Thursday, May 2, 2013

The Dukes of Wetton – A Bedtime Story


Three years ago today I wrote The Dukes of Wetton, and tonight you are in for a real treat. Dixie barber and storyteller extraordinaire
RJ Padavona reads this FOFOA classic for you and your kids.

Freegoldtube started this project a couple months ago, and he's asking a few of my readers to read their favorite post aloud and send him the MP3 file. Unbelievable, isn't it? I mean how many other blogs have anything like this? Soon I'll add an audio posts link to the sidebar, but for now you can enjoy Lisa reading The Debtors and the Savers here, right after you're finished with Boss Hogg and his damned HoggBucks…

564 comments:

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byiamBYoung said...

Brother Wil,

So sorry to seek the fragrant scent of wisdom from our celebrated flora, only to find a vapid "Meh!" as the bitter fruit of said search.

You may be correct, that a quite worthy berry of discovery lies in gestation, waiting for release upon final injection of nourishment from the answer to my above question into the amniotic soup of knowledge that bubbles in the crock of my quest.

We await this bounty together, yes?

Cheers

Anonymous said...

Miners can simply pay dividends in gold. With a high enough price a few milligrams per share per year could be linked to a Goldmoney account.
They will become utilities after the revaluation. The leverage is in taking a position now. A 3-5% dividend for the latecomer pensions desperate for yield won't be exciting, but the early birds will be getting a God-knows-what yield on their pre-revaluation investment.

said...

I thought the mainstream freegold take on miners is that they will be nationalized?

Anonymous said...

That's the problem with the acolytes. Everything is too binary. Some stupid countries will try nationalization only to realize that won't get gold out of the ground. Royalties will go up. Even at a 45-50% royalty, if we are talking about a 30-fold reval, then we are still looking at windfall goldflow to shareholders. There will be plenty to go around, there's no reason to be a pig.

Think about it. You'll get the moonshot cap gain plus a gold dividend. If you are worried about which miner to buy, just do a mutual fund like TGLDX, FSAGX, or UNWPX. Each of these funds has a allocation to physical gold as well, plus what they will do is convert fiat dividends to metal in a HI scenario.

Indenture said...

JR: Can you point us and Mr. Sinclair to the relevant FOFOA post describing miners? (good to have you back)

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

Watching Mad Money with Jim Cramer years ago, I remember he had on a gold company CEO who mentioned the shareholders could elect to receive gold rather than a dividend. I want to say it was GOLD, but I am not sure.

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

@Grumps

I appreciate your post but have some concerns.

1) Some stupid countries will try nationalization only to realize that won't get gold out of the ground.
2) Royalties will go up.
3) .... worried about which miner to buy, just do a mutual fund
4) .... what they will do is convert fiat dividends to metal in a HI scenario.


Firstly, I have no idea which countries will nationalize and which won't. I'd be guessing. I'm sure your guess would be far more educated. For 'which miners to buy'.... well, this is the biggest guess of all because as the paper price declines I expect many miners to go bankrupt. If Barrick is/will-be in question - then I admit my choices - ditto for a Fund manager - would likewise be a gamble. We may end up with only a fraction of miners still in business prior to Freegold. Don't get me wrong - I like gambling. I play poker with my buddies every couple of months. #4 seems like another big guess. Are there historical examples of such? Without being a jerk - it sounds like there are a decent set of circumstances that need to fall a certain way for this to work out positively (ie. not get Nationalized, stay in business through a falling paper price, choose the accurate miner or fund manager and hope you are paid dividends in metal not inflating paper... tack on to that the usual issues with minors; dissolution, fire, floods, strikes, accidents etc... That and using funds to 'buy miners' that is taking away from funds saving in Gold. Well, writing this out - it doesn't seem like such a good idea if I feel confident that FG will be life-altering for those in physical AU...

I'll tack-on a story (facts via an aging memory). I understand Bill Murphy (of GATA) biggest holding was in a stock called ECU - a silver miner. It was hovering around $.50 when it got bought up by AUM (Global Minerals) which was at (or its high at the time was) $26.00. So ECU stock holders received (the option) of getting 1/52nd, or thereabouts, of their ECU shares in AUM. AUM came down to $12, then $8 - then at $5.75 a Hedge Fund invested $40 million last summer. It closed today at $1.63. In October of 2011 it was $28.07.
Disclosure: I`ve never owned any ECU or AUM.
I`ll stick with being a saver rather than a trader.

Cheers,

michael3c2000 said...

@BBYoung
http://truthingold.blogspot.com/2013/05/the-truth-about-gold-being-drained-from.html#comment-form
Dave Kranzler from Denver - May 8, 2013
The Truth about Gold Being Drained from GLD
Excerpts:
"...Let's look "under the hood" at some relevant information that is being left out of a lot of the financial reporting in the U.S. To begin with, the way gold is put into or taken out of GLD is via the Authorized Participants. These are the primary market makers in GLD shares. When they collect a basket of 100,000 shares from buyers or sellers, they take the cash proceeds and either buy gold to move into GLD or buy gold from GLD to remove the gold from the trust. The current list of AP's, at least according to GLD's latest 10-K filing are...

If the price of gold - for whatever reason, legitimate or not - gets crushed, it will tend to generate a lot of selling in the shares of GLD. In turn, that will generate the ability of the AP's to collect 100,000 share baskets and convert those baskets into gold that is removed from the GLD vault and into the "custody" of the specific AP who is turning in the shares...

So where, you might ask, is all this gold going? It's not just vaporizing into thin air. Using today's price of gold, 293 tonnes is worth about $14.5 billion. If you look at that AP list above, all of them except the two hedge fund bookies are LBMA "bullion bank" market makers. Unless these bullion banks are keeping the gold for themselves - and if any of them were, it would have to show up in the footnotes of their next 10-Q - that gold is being delivered to buyers of it on the other side.

So, who would be buying this gold? Based on numerous news service reports, which often seem to never make their way into the U.S. financial media reporting, India and China combined through the end of April have imported somewhere around 700 tonnes of gold, plus or minus 100 tonnes. What's 100 tonnes among bullion bank friends when GLD still has 1,057 tonnes left? Here's one news report - actually from Bloomberg - which is calculating that China purchased around 223 tonnes of gold in March alone...

And here's an account out of India about the massive gold demand there in April and May...

This rabid demand for 400 oz. gold bars from China/India (not to mention Russia, Turkey, Viet Nam, pretty much all of southeast Asia) goes a long way toward explaining the rumors that were circulating during February and intensified in March that the LBMA was in danger of facing a big delivery default.

Layer on top of this the fact that many wealthy families in Europe are now demanding delivery of the gold bars that JPM and other bullion banks are holding custody of. The report on this from my friend was confirmed independently by a source of Bill Murphy's over in Europe. This is exactly why ABN/Amro announced a week before the $200 hit...

So in connecting all the dots, there is no question in my mind that the big price smashing of gold in mid-April was an operation designed to shake loose enough 400 oz. gold bars out of GLD in order to satisfy the enormous delivery demands coming from Asia, India and even within Europe. GLD is the only possible source of above-ground 400 oz. gold bars that could be used to satisfy this enormous demand for physically deliverable bars.

At some point, and probably sooner than most people are willing to believe, this physical demand is going to force an upward "explosion" of the paper derivatives being used to hold down the spot price right now. In 30 years of studying and trading the financial markets, I have never seen contrarian indicators for any market sector flashing as bullishly as they are for gold and silver, which further confirms my view that the metals have bottomed and are getting ready to give those of us who held on the ride of a lifetime."

michael3c2000 said...

http://harveyorgan.blogspot.com/2013/05/gold-and-silver-risejpmorgan-loses.html
Snippit:

"Paul Yusem, financial advisor and a great friend of GATA writes this to Claudia Carpenter of Bloomberg: (Claudia has never stated that gold was manipulated:

Please read his letter carefully!!
(courtesy Paul Yusem/financial advisor)

Hello Claudia,

I noticed in this article that it was mentioned that investors sold 174 tonnes of gold through ETPs last month. Let’s compare 174 tonnes to current supply and demand.
For a back of the envelope calculation, gold mine supply in 2012 was 2,700 tonnes. Since gold production in China and Russia does not leave the country, we can subtract 400 tonnes for China and 200 tonnes for Russia and we are down to 2,100 tonnes. UBS reported that Indian demand is 5 times the average of the last 12 months. Even with gold shortages in India, Indian demand should exceed 1,000 tonnes in 2013. We are down to 1,100 tonnes of gold. Assume central banks purchase another 500 tonnes of gold for 2013. We are down to 600 tonnes. China purchased 557 tonnes of gold through Hong Kong in 2012. China purchased almost 100 tonnes of gold through Hong Kong just in February of 2013. China will easily purchase 600 tonnes through Hong Kong in 2013. We are down to 0 tonnes of gold. This is where it gets interesting.

Investors took delivery of 1,000 tonnes of gold in Shanghai through April of 2013. For an aggressive estimate, we could multiply 1,000 x 3 for end of the year totals. For conservative estimates, we can multiply 1,000 tonnes x 2 = 2,000 tonnes. For confirmation of these numbers, google Andrew Maguire and his futures trading service. I believe Andrew Maguire is in London. You could be neighbors. Wouldn’t that be interesting? After subtracting 2,000 tonnes from 0, we are at – 2,000 tonnes of gold meaning 2,000 tonnes is coming from existing stockpiles.
At the LBMA, investors are taking delivery of 10 to 20 tonnes daily (google Andrew Maguire). Let’s be conservative and say that investors are taking delivery of 7 tonnes per day. That works out to about 1,800 tonnes for 2013. We are now down to – 3,800 tonnes.
Russia has one of the largest foreign currency reserves in the world at $528 Billion and Vladimir was seen holding a gold bar. I am putting Vladimir down for another 500 tonnes over and above the official Russian government purchases for 2013. We are down to – 4,300 tonnes.
I have not even included US demand, Vietnam, Turkey and the rest of the Middle East as well as the rest of the world. Let’s put the rest of the world down for a conservative 1,000 tonnes. We are down to – 5,300 tonnes.
This is at least 5,300 tonnes that have to come from existing stockpiles to balance the current gold market. This 5,300 tonnes I believe is a somewhat conservative number. Contrast 5,300 tonnes to investors selling 174 tonnes and I think you get the picture. I have not included gold scrap in the calculation since existing gold scrap figures are too unreliable.
How about the ultimate contrarian indicator – the small speculator in gold futures? The small speculator is net short for the first time since the 1st quarter of 2001. That was at the bottom of the bear market when the small speculator was last net short gold futures.
Gold futures may be going lower due to futures trading on the Comex. However, the abnormally low price has triggered an avalanche of gold buying. To keep gold prices anywhere around current levels will cost the bankers at least 5,300 tonnes over and above 2013 mine supply.
Have you heard the expression, he who has the gold makes the rules? By the way, how is your Chinese?

Paul"

Dante_Eu said...

Anyone else notice that the total pageviews passed 5.000.000?

Not too bad FOFOA! :-)

John said...

Have another question for all you. Where do you fit Martin Armstrong in your freegold equations? Armstrong seems to have been eary correct about all kinds of markets and he doesn't seem to be supporting freegold at all. Stating things like the euro is dead, gold will crash if paper gold markets close up etc. Kind of makes me sad since I'd really had liked to have Armstrong on our side with his results so far.

michael3c2000 said...

http://theeconomiccollapseblog.com/archives/are-we-on-the-verge-of-witnessing-the-death-of-the-paper-gold-scam
By Michael T. Snyder
May 8, 2013

Jeff said...

Mortymer is at a crossroads. Some of you have followed his research work at AFB. He's done a fantastic job tying together items from the past, helping to create a better picture of the old parts of the trail, even before A/FOA. He's asking for comments and suggestions, so if you appreciate the work he's done, please let him know.

http://anotherfreegoldblog.blogspot.com/

Unknown said...

An interesting take.

And even some good comments.

Unknown said...

Oh, sorry, was stuck in the pre 200 comments freeze, this above was already referenced...

Indenture said...

What will happen to miners during or after Freegold? Will they receive a windfall profit as POG sky-rockets?

FOFOA: the mines will be treated in one of three ways: 1. They will be nationalized as gold in the ground will suddenly be viewed as national reserves (unlikely). 2. They will be forced to sell all production to the government at a low "commoditized" price (less likely). 3. They will be able to sell to the public at market prices but will have to pay a windfall profits tax and deal with many restrictions (most likely).

http://fofoa.blogspot.com/2011/12/unambiguous-wealth.html?showComment=1322888665472#c4872613172909940212

Anonymous said...

The 3rd option is tantamount to nationalization--so the miners will just hibernate until govt comes to its senses and realizes the Laffer curve would yield more revenue at a reasonable royalty.

Tommy2Tone said...

Grumps- you are right. That is a laugher.

Nickelsaver said...

Att Check,

Moving my response to the current thread.

You make the mistake, as many do that the solutions to the inequities that we see in the current paradigm will 1) still exist in the next paradigm, 2) be responded to thru the intervention of the central planners a/o the political PTB.

Freegold is about the savers. And that because the fact that the value that they store in gold is no longer made available for use by those that would otherwise exploit those savings thru fractional reserve lending.

The free in Freegold thus means, the market is the corrector, not the central planner.

Biju said...

GrumpsLabastard


The 3rd option is tantamount to nationalization--so the miners will just hibernate until govt comes to its senses and realizes the Laffer curve would yield more revenue at a reasonable royalty.


Post freegold only Gold is revalued much higher by mass against stuff(oil, realestate, wages. etc).

So in today's dollars if price of Gold post freegold is $50K/oz and cost of production for miners is $1200/oz and Govt imposes a 98% windfall tax, Are you saying the miners will hibernate ?

profit/oz for miners : (50K-1200) * 0.02 = 976/oz.

This is in today's dollars. I would say the profit of 976/oz compared to 0/oz if they go into hibernation. if they do not extract, their mining rights can be given to others who are willing to do that for a profit.

