Sunday, September 9, 2012

Perception vs. Reality Open Forum

50 Years Old

The phrase 'Paradigm Shift' just turned 50. The book that coined the phrase and changed the way we view the world from a steady, cumulative progression to a series of revolutionary punctuations (called paradigm shifts) in between periods of relative complacency, was first published this month in 1962.

Coincidentally, something else that also began at the same time as the concept of the 'Paradigm Shift', according to the ECB's own historians, was the road to the euro.


A big THANK YOU to everyone who sent donations for the fourth anniversary of my blog! I have a couple big posts already in the pipeline for you, but due to delays beyond my control I decided to put up this open forum. You can, of course, discuss anything you want, but I came up with the topic thanks to a couple of recent personal encounters with the problem of perception versus reality.

One was the case of a person who is apparently completely unaware that there may be a vast difference between his own subjective perception of a situation and the objective reality, or at least the common perception of everyone else. The other was an encounter with a flaw in my own perception, which I quickly corrected. But don't worry, it had nothing to do with the subject matter of this blog. ;-)

So please feel free to share with us your own experiences with the difference between perception and reality. And any of you who would like to argue that perception is reality, I welcome that too. There's so much information we can take in today—thanks to the internet—that shapes our individual perception. How do you deal with it? Do you aim to take as much input as possible from every possible angle? Or do you believe that the more information, the more you need to filter?

Or if you'd rather just talk about gold, here's a fresh item to kick off the discussion. It's a NY Post article detailing an assessment by veteran analyst for Citigroup, Tom Fitzpatrick, that gold may reach $2,500 by the 1st quarter of next year. Now, although the nominal price is low by our standards, what strikes me as significant is simply the scale and the timing.

That is, to see a mainstream analyst calling for a 50% move within roughly 6 months in a major/global market like gold is pretty robust. And yet it doesn't garner near the sort of attention that a similar scale prediction would rouse were it in another market. I guess reality still has some work to do on public perception.

Gold could hit $2,500: Citi analyst

Gold has had a good summer, rising more than 9 percent, but that move may be just the start, according to a bullish Citi precious metal analyst.

Tom Fitzpatrick believes autumn will be golden in the beginning of a run-up that he says will culminate with the yellow metal hitting $2,500 an ounce in the first quarter of next year. The price now stands at $1,736 an ounce.

In his client note this week, Fitzpatrick compares this upcoming rally to gold’s huge move higher in 2007. The report is based on technical analysis of precious-metals market moves that could cause a six-month gain of more than 60 percent, just like the bull run five years ago…



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Michael dV said...

thanks again fofoa...always glad to have new food for thought...

Anonymous said...

Take a look at this chart.

The black line is the best fit of an exponential function to the London pm fixing in US$ between January 1, 2002 and July 31, 2012. It increases at a rate of 19.54% annually.

If you extrapolate this trend into the future, you get (black line):

Dec 31, 2012: $1900/oz
Jun 30, 2013: $2110/oz

The wide band in the chart (light blue) will have its upper bound at:

Dec 31, 2012: $2375/oz
Jun 30, 2013: $2638/oz

And so Fitzpatrick is just saying that he thinks the US$ price of gold will hit the upper (light blue) band in the chart by the end of the first quarter 2013.


Anand Srivastava said...

In the 4th anniversary post, at the end there were some questions, on why the USG is not revaluing their gold. I just wrote the following there, and am re-posting here because of the new article.

I think there is not much point in revaluing now for the US at least. For the Euro it makes sense. Even China would like more time.

The US has a huge deficit, and the world has a lot of US Treasuries. Both must come down, before revaluation will have a long term benefit. Once hyperinflation sets in, the external US Treasuries will lose its value, and the govt expenditure has reduced a lot, it will make sense to revalue gold.

Revaluation at that point will allow small amounts of gold to go a long way, so that US will be able to build up its industry again.

Actually the US or any other political entity will not do the revaluation.

Once USD loses favor with the world and USD goes into hyperinflation, the ROW will move to using local currencies and Swapping them. The paper gold market will get destroyed somewhere around this point and the gold will revalue. This all happens automatically. No politician is involved. It is just the market taking decisions.

After the Gold revaluation happens, the USG will realize that they can use the gold to continue their lifestyle. So they will revalue their gold and will fashion their new Currency after Euro.

Infact I think China will also move to the model of Euro. This is why it is collecting so much gold.

So again do not look for politicians to do anything about the coming future. Look at what market will do, given the current state.

Woland said...

Since FOFOA posted 2 Feynman clips, let me just say, If
you have not read "Surely you are joking, Mr. Feynman,"
a sort of intellectual autobiography, you are in for a treat.
A truly great man who died way too soon.

Michael H said...


(from the previous thread)

"Unless I'm missing something (possible), it seems to me there isn't much of a choice to be made - revalue gold in $US terms to try to avoid hyperinflation and collapse of the currency to try to preempt assured collapse of currency due to hyperinflation and having to use your revalued gold to restore credibility to the $US"

This made me think of a FOA quote Jeff has posted:

Q: What advantage would it be to the Power Elite to destroy the dollar?

FOA: Wrong context. What advantage does the Power Elite gain by expending assets to save an already failed currency. Better to do what major players have done for centuries and are doing now, buy gold and evolve your power base to use the next reserve.

In other words, why would the US spend real gold to salvage all the old debts, instead of letting the old debts be wiped clean by a hyperinflation prior to putting the gold in play?

I see anand srivastava made a simlar point.

Robert said...

I like the map at the bottom of the page that shows where the readers are. I guess it should come as no surprise that North America and Europe are always flashing. Given India's love of gold and the widespread use of English as an official language, it is no surprise that India is full of little yellow dots. I suppose the sparse readership in China is because of internet regulation -- though there are still a few yellow dots. I wonder whether the freegold idea would catch on in China if people had more access to the ideas here.

I wonder about that lone dot up in the middle of Siberia and the dot way up at the northern edge of Alaska on the Arctic Ocean. There are even a couple of readers in the middle of the Outback.

Anonymous said...

If there is no objective reality, and reality is only perception... maybe you (whoever is reading this) simply "willed" into existence this gold bull market, and the euro project. Perhaps it was a "choice" you made to steer reality this way from a finite set of possibilities. Maybe this blog, its author, and all its commenters, are simply creations of your mind...

JC said...


When considering the differences of perception vs reality on an individual day to day basis we naturally go with the most personally sensible solution in which we understand reality as something solid out there, like a wall and our perception must be adjusted to that reality or we're going to walk into it.

But this understanding starts to become inadequate as we look beyond ordinary experiences towards things like quantum physics and eastern philosophy which both point to no thing out there in material reality until our conscious observation perceives and shapes it into existence.

There appears to be a another very large paradigm shift coming on this planet from the material worldview which brings with it resource depletion, war and seeing the universe as machine that we live inside producing the feeling of being a victim of circumstance and pushing against reality, to another viewpoint, that of being a co-creator of the cosmos intimately and subtly connected to everything outside, a state of mind which leads to things we actually want in life, a sense of belonging and connection.

For further exploration of these ideas I recommend Peter Russell talking about The Primacy of Consciousness.

In terms of freegold I have noticed that to a larger or smaller degree everyone has an initial intuitive understanding of what is valuable, and the stronger the intuition the more likely they will follow up and put in the effort of taking in the masses of information required today to get a grasp in one's own mind of the epic crisis of value that is happening all around us.

Freegold cannot be summarized yet because there is no shortened statement which triggers the general intuition levels present in most humans today. But as the event horizon gets closer increasingly summarized articles about freegold start becoming clearer to more people and once the event whooshes past a quick summary of freegold will seem so obviously self evident that simply stating it will be considered superfluous.



MnMark said...


There appears to be a another very large paradigm shift coming on this planet from the material worldview which brings with it resource depletion, war and seeing the universe as machine that we live inside...

I believe in a larger "spiritual" context of life myself, but I don't see the "material worldview" disappearing as long as we are physical beings that require physical things to survive and have an innate drive to reproduce and grow and expand (as every form of life does) on the surface of a sphere with necessarily limited resources. (We don't live on an infinite plane of land and resources, so given that we have an inborn drive to grow, the growth necessarily has to occur at the expense of the other life forms competing for the same limited resources.)

Human intelligence can find new sources of resources, and more efficient ways to use them; we can devise social norms for reducing the incidence of war; but I have come to believe that there is no way around a "material worldview". I want to eat tasty "material" food, live in beautiful "material" locations, make love to beautiful "material" women, etc...and there are other men who want all those same physical things. We can't all have there will be some form of war -- whether marketplace competition or real war -- to decide who gets them.

Yes, the spiritual world is a comfort but as long as we are material beings this will be a "material world" and we are compelled to adopt a "material worldview."

Woland said...

From the annals of the Department of Unintended Humor-(DUH)
via Marketwatch: by Kelli B. Grant

Shoppers can be reasonably confident that the price of a box
of their favorite cereal will not budge in the time it takes to
push a cart down a supermarket aisle. But that may change,
as stores begin to experiment with the kind of minute by
minute price adjustments made online.
More web retailers are using software that fluctuates prices
throughout the day, in order to draw shoppers attention and
better manage inventory, according to the Wall Street Journal.

Wow! what a neat technology. Couldn't come a minute too soon.

The Dow Theorist said...

The USD 2500 forecast doesn't seem outlandish outlandish at all.

Dow Theory signaled on August 22 a new primary bull market in gold. Primary bull markets tend to last at least one year and witness significant price advances and 50% is not an uncommon target.

Furthermore, many related markets have also issued a bull market signal under Dow Theory which further reinforces the validity of the bull market signal in gold.

Here are the details of this Dow Theory signal:

However,I have a question for freegold experts. Charts clearly say that the price of paper gold (GLD) will go up. The charts don't lie. The miners also entered a bull market. And silver is leading the parade. Even the miners are reacting well.

But, as a freegolder, this seems to suggest to me that the advent of freegold is not yet in sight (at least for the coming 6 months). If freegold were to be born now, we'd see in the charts the destruction of GLD and silver together with the miners would head south or, at least, greatly under-perform.

So, are the charts suggesting that the current paper gold paradigm still has some time to go before going defunct?


burningfiat said...


I really like the philosophical viewpoints presented here! Clearly a thoughtful bunch.
Especially impressive was how Jim went all in with Metaphysical solipsism with a pinch of Schopenhauer right from the start.
Damn, here I am talking to my own consciousness at FOFOA's again. Happens way too often lately!

Anonymous said...

MnMark sez...

...I don't see the "material worldview" disappearing...

Yes, some kind of dualistic thought is necessary for continued "existence". We must acknowledge the biological need for food, water, etc. However, this does not mean that the nature of reality is necessarily dual.

I want to ...make love to beautiful "material" women, etc...and there are other men who want all those same physical things. We can't all have there will be some form of war -- whether marketplace competition or real war -- to decide who gets them.

Is competing for reproduction rational, if we know in the very long run that the human race is doomed to extinction, and therefore any trace of that legacy will be wiped out?

I guess you could say it would be rational to compete for the sensory pleasure derived from reproductive activity. However, this has to be balanced against the potential consequences which sexual intercourse & reproduction necessarily entails as well as the futility and temporariness of this satisfaction, given my previous point.


I have read a bit of Schopenhauer and I do like his work. However, I wouldn't say I'm ALL IN with metaphysical solipsism. In fact I don't necessarily subscribe to any of what I'm saying. I'm just trying to provoke discussion. :)

Nickelsaver said...

I think, therefore I am.

I interact, therefore I am not alone.

JR said...

Charts clearly say that the price of paper gold (GLD) will go up. The charts don't lie.

The unavoidable reality of this situation is that there are a great quantity of unknown variables, and for any of us to say that one intermediate outcome is distinctly better or worse than another is probably an on overestimation of our own knowledge.

JR said...

Who needs the FDIC? $250,000 Bitcoin heist leaves virtual currency exchange safe empty

Hackers took off with $250,000 worth of Bitcoins from the Bitfloor currency exchange, leaving the site's reserves tapped and users wondering how to get their money back.

The new online currency Bitcoin has always been proud of its lack of government oversight. But that might be a less touted feature now that Bitfloor, the currency-trading environment for Bitcoin, has been robbed.

Bitfloor founder Roman Shtylman posted an open letter on the Bitcoin forums admitting that: “Last night, a few of our servers were compromised. As a result, the attacker gained accesses to an unencrypted backup of the wallet keys… This attack took the vast majority of the coins Bitfloor was holding on hand.” A later update stated that the hackers transferred 24,000 Bitcoins — around $250,000 in U.S. currency — to an unknown location, clearing out all of Bitfloor’s virtual cash reserves.

Shtylman promises to personally pay back users who’ve lost their Bitcoins. But considering that he’s currently being sued by users who say he never repaid the money lost in a previous security breach, it remains to be seen whether his promises are worth the paper they aren’t printed on. The repayment promise is also a little dubious when the value of Bitcoins has been up and down more than a yo-yo on a roller coaster. In the last 18 months, a Bitcoin went from being worth $15, to $3, to a few cents, to today’s $10 value. So 24,000 Bitcoins tomorrow could have a very different value from 24,000 Bitcoins today, leaving even repaid users very unhappy.

JR said...

Good stuff at Coppola's comment on Draghi's aim with the OTM, but she meanders a little bit in thinking about the ECB's play as a bluff, for, as FOA wrote:

Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"!


The Coppola comment:

Firstly, let's be completely clear about the justification for this. It is absolutely not to relieve the problems of debt-laden sovereigns. It is to protect the Euro. As I pointed out recently, the stability of the Euro is under threat because of a growing belief among investors that some countries will abandon the Euro and issue their own currencies. According to Draghi, interest rate policy is now ineffective in those countries that investors think might leave the Euro, because yields are instead driven by the risk of redenomination. This is serious. Redenomination risk makes it impossible for the ECB to control inflation (or, in the periphery, deflation) and increases the likelihood of speculative attack on the Euro. Therefore - in Draghi's view - the ECB must act to eliminate redenomination risk.

The ECB's weapon of choice is selective QE focused on rapidly-deflating parts of the periphery. I have previously argued for QE in the periphery - and reverse QE in Germany - as a means of managing the huge variation in the money supply across the Eurozone that is evident from the Target2 imbalance. Draghi has proposed QE in order to limit interest rate variation across the Eurozone. It amounts to the same thing. Despite the concerns of the Bundesbank and others, this is MONETARY policy. Bailing out distressed sovereigns is a side effect, but it is not the aim of the purchases.

The problem is that, side effect or not, sovereigns will receive relief, and that is likely to act as a disincentive for them to follow through with the fiscal reforms they have agreed to both as conditions for their debt relief programmes and in the Fiscal Compact. Draghi threatens to end purchases for sovereigns that fail to follow through with reforms: but as James Mackintosh at the FT points out, this threat is empty. If a sovereign failed to implement agreed reforms and the ECB pulled the plug on bond purchases, it would be likely to default - in which case the ECB would suffer huge losses on its holdings of that sovereign's debt, and the Euro would probably collapse. So how could fiscal discipline and structural reform possibly be enforced?

PS - good comment's from Woland to check out on this post at Coppola's blog

JR said...

Oops, Another wrote about the "big poker hand":


The urgent drive to create a new "reserve currency" began in the early 80s, after the last small "gold war". The road to making this new Euro did never include gold in large amounts, until the last few years! Even one year ago, the news would say, 5% or less. Today, we speak of a much greater amount! This is interesting, yes? The BIS did "hatch" this deal in a very late fashion! The future of the Euro was found to be "weak", as the Middle East oil imports onto the continent would continue in dollars! This was so, from the dollar being made strong in gold. Gold priced in dollars at near production cost offered a "no switch currency" position, for oil. This position has been unstable for the last year, and the alternative of a switch to gold was in progress! You have read my "Thoughts" before. Now the BIS does offer to "change the rules of engagement", a real reserve currency is offered!

Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"! The holding of large reserves by the ECB and the withholding of sales from the market will not only bring the end of the London paper gold market, it will, thru a high USD gold price, "make the dollar weak in gold"! From this position, the dollar will lose the "oil backing" from the Middle East! At first, all oil for Europe will be in Euro's, then all producers want "strong currency"!

