Tuesday, April 17, 2012

Open Forum

Here's a riddle. What do Smeagol, Ragnarok, Bruce Dickinson and Samuel Taylor Coleridge all have in common?

The Rhyme of the Ancient Gold-Mariner

Written in 2004 by Smeagol (who now goes by the name Ragnarok, reads this blog, but won't participate in the comments here for the superstitious reason that every site where he comments seems to go the way of the albatross, which he then hangs around his own neck. ;)

Around the World the story had been told,
About a Race that would in time unfold,
Which would intrigue all, lofty or lowly,
With stakes higher than any in history.

The outcome would turn out to affect
Even those who didn't participate or bet.
Irresistibly altering everyone's course
In subtle or brutal ways for better or worse.

Finally the season came for which many long had yearned.
And then dawned the day on which all eyes were turned
To such a spectacle as rare as one would ever see.
Quite possibly the only of its kind to ever be.

Long in preparation with no expenses spared,
While news reporters shouted and klaxons blared,
In the morning at precisely eight-twenty on the clock,
The largest vessel the World had ever seen slid from her dock.

Christened with only the finest of Champagne
In the midst of an extravagant ad campaign,
With a thunderous wave that drenched onlookers ashore,
The Derive was launched, greater than any before.

Financed by those who had no peers,
Built by teams of respected engineers,
Underwritten by triple-A rated papers,
Her decks and bridges rose like skyscrapers.

Stronger she looked than the fortress of a treasury.
Each of her engines could power a very large city.
Her itinerary was impeccable and the menu was endless;
She would make many a tidy sum, this new empress.

One could choose to have every affair managed and let their cares go,
Or experience the thrill of risking it all in the world's largest floating casino.
Thousands boarded and the staff their merchandise stowed.
The Derive was open for business and the profits flowed.

Since she commanded resources so vast,
Against this behemoth surely no other could last.
With every option, every benefit one could describe,
What could ever compete with the great Derive?

Yet in time a glorious ship on the horizon did appear.
Old yet majestic was the Standard, proud and without fear.
Wherever and whenever her tall silver sails unfurled
She was considered the greatest ocean-going craft in the World.

Glad cries went up as the renowned Standard dropped anchor.
Trusty and secure, "Good as gold" everyone ranked her.
A boast in typical good faith her Captain did make:
"Come, Derive, we challenge you to follow in our wake!"

Then the parties commenced and everyone celebrated.
In sleepless expectation the start they anticipated,
Only to be rudely stunned awake by the news at break of day;
The great Standard had sunk, right there in the bay!

Treachery! Skullduggery! Sabotage, Cloaks and Daggers!
Conspiracy! An inquiry! yelled headlines in the papers.
But as the days passed it soon became obvious
It was unlikely that any would soon be brought to justice.

Dejected, the daily crowds of spectators milled about.
Derive remained unchallenged and many began to doubt.
"Now what? We might as well go home;
With Standard gone the Derive surely stands alone."

For the great ship Standard had been damaged beyond repair.
Indeed never would her lofty sails again embrace the air.

Meanwhile, far out on the ocean a brilliant flash of sun
Glanced from golden hulls; from the middle one,
A golden mast with yellow sail canted at a jaunty angle.
From another the legs of some of her crew did dangle.

A sleek seaworthy time-tested trimaran was she,
Skimming the sun-dappled waves like golden dolphins three.
At first few noticed the elegant ship's approach;
After all the harbor a great many and much bigger did boast.

But nimbly she wove, through and between, eventually to arrive
Right under the bow of the humongous Derive.
Her crew and captain were rugged, strong and lean as wires.
In some other tale perhaps, they might pass as miners.

"Many a thousand mile we've come to see this big pile o' ship.
I'm Captain Goldheart. Excuse me, *BAU-URR-I-I-P-P*!
But your claim to be the best we most emphatically doubt.
We're throwing down the gauntlet. Calling you out.

We've seen a few rough times, but no race we've ever lost.
I don't care how huge, how powerful or how much you cost.
Goldwing here's a four-nine ship with a mighty fine crew,
And we're just itching to trounce the likes of you!"

The multitude was bemused by Goldheart's rash bravado.
Something about the depth of passion in his voice was odd, though.
Perplexed, confused, they wondered at some hoax;
"Maybe it's someone's strange idea of a joke?"

Now Goldwing wasn't a small ship compared to some,
But when nearby the tremendous Derive did she come,
Most obvious to all was the great difference in size.
Her mast not halfway to Derive's first railing did rise.

The scene certainly didn't suggest any possibility of a race.
By now some were thinking the whole thing a disgrace.
"Give us a break!" "A trimaran?" "That design's a relic."
"Pretty, yes, but... isn't it kind of barbaric?"

Then, to the utter astonishment of all,
The Captain of Derive answered the call!

"We're going abroad no matter who you are or what you say.
You may tag along if you want, only stay out of our way!
Frankly we stand to gain whether or not a race is run.
But we like good times and speculation as much as anyone.

I bring word the Board of Directors will hand to you Derive,
Should you circle the World before us, and here return alive.
Otherwise, you must give up your antiquated ship of gold,
As our trophy to display in our Ancient Exhibits hold."

Every eye went to and fro the two ships, worlds apart.
"What say you to these terms, Captain Goldheart?"
Goldheart said nothing, carefully weighing the words.
All grew hushed, expectant; only seagulls could be heard.

Then,"You've nothing we can't get, even if we wanted it, you see.
We live life to it's fullest and make our own prosperity.
I wouldn't give anything for that, much less bet," he said.
"But if that's what you think you need then that I'll accept."

A mighty cheer went up and around the World the message ran,
And one day at noon as cannon boomed the great Race began.
All kinds of boats, from skiffs to freighters of many thousand ton,
Took to sea to see them off, even to the setting sun.

Liesurely it seemed, but never forgetting the true intent,
Around the World in fair weather and foul Derive and Goldwing went.
Occasionally lesser ships to and from Derive would ply,
Changing crew and passengers, bringing fuel and supplies.

Only rarely would anyone draw alongside Goldwing,
Save to bring news, encouragment, or perhaps trade them something.
For they were resourceful, independent and industrious.
Long ago they learned what to stow for any journey perilous.

