That picture is not really Jeff and Blondie. It is Jeff and Jordan from Big Brother, and yes, I am a BB fan!
Blondie petitioned me for this open forum after one of Jeff's comments quoting me. I agreed, so here you go.
_________
AdvocatusDiaboli wrote: "Blah blah blah the crazy GATA/FG assumption is somehow blah blah blah."
_________
Jeff responded: "Only a fool would lump GATA and the hard money crowd with FOFOA:
FOFOA (from Unambiguous Wealth 2): One of the biggest struggles I observe in newish visitors to my blog is that they instinctively try to reconcile everything they learned from the hard money camp—ZH and GATA being two bright stars there—with what they read here. Their effort inevitably leads to contradictions that cannot be resolved. And because ZH, GATA and the rest of the hard money camp is so much more ubiquitous than my little blog, they win by default in minds that are unable to think for themselves.
Here are a couple of the irreconcilable concepts found on this blog that noobs must either reject or ignore in order to hang on to their ZH/GATA CB thesis.
1. Remember when Aristotle wrote this? "In working on this project, I was personally shocked when I discovered that we absolutely NEEDED paper currency in order to set Gold free. In the perfect world you lapse into in your comments, everything you say is well and good. We don't live in that world, however. My biggest challenge in piecing together my proffered solution was to accept what this real world had to offer and avoid foisting my own preferences onto the world like a square peg in a round hole."
Have you ever seen anyone in the hard money camp write anything like this? Or can you imagine them ever doing so? Yet this is one of the core fundamentals necessary to understanding Freegold.
2. And FOA wrote this: "Several years ago, many gold bugs and gold advocates missed the path as the trail turned." "Yes, the war now is between the Euro and the dollar! The Washington Agreement [a Central Bank agreement] placed gold 'on the road to high prices'." "The war between gold and the dollar has been over for a while now… Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure… This paper gold market will be cashed out at prices far below real bullion trading so as to inflate further the books of the Bullion Banks,,,,,, not destroy them. At least this is how the US side will proceed."
Again, have you ever seen anyone at GATA or ZH write anything like this? Or can you imagine them ever doing so?
First let me state that Zero Hedge and GATA both provide a great service and they both do fantastic work, ZH comments section notwithstanding. It is their underlying thesis about fiat currencies and central banks in general that I have a problem with. And this is not a problem with only ZH and GATA, it is a problem with the entire hard money camp.
Their foundational thesis is that fiat currencies and the CBs that manage them are the most fundamental flaw in today's system from which all other problems flow. This directly conflicts with my thesis that using the same medium in both the primary and secondary monetary roles is the fundamental flaw from which all other problems flow. My thesis applies to both hard and easy money systems. Their thesis points to the CBs as the bad guys. My thesis holds up a mirror and says, "We have met the enemy, and it is us."
_________
Blondie petitioned: "Good one Jeff,
That FOFOA quote should be a stand-alone post on this blog, just so it can be linked to regularly. The difference in thesis really is as simple as that comment states: all our monetary problems (and the problems that those problems then cause) all stem from the single act of using the medium of exchange as a store of value. Period."
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620 comments:
«Oldest ‹Older 401 – 600 of 620 Newer› Newest»Totara wrote:
"If you are worried about capital gains and inheritance taxes, why not use government legal tender coins? That Maple or Buffalo in your sock drawer is 'only' worth $50 by government reckoning. You could stack 200 of those before reaching a $10,000 limit."
You can Austrian Philharmonics in that group.
http://goldsilver.com/article/privacy-facts-on-selling-gold-silver-irs-1099-form/
e_r,
Why do you think the current trade balances will be maintained if it will lead to US draining out its gold reserves?
The dominant consumerist/debt culture in the US.
If you take a survey, which do you think most Americans would prefer -- the USG sell off their "barbaric" yellow stones nobody knows or cares about, or dramatically reduce their personal standard of living?
Ultimately, yes, the US has to reduce it's standard of living. The question is: over what time frame is the transition to final austerity most likely?
Free Gold seems to presume the change will occur quite rapidly.
The last sentence in my last post should have read:
You can include Austrian Philharmonics in that group.
athrone,
which do you think most Americans would prefer -- the USG sell off their "barbaric" yellow stones nobody knows or cares about, or dramatically reduce their personal standard of living?
The gold is not really in American citizens' hands or is it? It is under the control of US Treasury. This is not a choice of the citizens.
Much more smarter analysts (Rickards, Janszen to name two) have remarked that these gold reserves will be mobilized if and when there is a currency collapse risk. So I don't think the powers take these gold reserves lightly.
Talking about standard of living, it is already reduced if you want to just consider the US private sector, but it is not for the US public sector. And therein lies the problem.
e_r,
The gold is not really in American citizens' hands or is it? It is under the control of US Treasury. This is not a choice of the citizens.
Can we agree that the net impact will be a combination of gold sales and austerity? The more austerity the less gold exported and the more gradual the transition to a lower standard of living will be.
It's the old tale of boiling a frog in hot water. If the US has sudden, forced austerity I would expect war/outrage.
Maybe it will be a perfect balance of "just enough austerity" and "just enough selling" to ensure a smooth enough transition. Then again maybe they will mess it up and lead to WW3 -- that is my only point.
athrone,
Can we agree that the net impact will be a combination of gold sales and austerity? The more austerity the less gold exported and the more gradual the transition to a lower standard of living will be.
I don't think we can agree that US would drain its reserves. It is already maintaining an unsustainable lifestyle, without draining these reserves. Gold is still valued at $42 an ounce and here's more from FOFOA:
How much gold was either confiscated or defaulted on without due process of law? Claims of perpetual entities never go away. If the US government ever exposed its own gold (or its citizens' gold through confiscation) to the light of day, it would expose itself to all kinds of claims and an international legal mess. Under international law, the US is still an OUTLAW when it comes to gold!
This is why gold is off the table. This is why we can never go back to a gold backed dollar. It is also why they cannot call in gold AGAIN under the same dollar that they did in 1933. To call in gold at a specific exchange rate now, the US would first have to back the dollar with gold at that rate and then call it in. That would expose the US gold to international legal challenges for redemption. If they simply called in the gold without backing the dollar, the US government would be exposed to thousands of internal law suits. These law suits would rightfully demand a retroactive reversal of 1933 before any new confiscation could take place. They would demand that US official gold be distributed to all citizens at $20 per ounce BEFORE it could be turned back in to the government.
The US government will never take this risk! It will never expose itself to this legal nightmare! The US is already a golden outlaw!
Athrone,
The more austerity the less gold exported and the more gradual the transition to a lower standard of living will be.
Austerity? From the USG, the *DEBTOR* and the *JUNKIE*? Hmm:
The Debtor and the Junkie
The USG may be a dealer in the monetary plane, but it is most definitely a sketchy junkie in the physical plane. The USG thinks (and truly believes) that the key to rejuvenating the US economy is trashing the dollar as a short cut to increasing exports (reducing the trade deficit). But what it can't see (nor anyone that focuses solely on the monetary plane for adjustment) is that the huge trade deficit the USG wants to quit is actually its own heroin fix. This is a deadly combo for the US dollar.
[...]
So what does the supply of money have to do with the catastrophic loss of confidence that is hyperinflation? Yes, the catastrophic loss of confidence drives prices higher. This makes the present supply of money insufficient to purchase a steady amount of goods (USG junkie fix). True balls-to-the-wall hyperinflation requires a feedback loop of both value and volume. Value drops, so volume expands, so value drops more…. Without the feedback loop, you simply get the Icelandic Krona or the Thai Baht. With the USG in the loop, you get Weimar!
Think about a debtor who owes a hard debt to a loan shark versus a junkie who owes a regular, ongoing, hard fix to himself. Which one is worse off? Which more desperate? As I wrote above, this intractable problem cannot be solved in the monetary plane, except through dollar hyperinflation!
Big Danger in "A Little Inflation"
I just received an advance copy of Jim Rickards' new book, Currency Wars (thank you Steve and Jim). And while I haven't had a chance to read it yet (because I've been working on this post), I have it on good authority that Jim thinks the Fed is actually targeting 5% annual inflation right now while saying 2% or a little more. This sounds credible to me.
So what's the danger in a little inflation?
If the dollar sinks, like they (the USG/Fed) want, sure, our exportable goods will become relatively cheaper abroad (even though their price here won't drop) and their (our trading partners’) exportable goods will become more expensive here. This will appear as good old-fashioned price inflation, since we’ll now have to outbid our own trading partners just to keep our own production, and pay more for theirs. And while the domestic private sector has already crashed its lifestyle somewhat, the currency issuer has increased its "lifestyle" to compensate.
The bottom line is that the USG cannot crash its own lifestyle. And when the dollar starts to "sink", that pile of pennies in the video above will be insufficient (not enough money). Luckily, that pile of pennies represents the budget of the currency issuer himself. So he’ll just increase it, to defend his lifestyle, while scratching his head at why the trade deficit has nominally widened rather than narrowing as he thought it would when he trashed the dollar.
Moneyness
Inflation or Hyperinflation?
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.
[...]
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!
e_r,
I don't think we can agree that US would drain its reserves.
If the US doesn't sell even 1 oz of gold then the entire US populace will have forced austerity immediately such that they will have to balance the 600+ billion a year deficit with nothing but reduced lifestyle choices. Not gonna happen, not without war/riots. Just look at Greece.
I thought you said it yourself though, that the USG would mobilize it's reserves to prevent a collapse?
So if the US does sell even 1 oz of gold, then the net impact will be a combination of austerity and gold sales :)
JR,
Austerity? From the USG, the *DEBTOR* and the *JUNKIE*? Hmm:
That is exactly my point!
I cannot believe the US will willingly accept austerity, especially at the hands of a 3rd world country it could easily dominate with it's military/influence!
So if the US will not drain it's reserves and it will not undergo austerity -- what exactly is it to do in a world of Free Gold where that is the law of action?
The only congruent answer in such a scenario is War/Theft, is it not?
The US will drain its reserves until it realizes that futility (or they run out), and then its about the recognition that what really matter is gold flowing from private hands.
The Gold Must Flow
The bottom line is that private gold needs to flow as a fertile member of the balance of trade. There will be no advantage for the USG to confiscate or tax above-ground gold this time. Gold may be utterly "useless" to the present debt-based economy, but it will be absolutely vital in the Freegold economy. (Here's a comment I wrote last April about the importance of privately held gold.) This seems incomprehensible when viewed from within the current paradigm which is why you must try to put yourself in the next one to see what I'm talking about. I can try to help you see what I see. It's not easy to explain, but I'll certainly give it a valiant effort once again.
[...]
Part of our premise in this exercise is that Freegold has arrived, along with everything that comes with it. So even though the USG has misstepped and put on a 90% gold tax, the rest of the world has not and is now enjoying a technically balanced trade flow along with the reappearance of Jacques Rueff's "forceful but unobtrusive master, who governs unseen and yet is never disobeyed."
[..]
Strong hands in the USA have $6,850 in constant dollar purchasing power. Strong hands in the ROW (rest of the world) have $55,000 in purchasing power. The gold must flow, but will it flow from the USA as much as from other deficit countries under these conditions? If it does flow, it will still flow across international borders at the new Freegold value and vital goods and services will flow back into the US. But only 12.5% of the purchasing power of that gold will go to the person with the choice of "to flow or not to flow" while 87.5% goes to the USG.
Tax laws always change, and this is a fact that will also be factored into the decision "to sell or not to sell" that strong hands in the US will face. Another factor is black market arbitrage. [...]
So if the gold in private hands in the US doesn't flow in sufficient amounts, given that US debt has been discredited through the Freegold phase transition, the government will have no choice but to continue printing money in its vain attempt to support the US trade deficit and its own status quo as Uncle Sugar to the people. And in a last-ditch effort to support its own failing currency, it will have to ship Fort Knox gold overseas. FOA mentioned something about this: "…the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates."
In this scenario, the need to continue printing in the face of an ongoing currency collapse will obliterate any miniscule gain that comes from the few shrimps who actually decide to sell their gold in an untimely way and pay the tax. The US has precious little gold in private hands as it is. And it will need that private gold to flow. It needs you to sell your gold to your dealer so your dealer can export it to our trading partners. That's how trade flows will resume under the new paradigm, with savers choosing to let their gold flow because of the amazing purchasing power it delivers.
And with international trade flowing again, the government will have much more economic activity to tax than it did when it tried to tax real capital in its purest form based on the silly notion that the hungry collective deserves a windfall nine times greater than the gold investors who kept gold inside the zone through a turbulent transition. The bottom line here is that I do not know if the USG will try to tax the windfall profit that comes from Freegold. What I do know is that, if they do, it won't last very long.
cont.
cont.
So yeah, idea is get austere or support gold flowing so you can have real economic activity to tax and support the spending.
As FOA wrote: "…the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates." But this will not last for long.
======================
The USG doesn't consume gold, it consumes production. If they gold flows, people will produce, and its that real production that the USG ultimately skims via taxes to support is consumption habits. If they aren't making stuff in the US, there is not a lot for the US to consume.
Production and consumption both happen in the present. Savings and Debt represent the belief that this PRESENT transfer of real wealth will be settled some time in the FUTURE.
Your Own, Personal, Freegold
athrone,
If the US doesn't sell even 1 oz of gold then the entire US populace will have forced austerity immediately such that they will have to balance the 600+ billion a year deficit with nothing but reduced lifestyle choices. Not gonna happen, not without war/riots. Just look at Greece.
What are you talking about? US does not have a risk of default, because we can always print more money. Teh Greenspan said so.
Austerity is forced only if deficit spending is not monetized. Ask yourself, is that realistically possible?
I thought you said it yourself though, that the USG would mobilize it's reserves to prevent a collapse?
I think you are misquoting what I said. I said Rickards/Janszen have stated this on several interviews that the reserves could be mobilized under dire circumstances. Even that is a probability, I am not saying it is going to happen. Killing the current system and restarting is also a likely path.
Why do you think gold sales is needed now to avoid austerity?
Hi Athrone,
We are talking post dollar/collapse freegold revaluation, yes?
What is this "military/influence" you speak of?
=======
The only congruent answer in such a scenario is War/Theft, is it not?
Keep reading and you will learn about what they will do to ensure they can keep spending - ensure the gold flows. FOFOA even wrote a post with that title:
The Gold Must Flow
The world will run to the new system when the old one fails. Not the old system will fail when the world runs to a new system. US needs to keep the system going.
FOA "We must defend their oil production at all costs, no matter what currency they use… For us (USA), keeping all oil, worldwide, priced somewhat par (in any currency vs the dollar) is extremely important to US vital interest. Both military and economic."
http://www.usagold.com/cpmforum/archives/21200010/default.html
e_r and JR,
I have only been talking about the the world after the dollar collapse / freegold revaluation.
Maybe I am misunderstanding something but after freegold, countries only have two choices to balance a trade deficit: export gold or reduce imports (austerity). Is that incorrect?
GLD inventory finally upticked today.
I am totally disappointed in the lack of concrete discussion here wherein we discuss actual concrete data/information on this site. It seems like a self congratulatory meme for/of group psychosis miming some notion that "free gold" will somehow loose itself upon the world. No discussion pointing to the data of how this is now coming to be because of XYZ, or that here are the actions of this entity "say the London Gold Pool" or the BIS and they have done this as evidenced by these documents. No here we just go in circles of self congratulatory re-affirmation of the previous statement that free gold will someday coexist with devalued currency. Okay so what is the big deal here, Yeah that may be so, but can you at least show us the road as it has unfolded so far in that direction. Like how Central banks are now beginning to consider the notion that gold as an asset can have a tier one valuation on their books. That's a toddler step, what have you got?
https://www.youtube.com/watch?v=jozEIk9hwqg
@whatever-fits:
I am totally disappointed in the lack of concrete discussion here wherein we discuss actual concrete data/information on this site.
I don't think this is a fair criticism at all. Just in this comments of this post alone there have been many links to documents and articles and statistics of interest. The posters here consistently bring more concrete data than I have seen at any other related site. I don't think you could have read very much of this site to make that comment.