There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!

The politics of the ECB? It is as a "side show". We watch this new market, yes?

JR said...

Don't believe all the noise, and there's a tonne of it right now. They don't know what they are talking about. The euro survives and thrives regardless of how the European debt crisis is ultimately resolved, and no countries will leave the euro. In fact, there are countries trying to get in, and none that will leave short of a coup, revolution or state failure, which isn't even a consideration right now. And even if that happens, the euro will still survive and thrive while the country that leaves will suffer greatly, the local hyperinflation that will ensue being the least of their problems.

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

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

Of course there is a huge imbalance inside Europe between the states running a large surplus and those running a large deficit. But with a shared currency the adjustment pressure for such an imbalance is foisted elsewhere, not on the currency. It lands squarely on the politicians, who, like Costata said, couldn't be a more deserving bunch of Aholes. For the dollar, the structural deficit and debt of the US places a massive devaluation pressure directly on the dollar. But for Europe the currency is balanced with no (or very little) adjustment pressure.

The economic flow of goods and services within Europe will of course have to contract as the imbalance retreats. If the euro weakens on the global currency stage Europe will start running an overall trade surplus again, like China, which will soften the blow of a contracting internal economy. If the euro strengthens, things like cheaper oil will help soften the contraction. Internally the politicians have their hands full. No doubt! Externally, the euro is just fine. To the euro, just like FOA said, the politics of the PIIGS and Germany are little more than a sideshow.

And notice I didn't even mention gold yet. Anything that would appear to seriously threatens the euro, like an outright sov. debt default, would explode the price of gold which would simultaneously rescue the euro balance sheet and kill the dollar.


JR said...

What about the euro debt? Fun thought experiment:

Greece essentially borrows commercial bank liabilities which it spends. Then the commercial banks borrow CB liabilities which they use to clear all the spending. There are less CB liabilities floating around than there are commercial bank liabilities because you only need X base to clear about 10X M2/M3 etc…

The economy’s “money” is the commercial banks’ “liability” or obligation to provide CB liabilities which make up the base. The commercial banks can borrow these CB liabilities at a low cost. The argument is that the commercial banks’ balance sheets are insolvent because when you MTM their assets (Greek promises to pay back the loan of liabilities), they have more liabilities outstanding than they have assets (at MTM price).

The reasoning is that the commercial banks sell these assets on the secondary market when they need CB liabilities to fulfill their obligation to provide CB liabilities. So they should be MTM. But that’s not the only way they can obtain CB liabilities. They can also obtain them by borrowing them from the CB itself. In doing so, they sign their own “promise to pay back the loan” to the CB, much like Greece did for them. This “promise to pay” is held by the CB as its asset offsetting those CB liabilities it issued. But the CB doesn’t MTM that asset, because A) there is no market for those and B) the CB doesn’t need to sell those commercial bank promises to pay in order to raise euros for clearing. The only issue is a technical one regarding the collateral that would be confiscated by the CB if the commercial bank went bankrupt.

So let’s say a commercial bank does go bankrupt for whatever technical reason. The CB then confiscates that Greek debt that was used as collateral. The argument is that there are too many CB liabilities floating around out there versus the assets the CB holds, which are now Greek obligations rather than the (now-defunct) commercial bank obligations. So the market (superorganism) sez the euro should devalue. This is where the CB reserves come into play.

The CB can “buy back” some of its own liabilities with its reserves. If a commercial bank fails and the market tries to take the euro down, the CB simply defends the euro. And what do you think it would use first? It’s dollar reserves, or its gold reserves? Let’s say Greece defaults, which takes down some commercial banks and now the ECB has all this devalued Greek debt on its balance sheet so the marketplace attacks the euro. What would the ECB do?

It would first sell all its dollars to buy back its own liabilities. But what if… just saying, what if… it used its dollar reserves to openly bid for physical gold in London? What if it did this instead of buying back its own liabilities? Think about the RPG effect on its reserve account! Suddenly you’ve got Freegold and now the ECB can quietly buy back any excess liabilities using a very small amount of gold. Just sayin’

Michael H said...

John Hussman also has some comments on the Draghi's speech:

First subsection under the heading "Economic Notes"

Some quotes:

"If you wondered why Angela Merkel and the whole of Germany was not immediately up in arms, it is because prior to transactions by the ECB, the receiving country would have to submit to an adjustment program, ideally involving the IMF. This is nothing like what Spain has been asking for, which is for the ECB to make unconditional purchases. To benefit from the proposed OMT program, these countries have to subordinate their fiscal policy to outside conditionality."


"Read carefully – the ECB did not promise “unlimited” financing. Rather, it refused to specify an amount in advance (ex-ante), because it doesn’t want the markets to look at some inadequately small and fixed number and begin to speculate against the ECB as soon as that particular number is approached. By refusing to set a specific amount in advance, Draghi said in his press conference that he wanted the policy to be perceived as fully effective. But perception substitutes for reality only for so long. If Merkel, Monti and Rajoy were stranded on a mountaintop and Merkel was the only one with a bag of muesli, she might offer some to the other two without specifying an amount in advance, but there’s no doubt she’d be slapping it out of their hands if things got out of control."


"Finally, “The liquidity created through Outright Monetary Transactions will be fully sterilised.”

This last provision is likely to both calm Germans and inflame them. Sterilization means that for every euro of Spanish or Italian bonds the ECB buys (creating new euros in the process), it will drain euros by selling some other security – most likely bonds of Germany, Holland, Finland, or other stronger European nations. This will help to calm Germans because it indicates that the overall supply of euros will not expand. It will also inflame them, however, because the existing stock of euros will now have been created to provide fiscal support to Spain, Italy and other troubled countries, while Germany, Holland, Finland and stronger countries will not have benefited at all from the money creation."

Gunnar Stødle said...

Hi FOFOA and everybody, Thanks for a great blog!

I am thinking like this:

I can't see how selling bonds fully sterilises the liquidity created through OMT, since bonds can be used as collateral for fresh new euros from the ECB.

The ony way to fully serilise the liqudity created through OMT will be for ECB to by euros with foreign currency or gold.

Am i wrong here?

Anonymous said...

Gunnar Stødle,

you are right. All the sterilization discussion above was assuming that the total amount of refinancing by the commercial banks through the ECB (for which they post whatever collateral) is unchanged.

Increasing the volume of refinancing the commercial banks is an independent way of creating inflation.

OMT: ECB buys X's government bond, creating some inflation in X (because X's government mainly consumes and this predominantly domestically in X). Then ECB offers term deposit or reverse repo to investors. If investors in Y accept this offer, thi reduces inflation in Y.

Refinancing: Commercial bank takes some bond (however they got old of it in the first place) and posts it as collateral with the ECB in order to borrow base money (new reserves). As long as the bond is on the balance sheet of the Eurosystem, effective money supply is higher and prices elevated. Where exactly depends on who gets to spend more money as a consequence of this operation. May be difficult to figure out.


Frances Coppola said...


No, you're not wrong. If the ECB continues to provide funding to banks without limit against ever-diminishing collateral quality, OMT sterilization is fake. JR didn't quote the bit of my blogpost where I pointed this out.

Anonymous said...

You may need to rethink that part of your blog post.


Gunnar Stødle said...

Victor, Frances

Thanks for the clarification on the issue of sterilisation.


mr pinnion said...

@ nickelsaver

I think, therefore i THINK i am, but actualy, i m almost certainly probably not.

milamber said...

Hey Frances,

Glad to see you over here in FOFOA land. Have you been able to figure out what FOFOA's dilemma is yet?


mr pinnion said...

Backward rationalisation


Nickelsaver said...


If I think, but am not, then you are not as well. In which case, our discussion is nothing but perhaps an illusion within the mind of another.

Nevertheless, I believe that you are ;-)

Woland said...

Welcome, Frances:

Let me be clear that I am one of the "dimmer bulbs" around
these parts. I personally am gratified to see you here, since
you already understand so much, as your recent post indicated,
of what is going on. We really do have a dialog here, I would
like to think, rather than a cult (a la scientology or Jim Jones),
and while it can be a bit abrasive at times, the best thinking
is given due respect. Again, I hope to see you here as the
situation in the EU and Us evolves, giving us your thoughtful
view. Cheers.

Edwardo said...

Yes, a 50 percent move sounds impressive, but, I submit, more or less along VTC's line of thinking, that when one considers $1900 and change was the intraday high approximately a year ago, it puts a forecast of $2500 by the end of March 2013 in a less spectacular light. I also add that even though it isn't the vampire squid making the call, whenever one of the big boys makes a call like this I begin to think about a fade. Anyway, in the absence of Freegold (for the time bring) here's to another decade or so of annualized returns of 20 percent.

DP said...

+1 Edwardo

mr pinnion said...

"here's to another decade or so of annualized returns of 20 percent"

Ummm. What do you think the world will like in a decade or so? USA will be one big prison camp.God knows what the Euro will look like without FG. I dont see the working /middle class being anything other than slaves in a police state in ten years, if things continue to decline at this rate.And under the present system , there is no reason to believe they wont.


Jeff said...

"here's to another decade or so of annualized returns of 20 percent"

Will the gold/oil ratio will survive?

JMan1959 said...

Recent advances in Nanotechnology allowing us to look at DNA structure have demonstrated the mathematical impossibility that DNA could ever have been created through random evolutionary change. So I prefer, "He creates, therefore, we is". In other words, If you stick your head in an unlit gas oven, but nobody is there to hear it, you will still die, and all your theories on "perception" and "reality" will die with you. As Crack might have said, "jus' cuz you usin' dem big words, don't mean you can cypher."

Nickelsaver said...


RJPadavona said...

Perception, Reality, and Paradigm Shift:

It's believed by many that The Great Depression was a horrible experience for all Americans. This is far from the truth. I remember on several occasions asking my grandaddy what life was like during the Depression. His response was always the same: "Boy, the only thing we was depressed about was that Roosevelt was the President. We didn't have shit BEFORE the stock market crashed, so we didn't notice much difference when we didn't have shit AFTER the stock market crashed."

So how does this compare to today? There are many areas of the country where most of the people live paycheck to paycheck/hand to mouth. And although America isn't an agrarian society anymore, there are still plenty of people in these areas that are quite self-sufficient for today's standards.

For example, where I live, I hardly know anyone who has any "savings" to speak of. And most people still have sizable gardens, heat with woodstoves, get their water from a well, and bartering at flea markets are a weekly occurrence. Plenty of places in the US are similar to this and I expect this way of life to become even more popular the longer the $IMFS is alive.

But what about AFTER the paradigm shift? I believe that just like the Great Depression, there will be a certain amount of Americans who will "not notice much difference when they don't have shit AFTER the USD collapses". So maybe us hillbillies will have the last laugh after all. I think I'll call it Karmageddon ;)

More wisdom from grandaddy: When I was a young'un, I had a habit of picking up coins and putting them in my mouth. If grandaddy saw me doing this, he'd always say "Boy, git that outta yer mouth. That coulda been up somebody's ass fer all you know!"

To this day, every time I see a dirty coin, that's the first thought that comes to mind. Maybe that's why I like GOLD coins so much. You hardly ever see any dirty ones :)


Michael dV said...

as far as coins in the ass goes...I'll bet more gold coins have been hidden there than any type you'd find on the street.
My grandfather disliked Roosevelt too. He was not wealthy but refused to take social security. I never had the chance to ask why but judging by the way I turned out he was just pissed off by the whole idea.

Michael dV said...

I have some ambiguous feelings about the rising gold price. Yes I like feeling richer but then I wonder how I'll feel about acquiring at $2350 per ounce. As hard as it is not to want that immediate security of higher POG I actually root for a stable lower price 'just a little bit longer'. My last order with Tulving was a panic buy as gold slid past $1650. I need to have cash for taxes and adequate reserves so I can't just buy all the gold I want today.
Of course it makes no difference what I root for but my bias is to lower POG for the near future.
I guess I'm lucky...I can be happy or pissed off no matter which way it goes...all depends on my attitude.

Phat Repat said...

You cannot access FOFOA in China because it is a blog. And, free thought is something they haven't quite evolved to yet. But, it is my understanding (and observation on news, I mean propaganda) that Gold is being purchased by the general populace as it is made available.

Michael dV said...

I was in China in the Spring and bought gold by the gram. They had bars as small as 2 grams, some larger and bunches of sculpture. The amount of gold in the 'artwork' was made clear so even though one was buying jewelry it was the gold content that drove most of the price.
I would say it was common as there were many people shopping in the gold store (yes it was a store just for gold) but I cannot say 'most people' own gold there but it a clear option. I was in a medium size town ( a few million people in the middle of it was not in a major area like Beijing or Shanghai. Supply did not seem to be limited.
For every Yuan I spent I got a certificate. After I made my purchase I got to spin a wheel and won some trinket for each

Phat Repat said...

Materialism is a wonderful thing. I will always be a consumer of the finer things in life. And I hope that will never change; for me or my children and beyond.

And of course there are innumerable benefits from materialism as well; may it never end.

wow... in that case, if(rational == humdrum)
I'll pass.

Phat Repat said...

Though I do own some silver/gold pandas (knowing what I'm doing and purchasing from reputable dealers in the US); I don't trust the Chinese enough to buy anything they would label as Au or Ag (or Pt for that matter). Though you may have purchased from a 'reputable' store (a chain perhaps), I am more inclined to pass on anything considered to be valuable on the mainland. All that glitters is not gold.

I'll stick to Maples and Eagles.

Anonymous said...

Gold in Euros since 2002 (as requested by some)


KnallGold said...

1) The cup and handles fractal's, looks like we have one (well, two?) developing on the 1 year resp. 6 month chart. Some say its a strong signal, but then who knows where we are in the here and now respectively how it is developing in the longer waves and cycles?

2) +1, almost, just an afterglow of one (no pun intended). The perception of reality of you guys is very good. Quite intersting, Buddhist's distinct "Wirk-lichkeit" and "Wahrheit" (sorry for the lack of an english pendant), but you have to accept that "the Truth Exists" to make progress. And a silent thanks to the Temple of the True Inner Light.

("I don't exist when you don't see me"

3) And then we all have to deal with ego thing but it must have an evolutionary advantage, but we cannot say yet as the Chinese would say, hello continuum.

4) A Zenmaster recently said, when you place a rat and when there's cheese in chamber 3, he walks to C3; then you place a human, and he walks also to C3. But the next day, if you place a rat, and there's cheese in C7, he walks to C7. Now you place the human, he still walks to C3, because he still believes there's cheese in C3 (and that's the reason some idiots place Explosives on their chest and blow up because they believe in "74 virgins" end of story).

5) Apropos nanotechnology, the new PM colloids are a magnitude better than ever, surely we know the Silver colloids since a long time (blue bloods his-story...), but the Big brother Platin (well, 1740 vs. 1590, now who's King? btw something people DO make think when mentioned!) to my knowledge is rather new.

Oh and while at it, Gold is being used in medicine since long but to my knowledge has it ever been split down to a nanometer? Well, usually, everything was earlier than you thought - as a rule of thumb, every time you claim something, Another smart*** comes up and presents a (mostly unknown) old fact. So is the collective memory (and it is enhanced with nanoPM's)...

6) Eilantrag Gauweiler against ESM abgewiesen

7) and now comes Soros and says Germany should leave Eurozone (as predicted by Jörges, you remember my post). No, he won't be a problem, or will he?

8) I should get my Fiat at xx xx, only the Axa insurer wanted to make a fodder for lawyers (no, we cleared that also, thanks you!). Speaking of synchronities and fractals, sometimes you won't believe how perfect the world IS (read up on Grof, Impossible).

9) and Nirvana is turquise, they say, but def. not material.

10) in the end a human soul must be free! Believe, you can everything, but know, only the Truth, gäll?

Frances Coppola said...


I've always understood FOFOA's dilemma. I just don't agree with the solution.

Motley Fool said...


Always huh? That likely puts you in a class of your own; myself I needed to learn it.

