreading myself much too thin right now already, so I don't want to get drawn in too far to your conversation with Jeff, but I just wanted to make an observation on your conversation with him.

Out of the gate, an admission that, yes, you're right. People will ultimately sell their gold to buy other things of value. I am well aware that you're a very smart guy and we all, I think, love seeing you here.

If you can take 1oz of silver to any Latin American CB and exchange it for 10oz of gold, then take that to the ECB and sell that 10oz of gold for sufficient Euros to turn around and buy 50,000oz* of silver. Rinse and repeat. Then that's a sweet deal, eh? Wowsers! Are you glad you had that 1oz of silver to start yourself off! What are you going to do with this 50,000oz of silver that you bought in the market? I guess you like the idea of retiring to Rio or something like that -- and who wouldn't?

If Jeff started off the game at the exact same time, but with 1oz of gold he took to the ECB, who bought it from him at a price that meant he could immediately turn around and also go buy 5,000oz* of silver, take that to a Latin CB and swap it for 50,000oz of gold. Rinse and repeat...

In my spreadsheet, Jeff is always 1 step ahead of you in terms of global purchasing power. Because he started off with the thing that is 1:5000 leveraged to yours, in Europe (and ROW ex-USA), while yours is only leveraged 1:10 to yours, in Latin America. Which CB will put a stop to the deal, because they are fast running out of ounces of their collateral while half the world is running on it to take advantage of this arb opp? Jeff might choose to retire to Monaco, Singapore, Goa, or lots of other nice places. Or maybe he stays at home and just makes a good friend of the man from FedEx, who knows.

Factor in also that you're risking the possibility your 1:10 idea is a distant dream that I don't see happening in the first place, while Jeff's 1:5,000 idea IMV has its seeds very clearly mailed, sown and by now firmly taken root... and I think you might see why he is still going to take some convincing from you. Perhaps you have something in the bag still; if you do we all, really, want to see it and understand it. But it better be good if it's going to trump our existing groupthinkconfirmationbias.

Cheers!

DP :-)

* Some readers:"1:5,000 GSR?! How can I take you seriously when you say something like that?" Clearly, I am making up this number. It is just indicative, not based on any hard metrics I can offer you. But, in my view, it is far from a ridiculous indication.

mortymer said...

And here we have next excellent paper to check out:

http://www.banque-france.fr/gb/instit/telechar/discours/2010/International-monetary-arrangements-Pekin.pdf

...to look at/comment on international monetary issues without some basic knowledge is simply flat and silly. :o)

mortymer said...

J The Newer - the paper could also answer your wanderings about the need for saving in "smaller and smaller amount" etc. Just check it out... :o)

Blue Donkeyman said...

I am surprised that no site picked this up. Usually dollarcollpase.com has fofoa articles on its "best of the web" featured articles, and this one is not there. I love silver and I still think it has a ways to go and I think this article has done good and has grounded my expectations. It's amazing how it has not trickled out. ZH should have also posted it and the fact that they didnt upsets me since it shows that they are selective and biased. Also, I note that all the newbie silver gurus that have read it have changed their opinion on silver a bit BUT STILL WONT MENTION THE ARTICLE. (It is blatantly obvious that they have read the a post since their sentiment changed after it went online...and it wasnt the drop on silver that changed their attitude either becuase this post came out after the crash)

DP said...

To all the single ladies here that feel they've been treated a little roughly of late, I just wanted to apologise and tell you I still love you. I hope you knew this already, but I know sometimes you Venusians need a reminder of these things. Sometimes we're best together when we fight and make up.

DP said...

@Mortymer, OMG -- it's almost like you're suggesting there will be a "New World Order", with an evil "One World Currency"! :-O

My o my. I do just love to find a chicken in every pot. :-\

DP said...

Sorry Mrt, I forgot my etiquette training classes. I'm new to this stuff, I've only been getting lessons for a week or two.

It's almost like you're suggesting there will be "A NEW WORLD ORDER", with an EVIL "ONE WORLD CURRENCY"!!! :-O Why don't you TRUTHSEEKERS wake UP?!?

mortymer said...

@DP: my aim was that those two papers explain some of the reasons/roots for SDR as a SUPPLEMENTARY reserve asset. It highlights present imbalance problems and shows how it is not so easy to solve this mess without international cooperation on all sides. How much savings is good, do we need liquidity swap lines in freegold, etc... many interesting thoughts.

Snipset from the 2nd:
"...There are good arguments to create international instruments providing a reliable store of value:
• First, the safer investors feel about the risk-return profile of their holdings, the bigger the exposures they are prepared to accept. In that way, structural characteristics of the International Monetary System have an influence on the sustainability of global imbalances.
• Second, once uncertainty on relative values settles in, it would likely be accompanied by extreme volatility as investors, whether public or private, constantly reshuffle their existing portfolios between countries and currencies in order to manage their exposure.
• Finally, and most important, many oil and commodity producers face an intertemporal choice between extracting resources and keeping them on or under the ground..."

Jeff said...

Victor,

I can understand nations which have silver deposits wanting to monetize them, but I'm afraid the decision has already been made. There can be only one; it is gold. The West has gold, the east is buying gold, the giants have gold, Saudi has gold. As FOA said: (The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold.)

As for the latin nations dumping hyperinflating dollars, who will they dump them on? Maybe not the US. FOA again: (How far will gold rise? At first blush, foreign dollar assets will not, in any way, return home! They will circulate offshore; either from lack of understanding of the issues, a thought that things will be worked out or from foreign exchange controls aimed at protecting the failing US economy!)

DP said...

@Mortymer: Hmmm, OK, so I think I understand you are suggesting global investors like SWFs and CBs, pension funds, etc etc -- the big money. They want their assets to be stable and predictable, something they can have a high degree of certainty about, so that they are not going to suffer wild swings both up and down in the value of the holdings they are managing on behalf of others? Otherwise they are going to feel forced into trading activity, rather than long term investments, and this is going to introduce further risk that the others they are managing on behalf of would find unacceptable and bewildering?

DP said...

Does anybody else here like to play Monopoly? I haven't played in years. I never much liked it, truth be told. But, when everyone else in the room wants to play... only an old sourpuss refuses to join in.

DP said...

@info: A good question. I wonder what Adam Smith would say about it, if he were here today? I'm going to have to meditate on that in my happy place for a while. Ommmmmm...

mortymer said...

@DP: Yep, exactly. The volatility is the enemy of a good store of value.

Indenture said...

DP: Interesting 'Monopoly Game'
miked: ‪Gaddafi gold-for-oil, dollar-doom plans behind Libya 'mission'?‬ nice
Wendy: I can't remember if you have tried this but instead of clicking the 'Comments' link at the bottom of the post click the post title so just the page loads with the comments automatically shown at the bottom. Then you just refresh the page and new comments are added to the bottom.
Art: Keep trying, but, please don't put 'the cat in the microwave'. You just called the readers of this site 'delusional' and 'morons' and you continue to use ALL CAPITAL LETTERS to force your point. Courtesy actually works.

JR said...

Hi Art,

JR,

What you refuse to get is that the price of both gold AND the dollar is set by bankers who create money out of thin air. (Gold doesn't set the dollar's price nor vice versa.) That power MUST be taken away from them. The only way to do that is to use gold and silver as money.


No Art. Bankers have been able to control gold because of the illusion that their paper is as good as gold, and thus people's acceptance of their paper, aka monetized gold. The only way to stop this process it the continual de-demonetization of gold.They don't have control. Savers give them control by saving in their currency system.

*******

You ilk irritates me to no end, "OMG gold must be money." Your political bastardization of real economic is transparently superficial. Most are here because they have fundamental awareness of economic theory. Stop posing and actually read some monetary economics, you have no clue. Here is some Carl Menger, a forerunner of marginalism and the father of the Austrian school to get you started

Menger:

...But the notion that attributes to money as such the function of also transferring “values” from the present into the future must be designated as erroneous. Although metallic money, because of its durability and low cost of preservation, is doubtless suitable for this purpose also, it is nevertheless clear that other commodities are still better suited for it. Indeed, experience teaches that wherever less easily preserved goods rather than the precious metals have attained money-character, they ordinarily serve for purposes of circulation, but not for the preservation of “values.”

http://mises.org/etexts/menger/eight.asp#_ftnref26

...Likewise, the opinion widely held among jurists and economists that money is simply
perfected by being declared legal tender, or is perfected in its concept, is based on a
misunderstanding. When the state declares a specific sort of money or a number of sorts
legal tender (makes the creditor’s obligation to accept them at their face values as
settlement of money debts a legal rule), it undoubtedly does perfect these kinds of
money in their function as media of payment (from the standpoint of the judicature).

The assignats backed up by the guillotine and a series of legal regulations intended to
thwart any attempts by creditors to escape the effects of legal tender, undoubtedly were
quite ideal media of payment from the standpoint of the administration of justice and
perhaps also of debtors who had already satisfied their credit requirements. But were
they also ideal money?


Carl Menger and the Evolution of Payments Systems. ed. Michael
Latzer and Stefan Schmitz, Cheltenham: Edward Elgar, 2002.

p.1

JR said...

(P.2) cont.

From FOFOA's "The Value of Gold":

So what is gold's highest and best (most valuable) use? I'm sure a lot of you said "money!" And by "money," I'm sure you meant currency, or at least base money as it was during the gold standard. As the mysterious blogger Mencius Moldbug (one of my favs btw) and his even more mysterious alter-ego John Law points out:

"Money is always fundamentally overvalued. Its purchasing power is independent of its direct physical usefulness to anyone. This is obvious for paper money, but true even for gold and silver."

And he goes on to show that "precious metals" will at some point be spontaneously remonetized (overvalued), which is why you should buy gold and silver today.

He is right about official money being overvalued. Even Karl Marx agrees with that statement:

"The function of gold as coin becomes completely independent of the metallic value of that gold. Therefore things that are relatively without value, such as paper notes, can serve as coins in its place."
(Das Kapital, Vol 1, Part 1, Section 2)

And Robert Mundell, Nobel laureate economist and "father of the euro" tells us how ancient rulers profited by overvaluing gold and stamping it into coins:

"The introduction of overvalued coinage provided a strong economic motive for the cultivation of a mystique. From its very beginning, probably in Lydia in the 7th century B.C., coinage was overvalued; one could say that was its very purpose.