Far too long was the Race to relate here every detail
Of the contrasts and the struggles of brute force versus sail
As each sought to divine the other's strategies,
Weaknesses, strong points, capabilities.

Making the most of breeze or calm, Goldwing expressed competence,
While Derive plowed on relentlessly, heedless of wind or currents.
Neither could gain for long a truly decisive lead;
Who the victor would eventually be was impossible to read.

Thus had they come to the most dangerous part,
The last but not the least leg of many since the start.
Ahead lay the treacherous Horn which they must round,
Then they would be homeward bound.

It had been noticed with not a little concern,
A severe storm unpredicted was brewing astern.
On all ships barometers were falling rapidly;
Dangerous weather would be upon them presently.

The wind came up hard and Goldwing made time,
Leaping easily past Derive, leaving her far behind.
For the first time some aboard Derive felt a bit seasick,
While those on Goldwing exulted in adrenaline's kick.

But like Derive the storm itself was unlike any other before.
Therefore no one really knew what it held in store.
And as the winds rose fiercer in its darkening gloom,
Goldwing's crew must trim sail and therein lay her doom.

Helpful wind had become a threat and the current only mocked -
From behind in driving rain came Derive like a juggernaut!

"Captain, it's a big storm, looks like a bad one too.
It's different than any I've ever seen before, have you?"
With easy confidence Derive's Captain reassured,
"Yes, but it matters not; by highest-rated paper we're insured."

"She's a big storm, Cap'n, an' a real blower, too.
Different, colder than any I've ever felt before, have you?"
"That's 'cause she's a perfect one." Goldheart said. "Let 'er come!"
Secure every kilogram of ballast. Pass 'round this rum."

And so it was in shrieking gale in the worst possible strait
That they went neck and neck round the Horn, there to meet their fate.
For there instead of open water an icy wall towered high;
Massive storm-carved battlements raked the ragged sky.

On Derive the sirens wailed
As her watchmen loudly hailed,


On Derive a passenger uneasily said,
"It sounds a bit worrisome, this Debt".
"Au contraire," said the waiter, "There is no need to be alarmed.
It happens all the time. Would you like your coffee warmed?"

For indeed Derive in ponderous majesty
Always rode the sea in aloof supremacy.
Aside from her impervious hull small bergs were haughtily cast,
While titanic ones with a shuddering boom were spectacularly smashed.

Indeed it had become tradition to save a souvenir
To float in a drink or ice down some beer.
In fair weather the spectacle was a popular hit;
In conditions like this none would be bothered to see it.

On Goldwing an uneasy crewman said,
"It could be the end of us, this Debt.
We're berg-side of Derive and toward it the current's driving us.
We might avoid her but not that colossus!"

Captain Goldheart considered, then wryly shook his head.
"Looks like we'll have to one-up them both instead.
The wind's across the current seventy-nine degrees."
And he charted a course for all of them to see.

Low murmurs of "That's insane!","It's suicide!".
"I'M the Captain and I'LL decide!"
bellowed Goldheart, eyes flashing under his brow.
"Trust me nevermore but trust me now!

We've all been through many a nasty blow together.
This one's a doozy but that don't mean we can't win 'er.
Just do as I say, lash you down, raise spinnaker and bide,
And get yourselves ready for one HELLUVA ride!"

In failing light and lashing rain the orders were obeyed,
While Goldwing's crew (and her captain) silently prayed.
Wet lines snapped taut singing, slipped in white-knuckled hands;
Overstressed canvas nearly ripped from its bands.

Like a golden stone from some legendary giant's sling,
Across the spindrift-blowing breakers Goldwing shot skipping.
Right into the harrowing rapidly narrowing slot she was swept,
Between imperious Derive and importunate Debt!

Through roaring twilight's last fading
Thundered the crunching shrieking grinding
Of many dreams and hopes, of life's fortunes imagined and real,
Shredding on ice that would not yield.

Over the howl of the wind, to the soaked and shaking crew,
Goldheart shouted "We're past them, we're through!"
Sail was hurriedly gathered and all was made fast;
No one spoke and finally Goldheart said at last,

"Though it mighta looked impossible back there,
I'd've never put you through that if it wasn't clear
She's a four-nine ship with a mighty fine crew;
It was a hard test and I'm very proud of you"

But upon the wind was borne many a terrible sound;
Somewhere out there the great Derive was going down.
There was nothing else those on Goldwing could do,
Except batten down for the night as heavy rain blew.

After setting a watch they slept fitfully
In their little golden boat on the vast heaving sea.
Yet the storm did abate some time in the night,
And they began a search by morning's dreary light.

"We can make room for a few, but no more",
Thought Goldheart, looking on the grey swell in horror.
"I wish that we could've saved them all,
Goldwing my love, but that's not our shot to call."

But no flag nor flare nor smoke was to be seen
Amid the endless rafts of flotsam drifting.
In the near distance the giant berg slowly rolled over,
Mindlessly drowning the scars of the deadly encounter.

"I see no lifeboats, and that's the worst.
How could they have been so-" and he cursed.
But he knew truly wherein the tragic blame did lie:
On belief, not knowledge, did the lost rely.

Out of the thousands lost in the wreck of the Derive,
Only two dozen were found, cold, exhausted and barely alive.
With gilded life-rings attached to sturdy lines
They were drawn to safety, one or two at a time.

Over the next several days the weather gradually cleared,
And towards home still far away they steered.
As those who had been rescued regained their strength,
They talked among themselves at length.

And as they discussed the events of recent days
They discovered that each of them, to lasting amaze,
In some pocket or other for luck or so they thought,
Along on the fateful trip a coin of gold had brought.

These they decided to give to Goldheart in gratitude,
For the selfless deeds of he and Goldwing's crew.
But he said, "Don't think we don't appreciate such a gesture fair.
Someday you may need them again; it's an uncertain world out there.

"Because you had that gold your fortune was such
That you were able to escape the worst of ruin's clutch.
Keep it, save it, and remember how it proved true
As things you thought secure slipped from under you."

In the weeks ahead they busied themselves learning sailing;
Life this close to the sea they found very different, yet satisfying.
"On this ship, like it or not, you're part of the crew,"
Goldheart grinned, "but you'll find it kinda grows on you."

