Saturday, May 5, 2012

Inflation or Hyperinflation?

Whilst discussing the demise of the Canadian penny in front of a Congressional panel, Fed Chairman Ben Bernanke demonstrates that "transactional currency is simply a notional, purely symbolic token medium of exchange, much more replaceable, resource-efficient and environmentally friendly than mining stupid metals for stupid coins."
(NotReal News)

Remember my post around this same time last year titled Deflation or Hyperinflation? At that time, the debate between deflation and hyperinflation was all the rage, and so I wrote a post to a prominent and long-time deflationist named Rick Ackerman, who later stopped by in the comments. In fact, most of my hyperinflation posts have been written in the context of the deflationists' arguments.

I can't say that the debate has shifted from deflation to inflation over the last year, but it sure seems that the arguments coming across my desk these days are for rising inflation with the exclusion of hyperinflation. My position hasn't changed. But this does give me the opportunity to present my position against a different premise, that of inflation without currency collapse. I would guess that some of you will have a completely different view of hyperinflation by the time you finish this post. If so, please let me know in the comments.

But first I need to make it clear once again that this hyperinflation discussion is not about timing. It’s about how it all ends, and it’s better (for a saver) to be a decade too early than a minute too late. The other side (whoever it may be) often tries to make the debate about timing. It is not about timing and I don't do timing, but that doesn't mean the end is far away. If anything, it's overdue in the same way a big earthquake can be overdue. In 'Deflation or Hyperinflation?' I wrote:

The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

Here is FOA on timing, from a post in which he specifically predicted dollar "hyper price inflation":

Timing?

We, and I, as physical gold advocates, don't need timing for this position! Timing is for poor, paper traders. We are neither and our solid, long term, one call over several years to hold physical gold will confirm our reasoning. There is no stress for me to own this ancient asset as it is in a good proportion to all my other wealth.

There is no trading an economic system whose currency is ending its timeline. Smart, quick talking players will joke at our expense until fast markets and locked down paper gold positions block their "trading even" move into physical at any relative cheap price. Mine owners will see any near term profits evaporate into a government induced pricing contango that constrains stock equity with forced selling at paper gold prices.

My personal view

They will, one day in the future, helplessly watch their investments fall far behind a world free market price for physical gold. Further into the future, one day, mines will make money on the last thousand per ounce price for gold; only the first $XX,000.00 of price will not be available to them.


Yup, that was back in October of 2001. Bad timing? How have your mining stocks done lately? I know of one FOA reader who went "all in" with gold coins that year to the tune of somewhere around $400K. He had just retired from his previous life as a trader. Today his golden nest egg is worth $2 million, and he has been living off of it for most of that time! So much for bad timing, eh?

My argument for hyperinflation is FOA's argument. So you'll see me use FOA's terms. You'll see me quote a lot of FOA. And you'll see me restate the same call he made back in 2001. His call was clear and unchanging. His argument wasn't wrong then and it is even more pressing today, which I will explain. And just to be clear about FOA's call, here it is from that same post:

"While others call, once again, for a little bit of 5, 10, 15% price inflation, that lasts until the fed can once again get it under control,,,,,,,,, I call for a complete, currency killing, inflation process that runs until the dollar resembles some South American Peso!"

"Complete, currency killing" hyperinflation is a one-time event. In a moment I'll explain the reasoning behind this call and why it still stands. But first, let's take a look at a couple of the "inflation but not hyperinflation" arguments that have come into my sights.

"An Adult Approach"

In An Adult Approach – II (Defining Relative Real Value) Lee Quaintance and Paul Brodsky of QB Asset Management (or QBAMCO) laid out a nice argument for what sounds a lot like FOA's front lawn dump but without the "complete, currency killing" hyperinflation. In it, they explained that the process of "re-collateralizing unreserved credit" which began in 2008 will likely end with all of the assets backing today's bank money being replaced with new base money.

In other words, US dollar monetary base (today at around $2.6T) will be increased to cover and replace today's US bank assets (almost $20T). But they aren't predicting that the entire money supply will become base money, as happens during hyperinflation. Instead, they think that as credit money has all but been replaced with base money, "bank animal spirits will once again take over and we will have a new leveraging cycle." They provided the following conceptual illustration to help us visualize what they are projecting:


Then they ask (and answer), "Will the lines meet or cross? We don’t believe so…" I'm going to give you a longer excerpt, but I wanted to highlight this point first, because it is where my view differs from their view. The lines meeting and crossing is exactly what it looks like during hyperinflation, when bank credit disappears (because price inflation is running too hot to issue credit at any practical interest rate) and the entire money supply becomes base money in amounts which overtake the previous amount of credit money. The lines meeting and crossing could look something like this conceptual illustration (by DP):


Here is part of FOA's famous front lawn dump:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed… hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"

So their thesis is that the Fed buys almost all of today's bank assets (debt) for cash, but then during this process the banks, now almost fully reserved, start lending again and a new credit cycle begins without a systemic collapse. And what this will do to prices is deliver "a higher General Price Level" and "a CPI rate higher than the rate at which the GPL rises." I emailed with Paul about this call being much more tame than some things he has written in the past and he wrote back that he thinks my hyperinflation projection is "a very fat-tailed event" while they are "trying to be much more moderate in [their] projections."

I hope to show in this post that avoiding this "fat-tailed event" is the most unlikely scenario. It is not just about the gap between unreserved deposits and base money and bank levering/de-levering cycles. It is about a currency that has reached the end of its timeline when the removal of structural support (an FOA term) meets the largest spending/dollar-emitting machine the world has ever known. But first, here's a more complete excerpt from their paper, or you can read the whole thing at the link:

Magnitude of the Problem

Central bankers struck a match under the global economy in 1981 and it continues to burn. The match began to burn their fingers in 2008 when the process of “re-collateralizing” unreserved credit got underway.


The familiar graph above shows the increase in USD base money that began to de-lever the US banking system in 2008. Though we have written in the past about total dollar-denominated debt exceeding $50 trillion, all of that debt does not have to be paid down. (Most of it is fully-reserved because its creditors are not levered.) But there is an identifiable portion of dollar–denominated debt issued by highly levered creditors – banks.

We believe the debt-to-money gap that must and will be greatly reconciled in short order is the ratio of bank assets to the monetary base. As the graph below shows, the US Monetary Base was only 13% of US Bank Assets on December 31, 2011.The banking system is the source of unreserved credit and is on the hook to use its collective balance sheet to be the transfer mechanism for economic stimulation through monetary policy. And as they have already demonstrated repeatedly, monetary policy makers feel the need to de-lever the banking system today so it may then extend credit to the rest of the economy tomorrow.


Of course, the US banking system is not alone. According to the Financial Stability Board, worldwide bank assets (including US bank assets) were approximately $95 trillion in October 2011 (USD terms). Meanwhile the IMF reported that as of December 2010 the global supply of base money was approximately $12 trillion (USD terms). These figures put the worldwide proportion of base money-to-bank leverage roughly in line with the US.

Given: 1) the exorbitant leverage currently in the global banking system, 2) current negative real output growth in developed economies, 3) current negative real interest rates, 4) uniformly poor monetary, fiscal and demographic conditions across most developed economies, and 5) already wary populations beginning to get restless; we have difficulty imagining that global banks, labor, savers, politicians and investors will be able to endure current conditions much longer before demanding the financial reset button be pressed to complete bank de-levering.

We provide the graph below merely to make it easier to conceptualize the nature of such a de-levering, as we see it. (This is not necessarily a prediction of timing or magnitude.) The takeaway is that base money (in the form of physical currency in circulation) and bank deposits will have to rise at a much steeper rate than bank assets until the banking system is more fully reserved. (At some point we think bank animal spirits will once again take over and we will have a new leveraging cycle.)


The graph above illustrates the forces behind a high-tech jubilee. The burden of repaying past systemic debt will have been greatly reduced through base money inflation, (that shifts the GPL [General Price Level] higher, including revenues and wages), while the integrity of systemic debt remains intact (nominally). The integrity of the banking system will also remain intact, as would the creditworthiness of most debtors.

So we anticipate the sum of physical currency and bank deposits to continue to rise to stimulate nominal GDP growth and the ratio of bank credit-to-base money to contract further. Will the lines meet or cross? We don’t believe so but we do think the gap will narrow substantially before bank assets can grow materially again. Thus, we expect the rate of change of the General Price Level to equal the rate of change of the sum of physical currency and bank credit LESS some accommodation for productivity gains. It is reasonable to expect:

1) A higher General Price Level

2) A CPI rate higher than the rate at which the GPL rises

3) Levered asset inflation rates that very likely will be nominally positive but negative in GPL terms and, even more so in CPI terms

"Merely Strong Inflation"

Another "inflation but not hyperinflation" post which crossed my path the other day was Get Ready for 'Hot' Inflation by Gregor Macdonald. In it he writes:

Ideological deflationists and inflationists alike find themselves both facing the same problem. The former still carry the torch for a vicious deflationary juggernaut sure to overpower the actions of the mightiest central banks on the planet. The latter keep expecting not merely a strong inflation but a breakout of hyperinflation.

Neither has occurred, and the question is, why not?

The answer is a 'cold' inflation, marked by a steady loss of purchasing power that has progressed through Western economies, not merely over the past few years but over the past decade. Moreover, perhaps it’s also the case that complacency in the face of empirical data (heavily-manipulated, many would argue), support has grown up around ongoing “benign” inflation.

If so, Western economies face an unpriced risk now, not from spiraling deflation, nor hyperinflation, but rather from the breakout of a (merely) strong inflation.

After reading his post, I asked Gregor in a comment and a tweet:

"With our government’s budget deficit at twice the rate of the trade deficit, and with the drop-off in foreign CB support for our government debt, how can we possibly have “merely strong inflation”?"

Here was Gregor's reply:

"Because the subject is so vast, and because I'd like to make a comment that is useful, I'll just respond briefly to FOFOA on his remarks regarding my present concern for a strong inflation, and my lack of concern for a spiraling deflation or hyperinflation...

So, while there are many components required to foster/create/spark either strong inflation or hyperinflation--which have been discussed and articulated historically in the corpus of work done on the subject--there is in my opinion one factor, and one factor alone, that *must* be present in all hyperinflations. And that factor is the social, behavioral component in which the users of the currency *must* cross a tipping point where they are inclined to effectively throw the currency away, in exchange for any other good or currency, at some notable rate of speed. Without this behavioral shift, without this social decision, without the psychological change in perception that leads to this type of crowd behavior, there will be no hyperinflation.

So, you won't find me predicting USD-zone hyperinflation or even the risk of such any time soon, because the requisite social-psychological shift is a large and heavy object that needs a collapse in confidence to move from its current state of inertia.

Instead, I am genuinely concerned with a breakout of strong inflation, owing to a convergence of very large global trends: primarily the reaching of the Lewis Turning Point in non-OECD countries, and the relentless advance of resource scarcity. OECD currency users, meanwhile, from Japan to Europe to the US remain largely trapped within their currencies and their sovereign bonds, and will remain trapped in these until they aren't.

True, nothing goes on forever. Wake me when the managers of trillions of OECD pension assets panic out of their own currencies, and their own sovereign bonds, and I will finally be willing to entertain the risk of hyperinflation in OECD currency zones: EUR, JPY, USD. Perhaps this happens sooner than I anticipate. But I wager that it happens much later than most anticipate.

G"


There are three good points in Gregor's reply which I want to address, so I'll just list them out right here:

1. A psychological tipping point must be present in all hyperinflations. Me: But is this mass-psychological tipping point the cause, or simply a visible effect (symptom) that is sometimes mistaken as the cause? A loss of consciousness is also present in all deaths.

2. A social-psychological shift is a large and heavy object that needs a collapse in confidence to move from its current state of inertia. Me: Is it really so large and heavy to move? Or is it, as I wrote in this post, something that "can stop on a dime and reverse course 180 degrees overnight, from greed to fear, based on a single news item"?

3. "Wake me when the managers of trillions of OECD pension assets panic out of their own currencies, and their own sovereign bonds." Me: They may well panic out at some point, but again, will that be a cause or an effect? I will show that it is 100% effect and that, if that's what you're waiting for until you're willing to entertain the risk of hyperinflation, you will be a day late and a dollar short to make any preparations that were contingent upon entertaining the risk.

There's one other item that I want to mention because it also contributed to my decision to write this post. And that is this "no hyperinflation" wager offered up by someone in the MMT camp:

The United States will not experience hyperinflation (defined by 3 consecutive months of 6% Month over Month inflation according to the Billion Prices Project measurement of MoM inflation) from April 17th 2012 to April 17th 2017.

Many people claim the United States will experience hyperinflation, because of a massive increase in the monetary base. The monetary base has shown a huge increase as you can see at FRED under BASE, http://research.stlouisfed.org/fred2/series/BASE

The bulk of the increase in the monetary base happened in late 2008. This prediction gives nearly 9 years for hyperinflation to occur in the United States - many times any reasonable "long and variable delays" between monetary base increases and inflation could logically be linked.

Other people point to so called Quantitative Easing as a trigger for hyperinflation. The first rounds of QE happened in early 2009. This prediction gives 8 full years for the hyperinflationary impacts of QE to manifest in the United States.

Modern Monetary Realism (www.monetaryrealism.com) and Modern Monetary Theory (www.moslereconomics.com) both say there will be no hyperinflation due to the increase in the monetary base. MMR and MMT claim inflation is not likely at all. High inflation might be caused by either vastly higher energy commodity prices due to supply constraints or increases in the notional value the government pays for goods and services. The large increase in the cost of oil has not caused runaway inflation as of April 25, 2012, simply because it was not large and sustained enough. There has been no large increases in the values paid by the U.S. government through April 2012.

Since neither of these two circumstances has happened or are likely to happen in the U.S. during the next 5 years, there will be no hyperinflation in the U.S. as defined by the above prediction for the next 5 years.

Aside from the fact that it would be silly to take the hyperinflation side of a dollar-denominated bet, as I wrote in the comments, I am also not interested in taking this bet because it is a timing bet and I think that sends the wrong message. But I did want to mention it because it makes some specific points which are relevant to this post.

1. That "high inflation" might be caused by supply constraints (similar to the effect of resource scarcity which Gregor mentioned) or increases in the notional value (I think he meant price) the government pays for goods and services.

2. That because there have been no large price increases from 2008 through 4/25/2012, they are unlikely during the next five years.

I will show you that he is looking at the wrong things in saying that if base money creation in 2008 didn't cause price inflation yet, then it won't for the next five years. There are some important differences between today and 2008. For example, the federal budget deficit in 2008 was "only" $438B while the trade deficit was much larger at $698B. And in 2007 the federal budget deficit was even smaller, at 23% of the trade deficit. The 2007 budget deficit was only $162B while the trade deficit was $696B. Today that situation is reversed. So prior to 2009, the foreign sector was supporting the sum total of both the US private and government sector deficits, leaving some room for the private sector and foreign support to contract while the government sector expands. And that is exactly what happened.

Today the federal budget deficit is more than twice the trade deficit, and the foreign sector is supporting less than half while Fed printing supports the rest. Additionally, there are signs today that foreign support is waning even more. I will get to those later, but this is the very recipe for hyperinflation which FOA described, only an order of magnitude worse than in 2001 when he was writing. So anyone who wants to take that silly bet will only lose because the dollars they'll win will be virtually worthless.

A/FOA's Call

In his final month of full posts, from 10/3/01 through 11/3/01, FOA countered both the deflationists and the inflationists (who he grouped as the "hard money thinkers") in his drive to explain how the dollar reserve system will end in hyperinflation. Here's a quick sampling from that last month to show you what I mean:

FOA 10/3/01 - For decades hard money thinkers have been looking for "price inflation" to show up at a level that accurately reflects the dollar's "printing inflation". But it never happened! …

That "price inflation" never showed up because the world had to support its only money system until something could replace it. We as Americans came to think that our dollar, and its illusion of value, represented our special abilities… Oh boy,,,,,, do we have some hard financial learning to do.

FOA 10/25/01 - Somewhere in the 1970s era I was exposed to the thinking of several different deflationists. It seemed that all of their conclusions came to the same end: that dollar deflation would rule the day, no matter what... Deflation was always the final outcome.

FOA 10/3/01 - The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

FOA 10/9/01 - Dollar hyperinflation and super high gold prices are closer than many think.

FOA 11/2/01 - The evolution of Political will is now driving the dollar into an end time hyper inflation from where we will not return. That is our call. Bet your wealth on the other theorist's call if you want more of their last 30 years of hard money success.


Get the point? Good. Now one other thing is that, as I am explaining what I learned from FOA, FOA was explaining what he had learned from Another:

FOA 10/3/01 - A number of years ago, I began to learn from some smart people about the real political game at hand and how that would, one day, produce the final play in our dollar's timeline. Indeed, you are hiking that trail with us today; us meaning Euro / gold / and oil people. All of us Physical Gold Advocates that have an understanding about gold few Americans have ever been exposed to.

Now that you know the A/FOA position (hyperinflation camp, not inflation, not deflation), the A/FOA call ("hyper inflation from where we will not return. That is our call."), and the pedigree of the A/FOA message ("us meaning Euro / gold / and oil people… few Americans have ever been exposed to"), let's get on with the details.

Structural Support

FOA 10/3/01 - Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Why "structurally", why now?

For years now, "politically", the dollar system has had no support! Once again, for effect,
"Politically NO", "Structurally Yes"!

For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained… Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.


If our dollar is going to fall so fast and so far in value that it will be called "hyperinflation", then the dollar must be tremendously overvalued today, right? In fact, and these are FOA's words, "Dollars have no value at all except for our associating remembered trading value with them." A barrel of crude oil isn't worth $100 because a one hundred dollar bill has a value equal to a barrel of oil; rather we remember that a barrel of oil will trade for the same amount of natural gas that also relates to those same 100 units. Money is an associated value in our heads. It's not a physical item.

Yet for the last 30+ years, the fully fiat dollar, a purely symbolic token currency, has been behaving as if it actually is an item of value equal to the real goods and services the US has received through its perpetual trade deficit. Understanding how this was even possible is the only way to understand how it will end.

FOA 10/25/01 - I mean that our whole dollar landscape has now become just a trading asset arena: it's now evolving away from any meaningful currency use to trade for real goods. It can head in no other direction because our local economic structure, the USA economic base, cannot possibly service even a tiny fraction of the buying power currently held in dollars worldwide.

FOA 10/5/01 - 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. 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!


And here we find the key to the kingdom: "supporting foreign dollar settlement with CB storage."

All currencies have the value of whatever they can buy. In a sense, they get their value from price tags offering prices denominated in their unit. But this MoE (medium of exchange) usage demand is not enough for the dollar. It is not enough that foreign goods are priced in dollars. The dollar requires another kind of usage demand: SoV (store of value) usage.

The reason for this is simple. The US is the only originator of new dollars and the US has run an unending trade deficit for 37 years, so the US has been exporting an unending stream of dollars for 37 years. To some extent, that pool of external dollars can circulate outside of the US as long as some foreign goods, like oil, carry a dollar price tag. But that is not enough.

Without foreign CBs supporting this system of foreign dollar settlement by mopping up the unending glut of dollar emissions, the market price mechanism would collapse the US trade deficit in a heartbeat.

Now I've got to make an important point about stock and flow here. We need not be concerned about the stock of dollars held by these foreign CBs, which today stands at more than $5T. The real danger is the unstoppable flow of dollars. No one needs to dump their dollar holdings to collapse the dollar. In fact, they won't dump and I don't expect them to dump, at least not until collapse is well underway.

All they need to do is to slow down mopping up the gushing, unending flow. Here's how fragile the dollar actually is. It is supremely overvalued because its SoV arena, its "trading asset arena" as FOA termed it, simply dwarfs the MoE arena where all currencies get their value. But what threatens the dollar's massive overvaluation most clearly and presently today is only that tiny, marginal portion of the flow: the deficit portion or the unstoppable net-emission of dollars.

Trillions of dollars circulate (change hands) every day, and orders of magnitude more sit idle in investments. But the real threat to all of it is the net-emission of dollars which must be mopped up (stored) by someone. This is the structural support that holds the whole system together: foreign CBs perpetually gorging themselves on Treasuries. It's not that they might sell their stock of Treasuries. The real threat is that they might slow or stop their rate of accumulation relative to our rate of emission.

Big Danger in a Little Marginal Flow

What do I mean by "marginal flow"? Well, first there's something you need to understand about flow. Stock and flow are not directly comparable because while stock is a measure of units, flow is a measure of units per time. We can look at the ratio of stock to flow over a period of time, but I'm not even interested in that in the case of the dollar. With dollar flows, we have the prices of goods and services which are far more relevant to the marginal (deficit) flow of dollars than any measure of the total stock of dollars.

I'm also not really interested in the flow of dollars within the monetary plane of "investments". Investments within the monetary plane change price regularly, sometimes with great volatility, yet without crashing the entire global monetary and financial system. But that real stuff in the physical plane, stuff like food, energy, medicine and industrial inputs, is (remarkably) relatively stable on its dollar price tags over time (at least compared to currencies going through hyperinflation). So we don't need to picture the dollar flow as a portion of the entire dollar stock, we can instead picture it as a flow of real goods and services as long as we focus on the goods and services portion of the BOP. And we also know that government spending (the federal budget) is all on goods and services in the physical plane, not on "investments" in the monetary plane.

