Wednesday, January 16, 2013

Legs


From the comments under the last post, it seems that a few of you don't understand what I do. But that's OK with me. I don't need to be understood.

I think someone wrote "I'm not convinced." Ha! Good, I hope not for your own sake! That doesn't mean that I think my post was wrong, just that if you feel that way strongly enough to post a comment about your own state of mind then you might want to check your expectations at the door. ;D

I can also tell from the amount of support that came in through email and Paypal that a lot of you do understand what I do and, more importantly, that you appreciated the significance of what I did in those three posts. But for the rest of you, I'll post this again and keep posting it as often as it is needed:

FOA: "I (we) expect none of you to consider anything said here as credible. Everything is given as I understand it. If you came with a notion that I am someone who sees the future, grab the children and run far away. For these Thoughts, and my ongoing commentary, are meant to impact exactly as the "gentleman" said they would. People hear them, and whether believed or not, the words leave a mark. A mental mark on the trail, if you will. And later, after the world turns, our little "stacks of rocks" will be easier to understand next time you are passing this way. In fact, your ability to find your own way will forever be enhanced for having seen this path in a different light."

For the benefit of those who are still lugging around their preconceived notions, allow me to briefly clarify a few things. I do not know anything special. I do not do technical analysis. I do not provide any tradable information. I do not have any inside knowledge. I am not FOA. All I do is unwind the trail that he exposed a long time ago and then share my understanding with you for free. What you do with it after that is up to you. I do not give unsolicited advice nor do I put my opinions "out there" beyond the confines of my own space. If you are reading what I wrote, then you must have come to me, because I didn't approach you. So if you don't like what I do, then by all means please find something more useful to do with your time.

"Official Support" – Then and Now

There were also some great comments under the last post and a few good questions. I'd like to take a closer look at one of them in this post and, hopefully, kick off an interesting discussion. Max De Niro asked:

"How is that the ECB supports the paper gold market? Do they buy COMEX contracts, LBMA unallocated? Where would this show up on their balance sheet?"

Along the same lines, Tintin wrote:

"A quetion about possible ECB support for the paper gold market, or the withdraw of such: How do they do it? […] So you see, I am struggling with ECB support = higher POG or withdraw of ECB support = lower POG."

These good questions highlight an issue that I think is worthy of further discussion. So let's take a closer look at it.

I'm expecting a lower POG simply from the force of "gravity". In the post I proposed two legs of support for the paper gold market: 1.) the bull market in paper gold (private support), and 2.) official (CB) support. I said that "support" does not always mean a higher price (in the early- to mid-90s it did not), but that today, price levitation does reveal support coming from one (or both) of the two legs.

So the withdrawal of ECB support would simply let the "paper gold bull market" (private support) battle it out with gravity. It does not mean an immediate free fall in the POG (I presume "official support" is only occasional), but it means that if something goes wrong, like a general market decline, there might not be the "emergency support" that there was last time.

Think of it as two separate markets, physical gold and paper gold, which are presently attached to each other. Imagine that the physical gold market is like a beach ball being held underwater and that the paper gold market is like a lead weight also being held underwater. "Support" is simply whatever keeps them attached to each other. Most people think they are inseparable, just like most people think the dollar can't hyperinflate. In both cases it is "support" that is forestalling the inevitable.

Back in the 90s ANOTHER told us that when a CB sells gold, it is to a specific buyer, off market so as not to influence the price, but when a CB leases gold it is for a purpose, to buy "something" for the market. So what is the difference between a gold sale and a gold lease? I think the distinction is worth a closer look.

For one thing, if you want to buy some amount of spot or physical gold, normally you must have already accumulated surplus currency equal to the amount of gold that you want to buy (e.g., a Giant or just an everyday saver). Not so for a lease. To lease that same amount of gold you only need a business plan or an outlook that will yield more than the interest on the loan (e.g., a bullion bank, a mining company, a hedge fund or a gold fabricator). A lease is a two-legged deal. In essence, a lease is simultaneous spot and future transactions in opposite directions.

A CB that is leasing gold is taking a position that is essentially short spot gold and long future gold. Spot gold may occasionally mean physical, but not necessarily. This position "supports" the market (keeps the two markets attached) at times when the private market is running in the opposite direction—long spot gold and short future gold. This "running in the opposite direction" occasionally leads to the backwardation seen on the lease rate or GOFO charts because future gold loses its contango (its premium) over the spot gold price. It is similar to OBA's "rush to the Here 'n Now."

Now let's think about spot gold that is not physical gold. If it's not physical, then what is it? It is simply a non-interest bearing account denominated in gold ounces (or XAU) rather than dollars (USD) or euros (EUR). The equivalent of an interest bearing account in gold would be a lease, as long as the market is in contango. In other words, if you want to earn interest on your gold, you lend it out. You sell your spot gold, buy future gold at a slight premium (but you only have to pay a small deposit to lock in your future price), and then you use the rest of the proceeds from your sale to earn your interest in dollars from money markets or Treasuries.

The point is that interest comes from currency, not gold. Gold doesn't reproduce itself, it just sits there. You can't buy spot gold and come back a year later to find more gold. But Treasuries do, somehow, reproduce dollars. You can put in $X and come back a year later to find $X+n dollars waiting for you. To make money from gold you must sell it, buy it back later, and make money lending the currency during the time in between. Spot gold (XAU) accounts are the same. If you want to make money you must sell your spot gold (even if it's just a book entry) and buy it back at the future's price, earning interest with your currency in between.

Another way to look at the difference between borrowing and purchasing gold is that it only makes sense to borrow gold if you think the price is heading lower (or at least flatter than interest rates). If you borrow gold, you profit when the price falls. Buying gold, on the other hand, makes sense either A) if you think the price is heading higher (Western/shrimp view) or B) if you view gold as real wealth (Eastern/Giant view).

According to a World Gold Council (WGC) research paper back in 2000, the mining industry was the greatest user of lent gold, and central banks were by far the largest lender. According to the survey conducted for the paper, 90% of the gold on loan came from central banks. [1]



The mining industry was essentially borrowing XAU (spot gold) credits and paying them off with physical down the road. But they couldn't spend XAU—what they really wanted and needed was dollars. So the bullion bank would assist the miner in selling his borrowed "spot (paper) gold" into the "gold" market and the producer would get the dollars he needed and could later pay them off with a pre-determined weight of physical no matter which way the price went in the meantime. And back then, the price was often falling, sometimes below mining costs. So this was a good deal for the miners.

There's also another way to think about these two-legged deals. It could also be said that the miner was simply forward selling his future gold production for a cash flow of dollars in the present, locking in a good sales price in the process. The counterparty to this deal, the bullion bank, would then be long future gold and, to offset this long position, would short sell spot gold, borrowing it from the CB and selling it to the market. Here's what another WGC research paper, this one from 2001, said about it:

"Transactions in the derivatives market, whether they are motivated by the need to hedge future production, or to hedge the risk of holding gold in inventory, or simply by speculation, tend to be seller initiated. The other party to the transaction – typically a commercial bank or some other intermediary – will seek to hedge its exposure to the gold price by selling in the spot market (normally borrowed gold). The sale of gold in the forward market therefore generally leads to a sale in the spot market.

When the derivative contract matures, the spot market hedge is removed, and the bank buys back the gold. Thus the effect of hedging by producers and fabricators is to bring forward or accelerate sales in the spot market. The volume of sales brought forward is equal to the net short position of hedgers and speculators.

So long as the net short position is stable, with the initiation of new contracts being offset by the maturing of old contracts, the effect on the spot market is neutral. But over the decade of the 1990s the amount of hedging increased rapidly, with much of the increase occurring in the second half of the period. The net short position increased by a total of some 4,000 tonnes, or around 400 tonnes/ year on average. To put the point another way, to meet the demands of the derivative markets, holders of gold increased their lending of gold to the market by some 4,000 tonnes." [2]


Now let's take a look at what ANOTHER wrote about it.

Date: Fri Nov 28 1997 23:29
ANOTHER (THOUGHTS!) ID#60253:

The BIS set up a plan where gold would be slowly brought down to production price. To do this required some oil states to take the long side of much leased/forward gold deals even as they "bid for physical under a falling market". Using a small amount of in ground oil as backing they could hold huge positions without being visible. For a long time they were the only ones holding much of this paper.

Date: Sun Nov 16 1997 10:20
ANOTHER (THOUGHTS!) ID#60253:

It is not only important to understand this question, but also to ask it in context!

Date: Sat Nov 15 1997 20:14
Crunch ( Question for Another ) ID#344290:
Another, a question, please: When gold is borrowed from CBs, what collateral is required by the CB to be assured the loan will be repaid in full?

Crunch,
If you will allow, I will add to your thinking. In todays time the CBs do not sell physical gold with a purpose to drive the price down. They sell to cover open orders to buy what cannot be filled from existing stocks. Look to the US treasury sales in the late 70s. They sold 1 million a month using open bid proposals with much fanfare. If the CBs wanted physical sales to drive the price they would sell in the same way.

The sales today are done quietly with purpose. The gold must go to the correct location. That is why these sales do not impact price as they occur, there is a waiting buyer on the other side. As all of these transactions are done thru certain merchant banks, not direct CB contact, the buy side does hold hedges.

When actual delivery takes place, months later ( and usually at the same time as the CB sale statement ) these hedges come off and affect the market price.

[…]

[Central] Banks do lend gold with a reason to control price. If gold rises above its commodity price it loses value in discount trade. They admit now to lending much where they would admit nothing before! They do this now because of the trouble ahead. Does a CB have collateral to lend its gold? Understand, they only lend their good name on paper, not the gold itself. The gold that is put on the market in these deals belongs to someone else! The question is not "Are the CBs worried for the return of gold?" but, "Has our paper been lent to the wrong people?".

Date: Wed Nov 12 1997 14:08
ANOTHER (THOUGHTS!) ID#60253:

All CBs will now slowly stop all leasing operations and allow the market to size itself. The important players, the oil states, will have their paper covered without question! But, for all others, the great scramble is about to begin!


With this statement, ANOTHER explained the implication of a recent Bundesbank statement following a BIS meeting that would materialize two years later as the Central Bank Gold Agreement (CBGA), which read: "4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period."

Date: Sat Nov 29 1997 15:53
ANOTHER (THOUGHTS!) ID#60253:

Something interesting happened just ago that will, in time impact the price of gold in US$. A proposal was offered to borrow in broken lots, 3.5 and 5.5 million ozs for resale. It was turned down. The owner offered to sell only, no lease. What turned heads was that someone else stepped in and took it all, at a premium!

Date: Fri Dec 12 1997 21:06
ANOTHER (THOUGHTS!) ID#60253:

The paper gold market controlled by the BIS/LBMA system is, alone equal to more than all the gold in existence. This market works like a hybrid currency using approximately twenty to forty percent of all CB gold in leased form as backing. The paper behind the lease is a form of CB/gold and is used as a "fractional reserve" that has built this huge market. This system has worked and does work well. You have but to look at the good value that is received when dollar debt ( digital currency ) is purchased with oil. The world works! But this system cannot continue. There is a limit to how far gold can be inflated in quantity using "fractional reserve leasing" as backing. The fatal flaw was found in the "forward sales" of unmined gold. The whole system counted on the expansion of cheap mining techniques to supply much more gold at a cheaper price far into the future. This happened to a degree for a few years but then just leveled off.

Now the LBMA continues to flood the market with paper gold as if nothing has changed! But it has, we reached production cost! That wasn't supposed to happen until the mining industry had raised supply many times what it is today.

[…]

Will the BIS try to settle this unbalanced market by destroying LBMA? Or will they drive the CBs to lease another 20% in an effort to inflate this "paper gold currency". Just like the fiat dollar, if inflated it loses value. This is not lost to the oil states.


Here's what the WGC survey found two years later, immediately following the Washington Agreement (CBGA):

"On average, the official sector lends 14% of its declared gold holdings. However the proportion varies substantially from country to country. If the USA, Japan, IMF and major European countries that do not lend are excluded the proportion rises to 25%.

[…]

The mining industry is thus the greatest user of lent gold. Short speculative positions exist but appear to be of lesser size.

[…]

Hedging has enabled producers to realise higher than spot prices in recent years. However the mining industry is facing a number of derivative-related challenges:

- the total costs of marginal producers in North America and Australia are not being fully covered by average realised hedge prices. South African producers are faring better but their position may not be sustainable in the longer term;

- the Washington Agreement has precipitated a review of hedging practices by both mining companies and bullion banks. Well publicised difficulties with two hedge books have prompted a swing away from the more complex products. However since the more complex products have facilitated the achievement of higher realised prices, this could render hedging more expensive;

- the majority of producers have not been subject to margin calls on their hedging agreements. However the events of September 1999 have caused bullion banks to review the issue with the possibility that additional hedging premiums may be levied on mining companies that are deemed less creditworthy;

- the sharp decline in exploration expenditure implies that the reserve base is not being replenished. This has implications for existing credit lines and the ability to hedge reserves in the ground;

- the introduction of the FAS133 accounting system will also influence the choice of hedging products in the future.

• The bullion-banking industry has been subject to extensive restructuring in recent years. This has had a substantial effect on available credit. Banks’ trading limits have declined in recent years and are currently collectively likely to total some 2.5-3.5m oz (75 to 110 tonnes) of combined short-term net exposure.

• No evidence was found of any collusive behaviour on the part of market participants to manipulate the price." [1]


Date: Fri Mar 20 1998 22:12
ANOTHER (THOUGHTS!) ID#60253:

I hope all persons could see the "new" true nature of the Central Banks this week. I call it "The change that did happen"! If you read the post of Sat. Mar 07 1998 13:08 Another, that was written for me, it speaks of it all. The [central] banks do want gold to rise now, and they will pull in physical gold to replace leases, even if they must "pay high on the market". They do not rollover these loans now.


Here's the post that ANOTHER said someone else wrote for him:

Date: Sat Mar 07 1998 13:08
ANOTHER (THOUGHTS!) ID#60253:

The Management of Gold, A Simple Tool for the 90s

For any currency to maintain a "reserve" status, it must be, in some fashion, convertible into gold! In the past, the US$ was freely exchanged for a "fixed" amount of gold. $20 dollars was equal to one ounce. If the country wanted to make its money stronger, it would lower the amount of currency units fixed to one ounce. $10 dollars per ounce made the currency more valuable in the market and it would buy more things. Also, a country could decrease the value of its currency by raising the number of units to the ounce of gold, say $40. The problem with the "fixed" gold system is found in matching the amount of gold in the treasury to the "fix"! To make the money stronger, one had to bring in gold, as it took twice as many ounces to back a currency "in circulation" at $10 as it did at $20! The reverse is true when lowering the money value to $40. Then, one half the treasury gold backing had to be removed as only half was now needed to back the dollar.

You have probably not read this "slant" on the past gold standard because it was never quoted in quite that way, nor looked at in that fashion. If you allow your mind to perceive the above, one will clearly see that it was gold that gave the currency value. In that time one did not look to see how many dollars gold was valued with, rather, how much gold was bid for each unit in circulation!

Today, the world reserve currency is not on a "fixed" gold standard, it is on a "freely convertible" gold standard. One may, anywhere in the world, convert US$s into gold. This new "freely convertible" standard does still allow the dollar to be backed by gold for those who still demand a gold "fixing". That requirement is enforced by a certain commodity, oil. Yet, there is a price for the benefit of having all oil sales settled in US$. Yes, even in this modern era, for the US$ to remain on an "oil standard" it must be on some form of "gold standard"! Regain the perception in the top paragraph. Then understand that for oil to back the dollar, the dollar must find value in gold. And the dollar finds more value if it is fixed by the "freely convertible" gold standard, to buy more gold!

This convertible gold market is old from the mid 70s but is new from the early 90s. It is old by the 70s because it is "freely convertible", but it is new by the 90s as it "is not" "freely tradable"! The US$ price of physical gold is no longer "fixed" from supply and demand, rather it is "created" through the market action of "paper gold". Truly, it is the US$ has become the "item traded" in the "paper gold" market, not physical gold. Participants have yet to realize that the gold futures, gold options and gold forward markets, worldwide, have become little more than currency trading arenas. The percentage of gold delivered against these markets has grown so small as to be nonexistence when compared to actual metal settled at closing. Physical gold does still move, and in size, but this is little or nothing compared to the "paper gold" traded.