Oh great, AD is back again. Or should I say Alien, or 90days, or FakeAnother, or Carl perhaps, Ash, Shelby, etc, etc...
No discussion pointing to the data of how this is now coming to be because of XYZ
No discussion to the data? I'll let you in on a secret whatever-fits. Given the big pile of garbage we recently endured with AD, I'm guessing 100:1 you'll be banned on short order by the market you see in these comments.
Did you come here to add value or harrass the blog participants, tell us how wrong we are, how we ignore the facts, how we are brainless worshipers, how we lack critical thinking?
Do your worst -- you're bound to anyway.
whatever-fits said...
"I am totally disappointed in the lack of concrete discussion here wherein we discuss actual concrete data/information on this site"
Are you familiar Austrian economics ?
Value is essentially subjective, and that therefore economics must be in the main a subjective science.
IMO gold as a tier one asset is a step in the right direction even if all it does is wake some people up. Because I don't think pork bellies will be a tier one asset any time soon.
athrone,
You wrote:
Maybe I am misunderstanding something but after freegold, countries only have two choices to balance a trade deficit: export gold or reduce imports (austerity). Is that incorrect?
The answer depends on whether there are any changes to the way national accounts are put together after the transition. At present a deficit on the trade side of the books can be balanced by an inflow of "capital" e.g. foreign direct investment.
This might continue to be the case (in some fashion) after the transition. Exchange rates will play a role in this new system as well of course. So gold floating freely against currencies raises some interesting possibilities for trade settlement.
FWIW I think we should open this can of worms at some point and discuss the subject of national accounts pre and post transition.
And 'athrone' I note your reference above to "yellow stones". That phrase reminds me of another commenter.
Government Regulatory Burden On The US Economy
I think that the cost of the regulatory burden on the private sector should be taken into account in the analysis of consumption by the US government. Thoughts?
The most recent Small Business Administration (SBA) evaluation of the overall U.S. federal regulatory enterprise, prepared by economists Nicole V. Crain and W. Mark Crain, estimated annual regulatory compliance costs of $1.752 trillion in 2008.
SBA-estimated regulatory costs exceed all 2009 corporate pretax profits of $1.317 trillion.
Regulatory compliance costs dwarf corporate income taxes of $198 billion.
Regulatory costs tower over the estimated 2011 individual income taxes of $956 billion by 83 percent.
If you add in imposts from other levels of government I imagine the numbers would be even more staggering.
http://www.financialsense.com/contributors/pater-tenebrarum/the-war-on-vegetable-gardens
http://www.financialsense.com/contributors/axel-merk/gold-at-ecb-accident-or-strategy
Is it possible that the bigger financial press might be slowly catching on to what Another was saying 15 years ago or is this a branch off of the community here? To me this would be a sign and confirmation if slowly I would start to stumble across more and more articles from independent sources which discover the same pattern in the bigger picture.
Some Things To Monitor?
There was a meeting between President Obama and a group described as business leaders in December 2010 (if memory serves me). These businessmen wanted a re-run of the circa 2005/6 tax breaks on repatriated profits they are holding offshore.
Estimates vary on the amounts involved. Estimates I have seen range from $1 trillion to $2 trillion. The mid-decade tax break was sold to the public as a job creation excercise.
Most of the money brought back into the USA by multi-national corporations was used to fund stock buybacks. There was a lot of insider selling into the strength it lent to stock prices according to a couple of reports I read.
Given that this is an election year and the lousy numbers that are coming through for the business sector this could be a handy way to goose the stock market without Fed intervention.
In Stewart Thomson's latest free post (link below) he points out that the stock market looks like it might be getting ready for a run. Likewise gold and silver (and the miners).
Personally I think we are on the cusp of CB/Government intervention globally that will make your nose bleed. FWIW I anticipate this occurring sometime between now and late September.
A soaring oil price would run counter to a co-ordinated attempt to stimulate the global economy. So this could be a good test of the gold:oil ratio's importance to the PTB. If oil doesn't react to the stimulous with sky high prices while gold moves upward strongly then I think we would have an indication that the historical ratio is no longer as important to the PTB as it has been.
Some food for thought if nothing else. Interesting times we live in.
ST link:
http://www.safehaven.com/article/26380/gold-and-fred-astaire
Sorry I put in the wrong link for this above.
For The Asia Watchers
http://www.macrobusiness.com.au/2012/08/north-asian-pmis-sicken/
I’ve reported already on the less than stellar China PMI today. The other North Asian export powerhouses have also reported today and in the last 24 hours and the tune they are singing is a dirge not a ditty.
some meat boys
http://coppolacomment.blogspot.co.uk/2012/07/the-golden-calf.html
Flore,
Read the piece.
I think Frances is the almost perfect anti-FOFOA.
I also think FOFOA is the almost perfect anti-Frances, and thanks for that. Halleluja!
Wonder what would happen if they where to bump into each other though? Annihilate into 100% economic-blogging energy E=mc^2 style? :)
Frances is probably an otherwise decent person with some very scary and vary common ideas. Certainly if she represents anything it is the hungry collective that wants access to our savings in the form of credit.
Proud to be a Jerk!
costata (re. regulatory burdens),
Wild numbers indeed.
Couldn't help follow your link to this also:
http://revmodo.com/2012/07/20/vegetable-gardens-under-attack/
WTF is wrong with the world? Are people with private property gonna put up with this?
Hat tip to 50sQuiff on Twitter:
China’s balance of payments (ex. reserve account) turned negative in Q2
1 August, 2012, 17:42. Posted by Zarathustra
"The State Administration of Foreign Exchange (SAFE) of China published the balance of payments yesterday, which shows that the capital and financial account has turned negative in the second quarter.
[…]
Perhaps the most striking thing about these numbers for Q2, however, is not so much that the capital & financial account has turned negative. Rather, the sum of current account and capital & financial account (ex. reserve account) has turned negative, which necessitated a positive number for the reserve account. A positive number for the reserve account means that China is selling off reserve assets, which means foreign exchange reserve. This is the first balance of payments (ex. reserve account) deficit since 1998.
[…]
The implication of this is serious. As we have mentioned many times, the accumulation of FX reserve by China is necessitated by the desire to keep Chinese Yuan from appreciating to quickly, and this foreign exchange intervention means the China has to create more Chinese Yuan to keep exchange rate low. At the same time, this action has been creating a lot of liquidity within the Chinese banking system which the People’s Bank of China has always been struggling to sterilise.
Now the situation has been totally reversed, and if this continues, it will mean that the People’s Bank of China will be extinguishing Chinese Yuan, not creating, so to speak. That means should capital outflow continue, the liquidity condition will be tightened within the banking sector. That will limit the ability for the People’s Bank of China to ease monetary and liquidity condition going forward."
=========
Izabella Kaminska @izakaminska:
Nice summary on the importance of the Chinese BoP data via @theanalyst_hk http://www.alsosprachanalyst.com/economy/chinas-balance-of-payments-ex-reserve-account-turned-negative-in-q2.html …
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@50sQuiff:
@izakaminska @theanalyst_hk Alternatively, you might interpret this as the end of Chinese structural support for the dollar reserve system.
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@izakaminska:
@50sQuiff @theanalyst_hk No I totally disagree. This is a function of China's fragility, and America's strength.. not the other way around
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@50sQuiff:
@izakaminska @theanalyst_hk US trade deficit is the booty of Exorbitant Privilege. China won't sterilise US net currency emissions forever
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@theanalyst_hk [Zarathustra]:
@50sQuiff @izakaminska What if China stops buying US Treasuries?
(28 June, 2012, 14:22. Posted by Zarathustra)
Engage in a tweetwar with a closeminded Mungerian and what do you get? A misstatement of your position and further ignorance. Time will prove all things.
From Zarathustra's "What if China stops buying US Treasuries?":
"The very definition of balance of payment accounts mean that if China stops buying US Treasuries and no one else outside the US is taking up the slack, the capital account surplus of the US will shrink, and will probably become a deficit when everyone else sells US assets, and that implies that, on the other side of the balance of payment, current account deficit will shrink, and will probably become a surplus when everyone sells US assets. That has to happen, by definition.
If that extreme thing happens, oddly enough, it means the US will run a trade surplus."
No problem at all. Nothing to see here. If they won't buy our treasuries, it just means we'll export more!
"The consequence of a current account surplus, surreal as it might seem today given the US is running a deficit, is that the left hand side of the equation will have to be positive. That means that either private sector saving is becoming more positive, or government deficit becoming smaller, or government budget being turned into, yes, surplus. Now you have a real possibility of both the private sector and the public sector are saving as the rest of the world stops investing in the US. In any case, lowering budget deficit (or turning into surplus) should make the US government somehow more credit worthy for those who currently believe that US government is bankrupt."
He's got all the equations right but misses the implications.
It's one thing for the private and public sectors to willingly and gradually turn to net saving, but it is something else to be suddenly cut off from your source of credit. It's the difference between going on a diet and running out of food.
"The bottom-line is: there is no reason why China selling US Treasuries could be disastrous."
Nope, no reason at all .
FOFOA,
My dear friend, this is total bullshit:
As we have mentioned many times, the accumulation of FX reserve by China is necessitated by the desire to keep Chinese Yuan from appreciating to quickly, and this foreign exchange intervention means the China has to create more Chinese Yuan to keep exchange rate low.
That's just not how it works.
Jeff wrote:
"GLD inventory finally upticked today."
And no sooner does it uptick then gold sells off.
Michael H,
...if the capital account surplus shrinks it does necessarily mean there has to be a current account increase, Zarathustra is forgetting to mention the third variable in the balance of payments identity equation, which is FX reserves. Now the US doesn't have much FX reserves being that the dollar is supposed to be the world reserve currency but it does have gold. Worst case scenario if there is no Foreign buyers of Treasuries and the US continues to run its structural trade deficit, because its structural and can't turn on a dime, then the US must sell gold at FG$ to balance the BOP identity equation...or market losses confidence in dollar and the HI feedback loop begins.
btw, I understand you are not in support of the conclusions this article draws my comment is not directed at you but the author
-v
costata
Thanks for those links, they came in handy already. I 'borrowed' one of your snippets. :P
TF
Pettis:
If China runs a current account surplus, it must accumulate net foreign claims by exactly that amount, and the entity against which it accumulates those claims (adjusting for actions by other players within the balance of payments) ultimately must run the corresponding current account deficit. And as long as China ran the largest current account surplus ever recorded as a share of global GDP, and the US the largest current account deficit ever recorded, and especially since China also ran an additional capital account surplus (i.e. other non-PBoC agents ran a net capital inflow), it was almost impossible for the PBoC to do anything but buy US dollar assets. Given the sheer amounts, a substantial portion of these assets had inevitably to be USG bonds.
This was not a discretionary lending decision. It is the automatic consequence of China’s currency regime, in which it pegs the RMB to a foreign currency, in this case the dollar. Why? Because when the PBoC decides on the level of the RMB against the dollar, it does not do so by passing a law, and making it a capital crime for anyone to trade at a different price. What it does is far simpler. It offers to buy or sell unlimited amounts of RMB against the dollar at the desired price.
No one will sell dollars for less than what they can get from the PBoC, nor will anyone buy dollars for more than what they can pay the PBoC, so all transactions get done at that price. That is how the PBoC (or any other central bank that intervenes in the currency market) sets the foreign exchange value of its own currency.
This means that as long as it wants to set the exchange rate, then, it must take the opposite position of the market. Since the rest of the market is a net seller of dollars (China runs a current and capital account surplus), the PBoC has no choice but to be a net buyer of dollars, which of course it must then invest.
If it stops buying dollars, it must let the market decide by itself on the new equilibrium price of the dollar. In that case the value of the dollar has to plunge in RMB terms (or the RMB soar, which is the same thing) in order for buyers and sellers to match up and for the market to clear. The moment the PBoC stops buying, in other words, the RMB will rise in value – and so it cannot stop buying in anticipation of the RMB rising in value, as the FT article suggested.
Of course the PBoC must fund the purchase of these dollars. It does so primarily by borrowing in the domestic money markets, selling PBoC bills or entering into short term repos (although it also issues some longer-term bonds), or by “creating” money by crediting the accounts of the commercial banks who sell it the dollars.
[...]
So what are reserves good for? As long as China maintains its own currency and denominates all domestic transactions in RMB, the PBoC reserves cannot be used in China. They cannot go to pay doctors’ salaries, to build bridges, to lower taxes or to subsidize consumption. They can only be used to purchase or pay for things from outside China. This means that reserves ensure that China can import foreign commodities and other goods as long as it can pay for them domestically.
Flore = Freegolds.. Izakaminska blocked me.. but Axel Merk seems to be on the trail.. he got a little help..
I also fought a twitterwar with Doug Kass (who is a complete idiot).. he blocked me too..
If you corner them.. they get nasty..
Oh well..its fun..
So I would like to thank all the twitter comrads for the fun we are having with these jokers !!
File this one under death (of the system/markets) by a thousand cuts.
http://www.zerohedge.com/news/what-happens-when-hft-algo-goes-totally-berserk-and-serves-knight-capital-bill
Question: Since someone said, " Like how Central banks are now beginning to consider the notion that gold as an asset can have a tier one valuation on their books. That's a toddler step, what have you got? " I was wondering if it is even possible that banks would have gold as a Tier 1 Asset at 'Paper Gold Prices' (fractionalized gold price)?
I wonder what prevails tomorrow.....
The Euro architecture or Goldman Sachs Global Subversion/Domination architecture?
So many Manchurian Candidates floating around, I dont even know where to start the list.....
Costata,
Erm, what do you mean this isn't how it works?
Bank of Korea Buys 16 Tons of Gold in July to Diversify Reserves
Published: Wednesday, 1 Aug 2012 | 8:37 PM ET
http://www.cnbc.com/id/48453787
"South Korea's central bank said on Thursday it bought 16 tons of gold in July, its second gold purchase in less than a year, boosting its total gold holdings to 70.4 tons as it aims to diversify its foreign reserves.
The total value of the purchase, made on multiple occasions during July, was $810 million, slightly less than $850 million it spent buying 15 tons of gold in November last year, the Bank of Korea in a statement.
A central bank official told reporters the purchases were made sporadically throughout the month in London, but declined to provide the exact net purchase price per ounce it paid for the bullion, typical of most central banks.
Gold accounted for 0.9 percent of South Korea's total foreign reserves in value at the end of July, up from 0.7 percent a month earlier, the central bank said, adding the total book value of its gold holdings was at $3.0 billion.
The South Korean central bank said it now ranked 40th in the world in gold holdings at the end of July, up from 43rd in June.
It announced the gold purchases when it made a scheduled release of the country's latest foreign exchange reserves, which edged up to $314.35 billion at the end of July from $312.38 billion at the end of June.
South Korea, the fourth largest economy in Asia, had the seventh largest foreign exchange reserves in the world as of the end of June, of which securities including government bonds made up 91.1 percent, it added."
See also Go Go South Korea from one year ago.
Costata said...
FOFOA,
My dear friend, this is total bullshit:
As we have mentioned many times, the accumulation of FX reserve by China is necessitated by the desire to keep Chinese Yuan from appreciating to quickly, and this foreign exchange intervention means the China has to create more Chinese Yuan to keep exchange rate low.
Costata, if you might indulge my attempt to reconcile two disparate views, I'd like to tweak that paragraph above and replace a few words while adding in a good reference to gold once or twice and see if perhaps this perspective might add some value to the conversation. If I have missed a significant nuance in your thoughts then my apologies in advance.
As we have mentioned many times, the accumulation of [gold] by [any given country] is necessitated by the desire to keep [that country's currency] from appreciating to quickly [against goods and services], and this [buying of gold] means the [that same country buying gold] has to create more [currency] to keep exchange rate low.
Hi JR, Aaron, Texan et al,
It was very late here when FOFOA posted that exchange about China. It wasn't just the passage I quoted that annoyed me. It's the clumsy, shallow analysis about these trade/currency related issues from so many directions that annoys me.
I will try to explain my thinking about on BOP, trade, exchange rates and the post-transition impacts in a more detailed comment. I won't get it done today.