"The earliest function of coinage was therefore profit. Coinage not only helped to market the [gold and silver] found in the Patroclus but the markup on them generated a substantial profit, helping these kings to achieve their dynasty's ambition of extending the Lydian Empire throughout Asia Minor. Accepted at face value as if they had a high gold content, the Lydian staters started out with a high proportion of gold but got progressively smaller, increasing the markup and the revenue for the fiscal authorities."


But then he goes on to tell us what ultimately happens:

"Coins cannot of course remain overvalued in a free market. Gyges and his successors were no libertarians. Overvalued coinage implies artificial scarcity, a monopoly and government control."

So the face (fiat) value stamped onto the coins ultimately falls from *above* the value of the metal to *below* the value of the metal, without fail. It did in the 600's BC Lydia, the 200's AD Rome, and again in the 1960's AD United States. Prior to 1964, the silver metal minted into a quarter was worth less than 25 cents. The quarter was overvalued, "inked" silver metal.

After 1964 they had to eliminate silver from the coins because people were starting to hoard that particular form of money for its greater melt value, putting a certain "squeeze" on the money supply and inverting the profit or "seigniorage" the government derives from making coins. Today a 1964 U.S. quarter is valued at $5 while the metal content of a 2010 quarter is only worth five cents!

So is money (currency) the best and highest (most valuable) use for gold? I think not. Is it the likely "next" use of gold in our near future? Not a chance! Another, FOA, FOFOA and the computer literate reincarnation of Aristotle all agree. And as a bonus, we can see clearly that the best, highest and most valuable use for gold is ALSO the most likely use of gold in our future!


http://fofoa.blogspot.com/2010/12/value-of-gold.html

Cheers, J.R.

tEON said...

@Pete
Sorry for my delay in directly responding to you...
My understanding is that the article was written to explain to silver bugs the folly of the expectation of price inflation.

Does this presume then that all 'Silver Bugs' have the same expectation of price inflation?

Slapping a label on people is one thing - but lumping their expectations together is another. Maybe this is where I am having the most trouble with Costata's piece which is driving me further from FreeGold - rather than helping me embrace it.
***
It sounds like the FreeGolder (hey, a label!) sees a simple world where nothing retains value... but Gold. They can sit, cross legged, on a hardwood floor in their residence (no furniture, or maybe even clothes - they complicate life) with a neatly stacked pile of Gold coins and bars in front of them. They don't have to address Backwardation of an imposing precious metal, viable examinations of suppression (Adrian Douglas, Gata, Jim Willie, PhD etc.). It's easier to go after the Rich Dad, Poor Dad charlatan, loud Max or UFO-Bix.
I thought of FreeGold as a philosophy - an ideal (sounding more academic than practical). Attacking Silver doesn't elevate Gold, IMO. If that was your goal Costata - it got lost on this lab rat.
We read a lot and weigh, in our own minds, validity of sources. Then use our own brand of risk management.
Does the suppression argument seem plausible? - yes, of course it does (my bias). Many consider it irrefutable.
Is Silver's backwardation meaningless? - no, it cannot be simply dismissed (my bias)
Is there a shortage of Silver? - certain products, yes! (I haven't been able to but Eagles or Maples at Kitco for a week)
Will the GSR eventually be 10,000:1? (best not to respond)
So, it's not that the end is coming. It was the debate of Hi vs. Deflation, now whether Silver will have any value after the impending collapse. It's fun to debate while waiting, I suppose.
I wouldn't sell my Silver but I’d trade it for Gold - when I think the time is right. How to hedge? - own both and you'll be better off than 99% of the crowd. PM bigotry is unnecessary.
Best,

Motley Fool said...

Hi Costata

-sigh- It is with great reluctance that I reply.

You know that I agree with Freegold, but writing this forces me to analyze your post critically.

Ahh well. So it's so.

“To infinity and beyond. “ - Buzz Lightyear

“If you are looking to corner the flow in a market one of the risks that needs to be evaluated is the possibility that any existing stockpiles could be mobilized against you. Obviously it would be very helpful if any stock was highly immobile. “

The same holds for gold, and gold stock is even more immobile that silver stock. Then again, one of Another's axioms was the that flow of gold is in fact cornered. Another of Another's axioms is that the currency collapse will break this stranglehold. If it will break the stranglehold for gold, why could it not do the same for silver?

“Will this silver stock flow? I hope we can agree that the answer is ‘No’ unless the price is high enough to overcome sentimental attachment or the individual owners of that silver experience a sharp decline in their income and/or standard of living. So for the purpose of this story we are assuming the bulk of the aboveground silver stock is not mobile at the present time. “

When fiat collapses, people will flee to something real to hold value. Arguably gold is the best thing, but part of the argument includes mass psychology. If people can no longer store value in people will some percentage think to store value in silver? I think yes is a reasonable answer.

One of the premises of Freegold is that the value( real value that exists independent of the virtual matrix) will flow into gold. What if some of that value diverts to silver? Will it matter in the long run? No, eventually gold will store all that value and silver will collapse to industrial price only.

But what about the interim? The period leading up to the transition and Freegold. If enough value flows to silver due to people's choice to store value there then recycling premiums will be insignificant. All that stock will be (possibly) accessible for investment demand. That would significantly increase the stocks to flows ratio of silver, making the price more stable.

Medium term considerations should not be neglected.

“The belief in a scheme to suppress the price of silver is pervasive among silver bugs. “

The belief in a scheme to suppress the price( or rather massive spike in price at this stage of the game) of gold is pervasive among Freegolders. You fail to give reason why this should hold true for gold but not silver. In fact since silver can be likened to a barometer for gold( due to historical reasons), if the gold price is being suppressed, it would make sense to do the same for silver.

“I would argue that 2002 was the watershed year for silver, the year when the US Defense National Stockpile was nearing depletion as a result of the Silver Eagle coin program. That opened the way in 2003 for silver to join the long cycle commodity uptrend along with other industrial metals, agricultural commodities and so on. “

I would argue that something similar happened for gold around the same time(give or take a few years), being that central bank sales and leases have effective stopped. It is relevant to point out that CB's did not sell their entire stockpiles of gold, but effectively did so for silver. Occham's razor provides a simple explanation. That CB's saw no future use for silver, being that gold was more efficient to store and they could always acquire more silver if needed as long as they had a little extra gold, and gold remained dominant. Which I agree with you and Cb's, it will.

(cont) p1

Motley Fool said...

(cont) p2

You know who else is predictable? Gold bugs, and CB's. Thats not so great for this cornered market either. Freegold argues this does not matter for gold. It is true that Oil for example holds a potent weapon in this regard. My question? Why should this matter for silver? If four billion people choose to use silver as wealth reserve, though it may be inferior to gold in storage capacity, at lower price, it does have more functional use in barter( for this exact same reason).

Remember, any institution is composed of a number of individuals, held together by relationships and rules. When fiat crashes these rules may go out the window. In that case we are each just individuals and 6.95billion could triumph over 50mil(assuming there are that many giants).

“An important factor to understand in the case of silver is that demand from the industrial sector tends to be quite inelastic. This means that buyers have few options and have to pay at prevailing prices.”

When the fiat collapse occurs industrial users are irrelevant, until such time as the economy stabilizes. In the interim their products will not be demanded as highly as food, water and other essentials. Buying a cellphone during a HI collapse... lmao, who will be able and willing to afford airtime?

“Putting all of this together, the presumption that the positions of JP Morgan, HSBC etc can be known from publicly available data is beyond incredible. To suggest that you can know they have a massive naked short position without knowing what other positions they are holding outside of the Comex and how their overall books are structured, is, in a word, absurd. “

This is true. Your argument that publicly available information is the information they want public is also persuasive. In short, I think you are likely correct that silver is currently cornered as you define it. My question is if that matters in the bigger picture?

“If gold can do the job on its own why do we need silver?”

In the longer term we don't. In the medium term( think during the HI collapse) we may.

“The Silver Shortage “

In terms of a wealth reserve, abundance is better than shortage. If people can't find any gold( due to strong hands) they will accept silver during a HI as better than fiat.

“If you want to be a leader, find a parade and get in front of it. “ Re Max Keiser

I am not going to disagree with you on him.

“A Thought Experiment “

Psychologically it is foolish to challenge gold with silver.

“The existing SLA silver holders must hold and continue to buy in ever increasing amounts or the SLA will need a constant stream of new recruits. “

Isn't this the case already for the bulk of the BTFD crowd?

“They will squash the silver bugs – like a bug. “ Please explain how they will do this to SLA, at this point, being that they are self-confessed physical silver bugs? Collapse the paper price? ;)

A this stage how could they squash the goldbugs and Freegold crowd? Collapse the paper price? :P

You make a few relevant points, and a few not so relevant. There is a case for gold in preference of silver. This unfortunately is not it imho.

Marginal utility as per Carl Menger is one of the strongest arguments for gold rather than silver.

At the end of the day a 50-50 split, in terms of WEIGHT, still seems prudent to me. In terms of peace of mind the tiny additional cost is justifiable imho. In fact I wrote recent post “Defence” where my last suggested line of defence for gold during the transition is silver. This post of course is aimed at shrimps, not giants.

Your show is a magnificent view of the trees, while ignoring the burning forest.

I still agree with the concept of Freegold as the endgame, I just suspect the path there may be rockier, and not quite as narrow as you imply.

Peace

The Fool

Disclosure : Due to my lack of reliable internet connection, I did not read any of the links you provided, nor watched the videos.

Michael H said...

ANOTHER gets a mention at Jesse's:

"All paper will burn. Come, sit by me. We shall watch the bonfire together." - paraphrase of Another

http://jessescrossroadscafe.blogspot.com/2011/05/gold-daily-and-silver-weekly-charts_09.html

costata,

Thank you for writing this excellent piece. Composing a wholly original narrative like the one you present here is impressive indeed.

Do you think there is another piece of the silver puzzle in connection with gold? My thoughts are as follows:

- After around 2001, gold was no longer in a downward trend. Therefore, 'western' investors would not necessarily shun it as an asset that is going no-where. What could be done, to keep the paper gold markets functioning, and the gold flowing to where it needed to go?

- Enter the gold-silver link: manipulate the price of silver to follow that of gold. Train all investors and computers in the soundness of the correlation. Then, under certain circumstances, push the price of silver around in the hopes of affecting the gold market.