Forever it seemed had passed when finally they returned
To the port whence they had started, and a long rest truly earned.
They were welcomed with fireworks, celebration and laughter,
Tempered somewhat by sobering tales of the incredible Derive disaster.

Everyone wanted to know and would hardly let them rest
Until they told them all about how they survived such a grueling test.
And finally after several days when the hubbub had died down,
Captain Goldheart boarded Goldwing and took a look around.

"Well, what's the damage, or dare I ask?",
Goldheart queried a crewman as he uncapped his flask.
"She's done us more than well, Cap'n, considering what we ask of her.
None the worse for a little wear and tear; a worthy credit to her Maker.

Some nicks here and there, a few good buffs and a scratch,
But we've lost the ball from the top of the mast."
"No surprise, that," Goldheart said as he took a swig and laughed.
"'Twas her last ten-thousandth, and it was made of brass!"



«Oldest   ‹Older   401 – 482 of 482
holdinmyown said...

Hello Michael H.

"So the floating-rate USTs are a way to make medium-term notes look like short-term bills, so that treasury issuance doesn't look quite so lopsided."

True, but also could this not be a response to the demand for "good collateral" within the $IMFS? If banks and financial institutions are only concerned about nominal performance this would do the trick would it not?

M said...

@ e_r

"While Fiscal policy can nudge US along the standard inflation path, I don't think that is sustainable partly because of the debt burdens all around the world."

Who would have guessed it could have lasted THIS long. These people that said it could not happen over the last couple years have won the timing debate. They deserve some credit for it.

My hands are up...I give up.. All I do is buy more gold. The DOW is at a 4 year high and Newmont mining has a P/E of 8.

Edwardo said...

Warning: Fearless prediction.

M, Don't worry (or do) about the Dow, it and the rest of the averages, are about to demonstrate once again that they offer a lousy return even nominally.

Nickelsaver said...

A tribute to the Dollar

costata said...


Thanks for the link to that FT piece on oil. I'll put my money on the extract below from the article as the explanation for the change in the paper market structure. In my words, price discovery in the oil market is corrupted. From the article you linked:

We’ve been reporting on the trend towards commodity securitisation for a while now..... banks end up holding the commodity exposure instead. In which case it makes sense that “swap dealers”are accumulating net short positions in lieu of physical traders.

We presume many of these short-hedges would be embedded directly into the securitisation deals. As in subprime securitisation, the banks are left warehousing the exposure until they can pass it on to the buyside.

This could explain why large reported inventories are appearing in bull markets (across many commodities). The inventories in question have been securitised and are not available for sale, becoming 'dark inventory‘ instead.

This we presume would also apply to oil repos, a type of funding in which oil inventory is transferred as collateral to the banks for the duration of the loan. These sorts of funding arrangements are increasingly being transacted by banks.

Phat Repat said...

The nationalization movement, first Argentina and now Bolivia, appears to be gathering steam.


I believe FOFOA (et al) have posited that, in Freegold, it is possible mining companies will be either heavily taxed or even nationalized. The more I see, the more I tend to believe nationalization will be the ultimate outcome.

And on that note, besides enjoying another shot of 25 y/o scotch whiskey, I continue to stack. If you ain't got it in your possession, you ain't got it. IMHO.

costata said...

Hi All,

I suggest you recall our recent discussions here about the growing shortage of acceptable collateral and then read this piece:


Securitization of oil was being discussed in an article Jeff linked at the end of page 2 of this thread. Apparently securitizing copper and aluminium has emerged as a way of providing collateralized credit from banks in China and this practice may have spread to the West.

I think we can draw a couple of conclusions from this. Firstly price dscovery is no longer possible for many commodities. Paper prices on exchanges like Comex and reports from the LME etcetera will tell you nothing about prices. The action will be off-market OTC and mediated by the banks who control the collateral pledged for their loans.

In the case of oil JP Morgan has acquired control of some critical infrastructure through takeovers. It's no wonder that Blythe Masters and her team are making huge profits. According to one report I saw she is on record as saying their competitors are "shit scared" of them. And so they should be IMHO.

Secondly if securitization is being applied to silver it will be much harder to detect. We won't see photographs of piles of silver being stored in the staff carparks of bonded warehouses in China like those shots of copper and aluminium in the article above.

It won't just be Comex paper silver manipulation that the silver bugs have to contend with. Securitization should allow much more effective manipulation of the physical market compared to any games in the ETF space. So this in tandem with the tools the BBs have in the paper market will support manipulation on steroids. Consequently the price of silver could go anywhere regardless of fundamentals.

So don't write off the possibility of another pump and dump in the silver market. As long as these naughty boys and girls have someone to hand off to they could well decide to push silver to levels that appear to be out of reach right now.

The manipulators can, and do, profit handsomely on the downside as well but that key area of support Martin Armstrong discussed (mid-twenties) has held firm and paper silver has only glanced at those levels since the pump and dump last year.

So FWIW, provided the wheels don't fall off, I think this silver game has at least one more innings and my gut feeling is that it will be an upside play. If fears of a "new" recession (LOL) gain traction and the industrial users go into hibernation again it will set the stage for a ramp in prices prior to the industrials return to the market to restock after the next round of QE is launched.

Anyway that's my 0.02


Jeff said...


I agree Comex is about creating price inefficiencies to be exploited by baby Blythes, not price discovery. That goes back to my earlier point; who needs Comex? If it only benefits the manipulators, IMO Comex is doomed and will be abandoned after paper gold burns.

Phat Repat said...

That would be a most welcome outcome wrt silver. The chance to re-allocate a good percentage to Au. Thanks for sharing.

Edwardo said...

Yes, they will nationalize, and as most silver is mined in Mexico and South America, one might do well, IF one wants to play the silver miners game, to, instead, accumulate physical.

Which brings me to, costata.

Excellent commentary on the machinations of evil fuck bankers with respect to "securitization"

Regarding your quote,

"As long as these naughty boys and girls have someone to hand off to they could well decide to push silver to levels that appear to be out of reach right now."

Count on it, because, if they can, they will. And who thinks anyone is standing in their way? In fact, that's probably why they are doing it so they create the conditions of an asymetric market for ridiculous profit. Who cares about the "collateral" damage. In the meantime, since this blog is, on some level, about front running. You might as well front run The Morgue.

costata said...

