Monday, May 2, 2011

Open Forum

Recovering Deflationists

If you came here looking for the post Deflation or Hyperinflation?, please click on the link.

Otherwise, here are a few odds 'n ends for those of you that like a little "content" with your Open Forum.

In the past week, I have had economic discussions outside of the context of this blog (and not online) twice. And there was a striking similarity between the two conversations. One was last night and the other was about a week ago. The one last night was with a gentleman I had just met through a mutual acquaintance, and the other was with a friend I've known for decades, probably the most book-smart person I know. Both men are leaders in their respective fields, and both have significant wealth to protect. Neither one reads my blog nor knows or understands my positions and arguments.

Both of these men agree that the purchasing power of the dollar is headed down, and that their wealth is best protected when not denominated in dollars. In other words, they are not deflationists. Both are also voracious readers and both expressed an interest in economics. They both have their wealth spread out between real estate, paper investments with counterparties that may or may not deliver as promised when you most need them to (which, in an unstable economy, will likely be when it is most difficult to deliver as promised) and "precious metals."

I asked them each what they thought about gold as an investment, and they were both quick to announce that they are not "gold bugs." This was a credibility-establishing announcement in the context of the conversations. As it turns out, one has a tiny amount of gold and the other has none. They both explained to me that their (limited) interest is in precious metals, not gold. And remember, these are two separate conversations at different times, with two men that do not know each other.

They explained to me, each in his own way, that what they don't like about gold is that there are so few industrial applications for the metal compared to the other precious metals. My friend greatly prefers silver over gold, and the guy last night is heavily into palladium, with no gold exposure. My friend even told me a story in support of his silver position.

I will save the full story for later because he agreed to write it down for me so that I wouldn't get the details wrong. But the gist of it was that an industrial silver user, a vendor he buys from and is friendly with, is already substituting another metal where he has always used silver because his clients refuse to pay the higher price for the parts he manufactures. I'll admit that the price-sensitivity of this particular manufacturer may not be the norm, but that's not even the point of telling you this story.

The point is that this price-sensitive substitution of silver was confirmation to my friend that silver is a better store of value. And again, this is one of the smartest guys I know. Seriously smart!

What these conversations tell me, at least, is that this subject needs a little more of my attention.

I have added a fun little video to an older post. I have never done this before, but this one just fit so well where I put it, I wish I had it when I wrote the post. Hat tip to DP whose Ye Olde Blogge is linked in the sidebar. Here's the beginning of the post, up to the new video:

Focal Point: Gold

In game theory, a focal point (also called Schelling point) is a solution that people will tend to use in the absence of communication, because it seems natural, special or relevant to them. The concept was introduced by the Nobel Prize winning American economist Thomas Schelling in his book The Strategy of Conflict (1960). In this book (at p. 57), Schelling describes "focal point[s] for each person’s expectation of what the other expects him to expect to be expected to do." This type of focal point later was named after Schelling.

Consider a simple example: two people unable to communicate with each other are each shown a panel of four squares and asked to select one; if and only if they both select the same one, they will each receive a prize. Three of the squares are blue and one is red. Assuming they each know nothing about the other player, but that they each do want to win the prize, then they will, reasonably, both choose the red square. Of course, the red square is not in a sense a better square; they could win by both choosing any square. And it is the "right" square to select only if a player can be sure that the other player has selected it; but by hypothesis neither can. It is the most salient, the most notable square, though, and lacking any other one most people will choose it, and this will in fact (often) work.

Schelling himself illustrated this concept with the following problem: Tomorrow you have to meet a stranger in NYC. Where and when do you meet them? This is a Coordination game, where any place in time in the city could be an equilibrium solution. Schelling asked a group of students this question, and found the most common answer was "noon at (the information booth at) Grand Central Station." There is nothing that makes "Grand Central Station" a location with a higher payoff (you could just as easily meet someone at a bar, or the public library reading room), but its tradition as a meeting place raises its salience, and therefore makes it a natural "focal point." [1]

Salience: the state or quality of an item that stands out relative to neighboring items.


I read a lot of comments posted around the Internet that show up in my stats report. Occasionally I send an email to someone that impresses me. This guy was one such.

His name is Bill Quick and he seems to be (from what little I've seen) a political and survivalist blogger. Apparently he is known as "the guy who named the 'blogosphere.'" What really grabbed me was not only that he said he was a deflationist before reading this post, but that he is a complete outsider to FOFOA's world. He'd probably never even heard of FOFOA before this day. Yet I could tell through his comments that he "got it" in a deep way that very few do. Anyway, here is his short post and a few of his comments that caught my attention:

FOFOA: Deflation or Hyperinflation?

It is long, very long. Perhaps only two or three of my readers will make it through the whole thing - although I hope nemo and kennycan will give it a shot, maybe over a weekend or something.

It may seem obscure in places, boring in others, and impenetrable in even more.

But this is the most important piece of analysis I have yet read on the big question of our financial future: Inflation, or deflation?

-Bill Quick

Bill Quick April 28th, 2011 | #4

Guys, listen.

He “couldn’t have simply said…”

He is making a dead serious argument about a very complicated question, and that argument cannot be couched in sound bites.

I understand that this is not a very accessible argument. But it does reward if the effort is made.

Golden nugget: “Losses can’t be avoided: but they can be socialized/collectivized.”

Big money, via monetization, is at this very moment in the process of collectivizing its losses - the profits are theirs, and the losses are being moved to the public books - that is, your front lawn.

And that is why hyperinflation is inevitable. All the people who really matter benefit. You, on the other hand, lose.

Do you think the trustees of the accounts of the University of Texas bought a billion bucks worth of gold on a whim? And they are buying that gold with fiat money, now.

Because they are first in line for the money spigots. Later on, the confetti won’t buy gold. Hell, it won’t even buy hamburger.


Bill Quick April 28th, 2011 | #5

By the way, this changes my own thinking about political strategy.

We are not going to be able to stop the hyperinflation. Even the Tea Partiers are not going to demand that we do, or prevent its onset.

So I think we need to think hard about the sort of politicians we want to be in charge when it does happen. And that is a very interesting, very thorny question.


Bill Quick April 28th, 2011 | #7

The worst hyperinflation in the past hundred years - Zimbabwe - has mostly burned itself out, and the government that caused it is still in power.

If that gives anybody a clue as to what choices our own ruling classes are likely to make.


Bill Quick April 28th, 2011 | #9

Razor, in our lifetimes, the dollar has been less and less good. In fact, it is 97% less good than it was in 1913.

We haven’t noticed it so much because of massive productivity gains due to first, industrialization, then technologization, and then putting our wives to work, and then borrowing several trillion dollars from Europe and Asia, and then another hundred trillion from our kids, and now inviting those kids to move back home and keep working to help out the household income.

But there isn’t anybody else we can put to work, and shortly, there won’t be anybody we can borrow from except our own money printing presses.

At that point, hyperinflation.

I’m no longer even convinced it’s even worth wasting any time trying to prevent it. In fact, if the choice is only hyper deflation or hyperinflation, I much prefer the latter. Less bloodshed, for one thing.