Luckily your agreement is not a prerequisite for a natural outcome.

Though I am curious what artificial solution you would propose?


JR said...

milamber1 August 2012 17:54

Thank you for writing your critique on freegold. I would like to pose some questions to you:

1. How do *you* resolve FOFOA's dilemma?

Frances Coppola 1 August 2012 18:23
Your question reads like FOFOA 101!

1) I did not discuss the question of the Triffin dilemma in this post because I was more interested in the moral issues around hoarding in general. You will note that I am equally scathing about hoarding of other hard assets and, indeed, paper investments that don't provide money directly to productive enterprises. So I am hardly a supporter of the present system, am I?? However, since you ask, gold is not the only possible solution to the Triffin dilemma. The IMF is promoting SDRs as an alternative, and you may recall that Keynes' original idea was a separate international currency (Bancor). I regard the possible use of gold as an international reserve as not unreasonable, but I remain to be convinced that it is better than the alternatives.

Frances Coppola 1 August 2012 21:19
I can discuss the effect of the sun on the earth, the climate, the growing of crops and the wellbeing of humans without mentioning nuclear fusion. It is that "real world" level that I was interested in. I don't ignore the Triffin dilemma but it was not what I wished to discuss in this post.

Frances Coppola 2 August 2012 19:08

I deliberately used the term Triffin's dilemma. I am aware that FOFOA's dilemma is a different question, because it concerns the conflicting interests of debtors and savers. However, as I was discussing international trade and the role of the US dollar, Triffin's dilemma was the more appropriate.

Frances Coppola 2 August 2012 11:41

Yes, there are two quite different issues here. In the post I concentrated on the PERSONAL saving issue and chose not to address the international reserve question. I've now addressed that in the comments, and you will note that broadly I have no objection to the use of gold as an international reserve asset, but I do object to an international gold standard. I do agree the use of the dollar has to change, though.

Interestingly China are strongly in favour of there being a new, independent international currency and reserve asset, and they aren't suggesting the yuan (because as I said that simply shifts the Triffin dilemma to them). I believe they are actually suggesting a completely new currency, and as far as I know they have NOT suggested gold as the reserve: so far the proposal is for the international currency (Bancor) to be both unit of account/medium of exchange and reserve asset, and as no-one really wants to go back to a Bretton Woods-style gold standard, that joint usage rules out gold.

Peter said...


JR said...

To those waiting with bated breath for that favourite media catchphrase, the 'U-turn', I have only one thing to say: "You turn if you want to. The lady's not for turning."

"I have no objection to the use of gold as an international reserve asset, but I do object to an international gold standard."

Motley Fool said...

Well JR, so would we (object to a international gold standard).

Issas Ekeret said...

Well now, if the lady objects then I guess it can't happen.

Shall we all go in with MMT then? All those in favor?

Peter said...

Yes, no-one really wants to go back to a Bretton Woods-style gold standard

Candy Sange said...

as far as I know they have NOT suggested gold as the reserve

Candy Sange said...

Need I continue?

Tommy2Tone said...
This comment has been removed by the author.
Anand Srivastava said...

Frances: What do you mean by an International Gold Standard? I am not sure I understand the term.

I would think RPG occurs naturally, when people are saving in gold, and they are directly taking care of much of the balance of payments by converting their savings (aka excess production) to gold. This makes Gold the single most important element in balancing of payments, and so will require the currencies to be measured against it.

But I don't think RPG is a gold standard. It is just what is the most practical means of determining the value of currencies in a freegold world.

We are not going to have an SDR which is linked to the price of gold, that would be stupid.

JR said...

Exactly MF,

Despite the ostensible difficulty with the issue of FOFOA's dilemma, the semantics of that issue are somewhat tertiary to the main point. A as Woland noted above, " I personally am gratified to see you here, since you already understand so much, as your recent post indicated, of what is going on.."

Frances really gets it on so many levels, and that is important to highlight! As Frances wrote, "I have no objection to the use of gold as an international reserve asset, but I do object to an international gold standard."

Get you some lady, please don't turn: "You turn if you want to. The lady's not for turning."

milamber said...

@ Frances


"It ain't so much what we know that gets us into trouble. It's what we know that just ain't so."

-Mark Twain


JR said...

Frances Coppola 3 August 2012 01:05

4) Is it morally right that when countries agreed with the US on Bretton Woods that they got screwed when Nixon slammed the gold window shut in '71?

As indeed countries were "screwed" when the UK abandoned the Gold Standard in 1931. That is the problem with a gold standard: it is only as good as the willingness of governments to meet their obligations. In the end a government's obligations to its citizens trump its external obligations.

In both cases the Gold Standard was causing serious economic problems. In the case of the UK, there is no doubt that it weathered the Depression far better than the US at least partly because it abandoned the gold standard earlier. So in that case, I'm afraid I do think that reneging on international obligations was the right thing to do. The morally wrong action was going back on to the Gold Standard in 1925, since the only way a gold standard can be defended is by internal devaluation, which causes human misery.

I'm sure you can work out by now what my answer is with regard to the US's abandonment of the Bretton Woods Gold Standard in 1971. I would remind you that the US's action was really forced by the devaluation of sterling in 1967 and the collapse of the London Gold Pool: that made the gold peg unsustainable and eventually forced the US to abandon it. But the morally wrong decision was made in 1944 when the gold standard was reintroduced.

Woland said...

Some FOFOA readers may recall a while back that our host
had some interaction with Paul Brodsky, of QBamco. Paul
and his partner Lee put out an excellent piece titled,
"A Propos of Everything", in 3 parts. In part 2, there is an
excellent analysis of problems with what he terms a "semi
hard" currency, that being a basket of currencies PLUS gold.
It is on page 11 of part 2, but I will just quote a little here.

What about a semi hard currency?

"There have been rumblings recently that the SDR should
include gold as a portion of its underlying currency basket
(as hinted by Robert Zoellick) Gold bugs love such talk but
we would advise more tempered expectations. Gold cannot
be included in the SDR basket for the same reason there
cannot be a "multiple reserve" currency system. Gold would
implicitly be THE sovereign currency within the basket, which
would destroy the entire concept the broader SDR as the
reserve currency.
He then goes on to explain how a surplus country holding such
an SDR could receive the elements of the basket, say 15% gold
and the remaining basket of currencies, and then arbitrage the
remaining 85% back again, effectively draining the "best"
from the group. Imagine a basket of IOU's from Larry Moe and
Curly, plus a gold coin, equally weighted as an SDR. Nufsed?

Dante_Eu said...

Sometimes I wonder why is it so hard for so many economists to see physical gold as a wealth asset outside government control? It is either Gold standard (centrally controlled fixed price) or pure fiat standard with some imaginary supranational super-duper fiat. God forbid to compromise and meet in the middle! God forbid parallel money system and a peaceful coexistence between debtors and the savers. All those regulators, legislators, commentators…would have a lot less to break and fix.

Onward on the perception of the reality. I sometimes tend to think that if the energy of a single thought may determine the motion of a universe (don’t laugh :)) so may the act of me buying a single ounce of physical gold, in fact:

Change The World

Why I said don’t laugh? Because the person who said it knew what he was talking about:

Passing through

Jeff said...

Gold can't be included in SDR? What about stolen bitcoins? Facebook credits? Who needs SDRs anyway?

FOFOA: For any real economists out there, here's how Freegold resolves Triffin's dilemma.

Triffin's dilemma highlights two flaws in the dollar and its use as the global reserve currency. Flaw #1 is the dollar being a national currency and also a supra-national global reserve currency. Flaw #2 is the dollar trying to be as good as gold in the store of value role via US Treasuries. What I mean in flaw #2 is that the dollar's credibility is hurt by a rising price of gold and, therefore, it must systemically manage that threat by backing the fractionally reserved bullion banking system which eases the natural supply constraint of gold.

The euro has eliminated both of these flaws in its fundamental architecture. It is not a national currency and it does not oppose a rising (in the present case) or a free floating (in the future case) price for non-fractional physical gold reserves. I have written extensively on this topic, and the bottom line is that gold is not yet free floating, even today, because its market is encumbered by many forms of gold IOUs that trade at par with the physical stuff through the support of the dollar system.

You can obviously resolve Triffin's dilemma by removing both flaws. But removing #1 alone is not enough, while #2 alone is enough.

Triffin's dilemma observes that when a national currency also serves as an international reserve currency (as the US dollar does today), there are fundamental conflicts of interest between short-term domestic and long-term international economic objectives. But this is only the case if that currency does not embrace a "secondary media of exchange" that is allowed to float in value in a quantity not managed by the currency manager (i.e. physical only), and can be purchased and stored in lieu of retaining debt denominated in the primary medium.

Imagine, if you will, the euro supplanting the dollar's role as the globe's super-sovereign currency unit. This is (at this point) merely a conceptual exercise for all you anti-conceptual mentalities. Let's compare the two with regard to Triffin's dilemma.

How often do we hear euro critics repeat that the euro, a currency without a country, has no political union to back it and is therefore worthless? The US dollar has a country, but in its role as the world's currency it also functions just like the euro, without a global political union.

The fundamental difference between these two units of account (the dollar and the euro) is their relationship with gold.

If you have followed my blog at all, you know that the euro has Freegold, the wealth consolidator and "real money" with no country, no links and no political union to back it. So which unit of account (€ or $) is closest to gold? Which currency, of these two, is most likely to be preferred as the global reserve currency next to Freegold in the wealth reserve role?

The point is, once "Freegold" (nature's wrath) inflicts itself upon us all, it won't really matter what is chosen/used as the super-sovereign or supra-national currency to lubricate international trade. It could be the euro, the yuan, the SDR, Facebook Credits or even the dollar! Triffin's dilemma will be gone. And you shouldn't worry so much over the transactional currency question, because that will be chosen through the market forces of regression, the network effect and game theory's focal point discovery at the international level.

Alex in Montana said...

Gold confiscation

I know this website thinks it can not happen, but just heard two interviews:

Marc Faber
Felix Zulauf

They are not gold standard advocates, but both believe the OECD countries will confiscate gold. Faber suggests keeping your metal in Asia.

Question: why is it impossible that governments which have been kleptocracies throughout history will in next few years miraculously stop that behaviour.

Just asking............

mr pinnion said...

Thanks for that mate. This is why i dont trust the mainstream media.The 'Science proves the existence of God' story was, like, totally unreported in the UK.
But thanks for keeping me informed about the scientific cutting edge.So much to learn.


Biosci said...

"Recent advances in Nanotechnology allowing us to look at DNA structure"

You mean in 1953, when the structure was elucidated?

Freegoldtube said...

One can be a pioneer, or one can follow in the footsteps of others. But if you follow, be sure to follow in the right footsteps.

Anonymous said...

New Clearing House rules (a la Dodd-Frank) mean derivatives counterparties are required to pledge high quality collateral with the clearing houses

The dealers, ever willing to create fee-based business, have created a repo-like program to meet the needs of the desperate derivative counterparties - to enable them to transform lower-quality collateral into high quality collateral - which can then be posted to the clearing house or exchange.

"Moody's would expect to lower the rating, probably to Aa1"

In the the the same way the 10 year bond earns 1.5% nominal but when adjusted for real inflation offers a real return closer to negative 7%, Aa1 is a perceived or nominal rating, as opposed to a real rating closer to DDD. Perception vs reality.

Aquilus said...

Alex in Montana:

From Confiscation Anatomy – Part 2 :

"Every few months or so a new farmer shows up here at FOFOA with a fresh vial of fox urine to scare the hungry bunnies away:

I hate to be the bearer of bad news but friends, we got problems! Phillips argues that we will face gold confiscation when a new currency is created to replace the US Dollar as the world's reserve currency and it will be backed, partially, by gold. He is probably correct. When FDR confiscated gold in 1933 the US was on the gold standard and in order to increase the money supply, the government needed more gold to allow them to create more dollars to fight the Depression. Since 1971 when we left the gold standard, there was no particular benefit for governments to own gold since gold was not needed to back a currency. But everything changes if a new currency is issued that IS GOLD BACKED."

If gold is confiscated, how will it affect FREEGOLD?

That was the beginning of the post. Sound familiar?

Also see Confiscation Anatomy - A Different View

You'll probably find all the answers you need.


Frances Coppola said...

I am very happy for people to comment on my posts if they have constructive remarks to make that advance the debate. Sadly the two FOFOA followers who have just commented on my Golden Calf post resorted to personal attacks: one described me as a fool, and the other described me as lacking the ability to think clearly and lacking self-awareness. I do not accept ad hominem attacks on my site, so I have deleted both comments. If the two people who commented would like to rephrase their remarks in ways that address the issues rather than attacking me, I will be very happy to re-post.

Alex in Montana said...


Not new - been reading here for 4 years.

I've read both of the above.

Freegold's assumption is the world says no to a gold backed dollar.

If China backs its currency with gold, and the dollar tanks, the assummption is we don't reset?

We are now out of the realm of hypothesizing and entereing the world of reality. You are now running the US (pretend you are Congress, the President and the FED all rolled into one).

It's your move in this currency crisis. What will you do?

Not arguing, just seeking answers.

Frances Coppola said...

Hi Motley,

I worked out what you call FOFOA's dilemma for myself. If you remember, I wrote about it in my blogpost on the nature of money, which predates the arguments I had with FOFOA's followers. There is a conflict of interest between those who see money primarily as a medium of exchange and those who see it primarily as a store of value. For that reason I suggested that long-term savings should not be in the same form as the medium of exchange.

Aquilus said...


Are you talking about the fact that China would do a pegging of N yuan to an oz of gold? As in the old gold standard?

Motley Fool said...


As JR said you seem to grasp a lot of the key issues. Would you be so kind as to give an answer to my question as to what solution you prefer, seeing as you dislike this one?


Motley Fool said...


Perhaps you can simply clarify your suggestion. What should one keep long term savings in then to avoid this conflict?


JR said...

Excerpt from Coppola Comment - "The nature of money, as referenced above by Frances:

Some people confuse money (medium of exchange) with a store of value. These are the people, generally, who want money to be intrinsically valuable in its own right - gold, for example. This is nonsense. Money does act as a store of value in the sense that it creates a means of valuing goods that otherwise would be difficult to compare. But it cannot have intrinsic value in itself. No good is "intrinsically" valuable: the value of a good is ALWAYS determined by its usefulness to the holder. If I am starving, gold is worthless to me unless I can exchange it for food - and if everyone is starving, a loaf of bread may be far more valuable than a gold ingot.

Stores of value generally are things that don't decay and whose value tends to appreciate over time - property, art, wine, precious metals, debt securities, stocks & shares. To be actually valuable, stores of value have to be realisable in terms of some kind of money. Therefore it is not surprising that some people loosely describe "money" as a "store of value". But that is an incorrect definition of money. For example, gold is currently a store of value. But as the entire world is currently operating paper currencies, it is not currently a medium of exchange, however much some people might like it to be. It simply is not widely acceptable as payment for goods and services. Therefore gold at present is NOT "money", though it often has been in the past. It is, however, an excellent store of value.

It is the people who confuse money with a store of value who tend to be most scared of inflation.
This is understandable, because if you believe that your personal worth is determined by the value of the money that you hold, depreciation of that money is disastrous. Paper money (what we call "fiat" currency) is not a good store of value: inflation is a feature of fiat currency systems and over time nearly all fiat currencies will depreciate to a greater or lesser extent. But that is not a good reason for adopting commodity money, such as a gold standard. Nor is it a reason to defend the international value of a currency at the price of domestic economic devastation. Rather, it is a good reason not to keep your long-term savings in the form of fiat currency!

I believe that the safest and most effective store of value is not any sort of non-perishable "good". It is investment in productive activity and engagement with society to promote economic growth and gain a return from that growth. Hoarding doesn't help anyone: if everyone hoards, money ceases to circulate, productive activity collapses, and hoarded goods become worthless as loaves of bread become more valuable than gold.....

Motley Fool said...


Thank you.

burningfiat said...


Lovely quote indeed.
Frances is truly an A+ FOFOA student!
Well, until we reach the last paragraph...

