Wednesday, June 22, 2011

From the Treasure Chest


On my computer I have a database file that contains almost 50,000 email files. I probably refer back to and search this file more than I even realize. It's one of those things that you don't quite realize the value of it until you suddenly face the loss of it (perhaps like Satoshi Nakamoto and all his "millions").

Very recently my computer crashed from what appeared to be a really nasty virus that apparently wiped out my hard drive. Thankfully I was able to recover everything, even my Treasure Chest email file. And full, 100% credit for the recovery goes to one of my greatest supporters, Warren, who told me exactly what to buy, what to do with it, and even paid for it! Thank you Warren!

Here is Warren's current project, SLV Database, which Bron mentioned the other day in PMs and the LME Warehouse Scam:

"Which is why I am very interested in this ETF bar list project and am doing what I can to help, as this I believe holds the potential to reveal just how big that dark pool of stock really is."

Check out Warren's project, and if you see him, thank him for saving FOFOA's computer!

Anyway, I thought I would celebrate my full Treasure recovery by sharing with you all a few nuggets from The Chest. The following are just a few recent highlights from my email file:

Dear FOFOA,

I am fortunate to have found your blog in more ways than one would believe. :)

I have been reading your posts with much interest ever since. You write very well.

This sounds is a little crazy cause I feel like I hit a Vegas jackpot or something.

I came across bitcoin awhile ago and was intrigued so I ran the generating program for a while but I cannot remember why I had stopped it. Although it really doesn't matter with all the what if's. Anyway, reading your latest post sparked my memory in that I had looked at it. I am amazed at how it's evolved with even a trading market. I reinstalled the program to have a look at it again and to my surprise I had 50 bitcoin credits! I only remember just running it for a couple days so a quick calculation showed USD value of a little over $800 worth of bitcoins (as of last Saturday). I sent the credits right away to market (mt.gox I think) and surprisingly they sold quick. The funds from the trade went again right away to Dwolla.com which handles exchanges for cash through a bank transfers. So far so good but I will know in a couple of days of the successful transfer.

I think I will be trading those bitcoin generated USD's for a nice 1/2 oz Canadian Maple or Australian gold coin.

Thank you for posting about bitcoin. I probably would've never had a second thought about it otherwise.

Regards,
J


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FOFOA,

A few questions – maybe you have already answered these. I need to go back and reread all your posts again.

Regarding the stability of the dollar: What is the significance of the Saudi currency being pegged to the dollar? What is the significance of the Yuan being pegged to a currency basket heavily weighted in favor of the dollar? As long as these heavyweights not only accept dollars, but go so far as to bind their own currencies to the dollar, it seems like the petrodollar system may be able to limp along for a long long time. I would expect a de-linking to be a sign of an imminent collapse, but it is diffiult to imagine a collapse as long as the links remain. Other lesser but notable pegs include Hong Kong, UAE and Venezuela.


Hello R, I don’t know how much you know about the different types of currency management, but this is a good paper. It is a debate in 2001 between Robert Mundell (“father of the euro”) and Milton Friedman. http://www.irpp.org/po/archive/may01/friedman.pdf

Pegging is arguably a better choice than a “dirty float” in which you surreptitiously intervene. Pegging is one step down from a hard fixed exchange rate like California shares with Texas, or Greece with Germany. And sharing a fixed currency is really no different than sharing any fixed scientific metric, like a meter or a gram. California can still have to pay a higher interest rate than Texas as Greece pays more than Germany (from private debt markets). The fixed currency is not the problem any more than the shared weight of a gram should be a problem. So a pegged currency would be analogous to the meter being pegged to 3.28 feet. Two countries use different standards, but they peg their conversion rate.

The problem is with the perpetual US trade deficit. In order to stay pegged to the dollar, there are only two things these countries can do. And most economists are only aware of one of them. The way everyone thinks it is done is by recycling those dollars into US assets, primarily Treasuries. The Chinese (or Saudi) exporter receives dollars and exchanges them for local currency at the bank. That bank then sells them to the central bank for freshly printed currency, and the CB then buys US assets with the dollars.

And since the US is not in the business of selling off the farm, we sell government debt paper. This has the effect of funding the US government through the trade deficit and exporting the currency inflation to those trading partners that must print their own currency to stay pegged. If they were to buy US-made products with those dollars rather than Treasury paper, then there would be no trade deficit. But then the American economy would have less goods, more cash (inflation) and the government would have to find another stream of funding.

But there is another thing they can do (and are starting to do) with those dollars we are sending them for their goods. They can buy gold on the open market. It really doesn’t matter if the exporter that receives the dollars buys the gold himself, even inside the country, or if the CB buys it from London. If it is purchased in country by citizens, that will raise the internal price of gold and create an arbitrage opportunity that will cause gold to flow into the country until the price differential (inside and out) is equalized.

So this is a way to use your excess dollars on the world market, rather than inside the US, which also helps keep your currency pegged without running into a foreign exchange crisis. I have my own theory that the actual physical flow of gold into China corresponds to money that Ben Bernanke must now print that was previously being funded by the PBOC. This takes a long chain of thoughts to get there which I’m not going to write here, but I think you can get the concept intuitively.

Buy gold (instead of Treasuries) with your excess dollars received from selling to products or oil to the US. As long as you buy on the open market (as opposed to dark pools as the Saudis used to do or from mines inside your own country) this drives up the price of gold and causes a physical inflow into your country. You no longer have to print equal amounts of your own currency so you have stopped your internal monetary inflation and, instead, channeled it into the price of gold (inflation only against gold, not life’s necessities). The Fed, in turn, is forced into “QE” which is essentially printing those dollars you would have given to Treasury since Congress can’t cut the budget. Also, those dollars you used to buy gold in London or Zurich will eventually find their way back into the US through private channels and add inflation on top of the printing the Fed is doing.

So now, you’ve sent all that monetary inflation back into the US, and still kept your currency pegged. And if you follow this train of thought far enough, I think you’ll find that it leads to stresses that will ultimately break both the US dollar and the paper gold market without ever officially “de-linking”.

The physical gold must continue flowing into the physical boundaries of trade surplus zones while the price of gold rises. Weight-based flow and price level offset each other somewhat. But ultimately this will break the paper gold market because we’re talking about physical flows from the debtor zones into the saver zones. And now the US finds itself between a rock and a hard place. The hard place being that dollar interest rates in the US must skyrocket which would destroy the dollar banking system, Wall Street, the US government welfare state and the US economy, or else the Fed must print to oblivion to keep rates down and suffer the ravages of hyperinflation. That’s the rock, because it will win out over the hard place seven days a week.


Question: You frequently refer to financial wealth “going to zero” – but this seems to be an exaggeration. Many financial assets may go to zero, but other forms of intangible property (such as shares in a company with capital assets and no debt) should have some value when all the dust settles, no?

FOFOA: I think it is mainly debt-based assets that will go to zero because their numeraire will be hyperinflated. Even if interest rates were to skyrocket they’d go to pretty near zero. Equity assets will suffer the ravages of economic hardship brought on by the dollar’s collapse, but you’re right, they won’t lose all value. In Argentina, the stock market lagged the currency devaluation. The stock market only doubled in nominal price while the currency it was denominated in devalued 3:1. So if you had 3 pesos in stocks before the devaluation, you now had 6 pesos after the devaluation but they were only worth 2 of the old peso value. So you lost about 33% being in equities during the currency crisis. I imagine it could be much worse than this in US equities during a US dollar devaluation.

Question: You refer to freegold as the natural consequences of the end of fractional reserve bullion banking. I can see how a worldwide run could crash the system, but in the aftermath what would prevent an eventual return to fractional reserve bullion banking? Giants may someday once again have some risk appetite to lend out their bullion holdings, no?

FOFOA: Against what collateral? Gold is (will be) the ultimate collateral. To protect gold’s status as such, and its invaluable contribution to a stable monetary system, courts will not enforce the forfeiture of any lesser collateral in the failure of a loan of the ultimate collateral. This will be enough to prevent the lending of gold, which will be frowned upon by the system.

The only reason to borrow the ultimate collateral is to short it. Can you see why a newly stabilized system would frown on this and therefore not support it if and when it goes bad? If you want to put your gold to work you just sell it and then put those dollars or euros to work. You don’t lend it out because you might not get it back.

Question: Regarding the onset of hyperinflation: Do you expect that the initial loss of confidence will come from a foreign government? Or from the private sector?

FOFOA: I think it will come from a panic in the private sector, because even though foreign governments have already lost confidence, they will never take overt action to destroy the system. That’s the kind of thing that starts wars.

Sincerely,
FOFOA

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Hi FOFOA,

I can imagine you must have a ton of emails so thank you for finding time to reply. At your leisure, is there anything besides storage in my home or backyard (in other words paid storage) that you would recommend?

Sincerely,
V


Hi V,

I think a good rule of thumb is that each person should take responsibility for his own wealth. This is kind of what Freegold or a meritocracy is about, personal responsibility. As I have written in the past, if you have too much wealth that you cannot take personal responsibility for it, then this crisis will solve your problem for you one way or another.

I know one guy who has around 2,000 ounces of physical. I don't know where it is, but he has led me to believe it is under his direct control and possession. He sent me a snapshot from his computer holding a single, monster 320 ounce coin. So he has at least that much under his immediate physical control.

I'm sure there are many safe storage options in your town. I've heard of "private" vaults, like a bank safety deposit box, but not at a bank. Or perhaps it is best to diversify. Some here, some there. If diversified, I'd be fine with some in a bank deposit box. I don't know. Seems like a very personal decision to me. I suppose if you had ten million in gold it would be a good idea to keep some in a paid vault in Switzerland. You'd probably have a paid-off house there too, and a gassed-up car in the garage of your Swiss chalet. But even a million in gold today fits in a very small box (or safe). That's the beauty of gold!

Sincerely,
FOFOA


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Hello FOFOA, hope you are doing well. I just got home from a rafting trip through the Grand Canyon and brought your (at the time) most recent essay. Thank you for yet another thoughtful piece, it provided me some enjoyable reading in a very beautiful setting. It even spurred on a great conversation with my friend when he asked me what I was reading. I thought you would enjoy this pic of the view I enjoyed while reading your essay. Thanks again for consistently great work!

Sincerely,
B



Hey, check out this picture one of my readers sent me!

Har! That's excellent, FOFOA!

And the untold story is that when they unexpectedly ran short of toilet paper mid- journey, they began conscripting their supplies of bread for that duty in a valiant sacrifice to preserve those precious pages, thus sparing the keen insights of FOFOA from an inglorious end.


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Dear FOFOA,

I just wanted to extend my respect to you and do my part in supporting your efforts. I hope my small donation will help:) Your writings, as well as those of Another and FOA, have really opened my eyes in the last few weeks. I don't post in the comments section of your blog, or many other blogs for that matter, but I read and learn as much as I can from you. You're a fantastic writer and you have a brilliant mind. I'm happy you are sharing your mind with us and stimulating intelligent thought and conversation. Our world can always use more of that! haha.

I live in southern BC, Canada. Just turned 33 and I'm on my new path as a prospector/ Placer gold miner after giving up my profession and cashing out on a few investments in a HOT real estate market a few years back. All is well and I enjoy my new lifestyle immensely:) Spring is approaching once again and we'll be back out on my claims collecting gold very soon. I'm also in the process of selling my small orchard property and stepping down to a smaller acreage so I can invest half of my savings into gold bullion. I'm even selling my beloved hotrod!! 1934 ford Tudor Sedan:) It's kinda hard to part with it but I feel it in my soul that gold will prove to be a much better investment in the future.

I know how you feel about gold mining when Freegold naturally takes effect, but I feel that Placer mining will be a bit of a hidden bonus to those "in the know". There are just way too many creeks and vast open spaces up here to properly police. I have a feeling that there will at least be a grace period where they won't be able to keep track of exactly what people are doing and where. I have friends that pull at least 50 ounces a year and not a single person ever sees them or knows exactly where they get their gold. That is including the government mining inspectors and Department of Fisheries.

To further expand on this; the gov doesn't even have a clue that some of the claims are as rich as they are. For example, I have a claim that's located on a creek that has "official" reports of only 50 ounces in its whole history. The old timers never reported the exact amount of gold they were pullin' out in almost all of the gold bearing areas in this province from the beginning of the first gold rush in the mid 1800's. My claim with the 50 ounces reported is much, much richer than that:) I've located documents and personal journal entries from the last living family member that mined the claim back in the 40's. They pulled just under 3000 ounces from one section of my claim and estimated their reserves at another 3000 ounces from a section that they never touched due to old age/retirement. They kept secrecy at all costs, a family secret that has remained hidden until only a few months ago. Anyway, just a little something extra to think about.

I could see the gov implementing some sort of laws regarding placer gold though, and regulations to try to prevent the sale of it into the (official)market at untaxed levels. However, it is not too difficult to smelt placer gold into bricks:) though they wouldn't be officially minted bars.

Well, I don't want to take up too much of your valuable time so I'll end here:) I hope I've given you a little something extra to think about regarding gold mining of a different sort.

Thanks so much and keep up the great work:)

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Hello FOFOA

I have just sent a donation of $100.00.

Like so many others, I find your blog a gripping read, and I take its advice to heart (by buying bullion), though I have yet to post any comment there.

I am particularly intrigued by a statement you made in your post Freegold Foundations:

"It seems—and correct me if I'm wrong here—that physical gold (along with a few other discreet collectible items like real estate, fine art, antique furniture, ancient artifacts, fine gemstones, fine jewelry and rare classic cars) may be the only true wealth holdings in which you are not a jerk. What do you think?"

I have a personal and financial, as well as an intrinsic intellectual stake, in the following questions (which I believe you will find to be of intrinsic interest) regarding these sorts of "discreet collectible items":

Do you expect them to appreciate at near the rate that gold will appreciate when we get Freegold? Or did you mean only that they would hold value while paper collapses?

At first glance, the latter seems likely to me, since, as I understand your argument, the Freegold spike will happen primarily because there are many more (paper) claims on physical gold than there are bars and coins to satisfy those claims; whereas these "discreet collectible items" will not enjoy any such spike, as there is no excess of paper claims upon them.

However, other considerations may pertain. As you presumably know, Goldsubject(
HERE) popularizes Freegold to mean that, because "there simply aren’t enough physical goods in the world to satisfy the demands of all the money and other paper wealth that exists", you could get Freegold (even if paper claims on physical gold could all be met by matching bars and ounces for satisfaction of those claims).

While Goldsubject claims that (his understanding of) Freegold means that all of the money fleeing paper wealth will flow to physical gold, that result seems unlikely to me, particularly since so many "investors" are taught to diversify. Given your confidence in "discreet collectible items", why would you not expect investors to diversify into such items as they flee paper wealth? But, would they do so at anywhere near the pace of their flight into bullion?

Moreover, would not much depend upon the quality/rarity of the "discreet collectible items"? Wouldn't, say, rare classic cars do much better in this environment than, non-distinctive real estate; but again, would this gap increase at anywhere near the pace of that of gold in Freegold?

These issues are of particular importance to me, as I own numerous extremely (in one case, supremely) important historical objects, which I presume to be worthy of inclusion in your list of "discreet collectible items".

Insofar as that such items have little chance of keeping pace with gold bullion when Freegold emerges, I ought to dump these objects ASAP for lower prices than I judge them to deserve, and pour the proceeds into bullion.

Insofar as that such items have a substantial chance to keep pace with gold bullion when Freegold emerges, I ought to keep these objects as diversification, until I obtain for them sums in keeping with what prices I judge them to deserve.

So I anticipate with great interest any thoughts you have about the issues described above.

If you choose to reply to my queries, I will be of a mind to pursue with you other related issues of intrinsic interest, e.g. that the Exeter pyramid puts such "discreet collectible items" as real estate and fine jewelry (this surely having no counter-party risk) quite far above the "power money", and above even the paper assets from which he expected capital to flee when all paper assets became distrusted for their counter-party risk.

I would appreciate any response that you could send. A separate blog post on these issues would also be of interest; feel free to quote me as you wish.

Sincerely,
J


Dear J,

Thank you very much for your support and also for your query.

When I mentioned those items in the Foundations post it was only in the context of being a true physical wealth holding. Not in the context of a transitional revaluation. You’ll notice that these items tend to be the kinds of things that the super-rich have in abundance. The super-rich spend lots of money but lose little value, because they buy fine (and rare/scarce) things. This is the way wealth can and should be enjoyed.

As to these kinds of things revaluing upwards with gold, I don’t really see that happening. Collectibles already conform to the “rules” that gold will conform to under Freegold. Collectibles have unambiguous owners. When they are sold, there is an unambiguous seller and an unambiguous buyer. There are no pool accounts of collectibles with unallocated account holders. There are no circulating (trading) “paper-collectibles.” There are not more “claims” on collectibles than there are physical collectibles. Etc.

This may apply to your question. Someone asked me last week:

"You’ve said hyperinflation and freegold are separate events. I can only imagine them all rolled up in one messy ball. Would love to know how you see the separate events relate to each other as they unfold separately, if you haven’t already covered it."

I replied:

"They will most likely be rolled up in one messy ball. But thinking about it in that way makes people miss that they are distinct, discrete events that will be happening at the same time. For example, if hyperinflation takes the price of everything up 1,000,000%, gold will go up 40,000,000%. But only gold. Everything else, silver, cans of peas, etc... goes up 1,000,000%. So gold's FREEGOLD rise (that extra 40x rise) is in REAL TERMS because it is relative to everything else REAL. While everything else only rises in NOMINAL terms. Can you see the difference?"

So the question comes down to how specific collectibles (since they are not fungible wealth like gold) will perform. I don’t think there is an answer for collectibles in general. I think some will perform WORSE than silver and cans of peas. I think some will perform much better! And I have a hard time imagining any that will perform as well as gold or better, but perhaps a few will.

Some of the most-rare pieces are already being revalued upwards now. Freegold will not necessarily deliver a dramatic revaluation, but the years prior to it may. Others will be overvalued in the run-up and therefore may perform worse than inflation. Real Estate may be one of these since it is generally priced with leverage. However the best of the best pieces of real estate, those that trade with no leverage today, will likely do as well as inflation.

And then the next question is would it be worth trading an extremely rare item for an abundant one like gold for a profit from the transition? I cannot answer that question for you. “It depends!” On many things. I think it would have to be analyzed on a case by case basis for each and every item. And then think about the liquidity of those items. Will the people that would buy them today be in gold through the transition so that they would still be able to buy them tomorrow? Lots of things to think about. Read my old post
Mona Lisa or Ben Franklin. But try to imagine it as “Mona Lisa or gold?”

Of course these are only my guesses based on intuition. I hope they help!

Sincerely,
FOFOA


Dear FOFOA

Thank you so very much for your extensive and thoughtful reply; of course intuition has to play a large role in any such analysis.

The sort of items I am talking about can see seen at http://www[redacted] .

Once I've really been able to mull over your thoughts, I may get back to you on them, if that's OK.

Sincerely
J


Hello J,

Well that looks like quite a collection! What a nice and rare [redacted]!

A couple thoughts come to mind initially. The first is wondering if you are a dealer first and foremost and a collector second. Or are you a collector first and dealer second? This goes to the enjoyment factor of owning such precious artifacts. And also, probably, the discount at which you obtained the items since dealers are more particular about their purchase price.

Also, I would have to look at collectables like this in a similar way to numismatic coins, which I personally stay away from. The reasoning is that I view numismatic prices as having two distinct value components: the melt value of the metal, and the premium on the art, history, age and scarcity of the piece. Freegold is a revaluation of the melt value component only. And in the case of many numismatics, I expect the premium component to actually shrink in real terms. This can already be seen happening in some cases as the price of the metal rises transferring pressure to the premium component. But only in more common numismatics. Not in the most rare.

Another lesser consideration is that ANOTHER was writing more for people holding their wealth in paper, not in real things. For these people gold bullion is a much more urgent consideration than for someone like you.

Consider the scenario of the dollar’s purchasing power falling 90% while gold revalues 40x upwards. For the average saver in an average pension fund or 401K, that is a differential of 400x. Whereas your items may only face a differential of between 7x (for gold-based items) and 40x for other metals. (That's the difference between keeping what you have now versus trading it for gold bullion before the punctuation. Just a very rough guess of course, but in any case much less of a factor for you than for the paper bugs.)

The point being, if people like you were all ANOTHER was going to reach, he probably wouldn’t have bothered to come forward. Of course that is no reason for someone like you not to optimize. But because you are already in a much much better position than 99% of the rest of the people, careful consideration should be given to your decisions.

If it were me, I would probably aim to start reducing inventory in favor of bullion. But I probably wouldn’t sell the stuff at fire sale prices. I would simply make it a “policy decision” of sorts to reduce inventory, and for new items I would want to start acting more as a broker rather than growing my inventory. In fact, I might even expand my business into the “rare bullion” sector. You can often find rare and “antique” gold bars at no premium to the melt value, that could then be presented to the same clients that like your other artifacts! And that’s the kind of inventory you wouldn’t mind sitting on through a Freegold transition!

Anyway, just a few “off the cuff” Thoughts.

Sincerely,
FOFOA


Hello FOFOA

Thank you so very much for another outstanding reply. Some comments:

1) Whatever I was before, I am now a dealer first and foremost and a collector second, in light of the gravity of the economic situation. As middle class life melts away, (with the attendant risk to social/political stability) there is no such thing as having too much gold; thus, conversion of more illiquid assets into more gold is my top priority; at issue is the timing, etc. of Freegold.

2) Regarding your last few paragraphs about my situation:
I am indeed already in a much better position than 99% of the rest of the people. But much hinges on the magnitude and speed of the social/political upheaval which will result from the collapse of paper assets, with its likely attendant explosion in the violent–crime rate. Will it be necessary to have enough gold to afford a fortress, or at least some bodyguards? (Presumably the Giants have such defenses all lined-up!) Or at least enough gold to be able to purchase safe havens in other countries, assuming that any will be any safer than the US?

Given society’s current prospects, everyone ought to be thinking about how they stack-up regarding the following sorts of considerations:

I am in my late 50s, hence I’m long past the peak of my ability to “mix it up” with gangsters. At first glance, I might present something of an imposing figure (being 6’2”, now 220 lbs., with a booming voice) but, at some point I will start to look old, I cannot be everywhere all the time with all of my loved ones, and these loved ones clearly do not present imposing figures.

I have already (since '07) started working quite hard to reduce my collectibles inventory in favor of bullion, obtaining very much indeed above fire sale prices. But I still have many fewer “dollar worth” of gold than of the collectibles (particularly if these are measured by what I view as their potential worth, rather than by my cost). And, considering these items' illiquidity (particularly at the higher prices), getting such prices tends to require patience, luck, or a fair amount of (preparation) time and work (which I generally quite enjoy doing).

[In recent months, I have been concentrating on improving the chances of a major haul from [redacted]; but this figures to be a relatively long-term project. Thereby I have neglected other possible pursuits, e.g. rushing to get auctioned items of vastly lesser magnitude and value; this because I feel that I am (regarding financial potential) “top-heavy” into the [redacted]. Were it to sell, I would be then diversified in various genres of historical objects/groups. Were I to expect Freegold within months rather than years, I might reverse course and prioritize auctioning of whichever lesser items I could. Seek Home Run later or bunt singles now?]

3) Regarding your comments about coins (insofar as they are analogous to the items I hold) , esp. your view that "the price of the metal rises transferring pressure to the premium component. But only in more common numismatics. Not in the most rare".

Do you mean only that this is happening now, or do you expect the rare ones' premiums to continue to evade the pressure which is affecting the more common ones? (For esoteric reasons, I doubt that this premium- stability will continue to hold for most rare coins, depending on the definition of “rarity”; more on this later, if you’re interested.) This matters insofar as my key items are all, by significant measures, quite rare indeed, although of course far less liquid than are many rare coins (which have a large established market-infrastructure).

Enough for now. I eagerly await your thoughts.

Sincerely
J

Hello J,

1. Regarding the timing of Freegold – The way I approach it is that it is already overdue by ten years at least. So I think of it kind of like “the big one” (earthquake analogy) that could come at any time. How you prepare for an overdue earthquake is how you prepare for Freegold. That said, once a certain amount of sufficient preps are done, the rest can be executed a little slower so as to aim for optimization. If Freegold happens before you are done, you will still be fine. If it takes a little longer, you will have optimized your excess.

2. Regarding security – The best security is secrecy, bar none. Beyond that, I have bought a number of firearms, I have a CCW (concealed carry permit) and I bought a concealable bullet-proof vest which I have never worn. Cheap insurance for $250.