In the meantime I will post a few short comments to give you some idea of what's on my mind.
Cheers
PS. - JR - In some ways Pettis' work can be like peeling an onion. I'll comment on that extract you posted (and some of his other writings as well) in due course.
Re: BOP
IMO one of the things missing from the analysis on BOP is the differentiation of the physical plane from the monetary plane. This topic is mostly discussed from the perspective of accounting identities.
Despite that twerp's slur about the lack of concrete discussion here this forum is the only place I know of where we can have a discussion that places gold in its proper context, the two planes, currencies and so on.
To kick off my end of this discussion I want to table this issue. Despite reviewing economic history I can't find a single example of a country becoming wealthy without doing so in the physical plane.
In other words I can't find an example of a country becoming rich via the monetary plane and then becoming wealthy in the physical plane. I therefore assert that you become rich via the physical plane exclusively and "wealth" in the monetary plane may follow.
Likewise when a country becomes poor that progression to poverty occurs through the physical plane. Poverty in the monetary plane follows the progression in the physical plane.
I'm looking at gold in a post-transition regime as being exclusively a component of the physical plane except one - as a form of capital. To be clear - gold having no role at all in the monetary plane except for this one exception.
Re: China and Switzerland
The question I have not seen addressed in regard to China's earlier peg with the US dollar is this one:
How could China have maintained this peg without the co-operation of the US government?
In relation to the subsequent "managed float" or "soft peg" to a basket of currencies which, logically, must include both the Euro and the USD:
How could they have maintained this arrangement without the co-operation of both Brussels/ECB and the US government?
Lastly, by way of comparison, consider the Swiss Franc peg to the Euro. Could the SNB maintain this peg if the sponsors of the Euro project wanted to smash the peg?
Bear in mind the "tool" the SNB uses to push down the exchange rate with the Euro is to issue Swiss Franc and buy Euro. If the other side wanted to push back they could issue Euro and buy Swiss Franc. Neither side is going to run out of "money" in this kind of battle. They will hit other limitations and the loser would be the weaker entity in terms of their limitations.
To conclude, can any weaker country maintain a peg of their currency to the currency of a more powerful economic entity in defiance of that more powerful entity's desire to break the peg?
Costata, small comment on:
In other words I can't find an example of a country becoming rich via the monetary plane and then becoming wealthy in the physical plane.
Probably not relevant to the rest of your discussion, but one exception could be small countries with overgrown international banking sector. Think Iceland. And we now know this form of "wealth" doesn't last long, and the snap-back is really painful when it stops.
Another example of wealth-boost from monetary plane is exorbitant privileged countries. As we all suspect, this will also have an end. :)
Carry on...
burningfiat,
I'm glad you found those links interesting. In regard to private property I think "the wheel is in spin" (yet again).
Cheers
burningfiat,
Thanks for introducing Iceland into the discussion. Illusory wealth versus real wealth perhaps?
Hi MF,
Glad it was useful to you.
Cheers
PAX GOLMANA
Only via chaos can Goldman bring hyperinflationary peace to the financial world.
I've heard Goldman actually owns large amounts of physical gold aquired over many years.
BOP is the differentiation of the physical plane from the monetary plane. This topic is mostly discussed from the perspective of accounting identities.
That would because its the balance of payments you are talking about, and the balance of payments is by definition all monetary transactions with the ROW.
The question I have not seen addressed in regard to China's earlier peg with the US dollar is this one:
How could China have maintained this peg without the co-operation of the US government?
What is there to address, other than semantics over what "co-operation" means?
JR,
What I said was this:
IMO one of the things missing from the analysis on BOP is the differentiation of the physical plane from the monetary plane.
BOP accounting seeks to reconcile both planes - or so it would appear.
You wrote:
What is there to address, other than semantics over what "co-operation" means?
One of the things to address is cui bono. Who made the bucks from this?
In any case, I cordially invite you to get the fuck out of my way on this matter.
By semantics over what "co-operation" means, clearly you meant whether or not the co-operator has a pathological inability to say no to any and every presented opportunity for consumption beyond its present means.
BOP accounting seeks to reconcile both planes - or so it would appear.
Keep trolling. The word "Payments" figures prominently for a reason.
The balance of payments is an accounting of a country's international transactions over a certain time period, typically a calendar quarter or year. It shows the sum of the transactions—purely financial ones, as well as those involving goods or services—between individuals, businesses and government agencies in that country and those in the rest of the world.
http://www.newyorkfed.org/aboutthefed/fedpoint/fed40.html
==================
Costata, keep trying to push you agenda and I'll keep pointing out how dumb it is.
I know it is frustrating to get carried away thinking you are smarter than everyone and then get repeatedly get taken to the woodshed. Perhaps some humility is the answer?
There are good reasons why FOFOA and others disagree with you, it is a shame you can't man up and confront those issue instead of running away. Nobody likes a passive aggressive little coward who looks to spill dirty laundry and play silly word games when he doesn't get his way.
J.R.
After the Draghi speech: "Draghi is not delivering" whines the MSM. Well, as per the statements, the ECB is not buying bonds outright, correct, just preparing when it will be necessary and "there isn't even a direct ask for it". Correct.
"believe me, it will be enough!", he announced before - Knally now trying to add 1 plus 1 and hear what he didn't say, I think I see, its all a case of seeing the glass half empty or half full. KNOWING the full euro architecture, of course the little bit is already enough!
Tier 1 and FreeGold (and US HI) will come anyway further down the road, btw you'll hear when the can finally hits something physical lol). Half empty or half full, regardless, is a the golden middle anyway, or not!?
But why would Geithner fly over to Sylt/Schäuble and then Draghi so nervous after the preannouncment-threat!?
FOFOA said,
Bank of Korea Buys 16 Tons of Gold in July to Diversify
...
purchases were made sporadically throughout the month in London, but declined to provide the exact net purchase price per ounce it paid for the bullion
Is 16 tonnes sufficient size (for a Giant) that we are assuming that such an order was purchased at a price much higher than spot?
ANOTHER: The BIS is the gold broker for all interbank sales / purchases. Bullion Banks are for sales to other entities.
FOFOA: [FOFOA]Physical gold is different than modern currency. At the CB level, it rarely gets moved. This was a big reason for the creation of the BIS in the first place. If you think about the purpose of the BIS as a clearing system or gold broker for interbank sales, it makes perfect sense that most of the gold deposited with the BIS would be sight or unallocated.
The purpose is so that CBs can transfer gold around the world without having to physically ship it. Avoiding the cost and risk of physically shipping a heavy metal is an important service provided by the BIS. And it does this mostly in unallocated form. When the BIS physically moves gold, the risk is shared, i.e. the risk is on the BIS.
The BIS is owned by its customers, the CBs. They set it up and subscribed to it (bought in) so it could provide services like this. The BIS's own gold is still owned by the CBs because they own a proportional share of the BIS.
Say you want to give me a hundred dollars. You go into your bank and deposit a hundred dollar bill. Then you fund your Paypal account and send me $100. Then I send that $100 from my Paypal to my bank and I can walk in and take out that $100 bill. You’ve just sent me a $100 bill but no one actually physically shipped it across the ocean. It was an unallocated deposit in one location and an unallocated withdrawal in another. This is what the BIS does with gold.
Hello JR;
A comment of yours a while back in the 400-466 space jarred
an ancient memory. Back in 1955, when I was 10, I saw a movie
based on a novel by Neson Algren. It was titled, "The Man with
the Golden Arm". It was rather daring at the time. It made me
think of an appropriate title for today's world: "Uncle Sam: The
Man with the Golden Arm". Go look it up. Cheers.
After watching ECB's press conference I always wonder what would current president's reaction would be if a journalist asked about gold as main reserve in Eurosystem and EURO architechture always having the nuclear option .... Would Draghi, Trichet or whoever adress the question?, lie?, or tell the truth?
If you had to answer the following question as succinctly as possible what would you say:
"How can you say that the ECB is not interested in saving Sovereign Debt – when that is what all of this is about – at least that is my understanding. They have come in with their LTRO – and are now talking about buying the debt of Spain and Italy and Greece – in order to save their currency. I really do not draw much distinction at all between the ECB and our FED – they are both run by the banking elite – serve the same masters (Banks) – and could care less about their people – as demonstrated by their austerity programs which hurt the little guy with Very Little effect on the wealthy bankers. What am I missing?"
I wonder what the NON STANDARD measures entail:
Ambrose Evans-Pritchard:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100019312/draghi-delivers/
Wow, the ECB really is preparing to hit the nuclear button.
Mario Draghi has activated the ECB's monetary policy, risk, and market committees to draw up drastic plans.
This will include open-market operations – ie bond purchases – that may be "unlimited" and may be "unsterilised" (ie QE net stimulus).
The missile is being loaded. The launch trigger is being cocked (if you cock such things).
Markets have tanked because they don’t get instant gratification, but I rather suspect that they have missed the point.
All this can only happen when the EFSF/ESM bail-out funds are activated by governments, because only they have the power to force supplicant states to sign a Memorandum and give up fiscal sovereignty.
That is the famous "conditionality" demanded by the Teutonic bloc and on which the whole package hinges.
Over to you, Mariano Rajoy. Now you must fall on your political sword, sacrifice your career for the EMU cause, and request a formal rescue for Spain to set this whole process in motion.
Suerte, Caballero.
All for now, here is the key bit of Draghi’s statement.
As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions [for some action on the ECB side]. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures".
Hi athrone,
You ask:
Is 16 tonnes sufficient size (for a Giant) that we are assuming that such an order was purchased at a price much higher than spot?
Victor via
Today's (quote-unquote) "Gold":
Let us stress that as of February 2012, there exists no liquid private market for physical gold in € in which bid and offer would be quoted for tranches of 10 tonnes or more at any time. In fact, this is apparently not even possible in the London market in which gold is traded in US$:
James G. Rickards, Currency Wars, page 26:
In ordinary gold trading, a large bloc trade of as little as ten tons would have to be arranged in utmost secrecy in order not to send the market price through the roof [...]
CotB, Baroness Elsa Schraeder, Judy Barton, many thanks Woland!!
@ Costata/JR
Isn't the BOP, double accounting goldless bullshit system we have today an academic creation ?
And not a market creation ?
JR,
I think you are becoming a "roadblock" due to the manner in which you respond to some of the material that comes up in the discussions here. If I raise a subject for discussion and others want to discuss it I don't think you should take it upon yourself to decide whether it should be discussed.
I would prefer you to simply scroll past a discussion if you don't like it for some reason and stay out of it rather than attempting to shut it down. If FOFOA wants to halt a particular line of discussion he can do so simply by requesting people to take it elsewhere. IMO most people would comply. I certainly would.
The extracts from the archives are helpful to a lot of people and that's a valuable service to the discussants here especially when you introduce them with an explanation of their relevance. However, some of the other elements you weave into your responses here are cringeworthy in my opinion.
In regard to the amateur psychoanalysis, I'm in "two minds" about whether I want to respond or just ignore it. A very old saying from northern England comes to mind: "when in doubt do nowt". So I think I'll just ignore it and leave it to you to decide whether you want to continue down this path or let it go.
M,
I think Martin Armstrong made an interesting observation about the current national accounting system a few weeks back. (These are my words not his.) He described it as a Bretton Woods framework that wasn't updated to reflect the removal of gold from the $IMFS system in 1971.
So the accounting framework has a version of the gold exchange standard as a premise but no gold within the system to exchange (on a formal basis anyway). And FWIW I think it's an anachronism that could (but shouldn't IMO) survive the transition.
a·nach·ro·nism [uh-nak-ruh-niz-uhm] Show IPA
noun
1. something or someone that is not in its correct historical or chronological time, especially a thing or person that belongs to an earlier time...
http://dictionary.reference.com/browse/anachronism
Heres a quote from FOFOA's insider in the thread "GLD talk continued" June 8
"I also hear a rumour this weekend from a buddy that the ACB with bids in at $1525 was BoKorea. Not PBoC."
Does this have anything to do with Koreas purchase?
Interesting snippet:
http://www.macrobusiness.com.au/2012/08/china-stamps-australian-dollar-with-reserve-currency-status/
SYDNEY-Officials within the foreign-exchange arm of China’s central bank recently met Australian regional governments to discuss buying their bonds, people familiar with the matter said.
The securities – known as semi-government – are issued by state debt offices in Australia to help fund infrastructure and public spending programs.
Be careful what you wish for Aussie Gs.
Hello Costata,
You wrote: "And FWIW I think [the BOP accounting framework is] an anachronism that could (but shouldn't IMO) survive the transition."
It may well be an anachronism, like a 20-year-old pair of eyeglasses when your eyesight has been changing rapidly thanks to the joys of growing old. :-/ But that's all it is, a lens for seeing, as out of focus as the view may be. But your implication seems to be that the BOP is more than just a lens for seeing. That it somehow distorts (changes, affects, causes) the reality it is attempting to explain.
I am (of course) referring to more than just your last comment as we have emailed about this in the past. So perhaps it would be helpful for you to explain how the BOP framework affects reality.
Maybe we could revisit the discussion about India's gold imports while running a trade deficit. India is running a trade deficit excluding gold. Including gold it is running an even larger trade deficit. IIRC you claimed that changing the BOP framework could make India's gold imports subtract from, rather than add to, India's trade deficit and thereby reduce the need for the Indian government to borrow (which the current BOP rules "require").
If I misunderstood you on India then I apologize. But I think it would be constructive to get to the root of a couple of our disagreements rather than beating around the bush and flinging insults. And this was one of them. I think it also relates to your recent question to the forum on the definition of the word "capital". Perhaps now would be a good time for you to reveal your definition of "capital" and how you think a proper understanding of the word "capital" would change the BOP framework and thereby change reality. Again, I apologize if I have misunderstood you. I've been trying hard to understand you.
Sincerely,
FOFOA
Hi FOFOA,
I'd like to clarify a couple of things that might be getting in the way of understanding. (And I concur it is often hard to achieve despite our best efforts.) Firstly, I sometimes refer to BOP as a generic reference to national accounting as opposed to the balance of payments itself.
As per this concise statement from Wikipedia:
When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit.
Self evidently true. So in future if I'm referring to 'national accounting' instead of referring to it as BOP I'll try to remember to use this phrase. And by national accounting I will be meaning: how national accounts are organised, the selection of the components and how the components of those accounts are treated in this accounting framework.
Secondly in relation to India:
IIRC you claimed that changing the BOP framework could make India's gold imports subtract from, rather than add to, India's trade deficit and thereby reduce the need for the Indian government to borrow (which the current BOP rules "require").
I was highlighting reports of an argument among economists in India. My recollection is that I provided links to those reports. One of the economists in those reports was putting forward this argument. Another high profile economist in India was arguing against this proposal.
I brought this debate to your attention in order to highlight the fact that there was a debate on this issue. Not because I was trying to take either side of that debate on the treatment of gold.
If you are implying that "require" was a poor choice of words then I agree. (So was "rules" come to think of it.) The requisite balance can be achieved in other ways than government borrowing. I will try to identify a word or phrase that better reflects the impact of international agreements on national accounting policy responses.
I'm not understanding what the insult is, if any, you seem to be referring to here:
And this was one of them.
Perhaps now would be a good time for you to reveal your definition of "capital"...
I haven't reached the point where I can put forward a definition that I'm satisfied with. But I think I'm approaching that point. So I'll take a raincheck on this suggestion if you don't mmind.
..and how you think a proper understanding of the word "capital" would change the BOP framework and thereby change reality.
I don't think it would change reality. Rather I think it would contribute to making national accounting a better reflection of reality if the framework was overhauled.
However, I'm not arguing/campaigning for change. It is what it is. I'm attempting to understand what changes, if any, that a Freegold-RPG regime might dictate in national accounting.
But that's all it is, a lens for seeing, as out of focus as the view may be.
As it currently stands I disagree with this statement. I think it is a lens designed for a pair of eyes belonging to a financial market operative. In other words it looks at an economy from one particular perspective and with a preconceived set of assumptions about what that operative wants (or expects) to see.