Nickelsaver said...

AC,

I will also add. As it pertains to the movement from the current paradigm into the next, there is going to be a massive transfer of wealth. Those that are positioned in physical gold (the focal point wealth item) will navigate that transition in excellent shape. Those that store value in fiat, even Euro's, will take a hit. The Euro's design is to encourage the saver to save in gold, not in Euro's. And they will not intervene thru central planning to ensure that those that failed to do so are insulated from the realities of the global economic paradigm shift. Although, they will do much better than holders of dollars.

Franco said...

Y'all have to keep in mind that about 80% of the mined gold comes out of third world countries. In third world countries I see nationalization of mines as a highly likely outcome were gold to be revalued to the stratosphere. That is, unless the mine operator is a "friend of the program" and has the right connections, in which case there are many different possible "arrangements" that would keep both government and operator happy. Some of you people need to take a crash course on banana republic resource management policy.

enough said...

Silver demand in India slumps 80%

"demand for the precious metal has almost dried up say retailers, despite the price falling to $848.44 (Rs 46,000) per kilo. Retailers say India's silver imports could drop by 12% to 2,200 tonne this year from the 2,500 tonne it brought in last year."

http://www.mineweb.com/mineweb/content/en//mineweb-silver-news?oid=189512&sn=Detail

Anonymous said...

We are coming to a point soon where the concept of gold being emancipated from the paper market and the theory of the FreeGold Monetary System will be separated. Sinclair agrees with the former:"I agree on the emancipation of gold from paper gold as natural development and its implication, but not the entire thesis which runs in various directions in application of their basic and correct thesis."

It is the FGMS that is flawed. The "various directions" such as no gold lending and no mining are not realistic. The foundations of the FGMS are at root an emotional response to freeze the long wave at deepest Winter, to deny the natural credit cycle of which gold is M-naught, a financial cosmological value that is reset from one monetary regime to the next, be it a gold standard or a free-floating marker.

When things settle down after the reval,gold will still be at the bottom of Exter's pyramid, gold will be lent out again, it will have a interest rate, it won't be in a permanent backwardation, it will come out of the ground but only with great reward, and the value impulse will move on to other asset classes.


gold wires said...

The posting by Bo Polny on JS was over the top. Calling the dates of a potential bottom? Really?

The issue with JS and other sites that are following the gold market is that they have not made the link between the value of gold and oil like Free Gold. They typically use things like Federal Reserve balance sheet size, QEx, balancing of sovereign debts, short squeezes on BB's, etc. as factors to support a higher $PoG. They are probably supportive but the ultimate factor is the oil bid for gold which you do not hear about in the context of discussions on the current $PoG (outside of FOFOA).

This passage helped me get it:

Date: Mon Dec 15 1997 11:06
Allen ( USA ) ID#246224:
Date: Sun Dec 14 1997 18:59
Allen ( USA ) ( More ruminations re: ANOTHER's recent posts ) ID#255190:
Last one on this topic until more ANOTHER posts. I'm not sure that it would be necessary to have that large a cabul in on the "offer" of oil for gold. Given the rather small market in gold in comparison to oil/currencies it would only take one or two well endowed oil states to pull this off. Here's why.

Let's say the Saudi's have been accumulating gold through the back door ( approx. 5,000 tonnes ) . They sell say 20 Mln Bbl oil a day. Close enough. At one ounce of gold per thousand Bbl oil that's 10,000 ounces of physical gold per day. That's a lot of physical gold.

The first few moments after the Saudi's proposal to trade oil for gold at a very steep discount of 1000 Bbl/oz ( approx. 1.5% of current US$ price ) there would be roars of laughter. One fast thinker after another would think "Hey. I buy some gold at $300/oz, trade for oil to receive 1 Mln Bbl, then sell the 1 Mln Bbl for US$ 10 Mln. Net profit is

$10,000,000-$300,000=$9,700,000. Easy money." .

Everyone at once turns to the gold market to buy, which promptly shuts down. Now no one is laughing. Because everyone realizes that gold is now worth at least $10,000 per ounce and no one is prepared for that revaluation. Whoever has gold now has 66.67 times the purchasing power in that stockpile. What appeared to be a stupid offer has now become a complete revaluation of all gold stockpiles vs all currencies.

...

said...

For those who follow both. How closely does bron's view of the current and future gold market match FOFOA's? I just started reading him and he seems much like FOFOA in that he is very simple and avoids hype in his analysis.

Tommy2Tone said...

Grumps-
Please consider a different flower.
That devil's weed is messin you up.

byiamBYoung said...

GLD tonnes went...up!

Franco said...

Luke:

Who is "bron"? Does he have a blog?

gold wires said...

Franco,

http://goldchat.blogspot.com/

Franco said...

"bron" seems like a bit of a...hmmm, what's the proper word... Well, whatever. His latest blog entry is about his entanglements with the blog "Dave in Denver". His next-to-latest entry is about his entanglements with the Turd Ferguson blog. Took me a minute to form an opinion.

JR said...

Hi GrumpsLabastard,

If gold is emancipated from the paper market, how do you lend gold?

Doesn't the lender get a promissory note?

ampmfix said...

Interesting, Basel III adopted by gold producers?

http://www.globalresearch.ca/the-basel-committee-and-the-global-banking-mafia/5334459

Anonymous said...

The paper market will be re-engaged at a much higher level after the system stabilizes and credit growth ensues. Gold will be the best collateral and will anchor the system.

The first years of this blog did a great job delineating the paper market problem, the inevitable revaluation, and the function of gold to settle trade balances.

But then it went off the rails to concoct this model in which the near maximum value that gold will attain will be held in a separate circuit outside the monetary system in a fantastic wish that savings would never diluted again. That's the emotional root. It's understandable and I empathize, but let's be realistic. How can long term credit markets function if the curriencies that denominate them are only a MoE? That's where paper gold will re-emerge as a guarantee that the bondholder won't be totally screwed.

Just look at the contortions to make the FGMS workable:
1. no gold lending/leasing
2. static supply/no mining
3. Gold outside Exter's pyramid

If such a system were to even get off the ground, it won't be long before a trade zone has exigent circumstances and opts out.

The FGMS model has been an interesting intellectual exercise but that's all. I guess it appeals to classes divorced from real world economics (e.g. govt workers, FIRE workers, CB wannabes, or control freaks in general).

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

Grumps,
99 out of a hundred paper gold holders (in the "developed" exchanges) are going to be cashed out in worthless dollars. It will be financially Apocolyptic for the 99%.

So yes, paper gold may "re-emerge" but I'm not concerned about it. I don't plan to be around in the year 2083.

Ventriloquist said...

One day, FOFOA, you will be able to enunciate your points so that a 12-year-old can understand them.

One day, FOFOA, you will drop the dense and turgid prose that you speak unceasingly.

One day, FOFOA, you will learn to speak plainly and clearly so that the many will understand what only the very, very few do now.

One day, FOFOA, you will learn to communicate to all the rest that cannot understand you now.

One day.

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

Either Sinclair has skipped his dose 2 days in a row now or he's on the ESF slush fund payroll. I mean, when you go on record saying:

"It is much more than gold that simply is not there.
The system is getting ready to close on you. The longer you think about it, the less probability you will escape the great train robbery of deposit accounts.
I might tell you the real economic story, but I do not think you can handle it. I do not believe there is any other writer out there that knows the real story. It is much more than gold that simply is not there."


It does FOFOA/FOA/A (and followers) a disservice to be associated with FREEGOLD and in the next breath toss out bizarre equivocations as in the above.

What in the blue fuck is "not there" Jim, your medication? Or perhaps an explanation of what "ventriliquist" is trying to say above(that is certainly "not there").

If Jim would calm down and visit the garden of knowledge, there he would find the flower of understanding and then perhaps he would be so kind as to reveal to us, for I'm sure we could all "handle it" whatever in the Hell he thinks is "not there".

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

One day, ventriloquist, the hand will be removed from your ass releasing the grip on your brain... the blood will flow again and all will be understood.

One day, ventriloquist, there will be "brain pills" to help those with reading comprehension issues.

One day, ventriloquist, this post and yours will be deleted:)

We can only hope...

Roacheforque said...

@sleeping +10

byiamBYoung said...

ventriloquist,

Respectfully, RTFB. If that is too tall of a challenge, then find someone to read it and paraphrase.

The destination is well worth the journey.

Cheers

milamber said...

@Luke,

Bron doesn't put a lot of stock in Freegold as far as I can tell. He is most definitely worth following and his prior posts on gold are very informative, IMO.


Milamber

Anonymous said...

Reading the theory is not enough w/o critical thought. Very few on this blog have even thought thru how the FGMS would work. All they see is the windfall gain and the promise it will never go significantly down in value, thereby relieving one of ever being in the game again.

Any dissent is rebutted weakly with old bullet points just indicating the lack of comprehension of what the FGMS entails.

Don't conflate the revaluation with the monetary system model proposed on this blog. There has been no indication that what is emerging is a FGMS. There is a good chance that gold is revalued at only 7-12K, a value to make it 15% of forex reserves. Then it may only track global M3 over time maintaining its nominal price level, but the future value gains will be in other assets.


Your savings after the reval will not be insulated even if in physical gold. It will be dragged kicking and screaming back into the game whether you realize it or not. The FGMS is a shrimp's fantasy of being in the league of the real owners, insulated from the travails of human farming.

Anonymous said...

Another point.

After the reval the system will be delevered, balance sheets cleansed, setting the stage for economic expansion, new industries, new technologies.

And you want a system that will retard this, isolating savings/capital from the monetary plane?

Think the ROW will sit still for that?

One Bad Adder said...

tintin: - apologies for my tardy response to your enquiry ...and Wils erudite reply.

A "vanilla" explanation on "Cause and Effect" of the $PoG price-drop.
Say you're a Bullion Bank and have 25 oz Physical Au. You seek and are granted approval to engage in Business on a Fractional Reserve basis and ...given that Au is such a "barborous relic"...the "reserve" is set at 2.5%.
So off you go, issuing certificates (initially) for 1000 Oz PaperGold.
Business is good and in no time your GOLD "assets" have increased to 2500 Oz and your Paper liabilities now run to 90,000 Oz ...with a 10,000 Oz PaperGold "float" to cover contingencies.
So far so good ...as this is basically how Paper-based Banking is conducted anyway.

You're pretty comfortable as even when the market insists on (say) a 5% allocation to Physical over Paper, you position yourself as the ultimate beneficial owner in ETF's and the like.
When however this Physical demand (a)increases substantially and (b) begins leaving the "system" (going to say China), you have a real problem maintaining your pre-ordained 2.5%ratio.

...and with no "discount-window" available - What to do?

You CAN throw some of the float at the market in an attempt to encourage "liquidation" of your liabilities and thus claw back above the threshold - yes?
There is Another leg to this stool ie: the currency ($PoG) reaction ...which under the usual circumstances would've seen $US rise as $PoG dropped ...however DX didn't budge this time - which led me to conclude it was primarily a "Bullion-related" event.

M said...

@ GrumpyBastard

"After the reval the system will be delevered, balance sheets cleansed, setting the stage for economic expansion, new industries, new technologies."

Yeah and what are the people that profit from this economic expansion going to do with their gains ?

Buy US treasuries ?

#Whooooosh

tintin said...

Thanks OBA, very plausible explanation.

Separately, Another/FOA envisioned USD system collapse at the turn of the century. China's entry into the WTO in 2000 and subsequent recycling of surplus USD into USTB extended the $IMF$ system by more than 10 years.

Would Chinese housewives rush into physical gold in recent weeks change the POG trajectory? How can the IMF/FED allow POG to drop to say $500 if that would cause the UST to empty its vaults to satisfy the physical demand?

POG won't go up much for various reasons, but the system can't afford POG at under USD$1000 either.

Is this reasonable?

ein anderer said...

Nice quote from yesterday’s Christ Martenson’s on Casey Reaearch (emphasis mine):

Along with this feeling of unease, one line of thinking I have is that gold and silver are getting closer to the day when you or I will not be able to purchase physical bullion at any price. Were a major bullion bank to openly renege on its lease commitments, or the LBMA or COMEX were to declare force majeure and fail to deliver physical, all domestic stocks of gold and silver bullion would evaporate for all practical purposes.

Piece is worthwhile reading because of the calculations and data of US Gold leasing, who owns it and where (Fed, Treasury Department) and much more.

http://www.caseyresearch.com/articles/why-there-may-be-a-lot-less-gold-than-we-realize

One Bad Adder said...

tintin: - I don't think China had such an impact on extending the Dollar time-line mate - other factors came into play.
...and the China Physical off-take is simply a contributor (albeit major) to the current "problem".
The "third-leg" ...currencies (ref: above) is where eventually the systemic achilles heel will appear, and $PoG will suffer accordingly.

HOW it drops (slowly or quickly) will be a good indicator of systemic stress ...and where it stops?? who knows, or cares! If what appears to be (a) Bullion-Bank related event as above, it could all come unstuck rather quickly IMHO.

I'm quite surprised not to have heard tales of Mine forward-sales lately - probably "confidential info" eh?

Anonymous said...

The debt load will be gone. The capital will be in gold for the most part and unfurl from that point to start a new credit cycle. Having gold and mining shares places you upstream on this credit river. You'll have first crack at undiluted base money like a primary dealer of today.

Savings from an expanding economy will go into stocks, RE, private businesses, and yes, even debt instruments yielding a real positive rate. After the reval the paper derivative structure that has kept rates negative will be gone. Gold will hold its nominal price level roughly drifting to match global liquidity, but the real gains will over until the Summer.

Edgar said...

"Gold Lease Rates Spike", http://seekingalpha.com/instablog/839735-katchum/1844311-red-alert-in-gold-lease-rates

Indenture said...

It has been stated on this blog that after transition an international law will be passed which simply states no debt can be forced to be paid in gold.

Paper derivatives of gold vanish.

Problem solved.

Roacheforque said...

