Friday, October 21, 2011

Tweet this!

FOFOA is now on Twitter!!/FOFOA999

Still trying to figure out where I type to twit, but I'm sure I'll learn. ;)



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Piripi said...

Clyde Frog said:

"I still don't quite know whether or not you guys mean GLD don't have any physical gold"

Whether or not GLD have any physical gold is beside the point. What they mean, Clyde, is that when you own GLD, do you own any gold?

Aslam Levy said...

Awesome.. I'm following for sure.

While my area of expertise is not Gold, for those interested my twitter account is:!/aslam_levy

ps. that first tweet worked :)

elgrilo said...

"FOFOA is now on Twitter!"

Yeeeesss! haha some of us will be also hurting ourselves trying to follow you!

Twitter is a completely opposite format from what you can find here. I hope the long essays and comments do not stop!

#Freegold for trend topic!

Kind regards,

@mortymer001 said...

OMG, Fofoa on Twitter? Can somebody who writes page loooong thoughts tweet? (joking) Heheheh.
Good luck! IMO a good step.

Anonymous said...


Kieran O B said...
This comment has been removed by the author.
@mortymer001 said...

A.Fekete latest:

Michael H said...

comments ...

Franco said...


So, in your opinion, is freegold an inevitable path, or are there other possible outcomes that would keep the dynamics of gold flow/price the same as they are now? For example, what if repudiation of debt were the chosen path for USA and Europe? Thanks.

DP said...


Motley Fool said...


J said...

I hope your tweets will make their way to your blog.

I think I may have an account but I've never used it.


J said...

MF - a few people in the comment section said the article states that it would not be a good idea.

Looks like ZH made an error. Maybe a German reader can clear it up for us

Motley Fool said...

Ahh my German being non existent, I didn't read the original article.

I simply find it curious.

With the amount of nonsense in the media these days, esp. as regards Europe, I don't trust a thing they say.


J said...

Oct. 21 (Bloomberg) -- South Korea will drop gold rings from the basket of goods comprising its consumer-price index in November, trimming the inflation rate, Finance Minister Bahk Jae Wan said.

I believe this was discussed a few weeks/months ago concerning Indonesia's CPI

h/t goldcore from ZH

JR said...

Along the lines of the excellent comments at the end of last thread surrounding J's link to ASEAN/China led regional trade currency, here's a couple of ideas.


Robert Mundell, who FOFOA has referred to as "father of the euro" , is a Nobel laureate economist who won his Nobel for "his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas." As wiki notes, this work on optimum currency areas laid the groundwork for the introduction of the Euro.

In addition to his work on optimum currency areas, Mundell also developed an extension of closed system (no external trade) IS-LM model, coming up with the Mundell–Fleming model or the IS-LM-BP model. The big point about this is Mundell's model included an open economy and stressed the importance of balance of payments and international trade on an economy.


Mundell's focus on the importance of international trade, or the balance of payments, was a huge development. Fora little more see for example FOFOA's discussion of the importance of the Euro's balance of payments

"Spend some quality time with the Eurosystem's balance of payments and marvel at how remarkably balanced Europe is with the rest of the world. Then compare that with the US balance of payments. As just a quick example, in April (one month) the Eurozone imported only €4.1 billion more goods than it exported. The US, on the other hand, imported $58 billion more goods than it exported, and April was the lowest month yet this year for the US. Of course that's just goods. For services, the US exported $14.5 billion more services than it imported. How much of that do you think was "Wall Street financial services"? Europe also exported more services than it imported, but only €2.8 billion.

So for goods and services combined, the Eurosystem ran a trade deficit of €1.3 billion in April, while the US ran only a $43.5 billion deficit (down from its previous normal $50 billion, but back up in May). Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year. The Eurosystem (even with those lazy PIIGS) actually ran a trade surplus for the year, exporting more goods and services than it took in! So how can that be? As a currency representing a community of more than 300 million people, the euro is quite healthy compared to the dollar! "


JR said...


Here's a discussion of Mundell from usagold between MK and FOA

MK: In the Robert Mundell speech for which Steve H provided a link, the laureate said as early as 1997 there would be a new gold market and that central banks would look to settling with gold at free market prices. He suggested that this would occur in the 21st century....

FOA: ....Boy,,,, Michael, I have to tell you, Mundell knew the story and no one listened! Now the whole Dollar/IMF system is in change and most of the nonEURO US trade partners have bet their entire economic society on a prosperous, buying American public. The next few years will be history to remember.(smile) V

see that, trade partners!

One of my fav FOA quotes is this:

"The world is heading towards a huge financial / currency crack up, but it won't work out with gold coming back into the money game. This very long term transition is playing on a move away from dollar domination with Europe preparing to suffer less than us by pulling in as many other political trading blocks as they can. "

See that emphasis again on external trading partners.


Here's an excerpt From the Treasure Chest

"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.

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. "



JR said...


so that 2001 Friedman/Mundell debate FOFOA recommended on exchange rates and currencies has some fun stuff, as you might imagine. here's a snippets:

Mundell: I have never nor ever would advocate a general system of “pegged” rates. Pegged rate systems
always break down. Monetary authorities may, as a temporary expedient, find pegged rates useful as a tactical weapon over some phase of the business cycle,
but it cannot and should not be elevated into a general system...

Mundell: Countries with a unified currency system trade a great deal more with one another and are able to exploit the gains from trade and therefore have a higher standard of living.

Mundell: After the eleven currencies of the[euro] zone were locked to the euro and to each other, even before the euro has been issued as a paper currency or a coin, speculative capital
movements between the lira and the mark, the franc and the peseta, and all the other currencies became a thing of the past.


JR said...

This one from the Mundell/Freidman debate sounds like stuff I have heard before somewhere...

Mundell: I also believe that very country in the euro area is now getting a better money than they had before. First of all, the size of the euro area is vastly larger than the size of any of the national currency areas, and that
affords to each country a better insulation against shocks. The gains in this respect vary in inverse proportion to the size of the country. The currencies of small countries can get blown out of the water by speculative attacks. Germany may gain less proportionately than the smaller countries, but the Germans now have, or will have when the transition is complete, a currency
that is three times larger than the mark area alone.


Costata notes
"ASEAN is an entirely different proposition once this regional strategy is fully implemented. If, say, a raider attempted to attack one of the ASEAN member’s currency then China could do the same thing they did to speculators in Hong Kong a few years back. They could break the speculators like a twig."


"I think, the currency of a country does no longer hold "backing". This term, it is used often, but is not correct. Today, all modern money does have "reserves", and such is used only for "the dirty float" in currency warfare. As in war, the larger and better equipped army in "reserve" does rule over the lesser force. Perhaps we should think in this way: in a "cold war" of modern exchange rates, "digital currencies from reserves are used", however, when a "hot war" of major default does begin, "nuclear weapons of GOLD" are deployed!

As in real war defense, of today, some countries hold a much lesser army, and depend on "the alliance" with other stronger nations to defend them. Such it is with the currencies! Many states hold but a few "digital currencies" as reserves for currency wars and see no need for "gold nuclear weapons". They sell off these weapons and do join "the currency alliance" of stronger nations. We see this in Europe, yes?"



JR said...

One more from the Mundell Freidman debate -

"Robert Mundell: The advent of the euro has demonstrated to one and all how successful a well-planned fixed exchange rate zone can be. After the 11 currencies of the zone were locked to the euro and to each other, even before the euro has been issued as a paper currency or a coin, speculative capital movements between the lira and the
mark, the franc and the peseta, and all the other currencies became a thing of the past. It ended uncertainty over exchange rates and destabilizing capital
movements. The 11 countries of the
euro zone are now getting a better
monetary policy than they ever had
before. The creation of the euro zone therefore suggests a viable approach to the formation of other currency areas when prospective members can agree on a common inflation rate and a coordinated monetary policy.

It is important at the outset, however,to make a distinction between a single-currency monetary union that involves each country scrapping its own currency, and a multiple-currency monetary union, where the nationstates retain their own currency."

Got discussion of regional trade currencies being an optimal currency size, got discussion severance from the nation-state?

Got discussion "The International Monetary System in the 21st Century: Could Gold Make a Comeback?"

Bob Mundell does :)

JR said...

Oops, link to Mundell's "The International Monetary System in the 21st Century: Could Gold Make a Comeback?"

JR said...

I suspect FOFOA may tweet links to his posts and such.

I speculate FOFOA is tying to leverage Twitter to get links to FOFOA blog more out there - like when his follower's retweet a FOFOA tweet about a new post, and then one of FOFOA's follower's follower's goes, "oh what is this, clicks the link" and down goes the red pill.

So yeah, retweet @ FOFOA!

JR said...

Another great J comment:

Oct. 21 (Bloomberg) -- South Korea will drop gold rings from the basket of goods comprising its consumer-price index in November, trimming the inflation rate, Finance Minister Bahk Jae Wan said.

I believe this was discussed a few weeks/months ago concerning Indonesia's CPI


From "On Scary Corrections"

1. Remember in my last post I criticized Indonesia for including gold in its consumer price inflation index? Well, yesterday Bloomberg reported that they are now talking about removing gold from the CPI:

Gold’s Price Surge Skews Inflation Numbers Across Asia

In Indonesia, gold jewelry was the biggest contributor to a 0.93 percent increase in consumer prices in August from the previous month, accounting for 0.19 percentage point of the gain, government data show.

The issue doesn’t arise in developed nations including Japan, the U.S. and the U.K., or in Asian economies such as Singapore, Vietnam and Hong Kong where the metal is absent from inflation baskets or jewelry has a limited effect.

In Jakarta, Fauzi Ichsan, an economist at Standard Chartered Plc said that removing gold from Indonesia’s basket of consumer goods, was “theoretically logical.” At the same time, it could lead to speculation that the statisticians were under political pressure, he said. Yunita Rusanti, the head of the consumer-price statistic sub-directorate, declined to comment on whether gold jewelry should be removed from calculations.

Anonymous said...

It is easy to tweet tiny url's that refer to multi-page long concepts. It is good to see FOFOA on Twitter. His concepts need exposure to everyone in order to work. Twitter gives FOFOA more exposure.

J said...

Oct 18 (Reuters) - Kazakhstan, the second-largest ex-Soviet economy and oil producer after Russia, has enough reserves to weather a new wave of financial crisis and keep its currency stable, the National Bank governor told Reuters Insider TV.

Central Asia's largest economy fared relatively well during the global crisis and resumed rapid growth last year, when gross domestic product expanded 7.3 percent after a 1.2 percent rise in 2009. GDP is forecast to grow 7 percent this year.

Grigory Marchenko, a banking veteran who was once proposed to head the International Monetary Fund, said Kazakhstan was enjoying relatively high commodity prices, enabling the Central Asian state's economy to grow 7 percent in the first six months of 2011.

Even if there was a fall in commodity prices, the cornerstone of Kazakhstan's export-oriented economy, it would use its National Fund of $41 billion, Marchenko said on Tuesday.

"The National Fund of Kazakhstan ... that's about 25 percent of our GDP, so it is quite a comfortable cushion. Even if the second wave (of the crisis) materialises, even if it is twice as bad as the previous one, that means we will have to spend only a half of our fund," Marchenko said.

During the crisis of 2008-09, the country spent around $10 billion out of the fund to support the economy, Marchenko said.

He added that the country's tenge currency was likely to fluctuate near the current level. The weighted average of the tenge stood at 147.89 per dollar on Tuesday, appreciating from 148.36 earlier this month, its weakest since early 2011.

"Basically, it (the tenge rate) has been extremely stable in the past two and a half years. I think it would be the same," Marchenko said.

He reiterated that the National Bank would buy up domestic gold output from next year, indicating it favours gold over exposure to the ailing dollar.

"I think we will buy all the gold produced in Kazakhstan in the next 2-3 years, which means 20 to 25 tonnes a year," Marchenko said.

He did not say how much the central bank was going to spend on this, adding only that it would be "as much as necessary".

The gold assets of Kazakhstan's central bank have grown by 29.5 percent since the end of last year to $4.0 billion as of Aug. 31, amounting to 11.1 percent of the country's net gold and foreign currency reserves. International gold prices hit a record $1,920 an ounce in early September.

Kazakhstan's central bank has joined central banks of other emerging economies in stocking up on gold reserves amid concerns fuelled by the ailing dollar and waning confidence in the resilience of the global economy.

The country produced 21.4 tonnes of gold, including 9.7 tonnes of refined gold, in January-July of this year. It plans to boost gold output to 33 tonnes this year from 20 tonnes in 2010.

Kazakhstan can withstand next wave of crisis - cbank governor

DP said...

Indeed JR: As in real war defense, of today, some countries hold a much lesser army, and depend on "the alliance" with other stronger nations to defend them. Such it is with the currencies! Many states hold but a few "digital currencies" as reserves for currency wars and see no need for "gold nuclear weapons". They sell off these weapons and do join "the currency alliance" of stronger nations. We see this in Europe, yes?"

Thank you also for: The creation of the euro zone therefore suggests a viable approach to the formation of other currency areas* - much appreciated.


* - Directed by Shih-Ting, no less!

Clyde Frog said...

I see that I will only have even MORE reading to come!

Thank you Blondie, I think I see what you mean now. But. Would I not just keep the GLD shares until the gold price rockets up to the sort of price I've see written here, then just sell them?


Dante_Eu said...

Bloody hell, as a paranoid goldbug, I have to use Twitter now.

FOFOA, I really hope, you don't plan to start facebook page! :-)

JR said...

Clyde Frog,

Suppose people want physical gold and not a piece of paper?


The Shoeshine Boy

"...So, to wrap this beleaguered post up, let's just say that we have the distinct makings of a parity break between paper and physical gold in the works. The supply of paper gold must rise while the supply of physical is withdrawing (deregistering). The flow must also rise, at least in nominal terms, so the price will skyrocket to take up the slack. And as expanding paper competes with a rising price for the "slack taking-up" role, who do you think will win?

Could they each have their way? Could the price rise to take up the extra demand while supply contracts at the same time as easy paper dilution wins itself a lower price? Confused yet?

Well, this situation leaves us with an uncomfortable question. If the only price of gold we know today is the price of paper gold, what is going to happen to "the price of gold?" Will it skyrocket? Or will it plummet?...

And with the supply of paper gold rising to meet demand while physical is being withdrawn, the only conclusion we can come to is that the gold buyers **IN SIZE** will have to stop buying from the price discovery marketplace because, if they do their due diligence, they'll clearly see that subsequent physical delivery has become impossible at the present price.

So, in conclusion, the price of gold will plummet!