If I was in the $10m net worth range or above I might look to a second home outside of the country, probably Canada, Switzerland or New Zealand. Below $10m, I wouldn’t worry about it. I’m staying put. Did you see the Richard Maybury piece I posted in the comments about “leaving the country”? If not, you can read it
here.

Regarding the [redacted] versus “bunts”, I understand your juggling act. Unfortunately I think only you can properly weigh all the pros and cons. I doubt you could ever give me enough information to be helpful in that analysis.

3. Yes, I mean that is happening now. I do not expect any premiums to expand like the bullion itself in its new monetary function. There is no reason why they should! It is gold bullion that is changing in both form (physical only) and function (global monetary store of value). I can’t think of a reason why such a unique change would bestow its increase on anything else.

Sincerely,
FOFOA


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Dear FOFOA,

Thanks much FOFOA, I just donated $200 via PayPal and I added a comment to the blog thread. As much as you detest having to write the latest, some of us do need reminders, and I do appreciate the note that you are not amassing physical - just protecting it. I think as time goes on here (near the end), you will have more and more opportunities to connect the freegold foundations with current events (similar to what you did recently with GLD). I'm looking forward to it!

I was wondering if you might do some paid consulting for us by giving us your opinion and Thoughts regarding some IRA and regular investments in CEF, GTU, etc. My concern lies in the future tradability of these as we move closer to reset. These are by no means the only PM investments we have but they are substantial.

Let me know what you think.

Thanks FOFOA,
L

Hi L,

I’m not sure what you had in mind, but I’m happy to answer questions by email for free. I’m not in any way a financial advisor, just a logical thinker. But if I can help, I am happy to. Then if you feel that I gave you something you would have paid for, you can always donate more at the end. ;)

To be honest, I don’t know that much about CEF and GTU. Are they exchange traded like GLD? Are they closed end funds? Etc. Also, I have another supporter who just switched to a self-directed IRA (SDI). In it he can buy physical and store it at Brinks. His question was whether it would be better to take the hit to close out the IRA now and buy physical discreetly, or to get twice as much physical through his SDI with big, taxable paper trail.

Sincerely,
FOFOA

Hi FOFOA,

Let me give you some more background so you know better the situation. My brother, Mother, and myself have self-directed IRAs. A portion of my IRA was in Gold AE’s stored in a vault (Delaware). I took the “hit” and had this delivered to me last year because I simply do not trust this method of storage through reset due to the vast corruption “out there”. For the remaining amount, I searched for other G/S vehicles that might be considered next best to the physical. I first heard of CEF from a Rickards interview. Rickards and others consider CEF, GTU, and Sprott’s funds as very good (when compared to GLD/SLV, etc). CEF (Central Fund of Canada) has been around since the ‘60s and they are also managing GTU (gold-only, CEF is 50/50 G/S), and the bullion is independently audited each year, self-allocated, and acts as a store of value to stockholders that cannot be called for delivery. No lending, leasing, trading or funny business – just stored metal.

So, I helped get them into these funds and all are happy with the performance, but my concern is what is likely to happen to these as we progress through reset. So far, I trust these funds far more than an IRA custodial vault, however I have doubts about how a brokerage account will fare through reset. One option is to have the stock certs (available from CEF only) sent directly to us, ride out reset, and see what happens. The more painful option is to liquidate now and buy physical (with all the attendant storage issues and tax hits). I think you have a far better idea than I what the process of reset might look like. So that is the core of my question – and I might even not know enough to put the concerns in the right place.

The CEF website is: http://www.centralfund.com/
GTU is: http://www.gold-trust.com/

If you feel the need to do a bit more research on these funds, I’ll make the donation commensurate.

BTW, attached is a ppt of pics I put together of the family farm operation we are getting going here in [redacted]. We are doing organic/biodynamic and promoting a diverse environment in which the animals can express themselves naturally and contribute to the diversity. We fear that there will be great need soon for truly nutritious food for folks. And we intend to be able to provide it. Hope you enjoy the pics.

Thanks FOFOA,
L

Hi L,

Thanks for the pdf. Great pictures! Where did you move from?

I’ll give your question some thought and take a look at the CEF/GTU websites. I don’t like to tell anybody what to do with their money. Instead, I like to enable people to decide for themselves. It is only when you take your own financial advice that you can truly have peace of mind.

What it comes down to for me is liquidity during and after the Freegold transition. I believe that physical gold will be the most liquid form of gold, and your most liquid market will be the millions of people physically within your reach. As paper gold fails, I can imagine people panicking out of even full-reserve funds because they don’t know the difference. You may know, but not everyone does. So I can imagine that even the best funds might track the paper gold price down, and then be taken advantage of by a few big players that have the ability to redeem those for physical at a discount. So I will have to look at the redeemability of those funds. And even if they are redeemable for the individual investor, they are still up in Canada. So that would be a factor to consider as well.

After Freegold, why would someone pay the same amount of money for an irredeemable Canadian share as they could pay for a little wafer bar of physical at the bank? That’s another thought. So even at full reserve, I can imagine funds trading at a discount to physical. Furthermore, we don’t know what the public markets in which these funds trade will look like after a big shock and exodus of investors.

Anyway, those are just a few of my initial thoughts.

Sincerely,
FOFOA

Hi FOFOA,

We came together from [big cities, leaving our careers] across the nation – [redacted]. Back in ’09 we all decided to come together to do the farm thing recognizing the need for nutritious food and the need for a choice relative to big Ag. We also recognized what is coming and that this (the farm) is probably the best way to help in the long run. If we are going to jumpstart productivity, it better start on the local small farm.

I’m not asking you what to do – just thoughts about the considerations involved in the coming reset. I know that the bottom-line ultimate answer is physical in possession (buried or whatever). And if that is the route we take, then it must be soon. But it’s a matter of making an informed decision with as much realistic likelihood of what to expect down the road. In other words, it would be nice to shine the flashlight down the road as far as possible before heading out. And to some extent this does require an examination of CEF/GTU in the context of reset. There will always be unknowns, but before all is done, I’m expecting the absolute worst from the current “system” (forced annuitization of all IRAs, for example). If there ever was a concentration of psychopathic anti socials it would be in today’s corporate/government/financial structures. This I have researched over many years.

I understand the redemption prob associated with the Sprott funds and I may be incorrect in assuming that the same could not happen with CEF/GTU. And even if they survive, they would certainly trade at a discount. And there are potential political probs since the gold is in Canada. And there could be such decimation to the trading structure/system (as you say) that nothing really trades like today. These are all the things I need to weigh while the fiat can still be converted to physical.

There is one aspect related to that last point. It doesn’t change Freegold – just our collective expectations. If we are headed for a period of worldwide chaos, anarchy, and destruction (a la the psychopaths), then the world asset side of the equation may be far less than that currently represented by debt fiat. In other words the starting point for Freegold may be an environment of much destroyed wealth. Any corporation/system can handle a minority of psychopaths if these individuals are recognized for what they are and prevented from rising to top level positions of “leadership”. We as humans, have collectively failed at this task of reality discernment in our governments/corporations/systems/etc and are likely to pay a very stiff price. If there are any benevolent giants out there, now would be the time to step forward.

Thanks FOFOA,
L


Hi L,

I’m a little buried in email right now, so just kinda stopping by to say Hi! Thanks for the updated pdf.

As far as gold having a lower value because of destruction of wealth, that is not the case. First of all, the fiat “matrix” disappears and leaves the underlying real world intact, just like the real matrix in the movie being turned off. Yes, there can be a depression and whatnot, but gold has this strange ability to stretch its value out into the time dimension rather than just a snapshot of our 3D world. This is a result of the giants having an intergenerational proclivity for the stuff. Has nothing to do with us shrimps, except to the extent that we get to go along for the ride. This post talks about that time dimension. It’s how gold can have a higher gross value than all paper wealth in existence today. And how gold can keep its value even in times of recession:
http://fofoa.blogspot.com/2010/06/how-can-we-possibly-calculate-future.html

Sincerely,
FOFOA


Hi FOFOA,

Just read your Victor post. The “Cleaner” pic matches so well after reading Victor’s response, LOL … Paper gold must have reached a kind of status of currency (fiat) by now. A currency that varies in value with respect to other currencies via the paper spot price of gold. So there must be some higher level trading strategy between Forex, paper gold, and oil, (and maybe other commodities) that I don’t understand and that is not shrimp-friendly.

Anyway on the question of CEF/GTU, it might be better to ask the question in the form of which bullion institutions are likely to survive reset intact assuming that reset does not entirely decimate the current financial trunks and major branches of the system. From what I can tell, CEF/GTU are well-managed, the people are good, and the audits are good. The prospectii are geared to the current system but other than that, and the uncertainty of what the post-reset system will look like, they look OK wrt commitment to the shareholders. I realize that much bizarre can happen in many arenas and there is no crystal ball. I am a bit reluctant to take on more physical but on the other hand, none of us like the idea of our IRAs turning to vapor. I’m not asking you to analyze CEF/GTU beyond your own curiosity, but to look at it as to how such an institution might fair through reset. Your idea of how that might proceed is far and away better than mine – so any Thoughts are much appreciated by all here.

Thanks FOFOA,
L

Hello L,

I took a quick look at the websites for CEF and GTU. I couldn’t find anywhere that it said shares could be redeemed for bullion at any level. Assuming this is the case, the best hope I would have for the success of such a Trust is that its model catches on in Freegold and more of this type of Trust emerge. But for many reasons I doubt that will be the case.

I cannot point to a specific reason why either of these Funds shouldn’t trade at close to their NAV, other than that the holder of a share will not have the same freedoms as the holder of a gram of physical. On the other hand, I can think of a whole host of scenarios in which the shareholders end up getting screwed relative to the outcome for physical gold holders. And if you bear these in mind, you might see how they could become self-fulfilling in the end as more and more people become able to think things through in this way.

1. Freegold represents gold undergoing a change in both form and function. Form: Physical only, no paper gold. Function: Main international monetary and financial system’s primary reserve asset and international settlement medium. The divergence of the value of gold away from other things like silver and oil will be a snap! or a gap on the charts as this change takes place hidden from the markets. It will not be a matter of the trading markets shifting to value gold vastly more than other things. It will be a simple monetary reset. And with this may come any number of strange occurrences.

The thing to keep in mind, no matter what happens, is to ride it out! Don’t act rashly. Just relax and let your gold lie very still.

For example, some politicians may attempt a confiscation of some sort. I’m not focusing on the USA because this could happen anywhere. But it will be very short-lived because it will cause massive capital outflow and will net very little for the offending government. Wherever it occurs it will have devastating short-term effects and be quickly repealed. That’s what I foresee. And that’s why it is important to understand in advance, so you can just sit back and watch the show.

However, the victims of such a move will likely be those whose gold is stored by a third party. These will be the easiest targets for stupid politicians. Even the most honest and upright fund manager will quickly hand over your gold rather than face any kind of legal or criminal threat. When I say offending governments will net very little, that very little will come from places like GLD and CEF. And it won’t be returned once the law is repealed because you will have already been compensated in cash at the paper price of gold while the physical price was in hiding.

2. As I have written about it is likely that the new IMFS will not allow the lending of gold in any way, shape or form. This is not a requirement of Freegold, but it is the logical conclusion we can expect from rational lawmakers. This would likely invalidate such funds as CEF or GLD since the shares can be lent and sold short. This will be seen as deleterious to the newborn monetary system.

So the question then becomes how to dispose of unsecured creditors like the shareholders. If you are really lucky they’ll melt down all those 400 oz. bars into little bits that can be divvied up in share-sized baskets. But I wouldn’t count on that outcome.

3. Depending on how long the “gold in hiding” period lasts (which I have guessed could be between a week and 6 months), there may be a concerted effort to cash out all fund shareholders during this time. There will be a significant incentive to do this! Any fund manager that can either close down the fund or force a buy-back of the shares will see a huge windfall on the gold.

This may seem like something only a dirty rotten scoundrel would do. But I can imagine that things play out in a way that even the best of them end up doing this.

4. On the other hand, you may be sitting on essentially worthless shares for up to 6 months, hoping everything turns out in your favor once the BIS Freegold market opens for business. Imagine, if you will, the paper price of gold crashing to $200/ounce for 6 months. No physical is trading anywhere because no one knows the price. The dollar is undergoing hyperinflation.

On paper, your entire IRA is wiped out. The Canadian government offers a premium payment to shareholders of 100%. The offer is $400/oz. for your gold shares while the paper price is sitting at $200/ounce month after month. Do you take the offer? What if it doesn’t work out in the end? What if you don’t get the Freegold price for your paper shares? Then you would have been a huge fool not to take the Canadian offer. So what do you do? What decision will you make at that moment in time, not knowing how the future will play out?

5. I could go on, but I don’t think I need to.

Larry, you have gone to great lengths to move your life [except for your savings] off the grid and onto a place where you are in control. I tip my hat to you, sir!

Sincerely,
FOFOA

Hi FOFOA,

Thanks much for your response and insights, and I much agree with your points and the picture painted. So the plan here is forming. The subject might make a good future post since I suspect there are many more in a similar position.

I never got to any more pdf pics, but here are some of the latest ones that we put together.

Take Care,
L


Thanks FOFOA, Here is another donation from us. Thanks for the insights. I know what we are going to do. Take Care, L

Dear L,

Thank you once again for your generous support!

I’m happy that you found my email to be helpful! And once again, great pictures. It must be fun starting a new life of farming, although I imagine it’s also a lot of hard work!

Just out of curiosity, which of the four arguments did you find most persuasive (in my last email)? I personally thought #4 was the most powerful. Because it sets up a situation in which you may be faced with a tough decision in the future in which you would have no way of knowing the final outcome or the best choice. Avoiding those kinds of potential future conundrums is what preparation and peace of mind is all about, wouldn’t you agree?

Sincerely,
FOFOA


Hi FOFOA,

Yes, I think point #4 was the most powerful along with the last para of point #1. I think this had the most impact because #4 suggests a scenario that strikes an intuitive chord. And the easiest route is always taken by politicians always in favor of their own skin. So, everyone resonated with this. And yes, everyone agrees that peace of mind in that arena allows us to concentrate on much more timely concerns as all this plays out. And preparation it is.

On the farming, much of our motivation has stemmed from an understanding that our food quality (both animal and plant) has been degrading for a very long time and has become the driver in chronic disease today. All of this has much of its source in the loss of soil fertility for producing healthy plants and animals. Human health depends on these two, and thus, the soil. Good men have been sounding this alarm for a long time, but Big Ag and Big Pharma have gained dominance through politics. You will understand this deeply if you read Albrecht’s “Soil Fertility and Animal Health” I have attached. And this was written in 1958! (I know how you appreciate the early warnings) What we hope to achieve is to provide at least a small pocket – truly nutritious food in a time where it will be sorely needed – aimed at helping those that can, in turn, help others. There are many of like mind scattered around the country.

I’ll add you to the list for periodic pic updates so you can see how things progress.

Take Care,
L


---------------------------

And last, but certainly not least, here is a bonus email exchange from just last night:

So... I've been reading through a few interesting threads on the Bitcoin forum today. I'm starting to think this crash over the weekend may be a much bigger story than the allinvain story that initially drew my attention. And I haven't seen a single person raise what I think is an entirely likely scenario. There are many theories floating around. But I think everyone there may be missing the real story. So I'm wondering what you think of my theory. I'll repeat, I haven't seen this, or anything even close to it, mentioned anywhere. Perhaps it is, but I haven't seen it. It's a theory I just now came up with.


The generally accepted story is that someone hacked MtGox and took control of 500,000 bitcoins and put a sell order in for all of it at 1 cent. Everyone accepts that it must be a hacker that did this, because who in their right mind would do it voluntarily, with their own funds? This is where my theory comes in. I can see EXACTLY why someone would.

The owner of MtGox claims that all 500,000 bitcoins came from a single account that was hacked. That would have been over $8 million worth before the crash. So some of the forumers are questioning whether MtGox is telling the truth. Was it really just one account that was hacked? Who would keep $8 million on an exchange like that, in an account that could be hacked? Seems pretty unlikely, and I agree.

Just before the price hit 1 cent and trading was stopped, one kid scored HALF of those bitcoins by putting in a buy order for $.0101. He happened to have $3,000 cash in his trading account as the crash was happening and he, being a smart kid, bought 259684.77 bitcoins for $2,613. Here is how he describes it on the forum:

I’m Kevin and I'm the guy who bought 259684 BTC for under $3000 yesterday. I really wanted to keep this as quiet as possible, but I don't feel I can anymore. Here's my side of what happened.

On an exchange like MtGox, there are typically hundreds of standing "buy orders" where people are offering to buy bitcoins at various amounts and prices. When a large sell order comes in, an exchange will start with the highest priced buy order, match up the buyer and seller, then move down to the next lowest buy order. This repeats until the entire quantity of bitcoins being sold have found buyers, or there are no more buyers at the minimum price the seller was willing to accept.

I was watching, like many of you, a gigantic sell order burning through the bids. Mt Gox doesn't execute trades very quickly, so we were watching this huge order slowly eat up every buy order on the books. The price started at around $17.50, and within minutes was below $10. At this point, I realized this wasn't merely a large seller willing to accept some losses. This was someone attempting to crash the market by selling a huge percentage of the market's total bitcoins at once.

I had around $3000 USD in my Mt Gox account, from earlier sales I'd made. I looked at the market stats, and realized that there were tons of orders to buy BTC at $0.01 that would likely eat up any remaining bitcoins this seller had on the order. I figured if I put a buy order in for $0.0101, my order would execute first and I could buy a huge amount of bitcoins from this seller before it hit the bottom. The only problem was that Mt Gox was running slower than molasses at the time, and everyone was saying that it wasn't accepting trades. I had to try several times, but eventually I got a buy order in, offering to buy as many bitcoins as I could for $0.0101.

The site stopped responding completely for a while, probably from so many people hitting refresh to see what was going on. When I got back in, I saw in my account:

06/19/11 17:51 Bought BTC 259684.77 for 0.0101

I had just purchased over 250,000 bitcoins for $2613. At the trading price immediately before this large sell order happened, that number would have been worth nearly $5 million. After I regained my breath, I tried to figure out what to do. I wasn't sure what was really going on.


+++++++++++

To make a long story short, the owner of MtGox has accused this kid of being the hacker and reportedly reported him to the FBI. The kid says he's not the hacker and MtGox is not telling the whole story. Like, who is the "victim" with 500,000 bitcoins in his account? I happen to believe Kevin, the kid.

The debate now seems to be on whether or not MtGox should reverse the trades. It seems fairly obvious that the "victim" who lost his 500,000 would want the trades reversed. I'm not so sure.

He hasn't been identified, but we can assume MtGox knows who it is. We can also assume this "victim" is asking MtGox to reverse the trades. But here's the thing...

I think he's probably hoping that they DON'T reverse the trades, because he just cleaned out every single US dollar cash buy order on the largest Bitcoin exchange, all in one fell swoop. He could have NEVER cashed out 500,000 for $8 million USDs and he knew it. And the allinvain story showed him that Bitcoin is not long for this world. So how much $$ did he get? Well, let's assume Kevin cleaned out the last half at $.0101 since he didn't use up his whole $3K. Our "victim" got $2613 for that half of his chips. The other half would look like a sloping graph from $17.50 down to .0101. That means it is likely he got an average of $8.50 per bitcoin for the other 240,000 bitcoins, or about $2 million dollars.

Is that a "loss" of $6.5 million? Or a GAIN of $2 million? Definitely the latter!!!

Granted, this is a bold move. Which is why he is now presumably playing the victim, asking for a roll-back, but hoping it is not done. If it's not rolled back, he walks away with the $2 million after cleaning out most of the USD cash on MtGox and everyone, including the owner of MtGox, thinking he is a victim.

So who could this be? Who has 500,000 bitcoins? Well, Satoshi Nakamoto, who reportedly has 25% of the bitcoins, only has about three times that many. So it's got to be a pretty short list. Either it is Nakamoto or one of two or three others. And if it is one of the others, then it was likely his whole wad. If it was Nakamoto, it was a $2 million payday for only 30% of his stash. He's still well hedged to the upside if Bitcoin recovers. But at least he got paid for all his work over the last two years, before BTC hit FOFOA's target price.

So what do you think of my theory? Any holes in it?

Sincerely,
FOFOA

PS. I should also mention that there is a real chance the trades will not be reversed. There are good arguments for them not being reversed, not the least of which is MtGox's own policy as well as the fundamentals behind bitcoin. It's supposed to be irreversible. If you start reversing trades, liquidity will dry up as people will pull their profits from the exchanges ASAP. And this is now a debate, even though some think reversal is imminent. I'm not so sure it is. And even if it is, Nakamoto would still be in the clear with all his Bitcoins restored.

Just like the Giants and gold, he who panics out of the dollar first gets the most gold.




FOFOA,

Why dump the whole wad at once, which you know will overwhelm the market? This would be a poor way of cashing out, no? Could "he" not dump like 20K a day (or whatever based on knowledge of the volume he could move through the market) to max his return?

He threw away so much money if he did this intentionally, no? It seems clear it wasn't:

"I realized this wasn't merely a large seller willing to accept some losses."

It had to be something else:

"This was someone attempting to crash the market by selling a huge percentage of the market's total bitcoins at once."

Exactly, it had to be a hack, no one would sell a huge percentage of their orange tickets..ohhh wait

.....

1) it seems mtgox volume (and bitcoin in general also in context of other exchanges as well) is light, so maybe even 20K or whatever smaller dumps a day become suspicious, and he can't slow dump. In your scenario he has the cover of "OMG" it was a hack, it was not a dump by a ponzi insider, and by dumping half or whatever at like 1 cent, the hack ruse looks even more credible, because, from above "he threw away so much money of course it was not intentional?" so the story is as you say, what he "lost" not the 2 million or whatever he pockets

2) who has that many bitcoins??? - only weak hand/ponzi insiders - how could the sell order be from multiple accounts, right?? - clearly they didn't hack 500 accounts and sell from them all in one order, right? this is one guy!

3) why they keep all that in the account there??? - the amount sounds way outta line to keep all that on a site where it's obviously an amount quite disproportionate to the volume trading there

4) whoever had that much coin on there had to see the *slow motion train wreck,* he would have to be a computer guy way way way into bitcoin to have all those bitcoins, so why is it that "Just before the price hit 1 cent and trading was stopped" - doesn't he step up earlier- he has like all these coins and the whole community is going nuts watching this crash - he had to have known and it appears he didn't act - why would he want to watch it fall that far??

because you indulged me, -
http://www.theatlantic.com/national/archive/2011/06/after-the-crash-whats-next-for-bitcoin/240696/

"Over the last few weeks the currency's value rose 30-fold
[a ***HUGE*** reason to get out now, 30 FOLD] to more than $30 before falling back to $10 and rising again to $20 late last week. But Bitcoin
prices fell to pennies this weekend following a security breach that allowed as much as $8.75M worth of Bitcoins (at pre-crash prices) to be (temporarily?) stolen.[the story's an easy mainstream media sell, as it passes the common sense sell test - no one would dump all that money right...8.75m...but...]

This follows last week's news that 25,000 Bitcoins were
illegally transferred from accounts on the currency's largest exchange "allinvain's" computer, a heist then valued at nearly $500,000.[hmm, that wouldn't be the mysterious guy and mysterious event of mysterious timing that *just recently* sparked the public debate that ultimately raised the profile of and reaffirmed the whole "we need to take a hard stand and recognize that bitcoin's decentralized ideology means no reversals when you get robbed on an exchange", there is no Mr nice guy fed to take your shoebox of burned money too, we have to say tough shit. Well timed precedent to lend credence to the "real chance the trades will not be reversed," in keeping with speculation that "he" doens't want the sale reversed]

Following Sunday's mess, trading has been suspended and Mt.Gox is
currently down as is competitor TradeHill (where prices closed at $13). Both sites allowed users to trade Bitcoins to and from U.S. dollars and Mt. Gox accounted for nearly 90 percent of Bitcoin's average daily trading volume…


Yup, there it is, no other way out, he could not sell a little a day or whatever, 90% of the market at mt gox - that's the whole game there, it makes no sense to keep that much on there given the volume, and that info crushes the common sense reaction argument I first posted:

"Why dump the whole wad at once, which you know will overwhelm the market? this would be a poor way of cashing out, no? could "he" not dump like 20K a day (or whatever based on knowledge of the volume he could move through the market) to max his return?

he threw away so much money if he did this intentionally, no? It seems clear it wasn't:

"I realized this wasn't merely a large seller willing to accept some losses.""