Bill Quick April 28th, 2011 | #11

However, there isn’t enough gold, silver, platinum, etc. in the world to allow the banksters & billionaires to transfer their wealth from the dollar to the next fiat currency
Actually, there is. Read the whole article. I told you it repays careful attention.

Bill Quick April 28th, 2011 | #14

Well, I certainly didn’t say it was an easy read, and my confirmation bias ran the other way - I’ve always thought we were heading toward a deflationary reckoning.

He changed my mind - and once you grasp the reasoning behind his primary contention - that inflation, rather than deflation, is better for the rich and powerful, then the rest falls into place.

Because that notion is so counterintuitive, once you do get it, it is a genuine Aha! moment.

You also suddenly understand why Paul Krugman, economist to the rich and powerful, is advocating the things he does.


Bill Quick April 28th, 2011 | #15

BTW, I read parts of that article quite a few more than two or three times before the murk finally cleared.


The point I hope you'll take home is that by really trying to understand this debate, you can find your own ways to front run the threat we all face. What's most important is doing that which brings you peace of mind in the face of a threat that could wipe you out. And that can only come from understanding the debate. Here's another comment I liked, this one from Zero Hedge:

by Transformer
on Sat, 04/30/2011 - 19:53

"i have heard all this before. can someone please explain what the ultimate end game for gold is. no one ever explains what they are going to do with their heap of gold at the end."

Here's a letter I sent to my friends. It is the complete explanation of your question, at least the FOFOA article is.

Without a doubt, understanding the current financial situation that we live in, and the possible effects of it upon our future lives might be the most important intellectual challenge we ever undertake.

If you think that the next 20 years is going to be quite different than the past 20 years, then it might be an extremely good idea to have a good understanding of what is going on. To me, the pinnacle of this intellectual exercise is the ongoing debate about whether our system is headed for a deflationary collapse or a hyperinflationary collapse. Both arguments are very esoteric and seem equally remote to someone living in these United States today. There are several commentators out there in the blogosphere, who go back and forth with their arguments. It has become a theme at Zero Hedge, where they post both sides of the argument.

Whether you care about the ins and outs of this debate or not, understanding the debate will lead to a complete understanding of the current situation we find ourselves in. Frankly, til now, I have not completely understood any of the arguments I have read. One practically needs a degree in economics and another degree in political science to really get it. None the less, I just spent about 4 hours reading and working hard at understanding what I consider the definitive treatise on this subject. I urge you to read it also.

Now, I must say that this is not easy to understand (at least for me). I would suggest you approach it not as an easy read, but something you are going to spend some time studying, as if you had to know it for a college level course. There are links within the article that lead to other articles, and likewise, links within those articles. Go back as deep and as far as you need to. Make your goal understanding, and not just getting through it. Maybe leave the window open on your desktop and go back to it when you feel like more.


Finally, some of the readers have asked me to post a list of links to relevant Freegold-related posts, primarily for the noobs that arrived here thanks to the last post. There is such a list at the bottom of the first post linked in the following comment. But as I never know which posts will speak to any given individual on any given day, I prefer to do it this way, in the context of a reader trying to help. This comment comes from our own JR (who knows my archives better than I do) and it was posted on another site to assist someone who seems to hate the idea of Freegold, primarily because he obviously doesn't understand it. Hopefully this explains the context of this comment:

It's not hard to figure it [Freegold] out. Go here to start: Freegold in the Proper Perspective:
There are four key aspects to Freegold. There are also many more, but these four are key. That's not to say they are all necessary. They are not. But it is to say that in order to understand Freegold you must at least understand the significance of these conditions:

1. The end of the dollar standard (the end of its timeline as the main global reserve currency)
2. The end of parity between paper gold price discovery and physical gold price discovery
3. The Euro-Freegold concept/project, (at least) 31 years in the making
4. The flow of oil
Then try Freegold Foundations.

And if you like the gold standard, stop by How is that different from Freegold? and then think about this:
A basic review of economics and market principles reminds us that free price movements are the necessary swing point upon which physical supply and demand can be balanced. A mere discounting of the price/value of commodity derivatives amounts to little more than a cheap parlor trick — a trick which, although creating a nice illusion of cheap prices, completely disregards the physical supply/demand pricing balance and thus sets the stage for shortages and other dire dislocations of the physical supply/demand dynamic.
(link) in light of the recent history of monetized gold.

Then maybe you are primed for:
I hope that this little analogy helps you visualize the separation of monetary roles, because those talking about a new gold standard are not talking about this. I understand that sometimes you have to speak in terms familiar to your audience in order to not be tuned out, but I also hope that my readers come to understand how and why a new gold standard with a fixed price of gold, no matter how high, will simply not work anymore.

The full explanation of why it will not work is quite involved, and I'm not going to do it here. But the short answer is that the very act of defending a fixed price of gold in your currency ensures the failure of your currency. And it won't take 30 or 40 years this time. It'll happen fast. It wouldn't matter if Ben decided to defend a price of $5,000 per ounce, $50,000 per ounce or $5 million per ounce. It is the act of defending your currency against gold that kills your currency.

You can defend your currency against other currencies… using gold! Yes! This is the very essence of Freegold. But you cannot defend it against gold. You will fail. Your currency will fail. Slowly in the past, quickly today. If you set the price too high you will first hyperinflate your currency buying gold, but you won't get much real gold in exchange for collapsing the global confidence in your currency, and then you will have to empty your gold vaults selling gold (to defend your price) as your currency heads to zero. And do you think the world trusts the US to ever empty its vaults? Nope. Fool me once…

If you set the price too low, like, say, $5,000/ounce, you will first expose your own currency folly with such an act and have little opportunity to buy any of the real stuff as the world quickly understands what has gone wrong and empties your gold vaults with all those easy dollars floating around. You will sell, sell, sell trying to defend your price, but in the end, the price will be higher and you'll be out of gold. Either that, or you'll close the gold window (once again), sigh, and finally admit that Freegold it is.
From Focal Point: Gold

Maybe ask yourself who does the "setting" of "gold's currency price" in a traditional gold standard? It's almost as if the government, by *FIAT*, is trying to define the "value" of its paper currency in terms of gold. Maybe like a government price control set by fiat dictate....

Thanks, JR!

One last thing. I have a favor to ask. You deflationists are more than welcome to make your case here! But please give us two things, which I have also given. Give us a cogent description of your deflationary process and PLEASE PLEASE tell us what you recommend as the safe-haven investment to carry our wealth through the crisis you foresee.

And to the regular commenters, please hold the deflationists accountable. Keep asking them for their investment recommendation until they answer. Don't answer their questions until they tell you what they recommend. Our position is very clear here at FOFOA. Everyone knows it. But deflationists don't all agree on the best investment / store of value. I want to know what you recommend? Dollars? Treasuries? Gold? Silver? Physical dollars in a shoebox? Or maybe it's just guns, garden and prayer. Whatever it is, please tell us.



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DP said...

Hmm, I really did mess up Act 2 there didn't I? :-D

I was in such a rush to get to the meat, Act 3, that I didn't even really notice until it was too late. I won't bother to correct it, because I'm so certain you already know the combinations of H's, I's and D's. (But apologies to anyone confused by the above!)