That's right. At some point in the future, after the price of gold rockets upward, it will fall like a box of rocks! And right about that time you'll see more of Robert Prechter on CNBC than you ever thought was possible.

But here's the challenge. When the price of gold falls to $200 per ounce, try and get some physical. I'm sure that Kitco will sell you some from their pooled account. And GLD will be standing ready to sell you a share at $20. But just try to take delivery. I think you'll find it will be impossible at that point.

And that's why you've got to take delivery NOW
, at the current "high" price of $1,300. Don't wait for the dip. Oh, yeah, the big dip is definitely coming. A **BIG** "correction." But will there be any physical available? Perhaps at $1,200 if you're really lucky. At $200? No way.

When I look into MY crystal ball, here is how I see a future gold price chart developing (roughly, of course)..."

JR said...

Who is Draining GLD?

"...Someone is draining GLD of its gold. Someone is taking in millions of ounces and tonnes of physical gold at off-market prices while the paper bug cheerleaders call it "dumping" or "offloading" the gold. Again, one man's "outflow" is another man's pickup truck (or dump truck as the case may be) backed right up to the loading dock at the GLD depository.


And for those of you GLD fans that think you will simply hold onto your shares until the bitter end, I have a warning for you. These Giants don't need to over-bid your shares away from you. They can always buy them at the price of paper gold trading in London and New York. And there will come a point when you are watching the premium on physical coins jump from 5% over GLD to 50% on its way to 500% over the paper gold price. How long are you going to stubbornly hold onto your precious paper before you finally relinquish it to that last Giant's delivery "basket?" Remember, unless you've got $13 million, you've only got paper."

Cheers, J.R.

Return to Resistance said...


Take a look at this:

who is draining gld?

It covers a bigger issue, which will add to your understanding but you should be able to glean why you will not be able to sell GLD at the Freegold price (unless you can afford the requisite shares for redemption).

Pete T said...

Been an admirer from earliest days, and eternally grateful to have been pointed in direction of Another and FOA. Would be grateful if you follow me back on twitter: @piotrusz7

Motley Fool said...

I wish out stupid politicians would decide to buy our local supply like Kazakhstan.

Kazhakstan greatest country in the world Haha


ampmfix said...

I don't understand the 200$ per ounce comment above, which is it then 55000$ or 200$, and when each?

Motley Fool said...


One a paper price, one a physical price.

ampmfix said...

Thanks MF

JR said...

If the only price of gold we know today is the price of paper gold, what is going to happen to "the price of gold?"

The current price of gold is that discovered on largely paper markets.

This paper price will ultimately plummet, because it doesn't represent the price of actual physical:

So, in conclusion, the price of gold [paper price] will plummet!

That's right. At some point in the future, after the price of gold rockets upward, it will fall like a box of rocks! And right about that time you'll see more of Robert Prechter on CNBC than you ever thought was possible.

But here's the challenge. When the price of gold falls to $200 per ounce, try and get some physical. I'm sure that Kitco will sell you some from their pooled account. And GLD will be standing ready to sell you a share at $20. But just try to take delivery. I think you'll find it will be impossible at that point.


physical and paper diverge - they each go their own way.

"...So, to wrap this beleaguered post up, let's just say that we have the distinct makings of a parity break between paper and physical gold in the works. The supply of paper gold must rise while the supply of physical is withdrawing (deregistering). The flow must also rise, at least in nominal terms, so the price will skyrocket to take up the slack. And as expanding paper competes with a rising price for the "slack taking-up" role, who do you think will win?

Could they each have their way? Could the price rise to take up the extra demand while supply contracts at the same time as easy paper dilution wins itself a lower price? Confused yet?

costata said...


Re: Neo-colonialism

(From the previous thread.) If you follow the "defence" alliances with the USA you can more or less determine the linkages within the "dollar bloc". The $IMFS is an Anglo-American construct after all.

Australia is an economic colony. We have a very unbalanced economy that is biased toward the interests of other countries and in many ways to the detriment of Australia.

I don't want to sound negative about this country's prospects. We have some extraordinary natural advantages. So many in fact that we have been able to squander them with relatively little pain over the past 200 years.

That said, in the same way that the Aborigines discovered about 200 years ago that they were only holding a 50,000 year temporary resident visa in a British colony I think Australians are in line for some harsh lessons about our place in the world.

This is one of the reasons I find Steve Keen's analysis so shallow and ultimately disappointing. He simply doesn’t pay enough attention to currency, money and other factors beyond his limited, tentative debt models.

As a result he doesn’t differentiate the impact of similar forces (at least in appearance) on individual countries who are over-indebted. In my opinion some may go down the HI path while others experience a genuine debt deflation.

If you delve into the comments at his blog it quickly becomes evident that praxeology it totally rejected by Keen and many of his followers. If a theory cannot be captured or expressed mathematically then it is panned.

M said...

@ Franco

"For example, what if repudiation of debt were the chosen path for USA and Europe?"

what repudiation for debt ? These are publicy traded debt markets. For details, see this....

FOFOA said...

Thank you for all the Tweets and warm welcomes to the twittosphere. :) I'm not sure exactly how I'll use this platform, but I know there are a lot of you that follow my posts but not the comments. So in addition to tweeting my posts, I'll also start sharing links to some of the great reader comments which will include #freegold-relevant news stories and links. The comments here are certainly worth following, so maybe this will bring more people to the comments.

And for those of you not on Twitter, like J, you won't miss a thing because I just added a window to my tweets at the bottom of the blog sidebar!


Michael dV said...

What is Twitter?
the Contented Luddite

costata said...

Derivatives – Who Is Holding The Bag?

Here is some more information on the shift in derivatives exposure from the Wall Street banks to the taxpayer via the FDIC discussed in this comment.

This was news to me! (My emphasis)

Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral.

It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.

Readers may recall a statistic presented here by Jim Jubak that I discussed in a comment on an earlier thread. The article discusses Basel III, QE and the rise in deposits in the US banking system:

Deposits at U.S. banks exceeded loans by a record $1.45 trillion in May, according to the Federal Reserve. (In the 10-years before the financial crisis in 2008, loans exceeded deposits by an average of $100 billion.)

Leopard said...

First time for me to try to post but I am an avid follower, when possible. But yesterday something of interest crossed my eyes in Kenya's Daily Nation business section so I will try to post. I quote the article, "The government has hinted that it may convert part of its foreign exchange reserves into Chinese currency, Yuan, as a measure to try and stabilise the shilling against major world currencies." Later on in the same article, "If Kenya chooses to convert part of its foreign exchange reserves to Yuan, it will follow in the footsteps of Nigeria, one of Africa's biggest economies that announced last month that it will convert 10% of its reserves into Yuan" The article is dated 21 October.

I hope this may be of use.

J said...

Tried to post don't think it went through the first time...

Thanks Leopard

The Treasury has hinted at broadening the composition of the Kenya’s foreign exchange reserves to stabilise the shilling against major world currencies.

A broader base would open the door for the Central Bank of Kenya to hold reserves in emerging currencies like the Chinese renminbi—the yuan —and India’s rupee given the increasing level of trade with the countries.


Nigerian Central Bank Governor Lamido Sanusi said during a visit to Beijing last month that 10 per cent of the countries $33 billion reserves would be held in the yuan.

Standard Bank Group, Africa’s largest bank by assets has also launched services for trade settlement in yuan in 16 African countries, including South Africa, Nigeria, and Angola.

The European debt crisis and the sluggish growth of the US economy have resulted in reduced confidence in western currencies, thus affecting other currencies in the developing countries that peg their exchange rates against the dollar and euro.


costata said...

Leopard and J,

Great snippets from Africa. Keep them coming.


@mortymer001 said...

Basel III definition of capital - Frequently asked questions

@mortymer001 said...

Jeff said...

Which one of you guys is Jim Rickards? JR?? ;)

Jim Rickards continues:

“Countries would have gold or lose gold based on how they ran their economic policies and that would be a fair system. But what we have now is a dishonest system where everything is fiat money, money is worth what we say it is, sort of Alice In Wonderland logic with the Red Queen.

Motley Fool said...

Saudi Arabia in mourning

J said...

"We have been implementing a programme of raising the share of gold in the reserves for several years ... we are acquiring huge volumes ... We are not planning to step away from this path," Ulykayev said.

Russia's Central Bank to continue buying gold

Max De Niro said...

I don't get how twitter works.
Can someone who is not a technomoron, as I am, give me a few pointers?

1. If I go to someone's twitter page and see part of a conversation they are having with someone, ie, only their posts, how do I see the tweets from the other person, to see the whole conversation?

2. What's the whole hashtag thing all about?

3.If you use some common hashtag, do all the posts containing it go somewhere specific?

4. If I put someone's username, with a hashtag before it in a tweet to someone else, does the tweet appear in the mentioned person's page?

Any help would be muchly appreciated.

costata said...

I think this brief report is worth reading.

My emphasis

France believes the most efficient leverage method would be to turn the European Financial Stability Facility (EFSF) into a bank, allowing it to access ECB liquidity. Germany and others opposed this, and France's finance minister said he was not going to be unnecessarily confrontational over the issue.

"We will not make it a point for definitive confrontation," he told reporters as he left the meeting late on Friday. "What matters is what will work. And what will work is something that is dissuasive and an effective firewall."

If??? LOL

If France does ultimately drop its insistence on the EFSF being turned into a bank, then the most likely method for scaling up the EFSF is expected to be some form of insurance program aimed at restoring confidence in euro zone debt.

A group of 10 major financial companies, including banks, insurers and global bond fund giant PIMCO, wrote to EFSF chief Klaus Regling on Friday saying partial insurance of sovereign bonds could be a viable means to secure private funding for euro zone states "if implemented in size."

Bear in mind that:

"PIMCO is owned by Allianz Global Investors, a subsidiary of the Munich-based Allianz S.E., a leading global diversified financial services ..."

Continuing the Reuters report:

However, analysts are concerned that such a plan could create a two-tier bond market, with bonds that have guarantees trading at a premium to the secondary market -- an outcome that could exacerbate market turmoil. Some analysts believe choosing such an option would be the worst outcome of the summit.

"Analysts are concerned"??? from organisations that ae not already positioned to profit from a two tier market presumably. Somehow I doubt that Bill Gross is on the wrong side of this trade. LOL

Aaannnddd the EU (political) can gets kicked down the road yet again while the Eye of Mordor turns toward the USA. Is this, perhaps, what the FX market is telling us?

Aaron said...

Wow Costata!

The way I read this, France would like to institute a lending authority for dispensing ECB credit to individual EU nations -- which is the exact problem with the Fed/Treasury union.

Bonds with insurance (built-in CDSs)? My God, it's full of stars!

I wonder what France is so afraid of that they would consider damaging the Euro architecture? I mean De Gaulle was all over it back in the mid 60s. Did Sarkozy miss the last 45 years of his own history?


costata said...

Hi Aaron,

Just to be crystal clear. Under the "insurance" strategy reported the EFSF would take, say, 20% of the default risk on new bond issues. (So until we know how this guarrantee is structured it's not clear if it is anything like CDS.) The 440 billion of cash in the EFSF would backstop the guarrantee. Hence the 440b would support x5 that amount in new bonds.

This could make it easier to force haircuts on the existing bondholders. Their main threat is of course that no one will lend "ever again" if there is a default. (Complete load of crap BTW if you review the history of sovereign defaulters.) By creating a market for the new issues of bonds based on reduced principal the partial guarrantee could help pull in new money at low interest rates.

The key to all of this is a stable Euro. Now put yourself in China's position for a moment or two. The writedown (and lower interest rates on the new bonds) makes the debts of, say, Greece sustainable. Greece has some budgetary handcuffs placed on the government. The stable Euro offers the prospect of maintaining the purchasing power of the reserves placed in those bonds.

Would China want to own those new bonds? I think so.

FWIW in my opinion, after the EFSF deal is in place, then the focus moves onto who pays for the recapitalization of the insolvent banks. At least that's my version of what kicking the can down the road in Europe means.

In relation to Sarkozy I have seen claims that he is part of a pro-Anglo-American political faction in Paris that has enjoyed strong support from the Americans. Kind of interesting that DSK (a potential competitor for the Presidency) was apparently set-up for a fall in New York.

Aaron said...

Hi Costata-

I was confused. I missed the thrust of the article -- about the EFSF guaranteeing a percentage of Euro state bonds for china et. al. to roll over into from maturing bonds.

That makes more sense. I was a bit lost thinking the French advocating for the EFSF to assume bank status was in an attempt to secure an open Euro credit line from the ECB.

Sorry, wrong number.

Anonymous said...


this is very interesting indeed. I had never understood why Strauss-Kahn had met the maid.

Sarkozy need not be US friendly per se, he might just be on the side of the French commercial banks, so trying to get printed money to bail them out would be nice to have.

This suggests another connection. Since Draghi, the new ECB head, is Italian, the informal rule would say that Bini Smaghi, the current Italian on the directorate, should step down. He would be replaced by a French because with Trichet, the last French would leave.

So everyone expected Berlusconi to name Bini Smaghi as the new head of the Bank of Italy, replacing Draghi who moves to the ECB. But he didn't. He named one of his deputies. So Bini Smaghi stays on the ECB directorate until 2013, and Sarkozy cannot put one of his people into the ECB directorate.

Once we are in 2013, Sarkozy will be gone, and France will propose a reasonable candidate for the ECB directorate, one who is accepted by the Banque de France.

Mission accomplished.


@mortymer001 said...

"...This set of measures stemmed the tensions, which nevertheless began to intensify again during the summer and even more in the final part of the year, once more affecting not only Greek bonds but those of Portugal and especially of Ireland, which had issued a government guarantee for all bank liabilities. At the end of November the EU finance ministers approved a plan of financial support for Ireland.
This measure too helped to allay but did not eliminate the tensions, in a context of elevated uncertainty in the markets regarding the prospects of stabilization in the countries hit by the crisis and the possible interconnections between sovereign risks and the vulnerability of some banking systems.
The crisis originates from imbalances that in some countries concern the public finances, in others the banking system..."

~ Mario Draghi: The euro - from the past to the future, 22 March 2011

costata said...


Very interesting added dimensions to the politics of the ECB appointments.

Thank you.


I think you have the EFSF nailed now. Regarding the "French advocating for the EFSF to assume bank status" it appears that it was "an attempt to secure an open Euro credit line from the ECB".

Nicely foiled by the Germans apparently.

Motley Fool said...

The math on the EFSF, as relates to the latest discussion :

There is no bailout spoon


Motley Fool said...

and for those less technically inclined the following is a nice summary :

The EFSF as a hedge fund

tripper said...