- For example, by making silver more volatile, you could paint investment in PMs as 'too volatile for the average investor'.

- Or, when gold must be prevented from soaring in price as a 'safety' trade, push the price of silver way down to make gold follow -- as in 2008.

The issue with this view is that it would take coordination between the silver manipulators and those that would benefit from extension of the paper gold game, i.e. the Fed.

Perhaps the Fed gave JPM etc. license to do whatever they wanted in the silver markets, and JPM acted predictably and to the benefit of the Fed.

Michael H said...

Rui,

"In some nations with big population like China not even silver was abundant enough so they minted bronze coins for circulation. "

What if silver is not abundant enough for circulation in the modern world?

Victor,

About the latin american silver 'modest proposal': didn't a similar thing happen between the USA and Europe? Where one had a 1:15 GSR and the other had a 1:16 GSR, and this imbalance caused a one-way flow of metal that had to eventually stop? How would your proposal be different?

About the Euro-gold to 30k proposal: the key is oil. Europe cannot revalue gold in a vacuum. The USD would be affected as well. All dollar holders would sell dollars to try to buy gold at 1500 to buy 30k euros. As Casper said, then you end up with ... Euros. Unless Euros can be traded directly for oil.

So I believe your scenario points out why freegold won't happen tomorrow, but it doesn't invalidate that it will happen.

Rui said...

@ Michael H

"What if silver is not abundant enough for circulation in the modern world?"

We still mine 9 times as much silver as gold every year so the supply side is OK. Silver gets over-consumed b/c its price is artificially suppressed by the BBs. Once the suppression ends (every suppression fails at the end) it'd get to the right level to form a balance.

I wanna say this: us hard money advocates do not fix on a particular metal. The key is we only trust units that are naturally finite to be used as money. Gold & silver turn out to be the most serious and credible choices. Things like FIAT that can be supplied infinitely by politicians / bankers whenever they throw seriousness and credibility outta window to abuse the printing press cannot be money.

DP said...

I was just thinking to myself, "what if the price of lots of commodities isn't being suppressed after all?". Back to my happy place again.... Ommmmmm.....

tEON said...

@Michael
Perhaps the Fed gave JPM etc. license to do whatever they wanted in the silver markets, and JPM acted predictably and to the benefit of the Fed.

Nice Michael - glad you have stated such... something to consider. With JPM (perpetually the, almost exclusively, major short) getting an infinite amount of funds (interest free) from the Fed - what would Bernanke want in return? maybe ebbing the freefall of the $? or, as Michael, suggests - instilling the 'volatility principle' in people's minds. This exists today even when you show them graphs of PMs over 10 years or 100 years.
Perhaps another mechanism to alter the $ (PM's go up - $ goes down and vice-versa). They knock out as many of the margin players as possible, hence - the 'manipulation' (sorry about the word) is easier to control... but each time it gets harder.
Chapman calls this their one shot - because if Silver goes up to $49 again - the power it might take to bring it down will cause imbalance in other segments of the market.... or maybe not. How long can they inject liquidity into the system ? before 'it' happens... another week? or another 20 years? the longer it takes - the longer we have to, personally, prepare (meaning transfer as much into Gold as feasible).
So, for myself and many isn't the inevitability of the collapse, but the 'best' way to prepare.
Is it that big of a gamble to buy Silver along with Gold? Expecting:
a) Silver to outperform Gold (in the short term)
b) that it will, also, be a valuable wealth protection vehicle when 'it' does transpire.
If 'a' - you can transfer to Gold - buying much more than in today’s price/ratio. If 'b' it doesn't really matter.
We are creatures that gamble - this seems like one with the least risk. I'm 50-50 Au-Ag. Yeah - I want more Gold - and will get it, hopefully, 'in time'.
Best,

Boopstir said...

hmmm, my impression of Another (Thoughts!) was simply an opportunity to rise with inflation, per sa, and not be left at the bottom of an empty well, flailing about with a silver coin in your mouth. Just KISS already!

mrbeyond said...

Interesting conversation on Costatas Silver Forum. Here´s some rare credit to blow. ;) http://creditcardforum.com/blog/jp-morgan-palladium-card-benefits/

Chaiwalla said...

Here's another brilliant thread in Costata's article that I had not considered before. A high ratio of silver to gold is indeed a threat to the Giants, and I would imagine would piss them off royally. Imagine if the SGR went down to 10 and all of these plebians started making off the Giants' treasure at those firesale prices - in exchange for their hated quasi-industrial metal!

I think that there is a good reason for the Giants' war on silver for the past 150 years. The Giants win big when the plebes are in paper and only they are rich in gold.

I still believe that it's a good speculation to be long silver and play for a more favourable SGR, in order to maximize one's gold ounces in the long run. The wise/prudent speculator though should continue to take profits regularly and convert to gold as the silver bubble builds. I would not want to be holding much silver if the ratio hit the auspicious 16. At that point I think that having 1:1 by weight, as suggested by FOFOA and others here, would make a lot of sense.

- Chaiwalla

Art said...

MORTYMER,

First you need to MAKE a point before you ask me to see it, OK genius?

Simply copying and pasting a couple of pages of something that someone else wrote does not constitute 'making a point'.

radix46 said...

Art,

Could you try to keep your posts a little longer, so that I have a chance to skip over it without reading anything? - I take the short ones in in one glance and I don't like having my brain infected against my will.

THANKS

DP said...

@radix46: Art just told me in another thread he knows FOFOA - and HE IS A BANKER! :-O

I *think* he said he has red hair too. (I might be making that up in my excitement though!) But this is BIG NEWS, no? I want to find out more, I'm now having my doubts about FREEGOLD!

Art, I think this is your moment! Tell us everything, before FOFOA starts censoring the comments!!

Chaiwalla said...

Victor, I always enjoy your comments, they are well-reasoned. I think that the best reason to speculate in silver right now is for the reason you suggested - silver is more likely to blow up the bullion banks. I think that the Eric Sprotts and Max Keisers of the world, amplified by he power of the internet, will continue to put unbearable strain on these banks, which will necessitate a Giant response. We may have seen the beginnings of this with the 5 margin hikes in comex silver.

The irony is that once the BBs are at the point of maximum stress, that could hasten the coming of Freegold, which could send the SGR into the 200+ range. I've noticed this pattern in other hyperinflations - silver increases in real purchasing power faster than gold for a couple of years, until the apogee of the crisis, and then gold decisively wins. Gold does appear to be the "focal point", where humans instinctively flock in times of great stress. That combination of history, portability, intrinsic value, divisibility, and Giant ownership cannot be beat.

pipe said...

Costata-If you decide to write a followup to your excellent piece on the flow of silver, please include your analysis of the recent reversal in the flow of silver to and from China. As recently as 200, China exported 125 million ounces of silver per year. In 2010 they were a net importer of the same amount. No doubt it will be more this year.

Silver is also popular in India, the subcontinent's infatuation with gold not withstanding. So you have over 2.5 billion people that love silver, and they are loading the boat. Bottom line, they think silver is money, so it shall be money.

pipe said...

Oops, should read "as recently as 2005"........

radix46 said...

DP,

I heard FOFOA was a psychiatric patient that still believed he was in the CIA in Vietnam, but was playing out his delusion in the form of economic commentary in the blogosphere.

I also heard that he doesn't hold any gold at all, but lives in a house made of silver and he is in league with pipe and Desperado who comes round to his house for poker every Friday evening and they plan how they are going to enslave mankind in some huge pump and dump scheme in gold.

I don't think any of those things are true though; I think he was born in Kenya, built a time machine, was shot in Dallas but now lives on as an amorphous floating head in the 6th dimension and dictates this blog through a wormhole to a bunch of super midgets dancing back and forth on the keys of a giant keyboard made of silver.

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

JR,

YOU SAID: "No Art. Bankers have been able to control gold because of the illusion that their paper is as good as gold, and thus people's acceptance of their paper, aka monetized gold."

MY REPLY: Everyone can see that a piece of paper is not the same thing as a piece of gold. Everyone knows that different things are not as good as each other. There is NO illusion involved here. Further proof? Explain EVERYTHING about gold and money to the average person and they will STILL not buy gold and continue investing in paper assets. No, this is not a question of illusion. This is about WHO you are - whether you're on the side of truth (gold) or lies (Freegold, fiat money, etc.)

Secondly, you're making a mistake by referring to gold Futures contracts or gold options etc. as "monetized gold". No gold is bought or sold for the vast majority of transactions involving gold Futures contracts so no gold is being monetized there. You're wrong about that.

YOU SAID: "The only way to stop this process it [sic] the continual de-demonetization of gold.They don't have control. Savers give them control by saving in their currency system."

MY REPLY: Sorry but this is a stupid Freegolder argument. If you "save" in gold and have to sell your gold every time you want to buy something, you will pay the bankers and the coin dealers fees and commissions each time PLUS they will buy your gold back for LESS and sell it to you for MORE when you want to convert your currency back into gold in order to "save" it. How stupid and self-defeating. This is pure economic suicide!

In the process, you will basically LOSE everything you have if you thus "save" your wealth in gold.

Get it genius?

May 10, 2011 11:15 AM

DP said...

@radix46, now I think you are just trying to make me look like a willy. I think Art has something big here!

Art, please tell us everything while we can still talk!

J said...

FOFOA, Blondie, costata and others:

In addition to my question above, about how the painful period during a Freegold transition might look, ART's comments about how we have Freegold right now have sparked another line of thought and highlighted a gap in my understanding.

People have talked earlier about how the market will 'discover' a correct value for paper currencies in relation to gold once Freegold occurs, discounting the value of those currencies which have had their supply increased etc etc. I think ART's point boils down to this - if the market will have that ability then, why can't it do it now?

As I understand it, the answer is that the market participants have all bought into, or are part of generating, the idea that gold is a commodity; that paper gold is 'as good as gold'; that paper currencies are a store of wealth etc. For that reason they don't measure gold against the right things, or, more accurately, they don't understand or want to use the ruler they should be using i.e. that they should be measuring things against gold.

This brings me to the point that I'm not entirely clear just how Freegold will occur i.e. how we will get to the point that the paradigm shift will occur. A tipping point due to little people en masse becoming disillusioned with the status quo? The problem of America's debt leading to America printing money and revaluing its gold, bringing on Freegold for its own benefit? I can see how America choosing to do it could make the change, but I don't feel clear about whether that's the likely path. I know this must have been covered, probably ad nauseum for FOFOA, in other posts. Which posts would be most helpful in clarifying this for me? Or perhaps someone can put the various paths they foresee 'in a nutshell'?