Frances! If I rush down to the gold dealer every month with my surplus, and convert it to gold (what you call hoarding), money doesn't "cease to circulate". I will have used all my money that month, hence contributed to money circulation to the best of my ability. If velocity of money decreases don't blame the gold hoarders. They re-circulate all of their currency all of the time!!!

Frances Coppola said...

No, friend. I blame the gold traders, actually - who re-circulate the money you give them into more gold.

Motley Fool said...


Time for a mini-rant. :)

I will assume for a moment that the above quoted is still your prescription.

It is true that a percentage ownership of a productive (or unproductive) enterprise is out of the monetary realm, though exchangeable at any time (not so easily for local business, but I digress) into fiat currency and as such conforms to those requirements required for avoiding the conflict.

Let us consider some related facts however, which in my opinion makes your 'solution' a false one, bearing in mind that I absolutely agree that productive enterprise is a good thing and should be supported.

The average Joe is busy with the business of living his own life and focusing on his own trade. As such he has neither the experience nor the time to qualify which local enterprise or larger enterprise is a good investment.

Why is this ability of consequence? Of small business startups, about 50% fail in the first year and about 90% fail within three years. This implies a serious risk to average Joe's long term savings.

One of the functions of banking, that developed, is that it acts as intermediary in qualifying such risks. In theory Joe then gives his money to the bank, and it decides who are good risks. Sadly for Joe, this means he does not escape the posed conflict, as he is now simply a creditor of the bank who is owed some fiat.

I would also add that investing directly in local business is not such a simple matter. Most who start their own ventures are firmly convinced of their own eventual success, else they would not have started it, despite the statistics and reality. As such they likely value their own going concern much higher than is reasonable, and might not want to part with a percentage of it for a fair price. Once again poor Joe is in a difficult position.

Looking at larger enterprise, judgment of their sustainability and profitability is a even more complicated matter, if at least the ownership of common stock is simplified. Poor Joe has no real chance here, especially with continual government market intervention in various forms.

All of this ignores something fundamental however. That investment is not saving. And that a choice needs to exist before productive investment becomes possible, as opposed to forced.

You see, ole Joe simply wants to put away some money for a rainy day, for when he can no longer worked. He doesn't have the time to research and invest in companies, and has perhaps gotten a little tired of being fleeced by his broker.

In the current environment however if Joe does not get into some scheme he loses money. He can't leave it in the bank, does not have the experience for investing, and is fleeced by his broker. It's lose-lose-lose fr poor Joe. If however Joe had a choice, that he did not have to think about, and did not contain risk, then he would be a happy saver.

Once he has that peace of mind and security he can consider suggestions from his friend Trader Jack.

If all savings are necessarily forced into productive or unproductive investment, but investment somehow, then there is less discernment of what is actually productive use of savings. This is our current reality; ignoring such terrible truths as the manipulated metrics such as ZIRP which make such judgments all the more difficult.



burningfiat said...

Some are hoarding some are de-hoarding.
If you are in the saving phase of your life (aka you generate surplus), you hoard.
Once you're old and can no longer produce enough to make a surplus (or fancy that you have already produced enough), you begin to retire and live off your nest egg. Then you de-hoard.

Where does all the krugerrands come from down at the gold shop (we once had a troll who asked the same question)?

It can't all be coming from traders who just endlessly shuffle the coins around, right? As I (and others) draw a net. amount of gold off the market for maybe the next 20-30 years (people who know the true function of gold=SoV par excellence), I figure someone must put the same amount in (price being equal)...
They are the past savers, who now needs to slowly liquidate their savings. I feel great satisfaction in knowing that I and the de-saver (former net. producer) can meet in a free market exchange of good/currency in respect for the different phases we're passing through in our lives. I will feel equal pride to pass my coins onto new, young net. producers once I (hopefully) reach an age where I need the currency more than the gold.


PS. Have you seen stock to flow ratio's of gold? That seem to indicate that a lot of savers make physical gold lie very still. The trading phenomena seems to be mostly related to the other form of "gold" popularly known as "paper gold".

Frances Coppola said...


For all practical purposes there is no difference between savings and investments. There is always risk to savings. "The value of your investments can go down as well as up"....despite the historic volatility of the gold price, you implicitly assume that gold would always be at or above the value at which Joe bought it. Otherwise he has lost value on his savings, hasn't he?

I think there will always be a need for advisers and intermediaries in the management of savings and investments. As you say, Joe really doesn't have either the time or the ability to assess these things himself - but that doesn't mean there should be no active management of his savings, or that he should simply put them all into one form. Both of those strategies carry risks.

FOFOA, I think I am correct in saying that you are advocating physical gold as part of a portfolio of investments rather than as the sole investment? Otherwise we have a serious case of "eggs in one basket" - never a good idea.

Anonymous said...

"No, friend. I blame the gold traders, actually - who re-circulate the money you give them into more gold."

Are you talking paper gold? Must be, 'cause what's the point of selling a few pounds of gold and then buying a few more pounds next week? Silly question, I know:) When I think gold, I think of the heavy,shiny stuff - not paper. Most here do.

And where does some this heavy,shiny gold come from? Mining! A few thousand T of gold each and every year. Guys like me and my peers/friends and associates do it every year... We pay people wages to mine this gold, we buy equipment, supplies and fuel in the local market. Sounds like productive use of capital to me. We use our out of pocket money to fund these adventures, and they're sometimes fantastic adventures:) Some then sell all or a portion of the product to finance further adventures!

The "other" portion of gold trading hands is coming from someone else that has likely purchased the gold at an earlier date, and has now decided to sell it into the market for cash. Pretty sure this cash isn't being stuffed into mattresses or turkeys;) It's being spent on goods and services or invested, etc.

Anyone selling gold is selling it for dollars. What do we do with dollars? We spend them. Otherwise why wouldn't you just hold the gold? Common sense stuff.

This whole nonsense of "hoarding gold not helping anyone" is poorly thought-out. Sounds great if you're looking for Karma Points, though. Reality/Human nature tells us that people will hoard items for self-preservation during potentially difficult times. Is it good? Is it bad? doesn't much matter if there's nothing you can do about it.

It appears to be A Long Time Coming

Motley Fool said...


Volatility in the POG is understandable in the current paradigm. If the role of gold changes to that of FreeGold paradigm then such volatility would effectively disappear. In essence gold would be correlated to real growth. Sure it may decline or slow, but it would not be erratic, barring worldwide catastrophe.

Diversification is great concept and idea, in a sane and rational market. At present a temporary visit to the All In for us shrimps is not such a bad idea in my personal opinion.

My advocation would be the same as that of FOFOA, to buy as much gold as one understands. If that be none then that is fine too.

FOFOA's "official" recommendation is at least a 2-10% allocation, which is not unsound advice in any paradigm.


Woland said...

Hello Frances;

Permit me to jump in here for a moment if I may. With respect
to your last paragraph, it is a fact (not known by all readers here)
that FOA recommended AGAINST having ALL savings deployed in
gold. He followed this practice as well himself, and said so. For
those who wish to doubt, I will try to find the quote. He further
said that the biggest problem with going "all in" was that it
promoted a dangerous mental habit. If one was successful, it
encouraged a repetition of the same behavior in the future. This
would eventually result, for most people, in losses. Fofoa
himself has said, your percentage of gold as it relates to your
total savings should ONLY match your understanding of what
is expected to come. 5% to 10% is the minimum to protect
the value of your other non tangible wealth through the
transition. There are those here (not me) who are so certain
of the timing of the transition that they are close to "all in".
Most of those still have a means of generating income to
live on, I would guess. Fofoa himself is 100%, it is true.
But as gold is a currency just like the USD, conversion is
always possible if necessity calls.

"I believe that the safest and most effective store of value...."

If we could just change that to, "I believe the most socially and
economically valuable GENERATOR of FUTURE value in not any
sort of non perishable good......., Then I think we could all agree.

Anyway, FWIW, that's what I think. Cheers.

burningfiat said...

I recently read an article about the relationship between career and savings. Lost the link unfortunately.

The usual way to go about it is to be very risk-averse with your career (hang tightly on your old job), while putting your savings into all kinds of risky assets (sov. debt, FB, AAPL, housing etc.) through pension funds and what not.

This article proposed to do the opposite. Be very risk-averse with your savings, and take a lot of risks with your career. I agree very much on this approach, because it gives you exciting things to do during daytime, and good sleep at night. The old approach potentially gives you a boring daytime, and sleepless nights.

So I'm walking the talk. All-in in gold (safest place possible) with my savings, while I've just quit my job recently and have started my own company.
Maybe 90% of startups fail within three years, but if you never try you never have the chance of success.
So maybe I'm an immoral hoarder with my savings, but don't say I'm not committed to local businesses. I've just invested my career in one.


PS. What if my company fails? Guess I'll just have to rely on the super-organism to still need skilled labour :-)

Pat said...

"For all practical purposes there is no difference between savings and investments"

No, just all the difference in the world. Investments are all about risk vs. reward, and virtually any investment can ( and many do ) go to zero.
Can gold go to zero? As there are no absolute truths in the world, I guess I have to say yes. There is some infinitesimal probability. But I'll take my chances based on 6000 years of history, and walk with the Giants.
As well as my hoard of water, food, survival items, etc. I'm funny that way in regards to what I will do for my family.
Disclosure- I used to "invest". During the 80's and 90's I thought I was darn good at it. I know now I was lucky, my boats rose with the others. I wouldn't put a plug nickel into any of today's rigged markets, not one cent.

Frances Coppola said...


Well, I don't know about that. The correlation would be inverse, surely - since people tend to invest more in gold on the downside of the business cycle, unless there are inflationary pressures. Whose real growth would the POG relate to?


thanks. That's what I remembered reading before, and it makes far more sense to me than the "all in".

I partly agree with your re-wording of my comment. The purpose of all investments is to generate future value: my complaint is that all too many "investments" don't generate value for anybody except the intermediaries who trade them. Sadly that can be the case in a physical gold market just as much as any other sort of market, hence my moan about gold traders.

However, at the macro level the SAFEST form of investment for the economy - and therefore overall for its participants - is investment in productive activities, because that is what drives sustainable growth. Investing in other things may benefit individuals for the future but it doesn't drive growth. You can't assume that the cash released by (say) gold purchases will necessarily be used for productive investment. Obviously what benefits the economy as a whole is not necessarily the best course of action for an individual, but if too many people back out of investment in productive activities, the economy suffers.

JR said...

A suggested edit:

Obviously what benefits the economy as a whole is not necessarily the best course of action for an individual, but if too many people attempt to invest in lieu of saving, the economy suffers.

Certainly not all investment is productive. Indeed, much of it fails. We certainly wouldn't want to funnel all our excess production back into investment all the time? To do so would be to enable malinvestment and the destruction of capital as it is deployed in unsustainable lines of investment. Mal(bad)investment (the misguided employment of capital) results in unsustainable infrastructures built on unstable levered foundations.

ampmfix said...

Wow, finally caught up after 3 week vacation + another 5 week home remodeling (my second home in the land of the "unextraditable").

It was great to read so many comments and learn from you guys again, in particular I enjoyed much of JR, VTC, Aquilus, MF, DP and so many others habituals (Burning, nice post on generation relay).

Dear FOFOA, many congrats on your 4 years, it's been 2 for me, I'll be hitting the sack asap.

I am a slow learner, and (thanks to JR) I am finally having many aha moments, after many repetitions, in these last 2 years.

Since this post looked metaphysical at the beginning, let me say this (my subject is not economics, which is so abstruse to me, cosmology sounds so much simpler!): did you know that stars cook the elements we know, but only up to iron? (an 56), the rest and higher are created only in supernovas. I mean to say that every element is unique, but the higher ones are even more special. Gold, was chosen by our ancestors because of 2 main reasons: one, it didn't oxidize, two, it was the most ductile, or workable to an artisan with basic tools, 3 it was beautiful and heavy! that is IT! in addition to all that, its mining yearly pace is equal to human population growth, ain't that telling you something? what else could take its place?

Glad to be back!!

JR said...


All of this ignores something fundamental however. That investment is not saving. And that a choice needs to exist before productive investment becomes possible, as opposed to forced.

You see, ole Joe simply wants to put away some money for a rainy day, for when he can no longer worked. He doesn't have the time to research and invest in companies, and has perhaps gotten a little tired of being fleeced by his broker.

In the current environment however if Joe does not get into some scheme he loses money. He can't leave it in the bank, does not have the experience for investing, and is fleeced by his broker. It's lose-lose-lose fr poor Joe. If however Joe had a choice, that he did not have to think about, and did not contain risk, then he would be a happy saver.

Once he has that peace of mind and security he can consider suggestions from his friend Trader Jack.

If all savings are necessarily forced into productive or unproductive investment, but investment somehow, then there is less discernment of what is actually productive use of savings. This is our current reality; ignoring such terrible truths as the manipulated metrics such as ZIRP which make such judgments all the more difficult.


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.

ampmfix said...

hitting the sack, means (in Spansih slang) hitting the cookie jar... (not going to bed yet)...

Unknown said...


It seems to me you are talking about apples and oranges and mixing metaphors.

Investment in productive assets to produce future value is an economic activity. But I would argue that an honest monetary system is what drives sustainable growth because an honest monetary system corrects prices risk in the market.

We are all talking about a monetary system and Freegold and you are talking about gold in a corrupt fiat system.

Is it too hard to separate gold and think not of it as an economic activity but rather as a lubricant to economic activity?

I really think you are missing the boat in respect to that. Monetary systems lubricate economic activity. In Freegold, holding or selling gold is not in and of itself economic activity as you are suggesting.

Does that make sense?

JR said...

Frances writes,

The purpose of all investments is to generate future value: my complaint is that all too many "investments" don't generate value for anybody except the intermediaries who trade them.

Yes! Life in the Ant Farm

Dear reader, is all of this Goldman Sachs securitization and interest rate swap business making your head spin? SPVs, SIVs, SPEs, PPPs, PPIs, PFIs, SPCs, CDOs, CDSs, ABSs, MBSs... whew! I know it's making me dizzy. And I find that when my head starts to spin it is useful to fire up the old hooch still and cook it down into something more easily consumable.[...]


Debt is the most fundamental cause of this Global Financial Crisis (GFC). More specifically, it is the modern method of usury that compels large pools of savings into the service of new debt. Savers must have a way to hoard outside of the economy for the economy to be efficient. It is the selection process of when and how to deploy one's savings that keeps both debt in check, and the economy efficient and productive. And it is the coerced loaning of all savings, with the lenders and borrowers segregated by a "Chinese wall" of bankers interested only in fees and bonuses, that has led to the massive malinvestment and explosive debt of today.

This GFC is the final stretch in the long evolution of money, spanning centuries, that led to a global monetary system in 1944, a purely symbolic fiat system in 1971, an electronic computer-assisted system in the 80's and 90's and today's insurmountably complex system of derivatives. With each step adding new layers of complexity and distancing finance from reality, the savers and the debtors have now become so disconnected from each other that our human superorganism is now literally dumber than the lowest functioning human. The collective IQ is now probably well below 50, thanks in large part to the "geniuses" on Wall Street who created SPVs, SIVs, SPEs, PPPs, PPIs, PFIs, SPCs, CDOs, CDSs, ABSs, MBSs... We are truly ants in an ant farm!

As Paper Burns

In Sultans of Swap - Explaining $605 Trillion of Derivatives, Gordon Long writes "The cheaper money is, the more borrowing will occur. Everyone is happy except the unwitting lender."

This line really gets to why all these "genius" Wall Street creations are such an explosive problem today. "Everyone is happy except the unwitting lender." The "unwitting lender" is all the savers and "super-producers" of the world. It is everyone you know who has a pension or a pension fund. It is everyone you know who has a 401K or an IRA. The "unwitting lender" is anyone and everyone who relies on the $IMFS and its network of specially trained and licensed financial advisors with official titles like RIA, CFP, CFA, CPA, ChFC, CRPC, RFC, MSFS, all of whom are practically bound by law and fiduciary duty to NOT tell you the true nature of the risk you are facing.[...]

a monetary and financial system that uses compounded interest cannot afford to compel all savings into the hands of debtors. It must have a means of hoarding wealth outside of the system in order to constrain the exponential growth function, or else the entire system will become retarded and then collapse. In return, this constraining function of "gold the wealth reserve" will restore intelligence to the human superorganism. Intelligence that has been sucked dry by Wall Street's systemic aggression against a free-floating physical gold price.