OBA,
Excellent offering, and I would add that this:
"HOW it drops (slowly or quickly) will be a good indicator of systemic stress ...and where it stops?? who knows, or cares!"
That is really the CRUX of it, as the complications to this process are complex and "interdependent".

For example, as I write this, if the daily Nynex elevator arrives as scheduled, "Going down?", we will indeed see 13XX today as the dollar devaluated "price" due to relative dollar strength, and the fact that the price discovery mechanism of paper gold treats it as a commodity.

What's that? I think I hear Freegold knocking.

Anonymous said...

@Wil,
Re: your comments on Sinclair off his meds, lolz, cracks me up.

I am not trying to defend Sinclair, but I do recognize that people in his position have to speak in a way that their audience can currently hear while they try to then extend and deepen their audience's understanding. When Sinclair says lots of other things are not "there," I don't know to what he is really referring, but I can hypothesize that he is speaking in a way that will be "understood" by the "common man."

E.g., most people think that their bank deposits are "there", and that the evil overlords are going to "take" them. Anyone who knows the real legal regime regarding deposits knows this is loose talk. The second you give your credits or actual cash to a bank, it is no longer "there." What you have is an unsecured promise from the bank to give you those credits or cash back.

Similarly, lots of people think they own stocks, corporate bonds or Treasuries, yet most of these are held in street name in brokerage houses and very few people have possession of actual physical certificates. A person who suspects that banks, brokerage houses and others involved in this system may be less than honorable people might question whether, if all of these rights /unsecured claims to these paper assets were converted into physical possession, there would be a one-for-one correspondence. That is, when a major crack-up comes, a lot of people may discover that their stock, bonds and Treasuries aren't "there," and that what they have are claims for unsecured promises against now insolvent banks, brokerage houses or other institutions.

I am currently litigating with Chase over my first mortgage, which is supposedly owned by a securitization trust. The original note is endorsed in blank. This means it is bearer paper, i.e, that he who has physical possesion of the note is, absent fraud and absent actually knowing there is a problem with the chain of title, the "holder" under the UCC who is entitled to payment from the maker of the note. A lot of these securitization trusts don't physically hold these bearer instruments; they are held by banks or trust companies under custodian agreements. Legally, this means that the trusts are not holders, and what the trusts really have is a contractual right to receive payments from the servicers and a contractual right to obtain possession of the physical note, which they might ask for, e.g., when they need to demonstrate that they are entitled to foreclose. You can't perfect a security interest in a bearer instrument except by actual possession. This means that the trusts' rights to payment and to obtain possession of the actual notes is unsecured.

Guess what can happen if the banks just transfer the notes and / or sell them in a collateral grab to support weakening derivative positions (Lehman) or use these instruments to make payment on their deriviatives in a massive derivative collapse. The securitzation trusts, the certificates of which are held by many pension plans and insurance companies, will suddenly have very few assets and will be left with a right to sue the insolvent banks upon the banks' broken promises to send them mortgage payments and to give them the notes.

So, again, for all I know, Sinclair may be becoming unhinged, but on the other hand, lots of things aren't "there" that people think are "there." FOFOA is the only person I have read who over and over makes the point that "wealth" is not money or promises but actual UNAMBIGUOUS physical possession. Many many people are about to learn this a very hard way.

Pat said...

Sir Tagio, I echo your sentiments. I think your explanation is exactly what Jimbo was obliquely referring to. And your second to last sentence is really the crux of the matter, isn't it? No matter how many of the theses contained within the overriding Freegold gospel unfold as predicted, that sentence is the core truth, the one thesis that is more important than anything else. For example, the whole euro discussion while interesting, doesn't really matter in the end ( to me at least ). I mentioned similar notions about where Jimbo was coming from in the past. I doubt most of his flock have the attention span nor curiousity to delve into FG; he has given the trail path to those who might. Also, he believes his situation with the Tanzanian gov is uniquely secure, and would have major disagreement with the FG stance on mines. I happen to agree, not all mines in all countries will necessarily be treated the same.
Sir T, fantastic post.

Pat said...

P.S The Sinclair post deriding TA followed by a CIGA's TA post was pretty funny though. Doh!

Anonymous said...

There again the self-referential defense. An international law? Do you see the hoops that have to be in place for a FGMS? The denial of natural financial forces to make it work?

You want to know what's coming? A clue is Turkey will allow shrimps to deposit gold at banks and get interest on it. How does this square with a FGMS?

Ken_C said...

@indenture:It has been stated on this blog that after transition an international law will be passed which simply states no debt can be forced to be paid in gold.


How does one "pass" an international law much less enforce it?

Archer said...

Gramps wrote:

There is a good chance that gold is revalued at only 7-12K, a value to make it 15% of forex reserves..

Honestly, I do wonder where you come up with this nonsense.

A good chance? How about no chance. that range smacks of Jim Rickards, or, perhaps, Jim Willie, but it doesn't really matter if it originated there or in your head. Freegold is not, in any event, about retiring debt, despite that being a very felicitous effect. In any case, were it about balancing balance sheets, that 7-12K wouldn't cut it. Once gold in size goes into hiding-did you forget that part of the thesis- 7-12K isn't going to begin to coax it out.

You suppositions strongly imply, where they do not baldly state, that the same entities who brought us to this point are going to be dictating the contours of the next system. They aren't.

Andrew said...

GrumpsLabastard,

I think you're mistaken to refer to Freegold as a monetary system. It is my understanding that Freegold is about a fundamental change in the way physical bullion is viewed by savers, it is not a system. The idea is that gold will no longer be viewed as money but just as a wealth asset, like fine art and rare cars and collectibles are today. Does anyone today engage in long term credit agreements denominated in chateaus, Van Gogh's or first run Ferraris? If Freegold is about anything, it is about this. If savers will not undergo a fundamental change in their perception regarding physical gold, than Freegold rests on sand.

(I await corrections from the regular contributors)

-Andrew E.

ein anderer said...

@Grumps,

the Turkey story has nothing to do with FGMS. Because because because: FGMS is a story of the future. Not yet implemented! (Waiting patiently …)
Turkey story is a story of today. You’re lending something to the bank – your coins, your banknotes, your gold, whatever – and gone! Where it is now? Oh, on a sheet of paper! Wonderfull!
And now: It is laying there untouched, yes? Nobody cares, yes? It’s firm and safe and protected, yes?
Well, wondering why they get interest instead of paying some storage fee!
Come on. What do you mean? How the bank is financing this interest?

ein anderer said...

If savers will not undergo a fundamental change in their perception regarding physical gold, than Freegold rests on sand?

Or:

If the net result of our fraud money – collapse of the derivates, then collapse of the dollar (or vice versa) – ends in smoke and Gold is free (from derivates) then "savers" (better: investors, speculators) will undergo a fundamental change in their perception. There's nothing else for them than this. Very painful.

Yes. Everybody who pays something somewhere someone and receives a note, a bil, a paper, is an investor ONLY. Humble, innocent, ignorant. and yet an investor. "Give me interest! Give me more!"

No "saver" at all. Savers keep. Don’t lend.

tEON said...

Grumps,
Let's go over some of your recent statements.

Some stupid countries will try nationalization only to realize that won't get gold out of the ground.
And what if you bought miners in a 'stupid country' without knowing it was 'stupid'. I suggest to you that ALL countries can do 'stupid things' and your guess which ones will or won't Nationalize is just another of the many gambles you are encouraging. I think that the large miners that will be left prior to FG will welcome nationalization to stabilize their business - most CEOs there are already arm-in-arm with the government (can you say "Barrick"?).

what they will do is convert fiat dividends to metal in a HI scenario
Is this written into a contract? where? I'd love to see it (not that contracts won't be broken anyway - they will). Is this in your fantasy, Grumps? Sounds wonderful to be paid in Gold while the world is pulling their hair out with hyperinflation. Sure, sure - very realistic.

Very few on this blog have even thought thru how the FGMS would work.
Have you taken a poll, Grumps?
I suggest that so much has been 'thought thru' and debated endlessly with more effort than you can imagine (even outside this blog - see sidebar) and to detail you simply need to RTFB and STFU.

It is the FGMS that is flawed.
Because you have thought it thru... right? Like you've thought thru buying mining shares... how is that working out for you, BTW? As well as it has with Sinclair when he said load up on Juniors 2 years ago?

You can do better Grumps. I know you can.

Jeff said...

FOFOA: The term FREEgold seems to be hopelessly confusing a great many of you, especially the ones suffering a myopic obsession with the "elite." So I would like to suggest a new name for this system, which is not really a system at all. It is more like the lack of a system: the dollar reserve system and the paper gold system. Without them, Freegold is what we have, along with whatever "system" develops. It is not something the debtors or the elite can fight. It's just a shift in the perception of savers. Can't change that.

Unknown said...

A physical representation of the markets.

http://www.flixxy.com/the-incredible-power-of-concentration-miyoko-shida.htm#.UYwpvSvJ2fQ

Leverage!!!

KnallGold said...

Surprised some still take the bastard serious ;-)

JR said...

The paper market will be re-engaged at a much higher level after the system stabilizes and credit growth ensues.

Why will paper's credibility re-inflate?

============
How can long term credit markets function if the curriencies that denominate them are only a MoE?

Because credit rests on the credibility of the borrower to repy. Always has, always will:

That early banker who issued more receipts than the gold he had on deposit issued those receipts (lent them out) against the credibility or the character of the borrower—and his promise to repay the debt. We do this all the time in the real economy—issue credit to our clients and receive credit from our vendors based on their known credibility or character and this is what keeps the economy running. There is not a monetary base unit set aside for each unit of credit we extend to our clients. If there had to be, the economy would grind to a standstill.

Centralizing, aggregating and harmonizing this system of credit (money!) was an evolutionary leap in the right direction. Banks created a fungible credit system that could be centrally cleared. No longer did I need to extend credit directly to my client (although I still do to some extent), but he could get some of the credit needed to get the job done from his bank and pay me a deposit so that I could give my vendors a deposit. This is how money lubricates the economy!

And this credit (money!) is not backed primarily by gold, property or any kind of collateral. It is backed first and foremost by the character of the borrower and the credibility of his promissory note. Additional backing (like collateral) can lower the risk of loss through default and can thereby lower the interest rate. But collateral backing is in no way a universal element of credit (the pure concept of money).


http://fofoa.blogspot.com/2012/11/moneyness-2-money-is-credit.html

ein anderer said...

Knotty, +10

Reading now the beautiful illustrated Studebaker Effect from January 2011.
Big lesson about Saving and Savers too.

Roacheforque said...

Sir T,
There you go, perfectly, succinctly and elegantly stated, many things, along those lines of explanation are a fantasy, a mirage, based solely on confidence, what have you.

And I think your explanation may indeed be what Sinclair is referring to, but his allegorical smoke rings leave far too much open to interpretation, and to claim that there is " (no) other writer out there that knows the real story." is bordering on delusions of grandeur.

To make such grandiose claims with no supportive evidence ... but OH, that's right, we "couldn't handle it".

I think Jim should check into the flight schedule for the earliest trip back to this side of the Cuckoos nest and just say what he means, as you have, if that is indeed what he means, because frankly I think more people are aware of it than he realizes. It's just that his loyal followers pander to the idolatry, which may have him skipping the adderal.

To your point, I do respect his experience, but put little credence into such utterings as compared to the rock solid rational thinking and logical analysis that FOFOA has brought to the table, and whose thunder Sinclair might hope to steal, but not with iterations like that ....

And BTW we did scallop down to 1420 along the paper train before the herky-jerky back up to square one. Not 1390's yet but we'll get there :)

Anonymous said...

BIS white papers is where I got the 15% forex figure. Yes, I'm a geek I read the stuff.

The problem with bullion after the transition is that most shrimps need income on savings. It's very tough to catabolize savings with nothing to mitigate the burn rate. Gold won't be viewed as a wealth asset by the public. It will be insurance against systemic collapse. Why hold a large position in a yieldless asset after the transition? Real interest rates will be positive.

Yes, the Turkey story shows that gold will be fractionated and lent out. It will be a portion of a bank's reserves after the transition. The story shows that gold is moving into the system (Sinclair), not away & outside it in an isolated circuit (FGMS).

The best way to play the miners is via a mutual fund. You might as well be the elephant that moves a stock rather than guess where it's stepping. The nationalization problem will be hyped so that big money can take a position--it's the oldest grift out there. Actual expropiations will be a very small percentage of the sector mostly taking place in third way countries like Venezuela. There's risk in everything, but it is definitely outweighed by the opportunity. Even if a fund loses 10-15% to expropiations what does it matter when the remaining portfolio is a ten-bagger throwing off dividends like a MLP. The funds and miners already are starting to hold gold as a appreciating cash reserve. The question is when will mainstream cash-flush corporations like IBM and Apple do the same? Samsung has woken up, it is financing a gold company in Africa to secure future dibs on a gold.

Yes, I have thought it thru. The epiphany happened in February when I tried to construct a mechanism for how long term projects that wouldn't pay off for years would be financed in a FG world. I couldn't find a way w/o gold being linked. I had a post ready but it would have been long and hard to follow w/o illustrations. Then TotP nailed his 95 Theses to the FG Cathedral. There were disturbing corallaries I came upon. In a FG system with a static stock( no new mining supply), in order to have a real long term credit market gold would have a negative interest rate. Meaning a gold lender would be paid with less gold upon loan maturity but be compensated with overall increased purchasing power b/c the static gold stock would be deflating. Now game theory enters the fray, not all gold holders would participate so what's the equilibrium point and how long would this system be stable?

The payday for mining shares will probably be after the reset when things have calmed down. Eric De Groot has a beautiful chart of the S&P mining index. On it the long wave can be seen. Boring decade long consolidations followed by step function resets. And dividends aren't included.

Roacheforque said...

JR,
You did it AGAIN sir! Always plucking the pefect petal of understanding from the Freegold Flower to fit the moment. I salute you!