Jeff said...

Aha! So Greece is threatening to pull out of the eurozone. Put it in a freegold context. Sudden price movement of oil and gold (down) without an equivalent move in the dollar (up). Where is capital moving to if it is moving out of some paper 'investments'?

Ashvin said...

zens creamer: "Ash plays the ivory tower game: as long as you keep trying to prove how smart you are, you'll keep ignoring the sound of the bell. My monkey mind is very strong too, you have my sympathies."

Maybe, or maybe you are playing the "projection game". It's a pretty simple game - you take your own bias (lack of broad perspective) and project it onto others, because the alternative would mean that your ingrained belief system could potentially be inaccurate. That, in turn, would entail a lot of wasted time, effort, money, etc. I too could be playing this game, but the difference is, I am willing to admit that it is a possibility and expose myself to critical analysis by others.


I don't know what to tell you anymore... I have already admitted that I can't give you what you are looking for, with the caveat that no one else can either. At least not to the level of specificity that you seem to be implying in your question.

It's all well and good to use movies/shows as analogies once in awhile, but, obviously enough, the path of global society does not have to play out like a Hollywood movie... with nicely delineated acts and conclusive endings...

Desperado said...


I realize that Nazi references are for many off-putting but I use them because that is where the world ended up after the last HI when war weary Europe was unwilling to deal with the evils of statism (represented by both Nazis and the Communists) growing in their midst. IMO the HI of 2012 will leave many countries in similar circumstances, so I don't think drawing attention to Nazi parallels is overblown. Finally, when looks over history the Nazis were not nearly as uniquely heinous
as many are apt to portray them. If fact, in a comparison left's beloved American indians like the Hurons and Iriquios they probably would come out looking good.

@Julian, I don't disagree with anything you wrote. Big government is the problem and after the HI many will demand big government solutions. The giants will be waiting to step in with their gold to corrupt the system.


Your comment is far too abstract for me. I'll leave it for dreamers and provers.

DP said...

Ash, I didn't ask for specificity, just a rough, sketchy outline.

Or, and this is what I more realistically thought I might end up with at some point, an admittance that your model doesn't have resolution to extrapolate any distance into the future. It feels to me like you only have "Act 1" in your model. What is it like in Act 2? 3? FOFOA's model has a LOT of resolution.

Look at what Blondie is writing while he isn't wasting his time like me with ... Art. What he is writing is seen through the lens of FOFOA's model, which he can only see through properly after studying the instruction manual, and his own navel, intensively.

It seems like all we can see in your lens is a wall, with a car heading at it, a bunch of cheering people chomping popcorn and high-5-ing each other, and a Game Over splash screen before the lights are turned off and we're asked to move along?

Now, if you're ready for us to give up at this point, I am TBH right there with you.



Ashvin said...

DP: "It feels to me like you only have "Act 1" in your model. What is it like in Act 2? 3? FOFOA's model has a LOT of resolution."

I know, but it's funny how language colors our perception. What you call "resolution", I am more likely to label "stubborn certainty", "misleadingly narrow perspective" or something along those lines. That has been my main point of contention with Freegold this whole time... so yeah, we are right back where we (or I) started.

With your bias that I am modeling Act 1 of a disaster movie for cheap thrills, and my contention that it is, in fact, your bias.

radix46 said...


What I really really love about all this: none of this chat matters. No one's opinion means anything whatsoever (unless FOFOA finally writes a book and gets PAID). All that matters is that you buy physical gold.

Then we can all have a little reunion on this blog once the drama has come to a close and share out the bragging rights.

I suspect one group of people won't turn up for the chat.

DP said...

I think we are, really, back to costata and sophistry. where we were all along. Have a good weekend...

radix46 said...

I would be curious to hear from any ex-Freegolders...

Anyone who's had the Aha moment after many (hundreds? of) hours of reading and study who are now convinced by the deflationists or silverites or mad maxers or whoever?

Just out of interest.

radix46 said...

What I would also be very interested to see (but obviously won't) would be a detailed bio of all the players in the different camps.

A run down of age, family background, education, politics, psychological profile, lifestyle, job, social group, wealth, etc etc.

Would be fun.

Anonymous said...

misleading, very misleading are Stoneleigh and Ilargi. They are very detri (garbage translated)- mental for their readers. Even if FG will take longer (???) than we expect, even if we are to suffer for longer, even if the oligarchs will retain more power than we wish, Gold is the only chance the shrimps still have. S - I offer no alternative, they are real doomers. Up to now the history in Europe especially has shown that only gold and to a much smaller extent silver have been the lifeboats for rich and even poor!
No MMT, no stubbern deflationistas will convince the ROW to give up gold. Only degenarated Americans, brainwashed Europeans don't get it!
Gold is ancestral, gold is genetical, gold is emotion and SICHERHEIT!
I wouldn't sell 1g even for food and if I have nothing, there is nothing I can lose. Even if I am to die before IT happens, I do not care - my descendents are educated and INSURED!

And this is European continental stubberness in extremis!

Ashvin said...

thedead said: "I wouldn't sell 1g even for food and if I have nothing, there is nothing I can lose. Even if I am to die before IT happens, I do not care - my descendents are educated and INSURED!"

Alright, well, no need to discredit your twisted logic and ad hominem attacks any further...


By the way, I have posted numerous links to articles detailing my views about the path we are on. In fact, the latest one directly addresses my views re: your repeated requests for me to give you a play by play analysis of the future, just like FOFOA does (because that's how you measure an argument's validity right, by how similar it is to what he provides you?). It also includes links to articles underneath each major influence on our path, detailing my personal "calculations" further.

I already posted the link, but here it is again - The Perturbational Path of Human Civilization

You know, FOFOA isn't the only analyst out there who can't have his entire theoretical framework and future worldview summarized in a few sentences, or movie clips...

mortymer said...

Ashvin said...
This comment has been removed by the author.
sean said...

PA asked how the transition to freegold will occur. Another focussed on the connection: USD+Gold=Oil, and how the end of that link would result in USD hyperinflation, as Gold shoots to the moon, then "goes into hiding" (ie: can no longer be bought a the COMEX price).
See FOFOA's brief explanation .
Here are a few relevent quotes from the archives (link is on FOFOA front page):

Tue Nov 25 1997 10:06 ANOTHER (THOUGHTS!) ID#60253: "support the dollar with oil and the currency system works" "fail the currencies and the dollar will come off the oil standard and the BIS will reset gold to $10,000+ with many conditions"
That is why they continue to accept the dollar as a reserve. If Japan or any other COUNTRY sells US treasury debt it's all over!

Date: Sun Oct 19 1997 23:08 *ANOTHER(THOUGHTS!)*ID#60253:
Watch oil! If it rises much and gold isn't sold off then the game is over

Date: Mon Nov 03 1997 07 03 1997 07 :31 Reify( @ANOTHER ) ID#413109:
The price of the metal in currency terms will be made for all to see as it moves quickly upward for a very short period of time ( 30 days )... At first the US$ and gold will go up together against all other assets

and one quote I don't really understand, unless perhaps Another was not as clued in as FOA to the Euro situation? Thoughts, anyone?:
Date: Sat Nov 01 1997 22 01 1997 22 :43 *ANOTHER(THOUGHTS!)*ID#60253:
The third world markets are the first to go as their currencies are crushed time and time again. Europe will be next, closely followed by the USA!