That it somehow distorts (changes, affects, causes) the reality it is attempting to explain.
I think it provides an interpretation of reality rather than a neutral explanation of reality. In other words it could be a distorted view of reality.
Sorry. "Insults" referred to you and JR, like "I cordially invite you to get the fuck out of my way". "And this was one of them" referred to "the root of a couple of our disagreements". My bad!
What's in your vault? Uncle Sam audits its stash of gold at the New York Fed
http://www.latimes.com/business/la-fi-gold-bars-20120803,0,5461335,full.story
There is a question which any potential commenter on a blog
must constantly ask him/herself: Did I write this because I
enjoy seeing my comment in print, or do I really have something
substantial to add to the discussion? I struggle with this a lot,
and I hope the following is not the former. It's probably not the
latter, either.
Regarding FOFOA's request of Costata to reveal his definition
of capital, the following thoughts occurred to me: I personally
believe that all Capital is Physical, (that it occurs in the physical
plane) with the exception of "specialized private knowledge".
By this I mean something the private nature of which can be
legally protected, like a patent, but not like "the calculus". Or
it could be like the Rothchilds' carrier pigeons. It's harder to
pin down than it appears.
I also believe that "bank credit", which can be converted into
paper currency, is not "Capital". And I believe that Capital and
"Wealth" , while not identical, share a common quality.
Wealth cannot be printed,or conjured out of thin air, for if
it could, no work would need to be done. And yet:
What if you possessed an invention which could induce the
people around you to engage in ANY sort of behavior you wished,
including the surrender of all their goods to you. Would not
this magical device be a form of Capital? Well, it exists, and
it is what is commonly referred to outside this blog as "money",
and it works perfectly until suddenly one day it doesn't.
A feedback loop if there ever was one.
FOFOA,
Thanks for clarifying.
The invitation to JR remains on the table:
I cordially invite you to get the fuck out of my way.
My cowardice nothwithstanding.
Let's quit the foreplay, where da treasure at!?!
Gold Hat: "Badges, to god-damned hell with badges! We have no badges. In fact, we don't need badges. I don't have to show you any stinking badges, you god-damned cabrón and chinga tu madre! Come out from that shit-hole of yours. I have to speak to you."
Where da treasure at!?! Is there gold in them there hills, or is he just pushing paper? Who knows... and who cares, this foreplay goes on forever. Where da treasure at!?!
Where?
Where?
Where?
Where?
Costata and JR,
Please stop, you're scaring the children.
I have a question that I haven't heard discussed, or just missed along the way:
If CBs wind up able to count gold as a tier 1 asset, would that be at shrimp prices or would might it serve to pull back the curtain revealing a higher valuation?
Cheers
#ShrimpFTW!
Tier-1 = allocated/possessed physical gold WITH AN OFFSETTING GOLD BULLION LIABILITY.
0% nominal price risk on an ounce that is at the same time owned & owed.
byiamBYoung
All I have to say on that topic is : fucking accountants.
TF
BY - lol
seems we arent a very good cult...but we a very normal family - dysfunctional!
Costata (and JR) for those of us subscribing at the novitiate level....precisely what are you arguing about? I ordinarily keep out of conversations that are over my head or none of my business but since you are having your spat on these pages and not in private emails...just what is the grist that is mucking your mill? I catch references to BOP then Martin Armstrong wrote something a while back (and he is known for writing more than one thing) and there is also the whole way nations account.
How about 2 sentences each...he said he said...tell the referee why you are aggrieved ...is that possible? I would like to be able to understand the 2 sentences btw....thanks ...
Who knows?
Someone thinks A/FOA/FOFOA is wrong, but won't come out and say it.
Instead, we get led down trails with open ended queries as we beat around the bushes, only to have it all dropped at a dime with no explanation, because:
For other readers I want to make something clear. Don't assume that I'm going to defend any of the arguments I'm advancing if it becomes clear during the course of discussion that they are simply wrongheaded.
http://fofoa.blogspot.com/2012/07/fallacies-1-paper-gold-is-just-like.html?showComment=1342407764424#c5787027187261397299
So we get rinse and repeat and it happens again with another roundabout, open ended query.
=======================
Just come out and say it, no need to try to be all cute an indirect - feels like we are playing a silly game. Lay your cards on the table, I call the bet.
BUTTER MT BREAD!! I'M SICK OF THIS LIGHT, FAKE BUTTER ARTIFICIAL WHIPPED STUFF - NO SUBSTANCE!! BUTTER MY BREAD!!!!
BY,
In addition to what Issas Ekeret and MF said, the Tier 1 thing is for commercial banks (aka the bullion bans who deal in paper gold), not CBs.
We can share the women
We can share the wine
We can share what we got of yours
'Cause we done shared all of mine
Keep a rolling
Just a mile to go
Keep on rolling, my old buddy
You're moving much too slow
I'm sure this has been addressed, but I cannot find it now. I stopped into a coin shop where I have not bought anything before and liked their price, but was informed there would be a sales tax.
Having previously read that purchases under a certain amounts were subject to sale tax, I asked what if I bought two eagles instead of one...the answer was the tax would be twice as much.
I walked out with a comment that I do not support the government or something like that.
Do I have to buy on the internet to avoid paying an extra 100 bucks or so to exchange legal tender for legal tender, or did they think they had found a sucker?
No takers, eh? Okay, I'll give you an incentive to answer the question posed in my last post. A half gram of gold to the best answer, payable after the transition.
Edwardo:
As I lack the requisite skills to cut and paste a reply, might
I merely suggest that you give a re-read to the post entitled:
"The Gold Man", not Goldman, at the BIS. It answers a lot of
questions relating the ECB to the BIS. Cheers.
Michael dV,
The problem, from my perspective, is that JR appears to think I'm attacking our favourite Yeti. I view this forum as a place that has matured to the point where we can test our ideas and arguments.
Some of the ideas and arguments that I have been developing are incomplete. Some of them may turn out to be wrong. JR appears to believe that presenting anything less than a final position on any subject is being evasive or indicative of some hidden agenda.
I respect his right to his own opinion but when other discussants want to take up a topic I raise I do not want him to intimidate them into silence. Likewise I don't want to see him respond like a guard dog defending some turf.
One of my great disappointments is the poor standard of the arguments put forward by critics of the theories, and evidence supporting these theories, presented in these pages. Sometimes I wish we had a real devil's advocate instead of idiots like the recently departed self-styled AD.
In regard to JR's charge that I drop things on the table and fail to pursue them I stand guilty. I don't approach the discussion here as a discreet series of threads. For me it is an ongoing dialogue. I tend to discuss what I am most interested in at any given time and return to various topics when I feel I have something to say.
More than two sentences I know but c'est la vie.
Cheers
Edwardo
The most succinct answer I can provide is simply sharing perspective. Validation of such perspective I would leave to these pages.
Both the ECB and the FED will throw whoever they need too under the bus to keep the system going. The FED because the project the long term idea that this system can be maintained, and so focus only on kicking the can in the short term; the ECB because they project the long term idea that the system cannot be maintained, and thus focus on keeping things together in anticipation of D-Day.
TF
JR, costata, FOFOA et al
In principle I am all for intelligent criticism of the ideas presented here.
However all I have seen over the last few days is vague hints at discussions held outside these pages.
If the meat of the criticisms under consideration are not shared here, then it is impossible for any others here, not in the loop, to take part in such discussions.
TF
Woland,
No offense, but cut and pastes need not apply. I am trying to explain to a friend the fundamental difference in function of the ECB versus The Fed. So far, despite pointing out, among other items, the MTM of physical gold by the ECB, as opposed to the $42 dollar an ounce figure that is operational in the U.S., I have not successfully made the case.
Sometimes in a discussion (from a completely unrelated source) one comes across something that is almost perfectly apposite.
http://www.macrobusiness.com.au/2012/08/economist-comes-clean/
This writer is discussing a talk given by Nobel Laureate Sir James Mirrlees at the Australian National University in Canberra. The writer picks up on the theme of inter-subjectivity as one of the blind spots of economics.
So called “fundamental” analysis is just the “lowest sensible price”. That is why forecasts don’t work, because they purport to be objective. They cannot track intersubjectivity.
But this is the quote that prompted me to make this comment (my emphasis):
Mirrlees then makes a somewhat startling claim. The conventional economic model (including the theory of General Equilibrium):
“doesn’t, for example, give any reason for the existence of money.”
Can we all agree that this could not be said of the discussions or discussants here? They don't understand the reason for the existence of money.
I think we need to allow reasonably wide latitude in the topics we tackle here in open forum. In my opinion there is simply nowhere else to tackle them because in other forums the discussants haven't even mastered the basic "tools of the trade" (so to speak).
Cheers
Aussie Readers
Take a look at the three butt ugly graphs in this short piece on SME business confidence in "The Lucky Country".
And all states, even WA, struggled:
http://www.macrobusiness.com.au/2012/08/smes-get-adjusted/
For other readers, Western Australia is the epicentre of the Australian mining boom.
Aussie Readers
Take a look at the three butt ugly graphs in this short piece on SME business confidence in "The Lucky Country".
And all states, even WA, struggled:
http://www.macrobusiness.com.au/2012/08/smes-get-adjusted/
For other readers, Western Australia is the epicentre of the Australian mining boom.
Is it the case, costata, that the theory of General Equilibrium doesn't give any reason for the existence of money because it assumes that money, if money is defined as a medium of exchange, and not inclusive of its two other functions- namely a store of value and unit of account- exists simply to avoid barter town. Or am I totally missing the boat on this issue?
Y'all
"So the accounting framework has a version of the gold exchange standard as a premise but no gold within the system to exchange "
Just wondering if anyone like FOFOA could walk us through a simple example of a post freegold double entry accounting transaction between say Japan and the US. Assuming there was a net imbalance of $10,000 or whatever is simplest.
As of now, Yamaha exports $10,000 worth of motorcycles to the US. The US consumer pays for them with USD. Yamaha cant pay their workers with USD so the $10,000 USD goes to the CB of Japan. Japan prints the equivalent of Yen and hands it to Yamaha. But the $10,000 USD still exists. The useless US consumer has nothing in the physical plane to export back so the CB of Japan is stuck with the USD's. So they buy 10,000 worth of US treasuries.
Post freegold..
Yamaha exports $10,000 worth of motorcycles to the US. The US consumer pays for them with USD. Yamaha cant pay their workers with USD so the $10,000 USD goes to the CB of Japan....and ____________________________________________________________________________________________________________.
Costata,
"The problem, from my perspective, is that JR appears to think I'm attacking our favourite Yeti. I view this forum as a place that has matured to the point where we can test our ideas and arguments."
"Some of the ideas and arguments that I have been developing are incomplete. Some of them may turn out to be wrong. JR appears to believe that presenting anything less than a final position on any subject is being evasive or indicative of some hidden agenda."
"My dear friend, this is total bullshit: That's just not how it works"
Uncle, we all respect you. Now please hammer out your ideas without calling the Yeti out so impolitely. Might I suggest unclecosti.blogspotdotcom
Money exists because no man (or woman) is an island. If they were, it would not.
Before it exists under any other definition money is simply a form of mental bookkeeping tracking relative credibility amongst individuals in a group. Barter is for intergroup trades (as opposed to intragroup) where credibility won't do as these parties may seldom/never again meet and thus a mental debt will not necessarily be repaid. Payment in full in the present is required. A MoE is a further step again to increase the efficiency of barter by avoiding the double coincidence of wants.
In essence though, money exists in order to avoid self-sufficiency.
If you are not 100% self-sufficient then you have actually already caused money to exist, whether you know it or not.
Most people however, perhaps including Keynes, presume MoE to be money and that all that preceded it must have been barter thus their reason for the existence of money is as faulty as their definition of the concept.
Edwardo,
I didn't listen to the speech and I don't want to speculate on why neo-classical economists seem to ignore money. There is so much material out there from this school that I think you would receive a better answer to your question by reviewing their literature.
I think that statement about money from the quote I lifted speaks for itself.
Nickelsaver,
You wrote:
Now please hammer out your ideas without calling the Yeti out so impolitely.
I don't understand what you mean by this. I was referring to the material quoted by FOFOA in the comment he posted. Are you saying he wrote the piece I quoted and described as BS? My response was heated but it wasn't intended to be an ad hominen attack on FOFOA.
Costata (and JR)
but Costata mostly as he responded to my 2 minute request...it is the nature of your disagreement not the fact that you seem to feel unable to disagree on these pages that I am asking about...what is the specific disagreement? Why is the BOP a problem? What did Armstrong say that got you going? What is it about the way nations do their accounting that seems wrong?
Costata
I have to say I was surprised by your response. It seemed a tangential answer coming from someone like you, from who I expect solid direct answers. Is all well?
Nickelsaver,
That should have been 'ad hominem' of course.
M,
... who either offloads that $10,000 onto another entity who wants US dollars via the FX market in exchagne for another currency or they purchase gold to hold as a reserve asset or Japan's CB/MOF holds the US dollars as FX reserves (in some form) or they transfer the US dollars to a sovereign wealth fund which then invests those US dollars somewhere outside Japan.
(Can anyone see any other possible transactions?)
The theory/assumption I'm working on is that post-transition gold will transmit its economy wide price signals via exchange rates.
If that transaction represents a trade surplus for Japan it exerts upward pressure on the Yen and if it represents a deficit for the USA it exerts downward pressure on the (post-transition) US dollar.
So the price of gold should be rising in the USA as a result of the trade imbalance and falling in Japan in the scenario you outline.
And thus far all of my efforts to outline scenarios that would allow this system to be "gamed" have failed. By gamed I mean allowing anyone to set an artificial price for their currency or allow two currency issuers to set an artificial price for their currencies by mutual agreement.
Gold exerts its influence either through a "white" market or an increasingly "black" market. In a similar manner to the way it operates in, for example, Venezuela between the local currency and the US dollar.
Beautiful to behold! (IMHO)
(At present I'm looking to arbitrage to explain the flow of gold.)
Michael dV,
Don't read too much into this situation. It will be resolved. This blogosphere is a young medium and I think it has some growing pains to endure. But that's just my 0.02 and others may see it differently.
I'm fine BTW and I hope all are well too.
Costata,
This is how I saw it, maybe I'm alone, if so I apologize. FOFOA was giving props to @50sQuiff for arguing the point with @izakaminska that the article written by Zarathustra "What if China stops buying US Treasuries?" supported a key FOFOA premise "you might interpret this as the end of Chinese structural support for the dollar reserve system"
By knocking down the article, or even that portion of it, and calling it bullshit, was like saying that FOFOA was somehow wrong to give props or even put it out there as support for his position.
Again, if I misunderstood, I apologize.
Costata
your reply surprised me. I was asking about the content of your disagreement but your response was that you felt unable to start a new idea (or disagree with a commonly held tenet).
Is all OK? I have come to expect serious response form Costata...as I said I was surprised.
Even though I am just a doctor at heart I am a scientist. I expect to be able to avoid a thousand word conversation with a simple concept....such as 'recombinant DNS research' ...I say that and I do not need to argue about evolution...we agree that statement means we both understand how evolution occurred. Here we understand the concept of 'transition' we understand separation of MoE from SoV...no need for lengthy talk.
Are you in disagreement with a fundamental? Is it something so central that it would cause charges of heresy? (ok that is pretty silly) but just what is it you are having trouble with?
thanks
`all
ignore the last post...it was written before the last response from costata.....such is the miracle of electronic communication....which i must say is faster than the carrier pigeons of my day.
costata (Aug 3 2012):"The theory/assumption I'm working on is that post-transition gold will transmit its economy wide price signals via exchange rates....(At present I'm looking to arbitrage to explain the flow of gold.)"
costata (July 14 2010):"Under a Freegold regime gold would value all currencies individually and the exchange value of each currency would still be relative to every other currency."
Nickelsaver,
..supported a key FOFOA premise "you might interpret this as the end of Chinese structural support for the dollar reserve system"
Okay, I see how you interpreted my response. If I wanted to express disagreement with that premise I would not have described it as BS. I would have said I disagree with it. But I can see how you could have read it as a calculated insult. Apologies to FOFOA if he read it that way and I see now he could have read it that way too.