And to follow in those thought-steps, it is the complete revocation of all sensible risk control in the credit evaluation spectrum that brings us to this point in the expansion of debt.

I suspect you have seen the recent Jim Grant interview, but I agree with him completely that the reason we have not seen general price inflation (partly) is the that already long-in-effect hyperinflation of debt, a.k.a. credit, a.k.a. fiat a.k.a. debt derivatives is no longer-can no longer-be restricted by such impediments as credit-worthiness.

So we see hyperinflation finding a home in real estate, equities, and of course mis-priced, mis-risked DEBT!

Which brings us to the massive expansion of financial derivatives and its attendant unrepayable nominal (mostly dollar denominated)debt expansion.

There were several posts by Another which very nicely summed up the role of derivatives, and those who are looking to a collapse of confidence should be well reminded of those brief yet eloquent references. It'll be a "whale" of a general price inflationary dam burst when the finger in that dyke no longer holds.

M said...

GrumpsLabastard said...

"The debt load will be gone. The capital will be in gold for the most part and unfurl from that point to start a new credit cycle. Having gold and mining shares places you upstream on this credit river. You'll have first crack at undiluted base money like a primary dealer of today.

Savings from an expanding economy will go into stocks, RE, private businesses, and yes, even debt instruments yielding a real positive rate. After the reval the paper derivative structure that has kept rates negative will be gone. Gold will hold its nominal price level roughly drifting to match global liquidity, but the real gains will over until the Summer."

That is basically what freegold would look like. So you are in line with freegold more or less. Nobody said that we wouldn't still need income generators and nobody said that lending would cease under freegold.

But shrimps and giants won't be blindly plowing savings into US treasuries or investments, or hiring hedge or mutual funds to do it for them.

If freepaper can has lasted 42 years and counting, don't you think freegold will last longer ?

JR said...

Let's comapre and contrast:

FOFOA: http://fofoa.blogspot.com/2011/11/moneyness.html

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

[..]

To contrast these two important concepts, money and wealth, notice that, conceptually, money is not the item that is referenced, and the item (e.g., a dollar bill) is not money in and of itself. It only obtains moneyness by the fact that it is referenced in valuing other items. True wealth, on the other hand, is, in fact, the item itself. A wealth item is wealth, in and of itself, by the mere fact that it is possessed.


FOFOA - http://fofoa.blogspot.com/2012/11/moneyness-2-money-is-credit.html

FOA wrote that, in antiquity, gold was used as a tradable wealth reserve, not as money.

[...]

It was only when governments stamped official denominations and numbers onto pieces of gold that we can say the money concept was applied to gold. But as I said earlier, it was the number recorded on the metal, not the piece of metal itself, which constituted the use of the money concept. FOA mentioned this as well. Again, from Moneyness:

To understand gold we must understand money in its purest form; apart from its manmade convoluted function of being something you save. Money in its purest form is a mental association of values in trade; a concept in memory not a real item. In proper vernacular; a 1930s style US gold coin was stamped in the act of applying the money concept to a real piece of tradable wealth. Not the best way to use gold, considering our human nature.

There is a key concept hidden in that paragraph. If we look at all of history we find a whole host of materials that have been used to record the money concept—electrum, gold, silver, copper, iron, nickel, zinc, paper, wooden tally sticks, Yap stones, even silicon microchips buried in secure computer servers for the last 40 years or so. But even from the very beginning this was a sub-optimal use of gold in particular, because it had naturally emerged as the leader of the pack of tradable wealth reserve items due to our list of "textbook qualities".



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


Cullen Roche: http://pragcap.com/understanding-moneyness

Modern forms of money are largely endogenous (created within the private banking system), but are organized under the realm of government law. The specific unit of account in any nation deems what money will be denominated as. The government therefore decides the unit of account and can restrict/allow certain media of exchange. The unit of account in the USA is the US Dollar. Organizing money under the realm of law increases a particular form of money’s credibility in the process of transaction. The government also helps oversee the viability of the payments system and can decide what can be used within that payment system as a means of settlement. In the USA the primary means of settlement are bank deposits and bank reserves. Therefore, these forms of money serve as the most widely accepted forms of payment within the money system.

There are different forms of money within any society and they have varying forms of importance and “moneyness”. Moneyness can be thought of as a form of money’s utility in meeting the primary purpose of money which is as a medium of exchange or a means of final payment.

Andrew said...

GrumpysLabastard,

Blondie wrote this over on his blog (which I believe is now offline). It addresses investment in a Freegold world:

Gold as Pure Equity

When (physical) gold is revalued by the free market, in order to give payment in full to the current surplus of claims (dollars), it will represent to its holder a pure equity position.

A pure equity position in what? In human value, no less.

A bold claim? Let's examine it a little.

The quantity of physical gold in the world is fixed. When one owns some physical gold, they own a fixed share of that quantity. It is an undilutable position, unlike currently traded equities, the supply of which is regularly inflated by their issuers to raise more capital, thus eroding the value held by existing shareholders.

Equity held in free floating physical gold is the very definition of “a hedge against inflation”, inflation of every description (except the inflation of real value). Every dilutable item in the world will depreciate against physical gold upon dilution. Gold retains its buying power.

But free floating physical gold (Freegold) actually does much better than this. It is often claimed that gold pays no dividend, no return on investment. Freegold needs no return on investment for the traditionally cited reason - the offsetting of loss to currency inflation, because it automatically offsets inflation anyway.
Freegold likewise has no need to allow for losses incurred through malinvestment or misallocation of capital - being fully hedged against inflation automatically - there is no longer a need for any capital to ever be deployed in anything other than the soundest of productive ideas. Capital written off on “speculative” investments gone sour will be almost non-existent, for two reasons: the lack of impetus for such investing as described, and the severe punishment of losing some of your golden equity in a less than sound venture.

Why will this be regarded a severe loss?

Because the vast majority of investment made will be productive, and to be productive means to be valued by the market. Thus investment will produce new value, exclusively. And the excess of this new value will be stored in the safest possible place... gold.

The owner of physical gold will experience continual capital gain through their pure equity holding for as long as humanity can continue to create value. Pretty big incentive to protect your holdings. Pretty big incentive to create some value in the world yourself, in order to buy in, no matter how meager the quantity, considering the direction of the capital gain and the fact that you can never be diluted out.

Looks a better buy than any other form of equity position currently available... and it’s currently available at pre-float valuation (for a limited time only).

In the absence of a strong dollar (absent soon for indisputable reasons), gold will find its function as the settler of those claims, as the master proxy for monetary value in the collective mind, and the current ridiculous dollar/physical gold exchange rate will be history. Literally.

What are you waiting for?

Blondie

Roacheforque said...

Grumps,
I wish you the very best as you "play the miners'. Perhaps you're right, perhaps the onset of Freegold will only kick gold up to 17-20K and most of the way things work today will work the same way after paper gold is rendered null and void.

I think what you are describing is a large shock to the status quo, not a complete paradigm shift.

Only time will prove which. We shall live to see in our time.

JR said...

P.S.

Cullen: http://pragcap.com/understanding-moneyness

Most financial assets like stocks and bonds are “money like” instruments, but do not meet the demands of money users in terms of having high liquidity or acceptability as a means of final payment. These financial assets are easily convertible into instruments with higher moneyness, but are not widely accepted as a final means of payment. Therefore, their “moneyness” is relatively low.

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

The economy needs the lubrication provided by transactional currency for it to run smoothly. Obviously not all of it is saved and stored as wealth. Only a small portion of the flow of transactional currency is saved. And those that would hope to print in order to buy are only stealing from that small portion that is saved. If you "do the math" you'll find that, in the long run, this is true. And if you separate that saved portion by using a secondary medium that floats in value, then inflationary policy becomes self-defeating to the currency manager. This is how you have a true competing currency. Not two currencies competing for the medium of exchange crown. But a separate medium of savings competing against the medium of exchange for "pole position" on the 'Time=t' axis

[...]

Both of the above quotes get at the idea that, because money is a medium of exchange, it is also, to some degree, a store of value. Even Zimbabwe dollars were a brief store of value, but being a store of value isn't what money is all about. Being a store of value is not its central function—it is derivative of its being a medium of exchange. Being a medium of exchange is money’s essence—what makes money money. This means that, by definition, money’s ability to serve as a measure of value and store of value is secondary.

[...]

Mises: One must not confuse secondary media of exchange with money-substitutes. Money-substitutes are in the settlement of payments given away and received like money. But the secondary media of exchange must first be exchanged against money or money-substitutes if one wants to use them--in a roundabout way--for paying or for increasing cash holdings.

Claims employed as secondary media of exchange have, because of this employment, a broader market and a higher price.

Roacheforque said...

@andrew plus10 \0/

KindofBlue said...

Sir GrumpsLaBastard, et al

Your posts are as thoughtful as they are contentious, and I personally appreciate and welcome your active participation.

I find the logic and precepts of freegold very persuasive, but it's not a known, settled science like, say, the law of gravity.

Let us all remain respectful of respectful discourse.

Peace to all.

Anonymous said...

@Wil,
Agreed, I have always hated that "I'm the only one that knows all the mysteries, if you only knew what I know" BS way of creating a cult following as a business model. It's a low way to create an appearance of authority, credibility and dependence in an audience that trades off of the rubes' own sense of insecurity and lack of understanding in order to garner a nice living for the All Knowing One. A far, far cry from FOFOA.

Sinclair may mean well and be doing the best he can, for all I know, but maybe (to use a metaphor Bertie Wooster occasionally employs when one of his friends or relatives is deep in the soup, in recent days "the pitches are coming a little too fast over the plate" to handle, and he is reeling. If your prior understanding didn't equip you with a means of dealing with the current reality, things are apt to be a bit confusing and pretty damned disconcerting. I don't dislike him, I occasionally listen to what he has to say, but I thank my lucky stars I found this blog many years ago lest I be left grasping frantically for understanding at this late date.

JR said...

Yeah Wil,

Its almost like credibility in the dollar (a credit based system) to deliver real returns had failed, and thus the derivative hedging system set up to extend the dollar's tiemline. If a credit system can't deliver real returns, its credibility is gone and its end is near. Unless you wanna lever up and hedge it further out.

The credit has already been hyperinflated:

FOA: Mr. Traveler: conversely: the "real" inflation I point to is largely a cash phenomenon, where all the past massively over-created credit instruments are bought up by the money making authorities and paid for with printed cash or allocations to the owners digital cash accounts.

As I stated above, the credit hyperinflation has already occurred. It's there, in place as we speak.

Truly, the vast bulk of overall debt assets standing against US credit extending institutions dwarfs our ability to service with real goods. Even at vastly diminished prices. These debt structures are held for further fiat accumulation only. Truly a Western Thought concerning wealth. Once an economy begins to get into trouble, everyone flees these very instruments


FOA: The dollar is at the end of its timeline and our expansion of derivatives was but an effort to save the system for a while.



FOFOA - http://fofoa.blogspot.com/2010/01/gold-ultimate-hedge-fund.html

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

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

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

Anand Srivastava said...

Grumps

Freegold will arrive when countries start to settle their Balance of Payments for the trade they did using gold. This does not include only govts doing it directly, but also citizens selling and buying gold in the open market resulting in gold movement between countries.

Lets see how much the price of gold should be for this particular function.

The worlds GDP is about $65T.

There is about 2000Tons of gold that is sold by the consumers of the world and bought by the producers of the world.

Assuming there is no change in the amount of gold sold. It could increase but not likely to go up wildly, except in the beginning. It will stabilize at some level in the long term.

Assuming 10% gold movement is required for settling the BoP.

So 2000Tons will be worth $6.5T. ie 64Million ounces are worth $6.5T. Or 100,000$/oz.

Now add the gold from the mines. We get somewhere around 50,000$/oz.

So if gold production and sale continues as present we will have the price of gold predicted by FOFOA.

I do expect that in the early period after reval, lots of gold will be sold, causing the price of gold to be lower, except for a large jump at the immediate point of reval. So expect the price to increase over time. Later expect it to rise at a slower rate, but at a higher than inflation rate.

Anonymous said...

JR,

I'm not defending the credit system as a virtuous system. I'm acknowledging it is what is and we have to negotiate with it. The gold/credit cycles will continue and savers will be screwed if not positioned. But rather than fight the wave by imposing a tyranny of the saver ala FG, use the cycle, flow with it, profit from it.

JR said...

Hi Grumpslabastard,

I'm not defending the credit system as a virtuous system. I'm acknowledging it is what is

Do you agree a credit system is based on the credibility of the borrower? Thumbs up or down to this:

And this credit (money!) is not backed primarily by gold, property or any kind of collateral. It is backed first and foremost by the character of the borrower and the credibility of his promissory note. Additional backing (like collateral) can lower the risk of loss through default and can thereby lower the interest rate. But collateral backing is in no way a universal element of credit (the pure concept of money).


http://fofoa.blogspot.com/2012/11/moneyness-2-money-is-credit.html


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

imposing a tyranny of the saver ala FG

I may have not read as much as you have because this doesn't sound familiar to me. I'd love to read more about this idea, can you direct me to where you read about this idea?

I love reading new FOFOA posts, even if they are old one's that are just new to me. I'm so excited Grumps, thanks in advance for directing me to these FOFOA posta I apparently have not read!!

Tommy2Tone said...

Well I for one want a damn space elevator. When do we get one of those?

Andrew said...

GrumpsLabastard,

Your disagreement here is not about the gold/credit cycle continuing or not. The disagreement centers on whether or not the savers will change their perceptions of gold bullion. If they do as expected by most here, there will be no gold/credit cycle, by definition, since the savers will withhold their savings from the money system. If not, not. But the point is the savers get to decide which direction we're headed.

(Now, you can't say that since Freegold will not enable capital investment, it is therefore an absurd outcome and thus can't possibly be where we're headed. Blondie, and others, have argued that there will be just as much investment as is desired and needed under Freegold. You'll have to use a better argument.)

Nickelsaver said...

JR,

He wasn't quoting fofoa, he was quoting foofa.