This probably raises more questions than it answers, but hope it's useful!

julian said...

radix46 said:

All that matters is that you buy physical gold.

Even if there's a red spot on it?

78Rubies said...

@julian: what red spot?

@all: Is it just me or is there "strawman" and/or "ad-hominem" keyword in every other post lately? Thought there are other logical fallacies [whose names] you could put to a good use.

And I have a suggestion: next time you're in a mood to accuse someone of employing a logical fallacy, could you please briefly scan through list of fallacies and pick a fresh one for everyone to see? Will make the discussion that much more lively.

-- W.

PS: Yes, the @all part is a joke. However, I find it disturbing it's slowly turning into a pissing contest (a.k.a. "mine's bigger") in here.

Robert LeRoy Parker said...


The laser sight.

julian said...

No, not the laser sight.

Just a simple red dot on the bullion.

It must be of India heritage? ;)

3 choices:

1 - red spot, closed mint plastic, still scuffed though

2 - open plastic, scuffed, no red spot

3 - walk out as you walked in, with cash and without gold

Rhetorical thought on the side: How fussy are you when it comes to your bullion?

Robert LeRoy Parker said...

I'll fuss over the laser sight.

enough said...

Lots of gold coins have reddish dye spots...especially pandas and mexican libertads...maybe that's what Julian means by "red dot"

Totara said...

@ Julian

Having red or purple coloured spots on gold coins is a real effect. There are two ways that this can happen. With a gold alloy (such as a 22 carat gold coin), there can be red spots from small areas where there is a localised high concentration of copper. A description of this effect can be found at

But red or purple coloured stains can also be found on 24 carat gold. The first time that I came across this effect was with some .9999 gold ¼-oz Maples that were sent to me, still in their clear mint-sealed plastic. When I first saw the stains I was not at all happy and quite suspicious until I learned about the chemistry.

What happens is that small traces of copper or silver dust from the mint can become embedded in the gold surface of the coin. Then, over time, sulphur gases from the environment can react with these impurities so that they form a surface discolouration of Ag2S or Cu2S in a process that can take several years. These sulphur gases can migrate through plastic, which really only protect the coin against more dust and scratches.

I figured that even though there is an innocent explanation, leaving the stains on the coins could make them awkward to sell at a later date. So I carefully cut open the plastic to remove the stained coins, and soaked them in concentrated nitric acid. The smaller stains went in a couple of hours, but it took almost two days for the largest of the stains to disappear completely. Then I rinsed the coins, let them dry, and heat-sealed them back in the original mint plastic so that they would be protected from scratches. Obviously, I don’t suggest that anybody try this process themselves, unless they understand how to work with strong acids safely.

If you want to know more about the chemistry of these red/purple spots then you can start with this article, although you will need to pay to read beyond the abstract. There are about another four articles on this topic altogether.

Just to make it 100% clear, gold DOES NOT corrode. But it can appear to have corrosion due to surface impurities.

Robert LeRoy Parker said...
This comment has been removed by the author.
julian said...

@ jgb

great info, thanks!

Indenture said...

"Why shouldn't cash-strapped European countries be forced to liquidate their gold holdings, German politicians have been asking." Wall Street Journal

Pile on the debt and then take the assets. Hey... I'm sure they're taking the Ag also.

Terry said...

If you want to know more about the chemistry of these red/purple spots then you can start with this article, although you will need to pay to read beyond the abstract.

Are you familiar with David Hudson's work?

Pete said...

@ Ash

I think Fauvi's comment says more than you read it to.

It is a statement on the perception of gold, from those who have matured with gold.

I assume that you won't understand, as the US has limited history with such things, and hyperinflations and Government breakdowns and wars with neighbours. It's a Europe thing.

I'm from Australia, yet I think I get it.

Chaiwalla said...

This is a response to a question I received on why the premiums for retail physical gold are still so modest. It's something I'm still wrestling with, the #1 freegold mystery for me.


You're a pretty smart guy. You hit on something that, for me, is one of the biggest mysteries about the gold market – or at least with my biased mind, I think that you're pointing in that direction. And that is, why is there so much damn retail gold around? And why is the premium to comex gold still so reasonable? For chrissakes, until a few days ago, you could get 100Coronas at Tulving for spot. I actually bought a bunch at a $5 discount to spot during his April tax sale.

What's going on? If indeed, the "real" price of gold, as valued by the giants – central banks, bullion banks, transnational corps, Russian billionaires, Mexican drug kingpins – is already in the tens of thousands per ounce, why do the retail gold dealers of the world have so much of the stuff available very close to the comex price? Normally we should see an arb process happen and cut the delta to real value rapidly. While premiums are heading up, they still much smaller than they "should" be. If I was a Russian kleptobillionaire or a druglord with tens of billions, I would be raiding every coin shop in the land (maybe these giants are behind all of the Cash4Gold type companies!). It's not that expensive. Send a few minions and clean 'em out (I brought this up to one of my dealers, and he laughed and said that this was already happening. In my city, the currency of choice for drug dealers apparently are maple leaf coins, especially 1/20oz coins. They buy them in the hundreds of thousands and couldn't care less about the premium, apparently. The police won't deal in gold because it can't be traced).

I've raised this with the FOFOA gang and I haven't received a satisfactory response. They would say stuff like:

- Stop thinking like an ant. Giants have many billions. Their goal is to convert as much paper wealth into physical, which means that they can't spook the market. Must do it slowly.

- The most important goal of the cartel is ensure lots of retail gold available for sale, close to comex prices. When this stops, there is a massive currency crisis because it becomes clear to the masses that the fiat is irredeemable.

- Many giants are still OK with paper and haven't figured out the game yet. Other giants feed off paper and they make a lot more money keeping the paper machine going and converting to real assets when they can, including gold but also farmland, beachfront property, works of art, etc.

So, it's somewhat of a satisfying answer, but something is nagging at me. If I was a bullion banker, fine, I get it, I'm close to the fiat spigot. But Vlad Putin with his billions stored away, why does he give a crap. It's a prisoner's dilemma, he should just buy any low premium gold he can get his hands on, before some other giant does. For now, I am content to ruminate on this and just buy more metal when opportunities are available to do so.

Considering the above, the most relevant number is not the premium to spot in the retail market. It is the basis, the degree of contango between promises to deliver gold (and silver) in the future, and the spot price. When gold no longer has a basis then the paper game is done and the physical market drives 100% of price discovery. It means that gold no longer is willing to bid for dollars; dollars have no value. Right now it appears that silver is in permanent backwardation, which is why a smart speculator should prefer purchasing silver over gold (with his trading, not permanent, account). It should increase in value much faster than gold. The time to sell silver for gold is when silver comes out of backwardation, which could next be at $100/oz. Even at $50 silver was drifting in and out of backwardation, which is when I sold silver and bought gold last time.