Interesting perspective from Hugh Hendry. (My words) In a sense these austerity programs are a kind of selective default on the citizens. Regardless of whether the promises should have been made in the first place - promises were made. Choosing not to pay is a default.


mr pinnion said...
This comment has been removed by the author.
Unknown said...

Hyperinflation is like a Christmas that is never coming. I want my Zimababwe!!

Aaron said...

Wake up Jack! Hyperinflation is nothing like Christmas. Santhara? Yeah, maybe. But definitely not Christmas. Once it hits say goodbye to your nightly trip to the corner store for a 6-pack of Tuborg (or Tuborg).

Unknown said...

What, the Bernank is not coming down the chimney with fistfuls of cash for everyone?

At this point,it seems like we are just going to muddle on forever. When does the real action start? That's what I want. The action!!

Edwardo said...

Hugh Hendry says,

"The thing that I fear is confiscation. Confiscation of my assets, confiscation of my clients' assets. I fear that this thing could get out of [control]. I think we're a year away from the French fully nationalizing their banking system...

Um, Hugh,

(With pardons to Aristotle)

Gold, get you some.

My guess is he has.

Read more: http://www.businessinsider.com/hugh-hendry-i-fear-my-assets-in-europe-will-be-confiscated-2012-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheMoneyGame+(The+Money+Game)#ixzz1tlV6RIxh

2000 Flushes said...

A little Wednesday evening comic relief, courtesy of The Atlantic. (The comments are more entertaining than the article.) Enjoy!


I guess FOFOA might as well just shut this blog down. Last one out, turn out the lights...

Wendy said...

2000 flushes, thanks for the link, it's really interesting to read the comments of those that consider themselves to be wise investors.

J said...

"The Scream" sells for $120mil.


"It took 12 nail-biting minutes and five eager bidders for Edvard Munch’s famed 1895 pastel of “The Scream” to sell for $119.9 million, becoming the world’s most expensive work of art ever to sell at auction."

Piripi said...


Gotta store all that value somewhere... plenty of gold already... The Scream looks good on the wall too.

Nickelsaver said...

At that price, "The Scream" is now a double entendre.

Aiionwatha's Nation said...

That price being 12 tr. oz. of gold. The funny thing is everyone presumes the price is paid to store current value, in reality, how else you gonna get rid of the govvies before they come for your ability to pay for stuff when uncle sam rules the transport hubs and computer terminals?Realistically, at that level its a premium piece of transportable art for TP.

Nickelsaver said...

How many oz of gold? 72,700

I'll take the gold and a print to go, ty.

Aiionwatha's Nation said...

OK, fair enough. Me too. Similar comparison.

Aiionwatha's Nation said...

Still laughing, anyone wanna talk KY Derby horses? Gold is coming soon....

costata said...

The End Of Empire?

Defense Strategic Guidance
Sustaining U.S. Global Leadership: Priorities for 21st Century Defense

(Their emphasis!)

U.S. economic and security interests are inextricably linked to developments in the arc extending from the Western Pacific and East Asia into the Indian Ocean region and South Asia, creating a mix of evolving challenges and opportunities.

Accordingly, while the U.S. military will continue to contribute to security globally, we will of necessity rebalance toward the Asia-Pacific region.

Our relationships with Asian allies and key partners are critical to the future stability and growth of the region.


Link above picked up from a post analysing the new US defense strategy (details below). The writer comments (my emphasis):

...This new position — which, as always, is more evolutionary than revolutionary — has two fundamental elements. First, there is a clear admission by the US that its defence posture must be substantially recalibrated in view of its economic circumstances.

This trimming of the sails is important. It isn’t too often that Washington officially acknowledges that it no longer has a surfeit of power and can’t be everywhere doing everything...

...Washington sought to make clear that, if necessary, the US would be content to be a Pacific power rather than a global power. This signal was directed unambiguously at China.


Pacific pivot: America’s strategic ballet
May 1st, 2012
Author: Ron Huisken, ANU - Visiting Fellow at the Strategic and Defence Studies Centre, School of International, Political and Strategic Studies, Australian National University.

J said...


Aiionwatha's Nation said...

Lots to consider on that post. Hoe strong is the bric union?

costata said...

Thanks J, interesting article.

Tommy2Tone said...

Nickelsaver said...
At that price, "The Scream" is now a double entendre.

:) I lol'd

Robert LeRoy Parker said...

Open forum question:

What are the capital gain laws regarding gold in Eurozone countries?

Yannick said...

@RLP: In France, when selling your gold, you have two choices:
- Tax of 8% on all the sell price (not only the gains)
- Tax of 20% on gains (if you can prove the price you bought), which decrements for something like 10 years to 0%. Meaning, if you sell after 5 years, it's 10% tax of the gains, after 8 years, it's 4% tax of the gains, and so on.

You choose the scheme you want when you sell.
That means that after 10 years (about it, I don't remember exactly how many years), you have no capital gain tax.

DASK said...


In Sweden, the profit (loss) is taxed as a capital gain/loss (~30%). There is however a 50000 SEK (5500 EUR) per year exemption however, so the first 5500 EUR of profit per year is exempt. You have to report it yourself.

for any other swedes here: http://www.skatteverket.se/privat/skatter/vardepapperforsakringar/andratillgangar.4.233f91f71260075abe8800099480.html

One can however, drive to Germany or anywhere else that will give you cash for it.

Germany charges as capital gains also, but only for one year after which investment gold is capital gains free

ampmfix said...

@RLP: 21% capital gain tax.

By the way, HSP also expects a "singularity" in gold: "I do have a suspicion that we may witness a singularity, an unexpected event that stampedes the private property blues into buying physical gold hand over fist and that we may see a very hefty breakout of the gold price. This can happen at any time now, it seems to me."


ampmfix said...

21% in Spain...

Anonymous said...

DASK: Don't you have to pay Swedish capital gains tax if you sell your gold in Germany? Or do you just mean that you can avoid being detected by the Skattmas that way?

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


Yep, capital gains have to be paid in theory no matter where you sell it. Who's to say what though if someone buys gold with cash in a different country? For most Europeans, a short drive or train ride..