Actually, maybe it was, except to call them losses is maybe not the best way of looking at it - they were gains above FOFOA's target price - huge gains in fact! he got a bunch out, more than he could any other way, and he also has a cover to hide his tracks and help to keep the ponzi going/keep the balloon from deflating!

Pimps and slingers don't take bitcoins. Who would *not* want the opportunity to indulge oneself in the finer comforts of the moment while also keeping a few "orange tickets" in the "raffle"? After all you can get a yacht if you have enough money.

HOLLA

If it was Nakamoto, it was a $2 million payday for only 30% of his stash. He's still well hedged to the upside if Bitcoin recovers. But at least he got paid for all his work over the last two years, before BTC hit FOFOA's target price.
++++++++++++++

Sincerely,
FOFOA

"Yeah, It's been a ride...
I guess I had to go to that place to get to this one
Now some of you might still be in that place
If you're trying to get out, just follow me
I'll get you there…"



Update!

Just in, from Santorini, Greece:

437 comments:

«Oldest   ‹Older   201 – 400 of 437   Newer›   Newest»
JR said...

cont.

With the context of BB's statements from above about the goal of "credit easing" not being targeting bank lending by pumping bank reserves and waiting for the money multiplier to kick in, *but instead* credit easing's goal being to keep dollars cheap (aka enable nominal performance in the credit market by making needed dollars available), lets look at this FOFOA comment, discussed above, where FOFOA makes clear BB is pumping money into the Eurodollar market to prevent the dollar from being bid up, aka to keep the dollar cheap.

"Remember back in 2009 the Fed swapped $500 billion with foreign CBs? That was for this same purpose. Those Eurodollars need to be serviced with Realdollars from time to time. But that $500 billion swap line has now been withdrawn. Today it is $0 which you can see on the Fed's balance sheet. Without that access to Realdollars from the Fed, Eurodollar players must bid up Realdollars on the exchanges, which the Fed doesn't like."

No mention of money multiplier, but FOFOA seems to get what BB is up too - pumping cash to keep money cheap as the inevitable need to convert non-traditional bank credit (e.g. "securitized debt") into cash (see that, converting debt, aka the contractual promise of more cash in the future, into cash) means a heightened demand for cash and thus a "shortage" of dollars. FOFOA writes:

"So now that we have this picture in our minds, what do you think the process of replacing "claims on someone else for Realdollars" with actual Realdollars (on the assets side of bank balance sheets) does to the value of the dollar? It lowers it. This is why the Fed is expanding its balance sheet. To keep dollars cheap. And you do that by slowly changing the very nature of the money supply, from credit money to base money. This is happening. It is not more money being created, it is money being fundamentally altered to keep it cheap."

****

Sounds a lot like the idea from the Hayek quote from Prices and Production discussed above:

"The characteristic peculiarity of these forms of credit is that they spring up without being subject to any central control, but once they have come into existence their convertibility into other forms of money must be possible if a collapse of credit is to be avoided."

This non-traditional bank credit must be ultimately convertible into money (aka fundamentally able to be changed from credit money/debt into base money) or the credit collapses.

Guess which outcome BB and others have already picked?

Hint: Its not the deflationary collapse of credit.

Cheers, J.R.

Ashvin said...

JR,

What don't you understand about the flow of time? Something written at the beginning of 2009 comes before something said at the end of 2010...

And the analogy you quoted by BB obviously implies that he thought this type of deflation could not occur because the central bank is in control of the money supply, not because it is in control of nominal yields. While the two are obviously related, the two implications are not the same at all. Whether he legitimately believed what he wrote at the time, or was merely putting on a show, is another question and one we can never really know.

Also, I love how you play it both ways without realizing it. The Fed can't prevent dollar HI because it's already baked into the cake, effectively outside of its control, but they can reverse deflation, because they have ultimate control over the dollar's value (as BB would also have you believe... unless speculative commodity inflation ignites a revolution, then it's not in the least bit his fault)...

Texan said...

Ash, I kind of agree with you that sustained deflation is a risk. But I don't think it's likely to happen, at least not in any meaningful sense on a worldwide basis. China will not abide hordes of unemployed, and to a lesser degree neither will the G-7.

But I don't think this unprecedented gvt response to possible deflation implies HI is inevitable, either. I thick they want " some inflation" to staunch the shadow banking losses, and they will do this for years if necessary.

And everyone is going to play this game because that is in everyone's best interest, ie accept a loss of SOME wealth and/ or SOME purchasing power, or risk losing it ALL. The real Nash equilibrium.

Europe exemplifies this game. They either write off the debts via a public entity ( the ECB, the EFSF, or whatever), or the entire EMU risks outright collapse. And then what's a "euro" worth? Ha, wouldn't that be ironic if a collapse of the euro sparked the HI bonfire.

Ie- no one wants HI except, maybe, some of the PM and survivalist crowds. Collectively not a very important bunch. So TPTB are going to try and gin up some way to reduce overall leverage without collapsing the economy.

Texan said...

By the way, I don't know if anybody noticed the Time magazine article which was a translation from DieWelt article about how Portugal and Greece could raise some money if they would just sell their gold "at today's prices"? The article made it sound like the world would be saved if they did that, even though the amounts such a sale would raise were pretty trivial in comparison to their total debt.

Some CBs trying to pick up 400 tons or so "at today's prices"? Just sprinkling some seeds to see what might grow?

Texan said...

Gregor, I totally agree with you on the " unbelievable" low vol of gold. I would even go further and say the " impossibly" low vol. I bet if you ran vol on gold it would be among the least volatile, which is very strange for such a small market. Someone is selling HUGE vol on gold. All the time it seems.

Pull up a tick chart on gold and watch how on big up days it basically pins at a level for the entire day. 1530 today. It has not moved up in 12 hours. Not possible. The one move above 1630 was immediately spiked down below 1530.

That's ok if it happens sometimes. The problem is it
happens all the time. This is options hedging in simply huge size, and it is always with the effect to cap the price. They run up netflix and amazon and chipotle, and they ran up corn and silver and even oil (and with these last 3 they sure got someones attention). But they never ever ever run up gold.

Why is that? In this macro environment, who in their f'ing right minds is shorting gold???

raptor said...

http://www.freerepublic.com/focus/f-news/2689034/posts

Fool's Gold [GOLD STANDARD'S STUPID]

JR said...

"...But in the same way that the marketplace has no control over the supply side, the printer is powerless on the demand side. ANOTHER alluded to this years ago when he wrote:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!

So it is the receiver of currency—not the giver—that determines its value. That's the power of demand. And what do you think happens to the printer when the demand side drops the rope? If he was pulling he falls on his butt. If he was releasing, he's now pushing on a limp string. And this is part of what confounds deflationists. They can only imagine hyperinflation happening while demand is pulling and the printer is releasing. They imagine "inflation-on-steroids," but that's not how hyper works...
"

Big Gap in Understanding Weakens Deflationist Argument

JR said...

More from Big Gap in Understanding Weakens Deflationist Argument:

"...During stable times money is always in demand, more or less, which gives the supply side (the printer) control over the value of a fiat currency. He can loosen or tighten at will, because the demand side is always, to some extent, pulling on the rope. So during stable and predictable times, it is fair to say that the value of money is primarily a factor of quantity, or supply. Demand for money (or its velocity) is relatively stable during these times delivering (almost) full control of value to the printer—the supply controller.

But during unstable times something changes. The demand side of the equations suddenly takes value-control away from the printer. This is where we are today, and where we have been since 2008.

When the economy is struggling, unemployment high, home prices falling, people are afraid to spend their money. This drives up the demand for money, slows the velocity of money, raises the value of money and lowers the prices of things and assets. Likewise, when the financial markets are crashing, the demand for cash skyrockets while plunging assets bid frantically for dollars. Both of these demand-driven events act just like a large deflation in the money supply as they drive up the value of money and lower the prices of other things.

When this happens, the money printer tries to counter demand by increasing supply. But today, clearly, demand is in the driver's seat, not supply. That's because in 2008 we moved from the stable and predictable into the unstable and uncertain.

Now I want you to think about this for a moment. Because everything I've been describing so far sounds like deflation. And I have hardly mentioned prices, or the difference between credit money and physical cash, or the difference between luxury items and necessities, or any of the other myriad things that confuse and complicate the issue. And that's because I'm trying to focus your attention on this one concept. That the printer is no longer in control of the value of currency through the supply side. Instead, the marketplace is now controlling it from the demand side. And so far that has meant mild deflation.

You see, monetary supply and demand can act as exact substitutes for each other. A 50% rise in demand has the same effect as the 50% decline in supply. Or said another way, it takes a 100% increase in supply to counteract a 100% rise in demand. And that's exactly what we see happening today. A spiking demand for currency because of instability in some markets and the economy, as well as earthquakes and unrest in the Middle East, jacks up the price on the currency exchange and drops the price of other assets which is instantly met with quantitative printing (supply increases) to ease the pain, raise the price of assets, and recklessly counter that which is actually in the driver's seat today, demand.

Once again, during stable times, supply gently drives demand. During unstable times, demand drives (forces the hand of the printer who controls only the) supply.
Did you figure it out yet? During stable times greed allows the printer of the currency to drive its value through supply controls. During unstable (or uncertain) times fear takes the wheel, leaving the printer at its mercy in the back seat.

So what are you afraid of? And what is everyone else afraid of? Could other people's fears ever affect (or change) yours? What are you more afraid of, running out of dollars or dollars becoming worthless?...

DP said...

Ash: That's the President of your country speaking (if your're American), so yeah, I think it deserves criticism.

I'm interested to know what you think of FDR's speech about having nothing to fear but fear itself? (Y'know, the last time a situation in any way similar to our own time presented itself.)

BB: By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services

[...]

If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”


Ash (to JR): And the analogy you quoted by BB obviously implies that he thought this type of deflation could not occur because the central bank is in control of the money supply, not because it is in control of nominal yields. While the two are obviously related, the two implications are not the same at all. Whether he legitimately believed what he wrote at the time, or was merely putting on a show, is another question and one we can never really know.

Correct, the two are not the same at all. Nobody disputes that assertion, but it is irrelevant. Fresh base money might be injected in a way that it can be multiplied, if only people will pull on the string (having let go of the fear of fear itself). Or, it might be injected in such a way that it will be swapped for previously-multiplied money - by buying up existing credits, inflating the price of the securities in question and thereby putting the CB "in control of nominal yields" (offsetting the fear of fear itself).

I no longer, personally, hold a fear of fear itself — because I understand what TPTB are going to do, and I know how to protect myself and my loved ones from what will follow in due course. This understanding, which regrettably appears to be common only to a small number of others who frequent this blog, is what drives me to stand up in defence of FOFOA's content here — against the falsehoods spouted by the many others passing through here who believe they understand, but sadly they simply do not.




The collapsing credit is eventually, gradually, largely replaced by (as yet unmultiplied) base money, which cannot collapse and therefore warrants fear no longer. What happens next, when the fear of fear itself melts away to nothing, and fear is replaced by _____?

DP said...

Here is a quick reminder of my answer to the last question I posed, above.

Yes, it doesn't have any timeline (which would be impossible for me to include), or in fact any real data (which would be possible up to the present time but not beyond, and frankly I don't think the required effort is necessary).

A picture does often, I believe, paint 1000 words and correct numbers or detailed timelines are not important — a conceptual understanding of the inevitable future is sufficient for one to infer the correct course of action.

Yannick said...

""Usually, as the price of an item increases, demand will decrease. But in the case of gold, it seems that higher prices are creating more demand," said a gold retailer in Tehran who asked not to be identified."

http://www.reuters.com/article/2011/07/06/us-iran-gold-coins-idUSTRE7652JG20110706

-- I believe I have read a quote about this on this website, from FOA or Another :)

Yannick said...

"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."
(ANOTHER, 1997)

Theeeere it is.

DP said...

Thanks, Yannick, for highlighting the big, BIG difference between FDRs time and ours.

Back in the day, gold WAS money. And there wasn't a goddamn thing TPTB could do in the face of fear and desire to hoard cash. What could they do, but confiscate the gold and swap it for paper? How else could the fear of fear itself be escaped?

The real problem, was using gold* as money.



* Or anything else that you can't control as your needs dictate. Silver was used, mistakenly, as it was easier to come across than gold. A permanent injection of liquidity, to get out of a bind — a one-shot deal. But still, you can't really have any useful degree of control over silver either, once it's out there circulating in coin. "Worthless" fiat currency is the way to regain control over "money", and if it's largely digital too then so much the better! Measure it against gold, and you can control it, up or down, as circumstances dictate. Do it publicly and you have honest, easy, money.

radix46 said...

From ZH,

"A stunner in the JCT press conference, who just announced that the ECB is willing to accept any junk that comes its way. Specifically he said that the ECB has decided to suspend a rating requirement for Portuguese collateral, and that the ECB will shortly issue a press release on the matter. Obviously the bank is now making stuff up as it comes alone. He also added that the suspension will be maintained until further notice. Expect this move to affect Italian, SPanish and all other insolvent country debt shortly as it becomes all too clear that the ECB will do everything in its power to give out cash against insolvent paper. And now you know what Europe's QE looks like."

Buying worthless debt outright for cash. Hmmmm, where have I heard that mentioned before?

DP said...

@radix, "making sure "it" doesn't happen here" ... :-)

Jeff said...

Radix,

Deflationists are working overtime to explain how accepting ANYTHING as collateral, at par, is deeply deflationary. But then they are still trying to prove Marx correct, so they will be busy for the next 100 years.

Texan,

Read the headlines, Europe isn't writing off any debts. They will buy everything at par, forever. That's not a little inflation, and everyone doesn't have to play that game. Specifically the world producers don't have to play that game. Under freegold their losses on paper will be more than offset by gains in gold. Texan, who do you think China is buying Euros?? They are positioning for HI. Better euros than dollars!

Ashvin said...

DP,

First of all, I was merely responding to JR's misguided attacks against Dr. Keen for not knowing something he could not have possibly known at the time he wrote "The Roving Cavaliers of Credit". It seems the term "straw man" gets erroneously dished out a lot around here. BB's comment about the "logic of the printing presses" was written before the GFC, and implies that the CB can inflate the money supply when the market isn't generating sufficient credit. That was what Dr. Keen was responding to, along with Obama's statement in 2009.

With regards to BB's 2010 statement that the goal is to affect prices/yields of debt-assets, you guys are right to a limited extent, because that is something the CB can do short-term. What it is essentially doing is coercing people to reinvest in the credit ponzi scheme, but the liabilities associated with those assets are not going away. It is similar to what Greenspan was doing during the housing bubble, to prevent it from imploding... we all saw how well that worked out. BB is doing it at a significantly larger scale, and eventually he will be forced to sacrifice "lower-grade" debt markets for "higher-grade" ones, such as the Treasury market.

FDR was an idealist like you, as are all Neo-Keneysians and Austrians IMO. Very few people can reach your level of monetary Nirvana in this system, shedding their "fear of fear itself", which includes many of the so-called Giants out there. The real reason, as I outlined in my series, is because their fear is rooted in the shortcomings of the financial capitalist system itself, not in the shortcomings of the USD or fiat currencies, or the superficial explanations of "risk aversion" to financial assets.

Ashvin said...

Radix,

Maybe here?

[Part IV - Deflationary Canyons and Caves]: The sheer momentum of financial capitalism will lead [central banks in Asia, Japan and Europe] to conduct their "re-capitalization" efforts through established fiat currency and debt mechanisms, rather than through an ongoing revaluation/monetization of gold by central banks such as the ECB (as argued in FOFOA's Reference Point: Gold - Update #1 and Update #2).

I know that's not what you were referring to, but the point remains... why is the ECB fundamentally any different than the Fed/UST? Because they have different values listed for gold on their balance sheet?

Jeff said...

Ash,

You really don't get it, and I for one am tired of you spamming a site I have no interest in reading.

Yes, the euro is fundamentally different because the euro has severed its link to the nationstate, and to gold. Until you understand this, your arguments go nowhere. And you are not interested in understanding freegold in the proper perspective. Here is a quote from that post:

FOA: Our dollar has already entered a massive hyperinflation. Its timeline is ending and there will be no deflation to save it. The currency and all the multitude of derivative instruments that make up our money system have expanded rapidly over the last 20 years. [1] Even at a super hyper rate for the last five years or so. We cannot read it because much of what we "Western" savers call paper wealth has really become money substitutes thats value is supported by the government. This paper wealth creation cannot reverse and is beginning to enter the "natural world" of real things. The best sign that the currency has entered its last, final inflation is seen in the manipulated price gauges. Truly, this is only the beginning. Eventually we will see roaring price increases in everything, even as our government indicates level prices or perhaps a deflation in our price structure. This has to happen, because there is no saving a society's currency that has indebted itself beyond any known example in man's past...It seems people saw something else that would make the Euro unique. Paid-up assets also stand behind circulating money. Indeed, if someone owns a $100,000 dollar piece of land , has a good producing job and borrows $50,000 against his land,,,,,, the world is likely to circulate that debt note as a fiat land backed currency. But, if his gold (the land) is worth $1 million in a free physical market,,, AND RISES FURTHER IF CURRENCY SUPPLY OUTPACES REAL PRODUCTION,,,,,,, and his other debts are relatively low ,,,,,, the same note would circulate just as effectively if the $50,000 was borrowed against his name alone.

In essence, the jump into the Euro is more based on a new currency that is more honest in dealing with our historic human dynamics. Let's try not lying to ourselves and admitting that gold alone in a currency will not remove our will to borrow and lend and therefore eventually defraud each other!

radix46 said...

Ash,

The Fed doesn't have any gold on its balance sheet, it has gold certificates. The gold belongs to UST. You can't compare the ECB to the Fed/UST. You can only compare it to the Fed. The status of that gold is what matters.

You say that the liabilities associated with the bad debts aren't going away. If a central bank prints up cash to meet those liabilities, then they are no longer having a deflationary effect. How is this deflationary? How does this make the value of currency go higher? Sure, the value of debts and other assets relying on debt to give them value go through the floor, but that is not deflation. Deflation is the value of currency going up.

Buying debt (credit that is not available, yet, to bid up items that people buy) outright for cash, turns it into cash that is able to bid up items that people buy. What are the people who are receiving this freshly printed cash going to do with it? Well, what are they doing with it now? Buying real things, whose value is not dependent on debt, hence the inflation.

When a central bank has its balance sheet stuffed full only of crap, with no rising asset to counterbalance it, why would you want to hold the paper that they put out for you to use in storing your wealth?

The ECB has marked-to-market gold to offset their printing to cover bad debt on their balance sheet. The Fed has pieces of paper with gold valued at $42 written on it.
The UST has gold with claims on it from when they defaulted in the 70s.

Jeff said...

Fiat is made to devalue, both euros and dollars. But euroholders can run to gold in HI, while dollar holders run where? Dollar will devalue against all real goods! A bit of a difference.

radix46 said...

By the way, Ash, my questions weren't rhetorical or flippant. I really would like to hear answers to those. My understanding of the whole economic system is still developing and I am interested in hearing many different views.

I am not in this to prove an ideology. I simply want to make the best choice of what to do with my money.

DP said...

With regards to BB's 2010 statement that the goal is to affect prices/yields of debt-assets, you guys are right to a limited extent, because that is something the CB can do short-term.

Perhaps you can summarise your reasoning why it (propping up the price, and thereby suppressing the yield, of debt-assets) can only be done short-term please? What is their limitation? Will they run out of dollars maybe?

What it is essentially doing is coercing people to reinvest in the credit ponzi scheme, but the liabilities associated with those assets are not going away.

[cough] Ahem, excuse me.

It is similar to what Greenspan was doing during the housing bubble, to prevent it from imploding... we all saw how well that worked out. BB is doing it at a significantly larger scale, and eventually he will be forced to sacrifice "lower-grade" debt markets for "higher-grade" ones, such as the Treasury market.

[cough] Man! I must be coming down with man flu or something!

FDR was an idealist like you, as are all Neo-Keneysians and Austrians IMO. Very few people can reach your level of monetary Nirvana in this system, shedding their "fear of fear itself", which includes many of the so-called Giants out there. The real reason, as I outlined in my series, is because their fear is rooted in the shortcomings of the financial capitalist system itself, not in the shortcomings of the USD or fiat currencies, or the superficial explanations of "risk aversion" to financial assets.

Idealist? Or perhaps a pragmatist? All they have to do to achieve Nirvana is step outside of the system, and they will no longer be fearful of being ravaged by it. It's really very, very simple.

A five part series of (themselves quite lengthy) articles seems like a very indulgent means to sum up the essence of the shortcomings of the financial capitalist system itself. So indulgent that it seems to me most people have been unable to as yet properly distill what your point is exactly. Perhaps you could be much less indulgent towards us, by giving the very much helicopter-view version just of those shortcomings that are at the root of your thought process, please? Less is often a lot more. I am hopeful this could be quite helpful (to you).

Cheers! :-)

Ashvin said...

Radix,

"The gold belongs to UST."

I know, that's why I put "/UST" in there.

"You can't compare the ECB to the Fed/UST. You can only compare it to the Fed."

I don't agree with that. If they are both the lenders/demanders of last resort for their respective private economies, then I say they can be compared. I am not convinced that the ECB's MTM valuation of gold means that it will not ultimately succumb to the pressures of ponzi financial capitalism, rather than pursue the merits of Freegold.

"You say that the liabilities associated with the bad debts aren't going away. If a central bank prints up cash to meet those liabilities, then they are no longer having a deflationary effect. How is this deflationary?"

They are printing cash to meet some of the non-performing liabilities, but the debtors are still left with a loan to pay off. When they either continue paying off the loan, or default and get foreclosed on, or go into bankruptcy, that is all deflationary (the availability and velocity of currency in the economy stagnates and slows).

"What are the people who are receiving this freshly printed cash going to do with it? Well, what are they doing with it now?

...Buying real things..."

That's the point, they are not necessarily buying real things, but are re-investing the money into the ponzi credit system, i.e. various debt-assets. This is the point of the Fed's actions... by influencing prices/yields, they coerce investors to pour more money into the debt-dollar system. As I have written before in "Slaughterhouse-Finance", it is like "lambs to the slaughter". The only legitimate question, IMO, is how long before the slaughter in the Treasury and USD markets, and given the state of other global markets, I'd say there is quite some time.

radix46 said...

And now this, again from ZH:

"the administration, in dealing with the lack of an unemployment cliff, has decided to extend foreclosure-free living for unemployed homeowners from a few months to a year. From USA Today: "The administration today will announce that two programs providing unemployed homeowners a few months' forbearance on their mortgages will be extended to 12 months, said three administration officials speaking anonymously because the program has not been announced......And for those attempting to figure out just how this is deflationary (for everything but housing of course, but that's one deflation that will only hit the pocket of Uncle Sam), we would kindly request an explanation as well when someone has an answer"

The program has been extended from months, to a year. Going on previous form, this will be extended indefinitely. Like Tyler, I can't see the deflation here. These homeowners, who would have been in a serious fiscal hole, now have their cash available to spend. Whilst not being inflationary in the same way as the CB monetising debt, it is certainly not deflationary.

I'm struggling to see where this un-fightable, all powerful rampant increase in the value of currency is going to come from.

Ashvin said...

"Perhaps you could be much less indulgent towards us, by giving the very much helicopter-view version just of those shortcomings that are at the root of your thought process, please?"

It's difficult to adequately summarize the abstract economic ideas of Marx and Minsky/Keen in a few paragraphs, which is why I devoted two articles (Part II and III) to that goal, while also addressing their relation to Freegold. Parts IV and V specifically focused on their implications for deflation v. HI and physical gold. That being said, I thought a commenter named "darbikrash" did quite a good job summarizing when he wrote this (my comments in brackets, and... the following is somewhat long in and of itself, so be prepared):

"Great series of articles Ashvin!

I think you bring a fresh perspective to the Marx/Keen/Harvey axis in coupling these theories to the discussion of gold. I had posted something congruent with these ideas on the ever popular subject of alternate currencies in another thread. You’re quite right, at the center is the struggle between labor and big business [the material dialectic of Part I], which I define as multi-nationals.

This struggle sets up a natural and quite healthy tension between the two opposing forces. When this healthy tension is displaced [it inevitably must be displaced over time], to either direction of bias [labor vs. capital], bad things happen. The convergence over the last three decades of the neo-liberal agenda, and the capture of the mainstream media by conservative business interests has resulted in the disruption of this tension away from the side of labor.