Ore em' said...

Radix wrote:

What I really really love about all this: none of this chat matters. No one's opinion means anything whatsoever (unless FOFOA finally writes a book and gets PAID). All that matters is that you buy physical gold.

Then we can all have a little reunion on this blog once the drama has come to a close and share out the bragging rights.

I suspect one group of people won't turn up for the chat.

Kudos to you, fine sir, for making me laugh my ass off.

More to the point, hopefully by that time one of FOFOA's readers will have bought enough gold to buy a private island - there will no doubt be more than a few panicked/over-leveraged egomaniacs who bought one on a credit card that will be just desperate to sell.

Any suggestions as to what we should name it? Last time I checked, Reunion Island was taken, so we'll need to come up with something else.

Michael H

Thank you very much for the reference to Aristotle's masterpiece, that's exactly waht I was looking for.

Wendy said...


Thank you for the link to that short youtube video.

NATO NEVER gets involved in anything for the sake of humanitarian aid.

Although Libya is the last source of the lightest sweetest crude, they just don't have all that much, so the oil trophy wasn't making sense to me either.

I wan't aware of the gold dinar story, now that makes sense....if the gold for oil deal moves beyound Saudi Arabia and with contagion spreads through the gulf and african states, the USD is instant burnt toast. Although Malaysia has introduced a gold and silver coin (dinar and ?) as legal tender, they are small potatos.

My question of the week for all is: Why does the US need Bin Laden to be killed dead this week? Not next month or next year or last year! Why now? I'm sure the answer will become apparent in time, but does anyone have ideas about this?

The US invades a soveriegn state, (act of war?) murders some people,and the world cheers? I was disgusted!!

Nice to see you around desparado, I've always found your comments to add balance here.

JR said...

Hi Chaiwalla,

Here are a couple thoughts. They are not intended to anything comprehensive, just some quick ideas to ponder.


If indeed, the "real" price of gold, as valued by the giants – central banks, bullion banks, transnational corps, Russian billionaires, Mexican drug kingpins – is already in the tens of thousands per ounce, why do the retail gold dealers of the world have so much of the stuff available very close to the comex price?

Because there isn't "so much of the stuff available very close to the comex price."

"One point that does not get enough attention is the impact of size in the physical market. It’s one thing to say that COMEX is $1,100 per ounce and physical might be $1,200 per ounce for one metric tonne if you can find it. But what about 100 tonnes? 500 tonnes? Physical orders of that size are impossible to execute outside of official channels. Size of order is relevant in any market but I have never seen a market (short of a full blown manipulation or short squeeze) with as much price inelasticity as physical gold which is why the buy side overhang keep their intentions to themselves."

Open Letter to EMU Heads of State


Continuing with the theme of its hard to get gold in size (on a much smaller scale)

If I was a Russian kleptobillionaire or a druglord with tens of billions, I would be raiding every coin shop in the land (maybe these giants are behind all of the Cash4Gold type companies!).

While not limited to the particular subject of this sentence, how is that not what is happening? I think you get this, and my experience is similar to yours. I live in a major metropolitan US city and before I purchase I have to call around to see who has anything, and invariably here stories of no supply because soembody came in and cleaned them out. There's not that many reliable coin shops around, and they are usually not flush. YMMV.


But Vlad Putin with his billions stored away, why does he give a crap.


It's a prisoner's dilemma, he should just buy any low premium gold he can get his hands on, before some other giant does.

Which one is it - it is one or the other, right? He either doesn't get it, or he is LDO this is a prisoner's dilemma. The two positions are inconsistent - the first one is going full retard and the other involves being a little cagey and actually trying to get more physical for the buck

(p.1) cont.

JR said...

(p.2) cont.

Considering the above, the most relevant number is not the premium to spot in the retail market. It is the basis, the degree of contango between promises to deliver gold (and silver) in the future, and the spot price. When gold no longer has a basis then the paper game is done and the physical market drives 100% of price discovery.

Yup, just like this:

Now, if I am a liquidity creator for the dying $IMFS - a bullion bank - how do I create dollar liquidity? I take a piece of unencumbered physical gold (owned or borrowed) and I fractionalize it. I sell it off to the extent that the probability of a delivery demand is lower than my physical reserves. And in the process, I am creating DEMAND FOR DOLLARS because my "golden tickets" are bidding on dollars. Remember what ANOTHER said...

Date: Fri Jan 23 1998 19:01

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. This is backwardation!

Red Alert: Gold Backwardation!!!

Cheers, J.R.

Phil Champagne said...

I too wrote an article on deflation vs hyperinflation and look at hyperinflation as the inevitable. But you brought up good point to convince the deflationist, including Rick Ackerman. Take care

JR said...

Hi Ash,

You comment:
I don't necessarily think that it's different this time, in terms of launching another QE program and perhaps even some token "stimulus" programs. The thing is, despite all of the QE and stimulus done since 2008, money supply (M3) is still contracting and money velocity is still dismal, because the higher food/energy prices just mean people are being squeezed in their incomes, which are staying flat or decreasing.

This is what FOFOA describes in Deflation or Hyperinflation?
This is very important: Once hyperinflation commences it is characterized by a running shortage of cash, even though it appears like the opposite to the outside observer. The currency collapses in value against economic goods because the debt and the credit collapsed. There is no credit, only cash, and there is a shortage of cash for everyone, including the Elite and the government. So they, the Elite/government, print and print for their own survival while saying it is for yours.

You commented:
The difference is real vs. nominal "shortages". In HI, there is a real shortage because PP falls faster than money supply increases. In deflation, its a nominal shortage because money supply falls faster then PP increases.

They are both shortages of cash, driven by, as you note, collapse in real purchasing power:
In both cases, the affordability of real things drops, but that is at the systemic level.

FOA agrees too:
Or as When the world begins to abandon a currency at the end of its reserve timeline, deflationary gains on debt instruments are an illusion of bookkeeping. There would be no 175% real purchasing power gains allowed.

(p.1) cont.

JR said...

(p.2) cont

How do you think they cannot print? You obviously disagree with FOFOA’s ideas as to motive, but putting those aside for now, presumably you must also disagree with the implicit bigger issue of control, ala:

Rick Ackerman's view of the banks' incentive or preference to prevent (as if they had that control) hyperinflation is exactly bass ackward. A bank's balance sheet becomes severely damaged in deflation, yet it is made whole through hyperinflation. …

So once again, the incentive or preference of those who hold the note on your mortgage to prevent (as if they had that control) hyperinflation is simply not there.

Deflation or Hyperinflation?

You envision an extended deflation, but how is that possible in a world built on leverage and continual refunding needs. If the debt doesn’t roll, how do things not collapse? Do you think “their” control is such that they can stop this mathematical reality (without printing)?


Food for thought from Metamorphosis
Moving from Debt into Equity Positions

So in the above scenario we have moved all property from a position of debt ownership to a full equity position that can be balanced against the rest of the real world. And in the process we have completely wiped out the original homeowner (who lost all perceived equity in his home), we wiped out the bank (which became insolvent and had to be liquidated), we wiped out all the banks stockholders (debt owners), and we, at best, gave the bondholders a 70% haircut on their savings. At worst (with an insolvent FDIC) we also wiped out all the bondholders and gave the depositors a haircut on their deposits!