Roacheforque said...

OMG Nickelsaver,
Is that the flower of understanding atop Foofa's head? The Garden of knowledge they are pedaling through? We may be outmatched!

But seriously, I cannot find any flaws in FOFOA's thinking. I welcome alternate points of view, but they all seem to be extinguished by the logic of FOFOA/FOA/A and of course the likes of Blondie, Aristotle, etc...

That is not to say that they are undoubtedly correct or 100% accurate foretellings of a future we cannot truly know for sure ... only that nothing else I've read or heard "stacks up" (pun intended) and I've read and heard a LOT.

JR said...

Knall, do we really care about apparati for trapping lions in the Scottish Highlands? George Lucas might say yes but the fat man, who IMO deserves the final word, resounding opined that "the audience don't care."

Dante_Eu said...

Oh man, apparently it's pronounced fufa!! Hence, fufua!!!

Edwardo said...

Andrew wrote:

The disagreement centers on whether or not the savers will change their perceptions of gold bullion.

I posit that savers, big and small, but of no modest size as compared to the total, have already have changed their perceptions. But, like a great ocean liner, this ship does not turn except very slowly even though the decision to turn has, from my vantage point, already been made. This description of the state of play no doubt leaves something to be desired, but suffice it to say that we are awaiting the full manifestation of that which is incipient.

Woland said...

So JR, Was JPM right all along? C,C,C? (NOT Civilian Conservation Corps)

Motley Fool said...

I have been around long enough to recognize that Grumps is here to teach us, not to learn, which is why I haven't bothered responding to him. Just something to keep in mind. :)

Knotty Pine said...

@Nicklesaver

Thanks for instigating a particularly heinous flashback. My son (who is now 10) enjoyed that odd show when he was 4 or 5 years old. Thank the Lord he grew out of it quickly!

Dr. Octagon said...

Hi GrumpsLabastard

Why do you believe that there will be no mining under FreeGold? As Bijo explained above, a large tax on profits for a mining company is not the same as shutting mining companies down. In fact, with a high gold price compared to the cost of mining, profits are almost guaranteed – something which is not true today. I would expect mining to continue, and likely increase, even though the majority of the value extracted goes to the state. Countries can adjust their tax rates to increase or reduce the incentive of mining companies to mine, and therefore influence the flow.

I disagree that gold is required to be a part of the monetary system for lending to continue. Lending seems to work just fine today without gold as collateral, yes? A car loan or mortgage can continue to be issued using the car/house as collateral, can it not? You suggest that un-backed loans will not work, and that the currency will no longer work without the demand from savers for bonds/CD's/etc – that a currency can not survive only as a MoE.

You have to admit – currency is a really good MoE. I can use it to buy nearly everything I want, I can pay my taxes with it, and there's a court system in place to enforce contracts that specify it. There's a really convenient electronic payments system for it which lets me buy stuff off the internet, several physical forms (dollar bills, checks) an industry to create it based on my credit worthiness, etc. These will all still be true in FreeGold, and they will not apply to gold itself, which will simply take over the majority of currencies' store of value function. I don't see why you think all of this will collapse without the store of value function. As long as I can still buy gold with currency, that currency gives me access to a SoV if I want it. I don't need the currency to be a SoV directly.

Reality Show said...

"Money....a sub-optimal use of gold." - So elegant.

Edwardo said...

In the meantime, speaking of manifestations, interest rates on U.S. Sovereign debt on all but the shortest end of the curve have exploded higher over the last few days. As always it bears watching. As for GLD, yesterday's addition of physical was almost completely reversed today.

Anonymous said...

In a FG world what would be the calculus for a 30 year student loan? The only collateral the future income of the student. No artificial backstop like Sallie Mae. The underwriter will have skin in the game. Keep in mind this will be after a huge currency devaluation so lenders will be wary.

Is there a market for such debt? Would college cost decline to meet the bid of a cash market? Or only the credit-worthy would go to a much smaller college market? Implications of a smaller educated workforce?

Would such a loan denominated in a soft MoE require a premium to the normal interest rate inputs to account for currency risk?

Would gold outside the banking system lead to more or less financialization? More frequent and higher amplitude business cycles?

Would gold outside the system be hot money especially in today's electronic integrated markets? How long before a trade zone puts up cap controls to settle this hot flow down?

Would having gold in the system as reserves, lent out as collateral, result in a more stable financial market at least for 36-40 years?

tintin said...

Who is buying paper gold these days?

The way POG behaves today seems to suggest somebody is helping to stop it from dropping off the floor.

PPT?

Anonymous said...

Hi Doc Oct,

I've been reprimanded repeatedly for saying gold mining will continue even with increased royalties up to a point. Grades aren't what they used to be and the deposits are far from infrastucture so capex will be high. Govt's will have to be reasonable and not flaky or else nobody will bother with a deposit. The FG crowd wants a static gold stock, ever deflating against world's good/services. They want gold outside the system depriving the economy of good collateral for development. It will take a shrinking economy to entice dishoardment, but since gold's not allowed to be loaned this dishoardment can't be used for long term investment.

The reason the current system is humming along w/o gold is the quadrillion dollar derivative market. This phony insurance is what kept dollar alive a bit longer.

M said...

@ Art

Bankers have the least possible means of screwing us under FG then they do under anything else.

Gold is a savings meduim(money) in FG. no ?

Indenture said...

Grumps: "The FG crowd wants a static gold stock"

Could you please expand on this.

Dr. Octagon said...

Hi GrumpsLabastard - I don't expect the gold stock to be static - I expect it to continue to expand, much as it does today. Having a static gold stock seems neither enforceable nor desirable to me.

The economy doesn't need gold to act as "good collateral for development". As I stated above, we don't need gold to do that today, and we won't need it in the future either. If I have some savings in gold, and I want to invest in some new development, I can simply sell the gold for currency, and hand the currency over to the developer, or use it to buy stocks, or whatever. Why do you keep insisting that gold needs to be used as collateral for this to work, when it seems to have been working fine this way for decades? Also, the "quadrillion dollar derivative market" is a relatively new phenomenon - we've been operating without monetary gold for much longer than we've had the derivative market. I can accept that the derivative market has kept the dollar going longer than it would have otherwise, but probably for different reasons from you.

In my opinion, FreeGold is not that different from today, as far as loans and debt are concerned. Those things are un-backed currency based, and will continue to be so going forward. Your student loan funding example would look basically as it does today, with interest rates related to the current inflation rate, as they are today. This is not the aspect of FreeGold that is interesting, in my opinion.

Reality Show said...

It saddens me to watch Jim beginning to lose it. There have been warning signs for a while, like the golden ticket army thing, telling people to sell their cars, and condemning TA then plastering his blog with it. But I found his innuendo about the FG community tonight to be disturbing. What are his motives? Why promote Fofoa one day and then suggest we may rise up and destroy him another?

I'm going to guess that unlike many blogs the readers here have come to their own conclusions on the probabilities of various outcomes. We do our homework and our convictions don't rely on the opinions of others. We are smart enough to know that we are responsible for our own actions and decisions.

On the other hand, if you're wrong Fofoa I'm going to hunt you down.

Anonymous said...

A couple months ago you guys spanked me for saying miners would not pull it out of the ground for a regulated fee. It seemed the consensus was that was the answer to FOFOA's dilemma: miners wouldn't work for peanuts, hence a static gold stock.

Pursuing this thought of a static gold stock lead me to scenarios where FG unraveled. If the world economy grows how does a shrimp get his fiat savings into gold if a static supply is deflating against this economy? The new wannabe gold savers of a growing economy would outnumber the hoarders that have to dishoard for life events, every other goldholder wouldn't want to part with the growing purchasing power. At what point in a self-reinforcing deflation loop would politics rear its head against gold holders? Hence the mining supply must flow to mitigate this deflationary tendency. Again, the grades are too low and the projects too capex intensive to commit to an ore body for a regulated fee that may change. The royalties have to be reasonable. Smart govt will realize it will get more tax revenue if it allows the big dividends to flow into the economy for the money multiplier effect. Punitive taxation at the mining source would be counterproductive.

Freegoldtube said...

On September 25, 2008 in his post titled "Freegold as a Theory" FOFOA wrote:

"For the theory of FreeGold, the experiment is well underway. The future has arrived, so keep your eyes peeled for empirical evidence. Some of it is already out there.

One way you can tell that a theory might be correct is by viewing it from every possible angle. If it remains logically self-consistent from different angles there is a high probability that it is correct.


There are 360 degrees in a circle. 382 posts later we are going around for a second look.

Go ahead, pick an angle. See the consistency.

Victory said...

That's cool JSMindset is spreading the word, every crumb leading back to the trail helps but can we pay the Captan his respect, just saying....and Clint was in the backdrop no less, ha!

That was a young Blondie to boot - he's on an a whole 'nother intra-sovereign equity level now.

I can't wait for another guest post. Blondie/FOFOA what up?

-v

Aaron said...
This comment has been removed by the author.
michael3c2000 said...

Well looky here! Y'all perk yor ears to this "unexpected meeting", or listen to who's tweeting the loudest May 10th and 11th meeting buzz.
And FOFOA sings on Sunday? ;)
https://twitter.com/search?q=G7&src=typd

michael3c2000 said...

A picture is worth a thousand words, but today animations would be best.
https://twitter.com/hmtreasury/status/332889295205572608/photo/1

michael3c2000 said...

Saudi's preparing to ditch petrodollar?
http://t.co/SLt2hSdHSk
http://gulfnews.com/news/gulf/saudi-arabia/saudi-king-sacks-air-force-chief-1.1181724

And:
http://t.co/A1mdlvZBO6
http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-why-saudi-arabia-might-move-weekend

michael3c2000 said...

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/11_Andrew_Maguire.html
Nice, well-timed interview with Andrew Maguire on many topics.

Dante_Eu said...

@michael3c2000:

That guy "whistleblower" Andrew Maguire is highly suspicious. I remember a YouTuber trying to find some information about the famous "car accident" and "helicopter chase" in London. ZERO (0) traces of it on Internet (and English newspapers). Also, on one PM conference with industry and financial representatives nobody never heard of the guy before, nor where there any records of him working for Goldman Sachs or any other big financial.

And frankly, the name "Andrew Maguire", it sounds made up! You know that scene in the movie, Show Me the MONEY with "Jerry Maguire"...

Also, about his "incredible trading service", if it so incredible, why share it with others? Maybe he is a good samaritan?

At last but not least, my gut feeling says the guy is the fraud, and one can't beat gut feeling. :-)

ein anderer said...

You know someone by the friends they keep.
Emphasis mine.

❝Derivatives (financial instruments whose value depends on, or is “derived” from, some underlying asset) are ***invaluable tools*** for businesses operating in a global environment who must hedge risks associated with market movements and volatility in interest rates and foreign exchange rates, for example. Although certain types of derivatives are as old as risk itself, and have been around for centuries, financial derivatives have become more and more important over the past several decades as globalization has taken hold. As the global economy has moved into a post-BrettonWoods environment, volatility has begun to pose even more severe risks to the profitability of businesses competing in global markets and using global supply chains. The growth in derivatives is a natural response to these risks… —Guild Investment Management

http://www.guildinvestment.com/2013/03/28/march-28-2013

❝The Bottom Line [on Gold]
The transaction costs associated with gold ETFs are often lower than the costs related to the purchase, storage and insurance of physical gold. It is important to research the various costs, fees and associated expenses of each type of investment to determine the investment that is both ***affordable*** and ***suitable*** for your portfolio. —INVESTOPEDIA

http://www.investopedia.com/articles/investing/031913/most-affordable-way-buy-gold-physical-gold-or-etfs.asp

Jim Sinclair is recommending on his blog both companies – and, besides Bloomberg, these two parties only:
http://www.jsmineset.com (left sidebar)

Ken_C said...

Dr. Octagon said:I don't expect the gold stock to be static - I expect it to continue to expand, much as it does today. Having a static gold stock seems neither enforceable nor desirable to me.

I agree with this. I have done some gold mining myself (placer) and it is very hard labor intensive work. At 1600 per ounce it takes a good pay streak to make the work pay off but at 50000 per ounce it won't take many ounces to make a nice income. This will bring out mulitudes of NINJA miners (No Income No Job) to continue the mine supply at some level. Sure I can see how regulations and taxes can change the dynamics of mining but to stop supply altogether is rather a stretch I think.

Anonymous said...

Just reread Glimpsing the Hereafter.

Take a look at those post transition pyramids.

http://4.bp.blogspot.com/-Lbs6NIUapiM/Tyudy9CDOCI/AAAAAAAACIg/K3AEKTJdg1s/s1600/Dual_Pyramids_Zones.jpg

http://4.bp.blogspot.com/-TJ45yYyIN-E/Tyu1o4FrwdI/AAAAAAAACIs/kW0YQbPF8kA/s1600/Pyramids_ex_gold.jpg

See my point about all the real capital being held outside the system? How small investment would be?

"Where’s gold? Who cares? It is a closed, isolated circuit for the savers only. Now (above) we are dealing with only the parts that involve everybody. And it is no surprise that the monetary plane is so relatively small. At least it is no surprise here. A little currency goes a long way. "

Rather than dishoard for lump sum of MoE, what's to stop someone from using gold as collateral for a loan? Pay off the loan with proceeds of a college education or business venture and keep the gold after all? You don't think there won't be a market for that? Oh, right, it'll be illegal. Just like miners will commit to project for a regulated fee.

Mmmhhmm. All that idle capital separate from the physical and monetary plane. Politically stable? Sure, if you like feudalism.

Maybe a more realistic solution would be responsible banking with more stringent capital requirements. A Revitalized Glass-Steagall.

Indenture said...

Grumps: Physical gold will not be static in Freegold.
So we can move past that. Now it appears you are worried that a large chunk of capital will be removed from the investment plane and you link it to Feudalism. Can you explain this?

Anonymous said...