So what do I mean by "marginal flow"? The US is the dollar's home, its creator and its legal tender zone. Most everything here carries a dollar price tag. But the US also trades with the world outside of its own currency zone, and in so doing it emits dollars. Last year the US spent $2.66T abroad, but we also took back most of those dollars by selling our stuff abroad. In fact, we took back $2.1T of the $2.66 we sent out. So netting it out, we net-emitted $560B last year. That's 560B dollars created here in the dollar creation zone and sent out into the non-dollar (homeless dollar) zone. That's marginal (deficit) flow. But there's more.

Before I get to the "more", let's reduce this to an easier time-frame. In a stable currency (like the dollar), the prices of necessities like food, energy, medicine and industrial inputs don't change much over a one-year time period. But prices can change overnight, and that's what I'm predicting. So I'm going to start quoting these annual statistics in daily flow amounts, by dividing the annual number by 365. That, of course, includes weekends and holidays. And while our beloved monetary plane closes down for weekends and holidays, the physical plane of necessities runs 24/7.

So looking at it as a daily flow, last year the US in aggregate emitted about $7.3B per day to the world outside of its boundaries and took back in only $5.8B. So the US is a net-emitter of about $1.5B per day. But there's more. In 2009, the federal budget deficit overtook our trade deficit in dramatic fashion. As I said earlier, in 2007 the federal budget deficit was only 23% of the trade deficit. In 2008 it was 63%. And in 2009 it jumped to 367% of the trade deficit. In 2010 the federal budget deficit was 259% of the trade deficit, and in 2011 it was 232%.

You don't see this comparison very often, budget deficit to trade deficit. And the actual percentages don't really matter much. What matters is that it went over 100%. What matters is that, since 2009, the US government (USG) is a net-emitter of more dollars than the US in aggregate emits to the outside world.

Photobucket

So what? Well, the USG emits about $9.8B per day while it takes in revenue of only about $6.2B. So the USG is a net-emitter of $3.6B per day. That's the marginal flow I'm talking about. And there's big danger in that daily flow of $3.6B.

In 2008, the US in aggregate (private sector and public sector combined) net-emitted $1.9B per day to the outside world. This is like a broken water main that cannot be shut off, and must be mopped up by someone. But that year the USG only gushed $1.2B per day. So the foreign mess we created was only 63% attributable to the USG. The other 37% came from private sector deficit spending. But ever since 2008, that broken water main gushing dollars abroad is 100% attributable to the USG alone. And not only that, but it's now spilling out here at home, on our own front lawn!

The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!

Don't be fooled by the misdirection. QE, twist, whatever; it's not about interest rates or helping the economy recover. It's 100% about disguising and managing this uncontrollable, unstoppable mess. It's more like a broken sewer line than a water main now that I think about it.

Sure, the Fed needs to keep interest rates from rising. Because what happens when interest rates rise? The value of the entire $35T bond market starts to collapse and bond holders panic. The Fed doesn't want that, so don't bet on them letting interest rates rise. But as I said, I'm not worried about the stock of dollars. I'm worried about this broken sewer line we call the federal budget deficit which means no one has to sell a single bond. In fact, someone has to continuously buy $3.6B more each and every day, including weekends and holidays.

And if prices start to rise as they do in a 'hot' inflation, I propose to you that the USG will not cut back in real terms. So if prices were to rise by, say, 10%, the USG net-emittance of dollars would rise by 10% to $3.96B per day. And because the trade deficit is 100% attributable to the USG ever since 2008, the trade deficit would also rise 10% to $1.65B per day. The USG will not be outbid for goods priced in dollars. Price is what determines who gets a scarce good, and the USG will not be deprived. They even said so in a recent Executive Order! And where are goods and services prices discovered? In the minds of investors with pensions and IRAs, or at the margin where dollars flow?

"Supporting foreign dollar settlement with CB storage"

For decades up until today, foreign dollar settlement has been supported by foreign CBs storing the glut of dollars emitted by the United States, just as FOA said. And by "support", he meant keeping dollar prices stable in the face of a glut of dollars coming out of the US, but to the detriment of the living standard of their own population.

This lack of dollar price inflation to match the monetary expansion of the dollar over the last 30 years has fostered many crazy economic theories to explain how the dollar can't collapse. In fact, most all economic theories today have some explanation or another describing the miracle of the magical dollar. But what they all miss is the political component which supported the dollar for all these years by mopping up that marginal (deficit) flow.

CB storage works, surprisingly, by duplicating the glut of dollars abroad. The CB mops up the dollars and then duplicates them by sending them back to the US public and private sectors (in proportion to each sector's deficit attribution, today 100% USG, 0% private sector) so they can be spent again, and also keeping those same dollars in CB reserves as a debt of the United States. Since 2009, it's all attributable to the USG, so every day, as a billion-plus dollar glut piles up, the foreign CB sends it back to the USG and also stores it in its own vault with a new billion-plus in Treasuries.

But in order to do this, that foreign CB needs to duplicate it again in its own currency. So the foreign CB prints an amount of its own currency needed to buy up the dollar glut, thereby transferring the monetary inflation to its own population and keeping the dollar price tags from changing. No (or low) dollar price inflation. Foreign dollar settlement continues. Support!

Not understanding the political element of foreign CB support is why low dollar price inflation has confounded an entire generation of hard money thinkers. And yet, again today, having finally given in to the miracle of the magical dollar theories, they will be once again confounded as the dollar collapses in hyperinflation upon the removal of that support. But fear not. FOA and I are here to help!

FOA 10/3/01 - For decades, hard money thinkers have been looking for "price inflation" to show up at a level that accurately reflects the dollar's "printing inflation". But it never happened! Yes, we got our little 3, 4, 8 or 9% price inflation rates in nice little predictable cycles. We gasped in horror at these numbers, but these rates never came close to reflecting the total dollar expansion if, at that moment, it could actually be represented in total worldwide dollar debt. That creation of trillions and trillions of dollar equivalents should have, long ago, been reflected in a dollar goods "price inflation" that reached hyper status. But it didn't.

That "price inflation" never showed up because the world had to support its only money system until something could replace it. We, as Americans, came to think that our dollar and its illusion of value represented our special abilities; perhaps more pointedly our military and economic power. We conceived that this wonderful buying power, free of substantial goods price inflation, was our god given right; and the rest of the world could have this life, too, if they could only be as good as us! Oh boy,,,,,, do we have some hard financial learning to do.

Over the years, all this dollar creation has stored up a massive "price inflation effect" that would be set free one day. Hard money thinkers proceeded to expect this flood to arrive every few years or so; the decades passed as those expectations always failed. Gold naturally fell into this same cycle of failed expectations, as the dollar never came into its "price inflationary" demise.

A number of years ago, I began to learn from some smart people about the real political game at hand and how that would, one day, produce the final play in our dollar's timeline. Indeed, you are hiking that trail with us today; us meaning Euro / gold / and oil people. All of us Physical Gold Advocates that have an understanding about gold few Americans have ever been exposed to.

Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Why "structurally", why now?

For years now, "politically", the dollar system has had no support! Once again, for effect,
"Politically NO", "Structurally Yes"!

For another currency block to be built over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained; with its IMF agenda intact, gold polices followed and foreign central bank support all being part of that structure. Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.

Now that the Euro block is passing a point where the Euro currency is viable; this same past dollar support that built America's illusion wealth will now fall away. In its place we will see the beginnings of a currency war like no other in our time.

This very change in structural dollar support is the same change that has been impacting our fed's actions for over a year now. This change is the difference between my call for super price inflation and the endless calls past hard money thinkers have made. Their on again / off again goods "price inflation" outlook is based on the same failed analysis that expects price rises because the fed was into another "printing money faster" cycle. I point out that that cycle has come and gone many times without a price inflation anything close to our total, long term, dollar creation.

Further

To this end, I have been calling for a hyper inflation that is being set free to run as a completed Euro system alters Political perceptions and support. That price inflation will be unending and all encompassing. While others call, once again, for a little bit of 5, 10, 15% price inflation, that lasts until the fed can once again get it under control,,,,,,,,, I call for a complete, currency killing, inflation process that runs until the dollar resembles some South American Peso!

[…]

Greenspan will not embark on a dollar building policy again! Even if he changes his mind about leaving. Unlike our past inflation cycles, he has only one act to follow because he must support the internal economic dynamics of this country as its dollar falls from reserve status. There will be no inflation "cycle" on this go around. The creation of a competing Euro currency block has changed his policy dynamic.

The fed has cut rates below perceived price inflation levels already and will cut again and again; even in the face of real, published, soaring, official statistical CPI. The die has been cast and the game is in process.


That was written in October, 2001. So what happened? It's simple really. From my post, Moneyness, the black dividing line is right around October, 2001:


People like to say that A/FOA got it wrong, because the timing didn't seem to play out exactly as they inferred it would. But I would like to proffer another view. Perhaps FOA was unaware of the lengths to which the PBOC was prepared to go in supporting the dollar and the US trade deficit over the next decade.

China was admitted into the World Trade Organization on December 11, 2001, one month after these posts. And it wasn't until 2002, after FOA stopped posting, that China really began to ramp up its trade with the US and to purchase US bonds in size [mop up the deficit flow of dollars keeping dollar prices low and stable]. From '99 to '01 China's Treasury holdings were flat at around $50B, but from 2002 they began a parabolic rise that has now ended and is once again flat.

So if China has backed off from supporting the dollar today, in the same way that the European CBs had backed off right when FOA wrote these posts, well then perhaps they are more relevant today than the day they were written.
Here is Ben Bernanke from a speech in 2005 noticing the shift in dollar support from "industrial countries" (Europe) to "developing countries" (China) which took place sometime "between 1996 and 2004":

The collective current account of the industrial countries declined more than $441 billion between 1996 and 2004, implying that, of the $548 billion increase in the U.S. current account deficit, only about $106 billion was offset by increased surpluses in other industrial countries. As table 1 shows, the bulk of the increase in the U.S. current account deficit was balanced by changes in the current account positions of developing countries, which moved from a collective deficit of $90 billion to a surplus of $326 billion--a net change of $416 billion-- between 1996 and 2004.
Of course in 2005 the federal budget deficit was only $317B while the trade deficit was $708B. So the foreign sector was still supporting the sum total of the US public and private deficits by mopping up the entire glut of dollar net-emissions to the tune of $708B per year, or $1.94B per day. And this would be a good time for me to put down a common myth propagated by Ben Bernanke as well as, well, everyone else.

It is a myth that QE is a result of the Fed's concern for the economic outlook or even about keeping interest rates down. That's just what they want you to be focused on, rather than the real reason for QE. Notice that QE began at the same time as the federal budget deficit overtook and surpassed the trade deficit. Not only that, but the amount of QE matches close enough for government work the difference between the budget deficit and the trade deficit.

It is also a myth that QE is sterile money creation because (as they like to say) it is all just sitting on the banks' balance sheets as excess reserves held at the Fed rather than circulating in the economy. In fact, it is ALL circulating in the economy because the USG spends that money into the economy. Government dollar emissions simply come with bank reserves. If you don't understand this, please go back and review my banking system model in Peak Exorbitant Privilege.

So if you're watching "economic indicators" and Treasury market figures and interest rate curves trying to guess if there will be more printing, aka QE3, you should instead ask yourself if the USG will cut a quarter of all its spending habits this year, or ever. That would be roughly equivalent to cutting all of Medicare, or all of Social Security, or all of defense spending, or a third of each, just to give you an idea of how much they are printing.

What we have today, in essence – nay, in reality – is the USG running a daily deficit of $2.1B against its own economy and another $1.5B per day against the rest of the world. FOA explained that what this means in essence – in reality (when you are the printer of the global reserve currency) – is the fleecing of the standard of living of someone else:

FOA 2/26/00 - So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the worlds working poor. But this is not about to last!

FOA 3/10/00 - My point was that their actions can only be justified from a position of "buying time"… Their Central Banks support polices were a decision to waste their citizen's productive efforts in a process that held together a failing currency system.

FOA 4/19/01 - What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living… We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an overvalued dollar that we spent without the pain of work.

FOA 7/16/01 - The American dollar has bought its makers a lifestyle that is at odds with this new thrust in money use. A reserve currency today must allow its value to be set solely upon its money function [MoE arena], not its function of retaining wealth [SoV arena]. Use trends today are forcing money creation policy and money values to be determined by wealth outside the official money realm. All the while the dollar holders are fighting to stop this from happening.

FOA 7/20/01 - For years American lifestyles encouraged its political system to protect their banking /debt credibility at all costs; so we could buy others' real goods without sending real wealth to pay for it. We did this in the only way we knew how; in body, mind and spirit, our political economic purpose promoted the dollar and its debt to be as good as gold and a substitute for real wealth holdings. Even a substitute for real wealth to be held in reserve behind other currencies!

FOA 10/5/01 - Even the third world didn't want to hear it. They figured that any return to a hard money system would hark back to a time they remembered well. These guys suffered during the early century and no one was going to tell them that the gold standard wasn't at fault. The US is today, and was then, robbing them blind but the situation seemed, to them, that this new dollar standard was building them up. Looking at it all,,,,, we robbed the Japan life style standards the most. All to buy us an almost free standard and they loved it.

FOA 10/8/01 - We managed this threat with help from our Euro friends; somehow thinking they enjoyed and wanted our fleecing their lifestyle to the same degree we did it to the rest of the world. Their cooperation, we will find out, was but a structural policy that bought time; time for a dollar replacement to be made.

FOA 10/26/01 - Again; this all works as long as the world "buys into" using our dollars. As I said; an expanding fiat works to grow the economy thru expanding credit buying power because the fed can support the system with credit creation that has no "inflation premium". That lack of premium only exists as long as Americans can exchange free credit for real physical goods. Once this perception changes it's over. Once the world understands that it's not local US goods that stands behind dollar growth, but less expensive foreign goods,,,,,,,,,, the stage is set for our "supporters" to sell to themselves! Making themselves
"lifestyle rich". All they need is Another currency unit.


Here's the bottom line, and the absolute correct way to view the USG's deficit spending today. Starting in 2009, the US private sector was no longer "fleecing lifestyle" from the rest of the world through the exorbitant privilege of its currency (a privilege which began in 1922 and peaked in 2005). Beginning in 2009 the USG started fleecing lifestyle from its own economy (in addition to the rest of the world) while ironically calling it "economic stimulus". This is the meaning behind these shocking images from 2009, which I first used in my 2009 post, No Free Lunch:



Global resources are being fleeced by the USG at the rate of $1.5B per day, while American resources, above and beyond the normal "internal revenue service," are being fleeced at the rate of $2.1B per day. The foreign resource fleecing is being enabled by foreign CBs (mostly China up until recently) buying Treasuries, and the local resource fleecing is enabled mostly by QE, but also partly by your pension fund manager buying you some of those tasty yield-free Treasuries.

It is no wonder at all that the stock market is doing relatively well given the unstoppable domestic sewage – I mean dollar – leak that is the USG's deficit spending. Unfortunately (for everyone) the stock market doesn't sterilize the sewage against goods and services price inflation the way the Treasury market does. The dollars just flow right through the stock market to the sellers.

But as I wrote above, it doesn't really matter what percentage of the trade deficit the budget deficit is, just that it's over 100%. As long as it's over 100%, the entire trade deficit is 100% nominally attributable to the USG, which means if we get some "hot inflation" either the USG will have to give up some of its consumption in real terms, or else defend its "lifestyle" with the printing press, right there at the margin where prices are discovered.

I don't expect this inflation to originate inside the US. In fact, as long as foreign CBs are structurally supporting the dollar reserve system by mopping up our $1.5B per day outflow, the American people are getting a pretty good deal on their own fleecing. I mean, even though we are being fleeced of $2.1B per day in "lifestyle" by our own government (in addition to taxes), for that fleecing we are actually receiving $3.6B per day back in government. ROI! So even though government is terribly wasteful, our wasteful government is still being subsidized by y'all! "Life is so fucking good I can taste it in my spit."

And because the US private sector deficit spending in aggregate has contracted to well below zero since 2008, I have a hunch that a lot of the fat has been cut out of the "basket" of US imports. The trade deficit has dropped from $698B in both 2007 and 2008 to $500B in 2010 and $560B in 2011. I bet all of that ~$130B drop has come from private sector consumption reduction (private sector crashing its living standard). In fact, the "private sector consumption drop" is probably greater than ~$130B and the USG has made up some of it by expanding its consumption. But the USG doesn’t consume cheap consumables from Walmart. The USG consumes important stuff… stuff we generally call necessities.

Looking at the top imports from 2008 as well as the fastest growing imports of significance (say, over $5B per year at least), the top "necessities" are oil, medicinal preparations, petroleum products, coal, fertilizers and pesticides, food oils, oil field equipment, feedstuff and foodgrains, unmanufactured steelmaking materials, industrial organic chemicals, and semifinished iron and steel.

Again, this is just a hunch, but that's probably a good list of things to watch for price increases that could quickly turn hyper when the USG refuses to be outbid… if and when the foreign CB "structural support" slows down and the rest of the world stops exporting necessities to the USG for nothing but paper that will soon be worthless. So now that we know what to watch for, let's take a look at the state of that "structural support" today.

The US Treasury puts out a list of Foreign Holders of Treasury Securities. The latest update, which was put out on April 30th, covers Treasury holdings through February 2012 and shows each month for a whole year, in this case beginning in February 2011. The top row is China because China has the most Treasuries. And looking across for the year we can see that China's holdings are pretty flat, except that they peaked at $1.3T in July and then dropped all the way to $1.178T in February.

It looks like Japan (line 2) really picked up the slack though, buying $205B in Treasuries from February to February. I guess we better hope that Japan keeps running a trade surplus! Oops…

Japan Swings to Trade Deficit

4/19/12—Japan swung back into a trade deficit in March as a steady rise in energy imports outweighed a rebound in automobile exports after last year's flooding in Thailand.

But fear not! Zero Hedge is on the case:

2/29/12 - Best advice: keep a track of that Chinese trade surplus. If it becomes a deficit (just like Japan did recently), that is the first signal that things are changing dramatically from an international flow of funds perspective. It also means that unless the US finds subtitute demand, most likely from within, the only remaining buyer will be the entity that already has the largest holding of US paper - the Federal Reserve.

That last year of Treasury data, from Feb. to Feb., shows that the increase in foreign Treasury holdings covered the trade deficit for that year. If we look down at the last line, grand totals, and subtract Feb. 2011's total from Feb. 2012's we come up with an increase in "structural support" of $633.3B. And if we add up the monthly trade deficit for those same months we come up with $565.5B. Once again, close enough for government work. So I guess it's a good thing someone's still propping up the dollar. But wait! Here's another one from Zero Hedge only ten days later:

China Posts Biggest Trade Deficit Since 1989

3/10/12 - In addition to all the US election year propaganda and delayed after effects of central banks injecting nearly $3 trillion in liquidity to juice up the US stock market, something far more notable yet underreported has happened in 2012: the world stopped exporting. Observe the following sequence of very recent headlines: "Japan trade deficit hits record", "Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports", "Brazil Posts First Monthly Trade Deficit in 12 Months " then of course this: "[US] Trade deficit hits 3-year record imbalance", and finally, as of late last night, we get the following stunning headline: "China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil."

[…]

China total imports and exports - whoosh:

China trade balance by region - whoosh:

China trade with the US - whoosh:

China trade with the EU - whoooooooooooooooooosh:

However, definitely no whoosh here:

Oh, and let's not forget this particular whoosh:

...Is it starting to make sense now?

You can nitpick that data all you want, but one thing is as clear as an azure sky of deepest summer. This is a very different picture from the China of 2002 embarking on a "parabolic rise" in US dollar "structural support". In fact, even though it is true that some combination of Japan, oil exporters, Caribbean banking center, Taiwan, Switzerland, Russia, Luxembourg, Belgium and Ireland (to name a few) managed to cobble together the necessary support last year, the dollar is now living off of a willy-nilly support system rather than the "structural support" it enjoyed for the last 30 or so years. If FOA was here, he'd probably say something like this:

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Of course "hot inflation" is coming! But how long will it last? How long can it last without the structural support of foreign CBs mopping up the dollars the USG will be printing in order to defend its own "lifestyle" in real terms? How far can prices rise without hitting that hyper feedback loop at the margin where prices are discovered? The USG is net-emitting $3.6B per day today, and the problem is that the USG is not an economy. It is a consumer and a printer. So the daily net-emission of global dollars is now backed, not by an economy, but by the largest consuming entity ever known to man!

Lee and Paul are correct that the commercial banking system will soon be fully reserved. But I don't think those new reserves will come directly from the Fed in exchange for bank assets. Now that the government deficit has surpassed the trade deficit, all foreign support is Treasury buying, not private sector debt like MBS. The crossing of this Rubicon means that maintaining the Treasury market takes structural precedence over all other assets. It also means that every new dollar the USG decides to spend puts new reserves into the private sector banking system, raising its ratio of reserves to deposits. So the new reserves coming into the banks will be coming from domestic USG deficit spending via QE or whatever they decide to call it next time. And I believe that those bank assets and "unreserved credit" will simply die on the vine of worthless tokens as the USG crushes its own currency defending its lifestyle.