We are all like ants in an ant farm when we patronize Wall Street. Our contributions to society, should they exceed our day-to-day needs, are deployed by a system that does not care how they are deployed, just that they are deployed ASAP. If you would like to make a real contribution to the future of civilization then please buy physical gold and find a way to keep it close. Hoard your efforts outside of the system...

Boopstir said...

So very intriguing that you would, at this point in time, provoke this off-topic concept!

Its not what you see, its what you perceive. And I thank God that 'they' are not as in control as they perceive.

Nickelsaver said...

"Some people confuse money (medium of exchange) with a store of value."

It also appears that some people confuse currency with money. For the pure money concept is threefold.

MoE - Currency
UoA - Unit of Account
SoV - Gold (or whatever the CB's use)

It takes all three to have money. Take away any one of them and you have something less than Money.

Now in this western age of MMT, the SoV has been replaced with what? Infinitely expandable currency, moreover debt.

And this is the simple problem, that has a simple solution.

If MoE is counterbalanced by more MoE, the game eventually ends when the Savers get wise.

We see that these Savers, some of which have held the SoV gold for generations, begin to replace more and more MoE reserves with SoV gold.

And in the case of the dollar, waning support via UST's leading to less and less support, until the would be SoV dollar is
abandoned as a world reserve.

The pure money concept being initiated thru a return to what it can only be, based on what it once was, and in the mind of the Giants, never ceased to be - namely gold.

One must understand (and accept) the pure money concept, before one can move on to understand Freegold. Anything short of that is to buy into the lie that the current system can be maintained forever. It cannot.

Phat Repat said...

"I think there will always be a need for advisers and intermediaries in the management of savings and investments."

Talking the book of a 'former' life and in support of colleagues/industry. This is like asking a Realtor if it's a good time to buy a house? Response: It's always a good time to buy a house!

Reminds me of a trading commercial back in the day: "...The only one broker was me." ;-)

Thanks, I'll take care of my own assets. And MF, Joe shouldn't have an excuse for not being able to do the same (busy with business or not). A fool and his money...

Phat Repat said...

"This article proposed to do the opposite. Be very risk-averse with your savings, and take a lot of risks with your career. I agree very much on this approach, because it gives you exciting things to do during daytime, and good sleep at night. The old approach potentially gives you a boring daytime, and sleepless nights."

THAT is how wealth is generated. Yes, the risk as you later describe is substantial, but you are in control of your destiny and not tied to a dead end job (something you can always go back to if necessary). A book I have read, and that I would recommend (even though the title made me cringe), is "The Millionaire Fastlane (DeMarco). " Though the entire book is a good read, for those considering/early-on in starting a business, jump to "Part 7: The Roads to Wealth." That should help to sharpen your focus and ask some critical questions (at least if wealth is your goal). If you're just looking to get by, then carry on.

Edwardo said...

Frances wrote:

"For all practical purposes there is no difference between savings and investments."

The wrongness of this statement may be impossible to exaggerate. By definition, a savings vehicle, such as physical gold, does not carry the sort of risk of loss of purchasing power, let alone capital, that an "investment" routinely does. Investments and savings are two different animals and it does no good to conflate them. Which brings me to your following comment.

"The historic volatility of the gold price..."

Historic volatility? The swings in gold are paltry compared to the robustness of physical's performance over many generations. If one applies cherry picked time frames, one can come up with all sorts of profiles, favorable, unfavorable, volatile, or static, for any asset class under the sun. But, if one chooses time frames that extend beyond the usual time periods trotted out by those who wish to make the case for, say, stocks, bonds, or real estate, gold's putative volatility takes on the appearance of just so many insignificant blips on the screen.

"I think there will always be a need for advisers and intermediaries in the management of savings and investments."

Perhaps, but the explosion of newsletters, advisory services, intermediaries, etc. etc. is highly correlated with the post 1971 period. The mad scramble for assistance in investing is directly related to a chaotic state-now reaching an absolutely deadly crescendo- that is defined, among other things, by a financial milieu in which folks who heretofore did not invest, but, rather, saved, were forced to become investors.

Michael dV said...

perhaps this has been beaten to death while I was sleeping can anyone object to saving gold? It is all owned by someone and me buying it just frees up cash so the seller can deploy cash for the ever increasing need of the greedy collective. I can see some environmental objections to raping the land just to dig it up but what is the objection to a change of ownership regardless of the price?

Motley Fool said...


I submit you are tripping on some roots in your minute examination of a tree.

If you would, take a step back with me and have a look at the forest, while I extent my metaphor.

Let us assume for simplicity sake that all gold has been mined up, hence we have no new mining supply.

Now, let us think of the forest as representing our productive economy; all the wealth there is if you will. It's clear that both gold and fiat are simply accounting mechanisms. One could think of gold as a unproductive call on the productive economy; a call option on ownership of a specific tree.

Let us imagine we are very productive over a period of ten years and we double the size of our forest. Can you see how gold would have to rise in value to remain a call option on productive investment, and how in reality it's price would correlate with net growth?

Stretching the metaphor a bit further - the government at present is like a conman who convinces people to not bother looking at the trees they might buy at all, wood being wood after all....and not worry about whether their particular tree may be rotten, struck by lightning or infested with termites.


Michael dV said...

It seems you might be missing some of the beliefs we pretty much live by here at fofoa's place:
First we are in a transitional period, what we are doing with the 'all in' stuff is preparing for a phase change when gold will increase , a lot, in value. If you have to ask why then you have not read very much here.
We also believe that in the current environment, largely due to ZIRP and now even NIRP, MOST investments are going to be malinvestment. How can societies needs be transmitted in an effectively command-control, centrally planned economy. Time and again we see it cannot.
While I call these attitudes 'beliefs, they are actually conclusions most reach after many hours of consideration.
I have personally started businesses that drained me almost dry. I do nor recommend starting a business to anyone who is not ready to fight the world. I have also been an investor but have seen that it is the overall economy that currently yields nominal results while few businesses give returns that make sense if they had to be evaluated in a Warren Buffet they yielded cash out over and above the cash in over a long period of time. To really work as a true savings vehicle we would ALL need to be in Coke and a few other companies. Soon the share price would rise and they would no longer be good investments.
I do believe when we get through the current mess we are in (ZIRP is simply not a long term viable situation) that there may come a time when I might again put money into a stock or company. For now it is just too dangerous. Is is cash and gold for me.
If this makes me a bad person I blame it on the current economic system. I will not have my hard earned money, or what is left after the government takes its half, squandered.
So i think some of your objections to what you read here might be a function of not understanding how we come to our beliefs and some might be due to the fact that we are all behaving differently than we would if we trusted the economy.

Anonymous said...

If I wanted to discuss with Frances, I'd pick the last paragraph of what JR quoted, as a starting point:

It is investment in productive activity and engagement with society to promote economic growth and gain a return from that growth. Hoarding doesn't help anyone: if everyone hoards, money ceases to circulate, productive activity collapses, and hoarded goods become worthless as loaves of bread become more valuable than gold.....

First, I agree that investing in businesses is a good idea. Ideally by owning a (share of a) company or perhaps by lending money to a company. But then, this involves business risk, and nobody would want to risk all his retirement savings in this way. So some part of your savings should be lower risk, ideally close to risk-free.

Hoarding. If I hoard fiat money (I mean actual cash), no problem. This is perfectly safe and need not bother anyone. Well, it makes monetary policy a bit more difficult for the CB as they have to figure out how much has been hoarded and as they need to anticipate when it's going to come back into circulation (if they get this wrong, they might have difficulty meeting their inflation target).

As a matter of principle, since I will most likely be either unable or unwilling to work beyond the age of 67 (or 70 or whatever), it is a legitimate wish to 'hoard' something that I can consume during my retirement years. If it was possible, I could even stock up on food and other consumables now and simply run down this stock when I retire. No problem either. If everyone did this, people between the age of 25 and 65 would buy more groceries than they do today, but people beyond 65 would live on their stocked supplies and not go shopping at all. No net difference in consumption compared to today. (provided people correctly estimate what they will need)

So hoarding itself is not a problem at all. Well, it's still a practical issue since I don't want to live on 30-year-old canned food when I retire,

Since I don't want to hoard food, I go for valuable items that I can exchange for consumables later: jewellery, diamonds, paintings, vintage cars, gold, whatever. Any problems with me hoarding this stuff? No. And when I retire, I will resell these items to someone who is in his savings phase. No issue either.


Anonymous said...

So then what's the issue?

I could hoard paper money and pay it into my savings account at the local bank, thinking this was risk-free. The bank then lend it to a consumer (or to the government who consumes perhaps some 70% of their expenditures, simply because this is what happens to paid out salaries and benefits).

Ooops. Now someone else (the consumer who borrows the money that I paid into the bank) spends my retirement savings, and he does this before I even turn 65. These people buy the latest iPad on their credit card, or they take out a mortgage and buy a house they cannot afford to pay cash for. I don't care that much about the iPad, but these people drive up real estate prices, and then I eventually have to pay a higher price for the house I'd like to buy myself.

Finally, some of them go bankrupt, take down the bank, and there go my retirement savings. Risk-free. Yeah.

You see, the jerk is not he who hoards (paper money, canned food, jewellery, gold). But the jerk is the one who lends his savings to a consumer.


JR said...

Who is the jerk?


Savings are the result of one's production being greater than his consumption. Saving is the convention for deferring the fruits of capital creation—earned consumption—until later. Savings is also the way we hand off capital to the next person who will use it to create more capital. And when it is done right, saving results in the accumulation of capital throughout society at large. When it is done poorly, saving results in the aggregate destruction of capital through frivolous consumption and mal(bad)investment (the misguided employment of capital) resulting in unsustainable infrastructures built on unstable levered foundations.

Here's where it may get a bit counterintuitive. You might, if you were Charlie Munger, think that the best way to pass your earned capital on to another producer is through paper. If you save in paper notes then you are loaning your earned capital to the next producer in line, right? And if you buy gold Charlie says you're a jerk, even if it works, because he thinks you are pulling capital out of the system. But are you really? [...]

The question we must answer here is: Is Charlie Munger right? Are you a good person only if you put your savings into paper where it can be easily redistributed, and a jerk if you buy gold, depriving the paper whores of your savings? Is this the way it works in reality? Or is this simply the sales pitch of one with great bets riding on the continued popularity of paper savings? [...]

So what about Charlie Munger? Is he right? Are you a jerk if you buy gold? Well, yes and no. If he's talking about paper gold, then yes! But likewise, it seems you are a jerk if you buy Charlie's paper as well! And you're an even bigger jerk if you buy physical commodities and tangible goods without the intention of employing them in real economic activity. It seems—and correct me if I'm wrong here—that physical gold (along with a few other discreet collectible items like real estate, fine art, antique furniture, ancient artifacts, fine gemstones, fine jewelry and rare classic cars) may be the only true wealth holdings in which you are not a jerk. What do you think?

Freegold Foundations

Anonymous said...

There is a second issue here. Most people earn some surplus while they are active workers, and they will need to consume this surplus when they retire.

But the total surplus earned by the producers of society as a whole might be more than the food they actually need to stock for their retirement. So if they actually bought food for the entire surplus, this would be more than they could ever eat during their retirement. This would indeed drive up food prices (and also waste a lot of canned food that would eventually perish).

So canned food is probably insufficient to absorb the surplus of society. How about the stock market?

Answer: GDP is produced by a certain capital stock that's owned by all the businesses of the country. For example, a given printing press produces $1mm worth of books. The issue here is that you can put a price on that capital, i.e. on the printing press: the cost of manufacturing another such machine (replacement cost).

Now if people invest all their surplus in the stock market, they will bid up the shares of that book publisher. But they cannot bid these shares up beyond the replacement cost of that printing press, at least not in the long run and in a sustainable way. (If they did, a new competitor would show up who simply purchases a new brand new printing press that's cheaper, and they would take the new company public, driving down the elevated share price of the existing publisher).

So GDP and the capital stock that produces it, will generally grow in line, and the total value of the stock market can not grow any faster. It's nice if there are equity investors around should you want to start a business, but in total, the stock market cannot absorb arbitrary amounts.

What if there are bigger surpluses for some time? Where can they go?

Answer: diamonds, paintings, gold, etc. Items whose price is determined by the supply and demand for savings purposes only, but not by any economic arbitrage. (If people bid up the price of tulip bulbs, everyone will grow some in their garden and bring the price down - but this is not going to happen with gold, fancy diamonds, and Renoirs).


JR said...

More on "jerks" from A Winner Takes the Gold:

Charles T. Munger of the esteemed Berkshire Hathaway Corporation:

"Oh, I don't have the slightest interest in gold. I like understanding what works and what doesn't in human systems. To me, that's not optional. That's a moral obligation. If you're capable of understanding the world, you have a moral obligation to become rational. And I don't see how you become rational hoarding gold. Even if it works, you're a jerk. (Laughter)" [...]

The simple solution to all the world's monetary and trade-imbalance problems is...... dot dot dot....... Buying PHYSICAL gold with your savings. It works (very roughly) like this:

If every Chinese saver were to take his cash savings (yuan) out of the bank and start buying the limited stock of physical gold already inside China, the price of gold in yuan would start to rise. This would create a theoretical arbitrage opportunity to buy gold cheaper outside of China and import it. Gold would flow into China. Of course this arb would happen naturally and automatically which would equalize the price of gold across borders.

And this gold flowing in would balance all other trade. If China exports X amount of goods and imports Y goods plus Z physical gold—with X > Y obviously—then X = Y + Z. The quantity of gold required to settle the accounts would float in price. Arbitrage through the open market between currencies and gold would automatically remove imbalances over time. Imports would always equal exports as long as the price of gold fills the void. And over time the price and flow of gold would automatically stabilize, as would the global monetary system.

Of course this would require a physical-only gold market with a free-floating price in all currencies because imports and exports of gold would then become part of the "real stuff" trade formula and could no longer exist in the monetary and physical realms simultaneously as they do with "Bullion Banking" today. All that currency spent on gold would continue to circulate in China. So it's not a matter of these gold-hoarding Chinese "jerks" (cf. Munger) denying others their net-production. That net-production would be still sitting "on the table" so to speak.

And as long as our net-producer/savers (young super-producers) outnumber our dishoarders (retiring ex-super-producers), the gold will still flow, only in lower volume by weight and higher nominal value. In other words, the price will rise. So... as the price of gold rises, more and more real economic goods are "left on the economic table." The economy expands... wait for it... as the price of gold rises! So gold is not the doom and gloom investment Dagen thinks it is. Oh no. It's the economically prudent and morally responsible investment!

And I'm not necessarily implying that borrowing (bonds) and economic investments (stocks) won't exist. But those who net-produce and then funnel their savings into those antiquated financial instruments have and will always make somewhere between a much lesser and a massively negative contribution to society than the gold hoarders. I say massively negative because it is they, Dagen and Munger, that enable systemic malinvestment and incentivize the kind of lowering of prudent lending standards that almost brought the system down in 2008. By contrast, gold savers force banks to use their own capital when funding the debt-based consumption of the widgets left on the table. Paper investments pinched off by the sphincter that is Wall Street only encourage and enable banks to make too many loans, far beyond the weight (and prudence) of their capital.

So Munger and the Dingbat are wrong wrong wrong! You're a jerk if you save in paper, enabling the destruction of Western Civilization.

JR said...

Nice Victor,

It's nice if there are equity investors around should you want to start a business, but in total, the stock market cannot absorb arbitrary amounts.

What if there are bigger surpluses for some time? Where can they go?