What the FG model tries to do is insulate savers from debtors. The capital impulse would be like a free standing wave in an isolated circuit above the physical and monetary planes. In looks beautiful on the drawing board, but there deeper existential element that is missing--that free standing wave is not stable. The physical and monetary planes will pull on that AAA capital for collateral in one form or another. A scary way of looking at that pile of hoard at max value is that it is a form a MZM, Money of Zero Maturity. If world markets are calm no problem, but if crises arise a portion of this hoard could make it worse as hot money darting in and out of markets. Right now at today's valuation this is not a big problem.

After the reset when gold is a max value alot of investment capital that fled to gold will be at highest potential energy. That inverted pyramid with gold at the top of the smaller monetary zone is not stable. It is like a bowling ball balanced at the tippy-top of a steep hill.

The FG model is alot like what we have today with the debt markets. All kinds of contrivances are needed to maintain debt assets from deflating--ZIRP, QE, falsifying economic data, gates on retirement withdrawls, capital controls, etc. The FG model likewise needs artifices that go against natural economic behavior such as suspending market forces for miners, no gold leasing/lending, and gold used for collateral.

This FG exercise was a valiant attempt to separate debtor from saver, but you really can't do it unless you want to send civilization back 400+ years.

tEON said...

@Dante_Eu
I too had/have doubts about Andrew Maguire... but I thought he showed himself quite well in the CBC documentary The Secret of Gold:
http://www.cbc.ca/player/Shows/ID/2380466502/
just say'in,
GT

Biju said...

Any one have recent data regarding US Trade and budget deficit ?

Indenture said...

Grumps: "The physical and monetary planes will pull on that AAA capital for collateral in one form or another."

I'm sorry but the word "collateral" can not be used in Freegold when talking about gold. Gold is just a store of value. Gold is not collateral. It will not be lent.

"After the reset when gold is a max value alot of investment capital that fled to gold will be at highest potential energy." Sounds like store value placed at the top. I see pure foundational stability and everything else hangs down from this point swinging and swaying.

"The FG model likewise needs artifices that go against natural economic behavior such as suspending market forces for miners, no gold leasing/lending, and gold used for collateral."

Market forces for miners. Like the desire to find the big one? how is that going to disappear? The payoff? Profitable! Cost to Produce+Tax=Total Cost. Total Cost below spot equals Profit.

"unless you want to send civilization back 400+ years. "
Any reason for the 400 years?

ampmfix said...

I like your engineering reasoning Grumps, but I am not sure it is exact, BTW, we are a bunch of HW/SW guys over here.

ampmfix said...

and not forgetting our Lady Mathematician Wendy...

Unknown said...

Thanks Fofoa for an excellent post. I've read most of the site, and particularly enjoy the historical perspective. I may even have a novice understanding of money concepts now.

Deciphering Another's comments and helping us down the "trail" does a great service. I wonder if it might be possible to discuss current events a bit more often. I find myself wondering, what would Another say today?

After all, Another stopped commenting publicly 13 odd years ago. Others have postulated free gold would come online around 2010. At what point do we say they were wrong, or at least working on incomplete information? In 13 years a lot can happen. I tend to think free gold still provides the basis for the next global monetary system. However, maybe certain events need to happen first.

The euro introduction obviously wasn't check and mate. Perhaps it's political flaws weren't foreseen. Or perhaps it was the depth of the current global depression that was missed. Or the quadrillions of derivatives. If Another came out of hiding, my guess is he would say the dollar will be kept on life support until European sovereign fiscal accounts are relatively in balance, and large banks are healthy and stable.

Exactly what that means -- I'm not sure -- but Greece, Spain, Italy (etc) have been basket cases for 5 years and counting with no end in sight. Eventually that will spread to France, UK and Japan. I think the dollar lasts until these "sicker children" resolve first. Otherwise the risks are too great. These are smart, conservative people, who are obviously in no hurry, judging by the euro gestation period of 40 plus years.


Anonymous said...

Hi Indenture and ampmfix,

The fact that gold cannot be collateral in FG is why FG has never happened and why it won't. The fact that collateral cannot be gold and that gold will not have an interest rate is why it is a stillborn model, an intellectual curiosity. Like a stunted universe of the multiverse cosmos that didn't have the right constants for financial life to develop.

Why is it that gold is at the bottom of Exter's pyramid? It's the best collateral. It's payment in full. The last 40 years with gold out of the system has allowed us to forget what a stable banking system is with gold on the balance sheet. Would things get over-extended again? Yes, over time, but you teach your heirs this cycle and roll with it.

Why 400 years? I guess this uber credit cycle started with the Bank of England.

byiamBYoung said...

China watchers- I found this article interesting:

China takes big step towards fully convertible yuan

This bit especially caught my eye:

"Beijing opened the current account in 1996, allowing companies to exchange foreign currencies for trade deals. The central bank put full convertibility on the agenda in 1996, with 2000 as a target date, but the Asian financial turmoil derailed the plan."

Something else was going on as the world encroached upon 2000... now what was that again? Hmmm....

Anonymous said...

Grumps,
I don't think I have a good enough understanding of FG to really attempt to address your assertions or answer your challenges, but I think it is important to distinguish between what a legal regime might provide after the collapse of the $IMFS and what people will actually do. Much like some people never trusted banks after the crash of 1929, it may not make much difference whether some law or international law prohibits use of gold as collateral or prohibits leasing of gold or other gold derivatives, if so many people are burned by the collapse of the gold derivative market that, as a purely practical matter, they will have absolutely no desire to employ gold in that manner, will have an absolute horror of all paper gold, and will convey that sentiment in the form of most urgent counsels to their children. This aversion could easily carry through two generations, seriously limiting the amount of gold available for use as collateral or for leasing even though no law would prohibit anyone from restarting a paper gold system. This is not a consequence of "FreeGold," so much as it is the predictable emotional consequence of the horrendous pain about to be inflicted upon participants in gold deriviatives and those -- family members and others -- affected if not scarred by that.

It is also specious to argue that FG is posited as some kind of forever financial arrangement. I do not recall Fofoa putting any timeline upon the duration of Freegold; it is simply the next thing that appears to be coming. Nothing human lasts forever. FG will have its own lifetime and at some point, just like US politicians forgot (or received enough contributions to forget) the lessons that led to Glass-Steagall, it is certainly possible that that after a couple of generations, people will once again discover the joys of paper gold.

byiamBYoung said...

Amongst all of the financial reporting that gets it so very wrong, this article at least comes close to getting a few things right:

Paper-Gold Holders Flee to Real Metal

Anonymous said...

Sir Tagio,

I happy to hear somebody acknowledge the dynamic nature of this problem. Yes, the 40 year-two generation-Moses' principle.

The common man isn't even in gold, paper or physical. The players that would be burned would be allocated holders in banking institutions and hedge funds playing with OPM suckered into shorting . The bullion banks will be long when the time is right. Yeah, we may never get the Scofieldian meltdown in paper. I would guess we might get a silent default and promises will be to the big players that they'll be taken care of in time. Hey, they pulled off 911 why not a hidden gold default?

The pull to use gold as a reserve asset/collateral will be institutional all the way down from the BIS. Basel III?

To deny gold being used for collateral is like trying to keep water from flowing downhill. To try to make it so via law/regulation would only force it underground. Oh great, we would get unregulated intermediaries to service the market in this function.

Dr. Octagon said...

GrumpsLabastard - I personally don't put much credibility into anything that requires some law to force something to happen that wouldn't happen on its own. I prefer to look at incentives instead, and try to determine what will happen based on that. So I don't see any law preventing anyone from using gold as collateral. This seems perfectly fine to me, at least from a legal point of view.

But what about the incentives for using gold as collateral for a loan, compared to selling gold for currency, and spending that currency? Let's say you have $100k worth of gold, and see what you believe to be a good business opportunity which will take ~$100k to get going.

Option 1: Use the gold as collateral, and get a $100k loan. Presumably you'll have to hand over your gold to the lender so they can ensure it's available if you default, or to some third party escrow company to hold it for the duration of the loan. It's likely you'll have to pay a fee for the holder to insure and keep the gold safe, much as with any allocated account or safety deposit box today. You'll also have to pay interest on the loan. So in summary - you don't have access to your gold, and you're paying fees/interest. If the business doesn't do well, you default, you loose the gold, and your credit rating takes a hit.

Option 2: sell the gold for currency, and use the currency for the business. No escrow/storage fees. No interest fees. If the business fails, you loose what you put into it, but there is no hit to your credit report.

Given the above options, which do you think is the more likely one to be chosen by those with gold who want to invest? I think option 2 is the better option - and no law needs to be passed for anyone to choose it over option 1. It is the natural choice.

There *are* benefits to using collateral for a loan - in particular, you get to use the asset while paying off the loan. For a house or car, this makes absolute sense, since no one wants a house sitting empty waiting for the owner to pay off the loan before they can move in, and the car enables the owner to travel to that job they need to pay off the car loan. But gold has little real-world non-monetary use. Using a car as collateral for a car loan gives the borrower access to a car, but using gold as collateral for a gold loan gives the borrower no benefits over selling the gold.

Another benefit to holding onto the gold would be if you believe that the gold value will increase over the duration of the loan, more than what is lost to fees and interest. FreeGold assumes that gold is relatively stable in purchasing power, in real terms (I won't get into why here). So by definition, this would not happen.

Anonymous said...

Dr. Octagon,

Re: your response to Grumps,

Your presentation makes clear that a person with gold who wants to invest will simply use the gold to obtain MoE and then invest. Gold will flow and will thus be used as capital. But this is a one for one base and I don't think this is where Grumps is coming from. I think he wants gold to be used as a collateral base upon which to LEVERAGE MoE UP so that there is "enough" credit available to build those space elevators. He'll have to speak for himself, but I think he believes that under FG, gold will not be able to be used to lever credit up, thus depriving The System of necessary capital to continue civilization in the style to which we've become accustomed and to build the future, so instead we would go backwards 400 years.

Archer said...



Gramps asserts:

The common man isn't even in gold, paper or physical.

It is almost certainly true that the "common man" (cue Aaron Copland's Fanfare For..) is not saving in gold. The common man in the U.S., and most, if not all of Europe doesn't have the mentality to "save", and a fast dwindling pile of savings to preserve in any event. However, in China, Southeast Asia, India, and much of the Middle East, that assertion is highly debatable. But one need not waste time, and it is a waste of time, engaged in any such debate because the timing of the arrival of freegold isn't going to be decided by, let alone ushered in by, the common man, whoever he is and wherever he resides. The super producers of wealth decide the chief asset of choice in which the world saves. As for the BIS and associated CBs they don't decide the issue either, they are merely the financial technocrats of choice best positioned to implement the new regime that is done at the behest, again, of the super producers. This is a basic tenet of the freegold doctrine with which folks who have a decent grasp of the thesis are well acquainted.

Dr. Octagon said...

Sir Tagio - I don't quite understand that argument. Maybe GrumpsLabastard can clarify it, if this is indeed his position.

MoE seems to leverage itself up just fine today, without gold playing much of a role in the current system. New MoE is created for new loans, re-deposits of those loans increase reserve-ratios, etc.

In the FreeGold scenario, the MoE does not need to leverage up nearly as high as it does today, because there is little need for "savings" to find a place within the MoE. All those savings looking for a place to go, can go into gold instead of leveraging up the MoE to hold them.

Indenture said...

Grumps: "The common man isn't even in gold, paper or physical. The players that would be burned would be allocated holders in banking institutions and hedge funds playing with OPM suckered into shorting . The bullion banks will be long when the time is right. Yeah, we may never get the Scofieldian meltdown in paper."

The common man isn't into paper gold?

We are talking about the dollar collapsing in value.
The dollar is paper gold.
The common man will understand paper gold overnight.

Sam said...

modern banking is not constrained by capital or collateral.

Anonymous said...

Gramps said:

"The fact that gold cannot be collateral in FG is why FG has never happened and why it won't. The fact that collateral cannot be gold and that gold will not have an interest rate is why it is a stillborn model, an intellectual curiosity. Like a stunted universe of the multiverse cosmos that didn't have the right constants for financial life to develop.

Why is it that gold is at the bottom of Exter's pyramid? It's the best collateral. It's payment in full."


Physical gold can be and will likely be used as collateral AG.

Paper leveraged gold? NO, because it wont exist! No more Bullion banks like we have today. Takes care of that little problem! Gold doesn't need an "interest rate" because it's separate from credit and currency. It is payment in full. The (fiat) loan issued with physical gold as collateral will indeed have an interest rate, or what bank would lend without the incentive?

Meanwhile the banking system will function(mostly) exactly as it does today with physical gold playing the role of "The Invisible Man"... There will still be plenty of other forms of collateral once the dust settles to secure loans, etc. Just like today! Weird!


I need a beer


michael3c2000 said...

http://news.goldseek.com/GATA/1368370800.php
Excerpts:

"Pacific Group's Bill Kaye: Gold plunge was an operation by Fed, big banks
By: Chris Powell...

Dear Friend of GATA and Gold:

April's abrupt plunge in the gold price was an operation of the Federal Reserve and major banks to protect the Fed's "quantitative easing" and paper gold shorts that can't deliver the metal they have sold, Pacific Group founder and fund manager William S. Kaye writes in the May market letter of Pacific Group's Greater Asian Hedge Fund.

Kaye, who in January announced his fund's commitment to a major purchase of gold --

http://www.gata.org/node/12150

-- adds that gold exchange-traded funds are being used to manipulate the gold price and essentially are being looted by the banks that are short the metal. He expects paper gold to default this year and the gold price to be reset upward.

By Pacific Group's kind permission, Kaye's letter is posted at GATA's Internet site here:

http://www.gata.org/files/PacificGroupLetter-05-10-2013.pdf "

michael3c2000 said...

ELO - Fire On High [NASA UFO FOOTAGE]
http://www.youtube.com/watch?v=Ewaz0Fzewns&feature=player_embedded

JMan1959 said...