Thanks,
J The Newer (still struggling with using the new profile)

G said...

Once an author tries to become persuasive he becomes unpersuasive. The central aspect is that the US money supply is growing at an average of 6.2%/year compounded (TMS2 since 1959) and probably that fast since 1913 accounting for the US dollar being worth about 3 cents versus the 1910 dollar. Both gold and silver have lagged considerably and are catching up. The natural abundance GSR is 17/1. No other facts are relevant.

Desperado said...

"There are lots of different doors into the Freegold room and everyone needs to find the right one for them when it's time."

Good old DP barricaded in his freegold bunker. This is what is going to happen when his benevolent giants steal his gold and he has no silver.

Anonymous said...

Art!

Are you reading the comments yet??? Or are you still gonna blab on about your fears? Many of us have addressed them, in detail.

Please read the comments, read them many times if you need to. Your "style" is gettin' old.

Your evil Rothschild bankers will have less control under Freegold. The gold acts as the "entity" that does the controlling. Self-regulating enough that it naturally acts as a balancing mechanism. Get it? The gold standard of old will not work today for the reasons that have been put forth. Please read the comments the kind folks here have written for you and stop assing the place up with your caps lock. You have some valid points, but you're incredibly ineffective in your writing style and lack of reading comprehension. I now skip your comments and I'm sure many others do as well.

Derek said...

Hi Costata,

I appreciate the personal response. It must be exhausting. When I said your writing was persuasive it is because you did what Paul Graham calls an "investigation" of your own thoughts. Recently I've come to the conclusion that I will soon sell my IRAs and buy more gold. During the next silver run up I will sell/trade silver for more gold. FYI, i-Ching consultation response: hexagram #10 which is the image of the small following in the footsteps of the great with successful outcome. "Tread on the Tiger's tail, but it does not bite." Those who think the giants aren't moving this game forward are delusional.

Regards,

derek

radix46 said...

DP,

I was not trying to make you look like a willy. I was casting aspersions on ART'S information, to which I attach zero credence or worth.

Maybe he's a banker, maybe he's not. Would that make a difference to you?

Would that make a hard money standard more workable?

Would it make deflation more likely than hyperinflation?

Would it make the silver stock to flow ratio any more viable? etc etc...

pipe said...

Desperado said, "Good old DP barricaded in his freegold bunker. This is what is going to happen when his benevolent giants steal his gold and he has no silver."

That is preposterous. He will be able to exchange his gold ounces for a minimum of 4 ounces silver for each gold ounce, perhaps as much as 14 silver ounces for each gold ounce. The final resting place is unknowable, but 8:1 is as good a guess as any.

Unfortunately for the weak handed among us, the masses are going to run silver all the way down to par, in a panic, and amid the despair, and the desperation to get silver, a lot of folks will get only one ounce of silver per ounce of gold.

Art said...

FREEGOLDERS,

Why are you being hypocrites and refusing to answer relevant questions posed by your friends? Here is what J said:

"One of ART's comments above has got me thinking about the issue of wages and savings...ART believes that we'll forever be consigned to saving a smaller and smaller amount because currency inflation will continue to be a scourge...I see this differently, but I'm not clear on how wages and salaries might be adjusted over a transition period [under Freegold and fiat currencies]."

AND,

"...ART's comments about how we have Freegold right now have sparked another line of thought and highlighted a gap in my understanding...People have talked earlier about how the market will 'discover' a correct value for paper currencies in relation to gold once Freegold occurs, discounting the value of those currencies which have had their supply increased etc etc. I think ART's point boils down to this - if the market will have that ability then, why can't it do it now?"

Freegolders, ANSWER if you can.

Derek said...

@Art

I can't comment on first bit, but the 2nd is a product of the run on physical gold when the fiats begin to collapse. With >100 claims to each oz the system in not sustainable. Until that time all physical is on sale, and Freegold exists in an embryonic state.

regards,

derek

Anonymous said...

To everybody,

my apologies that the following is off-topic as far as silver is concerned.

I wonder whether you have already discussed the topic of misallocation of capital in the context of monetary politics.

The observations:

* the volume of credit in the commercial banking system relative to GDP has been growing for 30-40 years (most seriously in the US and UK, but also significantly so in the eurozone)
* CBs have systematically undercut the market clearing interest rates (ECB is doing the same). I think I remember in the US, there was a switch from a money supply target to an interest rate target towards the end of Volcker's tenure which made this official. The ECB has always used an interest rate target
* the financial sector as a share of GDP has grown two- or threefold, depending on how you count it (basically all countries)

It is a pretty good guess that neither of this is sustainable. If true, there has occurred a huge misallocation of capital, of natural and of human resources. As far as the financial sector is concerned, it touches the topic of credibility inflation, but there is more to it.

Here are some ideas:
* heavy industry is undervalued
* manufacturing is undervalued
* services are overvalued
* tourism and leisure activities are overvalued
* consulting (lawyers, financial advisors, ...) is overvalued
* manual labour is undervalued
* resource exploration and extraction is undervalued
* agriculture is undervalued
* transportation is overvalued
* globalization is overrated
* locally sourced products are undervalued
* state pension schemes and insurance policies are overvalued
* community and family are undervalued
* science and education are ??

In other words, the upcoming changes in monetary regime will affect you, but these might not even be the most significant changes in your life (unless the 50k$/oz price target works out and all of us retire immediately).

Coming back to Another on the gold for oil arrangements "you should be grateful, the CBs are buying you time" (from memory). If you follow the Austrian School, you could also say "you should be upset, the CBs are screwing up the structure of your economies" (my wording).

Victor

Biting Silverbug said...

Costata, some food for thought:

Your Point: The rich and the governments/central banks only own gold, and they set the price, so gold must be that much more valuable. Counterpoint: Depends on how you see it – sort of. For example: two shoe salesmen visit a distant land in ancient times. One returns and says, “It’s horrible…nobody there wears shoes!” The other says “What an opportunity…nobody there wears shoes!” Pure goldbugs assume that demand for silver from those large players is nonexistent and will always stay that way. Over the course of human history there has always been some ratio of gold to silver – the 20th century decision of governments to get rid of their silver is just another stupid decision of many and is an aberration that will correct. As the price of gold rises relative to silver, it becomes cheaper to own silver – creating new demand for silver and bringing the demand for gold down (relative to silver)! Eventually, governments will buy it again to maintain strategic stockpiles for usage in military, distribute as currency, and to hold wealth – so please tell me why silver shouldn't rise the same magnitude.

Pure Goldbug Point: The gold/silver ratio reached over 1:100 during past crises. Clearly, gold is always a better investment. Counterpoint: The reason that happened is that some people believed a crisis was imminent (e.g. Jews in Germany during the 1920’s-1930’s), so they sold silver to hold a “more portable” form of savings (silver’s volume is much greater than that of gold). In other words, there was a fire sale on silver when people went crazy – using this time to determine the proper GSR is like measuring food inflation during a hurricane – prices are not rational at that time! If that was really what silver was worth, it would have STAYED at 1:100. If pure goldbugs were right, this would mean that the GSR of 1:16 in the earth’s crust is too low. This point also fails the common sense test.

My favorite pure goldbug point: Silver is the call-option leveraged play on gold. Counterpoint: This is bass-ackwards. Based on the above, it’s clear that you should have a primary position in silver as it shoots from a GSR of 30-40X until it hits 16X at a minimum. But, during crises, if other people are “(not) smart” enough to sell silver for gold and drive the ratio of 1:16 to 1:100 – you’d better buy BUYING every ounce of silver you can get your hands on! That ratio WILL revert to 1:16, giving you 5X the money otherwise – IF it occurs at all. In other words, I'll be buying some gold right now to take advantage of the people whom you get hooked on gold - if they sell their silver, I'll be right there buying and waiting for the mean reversion. Silver's where the money will be - but in the short term, it's possible that gold will be good too. On the whole though, fundamentally, silver will be much better on a percentage basis. You could be right a maximum of 3 weeks - live it up when it happens, because after that, silver will prove you wrong.

Rui said...

@Derek

Why do politicians / bankers stack 100 paper claims on each OZ of gold in the first place? Isn't it plain that they have no intention to reveal gold's true price? Therefore why do you believe, under Free Gold, the same crooks would all of a sudden let it happen? To what end, limiting their ability to steal public's money via FIAT?

radix46 said...

Rui,

You said "would all of a sudden let it happen?", with regard to bankers allowing Freegold.

Do you think that these bankers have total control of the whole of the global economy?

If so, then we have no common ground for discussion.

If you accept that they don't have total control, then it will not be up to them. This is an organic process.

Art said...

DEREK,

Why the changes you allude to - including the run on gold - aren't happening NOW? ALL the conditions which Freegold prescribes for its realization are here NOW. What CHANGE will your Freegold introduce, what new fact on the ground will Freegold establish, which we are not experiencing NOW?

Answer: NONE. Therefore Freegold is what we have NOW as we have both gold and fiat freely bidding for each other here and now (mere manipulation does not PREVENT you from buying gold freely here and now).

And how about question #1 which OBLITERATES the argument for Freegold! IF YOU CAN'T PROTECT YOUR WEALTH UNDER FREEGOLD, WHAT'S THE POINT OF HAVING FREEGOLD?

REMEMBER: : "If you "save" in gold and have to sell your gold every time you want to buy something, you will pay the bankers and the coin dealers fees and commissions each time PLUS they will buy your gold back for LESS and sell it to you for MORE when you want to convert your currency back into gold in order to "save" it. How stupid and self-defeating. This is pure economic suicide!...In the process, you will basically LOSE everything you have if you thus "save" your wealth in gold."

WHY Freegold when Freegold will ANNIHILATE your wealth, your money and your savings and inflate your wages to oblivion over time?

WHY Freegold when the fundamental rationale for its existence is DESTROYED before your very own eyes?

Are you out of your mind?

Regards,

A.

Casper said...

Ok Art

I'll address those 2 questions:

"...how wages and salaries might be adjusted..."