Gregor is correct about the "benign" inflation we've had, not just for the past decade, but for the past three or four. This is what FOA was talking about. "Yes, we got our little 3, 4, 8 or 9% price inflation rates in nice little predictable cycles." But hyperinflation "never showed up because the world had to support its only money system until something could replace it." The euro was born, then came China, and my call is that hyperinflation "is now being 'structurally' set free to run."

If you print enough money, you can get the price of everything to rise. Just look at Zimbabwe if you don't believe me. But printing doesn't make all prices rise in unison. Gregor makes a good case for the "Middle Class Squeeze" combined with asset price deflation, an inflation/deflation double whammy, as well as resource scarcity-driven subsistence inflation leaving no discretionary spending room for the poor or those in developing countries. And from the "Executive Summary" of his part 2: "Rising wages in the developing world create upward price pressure everywhere globally." I agree with Gregor on all counts!

So yes, I agree with Gregor that "hot inflation" is coming and it's a real risk. But inflation generally suppresses consumption in real terms. As Gregor says, "it quickly begins to drive out spending for discretionary goods in favor of true basics." But this doesn't apply to the USG who can "spend" infinitely in extremis. Gregor concludes his part 1 with this:

The United States currently enjoys reserve currency status, which enables it to borrow cheaply, and which keeps capital circulating through our government bond markets, which are the largest in the world. Given the backdrop to our post-credit-bubble environment, it is now the consensus view that we will cut a path similar to Japan’s as we oscillate from weak growth back to the stimulative rescue policies of the Federal Reserve.

There is therefore a sense of complacency about an escalation in prices.

That highlighted portion is the premise on which virtually everyone in America is operating, without even understanding what it really means. It is the miracle of the magical dollar theories laid as the solid foundation under any and every discussion. One of my readers, Michael, a medical doctor, was attending a conservative "Tea Party-ish" meeting in California yesterday. The meeting included US Senators and Representatives, and they were totally operating on the premise of the miracle of the magical dollar theories. You can read his interesting report here.

The point is that the premise rests on 90 years of history which only makes sense if viewed properly. It rests on 50 to 60 years of political support followed by 20 years of structural support from Europe and another 8 or 9 years of structural support from China. Today both political and structural support are gone, and the "solid foundation under any and every discussion" of monetary matters in America is what I am generously terming the "willy-nilly support" of the rest of the world. In other words, we have no say in the matter. Our fate is in their hands. Which kind of renders the premise invalid, doesn't it?

I agree with Gregor that "hot inflation" is coming whether you like it or not, for all the reasons he explains and more. My only disagreement is that Congress will take it more hyper than we've seen in all of fiat history, so fast it will peel the skin off your face, because they are operating on a false premise. The miracle of the magical dollar theory premise is a false premise because it completely misses what's going on. And anyone who's waiting for those operating under a false premise to panic out of their dollar holdings before even entertaining this reality is like someone waiting for the loss of consciousness before entertaining the possibility of death.

The dollar is so vastly overvalued today because the rest of the world has kept it on life support for 30 years past its expiration date. It is the stability of dollar prices at that small marginal flow that sustains the illusion of wealth in the entire, massive monetary plane. And yet the modern "hard money thinkers" think that we can somehow retain this level in real terms by simply devaluing the dollar against gold and then managing that new "gold value". I wish all the modern hard money thinkers – you know who they are so I don't need to mention any names – would just take a few minutes and listen to FOA and maybe, just maybe, see how wrong they are. It's all in that last page of The Gold Trail, but I tried to make it bite-sized in a recent blast of Tweets. #HMS means Hard Money Socialist which describes all of these guys. If you don't understand, go see for yourself. These are all FOA quotes from that last page (edited for Twitter):

"Truly, to this day, #HMS think their ideas are the saving grace of the money world. It isn't now and never was then." #FOA

"This political process of fixing money to gold has ruined more economies, governments and societies than anything." #FOA

"It just flies right past them that the ECB wants gold as a dollar replacing *asset*, not local money backing." #FOA

"#HMS call for "official money gold" as the only way governments can go. That will not ever be allowed again." #FOA

"These are the same people that hold free markets on a high plateau as the goal for everyone. Yet, they talk a story of gold control." #FOA

"Fortunately for the majority of world physical gold owners, the hard money socialist game has ended." #FOA

"Late comers to this understanding will encounter a true free market, but their buy in price will be at a much higher natural level." #FOA

"In the late 60s, #HMS seemed so natural. However, even then, I had some serious people pointing me in a different direction." #FOA

"This is all happening while Western style Hard Money Socialists are defending their stance by saying Euro is just another fiat. Ha!" #FOA

"Western thought is gold=money. This simple picture from the middle ages banking renaissance is used to bastardize the gold story to this day." #FOA


Please go read that last page of The Gold Trail after reading this post. Start at the bottom and read up. It's in reverse order, unlike the first five parts. There's so much more there than the little bits I included here. It's the very last words he wrote before he stopped writing. I know that some people think I approach these A/FOA archives somewhat religiously. Well, I do!! Look at the subtitle at the top of this blog! Not in any way similar to spiritual faith, but My God, has anyone – and I do mean ANYONE – explained what's going on today better than these guys?

Sincerely,
FOFOA

PS. If you appreciate this blog and my efforts here over the past 3 ½ years, 360 posts and more than 32,000 comments, please consider making a donation to support my continuation of this project. These donations are my only source of income.

Thank you!



829 comments:

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www.gregor.us said...

Would just like to comment briefly that EU wide bank runs are precisely the kind of event I would say tips risk hard, very hard, towards HI in the Eurozone. I don't know which asset or set of assets become the target recipients of cash pulled from banks. At the moment, I will guess that simply holding a Euronote outside of your bank account, thus eliminating the risk that Euronote is converted to a Drachma or Peseta overnight, is the preferred course of action. The next step would be the recognition among those who are sitting on notes, that the EUR itself could be the subject of an international run, and that its buying power was at risk of steep decline against, first, things like petrol.

Should this scenario develop, it would show, I think, that despite the long anticipated USD zone HI, it was ultimately a psychological collapse of confidence and a policy failure that caused HI to appear first in the Eurozone. And again, I am well aware of the discussion that's taken place here about the embedded protections many presume to exist for the Euro currency, per official gold holdings in the EU. I will "guess" that some feel when the hour gets dark enough, either markets and or EU officialdom will simply devalue the EUR against the gold. (There are different opinions about this, here, I understand). I'm just offering my take: that devaluation against gold comes only when central bankers are ready to concede defeat.

Anyway, this is also to remark that USD zone HI--should it ever take place--will certainly draw from the macro conditions articulated in this thread as laid out by FOFOA et al. But, USD HI will still need the psychological shift. Should the ECB devalue against gold or simply mark the gold, or officially post the gold as part of a crisis resolution effort, then this surely will have a social-psychological effect on USD holders. The first reaction could be positive sentiment towards the USD, then suddenly negative sentiment towards the USD. I am still not convinced that FED operations alone, or even massive increases in US debt monetization, will convert public mood.

Best, G

Dwain said...

jeb said... "So would the currency be sacrificed to save the system, or is the system sacrificed to save the fed?

BINGO!

That is the question now under debate.

www.gregor.us said...

Would just like to comment briefly that EU wide bank runs are precisely the kind of event I would say tips risk hard, very hard, towards HI in the Eurozone. I don't know which asset or set of assets become the target recipients of cash pulled from banks. At the moment, I will guess that simply holding a Euronote outside of your bank account, thus eliminating the risk that Euronote is converted to a Drachma or Peseta overnight, is the preferred course of action. The next step would be the recognition among those who are sitting on notes, that the EUR itself could be the subject of an international run, and that its buying power was at risk of steep decline against, first, things like petrol.

Should this scenario develop, it would show, I think, that despite the long anticipated USD zone HI, it was ultimately a psychological collapse of confidence and a policy failure that caused HI to appear first in the Eurozone. And again, I am well aware of the discussion that's taken place here about the embedded protections many presume to exist for the Euro currency, per official gold holdings in the EU. I will "guess" that some feel when the hour gets dark enough, either markets and or EU officialdom will simply devalue the EUR against the gold. (There are different opinions about this, here, I understand). I'm just offering my take: that devaluation against gold comes only when central bankers are ready to concede defeat.

Anyway, this is also to remark that USD zone HI--should it ever take place--will certainly draw from the macro conditions articulated in this thread as laid out by FOFOA et al. But, USD HI will still need the psychological shift. Should the ECB devalue against gold or simply mark the gold, or officially post the gold as part of a crisis resolution effort, then this surely will have a social-psychological effect on USD holders. The first reaction could be positive sentiment towards the USD, then suddenly negative sentiment towards the USD. I am still not convinced that FED operations alone, or even massive increases in US debt monetization, will convert public mood.

Best, G

JR said...

The psychological shift already happened. From above:

"The United States currently enjoys reserve currency status, which enables it to borrow cheaply, and which keeps capital circulating through our government bond markets"

[...]

The point is that the premise rests on 90 years of history which only makes sense if viewed properly. It rests on 50 to 60 years of political support followed by 20 years of structural support from Europe and another 8 or 9 years of structural support from China. Today both political and structural support are gone...

Dwain said...

Michael H said... "Perhaps where we differ is, by the time that the bank run starts, how many ‘promises to print’ will the Fed have made?"

That's a key question, and I believe it all comes back to verbiage and phraseology.

It is said that the Fed has pumped an estimated $16T in liquidity into the system in order to stabilize it.

A Fed issued promise to pay is Capital, from which liquidity flows.

The Fed adding liquidity to the system does not add capital and that's why this ongoing crash continues to be a crisis in Capital, and that's why pumping liquidity into the system that desperately needs capital, a source of excess value, continues to fail.

It's like the GSEs; sure, you can keep their doors open and meet their parole, but because they cannot generate new sources of capital, they remain bankrupt.

The Fed hasn't been expanding its "promises to print money", but it sure has been "printing money" in traditional bankster style, through the issue of credit.

Gary Morgan said...

So, a smart Japanese pension fund decides to move into gold, and pulicise it. Smart guys eh? Maybe not so smart:

http://www.ft.com/cms/s/0/1be7a2a2-9f3f-11e1-a255-00144feabdc0.html#axzz1uqI2OX8O

Carl: 'The Fed adding liquidity to the system does not add capital and that's why this ongoing crash continues to be a crisis in Capital,'

Hmm, if only we could find some additional solid & reliable kind of capital, even better if its price had been deliberately suppressed for 40 years, and once set free its true value as a wealth reserve could recapitalise the whole darn world.

If only such a form of capital could be found and set free. I might even consider using some for my savings.

Aquilus, cheers for the follow-up re other countries and HI. I still don't think FX markets will punish QE-happy countries, as every one is at it.

Been a hard day not to throw a rock through the TV with Cameron/King mooing on about the Eurozone sorting itself out. Their holier than thou attitude makes me sick, knowing they are printing the UK's relative lack of monetary stress. I do hope King in particular is held to account at some point in the future. Oh, jeez, now the BBC have Robert Peston on the job with a special on Thursday on 'The great Euro crash'.

Jeff said...

That japanese pension fund bought paper gold (ETF).

Carl said: "So would the currency be sacrificed to save the system, or is the system sacrificed to save the fed?

BINGO!

That's not a BINGO, Carl. You embarrassed yourself again.

FOFOA: Here are a few simple principles that will save you the hassle and embarrassment of constantly being surprised by the actions of politicians and central bankers. They will never sacrifice the system to preserve the value of the currency. But they will always sacrifice the currency to save the system. And there is a very simple formula for how they do it.

There are four players to keep in mind; the debtors, the savers, the banks and the printer. They never print and give the money directly to the debtors to pay off their debt. Instead they print and give the money to either the creditors (banks) or the savers (e.g. pension funds) in exchange for the older bad debt which they then put on the public balance sheet to socialize the lost value.

So they "bail out" the banks and the savers nominally, which in turn (through currency debasement) actually bails out the debtors and screws the savers. The banks come out even because they only require nominal performance. But the retirees and pensioners that require real performance at the supermarket get screwed.

Jeff said...

"But, USD HI will still need the psychological shift."

Whose psychology needs to shift? Not the american who is paid and saves in dollars. Who is taking dollars in exchange for real goods?

FOFOA: The point of JR's excerpts is that the real threat to the dollar lies in the physical plane (real price inflation) rather than the monetary plane (foreign exchange market). The source of the price inflation will be from abroad and it will be reflected in the exchange rate, but the price inflation, not the FX market, is the real threat...

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

When I say the dollar has already hyperinflated in a near-monetary sense, I am talking about the number of dollars people, entities and even foreign nations think they have in reserve.

Dwain said...

Jeff said... "That's not a BINGO, Carl. You embarrassed yourself again."

Jeff, Jeff, Jeff......geez,

Here I was thinking that we've gotten past all the surface theater and down to the core of the matter but here you are, injecting it into the conversation again.

I'm going to assume that you're doing that, not because you can't keep up with the conversation, but out of a desire to be prat at my expense.

costata said...

Michael H,

Good luck to you and others in your efforts to get Carl to admit that his own words, facts such as the legislative control of the Fed (h/t JR) and quotes from FOFOA's writings contradict Carl's interpretations and convictions.

I note that Carl has seized on jeb's question to attempt to secure his preferred framing of the debate here. Not Fed plus system vs currency but rather Fed plus currency vs system. Quite obviously wrongheaded of course to long term followers of the discussions at this blog.

The core problem (and insurmountable challenge IMO) Carl presents is that he speaks from conviction. He is convinced he is right. So be it.

(I also find his "dumbing down" of discussions of topics such as the nature of money tiresome and retrograde.)

Interaction with Carl makes poor old costata feel like he's trapped in a maximum security kindergarten where teacher Carl tells the class which of his carefully selected picture books they are allowed to read. Unfortunately this is the real "question now under debate".

So Michael H forgive me for talking around Carl. I want to discuss this mopping up of excess dollars by CBs because I think there is much more to this activity than meets the eye. And it could lead to some surprising conclusions if we explore this subject more deeply.

Piripi said...

@Motley Fool,

Gold functions only when its value is freely found.

The function of gold is to make relative the real values of everyone all the time, supplying equity to society. This is freedom.

The value of the function of gold is infinite.

I know you know this, but I just like to see it in writing. :P

Michael dV said...

AdvocatusDiaboli said...
something maybe for Carl to consider:

AD vs Carl...closed loop
like capturing the slime plasma creatures in Ghost Busters
Once in the loop
caught
Only Gozer can set them free

Dwain said...

Sorry Michael, I missed the nuance in this:

Michael H said..." - The Fed purchases these securities with “notes generated by the Fed, #3”. These notes are “promises to print issued by the Fed”."

No, that is not what I'm saying.

Notes generated by the Fed in #3 are a functional process within the FOMC.

The Fed buying securities directly, outside the FOMC, is nothing more than the Fed expending credit.

Dwain said...

costata said... "Quite obviously wrongheaded of course to long term followers of the discussions at this blog."

What's the matter Costata, am I disturbing your religion of FOFOA, cut-n-paste, circle jerk?


.

Edwardo said...

C.A.R.L. stands for:

Cognitively Addled Recalcitrant Lout

or

Corrosively Antediluvian Rebarbative Lilliputian

or

Cranial Activity Relatively Low

or

Certainly Appears Relentlessly Lost.

cast your vote now!

Nick said...

Continuously Allowing Rectal Leakage.

Seriously.... my index finger is getting tired of scrolling through your incessant drivel.

FOFOA said...

Kobajashi wrote: "The latest issue of GEAB from LEAP2020 is availlable

They write about the return of the topic ""unmanageable debt of the US" by the end of summer and so the focus will be more to the VS!!

They also write about why a Greek Eurozone exit is impossible in practice

And about the "massive and sudden monetization of US debt by end of 2012!!!!!!!


Thanks Koba. I think it's fair to point out that someone there read and liked my latest post enough to give it a page:

http://www.leap2020.eu/notes/Inflation-or-Hyperinflation_b4172061.html

Sincerely,
FOFOA

JR said...

This:

Certainly Appears Relentlessly Lost.

(mostly because I feel I have a good grasp on what each word means)

Wendy said...

OK JR, thank you, I'll keep you earlier comment in mind regarding the Kitco forum

Piripi said...

Apologies in advance if none of this is new to anyone; a simple reply became a ramble. This is the heavily edited version.


I said: 'As yet unmined gold is the wealth of those nations in whose jurisdiction it lies, and once it has been valued accurately it will be regarded as such by those nations. Until then it flows at paper value to uphold our current monetary system."

enough replied: ”so is it not important for TPTB to keep the paper price above mining cost so they can extract it as quickly as possible from those unwitting nations that hold much wealth par excellence still in the ground?”

Yes, it is important (essential) to the continuation of the $IMFS, so as long as that is the goal then gold must trade at a greater price than the costs to extract it or it will theoretically cease to be extracted.

(Technically speaking, if some nations are officially purchasing all their own domestic production (because they are aware of its real value and do not wish to sacrifice ‘their’ gold to further extend the functioning of an inequitable monetary regime?) why should they cease production? How much do they pay currently? We assume market rate. They could privately agree to always pay more than cost of production (but not too much). They could privately dictate this. They could nationalize those who don’t agree, or at least threaten to.)

I take it as given that present holders and buyers of physical gold do so in order to store value. They do not do so as speculation or investment, but as savings. Surplus value is stored in the historically incumbent physical asset not subject to time which has always supplied this utility: physical gold.

Holders and buyers of gold can only be, by definition, those who are in net value surplus.
Diminishing marginal utility tells us that the greater that net surplus, the greater the utility of gold becomes to that entity because gold is the only good exempt. The biggest surplus producers continue to store value in gold also in order to protect the value in the gold they already hold, which is to say they have cornered gold with their future flow of surplus producing goods (oil). So either oil is valued too high in gold or gold too low in oil.

If price drops below production costs, oil will bid for it. Fact.

Why produce oil if the surplus cannot be saved?

The $IMFS is only viable if oil is supplied a flow of physical gold behind closed doors so that it is not publicly seen that gold is the real value that ensures the flow of oil to an oil-dependent world. In order to keep this out of the public domain oil’s swing producer has been overpaid in gold (relative to oil) all the while.


Further to your question, if “TPTB” wanted gold extracted as quickly as possible would it not want the price much higher to make more currently unprofitable resources viable?

How many nations do you think are “unwitting” as opposed to those whom are currently co-operating for what they feel is “the greater good”?

At some point in time, support will be withdrawn for the $IMFS because there is either a viable alternative system ready to take over (so sacrifice is no longer required), or because it is no longer viable to continue support ie. the “costs” outweigh the benefits (sacrifice too great). We are not, and never have been (FO/FO/A notwithstanding), exposed to these perspectives. This is officially discussed and decided at BIS /CB level or similar. The best way to keep these perspectives only at that level is through agreement to keep real figures on holdings, large transactions and valuations opaque.

One Bad Adder said...

Finally got a few minutes to delve back into the subject du-jour - The reality we're going through appears to me to be a heavily managed dis-inflation in the face of potential (and market-driven) DE-flation.
"Managements" task is to keep hovering in this disinflationary limbo ...WITHOUT awakening the HI monster through a snow-balling loss of Fiat credibility.
One way and/or the other, it can't end well IMHO.

costata said...

JR,

You slay me!

All,

Is copying and pasting from MS Word a religious ritual as well? Should I genuflect before hitting ctrl+V? I'd appreciate your deeply considered thoughts on these questions. So no premature emissions please we have had quite enough of those in this thread already.

lighter said...

Only one point to make, the deficit numbers are considerably worse than you report, because USG is also hemoraging off the books dollars in large quantities.

Victory said...

Hi Costata,

Thanks for the reply.

You wrote: 'Given the huge flow of petrodollars, at the oil prices prevailing over recent years, the ME SWF and monarchies couldn't squeeze a fraction of their profits into physical gold without exploding the price.'

That's what I've been thinking about and my conclusion was that the dollars accumulated oversees in the hands of ME and Chinese SWF are so disproportionately large compared to the london market for physical gold (not paper) that they might as a strategy try with one hand to use some of their dollar reserves to keep the comex price discovery mechanism managed to the downside so as to with the other hand bid for physical on the LBMA.

I hear you about the bullion bank spiderweb system but I also wondered to what extent those price smashes may at times be induced by ME or Chinese $'s trying to systematically accumulate whatever physical they can get offered in London. Can anyone give an explanation for why so many contracts are dumped all at once other than to deliberately push down the price. I understand there is some arbitrage between the comex and the lbma but even arbitragers would want to sell or buy incrementally in order to fill as many contracts as possible while the arb exists right? Or do you think they dump all at once because the arb may only be available for a brief window of time and they want to get to it before their competition?

As a hypothetical do you have an opinion on what would happen if say a the Chinese SWF say 'SAFE or CIC' put 100 Billion (2,000 tons) into an unallocated account @ the LBMA and then tried to convert their account to allocated. Certainly putting 100 Billion into an unallocated account would not be a problem since according to the LBMA their $ turnover is over 200 Billion a day alone.

tx,

-v

Wendy said...