Hey Wily,
I don't think it's that hard to make the case that the US is the sickest child...if oil decides to bid for gold, or the paper gold market unravels, who is going to implode first, in the biggest way--the US, or the PIGS?

KnallGold said...

Grumps, I think I have been misappropriate to you, please accept my humble apologies.

Best Regards,
KnallGold

KindofBlue said...

Sinclair addresses Freegold directly today:

http://www.jsmineset.com/2013/05/12/a-discussion-on-the-end-game-in-gold/

"Sinclair is one smart cookie." - Sir Ender

Roacheforque said...

Br'r Young,
I think that article from THE STREET simply comfirms what both we and OBA have been saying about "cause and effect" and "chicken or egg".

That is not to say that some frightened sheople won't be shaken out of their metal. Some shrinp have a need to convert metal to paper sooner than others ... that is certainly key. Maybe it causes COMEX inventory to rise ... "for a day".

I also think it was more than Cyprus, and what ABN AMRO did was a Cyprus to Giants of sorts.

Whether or not the FED and "co-conspirators" orchestrated additional propaganda-bombs or not is somewhat irrelevant. If they did, they obviously over-shot the mark. But not so far as to break the system.

As Another explained it, even he was not so sure, once the volatility began in the paper gold market, how quickly the dominos would topple, but he did seem to think we'd see 100 dollar intraday swings before the end.

As no one is totally infallible, and to the point made by the commenter who suggested that the additional passage of time and additional compications may have rendered some of the details less predictable, I suspect it could happen before that occurs.

Knotty Pine said...

From KindofBlue link above:

"I do not hold too many of the tangential and political thoughts of Free Gold. Those are products of its new adherents. As a movement gains followers they usually destroy the truth, the teacher, or both."

WTF!!! Mr. Sinclair, what are the "tangential and political thoughts of Freegold"?

This has got to be the most apolitical blog on the web. This is one of the things I like about it!

milamber said...

@KoB,

"Sinclair addresses Freegold directly today:"

Sinclair successfully cuts & pastes a wikipedia article is a more accurate assessment of the legendary traders efforts in this regard.

Milamber

Anonymous said...

KnallGold,

No offense taken. I've got a thick skin from dealing with the public under horrendous conditions. Gold is an emotional subject. When people get wed to an idea and it's challenged rocks are going to be thrown.


As regarding using gold as collateral for a loan, I was thinking of using 50K in gold to take out 100K in dollars. The gold would only be part of the collateral, the rest being the business. The gold could stay where you store it but have a lien on it. Facilities don't exist for this now, but where's there a market for a service...
As the loan balance is paid down or the value of the business goes up, the lien on the gold would go down milligram by milligram. Kind of cool. You could use gold like a central bank.
Plus with gold in the collateral basket it will lead to a lower interest rate and lower any insurance premiums if required. There might be other arrangements such as repurchase agreements or swaps of some nature that could be tailored for the retail market.

The people that read this blog tend to be savers, but not everyone that will flee to gold will be of that mindset. Producers that are not done growing, say like an Apple or Samsung, will want to leverage that gold and it can be done safely. Remember after the reset, the bad actors will be gone. The need to take casino risks will be gone, the world definancialized with a clean slate. Banking and debtors will be more responsible.

milamber said...

Hey Grumps,

Just out of curiosity, what is your response to FOFOA's tractor example?

Milamber

burningfiat said...

FOFOA
A Tribute to the Tangential Thoughts of Another and his Friend

:P

burningfiat said...

Grumps,

Along your latest line of thoughts, perhaps I can interest you in some metamorphosis (one of my favourites)? What do you think?

http://fofoa.blogspot.com/ncr/2009/12/metamorphosis.html

/Burning

Knotty Pine said...

Grumps,
Have you read this lately?

Specifically what is it about the Freegold concept that prevents your loan scenario from taking place without using gold as collateral?

KindofBlue said...

Knotty Pine & milamber

I'm not really endorsing anything in my post other than what I believe is Sir ender's correct observation, that being that Sinclair is a bright guy. I've read Sinclair since '05 and very early on he was talking about what he called the non-convertible gold certificate ratio of gold. Sinclair has employed different language and may make fuzzy his attributions, but much of his thinking as I've understood it has been consistent with ideas discussed in this blog. That said, FOFOA has added immensely to the discussion with his commentaries on Another/FOA. It's also clear that Sir ender's early, pointed questions and observations helped shape FOFOA's thinking.

Is Sinclair trying to get out front of the parade, which I think many here are insinuating? Perhaps, in some respects, yes. And I could care less. I know that for me it was FOFOA's writing on these topics which clarified this subject for me. That simple clarity that FOFOA employs is what attracted me to his writings over those of Sinclair's. The simple rebut to Sinclair is, why does he post this now if he understood it all then?

Also, a hat tip to Ari's contributions, lest I forget (and many intelligent commenters).

Peace

Motley Fool said...

milamber

and that wiki summation is terrible to boot. >.>

Roacheforque said...

Thought for the day:

Oil will always accept payment in gold.

But ... that is not to say oil gives gold value, only that oil has the wisdom to value gold.

Have a pleasant week!

Dante_Eu said...

@Mr. FOFOA:

Hi FOFOA,

I was thinking maybe you can do a post for Mr. Jim Sinclair and his CIGAs. Like you did for Warren B. That would be cool. Maybe even throw in some inverse Technical Analysis showing where gold is going.

While I'm at it, I have one more wish. This one I was thinking to ask you several years ago, so finaly here it is. You know that sovereign wealth fund of Norway? Worlds biggest? It comprise of 40% bonds, 55% stocks and 5% fancy real estate downtown London and Paris. Give or take. No gold yet. As you are aware Norways CB sold all of its physical gold (33 tons) in 2004, because at the time, it was only 1% of the wealth fund and didn't yield anything. I remember reading a interview (2009) with CEO of the wealth fund, Yngve Slyngstads, where he was asked about acquiring gold. He said something like that they already have to much of one commodity (oil that is usefull) so there's no point in acquiring another commodity (ie. stacking gold that collects (yield) dust).

So what would you do if you were in his shoes? Keep doing business as usual? Change something? Acquire some gold, and if so, how and why?

While I can, I have a third wish also. There's allways 3 wishes. But this one I will keep for my self. It has something to do with the other two. :-)

Thanks in advance\Dante_Eu

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

Dear Freegold detractors. I don’t speak for anyone, but I think it is safe to say that many on this site welcome freegold. However, very few of us are advocates for it in the sense that we don’t plan on marching in the streets with picket signs and getting the word out in order to gather enough votes to usher in freegold. Our studies have instead led us to believe that freegold is something that has been folded up deep into the blanket of time and will soon unfold before our eyes. We are more like historians asking questions and trying to dig up the real financial history of the world so that we can plan for what is coming in the future. A man and his friend (most obviously on the inside) gave us some very interesting information years ago and all of their words have withstood the test of time. Without these original cryptic thoughts and the great men that have made them all understandable for the rest of us, we would all be caught off guard by what is coming next. Instead we have been lead down trails of understanding worth far more than the gold in our safes.

At its core, believing in and understanding the concepts of freegold, and wanting them to happen, are mutually exclusive. Learning about it with an open mind doesn’t mean you are for or against it. This blog isn’t designed to start a movement. Shouting out that we “want something or are pushing for something” less pure than your own ideals just makes you look ignorant.

MatrixSentry said...
This comment has been removed by the author.
Sam said...

1 of 2

When it comes to the gold of nations I try to “think like a Giant” as much as possible. Though there are so many good ones, that post really did wonders for me when it comes to thinking about how the world would work for Giants wanting to trade amongst each other. That and “It’s the flow stupid” give me a very non-shrimp view of the “gold of nations.”

For instance for a shrimp it is important to gather gold before the revaluation whether you are a producer or a debtor. By following in the footsteps of Giants you are in for a real windfall. You will essentially have the wealth of a great producer whether you were one or not. What a wonderful opportunity =)

But how will that work for nations. Should a nation that is aware of gold’s real value rush to acquire it before the revaluation? Should they do whatever it takes including war or theft to get as much gold as they can? My answer to that is absolutely not! I think when it comes to nations and their gold things will work much differently than for us shrimps and it will require us to block out the distractions from our shrimp minds to understand.

This was explained very well in “it’s the flow stupid.”

Currently gold is not functioning as it will in the future and one nation (United States) gets to be the reserve currency and have both stable purchasing power in gold and be a net consumer forever. However here is how I think things will play out for all nations when freegold finally unfolds before our eyes:

Below are the four possible situations a nation could find themselves in. The question is: If they knew what’s coming, should they frantically being trying to accumulate gold prior to revaluation?

1) Net producer/lots of gold = Accumulating a bunch more gold prior to revaluation will do little for your nation. You already have a lot of gold and because you are a net producer more and more will come to your shores after the revaluation. This will drop the price of gold and create less of an incentive for your people to produce and save and more of an incentive for your people to spend and consume. Eventually you will find a balance and enjoy more consumables in your country.

2) Net producer/little gold = Accumulating a bunch of gold prior to revaluation will do little for your nation. Though you have little gold you are a net producer so gold will quickly come to your shores after the revaluation. This will drop the price of gold and create less of an incentive for your people to produce and save and more of an incentive for your people to spend and consume. Eventually you will find a balance and enjoy more consumables in your country.

3) Net consumer/ lots of gold = Accumulating a bunch more gold prior to revaluation will do little for your nation. You already have a lot of gold and because you are a net consumer gold will quickly leave your shores after the revaluation. This will raise the price of gold and create more of an incentive for your people to produce and save and less of an incentive for your people to spend and consume. Eventually you will find a balance and enjoy more jobs in your country

4) Net consumer/ little gold = Accumulating a bunch of gold prior to revaluation will do little for your nation. Because you have little gold, and because you are a net consumer, gold’s scarcity will give it great value and incentivize your people to produce and save after the revaluation. As you start producing your nation will enjoy more jobs and gold will flow onto your shores. Over time this will eventually cause the price of gold to drop and create less of an incentive for your people to produce and save and more of an incentive for your people to spend and consume. Eventually you will find a balance.

Sam said...

CONT 2 of 2

Ender & Wil mentioned in the comments that it is likely that there are some Giants that are more interested in seeing gold go where it needs to go, and less interested in accumulating gold for themselves. This is Super Giant type thinking. However when you put your GIANT cap on it makes sense to me. If you run a nation, or a panel of nations, what you really want is fair trade, balance, and harmony amongst trading partners. It makes everyone’s life better.

With this type of thinking I can’t help but notice that Gold is going to places like China, India, Germany, and oil nations. Is someone getting gold to where it needs to go prior to revaluation? Can you see why any nation would simply want gold to go where it needs to go and not be interested in stealing it or accumulating it with their currencies when it is not deserved? Less gold means higher values for savers and (soon) more jobs. I can certainly think of a nation or two that could use that ASAP. More jobs will keep politicians in power not more gold.

When we think back to what FOA taught us about people in antiquity, they valued gold but they didn’t want to keep it long. Instead you wanted to trade it for something useful as soon as possible. It’s hard to think this way as we all want to “save”and invest in our modern world. I think nations still think the way our ancestors did. Stacking up gold bars means you are giving your neighbors your stuff and you have to wait until later to get something in return. Sure gold is great for keeping score but eventually you want to trade that gold for some stuff of your own and the sooner the better. You aren’t interested in stacking it forever and feeling wealthy like shrimps. What you really want is balance.

Indenture said...

Grumps: I was wrong. Gold can be used as collateral but the loan can not be denominated in ounces.

milamber said...

@KoB,

Sinclair may be a bright guy, & I am trying to follow Sir Ender's advice, but The Legendary Trader, Jim Sinclair (TLT,JS) is really pissing me off.



I accept your word that he was talking about "the non-convertible gold certificate ratio of gold". But I have a few questions for you (or anyone that Follows TLT,JS):

Has he ever used the term "Freegold" "Free gold" or any other derivitive spelling before Apr 2013?
Has he ever discussed the link between oil & gold before Mar/Apr 2013??
Has he ever discussed how the ECB balance sheet is structured, particularly its MtM Gold entry before Apr 2013?
Has be ever explained how the differing factions are structured (the ECB/BIS "old money" & the $IMF)?
Has he explained the backstory for how/why the Euro was created?

I could ask many more questions, but I think the basic point has been made.

IMO, TLT,JS didn't "embrace" Freegold until his latest bottom call blew up in his face & he was finally confronted with the fact that he doesn't know WHY gold is acting the way it is acting.

And other than A/FOA/ARI/FOFOA, who else has been discussing a viewpoint on gold that they call Freegold?

I don't know of any other school of thought that uses that term.

Well, I hate to break it to TLT,JS, but the Freegold school of thought says that the miners are TOAST! So if you embrace the price call by FOFOA (when in actuality you should ignore the price and understand (as Ender said) gold's FUNCTION), then you damn well better understand what the revaluation means for the miners. And if you understand it, then have the intellectual honesty to communicate the ramifications of that understanding to your followers.

Sorry for going off on TLT,JS, but like I said, the guy is really pissing me off right now.



Milamber

p.s. The official description of FOFOA's writing is not simple. It is "wooly". :)

milamber said...

@ john

re: Martin Armstrong being on Freegold's "side"

IMO, I wouldn't recommend thinking of Freegold as a "side" that someone must be on or against.

Rather, think of FG (as defined by the writings of A/FOA/Ari/FOFOA) as a lense with which to view gold and how it relates to "human action" in the world. Past. present, future:

1. Learn about the IMS past and understand the different roles gold has played in it over the millennia.

2. Understand how the current IMS operates and why it has to change.

3. Speculate as to the most probable monetary future, AKA FreeGold, Reference Point Gold (Euro/RPG), or my favorite descriptor, CrackWhoreGold (CWG)
http://fofoa.blogspot.com/2010/10/one-tin-soldier.html?showComment=1287467362163#c3464507585098634123 (I hope that doesn't offend TLT,JS, like Daisy Duke did)


Now, with that said, based on my reading of the "analysis" of Freegold that MA has done, it is abundantly clear that MA doesn't know what in the hell he is talking about when he critiques Freegold theory.