No shortage of buyers if you simply wanted cash or equivalent goods... so many possible arbitrages across the EU that something regulatory would have to be done EU wide (globally) if there were to be a revaluation and probably in any case.

Hard to say what happens.. I am young, likely will not need to sell any gold over at minimum the next two decades so probably looking at a different world anyway. Long popcorn and enjoying the sun..

Aaron said...

Fellow Freegold Dudes and Dudettes-

The link below has absolutely nothing to do with gold or hyperinflation, but the tool this creator developed presents us with an interesting opportunity to examine a given system from the micro to the macro while considering how fractals might fit in. I spent the first few passes only zooming out -- until I realized you can also zoom in.


costata said...

Hi Aaron,

I really liked those graphics you linked. Thanks.

Financial Repression

Michael Pettis offers an interesting perspective on financial repression. Here's a link to an article by Carmen Rheinhart discussing this topic:


Rheinhart says(my emphasis):

Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers.

Now compare this to Pettis offering:

It took many years to make this point, but it has become pretty clear to everyone that financial repression is at the heart of China’s problem....In the end I suspect that financial repression will be eliminated not by an increase in nominal rates but rather by a decline in GDP growth (remember that the size of the financial repression tax is a function of the difference between nominal GDP growth and the nominal lending rate).

I'm still thinking this through but at first glance there seems to be a world of difference between these two perspectives.

Wendy said...

Thanks Aaron, your link it will amuse and entertain for hours.

Cracky, thanks for the thoughts. Sorry to hear your master has thrown you in a clostet?


costata said...

Oil Consumption

Some food for thought. I'm posting this now so that the numbers below are here in the comments ready for the next time oil comes up in the discussion.

Per capita consumption of oil in Saudi Arabia is 70 litres per day. In the US it is 9 litres per day and in Germany it is 5 litres per day. Due to high subsidies, in part, consumption is high in other oil producing states as well.

I obtained these numbers from a Jim Puplava interview with Ronald Stoeferle of the Erste Group Bank:


Compare this to approx population size.

USA 313 million
Germany 82 million
Saudi Arabia 27 million


Now let's take a look at Saudi Arabia's exports versus consumption. These numbers are a little old (01/01/11) but they will do for the purpose of discussion.

Production: 9.764 million bbl/day

Consumption: 2.430 million bbl/day

Exports in 2011 were roughly 7.334 million bbl/day. As Ronald Stoeferle points out Saudi Arabia has sustainably pumped up to 10 million bbl/day. So these numbers don't rely on their claimed capacity to pump 12.5 million bbl/day.

Let's use the mid-point between German and American per capita oil consumption as the peak number for "efficient" (LOL) use of oil - 7 litres per day. Hence Saudi Arabia has the oil consumption of a country with a mixed German-American population of 270 million.

Looked at another way if Saudi Arabia alone among oil producers was consuming only 7 litres per day it would increase their verified export capacity to 9.757 million bbl/day and their claimed capacity to 12.257 million bbl/day.

I realize that Saudi Arabia has special needs but consider the potential for substitution with gas etcetera. And the cost of retrofitting households with, say, solar and efficient appliances obtained in an oil barter deal with China compared to the kind of dysfunction we are told to expect from Peak Oil or Peak Cheap Oil.

Jeff said...

Jim Grant on the Scream: 'This is the flight of money into things from paper'.

Zebedee said...

Just saying there's quite a bit of bullion talk going on here...


Woland said...

My grandfather rode a camel. My father rode a camel. I drive
a Mercedes. (and did I mention my air conditioned palace and
fleet of private jets?) My son drives a land rover. (and did I mention
he loves to ski in the indoor domed ski slopes here) His son
will drive a land rover. (unless he is in London or Davos, in which
case it will be a Lamborghini or Ferrari) And his son will drive a
camel. (when he comes back from his many homes in Europe,
with the underground vaults filled with good delivery bars)

Motley Fool said...


70 liters per person per day? How is that even possible. :S


Anonymous said...

How much of that 'consumption' is part of the production process?

Anand Srivastava said...

MF they are probably generating electricity from oil.

DASK said...

And they desalinate much of their water.

JR said...

With domestic electricity demand rising 10% per year in Saudi Arabia, the kingdom now devours more than a quarter of its oil production—nearly three million barrels per day. International Energy Agency figures show that Saudi Arabia now consumes more oil than Germany, an industrialized country with triple the population and an economy nearly five times as large.


Saudi power-generating capacity has doubled in the past decade. Partly this is to mitigate the fearful heat: according to a report from Chatham House, a think-tank, air-conditioning units soak up half of all power generated at peak consumption periods.The second relates to economic structure. It takes energy to produce energy: pumps must be powered and vast quantities of seawater desalinated. Aramco, the Saudi state oil company, sucks up nearly 10% of the country’s energy output. Attempts to diversify the Saudi economy beyond oil, gas and petrochemicals have not gone far.The third reason for rising Gulf consumption is the inefficiency of domestic energy markets. Some 65% of Saudi electricity is generated using black gold, even as successive price shocks and the relative inefficiency of oil generation have seen it all but phased out in rich countries. Oil is used with such profligacy because domestic consumption is massively subsidised. According to the International Energy Agency, global oil subsidies added up to $192 billion in 2010. OPEC countries accounted for $121 billion of the total...Saudi Arabia is trying to develop nuclear and solar energy. But its fleet of oil-fired power stations will keep going for years. And as Mark Lewis of Deutsche Bank points out, two more big ones are now being built. On current trends the kingdom would become a net importer of oil by 2038 (unlikely though that is).


But the economist article also says :

Overall energy consumption per head, at 7.3 tonnes of oil equivalent, is roughly the same as in America (see chart), which is much richer. http://www.economist.com/node/21551484

Robert LeRoy Parker said...

Thanks to everyone who replied to my earlier question about capital gains.

I have another question now. Michael H just touched on the possibility of investors selling physical into the collapsing gold market over at the Martenson thread. I'm curious about how people think the dynamics of this might work out?

Generally, small retail would sell to a coin shop or online gold dealer but will these entities be buying in a collapsing market or will they be frozen while waiting for a bottom to develop? Should we expect to see local chains of the large banks begin to offer gold buying services because they are aware or the dichotomy of the market? And would this not signal that something is very awry?