Yikes costata!!! I see you are in fine form :D

I'm guessing you are not referring to catholisim?

Motley Fool said...

Haha Blondie

Excellent points all, and well known.

Good to see it in writing though. :)

TF

Anonymous said...

So.. this mopping up operation for USD.. does the same principle apply to other currencies to a lesser extent? Or is this solely a function or reserve currency priveliege?

For instance over the last thre months in Australia, the government has issue $10B worth of debt, with a trade imbalance of $3B.

Over the last 40 years, Australia has run a trade deficit near continuously, the last four years being a significant anomaly.

Interestingly, the forays into positive balance of trade figures have occured at the same points as changes in direction of government deficit - suggesting a differential effect.

Also came across this..
http://buoyanteconomies.com/AustCADMoney.htm which may be of interest.

sean said...

This post from tfmetals is intriguing. It proposes stealth QE3 is being implemented "via the Chartering of NEW Bank Holding Companies in the United States which will utilize Chinese held U.S. Treasuries as their BASE Capital...upon which to create TRILLIONS of digital FRN via fractional reserve", and concludes "The Chinese ARE NOT going to 'dump' their Treasuries: the Chinese are going to print Trillions of digital FRN and go on an unprecedented .GOV/FED sponsored Leveraged Domestic Buying Binge!"

Perhaps someone more knowledgeable than me could comment - could this be possible mechanism of mopping up those haemorrhaging treasuries for a little longer???

Gary Morgan said...

Did I read GregorUS correctly?

Is he seriously arguing that because Greeks are withdrawing billions in Euro ahead of the (slim possibility of) reintroduction of the Drachma, that somehow that will/does translate into Europe wide loss of confidence in the Euro and HI?

I am no expert, but that sounds wrong to me. The Greek move to Euro crash is a big vote of confidence in the Euro isn't it? I believe thye are hoarding these Euro, not converting them to physical things.

Not to be rude, but having own's own blog doesn't necessarily mean one knows what one is talking about. Fofoa a notable exception to that rule I might add.

Different scenario entirely if that happens in the US/UK.

costata said...

Hi sean,

Permission was granted quite a while back for one or more of the Chinese banks to offer Yuan denominated accounts in the USA. The building and/or acquisition of branch networks looks like an obvious extension to me of that initiative and China's program to internationalise the Yuan/Renminbi.

Just for the sake of argument let's assume that the Chinese set up a new bank holding company in the USA and capitalised it with Ts. The $10 trillion of leverage on $1 trillion of capital would have to be loaned into existence. This begs a couple of obvious questions IMO. Who is going to borrow that $10 trillion? and What would the borrowers buy in the USA with that $10 trillion?

I call BS on this tale but that's merely my 0.02 and other people you talk to may have a different view.

Cheers

Piripi said...

@sean,

Who would be borrowing this $10T?

Gary Morgan said...

Re Carl, whilst he's not a typical troll, I still think just ignoring him will make him go away. I stopped reading his comments last week.

Carl, did you know you have a very rude tone which is uncalled for? Why not waste your time in learning some civility, rather than boring this blog. Or get a real life?

costata said...

Hi Gary,

Gregor's comment above (May 16, 2012 1:07 PM) where he opined that "the EUR itself could be the subject of an international run" wasn't exactly overloaded with detail on how this would even be possible.

When I read his comment I just assumed he was being impish in throwing a sketchy HI-of-the-Euro scenario into this thread.

Indenture said...

Carl: "What's the matter Costata, am I disturbing your religion of FOFOA, cut-n-paste, circle jerk?"

So you have been mingling with the guests for a while, met some of the 'regulars', people have genuinely (Micheal H) been nice to you, and you stand on the piano.

Michael H said...

Hi Carl,

Now I will address the rest of your response.

”The crash of 1929 and the subsequent cascading collapse of credit across the nation proved this beyond a shadow of a doubt. If there were a requirement for the Fed to print to cover all digits in the system, then it wouldn't be a Fractional Reserved System, it would be a 100% Reserved System and that's just not the case.”

The precedent I take from the 1929 crisis is the opposite.

Prior to the 1920’s boom, the credit booms and busts in the US were somewhat localized and decentralized. The 1920’s boom was the first nationwide concerted boom, and the bust had ‘catastrophic’ ramifications.

It took those in charge a while, but when they figured out what they had to do, they changed the rules, made some laws, and revoked the gold convertibility from the domestic banking system.

So it is actually an example of how, when things go bad, the laws get changed.

”So would the currency be sacrificed to save the system, or is the system sacrificed to save the fed?”

This fits well right here.

Worded this way, it is a silly question. The Fed is part of the system. Saying the system will be sacrificed to save the fed, is like saying all life on earth will be sacrificed to save Carl. Even if we exclude Carl from ‘all life on earth’, he cannot survive without other organisms, any more than the Fed can survive without other financial institutions. For example, those financial institutions that are its shareholders.

”As you can see, the Fed has no incentive to aid the USG by printing and putting all of its assets at risk. If the USG decides to print, it will take that responsibility away from the Fed, and then print. And, by the time the USG decides to do that, it will be after the collapse of credit.”

Recently I read about the last Fed president who tried to stand up to congress, and was sacked and replaced by a yes-man for his troubles. I can’t recall where I read it; could have been here, could have been Zerohedge. Anyone got a link? I thought the name Eccles was involved, but I can’t be sure, and I can’t think of enough details for a useful google search.

Carl, what does it mean to ‘put all of its assets at risk’? Is there a mechanism by which I can take a bunch of $100’s to the Federal reserve, and purchase some USTs or MBSs?

As for printing, I cannot say whether the full-blown hyperinflationary palliative printing will be done by the Fed or directly by the USG. But the kick-off to HI will occur while the Fed is in control, thanks to all those ‘promises to print’ the Fed is making.

As for the ‘collapse of credit’: credit will collapse during a HI, but perhaps later than you might expect. Full-blown credit collapse will not kick off the HI. Rather, I think it will be the ‘papering over’ of bad debt to prevent a full-blown credit collapse that will lead to HI.

Part 1/2

Michael H said...

Part 2/2

”All circulating FRNs are incidental to our current "credit based" economic system, contributing only a tiny fraction to the system's function. They are little more than a physical prod, a psychological tool employed to give you the impression that you are laboring for something other than a vacuous assumption that the credit you get as payment has some semblance of value as represented in the valueless FRN.”

Why not just get rid of the FRN then? Why keep issuing them?

”Credit flows from either existing or newly created excess value. Destroy that value and credit ceases to flow. With no new sources of excess value to generate new credit, old credit, which is debt, can't be serviced, the source defaults. This means that everything down stream that was dependent upon that flow to maintain their value, losses its value, on and on it goes...until all excess value is destroyed, no new credit can be created and all anyone is left with, is the debt.”

Can you define ‘excess value’ for me, please?

Can the Fed not prevent the destruction of the value, by purchasing bad debt at ‘imaginary valuations’? Wouldn’t this allow the other down-stream debt to be serviced, and thus to retain its value?

If the source of the old debt defaulted, how can all anyone be left with be debt? In other words, wouldn’t the default wipe out the debt? What would be left is nothing.

”If the unit of account that forms the basis of all the credit loses value then those who base their ability to create credit must come up with new sources of excess value in order to compensate for the loss of value in the primary unit of account. Failing this, no new credit can be created to service debt, default.”

Without really understanding what you mean by ‘excess value’, I can’t understand this paragraph.

Michael H said...

Carl,

"Notes generated by the Fed in #3 are a functional process within the FOMC.

The Fed buying securities directly, outside the FOMC, is nothing more than the Fed expending credit."


Please explain further. How many of these ntoes are currently out there?

JR said...

Frictions Between the Fed and the Treasury

The Treasury's insistence that the Fed continue its support of the government securities market at all hazards greatly aggravated the developing inflation in the months following the outbreak of the Korean War. The price support program had been in effect since about 1940, and its predecessor, an "orderly" market, for five years before that. One could surmise, therefore, that Federal Reserve officials were conditioned to the dominance of the Treasury. They were not alone. Many prominent economists argued that the "peg" was well advised.

Resumption of excessive spending, both private and public, in the latter half of 1950 encouraged the Fed to waffle slightly on its support policy for the government securities market. Treasury Department officials, particularly John Snyder the current secretary, then began the campaign that became a cause celebre. In a speech to a business group in late 1950, Secretary Snyder stated that the then-Fed Chairman Thomas McCabe and the FOMC had agreed to continue indefinitely the peg of government security prices.

This false announcement shocked some members of the FOMC, particularly Eccles. Certain newspaper journalists also noted this high-handedness, and not only criticized it on its own terms but asked Eccles for an explanation. After a few public responses by Eccles and Allan Sproul, then president of the New York Fed, the Truman administration "invited" the entire FOMC to the White House for a conference. This move was unprecedented in the history of the Federal Reserve System. In fact, President Woodrow Wilson had eschewed just such a tactic in the early years of the Fed because of its obvious political implications.

[...]

The Truman administration's role in the controversy that Eccles finally spiked a year later suggests that the executive did not take congressional resolutions too seriously. So, after Eccles' public resistance in early February 1951, influential congressmen insisted that the Treasury and Fed iron out their differences and thereafter stay clear of each other's turf. It is here that Brimmer's account of Martin's influence becomes meaningful. Martin was instrumental in fashioning the accord to which the Fed and Treasury agreed just a month after Eccles' disclosure. For his good offices in this regard, Martin became the next Fed chairman.

Eccles retired from the Fed Board a few months after the conflict.


http://minneapolisfed.org/publications_papers/pub_display.cfm?id=3562

Michael H said...

Thanks, JR.

costata said...

Gee Carl aint reality a bitch.

Thanks JR for your continuing efforts.

Cheers

Michael H said...

costata,

The ‘mopping up of excess dollars’ business does seem to have more to it than meets the eye.

Here are some thoughts to start the discussion:

Foreign vendor sells goods to US, receives dollars in return. The vendor now has a ‘eurodollar’ balance in his account: a dollar liability from a bank outside of the fed system. Foreign vendor needs local currency to pay his expenses, so he trades these ‘eurodollars’ for local currency balance at the bank.

Question #1: Why can’t the foreign bank simply convert the dollar liability for a local-currency liability?

My best guess is that what the foreign bank gets is a dollar-credit-asset, with the American bank retaining a dollar-credit-liability. This asset backs the Eurodollar liability of the vendor’s bank account. The bank can’t convert the vendor’s account balance without also converting the dollar-credit-asset with the American bank counterparty.

Instead, the foreign CB aggregates these Eurodollars. The CB credits the local bank with new local currency asset, and puts a local currency liability on its books. On the CB asset side, we get the dollar-credit-assets with the American banks as counterparties.

Question #2: Why does it not end there?

Perhaps foreign CBs don’t like to have assets from the gamut of American banks on their balance sheets, and they would like to consolidate and reduce their counterparty risk.

Perhaps these dollar balances at the CBs would cause undesirable changes in exchange rates, unless they were sent back to the US.

The foreign CB certainly doesn’t buy treasuries merely to put these excess dollars to work, because if you have too many dollars already, why would you buy something whose sole attribute is the promise of ‘more dollars’?

The answer likely depends on what time period we are considering: pre-1922, 1922-1971, and post-1971.

Victory said...

Hi Costata,

I read that same theory on tfmetals report and made the following comment because it sounded like the author was suggesting the Chinese treasury holding would be the banks reserves (capital). Can you help me with my understanding because your comment above appears to suggest that these Treasuries could indeed be used as the banks capital from which to leverage new loans.

I wrote: It's my understanding that treasuries and bank reserves are not one and the same, and thus a bank cannot use treasuries as a base (reserves) from which to leverage new loans. It's true that under our current 'capital adequacy ratio requirements' that treasuries have a zero risk weighting, which allows banks to purchase treasuries (lend to the government) basically infinitum without adding strain to their reserve requirement ratio. But the scenario that 'throxx' is proposing I do not believe to be possible under our current banking systems' regulatory framework.

Treasuries represent a loan to the government so holding those loans as assets (like mortgage loans or commercial loans) represent unreserved credit until they are either repaid or sold correct?

tx,

v

enough said...

Thanks Blondie,

you said.......

"Further to your question, if “TPTB” wanted gold extracted as quickly as possible would it not want the price much higher to make more currently unprofitable resources viable?"

This is the rock that hit me in the head when I read this reuters piece on the current and near future cost of mining gold. I thought to myself, if the end of the timeline of the $IMFS is near then the price of paper gold should rise a great deal so those giant savers could pocket as much as possible while the current sysyem is intact and leadership of those nations that have much gold in ground allow the international miners to extract it and cart it off.

I understand that the powers whipping the paper price of gold around are not harmoneous nor homogenous but it seems the overriding interest of all is to get it out of the ground as quickly as possible while they still can?

best E.

Piripi said...

”the overriding interest of all is to get it out of the ground as quickly as possible while they still can?“

Why? Is it not easier to buy already mined and fabricated gold from those who for whatever reason feel they need to let it go?

When you say “while they still can” are you meaning while they can still get it out of someone else’s ground?

Bear in mind too that at some point every entity who knows gold's true worth is satisfied that they have "enough".

Gary Morgan said...

Something for Costata, spooky coincidence I found this linked within a Bruce Krasting post this evening. It's all about the Chinese and the dollar. VERY interesting, although I have to confess my tiny mind struggled a tad with the concepts discussed (as it actually seems to suggest China have a dollar shortage). A snip:

'If the situation worsens, and the dollar shortage gets more extreme, there will come a point where Chinese dollar liabilities will be stretched to the limit, and potentially defaulted upon.

There are only two solutions. Unleash the dollar reserves back into the system — a move that risks toppling markets across the board — or allow greater convertibility of the yuan, encouraging foreigners to exchange dollars directly for yuan.

Option 2 is naturally the far more logical.

No wonder we are hearing ever more talk about “convertibility” and “internationalisation” of the yuan out of Beijing.

But, dare we say it, this talk is also a major bluff.'

http://ftalphaville.ft.com/blog/2012/05/16/1002681/why-chinas-rmb-exodus-is-the-story/

Anyways, I do hope the 'day of reckoning' isn't next week, as I want to buy more shiny stuff in the next few months!

PS, was that snap back in the gold price today the bottom...?

burningfiat said...

Does enough have "enough"? ;)

Blondie:
Bear in mind too that at some point every entity who knows gold's true worth is satisfied that they have "enough".

Is gold different than fiat currency, in that you can obtain contentment about the amount you have?

Gold has constant or improving marginal utility (usefulness of next purchased unit stays high even though you have a lot already), and gold is an excellent store of value across time, right?

If you're a super-producer will you ever have enough? What happens when a super-producer has enough gold? Does he quit super-producing or does he start hoarding other things now that he's content about his current gold-hoard?

My guts tell me that Blondie is right. Every entity must have a contentment-level. But I just can't figure out what happens to the super-producer at that level?

Any thoughts?

/Burning

Piripi said...

@burningfiat,

I was meaning in particular the 'need' to re-establish one's position in gold for those entities who may have mistakenly stored value elsewhere, and since had an epiphany. a'la Big Trader.

I find my own position to be like this too. My future surplus will theoretically be stored in gold, but my feelings about it have been ambivalent since I reached a level which leaves me satisfied, which is to say I have secured that which I already thought I had. See Gary's comment above regarding his dissatisfaction at his current holdings. At some point he too would be satisfied, but he does not feel he is there yet.

This is of course all petty self-interest, motivated only by our exposure to the current system, but it is regarded as a permanent part of human nature by almost all (including most who will read this) so must be treated as a factor. I just don't assume it to be a permanent one.


What brings anyone to this blog? Self interest.

As I stated upthread, gold has a value, but the function of gold has infinite value. Do you need to personally hold gold to enjoy its function?

Contentment is a scarce commodity today, and this is because gold is not functioning. It leaves us in a defective paradigm, and I appreciate that it is a hard thing to get one's head around. Just as well one's gut has no such problem.

costata said...

Victory,

Bear in mind the US hasn't fully implemented the Basel II regime let alone the Basel III regime. There isn't a single bank regulatory, reporting and accounting regime operating worldwide. You have to be careful about generalizations.

At the risk of oversimplifying the situation let's take a look at two regimes. The Basel capital adequacy regime is based on risk weightings. Assets (loans) with a low risk weighting require a bank operating under this regime to hold less capital against their loan portfolio. Let's term this a risk management regime.

But there are two sides to this coin. Low risk usually brings with it low return (yield, interest rate etc). So from a bank's perspective while holding low risk weighted assets can increase the return on their capital if it reduces their income this has the opposite effect.

Under a regime where reserve ratios are specified by the bank regulators banks must hold a certain percentage of reserves against their loan portfolio. You could view this regime as a credit rationing system.

China, for example, has some elements of both regimes. Other countries have no formal reserve requirements or they have reserve requirements that only apply to certain types of deposits/assets. The last of the formal reserve requirements in the USA was suspended during the first stage of the GFC. Let's assume that requirement is still suspended and there are no formal reserve requirements in the USA.

Consequently the US banks are not under a Basel capital adequacy regime nor a formal reserve regime. The suspension of the FASB rules allowed US banks to mark their assets to model (AKA mark to myth) as well.

It's basically open slather for these banks. If you had $1 trillion in bonds/Ts and were setting up the books for a new bank in the USA today how would you record these bonds? You could theoretically write up those bonds as an asset (loan) on your books, repo them to the Fed and book the "cash" as reserves or use them as part of your capital Tiers to comply with the Basel rules.

Also bear in mind the questions I posed to 'sean' about borrowers. (I see Blondie posed a similar question to mine.) I think the TF discussion is pointless. A waste of time from every perspective.

Aaron said...

Blondie said...

"As I stated upthread, gold has a value, but the function of gold has infinite value. Do you need to personally hold gold to enjoy its function?"

Excellent point Blondie! To expand a bit in one dimension, must one own gold to enjoy the gravitational pull away from wide-spread malinvestment in a Freegold economy?

Absolutely not.

Of course, personally owning gold makes appreciating the shift that much more sweet -- but either way the realignment will be a sight to behold -- moving from wide-spread malinvestment to wide-spread value re-assessment.

costata said...

Michael H,

Thanks for kickstarting this discussion. I have a draft I'm working on that may go up later today.

Gary,

I read that FT piece and the other articles they linked to. I agree it presents a very confusing picture.

Piripi said...

Aaron,

"Value" is such a magnificent multi-faceted feeling.

I noted this quote with interest a few threads back (posted by JR?), waiting to see how commenters responded. I was surprised it drew nothing of significance.

Perhaps there is something about Menger’s quote ”Value does not exist outside the consciousness of mankind.“ that I am just not getting. Does it have some missing context with which it is qualified which may assist my understanding?

On its own, it strikes me as a ridiculous statement. Did he ever venture outside the consciousness of mankind to verify this? Can such a statement reasonably be made without doing so?

Further down the thread it was referenced a couple of times eg:

costata said: ”A perception of value not shared, for example, by aardvarks.“
(This definitely implies that aardvarks perceive value.)

Nickelsaver said: ”My own consciousness is the only one that I may accurately reference.“

Does value exist outside the consciousness of mankind or not?

I know I have thoughts on this, but perhaps here is not the place to discuss them.

Aaron said...

Does value exist outside the consciousness of mankind or not?

Good question.

It seems to me aardvarks place greater value on ants than apples -- they will invest greater energy to find and consume the ants even if they are fewer in number/caloric content than the apples.

Aardvark value?

Perhaps Menger should have written, “Value [of an object as perceived by or from the point of view of -- mankind] does not exist outside the consciousness of mankind”.

Perhaps that’s a bit too obvious. And you have to admit it lacks emotional impact.

enough said...

hi Blondie,

yes....out of "someone elses" ground and as quickly as possible before they change their minds!! Do we know at this time how much is available to purchase from above ground supply? Seems practical, just in case above ground supply is tight, or might get tight, to get as much as possible out of someone elses ground on the cheap and quickly.......

BTW, I can never have enough gold. That for me would be like having enough beauty to behold. Never enough beauty to behold. Everytime I see gold in a new shape or design and it is "fairly" priced relative to paper....I feel the need or do just buy it :-)

Anonymous said...

Blondie/Aaron,

May be we can see the context in which Menger used that quote to understand what he meant.

Value is thus nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men. It is, therefore, also quite erroneous to call a good that has value to economizing individuals a “value,” or for economists to speak of “values” as of independent real things, and to objectify value in this way. For the entities that exist objectively are al­ways only particular things or quantities of things, and their value is something fundamentally different from the things themselves; it is a judgment made by economizing individuals about the importance their command of the things has for the maintenance of their lives and well-being. Objectification of the value of goods, which is entirely subjective in nature, has nevertheless contributed very greatly to confusion about the basic principles of our science.

Here's FOFOA: The Austrian School is primarily a school of Economics (focused on subjectivism and a deductive approach to economics called praxeology ), not money, and this is where it is truly great.

I think from the context of value (as illustrated by Menger) is where the principle of marginal utility emerges. The boundary use of the good determining the value of that good for a particular individual.

Iterative application of this marginal utility principle determines the value at margin of such good.

