Friday, October 5, 2012

Debriefed #3 – Aquilus

I realize that these interviews come as a shock to some of you, especially those who might be asked to go next! And also to a few of you who apparently enjoyed your imaginary perception of me. So I'd like to apologize if my reality invaded your unique perception with anything less than fulfilling. Don't worry, the effect of the shock wears off over time—usually after about 48 hours.

Also, I'd like to give a shout out to those who called me fat and bald! I'm not quite as fat as I look in these videos. I'm 6'2" and 215 lbs., so I could certainly lose some, especially around my midsection and my face. Apparently this tiny camera on my new $450 HP notebook does my amazing stature and good looks no justice.

I'm also not quite as bald as I come across. My overhead light apparently renders my forward tuft of hair invisible. But no worries.
I just fired my lighting director.

But enough about me. I'd now like to introduce you to Aquilus, who, IMO, looks like a handsome, young Liam Neeson:

Up next… ??? But I will say that I have only asked a few of you, and so far most have said yes! I have seven more who have agreed to do interviews, and then three who said maybe down the road. And for two of those, the reason was that they don't currently have the equipment required to do a video call.



Anonymous said...

This is really getting fun! Thanks Aquilus and thanks FOFOA. Excellent de-brief.

It occurred to me when FOFOA asked what post was a favorite that I wanted to include a very important post but in the heat of battle it didn't make it into my debrief. It's the Flow Stupid is a huge favorite. Read it again today and it just gets better every time I read it.

Can't wait to see who is next!

M said...

@ anand srivastava

FOFOA stated that the Yuan is credit money. I understand it enough to know its true but I cant explain it the way it was explained before.

@ Victor The Cleaner

You said- "Probably a budget surplus, i.e. more tax (and royalty!) revenue than public expenditures. I think that usually the sov' wealth funds manage assets of their treasury departments (i.e. accumulated budget surpluses). They are not on the balance sheets of the central banks, and I haven't seen any CB yet who invests in equity, private equity, real estate, etc. (although that would be possible)."

To use China as a simple example. Their FOREX reserves and sovereign wealth funds do not arise come from surplus taxes although some SWF's do. They arise from the excess purchasing power they keep by deciding to price the Yuan low relative to the USD(relative to everything) Same goes for allot of other countries I presume.

From Wikipedia
Most SWFs are funded by foreign exchange assets.[1]

FOFOA said...

Hello M,

In the last thread you wrote:

"@ FOFOA..

My search ain't working. I'm not as good at it as JR.

At some point it was mentioned that the Chinese Yuan is credit money because of the relationship it has with the USD. Is this true ?

If so, does double entry accounting not play a roll in this ?"

All money is credit when properly defined. "Credit" is the one word which most closely resembles FOA's pure concept of money.

I don't think I wrote what you're looking for. Could it have been someone else? But in 2009, in Bondage or Freegold, I did make a diagram of the flow of dollars through the PBoC and back to the USG.

In terms of distinguishing base money from credit money, of course the yuan has its base. Notes, coins and liabilities of the central bank are all part of the Chinese monetary base.

I suspect that your beef with "double entry accounting" is really just a beef with the BOP accounting method or, more specifically, the national accounts: the current account and the capital account.

There is nothing wrong with double entry accounting. Any form of accounting is merely a lens through which we can see what's actually happening. It's not a cause or active participant, but merely a reflection. And we adopt generally accepted accounting principles to make comparisons more meaningful.

I think Costata shares your beef with the national accounts. This was one of our disagreements. I think he thinks that the way the national accounts are recorded actually causes imbalances to expand in unnecessary ways. I disagree. And I think the best way to see that it is not the accounting method which is causing the imbalances to grow uncontrollably is to imagine what the present accounting method would look like in Freegold.

That's what Macrofreegold'nomics was about. So maybe you could take another look at that post.


Michael dV said...
Bobby T finally gettin his due at ZH!!!

M said...

@ FOFOA, Thanks for the reply.

I found what I was looking for in that link. It was this. I am going to bullet point it here but I could ask through email if that works better. Im in no hurry either..

From Macrofreegold'nomics:

"Inorganic paper savings" would be like the PBoC purchasing US Treasuries by printing yuan. "But wait" you say, "the PBoC purchases Treasuries with US dollars it received through trade." This is true, but it also printed yuan in exchange for those dollars regardless of your perspective on the mechanism driving that transaction."

^I took that to mean Yuan is credit money or savings derived from double entry accounting. Inorganic savings

"You see, if the Chinese exporter had bought those Treasuries for his own savings, no yuan would have been printed. That would have been "organic paper saving". But by exchanging printed yuan for the dollars the PBoC is making those savings "inorganic" and at the same time it is managing the exchange rate of its currency.

^Does that not mean, (especially the managing of the exchange rate part) that the PBoC can/is stealing wealth from the Chinese exporter via double entry accounting because they are giving him less then what the American importer really paid ?

Maybe not the double entry accounting part but the fact that they are using 2 different currencies makes it possible for the PBoC to keep wealth. If the US importer and the Chinese exporter were using the same currency, it would not be possible for the PBRC to do this. ??

RJPadavona said...


"God knows I've done Marx"........that's what she said!!!!!

Seriously though, that was a great interview. Your knowledge of economics really shows. You speak on it as if you were discussing the weather with someone. Like second nature.

IMO, your first hand knowledge of HI and how humans react during that time period has been and still is a very important contribution to this blog. Explaining how people "just want to buy their bread" and that they don't want to be worried about pricing goods in something new should really make things click for folks who watch this interview. #Regression101.
I'm glad to hear others are on board with the interviews. This is truly a groundbreaking concept. After all, how many Econ bloggers are interviewing their followers? But should we be surprised by anything less from a true pioneer like FOFOA? He's been behind a lot of "firsts" so it only makes sense he'd come up with this trailblazing idea as well.

Anonymous said...

Reposted from bottom of previous thread:-

Wow! Wow!! WOW!!! Absolutely brilliant FOFOA. Just when you think “Surely he can’t top his previous greatest hits . . . . sure enough, you go out and do just that”.

(And thanks to MS,RJP and Aq for going first. I can’t wait for all the others hopefully soon to come).

Recently I proposed this tribute:-
FOFOA has explained where we are going. Now everyone needs to know who he is and where he has come from . . .

Thanks for sharing who you are FOFOA, but now I want to know more about “where you have come from”. To this day I cannot accept that you are just a regular guy, with no advanced academic background and/or experience in high-finance, who just happened to stumble upon something in the USAGold archives. I am a devout rationalist, but if that is how it really played out, then I would have to admit there might be something of divine intervention involved . . .

So I nominate you FOFOA as one of the next interviewees. (Perhaps Michael Kosares or Ari would agree to be the interviewer – now that would be interesting would’nt it??) But if that is too much to ask, then please add Woland and MF to the list (as interviewees).

By the way - my wife just recently coined a new verb in the English language “to Fofoa”, as in “Surely you’re not going to sit inside and Fofoa all afternoon . . . “ and I can assure everyone it is pronounced foh-foh-ah.

JulesFlying said...
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JulesFlying said...
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Michael dV said...

so funny...I get the same thing...late in the evening when folks are tired and the topic turns to the CFG I! no more fofoa! But I go on because it is for their own good...and really they love it because they hear truth.

Nickelsaver said...


I've enjoyed watching all three of you chat with our mentor. How did it feel? Were you nervous? I know I would be.

RJP, I have a question about that toilet paper trick? Was that 2-ply? And if so, did you separate it into 2 pieces or just consider it windfall profit?

Michael dV said...

The ZH article on Triffin got a lot of attention and many replies from familiar names. Fofoa got some 'respect' and Triffin did too. Surely the Triffin dilemma is a cornerstone of understanding the GFC. I really cannot think of a more singularly important concept in the understanding of freegold. Obviously coming to see why the MoE and the SoV must be different is central but can one really understand if one does not have the real world example of the way Triffin and his paradox have worked?
Also I am finally seeing why the survival of the Euro is not essential but rather just a first example of a currency using gold marked to market.

Dante_Eu said...

Nice debrifings FOFOA.

We now know where we have been and where all the donations are going. Candy and stuff like that. :-)

Just joking, we know for a fact that a webcam puts on couple of kilos.

We ants like to look up to the people that we admire. Also, little bit of mysticism is always good. I imagined you like Darth Vader with really deeeeeeeep voice. Ok, not that deep, but you get my picture. can I explain it?...maybe, something like this?:
(*Pay attention to the dates mentioned) :-)

Seinfeld - The Library Cop

Also, because you have international followers, you should use metric system! 6'2", how tall is that? 2 meters and 20 centimeters? Have no clue whatsoever...

Keep it on\Dante

PS Nice to see that RJPadavona and I share the same haircut.

Pete T said...

What was there to be surprised by? Your appalling taste in music (videos) gave the greatest clues as to your probable appearance. (Before anyone gets all PC on me.. you all know it's a reliable enough guide)

Just as well then that we're here NOT for the music, nor to catch a glimpse of an Erroll Flynn lookalikie, but to share in the thinking of one of the great disseminators of Another and FOA's genius. Your setting their work into the current 'cultural' and economic context is, in my view an unparalleled and outstanding contribution.

Cool cat.

RariNantes said...

@ Michael_dV:

"Also I am finally seeing why the survival of the Euro is not essential but rather just a first example of a currency using gold marked to market. "

congratulations ;-)

RN (european)

RariNantes said...

"Great minds discuss ideas, average minds discuss events, small minds discuss people."

must say I'm really enjoying this gathering of a lot of great minds, even though we're exploring now a 'little' sidekick discussing debriefing people as well ;-)

Looking forward to the next interview!

Winters said...

"Your appalling taste in music (videos) gave the greatest clues as to your probable appearance"

lol - actually I did ponder music selection as a clue to carbon dating FOFOA since my tastes are frozen in time from uni days but I found FOFOA's range too diverse pin it down.

good interview Aquilus. and while we are talking about pronounciations is it only me who has pronounced it in my head as a-quil-us not a-keel-us?

On the topic of hyperinflation you mentioned some goods dropped in price. Was this because people were selling whatever non essential goods they could to put food on the table? Gonzalo Lira describes this kind of thing in his description of the Chilean hyperinflation.

Anonymous said...


Tu esti "October surprise" pentru noi!!!

Ma bucur grozav sa aud ca mai sint si alti romani la FOFOA!

Am fost in vara asta in RO si am fost in stare de soc cind am constatat ca romani nu sint interesati de tema aur. Le-am predicat, i-am trimis la FOFOA, dar ecoul a fost zero.
Daca ai vrea si ne-am putea coordina o venire in Romania in2013 m-as bucura teribil sa ne cunoastem.

Cheers to you and FOFOA, the Great Master!

The Dork of Cork said...

I remember having some weird conversations with eastern European people back in 2003~

We had a huge amount of bank credit capital exported to this island that was wasted on Grot and stuff ......the labour followed this capital back and forth all over the Euro disaster zone.

I don't want to sterotype peoples both as indivduals & groups but.....

What was amazing about these exchanges is that most with the exception of those people from the Czech republic were sort of like Reagan democrats ,useful idiots.
They came from the stone washed jeans / pepsi generation....they truely did believe in the Bull.

Jeff said...

Hi DoC,

Funny to see you here. From your post on ZH:

"Walking into the FOFOA site is like walking into some weird Baptist congregation

There is very little critical thought.......

Its different from the MMT crew who appear more then slightly autistic......

But they are all useful the FOFOA crowds case they are consumed by Greed and cannot think clearly."

Good thing you don't want to stereotype people, DoC. Then you close with this capper:

"But none of this will happen - we will have 200 years of chaos like the last time........"

Hopefully not, because some people (rather smarter than you) have created a system to hopefully survive the transition from the dollar. Maybe you will 'get it' after the fact, but I rather doubt it. There's not much critical thinking going on with you.

Cheers, boyo.


It's a slang Cork pronoun. Cork is a place in Ireland where they all talk incomprehensibly, and anyone from the rest of the country just nods, smiles and backs away.

"A'right boyo, didja see the langer o'er there like?"

Terry said...

Even though I don't fit in with the average FOFOA follower (enormously smart), I am an avid follower of this blog. Like Aquilus, I ran across Magombo Guru on The Silver Bear Cafe, then the Bear put up one of FOFOA's posts and I have read everything I could on this blog. My perspective is different from most who post here, in that I have been in business since the early seventies, and have wondered why it was so difficult to accumulate savings. Now that I am retired, I found that info here, on FOFOA. Thanks to all, especially Mr FOFOA.