This is getting hilarious. They should make a TV soap opera out of it.
An article on Eurozone summit by The Telegraph

Few quotes:
[...]Wolfgang Schaeuble, Germany's finance minister, could not resist taking an "I told you so" approach - he had been, after all, the first to call for an "orderly" default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today.

Francois Baroin, the young and inexperienced French finance minister, attempted to hit back [...] But Mrs Lagarde, who had held his post until taking up the IMF job this summer, "shut him up" by brandishing the report and pointing to it its detailed figures. "She really slapped him down - and in perfect English too, a language he cannot speak," said a diplomat.

So pointless was the gathering, that Didier Reynders, the Belgian finance minister, left early to attend the world premiere of the new Tintin film, The Secret of the Unicorn.

And the latest stunt of Berlusconi's is a real diamond. Now, Italy has two seats in ECB, while France has none. And that move was well received in Italy and gave Berlusconi a much needed positive buzz.

I'm not sure all that has any meaning. IMHO, the only way to end the cancer of socialism that is eating Europe is to let it slam into the wall at high speed. Since there is zero political will to end it (hey, guess why those politicians are at the top), this is probably how it'll play out.

So we're in for one hell of a ride.

JMan1959 said...

Let me see, buying fake assets with fake money using fake insurance. Milton Bradley should sue for copyright infringement. Great tongue in cheek article link, Mortimer.

JMan1959 said...

Sorry, meant Thanks, Motley.

costata said...


Thanks for the ZH link. Here's another link to an interview with Sean Corrigan. I think his perspective on the EFSF and the European banks is also worth considering.


Motley Fool said...

hey costata

sure. I'm busy reading it, it's bloody long. :P


Aaron said...

An excerpt from the ZH article Costata linked to that our under 25 crowd might find insightful:

"Of Being 25 in a Developed Nation"

"We here at Zero Hedge are labelled as fringe lunatics who thrive on bad news. We only take issue with this to the extent that the label allows “others” to dismiss us out of hand, while not debating us on the merits of our ideas and opinions. Central to our platform is the debunking of generally accepted conclusions of mainstream Wall Street Economist and Strategists. We do so, not only because it is sometimes fun, but because we want to encourage our readers and ourselves to think beyond what we are all being spoon fed. We are interested in what advice you would give a 25 year old graduating from University about the future. How should they think about money, how should they be investing, and what do you think their future will look like (10 year time horizon) in a developed nation? Would you give different advice to a 25 year old in an emerging nation?"

"Answer: The first thing I would say is that, from direct personal experience, he should not even begin to imagine that he has completed his education , just because he has been awarded his degree!"

"If he (I’m sufficiently advanced enough beyond the age of 25 to luxuriate in the presumption that ‘he’ is a non-gender specific pronoun in this context) is lucky enough, his university will not just have shepherded him though a few exams, but will have encouraged him to learn how to think for himself and to trust his judgement when he applies that ability rigorously enough."

"If he has been astute enough, he will also have realised that he needs to be equipped with a few basic tools beyond his specific expertise in order to navigate his way through the sea of half-truths and lazy presuppositions which are likely to surround him."

"Firstly, he needs basic numeracy skills so he can have a sense of magnitudes, costs, and probabilities. Secondly, he needs a sense of geography so he knows where he is and a sense of history so he knows when and who he is. Thirdly, he needs to be able to both understand an argument and to make one, so that he can spot the falsehoods he is constantly being sold (sometimes, it has to be said, wholly inadvertently) and so that he can make his own case in response, once he has framed it. Finally, he needs to realise that the state is a wolf, not a sheepdog and that his liberty and right to self-expression are much more at risk from the smiling, ballet-box tyrants at home than it ever is from the foaming-mouthed, comic opera dictators whom he is enjoined to hate abroad."

And for the rest of us!

"He should realise that money is a medium by which wealth is exchanged, it is not wealth itself, much like it is the information he trades over the web which is important, not the plumbing of routers and servers and cabling which transmits it."

J said...

A look at gold prices in India

"Going by past experience, the possibility of gold touching the new peak of Rs30,000 per 10 gm is quite real. As per the gold rate data available from Choksi Mahajan Association of Ahmedabad, some 86 years back (in 1925), gold was sold for Rs21 for one tola (1 tola = 11.66 grams).

At the time of Independence, it was selling at Rs100 per tola but after Independence, gold prices took 32 years to touch the first Rs1000 level. The yellow metal crossed the price of Rs1,000 per 10 gram in October 1979, perhaps for the first time in recorded history.

Interestingly, in the next 32 years, prices of the yellow metal shot up 26-fold. From 1979 to 2011, gold prices increased from Rs1,000 per 10 gram to Rs28,000 per 10 gram in 2011. This year alone, gold prices rose by Rs1000 per 10 gm five times in just eight months. Of this, the last three thousands were added in just 22 days!

In the last three-four decades, bullion has seen many changes in its price trends. Earlier, gold prices witnessed a rise of Rs1,000 in years; now this happens in just months. Recently, gold prices have occasionally risen by Rs1,000 in just a few days. Before the 1980s, prices of the yellow metal were totally dependent on domestic demand but slowly, due to globalisation, gold prices are now decided in London and the whole world follows.

Another change has been seen in the buying pattern. Earlier, consumers used to buy gold or gold jewellery in kilos. Today, however, people buy it on what they can afford. "Ever since 2008 when gold prices touched Rs12,000 per 10 gram, people started buying the yellow metal on the basis of what they can spend.

Gold price up 26 times in 32 years

costata said...

Hi J,

This analysis supports the claim that there was a change in buying patterns after 2008. That link came from a comment I posted in March, 2010 where I suggested FOFOA “Take a bow” for anticipating this change in buying patterns (my emphasis).

On Friday, gold closed up 1.5% for the week to end at $1135.20/oz, thanks to a U.S. dollar that couldn’t decide if it was strengthening or weakening. Of course, whether the gains continue remains to be seen, but for gold bugs, one seems one thing is certain: Gold demand has never been higher. Or has it?

Last month, the World Gold Council released its annual supply and demand report on the yellow metal, and it revealed more than a few surprises.

2009: A Down Year for Demand
In reality, total gold demand actually fell in 2009, down 11% year-over-year. But due to the higher average price per ounce in 2009, the dollar value of gold demand remained roughly the same.

As the dealer observed in the article you linked above (my emphasis):

"Ever since 2008 when gold prices touched Rs12,000 per 10 gram, people started buying the yellow metal on the basis of what they can spend.”


PS. Scrap gold supply surged by around 11 per cent in 2009 and there was a small increase in mine supply. Scrap supply leveled off soon after.

Anonymous said...

Another one on the role of Sarkozy as the traitor in the euro area:

When the riots and revolutions in Tunisia, Egypt and so on happened, they did so spontaneously without any intervention from abroad. Each of these countries had people frustrated about their corrupt leaders, but no oil and no gold.

In Libya it was different. They do have both oil and gold, but the uprising did not really take off without help from abroad. Who was it that helped? The US, Britain, and, most noisily, Sarkozy. Germany and Italy in contrast were quite reluctant to get drawn into this.

What's next? The new Libyan government joins the IMF, sell their gold and replace it by dollars?


costata said...


A little bit more "colour" for the picture of Libya pre-invasion.

Italy was Libya's largest trading partner.

The Blair-BP deal with Gadaffi to settle the dust on Lockerbie was relatively recent. The Italian oil and oil industry service companies were way ahead of them in Libya.

As soon as the invasion began apparently the French sought to open negotiations with the "revolutionaries" about oil concessions. One snippet I read claimed that the Italians were furious with Sarkozy.

Could the Italian maneuvering on the ECB appointments be a little payback? The French politicians appear to me to have more reason than others in the EU to want the ECB to print.

Clyde Frog said...

Big thank yous to JR, Return to Resistance, Motley Fool, for your responses to my last comment about GLD. This gave me a lot to think about and I now think it is better if I stick to the safe path of buying actual gold, instead of trying to make the buying and selling processes easier and avoid taking responsibility for the safe storage of my own (very small!) amount of gold.

THANK YOU AGAIN EVERYONE! You have all been very supportive of a clueless newbie and I come away from this commenting experience thinking you are all even cooler than I already did! You are awesome every one of you!

@mortymer001 said...

Some old news about Libya:

1949 - Venezuela was the first country to move towards the establishment of OPEC by approaching Iran, Gabon, Libya, Kuwait and Saudi Arabia, but OPEC was not set up until 1960, when the United States forced import quotas on Venezuelan and Persian Gulf oil in order to support the Canadian and Mexican oil industries. OPEC first wielded its power with the 1973 oil embargo against the United States and Western Europe.
1970 - Libya raises posted prices and increases tax rate from 50 percent to 55 percent. Iran and Kuwait follow in November.
1971 - Libya concludes five weeks of negotiations with Western oil companies inTripoli on behalf of itself, Saudi Arabia, Algeria and Iraq. Agreement raises posted prices of oil delivered to Mediterranean from $2.55 to $3.45 per barrel; provides for a 2.5 percent annual price increase plus inflation allowance; raises tax rate from a range of 50-58 percent to 60 percent of posted price.
1971 - Libya nationalizes British Petroleum concession.
1972 - Libya acquires a 50 percent interest in two ENI concessions.
1973 - June 11: Libya nationalizes Bunker Hunt concession
1973 - Libya nationalizes 51 percent of Occidental Petroleum concession and of the Oasis consortium.
1973 - Libya nationalizes 51 percent of nine other companies' concessions: Esso, Libya/Sirte, Mobil, Shell, Gelensberg, Texaco, SoCal, Libyan-American (ARCO), and Grace.
1973 - US President R.Nixon requests Congress to appropriate $2.2billion in emergency aid to Israel. This decision triggered a collective Arab response. Libya proclaims an embargo on oil exports to the United States; Saudi Arabia and other Arab states follow.
1974 - Libya nationalizes three U.S. oil companies that had not agreed to 51 percent nationalization in September.
1974 - Arab oil ministers announce the end of the embargo against the United States, all except Libya.
1976 - The United States invokes the International Emergency Economic Powers Act, halting imports of all goods and services of Libyan origin. US companies are prohibited from engaging in industrial or commercial contracts with Libya.
1986 - he U.S. Treasury Department forces remaining U.S. oil companies to leave Libya but allows them to negotiate standstill agreements, retaining ownership for three years while allowing the Libyan National Oil Corporation to operate the fields.
1990 - Libya's Muammar al-Gaddafi says Israel must be eliminated, and U.K. Foreign Secretary Hurd says force would be used if Iraq doesn't withdrawal from Kuwait.
1992 - United Nations threatens sanctions against Libya for its refusal to extradite suspected terrorists.
1996 - U.S. President Bill Clinton signs a new bill imposing sanctions on non-U.S. companies which invest over $40 million a year in the energy sectors of either Iran and Libya. Under the law, the President would be required to impose at least two of the following sanctions: import and export bans; lending embargoes from U.S. banks; a ban on U.S. procurement of goods and services from sanctioned companies; and a denial of U.S export financing. The European Union has stated its opposition to the U.S. law and threatened retaliation.
1997 - The U.S. State Department rules that Turkey's August 1996 agreement to purchase $23 billion worth of natural gas from Iran over a 20-year period does not violate the Iran and Libya Sanctions Act.

DP said...

@costata: That said, in the same way that the Aborigines discovered about 200 years ago that they were only holding a 50,000 year temporary resident visa in a British colony I think Australians are in line for some harsh lessons about our place in the world.


As a result he doesn’t differentiate the impact of similar forces (at least in appearance) on individual countries who are over-indebted. In my opinion some may go down the HI path while others experience a genuine debt deflation.

I am sure I would find it fascinating if you chose to expand on this facet of your view any time. I'm also pretty sure I wouldn't be alone.


Motley Fool said...

Worthwhile reading :

The real Contagion Risk


Michael H said...


I think there is an interesting comparison between the scenario Martenson posits in the piece you linked, and that put forth by Paul Brodsky when Martenson interviewed him recently:

"We have not shorted bonds in our fund. Even though we feel pretty strongly that if the market were to naturally determine interest rates, they would be much, much higher than where they are now, maybe even double digits. In fact, probably double digits, rather than zero to 3%, as they are. And the reason we have not shorted them is because, frankly, a Central Bank, especially the Fed, has an infinite ability to create infinite amounts of money with which to buy debt."
"To your question specifically about will we have that, and will we have something similar to what happened in Greece here in the U.S., we do not think we are ever going to get to that point here. And it is not because we are proud Americans and we think that the U.S. is better in every way than every foreign land; that is not the case at all. We think it is not going to happen here because if anything dire happens in terms of interest rates, like the threat of rising interest rates, number one, you would see the Fed's balance sheet come under severe stress. As we understand it, if long term rates rise 55 basis points, pardon me, let me take a step back, as we understand it, the Fed's balance sheet is already levered 55 times. And if interest rates rise, we have heard between 40 and 50 basis points, it would make the Fed's balance sheet insolvent. "

Whereas in the 'contagion' piece, Martenson predicts rising interest rates in the USA.

Motley Fool said...

Hmm. Wouldn't printing money add both assets and liabilities to their balance sheet in equal measure, in this case increasing their relative capital ratio?

(asking out of ignorance here, anyone feel free)

Gary Morgan said...

As predicted many years ago, new money (from the FDIC) will eventually be created to 'save' Bank of America, and its investors.

JR said...

Federal Reserve's January 6 H.4.1 release: Factors Affecting Reserve Balances

"...The liability for the distribution of residual earnings to the U.S. Treasury will be reported as "Interest on Federal Reserve notes due to U.S. Treasury" on table 10. Previously, the amount necessary to equate surplus with capital paid-in and the amount of the liability for the distribution of residual earnings to the U.S. Treasury were included in "Other capital accounts" in table 9 and in "Other capital" in table 10."


An explanation - "Creative Accounting" Makes Fed Insolvency Impossible

"...Here is how Bank of America's Priya Misra explains this curious, and most certainly politically-motivated development: "The Fed remits most of its net earnings on a weekly basis. Prior to this accounting change, any unremitted earnings due to the Treasury would accrue in the "Other capital" account, but will now be shown in a separate liability line item called "Interest on Federal Reserve notes due to the Treasury.” As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible regardless of the size of the Fed’s balance sheet or how the FOMC chooses to tighten policy." And there you have it: instead of reducing the left side of the balance sheet upon the incurrence of losses, the Fed has decided to fudge the right side...."

Motley Fool said...

Ahh. Thanks JR.

JR said...