I'm disagreeing with the analysis of how that structural support operates, the options available to China if they want to end that support and the methods they can employ to retain the benefits they obtained from the USA. And FOFOA and yours truly are not, or were not, in agreement on these issues.
To be clear, I'm in complete agreement with him that China buying USG debt did provide structural support for the $IMFS.
Blondie,
If there is a way to game the system then it threatens the "brake and spur" function of gold. It's the "how" I'm trying to flesh out of that valuation process by gold and the "how" of the trade balancing function. And then trying to express this in a solid, defensible way.
As that comment from 2010 shows it has been my opinion for a long time that it would. I don't recall the conversation where I made that comment but I doubt I could have formulated a satisfactory response back then if someone had said: ORLY costata, prove it! How will gold accomplish this?
Sure there's a way to game the system, and it is dependent upon the savers choice of media for their savings.
"I doubt I could have formulated a satisfactory response back then if someone had said: 'ORLY costata, prove it! How will gold accomplish this?' "
That's because gold won't accomplish it, the savers will. I'm just being clever; I know that's not what you meant. It is true though; gold will accomplish it by being the savers' choice, and this simple choice disables consumption-based borrowing.
Answer me this: If savers save in anything but currency, what is there to game?
I understand what you're saying costata, but I don't think it's there (and I posit that this is why you are finding it hard to coherently describe). Let the banks create all the money they want; without the savers saving in it money creation not supported by productive activity is detrimental to those to whom it is owed, and that would be the banks themselves. Misallocation of capital is owned by the bank that enabled it if the savers did not, end of story. Currently it is the savers' capital the banks misallocate (for a fee), but if the savers choose another media for their value storage it is the bank's capital they misallocate. You don't think this will change the bank's behaviour?
Sure there are people in the banking sector taking advantage today (more lending means more fees, and if it's not your capital being put at risk who gives a damn?), but without that crucial decision from the savers that enables the whole thing banks return to being a simple utility. They have no alternative. No need for rules and regulations when their own self interest will suffice. Moral hazard off, prudent lending on.
If savers make their SoV anything but currency, please demonstrate how the banking sector can do anything about it; how they can 'game' this.
They be screwed costata, and the consumption junkie governments too.
You haven't joined the "too good to be true" brigade have you? If perchance you have, don't forget that saying is qualified with a 'probably'.
If savers save in anything but currency, what is there to game?
Blondie,
I haven't joined the "too good to be true brigade". When I don't respond to you immediately it is because you make me think. I hope you realize that's a compliment.
Cheers
HI Edwardo,
"How can you say that the ECB is not interested in saving Sovereign Debt – when that is what all of this is about – at least that is my understanding. They have come in with their LTRO – and are now talking about buying the debt of Spain and Italy and Greece – in order to save their currency. I really do not draw much distinction at all between the ECB and our FED – they are both run by the banking elite – serve the same masters (Banks) – and could care less about their people – as demonstrated by their austerity programs which hurt the little guy with Very Little effect on the wealthy bankers. What am I missing?"
Because its future debt that we are talking about, not past debt.
Listen to Draghi say over and over "we will help the banking system (aka past debt) but only after you get your fiscal house in order (future debt)."
OMG CUT AND PASTE COMING SO DUCK IF YOU MUST (BUT YOU CAN SHIP FOFOA THE GOLD):
Euro Gold
The point is that the Eurosystem's response (volume expansion) to its current systemic threat (the debt crisis) is not surprising. Does this mean the euro will collapse (experience hyperinflation)? No. Because, for one reason, it has severed the link to the nation-state. The euro is behaving perfectly predictably in maintaining the nominal performance of its system through expansion, but it cannot be forced to fund the future government profligacy of the PIIGS through volume-only expansion. That link is severed.
But the dollar, on the other hand, is nominally on the hook not only for the debt mistakes of the past, but for all future dollar-denominated liabilities, obligations, entitlements and promises of the biggest debtor in all of history, on top of a debt mountain that is probably another $100T in size depending on your measurement criteria. That's a big difference. The dollar is an old currency in the winter of its life, linked to the greatest profligate debtor the world has ever known. The euro is a young currency that has severed its link to the nation-state. The ECB can save its own system, but the member states cannot force it to fund perpetual profligacy....
cont.
cont.
Back Across the Pond
Now in your mind's eye I want you to take a bird's eye view of this fair, looking down on all the colorful tents, and then zoom way out as if you were using Google Earth, spin the globe and zoom back in on a different fair "across the pond." We'll call this fair the USA.
On the surface, this new imaginary fair looks very similar to the other one. There are many different tents, tables, goods and services, buyers, sellers, debtors, creditors and, of course, a fair operator who we'll call the Fed/USG. And that's the first difference you'll probably notice, probably because I will point it out. The Fed/USG is not only the fair operator, but also a participant, just like Sy Sperling. At this fair, the link is not severed.
Here are a few more differences. The fair operator is not only a participant, but he is also the biggest debtor this fair or any other throughout all of human history has ever seen. He is literally printing up scrip to buy things from the fair. He is not only funding his ongoing (perpetual) trade deficit by printing and spending scrip, but he is also paying the interest on his past debt by printing scrip. And whenever his creditors start to worry about him paying his debts, he simply prints more scrip to buy back the promises to pay at face value. And he does all this without ever telling the fair participants that his scrip now has less value.
But it gets worse. This fair operator is truly cashing in on the reputation of his forebears. He's emptying his bank of credibility like there was no tomorrow. You see, for a long time his scrip has been used as the inter-fair clearing system instead of gold. So he is not only able to purchase goods and services with his freshly printed scrip within his own fair, he is also able to shop at far away fairs with his printed scrip, simply on the basis of squandering past credibility. And don't think this isn't getting noticed. Ooh baby, you better believe it is getting noticed![...]
Some of the participants in the USA fair, like California, have lots of debt just like Greece. But unlike the ECB, the Fed/USG can't really deal with that right now because it has its own debt problems it is dealing with (printing away).
I've been aware of FOFOA's blog for several years but never had the willpower to sit down and try to digest such a dense collection of material. This blog really should be its own website.
I've barely scratched the surface so I don't know if this question has been addressed already, but I'm trying to decide whether silver is in fact "money." It's true that it has been used as money in the past, but one of the more popular arguments says that because silver is now used so heavily by industry, it can no longer be relied upon as a monetary metal.
For the sake of my question, I'll accept that as being a true statement. However, it leads to an obvious question: If industry finds a use for gold that consumes a significant portion of the supply, will gold also cease being money?
Severed link FTW Edwardo!! There is a reason Jeff and I keep re-posting this stuff, its killer! Ship FOFOA the gold!
Syntheis
All the benefits and architectural innovations of the ECB stand in place now as a kind of safety net for the Eurozone for whenever the $IMFS collapses under its own weight. And the signs of this happening sometime soon are ominous and many.
It is easy and convenient for the financial press to blame the Eurozone problems on the euro itself. But I am here to show you that they are actually caused by the dollar system, counterintuitive as that may seem...
Unsustainable Deficits
The pressure on the $IMFS is building EVERYWHERE! From Greece to California, from the ECB to DC. And what exactly is all this pressure? It is unsustainable deficit spending... DEBT!
And what is the ONLY solution to this? What is the pressure release valve? It is different depending on whether you are a sovereign net creditor/saver or if you are a sovereign debtor. For the creditor/savers the ONLY solution is CUT OFF THE CREDIT and thereby FORCE AUSTERITY. If you are a debtor, the ONLY solution is DEVALUE THE CURRENCY, or more precisely, ALLOW the currency to hyper-depreciate. Yes, default is an option, but not for a sovereign that prints its own money, and not for any too-big-to-fail entities under the umbrella of such a sovereign...
The US dollar MUST devalue (one way or another) against the entire physical world. Think about this. The euro, on the other hand, might just hyper-depreciate against only one specific asset. An asset that happens to also be a MONETARY asset held by its member debtors.
The hyperinflation of the dollar is already a done deal. It has been since the 90's at least. Massive quantities of perceived dollars already exist stored in debt held globally and inside the US. Europe knows this. They have known this was inevitable since at least the mid-90's when they changed plans and went with higher gold reserves for the new ECB. They have always been willing to wait for it to happen naturally, unless the EU itself faces an existential threat from debt brought on by the $IMFS. And in this case, I believe their only option is a targeted hyper-depreciation of the euro.
By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.
Of course this would cause the hyper-depreciation of the dollar as well. Only the dollar's collapse would be against all of creation, not just one asset.
Hi flaunt,
You say:
"However, it leads to an obvious question: If industry finds a use for gold that consumes a significant portion of the supply, will gold also cease being money?"?
How could "they" ever get a significant portion of the supply of gold in the first place? You can't consume what you don't have, and who has gold? Strong hands?
Strong hands that value gold based on the number of outstanding claims against it?
Like this from:
Relativity: What is Physical Gold REALLY Worth?
5/3/98 Friend of ANOTHER
Merrill Lynch, et al, don't grasp the gold valuations by the BIS. Gold is valued by the number of outstanding claims against it. Kind of like a house for sale with ten bidders. Each bidder thinks the house is in the bag because they have a valid bid ticket. Each one thinks he can have the house at any time, even though nine others want it too, because all I have to do is bid a little higher and take it! Insane, but that's what is going on! Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!
JR,
Thanks for the re-post, but I need something more concrete and detailed than that to satisfactorily answer the question posed.
JR: Thanks I'll take a look at that post you linked. It's just a theoretical question, because nobody knows if there will ever be an industrial use for gold. All it takes to "free" gold is a higher value in terms of goods and services. So if industry were willing to pay USD100,000 per ounce in current purchasing power, even the "strong hands" would part with it. The bigger point is that gold would then have properties much more similar to silver, so if silver is not money then why would gold still be money under those circumstances?
JR, Fofoa,
The quote from synthesis:
"By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.".
So how exactly do they accomplish this feat without devaluing against the physical plane as well?
flaunt
In the scenario you describe gold would become a worse store of wealth until eventually being discarded, in favour of what, I am uncertain.
If you look at the properties of gold in relation to other metals , it seems unlikely.
Just in this post I had a discussion with Alan2102 about silver as store of value...have a look-see at the second page of comments.
TF
Hi Edwardo,
"How can you say that the ECB is not interested in saving Sovereign Debt – when that is what all of this is about – at least that is my understanding.
Because its future debt that we are talking about, not past debt.
Listen to Draghi say over and over "we will help the banking system (aka past debt) but only after you get your fiscal house in order (future debt)."
Severed link FTW - to quote FOFOA, "That's a big difference" - the ECB is not on the hook for future obligations. That link is severed. But the Dollar, because its linked to the USG, sure is on the hook for future obligations! The "Fed/USG":
The euro is behaving perfectly predictably in maintaining the nominal performance of its system through expansion, but it cannot be forced to fund the future government profligacy of the PIIGS through volume-only expansion. That link is severed.
But the dollar, on the other hand, is nominally on the hook not only for the debt mistakes of the past, but for all future dollar-denominated liabilities, obligations, entitlements and promises of the biggest debtor in all of history, on top of a debt mountain that is probably another $100T in size depending on your measurement criteria. That's a big difference.
See it again - the ECB runs the fair, the FED/USG not just runs the fair, but it shops there to:
The Fed/USG is not only the fair operator, but also a participant, just like Sy Sperling. At this fair, the link is not severed.
Here are a few more differences. The fair operator is not only a participant, but he is also the biggest debtor this fair or any other throughout all of human history has ever seen. He is literally printing up scrip to buy things from the fair. He is not only funding his ongoing (perpetual) trade deficit by printing and spending scrip, but he is also paying the interest on his past debt by printing scrip
Notice the distinction between "ECB" (severed link) and "Fed/USG" (not severed link):
But unlike the ECB, the Fed/USG can't really deal with that right now because it has its own debt problems it is dealing with (printing away).
There's a start. Can you respond a little more with how you want to present this key idea of the "severed link?"
Euro Gold
You see, there are two fundamental differences between the euro and the dollar that most Westerners simply can't grasp, no matter how many times you try to explain their significance. Wim Duisenberg, the first ECB president, stated them pretty clearly in this 2002 speech:
"The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."
There's a lot in that one paragraph, but the two fundamental differences with the dollar are the severed links to gold and the nation-state. Hopefully I have sufficiently addressed the former above. I will now try to explain the significance of the latter.
Choices
Homo sapiens generally tend to focus on the minutiae of any situation, or else on what everyone else is saying about it. And in the case of the euro, that would be "the debt" or "Greece". Somehow most people always seem to miss the giant big-picture elephant tromping about the room. And in this case, that elephant is the euro's severed link to the nation-state. When Duisenberg said this was a "first", he meant it. And Milton Friedman also said it in 2001 (my emphasis):
"The one really new development is the euro, a transnational central bank issuing a common currency for its members. There is no historical precedent for such an arrangement."
Hi flaunt,
If gold's highest use was not to store wealth, then it would be employed for that other use. Its all about marginal utility - The Value of Gold.
But obviously, that would have to be a pretty valuable use to pry away from Strong Hands. But if such a use arose, something else would replace gold in the SoV role.
Gold's not magic, its just a really good SoV - the Focal Point.
Hi JMan1959,
By not printing out to buy goods and services, aka funding future consumption. Here's a FOFOA comment comparing of the Euro and $:
The world would not resist the US revaluing its gold. There is no reason to. FOA said the US would eventually mobilize its gold at a much higher price. That means revalued, at the floating Freegold price. The US will ultimately have to make a market for its own dollars by buying them up with physical Freegold from Fort Knox.
When the trade deficit is no longer possible, the US will have to import all that inflation it has been exporting if it wants to keep oil flowing in. Real goods going out (gold) and less real goods plus some inflation coming back in. That's the reverse of today's trade deficit.
[...]
By the way, that's post-hyperinflation I'm talking about. They may well lop 12 zeros off the dollar before making a market for it. Exchanging one trillion old dollars for one new dollar. But gold will still be at Freegold prices (e.g. 55,000 new dollars/ounce) and they will have to make a market for that new dollar or it will continue to plunge like the old one.
That's the choice. You can collapse your currency against the non-economic good gold, killing the paper gold market and driving up the price of physical in advance of hyperinflation by buying it up. This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars.
Or you can wait until your currency collapses against economic goods and then you will have to buy back your own currency with your gold, also at Freegold prices. Even if you start a new currency you will still have to make a market for it because your credibility will be shot by that point.
================
Will the gold flow? It's the Flow, Stupid
If Congress DID decide to mark the US stockpile of gold to market today it would find it had a new stream of revenue. At today's price of $1,328 per ounce, the US gold would be worth $347 billion. Subtract the $11 billion already on the Fed balance sheet and Congress could immediately ask the Fed to credit the US Treasury with $336 billion new dollars to be spent.
And then, if they let the value of the gold float, anytime the price rises, they could issue more fancy dollar-denominated gold certificates to the Fed and be credited with new dollars to spend. In fact, at a Freegold price of $55,000 per ounce, Congress could retire the entire US national debt without giving up a single ounce of gold, merely monetizing what it already has through the Federal Reserve. But what will really happen someday soon is the additional step of opening the vault and allowing that gold to FLOW again, but at a floating price. With this one move Congress wouldn't have to retire the entire national debt because credibility would be reestablished.
You see, the European gold reserves are far better, far more credible than the US gold reserve, simply because they engage in a two-way gold market, and have for decades. The US gold has been hoarded and locked away for more than 30 years, never deployed in case of emergency. The European CB's took a lot of flak for selling gold over the past two decades, but that action is precisely what makes them so much more credible (and valuable!) than the US gold hoard. Any trading partner knows full well that if all else fails, gold will be paid.
JR, wrote,
"Because its future debt that we are talking about, not past debt. Listen to Draghi say over and over "we will help the banking system (aka past debt) but only after you get your fiscal house in order (future debt)."