Other than that, he is solid.

Milamber

milamber said...

@ TF,

"and that wiki summation is terrible to boot."

Yeah, but Wikipedia doesn't allow you to use anonymous sources (which I agree with).

So, until Wikileaks finds documents from the late 90's through the 2000's corroborating Another or FOA (or maybe they come out publicly??), the Wikipedia entry on Freegold will be as structurally solid as a Martin Armstrong Freegold symposium emceed by TLT,JS

Milamber

M said...

Grumps said "This FG exercise was a valiant attempt to separate debtor from saver, but you really can't do it unless you want to send civilization back 400+ years. "

So resetting the US debt ponzi is the answer ?

You must be a staunch Keynesian if you think that the US debt and spending pozi is keeping the world from the stone ages.

Don't you think that it would be better for the next 400 years to have excess savings the world over, be stored in something of real value ?

M said...

Art, you are a clueless moron.

You say "Freegold says we should only use "worthless tokens" as money, NOT gold.

Bankers can print their "worthless tokens" and buy your gold."

Would you sell your gold for Argentian Pesos ? Why doesn't the CB of Aregentina buy up the worlds physical if it is possible ?

Under freegold, all currencies have the reputation of the Argentin Peso. All currencies are simply a transaction medium. If you hold your savings in gold, it doesn't matter how much the Agentin Peso depreciates because your savings (gold) will hold full value.

KindofBlue said...

Sir milamber

A football sportscaster can make a living if he can convincingly say in every game "That's what I've been sayin' all along... you gotta play defense and be able to run and throw that ball to win in this league."

Yes, that is Jim Sinclair, TLT.

Your questions are all valid and well grounded. That said, there is valuable information that comes through his free site. If he imagines himself solely leading this pack then that's his issue. I learned some from Jim, but far more from this forum.

The credit he is due is that he was asked, and did, unwind the Hunt's mega-silver position when they got in trouble. My phone didn't ring. "Smart cookie", as Sir ender aptly put it.

Peace

JoyOfLearning said...

Thank you RJ Padavona for your great read. I'd love to hear also http://www.youtube.com/watch?v=6vvwxBp_QKo as The Debtors and the Savers is probably the post that made the most sense to me (and the ant colony superoganism), however in Germany it seems to be banned.

Naughty Slumdog said...

FOFOA,

I don't know if you checked this out ... the philosophy begins and ends in common practice, isn't it ?

"Are Treasuries money good? Yes. But are they good money? Most assuredly not, when current and future haircuts are considered."

http://europe.pimco.com/EN/Insights/Pages/There-Will-Be-Haircuts.aspx

All the credits to the guys that have guts for such statements !

Freegoldtube said...

What is Freegold?

ein anderer said...

Here is a small summary of Freegold from the perspective of ordinary Joe:

Freegold: Able to save without any need to understand Futures, Options, Bonds, Banks and Currencies. No need to understand Derivatives. Because they do not exist anymore. »Saving for the rest of us.« Easy, simple, natural, beautiful. Some coins, some bars, that’s it. No struggling with risks anymore. Saving for living instead living for evaporating savings.

Tommy2Tone said...

Freegold is the time when there is no longer credit denominated in Gold. By being unshackled from that, physical gold is free to return to the center of the monetary system where it will evaluate all currencies. Where it is the reference point for value. Physical gold will be freely bought and sold by all currencies- allowing the user to completely exit the monetary system by holding physical gold which will retain its purchasing power for however long one holds that physical gold. It is the realization that physical gold is a wealth asset par excellence.

Tommy2Tone said...

And I decided to bring Supergirl back.

Indenture said...

Freegold is what happens after the current Dollar International Monetary System collapses under it's own weight and pure fiat currencies bid for unencumbered gold.

Anonymous said...

@Jojo said;
“allowing the user to completely exit the monetary system by holding physical gold which will retain its purchasing power for however long one holds that physical gold.”

That is until you liquidate (or exchange) gold and need to pay the capital gains taxes.

Everyone on this board needs to read this article.

http://danielamerman.com/articles/GoldTaxes1.htm

Please explain to me how he isn’t 100% correct under the current state of affairs?
Now ‘if’ gold becomes some un-taxable international money used to settle trade imbalances at a significantly higher $/oz then yah for us gold bugs but that is really the trick is it not? Under the current paradigm gold as ‘just’ a commodity is taxed more heavily than a sack of hammers for example.

MatrixSentry said...

Every take on Freegold will be different. Some definitions resonate better than others depending on one's perspective. Here's mine:

Freegold is when physical gold becomes the focal point for reserves (savings), from the household level to the central bank level. It is defined as gold free of fractional gold banking and other gold derivatives that create false gold supply in the form of paper claims (credits) for physical gold. Demand for gold is met solely by physical gold supply.

Physical gold and gold credits are no longer considered to be the same thing. The focal point for savings (reserves) shifts from credit (someone else's debt) to payment in full, and as it pertains to gold, from paper gold to physical gold in possession.

Also, please do not feed the Troll. His posts will be removed in short order.

MatrixSentry said...

jojo,

I like Supergirl! Thank you!

tEON said...

Freegold defines a paradigm perception-shift in money's 'Store of Value' function. This provides a pre-ordained, and the least volatile, adjustment to the severely delayed stabilization to balance the, currently unsustainable, monetary system at its core. The present dis-proportionate functioning of currencies can only be resolved effectively with gold at a floating rate devoid of the marginalization forces of derivative paper constructs. Physical gold hence becomes 'free' from the encumbrances of the Bullion Bank fractionalization practice and can be used to settle payments, in full, both on a local and international scale.

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

@freegoldtube

What is Freegold? Hmm.. Well, it's been 5 years of description here, 4 in the archives and we're still flushing aspects of it out...

One thing I'm sure it's not: it's not Sinclair's "free gold" where he tries to make the concept his own now by cherry picking pieces of the whole as discussed by FO/FO/A.

Ok, on to my summary (the facets that I consider crucial at least):

"A monetary system in which final transaction settlement from savings all the way to international trade is done in a medium that does not interfere with the price transmission mechanism in the real economy.To work, that medium cannot be debt based, and must already be a focal point of the super-organism: gold."

Aquilus

burningfiat said...

Freegold? Here's my try:

Freegold is the return of "advanced" paper savers to a natural state of appreciation of physical gold for savings and final payment. It will coincide with first depreciation, then collapse of excessive promises in the current financial system. All monetary institutions and governments will thenceforth be forced to accept that temporal performance of paper instruments will be measured in gold. Gold's role as savings/reserve and final payment will function on all levels from intrapersonal to international.

/BF

Ender said...

Sir Sam,

Thank you for sharing.

I would like to encourage you to investigate the intricacies of your four points after contemplating the following:

Which is more important to the giant, gold or currency?

Why would a giant hold gold?

Ender

Tommy2Tone said...

spaul67 said...
@Jojo said;
“allowing the user to completely exit the monetary system by holding physical gold which will retain its purchasing power for however long one holds that physical gold.”

That is until you liquidate (or exchange) gold and need to pay the capital gains taxes.


Spaul- What about this line further down:

"Physical gold will be freely bought and sold by all currencies-..."

That rules out taxing it doesn't it?

Ender said...

Dear Forum,

Does anyone have contact with the person(s) making Freegold videos? If so, I would like to suggest:

1) Always offering search phrases at the end or beginning of the video
2) Consider placing links to multiple freegold supportive sites below the video

Ender

Tommy2Tone said...

Taking a stab at Ender's questions:

Hi Ender,
I would think a (working?)currency is more important to a giant and a giant holds gold because it's the best place to park all that excess without disturbing things- i.e. cornering other markets.
A Super producer would like things to be efficiently working (a good currency) so when he comes home at night and reaches into his pocket, all that loose change is what he converts to gold before chucking it into the drawer.

Unknown said...

@Spaul67

A couple of questions.
How does the govt know what you paid for your gold?
How does the govt know what you sold if for?

Aside from a few exceptions, gold transactions are not recorded or reported.

If at some point it is made illegal to buy/sell without reporting, how do they account for all purchases made before reporting was required?

It would just drive the market underground. The gold will flow.

Ender said...

Sir jojo,

That is a good start. What would the giant be disturbing and why would the giant care?

You’re second line of thinking… Why would a Super Producer convert into gold rather than simply holding the currency?

I would like to add one more small question. Why is it so important for the ants to collect gold?

Other activities call.
Ender

Motley Fool said...

NS

I will submit my last blog post on the subject as my entry :

"FreeGold : A economic regime whereby the functions of money are split over multiple mediums. These mediums are freely exchangeable at a floating exchange rate and contracts are only enforceable in the Medium of Exchange."

TF

burningfiat said...

Sir Ender,

I like how you always enter, throw a few Socratic questions and then leave again :D Really powerful method! Let me play...

What would the giant be disturbing and why would the giant care?

FOFOA has explained this many times. If the giant saved in industrial commodities, he'd be disturbing the industries relying on that commodity. If he saved in currency it would be destabilizing the system in the long run. Both things are bad for business! Gold and other useless stuff are the only way to go for large savings.


You’re second line of thinking… Why would a Super Producer convert into gold rather than simply holding the currency?

I would like to add one more small question. Why is it so important for the ants to collect gold?


Let me take a stab at a single answer for both your questions: Because final settlement in the ultimate focal point of wealth is better and morally superior than hoarding promises! Promise hoarding will eventually turn into tears, history shows this!

farmersteveg said...

Comments concerning sudden urgency from Fed to "taper" QE as it might pertain to rush for physical worldwide along with depletion of inventories (GLD and Comex)??
Not to mention unannounced G-7 meeting?

Freegoldtube said...

Ender,

What links and/or search phrases would you suggest?

http://www.youtube.com/user/freegoldtube/about

Anonymous said...

Tom R said...

“If at some point it is made illegal to buy/sell without reporting, how do they account for all purchases made before reporting was required?”

It’s ‘against’ existing law to sell gold and ‘not’ report the taxes right now. So if you want to break the law then go ahead at your own risk, but Freegold isn’t about breaking the law. Freegold is about the law ‘allowing’ gold to become the focal point for international trade settlement and thus opening up a savings vehicle that will resided ‘outside’ all governments’ system of taxation.

Now I could still see some modest charge for converting from fiat to gold and gold to fiat still being in place but it wouldn’t come anywhere close to the level taxation via inflation that is in place for ‘all’ other assets right now, including gold.

That is the biggest problem I can see for Freegold, it provides a tax free haven for savers the world over, and yet it’s those very same savers the governments’ the world over need to steal from on a daily basis for the survival of the global ponzi scheme which is likely coming to end in the not too distant future.

My sense is that if Freegold occurs it all it be forced upon the existing global monetary/taxation paradigm which won’t go quietly into that good night I bargain.
You also hit on another interesting point, namely that gold represents a way to launder wealth via mines. So perhaps the actually amount of from the ground new gold flowing from mines isn’t as significant as we think it is? I could easily see the government using this as pretext for outlawing gold just like how they are attempting to use the same with regards to bit coin. The fact that gold also just so happens to be the perfect antidote for all things ponzi is just icing on the cake.

ChrisF said...

Buy-Sell spread for physical gold.

In the future Freegold scenario I think it will be important that the physical gold buy-sell spread is low, like extremely low. One of the main advantages of 'paper' markets are the very low spreads.
No way that grannies or companies or countries are going to be saving in physical gold with a buy-sell spread of say 3-5% as per today.
Even 1% is far too high IMHO. This point will need to be addressed.
Comments?

tEON said...

It’s ‘against’ existing law to sell gold and ‘not’ report the taxes right now.

Perhaps this should be rephrased:

It's against the law to sell gold and not report THE PROFIT in your taxes. As you are with any 'investment'.

But what we are talking about with FG is a massive paradigm shift... probably after significant hard times. Look at China - the citizens are encouraged to buy Gold. This is what life will be like under Freegold, IMO. The handful of big Miners still existing will be in government controlled hands or heavy taxed. Of course, they won't be allowed to control the 'new' printing press. Governments will encourage 'saving' in Gold by the public. As your country currency weakens, your Gold flows out, and you are more apt to exchange/spend/convert it. A strong currency encourages an in-flow of Gold. Governments steal through inflation and taxation - because they are ALL broke. Do you think they will be 'broke' in FG?

My sense is that if Freegold occurs it all it be forced upon the existing global monetary/taxation paradigm which won’t go quietly into that good night I bargain.

You bet it won't... I mean, it isn't, but the change will be there.

RJPadavona said...

I have a few customers who are somewhat interested in the economy and understand that the current system is unsustainable. When I try to explain to them where we've been and where we're going, I use Jelle Zijlstra's "monetary cosmos" quote as the basis for my summary:


As things stand now, the US dollar is at the center of the monetary system. The valuation of everything revolves around the dollar just like the planets revolve around the sun. This system has been in place for a long time and is in its last days. 

There's a reason governments and central banks hold massive amounts of gold as reserves. They hold gold for the day when simply printing money no longer allows them to kick the can down the road any longer. When that time comes, all those gold reserves will be revalued, the world's currencies will be devalued against those reserves, and we start all over again. 

Then gold resumes its place at the center of the monetary system and the valuation of all currencies revolve around it instead of the US dollar.

This is Freegold. Save accordingly.

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

here's my take.

FreeGold reconciles the stability of the
Gold Standard with the flexibility of the FIAT regime through seperating the Medium of Exchange and the Store of Value, thus creating a global peace-mongering monetary system with the potential to last a millenium.

Aaron said...

A personal message from FOFOA up today on the front page of JSMineset.

http://www.jsmineset.com/2013/05/13/free-gold-the-end-game-now-in-process/

Knotty Pine said...

Freegold is physical gold freed from paper. Gold is valued by the superorganism for it's utility as a store of value.

Fiat/credit finds an equilibrium with gold utilized as a wealth reserve.

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