Bob Eisenbeis, Cumberland’s Chief Monetary Economist who was previously Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta, has commented:

"The bottom line is that the accounting change largely defuses the concerns that we have expressed about losses that the Fed may incur in the future when it begins to raise interest rates and sell assets to tighten policy and to absorb the liquidity provided during the financial crisis. Those losses will be absorbed by the Treasury out of forgone remittances of future Federal Reserve earnings."

Jeff said...


costata said...

Hi DP,

At some point I will post a couple of comments that expand on those quotes you posted.


JR said...

I now see I sorta jumped the gun a bit an got into how the FED "dealt" with its capital shortfall issue, but what prompted it was MF's question about how a shortfall occurs:

"Wouldn't printing money add both assets and liabilities to their balance sheet in equal measure"

Depends on what you buy and how much you pay for it, no?


The FED is intervening to boost the price of distressed assets whose falling value impairs the functioning of the credit system (collateral impairment, firm insolvency, etc.). From Micheal H's Brodsky link above, the FED is intervening to boost asset prices/drive yields down:

"Even though we feel pretty strongly that if the market were to naturally determine interest rates, they would be much, much higher than where they are now, maybe even double digits. In fact, probably double digits, rather than zero to 3%, as they are. And the reason we have not shorted them is because, frankly, a Central Bank, especially the Fed, has an infinite ability to create infinite amounts of money with which to buy debt."

They are buying "crap" to put a floor in essence under the price of this "crap" - they are overpaying beyond where this "crap" would otherwise clear the market.

So the FED is fighting the market to boost prices. The FED may have short term success, but in the long run, Mr Market is a dominating foe. Price controls = eventual failure.

So if you create base money and overpay for assets such as is occurring in the current mileu of the dying $IMFS, you're gonna show a capital shortfall eventually, regardless of your creative accounting. The real world/physical plane always wins against the monetary plane.


"...And those of you that incessantly argue that gold is just one of many commodities—an asset like any other that, when push comes to shove, will ultimately be liquidated in favor of symbolic token currency units— need to explain how the monetary plane, insolvent at today's low prices, will maintain any grip on reality at even lower prices. The fact is it can't.
Once Upon a Time

Cheers, J.R.

@mortymer001 said...

Interesting views of Christine LAGARDE:

Motley Fool said...


I liked your approach. You answered my implicit statement and question. Being..

Surely the fed would not let a simple thing like accounting stand in their way. How did they resolve/hide this problem?


costata said...

Extract from a speech by John Laker from APRA (Australian Prudential Regulation Authority) the bank regulators in Australia. These guys are not the regulatory lapdogs found in some other jurisdictions but they are government bureaucrats. Hence they are guarded in their comments.

If these comments apply to the Australian banks (who are relatively sounder than banks elsewhere) then it applies to some (most?) of the US, UK and European banks in spades (my emphasis).

"... global markets for unsecured longer-term debt are regarded as effectively closed. Spreads are sufficiently wide that no bank wishes to issue unsecured debt for fear of being perceived as desperate for funds."

h/t Macrobusiness Blog

JR said...

Smaghi on the importance of MTM gold to ECB solvency from June, or why most of the the pundits don't understand the ECB, the Euro and gold. I don't think mortymer posted this yet, although he has posted about the revalaution account.


WSJ blog article for context:

"A study from the think tank Open Europe last week estimated that if the value of the ECB’s asset holdings falls just 4.25%, “its entire capital base would be wiped out.”

The ECB is in safer shape than that, Bini Smaghi counters. According to Bini Smaghi, the Eurosystem’s capital plus reserves is more than 80 billion euros. But when its “revaluation accounts” (which are unrealized gains that can serve as buffers against losses) are included, the total rises to nearly 390 billion euros, against around 1.9 trillion euros in total assets."


JR said...


Here is the Smaghi speech the WSJ blog reference where he made the point that the ECB’s revaluation account (AKA MTM reserves assets like gold) can effectively help absorb losses the ECB faces on the bonds it purchases:

Risk Management in Central Banking Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB,
International Risk Management Conference 2011,
Free University of Amsterdam, 15 June 2011

"...The solvency profile of central banks also differs significantly from that of private financial institutions. The latter need to weight their risks against the financial buffers provided by their explicit capital position. In the case of the Eurosystem, its explicit capital position is determined by consolidated capital and reserves amounting to more than €80 billion, but also by revaluation accounts amounting to more than €300 billion. Although such explicit financial buffers remain a valid and necessary benchmark to assess the leverage and the risk-taking capacity of central banks, their financial strength cannot be fully captured by using capital adequacy metrics such as those applicable to private banks for regulatory purposes, as it has been done in a rather simplistic way by some commentators...

The Eurosystem risk position: common misunderstandings

Let me address en passant two issues that have received attention from some analysts recently.

First, some commentators have stated that, since the ECB’s balance sheet is expanding and is allegedly taking on large risks, the ECB may be turning into a ‘bad bank’. [3] This argument is based on a clear misunderstanding of the type of operations conducted by the Eurosystem and of the risk control measures applied to those operations. The description of the risk control measures and of the specificities of the capital position of the ECB that I just provided should help dispel such misunderstanding. The data have actually confirmed that the Eurosystem’s financial results have proved resilient to the global financial crisis, and its total capital position has even increased. [4] The numbers I have provided in terms of overall capital and reserves of the Eurosystem should help a better understanding of the situation..."

Footnote four is fun:

"[4]From 5 September 2008 to 3 June 2011, Capital and reserves have increased by 13.2% (from €71.7 to €81.2 billion) and revaluation accounts have increased by 100% (from €152.3 to €305.9 billion). Total Eurosystem assets have increased by 31.8% (from €1441 billion to €1899 billion) over the same period."


As the euro weakens, the reserve account increases as gold in euros goes up, like this.

Cheers, J.R.

Max De Niro said...

I tells ya, I gotta feelin about old Smaggers.

DP said...

Wot, no link RE: that image JR? Maybe you need to get more sleep

JR said...

Sleep's overrated (and impossible when those electrically excitable neurons get humming - they may not always lead me to the right but I gotta find out).

zabba said...

THANKS for the assist, DP... was searching myself!

JR said...

Sorry I can be less the hospitable at's maybe a parable to ponder on:

“A little bird flew very far to a very distant land. When it got there it found it was a cold, freezing land and the bird froze to death. A cow passed by and took a dump right on top of him. The warm shit that fell on him melted the ice, and he was resurrected. Alive again, but still buried, he started chirping. A cat passed by and heard his cries, and dug him out of the shit. And then the cat ate the bird. Moral of the story: The person who takes a dump on you isn’t always your enemy, and the person who takes you out of the shit isn’t always your friend!”


The source - its coming out soon!!

DP said...


JR said...

Thanks DP, its also in RPG Update #4

DP said...

Sure. Sometimes the oldies are goldies too though ;)

JR said...

Oh yeah, its a good idea to start at the beginning and work your way through the RPG Update series!

Biju said...

what an anamoly - Greek Bond holders are asked to take 60% haircut whereas all these years MSM has been harping about the yield and stability of Bonds over Gold.

strange world.

@mortymer001 said...

@JR; Great find, I would also include this from your latest link:
(Risk Management in Central Banking Speech by Lorenzo Bini Smaghi)

"...During the financial crisis central banks have intervened swiftly to protect financial stability, which is a key precondition to achieve price stability. While this function has now been widely recognised, some concerns have been voiced that central banks have taken on too many risks in their balance sheets.

The point that I wanted to make today is that taking on more risk in times of distress is inherent in the financial stability function of central banks. The central bank is the only patient investors who can intervene at times of crisis as a counterpart to distressed short term investors with a view to ensuring market liquidity and restoring confidence. However, this can happen only if the financial independence of the central bank is safeguarded, otherwise the credibility of its monetary policy aimed at ensuring price stability may be jeopardised. This is why central banks manage their risks, albeit not necessarily in the same way as private financial institutions because of the fundamental differences which exist between the two.

Hopefully these differences are now better understood, and misperceptions about the role of central banks corrected."

There are 2 other links I found worth mentioning:

Reserve accumulation: the other side of the coin

The Triffin dilemma revisited

Max De Niro said...

Daniel Kawczynski, British MP:

"We should not forget that in helping to free the people of Libya from oppression, we have also helped free an economy rich in natural resources that exported over $34bn worth of oil products in 2009 and had a GDP estimated at over $85bn.

In the past, freedom has been paid for with blood and gold. The timely intervention by our government and the international community saved many innocent lives, but the action came at a cost, and this cost has been born by the hard pressed British taxpayer. In these difficult economic times, it should not be too much to ask a country with Libya's wealth and resources to pay their share of the gold."

So we nip over there, install puppets so that we can get their oil and then steal their gold as 'repayment'. Seems perfectly fair and above board to me.

With this kind of shit going on, supplying physical gold to the cornered market and the normalcy bias herding big money into the bond markets, then freegold is many many years away yet.


Motley Fool said...


"We’re more concerned about silver. Silver doesn’t act like gold’s little brother, it acts like an industrial metal. Silver, as you know, peaked at nearly $50 in April. Recently it was under $30 but has rebounded as the support level, but we need to see silver sort of hold right here at $30. Even if it’s able to hold above $27.50 then we are going to continue to give it the benefit of the doubt.”

JR said...

She's on the road again


Randy Strauss via "On Scary Corrections"

"You've made an astute observation that marking ones tangible gold assets to the market price of PAPERgold is not a good idea. During the reign under which wild and woolly derivatives factor prominently in setting the price for the metal, the physical asset will not appear to demonstrate the steady performance that is expected of it day in and day out -- instead, as reflected in its pricing behavior, it will have the same reckless characteristics of its leveraged derivatives along with the panicky mood swings of the paper pushers. Reserve asset holdings in the form of physical gold (instead of derivative alternatives) would therefore only prove itself uniquely meritorious at such fateful time as the credit and derivative markets collapsed into default."

holdinmyown said...

"Europe is broken and the people charged with trying to fix it are clearly not up to the job. There are way too many vested interests, too many national peccadillos and way too many good, old-­‐fashioned egos in play for it to come down to anything but a last-­ditch solution when they are forced into it - and that solution WILL be the printing of money in some shape or form which will help to magically inflate the debt away. The other alternatives are either just too painful (default/forgiveness) or plain unworkable (growth)."

Great stuff found here:

Words of Grant Williams in his letter: Things That Make You Go Hmmm… as reprinted by John Mauldin. A sign-up to a free subscription is required. Worth the read IMO.

costata said...

Which currency are the Greeks hoarding?

h/t Financial Sense - Via Mish Shedlock's blog (terrible translation BTW)

costata said...

Interesting graph on interbank overnight rates from Chris Puplava.

Until we see the leading economic indicators and the credit markets singing the same tune as the stock market, the recent stock market rally should be viewed with a great deal of skepticism.

costata said...


This article from Spiegel Online looks at Italy's finances (my emphasis).

Still, Monorchio adds, Italy has a kind of wealth that is hard to explain to hedge-fund managers in London. "Italian families own real estate worth €4.832 trillion, of which only 7 percent is burdened with mortgages," he explains. "Every family owns one, two or three houses -- and we're supposed to be part of the PIIGS?"

This article also discusses the fiscal problems and economic challenges confronting Italy but the mainstream media's claims about Italy seem overblown when you consider:

"Our primary balance is positive," he notes, "more positive than that of most other euro countries." In fact, thanks to high taxes, the Italian treasury takes in more than it spends -- but only if the interest payments for existing debts are factored out.

Now let's talk about California....

h/t Dollar Collapse

JR said...

The New Global Reserve

"Basically, this is the direction the entire non-dollar world is heading. This new system is not being built on the foundation of any single nation-state or economy. In the future, any one fiat or its attached economy can fail completely without bringing down the whole system. This is what stability is all about. It is the separation of the money concept from both gold, the tangible, tradable physical wealth reserve, and from the albatross of the hungry nation-state."


Here's a news article from today - German parliament passes bailout bill before EU summit:

"German Chancellor Angel Merkel won a parliamentary vote with a large majority on Wednesday on boosting the firepower of the euro zone rescue fund, handing her a strong mandate to negotiate at a crunch EU summit later in the day in Brussels...

The parliamentary vote binds Merkel to sticking closely to the text of the motion passed by the Bundestag in her negotiations in Brussels, thus strengthening her bargaining power...

Another area of dispute overhanging the summit is over the role of the European Central Bank in the crisis. France wants a deeper and more direct ECB involvement while Germany is strongly against that. The motion passed by the German parliament states that the EFSF cannot be financed through the ECB and that with a leveraged EFSF, the ECB will no longer need to buy bonds on the secondary market.

The incoming head of the ECB, Mario Draghi, strongly signaled earlier the bank would go on buying bonds. German lawmakers said this was not necessarily a rebuff to them as the phrase in their motion expresses an expectation and stops short of saying the ECB cannot buy bonds if necessary."


Here's Randy S almost exactly 10 years ago to the date:

"site steward (10/25/01; 21:35:08MT - msg#: 64207)
Deutsche chief doesn't recognize a good thing when he sees it...

---------BRUSSELS, Belgium -- Deutsche Bank chief executive Rolf Breuer yesterday criticised European Union governments' lack of unity in economic policymaking saying this stood in stark contrast with a US commitment to economic recovery.

"What we observe in the United States ... is an admirable hand-in-glove policy between government and the central bank."------------

More like "hand-in-pocket" if you ask me...

This final excerpt to this article is what my subject line was in reference to:

------Europe has not matched US efforts to stimulate growth since the September 11 attacks, Breuer said, because "we have no common, defined, decided economic and financial policy in Europe".-------

More importantly, it does have a single independent authority steering monetary policy down the middle of the road so as to be neutrally suitable for a wide coalition of interests. (For elaboration, see my earlier post today.)


JR said...

A coalition of interests severed from any one nation state with a single independent authority steering monetary policy down the middle of the road.

Germany can keep the ECB from funding the EFSF to the chagrin of France and others in the coalition, but Germany can't stop the independent ECB from steering monetary policy in a more neutral fashion.

S said...

Article this morning that the Bundesbank’s gold reserves may be used as collateral in the event that the EFSF can’t meet its payment obligations according to reports. Any comment?

JR said...

Randy's earlier post he referenced in the above quote:

site steward (10/25/01; 12:12:28MT - msg#: 64186)
Monetary choices -- ECB holds rates solid, dumps dollars

FRANKFURT, Oct 25 (Reuters) - The European Central Bank left interest rates unchanged on Thursday, ignoring calls from politicians urging it to do more to prop up the euro zone economy....The [independent] ECB angered some euro zone governments, worried about rising job losses and stalling growth, when it kept rates unchanged at its meeting two weeks ago, arguing that still high inflation left it little room for maneouvre.