-There are two key issues here, one of which is, bi-furcated. First, the assertion that Draghi has said over and over, "We will help the banking system" is moot from the standpoint that LTRO, for example, has "helped" the banking system. However, having said that, and this is the bi-furcation I have in mind, I am not aware of quotes by Mr. Draghi that categorically state, in so many words, "We will help the banking system." This, even though the ECB has clearly propped up banks.
Now, on to the second issue which is the most salient one where the original question is concerned, namely that of past debt vs. future debt. And here, as per my pending comments, I fear I may take on the mien of a certain recently expelled and deservedly reviled poster, since it seems to me far from settled that the ECB has held fast or prospectively will hold fast to the putatively bedrock notion of supporting old debt but not new debt.
"Severed link FTW - to quote FOFOA, "That's a big difference" - the ECB is not on the hook for future obligations. That link is severed. But the Dollar, because its linked to the USG, sure is on the hook for future obligations! The "Fed/USG":
Nominally, technically, formally, etc. etc. they would seem to be quite different, and yet, in this great game of monetary chicken being played between sovereigns and the European monetary authorities, they have not really called anyone's bluff to such a degree that would provoke an exit. In other words, the proof is in the pudding and as I root around in the murky custard I can't yet see the proof. Perhaps you can point me in the right direction, and/or help me adjust my lens. In the meantime, thank you for putting your finger on the past debt versus future debt issue and for reminding me of FOFOA's allegorical fair construct.
Edwardo asks: "... I really do not draw much distinction at all between the ECB and our FED – they are both run by the banking elite – serve the same masters (Banks) – and could care less about their people – as demonstrated by their austerity programs which hurt the little guy with Very Little effect on the wealthy bankers. What am I missing?"
Parts of Europe have very high unemployment, and have been kept at the very edge of default for a few years now. The ECB, with its single mandate of price stability, has shown it is willing to inflict pain on those using the currency it controls. Pain which should bring about positive changes in the long run.
The Fed has a dual mandate, adding employment. It also operates under the discretion of congress. The Fed, in my opinion, would not allow the United States to reach the same levels of pain that the ECB is allowing. Far from it. Both because of the employment mandate, and the real possibility of congress or the executive branch "taking over" in the event Fed inactivity leads to people suffering like the Greeks or others in Europe.
The ECB will do the absolute minimum needed to keep the Euro currency from failing. The Fed will do everything needed to cause the dollar to fail.
Okay, I understand the mechanics of a gold revaluation to back the currency again, but If the US or ECB bid gold up to 55k/oz., it seems like it would naturally devalue against goods and services in the physical plane as well.
Doc Oc,
I'm sure you are trying to help, but, clearly, I didn't say what you ascribe to me either literally or even figuratively. In the meantime, it seems that some, if not all interlocutors in this matter, are a tad confused, and so I will reiterate that I am presently having a conversation with a friend- no, it is not me pretending to be someone else asking the question that I posted up thread- wherein I am trying to make the case that there are fundamental differences between the ECB and The Fed. And while there are demonstrable fundamental differences, i.e. the MTM of physical gold to name but one, some of the other vaunted differences seem far from proven in practice, ergo my comment that:
"It seems to me far from settled that the ECB has held fast, or prospectively will hold fast, to the putatively bedrock notion of supporting old debt but not new debt."
Edwardo,
Part 1/2
I think that focusing on the primary balance of the indebted EU countries helped me to get a better grasp of this situation. It may not answer your questions but it might help you to decide where to look for data that indicates whether the actions of the ECB are targeting old debt or new debt. (I agree with JR's assertion about old vs new debt BTW.)
Anyway here goes. The primary balance is where the fiscal (as opposed to monetary) measures come into play. The surplus or deficit in the balance between revenue (tax etc) and expenditure through the government budget.
Once a government has either a balanced budget, or surplus, net of interest costs it no longer needs to go to the bond market for additional debt to fund deficit spending via its budget. Hence the term "primary balance". Debt borrowed to fund deficits in the primary balance is part of the "new debt" JR is talking about.
Once a primary balance net of interest costs is achieved the borrowing requirements are then dictated (primarily) by three factors. Rolling over the existing debt as it comes to the end of its term, raising additional debt to fund interest payments and the level of the interest rate that the market demands for current borrowings. Raising additional debt to fund those interest payments would also constitute "new debt". The rollovers are old debt.
If the economy can be squeezed to the point that the interest payments can be supported then the debtor doesn't need to default (restructure) its debt. If it cannot achieve this budgetary position then defaulting is the only option for a country that does not issue its own currency. (It can't default via HI or devaluation of the currency.) Hence the importance of severing the link between the Euro and the "nation state".
Continued/
/Continued
Part 2/2
Soaring interest rates compound the problems of debt rollover, debt servicing and debt restructuring. The ECB and the branches of the EU governments attempting to manage this process have a delicate balancing act to perform. They have to:
1. Contain the interest rate on new sovereign bond issues.
2. Push the governments of the indebted countries to achieve a primary balance.
3. If those governments cannot achieve a primary balance large enough to cover their interest costs then they have to determine how much debt has to be defaulted to bring those interest costs down to a level that the government can pay from its revenue.
All of this is playing out in an environment where each of the stakeholders is fighting with the others to make "the other guy" eat the losses. The policy prescriptions of the IMF have a long track record of causing economic contraction as well. So this makes the resolution even harder in that government revenue may be declining as well.
What is not happening thus far is the ECB giving any indication that it will simply print and buy up any and all debt. The ECB is being both selective about what measures it will take (LTRO) and the extent to which it will implement the measures it is prepared to take. The Fed on the other hand doesn't have a choice about what it will or won't do. The power rests with Congress (despite the jawboning from various quarters).
The ace in the hole for the Euro Freegold-RPG architects is that they can hyper-inflate gold if necessary to resolve their sovereign debt problems. But they can only use this weapon once.
If they don't "push the button" on this so called "nuclear option" they can use this crisis to achieve fundamental reform. As painful as this process is in some quarters it may be seen as an opportunity that should not be wasted.
If none of these indebted countries have either a primary balance surplus or a small deficit that can be offset by productivity gains in their economies this debt building cycle would simply start all over again. In many ways this is an historic opportunity to chart a new course for Europe and the IMFS globally even though it is an extremely painful process for a lot of people.
Cheers
Edwardo,
PS. This should have been expressed as eat the losses or bear the costs.
Hi
Im struggling to understand this quote from Another,
"There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies". Gold can be used to revalue any asset, and not be destroyed in the process!"
Particuly the "gold moves thru paper currencies" bit.
Is there any more writings on this that will help me to understand?
Thanks
Edwardo,
I'd like to share a few more thoughts on this old-debt versus new-debt issue. I know you are a sharp knife in the FOFOA cutlery drawer so I expect that you would have seen a little problem or two in my earlier comment about the primary balance. For instance that the debts of each sovereign are, in a sense, a single pool. New debt blended with older debts.
If the assertion is true that the ECB will seek to shore up old debt and refuse to monetize new debt then we might expect a few things to be happening. We might look for efforts to differentiate the debt in a sovereign debt pool. There's a few ways to do this. Change the seignority of some of the debt for example. Target ECB et al support toward debt of specific duration(s).
You could try to hive off some of the debt as per the proposal that has been floated in Germany recently. Restrict the amount of new debt that can be raised in the future. And perhaps then exclude any new debt from the old debt pool that you hived off into Eurobonds.
If the ECB wanted to kill two birds with one stone. It might seek to gain more influence over the EU banks. As we know one of the foundations of the banking business model is borrowing-short and lending-long to profit from the difference.
If the ECB is confident that this situation will be resolved then the long duration, old debt that is perceived to be "sick" will cure eventually. We should also bear in mind that they have a nuclear option Freegold-RPG) that can forcibly achieve this outcome.
I have been reading reports for some time which suggest to me that these kinds of programs are being pursued. For other readers I offer an analogy to try to put the situation into context.
For clues as to the intentions of the ECB in this regard you could also examine the economic actors in the old debt pool and who is playing in the new debt pool (the kiddies pool IMO).
You might, for example, find the kiddies pool filled with brash speculators and such like. The old debt pool might be occupied by the grown ups - the old, big private money and institutions.
Taking this analogy further we could liken some of these debt junkie EU politicians to teenagers trying to overfill the kiddies pool with water (debt). The kiddies themselves might be playing a game - trying to kick water from their pool into the adult's pool. If some of the adults climb out of their pool and start turning off the taps of the teenagers' hoses and smacking bottoms in the kiddies pool we might be close to a resolution of this so-called "Euro" crisis. (I would call it an EU politician crisis.)
FWIW Uncle costata is confidently expecting to see some increasingly enthusiastic tap-turning-off and bottom-smacking in 2013 as the focus begins to shift away from Europe back toward the USA. But that's just my 0.02
Edwardo - I was aware that the question was not your own. As I do not know the sophistication of your friend, I posted a simple response, which you are free to ignore if you don't think it's appropriate. Talking about mark-to-mark pricing, balance of payments, etc would cause the eyes to glaze over in every one of my friends.
Hi Jeb,
Gold just expands in value as currency flows into it. It sequesters the value; it's a supertank. :)
ANOTHER (THOUGHTS!) ID#60253:
All modern digital currencies do not go into an investment, they move THRU it... There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".
FOFOA: This is the key to EVERYTHING!!! It is not "gold liquidity" that the bullion banks create... it is DOLLAR LIQUIDITY. Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world except gold.
Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero. This is backwardation!"...
FOFOA: Gold is the only super-tank. It can absorb any flow the world throws at it without popping. It is stronger than all the pressure that is possible because of its uniquely large stock to flow ratio. And also the fact that the large stock is held in extremely strong hands that I like to call Giants and CBs.
I would be interested to know what commenters here think
about the following proposition, as it relates to the "future debt"
versus "past debt" that JR speaks about. In both cases,we are
speaking of Sovereign debt, but this was in many cases formerly
"failed national bank debt" which became sovereign debt when
those national banks which had failed were bailed out. And it
wasn't JUST the PIIGS, German banks were bailed out big time
as well. (not to mention the notorious "landesbanken" stuffed
to the gills with toxic failed US mortgage securitized debt.) Or
Franco/Belgian Dexia.
I believe, and here is where I expect to get some flak, so you
know where to aim, that there was a "fundamental flaw" in the
design of the Euro with respect to the governing mechanism
of the private sector banks. This flaw led to the Eurozone
banking crisis, which in turn exacerbated the sovereign debt
crisis, and is the reason why "old debt" will be a
accommodated by the ECB, while "new debt" will not.
The flaw: Prior to the launch of the Euro, there was virtually
no cross border lending between major national banks. Banks
with low cost of funds might want to lend to countries where
higher interest rates prevailed, but there was a catch: the
currency had to be hedged, as well as credit risk and duration
risk. (short vs long funding mismatch) Obviously, countries
with high funding costs didn't consider lending into low rate
zones.
Following the Euro launch, cross border lending by commercial
banks EXPLODED. Go look at the charts. Why? 2 reasons.
First, no more "currency risk" to hedge. Second, a uniform
interest rate throughout the Eurozone at the "Fed funds rate"
level of the ECB. The only mechanism left to distinguish
between a sound credit and a poor one was the judgement of
the lending entity. There was no longer a market mechanism
in place to perform the critical evaluation formerly assigned to
cross currency rates, and at the ECB equivalent of the
"Fed funds rate" all sovereigns were equal as well. The only
monitor of credit quality was the rating agencies! All 3 at the
time were US owned or controlled, and we now know what a
bang up job they did.
IMHO, this neutering of market based credit quality monitoring
by the structural shift at the Euro launch is the "why" that old
debt should be accommodated, and that, lesson learned, new
debt won't be.
Woland,
IMHO, this neutering of market based credit quality monitoring by the structural shift at the Euro launch is the "why" that old debt should be accommodated, and that, lesson learned, new debt won't be.
Broadly agree.
HI Edwardo,
I am not aware of quotes by Mr. Draghi that categorically state, in so many words, "We will help the banking system." This, even though the ECB has clearly propped up banks.
You should read Draghi's speeches, its almost harder to find a speech were he doesn't touch on that issue, regardless of the topic he is *supposed* to be talking about. You can find a link of ECB speeches here, check them out.
For example, June 15:
As you are all aware, the ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term – and this is what we will continue to do. The Eurosystem will continue to supply liquidity to solvent banks where needed.
In normal times, “adequate liquidity” may be defined as a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other autonomous factors.
In times of increased financial instability, “adequate liquidity” indicates a volume of central bank money that also counteracts a temporary inability of banks to refinance in the market, which could lead to systemic consequences for the banking sector as a whole.
http://www.ecb.int/press/key/date/2012/html/sp120615.en.html
May 24, 2012:
The two operations of three-year refinancing (LTROs)
The monetary analysis has also been an essential strategic tool in diagnosing and managing the crisis. In this regard, the analysis that led to the more recent non-standard monetary policy measures can illustrate how the systematic monitoring of banks’ liabilities – money in its broadest sense – can provide guidance on the risks faced by the economy as a whole.
Towards the end of 2011, with a decision unprecedented in the history of the euro, the ECB’s Governing Council decided to conduct two three-year refinancing operations. At the end of February, or when the second three-year operation was completed, the net increase in loans granted to counterparties was around €520 billion.
The motivation for the two operations can be summarised by the following strategic view. A central bank is mandated with the crucial task of ensuring the sufficient supply of liquidity to sound bank counterparties in return for adequate collateral. In normal times, “sufficient liquidity” means a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other independent factors which explain the growth over time in the demand for money. In times of increased financial instability, “sufficient liquidity” indicates a volume of available central bank money which avoids the risk that – under such market conditions – the temporary inability of banks to provide refinancing leads to insolvency and thus to a situation of widespread default.
In neither of the two cases – normal times or crisis periods – can the central bank be considered responsible for the survival of bank counterparties that are close to bankruptcy.
[...]
The large-scale participation in the February operation, in which around 800 banks obtained funding, and the composition of counterparties in terms of their size and type implies that the distribution of liquidity has been widespread and could be even more so in the near future. Furthermore, this widespread distribution of liquidity is also of advantage to small and medium-sized enterprises with which smaller banks have closer relationships. We would wish for the liquidity provided to end up as credit to the private sector. This is the motivation behind the new non-standard monetary policy instrument.
Central bank credit to banks has been a complement to – rather than a substitute for – private credit: in the first quarter of this year, the amount of bonds issued was equal to the total issued in 2011 as a whole, which shows that the operations, at least in the first few months of the year, provided the markets with liquidity, reactivating a number of credit channels. The two LTROs removed one of the obstacles – the only one over which the ECB has any influence – to credit, namely a lack of liquidity. The ECB cannot do anything to make up for a lack of capital, to change intermediaries’ risk perceptions, or to remove other structural obstacles present at national level. More generally, the size and complexity of the two LTROs is such that it will take time for all of their positive effects on the euro area economy to be fully felt. However, it is essential for growth and employment that credit institutions regain their ability to provide refinancing to the economy.
http://www.ecb.int/press/key/date/2012/html/sp120524_1.en.html
Ugh, my rather lengthy response to costata and JR just got eaten by blogger. I will have to re-write
it another time.
JMan1959,
the specific value of a currency doesn't matter in its primary role as a medium of exchange. Only stability matters, and the euro could handle a big one-time devaluation to a more stable level. It will have to devalue at one point or another. Devaluation is inevitable for all fiat currencies today.
http://fofoa.blogspot.com/2010/05/hair-of-dog.html?showComment=1273880440817#c6607028881345237714
==============
The euro might quickly devalue against the physical plane during the transition when the $IMFS goes to relieve some of the past debt burden, with gold going up as an asset on the balance sheet to provide an offset for the saver class. not a running hyperinflation, but a devaluation.
A quick devaluation (against the physical plane) in both the euro and the dollar would have very different outcomes for the two currencies.
Remember its about market demand for the currency, the running hyperinflation/printout is a response to the loss of value. So what happens when both the dollar and the euro devalue? **Very different outcomes for the two currencies.**
The currency exchange numbers today are meaningless because all mediums must devalue against the debt paradigm. "It's the debt, stupid" is more than just the title of one of my posts. But please forgive me for meandering "aimlessly" in this reply.