The Dork of Cork said...

Never said I was not a Dumb Hick.....
Sometimes I like to keep it simple as well I am simple.

Never a fan of the $ as a world reserve but I am in favour of political republics of the old Roman school....
Which makes me a greenbacker withen defined political borders.
I make make no apologies for that.
I like to think I have some understanding of the history of Ireland ,Scotland & Corsica - both units small enough to examine in a almost scientific manner.....
Yee guys are making a pact with the Devil....don't get consumed by the precious

Jeff said...

Being a dumb hick is nothing to be proud of, and the Roman republic ended a couple thousand years ago; it's not coming back. Your anti-government pipe dreams are popular with ZH's 'cult of the self' crowd, but they aren't reality.

I'm a baptist and you are clueless. I'd rather be baptist.

The Dork of Cork said...

Nothing good will come from this.....
The same crew tried to make the nation state of bank debt control in the 1600s.
Both Gaelic and Norman lords fought this darkness and lost.
Much of what is happening now is a repeat of those times.

They simply cleared the land for sheep despite the fact it was less productive (cattle had a better return)
Why ?
Much of the resourses went into human Labour rather then profit.
They cleared the land of people to get a higher yield , destroying the culture and landscape for mammon.

KindofBlue said...

Aquilus/FOFOA et al

Early in the interview Aquilus mentions his good education as his father came from the 'upper class' of Romanian Communist life. FULL STOP. Anyone else catch the irony there? Aquilus 'gets' it! And it seems to come intuitively from hard earned real life experience. The hard money socialists miss this last nuance; that people are not quite so enamored with the beautiful fit of the cast-iron suit (gold exchange standard) that is being fashioned for them.

The point is driven home when Aquilus adds "People just wanna buy their bread."

Great job!

The Dork of Cork said...

The Euro is a creature of the City of London.

First it destroyed the UK Boffin culture of the 60s &70s via the IMF and the Jenkins wing of the Labour party and now it has destroyed Europe.

Try to get your head around a banking system that uses a "sov" currency and its close presence to Euro Vassal states.
These dynamics change everything.....
You must export goods that would have a overcapacity in a rational trade system (think German car focus)
Thus in a depression when nobody really needs a car your mercantile country will suffer most.

The Euro and the "Big Bang" of 1986 are handmaidens....this is when the UK went into chronic current account deficits only stopped for a short time by the first EMU crisis of the early 1990s.

After the Big bang the credit banks could run oil through countries such as Ireland and Spain and get a yield off the waste production.

Now that oil is scarce they must drive these countries into current account surplus (energy surplus really) so that the financial centres in New York , London and Frankfurt can remain in Deficit.
The Euro is a tool for this extraction process.

The real goods trade deficit (inc oil) of the UK was a record £100 billion in 2011.
Trade of goods balance : – 88,505m
Trade of oil Balance : – 11,509m

Is Europe a victim of unsustainable international trade /energy connections which reduces rational internal / national demand and rational investment ?

If you compare this to the year 2000 in the UK (really London as londons local hinterland is stripped clean already)
Trade of goods balance : -39,512 m

Trade of oil balance :+6,536m (peak)

And Y1991

Trade of goods balance : -11,497m
Trade of oil balance : + 1,274m

And Q2 2012
UK Q2 period in its balance of trade and current account figures.

Current account Net

Trade in Goods : £ -28.1 Billion ( largest deficit ever recorded)
Trade in Services : £+ 17.9
Income : £ -5.2 Billion (largest deficit ever recorded)
Transfers : £ -5.5 Billion

Current balance £ -20.8 Billion (largest deficit ever recorded)

Notice the negative yield income.....which means they must drive us into current account surplus by whatever means.
Ireland posted a record 3 Billion + euro current account surplus in Q2 and even Greece posted a current account surplus in July.

Now some of the deficit is works of Art , precious stones and even silver with appeared on the top 30 goods imported and exported for the first time in a long time but the net trade balance from these goods is merely a negative of a few Billion.
(Gold is top secret of course)
However the total trade of silver , works or Art and Precious stones is approx half of the UKs Motor trade now.

Woland said...

A: I used to believe that correlation implies causality.
B: Oh?
A: Then I took a course in statistics. Now I don't.
B: I guess that course in statistics really helped.
A: Well, maybe........

ChrisF said...

Re: Aquilus nice story of the local bakers using $ as a Unit of Account with all the transactions being done in the local MoE referencing the daily exchange rate to the 'stable' UoA.
This implies that the bakers effectively ran their books in $, and thus $ was a SoV at that time.

This is like Freegold where Gold is the SoV and globally people transact in their local MoE. For global businesses Gold would quickly become the effective and stable UoA.

So, under Freegold, Gold forward or futures markets will be in demand to mitigate MoE risk on the balance sheet now denominated in Gold (ounces?).

Question. Under Freegold only physical transactions involving Gold are apparently allowed
so how can I hedge my many various MoE risks against Gold, which is my stable UoA? To put the question another way, how will it be possible to avoid or ban futures/option/CDS markets in Gold
under Freegold where there is legitimate hedging demand?

Please could someone point me in the right direction. Thanks.

Indenture said...

"Think of everybody being the most efficient. They just want to get their stuff done. They don't want to be bothered with crazy things like inventing something new. They just want to buy their bread." Aquilus

Jeff said...


FOA: One of the major problems faced by past hard money planners was that any time real wealth, gold, is denominated as credit money, it always placed the relationship between the rule of law and the rule of gold at odds. If our laws defined gold as official money, and lent it, then by association the law had to define a portion of gold that did not exist in circulation. That portion was the contract asset held as bank savings. Yet, a person's claims against it identified said gold as real. This was and is an inherent contradiction because no law can define the value of real wealth held in contract.

This particular fiat form of hard money owed its existence upon a continuous function of the economy. What the above means is that you cannot take something real and lend it over and over, as banks do when lending fiat, and still demand that the law recognize said contract moneys as hard legal tender.

I would state that no form of lent gold be recognizable or enforceable in the court of law as a legal tender contract. One may borrow gold, relend it, or even borrow against it, but that gold would not be valid in the payment of all debts both public or private. It could not, by law be legal tender. This is not to say the trading of gold would not somewhat supplant currency in function. It could and most likely would to a degree, but it would no longer carry a credit quality that fiat would in the form of a time function. Indeed, in our modern economic structure, a credit time function is very valuable and gives digital contract currencies their demand.

To deal in the future,,,,, to borrow,,,,, to capitalize would require the use of a fiat function. Gold could / would be a final trade; I'll give you ten cars (or gold) for your house,,, deal done. If I want more time to pay, I and we must engage a fiat loan."

ChrisF said...


Thanks. I have seen the FOA stuff before...

You + I agree that I buy your house in Dec. for 100 oz. Gold. I am then 'short' Dec. Gold and 'long' a Dec. house. We have just done a forward involving Gold where I am short (heaven forbid!) and there is no fiat involved.

I remain unsure how this Freegold, physical only system, can actually work.

Jeff said...

Wouldn't it be easier to transact in fiat? How do you hedge your risk if we use currency? I assume if you are buying a house for cash, you have to move the currency from some other investment?

DP said...

Where today is the place where people are transacting in gold or silver, enabling the rest of us to tee off their prices in our own markets if/when our currencies fail?

ChrisF said...


Sure we can deal in fiat, but you wanted 100 oz. of
Gold in Dec. not fiat. What rate (say) Drachma/oz.
shall we use now for settlement Dec.?
We both need a forward market in fiat/Gold to do the deal. We are both not speculating, just trying to do a deal.
Thus, IMHO, we need futures markets in Freegold.

Hobgoblin said...

Thank you for doing this FOFOA and the gang. You have put a human face (and element) on what might be considered by some to be a dry topic. I very much enjoyed the debriefs thus far and look forward to more!
I just found this site of late and and very glad I did. You have converted me from a silver bug although, given our silver stock, I think I will play the GSR as long as it holds. :)
Thanks again!

julian said...

this is great

many thanks fofoa and others

milamber said...

And for those that are new to this blog, if you are wondering if GBI is "now" getting Freegold, they are not.


"The point is that the A/FOA/FOFOA view leads to one conclusion. You want to own actual physical pieces of gold, preferably stored outside of the banking system. You don't want to own shares in a pool of gold, or shares in a bar. If you've got enough for 100 ounces, you don't want to buy a quarter share of a 400 ounce bar. You either want your own 100 ounce bar or, preferably, 100 one-ounce bullion coins. It's a pretty simply conclusion, but it makes answering the questions above kinda difficult.

On July 2nd, Joe Yasinski sent me his second donation. I thanked him by email and he wrote back:

No, thank you.

I am in the process of walking away from being a successful cog in the Wall Street Machine to join a new gold company involving some big names as well as partners at some major wall street powerhouses. If it weren’t for the hours I’ve poured over your writings there is no way I would be on the precipice of this awesome opportunity. I must have spent well over 100 hours reading your stuff over the past few years and it’s been quite a ride. Thank you! I am walking away from selling one manufactured wall street product after another to help build something I truly believe in. Something that will help people through what’s coming. It’s an enormous, exciting undertaking and the reading on your site has played a not insignificant part.

Warmest Regards,

Joe Yasinski

I thought that was pretty neat. Well, Joe sent me another donation for my blog birthday on Tuesday and included this note:

I’m finally starting work at the gold company in two weeks, and I owe a great deal of this decision to your writings. Thank you!


So I asked him about the new company (emphasis mine):

It's, or GBI.

It is essentially an open architecture platform that allows people in the financial community to buy individually allocated gold in the form of their choice, stored at the facility of their choice (NY, London, Zurich or Salt Lake City), deliverable at the time of their choosing. All independent of the financial system. Trades are executed on a best price basis, and can be processed at up to 30,000 trades a minute. In reality, it’s the world's first physical metal electronic exchange.

We've already had one major national firm sign up and we’re currently working on bringing on more. Bullion sales through our platform have been growing every month and August was almost a double from July, it’s really exciting.

I believe this is the next step, allowing retail brokerages to buy gold for their clients, real gold, not paper gold. My hope is to take billions of physical off the market in the coming years.

I’m very excited about this opportunity to grow a firm for a cause I have a deep conviction in, thanks in large part to you.

I could chat about this all day, so if you have any questions, by all means, fire away."


J said...

Has anyone purchased through GBI and feel like sharing their thoughts? How was the process? Are you satisfied so far?

I see that Singapore is listed on one page of their website but not on others. Lacking updates on the website maybe?

steerpike said...


This is how I understand it,please correct if I'm wrong.

If the deal between buyer and seller in january is 100 ounces the deal will always still be 100 ounces
at the time of the actual exchange in december.

In december the buyer first sells his gold for fiat of his monetary area,wires it to seller who exchanges this foreign fiat into his own fiat and the buys the gold with it.

Regardless of how the currencies are managed by their respective CB's(tightly,loosely)
he should end up with 100 ounces,providing for fees and commissions I suppose.

After all it's gold pricing fiat not the other way round.

make sense?

Pete T said...

Re GBI, ZH's goldenboy comments:

"Absolutely! Just always under your own lock and key. NEVER in yet another company's vault, under their lock and key (regardless of what fraudulent claims their website and brochures make). For when Physical Gold's inevitable revaluation makes it's true worth known beyond BIS walls and into public market space, I challenge any of you to get those company shitbags to cough up a single ounce to those foolish enough to have bought their lying sales-patter. You truly expect those corporate twats to hand over an asset that will, in hair-scorchingly short order, have undergone a 4000% ish appreciation in public value? Yeah, right! Many criminals legitimize their immorality and thefts by pinning all blame on the stupidity of thier victims.

Just be smart. Don't entrust a single gram of your Phys Gold to anyone else, least of all these vampiric companies. Seen who heads GBI? You'll never guess where he learned his trade.. yes, of course, GS!

Ok, Hermes has left the building..."

Indenture said...

Mogambo Guru

Woland said...

If you go to "GBI - About -Our Team" - take a look at both
the Principals, AND the Advisory Board. I LIKE what I see
in the second category. In the 1st........ well, I'd like to know
more about how this group came together, motivation etc.
For those who want to hold some of their bullion outside U.S.
jurisdiction, it's one alternative. Thanks, Milamber.

Anand Srivastava said...


That story by poopyjim tells you that Silver is in a bubble now. That would mean that it is high time to get out of silver now. That is the concept of the Shoeshine boy.

Regarding Silver:

To me the most important point against silver is the huge weight of it. When you are considering physical storage, weight is a big detriment. Everything else being equal the heavier (for the same value), loses. Gold is 50 times lighter. That is a big deal.