Here's Menger again: The value of a particular good or of a given portion of the whole quantity of a good at the disposal of an economizing individual is thus for him equal to the importance of the least important of the satisfactions assured by the whole available quantity and achieved with any equal portion .

Blondie: but perhaps here is not the place to discuss them.

Perhaps you should articulate your thoughts on the Menger statement at 'Flow of Value' and we can carry on the discussion there?

enough said...

I just recently bought one of these for +$75 and had it graded. It came out same PF69......the whole series from 1996-2007 is way cool !!!

http://www.rarecoincollector.net/index.php?main_page=product_info&cPath=105_122&products_id=9344

costata said...

Hi Blondie,

That aardvark comment was a dig at folks who claim that the value of things can be objective rather than subjective. I don't subscribe to notions like "inherent" value in things. I think it is more useful to talk in terms of under-priced, fairly priced or over-priced rather than using the term "value". Values of a philosophical, ethical or spiritual nature are a different thing entirely IMHO.

Having said that I use the word value in conversation because it is the common usage and people do use this word interchangeably with the word price.

BTW this notion of "enough" gold resonates with me. We have moved onto other objectives since we reached our target holding and put in place that one-off hedge a while back. The notion of buying more gold rarely crosses my mind these days.

Nickelsaver said...

Value in action: I shrink, therefore I am less.

JR said...

Did he ever venture outside the consciousness of mankind to verify this?

He wouldn't need to.

Value is subjective, so only those who can subjectively asses can value.

Peta lovers cut him some slack, he was writing in the 1800s.

It animals are sentient, then OK. But nothing has value in an of it self.

Everything is relative. Which is why a common shared reference point through which we can each express our own unique subjective valuations is so key.

The point is that it can't be something that is only found in Asia, or something that is only made in the US. And it can't be a product like a Big Mac that would not be valuable to vegetarians or food snobs. It needs to be something that has the same utility to everyone, that utility being that it is only something valuable to buy and store so that later you can redeem that value in some other way. A reference point can be used in its unit of account function even without the presence of the physical item. But the focal point item for a value reference point needs to be something that CAN actually be gotten and used exactly the same by anyone anywhere.

And as we continue on this train of thought, it becomes clear that the ideal reference point for value is, in fact, the single focal point reserve asset chosen by the human Superorganism. It also becomes clear that today the U.S. dollar is filling this role, somewhat haphazardly, and also under the opposing forces of inertia—the resistance to change—and progress—the need for change. It could be said that we in the West are providing the inertia while the rest of the world is pushing for change. At least that's what I see happening.

Clearly, we in the West still measure the value of anything anywhere against the dollar. Think about it for a second. Can you tell me the value of a condo in Hong Kong? How about the value of a night in a five-star Singapore hotel? And what's the value of a 50' yacht in Dubai? You'd likely quote me all three in dollars, especially if you are a Westerner. As FOA pointed out, we assess the relative values of any two things—like an apple versus a banana—by mentally converting them into dollars.

And while our Western minds have been trained to use the dollar quite efficiently in this way, there are a few technical problems with the dollar being the reference point of value. Not unlike the kilo cylinder at the top which is causing problems for some scientists, the dollar, too, is shrinking.

http://fofoa.blogspot.com/2011/03/reference-point-revolution.html


"As FOA pointed out, we assess the relative values of any two things—like an apple versus a banana—by mentally converting them into dollars"

JR said...

Unfortunately for the US, it's gold, not "commodities" that is the money of the Superorganism. Mises again:

Mises: No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which national governments try to isolate their countries from the rest of the world, gold is still used as money. It does not matter that governments confiscate the gold coins and bullion they can seize and punish those holding gold as felons. The language of bilateral clearing agreements by means of which governments are intent upon eliminating gold from international trade, avoids any reference to gold. But the turnovers performed on the ground of those agreements are calculated on gold prices. He who buys or sells on a foreign market calculates the advantages and disadvantages of such transactions in gold. In spite of the fact that a country has severed its local currency from any link with gold, its domestic structure of prices remains closely connected with gold and the gold prices of the world market.

Did you catch that? In his magnum opus, published in 1949, Ludwig von Mises described Reference Point: Gold, which is the underlying nature of a global marketplace that reveals where our monetary evolution is actually heading!


http://fofoa.blogspot.com/2011/05/return-to-honest-money.html

Dwain said...

Michael H,

Thank you for continuing the dialogue.

There is one stark difference between your and my position, that being; I do not think, not even for one second, that the USG or the Fed do anything in total historical ignorance.

And, I hold the firm conviction that they will ride this credit (something for nothing) system into the ground when their efforts to save it fail and not one single note will be printed in its defense. The Fed will print enough to save the Fed, not one note more or less.

Having said that, I will start with your last couple of questions first.

Michael H said.... " Can you define ‘excess value’ for me, please?

Without really understanding what you mean by ‘excess value’, I can’t understand this paragraph."


Simply put, Excess Value is everything an item can be sold for above cost. Or, more importantly, any value that is accessible, via credit, that is above what is already owed, such as equity in a home or a company. It is also called surplus value. You know, a simple google search of "excess value" would've informed you of this.

Onward.

Michael H said.... " The precedent I take from the 1929 crisis is the opposite.

Prior to the 1920’s boom, the credit booms and busts in the US were somewhat localized and decentralized. The 1920’s boom was the first nationwide concerted boom, and the bust had ‘catastrophic’ ramifications.


It took those in charge a while, but when they figured out what they had to do, they changed the rules, made some laws, and revoked the gold convertibility from the domestic banking system.


So it is actually an example of how, when things go bad, the laws get changed."


Good points and I agree, the USG did change the rules to suite its needs, but a large portion of the rules they changed, were in complete service to the desires of the Fed.

By the way, you skipped over the primary point being made in that paragraph.

”So would the currency be sacrificed to save the system, or is the system sacrificed to save the fed?”


Michael H said.... " Worded this way, it is a silly question. The Fed is part of the system."

Not necessarily.

As I've been trying to explain, there are two currency systems involved here:

1) The Credit Currency System.

2) The Fed Note Currency System. (this includes the internal system of the previously discussed #3)


continued....

JR said...

Have you ever wondered what money really is? You'll notice that everyone you read has a strong opinion about what money actually is, but who's right? Is money really just one single thing and then everything else has varying levels of moneyness relative to real money?

Is gold real money? Or is money whatever the government says it is? Or is it whatever the market says it is? Is silver money in any way today? Are US Treasury bonds money? Is real money just the monetary base? Or is it all the credit that refers back to that base for value? Is money supposed to be something tangible, or is it simply a common unit we use to express the relative value of things?

Is money really the actual medium of exchange we use in trade? Or is it the unit of account the various media of exchange (checks, credit cards, PayPal) reference for value? Should the reference point unit itself ever be the medium of exchange? Some of the time? All of the time? Never? Is money a store of value? And if so, for how long? Is money supposed to be the fixed reference point (the benchmark) for changes in the value of everything else? Or is it simply a shared language for expressing those changes?


Here comes "reference" again - a common shared reference point through which we can each express our own unique subjective valuation, aka

Well, there you have it! The pure concept of money is our shared use of some thing as a reference point for expressing the relative value of all other things. Money is the referencing of the thing, not the thing itself. As FOA said, money is "a value stored in your head!" Money is not something you save. "Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities. This is the money concept, my friends."

JR said...

Because we are dealing with two needs (SoV and MoE), we need two monies: a primary for exchanging and a secondary for saving

Clarify the View

This concept that the traditional monetary functions are now separating into non-fixed (i.e. floating) media has been both an epiphany for some and a stumbling block for others. My goal here is to clarify the view for those who cannot seem to get it. When comparing any two monies, circulation velocity (or the demand for money to the Austrians) correlates to, and is a measurement of, their respective store of value properties. In other words, the currency that circulates with greater velocity is in low demand, it's the "bad money" with a short store of value timeframe, while the slower currency is in high demand, it's the "good money" with a greater ability to store value through time.

This is a clear example of how the transactional and reserve functions of money are able to separate right before our eyes into two different media. Think about Zimbabweans quickly spending Z$s while hoarding US$s. Ludwig von Mises called it a "secondary media of exchange."

The term "secondary media of exchange" obviously implies the existence of a "primary media of exchange." But why only two? Well, the answer is simple: because we are dealing with two needs, two separate functions or roles in which we use "money." The two roles are transactional and reserve (store of value). Another clear example can be found on the Eurosystem's Consolidated Financial Statement. The primary medium of exchange is on the right-hand side, and the secondary medium of exchange is on the left. Look at how Line #1 has grown in proportion to the whole of the reserves (secondary media of exchange) from 30% to more than 65% in a decade. Now that's how you spot a focal point!

Here's the new "FOFOA's dilemma" once again (with an added hyperlink for the adventurous!):

FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma.


http://fofoa.blogspot.com/2011/05/return-to-honest-money.html

Dwain said...

Response to Michael H continued....

Viewed with this in mind, the question noted above starts to make perfect sense.

Will they sacrifice #2 in a futile attempt to save the un-savable #1 thus destroying #2 along with #1 ?

Or, will they sacrifice the un-savable #1 thus saving #2, and the Fed, which would provide a base to rebuild the system again?

Keep in mind that, regardless of what you or I, or the rest of the world may think of the Fed, according to the last poll I saw, 80% of Americans approve of the Fed's efforts to save the system that the greedy banksters have wrecked. And, of course, who will those 80%, with their FDIC assurances, run to and beg to save them when the "bankster credit system" collapses?

Enter: Nationalized Credit System, managed by the valiant Fed.

Now, if the USG and the Fed are seen as sacrificing themselves and the whole of the system, (to include any and all value that their FDIC assurances may hold), in an effort to save the banksters through printing, that 80% might run "at them" instead of "to them".

And, no matter how much we may despise the FRN, the more the credit system collapses, the more valuable they will get. See: Euro Note in Greece.

Michael H said.... " Carl, what does it mean to ‘put all of its assets at risk’?"

Google "Federal Reserve assets" and click on the Fed provided link.

You may note that the majority of the assets listed are DEBT owed, not to the USG but, to the Federal Reserve.

Michael H said.... " Is there a mechanism by which I can take a bunch of $100’s to the Federal reserve, and purchase some USTs or MBSs?"

I don't think there is a direct link from the Fed to those assets, but I believe most banks offer access to Treasuries. As for those other securities, I'm sure you can find a brokerage that would be happy to take your bunch of $100's for any security you may desire, to include Treasuries.

Michael H said.... " As for printing, I cannot say whether the full-blown hyperinflationary palliative printing will be done by the Fed or directly by the USG. But the kick-off to HI will occur while the Fed is in control, thanks to all those ‘promises to print’ the Fed is making."

Fed held reserves represent the extent to which the Fed can/will print, hardly enough to fuel hyperinflation.

Michael H said.... " As for the ‘collapse of credit’: credit will collapse during a HI, but perhaps later than you might expect. Full-blown credit collapse will not kick off the HI. Rather, I think it will be the ‘papering over’ of bad debt to prevent a full-blown credit collapse that will lead to HI."

Yep I agree, we just won't know until the Fed or the USG actually start the process of printing.

Until then, everything written on that point, pro or con, is nothing more than speculation.

Dwain said...

Response to Michael H continued....

Michael H said.... " Can the Fed not prevent the destruction of the value, by purchasing bad debt at ‘imaginary valuations’? Wouldn’t this allow the other down-stream debt to be serviced, and thus to retain its value?

Are the welfare recipients employed by the GSEs still meeting their debt obligations, spending their welfare payments on goods and services, affording those businesses the ability to meet their debt obligations and the ability to continue participating in their local economies?

Yes. But it is at the expense of a devalued currency, making life for those of us outside their little economic loop, that much harder.


Michael H said.... " Why not just get rid of the FRN then? Why keep issuing them?"

What, do you suppose, they will replace them with?

Michael H said.... " If the source of the old debt defaulted, how can all anyone be left with be debt? In other words, wouldn’t the default wipe out the debt? What would be left is nothing.

Default occurs when a debtor has not met his or her legal obligations according to the debt contract, they still have to go through the process of settlement.


Michael H said.... " Please explain further. How many of these notes are currently out there?"

How much does the Fed hold in reserves?

Google "Federal Reserve off balance sheet transactions" to see how it works and what a mess that is with an estimated $9T lost, and I mean, literally lost!

Anonymous said...

Mmm, Aardvark

Oddly enough, I was listening to them earlier this evening.

Is there not varying degrees of value in just about everything? The rain has value to a barren desert whether we are there to experience it or not.

She's Your Lover

Dwain said...

JR,

On " Frictions Between the Fed and the Treasury"

Thanks for the link, good reading.


costata,

Read JR's link. You might discover that in spite of all the political theater, in the end Truman didn't get his way, the Treasury didn't get their way and the entire episode served to reinstate and reinforce the separation between the Fed and the USG.

Thanks,

Carl

Michael dV said...

congrats Carl you got #666...unsure what that really means but...

costata said...

JR,

Please check the link to that "good reading" Carl is recommending to me. It obviously took him to a completely different paper. The one I read had this to say about Eccles (my emphasis):

Morgenthau's support for Eccles was not entirely selfless. Eccles was a convinced and outspoken fiscalist. He argued that the Great Depression, then in full force, was the result of inadequate aggregate spending. Total spending in the private sector, he noted, was greatly reduced from its 1929 levels and nowhere near enough to promote full employment in spite of what everyone regarded as a loose and easy monetary environment.

The fiscalist solution was for federal and state governments to undertake expanded spending programs that would propel the U.S. economy into a full employment mode. The principal role of monetary policy, Eccles argued, was to serve as a catalyst for this expansionary fiscal policy. By keeping interest rates "low," monetary policy would enable the Treasury to borrow cheaply and finance expediently the various government spending programs.

Such a spending-and-interest-rate philosophy was music to the ears of Treasury officials. A monetary policy that enhanced fiscal policy was just what they wanted for their big-spending programs.


I guess you can be as independent as you like as long as you are doing what your Lord and master wants you to do without being ordered to.

I hope this doesn't catch on in Washington. We could lose all of those fiercely independent regulators and legislators who have been so diligent in their duties. Where would we be without Iron Tim Geithner and Brass Knuckles Bernanke? And let's not forget Eric "The Enforcer" Holder.

dojufitz said...

News in Australia

The Australian sharemarket has plunged in a broad-based sell-off, as fears grow the eurozone's debt crisis could worsen. At their peak, today's falls wiped another $35 billion off the market's value, bringing May's losses to about $110 billion.

The article did go on to mention Gold had risen by 2.2 percent.

Dante_Eu said...

@Blondie:

Nikola Tesla once stated:
"There is no energy in matter other than that received from the environment."

Likewise:
"There is no value in gold other than that received from the environment."

Enviroment meaning us humans ie.
The Human Superorganism.

Stay well\Dante

Piripi said...

Thanks for all the responses, particularly e_r’s further quotes from Menger.
I find it hard to conceive of a more succinct definition than the one you have quoted there.

Value is indeed not inherent, but simply a measure of utility and as such subjective.

Not quite sure how JR can determine a cutoff point between entities which can and cannot assess subjectively, but I do appreciate the pertinent material he has posted.

Tommy2Tone said...

"You know, a simple google search of "excess value" would've informed you of this."


I love it...Google apparently returns Carl's definition of excess value.....Carl must really be an impotent person.

Motley Fool said...

Blondie

Just wanted to remark that, similarly to costata, the concept of enough rings true to me too.

TF

ampmfix said...

Hello FOFOA,

Could you do an anonymous poll (like we did for age range) so we all know what is "enough" gold for the rest of us?
(or, put another way, what's the accumulation goal in oz for a new saver, in order to ensure his survival).

Thanks.

Motley Fool said...

ampmfix

It isn't about a specific number. I'm sure my stash is orders of magnitude smaller than many others here. It is about reaching contentment in a position. I have bought as much gold as I am able and as my understanding allows.

I am content that I have done what I am able.

TF

AdvocatusDiaboli said...

ampfix,
much more interesting would be (because FG advocates are probably afraid of the question):
AT WANT PRICE LEVEL COMPARED TO MULTIPLES OF MINING COSTS, WOULD YOU CONSIDERABLY REDUCE ADDING TO YOUR STASH?
Greets, AD

Jeff said...

AD, those who are at their comfort level probably aren't adding at all. I believe this is what MF was saying.

If I am at my gold comfort level I would consider adding if amount of fiat became more than I want to hold. For me, mining costs and pre-transition price of gold are unimportant. But then I don't buy LGD bars.

AdvocatusDiaboli said...

Jeff,
I understand what you are saying, but be honest that means: You are not a "true" Freegolder, meaning putting a constant percentage of your continues surplus ("savings") into gold, but rather you sit on your stash, speculating to either ride out the storm, or to speculate to become "finally rich".
So you are NOT a freegolder, you are a SPECULATOR (which is okay, no insult, but lets face it). I really wonder how many freegolder are really out there.
Greets, AD

Dwain said...

costata,

You might want to read past the Fed Policy during the Depression and War Years portion that you've quoted.

It really is a good read.

Edwardo said...

Really, Jean Claude?

http://www.cnbc.com/id/47471171

JMan1959 said...

Carl,
If you believe they will not print, you must believe then that the USG, when faced with the dilemma of inadequate buyers for all of their debt, will immediately crash their lifestyle and reduce all of their spending, I.e. Medicare, Medicaid, Social Security, Welfare, Defense. THAT is what would cause 300 million citizens to run AT them, much more so than printing ever will. They would all be run out of office in their next election. NFW is any politician ever going to vote for that to happen. The Keynesians believe they can "control" inflation, and will attempt to bleed the money from us slowly through printing. The argument for austerity is not very realistic, historically speaking (Greece, Spain, Italy, Ireland, US).

Jeff said...

I disagree, AD. I believe the speculator is trying to time the transition, using price metrics like mining cost, etc. I simply add over time.

FOA: Timing?

We, and I, as physical gold advocates, don't need timing for this position! Timing is for poor, paper traders. We are neither and our solid, long term, one call over several years to hold physical gold will confirm our reasoning. There is no stress for me to own this ancient asset as it is in a good proportion to all my other wealth...


There is no trading an economic system whose currency is ending its timeline. Smart, quick talking players will joke at our expense until fast markets and locked down paper gold positions block their "trading even" move into physical at any relative cheap price. Mine owners will see any near term profits evaporate into a government induced pricing contango that constrains stock equity with forced selling at paper gold prices.

Jeff said...

Carl, I found this signature of yours on another site: America's #1 Enemy and Direct threat to our Lives, Liberty, Property and Future is the United States Centralized Fascist Government.

You, AD, Desperado and the rest all seem to be stamped from the same mold, don't you? I'll never understand why you hard money bugs hate the G so much, but want them to control the price of gold.

Dwain said...

Jeff said... "I'll never understand why you hard money bugs hate the G so much, but want them to control the price of gold."

What AD, Desperado and the rest may think, is not what I think.

Gold as money has no value in and of itself, it is a standardized unit of measure by which value in other things is derived.

A grain of gold is worth a grain of gold, period.

That is not a price or a value, it is simply a measure.

The greatest con ever pulled upon the world by Rothschild's, was to convince them gold had a price.

If gold has a price then it is not the money, whatever gold is priced in, is the money.


.

Anand Srivastava said...
This comment has been removed by the author.
Biju said...

Carl said:
The greatest con ever pulled upon the world by Rothschild's, was to convince them gold had a price.


was there a Rotshchild family 2000 years ago. This I ask because India was storing wealth in Gold even then as now - the biggest black hole for Gold for a many centuries.

you are not thinking properly.

Biju said...
This comment has been removed by the author.
Anonymous said...

I am a saver, period.

I earn more than I normally consume. Sometimes I treat myself to some discretionary consumption. I believe that is what some refer to as "smelling the roses". If I have a surplus of dollars after all expenditures, I buy physical gold.

If I have a unanticipated expenditure that exceeds my available cash, I use credit to hold me over until my surplus earnings can liquidate the liability.

Occasionally when conditions are favorable, like a few days ago, I anticipate my future excess earnings and borrow bank credit in order to purchase physical gold. My liability is offset immediately by something of tangible value. I am happy with such a trade.

I will continue in this fashion until a superior medium of value supplants physical gold. In other words, I will continue until I know longer have excess earnings to save.

Biju said...

AD said :
AT WANT PRICE LEVEL COMPARED TO MULTIPLES OF MINING COSTS, WOULD YOU CONSIDERABLY REDUCE ADDING TO YOUR STASH?


I will "Another's" word for that. I remember he mentioned somewhere - at freegold price, you will able to exchange 50 oz of Gold for a nice house. I will take that as in Bay Area, California. I will stop then.

I will take that as a

Biju said...
This comment has been removed by the author.
JR said...

Gregor,

You comment:

"I am still not convinced that FED operations alone, or even massive increases in US debt monetization, will convert public mood."

The initiating spark of hyperinflation (currency collapse) is the loss of confidence in a currency. This drives the fear of loss of purchasing power which drives people to quickly exchange currency for any economic good they can get their hands on. This drives the prices of economic goods up and empties store shelves, which causes more panic and fear in a vicious feedback loop.