Central banks have learned this lesson in the past three decades (but politicians have not): the provision of easy monetary policy does not create jobs nor does it stimulate real economic growth. Therefore, a "good" (competent) central bank will not meddle with monetary policy under the premise of affecting the unaffectable. The best contribution a good central bank can ever be expected to make to the well-being of a national economy is through the successful delivery of price stability -- thus providing a stable basis upon which business planning and contracts for the future are made.

The Federal Reserve surely knows this fully as well as the ECB. The problem is that the Fed does not have the independence to resist the off-base political/legislative mandate to foster full employment via monetary policy.
But even if we were to put that consideration aside, the Fed would likely be aggressively easing anyway, simply to save the banking system from collapse during this downturn in our manic economic cycle.

Sure, the Fed tries to maintain the stance that no bank is too big to be allowed to fail, but we always find that theory and reality serve different masters. So, as the officials at the Fed ease rates, they put the best political spin on it by saying it is to satisfy the politicians and to stimulate the American economy. In reality, they are trying to keep the banking machine from seizing up with ample applications of easy grease.

Meanwhile on another front, the latest consolidated financial statement of the Eurosystem reveals that gold reserves during the past week were held at a steady level, whereas the net position in foreign currency was allowed to drop by EUR 600 million in value. The prevailing trend continues to be a net dishoarding of dollars.

Within the Eurosystem, foreign currency assets now stand at EUR 258.1 billion in value, while gold assets stand at EUR 128.235 billion (valued this quarter at 318.53 euros/ounce).



On that last point of Randy's, that "foreign currency assets now stand at EUR 258.1 billion in value, while gold assets stand at EUR 128.235 billion," here's where the Euro is a decade later, from RPG Update #4

"In the week ending 30 September 2011 the increase of EUR 56.8 billion in gold and gold receivables (asset item 1) reflected quarterly revaluation adjustments.

The net position of the Eurosystem in foreign currency (asset items 2 and 3 minus liability items 7, 8 and 9) increased by EUR 13.2 billion to EUR 191.1 billion.

So gold was marked up 56.8 billion to a MTM value of 420.005 billion

So foreign currency has gone from 258.1 billion --> 191.1 billion, while Gold has gone from 128.235 billion --> 420.005 billion

The "plan" seems to be working

JR said...

Hi S,

Like a GELOC, yes?

Here's something fun from Open Letter to Ron Paul

"Dear Dr. Paul,

I would like to share with you what I think is a brilliant opportunity for you to lead the revaluation of the US gold stockpile from its present book value of $42.22/oz. which, as you say in the video below, "makes no sense whatsoever."...

That's right, it jumped again. From $336 billion in October, to $355 billion in January, to $370 billion in April. And guess what it is today. $390 billion! That's the amount of untapped equity the US Treasury has in its gold today. And that equity can be monetized without selling the gold, by the simple act of Congress ordering the revaluation of the gold...

Think back to when house prices were actually rising. If you bought a house for $250K and it was suddenly worth $350K did that revaluation automatically appear on your bank's balance sheet as an additional $100K asset? Of course not! But you, as the homeowner, could put it on the bank's balance sheet with a HELOC or a second mortgage.

Maybe you could call this gold revaluation a GELOC to tide you DC spendaholics over until you can get your act together later this year. And that (soon to be) $400 billion "bridge loan" will not even be debt in the traditional sense, and it certainly won't be "debt subject to the debt limit" any more than Bernanke's QE is subject to limit.

Honestly, the Eurozone is so far ahead of you DC guys on this it's not even funny. They mark their official gold reserves to the market price every quarter, and they just voted to make gold a system-wide acceptable collateral asset. [2]

"The European Parliament's Committee on Economic and Monetary Affairs Tuesday agreed unanimously to allow clearing houses to accept gold."

OMG! Can it be that a collateral asset that is consistently rising in free market value makes boatloads more sense than ones you have to prop up with quantitative easing and open market "print to purchase" operations??


JR said...

From a FOFOA comment to Reference Point: Gold - Update #2 discussing what could happen if the USG revalued its gold, which has a lot of overlap with the idea of promoting collateralizing loans with gold. And if you are tempted to go all ZH/GATA brain dead stupids with "OMG confiscation," think about a GELOC. If you own a home and have too much debt to service your mortgage, but the the home has massively appreciated in value, maybe you could refinance?

That's an interesting concept. So if the biggest debtor in all of history suddenly acknowledges that he still has an asset of real value, that asset might explode in price to heights that would almost cover his debt just from the act of publicly acknowledging it? Hmm

Let us think of analogies. I know someone who is buried in debt. A large mortgage and HELOC, two car loans, lingering student loans and a baker's dozen of credit cards. A prime candidate for bankruptcy. But let's say he also has a hidden asset that, even though it is not collateral to his debt, is still valuable enough to almost cover it. He hasn't filed for bankruptcy or stopped paying on his debt yet, so even if he reveals the secret asset, his creditors won't have a claim to it. Yet if he reveals it, they may actually extend him more credit that he will then use to keep rolling over his debt, because his books will no longer look so underwater.

Or how about this? I know two people, each with a million dollar debt hole. One guy has no assets and can't get any more credit, so he'll probably have to declare bankruptcy. The other guy has two million in assets and he has no trouble getting more credit.

Now I'm not saying that rolling over debt is a good way to manage one's finances. I'm just saying this is an interesting concept that you've brought to the table.

Might promoting the use of gold as collateral boost its profile and assist the upward movement in its price, effectively letting the market do much of the heavy lifting (as opposed to revaluing it yourself?)

Just a thought.

@mortymer001 said...

via jsmineset...

GEAB N°58 is available! Global systemic crisis – First half of 2012: Decimation of the Western banks

"...The decimation of the number of banks
In a way, the Western banking system looks increasingly resembles the Western steel industry of the 1970s. Thus the "ironmasters; thought they were the masters of the world (incidentally actively contributing to the outbreak of World Wars); just like our "major merchant bankers" thought they were God (like Goldman Sachs CEO) or at least masters of the universe. And the steel industry was the "spearhead", the "absolute economic example" of power for decades. Power was counted in tens of millions of tons of steel just like the power of billions in bonuses for merchant bank executives and traders in recent decades. And then, in two decades for the steel industry, in two / three years for the banks (20), the environment has changed: increased competition, collapsing profits, massive layoffs, loss of political influence, the end of massive subsidies and ultimately nationalization and / or restructuring giving birth to a tiny sector compared to what it was at its heyday (21). In a sense, therefore, the analogy applies to what awaits the Western banking sector in 2012/2013. Already on Wall Street in 2008, Goldman Sachs, Morgan Stanley and JP Morgan had to suddenly turn themselves into "bank holding companies" to be saved. In the City, the British government had to nationalize a whole swathe of the country's banking system and to this day the British taxpayer continues to bear the cost because the banks’ share prices have collapsed again in 2011 (22). This is also one of the Western banking system’s characteristics as a whole: these private financial players (or market listed) are worth practically nothing. Their market capitalization has gone up in smoke. Of course this creates an opportunity for nationalization at low cost to the taxpayer from 2012 because it’s the choice that will be imposed on States, in the United States as in Europe or Japan..."

And Y said...


In a dark blue jacket reflecting the mood in and about the eurozone, Merkel abandoned her usual cautious rhetoric warned outright of a war.

"Nobody should take for granted another 50 years of peace and prosperity in Europe. They are not for granted. That's why I say: If the euro fails, Europe fails," Merkel said, followed by a long applause from all political groups.

"We have a historical obligation: To protect by all means Europe's unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail."

"It cannot be that sometime in the future they say the political generation responsible for Europe in the second decade of the 21 century has failed in the face of history," the chancellor continued.

Susan said...

Further to Clyde Frogger's question, what do you think of PM backed IRAs? Considering one with storage at Delaware Depository. How safe is this? I read FOFOA's post a few months back about storage but I'd like to hear from you folks too.

JR said...

Thanks for sharing And Y!

Here's a FOFOA comment from "Hair of the Dog?" along these lines:

"As you all know, I don't expect the euro to fail. The euro is designed for transition. It is designed for Freegold. And the specific value of a currency doesn't matter in its primary role as a medium of exchange. Only stability matters, and the euro could handle a big one-time devaluation to a more stable level. It will have to devalue at one point or another. Devaluation is inevitable for all fiat currencies today. The European politicians apparently understand less about this than the central bankers do.

Even still, exiting the euro would be a Herculean task for any country. They'd have to reissue currency and re-denominate all long term private contracts, and then face the old risks of war and hyperinflation once again. For this and other reasons I am highly skeptical about reports of politicians making boisterous threats to leave the euro. They seem pretty empty to me.

Jim Rickards: "Now, political unification has had modest success. Military and foreign policy unification has really had no success at all. But the crown jewel of European unification is their monetary system, the euro and the European Central Bank. So that's the pinnacle of their world historical efforts to unify the continent. They're not going to give that away lightly. I mean, they view it in a much broader historical context than Wall Street and Americans. And so it's of the utmost importance to them. And they're going to do everything they can to preserve it.""


And from Synthesis

"What happens if the Euro project fails?


If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does come, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You


The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.

But by 1980, Europe was working with the BIS to implement a new "reserve currency".

The European plan was to support the $IMFS at least until a new fiat "reserve" currency could be established, one large enough to absorb the shock of a failing reserve currency, to avoid being forced back 100 years into a physical gold-based economy which would have been very traumatic. This effort took 20 years from 1980.

JR said...

Here is one more FOFOA comment, this one from Dilemma in respsosne to Desperado's complaints:


I hear you on your objections to the leftist elite in Europe. But you must understand that the path to the euro was not a product of the left. It was a product of the conservative right. The road to the euro began in 1962 as a means to avoid future wars in Europe as well as to create an alternative to the dollar and the Bretton Woods system. Two noble goals. As ANOTHER called it, a return to the "Old World Order."

Question to Another from MK: ** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **

ANOTHER's reply: I would say, "Old World Order" to return. To understand/explain better: "A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed.


JR said...


Here is more form that FOFOA comment with a larger except from Jim Rickards:

"And here's Jim Rickards on the euro:

Now the history of this is very significant. The euro system, and Greece in particular, those are not Wall Street piñata. I know traders like to bang them around, you know the spreads widen and then the spreads come in. There are trading opportunities there. But this is taken much more seriously by the Europeans. I mean you go all the way back to the Counter-Reformation in the late 16th century which was extremely bloody. And then the Thirty Years' War which was devastating. And then the Seven Years' War and the Napoleonic Wars, the Franco-Prussian War, World War One, World War Two... this is one catastrophe after another! And Europe literally destroyed itself and exhausted itself in fighting all these wars. And finally after WWII they said enough! We're going to pursue unification. It's the only way to keep from fighting each other.

Now, political unification has had modest success. Military and foreign policy unification has really had no success at all. But the crown jewel of European unification is their monetary system, the euro and the European Central Bank. So that's the pinnacle of their world historical efforts to unify the continent. They're not going to give that away lightly. I mean, they view it in a much broader historical context than Wall Street and Americans. And so it's of the utmost importance to them. And they're going to do everything they can to preserve it. And that's one reason, along with the gold, why I have confidence that Greece will not default.

JR said...

Via FOFOA's "The Gold Man" (not Goldman) at the BIS, here is Another:

Mr. Kosares,

A few thoughts for you, as the questions are asked.

Q: ** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **

A: Sir,

I would say, "Old World Order" to return. To understand/explain better: "A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed. Many thinkers of that period thought that the world was about to enter a decades-long depression as it worked to rebuild real assets lost in the conflict. It was this war that so impacted the idea of looking positively toward the future. The past ideals of building solid, enduring, long term wealth were lost in the conception of a whole generation possibly doing without! In these fertile grounds people escaped reality with the New Idea of long term debt, being held as a money asset. Yes, here was born the American Experience that comes to maturity today.

New world order, regionalism and tribalism are but modern phrases that denote "group retreat to avoid paying up". The worldwide currency system is truly a reflection of an economy built from war, using the American Experience, the US$ and the debt that it represents. But, for the American dollar to continue as the representative of the global financial system, in the form of being the reserve currency, maturing generations of all countries must accept it, and the tax on real production it clearly imposes! In the very same mindset that people buy the best value for the lowest price (Japanese cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal. And because we are speaking of currencies here, the transition will be brutal!


Q: **One other item you might clarify for me is "Who is really behind BIS?**

A: Perhaps, "who control them"?

Q: **The Swiss?

A: Yes.

Q: **The eurocentral banks?

A: Yes.

Q: **Who does BIS really represent?

A: "old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".

Cheers, J.R.

And Y said...

I knew you'd extend my comment, J.R. Thanks! Europe wants peace.

JR said...

Small world, I saw them at this one!

Anonymous said...

Can anyone explain the following to me?

Apparently, the debt reduction for Greece will be 50% on all issued bonds. But it will not be a default, but rather the big banks have agreed to voluntarily accept this cut. Apparently, the ISDA has already confirmed that this will not be counted as a credit event and therefore not trigger any payouts on CDSs.

What I don't understand is the following. As I understood the discussions, it was the ECB that desperately wanted to avoid a credit event. They announced that if Greek was reated 'D' (default) or 'SD' (selective default), they would no longer accept Greek government bonds as repo collateral, thus basically sending all Greek banks into bankruptcy. Nevertheless, they have always accepted Greek government bonds as collateral before, regardless of whether they were 'A-' or 'C'. So this is the first time the ECB is fussy about the official rating of their collateral (not even speaking of the actual quality).

My interpretation is that the ECB is just making up the issue with the repo collateral. It is a false pretence. What they are really trying is to prevent a credit event.

Why are they not happy to trigger the CDS payouts? This would, according to BIS estimates, lead to some $30bn+ being paid by US banks to European banks. Why are they missing the opportunity to hurt the US banks?

I have two possible leads:

1. If politicians manage to influence the ISDA and there is a de facto default, but the CDSs don't pay, then this sort of derivatives will be discredited and they will be worth a lot less in the future, simply because of the political uncertainties.

2. The debt cut is voluntary. This is a back door through which the French banks can escape. They will just try to sell the bonds in the market to someone who does not voluntarily tender them, or they don't tender them themselves. Effectively, there will be no 50% debt reduction. In January, when the deadline for exchanging the bonds approaches, it will turn out that there were too few voluntary participants. Only a few who were stupid, tendered their bonds, but the big banks didn't. The European taxpayer will pay the entire invoice. The announcement of a 50% haircut was just to placate the German taxpayers. Sarkozy is running the show - Merkel is the fool.


costata said...