We are brought to this point for a purpose, but how did we get here? The largest producers of gold were introduced to the use of large scale "forward contracts" by the Bullion Banks. Once the process started, good business required it to expand. Shareholders want maximum profits at all price levels and "forward deals" were good at any price of gold. Once hooked on "hedge profits" during the good times of a high gold price, the mines now "must have at all cost" "forward deals", just to survive. Some say the mines will not forward sell at these, break even prices. However, the shareholders say it's better to hedge now, for a lower price will bring doom! With the US$ price of gold holding at just above average break even levels, and the ensuing virtual bankruptcy of several well known companies, it appears that the mine owners are correct.

Understand, that many entities lend gold, but it is the CBs that started and do most of it. Their purpose was to create a "paper gold" market that would allow them to manage the "freely convertible" price of gold. The CB lends the gold to a bank that sells it on the open market. ( Usually, the gold is placed privately as it must go to the correct destination. ) Then the bank holds the money and draws interest as incremental payments are made to the mine for new gold delivered against the contract. Over the long period that a mine takes to produce and repay the gold, this money grows. To grasp the fact that the CBs had a plan, is to know that they lend the gold for only 1% or 2% while the proceeds set in a Bullion Bank and grow with interest for the benefit of the BB and the mine! And further, the lenders allow the return of the gold to be extended out for many years, as in "spot deferred". The CBs allow public opinion to think of this as "typical government stupid", it's not!

Now that the gold price in US$ is around production cost, most mines must use "paper gold" to survive. The gold industry is coming under [central] bank domination, without signing away any sovereignty! Slowly, the CBs are gaining the ability to manage production and price with this simple tool.

"If they want new mine supply on the market, they roll over the contract to the BB. If they want new supply off the market, they allow the BB to pay for and take delivery of the gold and return it to the CB vault." "Also, by offering ( or withholding ) vault gold from lease, they affect the lease rate and thereby control private lending as well"

Understand that the second sentence action is used because gold lending is done by many different entities. Many times a mine isn't even involved. Sometimes, gold isn't even involved, just paper. But, it's still based on the gold price! The paper price, that is.

thank you

Date: Sun Apr 19 1998 15:49
ANOTHER (THOUGHTS!) ID#60253:

Date: Sun Apr 19 1998 14:31
mozel ( @ANOTHER ) ID#153102:
"Was Gold Leasing by CB's an accidental mistake or an intentional mistake do you think?"

Mr. Mozel,
This world of money, it is a fierce one! I ask all, does anyone know a money manager with money for loan at 2%? No? Does not even the bank of Canada sell gold outright and receive "high" interest on cash? Is a CB that sells/leases gold dumb? NEVER!

If they sell gold, a way is clear to "bring gold back" for the nation! Canada has local mines, Australia has local mines, Belgium has South African mines! If they lease gold, it is for a purpose to buy "something" for the new supply to the market! The interest on the loan is for public view, as a "free gold loan" is not acceptable!

It truly started with Barrick, in Canada in the 80s. It was a "thin market", but grew big in oil. I think "intentional mistake" that was, as is said, "trial balloon"?

Thank You

8/10/98 Friend of ANOTHER

The Euro has, in effect already been dispersed in the form of Gold Leases not gold sales. One has only to look at the official gold holdings of most central banks to see that physical gold sales are little more than the average, with a good amount of that coming from nonEuro countries. Gold is a funny thing, it can be sold many times and pass through many countries and still remain in a CB vault. Truth Be told, some 14,000 metric/ton have been sold this way. Far more than the street thinks. Using this amount it's easy to see how certain entities have moved off the dollar standard in the last few years. If we use a future price of $6,000+US, the move is about complete.

The process: An oil country (or others) goes to London and purchases one tonne of gold from a Bullion Bank. The BB borrowed this gold from the CB (leased). The one tonne gold certificate is transferred to the new owner. The gold stays in the CB vault and the owner goes home. The CB leased this gold to the BB and expects it to be returned plus interest. The BB financed the Actual Purchase of this gold mortgaging assets of the buyer. The BB, who created the loan, then uses the cash arranged in this venture to contract with a mining company (or anyone wanting a gold/cross financing deal) to purchase production gold, using this cash to pay for it. In the eyes of the mining company, the BB just sold gold on the open market, for cash, and will purchase future production at the contracted price. The mine does not know where the gold came from, only that it was sold and a fixed cash price is waiting. Of course, most of this made more sense when gold was higher. There were thousands of these deals, structured in every possible fashion. Look to the volume on LBMA and you see where the future reserve currency is traded today!

9/3/98 Friend of ANOTHER

Poland and China are good customers for the BIS. This is real physical gold they are taking out of circulation, not the pay me back when you have a chance lease deals. They really do have the IMF/Dollar countries over the barrel. Under these conditions it's easy for them to drain the Canadian gold reserves. Soon, these goldless countries will be left with nothing but high yield US dollar treasury notes.

[…]

My understanding is that whatever collateral was freed up from the USSR , the BIS picked up for others. It left the brokers selling leases for almost nothing or 1/2% or so. No one was buying them so the rate just fell on no volume. This was a lucky move for them as the perception was that massive sales were taking place. I don't think the BIS wants to be seen as a currency destroyer so they are doing the buying quietly.

8/19/98 ANOTHER (THOUGHTS!)

I think, now it comes time to sell the dollar. As the Belgian gold was purchased to replace dollars, it did announced the end of EMCB leases. Now the BIS transactions do create a gold market that is "not as before"!

We watch this new gold market together, yes?

Thank You

Another


Then and Now – Two very different paper gold eras

Before we move on to 2001 and beyond (i.e., this), let's recap the 90s. From the beginning of the 90s until that last comment by ANOTHER, about nine long years, the $PoG declined from $400 to $280. To put that into perspective, it would be like gold falling from today's price down to $1,150 by 2022. In terms of the long timeframe and the absolute price decline, that would be pretty discouraging for Western goldbugs, wouldn't it? Yet this discouraging era didn't faze those in the East who already knew physical gold as tradable wealth in the least.

What we have here are two very different eras in the "gold" market. The turning point may appear to be 2001 (if we simply look at the gold chart), or the CBGA in late 1999, but the turning point was actually January 1, 1999 with the successful launch of the euro. And from the excerpts above we get a clear picture of the "official support" which helped keep the physical gold market of the East attached (or fixed) to the paper gold market of the West during an era of a declining price.

Official (CB) gold sales were all done off-market so as not to affect the price. (The BOE "Brown's Bottom" auctions were different, but they were also after the launch of the euro.) In fact, we will never know the price or details of these official sales. All we know is that ANOTHER said that physical gold did continue to move "in size" during this era. He even mentioned one CB-sized sale that, presumably, was not by a CB because of the way he told the story.

Someone had 280 tonnes for sale in 1997. Someone else, presumably a bullion bank, offered to lease that gold from the owner in two lots of 110t and 170t, but the owner wasn't interested in a lease. He only wanted to sell. And the interesting part of the story is that when he insisted on selling, "someone" (presumably a proxy for the BIS or a buyer arranged by the BIS) stepped in and bought the whole lot "at a premium" (presumably to keep the sale "off market").

So here we can imagine CBs both buying and selling "at a premium" in order to keep physical gold "in size" moving to wherever it needed to go without affecting the paper gold market price. What was the premium? I can only imagine it was a bit different for the guy dumping 280 tonnes than it was for someone seeking to buy a similar amount. And ANOTHER did give us a hint at the latter.

Leasing was a different story. Most of the leased gold came from official sources, and that did not include the US, the IMF or Japan. The CBs participating in this leasing practice during the 90s lent between 14% and 25% of their reserves per the WGC, and between 20% and 40% according to ANOTHER. CB lending grew from about 900 tonnes in 1990 to at least 4,710 tonnes in 1999 (other estimates take it as high as 7,000 tonnes). The CBs finally admitted to this practice and then a couple of years later announced that it would be curtailed.

The standard explanation for CB gold leasing is that the CBs wanted to earn some interest on an idle asset. ANOTHER said that this explanation was nonsense. He said it didn't even make logical sense unless you thought central bankers were dumb. He said they were not dumb, that they had a plan and a good reason for leasing gold. He also said that the low lease rate was merely for "public view" because "a free gold loan would not be acceptable." The WGC and the MSM all bought the "CBs want to earn interest on their idle asset" story. I guess you can decide for yourself if it makes more sense than ANOTHER's explanation.

That was Then, This is Now

In the 1990s, the supply of leased gold came mostly (~90%) from the CBs. The majority of the demand for this leased gold came from gold mine hedging operations (~60%). Another small portion of the demand (~8%) came from hedge fund short selling. As I said above, both of these "uses" for borrowed gold made sense while the price was falling. They don't make much sense in an era where the price is rising like it has been since 2001.

So, of course, as you would expect, the mining operations have closed out most of their hedge books that were carried over from the 90s. Also, the CBs announced that they had agreed as a group not to expand their gold leasing operations beyond 1999. And any hedge funds that have been shorting gold for the last decade have surely gone out of business. So, most of the supply and demand for gold leasing is gone. The remaining demand (~25-30% of the leased gold back in 1999) is truly physical. It is the inventory leased to businesses that use gold as a raw material for fabrication (e.g. jewelry etc…).

If this is indeed the case, then what would "official support" look like today? Is physical gold still moving "in size" (but off market so as to not influence the price) with the help of the CBs like it was in the 90s? Well, since the first CBGA in 1999 it would appear that the CBs, along with the miners, have been unwinding a lot of what was wound up in the 90s. CB gold sales agreed under the CBGA declined until they all but disappeared in 2009, and in 2010 the CBs turned into net buyers of gold.

Part of my thesis in those last three posts is that official support may have reemerged specifically because of the financial crisis in 2008. If this is the case, and if this official support included CB gold sales, then we probably wouldn't expect to see the CBs turn from net sellers of gold in 2008 to net buyers in 2010. So, perhaps CB sales are not part of the "official support" occasionally helping to keep the paper and physical markets attached.

What about leasing? As I mentioned in my New Year's post, when the CBs renewed their CBGA for the second time in 2009 they forgot to include the line limiting gold leasing which was present in both of the prior agreements. Does this mean they expanded (or at least intended to expand) gold leasing to support the market? I don't know, but as I've already pointed out, it doesn't make much sense today even though it did in the 90s.

For one thing, expanding gold leasing operations tends to increase liquidity in the gold market which tends to drive down the price, yet as I said in my last post, the rising price of "gold" has been a major leg of support. Also, nearly 70% of the "users" of leased gold in the 90s no longer want it because now it's a losing proposition. So even if the CBs wanted to expand their leasing operations, the demand may not be there to get it done.

As I wrote in The Two-Legged Dog, a "long physical gold" position does not support the "gold" market (help keep paper gold attached or fixed to physical), instead it stresses and threatens it. Short physical and/or long paper gold are the only "positions" that support today's (quote-unquote) "gold" market:

"The position that lends the most support to today's "gold" market is "long paper gold and short physical gold." This was the position of Western gold bugs during the early 90s—trading in their physical for paper gold."

It was also the position of the CBs during the late 90s, selling physical and leasing. But today, or at least since 2009, the CBs in aggregate are apparently long physical. And an expansion of gold leasing not only doesn't make sense, it would tend to be counterproductive in an era where the rising price supports the market. In fact, what I was proposing in those last three posts was the occasional "official" levitation of the paper gold price at times when gravity would have otherwise prevailed.

Max De Niro asked:

"How is it that the ECB supports the paper gold market? Do they buy COMEX contracts, LBMA unallocated? Where would this show up on their balance sheet?"

Could there be another way? I don't know, so let's discuss it. And to kick off the discussion, I'll leave you with a few emails from my FOREX market insider. In the past I have called him FOREX trader lady or something to that extent. But from here on out we'll just call him FOREX Trader:

FOFOA,

This caught my eye in your latest article. The snippet from the old CBGA that was missing from the latest one in 2009:

"4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period."

Recall the earlier discussion about which instruments were used to hedge nominal exposure to the price of gold?

There is your answer.

"Gold futures and options" has a very broad definition. I would guess that this allows them to operate with impunity on all the major electronic gold exchanges in the world.


-------

FOFOA,

This is what long paper short phys looks like on the spread. Thought you might be interested in the chart. This is a "monthly" of gold continuous front month futures contract minus spot gold price.

Theoretically this value should be synthetically very close to Gold lease rates "sell it now, buy it back in a month".




I thought it was interesting that the anomalies in this chart which resemble backwardation showed up in 2008 (and also today!) but not in 1999 or 2001. However, the 2008 anomaly seemed too early in the year to be October or November, where I thought it should be, so I asked him about it.

Sorry FOFOA,

Actually I think there is a problem with the X axis due to the nature of combining different futures contracts to make up the spread chart (i.e. front month is only front month until it isn't then another futures contract must be substituted and concatenated appropriately). So it may well have been later in the year. If I zoom in on 2008 specifically with a "daily nearest" rather than "daily continuation" it looks like this:




I told him that last chart made it even more interesting, and that I might use these charts in a post.

FOFOA,

If you are going to use them in a post, here is also the monthly nearest instead of monthly continuation. I provide the different ones because I can't really make a guarantee about the quality of the data.



From my personal experience of trading in Sep/Oct/Nov 2008: shit was fucked up. All markets I traded were the least efficient I've ever seen them. The contango on oil was so retard huge that JP Morgan was filling up tankers and storing for delivery later in the year. Here are just a few examples:










Thank you, FOREX Trader! My thesis is that today's (quote-unquote) "gold" market is somehow different from everything else. It is like the linchpin holding the wheels on a very old bus. It alone can bring the whole thing down if its legs fail. Very few understand this, and it's not even important if they do. It simply is.

The big question now is… does paper gold still have legs?

Sincerely,
FOFOA

[1] Gold Derivatives: The Market View 2000 – WGC with Jessica Cross, Virtual Metals Research & Consulting Ltd, London/Johannesburg
[2] Gold Derivatives: The Market Impact 2001 – WGC with Anthony Neuberger, Associate Professor of Finance, London Business School




368 comments:

«Oldest   ‹Older   201 – 368 of 368
Motley Fool said...

Indenture

I don't have advice, sorry.

How does a fish explain what it is to be human to a hummingbird?

I think posting there is a waste of time.

TF

Dr. Octagon said...

FOFOA - thank you for that description of the hypothetical Paulson scenario above @Jan 21, 7:26pm. I think that's the first explanation that I've read for the large price drops, which actually makes sense.

Edwardo said...

Max,

Doing the math, Japan's self destruct via HI appears to target sometime in the neighborhood of two years, but that is only if things remain static. FWIW, Kyle Bass, who has no doubt done his own calculations, has a window of 18-24 months. In short, the apparent emergent support for Uncle Sugar's craptastic sovereign debt via The Land of The Sinking Sun isn't apt to have a robust effect for very long.

In short, a few shafts of light at the end of the can kicking window are becoming visible. I am taking the under, well under, in fact, on your 2020 freegold inception time line.

Max De Niro said...

Edwardo,

The short-JGB trade must have been one of the world's biggest ever widdow-makers.

Sure, Bass did well with MBS, but many other smart people have lost a lot on Japan already.

Japan has the ability to confound even Bass, I think.

JGB can always be supported by BOJ, so I don't see a crash in that market - more likely it will be dependent on a tipping point of deflation - inflation mindset based on a slow bleed upwards in inflation rate due to debasement of the denominator.

Two years is not enough time for the kind of inflation to feed through to start changing "stuff's" mindset to not wanting to bid on cash.

Again, I point to the Weimar experience. People on change mindset in this way after inflation has reached surprisingly high levels - the tipping point to runaway screaming HI in Weimar looked to be about 4 or 5 years in, if I remember rightly, and that was after a few years of very high inflation in its own right.

This is far more than 2 years away in Japan.

Indenture said...