Or is it more likely that the banks/big entities will tell gold dealers we will buy everything that comes your way while at the same time, the dealers offer nothing for sale?

There is a billion hypotheticals but I do wonder if it will even be possible for small holders to make the mistake depending on the velocity and strangeness of "day(s) X." I think perhaps it will be big money that is duped into selling right before the action starts commencing at the behest of their duplicitous advisers.

Unknown said...

I doubt you will see much physical selling into lower paper prices.

JR said...

As I wrote in a recent comment, "My scenario… ALL TRADERS dump ALL gold, paper, physical, whatever, in my scenario. It has nothing to do with insiders. It has to do with traders and weak hands." But that's a difficult concept to wrap your head around. If you'd like to try, I wrote about it in my 2010 post, The Shoeshine Boy. The point here is that the true gold thesis is not "the belief that the ranks of the fearful will grow." That is simply Warren Buffet's unfortunate misunderstanding of the gold thesis.

As I said (because ANOTHER taught me), "Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero." So you see, there doesn't need to be a stampede into today's "gold" for real, physical gold to become "priceless". ANOTHER wrote, "Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies"."

So now I'm looking only at physical gold **IN SIZE**, the kind of size that represents entities that know WHY they are holding gold (i.e., not for paper profits). And I'm wondering when physical gold will stop moving through paper currencies, at least at parity with today's "gold", the $PoG. And I think that will probably happen when the $PoG goes too low. OBA has a neat theory about that.

Look at Buffet's piece above. He's shunning bonds but keeping his cash in bills. That's what the savers are doing while they decide where to deploy that cash. All the financial advisors across the land are advising savers to hold some cash, because they just know there will be some deals soon. And for the really big money, that means T-bills, just like the $20B Berkshire is holding. And when a trade gets that crowded it chases the yield right away, which is why the T-bills are heading to sub-zero yields.

This is the rush out of future-dated debt into Here&Now cash (T-bills for the really big $$$). It's the bank run shoebox under-mattress effect en masse. This makes the dollar look (temporarily) strong and today's "gold" (the $PoG) look weak by comparison, gold bug protestations notwithstanding. So just imagine another quick run-up like July/Aug. to, say, $2,333 correlating with a big spike in the USDX/$IRX (price) and then a crash in the $PoG down to ~$1,000 or lower. How hated would today's "gold" be by the homeless savers then? That's some serious beta!

So that's why I said in the post, "ALL TRADERS dump ALL gold, paper, physical, whatever, in my scenario. It has nothing to do with insiders. It has to do with traders and weak hands." And at the same time… because the return is surprisingly shitty all of a sudden… "physical gold **IN SIZE**, the kind of size that represents entities that know WHY they are holding gold" … "stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero."

This is when the stock to flow ratio explodes to infinity and physical gold goes into hiding, when the price (the $PoG aka today's "gold") gets too low to support parity between it and "gold the wealth reserve, which means physical gold only."


Aquilus said...

Hello everyone,

I need some help with the meaning of a paragraph from FOA. It actually is in I can feel it coming...

Here is the quote (my emphasis in bold):

"The game is to let the US economy suffer from its own bloated expansion by moving slowly away from supporting foreign dollar settlement with CB storage (of dollars). This is more than enough to end the dollars timeline as we are already stretched to the leverage limit. They know that Greenspan has but one policy to use and that will be super printing. He is doing it now, right on que!"

What exactly is: "moving slowly away from supporting foreign dollar settlement with CB storage (of dollars)."?

Is this not using the dollar for settlement inter-CB (a-la recent direct non-dollar currency swaps by say China and Japan, or China and Russia)?



Motley Fool said...


I read it simply as, stop using dollars as reserve.

CB storage of dollars is using the dollar as reserve currency. So supporting "foreign dollar settlement" with 'using the dollar as reserve", is talking about countries settling trade, not involving the USA, in dollars.

Though the network effect plays a part, the invoice currency in trade matters less than what currency excess is stored in, imho.


Robert LeRoy Parker said...

Thanks for the reminder JR, but who is buying the physical that gets dumped?

Jeff said...

Charlie Munger loses it:


Edwardo said...

Yeah, The Sage of Omaha's right hand seems to have left the shores of reasoned thought behind entirely.

Someone might delicately suggest to him- not that it would do any good - that where monetary affairs are concerned, we are all in a very serious global monetary pickle, and that, as such, juxtaposing "investing" in a business to "saving" in the world's most time tested saving's asset, is, well, incredibly stupid.

In the meantime, RLP, regarding small coin and bullion shops, my admittedly limited experience with them says that they will continue to do business as long as they can obtain reliable quotes. That in itself rests on a variety of other factors that I imagine will not be cooperating when TSHTF.

FOFOA said...

Hello Aquilus,

You wrote: "What exactly is: "moving slowly away from supporting foreign dollar settlement with CB storage (of dollars)."?

Is this not using the dollar for settlement inter-CB (a-la recent direct non-dollar currency swaps by say China and Japan, or China and Russia)?"

No. It's even simpler than that! "Supporting foreign dollar settlement with CB storage" means the foreign CBs mop up the glut of homeless (outside the zone) dollars and send them home. That glut is the deficit flow of dollars (the nominal trade deficit). Without the foreign CBs mopping it up, dollar prices of foreign goods would rise very quickly because the glut is fed by an unstoppable unending flow, like a broken sewer line. Foreign CBs mop up this mess by printing their own currency to buy up all of the deficit dollars the US puts out. Then they send those dollars back to the US to be spent again while keeping a debt of the US on their balance sheet as a reserve asset. This "structural support" where foreign CBs store the glut of dollars we put out is the only thing keeping foreign goods priced in dollars, aka "foreign dollar settlement". Without that support, the unstoppable marginal (deficit) outflow of dollars from the US would cause the dollar prices of foreign goods to go berserk and foreign goods would lose their dollar price tags, aka no more foreign dollar settlement.

I will discuss this more in my next post. It's a very slow process putting a difficult post together, but hopefully I will have it up soon.


Aquilus said...


Yes, I see what you're talking about. You actually already mentioned it in one of your recent posts, "Peak Exorbitant Privilege" if I'm not mistaken.

Either way, I remember you explaining this, so thank you for pointing me in the right direction.

Thank you for your speedy help.