I've lived through a hyperinflationary period of a currency and there were price controls and shortages and as that didn't help wages/salaries were indexed to the "inflation" figures. Needless to say that this only poured gasoline on fire. I can imagine similar steps being implemented in any case of HI any where in the world. One thing though - there was a black market for other currencies (hard) and rates were different than official ones. (like COMEX!) :-)

"...if the market will have ability then, why can't it do it now..."

I think that J has answered that already by himself. It's called "confidence to perform" or the lack of it afterwards.

His questions are much more focused on actual event(s) that might be catalyst(s) for the beginning of HI. That of course can be anything that has a sufficient impact on that confidence I mentioned.

Casper

Derek said...

@RUI,

Good question but I don't think a "run" on physical is a "let happen" event as the world is awash in fiat and there are many places to make the trade. I suggest reading the The Dying of Money by Parssons. The big deal is when all the foreign fiats come home in a panic. Extremely liquid physical:fiat:repatriation mechanisms operate 24/7 around the globe. To our benefit/dismay the absolute scale of our fiat system means a very long and drawn out death. No matter what, remember that any price fixed by the paper markets until the homecoming is a discount.

regards,

derek

Derek said...

Hi Art,

Perhaps you mistake me for a "Freegold" cult member. I am not. I don't plan on selling my gold, ever. And I don't plan on using it as money in the usual sense. I may keep some silver after reading Desperado as he makes good points about gulags for gold users. All I know is that our fiat will die and that I can now trade some for stuff (gold) that will not die. That's enough for me.

Regards,

Derek

PS: some of the comments here by the true believers creep me out and that is why I usually lurk and never comment.

Jeff said...

Art, I have never called for censoring a poster before but you may be the exception. You come here to insult, not learn or discuss. You don't know the basics and ignore 100 replies to your repeated statements. You are in troll territory, IMO.

Art said...

TO REITERATE:

REMEMBER: : If you "save" in gold and have to sell your gold every time you want to buy something, you will pay the bankers and the coin dealers fees and commissions each time PLUS they will buy your gold back for LESS and sell it to you for MORE when you want to convert your currency back into gold in order to "save" it. How stupid and self-defeating. This is pure economic suicide!...In the process, you will basically LOSE everything you have if you thus "save" your wealth in gold.

WHY Freegold when Freegold will ANNIHILATE your wealth, your money and your savings and inflate your wages to oblivion over time?

WHY Freegold when the fundamental rationale for its existence is DESTROYED before your very own eyes?

DP said...

@radix: ;->

DP said...

Hi Desperado. I was getting a little worried when we didn't hear from you all day. I was starting to think all kinds of terrible things, like maybe something was up with the dogs after your walk or something like that. I'm very relieved to see you back here, safe and sound beside me.

I see that you are starting to enjoy the idea of silly links too. That's great news - it's just such a nice way to break up a bit of dry debate isn't it? A nice bit of banter makes the day pass a lot more quickly. And a nazi theme -- how thoughtful! I guess you have worked out how much I like to see those strapping Arians in their uniforms. So many buttons! I'm sure the many German readers among the audience must be very happy. In fact, it was so very thoughtful and absolutely appropriate of you, now I can perhaps see why you were gone for so very long trying to find something just right. Truly, I am touched you would want to spend so much time just for me. Thank you. Thank you. And thrice thank you! I had hoped that we might still be friends, and now I can see that, absolutely, it must be so. I can feel a renewed lightness in my step, even before I leave my seat! Is that a lark that I hear outside of my window..? At this hour..?

But, there is just one thing I don't quite understand from your love present. What are they talking about? I mean, it's obvious that Santa can make it around the world in one night with those reindeer. They're magic for cryssakes! And as the guy said, what other explanation is there for the note left by Santa. No, it's just ridiculous!

Anyway, I really must retire back into my bunker now for the night. I will think of you in my dreams, my sweet prince.

A bientot! x

Jeff said...

Derek,

I wouldn't count on all that fiat coming home.

FOA: At first blush, foreign dollar assets will not, in any way, return home! They will circulate offshore; either from lack of understanding of the issues, a thought that things will be worked out or from foreign exchange controls aimed at protecting the failing US economy!...These reserves will circulate until their gross exchange value simulates a figure that can be reasonably expected to "buy something" within the US; ten cents on the dollar could be a guess? However, keep in mind that the fed will be printing like mad, local prices will be soaring and no one will be chasing dollars like they do today.

This is also where I think Victor gets it wrong. When a freegold bid is established, gold holders won't rush to sell. They will experience a huge increase in value. People of means may well be buying, right along with the ECB. Like you, Derek, giants will not be in a hurry to sell their intergenerational wealth.

Casper said...

Hey Art,

J asked a question about the time pre FreeGold, not afterwards. At least as far as I understand.

But since you mention printing after FreeGold and it's effect on wages and wealth. You can only tax people by printing if they're prepared to hold the currency. If you lose people's confidence in a currency you lose the right to print/issue as your currency goes down the flames. I think any printer/issuer will be very careful not to tax too much.

The main reason for not having a fixed gold standard is because it's not flexible and in line with human nature to explore and learn by failing.

Casper

pipe said...

Hi Derek, you said, "To our benefit/dismay the absolute scale of our fiat system means a very long and drawn out death."

Actually, just the opposite, I think. I don't see how the Greek Tragedy, pun intended, can drag out much longer. Ditto for all the PIIGS.

The question is, 'who is going to benefit the most when the house of cards collapses?'

The freegolders would have you believe that someone with an ounce of gold, which can currently buy 14.5 barrels of oil, will soon be able to buy hundreds, or even thousands of more barrels of oil with the same gold ounce, even though the supply of gold and oil will remain constant. Yeah, right.

The real beneficiaries will be those with a $500,000 mortgage that gets inflated away. At least those that are in a neighborhood that is still livable. They will get the equivalent of 4854 barrels of oil handed to them.

Gold and silver have the advantage of being portable, of course, so they should comprise a modest portion of the diversified portfolio, as should metal stocks and etf's.

Art said...

Hi CASPER,

Taxation without representation is not agreeable to nor exactly "in line with human nature".

Yes, you're right, fiat currencies are a form of undeclared taxation.

So why do you Freegolders want to tax us just for using money? Inquiring minds wanna know.

Derek said...

Jeff,

Color me dubious on the whole Another/FOA thing (not that it matters). What I meant was the dollars need not actually hit US shores to have the effect via the physical gold buying, currency exchange, dollar falling mechanism. This didn't exist in Weimar times so the Marks had to come "home" to dilute value. Not so, these days. Note how much the dollar dropped in response to G-7 Yen intervention. Many Giants used the gauranteed bid to unload dollars without paying price in a lowered ask.
I can't predict the future, but I can see a train wreck in progress. Ours will simply take a very long time come to rest.

Regards,

derek

Desperado said...

Just for you DP

Jeff said...

Pipe,

ANOTHER explained 14 years ago the truth about gold and oil. If you read his explanation you wouldn't post statements which show your ignorance of the facts. I suggest it's never too late to click the link of the side of FOFOA's blog and learn something.

Derek said...

@Pipe,

Agreed mostly. But Greece is like the US supporting Citi or BAC. The absolutely real issue is the debt/deficit corner of US. Cut deficit, GDP falls, tax revenue falls, deficit grows larger, debt gets bigger, spend more, deficit and debt grow larger. Two options: default or default by electronic monetization. Political expediency demands later. Is happening now and will simply move forward like a glacier. The tsunami analogy is often used but it's more like a glacier that inches closer all the time until there's no land left and you have to take a boat. No boat equals drowning, and when the glacier retreats mountains are ground down to humps like the Presidentials in NH/VT. Gold is the boat. And US culture/society is Mt Eisenhower: a hump that was taller than Everest.

Regards,

derek

DP said...

Desperado, I am overcome with emotion! Have you really booked an "Original Swiss Army Night in the historical soldier beds" for the two of us?

Now, I really must retire to my dungeon. I am swooning! This is all happening so fast now... At this rate, we will be wed by the morn otherwise!

And what will my present wife say? (thinks) How will I tell her about this - I must think fast!

Please, be patient with me cherie...

julian said...

Costata,

Much praise for your efforts. Best wishes to you responding to all the commenters.


my opinion,

Freegolder is not an appropriate term. The term, if i'm not mistaken, is PHYSICAL GOLD ADVOCATE

nobody here is a freegolder

many, however, remain physical gold advocates



@ Art,

it is always nice to have enthusiastic debaters around

however,

Art said:

ALL the conditions which Freegold prescribes for its realization are here NOW. What CHANGE will your Freegold introduce, what new fact on the ground will Freegold establish, which we are not experiencing NOW?

Answer: NONE. Therefore Freegold is what we have NOW as we have both gold and fiat freely bidding for each other here and now (mere manipulation does not PREVENT you from buying gold freely here and now).


you've tried making this point a few times already

do yourself and us all a service:

read FOFOA's February 19, 2011 submission "How is that different from Freegold?"

http://fofoa.blogspot.com/2011/02/how-is-that-different-from-freegold.html


then, come back and give us your thoughts, perhaps referencing some of the points made by FOFOA therein


until you do that, you will continue to debase your credibility here, which is not what anybody wants, since we all value constructive discussion

i look forward to your thoughts


i haven't combed through each and every comment yet, so i'm not sure if this has already been adressed


Kindly,


Julian

julian said...

Re: TAXATION

this is the use of force/coercion to extract wealth for funding various agendas

it also comes in the form of theft from the future generations (ie. borrowing from future production) and debasement of currency

these are not possible without monopoly on force

initiation of force or the threat thereof is not a morally justifiable human action, no matter what

still, the attitude of the day remains that the ends justify the means

if no monopoly on force, then free market will emerge at long last

pretty much everything else is a moot point


Reference Point Gold (or reference point store of value) is still the most free market solution when compared to any and all other proposed solutions

after that, only the free/peaceful market in action can determine the real outcome, but needless to say, it would resemble a reference point store of value system more than anything else (my opinion)

julian said...

Jeffrey Tucker of the Mises Institute

"Capitalism is Life Itself"

Peaceful/Free market vs. Coerced market is the theme

http://www.youtube.com/watch?v=8OZGhHpWTSg

Rui said...

@ radix46

"Do you think that these bankers have total control of the whole of the global economy?"

Let's try this: Who controls how much your future paychecks are worth? There's a # on them, but how much are they really worth? Do you have control over them? You certainly deserve to b/c you work hard and therefore should be paid to certain amount.