It appears to me that you are expecting a controlled devaluation of the dollar by the Fed and the USG. This is something that is totally impossible in my judgement. First of all, there's nothing to devalue it against today, technically speaking. The only thing they can do is print base money to fill the credit money hole and the USG coffers, and they are already doing this. And they must do this. And they will keep doing this.
For the sake of your question I am trying to imagine how a controlled devaluation might be attempted, were they stupid enough to try. If the USG was the world biggest creditor, they could possibly devalue the denominator of all that debt 5:1 by forgiving everyone of 80% of their debt while printing more currency for their own needs. But the USG is actually the biggest debtor. So it would instead be forgiving its OWN debt and punishing its creditors... out of 80% of their savings. Do you think those creditors will then say, "more please?"
...The best analogy I can come up with is a steep, avalanche-prone ski area. The ski patrol knocks down some of the snow after every snowfall. Because if you let it pile too high, and get packed, the whole lot will come down all at once. Either by gravity, or by a ski patrol cannon, or by skier, or by a deer farting. Any way you cut it, it all comes down if there's too much of it packed on the mountain. Gravity does all the work.
This snow pack is to the mountain what global debt is to the dollar. There's no way to do a centrally controlled devaluation of the dollar at this end stage of its life. It prices and denominates too many things, too many contracts, too much debt in the world today. This is the real essence of the dollar. Its "unit of account" function is, not its medium of exchange quantity.
And the physical plane that underlies it is completely unaligned with this precarious 'snow pack'. It is not representative of reality, therefore it has no sticking power. It's ready to come down on its own, so shhhh... be quiet and very still and let's hope the wind doesn't blow.
Regarding timing, the best I can say is "sooner rather than later". ;)
http://fofoa.blogspot.com/2010/05/hair-of-dog.html?showComment=1276067696971#c6055886799028589560
@ Blondie
"Disables consumption based borrowing"
Just making sure but that includes mortgages right ? But a house on a piece of land in a decent city will still inevitably require borrowing.
Different things amuse different people. As I read one of the
last sentences in JR's quote from FOFOA: "This the real essence
of the dollar. Its "unit of account" function is, not its medium of
exchange quantity". We use the dollar unconsciously in our
comparison of the values of things as a convenient mnemonic
device, like feet or inches for length. But an angstrom is also
a useful measure of length. What if we were to convert ALL
measurements of length to angstroms? Lumber dimensions.
Olympic records. Travel distances. OMFG I need to learn
exponential notation? Just try to imagine it!
The fact is, the population is innumerate. Very large numbers
lose all meaning to most people, so without anything REAL
changing at all, pandemonium would ensue. We absolutely
need small, manageable numbers to be able to function. Just
a thought.
Woland
http://en.wikipedia.org/wiki/Zero_stroke
"Besides a compulsion to write endless strings of zeros, individuals that suffered from this condition would reportedly become confused when referring to numbers and would state that they were ten billion years old or had forty trillion children.[2]"
:P
TF
IF (however remote) this were to occur, would paper gold have to go bye bye first?
Don Coxe, who is Global Strategy Advisor to BMO ($538 billion in assets), also warned, “We remain of the view that what might be the only way for the eurozone to assemble enough firepower to give credibility to the markets is for governments which have gold to use it to back very long-term convertible bonds.”
Costata,
Thanks for taking the time and energy to assist me in understanding, in more detail, the key issue, initially raised by JR, which is the treatment by the ECB of “old” debt versus their response to “new” debt. JR, it would appear, as per your last few posts to me, that the speeches are, indeed, full of talk about helping out the commercial banks. That is consistent with their actions as per, for example, LTRO.
Costata, I'll now respond to what were, for me anyway, key passages in your three posts.
You wrote:
"Once a primary balance net of interest costs is achieved the borrowing requirements are then dictated (primarily) by three factors. Rolling over the existing debt as it comes to the end of its term.... The rollovers are old debt.”
It seems there are a few givens embedded in the meaning of “rolling over the existing debt.” Otherwise your last sentence doesn’t quite add up for me. This may be a small semantic issue but I take it that your definition of rollover here is simply one where the debt having been paid off is then re-established. And, as you note at the beginning of part 2, the decision to do so is effected by the condition of rates. Am I understanding you?
This brings me to my next comment, which is, for all intents and purposes the issue within The Issue of (old debt we will accommodate, but new debt we will not.)
You wrote:
“The ECB and the branches of the EU governments attempting to manage this process have a delicate balance to perform.”
You then very succinctly describe the challenges-mostly a series of conflicts that beg for resolution-that are acting as obstacles to putting the present crisis into the annals tout suite.
Let’s take no. 2 for example. Pushing the indebted countries to achieve primary balance. How would you grade the success of this endeavor to date?
If my question is a fair one, and if the grade is indeed poor, then regarding the ace in the hole for the Euro Freegold architects, one wonders what precisely keeps them from behaving proactively.
Part 2
It has been suggested by numerous denizens of this blog that pulling the ripcord on freegold would be seen as such a hostile and destabilizing act, particularly by the $IMF contingent, that the ECB would not dare act openly as chief freegold catalyst. While I have no difficulty imagining the turmoil that will ensue when the paper gold market meets its maker, short of said turmoil causing the demise of the ECB, and why would it, I am somewhat hard pressed to understand why, in the absence of real progress in resolving the key issues, the ECB don’t just get on with it.
I agree with you that there is substantial opportunity presently-as Bismarck, or was it just Rahm Emanuel, observed, "One should never let a good crisis go to waste"- and, with that in mind, the sixty four trillion dollar question would seem to be are they, as it were, seizing the day or just experiencing seizures. I, for one, would like to think the former, but experience lends to skepticism.
And your instincts were quite correct in anticipating that I would have something to say about the problematic implications of pooled sovereign debt as it relates to the purported ECB agenda of accomodating old debt but not new debt.
Finally, I particularly liked what you said here:
“For clues as to the intentions of the ECB in this regard you could also examine the economic actors in the old debt pool and who is playing in the new debt pool (the kiddies pool IMO”
I guess some digging is warranted. I now think I have what I need to go back to my friend and provide a stronger argument. Thank you JR, and Costata for providing me with some key ideas that I did not have in my arsenal. And thanks as well, Doc Oc, for your contribution.
I humbly submit that as per the following quote,
"At this time last year, gold was inversely correlated to the value of the euro. For months it has been positively correlated. Bizarre! We remain of the view that what might be the only way for the eurozone to assemble enough firepower to give credibility to the markets is for governments which have gold to use it to back very long-term convertible bonds."
that Mr. Coxe is so close, so close, and yet so far.
I spend most of my time reading about the global financial crisis. It is now 28 months that I have been reading 4 hours per day tring to understand how we got here and trying to find the best place to stand when the meteor hits. I try to do this in a serious way because it is very important to the welfare of those in my care and because I find it to be more interesting than anything I have ever encountered. BUT....at night as I drift off to sleep I will sometimes indulge myself a bit of "what will I do if I find myself rich because of (all things we discuss here.)
Yesterday I read the article about Thorium reactors and the whole concept seemed pretty solid at least as it was presented, I plan to investigate this in more detail. I have a fantasy that post transition I'll just send out an offer to the only people I have contact with who have any ability to invest (YOU GUYS) and say hey...who wants to build a Thorium reactor? we can meet at my place and I'll bring the U238 (or 233 I'm not clear on that one yet).
Then yesterday I got steered to a 'weird news' web site and found an article about a guy who wanted to build a mile long airship (yes like the Graf Zeppelin and the Hindenburg). In actuality it could be done at a smaller scale (the guy had this plan in the 70s so I assume that he gave up although he said he and an investor had put 1M into it at that point.
So when you come over to build the Thorium reactor I'll show you the plans to date for das LZ 154 Fofoa.
It occurs to me that just like taking the global financial crisis seriously, it is entirely possible that the readers and correspondents here on this blog will be important people in the rebuilding of our economy. Yes this is a bit grandiose but planning for a currency is a bit crazy, just ask any of your friends.
Anyone else have a plan for your contributions to a post transition universe?
Michael dV, future entrepreneur....
Edwardo,
Thank you for that detailed response. A point I would like to clarify (my emphasis):
I take it that your definition of rollover here is simply one where the debt having been paid off is then re-established. And, as you note at the beginning of part 2, the decision to do so is effected by the condition of rates. Am I understanding you?
I think this assumes that the rollover is voluntary. In other words the state has the funds to pay out the debt instead of having no choice but to create a new debt to replace the old debt and accept the interest rate determined by the auction.
Let’s take no. 2 for example. Pushing the indebted countries to achieve primary balance. How would you grade the success of this endeavor to date?
Bear in mind I'm not holding myself out as any kind of an expert in this matter. My answer is mixed. Spain looked like it was getting there earlier this year but it isn't clear from the (very) limited scope of the reports I have read whether they have reached a sustainable surplus in their primary balance.
Greece looks completely hopeless to me. Portugal not as bad and Ireland seems to be on a similar recovery trajectory to Latvia.
Italy apparently has had a surplus in its primary balance all along. Some of the reports I read about Italy are ridiculously slanted to the negative IMO. FWIW I think that's the "kiddies" talking their book.
IMO JR is right to highlight Draghi's public statements and I think the actions of the ECB Eurosystem banks have been consistent with those statements thus far. I also think that this is an incredibly difficult task for the EU as a whole to work through.
Will they have to use the nuclear option? Maybe down the track. Again this is merely my opinion but I think the big danger here is the hamfisted economic prescriptions of the IMF. Their myopia may be a result of viewing economies as the monetary plane instead of a proxy for the physical plane.
If productive economic activity contracts government revenue faster than the EU governments can reign in their deficit spending then this situation could spiral out of control and necessitate the nuclear option. One of the saving graces here is that some countries in the EU have either not had a real estate bubble or they are on the other side of their credit induced bubbles.
Plenty of losses to be eaten and everyone is still trying to cancel their dinner reservation. LOL
Cheers
Edwardo,
Small correction:
Their myopia may be a result of viewing economies as the monetary plane instead of the monetary plane as a (presently very distorted) proxy for the physical plane.
And I would like to add that I'm not amused at all about the plight of the people suffering through this. But I am trying to keep the emotional response in check. For one it is simply too debilitating and it also clouds one's reasoning IMVHO.
Thanks Jeff
M said: ”...a house on a piece of land in a decent city will still inevitably require borrowing.“
Firstly, does the purchase of a house and land currently inevitably require borrowing? No.
Will people still borrow? Yes. Will banks still loan? Yes.
Will all actors approach such transactions as they do now? Absolutely not.
So future borrowing will differ from current.
Think about it from the bank’s point of view: it is their credibility they are lending in the future, whereas today it is the saver’s. Their lending criteria are going to tighten considerably as a result.
If a bank lends to fund consumption, they are going to be a lot more selective and a lot tougher with their terms. They will need to be pretty sure this is a worthwhile arrangement for the bank to enter into, or they will decline to lend. Same thing for the borrower: the terms of the loan will likely be far more onerous than today so they too will be very cautious.
Just like today the market will be determined by supply and demand, but there will be very different forces acting upon all the many variables which constitute these. It seems reasonable to me to make the broad generalisation that borrowing for consumption will be disabled, perhaps not entirely, but certainly in comparison to today’s standards, and any such lending will be required to be very well collateralised.
Blondie,
Lending for buying a house is IMO a consumption driven spending. Thats true even today.
I doubt if there would be any home loans in the future.
There were mortgages & other consumer loans pre-1971. The things that changed since then are: the price of things people generally buy with consumer credit; the price of the credit.
Realistically priced credit & consumer goods - it was a good thing & it will be again, IMO.
DP,
My third favourite cartoon:
http://www.youtube.com/watch?v=uOSuhxFo76o
Cheers
Hi Edwardo,
you posted the same quote from Don Coxe as I with a few more bits....
In what way is he "close"
In what way is he wrong?
I ask again, in the event that a country uses it's gold reserves as collateral to issue debt, can the paper gold market continue to function?
Does it need to be extinguished first?
Could the borrowing institutions of a country that wants to borrow with gold as collateral use paper gold as collateral if the mkt accepts it?
Is the BIS move to make physical gold a tier 1, zero weighted asset, laying the foundation for gold backed loans?
Isn't this exactly what some European commercial banks did a year ago with the BIS, borrowed $'s with gold as collateral?
The discussions between Costata and Blondie regarding the transmission signals when gold flows as a pure SoV, got me to thinking about a few things:
Blondie said:
FG is a Nash Equilibrium .
What is Nash Equilibrium?
It is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players , and no player has anything to gain by changing only his own strategy unilaterally.
In real world:
1. There are far more mixed strategy Nash equilibria as opposed to pure strategy. Pure strategy is where there is no probability of pay off in the decision making process. In real world, there are usually probability distributions of action profiles and therefore, the action profiles based on future event probabilities can be sub-optimal.
2. There is also information asymmetry. Each player knowing the equilibrium strategies of all the other players is a pretty big assumption to make. Information asymmetry can lead to market failures.
Taking into account these realities, we can begin to question the activities of a post-transition economy.
Victor once asked: If people hold a large portion of their savings in the form of the MoE (for whatever reason) and credit volume can expand without immediately affecting prices, how would the gold price flag this 'hidden inflation'?
Blondie's answer at that time was: The MoE issuer would arb by buying the gold themselves .
In real world, there are many giant super-producers. Let's take seven of these for example (A,B,C,D,E,F,G).
I'm choosing an odd set to just talk about the concept.
Let us say that Giants A,B,C know early that MoE issuer would do the arb and therefore front-run by buying the gold themselves.
Let us also say that Giants D,E,F and G are not privy to this information and continue to keep their savings in the currency (extending/signaling credibility inflation).
Note that the effect of the 3 giants is opposing to the other 4 giants and therefore the net effect is that the hidden inflation is not signalled.
The 3 giants are going to sell this gold when the MoE issuer buys it and then make a risk-free profit in currency, which they can then spend on anything they want.
Inflation is not signalled immediately because the velocity is not very high in the broad economy.
I'm not sure if the example conveyed my point, which is that even in a freegold-manifested economy -- the reality is that information assymmetry and probabilities in actions exist.
Therefore it is not immediately clear to me that credibility inflation will not occur.
It can still continue to occur, but probably cannot be as severe as the present.
Housing is consumption based but there will still be housing loans simply because of the amount of man hours and material involved in building a house. It also depends on what happens to income tax rates and shit. If 20 or 30% of your income is taken away in taxes every year then its still going to be hard to save money to buy stuff like houses with limited borrowing.
@ Blondie
Yeah. Houses do require borrowing now. Unless you are a baby boomer who happened to buy a house in the 80's when rates were 20%. And you have been rolling this old money over into other property for the last 20 years.
" It also depends on what happens to income tax rates and shit."
Are we talkin Horse? Bull? Tough? Dumb?
;)
Anyone that is a generation below who has savings isn't stupid enough to throw the savings at a house because 90% of the price of houses is derived from borrowed money, not saved. Even Mark Zuckerberg has a 30 year mortgage on one of his places. At a modest 1%
Hi enough,
Don Coxe is close with respect to gold playing a pivotal role (at some unspecified time) in the resolution of the Eurozone's ongoing problems. However, he is quite mistaken, as per the thesis of this blog, regarding the manner in which gold will function. It will not be subordinated, in the form of collateral, to some grand debt issuance.
Unless I have somehow parsed Mr. Coxe's words incorrectly, which is entirely possible, the scenario he outlines, which, as he relays it to KWN listeners, is being cooked up by the monetary authorities in Europe, involves the issuance of new debt (so called Euro bonds) backed by physical gold.
Quite frankly, as I ponder it this sounds like the sort of endeavor that is tailor made to release the freegold trojan horse since these Euro bonds would have, or so it seems to me, a high likelihood of becoming impaired. This would necessitate a revaluation of physical gold in order to extinguish the threat of default.
I somehow doubt this is what Mr. Coxe has in mind.
enough writes:
"I ask again, in the event that a country uses it's gold reserves as collateral to issue debt, can the paper gold market continue to function?"