Bank of America preparing for Chapter 11?

Chris Whalen writes:

To my earlier post regarding the need for a restructuring at BAC, “Housing, debt ceilings & zombie banks,” the move to put the derivatives exposures of Merrill Lynch under the lead bank could be preparatory to a Chapter 11 filing by the parent company.

The move by Fannie Mae to take a large junk of loans out of BAC, the efforts to integrate parts of Merrill Lynch into the bank units earlier this year, and now the wholesale shift of derivatives exposure all suggest a larger agenda.

costata said...

For the China watchers:

Is the real estate bubble in China collapsing?

Recent reports from the National Bureau of Statistics show that home prices have fallen up to 50% in many parts of the country in the period from July to September. But who gives a damn about government reports? The real evidence is on the ground.

Here in Shanghai, nearly 300 angry customers stormed a sales office of Longfor Properties Co Ltd after finding out that the developer had slashed prices on one of its projects by nearly 25%... practically overnight.

Incidentally, the Chinese buyers have been purchasing a significant percentage of new apartments (condos) in Sydney and Melbourne as a safe haven play in recent years.

Australia's residential RE market could follow China's in the near future. Stay tuned.

Motley Fool said...

Hey VtC

I have a different theory.

As you may know I don't ascribe to the central bankers are stupid concept.

ZH has been loudly deriding the EU for not doing basic sums, and seeing their plan is a failure.

I ask myself, if I was part of that decision making process, what would I want to achieve.

The answer I come up with is this. Obviously one cannot do too little, as that would crash the system, and lay all popular blame would shift to the EU for 'ending the world'.

On the other hand you do not want to do too much in terms of bailouts, since it is essentially money thrown away.

I think what they have done is tried for the cliff edge. I suspect they have gotten all possible data to decide how little they can get away with, to a) not crash the system, and b) give them some time and 'fix' Europe so the focus can shift to the USA again.

Whether they succeed remains to be seen. :)


@mortymer001 said...

Lorenzo Bini Smaghi: The European debt crisis

"...They may sense this risk only when
contagion is widespread, and markets have become extremely tense, but at that point the so called bazooka may no longer be sufficient to restore stability. In other words, the less
taxpayers’ money you spend at the start of the contagion, the more taxpayers’ money you may ultimately have to spend to avoid serious financial disruption..."

"...Well-meaning actions, undesirable consequences
When a debtor cannot repay his debts on time, several solutions are possible. They depend on the balance of power between creditor and debtor and on the legal regime. In a setting where the creditor prevails, he will take the debtor to court and be reimbursed as much as possible, even through the liquidation of existing collateral, if necessary. But in a setting where the debtor prevails, he will pay back only part of the debt and the burden will be on the 4 BIS central bankers’ speeches
creditor who made the bad investment decision in the first place. A pragmatic solution is probably for the creditor to assess the ability and willingness of the debtor to pay. If the latter is solvent and has only a liquidity problem, it will be in the creditor’s own interest to lengthen the maturity of the loan and eventually grant the debtor conditions that would enable him to repay the loan over time. This pragmatic solution is the one followed internationally – in particular by the IMF – when countries get into trouble and lose market access. It is the solution which was used for Mexico in 1995, for Korea and other Asian countries in 1997, for Brazil in 1998 and in many other cases. Fund conditionality makes it possible to minimise moral hazard, as confirmed by the fact that countries do not relish applying for IMF money...."

Indenture said...

"This is a hologram wrapped in a chimera inserted into an illusion." Max Keiser on creating more debt to somehow save bad debt.

sean said...

Some Interesting comments from Hugo Salinas Price while otherwise talking his book. It's great when commentators, trying to push a particular view, end up providing evidence to support another ! Hehe..

zabba said...

Hello Susan,
Physical only for me. I took the tax hit a couple years ago when I cashed out of my traditional retirement accounts and haven't looked back.
I imagine that if my exposure to gold was ONLY through an IRA account then I wouldn't be sleeping as 'well' as I do now...
Who knows what the world will look like after the fall of the $IMFS (our paradigm). I want my gold to be 'handy' as much as my shovels, seeds and stored food...

J said...

Trying to use a tablet on a horrible wifi connection. Copy paste not so easy

Headline of interest

china eyes creation of asean bank

DP said...

RE: J Reuters: China eyes creation of ASEAN Bank

JR said...

Hi Susan,

Not to suggest the below is directly relevant, but its illustrative of the sentiment expressed by Blondie in the first comment to this post, in which he wrote:

"Whether or not GLD have any physical gold is beside the point. What they mean, Clyde, is that when you own GLD, do you own any gold?"


Owner of South Florida gold firms admits to fraud

"FORT LAUDERDALE — The founder of several South Florida precious metals firms pleaded guilty Friday to fraud charges as he aids federal investigators delving into the dark corners of what had been a largely unregulated niche of the precious metals industry.

Jamie Campany, 47, admitted misappropriating the money of clients who thought they were buying gold and other precious metals that would be stored at secured locations. When the investment scheme collapsed in December 2009, more than 1,400 investors were out at least $29.5 million, according to court records....

As part of his plea agreement, Campany acknowledged that he took Global Bullion Exchange customers' money with no intent to ever buy the promised precious metals...

The assets of Kastle & Hawke Inc., a Fort Lauderdale precious metals firm, were frozen after federal regulators accused the business of misappropriating $319,000 of customers' funds for such things as rent and groceries...

The operator of Bullion Trading Group — with offices in West Palm Beach and Stuart — was sentenced to 3 1/2 years in federal prison. Christopher Kertatos, of Jupiter, admitted $1.6 million of clients' money was never used to buy metals, but covered the personal expenses of him and his co-defendants.

Many of the firms offer clients a chance to buy precious metals and have them delivered to their homes or stored in a secured location. Most choose storage..."


FOFOA from "Treasure Chest 2 – Game Changer" on GBI

"I have no stake in this company, I have not been paid, and I will not be buying gold through GBI myself. I still recommend taking delivery and keeping your physical in your possession (or at least under your immediate control), but I do understand that this is not always the most practical advice for some of my HNW readers, nor is it practical for some types of funds under various restrictions. So I'm happy to announce that I have finally come across an alternative that I believe rises above the rest in terms of being "transition-friendly".

What do I mean by that? Well, if you take the time to really understand Freegold-RPG, what I write about here, you'll know that getting there consists of three phases: a stasis followed by a punctuation followed by a new stasis. And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time. I'm not going to say much more about it here. But as ANOTHER would say, think long and hard on this.


JR said...


Freegold Foundations

"If there is ever confusion surrounding "the price of gold" (**which there will be, see below), then that fee will be where it is reflected. These conversion fees could go astronomically high, and if you refuse to pay them, then your only option may be to sell your shares at the going share price for cash and to buy your physical elsewhere. This is where shifting to a Freegold perspective is helpful in assessing the risks.

This could potentially apply to all unallocated pool accounts, even ones that are fully reserved. This is where trust comes in. How much do you trust your debtor (remember, you are the creditor) to do the right thing, when doing something legal but not quite right could result in a huge Freegold windfall for your debtor?

This is where I have written in the past on this blog that if the potential windfall is big enough, I wouldn't even trust my own sister with such a temptation, let alone a stranger, a corporation, a bank or a government operation.

Anonymous said...

You might be interested in the following back of the envelope calculation why it makes sense for China to support the status quo, rather than switching from the dollar to gold entirely.

Chinese GDP is $5900bn or about 10% of the world. New mine supply of gold is 2600 tonnes. The Chinese capture their domestic mine production of just over 300 tonnes, and so they get a bit more than 10% of the world's annually mined gold. In summary, they receive their share of the gold.

Their trade surplus is roughly $15bn per month or $180bn per year. At a freegold price of 55000$ per ounce, this would be just over 100 tonnes per year.

So the question is whether under the current system, they can still get 100 tonnes per year, i.e. exchange about $5.5bn of their annual $180bn trade surplus for gold at the London price.

That seems plausible, and so it makes no sense (yet) to abandon the dollar. The fact that LBMA gold is on sale trumps everything else. Isn't this nice of the British? Further, as they not only have their 100 tonnes annually, but all these trillion dollars, they have quite some diplomatic clout in all sorts of negotiations with the US.

Plus, finally, when the dollar is abandoned, they would not be able to sustain their trade surplus anymore. So even under freegold, the 100 tonnes annually is sort of a theoretical number.


ampmfix said...

I have inspected and read about many gold funds that looked trustable. Could anybody knowledgeable about those take a look at this one? it seems to me the safest (the metal IS there, no swaps, loans etc... and not on the bank's balance sheet, prospectus seems straightforward compared to GLD!). The bank behind is one of the most serious private banks in Switzerland. The shares are currency hedged to protect the euro, chf or pound investors against currency divergences wrt the dollar.

If you look at the share price evolution in the last year wrt to the $ price of gold it does deliver an additional bonus % increase.

I have talked several times to fund manager Stephan Mueller and he has been clear and helpful.

If you didn't know it maybe it will be a good option to some of you?

Thank you in advance for your opinions.

JR said...

Hi Victor,

Thanks for your thought-provoking post about China - I really admire your ability and willingness to be open-minded and think outside of the box, like in those comments about China. You wondered:

"So the question is whether under the current system, they can still get 100 tonnes per year, i.e. exchange about $5.5bn of their annual $180bn trade surplus for gold at the London price."


I don't think the LBMA has been a source for physical since the early 2000s, and in terms of being a real big source for CBs, Big Trader left earlier than that. Another commented in 1998 that the LBMA reflected currency looking to convert to gold that was stuck in paper with no way out.

Date: Sat Feb 14 1998 19:10

"This is the way for you to see this modern gold market:

"Today, the paper gold market only affects the physical as the price is pushed down! It is the physical market that destroys the paper gold as price rises. In a falling market, paper can be settled in physical gold or cash! In a limit up market, paper can only be settled in more paper or cash!"

It is of this knowledge that wealthy ones and some CBs are taking in physical gold.

Look to LBMA, for currency looking for gold! Compare the Comex average open interest with it's average daily trading volume. Now use average daily trading volume at LBMA and convert to open interest in London, using comex ratio. Here you will find "real currency" in "paid for" gold derivatives ( not futures ) ! This money is now looking to convert to physical! It is caught in this paper with no way out! Know that this amount covers not CB gold moved by big trader! That wealth is safe, as it is for the good of all in those countries!"


We've been in an up market since 2002, so it appears paper could only be converted into more paper or cash since at least then:

Forum 1600
Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years."

Michael H: "Who says that events since 2001 haven't played out as A/FOA expected?"

Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600"


JR said...


Date: Sat Nov 01 1997 21:35

"One more thing, Big trader left HK some time ago and is now in a waiting game."

I believe Big Trader is how Asia got its gold, and that activity effectively ended the LBMA as a meaningful source, hence Big Trader was gone by 1997.

Date: Sat Nov 01 1997 22:43

"Asia put an end to a sweet deal for the West! From the early 90s it was working very well. But now:

The problem with gold physical supply is very real indeed! But, there is no way that the CBs will continue to sell off an asset for it's commodity price that has many times more value as money! The talk of sales will continue for years but the real act may come to a close very soon as they try to take the LBMA off the supply hook by offering "gray paper" deals.

If they are not buying it, then: The falling markets worldwide are an early warning that the gold for oil deals are coming undone! As the big players are now heading for the exits in anticipation of exploding oil prices, the selling pressure from the CBs will quickly come off gold. The end of a parallel gold market pricing structure will leave many, many players holding nothing at all!"


Indeed, consider:

Date: Sat Jan 10 1998 23:49

How much paper GOLD is out there ready to be squeezed?

Over 14,000 tons.


In December 1997, the month preceding that comment, the LBMA clearing statistics indicate 43.7 million ounces was the average daily turnover. Since @ 2000, this figure has largely hovered around 20 million ounces, or basically half.


So can China still get 100 tonnes a year? Perhaps not.

That's my 2 cents.

Best to you Victor,

Cheers, J.R.

Diamond Jack said...

FOFOA twitters while Ireland burns, or

Fungold is coming, Fungold is coming!

Last week Irish authorities arrested a man for arson, claiming his negligence caused a row of houses fire damage. The story for the press was he left unattended a pile of waste, including his own on a radiator. This somehow caused a block of homes to alight. Also for the press was this tidbit, the man was trying to turn this crap into gold. Three months in the pokey.

What an odd story. Nothing in this makes sense, on the face of it, anyway. Fortunately I have experience reading the American press so I'm pretty sure this incident is a flag warning the approaching Freegold.

Who among us has not had the occasion to leave a pile of feces on a radiator for extended periods? Did anything burn? No, of course not. More than likely the authorities created the fire either by design or incompetence. My guess is he was sumgling black gold, just letting it dry before he could pan the gold out.

Nonetheless, this story serves as a warning to those who attempt to extract gold from whatever source, be it seawater, hard rock or reclamation from hiding.

When we see the authorities go apeshit over gold, we know our time approaches,
Thus spoke FOFOA (paraphrased)

Motley Fool said...

Hmm Jack

Well. If he insurance paid out wouldn't he have turned crap into gold? Or at least had the option to do so?

Diamond Jack said...

My question is, where is the gold?

Don't think insurance pays off arsonists.

JR said...

As I understand it, Brown's Bottom was an accounting transaction where prior gold leased by the BOE was recognized as a "sale" because it wasn't gonna be returned, effectively also an acknowledgment that the BOE's support for the paper gold market had really ended years before.

Great comment from Jeff

"Before the BOE gold sale announcement:

Date: Sat Apr 25 1998 23:35

Gold will rise in dollar terms, many thousands even if treasury inflates currency no more. This rise in price will cost London much! You have seen the Bank of England report of gold that does not come home?

Date: Tue Apr 28 1998 16:59

Also, the Bank of England does prepare it's public for this new gold market! A market that will deny the repayment of gold loaned, at US$ prices that will keep Bullion Banks alive!

after the announcement:

FOA (5/7/99; 8:09:11MDT - Msg ID:5699)
BOE gold sale!!
A quick post, then I must go.
The decision by the UK Treasury to sell gold, points strongly towards the severe political pressures upon the IMF / Dollar Reserve factions! The "dollar reserve system" is truly in trouble. With the IMF gold sales in doubt, or delayed. And the EURO / BIS factions blocking any new gold. New gold cannot be found to maintain the backing of collateral for existing paper shorts and the massive liquidity they provide. The UK is directly in the middle of this as the LBMA would all but "disappear" if world dollar liquidity were to shrink from a higher gold price!"