JR said...

Thanks for the reminder JR, but who is buying the physical that gets dumped?

A lucky few?

Its more mostly paper than is being dumped. Traders/weak hands prefer paper for leverage and trading.

The issue is not all the physical is being dumped, but a shortage of available physical at prevailing prices.

So that's why I said in the post, "ALL TRADERS dump ALL gold, paper, physical, whatever, in my scenario. It has nothing to do with insiders. It has to do with traders and weak hands." And at the same time… because the return is surprisingly shitty all of a sudden… "physical gold **IN SIZE**, the kind of size that represents entities that know WHY they are holding gold" … "stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero."

This is when the stock to flow ratio explodes to infinity and physical gold goes into hiding, when the price (the $PoG aka today's "gold") gets too low to support parity between it and "gold the wealth reserve, which means physical gold only."


JR said...


Here's some context:

Hello jaxville,

Thank you for your comment. I can confirm your observations with my own personal experience from October 2008, specifically the 9th and 10th.

Many people don't understand how a gold dealer works in a volatile market. The dealer's stock is not necessarily his own gold. In some cases it is obtained with credit. But in any case, the dealer wants to replace his stock as soon as possible after a large sale. So on busy days he will be in constant contact with his supplier locking in a price to replenish whatever he sells.

When I buy gold from my dealer, it is not the difference between what he bought that specific piece of gold for and what I paid that he calls a profit. It is the spread between what I paid and what he can lock in right after I leave.

During normal times he will often have an equal number of buyers and sellers coming into the store and will not have to call his supplier very often for quotes. But when the sellers stop coming in, then he relies heavily on whatever price his wholesale supplier is quoting him over the phone; a price that can change dramatically during a single day.

On October 9th, 2008, I remember that my dealer only had gold Eagles in stock and he would not let them go for less than $1116 because his restocking price was something like $1066 from his supplier if I recall correctly. There were several of us in there at that time, so he was not just quoting this to one sucker. Then on the next day, October 10th, 2008, he wouldn't sell his Eagles for less than $1,259. Again, there were several people in the store.

I've never seen anything like it before or since. It came completely out of the blue. On October 9th the PM gold fix was $883.50. And not only that, but it had just FALLEN $20 from the 8th! On the 10th it went back up $20 and then on Monday the 13th it dropped $70 to $831.50 and continued on down into the mid and low $700's!!

It is my suspicion that the next time this happens it will not revert back to normalcy the way it did in 2008.

February 1, 2010 2:20 PM


Robert LeRoy Parker said...

I don't know how you found that quote but either way that is an awesome story. Gracias.

FOFOA said...

Hello RLP,

You wrote: "but but but… who is buying the physical that gets dumped?"

Here's another comment I wrote a while back:

"…that GIANT sucking sound you hear when you call your dealer and mention that you have some gold for sale will be the CBs and Giants somewhere at the other end of the dealer network with their unlimited currency, their insatiable demand for gold, and their standing over-bid acting like a giant concubine sucking a golden golf ball down a tiny hose. Let's call these Giants and CBs "the buyers of last resort" for gold. Another said they stand ready to buy any and all physical gold offered for sale.

On the other hand, that sound of thousands of telephones ringing in the background, when you call your dealer to sell your silver, will be all the other shrimps placing their sell orders at the same time…"


Robert LeRoy Parker said...

Hi Fofoa,

Butt butt butt... is it not in the CBs' interest for people to keep their gold. Would no buyer of last resort result in the demoralized shrimp throwing the gold back in the shoebox.

costata said...


I'm still catching up with the latest comments so someone has probably already responded on this consumption figure of 70 litres per day in Saudi Arabia. I assume that being a per capital number it is total consumption divided by population.


FOFOA said...


Did I write CBs? Or CBs and Giants? Even if your reasoning was theoretically sound, the existence of Giant buyers invalidates it. It invalidates your reasoning for the CBs not to take the gold being offered (shrimp throwing it back in the shoebox) if someone else will take it anyway. Make sense?


costata said...


Thanks for the additional colour in this picture of Saudi energy usage and consumption.

Something else we should consider in regard to US interests and the oil shocks in the 1970s. Those price hikes in oil were a huge boost to the international coal trade as well. Over time they lifted the price of thermal coal as well as oil.

Up until that time the price of thermal coal was too low to justify the extraction and shipping costs for many deposits. Most thermal coal was (and still is) consumed locally apart from a few notable exceptions such as Australia.

As international prices go so go domestic prices absent government subsidies. There were some very big winners aside from the oil producers from that deal Kissinger struck with the Shah of Iran to hike the price of oil 400 per cent.

Of course, in addition to the impact on the energy complex the merchant bankers were making money hand over fist recycling the petrodollars.

One indicator that gives you the flavour of the boom in the 1980s is commercial RE. It took around 25 years for the price of commercial RE in Australia to eclipse the peak prices in the late 80s.

To All, Forget the conspiracy theorist's spiels and just follow the money. As Another pointed out these deals were in many ways beneficial if you look at them purely from a financial perspective. In other respects I concede they may not have been beneficial and there were winners and losers (as always) but it shouldn't be too difficult to understand the perspective of bankers and politicians toward these deals.


Tommy2Tone said...

@ RLP-
My take:

If I have all this paper to give you shrimps for your gold, would I not do that?

Robert LeRoy Parker said...

Yeah I get it.

Michael dV said...