A consequence of the weight is that any entity with huge wealth will not invest in silver, it will only hold gold. This includes CBs and people like Rothschild.

The second and probably as important is the fact that it is not an industrial metal, and consequently the price can be arbitrary.

A consequence of the second point is that Gold has a much higher capability of acting as a reserve for the world, and can be as costly as it is required to monetize the whole world.

Another consequence is that people use gold only for its monetary purpose, and will sell it only if they need the money possibly to speculate (or invest). The very high stock to flow ratio is a direct consequence. Even if the price of gold went 100x it will not increase the flow of gold in weight terms, it will only increase it in monetary terms.

The fact that CBs hold Gold is a consequence of the above two facts.

Silver will definitely not do bad. But we are at the juncture of a monetary transition. Silver is not a monetary metal at this point. It is an industrial metal. I would invest in silver if I found that there is a potential for a major industrial use coming up.

But now at the juncture of monetary transition where gold will replace dollar as the reserve, you want to hold gold as it is going to appreciate due to the new role. Silver will not.

After the transition yes you can trade into silver. But not before the transition.


If you are waiting for 20:1 for trading into gold, you might lose the potential of gold, because this ratio might not occur at all. IMHO you are being penny wise and pound foolish, literally.

I luckily had no baggage. I knew nothing about economics or saving before I stumbled upon FOFOA (within a couple of months of getting interested in the US HI).

I did buy a bit of silver in the beginning of my learning, but it is less than 1:1 by weight of my gold stash :-). I hope it will be useful during the crisis, but the more I understand it, the more negative feelings I get. Silver normally gives bigger swings than gold. So when gold drops, silver is going to drop much more. So it would probably be less worth than gold even during the crisis. But I keep it as a (low probability) hedge :-).

Anand Srivastava said...

This series has been very good. Its great to be able to put faces to people. I did have trouble understanding RJP :-(. A very different accent than what I am used to :-). I have only read the Southern dialect, and I have trouble even reading it. Aquilus was very easy to understand. Could also be because of the headphone.

FOFOA: It might be a good idea to use the headphone. Then the phone ring would not distract :-).

Anand Srivastava said...


You are wanting futures because you think that will give you stable gold prices. But stable gold prices is not what freegold is about. They are contradictory positions.

Also futures are required only when something is not yet available. Gold is always available. Its just that the price point does not entice people to dishoard. Gold futures is basically paper gold.

If you want to buy a house, which the seller says that he will give you for 100oz, and you want to take a loan for that. You can do so, get the loan enough that the own will be able to buy the 100oz and pay him.

If you want to buy a house 1 year later, because you will be able to collect enough money and the owner wants to sell it for 100oz. Buy the gold now, and accumulate till it is 100oz.

Can you describe a scenario, where you absolutely need futures?

ChrisF said...


I was trying in the 2 examples above to illustrate the possible need for forward markets in the various fiat MoEs versus Gold under Freegold.
1/...where a global business needs to hedge anticipated future MoE income streams in Gold
2/...where two people do a deal for future settlement involving Gold with payment in fiat.

Only physical transactions are apparently envisaged in Gold under Freegold in order to avoid manipulation (like present?!).
Thus there is a potential dilemma that needs to be addressed IMHO.

ChrisF said...

anand srivastava,

My company shareholders insist we run our books in Gold, the stable SoV, and not in any of the various MoEs. We will receive a huge payment in MoE in 6 months time. In order to mitigate risk I need to buy forward Gold against this MoE now on
margin, thus locking in today's forward price.
This sort of hedging goes on all the time today.
I believe there will be a big demand for hedging involving Gold under a Freegold future and the subject needs to be seriously addressed.

Motley Fool said...


Do you take into account inflation in your own medium of exchange in your accounting today?


JR said...

Yes ChrisF,

The paper gold market is the hedge that has kept the dollar alive well past it's expiration! But that won't continue ad infinitum:

During Bretton Woods, foreigners held "good as gold" dollars, "the hard currency", as a hedge against their local currency risks. But once those paper gold derivatives we like to call FRNs grew too numerous, all bets were canceled, conversion denied, and those who still held the paper lost out in the immediate devaluation. The same thing happened 38 years earlier... and the same thing is happening 38 years later!

In the 1970's the liberated physical gold market proved to be an excellent hedge against both currency and default risk. Then in the 1980's we were treated to an amazing growth spurt in electronic exchange traded futures and new global exchanges trading these derivative hedges, ultimately netting more than 90 different futures and futures options exchanges worldwide.

In the early 90's, the dollar saw its match as the Euro was taking shape. To counter this threat it promoted derivative hedges as a way of insuring dollar dominance. These hedges, including gold derivatives, only served to leverage the entire dollar system beyond its ability to serve as a real fiat money system. The whole dollar landscape become just a trading asset arena, evolving away from any meaningful currency use to trade for real goods. It can head in no other direction now because our local economy, the US economic base, cannot possibly service even a tiny fraction of the purchasing power currently held in dollars worldwide.

JR said...

Hi Woland,

I sorta thinks its one in the same. Some ideas:

Think about this. The hedges are now guiding the markets. What do you think will happen when they all of a sudden fail to function? The financial world today turns on dollar assets that are all hedged, not just pure bare holdings! Block the hedge markets from performing and the dollar itself is unseated.

Today's Fed policy of saving Wall Street at all costs is in direct opposition to the risk transferring dynamic of derivatives that has kept the dollar alive. Contradictory forces! Of course the alternative would have been almost as devastating, but that's the problem with Catch-22's.

The dollar's structural support system, its very skeleton, its integrated hedging operation has failed. It is no longer a matter of time, it is only a matter of recognition.


FOA: What doesn't seem to be obvious is the "why for" the paper market grew so large. It grew to dominate because world wide dollar expansion reached its "non hedged" peak. In other words, the dollar's timeline was ending as its ability to produce non price inflationary economic gains came into sight.

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work, these items don't need to really perform "dollar price movements" in the holders favor as much as they need to be present in the portfolio to act as insurance stickers. In that truth, these paper gold positions act like FDIC insurance at our banks.


FOA: The record of derivative evolution meshes seamlessly with the recent need for supportive dollar currency measures; a strategy of maintaining a failing system that was ending earlier than expected. Truly, in 1990 no one was going to carry the dollar any further, waiting on the endless delays of Euro creation, without some way to hedge risk. We had hit the end of the dollar's timeline too early; we had missed the mark.

The US could not physically save the dollar then, neither with gold backing nor the production and sale of real goods. The only answer was to let the dollar kill itself while you create an illusion of risk dispersion in the form of derivative protection; a form of backing if you will. With this "illusion of risk dispersion" in hand, called a derivative hedge, the world currency system and its denominated assets, continued on. This "just in time risk management" was and is adopted into every present day currency that carried the dollar as reserve backing.

It's no wonder that Alan Greenspan has commented so often on the need to control derivatives yet has no workable plan to counter their function. Truly this dynamic was created to counter his function and few can understand this! In effect, the dollar was placed on a one way street that required it to be inflated into infinity. All as a means of protecting dollar originators; the US banking system. Dollar leverage, that is actually US liabilities, is now built up endlessly. This all points to a nonstop, end time need for an uncontrollable inflationary expansion by our fed.


The dollar's structural support system, its very skeleton, its integrated hedging operation has failed. It is no longer a matter of time, it is only a matter of recognition.

JR said...

That discussion with Woland about this idea of dollar hedging and derivative failure was here -

Anand Srivastava said...


This use case doesn't make any sense to me.

You are not going to do anything with the gold. You can do this now, because the market exists. But it doesn't help the economy in anyway. Its not really desirable for the economy.

I think the govt in the future will not allow futures, because it depresses the price of gold. In RPG that will make your currency less valuable. It does the same now as well, but the incentives are wrong. Everybody wants to be able to export while earning useless dollars. In the future govts will want to get gold. For that purpose a strong currency will be helpful.

The above makes sense to me in some ways. I can think of arguments to the contrary as well(using unemployment), so its not crystal clear.

Anand Srivastava said...

Ok thinking more. I realized that the paper gold market works for a very short time. And then it again becomes a liability, after you have pushed the gold price down some notches. So then the govt will have to abolish it. This doesn't work well for the long term.

Anyway in the beginning people will not use paper gold at all because they got burnt in the recent past. But over time it may be created, but the govt will have to kill it sooner or later when the currency becomes too weak, because you will be losing real physical gold, due to the low price of gold.

So I think it makes sense that paper gold will not be accepted by the govt in RPG.

JR said...

The government won't ban paper gold, nothing like that is needed. It is more Gs won't be able to make there paper good as gold.

If somebody defaults on a paper gold contract, they have defaulted on a legal contract and the remedy is legal. So you go to Government via your court and the Court can give you money damages, but they can't order payment of gold (largely because the whole gold stars idea of paper as good as gold is on its last legs and Freegold essentially ushers it out the window).

The contract is denominated in local currency, not gold. That's basically all you need

JR said...

I hate mobiles - gold stars = gold standard

ChrisF said...

Motley Fool,

"Do you take into account inflation in your own medium of exchange in your accounting today?"

I guess not, but I think about it all the time so that I can change strategy if necessary. After all MoE inflation is the reason I am a gold bug in the first place!

Warren said...

Hi! First post here.

I have an intense interest in banking issues specifically free banking and competition among currency issuers.

Has this blog covered this issue or is that outside the scope of what FOFOA is trying to do here? I did search and didn't find anything but maybe my search terms were wrong.

Note: I'm in favor of people holding onto whatever they may think will be valuable in a hyper-inflationary scenario and gold should be in the top slot.

Aquilus said...

1 of 4


Could I please have you revisit the premises with me? It starts here:

"This implies that the bakers effectively ran their books in $, and thus $ was a SoV at that time.

This is like Freegold where Gold is the SoV and globally people transact in their local MoE. For global businesses Gold would quickly become the effective and stable UoA."

I understand how because at that time the dollar was Unit of Account (UoA) and also a store of value (SoV) one could through direct correspondence deduce that Gold will fill those roles in American hyper-inflation (HI) and after that in Freegold.

Unfortunately, that direct correspondence does not exist, and from that premise all else goes off on a tangent. Let me explain:

Gold is not now, and will not in the future, be currency. It will continue to be an asset. Yes, it will be a very liquid asset and the focal point of savings outside of currency, but as an asset, there really is no pricing and/or accounting done in it.

Just as an example of the above, using gold to denominate your P/L statement, or your business contract would be just like denominating your P/L today in ounces of gold, Rembrandt paintings, or acres of farmland. It does not work that way. The only time you do it that way is if you return to hard money - not the case.


Aquilus said...

2 of 4
During the noticeable part of the american hyper-inflation, as soon as the dollar is proven not to work as UoA any longer (because of rapid and erratic loss of purchasing power) the UoA that corporations and individuals will adopt will be the most stable and most widely used currency out there that has 2 major qualities:

1. Stability (a little inflation is ok, but it has to be predictable and small)

2. Must price the all traded items and the price must be readily accesible from the US and continuous (therefore it must have volume).

Now, that does not imply that the currency described above will be used as MoE (medium of exchange) inside the US. Just like in other countries' hyperinflations, the FX market will still exist to provide the exchange rate between the USD and this currency.

Now we all know from many discussions here that the currency that best fits that UoE role will be the euro based on it's structure. I will not list the reasons why here as they are an integral part of this blog.


Aquilus said...

3 of 4

After hyperinflation ends, let's assume we have freegold in the US and RoW (Rest of the World). There will be a new dollar at an unknown now ratio of N old dollars to 1 new dollar.

As we are in freegold, USA must manage its currency responsibly again.

Therefore all contracts can be denominated again (as today) in USD. If USD not managed right, that's ok, go back to euro as UoA until US learns its lesson.

Now just as today, you will have thriving futures markets for all industrial comodities (oil, gasoline, aluminum, silver, etc) to be able to hedge the price of inputs during your contract.

But gold is different. Just like today you don't measure the profit of a contract in how many Ferrari Testarosas it will buy you, or how many ounces of gold it will buy you, neither will you in the future.

Rather what you do today and will do the same in the future is account for your profit in the UoA (USD or euro), and once you have the profit, either re-invest it, or look for a place to save it such that it keeps its purchasing power.

THIS IS WHERE THE DIFFERENCE COMES IN: Today, the safe asset OUTSIDE OF CURRENCIES would be Treasuries, other bonds , TIPS, etc to preserve that purchasing power, but not gold because it is perceived as risky (for good reason with the volatility that the paper market and derivatives introduce).