Of course this didn't happen because of the FDIC, which is really just a fancy façade in front of a printing press. But if the FDIC was needed to make the depositors whole, then the bondholders were wiped out anyway.

This is the deflationary collapse scenario. This solution for changing debt into equity preserves the sanctity of the senior debt holder (only to the extent of the true value of the physical assets) and the numéraire (denominator) of the debt (the dollar). It keeps the dollar intact and, had it been allowed to play out, would have likely allowed the US Treasury to continue issuing bonds for another whole cycle. But this scenario was never meant to be. It wasn't even an option.

Cheers, J.R.

JR said...


Well done!

Cheers, J.R.

Robert LeRoy Parker said...

et al,

When Fofoa says the following from Big Gap in Understanding

The printing of wheelbarrows full of cash is the government's response to price hyperinflation (currency collapse), not its cause. This uncontrollable (knee-jerk) government response happens in some cases, but not all.

In the cases where the response is not massive printing, how does the hyperinflation play out?

Is it simply a matter of increased velocity of what is available? Would this put a ceiling on price increases ultimately leading to another deflation?

JR said...


You comment:
In the cases where the response is not massive printing, how does the hyperinflation play out?

Consider Iceland - from Dollar Repudiation :

Let's take a look at what happened in Iceland ten months ago. Practically overnight the Krona lost more than half of its purchasing power. Luckily the Krona was a small fish in a big pond and a number of bigger fish came to its rescue including Germany, the Netherlands, the UK, Norway, Sweden, Finland, Denmark, Poland, Russia and the IMF. These big fish put a bottom under the Krona waterfall, but for the local Icelandic population, the damage was already done.

Call it a currency collapse, a hyperinflation, a devaluation or a repudiation; call it whatever you want. But the cost of everything people use and need in Iceland doubled or tripled in one month. And at the same time, the things they counted on as a store of value, the banks, real estate and the local financial industry collapsed. Hit from both sides! A brutal double whammy!

You see, in Iceland almost everything produced is an export, and almost everything needed is an import. And imports and exports are the hardest hit in local hyperinflations.

Local hyperinflations primarily affect imports and any domestic product that can be exported. In other words, if it can be sold somewhere else for better money then it EXPLODES in price. But locally produced and consumed products and services become quite cheap in real terms. And by real terms, I mean for those who have some gold! This includes real estate, which is difficult to import or export!

But who is going to come to the rescue of the biggest fish of all? Who is going to bail out the dollar and put in a bottom? The aliens? I have a sneaking suspicion that the dollar's collapse will be a little different (read: worse) than past recorded events. It will certainly be a sight to behold. Just think about it; Where will you be, what will you be doing, how will you react, and how will you be feeling when it starts? Gold delivers a LOT of peace of mind in this regard!

FOA on a similar idea - real purchasing power is lost in a massive deflation:

When the world begins to abandon a currency at the end of its reserve timeline, deflationary gains on debt instruments are an illusion of bookkeeping. There would be no 175% real purchasing power gains allowed.
FOA on Hyperinflation

(p.1) cont.

JR said...

(p.2) cont.

From Deflation or Hyperinflation?, FOFOA on the idea that the big difference between a Icelandic currency collapse deflation and hyperinflation is the "ample incentive for these politically connected Power Elite Giants to actually encourage" massive printing:

A bank's balance sheet becomes severely damaged in deflation, yet it is made whole through hyperinflation.

As for the pension funds, they hold this debt not for its value to maturity, but for its appreciation in a falling interest-rate environment and its liquidity in trade. Pension funds get in trouble when they cannot perform nominally. They hold nominal assets and make nominal promises (like 8% returns) which simply cannot be met in a deflation. However, as disastrous as hyperinflation is for pensioners (the funds' clients), it is a Godsend for the politically-connected pension managers who were being crushed by deflation.

So once again, the incentive or preference of those who hold the note on your mortgage to prevent (as if they had that control) hyperinflation is simply not there. In fact, as I will show in a minute, there will be ample incentive for these politically connected Power Elite Giants to actually encourage the kind of printing that will take an Icelandic-style currency collapse into full-blown Zimbabwe-style wheelbarrow hyperinflation. More on this in a moment.


"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

(p.3) cont.

JR said...


And yay - The Waterfall Effect

While I view Robert Prechter as extremely bearish, I must say that I agree with him to a certain extent. The extent at which I do not agree with him is the steady state of the dollar. Prechter views the world through his Elliot Wave cycle theory, which is not unlike Martin Armstrong. But the problem is that the waves he measures are against the backdrop of a steady state dollar.

Like Prechter, I expect all aspects of the economy will continue downward to depths below that of the great depression. But during the great depression, we did not have Ben Bernanke and we did not have a purely symbolic currency as a measuring stick. We had a gold-backed dollar.

Think about this for a minute. The average retiree on Social Security receives about $1,100 per month, or $13,000 per year. This is a dollar denominated promise. If the crash from top to bottom is 90% or more as Prechter predicts, this would give each and every Social Security recipient the equivalent purchasing power of $130,000 per year when purchasing real estate, the stock market or even commodities. Basically everything.

And this will be true not only for Social Security, but for anyone on the receiving end of a dollar denominated promise, including all pensioners, anyone with a tenured job, like teachers and government workers, and including everyone in Congress. Virtually everyone with an income or cash savings will see their purchasing power rise ten-fold!

The problem with this view is that the real economy right now cannot even afford to deliver real economic goods at TODAY'S dollar purchasing power, let alone another 800% rise in purchasing power, with Ben printing new ones the whole way there.

So Bob and I both see a waterfall approaching, but how can we reconcile our seemingly opposite views on deflation?

Currency is the key!

(p.4) cont.

JR said...


Take another look at the first chart at the top. Something has to give, and soon! Think of those two diverging lines as fingers stretching a rubber band. Then ask yourself, what IS that rubber band? I'll tell you. It is the dollar, the unit of measure for everything economic.

There is a quote I like that comes from Le Metropole Cafe. It goes, "we will have deflation in everything we own, and inflation in everything we use". This is partly true. It is true during the run up to the rubber band snapping. It is true until we hit the waterfall. At that point I have my own version of the quote. "We will have hyperDEflation in everything measured against real money, GOLD, and we will have hyperINflation in everything measured against paper dollars."

So, just to clarify one more time, we will see hyperinflation in gold as the dollar collapses on the world stage and loses its global reserve privilege. This will be followed by nominal hyperinflation in all things priced in dollars as the US frantically prints more and more to support its dying dream of a socialist paradise. The distribution systems for these new dollars will be wide and varied. But distribution will not be through wages tied to economic increases in production (traditional inflation). It will be through a variety of programs that will be called "stimulus". (See my "New Stimulus Plan" and "Free Money" for clues).