I am at a meeting of the Club For Growth in California. The organization supports Congressional candidates who are good on the economy. They are famous for ousting Republican officeholders in 'safe' districts who do not follow low tax, pro economy policies (ie Senators and Reps who have voted for taxes or tariffs or regulation or who try to get 'their guy' a leg up on the rest of the the players in the market place. My point is this is a group who think about the economy.
Present were 2 US Senators, several House members and several writers and various candidates for office.
My take away is that this group is complete unaware of any coming default. One guy has a plan to balance the budget starting in a year and getting to positive by 2018 or so. He bases his plan on attacking the debt of 16 trillion. So on paper we can get control of the official debt...no mention of GSE debt or Medicare obligations or any other promises.
I ask a question about the possibility of hyperinflation. It was met with chuckling but one guy was almost angry like I had pissed in the punch. He said that we could solve our problems and looked at me like I was a heretic. The official answer was 'yes there is other debt out there and some folks were worried about it.
This event hosts the up and coming of the Republican Party. They are not deep insiders but they do influence a lot of people. They are the TEA party darlings and pro-libert to the man.
The idea that big trouble is near still does not register to these people. It is their belief that a 'can do' attitude and the election of the right people will fix things.
I believe this organization is great. They support good candidates in a very effective and efficient manner. I do not believe that any of them are reading ZeroHedge or any contrarian or doom and gloom sites.
When something does happen it is likely that they will be confused and not much help for a good long time. They are good honest people but simply can't or won't bring themselves to think about something so horrible. Perhaps they can't do it because they don't have a solution so they can't see the problem (if that makes sense.)
If the SHTF suddenly we are pretty much on our own and alone. Even the good guys are going to be very surprised.
This is the group that got Rand Paul elected. Jim Demint was in attendance.
My thought was that Rand Paul must be aware of the possible collapse of the dollar. If he is he isn't sharing his concerns with other top politicians in his wing. Maybe they do worry but just don't want to be laughed at like I was when the topic was broached.
I expected to have a little support on this issue when I brought it up considering the crowd. I was wrong, even these folks believe we will (magically) fix things at the last minute...because we are America and it cannot happen here.

Michael dV said...

BUT...there was one guy, who when I brought up HI, whips out 2 Zimbabwe notes for billions of Zim dollars. He got them in Zimbabwe in 2008. We both agreed that we had no real people we had met in the flesh who shared our views. We were each the first actual human contact (not internet) that shared our worries.

costata said...


Thanks for sharing those insights with us. It was very interesting.

costata said...

Russia WTO Deal

I think this is the other side of the deal emerging with the Americans that gave Russia WTO membership just before Christmas in 2011. Look at the numbers these guys are shooting for (my emphasis).


Meanwhile, Russia has also begun courting Big Oil. Vice Premier Igor Sechin, who is close to Putin and is billed as Russia's energy czar, paid his first visit to Washington last month on an investment promotion tour. A fortnight ago, Putin personally presided over the signing of a joint venture agreement with ExxonMobil estimated at half a trillion dollars through the coming three or four decades.

Having said that, Moscow places high importance on economic cooperation with China. Sino-Russian trade touched almost US$80 billion last year, showing a 42.7% year-on-year jump. During Li's visit to Moscow, the two countries signed 27 trade contracts worth $15 billion.

The energy ties spearhead China-Russia strategic cooperation and it may play an even bigger role for meeting the bilateral trade target of $100 billion in 2015 and $200 billion in 2020.

And here:

The consensus among Russian elites is that access to Western technology is the key to modernizing Russia's economy and Moscow should prioritize its partnerships with the US and Europe. Russian elites and the middle class do not regard China as a substitute to the West. Nor do they succumb to China's "soft power". Russia indeed has its definite (and valuable) uses for China, a big neighbor and an economic powerhouse.

Huge gas deals pending with Japan and China as well. Follow the money!

tintin said...

from zerohedge quoting Aitken Advisors (http://www.zerohedge.com/news/everything-you-know-about-monetary-policy-wrong-and-why-very-bad-news-europe)

Collateral is money.

•How did EMU run out of eligible collateral? Where did that Euro 14 trillion of eligible collateral go?

I suppose these people don't see the gold within the Euro system.

Tommy2Tone said...

Interesting story Michael.

I was at star wars day lunch yesterday (May the fourth be with you). 6 people mid thirties to mid fifties.
The economy comes up and one woman (we all work at higher ed) says "my husband (econ teacher) said these people just don't get it. Anyone that votes for a republican doesn't understand how bad they are for the economy"
A bazillion things ran through my head and I was about to toss something out there when my closest friend suprised the hell out of me and started agreeing with her and they went on a republican vs. democrat thing.... I just shut up and watched.
I was truly shocked. These are smart people. Good people. They know NOTHING of what's really going on. Per usual, it's broken down for/by them into a dem v. rep thing. It's a shame.
They started discussing retirement strategies and which funds they are in or may move to in order to protect their retirement income... :o

JR said...

Besides my honey who knows not of econ humors me and a couple awkward conversations with friends about why I don't want to buy a home and why I don't vote/hate politics other than for mocking, I only talk to people about it. But people no I love econ and such so they ask an it gets weird. Like they don;t argue with me but they just lose interest real quick. Meh.

Its very intellectually inaccessible, not because its hard but because our socialization/education/indoctrination and the daily media/etc bombardment of the viewpoint of the prevailing hegemony means we have to make an effort.

Freegold's not hard, its climbing out of the intellectual hole that you've been tossed into that's hard.

And that's why I love this blog, because I think about this stuff all the time and would go crazy if I didn't have an avenue to exchange ideas and thoughts.

Edwardo said...

when it came up in conversation, My central A/C man, who is a smart fellow, understood that owning physical made sense. Gold's "scorecard" was compelling. Freegold was not part of the discussion.
It didn't need to be.

Nickelsaver said...


"Those who fret about #Fed #ECB & #BOJ balance sheets miss the one clean balance sheet in the world – the #IMF. Will be used when time comes"

Can anyone explain what he's driving at?

JR said...

Rickards means this:


He is wrong, read these three comments:




Edgar said...

It is really below any decency standard to bash gold on CNBC bubble vision using antisemitism.
Charlie Munger just hit that all-time low.

So much for a "civilized discussion", huh?

enough said...

Last comment on this subject, promise........

I can't believe the lack of concern or discussion here on this subject. Doesn't an instant massive contraction of magnitude of the "physical plane" via reduced global food supply and habitable land effect hyperinflation/Freegold ?

Enough, you're crazy, surely if there was such a problem we would have heard about it on the tele?

Sen. Ron Wyden, D-Oregon -

"Fukushima spent fuel absolutely a national security issue — Radiation caused by pool failure “could reach the West Coast within days”

Type: Earthquake
2 hours ago
Magnitude: 5.2
DateTime: Saturday May 5 2012, 20:12:35 UTC
Region: Near East Coast Of Honshu, Japan
Depth: 60 km
Source: CSEM-EMSC Feed

For such bright people, it's shocking you can't see the irradiated forest through the trees...........ta ta all

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