But in freegold, that would be the goto asset OUTSIDE OF CURRENCIES, will be gold. But gold is used only to preserve the purchasing power of your profits, no more no less. It's simply a transformation of currency to asset until it's needed again. You don't buy x ounces of gold, you convert x USD to however much weight of gold it can buy that day. That's how gold works.


Aquilus said...

4 of 4

One last thing. Could one index long-term contract prices to gold? Yes, one could if both parties agree (doubtful), but payment cannot be in gold, nor can accounting be done in gold (profit can be though of in gold in the mind of the CEO/CFO though). So if one party agrees to pay the equivalent of 0.x oz of gold in currency at the time of delivery, that's fine - and you don't need a hedge.

Again hedges are for industrial things used for preserving the profit margin so inputs don't increase when you quote a fixed price. Hedges will preserve your currency profit margin, not purchasing power of that profit margin.

If you want to have a constant profit measured IN GOLD it will be on you to either guess the rate of inflation of the UoE or agree to gold indexing of prices.

So in conclusion, gold is and will remain an asset, not a currency. There will be no direct prices in gold unless hard money returns. Under freegold, the only thing that gold prices directly will be the currency through the physical purchase price of the day. That's it. From there you can calculate everything else in gold if YOU want to, but that's YOUR choice. Everyone else will use currency prices.

Hope that gives you a different perspective about how things work under freegold. Pretty similar actually, yet different in the end.

Aquilus said...

I'll try to go in order of the comments with my answers from here:

@MatrixSentry glad you enjoyed it

@RJPadavona Haha, let's hope she's not old enough to know Marx that way ;)

As far as HI, if there is something to remember is that we humans will always take an existing thing that works (existing readily available, stable currency price somewhere)over inventing something from scratch (like prices for all tradable goods in gold, silver, etc).

Plus, add to that trying to have your average grocery clerk correctly price cereal in silver for you and in copper for the next guy. It's not how it goes. The store will post a price in one, (maybe 2) MoE that are easy to recognize. It will be your job to produce that MoE if you want the cereal.

Aquilus said...

@fonoah: My first reaction was: no way am I putting my face out there so everyone knows what I'm up to. But, on second thought (just minutes later), I really liked the idea of showing the path that took me and others to this site, and why it's not dogma, but constant hard thinking and re-assessing my perspective that makes me come here.

Aquilus said...



I've enjoyed watching all three of you chat with our mentor. How did it feel? Were you nervous? I know I would be."

Nervous? Not really. Curious? Yes! And what you see is part of a 35 min interview (that was supposed to be a pre-interview initially) and that was part of a 2 hour conversation overall.

Aquilus said...

" is it only me who has pronounced it in my head as a-quil-us not a-keel-us?"

Nope! I actually pronounce it "a-quil-us" in my own head. But who is going to argue the finer points of pronunciation for a language that has not been in public use for 1700 years?

"On the topic of hyperinflation you mentioned some goods dropped in price. Was this because people were selling whatever non essential goods they could to put food on the table? Gonzalo Lira describes this kind of thing in his description of the Chilean hyperinflation."

Imagine active hyper-inflation today. People's
salaries (unless they are paid by Gov)do not keep up with inflation if at all. The only place to obtain this currency is either to be paid in it from some Gov person that's paid in it. Or from a Gov contract. Either way, not feasible for most people.

So then, since people need currency to buy the essentials, and salary does not provide enough, what do they do?

They sell non-essential assets first. And what are they for most people? Well, electronics, furniture, musical instruments, etc.

And what happens to prices when the market is flooded with iPads, iPhones, etc so people can obtain the MoE to buy essentials?

Right, in the local MoE they still go up, but in and external stable currency, they would drop like a rock as everyone is trying to dump them.

And depending on how long HI lasts, after non-essential assets come, semi-essentials like cars, second homes, primary residences, etc.

Of course if you have assets (not gold, but liquid assets that are still in demand like say silver or a few euros) meant to be used in this period and have already stocked up on some essentials, you're sitting pretty.

And you will find incredible deals in this period, you just need the right medium.

JoyOfLearning said...

Great to see another ex-romanian around the community. It helps a lot to have some real life and a family memories as to some of the consequences of economic/political actions. Often when we're talking different things over with my wife about future plans it helps us to remember personal or more likely the experiences of various family members from back home.

It's sad though to have moved away from that country only to see western countries heading in the same directions with similar policies, rules and regulations, and more dangerously public opinion always for more government action and more help/guarantees/printing/political promises. I wanna hope that things will be different this time around, yet when I see some of the present attitudes even here in Germany... well, it scares me, and since I'm quite fascinated with monetary history I'm sure very afraid this time may not be all that different when politicians promise so much, so many guarantees for people's moneys, so many public projects, so many government decisions as to which industries should be promoted and which not, which energy sources should get subsidies and which not... and of course the many subsidies going in opposite directions as is always the case... I sure do hope the euro will be able to stick to it's ECB mandate...

You know, recently there have been a lot of interesting articles on the internet as to the source of inflation, some taking it back to monetary, others to political choices, others saying it's a question of resources while still others saying it's a question of geopolitics... my personal opinion is a little bit different: I think inflation is simply the attempt of a government to maintain it's previous standard of living. So it doesn't matter if the lowering comes from external or internal source, but a government is composed of many thousands and maybe millions of people employed, and just like an individual who's been used to live "on a big foot" as the romanian phrase goes, he at first tries to borrow money to maintain the previous standards... all made easier by the fact that governments with their own currency don't have to borrow, they can print without having to shame themselves in front of others. The problem is that as a world debt clock google quickly shows pretty much all countries today seem to be in debt, and one has to wonder what will happen when all those countries get rid of it. I mean one would expect some to be without debt, and some with... but as far as I can tell the only difference is that are in debt and others are seeeeeriously in debt.

SO, in ending: mindblowing finally seeing you Fofoa! I hope it won't endanger your safety (I think you once said not even friends & family know). It's great to see/hear people from the community (especially looking forward to hearing from Blondie). Looking forward to your next long article. Now that so much theory has been layed down, I'm hoping to see that mixed with a projection/interpretation of current events with all we have learned so far... for which I thank you and Another/Foa again! You've opened so many eyes, and I'm again amazed how similar the stories of many of us are as to how we learned about stuff... I can only hope it's a systemic signal, just like in physics & mathematics at certain moments in history many people discovered the same things simultaneously at different corners of the earth and coming from different angles.

Thank you!

And Y said...

Aquilus is quite giggly.

Aquilus said...

@thedeadfauvi Better "October surprise" than October Horse eh? Didn't FOFOA call this "The year of the surprise" after all?

If you or anyone would like to contact me outside of the comments here I just set up a moderated blog at Contact Aquilus where you can post a comment with your info for me.

The comments are moderated and I will not publish any of them.(Nor will there be an active blog site there)

ChrisF said...


Thanks for your detailed interesting comments to me.
JR @ 2:18 above has actually answered my big concern by suggesting that Governments will not ban futures/option markets for MoEs/Gold in the Freegold scenario. Just that any remedy will be in the MoE and not in Gold should a contract default. That is fine. Thanks JR and others for chiming in.

Aquilus said...

@Dork of Cork

Hahaha, you managed to insult in one fell swoop over 100 million people!

Has it ever occurred to you that those few guys had no experience in a capitalist economy, and more than that, were eager to learn from a West they still trusted for the most part?

And do you really think that the Eastern European elites believed the same claptrap?

No use really starting a pissing contest, it was just an awesome insult. Congratulations!

Aquilus said...

@KindofBlue (7:30AM comment)

Yes, society always stratifies. I mean, just look at Cuba and North Korea today. And the elites never believe the propaganda they spew. And for that matter, neither do the masses when it goes overboard. Call it the end of "credibility inflation" ;)

It's only about social justice and equality in speeches, it's always about you, your family, whatever you call your little "tribe" and doing the best for them.

Everyone uses the most efficient means to obtain those goals at the level they are at. Therefore you get: "People just wanna buy their bread."

Aquilus said...


Yup, thanks, that's the Mogambo Guru all right!

Still just as funny today as he was back then. And still advocating gold, silver and oil together.

Aquilus said...

@JoyOfLearning (3:17pm comment)

If you look at what the ECB is doing is taking control of the banking system away from the state regulators in order to prevent the use of those banks to monetize future deficits through bond purchases.

But if you notice, a political union is still quite far. Therefore if one removes ability to deficit spend from politicians, the only thing left to them is to pass all sorts of re-distribution laws inside their borders.

And how long will those laws last? Let's look at France in a year, assuming their tax system passes, shall we?

Now, after reading this blog, do you see how it is in the interest of the giants and the elites to stop defending an overstretched $IMFS and rather safely carry their wealth safely into the next monetary system?

How else could the ECB do what it's doing to day without active support from those quarters? Without support, a way would have been found to reshuffle the ECB board and make them act like the Fed. But it has not happened...

Do you think they (giants + elites) care that socialism dies in this monetary system change? I think they care that society continues without major upheaval, and if entitlements go, so what? If you speak of Romania, look at what happened to pensions there after HI! They only have maybe 15-20% of their previous purchasing power. Why not do this in the US and wherever else is needed. I can hear the line now: "No one could have predicted this crisis. Our hands are tied now; there is not enough money to increase entitlements again"

Same old song, different time and place...

Enough for me for a while, I have become a spammer today.

Aquilus said...

Can't resist, one more:

@And_Y "Aquilus is quite giggly."

Yes, that, and someone get that man a fixed chair so he does not wobble the whole interview :)

JR said...


In a sense, your business assumes currency risk by accepting payment in credit in lieu of demanding final payment in gold.

The dollar in effect does this to everyone. Think about the Saudis/oil in the 70s. They were important enough that they got paid in gold through off market deals. But firths lesser folks, that's sorta what the paper gold market offers - a paper hedge that looks good on paper and provides some nominal cover on the balance sheet (like an FDIC sticker). But we know all those paper gold holders can't get paid, the BIS has and likely will make sure the big, important one's are paid to some degree but most won't get paid.

So do we go back to hard money, no credit and payment in gold. A reversion back to Bartertownesque awfulness?

That's no good for anybody - businesses or the Gs that skim from the businnesses' flow.

So there is a need to provide a hedge to currency risk if you are going to extend credit and assume currency risk. And Gs want that hedge to exist, to be a real option because that's what gets people using/trusting the MoE. And a G needs the MoE activity to tax.

So that's a lot of the motivation for Gs to want to establish/support/facilitate a liguor market in physical, as that hedge, that escape valve option is what gives the currency value to those whose opinions matter most - those who you offer the currency to in exchange for real goods and services from the physical plane - usable wealth in FOFOA parlance. That's enough of a ramble from me tonight, but off the top of my head check out FOFOA's 2012 posts the Gold Must Flow and maybe Glimpsing the Hereafter for more along these lines.

Anonymous said...

Great to see the man behind the insightful comments. I can see the Liam Neeson resemblance for sure. Keep up the great work here, Aquilus, you're one of the many that make this place very special.

I find it pretty damn cool that a number of you write in English so well when it's not your first(and only)language. Impressive and inspiring!


Pete T said...

Unbelievable that anyone could still be labouring under the illusion that any institution/company vaulted Gold will -at those most critical times- find its way into investors/owners' hands. People just can not afford to be so stubbornly blind to the way corporations behave and defraud... MFGlobal, PFG, GS, etc... The number of lawsuits against major banks is is mind-boggling- Citi, BofA, etc etc. The examples are daily, endless, in your face, brazen criminality, digital currency units vaporizing, rehypothecated ad infinitum PMs gone astray... One would need to be a fool to observe all this and fail to learn the stark lesson. I don't care what their website and company policy fraudulent claims promise.. they won't keep to those 'guarantees'... they never do. Don't fall for their lies. Don't be so stupid. Learn from what you are seeing before your eyes. FFS!
Oh, don't take my nobody's word for it! What did Another have to say on this matter? ... There will be NO honour....go look it up, can't recall the precise phrase. But Another was clearly spot on... it's a habit he has!

Wendy said...

FOFOA, thank you, I'm really enjoying the interviews. Aquilus I appreciate your your experienced comments regarding HI. Those of us who have resided only in North America have difficulty with the concept of HI. Your remarks have helped me with a better understanding.

RJPadavona said...

Hey NS,

Sorry for the delay in response. Saturday is a busy day in the vanity biz so I was tireder than a boomtown whore when I got home today. I had to take a nap and recharge.