In the FIAT world, however, you don't have the control. Bernanke controls how much your paychecks are worth. Obama controls it. So does TurboTax Geithner. If they decide to throttle the FIAT pump to finance another round of bailout or a brand new war somewhere your paychecks are trashed, again.

As a matter of fact you are so "having no control" that you have to rush out to buy gold with your past paychecks just to preserve what is left in there. And even with that you still cannot do anything about your future paychecks.

You see this is why we cannot let politicians and bankers play FIAT fire with everyone's money. We are talking about lawless people that go bombing Libya without even getting approval from Congress here. That FIAT-printing privilege has to be revoked or there's no end to their constant assault on everyone's paychecks.

Anonymous said...

Rui,

I don't think you'll find much resistance to your hate for fiat currency here. As I've pointed out to you before on a few occasions, you certainly wont find many regular people that enjoy the fiat model. I'll say it one more time to you; the currency in Freegold is not the same thing as the fiat currency of today. Do you read the comments here? This has been covered.

radix46 said...

Rui,

You have missed the point. My question was specifically with regard to banks, Bernanke et al being able to determine what happens in all of the markets of the world.

Do you think that they can determine whether large groups of investors decide to sell their bonds? Can they force them not to use the proceeds to bid for gold?

In the fiat world, I have total control over my decisions. I spend my money on what I decide to spend it on. I can sell my bonds if I own them, I can buy gold (at the moment) if I want to. Bernanke cannot make that decision for me. He may be able to influence me with his actions, indeed he is, but he cannot control me. This is the same for everyone else.

Hence, it is not a case of 'them' allowing Freegold to happen. It is out of 'their' hands.

Casper said...

Art,

I don't want to tax you or anybody here but I think this (FreeGold) is the most probable future monetary system. I understand that you believe in gold/silver coin circulating but that is a low probability system and in my opinion gold is more valuable as a store of value.

Many new comers here maybe haven't read it yet but "FreeGolders" aren't trying to impose anything or any monetary system on a majority. It's about the evolution that we observe and trying to understand why this and not a return to a gold standard.

Casper

radix46 said...

Rui,

Your agenda appears to be more political/ideological.

I cannot force the (re)format of the system.

All I can do is front run what I think will come, regardless of what you or I want.

That is what I am doing. You can wish all you want. What you'll get may be that thing, but your wishes won't have had any effect at all. What you'll get is whatever happens organically.

Making investment decisions based on my wishes is not a clever thing to do. Objective, unemotional decisions are the only way to go.

I have no political persuasion. I do have a metallic persuasion though. It's yellow, shiny and reassuringly dense.

Art said...

JEFF,

It's STUPID to accuse someone of ignorance based on evidence that you yourself are not capable of producing to back your claim.

ANOTHER did not prove nor explain anything by proclaiming that there is a secret deal to pay for oil in gold (by providing access to gold via petrodollars, in convoluted Freegolder speak). The fact is the Saudis are not getting gold for most of the dollars that they receive for the oil that they sell us. If they did, they'd own all the gold here and in the rest of the solar system. The Saudi rulers don't really care about gold or anything else AS LONG AS they get to live like kings, if you ask me.

FREEGOLDERS, speak for yourselves instead of brandishing Another's words like they were the Holy Grail which I have proven they are not.

How 'bout some cogent arguments instead of calling people who question your lack of wisdom IGNORANT like only insidious idiots would.

I always answer questions in my own words. Why can't you? What's wrong with you?

Go said...

Rui -

money ... should always be hard-asset ...
Money should be earned ...
They are supposed to give ...
They are supposed to report ...
They are supposed to mark ...
... money has to be backed ...
Money has to be serious ...
If we allow bankers ...
... we cannot use FIAT ...
... should be paid ...
... we cannot let politicians ...
... privilege has to be revoked ...


I'm picking on Rui, but there are others here who use the same words. You are lashing out because the world doesn't work they way you think it SHOULD. This blog is about what the host foresees happening. Whether it is morally right or wrong is irrelevant.

FOA - ... if you hated our last one, you will no doubt hate this new one, too.

-Go

Art said...

SLEEPING VILLAGE,

JUST BECAUSE YOU SAY " I'll say it one more time to you; the currency in Freegold is not the same thing as the fiat currency of today. Do you read the comments here? This has been covered..." WE DON'T HAVE TO SAY, YES, YOU'RE RIGHT.

Just because YOU said something it doesn't mean it's TRUE.

EXPLAIN, genius, WHY fiat is NOT going to be be fiat under Freegold?

I hope you're not going to say somebody explained it somewhere at another time...again. If you can't say it in few sentences, you'll have proven that you're lying about what you claim to know.

Anonymous said...

ART,
I've replied politely and tried to answer your questions, and yet you've abused me as well as others, apparently without really trying to understand what we're talking about.

If you're genuinely seeking to understand what's believed by people who consider Freegold likely (All: referring to that group of people as Physical Gold Advocates is just a little too unclear for me - ART is, after all, advocating for physical gold. 'Freegolders' isn't ideal either but at least you know who is being talked about), whether you eventually decide their predictions are likely or unlikely, I think you'll get further if you tone down the abrasiveness and put the energy into making your questions more precise.

Hoping I won't receive further abuse as a consequence of this comment,
J The Newer

Art said...

GO,

That the host claims that he's foreseeing something inevitable does not constitute proof in of itself that the host, namely, FOFOA, is not actually LYING about it.

You can't be pro fiat and pro gold at the same time. Only a MORON would buy that.

Art said...

J THE NEWER,

Saying that the emperor is naked is not abuse.

Anonymous said...

ART:
Here's another angle - can you enunciate the difference between paper currencies as they work now, and how they're predicted by 'Freegolders' to work post-Freegold?

What do you think 'Freegolders' see as the weaknesses in your arguments about how gold and silver will/should feature in our financial system in the future?

I am NOT trying to be offensive, I'm just thinking that you might help us to understand your position better, and vice versa, if you did go through this exercise.

J The Newer

Art said...

J THE NEWER,

YOU ASKED: "ART: Here's another angle - can you enunciate the difference between paper currencies as they work now, and how they're predicted by 'Freegolders' to work post-Freegold?"

MY REPLY: Freegolders are absolutely REFUSING to answer this question, my friend. How many times did we ask it of them so far? It's a FACT that Freegolders are completely silent about it and based on the rest of what they said, NOTHING changes in regards to fiat currencies under Freegold. Freegolders are claiming irrationally that fiat currencies will better reflect some gold-related value (which they don't have now nor will have post-Freegold) AFTER Freegold is declared - like religious fanatics proclaiming the coming of the messiah. Except we know these people are not believers - they are bankers or affiliated with them (Another/FOA said it, not I).

YOU SAID: "What do you think 'Freegolders' see as the weaknesses in your arguments about how gold and silver will/should feature in our financial system in the future?"

MY REPLY: They see none. I debunked all the nonsense they threw at me. As you can see for yourself, they now resorted to personal attacks 'cause that's all they got left in their collective quiver.

Rui said...

@ radix46

I'm glad you stock up on gold coins for self protection for the coming chaos. That's great, and keep doing it.


@ go

I'm not here to argue what kinda future is ahead as I believe the path of the least resistance for a deeply indebted nation is going banana republic. There might be a FG flavor in it, who knows?

I join the debate only b/c FG is described as the right monetary solution for modern world, "meritocracy" was the quote I remember, which I disagree and I let folks know why I draw that conclusion. That's all.

Derek said...

@Art

Hi Art,

Why are you angry? I believe the premise of Freegold with fiat is that the fiat floats and is convertible to physical gold by anyone. There was a rather nice explanation of this called "Indicia" where hard-money nincompoop Ron Paul is exposed. The other simple thing is that Freegold separates means of exchange from store of value. The Euro would appear to be such a system and is why that currency is valued at greater than par to the dollar even though its finances are arguably more dire than in the US.

Regards,

derek

BTW: yelling in caps draws hate; you must know this, so why do it unless you want to be hated or to make others feel hate. If you are unaware of the UPPERCASE protocol, my apologies.

Anonymous said...

Art,

I already explained it briefly, and so have others, including FOFOA in previous postings. You'd already have discovered it if you weren't such a hot-headed grump:) and tried reading instead of blabbing what you "already know". We all realize you're too lazy to read through and understand FOFOA's posts. You've said it yourself. I can now accept that you're a lonely old man that's set in his ways. I'm not trying to change your mind, simply because you don't matter. I shoulda put that last part in caps lock, hey, Art? To give it more stunning impact!

There are people here that can converse without yelling and others that come here to actually learn and discuss things at least somewhat politely. I hope they always do. I respect and appreciate others with a contrary view, but I have no respect for people like you that only lash out and throw lame, weak insults around.


Good luck, Art. This will be the last communication from me until you change your tone.

Vamoose!

Art said...

DEREK,

YOU SAID: "I believe the premise of Freegold with fiat is that the fiat floats and is convertible to physical gold by anyone."

MY REPLY: That's what we have NOW. Freegolders are saying that's what we'll have THEN, post-freegold. How can we have something only THEN when it's already here NOW. Think! Then answer. But I don't think you're asking these questions in good faith. But I'll answer them anyway for the lurkers' benefit.

YOU SAID: "The other simple thing is that Freegold separates means of exchange from store of value."

MY REPLY: No, it doesn't do that. Freegold doesn't just separate what cannot be separated to begin with, but it also DESTROYS your savings. Under Freegold your savings are depleted - and your wages diminished over time due to inflation - just like they do NOW. Freegolders are therefore LYING when they claim that the Freegold system will protect your savings better, that you savings in gold will be safer and more valuable. WHY? I explained it before and I'll do it one more time since you're pretending not to have read my previous posts:

REMEMBER: If you "save" in gold and have to sell your gold every time you want to buy something, you will pay the bankers and the coin dealers fees and commissions each time PLUS they will buy your gold back for LESS and sell it to you for MORE when you want to convert your currency back into gold in order to "save" it. How stupid and self-defeating. This is pure economic suicide! In the process, you will basically LOSE everything you have if you thus "save" your wealth in gold.

WHY Freegold when Freegold will ANNIHILATE your wealth, your money and your savings and inflate your wages to oblivion over time?

WHY Freegold when the fundamental rationale for its existence is DESTROYED before your very own eyes?