Motley: Reference Point Gold is weird to say in a sentence. When the Dollar International Monetary and Financial System comes to it's natural mathematical conclusion an economic system where only physical gold backing the currency of the Central Banks of the world will remain and oil will be sold in the stable Euro because it is the only currency that is not directly controlled by a single nation. I have used the other site as a way to practice my voice and test my knowledge and ability to answer questions honestly and simply. I am in the awkward process of introducing RPG to a few friends and have thus far had success by talking about the Euro first. It is out of place with what they think they know so I have 'Euro Gold' as chapter one reading. It is the beginning and the end of the conversation circle for me, a sort of, Euro, to $IMFS, to oil, to oil gold vs. people gold, back to Euro structure now and finally Euro after $IMFS fail.

Thanks for the analogy. :)

Aquilus said...

Anyone know what happened to Go's beautiful forum archives at http://www.usagdfa.com/

Also, on the http://ubercraftorg.ipage.com archives, is there a reason why the text has a strike-through? For example: This FOA post

Thanks

Edwardo said...

"Japan has the ability to confound even Bass, I think."

-It's not really about confounding Bass or any other reasonably competent observer. The "math" is the irresistible force that Bass and a growing list of others have come to recognize.

"JGB can always be supported by BOJ, so I don't see a crash in that market - more likely it will be dependent on a tipping point of deflation - inflation mindset based on a slow bleed upwards in inflation rate due to debasement of the denominator."

-Again, as per the math, I don't think the numbers support the idea of a slow bleed. Also, again, you seem to be assuming a static environment such that no increased deterioration with China vis a vis trade occurs, and/or no more Fukushimas (or just no more Fukushima, since there isn't much nuclear power generation in Japan these days )come to pass. On that note, Japan's present course is, arguably, the result of seeming outliers like Fukushima.

"Two years is not enough time for the kind of inflation to feed through to start changing "stuff's" mindset to not wanting to bid on cash."

"Again, I point to the Weimar experience."

-Earlier you pointed to the Weimar experience as inapplicable to our present circumstance. Here you choose to invoke it as instructive. I guess we'll have to agree to disagree that the denouement will be far more than two years away.


Max De Niro said...

Edwardo,

RE Weimar:
Here is what I said earlier:

"I don't think that you can properly compare Weimar and US today, in terms of printing.

The monetary systems and global credit conditions are just too different.

The only reason that I mention it is with regard to how long it takes people to notice inflation is out of control and to react to it.
"

Notice the last paragraph.

I mentioned one facet of Anand's argument - specifically the effect of printing as being inapplicable. I used the pace of inflation once the games had begun as a talking point.

Your assertion that I made a blanket statement that Weimar is not applicable is mischaracterising my point.

Edwardo said...

I think Stewart Thomson's take is interesting.

Edwardo said...

Please accept my apologies, Max. In the meantime, I don't think the finer points of the Weimar experience are going to have much if anything to say about the present.

Unknown said...

Michael H,
Kyle Bass has certainly put his clients money where your mouth is.

They will ALL print away, including the U.K.
We are in an era where the only reason NOT to monetize debt, is that your keys to the clubhouse have be called in.

After all, Fuld WAS a Dick.

Unknown said...

Speaking of Dick, is it just me, or is the baloney curve oddly phallic ?

dragonfly said...

@Wil M - yeah, I think I'm overdue for my Rorschach eval too!

check out the symbolism in this music video of Olivia Newton John singing Let's Get Physical. Picture her as FreeGold, whipping the currencies into shape. Notice the T-shirt color of the guy she rides. Interesting ending, one could project a lot into that.

https://www.youtube.com/watch?v=vWz9VN40nCA

Edwardo said...

Wil, I suspect it's intentional, as in we are either being fucked, or, just, plain, old, fucked, and by (the worst sort of) luncheon meat.

Edwardo said...

BTW and OT,

If this is fated to be a pivotal year for physical, it stands to reason that one should expect a SB victory from the (miner) 49ers.

P.S. if one wants to get in woo woo mode one might ponder what, if anything, the universe is telling us with respect to the brother against brother head coaching match up in New Orleans.

byiamBYoung said...

Edwardo,

I was going to respond, but am fresh out of tinfoil, and thus cannot don a proper hat.

Cheers

byiamBYoung said...

@wil,

That graph reminds me... I have a video to return.

Cheers

Aaron said...

Hi Aquilus-

On the strikethroughs, I haven't visited ubercraftorg before, but perhaps it's just a formatting error? It looks like the first fifteen or so comments are the only unformatted text and it goes to strikethroughs from there.

Thanks for posting the link. It's the first time I've read those comments. And I have a new name to remember to forget, Permafrost. Reminds me of our resident idiot.

And Wendy and Woland I hear ya. As long as we and anyone else following along get(s) the punchline (buy physical gold now!), that in and of itself is golden.

Edwardo said...

Well, byiamBYoung, replenish your tinfoil supply soon, because it's just going to get more and more dear.

byiamBYoung said...

OK, Ready. Proceed with cnspiratorial batshit.

:D

Cheers

byiamBYoung said...

@Edwardo

Actually, I'm just poking fun. I regard you as one of the more measured and credible voices on this blog comment section (odd that this is a place for such distinguished discussion, eh?).

Don't let me put you off.

Cheers,
byiamBYoung

Unknown said...

LMAO, whenever we talk about "physical" vs. paper. I won't be able to get that old song by O.N.J. off the brain ;0)

Edwardo said...

No worries, ByiamBYoung, I was enjoying the repartee. And thanks for the kind words.

Tony said...

JS offering his take on hyperinflation (or as he views it occurring...cost push inflation) and the next bull run in POG due to the beating the USD is about to take from the Fed's bond market defense:
http://www.jsmineset.com/2013/01/22/the-entrance-to-the-second-phase-of-the-gold-market-ascendancy/

Tony said...

@ Wil,

No reason to fight the ONJ-in-legwarmers images dancing in your head. I grew up thinking Michael Beck was my nemesis for stealing that girl of my dreams in Xanadu.

Anonymous said...

People can give the impression that they are "experts" by quickly grabbing information from the internet and posting it as though they are an "authority".

As a non-American can anyone tell me if the following is correct or a load of merde.

"under the early 13th Amendment, most of those holding public office in the Federal government are not qualified to hold public office for one very important reason: they are certified attorneys."

Pat said...

Edwardo, one can only hope the Superbowl outcome, then, is NOT,"Quoth the Ravens, Nevermore" Wil, print you say?

"Hope you didn't put much money on that bet, Dawg. These fuckers are going to print hard enough to wake the dead. They'll print like mo'fos, print like mad men, print like fly pimps. Print until their eyes bleed. They will print via the swaps, via bank bailouts and mergers, via fixed Treasury yields, via real honest-to-God negative interest rates, via loans to banks on no collateral, via payroll tax reductions, and in the end via actual fiat paper instruments which they might very well drop in bails from actual mutherfucking helicopters. They will not give two figs what anyone thinks. Here is why. Because this is the Goddamned end of it my friend. There is no accounting beyond this point. There will be no history of it. No one to take notes of rates of exchange, or of the graft and violence, nobody to worry about the deficit or the GDP or the national debt of any nation large or small under the blazing Goddamned sun. End. Of. It. Does anyone bitch about how Rome totally debased their coinage at the end? Hell no. But whoever did it had enough to hand and grabbed some land with a nice vineyard and sat back and waited for the Middle Ages to start 700 years further on. And that's what a singularity is about. Anything that passes through is striped of all meaning. Nothing we think is important now will remain so beyond the event horizon. Nobody will remember, nobody will write about it, nobody will be held to any standard. Ever for evar. So yeah, they'll print like the mad crazed terrorists they are. Because they have nothing to lose, and maybe something to gain. Maybe a dollar. Maybe a day. Maybe a slim chance to escape with some of the loot. Whatever the fuck advantage they see in it, for themselves and their elite crap wanking buddies, they will full-on-full-time-fucking do it to advantage. Watch for it, Dawg. It's totally on this time, on like Donkey Kong. And when the dust is settled in a generation hence it's going to have become another unbelievable episode among the ages of men."

Unknown said...

Bitch, it's curtains!
Locced in my motherfuckin head
Gotta play connect-the-dots with my infrared

Now I Gotta Wet'Cha

Jeff said...

Oh, Hugo.

http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=204

Tyrannyofthepresent said...

Jeff,

Many thanks for the link to Hugo S-P. I had not seen his Malaysian silver monetisation proposal and spotted it by following your link. It is virtually identical to his Mexican plan, with the difference that it is very close to an existing phenomenon:

http://www.islamicmint.com/main.html

Interesting adjustment of the Islamic bimetallic cultural model - and interesting rationale - silver works because it is NOT money.

"A dinar cannot circulate along with fiat money, but it is possible to put a silver dirham into circulation in parallel with the fiat ringgit. Gold is money in itself, but silver is at present a commodity which must be monetized in order to circulate in parallel with the fiat ringgit."

Clearly H S-P is not thinking like a Giant.

Woland said...

I'm a little late (yawn) to this story: via the Democratic
Peoples Republic of Bloomberg; "In the U.S., Federal
Reserve Bank of St Louis president James Bullard said
on Jan. 10 that he's "a little disturbed" by Japan's stance,
and the risk of "beggar thy neighbor" policies. I agree.
They should follow our example of "bugger thy neighbor".
(make love, not war)

On the subject of an Islamic bimetallic currency, some
years ago in the USA Gold forum, Ender expressed some
interesting thoughts in the comments. I for one would
certainly like to hear whether he thinks that remains a
possible option today, particularly in light of the strains
(sunni vs shia) within Islam, and Saudi fears of same.

Indenture said...

Question: Can anyone point me towards the FOFOA post which describes the two tier gold system the best? I'm looking for a description of the closing of the gold window forcing oil to be priced in gold and dollars. Thanks in advance for any help.

ampmfix said...

Demand = Stock?
Gold = Ideal means of exchange?
Silver = Ideal store of value (silver coin savings Mexican proposal)?

Funny how reading this blog changes people, I used to like HSP's articles! (Or was it him that changed?...).

Jeff said...

Indenture,

I don't agree with the word 'force'. See It's the Flow, Stupid, Flow Addendum, FOA on Currency stylings.

FOA (4/19/01; 17:50:29MT - usagold.com msg#65)

Yes, after the 71 dollar gold break, we did see some good price inflation. But was that caused by the wholesale cancellation of international dollar convertibility into gold? No! That price inflation was not gold backing related because we had already, years before, been printing dollars far beyond our stated gold to dollar conversion ratio. That spell of price run ups was the result of too many dollars being printed before and after the 71 gold breaking event.

Sure, the gold price run up after that didn't help the dollar's image. But, by then it didn't make any difference what the gold price was. Even if it went back to $10/oz. we were never going back to governing the volume of dollars in supply. Not by using gold, not by silver, not in any way that would fix or slow the presses! We couldn't. Any long term slowdown, then or now, in such an established fiat was well past the politically survivable stage. This is the way fiats work, whether gold backed or not, they always break from strict printing discipline. The history behind us says so and the future before us says so. As an example in dollar terms, look at any five year average of money supply growth from 71 till now. Truly, we were and are printing our way towards the end time of dollar use. The only question was how long would the world keep using dollars? How much longer would the timeline extend?

Some hard money people thought that the world would simply convert to gold itself, in place of dollars. But, the simple fact, as I and most especially Another have said so often, is that the modern world must use a fiat form of currency to operate. And, considering that point, after the 71 gold break, there was no other strong, fluid currency for us to revert to. It wasn't until the end part of the 70s that the Europeans started down the long road of creating something else.

There were times when our foreign trading partners were thinking of breaking away. This is when the US spiked rates. Again, we confuse this action with stopping the inflation presses. Quite the contrary, the killing rise in rates was just a signal that we would not go completely hyper. On our side, the only reason we could afford to take this economy-killing gamble was because oil was still priced and settled in dollars. But that is a whole Another book.

The prestige of many international dollar holders took a real bath because they held dollars in place of gold. When they tried to initially bid for gold, the US and London made sure the price rose fast enough to tell a story to these dollar converters. That is; "bid for gold and it will soar" cutting off your conversion. Sure the US made all sorts of noise about how awful and incorrect the rising gold price was. Even showed their hand at managing the price a little so it didn't go up too fast. All the while saying they were fighting for all they were worth to keep it down! Truly, the last decade shows naive Gold Bugs just how much in control they were and are of this so called "free commodity market in gold".

Edwardo said...

Duggo,

What you are referring to with respect to the
first proposed 13th Amendment
was a proscription against not just office holders possessing titles of "nobility and honor" but citizens.

Indenture said...

Just reread Freegold Foundations. If anyone is looking for a 'primer' FOFOA piece to introduce a friend to RPG this is a good one.

ElaisaKasan said...

22/January/2013
Thoughts on gold and humanity

Hugo Salinas Price

http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=204

Woland said...

Hi Jeff;

That was truly an exceptional passage you referred to
above. So many related elements in such a short space.
One (of many) points it drove home was that, to replace
the US$, not only would a currency with better "manage-
ment" be required, but ALSO a currency of an economy
of comparable SIZE. None existed then, and were it not
for a currency "union" (the Euro) none would exist today,
even 40 years later, that could fulfill both criteria. The alter-
native would have been a collapse in international trade
down to mostly bilateral arrangements, and at best a
long global recession.

Pat said...

CIGA Patrick going all FOA ( but not crediting source? - not kosher ) at Jimbo's site.
http://www.jsmineset.com/

Edwardo said...

Woland wrote:

"The alter-native would have been a collapse in international trade
down to mostly bilateral arrangements, and at best a
long global recession."

With a bit of a twist, that's almost exactly where we are at present. We have the long global recession, four years and still running strong, and bi-lateral trade agreements are cropping up like so many dandelions on the global economy's front lawn.

Woland said...

From the Dept. of FWIW

Over at Naked Capitalism today, there is a link to a paper
out of GMO, (Grantham, Mayo and Van Oterloo) entitled,
"Feeding The Dragon; Why China's Credit System Looks
Vulnerable". Outside of Fofoa, (which doesn't spend too
much time on China) it's THE BEST piece of analysis of the
credit system in China that I have read. It should be of
interest to at least Costata and Tintin. The most interesting
element is how closely, in many ways, China's current
situation mirrors that of the US prior to our crisis, with many
analogous, tightly coupled institutional arrangements. Have
a look, if you are so inclined. You won't be disappointed,
even if you wrongly view it as "bashing". Cheers.

Tommy2Tone said...

Thanks Edwardo. And I had forgotten Clif came out with that high gold price...lol

Unknown said...

A little off the trail, but in regatrds to gradual inflation (vs. HI) the one thing I have noticed for years now is hidden food inflation, in the way of:
1) more empty space in containers
2) mislabeled ingredients
3) reduction or adulteration of more expensive ingredients

... not to mention what we all know is going on with ethanol, but I'm sure if we look into it, we'll find more petrol adulteration now than ever ... my knocks and pings tell me.

So the the acceleration of normal (fiat normal( inflation is really being masked by:
1) foreign labor of course
2) exhorbitant exchange advantage as usual
3) technology efficiencies (a good thing if kept ethical)
4) layoffs and productivity increases at home (a good thing if only the deadbeats were cut)
5) the shit above

And I think here again, it's the morality crisis that helps these things along. When ZH posted the study that food labeling faud is up 60% we can here the backroom answer to that, "everybody's doing it" and in an era where crime not only pays but is glamorized as the "new edge" of the opportunistic capitalist, we can expect more of the same until this too collapses with the CONfidence in such unsustainable social constructs.

A nation's money is so intrinsic to the character of its people. Corrupt the money and the character of its people soon follows in lockstep.

As a wise mentor once said, "Don't fuck with the money" and now we see how we all get fucked back in so many little ways that the statistics of officialdom choose not to see.

You can't fuck with gold my friends, although many have through the ages, but until the assayer is on the FEDS payroll the purity of truth remains scientifically quantifiable.

No doubt we will have, in the near future, an absolutely false account of gold quality in some huge amount in some official reserve.

We are lying in daylight about the quantity - officially faking the quality is ergo baked in.


Indenture said...

Jeff: Thank you kind sir. When I read further I was reminded of this good news (sarcasm).