Propelled by the momentum of the burgeoning success in minimizing organized labor, business and conservative interests teamed together to usher in an ongoing era of deregulation and complimentary legislative climate that promoted favorable tax incentives for big business. These incentives were leveraged to follow with near perfect parallelism along with Marx’s prediction of capital heading to markets with unlimited low cost labor surplus [although Marx may not have envisioned the extent and longevity of economic "globalization"].

Ashvin said...

Cont...

It is an irony lost on many that the perfect climate for capitalism's magnum opus was to be under the color of a totalitarian Communist regime- embodied by mainland China [under it's "false flag" of Marxism, so to speak]. This diffuse and disjointed labor base was confronted with several classical Marxist predictions, a profound loss of collective bargaining power as the threat of job outsourcing to China and Mexico stymied any meaningful protests for re-organization.

This resulted in lower wages for those lucky enough to retain jobs, and Marx’s predictions about consolidation of capital are demonstrated in the aggregation of “big box” stores [i.e. Wal-Mart] designed to lower the sustenance costs for low and middle class labor, furthering enriching the capitalist class- as predicted chapter and verse. With the cratering of the credit market [due to endogenous instability as described by Hyman Minsky and Dr. Keen - Part III), the emperor can be seen to have no clothes, and here is where it gets real interesting.

With a collapsed income, the vast majority of Americans can no longer afford the products of consumerism that capital has morphed into [the final "realization problem" - Part III], having exhausted by sheer competitive overhang the more productive and meaningful products and services, the average capitalist is now presiding over a string of yogurt parlors and useless iPod apps, analogous to unwashed children selling Chiclets gum at the Mexico border crossing.

The bourgeoisie has simply engorged itself so completely and so effectively on the middle and lower class, there is no money left for the poor fools to purchase the trinkets and trivia that the bourgeoisie needs to maintain their lifestyle, in effect tuning their gated estates into miniature Easter Islands, replete with carved stone masks and bad artwork. So this leaves us with another problem, what do the wealthy do with all the money?

It used to be a budding capitalist could re-invest and maintain an income stream though investment, real estate purchases, or entering the rentier class to sustain cash flow, all the while ignoring, contrary to free market mythology, risky entrepreneurial ventures and instead focusing precious man-hours on reducing tax liability and preservation of capital strategies... There are not simply enough attractive investment opportunities to go around, a face the music moment in a system that requires perpetual compound growth to function.

Capital abides no limits. It must expand its markets to prevent the destruction of demand. It must seek larger and larger labor markets, with lower and lower labor costs, as the coercive laws of competition wreak their havoc [continuous re-investment/realization of surplus value and debt issuance/rollover in markets]. Capital consolidates, aggregating smaller, less powerful firms unable to achieve the international reach necessary to grow into offshore markets, purchased for pennies on the dollar as the multi-nationals observe and track strangling mid-level businesses with a predator’s gaze as they asphyxiate on a contracting domestic market - leaving consumers with even fewer choices."

radix46 said...

Ash,

"They are printing cash to meet some of the non-performing liabilities, but the debtors are still left with a loan to pay off. When they either continue paying off the loan, or default and get foreclosed on, or go into bankruptcy, that is all deflationary (the availability and velocity of currency in the economy stagnates and slows)."

You seem very sure about what will happen to velocity. What evidence do you have that this will happen? Is this what happened in Argentina?

Why would velocity slow when people get scared that their money is becoming worthless (the prices of the things they need going through the roof)?

Have you read FOFOA's explanation of what happens when the value of money begins to be determined by the demand side rather than the supply side? If you have, what do you think of it?

radix46 said...

Ash,

"The gold belongs to UST."

I know, that's why I put "/UST" in there.

Easy tiger, I can read. My point was that ECB is not comparable to Fed/UST, which you then acknowledged below, so why the childishly flippant remark?


"You can't compare the ECB to the Fed/UST. You can only compare it to the Fed."

I don't agree with that. If they are both the lenders/demanders of last resort for their respective private economies, then I say they can be compared. I am not convinced that the ECB's MTM valuation of gold means that it will not ultimately succumb to the pressures of ponzi financial capitalism, rather than pursue the merits of Freegold.

They can't be compared with regard to the issue of the gold as the gold does not have the same legal status. The issue is not to do with whether this marked-to-market gold will magically keep the ECB moral and from propping up the ponzi scheme, but to do with how the gold on their respective balance sheets will behave when the ponzi scheme nears its end.

The Fed will not be recapitalised with their structure, whereas the ECB will automatically be so, via the marked-to-market model. This gives credibility and backing to the Euro, whereas the FRNs will be backed purely by junk and $42 paper gold. Which currency would you rather hold in that situation?

Ashvin said...

Radix,

I don't want to rag on Tyler much, because I absolutely love the work he does, but he is a bit of a sensationalist at times, to say the least. I have seen him post articles implying imminent HI, prolonged stagflation and a margin call inspired repeat of 2008 all within one week. It's easy to make sweeping generalizations like that with every bit of news that comes out, and you will invariable end up being "right" at some point. If we look more closely at that article, though, in the context of many other articles, it's not so easy anymore. For example, one of the mortgage "forgiveness" programs has been in place for a decade (well before the credit implosion), and they both only apply to unemployed homeowners who "qualify" (people looking for work and who cannot "afford" to pay any portion of their mortgage).

There is no doubt that the government has massively intervened in the economy to forestall a credit disaster, and some of that intervention has been in the form of temporary relief to debtors, but when the stage is set for the ultimate battle between struggling creditors and struggling debtors, I expect the former to win out as they usually do.

"What evidence do you have that this will happen? Is this what happened in Argentina?"

It's what happened in the US, in the 1930s. Also in the 1980s, late 90s, and 2008.

"Have you read FOFOA's explanation of what happens when the value of money begins to be determined by the demand side rather than the supply side?"

Yes, and I agree with his tug of war analogy, to the extent that the demand side is now in control. Will they freely decide to let go, or be coerced by the system to pull even harder? That's where the disagreement lies.

Ashvin said...

I was not being "childishly flippant". When you said,

"The Fed doesn't have any gold on its balance sheet, it has gold certificates. The gold belongs to UST. You can't compare the ECB to the Fed/UST."

I assumed you thought I was unaware of that fact, and also that it supports your argument of them being incomparable. Your logic is circular, because you rely on the emergence of Freegold when the "ponzi nears its end" to support the fact that its more likely the ECB will re-capitalize the EU via their MTM gold reserves.

DP said...

Thank you very much for taking the time to (almost) summarise (through the recycling of another's review of your own work — did he include his x/5 stars rating by the way? Perhaps something like "4 stars -- Not as long as some blog article series!"? I guess not, it seems unlikely you would omit it... ;) ) the essence underpinning your world-view into just a few handfuls of paragraphs.

If anyone should in future request from you an even-further abridged review, you might choose to offer this:

The stinking rich, fat bastards rammed credit down everyone's throats to coerce them into buy their widgets and trinkets, until so, so very much of the production from the future had been mortgaged into the present and past that there was no longer anything left to take. I hate them I hate them I hate them! I'm going to sthcream and sthcream and sthcream, until I'm thick!

I will leave it for others to decide if they would wish to take up the conversation with you about Marx's views. I'm not about to divert the conversation so far as to discuss the free will and mindless gluttony of The Tribe, when it comes to the desire for widgets and trinkets taken from their own futures at ruinous expense, and how this is a class struggle between capitalist pigs and labour scum. I am, however, interested to discuss the $IMFS monetary system's incentive to take on debt in return for assets, anything but hold cash for long, and yeah of course that free will and mindless gluttony of the yadda yaddda does play a part... But for now...

So, anyway moving right along then... can you proceed to summarise (ideally in far fewer still paragraphs, if humanly possible - TIA!) how this situation 'will be' resolved from here, eventually? (Without recourse to the expedient solution of devaluing away all the present liabilities to a manageable level, via the tool of gold. Given that you have stated this, aka RPG/Freegold, will not be how things will shake down.)

Cheers ... again, and good night! :-)




PS: But, before I shut down...

radix46: Have you read FOFOA's explanation of what happens when the value of money begins to be determined by the demand side rather than the supply side?

Ash: Yes, and I agree with his tug of war analogy, to the extent that the demand side is now in control. Will they freely decide to let go, or be coerced by the system to pull even harder? That's where the disagreement lies.

Did you already come across a reference to the supply side picking up the ball of string and simply throwing it, when that becomes the only practical move for them to make? Maybe the string that is being used in this tug-o-war has a can tied to mark the centre, and the "supply side" have no remaining choice but to keep <a href='http://www.youtube.com/watch?v=UjzYf9GEVqE>kicking the can as hard as they can</A>, so the demand side have to follow the can rather than try to pull it on their side of the pitch.

radix46 said...

Ash,

""What evidence do you have that this will happen? Is this what happened in Argentina?"

It's what happened in the US, in the 1930s. Also in the 1980s, late 90s, and 2008."

You are not comparing like with like. In 1930, the dollar was backed by gold. In the 80s, 90s and in 2008, the level of sovereign debt had not reached what it has now. This is the similarity with Argentina and is what makes the periods that you cite invalid. Those periods involved a steady-state dollar. The dollar today is more like the peso, in terms of the amounts printed, than it is like the dollar of yesteryear. When the steadiness of the currency tips over the edge, the dynamics change. Human nature changes perceptions in an instant and the previous rules and precedents go out the window.

"Will they freely decide to let go, or be coerced by the system to pull even harder? That's where the disagreement lies."

I think this is a fairly fundamental disagreement. You seem to give more power, in terms of the ability to control, to 'the system' than I do. We also seem to have a fundamental disagreement on human nature too, if that reply to your post is indicative of your views.

Fair enough. These aren't things that people change readily and are more likely to simply search for evidence to support these deeply held core viewpoints. That's just the way we humans are though eh?

Good luck to you Sir.

DP said...

Here boy, GO FETCH IT!

Yeah ... gooooood booyyyyyy ...

radix46 said...

Ash,

"its more likely the ECB will re-capitalize the EU via their MTM gold reserves. "

I don't think that the ECB will recapitalise the EU. There is no decision involved by the ECB. It has already been made. The MTM gold structure simply lends credibility to the Euro, it has nothing to do with the EU.

I am also not relying on the emergence of freegold.

You said "I know that's not what you were referring to, but the point remains... why is the ECB fundamentally any different than the Fed/UST? Because they have different values listed for gold on their balance sheet? "

I was explaining the difference. Whether or not you think that freegold will happen, the ECB has a very different structure to the Fed. You are assuming that gold is merely a commodity. I am assuming that it is money - the true base of Exter's pyramid. Why else would all CBs hold it? No other "commodities" are held by CBs.
The ECB benefits as capital flows downward to the base, the Fed does not.

The Fed is attempting to keep capital levitated up at the top of the pyramid - what you referred to as "re-investing the money into the ponzi credit system", but in doing so are expanding base money. When the ponzi scheme collapses, capital flows downward, creating the illusion of delfation, temporarily, which is dispelled as capital reaches its final destination, gold.

JMan1959 said...

Costata,
How dare you resort to the dirty trick of using someones'own words to expose their hypocrisy and flawed Marxist logic. That is dirty pool, lol...

Excellent rebuttal--like fileting a fish. Don't buy the argument that he is just being altruistic. All Marxists want deflation. They can avoid having to work at a real job even longer as their unemployment checks increase in buying power, lol...

The move to socialize the losses has already happened, and will continue to happen, in the name of "systemic risk avoidance". Better a slow destruction than a fast one--it's the politicians way of out outrunning the bear. '

Ashvin said...

"So, anyway moving right along then... can you proceed to summarise (ideally in far fewer still paragraphs, if humanly possible - TIA!) how this situation 'will be' resolved from here, eventually?"

Nope, at least not any more so than I already have in comments to you and others. I suggest you start with Part V, and then see what questions you have about my views of the future.

"Did you already come across a reference to the supply side picking up the ball of string and simply throwing it, when that becomes the only practical move for them to make?"

I prefer not to switch from an analogy of two sides playing tug of war within certain strict physical limitations, to one of someone picking up a bunch of rope, attaching a can to it and chucking it wherever he/she wants. The former has some legitimate comparative meaning, the latter loses all of that.

DP said...

I prefer not to switch from an analogy of two sides playing tug of war within certain strict physical limitations, to one of someone picking up a bunch of rope, attaching a can to it and chucking it wherever he/she wants. The former has some legitimate comparative meaning, the latter loses all of that.

(BTW the can was already on the rope, but that's just an unimportant detail.)

Open your mind ... use your door!

You can't just expect apples to be predictable all the time. Sometimes an apple surprises you by unexpectedly jumping up and biting you on the ass... or picking up the coil of rope and throwing it rather than pulling on it. What's to stop them? (While they're just conceptual apples, that is! :-) )

I don't recall anybody else claiming before now it's impossible to visualise this simple conceptual mid-game action of TPTB.

DP said...

see what questions you have about my views of the future.

As I'm sure you appreciate, I don't really have any questions I want to ask about your views. I'm asking on behalf of others.


And with that ... it really was good night! :-)

Edwardo said...

The following would appear to be a case of Pot kettle black as The Government accuses coin "owners" of stealing.

http://news.yahoo.com/blogs/lookout/family-fights-government-over-rare-double-eagle-gold-151853030.html

Ashvin said...

DP,

The tug of war analogy is like any other analogy, limited in its application. If it is going to be meaningfully applied, then it must be applied with its rules intact. When you extend it to include actions outside of the game's rules (coiling up the rope and throwing it), you are just pre-supposing the conclusion you are trying to argue, which is that the Fed can (somewhat easily) reverse currency demand through its monetary operations. There's no point in sticking with the tug of war analogy in that case. It's like analogizing to two teams playing a game of basketball, going through the analysis of who will win based on the rules of the game, and then concluding that it doesn't matter, because one team can just pull out AK-47s from the locker room and murder the other team in the middle of the game.

Ashvin said...

Or rather, that the dollar-denominated debtors, savers and the like can throw the rope, effectively quitting the game. That may in fact be true (and I believe there will come a time when they do quit... or perhaps the game is called on account of a revolution), but it can't be derived from the tug of war analogy, you see what I'm saying?

Ashvin said...

"As I'm sure you appreciate, I don't really have any questions I want to ask about your views. I'm asking on behalf of others."

Indeed. And as I'm sure you appreciate, I'm responding on behalf of others.

Jeff said...

The debtors already have quit. They quit paying their mortgages, they quit paying on sovereign bonds. What happened? The governments bought the bonds, forgave the mortgage debt, suspended the accounting rules. It's called political will, the front-lawn dump, changing the rules. It's been going on for years but you refuse to see it. Any day, you swear, everything will just deflate. Sure.

Jeff said...

Stop reading Marx and start reading Bernanke. Read A/FOA. Marx is dead, Bernanke is running the Fed, and he told you what he would do. Then he did it. All losses will be socialized, they have been, they are being, they will continue to be.

JR said...

Yay Jeff!

****************

And following up on your comment from a few days ago:

The price of gold is right back where it was on...Thursday. Did you enjoy the round trip? They seem to enjoy knocking it down the day after end-of-quarter. That way the ECB doesn't get too upset, and the boyz still get to make some volatility money (not Bitcoins). No harm, no foul?

***************

Here is the Consolidated financial statement of the Eurosystem as at 1 July 2011

Items not related to monetary policy operations

In the week ending 1 July 2011 the increase of EUR 12.6 billion in gold and gold receivables (asset item 1) reflected quarterly revaluation adjustments.
...

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

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

Gold: EUR 1,043.382 per fine oz.

USD: 1.4453 per EUR

JPY: 116.25 per EUR

Special drawing rights: EUR 1.1067 per SDR
....


Cheers, J.R.

Ashvin said...

"The debtors already have quit. They quit paying their mortgages, they quit paying on sovereign bonds."

Not sure what country, or solar system, you are living in, but on planet Earth, there are plenty of people and countries still paying their debts and the interest on their debts. They are also selling off their assets to simply stay in the debt game; everything from their cars and homes to their islands and their children's future. It's funny how the losses are always being "socialized", while wealth inequality is always getting worse and worse... those are some "social services" you got running there.

Jeff said...

Which country is paying off its debts? All I see is rolling over debt. Which assets are being sold off? Which islands? Specifics, if you please.

Of course you know what is meant by 'socializing the losses'. It has nothing to do with a social safety net and everything to do with spreading the pain to the public.

Honestly, your comment was pure sophistry.

Texan said...

Jeff,

You are of course right that there is a huge amount of socialization of losses and deficit spending and money printing in the US. But a "huge amount" ( ( or however you would like to characterize it) does not necessarily lead to HI, because there is also plenty of debt which - asAsh rightly points out - is getting paid down, and in many cases defaulting.

Two competing forces basically, private delivering vs gvt relevering. And so far, it's been balanced enough that the results are only moderate inflation.

Now in Europe, they are headed towards outright contraction, because they have more of an austerity bent. And in China, they will just write off the loval municipal debt (write-off as in "never collect", which is what I meant the ECB is doing with PIG debt that it owns or reverse repos in from PIG banks).

It's not entirely clear to me that in the US, at least for now, will continue to "stimulate". The hard money vamp may be in the ascendancy, for now, in the US. In which case I think we will have pretty severe deflation for awhile, until the pendulum swings back again politically to easy money.

Ashvin said...

"Which country is paying off its debts? All I see is rolling over debt."

I'm sorry, but this is a bit too surreal, even on this forum.

Where exactly do you think your tax payments to the IRS go? Here's a clue - http://treasurydirect.gov/govt/reports/ir/ir_expense.htm

"Total Interest Expense Fiscal Year 2011 = $385B+"

Are you honestly telling me you don't know anyone in this country who is in debt and is being forced to pay off that debt, or is having their home foreclosed on after default, without the government stepping in to save the day and spread the losses to you and everyone else? The official numbers may be manipulated, even they don't lie that much.

Personally, I know a few people who have majorly cut back on discretionary spending habits, downsized their living situation and sold some their "fancy" stuff to meet their monthly expenses, including debt payments. I imagine there are many more others out there just like them.

And yes, Greece is planning to sell its islands to privatize bidders so it can raise funds and keep playing the cruel ponzi credit-austerity game:

Now Greece is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts.

http://www.guardian.co.uk/world/2010/jun/24/greece-islands-sale-save-economy

JR said...

Texan,

What are you talking about?

"Two competing forces basically, private delivering vs gvt relevering. And so far, it's been balanced enough that the results are only moderate inflation."

******************

Credibility Inflation

Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

And what sets the stage for hyperinflation is a period of high credibility inflation followed by the loss of credibility.
During our period of high credibility inflation the dollar was invisibly hyperinflated in a near-monetary sense. This has already happened. We are already there.

When I say the dollar has already hyperinflated in a near-monetary sense, I am talking about the number of dollars people, entities and even foreign nations think they have in reserve. Not in a shoebox, but in contractual promises of dollars to be delivered more or less on demand by somebody else. Claims denominated in dollars. This is how the vast majority of "dollars" are held; as promises to deliver more dollars. And this is why they are held this way. Because of the more in "more dollars." "Let me spend your dollars today and I will give you more dollars tomorrow!"...


cont.

Nick said...

Ash,

I think Jeff (and the rest of us) are talking about this type of world.

http://www.zerohedge.com/article/obama-administration-extend-mortgage-free-living-americas-unemployed-one-year

just one small example.

Jeff said...

I don't know anyone who is being forced to pay off debt. I know some people who have stopped paying and continue to live in the house. Perhaps they will be evicted one day. On an individual level some people cut spending, but no one can be forced to pay off debt. They default, true. But something funny happens; the debt isn't marked down. It stays on the books of the bank or Fannie at par. Then the gov gives the bank really low interest loans and bailouts. That's the socialized losses again, defined as putting the loss on the public books.

Bringing up tax payments is interesting; since deficits have exploded in the last few years, clearly debt is growing much faster than taxes. This indicates on a national level that debt is not being paid down. Yet interest rates hover at all time lows.

No Greek islands have been sold off, and I doubt any ever will. Until one is sold, I don't think it supports your case. It's just a convenient lie to justify the endless Greek bailout. I repeat, no country is paying off debt. In fact, several in Europe can't make the interest payments, you agree?

Texan said...

Thank you JR, I read the post. It's one of FOFOA's best.

However, since we are not currently seeing signs of HI, can we agree that "credibility inflation" remains "high"?

All I am saying is that it will remain "high" for the near future, and may even be reinforced if the US makes a serious attempt at austerity, since we would have pretty serious price deflation given a likely spike in unemployment.

I think such an attempt will most likely result in full blown or semi HI once the authorities then reverse course, but all of this will take time to play out.

Are you expecting HI in like August, or something? End of the year? I think QE2 scared the beejezus out of some factions of TPTB, and they are trying too see if they can slow it down without a collapse. So I think it will take awhile. Of course I could be wrong!

Ashvin said...

"I know some people who have stopped paying and continue to live in the house. Perhaps they will be evicted one day. On an individual level some people cut spending, but no one can be forced to pay off debt. They default, true. But something funny happens; the debt isn't marked down. It stays on the books of the bank or Fannie at par. Then the gov gives the bank really low interest loans and bailouts. That's the socialized losses again, defined as putting the loss on the public books."

This is pure unsubstantiated rhetoric. The facts are all right there for you, if you would keep an open mind and choose to look at them. People are paying off debts and being foreclosed on if they don't, whether you see it or not. Not all people, but a significant number of them. It's also not true that no debts have been marked down on the books of investment institutions... another convenient talking point. Even the biggest banks had to write down at least some of the value lost on debt-assets (but not nearly enough, I agree), and hundreds of smaller community banks have had to outright shutter their doors. Those are the facts, whether they fit into your "socialize the losses" meme or not.

"This indicates on a national level that debt is not being paid down. Yet interest rates hover at all time lows."

Exactly. You can fleece a sheep many times, but you can only skin him once. Just keep the deficit levels within a certain range and extract interest payments the entire time, which may be nominally low, but actually produce real solid returns in a deflationary environment.

"No Greek islands have been sold off, and I doubt any ever will."

Keep doubting, then. Meanwhile, I'll be reading about this whole privatization process going down all year, by which time it may have reached Portugal, Italy and Spain.

JR said...

Texan,

"However, since we are not currently seeing signs of HI, can we agree that "credibility inflation" remains "high"?"

Why do you not think we are currently not seeing "loss of confidence in the currency"? Do you not see economic malaise, the ZIRP and monetization of debt to keep credit markets functioning?

Cheers, J.R.

JR said...

Hi Texan,

I tried to post this as a "cont." to my first response but c'est la vie, so here we go - your talk of "mild inflation" reminds me off the FOFOA's discussion of "mild deflation" in the quote I posted above from Big Gap in Understanding Weakens Deflationist Argument :

...During stable times money is always in demand, more or less, which gives the supply side (the printer) control over the value of a fiat currency. He can loosen or tighten at will, because the demand side is always, to some extent, pulling on the rope. So during stable and predictable times, it is fair to say that the value of money is primarily a factor of quantity, or supply. Demand for money (or its velocity) is relatively stable during these times delivering (almost) full control of value to the printer—the supply controller.

But during unstable times something changes. The demand side of the equations suddenly takes value-control away from the printer. This is where we are today, and where we have been since 2008.

When the economy is struggling, unemployment high, home prices falling, people are afraid to spend their money. This drives up the demand for money, slows the velocity of money, raises the value of money and lowers the prices of things and assets. Likewise, when the financial markets are crashing, the demand for cash skyrockets while plunging assets bid frantically for dollars. Both of these demand-driven events act just like a large deflation in the money supply as they drive up the value of money and lower the prices of other things.

When this happens, the money printer tries to counter demand by increasing supply. But today, clearly, demand is in the driver's seat, not supply. That's because in 2008 we moved from the stable and predictable into the unstable and uncertain.


Now I want you to think about this for a moment. Because everything I've been describing so far sounds like deflation. And I have hardly mentioned prices, or the difference between credit money and physical cash, or the difference between luxury items and necessities, or any of the other myriad things that confuse and complicate the issue. And that's because I'm trying to focus your attention on this one concept. That the printer is no longer in control of the value of currency through the supply side. Instead, the marketplace is now controlling it from the demand side. And so far that has meant mild deflation.

You see, monetary supply and demand can act as exact substitutes for each other. A 50% rise in demand has the same effect as the 50% decline in supply. Or said another way, it takes a 100% increase in supply to counteract a 100% rise in demand. And that's exactly what we see happening today. A spiking demand for currency because of instability in some markets and the economy, as well as earthquakes and unrest in the Middle East, jacks up the price on the currency exchange and drops the price of other assets which is instantly met with quantitative printing (supply increases) to ease the pain, raise the price of assets, and recklessly counter that which is actually in the driver's seat today, demand.