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

SLEEPING VILLAGE,

I read Another's writings more than a decade ago, long before you newbies arrived on the Freegold scene. I discussed these issues LIVE with FOA himself. Besides, what I read or did not read is completely IRRELEVANT to the truthfulness of my claims or YOU FREEGOLDERS' claims.

Disparaging me personally does not prove my arguments wrong and it's STUPID.

tEON said...

"...nincompoop Ron Paul is exposed"

why do it unless you want to be hated or to make others feel hate...

In the same comment, Ripley! - LOL - yeah - the same Dr. Ron Paul who knows more about Politics and economics (add medicine, being an author and 16 other topics) than you know about... anything. That nincompoop. I guess you expect a flourishing of love with your brilliant comment, eh Derek? Starting with Art and ending with Mr Brilliant - this thread has decomposed dramatically. Not worthy of FoFoA.

DP said...

You know, I can almost see right now in my mind's eye, the memo sent to the people employing 'Team Art' to come and sabotage this blog. I can almost see the laughing face of that memo's author.

Derek said...

@gary

If Ron Paul is so groovy why is he still in politics? By definition a politician is a lower form of humanity. He just thinks that he can now get more power in a time of crisis. If he were a leader and not a politician he would be speaking the truth of the situation (re: inevitable defualt of US) and not talking about some "plan" to fix it. I don't hate him but I for sure don't see him with all misty halos of awesomeness as some libertarian types do.

Fond regards,

derek

radix46 said...

Rui,

That is what it comes down to in the end. Stock up on gold coins.

Hard currency, soft currency, deflationist, hyperinflationist, hell, even ARTIST, as long as you stock up on physical gold, none of this chat will be relevant in the end.

Derek said...

@Art

Art,

In Freegold currency is used for transactions and gold for savings. Unless one wants to save currency in such a situation (no accounting for preference) inflation does not touch savings.

Regards,

derek

Art said...

DEREK,

How can you save if you CAN'T save? Tell me that. As I explained above, going back and forth between saving and spending mode will make you lose money. And if you want to keep your wealth in fiat in order to avoid transactional costs, then you'll lose out to inflation.

Yes or no?

tEON said...

That is fine Derek - you have been identified. You don't need to qualify your statement more than calling him a 'nincompoop'. I understand. Isn't it Dante's scale where politicians (or is it lawyers) are a notch below child molestor? I guess Ron Paul might be considered the exception that proves the rule. He was serving his country as an uncompromised elected Congressman or clinic Dr. ($4/hour pay) when you were incapable of serving fries at McDonalds. He delivered 4000 babies into the world when you delivered the newspaper. And HE is the nincompoop here and you are the... genius? Okay. Okay. Gotcha, Bud. Just good to know where you stand.

Wendy said...

My defination of wealth: my excess production ..... money I don't need to use to transact from day to day, money I can put away and forget about until some time long into the future.

If I were to live hand to mouth then I do not have anything left over to save. I get my pay cheque and spent it, with no consideration of the hidden tax called inflation.

If I am living hand to mouth with no wealth held in a wealth presearving vehicle and hyper inflation hit...... well then I'm screwed along with millions of others.

Anonymous said...

ART, I asked you to describe the position of the 'Freegolders'.

Are you able to do so?

To be clear, I am checking that you understand the Freegold thesis well enough to at least describe what it contends. I am also checking that you are able to sum up the 'Freegolders' objections to your arguments, to see that you understand them also. If not, what's the point of debating past each other? From where I sit, it seems that others are trying to understand your points but that you are not interested in understanding theirs.

Incidentally, your comments about 'Freegolders' being bankers, or associated with bankers, are incorrect. I consider the Freegold thesis the most convincing I've come across, and I have no association with any bank or banker. To be honest I have no idea why you'd make the accusation.

J The Newer

Derek said...

@gary

Did you see Bruno? Homophobe===Ron Paul===small/non-existent soul. Politician we know already (consistent member of political class as said class destroys the country I love deeply). So yeah, I stand admonished, maybe.

Fond regards,

derek

PS as for "knowing where I stand" from an anonymous post on a blog from an anonymous pseudonymous source is way funny!

tEON said...

@Derek
At least you didn't call me 'Dude', as I was anticipating.

P.S. Yeah - I judge you from a 'name-calling' post - you judge Ron Paul from watching Bruno. And we wonder what is wrong with the US.

Anonymous said...

radix46 said...
Rui,

That is what it comes down to in the end. Stock up on gold coins.

Hard currency, soft currency, deflationist, hyperinflationist, hell, even ARTIST, as long as you stock up on physical gold, none of this chat will be relevant in the end.


Very good point :)

Casper et al - I'm wondering more about how the transition will work with respect to wages e.g. person A is making $50K pa now, hyperinflation sets in and his $50K won't buy a toothbrush so he is forced to liquidate everything / barter, but then after a period of time mechanism X will be used so that workers are again paid in a way that makes sense for them. Will workers demand gold or physical goods as payment? I'm short on idea for this point :)

Art said...

WENDY,

Apres moi le deluge, ha?

You Freegolders are such beacons of compassion. Do you think that millions of hungry people will let you spend your gold on caviar in peace when their children are starving?

You are incorrigible.

Rui said...

@ Derek

"... inflation does not touch savings."

Inflation should not be allowed to exist or at least be kept to the point it's insignificant.

Reading FG theory to me sometimes feels like watching a cat chasing own tail. Don't get offended yet and let me explain: You insist people transact in FIAT, which brings this problem the payment can be diluted. You then propose saving FIAT payment in gold to address the problem you create for yourselves in the first place.

What for? Why not just use the gold directly? If you transact in gold then you automatically save in gold, b/c the moment you pay someone money that payment is stored in gold already. Politicians and banker ain't get no chance to dilute nothing here.

All such talking that if you transact hard money then this or that is gonna happen, OMG sky is falling, etc. are just banker scare tactics.

Derek said...

@gary

Dude,

That's the brilliance of Borat/Bruno; the mask is lowered by the absurd. Homophobes, anti-Semites, and racists are the ones that get to go back and do the wheel again. Perhaps Ron will get to be a fluffer on a gay porn set?

abide, Gary!

derek

Wendy said...

"Do you think that millions of hungry people will let you spend your gold on caviar in peace when their children are starving?

You are incorrigible."

You are correct, I am incorrigible. You are incorrect in that I am neither stupid nor insensitive.

tEON said...

@Derek
'Dude,'

Thank you. I feel vindicated.

Indenture said...

Art:
Please don't capitalize every letter in a word.
Please don't call people derogatory names.

Derek said...

@gary

My pleasure!

:)

Thanks for playing. Parting gifts will be found by the door near the hat check counter.

Warm regards,

derek

Unknown said...

Rui

You said "You insist people transact in FIAT, which brings this problem the payment can be diluted."

Does Jamaica or Fiji have a huge problem with daily transaction dilution ? No, because all the people that hold capital in those countries (millionairs, businessmen ect) save in a higher quality FIAT, not in the local currency. The result of this is there is very little purchasing power to steal through inflation by the local government. That is why there is less socialism in these countries. The fiat medium in these countries still works great for daily transactions.

You said "You then propose saving FIAT payment in gold to address the problem you create for yourselves in the first place."

There is no purchasing power to be had by diluting if most of the savings is in something else. Like gold. Jamaica cant print without seeing inflation the next day because nobody with any kind of a net worth is not saving in Ja's.

You said "Why not just use the gold directly?

What is the point in transacting in gold if FIAT will work so much better ?

You said " Politicians and banker ain't get no chance to dilute nothing here."

There is no purchasing power to gain by diluting a currency that nobody saves in.

Freegold is the process of turning all the worlds fiats into transactional currency like the Jamaican dollar or Mexican Peso while making gold the currency that all the businessmen and millionaires save in.

Art said...

INDENTURE,

If I don't capitalize every letter in a word as you requested, it gets kind of cOnfUsInG.

Art said...

MATT,

Why are Freegolders saying that only one class of people, namely the bankers, should have the RIGHT to create money out of thin air and the rest of the human race should not?

Fiat currency is by definition NOT issued by individuals but by governments and the banks behind them.

Why are Freegolders FOR the bankers and their governments and NOT for us the people?

With gold as money, the monetary playing field is equal for all of us. Under Freegold, there is a ruling class that creates money out thin air (JUST LIKE THEY DO NOW) without even working for it, and the rest of us who have to work for their worthless tokens.

Freegold = Slavery.

Wendy said...

Seriously LMAO at both the above posts.

"Fiat currency is by definition NOT issued by individuals but by governments and the banks behind them"

That is correct and is NeVeR gonna change.

"Under Freegold, there is a ruling class that creates money out thin air (JUST LIKE THEY DO NOW) without even working for it, and the rest of us who have to work for their worthless tokens."

Yep, and that's never gonna ChANgE either, just like death and TaXEs.

But feel free to dream scheme your life away ................

yawn!!

Unknown said...

Art

You said" Why are Freegolders saying that only one class of people, namely the bankers, should have the RIGHT to create money out of thin air and the rest of the human race should not?"

Fiat paper squares are just unpersonalized checks. Notice the size similarity...A teller who prints you up a bank draft is not some elite bankster. Is she/he ?

You said "Fiat currency is by definition NOT issued by individuals but by governments and the banks behind them.Why are Freegolders FOR the bankers and their governments and NOT for us the people?"

You seem to be rightly zeroing in on theft via inflation. Banks or governments who issue paper will not gain ANYTHING by inflating because there will be no purchasing power there to steal.

You said "With gold as money, the monetary playing field is equal for all of us."
With freegold, the monetary playing field is equal for all of us and we can still use our debit cards.

You said "Under Freegold, there is a ruling class that creates money out thin air (JUST LIKE THEY DO NOW) without even working for it, and the rest of us who have to work for their worthless tokens."

Govts do not create purchasing power when they print money. They can only steal PP if it has already been created and saved in something that they can duplicate. How is the ruling class going to steal purchasing power if anyone with a worthwhile amount of savings is saving in gold, something the govt CANT duplicate ?

julian said...

Art said:

going back and forth between saving and spending mode will make you lose money.

This is why the people will not do this. Going back and forth between saving and spending: this is not economical. So people will hold wealth reserve, gold (store of value), and transactional currency. People already aren't commonly practising going back and forth between wealth (savings) and transactional media. Savings are illiquidly locked into real property (land, real estate), dollar denominated paper assets, claims on this and that country or corporation, metals, etc. etc.