No, I wasn't nervous at all. First of all, remember I was the guinea pig, so FOFOA and I had been skyping for a couple days already before I did the actual interview. He had to do screen and sound tests to make sure his recording software was working properly. So, I was pretty used to the whole thing by the time we got around to doing the interview.

Plus, what I do for a living requires me to have one-on-one conversations with new people on a regular basis, so I'm used to that sorta thing.

As you can attest since we've had private conversations together, I'm not one to talk about very serious subject matter. Well, the same goes for my conversations with FOFOA. Rarely do we ever have conversations about gold or markets. We're usually just shootin' the shit when we talk, so I already had a pretty friendly relationship with our favorite yeti. I've never asked him this, but I assume that's why he likes me. Because talking to me is like taking a break from the hustle and bustle of his normal routine. Kinda like taking a few minutes out of your day to stop by the barber shop, sit down in a comfortable chair and chew the fat with some guy you trust enough to put sharp objects near your head and neck ;)

I'm not as smart as a lot of the guys who comment on this blog and most of my questions are answered here on these pages. That's probably why I don't comment or debate all that often on the blog. Plus, barbers are great diplomats and mediators because we have to listen to all sorts of opinions everyday and if you wanna stay in business you learn to just sit back and listen to people's rants and say nothing. Even when you don't agree.

So, I know my limitations, and I'm quite happy with my role around here as "the town barber". Anytime someone wants to take a load off and shoot the shit and hear some funny stories from someone who also knows a little about freegold, they come see me.

As to your other question, yes, if times get real hard, separate the two-ply toilet paper and you'll have twice as many single squares to wipe away the remains of the day :)


RJPadavona said...

And one more thing I'd like to add, especially for those who are planning to be debriefed: It's easy to think that someone whose writing is as profound and powerful as FOFOA's, that he'd be an intimidating figure. This is not the case at all. He's one of the most personable and friendly people I've met. He'll instantly make you feel at ease. Remember, he's not a high profile CBer from the BIS or a mega-rich Texas oilman. He's just a regular dude like the rest of us. He just happens to have an amazing ability to put some great thoughts to paper in a way that no one else has been able to do since A/FOA.

If it weren't for that damned specialization and division of labor thing, he'd make a great barber ;)

J said...

Pete T - I get it. Better to hold on to your gold than to have it held under someone else's watch. Understood. But...not everybody is in the situation where they can stand guard over their bullion stash all day long. Some people have no other option than to place their wealth in others hands.

So..I get it. People are out to steal my gold. People have stolen my gold. How to limit risk? That it what I am trying to figure out. Am I a fool for not keeping all of my gold in my possession? No, I would be a fool if I kept all of my gold in my possession.

byiamBYoung said...

The debriefings are awesome. I'm struck by how you folks are just regular people. The difference is, of all the people I interact with on a day to day basis, exactly zero of them hold the views we share. When I watch your interviews, I see myself.

Hearing real people say the things I think and express the concerns I have is quite a calming experience. Knowing what is inevitable is one thing, but hearing other sane people confirm the outlook in plain talk has given me some peace of mind.

That, plus the bedrock of unassailable logic found here, helps me to keep it together as we all move forward toward the future.

Good luck to us all.


Anand Srivastava said...

JR Thanks for clarifying that bit for me.

Pete T said...


Obviously, my advice is meant to be generalized, I can't account for every individual's unique circumstances. Let me be clear, though- if you place your trust in ANY institution or company that claims it has no interest other than to store your Phys Gold for you until you request it -gee? when is that most likely to be?- then you may as well be throwing it into the ocean. You will NOT hold it. NEVER.

The Law and Courts won't get it for you. The notion is hilarious.

Advisory Boards- now there's another 'interesting' construction. Are they set up as a guarantee of investors' safety, or as part of the confidence trick? Don't analyze too long. There's no need. Advisory Board members never ever have had any idea whatsoever, not the tiniest notion, that the company was engaged in anything 'unworthy'...they were merely paid to advise on their field of speciality.....blah blah know the narrative. You've heard it before!

FOA (yes, the real living breathing 2012 FOA) is on countless Advisory Boards, the nature of some of which might surprise you if you believe that advisors, Directors, etc are in place to protect the public. They are, in reality, sought out to play a 'reassuring' role in the duplicity.

J, please hear this. Whatever Gold you can not keep in your possession and you elect to entrust to ANY institution/company will not make its way back to you. ANOTHER was/is right... There is NO honour... and that's today...All the less so when the moment comes..

Anand Srivastava said...


I am also not holding the gold with me. It definitely is too dangerous.

I am holding it in Deposit boxes in banks. These are not meant for gold per se but gold can be kept there without problems.

Pete T said...

You can lead a horse to water, but what chance it'll take a drink if its head is wedged up its ass?... No more breath wasting for me...

Anand Srivastava said...

Aquilus, VTC, Woland and others. I have this question for you.

I have been thinking about this problem for quite some time. And I do not have clear answers.

I think there are 3 phases to the crisis. Phase 1 is where we are gold is usable although not valued to its full potential. Phase 2 is when the paper gold burns and physical cannot be found. Phase 3 is post revaluation.

I am in the software industry, and there will be a severe impact on it during the crisis, even in the later parts of the phase 1. So it is quite probable that I and others in my industry will lose their job.

At this point we will start using our stash, for livelihood. I think you would agree that we cannot predict how much we need for this phase, and it will be better to use the stash, rather than save in some other hedge. Investment in anything other than gold will not be revalued so anything that remains will be a dead investment.

In phase 3 there is no problem and gold can be used freely, as there is not going to be much of an upside to it.

My real problem is with the phase 2. The real problem in this phase is that gold is largely unpriced, and would possibly fetch quite a bit less than what it was giving in phase 1.

IMO there are only 3 alternatives to gold in phase 2, silver, Euro and Yuan.

In my opinion Silver will also suffer the same issues as gold in this phase. It will also fetch quite a bit less than in phase 1. So I don't see it much better than the gold alternative. If say I invest 5000$ in gold and use only 4000$ worth of it, the remaining 1000$ will recover rest of my worth. But if I invest 5000$ in silver and use only 4000$, I may get only 500$ for the remaining 1000$ worth of silver. And if Aquilus is to be believed it may not even be 100$ :-).

With Euro, there are two differing opinions. VTC says that Euro will trigger revaluation even before this point is reached to prevent printing of Euros. But Aquilus is of the opposite understanding. He says that Euro will probably print to prevent deflation.

Here Aquilus's position seems to be more sound. If ECB tries to revalue, without first printing, the value of Euro will increase very much resulting in a major deflation. So it is much more likely that ECB will print like mad so that there are enough Euros in the market, by buying USDs. When the Euros start to make into the market and cause inflation it will then revalue gold to recover the value of Euros and get normalcy.

If this is true it is likely that Euro will devalue for some time, and during phase 2 it will be highly devalued.

So if I invest 5000$, it is highly likely that it actually is worth around 500$ (in current USDs) when we reach the phase 2. It would be prudent to invest into Euros just before gold crashes. But this is trying to time the market, and I would not attempt that.

I can't see how Yuan will be any better than Euro, probably quite a bit worse.

All said and done. I don't see what to do except keep the gold in very small denominations, and hope that I do not lose much during the phase 2.

What do you guys think?

Woland said...

Hello Pete T:

As my name implies, let me briefly play "devil's advocate" to
your thoughts. Consider two nation states, each with their
own laws and enforcement procedures. In one (let us call it
USA) a 67+ year privilege has been based on the de-emphasis
of gold, in order to promote its' currency as the global source
of liquidity, power, and free stuff.
In the other (let us call it Eurozone) a new system has been
born which RELIES on the "floating value of gold" as the focus
of liquidity creation. This value can only "float" if there is a
market, and a market can only be made if possession can be
assured to ALL participants.
A nation caught short in the transition, without any gold to
aid it international trade settlement credibility, MIGHT try to
seize gold from citizens as opposed to buying it with their
fiat, but hell, it's only fiat, so why engender all the resistance?

So, in the end, I think it matters a lot "where" the gold you
entrust to others is stored. Do they have an interest in
supporting the new system? Or will they see themselves as
its' victim?

Anand Srivastava said...

Pete T:

I guess you live in a place where you can go out of your house for a few days and your house is not robbed. Its not as bad here as well, but when we enter the crisis, I am pretty sure we will have to be here guarding the stash 24x7.

The lockers in govt banks are a good option. I just keep the gold in multiple lockers. So that even if I lost a few, I still would get by.

The other reason why it is much more safer is because the people in the govt also store their important stuff in those lockers. So if something happens to them they will definitely raise hell. The govt will not do anything stupid. And definitely not because it can print money.

I actually avoid the private banks lockers as those guys might do stupid things when they are in trouble.

Yes everybody's situation is different. And mine is such that I will not keep substantial amount of gold with me.

Indenture said...

PeteT: Even in metaphorical land the use contortionist insults here on FOFOA sound out of place. Please don't tell someone they have their head up their ass.

anand: If the rule is 'Buy only as much gold as you understand' then the other one could be 'Store your gold where YOU think it's the safest. If the best possibility is impossible move down the secure list until YOU can store your gold somewhere safe, and if that means in a Safe Deposit Box because you don't even have a hole in the ground then so be it.' (not quite as short as the first one but you get my drift) Everyone has a list in their mind as to the safest place to store the precious from (deep hole?, box underwater? personal safe? pirate imagination) to I guess the least safe would be in your car, or on the hood of your car. Somewhere between those extremes is every ones 'hiding spot' so find the comfortable location for you and be certain deep inside that you can't do better. If you have reached that mental location I'd say you are as at peace as the illustrious Blondie.

Aquilus said...


Just to be clear, Victor and I had been going back and forth on Twitter on the euro devaluation topic lately as an intellectual exercise, not as a fundamental disagreement.

My observation is that the real purchasing power of current entitlements and fixed payments must be reduced (because states cannot cover them without borrowing). It can be done through one time euro debasement or it can be done through nominal cuts. The first method yields less social unrest.

Think about it this way: let's take Greece or Portugal or Spain. Retirees have fixed pensions of say x euros a month. Look at that purchasing power of that pension in real things: say cheese, bottles of wine, pounds of copper, or even silver (I'm staying away from gold and oil on purpose).

Will the ECB keep the euro so strong that these retirees (along with savers) keep their purchasing power? Can they afford to? We keep harping on the fact that entitlements have to be reduced in real terms to make sure that budgets are balanced in the future. Would not the easier way be to not intervene and allow the euro to devalue along with all other currencies (because until the physical gold market is fully functional, the euro is no better refuge)? And once the euro stabilizes, then enforce the 2% inflation target again, making it an awesome UoA and MoE? All this while not creating social strife in forcing governments to cut pensions in NOMINAL terms?

The main reason for my gut feel that the euro will initially devalue with the dollar, yen, pound, etc only to stabilize within a very short period of time (weeks?) as a physical gold market is established in the eurozone by ECB/BIS, euros continue to be freely exchangeable to gold in the PRIVATE market (at a much higher price in euros), and the ECB prints lots of euros to cover the paper gold unallocated contracts for paper buyers (Another/FOA told is this is how euro circulation will be increased) that are not strategically important enough to receive physical.

Aquilus said...

As for silver, I believe I gave you the wrong impression. I personally will continue to hold a little bit of silver, what I consider enough to exchange for MoE during a crisis. Silver tends to be one of the more liquid assets and it certainly will hold it's value with inflation better than iPads or flat screen TVs (smile). Will it track inflation perfectly or just give you 70% value (because it's overvalued today maybe and industrial demand slows for a while)? I don't know, but it won't be 10% that's for sure.

And holding silver is certainly less bulky than holding other commodities.

When I bash silver, I bash its perceived role as a currency to spend in stores. Or in the interview I bash the "buy silver, sink JPM" campaign as it shows a clear lack of understanding of the COMEX silver shorts in the bigger picture of them being a hedging strategy for JPM's physical longs (through SLV for example)

Look, silver is an asset, and a good asset to have. Is it overvalue today? Maybe. But will it be easy to exchange during a crisis? Yes. Will people want to exchange MoE for silver in HI? Yes, they always have. Will it be as good as gold? No.


On owning more gold and knowing you will exchange some at less-than-optimal prices before a physical market is established. Yes, you could, but you would have to buy gram and sub-gram quantities.


On riots during hyper inflation: surprisingly, if you read about hyper-inflations, it's not the Mad Max world of rioting and lawlessness that some assume. People still go about their business, the rule of law still exists, the state still pays their security personnel.