FOA (4/19/01; 17:50:29MT - usagold.com msg#65)
Reply
"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 it's 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."

Makes me glad the new road work in my area is being completed. Can you imagine the national infrastructural problems just waiting to manifest.

dragonfly said...

1/3

FOFOA
>> "No, I don't buy the conspiratorial PPT/Summers/Gibson's manipulation explanation anymore." <<

Max De Niro
>> "I see no change in availability of physical in size - if anything, it seems more available - more CBs purchasing than before." <<

Wil Martindale
>> "There is always that extra "gotcha" layer, hidden and missed." <<

Jeff
>> "Truly, the last decade shows naive Gold Bugs just how much in control they were and are of this so called "free commodity market in gold". <<

Boy, this is sort of heading in the direction of the old USAGold forum, prior to FOA rushing off in a huff. Pretty soon folks will be looking behind the curtain, wondering if there's Black Gold being laundered back into the system. And then; off-topic $multi-trillion covert financing of black-ops with associated drug and arms traffic; looting of S&L's by the CIA, collusion of psychopathic gangsters inside every institutional and informal structure on the planet, ruthless geopolitics, thousand-year old crime syndicates, hidden power of hereditary oligarchs and the list goes on. Anarchy of the Giants, so to speak. They certainly don't walk in our footsteps, and it takes an intrepid stalker to walk in theirs.

Back-of-the-napkin calculation. Very conservative estimates. One percent of humans are psychopaths. One percent of those are high-functioning psychopaths (i.e. - they collaborate and don't burn their bridges). One percent of those get their hands on real power. So, .000001 times 7 billion people equals 7,000. Hmmm.. How many psychopaths does it take to screw a planet? Remember, they have no remorse, no guilt, no shame, no inhibitions, no fear, and mimic everything properly termed human.

Meandered through the WGC website this morning. One page says 165,000 tons total. Another page says 171,300. Must be difficult keeping the site up-to-date, operating on a shoestring and all. But who's counting? XXX,300 at least makes it look like there's counting going on. The part I find interesting is the claim that 90% of all gold has been produced since the California gold rush. So, 10% in the preceding 5,000 years or so, or 17,130 tons. Divided by 5,000 equals 3.4 tons, or just over 100,000 ounces per year. Hmmm...

continued...

dragonfly said...

2/3

Google "Ancient Gold Mines" for 1,750,000 results. Read how extensively gold was sought going back at least 4,000 years. Articles like this one give some insight.

http://mygeologypage.ucdavis.edu/cowen/~GEL115/115ch6.html

One probably has to understand the copper story first, to get a sense of where my thoughts are leading me. Most of the copper for the Bronze Age came from the Upper Peninsula of Michigan, particularly the Keeweenaw Peninsula portion that extends out into Lake Superior. The evidence is still there to see, in cubic miles of shallow trenches in rock, split and cracked by fire in ancient times. Estimated half-a-billion pounds.

http://www.rocksandrows.com/copper-trade-2.php

I'd bet the early period was exciting for the ancient transatlantic voyagers. I've sat on a piece of float-copper at the Michigan Historical Museum that's the size of a park bench long and 4 to 6 inches thick. The tribes up there still have their legends of the bearded white men who came in boats for the copper. I mention that, not to make some comparison of copper found to potential gold found, but to highlight the prodigious endeavors for metal acquisition in ancient times.

Suppose some faction of modern men were sitting on a quiet stockpile of gold from those ancient times, gold that hadn't been lost in the millennia of warring. Gold that may have changed hands over the centuries, but never found its way into official numbers or official hands. How would they deploy it? Would they use the same methods that DeBeers and Oppenheimer have used for diamonds? Control supply to control price? Create the appearance of scarcity? Seems plausible to me. Could it have become collateral for the shadow side of things in the banking, war and criminal worlds?

continued ...

dragonfly said...

3/3

Not that there's any way to actually know the true number of ounces existing in vaults, but there is some sense to questioning the numbers purported to exist. If one takes WGC numbers at face value, and then tries to decipher how all the opaque physical flows occur, plus the paper distortions, there's plenty of uncertainty added to the equation. That is, if one entertains the idea that the true number of ounces on the planet is some multiple of WGC's estimate. Our mentors did give us a similar disclaimer to the one seen when reading Clif High's ALTA reports. I tend to heed disclaimers, and question statements like, "Everyone knows where we have been,...." Not at all sure about that one ;-0

As I recall, David Guyatt of Black Gold fame, posted a few times at the old forum. His early work was relatively contemporary with the A/FOA story. I've wondered at times if what they told us was a "limited hang-out". Anyway, if one doesn't look for the rest of the story, one usually won't find it.

Michael Kosares got a reply from Another early on that many folks gloss over. He said something to the effect that this was not a new world order in the making, but more like an old world order re-emerging. And it gives one pause to consider what that could mean. John Trudell might have summed it up in one of his songs, where he opined that the new world order is just an old world lie. Time proves all things.


dragonfly said...

I don't plan on responding to reactions or responses to the above. Just wanted to throw it out there for a contrarian view. Back to the bleachers.

Aquilus said...

@John Fry

Ok, don't respond, just read: Black Gold discussion

Aquilus said...

Especially the grand finale from the link above:


Finally, I will close with one last Thought for you. The actual quantity of the gold stock in the world doesn't matter nearly as much as its flow, or velocity, when it comes to storing value. In fact, the greater the stock relative to the same flow, the greater the price stability and therefore the greater the potential value. Again, the greater the stock:flow, the better the store of value. (See: How Can We Possibly Calculate the Future Value of Gold?) So imagine, if you will, a single individual who controls an amount of gold equal to, but separate from, the known stockpile. Mr. X has 160,000 tonnes, and the rest of the world has another 160,000 tonnes. Mr. X is the de facto "King of the World." From a game theory perspective, what would be Mr. X's best move, at any given time in history, with his gold?

Tony said...

Newflash...MSM says the barbarous relic is OUT:

http://money.msn.com/exchange-traded-fund/10-treasures-that-outshine-gold

byiamBYoung said...

Tony,

Don't you just bet the CBs are going to start stockpiling art deco designer jewelry?

Art deco- get you some :D

Jeff said...

Woland, size does matter. And speaking of size:

http://www.businessweek.com/articles/2013-01-23/missing-114-billion-from-u-dot-s-dot-banks

Edwardo said...

"Everyone knows where we have been,...." Not at all sure about that one ;-0

Bravo, John Fry. Not that you expressed the following, "Everyone knows fuck all", you didn't, but that particular hallowed sentiment of the progenitor of this blog is one of those notions that are not so robust as they first seem. Even the most learned, scholarly investigators don't know, as in have certainty, because A.) when it comes to the past, with few exceptions, new information steadily comes to light, as do new ways of ordering the old (and new) data, and B.) there is a lot information that has been lost in the sands of time. Thrown into the bargain we aren't privy to knowing the quantity or quality of the missing information. Oh, those infernal unknown unknowns.

And yet, despite this, mankind, especially, or so it seems to me, the male half of the species, is compelled to construct narratives to explain absolutely everything even in the absence of anything that could remotely be said to provide certainty. C'est La Vie.

BTW, and FWIW, Wil, I liked your last little epistle that revolved around the theme the morality of money. Money, is, itself, of course, amoral, but, monetary systems, most certainly aren't, though, at least early on in their life span's, they tend to be advertised by their creators as wonders of egalitarian virtue. In any event, the evocative quote, "The Fish rots from the head down" came to mind.

Aquilus said...

Not to get too "How many angels can dance on the head of a pin" but to me the "Everyone knows where we have been" part of Another's quote has always meant: we all have a personal recollection (and interpretation) of what happened in the past.

That does not mean that our interpretation/recollection/perspective is right, and it is just that perspective that FO/A tried to re-adjust - a new perspective for the events we knew, and a new perspective for what was to come.

Same events, interpreted differently depending on perspective.

Unknown said...

Perhaps in keeping with this golden "vein" of thought, I would say that many Miseans, and their followers are huge advocates of the "money as representative of a peoples character" dichotomy.

When we consider that the idea of "honest men earning an honest days wage for an honest days work" was once the hallmark of a productive nation, we can see that a man who produces something which the marker demans (organic value) or when he engineers something, discovers something, cures something, solves a great problem, invents a great service ... these things all have value, which value is measured by the money he receives for the production of his value.

When men like these earn far less than Ponzi thieves who earn easy money bailouts through criminal schemes using free capital and earning interest, profits and winnings upon the losses of others, what does this do to the moral fabric of society?

Time and time again we see the moral fabric of society debased with the representative money, perhaps the most popular citings being the debauchery of Rome in it's declining years, or the debauchery of Weimar Germany in it's pre-HI days of lustful abandon.

And so here I think Chris Hedges has a valid point about where we are today in America, and how the disease of this easy money wealth reserve has contaminated the entire world's sense of honor.

In my day, as a younger man, I had quite a few people under my watch, and I mentored them, and watched them grow with great pride.

But I saw the shift from long term principle to short term gain even in my time, and I can tell you that I left the corporate world because of its internal rot, as I saw it.

Many of those people became friends, and often speak of a longing for those days, when honor and principle held sway over short term profit at any cost. But you see, it is harder to chase after easy money, since it's velocity is so great.

And this does change the thoughts of men, just as the return to honest money will return us to a more equitable world.

Screw fairness, and that assanine socialist-pansy doctrine of Keynesian "fairness". The world is not fair and was never meant to be, just ask the fly struggling in the spiders web.

But an equitable world, that dream can be had, and gold holds the promise to keep men and their money honest, no matter how big our world becomes.

KnallGold said...

http://www.youtube.com/watch?v=ZnF_L5ld3f8

BIS

Jesse McL said...

Aquilus, FOFOA, thanks for the heads-up on that formatting issue with the archives. It's fixed now.

(There may be other issues like that still lurking - though usually easy to remedy).

Cheers,
Jesse.

Unknown said...

Knall,
I'll see your cult and raise you a flood of liquidity, a veritable Liquid Invasion ...

Party to the Flood!!

Michael dV said...

The very intelligent Dan Amerman asks:
What if the current economic and investment reality aligns with neither (A) the continuation of the status quo from the long-gone latter half of the 20th century, nor (B) the collapse of the status quo, but instead (C), the ongoing transition to a new status quo for the first half of the 21st century, which is that of a dysfunctional and increasingly politicized economy, with an ever-smaller share of that economy coming from free enterprise and the private sector?
Dan is selling a DVD set but his ideas are always well thought out.

http://danielamerman.com/articles/2013/DichotomyC.html

Unknown said...

I see that THE TRUTH set Lanny Bruer FREE.

Anonymous said...

Wil,

Great tune! When you walk down the path of obscure early psych, every day can be Christmas.

Fruit & Icebergs?

Knotty Pine said...

MichaeldV,

Thanks for the interesting link.IMHO it seems Mr. Amerman is describing the present situation and extrapolating it into the future. The view presented is US centric. The ROW is left out of his post. The Euro RPG structure is left out of his post. I would tend to agree with Mr. Amerman if he had substituted the word inevitable in the following statement with the word imminent.

"However, the Doomers fall into the trap of the false dichotomy if they invest on the assumption that financial collapse is inevitable, because there is nothing inevitable about a financial meltdown. If it were inevitable, it would have already happened. It should have happened in 2008. If by some fluke, some short term emergency measures only delayed the inevitable, then the meltdown should have happened in 2009. Or 2010, or 2011. For sure, by 2012, the meltdown really should have occurred if it were actually inevitable."

I believe the collapse of the $IMFS is inevitable. The ROW is slowly divesting itself of this system. The timing of whatever replaces this system (freegold?) is anyone's guess. I don't doubt that the status quo Mr. Amerman describes may continue for many years.

Unknown said...

I continue to be impressed with Tustain's remark:
"it is gold which re-appears as the agent of wealth storage and transfer at the junctions between the much longer episodes of representative money."
And in that context, I agree with KP that "whatever it is" will not necessarily BE freegold, as much as freegold will carry you THROUGH it.

I don't like this present system, and I agree with Another that I probably won't like the next, but the hope that freegold may help carry us through it ... well ... that is why I smile
;0)
(with Kudos to Sleeping Village)

Aquilus said...

Jesse,

Thank you very much for the quick action on the archive formatting.

Much appreciated.

Aquilus

Michael dV said...

KP
Yes Amerman is smart but I don't always agree with his assessment. He knows his stuff though and while we may feel he overlooks certain possibilities I believe he always with the read.

Michael dV said...

last line should read...he is always worth the read
I speak better than I type. Lately I find myself making amazing errors typing correctly spelled words that are simply the wrong ones. Fingers are on 'auto-bad'.

ein anderer said...

According to a recent Forbes article, "China is preparing for a world beyond the inconvertible paper dollar, a world in which the renminbi, buttressed by gold, becomes the dominant reserve currency."
http://finance.uncommonwisdomdaily.com/reports/GRH/GO/email.php?ccode=&em=&sc=NMAX&ec=5462102&p=2

ein anderer said...

[[ I’ve seen that the link above is commercial. Yet the analysis which it gives (on China, Gold an Renminbi) seemed to me worthwhile to get listed here. Otherwise: ignore. ]]

Bright aurum said...

A massive GLD puke is in the making!

Unknown said...

Oh there is no question that China either intends to be the issuer of the new global reserve currency -- or many others "see it" that way for them. Too many sources to quote.

Perhaps they too will be the source of the world's preferred form of energy.

When we talk of the current support waning, we should think in terms of how the support will shift, or more importantly, what changes will need to be made in order for it to shift.

The shock of war (generally its aftermath according to A) allowed the former shift of this magnitude ... and all the "Gentlemen 20" talks and agreements were mere tweaks.

This time, perhaps the shock of collapse will germinate a similar "consensus". I do think it could come before the shock of energy depletion for other reasons, moreso than as a response to it.

China's long history is much more interesting than our current lifespan's western thought of a "poor developing communist slave nation". Perhaps that will be the fate of the West in a distant future.

But what China wants may be different than what the world gets.

(MdV, I have found that setting my browser's magnification to "geriatric" helps with auto-bad).

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

I should probably add that whichever nation abandons its oil infrastructure first (at great peril I might add) will gain great favor in this coming change.

It could have been the wildcard for America if Obama wasn't such a compromising Patsy. Clearly this infatuation with archaic energy alternatives such as solar and wind were blessed by the oil cartel - there is no competition here from a standpoint of energy density.

But LENR ?? That is a wildcard!

dragonfly said...

@Aquilus - been there, done that. Game theory doesn't explain what I'm trying to get at. Let's assume that there is a struggle going on between psychopaths and "good guys" in all the various institutions. There's some pretty good evidence for that. Let's say that Gold wants to flow, and has had that desire for a long time. Let's say that the "good guys" want to facilitate that desire, but the psychopaths are hell bent on control. The luster of element 79 has mesmerized them, along with the shadow side of its usefulness.

I don't really care whether the Black Gold thesis is true, and even though it explains a few things, I'll never actually know. It's the psychopath part that gets my attention. It's one wild-card that can throw a big monkey-wrench at the cranium of the superorganism.

What are we doing here if not trying to anticipate the future? How can we leave out fundamentals that are very much in the mix of present and past affairs? If our assumptions have holes in them, our conclusions do as well. GIGO as they say in software-land. Assumptions like - this is a BIS vs. $IMFS thing. I tend to think the gangsters are laughing all the way to the bank on that one.

Remember that obscure document posted a few years ago by FOFOA, the one claiming the BIS brought down the Soviet Union? If so, one might want to take a closer look at the situation. Did the BIS manage the Gold part of the equation?

http://www.deepblacklies.co.uk/gangsters_paradise.htm

If the BIS was involved, is that the same BIS that's coordinating the transition we're anticipating? Or was that some alter-ego BIS, just out on a binge? Maybe Gold really WANTS to flow in the best way, but just made some immature choices regarding dance partners. Can Gold's innate desires make them do good at this late stage of the game?

snip from Gangsters Paradise - “Valued at $35 billion, Russia’s gold reserves were estimated to be 100 million troy ounces - just under 3000 tonnes. Then in September 1991, a palpitating Grigory Yavlinski, the economic supremo, revealed to delegates at the Group-of-Seven industrial countries meeting in Bangkok, that a mere 240 tons were all that was left. Two months later, in November, even that had disappeared. “Not a gram of gold remains; the vaults are empty,” said Victor Geraschenko, chief of Gosbank, the Russian Central Bank.” Gangster’s Paradise, David Guyatt, 1997

Note the date on that.