The deflation that Prechter sees (as well as Mish, Denninger, Ackerman, Weiss and many others) is very real. It is the collapsing economy and paper financial structure. It is real deflation in real terms. But unfortunately for them, the dollar is not the true base of the pyramid, and it will only benefit temporarily as a "pass through level". (See "All Paper is STILL a short position on gold").

Hyperinflation (a currency event as Jim Sinclair so eloquently tells us) is always concurrent with deflation (economic malaise) when measured in real terms (gold). The dollar is only paper, and it is being printed like crazy. So to measure things in dollars becomes very confusing when looking to the future. The above-mentioned deflationists cannot imagine the hyperinflation event that I describe because they are stuck on their cycles and technical analysis that has always been measured in dollars. But in this crisis, the currency itself is the key. All else is noise.

Cheers, J.R.

Wendy said...

Been thinking a bit more about timing vs Bin Ladan.

Gadaffi has blamed the uprising in his country on the taliban since the beginning .....

Last week there was a failed attempt at the assassination Gadaffi (they have been trying for decades to kill this guy), but the US 'successfully' assasinated the head taliban guy.

I wonder if the story plays out >>> on the death of their leader the taliban apparently "abandon" Libya, but fighting continues, proving to the world that Gadaffi is a power hungry dictator that needs to be taken out (by the US military, of course), in order to save the people of Libya.

I beleive we are seeing a very desperate US gov at work here.

BTW I do agree that he is one sick guy, but that's nobodies business outside of Libya, the world has lots of sicko bad guys.

Texan said...


There are a lot of coins available in dealer shops because there is a lot of gold available in the US, and it is actively traded. At a retail level, via two of the largest coin mints in Canada and the US.

At a retail level, it is all speculation. Most of it anyway. There is no concept of freegold. It is all about higher nominal prices and maintaining purchasing power.

Bit even with all that flow at a retail level, it isn't much actual gold. The US mint for example in a good month sells about 100,000 ounces. That is a bit less than 4 tons so 50 tons of gold call it in a high demand year. And there's no point in having people scour around for 100 ounces at each coin shop. It's just too small an amount. Heck you could clear out eBay with a couple of million.

But there are 2500 tons mined every year, plus scrap sales. Where does it go? It doesn't go to the coin market, that's for sure.

I view the coin market as the physical manifestation of the
COMEX price, because it's all us ants ever see. So my view is that if the paper price plunges, coins are going over the cliff with it, at least initially.

Chaiwalla said...

J.R., thanks so much for your comments. Very helpful. It has been a while since I read that Open Letter to the EMU piece, a good reminder. This community is just terrific, I am grateful to be hiking the trail with the fine people here.

I totally get the two-tier price structure and the membrane that separates the two gold markets. Gold is actually 'correctly' valued by both markets. At the COMEX price, gold buys approximately the right amount of commodities, as compared to decades and centuries ago - although the effects of increased productivity through technology and process improvement have been appropriated by the bankers/inflation. Enough players are willing to accept paper and derivatives, which keeps a lid on prices.

The BIS price makes sense also for the Giants, who can pyramid many paper/derivative ounces on top of each real ounce. That price also may make sense looking at just how much more productive each acre of farmland is, how much cheaper it is to make a men's suit, etc. An ounce of physical gold at the BIS price stores a lot of the ingenuity of human beings going back decades!

The membrane that separates the two markets requires a lot of financial innovation and some dirty tricks, as outlined by GATA, Harvey Organ, Bob Chapman and the like. Somehow the membrane manages to keep the COMEX/plebian price to a ~30% increase in price per year, which I find remarkable, considering the delta between the two gold markets.

So yes, it makes sense that job #1 for the BIS types, if they want to keep the membrane intact, is to ensure that there is always plentiful supply of physical metal at the retail level, close to the COMEX price.

It still is amazing to me that the financial innovation and dirty tricks is enough to prevent the membrane from rupturing, setting the stage for Freegold. There are a lot of people with big money who know what we know.

What is the BIS waiting for, I wonder. Clearly they must see that the current system will fail. Do they have to wait for hyperinflation to set in before rupturing the membrane? Are they hoping that somehow the system will fix itself and they can keep their two-tier system? I don't understand their gameplan. Perhaps they are just being reactive and will act when they must, and re-liquify the global financial system with Freegold. Or it will be forced upon them when enough people procure physical, breaking the membrane. Hmmm. Lots to ponder!

Ashvin said...


I do perhaps disagree with FOFOA about control, but I think it's in the opposite of what you suggest. It seems FOFOA suggests that without their policies, we would have a deflationary collapse, and that's why they have no choice but to pursue those policies, and that inevitably reverses the deflationary scenario and contributed to HI.

I believe they are more helpless to reverse a deflationary collapse, but they do have the policy tools to slow it down for awhile and micro-manage it to almost their sole benefit... at least during that time period. Once there is a significant collapse in debt levels (and after a lot of retirees and average bondholders are wiped out through both the financial and political system), then the ongoing aggressive fiscal/monetary policies will catch up and most likely lead to HI, especially when you factor in oil/resource scarcity.

I agree with you, though, that the technical difference between our positions are more subtle than most would imagine...

Ashvin said...


"I think Fauvi's comment says more than you read it to."

To me, it said my family/children would be worse off with a husband/father/whatever that is ALIVE with less gold, than they would be with some additional gold, a dead corpse and funeral costs. Maybe that's actually the case for his family, but I suspect it is not for many others...

It's horrible logic... first as a stand alone statement about the value of gold and, second, as a fallacious argument that his specific level of attachment to gold (or a few historical periods of similar attachment) somehow supports a more general argument in favor of everyone hoarding gold now.

I really didn't think I would have to go any deeper into that one...

And if I misunderstood, can you really blame me? It's not exactly easy to divine his underlying argument when he is saying stuff about gold being "genetical", "emotion" and worth dying for, while also calling those with a deflationist perspective "garbage" and "degenerated" for no apparent substantive reason.

Wendy said...

And if I misunderstood, can you really blame me?


Piripi said...

Thanks for those comments JR.

You either have a fantastic memory, or one hell of a database (or both).

Pete said...

@ Ash

Sorry, I wasn't having a dig at you at all. I was trying to point out that Fauvi's comment was a bit deeper than it appeared.

"And if I misunderstood, can you really blame me?"

I don't blame you at all. You're not from Europe, which makes it harder to understand.

The general point is that, people from some areas in Europe have a deeper history. Their history involves living through periods of economic and cultural collapse, as well as period of war. This has gone on for a thousand years or so.

I guess what comes from it is a deeper learning - families passing on their experiences through stories and cultural behaviour. Saving for a rainy day, stuff like that. And part of that culture is a belief in gold, and it's use as money through the ages.

So my understanding is that when Fauvi makes those comments, it is not meant to be taken so literally, but as an indication of what gold means to those who truly value it.

DP said...

Goldilocks said...

@ Wendy,

Why now?

Just in terms of a trend in the ME over the last 2 decades, where has it been going? More and more unstable.

What is the meme that has come out of the Bin Laden issue? Revenge attacks.

Read Gerald Celente's latest Journal issue and it starts to make some sense, to me at least.

Diamond Jack said...