Another misconception I see mostly from the hard-money camp, is that of people dealing only with small-time merchants; mom and pop shops where silver is exchanged for goods. Let me assure you that big retailers don't just keel over and die just because the hard-money crowd thinks they will. They quickly adapt and carry on.

As I explained ad-nauseam above, it is in big part this big business that prevents "barter-town" from ever returning. Why? Because when you have a cashier at a grocery store that you hired 3 months ago, you are not going to let him/her determine the price in silver/copper/rusty nails or whatever someone in the hard-money crowd thinks they can pay with. No sir! That clerk will have prices that are pre-set by the manager and his/her only job is to recognize the 1 or 2 currencies accepted as MoE. Common-sense does not die in a hyper-inflation (as the hard-money crowd seems to think), rather it increases.


I think I ranted enough for now.

I am curious on the topic of the euro devaluation from others here, including FOFOA.


Woland said...

Hello Anand;

Some simple advice from a "lightweight" on the subject.
Gold is tradable wealth, but in a crisis it is not at its most
useful. You should have a store of real things which will
support your life during a crisis, as well as a surplus of
similar items which can be traded with others for things
you do not have. During Weimar, food, coal and many
other things became a currency, as they supported day
to day existence. Best not to focus too much one the
wining "symbolic" medium, and trust in physical items
your family will need. My 2c. Cheers.

Anonymous said...


Unlike RJP, I was a bit apprehensive when I read the email FOFOA sent me regarding the debrief idea and that he wanted me to go first. It wasn't stage fright really, it was the fact that pilots and interviews generally are not compatible. Usually bad things have happened in order for an interviewer to be interested in what a pilot has to say.

So the initial reaction was "uh oh". But after the initial reaction I felt good and thought it might be fun. It was. Any apprehension or nervousness will be quickly dispelled before the debrief when you talk with FOFOA and test the Skype connection.

Motley Fool said...


May I suggest you keep at least some of your precious close at hand.

Hiding it in a creative way can be fun.

I'll mention the tired idea of putting it in the bottom of a potted plant just to give you an idea.

There are literally hundreds of ways to hide your precious in creative ways.

Even if it only a single coin.


Indenture said...

Drop it in your septic tank and forget bout it.

Anonymous said...

A piece of 4 inch PVC pipe, glue a cap on one end, put a screw on cap on the other end. Dig a hole with a post hole digger. Put you gold in the PVC pipe, put into post hole and bury.

ChrisF said...

.... after burying in the hole add a bit of soil, then place an old twisted piece of steel on top so that TPTB + goons think that is what gave their signal on their metal detector device and so they then go home ...

Woland said...

And for those of you with "advanced" degrees, you could
do what George de Hevesy, 1943 Nobel Prize winner in
chemistry did, and dissolve the 2 Nobel prizes of Max von
Laue and James Franck in aqua regia, thus hiding them
from the nazis for the war's duration.
(they were later re:cast)

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

I do not know anyone in China who is seriously talking about the yuan as an alternative to the U.S. dollar, in fact the "real" internal debate, taking place outside of official channels, is whether China will experience a currency crisis and a depression. China has increasingly lax capital controls and is moving towards internationalizing the yuan, and the result is higher demand for U.S. dollars from Chinese citizens.

Michael Pettis has the correct view on China: their economy is responsible for high commodity prices through their internal demand and when they move reserves out of the U.S. dollar and into hard asset investments, they are increasing the volatility of their national balance sheet. If China experiences a depression, capital will flow out of China and the value of their investments will collapse.

PBOC can't buy a buck; talk of depleted reserves is not alarmist

Anand Srivastava said...

Thanks for all the comments.

Aquilus: I am thinking of hoarding some 0.5gm coins. These I think will compete very well with Silver for liquidity. Since these are very thin coins. These could also be cut smaller, if needed.

Woland: Yes I will have a year worth of food. I am still thinking of what to do about cooking gas. Its heavily regulated. I don't think India will go into HI, so its probably not that big an issue.

About storing some gold at home: Yes we always have some jewelry in India on our person. We also always have some at home. The security situation is not bad at all at the present time. Will have to adapt as the situation changes. Have thought about some secure locations for storing gold at home. So that is not a problem.

The bottom line is that I am not too hung up on all of my gold surviving the crisis. But I am trying to get as much of it as possible survive.

ChrisF said...


Re: your Oct 6 4:32pm to me.
Very good. I am very glad that Freegold allows normal price hedging activity as you outline.

It seems to me that many people do not fully understand the function of futures markets which are primarily for reducing price risks of players and not for obtaining delivery of or delivering physical. So, all this talk about 'paper' gold not
being honoured or defaulting in future is slightly
confusing to me since the Longs presumably only want 'price' protection in fiat (MoE) and not actual physical delivery, otherwise they would have gone long physical in the first place.
So, maybe all those Saudi princes with paper gold also only want price protection in MoE and not physical, otherwise, one would have thought, over the last 5-10? years they would have turned this paper gold into physical. This so called overhang of 'paper gold that can't be delivered' story surely can not go on for ever?

Anyway, after the 'transition' the financial world will presumably be a calmer place after the violence, so there will be much less talk of defaults and risk.
My 2 cents.

Lord Sidcup said...

Fascinating to see and hear Acquilas speak.
I was in Bucharest not long ago and saw packs of wild dogs running the streets and abandoned kids all over the place. Most of us here have a lot to be thankful for.

As I was a teenager I thought myself a hard-left socialist.
'Real' communion was at safe distance, very far away, and I would have run a mile if ever I encountered it.

As I work through the FOFOA back-catalogue (to the detriment of other duties and pleasures) I feel that there may be parallels with the socialist in-group of my youth;
a) A utopian air. A conviction that Freegold is/will be the 'perfect system' and we need merely wait until the world wakes up to it. I am skeptical of this.
Does anyone see ANY disadvantages to the Freegold system?

b) the frequent use of the word 'inevitable' also disturbs me. Freegold seems a desirable state, but is it inevitable?
Every closed system contains the cause of it's own collapse. Communism did, and 'creditism' does now. However, I find it hard to believe that in the turmoil that follows, any outcome is cut and dried.

My point here is not to debate Marx, but to examine the certainty I see in this community.

Michael H said...


To me at least, freegold is not necessarily a 'political' system but an 'economic' one. I.e. freegold will allow a society to find where the limits of available resources are, but it will be up to each society's internal political will to decide how those resources will be allocated.

Within countries, the relationships between rich and poor won't necessarily change, although the lot of the majority of the world's population may well be improved by the removal of the US exorbitant privilege alone.

I don't see freegold as being utopian.

burningfiat said...

lords, 罗臻, And Y, Warren, steerpike, Hobgoblin, Terry, RariNantes, JulesFlying

Wow, this debriefing topic really brings out the lurkers and/or infrequent commenters. Cool, I love it! Welcome all, and please keep on posting :)


lords, when judging the 'inevitable' of many posters here against the 'inevitable' of Marxists, please observe these two criteria's:

1) Observation vs. Activism.
2) Falsifiability (A scientific theory must be something that is capable of being shown wrong by observation/experiment). Please see Karl Popper

First point: Freegold isn't about politics. Nobody here is trying actively to force their "Freegold" world-view onto others (something that can't be said about Marxists). Therefore, if people here are wrong no harm to society happens, as all that is on the line here is the Freegolders own savings and hurt egos.

Second point: I believe some bold predictions has been put out here (FOFOA). This makes the "Freegold is inevitable"-theory falsifiable. Examples of these bold predictions:
a) We will never again revert to a gold standard.
b) Gold price will be revalued to the vicinity of $55,000 in 2009 Dollars.
c) Even producers with no present gold holding will convert the majority of their savings to gold post-transition AND be happy to know that their savings will "only keep" its buying power.
d) The Euro will be the new global UoA and MoE (especially regarding Oil)
e) post-transition GSR > 1000.
f) Euro-zone will get by in the future. It will not break up as many (in MSM) predicts.

And so on! The only thing really missing is the exact date when this will happen, but let's just say that if transition doesn't happen before 2020 must will probably consider the Freegold theory dead. The point is that there are plenty of falsifiable statements connected to Freegold. If any of them turns out wrong, then Freegold-theory (and 'inevitable' statements) was obviously wrong.

About the falsifiability of Marxism: Well, we all know the track record here. There is always some excuse for Marxist nirvana never quite being achieved. Masses not sufficiently awaken, imperialist obstruction, socialist party-soldiers not dedicated enough or so forth. A Marxist will never admit that his views doesn't hold up. He will rather deny or twist facts than change his fundamental views.

My conclusion: It is not fair to compare Freegold/FOFOA to Marxism. But hey, make up your own mind :)


Anonymous said...


Does anyone see ANY disadvantages to the Freegold system?

It will surely be miserable for anyone who does not have gold, at least at the outset. I'm not at all optimistic about the future of humanity post-freegold, but I am optimistic about being the beneficiary of a one-time revaluation of gold.

My point here is not to debate Marx, but to examine the certainty I see in this community.

When you throw a ball in the air, you know with certainty it will hit the ground. A gust of wind may blow it upwards unexpectedly, but you can rest assured that gravity eventually will end its flight.

That's the kind of certainty IMHO you are seeing here. The failure of the dollar-reserve system is inevitable; the monetary plane has no correlation whatsoever to the physical plane - all the dollar-debt out there is worthless *now*, only most can't see it. When it is gone, what is left? Gold. Gold bids for dollars, dollars do not bid for gold. This is true *now*, only most can't see it.

Woland said...

I was just poking around Victor's Cleaners website for fun,
and came across the following, which I think is germane to
lords question. This is from pre USA Gold archived posts:

"Gold is so old. Such a rich history. An educated western
mind cannot begin to understand it. We live in a time of
closed thought and controlled perception.

How could we have known that two thirds of humanity
would still think of gold as wealth. It's not that it is right
or wrong of them to think this way, it's that we want them
to work for us. That is the problem. And when they worked
we paid them.
And who in the hell would have thought that they would
have used so much of that pay to buy gold".

A change in gold's function, leading to a change in western
perception of its' value, will mark a shift of wealth and power
to those who have it from those who don't. And many so
called 3rd world persons will be beneficiaries, as some of that
newly revalued wealth is spent into their economies by
the same people who saved so hard and for so long.

Thank you Victor

Indenture said...

Bernanke Thinks QE Is Good For Savers

burningfiat said...


Asking the people if they have had any 'aha' moments. This strikes me as extremely arrogant.

Hmm, it didn't ring a bell here. People are free to just answer honestly. Like: "no aha-moments here".

Regarding stocks, you are entitled to think that it was a killer investment in 2008. As a saver (not an investor) I couldn't be more happy about reading FOFOA in late 2008 and acting accordingly. I still think this choice will serve me well once I retire.

Also please read the disclaimer at the bottom. This site promotes thinking for yourself IMHO:

The above is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the author alone on the current and future status of the markets and various economies. It is subject to error and change without notice. The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Anonymous said...


Nice. I hope you recognize that what you're bringing to the table here is not any kind of "debate" but just a long-winded ad hominem argument, and a rather poor one.

FOFOA said...

Hello somanyroadsinvesting,

I think part of your problem is that you can't see what I'm doing here with these interviews just like you don't quite understand my posts and my perspective. I am what I am and that's all that I am. If you thought I was supposed to be something else, then you need to deal with the fact that your perception is a fleeting, flimsy and fickle *temporary* substitute for reality.

I have a-ha moments all the time. In fact, having a new one has always been one of my personal criteria for writing a new post. "Epiphany", "click"… those are other words that mean the same thing. I have one, and then I share it in a post. See? Sharing is fun! Have you had any a-ha moments here? Apparently not. Might be that your baggage gets in the way.

As for your comment, I found it personally insulting and rude, so I don't think it deserves to be a part of the permanent record here. At least I am humble enough to leave those old posts and comments up for anyone who cares to read my personal journey. And that's the reality. I'm just a regular guy and mine was a journey just like everyone else's. I am not ANOTHER or FOA. I don't hide that reality, never have. But when someone like you comes in with insults like that, I say, hey, it's my blog and I can do what I want with it. So down your comment goes.


somanyroadsinvesting said...

I apologize if the post was too strong and felt it was insulting. That was not my intention. Your right my tone could have been better. I will continue to read. Take care.

Indenture said...
This comment has been removed by the author.
Michael dV said...