On what can absorb such a surplus the most effectively, from Bitcoin Open Forum - Part 3

Moldbug does a good job explaining this principle here:

"One metaphor for monetization is that of a storage vessel, like a battery for electricity or a tank for compressed gas. When people buy into the currency, they are charging the battery and compressing the tank. When they sell out, they are discharging the battery. When new currency is created (perhaps by alchemists) without a buy-in, the tank has sprung a leak. Etc. The charge, or the pressure, is simply the market capitalization of the entire present (and discounted future) monetary good. […]

Thus a correct, second-order strategy to pick a winner has to consider the monetary pressures across the whole path to complete monetization. If the leak will reverse direction halfway through the process, the process cannot complete and should never start. If large price increases in a commodity would cause a stockpile blowout, the walls of the tank are too thin. The whole premise of monetary restandardization is that the new currency will be stable and permanent. […]

However, because silver was fully demonetized in the 20th century and gold was not, the market capitalization of the gold stockpile is 60 times the capitalization of the silver stockpile [FOFOA: and 73,000 times the capitalization of Bitcoin]. Thus, comparable volumes of gas are pressing in to the gold tank and the silver tank, but the silver tank is 60 times smaller [FOFOA: and the Bitcoin tank is 73,000 times smaller].. It is actually surprising that silver has not risen faster and harder.

But this present advantage is also silver's long-term Achilles heel. The silver tank, being so much smaller, cannot take this kind of pressure. It will almost certainly explode. I have personal advice for those playing the silver market: bring your steel balls. If you buy into a bubble when it's small, and get out before it pops, you can do quite well. […]

Here is the problem with Bitcoin: the tank, I think, will pop…"

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. These Giants are the real-world producers and titans of today and yesterday, including a lot of real old-money Giants.

JR said...

Hi Alex in Montana,

Freegold's assumption is the world says no to a gold backed dollar.

If China backs its currency with gold, and the dollar tanks, the assummption is we don't reset?

Read Victor

We are now out of the realm of hypothesizing and entereing the world of reality. You are now running the US (pretend you are Congress, the President and the FED all rolled into one).

It's your move in this currency crisis. What will you do?

Wish I read FOFOA?

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.

Robert said...

Alex in Montana, I think the risk of outright confiscation is very low. I think there is a higher risk that governments will require people to register their gold ownership so they can try to track who owns what. Governments might threaten confiscation as a consequence for failure to register/report over a certain de minimis amount. Will this be good policy? Will people comply with it? Will it be effective? No, of course not. But it sounds like the logical knee-jerk reaction of the modern police state.

JR said...

The German Constitutional Court has cleared the way for the fiscal pact and the eurozone's permanent rescue fund to be implemented but said the German liability to the ESM must not exceed €190bn without parliament's approval.

German court clears eurozone bailout

Edwardo said...

Has anyone here read this entire document?

Edwardo said...

I wonder if "they" thought of this particular threat/complication when they were making their plans?

One Bad Adder said...

After reading down through the thread and absorbing Newbie Frances views (welcome aboard Lass ;-) I could hardly wait to reach the posting-box.
...however as I scrolled down I noticed several of the other "Freegold champions" gathered hereabouts had essentially "put her right" as it were.
A case study par-excellence in Perception - V - Reality ...if ever there was one.

Woland said...

Comments here these days remind one of Hemmingway's
description of bankruptcy: They come slowly, then all at
once. During this temporary lull, permit me to make the
following announcement. My apologies to our kind host
for this small bit of self promotion:

After consultation with my associates, Azazello, Behemoth
and Koroviev, and in view of present world events, we have
decided to reprise our world famous magical performance,
some seventy years after the original at Moscow's Variety
Theatre. We will keep readers informed as details become
available concerning venues and dates throughout various
world capitols. We expect large crowds, so tickets should
be secured early.

Thank You, Woland

JR said...

The nouveau rich will flock in droves to see their vanity, superficially selfish greed and gullibility skewed in satirical sequence. (Tom Wolfe and Bret Easton Ellis walk in the footsteps of giants?)

Maybe you are the ehad demon, messire, maybe not, but you certainly set the world upside down. For my money I suspect you have the golden teeth. And that Behemoth...

JR said...

2012 minus some seventy years = @ 1944

Phat Repat said...

The recent award of $104 million to a whistle blower for ratting out his tax-evading clients should give each and every one here pause when espousing the benefits of Freegold to their 'friends' and family. Though I believe it is unlikely that confiscation can or will happen, it is better to keep any information about your investment ideas to yourself. It is unfortunate that it must be this way, but such is the state of the US at the moment (and other places are likely no different). If I hadn't lost or given away all my PMs, I would be concerned.

Anonymous said...


Meh... stand strong, forget that bullshit. Better to share and make a future for us all. No fear.

Live and Let Live


I really dig the way you present ideas. Keep rockin' it. Same for the rest of you, and our new friends:) Great conversation.

Michael dV said...

while keeping track of INCOME has become very American, the tracking of non-interest producing assets has not. Even our politicians are asked only how much in VALUE they own within very broad limits. I would be very surprised if they (USG) were to suddenly demand to know how much of a particular asset one owns.
Once again this seems to be 'ant thinking'....we as ants are very concerned about our own little problems but the USG will likely have far greater problems at about the time of HI.
Why do you think they would demand to know who owns gold? Lots of assets pop 10x or even higher. remember NOONE owns gold in this country....except a small group of silly people with very silly beliefs.
I'm with our host on this one. Gold is not a major force in the financial world to most peoples thinking. I suppose things could change if it suddenly becomes a major factor in world commerce but very rapidly the USG will realize they need to mobilize it not drive it into hiding. Even if people know you have 'some gold' do you really think thy would send out the hounds to get your little bit?
If they do it will indeed be a different country...not saying it can't happen but....I do not see it happening that way.

milamber said...


It is so interesting that you include this line in this post,

”So please feel free to share with us your own experiences with the difference between perception and reality.”

I am curious as to why you phrased that question that way?
I don’t think that perception can be compared to reality. Perception is how we view reality. To me it is like saying,

“…share with us your own experiences with the difference between hearing and sound.”

We use our hearing to experience sound. So I am a little confused by the phraseology employed in the question.

Anyhoo, I am in the camp now of thinking that our perception is a lens (the senses; cognition) through which we view an objective (singular) reality.
The following is written making the assumption that we are not picking nits as far as discussing whether or not 2+2 did in fact equal four *before* humans walked the earth to perceive it; let alone had a brain developed enough for abstract mathematical thought.

Here goes….

I think by and large, our perception is influenced by the perspective we have when we view reality. Take the following hypothetical:

Go back in time to November 1st 1952. Imagine two beings. One is an Alien in a spaceship hovering above earth with a clear view of the Pacific Ocean. The other is a human standing on the beach at the Enewetak a toll.
Operation IVY commences with the MIKE Surface detonation of a 10.4 Megaton ThermoNuclear weapon

If you are the alien in the spaceship, you may shake your head as the foolish earthlings experiment with nuclear fusion to perfect killing themselves & you might marvel at the pretty mushroom cloud as you hit the flux capacitor to accelerate to warp speed back to Tatooine.
But if you are the poor schlep on the island your reality will be a little different.

Same bomb. Same physics. And if you could talk to both beings, they would relate two completely different stories about what happened. And both might argue that their reality was the correct one because they saw it with their own two eyes (or in the case of the alien with its tentacle like thingy).

This happens to all of us. Our perspective (no matter how flawed) influences our perception of reality. If we then take action based on that now flawed perception, we pollute someone else’s reality with our garbage thereby impacting reality. So yes, perception sometimes does become reality.
As an example, think about the BILLIONS of people who still view the dollar a long term SoV! When you are running a confidence game perception is reality!

I think the trick is to realize that our perspectives continuously cloud our perceptions and be aware of it. (Ants, meet your Baggage!)

So because I found out my perspective completely clouded my perceptions, I have spent the last 5 years learning how much I don’t know.


Phat Repat said...

Nice song. I'm not fearful just cautious. Human nature being what it is, especially these days, it is just not wise to put ones family at risk while attempting to do the right thing.

When people are willing to crush their fellow man to get the latest techno gadget or toy at Walmart, what makes you think they wouldn't do the same to you?

Robert said...

Michael dV, I am sorry, but I completely disagree with you. The country is becoming mroe and more authoritarian. The USG is very interested in keeping tracking of assets, and the only thing preventing them from doing more to keep track of assets is lack of resources. Consider that they can find out about financial assets held in the U.S. very easily. Consider that you are required to declare more than $10,000 wehenver you cross the border. Consider that you are required to report to the treasury every foreign bank account with more than $10,000. Consider that the USG put enormous pressure on the Swiss to disclose where wealthy Americans were hiding assets. Consider that the US is now deploying a facial recognition system on a nationwide basis. Consider that there is now a huge repository of electronic communications and that we are all under the surveillance of a militarized police state. You ask whether Ithink they will send out the houdns to get my little bit, and I say you are asking the wrong question. They did not send out the hounds in 1933, did they? But they did change the law. Will they change the law in a freegolod environment? I do not know. But I think there is a very good chance they will implement a reporting requirement, whether they enforce it with hounds or not at all. Maybe I am too paranoid?

Jeff said...

Paranoia, the destroyer.

FOFOA: In Freegold, large centralized gold reserves like you'll find in CB vaults will be somewhat superfluous to the real reserves that are in private hands within any currency zone. The total reserves in any currency zone should be viewed as Centralized Reserves + Private Reserves, of which you'll never, ever know the exact count.

This not-knowing will drive Westerner's like you crazy, because they like to know (and have grown used to knowing) exactly who has all the "wealth" (for various and sometimes nefarious reasons) and to obsessively publish those names on fancy lists like those found in Forbes and the World Gold Council. In Freegold you'll know where the real wealth is in the same way we know where black holes are. We cannot see them directly, but we can see the gravitational pull they exert on everything around them, which is how we know they're there. The existence of invisible, privately-owned gold (which often dwarfs official gold) acts in much the same way; with a sort of "gravitational pull."

Texan said...

Frances, most everyone on this blog subscribes to the notion that future stored purchasing power (aka "savings") is radically different from "productive investments".

If I read you correctly, you seem to think that the benefits of savings (preserving purchasing power in as "safe" a manner as possible) would be better obtained via these "investments".

In keeping with the spirit of this post, my observation over the years is that the "perception" of there being readily obtained "productive investments" just over the horizon conflicts with the reality that there is no such thing.

But I would love to be proven wrong. Would you care to share your ideas on these investments? What exactly is a "productive investment" that I could just go out there and invest in? Oil royalties? REITS? Are you talking about rent-seeking investments? Or maybe opening a restaurant with some new concept, so I can grab some market share from existing restaurants (have you ever opened a restaurant!)? Buying farmland and growing canola for use in a biodiesel facility (an idea I love by the way - but it is ridiculously difficult to make it cash flow)? Really, what do you have in mind?

Because while all of the above have their advantages, they all are very difficult to achieve and require lots of personal time to maintain, they carry loads of risk - way more risk even than devaluing "cash", and they don't necessarily even protect purchasing power. Having said that - there is considerable value in owning and operating "productive investments" within one's "portfolio" if one has the means. But for "savings"? Need something else. Gold seems to be working pretty well.

Robert said...

Jeff, I think you completely missed my point. I don't disagree with anything from the FOFOA excerpt that you quoted. Now let me focus on these words from your post: "This not-knowing will drive Westerner's like you crazy...." That is exactly my point, and that is why I say that it is not far fetched at all to suppose that governments may TRY to track these things, at least through official policy. Do they have the resources to really track everything? No. Will they send the hounds out? No. Will people comply with the law? A few perhaps, but most will simply act like the black holes you describe. Will that stop the government from trying? Now that, my friend, is an entirely different question.

Jeff said...


Focusing on what the G might try to do in this area seems like worrying about very small things. They can't track and they won't be bothered to try IMO. Do you realize how many millions of people are out of the financial mainstream entirely?

Woland said...


Can a play be performed before the script is completed?
I think not, Messire.

Turning to other matters, a Mr Ray Dalio, founder of the
world's largest and most successful hedge fund, Bridgewater,
has given a talk at the CFR, which is on You Tube. He has
a number of very sympathetic things to say regarding gold.
Welcome to our camp, Ray! Perhaps you might give Warren
a call?

Jeff said...

For all those who engage a closed mind with the idea of enlightening them, the tweeted truth.

Frances Coppola‏@Frances_Coppola

Good heavens. Idiot FOFOA commenters think that because I've put a few comments on the blog therefore I agree with them. I DON'T.

Jeff said...

FOFOA: I am still conflicted about the concept of promoting my view. Many have offered me the means to drive traffic to my blog in the thousands. But this thought makes me very uncomfortable. I remember that little spark that was first lit deep inside of me, but now with a wider perspective I can see how rare it is that one gets caught up in the hunger for more that I experienced. And it is for this reason that I do not promote my blog. In fact, I never even send people I know to my blog. Not family, not friends, not even my gold dealer friend. He does not know that I am FOFOA. This blog is simply too… what's the word I'm looking for? Abstruse? Esoteric?

I am aware of this, and I am fine with it. I do realize that I am not simply extolling the known virtues of gold repetitively. There are plenty of places on the Internet where you can find that kind of sustenance, if that is your hunger. What I try to do here is to push the envelope of understanding… in plain-spoken English.

JR said...

Too lost in the wonder of movie magic, where these magicians never finish the script until the filming is over.

Anonymous said...

@Jeff (and anyone else who may not know)

You can use the "em" and "strong" tags in your comments like so:

<em>Text to quote or italicize</em>

<strong>Text to quote or make bold</strong>

Doing this will make it easier to see where your commentary is vs. the quotation.

burningfiat said...


Nice FOFOA quote. Here's a 2550 year old story about another dude who also hesitated a long time about sharing his observations, before finally he decided to go forth. So now that we are in the philosophical corner:

The Enlightenment of the Buddha

Siddhartha sat beneath a sacred fig (Ficus religiosa), known ever after as the Bodhi Tree, and settled into meditation.

The work of Siddhartha's mind came to be mythologized as a great battle with Mara, a demon whose name means "destruction' and who represents the passions that snare and delude us. Mara brought vast armies of monsters to attack Siddhartha, who sat still and untouched. Mara's most beautiful daughter tried to seduce Siddhartha, but this effort also failed.

Finally, Mara claimed the seat of enlightenment rightfully belonged to him. Mara's spiritual accomplishments were greater than Siddhartha's, the demon said. Mara's monstrous soldiers cried out together, "I am his witness!" Mara challenged Siddhartha--who will speak for you?

Then Siddhartha reached out his right hand to touch the earth, and the earth itself roared, "I bear you witness!" Mara disappeared. And as the morning star rose in the sky, Siddhartha Gautama realized enlightenment and became a Buddha.

The Teacher

At first, the Buddha was reluctant to teach, because what he had realized could not be communicated in words. Only through discipline and clarity of mind would delusions fall away and the Great Reality could be directly experienced. Listeners without that direct experience would be stuck in conceptualizations and would surely misunderstand everything he said. But compassion persuaded him to make the attempt.

After his enlightenment, he went to the Deer Park in Isipatana, located in what is now the province of Uttar Pradesh, India. There he found the five companions who had abandoned him, and to them he preached his first sermon. This sermon has been preserved as the Dhammacakkappavattana Sutta and centers on the Four Noble Truths. Instead of teaching doctrines about enlightenment, the Buddha chose to prescribe a path of practice through which people can realize enlightenment for themselves.

The Buddha devoted himself to teaching, attracting hundreds of followers. Eventually he became reconciled with his father, King Suddhodana. His wife, the devoted Yasodhara, became a nun and disciple. Rahula, his son, became a novice monk at the age of 7 and spent the rest of his life with his father.

Last Words

The Buddha tirelessly traveled and taught until his death at age 80. His last words to his followers:

"Behold, O monks, this is my last advice to you. All component things in the world are changeable. They are not lasting. Work hard to gain your own salvation."

Tommy2Tone said...
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Tommy2Tone said...
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DP said...


Many thanks for the steer to the Dalio interview - overall, an hour not wasted.


Dante_Eu said...