Once again, during stable times, supply gently drives demand. During unstable times, demand drives (forces the hand of the printer who controls only the) supply.
Did you figure it out yet? During stable times greed allows the printer of the currency to drive its value through supply controls. During unstable (or uncertain) times fear takes the wheel, leaving the printer at its mercy in the back seat.

So what are you afraid of? And what is everyone else afraid of? Could other people's fears ever affect (or change) yours? What are you more afraid of, running out of dollars or dollars becoming worthless?...


Cheers,

J.R.

Jeff said...

Some banks always fail. Here is a list of bank failures:

http://en.wikipedia.org/wiki/List_of_bank_failures_in_the_United_States_%282008%E2%80%93present%29

Hundreds? Well, technically yes if you combine the years. And I am not surprised that more banks failed after the collapse of a housing bubble than before it. Still this is hardly a great depression style bank collapse. Note that the number of failures is dropping this year. Evidence of a debt deflation? No.

Here is an example of socialized mortgage losses:

The Federal Reserve’s $1.25 trillion program to purchase agency mortgage-backed securities was intended to provide support to mortgage lending and housing markets and to foster improved conditions in financial markets more generally.

http://www.newyorkfed.org/markets/mbs/

1.25 trillion dollars of mortgages that won't be written down as losses on bank books. Please provide an offsetting example of debt deflation.

What privatization process are you referring to? As we see, the only privatization exists in press releases promising to sell of Mikanos. If you believe that I have a Brooklyn bridge I would like to privatize to you.

Texan said...

JR, let me be more specific: mild price increases. I agree we have seen massive inflation of the monetary supply.

I do think credibility inflation remains high, even ROW. Not as high as before, but USD is still universally accepted, and US- denominated debt is still well bid, both gvt and corporate. Certainly there is nothing I see that suggests that credibility has eroded to anywhere near the point that HI appears imminent.

That doesn't mean it couldn't happen "tomorrow". But if we are discussing a process, as opposed to an event, then I think has a ways to play out yet.

Texan said...

Ambrose Evans Pritchard is out with a great piece on the euro soap opera. You can get to it on business insider.com or just The Telegraph.

It is one tenant of FG I could never get my head around - a currency with no sovereign backing. It's more like a CDO structured product. There is literally nothing ther but a " union", whose rules have pretty clearly been gamed beyond belief. It's really a frightening thing to watch as it just runs off the rails.......

Maybe some of you Brits or continentals could chime in on just what exactly the euro is, and it's prospects, and what it's failure would mean for FG.

costata said...

Gold

I think we have another candidate for the lexicon along with DP’s excellent “qualitative easing”. Perhaps we should adopt this term from Stewart Thomson’s latest post “Team Photocopier” to describe the deflationists, such as Nicole Foss, who are advocating currency and Treasury bills/bonds. A few extracts from his post below including this gem:

”The bottom line: show me a chart, and I’ll show you a bankster with a paintbrush.”

>> You need to look at central bank liquidity flows, not MACD or RSI. Put a lid on the technical analysis and get focused on liquidity flows. In 2010 central banks began to buy gold rather than sell gold, as a group. If you think that is because of some “epiphany of understanding the nature of gold”, you are free to believe so, but the reality is that central banks are buying gold to devalue the dollar, and all paper money. These buy programs have only just started, and they are not going away.

>> The decision is yours. Get with the program, the gold program. Or, hang out at the US dollar photocopier, alongside the MACD and RSI-obsessed clowns. This gold bull market will turn the top calling technicians into beached whales. I don’t think you are going to like what happens as the price of food begins to skyrocket, especially if you are on team photocopier now.

>> In this crisis, I view the market action of moving from gold to paper currency “because gold might fall down” as akin to sucking on a baby bottle. In this crisis, babies build dollars of wealth issued to them by Daddy Bankster and Mommy Gman. Grown-ups build ounces of wealth. Which are you?

>> Don’t be a bankster mark, and hand them your gold because of seasonals or technical analysis. You should be buying gold and gold-related items now, not selling. You have been hoodwinked by technical analysis. Charts serve a purpose, but they don’t build wealth by themselves.

>> A reading of 125-150 for MACD on the monthly gold chart is not high, given the magnitude of the OTC derivatives and unfunded liabilities twin debts crisis. MACD in this range is not even high compared to other massive bull markets in other assets.

>> The bottom line: show me a chart, and I’ll show you a bankster with a paintbrush.

>> Bob Moriarty thinks the crisis “ends” with either the US gov’t becoming a full-fledged dictatorship, or a revolution occurs. Maybe you get treated to one, and then the other occurs, too! Nothing has been fixed, and nothing has been solved. A director of the Australian central bank just called the 2008 crisis a “blip” compared to what is coming.

Texan said...

What is a " gold- related item"?

enough said...

FWIW.....exerpts from just released piece by the FT.......

Central banks pull most gold in a decade from BIS

Central banks have pulled 635 tonnes of gold from the Bank for International Settlements in the past year, the largest withdrawal in more than a decade

In response to e-mailed questions, the BIS confirmed that the fall in the value of gold deposits disclosed in its annual report represented “a shift in customer gold holdings away from the BIS”.

“The Bank’s gold deposit liabilities declined by around 635 tonnes between 31 March 2010 and 31 March 2011,” it added. Comparison with previous annual reports showed the withdrawal was the largest in at least 10 years.

Midnight Gardener said...

Texan said...

What is a " gold- related item"?

I'll take a wag at that one. Stewart trades the ETFs and mining stocks and converts his winnings into ounces to store the value; therefore, I suspect the gold-related items he is referring to are ETFs and stocks.

Ashvin said...

"Please provide an offsetting example of debt deflation."

Seriously, the list is too long. I mean, US homeowners have lost nearly $10T in home equity since the start of the recession, and it is estimated there will be at least 9 million foreclosures by the end of this year, if prices remain stable. That by itself is a major offsetting private loss to the Fed's QE1 MBS program.

"As we see, the only privatization exists in press releases promising to sell of Mikanos."

Fine, don't believe it... but, just so you know, it's not just Greece. Do you believe this?

"As of today, since the debt ceiling breach on May 16, the Treasury has plundered about $206 billion from the two primary retirement accounts: the G-Fund and the Civil Service Retirement and Disability Fund, according to calculations performed by Stone McCarthy. The full breakdown for sticklers is provided below..."

No, that's not money being paid out to parasitic government retirees, but being plundered away from them. Of course, Tyler forgot to mention how that doesn't support the argument for a socialist government handing out cash by the barrel full to anyone with a pulse... not surprised.

JR said...

Hi Texan,

Consider this FOA excerpt, a portion of which Jeff referenced above, from Freegold in the Proper Perspective:

"...Our dollar has had a usage period that corresponds with the society that interacts with it. Yes, just like people, currencies travel through seasons of life. Even gold currencies, in both metal and paper form have their "time of use". Search the history books and we find that all "OFFICIAL" moneys have at one time come and gone with the human society that created them. Fortunately, raw gold has the ability to be melted so it may flow into the next nation's accounts as "their new money".

This ebb and flow of all currencies can be described as their "timeline". We could argue and debate the finer points, but it seems that all currencies age mostly from their debt build up. In a very simple way of seeing it, once a currency must be forcefully manipulated to maintain its value, it is entering the winter of its years. At this stage the quality of manipulation and debt service become the foremost determinant of how markets value said money. Suddenly, the entire society values their currency wealth on the strength and power of the state's ability to control, not on the actual value of the money itself. Even today our dollar moves more on Mr. Greenspan's directions than from the horrendous value dilution it is receiving in the hands of the US treasury.

This is where the dollar has drifted into dangerous waters these last ten or twenty years. If you have read most of Another's and my posts, it comes apparent that preparation has been underway for some time to engineer a new currency system. A system that will evolve into the dollars slot once it dies.

Out here, in deep water, we can feel what the Euro makers are after. No one is looking for another gold standard, or even something that will match the long life and success of the dollar. We only know that the dollar's timeline is ending and a new young currency must replace it. No great ideals, nor can we save the world! But a reserve currency void is not acceptable.

Now look back to shore and watch the world traders kick ankle deep water in each other's faces over the daily movements of Euros. From here, up to our necks in blue water, you ask "What the hell are they doing?" I'll tell you. They are trying to make $.50 on a million dollar play! Mostly because they are seeing the chess game one move at a time. (smile) Truly, their real wealth is in long term jeopardy.

Our dollar has already entered a massive hyperinflation. Its timeline is ending and there will be no deflation to save it...
"

Cheers,

J.R.

Aaron said...

I would add I do not think the bankers are criminals as posited in the video I posted above, but perhaps you will get my point all the same.

--Aaron

Edwardo said...

Here's some commentary from The Daily Bell on the story that Costata alluded to.

http://www.thedailybell.com/2627/Real-Danger-to-EU-Lies-With-German-Judges

costata said...

Hi All,

Steve Keen

Part 1/3

Ash makes this claim in part 3 of his TAE series:
"Hyman Minsky has clearly laid out how a capitalist economy with a developed financial sector is endogenously prone to speculative credit bubbles that could ultimately result in a severe debt deflation and depression, and Dr. Steve Keen has thoroughly outlined and modeled this process in his research."

I wonder if Steve Keen would agree that he "has thoroughly outlined and modeled this process" as Ash claims. Keen's models are a work in progress. He freely acknowledges their shortcomings if he is questioned about them. I'll highlight a couple of them below. I also want to pick up on the points JR made in this insightful comment where he explained why the focus by analysts like Mish and economists like Keen on the broken “money multiplier” blinds them to the true purpose of Bernanke’s initiatives:

Here is more strawmaning from the commentator (Steve Keen) in the same piece as he continues to conflate his belief about BB "creating money to target the money multiplier" with BB's clear statement that he is not, and is instead addressing a separate goal - that by increasing base money he can keep dollars cheap…

As Ash correctly noted Steve Keen is attempting to build on the work of Hyman Minsky (as well as Fisher and a few others) while applying a rigorous mathematical approach to economics. This partially explains his hostility to the praxeological approach of the Austrian economists and the ridiculous faux mathematical constructs of the neo-classical economists. Thus far he has been able to complete part of his "multi-sectoral model" of an economy. As I said earlier it is a work in progress and a huge task. I wish anyone well who attempts to bring more scientific rigor to the field of economics but Keen’s model and the whole debt deflation theory rests on a single shaky assumption that we will consider shortly.

But first let’s look at an example of a shortcoming in Steve Keen’s economic model. When inflationists and deflationists lock horns any discussion of prices generally ends in a stalemate. One side points to the prices that are rising while the other side points to prices that are falling and both claim their view is correct.

Let me give you one component of a possible explanation for the inflating price component of this picture. Steve Keen himself has acknowledged in conversation at his blog that there is at least one influence that could cause inflation within an overall trend of debt deflation - “supply destruction”. The short version of a long story is that if enough vendors are credit constrained, deleveraging and/or going out of business, even in a trend of falling demand, supply can fall faster than demand.

The shrinking weight of branded fast moving consumer goods (FMCG), while prices remain constant, may be an example of supply destruction in action. Having to buy more units of breakfast cereal to feed your family is no different to having to pay more for the same number of units that you used to buy. It is a de facto price increase.

Continued/

costata said...

/Continued

Part 2/3

The point I want to make is that Steve Keen has acknowledged that his model cannot capture the impact of supply destruction. His model can return a “verdict” of deflation which many economists would expect to result in falling prices while the personal experience of most consumers could be the exact opposite.

It is very difficult to obtain any useful statistics on supply destruction from government sources given the ‘doctored’ CPI figures that are produced. The fact that Keen’s model cannot account for supply destruction is not his fault but in my opinion it does show that his model is a long way from producing a comprehensive representation of an economy.

On to the second example. Over the years a number of people have attempted to argue with Steve about another issue that they see as a flaw in his model. His model does not differentiate between goods etcetera that are generally purchased for cash and goods that are generally purchased with some component of borrowed “money”. This is another reason why prices can move in opposite directions. When credit is constrained in a recession it usually hits the prices of many asset classes hard but isn’t necessarily indicative of the trend in the general price level. Keen calls his model a “multi-sectoral model” but it is still quite limited in range and his methodology for defining those “sectors” is also a work in progress.

But none of this matters to Steve Keen and his followers. He is absolutely confident that debt deflation is the path ahead. It will be Minsky’s “ponzi lending” collapse regardless of political will because it is a mathematical certainty in their minds. This certainty is supported by three key arguments:

(a) Bank credit money is the vast majority of the money supply so it negates any impact from changes in base money supply (short of a Zimbabwe style printfest) under a regime with a broken “money multiplier and;

(b) The level of debt has become so high in the Western developed countries that even if the banks were prepared to lend there wont be borrowers to lend to (the final destination of Minsky’s “ponzi lending” regime).

(c) That the correlation between his main debt expansion and debt deflation indicator (see below) and the overall trend in economic activity is so strong that this a reliable leading economic indicator.

We can deal with the first argument in short order. The sovereign states can do the borrowing on behalf of the citizens even if those citizens are unwilling to borrow. The sovereigns are the borrower of last resort. The neo-classical economists (and some of the other schools) cheer their heads off and urge them on. Meanwhile the bankers de-risk themselves by transferring their exposure onto the state and ultimately to tax payers. As always the golden rule is “capitalize your profits and socialize your losses”. Keep in mind that most of these states are currency issuers with one notable exception.

It appears that in the debt deflation mindset there is no difference between bank credit money and base money. Their math works just fine as long as this is true. If on the other hand there is a qualitative difference between the two then this lack of differentiation in Keen’s model is potentially a huge structural flaw. In several posts FOFOA has argued that there are crucial differences between the two and he also tried to explain the impact of this on the incentives of various economic actors.

Continued/

costata said...

/Continued

Part 3/3
Steve Keen discusses his most important leading indicator “change in aggregate demand is the sum of change in GDP plus the acceleration of debt” here:

This is an extension to my analysis that originated not with me but with one other group of economists–Biggs, Meyer and Pick–who took my “aggregate demand is the sum of GDP plus the change in debt” one step further to argue that “change in aggregate demand is the sum of change in GDP plus the acceleration of debt”.

It was an extension I was aware of, but I didn’t believe that the data would be good enough to support the hypothesis–on which point I was wrong. One additional thing BMP argued was that an economy could still get a boost from credit even if debt levels were falling if the rate of that fall was diminishing–so that debt was in fact accelerating while falling. I was very sceptical about this too, but it proved to be correct.


The third argument (c) is laid out very clearly in this paper by Steve Keen.

(Extracts from the submission to the Senate enquiry into competition in the banking sector by Assoc Professor Steve Keen UWS.)

".... the sheer scale of debt, its rate of change, and whether it is accelerating or decelerating, have very significant impacts on the macroeconomy. If Bernanke, Krugman and other neoclassicals were correct, the correlations between the acceleration in debt and the change in unemployment should be insignificant."

"Instead, the correlation is highly significant, large, persistent, and causal, since it leads changes in employment and GDP by about 3 months. The correlation during the Great Depression was -0.72; over the whole post-WWII period from 1955 the correlation was -0.59, and since 1990 it was -0.82 (see Figure 31)."


Keen has acknowledged the possibility of a HI outcome. Basically he has to, but with the same “cart before the horse” perspective of other deflationists. He is discussing the impact of the “stimulous” package here in September 2008 and why it cannot lead to hyper inflation (my emphasis):

The only way it could work (Ed: the stimulous, bailouts etc) is by causing hyper-inflation; and I don't think it's going to do that. It's simply too small an injection to have much of an impact because (sic) (Ed: if) the Government simply printed money until it came out it's ears, then you might ultimately cause inflation….

In addition to completely misreading Bernanke’s motives Keen obviously he shares this perspective of HI as merely “inflation on steroids” caused by the government printing massive amounts of currency to offset contracting bank credit money as opposed to the perspective presented in this post by FOFOA where the printing is a response to HI rather than the cause.

As I mentioned earlier FOFOA has discussed the incentives of various economic actors in several posts. He laid the foundation for this ongoing discussion in one of his most important posts titled The Debtors and the Savers. (I plan to try to help Ash to become better acquainted with this post in another comment I will be posting in due course.) If you misread the incentives, and “hope down” on the wrong side of the fence, in this ongoing GFC you could end up as road kill.

Jeff said...

I asked for examples of debt deflation ahd you said: "US homeowners have lost nearly $10T in home equity since the start of the recession, and it is estimated there will be at least 9 million foreclosures by the end of this year, if prices remain stable".

This does not meet the criteria. Phantom 'home equity' was not owed to anyone, it was a creation of a housing bubble. It was an illusion. As for 'estimates' of home foreclosures, they are like 'estimates' of phantom island sales. Until it happens it doesn't count. As for existing foreclosures, if the bad debt is pushed onto the public is it being destroyed? Or is it being replaced by printed money and accounting gimmicks? I say the latter.

The Treasury hasn't plundered retirement accounts any more than the deficit plunders tax receipts. These holes can be filled with money created from thin air, or not. This is not debt deflation.

Your points do not support your case. I can show many examples of trillions of dollars of money created and borrowed into existence at will. We haven't even discussed the GSEs, TARP, various liquidity operations. Come on, deflationist, put your cards on the table! Let's see what you've got.

Texan said...

JR,

That the dollar has hyper inflated ( to a degree) in terms of money supply, I agree. However, it's not showing up in prices - yet.

When it will show up in prices is what we are debating, I think? I say later, and you say sooner.

My caveat to later is that it could be "much later", if the Republicans decide to "starve the beast" as they like to call it. If government spending radically shrinks, economic
activity will also shrink. As one example, if they decide to ever scrap any of the defense programs such as the F-35, which is budgeted at something like a trillion over the next 10 years, then there will be a trillion less of economic activiy. And that's just one program. Even leaving Iraq and. afganistan will have. Ahuge impact on munitions manufacturers, truck production, spare parts, etc.

Given your anarchist bent, I am sure you fully comprehend just how involved the government now is in total US GDP, and I am not talking about transfer payments. So if government spends less, at least for a time I expect "deflation" in the broadest sense, if not necessarily a constriction of the money supply. And all that money will just continue sitting in Tbills.

Jeff said...

Only a deflationist would cite a 'debt ceiling breach' as evidence of deflation. Moving on:

FOA proved right again

African Barrick Shares Hit as Mining Boom Triggers Tax Grab


July 7 (Bloomberg) -- African countries are moving to grab a bigger slice of their commodity wealth as rivalry for the world's remaining reserves of iron ore, uranium and gold sap the bargaining power of companies such as Anglo American Plc.

Tanzania's proposal to study a so-called super tax on mines sent African Barrick Gold Plc, the East African nation's biggest producer of the metal, to a record low in June.

Texan, the real value of the dollar is not showing up yet but there are warning signs (oil price). A wise man once said 'your wealth is not what your currency say it is'. Also, 'Westerners should not be too upset with the CBs actions, they are buying you time!'

When that time is over, many people will be shocked at the real value of the dollar.

DP said...

Speaking of not being too upset with CBs, because they're buying you time...

JR said...

Texan,

"However, it's not showing up in prices - yet.

When it will show up in prices is what we are debating, I think? I say later, and you say sooner."

No, the issue is your repeated conflation of the word "hyperinflation," which is the loss in confidence in a currency, with "rapid price increases," which are result because of the process of hyperinflation, aka the loss in confidence in the currency.

FOA: "Our dollar has already entered a massive hyperinflation."

FOFOA: "Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

And what sets the stage for hyperinflation is a period of high credibility inflation followed by the loss of credibility. During our period of high credibility inflation the dollar was invisibly hyperinflated in a near-monetary sense. This has already happened. We are already there.
"


FOFOA: "Both of these demand-driven events act just like a large deflation in the money supply as they drive up the value of money and lower the prices of other things.

When this happens, the money printer tries to counter demand by increasing supply. But today, clearly, demand is in the driver's seat, not supply. That's because in 2008 we moved from the stable and predictable into the unstable and uncertain. ....

Once again, during stable times, supply gently drives demand. During unstable times, demand drives (forces the hand of the printer who controls only the) supply. Did you figure it out yet? During stable times greed allows the printer of the currency to drive its value through supply controls. During unstable (or uncertain) times fear takes the wheel, leaving the printer at its mercy in the back seat.
"

Jeff said...

ZURICH (MarketWatch) — The Swiss Parliament is expected later this year to discuss the creation of a gold franc — a parallel currency to the official Swiss franc, with the fringe initiative likely triggering a broader debate about the role of the precious metal in the Alpine nation.

http://tinyurl.com/63me5cj

Robert LeRoy Parker said...

Deflationist Mish is still holding on to the gold standard as an honest solution, but he might be slowly coming around on the deflation front, albeit begrudgingly. He ends his latest piece with this statement:

Sadly, there is no impetus to fix either problem. Bankers and Wall Street benefit from "too big to fail" and monetary printing. Unions buy votes from corrupt politicians.

Inflation benefits those with first access to money. Who has that first access? Banks and the already wealthy.

Reserve Currency Sideshow

All this talk about the US losing reserve currency status to a "basket of currencies" is meaningless nonsense. It will not solve a damn thing, nor will it wreck the US dollar per se.

Nixon wrecked the US dollar by reneging on the Bretton Woods agreement. It has been downhill ever since for the middle class.

"Gold's Honest Discipline" can restore balance. However, "Gold's Honest Discipline" would also stop war-mongering, union pandering, and a host of other problems that banks and special interest groups do not want stopped.

Unfortunately, this means the imbalances will continue until the entire mess blows up in a currency and derivatives crisis of immense magnitude. I cannot tell you when that will happen, I can only tell you it will.

S said...

Does increasing electricty and nat gas prices 20% = inflation? Surely it will not be enough to move the BOE off its rate stance (as the UK confirms Donald Kohn to a financial oversight board - lol)

+British Gas announces it will hike gas prices by 18% and electricity prices by 16% beginning in August. The company is dependent on international markets for 50% of its supply and needs to pass along its higher costs

JR said...

From the Article on the Swiss gold Franc posted by Jeff, Clowny economist Gebhard Kirchgaessner says:

"“I can imagine that this will spark some sort of debate about gold and there may be some pressure to accept the parallel currency,” said Dr. Gebhard Kirchgaessner, an economics professor at St. Gallen University. “But it won’t have any real effect on the economy. It seems incredible to imagine that there are people out there willing to buy millions of these things.”

University blowhard Kirchgaessner continues in same article, discussing the "*real issue*," which is not "the ability to save in gold" but that the Swiss Franc keeps appreciating as new money flows flock to the perceived relative stability of the Swiss Franc, driving it up on the exchange markets and "forcing" more and more SNB currency intervention ala this :

"The real problem

Very few have even heard of the initiative. The rising Swiss franc, which has jumped 16 percent in two years against the euro and the dollar thanks to its safe haven status, is a much wider concern.

This “is the real problem and it is clear that neither the [Swiss National Bank] nor the government have anything really meaningful against it,” St. Gallen’s Kirchgaessner said. “We might have a real crisis in a couple of years.”
"

**************************

So clueless economist thinks the gold Swiss franc "won’t have any real effect on the economy" and that the rising price of the Swiss Franc "is the real problem and it is clear that neither the [Swiss National Bank] nor the government have anything really meaningful against it."

****************************

Contrast clueless blowhard with FOFOA's comment regarding the Swiss gold Franc and its ability, as a savings medium, to adsorb new money flows and thus limit the appreciation of the Swiss Franc:

And from the wording of the initiative it sounds like they would be meant to float in value with the price of gold, without a fiat face value. I get this from the use of the term "fixed gold content" and the later reference to the value of the coin relating to the "cost" of its gold.

It also appears to be a vessel designed to absorb "hot money inflows" directing them away from, and to prevent the unwanted appreciation of the fiat Swiss franc: "an attractive alternative to the Swiss franc as a safe haven…
"

Cheers, J.R.

Ashvin said...

Finally, we get a bit more substantive critique from Costata the Resident Antagonizer, CRA for short, rather than erroneous ad hominem attacks likely inspired by the character Fred O'Bannon in Dazed and Confused. So, first and foremost, I have to congratulate CRA on demonstrating such a rapid level of maturity... for now.

Although the post is mostly a summary of Keen's excellent work and ideas, CRA does manage to make a few important points, none of which I have argued against or are necessary for my argument. The first of which is that Dr. Keen's model is not yet a "comprehensive representation of the economy". OK, but what model is? Saying that a theory has been "thoroughly" modeled is not the same as saying it's a perfect model, or it accounts for every possible variable in a complex financial economy.