I don't see how the paper market can be tenable for any length of time under such conditions, conditions which amount to a small moth flying too close to a big flame.
Enough again,
"Could the borrowing institutions of a country
that wants to borrow with gold as collateral use paper gold as collateral if the mkt accepts it?"
Why would the market accept it?
Hey e_r,
Good stuff. What about the key phrase (for whatever reason)?
I'm not sure you can call that a post-transition economy. The transition = It's just a shift in the perception of savers. Can't change that. So how are we "post-transition" if we stipulate that the savers perception has not shifted?
IMO it all flows from that:
Today we have many fine, intelligent and exacting analysts all looking at the same economic data and coming up with vastly different analyses of the present global financial crisis. What sets them all apart from each other is not intelligence, or math skills, or even popularity. What sets them apart is the foundational premises on which they operate.
And a false premise can skew a brilliant analysis 180 degrees in the wrong direction.
The Debtors and the Savers
JR,
So how are we "post-transition" if we stipulate that the savers perception has not shifted?
I don't see the shift as *irreversible* because what we are talking about is human perception. Isn't that subject to fluctuate in either direction?
What if a currency was managed very well for a prolonged period of time, which encourages the savers to hold the said currency as their savings?
Hoarding the currency would soak up some of the monetary inflation as currency is emitted, yes.
But the real killer problem today is the savers don't hold currency, they hold promises of currency yet to be created — and what has been promised must be created at some point, just in time, or the credibility of the system will vanish as everyone realises they ain't got shit after all.
#EnlightenedSaversFTW!
DP,
I think when I said "holding the said currency", I meant bills or bonds of varying maturities of that currency. Giant savers are likely to hold bills/bonds depending on the perceived risk and desired exposure to that currency.
When you say "enlightened savers", you mean it like as if they are stupid or ignorant now. I know it looks like that from my point-of-view, but is that true from these giant savers' perspective?
These giant savers are net producers right? The net-producing nation did not have the domestic consumption capacity and therefore to grow, had to be entered into the world trade market -- right?
This is related to Costata's question:
To conclude, can any weaker country maintain a peg of their currency to the currency of a more powerful economic entity in defiance of that more powerful entity's desire to break the peg?
I don't agree that housing should be viewed as consumption, or that mortgages should be viewed as consumption-based lending. For the lender, housing is a productive asset. The lender basically owns the house, with a guaranteed stream of payments from the “home owner”. If the homeowner doesn't pay, the lender gets the house. Houses are not really “used up” in the same way as I view general consumption items, such as vacations, cars, etc. Using Blondie's phrase, I see mortgages as lending which is “very well collateralised“.
I do think that higher equity will be required for buyers than is generally required today, and real overall housing prices will be lower because of that, but I do not see an end to mortgages.
What if a currency was managed very well for a prolonged period of time, which encourages the savers to hold the said currency as their savings?
You may be confusing investment and savings. A well managed currency = credit managed at a steady devaluation in gold. Remember the ECB's @ 2% inflation target. The idea is with economic growth/productivity gains of 2% a year you get stable prices as the increasing credit "counteracts" the deflationary force of economic growth. h/t/ at Credibility Inflation
=============================
Get Randy!
As you come to understand how Money and Credit are interrelated, the more you will understand the separate Wealth of gold and why you need it now more than ever.
==========================
Glimpsing the Hereafter
Side Note:
Yes, I do realize that there will still be investors, traders and speculators willing to risk capital in search of a yield, even in the hereafter. But once you come to terms with how much of that investing and trading world of today is actually filled with savers who think that's the only way to preserve purchasing power, you'll see just how tiny by comparison it will be after the transition.
JR,
Do you regard this perception shift of savers as irreversible? Then I can't argue with that dogmatic position.
The idea is with economic growth/productivity gains of 2% a year you get stable prices as the increasing credit "counteracts" the deflationary force of economic growth
What is magical about that 2% number? What if it grows more than that in some years? Then even though I did not hold my savings as risk-free gold, I still earned some return (thanks to the economy's productivity gains) for the risk-exposure to the currency.
e-r,
Freegold = people saving in gold.
If you want to argue we will evolve from Freegold, go ahead. But it is not helpful to stipulate we are post transition and then posit people are saving in the currency (for whatever reason).
You are advancing a model/idea that just assumes people are saving in currency for whatever reason. Is this helpful?
===========
What is magical about that 2% number?
I have no idea, I've not seen magic mentioned until you brought it up. What do you think is magical?
JR,
You are advancing a model/idea that just assumes people are saving in currency for whatever reason. Is this helpful?
Declaring Freegold as a Nash equilibrium is a pretty bold statement, given information asymmetry and probabilities of future events (some of which can't even be measured).
Don't you think it is pertinent to question whether the "self-interests of market participants will take care of everything and there's no need for regulation" etc.? Because these statements assume that information is availabe to all market participants in a uniform manner. And I am not advancing anything, I am simply questioning the premises of Blondie's statements.
But it is not helpful to stipulate we are post transition and then posit people are saving in the currency
I don't regard human nature as axiomatic and irreversible. If it is not helpful to you, please ignore it.
I have no idea, I've not seen magic mentioned until you brought it up. What do you think is magical?
I don't. The reason I was asking is because people do save for long-term by investing in the economy. Yes, it involves risks but the risk exposure is something that they can bear for the long-term.
I think this is the key:
A well managed currency = credit managed at a steady devaluation in gold. Remember the ECB's @ 2% inflation target. The idea is with economic growth/productivity gains of 2% a year you get stable prices as the increasing credit "counteracts" the deflationary force of economic growth.
IMO this would make the currency a neutral economic "actor" rather than a force in and of itself. The dog could wag the tail for a change.
FWIW I think that a small rate of inflation is a more acceptable gamble than a small rate of deflation as a currency manager's mandate.
Some of the crew who praise deflation should take a look at how small the rate of deflation needs to be in order to create a huge economic disruption. By way of comparison you need much higher rates of inflation to cause the same amount of structural damage to an economy.
Interesting thoughts in the discussion above. Cheers all.
Congratulations Mr Sinclair!
Tanzanian Royalty Exploration Corp. (TSX:TNX)(NYSE:TRX) intersected high grades of gold at its Buckreef Gold Project, located in Tanzania. Highlights include 35.54 grams per ton gold over 3.5 meters, 18.47 g/t gold over 7.0 meters and 14.47 g/t gold over 4.0 meters, the company says.
Nice to see the good guys have a win for a change.
http://www.kitco.com/reports/KitcoNews20120806_MM.html
IMVHO this is where the real battle for control of the Euro project by political interests is being fought:
July 31 – Bloomberg (Rainer Buergin): “Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license… The rules of the European Stability Mechanism don’t foresee a license to allow refinancing at the ECB, the Berlin-based ministry said…
France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany’s Sueddeutsche Zeitung newspaper reported…”
Bear in mind that banks lend money into existence via deposit creation. Again it is merely my opinion but if this bailout fund gets a banking licence and it is also an institution solely under political control it could, only could mind you, be a threat to the stability of the Euro.
This battle is something to keep an eye on in my opinion.
h/t Doug Noland for this snippet
http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10692
BTW Noland quotes large slabs of an interview that he describes thusly: ...an insightful interview with current Bundesbank President Jens Weidmann and former (1991-1993) head Helmut Schlesinger.
I think it's worth the time to read the extracts if not the whole interview.
Thanks Edwardo,
you stated "Quite frankly, as I ponder it this sounds like the sort of endeavor that is tailor made to release the freegold trojan horse since these Euro bonds would have, or so it seems to me, a high likelihood of becoming impaired. This would necessitate a revaluation of physical gold in order to extinguish the threat of default."
Why not just revalue gold before using it as collateral? Doesn't that solve the problem? The amount of the collateralized borrowing could be whatever fraction of the gold value Govt's/CB's decide to put on their reserves.
Italy owes 3 trillion, well they've just revalued they're gold reserves to 10 trillion. So now they can borrow 7 trillion more.....
I guess this is just too simple, stupid......
Tender offer for all physical gold at $55,000or whatever . Hit a keystroke and credit all physical gold owners accts with a few zeros. CB'stand ready to continually hit control P for any more gold offered while adjusting the bid based on amounts being tendered til it finds equilibrium.....
why not? Enough with all these stupid games, ELA, ESM, EFSF, SMP, Twist, HAMP, Tarp, Lsap !!!
Take the one universally accepted monetary asset that all these debt laden sloths own that has no counterparty risk, that is no on elses liability and mobilize it !!!
WTF are they waiting for....oh yea, no one wants to look like the bad guy and upset the US swim team.
I'm done thinking about this crap. Discussing it or trying to figure it out.
The banks, politicians,liars, cowards, games, bullsit and dumbed down self absorbed fatso's make me sick...I've had ENOUGH
If you think Martin Armstrong's cycle theories have merit (public vs private) then this may be of interest to you (my emphasis):
August 1 – Bloomberg (Sarika Gangar): “Corporate bond sales globally reached $293.5 billion last month for the busiest July on record as yields on investment-grade debt tumbled, falling below 3%... for the first time. Offerings by companies from the U.S. to Europe and Asia surpassed the previous record of $286.4 billion set in July 2009…"
h/t Doug Noland for this snippet
USA, Europe and Asia - right around the globe. I think the wheel is turning.
Yet another snippet from Doug Noland (my emphasis):
August 2 – Bloomberg (Katherine Burton): “Louis Bacon’s decision to return $2 billion to investors highlights the difficulties the biggest macro hedge funds are having this year as government intervention and declining trading volumes limit managers’ ability to make large bets. Bacon told clients… he’s giving back about 25% of the money in his main hedge fund after returning just 1.6% this year through July.
Ray Dalio, who runs Bridgewater Associates LP, lost 2% in his $54 billion macro fund through July 20… Alan Howard, who runs Brevan Howard Asset Management LLP, lost 1.3% in his Master Fund in the same period… Macro funds trade in global equity, bond, currency and commodities markets.
They lost an average of 1.3% in the first six months of the year… Caxton Associates LP… lost 2.8% through July 17…”
Bottoms are being smacked in the kiddies pool.
And I note this tidbit from DN as well (my emphasis):
August 3 – Bloomberg (Lisa Abramowicz): “Investors are stockpiling corporate debt rather than trading as banks retreat from bond brokering, with daily trading volumes in the U.S. slumping to the slowest July in four years even as offerings reached a record.
Volumes averaged $9.97 billion last month, 8% below July 2011 and the lowest for the period since two months before Lehman Brothers Holdings Inc.’s failure ignited the credit crisis… Investment-grade sales rose 58% from the same month last year to $80.5 billion…”
Well it was fun while it lasted I guess.
Edwardo,
This link is for you. A brief discussion of the primary balance projections for several countries.
http://www.ifre.com/ifr-comment-on-primary-deficits-the-us-uk-and-japan/21012584.article
Cheers
Hi Enough,
The ECB could indeed push the red button and revalue physical gold at any time, but the minute they do that it's game over for bonds. It's a great argument all by itself for taking that action, because it amounts to nothing less than speeding up what is already in process, albeit at a torturously slow pace.
I'm sympathetic to your disgust and frustration at all the farcical shenanigans that seem to be a fixture of day to day life where the EZ is concerned. After all, up thread, I said almost the exact same thing you did, namely, that "they" should just get on with it, it being a revaluation. I'm not a big fan of the idea that no one wants to be the one that upsets team $IMF, but, really, what will, as you (no doubt) fondly call them, swim team USA do when their cart full of bad apples is turned upside down? I suppose they could do something monumentally, wantonly, stupid, but is it likely?
No doubt the disruption from a revaluation will be considerable, but when they get the gold to flow in sufficient size, global commerce will take off in a way that will give whole new meaning to the word blastoff.
Thanks for the link, costata. As for Doug Noland, I used to read him religiously. I don't know when my religious fervor abated, but, he has remained an excellent resource on financial matters.
The following sentence should have read...
I'm not a big fan of the idea that no one wants to be the one that upsets team $IMF, becase, really, what will, as you (no doubt) fondly call them, swim team USA do when their cart full of bad apples is turned upside down?
e_r,
I am simply questioning the premises of Blondie's statements.
Which were in response to a question whose premise (people are saving in currency for whatever reason) is also in question.
================
The reason I was asking is because people do save for long-term by investing in the economy
Investment is not saving.
================
Debt is failing as a SoV, and gold is gonna be revalued and the savers perception altered. Do we agree?
Okay so why would savers perception change again after the freegold revaluation?
=================
Don't you think it is pertinent to question whether the "self-interests of market participants will take care of everything and there's no need for regulation" etc.?
I'm down with that, but doing that is way different that what you are ding. What you are doing is just assuming that the savers perception/freegold shift is simply no more and people are again saving in the currency "for whatever reason."
====
I'm saying its not helpful to just assume freegold happens and then for whatever reason its over.
That's the point - why would it be over?
Over course if you save in the currency it can expand w/out inflation. No one should disputes that, so it does nothing to assume people are saving and point out the currency can expand. No argument with that.
But your skipping the whole point - why would people save in the currency is the question you want to be asking/exploring? That's the key - where savers put there money, not what happens as a result of them putting their money there.
Yo Warren B, you are so OG!
Warren B: Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.
Indeed it is! And "saving" (unlike Warren's "investing") is the forgoing of consumption now in order to PRESERVE that purchasing power for a later date. The difference between a saver and an investor is that saving is the passive activity of most people while investing requires a tolerance for the risk of loss and active, specialized knowledge and focus. As I wrote in both Glimpsing the Hereafter and The Studebaker Effect:
"A saver is different from an investor or a trader/speculator. A saver is one who earns his capital doing whatever it is he does, and then aims to preserve that purchasing power until he needs it later. Investors and traders aim to earn more capital by putting their already-earned capital at risk in one way or another. This takes a certain amount of specialization and focus."
The point of highlighting the ECB target is to point out they are openly devaluing the currency in real terms to achieve nominal price stability.
So why would people save in it? Invest sure if you thought you could beat the superorganism's return. But why save in credit?
Gold's price rises as net producers continue to save their net production in gold.
Fiat currencies will slowly devalue v physical plane, or devalue more quickly if the base money is pumped too fast.
One going up, one going down. Separately, although related.
e_r-
I believe understand what you are saying, but I also believe such a shift would only be possible after a couple-two-three generations. And when I read JR's replies, I'm thinking perhaps his timeline is a bit shorter than yours -- perhaps not, but it's just a thought.
mundell:
http://www.youtube.com/watch?v=pu3q_jsIATw
@Aaron,
I'm thinking the angle that e_r (and costata?) is persuing is if any weaker economies might once more (not mentioning any names) get themselves a leg-up by feeding off the strength within another, stronger economy. By competing vigorously against producers within that stronger economy, tracking down with (faster than?) the steadily weakening currency of the formerly more vibrant economy - as their own economy (and currency) should naturally strengthen and reduce their competitiveness, but that dynamic isn't allowed to play out as it "should". I don't argue with the suggestion some economies might choose to persue this kind of policy. They probably will.
On a long enough timeline, perhaps all economies are finally equal, so then there will be little to be gained(?). I suspect that isn't something I have time to concern myself with personally.
However, I don't see it is necessary to continue directly extending an exorbitant privilege to your competitors, when their currency is no longer artificially supported by the rest of the world employing it as their primary SoV - you can simply manipulate your own currency down against gold rather than the dollar, I mean "their currency", therefore weakening your yuan, no I mean "your currency", against ALL more prudently-managed currencies (define "prudent" - good job I didn't say "less expediently"...).
All you'd need is a population that'll quietly suck up the price inflation that will rain down on them, and of course a Central Bank that will carry out your wishes. Maybe you show people how to mitigate the effects of the game somehow, then they're good with it? Hmmm, OK perhaps if you'll show them how to protect themselves, then it might be a good idea not to game the system TOO much - or you might find you can't do what you want after all.
Freegold = independant economic policies. No longer are RoW's economic policies subordinated to US economic policies.
You'll no longer need to stack the currencies/bonds of other economies, in order to win the Currency Manipulator prize.
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