The printing of wheelbarrows full of cash is the government's response to price hyperinflation (currency collapse), not its cause. This uncontrollable (knee-jerk) government response happens in some cases, but not all. Let me repeat: The massive printing that first comes to mind when anyone mentions hyperinflation is not the cause, it is an effect, in the common understanding of hyperinflation which is the collapse of a currency.


http://fofoa.blogspot.com/2011/04/big-gap-in-understanding-weakens.html

======================================

" USD HI will still need the psychological shift. "

From above:

FOA 10/3/01 - The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

more perspective:

Structural Support

FOA 10/3/01 - Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

[...]

Over the years, all this dollar creation has stored up a massive "price inflation effect" that would be set free one day.

[...]

To this end, I have been calling for a hyper inflation that is being set free to run as a completed Euro system alters Political perceptions and support. That price inflation will be unending and all encompassing.


Indeed:

Gregor is correct about the "benign" inflation we've had, not just for the past decade, but for the past three or four. This is what FOA was talking about. "Yes, we got our little 3, 4, 8 or 9% price inflation rates in nice little predictable cycles." But hyperinflation "never showed up because the world had to support its only money system until something could replace it." The euro was born, then came China, and my call is that hyperinflation "is now being 'structurally' set free to run."

cont.

Dwain said...

Biju,

What was the price of gold in India 2000 years ago and what was it price in?


.

JR said...

More:

The United States currently enjoys reserve currency status, which enables it to borrow cheaply, and which keeps capital circulating through our government bond markets

The point is that the premise rests on 90 years of history which only makes sense if viewed properly. It rests on 50 to 60 years of political support followed by 20 years of structural support from Europe and another 8 or 9 years of structural support from China. Today both political and structural support are gone, and the "solid foundation under any and every discussion" of monetary matters in America is what I am generously terming the "willy-nilly support" of the rest of the world. In other words, we have no say in the matter. Our fate is in their hands. Which kind of renders the premise invalid, doesn't it?

I agree with Gregor that "hot inflation" is coming whether you like it or not, for all the reasons he explains and more. My only disagreement is that Congress will take it more hyper than we've seen in all of fiat history, so fast it will peel the skin off your face, because they are operating on a false premise. The miracle of the magical dollar theory premise is a false premise because it completely misses what's going on. And anyone who's waiting for those operating under a false premise to panic out of their dollar holdings before even entertaining this reality is like someone waiting for the loss of consciousness before entertaining the possibility of death.



see that:

"And anyone who's waiting for those operating under a false premise to panic out of their dollar holdings before even entertaining this reality is like someone waiting for the loss of consciousness before entertaining the possibility of death"

====================

Gregor says:

" USD HI will still need the psychological shift. "

FOFOA says: Me: But is this mass-psychological tipping point the cause, or simply a visible effect (symptom) that is sometimes mistaken as the cause? A loss of consciousness is also present in all deaths.

The cause already happened:

It rests on 50 to 60 years of political support followed by 20 years of structural support from Europe and another 8 or 9 years of structural support from China. Today both political and structural support are gone...

Dwain said...

JMan1959 said... "If you believe they will not print, you must believe then that the USG, when faced with the dilemma of inadequate buyers for all of their debt...."

I think the USG and the Fed aren't as ignorant of history as others make them out to be.

Politicians make and break promises to the people all the time....

When's that ruling due from the SC on obomama care?......

ampmfix said...

Thanks all for your answers.
I do similar to matrixsentry, buy everytime I have a surplus, but I don't spend in anythying else, that means the house needs repairs, the car is breaking down, I need new clothes (wife is happy about my rags yeah!) but money burns and has only one destination, my metals dealer... I am a gold junkie, pure and simple. Call it an OC disorder if you will.
The reason for the poll request is that I need to know the level of contentment of others so I can make a picture of the future world (given different needs, geog area, age, etc... I will manage the statistics myself). When you average large sets of data you DO get meaningful results.
Thanks anyway.

Gary Morgan said...

Jeff wrote:

'You, AD, Desperado and the rest all seem to be stamped from the same mold, don't you?'

After initially thinking there was a typo, I quickly realised he was spot on. I also realise 'mould' is spelled differently in the US to the UK.

But either meaning fits nicely for that lot of shoulderchip carriers.

Tony said...

ampmfix,

Aquilius, in a previous thread, reminded me of FOFOA's assertion that freegold would propel the fiat price in the destination of $50k per ounce in today's dollar terms. Assuming everything keeps a relative price, I suppose you can gather what's necessary for "survival." Yes, I know that's quite an assumption, but it helps add some simplicity in perspective when planning.

I should also add that FOFOA has also commented on the idea that if you need gold for basic needs (food, clothing, etc), then you didn't plan very well for "survival".

As to your question, I continue to add as I am able...just as a means of saving rather than planning for a future profit windfall.

Gary Morgan said...

ampfix,

I don't think that poll will help you at all. People have different surpluses to save for a start. Also, they will be different ages with different expected lifespans, will have different family situations to support, and different financial/lifestyle goals from the opportunity a repricing would provide.

I seem to recall Fofoa wrote that c3-5% would preserve your current financial position, more would enhance it.

Speaking personally, I just want to get as much as I can before the $IMFS collapses, as I am fed up with risky investments (such as sterling in a savings account!), and prefer something real.

Tommy2Tone said...

Carl. You are redonkalous.

Tommy2Tone said...

https://www.google.com/#hl=en&gs_nf=1&tok=yz4xdXQEUZEqf9nvL-IWEQ&cp=21&gs_id=2&xhr=t&q=%22makeshift+busy+work%22&pf=p&sclient=psy-ab&site=&source=hp&oq=%22makeshift+busy+work%22&aq=f&aqi=&aql=&gs_l=&pbx=1&bav=on.2,or.r_gc.r_pw.r_cp.,cf.osb&fp=4039b7899f268402&biw=638&bih=767



Carl's extensive writing and his catch phrase.

Edwardo said...

A (C.A.R.L.) Haiku

Contrived arguments
Ridiculously labored
Sap reader's patience

Motley Fool said...

AD

I suppose the charge you level is fair. In my case I do not have much additional income to speak of. Being that I one of small worth, I overextended in my initial gold purchases and am now using any additional income to work on preparations for the transition.

That means food, medical supplies, ammunition, etc. Once I have completed that I will start buying gold again, though tbh I don't expect to be able to do so before the transition to FreeGold.

So for me to be content means I am not crashing my lifestyle to afford more gold. I am simply living life and preparing otherwise as best I can.

I realize that most here, being from first world countries, and in different stages of their lives, have a lot more excess income, and so my position should not be seen as representative of the board.

TF

Biju said...

First time I am hearing some noise discussing possibility of Greek exit from an EU official, which I find hard to believe. It was quickly countered by another official. Any thoughts here ?

WSJ :
EU Official: Greek Exit Plans Discussed

BRUSSELS—The European Commission and the European Central Bank are drawing up plans should Greece abandon the euro, Trade Commissioner Karel De Gucht said in an interview published Friday, the first time a senior European Union official has acknowledged such preparations.

The ECB and the commission are "working on emergency scenarios in case Greece doesn't make it," Mr. De Gucht said in an interview with the Flemish newspaper De Standaard. Phone calls to Mr. De Gucht's office weren't returned.

In the interview, Mr. De Gutch said it was imperative Greece follow through on its economic overhaul and remain within the currency union.

"There is no alternative. Greece must stick to the deals that have been agreed. That's the only rational option for the country," the paper reported him as saying. "Ultimately, I think Greece will stay in the monetary union," Mr. De Gutch said.

European Economics Commissioner Olli Rehn quickly countered Mr. De Gucht's comments about the contingency plans, saying: "We are not working on the scenario of a Greek exit. We are working on the basis of a scenario of Greece staying in."

In an interview to be aired later Friday on Channel 4 Television in the U.K., Mr. Rehn also pointed out that his colleague was "responsible for trade. I am responsible for financial and economic affairs and relations with the ECB."

Earlier, a commission spokeswoman denied that contingency plans for a Greek exit were under way. An ECB spokesman said in an email the bank doesn't "engage in any speculations about any emergency plans or possible scenarios and therefore do not comment Commissioner De Gucht's statement."

The "immutable preference" is for Greece to stay in the currency bloc, the spokesman said, echoing comments Wednesday from ECB President Mario Draghi.

Contingency plans have long been speculated on but remain taboo in Brussels, where EU officials have long said euro-withdrawal is out of the question. The Greek elections May 6 threw into doubt the country's ability to meet conditions in its bailout deal with international lenders, potentially cutting off the financing needed to keep the country afloat and forcing it from the 17-nation euro zone. Greece recently completed the biggest debt write-down in history.

Talk of Greek restructuring in the early days of its debt crisis was similarly avoided by EU officials.

Mr. De Gucht said Greeks should not assume the EU will bend on the country's bailout if antiausterity parties prevail in fresh elections next month. He refused to discuss details. There is "no margin" for concessions, Mr. De Gucht said in the interview.

Earlier this week, some EU finance ministers signaled there might be limited scope to relax some of the tough fiscal targets set on Greece by the ECB, the commission and the International Monetary Fund in return for financial assistance.

The commission spokeswoman Pia Ahrenkilde Hansen dismissed Mr. De Gucht's comments. "This is not a scenario that we are working on," she told reporters.

Many experts say a Greek exit from the euro zone may spell the demise of the currency bloc.

Mr. De Gucht played down the risk that other countries would pull out.

"The chaos in Greece would be so great, that other citizens will realize they don't want to leave. I am sure of that."

He didn't rule out further Greek elections beyond those expected in June or a referendum on euro-zone membership where the country would "perhaps vote differently."

Write to Vanessa Mock at vanessa.mock@dowjones.com and Matina Stevis at matina.stevis@dowjones.com

JR said...

Playing winning politics at an expert level by EU, aka look how easy it is to play poker when the other side's bluff is obvious, aka Greece you can't bluff when the other side knows you don't have anything:

7.10pm BST: There's been a rapid backlash in Greece to the news that Angela Merkel had proposed that Greece should hold a referendum on its euro membership.

Alexis Tsipras, head of the Syriza coalition, reacted quickly, saying Merkel had grown used to treating Greece "like a protectorate". He blamed the leaders of the mainstream political parties for encouraging this attiture.

Tsipras (rising a wave of popularity by arguing that Greece's austerity package must stop), added that the June 17 elections will allow the Greek people to end their "austerity, subordination and indignity" in favour of "progressive developments across Europe".

You can see Tsipras's full statement here, on RadioBubble.

Antonis Samaras, the head of the conservative New Democracy party, also rejected the suggestion of a referendum, but for different reasons. Samaras said:

The Greek people don't need a referendum to prove they're pro-euro.

And Pasok MP Eva Kaili has also rejected Merkel's suggestion, telling Business Insider that the referendum:

won't and can't happen. It is ironic and it is blackmail.

Efthimia Efthimiou, financial journalist at Capital.gr, suggests that Merkel would have been aware that Greece's current coalition government lacked the authority to call a referendum, but wanted to ensure that the June 17 election was seen as a vote on Greece's future in the eurozone.


========================================

6.45pm BST: Angela Merkel's jaw-dropping suggestion that Greece should hold a referendum on its membership of the eurozone (as the Athens government stated at 6.26pm) comes exactly 190 days after former prime minister George Papandreou resigned, after enraging European leaders including the German chancellor by suggesting the Greek people should vote on the terms of their second bailout.


http://www.guardian.co.uk/business/2012/may/18/eurozone-crisis-stock-markets-greece-spain

ampmfix said...

Tony,

Thanks for your ideas. Since nobody here cares to detail personal calculations, here goes mine: when I said survival, it means a no-frills life (food, shelter, medical insurance, some gas and internet) till I die, hopefully 50 years from now. My goal is not having to work after freegold, just spend the ounces.

I once read that in 1905 you could spend a deluxe day in NY (sleep and breakfast at the plaza, broadway show, 5 course dinner at Delmonico's, and simple sandwich and beer lunch) for 3$. Or seven days for a nice double eagle 20$ coin (close to 1oz). Extrapolating to a no-frills life, you could make that 20$ coin last 1 month. So, 1 oz per month, means 12 per year, 600 for 50 years. And, extrapolating prices to nowadays, that 20$ would be around 6000$, so there you have it I would need 600oz with a gold price of 6000$/oz. If freegold is 40 times reval, as FOFOA mentioned several times and gold would be around 1500 x 40 or 60000, then I would only need 60oz. Multiply by 2-3 for errors, you get that around 150 oz would do the trick. Where is my miscalculation?

Gary,

Thanks for your ideas. 3-5% is way too low, once I understood the ruin of having your surplus wealth in fiat (purchasing power loss), there was no doubt the allocation had to be 100%.

Cheers all.

ampmfix said...

Hi MF,

You are right about the basic staples but I don't think the bad period would last longer than 6 months. If you choose carefully the food (not US style, but mediterranean style, ie: lentils, chick peas, beans, rice, veggies(homegrown) and pork (preserved), water, etc...) you can probably get by with a 2000$ purchase for a family of 4.

I am not really crashing my lifestyle, it is already crashed! I mean, after 53 years on this world, and grown tired of the superficial smoke and mirrors world we are fed, I have realized I don't need anything besides from health, some food and books or the internet, that will do.

Thanks a lot for your inputs and best of luck.

One Bad Adder said...

Greg Canavan getting REAL close to the bone IMHO.
http://www.dailyreckoning.com.au/the-physical-gold-market-from-the-weak-to-the-strong/2012/05/18/

Piripi said...

Carl,

2000 years ago in India, as is always the case when gold is trading freely, gold was priced in value. Or value is measured in gold, take your pick. As you said yourself in your previous comment, gold is just a measure, a reference point.

However, unless you are working under the assumption that “Rothschild’s” had convinced the world gold had a price earlier than 2000 years ago, then your question directed at Biju is a quintessential strawman.

=======

I completely agree, regardless of who carries it out, that it is the fixing of the rate of exchange between gold and another media that causes the MoE and the SoV to artificially become the same media. Keep this arrangement in place long enough (you need a corner on gold to do so) and it becomes naively regarded as natural, and the subsequent inequities and feelings this artificial arrangement engenders as natural also. "Human Nature" is altered!

Seeing this we can see how the HMS position is found, one where fiat currency is seen as the problem and gold as the solution, never going deeper to see that both need each other, that when unencumbered physical gold is priced freely in any form of currency their separate roles as MoE and SoV then become complimentary, symbiotic, and natural.

costata said...

OBA,

Real close to the bone alright. Thanks for the link.

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

I also don't think the Rothschild's convinced the numerous petty princes of the various princely states pre-British India to store their wealth as Gold in their Temples and also demand Gold as part of Gold for trade settlement.

Everyone thought the story of Gold in Shree Padmanabhaswamy temple was a myth.

The temple which has vaults A to F - so far they have unearthed more than 130 Tonnes so far, yet to open the main vault B. postponed opening of the chamber marked 'B'. This chamber is sealed with an iron door with the image of a cobra on it and it has not been opened, due to the belief opening it would result in much misfortune.[32] The royal family said that many legends were attached to the temple and that chamber B has a model of a snake on the main door and opening it could be a bad omen.[33] Seven-member team will consult with some more experts on 8 July 2011 and then they may take the final decision on opening of chamber ‘B’.[34] An Ashtamangala Devaprasnam conducted in the Temple to discern the will of the Lord revealed that any attempts to open the Chamber B would cause Divine displeasure and that the holy articles in the other chambers were defiled in the inventorying process.[8].


The petty princes were able to cook up such stories as bad omen to prevent publicity of stored wealth or theft. myths can sometimes come true.

Biju said...

Maybe the myths about bad omen are true - The man who petitioned the state High court to open the vaults and take possession of the treasure dies of Heart attack soon after opening. He was an ex-IPS officer(indian civil service) turned advocate.

http://www.youtube.com/watch?v=SBHGb-nt6_o

Anonymous said...

OBA,

Very interesting article and gets really close to what FOFOA laid out in Today's(quote-unquote)"gold".

Thanks for the link.

Tony said...

ampmfix,

150 ounces, huh? Guess it's safe to say I will not be among the elite when the other shoe drops.

Victory said...

Costata,

Thanks for your reply, I have some brushing up to do on banking regulations:)

OBA,

good article...while reading it i clicked on a hyperlink that took me here:

http://www.moneymorning.com.au/20120104/gold-price-conspiracy-what-uncle-sam-doesnt-want-you-to-know.html

It's an article about the governments management of the price of gold. Here is a quote from the article quoting Fed Minutes in which Peter. R. Fisher, head of open market operations and foreign exchange trading for the New York Fed says:

"Fisher, the minutes say, made the case that rising gold prices would increase U.S. debt. Fisher “explained that U.S. gold belongs to the Treasury. However, the Treasury had issued gold certificates to the Reserve Banks, and so gold also appears on the Federal Reserve balance sheet,” the minutes say. “If there were to be a revaluation of gold, the certificates would also be revalued upwards; however [to prevent the Fed's balance sheet from expanding] this would lead to sales of government securities. So the net benefit to Treasury would need to be carefully calculated, since sales of government securities would expand the public portfolio of government securities and hence also expand the Treasury’s debt-servicing burden.”

This makes no sense to me can anyone explain?

As FOFOA pointed out in his letter to R. Paul if the USG revalued its gold holdings the gold certificates at the the Fed would be revalued (it's assets increased) and the corresponding balancing liabilities would be FRN deposited to the Treasury. So in effect the treasury would get debt free money, an instant capital injection just as they did when they revalued gold in 1933.

What is this guy Fisher talking about selling Treasuries and increasing the Governments' bebt service?

Also on a side note can anyone help me understand why 1-month implied gold lease rates are always negative (LIFO - GOFO) but 1-year implied gold lease rates are always positive?

tx,

v

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

Blondie said..."However, unless you are working under the assumption that “Rothschild’s” had convinced the world gold had a price earlier than 2000 years ago, then your question directed at Biju is a quintessential strawman."

WOW! I hope you're just being facetious.


Carl said... The greatest con ever pulled upon the world by Rothschild's, was to convince them gold had a price.

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

Biju said... was there a Rotshchild family 2000 years ago. This I ask because India was storing wealth in Gold even then as now - the biggest black hole for Gold for a many centuries.

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

Carl said... What was the price of gold in India 2000 years ago and what was it price in?

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

We're discussing whether or not gold has a price.

But you choose to infer from that conversation that I'm claiming that Rothechilds was setting the price of gold in India some 1600 years before he was born????

You want to talk about a strawman!!!

Geez..... If you're not being facetious then, that's just messed up....

costata said...

Victory,

Drop over to VTC's site for an explanation of GOFO etc.

What is this guy Fisher talking about selling Treasuries and increasing the Governments' bebt service?

The fiercely independent, non-government controlled Fed Res remits its profits to Treasury voluntarily. It doesn't have to of course. It's merely "policy".

/sarc on

If that USG paper is in the hands of the public the Treasury has to hand over currency via redemption or interest. If the Fed holds that paper any payments on it return to the Treasury net of the Fed's expenses. But don't take my word on it here's some "good reading".

http://money.cnn.com/2012/01/10/news/economy/federal_reserve_pays_treasury/index.htm

Each year after paying its own bills, the central bank hands over all its remaining earnings to the Treasury, as per Fed policy. Most of the money is derived from interest earned on holdings like Treasury bonds and other debt.

See also column headed "Payments to U.S. Treasury" to the right of screen here:

http://www.federalreserve.gov/boarddocs/rptcongress/annual07/sec5/c1t11.htm

The table only goes up to 2007 but I'm sure you will get the picture. Carl, our resident Fed Res "expert" could probably supply the same information but I thought he might appreciate a break from dispensing his hard won, superior insights into all matters Fed Res.

Cheers

costata said...

Interesting theory!

Why are high-quality government bonds rallying to new highs, while gold sinks to a six-month low? A key explanation is surprisingly simple if technical: Government bonds are Tier 1 capital assets, gold is not (yet).

With many banks already undercapitalised, as losses mount anew, so must banks acquire additional Tier 1 assets to maintain their mandated capital ratios.

As such, to the extent that banks or other financial institutions hold gold, but need to raise regulatory capital, they must sell the former for the latter.


http://www.financialsense.com/contributors/john-butler/canary-in-the-gold-mine

Piripi said...

Quite a bit of irony there, costata.

Piripi said...

Carl,

Perhaps I misunderstood your comments, in which case I apologise.
Would you care to illuminate me regarding what exactly you were driving at with this one:

” What was the price of gold in India 2000 years ago and what was it price in?“

When it comes on the heels of your previous remarks:

”The greatest con ever pulled upon the world by Rothschild's, was to convince them gold had a price.
If gold has a price then it is not the money, whatever gold is priced in, is the money.“
?

Anand Srivastava said...

ampmfix my calculation has also been very near yours. I expect 10 times revaluation as the base minimum, this means that I need around 5Kgs, very near to your 150oz. I also intend to use my oz for a good life, and not work for a living.

costata said...

AS, ampmfix et al,

I intend to work until my health won't allow it or they carry me out in a body bag.

My dispositions in gold and other areas are, in part, intended to ensure I never again have to do work I dislike because I need the money or to spend so much of my time working that I don't have time to think about anything else and to pursue the study of subjects that interest me.

This is my definition of freedom. The freedom to spend my time as I choose to spend it.