"I am what I am and that's all that I am"....I'm Popeye the sailor man... toot toot.
So you are revealing your secret identity is a scabby, spinach eating, skinny girlfriend having, Bluto fighting, forearm enhanced, tatoo sporting, slightly dimwitted member of the navy?
Some of us are old enough to catch these kinds of allusions. careful...

Michael dV said...

One could view asking others about the positive aspects of ones work as fishing for compliments but it is also a way to determine what aspects of ones writing is fruitful and helpful and what parts maybe don't work so well.
I did not hear arrogance in the way the question was asked. And yes I have had everything from 'holy shit ah ha' to 'if I read this 20 times I still might not get it.
But rather than the presentation of information to brilliantly illuminate, I find the greatest accomplishment of fofoa's work the fact that he translated Another (and to some extent FOA) into readable essays. If someone didn't tell me it was worth further effort I would have quit reading Another after 2 paragraphs. How fofoa had the insight to see that a holistic explanation of our current monetary mess was contained in their writing I believe is his greatest achievement....and after essays like Debtors and Savers...that is saying something!

Anonymous said...

How fofoa had the insight to see that a holistic explanation of our current monetary mess was contained in their writing I believe is his greatest achievement

Well said Michael dV – exactly my thoughts. That’s why, regarding FOFOA, I go on and on about wanting to know “where he has come from?” I simply cannot conceive that a “regular guy” would be capable of unravelling the THOUGHTS! of Another, unless he already had the genius (background/framework/understanding/insight) to think those thoughts by himself.

Anonymous said...

. . . .and that of course would make him far from "regular" to begin with

Indenture said...

A little mood music

Anonymous said...

Aquilus, Anand,

Will the ECB keep the euro so strong that these retirees (along with savers) keep their purchasing power?

I agree that future entitlements will have to be cut in real terms. But I can imagine a different scenario in which the Bundesbank/ECB forces the southern countries to cut entitlements nominally so that they can later keep the Euro stable relative to goods and services (up to the 2% inflation target).

Firstly, this is what has happened to Greece, Ireland, Portugal so far.

Secondly, after rereading the old forum archive once more, I can imagine that the Bundesbank is firmly in control at the ECB. They are just hiding behind Draghi as a diplomatic measure. But they have a track record of an old fashioned hard-money approach (i.e. keeping the value of paper money stable), they have kept the Deutschmark overvalued for decades, and they have done very well with this strategy in terms of international competitivity.

Thirdly, Christian Noyer said that surplus countries would in the future no longer hold sovereign debt as a reserve, but they could hold the currency itself as a safe store of value. In my opinion, this gives it away, and this is the clearest statement that the ECB will keep the Euro stable.


Anand Srivastava said...


The real problem with Euro is that it is backed by gold. So when gold gets revalued, its value will shoot sky high, unless it has been first devalued enough to come somewhere in between.

It probably makes sense to get a 10X devaluation and then a 10X revaluation, to get the 2% inflation in the long term. But for the short term, Euro would vary wildly. It probably is required as well to avoid deflation when all other currencies are devaluing.

Once we get the initial revaluation, then Euro can maintain its inflation rate by printing enough Euros to maintain a stable value as the gold goes further up.

It is definitely possible that ECB prints massively after the revaluation. But where will it use this newly printed money. Yes it could be given to the banks and countries that are in trouble. I am not sure if this would be as good as printing when required.

If the ECB is buying USDs during the crisis, Euros will extend its reach around the world. This would help later when the Euro is used for Oil trading. It would be more difficult to distribute Euros around the world after crisis.

Regarding your third point: Which currencies will they hold as reserves? I guess for Eurozone countries its Euro. I think this would be true only after the revaluation. How can currencies become stable before the crisis? I am not sure how ECB will be able to predict how much to print during the crisis, to keep the currency stable.

BaronSilverBaron said...


Bjorn said...

@Michael dV
It´s just that when FOFOA eats a can of spinach, the power goes right up to his brain instead of to the forearms. Otherwise you are probably correct to asssume that he is Popeye. That kind of brainpower can´t be natural. ;-)

FOFOA you should really start puffing on a pipe during the interviews! "So... puff puff... do you...puff puff...remember.. puff... when you first...puff puff...found my blog?"

Bjorn said...


Because silver "is a story of manipulation, not suppression" the conclusion drawn in that video is not valid, although the idea that price suppression schemes always blow up is. Which is in itself further proof that the price of silver is not suppressed.

JR said...

Hi anand,

The real problem with Euro is that it is backed by gold. So when gold gets revalued, its value will shoot sky high, unless it has been first devalued enough to come somewhere in between.

Yes, the Euro will grow stronger. As Christian Noyer has recently noted:

There has never been any doubt about whether the United Kingdom or the United States would honour their debts. Today they are enjoying very favourable interest rates compared with Spain and Italy even though the latters’ fiscal fundamentals are better. I know that some attribute this difference in borrowing onditions to the actions of the UK and U.S. central banks. I do not agree. I believe that Europe has a major project ahead of it to
recreate a broad, deep and liquid public debt market that is completely and unambiguously
free from insolvency risk.

Here is Another discussing a similar idea that the Euro dynamics will change as we see an evolution from the $IMFS to the Fregold/Euro:

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"!

This idea that demand for the Euro and the $ will change not just because of fundamentals per se of the nations using the currency, but also because of the currencies international role, aka the "network effect," was discussed by FOFOA in Dilemma.

JR said...

But the Euro also has debt issues as well, its not as if the "network effect" of a reserve change for oil invoicing is enough to support the current bloated debt issuance of some Euro area states. So there will be devalaution (as well as defaults/haircuts taken by debt holders). So what about that devalaution, might it be targeted?


Here is an important question: Is it theoretically possible for a fiat currency to devalue, or more precisely, to hyper-depreciate against only one single asset without affecting the price of a can of peas?

Of course it is! Just look at any number of investments that have appreciated quickly by an order of magnitude or two. Look at GOOG! Or how about AAPL? When an asset appreciates against a currency can we not also view it as the currency depreciating against that one asset? Or more precisely, can we not say that the asset was awaiting massive revaluation based on market recognition of its value?

Now, what if the revalued asset is gold, a monetary asset held by Central Banks? What could such a revaluation do to today's dynamics of national debt?


The US dollar MUST devalue (one way or another) against the entire physical world. Think about this. The euro, on the other hand, might just hyper-depreciate against only one specific asset. An asset that happens to also be a MONETARY asset held by its member debtors.


The hyperinflation of the dollar is already a done deal. It has been since the 90's at least. Massive quantities of perceived dollars already exist stored in debt held globally and inside the US. Europe knows this. They have known this was inevitable since at least the mid-90's when they changed plans and went with higher gold reserves for the new ECB. They have always been willing to wait for it to happen naturally, unless the EU itself faces an existential threat from debt brought on by the $IMFS. And in this case, I believe their only option is a targeted hyper-depreciation of the euro.

By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.

Of course this would cause the hyper-depreciation of the dollar as well. Only the dollar's collapse would be against all of creation, not just one asset."

JR said...

How might a targeted devaluation occur? Here is a thought from a FOFOA on what might happen if a nation-state or commercial bank disruptively defaulted and caused problems for the bonds on the ECB's balance sheet. FOFOA:

"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’"

Woland said...

Hello JR:

Glad to see that the period when you were "withholding your
essence" has ended. On another note, I have for some time
had a high regard for a Mr. Jacob Funk Kirkegaard is his role
as a penetrating political analyst of the Eurozone/ECB drama.
His article,"Protests, Riots, Rightists Rage in Europe, but to
no ill effect", is posted today over at Naked Capitalism. If
you are so inclined, have a look as I would like to hear your
reaction. Cheers.

JR said...

Hi ChrisF,

Why do you say you presume the paper longs "only want 'price' protection in fiat (MoE) and not actual physical delivery, otherwise they would have gone long physical in the first place."

A big part of the story is that futures and later derivative development in the gold market were intended to allow big players to take gold out in off market deals that would not run the price.

There is no big market, big paper longs couldn't take delivery if they wanted. Victor

Let us stress that as of February 2012, there exists no liquid private market for physical gold in € in which bid and offer would be quoted for tranches of 10 tonnes or more at any time. In fact, this is apparently not even possible in the London market in which gold is traded in US$:

James G. Rickards, Currency Wars, page 26:
In ordinary gold trading, a large bloc trade of as little as ten tons would have to be arranged in utmost secrecy in order not to send the market price through the roof [...]

DP said...

(Protests, Riots, Rightists Rage in Europe, but to
no ill effect

Indenture said...

Baron: "They buy the physical silver at the same time they sell the future (on Comex) futures trade in contango (higher price than spot physical) they get zero interest rate cash from FED so borrow the money for free, they own the vaults to store the silver…. so as the future comes to maturity they can either settle against their physical long or roll the future to collect more free contango…. This is pure arbitrage paid for by the FED. This has been going on for over 30 years and why shouldn’t they be allowed to have 25% of the Open Interest? There is no manipulation because they are short the futures and long the physical and have “ZERO” price risk, but nice profits! It’s brilliant trading and completely 100% legal and that’s why they will never be charged with manipulation because there is none going on. Sometimes it’s just that easy!"
Silver Doctors

Anand Srivastava said...

Hi JR,

Thanks for the response. I am not sure I understand enough to get the answers that I was looking for. I am sorry, this has been a crash course in economics for me. I got interested in anything to do with economy only 1 year ago, and I don't understand much of the basic economics. I have only understood basic implications of the theory. But not all the nitty gritty.

It seems to me that you are saying that the Euro devaluation is happening constantly, but is being sterilized with the banks. So when gold is revalued the sterilization will burn and the revaluation will balance out the devaluation.

I would think that would be a grand feat indeed. I am not sure whether you are saying that or not.

My question was really whether there is a need to hedge gold with silver or Euro, if I have access to very small denominations of gold. And I do have access to sub gram gold denominations.

The benefit of not hedging is that I don't lose on the upside for any of the unused Euro or Silver. The other benefit is that I don't have to care about how much I should put into Euro or Silver. This makes my task much simpler, just put aside a lot of 0.5gm gold coins. BTW Valcambi has a combibar of 50X1gm. I am trying to get this one as well. It would have great portability.

JoyOfLearning said...

@Aquilus: thank you so much for your expanded and very nice answer! Very cool thoughts! I also liked your comments on France as with my wife having lived there we're particularly curious about that.
One question though: you mention the entitelments going to say 20% : politically I could only see that doable if they do it via inflation, but wouldn't then the ECB hit on it's 2% mandate and thus shoot it's credibility away, risking everything else? So how do we have the cabbage and goat together?

On another topic (or maybe more related than one would think?) I just recently read this article and I thought I should point it out to the community here in case it hasn't been mentioned before since it seems quite smart, so much so that like with some of the Fofoa articles I'm even lost at some points in the reasoning, however I point it out because it seems to come from a different angle at some conclusions that I remember hearing here after debates 1) what the ECB is doing is in fact closing the door for the FED to exit 2) even though the author has a bias for gold price he says he doesn't expect the big problems to arise in europe in less than a few years... so that might be time enough for the big revaluation to come and thus for the gold on the balance sheet to recapitalize the ECB stopping the process from going the same way as Argentina. Then again I do realize my understanding is limited so please forgive if i'm saying silly stuffs.

Thanks again to everybody, and especially Aquilus for the long and cool answer.

JR said...

Hi anand,

Here is how I look at it. YMMV.

Save in gold for the longer timeframe (wherein "longer timeframe" is defined as a minimum until we are through the Freegold transition).

Save in other stuff (currency, goods like food, barter/"liquid asset" items) for the shorter timeframe, wherein "shorter timeframe" is defined by you own particular needs and situation, but largely as getting you through the Freegold transition (wherein the value of your "longer timeframe" savings then becomes apparent).

IMO you do yourself a disservice to conflate these two separate needs, as what works best for one is not ideal for the other. But most of all, do what makes you comfortable.

Anonymous said...

Jim Rickards keeps tweeting links to interesting gold articles, like the latest from that gold man (not Goldman) at Forbes:

Signs Of The Gold Standard Are Increasingly Emerging... Worldwide

This time, apart from citing various evidence for gold's reemergence on the scene, the Forbes piece draws a funny parallel between Auric Goldfinger, the Bond villain planning to radioactively contaminate the US gold reserve at Fort Knox, and the way the current monetary system has kept gold out of the loop for 80 years.

But at the same time as he keeps extolling gold, Rickards also keeps going on about how the SDR will be the next reserve currency. What's up with that?

JR said...