CRA:"Having to buy more units of breakfast cereal to feed your family is no different to having to pay more for the same number of units that you used to buy."

No disagreement there. But that cleverly hides an underlying fact, which is that most people are not currently buying the amount of food, energy and other necessities that they need to buy for survival, or even for the most basic level of comfortable existence. So while supply destruction cannot be accounted for in any of these economic models, it can be safely assumed with Keen's model that there is much more room for a faster pace of demand destruction in the developed world. Now, that may change when we really get into issues of peak oil, climate change and resource scarcity, but that is still some time off. And I'd like to see anyone try to incorporate those things into their mathematical economic models.

CRA:"The sovereign states can do the borrowing on behalf of the citizens even if those citizens are unwilling to borrow. The sovereigns are the borrower of last resort."

Of course they are (the last greatest fools). But how does that in any way refute the debt deflation arguments? Perhaps CRA can expand on what specific qualities government credit and base money have that are different from private credit money. I'm pretty sure I know what you will say, as I have discussed this before, but maybe I am missing something, and it should help other readers understand anyway.

Ashvin said...

Cont...

CRA:"In addition to completely misreading Bernanke’s motives Keen obviously he shares this perspective of HI as merely “inflation on steroids” caused by the government printing massive amounts of currency to offset contracting bank credit money as opposed to the perspective presented in this post by FOFOA where the printing is a response to HI rather than the cause."

Ah, the "misreading motives" straw man (that's a correct usage of the term) argument... again. That thing is getting so ridiculous at this point it doesn't even warrant further discrediting, except the following two points.

A) Even if it is true, it has no bearing on the substance of either Keen's or my argument re: debt deflation and B) because it's not true, seeing as how BB himself probably didn't figure out his actual motives until just recently.

Moving on from that inane point, CRA would have you believe that either Keen thinks HI can only be caused by "inflation on steroids" printing by the CB, or that, alternatively, Keen thinks that it could be one of several potential causes and CRA thinks he's wrong. Of course, CRA would be wrong on both counts. Keen was merely stating the somewhat obvious fact that, if BB decided to print to infinity and monetize all debt, HI would be set off without a doubt. He did not rule out the possibility that it could endogenously occur from within the private markets, after which out of control printing would merely be the response to HI.

The question is whether the latter has already occurred or is significantly likely to occur in the near future, and also whether a Freegold system will rise in its wake after it does occur. My vote is a resounding... NO.

Ashvin said...

Re: Deflationists and the issue of "supply destruction"

It is very incorrect to suggest that we do not contemplate those issues in our analysis, especially since many of us are also in the "peak oil crowd". There is perhaps no better example of this fact than the piece published by Nicole Foss just today on The Automatic Earth:

Get Ready for the North American Gas Shock

Stoneleigh:"Unfortunately, throwing money at a net energy issue will not solve the problem, and in times when money is scarce it will be even more problematic. For production to be maintained, drilling must continually accelerate, but gas prices are so low on the perception of glut that this is exceptionally unlikely. The bursting of the gas bubble will suck most of the project finance out of the sector for a period of time. We can therefore expect gas production to decline sharply in the coming years. Gas declines from a production peak are typically sharper than oil declines, so the change could be quite rapid.

Although demand will soften under the depression conditions for which we are headed, natural gas should receive considerable relative price support in a deflationary environment. The bust part of the cycle is happening earlier than for oil, and by the time we find ourselves in depression, a gas supply crunch could already be underway due to the effects of several years of low prices and so many losses coming home to roost in the aftermath of the shale gas mirage. In North America, gas supply could therefore be a much more immediate concern than oil supply."


The quoted passage is towards the end, and the article is full of facts/data that support her argument, so I recommend people to check out the full piece.

Robert LeRoy Parker said...

Ash,

Agree to disagree. Fofoa rejects Marx's LTV. You accept it to some degree or another.

To my knowledge, you have not swayed one person at this blog with your arguments against freegold. And based on your premise, it's very obvious that you will never admit freegold is a sustainable and viable alternative.

You will never stop arguing until you are proven right. Even during a freegold paradigm, you will be arguing that the deflationary death spiral is just around the corner in 5,10,20 years, whatever. All the way to your deathbed the argument will continue if you have someone that will listen. It will go on and on and on and it will become progressively more annoying.

Fortunately for all of us, time will prove who is right and who is wrong. If the death spiral occurs in your lifetime you can say I told you so.

For now though, your anti-freegold POV has been presented and linked to many times. Everybody here gets where you are coming from, or they reject your starting premise and DON'T CARE to dive in further.

Additionally, everybody knows exactly where to find you if they want to continue on your trail. So stop being a spammer for the AE. Nobody from FOFOA is doing that to AE. Show the same respect.

Give it a rest.

radix46 said...

RLP,

You may not enjoy Ash's Marxist rantings, but I like them. They help to force me to examine my own assumptions and give me a look at what others think. I can then decide if this changes my views. I don't think that it takes away from the freegold/HI discussion, indeed, it seems to draw more of it out. At least it's not like that soul destroying silver debacle which, thank f*ck, seems to have abated.

As it happens, what he has written on here has in fact strengthened my opinions and deepened my contempt for Marxist theory, so it's a double bonus!

I say plug away, Ash. It draws some great stuff out of the more experienced commentators here like costata and I always enjoy reading his tussles. I learn from it and that is what I am here to do.

Robert LeRoy Parker said...

Radix46,

Conversation is great. Imo, spam is not.

Terry said...

Mexican trucking dispute settled

http://brownfieldagnews.com/2011/07/06/trucking-dispute-with-mexico-resolved/

allowing US to devalue dollar with introduction of "Amero" and new North American Union. Coming soon.

Crack said...

spose it means all you pussys next be discussin agin that bs bout NAFTA goin on a "floatin silver standard"

FOFOA must jus be peein his pants he so excited

Ashvin said...

RLP,

Unlike Radix, you really don't get "it", which is evidenced by the fact that my comments annoy you at such a personal level and you consider my back & forth about economic theories, facts and analysis "spam". Are you telling me you haven't learned a single constructive thing from my presence here, even if you completely disagree with my conclusions? I find that hard to believe, and even if you haven't, I know there are some who have, like Radix. I also know for a fact that a few people have decided to consider the deflation/HI/non-Freegold argument more carefully than they otherwise would have before.

I don't care about being "proven right", and I know that it's nearly impossible for that to even occur. If Freegold does happen, then I will gladly admit I was wrong, because I and many others I care about will be financially well-positioned, and the world will look like a much better place than I had previously envisioned it would. There will be ALOT of problems remaining, sure, but at least there will be much more time to work on "solving" them to whatever extent possible.

Anyway, the fact that you imagine yourself speaking for "everyone" reveals your arrogance, especially when someone immediately tells you that you are not speaking for him/her, and yet you still refuse to admit your assertion was misguided.

Robert LeRoy Parker said...

Ok Ash,

Who is taking it personally?

We'll see where we are after a couple more months of this back and forth that is going nowhere.

Robert LeRoy Parker said...

And if you think linking to the same articles at AE over and over doesn't constitute spamming, then you are arrogant.

Ashvin said...

I think it's pretty obvious I continue linking my articles at TAE for people who may have missed them before, or when it's another article outside of the series which I believe is relevant. I have also linked to articles by CHS and Tyler on ZH before, too. The hyperbole isn't really working for you, man.

BTW, I didn't say I don't take your arrogant comments somewhat personally. Everyone takes comments like that a little personally. I just don't take people linking to their articles, constructively commenting and/or responding to comments, accusations or questions personally, as you apparently do.

costata said...

Woohoo more debt deflation!

h/t Max Keiser for this article. My emphasis.

http://oilprice.com/Metals/Gold/Negative-Real-Interest-Rates-Continue-to-Provide-Gold-With-a-Perfect-Environment.html

"Negative real interest rates reduce interest expense by default and eat into the existing debt. They therefore constitute a transfer from the savers to the debtors. The following chart illustrates the fact that this form of financial repression seems to be in vogue among the majority of nations these days.

Oops, guess not. An interest rate subsidy from the savers to the debtors (well some of them anyway).

Crack said...

"people who may have missed them before"

sweet baby jesus! he really think sombody missed em!

Robert LeRoy Parker said...

Whatever Ash,

Imo, it seems like the conversation is going in circles. And it's not that I haven't learned anything. I've read a lot about Marxian economics since you showed up.

But given the difference in premise which you wrote multiple articles to highlight, do you think there is going to be a resolution to this argument before it plays out IRL? I bet not. But it continues...

Radix,

Have you kept up on Costata's silver forum?

DP said...

@costata, I personally know people who are (purely by accident of chance, rather than great foresightedness) on Tracker mortgages, who can't quite believe their luck they are paying like 1% or so interest -- and they've been making accellerated payments on the principle using the money they previously expected to spend on interest. The smarter ones, that is.

I also know other people on Trackers who don't pay down the principle but keep pissing it up against a wall on stupid things instead, complaining they don't know where the next car or vacation or whatever is coming from. :-\ Sheesh. What'll they be like when rates go up!

Texan said...

JR, really, you don't have to keep cutting and pasting FOFOA'S articles. I have read them.

Let me just say it as plainly as I can:

1. there is a significant risk that, despite truckloads of money printing, prices for most stuff that ordinary people buy on a regular basis will go DOWN.

2. Because all the money that has been printed is pretty much ended up right back on deposit with the printers.

3. And now the printers, for the time being have greatly reduced their printing output because there are hard money people in power saying " enough is enough".

4. So we shall see which POLITICAL decision is made.

How you want to define all of the above is up to you, but I am not interested in having a discussion about definitions.

Jeff said...

There are many deflationist blogs; there are peak oil blogs. There is only one freegold blog, and for someone to post here for months on unrelated issues is spamming. If I want to read about natural gas I won't come to FOFOA to do it. In the end only the blog owners opinion matters, of course.

And yes, general discussion of deflation and marxism is unrelated. Throwing the word freegold in doesn't make it topical.

costata said...

DP,

I'd like to continue this topic of interest subsidies with another link before returning to antagonizing that fool:

http://macrobusiness.com.au/2011/07/vitaliy-katsenelson-why-china-will-crash/

"Let’s pause for a second. In the 1990s, the Chinese banking system basically collapsed. To revive it, the Chinese government took bad loans from banks’ balance sheets and put them into off-balance-sheet vehicles (Enron would be proud of that financial ingenuity). Banks started to function as though nothing had happened.

To finance the off-balance-sheet assets, the government set deposit interest rates at very low levels: 1% or so. In a country with a very high savings rate and 5% inflation, this resulted in a 4% annual loss of purchasing power.

Chinese consumers were punished severely over the last 10 years for the banking crisis of the late ’90s."


I note he refers to "consumers" being punished but I think it would be more true to say "savers" rather than consumers. Part of the reason that China's government was able to do this favour for their banks was because they had growing exports and a trade surplus.

Now the big question is: Can the USA (burdened with deficits) pull off the same trick?

DP said...

Yah! After they grow some exports and get a trade surplus, pay off their debt and get into the black again! Can do! Yes ma'am. (See you on the other side of hell freezing over... unless those debts can be redenominated somehow of course... hmm... [thinks]) I'll need to sleep on it. ;-)

Cheers -- good weekend!

Ashvin said...

"do you think there is going to be a resolution to this argument before it plays out IRL?"

Why would you possibly be expecting/hoping a firm "resolution" to such a fundamental debate/discussion, one that has been going on for decades, and why would you think that I am? That's not what it's about...not in a court of law, not here, not anywhere.

And that's my last comment on this topic. Since this is an online forum and not some public square you can't physically escape, I suggest you just scroll past my comments from now on, or ignore my user name, if that's possible.

Robert LeRoy Parker said...

Why would I hope for a resolution to the debate of deflation vs near term hyperinflation? Is that a serious question?

I'm only here for one reason and that is to gain understanding of what is coming. As I've said, you are steadfastly in your camp, and Fofoa is the same in his.

Given the fundamental difference in starting premise, agreeing to disagree at this point would be amicable imo. Of course, you would be agreeing to disagree with a number of commenters here, since Fofoa has barely touched this conversation. Maybe he is writing about it currently, or maybe he isn't going to because perhaps he views arguing with you like venturing into a blackhole.

JR said...

You can do what you want Texan,

But you can't stop people from pointing out you have no idea what you are talking about:

"You are of course right that there is a huge amount of socialization of losses and deficit spending and money printing in the US. But a "huge amount" ( ( or however you would like to characterize it) does not necessarily lead to HI, because there is also plenty of debt which - asAsh rightly points out - is getting paid down, and in many cases defaulting.

Two competing forces basically, private delivering vs gvt relevering. And so far, it's been balanced enough that the results are only moderate inflation.
"

:)

costata said...

An Honest Deflationist

As an antidote to the blatant dishonesty, dissembling and hypocrisy of our SIR (for example “Ash On Gold” here) let’s hear from his patron over at The Automatic Earth. This is Nicole Foss speaking with Jim Puplava. For what its worth I think she comes across as a nice, well meaning person but, sadly, in my opinion that would be no consolation if you end up as road kill as a result of following her lead.

Around the 7 minute mark Puplava asks her for her recommendations to people who want to protect themselves. (My transcript and emphasis in bold.)

Jim Puplava: Let’s talk about what some possible solutions might be.

Nicole Foss: ….On a personal level I always tell people get out of debt, don’t rely on credit, hold cash and cash equivalents by which I mean actually mean real physical cash under your own control and short term Treasury bills because you really need liquidity to ride out a deleveraging.

Coz when credit starts to contract, and credit is in excess of 95 per cent of the money supply, when credit starts to contract the money supply ends up contracting very, very sharply with it. People have to hold onto liquidity because liquidity is your freedom of action.

If you maintain liquidity all kinds of opportunities will open up for you and the purchasing power of that cash will expand as consumer prices and asset prices fall because they’ve been the subject of speculative bubbles. So the people who manage to maintain liquidity will actually find that for them things genuinely do become cheaper.

For everyone else who has drastically less money than they had before, because credit is going away and they may be losing their jobs, they’re going to find that even as prices fall everything becomes less affordable. So people have to get out of debt, hold liquidity, not depend on credit but then also perhaps gain some control over the essentials of their own existence in whatever way they can …..


This was the second of a two part series. Here is a link for anyone who wants to listen to all of the interview. When pressed Steve Keen makes similar recommendations – cash and government paper. This is the standard deflationist prescription regardless of what SIR claims. Gold isn’t part of their recommendations. (I realize that Mish pays lip service to gold.)

All of this talk of gold by SIR is a hook, designed to make it appear that there is some common ground between his position and the perspective of many of the people at this blog. Yet another one of his dishonest tricks. I note too his replies to comments from myself and others here. No genuine attempt to understand and respond to counter arguments and criticism of his sweeping, self-reverential statements and glib dismissals. But then we know his real motive expressed here:

"I'm hoping when it's all said and done, some people "on the fence" will decide to hope (sic) down on our side... perhaps even some who have bought into Freegold (literally). I have no illusions about convincing the extremely hardcore advocates, though."

Now I’m done being nice to this egotistical fool. We need to have a robust discussion of Marxism, capitalism and take another hard look at the “false premise” Ash invented in part 1 to allow him to blatantly misrepresent our favourite Yeti’s savers vs debtors paradigm. Coming soonish.

Robert Mix said...

Somebody remind me to never get into a fight with costata!

costata has done hard spade work exposing the fundamental dishonesty I have almost always seen in Marxist arguments, but hey I claim no expertise here.

And I look forward to costata's ROBUST discussion of Marxism. My own grandmother had her taste of Marxist crap while heading up the Red Cross relief effort in Poland after WWII. Bring it on.

---

Since I now have my own blog with Blogger, my name has become outed, ah well. Please don't spread it around at Zero Hedge!

'preciate that! (Robert the Bearing)

Ashvin said...

CRA:"an antidote to the blatant dishonesty, dissembling and hypocrisy of our SIR..."

I am now forced to conclude that either a)CAR does not understand what any of those words mean, b) he legitimately believes I am an anti-gold shill, sent here to slowly destroy Freegold from the inside out with my convoluted article series, even though I think Freegold has a good chance of happening otherwise (which makes me me "dishonest" and "dissembling"), OR C) CRA feels so threatened by my argument he has decided it would be best to make me out as some kind of obsessive compulsive liar that is out for no one but himself.

Personally, I figure CRA is a bit too smart to not know what those words mean, amd a bit too closed-minded and arrogant to feel threatened by someone else's argument, so that would leave me being an anti-gold disinformation mole.

But that's just a bit too wacky as well, so maybe the simpler reason is that he just completely fails to understand the argument in my articles on gold, despite making claims to the contrary. I'm feeling generous, so I'll just go with that and not assume he has gone bat shit crazy from the sheer intellectual magnitude of my articles (now that's an example of someone being egotistical, for future reference, CRA) .

CRA quoted Part IV of my series as an example of how I kept contradicting myself by saying gold will be under deflationary pressure, and then saying it's still the best inflation insurance and long-term store of wealth you can purchase right now. In CRA's limited capacity, he saw this as a deceitful attempt to "hook in" people on this forum by pretending I also like gold, which makes me just like you! At the same time I am advocating for near-term dollar deflation and against Freegold, and that is my true evil intention, because I couldn't really care less whether you buy gold or not, as long as you hope down to my side of the infamous fence (who knew a simple comment on a forum about fences could become such a sensitive issue??)

Let's leave aside the utter incoherency of CRA's view up to this point, and focus on the fact that he failed to even grasp the reason why Part IV was entitled "Deflationary Canyons and Caves. Here's a hint to help you along, CRA:

Some people will find that they cannot reasonably afford to purchase any gold, while others will find that they are well-prepared for deflation, both financially and physically (control over the "essentials of your own existence"), and now is a great time to allocate some excess wealth towards precious metals. Still others may even find that they happen to live in a specific location where gold and/or silver could soon potentially thrive as an informal means of exchange. As debt-assets and confidence deflate, the unifying structures of economic, social and political coordination will seize up, and the subtle cracks between local environments will be magnified into canyons and caves.

If there is still a lack of understand why my advice re: gold is perfectly consistent and "on the level", then I can explain further, but I'm really hoping that won't be necessary. as it should be clear how arrogant and off-base CRA is at this point. He may normally be a very intelligent person, but my series must have really gotten under his skin, because he is acting like a Dan Brown wanna-be who has just uncovered a grand conspiracy of evil motivation lurking in the words of my articles and comments.

I appreciate the thought, CAR, of just how devious I can be, but, sorry, it's just a plain old lengthy article series meant to convince people of my economic/financial views.

Ashvin said...

"No genuine attempt to understand and respond to counter arguments and criticism of his sweeping, self-reverential statements and glib dismissals"

I guess the fact that I have responded to the substance of every comment you have posted about me or my articles doesn't count as a "genuine attempt", huh? My what high standards Uncle CRA holds for posters on this forum... if only he would apply those same standards to his own pots.

You know, the ones that are typically a copy & paste session of what other people wrote, such as me or Nicole Foss or Dr. Keen, with a few casual statements about how clearly wrong we all are, without any further explanation, and also a couple promises of "more coming" at the end of every post. It's actually quite a clever way to make it appear as if you are rebutting the substantive arguments of various analysts, but actually are not doing any such thing. The only substantive point made by CAR in all of his recent posts was something that JR had already said about the money multiplier, and how Keen "misread" BB's goal. Needless to say, that point was debunked in short order, and twice at that.

costata said...

Peak Shill

November 9, 2010 7:33 AM

Ash said...

Amit - I do not give specific investment advice, mainly because I'm not qualified to and, more importantly, I think it's almost always counter-productive to what we should be doing.

That being said, it sounds like you are doing a very sensible thing with your money. Debt deflation is typically good for the value of cash or cash equivalents, and perhaps 1-10 yr treasury bonds, but nothing else. To hedge against hyperinflation, precious metals (gold/silver) and hard commodities are good, but like you say they are priced very high now and so you must weigh the costs/benefits in the context of your specific situation.

It appears that Bernanke and company are making a last ditch attempt to encourage speculation and blow another credit bubble, but they will most likely be unsuccessful. Unfortunately, they will probably suck more average investors into into the Ponzi scheme before it implodes. I'm perfectly happy with staying on the sidelines and observing.

As for emerging markets, once again, I can't give any specific advice. But I do think those economies face many more headwinds than mainstream analysts typically point out.
(My emphasis!)

Well, well "but nothing else". Last time I looked physical gold was an “else”.

To be fair you did give me one good laugh. The notion of you being able to "debunk" anything from the erudite JR was amusing. The word "debunk" seems to be a favourite with SIR. Unfortunately gainsay is no substitute for argument.

Your heading for an 'F' in Freegold-RPG.101 Ash. You need to polish your reading and comprehension skills. (Being less prolix would also help.)

DP said...

@costata, make that an 'EF' (Epic Fail).

radix46 said...

RLP,

I can understand your sentiments, as when people spam this blog with their inane silver comments and other unreasoned bulls!t, it makes my blood boil. Even so, when I look back, it was useful as costata did his silver forum as a result and that was great info.

However, I really have found engaging with Ash to be useful, even if most of his words are extraneous. It has forced me to think deeper about HI and deflation. It has prompted me to read more of FOFOA’s posts again (many of them on the topic of HI and deflation) and I have gained a much better understanding.

Plus, it draws costata (not wanting to sound like too much of a costata groupie, but I do enjoy his posts a lot) out of his cave, wielding his club with that crazy look in his eye, and I freakin LOVE that! I don’t have such a good grasp on many of the topics that are talked about here and if the dialectics (to borrow a favourite word of the Marxians) draw out some knowledge that I would have otherwise not got, then I’m all for it.

Looking forward to a discussion on Capitalism and Marxism. I have noticed that the deflationists and the Marxists and the peak oilers etc, seem to have some lust after returning to the dark ages. They positively drool over the idea of collapse and seem to have a deathwish for humanity. I saw a video on youtube about environmentalism being the new religion as it shares so many traits. A great big amorphous bogey man, a set of draconian laws that you must obey, a wishing for an end to it all etc. I think humans (weak-minded ones) have a need to construct some great ritual based on their own ephemeral nature, in order to exorcize the inner demons who taunt them about returning to star dust.

With organised religion on the decline, people look for a similar construct to materialise the conflict going on their minds. I would also like to a see a study done on Marxists to see what percentage of them had over-bearing fathers and a problem with authority. Just out of interest….

Jeff said...

Rickards on gold:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/7/9_Jim_Rickards.html

Texan said...

JR,

I don't know exactly what you disagree with in the snippet you cut and pasted. I assume you agree with truckload of money printing, so you don't agree with delivering and defaults are occurring in the private sector?

I don't think either of those statements is controversial, but maybe you do, so let me know what you don't agree with.

By the way, I have asked several times now, but you don't respond, when do you think the effects of hyperinflation that has already occurred will actually filter into prices? This year? Next year? 10 years from now? Do you see a catalyst or some kind of triggering event?

radix46 said...

Ash,

"CRA:"an antidote to the blatant dishonesty, dissembling and hypocrisy of our SIR..."

I am now forced to conclude that either a)CAR does not understand what any of those words mean, b) he legitimately believes I am an anti-gold shill, sent here to slowly destroy Freegold from the inside out with my convoluted article series, even though I think Freegold has a good chance of happening otherwise (which makes me me "dishonest" and "dissembling"), OR C) CRA feels so threatened by my argument he has decided it would be best to make me out as some kind of obsessive compulsive liar that is out for no one but himself."

Ash, you fail to take into account, in your possible conclusions, the fact that maybe you are just wrong and in defence of a precious viewpoint, your mind is bending and twisting itself in order to defend a position, where a lapse in defence would feel like an unbearable loss.

This kind of self-deception leads to the sort of sophistry which costata talks about. When one gets into this situation, it is obvious to everyone other than oneself.

Why not consider that possiblity? You may learn something important, about the world and about yourself.

When the facts contradict the underlying theory, is it a good idea to keep the theory and twist the facts, or change the theory to come into line with reality?

We don’t like to be wrong, so most go with the latter. Unfortunately, this puts you in line for a head-on collision with reality. Reality is driving a big rig and you are in a clapped out Honda. Good luck.

DP said...

@radix, I hope you're enjoying the great weather this weekend buddy? :-)

radix46 said...

DP,

Eugh.

radix46 said...

Jeff,

Listening to that Rickards interview, that you posted, he makes an interesting point. Namely that the Chinese don't want to run up the gold price too much, as they have a gold buying programme going on. He then goes on to say that this exchange is interesting as it seems to open the flood gates to more buying as it makes it more convenient than buying the physical.