If we think the currency will inflate that quickly in freegold monetary perspective, because the "forceful issuers" are a breed of printing boogeyman, and the currency will lose that significant amount of value (purchasing power) over extremely short time frame, we are mistaken. They will not do that, because they will suffer failure so quickly. There is an element of self-preservation in all things.

Let's also not forget that in many regions other than USA/Euro/West use (or used to use) physical FRN's or even dollar denominated assets (if wealthy enough) to store value/pp. That's just a side note. So if one's economic region is quickly debasing, one can even save in other more stable economic regional currency. But why, if gold is still an option?

Go said...

Rui-
You insist people transact in FIAT ...
You then propose saving FIAT payment in gold ...


The FIATNESS (meaning by law, order, or decree) is not what makes it the probable future transactional currency. The convenience of paper or electronic currency is. If congress decrees blades of grass to be legal tender for all debts public and private that does not make them a convenient medium of exchange. They would rot and be terribly difficult to count but they would still be called FIAT money. The point being, I would rewrite your post as follows:

Inflation should not be allowed to exist or at least be kept to the point it's insignificant.
... You insist people transact in PAPER, which brings this problem the payment can be diluted. You then propose saving PAPER payment in gold to address the problem you create for yourselves in the first place.
What for? Why not just use the gold directly? If you transact in gold then you automatically save in gold, b/c the moment you pay someone money that payment is stored in gold already. Politicians and banker ain't get no chance to dilute nothing here.


I don't believe freegold insists people transact in anything, but it does speculate that the medium of exchange will continue to be paper or electronic. I'll ignore the "... should not be allowed ..." but I do have a question for you. If we were to use the gold directly for transactional currency and savings can I borrow in gold? Could I have a credit card drawn on gold or a business loan denominated in gold to fund my inventory or receivables?

-Go

Art said...

MATT,

YOU SAID: "Fiat paper squares are just unpersonalized checks. Notice the size similarity...A teller who prints you up a bank draft is not some elite bankster. Is she/he?"

MY REPLY: Sorry friend, but it's stupid to imply that a clerk who prepares million dollar drafts is the actual person who owns, controls or benefits from, the millions printed on said drafts. It's the banker who OWNS the bank we're talking about, but you knew that anyway.

YOU SAID: "Banks or governments who issue paper will not gain ANYTHING by inflating because there will be no purchasing power there to steal."

MY REPLY: Are you insane? Fiat currency HAS purchasing power even though governments in collusion with central bankers are INFLATING more than ever before. All I have to prove you wrong is to point to the world we live in.

YOU SAID: : "With freegold, the monetary playing field is equal for all of us and we can still use our debit cards."

MY REPLY: Under Freegold nothing changes and we can use our debit cards today as well. We are living under "Freegold" NOW.

YOU SAID: "Govts do not create purchasing power when they print money."

MY REPLY: You are lying because it is common knowledge that they do exactly that. The dollar is intrinsically worthless yet it buys things.

YOU SAID: " They can only steal PP if it has already been created and saved in something that they can duplicate."

MY REPLY: Fiat is intrinsically worthless. What it is is not even defined. It doesn't say on a dollar bill that so much labor or wealth has been saved in it. You can't tell by looking at or touching a dollar whether some idiot thinks he saved one hour of labor in it or two pounds of sugar. You can't save anything in a fiat currency even if you wanted to because it CANNOT store value: it's just a piece of paper or a few electrons in a computer. But it has purchasing power because people are STUPID enough to exchange their goods and services for it. The only thing backing, or "saved" in, fiat currencies is STUPIDITY.

YOU SAID: " How is the ruling class going to steal purchasing power if anyone with a worthwhile amount of savings is saving in gold, something the govt CANT duplicate?"

THIS IS HOW:

REMEMBER: If you "save" in gold and have to sell your gold every time you want to buy something, you will pay the bankers and the coin dealers fees and commissions each time PLUS they will buy your gold back for LESS and sell it to you for MORE when you want to convert your currency back into gold in order to "save" it. How stupid and self-defeating. This is pure economic suicide! In the process, you will basically LOSE everything you have if you thus "save" your wealth in gold.

WHY Freegold when Freegold will ANNIHILATE your wealth, your money and your savings and inflate your wages to oblivion over time?

WHY Freegold when the fundamental rationale for its existence is DESTROYED before your very own eyes?

Anonymous said...

ART, you haven't responded to my comment and I think you're wasting your energy (and that of others) by continuing to misinterpret people's responses rather than actually trying to understand what they're saying.

Feel free to keep doing it, but it feels like watching someone try to read a book with their eyes closed.

People here really are trying to be helpful, and they are saying something different from what you think they are. Who is right or not is a different matter, but they're definitely not saying what you think they are.

J The Newer

Art said...

JULIAN,

Both Losing money slower and Losing money faster are forms of LOSING MONEY!

Under Freegold, you have the choice of losing money by saving in gold and then paying transactional costs when you want to spend it by converting it to fiat currency; or losing money to inflation by holding fiat currency only in order to avoid transactional costs.

Oh, you just want me to believe that the ruling classes will not inflate too fast because it's not in their best interest?

Hello?

The dollar lost about 80% of its purchasing value in about ten years. The Euro, a little less.

Hello?

The SAME ruling classes will be at the helm AFTER Freegold.

Hello?

Art said...

J Whatever,

I responded to everything you said until now. I see no need to continue since you are pretending not to see them.

Anonymous said...

ART:

Oh, OK - so how do 'Freegolders' think paper currencies will fit in post-Freegold, and why do they think paper currencies will be an acceptable part of the system?

J The Newer

julian said...

@ Art

Hello.

You're right.

Art said...

Freegolders claim that the SAME governments and bankers will issue LESS fiat currency after Freegold is declared JUST BECAUSE Freegold was declared without any other CONCRETE change occurring.

In other words, Freegolders want us to believe that the emperor has clothes JUST BECAUSE Freegolders said so.

Stupid lies.

Anonymous said...

ART:
No, that's not the Freegold prediction about paper currency.

The idea is that after Freegold occurs, gold will be recognised as the reference against which all of the paper currencies are evaluated, so that people like you and me will be able to properly assess those paper currencies, in contrast to the present murkiness...

A government may issue MORE currency post-Freegold, but that behaviour will result in its currency being immediately devalued (probably a better word for that) against gold.

J The Newer

Robert LeRoy Parker said...

Mish has stated that he will be doing a new hyperinflation post shortly for those interested.

Art said...

j THENEWER,

It's STUPID to say that "gold will be recognised as the reference against which all of the paper currencies are evaluated" when this simply cannot be done if currencies are NOT backed by gold, and what their relationship is to gold is not DEFINED in concrete terms.

What, you're going to ask me to believe that your fiat is better than the other banker's fiat and that "people like you and me will be able to properly assess those paper currencies, in contrast to the present murkiness..." just because you are willing to whisper in my ear that you all like gold now? If you like gold then use it as what it is, HONEST MONEY.

Stop acting stupid please. It's embarrassing.

Anonymous said...

ART:
*My* fiat? Ummm, I don't think so...

If you want to understand what others here are saying, you need to read other posts on this blog about why a gold standard won't work.

I won't bother you with more comments (unless I really can't help it due to an incorrigible desire to try to be helpful).

I like to hear differing opinions, and I certainly don't think I or this blog have a monopoly on the truth, but why do people bother coming to argue without even trying to understand the position of the 'host'?

J The Newer

Wendy said...

HEY desparado!!!!

You're in the clear, cause ART's now here ;)

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

@ Go

"can I borrow in gold?"

If you are worthy you can.

Imagine in this world we have no cellphones invented yet. You, genius Go, are the only one figuring it out but you need loans to start that business. Let's say I'm a gold fund manager, and you approach me with your "iPhone" plan.

I'm deeply impressed and then work out a loan for you. Your iPhones turn out to be a blast. You make money. I make money. People now have a better communication device to use. Everyone wins. Well not exactly everyone. Cable phone producers lose out. But hey, that's how competition fuels economy growth. Cannot fight it.


Let's say another guy - Joe the "instant-gratification-seeker" - also approaches me for loan on a house worth 500 OZ gold.

"What's your yearly income, Joe?"

"25 OZ."

"25 (what the ...)? Alright, if you put 300 OZ down I'll give you that loan. What? You think I'm a jerk. Seriously, Joe, nothing against you personally but 25 OZ for 500 OZ loan is risky to you and risky to me. How about 150 OZ one instead. Maybe we can work sth out over that. You don't like it you'd have to talk to someone else."

You see, Go, capitals are precious resource. When they are applied they better end up in the productive part of economy. Only the fittest should get it. You want it you have to be worthy. This process is like natural selection. Darwinism at work.


Now let's see what happens when govt gets involved: Imagine Joe complains to Congressman Barney Crook about the "bastard Rui", and B. Crook decides to intervene.

"Damn it, Rui. You must be discriminating against poor Joe b/c he's poor, of minority or whatever. Here are new bills - Community Re-investment and Equal Lending act to stop it. And screw this gold standard. Let's just use FIAT instead so we can loan out whatever amount we like for whatever purposes: Joe gets his loan now. There's a desire there's a loan."

Well, FIAT pumping does not create more capitals. It only dilutes them, and worse yet, it forces capitals into the unproductive sectors. The end result is the productive sectors cannot generate enough wealth while capitals enter the unproductive ones to not only get wasted but build bubbles that eventually turn into debt mess, which is where we are now.

When Govt messes with Darwinism, chaos ensues. You see that, Go? If you really want a viable economy you let Darwinism work and use honest money. No Govt intervention. No central banking nonsense. It might be an overly simplified version but you get gist here.

Art said...

J THENEWER,

I'm sorry buddy, I think that you really believe what you're saying. Take care now.

Wendy said...

Hello DP,

for the last 24 hours I have sent comments to my gmail account, and have experiences what you described.

I do not think that you are ex-CI(as someone suggested) invading the privacy of the helpless ;)

Desperado said...

@Wendy, you sure have that right. Art has taken more abuse on this one thread than I have in well over a year. Then again, he keeps trampling on all those taboos.

Sometimes its nice to enjoy a smoke in the trenches while someone else draws the fire.

Wendy said...

he/she is begging for it desparado:D

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