Blondie,

I assume you mean the irony in the round robin of those payments. If you meant my comments about Carl then I'm a little disappointed about only managing to achieve irony. I was shooting for sarcasm there.

Piripi said...

From OBA's excellent link (emphasis mine):

"Paradoxically, the demand for physical gold (within the bullion banking system) seems greatest when the selling of paper gold (which sets the price) is heaviest.

That's why this long bull market in gold is so relentless. As the global financial system continues to decay, physical gold flees the 'system'. Rising prices are necessary to bring some of that gold back into the system. This is necessary to keep the US dollar based monetary arrangement going.

If gold wasn't such a crucial part of global finance, it wouldn't be such a huge market. Gold is crucial...regardless of what Warren Buffett or Ben Bernanke say.

The day when physical gold leaves the banking system - for good - is the day when the paper dollar based system dies. The GOFO rate could give us important clues as to when that will happen. As in the past, the gold 'price' may fall at the same time.

But at that point, the value of physical gold will be many multiples of the current price. We wouldn't be surprised to see trading halted and gold repriced much, much higher over the course of a weekend. As it has done throughout history, gold will preserve your wealth. But you must focus on value, not price if you want it to do so."

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

costata,

I concur with your definition of freedom.

The irony of course being the selling of gold to acquire “Tier1” collateral.
Another highlighted by the quote I pulled above being that a declining price of gold indicates heightened demand.

The only irony I see with Carl is that for one who insists that people be precise with their words he still appears to be the only one understanding his. (shrug)

Dwain said...

costata,

Thanks for the high regard but I'm nowhere near to being an expert on the Fed. I'm just in the ever evolving endeavor of trying to get a working handle on it, beyond the press releases and stripped of politicking theater. Sometimes I get it right, sometimes I don't.

Anyway, I didn't see any mention of the Fed's off balance sheet activities or the trillions in capital that has "disappeared" from there, did you? And I didn't see any mention of the disposition of the profits derived from its non-lost, off balance sheet capital assets either, I must've missed that too.

Ron Paul isn't calling for an audit of the Fed just because he likes the sound of his voice when he says things like that. There is some serious shenanigans going on there.

Thanks,
Carl

Victory said...

Costata,

I thought he may have been alluding to that when I first read the article but the question is why would the Fed have to sell it's existing stock of Treasuries if not to prevent inflation from the governments' new gold revaluation credit as it is spent into circulation (sterilization).

Suppose the USG does not spend them into existence but instead pays off treasuries as the debt matured, and if they are owned by the Fed it would be noninflationary. But to answer my own train of thought I suppose the Fed needs a stock of treasures for monetary policy in case it every wants to sell them to influence rates or fight inflation.

This leads me to two separate thoughts.

1. If the US trade deficit is structural and consumer driven and all of a sudden say R. Paul gets elected and balances the budget would this be inflationary in the sense that foreign dollars accumulating overseas would not have a way to be recycles via continued treasury purchases. What would be the store of value for these dollars aside from straight up FX$ reserves assuming the Chinese and other trading creditors don't want to allow their currencies to appreciate against the dollar.

2. If a country like China that is increasingly moving into the short end of the yield curve via operation twist decides not to refinance it's existing stock as they mature what do they do with the money? Is this a real threat or is there no fear they will deploy their reserves because they are for defending the Chinese currency on the FX market if ever the time should come. In other words its insurance that they hold for that reason and also to keep an artificial peg against the dollar and keep their export machine growing.

-v

costata said...

All,

On reflection Uncle costata is elevating that piece by John Butler to an absolutely must read. Recall the earlier discussion here about the return of gold as collateral in the financial system. Butler presents us with a potential trigger for the revaluation of gold (yes, that revaluation).

And guess whose finger is on the trigger (my emphasis):

As it happens, given that so many banks are desperate to raise their capital ratios, there is in fact a discussion underway regarding whether or not gold should, in fact, be designated as Tier 1 capital. In a recent article in the Financial Times, it was reported that, “The Basel Committee for Bank Supervision, the maker of global capital requirements is studying making gold a bank capital Tier 1 asset.”

This is a hugely underappreciated development. For if it happens, it will be an important step toward the re-monetisation of gold. Gold would be able to compete on a level playing field with government bonds. While the playing field could be levelled in this way, there would be a gross mismatch on the pitch.

On the one hand, you have unbacked government bonds, issued by overindebted governments, yielding less than zero in inflation-adjusted terms. On the other, you have gold, the historical preserver of purchasing power par excellence. In my opinion, if gold becomes eligible as Tier1 collateral, the price is likely to soar to a new, all-time high.


Obviously I disagree with the estimable JB that this would constitute "remonetization". It would cement gold as the reserve asset par excellence. And take note he stops short in describing that "playing field".

John Butler posits a revaluation of gold against sovereign debt. But mes amis currency is also an "unbacked" Tier 1 asset "issued by overindebted governments, yielding less than zero in inflation-adjusted terms" is it not?

Here's the link to the article again:

http://www.financialsense.com/contributors/john-butler/canary-in-the-gold-mine

BTW do a little digging on the The Basel Committee for Bank Supervision and note who is heading that committee at present and perhaps dig a little deeper and look into that person's track record. LOL

Cheers

JMan1959 said...

Carl,

The answers you provide to the questions that are posed to you leave something to be desired. Namely, an answer to the question, lol. Are you in politics? You can talk in circles with the best of em', bro...

One Bad Adder said...

Re: the Daily Reckoning piece linked above.

Whilst the "process" GC outlines gels with market reality,ie: a spate of negative GOFO ultimately driving $PoG higher, I'm struggling with the perception these (relatively small) $-upticks as being sufficient to sate or neutralise a market (supposedly) teetering on the brink of a physical liquidity crisis?
I can only humbly conclude the market scenario(s) he most eloquently outlines are rather more "effect" than "cause".
Cause? ...buggered if I know!

Dwain said...

Blondie said... "Perhaps I misunderstood your comments, in which case I apologise.
Would you care to illuminate me regarding what exactly you were driving at with this one:

” What was the price of gold in India 2000 years ago and what was it price in?“


Apology accepted.

Biju was inferring gold has always had a price so I asked him, what was that price and what was it priced in?

It's a process of discovery; if gold had a price in india 2000 years ago then there must have been a medium to price it in, what was the price and what was the medium?

------

”The greatest con ever pulled upon the world by Rothschild's, was to convince them gold had a price."

That is an introductory fact used to provide context and as a segue to my point that:

"If gold has a price then it is not the money, whatever gold is priced in, is the money.“

Do you disagree with that statement?

costata said...

OBA,

You might want to run your eye over a post at Jim Sinclair's JSmineset. I can't provide a direct link to it but this is the opening paragraph:

I have been watching junk debt relative to nominal Treasuries (IEF/TLT) intraday. I began seeing some very wild intraday moves, with junk debt prices collapsing (yields spiking) while safer Treasuries were aggressively being bid up (yields dropping).

The speed and magnitude of this credit spread widening on Wednesday was indeed meaningful. Thursday, that spread widened even further, in a way that suggests that a credit event may be underway in the U.S. and that contagion is here.


A report over at the Macrobusiness blog has Mike Smith* claiming that the debt markets are closed to Australian banks again. (Bear in mind readers all 4 of the major Aussie banks leapt into the world top 15 in 2008.) It looks like there's a major credit event/liquidity freeze emerging.

http://www.macrobusiness.com.au/2012/05/notes-on-a-greek-exit/

(*He's CEO of the ANZ bank in Australia for the information of other readers.)

Cheers

Piripi said...

Carl,

I've been assuming that when you say "convince them gold had a price" you are meaning “convince them that gold's rate of exchange could be fixed”. If this is not what you mean by “price”, then we are, and aways were, talking at cross-purposes, but your further statement that ” "If gold has a price then it is not the money, whatever gold is priced in, is the money“ definitely implies that by “price” you are talking about a fixed and not a floating rate of exchange.

In this light:

Carl said: ”Biju was inferring gold has always had a price so I asked him, what was that price and what was it priced in?“

Biju said: "India was storing wealth in Gold even then as now"... I do not see in Biju's comments any inference that gold “has always had a price”.

======

Carl said: ”"If gold has a price then it is not the money, whatever gold is priced in, is the money.“

Do you disagree with that statement?”


Without your definition of "money", I couldn't say.

Nickelsaver said...

http://youtu.be/C5rJ4g9EMUk

costata said...

Biju,

I think it's the sophistry that frustrates people who are attempting to enter into discussion or debate with Carl. That and his slipperiness when pressed for definitions. Let's examine one of his tricks:

...if gold had a price in india 2000 years ago then there must have been a medium to price it in, what was the price and what was the medium?

This is an example of one of his techniques. Notice his use of language "the price" and "the medium". It's a loaded question. It demands to be answered in a way that suits Carl's arguments. A specific price in a specific UoA/MoE AKA in his terms a "currency" of sorts or a "money" I suppose.

Many here long ago came to understand this concept of money as a shared association of values (prices in my lexicon). Okay let's revisit what a price is for the millionth time. An offer to sell - perhaps via a price tag or announced by open outcry. Perhaps a current fixed market price established by exchange in a market where price is discovered.

I would proffer this definition of price. Price is an offer to exchange something at a negotiated or fixed ratio for a quantity of one specific thing or at different ratios for varying quantities of many different things.

In periods when gold was the most readily and widely accepted item in trade it would have had as many prices as the goods it was exchanged for. If a weight of gold is exchangeable for 10 jars of olive oil is that not a price? "My" olive oil would have had a gold price. "Your" gold would have had an olive oil price. Likewise "my" silk or salt and "your" gold.

We have this universal concept of money as a shared association of values that serves equally well throughout monetary history because it embraces evolution. Instead it appears Carl offers us a kind of monetary creationism. Money doesn't come into existence until it conforms to his concept of money.

So Biju my advice to you and other contributors to this blog from India is to get yourselves some really, really big boxes of popcorn (or pappadums) and sit back and wait. Carl should catch up with you in around 5,000 years. Australian aboriginal readers my find the wait tests your patience somewhat. Archaeological discoveries about trade among tribes places him anywhere from 10,000 to 45,000 years behind you.

Motley Fool said...

costata

I agree with your concept of freedom. I'm somewhat perturbed by these statements of retirement post freegold. It brings into question for me the character of the person, not that I am one too judge, but it seems to place them firmly in the debtors camp, and only accidentally in the savers camp.

It also validates AD's prior criticisms that he sees freegolders as hoping for some get rich quick scheme so they don't have to work anymore. A valid reason for criticism in my mind.

TF

costata said...

MF,

I'm a little uneasy with the implications too. On the other hand I think that if they expend the effort now and forgo consumption to secure their aims later I think that places them in the savers camp.

I would have said the same thing about retirement before I understood the Euro Freegold-RPG architecture. Mrs costata retired recently. Lasted around 6 weeks before she went back part time. It's the treadmill we hated.

I have to admit that I too find those occasional get-rich-quick motivated comments offputting. But again, who am I to judge? Perhaps some of those folks haven't had a lucky break in their lives and they deserve one. If so, and Freegold-RPG delivers then good luck to them.

Cheers

Piripi said...

I have for some time ceased to use the term “money” in all parts of my life, on the one hand because I can never be sure what exactly people mean by it, and on the other because my own thinking rejects the fuzziness it creates. The subject matter under discussion demands this.

I do think it is incumbent upon Carl as a more recent participant to familiarise himself with the lexicon of this blog and adhere to it if he wants to establish a dialogue.

The modus operandi as outlined so deftly by costata had not escaped my attention, I’m just perhaps too accustomed to pulling my punches here.

Bjorn said...

@costata
Sorry if i´m a bit slow today (too), but where´s the humour in mr Ingves´s CV? Please explain!

costata said...

Bjorn,

Dark humour. I think these guys (not just the head of the committee) look like the kind of people who are going to make a serious attempt at hauling the banks into a regulatory regime with some real rigour. I have a sense that the party may be over for the cowboys in the foreseeable future.

One Bad Adder said...

Thanks Cos - I'll definitely be packing a few Sovs for insurance as we head to Europe in the near future.

Carl - it would appear (judging by my brief / quick flit through the thread) that you Sir are a man of this (current-cy) world ...and we share a similar outlook for same as it unravels - to quantify "too much money will NEVER be enough" ...Yes?
We who frequent this blog anticipate a future whereby GOLD is universally acknowledged as a premium wealth asset extant from the System, how-so-ever the current System may de/evolve going forward.
GOLD is not Money ...OTOH $PoG ...and associated proxy assets derived therefrom, may be considered so ...as they are well and truly "IN" the system.

Bjorn said...

costata

Maybe. Ingves is hard to read. I´ve always thought of him as a complete tool, and in the pocket of the banksters, based on his public statements. Public statements are probably not a good basis for judging a central bankers character, but as for his actual track record i haven´t dug deep enough to form an opinion. That´s why i wondered if there was something specific that you were referring to...

ampmfix said...

Hi MF,

I might not have explained myself well, I don't know anyone that saves more than me, when I said I don't need anything I mean it, nothing, zero, zilch, nada, THAT is the sign of wealth. It goes to sickening detail, when I rejoice by not spending in something I really need, some will say that is an illness. It goes in the family, let me give you a funny example, my grandmother who lived to 104 used to go shopping and always returned with all the money intact, because upon seeing something she might have bought, all the pleasure for her was to know she could buy it ANOTHER day, it would wait for her in the shop.

All the gold I purchased was the effort of 30 years working for assholes I hated. I have tenths of life projects that I want to get onto, whenever I can free myself from the bastards, for some of these projects it is already too late because of arthritis. Concerning gold, I already said in a previous post gold is never to be sold, but passed down to the family. The idea is not to sell the gold, but the silver, which will follow gold in part of the launch path.

Piripi said...

ampmfix,

We all do the best we can with the hand we are dealt; passing judgement is well above the pay grade of any of us.

I too read your comments and had some thoughts, but without walking a mile in your shoes those thoughts are ideals to attempt to rise to myself rather than to expect of others.

ampmfix said...

Thanks Blondie, I have no problem whatsoever, just wanted to explain better, English is not my first language. Cheers!

Piripi said...

The longer the BIS take to make gold Tier1, the more gold it seems the banks are likely to have to liquidate in order to buy current Tier1 assets.

Paper just ain't what it used to be.

======

There remains a large gap in the 20th century gold narrative concerning India's involvement. As the largest gold market, historical PM black hole and British colony, home of the world's largest private reserves and the only country other than the US to make private gold possession illegal during this time, her story is conspicuously absent. Keynes' first book of note was Indian Currency and Finance (plenty of discussion of gold in there), and I have seen it remarked that Bretton Woods was simply a copy of the Indian system scaled up and using the dollar rather than the pound.

costata said...

Blondie,

I've often pondered this question: How will the Giants cash out?

Perhaps:

The longer the BIS take to make gold Tier1, the more gold it seems the banks are likely to have to liquidate in order to buy (then) current Tier1 assets (and later gold with stock/share issues).

Just sayin'

costata said...

ampmfix,

Hear you! Wish you well. Good night

JR said...

Value is subjective.

Saving is just deferring consumption.


So who am I to judge another's consumption desires?

My only criteria is that people be honest and do what makes them happy, that they are doing what they want to do. Because at the end of the day, that's what its all about.

See this, the "heart" of Freegold:

The Free in Freegold

Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.

This is the free in Freegold.


http://fofoa.blogspot.com/2011/01/freegold-foundations.html

Gold, like everything else, has not inherent value, but value because of its usefulness to sentient people. If life on earth was destroyed, the gold wouldn't have value.

So here it is again:

The Free in Freegold

Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.

This is the free in Freegold.

http://fofoa.blogspot.com/2011/01/freegold-foundations.html


See that - although it says gold is being free, it means nothing absent the human mind tfrom which gold's value flows.

So hopefully you are getting the drift that its not really gold being set free so much, but humans and our conception of saving. And its our evolving understanding of gold that is leading us there.

So yeah, Freegold's all about freedom. The freedom to save in a stable medium freed from the $IMFS system of "storing" wealth in the banking system as debt, the flip side of credit.

So yeah, Freegold is really more freedom to choose between now and the future, because there is a stable medium (gold) to store your wealth until the future.

JR said...

When you deploy your savings in the system (the $IMFS' debt) you enable systemic malinvestment. But when you withdraw savings, you don't :)

those who net-produce and then funnel their savings into those antiquated financial instruments have and will always make somewhere between a much lesser and a massively negative contribution to society than the gold hoarders. I say massively negative because it is they, Dagen and Munger, that enable systemic malinvestment and incentivize the kind of lowering of prudent lending standards that almost brought the system down in 2008. By contrast, gold savers force banks to use their own capital when funding the debt-based consumption of the widgets left on the table. Paper investments pinched off by the sphincter that is Wall Street only encourage and enable banks to make too many loans, far beyond the weight (and prudence) of their capital.

So Munger and the Dingbat are wrong wrong wrong! You're a jerk if you save in paper, enabling the destruction of Western Civilization. Rational people everywhere have a moral obligation to buy ONLY physical gold with their savings. If you're capable of understanding the REAL world, you have a moral obligation to become rational.


http://fofoa.blogspot.com/2011/04/winner-takes-gold.html


=================================

When you withdraw your savings for the system, when you eschew holding credit, its a vote against the currency economy that deploys your savings, that doensn't allow wealth to be stored:

Our money is credit. “The people’s” money has always been credit. Credit expands and contracts based on the availability of actual money, the monetary base. 1922 was the first time they included a form of credit as the base itself. A Pandora’s box if ever there was one!

But don't assume there is coercion involved when I say credit is our money. It is the best possible money for a vibrant economy. It is how the pure concept of money emerged in the very beginning. When gold first became money, it was as the mental unit of account. I'll give you five ounces of gold worth of cattle and you'll owe me five ounces worth of milk and other goods and services. When we participate in a vibrant economy, we deal in credit denominated in money. When we withdraw from a mismanaged economy, we withdraw into the monetary base, we hoard the reserves. Holding credit is our vote for vibrancy. Hoarding reserves is our vote against the current economy.

Gold is in the process of changing functions in the global economy. And in this transition, "the most visible transformation since it was first used as money," it will plateau at a new, mind-blowing level before it resumes its proper function. This is happening.


http://fofoa.blogspot.com/2011/09/once-upon-time.html

JR said...

We are all like ants in an ant farm when we patronize Wall Street. Our contributions to society, should they exceed our day-to-day needs, are deployed by a system that does not care how they are deployed, just that they are deployed ASAP. If you would like to make a real contribution to the future of civilization then please buy physical gold and find a way to keep it close. Hoard your efforts outside of the system and watch as they receive a tremendous power boost just in time for deployment. You will be rewarded with the freedom to choose when and how your saved effort will be deployed and in so doing, you will help shape the future.

http://fofoa.blogspot.com/2010/04/life-in-ant-farm.html

JR said...

An explanation of how people keep their wealth and property from the State is then Counter-Establishment economics, or Counter- Economics [2] for short.

http://flag.blackened.net/daver/anarchism/nlm/nlm5.html

5/5/98 ANOTHER (THOUGHTS!)

...

Q: ** Is Europe (led behind the scenes by the BIS) an opponent to the United States?**

A: Sir, Yes, but not in the ways of war, as it is in the feelings of "pride" and "we go our own way".

JR said...

I don’t think you can get rid of top-down hierarchical systems via a top-down hierarchical method. That’s why counter-economics makes better sense in terms of political strategy.

http://aaeblog.com/2011/05/01/nialls-saga/

Instead Agorists propose the use of counter economics to starve the state from within. This is done by expanding and encouraging participation in an underground economy (also referred to as "freed market"), often harnessing the forces within black and grey markets for productive purposes. However, that is not always the case as mutual aid projects that seek to establish farming coops are also considered counter economic. Counter Economics works by keeping wealth out of the state run capitalist economy, as participants on the freed market gradually begin to trade more amongst themselves, diminishing the income of the state. "Revolution", then takes place in the collapse of the state which destroys itself by the various economic problems it will create as a result of trying to compete with the counter economy. At this point the state is weakened to a point where it can no longer suppress the existence of the counter economy, allowing for those operating on the counter economy to openly resist the state.
The key theme to Counter Economics is that it involves building a new society within the shell of the old. There is no unethical and wasteful participation within the political system required. Similarly, violent revolution is avoided, existing infrastructure is maintained, new infrastructure is created and there are no specific 'leaders', reducing the chances for a dictatorship to arise.


http://eng.anarchopedia.org/agorism



The euro architects were not trying to force a reserve currency on the world. There is a big difference between creating a government product with sovereign-monopoly backing that everyone must use, and creating a product that the marketplace must freely choose. In this case, the marketplace consisted of sovereign nations that chose to give up the privilege of printing their own money in order to join in the benefits of the euro.

[...]

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.


http://fofoa.blogspot.com/2010/03/synthesis.html

JR said...

See that again - "we go our own way."

I don’t think you can get rid of top-down hierarchical systems via a top-down hierarchical method. That’s why counter-economics makes better sense in terms of political strategy.

http://aaeblog.com/2011/05/01/nialls-saga/


"They" wanted an alternative, to usher in a new era, yes? As FOFOA wrote European central bankers made the tough decision to support the US dollar, but why? To avoid a bone crushing deflation and afford them time to build a new currency for the future, yes?