As Another noted back in November 1997 (quoted above)

"The problem with gold physical supply is very real indeed! But, there is no way that the CBs will continue to sell off an asset for it's commodity price that has many times more value as money! The talk of sales will continue for years but the real act may come to a close very soon as they try to take the LBMA off the supply hook by offering "gray paper" deals."

Yeah, I think the LBMA has been done as a source of real physical for well over a decade.


We know the Euro area stopped supporting the dollar trade deficient in early 2000s upon the Euro launch, and that China picked it up where they left off in terms of supporting the US trade deficit. We also know China got entry into the WTO around the same time it picked up the support for the dollar trade deficit. We also know China is buying/hoarding all kinds a industrial metals, is buying up property/investing lots overseas, and paper gold too - for them there is probably utility in holding paper gold (not that they can participate in the revaluation by converting it to physical, but for a giant like China paper probably has some utility as a forex hedge as we move into Freegold).

Indeed, we see this as well in the Gulf/Oil states, were reports and statements suggest they are not buying gold (ala this: thanks ampmfix) and who we have seen flex a lot more "consumption" spending in recent years, be it conspicuous consumption ala Dubai or buying international prestige ala big soccer clubs like PSG or saving my favorite English club from the horror of Thaksin Shinawatra - GOGOGOGOGOGO 6!!!!!!

Chhers, J.R.

Anonymous said...


I don't think the LBMA has been a source for physical since the early 2000s,

Perhaps Bron Suchecki, if he is reading this, can help us with this one.

As I understand Another, between roughly 1990-1997, a lot of privately held gold was either sold into the market or switched from allocated to unallocated. I know that, for example, most private client portfolios in Switzerland (this means wealthy people from around the world) had their gold allocation drastically reduced or removed.

After the LBMA banks blew up in 1997-2001, this source probably disappeared. First, the weak hands had already sold and, second, prices have been continually rising since 2003.

But still a good share of the global mine and recycling supply goes OTC through the banks. How much? I have to guess, perhaps 1500 tonnes of the annual 2600? What do people here think?

Some figures I remember are these: In 2010 there were about 90 tonnes of retail gold (coins and bars up to 1kg) sold in North America and about 220 tonnes in Europe. Also, a good part of the jewelry gold might be sourced from the banks OTC. How much? There is still a good amount of metal that goes through the banks, even if it is way less than the conjectured 14000 tonnes in a 5-7 year period.

The question is whether it is realistic that China can still get 100 tonnes at the London price or not. If they just compete with the 300 tonnes of retail gold that definitely go though the system, why not?


JR said...

Yeah, I second that and would love to hear what bron thinks too!

Jeff said...


GDP is a bad yardstick to measure China.

FOA: ORO, the GDP is one of the great deceivers in the Fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavours. Yet, throughout this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing...

The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality". The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. A currency run induced by an IMF stalemate would qualify as just such a function change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!

The GDP has been the relative gauge to mark all other measurements against. Even so it's numbers reflect little more that the result of an "expanding fiat money supply". Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.

FOFOA on China: ...China is already doing this by encouraging its people to buy the physical reference point of value itself. By buying physical gold, Chinese savings don't raise the current account surplus, they LOWER it. It's still very real savings, but it acts like consumption on the balance Pettis describes. More correctly, his "accounting identity" should read, "current account surplus is equal to non-gold monetary savings less investment." Or stated another way, "paper savings = production – consumption (including physical gold purchases)." And surprise-surprise, China is apparently already ahead of the game.

By encouraging savings in gold, this raises demand for gold inside China and uses up some of the dollars that would have otherwise been recycled back to be borrowed and spent by the US Treasury. In other words, every ounce of gold that flows into China today represents $1,430 that Bernanke will have to print via QE rather than borrowing from China.

All quotes from Reference Point Revolution.

Aiionwatha's Nation said...

Personally, I don't think choice has anything to do with it in regard to China. They can lend continually to keep the paper at par or take the dilution that comes with the monetary inflation. Thinking of it from an equilibrium perspective their ability to purchase gold should be same under freegold as it is now except that they don’t have to pay a tax to uncle sam to use his dollars under freegold.

Thought this was worth a read. Notice the last sentence.

“In three paragraphs, Evans-Pritchard takes us to the heart-and-root of the problem. The EU's central bank cannot print the money necessary to defuse the rolling debt crisis. In the US, the Federal Reserve issued something like US$16 trillion in short-term loans when the markets were seizing up in early 2008. Most recently the Fed basically guaranteed something like US$75 trillion of Bank of America's bad derivatives debt. (Thanks, Merrill Lynch!)

These are admittedly huge sums. We defy anyone to visualize how much US$75 trillion is. It's like imagining infinity in our view. That's why we often write that the dollar-reserve system is dead and that it died in 2008. One cannot issue out – or even intend to issue out – such vast sums of money. Their very incomprehensibility tells the tale.

But in a sense, for the moment, such aggressive actions seem to have worked. The system, in all its chaos and ruin, staggers on. The incomprehensible amounts of money issued by central banks to stabilize it seem to have worked for the moment.

They won't for the long-term in our view but for those politicos and bankers looking for a short-term fix, throwing impossible amounts of currency at the underlying problem of over-leverage is a satisfactory answer.

This is what Evans-Pritchard is pointing out in his article. Contrast sums of US$16 trillion and US$75 trillion to the piddling euro amount of 400-plus BILLION (with a "b") that the EU has wrenched out of its member-nations after considerable wrangling. It is nothing but a penny in a pot!

Evans-Pritchard has illuminated the basic problem of these EU bailouts. In the US, the Fed can issue unlimited amounts of money; the EU Central Bank is constrained. Thus, arguments will continue over fixed amounts of bailout change when unlimited amounts are needed. "Enough" will never be enough.

That's what happens during a fiat-money collapse. Central banks must print and print until the currency is either inflated away to nothingness or a depression commences that salvages at least some of the banks within the context of the current economic structure. The EU hopes for the latter, but it doesn't currently have the power to pull it off. Only the Fed has that sort of unconstrained artillery.”

Max De Niro said...

Anyone read Jim Rickards' new book?
Fancy posting a review as viewed through a freegold lens?

I'm trying to decide whether or not to fork out the cash for it.

Susan said...

HUA and thank you for such a clear, concise, specific and complete response. What the heck was i thinking?

@mortymer001 said...

Bron Suchecki said...

Re LBMA & physical silver, the silver we get from refining is not enough so we have consistently shipped in 1000oz silver bars from London and the US and never had any problem doing so during 2008 crisis or now.

Interestingly, Warren from screwtapefiles blog has found an SLV bar in the Perth Mint's pool allocated list

I think you'll find as Warren interrogates his ETF bar list database further that a lot of bars disappear then reappear on a different ETF list, indicating that there is a pile of investor silver in London just changing ownership. However, if selling dries up then the bullion banks don't have a flow they can access.

Re LBMA & physical gold I don't have the same hard evidence for this as we don't need physical from London so haven't had the chance to seriously test them. Refining 300t a year is more than enough for supplies to our mint and the rest is sold to bullion banks and shipped by them into Asia/India. In the rare circumstance where there is little demand in Asia/India then we ship 400oz bars to London. However, I don't think the situation is much different than silver and the ETF bar list database should provide some interesting insights into the activity of London gold.

Bron Suchecki said...

Apologies to Canadians - we didn't want to just break the record but smash it.

@mortymer001 said...

Via NNW:

Michael Pettis Talks China

Really as S.N. puts it: "A must listen"

JoyOfLearning said...

:)) the beginning of that talk feels like Mises reincarnated and decided to focus more on examples than theory this time around :))
Great link! thank you!

Gary Morgan said...

I finally took delivery of my first physical gold on Wednesday, an exciting day. Do/did any of you guys have your gold tested for authenticity?

Mine was from a reputable dealer that only uses LBMA supply. The weight (1 ounce ingots) felt right. I wasn't planning to get it tested.

I have decided to store mine in a privately owned vault, handy to the UK, but offshore.

I mentioned to the vault owner that I'd considered BullionVault and GoldMoney, but had decided to go for 'my own gold' stored where I choose.

He told me a story about a guy he knows who had some very large gold holdings with Bullion Vault, and had a lot of trouble when he tried to withdraw the actual gold. They tried very hard to get him to take cash, and when he insisted, he didn't receive the bars he expected (based on his holdings) he instead had to wait 6 weeks for a newly minted larger bar.

I have no way to confirm the truth or otherwise of this story, but that doubt kept me away from BV and Goldmoney.

Do they really have all of their gold, or are they just a slicker version of the ETFs?

Who knows, maybe one day we will find out though.

Max De Niro said...


You're in the UK right? How come you didn't go for sovereigns or Brittanias as they are free from capital gains tax?

Gary Morgan said...

Max, I did not know that.

That's ruined my weekend then!

mr pinnion said...


I have had experience with goldmoney and can say i had no trouble talking delivery of physical.Two days and the bars were in my hands.After it all goes to shit or after freegold i dont know if that would be the case.I chose not to take the risk.

Also i thought after freegold there would be no tax on gold?Will there be capital gains tax or not?


Piripi said...

My view on tax of Freegold: Why Tax Freegold?

Max De Niro said...

I agree with Blondie's post-freegold tax view, but you never know when you might need to sell and you always want to minimise your tax liability - starve the beast.

Max De Niro said...


What if this time around is not "THE" transition and it turns out to be another 1980 type event?

Perhaps people might want to liquidate some gold at a very high bubble spike price and not pay tax?

I am all on board with the freegold thing, but I also think that whilst it is inevitable, it is not inevitable this time around.

The future is unknowable and the world is a crazy place, shit happens.

Perhaps there is some incredible energy revolution within the next few years causing massive growth, supporting another few thousand percent growth in the debt load and the system survives for another half century. Or perhaps something happens that nobody saw coming, something totally out of left field.

Who knows.... I think it is better to hold gold that minimises tax liability within the current system if possible.

Piripi said...


At the end of the day, after performing appropriate due diligence and pausing for appropriate due consideration, one should take whatever actions (if any) enable the best quality of sleep at night. The possibility of "something totally out of left field" should be part of this consideration.

Ultimately this is a subjective process. I call it as I see it, nothing more, nothing less. I claim no special or particular abilities or insights, unless a willingness to think for myself and accept the consequences qualifies.

Frankly I would be alarmed if everyone else saw it the same.

I'm happy to be responsible for myself and my actions, but never for the actions of others as this would make them indebted to me, and I find that to be unconscionable.

I have removed my observations of the quantum mechanics of "shit happening" from this comment to preserve the integrity of the comments section. :)

Max De Niro said...


I am planning to offload some of my gold before "THE" transition, if its purchasing power in resilient productive assets, or assets essential for living, increases significantly.

Due to the fact that despite all the circumstantial evidence so brilliantly presented here by FOFOA and others, I don't know the future, I want to ensure some gain at least, if any significant gain does indeed materialise.

Also, at freegold prices, I would still be very well off with only half the gold that I have now, so it's a no-brainer for me, not being a greedy type of fella.

I suppose one's actions are related to one's level of knowledge and certainty of the future (zero certainty of the future for me) and, as you say, what enables one to sleep at night.

Good luck to everyone.

mr pinnion said...


I dont think there will be many on this blog who ll find your ,cashing in X% of gold if the value rises enough before Freegold,comment unreasonable.

I dont think a new form of cheap energy will happen in the imediate future.I also think any even comming out of leftfield will be of the totally ungood kind that will devalue currency even faster.

The Gordian Knot of derivatives will not be solved by any conventional means.I think you ll find Freegold is the only item in the Central Bankers toolbox which is capeable of 'untying' it.


Max De Niro said...


I'm pretty much inclined to agree with you, but I'm just not willing to go all in all the way. That probably says something about my psychological make-up or my level of understanding of the world situation, or a bit of both.

Given the information and the assumptions made that form the basis of the argument for freegold, it seems fairly certain. However, the errors, normally, come from not having all the information in the beginning and hence forming the initial premises based on the incorrect perspective.

There are many very smart people in the world who do not arrive at the freegold thesis, so there is always the potential that it could be wrong.

Many people thought that the 70s was the end of the dollar. People can be very very wrong, even when they are so sure they are correct.

Max De Niro said...

I love the completeness, symmetry, fractal and holistic nature of the freegold hypothesis and I love the detailed exposition and examination by FOFOA et al here, but it is slightly unnerving as you do have to have the balls to hold all the way to the end of what would be the ultimate bull market.

That requires are rather uncommon level of understanding, conviction and courage (or faith, which I definitely don't do).

If it does happen, I whole heartedly applaud anyone that captures the maximum amount of the move possible. I doubt I will be one of those people.

mr pinnion said...


I think most of the wrong predictions in the past were made because people looked at the rules and laws in place at the time and thought they would apply in the future.Not many would have predicted the dumping of the Mark to Market accounting laws,for example.Who would have thought banks could value their assets at whatever the hell they liked?

I think this time is different because the PTB have come up against the laws of mathmatics.I m not sure who they can talk to to get those changed.


Max De Niro said...


Yes, lets hope that they don't try to beat mathematics. Totalitarianism is one way to attempt it.

I heard on the radio the leader of a very influential think tank in the UK, Chatham House, calling for martial law in Greece.

In times like these, there is always the danger that politicians who are trying to defy mathematics end up causing terrible social catastrophes.

Let's hope that freegold happens soon, or the world could become a very dangerous place.

Max De Niro said...

I think a serious and sustained attempt at financial repression will end in war.

mr pinnion said...


If productive folk cannot make a living because of all the rioting socialists ,then pray tell why should nt there be matial law?

Greeks retire earlier than most all other europeans.As far as i can tell they pay hardly any taxes.
Why should that persist?
Time for them to do their share of the graft as far as i m concerned.
Martial law= tough love.
Or maybe you think i should have to work an extra ten years past their retirement age to support their unproductive lifestyles?


Max De Niro said...


I agree that productive people should not be subsidising unproductive entitled people.

I was not making the judgement that martial law was not justified for this scenario, I was making the observation that those in charge would rather resort to repression, rather than change the system which allowed these imbalances to occur.

The longer authorities attempt to shoe-horn an entitled mass of people into a failing and distorted system, the more likely our lives will be blighted with violence.

My fear is that authorities will be unwilling to give up a system which has served them so well and will turn instead to scapegoating and violent repression, as they have done so many times throughout history, ending in total devastation for large groups of people.

The move towards freedom and the voluntary relinquishing of power by the prevailing authorities has been the exception rather than the rule throughout history.