And to the regular commenters, please hold the deflationists accountable. Keep asking them for their investment recommendation until they answer. Don't answer their questions until they tell you what they recommend. Our position is very clear here at FOFOA. Everyone knows it. But deflationists don't all agree on the best investment / store of value. I want to know what you recommend? Dollars? Treasuries? Gold? Silver? Physical dollars in a shoebox? Or maybe it's just guns, garden and prayer. Whatever it is, please tell us.

I thought about this as a deflationist.
I am a deflationist. I recommend you invest in learning.

I do not care how much cash or gold or goat farms or government gooze you have.

Today you can take your most valuable asset, trade it for learning and the technology to leverage this learning in ways that make the freehold 40 banger seem like ants at at picnic.

What good is it to have a basement full of canned goods and no way to open the cans?

Learn to cook. Learn how to process food.

My deflation is really no different than your hyperinflation.

For one oz. of gold, I'd rather have
A vita mix
Excaliber dehydrator
The complete book of raw food- Baird

For like consideration one can easily afford
A five gallon reflex still

Instead of hoarding, other than toilet paper and such, I'll build inventory in the items I need to produce essentials items.

Now I am able to free to take advantage of supply dislocations. Sure, there will be shortages. But there will also be good stuff sitting idle, with rot it's only future.

A carload of tomatoes bought with a couple a gallons of my own hootch.

And to protect this wealth, worth more than gold, my suggestion is to invest in learning Pilates. I believe that for Westerners it is the most accessible mind-body discipline.

Hyperinflationists can use this advice as well.

To the question,
Deflation or hyperinflation
The answer is

Unknown said...

think people are already realizing the real value of paper money

Art said...


These FREEGOLDERS are people of ill will. All their mountains of verbiage hide is the fact that FREEGOLDERS are FOR paper money and NOT for gold as money.

Fiat or paper currency causes economic apartheid and hyperinflation (and eventually social conflict, warfare and bloodshed). This is why:

WHO issues and controls fiat currency? NOT you and I. WHO pays basically NOTHING for fiat currency and creates it out of thin air to bid for all the goods and services available on the planet? NOT you and I. WHO has to work their asses off in order to obtain some of that worthless "medium of exchange" so that they can pay for food and shelter?

YOU and I.

FREEGOLDERS are saying that fiat currency is the BEST form of money = FREEGOLDERS are fomenting economic injustice and political turmoil.


Aquilus said...


With all due respect:

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...


Freegold is NOT a new system. It's the continuation of the one we have now and FOFOA is one of the people who have a vested interest in seeing it preserved.

DP said...

Art: Who is FOFOA? You seem to know him?

I am keen for you to pull a Julian Assange and leak what is his vested interest in seeing the continued evolution of the current global monetary system, into the Freegold/RPG model, and not have the world make the giant leap to your gold-as-currency model instead? Let's take this guy down!

What does he personally stand to lose if your system came into being? What is his self-interest that is guiding his actions here?


DP :-)

Art said...


Another/FOA said in the past that they were connected to the Euro-friendly faction of the banking establishment. (I was one of the original participants at the USAGOLD forum now more than a decade ago.) So it's not mere speculation on my part that they are affiliated with bankers. When Another/FOA spoke of Giants in those days, they meant the Continental bankers supposedly at odds with the dollar-faction bankers on this side of the pond - which is a lie, as both sides collaborate and play good cop/bad cop as circumstances dictate.

What do these people stand to lose?

Another/FOA/FOFOA are part of the system and you're asking me what they stand to lose if the system changes? It'd be the equivalent of THEM losing their jobs, for a change. If gold becomes money regulated by a nonprofit national central bank as I proposed, traditional bankers would lose their power to create money at will and bid for all the goods and services available for sale on the planet.

In other words, FOFOA is fighting for his job. He HATES gold.

Freegold doesn't free gold. Freegold diminishes gold by stipulating its sale for fiat and Freegold diminishes YOU by persuading you to give up something (gold) for nothing (fiat).

This is a fight for the hearts and minds of humanity.

Another/FOA/FOFOA are EVIL.

DP said...

@Art: Hmmm, OK so it seems your friend FOFOA is really "a banker" after all. Thanks for sharing this useful piece of perspective that you have.

Art said...


You're welcome.

DP said...

Where did you meet him? I'm guessing you're not a banker or part of the elite yourself! ;->

I always wondered what colour is his hair? Maybe he doesn't have any! MAYBE HE'S A SHE!!?

Come on man (you are a man, right? I don't mean to offend you by being presumptuous like that), tell us more! I can't pull my chair up any closer to my desk here now!

Art said...


Freegold was first discussed in public before a worldwide audience at the USAGold forum which was an internet venue ostensibly maintained by a coin-selling Company called USAGold. That's where FOA and I "met". (You don't need to be a banker or part of the elite in order to talk with someone on the internet, understand?) The USAGold public forum is gone but you can read the (extensively edited) archives at

It was suggested at the time by some that the USAGold forum was a mindf-ck operation sponsored by the CIA, among others. In any case, all these blogs and forums are either monitored or instigated by governments and the bankers who use the internet as a way to put their feelers out there.

Thanks for letting us know that you're not being completely sincere, by the way.

DP said...

No problem, it was the least I could do.
Thank you for taking your foot off the capslock pedal, and demonstrating you can use a reasonable tone - much appreciated.

Sincerely (no, really!),

DP :-)

Unknown said...

A few questions from new commenter...

I came to this after reading through Another's Thoughts on the USAGold page from the late 90's through his interaction with Kosares. One couldn't help but notice the dire and impending nature of his thoughts. What events transpired to make Another's observations a bit premature?

Also, getting back to topic of silver, or presumably any other precious metal other than gold. Hypothetically, if your analysis is flawed and another precious metal is able to carry someone's wealth through to the other side,albeit to a lesser extent than gold, what effect does that have on Freegold?

Thank you.

Radek said...


It is a first time I have doubts in your sincereness and care for other human beings. It is due to reposting of article by Costata.

I have read the article of Costata to the section of "Thought experiment". At this point I just could not torture myself to keep reading this piece.

This article is written in such a way that some people like Eric Sprott and Robert Kiyosaki could sue Costata for misrepresentation.

Did Costata ask Robert what is the price level he thought of when he was saying that he will sell his silver to suckers?

Costata uses Eric Sprott and others when it suits him but completely ignores the fact that many people who he is quoting will strongly disagree with the message of his article. The best examples are articles by Eric Sprott. He said that gold WAS an investment of the decade and silver IS and investment of the decade.

Shame on you Costata and shame on you FOFOA.

The article is full of psychological tricks (word phrases that bring nothing to the discussions about facts) to make the reader feel bad about his beliefs including one that silver will regained its monetary status like gold.

I said it clearly belief. I believe in Freegold and Freesilver.

My reaction to this post? I will stop recommending your blog. I will still read it because I may find as usual many pieces that are gems written by you. However, your blog is no longer good for a person that is not sufficiently financially educated to know when they are being mislead.

I am very disappointed.


P.S. Disclaimer I own 50/50 gold/silver in nominal $terms and after this article I will up my silver holdings to ratio to 33/66.

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