5/5/98 ANOTHER (THOUGHTS!)
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: ** Is Europe (led behind the scenes by the BIS) an opponent to the United States?**

A: Sir, Yes, but not in the ways of war, as it is in the feelings of "pride" and "we go our own way".


http://www.usagold.com/goldtrail/archives/another4.html

Dwain said...

Blondie,

In the 1700's, Baron Nathan Mayer Rothschild set the 'price' of gold daily, once at 10:30 then again at 3:00, everyone referred to that ritual as "Setting the Price of Gold", not 'exchange rate', 'price'. His efforts were successful in convincing/leading the vast majority of people into thinking gold had a 'price' that was measured in paper currencies because paper currencies was what most people were using in commerce, not gold. Most people didn't care what the 'price' of gold was (and still don't).

Today, in almost all markets, gold is not money, it is little more than a commodity with a price and like all commodities with a price, the price fluctuates. Any mention of an 'exchange rate' is quickly translated into meaning 'price' as no one is exchanging/converting their money for/to gold, they're buying gold with their money.

People buy and sell gold. Even on Gold Money sites, with few exceptions, they yammer on about all the money they're making with their gold and the 'price' of gold skyrocketing. Go figure...

The point is, almost no one in western civilization thinks of gold as being the original money, they don't think of it as being money at all. A few know it used to be, back in the olden days when things were much simpler but the notion that gold could ever serve as the basis of future money is considered backward thinking and absurd. Gold becoming a Tier1 asset would mean less than nothing to most people.

With that context in mind; "If gold has a price then it is not the money, whatever gold is priced in, is the money".

If gold is priced in a paper currency then that paper currency is the money and gold is just another commodity that people buy and sell with their money. The notion of a "fixed or floating rate of exchange" doesn't even enter into the equation, or people's minds because they don't use gold as money, they use credit that is assumed to be backed by paper.

The prevailing definition of 'money': Money is whatever the government says it is.


As for the Biju thing; I've stated my position as clearly as possible and I do not think further explanation is necessary. If you chose to continue to spin it into something other than what should be more than obvious to you by now, that is your prerogative, I will not argue it further.

Edwardo said...

"Paper just ain't what it used to be."

In more ways than one since all paper starts out as wood pulp.

Dwain said...

Blondie said... "Without your definition of "money", I couldn't say."

Gold, Blondie, Gold Is Money. That was the primary and blatantly obvious point of my post.

costata,

You read way too much into my comments, they are nowhere near as complicated as you're attempting to make them out to be.

Gary Morgan said...

Hello JR. You wrote:

'To avoid a bone crushing deflation and afford them time to build a new currency for the future, yes?'

They've had the time to build that currency for sure. I wonder though whether the bone-crushing deflation would have been as bad back then as it is right now, even with a new reserve-in-waiting. I suspect not by a large order of magnitude, this deflation is the mother of them all due to the debt levels that have been built up everywhere under the $IMFS for 40+ years.

We'll never know, as they chose that path, but I reckon the whole world would have been better off in the long run if they'd stuffed America back in the 70s-80s, even though a decade might have been tricky as regards the monetary system.(Either way it is moot as time only moves forward, I just reckon we give those Euro-architects too much credit, they wimped out when they could have said NO!).

~~~~~~~~~~~~

Re 'get rich quick', try working deep in the bowels of the $IMFS as a financial adviser, strangled by regulation, trying to protect your clients whilst hamstrung all the while by the system and its ridiculous rules/views.

The quicker the better for me I have to say, and fortunately also for many of my clients too who have found the trail!

Tommy2Tone said...

Carl, not much of what you say is blatantly obvious.

Costata reads you completely correct however.
This helps the lurkers reading this who may not yet understand how and why you are so wrong.

I think you are an idiot but I will say that this last week or so of back and forth with you has solidified many concepts and ideas for me- unlike with AD, there has been much to learn from your craziness so in a weird way I have to thank you for your continued obstinance.

DP said...

Money is a mental concept.

Her: Show me how much you love me, darling. Buy me this dress and I shall be yours forever!

Him: How many ounces is it, cherie?

Her: It's a steal at just 0.2736oz (Troy)!

#ShitThatJustDoesntHappen

And they say gold is money?

Dwain said...

jojo,

The primary thing I'm guilty of is holding a position that is at odds with the majority here.

The apparent majority position being one intent upon tweaking the system via the use of gold in order to save it.

My position is quite different. I hold that the entire system is totalitarian by design and feudalist in intent and must be dismantled, allowed to collapse completely, not rescued by giving the elites yet another tool, gold, as a means to solidify their totalitarian positions.


.

Motley Fool said...

costata

Could you articulate for me why the giants will dis-hoard? In most cases In simply don't see it except as a process spanning decades at the least.

TF

DP said...

Carl: +1 for bone crushing global armaggedonary depression

Fortunately, he's not in charge.

Nickelsaver said...

Carl,

"The primary thing I'm guilty of is holding a position that is at odds with the majority here.

The apparent majority position being one intent upon tweaking the system via the use of gold in order to save it."


The primary thing you are "guilty of" is arguing against a position that you don't understand. To remedy that, take some time to explore the articles on this blog.

Dwain said...

DP said... "Carl: +1 for bone crushing global armaggedonary depression"

That's already baked into the cake, we've already entered the beginning stages of it.

The question becomes; do we allow those who got us here the ability to dictate how we should come out of it.


.

Anonymous said...

Robert Prechter of the Elliot Wave doesn't see gold at $5000 and not even hyperinflation. Considering his track record, I'm having a hard time disagreeing with him. Wondering what all of your thoughts are on his view -

He seems to make a convincing case and explains his Gold view starting at 15:37min and again 17:27min here for your interest - http://www.youtube.com/watch?v=h4jt2vGcXmg

DP said...

Maybe it depends on where you are, and what you save in.

What is your alternative way out of this pickle? Since you are unwilling to understand this one.

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

DP, assuming your comment is directed toward me, I want to say that I am not unwilling to understand "this one". I'm here to learn and read different perspectives on Robert Prechter's Gold and commodities view that takes into consideration human social moods. I'm a beginner knowledge-gainer in this gold debate/hyperinflation/deflation/inflation/stagflation debate realm, so any discussion-enriching comments would be appreciated.

If your comment wasn't directed toward me - ignore this comment.

Motley Fool said...

Sarah

I had a quick look at that video. Prechter seems to be in the standard deflationist camp.

This post may help you see the flaw in his reasoning/what he does not understand : Deflation or Hyperinflation

TF

mr pinnion said...

Carl
"The question becomes; do we allow those who got us here the ability to dictate how we should come out of it."

Who would you prefare dictated how we come out of it?

JR said...

Gary,

You seem to be conflating asset deflation with a bone crunching economic deflation as the modern concept of money - our shared knowledge of price ratios between all real things - is wiped out. We still have operational international trade currencies, of course its no where near that bad now.

You may not be grasping the magnitude of a international transactional currency void.

FOFOA: 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.

A international transactional currency void would be very traumatic, not a good thought indeed!

5/22/98 ANOTHER (THOUGHTS!)

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

JR said...

Here's FOFOA talking about the concept of paper burning in the context of whether Bitcoin could re-emerge from such a disaster, and pointing out the Euro was built to prevent such a disaster from happening in the first place.

We think in terms of dollars, therefore dollars are our money. This is the Misean Regression I discussed in The Return to Honest Money. The most likely path for Bitcoin to monetize would be for a major global meltdown to wipe out the present concept of money. In other words, to wipe out the shared knowledge of price ratios between all real things. Then a barter good like gold would begin to rebuild this knowledge base from the ground up, and if Bitcoin became the symbolic currency valued by gold holders for its qualities, it could then establish a reliable and stable Bitcoin-gold market.

But you can't just shoehorn a new symbolic currency into a failed paradigm and expect it to be adopted and fix the paradigm. It simply doesn't work that way, hope, speculation and neat ideas notwithstanding. You can't just look at Bitcoin through the dollar lens and describe how it's better than the dollar. It's not about that. It's not about Bitcoin versus the dollar. It's about Bitcoin versus the next in line after the dollar. And in this case there are two new competitors, each specializing in separated parts of the money function.

Bitcoin obviously capitalizes on the crisis that the dollar now faces. And as I just pointed out, if the collapse was bad enough that the knowledge base of price ratios was wiped out, Bitcoin could then compete with other currencies to establish a new regressive link to gold or even silver. But oh my, what if some other people already saw this coming four decades ago and sought to create a currency to prevent a major meltdown from occurring that would have set us back to having to reestablish a fresh barter link? Hmm, maybe that's why the second most widely used medium of exchange in the world today was created based on its fundamental regressive link with the barter money par excellence?"


http://fofoa.blogspot.com/2011/06/bitcoin-open-forum-part-3.html

enough said...

Type: Earthquake
105 minutes ago
Magnitude: 5.9
DateTime: Saturday May 19 2012, 19:05:19 UTC
Region: off the east coast of Honshu, Japan
Depth: 5.4 km
Source: USGS Feed

anyone got their longboard?

that's ideal tsunami depth, only 5.4 km deep

DP said...

Sarah,

No, it wasn't. :-)

However, I look forward to watching your understanding grow and hopefully playing a part in that. So you can go and finally tell Robert how the world really works. Then maybe Carl will listen to him.

Sincerely,

DP :-)

Edwardo said...

In response to this

"Robert Prechter of the Elliot Wave doesn't see gold at $5000 and not even hyperinflation. Considering his track record, I'm having a hard time disagreeing with him. Wondering what all of your thoughts are on his view."

I feel compelled to channel John McEnroe,

"You can't be serious."

Prechter's record, especially regarding gold, which he has demonstrated to the nth degree he knows *^$#! all about, is off the charts abysmal. He's a classic deflationist numbskull who can't be forgiven not because he has been so spectacularly wrong, but, because he refuses to adjust his views in the face of a tidal wave of facts that contradict his rigid as a fence post understanding of markets, finance, and the global economy.

Anonymous said...

Sarah,

Robert Prechter is a hardcore deflationist and FOFOA has dealt with several writers of a similar kind (Rick Ackerman, Charles Hugh Smith) in a splendid fashion in two posts:

Deflation or Hyperinflation

Big gap in Understanding weakens deflationist argument .

I'd strongly recommend you read those two posts and then reconsider Prechter's view.

Those 2 posts deal with the deflationist view point head on and elegantly, just like this Damien Martyn Square Drive ;) [if you're into cricket].

Here's FOFOA:
Deflationists like to view the economy as a machine. They think "this money here must reach this quantity and then flow there and only then that will happen." But the economy isn't a machine. Machines don't have emotions like greed and fear, but the economy does.

Deflationists also constantly ignore the political will that backs up the whole system , which will fight deflation with everything at their disposal.

somanyroadsinvesting said...

I listened to an interview of Prechter w/ Puplava and Puplava asked where maybe his deflation views may have been wrong in the past. he said something like oh I didn't think the govt would meddle so much in the economy in 08/09. So now there is that precident I am not sure where he is hanging his hat.

costata said...

MF,

I have several reasons for thinking the Giants will dishoard some of their gold. At the most basic level I think they will sell down because the revaluation will make gold too large a proportion of their assets to be comfortable with. For some of them it will be like getting an unexpected insurance payout that is multiples of the face value of the policy.

Prudence will dictate that they diversify. One of the safest places to put money into will be banking after the return to a rational banking business model. Good, steady returns with minimal risk.

On another level, think of the bargains that will emerge as the leveraged "wealthy" players crash and burn. On yet another level think of the opportunities that will emerge as consumption rebalances away from the Western countries toward the East and the South.

There will be some incredible opportunities IMHO emerging from the rebuilding of the Western economies after the dust settles. This reset will be incredibly painful but it will also be a fresh start.

M said...

@ AD

"AT WANT PRICE LEVEL COMPARED TO MULTIPLES OF MINING COSTS, WOULD YOU CONSIDERABLY REDUCE ADDING TO YOUR STASH?
Greets, AD "

lol hahaha

Hey AD, AT WHAT PRICE LEVEL COMPARED TO MULTIPLES OF CONJURING COSTS WOULD YOU CONSIDERABLY REDUCE ADDING TO YOUR STASH OF TREASURIES ?

Michael H said...

Sarah,

For an objective assessment of EWI's track record, try these two links:

THE EWI ARGUMENT: A Critical Analysis of Robert Prechter and Elliott Wave International (March 2009-Present) Part 1

http://www.thebullbear.com/profiles/blogs/the-ewi-argument-a-critical

and Part 2

http://www.thebullbear.com/profiles/blogs/the-ewi-argument-a-critical-1

costata said...

Take a look at this piece about the gold miners written by Ben Davies partner (Mark Mahaffey) at Hinde Capital.

http://blog.hindecapital.com/?p=357

Unfortunately it is this fully loaded cost that is potentially $1200-$1400/tr.oz and rising by double digits yearly that is producing the challenging situation for the mining companies today.

Check out the table he is referring to and the projection it offers.

If this is correct and that 2015 costs are $1750, while gold is currently trading at $1650 then what is a gold deposit or a gold company worth?

JMan1959 said...

Carl,
If you want to dogmatically adhere to the deflationist argument, that is your perogative. Few here will agree with you, but that's okay. However, when you make idiotic statements maintaining that Freegold will just be another tool for the elites to manipulate, it shows that you have either: 1) not bothered to read the material provided; or 2) simply do not understand what you have read. Either way, comments made out of ignorance will get you lit up here like a Christmas Tree. Freegold removes the ability to manipulate the system to their advantage. Seriously, stop posting for a couple of weeks, bone up for the quiz, at least make an attempt to understand it, and then make your arguments against Freegold. Either that, or buy some mint flavored shoes.

Anonymous said...

Costata,

Thanks for the link.
Interesting insight into mining.

All the factors that the author mentions, coupled with the fact that mining industry itself can be nationalized in a monetary crisis situation, makes it so risky. Stay as far as we can from miners?

dojufitz said...

Listening to Robert Prechter is like a guy talking about the best way to play a poker machine....he says 'Yes Gold is the only money....i know that....but getting back to the poker machine...what you have to do is......'

costata said...

e_r,

We considered taking a short term punt on some gold mining shares a while back. The arguments in favour weren't compelling enough then and today I can't think of anything that would persuade me to punt a cent on these guys.

BTW the boys at BHP Billiton came out last week with the news that the commodity "super cycle" is O.V.E.R. If history is any guide this will be part of a softening up excercise before some big writedowns on stuff they overpaid for.

As I said here recently. Customers don't end mining booms it's the miners who bring the boom to a halt by creating over-capacity.

It's deja vu all over again.

Edwardo said...

Costata, it's interesting to me that this report is coming from semi-regular King World "News" guest Ben Davies. I say it's interesting since KWN is, to my mind anyway, mostly just a gold tout operation, and a lot of their guests are in the flog mining shares trade.

Edwardo said...

I forgot to add that someone, not necessarily you, costata, should send that report to Stewart Thomson.

kobajashi said...

FOFOA and readers of FOFOA,

As FOFOA mentioned a couple of day's ago, his article was liked by LEAP2020 http://www.leap2020.eu/notes/Inflation-or-Hyperinflation_b4172061.html


http://fofoa.blogspot.se/2012/05/inflation-or-hyperinflation.html?showComment=1337221664411


LEAP2020 is talking about a big devaluation of 30% of the USDX end of 2012 and also a massive and sudden monetization of US debt.

Could this be the spark that leads to hyperinflation in (lets say) 2013?

FOFOA, how do you look at this? Is there a big probability of this to happen in 2013?


Thanx in advance

Anand Srivastava said...

MF,

I am in software in India. This entails two problems. In India there is a large disparity between software jobs and other jobs. This works because we are paid more due to it being a export business where the payer is in a high income society. So our income is not related to our expenses :-). The other problem is that the crash will crash our lifestyle, as software will be one of the hardest hit sectors.

So post crash, there will be too many software engineers and very few jobs, salaries will go down substantially, and there will be a general crash of our lifestyles. Yes I haven't been spending like there was no tomorrow, and have been saving, but still the lifestyle has increased substantially.

Also I have gotten bored with my job :-), and have gotten interested in health and nutrition. I would go studying for studying, but that would mean leaving my current job, and living off my savings. This would be done much better after the revaluation. The revaluation would also mean that I wouldn't necessarily have to make money, and I could just help others get better, without thinking of monetizing it.

The incentives in medicine are all wrong. The physician makes more if the patient suffers :-). This is not anything new, and is probably why it is called the noble profession. It requires that people in this profession are noble. I hope to make life good for some people. If I can do that without crashing my own lifestyle, its best.

costata said...

Edwardo,

My gut feeling is that Ben Davies is genuine. I think one of Eric King's strategies is to intermingle the spruikers with some very good, honest analysts in order to give the spruikers more credibility by association.

I hear you about Stewart Thomson but bear in mind he is a TA guy and fundamentals may not impress him. Having said that, I think those numbers should terrify stockholders in the gold miners. There has to be some reason for this persistent under-performance and Mark Mahaffey isn't the only analyst pointing to BS about costs, grade and so on as the reason for it.

costata said...

AS,

Good luck with your plan.

Zebedee said...

@ Costata.

Thanks for the link.
It's reminiscent of that damn inverted waterfall again.

Dwain said...

mr pinnion said... "Who would you prefare dictated how we come out of it?"

Personally, I'm rooting for Individual Liberty, Honest Money and true Free Enterprise to win out over the 'Central Planners' and the totalitarian cesspools of misery they inevitably create.

The primary lesson everyone one should be learning from this ongoing globalized fiasco is that Elitist Lead Central Planning Does Not Work.


.

JR said...

Well said Carl,

The current Central planning model does not work, which is why Freegold is where we are heading.

=================

The term FREEgold seems to be hopelessly confusing a great many of you, especially the ones suffering a myopic obsession with the "elite." So I would like to suggest a new name for this system, which is not really a system at all. It is more like the lack of a system: the dollar reserve system and the paper gold system. Without them, Freegold is what we have, along with whatever "system" develops. It is not something the debtors or the elite can fight. It's just a shift in the perception of savers. Can't change that.

So here's the new name I propose: CrackWhoreGold. Maybe this way all you NWO-types will stop associating it with whatever utopian concept you think TPTB will never let you experience. CrackWhoreGold works very well actually:

1. Always available at the right price.
2. Will go with any guy (or gal) regardless of nationality (subject to 1 above).
3. Gets high whenever possible and tries to stay high.
4. Has a pimp called Uncle Sam who wants her down on "the Street".
5. Milks big spenders for everything she can get but ultimately prefers the company of rich patrons.

So from now on, when you "elite-ophobics" come at me with something like ShamefulPath did here: "Freegold is like Valhalla to savers...", I'm going to insist that you call it CrackWhoreGold instead: "CrackWhoreGold is like Valhalla to savers." Maybe it'll make you think things through a little.

Sincerely,
FOFOA


http://fofoa.blogspot.com/2010/10/one-tin-soldier.html?showComment=1287467362163#c3464507585098634123

Dwain said...

JMan1959,

Thank you for the advice, it is duly noted and appropriately filed.

F.Y.I., I'm not really a 'deflationist', I'm more of a 'catastrophic failure' kind of guy.

Our differences in that regard is mearly a dispute over timing.

costata said...

Price

I have been thinking about that clumsy definition of price I proffered a few comments earlier in this page of this thread. I think it can be reduced to this:

Price is an offer to exchange.

This is the earlier iteration of this definition:

Price is an offer to exchange something at a negotiated or fixed ratio for a quantity of one specific thing or at different ratios for varying quantities of many different things.

I think the reduction works. I prefer the word "exchange" as opposed to "sell" because the word sell doesn't capture the nature of the transaction as accurately. IMO using the word "sell" demands further definition of what it means to "sell". The word "offer" implies the potential for negotiation. Does this new definition require any additional conditions to hold true?

I have also been reflecting on how to explain my notion of why using the word value is inferior to using the word price in many instances. I think that the word "shared" in shared association of values resolves the subjective versus objective argument about value. Once a value is shared it is no longer a subjective judgement of an individual aardvark or human.

While I'm musing I would also like to add another thought about this price versus value issue. If we replace the word value with the word price in many commonly used phrases it has no ill effect. For example: current market price serves equally as well as current market value.

Consider this replacement: inherent value versus inherent price or fundamental value versus fundamental price. It grates does it not? A price is a price is a price. It's an objective thing.

Consider also that we speak of cheap and expensive in discussing prices. But those words immediately differentiate price and value. The words "cheap" or "expensive" are entirely subjective while price is clearly objective. We observe price (as from a distance to us) while we subjectively (internally) evaluate our response to a price as we determine the value of the priced thing to us as individuals.

Enough wine and enough musing for me, good night.

costata said...

P.S.

Carl writes:
I'm more of a 'catastrophic failure' kind of guy.

We've noticed.

Pat said...

First time poster, just because I cannot believe you people. Look, I can understand maybe ya'll aren't into omens, but really, I'll Have Another has won two legs of the Triple Crown. And not one comment?
As to Carl, well, he will receive total consciousness on his deathbed. So he has that goin' for him, which is nice.

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