My comment was meant as an observation of the beginning of this trend, not a defense of spoiled brats wailing for more free stuff.

J said...

ATM's enter India

An Indian company has launched what it says is the world's first "cash machine" that dispenses gold and silver coins and diamond-studded jewellery.

India firm launches gold 'cash machine'

Motley Fool said...

Thanks for the interesting snippet J.

@Ozzy : I would challenge the notion that a country has the right to spend money on what it wants and extract the repayments from their citizens via taxation. :P

mr pinnion said...

Ok, i can see my last comment came across as a tad harsh.I dont think matial law is justified to extract totally unfair levels of taxation from the population.

Sooner or later the Greeks are going to have to pull their weight.
Thats all i m saying.

Max"The longer authorities attempt to shoe-horn an entitled mass of people into a failing and distorted system, the more likely our lives will be blighted with violence."

Who are the entitled mass?

Ask yourselfs why the occupy movement is happening.Why the Greeks are rioting.
I havent seen plackards being waved that say"we demand less government jobs" .And big Gov. is whats killing economies.
All the people see is the ugly open sores of the disease,which is the fat cat bloated banking system.
But the virus circulating round the body of the country is the millions of wastefull unproductive governmen jobs.
And the people vote for the party who promises them more of the same disease.

So what do you do if the Greeks refuse to work?

Who or what is this 'country' you speak of that is spending money on what 'it' wants?
A country IS its people and gives them what they want.The Greek gov. has been spending all its/other countries peoples money on the millions of unproductive jobs .Which is what the people vote for.
But i m going over the same old ground.
The piper has to be paid.As i ve not used his servises, i de rather not pay him.


Piripi said...

"So what do you do if the Greeks [as an example of a group of net consumers]refuse to work?"

Nothing more than to personally cease enabling them yourself. Perhaps point this out to others pondering the same issue, but no more.

Sooner or later the net producers will place what remains of their wealth, their surplus value, in a vehicle from which the net consumers have no access to it.

Net consumers will then find themselves naturally compelled by their bellies if nothing else to produce more value, as the net producers will no longer be enabling freeloading.

The use of force either directly or indirectly threatened via legislation is both undesirable and unnecessary. Just a matter of time... how long will the producers enable the consumers... this is totally in the hands of the individual net producers.

In any situation, one should never try to change another but rather change oneself by ceasing to enable the other, by conducting oneself as an example to oneself, as you wish to see others behave. This is the only change it is possible to make, and the only wholesome kind of change it is ever desirable to make.

One cannot talk that which one does not walk, and when one is walking it the compulsion to talk it diminishes naturally. The walking does the talking.

"We need to be the change we wish to see in the world."


Max De Niro said...


I'm with you maaaan!

The entitled mass are those who have become used to receiving payments from the government which are not sustainable. Payments based on unsustainable debt levels.

The reason why they are rioting is because their payments are being withheld. They see this as unnacceptable, as it is technically possible to keep these payments going. Sure, it would mean leaving the euro and then continuing to issue debt which would be monetised, leading to hyperinflation, but they don't look that far. They either lack information, or they have been misinformed.

Whilst they still operate within a dishonest money system, the opacity allows room for this discontinuity between reality and expectations.

An honest money system (freegold) would make it quite clear that the funds are not available and the rioters would have no target at which to focus their anger.

A change in the system would make it quite clear that their expectations were unreasonable/unrealistic.

Gary Morgan said...

Haven't Greece been in default for 100 of the last 200 years?

Some leopards never change their spots!

Totara said...


A quick overview of the Capital Gains Tax and VAT for the UK, as they relate to gold coins, can be found here

Because HM Revenues & Customs classify sovereigns as 'currency' they are exempt from both taxes.

Here in New Zealand, any gold with >99.5% purity is exempt from Goods & Services Tax. So for example it would make more sense to buy a .9999 US 1-oz Buffalo rather than a .917 US 1-oz Eagle, where NZ Customs would add a 15% charge upon its arrival. But there is also a less well known GST exemption for 'currency' which, because of the HMRC ruling, should in theory apply to sovereigns, although I don't know of anybody who has tested that theory in practice.

Lisa said...


James Turk reviews Jim Rickards' new book, "Currency Wars", here .

The review does not have the freegold lens you were hoping for, but Turk gives it an excellent review:

"It was my good fortune to receive an advance copy of Jim Rickards' new book, “Currency Wars”. It is a great book, and I highly recommend it.....It has been said that book reviews are supposed to include something critical. Nevertheless, I have nothing negative to say about “Currency Wars”. It is a great book, and you will not be disappointed with it."

Lisa said...


My apologies, still learning how to link

Try this


or this

mr pinnion said...

I cannot pick fault in your last comment.Very well put i think.
Just got infrom a heavy night on the booze that went something like this..

So i will return to Blondies comment in the morning when my braincells are behaveing in a more sensible fashion


Phat Repat said...

Though such tactics of repression or suppression may have been effective in the past, with digital media today, such acts are easily captured to allow for subsequent review and action. The world is a different place now and any attempt to alter access to information will be seen for what it is by the masses; an obvious attempt to prevent the 'truth' from coming to light. Far too many participate in social media for that to happen (even if a false flag is staged). IMHO.

Anonymous said...


Nick Laird says:
October 30, 2011 at 4:59 am
Hi Philip
Here’s my gold Stock-To-Flow chart
With Peak Gold not far off it will presumably start to rise & rise & rise….
I expect three Gold Bulls
One for the end of the longwave – fiat/gold correction – 2013ish (bubble)
Two for the inflationary takeoff after all the fiat they invent 2020+ (grinding inflation – not hyperinflation)
Three for the Peak Gold fall-off on production 2030 onwards.
Long term bull for gold owners where new owners can only come in at huge prices.
Gold will become rare & replaced for the commoners….
Every six years more silver is produced than all the gold ever dug up in all mankind’s history.
Gold will be for the 1% & silver for the 90%
Cheers Nick

Anonymous said...

Blondie, you rock. Your thoughts are very much my thoughts too.

Piripi said...

To clarify an earlier statement, when I said above:

"Sooner or later the net producers will place what remains of their wealth, their surplus value, in a vehicle from which the net consumers have no access to it."

The vehicle I mean is any tangible asset. Obviously for those net producers of great wealth most tangible assets have diminishing marginal utility if their primary function for their owner is as a store of value, with the exception of physical gold.

Gary Morgan said...

Worth watching...James Turk interviews Adam Fergusson re hyperinflationary Germany and current problems.

ampmfix said...

This is very worrying to me:
I asked this board before how could we ascertain all the gold stock. If the total stock is 10x, 100x, ... greater than we think (170000t) shouldn't we forget about a 55000$/oz figure?

Motley Fool said...

Hey ampmfix

There are two key concepts in that article.

"If primitive panning methods were able to produce a declared total of 18 tonnes a year in 1986, then it makes a mockery of the claim that at an earlier time, when gold was in far greater abundance, the whole world was only able to produce 1.7 tonnes a year."


"The “industry estimate” of the amount of gold mined in that 5,850 years works out to be 1.7 tonnes a year. "

What it does not take into account, is earlier historical occurrence of gold, the culture in those places, and the amount of people actively doing so.

Also, here is some thoughts from FOFOA on this oft recurring subject :

Open Forum


Indenture said...

Nick: I don't think charts are going to help you find the flight path of gold. Untold numbers of (derivative) dollars can flood the market anytime the $price of gold rises to high or to fast.

ampmfix said...

Thanks MF, my apologies for making people here waste their time answering my dumb question, I read all the comments later and got satisfied more or less with Nick's answers. Cheers.

Motley Fool said...


No problem. May I suggest perhaps a cursory google search. A lot of topics have been covered over the years. :)

Something like " yamashita" yields the answers in this case.



mr pinnion said...

Hi Blondie
"Sooner or later the net producers will place what remains of their wealth, their surplus value, in a vehicle from which the net consumers have no access to it."

I think you ll find the net consumers will have access to more of the net producers assets than you realise.

As for the net producers of great wealth;there are lots i m sure.
I m also sure theres a large % of people with grest wealth that havent produced jack shit.
Which ,of course, will piss of the masses even more.

we ve seen what a week of rioting is like, before any cuts are made.

How long do we all think the chaos will last when this sytem breaks down? Six months? lol.

"Net consumers will then find themselves naturally compelled by their bellies if nothing else to produce more value, as the net producers will no longer be enabling freeloading."

No Blondie, they won t.
"Hello rioting mob, i m a net producer and i m going to keep what i earn, now go away and get a propper job" said Ozzy as he was beaten to a pulp.

"We need to be the change we wish to see in the world."

I don t remember seeing Gandhi shoot anyone.How many died in India after the brits mooved out?Millions?

I love reading your blog but when it comes to human nature, we have very different view.


Gary Morgan said...

I just started re-reading Another's thoughts, this time keeping a note of where I get to each day so as I keep on reading all of it.

I just saw a post of his that mentioned that gold was already worth (in late 1997) perhaps 1,000 times its value back then to oil producers.

I shall head off to bed tonight and dream of that Thought becoming reality!

Also, I am reading FOFOA's archives, and had to chuckle as I was reading Hyperinflation Post 3, when it referred to the metaphor of a blockage suddenly being forced through the sphincter. The main reason I laughed was I do my FOFOA archive reading on my smartphone in one particular room of the house I have to visit at least once every day. Too much detail perhaps!

Edwardo said...

Now that's what I call a coin of the realm.

mr pinnion said...

Greece should be an interesting test case for the UK and US.Things are hotting up.


KD Davis said...

The China unit of investment bank JP Morgan has won approval to become a trading member of the Shanghai Gold Exchange, the eighth foreign financial institute to obtain such membership, said the exchange on its website (

Other foreign trading members include Credit Suisse, HSBC, Standard Chartered, Bank of Nova Scotia, ANZ, United Overseas Bank and Barclays.

The pace of liberalisation in China's gold sector is closely watched by foreign players as it is regarded as a precursor to an opening up of the vibrant base metals sector, whereby foreign participation on futures trading is strictly restricted by regulators.

The Shanghai Gold Exchange is China's main precious metals bourse, trading spot gold, silver and platinum as well as spot deferred contracts in gold and silver.

S said...

Newly released documents reveal that the Central Intelligence Agency has maintained an active program of espionage against Germany in the post-Cold War era, and experts say that Germany reciprocates the ‘favor’. According to an article in the latest issue of German newsmagazine Focus, the US intelligence community, led by the CIA, has been keeping tabs on Germany’s intelligence agencies since the 1950s, and continues to do so today. The magazine’s editors say they are in possession of internal government documents, which describe constant CIA monitoring on the Bundesnachrichtendienst (BND), Germany’s main external intelligence agency. The CIA’s spying extends to Germany’s counterintelligence agency, known as the Federal Office for Protection of the Constitution (Bundesamt für Verfassungsschutz). CIA operations against the Office have reportedly included the interception of telephone calls, some of which involved high-level conversations between German and British or French intelligence officials. Focus claims that CIA spying against the BND actually intensified following German reunification in 1990, as the American agency kept tabs on German intelligence officers with former Nazi or communist past. According to one report, the CIA was able to verify that at least two BND officers with service in the Nazi SS had joined a NATO sabotage unit. The magazine spoke to an unnamed former BND counterintelligence officer, who said he was not in the least surprised by the revelations. Commenting yesterday on the Focus report, Washington-based reporter Jeff Stein argued that a little friendly spying is to be expected among allied intelligence services. The veteran intelligence correspondent spoke to an unnamed former CIA officer, who told him that the espionage between Washington and Berlin has not been “a one-way street” —the BND also spies on the CIA and other American intelligence agencies.

Gary Morgan said...

Anyone else like me a little concerned/perplexed that an ex-Goldman banker is now heading the ECB? Can anyone ever trust a squidman to do the right thing? I'd rather have Trichet any day. Time will tell.

costata said...

Don't Rely On GDP As An Economic Indicator

Quote below from JSmineset:

Economist John Williams of says the 2.5% GDP growth rate story is a sham. In his latest report, he says the economy is not growing but “sinking anew.”

Williams criticized the government numbers the day they came out last week by saying, “. . .the widely-followed gross domestic product (GDP) nonetheless remains the most-heavily-biased, the most-heavily-guessed-at, the most-heavily politicized and the most-worthless major indicator of domestic business activity.

Today’s numbers out of the Bureau of Economic Analysis are outright nonsense. Consider that latest numbers showed that the level of inflation-adjusted third-quarter 2011 GDP broke above the pre-recession high of fourth-quarter 2007: a full recovery. That is absurd.

No other major economic indicator, including payrolls, real (inflation-adjusted) retail sales, industrial production, trade deficit or housing starts is showing that.”

Analysis of GDP as an economic metric by Mark Skousen (using Austrian Business Cycle Theory (ABCT)) has indicated that GDP may have an error factor of up to 30 per cent.

One of the host of problems with GDP as an economic indicator is that it does not account for "intermediate goods" comprehensively. An example of these goods would be partially "transformed" (manufactured) goods, such as components, that are part of a final consumption product.

So why does this matter? The rule of thumb proffered by Reinhardt-Rogoff is one of metrics most often quoted in assessing if an economy is in the danger zone for sovereign debt levels. Their research pointed to debt levels over 90 per cent of GDP as putting countries at risk of default.

Another problem with GDP is that it does not make allowances for structural differences between economies. I alluded to this type of analytical flaw in this comment about Italy posted in this thread a few days ago.

M said...

@ mr opinion

""Net consumers will then find themselves naturally compelled by their bellies if nothing else to produce more value, as the net producers will no longer be enabling freeloading."

"Hello rioting mob, i m a net producer and i m going to keep what i earn, now go away and get a propper job" said Ozzy as he was beaten to a pulp.""

Net producers and net consumers are not represented by individuals per se, like you are asserting. Net producing countries or industries is more realistic.

It will also be a blessing is disguise for net consumers because they will be saved from their own stupidity. The slice of production that all the ex consumers will add will raise the standards of living for everyone.

costata said...

Gold Miner Stocks

Heads up! From our old friend Bron Suchecki of the Perth Mint. IMO this should be read by anyone who holds and/or trades gold stocks (including the links that Bron provides).

mr pinnion said...


"I think we've been through a period where too many people have been given to understand that if they have a problem, it's the government's job to cope with it. 'I have a problem, I'll get a grant.' 'I'm homeless, the government must house me.' They're casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It's our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There's no such thing as entitlement, unless someone has first met an obligation."

Prime minister Margaret Thatcher, talking to Women's Own magazine, October 31 1987

Same goes for countries.
Just a word to describe lots and lots of individuals.

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