I guess in any war, intel is based on need-to-know. Question is, what is this war? Who's really fighting it? Debtors vs. Savers? I think not. Euro vs. Dollar? Shadows on the cave wall.

I'm kind of sanguine these days about the outcome. Mostly because I think the superorganism has lost most of the important battles thus far in modern times. Multiple civilizations in Earth's history have gone down for the count, as archeology shows. Perhaps this will be the first time that psychopaths can claim causation, if a rogue asteroid doesn't beat them to the punch. I've had reason to study everything I could get my hands on about psychopathy over the last 5 years. What that study tells me is that they don't give a shit if civilization goes away. They'll ride it down like that character on the A-bomb in Dr. Strangelove.

Aquilus said...

This document from Swift: Swift Renminbi Tracker (slide 7)

Euro outpaces the dollar as medium of exchange at the end of 2012. Stand alone slide 7

Dr. Octagon said...

I have seen a number of recent articles suggesting that China is preparing to back the renminbi with gold. Is there any reason why Victor the Cleaner's excellent writeup of why a US gold standard won't work in the presence of the Euro doesn't apply to the renminbi just as much as the dollar?

I think all this gold-backed renminbi talk is just a bunch of wishful thinking coming from the hard money camp.

dragonfly said...

On a lighter note, symphony perhaps;

As Kurt Vonnegut once quipped, water invented humans as a means of transport. I wonder what Gold itself THINKS about FreeGold? Can it re-invent itself, and overcome its sullied past?

http://www.youtube.com/watch?v=0waMBY3qEA4

http://www.youtube.com/watch?NR=1&v=VRKvvxku5So

and then, picture future Nuremburg trials where gangsters plead that it was the Gold itself that made them do it. That'll be a novel defense.

The real race to the finish line might be something we're not even anticipating. Hope springs eternal, eh?

Aquilus said...

@John Fry

"Let's assume that there is a struggle going on between psychopaths and "good guys" in all the various institutions. "

Let's not assume that.

Let's assume that each entity has their best interest in mind and will play the game accordingly. Not according to my or your morality code. What are the likely outcomes (not certainties)? At the core, this is Another/FOA's message.

Knotty Pine said...

Dr. Octagon,

I have also seen these stories in the last couple of days (mainly on KWN). I read through some of the latest WGC PDFs on China/Gold and can find nothing to support this story (KWN offers no reference for the story). My best "reading the tea leaves" guess is China intends to mark its gold reserves to market ala Euro RPG.

Tyrannyofthepresent said...

John Fry,

Liked your questions a lot, and the lack of certain answers even more. I am sure you don't mean a dualistic battle of good and evil within every institution; more a mixed picture?

Are you a psych yourself? I have had a little professional exposure to it, with even a little exposure to psychopathy, although no special expertise in it. Anyway, interesting fresh take and it is always good to see premises questioned.

One particular question I have about the BIS vs $IMFs dualism is the status of those individuals (Ben Bernanke springs to mind) who apparently wear the colours of both - and I have not even looked through the lists in detail. So there should at least be no undisclosed secrets; the balance of power there is at least not principally about information asymmetry.

Aquilus said...

@Tyrannyofthepresent

May I refer you to previous relevant discussions (hope that's ok by you):

1. BIS comment in Life in the Ant Farm

2. Further comments - same post

3. Further comments 2 - same post

4. BIS paper - see last 3 extracts from it in comment

5. Last but not least: this post from 2010 discusses BIS: Hair of the Dog

Hope these are directly relevant to your inquiry.

Aquilus

Tyrannyofthepresent said...

Aquilus,

Thanks for looking out the relevant reading material for me. I will look through it carefully.

whatever-fits said...

I am interested in hearing any discussion on peoples thoughts regarding the White House Web site petition to Perform an assayed public audit of all the Treasury's claimed 8,100 tons of gold and net of swaps, loans & sales. January 9th the petition on the White House Web site to have an independent assayed public audit of all the treausries claimed 8100
tons of gold started out filling up very rapidly at rate of about 1000 every hours then suddenly at the point of 6300 signatures it
has slowed to a constant rate of about 100 every 24 hour period. No mention of this has appeared on Zero Hedge that I am aware of
or GAtA web site either. Does no one think this is a worthwhile effort?

Aquilus said...

@Tyrannyofthepresent You're welcome. Hope you find them useful

@whatever-fits this blog is dedicated to the idea of gold never-again backing the USD, and as such the amount of gold the US Government has or does not have is irrelevant.

The only link needed is the ability to exchange $ for physical gold at a floating price. No redemption of USD at any Treasury window in the future.

Does that clarify things as to our "apathy"?

Michael H said...

http://www.zerohedge.com/news/2013-01-11/white-house-petition-publicly-validate-us-treasurys-8100-tons-gold

http://www.gata.org/node/12104

Tommy2Tone said...

@whatever-fits
Welcome.
That's part of the circus. That gets old the more you learn.

On a side note, I once knew a real party girl who always said your name. It was her mantra. She was a trip, let me tell you.

byiamBYoung said...

@Whatever-fits,

http://etfdailynews.com/2013/01/07/is-there-any-gold-in-fort-knox-gld-slv-iau-sgol-ugl/

I ran across this article today, and that reminded me to take a look at the petition, which I did about an hour ago.

I had hoped it would have gotten more support, although I am not sure it would force the White House to do anything other than dispense some world-class swirling mists of words.

@Jojo, you may have run across some information I don't know. I've STFB and RSTFB, but have thus far managed to miss the answer. Can you expand on "That's part of the circus?"

Is the gold there?

Cheers


Dr. Octagon said...

If the gold is not for sale, what difference does it make if it exists or not?

JMan1959 said...

Because we (the US) are going to need it soon, lol...

Tommy2Tone said...

byiamBYoung-

Sorry, that's my own category for all kinds of things goin on everyday. The politicians arguing over the euro, over this, that, and everything.Petitions to the White house.Gun control. This wedge issue, that wedge issue. Actually, more I think about it, most anything involving politics. The distractions, imo.

I pay all that jazz very little attention cause what I've gotten out of Another/FOA/FOFOA is that a lot of that crap matters not.

Is the gold there? Shit, I don't know. I don't really care personally. The private gold will flow.
If you corner me, I say it is there. It's being sat upon for after the transition.

Myself, I just feel focusing or spending any amount of time on the little things, takes away from my understanding the bigger things. I try to look at the bigger picture.
Plus, it's easy I think to focus to tightly and end up getting mad or other emotions over shit we really have no control over. (can you say conspiracy theories?)

How does it affect FG? (I ask myself) most often, the answer is it doesn't.

And whatever- I couldn't resist that joke, no disrespect meant.


byiamBYoung said...

@Jojo,

Thanks for the elaboration. I suppose I agree with you for the most part, although if I had 8000tons of gold, I'd look at a freegold transition differently than if I had no gold.

It's so hard to stay focused on the big picture using shrimpish eyes. So many shiny objects.

Cheers

Aquilus said...

@JMan1959 and @byiamBYoung

Please consider the content of this blog. For example consider the idea that mines in a nation's territory are almost certain to become regulated utilities (something like oil is to Saudi Arabia today). With that in mind look at page 13 of this latest World Gold Deposit Research.

Especially page 13. Then look at the Top 50 undeveloped deposits by grade (page 8).

See where the local flow will come from? There's very little need for USGov gold under a freegold scenario. Again I say: no Treasury redemption, just an asset of the Treasury.

Think of gold in the future like the Saudis think of oil right now. It's an asset; it helps to have some readily available, it helps to have the flow set up so that flow can be increased/decreased when needed.

It's not a perfect comparison, but makes you think of it from a better perspective.

Knotty Pine said...

Hi Wil,

I have been thinking about your Paul Tustain quote re golds transitional role "between the much longer episodes of representative money." It seems to me that where people like Tustain and James Turk differ from freegold is the crucial point of separation of monetary roles (SOV/UoA v MOE).

I have been reading/listening to James Turk longer than I have been aware of freegold concepts. He always (I am paraphrasing) refers to gold "not as an investment" but as money.

Both Tustain and Turk (IMHO) seem to view a revaluation of gold as a transitional occurrence as the worlds fiat currencies are devalued. I have never heard either describe a free floating gold (SOV) reserve as a counterbalance to a (MOE) fiat credit system. It seems to me that this separation of monetary roles really is different and crucial to freegold. Time will tell if this time really is different (better?).

Woland said...

Hi Aquilus;

I find an interesting unresolved "tension" between the view
of Mr Johnston with regard to Japan's participation in "The
Sting" of the asian financial crisis,via the BIS, and the view of
Another/FOA regarding Japan's tight linkage to USA (via their
economy being built for trade with the US). If they were in
fact a part of the "Sting", then surely they would need either
(a) prior possession of, or (b) the future guarantee of gold,
whereas ON PAPER, at least, they were "all in" on the US$
as their principal reserve. If Johnston's story were true,
then I would have to say that Another/FOA's contention
that Japan's bond to the US$ would not be severed was
incorrect. Perhaps we can explore this in LV? Cheers!

Aquilus said...

@Woland

Johnston's story strikes me as pretty amateurish in the "they'll just sell their Treasuries and buy gold" and a disorderly unwind of the carry trade that would destroy the current financial system.

1. Liquidating Treasuries en-masse is an act of (financial) war, and is highly, highly unlikely. Plus, like any other paper market, the market can be closed or force settled.

2. I am also personally not inclined to go down the path of Japan possessing gold in quantity already or that they are in a position to extract a future guarantee on gold.

3. If anything, a more normal thing to do for Japan is to simply have printed yen and bought gold, if they were going to go down that path.

4. Any kind of action like the one described by Johnston would have triggered massive bailouts and $ liquidity (similar to 2008). We already saw something similar in the past few years, and the yen carry trade has been dead for a few years already - to be restarted now.


There are many other arguments I can think of, but for right now let's just say that a Sting with Japan as a protagonist and using the carry trade is a pretty crude device.

A much more plausible perspective is that of FO/A regarding the restriction of the physical gold flow that would expose the real value of the dollar in a physical "bank run" that cannot be gamed.

We'll talk more.

Aquilus.

JMan1959 said...

Aquilus,

I didn't mean to imply that the US gold stash will be "needed" to usher in freegold. But am I wrong in thinking it will be a very valuable commodity post a dollar collapse that will help the US: 1)restore confidence in whatever their new currency is (provided we manage it well); or 2)balance any trade deficit/buy oil at freegold prices to entice our partners to trade with us again, or 3) both of the above.

KnallGold said...

Can anyone confirm a rumour that the US treasury is about to sell 1300t of Gold?

Jeff said...

Knall,

That's quite a rumor! I think FOFOA has answered you and the JMan, as to whether the gold is still there, and whether the US would flow it at current prices.

FOFOA: And for those of you that keep asking me if I think the US gold is still there… yes, I do.

(...)

If Congress DID decide to mark the US stockpile of gold to market today it would find it had a new stream of revenue. At today's price of $1,328 per ounce, the US gold would be worth $347 billion. Subtract the $11 billion already on the Fed balance sheet and Congress could immediately ask the Fed to credit the US Treasury with $336 billion new dollars to be spent.

And then, if they let the value of the gold float, anytime the price rises, they could issue more fancy dollar-denominated gold certificates to the Fed and be credited with new dollars to spend. In fact, at a Freegold price of $55,000 per ounce, Congress could retire the entire US national debt without giving up a single ounce of gold, merely monetizing what it already has through the Federal Reserve. But what will really happen someday soon is the additional step of opening the vault and allowing that gold to FLOW again, but at a floating price. With this one move Congress wouldn't have to retire the entire national debt because credibility would be reestablished.

(...)

But the flow of physical gold WILL be reestablished. The world demands it. It doesn't care how high the price goes, only that the flow is guaranteed. Only the $IMFS seems to care about how high the price goes. And, apparently, that is because the $IMFS is the main printer of paper gold. Flow WILL be credibly and sustainably reestablished, which means paper gold WILL be discredited. Flow is sustainably and infinitely guaranteed at a floating, physical-only price.


Jeff said...

" I am not sure what a government sponsored gold window would achieve".

FOFOA: This is a two way gold market, buy and sell, not one way like the old US Treasury gold window of 1971 and earlier. What keeps it stable is the physical-only price. Having official gold available at the banks at a floating price would also help avoid hyperinflation as the dollar loses its reserve function. But gold could actually be bought anywhere, or sold anywhere, at the same price as it could be bought and sold at the official sources tapped into Fort Knox.

Michael dV said...

KG
can't confirm but it will not happen...the last time a Sec Treas promised to defend the dollar 'down to the last' ounce....well... it was over in a week.
I do not believe that the USA can even start to defend the dollar in any way by selling gold. I do not believe they would actually sell any, it would be pissing in the wind. Think about it, they print the world's reserve currency, why would they sell anything to get more dollars. The only explanation I have if there is any truth to your rumor is that there is gold that 'needs to go to the right people'. If they 'sell gold' and it all goes to China or the BIS or some other CB that would be a major signal. If it all goes to some private party that would just be normal criminal activity. That would also be a major signal, it would mean someone at a high level knows something is happening soon. It is probably just an insane rumor.

Aquilus said...

@JMan1959

Sometimes the tone of the comment is different than the intent :)

Confidence in the (new) dollar will be based on the ability to exchange it for real things. And as gold is/will be a reserve asset, the ability to obtain physical (and other real plane things) for $ is what will establish/maintain the confidence.

In the future, with one major change from the past: the change being that the gold pile is not controlled by the USG any longer and cannot be "locked away" again.

It is similar to the reason that oil prices and devalues ("backs") the dollar today because USGov does not control the production, and as such oil prices can rise to debase the dollar when more dollars are needed to exchange value for value.

So the USG does not necessarily need gold, but needs to ensure its currency (in the future not supported as reserve by CBs) can be exchanged for gold among other products.

There obviously might be a period in the beginning of the loss of reserve period in which selling gold in the USA is needed to ensure/kickstart a smooth physical market, but that can't be under this dollar - too many entanglements.

As far as US selling gold to balance the trade deficit, you'd have to think what a US Gov will look like after the exhorbitant priviledge has disappeared. Will it be like Saudi Arabia - selling mined gold they get at a little over extraction cost to fill most of the expenses, or do they re-build an industrial/productive base? Time will tell...

I'll stop here for now, there is work to be finished outside freegold :)

Anonymous said...

Dr Octagon,

I think all this gold-backed renminbi talk is just a bunch of wishful thinking coming from the hard money camp.

Agreed. The could have a gold-backed CNY as a reserve currency only if they would be willing to run a persistent current account deficit. Same as with the U.S. post 1944. Exercise for the reader: Why would this not work with the CNY today (although it has worked with the US$ for decades)?

The other option that will work is to use gold as a foreign exchange reserve at a flexible price - the Eurosystem model.

If the gold is not for sale, what difference does it make if it exists or not?

The gold (a part of it) might eventually be for sale, just in order to cushion the U.S. current account balance that would otherwise rapidly go to zero.

Here is FOA on the question of a possible audit:

FOA (12/19/1999 18:59:35MDT – Msg ID:21368)
Reply

[...] I think just about every other major country (outside the IMF / dollar faction) has private audits of their gold. Too date, it’s mainly been the US gold stocks that have worried people because the dollar is so leveraged over this holding. I understand that the gold is intact, but they don’t want to draw attention to it. Any audit only highlights how little gold is backing the trillions of dollar assets. That’s the reason for the stonewall.

Too a lesser extent, any audit carries overtones of eventual dollar backing. Something the BIS would have a major say in as they could attach it at the old $42 rate. Let’s be serious here, if current international law demands the compensation of German slave labour and Swiss Gold value reparations, all hell would break lose for the payment of dollar backed gold confiscated in 71. Both the official and private levels would be after any gold backing our present dollar. The only way the US gold could come into play would be with a new currency. And any whiff of that process (an audit is the beginning) would literally tank the dollar big! Well before the fact. So, good luck to GATA and MR. Turk!