Hi Börjesson,

As I think you know, Jim Rickards' monetary proposal, as illustrated in his book, Currency Wars, was discussed by Victor in his blog post Currency Wars: Why The United States Cannot Return To A Gold Standard. These ideas were further discussed by FOFOA in Today's (quote-unquote) "Gold".

In the comments to Today's (quote-unquote) "Gold", there was discussion of the SDR idea in follow up to Rickards' tweet:

RT @JamesGRickards: @porkydawky Yes. Brilliance of the global elite plan is that #SDR solves #TriffinsDilemma because #IMF not a country, has no trade deficit

explaining why the SDR does not solve Triffin's dilemma-here, here, and here-because, as FOFOA explained perhaps most fully in The Return to Honest Money, its all about the store of wealth role.

Triffin's dilemma highlights **two dollar flaws,** and solving flaw #1 by severing the link to the nation state doesn't alone resolve the dilemma. The key is solving flaw # 2 - trying to be as good as gold. From The Return to Honest Money:

"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.

JR said...

Hi Xavi and others,

Thanks so much for help with the mobile!!

JR said...

Hi Woland,

Thank you for directing my attention to Jacob Funk Kirkegaard's Protests, Riots, Rightists Rage in Europe – But to No Ill Effect.

And thanks for the welcome back - speaking of spreading one's essence, one idea from the article that caught my attention was:

the Bundesbank’s lectures about the dangers of printing money to assist distressed banks and countries helps channel potential German conservative scepticism about European integration in a nonthreatening direction. With the Bundesbank publicly lecturing the ECB (and the IMF incidentally), there is less political space for other actors in Germany to make that case. Or put another way, the Bundesbank venting about ECB money printing pre-emptively takes the wind of potential German real populists by stealing some of their thunder as guardians of traditional German monetary policy virtues. This is important in a country where monetary and fiscal policy matters are never far removed from moral teachings. For the German establishment it is better that a known quantity like Jens Weidmann is articulating such traditional concerns in the public, rather than have them come from a populist platform of the maverick politician Thilo Sarrazin and others. Allowing the Bundesbank to dissent is reminiscent of Lyndon Johnson’s famous quip about keeping J Edgar Hoover at the FBI: that it was better to have him inside the tent relieving himself toward the outside, than outside the tent facing in.

I also couln't help but think when I read this:

Political pressures are rising again in Europe. This column argues that reactions in parliaments, central banks and on the street are well within the bounds of predictable reactions to hard times. These developments change nothing of significance in the calculus concerning the eventual success of the Eurozone crisis response.

After a quiet few weeks, political pressures are rising again in Europe. Petrol bombs exploding in Athens and news reports of mounting support for the rightist Golden Dawn party bring into questions the durability of the summer stabilisation in the EZ.

Yet there is little to indicate that these developments change anything of significance in the EZ crisis response. Greek protesters invariably fight with police, but so what?

of FOFOA's insightful quip that:

If you think austerity riots are bad, you should see hyperinflation riots!"

JR said...

And on the topic of the severance form the nation state, I also appreciated the nuance of the distinction between the ECB's focus more on private assets (an element of its enabling legislation) and the contrast with the US, where the FED is more clearly focused on USG debt (an element of its enabling legislation):

The political and economic implications of purchases by the ECB of covered bonds or other even riskier private asset classes is different from what they would be in the US. Because EZ countries retain their fiscal sovereignty and because the EU treaty bans monetary financing of sovereign bonds, the Securities Market Program (SMP) and potentially the OMT are more politically difficult for Frankfurt than buying more private assets. Recall that not even German monetary hawks paid much political attention to the ECB’s two covered bond purchase programs in 2010. It is the sovereign bond purchases that carry the political risks in the EZ, whereas more covered bond purchases and the like would probably be more acceptable.

By contrast, the US Federal Reserve has bought large amounts of treasuries and treasury-guaranteed mortgage bonds. But it, despite being legally able to buy these at short maturities, has shied away from US municipal bond purchases and – apart from crisis and bailout related programs like the Maiden Lane Special Purpose Vehicles in 20081 – generally not bought US private assets. This reflects the legal constraints on the Fed, which according to the Federal Reserve Act’s Section 14 is not allowed to conduct open market purchases of anything other than assets issued or guaranteed by the US federal government with the exception of municipal bonds with a maturity of up to six months. This design of the Federal Reserve Act in return reflects the alarm bells that go off in the US when the government is seen to be ‘picking winners’ in the marketplace. The hardest thing to do from Washington is to buy private assets.

In the EZ, however, the politics work just the opposite. The threshold for further ECB actions to secure the reinstatement of the monetary transmission mechanism through such non-standard measures as the purchase of private assets is much lower than in the US. The ECB might be explicitly barred from purchasing bonds directly from member states’ governments, but otherwise have a remarkably free hand in the markets as outlined by Article 18 in the ESCB/ECB Statute. It merely states that: “In order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may operate in the financial markets by buying and selling outright (spot and forward) or under repurchase agreement and by lending or borrowing claims and marketable instruments, whether in euro or other currencies, as well as precious metals .” With the restoration of the monetary transmission mechanism now clearly defined as within the ECB’s objectives, there are in other words no real legal constraints on what additional non-standard measures it might take in the future to ensure this goal. Certainly additional covered bond and/or corporate bond purchases seem fairly straight forward options for Frankfurt, if required by market circumstances.

Thanks for sharing!

JR said...

Remember this idea from Moneyness

FOA: "I point out that many, many other countries also have the same "enormous resources; physical, financial, and spiritual" that we have. But the degrading of our economic trading unit, the dollar, places the good use of these attributes in peril. Besides, the issue beyond these items is our current lifestyle. We buy far more than we sell, a trade deficit. Collectively, net / net, using our own attributes and requiring the use of other nation's as well. Not unlike Black Blade's Kalifornians sucking up their neighbors energy supplies (smile). We cannot place [our tremendous resources] up as example of our worth to other nations unless we crash our lifestyle to a level that will allow their export! Something our currency management policy will confront with dollar printing to avert. Also:

NO, "this country will not turn over and simply give in" as you state. But, we will give up on our currency! Come now, let's take reason in grasp. Our American society's worth is not its currency system. Around the world and over decades other fine people states have adopted dollars as their second money, only to see their society and economy improve. Even though we see only their failing first tier money. What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living. In the US this function will be a reverse example from these others. We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an over-valued dollar that we spent without the pain of work." (FOA)

That was written a decade ago. In the month that was written, the US as a whole (Government sector plus domestic private sector) was living above its means to the tune of $31.3B. That year we were living above our means by $361B. In the decade since that was written, we have maintained an average "excess consumption" of $48.5B per month and $581B per year. But here's the thing—in the most recent third of that decade (2008-2011), the domestic US private sector actually has crashed its lifestyle more or less. The economy is in recession and unemployment is up over 9%. Yet the government sector expanded its "lifestyle" to take up the slack!

Remember these from my 2009 post No Free Lunch?


And for something a little more recent, here are two headlines I saw on Drudge just last month:

DC area tops US income list; average fed employee makes $126,000 a year...
Reid says government jobs must take priority over private-sector jobs...

No wonder we're maintaining that trade deficit!


JR said...


and from Peak Exorbitant Privilege:

The U.S. government has grown addicted to its exorbitant privilege over the years. It is a privilege that has been supported by foreign Central Banks buying U.S. debt for the better part of the last 30 years. But as I wrote in Moneyness, and as Ms. Pomboy has noticed above, that ended a few years ago. From Moneyness, the blue that I circled below shows the Fed defending our exports **of empty containers** with nothing more than the printing press and calling it QE:


I would like you all to give this some serious thought:

1. The U.S. exorbitant privilege peaked in 2005 (before the financial crisis) and is now on the decline, meaning it is no longer supported abroad.
2. The U.S. government (with the obvious assistance of the Fed) is now in defensive mode, defending that inflow of free stuff with the printing press.
3. The U.S. federal government budget deficit (DC's "needs" minus its normal revenue) **eclipses** the trade deficit by more than a 2 to 1 margin.

So what could possibly go wrong? The recession has already contracted the U.S. economy, all except the part that resides in Washington, DC. And just to maintain its own status quo (when has it ever been happy doing only that?) our federal government needs to insure our national business of exporting empty containers at its present level.

JR said...

and from Inflation or Hyperinflation?

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


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

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

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

JR said...

Well then this should not be surprising - Richest US City: Washington, D.C., Takes The Top Spot:

The richest city in the United States is currently Washington, D.C., according to a recent report by 24/7 Wall Street. After pouring over US Census data, it was determined that the nation’s capitol has the highest average income in the entire country. The city reportedly has a median household income of $86,680 with only eight percent of its residents living below the poverty line.

Woland said...

If memory serves, the Emerald City was the richest in the land
of Oz. (no offense, Australians)

Woland said...

This fact was no accident. It derived from the presence
therein of a certain Wizard. We should all be so blessed!

JR said...

Good Stuff as always Aquilus

FYI re this:

Another misconception I see mostly from the hard-money camp, is that of people dealing only with small-time merchants; mom and pop shops where silver is exchanged for goods. Let me assure you that big retailers don't just keel over and die just because the hard-money crowd thinks they will. They quickly adapt and carry on.

Its confusing, and "hard money camp" is a heterogeneous group, but the ideas are maybe more:

1) most normal folks are broke/dealing with a shortage of money "purchasing power", so it looks/feels like local barter (or if you prefer, pawning of liquid assets) because unless you are close to the money pump, the Cantillon effect means the money doesn't go too far when it gets to you, so you have to rely on other "stuff" to get what you need in the face of this "shortage of money"


2) the Cantillon effect means the big players do well at the expense of others, and big players like big corporate chains, being closer to the money pump than smaller mom and pops and normal folks, will do better all else equal. Its not that the big guys keel over (for example, the government stooges need to shop). Its that they do so much better that "we" (aka smaller shops and normal folks) sort of operate on a different plane (because of the shortage of money-aka MoE purchasing power- smaller shops and normal folks can get their hands on).

Not everybody goes to bartertown (or if you prefer Pawn-town), but lotsa folks have to rely on more than their income/savings to get what they need in the face of the paradoxical "shortage of money"


By increasing the volume of the base which credit references for value, simultaneous with a constant inflow of necessary goods, we are in essence devaluing—or more precisely debasing—the credit money flow that flows in the opposite direction of the goods flow. The fact that this doesn't show up immediately in consumer prices is perfectly normal.

Henry Hazlitt: "What we commonly find, in going through the histories of substantial or prolonged inflations in various countries, is that, in the early stages, prices rise by less than the increase in the quantity of money; that in the middle stages they may rise in rough proportion to the increase in the quantity of money (after making due allowance for changes that may also occur in the supply of goods); but that, when an inflation has been prolonged beyond a certain point, or has shown signs of acceleration, prices rise by more than the increase in the quantity of money. Putting the matter another way, the value of the monetary unit, at the beginning of an inflation, commonly does not fall by as much as the increase in the quantity of money, whereas, in the late stage of inflation, the value of the monetary unit falls much faster than the increase in the quantity of money. As a result, the larger supply of money actually has a smaller total purchasing power than the previous lower supply of money. There are, therefore, paradoxically, complaints of a 'shortage of money.'"

Again, I want you to think about that last line or two, "As a result, the larger supply of money actually has a smaller total purchasing power than the previous lower supply of money. There are, therefore, paradoxically, complaints of a "shortage of money."

tEON said...

I'm also not quite as bald as I come across...
Maybe you could protect it will a solid gold skullcap

Motley Fool said...

A lovely little rant by Blondie : Rant


Anonymous said...

Excellent! Thanks for the heads-up on it, Fool. Another BlondieBomb one could drop on the silly people that think we're evil for "hoarding" gold.

Am I Evil?

Anonymous said...

I almost poo'd my pants when I read the title: Microbial Alchemy Produces Gold from Toxic Chemical

...two professors at Michigan State University found that a certain type of metal-loving bacteria can transform high amounts of the toxic chemical compound gold chloride from a liquid into solid 24-karat gold. Their method is unlikely to create a 21st century microbial gold rush as the technique is not cost-effective, one said.

Brown said while their research proves that solid gold can be made out of the liquid gold chloride found in water, it also brings up questions. “What if we could take all the gold out of the oceans? Would we destroy the ecosystem? What economic impact would that have?” he asked.

That question may not need to be answered, as Kashefi said the method isn’t cost effective. “You would put so much money into putting in gold chloride and you’d get very little gold. But what’s interesting is to see that these bacteria can do it in their natural environment,” he said.


burningfiat said...

MF, excellent Blondie-rant, thanks for the pointer!

Here's a link that works though :)

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