“It is not a dream, it is a simple feat of scientific electrical engineering, only expensive — blind, faint-hearted, doubting world! . . . Humanity is not yet sufficiently advanced to be willingly led by the discover's keen searching sense. But who knows? Perhaps it is better in this present world of ours that a revolutionary idea or invention instead of being helped and patted, be hampered and ill-treated in its adolescence — by want of means, by selfish interest, pedantry, stupidity and ignorance; that it be attacked and stifled; that it pass through bitter trials and tribulations, through the heartless strife of commercial existence. So do we get our light. So…all that was great in the past was ridiculed, condemned, combated, suppressed — only to emerge all the more powerfully, all the more triumphantly from the struggle.

Said by you know who. :-)

Frances Coppola said...

When you comment on my blog, you are my guest and it is reasonable that I should expect you to be polite. Unfortunatly some of you were not, so I deleted your comments. Equally, I am polite here, as I am a guest. What I say to my followers on twitter is none of your business, frankly. Unfortunately one of you has chosen to cross-post here something I said on twitter, but I am not responsible for that decision. It's not remotely reasonable to accuse me of "hypocrisy" because I expect my guests to be polite but I say what I think to my friends.

However, I do think it was foolish of some people here to assume that just because I've made a few comments here that means I am "on board". I assure you I am not. As I think I've now demonstrated, I "get" what FOFOA is saying. But that doesn't mean I agree with it.

You could do with a few more people on here who disagree with you.

Nickelsaver said...

Dr. Octagon said...

Frances - there are often disagreements here. That's one of the nice things about this blog... it's not just FOFOA posting something followed by everyone nodding their heads. There are frequently disagreements followed by helpful arguments from other long-time posters. I myself have disagreed several times and eventually changed my mind after help understanding from MotleyFool, Aquilus, and others. Hopefully, you were able to see some of that in the many positive responses to you above.

burningfiat said...


You must be aware that a lot of us PGA's/Freegolders follow you on twitter, hence we are also your twitter-folowers...
Your "idiot" comment on twitter came right after "One Bad Adder"'s comment. OBA's comment was respectful to you, while he acknowledged the other posters insightful responses to you. Besides that, expect some flak when criticising one of the sharpest minds commenting on this blog (Sir Topaz goes way back)...
OBA's words: "(welcome aboard Lass ;-)" could be understood in more ways than one you know (see smiley). It is not necessarily a taunt that you are a Freegold convert already. Could it be that he just welcomed you to the board?

My advice, relax the defensive style a bit :) :)


Anonymous said...

Frances said:

"You could do with a few more people on here who disagree with you."

I agree with you here (though I disagree with your positions on the morality of hoarding).

Science/Truth only advances through dissent, not consensus.

It's a shame people with a difference in opinion (sometimes only slight) are often disrespected and many times chased off. In these comments it is often (wrongly) assumed the that only rational explanation for a difference in opinion is that one does not "get it."

Lisa said...


I have followed this blog for over 2 years, but comment rarely. I feel compelled to comment today.

The comments directed to you yesterday were from followers of this blog whom I consider brilliant. You may not realize it, but you were treated with great respect by all of those who directed their remarks to you.

My husband tells me that sometimes I am too sensitive - and that men don't take things as personally as I might. He is probably correct.

Perhaps the men who commented yesterday are not bothered by being called idiots. I however, felt the need today to defend my friends who were so gracious to you in their responses.


Jeff said...

Half-baked collectivist arguments shared by Munger and Izabella K. are not new. Frances probably doesn't even think about why the Mungers of the world say the same thing she does (hint, one of them is exploiting the other). I'm not sure what other commenters see in Frances other than her rudeness, but I'll withhold telling my friends on the blog my full opinion of her.

FOFOA: Over on the other side of the coin we have Mungerian paperbug Capitalist and fair-weather friend to the "goldbugs" (a term with which I cannot identify), Izabella Kaminska [1], who, after "enduring" a few tweets from Freegolds among others, thought she schooled her buggy friends with a two-part series creatively titled, Debunking goldbugs.

I say she's the other side of the coin because Izabella thinks the savers owe it to the debtors to be their direct counterparty and earn some labor-free income via interest which the Marxians call exploitation. And I called her a Mungerian paperbug in honor of Charlie Munger because she sounds just like Munger and the Dingbat from my post A Winner Takes the Gold. Remember that Charlie thinks you’re a jerk if you hoard gold? Well Izabella says you're a selfish, anti-social cheat.

ampmfix said...


Your blog is public, not your private place, since there is no password given to members only. As such, you are insulting in the open. Be careful, had you pointed your ire at a specific real name of an individual, you could be sued for public defamation and libel.

Good luck with that attitude! (and investments...).

Edwardo said...

Frances Coppola wrote:

"It's not remotely reasonable to accuse me of "hypocrisy" because I expect my guests to be polite but I say what I think to my friends.

Oh, I'd say it's more than remotely reasonable since Twitter isn't private. If you truly wanted to be private you'd have used a different medium.

milamber said...

Come on guys, play nice with Frances. Don’t call her blind or dumb like some people do on the interwebs:

Right Frances? :)

She literally doesn’t understand that she doesn’t understand. She should be pitied; not ridiculed.


(oh the irony! Won’t someone please think of the children!)

Michael dV said...

Freegold curses:
Mungerian paperbug

Oh the horror

JMan1959 said...


"It's not remotely reasonable to accuse me of "hypocrisy" because I expect my guests to be polite, but I say what I think to my friends."


1: a person who puts on a false appearance of virtue or religion
2: a person who acts in contradiction to his or her stated beliefs or feelings

Acting all “polite and virtuous” here on the blog, while at the same time on Twitter stereotyping Fofoa bloggers as “idiots” definitely qualifies you under definition number one, above, and maybe even number two. You exposed yourself as a hypocrite, and have nobody to blame but yourself.

transitive verb
1: to lay up a hoard of
2: to keep to oneself

To call those that choose to keep the fruits of one’s labor to themselves jerks is the epitome of collectivist talking points. Say what? I have no right to do what I want with what I have earned? Why don’t you follow it up with, “You didn’t earn that yourself?” People like you just make me snap. I’m glad you’re across the pond so you can’t vote for Frank Marshall Davis in November. I see now you are a singing teacher. I haven’t heard you sing, but from what I have now read of your economic theories, you definitely should stick to teaching singing. I recommend you go over to the “Automatic Earth” blog, there is a good Marxist (oxymoron?) over there who won’t rub you wrong (like all of us idiots).

Motley Fool said...

Michael dv

I lol'ed. :D


Totara said...

Many average Joes of the world live under the perception that their advisers and intermediaries are putting their pension money into productive investments. But what is the reality? Well, some of the most lucrative 'investments' are in the weapons industry. And pension funds have bought up large.

For example, the New York State teachers' retirement system has about $2 billion 'invested' in weapons manufacture through companies such as Lockheed Martin. Many of the victims of those weapons are likely to be civilian children and their families. So there is a large body of people who dedicate their careers to the well-being of children, only to profit off the misery of children to fund their retirement.

I am all for productive investment. But many large fund managers simply refuse to disclose to their customers where they are putting their funds. People need to take more responsibility and learn the reality of what their retirement 'investments' are being used for.

DP said...

Why does he write this stuff? WHAT IS IN IT FOR HIM?

A good question. Perhaps anyone who keeps a blog should have the same question asked of them. It seems clear that for some it is purely for the love of exploring more fully with Friends the subjects of their choosing, while for others it ought to be assumed there must be a more nefarious incentive that keeps them at it.

+1 for "Welcome to the board, Frances." It's abundantly clear that you do not wish to some day wake & discover yourself to be onboard, but that's fine because around here we very much enjoy substantive alternative viewpoints. A very high proportion of commenters here arrive with a firm desire to not be onboard, but instead with a mission in mind to discredit what they found on arrival. Yet here we remain after all this time & much deliberation, Friends together.


DP :-)

byiamBYoung said...

The Francis discussion is certainly interesting, but I'm surprised noone has commented on the Fed action today?

In my [untrained shrimp] opinion, this open-ended printing plan is a quite ominous development, and it has raised my sense of urgency to get on down the road to the All Inn while there's still vacancies.


DP said...

Thought: You were surprised?

Motley Fool said...

thoughts? You were expecting something different in the long run? ;)

Perhaps little comment cause we are not surprised.

JMan1959 said...


"Regarding Project Coppola, close mindedness, hypocrisy, and religion always seem to go together."

C'mon, man. I know she refers to Jesus a lot, so I hope you're not blaming Jesus for Francis, are ya?

byiamBYoung said...


Well, true. It may just be me. I'm sure I'll point excitedly at the hyperinflation bear, too, when he squeezes through the bushes towards us.

Motley Fool said...


I'm not planning to stick around to watch him come. I'm running already.

I don't feel like being mauled first. xD


Pat said...

Frances and FOFOA made nice, and went on a camping trip. Just as they were about to repair to their individual "camps", they heard a rustling sound out in the bushes, with the dreaded HI bear's head poking out at them.
FOFOA calmly began putting his tenny runners on, and Frances shrieked, " You cannot possibly expect to outrun a bear!"
"No indeed Frances" " But I only have to outrun you!"

50sQuiff said...

We have some illustrious company with us, out here on the trail:

50sQuiff ‏@50sQuiff
@JamesGRickards You knocked it outta the park! Out of interest, are you familiar with two great men known as ANOTHER and FOA? #frontlawndump

Jim Rickards ‏@JamesGRickards
@50sQuiff Yes, thanks. I read their stuff. It's quite thoughtful.

"Quite thoughtful" being understatement of the century I think.

Anonymous said...

Perception directly involves foundations of thought. Top-down, bottom-up information processing. I guess perception is skewed when your bases are incorrect/faulty, and only time can prove such things. Time=reality, or affirmation of our perceptions.

Much like certain "experts"(no need to drop any names, haha!)They think they know exactly how it "works" until they don't.. Arrogance and ego, perception and ignorance - created or destroyed by time/reality.

Just like the experts who claim you cannot use Noble Gases to do work - Thermodynamics aside;)

Time will prove all things

burningfiat said...


love of exploration / nefarious incentives?

on board / aboard / .... over board ?

All perception.

+1 for the comfortable perception of #together here at our monitors :-)

JR said...

FOA: Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets…

My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!

Deflation or Hyperinflation?

ampmfix said...

I feel very honored to be here. What a crowd this is. Truly unique.

Jeff said...

Goes with JR's link:

Edwardo said...

I'll tell you what amused me today. That was the commentary of one Karl Denninger, who is alternatively good for a laugh (not with him) or for inducing a gag reflex. Unfortunately, one can never be sure which response a Denninger post will elicit. KD thinks The Fed enacted the latest bond buying program to jolt the stock market higher. That was good for a chuckle. The stock market is nothing now but a volume and liquidity devoid arena for algo driven bots having at it.

It's very simple, if he would just check his doctrinaire deflationist baggage at the door. Buying U.S. sovereign debt, by definition, helps who? That's right. It helps Uncle Sugar. How many times can one look at a fire hydrant and declare its purpose is for watering lawns, or filling the pool, (yes, I know some kids tap into it fire hydrants from time to time during heat waves) or some other purpose other than the obvious one?

Dante_Eu said...


Thank you for that link. First time visitor @ federal reserve homepage. After I clicked on "Economic Research & Data", on the bottom left corner:

"Without doubt, the Federal Reserve's staff is the great strength of this great institution."

Chairman Ben S. Bernanke

Wonder what Gideon Gono says about his staff?

Frances Coppola said...

I commented here originally because a couple of people had put offensive remarks on my blog and I wished to let them know that I was deleting their remarks, in order to give them the opportunity to re-post. On reading the comments on this forum it became apparent that one or two other people had also been making fun of me here - comments like "not seeing the forest for the trees". However, I let those pass and continued a dialogue even when my my remarks were described, inter alia, as "nonsense" and "poorly thought-out". One Bad Adder's comment that "Newbie Frances" needed to be "put right" I found patronising, frankly, though it was no doubt well-intended. I stopped engaging at that point.

It is fair to say that many people on here have continued to be polite and respectful even after my unguarded remark on twitter. However, there are some who have been extremely offensive. I have been described as blind, dumb, closed-minded, hypocritical and unthinking. Some people have made jokes at my expense; others have claimed I'm a complete ignoramus; and someone even accused me of saying something I didn't. I've never called anyone a jerk.

I tried to engage with you people. I wanted to show that I could contribute to the debate while disagreeing with you about aspects of FOFOA's thinking. Sadly this does not appear to be the case. "Project Coppola" was evidently all about converting me to your cause, and when I indicated (admittedly less than politely) that I am by no means converted, some of you went for the jugular. I'm wasting my time here, frankly: you are not interested in open debate, you are only interested in convincing me of the rightness of your cause and some of you retreat all too easily into ad hominem attack and insult.

A few specific comments:

ampmfix: I did not insult anyone on my blog. On the contrary, people from this forum insulted me.

Lisa: I respect your remarks, and I admire your loyalty to people in this forum. However, you are clearly unaware of the fact that I only commented on here originally because of the unpleasant remarks made on my blog. I'm not sure why I should be regarded as "oversensitive" when I have been called a fool, unable to think clearly and lacking self-awareness.

JR said...

Bernanke: No Specific Target for Bond Purchases

The Federal Reserve does not have a specific economic target for its new stimulus program, Ben Bernanke said Thursday. He said the Fed will keep buying bonds until it sees more jobs, lower unemployment and stronger growth.

"We are looking for on-going sustained improvement in the labor market," Bernanke said during a news conference after the Fed announced a series of bold stimulus measures to get the economy moving. "There's not a specific number in mind. But what we've seen in the last six months isn't it."

The Fed said it would spend $40 billion a month to buy mortgage bonds for as long as it deems necessary to make home buying more affordable. It also extended a plan to keep short-term interest rates at record lows through mid-2015 — six months longer than previously planned. And the Fed said that it is ready to try other measures if hiring doesn't improve.

The FED will not stop buying up debt until they meet their mandate of "full employment." Quite a task!!

JR said...

No full employment mandate for the ECB - that link to the nation-state is severed.

Here is FOFOA on the differences between the FED and the ECB from Synthesis:

let's take a look at a few more differences between the ECB and the Fed. I am not passing moral judgement on either institution, only practical judgement on their policies, foundational architecture and underlying monetary theory.

First we should start with their most basic motivation, their mandates. The Fed has two conflicting mandates legislated by Congress. The ECB only has one. The Fed's two mandates are price stability and full employment. The ECB's only mandate is price stability. A third, unofficial and unspoken mandate of the Fed is to guarantee the funding of the US Treasury to pay for its ever-growing deficit, but we'll leave that one alone for the moment.

Price stability is a monetary mandate requiring a strong, stable currency. Full employment is an economic mandate, and a poor one at that. According to the Fed's prevailing economic theory this mandate requires a weak currency. These are conflicting mandates, leaving the Fed to walk the proverbial tightrope.

But as it turns out, the ECB's one mandate is the one that is good for the savers and the capital accumulators. Which surprisingly enough is what will ultimately make for a strong economy. Mandating your money printer to create a strong economy through "full employment" is akin to taking anabolic steroids for a healthy, long life. Whereas focusing solely on keeping inflation under 2% builds the kind of confidence that draws in capital investment and ultimately creates a healthier economy, socialist politicians and taxes notwithstanding.

Okay, moving on. I'm just going to list out a bunch of differences here including the ones already mentioned:

1. ECB severed the monetary link to gold. FED keeps gold a $42 prisoner.

2. ECB is independent of the state. FED is lapdog of the state.

3. ECB eliminated "exorbitant privilege". FED delivers "exorbitant privilege" on a regular basis.

4. ECB has one clear mandate. FED has two conflicting mandates.

5. ECB supports orthodox solutions to states in crisis. FED supports unorthodox (QE) solutions.

6. ECB is more democratic through its multi-polar membership. FED is more plutocratic.

7. ECB is more transparent with predictable policies. FED is opaque with unilateral surprises.

8. ECB is defensive in its protection of euro stability. FED is offensive against competition through collusion with its primary banks.