Victor

Unknown said...

Aquilus,
Perhaps an ounce in the hand is worth many in the ground. The main point of the WGDR, it seems to me, is to stress how rare this asset really is.

As I read it, the US has about 43.5 suspected million plus ounce deposits totalling an ESTIMATED 43.5 million ounces.

@ 32000 ounces per ton, that's 13,600 tons in the ground ESTIMATED vs. 8100 tons above ground, refined, bullion grade gold, already extracted ... or so we are told.

So the yet to be mined reserves represent an estimated 167% of the presumed US stockpile above ground.

In that regard, no country's above ground "official reserve" stockpile really matters much because there's 171,000 tons above ground right now (we think) and that is going to flow to where it needs to, to brake and spur over time.

But to brake and spur properly in the balance trade/payment scheme, it must be real gold.

Therefore, I think it is a worthwhile effort to assay all above ground "official" gold for purity and grade. The one factor, "is it there" must be valudated by "is it real".

There are many credible people out there who do believe that many gold plated (400 oz.) tungsten bars do exist, beyond those smaller bars already proven to exist.

In order for flow to be valid in its systemic role under freegold, we must know what is flowing, and in this day and age of rampant fraud and deceit, it would be good to know that it is pure gold which is flowing ...

Jeff said...

Who are these many credible people?

Aquilus said...

@Wil

Let me give you a different perspective:

Let me re-word:

In order for flow to be valid in its systemic role under freegold, we must know what is flowing, and in this day and age of rampant fraud and deceit, it would be good to know that it is pure gold which is flowing ...

to


In order for flow to be valid in its systemic role under IMF$, we must know what is flowing, and in this day and age of rampant fraud and deceit, it would be good to know that it is pure (non-counterfeit) currency which is flowing ...


I just replaced the words in bold.

Despite existence of counterfeit money today, the system goes on.

Plus gold will not be currency. Assaying will be done when the time come.

See what I'm seeing now?

Aquilus

JMan1959 said...

For what it's worth, I believe the US will over the next three years see an incredible growth in it's manufacturing base. Cheap wet shale gas and crude are bringing billions in investments back home. We could balance the budget in two years if we opened up federal lands to drilling (I know, what about the $100 trillion in unfunded entitlement liabilities?), but hey, it's a good start. Although it will not be without travails for the very poor and those who kept their trust in the system, I think we will come out better than most countries in the end.

Aquilus said...

@JMan1959

There is undoubtedly a boom going on right now.

And with the conflicts being continuously inflamed in MENA the dollar price of oil is staying high - very good for oil projects in the US. It is likely this will continue as long as the $ is the reserve currency (it's what keeps its network value high after all)


But let's "step through the looking glass" to the time when the price of MENA oil is not "goosed". Their price of production is so low that a lot of the shale US sources might prove to be too expensive.

But on the other hand, with the new dollar not having the exorbitant privilege any longer, the cost of labor in the US will be a lot lower compared to real-world things than today. So will that balance the extraction cost? I don't know.

One think I do know, is that a manufacturing boom will occur simply because it will become profitable to employ people in the US vs China and other parts of the world.

So the US will still have resources, will re-develop manufacturing and focus on the real-plane once again.

Who said I was not an optimist? And please don't shoot the messenger when it comes to lower real labor costs :)

Aquilus

Unknown said...

Aquilus,
Yes and no. True, despite the existence of counterfeit money today, the (corrupt and rotten) system goes on.

But freegold is, in part, a way to purge that rotten system with a system which recognizes the utility of true wealth.

So when we talk of RPG, the reference point cannot be countefeit. What I do see is that much privately held jewelry and coin will flow into the realm of officialdom in order that it CAN work as "a foreign exchange reserve at a flexible price" (from VTC above).

I do not see how gold plated tungsten or even coin melt can faithfully fulfill that role. So gold flowing from private to public will be refined into good delivery grade, there is your "when the time comes".

But maybe I don't "get it". It's as if your saying "anything will do as long as it's preceived as gold, and flows..."

And to me, that is the problem with the world today that I hope for freegold to correct. Because with fiat currencies, indeed any paper will do as long as it has perceived value, and as long as all those who trade it accept its perceived value at all levels of the trading spectrum. And that is where we are today, minus the waning support of those who see the implied tax of the dollar, and are unwinding it.

As you have said, "The only link needed is the ability to exchange $ for physical gold at a floating price." By physical gold I assume you mean real .999 physical gold.

I guess the problem of "not getting it" is that you don't know you're not getting it until you finally get it. Maybe there are even more Ah hah moments for me to come. ;0)

As for the credible sources Jeff, I would just say Google it and decide for yourself what is credible and what is not.

There have purportedly been quite a few tungsten bars discovered here and there (besides the story of China finding 6000 from a bonded warehouse) but as with anything you read, you can choose to believe none of it (and half of what you see with your own two eyes) which in this world of deception is hardly cynical at all. But with China selling gold plated tungsten bars themselves outright on the China tungsten website it doesn't take too much imagination to see the irony.

They even sell fake gold eagles, and they're pretty good copies I'm told.

The point here. Assay the gold to remove all doubt. I don't really care what the twisted motives are for NOT doing it, the motives for doing it remove all doubt, which is the point after all.

FOFOA said...

Hello Wil,

"We" don't need to know that it's pure gold that will be flowing in Freegold. Only the entity receiving the gold needs to know it's real. That's all that matters.

If someone's credibility is ruined by shipping tungsten, then they may want to prove that the rest of their gold is real in order to start rebuilding their reputation. But "we" aren't the gold watchdogs. The Superorganism does a wonderful job self-regulating. It doesn't need us to insist that every bar is assayed ahead of time. Besides, who says you can't assay 8,000 tonnes and then pull a fast one and ship a tungsten decoy after the assay?

"We" will likely not be privy to the vast majority of gold that flows in Freegold. If I'm right and the majority of trade is settled in a decentralized way (individuals buying gold), then all we may see is the import/export numbers, or the net settlement between currency zones. And it won't even be called settlement, it'll simply be a portion of the trade. But that doesn't mean the net flow of gold will be assayed every time it crosses a border. It will be up to each individual seller to maintain his own credibility and each individual buyer to be smart enough to avoid being defrauded.

The Chinese company selling tungsten decoys is not committing fraud because it is not claiming they are real. Only someone who tries to pass them off as the real thing is committing fraud. You may not like that they even exist, but it's better to acknowledge that they do than to drive the practice underground and into the black market. I can even think of a few legitimate reasons for wanting to own a few good tungsten decoys, and they have nothing to do with committing fraud. In fact, if they were good enough and cheap enough, I might buy a bunch and fill my safe with them. That way if I ever get robbed at gunpoint, I could give up my "gold" and all he'd get was my tungsten.

There is no legitimate reason for the US Treasury to submit to an audit or assay of its gold. It is an inactive asset right now. The only reason these guys want an audit is because they think it will expose their crazy conspiracy theories. But even if their theories were true, and an audit was performed, it likely wouldn't expose a thing. Because, if their theories are correct, then the Illuminati would find some way to rig the audit.

It seems to me like you are trying to construct a fallacious Freegoldish reason for an audit/assay in the hopes that it would uncover a high level Kirbyesque conspiracy. But in fact, it only matters that the Treasury has the gold it says it has when it comes time to sell it. And then, the purity of that gold only matters to the buyer. If Treasury doesn't have the gold it says it has, then it won't be able to deploy it when the time comes. And if it passes tungsten off as the real thing at that time, it will only be able to do that once.

Here in the real world there is only downside and more downside for Treasury to submit to an audit/assay of its gold. And, it could be argued, that downside extends to the American public as well. So rather than trying to fit conspiracy theories into a Freegold perspective, instead try focusing on how the Freegold perspective rises above the less-likely theories. It's a fun exercise! ;D

Sincerely,
FOFOA

byiamBYoung said...

@Aquilus,

Thanks for that explanation and link. That does broaden the perspective quite a bit.

Cheers

Aquilus said...

I see FOFOA has already posted a response, but I have my rant written so here it is:
-----------

@Wil

Thank you for explaining your thoughts.

I read them and now could I ask you for a favor: can you suspend the burning need to use freegold as the hammer to "purge a rotten system" while reading the paragraphs below?

If you can, read on; if not then I'm afraid my writing will not help in any way..

Freegold is not a moral hammer to be wielded at the system.

As a matter of fact there's nothing moral and/or immoral about it. It is at it's core taking the focal point for wealth in the world today (gold) and de-monetizing it while encouraging its possession as an asset only.

As gold is a simple asset, whereas you may find people that would accept payment in gold (just like today someone might accept swapping beer for hamburgers), for almost every transaction currency will be used.

So gold comes in only when a surplus of currency is ready to be transformed into an asset with long-term purchasing power. That's when you, I, and Joe over there will buy gold, but Steve might buy real estate, and Susan might go for Canadian bonds that yield more than inflation. Or, you might have Richard that is happy buying warehouse receipts from the gold warehouse - fully backed, small storage fee, not lent out.

So when you,I and Joe buy gold, we'll want to buy it from reputable places that sell it (just like you buy your assets today from reputable places), not the back of a truck that gives you the "tail-light guarantee". You'll want a place that has a reputation, and whose reputation would be forever stained if they sold you tungsten and did not immediately rectify their mistake. So, just like today with your bullion dealers, or with your other sellers, societal feedback and fraud laws take care of the gold supply at our level.

In Richard's case, he has a gold warehouse receipt. Assuming that he also is logical and doesn't trust just anyone with his money, he will have a receipt for real gold that he can exchange for such. At this point, Richard does not care about the purity of the gold: it's the company that has to ensure delivery of real gold upon request or else it has the same reputation and fraud charges as the dealer above.

You can also imagine that gold is not even touched as Richard may decide some time later to redeem his note for the current price of gold. It's still freegold, but gold was never moved.

So at the individual level we have seen how purity is enforced.

At the higher level, of say bank reserves, or distributors for gold dealers/gold warehouses the process repeats itself. No one will stay in business and out of trouble with the law (no different than today) if they commit obvious forgery. Using some of the morality logic, you would have to assay all their bars before anyone can go in business.

But that's not how people do it. People will do random spot checks of large quantities and let business relationship ensure further good delivery. No different now or in freegold.

Aquilus said...

(cont)

Finally at the highest level, the inter-country trade settlement in gold and the gold in Central Banks. Is it credible that the massive vault operators are so naive as to accept gigantic shipments without assaying them? And is it in the interest of say the Treasury to "swindle" the purchaser of some of its gold at that time, when the fraud can be immediately traced back - and the gold would have to be purchased to replace the fraud or the reputation of the Treasury will be forever tarnished and a huge premium for assaying every ounce will be charged for its transactions.

So, it's irrelevant if the Treasury stock is assayed today. Going through the assaying process for an innert asset (in the Treasury's official view) is just trying to validate a conspiracy theory.

As I tried to explain above for the multiple levels, assaying the Treasury stock of gold is an exercise on futility if the reason is to protect the gold supply from fraud. It's the Treasury's business at the time it decides to mobilize its gold stock to deliver credible gold bars. It's not your business or mine, it's the business of the entity that receives those bars to verify that they are real or complain if they are not.

So if you're looking for fraud, this is the wrong place to look. And if you're looking for freegold to give us a better MORAL system, I'm afraid you'll be very, very disappointed.

The only thing freegold will do is to give us a decent way to protect the purchasing power of our savings. That's a lot! But it does not change human nature one bit, nor does it improve it.

That's my 2c for the night. Good night all.

Aquilus

byiamBYoung said...

@FOFOA /Aquilus,

Excellent! Thanks for adding so much clarity to this topic.

The only point that remains, stubbornly, for me is the mindset, and behavior, of the USG based upon their exclusive knowledge of what's actually down there in those vaults.

8,000 tons of gold is, by any measure, one hell of a lot of gold.

As I see it (Caution: May be lame): If the USG minivan is headed for impact against the USD implosion wall, one ginormous factor that would influence official government behavior (as we careen toward the wall) is whether they can depend upon a known, intact 8000 ton golden airbag ready to deploy and buffer the impact; as opposed to a tiny, flaccid goldless balloon wannabe, wich won't offer any cushion whatsoever.

How might the USG telegraph their vision of the unfolding transition, and how might that differ under the two scenarios?

It seems to me that understanding this set of dynamics better could yield key indicators of the official view of unfolding events, and advance understanding of imminent developments.

Knowing if the USG has a big fat golden airbag or a saggy, gold-free bladder could be very powerful information to inform us shrimps. I'd love to find out which they have down in those vaults.

Thoughts?

Cheers



Aquilus said...

Can't resist, one last answer tonight

@byiamBYoung

Let me turn the question to you - it might be easier to understand:

Ok, let's say the conspiracy is right. Suppose they only have 1000 tons.

So what?

They will not back the new currency with it.

They do not need to pay their old debts in it.

Their expenses are minuscule in new dollars. Every expense referenced old dollars and must be re-indexed, but nowhere near to current levels as they can't use the exorbitant privilege any longer (Yes, pensions, USG salaries,etc will buy a lot less real stuff - that's how it is all over the world in cases like this).

The only use they have for that gold is to ensure a smooth, floating price, functioning physical market in bullion, but that does not deplete the reserves and they buy and sell for liquidity only.

Ok, maybe they use 200T in the first years to make up for some funding shortages. Mines should more than make that up.

Again: the Treasury's gold is no airbag. It would be an airbag if it backed the currency, but it does not.

The credibility in the new dollar comes from:
1. Balanced budget - no deficits they can't cover
2. Ability to purchase real goods with it including bullion (at world prices)

So the idea that the US Gov's gold is some last-ditch currency reserve is flawed. The stuff will stay in the vault then just like it does now, and a very small amount will ever move.

Done for real tonight. Goodnight all.

Aquilus

byiamBYoung said...

@Aquilus,

Thanks for staying up. I'll consider your answer with a fully functioning brain in the morning.

Cheers

Edwardo said...

FOFOA wrote:

"The Chinese company selling tungsten decoys is not committing fraud because it is not claiming they are real."

With all due respect, I think you are missing the importance of this phenomenon which is that said manufacturer is creating a simulacrum designed to deceive. The fact that fraud will be committed at a degree or more remove from the originator shouldn't give any one much comfort.

FOFOA said...

Hello Edwardo,

I'm not taking comfort nor do I think I'm missing anything. I'm simply pointing out how it is. And as I said, I wouldn't mind getting a hold of a stash of those decoys at the right price, so I can see legitimate rationale for realistic reproductions for security purposes. I do understand the confidence problems (especially among shrimps) associated with having them exist, but that doesn't change the fact that they do exist. And I'm well aware that there will always be people who will try to pass them off as the real deal. Maybe even someone who paid the 24K price himself. I'm certainly not buying on Ebay.

If you question one of your coins, cut it in half. It will cost you very little in terms of the revaluation. Heck, maybe cut coins will come into fashion since they will be harder to fake! ;D Trust that dealers do not want to be passing these things along because they have a reputation to protect, and they will do spot checks just like that to assure they are not. There's a lot more real gold in the world than there are tungsten fakes.

Sincerely,
FOFOA

Michael dV said...

the fakes I have would never pass in a shop, way to big (the ones that weigh right) and poorly done detail in the coins. If I ever have to give them up in a home invasion I hope the robbers have never seen real gold before.

Tyrannyofthepresent said...

Aquilus,

I have reviewed the links on the BIS and also reviewed potted bios of every BIS Board member.

Before I start going into detail about the increasing influence of individuals with US banking sector / IMF history in the BIS in the last 5 years, has anyone already addressed this narrow point? You could draw a graph showing how the balance of power between US / IMF / US banking sector influence and nonaligned influence has shifted.

Noyer and the Belgians cannot run the thing on their own.

It completely undermines the BIS/IMF duality.

But someone with a meticulous approach must have already done this detailed work / demonstrated that the above is wrong, since the duality is such a vital premise for the whole story.