However, perhaps they are opening the exchange in order to take pressure off the physical buying and are creating an extra fractional reserve system in order to do so. There is a lot of talk of Asian buying of physical in London. They must know that this can't go on for too long and are worried about being locked out of the market before they have 'enough'.

Perhaps this isn't bullish for gold, but bearish instead? Of course, in the long run, the end game is the same, but perhaps this significantly lengthens the timeline?

radix46 said...

It may also be logistical infrastructure for a freegold world, as Rickards mentioned the ease of buying through a bank account.

Perhaps it's a bit of both?
It will be interesting to see the volume of trading and the amount of shorting going on.

Ashvin said...

CRA: "Well, well "but nothing else". Last time I looked physical gold was an “else”."

Me: If there is still a lack of understand why my advice re: gold is perfectly consistent and "on the level", then I can explain further, but I'm really hoping that won't be necessary.

I guess that's what you get when you hope for pipe dreams... can't say I'm surprised. Radix, pay close attention now.

CRA keeps quoting me in an attempt to support his argument that I have contradicted myself both in my articles and my comments, and therefore am an immoral hypocrite, right? He, and perhaps others reading his comments, has never stopped to think that he simply misunderstands (or intentionally misrepresents?) my argument. As I stated in the comment quoted by CRA, I do not give specific investment advice.

That is quite obviously because the numerous details of a person's life dictate what and how much they should invest in various assets (this is true even assuming Freegold will occur). It is even more true, IMO, during a process of debt-dollar (and confidence) deflation, when "subtle cracks between local environments are magnified into canyons and caves". That has been a central theme of both Part IV and Part V in my series, with the latter ending with a discussion of "the perfect" being "the enemy of the good" (i.e. perfect investments or investment advice included).

This view is also plainly evident in my comment quoted by CRA:

To hedge against hyperinflation, precious metals (gold/silver) and hard commodities are good, but like you say they are priced very high now and so you must weigh the costs/benefits in the context of your specific situation.

So, when CRA makes a statement like this,

Well, well "but nothing else". Last time I looked physical gold was an “else”.

you should now understand why he is completely off the reservation. Either he is so defensive of Freegold that his mind fails to understand the logic of a somewhat simple counter-argument, or he is intentionally pretending that my argument is something different than what it really is. Frankly, I don't care which option it is, but it should be clear now that it is most likely one of the two.

radix46 said...

Ash,

"Either he is so defensive of Freegold that his mind fails to understand the logic of a somewhat simple counter-argument, or he is intentionally pretending that my argument is something different than what it really is."

You do love to set up these false dichotomies (or trichotomies, or whatever), don't you?

Can you really see that those are the only two possiblities, or are you just being a sophist?

Ashvin said...

Radix,

I like how you left out my phrase, "...it is most likely one of the two". There are, of course, other possibilities, but not very likely ones. Do you care to explain what you think it is? Before you answer, let me say another thing, because I also get the feeling that you are not understanding something...

Perhaps the fact that I have not been making an argument against Freegold in any of my recent comments, so this has nothing to do with my deep personal attachment to Marxism or whatever. The article series was the argument against Freegold, that's it. My comments have merely been responses to specific criticisms of the Minsky/Keen debt-deflation approach, and to CRA's screwball attempts to paint me as an immoral, lying hypocrite who tells people to simultaneously buy and sell physical gold.

I'm assuming you now get that.

radix46 said...

Yes, Ash, I did see that and I also saw that you slipped it in, almost as a footnote. You set up the false dichotomy in order to crowbar in your point and slipped in a qualifier at the end as a get-out clause. Pure sophistry. I'm beginning to see costata's point.

Ashvin said...

Radix,

I find it supremely ironic that you wrote this sentence:

You set up the false dichotomy in order to crowbar in your point and slipped in a qualifier at the end as a get-out clause.

Followed by this one:

Pure Sophistry.

To be fair, I do have a faint idea of what you are trying to say, but you provide no reasoning behind your assertion that I have "set up the false dichotomy". I also was not aware that using a comma in a sentence rendered everything after it "almost a footnote". Oh well, I tried...

Ashvin said...

Also,

I have noticed that the deflationists and the Marxists and the peak oilers etc, seem to have some lust after returning to the dark ages. They positively drool over the idea of collapse and seem to have a deathwish for humanity.

Don't you think it is a bit unfair to make such a sweeping generalization, when you yourself admit that you don't have "such a good grasp" on the details of our arguments? I wrote this post for people making similar arguments:

The Post-Peak Rapture

There is certainly no shortage of short-sighted theories to explain all of these "isolated" problems, but heaven forbid that they are all connected to each other by some "higher force", because that starts to sound like someone is preaching the End of Days. A rational analysis of financial deterioration and collapse suddenly becomes a premonition of the occult; the nihilistic musings of people who just love to wallow in their own misery. You may as well pick up an "Eat the Bankers" sign, wear it around your neck and tell people what day and time to meet you at the Bank of England.

If you are brazen enough to throw the imminent issues of peak oil and climate change into the discussion , then you may as well go ahead and pencil in a date on your calendar for the Rapture to begin, so that the whole world can look and laugh. Immediately, people will begin conjuring up Hollywood images of fire and brimstone; death and destruction; utter confusion and chaos; digitally grafting those simple crowd-pleasers onto the remnants of your once complex and rational argument.

Welcome to our global society of "all or nothing", where either the world burns to the ground in a few weeks, at most, or things just muddle along in an entirely plain and mundane fashion for at least a few decades. What this binary logic fails to understand is that financial, industrial and environmental collapse will be a combined process of gradual deterioration, stabilization, slight "improvement" and rapid disintegration, coming to the surface of our consciousness in fits and starts. It will not necessarily follow that order, and will be extremely non-linear and short-term unpredictable.

DP said...

Something for everyone, nothing specific. Who'da thought?

Almost reads like "I haven't got a clue", eh readers? ;)

Robert LeRoy Parker said...

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radix46 said...

Ash,

"What this binary logic fails to understand is that financial, industrial and environmental collapse will be a combined process of gradual deterioration, stabilization, slight "improvement" and rapid disintegration, coming to the surface of our consciousness in fits and starts."

You don't like false dichotomies when people throw them at you I see, but see the usefulness of using them yourself.

You describe the unprovable god that is there, just trust me. Destruction and final judgement is coming, you just have to have faith that I'm right and you can't see it because you are a mere mortal.

And no, I don't think it is unfair to make an observation that is unrelated to the arguments of a certain group, but merely about their attitude in general, without understanding their arguments fully.

Amen

radix46 said...

Now, I do have to apologise to RLP. This little exhchange has been entirely irrelevant and pointless.

Sorry old bean.

Jeff said...

Rickards doesn't consider that the swiss gold franc would work well as store of value while the official franc would be transactional. He still sees a gold standard as possible in a currency failure.

Interesting that he thinks chinese gold buying might be to raise the price of gold 'currency warfare' against the dollar. Would china buying euros be more of this? And do gold certificates at a chinese bank = allocated gold?

DP said...

radix46: Now, I do have to apologise to RLP. This little exhchange has been entirely irrelevant and pointless.

Sorry buddy, gonna have to disagree with you on this occasion — because I agreed with you earlier! :-)

It has forced me to think deeper about HI and deflation. It has prompted me to read more of FOFOA’s posts again (many of them on the topic of HI and deflation) and I have gained a much better understanding.

@RLP: costata, Jeff, JR, myself, et-al, and for that matter also Ash, don't have these conversations for our own sakes or purely for fun (although I do try to have a little fun along the way I must admit). Maybe you don't get anything out of it, and so sincere apologies for that part of your time that I personally have contributed to wasting. However, radix46 has demonstrably moved his understanding up a notch lately IMO — and I can't believe for a second he is alone.

@Ash, it may indeed be somewhat repetitive, but I personally do appreciate your often herculean effort in attempting to "debunk Freegold" here; your staying power is impressive. Good luck (you're going to need it, clearly! ;) ). Every time you have this go-around, I suspect a few more people find themselves having an ah-ha moment or two about Freegold and/or hyperinflation somewhere along the line -- so it's all good, right? It's almost a shame that you're not managing to achieve a few scores for your team while you're about it -- maybe next time!

Sincerely,

DP :-)

DP said...

[mutter] ... maybe never... [/mutter]

Robert LeRoy Parker said...

Back to the shadows with an occasional link then.

I hope it doesn't turn into this sort of situation though.

DP said...

LMFAO! :-D Now THAT'S funny!

radix46 said...

DP,

Is there somewhere that shows how to put links and formatting into these messages?

I seem to remember someone making a comment on the subject, was it you? If so, can you remember where it was?

Texan said...

Wait, y'all don't believe in peak oil or climate change?

Ashvin said...

Radix,

"You don't like false dichotomies when people throw them at you I see, but see the usefulness of using them yourself.

Sorry, you still haven't given me a shred of reasoning to support your argument that I presented a "false dichotomy" with regards to my response to CRA.

"And no, I don't think it is unfair to make an observation that is unrelated to the arguments of a certain group, but merely about their attitude in general..."

My point is that you misinterpret many of our attitudes with your conveniently simplistic generalization, because you only superficially understand our arguments.

DP,

It's almost a shame that you're not managing to achieve a few scores for your team while you're about it.

Oh, don't worry about me, I'm making more progress than I thought I would. Obviously., more with TAE readers than people here. Then again, I wouldn't really expect anyone who frequented this site to come out and throw their support behind me, either. Maybe I just have low expectations... who knows.

RLP,

Hey, I welcome the comparison to Bill Murray! Great actor, and his character in that movie was a misunderstood genius... ;-)

What about Bob, indeed.

Ashvin said...

Texan,

Nah, I think that's a bit too heavy for them right now. Gotta crawl before you walk, right?

JMan1959 said...

DP,Costata,


I value Ash's commentary for an entirely different reason. Entertainment value. Everytime he posts one of his Marxist ramblings, I simply cannot wait to race to my computer and see one or both of your replies. I laugh thinking about playing a fantasy investment game against Ash, where I give him first pick. He picks US Treasuries. I then pick gold. He follows up with a CD at Bank of England or Bank of America, paying him 1.5% I then buy more gold, maybe sprinkle in some crude and nat gas exposure, and then sit back and water my garden and cattle down here in Texas. He gets the equivalent of Ryan Leaf (a first round NFL washout), and I get Payton Manning (Hall of Fame). Lets run the numbers for the last five years, and then the next ten, and see who wins. Don't worry Ash, you can clean my toilets when it's over. I simply have to laugh at anyone who chooses to ignore the rampant worldwide inflation, and recommend cash and treasuries. But to echo Radix, the rose colored glasses of his Marxian bent are glued to his deaf ears. Keep it comin' Ash. I may even contribute on your website--I love a good comedy.

DP said...

@Joel,

Och! Wit aboot the Boaby indeed.

Everybody loves tae laff at a wee Boaby fae time tae time. :-)

DP said...

@radix, you can get a basic primer on some simple HTML tags that are allowed in Blogger comments (only a very limited subset of tags are allowed, unfortunately) ---> here

DP said...

Apologies...

@radix, you can get a basic primer on some simple HTML tags that are allowed in Blogger comments (only a very limited subset of tags are allowed, unfortunately) ---> here

DP said...

You should feel free to TRY any HTML tags that might make sense in the body of a document, but Blogger will reject most of them.

If you are writing a blog post, rather than a comment, you are allowed a little more license with tags, but still it's quite restrictive.

Here's a quick list of all HTML tags, but as I say most of these won't be useful to you within the world of Blogger

Use the force!

holdinmyown said...

Is it possible to have a run on the BIS? This article by the FT states that CBs have withdrawn 635 T of gold from the BIS in the past year, the most in 10 years. Are the CBs worried about counterparty risk with the BIS?
http://www.ft.com/intl/cms/s/0/ce24275a-a8b5-11e0-b877-00144feabdc0.html#axzz1ReiDYkP3

JR said...

Hi holdinmyown,

Arranging physical gold sales amongst CBs/countries/Big interbank market is what the BIS does. Another said:

Q: ***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***

A:The BIS is the gold broker for all interbank sales/purchases. Bullion Banks are for sales to other entities.


From "The Gold Man" (not Goldman) at the BIS.

Cheers, J.R.

radix46 said...

I'm done with you, Ash

Have a read of some of Ash's other poisonous zealotry. But, don't worry, because he's put in a qualifier as usual, so he can't be pinned down to any of the ideas he presents. Perhaps he just spews his twisted crap out of boredom, maybe desire for attention, borderline personality disorder, who knows? But his posts will, from now on, be scrolled through immediately by me.

Thanks for strengthening my view of peak oilers, Marxists etc. Now I'm really gonna have to put myself out to go and find a reasonable advocate of 'your camp' in order not to become hopelessly bigoted.

Don't bother replying to me.

Bron Suchecki said...

"A Mint that is not geared up to produce the smaller weights would have an enormous task to catch up with the Swiss Mints producing these coins. ... that he may need a contingency plan to deal with this scenario."

Alloying down gold and minting smaller sizes is not that difficult so the first mover advantage is minimal.

In any case I see small coins with alloyed metal as not much of a solution - forgeries and debasement much easier when you are talking alloys with low gold content.

I have been thinking about this issue for a few years and think I have a better solution, but more development work required.

radix46 said...

I've taken a copy of what's on the site in case Ash takes it down - I bloody well would if I'd written that!

radix46 said...

DP,

Thanks for the links.

Yannick said...

@Ash

Please leave. Nobody wants you here.

You are an awful specimen of Internet troll, dishonest, who prevent discussion between others members to take place. You are not looking for logical discussion, you are looking for attention, like a child. You are useless.

Go play ball elsewhere.

Ashvin said...

Radix,

"I've taken a copy of what's on the site in case Ash takes it down - I bloody well would if I'd written that!"

I have no idea what you're talking about anymore... you have devolved from someone who was allegedly trying to have a legitimate discussion and learn about new ideas, to someone who can't stand even the implication of arguments that you make you uncomfortable or offend your delicately sensitive worldview. So yeah, it's best we end our discussion now.

And... in case you were thinking otherwise, I don't care if you or I have the "last word".

Yannick,

"...who prevent discussion between others members to take place."

Beyond the first few posts I made on this site (on FOFOA's Deflation and Hyperinflation post), I have only commented in response to comments, questions or accusations directed at me. So, please, stop being so blatantly immature and dishonest (plenty of other discussions have taken place around my comments). If you are incapable of having a discussion with other posters, that's your problem.

Terry said...

Well Said Yannick. I concur,
your opinion of Ash is widely shared. His continued defecations on this blog are disgusting!

Ashvin said...

Correction: I have also commented to post links to my articles critiquing Freegold, obviously.

radix46 said...

This is what I'm talking about. You are in La La Land

Aquilus said...

@Bron

Thank you very much for letting us know you have a proactive plan about the lower weights.

If and when you're ready, I would love to hear more details about it.

Texan said...

Yannick,

I like Ash. He is very verbose, and sometimes incomprehensible, but he is the only one who actually disagrees on stuff in the posts and comments.

I happen to agree with some of what he writes on his own blog (I skip his comments here b/c there is too much flaming going on btw him and c, jr, radix, etc., and it's just impossible for me to keep up).

Ash,

That being said, as free advice ( you know what that's worth) you don't need to respond to every little thing, at such length.

holdinmyown said...

Hello J.R.
I don't doubt that the BIS arranges gold sales and purchases among banks as suggested by Another. In this capacity they would be acting as a broker. But they are also a bank are they not? Another does not say that brokering gold sales among the world CBs is the only function of the BIS. It (BIS) is generally billed as the central banks' central bank. This implies (to me at least) that they operate on a fractional basis as would any bank but with gold as its primary and ultimate currency. I imagine (though have no proof) that they receive gold deposits from the CBs and fractionally lend out to the BBs. I also imagine that since they cannot print gold, as the CBs' CB, the BIS would have a clause in their contracts that would allow (after declaring force majeur) settlement in world reserve currencies (such as the USD and Euro). This view (i.e. that of the BIS acting as banker to the world CBs) is somewhat supported by the author of the FT article as quoted below:

"
reference the article - http://www.ft.com/cms/s/0/ce24275a-a8b5-11e0-b877-00144feabdc0.html#ixzz1RjLFRVpm


In response to e-mailed questions, the BIS confirmed that the fall in the value of gold deposits disclosed in its annual report represented “a shift in customer gold holdings away from the BIS”.

“The Bank’s gold deposit liabilities declined by around 635 tonnes between 31 March 2010 and 31 March 2011,” it added. Comparison with previous annual reports showed the withdrawal was the largest in at least 10 years.

Traders said the move of gold holdings away from the BIS probably reflected a combination of factors.

Some central banks, unimpressed with the paltry interest rates on offer, may have taken the decision not to lend their gold at all.

“My perception is there’s less and less gold being put out by the central banks into the gold market,” said one banker.
"

Who are the depositors that pulled their deposits over the year ending March 31? Is it not reasonable to assume that it is the western world's CBs? If my conjecture is true then there most certainly could eventually be a run on the BIS. Imagine the effect that this would have (chaos) on the Fx market, including the price of gold.

So can FOFOA or any of his readers on this site answer my question with authority: "Could there possibly ever be a run on the BIS?"

holdinmyown said...

J.R.
I also remember reading several years ago (though I do not remember the source) that when CBs lend their gold to (deposit their gold with) the BIS, generally accepted accounting principles allow BOTH the depositing CB and the BIS to show the gold as an asset on their books. Pretty skanky no?

Ashvin said...

Texan,

You're right. At a certain level of logical deterioration, there is no point in continuing to respond to certain posters. When I respond in length, it is usually because I feel that is the only way to get a point through, but I have many shorter comments as well. Anyway, here's my breakdown:

Joel & Terry - I told those fools I was "done with them" a few threads ago, and I have stuck by that and will continue to do so.

Yannick - He is now added to the list of people "I am done with".

Radix - After insinuating that he was open to logical discussion, I have found out that he very much is not. So I will not respond to any non-substantive remarks he may happen to make in my direction.

RLP - Much more open than above, but gets easily tired of discussions without any "resolution". Still, if he makes a comment in my direction, I will respond, but given his prior expressed sentiments, I expect him to ignore my comments anyway.

CRA - While obviously a somewhat well-read and intelligent person, it also seems to be in his nature to antagonize others on this forum who disagree with his views, and sometimes via blatantly misrepresenting their arguments (intentionally or unintentionally, I don't know). If he substantively and legitimately addresses my argument, I will respond, otherwise I won't.

JR & DP - While I have received a fair share of harsh criticism from them, both personal and substantive attacks (mostly the latter), they also demonstrate a willingness to largely make substantive points in defense of Freegold and in criticism of counter-arguments. So if they make comments in my direction, I will respond.

You (Texan) and anyone else - I will respond to any comments in my direction.

FOFOA - If our host decides to ban by comments for whatever reason, I will be disappointed, but will also be gracious to him for letting me post up until that point, and obviously respect his right to moderate his site as he sees fit. No matter what, I will continue to read his pieces, and will hope that he and others will check mine out at TAE and/or Simple Planet from time to time.

Also, as long as I am able to post on this forum, I may post links to my pieces or other pieces I feel are relevant to a discussion. After the original post, I will only respond to other posters who direct substantive comments on that topic towards me. That way, if people don't want me to harp on a subject, they simply have to refrain from referencing me in any way.

And lastly, but perhaps most importantly, I am still eagerly awaiting a critique of my series from Motley Fool, because I imagine it will be quite substantive and well thought out. Hopefully, he is still inclined to provide that.

costata said...

Hypocrite

While Ash awaits a “substantive” comment from me he might like to expand on this remark from his comment here:

If Freegold does happen, then I will gladly admit I was wrong, because I and many others I care about will be financially well-positioned, and the world will look like a much better place than I had previously envisioned it would.

Anyone with a basic understanding of Freegold-RPG knows that the only way to benefit financially from the transition is to hold physical gold. This remark suggests to me that Ash has physical gold. Of course a deflationist of the Nicole Foss school should be holding cash and short term Treasury bills to prepare for what lies ahead.

Ash the deflationist advocate says to others that “cash or cash equivalents, and perhaps 1-10 yr treasury bonds, but nothing else” is the right way to position yourself for debt deflation.

So I wonder how Freegold-RPG will see him “financially well positioned”.

From the same comment by Ash I quoted above:

Anyway, the fact that you imagine yourself speaking for "everyone" reveals your arrogance, especially when someone immediately tells you that you are not speaking for him/her, and yet you still refuse to admit your assertion was misguided.

While we are on the subject of hypocrisy Ash might like to address this issue with more candour than he did the last time I raised it:

Ash writes in the first installment of his 5 part series:
”(PS: The descriptions of FOFOA's views above are my personal interpretations and have not been confirmed as either being accurate or inaccurate by FOFOA)” (My emphasis)

FOFOA writes to Ash before publication of that series:
You do not have my permission or support to portray your views of my writing as an accurate interpretation.

In one of his comments Ash alleged that I do not understand the meaning of words I use so here are some definitions to help us both to avoid any misunderstanding.

Hypocrite:
A person who pretends to have virtues, moral or religious beliefs, principles, etc., that he or she does not actually possess, especially a person whose actions belie stated beliefs.

Dissemble:
To put on a false appearance : conceal facts, intentions, or feelings under some pretense.

Candour:
The quality of being open and honest; frankness.

JR said...

Hi holdinmyown,

I too hope FOFOA offers insight into your query. Here's a quick take on one assumption. You say:

I imagine (though have no proof) that they receive gold deposits from the CBs and fractionally lend out to the BBs.

Have you read "Relativity: What is Physical Gold REALLY Worth?" in which FOFOA discusses the big swap of gold from the unallocated accounts at the BBs to the BIS?

************************

see this comment too:

...Another said, "physical gold is of much greater value than public traders can move it for"! In your world, this cannot be, but it is, and will show for all to see in your time."

He said, "The BIS is the gold broker for all interbank sales/purchases." And, "is going to force those claims into real bids instead of just claims!
"

What did we learn from that video above that all bankers fear most? That's right, a run on the banks. And in gold, that means the withdrawal of physical at its "published trading price" rather than its true value.

Most of the analyses I read from other writers about the BIS gold swap assume one of two things, sometimes both. One, they assume that this "swap" is somehow being used to knock down the price of gold or to expand the CB manipulation of the gold price. Or to flood the markets with more physical. Or to extend the current system in some way. Two, they assume the BIS wants to "take in more gold," or to further centralize the ownership of gold. To accumulate more gold in the banking system.

Neither of these assumptions ring true to me. On the latter, the BIS and the euro group want gold in the WIDEST distribution possible, if you believe Another. And to prove it, they have both been DISHOARDING their gold and encouraging private gold investment for the last decade! (In Freegold, any gold within the zone is that zone's reserves, not just the CB gold! Even gold in sock drawers is just as valuable to the zone as official reserves are!)

And on the former, this swap, initiated by the BIS, actually removed some of the "window dressing" from the "unallocated account window" of certain European banks, even if only temporarily...


Cheers, J.R.

Indenture said...

I stop posting for a few days and I don't make Ash's List. Crap... I mean, Darn!

Ashvin said...

OK, CRA, I will make one exception and respond to your non-substantive libels yet again, but this time is most certainly the last...

"Anyone with a basic understanding of Freegold-RPG knows that the only way to benefit financially from the transition is to hold physical gold. This remark suggests to me that Ash has physical gold."

As I have stated sever times before on this forum, I do own physical gold. And I applaud you for finally making the correct deduction from my comments, even if it is the first time you have managed to do so.

CRA:"Of course a deflationist of the Nicole Foss school should be holding cash and short term Treasury bills to prepare for what lies ahead."

Nope, and, speaking only for myself (not Nicole), this is why I stated before that you do not understand my argument presented in the series. I never have nor never will give out blanket investment recommendations for people to hold cash and cash equivalents.

CRA:Ash the deflationist advocate says to others that “cash or cash equivalents, and perhaps 1-10 yr treasury bonds, but nothing else” is the right way to position yourself for debt deflation.

Wrong again (or another blatant misrepresentation). In that comment, I said "Debt deflation is typically good for the value of cash or cash equivalents, and perhaps 1-10 yr treasury bonds, but nothing else. What you fail to understand is that stating the fact that certain investments typically increase in value during debt-deflation, is NOT = to advising someone they should only invest in those assets. The latter would depend on a multitude of factors, including the estimated length of deflation, what comes after wards and the personal situation of the individual requesting advice (Amit, in this case). This is really simple logic here, not rocket science.