9. ECB allows healthy competition with its currency through the MTM freegold concept. FED stifles competition to hide its weaknesses.

10. ECB gives gold its own accounting line. FED obfuscates, lining Gold/SDR together.

11. ECB zone encourages gold sales to public with 0% sales tax. FED zone discourages gold sales.

12. ECB architecture is inspiring changes in other CBs and monetary unions. FED is not so inspiring.

Each one of these twelve differences is probably worthy of its own post from a Freegold perspective. But the point I am trying to make here is that the ECB has created a new product for Europe. It is 10 years old now. The FED's product, the dollar, and its offspring the $IMFS is now 97 years old. The ECB's innovative creation was the result of lessons learned living under the $IMFS for more than half a century. And the point is summed up most eloquently in Another's own words, written before the euro was even introduced:

"In the very same mindset that people buy the best value for the lowest price (Japanese cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal."

ampmfix said...
This comment has been removed by the author.
Michael H said...

Per this ZH article

the fed will be expanding its balance sheet by $85 bil each month in 2013, barring any additional "easing".

That makes for about $1 tril / year of monetization, which is about 25% of government expenses.

According to Peter Berhnolz, monetization above 40% of government expenditures is a sure-fire predictor of hyperinflation.

Frances Coppola said...

ampmfix: I made that comment on twitter, not on my blog. I have not insulted anyone on my blog - but two people insulted me, long before my careless twitter remark.

Anonymous said...


I'm sorry if I offended you with my comments. Just callin' it as I see it. Shame you didn't come here under different circumstances, though. I believe we all have a lot to learn from each other, potentially.

Supa Scoopa & Mighty Scoop

Frances Coppola said...


I watched the Bernanke press conference. He specifically said that purchases could NOT continue until full employment was reached, but refused to commit to any particular target for either unemployment or inflation. Muddied waters, really.

Bernanke also admitted that the Fed lacked the tools to deal with the hike in unemployment that the fiscal cliff would be likely to cause if Congress doesn't take steps to reduce its impact. He said this several times during the press conference.

Texan said...

Oh JR please. Money printing is money printing.


Did I miss any?


You think the ECB gives a toss about "price stability" when faced with an existential crisis for the eurozone? LOL

ampmfix said...

ok, ok, it was careless, we all say stupid things sometime or another, as I said before, good luck, (we had another lalala person here but he left...)

Cheer up!, gold is going to the moon!!

JR said...

Yes Texan,

Maintaining price stability = the existential crisis for the eurozone. Its why they are OTMing.

Texan said...

Sigh. Ok JR. If price stability means keeping asset values inflated after a massive decade long credit expansion, then yes, you are right.

JR said...

Yes Texan, price stability means preventing massive deflation.

JR said...


You note:

I commented here originally because a couple of people had put offensive remarks on my blog and I wished to let them know that I was deleting their remarks, in order to give them the opportunity to re-post.

But you first commented here at 11:28AM on 9/10.

The offensive comments to your blog came the next day:

1st comment:

Anonymous has left a new comment on the post "The golden calf":

People read FOFOA because he is an extremely incisive (and thorough and patient) thinker and writer. I would guess that most of his readers found his blog the same way he found it: by searching for answers and direction to the changing structure and dangerous instability of the world financial system. It is one thing to attempt to see and describe the world as it is, and quite another to see and describe the world as you wish it to be. You seemingly lack the ability to think clearly in certain areas because your values and moral sensibilities cloud your reason. That's OK; most of us have the same problem in one area or another. But some people also lack the self-awareness of which areas they are most unable to think clearly. Unfortunately, the intersection of macroeconomics, government, and charity appears to be one such area for you.

Posted by Anonymous to Coppola Comment at 11 September 2012 00:33


Frances' warning she thereafter deleted:

Frances Coppola has left a new comment on the post "The golden calf":

We all have our blind spots - including, it seems, you. Have you never thought to question the motivation of the friendly "anonymous blogger" who promotes gold so heavily?

I do not accept ad hominem attacks on this blog. Describing me as "lacking the ability to think clearly" and "lacking self-awareness" does not engage with the issues but instead attacks my personal capability. If you have constructive comments regarding the issues I raise on this blog, by all means comment, but I will delete anything that is a personal attack on me or anyone else. You have been warned.

Posted by Frances Coppola to Coppola Comment at 11 September 2012 20:24


2nd comment:

Anonymous has left a new comment on the post "The golden calf":

Don't you people see? This woman is a fool (not stupid). With all this talk of the immorality of hoarding she sounds exactly like those in charge in every previous hyperinflationary episode who rant and rave about economic morality while passing draconian and confiscatory financial laws which ignore natural laws and destroy respect for all law while the people starve and starve and starve.

Posted by Anonymous to Coppola Comment at 11 September 2012 01:52

Frances Coppola said...


My apologies, I had indeed commented earlier after I followed the link through from your cross-posting of my Draghi blog and saw Gunnar's question, which was one I could answer.

However, it does not invalidate my comment that two people were really quite offensive to me on my blog, for no reason other than that they didn't like what I had said. You have now retrieved the comments I deleted and posted them here. As I'm sure you realise, I originally intended to leave the comments in with a warning, but changed my mind and decided to delete them instead and leave a comment here inviting polite re-posting.

You will note that the kind of comments posted to my blog have also been repeated in this forum. If this is how people in this forum treat people who disagree with them, it's no wonder that you don't have many dissenting voices here. As athrone noted earlier on, you chase them away.

milamber said...

On September 13, 2012 3:06 PM Frances Coppola in a time warp wrote,

“...I did not insult anyone on my blog. “

On 3 August 2012 01:05 Frances Coppola (or maybe her evil twin?) wrote (among other things)

…” Surely you've worked out how FOFOA benefits from people like you buying gold? If you haven't, you either aren't very bright or you are blinded by your loyalty. He doesn't need to trade with you in order to benefit from your gold purchases. What happens to the gold price when lots of people buy gold, duh? And what happens to dollars? Look at the Gold Backwardation post again and consider how it is that FOFOA understands the motivation of Goldman Sachs so well. I wouldn't trust anything he says, quite frankly. He's laughing all the way to the bank.”

Yup. No insults from Frances at all.

Of course, no real effort expended to understand Freegold theory either.


Frances Coppola said...


Yes, a nice partial quote of the exchange between us which led to me becoming quite irritated by your interrogation of me and your refusal to accept my explanation that my post was not intended to be a critique of FOFOA.

You SHOULD question FOFOA's motivation.

Pat said...


Dissenting voices don't get chased away here, but opinions like " For all practical purposes there is no difference between savings and investments." are unemotionally evicerated for the clap-trap they obviously are. Sorry.

If you must leave us,

byiamBYoung said...


As an outside observer, I think the discussion is sliding downhill into an "I'm rubber, you're glue" kind of playground argument.

I'd be quite interested in hearing more of your thoughts on the strengths and weaknesses of the ideas discussed here. I'd be particularly interested in any holes you can poke in the concept of the inevitability of freegold. If you can bring solid arguments to debunk the concept, I for one, would pay keen attention.

I'm less interested in whose feathers are more ruffled, or why.


byiamBYoung said...


Frances Coppola said...


You were one of the people who made jokes at my expense, weren't you? I suppose you thought that was funny.

Describing my comments as "clap-trap" doesn't advance the debate. If you think they are wrong, please explain why.

Jeff said...

FOFOA's motivation? He isn't selling gold, financial advisory services, a subscription, advertisements, or anything else as far as I know. His readers don't have to donate a dime if they don't want to. If you have insight into his motivation, then bring it, Frances. Put your cards on the table.

Frances, you have a blog; what's your motivation?

FOFOA: What I offer here on this blog is a view, backed up by premises and interpretations, sculpted into a framework of understanding, challenged and tested through repetitive application.

Mine is not "expert knowledge" like these two gentlemen. Instead, it is a simple understanding that I have gained from ANOTHER... day someone posted an excerpt of ANOTHER (THOUGHTS!) on the GIM forum with a link to the archives. It was a strange quote, but something in it caught my attention like a beacon as bright as the sun, so I clicked on the link. And for the next two months I stopped reading everything else I'd been reading while I worked my way through maybe a thousand-pages-worth of USAGOLD archives. Then I went back and read it again.

In August of 2008, while still digesting it all, I wanted to talk to someone about the most amazing and mind-blowing ideas I had ever encountered. The markets were teetering on the precipice of an abyss, Hank Paulson had his new "bazooka", and all I wanted was to talk to someone about Freegold. So four years ago today, I started this blog.

Four years, 370 posts, 37,000 comments and millions of hits later and we're still talking. All I can really say is THANK YOU to everyone who showed up to chat! Well, almost everyone. ;D Those of you who have been here any length of time know that I certainly attract my fair share of detractors. And I do realize that the subjects I write about are controversial. It's not easy to encounter a foolproof argument for something you never even considered before.

It's not easy because it runs counter to all the baggage you've picked up elsewhere. I've seen the baggage, so I know what it looks like. There are myriad morality plays based on a poor understanding of money, and wonderful stories of monetary and financial intrigue, depraved intent and consummate, destructive comeuppance all over the internet. But the truth, as it is revealed first logically and then empirically, is so much more remarkable, so utterly amazing, a beacon as bright as the sun.

These are not my foolproof arguments. I take no credit for them. They come from ANOTHER and FOA and I simply distill and extrapolate from their posts because they are no longer doing it themselves. My blog is a tribute to them. If you believe the arguments are not so foolproof, then by all means, bring it! I have never shied away from a worthy debate, but I do tend to ignore tired old arguments which I already dealt with so as not to waste any more precious time.

Pat said...

For brevity's sake, as the statement was addressed in great detail multiple times earlier in the thread, the Reader's Digest version:
- Investment is putting one's capital at risk in order to gain more capital. Capital "moves"
- Savings is deferring near-term consumption for a later time, ideally with no or minimal risk. Capital "lies still".

Jeff said...

I'd say FOFOA's silence means you haven't brought up an interesting or original argument. I know I haven't seen one from you. Your collectivist arguments were discussed in A Winner Takes the Gold and Yo Warren B, you are so OG, as well as the Debtors and Savers, to name a few.

Anonymous said...

Frances sez...

You will note that the kind of comments posted to my blog have also been repeated in this forum. If this is how people in this forum treat people who disagree with them, it's no wonder that you don't have many dissenting voices here. As athrone noted earlier on, you chase them away.

Unfortunately there is some truth to this, and I am guilty of it myself.

However, the vast majority of people who come here making critiques haven't even read but one or two posts, and then come out with something like "hey you guys should really buy silver!" Then when someone posts a link or a quote which (whether or not one agrees with it) fully addresses the point made by the poster, instead of rebutting or otherwise acknowledging the material in the quote to further the discussion, they keep on parroting the same thing.

Then when the rational people with open minds who disagree actually read and understand the material, all of a sudden they're not dissenters anymore. Now we've lost our dissenters (DAMMIT!)

You SHOULD question FOFOA's motivation.

Hm... what perchance could be FOFOA's REAL motivation? ::ponders::

Aha! Clearly this blog is part of a plan to manipulate the world gold market and deprive local businesses of investment capital! I can't believe I fell for it >_<

milamber said...


I edited to condense the back & forth.

Believe it or not, people here are smart enough to click the links to go read your insults, I mean your "reasoned analysis", in its entirety.

If they want to learn your "take" on Freegold theory as presented by our guru, I mean leader, er uhm resident Yeti, the illustrious FOFOA, what better way than to go to your blog where you don't allow insults (except of course the ones you give out).


Frances Coppola said...


Yes, of course. My position is really that I don't accept the inevitability of hyperinflationary destruction of the US dollar - and that seems to be regarded as the inevitable precursor to freegold. I have no objection to gold as the international reserve asset, and I can see the value of separating store of value from medium of exchange. It's the transition that I think is misunderstood.

Cullen Roche's work on hyperinflations is instructive. Like FOFOA, he notes that the money printing stage of hyperinflation is the END game, not the primary cause. But he disagrees that the US shows any of the primary indicators of approaching hyperinflation to any great extent.

I've also myself done quite a bit of investigation into hyperinflationary episodes - which are far more common than I think people realise - and my own view is similar to Roche's. Hyperinflation is always associated with severe economic shock (perhaps war), severe political instability and catastrophic production collapse, and nearly always with very high foreign debts (in Weimar this took the form of reparations). I could foresee a situation in which some of these MIGHT become true for the US, but we certainly aren't there yet. We may criticise the inactivity of Congress and their unsafe reliance on the Fed to manage the economy all by itself, but the US economy is not (yet) being mismanaged in the way that say Zimbabwe was.

If I were to say which countries I think are most at risk of hyperinflation at the moment, it would be Hungary, and - if it leaves the Euro, which is looking increasingly likely - Greece. Oh, and Argentina (again). Previous hyperinflationary episodes are an indicator of vulnerability: all three of these have experienced hyperinflation within living memory. The US has not. I'm not suggesting that makes it impossible - after all, there had not been a housing market collapse in living memory in the US until 2007 - but it does make it more unlikely.

I also doubt that the Eurozone will remain in its present form. My Draghi post, some of which is cross-posted further up these comments, made the point that the ECB has now established its right to do whatever it thinks necessary to preserve the Euro without political interference. But that doesn't mean the underlying political structure is sustainable. I'm not sure if the Euro itself will survive - in theory it could unless ALL the countries in the Eurozone abandon it - but I can't see it remaining as the national currency for all of the present 17 members. And the transition of the Euro to whatever it will be in the future is in my view a far closer and more certain "transition phase" than FOFOA's US hyperinflation - and equally disastrous for the economies involved. China is particularly at risk because it is heavily exposed to the Eurozone.

I'm sure lots of people will tear this apart. Let battle commence.

Michael H said...

Uncle costata questioning FOFOA's motives:

Let's be realistic. FOFOA could be blogging from a cave in Pakistan with Osama Bin Laden leaning over his shoulder saying: "Yes Akmed, use Exter's pyramid to lure the infidels to their golden doom."

Eternal vigilance.

Frances Coppola said...


Let's stop this, please. Swapping insults does no-one any favours.

As you say, people are quite smart enough to go read your interrogation of me and my responses to you. Indeed some of my replies to you are already posted further up this comments stream.

Frances Coppola said...


Strictly, saving is any form of deferred consumption. The question is how that deferred consumption is used. If it is used in such a way that it is intended to generate a return, then it is investment. Savings, as you say, simply "sit still": they do not decay or depreciate, but they don't increase in value either. In the Parable of the Talents two of the Talent holders invested and the third saved (he buried the Talent in the ground).

The problem is that the vast majority of people expect to see a positive return on their savings, even those that they don't wish to put at risk. Also, whatever form your saving takes, there is always some risk of loss. You may CHOOSE to take risk in the hope of gaining a positive return, or you may put your savings into some form you regard as safe and then suffer passive losses when the value of that medium falls. Or, in the case of physical gold, when it is stolen.

Hence my comment that FOR ALL PRACTICAL PURPOSES there is no difference between savings and investments. You missed the significance of my qualifier, it seems.

Aaron said...

Wecome Frances!

My position is really that I don't accept the inevitability of hyperinflationary destruction of the US dollar - and that seems to be regarded as the inevitable precursor to freegold.

As I often like to point out, Freegold and hyperinflation are two distinct events. One is not dependent upon the other. Hyperinflation is definitely not the inevitable precursor to Freegold.

byiamBYoung said...


Thank you. I will read Cullen Roches piece you linked. I understand, though, as FOFOA points out, that money printing is not the cause of HI, but a residual effect of HI. So, on that point, we are in agreement.

I also would agree that Zimbabwe did not manage their economy as well as the US to date, although I'm not sure the US ran away with that win.

Two quite salient drivers of the US toward HI in my [quite undeveloped shrimpish understanding] are: 1.the increasing number of foreign markets that are striking side agreements with other countries to cut the dollar out of their transactions; and 2. The very recent Federal Reserve action to essentially commit to printing dollars with no pause in sight.

Why would these not be giant warning signs that the USD pony ride is about to hit some really, really hard speed bumps?


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