Tyrannyofthepresent said...

Aquilus,

Here they are, numbered for easy reference. Ten of these guys need to vote for.

1. Christian Noyer, Paris (Chairman of the Board of Directors)
2. Masaaki Shirakawa, Tokyo (Vice-Chairman)
3. Ben S Bernanke, Washington, DC;
4. Mark Carney, Ottawa;
5. Agustín Carstens, Mexico City;
6. Luc Coene, Brussels;
7. Andreas Dombret, Frankfurt am Main;
8. Mario Draghi, Frankfurt am Main;
9. William C Dudley, New York;
10. Stefan Ingves, Stockholm;
11. Thomas Jordan, Zurich;
12. Mervyn King, London;
13. Klaas Knot, Amsterdam;
14. Baron Guy Quaden, Brussels;
15. Fabrizio Saccomanni, Rome;
16. Paul Tucker, London;
17. Ignazio Visco, Rome;
18. Jens Weidmann, Frankfurt am Main;
19. Zhou Xiaochuan, Beijing

Article 33
Unless otherwise provided by the Statutes, decisions of the Board shall be taken by a simple majority of those present or represented by proxy. In the case of an equality of votes, the
Chairman shall have a second or casting vote.

ein anderer said...

Hello Edwardo,
there are machines out there using ultrasound. Good bullion dealers are using them to detect the real.
http://www.aurotest.com/welcome.htm

Pat said...

For whats its worth, Euro paper gold bitch slapped well below the 1246 level once again.

Tyrannyofthepresent said...

PS on the BIS,

Long-term perspectives on the post-2008 crisis and future perspectives from Claudio Borio, Deputy Head of Monetary and Economic Department and Director of Research and Statistics of the Bank for International Settlements: "on time, stocks and flows".

http://www.bis.org/speeches/sp121109a.htm

Abstract

Five years after the financial crisis, the global economy remains unbalanced and many of the advanced countries are still struggling to return to robust, sustainable growth. Taking a historical perspective, I argue that this predicament reflects a failure to adjust to profound changes in the economic landscape, which have given rise to the (re-)emergence of major financial booms and busts. The economic developments that really matter now take much longer to unfold - economic time has slowed down relative to calendar time - and yet the planning horizons of economic agents have shortened. The key problems arise from the cumulative effects of past decisions on stocks, and yet these effects are treated as short-term flow issues. The risk is that instability will become entrenched in the system. Policy needs to adjust.

byiamBYoung said...

@Aquilus,

Thanks again for helping me along. I think It's starting to sink in:

USG will pay off its debt in nominal old dollars. A new currency will replace the old dollar, and the gold stays put.

This will infuriate the ROW, though, won't it? It sounds like something to start a war over. Might some gold need to change hands to keep the shooting and stabbing to a minimum?

The new USNewbucks won't enjoy the same world reserve currency status, so lifestyles will necessarily crash.

The entitlement crowd in the US will not be happy with a new lower standard of living, though. Won't they be interested in what USG does with the 8000 tons of gold, now valued at $55,000 USNewbucks/oz?

I feel like I'm following you but I still can't get to the point where the world and US citizens tolerate the USG sitting on all that gold, grinning like Tim Geithner.

Am I still missing something?

Cheers


Tommy2Tone said...

"Why would this not work with the CNY today (although it has worked with the US$ for decades)?"

I'd like to stab at this.

Is it simply because they are the source of the majority of goods from physical plane today?
To run a deficit, they'd be importing physical things- the complete opposite of how they are geared up today.

Tommy2Tone said...

I love when I encounter nuggets like the following:

"It is similar to the reason that oil prices and devalues ("backs") the dollar today because USGov does not control the production, and as such oil prices can rise to debase the dollar when more dollars are needed to exchange value for value."

byiamBYoung said...
This comment has been removed by the author.
Aquilus said...

@byiamBYoung

I'm travelling today so I can't do a long answer.

But it's time for me to ask you a favor first. Can you put aside the idea that the US is somehow special or that its people and especially its poor are different than the poor of other countries?

With that let me start:

When the current USD slides out of its reserve role, the holders will be affected. Some will try to cash in their CDS (Credit Default Swaps) others will try to sell, yet others like the bif CBs will do nothing and just watch their Treasuries wither away. How come I see this behavior for the central banks? Because of their behavior today: all holders except for Japan have built up or are feverishly building up their gold reserves. And as the dollar holdings slide and gold is re-priced many times more than the slide of the value of their Treasuries, don't they come up ahead? Yes, the old process of "recapitalization"

The private holders of US denominated debt, will be wiped out unless they have other real assets, but that's not cause for a war.

The banking system is not destroyed in inflation and hyperinflation, but only in deflation - so they should come through ok. Liquidity will be provided around the world so the system survives.

So far so good? Ok, let's continue...

One thing that I want to make clear is this: just because you, I and everyone that comes to this forum is more or less obsessed about gold, does not mean people in general are. Just a thought: Europeans could redeem gold at $20 before and at $35 after that. In the 1970-80s that physical was repriced to an average of $500-$600s. Did you hear any uproar that gold had been revalued up 20-30 times? Did the poor demand the gold? No, not a peep.

Same here. The arrival of freegold will not be trumpeted. It will be announcements in the financial media that the gold market is not physical not paper, that gold is a reserve asset again and that price increased. The average person might not even know what any of those words mean, except that gold went up. So what? Everything else did too. They have bigger problems than to think about that.

As for the poor rising up, are our poor here different than the poor in Brazil, Argentina, Yugoslavia, Romania, Zimbabwe, Belarus, Ukraine, or even Russia when their ruble imploded in the 90s? Be assured that USG will have food and might even have price caps on rent for a while to ensure survival. But the gravy train will be over and everyone will know that it's over because the US had too much debt that imploded and they will accept that the US cannot take on debt again and must live within its means. Any person understands balanced budget - Americans will too just like anyone else.

All entitlements will be recalculated in new dollars based on the new budget. That's it. Simple for everyone to understand that they cannot get blood from a stone.

There's a lot more to say, but I must board my flight. I hope that others that lived through some of the currency restructurings around the world could chime in and give more details (or refute) this.


Aquilus

ein anderer said...

@Dr. Octagon,
- 2017-2020 China’s CB will become the world’s biggest Gold owner (10’000 ts vs. 8’000 ts USA).
http://seekingalpha.com/article/175911-china-to-increase-its-gold-reserves
- China is already the world’s biggest gold producer. http://en.wikipedia.org/wiki/Gold_mining_in_China
- There is almost no export of Gold.
- There is huge import of Gold. 2012: 500 t (more than the ECB ever owned). http://www.zerohedge.com/news/name-new-reserve-currency-china-imports-more-gold-2012-all-ecb-holdings

ein anderer said...

Hi all.
I am interested in a summing up of all forces which could PREVENT FG for getting established.
I am interested in such an analysis for better UNDERSTANDING what is going on.
May be some other readers would be interested in such a summing up too?
Or do you know any posts which are covering this theme already?

Tyrannyofthepresent said...

ein anderer,

Just to second your call for a summary of those forces.

- If it can happen, this is known by all major countries.
- Some will lose by it.
- If they will lose by it, and they can prevent / delay it, they will.

Only one question remains.

- Can they prevent / delay it?

I suppose one could also enquire who they are and how they are doing it, but that is of no real practical importance as long as the answer is yes.

Given the choice, most people would prefer to know whether or not they are going to become fabulously rich overnight.

Anand Srivastava said...

"Why would this not work with the CNY today (although it has worked with the US$ for decades)?"

I think China is not the indisputed leader as US was in 1920s. CNY can not become the main reserve currency. Euro exists. The new reformed USD will still be a big currency. Today we have a plurality of currencies. So CNY cannot take the place of USD.

Another point is that China may not want a gold standard. Instead they would probably go with Euro architecture. If they know that gold is important (and every indication is that they know) then they would not link their currency to gold, directly.

Motley Fool said...

BBY

"Am I still missing something?"

Perhaps, the depth and horrors that will be accompanying the HI solution.

After such some international sympathy will exist. Besides which the ROW will be happy to be offered something else than paper at a new revalued price.

They may spend some into the chaos, but it won't help.

...and sure the parasites will be interested in how that gold is used, but even if used to extend the current welfare system post collapse, the rate of depletion will be obvious even the the thickest dullards, and if they decide to take that path, then after some time they will be in the exact same situation is post collapse, sans gold.

Thus expect the loot to be managed very carefully instead and only some spent to smooth things and try to make the gravy train halt slower.

TF

Unknown said...

Aquilius and FOFOA,
Gentlemen, I thank you and I do see your point. It really is not so much an obsession with using freegold as a "moral hammer? (I do like this term BTW) as much as it is an obsessive disgust with the perpetration of paper gold as the real thing. But ... again ... I do see the perspective.

But to "protect the purchasing power of (the common man's) savings". This, my friend is HUGE to me, perhaps the entire point" of all my ranting. And I do see it as a moral improvement as compared to what we have today.

Kirbeyesque conspiracy? Ahhh FOFOA, you know me too well, (and I am honored that you do) but I like the ranting Canadian. He insenses my own disgust with the Illuminati (or whatever else we want to call them). I get off the train there at ZION, but I like am insider who stands up for the common man (without going all Keiser).

And I suppose it is my own disgust that shades my view, because there is so much sway in CONfidence these days, and I do not want freegold to be called into question by a sudden discovery, when trading partners are tested, that all the real gold is "over here" when it should be spread about more in line with the official reports of who has what.

But again, yes, I see that it is more a process that a static event that will validate freegold.

Truly, it is my lack of faith in humanity that extends to a lack of faith in freegold, an extension of the current "rot" if you will, and perhaps a valium or two will settle this stomache acid and clear the way for me to ask one simple question:

These "gold backed bonds" --is this a door we want to open for discussion here. It is a Pandora's box, no less, but it does give the can a little further to be kicked ... even though it validates the further credibility of gold, depending on what we mean by "backed" ...

Indenture said...

Ah.. I was using the word 'backed' incorrectly. Refresher, the Euro is not linked or backed by gold but instead exists as a companion within the zone exchanged at a ratio determined by the holder of the gold. Potato farmer complexity brain not good pedagogic.

Speaking of 'all' the gold in a zone defending the currency.
http://www.zerohedge.com/news/2012-11-29/visualizing-worlds-gold-mines-and-deposits

Indenture said...

Wil: I wrote my post before I read yours. But for bonds wouldn't it go back to an international law that said no contract could be redeemed in gold?

Unknown said...

Indenture,
Could be. It's a WGC idea, noted in ZH, so they may not be cognizant of that. But the crux would be redemption vs. "backing".

It seems that people are fixated with fixation as in a paper construct affixed to gold at some presubscribed unit value (leftover from the old "standard"?).

Therefore my question may be a bit rhetorical. How do you "back" bonds in gold? At what value?
Well it would seem to me, "at any future value in currency terms at redemption".

Which, in essence, is fully compatible with freegold, since the bond value would float against future currency credibility.

But I'm not sure specifically how they would construct this backing. If left to the imagination of the Ponzineers, they'd fuck it up, but IMHO if constructed under a free floating gold exchange rate, it's not unlike the bond component of a freegold system.

byiamBYoung said...

Thanks again, Aquilus and MF,

The fog continues to lift.

Letting go of the idea that our US politicians won't continue to throw goodies at the entitlement crowd is hard, because that is the way it's always been (at least in my lifetime). It seems almost inconceivable that there will truly be no way to keep the giveaways going. That will be a doozy of a change for many.

After rethinking, it also makes sense that, although even the big holders of US debt will hate to lose all of their held value; there really isn't much they can do about it... other than accumulate gold.

I guess that's another few pieces of my Western baggage I can set down!

Cheers

ein anderer said...

Thank you, Tyrannyofthepresent. Seems to be the only point …

Someone sent me via Mail some more possibilities (?):
- sales taxes on Gold
- customs duties on Gold
- propaganda in the mass media against fake Gold
- less taxes for paper "gold" than for physical Gold
- interest rates for Gold (as in Turkey?)
- to criminalize Gold
- treaty between the CBs: that Gold can be lent and/or sold indefinitely
- Special Drawing Rights for everybody

Ken_C said...

For those of you concerned about fake gold coins I think the issue is way overblown. A simple weight and measure test along with sight inspection will tell you whether a coin is real.

Since tungsten is so much harder than gold a tungsten blank could not reasonably be struck into a good looking coin for later gold plating. Such a coin would have to be machined which would be very expensive and would probably not look nearly good enough to pass visual inspection.

I have been measuring diameter, thickness and weight of my coins with calipers and digital scale. Check the specs and do a visual comparison against known good coins.

I recently found a better way to check them with the GOLDCOIN BALANCE from http://www.goldcoinbalance.com/

You can easily check the one ounce Eagles, Krugs, Maples, Buffaloes, Panda, Kangaroos, and Philharmonics. I have no affiliation with them other than I bought one. Much easier than measuing and weighing.

Now couterfiting bars would be much easier than coins. I stay away from bars and only buy coins.

dojufitz said...

Hello Germany....this is the Fed....

yes we will give you back a small percentage of your Gold that we have been keeping on your behalf....

we have it...don't worry....

it is just that at the moment we are kind of busy...what with everything going on....as you can understand....

So the best we can do at the moment....just give us a little time....

It is going to take 7 years for us to find it, load it, and deliver it....you don't mind do you?

And if you ask for the rest.....it might take longer....hope you don't mind.

Edwardo said...

FOFOA,

Thanks for replying. I can see the utility of fake bars and coins used as decoys, but, I must confess, I have no idea why you said:

"I do understand the confidence problems (especially among shrimps) associated with having them exist, but that doesn't change the fact that they do exist."

since, clearly, I wasn't questioning that tungsten bars exist, but, rather, your sanguine view of it.

Aquilus wrote:

"As for the poor rising up, are our poor here different than the poor in Brazil, Argentina, Yugoslavia, Romania, Zimbabwe, Belarus, Ukraine, or even Russia when their ruble imploded in the 90s?"

If it were simply about the response of this nation's "poor" to their ruination by the ravages of HI, the answer would likely be, perhaps not. But in none of the nations on your list, did there exist anything akin to the (admittedly, now embattled) U.S. "middle class." I daresay the kind of expectations and psychology that exist amongst our middle tier are vastly different than anything we would have found in the poorest cohort of any of the countries you named. Perhaps our middle class will mimic the responses of the "poor" in Brazil, Argentina, Yugoslavia, etc. but, not only would I not count on it, I would suggest that our local authorities, as per a plethora of legislation recently passed that appears designed to deal with wide scale social turmoil/civil unrest, aren't betting that way either. As always, we will see.


Anthony Hopper said...

Interesting analysis, I do not have enough of a background in this area to make a determination as to the validity of your comments. However, I can always check back sometime in the future and see whether your statements turned out to be correct.

Unknown said...

BYoung,
Yes, it will be quite the change when dollars suddenly stop working they way they are "supposed to". The plan, it seems, for decades now, was that they gradually stop working as before.
And that has been the case for decades: gradual inflation, gradual market response and buffer.
But the "plethora of legislation recently passed that appears designed to deal with wide scale social turmoil/civil unrest" as Edwardo mentions above seems to me to be preparation for a SUDDEN change (and an equal and opposite response to it).
This current administration does plan to "kill the dollar" according to Kyle Bass (they've clipped that piece in YouTube a few times, out of the much larger interview) but it's not really a plan, and though they'd like to seem relaxed and just act as though it's their plan, frankly there's no stopping it.

It's like a pilot being shot down over enemy lines and as hundreds of soldiers surround him with rifles pointed, he says. "Oh, I wanted to be captured anyway".

It does make the soldier feel a little less stupid about his predicament ... for about a minute ... then what ??

Now we know why Obama has so often cited an economic situation which he "inherited" ... ad nauseum.

They didn't "plan" anything, but they do believe they have no choice but to oversee the death of the dollar in this second term.

That is what the statement to Kyle is about. That is what Edwardo's cited preparations are for.

RJPadavona said...