CRA: "Ash writes in the first installment of his 5 part series:

”(PS: The descriptions of FOFOA's views above are my personal interpretations and have not been confirmed as either being accurate or inaccurate by FOFOA)” (My emphasis)

FOFOA writes to Ash before publication of that series:
You do not have my permission or support to portray your views of my writing as an accurate interpretation.


This is even simpler than the last part, but I imagine you may have to pay close attention anyway...

FOFOA told me I could not portray my view of his writing "as an accurate interpretation". That means exactly what it sounds like it means. Not that my views are inaccurate, but that they can't be represented as accurate of his views.

My disclaimer said my personal views of FOFOA's work had not been confirmed "as being either accurate or inaccurate by FOFOA". There is nothing false or misleading about that disclaimer, because, well, it is true. He didn't confirm them as being accurate or inaccurate descriptions. Now, if you can manage to topple the entire field of logical reasoning by proving me wrong about the above statement, then I will be very impressed.

For some reason, I imagine you would have rather me made this disclaimer: "FOFOA has explicitly withheld his express permission for me to classify my views of his work as being accurate, so the following (or above) descriptions are in no way, shape or form even the least bit accurate of anyone else's views but my own". You know, the legalese kind they put on waivers for you to sign before you go skydiving. No thanks, CRA... I'm honest, but I'm not a self-defeating idiot.

Ashvin said...

One more thing regarding the accurate/inaccurate debacle. If you or anyone else believes my descriptions of FOFOA's views of Freegold are inaccurate, then you should bring that to the attention of this forum and explain why, because that would be a substantive point and very relevant to my argument.

Ashvin said...

Indenture,

Sorry... good news or bad news? Good news is that you are now officially on The List, above CRA, JR AND DP! Now, you may have to sit down for the bad news, if you are not already. The bad news is that... you are significantly below Texan and any others who will proclaim me a useful addition to this forum AND at least partially support my arguments... ;-)

Indenture said...

Wow... I'm on the Do-Not-Respond List of a commenter on another persons blog. That kind of feels like not being seated at a restaurant I didn't even know I was going to.

Bron: I am also interested in your view of the Swiss Gold Franc. Please keep us informed.

costata said...

Ash said:
"I'm honest, but I'm not a self-defeating idiot.

No and Yes.

The self-defeating idiot also said:
"If you or anyone else believes my descriptions of FOFOA's views of Freegold are inaccurate, then you should bring that to the attention of this forum"

July 5, 2011
Straw Man

That comment merely scratched the surface. More to come.

FOFOA is considered something of an expert on Freegold-RPG around here. It's also worth noting that he has pointed out to SIR that his interpretation of Freegold-RPG is inaccurate and isn't in accordance with FOFOA's perspective.

As to the issue of honesty (and hypocrisy for that matter):
Ash On Gold

Indenture said...

There really is something funny about a guy on another persons blog telling commenters they are on his Bad List when it isn't even his blog.

Ash, you serve a purpose. I'll give you that. Why? Because the owner of this restaurant hasn't asked you to leave so therefore you must have something to teach us.

Texan said...

Can I ask again what happens to Freegold if the euro goes kaput? Does anyone have any idea? I am pretty sure gold and USD will both rise a lot initially, but if the euro dies, what is next for FG?

The whole euro project looks to be unraveling very quickly now.

Ashvin said...

Indenture,

"Wow... I'm on the Do-Not-Respond List of a commenter on another persons blog. That kind of feels like not being seated at a restaurant I didn't even know I was going to."

Actually, no, you are on my respond list. Not reading other people's comments carefully is like a disease around here, perhaps initially transmuted from monkeys to humans by CRA, and it's catchin' like the Clap...

If it starts itching too much, just let CRA "scratch the surface" for you... don't worry, despite his ogrely aggressive demeanor, he never really scratches too deep.

Don't believe me?

CRA:"FOFOA writes to Ash before publication of that series:
You do not have my permission or support to portray your views of my writing as an accurate interpretation."


CRA:"It's also worth noting that he [FOFOA] has pointed out to SIR that his interpretation of Freegold-RPG is inaccurate and isn't in accordance with FOFOA's perspective."

BTW, what happened to your sense of humor between the time you posted a comment about "Ash's List" and the time I responded?

JR said...

Texan,

The euro is a currency designed to be compatible with Freegold. Freegold is not dependent on the euro.

I'd post some links and quotes but, just as with "hyperinflation," I'm certain you dismissively tell me you read them and then continue on with the nonsense that the links directly contradicted.

Happy trolling :)

JMan1959 said...

Ash,

1) You are a Marxist;
2) Marxists are self defeating idiots;
Therefore,
3) You are a self defeating idiot.

Seriously, though, reread your own words:

"FOFOA told me I could not portray my view of his writing "as an accurate interpretation". That means exactly what it sounds like it means. Not that my views are inaccurate, but that they can't be represented as accurate of his views."

Huh????Are you kidding me?????

Again, I have to compare you to my 13 year old, playing semantics games. "Well Dad, you didn't say I couldn't drink hard liquor, you just said you didn't want me drinking beer and driving."

Newsflash: When somebody tells you that your views cannot be portrayed as an accurate view of his writings, and you ignore it, choosing instead to play word games, you are being intellectually dishonest, period. If he were at all comfortable with your interpretation, he wouldn't have made that statement, now would he? Do you really believe when he made that statement, he was thinking, "Well, Ash is neither inaccurate nor accurate about my writings, so I'll just tell him that his views cannot be portrayed as accurate."

C'mon, Ash. Grab some integrity, and quit playing your goofy, sophomoric word games.

Ashvin said...

Just to clear up this whole situation with FOFOA's email to me before publication of my series, in case anyone's unsurprisingly confused by CRA's quotations and contradictory statements.

I currently cannot access the email account to which it was sent, but I remember it pretty well. Along with stating that I do not have permission to portray my views of Freegold as accurate interpretations of his views, FOFOA also stated something along the lines of, 'if you had asked me as a humble student ready to learn, I would have told you that yes, you are on the right track, but no, there are still some things that you don't understand about Freegold'. That's my paraphrase, but I believe it's pretty accurate of what he said.

After I received that comment, I went back over the email FOFOA had just sent me in response to me sending him my "summary" of Freegold, as well as other emails he had sent me in response to an email I had sent him after reading "Freegold in the Proper Perspective" last year (which I very much enjoyed). I then began writing my articles, and limited my descriptions of Freegold to what I thought I absolutely understood to be FOFOA's argument, and also quotations from FOFOA's articles.

I'm not saying my descriptions are perfect, and it's entirely possible that they are slightly inaccurate or misleading at times (which is something I have not once said is impossible). But, contrary to what CRA would have you believe, FOFOA did not tell me that my "interpretation of Freegold-RPG is inaccurate and isn't in accordance with FOFOA's perspective", and I did not purposefully word my descriptions to mis-characterize FOFOA's argument and make my own easier.

I, for one, sincerely hope that CRA has "more [substantive points] coming", as he always seems to promise. But, now, I am done defending myself against ill-conceived attacks on my character or honesty. Good night, readers of FOFOA.

Ashvin said...

OK, not good night just yet. One more thing...

I can't speak for FOFOA, but if I was dedicating my time/effort towards writing about what I legitimately believed to be the merits of Freegold and the views of A/FOA, and someone came to me saying they were planning on writing a series primarily aimed at criticizing those merits and views, then I would tell them that they cannot use my name as support for their argument, which I perceive as destructive to potential dollar-denominated savers. That would include any suggestions in the articles that I have endorsed that person's views as accurate representations of my own.

That's what I would do, anyway.

Edwardo said...

Bravo! SIR's verbal contortions are reminiscent of a certain Commander-in-Chief known to have uttered the following infamous jaw dropper, "That depends on what your definition of is is."

So, here, for all to see, we have this blog's resident troll attempting to wriggle free on what is a stupefyingly ludicrous technicality.

"Wrong again (or another blatant misrepresentation). In that comment, I said "Debt deflation is typically good for the value of cash or cash equivalents, and perhaps 1-10 yr treasury bonds, but nothing else. What you fail to understand is that stating the fact that certain investments typically increase in value during debt-deflation, is NOT = to advising someone they should only invest in those assets."

Really? We should be so grateful since who could have possibly understood such a distinction without assistance? Now allow me to point out what an absolute crock of steaming ca ca such a statement is given how much ink the resident troll has spilled making the case for, excuse me, pounding the table in support of, a deflationary outcome.

If said troll really believed in what he has espoused on this blog, ad nauseum-which clearly said troll doesn't- then he has no business retreating behind such convenient technicalities as

"certain investments typically increase in value during debt-deflation, is NOT = to advising someone they should only invest in those assets."

Well, I for one must marvel at the astounding (lack of) conviction displayed by (one who poses as) such an ardent arguer on behalf of deflation. I stand in awe at the ability to split hairs in such a way as to completely render unto liquid excrement a seemingly endless stream of verbiage in support of deflation.

Indenture said...

Ash... Dude... I think the fact that you have a list, on another persons web site, makes it strange enough for me. I get the point that this is the best place to listen/discuss a wide range of topics brought to the table by a diverse group of incredibly intelligent individuals, and I believe that you have added to the discussion but when you have a list of people you won't respond to and you place humble me in your fantasy power hierarchy I consider that to be kind of weird.
I thought I showed my humor when I basically asked to be placed on your list. You have to see how strange it is for me, a mostly observing student, to watch you progress over time here at FOFOA. You have reached the point where you are yelling in class (Little Jimmy, you can sit here next to Bobby and Jessica will sit in the corner because she has cooties).

Now that Sir is funny to watch!
Seriously? You make a list of people you will respond to on another persons blog? And you post it?

So (dramatic pause) Should I feel grateful of my Ash Position, the level of intellectual banter you have afforded me?

Texan said...

JR,

I distinctly recall that the Euro is one of the 4 "rules" of Freegold, so I am simply asking what happens if the euro explodes to the likelihood of Freegold.

I think it's a pretty important question on a number of levels, and I am a little surprised that no one is willing to address it thus far.

In the meantime, I await your response on when I can expect USD hyperinflation.

@mortymer001 said...

Back home :o)

Here is a teaser:

http://anotherfreegoldblog.blogspot.com/2011/07/ias2-notes.html

(check the doc)

DP said...

Texan: I distinctly recall that the Euro is one of the 4 "rules" of Freegold, so I am simply asking what happens if the euro explodes to the likelihood of Freegold.

I think it's a pretty important question on a number of levels, and I am a little surprised that no one is willing to address it thus far.


Freegold is Freegold, the euro is the euro. The euro is not a cornerstone of Freegold.

The euro is a currency designed with the inevitability of Freegold in mind, to cope with the reascendence of gold as the centrepiece of the international system of money. Perhaps more accurately, a widespread realisation that it was all along.

If the euro fails for some reason, gold will still be gold and Freegold will still be unfolding. In fact, IMO, gold would only become even more valuable and more clearly demonstrate its centrality to international capital flow even sooner, in such an eventuality; there would be even fewer credible paper currencies left standing (none) in that case. It would be back to gold and barter and all that implies for global society.

So, again IMO, you and I and everyone else had better pray the ECB can keep the wheels on beyond the collapse of the dollar.

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

How to kill a troll? Ignore him.

Costata, Indenture, you are just feeding him.

Jeff said...

Texan,

ANOTHER: If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will horde all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does comes, no paper asset of world economic system will survive, nothing! Not a good thought, no?

Texan said...

DP where do you even find that stuff???

Anyway, thanks for your response and Jeff's also.

IMO if the euro doesn't work, it's back to the USD and DM and CHF and JPY for "savings enthusiasts" and a healthy dose of gold as well, but ok, maybe it all falls apart.

Not sure how oil for gold will work, frankly. That would basically require worldwide martial law and I think it's more likely to provoke ( or maybe in addition to) seizing of nearby oil fields. Not to mention ghat the oil selling nations are by and large desperate for "cash" to keep their regimes in power. But obviously could lead to a much, much higher oil price.

Indenture said...

DP your vids are amazing!!!
Yannick: Our host hasn't rung the cow bell.

Jeff said...

China is buying euros and euro denominated bonds. No one knows how much gold China truly has. They are opening new markets (futures, currencies) in China.

Is China moving aggressively to prepare for freegold, to the point where they accelerate the process? Does China have the capability to push the button?

radix46 said...

That floating gold Swissy must be starting to look quite attractive in the Alps by now eh?

costata said...

Yannick,

"Costata, Indenture, you are just feeding him."

Please trust me. I know exactly what I'm doing.

Cheers

costata said...

Ash,

You wrote:
"Just to clear up this whole situation with FOFOA's email to me before publication of my series, in case anyone's unsurprisingly confused by CRA's quotations and contradictory statements.

I currently cannot access the email account to which it was sent, but I remember it pretty well.


No problem, you simply ask him to send you copies of those e-mails. And I mean plural as opposed to your "with FOFOA's email to me" which 'suggests' singular.

Then you can revisit what you said and what he said. Aint the Interwebnethingy grand! I'm glad I persisted with it when it was 2400 BAUD and you could eat lunch waiting for a big "package" to come through.

I propose a project in honour of Ash. Let's create a link and post it at TAE to every comment at the FOFOA blog where he contradicts Nicole Foss (and himself incidentally). He is not universally loved in the comment section there either.

Biju said...

Any EURO experts care to explain what is happening with EURO ? the Greek 2 yr yield is at 30%, Ireland/Portugal at 20%. I can understand that markets can be screwed a bit, bit this much ?? This is pointing to a default. Anyone ?

Ashvin said...

Edwardo,

"If said troll really believed in what he has espoused on this blog, ad nauseum-which clearly said troll doesn't- then he has no business retreating behind such convenient technicalities as

"certain investments typically increase in value during debt-deflation, is NOT = to advising someone they should only invest in those assets."

If you had ever taken the time to listen to, read and slightly understand the positions of people like Nicole Foss, Ilargi or me, then I wouldn't have to repeatedly point out why you and CRA are so clearly wrong about said positions. Perhaps you should take CRA's advice and start posting your quotations of me and comments on TAE... but, come ready with your thick skin, because the regulars on there don't suffer fools very long before they "put you in your place". Some of them may not even agree with my specific views on the future of physical gold, but they know a steaming pile of illogical bullshit when they smell it... I would love to see their responses and paste them back to this forum.

I'm confident, though, that neither you nor CRA has the fortitude to do such a thing, so I will repeat myself one last time. If FOFOA tells you that there is a very good chance physical gold is going to skyrocket in value over the next five years, that does not mean he is telling specifically you to close out all of your dollar-denominated accounts, and immediately put it all into gold, regardless of where you live and how much money you have (at least, I hope he's not). Such specific advice only becomes more meaningless and/or reckless when you hold my view that there will most likely be a prolonged period of dollar deflation before a sharp reversal into HI.

Also, unlike FOFOA, my general investment guidelines are not drafted with only the super-wealthy in mind. Given my near-term deflationary view, I think it's more important to address those with relatively modest amounts of wealth and high levels of debt. These are the people, IMO, who must really assess the legitimate information and general investment advice on their own, and then apply that to their own personal situation to properly allocate their wealth.

Ashvin said...

Me: I currently cannot access the email account to which it was sent, but I remember it pretty well.

CRA: No problem, you simply ask him to send you copies of those e-mails.

...

CRA: And I mean plural as opposed to your "with FOFOA's email to me" which 'suggests' singular.

Me: After I received that comment, I went back over the email FOFOA had just sent me in response to me sending him my "summary" of Freegold, as well as other emails he had sent me in response to an email I had sent him after reading "Freegold in the Proper Perspective" last year.

...

Ashvin said...

Indenture,

Ash... Dude... I think the fact that you have a list, on another persons web site, makes it strange enough for me.

Perhaps if you had been following various people's comments to me over the last few days, you would understand why I made a comment summarizing how I would respond to certain posters' comments to me, which you dubbed "Ash's List". I wasn't making some kind of official list set in stone, but rather just expressing the thoughts in my head and responding to Texan's correct advice that I do not need to respond to every little thing that certain people say to me. Given the fact that some of those people claimed that I was trolling and even preventing others from having a discussion (given the sheer power of my presence here, I guess...), I decided to help them figure out how to avoid me making comments...

Ashvin said...

David Malone, of the Golem XIV blog, writes a very insightful article that was published at the Guardian. Here is an excerpt, for those interested:

Malone:"Gradually the story became less about the banks owing us money and more about owing the bond holders.

It seems to me that our governments and their financial advisers from the banks have a double standard when it comes to debt and its repayment; one which greatly benefits the financial world and punishes the taxpayer.

On the one hand, the debts of private banks and those who own that debt, the bond holders, are being protected from any losses by the publicly funded bailouts. Public debt, on the other hand, at the insistence of the same banks and bond holders we have bailed out, is being paid down at breakneck speed, no matter what the cost in unemployment and the destruction of social services.

This double standard is creating two different groups with very different financial prospects: one group made of the bankers and their bond holders (the financial class), is doing rather well because, by not having to pay off its debts, its wealth – the money to make more money – is being maintained. The other group, the rest of us, find our wealth is disappearing because we are paying off not only our debts but theirs as well. Our welfare, pensions and pay are all being cut in order to appease the bond holders, while the banks and the money they owe us, seems to have almost disappeared from the story altogether.

So who are the bond holders and why are Europe's banks more concerned to pay them than us?

Finding out who the bond holders of a bank or a nation is isn't all that easy. But a few days ago Barclays compiled a chart of the top 40 holders of Greek debt. One name on the list is illuminating. EFG (European Financial Group) is the largest private holder of Greek debt. Only national banks and international lenders such as the ECB hold more.

So who is EFG? Well, they are a Luxembourg-registered group of companies. So are they from Luxembourg? Actually, no. The heart of the group is EFG Bank, which is a Swiss private bank. So they're Swiss? Not quite. The bank is 40% owned by the Greek Latsis family, whose fortune is managed by Spiro Latsis.

So when Greek taxpayers have their wages cut, their pensions shrunk and see the assets of the nation sold off, they will be helping to protect the Latsis's investment in Greek debt. And it's no accident that EFG Bank holds a lot of Greek debt. The bank set up a special fund in 2009, during the crisis, specifically to buy up Greek government debt."

Indenture said...

Giving Up on the Economic Recovery
by Bill Bonner

"The United States is in the grips of its gravest jobs crisis since Franklin D. Roosevelt was in the White House. Lose your job, and it will take roughly nine months to find a new one. That is off the charts. Many Americans have simply given up.

But unless you’re one of those unhappy 14 million, you might not even notice the problem. The budget deficit, not jobs, has been dominating the conversation in Washington. Unlike the hard-pressed in, say, Greece or Spain, the jobless in America seem, well, subdued. The old fire has gone out.

In some ways, this boils down to math, both economic and political. Yes, 9.2 percent of the American work force is unemployed – but 90.8 percent of it is working. To elected officials, the unemployed are a relatively small constituency. And with apologies to Karl Marx, the workers of the world, particularly the unemployed, are also no longer uniting."

sean said...

Nice find with that quote from Another about the Euro, Jeff. I'd just like to clarify that FOFOA didn't say that the Euro was central to Freegold, but that in order to understand Freegold you must "at least understand the significance of the Euro-Freegold concept," (in addition to the flow of oil, end of dollar standard, and end of parity b/n gold-paper price discovery).

Here's another relevent quote from FOFOA: “The important thing is that the euro is positioned for the free flow of physical gold at equilibrium with fiat currency for important surplus producers like oil. Contracts will be made, denominated and settled in such a currency post punctuation—inside and outside of that currency zone. That's what makes a future reserve currency. Not its store of value right now. “

Also from Another: [during the transition to freegold] "...the oil states, they WILL bid for gold with oil! The BIS will do the only thing they can, halt all trading and declare gold a "world oil currency"
Date: Fri Nov 28 1997 23:29 *ANOTHER(THOUGHTS!)*ID#60253:

I believe however FOA was a lot more familiar with the workings of the Euro, and there are doubtless more relevent statements from him.

Indenture said...

CNBC just said gold is to expensive to buy right now. They suggest waiting. My suggestion is to sell excess dollars for physical gold.

Indenture said...

The Sharpest Rally Since 1644

Edwardo said...

Is that a gnat I hear? Yes, I think it is. Presenting gnat speak:

"Perhaps you should take CRA's advice and start posting your quotations of me and comments on TAE."

-I would, except A) I have much better things to do, and B) I don't give a toss about TAE.

"...so I will repeat myself one last time."

-Promises, promises.

"...that does not mean he is telling specifically you to close out all of your dollar-denominated accounts, and immediately put it all into gold."

-Technically true, but that fact and a nickel will labor to even get you a stick of (pre-masticated) gum.

"Also, unlike FOFOA, my general investment guidelines are not drafted with only the super-wealthy in mind."

-Let me count the ways that gnat speak is unlike FOFOA. Maybe not. I don't have all day. However, when gnat speak claims that gnat speak's "general investment guidelines" are not, "unlike FOFOA", drafted with only the super-wealthy in mind, several thoughts come to mind.

A.) The super wealthy wouldn't any more listen to gnat speak's "general investment guidelines" than they would listen to gnat speak on the relative merits of ski destinations St. Moritz and Chamonix.

B) FOFOA's general investment guidelines aren't general. Unlike gnat speak, FOFOA's predilection is quite specific and only in the small, trollish mind of gnat speak are FOFOA's (not) general investment guidelines "drafted with only the super wealthy in mind."

Indenture said...

Will Chinese Exchange “Destroy”Gold/Silver Shorts? More Paper Gold to get to Freegold?

Franek said...

Test post - sorry.

Franek said...

Sorry for the rant, but I had to…

I’ve been reading FOFOA’s blog for about 2 years with at most admiration and hope. I’m here silently reading every day. And although, either for lack of general economic knowledge or maybe even for lack of intellectual capacity, I can’t say I completely understand the why’s and how’s, I sense the deeper “truth” of Freegold concept and I long for it on many levels.

Needless to say, I admire many of you FGA’s, for your understanding and passion. But lately, it’s been increasingly more difficult to learn, follow and enjoy what FOFOA’s message has to offer, regrettably because of the deteriorating quality of the discussion as evidenced by the latest exchange between the fierce defenders of FG and Ash (I always thought that this blog displayed one of the highest if not the highest quality of discussion on the subject not only of gold but the wider human perspective).

I can’t help but sense that some resident FGA’s are getting unnecessarily, I hate to say, fanatical about the subject of Freegold. This is obviously most visible in the exchange with Ash. At times it feels that Freegold to some most vocal resident posters has become more of a religion than anything else. I get that feeling just by judging the quality of arguments.

Btw, I don’t subscribe to Ash’s theory, but that’s a different story. What strikes me, though, is how civil, composed and balanced his responses are in comparison to what’s coming from the other side. I know, many of you (rightly or wrongly) have named it sophistry, dishonesty, etc., but that’s just name calling to me, no substance.
With all due respect, most responses to Ash so far were more or less of a questionable quality.

What bothers me the most is that I can see a lot of intolerance and outright aggressiveness toward other POVs although, as many of you claim here, you all subscribe to a non-activist non-in-your-face ideology (Costata notwithstanding, no offense). However, if that were true, you would not feel insecure or offended by Ash whose argumenting style may be intimidating but does not appear offensive, at least not to me… (perhaps because I don’t have to face him off, heh?).

But anyways, I truly think that Ash’s presence here is beneficial if only because he keeps everyone in sort of a check… (no offense Ash, I know we live in a complex world, and I’m lost in this complexity). His theory, and for that matter anyone else’s theory should be welcomed here on this blog because it serves an important purpose so that Freegold’s argument can be sharpened and understood even better.

For one, even though I might be a prime candidate for feeling insecure about Freegold because of my limited understanding, etc., I never for a moment felt threatened by any of the many opposite views that I’ve seen on this blog before. I don’t understand why would anyone else here either, especially those of you who feel so strongly about it (I do too).

This should hardly be a pissing contest, I think we could easily drop that name calling, trolling accusations, ad hominem, etc.; they only show how insecure or falsely secure we feel about ourselves or our views… I may not understand all the intricacies of economic theory, but I can spot a valid argument.

P.S. One of my biggest disappointment and at the same time kind of funny moment today was Radix46’s posting of a link of Ash’s “Scariest Story Ever Told” and using it as a reason to be “done with” Ash.

Sorry, had to vent...

Indenture said...

German 'Nein' leaves Italy and Spain in turmoil by Ambrose Evans-Pritchard

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