Wil,

Big boys drive big toys and sometimes they drive them right through the front door of your very own "house of misconceptions". There's some very big boys who hang around these parts and at some point we've all had their toys driven through our front door. Even the big boys themselves have experienced it. That's how they BECAME big boys ;)

I just wanted to say that you seem to be a good sport, unlike some who get butthurt about having some light shed on their misconceptions. And besides, you're much more productive here than you are when you're hosting that silly Diners, Drive-Ins, and Dives show on TV :)

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

Legs, Legs, Legs. God, I love 'em almost as much as boobs! Since our host has such good taste in music, let's step into the Way Back Machine and have a listen at FOA's homeboys before Billy Gibbons even had "The Beard".

Just Got Back From Baby's


Anonymous said...

Tyranny,

if A/FOA say "BIS" they probably don't mean the entire organization that you have explored on their website. Inside the BIS, there is the so-called G5 group (Germany, Netherlands, Belgium, Italy, Switzerland - hope I get the list of countries right), a sort of Gentlemen's Club inside a Gentlemen's club. You'd probably add France to the list and you have those who informally determine the long term strategy of the Euro zone.

jojo,

To run a deficit, they'd be importing physical things- the complete opposite of how they are geared up today.

Of course they would have to become a net importer of goods and services, quite the opposite of what they have been doing over the previous decade, yes. But I'd still call this 'possible'. The show stopper is that nobody would want to accumulate their CNY in size (without immediately redeeming for gold). In contrast, why did everyone keep accumulating dollars even after 1971?
1) because they were already captive to a dollar centric system and needed it to continue for transactions
2) because they needed dollars to buy oil, and when the U.S. hiked the oil price (think 1974...) and you didn't have enough dollar reserves, you were screwed.
3) because you needed a future stream of dollars (because of oil) and so you needed to export goods into the U.S. in order to get hold of dollars. So there
was an incentive to manipulate your currency down in order to become more competitive, and this you do how - well - by accumulating dollars, aka currency "manipulation".

...

Anonymous said...

ein anderer,

less taxes for paper "gold" than for physical Gold

isn't it true that in Germany, price gains on paper gold (=financial instruments) are taxed at about 25% whereas price gains on physical are tax free of you hold it for longer than 12 months (and taxed as income if you hold it for less than 12 months)? Also, don't they have zero VAT on gold, but 7% on silver, and 19% on platinum and palladium?

It seems some have known this story all along and have setup their system accordingly.

dojufitz,

Angela: Hey, Timmy, ship us the gold.

Timmy: And if you ask for the rest.....it might take longer....hope you don't mind.

Angela: If you don't ship it right away, we'll purchase twice the amount in the open market.

As I said before, Timmy will call FedEx before you can say "GLD Puke".

Now what does this tell us? If Germany wanted the gold home immediately, they would get it. So apparently this is not what they want. Then what do they want? Around 2000/2001 they shipped some 900 tonnes from London to Frankfurt and didn't tell anyone for another decade. Now there is a big media fuss about 50 tonnes per year. Perhaps it is about the media rather than the location of the gold?

Once again, it is one of the typical goldbug fallacies to assume that the CBs of the non-dollar block would fear a high gold price. They don't. One of the reasons why the ECB has not been buying gold constantly, is probably a courtesy to the developing countries - giving them a chance to accumulate the required gold for their opening balance sheet in the new financial system.

Victor

Jeff said...

Who kicked the legs out from under paper gold?

Tommy2Tone said...

VTC-

Thanks once again.

Tyrannyofthepresent said...

Victor,

The following comment you made is extremely helpful:

"if A/FOA say "BIS" they probably don't mean the entire organization that you have explored on their website. Inside the BIS, there is the so-called G5 group (Germany, Netherlands, Belgium, Italy, Switzerland - hope I get the list of countries right), a sort of Gentlemen's Club inside a Gentlemen's club. You'd probably add France to the list and you have those who informally determine the long term strategy of the Euro zone."

The term "BIS" is the subject of thousands of sentences on this blog. You are suggesting that its definition as used here is a novel one. I see three possibilities:

1) It is overwhelmingly used to refer to the entire BIS (with the 19 seats and the gold). In this case the assumption that it is still immune to powerful US influence needs exploring.

2) It is overwhelmingly used to refer to the minority subset you refer to. Possibly in this case the term "Eurozone central bankers" would be more apposite. In this case the assumption that it has the power attributed to it needs exploring.

3) It is referred to variously to refer to one or the other as convenient. Perhaps to the smaller group when asserting its cohesion, and to the larger one when asserting its power. In that case the term itself and the arguments of which it is the subject are incoherent.

The distinction between the organisation itself and the non-US aligned group may have been a fine one as recently as 1997. It clearly is not a fine one now. I would be interested to hear your comments how the term "BIS" is used.

As to the Eurozone itself, I have had some personal and privileged insight into the decision-making processes of parts of the EEC, the EU and to a lesser extent the Eurozone since about 1991, so if it is postulated that this is in fact not the BIS but really an EU / Eurozone interest or power bloc, I do at least have a matrix that would allow me to plausibility-test that.

Tyrannyofthepresent said...

ein anderer,

Sorry but I forgot to mention my own fictional US policy paper on gold - essentially listing methods that "could be / could have been" used to delay Freegold since 1997:

http://tyrannyofthepresent.wordpress.com/2013/01/17/the-gold-markets-memorandum/

All the wildest and most groundless speculation and already linked from here so at the risk of spamming, but possibly interesting if you are just wanting to try a few speculative ideas for size. Would welcome your comments here or there on the feasibility and plausibility of the postulated strategies.

Edwardo said...
This comment has been removed by the author.
Motley Fool said...

VtC

I have seen you mention over the last few months the idea that if the USA were not to return Germany's gold they could go on the open market and buy say twice that.

Ok, well and good.

Let's say this were to happen today.

The USA has what 1500 tonnes of German gold? If Germany were to go on the market to buy that it probably would collapse the gold market...however would they actually get any gold? I think not. And if the USA keeps that 1500 tonnes, to who would the benefit accrue, Germany? I think not.

Sure, the threat has some value, but less than you make it out to be I think.

TF

Jeff said...

The real threat is killing the paper gold market, not whether they actually get 1500 tons (they would certainly get some gold).

Motley Fool said...

Jeff

Sure, the question is (ignoring morality), since killing the paper gold market will necessarily revalue any gold held...of the USA were to keep/steal the gold it already has possession of would the benefits outweigh the losses for them.

They hold about 6-7000 tonnes? for other countries. That's quite a windfall right there.

Is the $IMFS system at it's present state of the time-line worth more than that potential gain.

...

I don't think it likely the USA will steal all the gold they are keeping for other countries, but have to look at it from that perspective since this is the argument made, that they 'cant' otherwise Germany or someone will crash the paper gold market.

TF

ein anderer said...

victorthecleaner:

»isn't it true that in Germany, price gains on paper gold (=financial instruments) are taxed at about 25% whereas price gains on physical are tax free of you hold it for longer than 12 months (and taxed as income if you hold it for less than 12 months)? Also, don't they have zero VAT on gold, but 7% on silver, and 19% on platinum and palladium?«

Yes, true.

»It seems some have known this story all along and have setup their system accordingly.«

This COULD be the right interpretation. Time will tell ;)

Tyrannyofthepresent said...

Motley Fool,

"Is the $IMFS system at it's present state of the time-line worth more than that potential gain."

That is one sparkling analysis.

The question is, this month and this year, shall we:

- Continue to receive tribute from all over the world and enjoy hegemony on shaky moral high ground with considerable unearned material benefits with the uneasy status of global bogeyman / policeman

OR

- buy a huge windfall of real wealth at the price of global opprobrium and subsequently exist without the exorbitant privilege?

My guess is that they are fully cognizant of the facts and have the leverage on every front to make that choice in their own sweet time.

The factors that matter:
- the amount of tribute available
- the costs and benefits of the hegemony
- the unearned material benefits available
- the size of the windfall
- the extent and cost of the opprobrium
- the adjustment required to trade on an equal footing
- ...

ein anderer said...

Tyrannyofthepresent:

Thanks for the reminder. I opened your essay already some months ago - but then time was missing for reading. It’s on my to-do-list again!
But don’t expect too much commentary: I feel like a shrimp in the midst of all the reputed "shrimps" here: some of whom seem to be quite knowledgeable about our financial tower of Babylon …
I for myself FEEL more than really know that things will collapse, and I BELIEVE less and less that there is any soft reform kind of way out.

Yet the way how mankind will handle the situation afterwards seems to be of much more importance anyway.

Jeff said...

MF,

That is the Rickards argument, aka doubling down on the golden outlaw behavior. What would be gained?

The US would have gold, which would be utterly useless; the dollar would have no credibility (this is where I hear Blondie discussing credibility). IMO the US would be utterly shut out by the BIS in the new freegold world, and would have to ship at least as much gold as was stolen before anyone would consider dealing with them again. Of course the US will desperately need credibility at this time, so this would seem to be suicidal behavior.

Thoughts?

Jeff said...

FOFOA: If the coming dollar collapse takes the first waterfall route and hits the riverbed, how would an insane and illogical confiscation play out? Well, if the US dropped out of the BIS to secure sovereignty over its confiscated gold, the BIS would halt all international dollar traffic and probably try to use those dollars to buy gold on the international free market. The dollar would be instantly dead.

What if the US simply declares the dollar dead, confiscates the gold, and then starts a new gold backed currency? Wouldn't that work? I will tell you now that it would never be accepted on the international market as an exchange contract for gold! Even at $10,000 or $100,000 an ounce. The world is not that stupid. The US has defaulted on its gold obligations to the world TWICE now. The first default was 41% and the second was 100%. What will it be next time? No, the US will never be trusted to issue paper promises for gold again! Freegold is the only option!

The US government and the US dollar is caught up in this massive Catch-22 because of its own past cheating actions. This is why a future gold confiscation is simply not in the cards. This is why the Fed will appear more and more INSANE in its futile attempts to save the current system, all the way to the fiery bottom. And this is why freegold is the only possible end to this system.

Bottom Line: It takes AAA credibility to gain the confidence needed to run a fractional reserve paper gold scheme. The US government spent all of its credibility on a failed scheme long ago. And now the current COMEX scheme will face the same fate, thanks to the inflating of paper contract supply to meet demand, far in excess of physical supply, in the sole support of the US dollar printing authority that needed support since it had already defaulted TWICE!

Motley Fool said...

Jeff

Perhaps my caveat wasn't clear enough. I do not see it as a likely outcome, but was forced to take that approach because it is inherent in VtC's argument.

Anyways.

"The US would have gold, which would be utterly useless; the dollar would have no credibility.."

Do you think the dollar has credibility at present (except of the faux nature)? I say it's a matter of perspective, and the perspective here is that the dollar has already hyperinflated, people just haven't noticed yet. It has not credibility in reality, and hence nothing to lose.

"IMO the US would be utterly shut out by the BIS in the new freegold world, and would have to ship at least as much gold as was stolen before anyone would consider dealing with them again."

This 'moral' stance is all nice in theory. Oh noes we won't deal with the USA and sell them stuff or buy their stuff because they were immoral and mean. In practice, trade rules the day. Yes other countries would be pissed the fuck off, and yes they might try to curtail trade, and of course they won't except future $ promises in trade after such, but only real goods...yet how is that different from what they will accept post 'natural' dollar collapse? I mean what are they going to do, start a war with America because they stole from them? Not trade with them on a like for like basis, indefinitely, due to a grudge? Be serious.

"Of course the US will desperately need credibility at this time, so this would seem to be suicidal behavior."

Look. Once the dollar failure(note past tense) becomes apparent, the credibility of their currency is shot anyways.

And once it becomes apparent that MTM gold is what they need to survive, they will do so, and then gold will 'back' their currency in the same manner that it will do so for the euro, and credibility will be established via gold.

Which in this scenario they now have about 20,000 tonnes of. #winning

TF

Ps. Again, I don't think (translates as hope) they will go down this path, but we should not ignore the possibility.

Edwardo said...

Gentleman,

When it comes to TOTP's following data point,

- the extent and cost of the opprobrium

It will be fiendishly hard to calculate anything like the full extent (in both degree and time) of the negative reverberations against the U.S. for the kind of treachery being mooted. Realpolitik may well mitigate some of the more vicious responses, but I'm not sure I'd want to be taking the under on the different kinds of payback that would ensue.

Jeff said...

MF,

Our disagreement seems to be on post-confiscation credibility. I am not so quick to believe 'morality' is insignificant, as most people don't do business with people who rob them. In this sense morality is really practicality; better to have 8000 tons of credibility than 20000 tons of doubt.

Blondie: To call such an action confiscation is to imply that this is the action of a higher moral authority, and I think that I would not be alone in strongly disputing this. However you wish to label such an action, there can be no dispute it is dishonourable.

Rickards said of a post confiscation gold-backed dollar (GEStandard, presumably):
”It would be like, it would be a lot like Bretton Woods... [other nations] they might as well have stayed at home because the US dictated the outcome... We could do it again if we had that much gold, we could say hey, here’s the deal, here’s the new currency, its the new American dollar, backed by gold, all you other people have to peg to it and if you want your gold back, get to work, and, and try earning it and you know we’ll give you an IOU or something.“

(Interesting that Rickards says "we", just as when he speaks about the US dollar later in the interview and switches from floating possibilities to giving "my view" if you are paying attention.)

Where is the credibility in such system?
“...get to work and try earning it...”???
”...we’ll give you an IOU or something.”???

Who would take such a system seriously; the US has already defaulted upon its gold obligations in 1933, in 1971, and then unilaterally “confiscates” the reserves of other sovereign nations to fund a reiteration? I feel it is beyond question that this isn’t a plausible course of action, unless as you say they are prepared to become the USSR 2.0, and that’s just silly. There isn’t enough Canadian oil flow to sustain anything like the current US standard of living.

Anonymous said...

MF and Jeff,

If Germany were to go on the market to buy that it probably would collapse the gold market...however would they actually get any gold?

Their main power is not to have or not have some 1500 tonnes. What's their special power is that the Europeans can afford to bid for gold, not only with their remaining dollar reserve, but even with printed Euros. This hardly damages the Euro, but it would greatly damage the international role of the dollar.

Even if the U.S. "confiscate" (Rickards' dollar-speak) the European gold, the Europeans can keep printing Euros and bidding for gold.

In such a situation it all comes down to the question of whether the U.S. need to trade with the rest of the world. If not, they can indeed afford to say f**k you (go Soviet Union 2.0). But so far, they are a net importer to the tune of some 5% GDP, and a good part of this is energy. So, no, they simply cannot afford to.

All this would change if the "greater U.S." (including Canada) ever became energy self-sufficient. DP called this a hand with five aces. If they ever get close to self-sufficiency, I would expect Saudi Arabia to act well in advance. It would be too foolish to first help the U.S. raise the price of oil and then realize that this very strategy has made yourself redundant. Won't
happen. We will see some action in oil space within the coming 5 years even if the dollar does not fail on its own before then.

China stopped supporting the dollar in fall 2011. It seems the one who used to prop up paper gold might have stopped by now. Some time later this year, the Gulf Cooperation Council will have a special conference in Riyadh to announce their plans for their currency union. Let's see. It is definitely time for one of them to make their next move.

Victor

Motley Fool said...

@Edwardo

Yes.

@Jeff

It seems my (now three) caveats were insufficient.

I do not see this as likely, exactly for this reason, but as VtC also seems to agree, it might be in the realm of possibility.

@VtC

Either way the standard of living for americans are going down. I think they can 'survive' on 5% less imports.

TF


Unknown said...

I affirm the sentiments below:

"Egan-Jones is banned for the next 18 months from rating US government debt. They’ve effectively been silenced from telling the truth.

The lesson here is obvious. Just as in Roman times, bankrupt nations today will stop at nothing to keep up the scam just a little bit longer.

Given that all this is happening at a time when Congress is voting to suspend the debt ceiling entirely, these actions are the clearest sign yet of just how desperate the government has become.

Could the warning signs be any more obvious?
"


Yes they could. As Edwardo clearly knows ;0)

Aquilus said...

New post up (with a message for you RJ)

Wendy said...

woohooo vegas rocks!!

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